FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 1, 2001

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[English]

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

As many of you know, the finance committee has travelled across the country seeking public input. We are happy to be back here in Ottawa to get insight from individuals like yourselves, who historically have given us great advice and great guidance in our recommendations to the Minister of Finance and the House of Commons. After today, we will be ready to begin writing the report.

Many of you have appeared before us in the past and know how we operate. You have approximately five to seven minutes to make your presentation. After that, we'll engage in a question and answer session.

I'd like to welcome these organizations: the Canadian Nurses Association, the Canadian Medical Association, the Canadian Federation of Nurses Union, the Canadian Steel Producers' Association, the Railway Association of Canada, and the Canadian Association of Railway Suppliers.

We'll go by the order in which these groups appear on your agenda. We'll begin with the Canadian Nurses Association, Ginette Rodger, president, and Robert Calnan, president-elect. Welcome.

Dr. Ginette Rodger (President, Canadian Nurses Association): Thank you very much, Mr. Chair.

The Canadian Nurses Association strongly supports medicare as Canada's most cherished institution, and recognizes the role played by the federal government in creating it. We believe all Canadians are entitled to high-quality and timely health care through their lives. The importance of nurses in providing care is not in question. As you know, most care by health professionals in this country is done by nurses.

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However, this Canadian access to quality and timely health care is at risk right now. The issue we want to talk to you about is the sustainability of the health care system as it relates to the very severe shortage of nurses we are going to face in Canada. We know what the problems are, and we know most of the solutions—but what is needed right now is the support and decisive action of the federal government.

Currently there are 232,000 nurses working in Canada. But if the current trends continue, within 10 years we will face a shortage of between 60,000 and 113,000 nurses. You can imagine the adverse consequences on the health of Canadians from this shortage.

The purpose of the brief we've presented to you is, first, to set out some concrete strategies for the federal government to revitalize the nursing workforce, and second, to propose how government can assert its leadership to strengthen medicare. Study after study has revealed the importance of the link between high-quality nursing and positive health outcomes.

The Canadian Health Services Research Foundation recently summarized the problem as follows:

No one questions that there is a nursing shortage. Governments, nursing associations and individual organizations are all struggling to sustain patient care. To succeed, they will have to go beyond recruitment campaigns.

Nurses are important human capital, and it is crucial to invest in their well-being—because the welfare of patients ultimately depends on the excellence of their work. The need to revitalize the nursing workforce is not just a provincial problem, but a national problem—and one that demands strong leadership on the part of this government.

Accordingly, CNA proposes that the federal government adopt a four-part strategy in this next budget to revitalize the nursing workforce. First, we want to deal with the pressing issue of retaining those currently in the workforce.

[Translation]

The solution to these problems is to be found not only in regulation, but also in terms of policies for the workplace.

A national framework must include education and certification incentives, as well as incentives for standards of practice. It is extremely important to invest in this area.

Indeed, the first recommendation we made in our report was that initiatives for updating and identifying standards of practice, disseminating these standards, educating and developing our leaders, providing technological support for distance education and facilitating certification exams in specialty areas be included in our strategy. We recommend that $20 million per year be allocated for these purposes for a period of five years.

Secondly, with respect to the retention of nurses, CNA recommends that the federal government help to improve the currently very difficult working conditions by supporting professional development, mentorship and policies to encourage a balance between work and family life.

The funds would also be used to support the expansion of the Canadian health facilities accreditation program and make it possible to include indicators that recognize nursing care excellence in the workplace. The cost of such a program would be $80 million for the next five years.

[English]

Third, CNA recommends that the federal government facilitate the recruitment of 20,000 new nurses by reducing tuition costs for students. As you know, in the U.K. tuition costs have been totally eliminated for nurses right now, with the aim of trying to recruit new nurses. CNA believes Canada should look at adopting a similar approach.

In the meantime, though, we recommend that the federal government provide bursaries to nursing students to cover 50% of their annual tuition fees. This investment should be coupled with a national campaign to interest young people, and older people, in nursing as a career. The estimated cost for this program would be $21.5 million over five years.

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The fourth strategy we recommend to the federal government is to enhance the capacity of universities to educate nursing students, and to rebuild the research and academic component of the profession—which is, of course, aging, as is the rest of our clinician workforce.

Specifically, the government should subsidize 50,000 new undergraduates over the next 10 years, 25,000 new seats for MA students, and 3,000 for PhDs. The funding required, based on current costs, would be $9.5 million over 10 years.

So the total cost of the strategies we're recommending: for the first five years, we believe an investment of $211 million would be significant in turning around and revitalizing the nursing workforce. In the next five years, the investment should be $31 million.

Now, this is always a question for the federal government: how do we go directly to the providers of services? We propose that the new funding be allocated to provide benefits directly to individuals, and to institutions such as schools of nursing—or some neutral third party, so we don't have jurisdiction issues to trip over. In addition, CNA believes alternative funding mechanisms could stimulate the rebuilding of the health care system as a whole, not just the workforce.

Therefore, we propose that the tax system be used to provide benefits directly to individuals. For example, bursaries to cover 50% of the cost of tuition could be delivered directly to nursing students through refundable tax credits.

The CNA also believes the federal government should respect its commitment to extend medicare coverage, to include benefits such as those that were initially identified as home care and medicare. We understand the difficulty of launching new programs, or enlarging publicly funded ones, under traditional mechanisms of cost-sharing. We are also aware of the leakage problems associated with both cost-sharing and block-funded programs. So CNA appreciates why the federal government would be reluctant to use this.

Accordingly, we recommend that other mechanisms to strengthen medicare be explored as well; and that the primary health care framework be used to look at the extension. In particular, we recommend that you examine the feasibility of delivering or supplementing health insurance benefits directly to Canadians through the tax system.

You should look at mechanisms to ensure that funds allocated are spent on services linked to health and well-being. We want a link so there is a direct benefit. Your examination should also identify the cost of new benefits, as well as the impact on various economic groups.

However, CNA's caveat is that any mechanism using the tax system should respect the principle of universality of all Canadians. It should increase comprehensiveness, but also keep in mind portability, accessibility, and public administration.

Canadian nurses are among the best in the world. Their skills, knowledge, and commitment to improving the health of Canadians are well recognized. So, too, is the resilience of nurses in the face of the cutbacks to the health care system that took place in the nineties.

I submit to you that if we still have a functioning health care system after those cutbacks, it's due to the nurses who held the system together while all that reshuffling went on. They were there, 24-7, holding the fort, and they are still working in very difficult situations.

We know that those situations have taken a major toll on their health and their morale. However, the future of the profession is challenged most by demographics, and by the workplace environment. The consequences are felt in terms of the diminished access the public has to timely and high-quality nursing care.

The bad news is that our present challenge, of educating more nurses to meet the demand, is very serious. We have been trying to make headway since 1997, and have been ignored in great part.

The good news is that if you act now to help us revitalize the system, there is still a chance to turn around the major impact we will face within the next 10 years. We have said why the federal government should do this, and there are 10 reasons in our brief why you should be able to help us. As Canada prepares for involvement in military action, as well as emergency response to terrorism, the availability of a strong health care system is absolutely key.

Two weeks ago I was at an international meeting of 60 countries in Atlanta, looking at the nursing crisis in the industrialized world. We were there with government representatives and other nursing organizations, and we discussed what impact military action and terrorism may have on health policy, and particularly on the nursing crisis.

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To quote some of the discussion with past-president Carter, there is a direct relationship between the support of national government and the ability of health care, and the nursing workforce in particular, to meet the new demands of caring for the mental and physical health of Canadians.

The proposal in this submission is fiscally responsible and constitutionally possible, and if implemented, it would make a significant contribution to ensuring the sustainability of the health care system.

Merci beaucoup.

The Chair: Thank you very much.

We'll now hear from the Canadian Medical Association, Dr. Henry Haddad, president, and William Tholl, secretary general and CEO. Welcome.

[Translation]

Dr Henry Haddad (President, Canadian Medical Association): Good day.

Mr. Chairman, members of Parliament, my name is Henry Haddad and I am the president of the CMA. I practise and teach gastroenterology at the University of Sherbrooke in Quebec. As was mentioned, my secretary general, William Tholl, is with me.

The CMA assigns a great deal of importance to open and constructive dialogue, and this morning's hearting gave us the opportunity to participate. We are pleased to be able to explain our point of view, which, as you shall see, focuses on health and security, two aspects that we believe are inseparable. I would be happy to answer any questions in French later. I will now continue to speak in English.

[English]

On September 11, the world changed for all of us. The events of that day, and their aftermath, brought home to us in a most tragic way the importance of our nation's security—and of our nation's health care system. Security and health are inextricably linked; we cannot ensure national security without a strong, responsive, and viable health care system to support Canadians in times of extraordinary need.

In recognition of this fact, the CMA has acted quickly to identify areas within the health care system that must be supported to ensure our security. We acted decisively to help Canadians cope with the psychological impact of terrorist attacks—because we know that in these times, the worst infectious disease is fear itself.

The CMA worked with Health Canada and 12 national health organizations, including the CNA, to spearhead the creation of the Canadian Mental Health Support Network. As always, our objective is to put the health and well-being of Canadians first. But to provide the quality of care they deserve, we cannot delay implementing a strong and much-needed infrastructure that would enable the health care system to respond in time of crisis.

An Ipsos Reid survey on October 1 indicated—not surprisingly—that security had risen to the top of the list of issues that government must deal with. In fact, security has crowded out many other important issues. However, Canadians still rate health as the second most important issue, and concern over it remains strong. They know we cannot sacrifice health for security.

On October 18 the Minister of Health announced that $11.59 million would be spent to enhance the ability of the health system to respond to emergency situations. We commend the government for this, and we are working closely with Health Canada to ensure that this money is put to good use.

The CMA is also working with Health Canada and others to realize a health emergency response team. Nevertheless, $11.5 million is only 4.5% of the $250 million this government has dedicated to security issues so far. Is that enough? We do not think so. We need to plan for the known and the unknown. We need to think comprehensively. We need to think nationally, but be prepared to act locally—because that is where any threats to public health will most likely come. We must ensure that we have the capacity for disease surveillance within the public health system, the acute care system, and the health care workforce, to deal with sudden and calamitous occurrences.

The recommendations contained in our brief will go a long way to preparing the health care system for any eventuality.

One, we recommend that the federal government immediately provide a minimum of $15 million for an assistance fund for municipal and provincial authorities to improve the coordination of emergency responses among public health officials, police, fire and ambulance services, hospitals, and other services. The key word is coordination.

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Two, we recommend that the federal government continue to invest a minimum of $25 million in the coming year in the resources and infrastructure needed to anticipate and respond to disasters. I'm talking about medical supplies, equipment, laboratory facilities, and the training of health professionals.

Three, we recommend that the federal government undertake an immediate review of Canada's self-sufficiency in terms of critical medical supplies required in the event of disasters, with a view to short-term sufficiency. Especially important is our self-sufficiency in vaccines.

Four, we recommend that the federal government provide in the coming year $25 million in earmarked funding to the provinces and territories to enable health care facilities to build surge capacity into their systems. Our present system has absolutely no surge capacity.

Given the immediate need for our physicians and other health professionals in Canada and the time lag involved in training, especially for physicians, we are recommending that the federal government seriously consider implementing a three-year graduated tax relief and reallocation policy to encourage expatriate physicians and other health professionals to return to Canada.

The economic forecast in the wake of September 11 heightened the need to make strategic use of Canada's taxation system. There is an urgent need to consider more fully the role the tax system can play in support of the health care system. For this reason, the CMA is recommending that the federal government establish a blue ribbon task force to study the development of innovative tax-based mechanisms to better synchronize tax policy and health policy.

In closing, the CMA, during this time of national crisis, is offering its help. We have put forward a powerful and strategic combination of policy initiatives designed to enable Canada's health care system to respond quickly to the health and security needs of the nation. The proposals are both realistic and practical.

The war on terrorism has increased Canada's need for a vibrant, secure, and efficient health care system, one that can meet this country's health care needs in times of peace and in times of extraordinary need. With the government, the CMA believes we must put the health of Canadians first.

Thank you.

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

We'll now hear from the Canadian Federation of Nurses Union, Kathleen Connors, president. Welcome.

Ms. Kathleen Connors (President, Canadian Federation of Nurses Union): Thank you, Mr. Chairman.

Good morning, Mr. Chairman and members of the committee.

We submitted our brief in August, and I have only a few remarks to add. In preparation, I thought I had better look at it, because everywhere I've gone lately people have said that things have changed since September 11. But when I read our brief, I thought, no, what we said in August stands in October and November.

While our health care system is spending $77 billion and indeed is a complex system, the major solutions to the system's ills, we believe, are quite straightforward, and I want to speak as plainly as I can. Our system literally stands between thousands of our citizens and death, and it stands for health and hope, too.

This can sound a little bit like hyperbole, but think about it, members of the committee. Right now, as we are discussing the issue of health care, our cancer centres are diagnosing and treating, our surgeries are operating, our birthing centres are giving newborns the best chance at survival, our emergency rooms and trauma centres are stabilizing patients who would otherwise die, our nursing homes are caring for our parents and the chronically ill, and our home care programs are struggling to allow seniors to remain in their homes and discharged hospital patients to be cared for without having to rely on family members.

As challenged as our health care system is, it is working to save lives and to provide hope. Yet I suspect that we save fewer lives than we might. I suspect that we can do much better at giving help, hope, and comfort.

So I ask how we can do this. The first and second thing we must do must happen simultaneously. First, we must fully fund medicare. Spending on health care has not kept up with the growth in our gross domestic product. We have agreed with doctors and the premiers on this point. We are still a full percentage point behind what we used to spend. We look south and see our American neighbours spend over 14% of their GDP on health spending and leave over 100 million of their citizens either without health care insurance or poorly covered. We cover everyone, yet spend a little more than 9%, when we should be spending perhaps over 10%.

