FINA Committee Meeting

Notices of Meeting include information about the subject matter to be examined by the committee and date, time and place of the meeting, as well as a list of any witnesses scheduled to appear. The Evidence is the edited and revised transcript of what is said before a committee. The Minutes of Proceedings are the official record of the business conducted by the committee at a sitting.

For an advanced search, use Publication Search tool.

If you have any questions or comments regarding the accessibility of this publication, please contact us at accessible@parl.gc.ca.

Previous day publication Next day publication

37th PARLIAMENT, 2nd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Tuesday, November 5, 2002

1330

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

1335

Ms. Susan Graham Walker (Director of Communications and Program, ALS Society of Canada)

The Chair

Ms. Susan Graham Walker

Ms. Teresa Riverso (President, ALS Society of Toronto; and Member of the Board of Directors, ALS Society of Canada)

1340

Ms. Audrey McKinnon (Caregiver, ALS Society of Canada)

1345

The Chair

Ms. Teresa Riverso

The Chair

Mr. Robert Elliott (President, Canadian Retail Hardware Association)

Mr. David Campbell (President, Canadian Lumber and Building Materials Association of Ontario, Canadian Retail Building Supply Council)

1350

The Chair

Ms. Frances Chung (Director of Financial Services, GO Transit)

1355

1400

The Chair

Ms. Cyndy DeGiusti (Chief, Public Affairs, Hospital for Sick Children)

The Chair

Ms. Cyndy DeGiusti

Dr. Manuel Buchwald (Chief of Research, Hospital for Sick Children)

1405

The Chair

Mr. Joseph Oliver (President and Chief Executive Officer, Investment Dealers Association of Canada)

1410

1415

The Chair

Mr. Scott Brison (Kings—Hants, PC)

Mr. David Campbell

1420

Mr. Scott Brison

Mr. Joseph Oliver

Mr. Scott Brison

Mr. Joseph Oliver

1425

Mr. Scott Brison

The Chair

Mr. Bryon Wilfert (Oak Ridges, Lib.)

1430

The Chair

Mr. Joseph Oliver

1435

The Chair

Dr. Manuel Buchwald

The Chair

Mr. Robert Elliott

The Chair

Mr. Gary Pillitteri (Niagara Falls, Lib.)

1440

Ms. Teresa Riverso

1445

The Chair

Mr. David Campbell

The Chair

Mr. Joseph Oliver

The Chair

Mr. Gary Pillitteri

The Chair

1450

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

Ms. Teresa Riverso

Ms. Maria Minna

Ms. Teresa Riverso

1455

Ms. Maria Minna

The Chair

Mr. David Campbell

Ms. Maria Minna

Mr. David Campbell

Ms. Maria Minna

Mr. Joseph Oliver

Ms. Maria Minna

Mr. Joseph Oliver

The Chair

1500

Mr. Scott Brison

Ms. Susan Walker

Ms. Teresa Riverso

1505

Mr. Ian Russell (Senior Vice-President, Industry Relations and Representation, Investment Dealers Association of Canada)

Mr. Scott Brison

The Chair

Mr. Gary Pillitteri

Ms. Maria Minna

The Chair

Ms. Maria Minna

The Chair

Mr. Bryon Wilfert

The Chair

1525

Mr. David Penney (General Director, Tax, Association for the Abolition of Capital Taxes)

The Chair

Mr. David Penney

1530

Mr. Satya Poddar (National Director, Tax Policy Services, Association for the Abolition of Capital Taxes)

The Chair

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

1535

1540

The Chair

Mr. Robert Calnan (President, Canadian Nurses Association)

1545

The Chair

Mr. Sheldon Libfeld (President, Greater Toronto Home Builders' Association)

1550

Mr. Mark Parsons (Member of the Executive, Greater Toronto Home Builders' Association)

1555

The Chair

Mr. Thomas Hockin (President and Chief Executive Officer, Investment Funds Institute of Canada)

The Chair

Mr. Thomas Hockin

1600

Mr. John Mountain (Vice-President, Investment Funds Institute of Canada)

1605

The Chair

Mr. Paul Mondell (President, UDI Canada, Urban Development Institute/Ontario)

1610

1615

The Chair

Mr. Paul Mondell

The Chair

Mr. Scott Brison

Mr. Michael Murphy

1620

Mr. Scott Brison

Mr. Thomas Hockin

1625

Mr. Scott Brison

Mr. Paul Mondell

Mr. Scott Brison

The Chair

Mr. Scott Brison

Mr. Neil H. Rodgers (President, UDI Canada, Urban Development Institute/Ontario)

The Chair

Mr. Bryon Wilfert

1635

The Chair

Mr. Paul Mondell

The Chair

Mr. Michael Murphy

The Chair

Mr. Robert Calnan

1640

The Chair

Ms. Maria Minna

Ms. Lucille Auffrey (Executive Director, Canadian Nurses Association)

Ms. Maria Minna

1645

Mr. Michael Murphy

1650

Ms. Maria Minna

Mr. Michael Murphy

Ms. Maria Minna

Mr. Paul Mondell

1655

Ms. Maria Minna

The Chair

Mr. Gary Pillitteri

1700

Mr. Michael Murphy

Mr. Gary Pillitteri

Mr. Michael Murphy

1705

Mr. Gary Pillitteri

The Chair

Mr. Michael Murphy

The Chair

1710

Mr. Michael Murphy

The Chair

Mr. Thomas Hockin

The Chair

Mr. David Penney

The Chair

Ms. Lucille Auffrey

1715

The Chair

Mr. Michael Murphy

The Chair

Mr. Michael Murphy

The Chair

CANADA

Standing Committee on Finance

NUMBER 017

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, November 5, 2002

[Recorded by Electronic Apparatus]

· (1330)

[English]

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

We will consider pre-budget discussions this afternoon pursuant to Standing Order 83(1). The witnesses for our first panel, from 1:30 p.m. to 3 p.m., are as follows.

From the ALS Society of Canada, we'll have Susan Graham Walker, director of communications and program, accompanied by Teresa Riverso, president, Metro Toronto and area, and member of the board of directors, together with a caregiver, Audrey McKinnon.

Then we'll have a joint presentation from the Canadian Retail Building Supply Council, with David Campbell, the president of the Lumber and Building Materials Association of Ontario; and from the Canadian Retail Hardware Association, Robert Elliott, president.

From GO Transit, we'll have Frances Chung, director of financial services; from the Hospital for Sick Children, Alan Gayer, president--Do I have that wrong?--Cyndy DeGiusti, and Dr. Buchwald, the hospital's chief of research; and from the Investment Dealers Association of Canada, Joseph Oliver, president and chief executive officer, with Jon Cockerline, the director of capital markets.

So welcome to you all. All of you will be given up to eight minutes to do your presentation. At about seven minutes, to catch your eye, you'll see my pen go up in the air, and you'll have a minute--which is actually a long time and can be longer. Then we will go to rounds of questioning from our members who are here today.

I would invite us to go in the order you have on your agenda. We'll start with the ALS Society of Canada. Who would like to do the presentation, Ms. Walker?

· (1335)

Ms. Susan Graham Walker (Director of Communications and Program, ALS Society of Canada): All three of us.

The Chair: All three of you, okay. I will let you decide how many of your eight minutes you'd each like to take. So go ahead.

Ms. Susan Graham Walker: Thank you very much.

On behalf of the ALS Society of Canada, we would like to thank you for this opportunity to participate in the government's pre-budget discussion, and especially for the proposal in the recent Speech from the Throne to modify existing programs to ensure that Canadians can provide compassionate care for a gravely ill or dying child, parent or spouse, without putting their jobs or incomes at risk.

To speak to this issue, I am joined by voices of experience. ALS, sometimes known as Lou Gehrig's disease, kills two to three Canadians a day. There are roughly 2,000 Canadians now living with ALS. Most of these people will die within five years of the diagnosis. As voluntary muscles shut down, leading to complete paralysis, the care needs of people with ALS increase rapidly. This care is largely borne by family members. Teresa and Audrey will briefly tell you of how this proposal would serve the needs of this vulnerable group of Canadians.

Ms. Teresa Riverso (President, ALS Society of Toronto; and Member of the Board of Directors, ALS Society of Canada): Madam Chairperson and committee members, thank you for the opportunity to speak with you this afternoon.

I sit here before you wearing four different hats: first, as president of the ALS Society of Toronto; second, as a director on the board of ALS Canada; third, as an occupational therapist; and fourth and most importantly, as a caregiver of a husband who has lost his battle to ALS.

In July 1994, my late husband Ted was diagnosed with ALS. He was given 18 months to live. He survived 22 months, passing away in May 1996.

If you're not familiar with ALS, let me paint a picture for you. Living with ALS is like being a live wire in a puddle of water. Ted had the Bulbar form of ALS, which meant that the voluntary muscles throughout his body would become weaker and weaker, and so would his diaphragm, leading eventually to complete paralysis and respiratory failure. His swallowing and his speech would also be compromised and were in fact among his first symptoms. With the numerous choking episodes and frequent falling accidents, we just never knew when I would have to leave from where I was to perform the Heimlich manoeuvre on Ted, or when I would have to call on our four sons to help me lift him off the floor. At the time of the diagnosis, our children were Christoper and Daniel, age 15; Michael, age 11; and Robert, age 9. You can imagine the impact that these events and unpredictability of the course of the illness had on our family. Let me outline some of these for you.

At the onset of his illness, I was working full time as a coordinator of community and social service programs at Seneca College, which entailed daytime, evening, and, at times, weekend hours at one or more of its campuses, an inflexible and demanding job. Yes, I could have exhausted my overtime, sick days, and holidays, but then what? Compassionate leave would have made all the difference in what happened next.

Being an occupational therapist, I went into private practice, the only alternative I felt I had. As you all know, starting your own business presents its own challenges. Compound these challenges with the physical and emotional demands of caring for someone with a progressive and terminal illness, caring for young children, and running a household, and that “live wire in a puddle of water” I asked you to picture in your mind becomes more vivid and understandable.

Working in private practice provided the flexibility I needed to do what had to be done at home and in my work; however, it meant I was working at all hours of the day and night to meet my deadlines. There was no distinction between day and night, as Ted had to be up almost every hour to use the suction machine to remove saliva from his mouth that he could not swallow and that would cause him to go into choking fits.

Financially, our income was drastically reduced; however, we managed on my reduced income and Ted's disability benefits from his job as a chemical engineer. We were very fortunate to have paid off our mortgage a few years earlier and to have savings. Most families are not so fortunate.

Add to the normal financial burden of bills, mortgages, and raising children the cost of the illness itself and the panic state ALS creates in most families is understandable. Income security would go a long way to alleviating such panic and stress.

As president of the ALS Society of Toronto, I can tell you that the financial burden of ALS on our families is enormous. It has been our experience that most ALS clients need approximately $127,000 worth of equipment alone in the lifespan of the illness, which is usually three to five years. If the ALS client ends up on a ventilator and in hospital, then the costs skyrocket.

We recently had three clients on ventilators admitted to the intensive care unit at Sunnybrook and Women's College Health Sciences Centre over an 18-month period. The cost to the system was approximately $1.5 million. This figure could be dramatically reduced if the family were given the necessary support services required to provide care at home instead. According to our colleagues at Sunnybrook, there was no medical need for these individuals to be admitted to hospital.

Coming back to our situation, on a physical level I think you can all appreciate the physical toll this illness takes on the caregivers. In my particular case I went down to 102 pounds and was so pale that my brother commented once I looked like a ghost. My hemoglobin was so low my doctor told me I was on the verge of needing a blood transfusion, and so he monitored my iron levels and red blood cell count. I started having neck, shoulder, and back problems from all the lifting I was doing. I had become another patient in the health care system.

My greatest concern, of course, was, if anything happened to me, then who would take care of Ted and the boys? A long-term care facility for Ted would have become an unwanted and costly necessity.

We managed because we had an incredible support system of family, friends, and neighbours. Many caregivers are not so fortunate and must do it alone or with very limited support. This is an impossible state to be in when coping with ALS--caring for the individual with ALS, caring for children, running a household, all the while trying to work at a full-time job with perhaps a not-so-understanding employer.

Compassionate leave and income security would provide breathing space and a fall-back position to a safety net that the government puts in place to ensure that all its citizens in similar situations can provide the care we would all want as we approach the end of life.

Audrey.

· (1340)

Ms. Audrey McKinnon (Caregiver, ALS Society of Canada): Dear Madam Chairperson and fellow committee members, I appreciate the opportunity to speak before your committee regarding compassionate care, as addressed in the recent throne speech.

I am Audrey McKinnon. My interest in this matter is as a family caregiver and full-time employee of a major financial institution. My husband, Duncan, was diagnosed with ALS in August 2001, and as of August 2002 he was unable to walk and continues to deteriorate.

I have, for the last eight months, been providing an increasing level of personal care for him. At present this involves four or five hours a day. With this level of workload I will soon have to make decisions: leave work and care for my husband at home, or continue with my job and look toward institutional care for my husband. These are hard decisions.

If I leave my job, I can have only one year of unpaid leave of absence, after which I will lose my position and pension benefits. When do I leave work? When will he die? How long can I cope doing both roles? I don't know.

Legislation covering compassionate leave with an open-ended timeframe would be a great benefit. Compensation--employment insurance, for example--would be even better; however, I feel fortunate having a year's leave-of-absence option. Many small businesses do not or cannot even provide this flexibility.

My husband feels very strongly that he does not want to be in institutional care, and I agree. Can you blame us? Putting personal feelings aside, it must be more costly to support a person in an institution than in their home. I want to provide that care for Duncan. But can I? It's a tough decision: risk job and pension loss, or watch my husband die in a setting where he will be unhappy--a sad decision.

My decision in the next few months would be made much less difficult if a compassionate leave program were in place.

Thank you for the opportunity to address this committee.

· (1345)

The Chair: Thank you very much.

Ms. Teresa Riverso: We want to believe we can play a role in assisting in the testing and implementation of this caregiver leave proposal. People with ALS are an adult community of men and women of any ethnic background in all kinds of communities, large and small, throughout the country. The ALS community is a relatively small group of clients, caregivers, and employers that would serve as an ideal test ground for the research, development, and piloting of a compassionate leave and income security program. As president of the ALS Society of Toronto and a member of the board of directors of the ALS Society of Canada, I say please know that we are quite prepared to work with you in such a pilot project to make compassionate leave and income security for those caring for the terminally ill a reality.

Thank you very much.

The Chair: Thank you very much.

We'll now move to the Canadian Retail Hardware Association. I think Mr. Elliott is going first.

Mr. Robert Elliott (President, Canadian Retail Hardware Association): Thank you, Madam Chair.

With me today is David Campbell, president of the Lumber and Building Materials Association of Ontario, who is representing the Canadian Retail Building Supply Council. He'll be speaking to you in a few minutes.

There's a third member of our coalition. That's the Canadian Hardware and Housewares Manufacturers' Association. The president of that organization, Vaughn Crofford, regrets being unable to be with us today.

Our submission reflects an industry-wide perspective in three ways.

First, our three associations represent all facets of the industry, including manufacturers, distributors, importers, exporters, wholesalers, and retailers.

Second, these companies are also involved in one or more of the product categories that collectively constitute our industry, including hardware, housewares, building materials, and seasonal items such as lawn and garden supplies.

Third, our submission is supported by pre-budget surveys conducted by both the Canadian Retail Building Supply Council and my own organization.

Our submission includes an executive summary showing major positions advanced in the submission, with a page number reference where you can learn about these key points. The final two pages contain a summary of all those recommendations.

The standing committee, in its letter of May 25, particularly asked for suggestions on how increased levels of economic prosperity and the highest possible quality of life can be achieved for all Canadians. In our view, the key to addressing these issues lies in determining the appropriate balance between debt, taxes, and spending. Our pre-budget surveys demonstrate clearly that our industry believes continuing to reduce both the national debt and the tax burden on Canadian companies and individuals is the best way to achieve higher levels of economic prosperity and the highest possible quality of life for all Canadians. The answer does not lie in increased spending.

In his presentation to you last week, Finance Minister Manley described an important philosophy with respect to spending, saying that the government will reallocate money to programs that meet the immediate needs of Canadians from those that have already served their purpose. We regard that as a sound approach and one the standing committee should support to finance the needs of the health care system or other initiatives.

At the same time, however, the standing committee should recognize that many examples exist of what Canadians regard as questionable or wasteful expenditures. Within this context it would be unacceptable for the Government of Canada to impose higher taxes in order to finance new spending of any type.

Some years ago this standing committee advocated a productivity covenant that would identify and curtail questionable or wasteful spending. Before any new expenditures are undertaken by the government, a device such as the productivity covenant should be in place and functioning.

Both the Governor of the Bank of Canada and the finance minister included economic forecasts in their recent presentations to you. Mr. Manley is predicting growth of 3.5% next year, while Mr. Dodge was slightly less optimistic. Those views coincide with the forecasts by members of both the CRBSC and the Canadian Retail Hardware Association. Most of them believe that economic growth of about 3% is likely for their companies, as well as for their provinces and the nation.

The finance minister told you of his commitment to prudence in drawing the upcoming budget, and we urge the standing committee to adopt the same viewpoint.

Thank you for your attention to my remarks. I'd invite my colleague, Mr. Campbell, to continue with our presentation.

Mr. David Campbell (President, Canadian Lumber and Building Materials Association of Ontario, Canadian Retail Building Supply Council): Thank you, Bob.

Madam Chairman, our submission argues strongly that a buoyant housing market is of critical importance to solve problems of economic performance in this country. It notes that when Finance Minister Manley appeared before you this June, he said:

A strong housing market, a rebound in exports and healthy consumer spending were the chief contributors to our economic success over the past six months.

Typical of several recent Statistics Canada reports underscoring the importance of the housing market on the economy was the gross domestic product report for May. It said:

The current strength in new home construction had a positive impact on a number of other industries as well. For the past few months, there has been a significant upturn in the construction feeder industries in the manufacturing sector, including producers of wood products, asphalt products, paint, glass and glass products and electronic lighting equipment. There has also been an upward shift in the manufacturing, retailing and wholesaling of furniture and appliances, as homeowners furnish their new living spaces.

