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37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Wednesday, September 24, 2003

1535

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.))

Mr. Richard Paton (President and Chief Executive Officer, Canadian Chemical Producers' Association)

1540

The Vice-Chair (Mr. Nick Discepola)

Mr. Timothy Meyer (President, Sault College)

1545

1550

The Vice-Chair (Mr. Nick Discepola)

Mr. Donald K. Johnson (Director, Toronto General & Western Hospital Foundation)

1555

The Vice-Chair (Mr. Nick Discepola)

Mr. Roy Culpeper (President, North-South Institute)

1600

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer (Edmonton—Strathcona, Canadian Alliance)

1605

Mr. Richard Paton

Mr. David Podruzny (Senior Project Manager, Canadian Chemical Producers' Association)

Mr. Richard Paton

1610

Mr. Rahim Jaffer

Mr. Donald K. Johnson

Mr. Rahim Jaffer

Mr. Donald K. Johnson

Mr. Rahim Jaffer

The Vice-Chair (Mr. Nick Discepola)

Mr. Gary Pillitteri (Niagara Falls, Lib.)

1615

Mr. Donald K. Johnson

Mr. Gary Pillitteri

Mr. Donald K. Johnson

Mr. Gary Pillitteri

Mr. Donald K. Johnson

Mr. Gary Pillitteri

Mr. Donald K. Johnson

Mr. Gary Pillitteri

Mr. Donald K. Johnson

Mr. Gary Pillitteri

Mr. Richard Paton

1620

Mr. Gary Pillitteri

The Vice-Chair (Mr. Nick Discepola)

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

Mr. Timothy Meyer

Ms. Maria Minna

1625

Mr. Timothy Meyer

Ms. Maria Minna

Mr. Timothy Meyer

Ms. Maria Minna

Mr. Timothy Meyer

Ms. Maria Minna

Mr. Roy Culpeper

Ms. Maria Minna

1630

Mr. Roy Culpeper

The Vice-Chair (Mr. Nick Discepola)

Ms. Maria Minna

The Vice-Chair (Mr. Nick Discepola)

Ms. Maria Minna

Mr. Roy Culpeper

1635

Ms. Maria Minna

Mr. Roy Culpeper

Ms. Maria Minna

The Vice-Chair (Mr. Nick Discepola)

Ms. Sophia Leung (Vancouver Kingsway, Lib.)

Mr. Timothy Meyer

Ms. Sophia Leung

1640

Mr. Timothy Meyer

Ms. Sophia Leung

Mr. Donald K. Johnson

Ms. Sophia Leung

Mr. Donald K. Johnson

Ms. Sophia Leung

1645

The Vice-Chair (Mr. Nick Discepola)

Mr. Roy Culpeper

The Vice-Chair (Mr. Nick Discepola)

Mr. Tony Valeri (Stoney Creek, Lib.)

Mr. Richard Paton

1650

Mr. Tony Valeri

Mr. Roy Culpeper

Mr. Tony Valeri

Mr. Donald K. Johnson

1655

Mr. Tony Valeri

Mr. Donald K. Johnson

Mr. Tony Valeri

Mr. Donald K. Johnson

The Vice-Chair (Mr. Nick Discepola)

Mr. Donald K. Johnson

1700

The Vice-Chair (Mr. Nick Discepola)

Mr. Jose Kusugak (President, Inuit Tapiriit Kanatami of Canada)

1710

1715

The Vice-Chair (Mr. Nick Discepola)

Mr. John Anderson (Vice-President, Research, Canadian Council on Social Development)

1720

1725

The Vice-Chair (Mr. Nick Discepola)

Mr. Robert South (Government Relations Coordinator, Canadian Alliance of Student Associations)

1730

The Vice-Chair (Mr. Nick Discepola)

1735

Mr. Robert South

The Vice-Chair (Mr. Nick Discepola)

Mr. Rahim Jaffer

Mr. John Anderson

The Vice-Chair (Mr. Nick Discepola)

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP)

Mr. John Anderson

1740

Ms. Judy Wasylycia-Leis

The Vice-Chair (Mr. Nick Discepola)

Ms. Maria Minna

Mr. Robert South

The Vice-Chair (Mr. Nick Discepola)

CANADA

Standing Committee on Finance

NUMBER 071

2nd SESSION

37th PARLIAMENT

EVIDENCE

Wednesday, September 24, 2003

[Recorded by Electronic Apparatus]

¹ (1535)

[Translation]

The Vice-Chair (Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)): Pursuant to Standing Order 83(1), we continue our pre-budget consultations.

Today we are pleased to welcome from the Canadian Chemical Producers' Association

[English]

Mr. Richard Paton, president and chief executive officer, as well as David Podruzny, senior project manager. From Sault College we have Mr. Timothy Meyer, president. From the Toronto General & Western Hospital Foundation we have Donald K. Johnson, director; and from the North-South Institute we have Mr. Roy Culpeper, president.

The format, gentlemen, is roughly seven minutes of presentations, please, so we can leave ample time for exchanges and questions.

Maybe we can start in the order I presented you. First will be the Canadian Chemical Producers' Association.

Welcome.

Mr. Richard Paton (President and Chief Executive Officer, Canadian Chemical Producers' Association): Thank you very much, Mr. Chairman. Merci beaucoup.

Canada's chemical producers call on the standing committee to continue its good work and to focus on achieving a measurable advantage for Canadian business to attract new capital and jobs to enhance our quality of life and prosperity. CCPA was very pleased to see that some of the recommendations of the finance committee were finally incorporated in the last budget, particularly the recommendations with respect to the elimination of the capital tax. CCPA is still pursuing that goal with the provinces.

I might add, just on a personal note, I find your reports every year to be some of the best analysis of our budget challenges and the way ahead that we have in government today.

Canada's chemical producers would like, however, to alert the committee to what we consider to be a disturbing trend that will affect Canada's economy, manufacturing industries, and resource industries, and will have profound implications for public policy and tax policy. Notwithstanding the good performance of the Canadian economy, there are strong trends indicating that investment and growth are shifting from North America and Canada to far east locations, particularly China and India.

Some committee members may already know that Ireland has now surpassed Canada as the largest exporter of chemicals to the United States. The major reason for the growth of their industry has been an 11% corporate tax, which I believe has been there for 20 years, and a clear government focus on this sector.

Some industry groups have summed up the challenges Canada faces with these words: the manufacturing floor is moving to China. This trend is not only shifting investment away from our country; it is resulting in price reductions and making it harder and harder for companies to compete.

One of the major reasons for this challenge is the increase in energy prices in our country, which results in huge input cost increases for many chemical companies when prices cannot be adjusted upwards. To respond to this challenge and maintain our prosperity and jobs, Canada needs to ensure that it has the best possible investment environment for industry. This means that Canada must maintain balanced budgets, focus on improving our performance in areas such as smart regulation, and make further strides to create a very competitive tax system. In addition, we need better government policies on a national basis in areas such as energy to ensure that we are able to continue to produce products at a reasonable price in the context of the world market.

The world is not standing still, and Canada must be both vigilant and flexible. The U.S. is considering further corporate tax relief. Capital investments in new, environmentally friendly manufacturing and processing equipment are needed, and Canada needs to improve its share of foreign direct investment, which has slipped in recent years.

Based on that overall economic analysis and these challenges, I have a few suggestions for the committee to take into consideration as it prepares its input to the budget.

First, CCPA urges that care be taken to keep spending increases to no more than GDP growth, as a long-term goal. Recent double-digit spending increases are not sustainable. Debt reduction must continue to be a priority, and now is not the time to open the doors to further unrestricted spending.

Recent emergencies and natural disasters and keen competition for scarce capital from our trading partners have reinforced the need for continued fiscal prudence to leave room and flexibility in the future. Canada should focus on policy areas such as energy policy and smart regulation, which can improve Canada's competitiveness.

Second, the corporate tax burden in Canada is still too high. As fiscal room permits, the corporate tax rate for manufacturing and processing should be further reduced to 17%. The time has come to eliminate the federal corporate surtax, which of course was put on for deficit reasons many years ago. It's time to acknowledge that it has done its job and should not be there any more.

Third, CCPA urges this committee to recommend a broad review of capital cost allowance categories and rates and suggests a return to a two-year write-off to clearly advantage Canada as a place for new investments. The CCA also offers a prime opportunity to encourage more investment in environmental technologies in response to concerns such as climate change and air quality.

Fourth and finally, there are a number of administrative improvements to the corporate tax process, some recommended in the past by the Technical Committee on Business Taxation, that should be undertaken now. First among these is a need to change the treatment of losses between members of the same corporate group. If you have questions on that, I'm sure Dave Podruzny can answer them.

¹ (1540)

In conclusion, the CCPA believes that the federal approach to the budget in 2004 and future years has to take into account the substantial economic challenges we're going to face as a country as global competition increases. We need to address in a coherent way a range of policy issues such as energy, corporate tax, acceleration of the capital tax reductions, and areas like smart regulation, to put us in a position where we have the maximum and best investment climate for growth, investment, and jobs for Canadians.

Thank you very much. Merci beaucoup.

The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Paton.

We'd like now to go to Sault College and Mr. Timothy Meyer. Welcome.

Mr. Timothy Meyer (President, Sault College): Thank you very much, and thank you for this opportunity.

I represent one of Ontario's 24 publicly funded community colleges. Sault College is located in Sault Ste. Marie in northern Ontario.

A point I would like to bring to this committee is that often community colleges are viewed as the second tier of post-secondary education organizations in Canada. I'd like to emphasize that our contributions to the lives of our students, our community, the economy, and our nation are often overshadowed by universities. I'd like to support the idea that colleges play a vital role in shaping the future of what we want for our children and our country.

Today I wish to leave you with some thoughts about Canada's colleges and our ability to make the future even better for our citizens. My comments will reinforce the themes identified in my formal submission. I'll move through these points fairly quickly, and I certainly welcome your questions and comments.

