[Recorded by Electronic Apparatus]
Friday, December 1, 1995
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[English]
The Chair: Good morning. Could we consider coming to order?
The House of Commons Standing Committee on Finance is pleased to be here in Vancouver, and we're delighted to have such a distinguished group of witnesses before us this morning regarding our pre-budget hearings.
With us we have Alice McQuade, from the British Columbia Teachers Federation; Jock Finlayson, from the Business Council of British Columbia; from the Canadian Federation of Students, Michael Gardiner; from the Coalition to Renew Canada's Infrastructure, Jim Facette and John Redfern; from the College Institute Educators' Association of British Columbia, Roseanne Moran and Ed Lavalle; and from the Confederation of University Faculty Associations of British Columbia, Robert Clift and Dr. Lee Keener. Appearing as an individual is Harold Daykin. From the Fraser Institute, we have Robin Richardson; from Tourism Victoria, Lorne Whyte; from the Vancouver Board of Trade, John Hansen, Darcy Rezac, and Karen Wilkinson; and from Simon Fraser University, Carole Gerson.
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Have I messed that up pretty badly?
Welcome. Our format will be a three-minute opening statement from each of you that outlines your major advice to us. We will conclude with a chance for each one of you to sum up. In between you will have all the time in the world to present your full brief to us as we go through questions, answers and interchange.
Who would like to start?
Mr. Gardiner.
Mr. Michael Gardiner (Representative, Canadian Federation of Students): Good morning. I am here representing the Canadian Federation of Students, which now represents 90,000 students in British Columbia and 400,000 students across Canada, including the Yukon.
I'm here because the Canadian Federation of Students is very concerned about the impact of the recent federal funding cuts and about the proposed federal funding cuts before us now, in addition to the fact that we're concerned about the overall fiscal situation of our country.
In terms of what the impact of the cuts have been already, the multiplier in the Established Programs Financing Act was frozen in 1990 and the cumulative impact of that has been a $7.5 billion cut for British Columbia alone.
Since that time the results have been a dramatic increase in tuition fees and consequently an increase in the barriers to access in British Columbia and across Canada, a decline in the quality of the post-secondary system, and somewhat of an overcrowding of the post-secondary system.
I've used the term ``access'' and talked about access being reduced. There are fairly broad consequences to increases in user fees. They become broader as tuition fees increase as a percentage of what it costs a person to attend a post-secondary institution. It can be said that the cuts don't necessarily have to be passed on in the form of tuition fees but in all likelihood they will, since post-secondary education is the one area in Canada that we believe has already been significantly stripped and forced to maximize efficiency significantly.
We've reached a point now where further cuts threaten to translate themselves directly into massive increases in tuition fees, which will have a dramatic impact on the number of students who are able to attend post-secondary institutions, on the choices that people will make as they're attempting to determine what they're going to do after high school and on the decisions that will be made by people who are in transition between jobs and need upgrading and new training.
We're all very clear in this country on the importance of improving job training and improving the level of education so that we in Canada can move into a prosperous economy in the 21st century.
The type of cuts proposed under the Canada health and social transfer will not provide the type of access that will be necessary.
So the question is: what are our solutions and what do we propose?
There were a number of suggestions that were put forward to us in terms of questions that we may want to answer here. I'll touch on those.
We believe measures need to be taken to reduce the growth of the deficit and the debt. Perhaps our reasons are different from those of others around the table, but we believe that as the deficit increases the capacity to spend on social programs and the justification for reducing spending on social programs diminishes.
We don't see the solution to the deficit crisis as a straight issue of cutting spending. We see the issue of revenue generation as a major problem and we believe that the first area the federal government needs to begin cutting is the area of tax expenditures.
In addition, we believe that the Bank of Canada, created in 1935 as a means for moving Canada out of what was then a fiscal crisis into a more prosperous time, needs to be utilized far more than it has been in terms of bringing down interest rates and devaluing the debt we now have. We believe a combination of both fiscal and monetary measures is necessary for the type of changes we need in this country.
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The Chair: Thank you, Mr. Gardiner.
Mr. Lavalle is speaking on behalf of the College Institute Educators' Association.
Mr. Ed Lavalle (President, College Institute Educators' Association of British Columbia): I'm very pleased to be here on behalf of our organization, which represents the professional and labour relations interests of 6,000 faculty and staff in the province working in the college system.
We have presented a brief to members of the committee, which is a blue-covered item in front of you. Because the brief is there, and I trust you'll review it at some time, I'd like to just highlight a few things in it.
The first comment I want to make is about the kind of mood these proposed cuts are creating, probably across the country. I don't know if it's true or not, but somebody told me the other day a colleague phoned from the east and asked how to find a small college in British Columbia to enrol in. The answer was to enrol in a large one and wait until after the federal transfer cuts.
That pretty well describes the situation. I suppose, given all the federal studies and the work of the Canadian Labour Market and Productivity Centre, we all understand the character of education has changed. Education and training are important, and 75% of the working population is likely to turn over and need some retraining and advanced education in order to participate in the market economy. This is a key indicator now of future prosperity at both the individual and national levels.
We feel that federal support is essential. A continued role of the federal government in the financing of post-secondary education and training is key to this. The structural changes that will have to occur if these cuts take place have not been sufficiently considered.
We also believe, because there isn't a total cut in the training area, training funds should be directed into the public system through the provincial governments, and not to individuals, individual institutions or groups in the community.
We're very concerned about the decline in federal funding. Michael has already indicated what the cumulative effect of the Tory years was. We feel, of course, this is going aggravate things severely. On page 3 of our brief, we indicate that in the province of British Columbia, federal participation through the federal cash transfers accounted for 53% of total college and university operating grants in 1986 and they are now at the level of 32%. We really don't know how this province is going to cope with the cuts we anticipate this year of $477 million from the previous year for a cumulative effect next year of $824 million.
I think the key thing in all this process is that the CHST creates instability. On page 4 of our brief, we indicate that we took some comfort from the government's policy during its election campaign - and it was elected, of course - in which it said its priority would be to create stability and predictability at each level of government in the country. We don't feel that has occurred at all. One year later, are we having a smooth transition, as Mr. Martin said? Not at all. Do we have predictability and stability? No, we have a crisis situation and no means of adapting to it in the short run.
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What we call for is that if there has to be a reconfiguration of responsibilities between the provincial level and the federal, it should be done in such a way that it has a smooth and even landing. We feel we need a national review of post-secondary education, a national review that gives the public an opportunity to debate whether national standards and national portability are going to be a characteristic feature of the post-secondary education system in this province. We think your committee should recommend to government that it reconsider both the timing and the principal objective of the cuts it intends to bring in through Bill C-76.
The Chair: Thank you, Mr. Lavalle.
From the Confederation of University Faculty Associations of British Columbia, Robert Clift and Dr. Keener.
Dr. Lee Keener (Vice-President, Confederation of University Faculty Associations of British Columbia): CUFA B.C. represents over 3,000 faculty members in the province of British Columbia. We are certainly grateful for the committee giving us the opportunity to speak on the federal budget.
We would like to respond to one of the questions posed, how may budget measures be used to create an atmosphere for jobs and growth? We'll focus on a couple of particular key areas of the budget. At least one has already been mentioned, the Canada health and social transfer proposal. We also would like to talk about the NSERC and SSHRC declining budgets as well.
We have a serious concern, and we share this concern with the students and with the colleges in British Columbia and I'm sure across the country, about the Canadian health and social transfer proposal. We believe it will have a serious negative effect on the Canadian economy, particularly in the long term but possibly in the short term as well. I think no one believes the provinces are going to be able to make up the shortfall in transfer payments as far as funding the post-secondary educational institutions is concerned.
We believe the effects of that shortfall will be a decrease in the number of students accessing the post-secondary education system, as our student representatives have already commented on, a decrease in the quality of education received, and a decrease in the level and quality of university research. This will lead in turn to a less well-educated workforce, a decline in productivity in an increasingly world competitive world economy, a decline in innovative university research, and a reinforcement of these effects as fewer fine teachers and productive researchers are produced by the educational system.
We also have a serious concern about the NSERC and SSHRC declining budgets, although these cuts are not quite as dramatic as in other areas of the budgets. In particular, we feel basic research - that is, curiosity-based research - is particularly vulnerable. This is the kind of research that pays off often very handsome dividends but in the longer term requires a continued financial support effort. Sometimes there is no obvious industrial partner in this kind of research. It's very susceptible to cuts.
We point out that there is a good deal of evidence that the universities in British Columbia - this is almost certainly true across the country - have a very substantial direct effect on the health of the economy. A recent study, a 1994 study, on the economic impact of the University of British Columbia alone on the provincial economy indicates that they contribute over 3% to the gross domestic product of the province. Another recent study concludes that for every dollar invested in the University of Victoria, $1.26 has been returned to the community.
Let me just point out a couple of other brief observations, one by the Science Council of British Columbia. This is in a report called High Tech Industries in B.C.: Agenda for Growth:
- The local high-tech industry owes its existence to the following factors:
- - and here is the first given here in a lengthy list -
An article in the weekend Sun for Saturday, November 18, referred to John Polanyi, who won the 1986 Nobel Prize in chemistry, a Canadian. He says he would have left the country decades ago had he faced today's decline in research funding.
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So we do have some very serious concerns about the budget. We're certainly anxious to look at any sorts of cooperative efforts that might be used to meet all the various pressing difficulties Canada is facing, but we're concerned that if the universities take the brunt of it, it will be a negative return in the long run.
Thanks.
The Chair: Thank you very much, Dr. Keener.
We turn to Peter McCue, from the British Columbia Teachers' Federation.
Mr. Peter McCue (First Vice-President, British Columbia Teacher's Federation): Good morning, and thank you for the opportunity. I believe you may have copies of the speaking notes.
I would just like to start off by saying that it's our belief that public education is a fundamental contributor to democracy and equality. We also believe both of those are threatened by the present government's approach to cutting the deficit, an approach that threatens the viability of public education and other public services.
While we addressed social policy questions last year to the Standing Committee on Human Resources Development, it seems to us that the Department of Finance is the driving force behind the impending changes in Canada's social safety net. For teachers, the impact of deficit politics on public education is already apparent. In our own province, the Minister of Education has targeted the elementary and secondary school system in B.C. for an $80 million reduction in spending next year. The minister attributes the cuts to the downloading from the federal government.
Let me state firstly that the BCTF believes there is a crisis in this country related to public finances. The debt is a serious problem and we believe we should be working towards a balanced budget relatively quickly. But setting specific targets locks us into a single-minded cut and slash mentality. Our deficit reduction ability will be determined not by cutting, but by economic growth, and such growth cannot be predetermined.
Looking at our reasons for seeing the debt as a serious problem, firstly, when such a large portion of public spending consists of interest payments on the debt, the net effect is a huge transfer of wealth to the wealthy and to financial institutions, two sectors of our society that spend a smaller proportion of their total income and therefore undermine the usual stimulative effects of government spending.
Secondly, huge interest payments such as those that Canada now makes have a terrible effect on the redistribution of income. The payment of billions in interest, largely to the wealthy, from taxes taken largely from low- and middle-income earners is an extremely inequitable feature of our public finances.
Thirdly - and this is perhaps the most serious part of our crisis in public finances - our increasing reliance on foreign lenders to finance our debts puts us at the mercy of foreign institutions. Our ability to make our own monetary policy and interest rate policy is severely undermined by the foreign portion of our public debt.
We are of the strong conviction that we need not reduce social spending - that is, health education and social services generally - by even a single dollar. Deficit reduction can be accomplished much more effectively and fairly through other measures. Indeed, it is our position that deficit reduction through social spending cuts is counter-productive to reducing the deficit. We believe the following measures are the appropriate measures to achieve a balanced budget.
First, we must make it a national priority to repatriate our national debt.
Second, the Bank of Canada must be instructed to lower interest rates. If real interests rates - the difference between inflation and the statutory rate - were held to their historic level of 1.4%, it is estimated that the federal government could reduce its debt charges by over $6 billion in the first year, rising to $10 billion by the third year.
