EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 23, 1995

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[English]

The Vice-Chair (Mr. Campbell): While we're waiting, I just want to say a word about format. The way these round table discussions have proceeded, and the way we would hope to proceed this evening, is as follows.

You will each have an opportunity to make a short opening statement, which will be followed by an opportunity for witnesses to react among themselves to other things they've heard, at the end of which we will open it up to questions. If time allows, we'll conclude with a wrap-up for anybody who wants to wrap up with final comments. We anticipate the panel ending no later than 9 p.m.

We suggest that you keep your opening remarks very brief. Some witnesses have indicated that has been difficult, but we've found that by the end of the panels people have been quite satisfied with the results of the exchange of views. So bear in mind that whatever frustration you may feel at being somewhat constrained in your opening remarks will hopefully be more than made up for by the probing questions from the members of the committee who will be here and from your own exchange of views among yourselves. That exchange of views and the wrap-up at the end should provide ample opportunity for you to get across to us the salient points you want to raise this evening.

We're just awaiting the Bloc Québécois.

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The Vice-Chair (Mr. Campbell): Good evening. Let me introduce this evening's panel in this pre-budget consultation.

From the Automotive Industries Association of Canada is Dean Wilson. From the Canadian Exporters' Association we have Mark Drake, president, and Jim Moore, vice-president, policy. From the Canadian Federation of Labour is Jim McCambly, president. From the Canadian Home Builders' Association is Bruce Clemmensen, president. From the Professional Institute of the Public Service of Canada is Bert Crossman, president. From the Canadian Real Estate Association we have Pierre Beauchamp, chief executive officer. From the Canadian Automobile Association are Richard Godding, vice-president, and Dave Leonhardt, public affairs manager. From the Canadian Chemical Producers' Association is David Goffin, secretary-treasurer. From the Association of Canadian Publishers are Jack Stoddart, member of the board; Paul Davidson, executive director; and Roy MacSkimming, policy director. Mr. Vézina is from the

[Translation]

Mr. Raymond Vézina (Member of the Board of Directors, Association nationale des éditeurs de livres): My name is Raymond Vézina and I am from the Association nationale des éditeurs de livres.

The Vice-Chair (Mr. Campbell): Welcome to the committee.

[English]

Welcome to the committee.

We'll begin with Mr. Wilson from the Automotive Industries Association of Canada.

Mr. Dean H. Wilson (President, Automotive Industries Association of Canada): Good evening. Thank you for the opportunity to appear.

First I have a brief word about our association. We're the national trade association that represents the automotive aftermarket industry, which is manufacturers, distributors, wholesalers and retailers.

I have a brief that I would be glad to leave with you. The issues we'd like to address from our association are deficit reduction and debt, unemployment insurance, goods and services tax, capital cost allowance for machinery and equipment, tool tax deductibility for technicians, and harmonization of federal and provincial regulations.

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I'd also like to point out that I'm wearing a second hat here. I'm also representing the Canadian Association of Equipment Distributors, which deals in off-road equipment for the construction, mining, forestry and oil and gas industries. The topics for both associations are the same on those things I've just mentioned, but for the off-road equipment we have some additional suggestions for infrastructure and for our national highway system. So I assume you don't want me to get into any detail about any of this at this stage.

The Vice-Chair (Mr. Campbell): Given the time constraints, I think you might choose the ones you particularly wanted to draw to our attention. We've happily received the brief and -

Mr. Wilson: I have one for each association.

The Vice-Chair (Mr. Campbell): Thank you. So do you want to highlight any of those in the time remaining?

Mr. Wilson: Yes, if you wish, I can start with that.

First of all, I'll comment on deficit reduction and debt. Last year we agreed with your target of a deficit equal to 3% of the gross domestic product by 1996-97; however, this year, on reflection, we think it's not good enough. If you have a $25 billion deficit, you're just going to pile another $100 billion worth of debt onto our already-heavy burden of debt in the country. We think you need to take a more aggressive approach to deficit reduction to try to get it to zero by the year 2000. We also think the government should put in place a long-range debt reduction program, even if it has to go to the year 2020. But I think you need to develop a road map of where we're going.

We think you're going to have to be even more aggressive in the reduction of expense than you have been over the past year. I know you have an ambitious plan over three years to reduce expenses. We support that, but I think you have to go further. You may have to increase the slashing by another 10% to 20% to achieve a zero-based budget by the year 2000.

In the area of unemployment insurance, we support some of the changes that have taken place. In our view, unemployment insurance should be emergency assurance only. The amount of compensation for the people who collect it should be lower, and the periods for collection should be shorter. And I know over the past year you looked at a two-tier system. I guess you decided not to go with that, but I think an experience-rating system might be well worth looking at.

We support your plan to combine the goods and services tax with provincial sales tax. We think it's a good idea. We're not in favour of a business transfer tax but we think an integrated sales tax, from what I understand, would be positive.

We believe the capital cost allowance for machinery and equipment should be increased from 20% to 50%, with a higher write-off in the first year. We think anything you can do to encourage business to invest in machinery and equipment will be positive for the economy.

There should be tool tax deductibility for technicians. I think in Canada we do not have enough people in the trades. We need to attract more people to the trades. What we're suggesting is that if you allow automotive technicians and heavy-duty equipment technicians to write off the tax that they pay on tool purchases on their income tax, it would be a real positive step towards attracting better people to the trades.

On harmonization of regulations, we commend you for reaching an agreement with the provincial governments on an internal trade agreement. Quite frankly, however, we have yet to see any real positive moves. For example, we still see different regulations across the country for disposal of scrap tires, for used oil collection, and so on. I think you've certainly made a positive step, but we need to start seeing some actual positive results out in the provinces; we have yet to see that.

For off-road equipment, we have a couple of other suggestions. One is the infrastructure program. We support it. We think it's been great. It has certainly kick-started the economy in that particular area, but we think it should be continued on a regular basis. I know you've changed the program from a three-year program to a five-year program, which is good, but I think it should go beyond that. I think it should be a continuous process, so we support that.

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We also think there should be maintenance of a national highway system in this country. The federal government collects $5.5 billion in taxes on gasoline and diesel fuel, while the provinces collect a like amount. We think a certain percentage of that should be devoted to maintenance of the national highway system across the country. That would be positive.

Those things, in a nutshell, are what our briefs are about.

The Vice-Chair (Mr. Campbell): Thank you very much.

Can we have the comments from the Canadian Exporters' Association, please?

Mr. James D. Moore (Vice-President of Policy, Canadian Exporters' Association): Thank you, Mr. Chairman. We also appreciate the opportunity to appear, and I will be as brief as I possibly can.

I should mention, first of all, that the Canadian Exporters' Association is a private sector organization representing around a thousand exporters across the country, both manufacturers and service companies.

As just a background note, we believe exports will continue to be the main engine driving the economy for the next year, and maybe the year after that, but not as strongly as in the immediate past. There has been very good growth in the last three years, but we expect this to slacken off just a little.

Against this background, we have four or five specific recommendations. We agree very much with Mr. Wilson's points about the aggressive stand on deficit and debt reduction; we have to keep that pressure on. He set out some specific targets and I agree that the government should certainly have a long-range plan and stick to it.

Finance has not yet produced state-of-the-economy figures that we have seen, but we understand the figures are on target for last year's statement. That is encouraging, although we feel there is a balance to be struck between the total slash and burn policy and the fact that consumers in Canada are very uncertain. They are worried about jobs. Because of that, demand for consumer products and housing, which drive the domestic economy, are low and in the doldrums. It would be good to have a balance between going for these very aggressive deficit targets and for revival of the domestic economy, in addition to the export economy, which is doing very well.

Looking at trade promotion, we should not specifically look for cuts in Canada's trade promotion budget largely because exporters are competing in a global marketplace. Particularly when you look at export financing, they need such help as can be given to compete with governments in foreign countries, specifically to match the competition.

At the same time, we believe savings can be made in the trade promotion area by continuing to eliminate duplication. The government has moved to correct this in some areas, but not necessarily in an appropriate way. They have moved to improve coordination between the seventeen to twenty agencies dealing in foreign affairs, but it would have been better to bite the bullet, in our view, and to eliminate interdepartmental overlap by putting the focus just into key departments like Industry Canada and, obviously, Foreign Affairs and International Trade.

On taxation, we clearly prefer reduced expenditures rather than increased taxes to boost the economy. We're already too overtaxed for competitive comfort. We think there are definite needs for further reductions in payroll taxes, which, unlike the GST, impact directly on export competitiveness.

