[Recorded by Electronic Apparatus]
Tuesday, December 5, 1995
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[English]
The Chair: Order, please.
The finance committee is continuing its pre-budget discussions. We have a very distinguished group of presenters with us this evening in Ottawa. I would like to introduce them to you: from the Conseil canadien de la co-opération, Sylvie St. Pierre Babin; from the Canadian Apparel Federation, Stephen Beatty; from the Canadian Construction Association, Michael Atkinson and John Spratt; from the Canadian Council for International Co-operation, Betty Plewes; from the Canadian Council on Smoking and Health, Ed Arundell; from the Canadian Defence Preparedness Association, Ed Healy and Paul Manson; from the Canadian Institute of Public Real Estate Companies, Ron Daniel; from Democracy Watch, Duff Conacher.
Have I missed anybody?
Mr. Brian Anthony (Executive Director, The Heritage Canada Foundation): Yes.
The Chair: I apologize. And you are from...?
Mr. Anthony: Heritage Canada.
The Chair: Excuse me. And Réjean Laflamme from...?
Mr. Réjean Laflamme (Director, Cooperative, Economic and Community Development, Conseil canadien de la coopération): Conseil canadien de la co-opération.
The Chair: Excusez-moi, Réjean.
Is that it?
Mr. Ed Healy (President, Canadian Defence Preparedness Association): I'm Ed Healy, president of the Canadian Defence Preparedness Association and my colleagues are Norman Smyth and Paul Manson.
The Chair: Mr. Manson and Mr. Smyth, welcome.
Melodie Tilson.
Ms Melodie Tilson (Spokesperson, Heart and Stroke Foundation of Canada): I'm from the Heart and Stroke Foundation of Canada.
The Chair: Welcome.
Thank you.
Each presenter will make a three-minute general opening comment about their view of where our budget is going. You'll have lots of time afterwards during the questions or otherwise to expand to any extent that you want and you'll all have an opportunity to summarize at the end.
Mr. Conacher, perhaps we might start with you.
Mr. Duff Conacher (Coordinator, Democracy Watch): Certainly. Thank you for the invitation to appear.
Democracy Watch is concerned about a few particular areas in the budget. The first area I'd like to talk about is the ability of citizens to participate in a budget-making exercise and in holding government and corporations accountable. We see the budget as an appropriate time to use a mechanism I've presented before to this committee in another context, and that is the mechanism of enclosing in tax return envelopes flyers that invite people to join watchdog groups. The mechanism also requires that flyers be enclosed in the envelopes of banks and utilities such as phone companies and cable companies.
Specifically in a budgetary context, the tax return can be used as a means of organizing citizens by putting a check-off on the tax return inviting people to add $10 or $15 to their tax payable and diverting that to a national citizens' group that could monitor government spending in the long run and be a citizens' auditor.
Several people have called to audit the Auditor General's office. This would be an appropriate mechanism for doing so.
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In the area of financial institutions, we feel that the lending disclosure requirements, which are currently on the basis of a voluntary agreement between the government and the banks, should be part of a budgetary measure. It should be required for banks to disclose many more details on their lending since it has such a great impact on the Canadian economy.
As well, there should be a reinvestment requirement as part of the budget specifically to direct bank lending into community economic development initiatives. This could be either as a general fund or something like the Federal Business Development Bank. It would be to lend into areas that are very important for job creation that currently the banks are not serving.
This is job start-up and lending to the very small business sector, which the banks, for various reasons, have not been serving very well. It's a very important job creation sector. In fact, it's been the only net job creating sector in the economy over the past ten years.
We also see that the whole issue of social welfare, as compared to corporate welfare, needs to be examined more closely. What should be possible on budget night is that, as the media is very easily able to say, it could say this is what is spent on social welfare and this is what is being cut or added or changed this year. It should also be able to do that with corporate welfare.
There was a task force last year examining this issue and the tax implication barriers to sustainable development. Your colleagues on the environment committee have been taking a look at this issue over the past couple of weeks.
The whole issue of business subsidies and corporate welfare generally should be put to two tests. One, are they creating jobs? Two, are they creating activities that are environmentally sustainable?
There has been a lot of detailed work on this, but unfortunately, one of the things that is missing is a study of corporate welfare and the total that the government now gives to corporations in various forms of subsidies and tax credits. Until we have that as part of the budget structure, it's going to be very difficult to examine this issue.
Finally, one particular area we are interested in is lobbying and lobbying expenses. This goes again to citizen access. There is currently a tax deduction for lobbying expenses for corporations, which is estimated to cost the federal government $50 million a year.
That should be eliminated, because the government has been cutting citizen group funding quite extensively in the last few budgets but has maintained this corporate tax deduction. That means that the citizen voice in policy-making is being lost, but the corporate voice remains strong. This tax deduction is part of it. That, combined with using the tax return to organize citizens, would give citizens a greater voice in this whole process.
The Chair: Thank you very much, Mr. Conacher.
Mr. Arundell, and Ms Tilson.
Mr. Ed Arundell (Vice-President, Public Affairs, Canadian Council on Smoking and Health): Mr. Chairman, I probably have more than a three-minute presentation here, so I'll move along very quickly.
The Chair: I would suggest you just tell us your main points.
Mr. Arundell: That's what I'll do.
The Chair: We know who your organization is. We're familiar with the good work you do. Let us know where you want to see us go for the budget. We'll have time to expand on that later on if we don't get it all in.
Mr. Arundell: I think that's fair. I will say in opening that, concerning last year, you closed by agreeing with us on the importance of tobacco as a health concern. You asked us to come back with some specific suggestions. We think we've done that for you.
We want to make five recommendations this year. First, we think the Department of Finance should increase tobacco taxes and excise taxes in general. More specifically, we'd like to see an end to tax subsidies for fine-cut and other tobacco products. We'd like to see an equalization of federal taxes in all provinces and territories. We'd like to see the continuation of the surtax on tobacco industry products. We'd like to see the export tax maintained and, in some aspects, reviewed for its efficacy.
Increasing tobacco taxes is a fairly straightforward point. In terms of revenue alone, the government, instead of recouping the revenue lost due to smuggling, from our estimations, from 1991 to 1993, has doubled the losses from the tax roll-backs. When losses to provincial tobacco tax revenue are considered, the total revenue lost by governments has been in the billions of dollars. These are dollars not available to fight the deficit problem, I would add in passing.
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Not only did the reduction in tobacco taxes cause significant and unnecessary revenue losses, but it led to a feared increase in tobacco consumption. According to Statistics Canada, from a national population health survey that was released on September 22, 1995, for the first time in almost a quarter of a century Canada's prevalence of smoking has increased...an increase that will result in further health problems and tobacco use-related economic costs we can discuss in the question period.
We'd like to see an end to the tobacco subsidies for fine-cut and other tobacco products. Fine-cut or roll-your-own tobacco is taxed at a lower level than that applied to manufactured cigarettes. It's more dangerous than manufactured cigarettes, since it contains higher levels of toxic constituents and is often used without filters. The favourable tax treatment accorded this form of tobacco results in unnecessary revenue loss while encouraging the use of a more dangerous form of tobacco. We submit that it can be equalized, and we have recommendations on how to proceed in that direction.
We suggest you equalize federal taxes in all provinces and territories. You're probably aware of the offer of the federal government to allow the provinces in the roll-back to match or increase the federal reduction. It's resulted in a significant differential in federal excise tax between eastern and western Canada. We think that should be equalized for equity and for making progress on tobacco tax increases overall.
We think you should continue the surtax on tobacco industry products. This was used to help fund the tobacco demand reduction strategy as well as helping general revenue deficit reduction. We think it has brought a number of new groups into the field of tobacco concern, or anti-tobacco concern, but it's too early to get the results out of that.
Last, I'd like to suggest, as I skip through here, that the export tax, which taxes any excess exports at the rate of $8 per 200 cigarettes and $5.33 per 200 grams of fine-cut tobacco, be maintained and that it be reviewed from the fact that some firms are allowed to negate the tax by paying tax in the receiving country. We think that's unfair. It should also contain an equalization between fine-cut and manufactured cigarettes, because that inequality exists in the export tax. We think it should be reviewed for its sense of efficacy.
The Chair: You got it all in. Thank you very much, Mr. Arundell.
Mr. Arundell: I left the thank-you paragraph off, Mr. Chairman.
The Chair: I'll tell you what. We'll get that later.
From the Canadian Construction Association, Michael Atkinson and John Spratt.
Mr. John Spratt (Chairman, Canadian Construction Association): Thank you,Mr. Chairman. I'm the current volunteer chairman of the Canadian Construction Association, a non-profit organization representing 20,000 firms.
This year I've travelled extensively across Canada, visiting many of our members. We've over 20,000 in the country. I've heard at first hand many of the concerns they have with current economic situations.
The simple message from CCA's members across the country is that we must balance our budget as quickly as possible. As Canadians, we must begin to live within our means if we are going to survive as a country that enjoys the standard of living and social protections - and they're both important - we've come to believe define us as Canadians.
Currently something like 35¢ out of every federal revenue dollar goes simply to pay the interest charges on the federal debt. This garnishee on our future crowds out public spending on our valued social programs, such as health care and old age security, and prevents much needed investment in our country's public infrastructure. Even reducing the deficit to 3% of GDP will not arrest this erosion. In fact, it will get worse, since the overall debt will continue to increase.