Members of this committee are well aware of Canada's changing demographics. An aging population presents our society with many challenges, some related to health care and others to immigration policies. We also must understand and effectively manage Canada's human resources. These challenges grow daily as ever larger numbers of baby boomers enter retirement. Put simply, in many sectors of our economy the number of new entrants or replacement workers is not large enough to replace those leaving the workforce, leading to significant shortfalls in the number of replacement workers. This will impact our businesses' and industries' abilities to retain the levels of productivity, profits, and employment. It also leads to a decline in their abilities to compete with the world economy.

I would suggest and propose that we must work together to use all the resources available to ensure Canada has the skilled workers it needs to work well into the future. I'd also propose that the federal government can play an effective and active role in helping colleges to become greater contributors in addressing the challenges of our aging society.

Sault College provides ready examples of both effective collaboration and new opportunities. I'll present that in the form of an example. HRDC has supported the rail industry in clearly identifying its human resource realities. Without immediate action, the rail sector will encounter an acute shortage of skilled workers. These ramifications extend in many different directions. Like many segments in our economy, rail faces a mass exodus of retirement-bound workers. Given ongoing technological advancements in that industry, highly trained replacements are absolutely vital.

As a result of HRDC involvement and the efforts of Sault Ste. Marie MP Carmen Provenzano, actions are now being taken to address a looming crisis. By this time next year, Sault College, in partnership with CN and the rail association of Canada, will be training future rail employees. Many of these will be new immigrants to Canada. The students will gain the skills and knowledge the employers require directly. The graduates will have followed a very specific rail-based curricula and will have jobs waiting for them. In essence, this is a supply chain management of the human resource. The rail industry will have access to new entrants it also needs, and young people will gain the training they need for employment in quality careers.

We also have other opportunities for training in other transportation sectors, but there's a potential barrier, one that the federal government can take action on to help resolve. Training dollars are needed so that Sault College and many other colleges can help the Canadian Shipowners Association meet its personnel needs. Neither the association nor individual colleges alone have the financial resources necessary to develop and deliver the training required. We endorse and encourage government support for the Canadian Shipowners Association's request for $15 million in federal training assistance. While the association's funding request to Transport Canada could not be accommodated last year at this time, we urge its inclusion in the new budget.

¹ (1545)

Funding for this industry-specific training delivered by our college and perhaps others in Ontario and Quebec would represent a solid commitment to the future. Such funding would be an investment in Canadian citizens in our maritime industry. Not so incidentally, in this situation federal support would also help to move training now done in the United States to Canada.

In my submission I have identified other opportunities for your consideration. I'm asking that colleges be allowed to compete for federal research dollars available now only to the university sector. The federal government must be commended for its commitments to research and innovation in this regard, but I suggest that even greater benefits would be achieved if colleges had an opportunity to compete for the resources that would allow increased research activity.

My submission also addresses opportunities related to our aboriginal peoples and scholarships. I'd be pleased to elaborate on these themes.

My central message today is this. In partnership with business and industry and our senior governments, colleges can become even stronger contributors to the quality of life we enjoy as Canadians. We would welcome the opportunity to do more.

Thank you.

¹ (1550)

The Vice-Chair (Mr. Nick Discepola): Thank you very much.

I'll now turn to Mr. Johnson, please.

Welcome.

Mr. Donald K. Johnson (Director, Toronto General & Western Hospital Foundation): Thank you very much. I welcome the opportunity to present our recommendation to the committee today.

I am here basically as a volunteer who serves on the board of directors of a major not-for-profit organization in the fields of health care, education, social services, and culture.

The single public policy issue I'd like to address is, how can the government help Canada's charities raise greater donations on a tax-effective basis? I believe the answer to that question is for the government to eliminate the remaining capital gains tax on gifts of listed securities. The case for doing so, I believe, is very compelling, and I'll summarize that in the next six minutes.

First, the 50% reduction in the capital gains tax on gifts of stock has resulted in a tremendous increase in charitable donations. In my submission I give examples of donations of stock since 1997 of $5 million or more that total almost $1 billion. I would submit that a large portion of that $1 billion of donations came as a result of the 50% reduction in the capital gains tax that was implemented in the 1997 budget.

The second point is, neither the U.S. nor the U.K. trigger any capital gains tax when donors give appreciated capital property, such as listed securities, to a charity. So why should Canada have a public policy of taxing donors on a gift of real value that the charity can turn into cash very quickly?

A third point is that the C.D. Howe Institute published a backgrounder in February of this year. Unfortunately, it came out during the week of the budget. It was written by Robert Brown, formerly chairman of the Canadian Institute of Chartered Accountants and former chairman of the Canadian Tax Foundation. He studied all alternatives for increasing charitable donations on a tax-effective basis and his conclusion was that the capital gains extension is a doable change that would provide appreciable benefits at modest cost within a supportable public policy framework.

Initially, when the 50% reduction was implemented in 1997, smaller charities were concerned that the major beneficiaries would be the big universities and big hospitals. However, experience has shown that smaller charities have also benefited. For example, the United Way of Greater Toronto—I'm a member of its leadership gifts committee—prior to 1997 received total donations in the form of stock of $40,000. Since the change in 1997, over $11 million has been donated to the United Way of Greater Toronto in the form of stock.

Another point is this House finance committee, to its credit, recommended to the finance minister in its 2001 budget proposals, and in 2002, this proposal that the capital gains tax on gifts of listed securities be eliminated. Something that is of relevance to this committee, certainly a year ago and I believe it is still the case today, is that the leaders of three of the four opposition parties endorsed this proposal by writing a letter to the Minister of Finance. That included the leaders of the Progressive Conservative Party, the Canadian Alliance, and the Bloc Québécois. As far as the NDP is concerned, I think it is relevant that former NDP Premier Bob Rae and former NDP Ontario cabinet member Francis Lankin, who is now president of the United Way of Greater Toronto, both recommend this change.

In terms of public policy issues, health care and education, as we all know, are the two primary public policy issues and universities and hospitals are the greatest beneficiaries of this change. It's a very tax-effective way for the government to unlock greater donations from the private sector and to help our universities and hospitals that desperately need additional funding.

¹ (1555)

For those who were concerned that the social service agencies would not benefit, the Department of Finance's analysis of the results from 1997 to the year 2000 showed, interestingly, that social service welfare agencies received 25% of the donations of gifts of stock in the four years from 1997 to 2000. In fact welfare was the second-largest beneficiary after education, which received 43%.

I think also, while cultural organizations receive only 5% or 10% of total charitable donations, currently in Toronto there are seven or eight major capital fundraising campaigns under way totalling $500 million. The federal and the provincial governments have already made their commitments of $200 million or $300 million. An additional $500 million has to be raised for these major cultural projects in Toronto, which is a huge amount of money for the arts, all at the same time. The removal of the capital gains tax on gifts of stock would certainly help these arts organizations achieve their objectives.

Basically we'd be levelling the playing field for Canada's charities with the United States and the U.K. I sit, for example, on the board of the Richard Ivey School of Business, and the biggest challenge for the Ivey business school, as well as other business schools in universities, is if you want to be the best in Canada and one of the best in the world, you have to attract and retain the best faculty and the best students. These endowment funds, which come largely built by gifts of stock, are crucial to that.

I come to my final two points. Because of the reduction in the capital gains tax rates since 1997 and the reduction of income tax rates since that time, the government's share of a gift of stock with a zero cost base under a complete capital gains exemption today would actually be less than the government share of that donation in 1997 under the rates that existed at that time. What was acceptable then, in terms of a share, should certainly be acceptable today under a complete exemption.

In conclusion, I'd say the single most important step the government can take—and I would hope the finance committee would recommend it to the finance minister for the third year in a row—is to eliminate the rest of the capital gains tax on gifts of listed securities, for the benefit of Canada and all Canadians.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. Johnson.

Mr. Culpeper, please.

[Translation]

Mr. Roy Culpeper (President, North-South Institute): We are grateful for the opportunity to share our position with the Standing Committee on Finance. As many of you know, the North-South Institute's main preoccupations relate to the world's poorest countries and people. However, in an increasingly integrated global economy and world order, it is important for people to recognize that the welfare of Canadians is closely tied to health, human rights and the security of our fellow citizens in developing countries.

[English]

For this reason, Mr. Chairman, we feel it is crucial to ensure that our budget and economic policy decisions also impact positively on the welfare and security of the world's poorest countries and people. We would urge the committee not to focus its budget considerations so predominantly on domestic priorities and take instead more explicitly into account Canada's impact on the rest of the world, and vice versa.

We feel that the government's overriding focus on putting our domestic finances in order while downgrading the challenges and obligations we face in the rest of the world has cost us dearly. We no longer rank among the most influential countries on the world stage because we have purposely starved our aid program, our foreign service, and our military over the past decade and a half. Our place has now been taken by smaller countries, such as Norway, which plays a leading role as peacemaker in some of the world's most difficult conflict situations, and the Netherlands, a country with half Canada's population but an aid program twice as big.

Last year, the Prime Minister announced that Canada's aid budget would grow by 8% annually and double in size over the current decade. However, we are very concerned that the government's commitment has become much less firm because of unforeseen emergencies such as SARS. Canada, we feel, should demonstrate its seriousness about its renewed commitment to development cooperation, if necessary by mobilizing the required resources through taxation or other means.

Mr. Chairman, in the year 2000 world leaders, including Prime Minister Chrétien, came together around a series of objectives now known as the millennium development goals. These comprised specific time-bound targets, which donor and recipient countries are striving to achieve over the next decade and a half.

I have elaborated all of the millennium development goals in our brief. I won't go into them all now, but they include, for example, reducing by one half the proportion of the world's population living in conditions of abject poverty. They include reducing by three quarters the maternal mortality rate. They include halting and beginning to reverse the spread of HIV/AIDS, malaria, and other major diseases—all by the year 2015. These are the very tangible results the industrial and developing countries are committed to achieving in the years ahead.