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I know we are expected to slip into a recession at any moment now, but this government must see the health of Canadians as any great business leader sees his or her newest technology. We must see health as our country's greatest asset. Our citizens' health is the ultimate basis for this country's future prosperity. I dare say the health of Canadian citizens and the treatment of our health care system are also the basis of the success of your government, Mr. Chairman.

Yes, the percentage of Canadians who would consider user fees and more privatization has grown, but even after the waiting lines and the terrible delays brought on by huge cuts to health care budgets, over 60% of Canadians still say a resounding no to user fees and privatization. They want the federal government, in cooperation with the provinces, to fix our health care woes.

This leads me to our second point. The second thing that needs to happen at the same time as the first one is full accountability for future health care expenditures. While we agree with the premiers that more money is needed, we agree with the health minister and the intergovernmental affairs minister that at times certain provinces have used health care dollars for purposes other than health care, and that is wrong. This can be fixed by providing the money asked for by the premiers, but with strings attached.

Money must be provided not only for specific kinds of investment, such as dealing with the nursing and other key personnel shortages. The government must be willing to enforce the Canada Health Act. The government must be willing to say, you misspend our money, and make no mistake, there will be consequences. We haven't seen this kind of enforcement yet. We haven't seen it applied to private clinics in Alberta, British Columbia, or Ontario. Naturally governments that want to destroy public health care are going to push and push. To fully restore and improve medicare, this government must find the commitment and the courage to be able to say to the provinces, enough.

In summary, I am saying that the federal government must fully fund medicare, and you must require accountability from the provinces. These actions taken simultaneously will go a long way toward cutting waiting lines and providing the health services that Canadians deserve. These are not the only actions this government must take to restore public health care in Canada, but given that this is a pre-budget hearing, Mr. Chairman, I won't delve into the reforms and efficiencies that we believe can and must be achieved.

Where will the money come from? As our economy slows, our health care problems in many cases will get worse. As governments allocate less money for environmental cleanup and take less care of worker health and safety, as unemployment grows, as less support is provided to the poor and their children, and as governments let problems fester during a recession, the physical and psychological health of our citizens suffers. So during these times our citizens need health care. They will need the healing that Canada's health care practitioners will provide. Yet our system of health care is already pushed beyond its limit. Dr. Rodger has already spoken to that with regard to the nurses of this country.

We would be derelict in our duty if we didn't stand up now for the patients we'll have all too soon. In national emergencies, such as the Second World War, we found the money and the commitment to deal with the crisis. Even now Canada is scrambling to participate in the war against terrorism. The money is being found to upgrade our military resources.

Well, Mr. Chairman, our overburdened health care system is worthy of the same kind of commitment and determination. With the waiting lines, the delays, the shut emergency rooms, and the patients stacked up in the halls waiting for a bed, surely this is the domestic enemy that requires attacking right now.

While this committee will soon search for items to take out of the federal budget, please remember the men, women, and children of Canada who need the investment in health care. That is an investment that only the Government of Canada can provide. I ask you, will the government heal the system they depend on for their health? Will they get the best chance at life and health your government can provide? This, members of the committee, this, Mr. Chairman, is the question you must answer.

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Thank you for the opportunity to address the committee.

The Chair: Thank you very much, Ms. Connors.

We'll now hear from the Canadian Steel Producers' Association, Mr. Barry Lacombe, president. Welcome.

Mr. Barry Lacombe (President, Canadian Steel Producers' Association): Thank you very much, Mr. Chair, it's a pleasure to be here.

We always appreciate the opportunity to appear before the committee to present our views on the economy and fiscal management and to outline our recommendations to the committee. Like my colleague, we also presented a brief in August. We look forward to any questions that might be presented to us in terms of that brief and the recommendations contained therein.

What I'd like to do today is situate the industry for members of the committee in my brief introductory remarks, describe the current conditions and circumstances the industry faces, and highlight a few recommendations for particular attention of the committee.

The already difficult economic situation was made even more difficult by the tragic events of September 11. Consumer confidence has fallen, commodity prices are falling, and uncertainty about the economy and the timing of any turnaround has increased. For example, in the case of steel, prices have fallen by $100 to $150 a tonne. Capacity utilization has followed in the industry and already some layoffs are being announced.

For Canada's steel producers the situation is even worse, even more difficult, and let me explain why. The recent U.S. trade decisions have found that 44% of Canada's steel exports to the U.S. have contributed to injury of the U.S. industry. In addition, they have found that Canadian wire rod exports have also contributed to U.S. injury. Canada could well be subject to remedies—quotas or tariffs—in terms of these steel exports. This will add to an already difficult situation.

Moreover, the recent U.S. decisions highlight the potential for diversion of steel imports previously destined to the U.S. market to the Canadian market. Recent CITT decisions, which are difficult to understand in light of recent U.S. decisions, add immeasurably to concerns about diversion and highlight the need for changes in trade laws and processes. The continued flow of low-price, unfairly traded steel into the Canadian market depresses prices and is seriously affecting the financial results of the industry.

Canada's trade laws have failed to remedy this situation. It's a situation that has been growing progressively worse over the past decade and will continue to unless immediate action is taken given the overcapacity in world steel production, continued government support for new capacity and to maintain uneconomic capacity in many countries, and the potential diversion, as I've said. And the apparent ineffectiveness of Canada's trade laws and processes heightens the economic concerns of the industry.

The industry, the CSPA, calls for continued prudence in fiscal management. The deficit fight was hard fought by all Canadians and should not be given up. Strong economic fundamentals remain essential. The security of announced tax cuts should not be impaired. These have added economic stimulus and are taking hold. Business decisions have been and are being made based on these announcements. They aid consumer confidence. Recent monetary policy moves are also welcome.

We also recognize that the government will need to make difficult decisions. Security and intelligence, the military, the border, customs, and other needs like health care—all are essential for the security of Canadians. At the same time, we must not do these in a way that impairs and jeopardizes our economic security.

The CSPA also believes there are low- and no-cost opportunities to strengthen our economic fundamentals, to recognize the integrated nature of Canada and U.S. markets and the need to ensure no impairment to Canada-U.S. trade.

We would like to highlight the following areas. First, the border. We must ensure the flow of low-risk goods and people between Canada and the U.S. and see that this is not impaired. Two-way steel trade between Canada and the U.S. is over $7.2 billion a year, and 35% of Canadian steel producers' shipments go to the U.S. The CSPA recognizes that ensuring a secure and trade-efficient border depends on policy choices in such areas as immigration, security, and intelligence, the defence needed to ensure the security of Canadians, and in providing the U.S. with assurances that a trade-efficient, smart border does not pose risks to them. We need a coherent, coordinated strategy to do this.

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Two, recent events have highlighted the importance of Canada-U.S. trade. Fair and free trade, responsible trade, is essential given the high degree of integration in steel in the Canadian and U.S. markets. Immediate action needs to be taken to ensure that Canadian steel exports to the U.S. are not impaired given recent U.S. trade decisions. We need to ensure free and fair trade between Canada and the U.S., including less costly and less litigious ways of resolving disputes so that these can be resolved in a timely manner.

We need to ensure that Canada's trade laws are as effective as those in the U.S., to avoid diversion of unfairly traded steel into the Canadian market, and to work with the U.S. to improve trade laws as they apply to steel given the continued and growing imbalance in world overcapacity in steel production and the continued and quickening pattern of unfairly traded steel entering the Canadian market. If this is not done, investments, jobs, and communities in Canada will be negatively affected.

Third, we believe the time is right to remove the federal capital tax, a tax that costs jobs, productivity, and investment, and we believe the federal government should be working with the provinces to build on the steps some provinces have taken in this direction. This tax is a profit-insensitive tax, and it's a tax, as I've said, that has very negative consequences. As the OECD has said, this is the one tax that has the most serious negative consequences for the Canadian economy.

Finally, we think this is an opportunity, again, to seek balance in regulation-making to ensure that trade, competitiveness, and investment considerations are taken into account when decisions about regulations are being made.

Thank you very much, Mr. Chair.

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

We'll now hear from the Railway Association of Canada, Sab Meffe, chair, taxation committee, and Bruce Burrows, vice-president, public affairs, government relations. Welcome.

Mr. Bruce Burrows (Vice-President, Public Affairs, Government Relations, Railway Association of Canada): Good morning.

I would also like to acknowledge other senior officers from the industry who are with us in the room as part of our rail contingent this morning. They are, in no particular order: Wayne Ettinger of Trillium Railway from Port Colborne, Ontario; Mario Brault, Genesee Rail-One from Montreal; Sandra Wood from CN Ottawa; Christena Keon Sirsly, VIA Rail, Montreal; Gary McNeil, head of Go Transit, Toronto; Chris Jones, Railway Association, Ottawa; Mike Wheten, Brotherhood of Locomotive Engineers, one of our key union groups from Sudbury, and his two colleagues, Darrell Grywacheski and Brian Buckley; and also Brian Humphreys, Canadian Pacific, Calgary, and Malcolm Cairns, Canadian Pacific Railway, Ottawa.

Thank you for inviting us to share a few thoughts about the economy and fiscal measures that could be implemented quickly to help put the brakes on a sliding economy, to improve our trade flows across the borders, and get people out of their cars in the name of the environment.

I'd like to tell you a little bit about the Railway Association. I should first say our 56 members represent virtually all railways operating in Canada today. That includes the mainline railways, the many short lines, the inter-city passenger company, VIA, and commuter and tourist rail.

September 11 was a day so horrific we'll certainly never forget it. Given that rail is a service business servicing virtually every sector in the economy including tourism and personal travel, we are now watching the economic weather vane with keen interest in the wake of the eleventh. You might simply say Canada's business is our business. In the short term, the economic slowdown is being exacerbated, but the impact on rail is perhaps less than other modes because of previous investments and best practices. However, our smaller short lines are particularly vulnerable to a slowdown with a higher reliance on one or two commodities.

Going forward, in terms of longer-term implications we are especially concerned about new border delays given the volume of business facilitated by rail across the border. Rail also helps to move goods across the border that originate offshore, or come from plants placed in Canada by foreign investors who want to use Canada's convenient entry point to the NAFTA marketplace. This is an example of investment in Canada that could be lost.

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Finally, the Railway Association would like to acknowledge that the government has so far demonstrated sound macroeconomic management and has taken fiscal steps in the right direction. However, with the post-September 11 environment, we have to look ahead and consider what also could be done to help foster investment and better weather the economic storm fronts.

As indicated in our brief to this committee on August 10, the rail industry has enjoyed a degree of resurgence in recent years. This has particularly been spurred on by proactive measures to deregulate, a matter that, by the way, is being examined in light of the Canada Transportation Act review, which some of you might be familiar with. In terms of this resurgence, freight rates are down over 35%, productivity improvements up over 200%, we have a new, as I indicated earlier, dynamic short-line sector, and most importantly, we have a quite significantly new continental focus to the business. This last point is relevant because transportation infrastructure moves our product to market. As a trade-dependent nation, Canada's very existence depends on the efficiency of its trade corridors, meaning, transportation costs must be kept low.

In a nutshell, this is why Sab and I are here today. We have little choice, I would say, but to develop absolutely first-rate infrastructure, incorporating the best technology and the most efficient gateways to our continental trading partners in the south. I should also say that we've seen significant resurgence with passenger activity. VIA's operating grants are down 60%, yet their ridership is up 20%; GO's ridership in Toronto has increased 40% in the last five years; West Coast Express' ridership in Vancouver is up 60%; and AMT in Montreal is also seeing double-digit increases.

My message is, let's maintain this momentum we're seeing and resist the temptation to reregulate the freight sector and the passenger sector, especially in the uncertain economic times we are now potentially headed into. Moreover, the rail option remains underutilized, and tax policy is discriminatory. Sab Meffe will speak to these issues in greater detail, but suffice it to say that federal tax policy is still discriminatory against rail. As a result, Canadians are forced to bear the financial and environmental costs of a policy bias that tends to favour more fuel-intensive and emissions-generating modes of transport. Addressing some of these biases will mean that rail can do more.

Sab.

Mr. Sab Meffe (Chair, Taxation Committee, Railway Association of Canada): How specifically can rail do more? With respect to the environment, rail is five times more fuel efficient than inter-city trucking and three to four times more fuel efficient than automobiles; so greater use of railways is good for the environment. Greater use of railways will also lessen highway congestion and the demand for public funding for highways. Rail is important, as Bruce has said, to Canada's economy. Rail currently carries about 44% of Canada's export traffic to the U.S.A. Greater use of rail can lessen the bottlenecks at border crossings and facilitate moves for mid- to long-range distance shipments.

In terms of what we would like to see as public policy directives in the rail passenger area, in essence, the message is more active promotion of passenger rail by, first, providing capital and regular operating funding for urban transit and passenger and commuter rail. Second, encourage governments to purchase discontinued urban rail corridors and hold these for assets for future commuter use as urban populations grow. Third, consider making monthly transit rail passes tax deductible.

On the freight side of the business, taxation policy is a particular concern. Canadian railways are subject to a very high and non-competitive tax burden. A recent KPMG report revealed that Canadian railways pay twice the tax that U.S. railways incur, and incur taxes of more than 30% in excess of the trucking industry.

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So Canada can achieve further modal balance and tax equity by making movements in three areas. These are capital taxes, fuel taxes, and tax appreciation rates.

Like Mr. Lacombe, we also advocate the elimination of the federal large corporations capital tax. Railways are the most capital-intensive industry in Canada. In fact, 21¢ of every dollar of revenue generated is used in capital spending to maintain the network. Capital taxes act as a disincentive to new investment and discriminate unfairly against capital-intensive industries.

Some provinces have shown leadership in this area. In particular, Ontario and B.C. have announced recently that they will be eliminating their capital taxes. We encourage the federal government to act accordingly as well.

