[Recorded by Electronic Apparatus]
Wednesday, November 29, 1995
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[English]
The Vice-Chair (Mr. Campbell): Good morning, ladies and gentlemen. We're going to begin our round-table discussions as part of the pre-budget consultations today in St. John's. I want to welcome you here on behalf of the finance committee.
We have with us today the following witnesses: from the Cabot Institute of Applied Arts, Technology and Continuing Education, Edna Turpin-Downey; from the National Action Committee on the Status of Women - Newfoundland and Labrador, Jane Robinson; from the Newfoundland and Labrador Federation of Labour, Elaine Price; from the Provincial Advisory Council on the Status of Women, Wendy Williams; from the St. John's Board of Trade, Roger Flood; from the Town of Glovertown, Lewis Rose; from the Newfoundland and Labrador Chamber of Commerce, Brendan Fahey; and from PSAC, the St. John's region, Mike Stokes. Welcome.
There are a couple of other witnesses we anticipate will join us. They'll just be introduced a little later on.
Our procedure is fairly straightforward. We begin, as you know, with opening statements. We ask you to keep those statements brief, hopefully directed towards responding to the questions we sent out to you. They were not to preclude you from making references to other things you see as important for us to know but to give you some assistance in responding to questions we have to address in drafting our report. I urge you just to hit on the salient points of your presentation, so we'll have plenty of time for discussion among the panellists and with the committee members.
We'll begin then with -
A witness: Will you introduce yourselves?
The Vice-Chair (Mr. Campbell): I'm sorry. My name is here, as are all the names of the committee members. I'm Barry Campbell, vice-chair of the finance committee and chairman of the sessions in eastern Canada. I have with me other members of Parliament: Mr. Pillitteri, Ms Brushett, Mr. Loubier, and Mr. Solberg.
Ms Jane Robinson (Regional Representative, National Action Committee on the Status of Women - Newfoundland and Labrador): And which parties do you represent?
The Vice-Chair (Mr. Campbell): Mr. Solberg is from the Reform Party. Mr. Loubier is with the Bloc, I'm Liberal, as are Ms Brushett and Mr. Pillitteri.
We don't usually introduce ourselves with party affiliations in the committee. These are all-party committees of the House, the best example of Parliament working hard on problems with common interest to all of us. So we tend to introduce ourselves just as a committee rather than with party affiliations. But we are happy to answer your questions so you know who we all are.
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We'll proceed with the Cabot Institute of Applied Arts, Technology and Continuing Education.
Ms Edna Turpin-Downey (President, Cabot Institute of Applied Arts, Technology and Continuing Education): Good morning. I'm pleased to be here. Thank you for the invitation.
My remarks are not necessarily based on direct responses to your questions, particularly with regard to what reductions should necessarily be. It's not my area of expertise, but I certainly will be speaking to the impact on some programs, which we've already seen, particularly in regard to the transfer payments to the provinces.
I think it's very obvious that the provincial governments are struggling with the need for rationalization in health and education without jeopardizing quality. At this point, we are certainly recognized for our social programs, our services and the reputation for quality, fairness and integrity. Of course, I think it's clear that we should not make these suffer. There's no doubt that we need to do things differently. Rationalization has to occur, and there is a need to cut duplication and increase cooperation.
In the post-secondary system, cuts in transfer payments have led and will continue to lead to management restructuring, economies of scale in administrative services, review of and cuts to programs - particularly those that are considered duplicate programs - and the need for our institutions to look at options in delivery methods for programs and services. These are happening and they're continuing to happen, but not without some reshaping and some retooling of the education system.
I think this is our chance to get it right. We all know the federal government has had extensive involvement in the post-secondary system of education. A major infrastructure has been built up, and it has depended very much on federal funds. And even though we are in difficult times, I think there is an opportunity for the federal government to create an environment that, using the education system, will indeed continue to create an environment for jobs and growth. I think there specifically has to be a sustained recognition for colleges and technical institutes. These are not being seen as agencies for economic growth.
We have to ensure that the colleges are eligible for federal research and development funding. We are not currently eligible for funding from agencies such as NSERC. There must be an encouragement of college-driven linkages between colleges and industry. For example, this means allowing colleges access to the funding presently being provided for trade missions. Again, we are not eligible for that.
Support for the institution of standards and accreditation to the ISO 9000 standard are needed so that we too can be competitive internationally in marketing our educational programs and services. Canada is recognized as a world leader in education and training, but there are currently many barriers to exporting this expertise globally.
Continued and expanded partnerships between IRAP, the Industrial Research Assistance Program, and the colleges will allow for enhanced linkages with business and industry. I think student financial assistance has to be an integral component of all this. Post-secondary education has to be recognized as a resource. It has to be recognized as an industry. It has to be recognized as an investment, not just an expenditure or social service. It's something that has to be nurtured. It's so easily cut in tough financial times, but it is never seen as a contributor to wealth creation - particularly the education that's provided in the college system.
If we listen to authors like Nuala Beck, they say the colleges are really the unsung heroes of the new economy. In a global context, they are net contributors to economic growth. When funding to colleges is cut, national productivity will suffer.
With respect to the areas of federal activity that could be considered for further cuts, like commercialization, privatization and devolution to other levels of government, I'd like to add that there needs to be increased or sustained support for federally funded regional development agencies, as well as initiatives with regional autonomy. For these to be successful, the initiatives have to be tied to regional economic development.
As for a recent endeavour with the federal government, we need increased support for the educational transition process. For example, the prior-learning assessment process validates workplace or life experience and assures that those who already have valuable skills and knowledge gained outside of the classroom can get credit within the classroom.
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On the other hand, there also needs to be more support for activities that link educational experience to the workplace, such as cooperative education, internships, and work phases. There's no question that these are extremely valuable, but I understand that whether this venture will continue to get federal funding is now questionable.
To facilitate these activities, we need intersectoral articulation and transfer from colleges to universities, from universities to colleges. We have to create a seamless web of post-secondary education that allows people to move in and out of the education system and the workplace as new skills are needed and current training becomes obsolete. This also facilitates transfer of one of our greatest resources, our people, across the country and across the world, to share their ability and their expertise. A national education plan is required if we are truly to link education with economic growth and development.
In closing, I'd like to reiterate that we all acknowledge that times have change. No longer can institutions rely on the levels of funding from federal and provincial governments that we've seen in previous years, so we must establish partnerships with business and industry if we are to succeed in the new global economy.
The Vice-Chair (Mr. Campbell): Thank you.
We'll move next to Ms Robinson.
Ms Robinson: I'd like to start my presentation with a quote from a woman who spoke at a forum on women and poverty held in St. John's on November 14. She said, ``I've been poor all my life and I can't see how I've created the deficit''.
That is the perspective of a lot of women I've been speaking to, as the NAC representative in Newfoundland and Labrador.
The deficit has not been created by what poor people have done in Canada. They are not to blame for the deficit.
We are finding that women in Newfoundland and Labrador are really hurting from your economic policies. These policies are a carry-over from the Conservative government. Not a lot has changed.
The federal and corporate mismanagement of the fishery has cost 13,000 women fishery workers their jobs. Many women have lost jobs in the health care system and in education. Women's centres and shelters for battered women are running on a shoestring. Pay equity has been eroded. Employment equity is still a dream.
Women need jobs. We need good services.
The transition from institutional to community-based systems is going ahead at a reckless pace, without the necessary infrastructure at the community level. People are being sent home from hospitals with open incisions. Family members, usually women, are expected to provide health care that they are not qualified to give. People like Margaret Jones, of Lewisporte, are dying as a result.
We are indeed seeing a leaner and meaner system being developed. This trend has not changed substantially since the Tory government.
Those who control finances seem to control everything. The social safety net, which Canada can afford, is being eaten away, and you are letting this happen.
There is real fear here. Women are feeling the constant threat of losing their jobs. We are experiencing a tremendous amount of stress as family members lose work and become sick and young people need more and more money to get a post-secondary education.
The women's movement in Newfoundland and Labrador has let you know time and again that these cuts are unacceptable. They amount to a vicious attack on poor people, people with disabilities, women, the unemployed, and immigrants.
Since 1990, we have seen drastic cutbacks to the unemployment insurance system. In 1989, 84% of unemployed women and men in Canada were receiving UI benefits. Now, fewer than 50% of the unemployed are able to collect UI. The benefit rate has dropped to 55% of earnings, and in the cuts expected by Minister Axworthy today this could drop even farther.
And it is 55% of what? Women earn only about 70% of men's average income.
New changes to UI reward overtime and penalize people for short-term jobs and shorter hours of work. Almost 44% of women have jobs of fewer than 49 weeks per year, and most of these women are in the 14- to 26-week category. The highest unemployment category is young women, yet the number of weeks of work required for new entrants may zoom up to six months.
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The federal government paid 15% less in UI benefits in the first quarter of 1995 than in that period in 1994. HRD's own internal auditor's report last spring estimated a $1.2 billion accumulated surplus in the UI fund by December 1995 and a $20 billion surplus by 1998. It's clear that the money is there to repair our UI system.
In your hearings across Canada, NAC, along with many organizations, has informed your committee of other loopholes in the systems. Many other suggestions have been made as to how we can avoid further cuts in Canada's social programs.
The cuts we are seeing coming down the tubes in Newfoundland are in education, health care, social housing, transportation, social assistance, child care subsidies, etc. We've recently heard that the ``need to chew'' is now an insufficient reason for people on welfare to get approval for dentures. The cuts we are seeing coming down the tubes are hitting the most vulnerable people in society: poor people, people with disabilities, single parents, people who are unemployed and on welfare, and immigrants, all those people who have a very small voice in our society.
In 1990 the women's movement in Newfoundland occupied the offices of the Secretary of State when cuts to the women's program were threatened, and we succeeded in having those cuts turned around. We remember that very well. We plan to use similar strategies in the future, joining with other brothers and sisters in the trade union movement, in the anti-poverty movement, and in tenants' action groups. We cannot tolerate further cuts.
Thank you for your time.
The Vice-Chair (Mr. Campbell): Thank you. Because you were just on time, and I appreciate that, I wondered whether you wanted to respond at all to the questions we asked in the letter as to where we go from here. Can I summarize by saying that whatever we feel we have to do to deal with Canada's fiscal reality, it shouldn't be done by further cuts? Would that be your bottom line?
Ms Robinson: Absolutely. I expected that in further discussions of the round table some of these things would come up.
The Vice-Chair (Mr. Campbell): Thank you.
We'll move then to Elaine Price from the Newfoundland and Labrador Federation of Labour.
Ms Elaine Price (President, Newfoundland and Labrador Federation of Labour): Good morning.
The Newfoundland and Labrador Federation of Labour believes the federal government is moving in the wrong direction in its acceptance of a free market model focusing on cutting government expenditure to reduce the deficit. Deficit reduction to the exclusion of other government responsibilities contradicts the government's election mandate, which was to develop an economic policy that ensured the availability of good jobs, with adequate and stable income for all Canadians.
This contradiction is reflected in the three questions identified as subjects for discussion here today. An environment for jobs and growth is difficult to achieve if the government is pursuing deficit reduction through large-scale cuts and lay-offs, as your government is doing in the public sector, and mistakenly relying only on the private sector for job creation.
Although the Federation of Labour recognizes the need to include some measures to reduce the deficit, we agreed with the Auditor General when he maintained that the federal government had become too narrowly focused on the balancing of year-to-year budgets. He also criticized the government for not developing a longer-term debt strategy, including a plainer vision of how this fits in with Canadians' views of the role of taxation and the role of government.
He recommended that the cabinet initiate parliamentary debate based on the following questions. What level of debt can we manage? To what extent can we keep the debt under control while maintaining financial, social, and cultural well-being? That is a crucial question.
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In short, we endorse the Auditor General's statement that a balanced budget, no matter how quickly attained, is not an end in itself. Even if a balanced budget were legitimate in itself, massive cuts announced in the 1994 budget, in combination with cuts made by other levels of government, have undermined the federal government's deficit reduction efforts by reversing economic growth.