A third dimension of the financial crisis is declining corporate taxes as a proportion of government revenue. These taxes have been falling steadily since the late 1950s. In 1955, corporate income tax accounted for 25% of federal revenues. It now accounts for 7%. Tax law professor Neil Brooks, of Osgoode Hall Law School, demonstrated that by collecting 10% to 15% of the $44 billion in the current deferred corporate tax account, by implementing a minimum corporate tax, and by closing dubious tax loopholes, the government could recoup upwards of $8 billion a year.
Fourth, the other area of taxation that must be revisited by the government is personal income tax. Canada is one of only two OECD countries without an inheritance tax. We could also implement a wealth tax on net assets, something that many European countries do. Again, tax law authority Neil Brooks has calculated that modest increases in high-end income tax levels, the closing of certain tax loopholes, and the implementation of estate and wealth taxes could raise up to $8 billion.
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The Government of Canada must take the lead among developed countries in promoting the Tobin tax to regulate the massive capital transfers which have such an impact on our ability to make economic and monitory policy.
A full employment objective aggressively pursued by the government would be the most socially responsible and fiscally intelligent course of action to seriously deal with the deficit. This is arguably the most important measure to deal with the deficit and addresses the committee's second question, which is how budget measures can be used to create an environment for jobs and growth.
The answer to the question is not hard to find. It's contained in the Liberal government's election red book. A quick review of the red book reveals the following stimulative economic measures: a promise of major investment in infrastructure, major new investment in research and development and a national child care policy.
But instead of taking these measures, the federal government is doing just the opposite. A study by the Canadian Centre for Policy Alternatives concluded that fully 48% of the economic decline in the second quarter of 1995 was due to the recessionary effects of spending cuts. Over the next four years the budget's measures will have increased the deficit by between $9 billion and $11 billion.
Other measures which would contribute significantly to job growth would include: restrictions on overtime and a mandated shorter work week; the identification and stimulation of key industries; the setting of production and job creation targets; lowering the allowable threshold of foreign investments from 20% to 10%; freeing up $25 billion for investment in Canada; and intensive social housing program.
We accept the deficit as a major problem in Canada. We do not accept it as the problem to the exclusion of all others. Canadians don't believe this either. Polls done in September would indicate Canadians who identified the deficit as the number one problem, 8%, were outnumbered four to one by those who identified unemployment, 35% of those surveyed.
The people are far ahead of the government in their understanding of the overall crisis in Canada. It's profoundly irrational for the Government of Canada, which is supposed to be the voice of the whole Canadian community, to be engaged in the systematic destruction of social programs and public services.
Education, health care, social welfare, environmental regulation and management of the economy are the things any community worthy of the name of community engages in together. It is time we begin to re-establish our commitment to these community values before it's too late.
The Chair: Thank you, Mr. McCue.
In light of Mr. McCue's presentation, Mr. Richardson, will it be necessary for you to speak at all? From the Fraser Institute, Robin Richardson.
Mr. Robin Richardson (Director, International Centre for the Study of Public Debt, Fraser Institute): Thank you, Mr. Chairman. I hope the hon. members have our proposals called ``How to Balance the Federal Budget and Keep Canada Together''.
At the Fraser Institute we believe balancing the federal budget and reducing the national debt are essential to keeping Canada together. It's vitally important Canadians have their faith in the Canadian confederation restored. The best way to do this is to balance the budget quickly and begin reducing the national debt.
A long-term goal of eliminating the national debt is something all Canadians can agree on and would be more of a unifying force than constant constitutional bickering. The next federal budget will be crucial in setting the fiscal framework for Canada as a united country for the 21st century, not just for the next few years.
This Fraser Institute submission puts the short-term fiscal outlook into a longer-term perspective. It shows how the federal government can balance its budget in two years and how a longer-term plan to eliminate the national debt could begin as early as 1997-98.
It's important for national unity that all Canadians be given assurance Canada's fiscal house can be put in order and the national debt problem can be solved for our children and our grandchildren.
Some of the short-term outcomes of the Fraser Institute proposal are that the federal deficit would be $13.1 billion in fiscal year 1996-97, moving to a small surplus of $3.3 billion in fiscal year 1997-98.
The national debt would drop in fiscal year 1997-98, the first decrease in 33 years. Net debt-to-GDP ratio would decline from 73.5% in fiscal year 1995-96 to 69.6% in fiscal year 1997-98.
The federal interest bite - that's the public debt charges as a percentage of total budgetary revenues - would decline from 37.2% in the fiscal year 1995-96 to 33.8% in fiscal year 1997-98.
Some additional policy recommendations and findings in this Fraser Institute proposal are: additional expenditure reductions of $6.3 billion beyond Ottawa's program review cuts, and these are itemized in detail by department in our proposal; identification of 14 federal departments or agencies where there are significant federal intrusions into provincial spending jurisdictions; a tax recovery proposal based on recovering tax from high-income Canadian families for the Canada Pension Plan, the Quebec Pension Plan, old age security and unemployment insurance, for additional revenue of $6.7 billion in fiscal year 1996-97 and $6.9 billion in 1997-98; and, a recommendation that the federal government privatize Canada Post and other crown corporations over the next two years and use all of the proceeds of these sales to reduce the national debt.
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Another recommendation, following the excellent example of the Province of Manitoba, is a specified 20% per year cumulative penalty on the Prime Minister's ministerial salary and the salaries of each of his cabinet ministers - and we would extend this to include parliamentary secretaries - for failure to meet the deficit reduction and debt elimination targets.
Additional recommendations include: a statutory prohibition of budgetary deficits once budget balance is achieved, except for specified exceptional situations, such as war; a long-term plan for eliminating the federal debt, with minimum annual payments of interest and principle; the setting out in debt elimination legislation of a long-term goal of a debt freedom year for Canada; the statutory provision that any future annual budgetary surplus and the proceeds from the sale of federal lands, buildings and crown corporations be used entirely to pay down the federal debt; and, finally, taxpayer protection on personal and corporate income taxes and the GST, or its equivalent, until federal debt is eliminated.
We're also calling on the federal government and this committee -
The Chair: Mr. Richardson, our translators are having a little trouble. Could you slow down a bit.
Mr. Richardson: I'm almost finished. I will slow down. Thank you.
We are also recommending to this committee, and through this committee calling on the federal government, in its next federal budget or before, to table its calculations of the cost of Quebec separation in terms of Quebec's share of the national debt in the unfortunate event of an eventual separation. Confusion on this issue is still a major source of uncertainty in financial markets.
The next budget should also provide examples of how an independent Quebec would have to pay off its separation obligation to Canada over different acceptable repayment periods of, say, 25, 30, 35 or 40 years. This should be done to provide full disclosure to investors, to demonstrate the importance of debt retirement in an orderly manner, and to inform Quebeckers and other Canadians of one of the more important costs of separation, should there be another Quebec referendum in the next few years.
I conclude this opening statement by noting six provinces expect budgetary surpluses this year. Each of these provinces will still have massive debt to eliminate and some have introduced legislated debt elimination plans. The federal government should do likewise.
This finance committee should recommend the federal government shift its focus to debt elimination and away from deficits. It should recommend long-term debt elimination become an official goal of the Government of Canada. By balancing its budget within the next two years, by beginning to reduce the national debt and giving Canadians a long-term goal of eliminating the national debt and the hope of a debt freedom year, the federal government can restore the confidence of most Canadians in the financial, economic and political viability of one Canada for all Canadians into the 21st century.
I look forward to your questions and the round table discussion with other presenters at today's meeting.
The Chair: Thanks, Mr. Richardson.
From the Vancouver Board of Trade, we have John Hansen and Karen Wilkinson.
Mr. John Hansen (Chief Economist and Assistant Managing Director, Vancouver Board of Trade): Mr. Chairman, thank you very much for the opportunity to be here this morning. We are here on behalf of the 4,500 members of the Vancouver Board of Trade. Karen Wilkinson is the co-chair of the federal budget task force, which puts together our pre-budget submission every year. In another life, she is also with the Hongkong Bank and looks after commercial lending for the Hongkong Bank, so she has a lot of direct experience with many small businesses around Vancouver.
Mr. Chairman, we've tabled a copy of last year's submission to the Minister of Finance, which we have previously tabled with this committee as well. I would simply draw your attention to one graph on the last page of the submission. It is the one showing the deficit forecast for successive federal budgets since 1986. It shows no budget over the last decade has achieved the aims and the forecast it set out. We think the current budget has an opportunity to achieve the target it has set out.
We'll briefly address the three questions posed in the letter sent out.
As to deficit targets, we think the deficit target of 3% is in fact achievable for the current year, as long as it does not involve stealing from the UI fund and the excess revenues coming in through the UI fund. We think it's very important that this be taken into account.
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In terms of the targets in subsequent years, we think absolutely that a five-year target for deficit elimination is very feasible and possible, and indeed it ought to take place over a shorter period. We think a two-year target is doable with a reduction from 3% of GDP currently to 1.5% in the next year and zero in the subsequent year.
The reason we're suggesting that is that the sooner the problem of the deficit can be resolved and we can bring a balanced budget, the sooner the markets and interest rates and so on will respond. Also, when you look forward...nobody can forecast this, but we may well hit a recession some time in the future. At that point, it becomes awfully difficult to regain the ground that's lost. So the sooner the deficit can be brought under control, the better.
Secondly, we think the real fundamental issue is the debt rather than the deficit. I've tabled another graph with you, Mr. Chairman, showing the composition of federal spending and the amount of interest that's paid on the debt. When you look at the increase, it has grown from 10% of the total budget in 1975 to 35% or more currently.
It's like carpenter ants. I have some experience; in my house I have carpenter ants. It's eating away at the very foundations of your building and undermining the other aspects, the other areas of expenditure, the other programs that Canadians want. As we've heard around the table already this morning, there are some very, very important programs that should be preserved, but we think the only way to preserve those kinds of activities in Canada is by dealing quickly with the problem of the debt.
In terms of the longer term, we think we should be striving for a debt-to-GDP ratio that's a lot closer to the medium, the middle of the range of the G-7 countries. Right now we're at the upper end, close to Italy. At the total national level, we're at about 95% of total public debt to GDP. The medium for the G-7 is somewhere between 55% and 60%. So there's a big gap there.
In terms of jobs and growth, the second question raised, we think the most important thing is to get the fiscal house in order. We've heard estimates that if we send the right signals to the international money markets, there's a possible benefit of between 1% and 2% in interest rates. That's an enormous amount in terms of the cost of borrowing money, for individuals as well as companies, and the cost of carrying debt. We think that will be an important stimulus once that's achieved.
Secondly, we do not think taxation in any form is an answer to the problem of the debt or the deficit. We think that by increasing taxes we're destroying the very foundations of job creation. We're already higher than most of our competing jurisdictions. Certainly in this province we see that at a marginal rate of 54% of personal income taxes, it becomes extremely difficult for companies to attract the best and the brightest in the province.
On the final question, Mr. Chairman, in terms of commercialization and privatization, we would recommend that the committee have a really close look at Transport Canada. We think Transport Canada is doing some really interesting and important things in terms of their downsizing, devolving some of their activities into local authorities, the airport authorities and port authorities. I think that kind of action brings a much more commercial orientation to those activities and reduces the operating responsibilities for that department.
The department itself will be going from 20,000 to 5,000 people in a matter of four years, and I think some of the things they are doing are a good model for other departments to look at.
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In the second part of the devolution, there are lots of areas the Government of Canada is now involved in. It has been encroaching on areas of provincial jurisdiction over a number of years. We believe there are a lot of those areas, and Mr. Richardson mentioned some of them. We believe the government should not be involved in some of those areas in the future.
The Chair: Thank you, Mr. Hansen.
From the Business Council of British Columbia, Jock Finlayson.
Mr. Jock A. Finlayson (Vice-President, Policy and Analysis, Business Council of British Columbia): Thank you, Mr. Chairman. On behalf of the Business Council, may I say we're also pleased to be invited today.
Our organization represents about 150 large and mid-sized employers, mainly in the private sector in B.C. They employ just under 25% of the labour force here.
I'd like to begin by reading back to the committee a paragraph that appeared in its report from last year. I think it captures well the views I'll be expressing.
The Chair: Is this coming back to haunt us, Mr. Finlayson?