In the area of fuel taxes there are two particular irritants. First, we advocate the removal of the federal fuel tax used in cross-border traffic. The railways are the only form of transport that are subject to fuel taxes on transborder traffic. In an area where Canada's looking to encourage its exports, we fail to see where public policy is met by having a fuel tax in the area of transborder traffic.

We would also like to see the gradual elimination of the federal fuel excise tax—in the short term to move the tax from currently 4¢ a litre to 1.7¢ a litre, which is the U.S. equivalent.

Third, we would like to see an increase in the capital cost allowance rate on rail assets from 10% to 30%.

There are some other slides in our presentation, which in the interests of brevity I will not speak to.

Mr. Bruce Burrows: In sum, Mr. Chair, we feel the upcoming budget is the right opportunity to remedy a number of imbalances in the tax treatment of rail. Why? Because rail would be able to achieve its full potential and thus increase its net contribution to the domestic economy, to the tourism sector, and to Canada's export trade.

At the risk of sounding repetitive, by eliminating the capital tax, for example—and we've spoken about that perhaps at length—the federal government would be sending a strong, positive signal to investors at a critical point in the business cycle. What better way could you provide a step to further encourage the deployment of new energy-efficient and productive assets to serve the economy?

Thank you.

The Chair: Thank you very much, Mr. Burrows, Mr. Meffe.

Now we'll hear from the Canadian Association of Railway Suppliers, John Marinucci, director, and president of the National Steel Car Ltd.; and Frank Trotter, association vice-president. Welcome.

Mr. John Marinucci (Director, Canadian Association of Railway Suppliers): Thank you, Mr. Chairman.

We submitted a brief as well this past August. I will not be following that brief verbatim. We at the Canadian Association of Railway Suppliers fully support the initiatives set forth by the Railway Association of Canada.

We have about 140 members Canada-wide and provide a wide array of services to the rail industry and other industries. We represent about 50,000 jobs in Canada to go along with the 45,000 direct jobs coming from the rail sector. We are not here to ask for a handout, a subsidy. In fact, the freight rail world does not receive any government subsidies and spends in excess of $1 billion Canadian a year in some form of taxation to various jurisdictions.

By the same token, that same rail industry has to reinvest about 20%-plus of its revenue line each and every year to maintain a productive rail transport system, which is important to all Canadians. Of our GDP, 60% is export, and 40% of those exports move on rail, which means 24% of our economy is directly impacted by rail.

The good news is that rail is a very efficient and productive way to move your goods to export markets. This allows us as Canadians to compete globally, have jobs, and have some type of quality of life to support all the other initiatives we need to support—good, solid health care, education, and the like.

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The problem is, however, that government tax policy, in our view, does not reflect the importance of rail transport to all Canadians. We feel this tax policy is punitive and discriminatory in many ways relative to other modes of transport, and relative to our direct competitor and trading partner, the United States.

We want to focus, as an association, solely on the CCA issue here today. However, again, we fully support the Railway Association of Canada as it relates to the inequities in capital taxes, fuel taxes, and the like.

The Canadian situation here is quite simple. Relative to other modes of transportation, rail transport equipment is depreciated in about fifteen to twenty years for tax purposes. In most other modes it's less than five years. Relative to the United States, rail transport in the United States is depreciated fully for tax purposes in seven to eight years as opposed to our fifteen to twenty years in Canada.

Again, we're not looking for a handout, a subsidy, a bailout. We're looking to balance the tax policy vis-à-vis other forms of transportation and vis-à-vis our U.S. competitor. Quite frankly, we don't believe it's going to cost the taxpayer any money to do that.

Secondly, the rail transportation system offers implicit advantages to the average Canadian—environmental benefits, better air quality, not having to encroach on our land to build bigger and better highways, and being safer on the roads. We perhaps can move the more hazardous material off the highways onto rail. And the rail safety record speaks for itself.

We believe, in light of all this, it's far more cost-effective to the average Canadian taxpayer, since the railroad pays all of its bills and then gets taxed on top of that. That's certainly a better proposition for the Canadian taxpayer than to invest more and more of their tax dollars to repair roads damaged by carrying freight on those roads and also to expand those road systems. It's not a good use of our taxpayers' dollars. Let's take advantage of the rail industry, which pays their own bills and does not get subsidies, and use them, and spend their money.

In order for that to happen we need to encourage the railroads to spend that money. Although they spend a lot of their money and reinvest it into their businesses, a lot of good, solid investments that the railroads would like to make that are beneficial to all Canadians do not get made. They do not get made because the present value of the tax shield generated through current Canadian tax policy does not allow those investments to generate the investment returns needed to sustain a capital-intensive business for many years forward.

Investments in rail are good for each and every Canadian. They're cost-effective. They will not cost Canadians money, they will save Canadians money.

Changing the tax rate on rail cars, locomotives, and intermodal equipment will not result in a tax loss in cash to the Canadian taxpayer. Since the United States already has those favourable tax policies in place, the railroads have been leasing their product from the United States to the tune of spending approximately $600 million-plus per year in rents. The bulk of that capital flows to the United States and never returns to Canada. They're paid to U.S. leasing companies that enjoy those favourable tax rates, tax rates that should exist in Canada because they're equitable to other modes of transport, and rates that are similar to what's currently available to those modes.

So the money is already leaving Canada. The deduction is already being claimed in Canada. It's unfortunate that Canada doesn't retain that capital outflow for use in other economic activities within Canada, number one. It's unfortunate there isn't a Canadian leasing business in Canada directly leasing equipment to railroads, because they cannot compete against the U.S. lessors; they don't have tax equilibrium.

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It's sad that our Canadian institutions that pay a tremendous amount of corporate tax cannot lend money to those Canadian leasing companies, because if they did—and they always profit from that activity—that's more tax dollars that can come back to the Canadian government. These tax dollars can be reallocated to many of those very good uses we've heard about today, such as the medical business for one, education, and other things to improve the quality of our lives.

So we're not here asking for bailouts, subsidies, or anything like that. The railroads, through their performance in the last five years, can stand on their own two feet. We do have the lowest freight rates in the world. The railroads are actually making some money for a change, but they cannot keep pace with the capital investments they need to make not only to sustain their infrastructure but also to improve that infrastructure so all Canadians can further benefit from the other advantages they provide.

Our only recommendation today is that CCA rates for rolling stock and locomotives and intermodal equipment be increased from the current level of 15% to 30% declining balance, per year, and be available to railroads and lessors equally.

Thank you very much for your time.

The Chair: Thank you, Mr. Marinucci.

We'll now proceed to the question and answer session.

Mr. Epp.

Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you all for your presentations this morning. I found them all very interesting.

I'd like to begin with the medical people, first of all. The Canadian Federation of Nurses Union said that the federal government should fully fund medicare. Now, when the Canada Health Act was first brought in, the federal government was funding 50% of the costs by agreement. That eroded over time to some estimates as low as 16%. You are saying, fully fund it. Are you really suggesting that the federal government should increase its funding to health care by a factor of six? Should we now spend six times as much federally on health care as we are in order to go from, say, 16% up to 100%?

Ms. Kathleen Connors: I guess one of the issues we deal with when we come before the Standing Committee on Finance is we are given very tight timeframes on how many minutes we can spend discussing. I want to make it clear that in an ideal world, probably we should do that, but, no, we at the CFNU are not saying we need to increase by that fold the commitment of the federal government's spending. We are talking about reinvesting, because there certainly has been considerable slippage by the federal government. We are talking about reinvesting, at least back to the 1993-94 time, the amount the federal government was contributing through cash transfers to the provinces for health care.

So it isn't six times as much that we're talking about. We're talking about increasing the investment that the federal government is making to give the federal government more moral authority than they have had recently in saying to the provinces you must follow the Canada Health Act. We're also calling for that kind of accountability.

Mr. Ken Epp: I think I get what you're saying. When you say “fully funded”, you really do mean work out with the provinces a deal whereby the health care needs are fully funded and so that they're adequately met. This is not what I thought you were saying. So I misinterpreted your previous statement.

Ms. Kathleen Connors: Yes, you did.

It's important that the federal government not abdicate its role and its responsibility in providing cash transfers. And it's the cash that allows the accountability, not the tax points.

Mr. Ken Epp: Thank you very much. I do need to hurry on. I'm sorry to interrupt you.

I want to say to your group and also to the other nurses' group that all of us in the country have a high respect and a high regard and a deep appreciation for the work of your members.

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I have had a number of contacts with people in the nursing profession, and they are basically telling me the same thing you are, that there is an awful lot of pressure on the nursing profession these days, both on-the-job pressure as well as the anxiety created by the threat of losing your job.

You're talking about the shortages—over 100,000 in 10 years. It seems to me that if 232,400 nurses are now doing the job, to say we need 332,000 in the next 10 years is more than just a growth in population and growth in expected needs. I'd like you to justify that number—and as briefly as you can, because we have to hurry. I want to get to some of the others.

Dr. Ginette Rodger: Thank you very much. I'll be very brief.

We are not saying 300,000. What we're saying is right now you have 232,000 nurses. If we look at the Canadian population growth in the next 10 years, and if we look at the percentage change in the demographics of people aged 65 and over, who are higher users of the health services than the other age brackets, by 2011 we would need up to 113,000 nurses, because we do not have as many graduates coming out as we used to. We used to graduate 10,000 nurses a year in Canada. We're now at 4,000, mostly because there has been a cutback in funding of the educational seats. Then, we have a whole lost generation. The nursing population is growing older. We have 28% who are 50 years and over, so within 10 years those people are going to leave the workforce and we won't have sufficient numbers to replenish it.

So 113,000 out of 234,000 is a deficit of 40% of our labour force, and 40% of the labour force will curtail everything, including the sustainability of the health care system.

Mr. Ken Epp: So what you're saying is your estimates include replacing those who retire or leave the profession.

Dr. Ginette Rodger: Absolutely.

Mr. Ken Epp: Okay. It was just a clarification. I wanted to know whether you were looking at 100,000 new positions. But you're looking at 100,000 nurses including those.

Dr. Ginette Rodger: What we're saying is that since 1997 we have shown those numbers. Governments have been very slow to move. It took us a couple of years to convince the politicians to do that. We now are saying it is critical, because it can curtail the practice of everyone in health care. So we need those immediate reinvestments now. We can still turn the corner, but we can't wait any longer. That's what we're saying.

Mr. Ken Epp: Okay, thank you.

I have one last question to the medical people. One of you said we should have some sort of incentive to entice those who went to the States back to Canada. I think the Medical Association said that; I don't remember.

How does one do that? Surely you aren't suggesting we give a tax holiday of a year or six months to medical professionals who return to Canada after having gone to the States if we're not prepared to do that for those faithful, dedicated, committed, loyal Canadians who stayed here. That would be a very unlevel playing field.

What specifically do you mean when you say you want to have tax relief?

Dr. Henry Haddad: First of all, I think along with the Canadian Nurses Association, we do recognize there is a definite lack of physicians in this country. There are positive steps on the horizon. The number of undergraduate students is increasing, and we're now doing a sectorial study, with Health Canada and Health Resources Canada as partners, so we will get more information. But there is a short-term need to increase the number of Canadian physicians in this country. It takes six to eight or ten years to form a physician. The needs are now, so we have to find a way to get Canadian physicians who are south of the border back here.

We know there are 10,500 Canadian physicians practising in the United States, and they're there for a whole host of reasons. We know that 1,000 Canadian physicians hold dual licensure—for example, with the Ontario Medical Association and with a state. What we're trying to do is find a way to get these physicians back.

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The Canadian Forces has a program to try to increase their number of physicians and dentists. They're offering lump sums of $80,000 for physicians and $25,000 for dentists, with commitments for four years.

Mr. Ken Epp: But the long-term effect of that is to say to Canadians right now that they'd better go to the United States, because four years later there's a big lump sum payment for them when they come back. In total, over five years you'll make more money than if you're a loyal Canadian and you stay here.

By the way, I talked to a medical doctor not long ago who said he could easily make four times as much money, take-home, if he went to the United States rather than stay here, but he said he's loyal to Canada. He was trained here. He believes he owes this country something and that's why he's staying here. I said, hey, great for you. Yet at the same time I feel we need to change our system so they aren't so seriously disadvantaged by staying in our country.

Dr. Henry Haddad: This is a one-time only in a time of national need. I think the federal government must show leadership. We are stressing the fact that health and security are intrinsically linked, and we have to find a way to increase our health care workforce, and do it reasonably soon.

Mr. Ken Epp: Thank you.

Mr. Chairman, I have questions for the steel people and the railroad guys. Should I do that now, or should I wait and maybe come back?

The Chair: You're way over your time limit, so we'll have to move to Diane Bourgeois.

Mr. Ken Epp: Why don't you come back to me if there's time after the others.

The Chair: Yes. Thank you.

Madame Bourgeois.

[Translation]

Ms. Diane Bourgeois (Terrebonne—Blainville, BQ): Good day. The presentations have been highly varied: people have spoken about health, steel, etc. I am trying to make sense of it all. I have two questions, and I hope they will be clear.

I am somewhat more familiar with the health field. I was very much impressed this year by the conference of provincial premiers held in Victoria. The premiers admittedly agreed to request a transfer of tax points in order to help the provinces, which face a problem of underfunding in health. I would like to hear your opinion about this matter. We know that two drastic health care cuts have, as Dr. Rodger was saying, caused problems not only in terms of the quality of life for nurses, but also the quality of life for Canadians and those we might call natural caregivers. De-institutionalization followed, and we are all familiar with the equipment shortage in our hospitals and all the other problems being experienced.

Do you feel that a tax point transfer, which would provide somewhat more money, is a good solution? Would you be prepared to support this request for a tax point transfer? The question is very direct. You might feel that you are walking on eggs, but you might also be able to give me a straight answer.

Let's talk about steel. There is currently a major dispute between the United States and Canada over lumber. When we speak about lumber, we are automatically speaking of steel. Are you currently making representations to the Department of International Trade? Are you monitoring this file? It is important for me to know because the Bloc Québécois is doing many things to help people who are experiencing problems with lumber and those having problems with steel. Thank you.

