[Recorded by Electronic Apparatus]
Thursday, November 30, 1995
.1310 
[English]
The Acting Chair (Mrs. Brushett): Ladies and gentlemen, this is part of the Standing Committee on Finance from the House of Commons in Ottawa that's here before you today. Half of our committee travels east and half travels west. We thank you for coming before us this afternoon.
This afternoon we have, from the Chaleur Coalition for the Preservation of our Social Programs, John Gagnon; from the Fredericton Chamber of Commerce, Bill MacMackin; from the Comité ``Défendons nos droits'', Armand Brown; from the Atlantic Farmers Council, John Schenkels ; from the Lighthouse Family Resource Centre, John Mahar; from AIDS New Brunswick, Claude Olivier, the support and health promotion coordinator; and from the Coalition for Jobs and Against U.I. Cutbacks, Angela Vautour.
Thanks to each and every one of you.
We will begin with opening remarks, which should be kept under five minutes. Then we will have dialogue among the presenters. Then it will be open to questions from the members of Parliament. We will begin with Mr. John Gagnon.
Mr. John Gagnon (Co-Chair of the Committee, Chaleur Coalition for the Preservation of our Social Programs): Thank you. On behalf of the Chaleur Coalition for the Preservation of our Social Programs, I'd like to thank you for this opportunity to be here today and to to present our views and participate in this forum.
We perceive that there are alternate solutions to the deficit, other than what the government is proposing in its so-called reforms, if we can use that terminology. They seem to be more cuts than actual reforms.
We also believe reducing the deficit in that equation is not only a question of reducing the debt through cuts. The whole equation is to generate revenues. So there are two sides to the equation. It's not a one-sided equation, as we've been hearing from many other groups and the government.
Contrary to belief, we don't believe the deficit is totally because of social programs - that's the perception we tend to get - or that social programs are contributing as a major factor to the debt. We see the cuts, or the so-called reforms, as they're called or disguised as.... The cuts that are coming through the budget are normally in that area of any social programs, and even programs such as UI, which are funded by employers and employees.
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These figures are from Statistics Canada, a 1991 report. You've probably heard them numerous times, but we're going to state them again and again, until maybe they sink in. About 50% of the debt is because of tax breaks for upper-income earners and corporations; 44% because of high interest rates; 4% because of general program spending; and 2% can attributed to social programs. This is overall debt. We're not talking about merely operational budgets. That's a Statistics Canada report.
We don't accept the premise that there are no real choices in reducing the deficit. The only real choice seems to be reducing social programs on the backs of the workers and the people of this country. We don't accept that premise now. We never accepted it in the past. We will not accept that premise in the future.
To the contrary, we believe the existing problem, one that was generated over a number of years, is because of a lack of revenue, not so much because of expenditures. We think both should be addressed. Our view is that there should be a more equitable distribution of wealth and income in this country and a fairer taxation system. We believe there's a structural problem in the tax system here.
It's fundamentally unfair to cut social programs. Again, these are Statistics Canada figures for the year 1994. Some 93,000 profitable corporations made $27 billion in profits. Numerous other corporations owed $36 billion in back taxes, or unpaid taxes.
At the same time as these types of things are going on we're cutting social programs for the people who most need them. In 1992 the Royal Bank made $63 million, while the same employee working for the Royal Bank at a value of $25,000 paid $5,732 in taxes. There's something fundamentally wrong there.
In 1990, one of Paul Martin's companies - he owns several - CSL.... He is now our Minister of Finance. This company made $19,700,000 in profits. It paid no taxes while receiving $400,000 in tax benefits.
The list goes on and on. I'm not going to keep on going. But there's something fundamentally wrong when we're talking about reducing the deficit and we're looking only at cutting and not at generating revenue. The two must go hand in hand.
One way we looked at reduction of the deficit is through a real reduction in interest rates. When I'm talking about a real reduction, I mean a reduction in interest rates, even by 2%. In 1994, when the government started this process of using deficits, they were looking at cutting the social programs by $3 billion. If they were to reduce, that same year...and they control the interest rates - a 2% reduction in interest rates would have given them that $3 billion. So there are alternatives.
Another alternative is a reduction in unemployment rates. That's another way we could reduce it, with the high rate of unemployment in this country. Reducing unemployment by 1% would save the government $6 billion a year. If people would reduce the unemployment rate by 1%, people would spend more, there would be more jobs, and the whole cycle would actually save the government about that much money.
These are alternatives I think we should be looking at. As I said, we can go on and on about the figures. I can supply them all day. But it illustrates that it's not a one-sided equation, as we're hearing at present. We have to look at other alternatives for debt reduction.
The Acting Chair (Mrs. Brushett): Thank you, Mr. Gagnon.
I will now turn to Bill MacMackin.
Mr. Bill MacMackin (President, Fredericton Chamber of Commerce): Thank you very much for allowing me to be here today. I represent the Fredericton Chamber of Commerce. I'm the current president. We're the largest chamber of commerce in the region here, the greater Fredericton area, with approximately 480 business members. It's their concerns I represent today.
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The sheet I received prior to this session indicated three primary topics and questions that you would like to see addressed. I'll address them in the order they were provided, basically in point form.
The first one was, what should our deficit reduction target be, and how can it best be achieved?
In the opinion of our board and our members, deficit reduction cannot be looked upon as a means or as an end in itself, but really just as a transition period that we're living through, or are trying to live through, over the next number of years as we reach a level of debt that is probably sustainable in this country. The current program initiated with the last budget must continue and must be accelerated. Current deficit targets are really only one good step forward. In business today, each of us would have to live with a debt-to-equity ratio that would be suitable, survivable and sustainable for our own business. As a country, we have to start to think that way as well or we will continue to erode the resources we have here in Canada.
We must establish a realistic target for deficit elimination, and it really must be done by the end of the decade. The Canadian Chamber of Commerce, of which we are a member, has set a date of 1998 as a target year, and has looked many years down the road to pursuit of a debt-to-GDP ratio in the 55% to 60% range. I don't know what that is in a raw figure, but those are the statistics I have been given.
In our opinion, all our deficit targets really should be addressed from the perspective of expenditure reduction, not through taxation increases or fee increases either on individuals or on business. At this time, I think it has been well stated by members of the Canadian Chamber of Commerce movement, and the business community in Canada in general, that we're certainly prepared to endure and put up with reductions in subsidies and reductions in business transfers in order to bear our burden and our share of that reduction.
The second question was, how may budget measures be used to create an environment for jobs and growth?
You kind of have to look at this in reverse. We all recognize that the level of debt and deficit spending we have in this province has been a killer of jobs. It has created an environment in which it has been difficult for the public sector to maintain its own employment level; it has made many of the programs less effective; it has increased the tax burden on everyone; and it has made it difficult for the government to renew and invest in infrastructure that would facilitate growth in the economy. All these things have been hampered by the spending patterns we've developed over the last 35 years or so.
We'd love to assume that by turning the corner over the next year or so, we'd wind that clock back and immediately achieve parity and a good environment for job creation. It's not going to be quite that simple. It took us a number of years to start to feel the pain of deficit spending and debt levels. It'll take us a little while to feel some of the benefits.
I think, though, that probably after a period of having had a balance budget, and within a very short time of not more than five years - if not almost immediately - the foreign and world community and our own business community will start to have a lot more confidence in the economy, and people will probably a lot have more faith in their own jobs and financial security and will start to move forward with private sector investment. The difficult thing is that five years is a lifetime in politics, even though it isn't with respect to the most of us.
I do believe if they lead to eventual tax relief, probably first and foremost on the individual, some of the reductions and initiatives we take will in the long run free up usable money in the community and make for a good environment for job growth. I also believe that based on what we seem to see in terms of public opinion in this country, continued initiative in this direction will be rewarded in the way most of our MPs value most, that being votes.
The third question was, what areas of federal activity should be considered for cuts, commercialization, privatization or devolution to other levels of government?
This is a very difficult one for me. I'm not a strong student in the different structures of government in this country, whether it be from the municipal level, provincial or federal. It's a maze that not many individual Canadians understand, and I suspect probably many of you involved in the system don't even see all the areas of overlap.
We would encourage you to dig deep every year, to look hard at the effectiveness of programs, to identify any level of duplication between the provinces and the federal government or the municipalities, and to eliminate them. We have to start to make the choices in this country as to where programs can be best delivered, can be most cost-effectively delivered, and then get on with it and have the other levels of government that aren't so effectively set up to deal with it must step aside to allow this to be done. I'm not sure who makes those choices, but it should start immediately and be an ongoing annual thing.
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I know in the province of New Brunswick we've brought in a number of outside parties to look at different things, which has caused some concern among the civil servants and others; but sometimes that can helpful. I think sometimes many of us are too close to these things and it would be easier, or at least helpful, to have some observations from outside in terms of professional advice, etc., on how best to restructure.
We have to get at eliminating the levels of duplication in this country. We have too many of us stepping on each other's toes, trying to do the same things. I read a brief from Newfoundland yesterday that referenced the number of different economic development organizations that have mandates in Newfoundland. I would suggest if you talked to the average Newfoundlander on the street they'd designate them all as having failed. So we haven't just duplicated, we've missed the boat, in terms of effectiveness.
