EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, November 22, 1995

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[English]

The Chair: Order.

We have with us today a number of very important organizations to make presentations to the finance committee on our pre-budget hearings. We have with us, from the Association of Canadian Distillers, Doug Rubbra, vice-president of operations; from the Canadian Co-operative Association, Gary Rogers and Lynden Hillier; from the Canadian Dental Association, Jim Brookfield and Ray Wenn; from the Direct Sellers Association, Jim Hunking and Ross Creber; from the Pension Investment Association of Canada, Don Walcot and Dale Richmond; from the Canadian Film and Television Production Association, Elizabeth McDonald; and from the Canadian Council on Social Development, Richard Shillington.

Mr. Shillington, would you be good enough to start off with a short presentation.

Mr. Richard Shillington (Research Associate, Canadian Council on Social Development): Yes, I would be happy to. We're here to talk about tax expenditures, I understand, so I will try to make a few points quickly, while I have a chance.

We agree, I hope, that a tax expenditure has the same impact on the government deficit as direct spending, and that's why it should be just as much a concern for people interested in addressing the deficit as direct spending programs. But it's quite different. The auditor general has commented on the lack of control over tax expenditures, the lack of accountability, and the lack of basic information about who benefits. To my knowledge you cannot find good information on the income distribution of who benefits from tax expenditures; on the beneficiaries from RRSPs or from private pensions, capital gains, or other tax expenditures. So certainly they are different from direct spending to the extent that you can get any information about them.

There are other differences between tax expenditures and direct spending, in perception and in the way people think about them. The contributions to RRSPs, I note, have gone to $21 billion in 1994 from roughly $15 billion in 1992. That is roughly a one-third increase in two years. I would suggest to you that if that increase in expenditures had been in social spending there would have been a hue and cry about spending being out of control. So I suggest to you there is a difference in criteria being used.

One of the questions circulated to us talked about tax incentives. I want to say that not all tax expenditures are tax incentives. In fact, I assume almost everybody will say that whatever tax expenditure they benefit from isn't a tax incentive. It depends on whose ox is being gored.

Some tax expenditures reflect sound and decent tax principles. They reflect an ability to pay, for example. So we allow a deduction for persons with disabilities or extraordinary medical expenses, because we assume those have affected their ability to pay taxes. Sometimes we'll allow a tax expenditure just to advance a social good - a deduction for charitable donations. We will sometimes allow tax expenditures because of an economic incentive - a deduction for small businesses, R and D, accelerated depreciation.

Often tax expenditures reflect a sound principle, but often they get ham-handed and out of control. I have a couple of quick examples. The dividend tax credit reflects a sound business principle of not having double taxation. You don't want to tax.... But we provide it even when the dividends are paid out of a non-taxable corporation. Obviously we are going overboard in providing a tax advantage to people when they receive dividends from corporations that are not taxable.

The exclusion of capital gains supposedly reflects inflation, yet it's again ham-handed, because it's one percentage by which all capital gains get exempted, whereas you would actually want to do this in terms of constant dollars, as other countries do, where you have a capital gains exemption for long-term versus short-term capital gains. We do it in a ham-handed fashion. It's also a selective application of principle, because we don't exempt inflation in any other area in the tax system. We tax inflation everywhere else in the tax system.

Another example would be the exemption for inter-corporate dividends, which is based on good, sound, no-double taxation. We don't want to tax corporate dividends twice, but we allow it when the corporations are not taxable. In fact, as the auditor general pointed out two years ago, we're losing hundreds of millions of dollars because we allow this provision to be used for corporations to avoid paying tax in this country and to export profits to other countries.

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So I'm arguing for, I think, a consistent application of principle. We all read how we cannot afford to provide old age security to higher-income seniors any more. Old age security is $5,000 a year, which is taxable, so after tax it might be worth $2,500 to that senior. We can no longer afford that. But we can afford to let that senior have a $500,000 capital gains exemption. We can afford, through RRSPs and private pensions, for that senior to receive far more than $5,000 per year of tax advantage in retirement. I wonder about how we switch our principles.

As soon as we talk about social spending we have the criterion of need. We must spend this money efficiently; therefore, we don't want to waste the money by giving it to people who don't need it. Yet when we turn to tax expenditures, those types of arguments go away. I have not yet read in the national newspapers the argument that it would be a waste of money to allow a high-income Canadian to receive a capital gains exemption, that they don't need it, that they don't need retirement tax assistance. So I'm arguing for more of a consistent application of principle.

Virtually all social spending - the Canada pension plan, the Unemployment Insurance Commission, the old age security and the seniors benefits - is coming under attack for increasing the targeting of those programs. But I've yet to read the arguments about why we aren't providing the same criteria when looking at the tax expenditures that are not in the social area, such as the RRSPs, the capital gains, and the private pensions.

On RRSPs, the limit is moving to $15,500, and I think that's flawed. It's flawed even if you accept the argument for equity with private pensions, because if you talk with the financial officials, when they picked the $15,000 limit they assumed 3.5% real rates of return. We've had more than 6% real rates of return for more than a decade. On the basis of a 6% real rate of return on investments, you do not need a $15,000 limit on your RRSPs to provide equity to private pensions. You would have far less.

I'd ask you to ask your finance officials what the RRSP limit would be now, and what would be equitable to a private pension, based on real rates of return of 6% and 7% as we're seeing now. That would save you about $1 billion of tax revenue.

By the way, eliminating tax expenditures has a nice feature of increasing revenue without increasing tax rates.

The RRSPs and contributions to private pensions generate a deduction. Contributions to unemployment insurance schemes and the Canada pension plan - the Canada pension plan is the only pension plan that the majority of Canadians will have - generate a credit. RRSPs get a deduction and CPP gets a credit.

If contributions to RRSPs were a credit, when I did the calculations in 1992, with the $15 billion of contributions you would have generated $1.5 billion of federal revenue. That's going to be higher now with the current contribution limits. I think it makes good sense. I think we can talk about what that does to people who want to withdraw the money a couple of years later, but if you want to do it, it makes sense.

The country cannot be in a terrible fiscal state when we have allowed so much money to continue to escape the taxman's grasp through measures like the very generous RRSPs and private pensions. Basically, my principle is that if somebody with an income of $100,000 wants to have a $70,000 retirement pension, that person should do it on his or her own without tax assistance. The RRSPs should be limited to providing tax assistance for pensions up to $30,000 or $40,000, or average wages. If you want a retirement pension of more than that, you can do it without the taxpayers' assistance.

I'm sure I've gone over my three or four minutes and I apologize.

The Chair: You've been very interesting and certainly controversial.

Elizabeth McDonald, please.

Ms Elizabeth McDonald (President, Canadian Film and Television Production Association): Mr. Chairman, members of the committee, my name is Elizabeth McDonald and I'm the president of the Canadian Film and Television Production Association.

The CFTPA is the national association that represents the interests of over 300 companies from coast to coast that are engaged in the production and distribution of film and television programs, as well as the provision of services to the production industry.

The independent film and television production industry makes a unique contribution to this country because it allows Canada to meet both its goals of cultural expression and economic health.

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According to Statistics Canada, the industry's direct impact on Canada's GDP is $998 million. Our combined direct and indirect impact is $2.2 billion.

More importantly, our industry means jobs for Canadians. The independent film and television production sector has grown 225% since 1982. In 1993-94 we were responsible for the creation of 31,000 direct jobs and over 60,000 indirectly. We are are a knowledge-based, export-driven industry and we take advantage of Canada's strength in the high-tech area. In short, we create the kind of jobs, particularly at the entry level, we all want for our children.

On that basis, we were very pleased when finance minister Paul Martin announced the creation of a refundable tax credit for our sector in the February 1995 budget. It was seen as a particularly effective tool because it was intended to provide assistance to the industry in the area of labour costs without huge payments to those not directly involved in film or television production.

Today I must inform you, however, that while our sector welcomed the announcement of the tax credit, we are still awaiting its implementation. Therefore, we suggest that while we support this tax benefit incentive program, we are concerned that the process initiated to establish such a program is creating an environment of uncertainty and instability.

We have worked, and wish to continue to work, very closely with government officials on the implementation of the refundable tax credit, but we still do not know when or how it will come into force. This is now having a very negative impact on the film and television production sector because it inhibits the producer's ability to secure the financing required to support production projects. We feel certain that when Mr. Martin announced the creation of this program in the last budget, he did not intend the process to defeat the purpose.

Secondly, the Canadian Film and Television Production Association is presently collaborating with the Department of Human Resources Development on a major national job training program. It is aimed at developing and upgrading the skills that our industry requires, and includes a very active mentorship program. Our association administers this program on behalf of HRD across the country, using minimal staff support. We have just completed a survey of our members, and this program was considered to produce excellent ``value for money''.

In terms of government initiatives, the Canadian Film and Television Production Association supports expenditures on programs that are aimed at job training and job creation, particularly when they are based on creative partnerships with the private sector.

We also fully expect that the government will continue its efforts to reduce the deficit. The film and television production industry understands and supports the importance of meeting Canada's deficit reduction targets. In terms of its impact on government agency and departments, our concern is again with implementation and not the objective.

The CBC plays an important role in terms of the success and growth of the independent television production industry. Independently produced programs such as, Road to Avonlea, Les filles de Caleb, Scoop, This Hour has 22 Minutes or North of 60 are every bit as Canadian and popular with audiences as programming produced by the CBC in-house. Typically, we produce them at 20% to 30% of the cost.

