[Recorded by Electronic Apparatus]
Thursday, November 30, 1995
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[English]
The Acting Chair (Mrs. Brushett): Order, please.
Good morning, everyone. Welcome to the Standing Committee on Finance from the Government of Canada. We're pleased to be here in Fredericton this morning to hear what you have to say in terms of where we go with the pre-budget consultations in this coming year.
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I'm taking the chair for the first time and we're running a bit late. We have our witnesses now and Terry Thorne from the Saint John Board of Trade will be first. Then we will hear from Dr. Frank Strain, of the Mount Allison Alumni Association; Peter Dysart, from the New Brunswick Fish Packers' Association; Jac Gautreau, from the Association acadienne des artistes professionel(le)s du Nouveau Brunswick; Randy Dickinson, from the Premier's Council on the Status of Disabled Persons, with his colleague; Brian McIntosh, from the Fredericton Area Coalition for Social Justice; and Patrick Darrah, from the Saint John Construction Association.
You will have less than five minutes to present your opening remarks. Please be as brief as possible. Then we will have dialogue between the presenters, because I'm sure you will stimulate some controversial discussion that will bring out some very positive points we can deal with in our deliberations. Following that we will have questions from the members of Parliament who are here today to hear your very important views.
Please begin, Mr. Thorne.
Mr. Terry Thorne (Chairman, Provincial/Federal Affairs Committee, Saint John Board of Trade): Good morning.
I'm representing the Saint John Board of Trade. You've requested input on three important questions. I'll try to present views of the Saint John Board of Trade on those three specific questions as succinctly as possible.
Your first question was what the deficit reduction target should be and how we should get there.
The government's objective must be to have a balanced budget and we must get there as swiftly as possible. A sensible and progressive approach to deficit elimination is required. We must balance the need to make some tough decisions and to adopt some harsh measures with not significantly impacting the Canadian economy. I know that's a tough balancing act.
To achieve this goal, we strongly believe the emphasis must be on the expenditure reduction side. There's simply no room left for tax increases.
We have seen these expenditure reductions taking place in government operations, business subsidies, transportation, natural resources, and so on, and we applaud the moves taken by the federal government in these areas. We encourage them to continue to reduce, to eliminate, and to make efficient use of our resources. However, we believe there is a limit to what we can pull out of those areas of resources and government expenditures and so on and so forth.
The more painful decision, the one the federal government must make now, is to cut transfer payments to the people and to the provinces. That is a much tougher issue to deal with, but fiscal reform must entail reductions in these transfer payments if we're ever to achieve a balanced budget and if we're ever to get there in a reasonable timeframe.
Finally, I think the federal government and all governments must move quickly to stabilize the Quebec issue. The federal government is doing things now, but we all know that this instability means higher interest rates for the Canadian marketplace and these are higher interest rates that we can ill afford.
There's a double effect at the federal government side of.... Obviously the interest payments are significant and the percentage point bites hard into our expenditure side. On the other hand, it slows down our economy and then has the effect of biting hard into the revenue side of the federal government. This double whammy must be resolved. Politicians must commit to resolving this issue so we can go forward in a stable economic environment.
Your second question was what budget measures can be used to create an environment for jobs and growth.
The easy answer, the one that comes to the top of my head, is: let's reduce some taxes and get out there and.... But the Saint John Board of Trade believes there's really no room to do that.
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So what we must look for is creating a more efficient system for the entrepreneurs and the business people to operate and create jobs in, reducing legislation and regulatory hurdles businesses face today. This would mean such things as efficient ways of collecting taxes, the harmonization of taxes, and the elimination of interprovincial trade barriers, which are significant. It would mean the streamlining of governments at federal, provincial, and municipal levels to eliminate duplication of effort and existing barriers to business.
Finally, what areas of federal activity should be considered for cuts, commercialization, privatization, devolution, and so on? Our message is a simple one. We discussed it and basically we've come to the conclusion nothing should be sacred. The government must be open to suggestions and look at all areas that would constitute efficiencies or savings or the elimination of unnecessary government regulation.
In conclusion, our main message today is the federal deficit must be eliminated and it must be eliminated as quickly as possible.
The Acting Chair (Mrs. Brushett): Thank you very much, Mr. Thorne. We now move toDr. Frank Strain.
Dr. Frank Strain (Head, Department of Economics, Mount Allison University): To start with, I'd like to compliment the Department of Finance. I think they have the right approach to deficit and debt reduction. That is, they have a firm understanding of the arithmetic of debt and the fact that the government simply can't go on where the rate of growth of debt exceeds the rate of growth of GDP. They put in place a plan to actually get the rate of growth in debt down below the rate of growth in GDP, which in turn gives us an opportunity to let the miracle of compound interest work in reverse. I think this is the appropriate approach.
So in a sense the Department of Finance has already has taken what is the only approach. It's inevitable that someone has to pay in some way to get the debt under control, and that someone is going to be the Canadian citizen.
My view is the policy of growing out of debt is probably the best way to go rather than another Draconian set of cuts. From some calculations I've done, I think the cuts in the 1995 budget actually do bring the debt to GDP ratio under control, even though interest payments will grow for several years into the future. That growth doesn't persist indefinitely.
I'd like to address the question of further cuts beyond those announced, because once we've put in place a plan I don't see any point in reversing from the current plan. But if further cuts are contemplated, I still think they have to be weighed against the other option of making people pay through higher taxes. I guess I would encourage the politicians, as representatives of the Canadian public, not to be accountants, not to be stuck with numbers, but to actually consider all the costs in their full detail. This means you should assure you don't increase the cost to the Canadian people by cutting government programs, which is a real possibility.
Let me give you some examples of how this may happen. If we move to privatization, this involves people paying the price if they want the services. The question is whether they get better services for a better price with privatization. If they do, it's a good move. If they don't, if they're better off paying through taxes, then we're better off as Canadians paying through taxes if we get better services from our tax revenue.
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The health care sector is another classic example of where, in general, cuts simply don't save. They can save for the government, but they may not save for the Canadian public if the costs of health care go up. We'll still have to consume health care. If we're paying more, we're going to be worse off.
This also applies to what is often called offloading to the provinces or reducing transfers to the provinces. Transfers don't make sense if those transfers are going to be applied to things we'll have to pay for anyway because the rate of interest the provinces have to pay is simply higher than it is for the federal government. In effect, you're making things more expensive rather than less expensive. The savings through the federal government is really a fiction.
The one I really make a case for most strongly is the equalization program. I would recommend a special caution in cuts in this particular transfer, because the equalization program benefits not only Atlantic Canadians but also the whole country. It is well-known that one of the consequences of cuts to equalization is likely to be increased migration to other regions.
This might be good and it might be bad. If Atlantic Canadians end up moving to Ontario and they don't have jobs, they'll still demand education services and they'll still demand health care services. Those costs will still have to be met. In fact, the demand will be much more expensive to meet in Ontario, given that wages are higher there. And again, the saving is an illusion.
One way or another, people are going to have to pay. I think it's really important to recognize people have to pay to get the deficit under control and the debt under control, but we should be doing it in the way that involves minimum cost.
As my final comment, I would say on the topic of budget measures creating an environment for jobs and growth that I don't know what sort of budget measures can be taken. I do know the current agenda is we will have no increase in taxes. Increasing taxes is not even a possibility right now. This is really being pushed by the business community. I think the business community had better deliver on the jobs if they're going to push this agenda and we're going to accept it. They might be right, but I think they will find themselves in big trouble a few years down the road if they don't deliver and they've said this is the agenda for growth and jobs.
The Acting Chair (Mrs. Brushett): Thank you very much, Dr. Strain. I did not recognize that you were from the Economics Department of Mount Allison University. We do appreciate your being here today.
Our next witness is Mr. Peter Dysart, the executive director of the New Brunswick Fish Packers' Association.
Mr. Peter Dysart (Executive Director, New Brunswick Fish Packers' Association): Thank you, Madam Chairperson.
The New Brunswick Fish Packers' Association has been representing the views of the New Brunswick fish processing industry since 1918. It was then known as the Maritime Canned Fish Section of the Canadian Manufacturers' Association. Since 1946 the association has been administered by CMA New Brunswick as an autonomous vertical trade association. We represent about 46 member plants, and they produce about 75% of the seafood processed in this province.
