FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, October 29, 1997

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.): Good afternoon. I would like to welcome everyone.

As everyone knows, the finance committee, pursuant to Standing Order 83.(1), is holding pre-budget consultation hearings here in Ottawa, and indeed across the country. We have the pleasure today to have the following witnesses with us: representatives from the Canadian Jewellers Association, the Canadian Taxpayers Federation, the Consumers' Association of Canada. As an individual we have Mr. Tony Parker, economist. We also have representatives from the Retail Task Force and from the Confectionery Manufacturers Association of Canada.

As the witnesses know, I'm sure, they have approximately five minutes to give us an overview of their presentation. Thereafter we will engage in a question-and-answer period.

We will start with the representatives from the Canadian Jewellers Association, Jonathan Birks, chairman of the government relations committee, and Pierre Akkelian, past president. Welcome, gentlemen. You may begin.

Mr. Jonathan Birks (Chairman, Government Relations Committee, Canadian Jewellers Association): Thank you, Mr. Chairman.

I welcome the opportunity to participate in the House of Commons Standing Committee on Finance round table discussion on taxation on behalf of the Canadian Jewellers Association, the CJA.

[Translation]

Having already met with the Committee over the last four years, the CJA would like to take this opportunity to thank both the Committee and the government for taking action to control the annual deficit. That decision, as well as those you will be making as a result of these consultations, will lead to surpluses in the long term.

However, I would like to remind the Committee that the jewelry industry is still required to contribute to the government's tax base by paying a tax not levied on any other good or service. We continue to be subject to a 10 per cent excise tax levied on all jewelry, including costume jewelry of a value greater than $3, and watches and clocks of a value greater than $50.

[English]

The excise tax on jewellery is the only remaining so-called “luxury tax”. It was first applied in 1918 to fund Canada's efforts in World War I. In 1991 the GST did not replace the excise tax on jewellery. We have ended up with the burden of both.

Earlier this year the CJA engaged the services of Ernst & Young to undertake a detained study of the full range of issues surrounding the excise tax on jewellery. The report strengthened and confirmed the arguments that have been presented to the committee in previous years. The study concluded that the tax is unfair, hurts small business, is difficult to enforce, and generates little net revenue for the government.

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We'd like to share some of Ernst & Young's specific findings with you now.

The tax unfairly discriminates against the jewellery industry. It is perfectly obvious that jewellery is a commodity that is broadly purchased by all segments of society. Jewellery is not a luxury item. The annual household expenditure on jewellery is only $130, or less than the cost of an annual newspaper subscription.

The jewellery industry is the only retail sector that faces a 10% manufacturers tax. This puts it at a distinct competitive disadvantage to all other retail sectors. The tax influences disposable household income away from our products toward other consumer products and services. And the tax increases the cost of financing inventory, whereas taxes carried in inventory in almost all other industries were eliminated in 1991.

By dampening jewellery sales and industry growth, the excise tax inhibits job creation. This is particularly unfortunate because the jewellery industry has strong potential for job creation, as it is very labour-intensive.

We employ approximately 33,000 people full and part time in Canada. Repealing the excise tax would lower costs and lead to increased jobs and industry growth. We're a small business sector. Ninety per cent of our 4,400 businesses employ fewer than twenty people, 65% fewer than five. The time and expense of complying with the administrative paperwork related to the tax constitute an unreasonable burden that hurts small jewellers.

Repeal of the excise tax on jewellery would help Canadian jewellery manufacturers regain market share lost to illegal imports. The incentive for smuggling jewellery would clearly diminish after the 10% excise is eliminated. One study found that the tax might account for more than half the price differential between smuggled jewellery and a similar item purchased in Canada, and if smuggling is reduced we would no longer be exporting jobs out of Canada.

Federal government revenues generated from the excise tax on jewellery are approximately $50 million. While this is extremely small in relation to all tax revenues, four one-hundreths of a penny of every revenue dollar raised, every revenue dollar is important in the fight against the deficit. But I would remind the committee that the net tax loss from repealing the excise tax would clearly be less than $50 million.

Many transactions currently legally avoid and illegally evade the tax. The amount of untaxed jewellery transactions has been estimated at one half of all legal taxable transactions. Eliminating the tax would bring many more transactions into legal status and subject to the GST corporate and personal income taxes. It would also increase provincial tax revenues.

Eliminating the tax would also reduce Revenue Canada's cost of administration and the RCMP's cost of enforcement. The committee should know that the 1996 Auditor General's report identified major practical problems preventing fair and effective administration of this tax.

We are not asking the committee to give the jewellery industry a concession. Repealing the excise tax would not provide our industry with special treatment. Instead, repeal of the tax would level the playing field and open the industry to growth and job creation.

I thank the committee for allowing me time to speak to the issues that face our industry. You face a difficult task ahead recommending how the government should prioritize the coming dividend. I hope you'll begin by following the lead of last year's committee, which formally recommended abolition of the tax, and that all parties represented on this committee will support unanimously the repeal of the tax.

Thank you again for your time.

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

The next presentation will be made on behalf of the Canadian Taxpayers Federation, by Mr. Walter Robinson. Welcome.

Mr. Walter Robinson (Federal Director, Canadian Taxpayers Federation): Thank you, Mr. Chairman. My name is Walter Robinson. I'm the federal director of the Canadian Taxpayers Federation.

[Translation]

It is a great pleasure to appear before you this afternoon and forward our positions and ideas for the 1998 Federal Budget. My presentation will be in English, but I will attempt to answer questions in the language of your choice.

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[English]

Last year, Mr. Chairman, we mentioned this committee was at a crossroads. The 1998 budget necessitates a choice of which road to take. To us, the choices are clear: we can backtrack and return to increased spending and increased taxes, all in the name of activist government, or we can march ahead with discipline and courage. We believe we must march ahead.

To us, the government's fiscal strategy must be built on three pillars: debt reduction, tax relief, and in context of the post-deficit era, redefining the role of government. We applaud the government's assault on the deficit—$8.9 billion for the fiscal year 1996-97 is encouraging.

However, we cannot break out the champagne just yet. Even though we may win the deficit battle, the big war on the debt is yet to come. We must approach the task of reducing the debt with the same zeal and enthusiasm that has been brought to the deficit battle. This government must set mandatory targets for debt reduction, apportion future surpluses to these targets, and report at a minimum of twice a year on our collective progress on the debt.

Ideally, the Minister of Finance could update Canadians during his annual fiscal and economic update and during the tabling of the annual budget. To borrow from the government's own phrasing, if this government is serious about providing security and opportunity for future generations, it cannot hesitate on debt reduction. Failure is not an option.

In our submission to the committee we reiterate our 1996 call for taxpayer protection legislation. Our approach would forever outlaw deficits, except in times of national crisis, and bind governments to a mandatory schedule of debt reduction, as I have just mentioned. It is included as an appendix to our report for your reference. Again, to borrow from the finance minister himself, if this government has truly cut up its credit card, then this legislation is even more compelling and necessary.

Distinguished members of this committee, the cries for broad-based tax relief are real and warranted. The deficit battle has been fought on the backs of taxpayers. Taxation revenues have increased $24.9 billion over the past four years. Almost 50%—a whopping $11.9 billion—has come from personal income taxes. That represents tax increases. Broad-based tax relief is necessary.

