EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 10, 1995

[English]

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The Chair: We will come to order. We're continuing our reference into Bill C-76. With us today we have representatives of CUPE, led by Judy Darcy.

Ms Darcy, would you like to introduce those who are with you?

Ms Judy Darcy (President, Canadian Union of Public Employees): Yes. Actually, I'm going to be introducing them as we go through, because they will be participating in the presentation.

The Chair: How many people will be presenting?

Ms Darcy: Myself and eight others.

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The Chair: Okay. Are any of the others who are with you at the back of the room?

Ms Darcy: No. They are participating by their presence, but they will not be speaking today.

The Chair: I take it everybody here is not on payroll?

Ms Darcy: Not on the payroll of the federal government, no, and when your bill goes through even less.

The Chair: Thank you. We look forward to your presentation.

Ms Darcy: Are we waiting for the Bloc representatives or not?

The Chair: No. They're here.

Ms Darcy: Okay. Good.

I am national president of the Canadian Union of Public Employees. We represent 400,600 members in 10 provinces in Canada. We're Canada's largest union.

With me today we have both health-care providers who work in front-line health care and people who are users of health-care services. We have parents; we have child-care workers; we have children; we have people who work in our university system; we have people who are students in the university system; and we also have people who are recipients of or participants in social service programs.

We do have a written brief for you. We've given out copies in English and French. But we've decided today not to do a formal written presentation. What we want to do instead is to talk to you today not about statistics, not about facts and figures - although we present very solid arguments, we think, and very solid figures, as well, in our written presentation - but about the stories of people. We want to talk to you about how people are already being affected by cuts in federal transfer payments, some cuts in provincial social programs and public services, and for that reason we have invited people to be here with us today who both provide those services and are also, as are all Canadians, recipients and users of those services.

As national president of Canada's largest union, representing people from all walks of life in this country, I have the opportunity and privilege of travelling from one corner of the country to the other, and I've certainly been across this country and back several times, in every province over the last few months, talking both to our members and to the people we're very proud to serve every day in the communities.

I have to say to you with all sincerity that the stories I hear more and more, from our members as well as from students and parents and people in the health-care system, are heart-breaking stories about a social safety net that is already unravelling, about public services and social programs that are already and increasingly in a state of decay. These are stories this committee would also hear if you were to travel across the country, if this government were to decide...if this committee were to recommend to government to have cross-country hearings. We want to urge you very strongly to hold cross-country hearings.

Certainly we will bring you stories today that tell the human side of the story, but we also say to you the kinds of changes that are contemplated by Bill C-76, the kinds of changes that are contemplated in the budget bill, are a fundamental reworking of the country we know as Canada.

Others before us - people such as Keith Banting, the director of the School of Policy Studies from Queen's University - have talked about how the Canada Health Act is effectively being rewritten, but not officially so. He has talked about it as ``social policy by stealth''.

We would say to you that the changes contemplated are not about tinkering with our social programs; they're not about tinkering with our social security system; they're about a fundamental restructuring of our social programs. We would say to you that these changes are as fundamental to the future of our country as are free trade, as was Meech Lake, as was the Charlottetown accord, and as such the government should be going across the country and hearing from Canadians.

We would say to you this government does not have a mandate to undermine and to unravel social programs in Canada, which we put to you is what Bill C-76 is going to do. We believe it is unthinkable that a government would proceed in this way without consulting Canadians further, without having a mandate from Canadians. We would say to you it is in fact a fundamental affront to democracy not to go across the country and to hear from people in every corner of Canada.

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Yes, Mr. Peterson said before the session started that he's confident we will give an articulate presentation on behalf of Canadians. We hope to do that.

But we would also say to you that there are many communities across this country where people are already falling through the holes in our social safety net and those stories will be repeated over and over again if Bill C-76 comes to pass. So we urge you in the strongest possible terms to do that.

I want to start by talking about health care and what Bill C-76 does to health care, because the federal budget does, as we know, slash federal financial support to the provinces for health care very dramatically. The precise figures, province by province, are also in the background document we've circulated. Many others have come before you and have shown how, in fact, cash transfers to the provinces for health care will be effectively eliminated over the next decade.

We don't think it takes a rocket scientist to understand that when there is no more federal spending power there is no more clout to enforce the national standards in the Canada Health Act. Bill C-76, the cuts in funding and the shift to block funding, will mean down the road that the federal government will not be able to enforce universality, comprehensiveness, accessibility, public administration and so on: the principles in the Canada Health Act.

We have already seen that the principles of the Canada Health Act are at risk. We have already seen what is happening in Alberta with the Ralph Klein government, where we already have the emergence of a two-tier health care system. But as we know, with less and less federal spending power, there is less and less fiscal clout to be able to stop that kind of thing now and in the future.

Our union is proud to represent 140,000 health care workers in every province who work on the front lines delivering health care to Canadians, and today we have two of those health care workers with us: cott McLaughlin, who works at the Grace Hospital here in Ottawa, and Betty Sommers, who works as a practical nurse at the Perley Hospital here in Ottawa. I would ask them to say a few words to you.

Mr. Scott McLaughlin (Canadian Union of Public Employees): I work in a hospital just a few miles away from this building. Three years ago people would come into our hospital and they would comment on how clean the place was for a hospital. Now, because of technique changes - which really mean fewer staff to do the work and cutting corners - people comment on how their feet stick to the floors. They comment on how they are afraid to use the washrooms in the building because they do not look sterile to them. They comment on the dust bunnies that are living underneath the patient beds in the patient rooms.

I work in the stores department and I see stock quotas being placed so low on user units that people are hoarding stock to save it for patients. They are afraid of using one too many underpads or bandages and they're so restricted in their gauze uses that they are unprepared if somebody has any complications which require further stock. Minimal stock and ``just in time'' inventory methods work in manufacturing settings, but they don't work in hospitals when you're dealing with people.

Two months ago my wife was in the hospital and we gave birth to our third child. Unfortunately we were forced to be discharged from the hospital within 48 hours. There is a downward trend to reduce that to the same way it is in the States, to get people in and out in 24 hours. If Bill C-76 goes through, we just have to ask ourselves, what's next? We're bracing ourselves.

Ms Betty Sommers (Local 883, Canadian Union of Public Employees): I work as a registered practical nurse in a chronic care facility in the nation's capital here. Up until a few years ago we were able to get our elderly patients out of bed at least every day, if not every second day. Since the funding levels have been drastically decreased and eroded my elderly patients no longer can get out of bed every day; it's on a rotational basis. So-and-so gets out of bed on Monday, Wednesday and Friday, so-and-so gets out of bed on Tuesday and Thursday. We do not have the staffing levels any more to get our people out of bed.

The seniors and the elderly in our community are not getting the quality of care they deserve. The food they're getting in these institutions is not the quality they at one time had.

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I feel these people do deserve to get better quality care. With the eroding of funding for health care from the federal government to the provincial governments, it will get even worse; and we cannot tolerate this.

Ms Darcy: These are the stories we are already hearing, as our two members have indicated, in hospitals within a couple of miles of where we sit today. As we know, the stories are much worse even than that in other provinces. In Alberta, for instance, I spoke with a woman recently who had been in for traumatic breast surgery. Because of the cuts in that province she was forced to leave the hospital within 24 hours after traumatic breast surgery.

We're having our front-line health care workers start to joke about what they call ``drive-by delivery'', because of the attitudes, the policies and the very restrictive formulas for time lines for how long you're allowed to stay in hospital for things such as child birth, which is down to about 24 hours in many hospitals already.

I want to talk to you for a couple of minutes about post-secondary education, because as we know the federal budget also slashed federal spending significantly in the area of post-secondary education. As we also know, provinces rely heavily on federal revenues to finance colleges and universities. There's no question that without that federal funding, with declining federal assistance, we will see massive cuts in that sector in university and college programs. In some provinces governments have made clear that some of those institutions would in fact have to close.

We are already seeing in post-secondary institutions education programs being cut to the bone, at a time when you say as a government, when everybody in this country, says it's essential, it's critical to our future, to upgrade skills and education in search of jobs in order to deal with the new global economy. But our colleges and universities are already being forced to do more with less. They are being forced to make up for the shortfall by raising tuition fees, by introducing new and higher user fees and by turning public programs essentially into commercial ventures. And we put it to you that the federal budget will make that terrible situation much worse.

We will see tuition fees increase at quite a rapid rate, and down the road we will see university education increasingly accessible only to those who can afford to go. We don't believe any of us want to see a country where it's only the children of the rich who down the road are able to make it through a university door. I don't think we want to see a country where lifelong learning becomes replaced by lifelong debt.

If we do go down that road, with students either not having access or having to pay for their access by paying for loans for a long period of their life, these are also policies that will affect and will hurt women, people of colour, people with disabilities, and aboriginal people the most, because even with changes in the workforce we know it is these groups in our society whose earning power is significantly less, which means they will be paying for their post-secondary education over a much longer period of time.

We represent in our union 40,000 post-secondary education workers, some of whom are also students. I would like to introduce to you today Madeleine Stewart-Damj, who is a graduate student at Carleton University, and Marnie Jordon, who is the president of CUPE Local 2424, representing support staff at Carleton.

Ms Marnie Jordan (Local 2424, Canadian Union of Public Employees): Thank you. I am here today because I am concerned about the impact of your budget on post-secondary education. Carleton University is already feeling the effects of budget reductions. Senior administrators are saying publicly that Carleton will be doing less with less from now on. For example, there will be less teaching, less services for students, fewer students, staff downsizing and reduced library holdings. The only item on the list of things that will increase is tuition fees. Higher tuition fees and fewer students mean that university education is going to become more out of reach for working-class families.

I grew up on the other side of the poverty line on a small farm on Prince Edward Island. I was among those who benefited from the student assistance programs in the 1960s and I have never taken that good fortune for granted. If it wasn't for that window of opportunity I would not be here today making this presentation to you.

Members of my local say they no longer feel the university is meeting the needs of its students. A co-worker told me how she felt after registering international students in ITV courses.

The students came from halfway around the globe to live in residence at Carleton, paid exorbitant tuition fees, coped with a language barrier, only to have most of their courses delivered by television. If you have ever watched Carleton's ITV channel, you will realize just how bleak that situation probably was for these students. Even though she was powerless to correct this, this staff member felt guilty and somehow responsible.

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Students are being hit with a multitude of incidental charges. They even have to pay for their statement of marks and their diploma. This would be like you having to pay the A&P for the receipt for your grocery order and being told that the A&P will hang on to your groceries and your money until you do so.

Several of my members say they no longer have the time in their day to give students the kind of personal attention they so clearly need. Increasingly, students are being directed to touch-tone for answers to their questions and concerns, when what they really want is human contact in an environment that is impersonal and intimidating, especially to new students. I fear it will take universities decades to recover from further budget cuts and the those-who-have-get rule will be what determines who gets a university education and who doesn't.

Ms Madeleine Stewart-Dmaj (Canadian Union of Public Employees): I owe the government $30,000 for my education and all because I was poor. Yet I'm not unusual. The choice I faced was very difficult: incur the equivalent of a mortgage or face a low-paid string of jobs for the rest of my life.

I'm now beginning to wonder whether or not it was worth it. I have little hope of finding full-time employment. If I'm really lucky, I might get contract work with no benefits and long stretches of unemployment in between. I guess the truth is really hard to take and to face.

Born poor, I'm still poor, in debt, and behind the eight ball for a very long time. I do resent being $30,000 in debt, and yes, I am angry that the poverty of my birth will mark me for life. But neither am I a whiner nor am I a complainer.

As a young person I spent time living in a car because my family was homeless. I've come a long way since then, through hard work and government loans, for which I am extremely grateful.

What frightens me is the future. We are moving more and more towards a class-based education system. Soon I fear the ranks of indebted students will swell to include the children of the middle classes.

Tuition now stands at roughly $3,000 per year. Next year who knows - $5,000, then $7,000, then $10,000? What middle-class family in this country can afford to spend $10,000 per child, per year, for tuition?

Universities are already experiencing enrolment shortfalls. We are moving to a class-based education system that equates brains with wealth. Yet at the same time as the federal government is making education an impossible dream for many, it proclaims that we need a more highly education populace.

I'm seriously thinking twice about doing a PhD. I just don't think I can bear any more debt. What about those who are partway through a PhD program, such as my husband? What will they do? Drop out? Increase the mortgages they already owe?

Education-incurred debt will destroy the dreams of the current generation. Cut-backs in education are already being felt. And the proposed cuts will most certainly lead to higher tuition and ever greater debt loads. Don't let it destroy the dreams of those who come after us, for they will not owe $30,000; probably it will be more like $100,000.

Thank you.

Ms Darcy: Now I'd like to talk briefly about CAP, the Canada Assistance Plan, social assistance in particular. As we know, the federal government now transfers to the provinces $1 for every $1 that is spent by the provinces on social assistance and on other programs such as child care. These are arrangements that are spelled out in federal legislation governing the Canada Assistance Plan.

However, the federal budget, as we know, replaces the Canada Assistance Plan and CAP legislation with the Canada Health and Social Transfer. What that means, of course, is that the federal government transfers to the provinces for social assistance will no longer increase, even if there's a severe recession, even if governments at the provincial level choose to raise the level of social assistance to a decent level.

It also means the federal principles for the prohibitions that now exist in CAP, the regulations governing social assistance, will be eliminated. These principles, for instance, include the right to social assistance for people in need. They also include the prohibition against people being forced to work for welfare, otherwise known as workfare.

We know we can predict already, since we've seen what has happened in this country at the provincial level in the last few years, that unceasingly we will see further reductions in the level of social assistance as provinces compete in a race to the bottom. We will see many people forced off social assistance who still need it. We will see more provinces do what the Province of Alberta has done, and what has been well publicized: handing a bus ticket to literally thousands of social assistance recipients and encouraging them to go to British Columbia.

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We will also see an awful lot more workfare programs, and I want to talk about that for a minute. We don't have anyone in here today with us from New Brunswick, Newfoundland, or Alberta, where we're already seeing these stories over and over again.

I was quite horrified when I was in New Brunswick a couple of months ago for a day, where we brought together anti-poverty groups together with our members to talk about what was already happening, about workfare in that province. I met and I was on a phone-in show with a woman, who chose to remain anonymous by the name of Michelle, who was a participant in one of New Brunswick's famous workfare programs.

New Brunswick is often referred to, including by government committees, as an incubator for social reform in the country and as an innovator in social policy areas. What we saw there was a young woman, married, with several children, who, after having been on welfare for some time and struggling very hard to get off and working at whatever job she could but of very short duration, finally decided that she would take part in one of these workfare programs.

She was working for $6 an hour in a CUPE workplace, in a schoolboard with CUPE members, not making fat-cat salaries, believe me; $10, $11 dollars an hour. Our members on average across the country make about $26,000 a year, but in this case it was even lower. This was someone called a grant worker.

She said, I know really I'm not even better off financially for being on this program, but I want the chance to prove I really do want to make something of myself; I want an opportunity; I want a foot in the door. But she said, if the government pretends this is really about job creation, that's a myth, because I'm going to be working, she said, for 20 weeks; at the same time as I'm working, and I will be replaced, there's a revolving door of grant workers - we hear that story around the province in public works, in roads, in social service, in libraries and school boards - I will be replaced in 20 weeks by another grant worker. I will have my 20 weeks then. I'll be able to go on UI.

This is not about breaking the cycle of dependency. Frank McKenna says, it's about job creation. It's about getting people off welfare, breaking the cycle of dependence. It's going from one type of dependence to another. I want a real job and I want to work.

It was her story, and we heard that story around the province.

I've also heard it in Baie Verte, Newfoundland, home-care workers being replaced by people on social assistance making half their wages - and again, we're talking about people who make $10 an hour - $5 instead; untrained, unqualified home-care people who in the future will be providing home care, with some top-up to their social assistance, to our seniors in their homes.

The same stories are heard in Red Deer, Alberta and increasingly the across the country; and that's with the Canada Assistance Plan, and with regulations that prohibit workfare. This is already what we're seeing across the country.

I want to talk to you for a couple of minutes about child care. Currently the provinces receive federal funding for child-care subsidies under the Canada Assistance Plan, and as you know, the Liberal government promised to create 150,000 new child-care spaces, starting after the first year of economic recovery. Instead, by eliminating CAP, the federal government has effectively done away with federal support for the child-care program.

The replacement of CAP cost-share arrangements for child-care subsidies with block funding effectively means there's no longer any incentive for the provinces to initiate child-care programs, to create new child-care spaces.

We have with us today Julie Henry, who is a child-care worker at the Wellington Daycare Centre in Ottawa, CUPE local 2204. We also have with us Karen Parras, a parent with a 3-month old daughter, Amie, who's with her here today and who's on a waiting list for childcare.

Ms Julie Henry (Canadian Union of Public Employees): I work at a unionized child-care centre. Our union local represents over 200 front-line child-care workers. As staff working directly with the children, we are only too aware of the budget restraints over the last few years. We work with shoe-string budgets and fear further cuts will mean layoffs, which will mean even fewer spaces available for children.

We unionized in 1979 in order to have a stronger voice around wages, which were at that time $5,000 to $6,000 a year, working conditions, and inadequate funding for program supplies. There was no stability and we lived from one funding crisis to another. This situation could be revisited.

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In the red book we were reassured that child care was to be a priority. Now, with block transfers to provinces combined with massive cuts to social services, child care is out in the cold and funding is uncertain.

At my centre the waiting list for infant care is 167 children. We have 9 infant spaces. For toddlers, there are 154 on the waiting list and waiting for up to 2 years for one of the 10 spaces. Last year in Ottawa-Carleton there were approximately 4,400 requests for subsidized child care, but there were only 640 spaces available.

The need for high-quality child care service is immense. The legislation you are now contemplating is going to have enormous impact on the quality service we now offer to families.

Ms Karen Perras (Canadian Union of Public Employees): I am Karen Perras. Unfortunately, my daughter is not happy, so she's had to step out. I'm not happy either.

I'm on a six-month maternity leave right now, and because of these uncertain economic times and the fact that my partner is not guaranteed any job security, I have to go back to work. I can't afford to stay home, which is a choice I would like to have.

It's very important that we have high-quality child care for our daughter, Amy. Like most parents, we want the best for our child. I laughed when friends told me I had to put my name on a waiting list as soon as I found out I was pregnant. I didn't laugh when centres told me I would have to wait two years for a space; and that's in a high-quality child care program.

I was even more distraught when I found out that the spaces at these centres cost up to $1,300 per month. As middle-income earners, we cannot afford that, nor do we qualify for subsidy. What choices do we have left? We do not want to put our child in an unregulated child care setting. Both of our families live out of town. I need to go back to work. As a parent this is agonizing for me.

What's even more outrageous is the proposed deep cuts in the spending on social programs. This means even less choice in services for just us ordinary people out there. Is it fair to Amy and all the other children who need a comprehensive, high-quality child care program from the federal government? These children are our future. Please don't take it out on them.

Ms Darcy: Thank you. The final area we want to touch on is how the Canada Health and Social Transfer.... We've talked about the programs that will be directly affected, but we also want to talk for a minute about programs that will be indirectly affected, because of the significant amount of money that will be cut to the provinces.

Effectively we will see block funding bring about a situation where other social programs and public services are effectively put on the chopping block because provincial governments and then local governments in turn will be passing on those cuts. They will have to make very hard choices - impossible choices, in fact - about what kinds of programs are going to be saved. Is education more important than health care? Is it expendable to cut welfare in this day and age but preserve health care?

There is no doubt that at both the provincial and the municipal level cutting programs of every sort will continue. There will be intense competition for a shrinking pot of public money at the provincial and the local level, and provincial governments, as I said, will have to make not just tough but impossible choices. We will see the gap between the haves and the have-nots continue to widen and we will see our society radically transformed.

I would now like to introduce Steve Sanderson, who is a CUPE member who works at the Ottawa-Carleton Association for Persons with Developmental Disabilities. He's going to say a few words about Shawn Murphy, who is also here with us today.

[Translation]

Mr. Steve Sanderson (Local 1521, Canadian Union of Public Employees): Good morning. I was going to speak French but I've had the privilege to be asked to speak on behalf of Shawn Murphy. Since Shawn speaks English, I think it would be inappropriate for me to continue in French.

[English]

Having said that, I want to tell you a little about Shawn. Shawn is a fellow who lives in one of our residential facilities. Until a year ago, he had a day program. It so happened that at that time Shawn was very sick, and it was felt he could no longer use that program. As a result of that, he remained in his residence. That's understandable, because of course the care would be better in the residence. It would have been very difficult to meet his needs in a day program at that time.