Mr. Finlayson: I thought I would read your last year's report. I know that's unorthodox, but I thought it might be useful. The committee wrote as follows:
The danger is posed by the burden of combined national and provincial debt now approaching $700 billion and growing inexorably. Servicing this debt consumes an increasing proportion of our financial resources, reduces our options and constrains our economic sovereignty. In the absence of strong fiscal action, this debt burden will grow exponentially - despite an expanding economy.
Unfortunately I would suggest the same paragraph could equally be included in the report you'll be preparing when you've completed your cross-country deliberations this year, notwithstanding some progress that was made in last year's budget.
The three questions that we were asked to address in our invitation to appear were the deficit reduction target; how the budget in 1996 can help to create an environment that will support growth and jobs; and what areas of federal activity should be identified for spending cuts, commercialization or privatization. I'll deal briefly with each of these. Our short submission goes into more detail.
About the deficit reduction target, I would echo the comments of the previous speaker, Mr. Hansen. We think the government is easily on track to achieve the 3% of GDP deficit target set by Mr. Martin in his budget last year. In fact, our own projections suggest the government will exceed that target by perhaps $3 billion or $4 billion.
The picture we have in the country looking ahead is reasonably good for 1996. Consensus economic forecast suggests we will have solid, if not spectacular, growth in the range of 2.5% to 3%, as well as reasonably stable and perhaps even declining interest rates.
All of this suggests to us that faster deficit reduction is both desirable and attainable. The 3% of GDP target must be seen as an interim rather than a final destination. It's imperative that deficit reduction efforts, in our view, be accelerated while economic conditions in Canada are reasonably favourable. The prospect of an economic downturn later in the decade provides a compelling argument, in our view, for a more aggressive approach to fiscal management, not only in this forthcoming budget but perhaps in the one that will follow.
Rather than sticking with the 3% target for the deficit to GDP ration in 1996-97, we would encourage this committee to challenge the Minister of Finance and the government to achieve a lower target and set out a plan for eliminating the deficit by the end of the 1990s.
We would also agree with Mr. Hansen's point, which has been made by other organizations, that more attention must be paid to managing the debt burden, which at the federal level is about 73% of our gross domestic product. This ratio is too high and, as you pointed out last year in your report, it leaves Canada dangerously exposed to adverse economic and interest rate shocks.
With respect to setting a proper environment for growth and job creation, in our view the best way for the federal government to contribute to that is to have a credible budget and, in particular, do what it can to lower the interest rate burden on our economy. A number of speakers have mentioned this point already.
Household debt in Canada is now at a record level as a percentage of household disposable income. Of course, the public sector itself is also burdened with an extremely large debt. The economic flow-through benefits of lower interest rates for our indebted household and public sectors will be tremendous boosts to our economy and confidence if we can engineer the right set of policies that will result in a lower interest rate structure.
Finally, turning to options for spending cuts, privatization and devolution, in our submission to your committee last year we identified a list of measures that taken together would achieve approximately $10 billion in annual fiscal savings.
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We are pleased that Finance Minister Martin's budget last year began to take action in several of the areas that we had identified, including government operations, business subsidies, transportation payments, agricultural support programs, defence, and foreign assistance.
Turning to the 1996 budget, we believe that further restraint measures will be needed to achieve a deficit target below 3% of GDP and to put the federal government on a path to balance the budget by the end of the decade. Our submission to you this year is simply to reiterate some of the recommendations we offered last year, because there is further room to move in most of the areas we pinpointed. We'll be pleased to discuss that at the close of the round table.
Dr. Carole Gerson (Individual Presentation): I'm very pleased to follow on the submissions of my other colleagues in the educational world.
Last year I appeared before this committee as a representative of the Canadian Federation for the Humanities. This organization represents some 6,000 professors, 2,000 graduate students, and 50,000 full-time BA students in areas such as literature, languages, linguistics, philosophy, history, arts, religious studies, etc. At that time I was arguing that research is an essential component of university teaching and that further reducing the budgets of the agencies that fund such research, in particular the Social Sciences and Humanities Research Council, will only damage our system of higher education.
Because the Canadian Federation for the Humanities is in the process of restructuring, I'm here more as an individual, and many of my comments will therefore be based more on my individual experience.
The first thing I want to comment on briefly - and this builds on what was said earlier across the table - is the sense of demoralization that's being felt across the country as university budgets are being slashed in response to reductions in transfer payments.
Original research is an essential component of university teaching if we want to maintain first-rate institutions, but as professors have been increasingly burdened with enormous increases in teaching or administrative responsibilities, because they're not being replaced and yet they're being expected to deal with at least as many students as before, they have less and less incentive and time to devote to their research. We have fewer and fewer younger faculty, upon whom the future health of the research and teaching in our universities depends. I think we risk seeing our universities turn into second-rate recyclers of other countries' research while our best minds go elsewhere.
I therefore urge the budget committee to maintain the current budgets of the three federal granting councils to restore the faith of the academic community in this government's commitment to the interrelation of the advancement of knowledge, prosperity, and quality of life that was recently articulated in the NABST report entitled Healthy, Wealthy and Wise. At one point that report states:
- The degree to which Canadians excel in the advancement of knowledge will determine our
success in economic growth and social progress.
However, speaking more personally at this point, I would like to say - and I'm interested that only one person has mentioned this issue so far - that the question of national unity is absolutely imperative. We won't have an economy if we don't have a country. What impresses me is that most of my students have never lived or travelled in Canada outside of B.C. Recently I was at a conference at Brock University, where the president stated that most of their students have never travelled outside of the Niagara Peninsula.
How can you care about a country that you don't know?
I therefore suggest - and this is a personal suggestion - that the government should implement something like a ``know your country'' program for the coming summer that would offer concrete incentives to people to visit a part of Canada at least 1,000 miles from their home. In a climate of uncertainty, those who have money are more likely to conserve it for their children than to spend it on recreational services and material goods. If you want to create a climate in which there will be incentives for jobs and growth, which is the second point in your letter, then I suggest that you have to tackle the sense of uncertainty that pervades the country at every single level at the moment.
The last point I would like to make relates directly to my area of research as an academic. It has to do with the cuts that have been made to the support systems for Canadian publishers. My area of specialty is Canadian literature, and I also work in Canadian publishing.
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The Association of Canadian Publishers predicts that with the drop in support there will be a 22% drop in Canadian titles published, a 19% drop in direct employment in publishing, and a 40% drop in the employment of freelancers in the publishing industry. We have to remember that small presses have been absolutely fundamental to our cultural identity. Our prize-winning major world-class writers, such as Margaret Atwood and Carol Shields, began with these very small presses. The winner of this year's Governor General's Literary Award for fiction again was published by one of these very tiny presses. More likely and able to take risks, small presses have nurtured Canadian literature into its current state of international prominence.
But how do you measure long-term investment in cultural industries? What are Margaret Atwood and Carol Shields now worth to us, in the economic sense to their publishers and to Canada as a whole? I would urge the committee not to let short-term expediency destroy the larger, less measurable factors, such as the human potential and cultural development of our country.
The Chair: Thank you, Professor Gerson.
Now, from the Coalition to Renew Canada's Infrastructure, Jeremy Kon and Jim Facette.
Mr. Jeremy Kon (Vice-Chair, Coalition to Renew Canada's Infrastructure): Mr. Chairman, members of the Standing Committee on Finance, I'd like to thank you for the opportunity to address you during your pre-budget hearings. Unfortunately I have to leave a little early for a long-standing commitment in Saskatoon, but Jim Facette will be here to continue discussions and I look forward to as much of the discussions as I can share in.
We have presented to you a full submission. What I'd like to do now is just to provide some abstract on that submission.
On behalf of the Coalition to Renew Canada's Infrastructure, I extend to you our support in your efforts in discussing with Canadians possible solutions to your challenges in preparing options for the Minister of Finance's budget considerations. The reorganization of the federal government's priorities is a very necessary process as our federal state evolves to meet the needs of Canada in the 1990s and beyond. There are, however, areas in which the federal government must continue not only to play a part but to take a leadership role. We view Canada's national highway system as one that falls into that category.
First of all, let me briefly review with you the constituency and purpose of the coalition. For more than ten years our essential road, sewer, and water infrastructure has been allowed to decay. As a result, Canada is in danger of having a $100 billion investment in roads destroyed through this continued neglect. Because of this situation Canadians are wasting fuel, time, and money, endangering their health and their environment, and in the process becoming less competitive in the new global economy. Infrastructure decay adds unnecessary cost to Canadian corporate operations and impacts negatively on our competitive capability, reducing demand for Canadian products.
It's these concerns that brought about the formation of the Coalition to Renew Canada's Infrastructure some four years ago. Our membership is made up of leading Canadian corporations from a wide range of economic sectors, represented by leading manufacturers, users, suppliers, builders, and designers. The urgency of renewing our roads of national importance was quickly identified as an economic priority for Canada.
Currently federal government investment in our highway system is primarily done through the strategic highway improvement program, otherwise known as the SHIP program, and other regional development programs. This method of investment has resulted in many parts of our highway system being ignored. There exists no national highway policy similar to that which exists for air, rail, or marine transportation. There are bilateral agreements, which have proven to be an ineffective tool and a subject of perceived political influence. Canada needs an effective national policy governing investment in our national highway system, a policy that offers a recognition of the importance of highways in the economy and a long-term investment strategy.
The national highway policy study conducted between 1987 and 1993 reported that 38% of the 25,000 kilometres of designated highways are operating below standard and that 22% of the bridges require major strengthening or rehabilitation. The study reported that highway investment would yield highway safety benefits, employment benefits, both direct and indirect, increased personal income, decreased numbers of UI recipients, increased government revenues through income taxes, an increase in our competitiveness and ability to compete on the international market, and increased tourism; and it could also be a nation-builder in the national unity debate.
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Many of the study's reported benefits can be found in the government's national infrastructure program, Canadian Infrastructure Works. This tri-level agreement, involving municipalities, provincial governments, and the federal government, has been an effective initiative in providing communities with much-needed infrastructure renewal.
The Canadian Infrastructure Works program has proven an investment in infrastructure does have a positive effect on the economy. The 11,000 projects have created 97,000 jobs nationwide. Communities are getting needed water treatment plants, new roads, community buildings, and employment in not only construction but related disciplines such as engineering design, architecture...and other suppliers.
Any initiative of the federal government that will provide for policy direction and investment in our national highways will need to address funding sources. In reducing the federal deficit, difficult choices must be made and priorities must be re-evaluated to reflect current realities.
In 1995 the federal government will collect $4.2 billion in federal motor fuel taxes from Canadians, but expenditures on Canada's national highways are expected to be less than $200 million. This means less than 4% of the revenue generated by road users is reinvested in the highway system. In fact, Canada's contribution has consistently remained at 5% or less. Countries such as the United States, Germany, Italy, Australia, Spain, France, and the United Kingdom all contribute between 30% and 100%.
Highway transportation is and will remain the dominant mode in support of Canada's economic activities. Highway carriers account for approximately 42% of all carrier operating revenues and roads dominate passenger travel in Canada, with some 90% of all trips being by automobile.
This being the case, the federal government must consider dedicating more of the revenues collected in motor fuel taxes to Canada's national highway system.
The 1990 Liberal task force recommended exploring alternative funding sources and that applying fuel tax revenues to road construction and maintenance should be considered. The coalition believes it is no longer acceptable to dismiss the notion of dedicating taxes to federal highway spending initiatives. Dedicating taxes will not only rehabilitate our highway system but hold the system accountable to the taxpayers.
In 1993 this government made a commitment to Canada's infrastructure and recognized its role in the economy. It was realized that infrastructure investment creates quality jobs and has a return on investment for governments. The same can be said for investment in Canada's national highway system.
The Chair: Thank you, Mr. Kon.
Mr. Harold Daykin, please.
Mr. Harold Daykin (Individual Presentation): Thank you.
Could I ask if everybody has a copy of both pieces of my first.... There's a single sheet, which is also in French. It's provided by the people in Ottawa and called ``Candidate Fields for Devolution to the Provincial Level - The Case of the West Coast Fisheries''.
Then there's a supplemental set of four pages. The supplemental set is headed ``Should the West Coast Fisheries Function Be Transferred from Ottawa to Victoria?''
