FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, October 15, 1998

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[English]

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

The finance committee, in accordance with its mandate under Standing Orders 108(2) and 83.1, resumes its pre-budget consultation process.

This evening we have the pleasure to have with us the following organizations: 32 Hours: Action for Full Employment; Campaign 2000; Campaign Against Child Poverty; the Canadian Association of Food Banks; the Canadian Association of Retired Persons; and the Committee on Monetary and Economic Reform. As you know, you have approximately five to seven minutes to make your presentation, and thereafter we will engage in a question and answer session.

We will begin with 32 Hours: Action for Full Employment, Mr. Anders Hayden, research and policy coordinator. Welcome.

Mr. Anders Hayden (Research and Policy Coordinator, 32 Hours: Action for Full Employment): Thank you. I'm presenting on behalf of 32 Hours: Action for Full Employment, which is a Toronto-based organization committed to a reduction and redistribution of work time. We are part of the Shorter Work Time Network, which has 10 local chapters across Canada.

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In 1994 the federal advisory group on working time and the distribution of work endorsed a new public policy priority in favour of a reduction and redistribution of work time, and it pointed out the paradox that many Canadians work long hours, while many others have no work at all. Four years later that paradox continues. Unemployment remains above 8%, a level the finance minister has recognized is far too high.

At the same time, a recent study found nearly two million people work overtime on a regular basis, with an average of nine hours per week. In response to this, reducing and redistributing work time can lead to major benefits such as creating jobs for the unemployed, including the many young people struggling to enter the workforce; improving the quality of life for the overworked by giving people precious time for their families, their communities, and themselves; reducing rates of child poverty, not to mention adult poverty; and improving labour productivity by reducing stress and burnout and improving employee health and morale. It's also a way to reduce the cost to government of the high cost of unemployment.

Many countries throughout Europe are currently implementing a range of options to reduce work time. One of the most notable is the Netherlands, which has cut unemployment to 4.2%, largely due to reduction of annual work hours to the lowest level in the industrial world.

It's time for Canada to begin moving in this direction as well, and there are many budgetary measures the federal government could take.

Our proposals are based on two main ideas. First, that unemployment and overwork are currently generating staggering costs to individuals and society, including major financial costs to government.

Secondly, government policies should reward employers and employees who make new hiring possible by choosing shorter work hours, while penalizing those who opt for long hours over job creation.

Let me briefly outline some of our suggestions. In 1997 the Collective Reflection on the Changing Workplace report emphasized that public policy should not create artificial incentives for a longer work week. Following in that vein, we believe that at a minimum, government should level the playing field in work hours by removing the ceiling on the employer's portion of EI and CPP payroll taxes. These ceilings are one reason that overtime is often cheaper for employers than new hiring. The change could be combined with lowering premium rates to make it revenue neutral on the whole.

Better yet, we would advocate tilting the playing field in favour of job creation and more free time. One option is an exemption of the first $7,500 or even the first $10,000 of employee earnings from EI and CPP premiums. Combined with removing the premium ceiling, this would help make new hiring more attractive than overtime for employers.

A further step in this direction would be to ensure all overtime hours are subject to EI and CPP premiums or, alternatively, to an overtime tax, which would in effect amount to the same thing.

We also support financial incentives to directly reward firms that create jobs through a reduction of work time. For example, in 1996 France brought in tax relief targeted specifically at firms that create jobs by reducing hours. Within only two years, 2,000 firms went to a 35- or 32-hour week, creating 25,000 jobs and saving 17,000 more.

Canada should introduce a similar program, which can be financed out of the savings to government from the jobs that are created.

We also urge government to create opportunities for learning, family care, and new jobs by providing EI benefits for workers who take extended family leaves, leaves for education and training, and personal sabbaticals. This can be done in a very low-cost or even revenue-neutral way by requiring an unemployed person to be hired during their absence. Denmark and Finland offer successful examples of such policies and the Netherlands is trying to follow.

These and other options are outlined in more detail in our paper. They offer viable ways to create jobs, meet pressing social needs, and improve quality of life without driving government budgets back into deficit. And with an economic slowdown and potential for a sharp rise in unemployment on the horizon due to global financial instability, there's all the more urgency for government to ensure policies are in place that encourage a more sensible distribution of work time.

Thank you.

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

We'll now hear from Campaign 2000, Laurel Rothman, acting national coordinator. Welcome.

Ms. Laurel Rothman (Acting National Co-ordinator, Campaign 2000): Good evening.

I think it's important and I want to acknowledge the recent death of Rosemary Popham, our founding coordinator, whom I know many of you have known over the years, and I'd just like to ask if we could have a few seconds of silence in memory of her.

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[Editor's Note: A moment of silence observed]

Ms. Laurel Rothman: Thank you.

I should just say she was the heart and soul of Campaign 2000 since 1991, so we will work hard to follow in her footsteps.

As you probably know, Campaign 2000 is a broad coalition of more than 70 national, provincial and local partners. We're as diverse as the Canadian Psychiatric Association, the Canadian Auto Workers, and the Canadian Council of Churches. We're all committed to monitoring the implementation of the House of Commons resolution to seek to end child poverty by 2000.

I'll try to be brief.

There are many ways to measure the progress of a nation, but there's no more powerful or significant measure of the health and strength of a society than the well-being of its children. Unfortunately, we're failing on that measure in Canada.

You probably know a few of the facts. There are now 500,000 more poor children than in 1989. Maybe more statistically accurately, the rate of child poverty, that is the number of poor children compared to the total number of children, has increased 45%. So whereas about one in six children was poor, now it's one in five. The number of families with incomes of less than $20,000 a year increased 45% since 1989, and the average non-poor family is almost four times better off than a poor family.

So what I put before the committee is a series of the key messages and background facts that we, Campaign 2000, have taken in our lobby to meet with members of Parliament across Canada, and I've given you a copy of that.

We'll be meeting next Wednesday on the Hill, and many of you may have met with local partners in your constituencies. Our over-arching message is we urge you, as a federal government, to stick to your commitment to spend at least 50% of the budget surplus, with due respect to Mr. Martin's statements yesterday, on much-valued social programs.

We join with other Canadians who've consistently said they do not want general tax cuts. From our perspective, and many others, general tax cuts will not benefit low- and middle-income families. In fact, I've given you a chart that shows that a general tax cut benefits the upper 20% of families 22 times more than the lower 20% of families.

We're looking for children to be a major focus of the 1999 budget. We're looking for such indicators as a multi-year fiscal plan with targets and timetables; commitment to a comprehensive child benefit for a total investment of $2.5 billion by the year 2000, and from our calculations that means another $850 million in addition to what's been committed; and the establishment of a national millennium fund for early childhood care and education.

Mr. Martin very adeptly identified learning as a key concern of the federal government last year, and dealt with it at the post-secondary level. I think most developmental psychologists and educators will say that certainly the first six years are as important, if not much more important, in building those foundations.

We're looking for an initial allocation of $460 million to replace what was lost under the CHST and the first commitment of the red book—very modest proposals. We're also looking for extended and enhanced maternity and parental benefits; support for the creation of an independent non-profit housing foundation to help develop affordable housing; and a return to a mixed economy with direct government job creation that will enable parents to earn an adequate income with which to support a family.

Thank you.

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

We'll now hear from Campaign Against Child Poverty, with Rabbi Arthur Bielfeld of Temple Emanu-El, June Callwood and Professor Roger Hyman. Welcome.

Rabbi Arthur Bielfeld (Temple Emanu-El; Member of the Steering Committee, Campaign Against Child Poverty): Thank you, Mr. Chair.

Professor Hyman is not here and Caroline DiGiovanni will be speaking as part of our group from the Hope for Children Foundation.

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We are a coalition of citizens from public interest groups, child advocacy groups, faith groups, family service organizations, charities, education, medicine and the corporate world. You name it, we have it as part of our group. We're a group of people who've had it. We've just said this has to stop. We have to cut across all social, political and economic divisions in this society. If there's one thing we're going to do, it's address ourselves to getting rid of child poverty in this society.

It's interesting that within our group are representatives of organizations from the Anglican Church, the United Church, the Catholic Church and the Jewish community. Frankly, we've had to declare a little bit of a halt for the moment because we felt we were growing too fast to get our program and our focus in order.

Our mandate is to increase public awareness on all aspects of childhood deprivation and to get the Government of Canada to assume its historic role to act for the welfare of all Canadians by standing behind national standards in areas that relate to children's well-being, so adequate financial funding is available from the federal level.

I'm just going to refer to one statistic. The rest of them are in our submission and you probably know a lot of them. One out of every five Canadian kids lives below the government-established poverty line. When you stop to think of it, that's close to two million kids. It's unbelievable. In a society as affluent as ours, with so many resources that it's rated by the United Nations as one of the top most highly developed and comfortable societies in which to live, it's just extraordinary that we continue to tolerate that kind of extensive child poverty.

We know it's not necessary. We can point to Scandinavian countries with comparable economic and social backgrounds. We can point to poor countries such as Cuba, where the infrastructure may be falling down on their heads but anybody who goes there comes back and says “Boy, are they committed to their kids! It's fantastic.”

The fact is that while we seem to be well intentioned and there are all kinds of good words, we're not doing the job, and the rate of child poverty in this country is getting larger and faster and there are more kids and we're in trouble.

So our members have said “Enough!” We have to start gathering together as a citizens' coalition. We now have many agencies and institutions, including the United Way, Hope for Children, the Family Service Association of Metropolitan Toronto, the Jewish Family and Child Service, Voices for Children—there are lots of them.

The implications of all of this are what I think is so frightening. It's not just that the kids can't go to McDonald's or they're poor and can't have warm clothes or comfortable homes; it's that their school performance is substantially reduced because early on their brains just don't develop the synapses or connections that enable them to function. That will exist all the way down the line in Canadian society. They're less healthy. They're more likely to suffer from developmental or physical disabilities. As adults they can't find stable or decent-paying jobs. We know there's a connection between all the money that's being spent on early intervention programs for children and very substantial savings in later remedial costs.

We're really not talking just about child poverty; we're talking about child wellness, and that's a term I think our society needs to learn. What do you have to do to produce kids who are well?

We listened carefully to Paul Martin's forecast delivered yesterday and we were very impressed by some of his words at the Couchiching conference—and those of the Prime Minister too at other conferences—but we're convinced the definition of indebtedness that is being used is far too narrow. By not ensuring that kids are given the support and tools they need now to develop into healthy and productive adults, our government is ensuring a degree of indebtedness in the future that will overwhelm us.

We consider child poverty, given all the other important social issues, perhaps the most pervasive and most threatening aspect of any Canadian social problem that confronts this society. We believe there's a clear social and economic dividend to be realized by maintaining a social infrastructure and funding those programs that have a direct impact upon child well-being.

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Yesterday Minister Martin said he wished there were sufficient funds to invest in the social infrastructure but that they simply aren't there. We think it's short-sighted. We believe they are there. The more we continue to ignore this problem, the more our society is going to pay for this down the road.

For example, the government has promised us billions of dollars for a millennial education fund, but that won't kick in until the year 2001. What are these kids supposed to do from zero to twenty? How are they supposed even to be in a position where they can benefit from these funds, should they be fortunate enough to be there for them?

We believe the physical and emotional health of this nation depends on the health of its children, that the measure of any society is the measure of its kids. I come from a community that sometimes overindulges its kids. My community has had ups and downs in the course of history that have been triumphant and tragic, but by God, the one element that has kept us going and has allowed us to bounce back and to contribute to every society in which we live is the emphasis we place on our children's health and education.

I don't understand why any government in Canada can't grasp this issue. They keep claiming that in good times there isn't enough money and that in bad times there's no money. When are we going to accept responsibility and say, if Canada is the decent society everybody thinks it is, we have a debt to our children? One out of every five live below the poverty line.

So what are our recommendations? The Campaign Against Child Poverty believes the Government of Canada should stimulate a national debate about the best ways to resolve child poverty and to address questions of child wellness. We recommend that in partnership with the provinces and the voluntary sector, the Government of Canada should commit itself to the elimination of child poverty as a national priority.

In 1989 Parliament said that by the year 2000 it would do that. According to Statistics Canada, there were 931,000 poor kids in 1989; in 1995 there were 1.5 million,; and the way things are going, by the year 2000 there will be 2 million. If that doesn't say it, I don't know what does. All I can say is that in the face of these urgent needs, the absence of such a debate and commitment trivializes the needs of millions of Canadians.

So the issues of child wellness and child poverty must be given top priority in the allocation of federal funds, and Minister Martin and Prime Minister Chrétien somehow have to come up with something better than what we're saying to that percentage and to the whole society with the present budget forecast.

We're calling for a social investment fund for children, a comprehensive child benefit system, affordable high-quality child care, and affordable housing. You've heard this from many other groups. All I'm saying is let's get on with the job. Let's be serious about it. There are a lot of people out here, Mr. Chair, who are not naive. We're not bleeding hearts. We are people, men and women from the business community, who understand the need for jobs and the need to pay off the deficit. But we have to deal with this problem, and federal and provincial governments just aren't doing so. Let's do it. Let's start.

Thanks.

The Chairman: Thank you very much, Rabbi Bielfeld.

We will now move to the Canadian Association of Food Banks, Ms. Sue Cox, vice-chair; and also Alexandra Humphrey. Welcome.

Ms. Sue Cox (Vice-Chair, Canadian Association of Food Banks): Alexandra and I will share a microphone, and we'll both speak, if we may. I am Sue Cox. I am the executive director of Toronto's Daily Bread Food Bank, and vice-chair of the Canadian Association of Food Banks. Alexandra is a board member of the Daily Bread Food Bank.

I'm here today to ask the finance committee to consider the implications of a disease that affects perhaps 10% of the population of Canada at some time or other, and the disease is, of course, hunger, and it is a national disgrace. Food banks in Canada are seeing well over 700,000 people every month and more and more in their prepared meal programs.

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I speak of those 700,000 people, but not everybody is able to even use a food bank every month. In some areas a food bank is only available to them every two or three months. Some people need it quite rarely, but the huge number of Canadians affected by the problem in Canada is what I'm asking you to consider right now.

You've received our brief. I'm not going to read it to you, but let me just quickly outline what I would hope from another federal budget. The conclusions that we draw are drawn from the national HungerCount. I did bring copies today for distribution. I understand the brief was distributed to you earlier.

We have to say right up front how disturbed we are to hear that the finance minister intends to squirrel away his surpluses for a rainy day. I wondered vaguely what would happen in the food bank if we did that. We're in the middle of a food drive now, and I'm wondering what would happen if I took half of the food we needed and put it up on the second-floor warehouse and instead I gave people less than they needed when they came to a food bank. Frankly, I think that's precisely what the government is doing right now. I would be in a situation where maybe I could give people cereal but I wouldn't give people milk to put on it, and maybe every third family would end up with a jar of peanut butter. What I try to do instead is provide a health hamper, and that's precisely what so many families in Canada are not getting right now and should be able to get, not from a food bank but in some other and more just way.

I think the federal government has to take advantage of this ability to assist people that we see in the surplus and address the awful problems of poverty. Frankly, you've retreated from doing it so far.