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Well, things change, and Shawn was at least capable of returning to that day program. But there are long waiting lists, and when Shawn left somebody took his place. We couldn't ask that person to leave. There were hundreds behind him, too. So we attempted to get some other thing for Shawn to do, and we were able to get something like a month and a half of time, a couple of days a week, for him to get out in the community, a thing we really take for granted. All of us take that for granted.

Presently, though, Shawn has nothing. As far as day programs go, he's at his home 24 hours a day, except for the opportunity of going out. This is an excursion for Shawn, and he chose to be here today. We didn't tell him to be here; he chose it. But these are the rare exceptions for him.

Shawn is not an exception to the rule. I can assure you there are thousands of people in this province and tens of thousands of people in this nation who have disabling conditions the same as his. It's not the fault of the agency we work for; it's the fault of the funding. There is not enough funding. We scrimp and save and we cut back and we cut out nickels and we review the nickels we cut out.

We have to remember these things when we look at it. We have to remember the Shawns who are out there. We have talked now in this province about outputs for people like Shawn. How many people in and how many people out in a year? That's all being impacted on because of the cuts in the transfers.

I want us to think about one other thing as we do these deliberations and as you do these very important deliberations. I've looked around the room today, and you all have the ability to write down notes with a pen yourselves. You take that for granted. You're able to drink a glass of water when you want, and you'll leave this room tonight and most likely go out to a restaurant of your choice or go home. You'll get up tomorrow and choose the clothes you want to wear. Those are things you take for granted, and those are things Shawn doesn't take for granted, nor do we.

I guess there's one thing we could say about this city that makes it a good place to be in right now, when cuts are happening. We have a lot of churches, and churches have basements. You know where people like Shawn started getting service forty and fifty years ago? In church basements. If you're not careful about what you do, that's where they're going to end up again.

We've forgotten something in Canada. We've forgotten about what we mean to each other. There's something that bothers me. I feel we're on the verge of starting to say things like if they don't have bread, let them eat cake. So let's not forget where we came from.

Thank you.

Ms Darcy: The stories we've told you today are not about the future; they're stories of what's already happening right now, what's happening within a few miles of where we sit today. I don't think we need to be fortune-tellers or rocket scientists to know we're going to see stories and hear stories that are an awful lot worse not too long down the road.

Why? Because passing Bill C-76 effectively hands over control of social programs to provincial governments with no strings attached, and that does mean the end of national standards. Passing Bill C-76 does give the green light to premiers like Ralph Klein to bring in two-tier health care and to premiers like Frank McKenna to bring in workfare.

Passing Bill C-76 is social policy by stealth. Passing Bill C-76 is about widening the gap between the haves and the have-nots in our society. Bill C-76 is about increasing that trend towards a smaller and smaller number of decently paid, relatively secure jobs and more low-paid, insecure jobs with no benefits. We're already seeing that across the country and Bill C-76 will accelerate that trend.

Bill C-76 is essentially like pulling the trigger on the starting pistol for the race to the bottom in this country. We have already seen the future in this country, and it looks an awful lot like Ralph Klein and two-tier health care and it looks an awful lot like Frank McKenna's workfare programs and it looks an awful lot like the stories we've already heard from the people who have spoken to you today.

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I want to conclude by talking about whether or not the government had any choices, and I can see by looking at some of the faces as we're speaking that you're undoubtedly saying to yourselves, yes, but we just don't have any money. You know we had no choice. We may share your values, but we had no other way to go.

I would put to you, with great respect, that groups like ours - the Canadian Labour Congress, the Canadian Centre for Policy Alternatives, social justice groups from one corner of this country to another - did our homework in the consultation period around the social security review in the period leading up to the federal budget. We did some very serious work around an alternative federal budget that I would suggest to you did map out in very concrete terms what alternatives the federal government did have in the road it could take in dealing with the fiscal problems facing the country and what it could do for social policy choices.

We would say to you that when Paul Martin rose in the House in late February to deliver his budget, he could in fact have chosen to act on some of the proposals in that document. The government in fact chose not to. We have copies of it here for you today in case you haven't seen it - 1995 Alternative Federal Budget.

It suggested, for instance, that if the government had introduced a tax on inheritances of over $1 million - not on the modest homes that some of us may want to pass on to our children, but an inheritance tax just on inheritances of over $1 million - that tax alone would have brought in $2.25 billion in revenue.

We suggested that if the federal government had acted to put an end to the tax breaks for liquid lunches and fancy seats in boxes in Skydomes and Saddle Domes, so-called business entertainment expenses, we're talking about increased revenue of another $500 million.

We put forward in that budget - instead of taking measures that would cut jobs, including 45,000 federal jobs - if in fact the government had acted not necessarily to create those jobs directly, but had taken various measures proposed by the Canadian Labour Congress to encourage and stimulate job creation - the addition of another 100,000 jobs per year, for instance - additional jobs would have meant $1 billion less spent on UI and social assistance, and another $2.5 billion in increased revenues coming in. We're also suggesting that with those increased revenues, the government would have had other choices than to cut social programs and UI and the CBC, and in fact would have had the funding to initiate a national child-care program in this country.

We know Paul Martin and the government decided not to bring in our alternative federal budget. I guess we would have all pinched ourselves if he had risen in the House and delivered that budget. But we say it is quite wrong for the government to say there are no choices, the road the government took was the only road it could possible take.

We say to you, in conclusion, that the changes this government is introducing with the block-funding bill, with Bill C-76 - and I repeat what I said earlier - are every bit as fundamental to our future as free trade and Meech Lake and the Charlottetown accord. We say to you that the government does not have a mandate to unravel our social programs. We say to you that the government was elected on a program of creating jobs and of defending social programs.

We also say to you, in conclusion, we reinforce our urging at the outset, which was that you go back to the government and call on them, as we have, to have cross-country hearings so that Canadians' voices can be heard from one corner of this country to another.

We also implore you that...this government, together with the Government of Newfoundland, had great courage when it came to standing up to the Spanish fishing fleets and the European Union, and we applaud you for that. It was a great day for Canada and for Newfoundland and Labrador in particular.

We say it would be a great day for Canada if this government showed the same courage in defending our social safety net rather than taking action that will see it further cut to shreds, and we ask you to take that message back to the government.

We would be happy to answer any questions.

The Chair: We have five minutes for questions. I have four questioners on my list. Could we limit questions and answers to one minute per person?

[Translation]

Mr. Deshaies will be first.

Mr. Deshaies (Abitibi): Thank you.

[English]

I'm sure a lot of people don't speak French.

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[Translation]

Mrs. Darcy: I'm sorry.

Mr. Deshaies: That's all right, my French is much better than my English. I thank you very much for coming and showing us the other side of the coin.

Since you belong to the unions of the Canadian middle class, which had a happier life in the past, I would like to ask you a question. Considering that health and education budgets are frozen and must in fact be cut, and considering the present fiscal situation of Canada, do you think that the government should ask all the departments to consult the Canadian people about what they should do?

[English]

Ms Darcy: Let me just clarify. You say we're unionized workers and that makes us the middle class. We represent people who are certainly middle class. We also represent an awful lot of people who are the working poor in this country. We represent a lot of people who make $6 and $7 an hour, or $10,000, $12,000 a year.

We think one of the fundamental problems with this exercise is that we are not going about reforming social programs in a way that starts with how we should be improving those programs. We think consulting the people who deliver those programs, as well as recipients of those programs, whomever they may be, is absolutely essential if we're going to make real progress, as opposed to destroying them.

In the area of health care, for instance, we have advocated for a number of years. We've made many presentations about what we think real progressive reform of health care would look like, and we would suggest, for instance, yes, there is money to be saved in the health care system. We have lots of ideas about how to save that money.

We would suggest, for instance, that one of the major areas of rising costs over the last few years is in the area of drug costs, and when in opposition this government certainly was very strongly opposed to the introduction of a bill by the Tories that replaced...and gave a major advantage to brand-name pharmaceutical drug companies over generic-producing drug companies. If that drug bill were repealed, that's an area where we would see some significant changes and reductions in costs for drugs, for instance.

We have advocated a role for non-physician providers in the delivery of health care. We think the system of payment for physicians needs to be re-evaluated, because it encourages overbooking and overprescribing and overtreating.

So we have a awful lot of ideas. We've been very active in the area of health-care reform, as we have been active in the area of reform in every other area of social policy. We'd be happy to be part of a debate that really is about how we bring about real reform and long-term reform that benefits Canadians.

We think this is, unfortunately, an exercise that is driven by cost-cutting, and while there are certainly areas where costs can be cut, we need to start and our motivation needs to be how to improve the quality of health care and other social programs for Canadians.

The Chair: Mr. Abbott.

Mr. Abbott (Kootenay East): So we can determine we have something in common - and I really respect the people who have come here today - I just did a quick tally of the student loans owed to the bank by my children; they total about $57,000. So I have that in common. I also happen to have a friend who has a tumour the size of a grapefruit on a kidney, and he can't get bed space.

So it's not that I am unsympathetic to the things you're talking about, and also I think we would agree the CHST will undoubtedly lead to the downloading of further tax increases at the provincial and municipal level, as well as a downloading of the responsibilities to the level where the taxes are being collected. So we are in agreement on that. However, I think we can leave that fairly - -

Ms Darcy: I thought there was a ``but'' coming there.

Mr. Abbott: I was just going to say I think the question I have to ask is, having a bit of sympathy for the concept of workfare, of giving people the opportunity to be able to be employed and out in the workforce - meaning I'd like to make it very clear that I'm directing this specifically to yourself as a representative of CUPE...not anything to do with the other people - I wonder if there is a concern about workfare versus union workers...if there is a hidden agenda on the part of CUPE relative to that.

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Ms Darcy: Well, it's not a hidden agenda at all. You may call it self-interest, but we think it's in the interest of Canada to see that the kinds of jobs we're creating - that the priority on the kinds of jobs we're creating - are decently paid, relatively secure jobs and that we are not creating more ``McJobs'', if I can call them that.

I don't have the statistics at my fingertips - we can certainly get them for you - but the trend in the last few years in this country is that we're seeing less and less permanent, or less and less full-time jobs at decent pay, created. We're seeing more and more casual part-time jobs with no benefits and no security at all.

Certainly we are very concerned, but we think everyone should be, that workfare programs will also undermine the existence and the creation of decently paid jobs in this country. But that surely is in the interests of all Canadians. It's surely in the interests of the Government of Canada and of every party that sits in the House of Commons that we see decent jobs created in this country rather than low-paid jobs and that we don't widen the gap between the haves and the have-nots in our society, even if that's the relatively better-off workers...from creating a new class of working poor in this country.

So that's not a hidden agenda at all. We make no apology for thinking we should be focusing on jobs that make $12, $14 and maybe even $15 an hour. Those aren't fat-cat wages. We're very proud to say we worked to raise the standard of living of Canadians. We represent ordinary Canadians, not well-off Canadians.

Mr. Abbott: It just struck me that maybe there was...

The Chair: I'm sorry I'm going to have to cut you off. We've gone over time and I feel bad.

Mr. Robinson, would you just like to say a couple of sentences? There's no time for anything.

Mr. Robinson (Burnaby - Kingsway): You told me there's no time, so I just want to thank Ms Darcy and all of the witnesses for their presentation.

I have been a member of Parliament now for 16 years. I have attended many committee presentations. I can say certainly the power, the impact and the eloquence of this is one...not that I needed a lot of persuading; I happen to agree fully with the arguments you have made - and I can only hope it might resonate, particularly with my colleagues on the government side, and they might recognize, as Ms Darcy has said, the commitment made in the election was for job creation, defending social programs and not destroying them. So thank you very much.

The Chair: Mr. Robinson, it's the first time you have been before the committee. We're delighted you're going to stay with us all day. We'll be going on until 8:30 p.m. tonight and we look forward to your continuing attendance at our meetings.

Mr. Robinson has thanked you on his own behalf. I think he spoke very eloquently. On behalf of all the members here, may I thank each one of you for a very important presentation to us. Thank you.

Ms Darcy: Thank you for the opportunity to appear before you and to urge you once again in conclusion to urge the government to have those hearings across the country. Thank you.

The Chair: We've heard you. Thank you very much. It's just that we have other people we have to consider. It's not that we're trying to cut you off. It has to do with other witnesses who have come here on their own as well.

Our next witnesses are from the CMA.

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[Translation]

I would like to welcome the doctors, Mr. L'Heureux, Mr. Léo-Paul Landry and Mr. William Tholl. Thank you very much for being here. You have the floor.

[English]

Dr. Bruno L'Heureux (President, Canadian Medical Association): Thank you, Mr. Chairman.

As the voice of Canada's physicians, the Canadian Medical Association appreciates this opportunity to join with many others today to express its concern about Bill C-76. Specifically, the physicians of Canada are worried about the ``all-purpose'' transfer being proposed by the federal government.

It is our view that, if passed as is, the Canada Health and Social Transfer, or CHST, would constitute the most significant federal fiscal retrenchment in the history of these programs. Nothing less than the future national integrity of health insurance programs is at stake.

Immediately following the tabling of the federal budget, CMA issued a news release that the CHST was ``Bad Medicine for Medicare''. At the time, some commentators suggested this was an over-reaction. Having examined the details of Bill C-76 and having witnessed the emerging debate, we are more convinced that ever that the CHST could spell the beginning of the end of medicare as we know it.

[Translation]

The Canadian Medical Association is quite aware of the fiscal challenges we face. We continue to support the principles of a national medicare program, but we also believe, like many other concerned citizens, that there should be much more clarity and certainty in this debate, and much less rhetoric. The media and others had started to focus on the details of the transfer and on the statements of the federal government.

We now see that the initial concerns of the Canadian Medical Association appear more and more often in other sectors of society. In their release of April the 11, 1995, health ministers of the provinces and territories stated that the federal government may have made some commitments about the five basic princples of the Canada Health Act, but that it is not enough to subscribe to them in theory.

[English]

Just last week, a leading expert on social policy was quoted as saying Canadians ``would not stand for the open explicit repeal of the Canada Health Act. But the quiet erosion of the cash transfer is achieving the same political end by stealth''. This is according to Dr. Keith Banting of Queen's University. It is just one in a chorus of voices being heard on this issue. CMA no longer stands alone in its request for greater clarity, certainty and accountability from the federal government on the CHST.

Last week, CMA appeared before the committee as part of the Health Action Lobby, or HEAL. Needless to say, we strongly supported the messages you heard at that time. We intend to reiterate some of these messages.

Today our emphasis, however, will be on the concerns of physicians.

Because of the time limits, I will concentrate on only a few of our key concerns. They are: (1) concerns about the misinformation that is colouring the debate; (2) concerns about shifting accountabilities and responsibilities; and (3) concerns about the uncertainty surrounding the federal government's plans for the future. I will conclude by indicating how we believe the bill might be amended to address these concerns.

[Translation]

First of all, let's talk about misinformation. Canadian physicians continue to follow with this belief the political statements that are being spread on the lack of control of health costs. We are even more demoralized by those who claim that the physicians do not play their role to make the most efficient use possible of the health systems resources. Our members tell us that we have already done much, and that we must continue to do a lot, to make the system more cost effective.

For example, I could refer to the setting up of accelerated leave programs, to the expansion of day surgery, to the drafting of detailed guidelines on clinical practices and to the setting up of seminars about the challenge of regionalization.

[English]

In the wake of unprecedented downsizing of the system by every jurisdiction, we believe physicians and other front-line providers are the best and last defence against mediocre health care.

Physicians of Canada are convinced that it is. Specifically, we worry about the system's response to a further $7 billion federal reduction over two years under the proposed CHST. This is over and above the $30 billion in federal government reductions in health transfers since 1985.

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As you see, there is considerable misinformation about the many ongoing initiatives being taken in the delivery system to maximize value for taxpayer dollars. Will the medical profession continue to pursue the goal of value for taxpayer dollars? The answer is yes. Can the system survive a further contraction of 15%, or $7 billion, in public-sector spending, as some would suggest? The CMA's answer this time is no, not without major implications for the quality of care Canadians expect.

Part of the reason lies in a closer examination of the ``factoids'' that surround the debate, a factoid being something that is not rooted in fact but is repeated so often that it comes to be accepted as a fact. Let me highlight a few of these.

It is suggested, for example, that physician expenditures must be better controlled and that we must not allow any further privatization of the system. I am thinking here of some recent articles in the media and statements coming from the Prime Minister's Health Forum. The most recent public figures, to 1993, clearly show that the physicians' share of the pie has not increased but is getting smaller and smaller. Payments to physicians are now capped globally and these caps have been significantly contracted in most jurisdictions in recent years.

In the context of maintaining national health principles, I would remind this committee that financial accessibility doesn't mean a thing if there are no doctors there to provide the services. Near-record numbers of physicians are leaving Canada. For 1994, the total approaches 800. I worry about the effect the CHST could have on encouraging even more of my colleagues to switch systems rather than stay and work for a better one. We now see communities in Canada with limited access to services because their physicians are leaving.

Another example of misinformation that concerns CMA is a suggestion that Canada does not compare favourably with other countries in health care spending. The fact is that the proportion of GDP going to health is already in decline and approaching that of a number of European systems. The proportion of total health care spending financed by the public sector in Canada, 72%, is significantly lower than most European countries', i.e., an 80% OECD average. The proportion of physicians' earnings coming from the public sector in Canada already stands at 95%, one of the highest in the world. Finally, Canadian geographic and political realities must be taken into account in comparing ourselves internationally.

As far as misinformation about Bill C-76 is concerned, the government must understand that less means less and $7 billion less will mean $7 billion less for health care. Arguing that this is business as usual or that less cash somehow means more clout in terms of maintaining the integrity of the national system is just not sustainable, given the facts.

Finally, the practice of singling out physicians as the primary or sole responsibility centre for costs is both unfounded, given the facts, and unfair.

[Translation]

Then, there is the accountability obligation. Our second great concern with the proposed Canada Health and Social Transfer is that the bill does not clearly set out the federal government's priorities. The CHST will be such that the responsibilities and accountability for the financing of health programs will be quite fuzzy.

If I may, I would like to underline what we have already said on this matter in the brief that HEAL tabled with the committee last week.

First of all, Canadian taxpayers have just filed their federal income tax returns for the year 1994. Federal taxation rates have always been set or increased in accordance with established plans for spending the money in question.

As far as national health programs are concerned, the link between federal taxes paid and maintaining national principles was, in the beginning, very clear in the context of the cost share agreements. The 1977 block financing arrangements were such that this link was less clear, but it was nevertheless apparent.

[English]

There is still a national allocation across health and post-secondary education programs under existing law. This serves as an important statement of federal priorities and in the past has permitted the government to treat medicare programs separately - e.g., the 6 and 5 program, the spring 1994 budget. The CHST eliminates this linkage and puts medicare on the same shaky footing as post-secondary education and welfare. Again, the rhetoric and the reality just do not add up.

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We are advised that the government, through the commendable efforts of Mr. Massé, has completed the most exhaustive program review ever undertaken by the federal government. This review, as the committee knows, looked at every department and every program with the objective of establishing a new set of federal business lines or core priorities. Yet when it comes to a program as important to Canada as medicare, involving tens of billions of federal tax dollars, this government is silent. Our view is that the federal government has an obligation to set and defend its spending priorities clearly.

Let me be clear on this point. We fully understand that federal transfers simply flow to the consolidated revenue funds. The provinces and territories in turn decide allocations between health and other programs.

So we have no objection per se to a single payment mechanism. This does not, however, excuse the federal government from its responsibility to send a clear signal to Canadians on its spending priorities for federal tax dollars. If accountability is to be maintained, and it must, the legislative linkage between sources and users of funding must also be clear.

Our third main area of concern is that the interim CHST arrangement raises more questions than it answers. It does not, for example, make it clear that the federal government has any longer-term commitment to provide cash support for medicare programs.

As this committee knows, under the current EPF arrangement, cash contributions designated for health were destined to fall to zero. This is also true under the CHST. However, with a legislative sleight of hand, the government is telling Canadians it has bought more time. Again, this does not jibe with what we understand to be reality.

[Translation]

The system we have known since the 1960's is undergoing basic changes and this is yet another source of uncertainty. The narrowing of the provincial decision-making process in the area of health care programs and the growing disparities between the various health insurance systems have set off a national debate on the future of health and health care services in Canada. If the federal government is to play an active and credible role in this debate, then it must do so now. We must know what its long-term financial commitment to medicare is.