I'll just say a quick word on user fees. We do have some concern about user fees in commercialization being put into effect only in the sense that this mustn't be disguised as taxes. We're not against user fees in principle, but we want to be sure they respond to the needs of the users themselves and that all possible measures are taken to reduce costs and to introduce commercial efficiencies.

Turning briefly to public sector competition, as departments seek to reduce costs, many are seeking to sell their services and to export them. We agree many departments have marketable public sector expertise that could be useful domestically and abroad. There is, however, growing concern about unfair taxpayer-subsidized competition for the private sector. Government departments that market their services must, in our view, partner with the private sector and not compete with it.

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On devolution, in respect to exports Canada has to present a Team Canada face. We've seen examples of this recently, and it's an encouraging move. Canada must not present a Balkanized, province-by-province approach to trade promotion, because that simply confuses foreign buyers, who like to deal with Canada and not with individual provinces.

In other areas, exporters are no different from other Canadians in their views on a strong central government versus too much devolution of powers to the provinces.

Finally, a word on inflation and exchange rates: those are looking good. The dollar is in a helpful shape for exporters right now. The main point is that it should be stable and not subject to major fluctuations. Inflation, of course, is at an encouraging level. In those two particular areas, we'd say keep up the good work.

The Vice-Chair (Mr. Campbell): Thank you.

We'll move next to the Canadian Federation of Labour.

Mr. Jim McCambly (President, Canadian Federation of Labour): Thank you, Mr. Chairman and members of the committee.

I appreciate being back here this evening. I was over with your colleagues on Monday night, dealing with labour-sponsored venture capital. Tonight I will try to concentrate on the questions that have been addressed to us and other persons.

First, what should our deficit reduction targets be? We've probably created a debt stability problem as a result of maintaining high interest rates over a long period, allowing some government inefficiencies, and failing vigorously to improve the economy over the last couple of decades.

The most obvious fix is to lower interest rates as much as possible. Lower interest rates would promote growth and improve government balances through lower interest payments on the debt. As well, those lower interest rates would increase revenues and reduce social expenditures through increased employment.

The current target of 3% of GDP should be sufficient to stabilize the debt ratio and provide some decline. However, we feel the government should also focus an equal amount of attention on job creation through improving Canada's economic performance.

The next question relates to how budget measures may be used to create an environment of jobs and growth. The federal government, in partnership with provinces, should focus on job creation through the following actions.

Some direct job creation is appropriate through spending on infrastructure that is needed, requires repair, or aids national productivity. There could be some situations where the governments could find partial funding through user fees until a project is paid for.

Business, labour, and government should actively promote Canada as a good place to do business. We're in competition with the rest of the world and we need to work together to promote Canada.

We need to support programs targeted to encourage businesses to come to or stay in Canada. I mentioned the Working Ventures Canadian Fund sponsored by the Canadian Federation of Labour. We think this is a good example, where we finance only Canadian business.

We believe that businesses will invest when they believe that the economy will expand. The government must create optimistic and realistic expectations of growth.

The next question concerns cuts, commercialization, and privatization or devolution. Although it is always important for governments continually to examine what they do to direct or redirect their energies to more productive areas, it is not appropriate to slash and burn. The challenge for federal and provincial governments representing one taxpayer is to protect Canadian social values and individual dignity while improving efficiencies.

This does not mean that privatization is the best, or even an appropriate, solution. Privatization may be the easiest, but it's not necessarily the most efficient or effective. It is often the easy way to avoid acknowledging poor management, inflexibilities, and lack of internal cooperation.

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It is doubtful that the reclassification of activities, the selling of existing assets or the sale of services by government make more of a difference to either the deficit or job creation than internal efficiencies would make. The government's priorities must be to keep Canadians working and put them back to work in new jobs. The federal government should set employment targets for our economy and pursue them as vigorously as it pursues deficit reduction targets.

In answer to those who argue that improved employment levels are hard to define and difficult to achieve, we say inflation and deficit targets are also hard to define and achieve. The government, with business and labour, should agree to set a standard definition of current unemployment levels and then set a target of reducing the unemployment rate by 2% a year for the next three years.

With regard to unemployment insurance, the unemployment target objectives we just mentioned would create a positive environment for Canadians who are uncertain consumers or fearful workers. It would provide a labour side of the economic equation to create a positive environment for stimulating business investment. We also need to maintain the income redistributive capacity of unemployment insurance, and we clearly support the pooled risk plan that has been in existence for some time without experience rating.

There has been and will continue to be dislocation of unemployed workers. Our unemployment insurance system is the best and only income bridge Canadians have between jobs. It is an income redistribution system that allows workers to retain their dignity between periods of employment. It recognizes that workers, even when temporarily unemployed, are also consumers, distributing income support to business.

The UI system is for income support, not for every other program for which the government could not find financing. Both business and labour opposed using UI for other purposes unless they are supported by business and labour, who pay the premiums.

UI is financed through a payroll tax and not a general tax. It needs to be separated from the general account and used as an income for the temporarily unemployed, as an income for persons taking training or upgrading and to reduce premiums, if possible, after maintaining or increasing current levels of income support.

If UI is to be used as a payroll tax to provide training, it should be endorsed by business and labour and then identified separately from income support. Workers between jobs should be supported by UI as much as possible without being forced onto welfare.

I close by talking about a divided society, and I look at New Zealand. We really don't need to create a more divided society. We must avoid a slash and burn mentality that simply throws the poorest to the wolves. We are a caring society, so let's prove it in our drive for efficiency.

The Vice-Chair (Mr. Campbell): Thank you very much.

We'll now turn to the Canadian Home Builders' Association.

Mr. Bruce Clemmensen (President, Canadian Home Builders' Association): Thank you, Mr. Chairman.

I'm very pleased to be here this evening to present the views of the housing industry. Our association represents 12,000 company members all across the country, in every province.

As you are aware, the housing activity is at deplorable levels. Only about 112,000 dwelling units will be started this year. According to Canada Mortgage and Housing, the demographic requirements in Canada are between 153,000 and 167,000 units annually.

We have presented a large number of proposals and recommendations to the federal government to restore the health of the housing industry and its long-term viability. Last week we received a letter from the federal Minister of Finance. In that letter the minister said:

The government favours policies that reinforce the long-term growth prospects of the economy, rather than simply provide short-term stimulus. Short-term policies that drive up the government deficit will only reduce the public's confidence in the ability of government to meet its fiscal targets and achieve the objective of sustained fiscal growth.

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Our industry fully endorses the minister's perspective. We are not exponents of short-term measures to stimulate either the housing industry or the economy. Policies that reinforce the long-term growth prospects of the economy are clearly superior to short-term measures. But we have to ask what the federal government's actions are in support of the housing industry in the context of the long-term growth of the Canadian economy. Are government downsizing and monetary discipline the only policy basis for Canada's economic growth?

The federal government has emphasized the importance of an array of other elements that must be pursued to enhance long-term growth. These have included strategic approaches to job creation in the private sector, tax reform, investment in skills development, strategic support for small and medium-sized business, regulatory reform, development of export markets, investment in technical research and technological development, and so on.

We support these commitments, but over the past two years we have seen very little progress with respect to the residential construction industry. We believe the application of these commitments to our industry is a prerequisite for the development of a long-term housing strategy for Canada. Today we have no such strategy.

We feel we are working in an environment in which there is no long-term policy direction. A case in point is the underground economy. Despite our best efforts to offer advice to the federal government on this matter, this parallel economy is growing larger by the day. It is not only damaging our industry, it is also leading to a severe drain on government revenues.

Frankly, we're fed up. We're fed up with living in a zero inflation world where costs are paramount for our customers while all levels of government continue to pile up new regulations, taxes, fees and charges. We're fed up with a tax system that offers no long-term strategic support to large employment-generating and wealth-creating industries like ours, which depend on domestic markets. We're fed up with being told we are working on a level playing field while export and other industries enjoy preferential tax treatment.

We're fed up with being told our proposals to support a long-term housing strategy for Canada are inconsistent with fiscal responsibility. We're fed up with having our proposals judged on their costs alone without any consideration for their benefits and with being told that interest rates will solve all our problems. As interest rates fell this year, so did housing activity.

We're fed up with being skewered in the marketplace by underground operators who are encouraged by consumers who have everything to gain and nothing to lose. The tax system is dysfunctional. We are being told job creation is priority number one and that the federal government intends to do something. We are waiting.