When you distanced yourself from national standards for welfare you signalled what the lay of the land was for us. We don't even believe any more that increasing the transfer to the provinces will do much good because we think it's going to be grabbed back by provinces in a tax relief for wealthy families rather than for poor families.

We're particularly distraught right now about access to employment insurance benefits. People who are on employment insurance typically do not have to use the food bank, but now most of them, frankly, are on welfare instead. This has become the new employment program. People on welfare do have to use food banks, and I think the EI surplus was gained not only on the backs of poor Canadians and poor Canadians' families but also on the backs of food banks that tried desperately to make up the gap. You owe us. We don't want your money, but you owe us.

I have a few words about taxes, and I think Alexandra's going to say a little more about taxes and the national child benefit. We very strongly believe that the lowest-income families ought to be removed from having to pay federal taxes. It's starting to look to us as though the national child benefit is a pure sham. It's a work incentive program that's callously masquerading as a child poverty program. The very poorest of the poor in Canada, those most likely to use food banks, those most likely to need them, most often get nothing new from that national child benefit, and we're even starting to wonder if many of the very low-income working poor families are doing as well as we thought they were.

We also believe that the next federal budget has to address housing needs in Canada. I think we are the only western country without a federal national housing policy. All levels of government are withdrawing in this area. We would like you to take the leadership here. Here in Toronto, I just say as an aside, about one-third of the families with children who use food banks have either been evicted from their homes or have been threatened with eviction because of their inability to pay the rent.

Finally, we very strongly support the idea of strong job creation measures in the budget and not just measures that provide incentives for the private sector. We believe the federal government needs an explicit commitment to a reduced unemployment rate and a federal job strategy to achieve it.

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But let me just ask Alexandra, if I might, to wrap up a little bit.

Ms. Alexandra Humphrey (Board Member, Daily Bread Food Bank; Canadian Association of Food Banks): Hello, my name is Alexandra, as you've heard. Bonjour mesdames et messieurs. I'll tell you a little bit of my story, but I could be here all evening explaining to you how all the cuts that the federal government has made to the provinces reducing transfers have affected every single aspect of my life.

I'm a mother of six children from the ages of 7 to 20. My older three children are living independently right now so I have three of them with me. I've lived in poverty since the time of my failed marriage. I went to school for four years to gain an education so that I could have a job that paid me more than a subsistence living. I am saddled currently with a student loan of $23,000, for which I had to apply for interest relief for the amount of time that I am allowed—and that time is going to be coming up soon. That means I have to pay about $400 a month to pay back this loan, and I've been told that if I can't pay that there will be a collection agency sent to my house to help me find a way to get the money to them.

With regard to the child tax benefit, before July 1, 1998, I was receiving $372 and since that time, with the new child tax benefit, I receive $50 less, which is $322. I am presently employed and I make $1,600 a month in my employment. The bulk of that goes towards paying my rent and my most basic utilities, and I depend on the child tax credit in order to be able to buy food and clothing for my children. Now that it's reduced, it has created a significant hardship for me, along with the whole package to begin with.

Also, I've been told that a portion of the child tax benefit is going to have to be reported as income, thereby reducing my eligibility for services and making it so that I will be paying more for whatever services I do use. I do have a child care subsidy, and that's going to be going up now because of the fact that the child tax benefit has to be reported as income.

Every single aspect of my life— the school fees have gone up, everything I've been trying to do in order to upgrade myself and my family has been increased. I have to pay more for everything and I have less money to do that with.

I particularly would like to know why the federal government is targeting certain parts of families, such as only children 7 and under and youths 18 and over. There's a huge gap in there of the children who are over 7 and up to 18, and those children eat more—I can tell you, I can vouch for that—and I need more money to be able to buy clothing for them. But the government is targeting certain areas and forgetting about the fact, seemingly, that children live in families and it's the families that need assistance.

Currently, with the money that I make working, I don't have enough money to buy clothing or to buy adequate food. I've cut down significantly. My children are only allowed to drink one cup of milk a day or else there won't be enough milk. We ration one food a day. We never eat vegetables any more. Those are things that have happened since I've lived in poverty, but significantly since the transfer cuts.

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I want to know if the government can take a close look at a family such as mine. What I've presented you with is only a fraction of everything that has happened to me since all of these cuts have come down.

I would like to know if the federal government is interested in looking at families such as mine to see exactly how all of these cuts have affected every single aspect of our lives, and have impaired my ability to provide for my children, which in turn ties in to what everybody is saying about child poverty—not being able to provide food for our children in order for them to be able to grow up healthy and well.

I am in doubt as to whether my children will be able to access college and university education, because the cost is so prohibitive and getting even more so, and I personally can't put any money aside to help them along.

I will pass you back to Sue.

Ms. Sue Cox: We're done.

The Chairman: Thank you very much, Ms. Cox and Ms. Humphrey.

We will now hear from the Canadian Association of Retired Persons, Mr. Bill Gleberzon, assistant executive director. Welcome.

Mr. Bill Gleberzon (Assistant Executive Director, Canadian Association of Retired Persons): Thank you.

Thank you very much for the opportunity of inviting us to make a presentation to the committee.

I would like to introduce my colleague Judy Cutler, who is the director of public relations for CARP. And I would also like to extend the apologies of our president, Mrs. Lillian Morgenthau, who can't be here this evening.

I'm not sure if the members of the committee know much about CARP, so I'd like to make a very brief introduction to CARP. We are the largest national association of mature Canadians in our country, representing 370,000 members in every province and every territory. Our members are 50 and older, and the average age is about 62, so that we have a very wide spectrum of concerns. We're a non-profit organization. We receive no operating funding from any level of government, to ensure our neutrality and independence.

Our mission is to express the concerns of mature Canadians and we believe, therefore, the concerns of all Canadians. Our mandate is to provide practical recommendations for the concerns we raise rather than just “carp” about them. I understand you all have received a copy of our brief, so I'd like to just focus very briefly on four points that are raised in the brief during this time.

Number one, we hope that in the 1999 budget the current tax credits that seniors receive based on age and retirement are not touched, that they are retained, that they're not changed. In fact, we strongly urge that in the future any changes to the public pension system or the retirement income system should be done in a holistic manner, and only after extensive public consultations.

Secondly, in regard to the surpluses we've all heard about in the employment insurance fund, we urge the government to use those surpluses for the purposes they were intended to be used, as insurance against unemployment. In fact, with a possible recession—and let's hope not a depression—on the horizon, we strongly urge the government to decrease the work eligibility period, to increase benefits and to liberalize accessibility, especially when only 36% of claimants are being accepted.

Thirdly, we hope that in the 1999 budget the government will increase the tax credits and introduce remuneration for family members who provide care for frail seniors at home, especially if these caregivers have to give up full-time work to do so. As I'm sure you all know, this is the future face of health care, and it raises some very troubling issues for us.

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Finally, the fourth issue, with due respect to Mr. Martin, is we urge that the 1999 budget stick to the government's original proposal regarding the disposition of the government surplus. Half of it should be used to pay down the debt, and the other half should be evenly divided between providing a tax break for Canadians and spending more money on health care, education, and social services. We urge the government to adhere to this policy despite the dire economic situation Canada may be facing.

As Mr. Martin noted yesterday, the economic downturn that our country will probably face over the next little while is not made in Canada. There is very little we can do about it other than prepare our citizens, especially those who are vulnerable and who are going to be adversely affected by any downturn, to ride out that unfortunate trough.

I will be pleased to elaborate on these issues and explain the other issues we presented in our brief during the discussion period.

Thank you very much, Mr. Chairman.

The Chairman: We now move to Mr. William Krehm, who is from the Committee on Monetary and Economic Reform. Welcome.

Mr. William Krehm (Chairman, Committee on Monetary and Economic Reform): Thank you, Mr. Chairman.

For many years now, elections have been run around the deficit. The stark fact, however, is that neither the government nor the public has the slightest idea of what the deficit might be. The case was summed up very well in Canada Year Book editions that I could trace from 1967 to 1994. I will read the crucial part of the passage:

Fixed capital assets, such as government buildings and public works, are charged to budgetary expenditures at the time of acquisition or construction and are shown on the statement of assets and liabilities at a nominal value of $1.00.

Such a budget cannot be balanced and should not be balanced. Even the attempt to balance it would put an unnecessary amount of taxation into the price level. Consider for a moment what would happen if Imperial Oil wrote off its wells and refineries in a single year. The price of gasoline would hit the sky.

Now, that was part of the question when the Bank of Canada introduced a high rate policy to fight inflation. The inaccuracy of the price statistic accounted for the high interest rates that in turn made up the present deficit.

Recently, by the way, I noticed that this passage in the Canada Year Book disappeared shortly after we started making noise on the subject. I have written to Statistics Canada. I have tracked down the passage, which was unchanged since the 1967 edition. I couldn't reach earlier editions. I asked when it was eliminated. Why was it eliminated? To date, I haven't received a reply.

I very much urge your committee to take up that query for a good enough reason. By now, the government and the committee should realize that what we are faced with is not just a stock market collapse, it is the collapse of monetarist dogma that has driven the policies of the world for close to 20 years.

By the time we see light at the other end of the tunnel, there will have to be a drastic rethinking of monetary and economic policy. The problems raised by the previous speakers all lead back to the deficit, and that is precisely what I am talking about. The present deficit to a large extent can be traced to the last time our banks got themselves in hot water and were bailed out by the phasing out of the reserves they had to hold with the Bank of Canada.

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As a result of that and other things that I will not go into in this introductory talk, the commercial banks have loaded up with an extra $60 billion of government debt, and the Bank of Canada obligingly has restricted its holding of government debt. That is tantamount to an entitlement on behalf of our banks of at least $5 billion a year. And that is why Mother Hubbard's cupboard is always bare and she always has too many children to feed—the natural rate of unemployment.

Now, there will have to be a basic thinking of economic theory equal to and deeper than that which took place in the thirties. Unless government statistics are unmanipulated facts, there is no factual detail on which to base that rethinking.

This committee has the obligation to clean up the mess of government accountancy and the way in which federal investments—capital investments—in physical and human assets are handled.

Now, that has been made easy for you by work already done. I refer you, of all places, to the Bank of Canada Review, page 33, the summer edition, 1997, reproducing an item from the Public Accounts of Canada, 1995 to 1996. It says:

The federal government is gradually moving towards full-accrual accounting, whereby the cost of acquiring physical assets is spread over the asset's useful life through annual depreciation charges, and thus the true cost of such assets will be more accurately recorded in the future.

In short, you will not take out of the mouths of poor kids in order to bail out banks and in order to worship a false statistic.

Now, we publish a monthly newsletter; it's in its 115th edition. It is sent free to legislatures across the country. I trust some of you may have read it; I have some spare copies if you haven't. We have published what we call the “indicator”, which is the proportion—the ratio—of the assets of our chartered banks to the legal tender that they hold.

In 1946 that ratio was 11.1:1. Currently it has attained 348:1. But that's only the beginning of the story, because the banks have been deregulated so they can invest in Indonesian bonds and buy up parts of Thai, Mexican, and Venezuelan banks. Those assets, in that proportion, by now are fictitious. You've heard what has happened to Thai and Venezuelan banks.

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By now, I can assure you, our banks have blown a substantial part of their capital, which amounts to $50 billion or under 4% of their total assets, and they will be back with their begging bowls even before the mergers are through. I'm not talking about bank mergers. I'm just talking about clearing up the statistic that has been the pretext for the spoliation of social programs in this country.

The Americans, as a matter of fact, have already done this to a partial extent. You may have heard of Clinton beating his deficit. That was done in part because they recognized government savings and in that way were able to reduce the error in calculating the government debt by $1 trillion, carried back to previous years. You know that bond rating agencies and speculators in currency go by a single or a few statistics, and one of them is precisely the deficit and the debt. That's enough to introduce what I have to say.

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

We will now hear from Micross Fur Canada, Mr. Sydney Sokoloff.

Mr. Sydney Sokoloff (Micross Fur Canada Inc.): Fellow Canadians, my name is Syd Sokoloff. I've been in the fur business for 53 years. I'm the oldest fur merchant in Canada and the first fur merchant to go overseas to Japan, Hong Kong, and Korea.

Now, from 1971 to 1988 business was not bad. I didn't have the ripples. All of a sudden I found out in 1988-89 that the Canadian government had a plan. What they did was this. The EDC sent two free tickets to every fur buyer in the Orient. They came to Skyway, Hudson's Bay, or North American Fur Auction, paid for the hotels, and sat them down at the auction, with a one-year credit. It lasted two years. We lost $6 billion. It was I who put a stop to it.

I have two magazines, one from Hong Kong with my picture on it and one from the Financial Post, to back me up.

After one year they had a new program. I have a letter from Ralph Goodale, a cabinet minister. He gave $40 million in 1992 to North American Fur Auction. I hear such sad stories today about hunger. They've given $40 million per year; that means $500 million to 1998.

They said, Mr. Sokoloff, the fur business is in a shambles here. Due to the collapse of the fur market in 1991 and 1992, Agriculture gave $40 million. Here is a report from 1992; they did 25% more than the year before.

I've been lobbying MPs to put a stop to it. I'm not asking for money. Put a stop to it and everybody will be on a level playing field, or fiduciary— If there are any lawyers here, you know what that means. Everybody should be playing on the same level field. We gave $500 million, and now they have a new thing called MARG. MARG is master receivables— that they give credit again.

This is what I know. What about the things I don't know about how much they lost? I think, ladies and fellow Canadians, we should put a stop to it. We should have put a stop to the corporations. The corporations are breast-fed and taking over, and ordinary Canadians are suffering.

• 1905

Talking about banks, I have a letter of credit guaranteed by a bank. The bank wouldn't touch it. I called Tony Ianno. I said, “Tell me, Tony, how much are the banks in with the Asian flu? It's called global; everybody's fundamental and everything else is fundamental. Tell me how much.” He said he hadn't thought of it. They're in for 30% to 40%. As the previous speaker said, they're going to have amalgamation, cut down 20,000 people so they should make it up, and then have a deferment of tax—then they shouldn't pay tax—and then ask for more money.

MacKay came out with an orange light. I say no. I see a red light. I talked to Jim Peterson. He called me, and I said make the B banks into A banks. Open up the foreign banks with branches, like the CRTC did with Bell Telephone and Sprint.

Let Flood and Barrett earn their $3 million, if they're making it. Let them earn it, instead of having a monopoly. You have a machine, and people can take out their own money. You don't have to be a rocket scientist to be a banker.

Ordinary Canadians don't have a chance. I've been stonewalled by all the MPs because they don't want to listen to me. We're rehashing $3 billion and $500 million. There are people in our good Canada who are starving. The United Nations said we're the best in the world. Are we the best in the world? I say no.

We need leaders now. We don't have leaders. Tonight for dinner I had a pepper steak. I hope you understand what I'm talking about. The students don't even have funding for a lawyer. Only the RCMP is getting millions of dollars. Why is it only the well-connected can get money and the ordinary people are just wandering? Like the people millions of years ago, they're wandering. We need leadership. This is what we need.