[English]

There needs to be an assured and significant federal cash commitment. The current bill does not indicate what the federal government's cash contribution will be beyond April 1997. Indeed, the bill explicitly allows for a zero cash future.

The time is now. The federal government cannot, in our view, take another two years to decide whether it has an ongoing role in providing cash support for health and health care. We need an open and meaningful debate about what medicare programs can realistically be expected to cover. The uncertainty created by the CHST effectively sidelines the federal government from the national debate.

With these three concerns in mind, what would the CMA suggest to this committee by way of amendments to Bill C-76? To clarify questions of accountability and responsibility, we would suggest the committee consider two specific amendments. First, proposed section 23.1 should be amended to read that ministers ``shall'' be required to report to Parliament. This would replace the permissive ``may''.

[Translation]

In order to facilitate the carrying out of this obligation to produce a report, there should be a second amendment. Section 15 of the bill should fit out, in precise terms, the allocation of entitlements for health and for either the social program or the Canada Assistance Plan, or both. This allocation would stern from a political decision and would send out a message concerning the federal government's intention of participating in the establishment of the financial means necessary to maintain national health principles.

[English]

To clarify the government's longer-term cash commitment, the CMA also recommends changes to both proposed subsection 13.(2) and proposed section 14.

Proposed subsection 13.(2) would be amended to provide for a basic cash component and to provide for sufficient future growth in total entitlement - i.e., clause 15 - to ensure an equitable distribution of health-specific entitlements across the provinces.

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Clause 14 would be amended to remove the words ``if any'', which we read as a de jure admission that the federal government allows for CHST cash to drop to zero.

In summary, Mr. Chairman, the CMA brings a message of concern about the uncertainty and mixed messages created by the proposed CHST. We think there is a better, more up-front way to satisfy federal fiscal and health exigencies. We have made some specific proposals and would be happy to answer any questions committee members may have.

[Translation]

In summary, Mr. Chairman, the Canadian Medical Association brings a message of concern about the uncertainty and mixed messages created by the proposed CHST. We think there is a better, more up-front way to satisfy federal fiscal and health exigencies.

We have made some specific proposals and would be happy to answer any questions Committee members may have.

The Chairman: Thank you very much, Dr. L'Heureux.

In your view, what percentage of GDP should be spent on health care?

Dr. L'Heureux: Mr. Chairman, that's a political decision for all practical purposes. We're not here to tell the government how much it should spend on health care. The government has to make that decision.

The Chairman: To have a good health care system, would we have to spend 15% of GDP, like the United States do, or 7% like in Europe?

Dr. L'Heureux: That varies quite a bit from one country to another. You have to consider geo-political realities, as we pointed out in our brief. As I was telling you a few moments ago, it's up to the politicians to make that decision. We are experts in health care, not experts in funding health care. What we can tell you is that we are concerned about the government's current proposals.

Mr. Deshaies: Good afternoon, Dr. L'Heureux.

Myself, I was somewhat intrigued by your presentation. At the beginning, you said that Canadians wanted their health care system to remain a priority, but we just met with some people who had a somewhat broader range of priorities. Health care was important to them, but so was education and the entire social safety net. If the decision to be made is a political one, as you just said, I wonder what link exists between Canadian citizens who think that the health care system should be a priority and that it should be better funded to solve all the problems, including management problems, and the federal government, which wants to impose national standards and reduce funding because of Canada's financial situation. Do you think it's possible to set national standards in such circumstances?

Dr. L'Heureux: That's exactly the concern that we brought out in our brief. We're saying that if the federal government wants to maintain national standards, it can't reduce transfer payments to the provinces at the same time. That's what it's doing at present: it's reducing the envelope by $7 billion by combining transfers for health care programs, postsecondary education and the Canada Assistance Plan into one single payment. We have a hard time envisaging that because we know that the federal government has already reduced its cash transfers considerably in the past several years.

Mr. Deshaies: I'm very pleased that you're asking the minister to prepare a report. I think that all the ministers should prepare reports about the state of their departments. That would be much more democratic than the word ``may'' that is found in most of the bills that we pass.

Now, you're asking for sufficient funding, but how should that funding be provided? Should it be on a prorata basis, on a per capita basis, or on some other basis? What do you think?

[English]

Mr. William Tholl (Director, Department of Health Policy and Economics, Canadian Medical Association): It depends on what you mean by allocating funding.

There are at least two aspects of allocation that I think are relevant to this committee. One is allocation by province and the other is allocation by program.

About the allocation by program, what we're saying is that the Government of Canada should make its spending priorities clear and that should result in some kind of notional allocation between health and the other programs.

About allocation by province, our understanding is that it will be at least in part the task that's been given to Mr. Axworthy.

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I guess our brief is simply saying he should take into account health requirements in particular, and an indicator of relative fiscal need as it relates to health. Per capita might be one allocatable mechanism. You could have per capita adjusted by some measure of relative fiscal need. We're suggesting for health that might be appropriate.

[Translation]

Mr. Deshaies: Once the money has been allocated on a per capita, per region basis, would it not be more efficient if the province itself managed it, with its objectives, or do you think that national standards are the solution?

Dr. L'Heureux: Without wanting to get involved in a constitutional debate on the responsibilities of the levels of government...

Mr. Deshaies: Solely from a management perspective, if one were in a better position to manage it, would that make things easier or more difficult for you?

Dr. L'Heureux: We believe that both are perfectly compatible and that there are ways of dealing with regional particularities, but with national standards.

Mr. Deshaies: He would make a good politician.

Mr. Discepola (Vaudreuil): First of all, I want to point out that there is an error in your presentation. You say that there will be $7 billion less for health care, when it is $7 billion less for all social services. That is a minor clarification, but it is important all the same.

Secondly, you say that such a cut will reduce the quality of service that Canadians expect to receive. Are you talking about quality or quantity? If you're talking about quality, I would expect that all professionals like you would always provide the best quality service possible. I would like some clarification on that issue.

You have criticized something else. You say that our government is not taking these issues in hand. Allow me to point out that the health services review was so crucial for our government that the prime minister himself decided to preside over an overall review committee. It is not our fault if the ministers of the other provinces did not get involved, but out approach is very serious. We take the reform very seriously.

I'm not sure about your position. You seem to be saying that you are against the CHST, etc., but in one of your recommendations, you say that a single payment mechanism should apply to the provinces. That is exactly how I see the block transfer.

[English]

It permits us, as a province...and you were right in your brief that from Quebec's perspective, under the current system, because Quebec chose in 1961 to opt for cash payments instead of tax credits...if we don't do anything the whole cash payment system is eventually going to go to zero anyway.

The value of the block transfers is that it does allow us. Because we have specified very little in terms of restrictions in view of the provinces, it gives us a year's time to negotiate with the provinces and possibly come up with national standards much like the health care system act is today.

So I guess if I have to ask you a question, it is are you in favour? If you're in favour of a single system of transfer payments, and if we want to let the provinces have the flexibility of administering those services, then why are you against the block transfer program?

[Translation]

Dr. L'Heureux: Mr. Chairman, I'm going to respond to the first two points raised by Mr. Discepola and I will let my colleagues respond to the last point.

You are correct in your comments on quality and quantity of care. I believe that not only Canadian doctors but all people who are currently working in the health care system are doing their best to provide patients with high quality care.

Instead, you should ask Canadians how the current quality of care can be compared to the quality of care provided when the health care system was first implemented, 30 years ago. The conditions in which medicine is practiced have clearly deteriorated.

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Secondly, you talk about quantity. There is also an accessibility problem. When I see patients with coronary problems who must wait six, eight or nine months before getting a dilation or a bypass in a specialized institution, I worry. We have to hospitalize these patiens and it costs a fortune to keep them in an institution for long periods of time simply because the service they require is not yet available for them. It is an indirect rationing of care.

You talked about the Prime Minister's National Health Forum. I must tell you that we welcomed the announcement concerning this forum with tremendous enthousiasm, because we had for several years and I would even venture to say several decades been asking the government to hold a debate on the future of Canadian health care services. When we look at health care in the context of our daily practice, our impression is that it is constantly deteriorating. We had asked that there be a debate on its future and I must admit that given recent statements made by some members of the committee, we are very worried about the future of this debate. We have the impression that everything is biased. We wanted an objective analysis of the health care system, a study of all possible solutions, without excluding anything outright and, lastly, we wanted to see the establishment of a nation-wide social consensus, grouping together both those who give care and those who receive it and the government which is to a certain point responsible for funding.

As for your last question, I will ask Dr. Landry or Mr. Tholl to answer.

[English]

Mr. Tholl: I guess the question comes down to that there are different ways in which block funds can be created.

One way it could have been created would have been to add the social service CAP part to the existing EPF arrangements. That is to say, you'd have an

[Inaudible - Transeditor] allocation across three programs. You'd still have an allocation across three programs.

The way it's being done now, you're blurring the distinctions and, in our view, not indicating what the priorities of this government are across those three programs. I think Canadians are looking for some sense of how important medicare is.

Now if I can address the second point, Bill C-20 already gave access to other federal-provincial transfer programs to implement the Canada Health Act. Cash was going down to zero, in terms of program-specific allocations, but you already had, under Bill C-20, the power to reduce amounts otherwise payable under other federal programs. In that sense Bill C-76 gives you no more legislative authority than Bill C-20 already provided you.

What it does do, however, is give the federal government a little more...I'll call it wiggle room, in terms of not having to borrow from welfare to penalize for health, and in that sense it makes it politically easier to hit other transfer programs. But you already had the legislative authority.

Mr. Discepola: One of the weaknesses I see with your proposal is that if we're going to get to the nitty-gritty details of telling provinces what percentage they must spend on education, what percentage they must spend in social programs, we're not going to be able to give them the flexibility they need. How do you respect the regional differences this country has if we're to say that in Newfoundland you must have the same standards as in British Columbia or as in Quebec?

So the flexibility is there. We give you the lump sum, respect the norms or the national standards that we're going to devolve through discussions with the provinces, and let them go ahead and deliver the service. It seems to be logical. Where am I failing?

Mr. Tholl: Since 1977 there's been a notional allocation across post-secondary education and health. It's already there as a statement of federal priority.

Mr. Discepola: No. When we gave the provinces the amount of money, you discovered that one province is possibly spending 100% of what the federal transfers are in education; another province that lives with the same service is spending 25% or 30%. So obviously the provinces are taking that money and doing other things with it.

Mr. Tholl: They've been allowed to do that with the notional allocation all along, and we have no reason not to have a notional allocation.

Mr. Discepola: I disagree.

The Chair: Thank you, Mr. Discepola.

We have a problem. They would like as many as possible over in the House to vote. It's a procedural vote. But what they have said we could do is continue with one opposition member, myself and one other member. They will vote quickly and come right back.

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I would suggest maybe we could do that, if a couple of you wanted to go over and vote.

We will continue our hearings with our next witness.

I would like to say one thing to you. I think you have some recommendations here that I think make a lot of sense, in terms of amendments, and I think I'm going to take these back to the ministers and get their detailed opinions, urging that they give very favourable consideration to some of these things you've talked about.

I want to thank you very much for a very constructive presentation to us, and the way I think you've suggested we could actually improve the substance of what we have without throwing tonnes of money at the system. So on behalf of all members, I want to thank you.

[Translation]

Dr. L'Heureux: Thank you, Mr. Chairman.

The Chairman: Thank you.

[English]

Our next witnesses are from the National Automobile, Aerospace, Transportation and General Workers of Canada, president, Buzz Hargrove.

Buzz - Mr. Hargrove, excuse me - nice to see you again.

Would you be good enough to introduce those who are with you?

Mr. Basil Hargrove (President, National Automobile, Aerospace, Transportation and General Workers of Canada): Yes, Mr. Chairman, members: Cheryl Kryzaniwsky, national executive board member of the CAW, and president of the large local union representing Air Canada, Air Ontario and a number of other workers in the airline industry; Jim Stanford, who is an economist and works in my office.

The Chair: I remember Mr. Stanford. He was here before. - Hello.

Sorry we don't have a great representation, but it's one of those terrible things that happen - there are some procedureal votes being polled.

Please feel free to proceed, Mr. Hargrove.

Mr. Hargrove: Thank you, Mr. Chairman.

I understand the procedure is to support the rules of Parliament, so I do appreciate what happens when someone has to go attend a vote.

The Chair: We felt it more important to stay here and listen to you than to go and vote.

Mr. Hargrove: I do feel bad that my friends from the Reform Party who were here last time aren't here today. I wanted to add my support to the proposal by the Reform Party to increase the salary of MPs to $150,000. I believe it was their whip from Alberta.... I thought that's the most progressive position they've taken since they came to Parliament. So hopefully...[Inaudible - Transeditor].

The Chair: I will certainly pass that on. I have it on good authority that they were afraid of your invective, so they stayed away.

Mr. Hargrove: We have a short summation, and you have our brief, I believe, Mr. Chairman, in both French and English. We have a short presentation, which I'll read, and we'll be happy to answer any questions.

We appreciate this opportunity to present a summary of our views on the recent federal budget and on the legislation that will be required to implement that budget.

May I take this opportunity to repeat a suggestion I made earlier this month in letters to Chairman Peterson and Mr. Loubier, namely that the committee extend its hearings on Bill C-76 and hold them in locations across the country? The historic nature of the social and economic changes proposed in this budget deserve a full and open Canada-wide debate. I would add, Mr. Chairman, that we support the CLC's - the Canadian Labour Congress' - call for a commission of eminent persons to conduct meaningful hearings across the country. We think that makes a lot of sense.

Our submission is organized into two major sections. The first will express our views on the general fiscal and macro-economic direction of the federal budget, since these broader issues are crucial to the specific budgetary measures this government is proposing. The second section will address some of the specific components of Bill C-76.

Our written submission contains more detailed data and arguments in support of our case. To save time, I will read a short summary.

First, the fiscal and macro-economic direction of the budget.

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When we appeared before your hearings last November we expressed our agreement that Canada's debt crisis was indeed a major public concern. But at the same time, we argued that the finance minister was barking up the wrong tree in his efforts to get a handle on the problem.

We presented detailed economic evidence to show that the dominant cause of our fiscal difficulties has been neither overspending on programs nor cuts in tax rates. Rather, our huge deficit and our growing debt crisis represent the ultimate culmination of a fundamental shift in economic policy.

The seeds of the debt crisis were sown fifteen years ago. It was a dramatic and permanent rise in real interest rates that occurred after 1980 that set in motion the dynamic process of debt accumulation, which has reached crisis proportions today. This permanent increase in interest rates reflected a shift towards tight-money, slow-growth economic management and the abandonment of full employment as a policy goal.

Table 1 in our written submission summarizes several key economic indicators, showing how dramatic this long-run change in economic policy has been. These last fifteen years have constituted a period of more or less permanent recession. Tight-money policies have deliberately and artificially slowed down economic growth.

A dramatic and devastating impact of the permanent recession has been felt in the realm of government finance. From 1950 to 1980 the federal budget was on average roughly balanced. This was despite the dramatic expansion of public programs during this time. Clearly, it has not been the expansion of public service that caused our chronic deficit problem.

Since 1980, however, the deficit has ballooned, averaging 4.5% of gross domestic product. This is despite the fact that major federal programs have been cut back repeatedly and taxes for most Canadians have increased, although not for the best-off households. There are more taxes and less generous programs, yet we have experienced chronic deficits which have now accumulated into a full-blown debt crisis.

The most important factor at work here has been high interest rates and economic stagnation. Without addressing this underlying constraint on economic growth and hence on public finance, the finance minister's attempts to slash his way out of the debt hole are doomed to failure. This is quite apart from the massive social hardship, economic injustice, and national disunity they will promote. Real interest rates must come down and economic growth must be stimulated in a sustained fashion if Canadians are ever to see the light at the end of our debt tunnel.

I draw to your attention figure 1 in our written brief. Of the $10.4 billion that the budget cuts over two years from federal program spending by fiscal year 1996-97, fully $8.7 billion, or almost 85%, is immediately paid right back out to investors and bond holders in increased interest charges. Only $1.7 billion is left for deficit reduction. The finance minister is taking with one hand from essential public programs, but giving with the other to well-off financial investors. Canadians won't stand for this.

All the rest of the deficit reduction anticipated by Mr. Martin is generated not by the spending cuts but by new revenues resulting from economic growth. Yet this growth dividend has itself been thrown into jeopardy by the same financial markets that have caused our deficit mess.

Indeed, there are abundant signs that Canada's economy is already heading into another recession, driven down by the stultifying impact of our outrageous real interest rates. Another recession at this point in time would be a social catastrophe for Canada, causing social despair, more poverty, suicides, and violence. I do not need to remind the members of this committee that a recession would also be a fiscal catastrophe for our government.

Like the last recession, this one would be man-made, brought about by the deliberate manipulation of interest rates in Canada and abroad to ensure that full employment remains a distant dream and workers remain disempowered.

The federal budget is contributing mightily to the emerging recession. It is taking real interest rates of 6% or more as given, despite their key role in bankrupting government. Its huge program and employment cut-backs are undermining domestic growth and consumer confidence.

Can the finance minister really be surprised that economic confidence is evaporating in Canada when he is adding 45,000 lost federal service jobs to the tens of thousands of jobs that continue to be cut in the corporate sector and cutting billions of dollars out of public and private spending? To argue, as he has done, that this budget has improved confidence in Canada's economy is to make the mistake of assuming the starched shirts in the bond-trading pits are the ones who actually make this economy work.

The bond-holders may have been reassured by this budget in a way, reassured that Canada is following a harsh neo-conservative path, regardless of which party is in power, but it is still the Canadian people who must buy cars, build homes, and pay their bills. Their confidence has been shattered by this budget. They are voting with their wallets. Our economy and the federal government's financial prospects are going to suffer dearly as a result.

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I would like to remind you of the alternative federal budget that was developed earlier this year by a coalition of community and labour organizations, including our union. Table 2 highlights the key differences between this alternative budget and the budget that was introduced by the finance minister. By reducing real interest rates and hence stimulating economic growth, the alternative budget actually surpasses the 3% deficit target that was adopted by Mr. Martin.

Is it realistic to hope that real interest rates could be reduced? Canadians are repeatedly told by the financial pundits that it is not possible. Your committee's pre-budget report tended to agree with this pessimistic conclusion. But in the short to medium run, several tactics could be adopted to bring real interest rates down, and in the long run we recognize more fundamental reforms to our financial system will be required in order to bring about a permanent and stable reduction of interest rates.

Our written submissions to you, both the present brief and the more significant submission last November, discuss some of these alternatives in more detail. In contrast, the finance minister is hoping that by demonstrating his fiscal responsibility, Canada will be automatically rewarded by financial markets with lower interest rates. This hope is turning out to be more far-fetched than our proposal to bring rates down.

Interest rates, despite recent modest improvements, including yesterday, are still higher than they were at the beginning of this year. They are far too high. There's no economic justification for real interest rates to exceed 3% or 4%. The finance minister must learn how to manage financial markets instead of fruitlessly trying to outrun them.

I must also make a few comments about the grossly unfair distributional effects of Mr. Martin's policy of taking from social programs and giving to the bond-holders. Banks are earning all-time record profits and their executives all-time record salaries by successfully surfing the waves of financial instability.

When I appeared before your committee last November, I argued that individual Canadians who made more than $100,000 per year, myself included, should pay more income taxes to help reduce the deficit. I recently wrote to the chief executives of the five largest banks to see if they would be willing to join me in this initiative. Their compensation, as indicated in table 3 of the brief, averaged $2 million each in 1994.

I reported to them my 1993 income tax return of $108,665.60 in total income and $35,775.21 in total taxes paid. I asked them to share with me and other Canadians their own total income and income taxes paid and to suggest how much extra they would be willing to pay as multi-millionaire executives to reduce the deficit.

You will not be surprised to learn that none of the five executives were forthcoming with this commitment. They are quite happy to lecture Canadians about fiscal responsibility, but when it comes to contributing a share of their own corporate or personal wealth to this noble cause, they pass the buck. Perhaps the banks should be or could be satisfied with $2 billion in profits. They could dedicate an additional $2 billion towards deficit reduction and all the good things they tell us this will bring.

The contrast between the growing wealth of financiers and speculators and the poverty of Canadians and their governments is morally and economically unsustainable.

Let me now make a few comments about the budget implementation legislation contained in Bill C-76. Our written brief goes into more detail.

The first area is the Canadian Health and Social Transfer. Like so many Canadian social service organizations, we are desperately concerned that the cuts in transfer payments envisioned by the budget and their consolidation into a single block transfer with considerably weakened standards and conditions heralds the beginning of the end of Canada's system of quality, accessible, nationwide public programs.