I shall be brief. I shall also be blunt. We were told we were allowed between two and three minutes, so I must be brief. These points are from a presentation we've given to the clerk of the committee. I would hope the members of the committee will take the time to read our full paper. I believe it's worthwhile. We are speaking from the seafood processing perspective.
On seafood plants, a reduction in plants would result in a better contribution to the economy. Such rationalization must be well planned and gradual.
On fishing, federal programs are beginning to retire excess fishing capacity. Capacity should not be added to a fishery without strong scientific support.
On cost recovery, we oppose paying for government services unless they are delivered efficiently.
On deficit reduction, from our sector's perspective we need a budget balanced within a very few years. We need elected and appointed officials to set an example by giving up programs where perks or renumeration seems lavish. We need government agencies to coordinate their work, stop empire building, and concentrate on essential activities.
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We need the underground economy addressed.
We need to recognize that employment is a high priority. A climate favourable to both large and small enterprises is needed for manufacturing and private enterprise to drive growth.
We need government to recognize that high fisheries' management costs are driven by social causes and that the seafood industry cannot support a social fishery. Society must bear the management responsibility for cost attributable to a social-based fishery motivated by job creation objectives.
That, Madam Chairman, is a very blunt statement.
The Acting Chair (Mrs. Brushett): I'm sure this will stimulate the discussion as we open the floor following the presentations.
Monsieur Gautreau.
[Translation]
Mr. Jac Gautreau (President, Association acadienne des artistes professionnel(le)s du Nouveau-Brunswick): Good morning. My name is Jac Gautreau and I am the President of the Assocation acadienne des artistes professionnel(le)s du Nouveau-Brunswick [Acadian Association of Professional Artists of New Brunswick]. We have about 150 members and represent people working in music, dance, theatre, literature and cinema.
As an association of artists, we are very pleased to be here today for these discussions because we consider that we are not consulted often enough in this process.
I would like to mention a few concerns which were raised when we examined the issues being discussed here today.
The first question is: ``What should our goal be in terms of deficit reduction? What is the best way of achieving that goal?'' We agree with a balanced budget and reducing the deficit quite quickly, but we think that far more attention should be given to the impact of such cuts, particularly as regards cuts to social programs.
The government must ensure that such cuts, which will save money, do not have social costs which, in the final analysis, might prove to be far higher than the amount of money saved.
There is no doubt that the effect of cuts to social programs is to increase poverty and the crime rate, and to reduce health care. We are very concerned about this.
As regards job creation and growth, Statistics Canada reports that it costs $29,000 to create a job in the cultural industry, whereas the average cost in any other industry is approximately $200,000. Therefore, we wonder why the government does not invest more in creating jobs in the cultural industries. As it saves exactly $171,000 each time it creates such a job, we consider that this is an area worthy of investment.
There is often a tendency to believe that a job in the cultural industry, in the artistic field, is not a job. It is not considered to be a job, although people working in this industry pay taxes and contribute to the economy.
The third question is: ``Where should the government consider such cuts, commercializing its operations, and privatization?'' It is being suggested that transfer payments may be reduced, and this is perhaps a more fundamental problem for us. It is a question of fairness in the investments being made in the regions.
We have a lot of difficulty in obtaining our fair share of the pie. When faced with budget cuts, although of course we can understand the principles involved, it is difficult to see how we are going to lose a piece of the pie which we are not even receiving. Therefore, we would like to leave you with the following thought: there should be more fairness in the allocation of funds, particularly to the regions, and if cuts have to be made, they should be in proportion to the needs of the regions.
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At a time of fiscal restraint as is the case at present, our industry is often an easy target. However, it must be kept in mind that the State has financed artistic endeavours since the beginning of time and that it has no right to abdicate this responsibility. In such a situation we may seem to be an easy target, but it is our art which distinguishes us from the animals. That is an expression in English,
[English]
the slippery slope, and if we get on that slippery slope....
[Translation]
The government is risking far more than it realizes when it considers reducing its investment in the arts and culture, because culture conveys what is at the heart of our country. It would be very dangerous to reduce investment in this area. Doing so would indicate that we are a society without a heart or soul. I would not want to live in such a country, and I do not think that any of you would want to live there either. Thank you.
[English]
The Acting Chair (Mrs. Brushett): Our next speaker is Randy Dickinson from the Premier's Council on the Status of Disabled Persons.
Mr. Randy Dickinson (Executive Director, Premier's Council on the Status of Disabled Persons): Thank you.
First of all, although I'm here partially in my capacity as executive director of that organization, I also want to remind the members of the committee everybody here wears a number of hats as they come to the table. I come here as a disability advocate, but I also come here as a person who lives and works in New Brunswick. I'm here as a taxpayer. I'm here as a consumer, in terms of the relationship with the business community and the public, and I'm also here as a Canadian citizen with some points of view separate from protecting the interests of my area of concern for disability issues.
I know the topic of budgets and finances is a very difficult and complex one, and I know you've heard a lot of points of view. I'm reminded of the story of Elizabeth Taylor's eighth husband. On his wedding night, he said he knew what he had to do, but how does he make it interesting?
I know you've probably heard the ideas we're going to present here this morning, but I think it's important to reinforce some of the messages and perhaps send some signals from some of the groups that don't always have a voice.
I'm very pleased to see the government's effort at public consultation. There is a sincere wish to get out and speak to people from the grass roots, not just from the organizations and groups normally having insider access to the powers that be.
I would like to use as an example the topic of privatization in terms of the budget and financial planning. I remind government one of the often overlooked options is support to the non-profit community sector as a way to devolve and share government powers and financing in a cost-effective way, while even more importantly maintaining a quality of service that's acceptable to the people on the receiving end.
The value of volunteerism in this country is often overlooked as a commercial activity. We might use for comparison purposes not just the free time people give, but the employment activity created by community-based organizations, who can get a dollar stretched a lot further than most bureaucracies at all levels of government.
As a specific example of a recommendation, I would like to suggest you give consideration to an amendment to the Income Tax Act. The act could be amended so the consideration for charitable donations in this country is equal to the consideration for political party contributions. This would be a test of your fairness and equity in terms of how we address special interest groups. If political parties deserve special financing consideration to meet their needs, surely to goodness the non-profitable charitable community sector, which is getting good value for dollars, should receive the same tax benefit as well.
I look at the tax system not to criticize and say not everybody's paying their fair share, although I believe this to be true, but instead to look at practical ways to redistribute government programs and services to individuals based on need and without creating unnecessary bureaucratic administration. This would also not be perpetuating funding and services getting to those who speak loudest or who speak in the right corridors as opposed to those who actually need it.
We can review the tax system in terms of issues such as tax credits, from the context, for example, of meeting the extra cost of disability, whether it's technical aids, equipment, transportation, a sign language interpreter, or a personal care attendant expense, which are expenses that are more than the typical Canadian would have. Rather than creating a program to try to screen all the applications and setting up a bureaucracy and wasting money in the process of transfer from the feds to the provinces and then out to the front-line programs, perhaps some significant savings could be achieved by delivering the federal mandate and interest in social programs with a better system of tax credits.
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I'd also suggest looking at the RRSPs. That's a good initiative to plan for pension programs for the future, but there should perhaps be consideration of lower ceilings for the amount that's protected from the tax resource for the federal government. Persons who have the highest incomes are getting the best tax protection, whereas the middle-class and working-class people, who are the bulk supporting public financing at the federal, provincial, and even municipal levels, are the ones who are in position to take least advantage of the current system of tax avoidance.
I'd also like the committee to look specifically at the tax provisions relating to family trusts. Canadians should be ashamed at some of the protection for the most wealthy, again, in comparison with the availability of accessing it. It's no good having a tax deduction if you don't have an income or don't have enough resources to be able to take advantage of it. So again, look at some sense of responsibility in how those trusts are assessed.
I would invite you to look at the old idea of a flat tax for personal income tax as a way to ensure we can eliminate unnecessary frustration and administrative costs in calculating payable tax and streamline the fact as well to the point of view that most people would be paying a fairer share.
There has to be some extra effort in the issue of prosecution and accountability for tax avoidance and the underground economy. Again, if people feel they can get away with it, they will do so. The people I see as getting away with it are the ones who can most afford to pay a reasonable share.