I think the Liberal Party should butt out of the fur trade or butt out of any industry. Ordinary Canadians are good businessmen. They are good, but they cannot compete with stacked money. If I owe tax money and I have money in my pocket, I have to respect that money because I owe it to the government. But my tax money, what I give you, you should respect also. You have to respect my money as I have to respect your money.

Thank you.

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

That concludes the presentations from the panellists. Now we'll move to the question and answer session. We'll begin with Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chair.

Thank you for your interventions tonight. There was a fascinating range of issues, depth, and personal experience that has helped us crystallize a lot of these issues. I really appreciate it.

Starting off, I have a question for the Canadian Association of Retired Persons, or CARP. First of all, I want to congratulate your organization on the sound work you did relative to the seniors benefit. I think your organization, quite possibly more than any other organization, spearheaded that and did a very good job in helping the MPs understand the issue, ultimately leading to the decision not to proceed with the seniors benefit.

In calculating the tax credit the following amounts are used: there's a base amount of approximately $6,500 and then an age credit of $3,500. Do you think in the current context that is fair? A dollar is a dollar, and why should seniors— For instance, when we're making these difficult choices and we hear of the hardship of young families and the relative return of society investing particularly in children, is it justifiable that we have effectively a tax advantage or a tax credit for senior citizens when in fact it would be better allocated elsewhere, maybe?

• 1910

Mr. Bill Gleberzon: The justification is that, I guess like children, most seniors don't work. They live on fixed incomes. Any of them who have interest-bearing accounts or investments find that those investments are very low, and have been for a number of years. Low interest rates are to the advantage of the country, and seniors aren't complaining about that. That's not the point. The point is that any moneys they have to live on have been cut back as a result of elements like that.

For those reasons, because of the fact that the overwhelming majority of people over 65 do not work and are retired and have no way to make up any lost income as a result of, as I said, low interest rates, the overwhelming majority of seniors currently depend on public pensions to survive. Something like 46% of seniors have incomes of less than $20,000, and of that 46%, about 40% receive GIS. So for reasons like that, I think those kinds of tax credits are justifiable.

Mr. Scott Brison: Okay, thank you.

Mr. Krehm, there is a significant amount of skepticism now about the Bretton Woods institutions and the IMF or the World Bank. The World Bank, under Wolfensohn, has arguably made some progress and is evolving somewhat, but with the IMF there's still significant skepticism.

Recently I read of Jeffrey Garten, who is dean of the Yale School of Management, I believe, and he was Under Secretary of Commerce for International Trade in Clinton's first administration under Ron Brown. He was writing about a global central bank. I'd be interested to hear your views on that.

Also, we're all watching what happens with the common currency in Europe, the EMU, and with the success or failure of that, and ultimately there is some discussion about whether or not there is potential at some point in the future for a global currency. I'd be interested to hear your views on that, and that may be something we'd want to explore at great length at a different forum.

Mr. William Krehm: Yes. Well, the first thing is that naming high interest rates the only stabilizer is wrong and unsustainable, because this was in order to fight inflation. Now, actually, you raise interest rates and costs of production go up. The price level can be brought down only by collapsing the economy, and that in fact has happened. When the economy collapses interest rates come down temporarily, and then as the economy revives interest rates go up still higher. In short, there is a churning of the economy that only benefits speculation.

Mr. Scott Brison: Are you suggesting maybe we take the monetary policy out of— and focus more on the fiscal levers?

Mr. William Krehm: Well, what has been buried in the interest of speculative capital is everything that worked to control inflation and give us a reasonably functioning economy before the 1960s and 1970s. For example, with reserves that the bank had to hold with the central bank, if the economy became overheated, the central bank could raise the amount of reserves the banks had to put up, so that would restrict capital without increasing interest rates.

But now let's get back to Bretton Woods. It wasn't just philanthropy or bleeding hearts, it was the fact that the Second World War could not have been won if the government had not promised a very different world at the conclusion of it than that of the 1930s. In the decades after the end of the Second World War, society, and especially Canada, made considerable progress towards that goal.

• 1915

The idea at Bretton Woods, as originally conceived by Keynes, was not to put the burden on the debtor nations, but to put it equally on the backs of the creditor nations. Drawing rights of the new world organization were to be distributed according to the average of imports and exports over the previous five years. If the creditor nations increased their drawing rights—meaning that they accumulated credits in excess of 125%—then they had to get rid of that excess by either importing more goods from the debtor nations or by raising their currency. Otherwise, the interest on the excess would be forfeit to the United Nations, to be used for social purposes, etc.

Britain and Keynes didn't stand a chance of getting that through. The point of view that prevailed was essentially that of the United States. The IMF became a debt collector for the creditor nations. Now, using interest rates as a stabilizer of the economy, of course, made that impossible. As a result, we have beggared the creditor nations. The IMF now deals less with them and more with the emergent nations, and the emergent nations are talking back.

The Chairman: We'll have to move right along to Mr. Discepola, followed by Mr. Szabo.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Thank you, Mr. Chair. I have two short questions and one more engaging question, and I'll go with the short questions first.

Mr. Gleberzon, my first one has to do with your answer to Mr. Brison. I understand that seniors are on a fixed income and, as a result, have greater difficulties, if I can use that word. Shouldn't the logic be, then, that we should income-test that exemption and extend it to anybody who's on a fixed income? I can use examples of people who don't work for a year or two. As a result they receive no other money, so they're in hardship, too.

Help me with the logic here. Why is it that until 364 days after my 64th birthday, I don't get that benefit, but one magical day later I do? My needs aren't any different. If it's going to be needs-tested, would your group concur that maybe what we should do is income-test it so that all those who are in that kind of need would be able to qualify?

Mr. Bill Gleberzon: Well, there are a couple of things there. It's really not true that people receive the full benefits, you know. It's only 17% of those two benefits, because they are related to the lowest tax bracket.

Anyway, what we have suggested to Mr. Martin as a way of providing people with a tax credit is to provide this benefit to every Canadian. We don't believe in income testing in regard to these kinds of benefits. That was one of the positions we took with the proposed seniors benefit, because we believe in universality.

Furthermore, with the way the economy is set up today, there is some logic in what you're saying. The average age of retirement now is about 62. For a lot of people, they're old workers at 45, so we're looking at a different kind of economic situation. However, the chances of someone getting a job to replace their income after 65 are reduced considerably. That's the point. As I say, we're opposed to income testing in this regard.

Mr. Nick Discepola: My other question is a short question for Mr. Krehm.

Mr. Krehm, I come from a municipal background. I have to tell you that one of my frustrating experiences as a mayor was to have to listen to my treasurer tell me that I should buy an asset and amortize it over three or four years because it's used for life. We went to the extreme of buying typewriters in those days—now it's computers—and amortizing them for three or four years, which was ridiculous because the cost of financing was great.

• 1920

I agree with you that government, including the provincial and federal governments, is looking more and more at alternative sources of funding for major acquisitions. They're looking at things like leasing for major capital acquisitions, for example.

But I fail to understand your logic, sir. How does that change the bottom line? We still have a debt of $583 billion that we must service, so surely it's not by changing accounting principles that we're going to escape that. We have $40-some-odd billion in interest payments that we're going to have to still face. How does your logic allow us to have a better picture, financial or otherwise? If I use business terminology, the bottom line is that the source and application of funds, which is a measure of how much money I have disposable to me as a business, is still going to be the same no matter how I account for it.

Mr. William Krehm: As a matter of fact, since you're talking about businesses, you try running a business and paying off your machinery and the building in a single year. There's the answer.

But let me be more specific. To get this country out of the Depression in the 1930s, the Bank of Canada was founded. In 1935 it had 1,200 shareholders. The Liberal Party, under Mackenzie King, ran an election and won it. One of their promises was to nationalize the Bank of Canada and, by Jove!, they carried out that promise. The one shareholder of the Bank of Canada happens to be the Government of Canada. When the Bank of Canada holds bonds of the Government of Canada, the interest paid on those bonds reverts to the Government of Canada as dividends.

Now, what has happened in recent years? In order to bail out the banks from their financing of Robert Campeau—I wonder if you remember him; Campeau was collecting department store chains in the States, etc.—the reserves that the banks had to hold with the Bank of Canada against their deposits were phased out.

I won't complicate things, but the Bank for International Settlements declared government debt to be risk free. That enabled our banks to load up with government debt that the Bank of Canada should have held and did in fact hold to a considerable degree.

In the Bank of Canada Act, there is a clause, clause 18, that allows the Bank of Canada to lend money to municipalities against the guarantee of the provinces to very considerable amounts. The interest paid in that would not go back to the provincial government, it would go to the federal government, but this would permit a way of financing municipalities in purchasing typewriters or whatever.

Mr. Nick Discepola: I'd like to move on to my final question. The chair is giving me the evil eye here, and it's a very important issue for me.

Many presenters today have seemed to indicate that the fault lies mainly with the federal government downloading to the provinces, and that if we only gave back to the provinces what we took away from them, it would be the panacea for everything. I'd therefore like to bring some facts to the table; members of the opposition are very adept at their job, and we have to be adept at our job as government members.

It is true that if we take a look at just the cash component that the provinces had under the old system, that cash component would have been gradually declining and fixed. The federal government would only have contributed about $11 billion to the transfer total, which is $7 billion less for all the provinces.

The reverse side, the other side of the equation, the opposition members and the provinces don't talk about. If we hadn't changed it, that's what would have resulted. By changing it now, we allowed the provinces to receive additional funds through tax revenues. As a result, the net difference is not $7 billion but about $5 billion, because the provinces are now getting additional revenues because of the economic situation. It would still be unfair, mind you, because those provinces that don't have that taxation base are still not in the same enviable position.

• 1925

When I see the Government of Quebec, for example, choosing deliberately to spend $160 million on a not-needed subway extension into Laval while closing five hospitals, or when I see the Government of Ontario deliberately closing hospitals and reducing education yet giving $4 billion in decreased taxation, I wonder if the solution to some of the problems we're trying to address in the prairies is really to simply give the money to the provinces. Are they better custodians than the federal government?

The Chairman: Are there any comments? Where we do we start? Ms. Rothman.

Ms. Laurel Rothman: With all due respect, not only were the amounts of those transfers severely limited, but you threw out the baby with the bathwater. We have no principles, we have no standards, we have nothing but a wide open road that a truck could go down in terms of where that money can be transferred. Mr. Martin's and the government's move to the CHST has taken away any— I will use the words “national vision” for a compassionate Canada. The levers aren't there.

Yes, the reduction in the funding is critical. But so is the structural stuff that you took away. We have no—

Sue, help me out here. You know what I mean.

Ms. Sue Cox: We have no national standards for welfare.

Ms. Laurel Rothman: We have no right of appeal. We have no national standards.

Mr. Nick Discepola: We never had them before.

Ms. Laurel Rothman: Of course we had them before. What did we have before? We had limitations.

Ms. Sue Cox: You had the Canada Assistance Plan, and while CAP was probably never appropriately regulated, it was nevertheless a standard to which provinces were held. Now they no longer are. The result of that has been that many provinces, such as Ontario, are able to bring welfare rates down to a level where people can no longer live in health and dignity. And what is more, they've been able to introduce measures like work for welfare and other things like that, which were previously prohibited under the Canada Assistance Plan.

In answer to your question, I said when I was speaking that I no longer think transfers to the provinces are necessarily the answer, because those standards are gone and because a government like the Government of Ontario can do the most awful things to people like my friend Alexandra here. But when it comes right down to it, I think I have to hold you guys accountable for this, because that's the standard that you set. You made it possible for a government like the Mike Harris government to do these things to people.

If there's one thing I want back from a Liberal government, it's that you once again assert some leadership in the whole area of compassion and caring. That's where we need to go, and that's the responsibility that I think you've backed away from. You've done it in housing, you've done it with children, and with everything else.

I happen to think that maybe we ought not go back to the old way. Maybe it is time that we re-look at all of those things and develop some new ways of doing them right now. But I think things like the national child benefit were originally an attempt to look at a different way of using the tax system to move funds to low-income families. Frankly, that whole process has been prostituted in Ontario, where they grab that money back. I was very upset when I saw Pierre Pettigrew stand up there with Janet Ecker and talk about this as though it was a poverty program, because it doesn't even reach the poorest children.

So I think leadership is what we're asking for.

Ms. Laurel Rothman: Yes, and I have to add that we have one million children on social assistance in this country, in situations perhaps not unlike some of the ones described this evening. They are receiving what I would refer to as no direct benefit from the national child benefit. So with all due respect to the federal government's at least timid re-entry into the social policy field, the needs of children and their well-being are more precious than the social union. Quite frankly, we need something tougher than what was crafted around that table.

The Chairman: Are you saying that it's not helping anybody?

• 1930

Ms. Laurel Rothman: It's certainly not helping the one million children on social assistance, and as yet, quite frankly, we will wait to see what the impact is. But she says it a little bit better than I am.

Ms. Sue Cox: And I differ in opinion from Campaign 2000 about some of this a little bit, I think, but I think we're coming from the same place. The poorest children of families are the children whose families are not employed. They received the old tax credit, but when the new benefit was added on, they did not receive it.

In addition, many working families, like Alexandra's family, are finding that in fact they are not receiving— the whole thing is reformulated, so in the second year they're not receiving as much, and their money is counted as income, so for things like their subsidized daycare their subsidy is now less. What working families are actually getting, I would suggest when we step back and look at it overall, is not nearly as much as we thought they were going to be getting. But I think the real crime is that it was never targeted to the poorest families. It was targeted to the wealthiest poor families, if you will.

Ms. Caroline DiGiovanni (Member of the Steering Committee, Campaign Against Child Poverty): I think another feature that was supposed to click in was the participation of the provinces with whatever they considered savings to be distributed towards programs for children. I haven't seen that yet. And that's where the standard and the leadership really needs to move in. What we have instead is obligations being downloaded more and more towards the cities to try to do what social policy ought to do on a larger scale.

So just to get very down and dirty, where is the assistance to child care when you know that quality child care is really an essential element in success at an early age if a family is forced to work. So when the family on welfare is forced to go job seeking in order to qualify for benefits, they pack their children into an overstretched system that has no other support except what they can get from the city and the province together. We need to have the kind of leadership that's been talked about here so that fiscal policy matches the social directions that we're telling you we have to go in.

Just to make a few other points about child poverty, it is really undermining the future if you don't invest early. We've had this conversation many times before, Maurizio, and I think you know that the wisdom of investing in early years is borne out in countries that do this and have a whole system.

But if we fail to invest now when we're having a crisis of poverty, with 89,000 kids under 10 in the city of Toronto living in poverty, with children on welfare lacking the essentials because they can't make it to the end of the month to eat, when the Children's Aid are increasing their caseload of admission to care by 7% in all parts of the province of Ontario, these are indicators of a disaster. And if you don't really participate now, when there is an opportunity to show that kind of guidance, and when you can go back and revamp some of the programs so that you encourage or enforce, or in many ways absolutely require, the level of participation from the province that was the premise for this change, then we'll miss an opportunity and we'll miss a generation. And we'll have kids who are not able to relate to each other and be socially able to function, and who will not have learned in their first few years because they're hungry.