Clearly, we must have a strong national public broadcaster, but it does not need to be dismantled. It does, however, need to be rethought in a spirit of partnership with the private sector that will stimulate economic growth and create jobs.

I thank you for this opportunity to appear before you today. I look forward to your comments and the opportunity to discuss some of the issues we have raised. We hope some of our concerns will be reflected in the upcoming budget.

Thank you.

The Chairman: Thank you, Ms McDonald.

Who is going to be presenting on behalf of the Pension Investment Association of Canada?Mr. Walcot, I assume you might want to refer to some of the ideas of Mr. Shillington as well.

Mr. Don Walcot (Member, Government Relations Committee, Pension Investment Association of Canada): I think we'll be addressing some of the points, maybe indirectly.

Thank you very much, Mr. Chairman, and members of the committee. The Pension Investment Association of Canada, or PIAC, is pleased to be able to participate in this round table today on the tax system in Canada.

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May I first introduce myself and Mr. Richmond. My name is Don Walcot. I'm a member of the government relations committee of PIAC and chief investment officer of BIMCOR, which is an acronym for Bell Investment Management. Dale Richmond is also a member of the committee and is president and CEO of OMERS, the Ontario Municipal Employees Retirement System. We would both be pleased to answer any questions you may have following this brief statement.

PIAC is an association of 117 Canadian pension funds, with assets totalling over $280 billion. The sizes of funds range generally from $200 million to over $40 billion. The purpose of the organization is to assist its members in the investment management of their funds by highlighting the latest investment techniques and philosophies and dealing with the major concerns of the day impacting our industry, whether they be legal, economic, social or political.

We have been asked today to discuss the tax system, its parameters, goals and objectives. To place ourself in the system, we believe we are a tax deferral arrangement rather than a tax expenditure or direct government funding. By this we mean that taxes deferred now to encourage Canadian citizens to create and maintain retirement systems are paid at the time the pension fund beneficiaries receive their pensions in the future.

This deferral is not limited only to the rich, as may initially be thought. StatsCan figures for 1992 show that 74% of pension plan contributions were made by or for taxpayers who earned less than $60,000 per year. Pensions are not only for doctors and lawyers, but for railroad workers, bus drivers and nurses, and can represent a significant portion of their savings.

This tax deferral system not only creates pensions in the future. Because it involves accumulations of savings, it also assists the economic development of the country now. When entrepreneurs want to start a company or when established companies want to expand, they draw on this pool of savings to finance their growth. So savings can be thought of as part of the foundation on which the economy is built.

By establishing this tax deferral, the government has therefore also achieved the aim of creating the environment for a growing and vibrant Canadian economy. Canadian private pension funds created through the assistance of this tax deferral system are invested in the stocks, bonds, mortgages and term loans of companies, which are helping Canada to grow.

The success of tax arrangements should be measured by whether they are cost-effective and meet the policy goals of the government. The current pension fund tax arrangement moves the cost of providing pensions away from the government to the private sector, creates assets to pay pensions in the future, providing social security for Canadian citizens, and in the meantime is a clear contributor to economic growth and jobs in Canada.

There is one other point I would like to make. Savings grow through the compounding of income and capital gains. Compounding is an extremely powerful lever in both directions. We have calculated that a 1% tax on pension assets or a 15% tax on investment income, not seemingly very big numbers, would reduce future benefits by about 25%.

This part of the tax system is therefore very sensitive. What may seem to be only small changes now will have huge impacts in the future, both in terms of pensions paid and the amount of the repayment of taxes deferred, not counting the reduction in the pool of savings to be used to provide economic growth.

To summarize, from our experience we believe this well-designed government tax program, with clear goals and measurable results, can play a very valuable role in Canadian society, helping the economy to grow and citizens to have social security in their future.

Thank you very much for allowing us the opportunity to make this presentation and to participate in the round table. We would be happy to answer any of your questions.

The Chair: Thank you, Mr. Walcot.

For the Direct Sellers Association, Mr. Ross Creber, please.

Mr. Ross Creber (President, Direct Sellers Association): Thank you, Mr. Chairman. My name is Ross Creber. I am president of the Direct Sellers Association. I have with me today Mr. Jim Hunking, who is chairman of the Direct Sellers Association.

Mr. Chairman and hon. members, it is our pleasure to present to the committee the concerns and recommendations of the Direct Sellers Association. The recommendations can be found on pages 3 and 4 of our submission.

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The Direct Sellers Association, founded in 1954, is a national association of Canadian direct-selling companies and their affiliated independent sales contractors who market and distribute a wide variety of products and services directly to the consumer, usually, though not exclusively, in the consumer's home rather than in a retail sales establishment.

DSA members, which currently number 63 companies, and their more than 600,000 independent sales contractors sold more than $1.1 billion of retail goods and services to Canadians during 1994. The strength of direct selling lies in its tradition of independence, its simplicity and its commitment to a free market system. It provides accessible business opportunities to people looking for alternative sources of income, whose entry is not restricted by gender, age, education or previous work experience.

It should be noted that 80% of the independent sales contractors are women and 78% work part-time. Canadian direct sellers are small businessmen and small businesswomen who live in towns and cities, both small and large, in every province and territory across Canada.

Mr. Chairman, I'd like to focus now on our summary of recommendations. Our first recommendation is that the government amend existing programs to allow for a transitional period to facilitate the move from dependence on social assistance to independence for individuals. Specifically, individuals who wish to commence a small business should not be unduly penalized through the start-up phase.

Second, the DSA recommends that a partnership between government and the Direct Sellers Association be established to include a provision for the delivery of training and information by DSA members to those individuals who are interested in entering the direct-selling industry.

Third, we recommend that the federal government continue to facilitate and to encourage the provinces in achieving provincial harmonization of consumer-related measures and standards as outlined in the Internal Trade Agreement in order to minimize duplication, improve service delivery and reduce cost for government and industry.

Fourth, the DSA recommends that the Direct Sellers Mechanism be amended and maintained in the process of GST and PST harmonization.

Finally, the Direct Sellers Association recommends that both the federal and provincial governments continue to undertake vigorous efforts to reduce their respective deficits as well as efforts to implement fiscal policies that will bring down real interest rates. These efforts should include reduction of duplication of services, increased efficiency in the delivery of services and initiatives that will encourage economic growth necessary to reduce the debt-to-GDP ratio.

Mr. Hunking will now comment on several of the DSA's recommendations.

Mr. Jim Hunking (Chairman of the Board, Direct Sellers Association): Mr. Chairman and hon. members, the DSA believes that it is important for the government to understand that the direct-selling industry is a vital part of the small business sector in Canada.

The structure of Canada's current social welfare programs fosters long-term dependence. Government must, in partnership with industry, break new ground to encourage unemployed and those on income support to take part-time work without loss of all benefits for a limited time to permit this transition to full participation in the Canadian economy. As an association we are fully prepared to implement a pilot project to support this recommendation.

In respect to training and education, direct-selling companies have been providing training and education to Canadians for many years. Seldom is there a day or a night during which direct sellers are not providing training in cities, towns, and communities across this country.

This training assists individuals by improving their sales presentation skills so that they can more effectively present the products, guarantees and business opportunities direct selling provides. In addition, it assists in building their self-esteem, making them secure in the knowledge that they are making a contribution, not only to their own lives but to the lives of many other Canadians, and making a significant contribution to the economic well-being of our country.

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The DSA would like to extend its hand in partnership to the Department of Human Resources Development, whereby our industry could provide meaningful earning opportunities supported by ongoing training from companies and their distributors or consultants in communities across this country.

In respect to harmonization, in March 1993 the DSA took a proactive approach to harmonized direct-selling legislation and developed a standardization proposal recognizing the various issues of concern and proposing recommendations for each issue, such as cooling-off periods and licensing of ISCs. The document was presented to the provinces and was later utilized as a resource in internal trade discussions.

While we are encouraged by the willingness of the parties in this trilateral partnership to harmonize, we question the spirit and the intent of some of the provinces to reach agreement on some of the basic issues, issues which are being clouded by the pride of ownership or authorship on the parts of some of the provinces.

We encourage and implore the government to continue to assist in the facilitation of this process in order to achieve the highest level of harmonization and to minimize duplication, improve service delivery, provide adequate consumer protection and reduce costs for the government and for industry.

Finally, in respect to taxation, Mr. Chairman and hon. members, the DSA has appeared before this committee on several occasions in support of the direct sellers mechanism as incorporated under the GST legislation. This mechanism is a further example of the success of government's partnership with the private sector in that it reduced the administrative burden for the government, the direct-selling companies and the hundreds of thousands of small businessmen and small businesswomen across the country while maximizing GST revenues for the government.

The DSA has proposed further amendments to the finance department that would be of benefit to the government and the direct-selling industry and strongly recommends that the government proceed with these amendments at the time of the next technical bill.

In conclusion, Mr. Chairman and hon. members, the DSA appreciates the opportunity to once again appear before the committee in the spirit of cooperation and partnership, with the ultimate goal of assisting many Canadians to chart new lives for themselves and their families while assisting the government in reducing the burden of the deficit on all Canadians.

The Chair: Thank you, gentlemen.

Mr. Brookfield, please.

Mr. Jim Brookfield (President, Canadian Dental Association): Thank you, Mr. Chairman.

You already have our documents. Rather than read them I would like to take two or three minutes to simply stress the key points. With me is Dr. Ray Wenn, past president of the Canadian Dental Association. I am president of the Canadian Dental Association.