To put the debt and interest costs into a construction perspective, the $50 billion annual interest cost represents over half the total value of construction work in Canada in 1994. It took 425,000 construction workers all of 1994 to create construction value of this magnitude.
Mr. Chairman, we are not like other groups who appear before you, telling you to cut spending as long as it's not in their backyard. You'll note that in our submission, which was a full brief, we call for a number of expenditure cuts that will obviously negatively impact on our own members and our association. These include our call for the complete elimination of direct subsidies to business, and political action interest groups as well; our proposed changes to the UI system, several of which have been adopted in the recently announced reform package; further cuts to program spending, which may entail capital spending cuts and cuts to foreign aid and assistance, which often comes in the form of capital improvements.
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The construction industry is ready to assume its fair share of the cuts in order to ensure Canada's future well-being.
CCA members were encouraged by the first steps taken toward deficit reduction in last year's budget. However, much, much more needs to be done. We believe this year's budget must go the distance. The time has come to eliminate the federal deficit. We believe we're running out of time.
At the same time, we applaud the government's investments in our country's future, such as the national infrastructure program. In addition to putting close to 100,000 Canadian construction people back to productive employment, this program has enhanced Canada's public infrastructure, which is very important to our country's future competitiveness and the quality of life for all Canadians. Such programs are an investment in jobs and in Canada's future.
Thank you.
The Chair: Thank you very much.
Mr. Beatty, from the Canadian Apparel Federation.
Mr. Stephen Beatty (Executive Director, Canadian Apparel Association): Thank you on behalf of the members of our association for the opportunity to take part in this round table.
We have prepared a full brief, which we've provided to the committee, but I thought it might be useful to explain to the members of the committee that our association is the national industry body for Canada's apparel manufacturers. We directly represent some 500 member companies out of an industry population of about 2,000 companies from coast to coast.
In addition, I'm beginning to become familiar with providing contrary advice from business associations. Specifically, while many companies in our industry are experiencing a period of record increases in sales and employment, we've found that this has come largely as a result of increased exports or efforts to take back market share from imports. There has been no growth in the Canadian consumer market for apparel in several years. To the contrary, third quarter performance of retail showed a 17.7% decline over the previous year.
As a result, this colours some of the advice that we have to give you about meeting deficit reduction targets.
Frankly, we're concerned that at this stage drastic cuts or tax increases are likely to result in a new round of recession in the consumer marketplace. We firmly believe in the need for a balanced budget, but we're concerned that the government would stray from its previously announced course of deficit reduction targets. We obviously recognize that there has been some change in the financial position of the federal government, and we trust that the Minister of Finance will speak to that issue when he addresses the committee tomorrow.
With respect to using budget measures to create an environment for jobs and growth, our submission outlines a proposal to streamline the removal of tariffs on inputs to manufacturing. Specifically, we propose a duty remission order, providing primary producers with duty-free access to imports, which they could, in turn, use to supplement their product offerings to downstream manufacturers. We think this would yield substantial savings to the downstream industries and to consumers, would strengthen the commercial relations between Canadian industries, and would anchor and attract investment to Canada. Not only would this proposal eliminate the often fractious debates about tariff policy between primary and secondary manufacturers, but it would also substantially lower the regulatory costs associated with this form of tariff relief.
On the subject of commercialization cuts through privatization, we recommend that the focus of government attention be focused on commercialization and partnership with the private sector. We believe that this strategy will yield greater long-term benefits than the wholesale privatization of government activities, and we've identified certain federal activities in our area of concern.
Also, we believe that there are many times when the current policy of downsizing has resulted in the wrong programs being cut and the slow strangulation of essential government services, affecting product standards, consumer health and safety, and the monitoring and enforcement of federal laws and regulations. Again, some examples are set out in our submission.
Our views on downsizing and cuts can best be summarized as follows. One, make sure that you're cutting the right program. Two, if certain cuts curtail very much a department's ability to function in a given role, then consideration ought to be given to reducing the policy responsibility of the department and vacating the field entirely. Three, if the regulatory responsibilities of the federal government are to be respected, then they need to be enforced and the necessary resources need to be dedicated to that task. Finally, downsizing works only if departments don't use it as an excuse to free resources to pursue entirely new programs and activities.
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Again, thank you, Mr. Chairman. I hope I stayed within the three minutes.
The Chair: Thank you very much, Mr. Beatty.
[Translation]
Ms Sylvie St-Pierre Babin, please.
Ms Sylvie St-Pierre Babin (Executive Director, Conseil canadien de la coopération): Thank you, Mr. Chairman. We are very pleased to be able to meet the members of the committee this evening and to present yet again our views concerning all the consultations with groups prior to the reflection which will lead to the next budget.
As you know, our organization represents the 3750 francophone co-operatives throughout the country. This evening, we will dwell particularly on the element that concerns you the most, creating a healthy financial and monetary situation.
Deficit reduction must remain the federal government's priority. Of course, we also share the government's goal of bringing the deficit down to 3% of GDP by the budget year 1996-1997. More rapid deficit reduction would make the overall economic situation worse than it is right now.
The thing that is more worrying about the crisis we are going through presently is that it is difficult for industrialized countries such as ours to face up to a very significant foreign debt. To ensure the credibility of the recovery we are planning and to preserve our credit ratings, the objectives must necessarily be met.
The onus is on the government. If it doesn't manage to meet its objectives during the present cycle of economic expansion, it's credibility will unfortunately be damaged. To do this, the government must, by our lights, look for new sources of revenue or reduce expenditures. And we think that it is possible to reduce expenditures.
Concerning the measures to be taken to reduce the deficit, we find it timely and desirable that the Canadian government look to private sector experiences and that its activities be focussed on client satisfaction and on the commitment of a responsible and accountable public service and on incentive-based and competitive management.
We expect that the government to make cuts to its own machine before cutting transfers to the more disadvantaged, which is something we had already submitted to you previously. We also believe that co-operative models in areas such as health, child care and housing are a very cost effective alternative solution which the federal government and provincial governments should incorporate into their strategy to control program costs.
In order to create a climate favourable to small and medium-sized businesses, we support measures that would create a climate favourable to the starting up of new, co-operative or stock capital small and medium-sized businesses. Reducing the regulatory framework and administrative irritants which create costs within businesses and are harmful to the business climate should be one of the government's priorities.
The second priority must be eliminating subsidies to mega-projects, replacing them by greater access to loans or repayable contributions for small and medium-sized businesses, which have the double advantage of being less costly and creating more jobs.
Concerning the possibility of creating new jobs, we believe in the creation of workers' co-operatives. This formula is already tried and true in our country. Obviously, co-ops allow people to create their own jobs. They therefore own their own business, negotiate contracts, manufacture or process products and acquire consumer goods which they resell to the public.
Another new formula that might be of interest concerning job creation is that of worker-shareholder co-operatives which allow workers to acquire a percentage of shares in a business with other partners in the movement, or with private investors.
As to potential partnerships, despite the ongoing changes in the world-wide economy, we believe that the government will continue to play a very important role in Canada. However, this role will change considerably over the coming years. Instead of the state undertaking things directly, partnerships will be built up between share capital or co-operative community businesses and the different levels of government. The federal government will have to provide leadership vis-à-vis the other governments of Canada so as to encourage them to set examples of partnership between the private and public sectors.
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We also think there is a very important role to be played concerning the information highway. The highway could break through the isolation that is now felt by our francophone communities, it could increase communication and allow our entrepreneurs to organize networks and develop interesting partnerships. In other words, francophones must be able to use the information highway and make sure that this tool adequately meets their present and future needs.
As to export financing, we think that there must be a considerable increase in small and medium-sized business ability to export, by making export financing more accessible and providing training and information on the market.
The cooperatives are ready to play a greater role in the future development of Canadian exports. All they need are the tools. Over the last year, we employed 67 000 people throughout the country.
These few points are the essence of the message we wanted to bring to these consultations. The CCC also believes that we must move quickly to clean up for the finances in Canada. This is necessary for the government to remain credible with foreign investors who finance an ever growing part of our debt.
We believe...
The Chairman: You only have five minutes left.
Mrs St-Pierre-Babin: Fine. We can finish up a little later, at question period. We'll also file a brief.
The Chairman: Thank you very much.
Mrs St-Pierre Babin: Thank you.
[English]
The Chair: Appearing next from the Canadian Council for International Co-operation is Betty Plewes.
Ms Betty Plewes (President and Chief Executive Officer, Canadian Council for International Co-operation): Thank you. My organization represents over 100 relief and development organizations, such as CUSO, World Vision, CARE Canada, and the churches and union solidarity funds working in international development.
On Sunday I came back from a meeting of international non-governmental organizations in the Philippines and was again reminded of the really amazing international reputation Canada has established. This reputation is a function of our aid program and the progressive social policies Canada has taken in the UN, the OECD and here at home. However, this is a reputation that is under some threat at the present time.
You asked us in the notes to make comments on how Canada's macroeconomic policy could contribute to economic growth and job creation, and we at the council come at this from a slightly different perspective. We don't believe that the quest for economic growth should be the sole driver of Canada's fiscal policy. Many Canadians today in fact would question the prosperity that has developed over the last three decades and whether it has been worth the global, environmental and social costs.
Since 1962 income disparity between the richest and poorest has doubled. The richest fifth of the population now receives 83% of the world's income, and the poorest fifth receives 1.4%.