Mr. Nick Discepola: Nobody's answering my question, though, and it's not the only group here. In Ottawa we've received similar presentations. When I look at recommendation 4, it said: “The federal government should restore federal transfer payments to their levels prior to the shift to CHST”. Other groups have said we should restore health care funding to prior levels, etc. Nobody has qualified it, though.

And what I'm hearing is a total different version here now. Yes, restore it, but make sure you have guarantees from the provinces, make sure you have conditions with the provinces. And that's what I'm trying to draw out from you.

I see a lot of heads shaking, but none of that's going to be on the record. So I want people here to state that categorically. If you're saying you don't trust the provinces to deliver on their commitments, then I'd like to hear you tell us so.

Rabbi Arthur Bielfeld: With respect, at least in my presentation I made it clear that what the Campaign Against Child Poverty is calling for is clear national standards that make this very unmistakable. And so I think we agree on that.

• 1935

Mr. Nick Discepola: So as much as you criticize the old system where we just gave the money to the provinces and we had no leverage at all, the new system at least gives it that leverage. There are benefits to it.

The Chairman: A final comment and then I want to go to Mr. Szabo.

Mr. Bill Gleberzon: I wanted to return to the what the original question was about, that is, whether the provinces are better custodians than the federal government.

From our point of view this is a non-question, because it's not an either/or proposition. We've written and spoken with Mr. Martin, and written to Mr. Chrétien and spoken with Mr. Rock, because our position is that we're a national organization, we are non-political, so we look at the issues and not the political party it comes from or, for that matter, the level it comes from. Our concern, for example, around the social union that some people have referred to is precisely what people have said, which is that we fear that it's going to destroy a sense of uniformity, of national standards, across the country. We've said this to both Mr. Chrétien, Mr. Rock and Mr. Martin.

We have no problem at all with the federal government having ties to the money for specific expenditures. People here are talking about child welfare, but we haven't talked about education policy. We've written, and we say in our paper too, that we think the millennium fund is the wrong way to go. We think it's the wrong way to go because it's going to indebt us. We've heard Alexandra talk about the amount of debt she's incurred. We believe that once it's introduced what we're setting off is a whole generation of people who are going to come out of college with heavy debts over their heads, many of whom aren't going to be in professions that will allow them to recoup those debts quickly. What we find especially troublesome is the fact that a lot of the people who are supporting this policy are people who went to university at a time when tuition was, relatively speaking, pretty low. We find there's an inequity there.

Mr. Nick Discepola: Sir, I went to university and it was costing me $750 back in 1972. So by all standards today it should be costing $7,000. In my province, because of a choice that the province has made, it only costs students roughly $2,500.

Mr. Bill Gleberzon: We think that's the way it goes.

Mr. Nick Discepola: In fact, it's one of the lowest rates.

Mr. Bill Gleberzon: The other issue I wanted to make a point on is health care.

The Chairman: Excuse me. We're getting into debate here and there are other people who want to make presentations.

Mr. Bill Gleberzon: The other side of it is health care, and we're also concerned there that what we're going to end up with is—for example, if the government moves to home care and what we're seeing in the provinces anyway—a creation of a crazy quilt across this country, where there should be, and the Canada Health Act says there should be, a uniformity, etc., for people regardless of where they live. So those are the kinds of issues that we're concerned about.

The Chairman: Thank you.

Mr. Szabo and Mr. Pillitteri, could we get as many questions in here as possible, so we can get as many answers back. Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): First of all, let me say that I am pleased and very honoured to have this panel before us. I'm really quite in awe of some of the people I see here, because they've been such leaders to the community.

You've been preceded by a lot of people who have dealt with fundamental issues to do with children and poverty generally. It's an issue that I've spent a bit of time on myself as a member of Parliament.

One of the first things I was told when I became a member of Parliament, and I was a member of the health committee, was that we spend about 75% of our health care resources on remedial or curative purposes and only about 25% on prevention. That theme of prevention versus cure has profoundly impacted my approach towards a lot of social problems, not just clear health.

In that context, when you consider that we are eight, nine, maybe close to ten years from the 1989 House of Commons resolution, and we are at the point where your principal resolution is what we should talk about, when you think about it, isn't it awful? There is a very good reason why your recommendation can only be let's continue to talk about this. The reason is that we as a society have not found the fortitude to deal with some issues that will divide and polarize us and will take this issue of child poverty in places that you do not want to go.

• 1940

I've written three monographs since I've been an MP: One was called Divorceable Facts; the second one was called Strong Families Make a Strong Country; and the third one was Tragic Tolerance of Domestic Violence.

The linkages between them are enormous, and so I will throw out to you a list of the issues that will divide us and that will pit us against each other and that will make this an ugly thing over time, when we really want to deal with poverty but we have to deal with them.

First, 46% of all children living in poverty come from lone-parent families, who represent only 12% of all families in Canada.

The Canadian Paediatric Society strongly supports the World Health Organization recommendation or guidelines for breast-feeding at one year. They feel so strongly about it that they have said categorically that they will have no involvement with any organization that does not support this guideline—the bonding issue.

The Vanier Institute, the Canadian Institute of Child Health, the Carnegie Institute, the Canadian Institute for Advanced Research, Fraser Mustard, all of those people—you all know them very well—the brain development, the first year of life— Fraser Mustard was before the human resources development committee this June. He summarized by saying the first year is dynamite. That's where it happens.

The foundation for abstract reasoning, problem-solving and general logic is established by age one. Eighty percent of the lifetime development of the brain is complete by age three. It is not possible for us to talk zero to six as a homogeneous group; it is not. The formative years are not zero to six. By age three, your ability to cope, to learn, to do all those other things we want to see happen, has been established. The ballpark's been defined. And it's going to divide people, because there are those who have come before us who want enriched child care, and let's spend $5 billion—but it doesn't deal with infants; it deals with children who have reached the age of three. It's too late. It's too late.

I sat beside Barbara Hall at a meeting when she was mayor and said “How can you have quality child care in Toronto, or in Ontario, or in Canada, when all you're prepared to pay is $18,000 a year for a caregiver? You can work in McDonald's and make more. How can you attract and keep good people if you can't pay them?” And people aren't prepared to pay.

Here's another point that's going to pit us against each other. If you follow the road of continuing to provide benefits, direct or indirect, cash or in kind, to those who cannot care for themselves or take care of their kids, at the end of the day you have built it all up to a point where you are at a guaranteed annual income, and then the argument comes up: Are we breeding dependency? Are we taking away the incentive? Is it a handout versus a hand up? That argument will kill us.

The final area is “forced to work”. For someone making $25,000 a year as a second income earner, after taxes, after child care costs, after the real costs of employment, the net take-home pay is less than $100 a week. The decision is, basically, are you giving up your kid for $20 a day? A small subsidy could change that.

University of North Carolina, in June 1998, came out with a study of seven European countries and, on 25 years of population data, found a 29% lower infant mortality rate where paid parental care was given for the first 50 weeks of life. These are staggering, awesome numbers that are just emerging, and you're aware of them.

With LICO, there was a point about how we have established poverty— Well, do you know what? LICO is not an official poverty line. We shouldn't say it is. It's not. It is sort of a level you should have in order to get more than poverty subsistence. It's basically the full range of comparative living, and for a family of four in Toronto it would be about $26,000 a year, ballpark.

But we have people in Canada who don't have food, who don't have a shelter; they don't have a roof over their heads and they don't have clothing. Why is it that we don't ask Canadians: are you prepared to give up a tax break so that we can feed, clothe, and shelter people? Why don't we say we don't want it? I'll say that.

I'd love to say to Paul Martin—in fact, I should have said it yesterday when I was questioning him—I don't want the tax break because I don't want to know that somebody in Canada hasn't got enough to eat, or hasn't got a place to sleep. That's my first priority. I don't want anything else for me. I don't care.

• 1945

Your recommendation has basically been, let's talk about it. I've thrown a lot out there and I know I've probably rubbed a couple of you the wrong way on it. I'm sorry, I don't mean to be agitating you, but this is an issue that may not ever be resolved simply because our social values and our family values have changed, and maybe eroded, for the worse.

I don't know how they're going to be recovered, but it seems to me the fundamental is that children must come first. You have to invest in those children, in their physical, mental, and social health outcomes. Also, poverty, financial poverty, is not a cause. Poor people can have wonderful children, healthy children, well-adjusted children. Rich people can have lousy kids. The difference is the quality of care that's given, and the love.

Am I babbling on this stuff? Have I missed something here, or in fact have we got a challenge that is a hell of a lot more than we're prepared to admit? Maybe it's time we just came out and said maybe we have to deal with family breakdowns; maybe we have to deal with fundamental food, shelter, and clothing; maybe we have to deal with some of the issues that I've mentioned.

Ms. Callwood, I've admired you for years and you've sat there. I'm sure you've got a zillion things going through your mind that you want to share with us. I hope you're going to say a couple of words, because I think that you and all of your colleagues have a great deal of leadership to give on this issue. I believe it's the number one issue. I sincerely hope you will not give up the fight until we beat this thing.

Ms. June Callwood (Member of the Steering Committee, Campaign Against Child Poverty): Well, I can respond, and I thank you for your kind words.

I think when we're talking about national standards under the lives of children, we do need to initiate a discussion of what we mean by a standard. In the 1970s, Thomas Berger did a royal commission and devised the rights of children; and although he was the judge at the time, and a good deal had been invested in that report, it was laughed at. He said the right of a child is a receivable education, which meant that a severely disabled child had to be educated in a different way. Receivable education is very different from saying a child deserves an education.

You are absolutely right, and I admire the research, and your passion on the first three years of life. We're going zero to six, but you obviously would know that daycare has been able to reverse some of the deprivation of first childhood, that very good daycare in fact is the best chance, to date, that a community has been able to come up with.

You must all know the Ypsilanti study and what happened in Hawaii when they did early intervention. There are early intervention programs with a huge payoff. I hate to think of the payoff as only being that it's cheaper to take care of children when they're very small than to have them in prison for life when they're adults; I would rather that we put it that the country cares about its children.

We're supposed to be a child-centred country. We are a signatory to the United Nations Declaration on the Rights of the Child, and we are supposed to give our first call on our resources to children. It's in the declaration; and it's laughable that this country is supposed to give first call on our resources to children. They're getting last call, by any analysis.

We're asking the federal government to give moral leadership—I'm an old woman, so I remember the Depression, the war, and the euphoria following the war that we were going to put together a wonderful country—and say we have been horribly wrong in not caring more about our children. They are not provincial property. You can't have a child with a certain amount of food in one province and a different amount of food in another. They're Canadian children. We need to put a floor under the lives of children so that the worst deprivation cannot happen to them. If we could raise one sane generation in this country, we wouldn't have to go on spending. One sane generation would propagate a second, and forever. We would have such a country if we put our resources towards our children.

• 1950

I'm sorry the representation here tonight is so small. I understand your fatigue. I admire all of you who have hung in, and I'll remember you forever in my will. But would you please communicate to your colleagues and to all of the separate interest groups you hear that this is the one they should listen to—the one about children.

The Chairman: Thank you.

Does anybody else wish to comment? Mr. Sokoloff and then Ms. Rothman.

Mr. Sydney Sokoloff: The other night I was watching channel 23, the CBC, and Axworthy, the foreign minister, was on. He was congratulating himself for getting into the UN. The first thing he said was we have to look after the people during the winter and the cold. But I personally think the foreign minister has to think about the homeless. We have more homeless today than ever before. Caring starts at home. We have to look after our own before we look for other countries to look after.

The Chairman: Thank you.

Ms. Rothman.

Ms. Laurel Rothman: First of all, I think we have many points of agreement. I also have read your monographs, and I appreciate greatly your contribution.

But I would just make one small comment. You're quite right that officially speaking Stats Canada says the LICO is not a poverty line. But everybody who studies it and does research on it uses it.

I want to give you one comment to go along with that. You might know this, but the Canadian Council on Social Development, in an attempt to, shall we say, fight off what I would call a more right-wing interpretation of what's needed to live in this country, such as the one proposed by the Fraser Institute, took a look at the LICO and what it meant in terms of public opinion. It turns out that the Gallup poll has asked Canadians how much they think a family of four needs to live in this country. They've asked the same question for over 20 years, and if you track the answer to the question and what the LICO is, it's about the same. So there is some resonance with the public about what the LICO means in terms of survival.

That's all.

The Chairman: Rabbi Bielfeld.

Rabbi Arthur Bielfeld: Mr. Szabo, I want to thank you for your comments and perhaps to give you a little bit of encouragement that there are a lot of people out there, a growing number of people, who share your commitment and your concern, and there may be some greater optimism and willingness to look this issue in the face than there has been in the past. I'm not a utopian optimist in that regard.

I will tell you that our group, the Campaign Against Child Poverty, has as one of its constituents Voices for Children, Dr. Paul Steinhauer, and I'm sure you know his work, and that's why we emphasize we're dealing with wellness. In some respects poverty may be the wrong term—not the wrong term, but we need to elaborate on that and to focus on those things we can do. I think even though there are areas of potential disagreement, there are lots of areas of agreement out there as well.

I'd like to give you one example. We, as an organization, this past year took a flyer in Ontario and we said, what if we could appeal to people who had some reservations about those tax reductions the provincial government gave to Ontario? The total over three years was supposed to be 30%. Well, the Lord gave, the Lord took away, but nevertheless there were certain tax reductions each of us received. What if we could appeal to them to voluntarily return those tax reductions to organizations such as child welfare groups, the United Way, or family service organizations? Let's see what happens. Let's see we if we can get x number of people to run ads in the newspapers.

In a short period of time—and you'll see an appendix on this—we ran a double-page spread in the Globe and Mail that said “We're getting a tax reduction. He's paying for it. So will we.” More than 700 people came up and took out money from their pockets. We managed to raise in deductions, in returns, and in kind over $100,000 from 700 people. It was very unusual, in my experience, for Canadians to be willing to do this and put their money where their mouths are. But when it came to child poverty they were willing to do that.

• 1955

We recognize where you have to intervene. I would say take heart. There's a lot happening here. We would say to the federal government, you should be aware that there is a groundswell emerging. I think it's going to happen. Maybe they need to hear that.

Paul Martin this morning in a radio interview reminded the country that he is the son of another Mr. Martin who had great commitments to the social stability of children. Maybe he needs to know that there are a lot of people who say “We share his father's values. We assume he has those values. The reduction of the deficit is not the only way to go about getting this thing done.” We'll do it.

The Chairman: Thank you, Rabbi Bielfeld.

We have three individuals who would like to make some final comments: Ms. Humphrey, Mr. Hayden, and Mr. Gleberzon.

Ms. Alexandra Humphrey: I agree that the quality of care is what determines a person's life in the final analysis. But for a mother like me, trying to provide quality care for my children, the barriers that have come up to being able to do that are affecting the type of quality care I can give to my children.

Affordable housing is an issue. There's an eight- to ten-year waiting list for getting into income-geared housing.

Better-paying jobs is another issue. I happen to be an early-childhood educator and one of the people who have to live on an income of $18,000 a year. Centres are only able to pay early-childhood educators from the fees they collect from parents. When parents are already paying such high fees, there's no way centres can pay higher salaries. So that is an issue that has to be looked at as well.

