[Recorded by Electronic Apparatus]

Monday, November 27, 1995

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[English]

The Chair: Can we come to order?

I apologize for the delay. We had an unexpectedly large group that came in and we had no other way to accommodate them than at noon hour.

We have with us this afternoon A.J. Parker and Hamid Akbar appearing as individuals; Michael Beswick and Gretchen Van Riesen from the Association of Canadian Pension Management; Patrick Johnston from the Canadian Centre for Philanthropy; Brian Collinson and Jayson Myers from the Canadian Manufacturers' Association; David Perry from the Canadian Tax Foundation; Ron Cirotto from Different Products Software; Gaylen Duncan and Donald Woodley from the Financial Executives Institute Canada; Sandra Banks and Laurie Curry from the GPMC; Robert Crow and Robert Gordon from the Information Technology Association of Canada; Ray Koskie from MEBCO, the Multi-Employer Benefit Plan Council of Canada; and Larry Szpirglas from the Hamilton/Halton Home Builders' Association.

Is George Fleishman here? George, you showed up. Good.

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Mr. Peter Rollason (Financial Executives Institute Canada): Mr. Chairman, you have the wrong people. It's Peter Rollason and Philip Connell.

The Chair: Thank you. Did I...I messed up.

Mr. Robert Barnett (Board Member, Bruce Trail Association): And Robert Barnett from the Bruce Trail Association.

The Chair: Good.

Mr. Donald Woodley (Treasurer, Information Technology Association of Canada:Mr. Chairman, the three representatives from the Information Technology Association of Canada, ITAC - Donald Woodley, Gaylen Duncan and Robert Crow - were introduced as being from the Financial Executives.

The Chair: Your chairman is not very smart.

Mr. Greg Warren (Ontario Technology Development Council): Mr. Chair, I'm Greg Warren from the Ontario Technology Development Council.

The Chair: One more mistake.

Mr. Tony Morris (President, Ontario Federation of Agriculture): Mr. Chairman, Tony Morris and Bob Down are from the Ontario Federation of Agriculture.

The Chair: What an august group. I'll ask each of you to make a three-minute maximum opening statement and then we'll get into discussion. We're familiar with most of you from previous years. We're looking for specific recommendations.

Mr. Fleishman, I understand that you have to leave early, so I'll ask you to lead off.

[Translation]

Mr. George Fleishman (President, Grocery Products Manufacturers Council): Thank you, Mr. Chairman. I'd be quite happy to speak French to give some work to the translators but since leaving the government, I stopped getting the $800 bonus.

[English]

so I'm going to speak in English.

GPMC is a national association of 184 companies. They manufacture branded packaged goods sold through retail, drug, convenience, mass merchandise and food service channels. Our sector creates significant opportunities for growth and wealth in the Canadian economy and is the largest customer of the farm and fishing community, as well as a major customer of the packaging and advertising industries.

We're linked worldwide through Canadian and foreign-based companies that build and supply North American and global markets. The food and consumer products industry employs more than 200,000 Canadians from coast to coast and represents approximately 10% of the GDP.

With regard to your question on deficit reduction targets, our association supports the efforts of both federal and provincial governments to reduce deficits and public debts. We believe the focus of reducing debt and deficit should be on increasing efficiencies and reducing costs, not on increasing revenue generation.

We believe the federal government should be more aggressive in its current deficit reduction targets. The current target of reducing the deficit to 3% of GDP is not an adequate goal. Greater commitment by the federal government to the deficit reduction process would increase capital investment in Canada. Currently, there is not widespread confidence in the business community that the top priority of the federal government remains getting its fiscal house in order. GPMC urges the government to eliminate the federal deficit by 1998-99.

On your third question, how budget measures can be used to create an environment for jobs and growth, we believe that jobs and growth will evolve as a result of increased consumer confidence and a renewed confidence by industry to invest in Canada. In part, these will flow from serious attacks on the public deficit of the federal government. Efforts to eliminate the deficit would assist in bringing down interest rates in Canada, which will also help buoy industry's confidence and investment in this country.

Finally, on opportunities for the federal government in cost recovery, the food and beverage industry has been the first to experience the federal government's efforts at transferring costs for services from the public sector to the private sector. Our members are prepared to support cost recovery of services, but only in the context of serious efforts to reduce costs and increase efficiencies for these services. Cost recovery should not adversely affect Canada's competitive position, especially within NAFTA and with the U.S., our main trading partner.

A clear example of where efficiency can be achieved is in the consolidation of the Canadian food inspection system. We concur with Finance Minister Paul Martin, as outlined in the February 1995 budget, that the goal is to improve the effectiveness and cost-efficiency of the federal component of the Canadian food inspection system.

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I'd like to make one final point in this respect, Mr. Chairman. My example relates to reductions in the number of inspectors.

The Department of Fisheries and Oceans reduced the number of inspectors from 400 to 300 in the past year, a 25% reduction, but the 4,600 inspectors in Agriculture Canada have only been reduced by 100. This is partially a result of cost recovery to the private sector, which instead of enhancing efficiency goes to pay the salaries of inspectors who otherwise would not be with us.

The Chair: Thanks, Mr. Fleishman.

Mr. Warren: Mr. Chairman, I'm here to talk about the government's use of electronic data interchange, or EDI as it's known. EDI refers to the paperless transaction of commerce.

We often look at the transfer of information between organizations as being the point at which EDI is most useful, because most often information is already travelling between computers inside an organization. So our group would like to address the potential of EDI to reduce the costs of government.

Our proposition is this. The federal Government of Canada has primarily viewed its support for electronic data interchange as a regional development program for business, focusing on transportation infrastructure projects in Halifax, Montreal and Vancouver. When EDI is as effectively implemented into the government's own procurement operations, the following outcomes become possible.

First, we can cut administration costs. EDI reduces administration costs for virtually all organizations, including government and small and medium-sized enterprises. Major government savings can be produced in busy centres of government supply and service activity. In other words, where our procurement activities are the greatest, the possibility for savings is the greatest.

The application of EDI may lower supply costs. EDI lowers the distribution and administration costs for suppliers. Again, this includes small and medium-sized enterprises. If managed competitively by the government, supplier cost savings from EDI implementation can reduce government supply costs.

The other application of EDI is to boost jobs. A more rapid implementation of EDI among Canadian government suppliers will better enable Canadian suppliers to meet U.S., federal and state EDI compliance deadlines by 1997. By 1997 it's expected that Canadian suppliers will only gain entry to U.S. federal government procurement if they are EDI-compliant.

We believe the fourth effect will be to lower EDI implementation costs by acting early. Today the private sector is exhibiting tremendous interest in applying EDI, because of its effects on their bottom line.

For instance, as recently as seven days ago the federal government became involved in a project in Montreal. The Ontario provincial government has promoted a program as part of its sectoral strategies that would bring $3.1 million of private money to the table, which would be funded by the EDI Council of Canada.

The provincial government has put $1.1 million on the table and discussions are under way with the federal government to see what kind of contribution might come forward there. The point is that for every federal dollar involved in the project, $4 of private and provincial money would be brought to the table.

Our recommendation would be to change the focus of how this money is targeted from being a simple regional development or aid to business and look more properly at the effect it can have on the bottom line of government and to utilize your investment in electronic data interchange to lower your costs. In so doing we'd like to induce private sector shared cost investment and the broadest participation by the public sector as is possible.

The Chair: Thank you, Mr. Warren.

Mr. David Perry (Senior Research Associate, Canadian Tax Foundation): Mr. Chairman, when I was here last year I suggested that it might be politically inexpedient to increase taxes to reduce the deficit. I had no idea how much I was understating the case.

The climate has not changed or reversed. At this point the sentiment is still strong. What we've seen with provincial budgets and provincial elections is a trend to tax decreases instead of tax increases.

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I want to suggest this afternoon that maybe the federal government should move slowly on its examination of tax policy. Avoid ad hocery in tax systems - the tendency to pull something quickly off the existing tax load. That's because there are four basic problems, as I see it, that face the tax system and need long-term thought and some careful evaluation. The first is obviously the devolution-decentralization trend that will continue. This is putting pressure on provincial finances and provincial tax resources.

So the role of federal taxes may have to be re-evaluated.

The second is the issue of GST-provincial sales tax harmonization, which is a topic dear to the heart of the committee. To make provincial sales taxes harmonize with the federal system could suggest or beg changes to other provincial taxes to offset the serious effects that some provincial treasurers see in such a move. So again, if the federal government stays out of the tax area in the next twelve months, it gives the provinces that much more flexibility.

Most of the long-term projections of economic activity in the country over the next five to twenty years are more optimistic than the short-term forecasts. If we keep up with the draconian spending cuts we've put in place at all three levels of government, there is a possibility that we could reach a fiscal balance. Then we can begin to look at the overall tax system - the integration of federal and provincial taxes and the role of each of the main tax sources. Take a long and careful look at that.

Probably the one most dear to my heart at this point is the issue of complexity. This morning we had about 800 of the country's top tax practitioners sitting down at the first session of our annual conference. They were looking at the issue of tax simplicity and what's been done in other countries to try to cut away the incredible morass of legislation, interpretation, regulations, and so on to make it more understandable.

The international examples have not been all that illuminating. There is still a problem, but there clearly are some directions that can be taken. There clearly is a need for a reduction in the complexity of both the language and the structure of the tax. All this is by very brief way of suggesting that the committee consider in the longer term a very careful look at a major tax reform exercise, not simply ad hocery.

Thank you, Mr. Chairman.

The Chair: Thanks very much, Mr. Perry. Mr. Collinson, for the CMA.

Mr. Brian Collinson (Director of Taxation and Financial Issues, Canadian Manufacturers' Association ): Thank you, Mr. Chairman. The Canadian Manufacturers' Association is deeply concerned with the health and competitiveness of the Canadian manufacturing sector.

With respect to manufacturing matters, 80% of the country's merchandise exports are attributable to the manufacturing sector, as is 75% of private sector research and development. Two million people are employed directly in manufacturing and three million more have jobs that depend on this sector. As the experience in the last three years has shown, Canadian manufacturing is a key source of jobs and growth.

In answer to the first question posed by the committee with regard to deficit reduction, CMA strongly supports government initiatives in deficit reduction. Future prospects with respect to jobs and growth hinge on whether government expenditure can be brought under control. The federal government must achieve its deficit reduction target this year for the 1996-97 taxation year and bring the deficit down to at least $20 billion by 1997-98.

The government must develop a strategy, however, that goes well beyond next year's deficit target. The ratio of public debt to GDP must be reduced, not only in the short term but as the cornerstone of a fiscal strategy that can be sustained beyond 1997-98. This means not only spending cuts, but, as any business can tell you, reinvestment in fundamentally restructured programs for both income redistribution and growth in the economy.

With regard to question 2, concerning budget measures and the creation of an environment for jobs and growth, CMA submits that the government should be conservative in its fiscal planning and should avoid overestimates of growth. In the current year budgeting was based on an estimate of 3.5% growth, but Canada will be fortunate to actually experience growth of 2%. Government should budget as business does by utilizing the worst-case scenario. The CMA recommends that government budgeting should be based on an assumption of 0% real growth.

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Government cannot reduce deficit and debt in the longer term without also creating jobs and growth. The CMA believes that the best means of accomplishing this goal will be to create a climate that encourages capital investment in Canada. Business investment is driven by corporate cashflow. If business is profitable, it is investing, expanding and creating jobs. Fiscal policies that reduce profitability kill investment and jobs, erode the government's tax base and destroy its capacity to undertake social spending.

It is important to understand that the current economic recovery is extremely fragile. Canada's industrial base is shrinking. Government must reverse this trend and ensure that manufacturing, as Canada's key wealth-creating sector, is in a strong position to invest, employ and grow through fiscal and taxation policies that favour capital investment.

The government must also restructure its own expenditures so that they actually further economic growth and encourage employment. The federal government should first define a strategy for economic growth and then use it to determine its goals for fiscal management and its fiscal priorities.

Taxation policy should foster capital investment by creating a taxation environment that is so attractive to investors that foreign direct investment flows into Canada and domestic direct investment stays.

The CMA is a strong supporter of the SR and ED tax credit. The CMA views the SR and ED tax credit, as it now stands, as providing a key benefit to the Canadian economy and manufacturing sector.

The credit is no mere perquisite for an elite. It is the single most important program the government has to encourage industrial growth and innovation. It's one of Canada's few advantages with respect to tax competitiveness. The credit facilitates export and export replacement.