We are here as representatives of 15,000 dentists and of 25.6 million Canadians whose access to affordable health care is directly threatened by the potential taxation of health and dental benefits. Taxation of health and dental benefits is bad health policy and ill-conceived economic policy. And it represents a giant backward step in this government's commitment to fair and equitable tax treatment.

Why is taxing health benefits bad health policy?

All focus on health policy at the federal and provincial levels of government has shifted away from a treatment-based approach to a prevention-based approach. Dentistry has been at the front and centre of preventive oral health care to the point where, since 1986, the numbers of Canadians visiting dentists for restorative purposes have decreased. More now visit for preventive reasons. ``Drilling and filling'' is on the way out.

The Chair: That's the best news we've ever had at this committee.

Some hon. members: Oh, oh!

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Mr. Brookfield: Thank you, Mr. Chairman.

Those are the 25,600,000 Canadians who rely on prepaid dental health care.

In short, prevention pays, neglect costs. Neglect costs everybody: employers, through work days lost; individuals and families, through higher treatment costs; and taxpayers, in the form of funding increased health care costs.

Why is taxing an ill-conceived economic policy? If premiums are taxed, there will be a downward spiral in which everyone will lose. Healthy individuals will choose not to pay the tax by dropping out of the plan or downgrading from family coverage to single coverage, which means children and spouses will no longer be covered. They will do this because treatment costs are lower than the taxes. The plans will be left with heavy losers. The plans will be forced to increase their premiums. Employers will no longer be able to afford those premiums. The plans will collapse. Everybody loses, including the taxpayer, as tax revenues dry up.

There is no cash cow. If premiums are taxed, it is in effect a payroll tax, transferred onto the shoulders of working Canadians in all sectors of the economy.

Taxing premiums would be a regressive tax, hurting those in the lower-income brackets in far greater proportion than those of the well-to-do. This is not to mention the jobs lost by Canadians who work in support of Canada's health care system.

So why would taxation of premiums be a giant step backward in the fair and equitable treatment of Canadians? Let's look at the facts. As I said, 25.6 million Canadians, representing nearly 88% of Canada's population, are covered by health care plans over and above medicare. Of the 3.6 million Canadians who are not covered, 2 million are eligible if their employers provide health plans for their employees. Over 1 million self-employed, unincorporated, small business owners could be covered if they were treated on an equal footing with their incorporated counterparts.

If this committee is working for equity and fairness under the tax system, this, we submit, is the first place to look. This leaves just over 500,000 Canadians who are not employed or who do not qualify directly for special government programs. Surely good public policy must focus on meeting the needs of those 500,000 Canadians, rather than eroding the access to quality health care enjoyed by an overwhelming majority of Canadians.

Last year members of Parliament received letters and calls from hundreds of thousands of concerned Canadians. This year, if the taxation of health benefits is still being considered by this government, that heartfelt protest will be merely the tip of the iceberg. This is not a Bay Street issue. This is not a G-7 issue. This is a Main Street issue. It's time we listened to those Canadians.

Thank you, Mr. Chairman.

The Chair: Thanks, Mr. Brookfield.

On behalf of the Canadian Co-operative Association, we have Mr. Hillier.

Mr. Lynden Hillier (Executive Director, Canadian Co-operative Association): Thank you, Mr. Chairman. I have with me today my colleague Gary Rogers, who is a tax adviser for ourselves and the Credit Union Central of Canada. We will be submitting our written presentation to you later on.

The cooperative and credit union sector in Canada controls assets in excess of $100 billion. We serve more than 13 million Canadians and employ over 130,000 people. The Canadian Co-operative Association is a national trade association representing those cooperatives and credit unions across Canada that do business in the English language. We work very closely with our counterpart dealing with cooperatives and credit unions that do business in the French language, le Conseil canadien de la coopération. They've asked to appear before you at a later date.

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Our member organizations in the Canadian Co-operative Association span different industries: financial services, agriculture, technology and information management, housing, health care, the retail wholesale area, child care and worker or employment cooperatives. So you can see the membership base here reflects the diversity of Canadians and the issues that concern Canadians.

We provide our member organizations with a forum for advancing issues that go beyond their individual business issues. This is in keeping with the cooperative philosophy of balancing and integrating the economic and social issues that face us.

When we appeared before your committee last year, our members were in agreement with the minister's deficit target of 3% of GDP by the end of the next fiscal year, and that support from us continues. An important operating principle of cooperatives and credit unions is the practice of building reserves as a base for any operation. We know a prudent fiscal plan allows us to adapt to our changing world.

We share the government's concern that scarce public dollars be used as effectively as possible. In the delivery of government services and programs, the government is reinventing itself by looking at public-private partnerships. We believe the cooperative option offers a proven and effective model in areas such as delivering health care, child care services and housing. It's also a model for commercial enterprises such as telecommunications and utilities. We know worker cooperatives are an effective vehicle for job creation at the local community level.

Our members believe government has a continuing role in the area of business assistance; that is, access to credit, single-window business service centres and export assistance. Several Senate, Commons and cabinet committees are examining various aspect of business assistance. Our central concern here is that there be an overall economic strategy guiding all of these deliberations.

Also, on behalf of our members and in partnership with the Canadian International Development Agency, we are actively involved with assistance for cooperatives and credit unions in developing countries and countries of eastern and central Europe. We have absorbed a 14% cut in our international development funding over the last two years. The cooperative model responds well to the foreign policy review recommendations, and we anticipate that current funding levels will be maintained in this area.

CCA members see Canada's social programs as investments in the future. We continue to hold your committee, Mr. Chairman, and your government to the promise that in addressing our fiscal problems, we must not replace national fiscal debt with national social debt.

I've tried to keep my comments brief. We want to get more involved in the round table discussion that will follow. Just let me highlight some of the key points in terms of the questions you have posed to us with respect to the tax system.

Should the tax system be used as a tool for implementing government policy? Yes, when there is a broad public policy application, such as with charitable donations, child care or retirement savings.

Some opposing views have been raised here this afternoon about pension systems. We are very much concerned about a piecemeal review of the Canadian private and public pension system. We would certainly advocate, rather than a piecemeal review of this system, a review of the entire retirement policy system in Canada.

With respect to direct spending versus tax expenditures, we think there is room for both. Direct spending can be a more targeted approach to government programs. On the other hand, the tax system can be more objective. You can't overload the tax system. The tax system cannot be everything to everybody.

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With respect to limits on tax measures, the two comments we have there are that you can't really put limits on tax measures, but you have to know, when you're implementing tax measures, what you're trying to achieve with it, and you have to continually monitor that.

We feel that the publication and examination of tax expenditure data is useful. It should be an annual exercise of government. This committee may wish to schedule an annual review of the tax expenditure report to improve accountability.

Government should strive for fairness and not be so concerned about neutrality in the tax system. We feel that fairness can be found in a better explanation of the various tax expenditure programs.

Finally, with respect to balancing corporate and individual taxes, I guess there's no easy answer to that one. One of the things we know for sure in consulting our members is that both corporate and individual taxes have basically reached their limits. It's a fact, I guess, that corporate taxes have declined, compared to personal taxes, over the years.

It's also a fact, notwithstanding this, that corporations must compete in a global marketplace. So that's a difficult area to respond to specifically.

Those are some of our comments. We appreciate the opportunity to be with you today, and look forward to the discussion.

The Chair: Thank you, Mr. Hillier.

Mr. Rubbra, please.

Mr. Doug Rubbra (Vice-President, Operations, Association of Canadian Distillers): Thank you, Mr. Chairman. My name is Doug Rubbra. I'm the vice-president of operations for the Association of Canadian Distillers. Our members represent about 95% of manufacturing and marketing of distilled spirits in this country.

Our message today, I guess, is somewhat less ``macro'' than some of the heavy conversations that have gone on ahead. It is primarily an excise-related issue and it is very definitely a fairness and equity issue. This committee, the Minister of Finance and his officials have heard in the past about the inequities in the excise tax rates on distilled spirits in Canada.

Distilled spirits in Canada remain the highest-taxed commodity or consumer product in this country in terms of the ratio of tax to retail price. Fully 83% of the retail price of distilled spirits in this country goes to either federal or provincial governments in one way or another.

The issue for us is one of equity. Imagine these three glasses as being one-litre containers of absolute ethyl alcohol, which is the stuff from which beer, wine and spirits all come from. SayMr. Molson is going to take one of these away to make beer and is going to pay the federal government $5.50 in excise tax. Say the winery people are going to take the next one and pay $4.27. Then the distiller is going to take that one away and pay $11.06 in excise duties and taxes on the same product.

That's exacerbated by the fact that when you translate those various litres of alcohol into the drinks that you and I enjoy, typical servings of all three contain exactly the same amount of ethyl alcohol.

So what has this resulted in? The 83% tax burden in Canada compares with a 44% tax burden in the United States. This has created a thriving underground economy in distilled spirits. The Liquor Control Board of Ontario will tell you that one drink in three in Ontario is illegal. That means distilled spirits.

There isn't much of an illegal trade in wine or beer. There's a home industry there. But as for distilled spirits, illegal products are smuggled in from the United States.

In Quebec, the SAQ will tell you that one drink in two is illegal. Nationally, it's about one drink in four and a half. That's about 4 million cases of 12 bottles in a total market of about 17 million cases.

Our sales in this country are down 48% since 1981, which was when they peaked. I guess the logical gut reaction to this is that with changing lifestyles, people are drinking less and drinking different things. Yes, we agree with that. That's a trend across the world.

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In the United States, where all of the same social forces, if you will, work on society and consumers, their sales, over the same period, are down about 18.9%. Ours are down 48%. What's the difference? The difference is the price and the underground economy.