I spend my entire days and nights trying to figure out how I can come up with clothing for my children and me. I haven't bought clothing for myself in at least five years. All my energy is expended trying to provide quality care for my children. I can testify to the fact that the quality of care is what's important. But when families spend all their time either working or trying to find ways of stretching the little amount of money they have to provide care, that affects the quality of care. That is the reason why I again invite any member of the government to come and take an analysis of the type of life I have to live as a parent trying to provide quality care for my children.

I thank you for listening to me this evening.

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

Mr. Anders Hayden: Clearly there's been a range of issues put forward here. The issues of poverty are of great complexity, but obviously one of the key factors is unemployment. We have an 8.3% unemployment rate in this country, which by historical levels is staggering. This is despite the fact that we're living in so-called good times. We clearly need a national commitment to reduce unemployment further.

We've offered some suggestions tonight about some of the budgetary measures the government can take to reduce and redistribute work time, which I think is a key part of that solution.

• 2000

I would also like to raise the other aspect of it, and you emphasized the issue of the importance of time for parents with children. One of the factors that keeps parents from spending time with kids is overwork—the compulsion to put in very long hours. It's not only a question of the length of the work week, it's also a question of family leave provisions and the right to have family leave.

In other countries parents have the right to choose to reduce their work hours when they have children of young ages. For example, it has now become common practice in countries like the Netherlands for the two parents to combine—one to have three days a week, one to have four days a week—which means there's a parent at home almost all the time.

I think these work time policies should also be seen in terms of giving time for families and those crucial social needs. I hope our recommendations will be seen in the light that reducing unemployment is both a key way to reduce poverty and a way to give people time to spend with their families.

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

Mr. Gleberzon.

Mr. Bill Gleberzon: Thank you.

You've raised some interesting questions, Mr. Szabo, and people have dealt with them from one perspective. But we are concerned that these social policies seem to be presented in a kind of either/or manner; we're going to help either kids or seniors or that group or this group. It seems to me it's the government's duty not to look for winners or losers in social policy but to look at it as a win-win situation.

People also tend to forget that life is a continuum. Just as kids are not a special species of human beings, neither are seniors. If things are proper with kids during those early formative years, we trust that will carry on as they get older. There are no guarantees for what happens to us when we get older, but we take this broader view of social policy that has to be seen in terms of this continuum, rather than as an either/or proposition.

We're also concerned that some people are increasingly finding themselves in the so-called sandwich generation, taking care of frail seniors and at the same time taking care of kids. The figures vary from a low of 11% to a high of 25%. That gets us back to a whole other continuum within this social system.

I don't want to belabour that point, but I think we need that kind of perspective added to the discussion as well.

The Chairman: Thank you, Mr. Gleberzon.

On behalf of the committee I'd like to thank you all. You've been an excellent panel. You've certainly outlined the real challenges real people face in everyday life, and that's very important in public policy debate and the choices we have to make.

I must say I've known many of you for a number of years, as chairman of the human resources development committee when we were doing social security review, and every time I see you I'm overly impressed with your commitment in bringing about positive change to our community and to human life. That's very important. For that we're very grateful.

We're going to take a two- to three-minute break and we'll be back.

• 2003

• 2008

The Chairman: I call the meeting back to order. I would like to welcome the following organizations: the Ad Hoc Working Group on Budget Alternatives; the Canadian Institute of Mortgage Brokers and Lenders; the Canadian Living Foundation; the Employee Share Ownership Plan Association; the International Union of Operating Engineers, Local 793; and the Ontario Chiropractic Association.

We will begin with the Ad Hoc Working Group on Budget Alternatives. Representing them this evening is Ms. Avvy Go and Mr. Mohammed Tabit. Welcome.

Ms. Avvy Go (Director, Metropolitan Toronto Chinese and Southeast Asian Legal Clinic; Ad Hoc Working Group on Budget Alternatives): Thank you very much for the opportunity for us to present our position tonight.

I'm with the Metropolitan Toronto Chinese and Southeast Asian Legal Clinic. We are part of a coalition called Coalition Against the Head Tax. Together with the ad hoc coalition we are presenting a brief tonight on the issue of the head tax.

• 2015

I will start by summarizing our position on the head tax, which is a $975 right-of-landing fee, and then Mr. Tabit will speak a few words about the impact of the head tax on the community itself.

As you may be aware, the coalition is here tonight to recommend rescinding the $975 right-of-landing fee, which was imposed in 1995 as part of the budget. It's a head tax that's imposed on all immigrants and refugees who want to seek landed status in Canada.

This is not the first time that the coalition has asked the Standing Committee to rescind the head tax. What is different this time, however, is that we have a very different budgetary situation facing Canada today compared to the situation we were in three years ago, when the head tax was first introduced.

As the Minister of Finance announced yesterday in his annual economic update, we had a surplus of $3.5 billion in the fiscal year of 1997-98. Apparently, this is the first surplus in 28 years. In this context, we're asking the finance committee to re-examine whether or not the Canadian government can continue to justify imposing a head tax on immigrants and refugees.

In our written information, which we presented to you already, we set out a number of reasons why we believe the government is wrong in imposing a head tax on immigrants and refugees. We believe that the head tax is wrong because it discriminates against newcomers to Canada, who, like everybody else, pay taxes and contribute economically to Canada. In fact, there are a lot of studies to show that, on average, immigrants pay more in taxes than the value of the services they receive.

The coalition also believes that the head tax discriminates against the poor and people of colour because it's a flat-rate tax. It does not reflect the newcomer's ability or inability to pay. As such, it has an inequitable impact on immigrants and refugees from third world countries, most of whom are relatively poor and people of colour.

Apart from these discriminatory impacts, the coalition also opposes the head tax because we believe that Canada is in violation of its international obligations that require Canada to make every effort to expedite naturalization processes. Clearly, having an extra financial burden on the landing of immigrants and refugees does not in any way expedite their naturalization process. If anything, it creates an underclass of immigrants and refugees who, because of their inability to pay the head tax, are forced to live here without the proper legal status.

Our concerns and criticism of the head tax are just as valid today as they were when we first talked about them in 1995. The government justification for it, on the other hand, has lost its legitimacy since then because of the changing economic environment. As you may well know, the government's rationale for imposing the head tax is purely budgetary. It was said that the head tax was needed to help reduce the national deficit, but today, nearly three years since the deficit-fighting campaign began, we are already in a surplus situation. The new budgetary context, in our view, invalidates the government's own justification for the imposition of the head tax.

Compared to our loss in revenue in uncollected taxes from such things as lottery winnings or the subsidies we provide to corporate and banking sectors every year, the $150 million or so that the government collects from the head tax every year is a mere drop in the bucket in the overall scheme of things. But to the immigrants and refugees, the $975 head tax represents the blood and sweat of thousands of immigrants and refugees who have to struggle just to raise money to pay this tax so they can live in Canada or reunite with their families.

In closing, we believe the government today has a prime opportunity to do the right thing, not only because it's the right thing to do but because we no longer have the excuse not to do it. We are calling on the Standing Committee on Finance to recommend that the 1999-2000 budget include a measure to rescind the head tax.

I will now turn it over to Mr. Tabit to talk about the impact of head tax on communities.

Mr. Mohammed Tabit (Program Coordinator, Midaynta (Somali Service Organization); Member, Ad Hoc Working Group on Budget Alternatives): Thank you. It's a great pleasure and privilege for me to address the problem that Avvy announced regarding the head tax and how it's affecting newcomers to this country.

• 2020

My name is Mohammed Tabit and I represent the Midaynta association of Somalian service agencies. I serve mostly newcomers to this country.

We are in contact with a lot of people who are affected by this legislation. The $975 imposed on all adults coming to this country looking for residency in Canada was used first to prevent the establishment of Chinese Canadian families at the beginning of this century. Now it is affecting our community in the most disproportionate way by affecting refugees and family immigration through sponsorship. This right-of-landing fee has a clear impact on refugees with low incomes and people who want to sponsor their close relatives.

We conducted a survey among the Somalia community who have recently come to this country, and the study shows a significant decrease in permanent residence demand from low-income families since the introduction of the fee. Of the people we interviewed, 95% of them reported that the right-of-landing fees had a major impact on their living conditions in Canada.

We can give you concrete examples. CEIC, Immigration Canada, is still looking for 3,500 Somalia convention refugees who didn't apply in time for their landing papers because they didn't have the money required in the first place. They never applied for permanent residence, although they needed that residency during the 90 days. It was extended to 180 days and it was still not enough time to collect the money needed for sponsorship.

We have lots of family members. Although there is a simultaneous application by the applicants here in Canada and the family members abroad, still, in order to qualify or in order to get the $500, they prefer to delay family reunification, and instead of simultaneously processing it, they request to take out the family members from the application.

The right-of-landing fees are causing terrible stress, both psychological and economical, for families that have already been through difficult times. According to the survey, many families are forced to drastically cut their budget for food and shelter in order to pay that fee. The shelters are full of newcomers because they cannot afford the normal fee for housing costs.

Delays in family reunification sometimes create family violence and sometimes also permanent separation and divorce. This is unacceptable for a government that claims to believe in humanitarian values and always stresses the importance of family reunification and integration of newcomers into this society.

On top of the right-of-landing fee, we also have to add the processing fee for every application, plus the cost of transportation and legal fees and all the costs associated with setting up a new life and a new home in an unfamiliar country. Most of the newcomers are forced to work as soon as possible in low-paid jobs despite their high professional status in the country of their origin.

Even Immigration Canada recognizes the difficulties encountered by new immigrants in paying the fee. In fact, the loan program was introduced to counter the dramatic effects of this financial burden. This is a good recognition, but loans are still loans. They still place the families in a difficult situation and are in fact only accessible to those who show a financial capacity to reimburse them.

Low-income immigrants, the elderly, and handicapped people are clearly discriminated against. For example, a totally blind person, a young man, was refused the loan because he could not demonstrate the ability to repay that money. The same thing happened to a 75-year-old woman, who was refused that loan.

• 2025

The right-of-landing fee is directly in conflict with article 34 of the Geneva Convention on Refugees, to which Canada is a signatory. I quote:

The Contracting States shall— facilitate the assimilation and naturalization of refugees. They shall in particular make every effort to expedite naturalization proceedings and to reduce as far as possible the charges and costs of such proceedings.

In this case, the right-of-landing fee does not reduce but dramatically increases the cost of these proceedings.

Canada is not the only country that charges immigration fees, but it is the only country that applies such fees to refugees. In 1995 the Minister of Finance introduced this head tax fee to reduce the federal deficit. It is time to call for a repeal of the right-of-landing fee for all newcomers accepted for landing in Canada.

Thank you for your time.

The Chairman: Thank you, Mr. Tabit and Ms. Go.

We will now hear from the Canadian Institute of Mortgage Brokers and Lenders, Mr. Michael Ellenzweig, chairman, and the vice-chair, Ric McGratten, government relations committee. Welcome.

Mr. Michael Ellenzweig (Chairman, Canadian Institute of Mortgage Brokers and Lenders): Thank you, Mr. Chairman. Good evening. On behalf of my colleague and myself, I want to thank the committee for allowing us the opportunity of speaking to you tonight. We have provided you with binders, and if you would like to follow along with my comments, you can turn to page 2 at the red tab.

The Canadian Institute of Mortgage Brokers and Lenders, known as CIMBL, is the only national association representing Canada's mortgage industry. Prior to CIMBL's creation, our industry was fragmented with regional and provincial organizations representing the various interest groups.

CIMBL was founded in 1994 with input from regulators and formed by lenders, mortgage brokers, and mortgage insurers. CIMBL is truly a strategic alliance bringing together key players from all sectors of the Canadian mortgage industry.

CIMBL is committed to fostering professionalism through education, enforcing a national code of ethics, providing timely information to the borrowing public, and promoting the interests of the mortgage industry. Since our inception, CIMBL has assumed a leadership position in the industry it serves. Today our members account for 65% of all of Canada's mortgage activity.

Among our 1,000 individual and 225 corporate members, we can count Canada's two mortgage insurers, eight schedule A banks, 150 mortgage brokerage firms, five of Canada's credit union centrals, strong representation from trusts and finance companies, along with several life insurance companies and securitization firms.

Since our formation, the institute has represented Canada's mortgage industry to consumers, regulators, and governments. In addition, we have helped coordinate and sponsor required and continuing education for mortgage professionals across Canada. We have raised the profile of the mortgage industry in Canada and internationally by publication of Canada's only national mortgage magazine, The Journal, by convening Canada's only national mortgage conference and trade show, and by publication of Canada's only national directory of mortgage professionals. We maintain an Internet site providing interaction among members and the public at large. We also liaise with other mortgage finance organizations internationally. Finally, we sponsor regional meetings throughout Canada.

I'll turn the microphone over to my colleague, Ric McGratten.

Mr. A.D. (Ric) McGratten (Vice-Chair, Government Relations Committee, Canadian Institute of Mortgage Brokers and Lenders): Thank you, Michael, and thank you to the committee.

• 2030

I'm going to précis and summarize in the interest of time. There are three or four main points we want to put forth to the committee tonight. I would ask you to turn to section 3 in your binder, which I believe is the blue tab.

I'm going to tell you a little about our industry. Sometimes the residential mortgage industry gets overlooked in this country. There were $372 billion worth of residential mortgage credits outstanding at the end of 1997. That's a $16 billion increase over the previous year. I've indicated to you in the submission the market share and the total annual volume. Last year $75.3 billion worth of mortgage applications and commitments were issued in this country. It's a sizeable industry. It has not been represented well in the past. We've come together with the CIMBL/ICCPH institute, and we look forward to making presentations down the road on behalf of this industry.

I want to talk a little about the traditional approach to arranging a mortgage, which is to approach your financial institution directly. That still does exist, but it's changing. Consumers are also changing. Consumers are much more independent. They're willing to consider other alternatives.

Intermediaries, such as mortgage representatives for financial institutions and independent mortgage brokers, are now offering consumers more choice than ever before. Over the past decade mortgage brokers have focused on what we call prime A business, the typical mortgage business that those financing their home would be involved in. They now originate approximately $14 billion of that $75 billion annual total. So the financial intermediaries are becoming a major factor in the mortgage market in Canada.

Furthermore, the evolution of technology has granted consumers access to telebanking and to the Internet. It allows them to explore new lenders and new financial services.

Likewise, technology is changing the way the mortgage industry operates. Information now can flow electronically among industry participants, such as mortgage brokers, lenders, mortgage and title insurers, and other service providers across provincial and national borders. It allows for the use of artificial intelligence and risk-based pricing to accelerate the process and to remove duplication.

The consumer is provided with convenience, such as receiving service from a mortgage professional at their kitchen table. An application is taken, and it's shipped over a telephone line. It could be happening in Burnaby, B.C., as we're speaking It would then go through an underwriting centre in Toronto. If it's a high-ratio loan, it might be going directly to Canada Mortgage and Housing in Ottawa. It would be mortgage scored and approved. It would go back within a matter of seconds using the same route, and the consumer would be told they have been approved for a mortgage. The world has changed considerably for some of the older people in the industry, from the time it used to take approximately two weeks to approve a residential mortgage application.