We're fed up with having to worry about the damage that could be done to our industry by tax harmonization. We're fed up that no action is being taken to develop a national strategy on housing in cooperation with the federal government. We're fed up with the absence of strong federal government support for Canada's housing system, which is the best in the world. And we're fed up with the absence of a firm federal commitment to support home ownership and the right of Canadians to decent, affordable housing wherever they might live in this nation.

I've left for you a copy of some information we've presented to the government through the course of the year. One is a letter to Mr. Peterson outlining our proposals for tax reform. Another is a letter to the Hon. David Dingwall, the minister responsible for housing, outlining our proposals for a strategic approach to housing. There is also a letter to the co-chairs of the intergovernmental committee of federal and provincial ministers responsible for housing, calling on them to work together on this much needed housing strategy.

In addition to that, there is a background paper on the housing industry and housing trends in Canada for your consideration.

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In closing, I would just say that the status quo is not working for our industry and we're very interested in seeing some changes being made.

The Vice-Chair (Mr. Campbell): Thank you very much.

We move next to the Professional Institute of the Public Service of Canada.

Mr. Bert Crossman (President, Professional Institute of the Public Service of Canada): The Professional Institute of the Public Service of Canada is a public sector union representing some 34,000 scientific and professional workers both in the federal sector and in the provinces of Manitoba and New Brunswick.

The Professional Institute will not indicate a deficit reduction target, since we feel that economic policy should not be driven by only one statistic, the level of unemployment. Interest rates and other economic variables must form part of a total fiscal and monetary approach to the economy.

The second point is that the Professional Institute continues to urge the federal government to return to the collective bargaining table with its employees. The Professional Institute understands that in the current economic and political climate large salary increases are unlikely. However, both the government as employer and its employees need the bargaining process in order to address issues relating to such things as operational requirements, the benefit plans of employees, monetary items such as the various types of leave and allowances, and non-monetary items such as a grievance process and a variety of scientific issues.

It has been nearly five years since these issues have been discussed at a bargaining table.

The third point is that the Professional Institute of the Public Service would urge the federal government to look at its practices of contracting out - this includes advertisement, public relations expenditures, professional services, and rentals - as a place where possible savings can be made. It is still not clear that the federal government always gets the best value for its money when all the costs, including the administrative ones, of contracting out are included.

Fourth, the Professional Institute recommends a moratorium on surplus notices sent to employees in order to allow the joint adjustment process to function and the alternate program to be effective. In particular, the Professional Institute urges the government to ensure that all departments and agencies, bold-faced and underlined, are cooperating fully with employees and their representatives on the adjustment program.

Fifth, the Professional Institute urges the federal government, in cooperation with the major participants, such as federal scientists, to discuss the real concerns and problems of science and technology in general and concerns within the federal government in particular.

The government should establish a clear operational plan with adequate, stable, long-term funding for each federal government laboratory. The administrative burden on scientific personnel must be reduced, and individuals with research experience should be encouraged to become involved in the management of research and development within the federal government.

The sixth and final point is that the Professional Institute recommends that the federal government ensure, by the full use of the auditing process, that all taxes, including GST, that are owing to the government must be collected.

Those are the issues we wish to present.

The Vice-Chair (Mr. Campbell): Thank you very much.

We move next to the Canadian Real Estate Association.

Mr. Pierre Beauchamp (Chief Executive Officer, Canadian Real Estate Association): It's my pleasure to share with you two proposals from the Canadian Real Estate Association this evening that we feel are very much in tune with issues you've established as priorities for this evening's discussion.

The Canadian Real Estate Association is an association of 75,000 members, brokers and sales people who are involved in the sale of all types of real estate. We have circulated to you the pre-budget submission as prepared, and therefore I will just give you a very brief overview of what's in it.

The first proposal we have is a recommendation to amend the Interest Act, to put lenders and housing consumers on a more level playing field in the pre-payment of residential mortgages before the term expires.

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The second proposal I want to discuss with you today is a unique proposal to help a targeted group of low-income Canadians free themselves from the handout of social assistance by giving them a hand up to self-sufficiency through home ownership.

First, let's talk about the Interest Act proposal for amendments. The experience of our association's members is that the consumer is relatively well served by the mortgage marketplace but poorly served by an outdated federal Interest Act.

Last amended in 1917, the act provides the consumer with no right to prepay a mortgage under five years, and no maximum prepayment penalty for mortgages of less than five years. In fact, research commissioned by the Canadian Real Estate Association last summer shows that consumers can never benefit from renegotiating their mortgages under current practices.

Lenders may or may not allow prepayment. When they do, widely varying penalties are applied, many of them costing the consumer thousands of dollars. The Canadian Real Estate Association is interested in cooperating with other stakeholders to achieve an amendment during the current parliament that is fair to both lender and borrower.

Here are our guidelines in this respect. The right to prepay a mortgage should be legislated. Second, calculating prepayment penalties under the Interest Act differential should use the method of net present value of future payments, as outlined in our pre-budget submission. Third, the three-month interest penalty in the National Housing Act should be retained. Fourth, the act should require lenders to disclose standardized terms and conditions of a mortgage along with the true costs of borrowing in plain language.

We believe such an amendment would contribute to the enhancement of consumer confidence, which is clearly lacking in today's housing market and contributes to its stagnant conditions.

The Canadian Real Estate Association's second proposal is the home investment program. This program channels funds under a reformed immigrant investor program to provide low-income Canadians with a vehicle for home ownership using a unique rent-to-own concept. It has elements of deficit reduction because it suggests how government subsidies can be eliminated by using private sector funds and how every year two thousand Canadian households in the $19,000 to $20,000 income bracket can be helped to end their dependency on social assistance.

This program also provides a job creation strategy for small businesses in the construction industry that require capital. In our projections, that's up to five thousand jobs per year. It is designed to be operated by the private sector and it even offers the potential for duplicating itself to supply increasingly more funds for the creation of housing to accommodate low-income Canadians. This is in marked contrast to the ever-decreasing supply of funds for that purpose that we have experienced to date.

I invite the members of the finance committee to examine this proposal closely. The structural concept paper forms part of our pre-budget submission, which you have already received. It is centred on the use of funding from the immigrant investor program and was prepared long before the immigrant investor advisory panel presented its report.

When studying the submission, you'll note a section on the home investment program marked ``new material''. This section represents changes we've made to our original paper that tie it more closely to the advisory panel's recommendations. In other words, we've tried to bring it up to date and to make it fit with the recommendations being made.

It also includes extensive cost details to demonstrate the program's feasibility even in high-cost urban centres, an issue described as outstanding in the original concept paper.

Mr. Vice-Chair, I will stop here. The papers have been filed with you. The information is complex in one fashion but simple in another when one goes through our entire proposals.

Thank you very much.

The Vice-Chair (Mr. Campbell): Thank you very much.

The Canadian Automobile Association is next.

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Mr. Richard Godding (Vice-president, Canadian Automobile Association): Thank you, Mr. Chairman.

Committee members, fellow participants and observers, with just four minutes to address such a large topic, allow me to skip straight to the heart of my remarks.

I am sure members of Parliament are aware of CAA's efforts to convince the federal government to help fund the national highway system, as it had indicated a few years ago that it would. However, whenever we mention this subject to MPs, the first reaction seems to be, oh no, not more spending! In fact the question that comes back to us is how are we going to pay for it? My response is how can we afford not to pay for it?

The economy of a geographically dispersed country depends on transportation. Yes, electronic transportation such as the information highway is important, but look around you at the paper that was supposed to be replaced by computers. Look at the growth of business travel, travel that was supposed to be rendered obsolete by faxing and teleconferencing.

In the United States, Internet will not replace interstates. This book shows how our Mexican NAFTA partner is building a world-class national highway system. We'll pass it around to committee members to have a look at. Can there be any doubt as to how vital roads are in this competitive climate? Hopefully, Canada still has time to catch up.

Part of Canada's deficit is declining road capital assets that will one day have to be replaced. Some committee members may be familiar with last week's report from the Ontario auditor general, who said that almost 60% of Ontario's highways are sub-standard and explained why it was going to cost the Ontario government more to rebuild those highways than it would have spent renewing them when they should have. While we wait, our economy falters without the proper infrastructure.

CAA recommends a federal highway trust fund to ensure that road user fees, such as the federal excise tax on gasoline, are spent on roads. It makes no sense for road funding to come from general revenues when user fees can pay for it. Equally, it makes no sense for taxes on road use, such as the federal excise tax on gasoline, to go into consolidated revenues when they are levied solely on road use.

The same principle could be applied to many other government services. Trust funds allow our government to adopt a user-pay approach and maintain credibility with the users and with the public. Committee members probably understand better than I do how the public has come to distrust governments that tax them without showing them how their taxes are spent. Trust funds would restore the trust. They would add a visible measure of accountability.

