EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, January 22, 1997

.1305

[English]

The Chairman: Order.

The finance committee of the House of Commons is very pleased to continue its hearings on Bill C-70. We're delighted to have so many important individuals and organizations with us this afternoon to help us in our deliberations. We have with us, from Woolworth Canada Inc., Larry DeRocher; from Carlton Cards, Shannon Hallett; from Winsbys Shoes, Rick Pratt; from the Canadian Council of Grocery Distributors, John Geci; from the Atlantic Building Supply Dealers Association, John Ward; yet to arrive but I understand to be here very shortly, Mr. Peter Woolford, from the Retail Council of Canada; from the Don't Tax Reading Coalition, Jacqueline Hushion and Helena Aalto; from the Consumers Association of Canada, yet to arrive, Robert Kerton, but on hand already Marie McCall; and from MEBCO, William Anderson and Darrell Brown, whose airplane did not make it in this morning but who are here now.

We welcome you all. Perhaps we could start off with three minutes each from every one of you. I think you'll find you'll have lots of time to get everything else on the record after that.

Maybe we could start with you, Mr. Brown and Mr. Anderson.

Mr. William Anderson (President, Multi-Employer Benefit Plan Council of Canada): Thank you for allowing us to be here this afternoon. I'm sure the committee is familiar with MEBCO, but for those of you who aren't, MEBCO represents the interests of multi-employer pension and benefit plans throughout Canada. The purpose of our submission is to raise issues that arise under the goods and services tax and through harmonization of the GST and provincial retail sales tax and that affect these multi-employer benefit plans and pension plans.

MEBCO in past submissions to the finance minister and the Standing Committee on Finance has stressed the need to reduce over-regulation and conflict between federal and provincial legislation. In principle MEBCO, speaking on behalf of our benefit plan members and not on behalf of labour or management, does not oppose one tax base, one tax rate, and one set of rules. Past attempts at harmonization have not accomplished this goal, however.

For example, in Quebec individuals are still subject to both the GST, at 7%, and the Quebec sales tax, generally at 6.5%. Although there are many parallels, there are also differences in the tax rate, tax base, and rules that apply to certain sectors. Certain elements of the previous retail sales tax continue to apply under the harmonized system. For example, the premium at 9% continues to be levied on multi-employer benefit plans.

The standing committee has been apprised of certain inequities under the Excise Tax Act and its application to single-employer plans, multi-employer employer benefit plans, and pensions. The standing committee in fact recommended in its fifth report of the Standing Committee on Finance that the GST inequity between single-employer and multi-employer pension plans be rectified.

The same inequities exist between single-employer health and welfare benefit plans and multi-employer plans. The inequity will become more pronounced under the harmonized sales tax, since the rate will increase from 7% to 15%. Unlike businesses under the current rules, multi-employer benefit plans and pension plans will have to absorb these increased costs on their purchases and supplies. Businesses do not. At the same time, single employers who are engaged in commercial activities will be able to recover. Multi-employer benefit plans and pension plans should be able to recover the GST paid on their administration expenses through a rebate. In either case, the Excise Tax Act must be amended to correct this anomaly.

Ultimately the goal of the federal government is to have a unified national system: one rate, one set of rules, and one tax base. Ontario, like Quebec, levies a tax on the contribution to group health and welfare plans. MEBCO opposes any concession to Ontario that would preserve the retail sales tax on such contributions after harmonization. In other words, it is not appropriate to subject benefit plans to the harmonized sales tax on administration expenses and levy a provincial transaction tax on the contribution to these plans.

.1310

An appropriate solution is to legislate a method that will eliminate the inequity between single-employer and multi-employer benefit plans without causing any undue administration burden. At the present time section 259 of the GST legislation provides for a rebate at a prescribed rate that may be claimed by certain specific persons, including public service bodies, charities and qualifying non-profit organizations, for tax payable on purchases relative to the provision of goods and services on which an ITC cannot otherwise be claimed. A similar mechanism could be legislated for multi-employer plans.

The Chairman: Thank you, Mr. Anderson.

Our next witness, from Woolworth Canada Inc., is Mr. DeRocher.

Mr. Larry DeRocher (Vice-President, Marketing, Woolworth Canada Inc.): Thanks very much.

For the purpose of this exercise I'm going to speed through a couple of comments.