The council believes that economic growth should be tempered with other values, such as social justice, equity and safeguarding the environment. It's therefore with a certain reluctance that I make the case for ODA on the terms your questions dictate.
[Translation]
We realize that the economic stability and the social and economic development resulting from our aid program help the Canadian economy. By bringing up the standard of living in the developing countries, we create new economic alliances and we find new customers for our goods and services.
[English]
The government's own analysis shows us that Canada's international assistance program sustains 40,000 Canadian jobs, 3,000 Canadian firms, and involves 6,000 Canadian businesses and 100 universities and colleges yearly.
As for deficit reduction, we recommended last year a $4.3 billion reduction in the defence budget. We suggested that $300 million of that be reallocated to Foreign Affairs and International Trade, $2 billion to overseas development assistance and the remaining $2 billion applied to deficit reduction.
[Translation]
But our recommendation was not implemented, even if the government rejected in its foreign policy statement the security model from the Cold War years. And even if it has admitted that the present threats to world stability will not be settled at gun point, the result of recent cuts has been that the Defence budget, which was four times higher than the foreign aid budget, is now five times higher.
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[English]
Finally, a recently established group of voluntary sector organizations has submitted to this committee a proposal for changes to the Income Tax Act, changes that would encourage individuals and businesses to contribute to social programs from which the governments are withdrawing. We believe this is a responsible use of fiscal policy and we endorse these proposals.
Thank you.
The Chair: Thank you very much, Ms Plewes.
From the Heritage Canada Foundation we have Douglas Franklin and Brian Anthony.
[Translation]
Mr. Anthony: Thank you, Mr. Chairman.
[English]
The Heritage Canada Foundation would like to thank you for inviting us to be here tonight. I should mention that we were created 22 years ago by the then Minister of Indian Affairs and Northern Development, now the Prime Minister of Canada, to be in effect the national spokesbody or the national conscience for heritage matters.
While our focus has traditionally been on the built and scenic aspects of our heritage, our tangible heritage in other words, more recently we have come to incorporate the intangible, the values, beliefs and customs that are as much a part of our heritage and identity as our built and natural landmarks.
We have two sets of comments to make to you tonight, some specific and some general. For fear of running out of time, let me just start with the specific and then, if I do have enough time, move to the general.
You've asked how budget measures may be used to create an environment for jobs and growth. Let me say that, first of all, we believe there should be a measure to discourage demolition of buildings and to encourage building renovation.
Whether or not it's recognized as such, the Income Tax Act is a profoundly effective instrument that touches the quality of life in our communities. The Heritage Canada Foundation strongly believes that the federal government must remove the current regulation in the Income Tax Act that enables the owner of a building to deduct a portion of the depreciated value of that building from his income tax immediately following demolition. This is a needless tax break that erodes national revenue and diminishes the quality of our cities, encouraging lands to be left vacant or used as parking lots.
Secondly, budget measures could be used to encourage private sector stewardship of heritage property. The 1995-96 budget introduced the concept of tax measures to encourage protection of ecologically sensitive lands, and we applaud that. It's commendable, but we believe that similar measures are desperately needed to encourage the preservation of heritage buildings.
Indeed, in 1987 this very committee made the following recommendation to the then Minister of Finance:
- ...an assessment should be made by the Department of Finance to determine whether a
preferential rate of capital cost allowance should be available to taxpayers who renovate
buildings that are over 50 years old.
We would like to present to you this evening only one piece of evidence to support new policies to encourage the renovation of older buildings. A study produced by the Canada Mortgage and Housing Corporation in 1986 states:
- ...renovation is twice as labour intensive as new construction and yields 27.8 direct jobs per
million dollars expenditure on renovation, compared to new construction which is material
intensive and produces just 12.8 direct jobs per million dollars expenditure.
If I have the time, let me just make a couple of general comments.
We have been living in a period of increased restraint for some fifteen years now, largely brought on by the desire to get a grip on the deficit and reduce the national debt. We applaud that. That target, however, does remain elusive.
As a foundation we cannot run a deficit, by the letters patent that set us up, so we applaud any measure that would reduce our deficit and national debt. But let me say that this should not be done at any and all costs. The erosion that has occurred in the period of restraint has made itself felt in the heritage community. It would be ironic now, as the future of the country is very much in question and as your colleagues in the Standing Committee on Canadian Heritage are looking for means to strengthen Canadian identity, if our heritage, which we believe to be central to our identity - indeed, which we believe to be our identity - should not be there at a time when we need it.
The Chair: Thank you, Mr. Anthony.
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From the Canadian Defence Preparedness Association, Mr. Smyth, Mr. Healy and Mr. Manson.
I assume that you're here to agree with Betty Plewes, so there'll be no need for you to make a presentation.
Mr. Healy: We were just going to say that, Mr. Chairman.
My organization speaks for the defence industrial base in Canada. Canadian suppliers to the Department of National Defence number about 600 companies, employing some 50,000 Canadians, with total sales of about $10 billion, or about 1.3% of our GDP. In all, approximately 70% of Canada's defence needs are supplied domestically.
Our industry is well diversified, with about 70% of the output being commercial products and about 30% being defence products and services. Most of Canada's defence industry is converted and neither needs nor wants government intervention to further diversify into non-defence work.
In view of the time, Mr. Chairman, I'd like to move to paraphrase the conclusions and recommendations in the report we submitted to you.
First, the Canadian defence industrial base is an essential part of Canada's national security. It is also a significant employer, and it is an integral part of the high-tech sector. It exports some 30% of its output.
Second, we support the government's target for deficit reduction and recommend setting further targets to achieve a balanced budget by the end of the century. In fact, we go further and recommend a surplus of 3% of GDP by the year 2004.
Third, the projected defence budget of less than $10 billion is perilously low to maintain adequately equipped, moderately sized armed forces. Having consulted widely and produced a realistic defence policy, the government should implement that policy.
Fourth, further cost reductions are possible across government by elimination of duplication and overlap, further privatization, and a reduction in the size and number of government departments and agencies.
Fifth, the government can do more to encourage job creation in the private sector, particularly in small and medium-sized businesses. By transferring certain government functions to the private sector, viable industries will be created, which are better able to compete in world markets. The government should examine the feasibility of incentives for exports and jobs by rebating a portion of the new tax revenue that results from these increases.
Finally, CDPA strongly recommends that no further cuts be made to the defence budget and that the Department of National Defence be further encouraged to rationalize its operations and infrastructure in order to maintain an adequate capital budget.
Thank you, Mr. Chairman.
The Chair: Thank you, Mr. Healy.
You people were wonderful in sticking to your time limits. Thank you very much.
[Translation]
We'll now start the questioning. Mr. Brien, please.
Mr. Brien (Témiscamingue): Mr. Conacher, you state that banks should disclose more information, but you don't explain why. My question is therefore the following: For what reason do you want the banks to be more transparent, to give more information?
[English]
Mr. Conacher: There have been ongoing hearings of the industry committee over the past eighteen months concerning bank lending. The issue is, are banks lending to small businesses, which is the job creating sector in the economy, fairly as compared to medium-sized and big businesses? Currently, the statistics available do not tell you whether they are lending fairly, because they don't track how many people apply for a loan and how many are approved and rejected and the loan losses that the banks face in each category for each size and type of business.
If you have that information, then you can track whether, for example, if you're a small business person, first of all a small business loan is any more risky than a medium or big business loan; two, if you're a small business person, whether you are more likely to get turned down by a bank when you apply for a loan. If the statistics show the small business loans are no riskier, then there's no reason for the turndown or rejection rate to be any greater than it is for medium and big business.
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So it's very important for job creation to have these statistics, to be able to hold banks accountable on this issue of what they're doing with Canadians' money. Are they lending it in ways that support the Canadian economy, or are they lending it in ways that support their profits? You can speak with your colleague Mr. Discepola, who knows quite a bit about this, having been involved in the industry committee hearings on this over the past eighteen months.
[Translation]
Mr. Brien: I find that interesting, because very often, when governments act on behalf of small businesses, be it to lend or stimulate job creation, most of the time it is because banks are looking for additional guarantees. You notice, in the end, that government support programs for small businesses help financial institutions more than individuals who want to start up a business. We should look at the objectives and monitor them more closely. I think that that's a very interesting lead.
You mentioned keeping accounts on what you call corporate welfare. I don't know if the translation is precise, but no matter, could you tell me what you include in the definition of "corporate welfare"? You spoke of including tax expenditures, such as - for example - what is allowed for depreciation. The definition could be very broad. Where does it start and where does it end?
[English]
Mr. Conacher: That is the issue right now: where does it start and where does it end? We're raising it simply as an issue that needs more examination, because it seems that come budgetary time everybody is very capable of talking in very exact figures about how much we are giving to people on welfare and the employed and what the exact costs are and what's being cut and what's being added and what's being changed, yet when it comes to corporate welfare, all of a sudden we're not able to come up with the numbers; we can't define a subsidy. Well, if we can define social welfare, we should be able to define corporate welfare, and it should be examined as closely as social welfare is in terms of whether Canadians are getting a bang for their buck, so to speak. Is the money that's going into corporate welfare creating jobs, helping the economy, helping the health and welfare of Canadians, the environment, or is it doing the opposite: helping companies with overseas operations that aren't creating jobs here and destroying the environment and the health and welfare of Canadians?