However, while foreign aid is an important channel for delivering these development results, it is not the only or even the most important channel. Canada's performance in trade, foreign investment, migration, peacekeeping, and the environment also have a significant impact on the people of the developing world and their quality of life. Our efforts in these six and other areas should be mutually reinforcing.

However, recently the Center for Global Development in Washington, D.C.—it's a think-tank much like the North-South Institute—compared the performance of 21 industrial countries in all six of these domains that I've listed. I think it's worth noting that Canada was ranked 18th on a list of 21 industrial OECD countries, slightly above Japan, which was at the bottom, the United States, and Australia, and substantially below the Netherlands, Denmark, and Portugal—the front-runners.

Not all of these channels of development I have mentioned have direct budgetary implications. But if we wish to improve Canada's dismal performance on aid, peacekeeping, and environmental stewardship, these would all require budgetary resources; so would further debt relief for the poorest countries, which we feel is overdue.

In conclusion, Mr. Chairman, we would respectfully recommend to this committee, first, that it take into account more systematically the impact of our budgetary and economic policy decisions on Canada's role in the world; second, that we reaffirm our renewed commitment to the annual 8% growth in our development cooperation program and to a doubling of the program by the end of the decade, as announced last year by the Prime Minister and in this year's budget; third, that the committee and the government bear in mind the universally supported millennium development goals; and finally, that Canada increase its commitments to peacekeeping, demonstrate environmental stewardship by implementing the Kyoto Protocol, and press for a further reduction in the debt burden of the poorest countries by at least 30%.

I'll leave it at that.

Thank you, Mr. Chairman.

º (1600)

The Vice-Chair (Mr. Nick Discepola): Thank you for your suggestions.

We have ample time for questions. Therefore, we'll go with seven-minute rounds, starting with Mr. Jaffer, please.

Mr. Rahim Jaffer (Edmonton—Strathcona, Canadian Alliance): Thank you, Mr. Chair. Thank you to all the presenters for being here today. I always find your presentations very useful. There's always such a large amount of information, and I plan to continue to look through it.

I will begin by asking a question to Mr. Paton from the Chemical Producers. In looking at some of the suggestions you've made to the committee, especially when you address the tax environment in Canada and refer to taxes as still being too high, I also just noticed in your submission this particular survey, I guess you'd call it, or review of the competitiveness of the business and policy environment for chemical manufacturers. I found it very interesting, realizing that in most of the categories the environment for competitiveness in business seemed to be rated as neutral. But on the final page, where it talks about internationalization, human resources, and science and technology, the overall assessment was quite positive for the competitiveness of the business and policy environment.

I'm wondering if you can address that particular part where you talk in this submission about the R and D tax credit. One of the things that has to be considered in anything along the lines of an R and D tax credit that helps to stimulate business, especially for research and development, is this: is that enough to stimulate the business, or do you need to continue to look at overall taxation policy and reduce in other corporate areas?

It seems to me we've heard from other people prior to yourselves that people are not taking advantage of that R and D tax credit as much as they could, given the other side of our tax situation, the overall tax burden in this country, as you mentioned. I'm wondering if you can address that particular issue.

º (1605)

Mr. Richard Paton: I'll start and maybe David Podruzny can add something.

Thanks for raising that, because I forgot to mention that we had attached this to the presentation.

Just as a preliminary comment, we do this because it reflects all the factors that affect competitiveness. As you would know very well, I think, in business competitiveness you have to put everything together, the energy costs, the personnel, the R and D, and the corporate tax structure, all the factors that affect whether you can invest in and grow that business.

On the R and D tax credit, yes, we do believe there is a clear advantage for Canada. For R and D in Canada the costs are significantly lower when you compare it to the U.S. and European jurisdictions because of the tax credit. When global companies do the real analysis, they come to that conclusion. However, we do find that R and D is one of those areas headquarters of multinational corporations like to keep a little closer to the head office. There are a lot of factors that are at play about moving that R and D to other countries as opposed to, say, moving sales operations or manufacturing operations.

We think that without that tax credit there would be a lot less R and D in Canada. However, that by itself is not going to affect a lot of companies because a lot of companies are simply manufacturing companies, not doing a lot of R and D. That by itself is not enough to shift investment. You need a corporate tax rate and a regulatory structure because often R and D is related to the introduction of a new product, and if your regulatory structure doesn't work very well, there's not much use in vending the product if you can't put it to market in Canada as well. There are lots of factors, but the R and D tax credit is to us a huge advantage, and we've always advocated maintaining it.

David, do you want to add something to that?

Mr. David Podruzny (Senior Project Manager, Canadian Chemical Producers' Association): I think that covers it all. Getting the first stage of commercialization is a struggle. We have excellent people operating on the “D” side of R and D in Canada, because you can do that right within your manufacturing operations. There's a lot of good innovation that takes place on the engineering side in plants. What we're finding is an uphill struggle is getting the first commercialization of new technologies to come to Canada rather than go elsewhere in the world—getting some of the first commercialization phase. That's not covered by the R and D tax credit process; it's covered by the overall competitiveness environment.

But your point is well taken. We are competitive on the R and D tax credit side. We have some companies that take good advantage of it in their research. We wish there were more. Frankly, it's very difficult to get a head office elsewhere in the world to move their R and D facilities en masse to somewhere else. That's a big decision for a company. There's a lot of inertia within the research community as well.

Mr. Richard Paton: You raised, Mr. Jaffer, the issue of the tax administration. We have had that problem. We're actually working quite well with Revenue Canada. We have a seminar each year.

We did have companies that were not taking advantage of the R and D tax credit because they simply found the administration too difficult, or you could never quite tell what they were going to call “research” and what they weren't, in terms of eligibility, so why bother? I think we are working through those problems, but they require Revenue Canada to have a very good understanding of how we do our business.

º (1610)

Mr. Rahim Jaffer: Thank you for that.

I think I only have time for one last question, to Mr. Johnson. As you identified in the letters of support you had, we've always supported moving in the direction of eliminating the capital gains tax completely. I know you've suggested we should continue down the road of eliminating it, especially on gifts of listed securities, but in your presentation you made a very strong case for the positive effect the elimination of capital gains tax would have, especially in regard to donations to charities.

I'm wondering if you would agree, to take that a step further—and given some of the studies I've seen, and especially the experience you're involved with and the work you do—with totally going down the road of eliminating capital gains tax in this country. Wouldn't it have the same effect as you would see normally just in the area of charitable donations? Would it not also stimulate a lot more economic activity in this country? It's almost as if it is a tax on that potential productivity and capital—which obviously could have a great effect on charities, but as well, if I were to take your argument and extend it to the economy, could have a huge impact on the ability of Canadians to continue to invest in various opportunities, if we took it to that length.

I wonder if you would like to comment on that.

Mr. Donald K. Johnson: My recommendation here is really on behalf of the charitable sector. I think it's a much more complex issue to have a complete elimination of the capital gains tax. I think in principle it makes sense for Canadian tax rates, in the long term, to be competitive with those in the United States. I believe that now in the United States the tax rate on dividends and capital gains has been reduced to somewhere around 15%, so I think there's a strong case to be made for that. But I think I'll confine my recommendation to eliminating the capital gains tax on gifts of stock.

Mr. Rahim Jaffer: To follow up on that, just for clarity—I think you mentioned this, but I may have missed the exact reference—when you talk about the impact of reducing it in the short term since the last budget, how has that benefited things overall? What sort of rise have you seen in charitable donations because of that reduction? Did you refer to that in your presentation? I may have missed it.

Mr. Donald K. Johnson: When the finance department did their analysis of the first four years of the 1997 proposal, they showed.... Unfortunately, there's no hard data with respect to how many donations of stock took place prior to 1997. The first year in which they had hard data was 1997, so they compared the growth in the donations of stock in 1998, 1999, and 2000 to the donations of stock in 1997.

My belief is that the donations of stock in 1997 took a big jump as a result of the change in tax, so I would bet--it's impossible to prove--that of the billion dollars of donations of stock that I gave in the appendix to my submission, 80% of that would have been incremental over and above what would have happened if the gain had not been cut in half.

I'll give you one specific example myself. Prior to 1997, I used to give $5,000 a year to the United Way of Greater Toronto. That was basically cash out of my salary and bonus. Since the change in 1997, every year since then, the last seven years, I've given $50,000 a year in the form of stock. That's ten times as much. That has been my personal experience, and I think it's an example of the kind of impact it's had. It varies from individual to individual.

Mr. Rahim Jaffer: Thank you very much.

The Vice-Chair (Mr. Nick Discepola): Gary Pillitteri, please, for seven minutes.

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

I want to pursue this one on the capital gains a little bit longer. Mr. Johnson, I applaud your remarks in saying it was this government actually that.... We had quite a lot of representation prior to 1997 moving toward that and we didn't move all at once. I mean, we moved in stages and kept increasing the....

Were endowments included in that too? Were endowments included in the charitable donations that were given?

º (1615)

Mr. Donald K. Johnson: Yes, that includes donations to endowments.

Mr. Gary Pillitteri: I want to pursue what Mr. Jaffer was saying, that if capital gains were eliminated, certainly it would be much more of an economy.... Maybe Mr. Jaffer should have raised the question that in the United States--since it's the most competitive nation--you pay a full 100% on capital gains. Even though the tax bracket might be lower, it's still 100% that someone has to report within capital gains. In Canada it's only 50%. We moved it from 100% on capital gains within commerce and moved it down to 50%. We went from 100% down to 75% to 60%, down to 50%, so actually the amount of money in taxes you pay might be lower in the United States, but certainly you're paying a higher amount.

Mr. Donald K. Johnson: My understanding is that for ordinary capital gains in Canada, when you sell a stock for your own purposes as distinct from a donation, the inclusion rate is 50%. So 50% of the capital gain is taxed as ordinary income. Assuming you're in the 46% tax bracket, if you sell a stock with a zero cost base, your tax rate on that capital gain is effectively 23%, because half of the capital gain is taxed as ordinary income at, say, 46%.

I believe in the United States now--sure, the income tax rate on capital gains is only down to about 15%. So it's 23% in Canada and the comparable number in the United States now is 15%.