On the subject of jobs, the national highway program is clearly a winner. It will create both short-term jobs, some in construction and engineering, and long-term jobs in shipping, manufacturing and tourism. Better still, it will show the public that the government is serious about fulfilling its red book promise to create jobs through highway renewal.

If the federal government is not interested in helping renew Canada's highways, this is an area ideal for devolution to the provinces. I know I can already hear some committee members saying that the federal government has no responsibility for highways, yet the federal government collects nearly $5.5 billion each year in taxes on gasoline and diesel fuel - highway user fees, by any measure - and returns just 4% to highways. No wonder the Royal Commission on National Passenger Transportation recommended that the federal government stop collecting fuel taxes.

This government, however, has a unique opportunity to invest in Canada's economic and social future. In the information kit we passed to the clerk, there is a page entitled ``Infrastructure II''. It compares renewal of the sub-standard national highway system to the original infrastructure program. It shows how this project can build on what has already been done to complete some of the red book promises and avoid the few pitfalls of the original program, rather than continuing to tax without accountability and allowing Canada's economy to suffer from crumbling infrastructure.

Rather than wash its hands of both the highways and the collection of gas taxes, this government should fund a job-creating, economy-stimulating, life-saving program. CAA recommends that the funding for Infrastructure II begin in the next fiscal year.

In a very short period of time, I think I've said enough. Taking the trust fund approach to restore credibility to government taxation of motorists is a good starting point for long-term structural change. Infrastructure II is a good, short-term job creation program that would have long-term economic effects.

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On behalf of CAA's 3.7 million member motorists, thank you for your time and attention.

The Vice-Chair (Mr. Campbell): Thank you. We'll move then to the Canadian Chemical Producers' Association.

Mr. David W. Goffin (Secretary-Treasurer, Canadian Chemical Producers' Association): Thank you. CCPA represents 68 member companies across Canada that manufacture industrial chemicals. We're coming off one of our best years ever in 1994, with sales approaching $12 billion - it was a good profitable year for the industry. Things did start off quite well for us in 1995, although prices softened as the year went on. Within the next month or so we'll do our year-end survey of companies and see how well we come out, but 1995 stacks up to be a pretty good year as well.

Looking ahead, though, we question where we will be. Our U.S. counterparts are predicting only 1.5% GDP growth for industrial chemicals over the next couple of years in the United States. We export 53% of what we produce, and about 80% of those exports go to the United States. So if the United States markets falter to that extent, we are not going to have very robust growth in our sector over the next couple of years.

The point of this, of course, is that in terms of our contribution to deficit reduction through corporate tax revenues, our greatest contribution is probably passed in this cycle for us. From our point of view, it suggests that if other sectors head in the same direction over the next few years, then we should be taking advantage of what growth is left in this cycle to establish a firm deficit reduction target, and balancing the budget in 1998-89 before we get in a real flat period in the economy seems to make sense to us.

That would require a strong message in this coming budget. We think a strong budget is necessary, not only to achieve the type of goal that I discussed but also because last year we think the government did a very good job of communicating the message across the country that it was very urgent to act on the deficit. It made it clear to the public that the fiscal health of this country was the top priority in the government's economic policy framework, because if that priority wasn't achieved, then none of the other government priorities could be achieved either.

Since last year other issues have risen to the top of the national agenda, and probably in the public's mind the need to act on the deficit has been submerged. We think another strong message is needed for all of us in this coming budget.

In terms of what the government can do for jobs and growth for our sector, deficit reduction leading to debt reduction is really the thing we need. Last year we did a thorough assessment of the business and policy environment in the country for our sector. We found that Canada stacks up well on the competitiveness basics for us. Where we really need help is on the fiscal side, when we sell Canada to potential investors. For our sector, we think it's perfectly feasible to see $4 billion to $6 billion worth of new investment in Alberta alone over the next five years. That would be the major growth in our sector, but we'd also expect to see investment in Quebec, Ontario and B.C., the other provinces in which we are active.

As we said, we think the competitive fundamentals are there, and a strong target for deficit reduction would certainly help us to sell Canada as the location for those investments.

In terms of the policy environment, which I mentioned has been positive for us, we'll update our assessment early next year. It will come out positive as well. But what concerns us is that there are a few areas where we're starting to chisel away at what we felt was a very positive situation.

One of the areas that one of the previous speakers mentioned was cost recovery, and as I think that speaker said, there are very few, if any, in the business community who disagree with the principle of cost recovery. The thing the business community has asked for is a demonstration and a commitment by government to reduce the costs of the services that cost recovery is being introduced for. Reduce those costs as much as possible in a transparent manner before cost recovery takes place. We're not sure that in areas that affect us this is in fact taking place.

.2000

We now have before the Standing Committee on Transport the Canada Transportation Act, which will substantially rationalize Canada's rail system. That may present some difficulties for it, but we support it. We want to see viable railways in Canada. We're major rail users in the chemical sector.

What one provision of the legislation will do, though, is increase the market power of the railways to increase freight rates. It will not be a positive element of our update of the policy framework if that provision of Bill C-101 stays in place.

The final thing I'll comment on is that last year, in talking about the areas where we thought expenditure reduction could take place, one of the things we commented on was regulatory reform, especially the environmental legislative and regulatory framework, which of course is important for our sector.

We referred to the parliamentary committee review of the Canadian Environmental Protection Act that was just beginning and some of the positive background material that Environment Canada put out for that committee.

Unfortunately, over the last year we saw a report from Mr. Caccia's committee that we did not find very positive at all. We felt that within the concept of sustainable development, the parliamentary committee's report was pretty short on the development aspect and the economic aspect.

We know that a good deal of work is being done by various government departments on that report, and we're waiting to see the government's response to it. We hope it will provide a better basis for going forward on the review of CEPA. When we next look at the environmental framework in this country, in the next six months or so, I hope we won't see the type of drastic changes that were recommended in that report.

So I'll stop there and leave time for the questions to follow. Thank you.

[Translation]

The Vice-Chair (Mr. Campbell): Thank you very much. Finally, we will hear the representative

[English]

of the Association of Canadian Publishers.

Mr. Jack Stoddart (Member of the Board, Association of Canadian Publishers): Thank you. I'd like to thank you for the opportunity to appear before the committee.

After listening to the comments of the other presenters, I would say that we feel perhaps a little different as an industry. I think that the cultural industries, of which book publishing is just one part, are not in many ways considered industrial. I would, however, point out that the cultural industries and the arts industries are the second-largest employer of people in this country.

Book publishing alone does $1.7 billion worth of business in domestic and export business. Although people tend to think of books and films and the allied industries as smaller industries, we feel that commercially they're more significant perhaps than traditionally the industries themselves have presented to the public. So we do thank you for the opportunity to present tonight.

Just before I start, I'd like to commend this committee for the leadership it took on the split-run issue of Sports Illustrated, which shows how government can support Canadian culture without the expenditure of money. We're very supportive of our colleagues in the magazine industry.

The Association of Canadian Publishers represents the 145 Canadian-owned publishing members of the industry. We're in every province and every territory in the country. Our sales vary from as small as $50,000 a year to $30 million a year.

I'm here this evening because the cultural industries in Canada, and the book publishing in particular, make a significant contribution to our economy, our national identity, and to Canada's place in the global economy. We might also add that our sector has already made a major contribution to the deficit reduction and government expenditure control.

We want to talk first about our successes and then address some of the challenges and propose solutions. Over the last 25 years, in partnership with writers, illustrators, and designers, we have created a national literature. This is an outstanding accomplishment, and one we can all be very proud of. Our national literature introduces Canadians to each other and Canada to the world. Innovative federal policy has been a critical component in that success.

.2005

Canadians are spending more time reading books now than they did in the 1970s. It is something most people don't give credit to, but I think it's very significant today.

The best-seller lists in this country regularly include - if not the majority, then certainly very close to it - Canadian writers. That's a huge change from the 1970s, when the lists were dominated by foreign authors. Today one-third of all books bought in this country are by Canadian authors. In 1970 that was 10%. So you can see the huge growth in interest in Canadian writers and writing that the industry has worked with.

To compare that with the movie industry, Canadian films get only 3% of the screen time and the audience.

Eighty percent of all Canadian-authored books are published by Canadian-owned publishers.

Although many of us and many of our partners are not very large, the commitment to publish a great number of books has meant that we have a great diversity and availability of reading material for the people of the country.