I'd like you to resume an interest in the whole area of the services and programs under the banking institutions in this country. Time and time again we've seen a lack of control of credit and service charges to the consumers at times when the interest rates are high or whatever, but when the consumer pays interest on money from the bank, they pay more than what they get back when they're depositing. In light of the profits the banks have been generating in the last couple of years, that looks to me like an exciting opportunity for the federal government to find some dollars to help pay down the deficit, as opposed to reducing benefits for the poor and the disadvantaged.
I'd like to point out that we got into this deficit situation over a long period. I appreciate and understand that as Canadians we have to address the deficit and we can't be all things to all people, but let's not move with the example of the Mike Harris government in Ontario and try to make drastic changes to address a problem that developed over a long period with a short, drastic solution, as opposed to a little more moderation in the timetable used for addressing the deficit.
Lastly, I want to remind you some of these people on this morning's panel mentioned that we have to see leadership by example from not only the federal government but also from others: big business, labour, and the public as consumers and taxpayers. I recently read the famous book On the Take. If you look at the examples, such as secret commissions for airplanes or all government members' pension plans, or the patronage deals, or the inflated leasing arrangements...and I'm not accusing anybody here of anything, except when you expect Canadians to accept a plan for deficit reduction and to accept the pain of reduced services or reorientation of services, you have to be able to hold your head high and say ``we're doing our share too.'' I'm not suggesting closing down Parliament and the Senate, but I do think not only government members but the senior management of the bureaucracy of government have an opportunity to set a better example.
I would close with the idea that somebody also mentioned this morning. It's not only how we create prosperity but how we share that prosperity in such a way that we can protect minimum national standards and social programs...to balance the attack on the economic agenda with a reasonable level of social priorities. If you talk about have or have-not provinces, or have or have-not people in the population, none of us know where we're going to be in that continuum.
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I happen to be married to a lady from Alberta, and we're living here in New Brunswick. I'm a native New Brunswicker. You don't know where your career or your personal life will take you in Canada. You don't know when you'll be defeated at the polls next time and be out looking for work.
I think we have to recognize that protecting standards across the country is important and valuable, not only for those who need them now but also for those of us who may need to use any aspect of that system down the road. Thank you very much.
The Acting Chair (Mrs. Brushett): Thank you, Mr. Dickinson. You have certainly provided some food for thought on a broad topic I'm sure we'll share with you in a few moments.
We'll now move to Brian McIntosh from the Fredericton Area Coalition for Social Justice.
Mr. Brian McIntosh (Fredericton Area Coalition for Social Justice): I'd like to begin by saying that our coalition is a collection of people from various service, advocacy, and social policy organizations in and around the city. We work with other coalitions in the province and in the country to try to address social policy concerns and issues. Obviously the finance committee has a lot to do with social policy and programs.
We are increasingly alarmed in our coalition at the level of social disintegration occurring in this country. We see people every day on the street, and we lay much of the blame on the misguided economic policies of the current Liberal and the previous Conservative federal governments. To begin a discussion about the federal budget by setting deficit targets, for instance, as your first question suggests, begs the prior and more fundamental question we believe about what the budget is supposed to achieve. I submit that the purpose of a budget is to support the primary values inherent in the budgeters' vision.
Our coalition further submits that the primary values of the federal government ought to be justice, compassion, the protection of human rights, and the dignity of each citizen, including the dignity of work, and the nurturing of those values in a collective Canadian vision. We do not believe the way to reduce the debt is to make those who can least afford to pay, pay more. Rather, the distribution of the burden of the debt ought to be on the backs of those who can afford to pay for its reduction, namely wealthy Canadians and wealthy corporations.
We believe the Canadian people have been duped into thinking the only way to reduce the deficit and the debt is through cutting rather than through revenue increases in a multitude of ways.
In addition, a comprehensive job creation strategy, which the Liberals promised as their chief deficit reduction strategy during the election campaign in 1993, would create increased tax revenues through higher employment and reduce the burden on social program expenditures.
In answer to the third question, there should be no more privatization and government should be considered a viable economic player in the Canadian economy, which is a mixed-market economy. A just distribution of the burden of the debt should be achieved by making the tax system much more progressive.
These and other quite specific provisions, such as a policy to decrease interest rates, were outlined in a national alternative budget process last year, which is being repeated across the country this year, including participants from various social sectors all across the country.
This alternative budget offers specific, concrete revenue expenditure and program suggestions, with credible figures supported by many economists in Canada, albeit economists with a different vision of Canada than those currently being consulted by the federal government.
Let's put people back to work with national day care and environmental strategies, with small business initiatives that create more jobs than any other sector, with job sharing, shorter work weeks, and other creative workplace programs.
In 1996, the international year for the eradication of poverty, we need to try to stop poverty, not poor people. Thank you.
The Acting Chair (Mrs. Brushett): Thank you very much.
Our last presenter this morning is Mr. Patrick Darrah from the Saint John Construction Association.
Mr. Patrick Darrah (Saint John Construction Association): Thank you very much, Madam Chairman. I want to thank you for the opportunity of appearing before the House committee today.
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The Saint John Construction Association has been around for 112 years; we're the oldest construction association in the country. On behalf of our members, it's been a pleasure to be part of the building of this country over that 112 years, but I sit here today and I think we have to redo it. The older members have brought to my attention that we've likely done it three times in our own membership's time. We're now on the fourth. We are now in the global empire. We have a global economy to face and we can like it, lump it, or leave it, but I guess as Canadians we have to take and face those challenges.
As a person who sits on boards in this country and in the U.S., and has done so internationally, I would suggest that we must confine ourselves to the world. If we don't do the deficit reduction - as your first question is put - the fact is that we're not going to be there to compete. One of the reasons we're where we are, if I may say so, is that we have faced the computer revolution and we have made the same mistakes we made in the industrial revolution. We didn't lay out a plan for the changes that have taken and are taking place. I would now call on you to lay out the plan very clearly for your deficit reductions.
I do want to say that when Mr. Martin did his budget last year, he told us where he'd be and that it would likely be the first federal government budget in years in which the targets had been met. So for whatever he lays on the table, when you make your recommendations to him, please tell him to lay it out there so that it's fact, not fantasy, as we've had in a number of years.
As for the budget measures, we first of all have to take a serious look at the duplication that takes place between all levels of government. I'm not a great fan of the fact that the province is closer to the people. I think the municipalities of Canada are closer to the people. Sometimes I wonder why we have a constitutional problem. The ten knights in armour would like to dismantle the horse. I think you better pay attention to how you dismantle it.
With the budget measures, I think you have to be careful with what you're doing, but I do believe there are a number of things to look at. The duplication is only one.
There are also the massive numbers of regulations from the three levels of government in this country. God, if you'd get rid of 50% of them, we could like the cost of doing business. We could look after all the people who are concerned if we could just cut through the rules and regulations that we've piled on ourselves in the last hundred years. As it has gone through the government, we haven't had a serious measure from the finance department to send a message down through the tube to dismantle that crap - if I could be that vulgar today.
We could then look at one of the others, downsizing. The fact is that there are a number of services that can be delivered by seeing the government privatize them, and I'll take the air traffic controllers as an example. If anyone took that classic example, just an analysis of that reveals it's a tremendous savings, both in cost and all factors to the Canadian government. It's really a thing that the employees have decided to go out to run themselves because having worked for the government for all these years, they have found out they can be a hell of a lot more efficient on their own.
I think there are all kinds of things you can privatize. In doing so, I think we'll find out it doesn't have to be to business privatization. It can be association privatization. I can take our own as an example, and I think I can say volunteer groups and all other kinds of groups could in fact take part in that whole privatization. We're looking at doing things with the government that we're going to do in a private sense. We're looking at them coast to coast and they're coming out of this province. All I can say is that these are things we'd like you to look at.
On the deregulation side, don't underestimate how much you can save. It's a fantastic amount of money.
The other aspect I do want to raise deals with one of the things on the taxation side. As you download things to the provinces and the municipalities and the citizens as a whole, be careful about how they're done so that they are in fact done in an appropriate manner - and I'm going to give you an example.
I'll take the issue of taxation of health care benefits - and we've made this presentation with another organization I belong to. Do not tax the health care premiums. The Province of Quebec did it, and what happened was it was eliminated from the private plan and went into the public plan. Sometimes you have to be very careful about what you do - and I just raise that as a point.
