EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 28, 1995

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[English]

The Vice-Chair (Mr. Campbell): Welcome to the afternoon session of our pre-budget consultations in Halifax.

I would like to welcome our panellists this afternoon. I'll introduce them to you. I am going to check in the people who are here. Others may join us.

We have Cathy Jourdain from the MS Society of Canada, Atlantic Division; Katherine McDonald from the Nova Scotia Advisory Council on the Status of Women; Linda Stiles from the Nova Scotia League for Equal Opportunities; Dawn Rae Downton from the Dartmouth YM-YWCA -

Ms Dawn Rae Downton (Executive Director, YM-YWCA, Halifax): No, I'm from the Halifax YM-YWCA.

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The Vice-Chair (Mr. Campbell): I'm sorry. I read it wrong. You're from the Halifax YM-YWCA.

We also have Linda Beckett from the Association of Atlantic Women Business Owners; David Hubley from the East Hants and District Chamber of Commerce; Ervin Doak from the Economics Department of Saint Mary's University; and Kevin Little from Fairview United Church.

We'll begin with opening statements from each of you. We ask you to restrict your remarks to four to five minutes in the interests of encouraging you to deal with the most important points you wish to make in response to our questions, which hopefully stimulated some creative thinking. They might have stimulated some outrage. We heard a bit of that this morning.

The opening statements will be followed by an opportunity for each of you to comment on what you've heard from each other, and then I'll open it to questions from the members of the committee. This is an all-party committee of the House of Commons. In fact, it's half of the finance committee. The other half is in western Canada this very day doing the same sort of consultation we are doing here in eastern Canada.

We'll begin with Kevin Little, from Fairview United Church.

The Reverend Kevin Little (Minister, Fairview United Church): Thank you. I'll keep my remarks short. I detest listening to prepared speeches so I'm going to speak off the cuff.

I came here to say, in response to your questions - which I thought were good questions, although there could have been other ones asked as well - that I agree we need to worry about our deficit. I worry about people of my own generation and those who are younger having to pay the debt incurred by former generations.

I also think it's important to recognize that the interest rate is continuing to go up and that we'll have to pay that off as well.

Here's my concern. I'll describe it in terms of my work as a minister of the United Church, where I work with people who have problems with their incomes and who are coming for food vouchers and so on. There's a lot of fear and anxiety out there in our country with cuts coming to social services, UIC and the public sector. People are worried. Families are very distressed.

I think the time has come to resurrect an idea that's been proposed both by the left and the right of our political spectrum. That is the guaranteed annual income. It was supposed to come in tandem with the free trade agreement as proposed by the Macdonald commission, which I see as being sort of from the right. And I guess labour unions and the NDP have been proposing it for years.

Whatever the cuts are that you're going to make to whatever programs, I suggest that you assure Canadians that there will be a decent safety net so that everyone will be protected regardless of what happens, so that people are not worried about having to go to food banks and about where their next pay cheque is going to come from, so a sense of stability gets out that, with cutbacks and so on, people needn't worry about their family or themselves being looked after or being able to live with some sort of decent income.

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As you look at the overall scheme of things and where and how to cut and how to devolve, in terms of federal powers, provincial powers, and so on, you should not lose sight of the fact that there has to be some sort of safety net there for people to recognize that, whatever happens, they will be looked after. That's a very important thing. The anxiety level is huge.

I recognize that costs have to be cut and that we have to pay down the debt, but I've heard from many economists that a guaranteed annual income can at least provide that area of stability and allow you perhaps to cut in areas where there is some waste and so on.

That's basically what I came here to say: that I think the time for the guaranteed annual income has come.

The Vice-Chair (Mr. Campbell): Thank you. I'm sure others will want to comment on that and ask you questions about it.

We'll turn next to Dawn Rae Downton from the YWCA Halifax.

Did I get it right this time?

Ms Downton: Thank you, Mr. Chairman. You did, perfectly.

The Vice-Chair (Mr. Campbell): That's just to prove that the committee is listening. I'm sorry for the earlier confusion.

Ms Downton: Just to make sure that the mistake won't be repeated in this circle, I'll tell you a little bit about who we are and why we're not the Dartmouth YMCA.

The Halifax YWCA is one of 44 YWCAs across Canada. The YWCA is in fact completely separate from the YMCA. We don't have any affiliation with them. It has a different mandate altogether. Our mandate is charitable. It is to improve the lives of women and children.

As the oldest and largest women's organization in the world, the YWCA works with this mandate in more than 80 countries around the globe. We're also not a fitness club. Like most YWCAs across Canada, our programming falls mainly into three areas. The first is shelter for homeless and abused women. The YWCA across Canada is the largest provider of shelter services for women. Secondary programming is child care and parenting programs, which would include programs for parents or in intervention and prevention issues so that children will not become victims of violence themselves. The third area of programming is job training for women.

Men use some of our services, but most of our participants are women, and most of those women are disadvantaged. They're usually the working poor. They're the heads of single-parent families. They're women looking for work or training for work.

Our particular mission in Halifax to these women this year is 122 years old. After 122 years in this business, we know these women well.

I think we know and can tell you what keeps them poor. Few of these women are poor because of any deficit in themselves. Most of them are poor because of circumstances and through government policy. Government policy has ensured the status quo of circumstances that keep women poor.

Making up more than half of the population of Canada, women are hardly a special interest group. Neither are the groups that try to support them, like the YWCA and Status of Women. Women do, on the other hand, need special help because of the policies that have played against them for so long.

The government, and all Canadians, has absolutely nothing to lose by investing in women, and has everything to gain.

Investing in women and girls is, in many ways, the quickest route to social and economic progress. Development studies around the world and in Canada bear this out over and over again, just as our own common sense does. It's women who keep families together, keep them growing. It's women who start neighbourhood and community initiatives. Women are the original community developers.

If a child's mother is poor, then the child will be poor and likely will continue to be poor throughout his or her life. If a child's mother is uneducated, likewise for the child - probably throughout his life, given the social and economic factors that will play against him or her as he or she grows up.

The impediments to women and their children that are built into public policy aren't just fantasies in the minds of rabid feminists. The United Nations 1995 human development report rated Canada first among all nations in terms of human development, but we fell to ninth position when the gaps between men and women were considered.

Gender inequity has also very recently been recognized by the federal government itself. In August, Status of Women Canada announced something called a federal plan for gender equality. This is new government policy. This is what Sheila Finestone said about it when she launched the plan. I'd like to read you some of her remarks. I think they bear repeating here.

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``Equality benefits everyone'', Sheila Finestone said. Her plan calls for the implementation of a gender-based approach to ensure that federal policy development and analysis are undertaken with an appreciation of gender differences. Her plan is aimed at ensuring that women's perspectives are fully recognized and integrated into federal policy and program priorities, including economic growth, job creation, sustainable development, inclusiveness and social justice.

The plan reaffirms commitments made in the red book and provides clear evidence of the federal government's resolve to promote the further advancement of women's equality in Canada.

People, including those in the the government itself, are acknowledging that inequity is out there and these impediments are there. What are these impediments exactly to women and their children that are built into public policy? I want to touch on just a couple. We don't have time to touch on the exhaustive list there is.

I want to touch on ones we work with at the YWCA every day that we have to work around in order to help women and their families. I told you we do three things. We provide shelter services, we provide child care and we provide job training for women. I'll just touch on those three things and the impediments that are built into our ability to offer those services to women effectively.

The Vice-Chair (Mr. Campbell): Ms Downton, before you get into those three, you have used up almost all of your time. Although you'll have a chance to comment later and respond to questions, I want to be sure to give you a chance, if you want, to respond specifically to the questions we raised in our letter, or link what you're saying to the concerns we have. I think I know what the link is, but I want to give you a chance to make the point.

Ms Downton: Mr. Chairman, I did not in fact choose to respond to your questions at all because I found them somewhat leading. I would like to approach this from a different angle and continue - I'm almost finished - very briefly with the particular anecdotes I can give you that show how our work for women is impaired by your policy, and how you might think about improving that policy. I think that's why we're here today.

The Vice-Chair (Mr. Campbell): Will you relate that to the budget exercise we are engaged in? What does that mean in concrete terms for how we spend dollars, and how we raise dollars?

Ms Downton: I'll do my best. I think that's what we're all here to do.

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

Ms Downton: Can I continue?

The Vice-Chair (Mr. Campbell): Please do, but there is very limited time left. I hope you'll understand. We have seven other witnesses.

Ms Downton: Women stay at our shelter as long as welfare pays for them. If welfare decides they're too expensive or the stay has gone on too long, they're often dumped into rooming houses where they can be preyed upon by men. Sometimes they are dumped on the street where they can be preyed upon by just about anything.

I would like to tell you very briefly how I spent my summer vacation. I was ready to leave on vacation and instead spent the day with the police who were following up on the murders of some young women in Halifax. It turned out that over the last two years four women who were murdered in Halifax spent their last days at the YWCA, and three of those four women exited the YWCA because welfare refused to pay for them.

We have a waiting list of 100 families looking for subsidized child care at the YWCA. We ourselves cut the list off at 100 families because it's kind of ridiculous to continue it past that number.

Without subsidized child care it makes no fiscal sense for many women to work. I'm sure I'm not the first person to point this out to you. Without subsidized child care many women on welfare can't look for jobs let alone keep jobs.

Women training for work come to us. Some of them have children under 12 for whom they are responsible. The allowances that go with their training allowances are not sufficient to allow them to buy child care. When they present this catch-22 to government, they are told they are not ready for the program. It is a catch-22 and it keeps women poor.

The last point I'd like to make is that we are a charity and we can't fill the gap. We can't rely on private donations because there are fewer and fewer people out there with that kind of disposable income to support our work. Getting corporate donations these days is big business, and you have to be a big player to play in that game. As a women's charity, we find it difficult to do that too.

I know this committee has had discussions around the charitable tax credit fairly recently. I would say from our personal experience at the YWCA the charitable tax credit should be enabled. If anything were done to impair it, it would be quite disastrous for the little fuel charities have left.

Thank you.

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The Vice-Chair (Mr. Campbell): So it would be fair to say that in addition to changes or attention to the charitable tax credit, which was the subject of a round-table discussion in Ottawa last week, you're recommending that in our budget measures we don't add to the burden that is already being faced by organizations such as yours, which provide services to women and children.