I'm not going to read any of that. I just want to highlight a few points about it. I'll be speaking freely, without reference to what's here, although anything I say is in the documentation.
If you look at the map, you'll see the geographical logic in what I'm suggesting.
By the way, I'm not suggesting I'm in any position to recommend strongly that this be done, basically that Victoria should get the fisheries function from Ottawa, but I'm suggesting it's a strong candidate for a serious look at that. That's what I'm suggesting.
My basis, by the way, has nothing to do with any background in the fisheries industry, because I don't have that. I'm simply a senior citizen who does a lot of reading. In the last three weeks I've done a lot of boning up on this candidate for devolution from Ottawa to British Columbia.
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If you will look at that map, the interesting thing you'll see is that the number one species of fish in British Columbia is both an oceanic fish and an inland one. When the Fathers of Confederation set up lists of federal and provincial functions, they had one category labelled ``seacoast and inland fisheries''. That's as a package, and in their wisdom they decided that that should be solely a federal function. That made sense in 1867, because you had Nova Scotia, Prince Edward Island, and so on. You had actually at least three, and now we have at least four, provinces having contiguous waters, and it makes elementary common sense that it should come under the federal government.
We have only one province on the west coast with a fishery, unless you're going to talk about the Yukon Territory, which has a little wisp of a few miles on the Pacific. So that's one point. The west coast is basically different from the east coast in this respect.
The second point is that the prime species, which accounts for close to half of all the fish landed in British Columbia, is the salmon, and the salmon - there's a fancy word for it - is a migratory species. It's given birth to at places like the Adams River on a lake near Kamloops in the interior of B.C. After a year in the fresh water there, it goes out to the ocean, and in its fourth year it comes back. So it's an integrated fish, and we have to have an integrated administration, which logically should be on the west coast.
In my second little package here, I list some five considerations, and the most surprising one, which I claim is a strong potential justification for moving this function from Ottawa to Victoria, is the environmental function.
The key thing about this is that the federal fisheries legislation is a very powerful piece of environmental legislation. If you want to stop a development project, then all you have to do is get before, ultimately, the Supreme Court of Canada and say that the project is deleterious to fish. I'm exaggerating a little bit, but not much. As a matter of fact, the federal fisheries legislation is the approximate equivalent of the United States federal Clean Water Act.
I'll mention just one small disaster, amounting to half a billion dollars, which arose, I would claim, in part because the administration resources come under the provincial government. Ultimate ownership and control come under the provincial government, but the fisheries, which are involved through this environmental aspect in almost any development project, also are involved.
The small disaster of which I speak is the Kemano completion project. Those of you who are familiar with this can look into that. Basically, that arose out of this conflict between Ottawa via the fisheries control and the provincial government through its ownership and ultimate control of resources.
Thank you.
The Chair: Thank you, Mr. Daykin.
Lastly, Mr. Jacob Rempel.
Mr. Jacob Rempel (Individual Presentation): I'll pass, Mr. Chair.
The Chair: Thank you, Mr. Rempel.
[Translation]
The Chair: We'll now move on to the MPs who will ask their questions and make their comments. We have with us Mr. Pierre Brien, who is from Quebec;
[English]
Mr. Herb Grubel, Reform, from British Columbia, accompanied by Dr. Hélène Bertrand, who is here to reform the Reform.
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An hon. member: Oh, oh!
The Chair: From Manitoba, we have Mr. David Walker and Mr. Ron Fewchuk, and from northern Ontario we have Mr. Brent St. Denis.
[Translation]
Mr. Brien.
Mr. Brien (Témiscamingue): I have many questions this morning. My first is to the British Columbia Teachers' Federation. The first suggestion in your brief is that we should repatriate the national debt.
That would mean that the Canadian government would have to channel all taxpayers' savings. As a result, Canadian businesses would have to turn toward outside markets for their funding.
As it costs less for the government to borrow on international financial markets than it would for private business, we would end up losing, and our private businesses would be even more dependent financially on world markets.
Do you think that that's a really good solution for Canada?
[English]
Mr. McCue: The necessity of going to foreign markets is one option. I think we have other options we could look at. We could look at the Eurobond approach and appeal to the Canadian sense of patriotism to have them buy back the foreign debt over a period of time, in much the same way we had bonds during the war. Historically, we've had different kinds of measures. That would be an option. We could appeal to Canadians on that basis as well. We don't necessarily have to go to the foreign markets to borrow.
[Translation]
Mr. Brien: There's a limited amount of savings available. If at the end of the year, I have $3000 worth of savings that I invest either in government bonds or in business investments, the businesses investing end up having to borrow with part of the savings of Canadians. If the greater portion of those savings are given back to the government, Canadian businesses that want to invest and that borrow to invest will no longer have access to capital on the Canadian market. They will then have to borrow outside Canada, at a greater cost. The profits and economic benefits due to the profitability of those businesses would then be to the advantage of foreign markets.
I'm trying to explain that this doesn't seem to be a solution to me, because the problem would be made worse. We'd be made even more dependent on foreign economies than we are presently, and at a greater cost.
[English]
Mr. McCue: Again, I think that is just one component. I think we have to look at a range of issues. One is reforming the tax system generally and another is looking at issues such as interest rates, but that's just not one thing in isolation.
[Translation]
Mr. Brien: Agreed.
I'll now move on to my favourite witness from the Frazer Institute. We met last year. We did not agree then and we will not agree this year, either.
Allow me to start off with a comment. In your brief, you refer to the cost of Quebec separation, and I can't just let that go by. You carried out a study, if I remember correctly, that I totally disagree with and whose results do not tally with those carried out in Quebec, even under the direction of Quebec federalists in the context of the Bélanger-Campeau Commission on the issue of our part of the debt and deficit in a sovereign Quebec.
You use a method not very commonly used in economics, which is to consider the debt as a mortgage to be paid back over 25, 30, 35 or 40 years. I've never seen anybody, anywhere use that methodology to assess the financial impact of a debt.
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My comment is therefore simply to tell you that I strongly disagree on the methodology of your study and that, as a result, I do not agree with its conclusions.
In your fifth suggestion or recommendation, you speak of a long-term plan to eliminate the debt. Eliminating the deficit is one thing; eliminating the debt is another.
Personally, I have a debt because I didn't pay cash for my house. So it's normal to have a debt. It's acceptable. Why, for a government, would it not be?
[English]
Mr. Richardson: You've asked about a number of things. Let me just comment.
Of course I remember our dialogue last year, Mr. Brien. I differ fundamentally with the methodology that Bélanger-Campeau used. Again, consultants to the current Quebec government use the same methodology to update that work. It systematically overstates assets and understates liabilities of the Government of Canada, therefore coming up with a much lower share, which I call in my study ``the Quebec separation obligation to Canada''.
My approach uses population as an allocator and is, I think, generally agreed to by most economists and others. The difference between my estimate - the Fraser Institute's estimate - and the Quebec government's official estimate is over $55 billion. We haven't seen the Government of Canada come out with its estimate yet. In this brief we're calling for them to really disclose it. We know the numbers are there. They've done this work. Why not get it out and show what the methodology would be in their view? Perhaps in the unfortunate event of a Quebec separation - and we differ on that, I know - the beginning negotiating position might be somewhat less. Nevertheless, this information needs to be out.
The use of the mortgage analogy is an example to illustrate.... In my study you may recall - because I'm sure you've reviewed it - that I looked at different possibilities. I used the mortgage as a way of illustrating that there should be a beginning point and an end point. Most Canadians, yourself included, because you refer to your own mortgage on your house, can understand this.
The ultimate long-term goal, and I stress that's a long-term goal, would be a national goal to eliminate the debt entirely, and we're recommending the government set that out in this next budget. It would be a goal for some time in the 21st century. People can relate to that. How the actual mechanics of it work from year to year needs to be worked out, but I think in terms of presenting it and publicizing it most people can understand. They want to have that mortgage-burning day, that wonderful day when they can finally burn their mortgage. Sometimes that takes 20, 25 or 30 years. In our case it might take a bit longer because the federal debt is so large.
I think it's also a uniting thing, and this is what we say in our.... I think that one thing that people in Quebec can agree on, separatists and non-separatists alike, is their dislike of the federal debt. Mr. Campeau, the former finance minister in Quebec, said earlier this year that should Quebeckers vote to separate they might walk away from the federal debt and leave the rest of Canada stuck with $144 billion, the Quebec separation obligation.
[Translation]
Mr. Brien: Mr. Chairman, I want to come back to those points.
I'll pinpoint the mistake in your approach. In my case, if I want to pay off my mortgage, it's because I have a limited number of years to live. I will not live indefinitely, which is not necessarily the case for a country. Maybe Canada will not continue in its present form, but still... If I were sure that my children, my grandchildren and their descendants were all going to live in my house, I could pay off my mortgage over 100, 150 or 200 years and the financial institution would have no problem with that.
So the mistake you're making is to ask that a country operate the same way as an individual with a mortgage. That is where your reasoning doesn't hold up. That is impossible because there will never be a consensus in the population on the aim of bring the debt down to zero, which is what you suggest. That would mean the government would pay cash for all its fixed assets, which is nonsense to my mind.
I studied economics and I know very few economists who advocate this kind of approach. Everyone wonders about the optimum level of debt in relation to economic activity, but everyone agrees that there is an acceptable level of debt.
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We agree on the fact that at the present time, it isn't. But wanting to bring the debt down to zero and using this method in certain analyses, as you do in relation to the separation of Quebec, seems totally wrong to me. That's what I wanted to say.
I'm convinced that we could, theoretically, look at how to pay off the federal debt over 25 years, but I don't think it will ever be possible to come to an agreement amongst people to get them to pay for it over the next 25 years. I challenge you to go into politics with that kind of program.
[English]
Mr. Richardson: The key to our proposal is, of course, unworkable if the federal government keeps running deficits each year. The debt is an accumulated deficit, the sum total of all the deficits - and a few surpluses - that we've had since Confederation. We used to in fact have surpluses quite regularly, so I shouldn't say that too freely, but this is what it is. In the last thirty years, though, we have mostly had deficits.
The key is getting that deficit eliminated quickly. We're proposing a way in which it could be done, not just through spending cuts but through this tax-back proposal based on family incomes. We really recommend that you look at the tables in our presentation, because they were prepared for us by the federal Department of Finance, even though it's our proposal.
The thing is that once the deficit is gone, you must outlaw deficits by statutory provision, except in some specific circumstances. Just in the last month or so, the Government of Manitoba has introduced a law like this, with what is in their case a long-term - thirty-year - debt elimination plan. With the types of penalties imposed on the premier and the cabinet members for non-compliance, this is the toughest balanced budget law and debt elimination plan in Canada, and one that I think is eminently workable. The federal government could certainly take the lead from the Province of Manitoba on this score.
As far as the international perspective is concerned, I look at Canada in relation to 172 countries of the world in terms of the debt studies that we do at the Fraser Institute. There is no common concept of what is a normal or accepted level of debt, but I categorize countries that have a debt-to-GDP ratio of less than 20% as being in the less indebted category, which is the preferred group. Canada, unfortunately, is in the severely indebted category. We have joined the Third World. There are only two other industrialized countries - Italy and Belgium - on our sick list in the severely indebted category. Our trends are worsening, and the main contributor to this is the federal government. The provinces are getting their acts together, but the federal government needs to continue to press further than it has.
[Translation]
Mr. Brien: I'd like to ask one last question, Mr. Chairman.
We could discuss this a long time, but we'll have another chance. You hold a number of forums. At some point, I'll go to one so that we can have a good discussion.
Here's my last question. Many people spoke of the education sector. Yesterday, an organization of students, not the Canadian Federation of Students, suggested national standards in education.
I've heard this morning a few references to national standards. I would like the representative of the Canadian Federation of Students to tell me whether his organization shares that position. Do the student associations of Quebec also share this position, that there be national standards in education?
The Chair: I think that the national standards were suggested by Mr. Lavalle.
Mr. Brien: Yes, but I'd like to know the Canadian Federation's position.
The Chair: Very well.
[English]
Mr. Gardiner.