The proposed block transfer would have very few conditions allowing provincial governments to transfer funds between end uses, to the detriment of programs for less politically popular constituencies. It is not even clear that provincial governments would be required to maintain any type of welfare program at all.

We are deeply concerned about the government's plan to eliminate 45,000 civil service positions. In our union we relate that to the possibility of General Motors and Ford closing down in Canada. They have about 45,000 jobs. There would be an incredible uproar in this country if that were to occur, and the impact on the economy will be no less in taking out 45,000 civil service positions.

Canada's federal civil service is already lean and mean relative to Canada's population.

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The number of federal civil servants has been declining for 15 years. It is wrong to single out government employees to shoulder such a disproportionate share of the deficit reduction burden. These mass layoffs will add to economic uncertainty, reduce consumer spending and eliminate essential public services such as the closure of numerous Canada Employment Centres.

About grain transportation, Bill C-76 also proposes changes to the Western Grain Transportation Act, which will eliminate Canada's traditional grain transportation subsidies effective July 1996. As Canada's largest union of railway workers, we are quite naturally concerned with the impact of this sudden move of Canadian farmers' railways in rural communities.

In the wake of the elimination of this program the growing north-south orientation to our emerging transportation infrastructure will almost certainly be further exacerbated.

In summary, let me restate the anger and worry with which the members of our organization greet the proposed federal budget.

The broad policy directions signified by this budget points to an historical reversal of the role Canadians have entrusted to their government. This budget represents far more than just a yearly fiscal plan for the federal government. Rather, it is a manifesto for a radical remaking of Canadian society.

This historic change in direction is justified in the name of fiscal responsibility and economic necessity. We reject this assumption completely. Our economy is more productive than ever and the full potential of our economy could be unleashed through lower interest rates, sustained growth and full employment, instead of the 15-year permanent recession which has ultimately caused our fiscal crisis. Our ability to pay for social and regional equality would be fantastically enhanced.

Thank you, Mr. Chairman and committee members, for your attention. We will answer any questions.

The Chair: Thank you very much for that presentation.

[Translation]

Mr. Deshaies: Good morning, Mr. Hargrove.

I agree with you that the fight against inflation in order to prevent increases of the interest rates might have been the biggest mistake in fiscal policy over the last years. That is what created such a big deficit that today forces the government to make cuts which, depending on our decisions, are not always be the right ones. I agree with you that there are other areas where one must cut instead of simply cutting jobs, the result being that less and less people belong to the middle class that still has some money available.

Canada used to have a rather large middle class, contrary to the United States where there are more poor people than wealthy people. Naturally, the solution is not to kill that middle class, but rather to try to find ways to enlarge it in order for those people to be able to pay taxes and to make the economy works.

You asked people with high income to pay a larger tax share in order to help the cause. They answered they were not interested. If you were to ask that question to banks, they would answer you that they are in the business of making money. The answer would be negative. They might give away $2 billion to help the Canadian cause.

You, as unions, would be ready to push things up, in other words throw the ball on the side of the government and industries by promoting a shorter work week? Workers would be penalized in part, but they would be compensated by employers and the government, and this way we could create more jobs. Do you belong to the unions of the middle class? Would you be ready to show some leadership to force other social institutions to do the same?

[English]

Mr. Hargrove: As a union we have not only talked about that, we have shown a way. In Windsor, for example, in our last set of negotiations with Chrysler we reduced the work week and added a third shift where we hired 1,000 people. People are working a lot less hours.

The income of a lot of people in the workplace was affected quite radically and we had a major debate about that. In today's environment, with this new god of the right, the business community and the editorial boards across the country, there has to be increasing insecurity for working people. That's the only thing they want to give us: more insecurity.

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People find security in grabbing and working every hour they can, as opposed to sharing the hours with a lot more people. But as an official position, our union, both in collective bargaining and politically... we have taken on this debate with our members, and we would be pleased to see the government and the business community adopt the recommendations of the Axworthy report and move in this direction.

[Translation]

Mr. Deshaies: I do not know whether you have any suggestions. You may not be an economist, and I'm not one either, but the debt being the worst enemy for all Canadians at the present time, do you believe, as I do, that cuts are not the only solution? The debt is directly linked to the interest rate. If we do not address the problem of interest rates, we will never overcome this debt problem. Would you have suggestions to make to the Committee or to the minister? Should we try and pay off the debt? The interest paid is linked to the interest we have to pay foreign borrowers. If the debt was only owed to Canadians, we could better control the interest rate, we could reduce the interest rate and therfore create jobs.

At present, the people don't build houses and do not launch a large number of projects because the interest rate is too high. Do you have specific suggestions to make? For instance, we could think of the banks making contributions to pay off the foreign debt as quickly as possible.

[English]

Mr. Hargrove: In our presentation last November we made a number of recommendations, and I will repeat them here now.

First was that we set interest rates directly, not by market auctions. We can use Canada savings bonds, not private financial markets, to raise funds. We should increasingly borrow from the Bank of Canada versus borrowing offshore and inject credit directly into the economy. We proposed a national investment fund that could be set up and financed internally within the country. And we should place controls on foreign exchange speculation and accept a temporary fall in the dollar.

It's interesting that business people I meet with daily are complaining about the dollar going up and they're worried where it's going and the impact it's going to have on their ability to export. So they would love to see the interest rates down and the dollar dropping accordingly, or staying where it's at, at least.

And we should accept inflation at the same level as the U.S.... rather than this insane policy of the Bank of Canada to try to keep inflation much lower than it is with our major trading partners.

A lot of Canadians agree with this, by the way. A lot of Canadians I talk to in my day-to-day travels across the country remember the early-to-mid-1970s - late 1960s even to the late 1970s - when we had inflation higher... averaging 5% or 6%. At least we had people working and there was a lot of optimism in the country. Young people saw an opportunity to leave school and get jobs. So this idea that people are enthused about no inflation is absolute nonsense.

Of course we recognize it's tough to control interest rates. We are in a global market or global capital market. But there are ways of doing it.

Bill Clinton, when he was here, talked about having to come to grips with the changes. He's talking about doing it through the IMF and the World Bank, working with the G-7 countries. We recognize that that really is the only way you get a handle on interest rates: if you have some control in that, working with other countries.

The problem I have with what the government is proposing... if you look at Mr. Martin's papers, the papers he presented with the budget, I believe by 1997... the interest payments are currently about $43 billion a year. The money we're paying on interest on the debt, in spite of all of these cuts, is going to increase to $50 billion, by his own pronouncements.

It's $7 billion higher at a time when we're taking all of this money out of the pockets of unemployed Canadians, single mothers on welfare, the elderly, and jeopardizing this country as we've known it. We're still sitting back and allowing this incredible transfer of wealth. I've described the budget in a very frustrated way as the largest single transfer of wealth in the history of our nation, from the neediest groups in our nation to the wealthiest people in the world, not just within the nation, but within the United States and Europe as well, as the investors pick up the benefit of the budget cuts.

[Translation]

Mr. Deshaies: Mr. Chairman, I would like to defer to other members of the Committee.

The Chairman: Thank you very much, Mr. Deshaies. Your questions were specific and significant.

We will now recognize Mrs. Brushett.

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Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Hargrove and your colleagues, for being here today. I wasn't on the committee in November, so I do appreciate your views.

Could we just go back a few moments to your mention of the 1960s and 1970s. It was interest rates that have created this financial mess we're in. Do you believe perhaps increasing labour rates at that time, the instability of wage parity in this country, factored into that in any way?

Mr. Hargrove: No. I don't. One of the problems we have with the economy today is we don't have enough people working and enough income. If we did, we wouldn't have the problem we have today. We'd have a stronger tax base.

Mrs. Brushett: On that point, I believe one of the reasons it seems we will look to move interest rates down in the very near future, as of yesterday, and mortgage rates, is that there will be an ability to move downward here. The reason I say this is that we can see, with some vision, that here in Canada we have some stability with wage rates at the present time. We have some vision to look to the future that salaries and wages will be relatively stable for a few years to come. There won't be great fluctuations. That gives stability, and interest rates have an ability to move down. Our factories still have some capacity to produce more than what we are consuming and not get the inflation out of control. So we do have a bit of room to move.

Would you not agree?

Mr. Hargrove: No, not at all, Madam. With great respect, we haven't had any increase in real wages in this country in 15 years and it hasn't meant stability. It's meant stability for the bankers and the wealthy, but it hasn't meant stability for working people. It's meant unemployment. It's meant increases in the welfare rolls. That is what it's meant. It's meant that we've seen the leanest, meanest budgets even by Mr. Martin's own terms. We see social spending going back to where it was in the 1950s.

We see a government whose history is one of compassion move to where it's representing the interests of wealthy investors in this country. It's really frustrating for me. I came out of Windsor, where Mr. Martin's father was one of the people who designed the social programs, going back into the days when we were producing a lot less wealth. In much tougher times we introduced and paid for these programs. The only thing that's changed today is that the wealthy are demanding more for producing nothing than they were in those days. We're paying it.

Mrs. Brushett: Just on that point, we are an exporting nation and you've talked about Canadian consumers here. If we didn't have our exports, we would have a very much smaller economy in this country. Do you agree?

Mr. Hargrove: Absolutely. I support exports.

Mrs. Brushett: Yes, that's fundamental. Our capacity to increase exports and to further development economically is there, right? We still have a greater capacity there.

Mr. Hargrove: The capacity is always there; but it takes the political will to take advantage.

Mrs. Brushett: No.

Mr. Hargrove: The problem today is the budget points to accepting the Reform Party argument that governments should withdraw. Government has to withdraw and let the private market....

Well, I'm sorry. I deal with the people who run the private market every day. Some of the mistakes they made...boy! They still take their million-dollar salaries, their bonuses, and their pensions, while they criticize parliamentarians like yourselves, who are on a measly income and pension.

Mrs. Brushett: And working seven days a week, yes.

Mr. Hargrove: It just infuriates me, quite frankly; but nobody ever challenges that. Everybody says take the money from unemployed people; take the money from people on welfare.

Mrs. Brushett: No. The challenge is ours. The challenge is the Canadian populace here today. The status quo is not acceptable. Would you agree?

Mr. Hargrove: The status quo in which group?

Mrs. Brushett: With the deficit and... [Inaudible - Transeditor].

Mr. Hargrove: No. The people of Canada have bought into the fear-mongering the Liberal Party opposed when it ran for office, which we thought was a very healthy debate in the country. People made choices about the vision for the future.

The problem with it is that people are saying now, what did we do differently? People are looking at the impacts of this budget and the potential impacts for the future. Believe me, the mood is going to change. There's going to be.... I predict there's going to be a major backlash as this budget starts to unfold.

Mrs. Brushett: Just on that, Mr. Hargrove, if we didn't take some very strengthened measures dealing with the deficit, don't you think perhaps it would increase that much faster and we would have no options?

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Mr. Hargrove: The issue isn't whether we should take action - we proposed action - it's who you take action against.

The question we asked when we appeared here last November was.... We recognize we have a deficit crisis. The first question I asked was, how did we get in the mess we're in? Who benefited from it and who should pay?

The former chief executive officer of NOVA Corporation of Alberta appeared today before I did and he said essentially what I did, that people like himself had benefited greatly through the 1980s from the high interest rates and the booming economy. They were the people who lived well, not working people. He offered to pay half a million dollars towards the debt of the country if the government would require other wealthy Canadians, who benefited as he did, to do so.

I don't know why the committee didn't recommend that to the government. The committee has to answer that. But I agreed with him and I said wealthy Canadians and even high-income Canadians who don't necessarily want to pay more taxes, like myself.... I made a little over $100,000 last year, and it'll be a little better this year. I'd be willing to pay more taxes to deal with the problem, because I can afford it, if the choice was between me paying more taxes and a single mother on welfare or an unemployed person paying more taxes. The question isn't should the government have dealt with a dead issue; the question is at whose expense?

Mrs. Brushett: I appreciate your generosity and I'm sure this government will take you up on it probably fairly quickly.

Mr. Hargrove: Not likely.

The Chair: It will be called the Buzz Hargrove special income tax.

Mrs. Brushett: That's right.

Just another point here. Some witnesses who have been before us believe if we could rein in that $300 billion foreign debt within our country, we could control all things and everything would be back on track again. Do you think that is a big part of the answer as well?

Mr. Hargrove: I'm sorry, I missed your point.

Mrs. Brushett: Some witnesses before this committee have indicated that somewhere around $300 billion is foreign controlled debt Canada owes. If we brought it within our domestic framework here, sold, we'll say, the old type of victory bonds to Canadians, in essence bought back our own debt - and perhaps you'd be the first one standing in line - would solve all the problems?

Mr. Hargrove: No. It won't solve all the problems, but it can be used as part of an overall economic strategy. I think getting back control of some of the debt from foreign hands could be beneficial and part of an overall solution, but not the total solution.

If we don't get at the interest rates.... Again, I just remind the committee that by Mr. Martin's own numbers - even with his cuts - in 1996-97 the interest payments on the debt will go from $43 billion to $50 billion. If you don't get your hands around that -

Mrs. Brushett: Where would they go if we didn't make some of these changes?

Mr. Hargrove: I would suggest if we were in the crisis.... I've read all the speeches of the heads of the banks of Canada. They're all lecturing the rest of us, saying everybody has to give a little bit.

All I'm suggesting is that if the country is in a financial crisis - although I read Mr. Martin's statement now that says by 1996-97 we'll have the lowest debt of the seven OECD countries based on the way they describe their debt, and it makes me wonder whether we have a problem, but if we do - surely instead of those people going from $43 billion to $50 billion, taking money out of the economy by putting nothing back into it, not producing anything, not building any factories, training any workers, hiring anyone, if we said to them, instead of taking $13 billion out of the pockets of unemployed people, people on welfare, the elderly, and education in this country, why don't you accept $30 billion dollars of $43 billion this year, and next year we'll give $26 billion, they'd get $30 billion, $60 billion total and everybody would be happy.

Mrs. Brushett: My final argument, Mr. Chairman, is I believe, as yesterday, there's an indication mortgage rates will move down a bit and interest rates will come down because we can have a vision, financially, of the path we're on. The vision is that wages will stabilize in the immediate few years, productivity will increase, exports will increase, and our factories have the capacity to hold all of this and to contribute to a greater economy. That's why we will be in that better position.

Mr. Hargrove: Just let me make a point on that. I'll make a prediction before this committee that once the Americans solve their trade problem with Japan, they're going to raise their interest rates to strengthen the American dollar and we're going to follow suit. We're going to go right back up.

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It doesn't matter what's happening in the economy in Canada, Thiessen is simply going to say oops, can't do that, we have to follow the interest rates. So you're not in for the prolonged drop in interest rates that you're talking about. We're going to face, very shortly, an increase in interest rates.

In this country we are producing so much more, with so much less human effort. The productivity improvements in every major sector of the economy have been incredible. What has it meant for people? It has meant we can't afford the programs we brought in in tougher times. It has meant no wage increases for people. It's been unemployment. It's meant people on unemployment now... half of them will not qualify for any benefits because of the Tories' changes in 1985 after they were elected, and then Mr. Martin and his two successive budgets.

But the cuts he made mean probably by next year 30% of Canadians who find themselves out of work will not qualify for unemployment insurance. So why would Canadians accept that improved productivity is going to help the ordinary person?

Mrs. Brushett: Short-term pain for long-term gain.

Mr. Hargrove: We've had a decade of long-term pain. Please don't give us any more.

The Chair: Mr. Campbell.

Mr. Campbell (St. Paul's): Thank you. We are really over time so I will be very quick, Mr. Chairman.

Just a point of clarification, Mr. Hargrove. You said in your comments in response to an earlier question that we were in this budget taking money out of the pockets - and you've listed a whole bunch of people - and you included on that list the elderly. Would you point out where in this budget we're taking money out of the pockets of the elderly?

Mr. Hargrove: Health care cuts. As you move to tighten up the money to the provinces, the provinces are moving already to look at what they can take away from Quebec to Alberta and from Newfoundland. The elderly are already facing user fees, co-payments. They're even starting across the country. If you pick up the paper you'll see in the paper.

Mr. Campbell: Are we, in this budget, taking money out of the pockets of the elderly, specifically and directly?

Mr. Hargrove: Who gets hurt the most when you start asking people to pay for procedures that were normally covered by the hospitalization program in the country?

Mr. Campbell: Have we asked for that in this?

Mr. Hargrove: For user fees; the elderly on fixed incomes.

Mr. Campbell: Have we imposed user fees in this budget?

Mr. Hargrove: No, you're imposing it in a roundabout way. You're forcing the provincial governments to do what your government doesn't have the political will to say you're doing.

Mr. Campbell: We continue to oppose user fees, as you well know.

Mr. Hargrove: No, you're saying the right things, but you're forcing the provinces to do exactly the opposite.

Mr. Campbell: Just very quickly, Mr. Chairman, one last point.

I believe, Mr. Hargrove, you and I had a very similar discussion at your last appearance before the committee.

Once again, you've raised as an example those who are making outrageous profits... an increasing share of the economy, which you find distasteful; the banks. Indeed, in your written presentation you talk about their increase, their control over the entire economy. Let me ask you what I asked you then. Who owns the banks?

Mr. Hargrove: Who owns the banks? Well, not me, as I said to you last time... and you argued the pension funds, which benefit us. The pension funds don't benefit us. I'll go through that with you again if you want.

Mr. Campbell: Do the pension funds of your workers and the union you represent have an interest in the banks of this country? And are you aware of what percentage of interest they have?

Mr. Hargrove: General Motors makes the investments on our pension funds for them, Air Canada makes them on theirs, and somebody else makes them. So the interest on them is protected and it creates jobs and job security.

Mr. Campbell: I'm not going to argue about who makes the decision about where pension fund assets are invested. Those investments are made for the benefit of the workers in your union organizations.

Mr. Hargrove: No.

Mr. Campbell: So they don't benefit from those investments?

Mr. Hargrove: The investments don't mean anything to us.

Mr. Campbell: So you would rather the pension funds were not invested in the banks?

Mr. Hargrove: We bargained a defined benefit. I told you this last time.

Mr. Campbell: Right.

Mr. Hargrove: Now the company has to pay that benefit. How do they make their money to do that? We expect it will be by building cars. We hope it will be by hiring people building cars.

The problem today is there's too much speculation and trying to make that money on money rather than doing productive work.

Mr. Campbell: So we haven't determined who owns the banks. It isn't workers.

Mr. Hargrove: We've determined it's not me. I'm not sure what you're...

Mr. Campbell: All right, it isn't you, it isn't RRSPs or pension funds. Who is it?

The banks are widely held. We have a law that says no one can own more than 10% of a bank and no one comes even close to owning 10% of our major chartered banks. So who are these people who are benefiting?

Mr. Hargrove: The issue surely isn't who owns. The issue is what is a reasonable return in a time of crisis in the country?

Mr. Campbell: I just didn't want to be...

Mr. Hargrove: Would you agree that $4.3 billion is unreasonable when the banks are telling us the country is in crisis and we have to take less while they take more?

Mr. Campbell: Maybe that's a debate we should have with the tens of thousands of shareholders across this country who own those banks.

Mr. Hargrove: How about the $300 million you guys gave them in tax credits for them to put in equipment that every other company in the country has to put in as a normal way of doing business?

Mr. Campbell: Right.

Mr. Hargrove: It's interesting. You never raise the question about who is taking out. It's always in defence of those people.

Mr. Campbell: Mr. Hargrove, that was dealt with in the budget. That was one of the things we did address in the budget.

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Mr. Hargrove: Well, they took $300 million out and you taxed $100 million back.

The Chair: You're quite right, a break was a mistake.

Thank you, Mr. Campbell.

It's very important to have you before us on these critical issues. You represent probably one of the finest unions and one of the most important to our economic future. Our auto industry is really critical to our future. I know you and your members have made a tremendous contribution in making Canada the greater exporter it is. This is why it's so important that we have your input.

I must say members - I think from all sides of this committee - are worried about the auto industry right now and sales and how they're going. So this will be something we are monitoring very closely - we welcome your comments - and I will personally, from time to time, on the things that are happening, Mr. Hargrove.

The last thing. May I thank you for the recommendation based on what the Reform Party said, that MPs salaries be increased.

Mr. Hargrove: I've been waiting since they were elected to find something I could support that they said, Mr. Chairman.

The Chair: Good, good.

May I say that we unanimously agree that you, as the head of this great union, should be paid at least what the heads of the auto companies are. Thank you very much for your appearance before us.