The conclusions are quite simple. Focus on deficit elimination by 1998, at least to 2000. From then on don't let up until we can at least reach a sustainable level of debt that's realistic for the size and budgets of this country. Achieve deficit elimination without tax increases but with cuts. Focus on elimination of all areas of government overlap. Pursue privatization or commercialization of anything that's practical. From this should come a much stronger Canadian economy and environment for job growth, which is really the second question.
Many of us look back longingly at ten to fifteen years ago and wish we could wind back the clock and make some of the hard choices that don't seem too hard now. Let's not make the mistake of being another fifteen years out and looking back at today with the same type of feeling.
The Acting Chair (Mrs. Brushett): Thank you very much.
We now turn to Armand Brown.
[Translation]
Mr. Armand Brown (Committee "Défendons nos droits"): I would like to thank the committee for inviting our group to participate in this forum.
Our committee is headquartered in the Acadian peninsula, the major francophone area in New-Brunswick, and works on economic and social justice issues.
Regarding the federal budget, we believe it's very important to take the economy into consideration, but that it's just as important not to loose sight of social issues.
The economy of our region is based on seasonal work: fishing, peat, wood, tourism, etc. In the fishing sector, the work is seasonal and there is only six weeks of work, we can work only six weeks. If the government provided us with jobs, we would work.
The unemployment insurance program is very important for us. Over the last two years, we protested the cuts in unemployment insurance and we are certainly going to continue to do so because, by following this course, the government is making a mistake. Actually, it's not by always targeting low-income people that it's going to deal with the lack of jobs and the federal deficit.
We believe that the federal government and the private sector should create jobs in our region before looking at cutting social programs.
As far as we are concerned, one way to reduce the federal debt is to give work to people. If nobody works full time any longer, taxes paid to the government are going to decrease all the more. On the other hand, if more people work full time, they are going to buy more and this will help the economy overall, while contributing to the reduction of social programs costs.
To conclude, I believe we have to seriously look at the contributions made by the rich and the corporations in our region compared to what individuals pay.
Thank you.
[English]
The Acting Chair (Mrs. Brushett): Thank you, Mr. Brown.
We now turn to John Schenkels, from the Atlantic Farmers Council.
Mr. John Schenkels (Vice-President, Atlantic Farmers Council): Thank you. I represent probably 6,000 to 8,000 farmers in the Atlantic region, so my scope goes a little beyond the provincial level and towards more of an Atlantic scope.
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The last budget dealt agriculture a lot of blows in issues, and we took a fair share of cuts there with a number of subsidies we're involved with. Agriculture has traditionally been heavily subsidized. It still is in many countries. To take it away from one country without looking at other national philosophies on agriculture could be a serious mistake.
The viability of Canadian agriculture is very high. I feel we have a very strong future. However, a lot of international policies affect it. Those all have to be taken into consideration when we look at budgeting.
We feel cuts are definitely necessary to get our deficit under control. In many ways, cost recovery is a very good alternative. However, we have to look at which cuts have to be made. We feel cuts in research are very critical to our survival. On a long-term basis, they're going to be very necessary. It's very easy to cut research because we don't see the effects of that right away, but in the long term it's going to seriously question our viability.
Another issue with cuts that we find is a difficult one to take is in the area of food inspection. Our reputation on an international level is based on the credibility of the federal government in providing food inspection. We have probably one of the highest levels of food quality in the world. To jeopardize that by trying to privatize it and reduce the cost of it is a very difficult question to answer because we really depend on that reputation to sell our product in the international market.
These two areas have been cut in the last budget. A research station in Fredericton, for example, has been seriously downsized and is probably looking at further cuts in the future. We question whether the research and food inspection should be cut.
On the question of stimulating growth, we feel there are a few places where we could stimulate it. The farms in the Atlantic provinces, as well as those in all of Canada, are small or medium-sized businesses, and we always get credit for being the engines of growth and the most ready to adapt. We don't always see the government philosophy extended so that we have the benefits that larger corporations often seem to be able to persuade government to give them.
One interesting one that has come up recently is the question of RRSPs and the possibility of self-direction or reinvestment back into the business itself. It seems odd that I can invest in a company on the other side of the world and receive a tax break for it, but I can't invest in my own and receive that same break. It doesn't seem entirely sound or just.
Those are the issues that have come up. I'm really here more for the discussion; I'm interested in hearing what other people have to say. We feel that cuts are necessary to reduce our deficit, but we have to look very carefully for those cuts.
The Acting Chair (Mrs. Brushett): Thank you very much, Mr. Schenkels.
We will turn to John Mahar from the Lighthouse Family Resource Centre.
Mr. John Mahar (President, Lighthouse Family Resource Centre): Contrary to what our name says, we are not a counselling agency, nor are we a social service agency. We are one of those unique things in this country today, the profit-seeking business. I do use the word ``seeking'' and all it entails.
Finding profit in business is becoming more and more difficult. Some of that is due to policy from the government. Some of it is due to social policy and the things Mr. MacMackin has touched on, going back a number of years.
But I think what we need to have in our country, while still maintaining our uniqueness as Canadians.... We are not Americans, we do not work to the absolute power, to the nth degree of the almighty dollar. We are a kinder, gentler people, but we still have to bring ourselves back to basic business principles. As for myself, as an entrepreneur, if I continue to run my businesses at a deficit, I will not be around very long to do it.
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It's politically very in vogue to say ``deficit'' today but perhaps, going back to whatMr. MacMackin said, the true situation may not be deficit-cutting. It may be eliminating the deficit in its entirety as rapidly as possible and getting back to having debt on a manageable level.
I suspect a number of us in business see - at least I do - that some ways to do that are to trim the cost of government and to trim government involvement in the private sector in areas where government involvement upsets the competitive balance, in areas where it provides a net to people that goes beyond the concept of a social safety net and actually becomes something that is more of a hammock to them, something they can actually lie in and have things delivered to.
It is very difficult to come by because, once again, it takes leadership and political will, which are very difficult in a democracy. The hard decisions, those that are required and that we as leaders need to make, are very difficult. Yet those who we are delivering services to are looking for them. The same occurs with my employees. I have to make some very difficult decisions with them but those decisions are made for health of the corporation for which they work. If it's a healthy corporation we will have a healthy level of income for those employees when those difficult decisions are made.
I have some pet areas that I think need cutting. One of the things that galls me is the fact that the broad spectrum.... Call them the middle class. If we were English we would; I mean English as in British. I don't mean anything else.
So let's call them the middle class. A lot of government programs are delivered to the middle class. They are the net beneficiaries and yet they are the net ones supporting it. So what do we have? It's not unlike what we do with insurance. We're taking from one pocket and paying in and we're having it put back in the other pocket, but unfortunately there's an administrative cost involved in transferring it from pocket to pocket.
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If we were to be radically cut off from a lot of the areas that are not actually required by the majority of Canadians, then perhaps government would be able to trim its cost to government, and we would not be looking at what I would consider to be not crushing burdens of taxation, but those that are very restrictive in what they do.
I have to look very seriously.... At different stages in the day I may wear three different hats. There are definitely two, and maybe there's a third one, in terms of looking at how I make my dollars and what I do for a living. Yet the incentive is very hard to come by for me when I have to see that for every additional dollar I make, I'm going to see, just from federal taxation alone, only 50% of it ending up in my net purchasing power.
In peak season, at least, the jobs, income and taxes of a minimum of 15 people ride on my back. When I see that we are using our UI system not as the term denotes, which means an unemployment insurance system, but as a social welfare system, then I think this is found to be galling to a lot of businesses.
We believe in this country, stay in it, support it and love it because of some of the areas in which we do take a less radical approach. But we are not really anxious to go to the European extreme of complete socialism or being a completely social society in which we are completely dependent on the government.
An employee who joined us about a year ago had, we knew, the capacity to work very well. We had seen her before. Yet through no fault of her own, due to health problems, she has been forced onto the welfare system. We had a real job getting that employee back to a level at which work was something she wanted to do, and in which she found joy and reward. That's because the system had in some way, shape, or form, taken away that desire. The term businesses use is ``employee empowerment''.
I had a professor in university at one time who said you can achieve anything you want through economics. I tend to believe that. Having travelled around Atlantic Canada and some of the areas that are supposedly depressed, I see that people still live.
We have a bountiful country. We do not know serious want in our country. If we give people a way of riding on the coat-tails of others, then they're going to take that.
Say we're going to give you $100 a week. It's going to be yours. We're going to give it to you. Then you will learn to live on $100 a week, often, rather than going out to make the extra $50 that would improve your lifestyle.
We need to reward innovation. We need to reward initiative. In so doing, we build not only the social fabric of our country, which is important, but also the economic fabric that is unravelling.
The Acting Chair (Mrs. Brushett): Thank you very much, Mr. Mahar.
We will now turn to Claude Olivier.