We have been asking the Minister of Finance to equalize the excise rates on distilled spirits for several years. This year, we have come up with a revenue-neutral model, which we have presented to officials at the Ministry of Finance.

Basically, it's fairly simple mathematics. You take those three rates and average them all out to $6.45 for everybody for the litre of absolute ethyl alcohol. It has a major positive effect on lowering the price of spirits and an extremely modest opposite effect on wine and beer. The impact is about 3¢ on a bottle of beer. We are doing our part to try to convince you to level this playing field.

Our industry is shrinking. We closed 19 distilleries over the past 20 years or so. We've had4 more casualties this year, including the newest state-of-the-art distillery in Winfield, British Columbia, which closed down. Three others in Ontario partially reduced their production. The distilleries that are left are working at about 50% to 60% of their capacity.

That is basically our message. We are still seeking equity and fairness. We don't want any favours, handouts, or incentives; we want to be able to compete on a level playing field with both our domestic and our imported competitors.

Most of our member companies, because of the rationalization that has been required to cope with this decline, are now part of mega-multinationals, with facilities around the world. And if something is not done fairly soon, it's quite conceivable that the Canadian distilling industry could disappear within a few years.

Thank you for the opportunity to say these words to you. I have left two documents behind. One is basically the numbers about which I have been speaking. At the back, there are several press clippings on the underground economy.

The red document is a rather interesting piece of business. You are probably aware that the Association of Canadian Distillers took the CRTC to the Federal Court of Canada this summer to argue about an advertising restriction. We did get a favourable judgment from the Federal Court, which in its judgment stated that a drink is a drink is a drink and it should not be treated differently. This red document is a series of affidavits from learned gentlemen attesting to the fact that there is no social reason for treating the three different types of beverage alcohol any differently.

I would be pleased to participate in conversation and answer any questions.

Thank you, sir.

The Chair: Thank you, Mr. Rubbra.

This is what I was going to suggest. We have 15 minutes during which panellists will talk to one another and discuss. After that, we'll take a small break. Then we'll come back, and members will have an opportunity to question. Is that okay with you?

I know you have to leave early, Ms McDonald, so perhaps you'd like to start off.

Ms McDonald: This is the only comment I want to make. I gather there is a theme of training that was raised by the Direct Sellers Association. Certainly from our viewpoint that is a valuable expenditure on the part of the government to pursue, particularly if it's done in a partnership process. That's certainly what we've done.

We've worked closely with the government. I think if it tried to do it itself, the expenditure would have been far higher. In fact, we're training people who are effective in our industry and who can move around. I don't think there is a major television or film production going this year that doesn't have a number of young people who are being trained, thanks to the program with Human Resources Development. We are also working with the Canadian Film Centre.

We're finding that we're getting people who are well trained in real situations, which I think is better. While we have good communications schools, etc., that do training in this area, what we do is get people who can really work in the production industry.

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So in terms of the decisions the government has to make, we have two concerns. The first concern is that human resource training is not devolved to the provinces, because that's going to make it very difficult for a national industry such as ours to respond to it.

The second point is that it does work and it can work effectively, and we think probably at a lower cost the way we do it. We actually get people who are better for the industry and therefore are able to be employed in more meaningful ways.

I noted that it was a similar theme, at least on our part. On the rest....

The Chair: Did you want to respond, Mr. Creber?

Mr. Creber: Thank you, Mr. Chairman.

I certainly agree with the comments. We certainly feel that our industry, because of the nature of it with people across the country in all kinds of communities, can deliver good and meaningful training to people who are in need of some assistance as well as provide the earning opportunities that this industry does provide. As I said in my opening remarks, there is no restriction to people entering this industry, and that's one of the big features that we have to offer the Canadian people.

The Chair: Thank you.

Mr. Shillington, I take it you might have certain disagreements with Mr. Walcot.

Mr. Shillington: I'm not sure if we have disagreements. It may just be a clarification of how we describe things. There's no doubt that the tax treatment of pension savings, both private pensions and RRSPs, are a tax deferral. It doesn't mean that they're not a tax expenditure and it doesn't mean they don't get tax advantages. In fact, the tax advantage is in the deferral.

If I buy a car and I have the option of paying for the car when it dies four or five years from now or buying it now, I'd rather buy it and pay for it four or five years later. I'm sure these gentlemen understand the time and value of money. If you have two individuals and they save $10,000 a year for their retirement, and one saves through an RRSP and gets a deduction on the contribution, gets tax and pays the tax on the interest in the fund only at retirement and takes the money out, he will have far more money - depending on your assumptions, at least double - than the person who takes the same investment and invests outside the tax system.

So there is certainly a tax advantage there and I don't think that should be a matter of dispute. The advantage is in tax deferral.

It doesn't surprise me at all to hear that the vast majority of people contributing to RRSPs are middle-income Canadians. The vast majority of Canadians are middle-income Canadians. Seventy per cent of the contributors have an income of less than $60,000. The average taxpayer has an income of about $28,000. So 70% of the contributors have incomes of less than $60,000. Well, $60,000 is an individual income, not a family income. That's a pretty high individual income.

I happen to have the graph that we included in our presentation to this committee last year, a week ago last year, which shows that while about 25% of taxpayers contribute to RRSPs, for taxpayers with incomes over $150,000 about 70% contribute and they contribute on an average $11,000.

So while it's absolutely correct that RRSPs are not the exclusive purview of doctors and dentists and lawyers, it's absolutely correct that doctors and dentists and lawyers are more likely to use RRSPs and that they are the only ones who are allowed to use the maximum contributions by law because you can only contribute 18% of your earnings. When the limit is $13,000, you cannot contribute $13,000 unless your income is $65,000 a year and something. So you can only use the maximum limit if you have an income substantially higher than the vast majority of Canadians ever will have.

The Canadian Council Social Development has never advocated taxing the money in the fund or taxing the interest in the fund. We have advocated reducing the limit to something more like what existed in 1988-89, with $7,500, $8,000 as the annual limit. This will not affect the contributions of the vast majority of people contributing to RRSPs because the vast majority of people contributing to RRSPs do not contribute more than $7,500.

I don't know the figure about how many contribute. I have been unsuccessful in getting information out of Finance of that type, but the vast majority of the people will not be affected by reducing the limit.

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One other comment that's worth making, particularly as this government grapples with family income-testing old age security.... You all know that the last budget suggested that the income-testing of old age security was going to move to a family income basis. It's worth bearing in mind that all of the dollar figures we're talking about in discussing RRSPs are per person. Thus, while we think that we have to family income the old age security cheque, we are allowing individuals to have tax-assisted pensions that can be $60,000, $70,000 or $80,000 per person.

We are using the tax system to subsidize pensions which, in a family with two professional incomes, could easily be $120,000.

The Chair: Thanks, Mr. Shillington.

Mr. Walcot, I am sure you want to come back on that.

Mr. Dale Richmond (Member, Government Relations Committee, Pension Investment Association of Canada): Thank you, Mr. Chairman.

I'd like to come back to those arguments by Mr. Shillington from a different perspective. I think everybody acknowledges the need for social programs and social safety nets, but the function of the amount of social spending and the extent of social programming in the country is usually a function of how well the economy is performing. In retirement years, in particular, the need for those social programs is a very direction function of how much savings have occurred for retirement.

You want people to be able to retire with self-sufficiency and dignity. People have gone through life in a certain way and they can only retire in a certain way under that definition. You shouldn't try to set up a system that essentially taxes those savings in order to maintain existing social programs. You should really try to make sure that your system of retirement savings - and somebody alluded to it at the end of the table - is a comprehensive system.

We do have a comprehensive system in the Canadian pension plan and the tax deferrals that are available for retirement savings that you save when you're earning during your productive years. So that system is in place. It's a two-part system, not a one-part system, and if you were to tax it now in order to maintain existing social programs, you're going to find out that in the future, because those tax incentives have been removed, the savings structure may change so much that your need for social programming may increase manyfold.

You have to be very careful. The short-term fixes on many of these things should not be proceeded with without major study of the entire system, which is what we would advocate as well.

The Chair: Thank you, Mr. Richmond.

Mr. Brookfield.

Mr. Brookfield: Thank you.

I am very pleased to hear the members here acknowledge the need for the social net. I was most pleased earlier to hear that we shouldn't be turning fiscal debt into social debt. I think what this government's looking for is a balance of where it's going and what its end results are. That's one of the criticisms on the front page of The Globe and Mail today with regard to the auditor general's report.

I think what we offer here is an example of a very good social program that helps every Canadian family to provide themselves with health care and, at the same time, limit government exposure and government costs in the health care system.

Every Canadian is a partner in the health care system as we've described it. It works, and we have a concern that social debt will be sacrificed or gored at the expense of fiscal debt.

The Chair: Thank you, Mr. Brookfield.

I'm going to suggest that we take a two- or three-minute break and then come back with questions for members.

______________________________________________________________________________

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The Chair: Could we come back to order, please.

Mr. St. Denis, would you like to start off the questions, please.

Mr. St. Denis (Algoma): Thank you all for your participation today.

I'd like to ask a very specific question, Dr. Brookfield. You made mention of the coverage with respect to the issue of taxation or non-taxation of employer-paid benefits. You listed some excellent statistics relating to who was covered and who was not and you boiled it down to about 600,000 Canadians who wouldn't have available to them the means to be part of a plan.