I think we must come to realize as a nation that we have to in fact be more efficient, more productive. We have to all pay collectively for that particular period we went through between 1973 to 1985, when they threw money at everything and everybody who stood up. I think we have to do it now, but we have to do it collectively. I think there are things we can do, and I don't particularly say that you have to do it tomorrow. You have to do it in a very set-out plan, so we all know, so we can all buy into that plan.
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Thank you very much.
The Acting Chair (Mrs. Brushett): Thank you, Mr. Darrah.
This comes to the point, following our presentations, where we like to link ideas and presentations that you've each heard around the table here, and perhaps challenge each other, or look for opportunities to link each other's ideas, so that we might take some very constructive ideas and efforts back to Ottawa to the Minister of Finance to see where we go.
To begin with, maybe I'll come back to either Mr. Darrah or Mr. McIntosh, because Mr. Darrah says more privatization, get government out of the way, and Mr. McIntosh says give us more government. So we have two very opposing views here, and maybe we would like -
Mr. McIntosh: I didn't say, give us more government; I said, recognize government now as a viable economic partner in the Canadian economy.
The Acting Chair (Mrs. Brushett): But does that not mean what you're saying is government should take its responsibility in job creation, and these kinds of -
Mr. McIntosh: The Liberals ran on a program of job creation. They were proposing that as their number one deficit reduction program in 1993. They've done nothing on job creation.
The Acting Chair (Mrs. Brushett): We have done something. As chair, I won't participate in this debate, but we have done something. We've created over 400,000 jobs.
Mr. McIntosh: No, but you haven't put any money into job creation.
The Acting Chair (Mrs. Brushett): Yes, we have. And I think Mr. Gautreau made the point that through culture you pay about $29,000 per job created, but in times when government puts money in it's something like, not the $200,000 that he said, but perhaps close to $100,000 per job created when government does it in that way. We're trying to create the environment whereby this will be the area where the economy takes place.
So I'll turn it back to the participants here this morning to share their ideas on these issues, on what you've heard.
Would anyone like to challenge what Mr. McIntosh is saying?
Dr. Strain, please.
Dr. Strain: I agree with Brian McIntosh in one sense, that if you look at who the big beneficiaries of this rise in debt are, clearly it's the richest people, because they benefit from this mixed economy. One can't claim it's individual initiative or anything else, I don't think, because they benefited from the whole of the society. So in that sense, his suggestions, which I took to be tax the rich, make sense, but, at the same time, I think right now Canadians simply won't buy that, and especially the business community won't buy that. The business community is arguing that if you put more taxes on us as a way of dealing with this, and we try to deal with the deficit and the debt problem in a way that basically takes those who benefited most and makes them pay the most, and those who benefit the least pay the least, if we do that we're going to impair job creation, we're going to diminish incentives. The end to that...I don't know. But we're doing that as an experiment anyway right now. That is, de facto, what we've decided to do.
All I say, again to the business representatives, is they should go back and make sure that people in the business community understand that de facto we're making this decision to deal with our problems in a certain way. As a consequence, there's a lot of pressure on them to actually produce those jobs that are being promised. I don't think the government right now is the one that's going to be producing the jobs by putting in an expansionary budget. It's not on the agenda.
The Acting Chair (Mrs. Brushett): Would someone like to pick up on that?
Mr. Dickinson.
Mr. Dickinson: I'd like to switch gears and come back to the issue of deregulation. I first of all want to support Mr. Darrah on the idea, I think, that there's a lot of opportunity to review and to cut costs in a painless way without affecting quality of services or the health or safety of Canadians by looking at various criteria, not only in the business community, but also in, for example, health care, an area I'm more familiar with.
I can tell you, for example, that a lot of federal financed cost-shared programs, in terms of disability issues, require medical verification of a person's disability. The doctors are signing forms and charging that to medicare as an office visit, when in fact if the person rolls in in a wheelchair as a quadriplegic, it's pretty obvious that they qualify for the reserve parking space in terms of that. And if they prove their disability for one program, why can't they take the same generic information and transfer it in the file with our new electronic information technology to share that with other places?
.1110
There are a lot of places where red tape for the sake of red tape is not improving anything except adding costs and adding administrative overhead. However, on the flip side, I want to ensure that in our rush to deregulate we don't swing...it seems we're always in a position of extremes. The pendulum switches from one direction to the other too quickly, and again the benefits achieved are overwhelmed by then losing guarantees of health and safety concerns for Canadians. Although none of the people around this table and none of the business people, or none of the community groups that are represented here today would be guilty of this, we've certainly seen places where people will, if they're not regulated, go to the lowest common denominators of safety for the basis of increasing profits, and health and safety would be put at risk. However, there is a balance that's far out of whack at the current time.
Mr. Darrah: I'd like to make a comment in regard to our own industry and Mr. McIntosh's employment concerns. We are the biggest industry in the country for creating employment, the construction industry. We can outdo the government in creating jobs. They were pretty good at it, but we've always been better.
Let me leave with you a couple of things that are rather interesting. When I made the point about the the number of times in this association we've been in transition, in terms of this province alone the construction industry has grown in the last three years. The employment in that industry is down; I would suggest to you - dependent on whose statistics you want to argue about - it is likely down 17%, yet the actual industry itself is larger than it was last year and the year before.
In this transition that we have to live with are the technological changes and the modularization of our industry. For example, in 1995 we got a job in this province that's worth $200 million. In 1990, if we did the same job, we would have had 26% labour. In 1995 it's 20%. The only thing that's changed is the element of the technology and the things that have come with it. One of the things we're going through right now is this transition; we are going through this curve and the jobs that we create.... I want to tell you, Dr. Strain, that we're having the same problem, and I could support the labour movement on this particular issue. We have all this work but the whole transition of doing it, and we're in this transition period.... If I look at past transitions we've run a 10-year transition period and we're in about the third year of it.
The employment in our industry will grow, but it won't grow until we get through this transition, because we have a whole series of things we have to do. This is one of the sad things that we have. We've created 400,000-odd jobs in Canada, but due to the whole industry transition that has had to take place in the last four years, we haven't gone far enough down in that cycle. This is an issue that we all have to face. In the process we're going to be able to compete if we have the right deficits, we don't have high interest rates, and we don't have all those other loads on our backs.
It's very difficult to sit here and say cut Sam, cut Frank, cut freely but don't touch me. But I'm going to tell you, our industry in this country - because we all talk about who shares the load - the switch if you look at what the government has done, and the jobs we've done for government, are down almost 25%, and in some places in Canada they're down 35% and 40%. We took that cut and yet the private sector has really increased its investment in Canada at the same time. That's what the whole economy is all about.
I want to leave with the people who say the government's not doing anything and industry's not doing anything - and maybe we're not all doing enough - but I do want to leave with them the idea that we're in the transition period, and we're really going to take another three or four years to get around it. I want to leave this because it's important that.... I'll take NBTel as an example. Here they are, they've cut and slashed and banged and spent money on technology. New Brunswick is benefiting from this particular decision that was made by their board and their people. That's the spin-out. Those are the transitions I'm talking about, but I don't want to get any further into that.
.1115
I do want to mention the RRSPs - not that I'm a big RRSP buyer, but I do represent joint-trustee pension plans, or labour and management pension plans. One of the reasons we went to the Minister of Finance and the finance committee last year was not to touch RRSPs. One of the reasons is it's a great builder of Canadian capital. We're short of capital in Canada, and the RRSP is likely the best builder of capital in Canada, because you can invest only a portion of it outside of Canada. The money stays in to be reinvested in Canada.
The Acting Chair (Mrs. Brushett): Would you recommend we change the ratio in any way?
Mr. Darrah: When you look at how that money stays in Canada, you shouldn't touch it. We on the joint labour and management...did a massive documentation to the federal government last fall, which these people wouldn't be privileged to, because we did it and it hasn't been published over hell's half-acre...is that when you showed the amount of capital that stayed in Canada to get re-invested in Canada, it was likely the best capital component the country had.
The Acting Chair (Mrs. Brushett): Mr. Thorne, you would like to comment on this.
Mr. Thorne: Thank you. I have a few comments.