The Chair: Doctor Rodger, the floor is yours.

Dr. Ginette Rodger: Thank you Ms. Bourgeois. I would like to comment on the tax points question.

First of all, in connection with a tax point transfer, it seems that whenever the federal government and the provinces debate the issue, it is never recognized that the money in question constitutes a federal contribution to overall health care funding. Consequently, when the federal contribution is being determined, tax points are never considered to be part of the contribution. It seems to me that if there is to be moral authority in terms of funding, contributions have to be both visible and substantial. I do not believe that tax points allow this.

My second comment is that no specific accountability is attached to tax points. We never know where the money is going. One of the major problems in nursing care in particular, and the health sector in general, is that money is set aside for specific areas, but one can never find out which areas.

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For example, some governments decided to increase the amount of funding allocated to nursing care in order to increase the nurse/patient ratio, to ensure the provision of secure, never mind quality, care. These amounts were instead applied to the overall budget to reduce the organization's deficit and were never used to fund direct care.

We are asking—and we believe that we are on the same wavelength as the public on this subject—the federal government to ensure that substantial amounts are allocated and that those receiving it be accountable to the public in terms of where the money is going and ensuring that it has been properly allocated. I do not believe that granting tax points is a particularly effective method for achieving the health care objectives of nurses.

Ms. Diane Bourgeois: Thank you.

Dr. Henry Haddad: [Editor's note: inaudible]... sent to you. We believe that there are disadvantages to tax points in terms of accountability and transparency. I will give you two examples. A total of $2.2 billion was allocated to early childhood, but we have no idea where the money is. How was it spent? My second example is well known to my association. An amount of $1 billion was allocated for technology funds. A few years ago, Canada was rated in the bottom third of OECD countries in terms of technology. We do not know where this billion dollars went. These two examples illustrate the sorts of problems that can result from a lack of accountability and transparency.

I think that what the provinces want can vary a great deal. Some provinces want one thing and other provinces want something else.

Ms. Diane Bourgeois: Thank you very much.

[English]

Ms. Kathleen Connors: I think it's pretty obvious there is unanimity within the health care professions with respect to tax points versus cash. It is under the authority of the Canada Health Act, and it is the cash transfers and the ability of the federal government to withhold, dollar for dollar, the cash transfers that give the federal government some authority, which we think is very important, over ensuring how health care dollars are spent.

If dollars are being spent on user fees, extra billing, and facility fees for private for-profit clinics, it's that ability to withhold that gives us some sense, as nurses working in the system, that the system will not only remain publicly administered and publicly funded, but publicly delivered. That is important.

All kinds of research evidence attests to the cost-effectiveness of public delivery of health care services. Quite frankly, to the private sector members of this health care panel, I hope you would agree that it gives Canadian industry a competitive advantage internationally to have a universal, publicly funded health care system that allows that kind of effective participation in international markets. I think there is unanimity on that issue around the importance of maintaining the cash transfers vis-à-vis the tax point transfers.

Thank you.

The Chair: Thank you, Ms. Connors.

Ms. Bourgeois, thank you.

Who else would like to...?

Mr. Barry Lacombe: Mr. Chair, there was a steel question. I don't know if time is still available to discuss that.

The Chair: There is now. Go ahead.

Mr. Barry Lacombe: I'll steel myself for it.

Yes, we're very concerned about the U.S. recent trade decisions on steel. As I indicated earlier, there are two of them, and if we're subjected to the remedies, that could influence and affect over 50% of Canadian steel exports to the U.S.

Canadian steel production is about $12 billion a year. We export about 35% of that to the U.S. So it would be very serious for the Canadian industry, for communities where steel is made, and for jobs and investment in Canada.

We have met with a number of ministers, including the Minister for International Trade. They understand the situation. They're working hard on it. In some sense we're at the remedy stage. Given the nature of the investigation we've gone through, this is one where the ultimate decision as to whether to apply remedies or not lies with the administration—the President. We believe a lot of activity has to be done between Canada and the U.S. administration to ensure that Canada is not subject to those remedies.

The Chair: Thank you.

Mr. Murphy.

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

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

My first question is to Mr. Marinucci, and perhaps Mr. Burrows may want to comment. It involves your recommendation to increase the capital cost allowance from 15% to 30%.

First of all, I want to tell you where I'm coming from. I support 100% the recommendation that capital costs be eliminated. That's been in this committee report before, and hopefully it will see the light of day.

Secondly, I believe at some point we're going have to dust off the Mintz report and look at the whole area of excise taxes. I don't think we can afford to decrease taxes right now, but all the environmental issues you people addressed have to be looked at very seriously.

You're advocating an increase to 30%. It's my understanding that these percentages need some semblance to the useful life of the asset. If the government were to allow this increase to 30%, other organizations, such as the homeowners or the builders, would be looking for an increase from 5% to 10% in apartment buildings, which really wouldn't reflect the actual use of the assets.

Are you saying the assets you're talking about—the rail cars, which I assume are the biggest assets—have a useful life of only three to five years, or is this a tax mechanism you want, to increase the competitiveness of the industry? Would this be a total departure from tax legislation?

Mr. John Marinucci: Locomotives and railway cars have a certain physical life, and depending on how you maintain them, that physical life could extend from 20 to 40 years.

An economic life, however, is predicated on the productivity of those assets, and whether those assets are not so much fit for use but are going to last and generate those productive benefits over a very long period of time, and allow you to remain competitive against other modes of transport and other geographic regions.

We believe a 30% CCA rate, which effectively writes off the car in approximately eight years, is a much better reflection of economic life than 10% or 15% CCA.

With other modes of transport, such as air, barge, or trucks, I think you will find a similar argument could be made. Those things last more than four years, so why are we writing them off in four years? I think we would like to be viewed and treated on the same basis as other modes of transport. If you can effectively write off air in five years, the rationale for locomotives and rolling stock is at least as compelling as it is for air or truck, and certainly more compelling than it is for water vessels.

In the United States you can write these off in seven to eight years. We've submitted briefs from a technological obsolescence point of view that would support CCA rates more in line with the 30% than the 10% or 15% that's currently available.

Mr. Shawn Murphy: Sab, do you want to add to that?

Mr. Sab Meffe: It's a competitiveness issue, and also in regard to our U.S. competitors and the other modes of transport in Canada. As John has said, an airline can be depreciated over five years, whereas ours is over eighteen years. We're not asking for a handout; we're asking for comparability with our competitor modes.

Mr. Bruce Burrows: If I may add as well, Mr. Murphy, the times are a-changing. We're a service business. We have to meet the needs of our customers, and our assets have to fit the demand. This means that over time and at an increasingly fast pace customers require different features and appurtenances on equipment. In a short period of time, we might have to buy new equipment with different features. Newsprint rolls, for example, are only getting bigger and heavier, and the equipment has to change and adapt to that changing circumstance.

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Mr. Shawn Murphy: Just to follow up on that discussion a little bit, on the whole rail industry and the title of your presentation, “Rail Can Do More”, has your association recently conducted an extensive analysis on where you are going?

As I see it, there are going to be tremendous pressures on the government, from an environmental point of view, to deal with emissions from trucks and cars. You've given us your percentages and statistics, but from my vantage point a lot of that rail industry is concentrated in Ontario and Quebec. Where I come from in Atlantic Canada, there are no rails. There are no rails in Newfoundland, and I believe there's very little freight coming out of Nova Scotia and New Brunswick.

Canada is a big country. When we look ahead 10 to 30 years, do you see a comeback in rail, or is it mainly going to be confined to the areas you're servicing now?

Mr. Bruce Burrows: I think an important issue to keep in mind is the fact that we're working increasingly with our trucking partners on creative, new, technologically advanced, intermodal solutions that allow us to service many parts of the marketplace that don't have direct rail access. In fact, this is probably our highest growth area of the business.

We've introduced, over the last five years, various new services combined with trucks, and in areas not just focused in southern Ontario or western Quebec but in various parts of the country. This is why we've made a lot of investment in new intermodal terminals right across the country.

I would simply say rail is not dead, by any means, in those areas. If anything, we have reached a bottom and are slowly coming back up.

The Chair: Okay.

Mr. Nystrom.

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): I want to welcome everybody here this morning and ask two or three questions, if I may.

I'll start out with the Canadian Medical Association and ask you to elaborate a bit more on how ready we are for any bioterrorism threat, and what money might be needed to anticipate any threats.

I've also gone through your brief, and I notice you don't mention smallpox when you enumerate the problems we might have. In 1917 there was a major flu pandemic around the world, where a huge percentage of the world's population was wiped out in one short period of time. So I just want to ask you how ready we are and what advice you have for our committee in terms of what we should be doing in budgeting for the possibility of that threat in the future.

It's better to talk about it in advance rather than not be ready if it happens.

Dr. Henry Haddad: I think there have been positive steps taken by this government in getting us ready. There is, however, an investment of about $11.5 million out of $250 million, which is about 4.5%, targeted to health, which we feel is not enough, as I mentioned in my brief.

There are a number of issues that have to be addressed. One of the most important is our public health system, which I think needs to be revamped and looked at. We need to improve our workforce in public health, not just physicians but also nursing. Our lab capacity has to be looked at. Our surveillance system needs to be looked at, and that includes information systems. This country has to be in a high state of preparedness, and we have to find a way to coordinate the authorities.

We have to act locally but think nationally. It is in that point of view that we feel the federal government has to show leadership.

Mr. Lorne Nystrom: I notice you didn't mention smallpox in the brief here. Was there any reason for that?

Dr. Henry Haddad: I can ask our director of health care and promotion, Dr. Isra Levy, to help me out with this.

Dr. Isra G. Levy (Director, Office of Public Health, Canadian Medical Association): Thank you.

The smallpox issue is a topical issue, an important public health issue. From the pubic health perspective it's one of many. We did not specifically mention any; we went rather for recommendations that were generic, general, and aimed at providing the infrastructure that could adapt to whatever threat we might have to deal with.

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Mr. William Tholl (Secretary General and CEO, Canadian Medical Association): I think another related aspect of that is the whole concern about readiness in terms of supplies, and supplies on Canadian soil.

One of the concerns the CMA has, and I know it is shared with others, is our capacity in Canada to produce vaccines. Much of that capacity was lost in the early 1990s with, for example, the sale of Connaught Laboratories to Mérieux. The concern the Canadian Medical Association and others have is our capacity to manufacture vaccines, including vaccines for smallpox and vaccines for other kinds of eventualities.

Mr. Lorne Nystrom: I have a question to perhaps both the Nurses Association and your association on the training of aboriginal people.

I notice you mentioned in your brief that we need more spots for training of different minorities. I come from Saskatchewan, where we have lots of aboriginal people. I wonder what advice you have for the committee in terms of what the minister should be doing about funding for aboriginal medical doctors and nurses. I ask that to both the associations.

Dr. Henry Haddad: Thank you.

We feel there is an extraordinary and urgent need to address the issue of health care disparities among our aboriginal citizens. We are dealing with a cultural access issue. What we need is a comprehensive plan, and we believe the federal government must show leadership.

Just to give you a quick idea of the health care disparities, we're talking about a two-times greater incidence in infant mortality. If an aboriginal child gets in an accident, they have eight times the morbidity rate of a non-aboriginal child. We're talking about a two- to three-times incidence of common diseases like diabetes, stroke, hypertension—a whole host of social illnesses.

We looked around, and according to our last statistics, we have only about 50 aboriginal physicians in this country. Those are the latest figures we could get. So we feel we have to find a way to increase the number of aboriginal physicians in this country.

Now, we know that each medical school has an allotted number of slots. Say, for example, I'm a teacher at the University of Sherbrooke, and we have 140 slots. We feel there should be slots added on, financed by the federal government, and reserved for aboriginal students.

That's only one part of the solution. But I think it could go a long way towards increasing the number of aboriginal students in our medical schools and thus increase the number of aboriginal physicians in their communities. The numbers can be determined. CMA is offering its help to look at finding out how many aboriginal physicians we need and which medical schools they should be found at.

Dr. Ginette Rodger: If you have seen our brief, one of the areas we talked about is aboriginal nurses and the education of aboriginal nurses. As a responsibility of the federal government, it is very important. The education of aboriginal nurses has been highly supported by the Canadian nurses and also by the society for Indian and Inuit nurses, trying to increase the number and the percentage. The percentage of native nurses is still very small, between 10% and 15%.

It is a difficult issue, because it is compounded by some cultural circumstances that make it more difficult. But there is no doubt what we're saying: if the federal government takes care of the strategies we've proposed to meet the shortage of nurses and to do the remedial, that will also be part and parcel of doing remedial for Indian and Inuit nurses.

Ms. Kathleen Connors: Mr. Nystrom, I happen to have had the pleasure of working for some 15 years in northern Manitoba, actually serving as a member of a community advisory committee that set up a northern nursing education program targeted specifically at bringing aboriginal people into nursing. The experiences there were significant. I think, again, because the health of aboriginal people is a federal responsibility, there is a direct role to be played. Support and recognition of the cultural differences are absolutely key in the education program.

So bringing people—predominately women who had not achieved anything more than grade eight or nine—and providing the support for them to upgrade their educational ability and then to enter a nursing program, and actually educating people in the north rather than having them relocate to a very foreign large, urban city, was very important. Providing the kind of support and mentorship and preceptorship when they returned to their communities, or to another aboriginal community, was really important.

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I think the other thing I would certainly agree with is that we call on governments at the federal and provincial levels to look at the importance of retaining the nurses currently in the profession. We are our best advertisers, our best advocates, so if there is job satisfaction, if the aboriginal nurses who are there feel valued and respected for the role they play in the provision of health care, that also can play an important role in the recruitment of new aboriginal people into the field of nursing and education. So there's a multiplicity of issues.

Providing full-time employment is a really important issue, and providing ongoing support for education. Health care professionals are lifelong learners, and there has to be that kind of support. Innovative programs that the federal government could provide are absolutely key in these area.