Mr. Claude Olivier (Support/Health Promotion Coordinator, AIDS New Brunswick): Thank you. Good afternoon, bonjour. I'm here representing AIDS New Brunswick, which is New Brunswick's provincial AIDS organization. It has a mandate around education, prevention, and support for persons living with HIV and AIDS.
I want to address my comments to the national AIDS strategy, as well as the Canada health and social transfer, which is new legislation.
First, starting with the national AIDS strategy, New Brunswick, as with the rest of Canada, has benefited greatly from this strategy. One branch of it provides funds to the AIDS community action program. This allows New Brunswick AIDS organizations to provide prevention education, as well as care and health promotion for people living with HIV and AIDS.
I think it's important to point out that these are very cost-effective programs. If we're able to prevent infections, that's certainly a lot cheaper than the more than $100,000 it costs our health care system to take care of one person with HIV and AIDS. Similarly, if we're able to keep people healthier and in the workforce longer, that as well is cost-effective.
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New Brunswick AIDS organizations certainly rely heavily on the National AIDS Strategy and the ACAP program, probably more than some of the other richer provinces in Canada that receive a lot more private sector and provincial funding.
I also want to point out that the National AIDS Strategy supports medical and preventative research in Canada through the national health research and development program. This program has allowed certainly some very important research in the country as well as some research specific to New Brunswick around preventative education.
As well, by allowing some of its research to be done in various regions of the province, it allows us to develop programs that work in all areas of the province so we can continue to fund projects and programs that work versus ones that aren't tested out.
The National AIDS Strategy, of which we're in phase 2, is due to expire in March 1998. At this point there is no commitment from Health Canada to renew this program. Even though 1998 is a couple of years away, this is already having negative impacts in the AIDS community in Canada.
Recently the national health research and development program and the Medical Research Council said this November is the last time they will accept applications for funding, because most of the research projects they fund run for several years. They don't want to start a project they're not able to complete. Both of these organizations or agencies channel about $7 million a year into AIDS research. This has certainly left a big gap in the research community.
We strongly believe that medical research in AIDS needs to continue. Preventative programs need to continue, as well as programs to assist persons living with HIV and AIDS. You might have recently seen the slogan ``Canada has AIDS''. We believe AIDS is a national issue that requires a national response.
Second, I want to raise some concerns about the Canada health and social transfer, the new legislation. We at AIDS New Brunswick are less clear about the implications of this legislation, so we would rather just raise some concerns we have. Hopefully some of these concerns will be addressed as we move into this new method of transfer payments.
We believe health and social programming are equally important and shouldn't be played off against one another in the new formulary for transfer payments. It doesn't make sense for us to fund health programs to provide medication for people living with HIV if there are no social programs to provide proper diets.
Some recent research in Canada has shown that people with HIV and AIDS who are poor get sicker and die quicker than people with higher incomes.
We also believe we need standards and that these standards need to have some method of being enforced. Bill C-76 talks about developing principles and objectives. We don't think those carry as much weight as standards. Nevertheless we want to be involved in the development of those principles and objectives.
The Acting Chair (Mrs. Brushett): May I ask you to accelerate to your final point, because our time is passing, and you are now over your time.
Mr. Olivier: Okay.
I want to conclude by urging you to look at other ways of tackling the deficit than reducing transfer payments to provinces. I also want to commend the government for recent changes to CPP that show more flexibility for those who have disabilities that are cyclical, like cystic fibrosis and AIDS.
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Lastly, an area that could be looked at to provide some breaks for people who most need them would be the disability tax credit. It could be organized in the form of a refund.
The Acting Chair (Mrs. Brushett): Thank you very much.
We will now move to our final presenter, Angela Vautour, from the Coalition for Jobs and Against U.I. Cutbacks.
[Translation]
Good morning.
Mrs, Angela Vautour (Coalition for Jobs and Against UI Cut-backs): Good morning.
Our committee was established two or two and a half years ago, when social programs started to be cut.
Here, in the Atlantic region, we need social programs. As Canadians, we have a right to have something to eat, to live in a warm place and to have clothes to put on our backs. If Mr. Martin continues cutting, I believe we are going to be forced to go barefoot in the snow on an empty stomach.
Perhaps you can guess what I think of reforms! As far as I'm concerned, the word should be abolished and replaced by "cuts".
It is true that the debt is a problem, but it's not by trying to find money where there is none that we are going to deal with it.
If the federal government seriously wants to deal with this problem, it should get the necessary money from the rich, not from people who live on unemployment insurance or welfare.
We already felt the impact of the last cuts: some companies closed and people have less money. It's a vicious circle.
As far as child poverty is concerned, it keeps growing and it's not by making it worse that we are going to solve Canada's problems. If you look at New Zealand, you'll see clearly what happens when social programs are cut.
People in the Atlantic region need social programs, particularly unemployment insurance because here, there are more companies closing than creating jobs.
So, if you want to deal with the deficit, you have to get money from the rich who don't pay any taxes. This is obvious when you look at the statistics: in 1950, 49.3% of companies paid their fair share of taxes and in 1992, this was down to 7.8%.
We have to face the facts and recognize the problem. The average Canadian keeps on paying taxes, while large corporations which benefit from tax loopholes pay very little. There are also those Canadians who invest outside of Canada, which means that this money is lost for us.
The only solution is to create jobs in Canada. It's not by increasing the number of poor people, by putting everybody on welfare and by letting our children starve to death that you are going to solve our problems!
The time has come to tell corporations to stop running Canada. Mr. Chrétien is still our Prime Minister, up until now, at least. When he was elected, he had a nice Red Book, which he seems to have lost somewhere along the way. It is time for him to deal with our problems, to stop corporations from deciding what has to be done in Canada and to recognize that we need social programs.
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If you want to cut, you can do so. But it's as if you don't want to go and find the money where there is some. I'm sure that the travel budget of all the politicians is big enough to allow for some cuts. But it is not up to me to decide.
If you absolutely want to cut, do not target low-income people. It's as if you do not want to look for money anywhere else than in social programs. You don't think it's possible to cut somewhere else. If you go on like this, as we say in English,
[English]
they're going to have a fight on their hands,
[Translation]
because we have to eat, we have to keep our feet warm and we need a roof over our heads because it's winter time!
Thank you.
[English]
The Acting Chair (Mrs. Brushett): Thank you, Ms Vautour. We've had some very interesting presentations here.
I was negligent in not telling you earlier that we were 15 minutes late starting. I express my apologies for that.
Since Angela has brought it up here, we are members from the Liberal Government of Canada, the opposition and the Reform Party. I am not the chairperson or even the vice-chairperson, but I have received the honour of sitting in the chair because I'm a member from Nova Scotia.
I apologize that we are running late, but we will take the time at the end so we do not run short, in order to hear your views as you express them here today.
We will open this session now for dialogue because I see Mr. Gagnon champing at the bit to make some comments. Take the floor, Mr. Gagnon, if there's something you want to challenge that has been said.
Mr. Gagnon: First of all I was under the impression we would have a closing -
The Acting Chair (Mrs. Brushett): You will at the end.
Mr. Gagnon: I kept my conclusion for the end and I heard people giving conclusions during opening remarks. I didn't want to exclude my conclusion and have people take what I said out of context. I can give my recommendations now or wait until the end. If I take a few minutes to give them now, people will know where I'm coming from.
The Acting Chair (Mrs. Brushett): The format will be that we will have dialogue between the presenters at this time. You may challenge what someone has said or that person may take exception to your views. Following this, we will open the discussion to questions from the members of Parliament to you, the presenters. Then we will take a few moments for each person to present their concluding remarks.
Mr. Gagnon: Okay, that's appropriate.
The Acting Chair (Mrs. Brushett): You may take the floor now.
Mr. Gagnon: Some interesting comments have been made. One of them was the reference to our social programs, our UI fund being a welfare system. I think it was made by the colleague in front, Mr. Mahar.
I take great exception to that type of terminology. We talk about our social programs and compare them to welfare, but at the same time we neglect corporate welfare, if we're going to talk about abuse, which was insinuated by the colleague across the floor.
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The stats I gave earlier show they don't pay any taxes, they get a massive amount of grants and loans, and they don't pay anything back. Indeed, their grants are interest free, and they have deferred taxes. Then people have the gall to come here and compare our social programs - which are well needed and paid for with our tax dollars - and our UI system which is self-funding and not even paid for by the government, to a welfare system.
I don't know what part of the world the brother lives in when he goes around saying people can make do with $100. He goes into detail about going to less fortunate areas that are dependent on seasonal work, and things like that, and says people will make do. Nobody is that well off.
I'm from the northern part of the province and I hear horror stories every day. I think I've worked for the sister across from me before. The brother who sits over there comes from the peninsula where the work is seasonal. You have to keep in mind that companies lay off people. Companies create jobs. Governments also create jobs and employment through policies. People don't lay off people. We don't lay ourselves off. We don't create jobs.
When a job is seasonal in nature, as we see in the peninsula, and people have no choice, the company makes millions of dollars in a short season and lays off the employees. When there's no other work, what do we do? It's kind of hard to fish in the wintertime. I don't know how he expects us to get fish. I take great offence to that.