The government has several vehicles through which this relief can be provided. We encourage serious consideration of broad-based tax cuts at the marginal tax rate, increasing personal and spousal deduction amounts, and correcting the problem of bracket creep. Bracket creep is an insidious, hidden, and most of all, regressive tax that in 1992, according to the Department of Finance, was responsible for moving 800,000 low income Canadians onto the tax rolls.

As for spending reductions, again in our submission we call for an end to business subsidies through Industry Canada; the trimming of Canadian Heritage telling us who we are, as if we don't already know; spin-offs of various crown corporations; and encourage further outsourcing and alternate service delivery initiatives by all federal departments. Ironically, it's the Department of National Defence that is leading the way in alternate service delivery in this government. Details of these measures are contained in our submission.

Finally, the post-deficit era will result in the so-called fiscal dividend. This dividend represents pure and simple over-taxation. What else can you call taking in more revenues than you need?

We encourage all members of the government and this committee to engage Canadians in a debate about the role of government. This debate is long overdue. By attempting to forge a consensus on the role and consequently the size of government, we can ensure that our public finances are always used for optimal purposes.

This debate will require courage. Without prejudging the outcome, we think discussion should focus around government's role in industrial policy; a serious look at addressing the problems highlighted by the Auditor General over the past decade; and consequent with expenditure reform, taxation reform.

[Translation]

Thank you for your kind attention. I anxiously await your questions.

[English]

The Chairman: Thank you, Mr. Robinson.

We'll move now to the Consumers' Association of Canada—Gail Lacombe, president, and Marnie McCall, executive director.

Ms. Gail Lacombe (President, Consumers' Association of Canada): Thank you, Mr. Chairman. Good afternoon, ladies and gentlemen.

[Translation]

My name is Gail Lacombe and I am the Volunteer President of the Consumers Association of Canada. With me today is Marnie McCall, our Executive Director, who will respond to your questions.

[English]

I want to tell you a little about CAC, and then I will focus on an area of strategic investment in public goods for the 21st century, which we would ask the committee and the minister to consider.

Consumers' Association of Canada is a national volunteer organization dedicated to providing protection and fair play for consumers in the Canadian marketplace. A federally incorporated registered charity, CAC has chapters in each province and territory. We maintain a national office in Ottawa with a permanent staff of five and regional offices in Vancouver, Edmonton, Saskatoon, Winnipeg, and Montreal. With the exception of a half-time position in Winnipeg, these offices are staffed entirely by volunteers.

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Founded in 1947, CAC is Canada's first and most effective national consumer voice. A member of Consumers International, a federation of 215 consumer organizations in 93 countries, CAC is the third-oldest consumer group in the world, behind Denmark's and that of the United States.

At the national level CAC has five major issue and policy committees: financial services, health, food safety, communications industries, and marketplace issues.

Our mission is fourfold: to unite the strength of consumers; to improve the quality of life in Canadian homes; to study consumer problems and make recommendations for their solution; to bring the views of consumers to the attention of government, business, and industry and to provide a channel from these groups back to consumers; and to obtain and provide information and advice for consumers on goods and services.

One of CAC's roles has been to provide consumer representation to a wide variety of councils, committees, task forces, and other bodies to ensure consumer perspectives are taken into account in policy development and implementation. At present the Consumers' Association of Canada provides approximately 250 consumer representatives at all levels. CAC's consumer representatives are volunteers, many of whom must take vacation days or unpaid leave from their own positions to attend meetings.

Until 1993 CAC received a sustaining grant from the federal Department of Consumer and Corporate Affairs. One of the major uses for this grant was to support consumer representation. CAC assumed the expenses of our volunteer consumer representatives and provided the administrative and research support necessary for those volunteers to bring the consumer perspective to the table. The decision to end sustaining grants for most national public-interest organizations means CAC's ability to fulfil this element of its mandate has been severely restricted.

Sustaining grants also enabled organizations such as ours to develop and maintain expertise in key areas of public interest. The shift to government funding through project grants has also seriously eroded our ability to maintain in-house expertise and administrative support to our issues committees which are primarily responsible for formulating CAC policy. As a consequence we are often not able to respond to emerging public-interest issues such as the development of alternatives to regulation in a timely fashion.

Over the period since the sustaining grants have ended, both government and industry have recognized the value of multi-stakeholder consultations and collaborative ways of reaching market solutions which benefit all participants. It is rare now for a week to go by without at least one request arriving for a CAC representative to participate. We believe, and the invitations we receive suggest others do as well, CAC has a valuable contribution to make to these processes, which are shaping our move into the knowledge-based economy. We are gratified CAC continues to be recognized as an appropriate and valued organization to represent the interests of consumers. However, with only five staff in Ottawa, volunteers located all over Canada, and limited financial resources, we are finding it increasingly difficult to respond even to those requests where we feel a consumer voice is absolutely vital.

At the annual meeting of the national voluntary organizations in Ottawa on October 4 the Minister of Finance urged the volunteer sector to get its oar in the pre-budget discussions, and we have taken up that challenge with our presentation today. During the discussion with the minister on October 4, Paddy Bowen, of Volunteer Canada, proposed a funding program to enable organizations to hire volunteer coordinators, pointing out that one volunteer coordinator could enable the placement of 45 volunteers in the community. Organizations such as mine, which primarily provide advice and information rather than direct services, could support twice that number of volunteers with one volunteer coordinator.

Government has made explicit its belief that much of the work it has performed in the past can be better carried out by either the private or the volunteer sectors; and there are no doubt many tasks which can be. There remains, however, a role for government: to act as a facilitator for the voluntary sector, as it has for other sectors, such as emerging industries and small business. This role has recently been explicitly recognized in the throne speech and in the minister's financial statement early this month in Vancouver, both of which identified the need for partnerships among government and the voluntary sector.

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Consumers' Association of Canada has previously written a paper entitled “The Role of Consumer Organizations in Public Policy Development”. A copy of this paper has been provided to the Minister of Finance, and we have provided a copy of this paper to the clerk for the consideration of the committee.

In recent budgets the minister has brought in changes to encourage Canadians to make or increase donations to registered charities, and we applaud those changes. We believe the voluntary sector is a public institution, and that strong public institutions are necessary for economic progress. Their development needs to be encouraged and supported. Consequently, we also believe there is a place for direct support of the voluntary sector.

On behalf of the Consumers' Association of Canada and its volunteers, I urge this committee to recognize the significant returns available from a relatively small investment, and to recommend that measures to directly assist volunteer organizations be included in the next budget.

Thank you.

[Translation]

The Chairman: Thank you, Ms. Lacombe.

[English]

We will now move to economist Tony Parker. Welcome.

Mr. Tony Parker (Individual Presentation): Good afternoon.

Mr. Chairman, members of the committee, there are some photocopies of this information, and although they're not immediately available, they'll be with you in a a short while.

For the past two years I've been lobbying the government—it's become a hobby, I guess—to consider adopting premium bonds as a means of funding deficit reduction. Premium bonds have been very successful in the United Kingdom, and at present holdings exceed eight billion pounds—and that's sterling pounds. They estimate that half of the population holds these bonds, and there are large and small investors.