Woolworth operates over 1,500 stores across Canada, under such names as Foot Locker, Champs Sports and Randy River. In the three maritime provinces alone we operate in excess of 125 stores, employ about 1,200 people and generate in excess of $100 million in revenue.

In principle we support the concept of a national harmonized tax rate. However, in order to support this concept we require that three conditions be met: first, that there's a common base across all regions in which we operate, that is, Canada; second, that there's a common harmonized tax rate; and third, that there's a common administrator for the harmonized tax. We believe if these three conditions are met, the legislation provides substantial benefit for all parties involved: the business community, the governments and especially the consumer.

However, in its present form, with the proposed legislation covering only three small provinces and with the current proposals regarding tax-in pricing, we believe that not only will costs be significantly increased for both the retailer and the consumer, but massive confusion will result.

The single issue that will cause these increased costs and the consumer confusion is the issue of tax-in pricing. It adds time, cost and frustration to virtually all aspects of retailing, and frankly, it will not only not increase retail investment in the Maritimes; it will cause the loss of some stores and jobs as increased costs push marginally profitable businesses into the red. As you know, retail businesses operate on the slimmest of margins, and our estimates show that the increased costs inherent in these proposals will have exactly the effect I've outlined.

I'm only going to address one area of the tax-in pricing issue today, and that's the issue of ticketing. During the past several months a great deal of information has been circulated from all sectors of the business community on the types of problems this partial HST harmonization will cause. For the most part the government's response has been to minimize the impact of these problems and to continue to forge ahead with the issue of tax-in pricing.

Recently several changes to the guidelines have been announced that are supposedly going to eliminate those problems. One of the major changes involves the introduction of four options for the retailer as to how to apply tax-in pricing. Let me illustrate how they're going to impact on a business such as ours.

For the most part we're in the lifestyle apparel business. We retail different assortments of coordinated apparel to different market groups: young men, young women, etc. Most of our merchandise is unique to our stores, and we attempt to provide great value to our consumer in part through operating efficiencies. If our costs rise, we're faced with either absorbing these costs or passing them on to the consumer.

When we look at the guidelines for tax-in pricing, we find the following.

The first option is to have the merchandise priced on a tax-inclusive basis only by the manufacturer. Currently for most of our divisions the manufacturer pre-prices almost 95% of our merchandise. This helps keep our labour costs down and so our retail prices. However, when the merchandise is ordered from the supplier, although we have a good estimate of the total demand for the product, we are not able to accurately predict exactly how the merchandise will perform on a store-by-store basis, especially since some of this merchandise is ordered as much as nine months in advance.

.1315

Presently initial orders are distributed across the chain and we hold an amount in back-up for further distribution based on rate of sale. In order to have the manufacturer ticket the merchandise with the tax-in pricing for the three maritime provinces, it would increase our margin of error. This would require us setting up two separate initial distributions and two segregated back-up stocks for follow-up.

Our estimates indicate that this could increase the value of our inventory by almost 20% and for the Maritimes alone add some $360,000 in cost to our bottom line. These costs are going to have to be borne by someone. In addition, it would place a significant burden on our information systems through the requirement to track the same item as two separate units through over 22 different operating systems.

A suggested solution might be to warehouse the inventory as a single back-up inventory and re-ticket the merchandise individually for the Maritimes when needed. Currently for the most part our distribution centres are used for cross-docking purposes only. They're not set up as ticketing or processing facilities, and to do so would increase costs. In fact for one of our larger divisions the whole distribution function is handled on a redirect basis by an outside third-party firm. The potential for error as well as increased costs by putting the merchandise ticketing step into this puzzle is enormous.

A second option that has been suggested for retailers involves dual pricing, with both prices shown on the garment.

The Chairman: Mr. DeRocher, I don't mean to cut you off, but I'm trying to limit opening comments to three minutes. Will you be able to respect that? How much longer do you have?

Mr. DeRocher: Let me go to my conclusion, if I could, then, in 30 seconds.

The Chairman: Yes, that would be great. Thanks.

Mr. DeRocher: Okay.

The Chairman: I'll give you lots of time afterwards to put anything else on the record that you haven't.

Mr. DeRocher: I'm going to skip the other issues on the four options, but I do have some points to raise there.