What is this doing? The advent of electronic commerce allows for faster service and more choice for the consumer. It allows the consumer to look at other financial service products, most of which are also being delivered in this way.

However, we have a problem with the current regulatory environment, and that's what we want to draw to your attention. Although we have this evolution going on that's redefining the residential mortgage industry, regulatory agencies have not necessarily kept up with it. We have the more defined financial institutions—that is, the banks, the insurance companies, and the trust companies, which are regulated federally—but in addition to that we now have provincial organizations. We have the credit unions and intermediaries, such as mortgage brokers, which are regulated provincially. That means you have to deal with nine different provinces and two different territories, and it's a very unequal field. We're suggesting the committee be aware the different regulations for qualification and disclosure to the public increase the costs and confuse the consumer when arranging a mortgage. Since 1995 meetings have been taking place to try to harmonize these regulations, but to date there has been very little progress in that area.

As we approach the millennium, our industry is facing certain issues. One is the interprovincial trade barriers that prevent certain segments of our industry from competing on a national level. Last year we had to go through nine different provinces and two territories in order to set up our operation. It takes a lot of time and adds a lot of extra costs. It delays getting into business.

• 2035

Secondly, there is a lack of standardization among industry segments. Because of different regulatory bodies involved, you have different standards from province to province and from federal to provincial.

Finally, there is the absence of a federal focus to enhance competition from Canada's existing non-traditional sources.

I ask that you go to the last section, the purple tab, which deals with the recommendations. Very simply, on behalf of the institute and the residential mortgage industry, we would respectfully submit that the committee consider the following three suggestions or recommendations.

First, support deregulation and harmonization with provincial and federal regulations, which now act as interprovincial barriers to firms not regulated by the federal OSFI.

Second, implement Bill C-82, uniform costs of credit, which was passed by Parliament April 25, 1997, to ensure that consumers receive fair, accurate, timely, and comparable information about the costs of credit in order to obtain the most economical mortgage for their needs. Disclosure to the public needs to be clear and simple.

Third, provide leadership in supporting technology to ensure all consumers have a variety of options when arranging a residential mortgage.

Thank you very much.

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

I was just wondering if it's okay for us to accept this as both your pre-budget consultation report as well as your comments on MacKay.

Mr. Ric McGratten: I think that would be fitting, yes.

The Chairman: Will that be okay?

Mr. Ric McGratten: Yes, it would be.

The Chairman: Okay.

Now we'll move to the Canadian Living Foundation, Ms. Martha O'Connor, welcome.

Ms. Martha O'Connor (Executive Director, Canadian Living Foundation): Thank you for providing me with the opportunity to present to you the importance of supporting child nutrition programs in Canada.

It's our belief, and the belief of thousands of Canadians, that children should become a priority for this government. The Canadian Living Foundation, through it's Breakfast for Learning program, supports community action on the important issue of child nutrition. Unfortunately, we aren't able to meet the demands for support from many communities, which means thousands of Canadian children are going to school every day without the nourishment they need to grow and learn.

I'm going to take a big leap here and go right to my last page. There's lots of stuff in there, but the bottom line is that without adequate nutrition children cannot learn. Without learning, Canadian children cannot develop into contributing members of society. The need for sustained access to safe, nutritious food for all Canadian children through a national, community-based child nutrition program must be a strategic investment of this government.

The Canadian Living Foundation urges the federal government to seize the opportunity to ensure the nutritional health of Canada's children by partnering with the thousands upon thousands of parents, volunteers, communities, other levels of government, and the private sector in announcing a national child nutrition program.

Thank you for your consideration.

The Chairman: That was perhaps one of the most concise, precise, and to-the-point presentations we have ever heard.

Ms. Martha O'Connor: Well, I feel sorry for you guys, to tell you the truth.

The Chairman: We'll note this historical moment when people feel sorry for politicians. It's a good thing.

Well, thank you very much.

Ms. Martha O'Connor: You're welcome.

The Chairman: Do you still want to do your presentation? We'll move to the Employee Share Ownership Plan Association, Mr. Perry Phillips, and Fay Wu, vice-president, finance, Castek Software Factory. Welcome.

Mr. Perry Phillips (Member of the Board, Employee Share Ownership Plan Association): Thank you. No, I don't want to do a brief. I'm just kidding.

I'd like to thank the committee and the chairman for allowing us to talk tonight on ESOPs. The ESOP Association is a non-profit organization founded eight years ago to educate Canadians about ESOPs. ESOP—we've brought some slides here—stands for employee share ownership plan. It may mean that employees buy as little as 1% of the company, or it may mean the employees buy 100% of the company. All are considered ESOPs. What I'd like to share with you tonight, just briefly, are some of the factors that help ESOPs contribute to a growing economy.

• 2040

The first picture I have is of a business owner who tried to use the Income Tax Act to sell shares to his employees, and that's what he looked like. You recognize him? Okay. The next picture is a picture of the employee after the owner tried to explain to him how he could use the Income Tax Act to buy shares in his company.

The Income Tax Act, gentlemen and ladies, is not ESOP-friendly at this point in time. But the good news is that the Toronto Stock Exchange did a study that compared public ESOP companies with public non-ESOP companies, and you can see the results: five-year profit growth, over 120% higher; productivity, 24% higher; return on average total equity, 92% higher—key measurements of business success.

The United States has had ESOP legislation for over 25 years. This is a study of ESOP companies and how they performed against the Dow Jones industrial average and against the S&P 500, and if that chart goes back to the mid-1980s, which we have, it would show the same thing, that ESOP companies do out-perform non-ESOP companies. The reason they do is as follows. This a study that shows why.

Why do ESOP companies do better? It's because of the people. Four out of five people found that they were more interested in the financial performance of the company. More than one out of two wanted to stay longer, and I'll explain later why that's important. More than one out of two felt the work was more satisfying. You can read this at your leisure.

Our proposal is basically threefold. We want some minor changes to the Income Tax Act to make it ESOP friendly; we want protections for the employees as investors in small and medium-sized businesses; and finally, we want ESOP awareness actions taking place to raise the level of knowledge of ESOPs, for both Canadian employees and business owners to see the advantages of ESOPs.

I'd like now to introduce Ms. Fay Wu. She is the CFO of Castek Software Factory, and they have an ESOP that she is going to explain to you briefly. In 1998, actually, this firm was named as one of the top 100 fastest-growing companies in Canada. I'd like to turn it over to Ms. Wu right now.

Ms. Fay Wu (Vice-President, Finance, Castek Software Factory; Employee Share Ownership Plan Association): Thanks very much, Perry.

I'd like to tell you a little bit about Castek, put our company in context and tell you how the ESOPs that we have initiated in the company have helped us.

To begin with, Castek is a privately owned information technology firm, so we produce software for the financial services sector. Today I can happily tell you that our clients are Fortune 1000 companies. Our revenue today is $18 million. Eight years ago our revenue was $368,000. When we started, we were two people. That grew to seven people. From there it grew to 25, 60, and 110. Today we're 160 employees in our company. Revenues have grown, compounded 70% per annum, since we started. Average employee age is young. Our employees average in the high twenties to early thirties as far as age goes.

As for the challenge we're facing in our industry, first of all, in today's environment the most valuable asset we have is people; it is no longer equipment. There is a worldwide demand for the same set of resources. We're facing an intense brain drain to the U.S. and elsewhere in the world. Canadian companies are quite pressed to retain skilled people within Canada. Really, access to these skilled brains is where Canada's future prosperity lies.

The industry average attrition rate for the technology sector is 20% to 30% today. That's how fast the turnover is happening. So you can see that business are spending a lot of money on training and retraining, losing the employees to the attractions of the United States and elsewhere, because technology—Y2K and all these issues—is very hot in today's markets.

What was the solution we arrived at? Well, we felt that the way to address the challenges in the industry was to maximize our competitive advantage by getting, keeping and growing people. So as a company our single-minded focus is getting, growing and keeping people, because we know if we do that right, it will grow our business for us.

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What did we do? We attracted people by implementing an ESOP. Back in 1992-93, we implemented our first version of the ESOP, a phantom share program. In 1995 we formalized that into a true ESOP that dealt with actual shares. In our company, 10% of our employees are share owners, and if you include the stock options, that rises to 15% of our employees. They act like owners, they think like owners, and they share in the growth and successes the company has had over the past few years.

On the results of the ESOP, first we've been able to attract the right type of people. I mentioned to you just a few moments ago that the industry attrition rate is 20% to 30% per annum. At Castek our attrition rate is 8%. That's the highest it's been since we've been around. That's one-third of what the industry overall is facing.

In terms of productivity gains, because we have a stable workforce there are productivity gains. We are training people to higher levels rather than going back to the beginning and training them from scratch. It's incredible the advantage that gives to a company. Employees find it harder to leave the company because they're leaving their equity behind on the table.

ESOPs also allow us to offer employees higher compensation. As I said earlier, they're sharing in the gains they helped the company create as shareholders. ESOPs create a shared wealth and also provide funds for growing companies. One of the hardest things for small and medium-sized companies to do is get the financing to grow and remain competitive. It's incredibly hard for technology companies to get financing in today's market because the financial institutions don't understand the lending value of an intangible piece of software. They're still talking about bricks and mortar, which don't exist in the information age.

To sum up very quickly, Castek plus the ESOP have really produced results for us. I want to give you a few of the measures by which we have seen the impact on our bottom line.

On our ESOP participation rate, 75% of all employees who qualify are members of our ESOP. With the other 25% who don't participate, it's because they've been with Castek less than six months. We've been growing awfully fast. Our voluntary attrition rate is less than 8%. Employee satisfaction rate, which we survey by an external survey every six months, is over 80%. We have had funding to fuel R and D growth internally, which is very important to us because it's allowed us to remain at the leading edge of technology.

I mentioned that our revenues today are $18 million as compared to $368,000 when we first started. Of that $18 million, 60% is export related. We're servicing U.S. and European businesses with a Canadian workforce based here in Toronto and in Ottawa.

Our productivity is higher than the industry norm. We are able to deliver systems in close to half the time of other competitors. We actually did this for the Bank of Canada recently. We delivered their platform to carry the 1998 Canada savings bond campaign that is currently under way, as well as the add-on to allow the Canada premium bond system marketing to be done this year. That was a year ahead of the other company that was in there delivering and was unsuccessful in that program.

At the end of the day, we're Canadians and we're able to provide our technology expertise worldwide. We are sought after by European and American companies. We've managed to retain the talent in Canada. I think we can really see the success in that our clients are worldwide, we're servicing them with Canadians, we're training Canadians, and the ESOP has been of immeasurable value to us.

Thank you.

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

We'll now hear from the International Union of Operating Engineers, Local 793, Mr. Joe Fashion, business manager, International Brotherhood of Electrical Workers, Local 353.

Mr. Joe Fashion (Business Manager, International Brotherhood of Electrical Workers, Local 353; International Union of Operating Engineers, Local 793): Thank you very much. Tonight I'm also speaking for the labourers and painters of the building trades as well as the electricians throughout Ontario.

I am pleased to appear before the committee's 1999 pre-budget consultations on behalf of the identified trade unions, which represent over 41,000 construction workers and their families across Ontario.

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We would like to congratulate the government for its handling of Canada's fiscal problems, thereby creating a more positive environment in which to present this submission.

I hope you had time to review our submission. Our recommendations are aimed at providing Canadians with the tools that will help them succeed as individuals and collective members of society while recognizing the fiscal parameters in which the government continues to operate. There's an executive summary outlining our recommendations and I would be pleased to answer questions about them.

With the short time we have for our opening remarks, I would like to respond to the debate surrounding the EI fund surplus, and the Minister of Finance's interest in that surplus. I would also like to touch on a central theme of our submission, which is training.

The EI surplus has become a focal point in the discussion and media coverage surrounding the 1999 budget. We are concerned that Canada's unemployed have been ignored in the debate surrounding the accumulating EI surplus. The only options we heard of were a dramatic cut in EI premiums on one hand or tax cuts and increased health care spending on the other.

Our submission referred to the fact that only 44% of the unemployed qualify for benefits, when in fact that number has now dropped to somewhere around 37%. What about the other 73% of the unemployed who are not covered by EI benefits at the present time? Clearly, workers have carried a large part of the fiscal cuts. We have every confidence that the government and this committee will now become more sensitive to this fact and will begin to restore the balance.

EI is not a private insurance plan, EI ensures against a social risk that has become particularly characteristic of all developed countries since the 1970s. The risk of unemployment is a risk of our economy.

We submit to the committee and the government that the priorities for the EI surplus should be as follows: no further reductions in EI premiums at this time; an improvement in EI benefits to meet the real needs of the unemployed; improved training initiatives to give people the tools to maintain and secure employment; the maintenance of a rainy day surplus; and having developmental purposes that keep people working instead of needing to collect benefits. Those purposes should be infrastructure renewal programs, as outlined in our submission, as well as energy efficiency projects that, in the long run, save the government money.

To those who call for a cut in EI premiums, premium relief has already been provided, as was outlined by the 1998 fiscal update. Attention must now be directed to the needs of the workers who have seen their benefits repeatedly scaled back through various reforms of the system.

Our industry faces unique employment challenges, many of which are beyond its control. I hasten to point out that in this industry, labour and management have a history of working together to resolve many of these challenges, but the government has a role to play as well. A worker may be employed by a particular employer for only a day, a week, a month, or a few months to work on a specific project, and then they will move on to work on another contributing employer's project, and thereafter they'll go to another and another. Between jobs, they might be off work for a day, a week, a month or longer. A person may work for several different employers over their working life, with periods of unemployment between jobs.

In addition to the cycles of unemployment, workers are being penalized by benefit reductions, in particular the duration of benefits provision and the clawback, among others.

The latest changes in the EI system occurred during a period of fiscal restraint that we feel unduly influenced these changes. Polls and surveys commissioned by HRDC are highlighting the link between the reduction in benefits and the accumulating surplus. In January 1998, HRDC commissioned a poll by Ekos Research Associates to survey Canadians' views on the EI reforms. Among the findings was that Canadians view the reduction in coverage of the unemployed as a serious problem and that the surplus should be used to increase the funding of training and employment to get Canadians back to work.

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Just two months ago, at the 67th Couchiching conference, the Minister of Finance stated: “Quite simply, the acquisition of skills and knowledge forms the essential infrastructure for all that we seek to accomplish.”

We agree with that statement. That's why we believe that skills training must be an option for the surplus in the EI fund. It's consistent with the principles of the EI program. Access to work and skills training are the most important ways in which the government can expand opportunities into the future. If we do not make the tools associated with self-improvement more affordable and accessible, Canadians will not be prepared to take advantage of job opportunities in an expanding economy. The maintenance, upgrading, and acquisition of new skills is extremely important for our industry and its workers across economic fluctuations.

I'd like to highlight one recommendation from our submission because it's very central to the training issue for our industry. The industry, through multi-employer training trust funds, has established a significant training infrastructure that's capable of addressing these needs. However, the tax treatment by the federal government of TTFs and worker training benefits remain at the discretion of Revenue Canada interpretation. TTFs should be deemed tax exempt and should be able to accrue reserve funds to meet training needs in other years. Further, the training benefit provided by TTFs for workers should be explicitly deemed a non-taxable benefit for workers.