Last year, the CMA recommended the establishment of a $300 million technology investment fund to leverage investment in commercialization of technologies as a vehicle to further economic growth and employment. We again call on the government to quickly implement the TIF. The development of new technologies for use in product and process will ultimately lead to jobs, economic growth and increased government revenues.

The CMA believes that harmonization of GST and provincial sales tax is essential. From a competitiveness perspective, the elimination of inefficiency in Canada's commodity tax system is vitally important. Personal and corporate income tax rates are also highly uncompetitive, and threaten to become more so.

Take question 3, which deals with what areas of federal activity should be considered for further cuts, commercialization, or privatization. In its submission of last year, the CMA recommended some $10 billion in expenditure cuts, many of which the federal government implemented. However, extensive expenditure reductions must still be made. There is still a very significant need for systems of cost accounting and evaluative performance standards on a program-by-program basis. Otherwise, the impact of government spending reductions and program reviews cannot be meaningfully assessed.

The Chair: Excuse me, Mr. Collinson, are you just about ready? I'm trying to limit everybody to three minutes.

Mr. Collinson: Of course, Mr. Chairman.

The CMA specifically recommends the following expenditure reductions: a 10% reduction in defence spending and $4 billion in further reductions in departmental payroll and operating benefits, for a total savings of $5 billion. The government should proceed on a zero-based cost-budgeting approach, making the cuts and restructuring necessary for growth with the remaining resources.

Thank you very much, Mr. Chairman.

The Chair: Is that taking it from $10 billion down to $6 billion for defence?

Mr. Collinson: That would be a 10% reduction in defence spending.

The Chair: I'm sorry, 10%. That's $10 billion down to $9 billion. For departments, it's $42 billion down to $38 billion.

Mr. Collinson: That would be correct.

The Chair: Thanks very much.

I neglected to introduce Mr. David Burn. Welcome, David. You're with the CMA delegation. I'm sorry I missed you.

Gretchen Van Riesen, are you going to speak?

Ms Gretchen Van Riesen (Chair, Association of Canadian Pension Management): Yes, I am.

The ACPM is a Canada-wide organization that speaks on behalf of sponsors of pension plans in Canada. Although we speak on behalf of plan sponsors, all pension plan stakeholders are members of the ACPM: sponsors, actuaries, beneficiaries, consultants and investment managers.

Established in 1976, we are a non-profit organization that has about 900 members representing 443 organizations with 683 plans and a plan-asset base of $226 billion.

While we will not directly answer the three questions sent to us in the order raised, we strongly believe that the issues we shall raise have a direct bearing on these questions, particularly on the matters of investment, growth and jobs.

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In the short time available to us, we wish to address four issues: retirement savings taxation, expansion of pension coverage, manipulation of retirement savings investments, and the Canada pension plan and old age security.

Before the last budget, there was a lot of discussion about the possibility of changing the tax deferral regime for retirement savings. We stated at that time - we continue to firmly believe this - that such a change would be a drastic miscalculation. Our position was confirmed in a study prepared by the Conference Board, of which we were a sponsor. This study, entitled ``The Economic Impacts of Taxing Retirement Savings'', clearly shows that a change in the taxation of retirement savings could have a serious and negative effect on the Canadian economy, which, in turn, could ironically lead to a greater deficit in the long term.

In addition, the budget discussions quoted a figure of about $15 billion as the expenditure associated with the current tax regime. We believe this figure is misleading.

First, it implies wrongly that there would be an automatic increase in tax revenue if tax deferral for retirement savings was removed.

Second, it ignores the beneficial tax effects that result from the investment of those funds.

Far from taxing and discouraging retirement savings in Canada, we believe that retirement savings should be encouraged to expand. The benefits would be enormous. Greater savings lead to greater investment. Greater investment leads to more jobs and more domestic debt financing.

In addition, more retirement savings lead to greater retirement self-sufficiency for Canadians. This means less demand for social support. All levels of government should, as a result, work to expand - not contract - retirement savings.

Not only should governments encourage more retirement savings, but they should refrain from any temptation to manipulate the investment of these moneys. Often ideas are put forward that would restrict or direct such investments in the hopes of encouraging small businesses, or creating jobs, or some other worthy objective.

The current Income Tax Act restricts foreign investment to 20% of the book value of a pension fund. All such restrictions are counter-productive and distort the principle of the prudent investment of capital. If there's not a good business rationale for making an investment, then it should not be made. Only this discipline will ensure economic security in the long run.

Further, rules that do not make good business sense often have ironic effects. Recently, Keith Ambachtsheer wrote a paper called ``Canada's 20% Foreign Property Rule: Why and How it Should Be Eliminated''. He persuasively argues that the 20% foreign property rule actually leads to less overall investment in Canada, as well as overvalued assets. All such restrictions and manipulations should be eliminated.

The ACPM agrees that the government should review the CPP and OAS plans. We have not yet reached a consensus on the detailed outcome of such a review, but we do believe certain alternatives should be considered.

First, the cost of the OAS program could be reduced by rationalizing it with GIS and targeting it more specifically to those who need it most. This process has begun and should continue. The results of this could be reduced government cost and some short-term deficit relief.

Second, we believe the long-term costs of the CPP need to be brought down to more manageable levels. High CPP costs - even anticipated high CPP costs - both discourage new business investors and the establishment of new private pension plans. In addition, we perceive a risk to the CPP in the long run if a later generation of workers believe they have suffered a lack of intergenerational equity. Whether by adjusting the benefits of retirement age or with a greater degree of pre-funding, the current projected CPP contribution rates, in the long run, must be reduced.

We are grateful to have this opportunity to express our views to the committee and participate in this forum. In the short time available it has only been possible for us to raise a few key issues. We would be more than happy to expand on our views and respond to questions, Mr. Chair.

The Chair: Thank you, Ms Van Riesen.

Mr. Woodley.

Mr. Woodley: Thank you, Mr. Chairman. As president of Compaq Canada and the treasurer of the Information Technology Association of Canada, I am joined today by the voice of the information technology industry, Gaylen Duncan, our president and Robert Crow, our vice-president of policy.

Our 1,100 member companies across Canada account for more than three-quarters of information technology, industry employment of some 350,000 Canadians, revenues of $50 billion, exports of $12 billion, and R and D investment in Canada of over $2 billion. For the past five years our pre-budget advice has been simple and consistent. We wish to restate our advice today.

First, we must get Canada's fiscal house in order.

Second, we must refocus government priorities on strategic activities to position Canada for leadership in a global, information-based economy.

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Third, we must make government a model user of information technology to improve service and to contain the costs of government operations.

Much has been done on each of these three areas, yet the challenge before us remains. The deficit, while moving in the right direction, is still far too high. Service of Canada's national growing debt and our many ongoing obligations make Canada a high-cost environment in which to live, work and do business - and this costs us dearly.

Too many of our brightest young minds and most innovative companies are heading south to pursue their dreams and ambitions and to escape a punitive personal tax regime. To compensate for high taxes and the weak dollar, Canadian IT companies must now pay a premium of over 70% to attract desperately needed managerial and marketing talent from abroad after they have left Canada in some cases.

ITAC calls upon the government to continue its aggressive course of expenditure reduction and asks the Minister of Finance to identify in his 1996 budget a clear plan for a balanced budget by the end of this decade and steady progress to retire the national debt thereafter.

The 1995 budget introduced a number of measures to begin the process of redefining government for an information age economy. Good examples include the restructuring of the transport and industry ministries and the sharp curtailment of government subsidies to business. We applaud these measures and call on the government to continue on the course announced in February.

We also call on the government to resist the temptation to resurrect old practices under new names. It's reported, for example, that industry minister Manley will soon announce a national technology investment program, NTIP, to replace the cancelled defence industry productivity program, DIPP. This program would provide repayable grants to companies in certain high technology sectors including our own.

What does ITAC think of this proposed new program? Let us not mince words. ITAC did not ask for NTIP. ITAC and its members do not need NTIP. ITAC and the industry do not want NTIP. Above all, we believe NTIP is simply wrong in light of the priorities and practicalities of restraint. We have written the minister requesting that companies in our industry be excluded from NTIP and ask your support for this position.

The Chair: If I may interrupt, that's a very interesting point. The one group who has come to us and talked about the need for it is the aerospace industry. Have you talked with them?

Mr. Woodley: We talked indirectly with them, and through our conversations with Industry Canada and so on we believe that in some countries the defence industry is subsidized quite heavily by government. We believe that not to be the case for our industry, nor should it be.

The Chair: Would you oppose repayable grants going to the aerospace industry that say they need them from our government in order to have a level playing field internationally?

Mr. Woodley: That's an interesting position. Essentially our position is that we should not receive them in our industry, and obviously that's your decision to make.

The Chair: Bravo! Thank you.

Mr. Woodley: Mr. Chairman, a number of federal government agencies introduced substantial user fees in an attempt to reduce the effects of budget restraint or even to forestall needed internal reforms. Earlier this year ITAC joined the Canadian Chamber of Commerce, the Business Council on National Issues and some twenty other organizations in a general call to end this practice.

A very specific example was provided by last year's sale of the technical budget document. We did not find the $25 charge for paper copies unreasonable; however, the same information in electronic format was priced twenty to forty times higher on budget day, and customers were required to remit a sizeable royalty to the Department of Finance with respect to copies made available to others. In the era of the information highway, this action sent precisely the wrong message to Canadians.

I ask today for your support to ensure that this type of practice does not happen again. Instead we ask that the Information Highway Advisory Council's advice be heeded. Electronic versions of crown works should be licensed on a non-exclusive basis on the basis of the marginal costs incurred in the reproduction of the information. This will result in much fairer pricing and broader access to the policies and laws associated with the 1996 federal budget.

Mr. Chairman, the scientific research and experimental development investment tax credit program is an outstanding example of private and public partnership to position Canada for the information age. Unlike DIPP and NTIP, private companies, not bureaucrats, decide what projects to undertake and for which projects to provide up-front funding from their own resources. Projects considered for support are subject to rigorous financial and scientific auditing.

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We are pleased to inform you that ITAC has recently presented a comprehensive package of recommendations to contain the costs of the SR and ED program in order to focus it on R and D activities. This will provide a clear public benefit and improve the program's administration and its productability.

We will provide a copy of our brief to the clerk for your information and consideration.

ITAC's position on the need for government leadership as a model user of information technology was recently reinforced by the report of the Information Highway Advisory Council. We're also pleased to report that discussions between industry executives and senior officials are ongoing and productive in many areas of mutual concern, including the management of large systems projects. Unfortunately, though, federal government technology operations are largely uncoordinated silos, and will remain so, in our opinion.

We believe they will remain so until the government provides the newly appointed chief information officer the authority and mandate to break through these silos. ITAC has called for this in order to make the federal government a model user of information technology.

Mr. Chairman, we live in a time of great opportunity - our industry is living testimony to that fact - and Canada can only compete and prosper in a global information-based economy.

We thank you for this opportunity to be here this afternoon.

The Chair: Thanks, Mr. Woodley.

Patrick Johnston, please.

Mr. Patrick Johnston (President and Chief Executive Officer, Canadian Centre for Philanthropy): Thank you very much, Mr. Chairman.

The Canadian Centre for Philanthropy is principally concerned about those 70,000 organizations that are registered with Revenue Canada as not-for-profit charitable organizations.

The third sector, as it is sometimes called, is best known to Canadians as the provider and deliverer of a whole host of services and programs: education, health, social services, environmental, cultural programs, and on and on. It's also known and understood as the sector that harnesses the activities and efforts of something like 1.5 million Canadians who work as volunteers each month.

What isn't fully understood or appreciated, however, is that the charitable and voluntary sector is also a significant employer.

In a study that the Centre for Philanthropy did in 1994, we determined that, on the basis of 1993 figures, in excess of $40 billion was paid out by registered charitable organizations in salaries and benefits. Approximately 1.3 million Canadians received income from registered charities and voluntary organizations, and that accounts for about 9% of the total labour force.

This is a sector that clearly will be affected by the changes in federal transfers to provincial governments, by the expenditure reductions of provincial governments. But we believe that there are measures the federal government can institute that will help to leverage more private support from individuals and from corporations for the work of charitable and voluntary organizations and the programs and services they deliver in all of our communities.

I know that this committee has, in other discussions, talked about and heard presentations about some of these specific ideas. The elimination of capital gains on gifts of appreciated property to charitable organizations is an idea that I believe was presented to you. Increasing the allowable deduction to 50% from 20% of total annual income is another idea.