Let's talk about the consumer herself. This is where the main point is; it's the confusion that's going to be caused to the consumer. Let's take Nova Scotia. She goes in and purchases a garment. As she moves around the store, the items we've re-ticketed show the tax-in price. The item she picks up from a shelf with a bin price shows the tax-out price. She's supposed to know that the tax is not included in this bin-price item, but maybe she doesn't see the sign on the top of the fixture. When she gets to the register, she's still surprised that she has to pay 15% more for what she bought. She's confused. She ends up taking it out on the only person who's available, and that's the sales associate in the store.

So she leaves and goes next door. But wait. The retailer next door has priced his goods in exactly the opposite way. The merchandise on the shelves has been re-ticketed with the tax-in price and the items hanging on the wall show the tax-out price. Which of the two stores is really offering the best value? Does she have time to stop and figure it out? Can she figure it out?

This is typical of what will result throughout the three provinces as a result of the tax-in pricing and the options currently proposed. The big loser's going to be the consumer, and this goes directly against the government's stated intention of making it easier for the customer to shop.

We continue to support the concept of harmonizing the GST with provincial sales taxes. However, we dramatically refute the issue that tax-in pricing is a key component of achieving this harmonization. We ask that the government remove the tax-in pricing as a component of the harmonization process and instead concentrate on developing a national harmonized tax system that will allow the consumer the best opportunity to carry on their business in a simple, easy to understand manner at the lowest costs.

Thank you.

The Chairman: Thank you very much, Mr. DeRocher.

I'll come back to you later, Ms Hallett, to give you time to catch your breath.

Mr. Pratt, please.

Mr. Rick Pratt (President, Winsbys Shoes): Winsbys Shoes has been in existence for the past 35 years. We have a staff of 12 and consider ourselves one of the premier shoe stores in the country. Winsbys has won recognition from several suppliers and was nominated for Footwear Forum's retailer of the year this past August.

Our customer mix is similar to that of many retailers in Nova Scotia. Approximately 25% of our annual sales are derived from visitors to the area. The proposed tax-in pricing puts this volume in serious jeopardy. These customers are not expecting to see a higher price that includes tax.

The purchase decision is an instantaneous decision made the moment the customer sees the price and relates that price to perceived value. Unfortunately many of these visitors to Nova Scotia will perceive prices to be higher than back home and will not spend their money in Nova Scotia. Retailers like me will suffer declines in volume and the province will lose tax revenue.

I've heard the argument that consumers want to see exactly what price they'll pay. I would suggest this is much more relevant to high-ticket items than to day-to-day purchases. I've never seen a customer change their mind at my cash register because tax was prohibitive. I have, however, seen them put product back because they perceived our prices to be higher than in other stores. Why was that? Well, Winsbys was one of the few retailers in our area that included GST in the price.

.1320

I made a habit of questioning customers who were putting product back and learned that despite the abundance of signage and clearly marked price tags in our store indicating the GST was included, the consumer couldn't readily compare prices, so she would go to the store with the lowest ticket price. Based on this consumer feedback, I removed GST from our price and saw an immediate 10% increase in volume. The lesson I learned was that consumers balk at pricing that appears to be out of the ordinary.

If all my customers were from the HST zone, tax-in pricing would appear normal to them. Unfortunately, since some of my customers come from away, these people won't understand these apparently high prices and as a result will spend less money.

The second area I would like to address is that of retail price points. Perception is very important to consumers. For example, if I price a pair of shoes at $99, I'll sell 12% to 15% more pairs than if I sold them for $100.

Manufacturers target specific price points and tax-in prices will consistently force these products over these price points, resulting in losses for both retailers and the province. An item with a $99 price excluding tax will generate $14.85 in taxes. With tax-included pricing many consumers will still look for a $99 item. However, this item is in fact an $86.09 item, with $12.91 tax included. The result is a loss of $12.91 to the retailer and $1.94 to the taxman.

For most consumers sales tax is a necessary evil that is added on at the cash. For purchases other than high-ticket items, most people do not factor in tax when making the decision to buy. By including tax in the price you are introducing an additional cost for the consumer to consider. Unfortunately, some consumers will decide the item is too expensive. Either they will trade down to a less expensive item or they won't purchase at all. Either way the retailer and the taxman both lose revenue.

The retail environment in Nova Scotia is not enjoying the apparent improvement other areas have seen recently. While we try to put on a positive face, quite frankly, things are extremely tough out there. Consumers fear lay-offs. There's downsizing. Consumers are very cautious with their money. The average man on the street feels the HST will save him money on high-ticket, infrequently purchased items but will make day-to-day purchases more expensive. Combine this perception with higher sticker prices and you're going to have a recipe for disaster.