Being here from the Saint John Board of Trade, I guess I'm labelled as ``the business community''. But I also agree with Mr. Dickinson that we all come here wearing many hats. I'm a small businessman in Saint John. I'm a volunteer at the board of trade. I'm a volunteer at the New Brunswick heart foundation. I'm a father, a Canadian, and all those other things. So we do all wear a number of hats that we bring to this table.
I'm encouraged that I sense we're all in agreement that we have to stop the madness. The last time our total revenues exceeded our total expenditures in this country on the federal side was 1969-70. I think we all recognize we have to stop the madness, we have to get on with addressing the deficit issues, and so on. Granted, there are various thoughts around the table on how we do that. From the board of trade perspective we're very clear that we have to get on and address the deficit reduction and in fact eliminate it. That's the best strategy for digging ourselves out of this hole. It's not on the backs of the poor or of anyone, but shared by all of us - the business community, individuals, the provinces, and so on and so forth.
It concerns me when I hear things such as, gee, in the last hundred years the rich have got richer and the poor have got poorer. I'm not sure if that's factual or not.
The business community as such welcomes the opportunity.... Definitely that is where job growth and job creation will come from, Dr. Strain, and the business community will respond. It's a much more complex issue, as we all fully appreciate. Pat Darrah's touched on some of it.
I can go through the business community today.... I drove up here with our chairman, and he has two positions he could fill if he could get the right qualified, educated people. I could hire people tomorrow if I had the right qualified individuals to do the job.
It gets to be a much more complex issue. But the business community would welcome the challenge, and it is meeting the challenge. That's the engine for growth in this country. It's not the federal government creating jobs.
Mr. McIntosh: I want to respond to a couple of things. Yes, we do need to share the burden of heavy debt in this country. But we can't share equally, because there are many Canadians who are at the bare-bones bottom of their personal budgets and need assistance to survive. We have UN charters of rights that are supposed to guarantee...we are signatories to these international conventions that are supposed to guarantee dignity and human rights to everyone in this country.
So when we talk about sharing the debt, yes, but we have to share it to a great degree unequally. That means people who can afford to pay more need to pay more. If we want to abandon half of Canada, leave our citizens in the lurch and abandon our international agreements and our tradition of justice and compassion in this country, then that's fine, but that's not the Canada I've known and grown to love as a citizen of this country. We've been making a vastly different Canada in the last two or three years.
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We talk about sharing the burden of the taxes, but, for instance, corporations in the 1970s used to pay 17% to 20% of the total federal revenue, and they're down in 1992 to 7%. I disagree withDr. Strain. I'm glad to hear that he agrees with me on a few things, but I disagree in that the Canadian public won't believe this.
I've been told the federal Department of Finance had a poll done on Canadians and the number one concern to reduce the debt and deficit was that richer, more wealthy Canadians and corporations pay a higher share of taxes. They don't want to release it because they're afraid of the revolt that might happen in this country.
There's no difference in the income tax rate for people earning more than $60,000 or $70,000 a year. Someone who earns $1 million a year is paying the same income tax rate as someone who makes $60,000 or $70,000 a year.
We're not being creative enough in our workplace strategies to try to create job-sharing so that more people can be put back to work. The key factor, I think we've all agreed, is job creation and how to do it.
The Acting Chair (Mrs. Brushett): Can you finish quickly? I want to let Mr. Dysart give a word in turn to Mr. Loubier.
Mr. McIntosh: I'm done.
The Acting Chair (Mrs. Brushett): Mr. Dysart, please.
Mr. Dysart: Thank you.
Frankly, I don't think anybody around this table disagrees with the objectives Mr. McIntosh has. The problem is how you get there. If I understand what he's saying, he could lead us into a situation of bankruptcy as a nation.
The seafood industry is not an industry that makes huge profits. Members of my association are processing products at very narrow margins. As a matter of fact they're processing things such as rock crab where they're making no profit whatsoever but actually losing money, simply because they're trying to maintain their employment base.
The industry is overcapitalized, essentially because of government action at both the provincial and the federal level. We support organizations such as ACOA that do provide capital to industry under difficult circumstances, but that investment money should be well considered before it's granted as it was in the past. We've had very serious problems in that area.
As to some of the comments Mr. Darrah made with respect to reducing regulations, the fishery is one of the areas in which we have more regulations to face than perhaps any other. As a processing sector, we have to face the provincial health regulations, etc., and as purchasers of landed fish, fishermen have to face complex regulations at sea.
Some of those regulations and the management structures that have been developed over the years to handle the fishery are very expensive, and the industry is now being asked to pay for them. The total cost of just the licensing part would exceed the entire profit made by the fishery in the last two or three years.
The Acting Chair (Mrs. Brushett): Okay, maybe we'll stop there and turn to questions from the members of Parliament. Mr. Loubier will commence questioning.
Please proceed, Mr. Loubier.
[Translation]
Mr. Loubier (Saint-Hyacinthe - Bagot): My question is to the representative of the business community, Mr. Thorne, and also perhaps to Mr. Strain who also addressed this issue.
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When people talk about public finances, it seems that everyone is saying there are no sacred cows and yet do not want this or that area to be affected. When discussing putting our fiscal house in order, Mr. Thorne said there were no sacred cows but also indicated that no changes should be made to the tax system, particularly in the area of corporate taxes.
It seems to me that, when difficult choices have to be made, as is the case at present, the federal government must, given its financial position, consider every possibility and not focus solely on social programs.
Obviously, social programs are a major item, but you are on the wrong path if you forget everything else, such as revenue and taxation. Perhaps those people who would not normally be expected to pay because they have already paid enough will be called upon to pay more. Perhaps the unfairness of the tax system will be allowed to continue.
It is essential that we review the Canadian tax system, something which has not been done for25 years, because the situation of tax havens is so scandalously unfair, as can be seen by the fact that chartered accountants are even promoting them.
I do not know if you have read the 1995 June and July issues of CA Magazine. There was an article by two tax avoidance specialists explaining how to avoid paying taxes to Ottawa or elsewhere. They said that it was essential for accountants to establish trusts or corporations abroad, in countries considered as tax havens, so as to enable major companies to avoid paying taxes. This would apply particularly to those companies which can afford accounting services and are opening branches or trusts in Bermuda, the Caribbean and other locations.
What is even more scandalous is that federal tax legislation requires individuals to declare income obtained outside Canada, but does not require companies to do likewise. Therefore, in the official magazine of Canadian accountants there are specialists who suggest opening branches, subsidiaries, companies or trusts in countries considered as tax havens, such as Bermuda, Barbados, the Cayman Islands, etc. There are 26 countries with which the Canadian government has signed tax agreements. By reviewing the tax system, I think that it would be possible to remove this tax break enjoyed by Canadian companies and high-income earners. They are avoiding paying taxes to the federal government.
I would like to remind you that in 1992 the Auditor General assessed the amount of money represented by such investments abroad, on which no federal tax was paid. The revenue concerned was evaluated at 16 billion dollars. There is no reason to think that the amounts invested in tax havens have decreased, particularly when you read the article I referred to in CA Magazine.
In your view, should we completely ignore the taxation of corporations and high-income earners, and focus solely on social programs? Could we then say that we have done our job, restructuring both tax revenue and federal government expenditures so as to put our fiscal house in order? If that is what the chambers of commerce are telling us to do, I think we would be going down on the wrong track.
[English]
The Acting Chair (Mrs. Brushett): You said you're addressing it to Mr. Thorne and Mr. Strain.
Would you like to begin, Mr. Thorne?
Mr. Thorne: First and foremost, I meant it when I said there's nothing sacred out there. I certainly didn't mean to imply that we shouldn't review the tax structure. My message in my opening statement was that we should not increase the tax level, and there's a distinction there between reviewing the way we tax people and so on....
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The problem exists in the sense that, as Mr. Darrah stated earlier, we're not a New Brunswick economy any more and we're not a Canadian economy. We're a global economy, and we have to be very sensitive and aware of what is happening in the world around us, particularly with our large neighbour to the south, the U.S.
When we operate at 36% or 38% of our GDP as a percentage of taxes and they're operating at 30%, if we start to increase our tax levels any more, unfortunately you're going to see more and more articles by CAs, by lawyers, by everyone starting to encourage business to move out of this country and to set up their offices in the state of Maine instead of the state of New Brunswick. That is going to be a critical -
[Translation]
Mr. Loubier: Mr. Thorne, I think you misunderstood my point.