Dare I suggest as well that if you believe, as do I, that the value of a dollar donated to a voluntary charitable organization is every bit as important as the value of a dollar donated to political parties, you might also look at equalizing the tax treatment for contributions between those two groups or sectors?

The Chair: You know how to hit us where it hurts.

Mr. Johnston: I just want an even playing field, Mr. Chair.

I would hope that the committee would give this serious consideration, that it might even signal in its interim report its concern and interest in this issue. I believe that would be a strong, important and symbolic message from the government to Canadians about the importance of individual and community engagement to deliver a number of the services and programs that governments at all levels will be moving away from.

Thank you very much.

The Chair: Thank you very much, Mr. Johnston. We appreciated the contribution of the centre at one of our round tables last week in Ottawa.

Mr. Tony Morris, please. You are going to speak for the group?

Mr. Morris: Yes. Thank you, Mr. Chairman.

Mr. Chairman, we have presented a brief, and I would ask that it officially be accepted.

The Ontario Federation of Agriculture is the voice of some 40,000 individual members and 29 affiliated organizations. It represents farm family concerns to governments and the general public. As a member of the Canadian Federation of Agriculture and in turn the International Federation of Agriculture, whose participating members we work with, we account for most of the world's food production.

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Mr. Chairman, in looking at your questions we have taken the tack that we would rather look in our brief at future growth opportunities for this country than at some of the problems that have occurred in the past.

Within our industry we fully believe that we are the growth industry for the next decade. We're looking some 25 years ahead at an expected global population of 8.5 billion to 9.5 billion people.

The question we ask, Mr. Chairman, is what investment are Canadians, and indeed Canada, prepared to make to meet this dramatic demand for global food supply? Regardless of all other concerns, the world's population will require food and water.

For Canada, Canadian farmers, and our agrifood industry there are tremendous opportunities for the future, but we must be bold enough to look at the future and not get mired in the problems of the past and today.

We are well aware of the fiscal restraint - we've lived through it during the 1980s - but our industry today is very different from a decade ago. We are very dynamic, we are highly technical, using new genetics in areas such as livestock, crop biotechnology, and computer technology in our machinery.

Yet we continue to see trading partners taking a far more serious investment approach to their agriculture and agrifood systems. In Ontario we continue to see levels of imports grow at a faster rate than exports, and the industry has been slow to respond to the demand for higher valued-added products.

We would like to highlight a few areas, and they are in the area of taxation, specifically the area of lifetime capital gains exemptions. This is an extremely important area for the farm community, as many farm communities and farm families in this province are using the capital gains exemptions vehicle to restructure and reorganize their farm businesses to meet the challenges of competing in the new global economy.

The goods and services tax. The proposed reform from the June 1994 House of Commons finance committee recommended its replacement with a more broadly based national value-added tax that is harmonized with the provincial sales tax. The Ontario federation believes very strongly in this approach. We offer the government support in that regard but ask that we ensure that many of the farm business inputs remain taxable at the zero rate. We believe it will not only simplify compliance but reduce the cost of compliance for agriculture producers. The two separate consumption tax systems only add to further confusion because of the task of identifying the tax status of various goods and services.

In the area of pension reform, we have already heard from one speaker today, and we are fully in agreement that we wish to encourage expansion. We also agree that individuals should be placed in the position of having increased responsibility for future pension programming.

Investment tax credit. In the past that has applied specifically to machinery. We would certainly ask this committee to look very carefully at applying a future investment tax credit to the construction of new buildings and equipment within those buildings. Specifically, in the province of Ontario we have a very diverse economy within the agricultural industry. The industry stats show that recent investment trends show that about 40% of new investment is construction, with the balance being machinery and equipment. Approximately 15% to 18% of equipment and machinery is manufactured in Canada, whereas the majority of buildings are built by local people using Canadian materials. We believe this would be an excellent program to provide some rural development or increase rural development.

In the area of regulations, we ask the federal government to work with their provincial counterparts to reduce the unnecessary duplication.

One of the very key areas is in research. Canada is the second from the last of the G-7 partners, and it is just critical, if we are to have an industry that is vibrant and to meet the federal government's goals of some $20 billion in exports by the year 2000, that research must take a higher priority to meet those demands.

Thank you very much.

The Chair: Thanks, Mr. Morris.

Our next is Mr. Barnett.

Mr. Barnett: Thank you very much, Mr. Chairman and members. I've chosen to speak about donations of land to help our national objectives.

I'm a volunteer director of the Bruce Trail Association. We have 7,500 members. We put in 100,000 annual hours of volunteer labour that we feel is worth $1.2 million.

We maintain an 800-kilometre trail that is visited by 1.3 million day users. These visits contribute $35 million to the economy each year. We welcome 30,000 out-of-province visitors annually. Tourism is the fourth largest industry in Ontario, and the jobs we create are permanent.

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This presentation was developed in consultation with 20 land trusts in Ontario, the 20,000-member Nature Conservancy of Canada, and the 18,000-member Federation of Ontario Naturalists. The Bruce Trail Association has acquired 62 properties, or more than 60 kilometres of the length of the Niagara escarpment. The Niagara escarpment is a world-famous UNESCO-designated world biosphere reserve.

We'd like to help the federal government meet its own goals with our volunteers, our fund-raising and our donation programs. The federal government's goals that we know of are, first, to conserve 12% of the country in the most important areas. This is stated in Canada's Green Plan and is reiterated in the Liberal red book. The second goal is to meet the goals of the international Convention on Biological Diversity. This has been ratified by Canada and restated as Canada's biodiversity strategy.

Quebec has been leading the way on the capital gains tax issue. We appreciate the amendments that were made to the capital gains tax rules in last February's budget, but we feel it's essential that capital gains taxes be eliminated now on donated land of ecological importance.

The donor is now being taxed on money that he doesn't receive. I agree with the KPMG accountants' report that the cost to the federal government would not be great compared to the value of the lands received. No rational individual would donate a million-dollar property worth $700,000 after paying all the taxes and instead accept only a net tax credit worth only $200,000. We suggest that this donor get a normal tax receipt and not have to pay the deemed capital gains.

Another issue is the elective cost base. It's been suggested they can value the property at anything they want, but who would value a million-dollar property at less than what it's worth?

Mr. Charles Caccia has written to me that the Task Force on Economic Instruments and Disincentives to Sound Environmental Practices has unanimously recommended that capital gains taxes should be eliminated on the donation of appropriate lands to appropriate charities. We're not talking about a huge number of donations here. It should be noted that the Nature Conservancy, one of the larger agencies, is currently working on 153 projects - 45 of them are donations and only 15 would be affected by this legislation, but those 15 are very important properties.

In working with the Bruce Trail, I personally have three potential donations that will go away unless this law is changed. We've already lost two major donations.

I'll briefly touch on one other issue. We suggest that the federal government finance or transfer money only to infrastructure projects that encourage the efficient use of existing community resources. A recent study by the Golden Commission in the Metro Toronto area indicated that a billion dollars annually could be saved just in this area by discouraging urban sprawl. This will help channel development away from lands that are not suitable for development. Conservation of land actually reduces taxes by eliminating the need for services.

My most important message today is that we must eliminate these capital gains taxes on donations of ecologically important lands to registered charities. We can start small, with national significant areas like national parks, national wildlife areas, migratory bird sanctuaries and internationally designated lands like the UNESCO world biosphere reserves.

We must end these capital gains taxes, because neither we nor the federal government can afford to buy these lands for 100¢ on the dollar. The federal government can share the costs with the provinces and only pay 32¢ itself if we go ahead with my proposal. The landowners will voluntarily pay 50¢ to help our national goals. Our volunteers will keep the cost of programs down. We need to create these tax incentives. It's worked in the United States, where they've preserved millions of acres, largely at private expense. They eliminated the deemed capital gains tax decades ago.

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The Chair: Thanks, Mr. Barnett.

Mr. Hamid Akbar (Individual Presentation): Mr. Chairman, I'll try to be brief.

At present, Revenue Canada audits only 5% of all tax returns filed. That 5% generates a lot of revenue for the Government of Canada from tax recoveries, interest and penalties. If audits can be increased to a maximum of 20%, the Government of Canada will obtain substantial revenues from these three areas, which could be put against the deficit and create employment.

The government recently announced that 40,000 jobs will be eliminated from the government sector. Some of these 40,000 people can be retrained and given jobs in Revenue Canada to perform audits. That can help create some employment, if not for all 1.5 million unemployed people in Canada.

As well, Revenue Canada should increase the number of audits for retail and small businesses. As you all know, the underground economy is on the go right now. About 20% of gross sales are unreported to Revenue Canada, and out of that 20% we are losing tax on three grounds.

First, they're not paying income taxes; second, they're not reporting the GST; and third, they're not reporting provincial sales taxes. So that is a substantial recovery of tax. So if those 40,000 people can be retrained and given a job at Revenue Canada, it would be a definite asset.

The Chair: Thank you.

Mr. Ron Cirotto (Individual Presentation): Mr. Chairman, I'm here as a concerned Canadian taxpayer.

I've religiously followed your format and attempted to answer your three questions. In answer to your first question, I believe the deficit reduction target should be zero, and we should be trying to do it as soon as possible, not project into the future. I cannot fully answer how this zero deficit can be achieved at this point because I do not have all the facts.

I submit that anyone embarking on a complete answer to this question must first have an accurate breakdown of how federal revenues are spent. Mr. Chairman, if you want Canadians to get involved, give them honest, simple financial information that can be easily absorbed in order to vote accordingly.

In answer to question 2, I believe the Government of Canada can create an environment for jobs and economic growth by implementing simple - and I want to underline the word ``simple'' - measures that are easy to manage. For example, two immediate areas that beg consideration are, first, a simple income tax system that can be done in less than ten minutes without the services of an accountant or financial planner, and second - the environmental minister would probably love me for saying this - we need a GST tax on everything, with no exceptions. Maybe you could lower the rate to 4%. It's called the KISS method - keep it simple so that you don't have to hire an army of bureaucrats to add up the numbers.

In answer to question 3, on federal activities to be considered for future cuts, I have a suggestion. The honourable John Bryden of Hamilton - Wentworth - I use the word ``honourable'' with the utmost respect. I'm just not letting it roll off my lips. I'm almost tempted to vote for the man and I'm not even a Liberal. He has identified a potential area of inefficient use of federal moneys: special interest funding.

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The federal government hands out, and I'm using that word literally, $3.3 billion a year in special interest funding, which could be spent on immediate social programs. We're in dire trouble in this country. We have people sleeping on the street and people with no jobs.

According to my sources of information - I differ with Mr. Johnston by a thousand - there are 71,000 registered charities in Canada. Of them, 60% or approximately 43,000 have one paid employee, leaving a balance of 28,400 charitable groups classified as having more than one paid employee.

As a Canadian taxpayer I demand a list of all charities showing the following: first, the organization's name and the board of directors' names and addresses; second, the organization's mission statement, or, to put it in simpler terms, because that's kind of a catchy, politically correct word these days, the purpose of this charity group, and it should be spelled out in simple English with simple sentences - as you know, test results from all provinces indicate that we're rapidly becoming illiterate in this country and we can't go on with compound sentences - third, the organization's yearly funding from all levels of government; fourth, the number of paid employees and the number of volunteers; and fifth, the organization's membership list, if any.

If all Canadians had this information at their disposal, then and only then could we intelligently decide which groups are redundant or are a duplication of government efforts.

Thank you for the opportunity to voice my opinion.

The Chair: Thank you, Mr. Cirotto.

Mr. Larry Szpirglas (Hamilton/Halton Home Builders' Association): Mr. Chairman, I appreciate the fact that my name was at least spelled correctly. I'm here today on behalf of the Hamilton/Halton Home Builders' Association, of which I'm the immediate past president.

Our association is comprised of over 400 member companies, ranging from builders, developers, manufacturers, suppliers, trades people and professionals who make their livelihood through the construction of new homes. We're the second largest homebuilders association in Canada, and we represent over 8,000 workers dedicated to providing quality, affordable shelter for the people of the Hamilton - Wentworth and Halton regions. On a national level, our member organizations employ over 100,000 people. That's the good news. The bad news is that in 1988-89, those figures would have been 12,000 in the Hamilton - Wentworth region and over 200,000 nationally. That's the crux of our industry's problem today.