Some of the tax credits that have been spoken of here, and the various subsidies, need to be examined. It's the range from tax credits to direct funding programs, to bail-outs, to being able to defer taxes. It's wide-ranging. We're just raising it as an issue that needs to be examined more directly.
[Translation]
Mr. Brien: My last question is for the representative of the Canadian Council of International Cooperation.
You associated international aid with potential economic spin-offs.
When you ask people which areas of expenditures they would cut, international aid is often a target. Could you explain to us why there would be a negative impact if we were to cut international aid rather than economic development of Canadian businesses?
[English]
Ms Plewes: First of all, it's not always true that Canadians suggest cutting aid right off the bat. They often suggest cutting defence right off the bat, although aid is not very far behind.
Canadian aid has a large number of benefits to Canada - I've already laid them out in my paper - in terms of jobs and benefits to Canadian companies and benefits to Canadian individuals. But beyond that, Canadian aid has created for Canada a truly remarkable international reputation, which has given us access to many relationships and power in various institutions like the Commonwealth, the Francophonie, and in the OECD that we would not have if we had a less effective aid program.
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It is also true, however, that in the longer run, if one invests in countries through aid, in water, in housing, in schooling, you prevent to some degree the disasters that we see in Somalia or in Rwanda, where we have to go in, in a much more expensive way, to try to counteract what has been in fact a socio-political and economic problem.
We do not support the idea that aid should be promotion for Canadian business. We think the purpose of the aid program is the alleviation of poverty in the third world. But it is also true that Canadian aid benefits not only the Canadian economy through the jobs, goods and services it creates but also through the positive economic relationships it creates with third world countries.
[Translation]
Mr. Brien: My final question is for Mr. Spratt. In Quebec, the Auditor General mentioned incredible losses of revenue because of moolighting, most notably in the construction industry.
It's a significant problem, because people, for all sorts of reasons, feel more and more justified in turning towards the underground economy, and the industry at the top of the list is construction.
What solutions can you see to settle this problem in the short and mid-term?
[English]
Mr. Spratt: It's a very serious problem. The underground economy certainly has grown, because I think a lot of people believe that the taxation system is basically too high. I think the GST added more fuel to the fire and now we have a major underground economy. Certainly the construction industry is part of it.
Revenue Canada is starting a program through the construction industry, as well as several other industries, to get a reporting requirement back to Revenue Canada of payments made all the way down the system. I believe that's one way to monitor it. I think probably more monitoring.... The tax revenue collection processes are there. It's a matter of catching the cheaters.
The construction industry is being hurt within itself by the cheaters in the industry who aren't paying their fair taxes, and we're not playing on a level playing field. Some sections of our industry are hurt very much more than others. We would like to see everybody pay their fair share of taxes.
I think enforcement is currently a problem, but the basic problem stems from the fact that the average person who's cheating believes the taxation levels are far too high. They don't see the value for the taxes so they're scouting around them. Construction is only part of that process.
[Translation]
Mr. Brien: I'd just like to add that in the short-term, given our level of debt and our deficit, it's unrealistic to think that the level of taxation will be reduced.
So the solution to the problem of the underground economy is by reinforcing enforcement measures at Revenue Canada. According to you, that is the approach to focus on.
[English]
Mr. Spratt: That's one approach. I think there are a couple of others, but inspection and the new Revenue Canada reporting requirements that are going to start shortly in many industries I think are going to be helpful.
The Chair: Thank you, Mr. Spratt.
[Translation]
Thank you very much, Mr. Brien.
[English]
Mr. Grubel.
Mr. Grubel (Capilano - Howe Sound): Thank you, Mr. Chairman. I have a couple of questions for Ms Plewes.
My constituents suggest to me that the argument about job creation in Canada is a bit of a red herring, because you're taking the money away from Canadians to give to the foreign countries, and if we didn't give it to the foreign countries to buy here, it would have stayed in the hands of Canadians. They would have spent it themselves and they would have created the same number of jobs, if not more. I don't think that's a very good argument for foreign aid.
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Of the bottom quintile of the population that has 1.7% of the income in the world, can you give me a couple of countries that fall into this category?
Ms Plewes: Niger, Mali, Mozambique, Angola, Somalia.
Mr. Grubel: What my constituents ask whenever I try to defend aid with them is, how come these countries are in this trouble? Why are they so poor?
What should I tell them?
Ms Plewes: What do you tell them?
Mr. Grubel: You are making a case for giving more money to these people and they want to know how they got into this trouble. They like to help people, but they want to be sure that it doesn't just.... How did they get into this trouble?
Ms Plewes: Actually, this is what public polling does show. The most recent CIDA polls show that Canadians do support foreign aid, especially when they feel it goes to support people helping themselves.
How did African countries get into this situation? They got into it through 500 years of slavery, where millions of individuals were taken from Africa and shipped to other parts of the world. They got into this situation through a period of colonialism, which destroyed in many cases the states and the economic enterprises that developed. Now they are subject to an international economic system that discriminates against their products, which doesn't treat them in a fair way, which has indebted them through the 1970s and 1980s to a point now where some of them are spending 60%, 70%, 80% of their budget paying back their debt from the 1970s and 1980s.
They are now in a situation where they're ravaged by diseases like AIDS, tuberculosis, malaria, and are essentially being forgotten by the rest of the world.
This is not a situation where people created their own disasters; this has been in the making over a period of about 500 years.
The Chair: Hear, hear!
Mr. Grubel: Should I say to people that in fact they did not have to spend half of their budget on the military, they did not have to send their bright young people to the Soviet Union to learn about gulags and planning and so on, but in fact they had a choice? Or should I tell them that it has all been determined historically 10,000 years ago?
Ms Plewes: I think you could, if you had time, review the history of the Cold War and the way both the Soviet Union and the United States promoted wars in Africa in order to support their own point of view. The United States propped up dictators in places like Zaire and Somalia, where we're now reaping the benefits of what they have done there.
This is not a question of pointing the finger. The fact is that we have billions of people who don't have enough to eat, and it isn't their fault, as you say, whatever the historical record. Canada, we feel, has a responsibility within its financial limitations to play the role that we have successfully played over the last 45 years, and to continue that role today.
Mr. Grubel: The unfortunate thing is that too many of these reports are suggesting that the money is not going to the people, but it's going to buy more weapons to have more internal conflict and so on. But I understand what you're saying.
Thank you, Mr. Chairman, for giving me this opportunity to get some answers for my constituents.
The Chair: Thank you, Mr. Grubel.
Mrs. Stewart, please.
Mrs. Stewart (Brant): Thank you, Chair, and thank you all. It's been a most interesting series of representations and I appreciate them very much.
Mr. Arundell, when we're looking at the impact of the tax measures taken a year and a half ago, I guess, and we look at some of the statistics that suggest there is an increase in youth smoking, how much of that is just because we now can keep track of...? They're purchasing legitimate cigarettes as opposed to contraband.
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Mr. Arundell: The question about how much of the increase in prevalence is a response to picking up the contraband sales of the previous year or two, before the tax roll-back, is a legitimate one.
However - and Melodie may want to add to this - a working group was put together by Health Canada. They essentially surveyed most of the surveys that came out in that period, because there is a lack of data, and came to the conclusion that there has been a net increase in prevalence above and beyond the rebound from the contraband situation. The exact amount is in the report. I don't have it at my fingertips here.
The more troubling statistic, I think, is the one that came out of the national health survey this summer. This is a self-reported survey, not from consumption or buying figures. The numbers had been stable or declining for the better part of 25 years in Canada, reflecting Canada's commitment to an anti-tobacco, pro-health policy for that period of time, which cut across a number of governments. For the first time in 25 years, this year we have seen an uptick in prevalence, and that is not a function of a rebound in terms of contraband consumption, because it's a self-reported survey.
Melodie, I don't know if you have anything to add to that.
Ms Tilson: I have a couple of things to add.
The workshop report Ed Arundell referred to brought together a group of experts in this field to look at estimates of contraband and at various survey data from 1990 to 1994 and to decide exactly what happened in those intervening years.
That group concluded that overall consumption is up 9.2% since the roll-back, with the highest credible estimates of contraband factored in. That's an overall increase in consumption. Various survey reports have also factored in consumption and show a dramatic increase in new smoking, in the low-tax jurisdictions in particular.
The national population health survey just released this past September shows across the board that in daily smoking and in overall prevalence, which includes daily smoking and occasional smoking, there is about a 4% to 5% difference between the low-tax provinces and the high-tax provinces.
As well, if you look at cessation, there's about a 5% higher rate of quitting in the high-tax provinces than in the low-tax. So the evidence is overwhelming that despite the high incidence of contraband before the roll-back, the roll-back has resulted in a net increase in smoking.
Mrs. Stewart: Thank you for those stats.
Madame St. Pierre Babin, you were talking about the removal of subsidies to megaprojects. Were you thinking about specific megaprojects when you made that representation?
[Translation]
Mrs St-Pierre Babin: Yes. We referred, last year, to mega-projects of the Hibernia type, for example. To carry them out, manpower has to be brought in from other provinces. As a result, the problem of job creation is not solved by funding this type of project. It tends to favour the creation of new businesses which will gradually take their place in the local economies.
[English]
Mrs. Stewart: We had representation from the aerospace industry yesterday, I think it was, and they still strongly believe they need government support for the continuation of their work and business.
What about that particular industry from the point of view of your organization?