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

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The Chair: Can we recommence our hearings? From the Childcare Resource and Research Unit we have Martha Friendly, coordinator.

We welcome you and we look forward to your presentation.

Ms Martha Friendly (Coordinator, Childcare Resource and Research Unit): Thank you. I don't think I'm quite ready.

The Chair: Take your time, relax. Take your tie off, put your feet up.

Ms Friendly: Okay, now that I've identified you all... I've given you a written brief. I just want to give you a little background.

I've seen some of you before. Mr. Peterson, I think I met you on child care probably twenty years ago.

The Chair: That was when I was in a child care unit.

Ms Friendly: Pretty much.

Just by way of background, I'm a policy researcher at the University of Toronto. I've been working on child care policy for many years at the federal level, through a number of governments, at the provincial level, and at the local level. I've worked with people in government advocacy groups; I'm active with advocacy groups. I think we're at a crossroads; and that's really what I want to talk to you about today.

The first thing I wanted to do is actually to ask you a couple of questions. I'm going to present them to you, then I want to go through my brief, and then I'd like to come back to the questions I want to ask you.

Are you all familiar with your commitment to child care in the red book?

An hon. member: No.

An hon. member: Everybody is.

Ms Friendly: Okay, you're familiar with it. What I want to ask you first is will you be meeting your commitment to child care in the red book?

The second thing I want to ask you is in two parts. If you will, how? If you won't, why not? I'm going to talk about that in my brief.

The third thing I'd like to ask you is I really would like to know - and I think this is partly a personal matter... I've been meeting with Liberal MPs as an advocate around child care and I really cannot figure out what is motivating your devolution.

I'd like to have a little discussion about that at the end. I really want to ask you what is motivating this, where it is coming from, what's the purpose. So I'll come back to those things.

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I'm not going to read my brief, but the point I would like to make is that the structural changes of the Canada Health and Social Transfer will mean the child care system that some of us - me, other people in the child care community, and some people in the Liberal Party - have worked for for twenty years won't be possible. I also believe you won't be able to meet your commitments in the red book.

I just want to go through a bit of background on child care. Some of you may know that child care has been on the agenda for about 25 years, but still it's not available and it's not affordable and it's not good enough for most children in Canada. Canada is not a modern country in the way it approaches children. The modern social realities aren't reflected in Canadian child care policy or services.

As you know, the financial situation of young Canadian families has deteriorated markedly, especially over the last decade. You know the poverty rate of single mothers and their children is especially high and getting higher.

Second, mothers of preschool children are in the paid labour force in large numbers. Third - and I think this is a really important point - is that one thing we very clearly know now that we didn't really know 25 years ago is how important the early childhood experiences are for children's development. That's in the short term and in the long term. I guess this has focused attention on how preschool children spend their time. In this country we're not dealing with it; it's just swept under the rug.

My brief points out that the federal government plays a very limited role in child care and as a result Canadian child care is extremely diverse across the country. I can see that you're from different parts of the country, and you're probably aware that farm families need some varieties of child care, fishing families in the Maritimes need varieties of child care, and people in urban communities need child care. But in fact these things are not available and the diversity of child care has not arisen in response to any kind of a planned policy; it's just happened. It's because there really has been no federal role. The federal government is extremely limited.

Child care is a very rudimentary system. It doesn't really exist as a system. In about the mid-1980s, when you Liberals were in opposition, there was a whole flurry of federal activity on child care. This was really beginning with the 1984 election. In fact, what happened with the child care looked pretty promising as the Mulroney government started studying it. I'm sure you remember all that background.

What happened was that as a result the provincial government started to make improvements. They improved regulations, they improved funding arrangements, they improved accessibility, they developed models. But what happened, as that furry of activity ended with no result, was that in fact in the 1990s provincial governments not only started backing away from making improvements, they actually reversed many of them.

If you'll look on the back of my brief, there's a table of provincial funding programs that have been ended. There's one table and one figure and you might want to take a look at that.

The other thing that happened was that as the Canada Assistance Plan was capped and as the transfer payment formula was eroded under the Mulroney government - and you can take a look at the figures that are attached to the last page of the brief - the expansion of regulated child care slowed down, even though the number of kids with mothers in the labour force kept increasing at an ever-growing rate. You can see how it really dropped off if you take a look at that figure.

That was very much in response; it was the provinces. Again, the reason I'm trying to talk to you about the interplay between the federal government and the provinces is that as you know, child care has been under provincial jurisdiction.

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It's a social program, as far as it exists, but the federal government has played quite a role in it, even though it hasn't had a direct policy role, and I think that time period represents that.

What I think is really important to keep in mind is that regional diversity, and the frailty of provincial child-care programs, are two very key pieces of the Canadian context that are really important in relation to what's going on here today with the Canada Health and Social Transfer. What it's likely to do is to secure child care as a purely provincial program, and because it doesn't exist and because it's so frail, we are very concerned about that. We're also concerned that it's likely to erode even the fragile networks of child-care services that have evolved to date. I'll talk about that in a bit.

Now I just want to turn to the red book. I don't think I have to tell you what the red book said about child care. I think what is important is that the child care community was quite enthusiastic about the red book. We actually felt there might be some federal movement on child care, and that took the form of working with people in the bureaucracy. I think there was probably better thinking about child care policy development in the period after the Liberal Party was elected than I ever remember happening in the last 20 years. There was some very good work being done.

The next thing that happened was the announcement of the social security review, and, as you know, there were many social groups that were very unhappy about some of the implications of the social security review, and we are part of those groups and shared some of those concerns. But at the same time we were very pleased with the way child care was located in the social security review - at the centre. In fact it represented a federal first - it identified child care as central to working and employment, to learning and to security. It talked about being a way to provide child care with a good environment in which to grow and learn. You provided a supplementary paper chart here on development, and it actually started to put some flesh on what the green paper said.

It talked about:

A vision for child care and development across Canada that should address the common themes of quality, availability, affordability and comprehensiveness, and a national framework of principles.

This very much reflected what the child-care advocacy movement and social policy experts, and I might add the federal Liberals, when you were in opposition, had talked about. I can provide references to that if you'd like. It also reaffirmed the commitment in the red book.

The final report of the standing committee noted that ``child care was mentioned and the need for a national child-care program was stressed by many witnesses''. The standing committee reiterated that and said it's about time ``to get on with looking at the well-being of Canadian children and their parents''. And then came the federal budget.

As you know, we feel it contained a devastating message for child care. I feel the federal retreat from a key role in fiscal and policy arrangements will not only have a profound impact on health and social programs but will effectively bury the possibility of a national child-care program in the future, and I want to tell you why. I'm going to provide a little detail, and then we can talk about it.

I don't think I have to explain to you - but I will if you want me to - how child care is not an established program. It's a fragile program; it's poorly established. Like health and welfare, it's under provincial jurisdiction. Unlike those two, it is not really shaped by the federal government. The federal government has had a very limited role. In fact it's a good example of a program which is essentially almost entirely devolved to the provinces, even though it never was owned by the provinces, so it's de facto devolved.

What we're concerned about specifically is four things.

First of all, I really believe deep cuts by the provinces to welfare, post-secondary education and health programs are inescapable as federal transfer payments are reduced. As these programs become compromised by federal reductions, I believe child care will be even lower on the list of provincial priorities than it is now.

I cannot imagine that the provinces are going to be anything other than tempted to use funds now used for child care to cover the costs of health care, because health care is more established and I think people understand it better. I think the first thing is that even the existing child-care programs are really in jeopardy.

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Another difficulty I have with the block funding, as I understand it, has to do with matching funds. Right now provincial governments pay much more money for child care collectively than the federal government does through Canada Assistance Plan, almost three times as much. CAP, structured as a reimbursement program, requires the provinces to spend before being reimbursed.

I'm really concerned that with a block fund - my understanding is that it does not seem to have this element - we might at the very best only be looking at just federal funds on child care. So that's another really serious point. Again, as the provinces are pushed, I don't understand what the motivation will be for them to continue putting provincial money into child-care programs. So that's the second point.

A third serious concern is about public accountability for federal spending. We're already concerned about this because there are pieces of federal money spent on child care for which there is no public accountability in the sense of making sure that it's an effective program.

Two examples. One is the expense deduction and another one is the dependent care allowance that's linked to federal training programs. It's not really clear where this money goes and it's not clear whether it's used for child care, in the case of the dependant care allowances, how it's used or whether it builds quality child development programs or not.

There was a lot of talk about transparency, as I recall...speaking again to your side, when your government was elected. A block fund is not transparent. I really think public accountability and transparency should be a hallmark of democracy. This is one of the things that make things work. It would be difficult to make a block fund accountable.

A fourth point, which I can't emphasize enough, is related to the variability and the inadequacy of the current child-care situation. Child care has not matured as a program. I believe a lot of that failure to mature is because there has been no federal role in this, no ability to play back and forth between the federal government and the provinces in the same way as has happened in the health care system.

As you know, there were ups and downs even before the Canada Health Act. A province would be reluctant and the federal government would pull them up or the federal government would be reluctant and the provinces might get after them. That hasn't really happened in child care.

Right now it's not really a program. It's very insufficiently available. It's much too costly for ordinary parents, because it's not publicly funded. I have a real concern - as my background is in psychology - that it's of inadequately high quality to ensure healthy development, or even basic health and safety.

We, in child care, had really hoped we would be able to move, with a national policy framework like the one the government was talking about, towards encouraging and influencing the provinces around having better provincial child-care programs, as has happened under the Canada Health Act. I think this will be at best dubious, and it's very unlikely to happen unless a mechanism is put into place that I'm not sure any of us have thought about with the block fund. I really can't see how it's going to happen.

I also want to mention to you that I think the proposed devolution and funding reduction has critical consequences even for meeting your commitment in the red book. I know a lot of members of your caucus think you are going to meet your commitment in the red book.

I think one of the things really sad about this is that there's a lot of goodwill around meeting this commitment, but let me tell you, even the red book commitment is not intact any more. It's been amalgamated into the Human Resources Investment Fund, essentially a mini-block fund.

It's my understanding that the concept is to tag it to parental employability, no longer a child development program, no longer meeting some of the very nice words in this red book. Most important, I think that the whole Canada Health and Social Transfer means that the provinces, who would have to play a role in developing a national child-care program, seem extremely unlikely to enter into a new venture as they're looking forward to dwindling funds in other programs.

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I think this is going to mean that if you spend any money on child care, you're going to be driven to spend it in ways that probably aren't going to do very much good at the best. We could talk about ways to spend money, but I think that's something that I'm extremely concerned about. You're not going to be able to meet your commitments in the red book.

I want to emphasize that the policy people and advocates have really looked for social program reforms. Like other groups, we have really believed that our social security net is outmoded. It's not modern. It does not meet modern realities. We had believed that a national program was a key component of that.

Before the federal budget a national child-care program was awaited as a reconceptualized set of social programs that would reinforce both the economic agenda and Canadian ideas about social justice. Instead, if the Canada Health and Social Transfer becomes a reality next year, I think existing, more established social programs will ultimately come to look like the vulnerable and inconsistent child-care situation. I feel quite strongly about that.

One of the things that really concern me - and I've written about this in a longer paper available if any of you would like to read it; it's going to be published in the summer - I hear the sound of the Mulroney government reverberating in this new social vision.

There's an interesting history I've tried to spell out where the child-care visions of the Mulroney government really did predict or presage what they did in other areas. One of the key things about that which I see happening again is I see the Department of Finance making absolutely critical decisions about social policy in ways that are hidden to most people in the Canadian public because they are very complicated.

The media hasn't been very assertive about writing about it. I'm sure you've heard the people probably sitting here talking about that as the politics of stealth. We're seeing a replay of what we found happening in under the Mulroney Government.

The only thing I can think about is Benoit Bouchard, when he was the Minister of Health and Welfare in 1992, said, ``I have the privilege to be the killer of child care''. I think he misspoke himself, but those were his words.

I think what you're doing is burying child care. I think you're doing it by structural change and I hope this doesn't happen. I'm really here to speak against the Canada Health and Social Transfer from a child care perspective. Thank you.

The Chair: Thank you.

[Translation]

Mr. Brien (Témiscamingue): First of all, I would like to make a comment. You said something interesting that we don't very often hear about, and it is the lack of transparency in this regrouping of all federal transfers into one fund. I am happy to hear about the Red Book because I haven't heard about it for a long time. I read and reread this book but people are not talking about it as much as last year.

You talked about transparency and the Canada Health and Social Transfer. I think you are making a very interesting argument. Instead of saying which transfers will be cut, the federal government leaves it up to the provinces to choose for themselves.

However the objective is to decrease the total amount through aggregating different programs. It then becomes difficult to know exactly where the cuts are and as we can see you make a link with Human Resources Investment Fund.

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There is a system behind all this that we cannot really grasp and it is difficult to know for sure which is which. We can only guess. You make a good point when you say that this does not help transparency.

You are saying that it will have an impact because of the choices provincial governments will make. You say the task of the provincial governments will be difficult. However, what makes you think that provincial governments will choose to cut support for children? What makes you think that this will be where cuts will be made? You name some measures which have been taken since 1993 in some provinces. What makes you say that provinces will cut in that particular area?

[English]

Ms Friendly: I don't mean all provinces will do that. I think there will be a lot of variation amongst provinces. As you can see even now, there's quite a range in the way provinces approach various issues.

The reason I think child care is particularly vulnerable - and I think there are some other areas too; for example, child welfare - is they don't exist in the same way as the health care system exists: as a universal program everybody uses, everybody has a stake in and so forth.

I can't account for post-secondary education. I think it's an anomaly in there, so I'm just going to put it aside.

Some of the provinces have already cut child care quite dramatically since 1990, as their federal transfer payments and CAP payments were being cut. I don't think there is the same political will to support child care and perhaps even children. I have a bit of a problem with that. In the same way, there is more willingness to support things like health care.

Overall, notwithstanding Quebec - I want to put that a little aside - the relationship between the federal government and the provinces on all of these programs has been really important. It's really important not to have had just one player.

Historically, in general, federal governments have been somewhat more visionary in social programs than the provinces, although there are lots of anomalies, again. The most important thing is it's been the tension between the two that has allowed movement.

Health care is the best example of that. Saskatchewan was the first province to move ahead in health care, but other provinces didn't really pick it up until the federal government picked it up and made funding available.

Then when we got into the era of the Canada Health Act, there were provinces that were reluctant to comply with it. It was only by the enforcement of the Canada Health Act that in general provinces were forced to comply with it.

So in general my biggest fear is that there won't be the kind of tension between the two that I think has allowed movement. I think child care and things that have to do with vulnerable people will be the first things to go. I don't think that will be true of all provinces.

[Translation]

Mr. Brien: I will let you talk with my Liberal colleagues. I think it will be interesting.

The Chairman: Your questions were fantastic. Do you want to keep on going?

Mr. Brien: No. I find all this very clear. Thank you.

The Chairman: Mr. Discepola.

[English]

Mr. Discepola: Thank you.

On the question of transparency and accountability, I view the block transfer program as a way beyond even sitting down and redefining an awful lot of the parameters under which we want the provinces to operate different programs.

I think in sitting down with the provinces we will be able to come up with national standards - if there's a spirit of cooperation with them, mind you, which I have some scepticism about. We will be able to redefine some of the standards that I think cloud the picture right now, because we don't know what those standards are.

Had we taken the initiative in this case and had standards, we would have been crucified by the provinces saying ``You're dictating to us''. Instead now we're saying ``We're going to sit down with you, take a year or so and redefine some of these standards''. The weakness we see here is that groups such as yourselves are saying, well, you're not defining anything; therefore, we wish to lose some of them.

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I would like to reinforce the fact that by having block transfer, and by sitting down with the provinces, we will render the provinces more accountable for the service they are already delivering right now, whereas under the current system we have no control over how they spend the money on education or welfare, for example.

Ms Friendly: To some extent you're right. I agree with you in some parts and I disagree with you in other parts. I agree that there is certainly no accountability for funding in post-secondary education and limited funding in the area of CAP. Of course, I'd like to see those improved.

On the other hand, you see, people have been saying for years, since the Conservatives were in office, that as your federal share of funding diminishes your negotiating power with the provinces also diminishes. I don't remember you people specifically saying that, but I certainly remember people in the Liberal Party saying that very strongly when this was done under the Mulroney government.

So you're doing a whopping cut at the same time as you're saying, well, we're going to roll everything together, and maybe we're going to have national standards - trust us.

Now, if it weren't for the massive cuts - and as you were saying, you're also going to have a national social services act, like the Canada Health Act, and a national child-care act, or whatever it was - I think there might be- I'm willing to admit there's a possibility that there might be a different way of doing this. I'm not saying the status quo is a good way to do it. Given the whole picture-

I want to point out something else. What you're doing is really changing tactics in your role as a federal government when you say you are going to sit down with the provinces and negotiate on these things, which is really different from Monique Bégin saying that here's the Canada Health Act - it's our money.

There's always been negotiation around these things. You can't force the provinces to do things in areas of provincial jurisdiction, but you can encourage them, entice them, and do it through the federal spending power. It's in those things that I really believe what you're doing is retreating from the federal role and the traditional Liberal role in health and social programs in this country.

Mr. Discepola: Maybe what we're doing is ``decentralizing'', if that's the word you're looking for.

Ms Friendly: Yes, that's right. That's exactly -

Mr. Discepola: That's what's happening throughout industry. It's what the provinces are demanding.

Ms Friendly: It's happening only if you say it's happening. You're the government.

I have this funny feeling about this whole thing. People keep saying, ``Hey, it's happening.'' Well, what...? It comes back to my question; I'd like to know why it's happening. How is decentralizing happening - happening?

Mr. Discepola: Because it allows the supplier of the service to have control over it. Inherent in all this discussion is that presumably it will be done at lower cost, and more efficiently.

Ms Friendly: I would bet you you cannot support that. In fact, there's evidence to the contrary. I mean, come on; I hear this, but I'd like to see somebody show me this on paper.

Mr. Discepola: This is my last question. I think we have to move on for the other members.

In this whole debate, as an elected official I have a hard time rationalizing the supply of the service and the costs inherent in that to the beneficiary of the service and what role the state should play in providing what percentage of that service versus the beneficiary.

I'll give you an example. Previously we had a group of people and we had a PhD student. I didn't get a chance to ask the question, but the PhD student implied that post-secondary education should be a responsibility of the government.

I have a problem with that. Are we here to provide elementary education, high school as well as Bachelor, Masters and PhD education? Who benefits from those programs? If I get a PhD today, statistics have proven that I benefit directly the most; indirectly, you'll argue society does.

Let me ask you -

Ms Friendly: Let me ask you: who benefits from child care?

Mr. Discepola: Ah, that's what I was going to ask you. Can you enlighten me?

Ms Friendly: Who do I think benefits from child care?

Mr. Discepola: Let me preface that by stating that I have conscientiously made a choice, along with my wife, that she will stay home and provide the care for the children. Okay? Should she not be paid or compensated somehow?

Ms Friendly: First of all -

Mr. Discepola: Is it not fair?

Ms Friendly: Hang on a second; that's a different question.

Mr. Discepola: Is it?

Ms Friendly: Can I ask you a question? How old are your kids?

Mr. Discepola: They're 8, 16, 21 and 22.

An hon. member: He doesn't get any free advice here.

Ms Friendly: Did they go to kindergarten?

Mr. Discepola: Yes.

Ms Friendly: Is that early childhood education? Who paid for that?

Mr. Discepola: I'm asking you.

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Ms Friendly: It is. If you were in Italy or France, that would be the child care system. It's just done differently.

People have the peculiar idea that child care only benefits the parents who choose to go out and work, and then they make all this money. First of all, the parents are making a contribution to the economy in a whole bunch of ways.

Mr. Discepola: My wife isn't?

Ms Friendly: Yes, she is, and I really would like to talk to you about this.

From the point of view of who benefits from child care, one of the main groups is children, and through them the society. Women are in the workforce to stay, and I certainly would not remove their choices at all. I think women who are not in the workforce should be supported with child care services, because that's what we're talking about.

The fact is if you raise a whole generation of children every which way, as we're doing in Canada, somebody's going to pay for it in the long run.

Again, my background is in psychology, not clinical psychology. There's a lot of research on this. We are a backward country when it comes to early childhood education. We're very backward. We're doing this really badly and it's going to have bad repercussions. The society will pay for it.

The Chair: Thanks very much, Mr. Discepola.

Mr. Fewchuk.