Cutbacks in government programs directly accounted for 48% of the decline in Canada's GDP in the second quarter of this year.
The recent slowdown in economic growth is also due to the very lopsided nature of the current economic recovery. The benefits of recent growth have been disproportionately concentrated in the corporate sector.
Since 1992, corporate profits have increased after inflation by 102%, while wages and salaries have increased after inflation by just 5%. Job growth has also been weak. Strong growth in the corporate sector, especially exports and investments in machinery, is not sufficient to offset stagnation in private and public consumption.
With regard to another issue on the agenda for discussion - the devolution of federal government activities to other levels of government - the Federation of Labour submitted a brief on Bill C-76 to the Standing Committee on Finance in May, 1995. In this brief we argued against the introduction of the Canada health and social transfer. This method of block funding would fundamentally alter the federal role in the field of social policy, and I quote from our brief:
- It will reduce the money currently transferred to the provincial governments for health care,
post-secondary education and social services over the next three years by $7 billion. In doing so,
the Canada health and social transfer will effectively mean the end of national programs and
standards in these crucial areas.
In our policy statement, we put forth a number of suggestions to help government develop a balanced approach to budgeting. I'll just quickly touch on some of the issues we have referenced because I am cognizant of the time.
We strongly recommend, in line with the Canadian Centre for Policy Alternatives, a more relaxed monetary policy, one that reduces interest rates and encourages growth. We would also suggest that instead of setting targets for unemployment, the time has come for the federal government to actually set targets for job creation, which doesn't exist right now.
There would be a number of ways of doing this if the government were to change its ideological approach to budgeting in this country.
We would suggest the government implement a national job creation strategy, a national infrastructure strategy, a national housing retrofit program, and a national and provincial social and cooperative housing program.
We'd also strongly recommend - and this would definitely contribute jobs, particularly for women - a national childcare program. These goals are attainable. We can have a balanced budget. We can have a balanced approach to job creation in this country. All it takes is the political will to do so.
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The Vice-Chair (Mr. Campbell): Thank you.
I would like to leave you with a question you may want to comment on later as to those suggestions you heard from other quarters on job creation strategy, housing, the infrastructure, childcare. Would the funds required for this come from spending in other areas, or would we be raising new revenue to engage in those programs? I will just leave this with you for later on.
Ms Price: I would like to answer that when everybody finishes their presentations.
The Vice-Chair (Mr. Campbell): We move next to Wendy Williams, Provincial Advisory Council on the Status of Women.
Ms Wendy Williams (President, Provincial Advisory Council on the Status of Women): Welcome. Bienvenue à St. John's. I hope you get outside these walls.
The Vice-Chair (Mr. Campbell): So do we.
Ms Williams: We have a fabulous city. I used to be on the city council. I hope you get a chance to spend some of your big government salaries down here buying presents to bring home. So that's my bit for the local economy.
My job is to speak about social and public policy and the effect they have on gender. I'll be speaking mostly about women. I also would like to comment that last year the women's community in this province spent almost all our energy talking about social policy and the social security review. It is very upsetting to us that social policy is now being done through a finance committee. We disagree with the approach that social policy be done through financing.
I would also like to think any social policy and any public policy is based on research. My background is in health and I know in fact there is almost no evidence public policy is based on research in the health care field. I don't think in this country there's a whole lot of evidence social policy is based on research in any other field.
My points do speak to the role of research and what works when we're defining social policy and since the finance committee seems to be doing the social policy in this country, I'll speak to you about that.
Last week I was in Halifax for consultations through the Atlantic provinces on the Canada health and social transfer. There was a discussion that made it clear we want the federal government to have a role in this country and are very concerned the federal government's role is only to devolve to the provinces. This is not the way the people who were at this consultation saw it. You will no doubt be getting a report from this because the consultations were held by the Canadian Council on Social Development and I know they plan to present a report to you.
I will answer the questions, though. I go by the rules. You tell me what the rules are and I go by them.
What should our deficit reduction target be and how can it best be achieved? Our concern here is that Finance should not be setting, developing or changing social policy unless those who are delivering those services or receiving them are at the table. It is clear that social welfare spending accounts for only 2% of the deficit, while insufficient tax levels for upper income above middle-class account for more than 40% of the deficit. This would be our comment on deficit reduction.
The Vice-Chair (Mr. Campbell): You weren't suggesting those stakeholders are not at the table? We're all here this morning. That's what this consultation is about.
Ms Williams: We certainly didn't get an invitation. We found out through a women's organization that these consultations were going on. We got a notice on November 22 that you were going to be here. We certainly never saw any public notice to come. We took the initiative to spread the information and that is not the way we've done it in other forums. I would say the federal government generally has done much better in inviting people and letting us know you're coming.
The Vice-Chair (Mr. Campbell): I apologize if you didn't receive notice or don't feel you had adequate notice. Many groups were invited; other groups have come forward on their own.
In Ottawa, we have already heard from dozens of representatives of national groups, some of which you're affiliated with. We're holding these hearings across the country. We'll have heard from several hundred witnesses by the end of this process. It is, like today's panel, a cross-section of all the stakeholders who have an interest in this. So I think to suggest we're doing this without consulting you when you're here talking to us is a little unfair.
But I'm anxious to hear what you have to say about the issues. Please proceed.
Ms Williams: The question is, how may budget measures be used to create an environment for jobs and growth? Once again I'll go to research. The research comes from the United Nations. It publishes something called The Human Development Index Report. It is clear investment in people through programs of education, health and social support systems is the most efficient and beneficial way to create a healthy economy and society.
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It's my understanding that the research on this is very clear. Focusing on the industrial side does not produce a healthy economy. You have to invest in people. I'm sure your researchers are aware of the work of the United Nations.
Third, what areas of federal activities should be considered for further cuts, commercialisation, privatization or devolution to other levels of government? We do not support any further cuts to social welfare programs, education or health. The United Nations has concluded that programs that support health, education and social services are the most beneficial to countries and their economies because these programs invest in people, not companies.
Furthermore, programs that are universal in scope are more effective than programs that are targeted and that isolate marginalized groups. I understand the international research is very clear on this also. Targeted programs do not produce benefits for the entire country.
Finally, the advisory council believes the integration and coordination of health, education and social service programs is important. However, social service programs do not have the support as education and health. Yet without some financial security, the benefits of education and health services are diminished. We need to know that the government is committed to the well-being and welfare of all its constituents.
Thank you.
The Vice-Chair (Mr. Campbell): Thank you.
There are two other comments on the notice issue that Mr. Loubier pointed out to me. We've heard this in some of the other regions as well. One of the problems may be that we are contacting national organizations because they tend to be available to meet with us in Ottawa. Then we go to the regions, but these trips are often organized in a way that it's sometimes hit or miss in terms of who receives notice and who doesn't.
But I do want to make the very important point that this pre-budget consultation exercise we began last year is now a permanent feature of budget-making in this country. Your organization, the others represented here and the others we're hearing from in other cities, should keep in mind that we will be engaging in this exercise every fall.
As you consider the impact of the budget from the prior year, you should bear in mind what you'd like to say to us as we begin our work for the next budget. We've moved budget-making out from behind closed doors and have made public consultation an important part of it. So don't wait over the summer and the early fall. Assume this is beginning. Contact your local members of Parliament to find out what's happening if you don't hear about it. We advertise, but we can't always send a personal invitation to every group and every individual who wants to appear before us. They are all welcome to do so.
So just bear this in mind. It's now a permanent feature. This will happen every fall.
Thank you.
Ms Williams: And will you have funds for people who don't live in St. John's to get to the table?
The Vice-Chair (Mr. Campbell): We do provide assistance for those who want to travel to Ottawa to appear before us. I don't see why arrangements couldn't be made for groups that wanted to come to a regional centre when we're in that region. Of course we'd have to check with the clerk's office.
One of the criticisms we do get from some quarters is that we shouldn't be spending all kinds of taxpayers' dollars on consultation. We disagree. It's extremely important.
As Mrs. Brushett points out, we have split the committee in two with half of the committee holding similar hearings in the west and the other half here in the east, as we did last year.
So you can anticipate this as a permanent feature of budget-making. I think it's a welcome improvement in the way we go about it. We learn a great deal from you and from your presentations. Thank you.
We'll move to Mr. Flood, from the St. John's Board of Trade.
Mr. Roger Flood (President, St. John's Board of Trade): Thank you.
The St. John's Board of Trade appreciates this opportunity to talk to the Standing Committee on Finance, and we regret that our message is the same message we brought here last year, the same message we brought the year before that and the year before that. Perhaps the principal difference is the intensity with which we speak.
The language of the federal budget released in February 1995 paid commendable attention to the severity of the country's fiscal crisis. While public acceptance of the message of austerity has been broad, the St. John's Board of Trade believes the proposed actions do not go far enough.
In light of the exceedingly high level of public debt, which is projected by the Department of Finance to reach $600 billion in 1996-1997, greater than 73% of the country's annual gross domestic product, and the excessive burden of servicing this debt, which is in excess of $50 billion this year alone, in excess of one-third of the total revenues, the board continues to recommend that the minimal acceptable target should be to eliminate the deficit before the current political mandate expires.
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The elimination of the deficit will necessitate harsh measures. However, the delay will neither avoid the need for such actions nor guarantee an easier economic climate in which to make them. Procrastination will serve only to heighten the financial market sensitivities, so not only does the nation's debt continue to grow larger but the cost of servicing that debt also becomes greater than it would otherwise be.
Where should cuts be made? Well, through the endorsement of a policy of the phased business subsidy elimination. Those in the business community recognize their responsibilities towards fiscal reform. Beyond that, it's not the duty of the business community to dictate at a detailed level, but there are some issues we would address.
A great deal of resources are expended on inefficient delivery and non-essential services. Before cutting benefits to needy individuals and effective programs, we think the government should go after the fat. The St. John's Board of Trade questions the seriousness of the federal government when it says it wants to tackle expenditures aggressively but it continues to follow policies that waste a great deal of taxpayers' money.
For instance, Marine Atlantic does 80% or 90% of all its business in Newfoundland, but you maintain your headquarters in New Brunswick. It's a totally political decision. The coordination of search and rescue, fishery surveillance, are all out of another province, while again 80% or 90% of all your business is in Newfoundland. If you're going to do the cuts, then the first thing to do is cut the fat and put the headquarters where your business is. In all those instances, government appears to ignore business principles in running its operations efficiently, instead opting for politics.
Efficiency evaluations of programs and departments. Many opportunities exist for achieving cost savings in government operations. This can be done through a much stronger emphasis on quality, the elimination of duplication, the streamlining of procedures, the creation of a much stronger accountability. In short, the government needs to be run more like a business.
Commercialization, public-private partnering, outsourcing - there are hundreds of areas where the private sector is capable of providing services government is now providing for itself, whether cleaning, building maintenance, printing, advertising, engineering. There are a whole raft of those areas. The federal government should do the things it is good at and get out of the things private industry can and should be doing.
Stimulating economic growth - government need not be reminded of the significant benefits for the economy when the private sector builds sustainable companies and hires people. Government is encouraged to remove all impediments to business development, assisting small business to access capital.
Business growth is stifled by the high cost of doing business in Canada. This fact is amplified in areas of depressed economic growth, such as Newfoundland, and areas such as the unemployment insurance premium, the unharmonized sales tax, take money away from the small business operator, money that could be used to improve competitiveness and assist with small business growth.
One mechanism that has proved to be effective in many countries around the world and in depressed areas of the United States is free zones, or enterprise zones, in which certain areas are deemed exempt of custom duties and regulation for the sake of labour-intensive manufacturing operations. It is the St. John's Board of Trade recommendation that such zones be permitted in economically disadvantaged areas.