Most of you are aware that housing activity across the country is at a pretty low level. I confirm to you that our area is no exception, notwithstanding the relatively prosperous employment picture that has been portrayed in the press. Our national organization, the Canadian Home Builders' Association, has informed you that only 112,000 dwelling units will be started this year, significantly below the CMHC requirement for replenishing housing stocks in Canada of between 153,000 and 167,000 units annually.

I can affirm that our area is suffering through similar conditions, when one considers that our total starts year to date in 1995 are down over 30% and, more importantly, single family detached units are down over 40%. These numbers are absolutely disastrous.

What we are looking for from government is: (a) to understand the value of our industry to the economy; (b) with the constant reduction in housing starts, to recognize that we are losing our capacity to build homes, as many people leave this industry never to return; and (c) we are at a critical stage, as many of our member firms are hanging on by a thread.

With respect to the first point, our industry is the single largest private sector employer, and as such no true sustained economic recovery will occur until we are operating at appropriate levels. We are hurting, and there is a significant cost to government as a result. It seems to me that having our workers paying taxes and not being on welfare or unemployment insurance is far preferable to the current state of affairs.

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There's also the significant loss of tax revenues to consider when there are fewer purchasers who are not buying all the extras that are associated with new home buying, such as draperies, furniture, appliances and so on. It certainly affects a great range of businesses in terms of the trickle-down economy.

We as an association appreciate the complex world our federal government must deal with in a world economy and global markets, but we are concerned that often what's happening at a grassroots level and what affects each and every one of our members are lost sight of.

We know our national association has brought you all the dismal numbers, as I've stated before, and it's brought forward specific recommendations regarding future housing policies and directions.

We are most concerned, however, with what appears to be a lack of resolve to establish specific policies and directions for this industry. We fully understand that cuts have to be made in order for the government to get our fiscal house in order. Over the past five years, however, our industry has unfairly borne new taxes, levies, charges, whatever you want to call them. In fact in many cases - and half of them are in the Halton area - over $30,000 in additional charges have been implemented since 1989. Then many sit back and wonder why the residential housing industry is in trouble.

What is difficult for us to deal with is the accumulative impact of all these charges. Like everyone else in the domestic markets we deal with differences in currency, which further aggravates our situation.

As an industry, we are very much concerned -

The Chair: I hate to do it. Can I tell you to sort of wrap up quickly, Larry?

Mr. Szpirglas: Well, sure, Mr. Chairman. I think we're dealing more specifically with item B on your list of A and C.

The Chair: No, no, that's fine.

Mr. Szpirglas: I guess the bottom line is that there have been a variety of programs suggested by the Canadian Home Builders' Association that clearly reflect the industry's position nationally.

I won't go into those recommendations. I would simply say that probably the biggest problem we have today is a lack of consumer confidence. Consumer confidence doesn't have to do with interest rates; that's only part of the issue. It has more to do with employment, with certitude about employment, with the perception by the public that in fact there is sustainability to jobs, and jobs are available.

Mr. Chairman, our industry is positioned to be a powerful economic engine if we're released to do so. That has to do with the implications of the GST. We have made recommendations in that regard.

It also has to do with a variety of other programs that have been recommended. We wholeheartedly ask the government to review those and to consider them.

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

Mr. Rollason: The Financial Executives Institute Canada is an association comprising approximately 1,350 financial executives who are employed by over 900 organizations with combined assets in the range of $500 billion and annual revenues of approximately $600 billion.

Last year when we appeared before the Standing Committee on Finance we expressed our strong support for the government's strategy to reduce and ultimately eliminate the deficit. We feel that no program should be immune from sharing any spending cuts.

Our recommendations for fiscal years 1996 and 1997 are as follows:

First, we recommend that harmonization of the GST with provincial sales taxes should proceed as quickly as possible in any province that's prepared to move ahead at this time.

Second, we suggest that the government proceed with the long-awaited redesign of our social programs. These programs consume large amounts of government expenditure and need to be updated to balance the current needs of Canadians versus our ability to sustain the costs.

Unemployment insurance is a good example of an important program that over the years has strayed from its originally intended purpose, which was to provide basic protection against temporary unemployment.

Third, we believe that increasing taxes is not a solution for reducing the deficit. Higher taxes simply stifle growth in the economy and therefore tend to work against what we are attempting to achieve.

In the longer term we have two areas where government review could be of value. First, with respect to the Canadian tax system, our members are responsible for the preparation of their corporate tax returns and are therefore well aware of the increasingly complex and burdensome system we now have in Canada.

Our system is costly and consumes significant administrative resources on the part of Canadian companies to comply with the act and equally significant resources on the part of the government to audit taxpayers.

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Our second comment relates to the Canada pension plan. As you well know, CPP is significantly underfunded, with unfunded pension liabilities in the order of $300 billion, and the amount is growing daily. We need to deal with this problem in the immediate future.

We would like to recommend that a committee of experts be formed under the Minister of Finance to make recommendations to the government on how to address this ballooning problem before we lose control. The longer it takes to bring our finances under control, the greater the risk that some external event will undermine our efforts.

As well, today's strong public support for the government's fiscal restraint initiatives can only weaken if it takes too long to cure the problem.

While we can appreciate Finance Minister Martin's preference to set a short-term goal and then focus all of his initiatives on obtaining that goal, we believe there is some merit in putting a stake in the ground as to when Canadians should expect to see an end to the growth in our national debt. We need some kind of light at the end of the tunnel that will maintain public support through the difficult days ahead.

It appears that the government may well do better than its goal to achieve a 3% deficit-to-GDP ratio in fiscal year 1996-97. It is our recommendation for 1997-98 that the government should commit to have the 1996-97 deficit level and set a goal of a balanced budget for fiscal year 1998-99.

In keeping with the aforementioned comments, a goal for 1999-2000 should be publicly proclaimed to achieve a 2% surplus-to-GDP ratio. It should be accompanied by a promise to share the surplus with Canadians through a reduction in taxes equal to one-half the surplus, the other half to be applied to debt reduction.

In conclusion, we believe the government is on the right track, and we do strongly encourage an aggressive focus on deficit elimination leading to debt reduction.

Thank you, Mr. Chairman.

The Chair: Thank you, Mr. Rollason.

Mr. Anderson.

Mr. William Anderson (President, MEBCO Multi-Employer Benefit Plan Council of Canada): I'm representing MEBCO for Mr. Koskie and Mr. Darrell Brown.

I think it's important that everyone here understand exactly what MEBCO is because it affects every one in this room, our pensions and our life and health benefits.

MEBCO is a federal no-share capital corporation, operating on a not-for-profit basis. It was established in 1992 to represent the interests of Canadian multi-employer benefit plans across the country.

We are representative of all the disciplines involved with multi-employer benefit plans, including union and employer trustees, professional third-party administrators, and professionals, including actuaries, benefit consultants, lawyers and chartered accountants.

Most trust funds - MEBPs, multi-employer benefit plans - are administered by both labour and management. Over the past quarter-century, labour and management have joined together to develop a response to the problem of delivering quality health services and retirement plans to workers and their families in industries typified by small companies and a mobile workforce.

There are hundreds of multi-employer benefit plans in Canada, covering well over a million workers and their families in industries as diverse as building and construction, food service, retail, hotel, restaurant, graphic arts, garment manufacturing, security, textiles, transportation, entertainment and, just recently, government employees.

A single multi-employer benefit plan may be national, regional, provincial or local in coverage. Anywhere from two to over a thousand employers may be involved in these pensions and life and health benefit plans.

I was very happy to hear some of the things Gretchen Van Riesen and ACPM had to say. We concur almost completely, of course.

Rather than dwelling on the expenditure side - and, of course, we agree that expenditures and taxes shouldn't be increased - our submission gears in more on the revenue side.

I will just mention three areas we have recommended, and we've done a lot of work in this area with the government. The first one is the underground economy.

Gearing in on the underground economy - focusing on it and enforcing it more - the Department of Finance has estimated the range of 4.5% GDP, $32 billion worth of unreported transactions.

Statistics Canada says $36 billion, McGill University estimates it as high as 15%, and the Ontario legislature says 9.5% to 16.5%.

Even if one were to accept the lowest of the above estimates, the collection of taxes owing on $32 billion could provide a substantial additional source of revenue.

We feel the government should continue to focus more in this area. In fact, we know the 1995 budget contained a strong statement with respect to a concentrated effort on strengthening Revenue Canada's ability to enforce the law.

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I come from a very small town of 900 people. My town couldn't exist if it weren't for the underground economy. It's a farm area. I understand. We deal with the construction industry in a big way. The underground economy is a real problem to all of us.

However, to date we are not aware of any concrete steps towards implementing such a system from the government to try to place and bring in more of this money.

We understand there is now a committee put together with the Canadian Construction Association and five departments. It's in the government, and they are working very hard. I hope that, by the 1997 budget, they'll be providing us with methods to be able to control and bring in more of the GST.

We at MEBCO have also suggested that, in the pension area, perhaps a creation of a debt reduction Canada savings bond could be implemented. We introduced this last year under the government. It would be a way of repatriating some of the foreign debt that is out there right now with the Canadian government as an ability to have to borrow from abroad rather than from home. Perhaps we can use pension plans to help increase so they don't have to borrow from overseas. We'll talk about that a little more as we go along.

The Chair: Sir, wrap up your opening remarks.

Mr. Anderson: Yes, sir.

Another source of revenue would be the retrofitting from the government that could borrow from pension plans. We feel the government has to concentrate more on its source of revenue to bring in as much as it can possibly bring in rather than tax the average everyday person, both in benefits and in its pocket. Thank you.

The Chair: Thanks, Mr. Anderson.

[Translation]

We'll now start our questioning, Mr. Crête, please.

Mr. Crête (Kamouraska - Rivière-du-Loup): It's too bad that Mr. Fleishman left.

The Chairman: But Sandra Banks has stayed with us.

Mr. Crête: It could be pointed out to him that official languages will always involve some costs if people want Canada to remain a country. I don't think the remark about the interpreter was particularly relevant. I was all the more surprised because the brief was only in English. For people working in the field of grocery products, the sort of things that people buy every day - I find this attitude rather shocking.

I'm also rather surprised that throughout the presentations, almost no reference was made to the existing duplication in the two levels of government. It would appear that the system works well in Ontario. It simply requires technical adjustments and the implementation of certain programs. But no witness here has talked to us about duplication. I find that very surprising.

This is a question I wonder about myself and that I've put to everyone. I shall be addressing it more particularly to the Canadian Manufacturers Association or the Quebec Manufacturers Association which has expressed the wish that the devolution of responsibility to Quebec for manpower training be settled once and for all.

I'd be interested in knowing your opinion on the subject. More generally with respect to the elimination of the deficit, do you think that we should be giving a close look to duplication and how do you explain the fact that in Ontario is it not a problem?

[English]

The Chair: Well, its a start. It's a big issue - the issue of overlap and duplication. Jayson Myers.

Mr. Jayson Myers (Chief Economist, Canadian Manufacturers' Association): Thank you.

The Chair: Welcome, Jayson.

Mr. Myers: Thank you again, Mr. Chair. Let me begin the response. I think this is a tremendous problem today, and I think in restructuring government, most of the groups here today have been speaking about restructuring government and restructuring expenditure programs.

This is a terribly important area and one that our association has been focusing on for years here. There are tremendous savings to be made in removing the overlap, duplication, contradiction, and inconsistencies, and I realize that our division in Quebec has been looking at labour training programs as a part of us that is there. It has certainly supported the initiative to allow the Quebec government to undertake those programs.

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I think what it really comes down to is that there is one taxpayer and there's one customer. We're dealing here with restructuring government to best meet the needs of the customer in a time of change. I think the appropriate response is that the level of government that can most effectively - at least cost-wise - meet those requirements or those demands should be the level of government cooperatively, in some cases, providing the services.

I'm not so sure that any type of overall constitutional change is required to meet those services, but a restructuring of the provision of programs is certainly required. I think that has been our position, and it's certainly our position in terms of making some regulatory efficiency improvements. Mutual recognition of standards is a big area that doesn't require any major policy change apart from recognition that other levels of government - or companies, taxpayers, whatever - have better standards and to that extent should be allowed to receive the services at the most effective and least costly level of government at which Quebec can provide those services.

The Chair: Thank you. Mr. Michael Beswick. Welcome.