You may recall the finance committee's report of last year recommending to the minister that we not, at that time, move towards taxation of those benefits. At the same time, we as a committee challenged the industry - the dentists, the drug companies, the insurance companies - to find ways to get us to a place in this country where all Canadians, regardless of income, could be covered.

I think there was consensus, effectively, that if we went through the private sector it would be better.

Have there been negotiations or discussions among the stakeholders in that sector moving us closer to universal coverage in the area of dental and drug benefits? Do you see some solution to that problem in the near future?

Mr. Brookfield: Dr. Wenn will answer. He was part of the health coalition that worked up the numbers and the statistics.

Mr. Ray Wenn (Immediate Past-President, Canadian Dental Association): The question, as phrased, is a very broad question, and I guess if we had to discuss the entire answer we might be here for a couple more hours. But let me very quickly try to clarify the numbers for you a little bit.

I think everybody remembers from last year that we had a concept that there were probably about 20 million Canadians who had health and dental benefit coverage of some form or other, and the committee and the department felt there were 8 million or 9 million people who weren't covered. So we went away and formed a coalition to try to find out what all this meant and to come up with a better interpretation of where Canadians stood with regards to health and dental benefit coverage.

The groups who put it together were: the Canadian Association of Blue Cross Plans; the Canadian Dental Association, of course; CLHIA, which is the Canadian Life and Health Insurance Association; and the Canadian Pharmaceutical Association.

The numbers we developed mostly came out of Statistics Canada's numbers and various sources these groups could pull together.

Very quickly, it breaks down like this. There are about 20 million Canadians who have coverage through various private sector plans.

There are about 5.6 million who have coverage through various special government plans outside of medicare, including native peoples, for example, a lot of old age pensioners who have provincial government plans, and so on. There were 5.6 million Canadians who had coverage of various -

Mr. St. Denis: Is that on top of the 20 million Canadians?

Mr. Wenn: That is on top of the 20 million. There is actually about a 2 million overlap. Some have some private coverage and some have coverage through various government plans. So you end up with about 25.6 million Canadians who are helped through the tax expenditure, if you want to call it that. They are helped through some form of government-assisted program, either through the tax benefit being non-taxable from their employer or through a direct government plan.

That leaves 3.6 million Canadians not covered. But we looked further at the 3.6 million. We found 2 million of those are people who work for employers who, if they could be convinced to provide the coverage, would be eligible for the coverage under the same tax treatment as everybody else. It's not an equity issue at all; it's the same tax treatment.

Then you boil it down to another 1 million unincorporated, self-employed individuals. The individuals and their dependents make up the 1 million. Therefore, there would need to be an adjustment in the tax system to allow them to be able to deduct those from their business expenses.

That leaves only about half a million or 600,000 Canadians who are truly outside the employment system, who have no access to special government plans and who perhaps are not seeking employment. It is a very small proportion of Canadians who are not eligible in one way or another to take part in this whole area.

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The bottom line of what we're saying is that about 28¢ on every dollar in this country is being spent outside medicare to provide health care coverage of one form or another to Canadians, and that sector is growing. We feel we have to continue in this role, to assist government in providing these programs for Canadians.

If you don't do it, what do you end up with? You end up with a situation where government has to take on the responsibility entirely - and governments obviously don't want to do that; they have said they don't want to do that - or individuals will have to do it entirely for themselves; and we know there are certain aspects of health care outside of medicare that are very expensive, and that becomes unfair. Those who can't afford it of course will not be able to provide it for themselves.

The system as we are developing it now and as it has been developed over the past twenty years is working really well in this country. It's the envy of the world - not only our medicare system but also our auxiliary health care system. Just give us time. I think we're getting there.

Mr. Brookfield: I'd like to add to that. There certainly is a commitment among Canadian dentists to work with government to see where these 500,000 to 600,000 people can be serviced. It's happened at a provincial level and it certainly can continue to happen.

Mr. St. Denis: Will the coalition possibly be producing an interim report? That's very helpful information and it will certainly help make us all feel better about the progress being made.

Mr. Wenn: Actually, part of our written report, the appendix to it, is our up-to-date documents on that coalition. So all the information is coming forward to the committee.

As a matter of interest to the committee, we did ask the Department of Finance to be part of this coalition. We hoped they would work with us on this. They found they were too busy doing other things, I guess, and they were not at the table. But we wish they had been there.

Mr. St. Denis: Thanks for that progress report.

The Chair: Mr. Fewchuk.

Mr. Fewchuk (Selkirk - Red River): Can you just give us a flat number on that?

Mr. Wenn: We've corresponded with the minister and the department. We've met with the minister and the officials of his department on several occasions, and every time we've always asked them to be part of it. I don't think anybody has said no. It's just that nothing has happened. They didn't take up our offer.

The Chair: Mr. Grubel.

Mr. Grubel (Capilano - Howe Sound): Mr. Shillington, clearly you suggest the availability of RRSP contributions results in a lowering of the effective tax rate of people in the upper-income distribution.

Mr. Shillington: Immediately, yes.

Mr. Grubel: We had witnesses here this week who suggested that upper-income people in Canada are being attracted by the lower-income taxes in the United States. This is a reality we have to face. We can do nothing about it.

These upper-income people are very important as entrepreneurs, as professionals, who often provide employment by creating business and so on. In fact, upper-income people are also the people who make investments from abroad. I have read stories where Europeans and Americans who see business opportunities here look at the entire package of what is available. They might decide that from an economic point of view it's all right to come here, provide employment, put their capital here. But then they look at the taxes and they find they'd rather keep it wherever they are, or put it into bonds.

My wife is a physician. She keeps in touch with people who go to the United States. She receives a letter a week inviting her. The income is not particularly higher, but the after-tax income is considerably higher.

These people believe it's not in the interest of Canadians to raise the effective tax rate of people in the upper levels. In fact, they suggest that people with higher income, for the benefit of all Canadians, for more output, for more employment - in fact, for higher tax revenues - should be having lower tax rates, not higher tax rates. They would probably be paying more taxes if they had lower tax rates.

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What do you say to people like that, who make representations of the sort I've just made?

Mr. Shillington: First of all, I think what we do as Canadians in terms of tax rates is absolutely the opposite of what we should be doing. We advertise that we have a 53% marginal tax rate for the highest-income Canadians. Yet if you check the Revenue Canada statistics, the highest-income Canadians pay about one-third of their income as federal plus provincial income tax, combined.

How do we do this? How do we have a 53% marginal income tax rate on all income over $50,000, yet people with incomes of $300,000, $400,000 and $500,000 pay only one-third? The simple mathematics is that this shouldn't be able to happen. The reason it happens is because of tax expenditures - we'd all have to agree on that.

What we do is we advertise. We have the deputy minister of finance using the national newspapers to advertise that we have a 50% marginal tax rate, and ask why anybody who's good and qualified would come to this country, when in fact he could have said, by the way, high-income Canadians pay about one-third of their income as income tax. He had the option of saying that, but instead he said that we have a 53% marginal tax rate.

If we got rid of some tax expenditures, then he would actually be able to advertise that we have a 40% or 45% marginal tax rate. We advertise the high marginal rate, which is a theoretical figure - very few people pay it. How many people with an income of $200,000 pay 55% on the margin? They should fire their accountants. We actually advertise the worst of our system; in fact the truth is much better.

What would happen if the vice-president of the Bank of Montreal, in a national newspaper, said ``I can't imagine why anybody would put money in my bank.'' And yet we have a deputy minister of finance asking ``Why would anybody live in Canada and pay our high rates of tax?'', and being paid a civil service salary for the privilege.

In terms of the United States, you're absolutely right, and I think we have to be very straight with Canadians. We cannot have Canadian-style social programs, medicare, and education, and U.S.-style tax rates. It's absolutely correct. We have to be very straight with Canadians and say, if that's the choice we're making as a country, good, let's be very explicit about that.

But I have not yet heard the people who say that we need to have lower tax rates - and that means a substantial dismantling of medicare. What they seem to be saying, as far as I'm concerned - what I hear is, we can have lower tax rates and we can balance the budget and we can do this out of efficiencies.

I fundamentally don't believe it. You know that Canada's tax rates are lower than the OECD average. They are lower than the average for the countries that have well-developed social policy structures, and we can't have both. We should choose to pay for the Canada we want, and people should be given that choice.

Mr. Grubel: Mr. Shillington, if I may just ask again.... First, we're always told here the relevant tax competitor is not Europe. I hope you agree with that. The relevant tax competitor is the United States.

Secondly, you have given a very eloquent speech for an ideal society that is isolated, that has no competitive neighbours, and has no migration of either capital or human beings. I accept that; it's a wonderful ideal. We are faced here with making policies in Canada and recommending policies to the ministers within the framework of a world as it exists, not the way we desire it to be.

In all your long wording, you have not given me one indication of what I should say to witnesses who will come here the next time and say that if the effective rate of taxation on rich people is going to be raised - on people making over $100,000, or whatever the number, it may be somewhat lower - you will hurt the rest of Canadians because they will not be providing the employment and productivity that typically these professionals bring.

Without going into ideals, tell me what I should tell these people?

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Mr. Shillington: Go to the Revenue Canada taxation statistics publications, show them the highest-income Canadians pay no more than one-third of their income of tax, and that's a small price to pay to live in this country. And if they choose to leave, fine.

Mr. Grubel: Okay. Thank you very much.

So this is what we tell the people who don't find jobs, because you believe equity is the predominant issue. All the poor Canadians who don't get jobs because of your ideological position - we just tell them that's all right, at least we're rid of them. Is that what we're supposed to tell them?