Ms Downton: That's right.

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

We'll turn next to Cathy Jourdain from the MS Society of Canada, Atlantic Division.

Ms Cathy Jourdain (Executive Director, MS Society of Canada - Atlantic Division): Thank you. I actually wear two hats today. One is for the Multiple Sclerosis Society and the second is for the Canadian Society of Association Executives, of which I'm the chapter president here in Nova Scotia.

I look at this issue really from two perspectives, and one certainly is the fact that not-for-profit organizations often are the organizations responsible for picking up the gaps that are left by government or business or people who are unable to make their own ends meet. Certainly when we're talking about government reductions in spending, there is always a fear - really a certainty, to a large extent - that the not-for-profits are once again going to be asked to look at the gaps and try to pick up the gaps. So that's a concern.

I would echo Dawn Rae's comments about the charitable tax credit, because fund raising is big business these days. It's a multi-million-dollar industry. There are a lot of us out there trying to raise the funds so that we can do service delivery. In my organization, we supply wheelchairs, we supply ramps, we do a whole range of things like that. People who have multiple sclerosis are often not able to be in the workforce because of the nature of the disabilities that result from the disease.

So on the one hand, certainly when you look at government reduction, there's a bit of fear there. On the other hand, coming from the Canadian Society of Association Executives' perspective, the role of not-for-profits and associations in Canada is not really very well understood by government and by people who don't work in the association market.

I see a real opportunity there and some real potential to develop resources or to build on existing resources. Charitable organizations for a long time have done a lot with few resources, and we know how to do that very well.

I would suggest that when the government is looking at its budgeting process and is looking at where it wants to reduce its effort, it should look at associations and start to build more partnerships with associations, recognizing that in any area where you do that you have to be sure that the organization you partner with has the ability to carry through whatever it sees its side of the bargain being. I would say that instead of downloading the responsibility, perhaps developing a partnership to carry out the responsibility is probably more cost-effective than what can be done by government alone.

There's also a lot of duplication of service or duplication of effort. Again, there's a potential role for organizations like the Canadian Society of Association Executives or not-for-profits in general in terms of reducing the duplication effort and again potentially being a partner in carrying out those efforts better.

The keys really are in the evaluation. I know that with John Bryden and all of the issues surrounding disclosure with respect to associations, associations need to be looked at carefully in terms of what they contribute and what costs they have. Governments often look at not-for-profits because they fund them.

Really there are two sides to the issue, and I think the other side of it needs to be looked at a lot more carefully.

So those would be basically the two things. We should look at and better understand the role of associations and what they could potentially do in that whole area and make sure that it's a little bit easier for not-for-profit organizations to raise funds so they can work to fill the gaps a little bit better.

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

We'll then turn to Katherine McDonald from the Nova Scotia Advisory Council on the Status of Women.

Ms Katherine McDonald (President, Nova Scotia Advisory Council on the Status of Women): I'd like to start off by addressing the standard line that we keep hearing from government, and that's that increased costs and expenditures, particularly on social programs, have contributed to this deficit to such a degree that we must cut spending in order to achieve a balanced budget. However, I think it's important as well to look at how the deficit arose in the first place in order to address means on how to attack it. Certainly there are many economists within the Canadian context who have indicated that the deficit is the result of high interest rates combined with low tax revenues caused by high unemployment during the particularly strong recessionary period that we have experienced over the last few years.

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We are in a situation in which real interest rates have increased beyond a point at which we need to see them. I think it is a direct result of the government following a very tight monetary policy in order to fight inflation.

This state of affairs has resulted in increased costs for business, but, more particularly, greater wealth for those who have investments. There are lower wages for the everyday person, as we have seen employment increase due to an economic slowdown.

I think we have to look at the impact of higher real interest rates on the ordinary Canadian who does not have investments, including mutual funds, or any connection with the bond dealers. They have, in fact, gained a lot through our monetary policies over the last few years.

I would also like to address the pervasive myth that the deficit increase is due to increased spending on social programs. In fact, a Statistics Canada analysis showed that a total of 15% of our spending is due to UI, welfare, old age security, and housing programs. In fact, spending on social programs has remained relatively constant over the last 20 years. I see no evidence that cutting social programs will, in fact, reduce the deficit or stimulate the economy.

I would like to take the position that I think our unemployment rates are unrealistically high. Despite the turnaround in economic growth, we have in fact experienced a jobless recovery. The government must address this issue immediately if we are to realize our social and economic goals.

If we look at the cost of unemployment in this country, a recent study by two Quebec economists estimated that unemployment cost the Canadian economy $109 billion in the fiscal year 1992-93, with $10 billion attributed to lost tax revenue.

We must remember that our social spending is not out of line with that of other industrialized nations. In fact, it is lower than the social spending in several of the advanced nations of western Europe. If we were able to reduce unemployment, we would raise more than enough money to pay for all of our government spending programs.

Certainly the OECD, which measures economies of the advanced industrialized nations and produces calculations to determine the nature of each country's deficit, has analyzed Canada's along with many of the other industrialized nations. The OECD looks at what proportion of our deficit is due to recessionary factors. They analyze what is called the ``structural'' deficit, which is the difference between the revenue a government collects and the amount it spends when the economy is operating properly and free of recession.

That gap for Canada is very high. When we look at where we would be if we had full employment, our output gap is huge.

In fact, if we strip out the amount of our deficit that is caused directly by the recession, our finances look a lot healthier than many of those on Bay Street, in The Globe and Mail, and in the C.D. Howe Institute would have us believe.

We have undergone a severe recession, and we have to account for that, but we also have high unemployment and high interest rates. If we want to address economic issues, those are the issues we have to deal with first.

So if you ask what the deficit target should be and how it can be best achieved, we would take the position that abandoning the zero-inflation policy of the central Bank of Canada and creating an environment in which the economy can grow, jobs can be created, and unemployment can be reduced are, in fact, the top priorities for Canadians.

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The next issue is what areas of federal activity should be considered for further cuts, privatization, or devolution to other levels of government. We would take the strong position that cutting social programs will affect the people who live at the margins in our society: the elderly, the poor, including those on social assistance and the working poor, and middle-income earners. Cutting social programs will affect high-income earners the least. Continuing a policy of high interest rates and low inflation will benefit high-income earners who have assets that are investments that depend on high interest rates. We should institute a fair and progressive tax system in which high-income earners and large, profitable corporations are taxed.

If we are to find the tools necessary for Canadians to earn a living, we cannot make cuts to education. Cutting health, education, and training programs, social assistance programs, child care, and other income assistance programs will only result in the gap between the rich and the poor widening, when they make up the largest percentage of the poor across all age groups and backgrounds. It doesn't matter whether we're talking about older women without retirement income or single mothers struggling on social assistance, or one of the millions of women who are occupationally segregated into lower-paying jobs. It is women who will bear the burden of continuing high interest rates and joblessness.

The Vice-Chair (Mr. Campbell): Could I ask you to stop there so that we can allow others to speak as well? In the question period we can get back to some of the issues you may not have had a chance to discuss.

Ms McDonald: I'm very nearly through. In fact, I've cut quite a bit out of my presentation. I'd like to wrap up with the point that one of the issues that really disturbs me is the way government is applying private management techniques to the running of its business. This whole idea of reinventing and re-engineering government based on quality-management principles is really disturbing. I would like to urge the government to continue its leadership role in social spending; the social contract we have with Canadians.

The Vice-Chair (Mr. Campbell): Thank you. Let me leave you with a question to think about and get back to as we get into other rounds. You spoke about interest rate policy being a way to deal with our problems. When we come back later I'd like to hear your views on how a change in interest rate policy addresses the $500 billion in existing debt...without getting into whose fault it was or where it came from. It's there, it's real. How does the change in interest rate policy deal with that, quite apart from new debt, new expenditures, and new revenues? We'll come back to that.

We'll move next to Linda Stiles, from the Nova Scotia League for Equal Opportunities.

Ms Linda Stiles (Chair, Nova Scotia League for Equal Opportunities): Thank you.

LEO is a cross-disability consumer-controlled organization that advocates on behalf of all disabled in Nova Scotia. We would like to thank the members of this committee for the chance to address you on issues that may affect many disabled people throughout the country. I will use my time to give you a brief overview of our beliefs on the proposed question and give you a more detailed written presentation to review at your convenience.

The first question to which we would like to respond is what should our deficit reduction target be and how can it be achieved? What principles should we use to determine the target?

It would seem logical to ask first what can be done to reduce the deficit without creating greater problems in other areas. A ratio must be struck. Funding to core groups must be maintained. Without it their clients would not be represented, creating a greater social problem. The government is rapidly approaching the point at which it cannot reduce staff further without making the Canadian public suffer further.

Reduction in tax...implications for wealthy people and RRSPs. Corporate taxes should be increased.

The second question was: how may budget measures be used to create an environment for jobs and growth? By reduction of taxes paid by all Canadians in the form of sales taxes, income taxes, etc. The tax burden has reached the point where people are affected by taxes at every level of purchase. This evidently reduces their purchasing power, therefore reducing the money they have to buy goods and services, which generate jobs.

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Budget measures should be introduced to increase means of mass transportation such as trains and buses. An effective means of transportation would mean that many people would be able to travel efficiently to and from work without the huge cost of owning their own vehicle.

Measures should also be introduced to allow disabled people who wish to and are able to work to do so without penalties. LEO is very concerned that there is a decreasing commitment to consultation by the federal government with other groups. To enable disabled consumers to be equal to non-disabled consumers, among other things, there should be a tax credit for disability-related items, which would be deducted before calculating taxable income, thereby giving the disabled consumer a 100% rebate on his or her necessary expenses.

Employment training must be accessible and there must be designated funds for it.

Question three asks what further cuts should be made in government. Additional cuts should be made in the administration of the Department of Fisheries. We already have one of the highest ratios of administrators to fishermen in the world. This department could therefore bear a further reduction.

A limitation of the Senate would greatly reduce the cost of government and would be greatly favoured by all Canadians.

Government should not own hotels or resorts of any sort. This is the work of the private sector.

The social service net is not one of the items that should be devolved solely to the level of the provinces. There should be national standards to govern the Canada health services transfers. These would include provision of support on the basis of need. When determining the eligibility for services, it is necessary to look beyond the individual's resources and take into consideration the requirements the individual has to enable him or her to become fully integrated into society.