That is why we specifically recommend that the standing committee recognize that it is in the best interest of the Canadian economy to take such steps as are necessary to promote the ongoing health of the nation's housing market.

It would be irresponsible of us to recommend that you support new initiatives to which are attached major price tags, and we believe our proposals fit well with the objective of the fiscal restraint.

Our surveys produced identical rankings for a number of cost-effective approaches to keeping the housing market active. Low interest rates and strong consumer confidence were seen as the two keys, followed by support for permitting the deductibility of mortgage interest costs for personal income tax purposes.

Then we make a series of arguments in favour of extending the philosophy of the first-time homebuyers program, in three specific manners. Currently this program only permits the withdrawal of $20,000 of RRSP savings. Strict retainment provisions have been put in place, and only first-time homebuyers are able to benefit from this program.

Our submission urges that existing homeowners be permitted to use their RRSP savings, under the same repayment requirements, for two purposes. First, it should be possible to use them to finance the cost associated with retrofitting residences to accommodate the special needs of senior citizens. All too often, families are forced to institutionalize, for example, aging parents simply because they are unable to afford the cost of such retrofits. Secondly, we propose that existing homeowners be allowed to use a portion of their RRSP savings to help finance the cost of repairs and renovations to their homes.

We also recommend increasing the current $20,000 maximum amount that can be withdrawn from RRSP savings under the first-time homebuyers program. That amount was established in 1994, and its value has been progressively eroded since that time.

We have advocated extension of the first-time homebuyers program for some years now in our pre-budget submissions. The value of our recommendations with respect to RRSP savings takes on added importance this year. The earnings potential of RRSP investments is extremely low at the present time. Holders of these investments would probably appreciate being permitted to temporarily apply some of the RRSP savings to undertakings that would ultimately add to their total package of retirement assets.

Thank you for the opportunity to appear, and we look forward to discussing any of the contents of our submission with you later. Thank you.

· (1350)

The Chair: Thank you to you both.

Ms. Chung, from GO Transit, go ahead.

Ms. Frances Chung (Director of Financial Services, GO Transit): Thank you, Madam Chair.

Members of the committee, I believe we have a clear and present issue in the urban area: gridlock. It is sucking the quality of life out of the residents and the economy. I will present GO Transit, the green trains and buses that take people to and from work every day.

We have a slogan, “When you get on the GO, traffic is in the bag.”

GO Transit is the Greater Toronto and Hamilton area people mover. GO Transit ridership on an annual basis is approaching 45 million people, with an average trip length of 32 kilometres and close to 1.5 billion people-kilometres of travel in the region. Without GO, the city of Toronto core would have required another 48 highway lanes to handle the volume of cars. In fact, since the 1970s, downtown Toronto growth has largely been accommodated by GO Transit. The reality is that, without GO, it is unlikely that the downtown core would have grown in the manner it has. It may very well have taken on the inner-city United States model of the 1960s, with holed-out city cores.

Although much press is given to the importance of goods movement in Canada, it is people that fuel the economic engine of the GTA, and GO is an important link in that engine. GO is the travel of choice for millions of people, and this in turn frees up road space for goods movement and for other trips that can only be accommodated by road.

GO is a success story, but with our limited funding, the ability to grow is at a standstill. Trains, buses, and parking lots are bursting at the seams at peak hours, and riders are crying for more service. This situation is also being repeated in Montreal and Vancouver, where the popularity of commuter transit services is not being matched by the necessary funding commitment.

GO delivers its services with a strong business case approach. We effectively use public-private partnerships at every available opportunity, and have kept our operating costs relatively low. Our revenue-cost ratio is over 87%. In other words, for every operating dollar spent, 87¢ is recovered from the fare box. We have one of the best-performing systems in North America.

The question is whether or not there is a need for federal involvement. The response is yes, please. Why? Because it is in the public interest. GO transit relates to improved quality of life, air quality, environmental concerns, and road congestion, and ensures the economic viability of our urban centres that drive our economy.

Federal involvement in expanding the GO system will help Canada to compete in the global marketplace and will level the playing field with our neighbours to the south. It is well known that the federal government in the United States has recognized the importance of the urban centres and is supporting these centres through major investments in public transit. Since September 11, this commitment is being reinforced to an even greater extent. One lesson learned was that when all transportation systems operate at capacity, chaos ensues when one of the elements is temporarily removed from service.

For GO Transit, over 70% of our ridership is based on utilizing heavy rail on conventional railway corridors. This aspect of the service allows expedient movement of masses of people. The system sounds simple, and it is. The advantage of this system is that it capitalizes on existing and established rail corridors, thereby maximizing access and avoiding further environmental issues of new road corridors or wider highways.

The nationally based railways that largely control these corridors are federally linked through the regulation of the Canada Transportation Act, the CTA, and through their historical federal legacy. The railways also link the country economically on a national scale. Their controlling interests affect the economic efficiency and capacity of the GO rail system. Rail infrastructure and operational issues are expensive for GO, and can also have national importance for the railways. Improvements to rail corridors can benefit the railways in their intermodal operations and strengthen our national economy, while directly enhancing large urban centres.

GO Transit has developed and pioneered unique technology that is Canadian-based and -manufactured and is now widely exported. An example is the innovative, bi-level passenger rail cars currently manufactured by Bombardier and now in use throughout the United States and Canada in commuter rail operations. Federal support could help this manufacturing sector to continue to flourish. Components of these rail cars are manufactured throughout Canada.

On the rail infrastructure side, improvements to rail corridors and Union Station will provide more capacity and safety for national railways, including VIA Rail. GO's 10-year refurbishment and growth plan allocate $1.8 billion of capital investment. Municipalities have contributed to this plan, and the Province of Ontario has also recently seen the benefits of reinvesting in this plan. We feel it is now time for the federal government to also provide leadership in the growth and vitality of our major urban centres by financially supporting the capital improvements that will keep the GTA and other major urban centres strongly competitive in the international community.

· (1355)

At the same time, there is a strong message of the link between transit use and the health of our citizenry and countryside.

We are not here to suggest how the federal government should support our capital needs. Various methods are available, ranging from tax concessions to dedicated gas tax revenues to direct project support. Our growth needs are approximately $100 million per year. Sustained funding or funding support from the federal government has been identified by our funding partners at a minimum of $34 million per year.

In summary, GO is the solution for interregional transportation for the Greater Toronto and Hamilton areas, addressing the quality of life, environmental, congestion, and competition issues. We know what must be done. We have a proven business case and a good track record. We have garnered support from the private sector, the municipal sector, and the province. The missing link is the financial support from the federal government.

All levels of government share the vision of strong and vibrant centres in the 21st century, but no one level of government can be expected to absorb all the major investment costs of mass transit. Federal support would set GO Transit on track for today, tomorrow, and every day after tomorrow.

Thank you very much.

¸ (1400)

The Chair: Thank you very much.

We'll now hear from the Hospital for Sick Children.

Ms. Cyndy DeGiusti (Chief, Public Affairs, Hospital for Sick Children): I will present for the first couple of minutes, and then I'm going to introduce my colleague.

The Chair: Thank you.

Ms. Cyndy DeGiusti: Good afternoon, Madam Chair and committee members. I'm Cyndy DeGiusti, the chief of public affairs at the Hospital for Sick Children. With me today is Dr. Manuel Buchwald, the chief of research at the hospital.

I'd like to thank you for allowing us to present today. I assume all of you have a copy of the brief that we submitted in early September. I'm going to start by giving you a quick overview of Sick Kids, and Dr. Buchwald will then talk about our recommendations on the federal government's role in building a climate of innovation in Canada.

At Sick Kids, everything we do is completely dedicated to improving children's health in this country. Children's health is what our 6,000 staff are deeply passionate about, and improving children's health is what has driven us to unprecedented levels of achievement. While we're here today to talk about our research enterprise, we do not see research as a separate component of the hospital. Rather, we see it as the only way in which we can continue to offer the very best health care possible—not the best health care in Toronto or the best health care in Canada, but the best health care anywhere.

We are the only Canadian hospital that offers a host of the most complex services to children with severe illnesses and injuries. We regularly accept children from all over the country when their local hospital is overwhelmed by either volume or the complexity of the problem.

We also train a high proportion of the pediatric specialists who work in this country--physicians, nurses, scientists, and other health care professionals. We believe an important part of our role is to act as a national resource for knowledge transfer, so that children's health professionals all across the country will benefit.

Dr. Buchwald will talk more about our research enterprise, but let me just summarize by saying that Sick Kids advances the leading edge of children's health by its breakthrough research. While children represent about 26% of the population in Canada, their portion of the health care budget is less than 10%. We need an organization like Sick Kids to make sure children's illnesses and injuries receive attention from a deeply dedicated group of professionals.

I'd now like to turn the microphone over to my colleague, and then we'll happily answer your questions.

Dr. Manuel Buchwald (Chief of Research, Hospital for Sick Children): Madam Chair, I would now like to give you an overview of the research enterprise at the Hospital for Sick Children.

There are approximately 1,500 staff involved in more than 900 funded research projects. Along with the 300 scientists, there are 400 graduate students and 250 research fellows, as well as laboratory technologist assistants and other support staff. As part of the Samuel Lunenfeld research summer student program, more than a hundred undergraduate students also have the opportunity to conduct research at Sick Kids.

In 2001-02, the HSC Research Institute's budget surpassed $100 million for the first time, with just under $70 million coming from external funding sources. This level of funding is comparable to or larger than many mid-sized Canadian universities. Funding from the federal government, including grants from the Canadian Institutes of Health Research, the Canada Foundation for Innovation, and Genome Canada, accounted for 37% of all external funding for research at Sick Kids.

While the Hospital for Sick Children receives research funding from many voluntary health agencies and industry, the federal government is Sick Kids' largest source of external funding. This investment in health research has been a good one, as the many research outcomes at our institution illustrate.

Some of the highlights include the development of a promising new drug that immediately stops brain damage caused by stroke when given to animals; the development of a Canada vaccine for Sjögren syndrome, a prevalent autoimmune disease; identification of an anticipatory pain response in newborn infants; the launch of the largest pediatric clinical trial in Canada that aims to prevent the development of type 1 diabetes in children--and the basic science behind this trial originated at Sick Kids in the 1980s--identification of the gene that causes medulloblastoma, the most common malignant brain tumour found in children; demonstration of the relationship between second-hand smoke and sudden infant death syndrome; and discovery of a possible chemotherapy where one does not currently exist for a common bone tumour. I could go on and on, but continued investment from the federal government is needed to ensure that these health advances keep happening. We would recommend the following formula for that continued investment.

I must say that we've been very pleased with the continuing investment that the federal government has made in health research. It has made a tremendous difference to us in the sense that we have been able to reverse the brain drain. Over the last five years, approximately 30% of our scientific and clinical staff have come from the United States. Many of them are returning Canadians.

Our first recommendation is to continue to increase the operating budget of the Canadian Institutes of Health Research to the promised $900 million by 2005. CIHR funding, both in terms of operating grants and salary rewards, is an integral component of health research innovation in this country. It contributes to scientific advancement and our ability to keep and attract knowledge workers in Canada.

Second, make the one-time funding for indirect research costs a permanent program for all federally funded research, and attach indirect cost funding to grants. In the last budget the government recognized the need to fund the full cost of research in order that the Canadian health research community could remain internationally competitive. However, it was one-time funding for granting councils only. It did not account for full indirect costs, nor did it cover grants from other agencies, such as Genome Canada. The $2.5 million that the Hospital for Sick Children received accounted for approximately one-third of the indirect research costs on CIHR projects.

Indirect costs of research include, for example, technology transfer and licensing of staff; facility costs, such as space, furniture, heating, air conditioning, lighting; technology, including information systems and service costs; laboratory, diagnostic, and therapeutic equipment used by researchers but not covered by their grants; and other research support services such as libraries, grant administration, accounting, contract administration, and human resources.

The majority of indirect research costs at Sick Kids are still funded by community donations through the Hospital for Sick Children Foundation. In addition to the indirect costs the foundation must also raise the funds for our researchers' salaries, as the federal and provincial governments do not cover salaries, as is the case in universities. Canada cannot afford to have important health research dependant on the proceeds of special fundraising events, such as golf tournaments and galas.

We recommend that permanent funding be provided to cover indirect research costs of 40% on top of direct research-cost projects. To streamline administrative costs, this funding should be attached directly to existing grants rather than administered through a separate fund.

The third recommendation is to increase funding for the Canada Foundation for Innovation, to an amount commensurate with previous investments. When CFI was created there was pent-up demand for infrastructure particularly related to genomics, proteomics, and imaging. This need resulted in an investment of $1.95 billion for the first few years. The funds available in CFI are now running out, with only $600 million available until December 2005, and $750 million for five years afterwards. However, the need still remains, so we recommend that more investment be made in the CFI.

The fourth recommendation is to fund indirect administrative costs for CFI grants. Since accountability that comes with these matching programs is very high, institutions are faced with added costs as a result.

The last recommendation is that the government consider a facilities fund. The need across the country for expanded research facilities is growing, and CFI currently does not have the capacity to begin to address this need. At Sick Kids, for example, we have run out of physical space to house the research laboratories of our relatively young scientists whose careers are growing and who are taking advantage of the funding opportunities from the public and private sectors. Similarly, our growing number of research trainees, the future of our country in the coming years, is also outstripping our facilities.

I'd be happy to answer any questions.

¸ (1405)

The Chair: Thank you very much,

Our final presenter is Mr. Joseph Oliver, from the Investment Dealers Association of Canada.

Mr. Joseph Oliver (President and Chief Executive Officer, Investment Dealers Association of Canada): Good afternoon. My name is Joe Oliver, and I'm president and CEO of the Investment Dealers Association of Canada.

The association's mandate is to protect investors and to enhance the efficiency and competitiveness of the Canadian capital markets. The IDA oversees some 190 firms and 24,000 licensed brokers. Our members employ more than 37,000 people throughout Canada and across the globe. They play an essential role in our economy, raising money for governments and businesses and fostering economic growth and employment.

To start, I'd like to say we are very pleased with and appreciate the opportunity to participate in the Standing Committee on Finance's pre-budget consultations, and also to review for you our federal strategy for improved capital formation and productivity.

Efficient capital markets are vital to productivity growth. Sound tax policies that remove impediments to capital formation—particularly for small and medium-sized businesses, the engines of innovation and employment growth in our economy—are essential to building a more productive economy. The IDA's pre-budget submission therefore highlights a number of steps the government can take in this area.

Prominent among them is our recommendation that the federal government lower the inclusion rate on capital gains from 50% to 25% on new capital issued for smaller companies listed on Canadian exchanges. Companies raising capital have the choice of using either the private markets or the public markets. A number of provinces have reviewed or implemented changes to the rules on issuing securities in these markets, and we support these efforts.

The idea is also supportive of existing federal incentives in the tax code for small business financing, such as the $500,000 lifetime capital gains exemption available on qualified small-business shares. However, while beneficial, these incentives target investments in private companies, to the exclusion of benefits in listed company shares, for investments in these shares. This creates a bias in the tax system, favouring private over public financing. The time has come to provide some measured support to the junior public equity market as well.

By lowering the inclusion rate on new capital raised by small, publicly listed companies, the federal government can support the capital formation activities of smaller public companies. Currently, capital gains tax relief is limited to investments in Canadian-controlled private corporations. Our proposal would include those junior companies that are at a stage of their development at which they need to tap the public as well as the private markets for equity capital.

By supporting the market for IPOs, the proposal will offer additional options for small-growth companies to finance themselves and grow in Canada. All to often, Canadian taxpayers find themselves in the position of providing support for Canadian ideas but losing out to interests in the U.S., where they end up being financed because they become financially viable there.

The proposal would be cost-effective for government. It directs a benefit to investors who provide new money to the market, as opposed to benefiting all existing investments. It is also performance-based. Unless the investment ultimately proves to be worthwhile, generating jobs and creating wealth in Canada, there are no associated tax expenditures.

Markets for earlier-stage financing are also underdeveloped in Canada, and that is why the IDA has welcomed, in previous budgets, efforts to grow institutional participation in venture capital through qualified limited partnership rules and to enhance angel investment through more flexible capital gain rollover rules. Unfortunately, these changes, while well intentioned, have proven to be largely ineffective in raising venture capital investment. Therefore, the IDA is proposing that qualified limited partnership rules and the provision for capital gains tax rollovers be made more flexible for the enhancement of investment activity in these early stage markets.

¸ (1410)

Another area where the IDA believes intervention by the federal government would benefit investors is the RRSP contribution limit. The Honourable Marc Lalonde noted nearly 20 years ago that the tax treatment of RRSPs penalized, in particular, employees of small businesses and those who were self-employed. He introduced changes to the contribution limit in 1984 that set out a timeframe for raising the RRSP limit to $14,000. Here we are, 18 years later, and we have yet to reach that limit.

The IDA strongly encourages the federal government to address this unfinished business. The IDA proposes that the federal government increase the present RRSP annual contribution limit from $13,500 to $27,000, phased in over a five-year period.

Boosting the RRSP limit will help small and medium-sized business owners and their employees to save adequately for their retirement. Increasing the RRSP contribution limit will also allow Canadians to save for their retirement to the same extent as the Americans and the British.

Moving on to the subject of securities regulation, in order to make our capital markets as efficient and competitive as they can be in a global economy, our government needs to address the problem that no other country in the world has to confront: the lack of a single national regulator for the securities industry.

The present system of 13 regulators is not efficient. There's no single voice for the country, and although attempts are made to harmonize regulation across provincial boundaries, the process is long, arduous, and suffers from chronic delays and inconsistent rules. The result is duplication, inconsistent application of regulation, and high costs that adversely impact on the confidence and efficiency of our capital markets. The answer is either a national regulator or a completely harmonized provincial system.

We believe the federal government has an important role to play in this process, and we strongly support the efforts of Harold MacKay in his role as the Minister of Finance's special representative. We look forward to his findings, with respect to developing a modern, efficient securities regulatory system that suits Canada's needs.

Together, these initiatives will increase confidence in all markets and provide investors in the public market with a much needed boost.