Mr. Gary Pillitteri: On the full amount, though.

Mr. Donald K. Johnson: Yes.

Mr. Gary Pillitteri: On the full amount, the 100%, of capital gains.

Mr. Donald K. Johnson: But if you take a $100 stock with a zero cost base and you sell the stock in Canada today, you pay $23 tax. If you take a $100 stock with a zero cost base in the United States, you pay $15 tax.

Mr. Gary Pillitteri: When you take a look at the exchange rate, there's not that much difference.

Mr. Donald K. Johnson: Well, no. We make our money in Canadian dollars and we pay our taxes in Canadian dollars.

Mr. Gary Pillitteri: Now I'd like to ask a question of Mr. Paton.

Ireland being the country that has the most exports of chemicals after the United States, would you expand a little bit more on why that is? Is it possibly due to lax environmental laws within Ireland as compared to Canada, or is it that a few years ago Ireland had its back against the wall and the government saw fit to put in amounts of money in order to lower the tax bracket to attract investments there and they got entrenched?

Mr. Richard Paton: Sure. In fact, at our annual meeting this year, our whole conference was focused on an economic vision for our industry up to 2015. Matt Moran, the executive director of the Irish Pharmaceutical and Chemical Manufacturing Association, came and spoke to us and gave us an explanation for what had happened in Ireland.

Very simply, they joined the European Economic Market that also allowed them some support from Europe. That enabled them to have a lower corporate tax rate. That was a key factor. The second key factor was they decided as a country to do something I only wish we could do in our country, but more. They did a full assessment of what their economic advantages were in the context of that market.

They decided that since they don't have oil and natural gas and a lot of natural resource industries, they should focus on industries that were sort of valued added, people oriented, research and development oriented. They chose a type of chemical. They're not the type of chemicals that we all necessarily produce here. We do produce some of these chemicals--not a petrochemical, but they chose pharmachemicals; the industry is called pharmachem. So it's mostly drug manufacturing, in that area. They started down that path by supporting and encouraging that. As a result, there are about 30 or 40 companies now all over Ireland. They are sort of the leaders in manufacturing pharmachem products, and in that part of the market they are world-class leaders.

Interestingly enough, as an example of their research and development strategy, they developed the manufacturing and are now only going to the universities to build up the university capability to support that manufacturing. It didn't start with the R and D first; it started with the manufacturing first. Now they're working on building the labour supply, the research and development that can get them to the next round, because now they'll be competing with Eastern European countries that have recently come into the European Common Market. So they know they have another challenge and they are ready. They have a plan and are going to meet that next challenge. It's very impressive.

It definitely has nothing to do with environmental standards. My chairman and my association have been to these plants, do business with them, and they are spotless. They're all inspected by the FDA in the United States, who would not allow anything to be produced that could be exported into the U.S. market unless they were spotless. It's a very, very interesting story.

º (1620)

Mr. Gary Pillitteri: Thank you.

Only one little comment, Mr. Chairman.

Having visited Ireland this summer, I also understand that only a few years ago they were clamouring about how well they were doing. I also understand how poorly they were doing as far as the economic standards that were in Ireland in the last few years too. The unemployment peak was up in the double digits, and surely that lower tax system that was designed to bring in industries was not paying off as well as they had anticipated.

Thank you.

The Vice-Chair (Mr. Nick Discepola): Ms. Minna, please, seven minutes.

Ms. Maria Minna (Beaches—East York, Lib.): I'd like to start with the college, if I could, Mr. Meyer.

There's no question that I agree with you that the training in this country needs to be stepped up in many areas. I think that's a given, to a great extent. I've had discussions recently with the construction industry in Toronto, the labour movement there, and the problem of shortage of skills that they anticipate or currently have, and in many other areas.

I've always said that in the industry sector anyway, the construction industry is probably one of the few sectors that actually does do an excellent job in apprenticeship training, a very thorough job.

I wanted to ask, are you involved with any of the sector councils that exist in Canada that we established years ago? There's one on tourism, and others. I'm not sure if there is one on transportation. If so, what relationship would the college have with these?

Mr. Timothy Meyer: To answer the question, we are not directly involved with the sector councils. We view them as a very important and crucial element, but as a college, we are not involved with the sector councils. I believe that's more of a provincial mandate for involvement.

Ms. Maria Minna: No, it was set up under HRDC back when Lloyd Axworthy was the minister. I know because that was one of my recommendations to him at the time.

The reason I raise it is that while I understand that obviously in this case, in transportation, you're working directly with a company and you're very much aware of the needs, in other sectors I'm just wondering if the college is in any way communicating. The idea of the sector councils was to be able to identify the shortage of skills needed in their particular sector and to work and assist with the skills training that was needed, in partnership possibly with colleges or other entities. That's why I'm asking.

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Mr. Timothy Meyer: I appreciate the question.

Our involvement is not direct, as you indicated. Our involvement is usually where we are, and we're just becoming involved directly with the industry.

As I've indicated with the rail industry, our involvement was directly with the Railway Association of Canada. So it was not through HRDC specifically; it was the association between RAC and HRDC in producing the report. We picked that up and became involved.

Ms. Maria Minna: The councils, however, while they're funded in part by HRDC, are not under HRDC; they're independent. They're also funded by the sectors.

The reason I was asking is it's interesting to see that you were involved with the transportation sector, with one particular industry, and I just wondered if the college was attempting to become involved or at least develop a liaison with others. I think it would benefit the college a great deal in terms of getting that type of liaison with other sectors, both in the north and elsewhere.

Mr. Timothy Meyer: I appreciate those thoughts.

Ms. Maria Minna: They've been around for some time, and I just wondered whether the colleges--and the universities for that matter, but the colleges particularly--were connecting with the councils or not, if we had these isolated...everybody working in their orbit, which was what we were trying to avoid by establishing them.

Mr. Timothy Meyer: No, we're not working directly with them, but I take your point, and that's something we'll look forward to becoming involved with.

Ms. Maria Minna: But with training, the points you make are quite relevant.

Thank you.

I wanted to go to Mr. Culpeper for a moment.

Obviously, the points you make in your presentation are points I've made in the past many times, so I won't quibble with them. Obviously I agree with them.

I just want to discuss development goals with you a bit. They're very important, and everyone's made a commitment. I want to ask you--so that we can deal with some realities around the table and maybe see what I, as a member, need to do to make sure we get there--in your view, given the situation today and the kind of money that's going into development, the kinds of trade practices that exist—especially in reference to some of the failures of Cancun recently—are they achievable if we maintain our present course?

Mr. Roy Culpeper: Thank you for your question. I think there are different layers to the answer.

If you take the developing world as a whole, current projections seem to be that we'll make the first development goal of reduction of aggregate poverty by half. That's largely on account of two countries, China and India, which of course are huge because their rate of growth is quite spectacular.

Underlying that reality, as you know, in much of sub-Saharan Africa, we're not going to get anywhere near that, and in many places we're going in reverse. That reality really cries out for much more focus, concentration, and effort. For our part, I'm pleased that Canada has chosen nine countries of focus, most of which are in sub-Saharan Africa, to concentrate our efforts on.

I think your other point is a very interesting one. The message on the millennium development goals has so far penetrated mostly what I'd call the aid establishment, the aid system. It has not penetrated the trade or non-aid policy establishment. That is the challenge.

In fact, I'm writing a development policy paper right now for the next prime minister. I'm suggesting that the millennium development goal could stand as a sort of charter around which we could construct a coherent development policy framework that would apply not only to our aid policy, but to our trade policy, our foreign investment policy, and the rest. I think we really need that, because right now the aid agencies of the world are sort of voices in the wilderness on this. They need as much support and coherence from these other ministries as possible. I think that's going to be a challenge.

Ms. Maria Minna: You're quite right. Coherence across the government is one of the major things I started when I was at the department. In fact, I think I was the first CIDA administrator to get involved in trade discussions and to co-sign documents that went to cabinet on trade. It had never happened before. As you said, I see the importance of going broader to achieve the development goals; otherwise there will never be that potential. Given the latest situation with Cancun, I was asking....

The debt load of countries, especially the LDCs but certainly developed countries, is another issue that needs to be addressed. Otherwise the other stuff may not really have the impact we want.

When you talk about supporting Canada's increase in aid of 8%, or maintaining that, does that include debt reduction, or would that be over and above the 8%? I have my own ideas about that. I just wonder if you've thought about that.

º (1630)

Mr. Roy Culpeper: It's not explicitly in our brief, but I would consider them separately. I would consider debt relief to be additional to an aid increase. They're both very relevant and important in their own right, but they are different. In Canada's case, we don't have a lot more out there to forgive. It's more on the multilateral debt that the hard slogging remains to be done. Quite frankly, we haven't really gone very far in that area at all.

In our analysis, the heavily indebted poor country initiative was wrongly conceived. It focused on indexes of sustainability that looked to things such as exports, rather than government revenues. The whole basis of trying to decide what level of debt is sustainable needs to be rethought. If it were rethought properly, the threshold would be brought down and the amount of debt relief to be given would be increased considerably.

There's a lot of work to be done. Unfortunately, the development community seems to have drifted away from this issue in the past couple of years. I think it's going to come back to haunt us, because we haven't really achieved a lot in debt relief. That's certainly our view. The initiative simply reduced debt levels to what people were paying. In fact, some of those countries are paying more after so-called debt relief than they were paying before. If that's debt relief, let's forget it.

So I think there's a lot more work to be done on this issue, and I hope the government and its allies in the aid and development world will turn to it soon.

The Vice-Chair (Mr. Nick Discepola): Be very brief, Ms. Minna.

Ms. Maria Minna: Very brief? It may require a longer answer, though.

The Vice-Chair (Mr. Nick Discepola): We have time.

Ms. Maria Minna: Very briefly, Mr. Culpeper, in the aftermath of Cancun, as trade is a major component in the developmental envelope, could you give us your reading of where things will go from here in that regard? Do you have any sense of it? I imagine you were there.