The government has a role to play in creating a climate that encourages skills training. We ask the committee to consider the importance of training trust funds, which are outlined in detail in our submission as a ready-made vehicle to meet the needs of workers in our industry.

The restructuring of EI has created less funding for training, less funding for servicing claimants, and more funding for investigation. This has resulted in more claimants being wrongfully charged and having to pay a penalty because they incorrectly filled out EI cards because the reduction in funding is not allowing for the proper investigation of claims.

Prior to the changes, claim audits looked at week-by-week earnings. After the changes, claim audits only looked at total earnings.

Then, the reduction in the benefits period, from 52 weeks to 26 weeks, certainly has been disastrous for the construction industry.

The last item, clawbacks, is also a large problem for our industry, because over a five-year period a construction worker might have to pay back all the EI benefits he has received in the previous four years. This contributes to workers not using the EI funds because they'll only have to pay them back. It also has the possibility of contributing to the underground economy, whereby workers will not pay into EI and may also not pay federal and provincial income taxes. This is a very serious problem for our industry, as well as for the federal and provincial governments.

Thank you for your time and consideration.

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

We'll now move on to the Ontario Chiropractic Association. Dr. Robert Haig is the director of government affairs and Mr. David Chapman-Smith is the general counsel. Welcome.

Mr. David Chapman-Smith (General Counsel, Ontario Chiropractic Association): Good evening. This is the end of a long day for you, and it might be that you need the services of a chiropractor more than my talking about them.

The Chairman: Don't worry about that: we're healthy.

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Mr. David Chapman-Smith: There's a submission before you that might look a bit threatening, but most of it is appendices. I'll invite you to turn to the first page of that. I'm not going to go through it all because I know what the effect of that would be. There are really only three pages there.

In section A on page 1 there is the one recommendation that we put before you this evening. I will read it:

That having regard to current evidence on the utilization of chiropractic services in Canada, including the substantial potential cost savings from fuller integration of these services into the system, the Standing Committee on Finance recommends to the Minister of Health and Welfare that the Canada Health Act be reviewed with a view to an amendment that would extend coverage to include chiropractic services.

I daresay you will have heard other submissions from other health care groups, and this recommendation might well be widened in essence to say that the Canada Health Act should be looked at again in light of modern health care realities to see how successfully it's covering the services that exist in Canada today.

Rather than read the “grounds in support”, which I hope are succinct—they're on the next two to three pages—I'll just take a couple of minutes, if I may, to speak to you directly on a couple of key points.

Consider that 95% of chiropractic practice relates to the management of musculoskeletal pain and headache. The big areas are back pain and headache. That's why I thought that at the end of today you might need a chiropractor. You could be suffering from both of those things right now.

The most common cause of disability in working-age Canadians is back pain. That is also the most common reason that working-age Canadians consult the health care system.

I wonder if any of you would be able to give me the optimal management of back pain. It has turned on its head in the last 10 years. As you may know, traditional medical management has been based on rest, then wait and see. That's accompanied with physical therapy modalities and some prescription medication such as muscle relaxants and maybe some joint injections. Would you be surprised to know that evidence-based, multi-disciplinary guidelines this decade, principally from the United States and the United Kingdom but accepted by authorities in Canada, reject all of those methods of treatment and make positive recommendations against them?

The two forms of care recognized as being proven by scientific evidence—what a turnaround this is for this little chiropractic profession that's come from nowhere—are spinal manipulation and over-the-counter pain relief drugs together with, as in chiropractic practice, encouraging patients to keep active and moving through the pain rather than going to bed.

I took a little bit of time to mention this because what this means is that the services covered by the Canada Health Act do not cover what is now first-line management for the most common problem for working-age Canadians. I hope that's one way to, in an anecdotal and pointed way, indicate how the system has changed, and the Canada Health Act, which basically covers medical services and one or two other things, doesn't represent the reality of the health care system in the 1990s.

The specific reason for being before you tonight to talk about these things late in the evening is two reports from economists from the University of Ottawa in the last 10 years. An economics team led by Professor Pran Manga from the University of Ottawa has delivered two reports.

The first, which was commissioned by the Ontario Ministry of Health, was looking at the management of back pain. Without being precise, it simply said that if you looked at the evidence, hundreds of millions of dollars would be saved annually in Ontario alone if there was more management of patients with back pain by chiropractors. That was a 1993 report, and the executive summary is one of the appendices I've given you. I will leave a copy of the full report for the committee.

The second report, which is more dramatic, looks not only at back pain. It was commissioned by the OCA. I should acknowledge that. The association went to Professor Manga because he has a reputation and had been commissioned by the government earlier and had said, looking at the range of what is covered in chiropractic practice, including headache, back pain, referred pain, neck pain, and chronic pain in particular, what would be the potential cost savings if there was a doubling of the number of patients who go to chiropractors? Presently, about 33 1/3%, one in three, of patients with back pain go to chiropractors. There would be the capacity for that to double, and Professor Manga, as an experienced health economist—the executive summary is attached; I'll leave a copy of the full report here—says that there would be savings in excess of $1 billion in Ontario alone if you simply doubled the number of patients with back pain going at an early date to chiropractors.

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There are two factors there. It's a question of doubling the number of patients and getting them there more quickly. Because of chiropractics' historical position in the health care system, about 80% of patients have had their problem for six months before they finally consult a chiropractor. Why can you generate such big figures? Does this sound believable?

The reasons are twofold. One, you can save a lot in direct health care costs. Chiropractic care obviously is very cost-effective. It doesn't spin resources into the system. It cuts out surgeries, medications, hospitalizations, many MRIs, the X-ray scans, procedures, all that sort of thing. But the second area, which is the bigger area of saving, is in disability.

This is the most common cause of disability in working-age Canadians, and the studies that Manga has looked at, through North America, Australia and around the world, show there are hugely significant changes in disability periods when like populations of patients go to chiropractic management instead of medical management. The most dramatic cases show about a tenfold reduction, but generally, over all the studies, it shows that you cut your disability costs by at least half. So there are very significant savings here for both the governments in terms of funding health care and for the government and private sector in terms of disability.

That has been my focus tonight, and it is on that economic basis that we come before you, the finance committee, to make the recommendation that we do.

Thank you.

The Chairman: Thank you very much, Mr. Chapman-Smith and Dr. Haig.

Ms. O'Connor, we usually don't do this, but because you've really shortened your presentation, I'm going to make sure your entire presentation gets read into the record. Okay?

Ms. Martha O'Connor: Thank you very much.

The Chairman: Wonderful.

Now we'll move to the question and answer session. We'll begin with Mr. Cullen.

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

Thank you, ladies and gentlemen, for your presentations and for appearing here so late at night. We should have sympathy for you as well.

If there's a second round—I don't know if there will be, Mr. Chairman—I'd like to come back to Ms. Go and Mr. Tabit on some of the immigration issues. I have a large immigrant population in my riding of Etobicoke North, and actually a large Somali community as part of that.

But I'd like to focus somewhat on the employee share ownership proposal. I've worked with Mr. Perry Phillips for a number of years in different capacities, and I know of his commitment to employee share ownership. And the success story of Ms. Wu's Castek Software Factory I think is a stunning example of what can be done with ESOPs.

I have a few questions. The first one, maybe for both of you, is this. Some might ask why we need tax provisions in Canada for ESOPs when clearly a company like Castek seems to get along without it. Could you comment on that?

Mr. Perry Phillips: The main reason is that when you're setting up an ESOP plan, and you're trying to use the Income Tax Act, it's very difficult and it costs a lot more money than it should, so it cuts out a lot of small and medium-sized businesses that may not be growing as fast as Castek and can't afford it. So that's one reason.

The other reason is that studies in the United States have shown that the reason they have grown their ESOP community as much as they have is that three out of four companies utilize some of the benefits that are in the tax legislation to help them go forward. So what it does basically is broaden who can access the benefits of an ESOP. Not everybody is in that position, and we'd like to see people who can benefit from it.

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Even in Castek's position—and I'm sure Fay will comment on it—there are problems with using RRSPs and there are very complex rules in the Income Tax Act. It's very hard to understand them for somebody who's in the business, let alone trying to explain them to employees. As you saw in the picture, that's literally what the owners and the employees look like after you try to explain to them how they can use the Income Tax Act in its current form.

Ms. Fay Wu: If I could add my comments to Perry's, the reason we started off with a phantom share plan was that we felt it was necessary to get the right type of employees but we could not afford the legal tax advice, evaluation and expertise, and everything we needed to get that in place until actually 1995, when we were able to afford it. Quite frankly, even today we are trying to get additional tax advice to make sure we have done everything correctly in setting it up. Every year we go through this process again, getting independent tax and legal advice for employees, because each one has a slightly different tax situation.

Mr. Roy Cullen: I was down in the United States on this topic last year and I was amazed by the movement in the U.S., the capitalistic mecca of the world, where ESOPs are a huge movement.

We look at unemployment in the United States and it's clearly a lot lower than that in Canada. I wouldn't pretend to suggest that ESOPs explain all of that difference, but I think that clearly the Americans are doing something right and maybe we should have a look at ESOPs.

I was intrigued by, Ms. Wu, how you're investing in people, making them comfortable in the environment, keeping them at home as Canadians. Certainly I'm concerned, and I think many Canadians are concerned, about this so-called brain drain. It seems to me that with an ESOP you anchor people in Canada.

Ms. Fay Wu: Yes, you're absolutely right. It has made a very big difference for us. Our top people are being recruited several times a week. They are being offered salaries that are significantly in excess of what we pay them, although we consider what we pay them very competitive. The one reason we've managed to retain them—and it is a reason they say they join us and it's also a reason they say they stay—is because they are sharing in the growth of the company with the ESOPs. They're prepared to take a long-term view. It has helped us.

Mr. Roy Cullen: Do I have time for just one more question, Mr. Chairman?

The Chairman: You have more time. Go ahead.

Mr. Roy Cullen: Thank you.

Mr. Phillips, in terms of the specific recommendations—we don't have time to get into all the nitty-gritty tonight—it seems to me you talked about making the income tax more ESOP friendly. You have one recommendation that companies wouldn't lose their Canadian-controlled private corporation status if they increased share ownership to employees. Right now there seems to be a guideline that if you go over 50 employees you lose your Canadian-controlled private corporation status. So that would be a fairly low-cost or no-cost measure.

The other one I find intriguing is providing a federal tax credit for employee share purchases similar to a labour-sponsored venture capital fund tax credit. This would allow Canadians the choice of using the tax credit either for a labour-sponsored pool or for an ESOP in their company.

I wonder if you could expand on those two recommendations and any others that you think are key in terms of your proposal.

Mr. Perry Phillips: I think that's a good example of why we're saying minor modifications can be made to the Income Tax Act without changing the act.

The first point is if you sell shares to more than 50 people in your company, you're deemed no longer to be a private company. If you're no longer a private company, you lose the small business rates. So that's a critical element.

The second point is, again as Fay said, it's very expensive right now because of the complexity of the Income Tax Act. So if employers could write off the expenses of the costs of setting one up, it would be helpful to them. Right now the Income Tax Act says they have to capitalize them and write them off over five years.

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Now, pretty well most of the provinces have some type of ESOP legislation. What we're suggesting with the federal tax credit is, under the labour-sponsored venture capital fund, let people choose whether they want to invest and grow capital within their own company or to invest in a labour-sponsored fund. Let them have the choice to make the investment.

Finally, we'd like to use an example of one of the things the United States did right. You have to give the owners an incentive to sell. One of those incentives could be the one they've used in the United States, that is, if you sell, the capital gain is deferred until the death of the owner, or we could raise the capital gain exemption from $500,000 to $1 million. It's important to create a supply of companies that are prepared to sell to their employees and to see those companies grow, as you've seen them do and as Fay Wu's company has done.

Mr. Roy Cullen: But that capital gains deferral would only apply if the owner found a way to give shares or sell shares to the employees. Is that right?

Mr. Perry Phillips: That's right. Our proposal is made in such a way that it protects the employees. We don't want a situation where the owner just sells and leaves and leaves the employees holding the bag. So that's correct.

Mr. Roy Cullen: The productivity gains are really quite impressive. When we look at our position in the world economies, Canada stands out very well. But we always have to be mindful of productivity, and it seems to me the data show pretty clearly that productivity gains of ESOP companies are significantly higher. Intuitively, that makes a lot of sense. I personally have seen it in action. If employees feel they're part of the ownership, part of the solution, and part of the fabric of the company, they're motivated. They're more concerned about waste, and they're more concerned about helping the company grow. I wondered if you could expand on some of the research already out there on this.

Mr. Perry Phillips: Just briefly, ESOPs now are in over 30 countries in the world. The European Community just had their first annual ESOP conference. The U.K. has had ESOPs for 10 years, and the United States for 25 years. I think the studies over the last 25 years have shown clearly that there is a productivity gain when you put an ESOP in place.

Maybe, Fay, you could talk to that a little bit.

Ms. Fay Wu: Sure. If you went back to our office now, you'd find a bunch of people still working this late in the evening. That wouldn't be unusual in an ESOP-type company. You get extremely committed employees, who, as I said earlier, think like owners.

When we look at capital investments for the forthcoming year, employees come to me and ask what this is going to do to our share price. They're as interested as I am that every dollar the company spends is invested in the right area. They're the ones who come back and say, “I think this is a better use of our funds.” That's a good example.

The Chairman: Could you hold on for just a second, if you don't mind, Mr. Cullen?

Mr. Roy Cullen: Okay.

The Chairman: It's interesting to hear you say you'll go back and find people working. Are you doing anything else on the other side?

Ms. Fay Wu: Oh, absolutely. We have flex hours. We have a few people who work best late in the evening, and because of the nature of what they do in software development, they can work as individuals. They may start at 10 p.m. sometimes because those are their most productive hours, and we provide that flexibility.

The Chairman: So that's part of the package as well.

Ms. Fay Wu: Yes. We don't work them 24 hours a day.

The Chairman: It's progressive thinking all around.

Mr. Cullen, do you have any further questions?

Mr. Roy Cullen: Maybe I'll pass now to other colleagues and come back later if there's time.

The Chairman: That's very generous of you.

Go ahead, Mr. Discepola.

Mr. Nick Discepola: Thank you.

I'd like to address my comments to Ms. Go.

In general terms I agree with your assessment. I don't agree with some of the terminology when you refer to it as a discriminatory tax against the poor people of colour. I think it's a fee. If I in the first instance thought it discriminated against people of colour, I would certainly take exception to it. I share an awful lot of concerns with you, having come to Canada at the age of seven years old. I think it was one of the hardest things for me to defend as a politician, but you put it in just one context.

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If we go back to 1995, when we had very difficult decisions to make, what we said as politicians was that we must make sure the pain and suffering are distributed equitably. We couldn't target just one group. We may have targeted everybody, and in retrospect you're now saying we shouldn't have targeted immigrants.

There are countries in the world that charge right-of-landing fees—I think that's the right terminology—or what you refer to as a head tax. They do charge a certain amount for processing these applications, etc. Rather than eliminating it totally, would it be not advisable to recommend to our government that we should implement a middle-of-the-road type of fee to cover at least our costs for processing all of these applications?