[Translation]
Mrs. St-Pierre Babin: I couldn't answer concerning the aid they requested. Obviously, when you're in a high-tech industry, government aid might sometimes be necessary. But if you look at the financial situation of our country, you have to choose directions such as the ones I mentioned previously.
Let's start by reducing expenditures and trying to stabilize, if only a little, the financial situation of our country before undertaking other mega-projects.
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But it is not up to us to identify the industries that should be helped financially or not.
[English]
Mrs. Stewart: Thanks very much.
Mr. Anthony, I was fascinated by some of the representations you made to us. I hadn't thought about some of these tax implications before.
I'm from southwestern Ontario. Certainly my community is not atypical. The downtown areas are completely dead and there's a huge need for revitalization. Many of the buildings are heritage structures.
Do you expect that your recommendation to move away from a depreciation strategy to some kind of tax incentive for the renovation of these kinds of properties would have a positive impact on towns like mine?
Mr. Anthony: Perhaps in addressing that I could mention two things.
First of all, for the last fifteen years we have been sponsors of a program called Main Street. By working with local communities, community leaders and business leaders, we have been involved in over 120 renovation or revitalization projects in the historic centres of municipalities, large and small, across the country.
We're a bit of an anomaly; we were created by the government as a non-governmental organization with an endowment and also with the ability to use the Crown for tax purposes. So we're able to lever up donations from the corporate sector in projects such as this.
But one of the obstacles - and not just at the federal level - has been the regulatory environment, which makes it not only possible but desirable, through the federal tax laws and provincial and municipal provisions as well, for the owner or purchaser of a building to demolish it and enjoy a better financial picture than would be the case if thoughtful preservation and alternate use were considered.
We don't believe it would take very much, apart from some modification to the laws in question, to tilt that picture so owners of heritage buildings would find themselves in an incentive position in terms of the renovation and continued use of buildings. We're not believers in simply maintaining old buildings because they're old buildings. We believe in continued use, and that without use, the heritage buildings have no real value.
In terms of the federal regime, we don't think this would cause, as I mentioned, any great hemorrhaging of revenues. Indeed, we believe that at the end of the day, it would produce a positive return in the number of jobs created per million dollars invested. We believe if you put more Canadians back to work, they pay more taxes and that comes back to Revenue Canada Taxation.
Traditionally the obstacle has been the view of federal officials that the Income Tax Act is supposed to be pure and neutral, but those of us who know anything about the Income Tax Act and its uses recognize that it's filled with anomalies and with provisions that do have specific purposes that are more than flat, neutral collection of tax revenues.
We believe there is a strong case to be made here for what we consider a minor modification at minor cost that would have a profound impact on communities such as yours across the country.
Mrs. Stewart: Thank you.
Chair, I would have questions for every single witness, but I will defer to my colleagues. Thank you.
The Chair: We'll come back to you. Thank you, Ms Stewart.
Mr. Pillitteri.
Mr. Pillitteri (Niagara Falls): Thank you, Mr. Chairman.
I was quite impressed by your presentation, Mr. Anthony, about the preservation of buildings and so on. I've been very fortunate. I live in the community of Niagara-on-the-Lake, which I think is one of the smallest.... I pride myself on living there, for it's a small community and one of the most preserved towns in Ontario, or possibly in all of Canada for that matter.
All this has been done through the private sector. Nothing has been in any way helped or enhanced by the federal or the provincial government by designation.
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I recall a lot of this from when I was on council. We designated almost one-third of the town as a heritage district area. There was going to be some controversy there, but I think when people really believe in their town or believe in their community, and when you have a strong architectural lack such as we have in our area, they take pride in what they do and are therefore willing to spend.
I cannot quite agree with you that you really need the involvement of the federal or the provincial.... I think the local people have done quite well. I would beg to differ if we had not fulfilled all of those things just in the private sector. I do know there were some restorations done from the municipal level at times. A specific one was the courthouse, but this was a fund-raiser for the whole community.
As something you want to preserve, is it worth preserving? Are the people willing to preserve it rather than trying to create the essence to preserve it?
The Chair: I just want you to know, Mr. Anthony, that Mr. Pillitteri has a very modern house and a very modern winery that has won a lot of awards.
Mr. Anthony: Thank you for those comments. I guess if we have to disagree, we have to disagree. I'm very fond of Niagara-on-the-Lake. Your community is probably the exception that tests the rule. Clearly, where there is a strong sense of civic pride and duty, and tourist dollars and non-residents who have second homes and want to retain the picturesque nature of the community, then all that you have described can be made possible. That is unfortunately not the case throughout the country.
Even if we could saw things off somewhere in the middle, could we agree that if there are going to be no incentives through the tax regime for renovation, then there certainly shouldn't be any incentives for destruction? At the moment, it is the case that at virtually any level of government, it is cheaper or more profitable to take an old building and turn it into a parking lot or even just a pile of rubble that has grass growing on it. It is cheaper to leave it that way than it is to maintain a heritage building. We are therefore losing.
We have seen what has happened in most communities across this country during the 1960s and 1970s in the name of modernity and development. We're now living with great hulks that are 25 years old and themselves are nearing the end of their useful lives, which creates for us yet another set of problems. This has all been done because there are incentives for actual destruction.
Mr. Pillitteri: I agree in some ways with what you're saying. As one designates heritage district areas to be restored, the by-laws could be put in place. Anyone could be refused a demolition permit.
People have to go through a long list of things, so that's one provision you could put in. You could also put in the other provision.
I think that as much as I live in it, I'd rather see it in the private sector.
The Chair: If I may Mr. Pillitteri, I'll go to Ms Brushett.
Mrs. Brushett (Cumberland - Colchester): Thank you Mr. Chair.
One of the great, interesting things about this committee is that we can be colleagues but can certainly have diverging viewpoints.
I would like to say I've used the Main Street program through municipal councils in Nova Scotia and found it to be the motivating tool for stimulation of the downtown cores in small communities throughout the Atlantic provinces. It's been extremely successful and we have done a lot of renovation to maintain the streetscapes through the great architectural and historic properties. At the same time, we have modernized the interiors to meet today's needs in a lot of our buildings, churches, courthouses and so on. I just want to make that comment because it has been very successful, and I think you have made an excellent point.
Mr. Anthony: Thank you.
Mrs. Brushett: Before I ask my question, Mr. Chair, I would like to congratulate Betty Plewes. That was the greatest oration I've ever heard before this committee in defence of why Canada should participate in foreign aid. I think it was excellent.
My question is to Norman Smyth and it's on defence. Last evening we had before us the aerospace industry, Pratt & Whitney. They made a strong claim that without government intervention, and in fact without government purchasing power of their products, they weren't able to compete internationally with other countries. You've made a statement here tonight that, thank you very much, but you would like the government to stay out of your business; you do very nicely without it. I'm wondering how you can have different viewpoints.
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Mr. Healy: I'm not sure we really do. We were suggesting that we didn't think this government's stated intention in the red book to help our industry diversify was necessary, thank you very much. We didn't need any money. We didn't want any subsidies. Unlike the aerospace industry, of which we in some cases are a part, we do not believe that subsidies are necessary to our industry.
Clearly, though, as an industry we rely on government purchasing; 70% of what the defence department buys comes from Canadian industry. Were it all to be turned into foreign aid - and I'm not suggesting that, nor am I suggesting that we reduce foreign aid - the defence industry would disappear in this country without the defence department doing the purchasing.
We need each other, but we are a part of each other as well. In times of crisis, the industry in this country is what the defence department needs in order to sustain itself and supply it with the equipment and repairs and services it needs to carry out the functions the government wants it to do, be they domestic or foreign, be they in Bosnia, be they picking people out of the Atlantic Ocean as they did over the weekend, be they at Oka or at Gustafson Lake. They need that equipment and we're here to supply it.
Mrs. Brushett: Could I ask one brief one to Mr. Conacher? You talked about tax deductions for lobbyists, that you would like to abolish them. You say this would generate about $50 million in tax revenue. Did I understand that correctly?
Mr. Conacher: That is the estimate, yes.
Mrs. Brushett: Do you think we could do that?
Mr. Conacher: Like any tax measure, it's simply a matter of drafting the rule and not allowing it as a deduction.
Mrs. Brushett: I guess my question is a little more complex. Would there be interaction between...? We hear complaints from small business, for example, about the contracts, the interventions between government and large corporations, that the small businesses never get their share. Maybe the converse because they can't afford the lobbyist, that may be number one, to make the intervention or for whatever reasons.... Is there some incentive there, some way we could help everybody deal with this?
Mr. Conacher: We're not speaking from the small business perspective but from the citizen perspective. There is a way you could certainly help citizens, and that is if you use the tax return as a means, by putting a check-off box on the tax return and allowing people to check the box and add $10 to their taxes. That could go to groups to watch government spending, to watch government ethics, to an auditor of the Auditor General, to form watchdog groups in specific areas such as health care or the postal service, a postal consumer group.
We're raising the issue because the funding for citizen advocacy groups has been cut by 20% or 25% in the last budget - more if you accumulate it over the past few years' budgets. The citizen voice has been very hurt by those cuts, yet the subsidy is still there for the corporate voice to be heard by government.
So it's a general issue. If you cut the subsidy, corporations will still pay for lobbyists. You've already cut citizen-group spending and it's going to be cut more, and the citizen voice will disappear.
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The question I ask you, as members of Parliament, is how you will make decisions on the merits and weigh both sides of any decision you're making if you're not able to hear from both sides.