In addition to the proposed measures discussed today, the government should continue along the current path of fiscal prudence, while aggressively pushing forward on lowering corporate taxes and eliminating capital tax.

Thank you.

¸ (1415)

The Chair: There are 50 minutes remaining in this session. I'm going to allow Mr. Brison go at the beginning and the end of this session for up to 10 minutes, with all the other members having 10 minutes.

Go ahead, Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): It's nice not having those other opposition members here, Madam Chair. Who needs them?

The first question, to the representatives from the building supply industry, is about the flexibility around RRSP investments--our current policy, in terms of qualified RRSP investment, forcing people to choose between fixed income investments or equity market participation.

I heard an argument recently that was compelling, in that given confidence in the capital markets and the issues around the capital markets today, it might not be a bad idea to provide Canadians with another option. For instance, if Canadians were allowed to invest up to a certain portion of their RRSPs in small income properties, there is a market and a pricing methodology in place, based on that market, so it wouldn't be like they were investing in small businesses, where there's no real way to provide evaluation.

Many Canadians have invested any excess disposable income in small income properties over the years. It strikes me as something that might be meritorious for us to evaluate. But I'd be interested in your feedback on the idea of a greater level of flexibility around RRSP qualifying investments, to actually include potential investment in real estate.

Mr. David Campbell: Certainly, when we established our position on RRSP investments and on whether they should be used towards the construction of homes and additions to homes, it was limited to the ability of people to upgrade their existing properties in order to provide a better retirement home. We didn't give consideration to investment in properties, and I think that's where you're coming from. I suppose that if any investment created a stronger economy or stimulated the economy, whether it be in property or in RRSPs for upgrading your property or your home, we would support it.

¸ (1420)

Mr. Scott Brison: The idea is just to provide a little greater flexibility for Canadians from an investment perspective. In some ways it's more meritorious as a retirement plan perhaps than investing in your own home. In some ways it almost makes more sense.

First, for the IDAC I have some questions on Sarbanes-Oxley in the U.S. and the degree to which you feel that it either goes too far or does not go far enough.

The argument in favour of going to a national securities commission has been around for a long time, and it's one I support strongly. We should be moving towards that. It strikes me that for a long time the arguments in favour of going to a national securities commission have been around the notion of the wrong-headedness of segregating an already tiny capital market into 13 smaller units with the resulting impediment provided by the 13 different securities-regulating agencies to capital formation.

The confidence in the capital markets and issues around corporate governance provide another argument in favour of a national securities commission, where one can actually make the argument for a national securities commission relevant to individual retail investors, whether they're in Quebec, Alberta, Ontario, or Nova Scotia. Individual retail investors ought to be protected by the strength of a national securities commission, by uniform securities rules, and by the resources a national securities commission would have as opposed to individual securities commissions. I would appreciate your feedback on whether you feel that the current corporate governance and capital market confidence crisis, if you will, provide you with an added argument to make this relevant to retail investors.

In my view, if we make this relevant to retail investors, you make it relevant to the politicians in the various provinces because retail investors are also voters, and they're scared to death to open up their envelopes every month to see what their RRSP account is doing at this point.

Mr. Joseph Oliver: Mr. Brison, would you like me to address Sarbanes-Oxley separately and in connection with the securities commission, or is it one?

Mr. Scott Brison: You could discuss Sarbanes-Oxley just as a little separate side issue to the question.

Mr. Joseph Oliver: Well, Sarbanes-Oxley is, I think everyone knows, a fairly robust piece of legislation. In fact, it is the most significant change in U.S. legislation since the 1930s, and it deals with a whole host of issues.

From the perspective of Canada, we know that 5% of Canadian companies are interlisted and are therefore currently governed by Sarbanes-Oxley. They represent some 72% of the market value on Canadian exchanges, so in respect to those companies, the answer is pretty clear. I don't think there's a need to embellish Sarbanes-Oxley; it's robust enough. Therefore, Canadian legislators and regulators, it seems to us, have a choice between either letting the U.S. rules apply without any Canadian intervention or introducing Canadian rules, provided they don't conflict or don't add to the burden or to the confusion that would result from the introduction for our largest companies.

With respect to the other 95% of Canadian companies, however, in our view there is a need for a made-in-Canada solution. Some of the rules proposed do make sense in terms of enhancing investor protection and therefore investor confidence, and can, it seems to us, be implemented. For example, the certification of financial statements by chief executive officers and chief financial officers does make some sense. It's not nearly as simple as people make it out to be, but it's pretty critical. Investors, both individual and institutions, do have a right to rely on the validity of the financial statements they're in the process of analyzing for the purpose of purchasing securities. As well, it seems to us that the rules relating to whistle-blowing, which make sense, and the need for public director participation on the boards are essential. However, Sarbanes actually goes pretty far, and may go too far, in terms of imposing an excessive burden on smaller and medium-sized companies without any commensurate benefits.

Understand that Canada has a larger proportion of smaller companies than the U.S. Some 44% of Canadian companies have a capitalization of less than $50 million, and 82% have a capitalization of less than $500 million. So we need a made-in-Canada solution.

As to the argument that investor confidence would be boosted by a national securities commission, there are those who come out on both sides of that issue. I think the critical thing is that the structure and content of securities legislation work to protect investors and to enhance the efficiency of the markets, not to pose too much of a burden. As we have said, it is possible to make the current system much more harmonious. We can do a number of things. Decisive action can be taken and can make a difference, in default of which the case for a national commission then becomes overwhelming.

¸ (1425)

Mr. Scott Brison: My own view, as I mentioned, is that for the first time you actually have a hook for your argument that could actually effect change in terms of provincial legislative representatives who haven't seen the political hook or reason to do this before. As somebody who has been actively working, for instance, in Atlantic Canada to encourage those four provinces and their finance ministers to hasten the advancement of a regional securities commission, I think the idea of appealing to the sensibilities of retail investors around this issue would give you that little bit of a hook.

In terms of capital gains, you're talking about a further reduction in the capital gains inclusion rate. Given that we didn't have it before 1971 and the fact that we don't get much revenue out of it anyway, particularly not this year, I think you should actually push for the elimination of the capital gains tax, which would be of great assistance to Canadian capital markets and retail investors.

The Chair: Thank you.

We'll go to Mr. Wilfert for 10 minutes, followed by Mr. Pillitteri and Ms. Minna.

Mr. Bryon Wilfert (Oak Ridges, Lib.): Thank you, Madam Chairman.

I thank everyone for coming. The task we always have is to try to maintain fiscal prudence, look at what strategic investments we should be making as a government, and continue to move on issues dealing with debt and taxes. That's a tall order. I haven't heard too much today that I would object to, although I may object to the degree to which some of you may have pressed your argument. On the whole, though, there's not too much to disagree with. The problem is, how do we deal with a budget that currently is probably $1 billion in the black, with a $3 billion contingency fund? It's a very tall order.

To the ALS Society, one of the things I agree with right off the bat, absolutely, is with regard to the CIHR and the move toward the $900 million. That's an initiative by the government that has paid tremendous dividends. Both you and the Hospital for Sick Children have mentioned that. I think it's extremely important. It has made us a world leader. It continues to attract and maintain the best and the brightest. And I think that's important.

As for the compassionate leave issue, yes, we have all had courses for taking care of children, but society ages. The question is, as your parents or loved ones get older, what do you do? There's obviously a cost factor--a human cost factor, but also a financial cost factor-- we have to look at.

What the Romanow commission will propose is obviously... I take the view that, first of all, we have to decide what kind of health care system we want in this country. Once we decide what we want, then we have to figure out how we're going to pay for it. I don't advocate more taxes, nor do I personally advocate giving the provinces more money because they misuse it, in my view. The fact that Ontario last year declared $1.2 billion in new health care funding, of which $1.1 billion was federal transfers, doesn't excite me. Governing is about making priorities. If your priority is tax cuts first and then health care, great, but don't come to us. We're not an ATM machine, as I said earlier.

The Canadian Retail Hardware Association says, no new taxes, and I absolutely agree with you. I think the minister has made that very clear, and as his parliamentary secretary, I will reinforce that. I don't think he's planning to jump off the Peace Tower any time soon.

You mentioned wasteful spending. I always like to know what wasteful spending is. I know the minister has asked the departments to go through and review it, and I believe there probably are programs they could cut back on, but it's about a reallocation of dollars. One of the things I mentioned this morning to an accountant, who said he'd have to get back to me, was that one of the things we'll probably do is go to full accrual accounting, which will give us an opportunity to create some savings in departments, some more than others.

We are moving on the EI downward trend. I'd like to see it reduced significantly, but there is no separate EI account, as you know. The Auditor General said we couldn't do that, so we don't have that. But there are social costs, and one of the things we have to look at is investment. We have the ALS Society, we have the Hospital for Sick Children, and we have those issues. It can't all be just numbers, it also has to be issues about how we deal with the human component.

As for GO Transit--you don't want to get me started--the Minister of Transport has very clearly indicated a very strong rail-based initiative. We are looking at the Cobourg line, as you know, and there are a number of areas where we will be working with GO Transit.

My great complaint isn't with you; it's with the provincial government on official plans that only recognize land use planning. They do not recognize the impact on hospitals, the impact on recreational facilities, etc. People are moving into an area like mine, York Region, and what was the first thing the Ontario government did in 1995? They slashed GO Transit in half. At the same time they said, intensify. So more people go in, but we can't move people around. It's not very smart in my view. I was on council at the time, and trust me, that was a problem.

With respect to the issue of capital funding for GO, I think we're already looking at that as a government. But remember, we're a national government, so whatever we may do in one area of the country, unless we decide... and I take the view that one policy doesn't have to fit all... you have to have a rationale for that. You did outline some of that, I know, in some of your comments. But again, if you want to spend $34 million a year from the federal government, we have to find that, so that's an issue. But the transport minister has said that and made it clear, that along with some issues on buses.

But we're not going to fund operating costs. Again, there's an issue there with the provincial cutback on capital costs from 75% on bus transit, for example, to zero. Then they came back with 33% as if they were somehow a white knight. In my view they're not much of a white knight.

On the issue of investment dealers--and then I'll take comments on any of this--I couldn't agree with you more on the issue of regulators. As you pointed out, the Minister of Finance has indicated... Although it's not our jurisdiction, I'll give you an example. It cost Nova Scotia $1 million for their regulating system, and they make $5 million out of it. You do the math: it's a cash cow. That's why the provinces don't want to give it up. Quebec has already said it's none of our business. I believe that we need to do that. It's a ludicrous system in this country, and that's just one example, but it's something we have to do.

At the end of your comments, sir, you said that we must maintain fiscal prudence. But then you listed a lot of things I thought cost money. Maybe you could explain to me how we maintain fiscal prudence and still deal with some of the cost issues you raised.

I say all those things very respectfully, and I'll take any comments anybody might want to give me.

¸ (1430)

The Chair: Mr. Oliver, I'll start with you on that.

Mr. Joseph Oliver: Thank you, Madam Chair.

Internal consistency is an important part of any presentation. Let me just say that a couple of the recommendations don't really have any impact, or very little impact, on the bottom line. Broadening the qualified limited partnership rules is technical and it doesn't create any costs.

The recommendation about the securities regulation will not cost any money. In fact, it will reduce government expenditures, one would hope, in aggregate in this country.

We have done some calculations related to the reduction of the capital gains inclusion rate from 50% to 25%, and we don't see this as having a very significant impact at all. As you can see if you have our submission, we did an analysis based upon IPOs done in 1999 and we only see a realistic federal tax loss of some $0.5 million. Now, it will move up over time because each year will add to it, but we feel the maximum cost to the federal government in any single year, starting in about five years, would be less than $20 million.

Given the economic benefit that would flow from this provision, we think the country has been well ahead as a result of the implementation of this particular recommendation. And to repeat, we're focusing not on all capital gains, but on capital gains directed to smaller companies.

To follow up on Mr. Brison's point, it is interesting that in the United States there is some interesting data suggesting that when you reduce the capital gains tax, the amount of tax collected increases, actually, because people are then free to make economic decisions in the normal way and so they will sell some securities that will attract tax, but at a slightly lower rate.

The final item, which can cost some money, relates to the increase in the RRSP rate. Of course, that really relates to small and medium-sized business owners and their employees, because it wouldn't affect people who are capped out because they are getting a pension fund from their companies. That's a matter of fairness. Also, you have to look at the net impact, because some people will, as a result, be better able to afford retirement rather than having to rely on the government to a greater extent.

¸ (1435)

The Chair: Thank you very much.

Dr. Buchwald wanted to comment.

Dr. Manuel Buchwald: I want to make a comment that, in respect of some of the expenditures we recommend, they can also be viewed as investments. Certainly in the context of the future of this country, investment both in health of children and in health researchers and scientists who will not only provide better health for children but also generate economic activity would be a prudent use of government resources.

The Chair: Thank you very much.

Mr. Elliott.

Mr. Robert Elliott: At the beginning of your comments, Mr. Wilfert, you were talking about the definition for “wasteful spending”, and I guess it allows me the opportunity perhaps to reinforce the point we made about the productivity covenant.

I believe all of us at this table have seen and heard all of those stories about government waste, and many Canadians, of course, have different perceptions about how much is being wasted there. So I believe if you were to strongly consider a productivity covenant you would accomplish two things. Number one, hopefully the most important thing is to save some money where it perhaps could be saved. And number two, we would also be putting in place and helping the perception...with the tool that the government is trying to avoid those types of wastes. I believe, if you do that, then perhaps you help to ease the concerns that many Canadians have in that regard.

The Chair: Thank you.

Mr. Pillitteri.

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

It's very nice you could make these presentations and it's wonderful, really, to see the presenters coming from all walks of life.

A lot of people say, how do you enjoy politics? I say I enjoy representing people because a day doesn't go by that I don't hear something good, or something I never knew.

For instance, governments in the province of Ontario are saying we're only spending 14¢ on medicare. It's a surprise to me that 37% of outside funding for the Hospital for Sick Children comes from the federal government. These are not the good things you hear sometimes. They just harp on the 14% that the federal government spends on medicare. So it's amazing to learn that. Of course we support that wholeheartedly. If it were such a good thing to transfer to the provinces and get your share, you would not be getting your share; you'd probably only be getting the 14%.

Tell us how we could improve that, to bypass the issue of getting whatever money we put in, in transfer of payments--how you could best get it.

Next, the really interesting point of older people being able to use their RRSPs to accommodate their needs if they're handicapped, and so on, has quite a bit of merit. When we take a look at what we do with RRSPs, turning to mutual funds and investments and so on, we let the tax system...people lose money and don't get anything back, because an RRSP is only a deferred tax. It's quite an idea. It deserves some merit. I think we should bring that idea forward and find out what it would cost in deferred tax losses.

It's an excellent idea, because seniors have a lot more disposable income. Of course, we wouldn't have to worry too much about our underground economy, for the simple reason that it would all have to be legitimate. That's a great idea. I'd like to get a response on that. I would not really consider writing off the interest toward your income.

On the issue of home care, after the Romanow report, as my colleague Bryon has said, we Canadians really have to sit down and consider what we want in medicare, pharmacare, and home care. How do we really address that? I don't think we can bunch it all together and say we're going to put it all into this basket and expect it to be paid for. The discussion should be on how we can best address this. Maybe you could give us some of your views on pharmacare and home care.

By the way, once we install this five-year plan on corporate tax, our corporate tax will be much lower than that of the United States. We have the lowest corporate tax in the G-7, just for your information.

But also you say that eliminating capital gains shows that...in the United States there would be more investment and the loss would not be as much. I quite agree with you, except for one thing. The United States still tax 100% of capital gains, while in Canada we reduced it to 50%. We have done something about it; they have not.

Actually, companies that have investments in the United States also have the option of filing in Canada and paying taxes on 50% of capital gains, rather than 100% of capital gains in the United States.

I agree with you that we should be eliminating capital gains. I've been supporting that for the last nine years, and I think we should do it in stages down to zero. Maybe that would help investment, because there are a lot of companies and individuals that are rich on paper, but they don't really want to cash in because of capital gains.

Do you have some comments?

¸ (1440)

Ms. Teresa Riverso: First of all, in regard to having input into home care issues, I don't think we have sufficient time to really get into that today, but we would definitely be willing to participate in those discussions. There are a lot of issues related to the provision of services for families to support people who are ill within the home setting versus in institutions or being hospitalized.

In regard to your issue around the RSPs, I would suggest that they would not be limited just to seniors, but to anyone who would have to do home modifications. In regard to our particular client group, this is obviously an issue that they have to deal with. There are not sufficient resources out there to help them offset the costs for home modifications for wheelchairs, elevators, stair lifts, and whatever else you can think of. I would therefore suggest that you would expand that to include the adult population and children as well.

The package that we have submitted for our presentation today does address some issues around home care, so I would refer you to that and would welcome the opportunity to discuss that further with you in some other venue.

¸ (1445)

The Chair: Mr. Campbell.

Mr. David Campbell: Thank you.

I certainly appreciate your comments regarding the RSP suggestions, Gary, but I would get back to probably what is one of our strongest points, and that is debt reduction. Many fine presentations have been done here, but as long as we have a national debt as high as the one we have, and as long as we have to service that debt, we'll always be here trying to work after those moneys.... If we can reduce that debt and, as we reduce the debt, provide funds to provide the health care services that we require, particularly for those of us who are over the age of 50 or are coming up to it, it certainly would make your job a lot easier, I'm sure.

The Chair: Are there any other comments? Mr. Oliver.

Mr. Joseph Oliver: Just briefly on the corporate tax, Canada still has the fifth-highest corporate rate in the OECD, at 7% higher than the OECD average. As you point out, sir, it is true that the Canadian rate is lower than the U.S. rate for the first time, in 2002. Nevertheless, the U.S. has a number of advantages that Canada doesn't have. There's a depth and diversity to its markets. Its status as a world reserve currency and its high-income economy make it a more desirable site for capital-raising. So it's not sufficient simply to emulate the United States in corporate taxation or even to decline at the same rate as other OECD countries. We have to do significantly better. Australia and Ireland have done so, and it's necessary.