The Chair: One more comment.

Dr. Henry Haddad: I just want to mention that my association has had for a number of years bursary programs for aboriginal medical students.

The Chair: Thank you, Mr. Nystrom.

I want to wrap up this meeting very quickly and thank you very much for your very interesting and insightful presentations.

I do feel, though, that I have a responsibility to report to you some our findings as we travelled across the country. Some, of course, are the resources that we need to direct to those areas that Canadians have been calling for, and I think you all agree around this table that national security has increased in importance since September 11.

I must say this particular issue was highlighted by Canadians from coast to coast, not only in terms of their own personal safety and sense of security, but there was also a linkage made to the economic benefits in a North American context. In other words, if we don't have continental security, call it what you may, to facilitate trade between the United States and Canada, you're going to feel it economically. Canadians gave that message to this committee very clearly.

There was also a sense throughout Canada that they don't want us to go back into a deficit position. That was also clear, and in reference to health care, they certainly want the government to honour the commitment it made back in October 2000 on federal transfers to the provinces for health care and education, as well as maintaining the commitment to the $100 billion tax cut announced in October 2000.

I think you probably understand what I'm saying. The economic indicators coming out of the United States are what they are. They're not very good, and Minister Martin is going to have a major challenge ahead of him to tell Canadians exactly what the present economic situation is in Canada.

You probably noticed that in the past 12 months economists and commentators on the Canadian economy have been moving their targets. My recollection is that none of them have been moving the targets upwards, which means the economy is obviously slowing down. When the economy slows down, resources shrink, and this leaves us as committee members with some very difficult choices and trade-offs to make.

So if Canadians want us to invest in a national security package, if they want to keep their $100 billion tax cut, if they want us to honour the commitment of federal transfer to the provinces, as I'm sure you, Ms. Connors, Dr. Rodger, and Dr. Haddad, would want us to do as well, then we are going to be faced with a quite difficult situation.

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That said, you don't build a nation just in the immediate. You have to have a long-term view. Of course, this long-term view has to be present, because in many ways, economic statements and budgets are also about providing hope for Canadians to paint a picture of the future. We will do our best to do that in the report, but I don't like to leave people with the impression that we're in an era of abundant resources, because I don't think that's the case. Everything I've analysed leaves me to believe that the economic slowdown is in fact very much a part of our reality, and in a world of finances, you must deal with reality and nothing else.

So on behalf of the committee, I want to thank you very much for your input. Remember that your thoughts really help in at least giving information as to what trade-offs are going to take place. Thanks very much.

We'll suspend for a few minutes.

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The Chair: I'd like to call the meeting to order and to welcome everyone here this morning.

We have the following witnesses: the Canadian Home Builders' Association, the International Association of Fire Fighters, the Canadian Housing and Renewal Association, the Canadian Urban Transit Association, and the Conference of Defence Associations.

Many of you have appeared before this committee in the past, so you know that you have five to seven minutes. Please stay within that time limit, because we do want to ask questions.

We'll begin in the order in which the names of the organizations appear on the agenda. We'll begin with the Canadian Home Builders' Association, and I believe Dick Miller will be speaking. You could also take this opportunity to introduce your colleagues.

Mr. Dick Miller (President, Canadian Home Builders' Association): Thank you, Mr. Chairman.

With me today is Mary Lawson, a builder from Orangeville, Ontario; Greg Christenson, a builder from Alberta; and my chief operating officer at the head office here in Ottawa, John Kenward.

I'm Dick Miller, a developer and builder from Halifax. I am the president of the Canadian Home Builders' Association.

[Technical Difficulty—Editor]...times we are in, the uncertainties surrounding these times, and the predictability of the future. Many of our companies are currently reworking business plans in somewhat of a vacuum, not really knowing the facts they can work with to develop predictable plans for the future. Obviously, that gives us great concern. That said, we know there certainly are opportunities, and we hope to be able to identify those as we move forward in our planning.

Notwithstanding the fact that we've had a substantial decrease in interest rates, which is good news, one of the most important factors facing our industry is consumer confidence and where that consumer confidence is going to end up. We also are quite aware of a number of systemic problems in our industry, which we have to keep focused on even in these times of uncertainty.

Fortunately for us, this country is in a little better position today than in previous difficult economic conditions. We are pleased with the federal government in its operation of and the initiatives for a prudent fiscal policy and in trying to avoid any further deficit financing in this country. We're pleased with some of the tax restructuring that has been done, and we're pleased to see that inflation is under control.

With regard to the monetary policy, we're pleased to see the Bank of Canada make an aggressive move. Hopefully, this will have some bearing on consumer confidence as we move forward.

The challenge, as I said, is consumer confidence. At the present time this industry is very fragile. I've been travelling this country from coast to coast, and I can see the growing concern by our members.

I just want to point out what our industry represents. Our industry represents some 950,000 person-years of employment each year through new construction and renovation. We represent probably a little better than 5% of the gross domestic product in this country. We are very proud of our position as it relates to our effect on the economy, and we would like to see that reinforced by others, particularly levels of government. That would go a long way to bolstering confidence with us and with our members.

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As I said, we welcome low interest rates. They will help to support housing activity. However, low interest rates are not sufficient to sustain the levels of activity we've experienced in recent times. What is needed is a sense of well-being in the job market—that is, sustainability of our job market and employment. I believe, as I said earlier, we have a major role to play in that because of the number of people we employ in our industry.

We believe the federal government has a crucial responsibility at the present time to help instill and show leadership, and allow the intergovernmental system to work in terms of the meetings that have been taking place with the housing ministers in Canada from the provinces and the territories. We encourage the federal government to pursue those activities.

The provincial and territorial ministers have agreed there are systemic barriers in our industry and hurdles for us to meet the challenge of. They surround areas of taxes, development fees and charges, regulatory reform, housing finance, and the concern about the eroding labour supply and the need for training and replacement of tradespeople in this country.

Mr. Chairman, I had a few more remarks to make, but I'm pushing my limit here and I don't want to do that. I certainly welcome the questions that will come to us from your committee.

The Chair: Thank you very much.

I'd like now to hear from the International Association of Fire Fighters, Sean McManus.

Mr. Sean P. McManus (Assistant to the General President, International Association of Fire Fighters): Good morning, Mr. Chairman and members of the committee.

My name is Sean McManus. I'm the assistant to the general president for Canadian operations with the International Association of Fire Fighters. On behalf of our general president, Harold Schaitberger, and the 17,000 professional firefighters and emergency response personnel we represent in Canada, we truly appreciate the opportunity to participate once again in this important pre-budget consultation exercise.

As all of you are aware from the submission we filed in August and from our previous appearances before this committee, the IAFF has long advocated pension reform for Canada's professional firefighters, most recently in the form of an increased annual pension accrual rate of 2.33% per year of credited service.

While this has not yet been achieved, the issue has continued to advance, thanks in no small part to a recommendation of this committee back in 1999. We are confident we will resolve this issue shortly as we continue our dialogue with finance ministry officials. As a result of these advances, the issue of pension reform for professional firefighters does not require reiteration before this committee today.

Instead, allow me to first take a moment to express on behalf of professional firefighters our gratitude for your recognition of the problem with firefighters' pensions under the current system and your recommendation that the finance minister take the necessary action to remedy the issue.

I would also like to thank each of you personally on behalf of our 245,000 members across North America for the many kind words of condolence and support that have come from Parliament Hill in response to the loss of more than 340 members of our association in the World Trade Centre attacks on September 11. These brave professionals showed us the finest examples of selflessness and public service when they gave their lives on that day so that others might live, and we too mourn their lives.

Given these circumstances, I will focus today on a budgetary issue that affects Canada's firefighters, one that we have advocated for some time but that has taken on a new sense of urgency in recent weeks.

As we all know, the world was forever changed on September 11. A new and frightening reality was born in the wake of the despicable attacks that resulted in the loss of some 5,000 innocent lives. The loss and devastation we face is enormous, but so too is the challenge that lies ahead—preparing the nation for the potential of terrorist attacks.

In this new kind of war, the battle lines are the communities and workplaces of our cities, and civilians are the explicit target.

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In recent weeks the federal government has introduced a number of measures designed to prevent acts of terrorism on Canadian soil and to respond to those incidents if and when they occur. The recent incidents of bioterrorism that have claimed multiple lives in the United States and that have gripped all of North America have underscored the urgent need for these measures.

In terms of major disaster response, or what is being called “disaster mitigation”, the federal government, to date, has focused its approach on the use of Canadian armed forces personnel, particularly through the funding of specialized and centrally located teams, such as the Joint Task Force II and other units designed o handle biological or chemical incidents.

While the IAFF does not disagree or dispute that armed forces have a role to play in national security, we have to question the practicality and effectiveness of this approach for addressing a domestic terrorist threat. A military team based in southern or eastern Ontario would be hours or days away from providing emergency assistance to an attack on Canadian soil.

As seen in the attacks in New York and Washington, it is firefighters who are our nation's first responders, who are first on the scene. They are our domestic defenders. When the alarm sounds, firefighters are on the scene in four minutes, long before any military-based team can be assembled and deployed. Yet as it stands currently, the majority of professional firefighters are not adequately trained or equipped to properly respond to these incidents. As a result, the firefighters, and the citizens they are duty bound to protect, are in effect unprotected from this threat.

While some cities like Ottawa do have first responder-based hazardous materials teams in place, the majority do not. Quite frankly, it is just as easy to mail or otherwise deliver a biological agent such as anthrax to Ottawa as to Saint John, Winnipeg, or Surrey. With all due respect, the measures recently announced by the federal government would not add any protection in this case.

Training and equipping first responders for disaster mitigation, specifically in response to a terrorist attack, is not new, nor is it one advocated solely by the first responder community.

In 1998 a Special Senate Committee on Security and Intelligence was struck to assess Canada's risk from nuclear, biological, and chemical attack. In our presentation we provide excerpts from that report, but in the interest of time I'm not going to read from it. On numerous occasions, they acknowledge and reinforce that first responders—more specifically, firefighters—have a role to play in the event of these types of attacks.

First responders must be adequately trained and equipped to respond to these incidents if the nation is to be properly prepared. The federal government must play a role in providing the appropriate funding. A matter of national security should not be left for cities to fund. This need for training and equipment is tremendous and it can no longer be borne solely by the local jurisdictions. This government must recognize that terrorist attacks are not local incidents but national tragedies that require a national response.

We have come here today not only to identify this problem for the committee but also to present a clear and attainable solution. We want to present a solution that has proven to be effective, that takes advantage of an existing infrastructure, and that can be implemented on an extremely cost-effective basis with annual funding from the Canadian government in the amount of $500,000.

Each of you has been presented with a report about the IAFF hazardous materials training for first responders program, which includes a proposal for federal funding. We would ask that you review the material carefully.

Through 2001, the IAFF has trained close to 30,000 emergency responders in the United States with the hazardous materials curriculum. More than 5,000 of these students were instructor trainees who were then able to return to their communities and deliver training to their fellow emergency response workers, thus multiplying the effectiveness of this program. However, as this program is funded by the U.S. government, Canada's first responders are not eligible to participate.

If the federal government was to provide annual funding, the training of Canadian emergency workers through this program could begin immediately. The curriculum already exists. I have it here with me today. The administration is already in place; the instructors are already lined up.

Funding from the government would go strictly toward training Canadian emergency workers. The IAFF hazardous materials training for first responders program is just waiting to be taken advantage of. All that is required is the funding.

In conclusion, we urge the committee to recommend to the finance minister that federal funding be made available to the appropriate ministry or ministries to give firefighters and other first responders the training and the tools they need to respond to a biological or chemical incident safely and effectively, permitting them, in turn, to protect the public.

Again, on behalf of the IAFF, thank you for this opportunity to appear before you. I'd be more than pleased to answer any questions you may have.

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

We'll now hear from the Canadian Housing and Renewal Association, Sharon Chisholm.

Ms. Sharon Chisholm (Executive Director, Canadian Housing and Renewal Association): The Canadian Housing and Renewal Association has been in place since 1968, so we've been around for a while. Our membership is diverse. It includes cities. We boast having membership from the major urban centres in Canada, including Toronto, Vancouver, and Montreal. We have membership from provincial officials, we have membership from community-based non-profits, from municipal non-profits, from academics, and a whole variety of people who have an interest in the provision of affordable housing.

While our membership is diverse our mission is common: Every Canadian has the right to an affordable and secure home. We do not take a position in terms of one form of housing or one way of providing housing being better than the other. We're simply saying that affordable housing will really help to make us a stronger country, and we propose that it can be done in a number of different ways.

First, I would like to talk about the budget themes. One theme is to ensure that Canada remains a major player in the new economy. New housing starts provide the strongest counter-cyclical measure that governments have access to. By investing only part of the cost of each dwelling unit, 2.8 new jobs are created for each new unit of housing produced, and these are good-quality jobs.

The federal government, as leader, is able to leverage investment from other levels of government and other sectors. Good-quality, affordable housing will help communities to attract new business investment. In fact, the quality and amenities of the community, especially quality of housing, is a major determinant in attracting new investment.

On your theme to provide Canadians with an equal opportunity to succeed, housing is the basic foundation from which Canadians can participate in the benefits of our society. Secure housing means there is an ability to keep children in the same schools from year to year, to participate in community life, to get training, to hold a job, etc.

Finally, on your theme to create a socio-economic environment where Canadians can enjoy the best quality of life and standard of living, housing promotes social inclusion. CHRA has just completed a study with the Laidlaw Foundation on how important housing is to promote the social inclusion and ability of children in Canada to participate in our society.

Housing is the basis for healthy living and neighbourhood security, academic success, and job retention. Housing conditions for so many Canadians have deteriorated over the past years, with growing homelessness and many households living in homes that they really cannot afford, where they are paying in excess of half of their gross income on housing. Since that has come about, the voices calling for government help with housing have grown.