Mrs. Brushett: Thank you.
The Chair: Thank you, Mrs. Brushett.
Mr. Benoit.
Mr. Benoit (Vegreville): If I understood the last question, you were talking about government funding of special interest groups. If a special interest group is important to a certain number of people, then why can't those people who feel that group is important in representing their point of view fund the special interest group and do it effectively?
Mr. Conacher: I'll take one example of what we're advocating, which is a check-off on bank statements and credit card bills, that a flyer would go out in the same envelope inviting people to join a financial consumer association. We think this is a very appropriate thing to do under the budget.
Currently, all of the bank lobbyists and financial services lobbyists are paid for by consumers. The banks take money that they earn from consumers and, very simply, shift it to their lobbyists. If the six CEOs of the six big banks get together in one room, then the bank lobby is organized.
How can consumers do that just as easily? It's impossible. There are 20 million depositors of Canadian banks. It would cost you about $10 million to send out an appeal to all 20 million and have them organize to represent their interests.
Nobody is offering to spend $10 million to help Canadian consumers in the financial services area to organize.
So the barriers to citizens banding together are far greater than the barriers that corporations face, and right now citizens pay indirectly for all of the corporate lobbying.
We're saying that this government had better do something to level the playing field, and we have the suggestion of the flyer and the check-off as something that is very low cost and has been proven to be very effective when it has been used in the United States.
Mr. Benoit: For example, with women's groups, the National Action Committee on the Status of Women has received a considerable amount of taxpayers' money. On the other hand, REAL Women has received virtually none, yet it is an extremely effective lobby.
If the issue is important enough, then I can't understand why people wouldn't be willing to pay and why they can't get together if they have a common cause.
Mr. Conacher: Let's take the financial services area again. The issue is important. People feel as if they're being ``nickeled and dimed'' to death through service fees and other charges that the banks are levying on customers.
The importance for any one person is maybe just a couple of dollars per month in service fees, but collectively it's millions and millions of dollars in profits for the companies, as we know from the reports over the past week.
That small interest of any one person might not be enough for them to spend their leisure time lobbying for changes to service fees and banking regulations. That's why we advocate a very easy mechanism for citizens banding together, which is by enclosing this flyer or having a check-off so that people will decide where they want the funds to go in terms of making a voluntary contribution to a group and it's not left for the government to decide which group it thinks is legitimate or not, or representative or not, in terms of funding interest groups.
Mr. Benoit: Is it possible that people just don't find the few dollars in service charges important enough to put their money into the cause of lobbying to have those funds reduced?
Mr. Conacher: That is possible, but for a very low cost the government can find out whether that's true or not, by requiring banks to enclose these flyers.
Is it possible that Canadians are not overly concerned about the postal service and the recent increase in stamps and the cost to mail a letter? That's possible, but why not put a check-off box on the tax return inviting people to join ``Postal Watch'', to watch over the postal service and allow Canadians to decide whether they're concerned enough to add $10 to their tax return and join that group, which would then watch over the postal service?
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Mr. Benoit: Members of Parliament are here to represent the people in their constituencies. I certainly heard from the people in my constituency on the issue of postal rates. I heard it loud and clear: they don't want this increase. They didn't want the last increase in postal rates. They're unhappy with the postal service. I haven't heard the message - this is just an example - that they're really upset with the service charges the banks charge. I've heard it from small numbers, but certainly it's not widespread.
I'll go on to the original line of questions I had prepared. My first question is for Mr. Spratt or Mr. Atkinson.
In your brief you expressed the need for immediate deficit elimination. You say there should be no tax increases in the process. You say how to get there. You have some suggestions for how to get to a balanced budget. I just want to ask you why you think it is so important to eliminate the deficit quickly.
Mr. Spratt: I mentioned earlier that the current cost of the interest on the Canadian debt is $50 billion a year. That is now almost 60% of the total value of construction in Canada, which last year was $90 billion for all construction across Canada.
The value of construction in Canada tends to be shrinking; the total dollars done. The health of our industry is on tough roads. It has been for a number of years. I think 1996 is going to be very, very tough for the construction industry in Canada, for a whole variety of reasons. Maybe we overbuilt in the 1980s. There's shrinkage in all kinds of businesses, so we need fewer new buildings and that kind of thing.
But one of the problems is that from a construction point of view we are already in tough times. We're really concerned that if you stretch the deficit reduction out over five or ten or twelve years, we're going to be on tough rails for ten or twelve years. We don't have ten or twelve years. As a nation, we think if we don't handle the deficit problems currently, in a very short time the country will be unable to borrow internationally, there will be no infrastructure spending in this country, and there'll be a major shake-up in consumer confidence and private investment in this country. Our industry, which is by far the biggest industry in Canada and which employs more people across the country, is going to be in very major problems. Last year we employed 750,000 people across the country. If we don't have some continued construction and viability in this country, a lot of people are going to be looking for something to do.
So we think you have to handle the deficit now, and a lot faster than the road we're currently on.
Mr. Benoit: I'm sympathetic with a lot of what you say. I appreciate your comments and your brief. I just have to ask you, though.... You've made these statements about the importance of eliminating the deficit, but then in your brief you come out and support the infrastructure program and support, further, a new national highway program. I'm going to ask you two questions about that.
First of all, if you had a choice of government spending the money either on the present infrastructure program or on a program that deals with real infrastructure, which includes highways, sewer, water, and that type of thing, which would you choose? Secondly, you talked about the high interest payments on the debt. When you balance the high interest payments on the debt, ever increasing, against rapid deficit reduction, wouldn't you say it's more important to err in favour of rapid deficit reduction?
Mr. Spratt: Deficit reduction is major to our industry. It appears that when we talk about investment in infrastructure, that's spending.
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We don't believe that investment in highways and essential infrastructure has to be done solely with government money. There are several other ways to fund that - the fixed link, highway 407 and some of the other projects where there are public-private partnerships. Where there are other ways to fund it, we think that's something that needs to be looked at. What you need from the federal government is leadership. The national highway program is one where we absolutely need a plan, in concert with the provinces, as to what will get fixed, in what order and over what period of time.
We believe the federal fuel excise tax is one place where there's a fair amount of money that should be diverted to the highway program. Just short of $5 billion a year is taken out of the provinces in the fuel excise tax, and 4% is invested back into the highway system. At the same time we're looking at toll systems, which we think may be double taxation from the same sorts of users.
Essential infrastructure simply has to be done. It is like a person who buys a house and takes out a 25-year mortgage and then the roof starts leaking 10 years down the road. You simply cannot say we have no money to fix the roof, to hell with it. You just can't say that. Somehow you have to find the money to fix the roof, even though you have a major mortgage. So somehow you have to continue to address essential infrastructure while at the same time cutting spending. We've listed areas in our brief where we believe government should cut spending.
The Chair: Thank you.
Mr. St. Denis.
Mr. St. Denis (Algoma): This is a most stimulating group. Lest Mr. Beatty think he's getting off the hook tonight, I do have a legitimate question for him.
We were in Winnipeg when the western half of the pre-budget consultations were taking place. We had testimony from the Manitoba Fashion Institute. It was good testimony. They outlined the problem they have in getting qualified workers for the apparel industry. Since one of the questions we have to deal with concerns jobs, can you put the problem of Manitoba in the bigger context? Is it a problem that's unique to Manitoba, or does your industry have a problem in getting qualified workers in the large numbers that we heard about in Manitoba? Is that problem endemic from sea to sea, or is it isolated? Do you have some solutions that might lead to more jobs in this country?
Mr. Beatty: The situation in Manitoba is perhaps more pronounced because of structural problems in the local labour market, but we're facing a skills shortage across the country, and the industry has been working hard to put new training programs in place to create a draw into the industry. But we're also facing certain structural problems.
One of the major problems we had in Manitoba until recently was that our efforts to move people off welfare and into jobs in the industry were counterbalanced by the fact that even though people were being paid while on training in preparation for work, ultimately they had to take a net reduction in total benefits, because while on welfare they were receiving total paid medical and other benefits. Only recently have we had the flexibility to top up training dollars while people are going through those early stages, before they actually get onto paid employment, and we think that's been far too long in coming. It's important that we use those dollars that we're spending not to renew that cycle of dependency, but to help get people off welfare, off UI, and back into jobs. That's one of the tools that we can use.
Mr. St. Denis: Do you have a regime within the industry where you train people? Do you depend on the educational system, either high school or post-secondary, or do you have within your industry a means to promote higher education within the fashion and design industry?
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Mr. Beatty: We have extensive scholarship programs and the industry promotes on-the-job training, but we've faced a perception problem in recent years, whether that's from the Canada Employment Centres or from provincial agencies, that a job in our sector and in manufacturing generally is an occupational dead end in Canada.
We've defied all of the pundits. Employment in the sector is growing. We have a skills shortage and the industry is having to respond to it. We can't get the people through the training programs that exist in community colleges today. For example, one of the highest paid occupations in the sector is that of a sewing machine mechanic. That may sound like a very humble sort of job, but you can't run a production line without someone with those skills.
The last program in Canada giving that training was at George Brown. They've just cancelled the program, and as a result we can't train except by working in consultation with the suppliers of equipment to the industry. So we're having to take that on-board. But those mechanics are no longer mechanics; they're computer programmers, because our production lines are computer driven.
There's an image problem. We have to get past that and we have to get past it with the employment centres, community colleges and universities.