We always used to say that if we were getting close to the American rate, it was okay. Given our size and the nature of the global economy, though, we actually have to do better. A lot of data suggest that countries that do better, do better economically.

The Chair: Thank you.

Gary, you have a little time left.

Mr. Gary Pillitteri: Thank you, Madam Chair.

To add to that, let's not forget it's not only the corporate tax. We also have lower payroll taxes than those in the United States. The only thing the United States has on the upper end is in income tax, which is lower there than it is in Canada.

When we take a look at the ratio, we're all of a sudden coming to something else that most people don't even realize, and that is the ratio servicing that debt. Yes, in 1993 we were at 75% of GDP of debt. Today, we are at 49%. The United States is crawling over the 40% mark already. What do we compare it to in the next couple of years? We know the United States this year will be in a deficit. If we take a look at it, we will be almost even within a few years if we continue with this ratio. So what we have done is really almost miraculous. Will they finally admit that the Canadian economy is far greater than any other economy in the G-7? If that goes the other way, I hope it is recognized.

Thank you.

The Chair: Thank you very much.

We'll go to Ms. Minna, for ten minutes, please.

¸ (1450)

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

I just want to speak up a little on where Mr. Pillitteri left off with respect to taxes.

We could really compete by who gets to the bottom first and how far we can go to the bottom, and then see who we leave behind. I'm not saying we don't have to reduce the debt. We have a plan for an incremental reduction of the debt. At one point we had a plan for fifty-fifty, although I don't think it was quite fifty-fifty. It was more to the debt and business than it was to social, but that's fine.

For large and medium-sized businesses, for instance, the average corporate tax rate in Canada falls below the average tax rate of the U.S. by 2003, and we're going to be about 5% below the U.S. in corporate taxes by 2006. For small businesses, there is a significantly lower corporate tax rate in Canada on incomes over $75,000. On research and development, there is a 20% research and development R and D tax credit in Canada for all R and D expenditures, as compared to the U.S. 20% credit for incremental R and D.

What I'm saying is that we can start doing a constant comparison at all times and start seeing who races to the bottom fastest, but I don't think that's what the exercise is about. I think it's about being reasonable and making sure we're competitive, and that competitiveness and productivity levels are influenced not only by tax rates but also by a trained workforce, mobility, and the flexibility of our workforce. I hardly ever hear—maybe twice or three times—people at this table presenting issues about training, national standards, apprenticeship, and things like those that go to productivity.

I have all the time in the world to deal with issues of debt and tax, but there's a limit to them. I think there's a time when you have to begin to look at investment, because investment is part of economics. I always like to say social and economic policies are really not that different, they're one and the same. One is a continuum of the other. Health policy is economic policy. Our research policy is part of economics. Sustainable, lifelong learning is part of economics as well. That all goes on the investment side, so while I understand the debt....

I hear talk about reallocating funds. If you recall, we went through program review as a national government around the 1995 budget. Huge chunks of money were cut out of programs and 45,000 staff were let go, to the point that I think we have some problem actually retaining qualified staff in the government right now, in some cases. So while we can reallocate and look, I'm not sure there's that kind of room. Everybody tends to assume we're going to find tonnes of dollars in reallocation and in further fine-tuning in order to cover the cost of things we need to do. We have to look at reality sometimes and deal with those things as well.

Having said that—and maybe somebody can reply to that afterwards—I want to go to some more specific questions, specifically to Teresa Riverso.

We had a presentation earlier today. It wasn't officially in the record, it was in a conversation I had with the chamber representative afterwards. It was on using EI as leave. What she was suggesting is that we have now extended parental leave to one year and that, rather than extending that further to two years—of which there was some discussion, although not in any serious depth that I'm aware of—we should use some of that to allow for what you're just suggesting, which is leave for situations in which families or individuals are looking after a child who is very ill, or a spouse, or what have you. Would you see this expanded into that? Is that what you're talking about specifically?

Ms. Teresa Riverso: Yes, that's exactly what we're talking about: the opportunity to maintain some job security while being able to take time off in order to look after people within the home setting. Otherwise, those individuals will end up in institutions, and that obviously translates into a larger cost for the system.

Ms. Maria Minna: Do you have a suggestion about what sort of time span you would be looking at? Would you be looking at one year or more than one year?

Ms. Teresa Riverso: It's very difficult to predict. ALS is such an unpredictable disease that you really can't tell if an individual is going to survive those eighteen months or if they're going to be around for another twenty years if they go on a ventilator. The point is, the option is given to the family to select a way of dealing with their particular situation.

What we're suggesting in terms of the proposal is that obviously it's not just a federal issue; it's a provincial issue, it's a business community issue, it's a voluntary sector issue. It's something that has to be addressed by all of those different stakeholders. Things like compassionate leave and income security programs can't be addressed by just the federal government. We obviously are quite prepared to participate in that and to be a test group. It's such a small community of individuals across the country impacted by ALS, but it's a very expensive illness to have to deal with as a family.

Just to give you an idea, I mentioned $127,000 in regard to equipment that an ALS client might need over the span of three to five years. At the ALS Society of Toronto, we have a loan pool that we provide to our caregivers. We support 40% of the cost as a charity; 11% comes from the provincial government through their assistive devices program, through the Ministry of Health and Long-Term Care; and the family supports the remainder, 49%, which is still quite a large amount of money when you don't have that kind of resource available to you. If they had to support the whole thing, you can imagine the kind of financial burden that would place on a family.

So we really need to look at alternative ways of supporting them.

¸ (1455)

Ms. Maria Minna: I understand. Thank you.

To Mr. Elliott, on the use of RRSPs for first-time buyers, the average contribution to RRSPs across the country is about $5,000 a year, I understand. I'm wondering if you have statistics or any data that shows the take-up for first-time buyers. Is it used fairly effectively for first-time buyers?

Do you have information on it?

The Chair: Mr. Campbell.

Mr. David Campbell: I'm afraid we don't have those statistics on first-time homebuyers.

Ms. Maria Minna: I ask that because first-time homebuyers generally tend to be young people with young children, and I doubt they have that much already invested in RRSPs. I'm just wondering whether... and in this case you're suggesting that we extend that to existing homeowners.

Mr. David Campbell: Exactly. As people age and require upgrades to their homes to provide access if they have disabilities, we're suggesting that the RRSP deductibility for them would provide a stimulus to the economy but also make it economically feasible for them to do those upgrades in their homes.

Ms. Maria Minna: Okay. I was wondering whether one of your reasons for suggesting the expansion was that the take-up rate at the front end might be low given the fact that, as I said, young people may not have as much of an RRSP amount put away as yet.

Keeping in tune with RRSPs, Mr. Oliver, you were suggesting that we go, over five years, to $27,000. I've heard that before. A number of other presenters have made that presentation. This morning, however, there was a bit of a new twist. A presenter dealing with child poverty and other social issues suggested that we reduce the RRSP because it's actually benefiting higher-income Canadians as opposed to Canadians having difficulty in terms of affordable housing, income support, child benefit, and all of the other programs they're not working with; the government has only so much space.

I'm just wondering, have you costed out going to the $27,000 deductible and what it would cost to defer taxes?

Mr. Joseph Oliver: We have a very preliminary estimate. The first point, I think, is that this is fundamentally a deferral of tax rather than an expenditure.

Ms. Maria Minna: Nonetheless, it costs now; we have to deal with the reality.

Mr. Joseph Oliver: It costs now, but the reality is the future as well as the present. I think that's an important point.

There have been some studies on this. We're aware of a study done by a professor at the University of Waterloo suggesting that the increase would be in the order of $7 million or $8 million a year, which is not, in the broader context, a huge price to pay given what we're doing for employees and employers of small businesses.

I don't think we're talking here about pushing out big social programs. We're talking about helping people rely on themselves in their retirement.

The Chair: Thank you very much.

Mr. Brison.

¹ (1500)

Mr. Scott Brison: I have a couple of points. One is that in the comparison between the capital gains tax rate in the U.S. and the rate in Canada, it's important to consider the effect of capital gains tax in Canada because of the inclusion rate. It is contingent on the tax bracket. We hit our top marginal tax rates in Canada at about $100,000 Canadian. In the U.S. an American doesn't hit the top marginal tax rate until, I think, around $350,000 Canadian. That and the rate at which we tax those income earners are significantly different, so the effective capital gains tax rate in Canada is significantly higher than in the U.S. The effective capital gains tax here is--trust me, Gary--higher than in the U.S.

First of all, I wanted to particularly thank the witnesses representing the ALS Society. There was a very compelling argument in favour of better provisions for compassionate leave.

One proposal I was apprised of recently is the notion of making the EI system more reflective of the needs people face in their lives and updating it significantly from a program that really hasn't changed in a long time. Currently, if one pays into EI and never or rarely draws, the money just disappears--it doesn't just disappear, it goes in general revenue and is spent in other areas--and there's really no reward within the EI system for those people who don't draw from EI frequently. If you're a seasonal worker, you draw every winter and you're really not penalized for that, but if you pay into it over your lifetime and never draw, you don't receive any benefit. A lot of Canadians find that very unfair.

How would you feel about a system where, after 10 years of paying into the EI system, you start getting a statement every year that tells you your EI account balance is what-have-you? You could call it a personal security account, if you will. It would be usable for a Canadian if, for instance, a spouse or family member became ill or if one wanted to withdraw money to upgrade one's skills to go from being underemployed to being more fully employed. Or ultimately, if you never drew from it, you could roll it into your RRSP upon retirement. This would again help ensure for the future security of Canadians as we face this demographic bubble issue that is coming up, when people like Mr. Pillitteri retire and I'm still working--just joking, Gary.

How would you feel about that kind of system, one that would effectively be an EI system that would work for people who work but would also protect you against other unforeseen circumstances, not just losing one's job but also potentially losing one's health, and would offer greater flexibility in that regard? I'm interested in the idea, so I'm trying to consider it from various perspectives.

Ms. Susan Walker: I think we would support any notion that would actually provide more efficiently for people. I'm not sure whether you could tell right now without doing some extensive research what the implications of the proposals are, but again, it does sound plausible.

Ms. Teresa Riverso: I think that the issue here is really to give people the opportunity to take advantage of any sort of program that would allow them to stay home to look after someone with a terminal illness. Whether it's under EI or whether it's under a different category such as compassionate leave I think is almost irrelevant. It just needs to be recognized as an issue that needs to be addressed.

We also have to take into account people who are self-employed, myself for example. Where do I go to draw that EI? What other implications are there because of developing that sort of system? What happens if I as an employed individual do become unemployed and I've used up all those benefits I had under EI for compassionate leave, training, or whatever else?

We have to look at all of those kinds of issues. It's obviously something that, at first glance, has some merit to it.

¹ (1505)

Mr. Ian Russell (Senior Vice-President, Industry Relations and Representation, Investment Dealers Association of Canada): I think that's a very interesting suggestion. You can almost build on that to turn that into a market, a generated kind of benefit where you would have organizations such as ALS that would be credited with being able to use EI moneys. You would have, as you say, individual Canadians who have those moneys.

Many of us who are better off don't expect to be able to use it or feel we'll probably never see it again, which we won't. But if you had that discretion where you could earmark that money for worthy causes... In a sense, it's being driven by individual Canadians to benefit worthy causes, and government stays out of it. I think you can think of that as probably having some merit.

Mr. Scott Brison: Madam Chair, perhaps you can indulge me for one moment.

The genesis of that idea comes from my interaction both with constituents and with people I've met through this committee and across the country who are frustrated with the current system that they pay into for their entire lives and never see anything coming out of it. It is also consistent with the notion of individual accountability, because at the end of the day, if one has the good fortune not to have to draw from it earlier, it does provide some ability to roll an amount over into an RRSP later on, whether it is personal securities accounts, which can help in terms of health care or unforeseen circumstances that arise, or again, upgrading one's skills, which is consistent with life-long learning, which is a fact of life today.

Thank you very much for your indulgence.

The Chair: Mr. Pillitteri, did you have something you wanted to say?

Mr. Gary Pillitteri: Yes, Madam Chair.

When I talked about the capital gains and paying the 50%, you'll find that almost all Canadians who have investments outside of Canada will choose the capital gains for the simple reason that it does not affect any one of us in this room. It doesn't even affect 1% over the $280,000 number.

Realistically, when you say there's $27,000 on the RRSPs, yes, that would be comparable to the number of individuals whose share is covered by the company pensions and so on. That's the equivalent of the $27,000. Actually it's supposed to go up to $15,000 and later on up to $18,000.

Ms. Maria Minna: I would like to make a comment on Mr. Wilfert's comment.

The Chair: Okay, very quickly.

Ms. Maria Minna: Mr. Brison has brought this issue up. I really have to comment on the EI because I think we're going into a fool's game, with respect.

The EI is a collective risk thing. When you start parcelling it out to individuals--I can collect my little loot, thank you very much, and so on and so forth--what happens to provinces or populations that have less? There are certain workers who contribute more and others who contribute less and draw more. Construction tends to draw more. Areas where there's high unemployment as a result of seasonal work tend to draw more or pay less.

The kind of scheme we're suggesting for ALS would not work in this situation because basically what you're saying is this. If I happen not to have been unemployed for 10 years, I'll take my little pot and put it into my RRSP. This is a collective risk policy. It is not about individual gain. It's about looking after each other across the country regardless, just as we would be looking at your situation.

I think you have to be really careful when you start looking at a collective system to something that then goes back into the pocket of the guy who gave it out. That's a whole deal of difference.

The Chair: Mr. Wilfert.

Mr. Bryon Wilfert: I want to say again, for the record, that I do believe very strongly that continuing to pay off the national debt is extremely important because of the $3 billion plus in interest we save every year and every year after that, which we can use for social programs, in particular, and infrastructure and other things.

We're the only G-7 state paying off the national debt. We don't get enough credit for that, and we should. You can't have everything, but I do think paying off the national debt provides future generations with less of a burden. I think that is important. The aim is to get it down into the 20% range. At the rate we're going, as you know, we'll get there a lot faster as the rates are declining.

The Chair: Thank you very much.

On behalf of all the committee members, thank you for preparing your briefs, those of you who sent them in early, so we could have them translated and distributed to all the members.

As you know, only half of the committee is here in Toronto this week. The other half is at the other end of the country, and some of our colleagues are in the House. But I want to thank you for taking the time to present to us, to answer our questions, and to contribute to this pre-budget discussion. We're trying to meet with as many Canadians as possible, and we appreciate your efforts on our behalf. Thank you very much.

We will suspend for about 10 minutes to change the set-up, and then start with our next panel.

¹ (1505)

¹ (1520)

The Chair: Good afternoon. Welcome. Bienvenue à tous.

The second panel of the afternoon will go until 5:15.

We have, from the Association for the Abolition of Capital Taxes, Satya Poddar, national director, tax policy services, of Ernst & Young, with David Penney, general director, tax, of General Motors of Canada Ltd.; from the Canadian Chamber of Commerce, Michael Murphy, senior vice-president, policy, and Tina Kremmidas, senior economist; from the Canadian Nurses Association, Robert Calnan, president, and Lucille Auffrey, executive director; from the Greater Toronto Home Builders' Association, Sheldon Libfeld, president, and Mark Parsons, member of the executive; and from the Investment Funds Institute of Canada, president and CEO, Thomas Hockin.

I want to welcome Tom as the former member of Parliament for London West. It's always a pleasure to see you, Tom, and John Mountain, who is your vice-president. Thank you very much for joining us today.

And from the Urban Development Institute/Ontario, we have Paul Mondell, president of UDI Canada; and Neil Rodgers, president of UDI Ontario.

Welcome to all of you. Your organizations will each have eight minutes for a presentation. I will put up my pen at the seven-minute mark to try to catch your eye, and if you could wrap up shortly after that, I would appreciate it. Then we'll go into rounds of questioning.

The committee has your briefs already. So you can speak to your brief or use your time as you wish.

We'll start and go in the order of the agenda. From the Association for the Abolition of Capital Taxes, please commence. Mr. Penney, are you making the presentation?

¹ (1525)

Mr. David Penney (General Director, Tax, Association for the Abolition of Capital Taxes): Yes.

The Chair: Go ahead.

Mr. David Penney: Thank you.

Madam Chair and distinguished members of the House of Commons finance committee, we would first like to thank you for giving us the opportunity to make an appearance on these important pre-budget consultations.

As I was introduced, my name is David Penney, and with me is my colleague, Satya Poddar.

The Association for the Abolition of Capital Taxes is a broad group of industry associations and business organizations representing virtually every major Canadian industry sector in the economy, and it speaks for thousands of companies most affected by capital taxes. These organizations share a major concern for the damaging effects that capital taxes are inflicting on the Canadian economy, and they've recently joined their efforts to emphasize the seriousness of this issue.

Put simply, capital taxes are the worst of all taxes we have. They are seriously damaging our economy. They discourage investment; they reduce innovation and productivity growth; they are inequitable; and they hit hardest when companies are at their weakest. There is no dispute among academics, the business community, and governments themselves that capital taxes are bad—a message this committee has heard repeatedly.

While the federal government's phased reduction in the general corporate income tax rate will generally improve Canada's competitiveness, this reduction does not address our fundamental concerns regarding the base and structure of capital taxes.

Capital taxes by their very nature are a tax on capital accumulation. Capital taxes are applied to the amount of money that is invested in a company to purchase land, buildings, or equipment, and to operate the business. This makes them inequitable to the capital-intensive sectors of the economy, such as manufacturing, natural resources, utilities, and financial services. They are also applied to any funds raised to conduct future research and development, negatively impacting high-tech companies.

Imposing capital taxes flies directly in the face of the government's own innovation agenda. The highly capital-intensive manufacturing and resource-based industries that employ significant numbers of Canadians feel the adverse effects of capital taxes the most.

The corporate income tax rate reductions have largely benefited the service sector. There has been no additional tax relief for the manufacturing or resource sectors, despite the fact that these sectors pay a disproportionate amount of the capital tax.

Another bad feature of capital taxes is that they are profit-insensitive. During cyclical downturns and periods of low or negative profitability, capital taxes reduce a company's ability to weather the storm. Companies may need to borrow cash just to meet their tax obligations, even if they are losing money. Since the capital tax is paid regardless of a company's profits, it is highly unfair. The majority of capital taxes are paid by companies in a loss position, hitting them when they are most vulnerable.