The national sales tax: the harmonization of the provincial retail sales tax and the federal goods and services tax can result in both cost savings for government in administration and cost savings in remitting to business. Re-engineering the national sales tax regime to introduce a unified tax, with a simplified method at a lower rate, will benefit the provincial and governments and the business sector. Far too much money is spent by both governments to generate the tax revenue.
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In terms of revamping the unemployment insurance, the Department of Human Resources Development must redesign the unemployment insurance program so it is based on its original insurance-related principles - providing short-term income support for those who are temporarily unemployed through no fault of their own.
The board opposes any tinkering with the UI system, such as what's proposed by a two-tier system or some sort of mechanism for experience rating. We encourage the federal government to seriously consider the income supplementation program as presented by the Government of Newfoundland and Labrador. This program guarantees an annual income for every individual, but is taxed away as you increase personal income. The program encourages entrepreneurship and decreases dependence on social policies. The income supplementation program has three basic changes in direction inherent in its proposal. These appear to be in line with what is needed to address the key concerns of business.
It contemplates a purification of the UI system and more of a focus back to transitory unemployment. It contemplates a shift of income security benefits towards lower-income earners and those in need. It incorporates incentives for people to seek work or engage in training as an alternative to unemployment.
In terms of regional development, Atlantic Canada does not have sufficient private-equity capital available to ensure that the entrepreneurial base can grow and expand. Initiatives by ACOA to provide a pool of venture capital is needed. Strong regional development initiatives are important toward the support of an overall healthy Canadian economy.
The promotion by government of regional-wide initiatives and small and medium-sized businesses will play a key role toward a balanced national economy. ACOA has benefited Atlantic Canada, and care must be given to continue financial support toward those regional initiatives and programs that have been developed by the agency.
In January the board suggested another alternative to Finance Minister Paul Martin for providing tax incentives similar to those that the Province of Newfoundland is offering to its economic diversification growth legislation, or EDGE program, or that provided through enterprise zones in the United States.
It is the board's understanding that Premier Wells has placed a proposal called ``Double-EDGE'' before the federal government. This would relieve businesses that qualify from both federal and provincial taxes until such time as the unemployment rate, which has swollen because of the closure in the groundfishery, returns to its pre-moratorium level. The board supports this idea and encourages the federal government to adopt it.
As well, to avoid providing assistance to companies that will compete with already-existing companies, the Board of Trade suggests partnering with the provincial government's EDGE plan, which has a review board to screen it applications.
Thank you.
The Vice-Chairman (Mr. Campbell): Thank you very much.
I'd like to just clarify something. Hopefully it'll stimulate further discussion. First, I want to say that one of the benefits of the round table is that we have a representative of PSAC here. You may well want to comment on his presentation on the suggestions for outsourcing, which means moving services out of government to the private sector.
We've heard from other union representatives in other centres who have quite a contrary viewpoint. I'm sure we'll hear that.
But just so I understand you, you're saying whatever we do, we should not cut the direct transfers we make to people as a federal government. We shouldn't add to that burden. Similarly, we shouldn't cut the transfers we make to provinces any further than we already have. We can't touch the $50 million per year of interest that we pay on existing debt, however it arose.
Say we take those three items off the table: transfers to provinces; direct transfers to people; and payments on the debt. Out of overall spending of $150 billion or $160 billion, we have only a very small amount of spending left that is government operations, which is, in essence, what you're saying we should go after. Have I understood you correctly?
We can't touch transfers to people or provinces. Interest is out there; we have to pay it. So we're dealing with a government operation of approximately $35 billion, which equals roughly one year's deficit.
Mr. Flood: One thing we did say at the very outset was that we agreed with the elimination of a lot of the subsidies to private business.
The Vice-Chair (Mr. Campbell): But that's already under way. Two-thirds of that will be gone by next year.
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Mr. Flood: We didn't say you would decrease transfers to provinces. We certainly think some of that will be necessary.
The Vice-Chair (Mr. Campbell): So further cuts in transfers to provinces might be something the Board of Trade would consider.
Mr. Flood: We agree that some of that will be necessary. We think all of us are going to have to hurt with the process going through. So a lot of that will have to happen, but we do suggest that it be done on the basis of economics and not on the basis of politics.
The Vice-Chair (Mr. Campbell): Thank you.
There's one more thing. You didn't mention defence. That's another big chunk of federal spending, $12 billion approximately.
Mr. Flood: The same statements we've made on marine Atlantic fishery surveillance would apply to defence.
The Vice-Chair (Mr. Campbell): So do you have any specifics on defence?
Mr. Flood: No, not at this particular point in time.
The Vice-Chair (Mr. Campbell): Thank you.
If anybody wants to comment on that in our discussion period, please feel free to do so.
We move next to Mayor Lewis Rose of the Town of Glovertown.
Mr. Lewis Rose (Mayor of Glovertown): Good morning, Chairman, committee, and others present.
I do not propose to serve as a draftsman for budget design. I leave that to the economists, the financiers and those others who are better equipped to deal with the task.
The Vice-Chair (Mr. Campbell): I think committee members and witnesses hope it goes beyond financiers and economists to those responsible and accountable.
Mr. Rose: I did include ``others'', of course.
I do want to offer some ingredients for that design. Furthermore, I will speak on behalf of rural towns, and not my town singularly. I will use my own town as a model because of course I'm more familiar with it.
Glovertown is a small rural town of approximately 2,300 people. Our economic wheel consists primarily of four industrial spokes. These are lumbering, fishing and fish processing, boat-building, and metal fabrication. There are of course some other residuals, such as minor construction, but the ones mentioned are the prime spokes.
When one of these spokes is broken or badly bent, our economic wheel sags significantly. A downturn in the fishery, for example, results not only in a lay-off of approximately 15% of our labour force, but the resulting spin-off has a direct negative impact on the other industries of that area.
Mr. Chairman, I wish now to show the parallel between government policy, including regulation, and the economic effect it has, as well as the resulting minor ripple effect that goes all the way to the federal budget and the deficit you must address.
In the current and past year, government policy dictated there would not be a capelin fishery. This has placed approximately 150 of our taxpayers out of work in my town alone. I think provincially it amounts to about $50 million. A quick mental calculation will tell us what the tax loss is because of that one singular policy.
On the other hand, we've experienced a lucrative crab fishery in the past year. Unfortunately, again due to regulation, it was processed by very few processors. Consequently it created a very narrow economic base, but high vertically. My meaning is that it generated a lot of dollars that went into a singular pot, rather than having it spread out over a wide economic base, where many would have benefited.
Right across Canada our aquaculture industry is suffering. It's lagging the rest of the industrial world significantly. Two reasons for this come to my mind. One is the availability of a natural resource throughout the years, and the second one, which has been a drawback and we can do something about now, is the government regulation that requires so many permits and so much red tape in getting into this industry.
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I hope those regulations can be packaged better so that the future fish farmer will be able to get into production in a minimum time, thus enhancing economic growth. Too often we hear ``no'' when a conditional ``yes'' would be much more beneficial. Red tape must be reduced and more discretion used by those in authority.
I would like to deal perhaps a bit more directly with the issue at hand.
In my opinion, our deficit is a result of national debt brought on by borrowing in the past. In the future, borrowing must be to satisfy our most pressing needs, not our wants.
I would like to illustrate that by saying that if farmer A cannot afford seed for spring planting, then he would be wise to borrow from farmer B, but he dare not borrow beyond the seed he needs for spring planting. In other words, there should be no frills.
For too long Canadians have lived with the Cadillac syndrome. We have demanded a higher standard of living than we can afford. That is obvious. The deficit clearly indicates that. In order to get our financial house in order, we must tighten our belts and get on with a standard of living that is within our financial reach.
In order to reach the deficit-reduction objectives of the federal government, they must continue to oil the wheels of industry. But I would like to make the point strongly that it should be oil alone and not a complete wheel.
The government must do all it can to restore the morale of Canadian citizens. It must instil a sense of security, thereby creating a greater desire to invest.
As an example, we often find senior citizens who are saving for a rainy day. This comes from a fear of losing or seeing their Old Age Security reduced. Their sock savings alone, if invested, would probably negate the deficit.
The Vice-Chair (Mr. Campbell): Mayor Rose, I wonder if we could ask you to end at that point, as your time has run out.
Mr. Rose: That is my conclusion.
The Vice-Chair (Mr. Campbell): We'll leave for the discussion period how you would entice people to get money out of their socks and mattresses to pay down the deficit. It's an intriguing idea.
Mr. Rose: I suspect you would have to stand them on their heads and shake it out.
The Vice-Chair (Mr. Campbell): We'll move next to Brendan Fahey, from the Newfoundland and Labrador Chamber of Commerce.
Mr. Brendan Fahey (Chairman of the Board, Newfoundland and Labrador Chamber of Commerce): I wonder if our position at your round table, being on your right side, indicates that the right-wing agenda is in this corner.
The Vice-Chair (Mr. Campbell): We've already identified party affiliation. You can draw your own conclusion about where we're sitting. It depends on whether you're at this end or that end of the table. We're all mixed up.
Mr. Fahey: I was thinking of your right hand, Mr. Chairman.
I suggest that my comments will probably be as popular as a cat at a mouse meet, but I have some comments to make and I hope they're supportive of my learned colleague from the St. John's Board of Trade, with whom I've been consulting.
I thank you for the invitation to participate.
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The Newfoundland and Labrador Chamber of Commerce represents 25 chambers and boards in Newfoundland and Labrador. We're affiliated with the Atlantic Provinces Chamber of Commerce, which represents 125 chambers throughout Atlantic Canada. We are also affiliated with the Canadian and international chambers.
Since we were asked to participate today, I've had some time to reflect on your questions. I've prepared a statement based on your questions.
Question number one is what should our deficit target be and how can it be best achieved? I will keep the detail for the panel discussion and simply say for fiscal year 1996-97, it should be no more than $25 billion, for fiscal year 1997-98, no more than $15 billion, and for fiscal year 1998-99, zero. In other words, a balanced current budget over three years.
The federal government should rise to the task of eliminating duplication. You're crushing under your own weight. You should also down-chain it to the province by reducing transfer payments in certain areas.
Examples of duplication, just in Newfoundland and Labrador, are: the Rural Economic Development Board, Enterprise Newfoundland and Labrador, the Atlantic Canada Opportunities Agency, the Federal Business Development Bank, the Advisory Council on the Economy, the Strategic Regional Development Agency and the Economic Recovery Commission. These are just a few that are down-chaining from the federal transfers. This list doesn't even touch on federal and provincial departments that are involved in stimulating the economy or creating seasonal employment.
Let's introduce some long-term strategic planning, and I mean three to eight years, so we can identify and plan for opportunities and prepare the public for them, rather than an annual surprise list or budgets that get introduced coincident with the year of an election and end up providing bribes for people with borrowed money.
Let's introduce, for example, a regional government to further eliminate duplication in smaller provinces. That's probably not so popular because of the emotional patriotism that may come about, but simply put, in today's economic environment, trying to compete on an international basis, Newfoundland and Labrador, Nova Scotia, New Brunswick and Prince Edward Island could become one economic unit and provide services as well as they're providing them now.
However, the political unit, which would be the natural next step, will be very troublesome to cause to happen. But it should be looked at. I would think that along with emotional patriotism will also be those who will want to save the jobs that may not be meaningful in terms of delivering services to the people.
Plan the process and help it along with target dates in mind. Come up with a critical path to achieve the various phases of it. Balanced budgets and meaningful, effective delivery of necessary government services are dependent on long-range strategic planning. Let's get at it.
How may budget measures be used to create an environment for jobs and growth? Government budgets that pour direct cash into job creation are little more than stopgap measures. We've proven that over and over again. Borrowed government cash doesn't create permanent jobs and it never did.
Do you know that 60,616 Newfoundlanders and Labradorians have migrated to the mainland since 1971? They haven't been kept home by the jobs you created. Jobs are created through things like tax incentives, training assistance, providing the basic UIC and WC levels of services, and trying to come up with other budget initiatives that can help to create an environment for entrepreneurial aggressiveness.