It works this way: bonds are sold in units of one pound sterling, and may be surrendered at any time. While they're held, however, the interest they generate is pooled each month, and the winners are drawn electronically—and incidentally, it's a computer named ERNIE. There is a guarantee that the full interest earned will be given out as prizes—this is most important—varying from one million pounds to 50 pounds. In the way in which the prizes are allocated, 75% of the prizes are small prizes, 15% are medium-value, and the other 10% is in fact the highest prize of one million pounds, which is $2.2 million. The interest rate that determines the size of the pool varies according to current interest rates. At the present time, the interest rate declared in the U.K. is 4.75%, but this may be adjusted by the government.

Now, people who would not dream of gambling, probably for reasons of religious grounds or moral reasons, own bonds. They're used as christening gifts, wedding gifts, retirement gifts, and seasonal gifts. There's quite a long list. And it's also possible to purchase these bonds on a third-party basis. Grandmothers or grandfathers can purchase bonds for their grandchildren. And don't forget that the proceeds are tax-free. That's also important.

As for the government, there's a source of variable interest money available. It's self-funding over your debt, if you like. So I'm saying, let's do it.

Thank you.

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

We now move to representatives from the Retail Task Force: Mr. Michael Sherman, vice-president of corporate and public affairs at Dylex Ltd.; and Tim Carter, vice-president of public affairs with the Oshawa Group Ltd. Welcome.

Mr. Michael Sherman (Vice-President, Corporate and Public Affairs, Dylex Ltd.): Thank you, and good afternoon. I'm Mike Sherman. Today, Tim Carter and I will be speaking about requests from this committee for strategic investments.

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I'd like to begin by explaining who the Retail Task Force is. I'd then like to talk about assumptions that we believe should be used in planning for the next budget. And finally, we'll discuss our two suggestions.

First, from the retail perspective, we believe the issues that would have the most positive impact on the economy would be a cut in personal income taxes for lower-income Canadians and a reduction in employment insurance premiums.

Now I'll get back to who we are. The Retail Task Force is an organization made up of three companies, including Dylex Limited, the Hudson's Bay Company, and the Oshawa Group. We represent different sectors of national retailers, including specialty, department, and food stores. Together, our companies generate $3.6 billion in sales, employ 84,000 people, and operate in over 2,600 stores.

I should note that we are a group that was formed not at our own behest, but because different governments wanted to have an organization that they could bounce ideas off of. Actually, we were formed because of a request from different levels of government. They needed a source that they could communicate with, and with which they could build up a sense of trust. We're quite pleased to say we've done that.

Retailers are at the front lines with consumers. We are almost conduits of consumer confidence, or barometers of consumer confidence. We have a special vantage point in a relationship with the consumers, and I think that brings us before the standing committee to give you an idea of what we see going on with consumers today.

First of all, we believe the government has taken proper steps in staying the fiscal course, and the results are encouraging. We're pleased with the fact that the government has announced zero-deficit goals for 1998, and that there's a downward trend for the debt-to-GDP ratio. We're seeing customers coming back to our stores, and we'd like to see this trend continue into the future. We believe the government priority should be debt and deficit reduction as a sound fiscal foundation. That will bring back consumer confidence even further, and build economic growth and more jobs, we hope.

I hope you can all appreciate that this rebound in consumer confidence is very fragile. Consumers are coming to the stores now, but it's not as large of a bounce-back or growth in demand as some people might think. The retail sector is extremely fragile now. There is a record level of personal debt, a record level of people with large debts themselves, and this doesn't give them the disposable income to continue to come to the stores. We'd like to bring that up as a cause for concern, which takes me to our two options.

We believe the government has some tough choices ahead of itself on how to spend its fiscal dividend. It's like Dylex, the company I work for. We're a company that's suffered from deficits and large debt in the past. We're now grappling with how to spend our dividend as well, so we can understand the position you're in.

I've suggested two options. The first is a cut in personal income tax levels for lower-income Canadians. We believe this is especially important, because this will generate more disposable income for low-income Canadians, and it will contribute to sustained growth and prosperity for the consumer. We believe such a tax reduction will stimulate demand and create jobs.

The second option is a reduction in employment insurance premiums. Whether broad-based or targeted, we think this will fight youth unemployment to avoid a perpetual cycle of reduced growth and prosperity.

I'll now turn it over to Tim Carter, who will give you a little more input into those choices.

Mr. Tim Carter (Vice-President, Public Affairs, The Oshawa Group Limited): Thank you, Mike.

We understand that the Department of Finance is particularly interested in youth unemployment, which is in the 16% range. As a result, our three companies went about taking a look at how this could be addressed with some beneficial effect.

We would like to say that there's a direct relationship between jobs and payroll taxes in the retail sector. We are, we think, the most labour-intensive sector for the business investment dollar. Because retail operates on low profit margins, any increase in the cost of doing business translates directly into labour hours. It is our only real variable. If payroll costs go up, the number of persons employed invariably declines.

Employment insurance premiums are a direct federal levy on employment. In that regard, I might say that payroll taxes end up as part of our payroll costs. They are not at the bottom of a P and L, like other taxes. So when retailers look at those costs, they're really part of their labour costs. You can see the premiums as a direct component that relates to those costs. In 1996 our stores paid $150 million in payroll taxes for over 84,000 employees.

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Linking employment insurance premiums to hiring youth on a performance-based system is the most direct action we think the federal government can take to encourage us to hire more youngsters.

Two options can be considered. The first one is a quick, simple, less-targeted one. It would be a reimbursement to employers of all or part of the employment insurance premiums otherwise payable for newly hired full-time or part-time workers. In the retail sector, such a program provides an incentive to short-term, seasonal unemployment, but with the high proportion of youth among retail workers, unemployed youth workers would be primary beneficiaries of that.

The other option is more targeted, but a little more complicated. It's a targeted employment insurance reimbursement program for employers who provide both employment and training for young Canadians. Program eligibility for employers would be defined in terms of individuals enrolled in full-time secondary or post-secondary education in the last 24 months. It would link it more to the youth group. In addition to valuable work experience, employers would provide the equivalent of one week's training over the first year. We recognize that there may be compliance difficulties with this option, but we would be happy to continue working on this at your request. We think these can be worked out.

We are convinced that a method can be devised to target youth unemployment through the payroll system. Because employment insurance reductions are a direct expenditure, they are more flexible and focused than tax relief and could deliver a targeted benefit. They match payments with results by making the benefits payable on the basis of proven job creation on the part of participating employers.

In conclusion, government can act directly to bolster the economy without giving up needed fiscal discipline. One option is through personal income tax reductions to benefit lower-income Canadians and/or additional measures to create jobs for our youth through reducing the costs of new hiring by a rebate program for proven performance. Both approaches put money in the hands of Canadians, create jobs, and contribute to greater participation in the economy by society, for all Canadians.

Thank you, Mr. Chairman.

The Chairman: Thank you very much, Mr. Sherman and Mr. Carter, for your presentation.

Now we'll move to the next presentation, from the Confectionery Manufacturers Association of Canada, Ms. Carol Hochu and Brian Lauzon. Welcome.

Mr. Brian Lauzon (Chairman, Confectionery Manufacturers Association of Canada): Thank you, Mr. Chairman and members of the committee.

I am Brian Lauzon, president of Effem Foods Ltd. and chair of the Confectionery Manufacturers Association of Canada. With me is Carol Hochu, CMAC president.

CMAC is the national voice of Canada's $1.7 billion confectionery industry. We directly employ over 7,000 Canadians, and about one-third of our production is destined for export.