Individuals must have the right to appeal services or material that has been denied them.

No workfare. Social assistance transfers are to cover basic human needs to enable people to live full functioning lives, not to be paid for labour, as is the case in the marketplace. That is a totally different concept.

We need adequate support levels. According to Statistics Canada, 67% of disabled Canadians live on $10,000 or less per year. That's well below the poverty level.

We need portable services. All Canadians need to be able to move from one part of the country to another and still receive the support they need to pursue employment, education and family responsibilities. The services must go with the individuals, not with programs, which will vary from province to province.

In closing, there is a need for the above services to be fully portable and to ensure that the rights of disabled Canadians are respected. The league feels there is a need for a minister responsible for the status of persons with disabilities. In view of the fact that 15.3% of all Canadians have some form of disability and that disability cuts across all gender groups, all equality groups and all provinces, it is essential that these Canadians be represented at the federal level.

Thank you.

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

I just have one point, Ms Stiles, before we move on. The numbers we talk about in the budget-making exercise are enormous dollars, very hard to get our heads around, as ordinary folks. The deficit this year will be $32.7 billion.

You've made a suggestion I have some sympathy with, which is getting rid of the Senate. You were polite in not suggesting we get rid of the House of Commons at the same time. Someone else this morning also suggested getting rid of the Senate. If we got rid of both, that would save $300 million, and we'd still have approximately a $32.6 billion deficit. It may be a worthwhile suggestion, but we have to look elsewhere, and we're hearing some of those ideas as well.

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Thank you for that and for the other thoughts.

Ms Beckett on behalf of the Association of Atlantic Women Business Owners.

Ms Linda Beckett (Representative, Association of Atlantic Women Business Owners): Thank you, Mr. Chairman. I'm not going to be quite so polite.

The Vice-Chair (Mr. Campbell): Are you going to try to get rid of the House of Commons?

Ms Beckett: I'm speaking on behalf of AAWBO, which is the Association of Atlantic Women Business Owners. It was established ten years ago; we're celebrating our tenth anniversary this year. It was formed in my home community of the Annapolis Valley.

It's been a struggling organization, but we now have 600 members in Atlantic Canada, and we're very proud of that. In my community we have reached 78, which we feel is a great achievement in a small borough area such as the Annapolis Valley.

We strongly believe in entrepreneurship, because we feel that's one of the ways women will get out of the economic ghetto a lot of women are in across this country.

We have been supported by the federal government through programs through the Business Development Bank, I believe it's called now. We're very grateful for that. We have found these programs to be of great interest to our members. Also, there's the follow-up that is required with these programs as well. It's not enough just to offer the programs; we need the follow-up with the programs as well.

I'd like to comment on one thing we feel very strongly about, and that is human resource training. One way in which the government can help is with human resource training, especially in the community I come from, the Annapolis Valley, where there's a lot of unemployed people.

To give them the skills to go out and get jobs is one thing, but they also need different skills from just the work skills. They need life skills. Again, pertaining to women in the economic ghetto, a lot of us have come through some pretty rough situations. Some of us lack not only the work skills but also the life skills to be able to hold a job and advance in a job once we get it. So we strongly support human resource training.

Unemployment insurance should be totally renamed. We should call it some other kind of insurance, because the name indicates we're supporting unemployment, and I don't think that's what the federal government wants to support. The federal government wants to support employment, so maybe we should call it employment insurance or job insurance.

As a business owner myself, I feel that whole program has to be completely revamped. A way you can do that is to provide the follow-up, and I think this is what is lacking right now in the unemployment insurance program. It's not enough just to get people jobs. There has to be a follow-up to that. It has to be monitored to make sure that humongous amount of funding is being properly utilized. To give it out is one thing, but to follow it up is another.

Of course, as business owners, we feel the first target is the deficit, because we know what would happen if we allowed a deficit to continue for ten years. We wouldn't have to make decisions about anything because we wouldn't have our businesses.

How do you do that? We know how we do it in business: we cut costs. As was pointed out, I believe, by one of our other speakers today, perhaps government is trying to manage too much. Perhaps there shouldn't be as many levels of government.

This is where I'm not going to be quite as polite. Perhaps we're too over-governed.

Sometimes when people ask me what my business does, I have to reply, ``Contrary to what the government thinks, I don't fill out forms''. That's not the nature of my business - to fill out forms and papers. Perhaps we're a little too governed. Maybe the federal government should look at governing things such as transportation, defence and international affairs. Maybe there are too many levels of government. We're too over-governed, and it's costing us billions and billions of dollars.

In closing, I would like to again express appreciation for the programs the federal government does support through AAWBO, because we all benefit from them. We believe in the training. It helps us immensely.

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I'd also like to comment on the one concern that I've heard from our members constantly over the years at every conference. Their main problem is the banks and problems with the banks. I'll leave you with that.

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

We'll turn next to Mr. Hubley from the East Hants and District Chamber of Commerce.

Mr. David Hubley (Chair, Policy Committee, East Hants and District Chamber of Commerce): The East Hants and District Chamber of Commerce covers a broad spectrum of small and medium-sized businesses, so we're going to be general in our comments.

Looking at the deficit-reduction target, we'd like to see you get to a zero-operating-deficit budget by the year 2000. At the present rate of reduction of the operating deficit, you will go to 2004 before you break even, and that will add another $200 billion to the existing debt of $500 billion. You're going to start to lower the water on the deficit at $700 billion. The level of reduction -

The Vice-Chair (Mr. Campbell): Let me interrupt to make sure we understand. We already have an operating surplus. We're in a deficit because of the charges on the debt. So when you speak of -

Mr. Hubley: Correct. It's the interest rate that's causing this deficit. Agreed. So interest is the problem.

The interest rate today is a better deal for investors than it was when the interest rates were at 18%. They can put more in their pocket now relative to inflation than they could when the interest rates were at 18%. The margins are higher now.

We suggest to reduce and eliminate - and I agree with Ms Beckett - all government subsidies. Get rid of them. When a business starts up, they don't know where the problems are going to be. If you know that there's no help coming to put you out of business from another area - province or whatever - then that would help.

Reduce governments at all levels. We agree with that 100%.

Combine government to eliminate duplication and overlap. We're seeing it in amalgamation. Today the mayor is over at Scotia Square trying to persuade people who is the best legislator for this particular area. We're going through it now, so we had might as well get on the bandwagon and get the problem sorted out.

Promote the value of services that can best be - and most likely can only be effectively - provided by central government. It's not building industrial parks. It's not building a lot of infrastructure subsidizing businesses. They can do that best, because if they run into a problem and they fall by the wayside, then the onus is on the investor, if it's a venture capital group or whatever.

The Vice-Chair (Mr. Campbell): Again for clarification, Mr. Hubley, just so the panel members will understand you, in last year's budget we called for the elimination of subsidies to business by two-thirds over a certain period of time. That's a big number.

When you speak of eliminating subsidies, in addition to the ones that we've eliminated what are you speaking about? Tax expenditures? Credits and incentives that we give to foster investment? Small business tax credits? Research credits? What do you mean by ``subsidies'', and do you have any idea of what amounts of money we're talking about?

Mr. Hubley: Yes. The St. Lawrence Seaway.

The Vice-Chair (Mr. Campbell): So you would privatize it?

Mr. Hubley: Privatize it. If they want to hire ice-breakers to go up and break up the ice, fine and dandy. We have an ice report right here. There are a lot of them around this Atlantic region.

Confederation cut us off from the north-south trade that we enjoyed in eastern Canada. We were deflected to central Canada. The engine of growth.... As Mr. McKenna said, you folks have been too good to us down here. You've made us dependent. That's the fault of the central government. Somewhere I read an article that stated that 40% of our income in Atlantic Canada comes from the federal government.

Mrs. Brushett (Cumberland - Colchester): Close to 51% of our GDP in Nova Scotia is federal payments of some kind.

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Mr. Hubley: Exactly. So we have further to fall than central Canada. We have to get these things adjusted. We're going down a very slippery slope here.

That's the deficit reduction and some of the things that can be done there.

The Vice-Chair (Mr. Campbell): Mr. Hubley, you're suggesting that we - whoever we are - have been too good. How do we chip away at the half-billion dollars that's out there as debt?

Mr. Hubley: Well, the GST is a predatory tax, so put it on everything and get it under the table as quickly as possible so we don't see it. Drop it down to 2% or 3%.

The Vice-Chair (Mr. Campbell): Have you any idea what revenue would be generated by a tax of 2% or 3%, even on a universal basis?

Mr. Hubley: Across the board, I'm not sure, but I think it should be somewhere near -

The Vice-Chair (Mr. Campbell): It would be $4 billion, versus the $14 billion it takes in now.

Mr. Hubley: If you put 2% to 3% on everything how much of a deficiency would you run?

The Vice-Chair (Mr. Campbell): Mr. Loubier is offering that $4 billion would be raised at 2% or 3% on everything, versus the $14 billion to $15 billion it now takes in.

I don't know the answer. I'm just asking if you have -

Mr. Hubley: There are many things that aren't covered across the board, including food, groceries, the whole -

The Vice-Chair (Mr. Campbell): Okay, but that's to raise the same amount of revenue we're raising now.

Mr. Hubley: Exactly.

The Vice-Chair (Mr. Campbell): Okay. Let's accept that. We still have a half-trillion dollars in outstanding debts because, you say, we have been too good to these...among other reasons.

Mr. Hubley: It's an impediment to tourism. It's an impediment every time you walk up to that cash register with a lunch bill. It costs you 18.77 cents.

The Vice-Chair (Mr. Campbell): I don't think any of us disagree.

Mr. Hubley: All right. So let's get that out of the way.

What about a flat-rate income tax? How much would that save us? You'd be eliminating a lot of jobs. Perhaps that is the direction to go -

The Vice-Chair (Mr. Campbell): It's a break for the wealthy, some have suggested, and an increase in tax for everybody else.

Mr. Hubley: The wealthy go around the system anyway.