Mr. Roy Culpeper: The institute was there; our vice-president, Ann Weston, was there. Of course we followed this issue very closely.

Our position is perhaps a bit different from the position of others who've greeted the collapse of negotiations with some jubilation. I think that's probably not, all in all, a well-considered position.

The problem is this: the developing countries have a lot of stake in the trading world, and they have a lot of issues—including the issue of agricultural subsidies, which was not fully resolved. The fact that the talks collapsed takes away, for them, the opportunity to resolve that issue and do them justice by fixing it—because it needs to be fixed.

But at the same time, we would also agree that the developing countries had serious concerns, and they were right to raise them and go, as it were, to the wall at Cancun and press their issues, because they have been for too long ignored and overlooked. Countries like China and India and Brazil have some heft now in the world economy, and they can't be ignored any more. We're going to see more of this, and I hope that signal is also heard by the developed world and that they're treated more seriously and their issues are treated more seriously.

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Ms. Maria Minna: So India and China will change a little how things are discussed in the near future.

Mr. Roy Culpeper: Well, I hope so. The other danger, of course, is that if the multilateral talks stay on hold there's a real danger that the trading system will fragment. The Americans have made clear that they're going to do their thing with bilateral trade agreements, and that's the worst of all possible worlds. Our position is really that the trade talks have to be revived and have to treat the developing countries' issues very seriously and not as something that can be pushed aside, as they have been in the past.

Ms. Maria Minna: Thank you.

The Vice-Chair (Mr. Nick Discepola): Ms. Leung, please, seven minutes.

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

I would like to ask Dr. Meyer a question. I'm very interested that your college offers training in many skilled trades. I think that's very important for Canada right now; we certainly have a shortage of this.

I am wondering whether you feel you need additional funding to support some of your programs. You probably know that the Prime Minister takes people on Team Canada trips. Perhaps you have been on one, or maybe not. The last couple of times I was there I noticed a great number of contracts had been signed between the college.... I'm from B.C., and we have many colleges and universities. I was amazed at the number of agreements and contracts signed for training. That's really a source of great income. It is almost that training has become a commodity for Canada to sell. I don't know if you have ever explored that.

Mr. Timothy Meyer: We, as a college, have explored international training—the international training exercise. In fact, we have an agreement with Liaoning Financial College in China, with whom we have a training contract—we tend to look at it as an agreement—whereby their students, through agreement, come to Sault College for their training, especially in the fields of business.

Our focus tends to be a little different. What we'd like to do is take our effort and train the new Canadians or the immigrants. What we have done, because Sault College is a northern college and we have capacity, is partner with George Brown, the city college of Toronto, because they are in the largest immigrant pool. They are our marketing force in that immigrant pool, to gather interest so we can train new Canadians. We do train foreigners, but we also try to put a lot of emphasis on immigrants or new Canadians.

Ms. Sophia Leung: Recently I came back from Taiwan. I was with a group of MPs who were there for observation and exchange. Our office of cultural and trade business also sometimes helps any local institute. Special education is highly perceived in Asia and I think there are opportunities for colleges like yours to explore. Our local office, as a matter of fact our representative, verified it. They said they usually have a fair, set up an education school fair. So you do have to compete in this world with other countries now, even in education. There are many, many institutes all around the world going to different developing countries because, especially in east Asia, they still prize education to the highest degree and many students want to come.

You have also probably heard about the Canada Foundation for Innovation. That's another source. I don't know if you have explored that. We have put up so much money. The government has put, I think, $3 billion for helping universities. Probably you've heard about that.

º (1640)

Mr. Timothy Meyer: Again, to answer your question directly, we were right on the Canada Foundation for Innovation when the fund became available. In fact, as of two years ago, we were the highest funded college from the Canada Foundation for Innovation.

The Canada Foundation for Innovation is a capital fund, it's not an operating fund. So part of the equation is also looking for operating support as well as the capital or infrastructure support.

Ms. Sophia Leung: That's for R and D major.

To Mr. Johnson, I was very interested in your presentation. You're certainly trying to encourage donors to give securities instead of cash. Of course, I noticed you quoted a lot of time between 1996 and 1999. That's a good period. But after the crash, there's a lot of loss, a lot of average investors. Do you still think that's safe, to have the donation of security stocks? Is that better than a donation of cash?

Mr. Donald K. Johnson: I think the boom in the stock market, what we call the dot-com bubble, 1998, 1999, 2000, certainly did contribute to the size of the donations of stock, but I don't think it was the main reason. In the short term, looking at major donations of stock, high-tech stocks or Internet stocks, it's unrealistic to expect those kinds of donations to be happening in the next couple of years or so.

However, I think the fundamental driver behind the big increase in donations was the cutting in half of the capital gains tax in 1997. For individuals who are in the fortunate position of owning shares of publicly listed companies, I think giving stock is a much more tax-effective way to donate to a charity than giving cash.

I mean, there are a lot of people who have significant assets in the form of stock. They don't necessarily have large salary incomes to be able to give in the form of cash, but they can give stock, those who are in that position.

Reducing that barrier to giving was a big stimulating factor. If the next finance minister in the next budget will finish the job, that will result in larger donations from current philanthropists and will result in donations from a larger number of people in the form of stock, people who don't give now because they don't like the idea of paying a tax on their gift.

Ms. Sophia Leung: But do you encourage people to donate now, since the high-tech value is so low? You may put it there and wait until it increases.

Mr. Donald K. Johnson: I'm chairing a $15 million fundraising campaign for the vision science research program of the Toronto Western Hospital. People have to have a reason to be interested in the cause, but not everybody invested all their money in dot-com or technology stocks. A lot people invested in other stocks that have still appreciated over the last two or three years.

So If people have stock where their cost base is very low compared to the market price, I would encourage them to give stock. If they have stock that is trading at market price below what they paid for it, it makes no sense to give stock.

Ms. Sophia Leung: Thank you.

Dr. Culpeper, I was very interested in your comments and recommendations. I certainly support some of your ideas; you comment on how important it is for Canada to be visible and to contribute to the support of global development programs. Of course, our CIDA programs are very effective in many developing countries.

In the meantime, you ask for 8% annual growth for the program. We all know that from time to time we do have demands. A couple of days ago our Prime Minister had to accept some of the responsibility to support the program and to donate $200 million.

What I'm trying to say is that you have to consider the time, the needs, and the demands. What is the priority? We only have so much surplus and we have to meet the needs of the global demands. What would you suggest would be the best formula for Canada to take on additional social responsibilities, yet which, in the meantime, would still be affordable?

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The Vice-Chair (Mr. Nick Discepola): Mr. Culpeper, I'd ask you to clarify something, because when you state the commitment to the 8% annual growth, you didn't state something that's in your written brief. So I'm wondering if you would clarify it for the sake of the committee, because the written brief goes as part of the record.

In there you add “and if necessary increasetaxes (or curtail corporate tax reductions) in order to maintain that commitment”. So if you really want us to go into increased taxation over it or a deficit position, I'd like to hear that position clarified also, please.

Mr. Roy Culpeper: That is in fact the position. The written brief states the full position. I didn't summarize it in my oral remarks, but the written brief states the position we want to go on record with, which is that if we have a real commitment to this objective, we should stick to that commitment and not make it contingent on the availability of funding. So if you have a promise that you have to keep, if you're mortgaging a house, you find ways of paying for that. It's what you have to do to make ends meet. It's the same sort of thing.

If the fiscal envelope is under stress, as we say in the brief, we should find the resources in order to meet those commitments. These are commitments, as far as the Prime Minister is concerned, and a lot of people who agree with him, that need to bring us back at least part way to a situation that we used to look to with pride 10 or 15 years ago. That is in fact our position. If it means curtailing or slowing down tax cuts, or indeed tax increases, or if it means deficits to meet a commitment that is very important, it should come first. That's our position.

The Vice-Chair (Mr. Nick Discepola): Thank you.

Mr. Valeri, please.

Mr. Tony Valeri (Stoney Creek, Lib.): Could we pick up on that? I would really be interested--and I appreciate your position--in hearing from the other panel members. It's always good to have this kind of exchange, because we have some presentations here that suggest the corporate tax structure should be enhanced or amended, that we should get to 17%, as the chemical producers have suggested, eliminate the corporate surtax, that sort of thing.

We also, as a committee, obviously receive briefs that suggest that we should do some of the things you're suggesting, Mr. Culpeper. Can I have some of the other panel members comment on how we might achieve a balancing of those objectives? Is anyone up to the challenge?

Mr. Richard Paton: Sure.

I completely agree with Mr. Culpeper that we should be very careful that when we make commitments we are ready to implement them. I think that is a sad story in our history. We've had many commitments we have not delivered on.

On the other hand, you also have to realize that at this stage in our economic challenges, if we run significant deficits, start to not deliver on even some of the productions that are promised now, or keep going further to have a competitive tax system, we will pay for that as an economy in growth, jobs, and revenue for the government, which will in turn reduce our capacity to meet those commitments. So I think we have to be very careful about jumping to the conclusion that we have to start reducing or eroding the corporate tax reductions in order to achieve some objective. I hope we would consider other options before we got to that.

Unfortunately, that's the art of governing; that's the problem of balancing. We need to know, as Mr. Johnson has pointed out, that some of these initiatives generate economic activity and growth. Some of these tax changes have done that, and I don't think we want to sacrifice some of the innovation and growth that comes from that.

º (1650)

Mr. Tony Valeri: Mr. Culpeper.

Mr. Roy Culpeper: Obviously it's a difficult question. It's a very important question.

As I perceive it, thinking on fiscal policy is starting to shift. There was a very interesting reflection in Bruce Little's column today in the Globe and Mail on a speech Mr. Martin gave recently on debt reduction targets. Basically, he argued that once you reduce your debt to a certain level--and in this case it's 25% of GDP--you're under the threshold where carrying the debt burden imposes such a fiscal burden that deficits are bad. Once you bring that debt burden down, you're in a territory where you can once again look at fiscal policy in a counter-cyclical way, which I think is the only reasonable way to regard fiscal policy.