We have been asked to comment on the fiscal direction of this government. We urge you to continue to focus on reducing the deficit and the national debt. If promised surpluses are to be shared, they should be used to address the number one growth and job killer this country faces, which is exorbitant payroll taxes such as the employment insurance, and the removing of legislated inequities of the GST.

We are opposed to the creation of any new programs that would increase demand on the limited resources of the nation's treasury. Fix the leaky roof and broken windows of the house we live in before you start thinking about buying new carpets and furniture with moneys that do not exist.

To best achieve its priorities, we urge the government to abide by the principles and promises that got it elected. Specifically, we urge the government to fix the GST by removing the exceptions and distortions and inequities of the system that so very much compromise its integrity.

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As a clear example, in our industry confectionery competes directly with cookies, doughnuts and cereal bars for the same share of the consumer's stomach. They're all made with the same ingredients: dairy, sugar, cocoa, and so on. Cookies, doughnuts and cereal bars are GST-free when sold in quantities of six or more, while confectionery attracts GST. The six or more rule is justified on the assumption that food purchased in these quantities is not intended for immediate consumption, but instead for consumption at home. Of course, most people have not met my son.

Some hon. members: Oh, oh.

Mr. Brian Lauzon: Bags of cookies and multi-packs of chocolate bars are not intended for immediate consumption. Consumers buy them to eat at their leisure, at home or with their family meals and as a dessert item in their child's school lunch. In consumers' minds, they are the same interchangeable products when the purchase decision is made in the supermarket aisles.

However, for some peculiar reason, when the consumer reaches the supermarket checkout our products—for instance, the multi-packs of bars—miraculously transform and become a revenue generator for the federal treasury. GST is charged on the multi-pack of bars even though the product is made with the same ingredients, is intended for the same end use, and is purchased at the same supermarket in the same aisle. GST is charged on confectionery, but not on cookies and doughnuts and cereal bars. Is this fair? Absolutely not.

Has the government seen fit to address the competitive advantage that has been legislated for our competitors? No. In fact, doughnut companies are now advertising the legislated advantage. Does it make sense that a $400 jar of caviar is GST-free and a bag of chocolate bars attracts GST? We believe not.

We've talked to the finance people. They say we're right and that it's unfair, but they say it's a political decision.

We've talked to consumers, and 17% say they buy bags of cookies instead of multi-packs of bars because of the GST advantage.

As an association we publicly supported sales tax harmonization at the request of the finance department on the promise we would have a fair hearing. Guess what? No hearing, and sales tax harmonization almost killed us.

The government made promises and commitments to fix the GST. The so-called deficit monster has apparently been tamed and now the government wants to start spending. Our estimates for what's contained in the finance department's documents, which were obtained under access to information, suggest the annual cost to the treasury to address the discrimination against our products would be less than $40 million. Compared to the cost of harmonization with Nova Scotia, New Brunswick and Newfoundland, this is a pittance, and would truly be a step forward in making the GST fairer for all concerned.

What is the best way for the government to ensure a wide range of opportunities in the new economy for all Canadians? It is quite simple: live up to promises made and fix the things that need fixing.

Thank you very much.

The Chairman: Thank you very much.

We'll now move to questions and answers. We'll start with Mr. Solberg.

Mr. Monte Solberg (Medicine Hat, Ref.): Thank you very much, Mr. Chairman.

I first wish to apologize to people for being late for their presentations. I've done my best to try to catch up by reading some of the summaries. I want to start by asking a question of Mr. Robinson.

In your summary you suggest there are still savings to be made in government expenditures. Some people would argue that, first of all, making cuts to expenditures at this time might not be politically acceptable, and secondly, some people might even argue that it would hurt the economy. How you would respond to that?

Mr. Walter Robinson: What sorts of expenditures are you speaking about?

Mr. Monte Solberg: Here you're talking about cutting EI premiums, making cuts to Canadian Heritage, things like that.... I'm sorry, not EI premiums, EI benefits, EI expenditures. You're talking about cutting that by 10% along with reductions in Canadian Heritage, Industry Canada, things like that, the MP pension plan. I wonder if you'd care to reflect on that and explain why you think that can be done.

Mr. Walter Robinson: Okay. It's a question of priorities. Let's deal with Industry Canada. For example, I just yesterday received information from Industry Canada pursuant to an access to information request looking to assess the feasibility of some of these business subsidy programs that have been run by Industry Canada and its predecessor departments for the past 25 to 30 years.

For example, DIPP, and we now have, I think, Technology Partnerships Canada, which we've jokingly referred to as “Son of DIPP”, were both designed to prop up our aerospace industry. Arguably, many governments around the world have tried to prop up their aerospace industries as a key component of their industrial policy.

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Unfortunately, the figures we've received—and they are limited in that sense—reveal that we have received about a 10% return on our dollar literally on the billions we've put out over several years through Industry Canada.

It's a question of what are our priorities. Is it health care and education, or is it propping up multinational corporations who are doing very fine, thank you very much? So it's a question of priorities in that sense.

Canadian Heritage spends approximately $600 million to $700 million in telling Canadians who we are. I think we pretty much know who we are. I think, again, we have to make priorities on where we want to put those sorts of expenditures.

In our submission we talk about the role of government. This post-deficit era provides us an opportunity to ask what we are doing and what is the role of government. We believe that program review was designed to do that in the last Parliament, but the bureaucracy and the political games were played whereby everybody lobbied and it became an across-the-board, budget-cutting exercise, as opposed to asking what services should we be providing and what should we outsource and share with other levels of government, hopefully to make the size of government smaller, more optimal and reflect what Canadians really want.

Mr. Monte Solberg: I'm interested in what you just said about the government's return on investment through your Industry Canada access to information. I wonder if you'd be willing to share that with the committee at some point, so we can all see precisely what the government has done with respect to those subsidies.

Mr. Walter Robinson: Most definitely, Mr. Solberg. As well, we are following up because it was actually handled outside access to information. We found that when we tried to pursue effectiveness and evaluate the performance of government programs in the past, we've been stymied in the sense that it's always pursued outside access to information. So we don't have the teeth of what is a very poor and weak piece of legislation to begin.

If I may add, I applaud John Bryden's move to make it the open government act and tighten up that piece of legislation. So when we scan through the literally 18 pages of just different programs that Industry Canada's run over the past 13 years, and evaluate the performance of different programs and shared costing arrangements, I would most definitely share that with the clerk and with the chairman.

[Translation]

The Chairman: Mr. Loubier.

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Mr. Akkelian and Mr. Birks, I clearly remember that last year, the Finance Committee's report did indeed recommend abolition of this tax on jewelry, which is completely ridiculous. This year, you may rest assured that you have our support, but in the meantime, I would advise you to discuss this with the Minister of Finance, who will be making the final decision. The Committee may make recommendations, but if, at the other end, the Finance Minister is not receptive, because his advisors are telling him it's not a good idea, then we'll have wasted our time. So I would certainly recommend that you try and meet with the Minister of Finance to discuss the issue of the excise tax on jewelry. We can always make suggestions, but the decision will be made at the top.