Mr. Michael Beswick (Chair-elect, Association of Canadian Pension Management):Mr. Chair, if we can focus for a moment on pension legislation as an example of duplication and the lack of good sense in government regulations, we have eleven jurisdictions in this country that have eleven different sets of rules. For a national employer, it's just a nightmare in terms of administration and extra expense that is totally unnecessary. I think the issue here is partly duplication, but it's also partly lack of good sense. There are some issues and some areas of regulation that are clearly federal and that.... Since our federal government has been in sort of an appeasement/weakness mode for the last decade, it's pretty difficult when they should be taking a leadership role in other areas besides pension regulation, getting some harmonization or some consistency across the country, and eliminating all the extra expenses that are just wasted money.

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

[Translation]

Would someone like to answer?

[English]

Yes, Peter.

Mr. Rollason: We did consider that as an important topic, but given the short period of time and the fact that we were dealing with more than just a pure federal government situation - in fact, as indicated, both provincial and municipal - it's an extremely complex area to get into. There's no doubt in my mind that with all the reorganizations that are going on across the country, particularly at the provincial level and to a lesser extent at the federal level, there's a great need for governments not only to look at what they're doing within their own mandate, but to look extra-provincial and extra-municipal and work to coordinate their activities, because there is a very significant cost associated with the overlap.

[Translation]

The Chairman: Yes, Mr. Crête.

Mr. Crête: I think it is quite remarkable that no one has mentioned decentralization as one of the main solutions to allow for a better control of the deficit and the debt. Decentralization does not seem to be an attractive solution for people in Ontario, or at least it does not seem to be one of their priorities.

The Chairman: Thank you, Mr. Crête.

[English]

Mr. Grubel, please.

Mr. Grubel (Capilano - Howe Sound): We had witnesses before this committee who suggested that if there were an incisive move on eliminating the deficit in two or three years, the risk premium that now exists on our interest rate would drop dramatically. We know that the housing industry has as one of its most sensitive determinants the interest rate. I do not understand why you did not emphasize in your discussion the need for getting lower interest rates through the elimination of the deficit and the elimination of the risk premium.

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Mr. Szpirglas: We support a reduction to the deficit and to the accumulated deficit that our country has. But I don't think that when you take a look at why our markets are the way they are - and I think it's the point I was trying to make - that it has necessarily to do primarily with interest rates. The problem is much more global. There are people out there who can afford to buy a home today. What's preventing them from doing so has to do more with their comfort level with respect to their employment, insofar as interest rates play a factor on those kinds of issues in terms of the creation and the availability of jobs. I agree that is a prime determinant, but, more importantly, people are just afraid to do things today because they are not secure in their employment.

Mr. Grubel: This is really about our variant. There are many influences on the decision to buy a house, but, as an economist, if you try to find the one determinant of the variations in the fluctuations in the housing starts that we see over the last 100 years, it is interest rates. I would like to know whether the judgment you just expressed has now moved off the top as a determinant of the demand for housing. Have you done a study for that, because I'd like to see it, or is it just a gut feeling?

Mr. Szpirglas: Mr. Grubel, the reality is that in the period between 1986 and 1989 in particular, despite the relatively high interest rates at the time, they were not a deterrent to people buying. But the major reason for that is because people saw equity grow in their houses on a year-to-year basis and they also felt comfortable that there were going to be two incomes coming in and they would be able to sustain a high mortgage payment.

Once again, I'm not saying that the interest rate isn't a factor; it certainly is. But the more salient factor today has to do with the total level of confidence that people have in doing anything because they're not secure in a long-term basis.

Mr. Grubel: A nominal interest rate is of course not what counts. It is the interest rate in relation to inflation. A 10% interest rate is a very low cost if the inflation rate is 20%. Everybody will go out and build and buy houses at that rate. Have you had anybody make a serious study of this or is this your gut feeling?

The Chair: Are you advocating inflation rates to 20%, Mr. Grubel?

An hon. member: A non-member of his party is.

Mr. Szpirglas: The only study I can point to is empirical in nature. If you look at what's happening today with the substantially decent interest rates....

Mr. Grubel: With all due respect, we have the highest real interest rate, adjusted for inflation, in post-war history. That's why your housing is not going anywhere. I'm very depressed about this.

Mr. Szpirglas: Mr. Grubel, once again, I would hold to my point that the issue for us is not the interest rate.

Mr. Grubel: I'm always open to learning.

I have a question for Mr. Akbar.

Mr. Akbar, we had a long time when people were quite readily paying their taxes. One of the reasons why they're beginning to cheat is because they believe they're not getting their money's worth from the government. I hear this all the time from people.

When you have had a key change in public attitude and then you come in with a massive enforcement program, as you were suggesting, how do you think the Canadian public will react? Do you think they will re-elect the government that drastically increases enforcement?

Mr. Akbar: It's a tough question whether people are going to elect a government or not. The question we have been asked here is to find a solution for the deficit. Yet, people will be angry if they are audited, because nobody likes government auditors in the first place. Whether it's a corporation, an individual or a small business, the owner or the proprietor starts shaking once the government auditor steps into the house, the corporation or small business.

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Obviously, people are not going to like it, but it will increase the growth so once they find out the growth is 20%, they will avoid cheating on it.

The Chair: Mr. Cirotto wishes to add to that.

Mr. Cirotto: Mr. Chairman, I would like to ask Mr. Grubel a question, but before I do, I would like to preface it with a bit of levity. Some of you may have heard this joke before about the definition of an economist. It's someone with all the answers to last year's questions. Nobody's laughing.

Mr. Grubel: There is a whole section of jokes about economists.

Mr. Cirotto: I'll refer to it as a pseudo-theory about interest rates and the supply and demand for new homes, because that's the business I work in. I have a finger or a pulse on the building and the mortgage industry because I work with real estate lawyers and software all day long.

Believe me, the feeling that's coming from the street...and I agree with you, theoretically, that there are real interest rates and nominal interest rates and all these fudge factors with inflation. But right now I think Mr. and Mrs. Public in Canada are terrified of losing their job, and all this theoretical nonsense, with numbers and percentage of the area of an angel's wing and all of that crap, means nothing. People are concerned about losing their jobs. They don't want to put what little savings they have as a down payment on a house because they know the economy is a sick puppy and they could lose their job. I think that is the pulse on the street.

Day in and day out I speak to from 30 to 50 mortgage brokers, real estate agents, real estate lawyers - every single day, Saturday included. The feeling on the street, if you put your ear to the railway track, is that Canadians are concerned about their jobs. That's what this whole forum should be.... How are we going to get our act together to get this economy well on the road to recovery? Until it is, big ticket items such as a home, an automobile and a refrigerator are not going to be purchased by Canadians.

This is the second year I've participated in this and I look forward to a few years of this, because I don't think we're going to solve this problem by the end of the day. I think we had better start recognizing the problem. The economy's a sick puppy.

The Chair: I'm at your service. I know a lot of you would like to put a lot more on the record. Would you like to take a five-minute break, or would you like to go right through?

The second question becomes overlap and duplication. Mr. Flis, please.

Mr. Flis (Parkdale - High Park): I have a supplementary to Mr. Grubel's question toMr. Akbar, who talked about the underground economy and how much the government is losing there on three counts: income tax, the GST and the provincial tax. Then we heard from Bill Anderson, who comes from a small town. He says his small town could not exist without the underground economy. This is probably duplicated by thousands of such towns across the country.

I wonder if anyone has some creative ideas for the government on how we can come to the rescue of these small towns or change their attitudes so they would prosper and grow and at the same time help reduce the government deficit.

Mr. Anderson: If I may use a simple example, in the construction industry we're losing the relationship of employer and employee for income tax purposes, and I'll touch on income tax before I touch on GST.

Where subcontracting is now being allowed, the income tax doesn't allow for a paper trail the way it does with an employee-employer relationship. The reporting does not exist. It's not difficult, and we've proven it in federal buildings that are under construction where an employee can work for an employer through a subcontract without paying income tax. It can be done quite legally - not the not paying of the income tax, but the other can be.

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We've also suggested to the Canadian building trades, as an example, that for anyone involved in building - they need provincial help here - there should be a registry whereby he or she has to register with the government. It may be $25 a year or $25 for five years - whatever. That's one of the things our committee is working on. Any time he buys any supplies with which he's going to build, he should be reported so there's tracking.

What the administration costs are, I don't know. I haven't figured it out yet. But it has to go back to those basics whereby the man, woman or company can be tracked. Then go back to what work was done, who was employed and what tax was paid.

Mr. Darrell Brown (Counsel, Multi-Employer Benefit Plan Council of Canada): Take one of the suggestions that I understand has already been put forth. For example, in home renovations, the individual consumer certainly knows when they're having work done. Perhaps there can be some incentive built in to obtain a portion of a GST credit to the individual consumer for reporting purposes so a paper trail is established.

Another difficulty, of course, is when you have individuals who will be paid as an employee for the purposes of UI qualifications and will somehow disappear into the subcontracting side of things after.

So there have to be some systems in place.

What we've heard from some participants through MEBCO is that there are many individuals who are willing to put forth suggestions, but they're just not sure where they should be to put forth the suggestions. They want to see more effort on the part of the government to focus on this area, because there are still significant amounts of revenue that could be generated.

Mr. Flis: Mr. Akbar.

Mr. Akbar: Yes, Jesse. First of all, it's not an excuse. They collect that money on GST and PST on behalf of the government. It's a liability on the storekeeper or the employer such that they should collect the money and remit it to the government. So it's not an excuse.

Yes, in a small town, the population is low and their volume of business is kind of low. The problem is that this is a small town. If you have a population of 1,000 people and there are four stores, how are you going to make a living out of it? They can't. That's because, out of a population of 1,000, how many people are going to go to one store, the other store, the other store, and the other store? They can't go to all four stores to spend their money. So there should be some kind of a control such that there should be one or two stores in a population like that.

People go into business out of necessity. They go by choice. In a small town, there aren't enough jobs, so the only alternative they have is to open their own businesses.

I don't have the right solution for that, but there should be some kind of government monitoring such that there should not be more than two stores in a population of 1,000 or less.

The Chair: Tony, you have something.

Mr. Morris: Yes, Mr. Chairman. I can't help but respond when I hear about registering. I think we're heading for enough registries in this country. I couldn't possibly go along with even more regulation if it relates to those in rural communities.

I have to say something along the lines that Mr. Cirotto was saying. Look at the statistics in Canada for the last number of years. Agriculture is one of the strongest sources of jobs we have in this country.

These are factual numbers. Across Canada, for every $1 million in additional agriculture output, there are 31 jobs created. Of this, 19 are direct and 12 are indirect. Look at the government's intentions, through Minister Ralph Goodale, of $20 billion worth of agricultural exports. That's a substantial number of jobs that we can create across this country, many of which are in rural communities.

Look at the comments that have been made to small towns. I work in a small town or community. I have a business, not only as a farm, but in that small community. Some of it has been touched on, but there's a very real problem, which is that we lack the infrastructure we need to carry on some of the businesses we want in some of the rural communities.

I will use an example specific to Ontario versus, say, a province like New Brunswick, where they have 100% fibre optic lines to handle the latest technology. We still have people on party lines in rural Ontario that can't even use an answering machine, which is a very real problem for many small-town communities. It's one that both the provincial and federal governments have to address.

If we're going to look at job creation, look to where we started as a country. If you look to the future.... This is the warning.

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We would ask this committee not to look just at 1998 or 1999; start looking at the year 2040. One of the tools we need as a country to get there - because the world economies are moving. They're moving very fast. Those are shifting economies.

If we start looking at the Pacific Rim, the Asian countries, population trends, and population demographics, you can start drawing a picture of what we will need 35 years from now.

Quite frankly, if we're going to be a player in the year 2025, we have to start having a full understanding of what the important areas of the economy are going to be and some of the infrastructure we're going to need to put in place.

So I fully agree with Mr. Cirotto: jobs are number one if you want consumer confidence.

The Chair: Mr. Myers.

Mr. Myers: Thanks, Mr. Chairman. I have just a couple of points, and they're really to follow from what Mr. Morris was just saying. I want to emphasize how much the problem of the underground economy is in itself a reflection of some of the problems of government regulation and the administrative cost, complexity, overlap, and duplication that exist in the regulatory systems in this country and in the tax systems as well. I don't think the solution to that is to put in another level of regulation and registration and to make the system even more complex. I think the answer is to try to simplify the system we have. That's the first point I want to bring across. The second point is harmonization of taxes, which we've all talked about. We've all talked about regulatory simplification, the removal in some cases of overlap and duplication, and the complexities of regulation. It's extremely difficult to make this point only to one level of government, because this is a systemic problem at every level of government. Every public authority in this country is a part of the problem.