The Canadian Health Coalition has just identified housing as a major determinant to health. In its recent study, Campaign 2000 notes that housing is a major stumbling block to a lone parent's attachment to the workforce. The Toronto Board of Trade notes that housing is needed to bring new investment to Toronto. The Public Policy Forum recognizes housing's importance. It has worked with us recently to bring financial institutions into the discussion about how we can solve Canada's growing affordable housing shortage.

Support is very strong. Significant investment by the federal government in the creation of new affordable housing is needed, and it will be supported by a broad spectrum of groups across Canada.

Low vacancy rates, high rents, and homelessness are the legacy of inaction. During the eighties and into the nineties Canada was building 25,000 new units of social housing a year. As many as 50,000 units of private sector rental housing were being constructed on an annual basis. Today, the combined figure is under 9,000 units per year. Is it any wonder we have low vacancy rates and high rents? Is it any wonder that homelessness continues to grow, especially among families with children? What is needed is a return to an initiative that will create at least 20,000 units of affordable housing on an annual basis.

CHRA estimates that with the capital grant approach currently being proposed by Minister Gagliano, it will cost between $50,000 and $75,000 per unit to create affordable housing.

For the purposes of example, I'll assume that the average capital grant needed to produce affordable housing is about $62,500, and the federal government will be able to lever about half of that from other sources, from other levels of government, the community, and the private sector.

I want you to look at what the bill would look like and how that would differ from our current expenditures on social housing. I've distributed the report.

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Do you have before you the charts that are part of that report?

The Chair: Yes.

Ms. Sharon Chisholm: Then perhaps I can just show you four of them. Chart 1 shows our current situation. The broken line on the chart is what the federal expenditure is right now for the current social housing budget. The black columns show the number of units that have been created on an annual basis over the past number of years.

So you can see that with the program cuts in the mid-nineties, the number of units created decreased dramatically, yet the expenditure didn't. It remains very close to $2 billion a year, even though since the mid-nineties we've only been producing a few thousand units a year. That's because the federal government, in using the subsidy approach, is still left with subsidizing the cost of paying off the mortgages on all of the existing housing. So that budget isn't going to begin to decrease until mortgages are paid off. Over time the cost will decrease as the mortgages begin to expire.

Chart 2 shows the declining budget needed to assist with the existing stock. So you can see by about the year 2035, the mortgages will be more or less paid off and the budget will have diminished totally.

In chart 3 you can see what we're proposing, which is that the federal government step up its current plans to invest about $170 million a year for four years in affordable housing to $625 million, what would be needed to produce 20,000 units a year over the next number of years. If we do that, with a budget of $625 million, after we slowly ease into it we'll produce 20,000 new units annually. That's what chart 3 shows you. So the production is constant and the cost is constant in real terms.

With the final chart, chart 4, what I've done is combined the existing expenditures on social housing, which are currently at close to $2 billion and will decline to almost nothing by 2035, with the proposed budget that we just looked at in chart 3. From what you can see when you combine the budgets, for the next number of years we would spend more on housing than we have in the past, bringing it up to about $2.4 billion a year in four years' time.

But what would happen over a length of time, with the capital grant approach, is that the budget would be reduced to $625 million a year, far less than what we're spending now, significantly less, and at the same time we'd be able to produce 20,000 new units of housing a year, in partnership with communities and other governments. We'd be able to do that annually. And if the federal government went through a period where it didn't have the money to invest, it could withdraw its investment and not have any cost left for those years.

If, on the other hand, it wanted to use housing as a stimulus program, it could double up its investment, it could spend more in one year, and return to a smaller investment in the following years. So it's a much more nimble approach. It allows future governments to make the decisions about where the priorities are. It creates still an enduring asset that is needed to make Canada competitive with other countries.

It also demonstrates that in partnership with communities, which is really how we're moving ahead in so many other areas, much more can be done. So you will have the partnership of communities with this approach of municipalities. And most importantly, you'd be able to save the decay that's going on in many of Canada's large urban centres. They desperately need housing dollars to prevent further decline of neighbourhoods.

In conclusion, I want to say that what CHRA is proposing is infinitely better than the status quo for a number of reasons. It would help to build towards a more inclusive society. It would position communities to attract new investment. It would save our major urban centres, which are the economic engines of this country. It would give the children of low-income families a greater chance to succeed and be productive members of society.

Over the past five years, we've worked with CMHC, with the Canadian Home Builders' Association, with the Federation of Canadian Municipalities, with the cooperative sector of Canada, and the financial sector to find new ways whereby communities and the private sector can work together to produce affordable housing. This was through the Homegrown Solutions program. This continues to be a low-cost but important program that demonstrates the innovation and partnership that is possible at the community level. We are continuing to find and bring in new partners to assist with the task, but all agree that the federal government must take the lead role.

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We're on the verge of launching a capital grants initiative. We congratulate Minister Gagliano for the progress he's made with the very difficult task of bringing the provinces on stream. What we have to say to him is a quote from a colleague from Cape Breton, Annette Verschuren, who now runs Canada's division of Home Depot. She said, “It's time to get along and get going”. That's what we're saying to the provinces and territories and the federal government. Let's move forward. Let's give Minister Gagliano the flexibility he needs to come to an agreement with these partners on November 30, and get started.

I urge you to support this initiative and not delay it. The security of our communities and the health of Canadians will depend on your leadership.

Thank you.

The Chair: Thank you very much, Ms. Chisholm.

We'll now hear from the Canadian Urban Transit Association, the president and chief executive officer, Mike Roschlau; and Eric Gillespie, chair, CUTA. Welcome.

Mr. Eric Gillespie (Chair, Canadian Urban Transit Association): Good morning. My name is Eric Gillespie. In my day job, I'm general manager of the Saint Catharines Transit Commission, which is located in the beautiful region of Niagara.

In our report to the committee, we describe transit in Canada as being at a crisis. Those of you who spent time swimming in the smog of our cities this summer know we have a problem.

We believe our country faces a choice that will determine its competitiveness and quality of life for decades to come. Will we choose the road to stronger transit and its social, economic, and environmental benefits? Or will we choose the road to increased congestion, greater government spending, and deteriorating air quality? The fact is, without bold action we will choose the latter path by default. We must act now to ensure a positive future for our citizens and our cities.

With this in mind, we are encouraged by several recent actions at the federal level, which include the Speech from the Throne's commitment to improving public transit infrastructure; the specific inclusion of urban transit among the major issues to be addressed by the Prime Minister's Caucus Task Force on Urban Issues; the Canada Transportation Act review panel's proposal for unprecedented federal action and funding in support of transit; the Minister of Transport's inclusion of urban transit as a major element in the development of a new transportation blueprint; and studies being undertaken by Transport Canada to identify a national vision and implementation plan.

We know that the Government of Canada sees the role of transit in the big picture. We have no doubt it recognizes an important national interest in urban transit. However, that national interest is being threatened, and the country requires decisive federal action that will help our municipalities and transit systems overcome the challenges they currently face.

I will now turn to Michael Roschlau to continue our presentation.

Mr. Michael Roschlau (President and Chief Executive Officer, Canadian Urban Transit Association): Thank you, Eric.

Today, on behalf of CUTA's 350 members, I urge you to act on the four key recommendations outlined in our written submission.

Our first recommendation is to establish a new program of sustained direct federal investment in public transit, in partnership with provincial, territorial and municipal governments. The Canada Infrastructure Works program announced in the last budget clearly shows that tripartite municipal infrastructure funding can work. However, as it sits today, that program can do little to help urban transit. Not only are there many competing municipal priorities, but the terms of the program make it difficult for most new or refurbished transit vehicles, which are among the most urgent needs, to qualify for funding.

In our written submission, we recommended $500 million per year as an appropriate federal contribution to transit infrastructure. However, based on the results of our new infrastructure survey just completed, that figure has increased to $750 million per year. This may sound like a lot of money, but let's think of it this way: It amounts to less than $25 per year for every Canadian, or 10¢ per day for every Canadian living in municipalities served by public transit.

Where would this money come from? There are lots of ideas, but one that has received a lot of attention, including from the Federation of Canadian Municipalities and the Canada Transportation Act review panel, is to allocate a portion of federal fuel taxes on motor vehicles.

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While we are very sensitive to the unpopular nature of such an approach, it is used with fiscal and political success by the provinces of British Columbia, Alberta, and Quebec, as well as in the U.S. Indeed, a new federal allocation of the equivalent of 2¢ per litre would create an investment stream that meets or exceeds our recommended level of federal funding.

Our second recommendation is to make changes to existing programs that could enable meaningful transit infrastructure investment but that currently do not. We would like to see more funding for both the Canada Infrastructure Works program and the Green Municipal Enabling Funds that are run by the FCM. We would like to see the terms and conditions of these programs broadened to make more transit projects eligible.

Our third recommendation, one I'm sure you've heard before, is to amend the Income Tax Act and eliminate the inequitable treatment of employment benefits for drivers and transit users. Of Canadians who drive their cars to work, 80% receive the benefit of employer-subsidized parking. The vast majority of them are not taxed on it. On the other hand, every employee in this country who receives an employer-subsidized transit pass must be taxed at source. Clearly this is unfair.

Our fourth recommendation is to invest $5 million annually in programs that would improve public awareness of transit, and in research and development to make transit more effective and efficient. Better services and infrastructure are not the only way to increase transit use. Public education and outreach are useful in making transit the mode of choice for urban travel. But we need funding for a national image-building campaign, and for public outreach efforts like Vancouver's successful Go Green program.

We also need funding to research and disseminate transit's best practices. One of the CTA review panel's recommendations was to experiment with innovative kinds of transit service, but in today's world, transit systems simply can't absorb the financial risk of experimentation. On the other hand, focused federal investment and innovation could yield a very high return, on a national basis.

To summarize our four key recommendations, the first is to invest in transit infrastructure across the country; the second is to expand the eligibility for transit in existing programs; the third is to provide tax incentives for employers promoting transit use; and the fourth is to invest in public awareness and R and D for urban transit across the country.

Thank you very much.

The Chair: Thank you very much, Mr. Roschlau and Mr. Gillespie.

We'll now hear from the Conference of Defence Associations, Colonel Alain Pellerin, Colonel Sean Henry, and General Charles Belzile. Welcome.

Lieutenant-General (Ret.) Charles Belzile (Chairman, Conference of Defence Associations): Thank you very much, Mr. Chairman. I welcome the opportunity to appear for the second time in front of your committee, and I'm very grateful for the opportunity.

My remarks and recommendations will flow from the contents of two recent Conference of Defence Associations studies, which have been distributed to you. The first one, Stability and Prosperity: the Benefits of Investment in Defence, was released in September of last year. The second one, released in September of this year and entitled Caught in the Middle, is an assessment of the operational readiness of the Canadian Forces.

These documents are complementary. The first explains why it is necessary to maintain defence policy that supports national interests and to pay for effective armed forces to implement it. The second shows that the Canadian Forces of today fall short, in terms of required military effectiveness, due mainly to underfunding of the Department of National Defence. In Stability and Prosperity we demonstrate that although the barbarians may not be at our gates, threats to Canadian prosperity and well-being exist nonetheless.

We are a nation that lives or dies on the basis of our success in the realm of international trade. In turn, successful trade is dependent upon a stable national and international milieu. The blows to our economy since September 11 unfortunately prove my point. The need for a military response, as well as other emergency responses, has also been driven home.

We've been encouraged by recent public statements, particularly those of the Honourable John Manley, that are in line with the Conference of Defence Associations' position. He has said that Canada must do more to live up to its commitments to international security, commensurate with its status as a member of the G-8 group of nations. Accepting our share of the defence burden contributes to our own well-being, and many agree we have not done this very well for several decades.

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In this respect, it's difficult to ignore recent statements made by Lord Robertson, Secretary-General of NATO, and others, about the level of Canadian defence expenditures. Recent figures released by NATO show Canada's defence spending per capita is just $265 U.S., whereas the alliance average is $589 U.S.

Our study from last year contains a detailed analysis of the Department of National Defence budget. We show that up to $3 billion of the DND estimates of some $11.2 billion are not available for expenditures on military capabilities. This amount comprises so-called flow-through funds, such as for past operations and assistance to provinces for natural disasters; expenditures on programs ordered by Treasury Board for implementation by all government departments; pensions; and so on.

In these circumstances, DND is faced with a constant shortfall of $1 billion a year in its operation and maintenance account. That is the reason the additional money allocated by the government to DND over the past two years, although welcome, has contributed little to resolving the overall problem. It is absorbed immediately by the ongoing deficit and the bills.

Our study of this year, Caught in the Middle, examines in detail the effects of DND underfunding on the Canadian Forces. For some time, questions have been raised about whether the latter are operationally ready to undertake the commitments assigned to them by the government, as stated in the 1994 white paper on defence. These commitments, which remain valid today, are grouped under the following roles: protection of Canada; Canada-United States defence cooperation; and contributions to international security.

Defining the components of operational readiness is often controversial. However, we have selected some criteria—force structure, doctrine, manpower, equipment, training, and logistics—that are accepted by most military analysts. All of these elements must be made effective individually and then be brought together to produce a fighting force. We have sometimes compared armed forces to a symphony orchestra whereby a number of diverse elements are blended to produce harmonious results. If any of the parts are missing or weak, the results will be less than harmonious. That also applies to armed forces, except in their case it involves matters of life and death.

The quick and simple solution to the shortage of funds of the DND budget has been to reduce the number of people in the Canadian Forces from 85,000 to some 57,000. The recent recruiting drive has raised the latter figure to 59,000, but the number of effective personnel, trained and ready for operations, is still in the neighbourhood of 53,000. This is one of the most serious aspects of underfunding, as it places heavy pressure on the dwindling pool of people who remain on duty. They suffer burnout, and many leave the service. It takes 15 years to replace a sergeant with experience once you've recruited a new soldier. So any amount of money thrown at it quickly doesn't solve that problem.