Mr. St. Denis: I hope there will be more progress as you look for solutions.
I'd like to address a question to the Canadian Defence Preparedness Association. Ms Plewes might want to say a few words too. I think it's an argument that has been and will continue to brew for a long time, that whole issue of the balance between military preparedness - defence or whatever you call it - and the need to not leave fellow citizens on the planet behind. We can hardly make progress as a planet when we're leaving hundreds of millions of people in the ditch, so to speak.
In view of the inexorable move toward less military, and I think we all pray for a quicker move in that direction, is the industry spending a significant percentage of its R and D on non-defence - in other words, alternative - uses for trained engineers and scientists and factories, non-traditional uses that can help the world advance? There's tremendous intelligence and knowledge in your sector that can be used for good. As time goes by, there's an opportunity to bring everybody forward.
General Paul D. Manson (Ret'd) (Corporate Member, Canadian Defence Preparedness Association): That's a good question and one that was addressed by the current government in its red book a couple of years ago. It's an obvious point that an industry that was designed essentially to meet the demands of the Cold War has to redesign itself when the Cold War is over, and that's precisely what's been going on.
If you look back at the history of Canada's defence industry to about 1960, you'll see that the ratio of defence to non-defence work in our industry has changed from 70% defence in 1960 to 30% defence today. In other words, as a matter of deliberate process and responding to market forces, the industry itself has done a very good job of conversion, to use the current term, and that process will undoubtedly continue as long as the world situation remains as it is today.
The problem is that if Canada were to convert the whole way and eliminate its defence industry, obviously that would leave Canada in a seriously weakened position in terms of national security and in terms of its contribution to peacekeeping and to activities such as search and rescue, fisheries protection, protection of the environment, drug interdiction, and all of the other things the Canadian Armed Forces do today.
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So the defence industry in Canada has to be prepared to support its armed forces to the extent it does -
Mr. St. Denis: The concept of the dollars of R and D that might be non.... We can't turn off the defence thing overnight. We can't do that. Do you know what the dollars are that are going into non-military for R and D...?
Mr. Norman Smyth (Past President, Canadian Defence Preparedness Association): Yes, I can answer that. I'm Norm Smyth and I run a small to medium-sized company.
Overall, 70% of the work done in the defence sector is commercial. So 70% of the R and D goes into the commercial enterprise and commercial products. Many of us have products that are dual-use. One example is the whole space industry in Canada, which evolved out of a defence research program into the Alouette satellite. There are many examples where either commercial R and D was used for a defence application or defence R and D was spun off into a commercial application.
Mr. St. Denis: By way of concluding, Mr. Chairman, as we struggle for the right balance, or I guess as the balance shifts slowly, I think one of the problems with the NGO sector, the aid sector, is that maybe we haven't effectively communicated to Canadians about - not the linkage between jobs in Canada and development overseas - how our image around the world has been heightened by our aid work and how important it is to maintain that.
We see ads once in a while from UNICEF and from different things, but I'm wondering if they're.... To deal with the kind of question Mr. Grubel had earlier on.... I think it was a fair question, because both his constituents and my constituents ask those questions about what we're really doing. Is there a program to increase the awareness of Canadians, to increase their understanding of how good it is that we should continue to do what we do around the world?
Ms Plewes: We did have a program. We continue to have a program, but almost 100% of government support for development education activities was cut in the CIDA budget last year. That aside, the churches, the unions, UNICEF, CUSO and CARE all have education programs in which they try to explain this connection to the Canadian public. At CCIC this year we realized that what we have done hasn't been enough and we've set up a new task force to look at these issues and to develop some new programs.
Can I come back to the question on the defence industries? We have a new Canadian foreign policy that has a new definition of security, which moves away from the military definition of security towards a definition of security that includes the elimination of poverty and the promotion of human rights. What we would like to see now is a budget that follows the policy.
The Chair: Thank you, Mr. St. Denis.
Mr. Grubel.
Mr. Grubel: Mr. Chairman, I'm very upset about this idea that we should get the government to give more money to help people organize in order to hammer free enterprise.
There was a famous book written by a man called Adam Smith in 1776 and he said the self-interest of individuals and firms is directed to serve the public interest. That understanding was one of the great breakthroughs of our civilization, along with the idea that competition should be promoted by government so that in fact when banks try to rip off consumers, the consumer simply goes somewhere else, to another bank. Even now banks are not charging $1 million for transactions. It's maybe 5¢.
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Do we really want to have a further politicization of our lives by having very well-financed and organized groups of consumers who take it upon themselves to say, I know that the charge should be 4.5¢ rather than 5¢?
I guess it is a matter of ideology as to whether or not we believe we live in a better society in which the 5¢ is determined by competition and by the kind of process that Adam Smith described rather than the determination through a political process financed through the kind of systemMr. Conacher suggested.
I understand that there's much room for citizen action in cases where there is no competition, such as the post office. I fully agree with that, but the answer there, in my judgment, is to privatize.
So I would like to go on record and suggest that the idea Mr. Conacher is promoting is terrible and should not be followed up.
The Chair: Mr. Discepola.
Mr. Discepola (Vaudreuil): I have two questions, one for Mr. Spratt and one for Ms Plewes.
I may have misunderstood your presentations, so I apologize beforehand. But I think I correctly heard you say that you would not like us to tie foreign aid to business opportunities in these countries.
One of the questions my constituents always ask me is, why is it that we have to pay somebody else to do the job, for example, as opposed to sending Canadians there? It comes out to the same amount of money that we're providing. Why can't we take an unemployed educator, for example, and go to some of these third world countries and provide the education? Why can't we take an unemployed Canadian engineer and go and help people learn how to do these things?
You're not the only group. I understand there are other people who feel the same way, that we shouldn't tie foreign aid directly. I think in your presentation you stated that it should be on humanitarian grounds. But what is so averse to this way of thinking?
Ms Plewes: It's not averse to that way of thinking. The point is that the purpose of the aid program is the alleviation of poverty, and then everything flows from that.
If, for example, you put a water project out for tender in a particular country, if Canadian firms are competitive, why not use them? If there are Canadian consultants who are competitive, why not use them?
What we are opposed to is the tying of the use of the aid money to Canadian goods, which prevents the kind of competition that would get the best job. In some cases you might even get a further advantage if there were other countries in the south. You could promote industry, for example, from other African countries, rather than always using a Canadian company.
Mr. Discepola: Thank you for the clarification.
Mr. Spratt, I'm getting a bit concerned about the business community coming, especially this year, to the table with proposals not only to eliminate our deficit as soon as we can, but.... We had one proposal, I think in Winnipeg, that said we should eliminate our debt and have a debt reduction target of something like 25 or 30 years.
I'm shocked by your testimony, because in the construction industry I would think the single, most important driving factor would be interest rates, and that should help stimulate.... I think the theory behind deficit reduction from our government's perspective is obviously to try to stabilize the interest rates so that we can actually get a good handle on our debt payments and interest payments on the debt.
I seem to recall that in 1982 or 1983 - I have a small business - I was flourishing even though the interest rates were 18% and 19% and mortgage rates were 18% or 19%. Inflation was running at 12%.
The Chair: That was because you were in loan sharking.
Some hon. members: Oh, oh!
Mr. Discepola: And the economy was good.
So if you're saying cut, cut, cut, what you're indirectly telling us is cut government spending, because we've heard it all around the table, we can't increase taxes.
We took out over $20 billion last year. If we're going to take out another $8 billion or $10 billion or $14 billion and add the provincial cuts, when you take that kind of lump sum out of the economy, you can't help but have a negative impact.
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So I'm wondering what a low interest rate does to your industry when over the past two or three years, for example, we've seen mortgage rates as low as 6.5%, 7% for one period, and it did nothing to kick-start the housing industry, or your construction industry. Are we not getting sucked into the fixation that we must cut, cut, cut at all costs? Should we not have a more rational approach to it?
I thought the 3% was excellent. We supported it. But when we start saying we should go to zero as soon as possible, I have very serious reservations about that.
Mr. Spratt: I've said a few things tonight. I'm going to ask my president, Michael Atkinson, to respond to that. But we want to see it cut.
Mr. M.A. Michael Atkinson (President, Canadian Construction Association): First of all, the current government has said a balanced budget is obviously its objective. So all we're saying is we feel the process can be sped up. We're not talking about the speed of light. The current government has said that's its target.
Mr. Discepola: When did they say that?
Mr. Atkinson: Minister Martin is still part of your government?
Mr. Discepola: Yes.
Mr. Atkinson: Well, he's said it many times, and I'm sure he'll say it again tomorrow.
Secondly, as far as interest rates go, there's no such thing as a home-grown Canadian interest rate. Our industry depends on investment, on foreign investment, on attracting private sector investment to this country. We see the writing on the wall. Our client, the public sector, is diminishing as our major client. We must attract private investment. As far as private investment goes, it has no national allegiance. It invests its money where it's going to get its best rate of return.
Mr. Discepola: What you're saying is we should have a high interest rate policy.
Mr. Atkinson: What I'm saying is that when it sees 35¢ out of every federal revenue dollar currently is going just to pay the interest charges on our debt, I know as an investor I would get nervous. And when I see that 35¢ becoming a bigger proportion of that dollar every year - and it will even with the 3%-of-GDP target - I get even more nervous. And when I see a situation where the concern seems to be more about where to spend money and how much, rather than how to balance the books, I really get nervous.