When the HST was first discussed, references were made to retail flow-through dollars resulting in lower prices. Tax-in pricing will negate any benefits that would have resulted, because true or not, the consumer will perceive that prices have increased. This can result in nothing but a slowing of consumer spending. It is strange that what could have been a benefit to retail sales suddenly becomes a liability, simply by tax being included in the sticker price. There's an old adage in retail: show the consumer the lowest price you can. Tax-included pricing won't allow us to do that.

The Chairman: From Carlton Cards, Shannon Hallett.

Ms Shannon Hallett (Assistant Comptroller, Carlton Cards Retail (Canada)): Thank you, Mr. Chairman.

We in the greeting card industry appreciate the efforts made by the various levels of governments to address our concerns about greeting cards. However, the costs associated with implementing tax-inclusive pricing on the remaining 50% of our product are still substantial. As a result, we estimate over 100 people will lose their jobs.

Carlton Cards Retail is a national greeting card chain with head office located in Brampton, Ontario. We own and operate 260 stores across Ontario, 37 located in the harmonized region.

.1325

During the last few years we have been successful in having 80% of our product pre-priced by the manufacturer. These efforts have resulted in substantial savings. We have also ensured that all costs associated with getting the product to sale are absolutely necessary. As a result of these efforts, our customers and our employees have benefited, our customers through lower prices and our employees through saved jobs, as we were able to turn unprofitable stores into profitable stores.

Tax-inclusive pricing makes all of these efforts meaningless. We will now need to incur substantial costs to comply with the tax-inclusive legislation, layers of costs that will not result in increased sales nor reduced spending elsewhere. In fact, we speculate that revenues will fall as people perceive that prices have increased.

In summary, we expect to incur the following costs: $60,000 for ticketing items that have been shipped pre-priced; an additional $15,000 for the dual pricing of all of our merchandise that is not shipped pre-priced; $8,000 for conversion charts located near our greeting card runs; and $63,000 for programming, price tickets, price guns and signage. Of these costs, $84,000 are one-time costs but $62,000 are annual costs.

All of these costs are significant - significant to us, significant to our customers and significant to our employees. If we cannot reduce spending enough to offset these costs and there is resistance to increased prices, we will have no choice. We will close stores and eliminate jobs.

We have done the numbers. We know how many jobs can be lost. Of the 37 stores that are located in the harmonized region, 23 are marginally profitable. The additional costs associated with tax-inclusive pricing will make 19 of these marginally profitable stores unprofitable. They will be closed, closed as soon as possible when the leases expire. These stores employ 116 people.

What will this legislation do? It will increase costs to an industry that achieves an average profit margin of 2%. It will increase costs to consumers. Prices will rise to absorb some of the costs of implementation and ongoing expenditures. It will result in the loss of jobs to retail workers. Where will they work after we close our doors? Finally, it will result in increased government spending as employees are forced to seek unemployment insurance and welfare. All of this is needless.

While I realize that tax-inclusive pricing is being legislated because Canadians have indicated that they want to know the full price of goods prior to purchase, I do not believe Canadians desire this at the cost of their jobs.

Please listen to what I am saying. The costs are real. The costs are not exaggerated. The cost is jobs.

The Chairman: Thank you very much, Ms Hallett.

From the Canadian Council of Grocery Distributors we have Mr. John Geci. Welcome.

Mr. John Geci (President and Chief Executive Officer, Canadian Council of Grocery Distributors): Thank you, Mr. Chairman. After the three-minute presentation, if there are any questions in French we would be most happy to answer.

[Translation]

If any of you wish to put your questions in French, I would invite you to do so.

[English]

The Canadian Council of Grocery Distributors thanks the committee for receiving us and inviting us to make our comments relative to the discussion on the HST and the tax-in issue.

First of all let me say that we are, in spirit and in deed, in agreement with the proposal of a harmonized tax system in Canada. We believe that the sooner the government can pursue this initiative through all the provinces of Canada, we are wholeheartedly in support.

On this particular issue, we represent an industry where we have large and small wholesalers and large and small retailers. We represent national companies that have operations in Atlantic Canada, in Nova Scotia, New Brunswick and Newfoundland. We also represent organizations that have their head offices in those provinces.