I also have a comment for the Retail Task Force. The suggestions you have made with respect to job creation are excellent. Last year, we released a report on tax reform where we made precisely these kinds of suggestions. When we presented it to the Minister of Finance, however, he rejected them out of hand. I hope that with your support for these suggestions on job creation, we may be able to convince the Minister to proceed. You're absolutely right: it isn't enough to sit and watch the train go by while making statements about job creation among youth. We have an opportunity to put active job creation measures in place, and a reduction in payroll taxes may well be the best way of achieving that at this time, particularly since there is now an accumulated surplus of some $13 billion, after only two years. That's a lot of money—a lot of money with which to create those jobs.

I want to commend you on your brief. I have no questions, Mr. Chairman. I simply wanted to make a few comments regarding the presentations we heard.

[English]

The Chairman: Thank you.

Mr. Riis.

Mr. Nelson Riis (Kamloops, NDP): Thanks very much, Mr. Chairman.

Jonathan, I appreciate your comments in terms of the problems regarding jewellery, and since you weren't at the committee last year, I support your concern.

To Tony, it's an interesting proposal. I'll study that. This may be the kind of thing that would catch the public's imagination.

• 1315

I do join my colleague here in terms of the recommendations about the EI fund. I think it bears a lot of merit and I would like to see some recommendation along that line coming.

Walter, I actually agree with a lot of what you say, and I think it is some very good information that you provide to us, particularly in terms of the use of some of these funds for questionable purposes or in terms of results. I do this with all respect; it is not a personal attack on you or anything. But you say that our concern around this table should be debt reduction. Indeed. And tax reduction. We could debate some of your points on that and the role of government. Yet we have been travelling around for a long time and we have been convinced that there is a crisis in our health care system across the country; a serious problem in terms of higher education, particularly access to higher education; and a serious problem in terms of the research and development that is taking place in the country, the funding for research, pure research as well as applied research.

We have heard a lot about the one and a half million kids living in poverty this morning, and there are a million parents who are living in poverty. We've heard about the tens of thousands of people, families, who are homeless in this country because they cannot find adequate housing at all. They are living in hotels and motels and so on. In light of that, do you really believe we shouldn't invest any money in any of these areas? Or did I misinterpret, perhaps, what you said?

Mr. Walter Robinson: Perhaps it might be a question of misinterpretation.

What we are saying in terms of the priorities is yes, debt reduction, tax relief. And when we talk about the role of government in our submission, we talk about, in terms of before the government spends a single penny of the fiscal dividend, it should pay a great deal of attention to literally 15 years of reports by Kenneth Dye and Denis Desautels that chronicle billions in waste and mismanagement in our federal public service. The system has become big, it has become cumbersome, and there are savings to be had. What we are saying in terms of those priority areas you talk about—health care, education, R and D.... When I think in terms of R and D, if we were to commercialize the National Research Council of Canada—much as has been done by the National Physical Laboratory in the United Kingdom—we would get a much greater concern and really free up science for those pure and applied purposes.

In terms of those 1.5 million kids, we say that the principle of reallocation must be employed first and foremost. Let us look within those existing budget envelopes, find the money about which Mr. Dye and Mr. Desautels come out once a year, and now three times a year.... It is a media hit for a day and then it is buried and it is put on a shelf. Quite frankly, not to use too strong a term, it is a bit contemptuous of taxpayer dollars that this is not acted on in a more significant fashion. Take that money for your priorities, which we agree are also priorities.

I talked about bracket creep, for example. The 1992 Department of Finance figures indicate that over 800,000 low-income Canadians were pulled onto the tax rolls for the first time in their working lives because of bracket creep. It is insidious, it's hidden, and it is mostly regressive. So in our proposal, in terms of addressing bracket creep in the 1998 budget, I think we can help those 800,000 low-income Canadians. So we are non-partisan in that sense and it is a question of priorities and where we put our money.

The Chairman: Mr. Jones.

Mr. Jim Jones (Markham, PC): Thank you, Mr. Chairman. I am sorry if I was late, but I have been looking at the notes also.

I have three questions and I am not sure to whom I am directing them.

We are getting ready to increase the premiums on the Canada Pension Plan, and I wonder what impact that will have on jobs out there in your associations or organizations. Also, I wonder if anybody has any evidence they can present or talk about to the effect that by having tax cuts it creates jobs, it will stimulate the economy. Lastly, I would like to have each one's opinion on what they define as the fiscal dividend. Is the fiscal dividend the surplus, or is the fiscal dividend when you pay down the debt and you do not have to pay as much in servicing costs each year? These are my questions. I would be interested in hearing your comments.

Mr. Tim Carter: Mr. Chairman, we are concerned about the effect of tax on consumer expenditure. That is what we had worked on, and we think there is a connection. We have just gone through a tough recession. Prices are highly elastic. We watched that. We noticed the degree of price elasticity in times of recession.

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I think it's fair to say that if you take money away from the consumer we see it. We see it every week. While we didn't study the increase in the Canada pension, we know that if you take money away, which I think is what you're saying, it will have an effect on expenditures. On the food side it doesn't necessarily mean people eat less in terms of tonnage but they trade down from steak to hamburger, they move from national brands to private label, and so forth, which has a margin impact on our business.

Without studying it more specifically I would hesitate to get further into it. What we were interested in was a targeted income tax reduction for low-income earners and most specifically in getting at what we understood the ministry was interested in, which was a youth unemployment that is at unacceptable levels. We went away and did some work on that, which we think you can use. Our idea was employment insurance premiums for a proven system, not for a whim but when we perform and then pay.

Mr. Walter Robinson: Mr. Jones, with respect to CPP, we can look at a quote from our submission:

An August 1995 study by the Bank of Canada [on CPP as a payroll tax] stated that federal and provincial governments may have killed as many as 130,000 jobs over 4 years, simply by raising payroll taxes. According to the study, employer payroll taxes increased from 10.6% of wages and salaries paid in 1989 to 14.1% in 1994.

On the issue of CPP, when the government and the provinces held their joint provincial and territorial consultations, they laid out benchmarks by which the CPP reforms could be judged. They said any changes made to the plan would be sustainable, fair, and affordable. This plan is only sustainable as long as you have a decreasing number of workers willing to pay accelerating premiums over their lifetimes for a minimal return. If I'm 31 years of age, studies indicate that I'm going to receive anywhere between a 1.1% and, at the most optimistic, a 2.2% return on my contributions to the Canada Pension Plan.

It is not affordable. It is a job-killing payroll tax, as some of the other witnesses can speak more astutely to. Employers will discipline labour. They will claw back benefits, reduce salary expectations, or halt growth plans. Those are the effects we are going to see of the CPP premium increase.

Finally, it is not fair to a younger generation of Canadians. We are already being saddled with a $600 billion debt, which is the largest example of tax deferral in Canadian history. Now we have the largest tax grab in Canadian history for a program that we will pay into but we will not see the benefits from. Macleans magazine two and a half weeks ago had an article that claimed that 66% of Canadians believe they will not see a penny from the Canada Pension Plan. We think the government must rethink its approach to pension reform.

As for tax cuts, a U.S. study by Richard Vedder looked at 25 U.S. jurisdictions. It showed that during the period of 1979 to 1989 growth in the 10 states that raised taxes the most paled in comparison to the 10 states that lowered taxes the most. States where property taxes were lowered experienced a 26.1% rate of growth over the 10-year period, whereas states whose property taxes rose only had a 9.3% rate of growth.

The reason I mention property taxes is that this federal government may wish to cut spending and reduce transfers to the provinces, but when you move from a progressive form of income taxation and you move your cuts on to the provinces, you move to a more regressive form of property taxation because those spending cuts are moved right along to the municipalities. When the government looks at its fiscal management, it must understand its impacts on the entire economy. Tax cuts do create jobs; the studies prove that, period.