Right now, the burden of counter-cyclical policy is put on monetary policy. It's very difficult to use monetary policy to balance the economy, particularly when it's in recession, because it's like pushing on a string. You can reduce interest rates very low, but it doesn't necessarily stimulate the economy. So to have that sort of tonic injected into the economy on the fiscal side is very important. It really means that Keynesian policy is coming back into being. So that's one element.

On the other, the Americans are running a $400-billion deficit. You don't hear a lot of people complaining about that. It illustrates that going into a deficit doesn't seem to carry the penalty it did 10 or 15 years ago. The environment in which fiscal policy is considered is different today, I suggest, partly because debts have been reduced, but partly because governments are realizing the importance of fiscal policy, once debts are reduced below a threshold level.

Mr. Tony Valeri: Would you like to add something, Mr. Johnson?

Mr. Donald K. Johnson: Yes. I guess I have a couple of comments to make.

First, as Ms. Leung has pointed out, we are in a global economy and we're competing with other countries, not only for business but to create the right environment to attract the best people and attract investment. So I believe, in terms of a general public policy, our long-term tax rates should be competitive with our biggest competitor, the United States. But there are also other competitors, like China and so on.

I think that applies to corporate taxes and also I believe it applies to the tax treatment of charitable donations, because we're competing with the U.S. in a lot of these areas and we have to be competitive and we must continue to create an environment in this country that attracts investment and attracts good people.

I guess the only aspect of Mr. Culpeper's comments that I would challenge to some degree is.... I, too, read Bruce Little's article this morning, and that was after Canada gets its debt down to 25% of GDP--we're at 40% now--and that's going to take, I don't know, seven or eight years or six years or whatever.... Maybe Paul Martin can switch to running a deficit six or seven years from now, but that's a long time away and assumes we're going to continue to reduce the debt, which I'm not sure is a valid assumption.

The other thing I would say is that I think people are very concerned about the U.S. move to a huge deficit position. It's one of the reasons why the U.S. dollar has been tanking. In fact, the Secretary of the Treasury yesterday made a public statement that they'd reduce their deficit down to 50% of what it is now within three or four years.

I think the vast majority of Canadians still are committed to fiscal responsibility and are fiscally responsible, but still have a social conscience.

º (1655)

Mr. Tony Valeri: All right.

I have one question for Mr. Johnson. You've done a very good job of demonstrating the impact of that reduction in capital gains, but I'm interested in what kind of additional benefit you expect to see by the complete elimination of it, whether we're hitting a threshold, whether 50% reduction or 50% on your capital gains is enough to attract the large donors and whether, if it was 25 or zero, that really wouldn't make a lot of difference. I guess that is what I'm thinking.

I'm sort of thinking the way people in finance sometimes look at it and say “This is the behaviour we're getting; any additional reduction will not further change or enhance that behaviour to any large degree, so the marginal rate of return really isn't there for us to move any further.” Do you have any type of stat or any sense that a further reduction would give you a lot more benefit?

Mr. Donald K. Johnson: Yes, I believe it would give a lot more benefit. It's difficult to prove, but I think people who are currently giving generously would give more. I think there are people who have assets in the form of stock who, funnily, don't like the concept of paying a tax on their gift. I'll give you one specific example, and I believe I can quote him.

This past weekend I was at the 40th class reunion of the MBA class of 1963 at the Ivey School of Business, and David Leighton, who was a professor of mine back in 1961 to 1963 and is currently chairman of the National Arts Centre here in Ottawa, hosted a brunch for our 42 classmates on Sunday. He called me aside before I left after the brunch and said “I'm sitting on a significant amount of stock, at least significant for me, which has gone from $5 a share to $23 a share”. David Leighton used to run the Banff Centre many years ago. He said “I want to give all that stock to the Banff Centre, but I will not give it if I'm going to pay a tax on my gift”.

That's one anecdotal example I happen to have received three days ago. I said “Can I quote you on that?”, and he said “Absolutely”. I didn't expect to quote it today, but....

Mr. Tony Valeri: He probably didn't think that either.

Mr. Donald K. Johnson: That's one example.

There's no doubt in my mind that it would result in substantial additional gifts. We'd be levelling the playing field with the United States. And by the way, prior to the year 2000, the U.S. didn't even give a tax-deductible receipt for donations.

In the year 2000, after Gordon Brown looked at the tax system in the U.S., in Canada, and the U.K., he made a decision and he introduced a tax-deductible receipt, number one--that was in the year 2000, that's three years ago--and number two, a complete capital gains exemption for gifts of stock. As he looked at the U.S. model and the Canadian model, he concluded that if the Canadian model is working well, the U.S. model is working even better.

The Vice-Chair (Mr. Nick Discepola): Thank you very much, Mr. Valeri.

Mr. Donald K. Johnson: One final thing. I notice that one of your members, Scott Brison, is not here. On the assumption he wouldn't be here, I did bring an op-ed piece that he wrote in The Financial Post on August 18 entitled “Stop taxing charity”. I thought I'd give it to the members of the committee who are here, so you know where he stands.

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The Vice-Chair (Mr. Nick Discepola): Thank you very much.

Our next group is here, and we're tight for time, so I'd like to thank everybody.

We'll adjourn, but don't go away, because we've got a vote at 5:30 and I'd like to hear the next group of witnesses.

Thank you very much for your input.

» (1700)

» (1706)

The Vice-Chair (Mr. Nick Discepola): Order.

We are resuming pre-budget consultation hearings pursuant to Standing Order 83(1).

It's my pleasure to welcome, from the Canadian Council on Social Development, Mr. John Anderson, its vice-president; from the Canadian Alliance of Student Associations, Mr. Robert South and Kim Steele, policy and research officer. We also welcome, from the Inuit Tapiriit Kanatami of Canada, Mr. Jose Kusugak, its president, and Whit Fraser, its political adviser.

We unfortunately have a vote coming up. The bells will be ringing at 5:30 but we'll continue. We'll have to leave by about 5:40. That's why I'm trying to get the meeting on the road.

We'll follow the usual format. It's about seven minutes per presentation and then we'll try to get some questions in before the bells ring.

Welcome on behalf of the committee.

We'll start with Mr. Jose Kusugak, please. If you're not ready, I can go to somebody else.

Mr. Jose Kusugak (President, Inuit Tapiriit Kanatami of Canada): Thank you, honourable members.

I'll just read my submission and then I'll be able to answer any questions.

Let me begin by putting on record that we Inuit see ourselves as more than first Canadians--we're also Canadians first.

We live in four regions of Canada: the western Arctic of the Northwest Territories, Nunavut, Arctic Quebec, and Labrador. In each of these regions we have finalized comprehensive land claims with the Government of Canada. I should say that the Labrador claim is an agreement in principle and the final agreement is very close to ratification. Our claims are not identical, but the common thread throughout them is that they provide Inuit with financial compensation for lands surrendered and with specified Inuit-owned land with some selected mineral rights.

Our land claims corporations are investing the money, I think, wisely. They are creating jobs and opportunities for our people. However, these corporations alone cannot and should not be expected to solve the mountains of social and economic challenges that confront us.

I think it is important for members that I explain what the claims don't do and were never intended to do. Let me emphasize, land claims settlements do not replace the government's fiduciary responsibility for Inuit, and neither do they replace the government's responsibility to provide Inuit with the same services all Canadians enjoy. I am speaking here especially about the rights to affordable housing, to education, and to delivery of health care.

It is most timely that today Statistics Canada released its first aboriginal peoples survey. It confirms what all of us have known for a very long time: that the social gap between our communities and mainstream Canada is very wide. Aboriginal people are on the bottom rung, the rest of the population is on the top rung, and it's a very long ladder.

The social statistics in Canada continually demonstrate that aboriginal peoples, including Inuit, remain at the negative extremes of Canada's social indicators. For example, we have the highest rates of unemployment and the lowest standard of living, the highest cost of living and the lowest wages, the highest rates of dropouts in school, the highest rates of disease, and worst of all, the shortest life expectancy.

It is Inuit Tapiriit Kanatami's increasing concern and belief that at the very heart of these painful social statistics is a staggering housing shortage all across our regions. ITK believes the next federal budget should contain a clear commitment for the national Inuit and northern housing strategy to begin addressing this crisis. I also know that if we can address the housing crisis, we will at the same time begin to attack many of the other social problems that are directly linked to our overcrowded living conditions.

How can our young people maintain their studies and cope with the pressures associated with a modern education system when they share a two- or three-bedroom house with as many as 15 other people? What effects do these social conditions have on our youth, who are committing suicide at a rate eight to ten times the national average? Similarly, how does overcrowding impact the health of our young people and children, who suffer excessive rates of childhood illnesses, including respiratory illness and infections? I suspect members in this room will be surprised to learn that Health Canada statistics indicate that tuberculosis in Inuit communities is 17 times higher than in southern Canada and the average life expectancy for Inuit is ten years shorter than for southern Canadians.

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Today's statistics on housing show how serious our housing needs really are. More than half of the Inuit live in substandard and overcrowded housing conditions. This is in part the result of the federal government's decision to pull out of the social housing market in the early nineties, turning the matter over to the provinces and territories but without adequate funding. Today's statistics confirm that more than half of the aboriginal population in Canada do not live on reserves. In fact, there are no reserves for Inuit.

This is in striking contrast to the federal government's policies, contained in budgets and throne speeches, that continually direct federal government spending to cope with first nations on reserves. Statements and budget commitments that exclude Inuit suggest either a discriminatory approach in dealing with aboriginal peoples or a complete lack of understanding of the aboriginal realities in Canada. For Inuit, who are taxpaying Canadians scattered across 40% of Canada, it says we're still out in the cold. Inuit Tapiriit Kanatami believes the government must address all the aboriginal peoples in Canada equally. We cannot have different classes of aboriginal peoples within Canada.