Mr. Shillington: I, of course, wouldn't characterize it that way, and of course I don't think there are many reasonable people who think that moving to the United States in order to save a couple of thousand dollars a year is a great bargain.

Mr. Grubel: I can only tell you that in British Columbia we are running out of neurosurgeons. We are running out of doctors in many regions of Canada.

I can only tell you that I'm reporting to you what the businessmen, who are at the frontier of hiring people, are telling me all the time - people who hear the potential investors come and say yes, you have a nice town here, good skilled people and everything, but I pay half the taxes in the United States, thank you very much; I guess I'll stay home.

Thank you very much, Mr. Chair.

The Chair: Thank you, Mr. Grubel.

Mr. Campbell.

Mr. Campbell (St. Paul's): Thank you, Mr. Chair.

I also have a question for Mr. Shillington, but I'll come back to him in a moment. I'll give him a rest for a moment there.

I wanted to start with Mr. Walcot and Mr. Richmond, picking up a little bit on Mr. Grubel's approach, telling you what we hear from other witnesses, so that you can respond.

One of the things we hear consistently is that we'd go a long way to solving our debt and deficit problem if we would just raise the corporate income tax rate. All sorts of evidence is advanced before us as to why that would be justified.

I wonder if you gentlemen would comment on the impact that would have on OMERS,Mr. Richmond, and generally on the industry, Mr. Walcot - for instance, if we were to significantly increase the tax on banks, financial institutions.

Mr. Walcot: You asked about the industry generally. If you're going to increase the corporate tax rate, you are going to therefore reduce profitability of the companies, and therefore you're going to get a reduced market. You're not going to have outside investors coming into Canada, because there are all sorts of other places in the world to invest in. Investors are going to be looking at comparative corporate tax rates, and higher tax rates will be unattractive to them.

So I would see two negatives to higher corporate tax rates: fewer people coming into the country and, within Canada, lower profits, therefore lower stock markets, lower reinvestment of profits, and fewer jobs.

Mr. Campbell: Let's take that right to where I want it to go, which was returns in pension funds and to those who look to pensions for their retirement. What impact would you foresee? What happens?

Maybe Mr. Richmond wants to look at OMERS in that light.

Mr. Richmond: Yes. We're a fully funded pension fund for 250,000 local government employees - transit, local government, everything.

Mr. Campbell: Can I just interrupt to ask you what their average income would be, just so we know what we're talking about?

Mr. Richmond: Their average income would be about $30,000.

We're fully funded. We're not now a problem for anyone. There's enough money in the assets of the fund to pay for all of the pension promises that have been made. If you were to lower the return to the fund by 1% a year, you would put the fund into an actuarial liability of about $2.5 billion, which would be equivalent to having to increase contribution rates by 20% to 30%, or you would have to reduce benefits by 25%, or a combination of both.

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That simple step of, say, a 1% tax would end up having our pension fund being a problem with the provincial government and the Ontario Pension Commission. It would be a problem to our employers, because their contribution rates would go up, and it would be a problem to our membership, because they would feel threatened in terms of maintaining the benefits that had been promised them, or they would actually have reduced benefits. It can't all go back into balance when you change that equation.

Mr. Campbell: Thank you.

I have one other question. Again, we hear a lot at the committee, and one of the suggestions we always hear is it is wealthy Canadians who own the banks and the shares of major Canadian companies. I do have statistics in front of me from many of the other large pension plans with respect to the ownership of the largest chartered banks, but I don't have the same information with respect to OMERS.

Just for the record and to remind colleagues, I'm informed that 40% to 50% of the shares of the big six chartered banks are owned by pension plans. The Caisse de dépôt, for example, owns 5% to 8% of the shares of each of the major banks. With respect to Ontario teachers, I have information on market value as a percentage of bank equity, and it's also fairly high.

For OMERS presumably that information is available. Could you share it with us now, if you have it, just so we have some idea?

Mr. Richmond: I don't have it, but I will get right back to the committee tomorrow.

Mr. Campbell: It would be helpful, because, as I say, people often come here and suggest it's some amorphous group of wealthy Canadians, when in fact if you add up the pension plan ownership of the major banks, it's quite dramatic, and that means individual Canadians like your members, who earn $30,000 a year on average.

Mr. Richmond: We have 250,000 members, and believe me, they're major shareholders in all of the major banks in this country.

Mr. Campbell: Thank you.

Mr. Shillington, if you've had a chance to recover for a moment, I just want to pick up on the discussion of RRSPs. You began our discussion earlier with that and the suggestion that somehow we should consider limiting the amount of protection, if you will, for lack of a better word, that the government offers to wealthy Canadians through the RRSP deduction by either lowering the ceiling or in fact.... I think you said that at some point, when you have assets in your fund that would throw off $30,000 a year, that should be all the government assists you in -

Mr. Shillington: No, I'm simply talking about limiting the ceiling for contributions. That's all.

Mr. Campbell: But in your presentation you mentioned the figure of $30,000. What was that?

Mr. Shillington: If people are investing in an RRSP and at retirement are getting a $60,000 annuity out of it, half of that is there because of the tax advantage, so that's effectively spending $30,000 per year of taxpayers' money at retirement for those people. That's where the $30,000 came from.

Mr. Campbell: You left me, in any event, and perhaps others, with the impression that you were suggesting that at a certain point a Canadian has enough in their RRSP that the government should no longer be assisting them in adding to it.

Mr. Shillington: If you're talking about the proposal that came out of the task force on pensions in 1983 of limiting the size of the funds rather than limiting the contributions, I haven't talked about that today, although I have talked about it in the past.

Mr. Campbell: Do I tempt you to talk about it by my question?

Mr. Shillington: No, I'd rather not - only if really pressed. I'll leave it in your hands to ask why.

Mr. Campbell: Why, Mr. Shillington?

Mr. Shillington: Because it does have a superficial appeal. Instead of limiting people's contributions to $7,500, $10,000 or $15,000 a year, you could actually loosen that up substantially and then say once their RRSP fund has gotten to the point that it provides them a pension or an annuity of $40,000 or $50,000, they can no longer contribute tax-free, and in fact if the fund earns more than is necessary to maintain its purchasing power, that will be taxed.

In a simpler time I thought that was a good idea, but what do you do then with the size of the fund, which has a lot of money in equities, annuities and the stock market? It's rough justice, but it's simpler to continue to concentrate on the annual contributions.

Mr. Campbell: Thank you for that clarification, because that was going to be exactly my question if you were heading down that road: how would we deal with the valuation issue and the huge bureaucracy that would have to be created and grow up to deal with that?

Thank you.

Mr. Shillington: Regrettably, I think we have to deal with the annual limits, although you could contemplate a lifetime limit.

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Mr. Campbell: Well, I won't tempt you to go down that road.

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

Mrs. Brushett.

Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman.

I don't want to wear you out, so let me ask my other question first and then I'll come back to you.

I'm wondering what the reason from the distillers' perspective is for why we had that discrepancy in the excise tax from the three different alcohol products. How did that historically come about? Can you do a little bit of quick background on that?

Mr. Rubbra: That's an excellent question; it's one we have been asking of people at the Department of Finance for years, and we have never received a proper answer to it.

The short answer is that we don't know, other than that it's been there for a long time. It probably goes back to building railroads or something. Traditionally there has always been that discrepancy, and nobody, including ourselves, seems to know exactly why it's there, truthfully.

Mrs. Brushett: Okay, so it is just a historic thing.

My second question is to you, Mr. Shillington. I racked my brain trying to figure out how to get more low-income people into the RRSP program, and I have thought of the possibility of shifting it into a tax credit from a deduction. You would set a limit to the tax credit so that you brought more equity or more fairness from those $200,000 incomes down to the $25,000 income so that it was much more relevant in the sense of fairness. Is that a possibility? Would it do that?

Mr. Shillington: Yes, and your comment lines up very well with what Mr. Richmond said about using retirement vehicles as a way to encourage saving and therefore save the money down the road. I interpreted that comment to mean that you would save funding on guaranteed annual income supplements down the road.

If you reduced the limit from $15,000 or $13,000, which it is now, to $8,000, you will not be affecting anybody who is a potential GIS recipient. Since we know that high-income Canadians have a propensity to save, these people are going to save for their retirement. So you are not affecting anybody who is potentially going to be a burden on the government in retirement.

By going from a deduction to a credit, you will equalize the tax advantages at contribution time between high-income and low-income Canadians. You are not giving any extra incentive to the low-income Canadian who contributes, because they now earn 17% on their contributions. They're not going to get more than that, but at least you've equalized it.

But there are other things going on; this is very complicated. I think low-income Canadians really should be discouraged from.... If I had a friend who had an income of $25,000 or $30,000, I would discourage them from saving for their retirement in an RRSP.

Mrs. Brushett: What would you encourage them to do?

Mr. Shillington: Own their house. As long as we have income-tested programs for seniors.... The GIS has a tax rate of 50%. So if they're low income, at retirement they're likely going to be a GIS recipient, and today's rules are going to have a GIS tax-back rate of 50% on top of whatever income taxes they might pay on their old age security and their Canada pension plan. It's likely that at retirement, those people are going to hit far higher tax-back rates on their Canada pension plan and all sorts of other savings. I would suggest that they own their house and do other things asset-wise before using RRSPs.

Mrs. Brushett: May I ask you one more question?

An accountant proposed this to me in one of our discussions earlier. It's the concept of not putting any more money in the RRSP because by the time you get it out, you're going to be taxed so high that you might as well as spend it now and enjoy life more. But I guess your argument here today is to take advantage while it's going, if you're going to play by the rules, and sock it away as fast as you can at that level because you are getting the great advantage of its earning power tax-free.