Somebody mentioned this morning increasing corporate taxes. If they get a little too high, you'll have the same thing happen that happened with Irving Oil, with a tax haven offshore, where you import your products and adjust the tax rate to fit the country. Scott Paper does it as well. I think you're all aware of that. Lumber leaves here at a rate of maybe $300 or $400 a thousand, lands at an offshore port at double the price, and the profits still go offshore.

They can go around it. So you can't make it too onerous. You have to work with what you have.

The Vice-Chair (Mr. Campbell): Mr. Hubley, are you about to wrap up?

Mr. Hubley: Yes. I have a whole lot more, but -

The Vice-Chair (Mr. Campbell): We'll have time if we can wrap up this session for -

Mr. Hubley: There are job opportunities we are neglecting. I think a lack of reward is the bottom line for the private sector.

Crime is costing us a lot of money. The crime rate in our area is atrocious, to the point where a lot of people can't get insurance for their homes any more.

There's not enough reward to the entrepreneur in the present system to compensate for the risk and liabilities incurred when creating jobs in the private sector. We're talking about new jobs and new companies.

There are increases in the cost of employee benefits, along with the point of purchase taxes and business property taxes, all of which are still not enough to sustain the current government system.

Legitimate businesses also have to compete with the underground economy. I'm told it costs roughly $1.25 for the private sector to offer a service in the building business compared with about 75¢ in the underground economy.

The Vice-Chair (Mr. Campbell): Let me suggest, Mr. Hubley, we end there for now. You can come back to some of these issues in the wrap-up later in response to questions. We still have to hear from Mr. Doak and we're almost an hour into our two hours. I'd like to give Mr. Doak a chance to talk and then give members of the group a chance to discuss among themselves.

Mr. Hubley: There are solutions we haven't touched on.

The Vice-Chair (Mr. Campbell): Okay. Could you just hold those in reserve? My sense is an hour from now we're going to be desperately looking for solutions if we haven't heard them by then.

Mr. Doak.

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Professor Erwin Doak (Department of Economics, Saint Mary's University): Thank you very much, Mr. Chairman. Maybe I won't take as long, because I don't have anything really prepared to say here. I've been trying to make notes as I've listened to the others around the table. I've heard a lot of people saying they would like to preserve various programs and not see cuts here and there.

I appeared before the committee last November in Lunenburg and the focus of my attention then was on debt charges. You correctly pointed out Parliament doesn't account for very much but at the other end of the spectrum there are those debt charges. You pointed out were it not for the debt charges we would have a balanced budget or we would have a surplus. We have a deficit because of the debt charges. Again you ask very appropriate question: how can we chip away at the debt?

These have been my main concerns now for some years and they were things I tried to speak to the committee about last year. I've had some further correspondence with them.

Maybe some of what I'm going to say might sound a little radical. I'm not a radical, but I think there's an element of truth in the statement sometimes heard that maybe the Bank of Canada should assume a little bit more of our debt. Some years ago the Bank of Canada used to finance about 20% of our debt, but now it's down to about 4% or 5%. Why is this? The reason that I see is they're trying to prevent excessive creation of money in the country. This has to do with the banking system. A lot of banking reforms have taken place. I think the committee understands a lot of these things.

The Vice-Chair (Mr. Campbell): For the benefit of others at the table who may not understand, do you want to elaborate on how the Bank of Canada might begin the process of holding more of the debt of the country and how this would be accomplished?

Prof. Doak: Well, the Bank of Canada could very easily acquire more debt. The problem, of course, is when they do acquire debt, this fuels the reserves of the chartered banks and permits them to create more deposit liabilities on loans and so forth.

The Vice-Chair (Mr. Campbell): You have to create money to do it.

Prof. Doak: The Bank of Canada does create money when it purchases government bonds. That is true.

The Vice-Chair (Mr. Campbell): But let us take again roughly that $500 billion figure, which is a figure none of us can really imagine and understand. If the Bank of Canada were to go back to some level of that debt that it held itself, how would it do it? How would it get from the current holders of the debt to the Bank of Canada? We would buy it, I presume, from...?

Prof. Doak: Yes, you can't allow the Bank of Canada to purchase any more debt than they are at the present time unless the chartered banks are at the same time encouraged to hold back their own creation of loans and deposit liabilities.

The Vice-Chair (Mr. Campbell): So the money supply would create - -

Prof. Doak: I think we have to understand the money supply in this country is basically measured by the deposit at the chartered banks and not so much by the currency created by the Bank of Canada. I don't know if this is understood so well in the public, but this is the case. We teach this in economics every day.

The Vice-Chair (Mr. Campbell): But you agree with me this much. I mean, it's beyond my understanding but I understand at least this much: it would have some impact on the money supply in this country for the bank to move to - -

Prof. Doak: Yes, by all means. They couldn't just do it tomorrow under the present system because it would be far too inflationary.

The Vice-Chair (Mr. Campbell): So there would be an impact on inflation?

Prof. Doak: Yes, because of the impact upon the chartered banks.

The Vice-Chair (Mr. Campbell): I'm sorry. Go ahead.

Prof. Doak: So, Mr. Chairman, I corresponded somewhat with the committee on this. I by no means have the blueprint in front of me. I think this has to be worked out by people in government such as yourselves and this committee and the people in the banking community themselves. I wrote to the committee on this last year, suggesting representatives of our chartered banks sit down and give some thought to how these linkages could be improved. I think this is a way we could chip away at the debt without destroying our social safety net.

The Vice-Chair (Mr. Campbell): Okay, thank you Mr. Doak. I'm just going to turn to Ms Skoke for a moment, because she has to leave.

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Ms Skoke (Central Nova): I would like to thank everyone for coming here today. I have to leave now to go back to Ottawa.

As the member of Parliament for Central Nova I'm certainly taking note of what you had to say. I want to thank you all for coming.

Thank you, Mr. Chairman.

The Vice-Chair (Mr. Campbell): Well, Mr. Doak ended by saying he didn't have the blueprint. We don't either, as yet. Hopefully, sessions like this will help us come up with some components of the blueprint. There are some good ideas on the table already. At this stage we should move to more of a discussion among all of you and then we'll join in with our questions.

There is one item out there. I left it with Ms McDonald. It is again purported to be a way to deal with our current predicament. Mr. Doak talked about the Bank of Canada's role in holding more of the debt. Ms McDonald spoke earlier about interest rates and I left her with a question of how different interest rate policy could chip away at the overhang of a half-trillion dollars in debt. Let's start off, perhaps, by discussing this whole interest rate issue a little bit and then go to more general discussion.

Ms McDonald.

Ms McDonald: I'm certainly not an economist, but it seems from what little I've read about this issue there are a number of people who are saying if we decreased the real interest rate - that is, the difference between the current rates of interest and when you take out the inflationary factor - then the cost of borrowing for the government would go down.

We spend a lot of money on interest rates, but certainly if the central Bank of Canada's role in its monetary policy to a large degree controls interest rates, then we should be able to lower our interest rates and thereby reduce the cost of our deficit.

The Vice-Chair (Mr. Campbell): We've had this suggestion made in other panels and it also comes up often at our panels in Ottawa. I guess I have this problem, and some committee members have it as well. First of all, the question is whether the Bank of Canada forms those interest rate decisions in a vacuum or related to international factors. Clearly the bank has some control over what it does.

Ms McDonald: Yes.

The Vice-Chair (Mr. Campbell): So I get from what you're saying, lower the $50-billion-a-year interest rate charge. As federal debt rolls over or matures, and somebody else has to buy it, we would now be saying we're going to have a lower return on that; we're going to try to sell you that debt and pay you less than an internationally competitive rate or less than you were earning before. Who is going to buy? That's where I'm left, where I get stuck. Who's going to hold the debt?

Ms McDonald: I guess my question is, aren't we paying a very high rate? You can look at the huge return foreign investment dealers got on the high interest rates of Canada. Obviously we have an extremely high interest rate, otherwise they wouldn't be buying our bonds. Do we need to give foreign investment dealers such a good rate of return?

The Vice-Chair (Mr. Campbell): Well, I guess at some point they'd go elsewhere if the rate of return was not good enough from their point of view.

Ms McDonald: The news has been full of the high rates of return available to foreign investors. Certainly we don't have to give our money away. It seems we're doing that in an effort, as far as I can understand, to pursue a low or a zero inflationary policy. There are also some critics of that policy who say a moderate degree of inflation is perfectly okay and it might even help stimulate economic growth. I'd love to hear -

The Vice-Chair (Mr. Campbell): I just have this one other point and then if anybody wants to jump into this discussion on interest rates, please do. I think it was yesterday morning in Charlottetown someone had an answer to the question of who will buy the debt if we lower the rate on it and it matures, and who will replace the foreign investors who hold a substantial chunk of it now for less of a return. The answer was patriotic Canadians should do that. We should find a way, and Canadians should be happy - as a way to repatriate the debt, if you will - to receive less of a return than the market rate or an internationally competitive rate for the sake of doing this.

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Do you think there are enough loyal Canadians out there willing to do that with their RRSPs or through their pensions or from their savings accounts?

Ms McDonald: It may be that there will be a lot of patriotic Canadians who will remortgage their houses at a lower rate if the rates go down and stimulate jobs and stimulate the economy. There are benefits to lowering the interest rates besides dealing with the foreign investment markets, I think. We should seriously look at those in terms of what the benefits would be of lowering the rate.

The Vice-Chair (Mr. Campbell): It's a complicated area. I'm going to let Mr. Loubier weigh in here for a moment and then I'd like to open it up to the panel.

[Translation]

Mr. Loubier.

Mr. Loubier (Saint-Hyacinthe--Bagot): I think that what Ms. McDonald is trying to say - something that was also said last year at Lunenburg - is that, if we look at medium term interest rates over the past four or five years, we see a difference of five basis points between the nominal interest rates and the American interest rates - a situation unlike anything seen in the two preceding decades.

In the medium term, this taxes the Canadian economy on two fronts: debt service, as you have already explained, and long-term investment by companies.

When, at a given point in time, we are in a situation where company capital stock is aging and there is a gap between Canadian and American interest rates, there are questions that must be answered.

Of course a number of factors, most of them external, contribute to determining medium-term interest rates. There are the foreign investors who demand higher rates of return, perhaps because of the indebtedness of the federal government, its uncontrolled evolution, and also the constitutional debate. This last factor I include for the vice-chair, as I myself do not believe in it.