I'm not saying that the income tax paid by corporations must be increased automatically. However, I have noticed that some corporations pay their income tax, and yours is probably one of them, and that most SMEs pay their income tax. Other corporations, however, take advantage of tax loopholes, particularly in the federal tax system, to avoid doing their duty, as you and most of your colleagues in Canadian corporations do every year.
Because of that, we have to take drastic actions to rectify our public finances, when we know for a fact that if we were to amend legislation such as the Income Tax Act so as to force large corporations to report income made outside Canada, we could collect billions more dollars.
This must be looked at. I'm not saying that all corporate income taxes are automatically going to increase. However, I am saying that by rectifying things we will correct an injustice involving corporations that should be paying income tax and are not.
As I said, if I remember correctly, the Department of Finance has not been publishing data on untaxed profits since 1990. This may be because the Department was ashamed to publish data year after year showing that profits made in Canada were increasing, while the income tax paid was decreasing.
We need only look at the percentage of income tax paid by individuals and that paid by corporations to see that there is a major problem.
[English]
Mr. Thorne: I think we're getting to the same wavelength here. My argument is that we can't increase the taxes. Should we continue to review tax legislation and close loopholes and look at these areas? Yes, I agree. I think over many years we have done a tremendous job of closing down those loopholes and slowly, gradually putting the tax planners out of business. They're obviously still there in the CA magazines. My concern is that if we get the tax level too high in this country, believe me, it is going to have a significant and a negative impact on job creation and on wealth.
Granted, there are people out there who have built wealth and created wealth for themselves, but they've created a lot of employment and a lot of activity along the way. Just as we do not want to start pushing all our arts people out of the country, we do not want to push all our entrepreneurs out of the country. We have to get this balance that keeps the country together. That's our fear of the increased tax rate.
The Acting Chair (Mrs. Brushett): Dr. Strain, would you like to comment to Monsieur Loubier?
Dr. Strain: I don't really have much to say. I guess I agree that in terms of the design of the tax system, we want the tax system to be as efficient and as equitable as possible, and loopholes like this are such a waste. The government doesn't get many, but CAs are hired and they're fed up when those resources could have been used for something more productive. I think the tax system should be designed in a way to prevent that waste of resources that just go to creating employment for CAs. So I agree in that sense.
The Acting Chair (Mrs. Brushett): Mr. Dickinson would like to comment before we proceed with another question.
Mr. Dickinson: Yes, I want to comment on that same observation. We've identified problems, and I always try to come back to solutions. I think one of the solutions to address that problem of tax avoidance is to make it illegal, if it isn't already illegal, not only for the person who's avoiding the taxes; the person who gives the advice on how to do it should be tied to the penalty.
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I think if you did that you would eliminate a lot of the hidden transfers, not only of profits being raised offshore but also of transfers of profits produced in Canada based on Canadian purchases, Canadian manufacturing, Canadian resources, Canadian labour, and Canadian capital. The tax system is not getting their share back to refinance the infrastructure of Canada and the social programs that everybody participates in.
The Acting Chair (Mrs. Brushett): There's a quick comment from Mr. Thorne and then we'll go back to Mr. Loubier.
Mr. Thorne: I have just one brief point of clarification. There is a distinct difference between tax avoidance and tax evasion.
I don't believe the CAs, lawyers, or the business community in general are practising tax evasion, which is breaking the law. Yes, they are out there looking for loopholes. I agree that we should attack those loopholes, Mr. Loubier. But I don't think we're in a country that is extreme in tax evasion. People are working the system, and they'll work within the confines of the law to avoid and minimize tax.
The Acting Chair (Mrs. Brushett): Mr. Loubier, please.
[Translation]
Mr. Loubier: Mr. Thorne, I have no doubt that most Quebeckers and Canadians do their duty and pay their income tax. But there are tax loopholes. In 1992, we are talking about an amount of16 billion dollars, which is hardly marginal, given the financial problems we are facing, problems which are forcing the government to take some steps that could be avoided if everyone did their duty! It would be a good idea to conduct a serious, exhaustive study of our tax system.
You said that we have to be careful, because we are competing with other countries. I would say that the Canadian tax system is one of the most permissive in the world. It has the most loopholes of any tax system.
The United States has already started to clean up its tax system. And it is a tighter, more solid system than ours. We must be careful as well: there is a difference between being competitive as regards taxation to avoid having businesses leave the country, and tolerating measures which may be legal, but which are totally illegitimate.
If we compare the effort we expect of corporations that pay their income tax with what we expect of individuals, who are paying more and more, we see that it is the poorest members of society who are footing the bill. What we are asking them to do is horrible, when you think of all the tax avoidance measures available to others. Some actions may be quite legal, but far from legitimate. That should be considered as well.
[English]
The Acting Chair (Mrs. Brushett): Is there anyone who would like to comment on that quickly?
Mr. Dysart.
Mr. Dysart: I agree that tax loopholes should be plugged. But on the revenue side, I think one area that needs to be addressed by the federal government is the underground economy. It's a problem in the fishery. Federal regulations actually encourage the underground economy in many areas. The fishery is one. There are probably others. I think that is an area where not only millions, but perhaps billions of dollars could be collected quite easily.
The Acting Chair (Mrs. Brushett): Thank you very much.
Mr. McIntosh wants to comment on this as well.
Mr. McIntosh: Yes, I have a few comments.
If businesses were going to set up shop elsewhere, I don't know where they would find a better tax haven than in Canada, because it appears that Canada is the worst of the G-7 countries with regard to corporate contributions to the public revenue. This is in a graph according to the Department of Finance of the Government of Canada, 1994. So I don't know how you can find a country in the G-7 countries that makes corporations pay any less than Canada does already.
Another factor, though, is the repatriation of the debt. Canada had held a much larger percentage of the debt that we did owe within the Bank of Canada, and now foreign investors control a much larger percentage of that debt. We feel we ought to repatriate some of that debt and owe it to ourselves.
In addition, there are a number of tax loopholes that need to be tightened. We were talking about the RRSP deductible limit, for instance. In 1995, if we had lowered the RRSP deductible limit for high-income earners, we could have reduced the government's costs by $1.4 billion a year. That was in the alternative budget.
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Mr. Darrah: I want to make two points. The underground economy is just eating away at us; and that's just average Canadians. That's everyone getting their windows changed and their roof put on or whatever and paying in cash. It's going on in every shape and form. It's people doing things or exchanging.
I want to comment on one thing. Mr. Thorne told us the difference between tax base and loopholes. All he's saying to you is that business is saying - and I'll say it plain and simple - if the proportion of what we pay in taxes goes up, that is where we get non-competitive. Secondly, they're not going to move out to the G-7. They're not going to move out and hide in the G-7. That's not where they're going to go.
The other thing I want to comment on is the RRSP. I come back to the same thing. We might have cut the RRSP. This is not business; this is the trade union movement with us. I have to tell you we did the analysis of this thing, we pushed the government to borrow more money offshore - that's exactly what we did - which was making the debt higher outside the country, because when you look at the RRSP, the misunderstanding is that money goes flying out of the country. The biggest chunk of that stays in; and government and business in Canada don't have to borrow it offshore. We're short of capital, and that's one of the biggest capitals we have in the country. That gets misunderstood.
The Acting Chair (Mrs. Brushett): Thank you very much. You can make comments in your closing remarks later, but I have to turn to Mr. Solberg. He's been very patient here.
Mr. Solberg (Medicine Hat): Thank you very much, Madam Chair. We've had several interesting comments, and I want to follow up on some of them.
We've talked a lot about the revenue side and about how we can find some solutions there. Mr. McIntosh made some provocative remarks about the need for more progressivity in the income tax system. I wonder if you have in mind a level of progressivity. For instance, what percentage of the total income tax would you suggest the top 10% of income earners should pay in this country? Do you have any ideas in mind?
Mr. McIntosh: A number of studies have been done on corporate tax rates, for instance. But you're talking about personal income tax rates.
Mr. Solberg: You spoke of wealthy Canadians and progressivity in the income tax.
Mr. McIntosh: Yes. One of the things I mentioned earlier was that we believe there ought to be an increasing tax rate for those who earn more. So those who make almost $1 million, a CEO of a company, ought to be paying more. It strikes ``average Canadians'' as very sensible to increase the tax rate on people who make more and decrease it on those who make less.