When the statistics were released today, I was asked by a reporter what I would like to see in future statistics in ten years. I have been thinking about the question, and I think the answer is I would hope someday our people are invisible in the social statistics. From the time we began organizing 30 years ago, our goal has remained for Inuit to achieve a standard of living and opportunities equal to those of other Canadians, no more but certainly no less.

Increasingly it is our experience that there is a view within the federal government and public service that with the settlement of land claims and the creation of Nunavut, Inuit issues have been settled. Nothing could be further from the truth. Indeed, half of the Inuit population in Canada resides in Nunavut; the others live in the western Arctic, Labrador, and Arctic Quebec, or Nunavik. We also have growing populations of urban Inuit in places like Montreal, Edmonton, and here in Ottawa.

For some time we have been pushing hard for a national aboriginal housing strategy. I hope today's figures will demonstrate clearly how serious that need is, and I hope this committee will endorse that idea. What's more, I would hope a new aboriginal and Inuit housing initiative would also be viewed in the context of providing a major economic and job-training initiative for our communities.

If we are to address the social issues confronting us, we will need to do that through Inuit-specific programs that relate directly to the challenges we face, our priorities, our culture, and the environment in which we live. In order to do that we believe there needs to be a fundamental change in the way the government addresses Inuit issues, beginning with structural changes in the Department of Indian Affairs.

To begin with, we have recommended changing the name of the Department of Indian Affairs and Northern Development to reflect the aboriginal realities of Canada. Again, today Statistics Canada underlines the reality that more than half of Canada's aboriginal population does not live on reserve. I'll just repeat that point: Inuit have never lived on reserves; we live in publicly governed communities like other Canadians. Yet we have a whole department and bureaucracy that is focused almost exclusively on first nations on-reserve issues. We are suggesting the need for a department of aboriginal or indigenous affairs.

Inuit believe that within the federal cabinet there should be a minister with specific responsibilities for Inuit affairs. Further, we believe that within the government there should be at the very least a directorate with specific responsibilities for Inuit and northern affairs. At the moment we cannot determine one senior-level or even medium-level public servant whose sole and primary responsibility is dealing with Inuit issues at either the policy or political level. Neither do we have a specific northern or Inuit-specific plan to begin addressing the social crisis facing our communities. What we find ourselves in is a situation where everyone recognizes the serious problem but no one is directly responsible.

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I believe we will fail in our attempt to improve the standard of living for Inuit unless we make a clear commitment to settle the structural plan to directly attack the problems.

Inuit Tapiriit Kanatami believes we will not raise the total economic and health conditions of Inuit and northern Canadians by continuing our ad hoc approach to social problems. We need to develop a clear plan and partnership arrangements among relevant governments, and I believe we need to start now.

Thank you very much.

The Vice-Chair (Mr. Nick Discepola): Thank you for your understanding.

We're running short of time. I'd like to go to Mr. Anderson, please.

Mr. John Anderson (Vice-President, Research, Canadian Council on Social Development): Thank you very much.

The Canadian Council on Social Development welcomes this opportunity to submit its views on the occasion of the House of Commons Standing Committee on Finance pre-budget consultations.

[Translation]

I'll be glad to answer your questions in French, but I will be making my presentation in English.

[English]

Today Canada has the opportunity to put its ideals into practice. Our economic growth has led that of all the G-7 nations for several years, and we have had five years of budgetary surpluses. We can afford to create social policies that will knock down the shameful barriers of exclusion and give all Canadians the chance to make the most of their abilities, or we can squander this opportunity.

We think the 2001 census is a wake-up call in this regard. It shows a gap opening up between the richest and the rest of us. Incomes at the top of the ladder, where families bring home upwards of $100,000 a year, boomed over the last decade. Incomes of those in the middle rungs, however, increased only slightly, and families with incomes just below the middle rungs, in the modest $28,000 to $45,000 range, did not benefit at all from economic growth. They actually slipped downwards by roughly $350 a year.

Most grimly, those at the bottom of the income ladder, with incomes under $19,000, saw an annual increase of about $81 over the decade. That's less than the average CEO spends on a round of golf. Instead of raising all boats in the tide of economic growth, Canada's top performance is leaving many in dry dock. The middle classes, which should have prospered over the last ten years, are instead anchored to their income of a decade ago or drifting further from their financial goals. Certain groups have been stubbornly excluded from the rising economic tide.

For example, immigrants now arriving in Canada have ever-increasing levels of education but are making substantially less than their counterparts did ten years ago. Likewise, young Canadians who entered the labour market of the 1980s and 1990s have higher levels of education than ever before in Canadian history, but they made less than young workers did a decade earlier.

In the case of the aboriginal population, there has not been backsliding so much as stagnation. The median aboriginal income is still just 60% of the median income for all Canadians.

Within all of these groups, women tend to fare even worse. Overall, women working full-time still make only 70% of every dollar earned by men.

The consequence of these inequalities can be seen across Canada: racial and social segregation are creeping into Canadian society; deep pockets of poverty are emerging in our urban centres; young workers with children are struggling to make ends meet; and of course, child poverty persists, with all the lifelong disadvantages it carries. The national child benefit has helped slightly, but amounts provided are not enough to truly raise a child out of poverty. Child poverty is still as present a reality in Canada today as it was in 1989 when Parliament voted to abolish it.

As a society we have not tried hard enough to address the imbalances in our communities and overcome the barriers that exclude so many. While prosperity and government surpluses increased from 1993-94 to 2001-02, federal program spending as a share of gross domestic product actually fell by 4.5 percentage points, from 15.9% to 11.4%. It's time for government to respond to the concerns of Canadians who repeatedly rank social issues and poverty reduction near the top of the priority list for immediate action—much higher than tax reduction, according to a recent Macleans poll.

There is no better example of the powerful impact of investing in sound social policy than Canada's track record on dealing with poverty and seniors. In the mid-1970s we decided as a country to invest in the financial security of our seniors and went from having the worst reputation amongst OECD countries on this issue to having one of the best. Canada now has one of the lowest levels of seniors poverty of any OECD country.

The government needs to summon the same will to address the other pressing issues facing our society. We recommend five actions in particular: pursue a fair tax agenda by continuing to increase the basic tax exemption—we are proposing to raise it to $8,700 right away and index it to inflation; encourage the creation of a living wage by setting in place a federal minimum wage of $10 per hour; bolster the income stability of Canadians by increasing EI benefits and eligibility and making training and education more widely available; follow through on the children's agenda by continuing to increase the child tax benefit, discouraging the provinces from clawing the benefit back from those on welfare, and committing substantially more money to early childhood education; commit to a national housing agenda by doing everything possible to meet the target of 30,000 new and renovated units per year; make income supports for people with disabilities more accessible and effective.

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The government needs to use the social policy tools at its disposal to create these social policies and make them work effectively. We see three existing tools that are not being used to their full capacity. The first is the social transfer. It will come into effect in April 2004, when the multi-billion-dollar Canadian health and social transfer is split in two.

As recommended by the Romanow commission, the health component will be subject to new, more rigorous accounting procedures, but there's no such plan for the $14.5 billion targeted for social spending and higher education in 2004-05. As it stands, the provinces will continue to spend the social transfer money as they see fit, with no receipts required. Why should this lack of accountability be tolerated, and why only $14.5 billion?

Ottawa has moved to renovate the health care system with an infusion of new money, a set of priorities and guiding principles, and mechanisms to assure greater accountability. Why should the same not be done for the systems that ensure social support for Canadians from infancy to old age?

We note that in the bill to split the CHST, the door is left open for the Minister of Human Resources Development to invite representatives of all the provinces to consult and work together to develop, through mutual consent, a set of shared principles and objectives for social programs that could underlie the Canada social transfer. We believe this latter objective is crucial, and we invite the finance committee to encourage debate on the overall goals and framework of the social transfer, and the means to make it more transparent and accountable.

Secondly, Canada must draw on the expertise of the non-profit and voluntary sector that now delivers everything from home care for the elderly to recreational programs for youth. Canadians donate an estimated one billion hours of volunteer time to the sector each year.

The growing importance of the sector was acknowledged in the voluntary sector accord jointly signed by the Prime Minister and the representatives of the voluntary sector. But the government has shown no sign of altering the debilitating federal funding arrangements they introduced in the 1990s, when long-term and core funding was virtually eliminated.

A recent study conducted by the CCSD concluded that these funding arrangements have undermined the capacity of the non-profit and voluntary sectors to fulfill their mandates. Designed to make organizations more accountable and self-sufficient, these changes have instead caused voluntary-sector organizations to stray from their primary goals and become less stable and efficient. If the voluntary sector is to successfully serve Canadians, especially society's most vulnerable, the federal government must take a leadership role and move beyond short-term project funding to multi-year stable financing for the sector.

Finally, the government must bring an overarching vision to its social policies. Much has changed since the post-war period. Political trends have built up and then retrenched the edifice of the social welfare state. Additions have been tacked on, whole wings torn down, and facades remodelled. But there has been no comprehensive redesign of the whole structure.

In Canada, as elsewhere, we face long-term structural problems that are not likely to either correct themselves on their own or be effectively addressed by tinkering around the edges. We need to rethink the post-war welfare edifice, conceptualize a new welfare architecture, and put the bricks and mortar in place to create an inclusive and prosperous Canada. There's no time like the present for these tasks. We have the financial resources, a wealth of research and experience to guide us, and the strong support of the Canadian public.

Thank you very much.

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The Vice-Chair (Mr. Nick Discepola): Thank you, Mr. Anderson.

Next, from the Canadian Alliance of Student Associations, is Mr. South.

Mr. Robert South (Government Relations Coordinator, Canadian Alliance of Student Associations): Good afternoon. For those of you who don't know me, my name is Rob South and I am the government relations officer for the Canadian Alliance of Student Associations, or CASA. I'm joined by CASA's research and policy officer, Kim Steele.

Representing the interests of 19 university and college student governments from across the country--close to 300,000 students--CASA is a non-partisan organization that focuses on influencing federal post-secondary education policy. We believe strongly in the positive impacts post-secondary education has, both on Canada's economy and its social fabric.