Mr. Shillington: You really have nothing to lose. If you have the cash and you can afford to make the contribution, you have nothing to lose because you will earn the money and the money will compound much faster than it will outside of an RRSP, and you can pay the tax eventually.

The only way you could lose is if you're in a much higher tax bracket when you take the money out than you are in now. Only low-income Canadians have that risk.

Mrs. Brushett: Okay. Thank you for the clarification.

The Chair: Thank you, Mrs. Brushett.

Mr. Pillitteri wanted to ask a question.

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By way of introduction, Mr. Rubbra, I'd better say that not only is Mr. Pillitteri a wine producer, he is also one of Canada's finest wine producers. He's won dozens of awards over the last couple of years. I look forward to his question.

Mr. Pillitteri (Niagara Falls): Thank you very much. What an introduction, Mr. Chairman!

My colleague asked a question about the fairness in this. Mr. Rubbra responded by saying he didn't know why there's a difference. May I ask you a question in fairness to taxpayers here, at three different levels.

As I understand it, most European countries do not tax wine and beer. They seem to be in the food act rather than in the spirits act. That's also the same in the United States. Am I correct in saying that?

Mr. Rubbra: It varies by country, you're right. In Canada the standards are in the Food and Drugs Act. The taxation legislation is the Excise Act and the Excise Tax Act. For instance, in France there is no excise on wine. In the United States the taxing provisions are in the CFR, the Code of Federal Regulations.

Mr. Pillitteri: That also answers part of my colleague's question. Thank you for the answer.

Mr. Shillington, let me ask this question. Who does benefit from the RRSP contribution if it's up to $15,000? Tell me if I'm wrong in the way I understand it. Over 60% of the total contributions are from people earning less than $60,000. That's almost two-thirds. We always have this belief that Canadians should be providing for their own retirement plans. Sometimes I wonder, whatever they receive, if it is ever enough. If 60% or two-thirds of the total contribution is made by those people earning less than $60,000, who benefits if we bring that limit up to $15,000?

Mr. Shillington: Mathematically, when the limit goes from $13,500 to $15,000, as it will in the next few years, your income will need to be more than - I'll try to do the math quickly - about $70,000 to get any additional benefit at all. People with incomes under $70,000 will not be affected by that whatsoever. That's the simple math.

Mr. Pillitteri: So in your estimation, if we taxed or lowered the contributions to $8,000 to $10,000, it really would not affect most of those two-thirds who are contributing to -

Mr. Shillington: Yes, every time, every year.... It's this time of year and the pre-budget is about to start. You will read articles in the newspaper about people who want to roll back RRSPs and how this will hurt the stock boy working in Zellers. Those arguments are made all the time. They seem to be terribly effective. I don't know anybody -

We are simply talking about rolling the limit back to $8,000, $9,000 or $10,000, which is where it was in the late 1980s. First, I believe that under today's investment environment that provides equity with a private pension of $60,000. It certainly provides substantial room to have a very healthy retirement, thank you very much, and it will not affect the stock boy working at Zellers.

Mrs. Brushett: How much revenue does it generate?

Mr. Shillington: I'm not an actuary, but these gentlemen may be able to help you.

Mrs. Brushett: Into what -

Mr. Shillington: There are finance officials who get paid very handsomely to answer these types of questions.

A voice: We can make that -

Mr. Shillington: Are they here?

Mr. Pillitteri: Mr. Chairman, being at this round table reminds me of last year, with everybody coming in here saying, don't touch me, don't cut me, don't tax me or my group. Nothing has changed. Only Mr. Shillington actually came up with the same program, and there are all the others.

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I just wonder, as Canadians, if we are going to try to share the burden among all of us, rather than being the single-minded groups we are, and put something on the table for everyone so we can have a better tomorrow.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Pillitteri.

Ms Stewart, please.

Mrs. Stewart (Brant): Mr. Shillington, one concept you presented in your opening remarks that fascinated me was the notion that exemptions are not based on need. We don't look at tax exemptions or make expenditures based on need, whereas we do with benefits.

Mr. Shillington: Well, we do sometimes.

Remember that the child tax exemption, the deduction for dependent children, was eliminated because it was a waste of money to give it to bank presidents. Sometimes we say we don't need to give a deduction for dependent children of high-income Canadians, and we do not need the age credit, the deduction for being over 65, so we now income-test that. So we do that sometimes, but it seems to be mostly for programs that have a social odour to them. We don't apply that criteria to RRSPs, capital gains, dividend tax credits or those amounts of money.

The Chairman: Mr. Grubel.

Mr. Grubel: I have a question for Mr. Rubbra. There are really two reasons for raising excise taxes. One of them is to discourage consumption because it is some sort of sin to drink alcohol.

It's quite clear that if we start a low excise tax rate there will be some reduction. As we raise it there will be more and more reduction. But there comes a critical point at which the underground economy or cheating comes in, and as a result further increases in the excise tax rate will not do what they are intended to do in terms of discouraging the consumption of a sin product. In fact, there comes a point where if we raise taxes even more, the underground economy will flourish so much that we could possibly increase the consumption of the product whose consumption we wanted to reduce.

Do you think we are presently at the point in Canada, with hard liquor or distilled products, where a lower excise tax rate would discourage their consumption more?

Mr. Rubbra: I think you answered your own question in your preamble. It certainly would appear that we are at the saturation point. Our research tells us that abusers are going to abuse no matter what you do to the price. A very small percentage - less than 5% - fits the definition of abuse and will abuse no matter what you do to the price. Those people will find their product.

Whether lowering the excise burden on distilled spirits would in fact cause a reduction in consumption I -

Mr. Grubel: I'm talking about the total measured consumption, including whatever escapes the government net.

Mr. Rubbra: We hope that would replace illegal sales with legal sales so we all benefit. Society benefits because of the high tax burden. There are also health implications because some of the illegal stuff has been found to have been tampered with and is not too healthy.

Mr. Grubel: There are two purposes. One is to discourage consumption, but the other is to also raise revenue. We have the same kind of analysis, that the higher the rate is the more you will have evasion and illegal sales. There comes a point where it is at least conceptually possible that if you lower the rate the government revenues will go up.

Do you think we are at that stage with respect to excise taxes on liquor?

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Mr. Rubbra: Absolutely, and that is what is creating the underground economy.

In our projections and in the document you have in front of you, our analysis tells us that if you reduce the price in Canada by the amount that would result from the levelling example I gave you, we create a revenue-neutral scenario for the federal government. If 50% of the underground economy were to be recovered, there would be an additional $70 million in revenue for the government. So as the recovery from the underground economy rises, obviously more money comes along.

I think the answer to your question is that yes, there would considerably be more revenue created by lowering the tax because at least theoretically you would be stemming the underground economy. Most Canadians don't want to purchase illegal product, but when you have a $10 price differential on a bottle of spirits, it's pretty tempting when it is so easily available.

Mr. Grubel: What does the Department of Finance tell you when you give them this evidence that if you want to raise revenue because we have such a large deficit, all you have to do is lower the excise tax rate on liquor a little bit? What are they telling you when you say that?

Mr. Rubbra: They tell us that they cannot afford to give up any revenue, that it's a politically difficult thing for a government to do. They're not receptive to our revenue-neutral philosophy yet. Our model is fairly new. But they basically say they cannot afford to give up any revenue.

What has happened is that the tax structure is creating competitive advantages and disadvantages within the beverage alcohol industry, which theoretical tax policy is not supposed to do. We're trying to level that playing field.

Mr. Grubel: Mr. Chairman, maybe we can get the Department of Finance to present us some studies, which undoubtedly they have made, on the validity of the proposition that if the excise tax rate on liquor were lowered, revenue would increase because of the discouraging effect on the underground economy. In the future maybe we can make a presentation to the Department of Finance. Since we are so much concerned about reducing the deficit, that might be one way to go and make lots of Canadians happy at the same time.

The Chair: It's an excellent suggestion, Mr. Grubel.

Perhaps, Mr. Walker, you want to respond to that.

Mr. Walker (Winnipeg North Centre): I think it would be interesting to have the officials here, Mr. Grubel, and not only in the context of this one proposal. I think it would be a good learning experience for the committee, as it was for me, to understand the number of requests the department deals with on the same supposition: that is to say, if you help us, we'll guarantee you a great deal more money.

I'm not in any way belittling what you're saying; I'm just saying it's a typical approach. We have trouble dealing with it because it's based on a number of concessions and then we'll catch up later on. Our strategy has been to hold to the fiscal framework as much as possible on the revenue side, lest if we make a mistake we're picking it up somewhere else and the people would be angry with that.

Because we are dealing with the hypothetical - and you're a good academic - we are obviously as open to criticism on this as you can imagine. I would be happy to suggest the officials come back and give the committee an idea of some of the ranges we're asked for on this type of suggestion.

The Chair: I think we'd welcome that type of contribution.

Mr. Rubbra: As a quick clarification if I may, sir, we were sensitive to that argument, which is why we created what we call our revenue-neutral model for the federal government. In other words, if you make these adjustments you're not going to lose any money. As a bonus, we should recover some of the underground economy. If so, you'll make a few extra bucks and so will everybody else.

May I very quickly finish responding to the earlier question about why the discrepancy? I still don't know, but an anecdote might clarify it.