From that perspective, yes, we agree with you, interest rates are very important to our industry - extremely important. But it's also very important to attract investment, and the way to attract investment is to show some fiscal prudence in the management of public dollars.
Mr. Discepola: You can't run a country like a business. If you did that you'd close down nearly every department and every service we offer, because none of them return a profit on the bottom line.
Mr. Atkinson: Well, I agree that if you use the same test -
The Chair: This is getting very exciting now. So watch out.
Mr. Atkinson: If you used the same business test, this country would have been declared bankrupt a long time ago.
Mr. Discepola: We have a tremendous amount of assets in this country. That's what we never take into account. You as a business person can take whatever capital investment you make and you can write it off over the useful life of the asset. Correct? You can take depreciation, for example. As a government, whether you're municipal, provincial, or federal, when you build a hospital, when you build a road, when you build an arena, for example, you can't amortize that. Those are assets we leave future generations.
I don't buy the argument that we're indebting our future generations. My parents didn't have the same health system as I have, for example. My parents didn't have the same education system as I have. So we do have a certain amount of assets we can leave our future generations.
Mr. Atkinson: I agree with you. But the problem has been that even in the good fiscal times we have neglected those physical assets, that public infrastructure that is so important to the future prosperity of our children and grandchildren. We've got into the situation where the higher we bring up that 35¢ out of that dollar, the fewer public dollars we have to invest in our kids' future and in our grand-kids' future. That's the problem.
Mr. Discepola: But the converse is also true. We risk destroying those valuable programs we put in place in the 1960s or 1970s if we're not very watchful, very prudent, about how we do it.
I don't agree we have to go and cut, cut, cut - massive cuts, as some people are advocating - so quickly. There is a more fiscally prudent way of doing it. We're looking at everything. I think we can achieve that. But let's not have this fixation that we must do it in two years or three years or two months, as some people are saying.
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Mr. Atkinson: We certainly aren't saying two months, but we are agreeing with the objective of a balanced budget the current government has. I'm saying that we have to set a target to give the international community, to give international investors, a positive sign that we mean business when we say we're going to balance the budget.
The Chair: Thank you, Mr. Discepola.
We've come now to the opportunity for you to summarize very briefly - say, thirty seconds for each person.
Is there somebody who wants to put anything on the record that they haven't had an opportunity to do, before they summarize?
Great. Then perhaps you could start off, Mr. Manson or Mr. Healy, with a thirty-second summary.
Gen Manson: The defence industry in Canada strongly supports the government initiatives to do the obvious thing, which is to reduce the debt and the deficit to a point where we have a manageable economy in this country.
It's a very popular thing to say let's take huge amounts of money out of the defence budget. We've heard some of that tabled here today. You never hear people speak about the consequences of doing that. I could speak more as a former chief of the defence staff than as a president of a company, and I could tell you that the consequences would be enormous and very severe, and very damaging to Canada as a sovereign nation.
The Chair: Thank you, Mr. Manson.
Mr. Anthony or Mr. Franklin.
Mr. Anthony: Let me briefly thank you and your colleagues for the opportunity to be here with you tonight.
What I will undertake to do is to write to you with the specific recommendations we made and share that information with your colleagues. But I'll just leave you with the same thought thatMr. Manson did, that we believe our heritage is an asset - as Mr. Discepola was saying earlier - and one for which, while we applaud every effort to get our financial house in order as a nation, we have to be mindful of all that we have built up over the past and that should be preserved for the future.
The Chair: We'll look forward to receiving that detailed brief. Thank you, Mr. Anthony.
Ms Plewes.
Ms Plewes: I would like to say that we support the government's new definition of security in its foreign policy statement. We would like to see the budget move to reflect that new foreign policy statement.
The Chair: Thanks, Ms Plewes.
[Translation]
Mr. Laflamme.
Mr. Laflamme: This evening, we have dealt quite a bit with matters of expenditures and deficit reduction, but we haven't said much about job creation, an objective fundamental to the increase of government revenues.
Madam was asking us why we attacked mega-projects, the Conseil canadien de la coopération has rather tried to promote job creation through community economic development using particularly small and medium-sized businesses and work cooperatives.
The Chairman: Thank you, Mr. Laflamme.
[English]
Mr. Beatty.
Mr. Beatty: Thank you, Mr. Chairman. To reiterate what I said at the outset, our association commends the government for its efforts to reduce the deficit, but it really would back a policy of moderation going forward, because we're concerned about the economic impacts of too rapid an advance on the deficit.
Frankly, we think when Canadians dreams about their future they don't think about deficit reduction; they think about jobs, economic security and opportunity. We would hope that is the message the federal government carries to the Canadian public in the next budget.
The Chair: Thank you, Mr. Beatty.
Mr. Spratt or Mr. Atkinson.
Mr. Spratt: In summation, we still think cutting federal spending is the current issue. The construction industry is prepared to take its lumps, but over the next few years, not over the next decade. We believe if it stretched out for the next decade, this country just wouldn't be able to borrow enough money to keep it afloat.
At the outset we said that we represent about 20,000 firms in the construction industry. Probably 80% of them have less than 20 employees, real mom-and-pop shops with a few extras added. Those people are the backbone of this country and they need to keep going. The only way we're going to do it is in some kind of a healthy economy. We want to see the economy come back as quickly as possible, but it's not going to do it until it's healthy and running a balanced situation.
The Chair: Thanks, John Spratt.
Mr. Arundell.
Mr. Arundell: Thank you, Mr. Chairman.
Mr. Discepola, there are a few of us around the table who have put a proposition forward that you have some room to move on the revenue-raising side as well as the expenditure reduction side. We have put forward five ideas you can wrestle with, including equalizing federal taxes in all provinces, excise taxes on tobacco.
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I think the main message we want to close with is that tobacco products kill 42,000 Canadians a year directly. There is an arguable body of literature, including Adam Smith, that links price and consumption. We believe that you have a role here to recommend to your colleagues in the cabinet that there is room to move forward on taxes for tobacco, both internally and in export.
In closing, I would say that this doesn't just bring you more revenue. People who are encouraged not to smoke and people who are encouraged to quit smoking because of price increases do, as an article in the Archives of Internal Medicine recently indicated, visit their doctors less frequently, use fewer hospital admissions, and use fewer hospital resources. All of that will be helpful in saving the Canadian health care system in the long run.
The Chair: Ed, you sound just like my mother.
Mr. Arundell: And she was right.
The Chair: Duff Conacher.
Mr. Conacher: The budgeting policy process is largely an exercise in defining what is a cost, what is a benefit, what is wealth, what is health, and what is welfare. We at Democracy Watch urge you to keep in mind the citizen perspective and the citizen definitions of all those terms as you make your recommendations and your budgeting decisions.
Also, please keep in mind mechanisms for giving citizens a greater voice, balancing the marketplace, and balancing the policy process so that citizens have more of a voice between elections as opposed to just that ``one person one vote'' on election day.
The Chair: Thank you. Mr. Conacher, you've given us a very concrete way we can level the playing field in terms of access to government, lobbying, particularly at a time when we are cutting direct funding to certain public interest groups.
Ms Tilson and Mr. Arundell, this committee recommended last year that we raise tobacco taxes to the extent that we possibly could, recognizing that at some level the benefits from increased taxes will be outdone by smuggling. I feel personally compelled to make the same type of recommendation this year, as well as to look at the other suggestions you made on how we can get those prices up. I look forward to reading your brief. Thank you very much.
The construction industry is a major employer in Canada as well as being the one that has created our tremendous infrastructure. We thank you for your contribution to our economy, plus your suggestion that we revisit not only the question of getting our interest rates and deficit down, but the question of another infrastructure program.
Mr. Beatty, I'm very pleased to hear that we finally made some progress in getting rid of the structural problem of getting people off welfare and into jobs. We will want your ongoing input as to whether that's working, whether there are other ways we can assist in that regard, and whether there are ways we can have cooperative training programs so you can meet your need for skilled labourers, particularly when we have such high levels of unemployment in Canada. I welcomed your suggestion on the possibility of reducing tariffs on imported goods going to manufacturing.
[Translation]
I'd like to thank the Conseil canadien de la coopération for having suggested ways to promote job creation, such as using communities and small and medium-sized businesses, as well as stimulating exports. I'd like to add that as a government, we also agree that you have to protect the most disadvantaged.
[English]
Betty Plewes, Mr. Grubel asked you a question that every one of us as a politician has heard time and time again: how can we justify any expenditures outside of Canada when we are in tough straits in Canada? It's becoming tougher and tougher for groups such as yours. I can only echo what Dianne Brushett said. I have not heard a more eloquent or forceful justification for why we must continue to be in ODA. Thank you.
The defence industry - you have taken a cut. Last year your budget was about $11.5 billion. It will be cut over the next three years by $1.6 billion to $9.9 billion. It is still under consideration. It's one of the last big expenditure programs where there's money. People are being asked to re-examine it in light of the changes in the world conditions. I think this is something we would have to work out in conjunction with defence itself and foreign policy. But we're pleased to see you with us,Mr. Manson, who had such a distinguished career in our military, and others.
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As far as the Heritage Canada Foundation is concerned, I just want to say that ever since I reached 39 years of age, I've had a deep, abiding, profound respect and love for anything that's ancient. Thank you very much.
On behalf of all members of Parliament here, may I thank each one of you for a very excellent presentation.
We are adjourned.