We're in an era in which we're implementing an awful lot of measures for cost recovery. I don't want to get into all the programs, but we've looked at the fisheries industries, we've looked at the agricultural industry, at food processing, etc. There has been movement to cost recovery in those, so would it not be more equitable or fair to look towards that approach as opposed to an outright demand of eliminating it totally?

Ms. Avvy Go: I have a couple of responses to that.

First of all, to address your concern about our criticism of the right-of-landing fee as discriminatory, I would like to refer to a report that Immigration Canada itself has in fact commissioned. It actually just came to my attention today. Immigration hired a professor at Carleton University to look at the loan program, so it's specific to just that program.

When we talk about discrimination, we're not saying that a bunch of people from Immigration Canada sit around and decide that today they're going to target this immigrant or that immigrant. It's not like that. What we're saying is that because this is a fee and because it is $975, it's a huge amount for someone from Somalia or Sri Lanka, where the standard of living is much lower than here in Canada. If you look at the immigration patterns of the last ten years, over 80% of Canada's immigrants are now coming from Asia, Africa, and the Caribbean, where the standard of living is much lower. You therefore have an impact that is discriminatory even though the intent is not.

The study on the loan programs also finds, of course, that we don't set out to discriminate against women, for instance, but because of the criteria that are set out under the loan program, you have to prove you are able to pay it back one day in order to get the loan. Women are therefore at a disadvantage because it's harder for them to prove that. Again, it's the impact, not the intent. But regardless of the intent, we are saying that because there is this discriminatory impact, the impact is inequitable and we should therefore remove it.

The other comment I want to make is that we acknowledge that many first world countries now adopt policies such as a head tax in order to control their borders. But Canada prides itself as one of the best countries in the world to live in. We don't have capital punishment. We don't have a lot of things that many countries have. Why? Because we adopt a humanitarian approach towards life in general, towards our policies in general.

Canada has been an immigrant country for hundreds of years. We never had the need to impose a head tax until 1995. All of a sudden, we had a deficit problem—which started 28 years ago, by the way—and we suddenly said to ourselves that we should make immigrants and refugees pay. We're saying that's not fair. Like anybody else in Canada, they also pay tax—income tax, GST, whatever. They are just as much a part of Canadian society as anyone else. What we're saying is that the stigma that somehow they have to pay this additional tax just to get landing, in addition to whatever other taxes they pay, is also discriminatory in and of itself.

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For that reason, we think it's not a good idea to have a different scale or something that's middle-of-the-road. It's the concept of immigrants and refugees as a class being distinguished from the rest of society. That concept itself isn't acceptable.

Mr. Nick Discepola: You're saying that even though other countries do charge, we should abolish it anyway. You're maintaining that position?

Ms. Avvy Go: I'm saying that's not a good enough reason to do things. We don't do certain things just because the United States does it or because the Australian government does it. We have our own way of thinking. We elect our own government, we don't elect the Australian government, for instance.

Mr. Nick Discepola: Thank you.

I'd like to address one other question to the CIMBL representatives. Since their brief was very well done and the recommendations don't seem to cost us money, I'd like to ask them for their suggestions.

When you say we should support the deregulation or harmonization of provincial and federal agencies, can you give me examples of where the barriers exist? How may we strive to eliminate them? I think Bill C-82 is going to be implemented, so there's no doubt there. But the last one says: “Provide leadership in supporting technology to ensure that ALL consumers have a variety of options”. What areas can the government be instrumental in supporting, and how can we go about it?

Mr. Michael Ellenzweig: As a mortgage broker, one of the barriers I face is for me to operate in other provinces. There are residency requirements. You have to be a resident in the province in which you are operating.

Mr. Nick Discepola: This is before you get licensed, is that it?

Mr. Michael Ellenzweig: That's correct. I couldn't physically operate in another province, so that's one barrier that I face.

One has to understand the different entities that are registered as mortgage brokers. We have companies, such as Associates, registered as mortgage brokers. My colleague here is also registered as a mortgage broker. Perhaps he could expand on some of his barriers, because he doesn't deal with the public. He's a mortgage broker's mortgage broker. He's a mortgage banker, yet he's faced with these barriers.

Mr. Ric McGratten: Our operation is as a mortgage banker in Canada, but it's very hard to use the word “banker” here. We usually say we're American-style mortgage bankers because we're not a bank under regulation here.

As I mentioned during our presentation, we had to deal with nine different provincial regulatory agencies and two territories in order to set up last year, and we must maintain those. It is not a level playing field. There are certainly costs that get passed on to our customers; they are passed on ultimately to the consumers who pay for this. Our operation, however, will fund over $1 billion worth of mortgages this year for Canadians to purchase homes or to refinance homes. That really flows into the next issue, but we do need some harmonization so that this playing field is level.

If consumers are dealing with a bank, if they're dealing with a mortgage banker or if they're dealing with a life insurance company, when it comes to a residential mortgage the disclosure should be the same. In the eyes of the consumer, it is the same because it doesn't matter who they deal with.

Mr. Nick Discepola: What about the area of technology? Our government is a leader in implementing Internet access for schools and things. What can we do other than buying everybody a computer?

Mr. Ric McGratten: I don't think you have to buy everyone a computer. Through an intermediary such as a mortgage broker or a mortgage representative for a bank, they have access to computers. They'll come to your home to take the mortgage application. The technology is running far in advance of what the regulatory bodies and agencies can keep up with, and such information is flowing back and forth.

It also provides the opportunity to offer other financial services. It could be insurance or it could be any other service available at the end of that telephone line that is connected to that laptop computer in the consumer's home.

So what we're asking here is for support and maybe a provision of some leadership. The industry itself is running very quickly ahead, and I think it's a matter of providing some coordination and support. That doesn't require any money. I think that to try to maintain regulations will be very hard to do, especially with the provinces, because they're falling quickly behind.

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

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

Mr. Pillitteri.

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

I just want to follow up on what my colleague started about mortgage brokers. Are they under the jurisdiction of the federal government or the jurisdiction of provincial government? As we know, for insurance companies and so on, they're under the jurisdiction of provincial governments. Those are chartered by provincial governments. You're asking this of the federal government. If it is the jurisdiction of provincial government, is there consent that they are willing to give it up? That's the question I'm asking you: whose jurisdiction is it?

Mr. Michael Ellenzweig: Right now, it's the jurisdiction of the provincial government. What one has to appreciate, though, is that as a mortgage broker I often obtain my funds from federally chartered financial institutions. One has to also appreciate that most mortgage brokers today do not charge fees. They're paid by the financial institutions to originate loans through mortgage brokers. I may be placing a loan with a financial institution while not charging a fee to the borrower, yet my disclosure requirements and cooling-off periods, etc., don't put me on a level playing field with that institution, which may be dealing with another customer directly.

Mr. Gary Pillitteri: I do understand your concern, but I want to follow up with that question, because it is a provincial jurisdiction. The provinces are never going to be willing to give that up, or give up any power that they have under their control.

My colleagues across the table are not asking any questions, Mr. Chairman, so I just wonder if you will give them some questions. Maybe we'd like to see if they would like to give up a jurisdiction that is totally within their purview.

The Chairman: Actually, Monsieur Desrochers—

Mr. Nick Discepola: That would be a novelty—Quebec giving a power up to the federal government, or for the federal government opting in with compensation.

A voice: Yes.

The Chairman: Monsieur Desrochers actually would like to make a comment.

Mr. Odina Desrochers (Lotbinière, BQ): I respect the jurisdictions of Quebec and all the provinces, and those of the federal government. I think if you have good relations between the federal and provincial governments, you can go a good way toward reaching the recommendations.

Thank you very much.

The Chairman: Are there any further comments? Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chair. I'd like to come back to Ms. Go and Mr. Tabit on the landing fee.

As we talked about amongst ourselves, the fiscal dividend seems to have evaporated somewhat, at least in the short run. It may not be an all-or-nothing thing, there may be shades of grey.

People have said to me that once we have the fiscal means of phasing out the landing fee, we should start by phasing it out for refugees first, and then other classes of immigrants later. Is that logical? How would you prioritize it if we have to move at it incrementally?

Ms. Avvy Go: From the coalition's perspective, it's our position that the right-of-landing fee should not be there, period. Part of this position is that refugees eventually also become immigrants. They also bring in their families, and they have to use the immigration process to do so. The line that is drawn between refugees and immigrants at some point in time becomes very blurred. The distinction becomes irrelevant when it comes to dealing with the repeal of the right-of-landing fees.

For instance, in both the community I come from—the Chinese community—and the Somali community, we certainly have a large refugee community. We also have a very large immigrant community, in terms of both family-class immigrants and independent immigrants and so on. If the basic premise behind our opposition to the head tax is that it distinguishes immigrants and refugees from everybody else, then certainly we feel it is not appropriate to repeal it for some and not others.

Also, I guess the other way of looking at it is that we prefer a universal program. We look at the immigration program as a universal program, just as we look at the health care program as a universal program. We don't want to create classes within our citizenship. One of the most fundamental oppositions to the head tax is because it creates an underclass within our Canadian citizenship.

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Mr. Roy Cullen: Mr. Tabit, maybe you could expand on that. I should know this, but remind me. There's a lot of Somali refugees in my riding of Etobicoke North who are in the process of trying to become landed. That is a whole story I'm sure you're very familiar with. The Minister of Immigration has made some policies that should facilitate that. But if someone comes in as a refugee, like the Somalis, do they pay a fee then and then later apply for landed status? How does that work?

Mr. Mohammed Tabit: When somebody's applying for landed status, they have to make an application in writing and ask for a loan. Sometimes a loan is approved right away. Some other people will be denied because they cannot prove they can repay that much money, especially women on their own with little kids who are not going to go to work.

I confronted Sergio Marchi, the Minister of Immigration at that time, and I showed him specific cases, such as that of someone who was applying to live in the Dixon area who could not come up with the money. They asked the refugee, who had just come into Canada, to go to the bank and get a loan. How can somebody who has just arrived in this country and who has no credit rating get a loan from a bank? If they can't get a loan from the bank, they will apply for it.

The problem we are facing as a community is that most of the time they are giving approval. But people will get a letter from Immigration Canada, from Vegreville or from here in Toronto, saying you are ready for landing, but you had better pay the right-of-landing fee; otherwise, this will delay your situation. There are a lot of people waiting to come to this country from overseas to join their family members here, but the people here cannot pay up front the $975. So they decide to take out the family members from there, although they want to be reunited right away. They have to be taken out so they can be landed and start working here in Canada.

Mr. Roy Cullen: Thank you.

Mr. Chairman, I have a question for Mr. Ellenzweig and Mr. McGratten from the Canadian Institute of Mortgage Brokers and Lenders.

In your brief you describe the current environment, and you present figures with regard to market share that show banks with 62.5%. The chair has said this brief will be considered also in the context of the MacKay review, and the banks tell us there's more competition on different product lines. With respect to mortgage lending, is the market share of the banks, or conversely your market share, increasing or decreasing? What would happen in terms of mortgage lending if the major banks were allowed to merge? How would that affect you people?

Mr. Ric McGratten: We have a constituency that is quite broad. The banks are very active members and in some cases founding members of CIMBL.

We stated the market share within the mortgage industry. The banks have been increasing as there has been consolidation within the financial services area. They have acquired trust companies and mortgage portfolios, and their share has grown.

I would suggest the continued growth is in question if they're going to continue to grow in residential mortgages. They have been very active during the 1990s. They used the mortgages to acquire clients, and from that they were able to cross-sell other products. But they now have such a market share that I'm not sure I can actually speak for the banks as to where they're going to go in the future.

The merger of banks is going to reduce the number of mortgage lenders. It only creates a large opportunity for people like Michael Ellenzweig and mortgage brokers' intermediaries to grow and offer their services.

So maybe Michael would like to comment on that.

Mr. Michael Ellenzweig: My thoughts are that if one wants to provide competition, any financial entities entering the marketplace would want a distribution channel or a network to originate across the country. Getting back to provincially regulated mortgage brokers, the opportunities for competition are diminished with these barriers to operating across the country.

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Mr. Roy Cullen: Thank you very much. I appreciate that your association represents banks as well, so it may be difficult for you to be totally candid.

Could I come back just briefly to the ESOPs, Mr. Chairman? I have two questions.

Often, we think of employee share ownership as being associated with failing companies. Everyone comes to the table and puts water in their wine—labour takes a hit, the government throws in some energy or whatever. They are often in the natural resource sector or the big manufacturing sector. It seems to me, though, that your company used ESOPs to grow from a standstill, Ms. Wu. It wasn't a question of failing, it was a question of applying the ESOP to a growing and highly successful company. I think that should be the context in which we look at ESOPs—not just for failing companies, but as providing the ability for companies to grow.

Ms. Fay Wu: I think you're right. It definitely helped us. It enabled us to do much more research and development than we were able to sustain just from our internally generated cashflows at the time. It's been very worth while.

Mr. Roy Cullen: I have just one final question, if I may, Mr. Chair.

Some would argue that we have a lot of stock option schemes and share purchase plans in Canada. It seems to me that what ESOPs do reaches all employees. For example, in your company, Ms. Wu, I presume everybody from the receptionist up to the filing clerks has a piece of the action or at least has that opportunity.

Ms. Fay Wu: Yes, everyone's eligible as long as they pass the probationary employment period.

Mr. Roy Cullen: Mr. Phillips, is this a more broadly based approach to sharing ownership than option schemes that are more geared to middle management or senior management?

Mr. Perry Phillips: Yes, that's right, and there's something we have to realize, especially in relation to the brain drain. I've seen a study that says they are one million positions short in the computer industry in the United States. Where are they going to get those people? They're looking north. It's a very serious situation, so we have to use all our resources to combat that.

Mr. Roy Cullen: Thank you.

The Chairman: Thank you very much, Mr. Cullen and panellists.

On behalf of the committee, I would like to express to you our sincerest gratitude for an excellent panel. We've had a very interesting day here since eight o'clock this morning. We've listened to many people who have provided the committee with various perspectives on the issue of measures to be taken for the 1999 budget. Quite frankly, it's a very challenging task.

Like you, many of those other people have great ideas on how to invest the surplus. We hear from people who are concerned about the national debt. We hear from people who want tax reduction. We hear from people who want employment insurance premiums returned to employers and employees. We hear from people who want transfers to the provinces increased. We also hear from other people who want to build a modern economy by investing in research and development, education, student aid, and so on. So the demand on this committee to address the challenges and choices that so many people present to us are what they are. You can therefore well imagine what sorts of trade-offs, challenges and choices we face.

Having said that, I'm a firm believer in this process. Every year when this happens, people come forward with excellent ideas about how to build a better and stronger Canada, how to build a fair and just society. It really comes down to accepting the risks and benefits of our common citizenship.

Today was like many days that we've seen in this committee. People came out with some very important points of view that we will all duly note and reflect upon as we write the report to make recommendations to the Minister of Finance.

Once again, on behalf of the committee, thank you very much.

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For the members who are here, I would just mention that we will be back at the Asa McAllan Room—that's room C—at 8 a.m. tomorrow.

The meeting is adjourned.