We can talk about the necessity to harmonize taxes and very clearly make the same argument to other levels of government. But I'm aware right now, in speaking here in Ontario, that the same message has to be made to the Ontario government - that it and the federal government have to get their acts in order to come together on the tax harmonization issue.

The problem is that we're dealing with one level of government at a time, and the message is not just one for the federal government but one that has to be made to all governments in the country.

The Chair: Mr. Szpirglas. How did I do?

Mr. Szpirglas: Pretty well, Mr. Chairman. I have just a couple of comments. I think the last thing Mr. Myers mentioned is very important. It was about the issue of harmonization.

One of the big concerns we have in the housing industry is that, given our sense that we are an overtaxed industry as it stands, in the process of harmonization, the federal government may in fact live up to its pledge to remove the GST but basically inflict at a provincial level a higher tax on the housing industry.

It's not a political statement, Mr. Chairman. It's just a concern that has been expressed repeatedly throughout our industry. So I put it on the table in the hopes that if and when the harmonization takes place, that's a consideration.

With respect to the other issue about the underground economy, we quite frankly have a bit of a silent revolution going on out there. It isn't just people who want to cheat; it's people who are struggling to make a living. It doesn't condone somebody's not abiding by the law, but it helps to understand why people may be doing what they're doing.

One of the recommendations made by the Canadian Home Builders' Association was the idea of redefining the term ``substantial renovation'' so it becomes more inclusive. In fact, some of the renovations that are done can be defined in such a way that it becomes beneficial for a consumer to claim the GST and therefore report it. I think that's one recommendation that might be worthwhile considering.

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

Mr. Discepola, please.

Mr. Discepola (Vaudreuil): If I have a chance, I'd like to ask Mr. Morris a question, but I'd first like to ask the CMA a question. I think Mr. Collinson mentioned that in our budget preparations we should look at 0% economic growth. Did I understand you correctly, and why would you make that statement? You don't do it as a businessperson. You certainly have sales forecasts you look at. So what prompted you to make that statement?

Mr. Collinson: We believe that in the current economic environment, a conservative approach with regard to government budgeting is an approach that will reap benefits. Even if the economy doesn't have a 0% growth rate - presumably that won't happen - then the government will find itself in a position of having moneys it can dispose of.

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Mr. Discepola: But how can that be responsible budgeting if you say there's not going to be any economic growth? You're going to have to get the 2%, roughly 3%, on GDP. It's quite substantial. You'd have to get that in the form of expenditure cuts immediately or reduce services immediately. Is that realistic?

Mr. Collinson: I think it's eminently more realistic than erring on the other side.

Mr. Discepola: Mr. Myers, businesses have told us that we should get rid of all subsidies. There's one more subsidy that's still left on the manufacturing of processing equipment, which is a reduced tax rate. Has your association studied the implications of that? There was some comment that that only benefits certain industries, manufacturing industries. Other comments we've heard indicated that it only benefits certain regions of the country. Does your association have any opinion on that?

Mr. Myers: Yes, we do. First of all, I think I'd take exception to the fact that you call it a subsidy. A reduced tax rate I don't think should be seen as a subsidy to business. The other thing -

Mr. Discepola: Why wouldn't it be considered a subsidy? It's a reduction in taxation that benefits only one particular industry.

Mr. Myers: It's simply that you're collecting fewer taxes from an already overtaxed sector. I think the point here is that the major problem today is investment in the Canadian manufacturing sector.

The investments that are being made today are not enough to cover replacement costs and the cost of depreciation on existing capital equipment technology and plant. One of the reasons for that is that if you are a manufacturer exporting from Canada today, even given the benefit of the reduced M and P tax credit for manufacturers and processors, in effect the tax rate in Canada is not as attractive as tax rates in other jurisdictions, particularly in the United States.

We're losing investment in this country to the United States. We're losing it to other countries as well. In my estimation the way to reverse that, if you really want to create jobs and growth and investment in industry, is to ensure that we have the investment, that Canadian companies continue to invest in Canada. I don't think you achieve that by increasing the tax rate. I think you can only achieve it by further decreasing the tax rate.

Mr. David Burn (Vice-President, Taxation, Northern Telecom Canada Limited, Canadian Manufacturers' Association): Just to pick up on your numbers, Jay, the U.S. tax rate for manufacturing, for example, in an export environment, exporting out of Canada to country X, would be 29%. The Canadian tax rate would be 34%. That 5% is an enormous difference, as I'm sure you are aware.

The Chair: Can I ask you, David, is that using the successor to the old DISC corporation?

Mr. Burn: That's assuming that the U.S. is using everything it's entitled to, which does include the FISC, yes, which is what we're talking about.

The Chair: Or the tax incentive they have in the United States for corporations that export.

Mr. Burn: Which is worth 5% or 6%, yes. One point that's very important when other people compare manufacturing in this country and the U.S. is that there's a tendency to use an average tax rate in the U.S. or perhaps even to compare us with New York or the traditional rust belt states close to us. The real competition, particularly in the high-tech business, is in the sun belt where many of them have zero tax at the state level. In Ontario, for example, for manufacturers we're talking about a 13.5% tax rate.

Mr. Discepola: I have a question for Mr. Morris. You brought up the $500, $1,000 lifetime capital gains exemptions. I totally agree with you that for the farming community it's a very important issue, but would you also agree that if ever - and I don't advocate this at all in any way - that was to be looked at, small businesses would be treated to the same extent and the same degree, or are you still saying that the farming community should have special treatment because of their -

Mr. Morris: No, I think you will find in our brief that we talk about agriculture and small business. We've put them all in. We recognize that there's no difference when it comes to whether you're operating a farm on the outskirts of town or you're operating a small store in the centre of the village. It's all part and parcel of the community, and it's a business community.

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

The Chair: Thank you, Mr. Discepola. Mr. Grubel, you have a comment to make.

Mr. Grubel: I only have a few comments. I can't help myself.

Mr. Szpirglas and Mr. Cirotto, let's engage in a short experiment.

What is the mortgage rate today - 7.5%, 8%?

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Mr. Cirotto: It's 7.75%.

Mr. Grubel: Are you telling me that if we could get the rate down to 5% tomorrow, that wouldn't overcome a lot of the reluctance to buy houses?

Mr. Cirotto: I don't think so.

Mr. Grubel: Thank you very much. I'm learning every day.

Mr. Szpirglas: I mentioned before that we don't have a study, but some of the evidence is empirical. I'll give you my own experience. I lost three sales over a period of three months because people lost jobs.

Mr. Grubel: Of course. I can never deny this.

Mr. Szpirglas: What I'm saying has very little to do with that. At the time they made the conditional offer, interest rates were not a factor.

Mr. Grubel: This is an empirical question, as you say. I wish I could bet that if interest rates come down several percentage points in the next few years because the Americans are getting rid of their deficit and the whole world is getting hold of those problems, then I think housing will recover.

I have one quick point on the underground economy. I attended several conferences of experts who looked into this carefully. We had estimates as high as 20%. These are based on cash holdings and things of this sort. The most persuasive argument to me was made by someone from the Department of Finance. It totally surprised me, but I want to throw it out for you to think about whether this is a solution to a $22 billion or $30 billion deficit that we're having at the moment.

If you take all of the industries that are known to be the heart of the underground economy - home renovations and service industries like car repair and so on - you can go to the national income accounts statistics and find out what is the value added in those industries. You cannot take as a measure of the foregone base for taxation the value of a home renovation, which is $10,000, because the guy who built it must pay taxes on the lumber and everything that goes into the house. He has to pay GST on that.

GST is paid on that because it is all manufactured by the big companies. If you add up all of the industries that you can think of, you get about 1.5% of national income. If you think that's too small or Statistics Canada has its numbers wrong, then double it. If you take all of that money away, you're not even close to eliminating the deficit. It just isn't there.

On small businesses, if tomorrow you started doing what Mr. Akbar wants them to do, I bet they wouldn't even open up. The only reason small businesses prosper is that people are willing to work for such low wages. So what do we want?

I'm just saying that there are no solutions, ladies and gentlemen. The only solution is for us to cut spending.

Mr. Szpirglas: What you haven't factored is that there's also an extensive bartering system out there, and you'll never hear about it and you won't see any statistics on it. You can speculate as to what that is, but I'd say that it's pretty substantial in our industry.

I don't like that, Mr. Grubel. It puts me at a competitive disadvantage, but that's what's out there.

Mr. Philip Connell (Financial Executives Institute Canada): In my view, the growth of the underground economy, to the extent that it has grown in the last several years, is due to government-imposed taxes at various levels such that it is advantageous for people to find ways of dealing economically one with another to avoid the formalized system. It's not unique to Canada; it's true around the world. It's legendary with respect to what happened in Great Britain during its heavier taxation years. Everyone, even so-called respectable people, professionals and all kinds of people had to resort to this. It was a matter of survival.

I think we're in that type of situation now, and the real way to get rid of the underground economy is not by creating massive numbers of bureaucrats to go over everybody's books and look in their windows. Rather, we need to get government expenditures down so that we do not have to raise tax levels and make it advantageous for people to try to avoid them. I submit that even with the greatest of sleuths this will still go on, because people will be inventive. As was mentioned a moment ago, there is a trading of efforts - you fix my roof and I'll repair your car. How can you possibly track that down? It's impossible.

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As far as bureaucrats are concerned, for anyone who's familiar with auditing techniques, there is already a means by which suppliers of materials and so on...their records show to whom things have been sold. This could be tracked through, and if you found that there were people engaged in the house renovation business, for example, you would be able to make further inroads into trying to control that.

But the fundamental problem is to stop spending so much money. When governments collectively - federal, provincial and municipal - are spending roughly half of our GDP, we are at the point where we are on a collision course, and that's what has to be addressed.

Mr. Brown: I want to position our costs. We primarily represent issues respecting the provision of benefits to Canadians. Comments were thrown out about the underground economy being a potential source of revenue, but our primary focus in being here is to state categorically certain positions that relate to not increasing tax in certain areas.

I want to emphasize one point with respect to that. Last year we appeared before the committee and commented on the taxation of health and welfare benefits being provided in Quebec. We stated that it was too early to gauge the effects of that tax. This year it's not too early, although the full effect still is not being felt. Surveys now available indicate that 25% of employees in larger companies are opting out of the provision of employer-paid benefits in Quebec, and we want to emphasize that this is not the correct path. The government has certain leadership roles and one of them is to see that Canadians are being provided with proper care in certain areas, and that's one area that we think should be maintained and not considered a tax expenditure that is dispensable at the federal level.

The Chair: Thanks, Mr. Brown.

Mr. St. Denis (Algoma): I have a couple of questions, but first I have a point of clarification. In the executive summary of the OFA brief, under item 4, in which you suggest exclusion for farm businesses from the alternative method for eliminating the deferral of tax on business income and so on.... In last February's budget, when the Minister of Finance announced that a mechanism would be put in place to get back the vast sums of deferred taxes, a number of serious concerns were raised, including the issue of the year end. I understood that changes were put on the table that will be reflected in legislation. Is this suggestion based on the budget announcement or the changes that are coming in the legislation?

Mr. Morris: If there are changes coming that reflect the unique natures of some of our producers, specifically the tobacco industry, which has defined marketing terms and marketing times - I'd be very interested in reading about them, but I'm not aware of it specifically.

Mr. St. Denis: Further to the parliamentary secretary's comments, I believe that businesses can choose their year-end. Any business can still choose its year-end. The deferral issue will be dealt with by other means, but the year-end question has been settled in favour of businesses.

Is that correct, David?

I got a nod there, so you might want to remove number 4 from your summary.

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I have another question. Two of our participants raised the question of service fees, and there may be others. It really hasn't been raised a lot in previous discussions, and maybe as a problem it's a sleeping giant. Maybe it's not; I don't know. But I thought the CMA's reference to it in the letter to Mr. Eggleton was rather interesting.

If your allegations are correct, that the bureaucracy in fact is using the issue of service fees or recovery fees as a way to get around budget cuts, and it is doing it in a way that is not reflecting the government's or Parliament's intentions, which is regulatory reform, fairness and so on, then I think you have a good point.

It's understood that service fees are inevitable when you cut back on taxes. It's an attempt to have those who use pay more directly.

I believe Mr. Woodley, Mr. Collinson or Mr. Myers mentioned this, but do you have some specific examples of your allegations that we can follow up as a committee? It's okay to make the allegations, but in fairness to the bureaucracy and the government, it would be good to have some specific examples.