This is what creates jobs. Government has never created jobs that lasted, except big ones that pay large money and never are accountable.
Education should be shared between the federal and provincial governments and the private sector. We should come up with a formula that shares education across the three groups. We have to stop bribing the people when it comes to election time. We have to make all Canadians realize there's no such thing as a free lunch. People will rise to the occasion when they know what's expected of them.
Question three is what areas of federal activity should be considered for further cuts, commercialization, privatization or devolution to other levels of government? Continue to push the commercialization of the 26 nationally designated airports and privatize the other 650. Let a natural regional rationalization take place.
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As the past chairman of Gander Worldwide Inc., I can assure you that Gander International, which is one of the 26 designated airports, has made some great inroads, using some of the free trade concepts mentioned by my colleague, and also dealing directly with the competition in Bangor, Maine, and Shannon, Ireland. We are moving forward and creating new jobs at Gander International while governments are reducing theirs in dealing with their deficits.
As my colleague mentioned, private-public partnering and outsourcing should become the general rule during the next three- to eight-year planning cycle. Any government service, federal, provincial, or municipal, that is not critical to the social fabric of Canada should be done in the private sector, and at the most competitive rates. Even health and welfare services should be considered for private-public partnering as a minimum delivery methodology; and fully privatized is the ultimate goal.
The civil service, from high-level management to the basement-level entry jobs, should be paired in direct proportion to outservicing activities. Even functions that can never be outsourced should be downsized and mechanized for optimum cost control. All non-essential regulatory bodies should be eliminated. Let free enterprise and competition control the marketplace.
In summary, government should cut in half its activities in those areas by the year 2000 and to about one-third by the year 2010, but - and I remind you, but - never at the expense of those who cannot fend for themselves; only of those of us who can rise to the challenge.
The Vice-Chair (Mr. Campbell): Thank you.
It may only be geographic happenstance that Mr. Stokes is sitting to your left. We turn now to Mr. Stokes, from the PSAC St. John's Region, who I'm sure will want to join issue on a number of your comments.
Mr. Michael Stokes (Regional Representative, Public Service Alliance of Canada, St. John's Region): Yes. I think we'd have a very desolate country if my friend had the final say.
I have a friend who's a businessperson. He's fond of saying his ambition was to have a million dollars; and if he couldn't have a million, he wanted to owe a million. Either way he had access to the assets.
Anyway, Canada is a lot like my friend. What should the deficit be? It should be whatever we can be comfortable with. Again, if you took a person who never owed a million dollars and the most he could ever borrow was a hundred dollars, you'd see a very poor person. So as you think about deficit reduction, think about my two friends: the one who's well off and the one who's not so well off.
That being said, obviously we have to handle our finances in a responsible manner.
I remember preparing a speech for an American audience back in the 1960s. At that time America had 52% of all the money in the world. I guess it was the end of World War II and the profits of the war, money lent to Europe, etc. When Canada was compared with America at that time, Canada was three to five times as rich. We were the second-richest country in the world. Two or three years ago The Globe and Mail wrote that Canada had slipped to the 67th poorest country in the world. It had changed places with Poland that year.
What happened to Canada? How were we mismanaged between the 1960s and the 1990s? One of the things that happened was that in the 1960s Canada was governed by a minority government. Any laws that were passed in the House had to take the people into consideration or the government faced defeat. In the late 1960s we started to elect majority governments, which owed their allegiance to big business. From that point to this point we've had what I'd call a big-business agenda.
The first thing we saw when that happened was rampant inflation. Rampant inflation was a way of transferring funds from the bank accounts of Canadians to business.
I'll give you one quick example right here in St. John's. Philip Place was built at a cost of $1 million. In less than ten years it was sold for $6.5 million. The purchasing power of the $1 million that was in the bank was reduced to $500,000. So in terms of the purchasing power of Canadians, the $1 million was $500,000; For business it was $6 million.
This has gone on and carried on until.... Well, we've seen free trade. While free trade promised jobs for Canadians, a level playing field, etc., the ink wasn't dry before companies started moving across the border into the States. We now have something like 1.5 million unemployed and another 1.5 million on public welfare.
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Canada is not very friendly to business. It is not very friendly to labour, either. I'll give just a couple of quick examples.
The Globe and Mail carried an article about two young people selling to Japan ice cubes made of glacier ice, at $60 a bag. An environmental group had them stopped. There was $100,000 spent for an environmental study, which concluded that they were having as little effect on the glacier as a mosquito has on an elephant. However, they didn't get back in business.
Canada has attempted to close all the post offices in the rural areas, preventing Canadians from doing business through the mail. If you have to go 60 or 100 miles to a post office, how do you do business?
At this point in time you're closing customs offices in Stephenville, Grand Falls, Clarenville, and other places. Again, people who want to do business who have to do it with other countries have to go a great distance in order to do so.
And there is the unfriendly part of business, the attack on the unemployed.
There is a lack of effective support for Newfoundland fishermen. It's estimated that there are at least 8,000 miles of ghost nets in the waters off Newfoundland. These have been lost in storms over the years. All of the people who are totally willing to go out and fetch them in are, for some reason, not allowed to. These nets are made of nylon. They have lead footings and floats that are made of a sort of plastic - neoprene. They float, they fill up with fish, they sink to the bottom. Then the fish rot and the nets float up again.
Why would the Government of Canada not have those nets removed?
They had a little pilot project down by Fogo. I think in one week they took out something like 1,000 to 1,500 nets.
Newfoundland has more coastline than the United States of America - some 6,000 to 7,000 miles. We have some of the cleanest salt water in the world. The Government of Canada saw fit to invest something like $2 billion in Hibernia. That created 5,000 construction jobs and probably 500 full-time jobs. Can you imagine what $2 billion invested in fish farming would do? You wouldn't have enough people to take care of it.
You've licensed foreign countries to go out and literally rape the Grand Banks. The greatest food resource of the world, I suppose, is now almost negligible.
I have personally contacted ministers of Fisheries, as long ago as ten years. Everybody knows that the capelin is in the food chain and Canada should, in effect, have capelin hatcheries. Newfoundland bays this summer were supposedly filled with codfish. The fishery scientists were quoted as saying they didn't have the resources. They went down to Trinity Bay and confirmed that there were a lot of fish there, but the sightings in Bonavista Bay and other bays couldn't be checked out because they didn't have the resources.
I went to the marine lab on Logy Bay, checking on what they had on capelin. They didn't have any information because it's a low-value fish. I found out later that during World War II the Fisheries Research Board didn't go out on the water because of German submarines and spent five, six, or seven years researching capelin. So here you have the marine labs not having the information that's needed.
Probably one good thing, if you could do it, would be to take a straw vote before you leave and one of the members of committee would volunteer to live in a small Newfoundland community for the next 12 months on less than $10,000. Then they'll really get a perspective on what should be done.
Being here for an hour or two, it's just another meeting. What's really going to come of it?
Empathy and understanding have to be developed. Just think for a minute: if we were sitting here today and we were bringing in 50 immigrants and we were going to settle them on some island, should we first give them a resource, work to do, something to do? Newfoundlanders are standing on the shore looking at Russian boats within 50 feet, sometimes 300 feet, of the cliffs. They're allowed to fish - and the Newfoundlander has to stand there?
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The Vice-Chair (Mr. Campbell): Thank you, Mr. Stokes. Your time is really up, but I want to make one quick statement and ask you just to comment on something.
The quick comment is that in fairness, you really don't know our various backgrounds, but that's just the nature of things. I think you'd be quite surprised to find out where many of us have started out, where many of us have been, and what our individual involvements have been. To suggest that we don't know or empathize or can't understand may be a little unfair.
Mr. Stokes: I was just saying that you could better understand.
The Vice-Chair (Mr. Campbell): Indeed, and I accept that challenge.
But you haven't reacted at all to the suggestion on downsizing, outsourcing, and contracting out. I'll give you a minute on that and then we'll go to discussion.
Mr. Stokes: Okay, I'll put it this way. Back in the 1920s, the City of New York did a study on contracting out. They found out that 90¢ of every dollar went to corruption - kickbacks and so on. New York City decided to have a public service based on the study, and so did the U.S. and Canada. What goes around comes around, and we're going back to contracting out, from which you're not getting value for your money. You can corrupt a public servant; somebody might be able to give him a bottle of whisky or a carton of cigarettes. You're now spending about $7 billion on contracting out and I don't think you've proven anything by it.
The Vice-Chair (Mr. Campbell): I'll avoid the temptation to respond.
We're going to turn to discussion. Let me just say that clearly issues have been joined on a whole range of things. As I have heard it, government can create jobs and should create jobs but government doesn't create jobs. We should cut transfers; don't cut transfers. We should spend more but cut the deficit. Some want us to downsize the public sector, others are telling us to not do it.
As for enterprise zones, we have MPs here from other areas, and that's going to affect the level playing field. Government should do more; government should do less. Government should get into more; government should get out of the way. So clearly we have joined issue on a number of points very central to this budget discussion.
At this point, we're going to turn to a discussion amongst the members of the panel, and then to questions from MPs. The purpose here is not to further elaborate on what you've already said, but rather to react to what you've heard. We're trying to set up a dialogue.
Mr. Solberg, however, has asked that we take a short break before we begin this discussion period.
Ms Price: I'd like to go back to answer your previous question.
The Vice-Chair (Mr. Campbell): Yes, clearly that can be done within the discussion period. I did ask that question about how we would pay for all the new things you wanted.
Ms Price: I have some suggestions.
The Vice-Chair (Mr. Campbell): Great. That's what the discussion is about.
Ms Robinson.
Ms Robinson: How much longer do you have with us?
The Vice-Chair (Mr. Campbell): We have approximately 45 minutes for discussion, or a little more if we need it.
Ms Robinson: I think a break would be okay with me.
The Vice-Chair (Mr. Campbell): We'll take a five-minute break, but please, no more than five minutes, because I don't want to keep you.
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The Vice-Chair (Mr. Campbell): We're going to resume. I don't want to say battle lines are joined; the issue is joined. Let's discuss these issues.
Who would like to lead off?
Ms Price.
Ms Price: For the record, since my friend from the chamber of commerce made a point, the Newfoundland and Labrador Federation of Labour represents 50,000 workers in Newfoundland and Labrador. We're also affiliated with the Canadian Labour Congress, which represents millions of workers in the ten provinces and two territories in this country. We were not invited but we came anyway.
I want to answer your question, but before I get to that, there are a couple of other comments I'd like to make. My friend from the board of trade made reference to the income supplementation program -
The Vice-Chair (Mr. Campbell): Excuse me. The Canadian Labour Congress is appearing before the finance committee in Ottawa.
Ms Price: I'm sure the national organization representing the chambers of commerce is there too.
The Vice-Chair (Mr. Campbell): Yes. What I'm saying is that the national groups do appear and represent you...they purport to represent you.
Ms Price: That's right; but my point is that you're hearing from national business groups as well, and I would expect the provincial organizations to be invited to participate. That's the only point I'm making.
The Vice-Chair (Mr. Campbell): Mr. Loubier.
[Translation]
Mr. Loubier (Saint-Hyacinthe - Bagot): We did exactly as we did last year. We contacted national organizations, notably the Canadian Labour Congress, and asked them to get in touch with their affiliates in each region of Canada to invite them to come before the Finance Committee. By doing this, we increase the efficiency of our approach and kept our costs low.
You should have received an invitation last year because one was sent out to most local organizations, particularly in the Maritimes. I don't know what happened this year, but I do know that the Canadian Labour Congress was notified. I know this for a fact because I was the one who personally contacted representatives of this organization.
[English]
Ms Price: Yes, you are correct; the CLC was advised. My point was it seems as though the local representatives of business have been invited. I would suggest the same should apply to local groups representing labour and social action groups.
That was the only point I wanted to make. I don't think we should waste a whole lot of time, because the point has been made.