As an industry, we're also a vital part in the new information economy. Using the latest technology, we create jobs in communities across the country and generate revenue for governments.

Since 1991, Canadians have paid over $750 million in GST on their book purchases. This does not include personal income tax, corporate tax, or any other taxes. I mention that because before the GST came into effect, there was no taxation on books. It was a completely new cost to the consumer on our book product, and it clearly had an effect on our ability to sell books. So in that timeframe we've contributed differently from perhaps some others.

Canadian books also introduce Canada to the world. Our exports have tripled in the last four years. Our writers are internationally acclaimed. The Booker Prize in England, the Commonwealth Prize, and the Prix Étranger have all recently been won by Canadian authors. So not only are we publishing for our own communities but we also have a very much growing and successful export part to the business.

Culture is also now one of the three pillars of the Canadian foreign policy. That is a change of policy, and we think that is going to be major directional thing for our industry.

Strong exports depend on a healthy domestic industry. Despite our successes, publishers work in an extremely difficult environment, and 1995 has been an especially difficult year for publishers. A 55% cut in the federal funding has taken place. No other cultural industry got more than 12% to 15%, but in book publishing the funding for cultural purposes was cut by a whopping 55%.

We have endured a 65% increase in the price of paper. With the merger of Coles and Smith into a single retail entity, we have a new retail environment. A major U.S. distributor for many of our publishers who export has gone into bankruptcy, and now we have, probably at the door with announcements tomorrow, the entry of two large U.S. retail chains into the country, who, despite their protestations, probably are planning not to buy in this country. They will probably import the books themselves around the Canadian publishing scene.

In response to the variety of challenges we've had this year, publishers have trimmed their lists. We've had to lay off staff. We've renegotiated credit, which is difficult when your commodity, a book, is time sensitive.

We've formed new alliances between some of the large and small companies that have kept most of us in business, but the fundamental problems remain.

As an association, we are committed to working with government to tackle the problems we have. Earlier today we released a discussion paper that provides basic information about the state of the publishing industry in Canada. It identifies issues facing publishers and proposes solutions to them.

.2010

Of the five measures proposed, three have no cost to the government. One asks government to reallocate resources, in keeping with its stated priorities. With regard to funding, the paper proposes three new mechanisms to ensure that the production and distribution of Canadian books is successful.

Initiatives proposed within this paper comprise a cost-effective, strategic approach to answer Canadians' continuing demand for Canadian books.

I brought copies of the paper and the four-page summary for each of you. Time does not permit me to go into the detail. Clearly, I won't do this.

The distribution of books published abroad by Canadian publishers is an integral part of the business. It's a part of the business that we make money on, which then subsidizes the publication of Canadian-authored books.

Presently, we do not have what is called a distribution right within the Copyright Act. The revised Copyright Act was supposed to have been moving forward for quite a while. But we understand it is. That will give some protection to the internationalization of the retail industry, but it's one thing that is really critical to the ongoing health of the book publishing industry. It's also a no-cost solution.

The Vice-Chair (Mr. Campbell): I'm sorry, we might stop there since we're well into our time. I'm anxious for members of the panel to have time to talk among themselves, as well as members of the committee to be able to ask questions. I'm sure you'll have an opportunity to elaborate on some of the initiatives.

Mr. Stoddart: Could I just say one thing, sir?

The Vice-Chair (Mr. Campbell): Certainly.

Mr. Stoddart: Raymond Vézina is with me tonight from ANEL. He'd like to just say a couple of words.

[Translation]

Mr. Vézina: Our association works closely with the Association of Canadian Publishers in all the representations it makes to the government of Canada, and to other, international bodies. We have about 100 members.

The Association is made up not only of Quebeckers, but also of publishers from throughout Canada. We have members from Manitoba, Ontario and New Brunswick. Each year, 1,900 original titles are published in French-speaking Canada; this represents sales of more than 200 million dollars per year.

We fully agree with the comments made by my colleague on the importance of the publishing industry on the cultural and economic fronts in terms of job creation and increasing spin-offs. The situation in Quebec is slightly different. The linguistic context is different from that of other Canadian provinces.

As regards to the economic structure of the publishing industry, the problems experienced by our friends in English Canada are somewhat if not very similar to those that we are experiencing. I won't go any farther. We fully share the views and positions of our friends from the ACP.

The Vice-Chair (Mr. Campbell): Thank you.

[English]

Let's proceed, then, for a few moments to open up the opportunity for some dialogue among witnesses. Any of you may wish to respond to anything that you've heard from other witnesses, then we'll open it up to questions.

Does anyone want to comment, react or respond to something others have said?

Mr. McCambly.

Mr. McCambly: I may have done it already, but I have one concern about the comment that was made with regard to experience rating in unemployment insurance. That's something dreaded by anybody who does not have a full-time job.

The pooled-risk system of UI has served a very good purpose over the many decades that it's been in existence. Unfortunately, there are some people who haven't got the opportunity to have a full-time job, or they're in seasonal or cyclical industries. So there is a real need to ensure that there is a sharing of the cost of premiums in order to be sure those people who unfortunately haven't got regular, full-time, non-cyclical employment are eligible for UI.

.2015

I know that probably will be coming up with HRD in a week or so, but it has been a 10% issue in previous budgets, so I wanted to just raise it again here.

The Vice-Chair (Mr. Campbell): Thank you, Mr. McCambly.

I believe it was Mr. Wilson who raised it. He's indicated he wishes to speak to it. Mr. Wilson.

Mr. Wilson: Yes. I'd just like to give you a little more background. I received a letter from one of our larger members, McKerlie-Millen Acklands. It's a large wholesaler and warehouse distributor, and a national organization.

Their letter to me said Acklands, as a company, would contribute $6 million into the fund on an annual basis. Their employees would contribute another $4 million. In total, our contribution to the fund of $10 million is four or five times what the actual usage is, because of employee turnover within our group. In other words, as a company, they are spending several million dollars a year more than they would be if they were assessed on an experience-rating system.

I don't think anybody disagrees with the concept of unemployment insurance, but how do you make it fair to all of the folks in all of the companies and the employees who are paying in to it? I don't think it's fair that some of the companies are subsidizing other companies. That's our point.

The Vice-Chair (Mr. Campbell): Any other comments or reaction before we turn to questions?

Mr. Beauchamp, then Mr. Drake.

Mr. Beauchamp: I'm just trying to suggest, Mr. Chairman, that if this format is to be followed in years to come, it might be extremely useful for us to benefit from receiving copies of the submissions that are being made by others. I think there are questions that would then flow much more easily than through a three-minute presentation. That's just an observation.

The Vice-Chair (Mr. Campbell): It's quite a valuable one. We'll certainly take it under consideration. I can see the obvious merit in that. It may simply not be logistically possible, but it's something we should strive for. This is a process that is evolving.

It was Mr. Drake who indicated that he wanted to speak.

Mr. Mark Drake (President, Canadian Exporters' Association): Mr. Chairman, I really just wanted to take very gentle issue with the point made by Mr. Clemmensen, who said exports enjoyed better tax benefits than domestic activities.

I'm not sure that's necessarily the case. I certainly hope the committee won't make any changes if that is so.

The Vice-Chair (Mr. Campbell): Anyone else?

[Translation]

We will begin our questioning with Mr. Brien.

Mr. Brien (Témiscamingue): Mr. Drake, earlier, you expressed reservations about decentralization. I would like you to explain in greater detail why you say the government should be cautious and should proceed very carefully where decentralization is concerned. Is this an idea that is shared by all Canadians?

Mr. Drake: I hope you won't mind if I answer in English.

Mr. Brien: No problem.

[English]

Mr. Drake: I think our real point about decentralization is that in terms of the exporters, Canada needs to present a Team Canada approach. If the activities undertaken abroad by the provinces are not coordinated very closely with federal activities, there is confusion in the foreign customers' minds. If a mission comes out from Ontario three weeks before the Prime Minister or the Minister of International Trade leads a mission to India - this is what happened last year - that causes confusion.

We're talking from an exporter's point of view of coordinating international trade in terms of promotion and doing most of the work centrally. We can leave the provinces to do specific work within Canada, but work abroad is to be controlled by the federal government. That was one of the main points I made.

The other point was that there's been generally a decentralization to the provinces over the past few years. This, in exporters' views, has weakened the federal government. Exporters, like many other Canadian citizens, I think, would be concerned to see a further weakening of the federal government. Canada is already an extremely devolved, decentralized federation. It wasn't a specific point; it was a general point. We know that our members share those views.

.2020

[Translation]

I hope I have answered your question.