I know some people who, because of the reforms to UIC, will be going for eight weeks without money. They won't qualify for social assistance. They hope at best that the provincial and federal governments will come up with some job creation programs so they can feed their families. These things happen.
I don't know what part of the country the brother lives in when he makes these types of references. I take great exception. The reality is not what he perceives.
The Acting Chair (Mrs. Brushett): Thank you, Mr. Gagnon.
Mr. MacMackin wants to jump in here.
Mr. MacMackin: There are just a couple of observations I'd like to make. It is difficult when we've created an area of the country that has come to rely on UI to subsidize seasonal industries. I agree with you entirely this has created a system where we subsidize a workforce for an industry.
Specifically, it has probably created a situation where we've artificially created more jobs on a seasonal basis in that industry than it actually supports. It's a chronic problem that has developed over the history of the UI program and won't be changed overnight. It's going to be very painful for a lot of people, and I suspect it may be devastating to some industries. I don't know how we can solve that problem right off the bat.
I would like to take a brief second to address the issue of taxation. I've seen this debate go on for as long as I can remember, since I've been old enough or young enough to have been interested in watching some of this debate in Canada. I've always wanted to see a complete list of all the corporations and rich individuals who don't pay taxes. I'd also like to have a list of who their tax advisors are because I imagine those people must be very well off if it is as deep and extensive as we've been led to believe in this country.
I now work with probably as many business people as anybody does on a local basis, and I am a firm believer that in this country the majority of people in business and on a personal basis are paying a pretty hefty chunk of taxes. Proportionately, I won't necessarily debate whether you think it's enough or I think it's enough, but it's extensive in most respects.
We talk about the share corporate taxation plays in the overall revenue base now versus 1950. It's very difficult to compare those numbers because of the level of growth in government programs since 1950, which was after income taxes were introduced in this country as a temporary measure, if we remember our history. We're not comparing apples and apples in that case. Historically, programs have grown massively since then. The demands for revenue are far different on the government today than they were in 1950. It's not the same and it's not really realistic.
When we sit here and talk about taxation increases, every one of the people around this table to the best of my knowledge is a working person. If we naively think taxation can be increased without it reaching into our own individual wallets we have our heads stuck in the sand. It's a fact and it will impact on each and every one of us. We'll feel it immediately, corporately or individually. There's no other way we can generate enough of the money on a broad-base basis to have an impact. Nickel-and-diming in the tax system has been done in this country to the extreme. We already have it so screwed up in this country; we have one of the worst, most complex tax systems in the world. It's difficult.
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With respect to your comments with regard to grants and programs in terms of business, I'm in full agreement. I think we're far beyond our ability to dole out funds to business on a non-repayable basis. There may still be a few sectors in which we have to wean it off slowly in order to allow industries to survive, but we're beyond that point. Our organizations have been on the record as saying those things have to be eliminated.
We have one of the wealthiest, most well-off societies in the world. It's true; any of us who have travelled around different parts of the U.S. recognize that. But the danger we have in this country is that we've created a feeling of entitlement. We believe we're owed, and unfortunately we're all going to have to work for it.
My wife worked for a bank for awhile and she used to send people to an organization here in Atlantic Canada called Credit Counselling Services of Atlantic Canada. It used to help people dig themselves out their own mess. Well, we're one big country in need of a lot of good credit counselling. If we were an individual with individual responsibility in this case, with the recklessness we've used to manage our finances, we would have been hauled off and dealt with on a counselling basis a long time ago.
The Acting Chair (Mrs. Brushett): Thank you, Mr. MacMackin.
Mr. Schenkels, I see you nodding your head there.
Mr. Schenkels: We seem to have polarization here along the table.
To put corporations into perspective, I operate a business that's probably worth $1.5 million, just in round figures. I generate an income of anywhere from $60,000 to $100,000 or $150,000. All of that goes back in.
We're living like everybody else here. Maybe we're middle class, maybe we're well-off middle class, but we're by no means rich and by no means can we share by increasing our tax rate. You're not going to solve the issue of all the social program funding by increasing our taxes. We have to go and find that money somewhere else and we're going to have to continue to go find that money somewhere else. Possibly we're going to have to cut jobs. We're going to have to find ways of doing things better. We're not going to solve all our issues by increasing corporate taxes.
The Acting Chair (Mrs. Brushett): Thank you.
Mr. Brown, do you have any comments on this?
[Translation]
Mr. Brown: Yes, I have a comment. I would like to talk about the snow crab fishery. People in the Acadian peninsula are seasonal workers. When our crab is exported to Japan, it's not as a finished product. If it were the case, we could work 12 weeks but, since it's not the way it is, we work only six. And we blame the government for that, because it is the government which establishes quotas for boats. Over a period of six weeks, a boat captain earns about $1.8 million while his employee makes only $1,000. How come the government does not put a limit on boats? This could create more jobs but, right now, the reverse is happening.
As for ground fish, it's another problem. Ten years ago, the cod we caught was quite big but, eight years later, it started to be quite smaller. I took the trouble of calling Fisheries and Oceans in Tracadie to tell them that some fishermen who were using guns were destroying the cod. They did not listen to me. It's crazy! Today, there is no more cod, no more jobs and people live on welfare.
In the past, the wood-cutters needed a chainsaw to work; today, they have been replaced by technology. And you can't tax technology!
As far as peat is concern, we choose to export this natural resource rather that process it here and create sustainable jobs. We can't help coming to the conclusion that neither the corporations, nor the government have the courage to put people to work!
It would create revenues for workers as well as for the government!
Thank you.
[English]
The Acting Chair (Mrs. Brushett): May I make one comment to you regarding the snow crab fishery? This past year we did distribute the licences further along the Northumberland Strait in the gulf region to spread that wealthy fish product a little further and to more people. Do you believe this was right, that we did better to look in that direction?
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[Translation]
Mr. Brown: We, the inshore, crab fishermen missed several weeks of work because we lost three crab boats valued at about $300,000 each, which, overall, comes to $900,000.
Some companies come and get fishermen in other plants. As this gentleman was saying this morning, there are too many plants for the crab we have.
[English]
The Acting Chair (Mrs. Brushett): Thank you for your comments on that.
Mr. Olivier.
Mr. Olivier: I wish I had a broader understanding of a lot of these economic issues.
From my perspective of working with people living with HIV and AIDS, for those who are no longer able to work in New Brunswick, most of them are getting about $463 a month. To me, there's nothing left to cut there. With that money, people have to find a place to live, pay for their food and in many cases pay for many of their medical-related services. So I guess whatever cuts happen to social programs, there's no fat there to cut.
More funding comes from the federal government than from the provincial government for AIDS programming in New Brunswick. Our province isn't wealthy, but in some respects that has let the province off the hook a little bit in terms of responsibility for this issue, which I think is a shared national and provincial issue.
I don't know if this is a good idea or not, and I certainly want to see the National AIDS Strategy continue, but maybe some of the dollars that come from the federal level could be tied into the provincial government making some contributions as well, whether it be matching dollar for dollar or whatever, because the problem that's happened here is we're relying so much on federal moneys that may end in 1998. The province, I think, has been prepared to sit back and say, ``Well, you're getting your moneys from another source''.
It could make a really hard transition, too, when this money may stop from the federal government, because the province hasn't been contributing as much as I think it could be.
The Acting Chair (Mrs. Brushett): Thank you.
Ms Vautour.
Ms Vautour: I find it interesting that around the table here we have people representing businesses who say, ``We have to cut, but don't cut us. We can't afford to pay taxes.'' I'm going to give you an example of what I have to afford to pay because of the cuts.
According to the proposals that are coming down tomorrow, in a maximum of seven years I will be living on $130 a week on UI. I don't know what you call what you can't afford to pay, but I will be losing something like 30% or 40% of what I'm receiving now. Is this real? Can you really expect people to live this way? Can you expect your businesses to survive?
You're talking about the majority of Atlantic people being on UI in the wintertime. How are the businesses going to survive if we don't have anything to live on? Businesses in our county that a year ago supported the cuts are closing down. In the newspaper today, it says they're closing down because of the last budget cuts.
I know it's very difficult for a person who's working year-round to realize that in the end their job is on the line too, because we are the Atlantic economy. You have to realize this, because it's going to be too late when you do realize it. Businesses are going to be closing down. We are seeing it. It's not that we think it's going to happen; it is happening today. I find it very unfortunate that the people have to live it to see it.
You're talking about
[Translation]
$170 million less in New Brunswick.
[English]
That's a lot of money.
Right now the province is very concerned. They've told us, ``We can't afford to have you on welfare because we don't have the money''. They're going to have to find the money, unfortunately.
When you're talking about 50% of your salary that's cut, who's going to repossess the houses? There's nobody there to buy them.
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I know it's very easy to say everybody is too lazy to work, but there's just no work.
Last spring we lost eight weeks. We were without any income for eight weeks. So apparently, according to Ottawa, we're all sitting home because we don't want to work. Why did the government have to come and put out some projects to get people to work? There was no work available.
I don't know what more you have to see to realize that the work is not there.
The Acting Chair (Mrs. Brushett): Mr. Mahar.