To start, I would like to thank all the members of the finance committee for their time today. CASA recognizes that the committee has repeatedly shown support for post-secondary education in its annual budgetary recommendations.

Last year the committee recommended both continued funding for the indirect costs of research, and improvements to debt reduction in the repayment program for student loans. Both recommendations were acted on in the last budget. Thank you again for your support.

This year CASA is asking for the committee's support for a series of six recommendations to improve student financial aid in Canada. The need for action in this area is quite evident, for while Canada has the highest rate of post-secondary education participation of any OECD country, we are losing ground.

According to the Government of Canada's own skills and learning paper, “Participation in post-secondary education has risen an average of 20 percent in the OECD member countries since the late 1990s, while enrolment rates flattened out in Canada after several decades of steady growth.” In other words, we're losing our competitive advantage. This should be of major concern to governments across Canada. Consider that according to HRDC, one in four new jobs will require a university degree by next year. This is up from one in six in 1998.

Further, over 70% of new jobs will require some form of post-secondary education. Also with the rising costs of other social programs, new investments in post-secondary education ensure our ability to pay for social programs for years to come.

In 1999, university graduates made up only 15% of Canada's population. Yet these individuals paid 35% of the nation's income tax revenue and collected a mere 8% of government transfers to individuals.

Given this fact, it's not surprising that the Millennium Scholarship Foundation has gone on record to state, “The Canadian welfare state would be unable to function without the net tax revenues of post-secondary graduates.” Undoubtedly, investment in post-secondary education provides our country with some very tangible benefits.

Investment in post-secondary education is needed because some very real financial barriers exist to accessing post-secondary education. Right now, Statistics Canada studies are showing that young people from high-income backgrounds are two and a half times more likely to attend university than their counterparts from low-income backgrounds.

Of high school graduates who did not continue on to post-secondary education, 36% said that it was in part due to financial barriers. Further, 28% of students who did go on to post-secondary education stated that they faced financial barriers to obtaining the education they wanted.

These barriers clearly demonstrate the need for action. This action was echoed in the finance committee's own pre-budget recommendations last year. I quote:

Action is needed if Canada and Canadian employers are going to be able to access the highly skilled workers that will be needed to ensure our future prosperity and our quality of life.

Obviously, the question that now faces us is not if action is required, but what action. I am pleased to be able to present to you the highlights of CASA's six-point plan for opening the doors of higher education.

The first challenge CASA decided to address was how to get more Canadians from low-income backgrounds to participate in post-secondary education. The current participation rates of Canadians from low-income backgrounds being less than half of their high-income counterparts is far from acceptable.

To address this, CASA looked for successful programs in other countries. In our research we found that the Pell grant in the United States was quite effective at triggering access for people from low-income backgrounds. The Pell grant gives initial financial support to low-income individuals in the form of a grant, as opposed to a loan. Statistics bear out the need for such a program in Canada.

Approximately 80% of parents with family incomes below $30,000 want a post-secondary education for their children. Yet only 18% of them are saving for one.

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Further, according to the Canadian Association of University Teachers, low-income families are now much less able to pay for a post-secondary education than they were a decade ago. In 1990-91 the 20% of families with the lowest family income had to set aside 14% of their after-tax income to send one member of their family to post-secondary education. By 1998-99 those same families had to set aside 23% of their income to achieve this goal. To address this problem, CASA is recommending that the Government of Canada create the Canadian opportunity grant, a grant aimed at reducing barriers for low-income Canadians.

There are also significant barriers to access being faced by the middle class in Canada. One of the biggest barriers is the current levels of expected parental contribution in the Canada student loans program. The Canada student loans program requires parents to contribute a portion of their family income to their children's education until four years after graduation from high school. The required parental contribution is based on a government-determined moderate standard of living. The contribution level is deducted from the student's loan amount, regardless of whether the parents have actually made the contribution. If the contribution is not made or falls short of what the expected level is, the student must make up for the shortfall or their access will be denied.

According to Statistics Canada, more than 90% of parents expect their children to receive student loans. In reality, fewer than 60% of students ever receive a government student loan. In addition, two out of three parents expect their children to receive some form of scholarship when in actuality only one in three university students ever receives such an award.

A quick example of expected parental contribution will illustrate why current expectations are causing problems for many students and their parents. A student in Nova Scotia whose parents make $50,000 a year is expected to get $6,200 in yearly support from his or her parents. This works out to close to $25,000 in support for a four-year university degree. Given these numbers, is it any surprise that even the Honourable Paul Martin stated earlier this year that it's clear the requirements are just too high?

The need for change is further supported by the OECD, which recommended Canada extend student loan eligibility to more students from middle-income backgrounds. CASA recommends that the Government of Canada lower expected levels of parental contribution for the Canada student loans program and develop an appeal mechanism for students with non-supportive parents.

The Vice-Chair (Mr. Nick Discepola): Sorry to interrupt, Mr. South. You said you had a six-point plan. If it takes you just as long to introduce the last three, we won't have any time.

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Mr. Robert South: Oh, no. We're only going to do three of them, and I've done two.

Continuing on the theme of providing students with adequate financial resources, I note that the Centre for Education Information found that students with unfunded need earlier in their program are less likely to persist. Of those with unfunded need, almost half did not return to the second year of their studies. This research is very worrying when you consider current loan limits.

The federal portion of a loan represents 60% of a student's assessed need. This works out to a maximum of $165 a week. When combined with a provincial loan, the average maximum is $275 a week. This money is expected to cover all costs: food, rent, transportation, utilities, health and hygiene, and education costs, including tuition. This amount has not changed since 1995, yet the national average for undergraduate arts tuition has increased almost 80% since then. In light of this, it's hardly surprising that the Office of the Chief Actuary estimates that over 47% of Canada student loans program users are borrowing at the weekly maximum.

The OECD has suggested that Canada consider raising its loan limit. CASA agrees that students must have access to adequate financial resources to cover all reasonable costs while in school. CASA recommends that the Canada student loans program implement a moderate increase in loan limits and allow additional increases based on a student price index, which would accurately measure the real costs incurred by students.

These three recommendations--creating the Canadian opportunity grant for low-income backgrounds, making the parental contribution standard for loans more reasonable, and increasing loan limits--are the centrepieces for CASA's plan to open doors to higher education for more Canadians.

In our written submission there are three other recommendations: to increase the living allowances for Canadians on Canada student loans, to create a capital-cost provision in the loans program for students to purchase necessary equipment such as computers, and to create a new Canada study grant for students with high needs. If these six recommendations are implemented, the doors to higher education will be opened much wider in Canada and we really will have an agenda for improving opportunity for all Canadians.

In closing, I think I can best summarize the importance of investing in post-secondary education by quoting the Honourable Paul Martin:

Education is the meeting place between social and economic policy. It is the best guarantee of a well-paying job and the best assurance of individual security. More than anywhere else, education is where the ambitions of the individual are joined with the potential of the country.

Thank you for your time and concern today.

The Vice-Chair (Mr. Nick Discepola): Thank you.

We hardly have any time. Mr. Jaffer, just ask a direct question if you have one.

Mr. Rahim Jaffer: I had questions for everyone, but I'll just have to narrow it down.

Mr. Anderson, in your submission you come up with a proposal that the basic tax exemption be raised to $8,700. I was just wondering how you came up with that particular figure. What was the basis? I know in our party's work we had actually proposed to move that up to $10,000, so we would automatically take 1.2 million low-income Canadians right off the tax role. I was just wondering how you came up with that figure. If you could share that, what was the basis of it?

Mr. John Anderson: It has been a continuing recommendation of our organization for many years to raise this amount, so we are just continuing on our track in terms of indexing to inflation what we proposed in the past. In other words, we were happy when it went up to $8,000, but we think that's not enough. We think it should be brought up to the $8,700 figure right away.

The Vice-Chair (Mr. Nick Discepola): Be short on the preamble, please.

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP): I'll try.

To the Council on Social Development, I'm just wondering if you took any comfort from Paul Martin's speech last week to the chamber of commerce. I know he had previously appeared at the Council on Social Development and listed his priorities for social policy. They were a bit scarce in that speech in Montreal. I wondered if you had any assurances otherwise that would give you comfort in planning ahead.

Mr. John Anderson: We think that social development has to be a top priority, as we mentioned in the brief, of a new government coming in. We think that, as we mentioned, Canada has right now the fiscal ability to bring in a whole new increase in terms of social spending to deal with some of these issues. I think we're at a point where there's really no excuse any longer; we don't have to worry about the deficit in the same way. We don't even have to worry about the debt in the same way we did in the past. I think we have the financial tools to do the job.

We think this is an opportunity for any new government, and with Mr. Martin's government this should be an opportunity for us to move ahead on some of these issues. We hope this happens.

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Ms. Judy Wasylycia-Leis: So you'd probably be concerned with his focus in his speech on further debt reduction to the tune of a 25% ratio.

The Vice-Chair (Mr. Nick Discepola): I'm sorry, there are three minutes left; bells are ringing. Out of courtesy to the witnesses.... And we're outnumbered three to two. I have to make sure we get back. Here it's great to have one more member than the opposition has, but in there it isn't great.

Does anyone have questions here, very briefly?

Ms. Maria Minna: I have one on the RESP. We had a group yesterday or the day before recommending that we eliminate the RESP and use the money for grants and loans. Yes? No? Good idea?

Mr. Robert South: Well, certainly you want to encourage Canadian families to save for post-secondary education. I think the question is, is the RESP program the best means? It primarily benefits Canadians from middle- and higher-income backgrounds, but there are other places, if we look at how money's being spent, where that money can be found, as opposed to having to focus on the RESP program.

We don't have policies supporting the elimination of the RESP program like the other student organization does.

The Vice-Chair (Mr. Nick Discepola): Thank you to our guests for their understanding and patience. I apologize that we have to go to vote, but we don't want to lose a vote in our state.

The meeting is adjourned, and thank you again.