It is also obvious that we have to follow the changes in American interest rates. Once we have dealt with these two factors, there is a third, a national factor, the propensity of the Bank of Canada to fight inflation. I firmly believe that, over the past five years, the percentage added to the rate of return demanded by foreigners and the influence of American interest rates on Canadian interest rates have both been exaggerated.

I agree with the proposals that you put forward earlier regarding the management of medium-term Bank of Canada interest rates. In future, as soon as there is a sign of inflation, the Bank of Canada must refrain from drastic policies that involve jacking up interest rates.

There is another aspect I would like to deal with, if you will allow me, Mr. Chairman. We have spoken of medium-term interest rates, but there are also the very short-term interest rates that the Bank of Canada controls completely. It can establish the rate for next week. The very short-term interest rates are those on which I have concentrated for the past two years in order to get the Bank of Canada to move - the government in particular - as these changes influence, to some extent, company competitiveness and their propensity to create jobs.

I think that this is the problem we must concentrate on in the future. We must stop saying that we have no influence on interest rates. We do have limited influence on medium-term interest rates and virtually complete influence on short-term interest rates. This is what we have to work on.

[English]

The Vice-Chair (Mr. Campbell): I think I'll only add to that. We've had panels in Ottawa, and indeed I think we have one coming up, where we only discuss this issue among experts and economists. It's a complicated issue. I'll agree this much; we certainly have less control the further out you go.

Let me turn to the panel after that to see if anybody else wants to weigh into this. Let's not fail to get into any other issues you want to comment on. This is not a time to elaborate on what you've already said, but hopefully to react to what you've heard from others so that we create a bit of a dialogue.

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Mr. Hubley.

Mr. Hubley: The interest rate situation is directly related to our productivity here in Canada. If our labour is deemed to be worth 73¢ relative to the U.S. dollar, that's where it stays. It pays car manufacturers to come to Canada, because from my information - and correct me if it's wrong - it's about $1,800 per automobile for medical insurance in the United States. It pays them to put their plants in Canada.

Mr. Pillitteri (Niagara Falls): It's $5 an hour.

Mr. Hubley: That is substantial. We are at the mercy of the international markets. Now this is going to work to our benefit because with the Internet and the Worldwide Web, we see some things coming about -

I think the Bayshore bank is offering mortgages, business loans and whatnot. You will be able to secure the mortgage for your home at the most competitive rate in Texas, Bolivia - wherever it might be in the world. The protection for the security of your codes and all of that hasn't been perfected yet, otherwise the major banks would be into it. And they will be into it. They will have to. These interest rate anomalies are rather strange. I believe the Bank of Japan is 0.5% at this point in time. Is that correct?

The Vice-Chair (Mr. Campbell): It's beyond our expertise.

Mr. Hubley: That gives you some idea. Japan has generated a lot of dollars and this comes about from the Deming process of TQM, total quality management, which the Americans wouldn't buy into years ago. But we are buying into it now. I mentioned this about getting the video to one of the companies in our group, and they're doing it. National Gypsum is doing it. This is what we have to do. We have to work on our quality management.

I had a discussion and wrote a letter regarding the minimum wage. Minimum wage is a myth. Anybody who's worth his salt gets twice the minimum wage to start. It's a myth because it's an entry point. If somebody wants to get their labour out.... When teaching junior achievers, this is what I've told the kids: ``Go out and do it for free.'' Do it for free and the guy is going to look at you and say, ``That kid, you know, I'm going to pay him something.'' So he starts to build a work ethic that will be rewarding to him.

We have to start with these kids. We're a generation removed. Unfortunately we're really in a problem here and it's going to take us a generation to work our way out of this.

The Vice-Chair (Mr. Campbell): Let's pause there, Mr. Hubley, and turn to some of the others on any of the issues discussed this morning. Let's get away from interest rates and productivity to the human level you were all talking about earlier.

Mr. Little.

Rev. Little: I was interested in the fact that the discussion seemed to be going in two different directions, one on one side of the room and one on the other.

I'll go back to my question. We have a group of Canadians out there, a group of people living on the margins who are very afraid. They see their social assistance cheques cut already. They see the news from Ontario and they're wondering what's next for them. I think we've already heard some very powerful discussion about that.

Given that we do have to decrease the deficit, given that we have to spend money better than we have in the past, in what ways can we spend money so that the money goes directly to those who are in greatest need? That's where I'm coming from. I don't necessarily disagree with the assumption of your committee that we have to decrease the debt however we have it, and whether it's interest rates and so on. We have a huge debt. It has to be paid off.

My concern is that as we pay it off, the money the government does spend on helping those who need help gets directly to those people in greatest need and does the most for them. Right now that discussion isn't really taking place. We're seeing a lot of cuts but cuts that are done almost with a cleaver: we're going to cut 10% of this and 5% of that and so on and so forth.

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I would like to see some sort of guaranteed annual income. At least that sets up a target where the government says, this is the amount of money that we perceive to be the poverty wage or the poverty level, and no Canadian will fall below that amount. The government sets that as a target, and every Canadian, regardless of what program they're on, cannot fall below that. That, I think, would give Canadians some level of security amidst all these cuts, that at least their level of income will not fall below that level.

Right now I see a lot of anxiety, a lot of fear. Again, I don't want to pick on Ontario, but if you see what's going on there, it's justifiable fear.

The Vice-Chair (Mr. Campbell): You would fold a whole myriad of individual -

Rev. Little: I would, but we've all our disclaimers that we're not economists. I'm not an economist either. But, yes, that's where I'm coming from.

Ms McDonald: The other issue around which I think the committee could make some strong recommendations is the way the formula for the CHST is going to play out. Under the CAP formula, where it's a 50:50 split, the advantage is that as costs increase in times of economic slowdown and welfare payments need to increase, the CAP funding formula allows for that increased cost at the provincial level.

Under the formula that's being proposed under the CHST, it's going to track along economic growth lines so that as the economy goes down in fact the amount available to the provinces will decrease. That's the time when the provinces need more money to meet the needs of ordinary Canadians in terms of social assistance.

Maybe my understanding isn't correct. I see a question on the face of one panel member. But it seems to me that -

The Vice-Chair (Mr. Campbell): He's the researcher. He always has questions - and answers, too.

Ms McDonald: Oh, I see. Maybe he can help me out here.

While health and education are fairly stable costs, which you can project, you can't project the cost of social assistance in times of economic slowdown. So it's ridiculous to have the same kind of funding formula for social assistance costs as you have for health and education. I'm sure that's been brought to your attention prior to this point, but I think it's really important to emphasize that, particularly in an area like Atlantic Canada, we're going to see increasing social assistance costs, and that covers everything from legal aid to child welfare and child protection, not just direct income-assistance programs. We have to look at that in a different way.

Of course, Linda has already raised the issue of national standards and the lack of national standards. It's not that the provincial governments don't have the will to meet the needs of the ordinary Canadians - I think they do - but the reality is that if you have a decreasing amount of money available, the temptation to divert some of that funding into deficit reduction at a provincial level, or into transportation, or into other areas, will be very great and you have a lot of pressure on provincial legislatures. In the absence of national standards, I think we could get into some real problems and a real patchwork system of social programs across the country.

Prof. Doak: As we're talking about trying to maintain social programs, I noticed here in 1989 and 1990 that the Canada Assistance Plan was costing us about $4.5 billion.

Last year, before the committee, I mentioned that had the Bank of Canada been holding 20% of our debt, the interest that the government pays out could have been chopped by $4 billion.

So it gives you some figures there on the linkages between the debt charges, how they can be reduced, and how the social programs can be maintained.

Mr. Chairman, you were asking who is going to hold this debt if we lower the interest rate. The Bank of Canada will because they don't need any incentive to hold debt. Last year I think they earned $2 billion in interest on the debt they were holding for the government, and they simply gave it back. They put it back into the general revenue fund. So they don't need an incentive to hold debt. That's why the Bank of Canada is essentially an interest-free source of financing to the government.

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The Vice-Chair (Mr. Campbell): Let's begin the next session. I think Mr. Loubier and Mr. Doak are going to have a discussion after the panel on that, but I don't want to spend any more of the panel's time on that whole issue. There are many other pressing issues. Among them - I'm going to turn to the other MPs at the table in a moment - is one that a couple of you have alluded to but we haven't gotten into, and that is if we cannot bear, as a nation and as a society, any more cuts to social programs, to the programs many of you have come here to defend, where do we look for the revenues we need to maintain them given that we have this huge debt and payments on it every year?

I want to clarify something and ask you to think about commenting on that question.

In your presentation, Ms McDonald, I think you meant to say something different from what you said. Both in your oral presentation and in your brief - and this cuts to the chase - you say we should institute a fair and progressive tax system where high-income earners and large profitable corporations are taxed. You mean are taxed more.

Ms McDonald: As a matter of fact, there are some very large profitable corporations that pay no tax. We hear about them all the time.

The Vice-Chair (Mr. Campbell): Do you know why that might be?

Ms McDonald: I would suspect it's because they have incentives or grants or subsidies. I don't understand the corporate tax structure to the extent of being able to analyse their tax situation, but there are lots of.... I'm not talking about small business; I think large and profitable corporations aren't paying their fair share of tax.

The Vice-Chair (Mr. Campbell): Do you have any idea what a fair share would be?

Ms McDonald: I do know that the percentage of revenues to the federal government of corporate tax has decreased over the last 15 and 20 years quite substantially to something like 8% of federal revenues -

The Vice-Chair (Mr. Campbell): Without getting into the statistics, I would suggest it's true that if you compared corporate income tax with the take, if you will, on individual income tax, there is a difference. Business people will tell you, as they've told us - Mr. Hubley might confirm this - that when they look at taxes they look beyond just income taxes and they would tell us to look at property taxes, capital taxes, payroll taxes and income taxes. When you look at that, it's a different picture.

Ms McDonald: If you look the Royal Bank of Canada.... The chartered banks have recorded record profits, I think much to their embarrassment due to the media spotlight they are put in following those disclosures. Still, they manage to blush and keep going, I think.

The Vice-Chair (Mr. Campbell): On that point - and now we're in the whole tax area, which I think all of us will want to discuss - the headlines always report what the profits are. They rarely tell you what taxes these institutions pay. We took steps in the last budget to add to that burden, but remember that the headline you're reading is always about third-quarter results or yearly results. Somewhere there may or may not be some reference to taxes in the article you read. I don't want anybody to leave this panel assuming that banks that report profits like that don't pay taxes.