Three or four years ago, maybe longer now, those of you who fly in the back of airplanes will recall that when they started charging again for beverage alcohol products on airplanes, the prices were, I think, $2 for beer and wine and $3 for distilled spirits. Now it's $3 and $4. At that time we wrote to the presidents of the two airlines, asking why they were charging different amounts for distilled spirits than for beer and wine when their acquisitions costs - and that can be demonstrated - were roughly the same for those products?

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We had a response from one of them, and the response was because that's what the market will pay. I think there's always been this mystique out there that beer is the drink of the working man, wine is food, and distilled spirits are this mysterious elixir that has to be controlled and taxed out of sight.

In the old days of the mystery and romance of the industry, that might have been appropriate. In today's reality, when we're all fighting for our existence, we cannot afford to; we cannot cope with those kinds of differences in our domestic marketplace.

The Chair: Thank you, Mr. Rubbra.

Are there any more questions from the panel?

We come to the time now where you each have about a minute or so to summarize. Would you like to start, Mr. Rubbra?

Mr. Rubbra: Thank you, Mr. Chairman. I'm gratified to hear the interest and concern expressed by several of the members of your committee. We certainly would look forward to participating with officials of the Department of Finance in front of this committee at your convenience to explain our position and try to rationalize it for you. Thank you.

The Chair: Thanks, Mr. Rubbra.

Mr. Hillier.

Mr. Hillier: Mr. Chairman, I'd like to summarize my comments by responding to the challenge that Mr. Pillitteri threw out earlier, which was that he had a sense of déjà vu.

I think there has been a lot of discussion here today on the pension system in Canada. There have been some concerns raised, and a couple of organizations, including my own, have said that maybe the entire system has to be looked at. But you can't look at parts of it in a piecemeal fashion. If you're going to look at it, you have to look at the whole thing. So I think there are some very concrete suggestions being put forward here today by more than one organization.

The other thing is that we are reaffirming our commitment to the deficit target of 3% of GDP by the end of the next fiscal year. However, I think that in the broad scope of discussion that's taken place here today you can see that we can cut, cut, cut in this country until we've totally undermined the federal system, until we've totally undermined anything that's unique about this country. I think we do have a special country here.

I think that rather than cutting everything to the bone until there's nothing left, maybe we should be focusing a little more on this idea of reinventing government and how they deliver services and in looking at public and private partnerships for looking at new ways of delivering services in Canada. That's been raised in the area of training here today. We raised it in terms of looking at how we do business, which is the self-help model of people getting together in cooperatives to look after their own needs, looking at that model in terms of delivering health care services to communities, delivering child care services, housing, possibly in the area of utilities and other areas.

With or without government, we, the cooperative movement in Canada, are doing that out at the community level. We continue, as we have in the past, to promote the idea of people working together to provide the goods and services they need at the community level. We also are continuing to work at a more national level with organizations like the Canadian Chamber of Commerce to promote small and medium-sized enterprise working together to purchase raw materials together, to market together, to grow their competitiveness. We will continue to do that.

So I think there are some suggestions being made here today, but I think we have to be careful on the cut, cut, cut approach. We have to look more at some more effective reinvented ways of providing government services. Thank you.

The Chair: Thank you, Mr. Hillier.

Mr. Brookfield.

Mr. Brookfield: Thank you very much. I'm very pleased to be here today and hear the discussions. I'm very pleased to interpret what I've heard as a defence of Canada's social safety net. I think that very much parallels what we've been saying, that there are 25.6 million Canadians out there who are helped by this social net, and I use dentistry as the example.

I believe, looking around the table, that there is a relative balance in the system, that when you do damage to or change one area it has a ripple-down effect that can hurt us all, and the social net would be my biggest concern.

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I think I would like to offer dentistry's example, that we have prevention, that we have a capped tax advantage in offering a social service, and that we have quantifiable results. I would hope the government looks mainly internally as opposed to externally, and I would like to ensure that people in this country are equally advantaged as opposed to equally disadvantaged. Thank you.

The Chair: Thanks, Mr. Brookfield.

Mr. Creber.

Mr. Creber: Thank you, Mr. Chairman.

I'd also like to address my closing remarks to the comment, made by the hon. member Mr. Pillitteri, that nothing new had come forward. I would like to refer you, sir, to page 12 of our submission and the direct sellers' mechanism for the goods and services tax, which has been in existence since the GST came into place. This mechanism is based on the pre-collection of the GST with the result that there's a cashflow advantage to the government.

Secondly, there is no underground economy with respect to the goods and services tax and the direct selling industry.

Thirdly, it goes towards reducing the government administrative costs by enabling many of the independent sales contractors who would be forced to register for GST to de-register.

One of the proposals we have discussed with the finance department, Mr. Walker, is an extension of a couple of amendments to the direct sellers' mechanism. One of these would be to bring a portion of our membership that has not been allowed to enter the mechanism due to a technicality to now register for the mechanism and, as a result, to take more individuals from the administrative roles and pre-collect tax for that section of our market. These amendments have been positively received by the department, and we certainly look forward to those being included in the next technical bill, whenever that comes forward.

My final comment is with respect to the earning opportunities that we believe we can provide to disadvantaged or unfortunate Canadians by offering them opportunities in our industry. We're not asking for a government handout in this respect. We're asking to work with the human resources development department with existing programs. We want to move forward and be somewhat more creative as well in working with the department and finding solutions to help put some of these Canadians back to work, because we can affect the earning opportunities and the lives of Canadians right across this country, in every community.

Thank you, Mr. Chairman.

The Chair: Thank you, Mr. Creber.

Mr. Richmond.

Mr. Richmond: Mr. Chairman and members of the committee, as an association of pension investors, we're certainly concerned about government spending. Of course, we're also concerned about government taxation, both taxation of corporations and taxation of individuals. But I guess we'd reason that the government, with such a high level of debt, can't survive without help, nor could a corporation, nor could an individual family.

We don't think the solution is in higher taxation. We support the position of those at the end of the table that you have to get your house in order in terms of spending, and that doesn't mean cut, cut, cutting, because we all recognize the need for the social safety net. But there are many innovative things that have been done that we simply aren't doing, and they should be looked at, as was suggested at the end of the table.

We particularly don't want double taxation of retirement savings. We don't want them taxed on the way in and taxed on the way out. That doesn't seem to be a proper thing to do. We're terribly concerned about the possibility of short-term or piecemeal solutions to address an immediate problem.

The whole system was looked at back in the 1970s. Along with the Canada pension plan and other features of the tax system, it was rationalized in quite a reasonable way. The increase in RRSP contributions shows that the system is working, not that it isn't working.

We would implore the committee that if it's going to look at the taxation of savings, it do so in a very comprehensive way and not on a piecemeal basis. Otherwise there will be considerable disruption and probably unintended reactions in the savings of individuals and of course in the investment community in general in terms of what goes on in the country.

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The Chair: Thanks, Mr. Richmond.

Last, Mr. Shillington.

Mr. Shillington: Thank you.

Addressing tax expenditures to make sure they still address the original purpose and they're still working effectively is a way of increasing revenue without increasing statutory rates. If you apply to tax expenditures the same criteria and principles we're so often encouraged to apply to social spending, you will reduce some of the tax expenditures.

As one final comment, just on a very personal note, I contribute to RRSPs to my limit every year. I took the capital gains election last year. Please take those away from me. I'll happily pay more taxes for the privilege of living in this country. I'm sorry to sound so silly, but....

Thank you.

The Chair: Thank you.

On behalf of all members, let me thank you for some very provocative thoughts and interesting comments today.

I summarize only on my own behalf. We have had people such as Mr. Shillington, the PIAC, the pension people and the Canadian Co-operative Association talking about pensions. It's one of the major issues we face as a government.

I must say, as tempting as Mr. Shillington's arguments might be to some, I would opt for what the other two participants said, and it's what we said last year as a committee. We cannot consider these issues in isolation from looking at the overall needs of Canadians over the long term for a secure and dignified retirement income. Until we have that paper on aging and until we have more facts before us, I am tempted to support the proposition that we should not adopt a piecemeal approach.

I thought the Canadian film industry and the direct sellers presented us with two industries that are thriving and growing and that have the opportunity to create a lot of jobs, particularly the direct sellers, for an enterprising individual who is prepared to become self-employed and work. This can offer hope to some Canadians.

I certainly support the view that we should work to implement the tax credit measure we enacted in the budget in support of the Canadian film industry.

Mr. Rubbra, I can't help but feel that part of the reason we tax spirits higher than others perhaps goes back to the old sin concept that spirits are more evil than wine or beer, but I'm not sure. Maybe it's what the market will bear; I don't know. But I do take to heart the point you make that if we've reached the point where smuggling is starting to dominate certain market areas, then we have to look at it.

It was a very tough decision for us when we looked at cigarettes. People said we were encouraging something evil when we lowered the taxes on them. But in effect we realized it was probably one of the only ways to stop a very high level of smuggling. This is a very difficult issue for us to deal with, but I think we should continue those discussions.

Last, to the dentists, we challenged you last year to come back with a plan to make sure that the9 million Canadians who are not covered by supplemental employer-provided dental and health programs did have a way of doing it. You have found a way to tell us there are no longer 9 million who don't benefit, but only about 500,000, so you don't have the obligation of coming up with a plan.

That may be the case, because none of us has a monopoly on wisdom. If that is the case, then I think part of the equity argument for not taxing them has been taken away.

Others in the industry will be coming before us and perhaps expanding on some of the points you've presented. You ask why we should stop something that is working and is an integral part of the total health care system.

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On behalf of all members, I thank you all for very interesting, provocative and important contributions to our deliberations.

We adjourn until 7 o'clock tonight.