Mr. Fewchuk (Selkirk - Red River): It's nice to see you here this afternoon.

I'd like to bring one thing to light. I got a ride in a cab the other day and I asked the gentleman where he was from. He said he was from Somalia. He's been here for four years. He said ``Do you people ever have a great country. Is it ever nice that we're not starving. We have food here, and I appreciate everything you guys are doing for me. And I'm not running around asking for all this help.''

The municipal government's priority is the same. We're always helping people.

I can't believe you said you don't trust the provinces any more and they're not doing their job. I loved that part. You said they can't do what they're doing.

Ms Friendly: You're actually putting words in my mouth. I didn't say I didn't trust the provinces. There are different ways of doing things.

Mr. Fewchuk: You're the one who said it.

Ms Friendly: No, I don't particularly mistrust provinces. Some provinces are my best friends.

Some hon. members: Oh, oh!

Ms Friendly: But sometimes they're not. Sometimes they are not friends to children or families.

Mr. Fewchuk: That's fine. Thank you.

Ms Friendly: By the way, I'm not thinking of child care as helping people. I think child care is a necessity.

Do you think of public education as helping people? It's something modern societies do because it's better.

Mr. Fewchuk: We have a good program going on. I really appreciate your answer on the provinces. Thank you.

Ms Friendly: Are you going to meet your red book commitment, if you're finishing me off?

Mr. Fewchuk: I meet just about every book, even my bank book -

Ms Friendly: Will you answer that?

Mr. Campbell: We have met and talked before.

Ms Friendly: Yes, we have.

Mr. Campbell: So I know better than to ask you a question.

Some hon. members: Oh, oh!

Ms Friendly: I wish you would.

Mr. Discepola: Why didn't you advise us?

Mr. Campbell: I wanted to see where you were going. Sorry.

Some hon. members: Oh, oh!

Mr. Discepola: I thought she was a friendly person.

Ms Friendly: I am.

Mr. Campbell: As you may have detected, we've been sitting a long time today and we may get a little punchy. I appreciate the opportunity to hear from you again.

One of the things you said when we last met was you were worried children didn't have enough advocates in this country. You remain, as always, a very eloquent advocate for children and for the child care programs and the commitment we've made.

As I said to you on that occasion, that remains a commitment. The budget didn't end it; it didn't say anything about it. Please stand by. Many of us on this side of the House and on this side of the table remain deeply committed to and appreciative of the importance of those programs.

Ms Friendly: Good. I'm counting on you.

Mr. Campbell: Thank you.

The Chair: Barry said it very well. You're an extremely forceful and articulate advocate. Your comments today take us back to the Ontario Coalition for Better Child Care, which was before us yesterday as well.

You're not only a great advocate; you're a great debater. I think you have every right to hold up that red book the way you have. Just get that red book into everybody's hands across the country, okay?

Martha Friendly, with advocates like you, we know you'll be on our case. We know you'll be pressing us and we welcome that. We thank you very much.

Ms Friendly: Thank you very much.

The Chair: We'll take a five-minute break.

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The Chair: Order, please.

We now move from our reference on Bill C-76 to a discussion of the estimates for the Department of National Revenue. We welcome Deputy Minister Pierre Gravelle. Perhaps he would like to introduce those he has brought with him.

Mr. Pierre Gravelle (Deputy Minister, Department of National Revenue): Yes, Mr. Chairman. It gives me great pleasure to meet with the committee this evening. Thank you for the invitation.

I have with me Barry Lacombe, Assistant Deputy Minister, Verification, Enforcement and Compliance Research; Mike Burpee, Assistant Deputy Minister, Assessment and Collections; Allan Cocksedge, Assistant Deputy Minister, Customs Border Services; Bill Crandall, Assistant Deputy Minister, Finance and Administration; and John Kowalski, Director General, Resource Management Directorate.

[Translation]

Mr. Chairman, we have prepared for the Committee members a brief overview of program activities and resource allocation within the Department of National Revenue. We have sent these documents to Committee members early this morning. I do not have any introductory remarks, but if you wish, I would be pleased to review the documents we have sent to the Committee.

The Chair: I have a feeling that members have already read what you sent us this morning.

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Perhaps it would better to start with Mr. Abbott, from the Reform Party, who has suggested that we hold this hearing

[English]

Mr. Abbott: First I would like to thank Mr. Gravelle and all the witnesses for coming, and I'd like the committee to know that in my role as revenue critic I've found Mr. Gravelle and his officials to be very, very cooperative. I found them to be most cooperative, and I'd like to thank them for that.

I met with Mr. Gravelle just over a week ago. We went over a number of issues of specific concern to us on which we wanted some points of clarification.

Mr. Gravelle, I have a couple of notes from that meeting, but would you like to go over what we discussed at that meeting?

Mr. Gravelle: Yes.

I think, Mr. Chairman, the documentation before you addresses most of the issues that Mr. Abbott raised with me. Let me say at the outset that what you're looking at today in the context of the main estimates is very different from the National Revenue main estimates of before. This is the first set of main estimates that truly takes account of the fact that since Bill C-2 was enacted by Parliament we now have a fully integrated National Revenue administration, bringing together customs, excise, GST, and taxation.

I think it's fair to say that the whole of the resources allocated to National Revenue are directed basically at four missions, if you will. The first important one is revenue collection, which we administer on behalf of not only the federal government but also the provinces, because we administer provincial tax legislation for all provinces except Quebec.

It is also in the business of...social and economic payments through the revenue system, because it is cost-effective to do so and many of these benefits and payments are directly related to income reported by companies or by individuals.

It is also about border services, and the role there is dual...trade facilitation, enforcement, traveller facilitation, administration of GATT and other bilateral agreements in support of international trade.

We thought we could show the committee the overall apportionment of the budget for Revenue Canada. On page 8 you have it broken down in terms of assistance to clients, assessment of returns, verification and enforcement, collections and instalments, and so on and so forth.

Mr. Abbott asked me whether in fact this integration of Revenue Canada had any impact on enforcement at the border, in particular, and whether we were maintaining a balance between facilitation and enforcement. I think it's fair to say the aspect of assistance to clients represents about 6% of our disbursements under the budget.

The other activities, such as assessment of returns, appeals, information technology, and program support, are directed at operating and supporting the whole of the department, whether it's customs, excise, GST, or taxation. However, under verification and enforcement you do have 20% of our resources directed at that activity, which covers basically excise, GST, taxation, and some aspects of customs enforcement.

Under customs border trade administration services, which represents about 17% of our budget, you have the aspects of facilitation and enforcement at the border.

You can see that there is a balance, which has been maintained over the years in terms of facilitation and enforcement across all business lines.

What I'd like to tell members is that in the context of this big re-engineering initiative, this merger of what I consider to be three teams - excise, GST, and taxation - we have in the very first year been able to effect savings in the order of $30 million in head office alone by eliminating duplication and overlap.

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Some of that $30 million went to meet our deficit reduction targets in that year, but also importantly, about $13.5 million of those savings in the first year were re-invested in border services and customs administration, particularly to buttress our technological capacity for both facilitation and enforcement at the border.

Let me also say that this integration of National Revenue is now allowing us to streamline all of our field activities. We have moved from 22 regional offices to 6. We are developing savings as a result of pooling our activities, support programs and common services in the field. I believe this year we will be able to effect anywhere between $35 million and $40 million in additional savings, which, of course, we will want to re-invest in our activities, or basically use to meet other priorities and certainly our deficit reduction targets.

Some incredible things have happened over the years. I direct you to page 10. If we go back to 1985-86, Revenue Canada as a whole has grown by about 10,000 full-time equivalents since then. But what is noteworthy is that 70% of that growth was attributable to major new government legislative or policy initiatives. Those were the GST, the GST credit implementation, pension reform, tax reform, child tax benefit and free trade. Only 30% of these extra resources that were given to us over that period were for increased workload volumes.

I simply want to draw to members' attention the fact that we have experienced during the same period very substantial workload increases. Just look at the numbers: 25% for individual income tax returns and employer accounts, travellers at 30%, 40% for commercial documents and corporate income tax returns, up to 130% for public enquiries. This basically suggests there had to be some very important productivity improvements and gains in the way we were applying technology or we were administering and delivering our programs in order to absorb these kinds of workload increases.

Mr. Abbott also asked me about the impact of program review on National Revenue. By way of introduction, just on page 11, in terms of reduction targets going back to 1994 and 1995, we have had amounts in the area of $144 million, going to $247 million in 1997-98. Of course this represents in excess of 10% of the budget by 1997-98. On top of that, we have program review.

As you know, program review for many departments has meant a decision has been made to cut back on services, cut back on programs, or to get out of certain lines of business, or to privatize...or simply program devolution to another level of government. In the case of National Revenue, I have to report that all the mandates and responsibilities of National Revenue were confirmed, so there was no cut-back in any level of activity or responsibility. In fact, as you know, legislation in the last budget called for some additional activities to be carried out by National Revenue. However, on top of that, we were asked to implement efficient improvements within existing programs to save in excess of $110 million over the next 3 years.

If we were simply to translate all of these reductions over the period in terms of FTE reduction - because remember, the bulk of our budget is salaries for personnel - we would probably be looking at reductions in the order of 3,000 to 5,000 people over 3 years.

.1845

The fact that our mandate has been confirmed and we have been given as top priority the maintenance of the level of service, as much as possible, and the protection of the integrity of the revenue base - and in fact we've been asked to do more - means we now have to find strategies and ways of managing this whole envelope in a very creative way in order to achieve savings.

The colour chart gives you the resource challenge. The black portion of that truncated chart shows our actual operating budget for the period 1993-94 to 1997-98 is going down from about $2 billion to roughly $1.7 billion. The blue is the program review efficiency savings we've had to absorb; and the red, the reduction since December 1992. In green, we have the new legislation, government priorities and volume growth; basically things we have to absorb. Because we will not be funded from the centre, I need to find some savings within in order to reinvest in capital infrastructure and re-engineering. So by the year 1997-98 we will have had to turn around almost 26% of our budget to meet all of our objectives.

Is this doable? I believe so. It is doable because we have embarked at this stage, as I said earlier, on what is the most forward-looking re-engineering initiative in government.

In the old setting if you were a small business, or even a large corporation, you had to do business with Revenue through different windows. There was a silo approach. It was all based on the legislative mandate given to a particular branch of National Revenue. So if you were dealing with Customs, you had the panoply of activities related to facilitation, administration, technology, collection, investigation, enforcement, appeals and so on, likewise for excise, GST and taxation.

In the fall of 1992, when I was asked to take over Customs and Excise and Taxation on an administrative basis, the legal barriers to integration were such that I had to wear two or three hats from time to time in a given day. The legal authorities didn't allow us to management efficiently in a horizontal way. Bill C-2, approved by Parliament in the spring of 1994, had these legal barriers evaporated.

We are now taking a fully integrated approach to the delivery of our programs. This means a small business, instead of having four, five, six or seven account numbers or the visit of four or five different audit teams in a given year, will now deal with a comprehensive integrated approach to client assistance, audit, collections and redress mechanisms. This is generating substantial savings in terms of the way we manage the department, but it is also generating a lot of savings to taxpayers and the business community, because we are reducing the cost and burden of compliance and dealing with national revenue. To give you a quick overview of some of the incredible savings, in the last five or six years technology application, even before re-engineering, has allowed us to find economies in the order of about 2,000 FTEs.

Doing business differently at the border today.... The Customs Act was conceived in 1967. It's fascinating that it still embodies today the concepts of international trade as they existed then. The concept of just-in-time inventory didn't exist. Everything had to be accounted for item by item, paper-based at the border. Electronic processing of claims was not thought of in 1867.

This was adding incredible costs to businesses, traders, imports and exporters. So in terms of re-engineering, we decided to pilot the notion of an electronic pre-clearance of goods on the commercial side, with due regard to compliance and protection of the integrity of our sovereign laws. This has been done with the aerospace industry and the three automobile makers on an administrative basis first.

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By doing business differently with us at the border, these two sectors alone will realize a savings in the order of about $180 million over 10 years. This is just incredible. These kinds of savings and this new way of doing business at the border for instance of the commercial stream, will allow us also to redirect staff and resources to the higher-priority areas, whether they have to do with dealing with people at the border or dealing with enforcement at the border or simply dealing with enforcement and facilitation outside of the border.

I believe those substantial deficit reduction targets that have been given to us can be met - we have three years to do that - but I think we can meet them with the increased utilization of technology, with some pretty fundamental re-engineering of the way we do business within National Revenue with one another, and also the way we do business with the outside world, particularly individuals and the business community.

We will have an opportunity to report to Parliament on an annual basis on performance and issues. If we see any sign that these deficit reduction targets will have an impact on the way we are expected to discharge our mandate, we will certainly flag this to parliamentarians and to the government.

In response to Mr. Abbott, I thought I would also give you some supplementary budget details. This is contained in the short appendix to the outlook on Revenue Canada. You have efficiency gains realized through technological enhancements. It seems to me what is noteworthy here...if I may just draw this to your attention. I'm looking at page 5 of the appendix.

Just looking at the prudent views of resources given to us and the fact that we knew of the budget restraints and the public expectations and the pressure on us to carry out our legislative mandates, if you look at audit, for instance, and you track 1991-92 to 1993-94, we had only a 13% increase in resources. However, we have increased our actual audit activities by 24%, so there is a significant productivity gain right there. The same thing applies for special investigations. The SR and ED program and the way it's managed at 52% and so on and so forth - this is the kind of thing we're looking for in the future, year after year, to help meet our deficit reduction target.

Key productivity changes.

It's quite noteworthy, at page 6, that even if you take a measure of files reviewed per full-time equivalent, there's been a 10% productivity gain in the area of audit. Special investigations were 14%, SR and ED was 13%, and public inquiries handled for FDE were a 4% increase. In terms of the processing of returns it was 16%; and so on. On page 7 I have some additional productivity gains in terms of additional tax assessed for full-time equivalent.

Mr. Abbott had asked me to give some breakdowns on the details of non-salary expenditures. You find this at page 9. Basically, if you look at the total budget of National Revenue, the salary base stands at $1.7 billion. That represents 70% of the total budget. Non-salary is a mere 19% at $422 million. This is broken down into professional and special services, postage, printing, travel; all of the things that are absolutely necessary in order to make the place run efficiently, as it were. The transfer payment, at $94 million - which stands at 4%, Mr. Abbott - is the transfer to the Ministry of Revenue Quebec for the administration of the goods and services tax in Quebec.

At page 11, professional and special services were of interest to Mr. Abbott and I have given you a breakdown of those - legal services, training and education services and so on. It is noteworthy under legal services, members of the committee, that the $7.2 million includes about $4.4 million for agents, for prosecutions, and $1.2 million for court costs and about $1.6 million for other legal services - opinions and so on.

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Training and educational services, of course, are extremely important to us. Although we have a fairly substantial in-house capacity for training and development, we need to have a fairly well trained, well versed and articulate workforce, because we deal with very complex legislation and we interact with a great number of taxpayers in a given year; but supplemented by about $10.8 million in training and educational services for special-purchase courses, consulting and tuition.

Protection services are essentially commissionaires for building security.

Other professional services, at $19.7 million, are really general consulting, whether it is in the area of specific re-engineering initiatives or otherwise.

The other area of interest perhaps is item 7, other services and hospitality. Basically, hospitality is virtually minimal, but it is comprised of big items: $7.9 million for Canada Post fees, $6.6 million for Public Works and Government Services Canada, and $1.2 million for temporary help. That summarizes that aspect of professional and special services.

Mr. Abbott: While it's fresh in my mind, could you just repeat that figure of $28.3 million down to the $24.8 million, under other services and hospitalities? You just gave us a breakdown. Could you give us that breakdown again, please.

Mr. Gravelle: Canada Post fees, $7.9 million; Public Works and Government Services, $6.6 million; temporary help, $1.2 million; other, $12.6 million, of which what has been described as hospitality - functions and so on - at about $0.4 million, is 0.5% of the total.

Mr. William Crandall (Assistant Deputy Minister, Finance and Administration, Department of National Revenue): If I could make a point, Mr. Abbot, the reason ``other'' is so large in there is there are all kinds of smaller categories for coding that particular standard object. It has, I think, another dozen or more separate breakdowns for that particular item.

Mr. Abbott: It just seems rather unusual to have hospitality included with ``other services''.

Mr. Crandall: It's just a standard format for public accounts -

Mr. Abbott: It is?

Mr. Crandall: - where these are standard objects, and those headings are used for almost everything.

Mr. Gravelle: In addition, we gave you a quick summary in -

Mr. Williams (St. Albert): Mr. Chairman, before we leave that page, we are asking questions.

I notice that your training and education item has dropped down dramatically from the actual in 1993-94, $10.8 million, to your estimates of $7.3 million. That's a drop of 30%, give or take. In today's age, where technology is more difficult to comprehend and the Income Tax Act is more difficult to comprehend, why the 30% decline in training?

Mr. Gravelle: This is not necessarily a decline in training in-house, but it is certainly a reduction in the purchase of external services through professional and special services. We are doing more things in-house. Some of these costs in earlier years were incurred for developmental purposes, to develop new courses, new curricula. We can now do this in-house ourselves.

We have approximately - correct me if I'm wrong, Bill - a budget of about $45 million in-house for training and development, and this is highly decentralized. Of course we do have two training centres - one in Ottawa and one in Rigaud - but in order to stretch our training buck we try to decentralize, as much as possible, training coast to coast, so that we can have more participants in the department on an annual basis partaking in training and development. On average, we give employees about six days of training a year - refreshers and so on and so forth.

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Mr. Crandall: I have just one other point, if I could.

Some of the figures in 1993-94 were for a one-time event associated with the fit-up of the GST processing centre in Summerside, including probably some amounts for training, and certainly in some of those other categories as well.

So the drop may not be as pronounced as you see it over the course of the three years, but certainly the drop between 1994-95 and 1995-96 reflects our efforts to find the savings and reductions in our budget.

Mr. Abbott: The most spectacular job, of course, is item 4, which goes from $19.7 million to $3.7 million, on ``Other Professional Services''. What happened there?

Mr. Crandall: That was for professional services associated with the fit-up of the GST processing centre in Summerside.

Mr. Abbott: Thank you.

Mr. Fewchuk: Did you say you have a training centre in York?

Mr. Gravelle: No. In Rigaud and in Ottawa.

Mr. Fewchuk: How many years ago was the one in Rigaud established?

Mr. Gravelle: Allan Cocksedge can help me.

Mr. Allan Cocksedge (Assistant Deputy Minister, Customs Border Services, Revenue Canada): It was fifteen years ago.

Mr. Fewchuk: And what was the reasoning behind that when it was officially opened? What was the official idea? What was the educational policy when it was opened?

Mr. Cocksedge: At that time the training for customs officers was being done on a very ad hoc basis. There was a desire on the part of both the department and indeed across government at the time to train people much more systematically in the basic skills of the job. Of course a customs inspector position is a very specialized position.

The training centre was built at the same time as the design of a sixteen-week curriculum course through which all customs officers went at that time. It has since been streamlined to fourteen weeks and is under constant review.

All customs officers who are hired off the street undergo that training in the very early part of their careers. Since that time it's also become a venue for specialized training for enforcement activities and it also is the venue where we train our dog handlers and others who are involved in particular kinds of enforcement activities.

Mr. Fewchuk: Could I have just a bit of background history on the one in Ottawa?

Mr. Cocksedge: The one in Ottawa I'm less familiar with. It was developed on the tax side.

Mr. Crandall: The one in Ottawa primarily relates to what it used to be - the taxation side of the department for income tax. It's to do all the management, professional and technical training associated with audit, collections, the Income Tax Act, interpretations, etc. It uses a Public Works facility on Heron Road.

Mr. Gravelle: These two centres.... Well, we cannot even speak of two centres now. It is a combined training resource.

Mr. Fewchuk: That's my point.

Mr. Gravelle: We will use Rigaud for any aspects of training whenever it is appropriate, whether they have to do with tax administration, GST administration or customs administration, and similarly for the Ottawa centre.

I simply wish to tell members it would be preposterous today simply to think training in the department can happen only in Ottawa or Rigaud. There would not be enough money to bring people from across the nation to receive that training.

What is more important is for us to train trainers to use technology for people to train in situ in every local office across the nation. This is what we're doing.

The Chair: What we can't figure out is why the hell you haven't put one up in Selkirk.

Some hon. members: Oh, oh!

Mr. Fewchuk: I just wanted to know if maybe we could do away with one. - I'm just kidding.