The Chairman: Mr. Robinson, Mr. Solberg is in agreement with you.

Mr. Jonathan Birks: I'm agreeing with him too, Mr. Chairman. In terms of the CJA and the 10% excise tax, we're convinced that with the reduction of the tax the consumer will be spending more here in Canada. As he's spending more, you'll find that the legal jewellery industry will be healthier. We're very labour intensive, as I said in the presentation itself, and that will be good for job creation in this country. We've done enough studying over the last five years that we're convinced that the cause is right.

As for surplus, I've always defined surplus, whether it's a government or an individual, as making more than you're spending. I feel that way for the industry and I feel that way for the country.

The Chairman: Thank you, Mr. Birks. Mr. Akkelian.

Mr. Pierre Akkelian (Past President, Canadian Jewellers Association): Since we have the support of most of the parties around the table, I would very much like to hear Jim Jones come on line on this one.

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You see, as an industry we approved GST. We supported the introduction of GST because it clearly cleaned the maze that was there as far as the sales taxes were concerned. But all the justifications that were used at the time to introduce GST in favour of the old manufacturing tax.... We still object to this unfair and unjust administrative tax system.

We are asking your committee to support the elimination and abolition of this tax. I would very much like to hear your comments on that issue.

The Chairman: Do you have a comment on that?

Mr. Jonathan Birks: It doesn't have to be prepared.

Mr. Jim Jones: What I would like long term with the GST is to see enough surplus generated that the GST is used to pay down the debt and then eventually we reduce the GST.

Mr. Pierre Akkelian: Our industry generated far greater GST than any other industry when you eliminated the sales tax and introduced GST. Our report refers to $15 million to $25 million additional GST that you have collected from our sector. I would very much like to hear whether you support the elimination of this antiquated excise tax, luxury tax.

Mr. Jim Jones: I can't comment at this time.

The Chairman: Mr. Jones cannot comment at this time. He will get back to you in due course.

Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you.

Mr. Birks, I have a copy of an Ernst & Young report to the finance department, of all places, a current report. It says:

Elimination of the excise tax would lead to additional revenue from the income tax and GST, but this appears likely to fall short of fully offsetting the direct revenue loss.

They give a couple of reasons, and they conclude that

Only under the most favourable assumptions about the impact of removing the tax would offset revenues approach the impact revenue loss of removing it. Overall, the offset could be approximately one-half of the direct revenue loss....

In other words, this report does not support eliminating the excise tax. In fact, the principal reason they give is that the practices within the jewellery industry are such that there are well-entrenched incentives to smuggle and to go underground, etc., and that until the jewellery industry starts to change its practices, it will be very unlikely that this resolution will be able to be dealt with through just taxes alone.

It is interesting, since you mentioned that you have an Ernst & Young report that says we should do this.

Mr. Jonathan Birks: Mr. Szabo, we intentionally went back to Ernst & Young. You are referring to the 1993 report done for the Ministry of Finance. After that report came out we felt it had been interpreted very much in a one-sided manner. We therefore went back to Ernst & Young and asked them whether they would take on the mandate to take a look at the report and take a look at what has happened within the industry over the last couple of years and make some kind of objective analysis as to where things really were at. They went back and did that.

On the question of the $50 million, while in the big picture it really is not a large amount of money in terms of total revenues raised by the government, it still is an amount of money that is of some dimension. In looking at it, I think you will find in the 1993 report that the Ernst & Young group suggested that within the first year about half of that amount would come back right away, because you are expanding the tax base.

Whatever the timeframe is—three, four, five years—there was some inference that within a certain period of time the greater probability would be that you would be generating, that you would be cash revenue positive.

I guess whatever the timeframe and whatever the amount of money, what we are really saying, Mr. Szabo, is why should the jewellery industry be carrying the buck on this thing? If you look at it, going back to 1918, you have people buying expensive furs, people buying expensive cars, people buying yachts, people paying for cosmetics. Why the heck should the jewellery industry be carrying the buck on this issue? Really it comes down to fairness more than anything else.

• 1330

Mr. Paul Szabo: Thank you. I understand. This didn't happen overnight, and all of these things will be taken into account, but you well represented your position.

I really feel compelled to make a comment about what Mr. Robinson said about the CPP.

Insurance for a death benefit, insurance for a survivor benefit and for the children of survivors, insurance for disability and for the children of disabled beneficiaries—all are insurance components, all of which cost money.

I'm sorry, but for you to come here and say you're only going to get a 2.8% return on your CPP pension—the pension, the money you get when you retire—and not give any attribution whatsoever to the significant value of the insurance protection that the CPP provides to Canadians, I believe damages your credibility irreparably. Really, you haven't given full credit, and I'm sorry, but if you're going to talk to this committee, I expect to get all sides of the issues fairly and squarely.

The Chairman: Mr. Robinson.

Mr. Walter Robinson: With respect, Mr. Szabo, in our presentation to the joint federal-provincial-territorial consultations on the CPP, we addressed those critical and very important issues of the Canada Pension Plan: disability benefit and death benefit. I myself, over the past year, saw my mother receive a death benefit for my father, so yes, I am very well aware of the critical components of that plan.

In our submission to the joint federal-provincial-territorial consultation, we outlined where we think those components of the plan, the very critical income security components of the plan that we support, could be moved to another government program and/or to private insurance and government facilitation of purchasing of that private insurance.

So with respect to our credibility as an organization, we laid out a plan to the joint federal-provincial-territorial consultation committee on those critical components of income support for all Canadians, and I will forward a copy of that submission to you if you have not seen it. We have addressed those.

But returning to the critical components of the CPP consultations, we still have not heard from the government. We believe they have not lived up to their own benchmarks, which the minister set out time and time again—both ministers, the human resources minister and the finance minister—of sustainability, fairness, and affordability.

I will forward that to you by close of business today, if I can, before I leave for Winnipeg.

Thank you for your comments, Mr. Szabo.

The Chairman: To follow up on Mr. Szabo's question, because I think it's a pertinent one, I'd like to know if you can provide this committee with the name of an insurance firm that can provide disability, guaranteed income, and also survivor benefits at the same price that we would pay under our contribution scheme.

Mr. Walter Robinson: I can only speak from personal experience, and not a position of the federation, because it's a question....

When I was self-employed, I used Paul Revere, who provided those benefits to me at a very reasonable price.

The Chairman: Lower than what we're paying?

Mr. Walter Robinson: I'm not sure. I can't answer that question.

The Chairman: That's an important question, and it needs an answer.

Mr. Walter Robinson: Yes. Mr. Bevilacqua, I will endeavour to get that answer to you, in terms of a cost comparison.

The Chairman: Thank you. I appreciate that.

Mr. Valeri.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman.

Mr. Robinson made some comments with respect to the deficit being fought on the backs of taxpayers, to the tune of $24.9 billion. It's important that we lay the facts on the table. In fact $16.6 billion of that $24.9 billion is coming from economic growth in this country and the fact that taxpayers were back at work and paying additional taxes. So it wasn't in effect as a result of any further tax increase or any further tax burden, but an increase in actual tax revenues because the economy has been growing. That's one point I had.