Some point to newly acquired high-technology systems such as the Coyote reconnaissance vehicle and the light armoured vehicle as equivalent replacements for decreased manpower. These systems do provide some improvements to military capabilities, but without a critical mass of people and replacement of other worn-out items, the operational-readiness curve remains on a downward slope.

The situation we allude to in the title of our study is that the Canadian Forces' current capabilities are declining and new capabilities are unaffordable; hence, they are caught in the middle.

We conclude that due to insufficient funds in the DND budget, the Canadian Forces cannot fulfil their commitments beyond a marginal level within the resource stipulations and time limits specified in current plans.

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I refer you to the text of the study for the methodology we used to reach those conclusions, and guide your attention especially to the excerpts from the level-one business plans submitted by the chiefs of the navy, army, and air force. This is important, as it shows our evidence is drawn almost entirely from DND sources, and is not—as some have stated—the outdated thinking of retired generals and colonels living in the past and preparing for the last war.

Although it's unfortunate to say so, the terrorist attacks in the United States demonstrate a number of points made in our study.

First, history has not ended, and the interests of some nations and groups will continue to be advanced through violence. Second, events such as those in Kuwait and Kosovo and the terrorist attack in the United States are a clear indication that threats can materialize with very little warning. Third, there is a broad range of threats in the post-Cold War era. It would be a mistake to focus on only one of them. Multipurpose, combat-capable armed forces need to be maintained at a state of operational readiness that will allow them to respond effectively across the entire security spectrum. Finally, technology, although welcome, does not replace people, beyond well-defined limits.

Time constraints force me to bypass our immediate reaction to the sights of September 11, or the post-September 11 events and Canada's contribution to the U.S.-led coalition that is now taking place. However, this is in our written comments. I draw your attention to that, and we welcome questions on it during the question period.

In conclusion, the aim of government must be to protect its citizens and nurture stability and prosperity. This is at the heart of our democratic way of life and social order.

The security inherent in the Canadian Forces must be assured by moving DND funding higher on the list of national priorities. Our recommendation is a simple one. It is that the government embark on a five-year plan for the revitalization and modernization of the Canadian Forces. As your committee recommended in your report of 2000, for this to materialize the defence budget must be increased by a minimum of $1 billion in each of the next five years. And I stress that this should be in the form of an addition to the DND budget base. To merely pay the bills of the current overseas deployment by so-called flow-through funds is not sufficient. It will not arrest the decline and operational readiness of the Canadian Forces as a whole.

In closing, I praise the outstanding devotion to duty and professionalism of the people of the Canadian Forces, especially those in the current overseas task force. Once again, they will do Canadians proud in the face of adversity. It is essential we not let them down by skimping on the tools they need to do their jobs. I therefore extend appreciation to Minister Art Eggleton and to members of this committee for trying to meet this challenge.

Thank you, Mr. Chairman.

The Chair: Thank you, General Belzile.

We'll now proceed to questions and answers. It will be a seven-minute round for all members.

Mr. Epp.

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

Thank you all for your interesting and diverse presentations this morning. We've gone all the way from building houses to fighting a war.

I would like to begin with the home builders. You indicated that the low interest rates are helpful, yet we hear from the housing people that the number of housing starts for affordable housing have diminished to almost being insignificant.

Why is it, in your opinion, home builders and apartment builders are not providing in this market?

Mr. Dick Miller: There are a number of reasons, and you will see them outlined in some of the written material we've supplied. However, I'll try to answer the questions succinctly from my viewpoint.

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We have very systemic problems within several areas of our business. When we look at the business of affordable rental supply, we ask the same question you ask: Why aren't they being built?

There is a host of answers to that. I can tell you, it largely relates back to the costs associated with developing rental houses. In many centres in this country where you have the need—and it varies from area to area—we have enormous development charges put in place by the municipality, we have a number of barriers, in some cases rent controls, that make it less attractive for people to be in the business. It's essentially a question of the additional cost burden that's placed on the industry to produce these units.

The other part of the equation relates to some of the tax treatment, including depreciation, capital cost allowance, and a number of other items. These are, again, contained in our briefing book, and we can address them in more detail if you wish. These questions have been put to the ministers of the provincial and territorial governments under a federal initiative to bring some solution to these issues.

It's our view that since the provincial housing ministers have agreed about these systemic problems and the need to bring a solution to them, it answers the question as to why they are not being built. We have to get on with that effort; we have to use Infrastructure Works, which I think was mentioned by another group here this morning. That program in and of itself will allow a more targeted approach, with all the players participating in a partnership arrangement. This would be unlike previous programs, in endeavours led federally, provincially, or municipally.

I think when we look at the requirements for the success of this program, to see it move forward, there's a fourth partner, which is the private sector. As the private sector comes to the table in those types of initiatives, you will see some additional emphasis placed on items of this nature.

We have some mechanisms out there, but it's not the easiest question in the world to answer because it can be broken down further, to an income problem as well.

Mr. Ken Epp: I thank you.

I would like to have Ms. Chisholm give her response, please.

Ms. Sharon Chisholm: Our association has agreed that there is a need to bring the private sector in more and to work more in partnership. Minister Gagliano is using this new kind of approach, where you use a bit of leverage and you try to bring more partners to the table, and it is an important one. But I'd like to caution that tax incentives and measures to get rid of current stumbling blocks have not been enough to really bring the private sector to the table. There needs to be a combination of measures.

We are working with financial institutions. We've had a number of round tables, where most of them have been present, in order to look at what it would take to bring them to the table and to have them invest. We think there are a number of investment tools that might be possible, perhaps RRSPs, where there could be an investment fund for housing that is lent out at a more affordable rate. There are some tax incentives that might bring more players to the table. There will always be a need for a way of providing housing that will continue to be affordable. What we've often seen in the past is that the investment and tools to get housing started are only affordable for a few years.

What we're saying is that if investments are made, if development levies are forgiven, or whatever, to get rental housing built, we have to make sure it's going to be available and affordable for a long time so that investment will pay off.

We're starting to say, yes, we need a whole lot more partners at the table. The home builders are an important part of that and so are the bankers and the financial institutions. But we still need to have government playing a leadership role, and nothing has happened without government in this country in terms of housing. As we see the federal government starting to be a leader, we're hearing more from other partners who have ideas about how to make that work more effectively.

Mr. Ken Epp: Okay. Thank you.

Mr. Dick Miller: Mr. Chair, I'd like to respond to that question.

I was referring to the Infrastructure Works program, not the assistant rental program, because we share some of your views on the assistant rental program, which is offered by the federal government, as it now exists.

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We feel that in order for it to work, there has to be a buy-in by the municipality and the provinces to remove the systemic barriers. Otherwise, all we're going to have is an influx on the supply side for a short period of time, but the problem is going to remain after those grants are finished. That's not the way to do it. The problem is deeper than that, and a quick fix, some quick supply, is not the answer.

Mr. Ken Epp: I observe also that the government right now is spending a lot of money on temporary shelters and not nearly enough on permanent housing.

I want to go to the transit people for a second. I am a supporter of public transit use, but there are many Canadians who do not have access to it in their areas. Even where it is accessible, it doesn't seem to get adequate use. I'm thinking of an area in my riding, a little town some distance from Edmonton. Half the people in that town work in Edmonton, so the transit people decided to run a bus. But after a six-month trial they cancelled it because they were running this bus with as many people in it as could fit into a car. I think we could probably solve some problems if we encouraged car pooling and things like that more.

You make the point that you'd like to have tax provisions to encourage transit use. One of the proposals—I don't know whether you made it explicitly, but we've heard it—was that employers should be able to give tax-exempt transit passes to their employees so they show up on the transit system. Well, pretty well everybody who's employed pays for their transportation by whatever means with after-tax dollars. Is your proposal to make that tax-free simply as a way of encouraging transit use, with all the benefits we all acknowledge to come from that? Is that the reason for that?

Mr. Michael Roschlau: Thank you for the question. The particular issue you're addressing is one of levelling the playing field in terms of benefits provided by employers to their workforce.

Currently, the vast majority of employees receive free parking at their place of work as a benefit. While that is officially taxable under the Income Tax Act, there are a number of loopholes that allow for the majority to be exempted. However, if an alternative is being offered in the form of a transit benefit—i.e., we want to provide you a choice where you can have a free parking spot or we will contribute towards your transit expenses—it is fully taxable at source. That's really the inequity this particular recommendation addresses.

Many research studies have found the most important determinant in people's mode choice, especially for travel to and from work, is ultimately the availability of parking or the cost of that parking. If parking is free and readily available, it's pretty much a no-brainer: people are going to drive. But if parking is not available or is available at a high cost, then transit becomes a much more viable option in people's minds in terms of the choice that's made from day to day or from year to year in terms of travel patterns.

That applies to other travel patterns as well, whether for shopping trips, school trips, or health care trips. That may indeed respond to some of your other comments as well in terms of what choices people have and what economic drivers or convenience drivers influence that choice. And really, that parking spot, whether it's at the place of work, at the shopping centre, or at the school, takes up space. It costs money. Somebody has to pay for that. To the extent the cost of that is part of the decision-making process people go through...well, if it's free, it's not.

Mr. Ken Epp: Thank you.

Mr. Chairman, if there is time later, I'd like to get back to this.

The Chair: Thank you, Mr. Epp.

Mr. Murphy.

Mr. Shawn Murphy: Thank you very much, Mr. Chairman.

My first question is to Sharon Chisholm. I have a question with regard to chart 1. This wasn't my understanding of the situation. It's my understanding that people who live in these social housing projects pay a percentage of their income. Is that correct?

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I see your dotted line, where the expenses of the Canada Mortgage and Housing Corporation go on constantly. Wouldn't those incomes be rising, and wouldn't there be a sort of lowering of the government expenses?

Ms. Sharon Chisholm: That's true for some of the programs the federal government has sponsored, but a lot of the savings from raising rents and raising incomes have already taken place. For the most part, the increased expenses to pay taxes and other costs related to provision of housing have been about equal to or more than the increases in incomes of those living in social housing.

The other thing that's happened over the years is that as we've moved from a program that used to be targeted at a wide range of incomes to one that's more targeted at low incomes, those incomes have been fairly static or have fallen in real terms.

Mr. Shawn Murphy: More specifically, what you're saying is that the income that's being generated from these developments only pays expenses, excluding mortgage principal and interest. Is that right?

Ms. Sharon Chisholm: For the most part, the income being generated pays for the expenses plus a portion of the principal repayment. What CMHC is paying for in subsidies is the other portion of the principal and interest outstanding, so they're not paying the whole thing. Usually, there's a portion of it that's paid. In some cases it's a small portion or almost nothing, and in some cases it's a more significant portion, depending on the region, the cost of the housing, and so forth.

Mr. Shawn Murphy: My understanding is that Minister Gagliano and his department are negotiating with all ten provinces, and that's the problem. Every province, I understand, is going to be different in this whole affordable housing thing. Is it the position of your organization that the program should take the form of a capital grant to the private sector?

Ms. Sharon Chisholm: Our position is that we support Minister Gagliano's proposal that we use capital grants as opposed to ongoing subsidies to fund a program. It's more expensive at the outset, and you don't do quite as much with it, but over time, as I show in the charts, it's a far more cost-effective way of doing business.

We feel that the capital grants should go to groups or the private sector based on the principle of whoever can provide the best value for each dollar spent. In other words, if they can raise extra money or provide extra leverage so the dollars go further, that's where you want to spend and invest your money. The other measurement is going to be, how long can we guarantee that those units will remain affordable and be part of our affordable stock?

Mr. Shawn Murphy: How do you guarantee that those units are going to remain affordable?

Ms. Sharon Chisholm: There are different techniques that can be used to guarantee that. Some groups are incorporated as non-profit and have an interest in providing housing at an affordable rate.

What the federal government is doing now with their proposal is saying that the rents have to be affordable over a specific period of time, but we feel that's far short of what it should be. In other countries where governments are working in partnership with the private sector to provide affordable housing, the requirement is that the housing remain affordable far longer than what the federal government has currently proposed.

Mr. Shawn Murphy: I'll just go into one other area, Mr. Chairman, if I may.

This is for Mr. Miller. One area I've done some study and some research in is the whole issue of the underground economy. As you're probably aware, the biggest offender is not the home builders but the home repair industry. There are different numbers being bandied about, but from a public policy point of view it's quite substantial, in the billions of dollars. If this money were available, we would be able to fund some of the projects you're talking about and some of the projects we've heard about over the last three or four weeks.

From my vantage point, we have two options if we want to deal with the issue. The government can increase enforcement, increase penalties, or we can embark upon a public education program. The reason I ask you the question is that your brothers or sisters in the home repair industry are some of the biggest offenders in Canada. Does your association have any comments or any directions for this committee and, through this committee, for the government?

Mr. Dick Miller: Thank you. To you, through the chair.

Yes, you've hit a hot button with us for sure. My brothers and sisters in that part of our business who are members of our association pay their fair share of taxes, believe you me. They're as frustrated as you are with this underground economy. It's a huge loss in revenue, and there is no question about that.

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We have engaged ourselves in a number of initiatives, on several fronts—working with CCRA, with the educational process, and with public awareness. We have a number of substantive programs in place. But just let me highlight a couple of problems we're encountering. One astounding fact is that more than 70% of these so-called underground renovation deals are actually led by the consumer. In other words, the consumer asks the question, how much for cash?

We don't have the will to go at the consumer as being a greater part of the problem—we seem to want to go at the business side. I feel very strongly that we have to challenge the system, and the process, to bring to task the individual homeowners out there who are helping to drive this underground economy.

The question you may ask is, well, why is there an underground economy? I guess we have to look at our tax system as one culprit. In my own neck of the woods, in eastern Canada, we have the HST—and I can tell you that in our province, the HST has added a lot of fuel to the fire of the underground economy.