Despite these negative features, Canada continues to be an anomaly among industrialized countries by applying a direct tax on investment. The Standing Committee on Finance has recommended the elimination of capital taxes in its past two pre-budget consultation reports. While concerns have been mounting over the negative effects of capital taxes, the federal government has not taken any action to relieve Canadian companies of this major impediment to their competitiveness.

These taxes were introduced at the federal level as deficit reduction measures. The government refrained from providing tax reductions in its 2001 fiscal budget as a result of uncertain fiscal conditions and in order to address security priorities.

With federal surpluses providing greater fiscal flexibility, the government now needs to focus on making our tax system conducive to innovation and economic growth. Linkages between investment and long-term output and job growth are well established.

The direct application of capital taxes on investment discourages risk-taking and innovation. At a time when Canada is challenged with increasing productivity and closing the standard of living gap with the United States, capital taxes are a significant investment barrier that need to be removed if we are to meet the Minister of Finance's objective of becoming the northern tiger.

Many provincial governments have already recognized the detrimental effects of these taxes and are taking a lead role in eliminating them. It is essential that the federal government do the same.

One of the main objectives of the Standing Committee on Finance is to determine how best to assure greater levels of economic growth and prosperity. The chair of the committee has indicated that in order to achieve this it is essential that the debate must take place on a number of fronts, including innovation and productivity, a business environment favourable to economic growth and trade, investment in research and development, and competitive taxation. We strongly believe that the elimination of capital taxes directly addresses each and every one of these priorities.

As a step toward abolishing all capital taxes, we recommend that the federal government eliminate the large corporations tax immediately. We understand the current revenue yield of the LCT is approximately $1.3 billion, less than 1% of total revenues. The loss in revenues from the elimination of the tax could more than offset the revenue gain resulting from its positive impact on the economy.

If the federal government were still concerned about its immediate revenue impact, we would suggest phasing out the capital tax over a two-year or three-year period through a scheduled reduction in the LCT rates. It would send a strong positive message to the business community planning their long-term investments and would contribute significantly to strengthening our long-term growth prospects.

This issue is a top priority for the business community, and the government must take immediate action.

I will now turn to my colleague, Mr. Poddar, and allow him to elaborate more on some of the detrimental impacts of capital tax.

¹ (1530)

Mr. Satya Poddar (National Director, Tax Policy Services, Association for the Abolition of Capital Taxes): Madam Chair, I'm a technocrat, and I'll just use some statistics to elaborate and emphasize a point that Mr. David Penney has made.

Number one, in a study it was found that 55% of capital taxes collected were from companies suffering losses. So these are not profitable companies. These are companies in a loss position, either because they were start-ups, because of cyclical downturn, or otherwise. So the majority of the taxes collected were from loss companies.

Number two: 40% of capital taxes are collected from manufacturing and resource sectors. These are the sectors that don't benefit from the rate reduction that the Minister of Finance announced in the corporate income tax rate, because the rates were capped frozen where they were, but other sectors like the service sector benefit from the rate caps. These are also the sectors that are the most productive sectors of the economy, so the taxes were worse. The more productive you are, the more capital you have, the more tax you pay. So rather than encouraging productivity, you are penalizing productivity.

Third, this tax is equivalent to a sales tax or an excise tax or capital investment. For an asset like pipelines, there is a 5% tax on the purchase of the pipeline. The federal GST that some members on the panel were instrumental in introducing was designed to remove the tax on capital, but through this capital tax we have reintroduced the manufacturers sales tax that the government was trying to get rid of. When the GST was introduced, it was supposed to lead to a 1.4% gain in GDP. Now capital tax may have undone all the benefits you got by removing the federal manufacturers sales tax.

My last point is that according to the finance department's own estimate, it costs $7 lost in output for every dollar of revenue raised. Now, at a 15% tax rate, the $7 loss in output is costing more than a dollar in lost revenues. So when the government says it can't afford to abolish the tax because it would cost us money, it should look at its own numbers. The loss in output would fully offset any gain in revenues through the imposition of the tax.

Thank you.

The Chair: Thank you very much.

From the Canadian Chamber of Commerce, Mr. Murphy. Go ahead, sir.

Mr. Michael Murphy (Senior Vice-President, Policy, Canadian Chamber of Commerce): Thank you, Madam Chair.

With me today is my colleague, Tina Kremmidas, who is senior economist at the Canadian Chamber of Commerce.

Madam Chair, on April 23 this year the chamber was delighted to appear before your committee when it commenced with pre-budget consultations. At that time, on behalf of our members we were pleased to provide you with a copy of our submission entitled “The Challenges Ensuring Competitiveness and Future Economic Prosperity”.

It gives us great pleasure to come before the committee once again to present the views of the Canadian chamber on the priorities the Government of Canada should focus on in its next budget and beyond.

As I'm sure many of you know, because you have chambers in your ridings, the chamber is Canada's largest and most representative business association.

As the Speech from the Throne and Finance Minister Manley's economic and fiscal update highlighted, the government has made significant progress in reducing government debt and lowering taxes since at least the mid-1990s. The dividends from these actions are now being enjoyed.

The lesson to take here is that as government works to ensure an improved fiscal and economic environment, business will respond by increasing employment and spending on machinery and equipment.

As we all know, job growth has been stellar this year, with 427,000 net new positions created in the first nine months of 2002. The temptation now is to become complacent, but there is still more work to be done to unleash the northern tiger.

Federal government net public debt as a share of GDP at 49.1% is still high by historical standards. Moreover, the federal government continues to use significant resources to provide public goods and services. Federal revenues remain at about 16% of GDP, as they were in the mid-1990s.

The federal government must continue on a path of improving efficiency in the delivery of programmed services, cutting taxes and reducing debt, if Canada is to become the northern tiger that the finance minister speaks about, a tiger with the confidence to take on the world and win and become a magnet for talent and investment, as was articulated in the recent economic and fiscal update.

Going forward, we must grow the economy on a long-term sustainable basis and improve the economic welfare and quality of life of all Canadians. While the standard of living of Canadians measured in terms of GDP per capita has improved in recent years, in 2001 it was still roughly 15% below that of our American counterparts.

What we at the Canadian Chamber of Commerce proposed in our submission to the committee in April is a set of strategic policies that have a direct bearing on productivity, spurring economic growth and enabling us to achieve a higher standard of living and quality of life. Smart policies include a competitive tax system; a continued focus on reducing government debt; strategically targeted program spending; domestic and external trade policies geared toward the free movement of goods, services, labour, and capital; regulatory policies that ensure that financial and product markets operate as efficiently as possible; and immigration policies that enhance Canada's chances of attracting individuals with the skills industries will require.

Today I will focus on the role of the government and how it manages fiscal and economic policy. As noted in our submission, our members continue to be mindful of the need for prudent fiscal management. The federal Minister of Finance acknowledged in his economic and fiscal update that sound fiscal management means more than simply avoiding deficits and reducing debt; it also means managing tax dollars well and responsibly, and delivering cost-effective and efficient government services. The Canadian Chamber of Commerce fully agrees.

The minister promised that the government would assess its programs on an ongoing basis, reassess its spending to ensure it best meets the needs of Canadians, and most importantly, realign existing spending and improve efficiency. The Canadian Chamber of Commerce has consistently stressed the need for the federal government to undertake a thorough review of all programs and for it to continue to review all programs on a regular basis, to ensure that program dollars currently in the system are spent as efficiently and as effectively as possible. Each program should include a sunset clause.

It continues to be the view of the members of the chamber that the federal government must direct resources to those areas having a direct bearing on our productivity and competitiveness as a nation, while limiting or cutting spending in areas that do not. Reviewing government programs, setting objectives for program spending, and tracking the results achieved is essential in assuring that the public sector in Canada plays a role in maximizing long-term economic growth.

Our submission further details the chamber's recommendation on how program spending must be controlled by imposing an annual cap. The chamber believes that maintaining the real value of government programs to Canadians requires program spending to grow at a rate of population growth plus inflation, or about 3% per annum. New needs that arise must be accommodated within this budget constraint. Clearly the government has been exceeding this limit in previous years as large budget surpluses have increased the temptation to spend without all of the necessary planning.

We must also make wise choices on the tax front. The Speech from the Throne and the economic update were silent on any commitments to tax reduction beyond the current plan. We need to keep in mind that our tax burden remains too high. In 2001, total government revenues as a share of GDP averaged over 40% in Canada, compared to just over 30% in the United States. High tax burdens on labour and capital are holding back investment, and therefore are threatening Canadians' long-term priorities.

There are several specific tax reforms that should be given very high priority to enhance our productivity. These include the elimination of capital taxes, the most damaging of all taxes for longer-term growth.

I'll stop there as far as capital taxes are concerned because I think you've just had a very good update from the previous speakers. But I would like to take a moment to stress how important it is for the government to continue to focus on a tax that requires immediate attention. It needs to continue to work on lowering employment insurance premiums to manage EI as a true insurance program.

¹ (1535)

We have made specific recommendations pertaining to EI in our proposals. I would stress that it is absolutely imperative for the government to continue to lower the burden on working Canadians and employers by continuing to reduce the EI premiums toward a break-even level.

Based on the average private sector economic and fiscal projections found in last week's update, the government is forecasting a surplus for planning purposes of $3.1 billion next year and $3.5 billion the year after. The chamber also believes we must continue to focus on reducing government debt.

The Canadian Chamber was pleased to hear from the minister that the federal government is reinstating the amounts that had originally been put aside for contingency and economic prudence. The amounts are set aside in the fiscal projections to cushion against unpredictable events. The chamber believes it is important for the government continue to allocate the $3 billion fund to debt reduction, as well as the reserve for economic prudence.

In closing, the Canadian Chamber believes implementing the recommendations I have outlined today would ensure the federal government increasingly plays a positive role in maximizing long-term economic growth. In turn, Canadians would enjoy a higher standard of living in the future. Canada will become more competitive in the international arena, in essence, the place to be both for individuals and businesses.

We must also keep in mind that we are currently facing a number of uncertainties. The finance minister spoke of one last week, and it is the recovery in the United States. I would also like to very briefly add one other significant uncertainty. It is the ratification of the Kyoto protocol that is before us.

The chamber takes climate change very seriously. Many of our members have already taken action to limit greenhouse gas emissions. Under the terms of the Kyoto protocol, however, Canada would be committed to reducing its emissions of carbon dioxide and other greenhouse gases to 6% below 1990 levels between the period of 2008 and 2012 during the first commitment period. However, because of growth in Canada's population, economy, and exports since 1990, our emissions are expected to exceed the target by about 40%. Reducing our emissions by this amount would mean significant short-term reductions in our energy use and severe constraints on our ability to improve the economy and maintain our standard of living.

Rather than ratification of the protocol, the chamber and its members want to see the development, in conjunction with all stakeholders, including provincial governments, industry, and consumers, of a made-in-Canada plan that would combine immediate action with a realistic timeframe to reduce greenhouse gas emissions.

Thank you for your attention, Madam Chair. Again, it's a pleasure to be here.

¹ (1540)

The Chair: Thank you.

We'll now hear from the president of the Canadian Nurses Association.

Go ahead, sir.

Mr. Robert Calnan (President, Canadian Nurses Association): Thank you very much, Madam.

The Canadian Nurses Association appreciates the invitation to participate in this committee's pre-budget consultation.

My name is Rob Calnan. I have three jobs as a registered nurse: I'm the professional practice leader in the emergency department at the Royal Jubilee Hospital; I'm an adjunct professor at the University of Victoria; I am the president of the Canadian Nurses Association.

With me is Madam Lucille Auffrey, who is the executive director of the CNA.

For nurses, as for most Canadians, the sustainability of our health system is a priority concern. It is CNA's contention that the sustainability of the health care system depends on investment in the recruitment and retention of people who work in the system. In the last decade, the health workforce has been cut back and largely forgotten. It is a fact acknowledged by the Kirby commission and the Canadian Nurses Association advisory commission.

To correct this situation, CNA recommends that the government develop a national human resource strategy for the health sector. This strategy will address education issues, workplace and employment issues, as well as the scope of practice, continued education, and training.

CNA believes the federal government must play a significant role in the development of such a strategy. In particular, the federal government must lead in the research and data collection necessary to support the development and evaluation of the strategy.

Specifically, CNA recommendsthat the federal government create an institute of health human resource planning to carry out the tasks. The institute would focus on all occupations working in the health sector. The institute would be jointly funded by federal and provincial governments. It would work closely with the Canadian Institute for Health Information, Canadian Health Services Research Foundation, Canadian Institutes of Health Research, and other key partners. Its work would support all governments, as well as all stakeholders.

Fully 45% of the current nursing workforce will be retiring in the next decade. Action is required to increase enrollment in schools of nursing, enhance opportunities for clinical training experiences, and improve linkages between health, education, and immigration policies.

CNA recommends that the federal government adopt measures in its next budget to assure continuing education support for nurses. We support the recommendations of the Canadian Labour Congress with regard to using employment insurance programs for this purpose.

Demographic and budget cuts in the past decade have meant the loss of leaders in the nursing community. These individuals traditionally provided expertise and support for knowledge transfer, through the integration of research findings into nursing practice and the adoption of new technologies, as well as for policy making in the health and social fields.

Investments are needed to build the capacity of today's nurses to resume these important roles and functions in the health care system. CNA recommends that programs be created to develop and sustain nursing leadership.

With the advances in technology, Canadians are able to leave hospital quicker and sicker. Once out of hospital, they draw on nursing and other services available in the community. Stabilization of their conditions, pain management, and recovery are often dependent on pharmaceutical drugs. A few years ago these patients would have stayed in hospital, and the nursing services and drugs would have been covered by medicare.

Current practice in most of this country excludes from the publicly funded system health services delivered in the community and in the home. Not surprisingly, this creates financial barriers to health for many Canadians.

CNA recommends that the federal government fund the expansion of Canada's publicly funded health care system to include a national home care strategy that has, as its starting point, coverage for post-acute care and acute care replacement; a national pharmacare strategy that has, as its starting point, the provision of coverage for people receiving community-based acute care treatment, as well as those Canadians receiving palliative care, so as to minimize financial hardship; and a national palliative care strategy, including support for Canadians to take compassionate leave without suffering employment penalties or financial hardship.

CNA also recommends that the federal government lead efforts to strengthen the public health system. A strong public health system is increasingly important for Canada. It was the public health system that identified and tracked West Nile virus. It was the public health system that was put on high alert following the September 11 attacks. The public health system monitors and manages many community-based illness prevention programs, including water and sewage treatment systems, immunization initiatives, school health, and health programs for seniors and new mothers.

Finally, CNA recommends that the federal government invest in action to address air pollution and climate change. As the Reverend Theodore Hesburgh has said:

“My base principle is that you don't make decisions based because they are easy; you don't make them because they are cheap; you don't make them because they are popular; you make them because they are right.”

Merci beaucoup for your attention. I will be pleased to discuss our recommendations with you.

¹ (1545)

The Chair: Thank you very much.

Now we'll go to the Greater Toronto Home Builders' Association. The report will be done by Sheldon Libfeld.

Go ahead.

Mr. Sheldon Libfeld (President, Greater Toronto Home Builders' Association): Thank you, Madam Chair.

Good afternoon. My name is Sheldon Libfeld, and I am president of the Greater Toronto Home Builders' Association. With me today is Mr. Mark Parsons of Monarch Construction, a member of our executive; and Mr. Jim Murphy, our director of government relations.

I want to talk about three things in the short time allotted to me this afternoon. One is the state of the housing market and our economic importance; two, the shortage of skilled labour; and three, the need to treat high-cost centres like GTA fairly when it comes to federal tax policy.

This year our industry will sell over 50,000 new homes in the GTA. That is one quarter of the national total and over 60% here in Ontario. According to CMHC, each new home or condominium generates 1.8 jobs. This means our industry will support 150,000 person-years of employment. This economic contribution will continue into next year.

Recently GTHBA produced a document entitled Powerhouse, copies of which will be distributed to you. These are some of the statistics in it. It is estimated that new home buyers spend $10,000 in the first year on furnishings and on landscaping. New home building in GTA contributes $9.2 billion to the national economy. The new home building industry in Canada contributes over $1 billion in GST to the federal government annually--nearly $400,000 in the GTA alone. New home ownership rates are rising quickly and are expected to reach near to 66% in Toronto, CMA, by 2004--an increase of 5 percentage points since 1996.

Chairman, the housing industry in many ways is keeping national, provincial, and regional economies healthy. We generate jobs and taxes for governments at all levels. Together we must ensure the industry remains strong by treating high-cost centres such as GTA fairly in tax policy and by addressing the skilled labour shortage.

Let me talk about skilled labour shortages. Our industry is healthy, and for the overall good of our economy we'd like to keep it that way. Yet we have a severe shortage of skilled trades. We're active in training initiatives, having produced a video and having spoken at high school career days. Yet this will not solve the problem of our rapidly aging workforce in residential construction.

Last year GTHBA and the federal government through HRDC and CIC established CREWS, construction recruitment for external worker services. This program will allow up to 500 people to enter GTA on temporary work permits in the construction industry over two years. I am glad to say that this program is working. We have over 200 applications in process and we are approaching nearly 100 individuals who have actually arrived in Canada and are working. We thank the federal government for its support of this initiative.

GTHBA has also recently forwarded to the Minister of Citizenship and Immigration a proposal that would build on the CREWS model but deals with the issue of illegal workers in the construction workforce. We're proposing that illegal workers be able to apply for temporary foreign work permits inland--here in Canada. These workers would not jump the line or become Canadian citizens. Rather, they would surface and become taxpaying individuals with temporary work permits. We've enclosed a copy of this proposal for your review and consideration.

Now I will turn to Mr. Parsons to talk about GST.

¹ (1550)

Mr. Mark Parsons (Member of the Executive, Greater Toronto Home Builders' Association): Thank you, Sheldon.