With respect to the Auditor General's comments about government waste, there's no doubt that there's always more to do within government to make it more efficient, and everyone around this table would agree with that, but it's also important to mention for the record that, as a percentage of GDP, government expenditure is down to the levels of the 1950s. So in fact there has been a lot of restraint with respect to government expenditure, and that again is something that needs to be put on the table.

• 1335

Those are just a couple of points I wanted to make, because it sounded for a second there like we were back in 1993 and hearing for the first time from Canadians with respect to the fiscal situation of this country. We heard that we were about to hit a debt wall and that things were bad and falling apart.

In fact, a lot of progress has been made over the last number of years. We're having the discussion about fiscal dividends today precisely because the government was successful in getting the deficit under control. It's certainly committed to dealing with the debt.

So I take your intervention certainly quite seriously. I appreciate the information you provided. I just want to counterbalance that with some of the information I provided.

As far as the question goes, the Retail Task Force talked about dealing with the EI program in a targeted manner. You specifically targeted youth in your presentation. You also talked about a reimbursement or a reduction of EI premiums if you sort of follow through on that program.

I was wondering whether you were aware of the new hires program, which is out there now. Perhaps you could comment on that and indicate to the committee whether you think, given your experience, that type of program should be continued or whether there should be some changes made to the program. Or is it in fact just a waste of money, so that we shouldn't go ahead with it?

Mr. Tim Carter: Thank you, Mr. Valeri. The new hires program, as we understand it, is for small business; our companies are not small business. The premium cut-off point, we understand, is less than $60,000, so I don't feel equipped to speak on that one because of the eligibility factor.

Mr. Tony Valeri: Are you suggesting, though, that we should expand that to large companies?

Mr. Tim Carter: No. What we're looking at is a separate program that's based on the reimbursement of employment insurance for proven performance targeted at youth. So if a company hires youth—we've set out some suggested criteria for youth—then employment insurance, which is in the neighbourhood of $4 per $100 of employment salary, like 4%, would come back. For us in the retail business, it would increase directly that amount of money we have to spend on salaries. If we did that, this would come back and we would put it into youth jobs.

Mr. Michael Sherman: Tim, perhaps I can add something to that.

One of the practical features of the retail industry is how competitive it is today. Typically, for stores like a food retailer or a Bi-Way, the profit margins are so razor-thin that there is really no way we can move. If we have a good we're selling for $1, the cost of that good to us might be between 75¢ and 80¢, which leaves 25¢ to 20¢ left over for all our expenses, including everything from rent, occupancy cost, labour, advertising, head office, and other expenses. Add to that taxes: GST, PST, property tax, business tax, income taxes, and capital taxes. When you look at all these taxes, it's a very heavy load for us. So we're trying to find a way to balance and come up with suggestions to handle a very difficult and complex program.

One of the things we've realized is that labour is the only real area in which we have some room to manoeuvre. So if our profit margins are looking so thin that we might lose, we might take people off the sales floor.

What if we had some mechanism to bring young people onto the sales floor? I'll give you a practical example. Take a Bi-Way store. We would want to have a manager there, someone at the cash, and sales people. One of the things you can do to help get people into a store and make them satisfied is to have better customer service. If we find we're having a tough time meeting our targets, we have to pull people off the floor.

We want to find a way in which we can take that employment insurance tax, or the amount that we pay.... In total, if you look at it, it's about $4 from our side. The employee also pays $2.90 for every $100 paid out in payroll. Our point of view is why not use that money to try to get more employment? So rather than having unemployment at 9%, we can actually take some of the money that was meant to pay these people who are not working and hire more people into the business world. So that's really our proposal in a nutshell.

Mr. Tim Carter: Kids are at 16%, I should say.

The Chairman: Mrs. Redman.

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Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman.

My question is for Mr. Robinson. It's sort of a two-parter. You are purporting that we should reduce taxes. Would you reduce taxes now, or would you wait for a lower debt-to-GDP ratio before reducing them?

Mr. Walter Robinson: That's a very good question. I think we're advocating reducing them as soon as the budget is balanced and we have a dividend.

The lower debt-to-GDP ratio is going to take a while. The minister speaks of 73.1%. Looking at the Department of Finance's own fiscal reference tables on OECD figures, you're at about 70%. It's still the second highest in the OECD next to Italy, which is at about 111%, I think. The OECD average in our report is around 45%, when the budget is balanced.

Mrs. Karen Redman: Okay. The second part of that is—you've actually sort of answered it—can we afford to lower taxes now. You're suggesting that no, we need to wait. But if we lowered them now, have you done any calculation as to what that cost would be to the Canadian people?

Mr. Walter Robinson: In our submission to the committee last year, we quoted a CIBC Wood Gundy survey—I think Jeffrey Rubin authored it—and we were advocating a $4 billion across-the-board cut when we reached this balanced situation, which was based on deficit assumptions, and which we have now, to the government's credit, far surpassed. I think the cost would be lower, but the benefit would be that much higher.

We're in the process right now of surveying our members to find out exactly the best mix. That's why I've not been specific on how much debt reduction and how much tax relief. We are surveying our members right now to find out exactly what their priorities are, because we're very conscious of being a supporter-driven organization.

Mrs. Karen Redman: Can you comment on both the prudence factors and the contingency fund that the minister has built into the equation, and whether you support that? Would giving a tax break prematurely not jeopardize the gains we've made?

Mr. Walter Robinson: We're not advocating a tax break prematurely. We're advocating it in terms of a balanced budget situation, and we support the set-up of the contingency reserve account. We advocated something similar in our taxpayer protection legislation that we first brought before this committee last year.

The Chairman: Thank you, Ms. Redman.

Mr. Provenzano. No? Okay. Mr. Solberg.

Mr. Monte Solberg: Thank you very much, Mr. Chairman.

It occurs to me that government has made a lot about the issue of tax fairness in the past, but it seems it only applies what it means in raising more revenue for the government. When it comes to an issue of fairness involving the Jewellers Association, where it might actually have to give up some revenue, it's curious to me that they balk and say “well, we just can't do it”, even though they preach the message of fairness. That's an observation. I hope you'll be able to use that argument at some point.

The second point I want to make is in response to Mr. Valeri. It's curious to me how the government assumes that revenue that comes from the growth in the economy should automatically go into the coffers of government. It strikes me as odd that when there are so many other worthy places it could go, the automatic default is into increased government spending.

My question goes to Mr. Carter. It has to do with how you've sort of set up your program here. You have come up with a program that I guess will target youth unemployment. But unemployment is a problem overall. I'm curious to know why you wouldn't just suggest that we just have a cut in EI premiums overall—for instance bring employer contributions down to the same level as employee contributions—and that way it would put everybody back to work. I recognize we have very high levels of youth unemployment, but we also have lots of people who are older who are looking for jobs. I'm curious to know why you feel you need to target youth especially.

Mr. Tim Carter: I think you bring up a good point. Our work as a resource, more than a lobby group, was, we understand, to look at youth unemployment, which was a chronic problem, and classify it as such by the ministry at 16%. Our inflation runs at around 9%, or double the U.S. rate, but our youth unemployment at 16% is four times the U.S. rate.

That was a question of priorities and the fallout of those priorities. The kids can't get jobs, they can't get experience, they have nothing on their résumés. It's a vicious circle. They get disillusioned and we have a problem.