Mr. Gravelle: Maybe we can have some private-sector contributions to set up a centre in Selkirk.

Mrs. Brushett: Do you do much contracting out, and if so, where would it be included in these figures?

Mr. Gravelle: We do extensive contracting out for printing and distribution of forms. Mr. Crandall can talk about the budget and how it's done and allocated. It is much more cost-efficient to do that.

Even in this area of printing and publications there have been sizeable, substantial reductions in expenditures over the few years. We are now establishing profiles of taxpayers on the basis of the previous filing season so that we send only that information and the proper documentation and forms related to their tax status. There have been tremendous savings.

We also do substantial contracting out in the provision of computer services. There's a balance, because we need, nonetheless, an in-house capacity to do that.

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We do not do any contracting out when it comes to manipulation of taxpayer information, or collection. This becomes extremely difficult. This issue has come up from time to time: why we don't contract out the collections program of National Revenue; there are all sorts of private-sector collection agencies.

We've looked at that very extensively. There are two arguments for not contracting out this type of activity. One, it would be more costly. It is costing us, in terms of the collections activities, about 2% of accounts receivable to do the collection. Private-sector agencies go anywhere from between 15% and 30%.

More importantly, from a public policy consideration, by contracting out collections, for instance, we would be putting in the hands of private collection agencies and other people a lot of private and confidential taxpayer information. We're precluded by law from doing that.

Mrs. Brushett: We've discussed it so many times in other committees. You've made the point that it is not beneficial in terms of cost savings. I appreciate that, because I believe our public service certainly is very capable of doing that.

Mr. Fewchuk: And the private sector is not always the answer. I shouldn't say that, being one.

The Chair: How do you want to go, Mr. Brien?

[Translation]

Mr. Brien: You spoke briefly about the forms. Over the past few years, there were occasionnally some small errors in the forms. Could your form review process be improved so that there would be no errors such as the ones we noticed lately?

Mr. Gravelle: I have to tell you, Mr. Brien, that that issue comes up every year, and that we invest a lot of energy and time to ensure the quality of our publications.

There were mistakes...

The Chairman: You have never made a mistake in your life?

Mr. Gravelle: Errare humanum est. Sometimes, there are switching problems. For instance, very often, we send out documents that have been reviewed and approved, not only by the Department, but also by the provincial Departments, because for income tax purposes, each form and each guide takes into account both the federal and the provincial elements. Sometimes errors are made at the printing stage. The printing is often contracted out to the private sector, and there are simply technical mistakes which occur there. We will simply have to continue to be extremely vigilant and to try to avoid these errors.

Quite fortunately, as soon as we spot a mistake, we immediately contact the taxpayers who are affected. I think that no taxpayer has ever been penalized because of a mistake made by the Department.

Mr. Brien: What will happen this year, for instance, for residents abroad who filed their tax return in French and who are not referred to the appropriate line in the tax guide? Will you be able to correct that when the form will be computerized?

Mr. Gravelle: Yes. Whenever we spot a mistake that can be corrected at the processing stage, we immediately correct it, and that is done automatically. Explanations are then sent to the taxpayers to indicate the changes we have made.

Mr. Brien: If the error is spotted in early April, but that you have already entered the data in March, will you check all the forms which have already been processed?

Mr. Gravelle: Absolutely. In any case, these mistakes were identified at the very beginning, when we sent out the tax forms and guides.

The Chairman: Any other questions?

Mr. Gravelle, were you finished your -

Mr. Gravelle: I was just going to say that during the course of our discussion this evening we will be pleased to comment on the sum of our innovations, which appears at appendix A, or tab A of your book; our compliance strategy, because I think it's critical, very important; and some of the results, particularly with regard to the underground economy.

We would be happy to talk about accounts receivable if this is of concern to members. We then could oversee, at tab D, some of the activities under the anti-smuggling initiatives, because this was also of keen interest to Mr. Abbott when we met.

.1910

Mr. Abbott: Many of the questions I had posed to Mr. Gravelle in a very quick reading of the tabs have been very fully covered. I will admit I haven't had time to read them in depth, so I don't have any further questions respecting them. I would recommend to the committee that, for example, on the issue of compliance, on the issue of the GST compliance in particular - all of these things - it appears to me that most of those are covered, and that's excellent.

I had a few additional questions. A question that was raised by a colleague of mine in the House last week was on charitable donations. Let's say there was this theoretical organization that was involved in some kind of illicit activity, but it had a charitable donation number. What is in process right now for the Department of Revenue to be able to address that, and how would they address that?

Mr. Gravelle: We have 70,000 registered charities, and by law they have to file an annual return. These annual returns come in with a fair degree of accuracy. If an annual return just upon quick examination on filing is incomplete, we go back to the charity for additional information. A charity that will not file a return, or that files an incomplete return, will get formal notification and runs the risk of being deregistered. It is a big lever that we have for eliciting some discipline in terms of that information requirement.

In addition we do a small number - not a big number but a small number - of audits, and we do these audits by contracting government consulting services, formally Audit Services Canada, because it is a cost-efficient way of doing that. Furthermore, we do verify, investigate, audit any charity which is the subject of some complaint, comment, either on the part of the media or on the part of individual citizens. It is a difficult area, a challenging area.

The Canadian public generally has very actively supported local charities at the community level. There's no definition for what a charity is in law, but this notion of charity for tax purposes has evolved over the centuries through common law decisions. When we receive an application, we have to make sure that the object of the applicant charity conforms to what is considered charitable at law. It is on the basis of this application that we issue or deny registration.

Of course we have to rely on volunteer compliance. Given that the Canadian public gives so much importance to charities and charity work, there is a bit of self-discipline in the community that helps us in making sure that charitable organizations, having been registered with us, comply with the act.

Furthermore, charities are not supposed to engage in political or advocacy activities. We have an administrative guideline that says they may engage up to 10% of their resources for that purpose. We do watch for that as well.

Mr. Abbott: This is a totally different topic. Bonds for customs brokers: that was an issue going back about six months ago. Has that issue been resolved?

Mr. Gravelle: It has been resolved -

Mr. Abbott: To everyone's satisfaction, in your judgment?

Mr. Gravelle: Mr. Abbott, I believe so. There is not one broker that has not been able to obtain proper security to this date. We have had extensive consultations with the broker community. We have had extensive discussions and we continue to have such discussions with the importing community and the bonding companies.

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We have a regime that protects importers, brokers and of course crown revenues. It is true we have raised the ceiling up to $10 million, but it is not $10 million applicable to every broker. It depends on the volume of business and transactions in a given month.

What is important too is that there is some flexibility, because brokers can now make some shifts and arrangements with their clients, the importers, where importers have direct security arrangements with us or make direct payments to us. So there is some flexibility. We don't have the definitive regime for the future, but this is also something we're looking at in the context of the review of the Customs Act.

Mr. Abbott: I apologize about one of the other questions I asked - I didn't recognize it in here, but perhaps it's in here. I had asked you if you theoretically had $50 million and could apply it specifically to the interdiction of weapons coming across the border, how would you spend that $50 million? Did you respond to it here?

Mr. Gravelle: I gave this a lot of thought. I have to preface my comment by saying I could not simply say we're going to use...first of all, I presume Parliament would give us an extra $50 million.

An hon. member: Never.

An hon. member: This is a hypothetical question.

Mr. Abbott: No, the Reform wants to give $50 million.

Mr. Gravelle: I would have to say that if Parliament said we're giving you $50 million, and it has to be directed for a very specific purpose, as you do when you approve main estimates, then of course we would have to apply that for enforcement, interdiction activities, for that specific purpose. However, I believe this would not necessarily be the answer.

Basically we're trying to give Canadians collectively one of the most responsive, responsible, transparent and cost-efficient revenue administrations. We always have to make a fine balance between facilitation on the one hand and enforcement and proper, sound management on the other to make the organization tick.

Ladies and gentlemen, there is not one private-sector organization in Canada - believe me, in Canada - that faces the same kind of volumetrics in terms of activities and interaction with individuals, travellers at the border, or companies, in a given year. The numbers in your deck at the very beginning of the outlook are astronomical. We have to administer more than 185 acts, regulations and statutes, and they're very complex.

The whole system is not based on an enforcer mentality, it is based on the respect of Canadian citizens and the hope they will self-comply as good citizens. For citizens to self-comply in this complex environment, they have to be knowledgeable. To be knowledgeable they have be assisted. We believe that Canada's National Revenue administration - and it has worked so far - has a very important mandate to facilitate, educate and provide the proper tools for Canadians to self-assess.

Mr. Abbott: But with the greatest respect, I asked the minister the question in the House, to the general effect...we were talking about Victoria, as I recall, sending people there, the quarter million dollars of the cost of travel and so on. His response was to the effect that customs forms the first line of defence for Canadians, etc., etc. Subsequently, you should know, I received a letter from the spokesperson for the Canadian Police Association, who said he was not totally in agreement with what the minister said. As a matter of fact, it was quite entertaining to read his submission. I also received three or four telephone calls -

Mr. Peterson (Willowdale): Did he also tell you he wanted gun control?

Mr. Abbott: I'm coming to that.

I also received three or four anonymous phone calls - which a person has a tendency to discredit; but nonetheless - from people claiming to be customs officers and so on and so forth, saying ``what a bunch of hooey, all we are is greeters and tax collectors''.

This is why I'm saying if there were this theoretical $50 million more, what could be done actually to put some substance to the claim the revenue minister made?

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Mr. Gravelle: When we say we're the first line of defence, it's true, but we have to recognize that we share a common border, 7,000 kilometres of undefended border, with our ally and trading partner, the United States of America. We have only x border ports along that long territory. Frankly, if we were to add $50 million of interdiction at these border points, that would probably not make such a huge difference, for the very simple reason you have to consider the management of the border as a whole.

I think we have put in place now, in terms of gun control - because this was a very serious question on your part and a very serious preoccupation...what are you doing, Revenue Canada, now to make sure we have good control over the importation of firearms? Firearms are legally imported into Canada as well. In this documentation we have listed, particularly on the last page, all the measures we have now put in place to track the importation and exportation of firearms in this country.

When it comes to smuggling of any type, or when it comes to the tax gap, there is no amount of resources any government could afford to address the issue strictly through an enforcement perspective. It's impossible. We have the Criminal Code, municipal and provincial laws, the highway traffic act. It is preposterous to think no Canadian will commit any infraction to any of these and go uncaught. We cannot put a police officer at every corner of every street in every city in Canada.

Again, I come back to my theme that we have to make sure that citizens are responsible; are sensitized to their duties and their sense of civisme. This is why I believe that in managing the revenue administration we like to think we can take a useful strategic approach to maintaining that fine balance between things that are directed at facilitation and enforcement and also investing in some of the fundamental workings and operations of the revenue administration, because by re-engineering that, there can be substantial long-term savings, such as electronic filing, for instance.

Mr. Abbott: You would categorically reject the characterization that they are greeters and tax collectors?

Mr. Gravelle: I would reject that totally and emphatically. Let's think about this. We have 100 million travellers a year coming through our border; 45% to 50% of those are returning Canadians. I have great difficulty believing the bulk of these people, visitors, travellers, frequent travellers, business people, are dishonest. Our statistics and our compliance activities show otherwise.

I believe it is important for the image of Canada, which wants to be a big, important trading partner around the world, that we greet people with a smile and in a very professional way. I get letters from many of you every time a constituent of yours faces a customs inspector who doesn't smile or doesn't greet properly. That's no. 1.

The work of the customs inspector is not only to greet people. In terms of the first line, it is to ensure that we act not only on behalf of the Customs Act for enforcement and facilitation of trade and the Customs Act but also that we act on behalf of other government departments in order to ensure that the laws of Canada are respected; Agriculture and Agri-Food Canada, Health Canada and Environment Canada and so on and so forth, even the Department of Citizenship and Immigration. Through profiling and streaming, I think then we direct people to other people for secondary examination. There's no magic to managing that border and we should not think customs inspectors should play only an enforcement or facilitation role. They do all of that at the same time.

Mr. Abbott: I think your page 7 that you drew our attention to sets out if firearms, for example, are being shipped, are moving around, and are under some kind of control.

[English]

But I think you'd also agree there's no way to stop the volume of illegally smuggled weapons presently coming in.

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Mr. Gravelle: There will always be some leakage and contraband, whether we had $50 million or $2 billion worth of interdiction activities at the border, because there is an economic incentive.

Mr. Abbott: I asked Mr. Cocksedge the same question in a different committee. We can't really quantify. We have absolutely no idea. We know there's a leakage. We don't know if it's a drip or a flood.

Mr. Gravelle: We know from experience to date we had 1,864 firearms seizures at the border last year. That answers one of your questions, Mr. Abbott. Most of these firearms were possessed legally by American citizens unaware they could not carry their firearms into Canada.

The kind of smuggling that is taking place may not necessarily be at our manned border points but could be between border points. This is why police forces, law enforcement agencies, and the RCMP in particular, have been extremely vigilant in ensuring they have proper strategies to deal with the potential of contraband between border points.

Mr. Abbott: What about the issue of peace-officer status for customs officers?

There are many border crossings, for example Nighthawk in British Columbia, where there's one person. Obviously, I'm not thinking of those border crossings. I am thinking of Windsor, Fort Erie, places where they have a drunk driving problem. Our border crossing people have to treat that situation like boy scouts. They have no way of stopping even a drunk driver.

Has that been aggressively looked at?

Mr. Gravelle: This is being examined very, very carefully. We had discussions with law enforcement agencies and the RCMP.

For members, this issue has to do with the powers of customs inspectors at the border. They have peace-officer status and power with regard to infractions committed under the Customs Act, but they do not carry peace officer status for infractions carried out under the Criminal Code. At issue is whether that should also extend to all Criminal Code provisions, when we know the administration of criminal law is the responsibility of the provincial Attorney General and local police forces, and we're looking at that.

What extent should we go to? Should we have another stratum of peace officer powers given to customs inspectors? Alternately, should there be a more visible, active presence in certain areas of proper law enforcement agencies? All these options are being examined at the moment.

Mr. Abbott: Is there any timeframe when you're hoping to have that squared away?

Mr. Gravelle: We have been looking at that in the context of the Customs Act review, as you know. This has been the subject of very intensive external consultation with all stakeholders in border activities, whether they're warehouse operators, traders, brokers, and so on, and law enforcement agencies. We are continuing our discussions and explorations in these consultations. We hope to be able to have this process finalized by the end of the calendar year, and that issue will be addressed within the context of that review.

Mr. Abbott: Is one of the possibilities a two-tier idea, with our Nighthawk or Oroville people at one level, and then a second tier at a border crossing where you have...? Is that an option you're looking at?

Mr. Gravelle: I would not reject that outright. Those are some of the permutations and combinations we're looking at.

Mr. Abbott: What about arming them?

Mr. Gravelle: I don't believe customs inspectors should be armed. At the moment it is the view of the Government of Canada customs inspectors should not be armed. This is a public policy issue and can be very controversial. I don't think we would enhance the safety and security of our customs inspectors, or even the travelling public, simply by creating another police force at the border.

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Mr. Abbott: Presumably we would have attendant training costs as well.

Mr. Gravelle: There would be substantial training costs, and this requires a very thorough, rigorous screening process for people who are eventually authorized by law to carry firearms for enforcement purposes.

If I may just add one element of information for committee members.... About that whole issue of interaction between customs at the border and law enforcement agencies, we have post by post, border point by border point, local arrangements with law enforcement agencies for a whole range of activities, ranging from the security and safety of our customs inspectors, to the public and also to the enforcement of criminal law.

The Acting Chair (Mr. Fewchuk): That brings back memories. I thought I was right at home. When we first started our police department in our local municipality, there were by-law enforcement officers and we had to take them to the Attorney General and get them sworn in to have the authority to enforce the traffic tickets and so forth. We have the same problem at the federal level, only on a bigger scale. The gun issue is really touchy. We agree with you heartily on that.

Mr. Williams: Yes, thank you.

Mr. Gravelle, I'm looking at the part III estimates on page 6, program by activities. I see assistance to clients and assessment of returns are going down from $548 million down $453 million. Is this going to cause a drop in service?

Mr. Crandall: I don't think it's going down, sir. The $548 million is the total -

Mr. Williams: Oh, I'm sorry. It's gone from $590 million last year down to $548 million this year. My apologies. I got the wrong numbers there.

Mr. Crandall: I'll just say this. Maybe Mr. Burpee will make a comment. Those numbers are definitely doing down in that particular activity and we do have budget reductions in that area. Perhaps Mr. Burpee wants to comment on that.

Mr. Mike Burpee (Assistant Deputy Minister, Assessment and Collections, Revenue): The only thing I'd add to that, Mr. Crandall, is that we think there are ways of streamlining the delivery of our information programs, in particular our client inquiries programs, so we provide at least the same level of service, but do it on a more economical basis than we have attained in looking at that right now.

Mr. Williams: Are you cutting back on a significant number of FTEs?

Mr. Burpee: It will lead to that eventually, yes.

Mr. Williams: I notice on page 46 you look like you're knocking back about 400 FTEs on just straight assistance to clients. Revenue Canada is not the most popular department out there.

Mr. Gravelle: Is that right? That's news to me.

Some hon. members: Oh, oh!

Mr. Williams: They're the ones who send the bill. It's not normally the cheques I hear about. I'm just concerned about the drop in service.

Mr. Burpee: Could I add a clarification? That is not just assistance to clients; it's also assessment of returns. It does recognize some savings in the way in which we're able to process returns as we use electronic filing, we use a number of other automated processes. We have, over the last three years, particularly on the T1 side, found ways to make significant savings by re-engineering -

Mr. Williams: If I can interject there.... On page 46 you're showing that as about a 700 FTE decline on processing of returns, but your actual assistance to clients is going to drop by 400 FTEs. That's a fairly significant drop in your service you are providing to the front line. I've always been a firm believer that service to the client where the rubber meets the road has to be maintained. You can cut back in administration and overhead and so on, but if you start cutting back on service to the client, you're going to feel it. How are you going to ensure you're maintaining the same standard of service if you're cutting back by 10% of people on the front line?

Mr. Burpee: What we're looking at is being able to use the people and the resources much more effectively. For example, one of the things we will look at is developing call centres instead of having people handling phone inquiries in every office. Economies of scale can be saved that we think might even improve the service. There are a number of areas we think we can re-engineer in the way we're delivering our enquiries program...realize economies in doing that and provide as good or a better service.

Mr. Williams: When you say as good or a better service, have you ever tried to phone Revenue Canada?

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I happen to have been an accountant before I was elected. Trying to get through to Revenue Canada was nigh impossible. I'm serious; in Edmonton it was almost impossible to get through to Revenue Canada. At tax time, when people really wanted to get through, it was impossible. For instance, I would try to put an automatic-dial call through and it would take maybe a couple of days before I'd even get through.

Have you resolved that situation? What have you done?

Mr. Burpee: Those are exactly the points we're looking at. We're looking at how it's done in the private sector with other organizations that handle call centres, and as I said, we are waiting for a report from the team that's looking at this. It'll be available in another four to six weeks.

We think there are technologies out there that will allow us to use our staff better and to handle more calls.

Mr. Williams: Even though you were overloaded before?

Mr. Burpee: There are different ways of doing it. That's what I'm saying to you. We think there are other ways of doing it, yes, absolutely.

Mr. Williams: Are you going to do that -

Mr. Burpee: We'll be able to come back and show that to you next year.

Mr. Williams: - and cut your staff by 10% on the customer service side?

Mr. Burpee: Over three years; yes.

Mr. Williams: It doesn't say over three years here. It says the 1994-95 forecast is 3,543 and the 1995-96 forecast is 3,145.

Mr. Burpee: Sorry; that's right.

Mr. Williams: That's one year - a 10% cut. Are you going to be able to cut 10% FTEs and at the same time improve service?

Mr. Burpee: As I said to you, we're going to at least maintain if not improve the service. Yes, I think we're going to be able to do that.

Mr. Williams: Well, I'm not sure ``maintain'' is very good. As I said, I'm going by my past experience, where it was nigh impossible to get through to Revenue Canada.

Mr. Gravelle: If I may, this is an interesting challenge we have. We deal with about 17 million public enquiries in a given year. All of a sudden, during tax time - from February to April - you have this incredible surge of interest in National Revenue.

During that peak period we extend our hours and our days of service. We have additional phone numbers. We have dedicated lines so we don't clog up the general enquiries line at that time with goods and services tax credit issues or child tax benefit payment issues and so on and so forth.