There's no one answer to this. It's going to take a concentrated effort, and we have partnered with several agencies to bring this matter to the fore. Most of our members, the vast majority, don't mind paying taxes. They've made some money, therefore they're paying taxes. But in the current situation, they're competing with a good number of people who aren't paying the freight on taxes, and who are leaving the consumer vastly exposed—with no workmen's compensation, and usually no warranty.

So it's a huge problem, and we're doing what we can with several agencies and departments to push this along.

Mr. John Kenward (Chief Operating Officer, Canadian Home Builders' Association): I want to go back to the rental question. When the federal, provincial and territorial ministers met in September 2000, they did agree to address the issue of affordable housing. As Mr. Miller has pointed out, they also agreed that there were systemic barriers to getting affordable housing into the marketplace. They covered such areas as taxes, regulation, shortage of labour, housing finance, and so on. At that meeting they agreed to collectively develop a work plan that would become the basis for action plans on all these fronts.

Subsequently, the proposal for an affordable rental program came to the fore, and we shared our views about it with Minister Gagliano. In fact, that particular submission is on the back table now, should you be interested.

But at this juncture, our anxiety is on another front. Although negotiations on the short-term affordable rental program have proceeded, absolutely nothing concrete has emerged on the systemic barrier front. So we say there's every likelihood that what we're going to end up with, after the federal-provincial-territorial negotiations, is a smorgasbord program that will be of only limited value. The systemic problems will be ignored, and after we have spent a lot of public money, we'll be right back where we started.

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We have to say to you in a very straight and honest way that unless these systemic barriers are dealt with at the time this program is introduced, in just a very short period of time we will have spent that money and will be facing the same problem once again.

The Chair: Thank you.

Anyone else?

Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Did you want to add to that, Ms. Chisholm?

Ms. Sharon Chisholm: I just want to say briefly that we absolutely agree with that decision. Minister Gagliano did say it was a short-term solution he was proposing and he's looking for a long-term solution. We'd certainly like to be called into those discussions, but our understanding is they're really not progressing at all.

We continue with our work trying to bring the private sector in. We're sponsoring a forum next year to talk to them. We've got bankers coming in, actually, from the U.S. who are involved with communities in partnership to develop affordable housing. There's something in it for the banks, but there's something in it for communities as well, and we want to show Canadian bankers that it is possible, that it's something they can be doing. There's something in it for them, and there's certainly something in it for us in communities.

So we agree with the position of CHBA on this one and absolutely urge the government to move forward with a long-term plan.

The Chair: Mr. Cullen.

Mr. Roy Cullen: I have a number of questions to the presenters, but just on that topic, I know my personal bias would see the private sector more engaged, more involved, and more the solution. The problem I see is that if you argue more housing development in total will necessarily create affordable housing stock.... I'm not sure that is the case.

In Toronto we have a lot of building going on, but it's at the medium and high end, and we clearly have a problem with affordable housing. That's why the government is often forced into direct delivery, because we haven't seen, as I recollect, any tax policies or instruments that would really focus on affordable housing—and that's where the need is.

I don't know if you're proposing the theory that if we get more housing it will automatically create more affordable housing. I'm not sure I buy that theory.

Mr. Dick Miller: I don't necessarily buy that either. Let me give you some examples; I guess we work best on specifics. There are municipalities around the Greater Toronto Area that would have development charges of some $20,000 to $25,000 per apartment unit. We feel, obviously, that is certainly one of the barriers to delivering affordable housing.

There are a number of solutions one could work on to eliminate that barrier over time, but certainly you have to have the buy-in of the municipality and the province; the federal government cannot do it on its own. We have ten major concerns with the affordable rental program Minister Gagliano has brought forward. We stick by those, and have sent them in to the minister's office. More importantly, they are with each provincial housing minister as well. I think they're very targeted, guided principles as to how this can work and achieve the desired results.

Mr. Roy Cullen: Thank you, and I'll read that in greater detail. I would urge you to keep the fight up at the local level as well. If there are any federal policies that would target affordable housing, I think you'd have a lot of support on this side. In the meantime, the problem is there, and we have to deal with it.

I'd like to go to urban transit, to Mr. Gillespie and Mr. Roschlau.

The Chair: Did you first want to answer Mr. Cullen's question, Mr. Kenward?

Mr. John Kenward: Just a quick point, if I may.

I didn't want to walk us into any rigid market paradigm in this regard either, but I want to make a further link, very quickly. That is, the federal government is engaged in supporting municipal infrastructure, and we are 100% behind that initiative. We're also 100% behind the actions the federal government takes to support housing across Canada.

What we're saying is that the federal government might take a greater leadership role in coordinating these things and demanding of the other levels of government cooperation and coordination in this regard. We can actually get into a strange situation of the federal government spending money in a market on infrastructure while the development-cost charges continue to go up in that municipality.

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So the potential spinoff benefit from the infrastructure Canada program to support affordable housing because of that link goes completely ignored, and I believe that's what Mr. Miller was referring to earlier. If we could look at some of these systemic barriers and take a more strategic approach, we'd be able to do something. But it has to be done that way.

The Chair: Thank you.

Mr. Roy Cullen: I'd like to get into a discussion, if we can, on defence and security, but we may not have time.

In regard to urban transit, you implied something about the dreaded dedicated tax. Perhaps you mean that, notionally, the government should recognize excise taxes that are coming in on fuel and perhaps devote more resources to other sources. But if you look at the situation we're in now, if we had a lot of dedicated taxes—and the case, as you know, could be made for a whole range of things—we wouldn't have much wiggle room, and we don't have much wiggle room as it is. So I don't think the argument on dedicated taxes is ever going to succeed, but I appreciate your tenacity on that.

The private member's bill on urban passes is coming back to this committee, I suspect, because it passed in principle in the House. You've heard all the arguments, pro and con, and I won't belabour them, but there's also a big push by many stakeholder groups for the federal government to make some direct investment in urban transit in partnership with the provinces and local authorities, and I think our transport minister has been pretty clear we're certainly not going alone, but maybe we could be engaged in some of that discussion.

If you had a choice to make—and sometimes this committee has to make choices, indeed this government has to make choices—between the urban transit pass initiative, which costs money, or direct investments by the federal government in urban transit, which would you choose?

Mr. Michael Roschlau: Thank you for your question, Mr. Cullen. It's indeed a very pertinent one. Perhaps I can characterize the situation in terms of the age-old dilemma of supply and demand. Transit ridership in the last couple of years has been increasing, and the direct investment is an issue of improving the supply, the capacity, and the competitiveness of the transit industry.

The incentive on the tax side is a demand initiative to make transit use more attractive in comparison to driving. Clearly, the need is for the supply first and the demand second. We can't accommodate the demand without the supply.

What I'm saying by that is we absolutely need the direct investment in infrastructure first before we can deal with incentives to get more people onto transit, because if we don't have the room to carry them, they won't ride.

Mr. Roy Cullen: As someone who lives in Toronto, I absolutely am with you on the need for better solutions in urban transit. With the fiscal capacity right now, I just don't think we're going to be able...maybe to do nothing—I don't know—but to do everything, I think, is impossible.

I would like to move, if I could just briefly, Mr. Chairman, to national defence. General Belzile, Colonel Henry, and Colonel Pellerin used a quote from Mr. Manley that we need to do more of our share regarding international security. I'm sure he said that, but you interpreted that, I presume, to mean more expenditure in defence.

Now, we heard Mr. McManus talk about the important role firefighters could play, about the front line, about the police. There's also a discussion around the need to put more money into security, CSIS, and the RCMP.

My own personal take on it would be that clearly we need to do more on defence spending as well, but if we have to make choices—and we'll need to—is it wise for us to be investing massive amounts in conventional military solutions when September 11 changed the world? I'm not saying we don't need tanks, aircraft, ships, and military people, but would it be a smart thing, from a taxpayer's view, for the government to be investing in conventional responses when maybe the world has changed? Maybe we should be looking at different solutions.

LGen Charles Belzile: Perhaps I can take the first go at answering that question.

One is not at the exclusion of the other. We're particularly concerned now with the fundamental flaws and shortfalls that exist in defence right now.

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The Government of Canada charges defence...as opposed to the other security agencies you named—RCMP, CSIS, the firefighters, and everyone involved in security. Nobody questions their requirements when we talk about defence.

This report was ready before September 11. As I said in my remarks, we had some remarks to make about post-September 11. Basically, we said we realize the need right now, the priority, because of public attention and that sort of thing, has to go to internal security, and we don't question that. I don't think one excludes the other, or one is necessarily in competition with the other. In fact, they're all complementary.

The problem is that for national defence to answer the government's concerns, there is a scale of eleven types of scenarios, if you want, with which we are charged. They go all the way from search and rescue, which nobody else can do because of availability of the right kinds of aircraft and ships and things like this, all the way to conventional war.

What is not clear to us, of course, is...we're a little concerned that we get caught up in the flavour of the month. We've done that with peacekeeping for umpteen years now, and we did it for a long time during the Cold War. There was the Cold War, and then we went into peacekeeping and became the world experts—or stated experts—in peacekeeping at the expense of the conventional capabilities you're asking me about.

The conventional capabilities will be required in one form or another. Nobody knows what's going to happen in the counter-terrorism activities, whether it will be aircraft; ships, which are already on their way; or land forces, eventually, to secure a piece of terrain. We've entered a tunnel, and nobody really knows what's on the other side. I can speculate. Things like terrorism have always been there, it's nothing new. But the intensity of September 11 is obviously very special. I don't think it will ever end, either. I don't think you'll see a tickertape parade. You may be able to keep a lid on it and keep it under control, but it does not eliminate the need to have conventional capabilities.

Mr. Roy Cullen: Mr. McManus, would you like to add something?

Mr. Sean McManus: Yes, if I may.

As we stated in our presentation, our concern in all of this is that now the government has recognized, with the appointment of a national security committee, the need to address domestic incidents, and with the rash of funding announcements that were taking place over the last number of weeks, there was no recognition of the fact that first responders, firefighters, are going to be on the scene of any of these incidents.

What we're saying is if the federal government is truly interested in national security on the domestic front, the needs of the fire service have to be looked at. We have the infrastructure and we have a curriculum in place; all we need is the seed money from the federal government to train firefighters.

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

Mr. Epp, we're seven minutes over our time already.

Mr. Ken Epp: I have two really fast questions. I had three, but I'm taking it down to two.

First of all, Ms. Chisholm, I would like you to take back to your numbers people a little chastisement from an ex-math teacher. Your numbers in chart 5 are totally wacky. I just did a computation. This would provide a $33 million home for every man, woman, and child in Canada every year. So just check the numbers on chart 5. That's just a gentle slap on the wrist.

Ms. Sharon Chisholm: Which chart are you referring to?

Mr. Ken Epp: Chart 5.

My question is for Mr. McManus.

I know what you've done in asking for the increase in the growth of your pension to 2.33% instead of 2%. You've simply taken it and converted from 35 years to 30. Actuarially, though, I don't believe that is sound, unless you have really significant numbers showing a much lower expectancy of life in your group, and I know you have some. My question is, was this number derived at by an actuary, or is it just a number that was convenient to sell, since 35 over 30 is, in fact, a pretty simple—

Mr. Sean McManus: In fire departments across Canada, 55 is the age of retirement for firefighters for a variety of reasons, including the physical requirements of the job.

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So we've looked at it on the basis that, typically, you are going out earlier than other working Canadians. We've picked 30 years as the appropriate working career of a firefighter.

Mr. Ken Epp: I'm not arguing with the number 30; I'm arguing with your 2.33%. I'm saying, actuarially, I doubt that is accurate. Although I don't have at my fingertips the ability to do that, I'm asking you, have you had an actuary work at whether or not that is mathematically sound? Are you going to be underfunded or are you going to ask for more money from your employers?

Mr. Sean McManus: In our discussions with Finance Canada right now, that is what we are exploring, whether indeed the 2.33% is the magic percentage or whether we need to look at something other than that. That is something we are looking at right now, and I appreciate the question.

Mr. Ken Epp: I would encourage you to do that.

I'll end with that. Thank you, Mr. Chairman.

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

I want to end with a very brief wrap-up, because it's important that you understand the challenges we face. Just listening to each other, you were probably adding up numbers, and they probably added up to quite a few dollars. When you think that this is one panel of 55 meetings that were participated in, I think we can all do the math.

That said, I do want to thank you, because you provide us with some very important issues that we have to think about. But we also have to contemplate trade-offs. There's no question that Canadians are very much in the world of supporting a strong national security budget or package, and they told us a few other things. They want us to continue on with the $100-billion tax cut, personal and corporate. They also want us to make sure we don't go back into a deficit. That's also a base there; they want us to make sure we can defeat any future deficits. They also want us to continue on with the commitments we made in October 2000 in reference to the federal transfer to the provinces relating to health care and education. So we'll have to make some trade-offs in this committee. I just want you to be mindful of that.

As you read the report, be cognizant also of the fact that economic projections in the past 12 months have been changed; they're moving targets. Unlike politicians, who have to stick with what they say, economists can change their point of view from month to month, but we also have to act upon the private forecasters and what they're saying. There's no question that the economy is going through a period of volatility, of uncertainty. Actually, the only thing that's certain is the uncertainty, in this case, and we'll have to factor that in.

So this particular budget and report that we may produce has to address that particular concern, and I think the challenge that the Minister of Finance will have to face is to give in his budget speech a clear sense of where the national economy is at, and it's going to be very difficult.

The numbers that are coming out of the United States of America are not very positive, and we all understand the integrated nature of our economy. There's no question that we can't run away from the national security issues; they're fundamental. Not only are they fundamental from a personal safety point of view, but there are also economic linkages.

As you know, in the United States, national security is paramount. It's the number one issue now, and so we'll have to factor all these things in. I hope you understand when you do read the report that in fact that's the world we are operating within, and decisions will be made accordingly.

Once again, I want to thank you. People who appear in front of us really give us great insight, and it makes our job a lot easier.

The meeting is adjourned.