The other comment I would like to make.... My friend from the board of trade made some reference to this wonderful income supplementation program. Let me tell you, the income supplementation program that's been proposed for Newfoundland and Labrador will take from the poor and give to the destitute. It might be attractive to business because it creates this massive group of subsidized labour, but it's certainly not acceptable, and it's designed to exploit people.
The comments on the free trade zones I find extremely offensive. If that's the case, you might as well take Newfoundland and Quebec and declare them free trade zones and say, hey, we're up for exploitation, because when you start talking about free trade zones, you're talking about a deregulated area, and the deregulation applies primarily to tax breaks and labour laws. That's offensive, because these are the principles that free trade zones operate under. We've heard horror stories out of the maquiladoras in Mexico. There are free trade zones in the Caribbean. It is certainly not the Canadian way of doing things, nor is it the social democratic way of doing things.
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We made some references to ways of dealing with the deficit in our presentation. I find your questions offensive because they are based on the premise that you have to continue in the direction you have consciously chosen to go in. We do not; there are choices. But in order to take a different route and to look at alternatives, you have to change your ideology, you have to change your approach.
You asked how we would get the funds to respond to the proposals that were put forward by the Federation of Labour this morning. I'd like to offer a couple of comments.
First of all, one of the reasons why the debt and the deficit are becoming such a problem is because of high interest rates. So a good starting point would be to reduce interest rates; and that can be done.
I think if you would even look at some of the Department of Finance estimates...they estimate that a reduction in interest rates of one percentage point reduces the deficit by $1.8 billion in one year, rising to $3.6 billion in year four. Higher growth of one percent would reduce the deficit by $1.3 billion in year I and rise to $1.7 billion in year IV. So there are different approaches.
When you focus on deficit reduction, you're doing it with a slash and trash approach, which is not good for Canadians. It's not good for the Canadian economy. So you could lower your interest rates.
I know people say, my God, we can't lower the interest rates; it's going to affect us internationally. There is a price we pay, yes, but it is an alternative.
The other suggestion I would make is that maybe the Bank of Canada should assume a greater portion of the Canadian debt. That would mean that we would be paying a lot less in interest on the debt. That would give us more moneys to work with. That's an alternative.
Another suggestion I would make is that maybe we should restrict investments outside the country. We should lower the dollars that Canadians can invest outside the country, have them invest internally within the country, and use that money to deal with the debt problem.
The other suggestion I would make is a fair taxation policy.
The Vice-Chair (Mr. Campbell): Thank you.
Ms Price: I'm not finished. I have one last comment. If we look at job creation -
The Vice-Chair (Mr. Campbell): Would you finish on that comment. Thank you.
Ms Price: - if you cut the national unemployment rate from 10% to 4% our total national income would increase by 15%, or more than $100 billion.
The Vice-Chair (Mr. Campbell): I'm sorry, say that again.
Ms Price: If we could cut our national unemployment rate from 10% to 4%, the total national income would increase by 15%, or more than $100 billion.
The Vice-Chair (Mr. Campbell): And that would then pay for all the other spending you'd like to see done.
Ms Price: A combination of these efforts would certainly alleviate a lot of the pressure the federal government is feeling right now.
The other side of the coin is, if you have people working, then you're going to raise your revenue, because these people are contributing; they're paying taxes.
The Vice-Chair (Mr. Campbell): I have a comment on a matter of arithmetic, and then Mr. Fahey wants to speak.
After lowering interest rates, a saving of $1.8 billion or $2 billion, you would then spend on infrastructure, child care, and the other things.
Ms Price: Redirect, yes.
The Vice-Chair (Mr. Campbell): Redirect. So there's no net change at the end of the day in our deficit or our overall debt. Those savings would be redirected -
Ms Price: No. You need a combination of efforts. We do have to address the debt problem. We're not denying that. If you look at the alternative budget we presented last year, it addressed the debt problem. Yes, funds are diverted to paying down the deficit, but one of the problems is we're paying out a lot in interest. If we lowered our interest rates and took a different approach -
The Vice-Chair (Mr. Campbell): I don't want to belabour this point. You lower the interest rate, if we could do that -
Ms Price: You can do that. The Bank of Canada can do that.
The Vice-Chair (Mr. Campbell): - one point equals $2 billion. I don't know how low you'd have to go to eliminate the deficit, but let's say you just lower it by a point and save $2 billion. You would turn around and spend that on these other very worthy things you want to do. So we haven't changed the deficit picture at all.
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Ms Price: Yes, I think you would have, because if you created jobs you would have people working, you would be generating revenue, and then you would have the additional funds to deal with the deficit problem.
The Vice-Chair (Mr. Campbell): Okay, thank you.
Mr. Fahey.
Mr. Fahey: Mr. Campbell, can I make three quick points? First, I have to say that I agree with Elaine on one point, that the cut and slash concept should be replaced with strategic planning. I emphasized that in my opening remarks, and I'll emphasize it again. We need long-term strategic planning, and some things that have to be replaced have to be replaced with planning in mind to improve what's there now with something better.
Second, I believe there may be a misunderstanding on your part, Elaine, on FTZs. I'll give you an example of what an FTZ is and what it can do for Gander, Newfoundland.
FTZ is basically competing not inside the country but outside the country. What you're doing is challenging places like Bangor, Maine, and Shannon, Ireland, which are also on the great circle route, for international traffic, with aircraft going with their bellies or holds half full to bring in either partially or completely assembled materials into a restricted trade area...being assembled and sent onto market without ever touching the soil of Canada. They're only in a block location.
This, if we don't get the opportunity to do it, will be given up to the Irish and to the Americans in Bangor. It's not a case of it has to be given to the domestic market or it shouldn't be done at all. It's a case that if we don't do this, it will be given to the international marketplace. These planes are crossing the Atlantic every day. At least 12% of them are required to refuel somewhere, and we're asking for a value-added opportunity during the refuelling stop to add freight or pick up freight.
The North American continent airports are getting busier and busier, and as a result they're looking at hub and spoke methodologies to improve the delivery system to the major airports along the Atlantic regional haul. So I point out that this is a value-added thing for Newfoundland and Labrador and for Canada, and it's not competing in the domestic marketplace.
The third point I wanted to make is to expand on the inference I made to the direction of the number of agencies that the federal government supports directly and indirectly. I want to say it's important we keep in mind that only 3% of the roughly $16 billion federal government dollars that are pumped into Atlantic Canada annually is directed at regional development - only 3%. The federal government involvement in this economy, with a GDP of over $39.9 billion, represents about 40%. Any adjustments and rationalizations can play havoc with the economic stability of the region. Therefore, the importance of strategic balance to replace what would be called non-creative with creative economics or creative job development have to be balanced with that knowledge in mind.
The Vice-Chair (Mr. Campbell): Is defence spending included in the 3%?
Mr. Fahey: Defence spending is, and I'm sorry that we didn't address defence spending, because we have taken a couple of initiatives in Newfoundland and Labrador with regard to defence spending. When the federal government was about to announce the closure of the base at Gander we made a presentation to the federal government on the introduction of a militia or reservists unit for quick deployment to Third World countries. We won that award and are now creating in Gander a 65-person international unit, supported by the private sector and by the federal government, with the ability to go abroad at a moment's notice to Third World countries where they are needed. They have skills in electronics, electrical, plumbing, etc. If the federal government downscales its military involvement there we believe there is an opportunity to upscale its private sector militia concept.
The Vice-Chair (Mr. Campbell): Ms Robinson.
Ms Robinson: I agree with a lot of what Elaine Price has said in terms of deficit reduction. As a representative of the National Action Committee on the Status of Women, I feel that the problem we're facing is a revenue problem. We have to look at new means of income generation in Canada to pay off the deficit. These have been suggested in the alternative budget that was presented last year.
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The Vice-Chair (Mr. Campbell): For the benefit of everyone here, could you repeat what those are?
Ms Robinson: Some of them are to bring in a wealth tax. Canada is one of only three industrialized countries that does not have a wealth tax. Canada also has the lowest payroll taxes of small industrialized countries. We want to see the collection of deferred corporate taxes that are owing, which amount to billions of dollars. We think we should consider whose belts are going to be tightened.
We are concerned about high interest rates, again, and a fair taxation policy. We want to see a just system developed, based not on competition but cooperation. This seems to sound old-fashioned these days. I know the right-wing think tanks have totally given up on the whole idea of equality, but there are many groups and individuals in Canada who are going to continue to struggle for equality.
What we're seeing now is competition, as Mr. Fahey said, governing the game. It's not only competition internationally. Ports are seeing competition within Newfoundland. We're seeing Gander trying to get the low-level flying from Goose Bay into Gander. It's just going to be robbing from one to go to the other. That was a suggestion that was made at a public meeting held in Gander to deal with the military cuts the other week.
Another point I'd like to mention is that NAC is calling for an international campaign to control financial institutions and speculation. There is a huge amount of money circulating on the international market that is going into money market speculations, and the laundering of arms and drugs trade money. This is money that should be going into productive investments in Canada. There is no control on these profits being generated, which is absolutely monumental.
This is where the money has gone to. This is why it's so hard for the Canadian government to find money, as they say, to borrow these days, internationally. This is why the Canadian government says it has to keep interest rates high. It's to attract this money. We're competing with these other, I guess, money markets and opportunities for profit-making. The people who are trying to get jobs and just make a decent living in this country and province are the ones who are suffering.
The Vice-Chair (Mr. Campbell): You've raised a number of issues that others may wish to comment on, such as the idea of higher payroll taxes, for instance, and how labour or business feels about that.
Ms Robinson: I'd just like to make one last point - Elaine mentioned this, but I'm not repeating what she's saying - on the income supplementation program. What is proposed there is a guaranteed annual income of $3,000 per year per adult and $1,500 per year per child. You are talking about households trying to get by on way less than $10,000 a year.
Come on, let's be real. Of the people around this table, none of us have to survive on that kind of an income. Is it fair that we should expect anybody else to do that? I say no. It's totally unjust.
The Vice-Chair (Mr. Campbell): Okay, thank you.
Do others want to comment on the idea of higher payroll taxes, for instance? Labour? Business?
Let's start with Roger Flood.
Mr. Flood: I'll certainly speak on the higher payroll taxes. One of the problems the business community has with the payroll tax now is that it is a disincentive to hire people. The higher the payroll tax is, the more business will attempt to do its business without hiring additional people. That's directly opposite to what it should be.
On that comment about the income supplement program, our position was that the basis of the income supplement program, we think, is a good program. The amount of money that should be paid out to the people should be, I guess, what society can afford and similar to what people are getting in other programs today.
But one of the positive things we see in this is that it is an incentive for people to go to work. As for people who are on unemployment insurance today, if you work one day, it doesn't affect your UI. If you work the second day, then, I'm sorry, I'm not going to work the second day, because I'm working for free. The income supplement program encourages people to continue to work, whether it's an extra day, week, month or whatever.
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The Vice-Chair (Mr. Campbell): Ms Williams.
Ms Williams: I have a couple of questions. One, how are you going to be evaluating any policies you introduce to see what are the outcomes based on gender? The same policy has a very different impact depending on who and where you are. So I would like to know what your proposals are to look at your last policies from the Canada health and social transfer.
The Vice-Chair (Mr. Campbell): In last year's report we recommended gender analysis. I understand they're beginning that process within the finance department.
They also engage in other analyses, of course. There are regional impacts to a great extent. They look at what happens here in Atlantic Canada. They look at across-the-board impacts on different income levels at the corporate versus individual levels, and between individuals. A great deal of analysis does go on.
Ms Williams: Okay. I will be following up to see where I could get that report. One of the problems in this province is getting information by gender. So I would be interested.
The Vice-Chair (Mr. Campbell): We have a representative of the finance department here at that table. You might make contact to find out who to speak to in the department.
Ms Williams: Okay.
The Vice-Chair (Mr. Campbell): Do you have another point?