Mr. Brien: Yes. I just wanted to know if that opinion was shared by others. If the goal is to improve public finances - I'm convinced that that is also one of your objectives - would it not be advantageous for the governments closest to the citizens, which are often the provincial governments, to manage a greater number of areas?

That is why I'm a little astonished when you talk about not going any further because it might weaken the federal government.

We're hearing very different comments. Outside Quebec, we hear very different points of view, and I have difficulty identifying the real consensus that exists outside Quebec.

Mr. Drake: It is difficult to talk about a consensus among our members, because we have some 1,000 members across the country, including 25% who are from the province of Quebec, where I also live. So, there certainly are divergent points of view. I'm trying to give you the views of the majority.

I do not want to elaborate on this point. I'm just mentioning it in passing.

Mr. Brien: I went to Australia a year or a year and a half ago. Ontario had trade posts there. If I'm not mistaken, some of these offices were closed in the Asian market. You say that it is preferable to have a Canadian network there, but not necessarily like the one Ontario has.

Mr. Drake: Yes. I know that Quebec has a somewhat different point of view on that, and we have to respect it. However, in our view, it is much more efficient when a single office abroad represents Canada and all of the provinces.

We supported the decision made by the province of Ontario a couple of years ago.

[English]

The Vice-Chair (Mr. Campbell): You say one-stop shopping.

Mr. Drake: That's right.

The Vice-Chair (Mr. Campbell): Mr. St. Denis.

Mr. St. Denis (Algoma): Thank you, Mr. Chairman, and thank you, gentlemen, for being here. I have a couple of questions. Actually I feel a little bit like a mosquito in a nudist colony - I hardly know where to start.

An hon. member: It is getting late.

An hon. member: It's not a bad joke.

Mr. St. Denis: I wanted to see if everybody could get it at this time of night.

This is for Mr. Beauchamp from the Real Estate Association. I'm intrigued by the notion you raised about amendments to the federal Interest Act, I suppose it's called. Certainly the housing sector is one that, when it's strong, is a good indication that everything else is strong.

Even though I can see the sense in changing the rules by which the banks or the mortgage providers allow people to buy out of their mortgages and so on, if those rules were changed - and I'm not saying I agree or disagree with them - wouldn't the banks and other mortgage providers want to make up...? There'd be some revenue loss. They make money on those rules. Would there not be an increase in interest rates to compensate for the loss? Would the consumer not be paying in some other way?

Mr. Beauchamp: As I mentioned, Mr. Chairman, in my earlier comments, the Interest Act has not been modified or changed since 1917. That's a long time. Conditions have changed. There are some clear-cut rules for mortgages over five years, but for those under five years there are none.

The confusion that may exist now with borrowers, with people who borrow the money, is that they don't know what the rules are; there are no standards. Some will; some won't. The wording will be different. The IRDs, or whatever formula is applicable, will be different. In some cases there won't be a formula available to prepay.

.2025

We're simply attempting to put some sense in this particular area so that both the borrower and the lender will be comfortable with what is being done.

The purpose is not to increase costs. The purpose is simply to have a level playing field as opposed to being harsh on one side or the other. This is why we suggested that we are in a position where we want to come out with a result that will satisfy both the lenders and the borrowers. We have already met with the Canadian Bankers Association and intend to do so again to discuss the formula, which we hope could end up as a standard in the industry.

Mr. St. Denis: As you say, there's a reasonable formula now for mortgages under five years.

Mr. Beauchamp: That's correct; there's no clear-cut formula outside of the NHA guidelines for over five years.

Mr. St. Denis: I wonder why the marketplace hasn't dealt with that. You might say that inter-bank competition isn't sufficient to have eliminated those penalties.

Mr. Beauchamp: The marketplace has worked very well, as we said earlier, with respect to providing funds and financing of real estate, particularly for homeowners in Canada. That part of it is just about perfect. What we suggest is that there is an advantage in coming up with a standardized formula, as I said earlier as well, with plain language to clarify this entire area for Canadians.

Mr. St. Denis: It's an interesting area, and the representative of your association for my riding, Les Alton, has done a good job of bringing forward that concern too.

Mr. Beauchamp: Good.

Mr. St. Denis: I wanted to clarify something he had raised. I wonder if I could just ask the Home Builders' Association.

Mr. Clemmensen, you list a number of things you're fed up with, and I can appreciate your point of view. I'm wondering which of these would affect consumer demand for houses. Isn't that the bottom line? You can be upset about all kinds of things that governments do or don't do, but if consumers were buying houses, would you still be fed up? Isn't the grief you're feeling that everything is so soft in your sector that it's having a tremendous impact on everybody who's involved in building and selling and renovating houses?

Mr. Clemmensen: I could respond with two points.

First, I don't believe we've fully understood in our country yet that the changes that are taking place in our particular industry, the home buying and building industry, result from what we see as a prolonged period into the future of low inflation. What this means to us is that our customers are becoming very focused on the cost of housing, as they should be.

We are coming out of a very prolonged period when housing has been able to carry all kinds of fees and levies and taxations by all levels of government because in an inflationary time our customers could hop off this escalator and cash out at any time. That's no longer the world our customers are living in, and cost really matters. That's why we're raising that issue.

The second point I'd like to make is that the other very important thing to our customers is confidence in their employment. We see this at an all-time low in our country and we think that's one of the principal reasons our customers are not able or don't feel confident enough to make the decision at the moment to purchase a house.

Mr. St. Denis: So basically, the appreciation of the asset that the homeowner used to count on isn't there any more, so your commodity is becoming more like a stove. It doesn't really appreciate over time.

Mr. Clemmensen: Yes. Actually, I'd just like to make a comment on that. We do not view this as a negative circumstance. This is something our industry welcomes. We have no problem with placing the proper value on a home.

Mr. St. Denis: Do I have time for another short question, Mr. Chairman? Do you want me to come back later?

The Vice-Chair (Mr. Campbell): I think someone else wanted to comment.

Mr. Walker.

Mr. Walker (Winnipeg North Centre): I just wanted to follow up with the same witness.

.2030

One of the concerns we've had, which reflects on the minister's letter back to you, is that we're at a loss as to how to help out the housing industry when we see the basic conditions in that market having changed substantially in the 1990s from what they were in the previous three decades.

I think you're right in part that it's lower expectations in consumers, but the industry is structured, for a whole number of reasons, small and large, for a greater capacity than the need is right now. It's going through a tremendous transformation that is very difficult.

We've been hesitant to respond with specific programs that create perhaps a short-term response, such as extension of the use of the RRSPs and so forth, which doesn't change the fundamentals underlying it.

Low interest rates and a greater sense of job security, which require six or seven years of sustained economic development in this country, would be major contributors to the middle-income families feeling more secure. If we can secure that and not increase the debt....

Some of the issues you have, which I know have been a constant aggravation to the housing industry on the regulatory side, are essentially outside of our jurisdiction. We can certainly make suggestions to the provinces and the municipalities, but it's essentially another battle ground.

I'd just like to have your response to that.

Mr. Clemmensen: We are very interested in a long-term strategic approach to our industry in this country. That's why we're writing to the intergovernmental committee to try to encourage this to take place, and we would like to see the federal government take leadership in that.

We do believe many things must be dealt with that affect housing and that will affect our industry into the future. These are extremely important to us.

On the other hand, our concern this year has been that the demographics in this country are changing and the need for housing is changing. That's why the projected annual requirement for housing is around 160,000 housing units a year and not 225,000, as it has been in the past.

Our industry has scaled down already and has come to terms with what we think is the real annual demand for housing. Our problem is we're underperforming that by approximately 50,000 units this year, which probably represents a loss of over 100,000 jobs.

If we can't do the long-term things quickly, perhaps we have to do a short-term strategic approach at the same time as we undertake the other.

Mr. Walker: There is the jobs strategy and the public announcement about a committee of cabinet on this, headed up by Ralph Goodale. The Liberal Party has traditionally gone back to the housing industry for ideas, so it's not out of the question that we can open up discussions again. Our difficulty is what I said in my opening remarks.

The Vice-Chair (Mr. Campbell): Thank you, Mr. Walker.

Mr. St. Denis.

Mr. St. Denis: I have a question for the Automobile Association.

I don't think there's anybody who would disagree about how important the Trans-Canada Highway is as our national highway system. There are three obvious ways to finance it. One is to cut something else and use those dollars in cooperation with the provinces to redo the highways. Then there's a toll system, which the Mexico example you gave us depends on somewhat. Or we could increase excise tax on gasoline.