In addition, for tax practitioners who know their way around, they have access to direct lines for any senior Revenue Canada official at the local office level. In terms of the more complex issues that deal with rulings or technical interpretations, there are dedicated services on 1-800 lines to head office.

So we try to use a combination of strategies to cope with these difficult times. I appreciate that sometimes it is difficult to get in touch with us.

The Chair: You could not act like H&R Block and just lay off everybody for eight months of the year.

Mr. Crandall: It's difficult to staff to the peak period. That's one of the problems. As you say, you have a lot of down time.

I could mention one thing. Even the auto-dialler you mentioned, that type of technology, causes us problems we have to overcome. Many people do that, which clogs up the lines and complicates the problem.

So in addition to the re-engineering, I guess, from the psychological standpoint, where we're trying to look at client behaviour, when they phone and everything else, we're looking at the technology side to see where the telephone companies can save us money and make this process cheaper and more efficient...and have fewer blocked calls.

Mr. Williams: I appreciate that you're trying to do something about it. From my perspective, I'm trying to represent the taxpayer who is frustrated in trying to get through to Revenue Canada when he has a question. It is quite difficult to explain to them that we as a government are providing any service to them when they can't get through.

To change the subject slightly, Mr. Gravelle, you say you're not aware that anyone has had to pay because of a departmental error. That brings up a situation where the quality of advice being given out by the district offices and so on certainly cost one of my constituents some money. This constituent kept phoning Revenue Canada, kept getting an answer saying that yes, he was entitled to the claim. When he submitted his tax return it was allowed. He phoned up again on another question. They pulled it up and disallowed his claim. He phoned somebody else. They allowed it, they disallowed it - back and forth about four or five times, if not even more. They finally disallowed it and charged him interest on the refund they had sent to him mistakenly.

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Well, what's the quality of the advice you're giving out on the telephone? Are you monitoring that at all?

Mr. Gravelle: We have monitored that internally. Several years ago, if I recall, the accuracy rate was on average 75% at the peak time of the tax year. This led us to the implementation of a tiered approach to telephone enquiries. The first tier generally consists of general information, handled by staff with general information and knowledge, with the more complex questions being referred to either better trained people or senior officials who take turns handling those telephone enquiries.

Frankly, we do have in place a whole range of mechanisms to deal with situations like that. We now have in every district office a problem-resolution program, whereby several officers simply cut through the red tape whenever a taxpayer is confronted with a situation like that. I recognize that when you have a workforce of roughly 42,000 employees and you deal with 20 million individual taxpayers and a million corporate taxpayers, there are bound to be in a very complex environment such as ours some errors. The important thing is to try to have a risk-free environment, but to manage the risk and to manage the errors so we can take corrective action very quickly.

So we have the problem resolution program, notices of objection, and informal procedures. Parliament also agreed to the introduction of fairness provisions in the Income Tax Act and the Excise Tax Act. When a penalty has been imposed on or interest charged to a person because of an error on our part, we simply eliminate the penalty or interest.

Mrs. Brushett: Mr. Chairman, I would like to make one comment on that point. There is the odd complaint, but overall I believe Revenue Canada has made tremendous progress in our community in serving the public. From the numbers of letters I have received recently from the seniors who utilize the tax clinics at taxation time...I have been inundated with letters saying not to cut back service, because it has been so highly utilized and serves our seniors so very well. Obviously some of our public servants are doing a great job out there in that regard.

The second point I'd like to make is about the rapid speed with which E-File operates in terms of returning cheques to those who have a refund. A lot of the accountants as well as taxpayers who have filed by E-File have had their cheques within a week.

I think there has been tremendous movement in a very positive direction in serving the taxpayer at taxation time. And this is right during the busy period.

Mr. Gravelle: There is an unsung success story in terms of tax administration in this country, which I would like to note for members. We have over the years developed a network of national revenue volunteers, people in the community who work with us at the local office level and are simply an extension of National Revenue. They do this strictly on a voluntary basis and help needy people in institutional settings, for example, simply to discharge their tax obligations at tax time. This year we had on strength over 12,000 volunteers across Canada. This is absolutely incredible.

The Chair: Did you have any more questions you wanted to ask?

Mr. Williams: I have just one, on appendix 7.

The Chair: I don't mean to rush you, but I wanted to give members some last-minute time in here tonight.

Mr. Williams: I'm just about -

The Chair: That's all right. Take all the time you want.

Mr. Williams: Thank you.

I haven't had the privilege of reading the submission you handed out today to committee members, Mr. Gravelle, but I'm looking at, I think, appendix A on page 7, on additional tax assessed per full-time equivalent. It seems to me -

Mr. Gravelle: I gather you're talking about the the appendix to the Outlook document.

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Mr. Abbott: Just before tab A.

Mr. Williams: Supplementary budget details.

Mr. Gravelle: On page 7?

Mr. Williams: Page 7, ``Additional tax assessed for full-time equivalents''. It seems to me you are keeping tabs on how much money your tax collectors collect. I thought when you appeared before the public accounts committee you said there was no way you have goals and targets per person as to how much money they're collecting.

Mr. Gravelle: It's one thing to measure performance. It's another thing to tell people they have to attain that particular quota so we can assess whether they're meritorious or not.

We do not give Revenue Canada employees quotas or targets. I think this would be fundamentally wrong. But we track our performance. We like to measure our performance so we can be accountable to you and to the Canadian public.

I think it is a wonderful story line to say in spite of the fact that salaries of public servants have been frozen for several years and in spite of all the tension in the workplace as a result of deficit reductions, budget cut-backs and so on, we have a wonderful workforce in National Revenue that has risen to the challenge, has taken the public interest to heart and has shown the productivity gains we have before us.

Mr. Williams: You're saying you're keeping track of it for accountability, but at the same time there is no performance appraisal based on numbers collected. Yet you are keeping track of it, obviously.

Mr. Gravelle: Yes. This is corporate performance I'm showing you, not individual performance.

Mr. Williams: You're not tracking it on an individual basis?

Mr. Gravelle: No. That would be wrong.

Mr. Williams: Mr. Chairman, those are all the questions I have at this time.

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

Mr. Brien.

[Translation]

M. Brien: You have a lot of research and development tax credits to check, and I would like you to tell me what resources will be dedicated to that effort this year and when do you think this work will be finished.

Mr. Gravelle: We have a program allowing us to deal with research and development tax credits claims annually, within three months.

For several years, we have been able to look at the profile of each claimant in order to speed our decision when someone has already submitted a previous claim and when the summary examination of the current claim does not reveal any difficulty.

This year, the legislation has been changed and the minister of Finance and Parliament had approved what I would call a guillotine relating to adjustment claims for previous years. Everything had to be finished by September.

Because of that, we received many claims from companies or individuals who had neglected to ask for adjustments or to provide us with information. As a matter of fact, we received more than 20 000 such claims. We think we will be able to clear this backlog within two years but we have given the taxpayers the guarantee that, as far as their regular claims for the current year are concerned, we will continue to deal with them as quickly as possible within the existing program.

Mr. Brien: What is the minimum amount for which a check has to be sent to the department?

Mr. Gravelle: You want to know how much it costs to issue a cheque?

Mr. Brien: No, what is the minimum amount for which you will send me a cheque. For instance, if you owe me a refund of $0.57, I suppose you are not going to send me a cheque.

M. Gravelle: No, we would not. Mr. Burpee or Mr. Crandall could give me the exact answer but, if I am not mistaken, it is probably $10.00.

Mr. Burpee: Two dollars, I believe.

Mr. Brien: I think that there is a statement on the returns indicating that the department will not issue a cheque under a certain amount.

Mr. Gravelle: Two dollars.

Mr. Brien: Who issues unemployment cheques?

Mr. Gravelle: Unemployment insurance.

Mr. Brien: Not Revenue Canda?

Mr. Gravelle: No.

Mr. Brien: So then it might be different.

Mr. Gravelle: Quite possibly!

Mr. Brien: I would like to know because I have been asked by some people who received cheques for $1.00, for example.

About research and development, could you explain what is a limited partnership?

Mr. Gravelle: Would you like us to talk about this for a few minutes?

Mr. Brien: Please.

Mr. Gravelle: I could give you an update.

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The Income Tax Act allowed for the creation of limited partnerships in order to promote research and development. What happened is that some people who set up limited partnership or research projects started doing some very creative and aggressive marketing in order to incite people to use tax credits.

During the last two years, we have examined closely the tax credit claims submitted by limited partnerships. We did that because we received many complaints from individuals, professionals, accountants and even investors. They drew to our attention some cases of abuse in the implementation of this provision. I even received some representations from the Commission des valeurs mobilières du Québec and from its Ontario equivalent.

Therefore, we decided to start a huge audit program that all the limited partnerships, which led us to reasse more than 15,000 investors, many of them from Quebec.

Some investors realized that they had put their money in a bogus limited partnership which had never carried out any research. Others were put in the difficult position of never having actively participated in the activities of the limited partnership, which made them ineligible for the tax credit. For some others, we simply had to readjust the amount of the tax credit according to the level of activity of the limited partnership.

Therefore, there are unfortunately some taxpayers who are not at all pleased. I have accepted to meet with their representatives and we are presently assessing the situation project by project, and limited partnership by limited partnership, in order to try and find the fairest solution possible.

I hope we will have found that solution by the summer.

[English]

Mr. Abbott: In preparing a motion on this, I searched long and hard for something that I believed the Liberal majority would be able to support, and I do believe I've found something. I move that vote 1 for National Revenue in the amount of $1,779,862,000 be reduced by $9,998,000 to $1,769,000...dispense.

The point is that the estimates before us show net expenditures of $2,136,998,000, and the amount in the budget tabled by the finance minister is $2,127,000,000. There is a difference of $9,998,000.

As we are accountable to the Canadian public, it would seem to be somewhat illogical to be approving estimates that in fact are just a hair under $10 million higher than the amount that has been provided for by the finance minister in his budget. I would hope to have the support of the Liberals to that motion.

The Chair: Do you have any explanation for this, Mr. Gravelle?

Mr. Gravelle: Mr. Crandall has some explanation, I'm sure.

Some hon. members: Oh, oh!

Mr. Crandall: I'll have to find one, anyway.

Mr. Abbott, that is because when the budget was brought down by the government they made some last-minute decisions about further reductions in spending and there wasn't time to reflect them in the estimates. I would add that this is not the first time that's happened. Over the years, and especially before there was a coincidence between when the estimates were put down, coming after the budget...it didn't always happen that way. Frequently there were -

The Chair: Do you have any objection if we reduce it by what Mr. Abbott said, then?

Mr. Gravelle: What is the process, normally?

Mr. Abbott: I'm suggesting we reduce the main estimates to the amount that has been tabled by the finance minister; we formalize the numbers.

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The Chair: But based on what Mr. Crandall said, if the estimates do not reflect what they intended them to do because they did not have time to change them, do you want us to change them or not?

Ms Whelan (Essex - Windsor): Mr. Chairman, why couldn't we approve the estimates in principle, subject to the budget bill that's passed in the House of Commons?

The Chair: I haven't a clue how to proceed properly here.

Ms Whelan: Mr. Abbott's arbitrarily picked operating expenditures. I'm not sure if that's an accurate reflection of where things should be reduced.

The Chair: I'm prepared to suspend judgment on that until we consider it. Why don't we do that? Why don't you go into your next one, if you have another one.

Mr. Abbott: Okay. Mr. Williams has -

Mr. Williams: I had a couple of questions before. I was going to make a motion, Mr. Chair, but on page 135, I believe it is, of the main estimates -

Mr. Gravelle: Of the main estimates?

Mr. Williams: Yes, on page 135, second-last line, you are talking about ``Revenues Credited to the Vote of $114,291,000''. What are these revenues the department is receiving?

Mr. John Kowalski (Director General, Resource Management Directorate, Revenue Canada): The revenues credited to the vote. We do certain activities, administration and collection of UI premiums and CPP contributions, on behalf of Human Resources Development, and we recover costs for that. Those costs were recovered pursuant to a memorandum of understanding that we have with the department. Those are the only two items we vote net. That's governed by that MOU. We have no flexibility in that. There's a detailed survey that's done every five years and it's audited on an annual basis and that's it.

Mr. Williams: So this $114 million is work that you do to collect over-payments of UI for the Department of HRD?

Mr. Kowalski: It is not to collect over-payments. It is to collect the contributions and the premiums for CPP and for UI.

Mr. Williams: Oh, the contributions through the source deduction program.

Mr. Kowalski: Yes.

Mr. Williams: Okay. Now that's been up significantly from the previous year. Why the significant increase?

Mr. Kowalski: We revised the memorandum of understanding with them to reflect more accurately the costs the department was spending on their behalf.

Mr. Williams: Okay. - Also, on the same page, minor capital expenditures of $53,786,000. What is all that $53 million about?

Mr. Crandall: You could find a good explanation of that on page 12 of the appendix to the outlook document; the very last page before you get to Tab A. You have to turn the book sideways. If you look at the last column you'll find minor capital of $53.8 million. That was the number you just referred to. You can see the various components of it; $3.6 million for furniture, etc.

The vast majority of it is for EDP equipment. In a department that's primarily information-based, we have a regular program for acquiring the EDP capacity we need. We are pleased to note, though, that EDP equipment cost line is going down a little on the three-year trend because we're getting better prices with more leverage now in the combined department.

Mr. Williams: You were telling us earlier in the area of other services and hospitality you had postage of $7.9 million, but I see you also have postage on the same page under your goods and services, such as travel. I see you cut that back dramatically, down to just under $29 million, but you have postage of $56 million. What's this postage of $7.9 million that you're hiding up in other services and hospitality?

Mr. Crandall: That's the fee we pay to Canada Post Corporation to carry out all the collections activities on customs parcels that are delivered through the international mail system.

Do you want to comment on that?

Mr. Cocksedge: No, no, I think that's it.

Mr. Williams: Professional and special services: $100 million. That's an awful lot of professional services. Again, I'm on page 135.

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Mr. Crandall: Again, if you look at page 11 of the appendix to that outlook document, just before tab A, we're trying to show you what ``professional services'' is composed of.

You can see the three-year trend in that. Yes, it's still at $100 million, but that's a relatively small proportion of our total operating budget. It takes that level of spending to carry out all the functions associated with those professional services sub-categories.

Mr. Williams: I can't find it on page 11.

Mr. Crandall: On page 11 of the appendix to the outlook document you'll see the $100 million you're referring to. Our concern was that the trend is going down. It is.

Mr. Williams: I didn't have the breakdown, and as I said, I didn't have the benefit of going through this particular document when I was going through these.

I'm concerned about your point 2, at the bottom of the page, and the fact that in terms of minor capital, these resources would be interchangeable with personnel and goods and services expenditures. Does that give you the authority to move it around in the budget?

Mr. Crandall: Yes, it does, and that is part of the new rules put in by the Treasury Board secretariat and approved for all departments and agencies, that minor capital could be considered as any other line item on your operating budget, whereas major or controlled capital must be used for the dedicated purpose so stated.

Mr. Williams: But I'm taking a look at your major control capital. It's only $9 million, and your minor capital is $53 million. Now you're saying you can move this $53 million around in the budget anywhere you so desire. Is that right?

Mr. Crandall: That's right.

The $9 million is really the cashflow of specific, approved projects. Those are more or less locked in. The department can't move that money around without coming back to Parliament; however, minor capital is considered just like any other operating object.

Mr. Williams: It would seem, Mr. Chairman, the Treasury Board is getting pretty lax with the rules if they allow a department to move around $50 million on a project any way they they want, according to what the assistant deputy minister is saying. According to this note here, they can spend that $53 million either according to what they've given us here or in any way, shape or form they would like. They can apply it to personnel, if they so desire.

Maybe we should talk to Treasury Board to find out why they are so open with the rules.

Mr. Crandall: Mr. Chairman, I might have made a slight mistake on that. Because that minor capital is going to be in a separate capital vote for Revenue Canada, which is vote 5, we would have to come back to Parliament to use that minor capital for anything other than capital. It's just that if the amount is small in some departments, it's actually blended right in their vote.

In our case, we'd have to come back through a supplementary estimate to get a vote transfer. So Parliament controls it.

Mr. Williams: If you wanted to move it out of this particular budget and into another budget, would you have to come back to a supplementary estimate?

Mr. Crandall: Yes.

Mr. Williams: Okay.

I think we have just the one motion, Mr. Chairman, which my colleague has already moved.

The Chair: I seek advice from the parliamentary secretary on this. I've been considering two things - and I welcome the advice of our witnesses as to how to proceed.

I assume this is a problem that could occur with any department, and you want to set the precedent.

We could vote down your specific motion, Mr. Abbott, and then when we vote to pass the estimates, we could say ``subject to rectifying it with the budget''. I don't know what type of precedent we set in terms of the administration of all of our accounting procedures. If they've done this way always there must be some reason for it. I mean, what you're saying makes eminently good sense to me.

I seek the advice of our witnesses.

In the absence of any advice from them I think the majority would probably vote against it, but then in the motion to pass the estimates, do it conditional upon it being rectified with the budget - to recognize your point, or as a reconcile agreement.

Mr. Crandall: Mr. Chairman, the way that will work, if nothing happens, is the money would be voted and it would be frozen by the Treasury Board. The department would be unable to spend it. The committee could note, in your report, that this won't happen.

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If we have to come back for supplementary estimates, which we may have to do for a variety of reasons - you never know - then that amount could be available to offset any requirement for that. As I said before, it's been done many times and the committee could simply note it would be frozen and not used.

Mr. Lacombe worked for many years at the Treasury Board. Perhaps he has -

The Chair: I'm seeking your advice as to what we do. We have to vote on a motion.

Mr. Abbott: Mr. Chairman, I've had a chance to discuss it with my colleague and I think your suggestion would be one we would be comfortable with, because it does what we're attempting to do, which is to put the elected representative back in charge of the dollars-and-cents aspect. I think we would be well over halfway there with your suggestion.

The Chair: You would withdraw your motion or we would -

Mr. Abbott: I would prefer to go through the process you had suggested.

Mr. Williams: I think, Mr. Chairman, we would like the motion to remain and to be voted upon. I think we appreciate the committee's recommendation or appreciation that it is taxpayers' money we are spending, that the Minister of Finance has given a directive to this department and to other departments as well that they have to cut their administrative budget and he has set a figure at how much it has to come down by.

We feel the estimates process, if it is to be a legitimate process whereby we talk to the witnesses, where we examine the estimates...we feel there are areas for reduction...that these be recognized in the current year, rather than just the estimates being carved in stone. The appreciation that the committee recognizes that the taxpayer is the final authority is much appreciated.

The Chair: I'm sorry, did you have something to say?

Mr. Fewchuk: I just want a bit of advice from Mr. Lacombe. He's been in the Treasury Board for a number of years. I just wanted to hear from him on what we're discussing, if we're going in the right direction.

Mr. Barry Lacombe (Assistant Deputy Minister, Verification, Enforcement and Compliance Research, Revenue Canada): No, I have little to add to what Mr. Crandall has said, which is that this money would in fact be frozen. I think just in procedural terms the easiest way is the second motion, or the motion as proposed by the chairman.

The Chair: Moved by Mr. Abbott, seconded by Mr. Williams, that vote 1 in the amount of $1.779 billion be reduced by almost $10 million. I won't go through the figures here.

Motion negatived

The Chair: Parliamentary Secretary, you have a motion?

Ms Whelan: I'd like to make the motion that we approve the estimates in principle, reconciling them with the budget.

The Chair: Subject to reconciliation with the budget. Seconded by Mrs. Brushett.

Motion agreed to

The Chair: Is there anything else you want to do? Let me just exercise a bit of a prerogative here. First of all, I think we all appreciate very much the work that Mr. Abbott and Mr. Williams have done in bringing this issue forward to the committee.

I want to say to members from the department, this is a wonderful piece of work. I have seen a lot of presentations and this, I think, is a real tour de force and a model for other departments in dealing with their committees, in terms of the completeness and the ease of study. I think all of the members here from all parties were very impressed by your knowledge and your forthrightness. I can say this, and I think others would say it, if not as loudly as I would: I think we have the feeling that Canadians and parliamentarians are very well served from what we've seen from you. We thank you very much.

Mr. Gravelle: Thank you, Mr. Chairman. If I may have one last word.... We enjoyed doing it for you. In the process I think we were doing it also in terms of public scrutiny and accountability to Canadian taxpayers and we will continue to work very closely with your committee in making sure we have a truly efficient and responsive revenue administration.

The Chair: Thank you very much.

Thank you, Mr. Abbott, Mr. Williams.

Thank you, members.

The meeting is adjourned.