Getting at that, we went away and worked on it, and said, how can we can do that in a way that doesn't just give away money, but only when it's proven, and you target that problem so it ends up being a tight package? This is what we came forward with.

I don't know whether that answers your question. I'm not really saying that it isn't a valid problem, but we went away to try to help with that specific issue.

Mr. Monte Solberg: Thank you, Mr. Chairman.

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The Chairman: Mr. Loubier.

[Translation]

Mr. Yvan Loubier: Mr. Parker, earlier, you suggested introducing a new form of lottery. The federal government withdrew from the lottery business in 1978, so that is now an exclusively provincial responsibility. Do you not think your suggestion might cause problems if it were to come from the federal government?

[English]

Mr. Tony Parker: I believe the federal government can change that legislation if they wish, providing this is not considered to be a lottery either. It is not, strictly speaking, a lottery. It becomes a matter of ordinary citizens wishing to do something for the country. Instead of mailing a cheque off to Ottawa, which a lot of people are doing, I do believe, people would be buying premium bonds or whatever we like to call them, and just holding them and gaining no interest, but they would be getting prizes that become tax-free. The United Kingdom government is very big on this.

Why don't we take a look at it? Why don't we do a feasibility study?

The Chairman: Mr. Riis.

Mr. Nelson Riis: Do any of my colleagues who haven't asked a question in the first round have questions? I've already had mine.

The Chairman: Mr. Iftody.

Mr. David Iftody (Provencher, Lib.): Thank you, Mr. Riis and Mr. Chairman.

Mr. Robinson, you talked about the $600 billion liability for the pension fund and expressed concern. Rightly so, you identify the fact that the upcoming generation is going to have to pay for this. But how—and we've talked about this around the table—would you propose over the next 10 or 15 years to pay even the $600 billion liability? Where would we get that money from?

Mr. Walter Robinson: I was talking about the $600 billion national debt. Is that your question?

Mr. David Iftody: No. I was talking about the pension liability.

Mr. Walter Robinson: Okay.

Just as an aside, Mr. Iftody, I want to congratulate you on your efforts during the Winnipeg floods. I'm off to Winnipeg this afternoon. I thought your efforts were stellar.

With respect to the $556 billion unfunded liability as reported by the chief actuary in 1995—and I'll take your word that it's around $600 billion now—we modelled our pension thing, which I'm going to fax to Mr. Szabo immediately after this presentation, on the Chilean example of obligation bonds. We're looking at an unfunded liability that will be paid out over 35 to 40 or 45 years. The worker who starts working tomorrow has an unfunded liability in that Canada Pension Plan based on lifetime and actuarial projections.

There we're looking at obligation bonds. The financing of that would be from surpluses; from a more aggressive schedule of privatization and alternate service delivery, which has been implemented very well in Chile; and through other government savings.

Nobody has an exact value of where they're going to get all of the money for all this unfunded liability. We believe that is the best approach to it. And I think that's been the criticism of the super-RRSP plan as well. Where would the money come from?

We've laid out a path to get there in terms of the obligation bonds, which would be honoured as we approach those people when they retire, whether they draw at 60 or 65 or however the plan is designed at that time. That's the best answer I can give you, Mr. Iftody.

The Chairman: Thank you.

Mr. Riis, do you have a final question?

Mr. Nelson Riis: Yes, Mr. Chairman. It's supplementary to the points that Tony was raising.

I'm not sure of whom I'm asking this...Michael or Tim or maybe Brian. The other day when I went to The Bay to buy a shirt, there must have been phantom employees, because I could hardly find anybody working in the store, at least in the men's department. So I'm glad to hear you're keen on hiring some more people. That's my personal point of view.

• 1350

My question goes back to the point also raised by Walter, on the payroll taxes and changes to the EI. Recognizing that these days most of the jobs that are being created or businesses that are being created are very small—as a matter of fact, perhaps even the majority are self-employed people—and recognizing that if you have three or four or five employees, going back to the jewellers and their shops, would in fact a decrease in the EI premiums make a significant difference, enough to really hire people in this country?

I know we assume that it does and we hear it does, but when you think of where the jobs are actually being created, you folks aren't creating any jobs. I don't think The Bay or the other stores have probably added much to their staff in the last while. But for small business, very small, the self-employed, home-based business, and so on, would a payroll deduction in EI really make a significant difference, do you think?

Mr. Michael Sherman: I think it certainly would.

I talked before about how competitive it is. The fact that you could go into a Bay store and find that there aren't enough sales people is symptomatic of the fact that we would love to have a great number of sales people on the floor all the time, but there's a trade-off, and it impacts profitability if you try to increase your labour costs.

I should say that if you went to Tip-Top, we have specials on shirts right now and more sales people to handle any need that you might have—

Mr. Nelson Riis: A smaller shop.

Mr. Michael Sherman: —and we are changing our clothes to offer more style. But since I am representing a group including—

The Chairman: Did you bring a catalogue?

Some hon. members: Hear, hear.

Mr. Michael Sherman: Actually, it's funny you ask, because....

The reality in retail today is that it's so competitive right now that you're seeing more stores going under; bankruptcies are numerous. You've seen a situation in which American competitors.... And no one is saying that foreign retailers coming to Canada should not be allowed. But they have, I would think, much more efficient cost structures, and we're doing whatever we can to meet them.

Price is everything in retail these days. We're trying to get prices as low as possible, which is a benefit to the consumers. Unless we find ways to reduce our costs.... Every little bit helps, and if the employment insurance were reduced.... In some cases I would say we might have labour costs of 12% of total sales. If that 12% could be reduced even by 7%, which is the total EI, or 3% or 4%, that would make a huge difference. I think it is quite important.

The Chairman: Mr. Lauzon.

Mr. Tim Carter: Can I say one thing, supplementary to my friend?

We look after about 1,500 stores across the country. Every one of our store managers has a payroll that includes employment insurance and the costs, and he buys labour hours for that. Yes, it's so many sales per labour hour.

The reason I haven't been hiring very much is, as you may have noticed, the sales in food have not been going up. They've been flat. That's been fairly fixed. But if you get a 4% reduction—which is roughly what it is, $4 per $100 of payroll—then he can buy 4% more labour hours. It can go right directly into it. It's a neat relationship, and that's one of the reasons we thought that was something worth bringing here today.

The Chairman: Thank you, Mr. Carter.

Mr. Lauzon.

Mr. Brian Lauzon: On the manufacturing side, any reduction in expenses allows us to invest in other areas to grow the business, and I truly believe one of the keys to a healthy economy is growth.

We manufacturers, of foods as an example, need to continue to innovate. When you innovate, you not only increase consumption in this country but you also increase your opportunities to export if you truly are innovative in your product designs.

It really comes down to a question of do we invest in growth or do we try to save ourselves rich? We in manufacturing have tried to save ourselves rich. What happens is you become non-innovators. You do not have manufacturing facilities that produce efficiently globally.

So it really comes down to investments also in the infrastructure of manufacturing, both in R and D, which can create jobs, as well as then taking those products and commercializing them, which creates jobs and interest with the public sector.

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I think that anything that allows more investment to take place for innovation will expand the market, both domestically and internationally.

The Chairman: Thank you.

On behalf of the committee, I'd like to thank you very much. It's been a very interesting round table. All the points have been heard and duly noted and I'm sure you'll see many of your thoughts reflected in the report we will publish for the Minister of Finance.

The meeting is adjourned.