Do you have an opinion on how the funds could be acquired for this - by cuts somewhere else in addition to the cuts already planned, by a toll, or by a tax increase?

Mr. Godding: Thank you for the question, Mr. St. Denis.

About a year ago the Minister of Transport asked each of the provincial ministers of highways to come forth with a proposal as to how they would like to share in funding a national highways program. They came to the table and indicated they were prepared to meet him halfway. At that point the minister backed off and said, that's nice, but we can't participate at this point in time. Our information was that the provincial ministers were rather upset with that response.

.2035

So there's an offer that was on the table, and I'm sure would be put on the table again, to meet the federal government halfway.

The other answer to your question is where the federal government should get its funds. We're looking toward the excise tax on gasoline as an opportunity.

Mr. St. Denis: In your estimate, how many cents or dollars on a litre would that cost?

Mr. Godding: We're estimating that to fulfil the requirements of the estimated costs of the development that's required, the federal portion would require 2¢ a litre of the current 8¢, I believe it is, that's being collected now - sorry, 10¢ -

Mr. St. Denis: To create this trust fund.

Mr. Godding: - which would reduce it to 8¢, which is still going to the government in the general fund.

Mr. St. Denis: So 2¢. Thank you, Mr. Chairman.

Mr. David Leonhardt (Public Affairs Manager, Canadian Automobile Association): Can I add something? In the last federal budget Mr. Martin, at the very last minute, added 1¢ to the current excise tax, and he called it a cushion just in case. It's there; most of it is there.

The Vice-Chair (Mr. Campbell): Mr. Wilson wanted to respond.

Mr. Wilson: Mr. St. Denis, I would like to reinforce what we said earlier, that $5.5 billion is collected in tax on gasoline and diesel fuel by the federal government, and a like amount by the provincial governments. Surely a certain portion of that could be spent on the highways. You're taxing the gasoline of the vehicles that use the highways; why not return some of that money you collect to repair the highway system?

Mr. St. Denis: It does end up through equalization payments and so on. But you're saying to target it, specifically take this penny here on a litre and plunk it there.

Mr. Wilson: Exactly.

Mr. St. Denis: It goes through a laundering system, so to speak.

Mr. Wilson: I realize you're already spending it on other things, but I think it would be better spent on a national highway system.

The Vice-Chair (Mr. Campbell): I'd hate to leave anyone with the impression that what we engage in here as the federal government is laundering tax money.

Some hon. members: Oh, oh!

Mr. St. Denis: What I meant is that when we transfer money to the provinces, we don't always know what happens to it.

The Vice-Chair (Mr. Campbell): I see. Thank you.

Mrs. Stewart.

Mrs. Stewart (Brant): Actually, I wasn't planning on picking up this topic, but the whole notion of earmarking tax dollars is an interesting one. You've brought it up from the CAA. I'm sure the book publishers would love to have their $150 million in GST. Wouldn't that be great? You'd all agree that they should have that $150 million for book publishing, I'm sure.

Do you see any downside to earmarking tax dollars in that regard?

Mr. Godding: I should just point out that we have not suggested that the GST that is applied to gasoline, and is also applied to the excise tax, interestingly enough...that this general tax-base revenue be applied specifically back to the product. What we're talking about is a vertical tax on a product, completely separate from the GST.

Mrs. Stewart: We hear this notion of earmarking from time to time. Can you tell me if you do see a downside to progressing along that kind of strategy, where we take the notion that our tax structures and tax base will be earmarked for particular...?

Mr. Godding: We don't see any downside to, as you call it, earmarking. We call it a trust fund, but it's the same thing, or a similar thing.

Mrs. Stewart: Do you feel you'd always have the amount of money you needed to do your capital projects?

Mr. Godding: The downside that some people have suggested is that if you begin to earmark a certain amount of money, and then five or ten years from now you no longer need that amount of money, you could end up with a surplus in the fund. However, we don't see that as a concern. We think the amount of money that goes into it could be reduced.

Mrs. Stewart: I suppose the opposite of that is that there may be a point where there isn't enough money in the fund and you'd need capital projects and would have to draw on capital from other places. It's a difficult concept. It's simple, but it has its problems as well.

Mr. Godding: We have surveyed our members and asked them about the trust fund concept for taxes on fuels and road users. They're very heavily in support of the concept, because basically they don't see the money going to where it's coming from now. They're not concerned that not enough money would be going there, because there's virtually none going there now.

I would pick up on the concept of the transfer payments and suggest to you...I don't have my numbers correct, but I think it's five provinces that don't get any. So it's extremely well laundered in those instances.

.2040

Mr. St. Denis: But there are other transfers too.

Mrs. Stewart: Let's go on to something else. You talked about the infrastructure program, the national highways project, and Mr. McCambly, in his presentation, talked about the need for an infrastructure program.

What do you think, Mr. McCambly, of this being our infrastructure program for the country?

Mr. McCambly: Do you mean earmarking the tax?

Mrs. Stewart: I mean a national highways project. As I understand it, the request from the CAA is that this should become the infrastructure program. You're suggesting in your brief an infrastructure program as well. Is this a meeting of the minds?

Mr. McCambly: It depends on how far you want to go in that way. There have been a lot of initiatives that would suggest that the user pays or if there is a contribution - it's the other side of that, where a tax is already collected - then that might be earmarked.

Frankly, I think there's merit in at least giving sound recognition, if not 100% credit, to money that is collected seemingly for a purpose. If a gasoline tax is higher for a big truck that is going to create more damage to a highway, then probably they should be contributing more to the repair of that highway and keeping it up to good standards.

If the infrastructure goes in disrepair and all of a sudden that money is going elsewhere and not going to replace the infrastructure, then something is wrong with that. Naturally, it would suggest that the notion of earmarking income that was seen initially to be for a given purpose should probably stay with that kind of a purpose.

Mrs. Stewart: If some of the moneys that were collected from the excise tax were going to health care or to support other social programs, then that would be okay. You call it a lack of accountability. Maybe that's true, but when governments make determinations as to what the broad priorities are and take that tax money and allocate it, would it be much better to have moneys collected in a vertical way going directly to those things without any other management strategy?

Mr. McCambly: I don't think you can do that precisely. There's general tax and there are some taxes that are related more to particular purposes, such as highways.

Let me give you another example that's the other side of that. It really came about since the last budget, where $5 billion, becoming $6 billion and then $9 billion, was earmarked in unemployment insurance as a payroll tax to be set aside supposedly for the purposes of unemployment insurance. It is now being talked about to be used for everything under the sun.

That is a payroll tax; it's not a general tax. In that case I think it needs to be earmarked. It needs to be used for what it was designed for.

So somewhere between a general tax and a very specific payroll tax, such as premiums in UI, might come the likes of something that was a gasoline tax or something designed for those who use the highways.

Maybe it's a toll bridge. Maybe it's the Prince Edward Island initiative, or the like.

We've suggested in here that in some cases it might be appropriate - I'm not talking necessarily about privatization - for governments to recover some money from the users of a facility.

Mrs. Stewart: I might take a moment with the publishing industry. I'm fascinated by the impending entry of, as you point out, a couple of American distributors. I'm trying to understand how the business operates. Your concern is that they won't use Canadian publishers, yet we talked about the really successful increase in readership of Canadian content, up to about a third.

Are you suggesting that it's not a solid commitment to Canadian authorship? Is it strictly a question of what's available in the marketplace?

Mr. Stoddart: No. There's a cost to publishing Canadian books as such. In most cases it's not as profitable as perhaps other parts of the publishing industry are.

Our industry works because it works east-west, not north-south. We deal within Canada. We supply all the American and all the British books across the country in English, as well as Canadian books. If you get the entry of the U.S. retailers, because they will be buying the American books in the U.S. and shipping them to Canada, you will break the whole distribution system that underpins the financial cost of publishing Canadian books.

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The only alternative is to either cut back your publishing program very substantially or have the government start funding to a much greater degree. In this day and age, I think I'd rather try to keep the industry working as it is than have the government participate more. I don't think that's going to happen.

It'll structurally change the ability of publishers to bring forward Canadian materials. If you want to look at the result of that, look at the film industry, where you can only see 3% of the films because the two distributors, Cineplex Odeon and the Viacom company, decide what you're going to see, and it's 97% American product and 3% Canadian.

That's the equivalent of the bookstore retail in our business. If you get that shift, the publishing of Canadian books will stop or greatly decrease.

Mrs. Stewart: I have one last question for Mr. Goffin, if I might.

I'm just wondering about what the chemical industry is projecting for the American marketplace and when you see it softening. I'm not sure if you mentioned that directly in your comments.