Mr. Burn: I can give you two or three examples right off the bat. I've been involved with Treasury Board and some of the assessments using business impact that some of the departments have adopted to assess the impact of regulatory programs.

The first example is when Health Canada decides to cost-recover in terms of a registration fee for new products in the area of radio-pharmaceuticals. This is a new industry. There has been a lot of R and D put into the industry. Only now are new products coming onto the market.

The cost that Health Canada had designed into this plan simply took the form of levying a charge on new products coming onto the market, and without a great deal of thought about what those charges were supposed to be covering.

The total cost of this was 12% of the entire revenue of the industry. The only thing they've been making so far are losses. This was an industry that was intended to recover in terms of future profitability, without a great deal of knowledge about how the industry operates or indeed about the effect of a 12% revenue levy. That was one example of where the business impact test pointed this out and where Health Canada revised its program.

An example in the same area is registration of new products. This was an issue where both pharmaceutical associations came together, which is remarkable in itself.

Again this involved a cost-recovery scheme for the introduction and registration of new products, where the charge levied was simply to recoup some of the administrative costs or some of the revenue that was being cut from last year's budget.

Again this was done without a great deal of thought about the actual cost of carrying forward the certification process. That was one area where Health Canada and the two associations came together and actually did design a system that both associations agreed would streamline certifications and reduce the time it took to bring new products to market.

They were willing to pay a service charge for that, but that service charge was somewhere about one-third of what was originally being asked by Health Canada.

I think our opposition to cost-recovery is not so much to the idea itself but to how it's being implemented. Certainly we have no objection to cost-recovery as a way of commercializing services that are being provided by government in many cases, as long as there's a market there.

Our problem comes when this is a monopoly, because the cost-recovery system is required by government as part of its regulatory process.

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Mr. Gaylen Duncan (President, Information Technology Association of Canada):Mr. Chairman, I wonder if we can give you a precise example.

The Chair: Sure.

Mr. Duncan: I have here the 1995 federal budget general order form produced by the federal government. Traditionally the budget documents were available free.

It's the paper copy for 1995. I'm sure you all remember it as about a 6-inch high pile of documents. It costs $25. A licence for a single stand-alone version costs $500, and a licence for a LAN network - that is, a multi-user - costs $1,000.

Offhand I would say that is gouging. I'd be happy to give it to you -

The Chair: Yes.

Patrick.

Mr. Johnston: I wonder, Mr. Chair, if I could raise an issue that is a practice I've just discovered. I don't know how prevalent it is.

About a month or so ago I received a phone call from a consultant working for one of the federal departments who asked me who the best fund-raiser in the country was. I probed a bit, and I gather there was a particular project that was a favourite of this department that didn't survive the cuts. There was a decision taken to consider hiring a fund-raiser who was going to try to secure funds from the corporate sector to continue that program.

The members of the finance committee may want to consider whether they think it is appropriate for government officials in this instance to place themselves in competition with those of us in the charitable and voluntary sectors.

The fund-raising market is becoming a very crowded place, and the potential fund-raising pool is not growing substantially. Frankly, we don't really need competition from people on the government side.

The Chair: Patrick, I think it's a real compliment to the government that you would consider them competition.

Some hon. members: Oh, oh!

The Chair: Sandra Banks.

Ms Sandra Banks (Senior Vice-President, Government Affairs, Grocery Products Manufacturers of Canada): Thank you, Mr. Chairman. Maybe I can offer two further examples in the area of what we call cost recovery.

Again our industry is prepared to support in principle the concept of taking responsibility for the cost of programs that benefit their businesses and the private sector. Their concern is that this is not seen as an exercise to redesign, re-engineer and take costs out of delivering those programs, but simply as something recovering the current and perhaps inefficient overly high cost of the delivery of those programs.

Let me just give you two examples, and one is small in terms of the size of the industry but it is significant in terms of the revenue that will be generated.

We have experience within the further poultry processors industry in Canada where the federal government estimated the service of monitoring imports of chicken to be in the range of $60,000. The fee that's been set for industry to offset those costs will raise almost $600,000.

That is a small example, but one that demonstrates the opportunity to see this as a revenue generation exercise and not as an exercise of delivering public services more efficiently.

The other example to reinforce is the one George Fleishman used earlier. That was the approach the Department of Fisheries was taking to inspection services versus the approach of Agriculture and Agri-Food Canada.

In one department there has been a 25% reduction in the delivery of that service in terms of the personpower versus another department where there is a 2% reduction in the number of people delivering that service.

The Chair: Thanks.

Mr. Cirotto, just briefly.

Mr. Cirotto: Yes, this is going to be brief. I wasn't going to bring it up, but I think the -

The Chair: You just couldn't stop yourself.

Mr. Cirotto: I just couldn't stop. I'm glad you asked.

The theme here is that the government is looking for revenue. You're looking for money in every nook and cranny.

I read this buried in the back pages. Now, I may be out a few million, give or take, but my understanding is that after the Second World War the federal government lent England $1.25 billion, and approximately 50 years later they still owe us $323 million.

There's something we don't even have to cut, we don't have to dig and look for. It's something that's owed. It's a legal....

I've not seen anything else about this in the papers. It just sort of appeared as a blip. I wonder, is anyone aware of that, or could you answer that question?

The Chair: Herbert, you're talking to Di, and maybe you could bring up that issue.

Mr. Grubel: Yes, I'm taking notes.

The Chair: I've never heard of it.

Yes, David.

Mr. Walker (Winnipeg North Centre): Under the agreement after the Second World War I think they're allowed six deferrals on the repayment. They have deferred four times but are on schedule. After that article appeared, they recommitted themselves, so they're going to be repaying on schedule, which is very early in the next century - I think somewhere between 2003 and 2005.

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Mr. Grubel: What interest rate do they pay?

A voice: Phenomenal.

The Chair: Our problems are solved.

Mr. Walker: They pay the same rates of interest as life insurance companies used to give after the end of the Second World War, and that's why nobody gives 50-year money any more.

The Chair: Thanks, Mr. St. Denis. Thanks, Mr. Walker.

Could I ask a question of David Perry? We've had a lot of people who have said that we don't want you to cut any more. As a matter of fact, you have to spend some more, and you can get the money out of the tax system, because there are a lot of taxpayers in Canada who did not pay their fair share. You did an excellent study a little over a year ago for the Canadian Tax Foundation on relative rates - Canada-Europe, Canada-U.S., and personal-corporate. Would you care to update us on that, David? You mentioned briefly that we don't have much room, if any, for tax measures.

Mr. Perry: That's right. We -

The Chair: Would you give us some fast facts that we can take back on this one?

Mr. Perry: Certainly. I'm only halfway through the article I used last year as a base, but -

The Chair: I thought you meant to read it. It was a good one.

Mr. Perry: Thank you. We're relatively unchanged. Of the 24 OECD members, we're still about 14th. We're about in the middle. Our personal income tax burden is still relatively high. The Scandinavian countries, Australia, and New Zealand are the only countries in which it's higher. For property tax, we remain the highest. We have a prize for that one. For sales tax, we're lower than the European countries. For social security, we're lower than most countries.

The problem is we live still next to one of the low tax jurisdictions in the world. So, as a result, the comparisons are not with Germany or France but with a cousin in Des Moines, where the taxes are much lower and where the tax system delivers a lot fewer services.

The federal and provincial governments had a pause in tax rate increases in the 1994-95 budgets. Really, the only major increase was in the province of Quebec, which was on its way to harmonizing its sales tax with the GST, and this involved some increases in tax in other areas. It's interesting that one province in a pre-election budget reduced its personal income tax rate and got re-elected. Another party promised a personal income tax cut in the near future, and it got elected. A third province will be delivering an election budget in 1996, and the chances, I would think, are good that B.C. will see some sort of tax cuts.

So the mood of the nation is still against tax increases. The build-up is still there. There is this still declining personal income on a per capita basis in real terms. There's no leeway for tax increases that way. Politically, there's still no constituency. There's less of a constituency for tax increases.

I made some comments in late November or early December of 1995 about the political antipathy towards tax increases and was astounded at what happened when a couple of organizations made a concerted effort to campaign quite specifically for no tax increases, and the media picked that up. It was a very effective national campaign to put the brakes on tax policy at the federal level.

The Chair: Apart from the politics of it - because it's tough to go out to the people who are on the bread line or on welfare and say we're going to make further cuts as opposed to go to these great hidden pools of capital and wealth that exist.... What would be the impact economically as opposed to politically? We can be sacrificed as politicians, but what would be the economic impact if we were to try to increase corporate or personal taxes?

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Mr. Perry: At the provincial level you are seeing cutbacks in provincial spending. In most provinces it is going right through to social assistance payments and this is directly reducing personal spending, which is the problem for people who are selling clothing, houses, cars or what have you. The income is not there to spend. If you cut back at the provincial level, you are reducing retail sales.

If at the same time you introduce a tax at the federal level that has the same effect of reducing retail sales, then your hope of getting any economic growth from the personal sector, the domestic sector, is even fainter than it is now. Our economy has recovered because of the foreign trade area, not because of anything that has come from the domestic sector.

If you look at individual tax areas, personal income tax burdens are seen to be very high in Canada, so there would be resistance and additional avoidance and evasion. There are a lot of anecdotal stories about relatively small money, not the extremely rich, moving some of their assets offshore. These sorts of avenues are explored and exploited whenever the tax burden is perceived to be too high, and we are seeing those avenues explored.

The underground economy is another indication of resistance that not only finds its way into the ballet box, to your detriment at the next election, but also to businesses in Canada. The money is taken offshore. It is taken out of one sector, the organized sector, and thrown into the unorganized sector, the small business sector.

There is very little room. The old story is that you could look at sales taxes. We are still looking at the harmonization of the GST and provincial retail sales taxes, but that is a tricky area. It is also an area that impacts directly on retail sales. With payroll taxes, we have seen reductions given at the federal level and promised at the provincial level in a few provinces. I am pessimistic as usual, but I don't see any room for significant tax increases.

The Chair: David Burn, did you want to add anything?

Mr. Burn: On the personal side, I think any time you're over 50%, as we are today in Ontario and most of the other provinces, there is a total disincentive inherent in increasing earnings.

The Chair: Are there many countries in the world that have a top marginal rate of over 50%?

Mr. Burn: Not among those that I deal with. The U.K. has a top rate of 40%, for example, and they are predicting a cut on that. The U.S. is well below that, and we all know that they are talking about significant cuts as well.

The Chair: What is the top marginal rate in the U.S.?

Mr. Burn: It is in the high thirties.

Mr. Perry: It is 39%.

The Chair: Okay.

Mr. Beswick: I think we are overlooking another aspect of taxation. I think the level of taxation is very important, but I think there is this underlying cynicism that if you give the government more money they are going to waste it, and I think you can't overlook that. There is all this talk about retiring the debt -

The Chair: That was only two years ago.

Mr. Beswick: I am not being flippant about this. I think it is deadly serious. If you can generate a consensus on how we should spend the money, people would be more willing to give it to you. There is all the talk about the debt and the deficit, but you don't even amortize your debt over 30 or 40 years as we do with our mortgages.

There is no good faith left between the taxpayers and the government, and I think that consensus has to be generated. Some action must be taken to generate goodwill between the two of us.

Mr. Rollason: I am disappointed to hear you talk about the possibility of increases in revenue. I think the government has to focus entirely on better ways to spend the limited funds it has.

For Canada to remain a competitive country, its industry and citizens must be competitive, and I think the role of the government is to facilitate that competitive environment. If the Canadian government and the municipal and provincial governments aren't competitive with their contemporaries in other countries, that really puts Canada at a disadvantage. I take exception to even considering that as a possibility.

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The Chair: I'm sorry, but you can't take exception to considering that, because it was part of the deliberations this morning. It was presented by three round tables of witnesses. You're the fourth, and every one of those groups brought it up. If you'd been here, you would have heard it. I'm not proposing it to you. This is part of the debate that arises when you open this process up to democracy.

Mr. Rollason: I was taking what you said -

The Chair: I wasn't making a representation as to which way we're going, Peter. I was just saying that there was a heartfelt plea by the anti-poverty groups this morning to do it all on the revenue side, and a person like David Perry knows this.

Mr. Connell: If I may turn to another rather major subject - reference was made to it earlier, including during our own presentation with respect to the Canada pension plan. It is of such magnitude in terms of the financial consequences for our country that I think it's worthy of one or two further comments.