Mr. Gardiner: Well, I can't speak on behalf of the members or the students association in Quebec. We've long held that the students association in Quebec is an autonomous national organization.
In terms of our position on national standards, however, I think we've long advocated for national standards for post-secondary education. We believe a result of the federal funding cutbacks is a deterioration of what had been almost an artificial set of standards through funding that has existed for a long time. This belief represents a fear that provinces like Newfoundland, New Brunswick and Prince Edward Island - and other provinces that don't have the economic growth currently being experienced by a province like British Columbia - will face a tremendous jeopardization of their education systems far beyond what we in B.C. face.
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So I think the implementation of national standards is vital and I think the national standards have to be higher than where they are currently, aside from perhaps Quebec, where there are standards in terms of access and in terms of provision of student assistance and other types of educational quality that exceed the rest of the provinces. We may look to Quebec as an example for what those national standards might be.
[Translation]
The Chair: Mr. Lavalle, would you like to add something to that?
[English]
Mr. Lavalle: Yes, I'd like to add something. I was the one who raised the question of national standards. I just want to make it very clear, because of my respect for Quebec's right to self-determination, that when I talk about national standards I'm talking about the nine provinces outside of Quebec and the territories. Because education is such a provincial matter, a question of standards would be a matter of negotiation between Quebec and the federal government.
By national standards, I mainly meant a set of principles and objectives. I don't apply these to Quebec because it's a special circumstance, it has a special set of demands, and from my point of view it's a nation. For the rest of Canada, the standards would ensure maximum transferability for students between the provinces and between institutions.
The CMEC, the Council of Ministers of Education in Canada, hasn't really managed to achieve ensuring a minimum level of access and capacity in public institutions, perhaps as a percentage or on a per capita basis; ensuring a minimum level of quality for student assistance and student support programs; and lastly, ensuring library and research resources.
The Chair: Merci M. Brien.
Mr. Grubel, please.
Mr. Grubel (Capilano - Howe Sound): I wish to thank all the witnesses for coming here and sharing their views with us. I'm especially pleased to see so many people from the education field. As you know, I was in this field for 30 years until I had an attack of temporary insanity and stood for office, and here I am.
I just would like to say, speaking for myself and for the members of the Reform caucus, but especially for Mr. Manning, that we agree with all the concerns about the undesirability of making the cuts that are taking place in this country right now. I think it is very undesirable that the humanities have to take reduction in the amount of resources they have. I think it is highly undesirable - and we all do in the Reform caucus - that students should be asked to shoulder more of a financial burden. I think it's terrible that universities generally would have to have a slowdown in the rate of increase at which they are getting money from the government.
Ladies and gentlemen, we've heard many witnesses here. I've listened to 600 of them in the last couple of years. They say if we don't do something, what we will have to do to these good causes in the future will be even worse than what is coming down in the next couple of years. It is exactly in order to save these programs, in order to make the long-term cuts less, in order to go back to growth and giving more resources, that we have to take action now.
We have made every effort here in this committee to hear whether there are alternative ways of getting the spending under control and eliminating the need for cuts for all these good causes. We have listened. We have had experts presenting all the stories that were represented by the British Columbia Teachers' Federation, from Mr. Neil Brooks' favourite target of taxation.
Let me just tell you that when we had experts come here and tell us this, they all said if this happens the consequences for other Canadians are terrible. This is a narrow vision of what takes place. We have had experts from many fields of endeavour, including the government, who say lowering the interest rate will be counter-productive. If the Bank of Canada went on an easy monetary policy tomorrow, overnight long-term interest rates would rise sharply. It would be totally counter-productive.
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It is easy for people to say, we have theories here that are shared by a dozen other people in the country but you're not taking them because you don't have the right ideas. The people who are making policies cannot go on theories that sound good and have to be accepted as a total package about changing the nature of society.
I can assure you we have made every effort here to see if there is an easy way out. There isn't an easy way out. People have to accept that we are in terrible times.
Just look at the figures presented by Mr. Hansen. What is the problem? It is the growth in the debt. Unless we stop it, the problems of cutting back two years from now will be worse.
Just remember that because this government that is represented here has decided to take a slow approach to cutting, the debt has increased by an amount that requires $10 billion more of interest. That is exactly the amount of spending that has taken place on programs such as education. We have stood still in the last two years because we didn't make decisive cuts.
What we're hearing from many witnesses, I would like you to know, is that we should cut quickly, to get over this. Otherwise what we have to cut now will look puny, especially since almost all the experts are saying within a few years we will have another recession.
I would like to turn to a question for Mr. Hansen and Mr. Richardson. Could they please debate between themselves what would be an optimum level of debt. Mr. Richardson suggests we should aim for zero debt; and I can see some argument for it, intergenerational equity and so on. Mr. Richardson says it should be the average of the G-7.
Mr. Richardson, how did you arrive at the G-7 averages? How did you arrive at zero? What objective criteria exist for us to decide and tell the Minister of Finance what it should be?
Mr. Richardson: That's an excellent question. In fact, the Auditor General of Canada, in his most recent report, in a section on debt, said we really need to address this and set out what the targets should be; because as I said to Mr. Brien, there is no agreement. There is no standard out there, from the G-7 or others. You can take whatever averages you want.
In our view at the Fraser Institute, the long-term - and it's stressed that it's long-term - goal would be to eliminate the debt entirely. If that is the will of the Canadian people, it can be done. But there would have to be legislative constraints, with penalties, etc., as we're proposing, on....
If in the event of opening up the Constitution for some of the things that are being proposed now through the House of Commons, if this leads to a constitutional... I would strongly recommend, if that opens up and is expanded beyond distinct society and some of the other matters and is ingrained in our federal Constitution, some type of fiscal provision relating to the debt and deficit issue, as some other countries have. Germany has that. Switzerland has that. Some other countries do have that. This would be something I think should be a number one amendment, if we're going to amend our Constitution in the context of some other matters that are before the House.
Mr. Hansen: I don't disagree with Mr. Richardson. A debt target of zero would be wonderful if it could be achieved in our lifetimes. I think we're looking at a long, long time to reach that. It would be terrific if we could.
Our suggestion about something in the median of our competition is based on the fact that we live in an international world and our ability to supply goods and services to the population, from governments as well as business, depends on being competitive in that environment. Right now, in terms of debt load, we are at the outer limits of our competitors. As an achievable target, we should be moving much closer to the mainstream of that group.
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Mr. Grubel: One of the arguments is, of course, that those of us around this table who have grey hair or are losing our hair are leaving, in a very irresponsible manner, for the future generations the requirement that they tax themselves to the tune of $100, $40 of which they will have to devote to paying for our tendency to spend more than we decided to tax ourselves. In that sense it is a very unfair redistribution of income between our generation and future generations - who, by the way, have no vote in whether they want that or not. That's one argument.
The other argument, however, is that maybe its our right to do so because we leave them all these assets. We leave them tremendous science, culture, heritage, physical infrastructure, and all these kinds of things.
In the light of these two kinds of almost contradictory arguments about whether we should really go to zero, how do you decide?
Mr. Murray Dobbin (Communications Officer, British Columbia Teachers' Federation): Peter McCue had to leave unexpectedly.
It's interesting to see so many advocates of voodoo economics around the table, Mr. Grubel being the principal one, of the trickle-down theory, which of course failed in the 1930s and is failing now.
The effort to suggest that giving more money to the wealthy is going to create economic growth has failed for the last ten years and will fail for the next ten. The fact of the matter is that the wealthy put their extra money in investments offshore while people in the lower and middle income areas spend their money and stimulate the economy. Far from shelving the deficit, it in fact undermines economic growth.
Paul Martin's budget in 1994 set out 400,000 new jobs in one year. By January 1995 we had reached halfway to that target, but as a result of Mr. Martin's 1995 budget, economic growth in terms of job creation has virtually come to a halt. Between January and August of this year, 19,000 new jobs have been created. There's an absolute slowdown because of Mr. Martin's budget, and further cuts to social spending will do exactly the same thing.
We are gutting economic growth by cutting social spending.
There seems to be a notion in this country that public service jobs are not real jobs at all, but if you look at the number of jobs cut, 45,000, by Mr. Martin in the last budget, that's the equivalent of closing down the entire operations of Ford, Imperial Oil, IBM, John Labatt, and Domtar. This is economic lunacy, and to suggest that laying off 45,000 people who spend money in the economy is a way of solving the deficit crisis is an outrage.
The Chair: Is it your recommendation to us that we should cancel those cuts? The converse of that would be that we should hire more.
Mr. Grubel: Decrease the deficit.
Mr. Dobbin: A national child care policy would be a very good idea. Whether that would employ 45,000 more people I'm not certain, but the notion that recommendations from our group are just -
The Chair: I asked you about the public service. Is it your recommendation that we should cancel those cuts to the public service?
Second, since you were saying those are valid jobs and constitute employment, should we increase hiring in the public service as well?
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Mr. Dobbin: If you'll let me answer the question.... It depends on what those jobs would be. I'm suggesting that yes, if we are talking about a national child care policy, which has all kinds of spin-off effects and allows the poor to seek jobs rather than having to be on welfare because they can't afford child care, then certainly those kinds of jobs should be increased.
Mr. Grubel: Could I ask a question of Mr. Dobbin? How many jobs were created in Canada in the last three years?
Mr. Dobbin: I understand between 1994 and early 1995 it was something like 200,000 additional jobs; but since then the net of new jobs has been 19,000.
Mr. Grubel: May I hand you afterwards an article from Statistics Canada, a summary of a release, which says in the last three years 800,000 jobs have been created by this terrible, terrible private sector.
Mr. Dobbin: How many thousands have been lost?
Mr. Grubel: About 100,000 have been lost as a result of lay-offs by the public sector. There has been a net creation of 700,000 jobs by the job-creating machine called the free market.
Mr. Dobbin: Not net, Mr. Grubel.
Mr. Grubel: Net, net - hundreds of thousands of jobs.
I beg to differ with you, but this is what I find all the time when people like you come here. You are in severe need of a reality check. You called me a ``voodoo economist''. With all due respect, I can call you in need of a reality check.
The Chair: Mr. Rempel wanted to add to this debate.
Mr. Rempel: I have the same sense of urgency about the elimination of the deficit and the debt as we might hear from the Fraser Institute or Mr. Grubel. However, when I hear them debating with others such as, let us say, the BCTF at the moment, I feel they are talking past each other and neither answers the other's questions. So I don't find it very helpful in the dialogue at all. Whether I am watching the parliamentary channel or reading the newspapers or whatever, they talk past each other and they are not answering the question.
I think it would be helpful, for example, if this circle had some people here from the anti-poverty association analysing the situation. When we speak of deficit and debt, and the depression - we would go into that, perhaps. There is an element of depression that occurs in a country that may be related to money, that occurs when there's a period of poverty and if there are a few generations of poverty. That kind of deficit, that kind of debt, is a much more serious debt than any other. There are one million people who are demoralized, one million people less well educated. That is a deficit neither the Fraser Institute nor Mr. Grubel are responding to. That is the real deficit.
There can be education, there can be employment and a level of income for all people, and civilization, without more new cars, without thicker carpets, without new mattresses on their beds, without bigger houses. Civilization is not just a higher gross national product. I remember Lester Pearson once saying, in speaking of the goals he had for a higher gross national product, ``Nevertheless, let us not become in the process a Gross National People'', which has the same initials.
Hence I am concerned about this kind of dialogue, where the Fraser Institute does not answer the questions and problems raised by the anti-poverty association and the anti-poverty association and the BCTF do not answer about the problems of paying interest on such an enormous debt.
The Chair: Maybe we could let them respond very briefly on their view of those who are living in poverty.
Mr. Richardson, Mr. Hansen.
Mr. Richardson: In my work at the Fraser Institute I look at government debt not only in Canada but around the world. We can see those experiences in countries that have hit the wall, that have let their debt situation get out of hand. There are many of them, not just New Zealand - that's the one that gets talked about the most - but Sweden, Italy, and various others. Look at some of the Third World countries that have hit the wall in the last fifteen years. The people who are hit the worst are those who are poor, and they're much worse off after the financial crisis than before the financial crisis. We need to avoid that happening in Canada.
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The other aspect, which we say in our brief, is let's tie this into the national unity crisis we have, which has gone up considerably since October 30.