Mr. Mahar: I'm offering sympathy, or perhaps empathy at this point in time. If I came across as being rather hard, it was not the intention. The intention is to ensure that what people are doing is real.
If we're in a government make-work program, all we're doing is borrowing from someone else in the system to support you. That's glorified welfare. That's demeaning to you at that point in time. The idea is to have government remove itself.
We keep talking about government job creation programs. We're not creating jobs. We're doing what New Brunswick often does. New Brunswick will create a ten-week job, if UI is not changed, in order to get somebody on UI for 42 weeks. That's not helping our society as a whole. It's not helping our society if the captain of one of these fishing boats makes his $60,000-a-year income in six weeks of fishing and then collects UI for the rest of the year.
The statistics, I understand, are showing that the majority of UI is not collected by people in true need; it's collected by people with incomes that are sufficient to sustain them in other ways.
The idea, as I said before - and I know my colleague has taken note of it - is not to cut away the social safety net. It's to ensure, though, that it does not become something of a hammock where we can relax and say, ``Somebody will look after me''.
There are days when I envy you that you have UI to fall back on. All I have to fall back on is my ability to create income for myself. I'm ineligible for UI. I have been for a number of years. There are years I've looked back and said I'm glad I'm not part of that system because of some of the abuses I see in it, but there are other times when I have no safety net at that point in time.
When I get up in the morning, my house is on the line, or at least half of it, because my wife will not allow her other half to be put on the line. The vehicle I drive, if not on the line, is so old that nobody would want it anyway. When I walk in in the morning, I am the lowest man on the totem pole to my customers. I have to ensure they are served properly in order to earn an income.
I expect and I wish to expect no less than the people I employ. We are there only based on the goods and services we can produce and deliver to the public. It should be no different in our country. If somebody is legitimately unable to provide for themselves, as I said, we are Canadians and I fully support that. If I didn't I'd be seeking my green card. But there comes a point in time when we have to ensure that what is being done is being done legitimately.
My situation is not unlike the country's. I'm having difficulty producing a profit in my businesses. I have for a number of years. Thanks to the conservatism - small ``c'', thank you - of my forebears, I have a resource, not unlike our country has. We are blessed with all sorts of resources in people, materials and everything else.
The difficulty is, I cannot continue to borrow against that resource for the long term. To put it in a context that a farmer would understand, I have a cow, and she is giving me skim milk right now. It's not whole milk any more, and it's getting to be less and less skim milk. One of these days the problem will come down to whether I am going to continue to get skim milk from the cow or sell her for beef.
As entrepreneurs, that is a decision we're faced with every day. Is the return we're getting from our business sufficient to merit continuing on in that business or do we reinvest our resources somewhere else to give us a better return at that point in time?
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The country cannot make the decision to pack up and move away. As I said before, I think my ancestors were the last ones to leave. I suspect we left Scotland to go to Northern Ireland, were starved out of Northern Ireland and came to New Brunswick, and didn't get very far off the boat before we settled down again. We have to be prepared to - I hesitate to use these words - ``bite the bullet'', but it's going to be short-term pain or else we're going to have no long-term gain.
If we do not turn ourselves around, the economics will fix us real good. We're either going to get hit by inflation or by defaults in the financial services features. What we're expecting to carry us through our old age is not going to be there if we do not eliminate the mess we've gotten ourselves into.
The Acting Chair (Mrs. Brushett): Thank you, John.
May I turn to Angela for one quick comment? Then we'll open with questions, beginning with Mr. Solberg.
Ms Vautour: I'd like to clarify one thing. Right now unemployment insurance is being paid by the employee and the employer. At the end of this year we're going to have a profit. We have already had massive cuts in UI. I don't understand why we're using UI to say we have to bite the bullet because we have a deficit problem when the government's not putting a penny in there. I have a problem with trying to realize that we're using that money for the deficit, because it's not being paid by the -
I know they can't actually use it but that's what the public is being told. That's how it's portrayed. We're being portrayed as a big problem for the debt, but we're not. We're not a big problem for the debt because we are paying into this fund. And it is there. It is available. Then we're told that welfare is a terrible thing. Well, they're forcing us. They're taking away that income when the money is there to pay us. We are paying into that fund, but they'd rather put us on welfare. There's something there I'm missing.
The Acting Chair (Mrs. Brushett): Thank you, Ms Vautour. I'm sure one of our members will have some dialogue on that as we go through the questions.
Mr. Solberg.
Mr. Solberg (Medicine Hat): Thank you very much, Madam Chairman.
I would like to address the whole issue of taxes for a moment. I promised myself I wouldn't do this because I did want to talk more about the fiscal side rather than the revenue side, but several things have been said that deserve a response.
It has been suggested that corporations don't pay taxes. For the record, I think it's important to point out that corporations in 1993 ran up profits of around $60 billion, which is a tremendous amount of money. I remind people around the table that their shareholders include all kinds of people. In some cases they are people who don't have big incomes or they are people who are part of pension plans and receive that money in the form of dividends. In fact, labour pension funds own about one half of today's chartered banks. A lot of people don't realize that.
When Mr. Gagnon makes a remark about the banks making these big profits, he should remember that sometimes people who really rely on that money are the beneficiaries of those profits. I just want to point that out.
That $60 billion in profits is a lot of money, but we also need to point out that corporations in 1993 paid about $51 billion in taxes. They pay a lot of taxes. Of that, 30% was on that profit of $60 billion and the remainder was on direct taxes like CPP and UI, so they do indeed contribute a lot to the economy.
It has been suggested that they are the recipients of corporate welfare, and they certainly are. I think Mr. MacMackin and others would agree that we can't afford to hand that money out. That's ridiculous. Those people shouldn't be getting that money. First, you end up competing against other businesses that supply some of that money so that government can do it. It's a ridiculous situation that we must get away from.
But at the end of the day, if you make all those cuts, if you cut the corporate welfare....Mr. Loubier will soon make an argument that we have to block the tax havens to make sure that money doesn't leak into other countries; we have to do that because we can't let the money get out into other countries. At the end of the day, if you do all that, we're not going to be anywhere near where we need to be in order to deal with the deficit and the debt. We have a debt of $560 billion in this country. At the present rate, using the present assumptions about growth in the economy and interest rates and the present level of cuts, in eleven years the revenues we receive in every year will be exceeded by the interest on the debt alone. That helps focus the mind.
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Certainly they can challenge me on some of this if they wish, but I would like to pose a question to people. When we tax on the personal income tax side, the top 10% of income earners pay paid 50% of the income tax, so we are very progressive in this country in terms of our taxation system. If we can't get any more out of the taxation side, or only marginally more, we still have to go to the other side, the fiscal side, to the cutting side. So I guess the question I want to raise deals with where we can cut. We cut the corporate welfare and cut all the other stuff, but we're still going to have to cut more. Where do we cut?
The Acting Chair (Mrs. Brushett): Mr. MacMackin.
Mr. MacMackin: I'll comment on that because I'd like to use a very local illustration that might help shed a little light.
I'm very proud to say we live in a very fiscally progressive city that will be debt-free within a period of less than ten years. It has worked on a pay-as-you-go program that has done wonders for rebuilding some of the infrastructure of the city. We have also been managing our public finances here at the municipal level very well.
A new program was initiated here last year, although it's not an unknown business concept. It's called BPI, or business process improvement. Basically, they went through particular operations within the city government, picked them all apart and found more effective ways to do them to see if they could save a little money.
Within the accounts payable department of the City of Fredericton, a small city on just about any scale, they found in excess of $400,000 in wasted costs without cutting staff. They've redeployed staff to other areas. They will over the long term eliminate some staffing through attrition, but they've identified immediate cuts and savings in efficiencies, in process, in better purchasing, in better paper flow, in less people doing meaningless tasks. And I'm sorry, folks, but I cannot believe that if we can find a few hundred thousand bucks in a small city's accounts payable program we can't find a few bucks in the many different departments of the federal government.
The Acting Chair (Mrs. Brushett): Thank you.
Would anybody else like to jump in there with comments?
Mr. Gagnon: First of all, I don't know where you're getting your figures. We get most of our figures from Statistics Canada, and I have figures here from the Department of Finance. I have a chart here - and Angela talked about this - that illustrates the percentage of contributions to public revenue that comes from taxes, which is what public revenue is. Where the rate in Canada is concerned, our percentage is around 6%. So when we talk about $50 billion in tax rates, I don't know where you get those figures. This is from the Department of Finance, Government of Canada, 1994. It's not hard to verify. I don't make these figures up. They don't come from any social or labour movements. That's what it is.
That's our tax rate for corporations, and this is the G-7. These charts are on the G-7, which are far from being socialist countries - some of them are, but the majority are not - and the average tax rate is 10%. So we're far below the average tax rate of even the G-7. Some of them, like France, are up to about 14%.
What we are talking about here is the percentage of tax individuals paid. Ms Vautour used the example of government revenues in 1950, which were 43%. I would say that around that time, the corporate tax rate was pretty close to what our percentage was. I don't have exact figures, but I've seen them and I can supply them. It may have been a little lower but it was very similar in 1950.