Ms Williams: Yes. The other point concerned this. One of the things that's happening, it seems to me as a result of policy, is that we are now distinguishing between the generation of wealth and the creation of jobs. My understanding is that, in the past, these had worked together. That was one of the successes of Canada. When you created wealth, you created jobs.
Consider the issue that Roger just raised in terms of the disincentive with the payroll tax in creating jobs. I'm wondering if you have looked at that in terms of the policy you're introducing in Finance.
Did I make sense?
The Vice-Chair (Mr. Campbell): There's only one thing. If you take away wealth, how is that going to create jobs? We'll come back to that.
Mr. Rose hasn't commented yet.
Mr. Rose: Mr. Chairman, one quick comment on the increase in payroll, which of course contributes to business taxes overall. I think we need to be careful about corporate tax. I don't have a personal axe to grind. I'm retired. I support nobody in industry, trade, labour, or what have you. I purely want to give the rural version.
Can we afford to allow corporate tax to increase to the point at which it will go beyond what is economically feasible in Canada, then flop over into another country? By forcing up the corporate tax through the various other taxes related to payroll, which are the related employment costs, we would run the risk of forcing industry out of our country.
Thank you.
The Vice-Chair (Mr. Campbell): Is there anyone who has not yet spoken who wants to speak?
I'm going to turn to questions. There will be a chance for a very brief wrap-up, so let's just hold our points, please.
Mr. Stokes.
Mr. Stokes: To me, the payroll tax is a tax on people that gives an incentive to buy computers instead of hiring staff. You don't pay tax on your computer.
The Vice-Chair (Mr. Campbell): So you disagree with -
Mr. Stokes: I disagree with payroll tax. I think it should be as low as possible, because I see it is a tax on wages.
The Vice-Chair (Mr. Campbell): Thank you.
Mr. Stokes: On behalf of our members, the labour...bought into a 3% reduction in deficit, 1995-96. In our case, federal government employees, 45,000 were slated for lay-offs. I think we've taken more than our fair share of the hit.
I'd like to say that I wouldn't want to run a company if I had demoralized staff. I don't see how you can run a government with demoralized staff. I think you should get your own house in order first, before you try to get everybody else's in order.
The Vice-Chair (Mr. Campbell): Let's broaden our discussion now by inviting members to ask questions. I'm sure they'll pick up on some of these points.
I'll start with Mr. Loubier.
[Translation]
Mr. Loubier: I have three questions and I will direct them to the representatives of the business community, particularly to Mr. Fahey and Mr. Flood.
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I believe I asked the same question last year. I don't know whether you were attending the session last year, but in any case, your organization was represented. At the time, we talked about direct subsidies to Canadian businesses which last year totalled approximately $3 billion.
At the time, I asked your organization's representatives if they were prepared to see direct subsidies to businesses eliminated in one fell swoop. They told us to proceed with caution because such a move could have a major impact on their businesses' survival.
In his last budget, the Minister of Finance, Mr. Martin, announced a reduction in these transfers which this year will total $2.5 billion. The cuts will be in the order of $500 to $700 million. Next year, direct subsidies will total approximately $1.9 billion.
I put this question to you once again because I think it is important, particularly when one talks of free trade, as you did earlier. Free trade and the elimination of subsidies go hand in hand. Therefore, are you prepared to see Finance Minister Martin proceed as early as this year to eliminate outright the $2 billion in direct subsidies to businesses?
That's my first question. I have two more for later on, Mr. Chairman.
[English]
The Vice-Chair (Mr. Campbell): That was for Mr. Fahey.
[Translation]
Mr. Fahey: Thank you very much for your question.
[English]
I would just like to say two things about it. First, I wasn't the guy who said last year that he wanted you to save the $3 billion.
Secondly, I never advocated, even if my remarks indicated that I did, that there should be an absolute knife. I emphasized - in fact, I re-emphasize with my comments - the three- to eight-year planning cycle that the federal government should get into to do the transition. However, I do believe the $3 billion direct grant should be replaced with something less and more meaningful in terms of creating an environment conducive to job creation.
Specifically, the objective should be in Atlantic Canada, because from an export point of view we are at 21% of GDP while the rest of Canada is at 35%. Yet all of us collectively have to compete in an international marketplace. Therefore, the redirection of funding and/or loans and/or a conceptual idea of capitalization should be directed to increase us from 21% of GDP up to the national average of 35% or somewhere closer to it. We have never made any inroads in that regard.
To be more specific, one area where I suggest we could make inroads is that of information and knowledge, which is an industry where the great equalizer has taken place in Canada. There is a high-quality information highway or transmission system across the country known as fibre or lightguide, and people in Newfoundland and Labrador or people in Paradise River or up in Prince Rupert can deliver to the world products and services based on the knowledge they have in their heads, the knowledge they've learned through education. This could also help in the management of our resources, such as the fishery, once it's reopened. It needs to be managed properly.
So should we cut the $3 billion instantly? No. Should we phase the cut from grants to a capitalization methodology? Yes.
The Vice-Chair (Mr. Campbell): Mr. Flood also wanted to answer.
Mr. Flood: I wanted to touch on it in two areas. One is that, yes, business is ready for the elimination of grants over a period of time. We fully supported the federal government's move when it cut the grants to ACOA.
Having said that, in order for small business to get started in the Atlantic provinces, and I suspect in some other parts of Canada as well, it does need an equity base, and that doesn't exist at the moment in Newfoundland. Banks by their very nature are not high-risk lenders, and therefore they will not lend to small businesses to get them started. That equity base needs to be there.
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Earlier I mentioned certain lending programs, venture capital programs and preferred shares types of programs. These enable businesses to get started, and when the businesses become profitable they pay them back.
I also talked about the Double-EDGE-type program, and getting tax relief on that. That is for companies that are not in competition with other companies; you're trying to get companies started up in a business where they're not in competition with somebody else or are expanding in an area.
These are tax revenues the government does not get now and will not get unless those companies get started. So it's an incentive to get business started in those areas.
[Translation]
Mr. Loubier: My second question is along the same lines as the first, but concerns tax expenditures.
Over the years, the Auditor General has repeatedly stated that there were many loopholes in the tax treatment of Canadian businesses. These loopholes, or grey areas, enable a number of business to avoid paying tax on earned income year after year. Since 1990, the Department of Finance no longer releases figures on profits earned in Canada that are not taxed. However, up until 1990, this information was made public. At some point, the issue became so contentious that I guess the Department of Finance decided to stop releasing the figures.
It's the same thing when we look at the 26 tax treaties between Canada and countries considered to be tax havens. This includes Caribbean countries and certain others such as Bermuda. A number of small European countries are also considered genuine tax havens because they enable wealthy Canadians and businesses to avoid paying the tax that they should normally be paying.
Considerable sums of money are at stake here. In 1992, the Auditor General made a reference to $16 billion flowing to these tax havens and being sheltered from tax. If a tax of even 10 per cent were imposed, this would mean an additional $1.6 billion in revenues flowing into federal coffers.
My second question, therefore, is directed to the representatives of the chambers of commerce and the business community. Would you be willing to see the government review the tax treatment of businesses, firstly, to close the loopholes in this system and secondly, to do away with certain ridiculous provisions? We read in the newspapers that some businesses want to sell their deductions for tax losses to other businesses. This is funny and sad at the same time. Would you be willing to see the tax treatment of businesses revised or even to see a minimum tax introduced so that all businesses, not merely those who are concerned about good corporate citizens, pay their fair share of federal taxes?
[English]
Mr. Fahey: Your question is very general. If you're asking if the Chamber of Commerce of Newfoundland or a board of trade would support people taking money offshore, we wouldn't. Canadians should pay their taxes in Canada; they should be part of the Canadian fibre. We don't support it.
Should we be part of a panel or an agency that helps the federal government get rid of it? It's not our job specifically, but if asked to do so we would be helpful. I don't believe Canadian business people should take their money offshore. I never did. After all, we have to support our own country in which we are supposed to grow, prosper, and become great.
[Translation]
Mr. Loubier: I'm not asking you to do the government's work, sir. Is your organization prepared to recommend that the 23 or 26 tax treaties currently in force between Canada and countries considered to be tax havens be reviewed and, in light of what we have observed, scrapped because they encourage tax evasion? That was the gist of my question. If many organizations such as your across Canada support this kind of initiative, I believe we have a chance of making some headway.
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I would like to remind you of one thing. This summer, in CA Magazine, the journal of Canadian chartered accountants - you hire these people to work in your business - Canadian businesses were encouraged to take advantage of tax shelters to avoid paying taxes.
In spite of all the talk of nationalism and the importance of investing here at home, there wasn't much of an outcry from Canada's chambers of commerce. I know what I'm talking about. Under the circumstances, it is important for organizations such as yours to denounce positions like the one taken in CA Magazine. They only lead to a steady deterioration in Canada's financial situation and force the government to make cuts like the brutal ones we have witnessed over the past two years, and to clamp down, whereas the government could have used the revenues it was rightfully owed to invest, create jobs and improve the country's economic performance.
[English]
Mr. Fahey: I'll have to answer in two ways. In the first instance, how could I as a Canadian and a business person support people taking money offshore that should have been processed through proper taxation? I don't support that.
Second, Canada and the federal government should look at what causes some people to do that in an environment where our taxes are so high. I am not saying we condone it. We never would condone it.
Perhaps we have to look at a two-pronged solution, or as Roger would say, a double-edged solution, one to prevent it from happening through legislation and the second to revamp government, to rise above the current paradigms and reinvent government to deliver goods and services at a level that all Canadians would feel supportive of.
The Vice-Chair (Mr. Campbell): Mr. Solberg.
Mr. Solberg (Medicine Hat): Thank you, Mr. Chairman.
We're certainly hearing all kinds of conflicting messages with respect to taxation and that sort of thing. On the one hand we have some people saying that Canada should have higher corporate tax rates and that sort of thing, and on the other hand we have people suggesting that many corporations are heading to places like the Caribbean to avoid taxes.
So on the one hand it sounds as though we are suggesting Canada itself should be...and it would be a tax haven, because corporations are allowed to avoid taxes and stay right here in the country. On the other hand, we have people saying that taxes aren't high enough, and if taxes indeed weren't high enough, we would have all kinds of corporations wanting to come here.
There's another thing I would throw into the mix. It's my understanding that after separation...during the referendum campaign - and perhaps Mr. Loubier can confirm this - what he was suggesting was that Quebec itself would become a tax haven. I think that was discussed during the referendum campaign.
Mr. Loubier: No. Come on.
Mr. Solberg: No? Okay. Well, I believe that was an assertion that was made. At any rate, I thought I would mention that.
Mr. Loubier: Medicine Hat, yes.
Some hon. members: Oh, oh.
Mr. Solberg: Medicine Hat is a tax haven already, and we have lots of employment there, too.
I want to follow up on something Miss Price said with respect to the Bank of Canada and holding more debt. I wonder if she could explain how that would work, especially without creating inflation.
Ms Price: Okay. Right now, I believe the Bank of Canada holds only about 6% of the federal government debt. Compare that with the U.S., where the United States Treasury or Federal Reserve Bank holds 7.7%. In our proposed alternatives we were talking about a number of initiatives. If you lowered the interest rates by 1% or a little bit more, and if the Bank of Canada were to finance a greater portion of the Canadian debt, the cost of servicing the debt would dramatically increase.
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You talk about inflation. That's, oh, the magic word. We must have zero inflation, and in the same breath our unemployment rates skyrockets. I think you should start looking at the unemployment rates, the social cost, the misery and the suffering occurring in this country, because the government has chosen to focus on zero inflation instead of actually setting some targets for job creation.
Mr. Solberg: I was interested specifically in how much money you would want the Bank of Canada to hold and how you would do that without creating a lot of inflation, which can of course lead to unemployment.
I point to the years when we had extremely high interest rates. Over that period of time we've seen unemployment grow despite the fact that the government has spent far more money than it's brought in. Actually, since the early 1970s it's been far more money and over that time we've seen unemployment continue to rise.