I also want to respond to one other thing that Ms McDonald said by pointing out that the top 10% of income tax filers currently pay over 50% of the income tax that is paid. The bottom 10% pay none. It's everybody in the middle who are paying the other 50%. Those top 10% of filers account for one-third of taxable income but pay over 50% of the total income tax. They have an argument to make also that they're doing not only their fair share but more than their fair share.

One thing I said this morning is that wherever we go, whatever we hear, I've never met a Canadian who thought he or she was not already paying too much tax.

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I just throw all those things out to stimulate discussion. Everybody around the table has further questions and comments, beginning with Mr. Loubier.

[Translation]

Mr. Loubier: Mr. Chairman, I would like to clarify something before asking my question to Mr. Doak. Corporate taxation must be re-examined. I believe this can never be said too often. Two professors, one from the Université du Québec and one from the Université de Montréal, did a joint study last year. I am not sure of the date or of their names, but I could find them for you. They studied the evolution and earnings of some 100 Canadian companies, I believe, and found out that, although the listed tax rates for Canadian companies is 40 per cent, most companies pay only about 22 per cent because of tax loopholes. Furthermore, some 50 per cent of the sample surveyed by the two professors said they paid less than 12 per cent tax on their corporate earnings. This is a disturbing situation. It means that corporate taxation is full of loopholes.

The other aspect I would like to bring up here, to curb the mistaken idea that we have no taxation problems, concerns the highest income category, probably people who receive dividends on shares in Canadian companies. By highest income, I mean income of $180,000 to $200,000 or more. If we look at the structure of the taxes paid by these people, it is evident that the rates they pay are actually falling, according to a University of Toronto or Queen's University professor. They fall off quite sharply, especially for incomes of $250,000, $300,000 or $350,000. In short, here too there seems to be a problem of justice in taxation.

I would like to remind you that, in 1992, the Auditor General's report discussed the existence of tax havens. It says that $16 billion were transferred to such countries as Bermuda and other Caribbean countries, where income taxes are very low, even non-existent. As early as 1992, a considerable sum was already being lost to Revenue Canada.

With regard to the large Canadian banks, and Ms. McDonald talked about them earlier, is it normal for the five largest Canadian banks to have 50 subsidiaries in the Caribbean alone? I have been asking this question now for about three months, because the situation disgusts me. There is good reason to ask questions. Do far more people save money in the Caribbean than in Canada and the United States combined? Something is out of kilter. When you consider the problem, you see that some Caribbean countries have as many fiscal "holes" as a sieve. For my part, I am convinced that the Canadian banks, and even some large Canadian companies, are not doing their duty as corporate citizens.

[English]

The Vice-Chair (Mr. Campbell): I don't think we necessarily disagree. I was just suggesting that when you read the headlines about profits, there are other questions you have to ask. Did they pay taxes or did they do what Mr. Loubier suggests or suspects they did? The headline that talks about profits is only part of the story. That's all. So I don't think we disagree.

[Translation]

Mr. Loubier: I suggest therefore that the committee recommend an analysis of the situation. You have been asked to do so for two years. The committee has not written one line on the subject in its report. At some point we will have to get serious. Either you accept my analysis, the analysis of the Bloc, the official Opposition, and take it into account, or you do not accept it and say so openly and publicly. There is a difference between these two attitudes.

Ms. McDonald recommended that we consider corporate taxation, but not superficially like we did last year.

This is my question to Mr. Doak. I did not clearly understand, earlier, the mechanism... I have done a lot of macro-economics, and I liked it a lot. You say the Bank of Canada should lower interest rates and probably hold fewer treasury bonds than it does, in order to absorb a larger share of the debt. To absorb a larger share of the debt, it should print money in order to buy it.

It if prints money, the hoped-for lowering of interest rates is no longer possible because, if you print money you make the dollar fall. If the Canadian dollar falls, the only way to bring it back up is to raise interest rates. Therefore, the effect targeted by dropping interest rates no longer holds. If the Bank of Canada absorbs a larger share of the Canadian debt, it must print more money. This money will be a surplus on the money market, its value will drop and interest rates will rise. As a result, the effect of the measure is wiped out, unless I misunderstand the way you have presented your analysis. It seems to me there is a contradiction in what you have said.

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[English]

Prof. Doak: I was simply responding to the chairman's question in which he asked who would hold our federal debt in Canada if we were trying to get it away from the foreigners. I think that's how I interpreted your question.

The Vice-Chair (Mr. Campbell): There are two aspects, that and what Mr. Loubier is asking about.

Prof. Doak: If we lowered the interest rate, who would hold it? I just happened to respond to him on that specific point that the Bank of Canada does not need a high or low interest rate. It does not need any specific interest rate in order to hold debt. It will hold it anyway. It depends on other things. The Bank of Canada is not interested for its own purposes. It doesn't care what interest it earns on the government debt because it simply gives that money back to the government. That was my only point.

He was asking who's going to hold the debt if the non-residents don't, and I said the Bank of Canada.

[Translation]

Mr. Loubier: Mr. Doak, the Bank of Canada has as much interest as any Canadian stockholder in holding high yield stocks because it is the lender of last resort for the chartered banks, for example. Its interest rate must be competitive enough for it to play its role as lender of last resort.

At a given point in time, if the Bank of Canada accepts a lower rate and succeeds in lowering the medium-term market rate by purchasing part of the Canadian debt, the Canadian dollar would plunge. This is a law of mathematics. The Bank would be obliged to raise the interest rate to shore up the Canadian dollar; it would be obliged to take into account the fact that the return on the capital it holds must be sufficient for it to play its role as lender of last resort. How can all this be reconciled?

[English]

Prof. Doak: No. Again, I'm just going to stick to my point that the Bank of Canada does not operate like a chartered bank. It is not interested in maximizing profit. It simply takes enough revenue from the interest on its bonds to cover its administrative expenses. It gives all the rest of it back to the Government of Canada. That's why I encourage that the Bank of Canada hold more of our debt; it is an interest-free source of funding.

Now I know you're getting into other matters about what influences interest rates and the economy and that sort of thing. I did not intend to get into that sort of complexity, and my points don't address that at all. It was a much more simplistic thing I was trying to point out. I agree with you that these matters are complex and they require a lot more thought and analysis than I'm giving them.

Again, I'm simply responding to the chairman's question of who would hold the debt, how we can get the debt down, how we can get the debt charges down in this country. I continue to say we can do that through the Bank of Canada. But the Bank of Canada is reluctant to hold more debt because it knows the inflationary impact of all that upon the system, and the chartered banks are the ones that are creating all the money.

Mind you, we all admire our chartered banks. We want to continue to admire them. But I think we have to get them to understand that we have a monetary debt creation problem in this country. If we can all work together somehow, I think we can sort it out.

Maybe I'll just stop at that point.

The Vice-Chair (Mr. Campbell): Who would have believed, looking at the make-up of this panel, that we would have ended up in the most sophisticated discussion about the Bank of Canada and interest rates? I really would have predicted we'd go off in other directions.

I'm going to turn to Mr. Pillitteri next.

Mr. Pillitteri: Thank you, Mr. Chairman. I must commend you on chairing this committee. You've been mentioning facts about our debt, the $500 billion. We could honestly say to this panel that we've already solved the problem by about $70 billion, because we are about $570 billion in debt rather than $500 billion.

The Vice-Chair (Mr. Campbell): I was rounding down. Sorry, I didn't mean to. I didn't want to round up and frighten anybody.

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Mr. Pillitteri: To Mr. Doak, at times when we have meetings with the governor of the bank we should actually inform him...not as a witness, but also listening, how much money the Bank of Canada has on hand, possibly to get a better picture of the issue of how much the Bank of Canada holds.

This morning Mr. Little stated here it's about time we went into a guaranteed annual income.

I hope you realize, Mr. Little, it is an expensive proposition. Who will pay for it? It is based on some experiments in western Canada - I think it was in Manitoba - and parts of the United States.

I don't think the time has come, I think the time passed a long time ago for bringing in a guaranteed income. But that having been said, it is not different from the welfare system we have in Canada today, in income, because once you take out the incentive of work it just creates a higher level, a more costly level, than we have today...from the welfare level.

I wanted to ask Ms McDonald a question.

There is a perception out there about corporations and what they make: they don't pay their fair share, especially banks. Can I ask you a question? Who owns the banks in this country, and who would best benefit...? They say they don't pay their fair share of taxes. Who owns the chartered banks in Canada? Do you have any idea who owns the banks?

Ms McDonald: Obviously the shareholders own the banks, but if we look at where the banks are making a lot of profits, it is because the interest rates are higher than they need to be. So we are paying many times over in increased debt charges, in higher rates on our loans and mortgages, in our lack of access to credit, where business owners can't get money. Then we sit back and see record profits and very low rates of taxation.

I think I read a figure that the Royal Bank in one of its recent fiscal years actually didn't pay any tax at all.

Mr. Pilliteri: Didn't pay any taxes, yes.

Ms McDonald: I think that creates a public perception out there that we don't have a fair and progressive tax system; that it is becoming less fair and less progressive.

I think people across Canada don't believe that middle- and low-income earners should pay any more tax, but there is a widespread belief that higher-income earners and corporate entities should.

Mr. Pilliteri: Let me share something with you. Last week we had a round-table discussion with the pension funds. To my astonishment, one pension fund from organized labour owns more than 8% of the total bank institutions. These are people who earn around $30,000 a year. They're the people who own the banks -

Ms McDonald: They are investment funds, though.

Mr. Pilliteri: - working people.

Not investment funds, savings. Canadians put anywhere from 4% to 8% of earnings into savings. The pension funds alone own 8% of the banks.

Ms McDonald: But it is interesting what happens when there is a profit on pension funds over and above the actuarial figures. With what is going on with the universities here in Halifax.... I sit on the boards of governors for one of the universities. We are having a special meeting to deal with the pension fund, because if there is a surplus, if there is a profit, in the pension fund, under most pension plans the employer gets to keep the profit; and a huge profit accumulates when you have higher than expected interest rates.