I would suggest that it is now more like 90:10 in terms of what the government brings in as revenue - and I've seen those charts. I think the figures Ms Vautour used were pretty accurate. Based on the document she used - and I have the same document - it's around 7% now. I don't have it directly. So that's what I'm saying is the percentage of taxes.
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By all means I'm not saying that the only way to resolve the deficit is to raise taxes. I'm saying there has to be a structural change where people pay their fair share of taxes. There are some corporations that don't pay any taxes. I don't know how they get away with it.
My colleague is right that some of these dividends go back to shareholders who are wealthy individuals, who in turn pay taxes but don't pay their fair share of taxes, which are very low compared with what the average Canadian pays. The average working person pays probably close to 20% to 30% in income tax. That's not counting all the other consumption taxes we pay. I think there was a statement made at this table that it was almost 50%. I don't know the exact figure, but I would tend to agree that it would be around that figure.
As I alluded to earlier in my discussion, I think there is a variety of ways that people should pay fair taxes. Mr. Schenkels has a business that has a net worth of $1.5 million. He makes maybe $100,000 a year, around that tax bracket or close to that. Maybe there are ways we can look at small and medium-sized business and be progressive, not regressive. When we take major corporations that make millions and pay very little tax, their shareholders would use the argument that the shareholders pay taxes. That money goes back to the shareholders, who in turn pay little or no income tax. There is a problem there.
Again, according to the Stats Canada report, in 1989 7,000 individuals making more than $50,000 paid little or no income tax. The list goes on. I'm sure there are people who pay their fair share of the taxes, but they should probably find themselves a better accountant.
What we're saying is that you look at the tax system, and as I said, you have to create employment. I gave stats a while ago that a 1% drop in unemployment rates would mean almost $3 billion. There should be a drop in interest rates because 44% of the debt that accumulated over the years is attributed to interest rates. If you have a large debt and the interest rate goes up, then we have to address that.
I think there are ways we do address that. We have to take more control of our interest rates. We have to maybe borrow more through the Bank of Canada. We have to do these types of things, things like investments overseas. We're allowed to have 20% of our pension funds invested overseas. Maybe that should be reduced to a more realistic level.
The Acting Chair (Mrs. Brushett): Mr. Gagnon, excuse me for interrupting, but we are very pressed for time. Can you just finish up quickly with the final statement?
Mr. Gagnon: Yes.
All I'm saying is that the perception people got from my statement was that it was not the only way; it's a combination of things we have to do. Of course, I think the tax system is an integral part of what we have to do to reduce the deficit, but it's many layers, it's not only the tax system. I just want to clarify that issue.
The Acting Chair (Mrs. Brushett): Mr. Solberg, do you have a second question there?
Mr. Solberg: I don't think there is any point in beating each other up with statistics, but my researcher here, who has all the financial data from the finance department and places like that, would certainly be willing to share this information with you. I offer you the chance to have a look at it.
I'll just summarize my position by saying that I don't believe there's a magic bullet to get us out of this situation. It's taken us almost 25 years of running up huge debts and deficits and it's going to take some time and, unfortunately, some pain to get out of this situation. That's the way I see it.
At the risk of offending people - I certainly don't want to do that - I would like to offer people a challenge instead of looking for an easy way to get out of this. I really don't believe there is an easy way. I challenge people to work with us so that we can sustain social programs. We don't want to lose social programs, but we want to have a system that can sustain them. Certainly we can find ways to tax people in a fair manner so that people don't escape without paying any tax. That's crazy.
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If we can do that and go through that pain, at the end of the day we'll end up in a situation where we have a better country, a country that can sustain the lifestyle and the programs we wish for.
The Acting Chair (Mrs. Brushett): Thank you very much.
I'll now turn to Mr. Yvan Loubier for his questions.
[Translation]
Mr. Loubier (Saint-Hyacinthe - Bagot): Ladies and gentlemen, I would like to pursue the subject of corporate taxes. I believe it's important that the committee clarify one thing, that among all the people we met since the beginning of our tour, nobody said that all corporations manage to pay no taxes at all. Nobody sitting around this table said that.
There are companies, and I believe it's the majority in Canada, which pay their fair share of taxes. This has to be clearly understood at the outset.
I'm sure that Mr. MacMackin, Mr. Schenkels and Mr. Mahar pay their taxes, that they are good corporate citizens. I think this is not the issue.
As you mentioned earlier, Mr. Solberg, and as the statistics show, when you look at the overall figures, corporations seem to contribute their fair share of income taxes.
Nevertheless, we don't really know, right now, which corporations do pay their taxes, such as Mr. MacMackin, Mr. Schenkels and Mr. Mahar's companies, and which are not good corporate citizens, simply because this data has not been available since 1987.
In fact, we had an opportunity to talk about this, this morning and yesterday. I had my office send me the last statistics published in 1987 by the Finance Department which show that, at that time, there were 93,405 Canadian corporations which had not paid any taxes, although they had made profits of about $27.1 billion.
The publication of this data was stopped, probably because the government of the day thought it was too disgraceful or too scandalous. As far as the government in power for the last two years is concerned, it does not seem either to have the political will to keep publishing this type of statistics.
I am therefore asking myself, how come these profits are not taxed? Some people, such asMr. Pillitteri, say that corporations use several accounting procedures, that these profits they make are not necessarily real profits and that the tax deductions they claim are not necessarily real tax deductions that they could use to save on taxes. However, among these accounting procedures, there is one which is called deferred taxes and which allows companies who make profits to go back three years and deduct tax losses, not actual losses, but tax losses, or to use them seven years hence to avoid paying taxes.
This is not as it should be. Three professors from the Université du Québec, Messrs. Bernard, Lauzon and Poirier, have recently done a non comprehensive analysis of corporate taxes to see what has happened since 1987. They came to the following conclusion.
Out of 438 corporations, almost half payed taxes amounting to less than 20%, while the tax rate was about 40%. So, there were 200 corporations which made profits and paid taxes amounting to less than 20%. And out of those 200 corporations, 30 shared a $126 million tax refund although, that year - it was in 1992 - they had made profits totalling $200 million.
So, for a profit totalling $200 million made by 30 corporations out of 200, the overall tax refund was $126 million.
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Let me continue with my demonstration. Out of those 200 corporations, 51 paid no taxes at all, although they had made profits totalling $282 million. This is a rather telling detail when we know that these corporations had made profits.
Profits before taxes were in the order of $2.2 billion and the actual tax paid - not the reported rate, but the actual tax paid thanks to loopholes in the Canadian tax system - was $130 million. In other words, these very profitable Canadian corporations paid taxes amounting to 6%, while the individual income tax rate is over 40%, as Mr. Gagnon mentioned earlier.
When we look at those figures, even if it's only a sample since the Finance Department does not want to publish comprehensive data any more, we have a right to ask, not whether companies pay taxes - since they do pay some - but rather whether all of them pay taxes and why some of them do not. We need to look into the tax revenue these companies could contribute, rather than focus only on government expenses. I think questioning this further would be justified.
The other method you can use to avoid paying taxes is to invest your money in tax havens. In 1992, even the Auditor General concluded that $16 billion, which could have been productively injected in the Canadian economy, had left the country to be invested in places such as the Caïman Islands or Bermuda, which allow their owners not to pay taxes. Sixteen billion dollars, it's quite a sum.
Even CA Magazine - we had the opportunity to talk about that this morning - the Canadian certified accountants' magazine, was advocating, last June or July, the establishment of subsidiaries or trust companies in these tax havens so that large firms could end up paying no tax whatsoever to the federal government.
The federal tax legislation is such that an individual is required to report any income gained outside of Canada, while large corporations can avoid doing so; they can hide such income and avoid paying taxes simply by having a subsidiary or a trust company in countries which are considered tax havens.
Earlier, we were talking about banks and I think this is also something which should be looked into. If it's true that pension funds - even those owned by unionized labour - hold 40% of the banks' shares, I believe that those unions should ask the large Canadian banks to be a bit more accountable.
For instance, Scotia Bank has 33 subsidiaries in the West Indies, an area where you can find many tax havens, out of 46 foreign subsidiaries; the CIBC, 7 out of 21; the Toronto-Dominion Bank, 2 out of 15; the Bank of Montreal, 3 out of 7; and the Royal Bank, 10 out of 24.
I think that at one point, we'll have to stop focusing only on social programs and the unemployment insurance fund and saying that we cannot do anything else. Some say, don't ever touch corporate taxes, it's a sacred cow. I think that these figures tell us that the tax system is in dire need of a major cleanup, and if we leave aside this aspect of Canadian public finances, we won't even scratch the surface of the problem, while dealing quite a blow to the most disadvantaged in our society.
[English]
The Acting Chair (Mrs. Brushett): Mr. Loubier, do you have a question?
[Translation]
Mr. Loubier: I would like to have comments on this. Earlier, some figures were quoted. The analysis was warped, because it was based on corporations which were paying their fare share, when others do not because of loopholes in our tax system. This has to be said.
[English]
The Acting Chair (Mrs. Brushett): Thank you.
Mr. MacMackin.