Ms Price: Okay. But when you say the government has spent far more money, my question is, on what? I think if you look at the amount actually spent in terms of programs, you will find there has been a decrease, not an increase. The money being spent is spent on servicing the cost of the debt.
Mr. Solberg: Well, if I can -
Ms Price: And as long as government continues in this direction, just slashing and cutting and trashing, it's not going to get any better. It's going to get worse. Government has created this fiscal problem.
Mr. Solberg: Isn't it true, though, that we wouldn't have to service a debt.... If we hadn't spent more money on whatever we wouldn't be paying interest costs on anything. It's obvious that we spent more than we took in before we started paying interest costs on it.
Ms Price: Again, I go back to the Auditor General's comments in terms of what a sustainable debt is. There is nothing wrong with debt. The problem is that we've being trying to wipe out a debt and deficit in this country without giving any thought or consideration to the impact on people.
As well, when you talk about debt and interest costs, I think we should look at what it is right now. Government fiscal policy is being dictated by the financiers and bondholders. Basically it's self-interest. In fact these people hold about $80-billion worth of the debt. The fact that they hold that kind of money is obviously why the banks and financial corporations are making unheard of, astronomical, record profits on the backs of Canadian people. What we're saying is -
The Vice-Chair (Mr. Campbell): Could I ask you to let Mr. Solberg ask his questions, please, and leave time for other people to comment who may have views that are different from yours?
Mr. Solberg: I want to make a couple of points. First, today we pay somewhere in the order of one third of every tax dollar toward interest on the debt. If we had that money to spend either in the form of disposable income in people's pockets so they could go out and create jobs and consume and save, which also contributes to investment and ultimately job creation down the road, or on more social programs, Canadians would be better off.
I wanted to make that point to underline just how.... That amounts to somewhere in the order of $45 billion to $50 billion a year for the interest payments on the debt. That's a tremendous amount of money.
I want to follow up on what you've been saying about the banks. They certainly have been making huge profits. There's no question about that. I want to follow that right to the very end and point out that these banks are held by Canadian people. They're the shareholders. They're Canadian people. That includes the labour unions to a very large degree.
The people who prosper from this in very many instances, Ms Price, are retired people who invested in these corporations. They use that money for retirement because they simply can't afford to rely on the Canada Pension Plan. It's in very serious trouble and Old Age Security is being squeezed as well. I wanted to point that out because I think it would be unfair to leave people with the belief that it's only extremely wealthy Canadians who hold interests in the banks.
Ms Price: With all due respect, I don't remember seeing Newfoundland and Labrador Federation of Labour or any of the unions that we represent here in this province being listed as any of the shareholders at any of the banks in this country, nor do I recall ever seeing the CLC listed.
The Vice-Chair (Mr. Campbell): You might check the labour pension fund and all the major provincial pension funds for teachers and municipal workers and all -
Ms Price: The teachers are not a part of the Federation of Labour.
The Vice-Chair (Mr. Campbell): The point was about labour in general.
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Mr. Solberg: We can quibble about which labour pension funds are involved, but the fact is that some of these people.... I think it was the Ontario municipalities union that has an average wage of $30,000 a year. These people have their pension fund invested to a great degree in the chartered banks. So they are recipients of any of the profits that the banks are making.
I'm not doing this necessarily to score political points, but I want to point out that when corporations prosper, they also hire people. There are benefits that stay within the country. If you impose taxes on them, then there will be implications for regular people.
Ms Price: I'm not sure what the question was, but I will make two comments.
One, the labour movement is looking at trying to invest pension funds into job creation. I think the Quebec Solidarity Fund, which is a worker investment fund, is a prime example of labour's initiatives in that area.
The other point I wanted to make -
The Vice-Chair (Mr. Campbell): I really would like Mr. Solberg, if he has a further question -
Ms Price: But I'm not sure what his question was.
The Vice-Chair (Mr. Campbell): Fair enough. We should ask questions -
Ms Price: I'm not sure what the question was.
Mr. Solberg: Hopefully, this won't start a large debate that we don't have time for.
Ms Turpin-Downey and others have referred to the need for regional development grants. Mr. Fahey has talked about the need to look at these things strategically over the long haul. Recently the Auditor General suggested that regional development has not been done very well in this country, for a couple of reasons. First, the number of jobs created was dramatically overreported. Then there is the traditional complaint that people who are competing against companies that get these grants feel they shouldn't have to compete against their own tax dollars.
I wonder how you would respond to that. Can you point to examples where regional development grants have had a positive effect in the long run, compared with the ones that haven't succeeded very well?
Mr. Fahey: Are you directing this to me?
Mr. Solberg: Actually, several people spoke to that.
Mr. Fahey: I can respond first, if you would like.
Mr. Solberg: Okay.
Mr. Fahey: First, we've been on the record numerous times, as the Chamber of Commerce and the Board of Trade in St. John's, as saying that we are against outright grants to business. They have never proven anything in the long term.
In my opening remarks I indicated that grants had indeed created band-aid or short-term jobs with no long-term gain.
I believe we should enter into a bold new vision, one that identifies goals, strategies, and action plans to provide capital types of investment, on which there will be a payback, to specific business opportunities - I speak now for Atlantic Canada and Newfoundland and Labrador - that are not on the basis of ``Do it in my backyard to the chagrin of another'', but, rather, on the basis that it's good for the region of the country.
We should get out of this all-consuming idea that we have to have something in our backyard and Quebec won't get it, or New Brunswick won't get it, because we got it and we got it with taxpayers' dollars. We want to get it on the basis of a good business case.
If the banks won't loan the money, then perhaps the feds, through an agency, should loan it. But there would be a payback.
I'm saying no grants - capital investment.
Mr. Solberg: So you're talking about almost a super Federal Business Development Bank. Is that the idea?
Mr. Fahey: Conceptually.
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The Vice-Chair (Mr. Campbell): Mr. Pillitteri.
Mr. Pillitteri (Niagara Falls): I have a few comments, and then I want to ask a question.
Ms Price, you made a presentation before this committee last year. Was it in Ottawa or was it out west?
Ms Price: Ottawa.
Mr. Pillitteri: I thought so.
The Vice-Chair (Mr. Campbell): So you have appeared before this committee on another budget?
Ms Price: On the Canada health and social transfer.
The Vice-Chair (Mr. Campbell): It's another committee, then.
Ms Price: Yes, I think so.
Mr. Pillitteri: I think I've seen you a couple of times before this committee.
The Vice-Chair (Mr. Campbell): That was on last year's budget.
Ms Price: No, I did not participate in last year's budget conversation.
The Vice-Chair (Mr. Campbell): No, the bill after the budget that implemented the CHST. That's Bill C-76. It was before our committee.
Ms Price: Yes.
Mr. Pillitteri: I just wanted to make that clear. Some people think adequate advancement has been given to people to appear before this committee, and recognizing you've been before this committee...I don't know if it was in Ottawa, I don't know if it was out west or out here...because I've been to those places. I just wonder where I've seen you before. I just want to make that clear.
Let me say one thing. You've made a remark about free trade and what would happen if we tried creating free trade zones. By the way, all of Canada is a free trade zone; all of Canada. We have entered a free trade agreement with the United States. We've entered into NAFTA.
I'll elaborate a little on what I mean by ``free trade zone'', because the question was asked. Mr. Roger Flood asked about free trade zones.
Instead of fighting free trade, because that is in the past, I think we should enhance it. I know I fought free trade back to 1987 and 1988. I know what devastation it caused in my area. But certainly I've come to appreciate free trade. So we should no longer be fighting it. Instead, we should be embracing it, because this is what has benefited Canadians across the country in these last few years.
You made the remark that if we had only 4% unemployment we certainly would not be in a deficit. If you had the opportunity in government, I'm sure you would try to have all those people employed in the public sector and we'd be in a lot worse trouble than we are today. I just want to go around the table on the comments I heard and I want to stimulate more discussion.
Ms Williams, you made a presentation this morning and you quoted most of the resolutions in the United Nations, resolutions that ought not to pertain to Canadians. We are parliamentarians. We, the Parliament of Canada, not the United Nations, govern Canada in what Canada should be doing abroad. I think it would have been more productive to see what we're going to be doing in this budget, rather than -
Ms Williams: I quoted research, sir; international research and Canadian data. I didn't quote any resolutions. I believe you're making policy and you need to have research to make policy.
Mr. Pillitteri: In Canada.
Ms Williams: Canadian research is part of United Nations research. We're very prominent...and your government has quoted that research extensively, saying how important Canada is. The research shows it's not a great place for women. I only quote back what the government has used in big-page advertisements about how great this country is.
Mr. Pillitteri: But of course some of those same countries also said Canada's the best country to live in.
Ms Williams: Yes, sir, but it was different when you looked at the data by gender. That's my point. When you're making policy, look at your research for gender. Mr. Campbell says you're doing that.
So I really find it frustrating that you're repeating points.... He answered my question; thank you.
Mr. Pillitteri: Mr. Flood, this morning you said something about creating free trade zones. As a government we have made a lot of changes. Under Bill C-102 the whole of Canada became a free trade zone under the departments of revenue and finance. So many things have happened. Possibly this finance committee or structure will have to send you the bill and what it does.
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It helps small businesses. This bill has warehouse bonding and so on. Where anything comes into Canada and it is to an added value...product be added on it and then shipped for export, you get relief from the GST and some PST.
So under this bill the whole of the country became a free trade zone, rather than having designated free trade zones, which they have in the United States, where they have to go into a specific area or location. We've gone one step beyond that in Canada under Bill C-102.
The Vice-Chair (Mr. Campbell): Mr. Pillitteri, if you have a quick question, please put the question.
Mr. Pillitteri: I'm going to ask a question, but I just want to make one more remark.
This morning Mr. Stokes made a remark that I should live in Newfoundland before I would become a Canadian. I was born in another country. I am a Canadian. To a Quebecer I'm an ethnic. Mr. Stokes wants me to come and live in Newfoundland so I can understand Canada, but I am a Canadian already. I live in Ontario.
My question is directed to Mr. Flood. He said ACOA is needed; but ACOA was also represented in the past.
Do you mean the ACOA of today or the ACOA of yesterday? The ACOA of yesterday was totally grants. Today it's some subsidies and of course some payback. Would you explain the ACOA you need today?
Mr. Flood: I certainly would.
The ACOA of yesterday wasn't just grants, by the way. The ACOA of yesterday had a series of grants and venture capital as well, but on a very small scale. It has changed dramatically over the last six or eight months. We agree with the changes that were made. The grants themselves were eliminated.
It isn't there yet, but they intend to increase, with some of the other provinces and with some private banks, a pool of equity capital. We hope they will do that for medium-sized business and also for small business. We think there should be a combination of....
Whether it's venture capital or a loan to be repaid, that type of capital is required to get small business started or to get existing businesses expanded. So that is there and we think that is required.
Mr. Pillitteri: Thank you.
The Vice-Chair (Mr. Campbell): Mrs. Brushett we have left for last. We're way over time, but I know she has a number of comments and questions. Normally, as the finance committee, we try to be on time and under budget, so I'm deeply embarrassed that we are over time, but the conversation has merited the extra time.
Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chair.
Before I begin with a few comments, I would like to welcome you all before this committee this morning in St. John's, Newfoundland.
I would like to pay particular attention to our representation as a national committee.
My name is Dianne Brushett. That's a Newfoundland name, a family name from Pouch Cove. I'm sure I don't have to tell anyone at that end of the table where Pouch Cove is. So I want to assure you that we do have representation from across this country and that we are interested in all Canadians' views and points of interest and in how we can serve this great country better.
I have one point I would like to clarify with Jane Robinson from the National Action Committee on the Status of Women. She talks about the surplus of the UI account. It has reached approximately $8 billion and is envisioned to go higher.
But the government has taken action on that, and in the Hon. Lloyd Axworthy's paper this week, he says we will be reducing UI premiums because we see payroll taxes as a disincentive to business and job creation.