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Mr. Pillitteri: The pension funds hire economists and investors to invest their money in the highest-paying areas, including those outside of Canada.

Ms McDonald: But my point is that, yes, it is for ordinary Canadians that the pension funds may well invest in banks, but it doesn't necessarily go back to the pension holders. I am going through an experience right now in which it may in fact be the employer who will reap the benefits over the actuarial investments or estimates that they were projecting.

The Vice-Chair (Mr. Campbell): I don't think we want to go down that road at all. That's a very volatile suggestion you've made to sort of get out of that discussion. In fact, major pensions in this country own 40% to 50% of the shares of the chartered banks.

You talked about the Royal Bank. The Caisse de dépôt et placement du Québec owns 3% of the Royal Bank. The Ontario teachers own more of the the Royal Bank than that, at 4.1%.

We had a representative from the Ontario Municipal Employees before us the other day. We were told they own a significant share - at least that much - of every bank. He suggested that every 1% increase in tax on something like a bank or major corporation had a whole lot of implications for their ability to pay pensions to their workers - those actuarial studies that you referred to. I guess we're not in a position to comment on whether they earn more than they anticipated, but they certainly made it very clear about what happens if they earn less than they anticipated. That's a devastating impact for the Ontario municipal workers, whose average salary is $30,000 and for whom this is savings and retirement.

All of this is not to say anything other than that everything we do, like cuts to social programs and, similarly, increases in taxes, has an effect. That's one of the problems we face as a panel and as a government.

I'll go to Rev. Little, and then to Mr. Solberg.

Rev. Little: I just wanted to quickly respond to the comments that were made.

With regard to the guaranteed annual income, there have been prototypes and so on, and there has been advocacy. My understanding is that the program is supported not only by people on the left of the political spectrum but also by many on the right.

In the Macdonald report, Donald Macdonald, who brought in the free trade recommendations, also said that if you were going to have free trade in this country, and if you were going to have unlimited restricted trade between provinces and between the countries, you were going to need some kind of solid safety net to protect those who would be displaced.

My understanding of a guaranteed annual income isn't that it would offer an exorbitant amount of money that would be a disincentive for people to not work. It would provide a decent, affordable amount of money so that people would not slip below the poverty line. I'm not talking about everyone in Canada being guaranteed an annual income of $35,000 or something like that. I am saying that we ought to have in Canada some level of across-the-board, stable income so that persons won't fall below the poverty level. We have a problem in this country when children, to a great extent, live below the poverty level. Women live below the poverty level.

It seems to me that you could remove a lot of the anxiety around the cuts you are contemplating if you could assure Canadians that no person would fall below the poverty level in this country. And it seems to me that this is a way of targeting the cuts you make so that they don't directly hurt the poor. That was the nature of my recommendation.

The Vice-Chair (Mr. Campbell): You mentioned that even some people on the other side of the political spectrum agree. We have someone from the other side of the political spectrum here - Mr. Solberg - who may want to speak to that, and he may have other questions.

Mr. Solberg (Medicine Hat): Thank you very much, Mr. Chairman.

I certainly understand the appeal of a guaranteed annual income, because I think everyone agrees that when you have several programs the administration is onerous and expensive. But the idea of taking programs that currently apply to, say, the poorest 20% of Canadians and extending them to 100% of Canadian families would of course mean the costs would rocket upwards. I'm wondering if you've done any research to determine how much a plan would cost. First of all, how much would that guaranteed annual income be, and how much would it cost if you applied it to all Canadian families?

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Rev. Little: Firstly, no, I don't have a lot of research here. I can't imagine....

Maybe I misunderstand you. When I say ``guaranteed annual income'', again you say that services would be offered to all Canadians. My understanding is that a guaranteed annual income would be given to all persons so that they would not fall below the poverty level of our country. It seems to me that if you guaranteed that, it would not be a great benefit to me as a middle-class Canadian. I wouldn't benefit from that, nor would you as a member of Parliament who makes whatever it is that you make, nor would a senator, nor would a member of a corporation. It seems to me it would be targeting those on the lowest end of our economic spectrum.

Mr. Solberg: Okay. I don't want to go too far into this, but I've certainly seen models in which people would extend that right off the bat to everybody, and anything over and above that would be gravy. But to focus it on the poorest people is really what we're doing right now: focusing social spending.

Rev. Little: Well, it's a bit of a patchwork, I would say.

Mr. Solberg: Yes, it certainly is a patchwork, but the other question that goes hand-in-glove with this is: How do you remove the problem of moral hazard with a program like that? That, of course, is what we're struggling with in the current programs, and it seems to be one of the biggest problems of all. Once people get onto a guaranteed annual income, what incentive is there for them to find a job at any point down the road?

Rev. Little: It's a good point, and I would, although some other people in the room might not, be willing to entertain things like asking folks who are on social assistance - at least people who are not primarily care-givers - to have some way of giving something back to the community if they're working, or something of that nature.

I will say, however, that the notion of driving someone into poverty is not the best way to get people to work. It doesn't work. Those of us who work in programs like food banks, which our church supports, and parent-and-tot programs and other programs that are aimed at helping people at the low end of the spectrum, can tell you firsthand that if you drive people into poverty as a result of removing this social system and decreasing it, you are not, on the other hand, increasing their incentive to work. Many of these people will just be driven into utter despair because they don't have the skills, etc.

It just seems to me that to argue that the more you take away the harder they will work doesn't necessarily work in all cases.

Mr. Solberg: I just want to touch on the tax thing. We've heard about taxes, who should be taxed, who pays taxes, and all those kinds of things. I don't think it is very complicated, but it's important to run through what happens when a tax is applied to a corporation or to an individual. Let's talk about corporations for a moment.

At the end of the day, corporations are of course are comprised of people. They are comprised of employees and shareholders. Of course, you have a consuming public out there. Whatever taxes are applied, they end up going one of three ways that I can see, or they end up having one of three effects. Either they are absorbed by the shareholders in the form of lower profits; they result in a cutting of costs, which ultimately could mean lay-offs for people, and that certainly doesn't help the economy; or they could possibly even drive the business out of the country, which we've certainly seen in the last several years.

We've seen businesses leave the country. When they are asked why, a lot of them refer to the tax rates. We also now have tax havens that these moneys flow to around the world, and Mr. Loubier was making reference to them earlier.

I guess the point I'm trying to make is that at the end of the day, these things are extremely complicated. I think it misses the point to suggest that if we just tax a little bit more, it will really improve the situation. There are all kinds of implications for ordinary working people, for instance, when that tax is levelled. So I just make that point to see if people want to discuss it.

Ms Downton: Mr. Solberg, I think that to suppose something is extremely complicated, thus making it a little less attractive to look at as a solution, is kind of an unfortunate tack to take. I say that on behalf of the community I deal with. Their lives are terribly complicated because they are on the edge of despair.

You have the resources. You have a mandate to address this problem, and you've had that mandate for a long time. We around this room all have the intelligence; I'm sure you've heard from a lot of intelligent and wise Canadians. Yes, it is complicated, but it seems to me there have been identified around this table certain doors that can be opened to start to address the problem rather than to let the gap between the rich and the poor continue to grow in this country.

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Mr. Solberg: We have a debt, though, of $570 billion. One solution we talked about a little bit was lowering the interest rate.

Say you can lower it by 0.5%, considering that the spread between us and the United States today is around $1.5%, according to Mr. Loubier. So if we could even lower it by 0.5% - I don't know if that's possible - we're still miles away from eliminating the deficit and paying $50 billion a year in interest that could be going toward things like dealing with the problems of poverty.

So I'm not certain what other doors you're referring to, but I think it's important for us to recognize that adding taxes isn't necessarily going to come anywhere near dealing with the overall problem.

Ms Downton: I think one of the points that Katherine addressed early on is that funding a social safety net is not going to complicate your problems enormously. A myth has been perpetuated about how expensive the social safety net is to fund. I believe it is a myth.

Yes, the problems may be very complicated. Yes, you may only be able to lower your interest rate by 0.5% at a time, or overall, but the poor can be protected at the same time you do that.

It just strikes me that around this table we have a microcosm for the country. There are a lot of vested interests. That's fair. We're a human society. It will be made up of vested interests. But I think we need to declare them and weigh them all in the balance.

What I've come here to talk about is people's lives and how they're being affected. You're here to talk about money. But I don't think the two are inseparable -

Mr. Solberg: Well, let's assume we're all here because we're concerned about the best interests of people in general. I think that's the most generous approach to take. Maybe we differ on the approach, but I think we all recognize that the debt and the deficit are serious problems and they are affecting the ability of the country to sustain social programs, for instance. That's certainly where I'm coming from.

Ms Downton: I'm not as convinced as you are that the social safety net and the funding of it is contributing to the deficit.

Mr. Solberg: I didn't say that; please hear what I said, which is that the size of the debt and the deficit are affecting our ability to sustain social programs. Social programs at the federal level constitute 70% of overall program spending. We're carrying $50 billion in interest charges alone. A third of every tax dollar goes to interest charges on the debt. It's extremely difficult to continue to fund social programs at that level.

So the question we're trying to get at - I'm trying to discover it from you and the others - is where we can go beyond suggestions about the interest rate. Where can we cut to get to the point at which we can sustain social programs and still maintain some semblance of a strong safety net down the road?

The Vice-Chair (Mr. Campbell): I want to turn to Mrs. Brushett for a final question from the MPs at the table, as we're almost out of time. I will give the panel a chance to wrap up with some concluding observations.

Mrs. Brushett.

Mrs. Brushett: Thank you, Mr. Chair. I will be brief.

There are two points that I want to bring to Mr. Little's attention. Some people have suggested that we have a guaranteed income of around $4,000 or $5,000 a year that would go to every Canadian. The benefit would be in using Revenue Canada so that every Canadian who's over the age of 18 gets a cheque that would cut out all the other departments of social assistance, and so on. Also, anything you earned above that $4,000 or $5,000 a year goes into taxable income, and so on.

There are all these other people being cut through the public service departments, both federally and provincially. Do you believe there is just no other department available in which you seek assistance that we could manage that would motivate people to help themselves?