Mr. Rempel: As long as we can get rid of the debt.
The Chair: Mr. Hansen, did you want to respond very briefly to that?
Mr. Hansen: Of course, we have to have programs to look after those who cannot look after themselves.
The Chair: I suggest we take a five-minute break and return refreshed.
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The Chair: Could we consider getting back to work?
I would like to thank you, Mr. Grubel, and turn now to Mr. Walker.
Mr. Walker (Winnipeg North Centre): Mr. Chairman, I'd like to make an aside before I go to my major point, and you may want to respond to it later, but I don't want to get sidetracked.
On the question of cutbacks and what we're doing, particularly for the students who want to see us, there's a lot of rhetoric that goes around. I'm not discounting the fact that we are making cutbacks. Don't let me mislead you. The trail we have from the federal government to the provincial governments, the universities, and your classroom situations is a pretty vague trail for us, as to what actually takes place.
I taught university for 20 years. When people talk about national standards, I quite frankly can't comprehend what it would mean to me, as a teacher in a classroom. I've never been able to figure out what the national government could tell me about my relationship with students and research that would make some sense beyond the rhetoric.
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The Chair: Maybe I can answer that. If we had national standards you never would have been hired as a professor.
Some hon. members: Oh, oh!
Mr. Walker: This is too true to be funny.
When you talk about the impact of our cutbacks - again this is particularly true in the prairies and may not be true in British Columbia - and look at the rise in provincial revenues at the same time, you have to make sure the ministers of finance share with you the increase in revenues across their overall budgets. You'll find many times, for example in Saskatchewan or Manitoba, our cutback is roughly $60 million over the next two years and the province's budget goes up because of revenues by $1 billion. So where it chooses to spend its money is partly a reflection of the priorities, and not only our cutbacks.
Going to the major point, we've had to raise several times the question of the monetary policy. I think what drives people crazy is trying to understand the monetary policy of the federal government vis-à-vis the cost to the federal debt.
If I can just go on for a second, one of the briefs suggests we could save $6 billion a year and therefore wouldn't have to deal with the deficit the way we're dealing with it. Using round figures, the federal government spends about $50 billion a year in retiring its debt - you'll have to excuse the roundness of my figures. Mr. Richardson is much more professional than I am with these figures. About 60% of our debt is short term, so in any given year the most we deal with is 60% of the debt. The rest is long term, somewhere between 5 and 30 years, depending on the terms. So we're dealing with $30 billion of interest that we can influence through the monetary policy.
Right now our money on the market for short-term money is at 6.52% to 6.75%, depending on the day and the instrument being used. So for the $300 billion we can possibly deal with over an 18-month period or so, you have about $18 billion to $21 billion of cost. To drop it by $6 billion means you will be at $12 billion to $14 billion. That in turn would bring your interest rates down to somewhere between 4% and 5%.
When you do that you bring yourself down below treasury notes in the United States. You may say that's a steal - who cares? But you have to say to yourself that debt is real. Debt is held by somebody. Somebody makes a decision to buy Canadian bonds. That somebody to the most part are the banks. You say that's great, put the blocks to the bank and just tell them they have to buy it at 4% and that's all there is to it. That would be a very popular thing to do.
The second-biggest buyers are the life insurance companies. That really means policy is back to people and there's not enough return. Maybe we should be careful there.
The third-biggest buyers are the pension plans. So you say to the pension plans in Canada ``We want you to buy Canadian bonds at 2% - less than anywhere else you can put your money''. In Ontario the biggest pension plan is the Ontario Teachers Pension Plan. You're telling the pension plan managers you want them to buy Canadian bonds at 2%, which is 3% below market, in order to save us $6 billion. I think that would be a decision a lot of people would resent for their pension plans.
You may ask, how do we make sure the money doesn't get out of the country? Then you get into currency controls. I know Neil Brooks is very fast with his $6 billion, but in the real world of how we finance the government the people holding the bonds are yourselves. It's not some abstraction - it's your own money. Your willingness to take that loss is never really put on the table.
I'd like to put that on the table right here. When we change monetary policy it's not a case of the big bad guys offshore buying our money. That is an issue for all of us. But if you're looking at what happens in the real world, we gave what we thought was a generous interest rate for Canada savings bonds this year, and picked up only $3.2 billion of the $50 billion we needed. That's not very much. The NDP government here in British Columbia was more successful because it offered a greater interest rate return.
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So you're putting your money into a market in which the reality is that people will seek out the best possible return. Asking the monetary policy to change and to go below market arbitrarily has consequences for each and every one of us.
I just put that out for commentary.
The Chair: Who would like to respond to that?
Mr. Finlayson.
Mr. Finlayson: I think Mr. Walker is making an excellent point. There is a misconception in some circles that a few buttons can be pressed at the Bank of Canada building on Sparks Street and we'll miraculously wake up to much lower interest rates. Unfortunately, that's not the case. In a sense, we have to earn those interest rates by having confidence in the markets. As far as Canada is concerned, its unity is a problem. Its fiscal position has been a problem, but I think it's getting better. And its overall performance relative to other countries also plays a part.
Having said that, we have suffered for a number of years from very high real interest rates. We haven't received the dividends that we should be getting from having a superior inflation performance when compared to that of the United States. Fortunately, again, we are beginning to see some turnaround in that situation. I think if we have the right fiscal mix, we can enjoy a lower rate of real and nominal interest rates which, as I said before, will flow through to the benefit of the consumer sector - given high household debt burdens - and even more importantly, to our public sector institutions, which can enjoy some relief on the massive debt payments they're now burdened with each year.
The Chair: I know Mr. Dobbin and Mr. Gardiner disagree vehemently with you.
Mr. Gardiner, you've called for devaluing the monetary system.
Mr. Gardiner: I believe the 1980s policy, the grand experiment of zero inflation, has been a primary catalyst in the creation of the debt. A primary consequence of that was the excessively high interest rate of the late 1980s, which resulted in massive growth in the interest payments and therefore the principal of the debt at that time.
The Chair: You've called on us today to devalue the monetary system, if I've quoted you correctly.
Mr. Gardiner: Essentially, I have. I've called on the government to abandon the restrictive zero-inflation policy that stagnates growth, when growth is going to be the primary means by which we come out of the debt. If we are going to be honest with ourselves, the Fraser Institute knows - and I'm sure the Vancouver Board of Trade knows - that without growth we will never come out of the debt that we are facing no matter what fiscal measures we take.
The Chair: And to you, inflation means growth.
Mr. Gardiner: To me, a level of controlled inflation through monetary issue is an aspect of a program towards growth.
The Chair: So you want inflation to go from about 2% up to what?
Mr. Gardiner: To somewhere around 3.5% or 4%.
The Chair: Okay, thank you.
Mr. Dobbin.
Mr. Dobbin: I would agree. It seems to me that if you read the Bank of Canada's mandate, it's mandate is not just to deal with inflation, but also growth and employment and interest rates. It has abandoned growth and employment.
You're right, Mr. Walker, that the amount raised by Canada savings bonds was not as much as was hoped for. I have two things to say about that. First, I think that if we made an appeal to Canadians specifically - as we did with the Canada war bonds - it would be something that would assist the country and appeal to people's patriotism and civic duty. I think that would have an impact.
Second, offering a higher rate of interest specifically to repatriate to debt at least sees that interest spent in Canada. I think that has a major impact. There is no question that the amount of the percentage of our debt that is held by foreigners does limit our ability to lower interest rates.
We're saying there are consequences to lowering interest rates. Well, there are also consequences to not lowering them. Are we saying it's okay to have 9% or 10% unemployment and 1% inflation, when we could conceivably have 4% or 4.5% inflation and 6% unemployment? These are value judgments. I think the value judgment of having 4% or 4.5% inflation and 6% unemployment is a community value, while the other is a value that takes the human element out of economics.
Mr. Walker: If I had perhaps thought about this when we were in the harshest of times six years ago, I think the strategy followed by the last government really was devastating. We had both high interest rates, low inflation and a high Canadian dollar, and we were badly hurt.
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So in many ways people have been confident and can say that generally in fact the strategy has changed. In fact there is a limit on inflation and a ban we're following, plus interest rates are pulled down just about as quickly as the Bank of Canada can pull them down, but we're still dealing with those conditions not only in our own country but around the world.
A 4% or 5% inflation rate sounds harmless. Simply take a look at the paper this morning; what's driving this country is the export market. If you start adding 4% or 5% innocently to the cost of working Canada, suddenly those export markets disappear pretty quickly and you're right back where you started from.
If you don't have an export market in Canada into the American market, you have no economy at all.
The Chair: But, Mr. Walker, Mr. Dobbin disagrees with you. He said if we had 4%, 5% or 6% inflation, we would have only 6% unemployment.
Mr. Walker: Well, I understand that.
The Chair: That's his promise to us.
Mr. Dobbin: We have virtually abandoned the domestic economy in much of our economic policy. Canada has one of the largest domestic economies in the world, but to accept 10% unemployment as a reasonable price for a low inflation rate implies that the domestic economy simply isn't important.
Obviously the export economy is extremely important, but its growth has not produced the jobs we had hoped it would.
Mr. Walker: Mr. Dobbin, you have an academic background. I will give you as many weeks as you want to find a piece of paper that says the Government of Canada accepts 10% unemployment as acceptable. In fact, I will in an hour produce a paper that says just the opposite.
Mr. Dobbin: Well, when I hear the Prime Minister and the finance minister, Mr. Paul Martin, say we treat unemployment as a national priority as we would if we were at war....
Someone mentioned earlier that one proviso would be that these policies wouldn't necessarily be followed if we were at war. Why don't we say we're at war with unemployment? When I hear the government saying that, then I'll believe it.
The Chair: Mr. Lavalle wanted to add something.
Mr. Lavalle: I understand what you're saying, Mr. Walker, but I'd like you to answer a question I have.
There's an equity issue involved in this. You're talking about not doing certain things, and you flicked off two or three instruments that might have been suggested here and there - and I'm not an economist - because of their countervailing effect. You were targeting certain groups. I would submit that the groups you were targeting are probably the groups that are most likely to be able to bear the effect of some kind of instrument.
The Canadian Centre for Policy Alternatives indicates that 2% of the debt was attributable to social service increases. The remainder was split between high interest rates and the diminishing of corporate taxation by Mr. Turner in the 1970s.
It would seem to me that if we have a deficit, we can get a balance. We can have policies that reduce the debt by having those who benefited most from creating it pay it, in a way, over a period of time.
The slash and burn effects we're going to have, which are compounded by some provincial actions, are going to target those who have benefited least in the past and have hopeless futures. That's just the way it's going to be, and we're already seeing the effects of that now.
Mr. Walker: The issue we keep coming back to - and that's why we have it as a round table - is that nobody pretends there's a magic solution to it. I for one will not in any way, shape or form dispute your contention that the compound interest and the high rates money was borrowed at from probably the late 1980s through to 1993-94, before interest rates started coming down, have had a tremendous impact.
But similarly, with a low interest rate strategy, which is still too high in real terms, as Mr. Hansen pointed out, the interest rates coming down and the limits on expenditures will in fact create just the other momentum. As I say, it will become less and less of a problem as we gain more and more control of this. That's the reason for my optimism.
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On the corporate taxation side, we've taken steps for a minimum corporate tax, a capital tax and these other issues. A lot of the work done by the centre is based on reports of corporate income at the low side of the recessionary cycle, when corporate profits were way down. We're waiting to see exactly what the contribution is in the next couple of years to see whether or not this changes.
Do you remember offhand, Mr. Chair, what corporate taxes are? Is it $7 billion roughly?
The Chair: It was $8 billion, but it's heading up very quickly, because for whatever reason they had a better year last year.
Mr. Walker: Okay. Say it's at $8 billion, and a 30% increase on corporate taxation produces another $4 billion. I'd like to get other people's input on that, but that's a fair chunk of corporate tax.
Similarly, somebody else mentioned going after the high-end income earners to create a better tax system. To get 10%, or $6 billion, more on your top income earners would really increase their rate of taxation by about 50%.