Mr. MacMackin: I have to think back to what the question was and what the key points were. Who performed the study that you quoted a moment ago?
[Translation]
Mr. Loubier: Professors Bernard, Lauzon and Poirier from the Université du Québec in Montreal, in September 1995.
[English]
Mr. MacMackin: I'd like a copy of it for my own reference.
Mr. Loubier: No problem. I have one with me.
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Mr. MacMackin: I think everybody in the business community and every individual in this country would applaud our desire to simplify, to clean up, to throw out the book on our current tax system and see it changed. It's absolutely at the point of being ridiculous. According to the accountants I know, in most cases every successive budget change takes weeks to decipher as to what impact it has on successive changes and so on. It's getting ridiculous.
Beyond that, I think it's interesting that we've started to become a country that seems to almost ridicule and despise profit and wealth when in reality it's what's built this country in a great many ways.
I am a firm believer that a dollar spent by me is more effective than a dollar spent by the federal government and yet we have a tendency to believe that a dollar left in the pocket of an individual or a corporation is somehow not spent for the benefit of the country. That's not true.
I do agree that we need a decent revenue base in this country in order to provide the services and the programs we need nationally in order to have a country.
I can't comment on tax havens, but we do live in a free world, a world where capital and money is more mobile than it's ever been before. Despite whatever effort we try to take as a country we will not be able to stop that, although we can hope to create an environment in which people want to leave their money, in which they want to invest, and in which they can see a return.
With respect to taxes and all the other issues, I heard many comments about deferred taxes that sit on people's balance sheets and never get paid. Deferred taxes are probably the least understood and most misunderstood accounting philosophy in this country. Deferred taxes are not taxes that are owed to the federal government.
They are a pure and simple balancing point that allows a company to reconcile the difference between what it actually owes and what it doesn't owe. Every company spends money every year that's not deductible. Here's a prime example that's easiest for all of us to understand.
If I buy a meal today while entertaining a client, only 50% of that meal is deductible. In the general world of accounting, the other 50% has to be accounted for somewhere on the bottom line. The difference, which is the non-deductible portion of it and the part that impacts on the bottom line, is the deferred taxes. It's like a smoke-and-mirrors number. It's not cash in my pocket and it's not a liability I owe to the federal government.
It's probably been the most beat-around concept and the biggest red herring ever in this country. It's not even real money.
I don't even expect you to necessarily understand what I just said, because I'm not sure I do. I have to read the articles on deferred taxes two or three times to get it clear in my own head. I have a little bit on our own balance sheet in the company, probably $3,000 or $4,000 in total. There are others with large amounts out there because they have a certain amount of their expenses they can't take a tax deduction on and that's where they reconcile.
I don't know. I don't believe - and maybe I'm naive - this country is as full of people who can avoid taxes to the extent that we kick around, because it's not in the interests of the finance department to allow it to happen and it's not in the interests of the general public.
Maybe I'm naive. If it's proven to that extent down the road and all of a sudden public accounts becomes aware and proves it to me, shows me the individuals and shows me where the funds went, I'll admit I was wrong. But I'm sorry. I don't believe it. I don't know anybody who doesn't pay their fair share at this stage, at least if they make money, show a profit or make a profit on their salary in a year. And if they aren't, I firmly believe that with the audit and control mechanisms in place in this country at the present time, they aren't going to be doing it for long.
The Acting Chair (Mrs. Brushett): Is there anyone else who would like to comment on that?
[Translation]
Mr. Loubier: Deferred taxes do not boil down to a simple accounting entry. Maybe you don't understand what it's all about - you said it yourself, it's so complex that at some point, you don't really know if you got it right.
Deferred taxes allow you to claim tax credits for income gained three years ago or for income which you will gain seven years hence.
You know that a tax dollar paid today doesn't have the same value than the tax dollar you will pay ten years down the road. With interest rates of 8%, the tax dollar you will pay in ten years will cost 46 cents today. So, it's already a profit; it's not just an accounting entry.
There is something quite ridiculous stemming from this whole issue of deferred taxes, it's the fact that unclaimed tax credits can be sold. Open any newspaper - and I repeat this over and over because I think that this is something which has been totally ignored in the Canadian tax system - the Globe and Mail, the Financial Post or others, and you will find corporations which advertise for sale their unused tax credits.
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When a corporation does not need to deduct all its tax losses from its profits, it can sell them to another company which can use them to its advantage. In Canada, not only do we have a market for goods and services, we also have one for tax credits. When things have come to this, there is quite a problem.
If you want to have proof that some corporations which make a profit don't pay taxes, you can contact the Finance Department. I don't know if they have those figures right now, as they don't publish them since 1987, but maybe they exist but are confidential.
To go back to deferred taxes, it's expensive since you pay only 46 cents on each tax dollar.
[English]
The Acting Chair (Mrs. Brushett): I'll let Mr. MacMackin respond to that, and then I'll turn the microphone over to Mr. Pillitteri.
Mr. MacMackin: With respect to the sale of tax credits, I've seen some of those things myself. I'll be honest. I do not understand the mathematical or financial concepts behind that.
I would like to address one question to the gentleman identified as a researcher. Am I correct in my assessment of deferred taxes?
Mr. Marion Wrobel (Committee Researcher): It sounded very good to me.
Mr. MacMackin: Yes or no.
Mr. Wrobel: I think you hit the nail on the head.
Mr. MacMackin: Thank you.
The Acting Chair (Mrs. Brushett): I'll turn the microphone over to Mr. Pillitteri. He's been very patient here this afternoon.
[Translation]
Mr. Loubier: Just one minute, madam Chair. From now on, are researchers going to participate in political debate? If so, there is a problem. I never said that this gentleman did not understand how deferred taxes work, but that he had not properly assessed the impact of this process. If the researcher argues against the politician, there is a problem. This never happened before. I would ask you see to it that it will not happen again.
[English]
The Acting Chair (Mrs. Brushett): Thank you, Mr. Loubier.
Mr. MacMackin: My apologies for asking something I'm not allowed to ask.
A voice: Madam Chair, I think that's fair.
Mr. Pillitteri (Niagara Falls): May I have the floor here? Thank you very much.
I want to step in here. Mr. Loubier, of course, addressed prior remarks I'd been making on what you call deferred taxes. I have not made those remarks here today. I've not had the opportunity to make them here today, but I'll get to that in a minute. I made them on other days. Of course he possibly did not like my answer, as surely he did not like yours.
Mr. MacMackin: I should have addressed that question to you.
Mr. Pillitteri: You were right on. As a matter of fact, I actually have right here the part on deferred taxes. I have to say it was right on, because I was going to follow up that question.
As to people thinking corporations don't pay any taxes, in Ontario we had a government come into power in 1990 that had all of the answers. Mr. Bob Rae wondered why profitable corporations were not paying taxes and established a Fair Tax Commission to find out why profitable corporations did not pay any taxes. He found out after doing some study that they had previous losses, they made use of investment tax credits and they had already paid taxes on profits through their subsidiary corporations. So all of a sudden, he found those answers he was seeking, and he abandoned the idea of imposing more taxes on them.
Going back, Mr. Loubier referred to deferred taxes and what I've been saying. Besides being a member of Parliament, I'm also a businessman, a farmer. I wonder sometimes how we could intertwine so many things. I had a choice. We're talking about statistics on who creates jobs, who doesn't create them, who doesn't pay their fair share, etc. It's a funny thing; I don't read too many statistics. I'm a doer rather than one who goes out, does research and reads statistics.
As a farmer, for every dollar I purchase in a product I generate $10 in taxes to the provincial government, and some to the federal government. My added value, because I produce wine - and I'm not trying to promote this - is that for what I buy for $1, I generate $10 in taxes.
Going back to deferred taxes, as a businessman I don't take a pay from my personally owned.... I'm not even a corporation, but personally owned.
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I had a choice a few years ago, to either invest in trying to create jobs for others or leave it in a bank and live for the rest of my life without worrying about whether I could make payments, payroll weekly and so on. I chose to invest rather than read statistics. I chose to create jobs. I employ eight full-time people and sometime in the summer as much as twenty people.
My accountant tells me I made money last year, and I can't pay my taxes. I have trouble even making my payment. The problem is where we put our priorities. I took a responsibility.
Government does not create jobs. The entrepreneur, the private person, creates jobs in this country. Let's get it out of our heads; no government is going to pay these jobs. It's the environment and the people who live in it. Businessmen will create the jobs. If we took all of that attitude, and if for all the businesses here in Canada that environment were given totally....
This government has done that so far. We have done it in the sense that we have reduced the deficit and yet at the same time we've created over 460,000 jobs in the last two years. If all of the businesses in Canada were to create one job, we would not have the problem of unemployment in this country. There are over 900,000 businesses in this country. We would have almost no unemployment at all.
In this roundtable here, let's not only ask what we've had in the past; let's ask what we could do now. We have to make changes to unemployment insurance and welfare. We cannot live in the past; we have to live in the future. We are in a global economy.
Let's not get statistics from Europe or Japan. Let's get statistics from the United States. That's the largest trading partner. We are an exporting nation. We cannot live from within Canada. We are an exporting nation. We have to have a value-added product that we work on in order to continue to grow in this nation.