The second point I wanted to raise was for Ms Katherine McDonald. She insinuated that the recession, once it plays itself out, will sort of come out of our problems, and that governments should play leadership roles, rather than act as business partners, to deal with this financial crisis that we find ourselves in. Yet she hasn't taken into account the fact that we've made major transfer payments to the provinces to sustain the quality of life we've had, particularly here in eastern Canada, for so many years.

I'm wondering if you really meant to say that this thing will play itself out in time.

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The Vice-Chair (Mr. Campbell): We have about five minutes left. Why don't you answer and conclude. We'll go around the table to get to Ms McDonald as well so she can answer.

Rev. Little: With regard to those who are 18 years of age or under who are receiving some sort of guaranteed income, it goes along with my assumption that it's eliminating the middle person and somehow working out an agreement whereby everyone receives a balanced amount.

My interest is not so much 18-year-olds or under, or eliminating this or that but targeting those who are living below the poverty level. Whether that includes people under 18 or people who are 65, my concern is that every Canadian should have some assurance amidst all these cuts, amalgamations, downsizings, and cutbacks to social assistance. Every Canadian should have a sense that there's a certain level - for instance, the poverty level - below which they will not fall. They need to have some confidence to know that this be the result of whatever happens.

I think if you have that in place, then you will have a lot more goodwill from Canadians as you go about trying to cut costs and so on.

What you have right now is a lot of downsizing, some waste being cut back, and some bone being cut back. But necessary cutbacks are nonetheless going on. You have Canadians who are enormously fearful, terrified, and angry about the next round of cuts. If you think Ontario is bad, wait till that happens in the Maritimes. It's going to be outrageous. People are really upset, frustrated, and scared.

I'm telling you that if you want to have Canadians on side as you go about doing the exercise of downsizing government, you have to somehow reassure them that they're not going to fall below the poverty level among all these cuts.

If I had that reassurance, as a Canadian who might lose my job, I would certainly feel a lot better, if I had children and so on, than if I didn't. I would be able to look at it a lot more rationally. I would suggest to you that whether it will cover people 18 or under, or 65 or over, Canadians should have that sort of reassurance.

That's what I came here to say. I appreciate the other comments.

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

Ms Downton.

Ms Downton: Mr. Chairman, I would appeal to the government to be cautious in making more cuts. I don't think we can take more cuts. Something that hasn't been addressed enough here today is that however pressed the government and Canadians are economically, we still need to have a long-term, humane vision. There will be serious costs to further cuts.

Katherine said earlier that we're going to see increased welfare costs. In fact, I don't think we're going to see increased welfare costs, prima facie. The Nova Scotia government announced to my organization about a week ago that their welfare budget is going to be cut by a third, for example, in the coming year.

I think we're actually not going to spend more money on our welfare clients. They're going to fall somewhere else.

There are going to be costs for that, whether it means increased costs in crime, protection, security, rehabilitation, or corrections, or whether there are increased costs to the health care system in rehabilitation and repair.

Thank you.

The Vice-Chair (Mr. Campbell): Thank you very much. In keeping with what we've been saying all through the afternoon, everything has its impact and its costs.

Ms Jourdain.

Ms Jourdain: Certainly I think we all understand that the things talked about today are complex and that there are implications beyond just saying one should change the interest rate or tax people more, whatever. There certainly are implications, but they do need to be looked at.

Part of what constrains us in trying to develop any new system is trying to make cuts in the system in which we work. A lot of times it would be a lot easier if we could just.... People talk about reinventing the wheel and how that's a bad thing. Well, I'm not so sure that is a bad thing. Part of what we might need to do is reinvent the wheel. If we were starting government today, how would we approach it? Would that give us some better ideas on how we could handle the fiscal policy of the country?

Maybe the government really needs to be looking at its role. Is its role for leading policy development and developing standards or is it in actually doing the business? Or are there other people out there who can better do the business while government plays a more monitoring role?

In terms of job growth, I think one of the reasons we don't see job growth is because there isn't stability. Even people who feel relatively secure in their jobs are unsure that they're really going to have a job, because that's the kind of market we're in.

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Until there is some kind of stability and certainty, associations and small-business owners are not hiring, so they're not creating new jobs. Until there's a higher comfort level there, we're not going to see a lot of job growth.

I'm not really sure governments should be in the business of creating jobs either. I think history shows that most of that is short-term.

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

Ms McDonald, your response, if you will, to the question.

Ms McDonald: Before I address the question, I would like to make one plea to this committee not to forget the commitment Canada has made to its citizens during the course of our history. We're leaders in the world in human rights, social policy, social programs. Those commitments and those values and those principles are what make up Canada. If we're talking about dismantling those values and principles and that basis on which we've built this country, then we need to have a full discussion of that, not just talk about central banking policy or the effects of interest rate reduction.

With all due respect to the finance committee, I don't know that this committee should be the one that's driving the boat. We are dismantling the fabric of our country because of a debt crisis we found ourselves in. I think we have to stop and take a look rather than the piecemeal approach we're taking, tinkering with this program and changing that program. We have to talk about the underlying values and the basis on which this country is built and ask ourselves if we want to change that. I think the government's role is as leaders in that discussion, and to talk about it from a historical point of view and where we want to be over the next fifty years in this country, not just over the next five or ten.

On Mrs. Brushett's question about the recession, no, I don't believe as soon as the recession is over we're going to be out of the woods. But we have to look at the percentage of the deficit that has been caused by the recession we've experienced and the resulting debt charges. The deficit is not caused by our social programs. The deficit has been caused by high interest rates and it's been caused by low employment and decreased tax revenues. We have to look at it from that perspective.

A lot of blaming is going on in this country. The blaming of social programs for the deficit has resulted in a very nasty spirit in the air. We have to say, okay, if the recession is responsible in large part for some of the effects we have in the size of the deficit, then cutting social programs isn't going to be the answer; let's look at getting the economy growing and let's look at full employment.

The studies by the OECD I referred to basically said a large percentage of our deficit wouldn't be here if we hadn't experienced such a severe recession; and we experienced such a severe recession because we had higher interest rates than other industrialized nations. I'm saying let's think about that and look at those economic analyses that talk about those issues, and rethink the role of the central bank and how it's directing our monetary policy.

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

We turn next to Ms Stiles.

Ms Stiles: Once again I would like to thank this committee for allowing us to come before it. I do have to be very brief with what I say, because I have a taxi outside that's waiting for me right now.

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I know a lot of good suggestions have come from these. I really hope the government will look at them and take all of the views into consideration, especially before it cuts programs that could really benefit people.

Thank you again.

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

Ms Beckett.

Ms Beckett: After listening to everyone today, it's clear we all know what the problems are. We've spent a great deal of time this afternoon focusing on them. I think now we have to focus on solutions.

When we get this problem solved, we will also have to put in measures that simply won't allow this to happen again. Just because you correct a problem one time doesn't mean it won't happen again. I think we have to really focus on solutions now.

I'm going to leave you with one we haven't talked about this afternoon. It's a recommendation for more privatization.

Thank you.

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

Mr. Hubley.

Mr. Hubley: It is distressing to hear that so many people are dependent on the public purse. Perhaps it would be wise if they collectively got together to see if there are services they could offer one another that could help reduce that cost. It would make better use of the public moneys available.

We've heard talk of workfare. My whole family and I have great difficulty accepting something for nothing in our lives. Many of our young people have become dependent on the public purse, and if they don't get it, they steal it. In our particular area they're getting less than 5% of what they're stealing. We are precipitating a problem if we don't change these young people's attitudes.

Business is one way to do it. We have to try to get businesses started. There's a whole list of them in the report, such as recycling, the fishery, and underutilized species. The revenue is there and we're starting to do it. We have to pull ourselves up by the bootstraps, because we can't look to Ottawa. We've been so doggone dependent we couldn't do anything in this neck of the woods without a grant from Ottawa. It has really hurt us in the long run.

I read the report from one of the venture groups from our neck of the woods, in forestry. When New Zealand got into trouble in the 1930s it inventoried its labour in new forests. We can inventory a lot of our young people's labour in that forest. If we did that, we would at least be able to recover that sometime in the future.

As far as business is concerned, we really have a problem. We're up to the limit as far as taxes are concerned. I'm going to be the first guy standing in front of our municipal office if our taxes go up any higher. That is what the problem is.

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

The last word is yours, Mr. Doak, briefly. And no Bank of Canada interest rates jokes.

Prof. Doak: I'll try to avoid that.

I was just thinking we must make some significant changes in the way we're doing things. I know we're looking for that solution, whatever it is. If you look at trends, it seems to be clear how things are going into the turn of the century, and it's rather disturbing. There will be cuts to government. Our chartered banks will be a lot larger than they are now and will wield a lot more power. There will be a smaller Bank of Canada and very significant debt charges. I just wonder how high the ratio will get. If it's 33% now, will it get to 50% or 70%? It could, and that's very disturbing. If it does, it means government will be able to do less and less in other areas. The trends seem unmistakable. If you look at trends to extrapolate things going on, that seems to be what's happening.

We mentioned other taxes. There has been another trend over the last 25 years, that corporate income tax, as a percentage of all taxes, has been decreasing. I'm sure you must have that in your figures there somewhere. If we extrapolate that again, perhaps by the turn of the century corporations will pay no corporate income taxes, or very little.

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I wouldn't doubt either there will be a greater disparity between the rich and the poor. I think that will grow. A lot of young people can't find jobs now, and it's very distressing.

I agree with much of what Katherine McDonald had to say. And I'll stop there.

The Vice-Chair (Mr. Campbell): I was hoping Mr. Doak would end this on an upbeat note.

Prof. Doak: That's why I stopped.

The Vice-Chair (Mr. Campbell): That was your upbeat message.

Not to make light of what you or anybody else has said, this is not easy for us as a committee. It's not easy for those of you who are out there as service providers, business people, or people who create jobs. We take this effort very seriously. We take what you have to say very much to heart. There are tough decisions ahead and tough choices will have to be made. In many ways we are still absorbing what happened in last year's budget, and that's evident.

I appreciate your help, the time you have taken, and how frankly you have spoken with us about your concerns and ideas. If through our questions and interjections - I hope we didn't butt in too much - we've helped give you some additional information to think about, that's also helpful. If that leads you to come up with yet more ideas, please share them with us. Thank you very much.

That will conclude our panel for this afternoon. Let me just remind members of the committee we will be leaving for the airport at 6 p.m.

We are adjourned.