Since 1991, when the GST was introduced on new homes, there has been a 3.5% rebate for homes priced below $350,000. This rebate was introduced to provide revenue neutrality with the old federal sales tax, but did not tax either land or labour. From $350,000 to $450,000 the rebate is clawed back and for new homes priced above $450,000 there is no GST rebate. GST is charged at a full 7%.

Since 1991, however, housing costs, specifically land and labour costs, have risen more in the GTA and in the lower mainland of B.C. than they have elsewhere in Canada. My company builds not only in Toronto and around southern Ontario but also in Ottawa, where there have been large increases in new home prices. The rebate threshold and the clawback provision have stayed the same since 1991, yet the consumer price index has increased over 16%, and even the new housing price index has increased over 12% in Ontario, with further increases to come this year.

The average price of a single family home in Ottawa, for example, today is $368,000. This morning I sold a house to a purchaser in Ottawa for $391,400. He paid $19,240 in GST, and this tax will increase dramatically if he adds any extras or upgrades. The incremental tax rate he will pay will be just below 15% because the increasing rate of GST is based on the entire sale price of the house and not just the difference between $350,000 and whatever the final sale price is.

The people buying these homes are not extremely wealthy; they are average Canadian families with both parents working making a combined income of around $87,000.

This does not tell the entire story, however. In large urban centres such as Toronto, Calgary, Ottawa, and Vancouver higher material and labour costs coupled with ever-increasing regional and municipal levies have forced prices higher; approximately 25% of the average cost of a new home is made up of taxation.

In addition, there is an extremely restricted land supply and a very tight market. The lots are getting smaller, houses are shrinking in size, and prices are increasing. The only thing keeping house prices affordable is increased competition and low interest rates, and we all know what a 2% or 3% increase in interest rates can do.

Leaving the clawback provision penalizes Canadians living in our largest urban centres. In the upper segments of the market it encourages people to buy resale, where no GST exists. The playing field favours resale homes, which do not generate anywhere near the jobs, taxes, and productivity that the new home industry creates.

The new home construction industry is this country's main economic engine. As Sheldon pointed out, it generates $9.2 billion to the Canadian economy and over $1 billion in federal tax. By adjusting the GST thresholds you will continue to make owning a new home a reality for thousands of Canadians.

GTHBA has been working with the federal finance department to review the 1991 threshold levels and get them adjusted to reflect inflation and higher costs. We have included a report by Clayton Research that we had completed last year, and it provides a complete and thorough review of this issue. We are currently undertaking further work to answer questions raised by Minister Manley and his department. When that research is done, we will also table the report to you.

We ask for your support in adjusting the rebate thresholds on new homes to maintain a healthy new home building industry and make new home ownership a reality for the average Canadian family.

¹ (1555)

The Chair: Thank you very much.

Now we'll go to Thomas Hockin, from the Investment Funds Institute of Canada.

Please commence.

Mr. Thomas Hockin (President and Chief Executive Officer, Investment Funds Institute of Canada): Thank you, Madam Chair.

Let me add my congratulations to you, the chair of this very strategic committee of the House of Commons.

The Chair: Thank you.

Mr. Thomas Hockin: I must say it's a lot easier advocating a course of action to the honourable member from London West than being the London West member listening to it all.

I would like to first of all tell you that this is the 40th anniversary of the Investment Funds Institute of Canada. What are we? We represent the mutual funds industry of Canada, the distribution of and managing of mutual funds, which now is a huge industry in Canada.

Once when I was sitting with you members of Parliament I think the industry was $20 billion, and it's now $400 billion. It's grown because it's a middle-income product: it's middle-income families who use mutual funds. Wealthy Canadians don't use mutual funds; they generally buy more exotic things, which Scott Brison can tell you all about, probably.

The mutual fund industry has been the average Canadian family's route through their RRSPs, and they've seen a tremendous collapse in market value because of the stock markets, as you know. We've had the high-tech bubble, the international security concerns, we have had well-publicized allegations of corporate malfeasance, and all of this has challenged the confidence of investors.

But even with this, the industry remains quite huge. We've only had about 2% redemptions overall. That being the case, that new money is not coming in, which worries me about the ability of Canadians--five years from now, ten years from now, even two years from now--to not be wards of the state, not to depend on OAS or GIS.

What the RRSP system is about is to make sure that people can look after themselves when they retire, and there are some very new realities here.

First of all, as the IDAC said earlier, the RRSP limits have not been raised for many years, even though the economy has improved and the federal government's fiscal framework has improved. That's the first change.

The second change is that this industry is Canadian-owned: 85% or 88%, I forget which, is owned by Canadians and has Canadian managers. This is an industry you should care about, because it's the middle-income families' retirement source.

Also, the world context has changed. The limits now for people to get tax-assisted savings for their retirement is much higher in most OECD countries than it is here. As you've heard before, it can be an enticement for people to move to Ireland, England, the United States, and other jurisdictions because they will have higher limits for saving for their retirement.

Therefore, what we have suggested in order to catch up and to reflect these new realities is to raise the current contribution level from 18% of $75,000 of earned income to 36% of $75,000 of earned income. This would help equally, in terms of percentage, people in all income levels up to $75,000, and it would provide Canadian workers at all income levels with more flexibility to plan for their retirement.

For example, many Canadians put off contributing to their RRSP until their children's education has been completed and their mortgage has been paid off. It's true that they have a carry-forward, but they haven't had that investment. Often they can't start making investments until they're 40 or 45 years of age.

It would bring the RRSP system closer to what MPs' pensions and public servants' pensions are. It would bring Canada in line with other countries that are competing with us, as I've said, for skilled talent. For example, the contribution limit in the United States is close to $80,000 tax-assisted. In Britain it's about the same.

Now, our hope is that you'll see that this is a new issue--it's not the same old issue--and that times have changed and something has to be done.

Our second request to the committee has to do with a couple of technical provisions of the Income Tax Act. Without getting into all these details, I'm going to ask John Mountain, who is our vice-president of regulation, to go through these issues, which are too complex for me but not too complex for you.

John.

º (1600)

Mr. John Mountain (Vice-President, Investment Funds Institute of Canada): Thank you very much.

The two issues I'd like to spend a couple of minutes talking about are the foreign investment entity rules and the suspended loss rules of the Income Tax Act.

First, let's look at the foreign investment entity rules. Ever since the 1999 federal budget, the Department of Finance has been looking for a way to ensure that there would be no undue tax advantage for Canadians investing in non-resident trusts and foreign investment entities. Last month, on October 11, the latest revisions to these rules were presented to Parliament in the form of a notice of ways and means motion. We're grateful for the changes based on industry comments that have been adopted. However, I brought a copy of the notice of ways and means motion with me, and as you can see, it's very, very thick.

We remain very concerned about these proposals for three reasons. The complexity of the rules will introduce significant cost of compliance. It will create real risk that people, well-intentioned people, will go outside the rules because of their complexity. Our third concern is that the Canada Customs and Revenue Agency will have incredible difficulty applying the rules.

In short, these rules are still drafted in such a way that it will be difficult for an investor to determine in advance whether or not their investments are going to be taxed as capital or as income. In the case of a foreign investment entity, where an investor is investing substantially all his assets in equity securities with a view to long-term capital appreciation, it does not seem fair to us that the increase in value be taxed annually and at full income tax rates.

Second, there are the suspended loss rules. A common mechanism used by fund managers in order to allow for proper diversification is the rebalancing of assets within the portfolio. This is not done for tax reasons but to ensure that the investment remains within the prescribed allocation targets.

Gains and losses are realized on a regular, often daily, basis. Often investment managers, for these reasons, have no choice but to buy and sell the same securities over and over again. This is particularly true in the case of indexed funds and fund-to-fund structures.

The anomaly we now face is that under the rebalancing scenario, a repurchase of the same asset within a 30-day period will trigger uneven treatment. On one hand, any losses recognized by the mutual fund under this scenario will be frozen indefinitely. In contrast, any realized capital gains would be recognized immediately. This is completely unfair to investors in these funds.

In conclusion, we would be grateful to the committee if, in addition to considering our request for raising the current contribution limits for RRSPs, you could bear in mind the investment rules we have touched upon the next time technical amendments to the Income Tax Act come before the committee.

Thank you for your attention. We look forward to answering any questions you may have.

º (1605)

The Chair: Thank you very much.

Our final presenter this afternoon is from the Urban Development Institute, UDI Canada.

Mr. Mondell, go ahead.

Mr. Paul Mondell (President, UDI Canada, Urban Development Institute/Ontario): Good afternoon, Madam Chair and members of the committee. Thank you for the invitation to appear before you this afternoon.

The development and construction industry plays a vital role in the economy of our country. Development and construction activity in Canada accounts for almost 7% of the nation's GDP, or $44 billion. These industries account for hundreds of thousands of jobs, both direct and indirect. As development and construction tends to be highly visible, increased levels of activity contribute greatly towards improving public confidence in the economy.

UDI appreciates the opportunity to appear before this committee, especially at a time when the federal government is in the midst of considering its participation in Canada's urban agenda and defining its implementation strategy for competitive cities and healthy communities as highlighted in the recent Speech from the Throne. These pronouncements have offered renewed optimism to our industry and municipal leaders across the country that the federal government recognizes the importance of strong city regions to the economy and Canadians' quality of life.

UDI is joined by municipalities, community groups, leading economists, and business leaders in saying the choice is clear: Investing strategically in cities is timely, or we are going to have to face the consequences.

UDI wishes to express its strong support for the vision and values expressed in “Canada's Urban Strategy: A Vision for the 21st Century”, which was the interim report of the Prime Minister's caucus task force on urban issues. We concur with the overriding conclusions of the task force that there is a real need for coordination, collaboration, and commitment to a new approach to Canada's urban regions.

Urban regions are the economic catalysts of the country, accounting for almost 50% of the country's GDP. Therefore competitive cities and healthy communities are vital to our individual well-being and to Canada's ability to attract talent, innovation, and investment. For this reason, cities deserve appropriate federal investment and legislative and regulatory treatment to permit them to be sustainable. Critical to this agenda and sustainability is a modern infrastructure and a healthy supply of adequate rental housing.

UDI is supportive of the commitment to these issues in the recent throne speech. In particular, we applaud the announcement that the government will put in place a 10-year program for infrastructure to accommodate long-term strategic initiatives essential to competitiveness and sustainable growth that will help reduce congestion in our cities and gridlock on our trade corridors. These issues have been the cornerstones of UDI Canada's discussions with the political leadership at all levels of government.

The throne speech also outlined the government's vision for a better Canada, and while many of the goals are important, UDI encourages the federal government to stay the course with prudent fiscal planning, debt reduction, and a balanced budget. Many of the measures will undoubtedly challenge the government to determine spending priorities. UDI urges that the budget address the urban agenda, specifically with respect to rental housing, transit, and transportation infrastructure.

Minister Manley has stated before this committee that the government's challenge is to “invest in our nation's infrastructure, building for ourselves and our children competitive cities and healthy, safe communities”. We concur with the minister and underscore that the time is now and the need is urgent.

In his remarks to the committee, the minister also sought your input on how the government can best realign its spending to meet the highest priority of Canadians. Our input into this question is that our cities need your attention and that targeting infrastructure and housing is imperative. Government, with private sector partners, can achieve these objectives of responding to the needs of the cities while remaining fiscally responsible. We believe these strategic investments will produce long-term economic dividends to the federal government for years to come.

The economic analysis with respect to rental housing issues carried out by the industry shows that if the federal government makes our suggested changes in policy, we will all be winners. There will be more rental housing construction; Canadians will be adequately housed; and government will receive revenues in excess of what they receive today from this sector. We are of the opinion that our recommendations are reasonable, fiscally prudent, socially responsible, timely, and in the best interests of all Canadians.

We would like to focus our remarks on two specific issues that are of interest to our members and should be addressed through the 2003 federal budget. The first issue is developing a national rental housing strategy.

There is a strong correlation between a vibrant economy, a strong quality of life, and the need for adequate supply of rental housing in our country's major urban centres. While the lack of supply of new rental housing in many of our urban regions stems from a simple economic truth, that investment in this kind of construction has not been economically viable, fundamental conditions in the marketplace such as low liquidity and turnover of rental assets and low rates of return on capital investments are contributing factors.

Yet one of the biggest factors is the regulatory tax system, particularly at the federal level. This system has seriously reduced investor confidence and acted as a disincentive to the production of increasing affordable housing supply. We've highlighted on page five of our presentation a chart that shows the production of rental housing from 1970 to 1999. When in the early 1970s the federal government announced significant tax changes, you can see what it did to the lack of rental supply. The unintended consequence of this, Madam Chair, was to stop the construction of rental housing in this country.

UDI has called upon provincial and municipal governments to review further changes to property tax assessment, land use planning, and regulatory issues, and to consider allowing municipalities to offer fiscal incentives to builders for purpose-built rental housing, such as PST rebates on construction materials.

A comprehensive approach from all levels of government is now required to remove barriers created through various legislative, regulatory, and financial obstacles. The provincial housing ministers, at their last federal-provincial housing conference, echoed these opinions for a long-term solution.

Madam Chair, enough studies have been done. The issues are defined and clear. It is time to act. Studies commissioned demonstrate that changes to the federal tax regime governing rental housing would make the construction of rental housing more feasible, and would likely do so without significant economic impact upon the government's revenues.

While both federal and provincial levels of government have taken a number of steps to remove barriers to rental housing investment in recent years, additional measures are urgently needed to restore fundamental health to the rental housing market.

To stimulate the construction of rental housing, UDI recommends that the following measures be incorporated as part of your upcoming federal budget: an increase in the capital cost allowance to 5% for new rental housing; a full rebate of GST on new rental housing; the restoration of soft costs deductibility up to $5,000 for new rental housing; deferral of capital gains taxes and recapture of CCA upon sale of property and reinvestment in new rental housing; and finally the elimination of the capital tax on rental housing.

We recommend these changes be considered as a package. Cost-benefit analysis suggests that the first three measures alone could yield net revenues to the federal government that more than cover tax revenue losses due to these changes.

Production of 6,000 or more new units attributable to the introduction of these measures fully covers the costs incurred by making these changes. Construction levels above these levels generate a net gain to federal revenue. Madam Chair, the CMHCs numbers recommend a production of 45,000 new housing units a year across this country.

º (1610)

In addition to these recommendations, financing options for new rental housing need to be improved. The development industry has been particularly concerned with CMHC's mortgage insurance premiums structure and related underwriting practices. As a result of comments made during the last pre-budget consultation, CMHC responded to criticism of its mortgage insurance underwriting criteria and fees that were made last March. However, more is required if CMHC is to become an effective partner. I'm not going to go through them, for time reasons, Madam Chair, but they're outlined in our presentation.

The other issue I'd like to very quickly go over is the need for federal investment in urban transit. Transportation infrastructure is a key component of economic competition as well as the quality of life.

Madam Chair, I'm going to stop there and just ask that this committee recommend that the infrastructure needs of this country are urgent. If we are going to deal with environmental and economic factors, we have to look at other countries in the G-8 and how they are dealing with investment of this nature and get onboard with them.

I'm going to jump to the end and thank you for your time.

º (1615)

The Chair: Thank you very much.

I just want to verify that there are three different presentations you've put before us today.

Mr. Paul Mondell: That's right.

The Chair: Mr. Brison, start with ten minutes, please.

Mr. Scott Brison: Thank you, Madam Chair.

Thank you to each of our witnesses today for your presentations.

It's great to see you here, Mr. Hockin, and have your presentation, but I'm not quite sure what you meant when you referred to my understanding of complex cities and financial markets. I'm just a poor country politician from Nova Scotia.

Firstly, on the capital tax issue, I couldn't agree more with the decision that if we're ever going to turn Canada from being a northern kitten into a real northern tiger, the first thing we have to do is eliminate capital taxes. They don't draw an awful lot of money--that's one of the points you made--and what it takes out of the economy is of far more cost to the economic well-being of the country than the actual revenue gained from those capital taxes.

I would also argue, moving further on capital gains taxes, that we did not have capital gains taxes before 1971. Of course they were brought in to replace the inheritance tax. I'm not suggesting bringing back the inheritance tax, but eliminating the inheritance tax and replacing it with capital gains tax made Canada a great place to die, but not a great place to live. So I think we have to take a look at the capital gains tax as well and stop this sort of incremental approach to tax reform. We need tax reform in Canada that is substantive and significant and is focused to putting us ahead of the U.S., not just trying to keep up on a year-to-year basis.

On Kyoto, Mr. Murphy, I wanted to ask you whether the Canadian Chamber of Commerce would be supportive of the Canadian government working with and negotiating with the U.S. on a North American approach to greenhouse gas emissions, and in lockstep with that, a North American approach to energy policy. The previous government, of which Mr. Hockin was a member, not only was successful in negotiating a free trade agreement, but also an agreement on an acid raid treaty at that time. Particularly given the degree to which the U.S. would like to be less isolationist on a global level, I think they would be receptive to working with Canada in a North American context. I would appreciate your feedback on that kind of approach instead of blind ratification of Kyoto.

Mr. Michael Murphy: Thank you, Madam Chair.

I would start out my answer by saying simply that I think one of the real challenges with the Kyoto protocol is precisely the point that's been raised in the question here with respect to the non-participation, not only of the United States but all the countries in the NAFTA. I think from the standpoint of moving forward and doing what we call and our partners in our coalition call a made-in-Canada approach here, one of the founding blocks of that would have to be discussions with the United States, and specifically looking at it from a competitive standpoint for Canadian industry. I think that's one of the key challenges here: that we have an agreement today that does not factor that in.

You've got to start with the fact that you have key challenges to be met by Canadian industry, and in negotiating a program of emission reductions for Canada, which would be part of a made-in-Canada approach, you obviously want to factor in our relationship in terms of what industries are particularly vulnerable to competition from a U.S. standpoint. I think that is absolutely clear.

On the broader question of whether or not we want to engage with the Americans on the broader issues associated with energy, or on the environment, for that matter, we are doing a number of things today as a country on a variety of aspects of environmental management on a cross-border basis. I think Environment Canada has addressed that quite eloquently in terms of dealing with smog across the border, and ozone, etc. From that standpoint, I think a lot can be done there.