Mr. Solberg: It's just that in the figures I've seen I think the top 1% of Canadians, in earned income, already pay 16% of the total income tax. The top 10% pay 50% of the income tax. So I would say there is already a very large degree of progressivity in the income tax system. It would seem to me if you ask Canadians to pay even more, instead of actually having that happen, you may just drive them out of the country.
Mr. McIntosh: But that's because the gap between the rich and the poor has widened such that the rich are paying a greater percentage of the total. But the rates themselves haven't increased. In other words, there are more rich people paying more, but it's the same percentage.
Mr. Solberg: Well, they're paying a lot of money into the government, and the government is redistributing that income through the social programs, of course. So a lot of that does reach people who currently don't even actually pay income tax. A lot of that money is getting down to the bottom.
I guess the point I'm making is we're talking about lots of things on the revenue side here, but I'm not certain how much room we have to move on the revenue side. We can plug some loopholes. I agree with that. In fact, I don't think there is anybody here who would disagree that everyone should pay something. If you're making an income, then you should pay something. I think most people would agree with that.
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However, at the end of the day, I would argue that we're not going to come anywhere near where we need to simply by going after more taxes, because we have a $560 billion debt and we pay a third of every tax dollar just to the interest on it right now, and that leaves very little left over for the programs that you and other people value very much, social programs, which constitute 70% of the operating budget.
So what I'm saying is, after you do all these things we need to do to ensure that we maximize revenue, including going after the underground economy and all these other things, we're still left with a long way to go before we get that budget balanced.
Dr. Strain has argued that we may not have to go as far as balancing it; we may be able to rely on growth. Perhaps that will happen, but we've already gone through four years of growth and at some point there will be a downturn in the economy. My question to you and to others who wish to jump in is, where do we cut if we have to cut?
Mr. McIntosh: Well, I would argue that we are not taxed to the hilt yet; there's a lot of room. Canadians have been allowed to remain uninformed by economists who argue otherwise.
For instance, 31% tax on income over $75,000 and a 33% tax on income over $100,000 would have generated last year an extra $850 million in revenue.
Mr. Solberg: You're assuming that people would have put up with that and wouldn't move out of the country.
Mr. McIntosh: Yes.
Mr. Solberg: We were just talking about all these companies that are moving to tax havens around the world and....
Mr. McIntosh: Well, why should we protect the rich instead of the poor? Are we asking for patriotism from the poor or from the rich, or both?
Mr. Solberg: I think we're asking for a system that makes -
The Acting Chair (Mrs. Brushett): The chair would like to step in for a moment.Mr. Dickinson would like to make a comment here.
Mr. Dickinson: Let me change the subject a little bit and let people cool down for a second. We've talked quite a bit here this morning about the tax system, and I think we have a fair amount of consensus that there are loopholes that need to be corrected, that under the current system there are people who are avoiding their fair share of taxes, and that the system should be changed so that it isn't avoided; it's evasion.
But getting off the tax system, and getting away from confrontations.... I don't like the idea of Canadians being separated or put in confrontation, and I am not here to bash business. The people around the table here aren't the source of the problem; it's always the people in the back rooms who don't show up to the glare of public scrutiny.
But let me suggest on the expenditure side that I still believe from my observation - I participate in a lot of governmental processes; I work in the provincial system but I deal on national committees - there are a lot of administrative inefficiencies that could be eliminated with very painless consequences for the public.
I'll give you an example. I sit on a national committee. I made a claim for expenses where they had a policy that you could claim up to a certain level for meals. I claimed only the actual cost of the meals, which was much less. I sent in my claim, and they sent it back because they had no way to process it for somebody who claimed less than what you were allowed to claim. That is a real example.
You can say, well, that's nickels and dimes. But somebody said, if you look after the nickels and dimes, the dollars will take care of themselves.
As I said before, I think the signals of leadership and example from government have not been sent out clearly to Canadians so that they would have confidence that the taxes they do pay are actually going to be used efficiently and effectively to meet national objectives, and they would perhaps not be as devious in finding ways to participate in the underground economy or tax avoidance, or whatever, if they really believed that resource was going to end up being put to good use rather than being wasted.
I would make one other recommendation: why not suggest a national public program so that members of the public, or non-profit organizations, or business groups, or whatever, could offer suggestions to the federal system on ways to find reductions in administrative costs and overhead, and give them a cash award based on a percentage of the savings that they can come up with that are acceptable to a cross- or non-partisan community group, including government and bureaucrats but also people from the consumer and business community, to say yes, we can cut this cost here without affecting the people and the standard of living and the quality of life?
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While I recognize that we're part of a global village, I think the Canadian government has to show some leadership at the national level so we can protect the quality of life and not let ourselves sink to the lowest common international denominator in terms of social programs and the economic agenda of Canada. I think it can be done.
The Acting Chair (Mrs. Brushett): Thank you very much.
Mr. Solberg, do you have a follow-up question?
Mr. Solberg: I'll ask one more question.
Mr. Dickinson, I absolutely agree. Government must lead by example, and although they don't amount to much in terms of the big picture we still have to take a look at our pay and our pensions. I think that's absolutely true. In order to get Canadians to go along with some of the cuts that must happen I certainly encourage the government - and I know on my own behalf I will - to try to show some leadership. I think you make a very good point.
I want to go to Monsieur Gautreau for a moment. He mentioned the cultural industries. There certainly have been cutbacks in the cultural industries. I sat on the Canadian heritage committee for some time and was very interested in what was happening there, but I also noted that as government subsidies decreased over the last several years the public sector more than made up the difference.
In fact the improvement in terms of the cultural GDP and the amount of money being spent by the private sector was quite dramatic. Many more people are going to the theatres. I think it has a lot to do with the baby-boom generation aging and spending a lot more money of their own. That particular group has more disposable income.
Here's my argument: isn't it now possible for the cultural industries to begin to become weaned from government? They're really starting to stand on their own two feet quite well now.
Mr. Gautreau: Yes. There's nothing the cultural industries would like more than to be able to survive with very little government involvement. Speaking from the position of an association that lives because of government funding, and that lives in a climate where we don't know if we will have government funding from one day to the next...business people would not be able to operate that way. People who work in the cultural industries are looking for self-sufficiency. That's for sure.
But in order to achieve that self-sufficiency we'd first have to see much more equity in the way the government invests across the country in the cultural industries. We'd also need that private sector involvement. It's very important for the government to invest in the right places before that happens.
I'll give you a good example. The Acadian recording industry in this province has exploded over the last two-and-a-half years, with an economic impact of $1.6 million in the last year.
Why did that happen? It happened because at one point the regular sources of funding for that industry, which are a combination of private industry money and government money, weren't available to us because our industry was underdeveloped. When we'd knock at that door they'd refuse to fund us because we were underdeveloped.
The provincial and federal governments invested in getting that industry on its feet. That industry is now on its feet, is acting responsibly, is able to get funding from its regular sources, and has some successes it can use to go to the private sector to say, ``Look, this is a growth industry, this is viable, if you invest in us you'll be investing in your community and you'll be investing in your quality of life, and there's also a business case for it.''
I think if the government has this desire to withdraw slowly from funding the cultural industries.... I can understand that, and I think you could probably get away with it if the government keeps investing the part it does want to invest in the right places. I think it needs to be done carefully.
The Acting Chair (Mrs. Brushett): Thank you, Mr. Gautreau.
Mr. Pillitteri, we have less than five minutes and then we'll do our final wrap-up.
Mr. Pillitteri (Niagara Falls): Thank you very much, Madam Chair. It's been a good discussion this morning. I've heard from Mr. Strain, Mr. Thorne.... I've heard all the presentations around the table. It has been quite informative. But I have a tendency sometimes.... I'm thinking that there is someone who I'm maybe not agreeing as much with as everybody else is at this table.
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Mr. McIntosh made the remark this morning that the federal government didn't do anything about jobs. How quickly we forget the infrastructure program from the three levels of government. It created jobs just to get the economy started, but we all benefited from it because those programs were actually picked out by the municipalities. They benefited not only by getting jobs started and not only by getting the economy started, but they benefited in the environment. How much did we benefit? It's a service that is there in order for the municipalities and everyone else to have room to grow. And Mr. Strain made the remark that the private sector has to produce. It has shown that it has produced; it created over 460,000 jobs, and the deficit is being reduced at the same time. So government has a place.