There are some simpler solutions. An integrated GST, for example, would proffer returns to low-income families. With the provincial governments, it would produce a lot of income and would begin to protect some of the issues raised, for example, by the teachers, with the $75 million loss in public school education.
If we had a better consumption tax in this country, we'd be a lot more effective in supporting those programs.
The Chair: I just have a point of information, Mr. Walker. I lied to you. For 1993-94, corporate income tax was $9.8 billion. I was looking at percentages. The next year it went up to $13 billion and this year it's $15.5 billion. So it's heading upwards.
Dr. Keener, you wanted to add something.
Dr. Keener: Thank you.
I also am not an economist, and I think it's a frightening job to have, particularly these days.
Looking at the way the debt has accumulated over the last 25 or 30 years, we see an incremental process, where relatively small deficits in some years have ended up having ultimately a very serious and deleterious effect on the Canadian economy and the Canadian taxpayer in 1995.
If we look at the social program spending - and this is of course one of our main concerns here, in particular with regard to universities, which may be a relatively small component of that - we have to keep in mind that social expenditures can be viewed as an investment.
There's an experiment here that wasn't conducted, and the experiment is this. What if we hadn't made the investments in social spending and social programs over the last thirty years? What would our situation be now? Would we actually be in better shape somehow with regard to our total debt?
I would suggest that's probably not the case, that even from the very narrow perspective simply of dollars, that investment was a very wise one.
I have a couple of other quotes I'd like to mention now. I am concerned with basic research, and this is one of the areas where a CHST proposal would reduce, probably very substantially, the amount of funding that would go directly through universities.
I mentioned before the John Polanyi article. Let me read a little bit more. He says:
- Basic science has given us the maps of nature on which the vast majority of applied scientific
findings have been located.
- His own Nobel work, for example, has produced billions of dollars in chemical laser
technology.
- Such support is often difficult to justify, for there is no identifiable ``optimal'' level for the
funding of basic research, nor can a single distribution pattern be identified as preferable to all
others. Yet, basic research, because it is not deemed to have appropriable results, qualifies as a
traditional public good in need of community financing. ...moves are afoot to push basic
research into more narrowly defined ``strategic'' areas, to make it ``less basic'', more
``capturable.''
- - those that don't meet that category presumably are not funded; that's my interpolation -
- This does not seem appropriate.
The Chair: I understand from Ms Moran that some of our witnesses from the educational sector are going to have to be leaving us at about 2:20 p.m.
Mr. Lavalle: At 2:15 p.m.
The Chair: Could you just put up your hands? Who will be leaving us? Mr. Gardiner, was your hand up?
Mr. Gardiner: Yes.
The Chair: In that case, if you'd just conclude, Dr. Keener, I'd like you all to have an opportunity to sum up before you go.
Dr. Keener: I just have one more point.
I'd like to go back to the Science Council of B.C.'s report, which I referred to earlier. Another section of this report concludes:
- Based on interviews conducted with industry leaders, the key positive factors contributing to
industry growth in B.C. are:
At my own university, the University of Northern British Columbia, we are just beginning to look at embryonic programs for cooperation with industry. Frankly, we're very, very scared that this kind of program as well as the quality of the education we offer our students will be seriously affected by the decrease in transfer payments.
The Chair: Thanks, Dr. Keener.
Mr. Grubel.
Mr. Grubel: I think I will pass in light of the fact that these people have time limitations. I'll come back later to bring up a few points.
The Chair: Thank you.
Would you like to each give us a 30-second summary before you go? Would you like to start, Mr. Gardiner.
Mr. Gardiner: First of all, I'd like to thank the committee for its time and for listening to us today.
I just want to say that at this stage of the game the provinces do not have any more tax room. As Mr. Walker pointed out, the only areas in which provincial revenues are increasing now is through increases in economic activity. As a result of that, the federal role in funding across all programs, but particularly for post-secondary education, health, and social welfare, continues to be vital and becomes more so as funding is reduced and retracted. The deficit-inducing impacts of a lack of economic growth and a lack of the type of spending that comes with health, post-secondary education, and welfare could in the end prove to be more dramatic than the types of cutbacks and savings you hope to achieve through the current round of cuts.
The Chair: Thank you, Mr. Gardiner.
Ms Moran.
Ms Roseanne Moran (Staff Representative, College Institute Educators' Association of B.C.): We would also like to thank the committee for having us today.
I just have a final comment; it's not really a wrap-up, it is something we touch on in the brief we presented to you.
When the committee tabled its report looking at the impacts of Bill C-76 last year, it acknowledged the concern of Canadians that there were no principles and objectives tied to post-secondary education and that with the way the Canada health and social transfer is structured, that does make post-secondary education particularly vulnerable. We remain concerned that there has not been any significant movement in the past year to develop those principles and objectives, and we're sorry we didn't get a chance to talk a little bit with the committee about that.
The other concern that was identified by the committee last year was that there should continue to be a cash component to the social transfer in the future. The analysis we've seen in the past year indicates that there will not be a cash component unless there's some significant restructuring of the federal-provincial financing, and we hope the committee will be addressing that during its consultations.
The Chair: Thank you.
Mr. Lavalle.
Mr. Lavalle: I have nothing further to say. Thank you very much.
The Chair: Dr. Keener, is there anything else you'd like to add?
Dr. Keener: I think I did my wrap-up, but I can just add another sentence or two.
We thank the committee for having us here. We appreciate the opportunity.
Our concern would be that social transfer payments are viewed as investments. I personally would hope that they wouldn't always be viewed only as economic investments. In fact, I think that's probably a rather narrow view, but even from that perspective, as an investment I think it's a very, very wise one.
Rob Clift, who is the executive director of CUFA B.C., had a brief quote I think he'd like to read.
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Mr. Robert Clift (Executive Director, Confederation of University Faculty Associations of British Columbia): Just very briefly:
- We in the Liberal Party do not think that our young people should be handicapped because the
government is not prepared to do as much as other governments in the world are prepared to do
in terms of creating a technological base in research and development critical for it.
Mr. Clift: No. As a matter of fact, I'm speaking of you, Mr. Chair, because this was a comment made by you in 1989 on the importance of research to this economy.
The Chair: Would you be good enough to give that to me? I want to send that to my mother.
Mr. Dobbin: I also would like to thank the committee. There is some feeling in the community that these committee hearings are not very useful. I don't agree. I know that you report what you hear from the community. I trust that you will do that this time.
The last thing I wanted to refer to is a study by Ekos Research that showed that there is a declining commitment on the part of the top 20% of income earners in Canada to the notion of the social contract. That is to say, when you look at the polls of ordinary Canadians and polls done of the elite - big business, politicians, and others - there seems to be a lessening of the commitment to the notion of a social contract. In part, that is why proposals by organizations such as mine are given such short shrift: that the rich simply will not pay more taxes, that the corporations will not pay more taxes.
If we are to be a nation, then those with the ability to pay must consider that to be an obligation. Without that commitment to the social contract, we simply can't be a nation.
Thank you.
The Chair: If I can take one second to summarize in relation to -
A voice: A couple wanted to leave.
Mr. Finlayson: I also have to leave.
The Chair: Who else has to leave?
Dr. Gerson: I have to leave as well.
The Chair: I'm sorry. Please summarize.
Dr. Gerson: I find listening to the discourse on numbers and figures that's going on in this room right now to be very interesting. It's very easy to lose sight of the fact that numbers translate into people and that it's much easier to measure dollars than it is to measure the investment in human capital, which is really what a lot of us are talking about in terms of education. The future is not necessarily measurable in the same way as the economy is measurable. It's easy to forget that.
Above all, to reiterate my point about national unity, unless people actually have confidence, at the individual psychological level, in the future of this country, they're going to hang on to their dollars and not reinvest them in a country that is unstable and uncertain.
The Chair: Professor Gerson, I would like to thank you for again bringing home the whole question of our economic future and how it is related to the question of our national unity.
Mr. Dobbin, I'm sorry you've left, but I am sure that your appeal to Canadians to buy Government of Canada bonds when they're paying a lower coupon than other bonds has been heeded. I'm sure you set the example by buying some during the term of the last issue.
In terms of basic research, I still adhere to what I said in 1989. Our committee last year recommended no cuts to the three granting councils. I believe it is an investment. It is a critical one in terms of building for our future.
In terms of national goals and objectives for post-secondary education, an interesting issue, I would be interested to know what efforts have been made by the provinces to come together in order to assist in this, because this cannot be imposed from Ottawa. We understand that.
You've mentioned the cash component of the CHST. We recommended last year that there must be a cash component to the CHST to help us try to achieve some of these national goals.
Mr. Gardiner, I understand your point about the need for access to institutions of higher education. If tuition goes up, we've failed to talk about the concomitant responsibility at least to provide funding through student loans, probably geared to income in terms of the repayment in later years.
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Also, I guess I find it difficult to accept your view that we will all benefit if we have inflation. Inflation is more money chasing the same goods and services, and I am not sure that will create the type of investment climate that will bring the jobs, that will keep the interest rates down, and that will give us a chance to build a future. Maybe business would ignore this type of higher interest rate that would result and would feel inflation is beneficial and they would invest, but I don't believe that would be the case.
Higher education, post-secondary education, is a critical aspect of our future. We know it is an investment, and you've made a very eloquent presentation to us today. Thank you very much.
Mr. Grubel, you had one thing you wanted to add before we go on.
Mr. Grubel: The people who might have wanted to hear what we had heard from other witnesses have all left. Thank you very much.
The Chair: We managed to clear the room pretty quickly, didn't we?
Mr. St. Denis.
Mr. St. Denis (Algoma): Thank you, Mr. Chairman. I want to ask the Coalition to Renew Canada's Infrastructure a question, but before I do that I wanted to make just a brief comment on what I thought was a very stimulating discussion on the level of debt.
The Vancouver Board of Trade's idea that we should be more concerned, at least in the short or medium term, with our position vis-à-vis the other industrialized nations is an excellent point. I probably agree with my colleague Pierre Brien that as in a business...there are very few businesses that have no debt. Debt is a way to fund expansion and so on and so forth. So when we talk about running our country like a business, we should look at the fact that 99.9% of businesses carry debt as part of the structure of their enterprise. We can agree that the debt is too high, but we don't have to agree that zero is the right figure either. Possibly over time we'll find what the right balance is between where we are now and zero.
But if I could come back to the Coalition to Renew Canada's Infrastructure, having a major chunk of the Trans-Canada Highway running through my northern Ontario riding of Algoma - and I see one of your coalition members is a major employer in my riding, Manitoulin Transport - for those two reasons, and other reasons, I'm very interested in this subject. We found there has been tremendous support, especially now that we're almost through the federal-provincial-municipal infrastructure program, for this two-year program. I hope in the future we can revisit that.
But specifically on the national highway system, your organization and the Canadian Automobile Association, CAA, also raised this issue. I think the point made by the association and yourselves has been that the taxes on gasoline don't all go into road maintenance. I think we can argue it doesn't all have to go into road maintenance. There are good reasons for that.
I'm wondering what the coalition would think if the government were to agree that earmarking some funds for a national highway system were a good idea; whether the coalition would agree - I'm assuming a figure for the moment - that a couple of pennies on a litre of gas earmarked for the national highway system would be acceptable to your coalition members, because your coalition members buy a lot of fuel, and whether you think Canadians in general would support an extra penny or two on a litre of gas, earmarked for going into a fund for the national highway system.
Mr. Jim Facette (President/Secretary, Coalition to Renew Canada's Infrastructure): Thank you, Mr. St. Denis. The short answer is that if there's any way the federal government could earmark or dedicate more taxes to an investment in Canada's highway system, absolutely we would support it, and we support it in our submission.
The second part of your question began by saying that last year in our submission to this committee we appeared before it and at the time we called on this committee to recommend to the Minister of Finance that a 1¢ increase in the gas excise tax be added and earmarked towards Canada's national highway system. It later got back to us, through our various activities, that the Department of Finance (a) didn't think the Canadian population would accept an increase in gas taxes; and (B) that earmarking funds in any way was not an option to be considered. In fact, in a recent communication that we received from the Minister of Finance in the month of November, he suggested that was still the case - that earmarking funds and dedicating taxes for highways probably would not be an acceptable option. We take exception to that. We think the user is paying into the system, and we need to earmark more money toward it.