We're partners in an economic arrangement in the country—Canada, with the United States and Mexico—that provides for the opportunity to engage in a number of these areas. The idea that we're somehow going to move forward without being in lockstep with the U.S. in terms of being able to work with them to get the best arrangements for Canada...I think that has to be an absolute part of the priority here.

º (1620)

Mr. Scott Brison: Another point is that it's a fallacy to assume the U.S. isn't doing anything on greenhouse gas emissions. In terms of EPA requirements, California has the most rigorous standards of any state or any jurisdiction in North America, and all U.S. states are moving in that direction.

On the RSP limit or on RSP issues in a general sense, I'd like to suggest something relative to the elimination of the foreign content rule with RSPs, or eliminating the foreign content provision. With the massive infusion of investment of the CPP fund in the Canadian capital markets, doesn't that provide an opportunity for the Canadian government to eliminate the foreign content provision? Some arguments have been made in the past that eliminating the foreign content provision would lead to an outflow of capital from Canada that could be damaging to the Canadian capital markets. Would the infusion of capital into the capital markets that will come from the CPP fund over the next period of time provide an opportunity for the Canadian government to eliminate that foreign content limit now?

Mr. Thomas Hockin: I'm very grateful to the present government for raising the foreign content level from 20% to 30%. It was a very important move.

My industry is now producing what are called clone funds, which mimic U.S. returns. This has meant that we're not constantly knocking on your door asking for the limit to be raised. But the problem with the clone funds is that they cost an extra 0.5% or more to manufacture. Therefore, if you didn't have a foreign content rule at all, you could buy these securities directly and save the investor a lot of money. So, frankly, the problem with clone funds is that they cost the investor an extra half-point and it's totally wasted. It would be better just to do away with it.

My experience—and I'm just back from a global meeting on this—is that Canada is like South Africa, Malaysia, and Chile in its foreign content rule. Most other OECD countries are much more open. We shouldn't be in that company. We should be open.

Generally, when they did away with the foreign content rule in Great Britain, the British didn't run off to buy 90% of their securities outside of Britain. They bought about 30% to 35% outside of Britain, because there's an exchange rate risk if you have too much investment outside your own currency. If we did away with the rule, then, we wouldn't see some stampede to the buying of American securities or European securities. We'd probably see the same levels we have now, and maybe a little bit more. It wouldn't affect the dollar and it wouldn't affect RSPs at all, because the whole registered retirement investment every day in Canada is only about one-fifth or one-sixth of the money that goes in and out of Canada every day. The RSP story doesn't affect our level of our currency or interest rates at all. I had that discussion with Minister Martin a couple of years ago, and we produced a study with the Conference Board to make that point.

So we'd like to see this dropped so that Canadians can get the diversification internationally that they need without having to pay this extra 0.5% to 0.75%.

º (1625)

Mr. Scott Brison: There's one point I didn't hear as part of your argument. Maybe I missed it, but part of the argument for increasing the RRSP limit is the anomaly that now exists because of the changes in the tax brackets. The increase of the top tax bracket to around $100,000 created a further reason why there ought to be an increase in the RRSP limit.

One point that you made that I hadn't heard before—and I think it strengthens the argument considerably—is the fact that as they're trying to buy houses and perhaps raise children, people do not have the opportunity to contribute early in their careers, so there's a lot of catch-up going on later on. I hadn't heard that argument before, but it makes a great deal of sense.

I have one question for the Urban Development Institute. Have you considered the merits of potentially tax-advantaged municipal bonds for municipalities like Toronto, for instance? I'm just curious as to whether or not you've looked at that as one of the alternatives to address funding issues for cities and, in fact, other municipalities.

Mr. Paul Mondell: I think those discussions are ongoing. I know the province is certainly looking at those issues right now in Ontario, for sure. There are certainly opportunities that municipalities are looking at. They tend to be focused more on the affordable end of the spectrum, where we are certainly advocating that we need to create an environment that encourages development at all levels.

Municipalities are certainly looking at what kinds of incentive packages they can do, I think, but they're looking at some restrictions on rent levels and things like that. While there certainly is a role for that, it is just one segment of the marketplace.

Mr. Scott Brison: When you're talking about urban issues in a general sense, and about the funding of cities and the funding of municipalities, with the pullback of the federal government and the pullback by provincial governments as a result of that, municipalities have faced a real funding crunch. That's what I'm talking about in terms of the funding of municipal units and providing another vehicle through which municipal units can raise money. I'm interested in your views on that idea.

The Chair: I'll ask Mr. Rodgers to answer, and that will end this round.

Mr. Scott Brison: Thank you very much, Madam Chair.

Mr. Neil H. Rodgers (President, UDI Canada, Urban Development Institute/Ontario): At the end of the day, bonds really do only represent a redistribution of the existing tax base. No new taxes are being created, and that's the challenge we have to face.

In the current proposal by the Province of Ontario on the tax incentive zones, in order for the investor to come in, it requires the full hit, which would be the combination of the federal government participating, too, and offering what it can into the program. Without the federal government's participation, I don't think you'll see the investment community involved. It's attractive to them, but certainly for the private investor, the homeowner, the average guy in the street, it won't be attractive enough to them. We may be all dressed up with nowhere to go.

The Chair: Thank you.

We'll go to Mr. Wilfert, for ten minutes.

Mr. Bryon Wilfert: Thank you, Madam Chair.

I thank everyone for coming today.

Mr. Hockin, I can fully appreciate your comments at the beginning. As a former president of the Federation of Canadian Municipalities, I can say it was a lot easier for me to lobby the government then than it is as the Parliamentary Secretary to the Minister of Finance, having to suggest that maybe we can't accept everything we hear.

Having said that, we have to obviously maintain fiscal prudence. We have to make strategic investments as a government. At the same time, we have to continue to move on debt and taxes. I would point out that, on the issue of taxation, corporate taxes as a share in 1990 were only 57% of what they were in the 1960s, but our personal income taxes had gone up 55% in the same time period. So we obviously still have work to do on the issue of personal taxes.

I was going to go to the Chamber of Commerce first, but my friend Mr. Brison has annoyed me, so I'm going to go into that immediately. He suggested that the federal government retreat from the urban agenda. In fact, we have been extremely proactive, because when it comes to the national infrastructure program, which lay dormant—no offence to Mr. Hockin—from 1983 until 1993, this government embraced it. Moving forward, the federal government has now indicated a 10-year program, plus the strategic infrastructure fund. I think that has been very important. Had we done it in 1983, we would have been $17 billion in debt for infrastructure, instead of $44 billion like we are today, and we probably would be in a lot better shape.

However, UDI, you talked about long-term funding. As you know, the Prime Minister's task force, which I'm on, recommended a national housing strategy, a transportation strategy, and an infrastructure strategy. My problem is—and I hate repeating this—that we're not an ATM machine. Some of the provincial and municipal governments—on which many of my colleagues and I have friends—think we are. My concern is that the provinces are not doing their fair share. They use the expression “We got jerked around” in Ontario with regard to the infrastructure program. I'm very unhappy with the province on that one.

On housing, we put our money on the table, but they turn around and don't want to put money on the table, they want to do in-kind services and will get the municipalities to do their thing.

On transportation, they say they funded 75% of capital costs for transit, then they went to zero, and then they came back to 33% and are supposed to look like white knights. That doesn't impress me.

We then have municipalities like mine, which have had no tax increases for 12 years. Now they're coming to me and are asking what they can do, instead of having put 1% away for a rainy day, which is what I argued for years.

However, I endorse your proposals generally, and I do believe the federal government has a very important role in cities, notwithstanding the constitutional niceties of the 19th century that have no bearing on the reality of today.

To the Toronto Home Builders, I absolutely agree with you on the skilled worker shortage, and I was pleased with your comments with regard to HRDC and Immigration. We should move on that on the inland regularization process.

The GST issue is an ongoing discussion, as you know, particularly because it benefits the GTA and the Vancouver urban area. That's an $81-million price tag, and something we'll have to look at in terms of its impact. Although we're again dovetailing on the issue of rental housing on the GST rebates, what are our provincial friends doing? It has to be lock-step.

I'll invite any comments on these.

To the nursing association, I absolutely agree on investment in health care, but we have to establish what kind of health care system we want before we talk about funding it. Although the minister has indicated that he is going to jump off the Peace Tower—I offered him a parachute in case he needed it, but apparently not—we are not going to raise taxes. We're in the business of cutting taxes, not raising taxes. If money is going to be applied, we're going to have to look strategically at more accountability and transparency since we don't run the system, the provinces do.

When we talk about pharmacare and home care, I'd love to have it, but I don't know whether we can afford it, although when I look at the United States and see that 44 million Americans have no form of health coverage, that is a concern.

And to the Chamber of Commerce, you won't find a stronger person on debt reduction than me. On debt reduction, we save $3 billion a year in interest. We can use that for social programs, etc. However, I would disagree with you. The Speech from the Throne was not silent on taxes. In fact, we are going to continue in that regard, obviously, depending on our fiscal resources. I do believe we are going to move in that direction and again move on debt, which I think helps all Canadians.

On the issue of Kyoto, I disagree, but that's okay. There are 41 states that are moving rapidly on carbon dioxide reductions. I think even Mr. Brison spoke about California as a good example.

And the one area that we didn't talk about—and I'd love to talk to you about it at some point, but not here—is the obscene level of foreign ownership in Canada. I don't mean foreign investment—I'm all for that—but foreign ownership, which is robbing future generations of our birthright and probably our citizenship.

As for the Association for the Abolition of Capital Taxes, we're moving in the right direction. I am a bit concerned about the investment funds, and I'd like to get more information on that subject. I'd really like to talk to you a little bit about the Department of Finance. If they're not responding, then it's my job to bring it to the minister's attention, and we'll kick a little butt there.

Are there any comments?

º (1635)

The Chair: We'll start with Mr. Mondell.

Mr. Paul Mondell: Thank you, Madam Chair.

I would suggest that I'm equally frustrated with the response sometimes out of the provincial government. There's too much buck-passing and finger-pointing, and it causes a great deal of frustration.

The point I want to make, though, is that we are not here, on the housing side, advocating one cent of federal money. We are asking for some changes. I would like to go to that meeting when you go to the federal finance department. We've been there and we've been very frustrated in the responses. We feel very strongly, looking at what federal tax policy has done over the years to the creation of new rental housing, that if we go back to an environment that supports its construction, the private sector will build it without government dollars at any level; that is, we need a coordinated response.

On infrastructure, we're asking for strategic investments that will pay dividends. I'm sure my friend beside me from General Motors will agree what the cost of congestion is to his company in moving goods and services across the 401 and other places into the U.S. markets. If we don't deal with these strategic infrastructure improvements, then the economy is going to suffer and we are not going to promote job growth and growth in the economy generally.

The Chair: Mr. Murphy, followed by Mr. Calnan.

Mr. Michael Murphy: Thank you.

I just have a brief comment with respect to the reference to taxation. I think the key message here is that we saw, in the recent submissions--with respect to both the throne speech and the update we got last week from the finance minister--some repeated references to maintaining the tax cuts that were announced in the year 2000. We certainly are delighted to hear these, but want to know two things. The first is that all of the elements of this program will continue to move forward. I mentioned EI in my remarks. I think it's particularly critical, as you look at the different components on tax, whether it's corporate or personal payroll.

On the payroll side, we have struggled in the last little while to try to keep up with the desire here to keep moving towards an adequate process to determine how to set rates. We've seen the Auditor General speak to us about this publicly in reports in the last while, but we still don't have a process.

The government basically took the job over for the years 2002 and 2003. We're still waiting to hear what the process is going to be that will re-engage not only the business community, but others who had a specific role to play, and the commission itself--the Employment Insurance Commission. That's over a year ago, and we're still waiting to see what the process is. In the meantime, you essentially have a proposal that says the government will decide how we're going to set the rates.

From our standpoint, that's a priority item and one that we want to see continue to move forward, the idea being to get to the break-even point as quickly as we can. We're not there yet.

The other brief comment I would make relates to the Kyoto accord. Your point is well taken with respect to what's going on in the U.S. The U.S. has made a decision not to participate in the Kyoto process. They made that decision some time ago. Our issue here is that we are going to be bound, if we make a ratification decision--which we have decided to do--prior to having a plan issued. There's the real rub here: we have been assured through the first half of this year repeatedly by the government that we would see, prior to a ratification decision, a plan. We don't have that out in front of us today. I think the idea that we decide how we want to do this, as the Americans are deciding how to do it, is the right way to go.

The Chair: Thank you, Mr. Murphy.

Could we have your comment, Mr. Calnan?

Mr. Robert Calnan: Thank you very much, Mr. Wilfert.

The Canadian Nurses Association would agree that just pouring more money into the health care system, as it is now, would be a wrong action. In fact, for years we've talked about changing the system to a primary health care system.

It's interesting that way back in 1974 Marc Lalonde, the Minister of Health, produced a study called “Health For All By the Year 2000”, which really talked about moving to a primary health care system focusing on health and wellness and not on the illness-sickness model we have. That was seen as a stellar study world-wide. In the year 2002, I can tell you we still have not adopted a primary health care model, and we have continued to push for it.

That means that everybody will be maximizing their scope of practice--physicians, nurses, social workers, health care professionals--to provide essential health care to all Canadians, to make it affordable and accessible, and to make the system sustainable.

We also know that when we talk today among the people here, what we're really talking about is the social determinants of health: housing that's affordable, clean air and water, and security. That is a very broad perspective on health. But again, investment in those areas is going to make for a healthier populace.

One of the things we even asked the Minister of Health in June was that if she could focus.... She is responsible for the health of our aboriginal communities, which have terrible health outcomes compared to the rest of our citizenry. By adopting a primary health care framework within her ministry for health care provision to aboriginal communities, she would, we know, arrive at and demonstrate significant improvement in that community, something that could be the model for our country.

So we would agree. We can't just sustain the system we have; it's unsustainable. We need to change it to a primary health care system and move in that direction.

º (1640)

The Chair: Thanks.

Ms. Minna.

Ms. Maria Minna: Thank you, Madam Chair.

I want to go to the Canadian Nurses Association. First, I want to say that I rather like your recommendation because I've felt for some time that we need in this country to have a national apprenticeship program and a national standard for skills, development, and training. A country without a labour force management retraining program really does not have the flexibility and the constant upgrading of skills a modern economy needs in order for it to be productive, efficient, effective, and so on. I rather like your suggestion, and I could see that working in other areas.

I wonder if you could explain to me how this would work exactly. You would set up, what, a national body of some kind in cooperation with the province and then the federal government, or would it be an independent body?

Ms. Lucille Auffrey (Executive Director, Canadian Nurses Association): Thank you.

At this point in time there is a working committee among the provinces and the federal government that looks at health care human resources, but in fact it seems to be more of a, shall we say, challenge than a real contributor to the agenda. We've had some difficulty with that format.

We now have in Canada a challenge in all health disciplines. Whether we're talking about physicians, technologists, or nurses, we're all facing the wall. What we're proposing is a neutral institute that would have as its mandate the health and well-being of the Canadian health care system, removing some of the turf war that occurs between individuals with varying priorities. We should set about establishing a national strategy, something the Americans are looking at and people in Great Britain are looking at and something, we believe, that is essential for our country in order to be able to look at a comprehensive health care human resources plan.

We are talking today about immigration as a strategy. It is only one part of a strategy, and we just can't open it up in the belief that we can address all our Canadian needs by just opening up immigration as a strategy. We need to think hard about that, about how we're going to incorporate and acclimatize them, and also about what the proper numbers are for needed immigrants.

We need to have a comprehensive strategy, and we believe a neutral body would do that. It would be supported by the good institutes we have at this time. The Canadian health information research agenda has really worked well in the last two or three years to provide us with some credible research, and we see that as coming together.

We believe that all the professions would step up to the plate. As a matter of fact, that's what we're discussing at this point in time, so there is an interest, and we believe the professions could contribute to Canada's health care system. We hope we'll see movement in that way.

Ms. Maria Minna: I agree with you. As well, I know that people keep saying that we first need to know what kind of health care system we want. I don't have a whole lot of difficulty figuring out what I want in the health care system for starters. Second, whatever system we settle with, we will need nurses, technicians, doctors, and so on and the expertise. A trained labour force will be required, so I think your proposal is actually quite an interesting one.

I want to go to Mr. Murphy with the Chamber of Commerce. We've had a lot of discussion on this thing about debt reduction, and I'm not suggesting that I'm not for debt reduction. I think the amount of funding that has been put in has been quite a support and helpful, but I don't think anyone has actually looked at the actual figures that have been produced by our own Department of Finance as part of the economic update. When I look at them, in fact, if I compare the projections with the continued $3 billion coming off on a regular basis and assuming simply on the basis of economic growth, assuming the contingency reserve applied, the debt-to-GDP ratio is pretty well the same. In essence, what these figures are telling me is that the debt-to-GDP ratio is really being affected by the growth of our economy, not so much by the amount of money that we're taking off.

So my question, given the fact that this is really what's happening, that the reason that our ratio has fallen is really due to the economic growth, goes to some of your comments with respect to productivity and so on. Should we not be looking at what some, the Urban Institute and others, have been saying, at maybe more aggressively strategically investing money and growing our economy to ensure that the ratio continues to go down, as we've said, and also create lower unemployment in our country and work towards possibly a full employment situation? So that's one thing.

I want to follow that up by asking you something. You said earlier that we must invest strategically. I wonder if you could give us ideas of what you mean by strategic investment and the notion of working more aggressively to grow our economy through strategic investment and what those would be.

º (1645)

Mr. Michael Murphy: Thank you.

First of all, let me just get on the record as saying that our members of the Canadian chamber are in favour of economic growth. It's perhaps trite to say it, but it's hugely important. It's basically the goal of the organization and one that I think is of key importance, not only to this committee but to all Canadians.

There are two aspects to your question. I think from the standpoint of doing the math in terms of the debt-to-GDP ratio, you're quite right, and it's something we talk about all the time. The importance, though, of continuing to put a very strategic focus on debt repayment I think speaks for itself. And we've heard a number of people, not only those here today but others, speak to the idea of adding flexibility in terms of our other priorities.