If we were to actually take it to the point that Mr. McIntosh mentioned, we would all be a nation of have-nots. If we spend it before we earn it, we'll be a nation of have-nots.
But, Mr. Darrah, I'd like to make a comment to you about what you said about RRSPs. When I wear my other hat, I'm a businessman. At one time I used to have RRSPs - I no longer have any RRSPs because I have to invest in my business and the future of my family, my kids.
One question I want to ask you is this. Prior to a few years ago, we used to allow banks to invest 10% of RRSPs outside of Canada. The previous government raised that to 20%. We are a nation that tries to have capital coming in. The thought has been around that possibly curtailing this amount would create more investment in Canada through RRSPs because they are generating a lot of revenues. Would you suggest that instead of having that 20%, we should maybe go down to 10%? Maybe more revenue would remaining in Canada. Should we possibly lower the contribution to RRSPs or remain steady as we go?
Mr. Darrah: Let me answer that question in this sense: The 20% rule was based on the fact that a number of us - I'm not talking about me personally, but about the group here - who are in this in a big way in this country looked at the return on investment because of the nature of the people who want the best benefit for their pension when they retire. We looked at the shift the government was making in the long-term, whole, economic-social aspect. The position was taken for that reason, because the return is greater outside the country than it is inside it.
So let me make this comment: I wouldn't move it at all. I think one of the interesting things about RRSPs is that over a period of time, Canadians - and it may be that with this income generation at this time, there are certain people who have a better advantage - are going to see this thing grow on down through the line. What happens is that we come to a whole philosophy that we're trying to switch here. One of the philosophy switches we're making is that people should go out there to do something, to build something for themselves because the country isn't going to be able to carry them. The minute you start whittling away at it, you've backed them away from the system. If you look at RRSPs, the growth in the number of average Canadians who would have entered it would have been much greater if we weren't in a recession. That's the other side of this thing.
But I wouldn't change it. I'd leave the RRSPs where they are. I think we set out a goal that says we should be able to carry ourselves when we get down the road - like us grey-haired people. Now we have the next big generation coming behind us. If you cut them off, you're killing them. You laid out a plan that told them to try to get there. Yes, there are people whom Mr. McIntosh spoke about at the bottom and who aren't getting there, but understand that things go down the road. Each year we pick off a little piece, and if we happen to prosper a little, there would be a whole lot more people in RRSPs.
The Acting Chair (Mrs. Brushett): I'm going to have to stop you there. Maybe you can summarize it with your final thoughts.
Mr. Pillitteri, do you have anything else you'd like to say?
Mr. Pillitteri: I did not get the answer I wanted. I wondered if you would curtail the investment to less than the 20%, to 10% outside.
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Mr. Darrah: No, because what you're talking about is people in Canada. It doesn't matter who they are, big or small. The fact is we have to look after the beneficiary and the balance of that beneficiary. That's the way most trust funds...and most of these things are now trust funds. There's a whole pile of Canadians out there who want to make sure they get a return when they get to the age of 65 or thereabouts.
The Acting Chair (Mrs. Brushett): Thank you very much, Mr. Darrah.
We're coming to the end of our session this morning. To wrap up, you will each have approximately thirty seconds to send your message to the Minister of Finance, the Honourable Paul Martin. I will begin with Mr. Darrah, since we began with Mr. Thorne in the presentations.
Please be brief and very succinct in what you want to say. We appreciate your participation.
Mr. Darrah: There are tremendous savings in the regulation of governments.
The point was made here that there are other areas you could use, other organizations in Canada, to do some of this downsizing as well as privatization. There are two or three things that could work, and you should seriously look at those. Also, you have to set out the targets and tell us exactly where it is, because I think Canadians will rise to occasion.
The deficit and the country's unity are knocking the hell out of the economic system in this country, come hell what may, and that's a fact. We could talk all around it, but the fact is it's there and we have to deal with it; we have to get it off our backs. If we don't work at it, we're not going to get it off our backs. We're just lying to ourselves.
Thank you.
The Acting Chair (Mrs. Brushett): Thank you very much.
Mr. McIntosh.
Mr. McIntosh: I'd like to re-emphasize the points I made earlier.
The unemployment rate must be lowered; officially it's 7%, 8%, 9%, or 10%, but unofficially it's 20%. A lot of the new jobs created in the last two or three years are part-time employment. We believe the key to the reduction of the deficit and the debt is to increase employment and decrease unemployment.
Let me add that the alternative budget that was put together last year agreed with the deficit targets of the government.
The Acting Chair (Mrs. Brushett): Thank you very much.
Mr. Dickinson.
Mr. Dickinson: I'd like to remind us to provide initiatives that support community-based programming and services as a way to create jobs and opportunity. I will also throw in a plug for small business, as opposed to the big corporations and the wealthy Canadians, who are bad examples of contributors to the economy.
I think of promoting a tax system in which everybody pays a fair share and the government sets the example by leadership, both in their administration and delivery of programs and in how they spend the public purse.
The Acting Chair (Mrs. Brushett): Mr. Gautreau.
[Translation]
Mr. Gautreau: I'm not an economist nor a tax expert, but when I prepare a budget, either for my association, my business or myself, I take into account what I want to do. However, I must acknowledge that I find it difficult to participate in this debate, as a Canadian, because I think the government should be demonstrating more leadership and expressing its vision of the country more clearly.
I think most Canadians will support the process the government is undertaking, if the government manages to state its vision more clearly. The government is made up of men and women we elected, whether we care to admit this or not, and they are supposed to represent our vision of the country. So they should be clarifying this vision, and then they will have the people on their side.
The Acting Chair (Mrs. Brushett): Thank you, Mr. Gautreau. Mr. Dysart.
[English]
Mr. Dysart: Thank you.
I said at the outset that the government has to balance its budget within a very few years. I believe that. It's crucial for us to stop living beyond our means. That's exactly what we're doing today.
The next thing I said was that elected and appointed officials should set an example by giving up programs where perks or remunerations seem lavish. I expected to hear some comments on that.
I would like to leave you with one thought. Just for a second, think about the situation we have in this country. We have a lieutenant-governor in every province and a governor general in Ottawa. Do we really need that hierarchy? When you consider it with respect to the Quebec situation, you want to think about things like that very carefully. That's one thing.
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The other thing I'd like to say is this. Just contrast the Canada Pension Plan with your own pension plans as federal ministers. That leadership has to be considered. That's the sort of thing. The dollars don't mean a thing. I agree the dollars don't mean a thing. It's the example you set that is important here.
The Acting Chair (Mrs. Brushett): Thank you very much.
Dr. Strain.
Dr. Strain: I think the financial plan in the budget of 1995 actually puts us on a good path for the future. If there were problems in keeping the rate of growth of debt below the rate of growth of GDP because of recession, I for one - and I'm definitely speaking personally here, and unusually - would be willing to pay higher taxes. I would be a lot happier paying higher taxes if I knew for sure that the government had squeezed every efficiency gain they could out of their own operations and if that tax system were as fair as possible.
The Acting Chair (Mrs. Brushett): Thank you.
Mr. Thorne.
Mr. Thorne: I guess my only wish is that you weren't locked up in this room all day but were able to get out and enjoy Fredericton and the province.
I think if you took a careful look at this province, you'd see we have swallowed some pain around here. We have cut our education. We have cut our health care. It's been difficult. But I don't believe you would see in this province a people who are broken by getting to deficit elimination. I think you'd see a people who are hopeful and are looking forward to the future. The business community is positive because we're seeing some light.
The federal government has to step up and show some leadership. They have to get us out of this deficit problem. It has to be a consistent, sustained approach. It's not easy, and I'm not saying we have to do it overnight, but we have to be consistent and we have to get there.
The Acting Chair (Mrs. Brushett): Thank you very much.
May I say, on behalf of the Government of Canada, thank you to each one of you for coming here before us this morning and presenting your views on behalf of your associations or your organizations.
This is part of the Standing Committee on Finance's annual procedure of going into budget preparation, so you might in future years look forward to presenting your ideas and views before the committee so that they can be taken forward to the Minister of Finance.
I thank you on behalf of the government.
This session will commence again at 2:15 this afternoon. This meeting is over.