Our natural resources alone are not going to sustain us; it's added value. Of our total trade, 85% is with the United States, south of the border.
I'd only like to pose one question, then. Where would you say we're going to go with this budget? That's the question we pose. I hope most of you can address it in your closing remarks.
The Acting Chair (Mrs. Brushett): Thank you, Mr. Pillitteri.
Is there anyone who would like to make a comment briefly, or will be move to closing remarks?
Ms Vautour: I have a question for Mr. Pillitteri.
In your business, do you usually rehire the same people, or is it always new people? Is it the same people?
Mr. Pillitteri: So far, yes.
Ms Vautour: I would say that in rehiring the same people every year, it is an advantage that they are already trained to a certain extent.
Mr. Pillitteri: Yes. But I just started up the business. It's only been three years.
Ms Vautour: So it is to your advantage to rehire the same people every year, who are already trained, which means those people are on UI when you let them go?
Mr. Pillitteri: Yes.
Ms Vautour: And if there were no UI, then they would not be receiving any income.
I'm putting you in a situation here. With the way they're dismantling the unemployment insurance and the way the employers are complaining about the UI premiums, this just goes to show you that it is an advantage for an employer to be paying premiums, because they have a trained employee every year who goes to work for them.
It is important that employers realize it is of benefit to them to be paying those premiums. It's not only a benefit for the employee who has UI but also for the employer who has a trained employee every year who can start work. This employee can go home at the end of the year and still have some kind of income and some kind of dignity and self-esteem. And these employees will be better employees for you when they are working.
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Mr. Pillitteri: There's no doubt about it. But I also realize a very long question deserves a little bit longer answer. The fact is, I was not always a farmer. I spent some 19 years in industry as a worker. I pride myself on the fact General Motors hired me three times and I quit three times.
I've done many things in my working life. By the way, I've never collected unemployment in my life. I've always paid it. Not only for myself as an employee, as an employer. I'll continue to do so. I hope to God I'll never collect unemployment.
I know most people don't depend on UI. Actually, what they want is a job. They don't want some kind of sustainment. I think for most people it's in a transition that there's a need for them. Definitely, there's a need for them.
As far as benefiting from my employees being trained, certainly I do. But let's not forget, if those payments I will have to pay are more and more and more, then there's no sense of benefit on my part or on the part of any private entrepreneur to create the job.
The Acting Chair (Mrs. Brushett): Thank you, Mr. Pillitteri.
I will ask for closing remarks here very shortly. It's been a very stimulating discussion. We will begin with this side of the table for closing remarks. The purpose of this is to state as briefly and concisely as you can, in one minute or less, the message you would send to the Minister of Finance as we have these pre-budget deliberations here today. We'll begin with Angela Vautour.
Ms Vautour: I guess my brief comment would be I think it's time to stop cutting in the social programs. I think it's time to go cutting elsewhere. We have the Senate. We also can go for taxes. We can go for politicians' expenses, starting with Jean Chrétien himself and continuing down to every MP elected across Canada. See where they can go save some money there.
Job creation is number one. If we have people working, it saves a lot of money in the social programs. Let's not forget, UI is paid by the employee and employer only. We are not going to solve the debt problem by eliminating UI.
The Acting Chair (Mrs. Brushett): Mr. Olivier.
Mr. Olivier: I guess I want to say keeping some social programs going will provide us with some long-term gain. It might be easy to say we'll cut a program. But again, preventive programs pay off. We can do a lot of prevention. If we don't do this, we will be paying in five years through much higher health care costs.
The Acting Chair (Mrs. Brushett): John Mahar.
Mr. Mahar: We've talked the talk; now you have to walk the walk. I have two points. Bring our financial house in order, but at the same time continue to reach out a hand to the disadvantaged in society. But ensure while we reach out to them they at least have the gumption to reach back out to us.
The Acting Chair (Mrs. Brushett): Mr. John Schenkels.
Mr. Schenkels: It's good to see there are more farmers here. I'm always called a young farmer. I'm not sure Mr. Pillitteri would ever get this distinction. It's good to see we have people coming in when farming as a business is getting smaller and smaller, with fewer and fewer farmers all the time.
We seem to hear a lot of talk here today on UI and on taxes. But we had the comment - I think Mr. Pillitteri made it - that if each business increases their employment by one person, we would have no unemployment in the country. There are all kinds of things we could do with this money if we could create one job in every business.
I think it's a challenge to the federal government to stimulate jobs in private business. I think the make-work projects we're doing right now are ineffective because they're not addressing what the economy actually needs. We're creating work for the sake of working. We're not creating it for the benefit of the people in Canada.
Right now I think the onus is on the government to stimulate jobs and to stimulate them in private business rather than in government programs.
The Acting Chair (Mrs. Brushett): Mr. Brown.
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[Translation]
Mr. Brown: I think that the government should not target low- income people. First, it should create jobs paying, not $5, but $10 an hour. People could then pay more taxes and as a result, the debt could be reduced.
[English]
The Acting Chair (Mrs. Brushett): Bill MacMackin.
Mr. MacMackin: I encourage the federal government to put politics on the back burner in the next couple of years and to make the hard choices that need to be made to kind of get us back on track. If we are inevitably walking into the next couple of years, they will probably be some of the most painful any of us have experienced. I recognize, as the lady indicated earlier, that cuts to individuals will have an impact on business, but I think the business community recognizes that we don't have any choice. We aren't going to get any better by ignoring them. We just have to get on with it and deal with it at all levels in every which way we can. At this point, a dollar saved is a dollar earned. So let's get to work and dig into it.
The Acting Chair (Mrs. Brushett): Mr. John Gagnon.
Mr. Gagnon: We're concerned about the impact of these reforms, or so-called reforms, on our region, but especially on the country. We really perceive it as a way to harmonize our social programs with those of the United States.
Having said that - and again, I'm not going to get into a long, drawn-out debate on our tax system - we feel there has to be a structural change in the tax system in order to close the loopholes for the rich, the tax havens, so that people pay their fair share of taxes. As I stated in my opening remarks, lower interest rates are very important. We have to have a strong, more dignified UI-welfare system that addresses part-time, short-term and no-benefit jobs in these types of markets that are not very conducive to full employment.
The other thing we have to look at is an education system that is public and accessible. We have an education system in which people are retraining, but there are many people on the waiting list. It's not accessible to people who unfortunately happen to be unemployed in most cases. The education provided has to be of a high quality that reflects the increasing needs of our knowledge-based economy. There's no use training somebody as a carpenter if you have a hundred carpenters unemployed in your region. You have to be realistic about the training.
Last but not least is job creation. I think everybody agrees with the concept, but how do we go about doing this type of job creation? We feel there is a need for a limit on the amount of overtime. With the massive amounts of lay-offs we have had lately, overtime is running rampant in many of the major industries. I'm not only talking about small and medium-sized businesses, I'm also talking about big businesses.
We need to see a reduction in the weekly hours of work. Our forefathers, a long time ago, used to work six days a week.
Mr. Pillitteri: Sometimes seven days a week.
Mr. Gagnon: Seven days a week. I stand corrected. It was then reduced to a five-day work week.
I'm saying the time has come now for another reduction in the hours of work. I'm not suggesting that we eliminate a whole day, but we see in some progressive countries that they have reduced significantly to 37.5 hours per week or somewhere around that level, as is the case in Germany. There should be a trend in that direction, because it would also create more jobs, with paid time off for training and retraining. These types of things should be looked at.
I stress again that when we talk taxation, we're not really addressing the small and medium-sized businesses. I understand that maybe the majority of businesses pay their fair share of taxes. It's the small percentage of multinationals that hide their taxes. When we talked about tax havens awhile ago, we had a debate on what a tax haven is.
Take K.C. Irving, who owns the majority of this province. He had a tax haven in this province and hid his money for years. The government said he owed taxes and had him pay those taxes. He came back a number of years later, sued us for the taxes that we claimed he owed us, and he won. So there is a problem in the area of taxation. I just want to stress this by bringing up this point.
If there's abuse in our UI system or welfare system, let's deal with the abuse and not destroy the system we see now.
Those would be my last comments. Thank you.
The Acting Chair (Mrs. Brushett): Thank you very much, Mr. Gagnon.
On behalf of the Standing Committee on Finance, I thank each and every one of you for coming before us this afternoon. It's been a very stimulating discussion. Your ideas are certainly worthy of review and worth taking forward, and we have listened carefully.
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I remind each one of you that this roundtable discussion, as a pre-budget consultation, is an annual event for the finance committee. So you might think forward to next year on what we should do.
As a matter of acting as chair this afternoon...you've had a brief glimpse of what goes on in the House of Commons as we've had some discussion from party members here. Since Dianne Brushett chaired this session, I would like to read a statement into the record for the afternoon on the fact of our researcher responding to Mr. MacMackin's question. He simply responded with a ``yes''. He did not carry on a discussion. I believe he was certainly in order. That's for the record officially.
Thank you one and all for coming this afternoon. I declare this session adjourned.