So if there is some notion out there that payroll taxes are not high enough and they could go higher, I want to dispel that. A notion exists that corporations are getting such a great break. If that were so, they would be flocking to our shores and they would be generating jobs, and it's not so.
I just want to bring that before this committee, to let you know it's our vision that we should have some surplus in the UI account for when we go into these deep recessions, but we will not allow it to go too high. We will reduce those premiums in the name of job creation.
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The second point I would like to bring forward is based on something said by Wendy Williams of the Provincial Advisory Council on the Status of Women of Newfoundland and Labrador. She talked about social programs and the fact that they have not created the deficit. Indeed, alone, they have not. It's the cumulative effect of the high quality of life that Canadians have enjoyed and have not been able to pay for. I want to tell you that 70% of all program spending comes in social programs throughout this country, and we have not collected enough taxes to pay for those programs. Now the payday is coming forward and we have to deal with it.
So to put this in perspective and to show the balance, we do want to maintain our social programs, but if we don't restructure them and our way of financing them, we will lose them all. That's why this is a very serious exercise here today.
My question is to Mr. Flood.
The Vice-Chair (Mr. Campbell): May I make a suggestion in the interests of time? If there is a specific question to Mr. Flood, you're each going to have a chance to wrap up. You can all address those points in the wrap-up.
Mrs. Brushett: Mr. Flood speaks about how governments have been doing their job rather poorly in determining where government agencies or offices should locate. For example, Marine Atlantic, in the sense of search and rescue or coast guard, is some distance away from where it's mostly used. This is probably true, but there have been political trade-offs, which have been part of balancing the quality of life throughout this country. There are trade-offs at all times.
My question is, would you trade off the taxation office that came here to Newfoundland? You certainly don't have the population to support the taxation office. Would you send that back to Halifax for a less significant job creation service?
The Vice-Chair (Mr. Campbell): That may be a trick question.
Some hon. members: Oh, oh.
Mr. Flood: It most likely is a trick question.
What the board has said is that the headquarters should certainly be where most of the business is done. There is no earthly reason why Marine Atlantic should be in New Brunswick. They have no business in New Brunswick at all. They have some in P.E.I., and very little in Nova Scotia. The balance is in Newfoundland. Fisheries surveillance, search and rescue, are all off Newfoundland.
I'll go a step further to say there is no earthly reason why the fisheries department should be in Ottawa. There aren't too many people in Ottawa who appear to know the difference between a cod and a turbot.
I certainly think if those places were put where the business occurred, there'd be a far greater influx of people into Newfoundland, rather than seeing them go out with those transfers.
The Vice-Chair (Mr. Campbell): I'll make a pitch for the GST collection centre to be moved to central Canada, where most of that revenue is raised.
To wrap up very quickly, I apologize that we've gone as late as we have.
[Translation]
Mr. Loubier: I find it somewhat regretful that Mrs. Brushett began by attacking the comments of Ms. Robinson and Ms. Williams and by not giving them a chance to respond. Her attitude was rather cavalier. She began with a lengthy preamble, directed her criticism toward certain persons and then asked questions of someone else.
The Vice-Chair (Mr. Campbell): The witnesses had enough time to answer the questions.
[English]
I've said it twice. In your answers you can certainly reply to Mrs. Brushett, but it is more than half an hour over our time. In the interests of the interesting discussion that has gone on, some people - the chair, witnesses, questioners - have each taken ample time.
I would ask for a fairly brief wrap-up. Please use that time just to wrap up and to address, in the case of Ms Williams and Ms Robinson, the questions that were mentioned.
I'll begin with Mr. Stokes.
Mr. Stokes: I have two comments. I wanted to leave you with the thought of not having a demoralized workforce. Secondly, going back to six or seven years ago, one big problem Canada had was that Toronto was overheating. Interest rates had to be raised to cool down Toronto. Can you, as a finance committee, not come up with a way to cool down Toronto without bankrupting the rest of the country?
The Vice-Chair (Mr. Campbell): Thank you.
Mr. Fahey.
Mr. Fahey: The federal government has a need for a long-term vision. The tendency to continue to treat the regions as if they were so far from the old national economy is over.
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For instance, the stated role of regional economic development in Atlantic Canada is to anticipate and respond effectively to challenges, obstacles, and imbalances in the economies of the four Atlantic provinces. The goal is long-term sustainable job creation.
This is a dreary, reactionary, and somewhat negative perspective. I would suggest we could take a goal that is far bolder and that recognizes the fact of the regional economy. For example, the goal should be to create an Atlantic Canada world-class economy by year X. Such a goal would help to focus attention on defining what constitutes such an economy. Then you could -
The Vice-Chair (Mr. Campbell): Excuse me.
Ms Turpin-Downey, you're leaving. I was going to turn to you next.
Ms Turpin-Downey: I'm sorry; I have to go.
The Vice-Chair (Mr. Campbell): Do you want to make any closing comment?
Ms Turpin-Downey: I'll just say I'd like to see some progress on the points I made on the education system, because the same points were made a year ago. I'd surely like to see some follow-up.
The Vice-Chair (Mr. Campbell): Thank you for your participation.
You can conclude, Mr. Fahey.
Mr. Fahey: I have just one last statement, Mr. Chairman. Such a vision would help focus our attention on what constitutes such an economy and help direct the resources where they properly should be.
The Vice-Chair (Mr. Campbell): Thank you.
Ms Robinson.
Ms Robinson: On the issue of payroll taxes, I did not say payroll taxes should be increased, but I did point out that they're lower in Canada than they are in almost all other industrialized countries.
I also believe the GST is very hard on businesses and it is taking up a lot of the administrative.... It's costly to businesses.
I would also like to see consumption taxes reduced as they apply to businesses.
I know the reduction of payroll taxes has been a main demand that business has been making in regard to the surplus in the UI fund. I think organizations such as the National Action Committee on the Status of Women would rather see benefit rates increased to workers who are now trying to live on half their former incomes, if they're on UI, and we'd like to see the money being used for job creation. Some money is going into training, but what we're finding in Newfoundland is that people are training and training and they're not able to find jobs. Many people are going off to the mainland and they still can't find jobs.
So the big challenge is we need jobs. Jobs seem to be becoming a thing of the past.
Those are two of my points. Another point is that ``bold new visions'' sounds to me very much like ``Brave New World''. I think we have to make sure national standards are there that protect people's rights to an adequate income, protect people's rights to appeal decisions that are made about what they're supposed to live on, and protect people's rights to adequate health care, education, and, as I say, a decent wage.
The Vice-Chair (Mr. Campbell): Mr. Rose.
Mr. Rose: I won't go through a long-winded summary. I believe I'll relate back to your question to me during my brief, in which you asked me how we could get the ``sock savings'', as I've termed them, into circulation. I'm sure if we talk about it long enough we could come up with various and many ways.
One I've quickly thought of is perhaps a community investment corporation, whereby the investors would serve as directors of the board of that corporation. Additionally, they would serve on the boards of any business they would support, giving people with small amounts of money control of their own money.
My summary really condenses to this. Government must bolster the confidence of Canadians in order to generate a more favourable climate to invest in. If cuts are truly needed, I suggest we make them lean but not mean.
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I would ask that all levels of government look into the corners for the dust that may have been missed by the last broom. I invite you, by the way, to look into mine. You'll note that I represent nobody, so....
The Vice-Chair (Mr. Campbell): Ms Price.
Ms Price: I wanted to interject on the payroll tax discussion, just to make a point. It should be pointed out that there is a June 1995 International Monetary Fund report that states that the tax preferences given to corporations in Canada are relatively generous and their effectiveness in promoting investment does not appear to have been large. That same report concluded that corporate income tax payments are a somewhat lower share of GDP in Canada than they are in the U.S. and went as far as to suggest that there might be scope for reducing tax preferences. I would like to point that out.
The Vice-Chair (Mr. Campbell): I worked briefly at the IMF, so that might tell me how you feel about me. But thank you for quoting that. It's an important document.
Ms Price: I noticed that a couple of times this morning the subject of defence spending cuts crept in. One point I will make - and it's in our policy paper, which was attached to the presentation - is that if you are planning on making defence spending cuts, whether it be closing a college in Quebec or closing a base in Newfoundland, there are communities and community economies that have been built around this infrastructure. If there are going to be defence spending cuts, then it is crucial that funding be provided to ensure that there is a transfer from defence-type jobs into civilian-type jobs and that communities and community economies be provided with an opportunity to adjust.
The fact that this committee brought up defence spending cuts a couple of times leads me to believe you're heading in that direction.
The Vice-Chair (Mr. Campbell): You shouldn't draw that conclusion at all. I just wondered why, in a region that has a lot of defence spending, nobody has raised it as an issue. Everything is open to discussion.
Ms Price: Another comment that seems to be fairly prevalent when we get presentations, or when I sit in on them when the business community is making presentations, is that we have to move to privatization and that sort of thing. The only comment I will make is that it doesn't work. Public servants are professional staff. They provide high-quality public services. They are highly accountable and they're the people who can do the job best.
The Vice-Chair (Mr. Campbell): This is the last concluding remark, please. We have two others.
Ms Price: I have two more.
The jobs that are being created by the private sector from the public sector are not the decently paying, secure jobs that the public sector is creating. They're low-wage, insecure jobs that exploit people.
Finally, if I hear the comment once more about Canadians living beyond their means, I think I'm going to throw up. Tell that to one of the 30,000 children in this province who are living below the poverty line. There are a lot of Canadians who are living below the poverty line, and we have not lived beyond our means.
The Vice-Chair (Mr. Campbell): Thank you for not throwing up before our committee.
Mr. Flood: Maybe she'll have to hear it one more time.
The Vice-Chair (Mr. Campbell): That's what dialogue is all about.
Mr. Flood: Governments cannot continue to spend more money than they take in. The deficit is still there and the debt is still climbing, and the longer it takes us to get that under control, the more difficult it will be to maintain any of the social programs we've talked about this morning.
One of the most important things for us to do is to live within our means.
Ms Williams: This has been one of the most frustrating experiences I've had. I've felt as if I've been in a tennis match of brownie points all morning, one brownie point versus another brownie point. I've never had that experience to this extent at a parliamentary hearing before, federally or provincially.
I have documentation that I will give to Ms Brushett - I assume it's Ms, maybe it'sDr. Brushett - on this deficit and the funding that came out of a member of Parliament from my province, in terms the 40% cuts and increased revenue not coming from income tax. I will give you that documentation. It isn't off the top of my head.
I feel very frustrated.
I don't know how, Mr. Campbell, you are going to make a consensus out of this. If we really want to be working together, which I believe everybody at this table does want, then this is not the way to do it.
The Vice-Chair (Mr. Campbell): I thank you for that empathy.
If I can make an observation as the chairman, at the end of the day the responsibility falls to us to make certain recommendations to the minister.
It is not easy, because, as I said at the beginning of the question period, we hear diametrically opposed views. While Ms Robinson made a passionate plea for a sense or spirit of cooperation and dialogue, Ms Price only nods her head at things that are said on this side of the table and shakes her head at anything said on this side of the table. We're all contributing to this frustration we're feeling.
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I just want to conclude by saying that all the points raised, all the viewpoints expressed, have merit and bear listening to by the committee. You may each feel that your particular perspective or the constituency you represent should dominate or predominate.
At the end of the day people spoke here about accountability. It falls to us as a finance committee and ultimately to the government to make decisions in the interests of the country at large.
These regional hearings are extremely beneficial. They give us a perspective of the impact of budget measures in a region, and it does differ from region to region. But many of the themes are the same across the country. I have found it valuable. I'm sure I say that on behalf of the members of this committee.
I appreciate the time you have taken and we look forward to seeing you on our next swing through the region, which will be at this time next year. Please contact your national organizations, for those of you who belong to national organizations, and ensure that they are letting you know about hearings when they're asked to do so. Thank you very much.
Members, we conclude here. We'll resume at 1:30 p.m.