Mr. Goffin: We're just taking a look at that now with our companies at the end of the year, so you don't have our prediction at this point. We hope this is going to soften to the extent the Americans have predicted, but they are there and if they're looking at 1.5% GDP growth for two years, it's going to be very serious for us. It's 40% of our sales there.

Mrs. Stewart: I guess that'll do for the moment. Thank you.

The Vice-Chair (Mr. Campbell): I have a couple of quick questions, if I might, and then we'll give everyone a chance to wrap up.

First of all, does anyone else want to respond to the interesting question of earmarking? Mr. McCambly spoke to that last. Mr. Goffin.

Mr. Goffin: It's such a seductive concept, and we share the concern of the CAA for the national highway system. We ship probably 40% to 50% of our product by the highway. I think the committee touched on some of the difficult concepts you soon get into in terms of Balkanizing the tax system and creating great difficulty with the government being able to set its priorities.

Of course, we face this all the time in the environmental area, where you can think of 50 or 500 good reasons for separate environmental taxes, with the money earmarked for each of the good purposes. They are good purposes, and I don't say that sarcastically. I always think we should be able to sit down and devote some time to thinking out a good firm policy basis, where you perhaps carve out areas where earmarking makes sense, but we've never taken the time to do that. Something like the highway system, as I said, concerns us. Earmarking, though, concerns us as well.

The Vice-Chair (Mr. Campbell): Thank you.

Mr. Wilson.

Mr. Wilson: I just want to bring out one point. There was some discussion about the national highway system and infrastucture. I'd just like to point out that the infrastructure includes sewers, water lines and so forth, so I don't think you could merge a national highway system maintenance program with infrastructure. It could be a portion of it, but it couldn't be the whole thing.

The Vice-Chair (Mr. Campbell): I wanted to ask Mr. Godding a question. I don't know if I heard you correctly. You suggested that the increase in the gasoline tax proposed in last year's budget was a reserve not spent, suggesting it was not incorporated in the calculations we do to anticipate the deficit or our revenue needs in a given year. You were suggesting that is still available as a trust fund to fund this project. Did I understand you correctly?

Mr. Godding: It was Mr. Leonhardt who made that comment. Before he responds to that, I would simply identify that over the years the excise tax has increased dramatically, while I believe the transfer payments to provinces and other expenditures in national parks and other places that might be considered to be roads have decreased dramatically.

I'll let Mr. Leonhardt respond to that.

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Mr. Leonhardt: I'm not sure I suggested that the money is sitting there unused in the sense that it's not being spent at all. I believe the government is not only on target but has surpassed its target for deficit reduction this year. Mr. Martin came up with the 1.5¢ gas tax, which, he told the media, he added to his budget in the last minute as a cushion just to make sure that if economic circumstances turned against him he would not fail to meet his projections. I believe that's what he told us. I'm sure he's finding a way to spend it.

The Vice-Chair (Mr. Campbell): He also said at the time - and it was the recommendation of this committee - that to the extent we could do better than our targets, we would do so. So it's not a case of spending it. I just wanted to clear up any confusion that it may be sitting there unused in some sense, notional or real. To the extent that your proposal involves spending, it involves finding new money for that purpose.

Mr. Leonhardt: It should be noted that this is, as was discussed earlier, a vertical tax. It's a tax on gasoline; therefore, it's specifically a tax on one particular use. Without trying to put a separate environmental tax on every different possible regulation, it's worth noting if there is something of societal good. We have the GST, corporate taxes and income taxes that are broad-based, all of which are policy tools the government has for things that are considered to be a public good. This is a specific tax on a specific activity, which makes it very different - similarly with the UI premiums and a few other tax tools.

The Vice-Chair (Mr. Campbell): Thank you.

In order to conduct this committee and create a bit of an example for the whole country, perhaps, we're going to be on time and under budget. So I'd like at this point to suggest that we wrap up with a very short, less-than-a-minute summary from each of you if you have something you'd like to summarize, and perhaps something new that you haven't said or some reaction to something you have heard. We'll then wrap it up at 9 o'clock.

Let's start with the publishers at this end of the table, and we'll go in reverse order.

Mr. Stoddart: Well, I will be the briefest. I think we've stated what we wanted to state. We want to thank you again for the opportunity. We appreciate it.

Mr. Goffin: Likewise, I thank you.

Mr. Godding: I'd just like to wrap up simply by saying the federal government in this country has a national air policy, a national marine policy and a national rail policy. They do not have a national highways policy; Canada is one of the few countries in the world that does not. The time is now.

Thank you very much for having us here tonight.

Mr. Beauchamp: I have two suggestions, Mr. Chairman. One is that I'd like to appeal to you to consider the documents we've filed with you with respect to the home investment program. We believe that program would provide low-income housing, again, as I said earlier, with no government subsidy. I think that meets the direction you have challenged us with in the recent past.

Also, I ask the committee to not overlook the very major impact of the housing industry on the economy itself, and to remember that the employment multiplier for residential construction, according to Canada Mortgage and Housing Corporation, is about 5.9. Also, the spin-off expenses that result from the average housing resale transaction, based on 1991-92 figures, is $16,200.

I'll stop there. Thank you.

The Vice-Chair (Mr. Campbell): Thank you.

Mr. Crossman.

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

I realize we didn't generate very many questions tonight, so I certainly hope the issues we have raised will certainly be considered by this committee. We are particularly concerned about the future of science and technology and of research and development in this country as we head into the 21st century. We would like to see this country maintain a position of leadership. We also have major concerns about what the future holds with respect to all of those issues that affect our federal scientists in those sectors, but we look forward to the future.

Mr. Clemmensen: I have two very brief comments, Mr. Chairman. They are points of emphasis, the first one being the problems our industry is experiencing with the underground economy.

These problems are extremely severe. They are added on in addition to the problems we are currently experiencing with the low production in the country. I believe they are much more widespread in both new home construction and renovation than is commonly recognized. They are extremely damaging to legitimate business, and they are quite demoralizing to many of our struggling members.

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The second point I'd like to make is that the real issue for us in our industry is not problems with the demographics and changes in the size of our market. We think we can look to the future for a very strong housing industry based on the real requirement for housing in the country. We believe our problem is with the lack of action by governments.

Mr. McCambly: I have two points. One is that I also intended to get back on this housing issue before and suggest a couple of things, one with regard to the lack of confidence in the industry. I think the banks or lending institutions here ought to be required, if they don't do it voluntarily, to give long-term mortgages. You can get a good long-term mortgage at a low rate in the United States, and housing is going pretty strong. I also think it should be possible to renegotiate that mortgage favourably for the consumer, not just for the bank.

On the underground economy, we'll work with you. The construction unions are very much in favour of working to resolve the underground economy, to deal with it and try to resolve it to the best of our ability.

I think the big issue we're all here talking about is how the government can effectively deal with the deficit and the debt situation. It's very difficult. I'll just leave you with one thought; we want to be part of the solution. The Canadian Federation of Labour is here to work with you and try to help you with that. We believe that in addition to having a commitment to deal with a deficit target of reduction, we need a target of employment creation. It may be difficult to set and it may be difficult to achieve, but people need to see a light at the end of the tunnel that's not a train. There needs to be a job opportunity down the road somewhere.

The Vice-Chair (Mr. Campbell): Thank you, Mr. McCambly.

Mr. Drake.

Mr. Drake: I don't think I have anything to add. I echo these last points about the importance of deficit reduction and debt reduction. Don't be dissuaded from this path now that the country is conditioned to accept the necessity of this by aggressive interest groups.

The Vice-Chair (Mr. Campbell): Thank you.

Mr. Wilson.

Mr. Wilson: I think you've had a lot of good input from the groups here tonight, but I would suggest to you that the big picture, the most important thing, is deficit reduction in this country. In the last fiscal year the government spent $42 billion financing its debt, and you have to get that under control because if you didn't have any debt you would have had $42 billion more to spend on things like UI and productive things.

I would also suggest that in attacking the deficit you try to leave vibrant those things that help the economy, things like improving the unemployment insurance program and things that will help get people back to work.

I thank you for the opportunity to be here.

The Vice-Chair (Mr. Campbell): Thank you.

I know people have some concern about this format, but it's extremely useful for us. It does generate dialogue among the important stakeholders in our economy and in our society, so we do find it beneficial. It never fails to raise issues for us to consider in our ongoing deliberations. If you have further thoughts or ideas, please share them with us in the weeks ahead as we continue our work in this round of pre-budget consultations.

Thank you all very much for assisting us by being here this evening.