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On the second part of your question on whether or not the public would accept another increase in gas taxes, it's a difficult thing to say. In February of this year, I think there was probably a little bit of a public outcry at first, but there was not a great deal compared to what we've heard in the past. The public has in fact accepted that. We have a great deal of difficulty, however, with the Minister of Finance's decision to not dedicate any of that money back to the system. We know users are only getting back a 4% return on their investment; if you look at provinces like British Columbia, they only get back a 1.7% return on investment in this province.
So the short answer is that we would definitely support earmarking more funds for Canada's highways, and whether we could do it through an initial increase would be something for discussion and study.
The Chair: Mr. Daykin wanted to comment on that.
Mr. Daykin: Actually, it wasn't on that. I'll hold on.
The Chair: Oh, well, why don't we stick with Mr. St. Denis for a while, then? I'll give each of you an opportunity to check in on any other points you want to speak on.
Mr. St. Denis.
Mr. St. Denis: We haven't had a chance to read all of your brief, but did you say that you would accept a penny, a cent on a litre?
Mr. Facette: Last year we came before the committee and suggested that we would accept a 1¢ increase that would dedicate the funds straight to -
Mr. St. Denis: Yes, I see that here.
Mr. Facette: If it was found that the Canadian public would accept it, then yes, we would support an increase in the gas tax.
Mr. St. Denis: And presumably that position hasn't changed this year.
Mr. Facette: No.
Mr. St. Denis: The auto league suggested that it would be something like 2¢ on a litre, I think. I'm not sure if they meant just at the federal level, or whether it would require provincial.... The provinces would probably feel this would be the only way they could fund it, as well. So I'm wondering if we're going to get an accumulation of up to maybe 4¢ on a litre if we do this. Is there a danger of that?
Mr. Facette: I guess there's a danger in increasing taxes at any time in this economy, but I think whether it's 1¢ or 2¢ is a subject for debate at a later point in time.
In 1994, the federal Minister of Transport challenged the provinces to come up with funds and said he would get back to them on what the level of commitment would be. In 1994, you might recall that the provinces, excluding the province of Quebec unfortunately, came up with $2.6 billion over a five-year period, and a lot of that was from within existing budgets. Now whether that level is still true today is subject to debate, but I think the provinces themselves would have to evaluate how they would be able to match funds - whether it would be through gas taxes or by other avenues.
Mr. St. Denis: Thank you.
The Chair: Thank you, Mr. St. Denis.
Mr. St. Denis: Do I have time for another question, Mr. Chairman?
The Chair: Sure.
Mr. St. Denis: Some of the participants who have departed talked about national standards. The view of the education sector was that we have to have such standards in post-secondary education, whatever they might be.
In a more general sense, I ask the non-academic community that remains at the table: do you have a sense of what the people you deal with - not the provincial politicians, necessarily, but the constituencies that you work with - feel about the federal presence when it comes to national standards, be they in health, post-secondary education, social services, or what we're talking about here, highways, since there is some element of a proposal to have a federal presence there? What is your sense of the average citizen's view of the federal government being involved, maybe not in the day-by-day administration of a particular program but in ensuring that there is some consistency from sea to sea in the delivery of a program? Or do you believe the provinces should do it all?
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I guess it goes back to the question of devolution of responsibility from the federal to the provincial level.
Mr. Hansen: It's a very important question, and it's something our members think a lot about: what is the right role for the Government of Canada in a time of diminishing fiscal involvement.
We think there are a couple of things. One is that yes, there should be a base of common services, common standards of education and health care, throughout the country.
We think there's an important role for the Government of Canada to play in two aspects on that. One is to be the keeper of the statistics measuring what the standards being applied are and to make that available to the various provinces and work with the provinces and take a leadership role together with the provinces in determining what those standards ought to be. So even though in the future the Government of Canada may not be putting a lot of money into some of these areas, the fact is there's still an important role in setting the policy, keeping the data, and showing leadership with the provinces.
The Chair: Mr. Fewchuk.
Mr. Fewchuk (Selkirk - Red River): There was something here earlier this morning about a shorter work week. Nobody mentioned the number of hours or if they were willing to take less pay. Could you just follow into that and give us a little more information on your thinking?
The Chair: I think that witness is gone. But I would welcome comments from Mr. Finlayson, perhaps.
How would your members feel about a shorter work week? Would they be prepared to pay the same amount of weekly salary, or would it have to be reduced? Are you prepared to limit overtime?
Mr. Finlayson: For most of our members overtime is already governed by provincial employment standards legislation. So a regulatory structure is in place.
Most of the people I know would like to work fewer hours, but relatively few of them would like to take less pay. So I think there is a problem in government stepping in and dictating that there will be a shorter work week across the country. In the case of the federal government it would only apply to the industries that are in federal jurisdiction, which account for only 10% of the labour force here in B.C.
There is some move in B.C. toward shortened hours through collective agreements. But on the whole there hasn't been a very significant increase in the number of hours worked as a result of the recession. There was a bit of a blip as a lot of companies used more overtime as opposed to hiring more people. As we continue to have the recovery unfold, I think that will drop off.
So the short answer is there is no enthusiasm in our membership for government taking further action to regulate the employer-employee relationship in hours of work.
The Chair: Thanks, Mr. Finlayson.
It's now coming to the time to sum up. I know people have a few things they would like to add. Mr. Rempel, would you like to start?
Mr. Rempel: If we're going to reduce the debt, only the people who have savings, who have money, can help pay down the debt. Those who don't have it just won't do it. If we can take a little more away from them.... It's true, governments through history have been able to extract more and more from poor people. They've built pyramids that way and what not. But in the modern economy it seems to me only those - whether it's pension funds, as Mr. Walker mentioned - who have some now are in a position to work on that.
The Chair: Thanks, Mr. Rempel.
Mr. Daykin.
Mr. Daykin: Just two things. In the next budget every element in society should be prepared to take a hit. I get almost universal agreement - often reluctant - to that proposition. That includes seniors - and I say that as a senior.
I'll say one thing further on that. On $30,000 a year for a retired couple, you can afford a quite expensive overseas holiday every two or three years. So don't get nervous and agonize long over where you should lower the clawback to, as long as it's not much below $30,000.
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I'll give you one other figure that you'll find juicy. It is that the social democratic government of British Columbia now says, in it's wisdom, that with $19,000 a couple are no longer poor. At that point, there is no reduction in your medical insurance premium, which, by the way, is $800 a year for a couple. With $19,000 a year you're no longer poor.
The Chair: Gee, they're really stingy, aren't they?
Mr. Daykin: This has been so for a long time.
Mr. Facette: On behalf of the Coalition to Renew Canada's Infrastructure, I would like to thank you for this opportunity this morning to appear before you.
We've made three recommendations for this committee to consider for inclusion in its final report to the minister. Firstly, we call on the committee to recognize the importance in the economy of Canada's highways. Secondly, dedicating 4% of the revenues collected in excise taxes is an insufficient level. Thirdly, this committee should recommend that this government give every consideration to the development of a national highway policy for Canada, one that would provide long-range plans for investment in our national highway system.
The Chair: Mr. Finlayson.
Mr. Finlayson: Thank you, again, to the committee for an invitation to appear, and thank you for the members travelling all the way out to Vancouver from Ottawa to hear our views.
We have two final thoughts. One - and I'm sorry that Mr. Dobbin has left, because this is really partly for his benefit - is that there has been a notion afoot here today that higher-income Canadians, however you want to define that, are somehow systematically avoiding paying any meaningful share of their incomes in tax. As somebody who has done work in this area and gone through the Revenue Canada statistics, I can assure you that that is not the case.
We could debate whether they should pay more, but they're paying quite a bit now.
One statistic sums it up. In 1992 the top 10% of income earners who filed tax returns paid 50% of all the income tax collected by all levels of government, federal and provincial. Some might feel that should go higher, but I suggest that it's already a fairly healthy share of their income.
On the report you need to write to government at the conclusion of your deliberations, I would encourage you to go back and start by reviewing what I think is a quite solid piece of work you did last year. In reading that last night, it struck me that the analysis is still valid. The window of opportunity to act by speeding up the process of fiscal consolidation is still there. We need to see further steps along that road. Some of the specific areas for expenditure action - privatization and commercialization - that you identified in your report last year I would argue are also valid.
So don't throw out the work you did last year as you endeavour to put a new report together at the conclusion of this process.
The Chair: Mr. Hansen, or Ms Wilkinson, or both.
Mr. Hansen: Mr. Chairman, thank you for the opportunity to be here. We will be submitting a formal written report to you, I expect within the next two weeks.
We heard a number of comments around the table this morning about inflation and the ability to grow the economy through inflation. We are wholly in disagreement with that notion.
The Chair: I'm so surprised.
Mr. Hansen: We represent a lot of small and medium-sized companies. The enemy of their growth is uncertainty in the economy. We think that a low inflation rate is one of the areas that needs to be a solid base for certainty, for economic investment and growth.
In our submission we will focus on setting realizable targets for deficit reduction, and then, for the longer term, for debt reduction. We think that reduction of the debt is the key to maintaining the social programs in the future.
Finally, we will be making recommendations for not increasing taxes, keeping in mind that we live in a global economy.
Finally, a caution on RRSPs. There has been some thinking in past years about taxing some RRSPs. We believe that RRSPs are one of the few areas remaining to Canadians to look after themselves in their twilight years.
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The Chair: Thanks, Mr. Hansen.
Mr. Richardson.
Mr. Richardson: Thank you, Mr. Chairman. On behalf of the Fraser Institute, I want to thank you and the members for this opportunity to present material to you in a plan for a two-year balanced budget.
Before that, I just want to make one comment. Of the four papers that were published last year, one was on the fiscal situation. It was an excellent analysis, one of the best I've seen on the relationship between debt, taxes and unemployment. I think that needs to be brought out in your report again this year. To answer some of these things we need to see this relationship between debt, high and rising taxes, and high and rising unemployment.
We are recommending a two-year balance because something fundamental happened on October 30 of this year with the referendum in Quebec. Things changed. We need to give Canadians a sense of confidence that the fiscal situation is coming under control, that the deficit can be balanced sooner than the government is proposing at the present time and that there is a long-term vision and hope that the debt will be eliminated.
In our Fraser Institute study, we recommend that you look at the specific tax proposals, because there are tax increase proposals in there as well as the additional department-by-department spending cuts. We recommend that you consider that and in your collective wisdom incorporate that into your report.
Thank you.
The Chair: Thanks so much, Mr. Richardson.
We had a vigorous debate in certain areas today and I'm sorry that half of that side has gone.
I haven't heard anybody say that we don't have to worry about the debt and deficit. Some of you who are still here gave us very specific targets. What I particularly appreciate, Mr. Richardson, Mr. Finlayson and Mr. Hansen, is that you've given us specific areas we can go after. You're not like many witnesses who have come before us and have said, ``We have to get the deficit and debt in hand but we're not going to tell you how to do it. That's your decision.''
Yes, it will be our ultimate decision, but we need your help in terms of the specifics, because without consulting with you and mobilizing support from every sector, we're not going to have the opportunity to do it in a constructive way.
Jock, you even gave us specifics about how we cut into pensions and UI, two of our biggest expenditures.
Mr. Daykin said that we shouldn't be afraid to cut into pensions, but let's cut into everything. That would be one fair way to do it.
Mr. Facette has come up with a way to do an infrastructure program of limited scope that will certainly have benefits in terms of our transportation infrastructure.
Mr. Rempel, I'm glad you were here to speak on behalf of the poor, because I don't think any of us at this table from any party believe we should go about achieving our goals on the backs of the poor.
I want to mention something else that arose today. Professor Gerson talked about a tax dealing on the intergenerational transfer of wealth as one possibility for creating intergenerational equity and getting some of that money.
Last, Mr. Daykin, this committee is unanimous in supporting your call to transfer control of the salmon fishery from Ottawa to Victoria providing you take over control, operation and subsidization of the cod and turbot fishery on the east coast.
Some hon. members: Oh, oh!
The Chair: I thank you all very much for your detailed and thoughtful presentations to us. It is always a treat to come to Vancouver.
We are adjourned.