I never look at debt in isolation. Debt is a fact of life. We've got it. It's historic. It's large. We're well beyond any kind of reasonable debt-to-GDP ratio compared to where we've been historically. The necessity to get it down, not only by continuing to grow the economy but by actually making a commitment, I think is crucial.

The idea here is that the three--controlling debt, dealing with spending, and looking at taxes--have to go together. I think I'll come back to that in a moment in terms of how you do strategic investments and then also deal with tax reform and debt management, because the three go together. The idea here is that you end up with a far more flexible economy if you get rid of your debt burden.

I think the idea that we have choices to make in our country.... There's no shortage of ideas in terms of what we should do with the public purse. I think you heard a number of ideas here today, and you're hearing them in your travels, as we have heard in the past. So I think the idea of continuing to keep that focus is absolutely an important one.

On the strategic investment side, it's something we've given quite a bit of thought to, and we've put together a fairly in-depth paper, which I'd be happy to share with you, in the last while that talks a little bit about where we think the priority spending should be.

Let me just start briefly by saying how encouraged we were by the minister's update last week and his specific reference to the fact that when we look at spending we're not just going to be able to continue to think about spending as a complete add-on, that we must get to a point where we have the ability to decide what priority spending areas are and what, consequently, are not priority spending. And the key word is reallocating some of those public expenditures.

The chamber has focussed on four specific areas in the last couple of years. One is health care. We have a big stake in it. I won't take the time to get through the story today on how important health care is to the business community, but it's significant. Education, in its broadest component, is number two. These aren't ranked, by the way. I'll just mention them in the order they come to me. The other is infrastructure in a wide variety of forms. We've heard a little bit about that today, and there are lots of reasons why investments in infrastructure are important.

The last area is what I call the research agenda, which is strategically thinking about the research and development agenda, and what contribution government can make there.

I wrap up all of these into one bundle that I describe as strategic, meaning will they contribute to increased productivity in the country, and will they make us a more competitive economy? We think investment in those four areas will do that.

º (1650)

Ms. Maria Minna: I have just one question on your four. Would you consider early learning to be part of your education area, broadly speaking?

Mr. Michael Murphy: It would include education right across the spectrum, whether it's training in terms of what goes on in the workforce, right through the entire educational system. That leads you, though, to make a decision, like you do in every area, on the priority areas.

From the standpoint of the work that's been done, in terms of research chairs, and now picking up on the point, in post-secondary education, on operating expenses associated with research, those are constructive expenditures, in our view.

Ms. Maria Minna: Thank you very much.

I'd like to go to Mr. Mondell, of the Urban Development Institute.

First of all, I like your recommendations. A lot of your suggested recommendations are things we've discussed for some time, back and forth among ourselves, as colleagues--some new stuff, but basically some pretty sound things that are needed in our cities.

One thing I want to ask you about is financing, which is very important in all of these things. Of course, there's the federal government's long-term investment in infrastructure. Some people talk about revolving funds for housing and public transit. The Federation of Municipalities have mentioned those, and there definitely needs to be ongoing commitment.

I have two questions. How do we make funding sustainable? I believe we need to make our cities' long-term financial bases more sustainable. I think you'll have to look at some sort of tax or increase in taxation.

The transfer of cash from the federal-provincial governments doesn't come with the accountability I'd like to see to the actual elector. So I'm wondering if you have some suggestions. Would you agree with the idea that while we need to have increased funding and transfer of funds for our infrastructure, in the way you've suggested and the way the Speech from the Throne has suggested, in the long term we have to look at governance in the larger cities, in terms of the checks, balances, and accountabilities? I believe the governance we have today does not meet the needs of the future of the cities.

Secondly, we need more sustainable funding, in terms of cities being able to have access to ongoing funding through increased taxation or other systems. This would have to come from the provinces, not so much from the Government of Canada, because under the Constitution we wouldn't have that. It would probably have to be a mix of both.

Those two are very important--long-term and sustainable.

Mr. Paul Mondell: Thank you for the question.

Clearly, dollars are not being spent strategically today. There are a lot of short-term solutions for very long-term problems. One of the biggest problems municipalities face is the lack of certainty whether they can start making longer-term commitments for projects that have to be implemented over many years.

We have an infrastructure deficit in this country, and nobody is suggesting we're going to fix it in the next few years, but we have to set priorities. We have to look at where we can get the best return for our dollars.

We fully recognize that dollars are dear. We can't simply keep writing cheques, without making sure there is a return on the dollars we are spending. So part of the solution is a longer-term strategy, where dollars are committed over a period of time. Then provincial and municipal governments will be able to start laying out priorities they can implement over a long period of time.

Also, I don't think there's a very good focus on how dollars are spent today. And I'll use transit as an example, because I think it's a good one. In most metropolitan areas there is a growing recognition that amalgamation and creating larger bodies to coordinate those kinds of service deliveries are a good idea. I'm sure you recognize in the area that you're in that the TTC is probably a very good example. When you get into the greater 905 area there are many transit authorities that are running buses and running transit in very uncoordinated fashion. How you get from one jurisdiction to another is a near impossibility. And I think the same holds true for highways, for water and waste water and those kinds of things.

So first of all you need a strategic plan, and you need the longer-term funding. And then I think all levels of government have to decide where to put their money, where, as we are suggesting, you get a return on your investment. These aren't give-aways. How is it going to assist in the future expansion of those areas and job creation?

Certainly on the housing side, as I've said already, we have to look at it as a matter of we don't want government dollars. We want a recognition of the problem, of where the problem needs to be fixed, and that isn't just at the federal level, of course. And my remarks today shouldn't be construed that way. They have to be looked at at all levels of government, but the federal tax system is key.

I can't emphasize enough how it has to be longer term and how it has to be a coordinated effort.

º (1655)

Ms. Maria Minna: I agree with you 100%. And I agree with the fact that we have to invest more strategically and invest in infrastructure in the cities. There's no question. I don't have any qualms with anything you said.

The reason I was asking the question was that I wanted to look beyond the cash investments we're making now. For instance, the Speech from the Throne is talking about ten years. I'm looking even beyond that.

The Chair: Mr. Pillitteri, go ahead.

Mr. Gary Pillitteri: I've been on this committee for nine years now, and Mr. Hockin of course has always been asking for this content rule to be expanded. And when he made a presentation today, Madam Chair, he did not ask for the foreign content rule to be increased. It had to be left to Mr. Brison to bring it forward. I thought we were satisfied. And of course you did thank us, so we increased it to 30%. Of course that was a recommendation from this committee, by the way.

Mr. Poddar, in the hypothesis is the fact of what taxing capital really costs to the government. One thing that's tangible about the government, as you well know, is what they're getting in. On the other hand, they don't have what it would cost in the long run.

Perhaps you should make a presentation, even though this again, more likely, will be one of our recommendations. Now surely Mr. Brison will not be adverse to it. Perhaps he'll agree to have what you call a unanimous consent of recommendation from this committee. Perhaps you should make a presentation next time to see the cost factor of taxing capital, because I think that should be eliminated...and also with capital gains, eventually.

I want to go to the RRSPs, Mr. Hockin. As you well know, not much has been done in the RRSPs. Of course all of that room was taken up when we did put in the registered education plan, because not that many people were really making contributions. I think it's only about 7%, which is in the high end. In the low end it's mostly even people earning $30,000 to $40,000 and thinking about the education of the kids. They've switched. They're now in the registered education savings plan because there is also a component where the federal government matches funds up to $200. Individuals not having that much disposable income, working people, put it in there. So that's the reason it's not being taken up.

I want to go to Mr. Murphy. What you said about the EI is something that has always been mentioned by the EI fund. Let's not forget that for years the EI fund was in a deficit. Nobody mentioned how much of a deficit there was. Nobody mentioned anything. Of course the previous government kept increasing and trying to catch up, to eliminate this deficit. Eventually it went up to about $3.07, at the most up to $3.30, but it started coming down.

Now everybody is talking about the surplus. If I recall correctly, it was in 1999 or 1998 that this finance committee made a recommendation to the minister to bring it more in line as to the payment and supporting...not as a fund, because realistically it's not a fund.; it goes through general revenues. It is only paperwork.

How we can talk about this as a fund? EI--or anything else--is a redistribution of the wealth. Income tax or GST has a redistribution component; EI has a redistribution component. Therefore we should bring it more closely in line with the cost factor.

I just wonder, if we bring it closer to that factor, wouldn't it be wiser to say forget about the surplus in there and how much it is and really put it to the cost factor of what it would be without mentioning the cost of surpluses, rather than EI just carrying on based on what it would cost to do business on a daily basis or on a yearly basis? Would you be more agreeable to that, or would you be looking at it as the fund that exists now because of the surplus?

» (1700)

Mr. Michael Murphy: Yes, thank you.

You're quite right. As we're all aware, this is sort of a notional surplus. The money goes right to the government's bottom line. It's part of the consolidated revenue fund. When you say “Let's decide what we're going to do with this surplus”, the surplus is essentially not there. It has already been dealt with in terms of other government activity.

Part of the problem here is that the intent of EI--if you go back to the original legislation that brought EI into being--was to create an insurance program for people who were out of work for whatever reason to have something to fall back on, especially because they were going to be contributing. It's a contributory insurance program.

What has happened over the years, and what's really perverted the system, is exactly what you described. We now have in the EI program what is essentially a grab-bag of social programs that, quite rightly, should be dealt with in other ways. We're not looking at strictly an insurance program. You can take a look at how the money is allocated today and see this very readily.

From our standpoint, our members are interested in trying to get premiums paid by employers and employees--all workers in Canada--get those premiums down to, as you call it, the cost of providing insurance service to Canadians. That number is somewhere around $1.70 or $1.80. It changes, depending on what's going on in the economy, what the unemployment rate is like, etc., etc., but we're still a long way from that.

So any program that is going to get us there... If your suggestion is to somehow take this money and get it out of the general consolidated revenue fund, that's something we do agree with. Make it a stand-alone. The first priority in terms of this--and there are a number of items to reform; I won't take the time in my reply to get into those right now--is to keep moving the premiums down for employers and employees.

Mr. Gary Pillitteri: Just to follow up on that, what I have in mind is... yes, stand-alone, and to go along with that is the cost factor, but not... We cannot really call it an insurance fund. You definitely pay EI. I pay EI. But we're not eligible to collect. The self-employed are ineligible to collect. So it is not an insurance fund.

I look at it more as one element of the tax of doing business. It's nothing else. We should be bringing it down to the cost of what it would take to maintain it in order to reimburse those people in time of need, which are basically the unemployed, or for some forms of redistribution, like job training and retraining. I think the notion of the fund, as money that is there, should be totally eliminated because it's not there.

Mr. Michael Murphy: I agree with that fully.

» (1705)

Mr. Gary Pillitteri: I think we should make that recommendation.

One more thing I wanted to touch on is that we talk about the debt, and that we should continue the reduction in taxes. Definitely, the minister has agreed that, yes, we will continue the five-year cuts in taxes and reduction in debt. As a matter of fact, when you talked about the contingency fund, remember that years ago I was trying to increase it from $3 billion to $5 billion, so we would accelerate it. But that was not to be the case.

In talking about Kyoto, we're saying maintain the debt reduction and the tax reduction. But we haven't done the things the Americans have done. They have invested in—governments have spent on—renewable resources, such as ethanol. They have done something with biodiesel, and we haven't done anything with biodiesel. Mostly it's an approach that my colleagues.... And Mr. Brison mentioned the EPA in California, which has the strictest standards in the world.

If we go with the Kyoto accord with a made-in-Canada approach, do you think we should be investing so much money in renewable resourses such as ethanol and biodiesel—even though you say there is no plan? The government has to put something in there. We cannot have it say, “Don't give us Kyoto, made in Canada”. By the same token, we cannot say, “Don't spend the money”. I would like to hear something on that.

The Chair: Would you like to touch on that, Mr. Murphy?

Mr. Michael Murphy: Sure, thank you.

I think the essential question and key item here--and I think you were right in terms of focus--in dealing with climate change are technological solutions. They are going to be an important element in making progress here. They are the answer to climate change. They don`t just include alternative sources of fuel. You've mentioned ethanol and biodiesel. I could add fuel cells--which many in Canadian industry are spending significant dollars on today to see development work done. Obviously the whole area of hydrogen-based energy sources will also be something that will form part of the future.

But I don't think we're in a position today to say that capping growth in our economy to meet criteria that Kyoto would impose on us is the right thing to do. The idea would be to see how we can come come up with agreements or a solution—through negotiations with different sectors of the economy, and individual Canadians, and the federal and provincial governments—that would allow us to do the right thing from a technology standpoint.

In the end, I think that's the answer here. How do you improve not only the processes that you would like to see happen in terms of alternative sources of fuel, but also how do you improve energy emissions today using conventional technologies—whether it's directly in the energy sector or within industries that are big users of energy? I think this absolutely has to be a key component here.

Thank you.

The Chair: Thank you very much.

Before we wrap up for the day, I would like to take the opportunity to ask a couple of my own questions, since some of my other colleagues aren't here.

During the economic update last week, we heard about the five-year projections for fiscal planning. One of the questions the minister asked this committee to address was to take a look at the economic prudence put in those numbers to see whether or not it is sufficient.

Now, the largest crunch, obviously, comes in the first year of those projections, with only a $1 billion surplus. But with a contingency reserve of $3 billion, we still have $1 billion in prudence. That goes up in year two to $2 billion, then to $3 billion, $3.5 billion, and $4 billion, in years three to five.

Since I have all of you people before me today, I'd like to get your feelings on whether that is sufficient. Only once before have we used the prudence money and a little bit into the contingency money.

We're glad that the contingency is bad. We certainly saw that on one of your written recommendations and now that's been put to rest. It would certainly have been one of our recommendations, I'm sure, as a member of this committee.

I'd just like quick feedback on what you think of the prudence aspect and the numbers there. Who would like to try that?

Mike Murphy.

» (1710)

Mr. Michael Murphy: Thank you, Madam Chair.

On behalf of the chamber, I certainly want to say that we would strongly support not only the reserve being restored fully to what we think is an appropriate level of $3 billion, but also the prudence factor being built in. Sound fiscal management is something that makes absolute sense. We think the numbers here are probably the right numbers.

By taking this kind of approach, one of the positives that comes out of this is that we're already making a strong case for the fact that we believe in, not only doing it right in terms of being able to cope with something that could hit us, which is what the design of this prudence system is, but we're also keeping in mind that we're going to, if we don't use it that way, be able to pay down debt further with it. We strongly support that.

The Chair: Mr. Hockin.

Mr. Thomas Hockin: I've been thinking about other things for so many years that I haven't thought about this particular matter, but I think I would concur with what the chamber has just said. It seems to be a responsible approach.

The way I understand it is if it's not used, it's then used to pay down the debt, and that's a very positive step.

The Chair: On the amount of prudence, Mr. Penney.

Mr. David Penney: Our position would be that the prudence factor is consistent with what the chamber has said. We clearly believe that, consistent with our proposal that capital tax be eliminated, it could be funded within your prudence proposal. To answer your question more directly, the prudence factor is an appropriate way to do budgeting.

The Chair: Does anybody else want to add to that?

Okay, I'll go on to the next point. Because of timing and backtracking for translation and printing and all of those things, our report will probably be tabled in the House within days of when we hear from Romanow. But we will not have heard from the Romanow report when we have to make our decisions here, so it puts us in a little bit of a predicament and somewhat constrains us as far as what we can do in detail. Nonetheless, there was the Speech from the Throne, and some of the things that were in that speech were the palliative care initiative and the caregivers--potentially something there.

I'd like Mr. Calnan's or Ms. Auffrey's input on those two areas.

Ms. Lucille Auffrey: We would heartily encourage the committee to look at the palliative care recommendations--we believe that to be essential--and to maintain home care. We encourage you to go toward that orientation.

We do hope that the committee will really consider the challenges in health human resources and the need to fund at an appropriate time because of the compounding factor that if this is not addressed in the current budget, we're already looking at a three-year delay in educating and preparing the number of practitioners we need. Therefore, the moneys that have been identified in the Kirby commission could be a good beginning for us to renew our HHR agenda in Canada. It is imperative that we don't have a two-year wait list.

Right now in Canada we can lose approximately 30,000 or 40,000 nurses should they decide to retire. How would this country cope? It would paralyze the health care system. The same situation is present in medicine and in a number of other areas.

I would encourage you to seriously think it's not just for today. Any delay in taking action is going to be a compounding factor. I don't know if we can really expect people with the 45.... I have the figures here. I think this is important. Right now we have nurses working, and every one of them is trying to cope with the fact that we only have half the number of nurses we need to work in Canada. So half of these people are working overtime. Every year in Canada we are paying over 7,000 full-time positions in overtime salaries alone. That's why it's imperative to look at our HHR issues.

We hope you will go to those Kirby commission recommendations. They're a beginning. They're certainly by no means overly generous and will not address the problem comprehensively, but if you are to wait until the Kirby commission renders its report, as you say, then it won't be useless to us.

I will let you wrestle with that.

» (1715)

The Chair: Mr. Murphy, I noticed in answer to one of Ms. Minna's questions you talked of education but you talked about it from the elementary school level. Did you intend it to start at elementary school? I ask this because there is that zero to six component, too, for early learning.

Mr. Michael Murphy: Yes. I think it's the full gamut. But as we're speaking to federal government responsibilities, I simply pointed out where the government has been focused in terms of post-secondary education. We clearly agree with that as a priority area as well. A lot of good things have been done there. The idea that investing in the education of all Canadians at all ages as a good thing is absolutely supported by the chamber, no question.

The Chair: Okay, so basically from birth to graveside.

Mr. Michael Murphy: Yes.

Of course it brings you into the whole question of federal-provincial responsibilities and so on, and I guess we don't need to go into that.

The Chair: I guess that's what our courts are for.

Thank you very much, not only for coming here today and answering the committee's questions but also for preparing these reports for us. To those of you who got them in early for translation so they could be distributed, thank you very much. We're trying to hear from as many Canadians and from as many varied inputs as we can get. Every day we do learn something more.

We are now adjourned.