Depending on which actuary you talk to, the deficit at the moment is something in excess of $300 billion. That number, when compared with the national debt, is rather striking. I recently attended a national conference on this particular subject at which we had a number of exalted actuaries, economists and whatever who were holding forth on their views.

One of the more significant items pertaining to this is that if we carry on as we currently are, by the year 2015 we will be broke in terms of the CPP. In order to avoid this possibility various people have made various proposals, some of which include significantly increasing the CPP premiums paid by employees and employers. Based on what I was told at this meeting, you would need to raise the premiums in steps up to about 14% of payroll, which anyone running an enterprise would find to be a frightening cost of running a business.

This suggests a great need for a panel, perhaps as we suggested under the Minister of Finance, to look at and dissect this whole subject. When the Canada pension plan first came into being, it was unsound from an actuarial point of view. First, the premiums were below even what was recommended at the time, and second, people were receiving CPP payments who had not put in sufficient moneys to fund the benefits they were receiving, and in large measure that is the genesis of the difficulty we have today.

The 5.4% currently being paid between an employer and employee will more than amply fund a generous pension for an employee. So by not looking at how we got in this position and segregating the fundamental government pension plan from the other factors that have given rise to this deficit.... Unless we look at this thing in a business like fashion and find a solution to what created our problem, as opposed to compounding the problem by simply raising rates....

The Chair: That's a good suggestion.

Mr. Barnett: Mr. Chairman, I proposed a fairly specific program earlier. I haven't heard the word ``privatization'' and I haven't heard people encouraging the government to gently start backing out of the kitchen. I think there's a broad spectrum of things that we could be attacking here. We need some government regulation, and I don't think anybody would deny that, and we need some incentives, but I think a lot can be done in many sectors by the folks sitting around this table. I think we can do it very efficiently. That would be my broad overall recommendation to you today.

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Mr. Brown: Be mindful that when we're talking about CPP reform, 3.4 million employees are involved in integrated pension plans, where the assumption is that at retirement a portion of their income, of course, is going to be coming from CPP. If there are major reforms that reduce CPP payments, it will be borne as a cost in the private sector, or not borne at all, of course, and there will be decreased retirement income.

We have to look at this globally and not just at CPP in isolation to view the full impact on the whole retirement system.

The Chair: Would you like to start off, Bill Anderson, with a thirty-second summary of what you want us to have learned today.

Mr. Anderson: With regard to our council, the Multi-Employer Benefit Council of Canada, we are tremendously concerned with conserving our health, dental and disability benefits and pension plans. We would ask that you not look at this as an act of tax being avoided but tax deferral.

The Chair: Thanks, Bill. Peter.

Mr. Rollason: In summary, as Philip just commented, I think there's a real need to look at the CPP and its direction. We believe strongly that to hold the line on taxes and continue along the line of monitoring and reducing expenditures wherever possible and looking at the quality of the services and things such as harmonization, the GST, and so on will help affect that.

The Chair: Thank you. Mr. Szpirglas.

Mr. Szpirglas: I don't have much to add, Mr. Chairman, except to say that I think if the overall impact of dealing with shunting down the taxpaying responsibility from one level of government to another occurs, the person who gets nailed at the end of it all is the little guy on the street. I think one of the things that is of great concern to us, as I mentioned before, was the cumulative impact of taxation on our industry. I think fundamentally it's the same for every industry. What you have to be careful about is that anything you set in motion at a national level will not make it detrimental for the individual on the street to be able to pay the taxes required.

The Chair: Thank you very much. Mr. Cirotto.

Mr. Cirotto: Mr. Chairman, I only have one request, and that was my third point. Not just for myself, but I would like to see everyone at this committee today be provided with this 71,000-name list, because I really think that's important. Unless we know who is being allocated the money and how it's being spent, we haven't a hope of figuring out if it's being abused. I'm not implying it's being abused, but unless it's there and quantifiable and we can count it, touch it, read it and weigh it on a scale, we don't know. I hate to be a skeptic, but I would like to see that list. I know Mr. Bryden has been trying for a year to no avail.

The Chair: Thank you, Mr. Cirotto. Mr. Akbar.

Mr. Akbar: I totally agree with David Perry that there should be no tax increase but there should be more control on the tax evasion. If everybody paid fair taxes, the Canadian deficit prediction would be much lower than we expect it to be.

The Chair: Thanks, Mr. Akbar. Mr. Barnett.

Mr. Barnett: The country's environmental goals are very important. I don't think they can be overlooked at this point. We have a serious problem with the tax system as it's set up right now. I'd like serious work to remedy that.

The Chair: Thanks. Tony Morris.

Mr. Morris: We would sum up by saying when it comes to government expenditures, concentrate on realignment of government expenditures to provide a climate of opportunity. We learned as farmers you can't expect to do business in the future in the ways of the past. We would certainly encourage your government, and successive governments, to continue the opportunity provided by partnerships, not just by a slash-and-burn approach with one objective.

The Chair: Thank you, Tony. Patrick Johnston.

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Mr. Johnston: Mr. Chair, we'd simply like to urge members of the committee to give serious consideration to the possibility of improved and enhanced tax treatment for contributions to charitable organizations. I think there is an important symbolic message to Canadians about the extent to which all of us individually will have to assume more responsibility for meeting a range of human needs in our own communities.

It will also serve to help buffer the dislocation that is going to occur in our communities as expenditure cuts work their way through. Finally, it will help to lever private contributions that will help maintain jobs in this sector.

The Chair: Thanks, Patrick. Sandra Banks.

Ms Banks: We support the complete elimination of the federal deficit by 1998 to 1999 based on cost reductions, not on increased revenue generation. We believe a more aggressive plan will help to increase the confidence of business investors in Canada.

Finally, we are prepared to support the concept of cost recovery of services as long as we are simply not absorbing the inefficient and higher costs of government, because that will mean increased costs to consumers or loss of jobs in the industry. We believe more attention needs to be paid to how cost recovery is being implemented at the federal level.

The Chair: Thanks, Ms Banks. Mr. Woodley.

Mr. Woodley: Similar to the others, ITAC urges you to press on with fiscal responsibility, particularly in being aggressive at responsible cuts at the federal government program level, not just in transfer payment reductions.

We encourage you not to spend where it's not encouraged. I refer to the NTIP program discussed earlier. We encourage you to be a model user, to be much more efficient in the application of information technology within the federal government departments. We really believe to do this you must empower the CIO of the federal government to have much more responsibility and to take command of your strategy for applying information technology.

The Chair: Thank you, Mr. Woodley. Next, Ms Van Riesen.

Ms Van Riesen: We'd like to assume, given the lack of questions directed to us on our comments this afternoon, that there's complete endorsement by the members of our views. But just in case, to emphasize, we encourage a healthy retirement saving system; we encourage promoting individual responsibility in retirement savings and no manipulation of pension investments.

I particularly would encourage you to read the 20% foreign property document, which I believe has been provided to the clerk. I think the members may find this of great interest in terms of the ironic effects of a restriction of this nature.

The Chair: Thank you very much. CMA, Mr. Collinson.

Mr. Collinson: CMA would reiterate that we continue to strongly support the government in its objectives with respect to short-term deficit reduction. However, we believe there is a need for a long-term strategic approach to dealing with many of the serious problems that are to be faced. There needs to be a major restructuring of government expenditure to create capital investment.

We're strongly opposed to tax increases of any kind. We believe the impact of a lack of tax competitiveness will be lack of wealth and lack of jobs and growth. There's a strong school of thought that lower rates would increase government revenue. I guess our message would be, why not give that a try? We're strongly in support of harmonization and we continue to strongly support the M and P credit.

The Chair: Thanks. David Perry.

Mr. Perry: In terms of the appropriate economic policy, in terms of very practical considerations as to how much money could be raised, in terms of not in the least important political considerations, there's no room for tax increases in the 1996 federal budget.

The Chair: Thanks, Mr. Perry. Last, Mr. Warren.

Mr. Warren: Mr. Chairman, our group would advocate that the government look more closely at the application of EDI and similar technologies to its own operations as opposed to the way in which it directly assists businesses. They should also study the areas where their procurement activity is the greatest because that's where they're going to get the greatest savings.

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In addition, as the level of government in charge of weights and measures and similar standards, the federal government should make itself aware of the global implications for jobs in Canada of a healthy EDI consulting sector.

Thank you.

The Chair: Thanks, Mr. Warren.

As the chairperson, it would be very presumptuous for me to gainsay or to add to what you have already summarized as your positions.

Let me say this: when I look around this table I note that you represent an awesome number of Canadians -

An hon. member: Hear, hear!

The Chair: - major industries that affect every one of us, and are critical to our economic future.

We're very fortunate that you people would come here, meet our very pressed deadline and be with us.

As we have noticed with every other group that's come before us, I detected complete agreement that we need to meet our deficit targets. You have brought the picture very clear to us, as other groups have not, that we cannot do it through tax measures; we're going to have to do it through spending cuts.

One of our major problems is that by the time...we're looking ahead to 1996-97 and 1997-98. At that point a lot of the fat has been cut away and we're into muscle and bone. This is where the Canadian Manufacturers' Association was very helpful to us, by presenting us with two concrete areas where we could cut. They were quite specific.

I would ask you to take up the challenge they have laid down and find those specific areas where you would support the cuts being made. Do your own little budget for us, if you can. It would be very helpful to us.

I would also like to say that our pension industry, our retirement income, was a major concern to many people around this table today, as to other people - we had many seniors before us - and it evokes great emotions. I'm not sure our committee is the one that should touch it. Perhaps this is something that has to be considered within a much larger context, the context of, again, as we recommended last year, going back, having a study on aging, having the demographics, knowing exactly what our challenges are going to be for the future. I would feel more comfortable attacking those in a comprehensive review than in a piecemeal fashion.

Supplemental medical and dental benefits were mentioned. You know about our attitude to that from last year. The homebuilders and the construction industry - big employers - asked me.

If we can get that going, if our measures can take effect, Mr. Szpirglas, so that people do develop a sense of confidence that we know where we're going, that even though these are very tough times, we're going to have a brighter future, because we're taking the hard decisions and the proper decisions now.... Maybe that will restore the type of confidence you feel is the only way to get people buying houses and get that industry going again. To us it has always been a favourite industry because it is labour-intensive. Jobs are very critical to us.

A couple of you have talked about tax complexity, the need and the desirability for major reform down the road. Good luck. If somebody thinks they can do it, I'm certainly in favour.

I've been part of three major tax reforms in my life. They've all been great successes: the Benson budget, the MacEachen budget -

Some hon. members: Oh, oh!

Mr. Grubel: GST.

The Chair: - and GST implementation.

Anyway, as someone said, I don't think we should confuse tax fairness with tax simplification.

Maybe the private sector, maybe the bar association, maybe the accountants, maybe the financial executives, have found ways that we can simplify the tax return, make it more user-friendly.

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Gee, if you have.... I'd love to talk further. Any type of tax reform you want to bring forward is always on the table.

Lastly, Mr. Discepola just reminded me that half of you have spoken in favour of harmonization of the GST. I don't think you have to convince any of us here at this table. I think we've done our best. It's in the hands of the provinces. Our federal government is fully committed to it.

Any assistance you can bring to us at the provincial level.... It's on the desks in Ontario right now, as you all know. I think the negotiations are probably stalled. If it's our fault they're stalled, I'd like to know about it. But if it's because it's not a priority to the Ontario government at this particular time, your effort in working with the Ontario officials - I know some of you already have - to get this on the road is just one great example of how we can eliminate ten different laws and put them all in one and combine ten different administrations into one. Canadian taxpayers deserve it.

In terms of examples of overlap and duplication, you've given us a number of examples today of where we could eliminate federal-provincial overlap and duplication. I just read a press release stating that the federal government has withdrawn, as of today, from federal manpower/human resource training. Mr. Chrétien just announced this.

This is not a question of devolution of powers, as some people say, because this power has always been provincial. Under the Constitution, we have in certain ways used our federal influence to get into it.

I have received....

[Translation]

The Bloc québécois has promised me that if we could eliminate all duplication and overlapping, it would give up on independence. So let us face this challenge of doing away with duplication and overlap!

Mr. Crête: We'll still be able to show you lots of things this week.

[English]

The Chair: In the name of all of the members here, I would like to thank you for some excellent presentations - you did a lot of work - and for not only the preparation you made for us today but the work you do on an ongoing basis.

You're very important to us and to our economic future. Thank you all very much.

We adjourn until 9 a.m. tomorrow in Winnipeg.