We represent an industry where - and we think this is where the government is addressing the issue in the right way - the consumer shops for groceries an average of twice a week and spends over $110 a week on grocery items. That comes out to over $6,000 a year that the consumer spends for those grocery items. And 30% or 40% of those items are taxable, depending on the kind of operation we have at the retail level in Atlantic Canada.

The key element - and we feel the government is responding to the Canadian population - is that the price you see is the price you pay. Canadians are fed up and tired. They ask us at the counters, they ask the cashiers, why the tax? Some of them can't calculate it.

.1330

That in essence is the real issue before us, and you are addressing it 100% dead on. The price you see is the price you pay - no other add-ons, immaterial of where you are and where you stay.

I'm not going to comment on the brief directly. I'll just give an overview of three items plus one.

First, we ask you to delay not the implementation of the HST. We think the HST as a harmonized tax can be implemented as of April 1. However, we do ask you to delay the tax-in for at least 120 to 150 days, meaning August 1 or September 1. This is not to delay it so that more pressure can be borne on the government to withdraw it, but to give businesses at the local level the time to adjust their systems. At present many of us are concerned with addressing the year 2000 system, and that is a major concept in terms of retail and operations.

The second item in wanting that delay is the fact that the legislation and the regulations will probably not be known until the month of March. It would be very difficult for us to start adjusting all our systems within 30 or 60 days of the knowledge of the actual final regulation. We need that 120 to 150 days before the implementation of the tax-in proposal, which we support.

The third issue we want to address and comment on is the fact that the 120-day to 150-day delay for the tax-in is also necessary for the implementation of pre-priced items. Many of us in retail have pre-priced items and it would take us approximately 120 days to 150 days to sell those items at the pre-priced tax-out cost to the consumer.

Yes, it may be somewhat confusing initially, but at the same time, we are asking the government not to make that date the specific date of April 1. Make that date for the incorporation of the tax-in specific, with enough lead time so that everybody is on-board, and make it a fixed date. Let us say September 1. Then everyone in the country or in those particular jurisdictions would have to show the tax-in.

We strongly believe that by addressing the dual aspect, by addressing all the other items in terms of how best we can delineate or make it with more affinity, that's where the complications arise.

Lastly, Mr. Chairman, with respect to advertising, we feel that a rigid date will solve a lot of those problems. By looking at various hypotheses and alternatives, we are in fact creating the confusion for the consumer. The consumer should know that on September 1 all items in Atlantic Canada are sold with the tax in, and that makes it very clear.

The Chairman: Are you just about finished, Mr. Geci?

Mr. Geci: Yes, I am.

I just want to mention to the committee, Mr. Chairman, that in our brief we've included an item on tobacco that we're not going to address at this committee. But we feel the committee should look at it in terms of alleviating a reoccurrence of smuggling and the illegal issues around tobacco. That we have left in the brief for the committee's attention. Thank you.

The Chairman: We'll follow up on that. Thank you, Mr. Geci.

From the Atlantic Building Supply Dealers Association we have Mr. John Ward. Welcome,Mr. Ward.

Mr. John Ward (President, Atlantic Building Supply Dealers Association): Thank you very much, Mr. Chairman, ladies and gentlemen.

In very brief summary, the Atlantic Building Supply Dealers Association is a 41-year-old trade association of the retail and wholesale building supply industry in Atlantic Canada. Our membership would represent over 525 dealer and supplier members across the four provinces, who would constitute over 95% of the retail building supply volume in those provinces.

Mr. Chairman, ladies and gentlemen, in the interests of time and the direction from the chairman, I will focus our submission on two issues. One is a support for tax harmonization in principle. The members of ABSDA support the principle of tax harmonization and in fact have done so consistently since 1989. The second is with respect to the issue of tax-in pricing. A major concern for our members is the issue of tax-in versus tax-out pricing in the retail building supply industry in Atlantic Canada. Very clearly, our association supports mandatory tax-in pricing. Mandatory tax-in pricing clearly indicates to the consumer the total price of the goods or service being purchased.

.1335

As an industry, we will incur one-time costs in conversion programming and in staff and other costs allocated to physically changing the product price tags and the bin tags in each of our dealers' stores. We recognize these costs should in fact be one-time costs, but we as ABSDA in Atlantic Canada believe these costs will be outweighed by the benefit that is derived from reduced confusion and from the shock a consumer experiences when the sticker price of a product escalates by almost 20% at the cash register. Our analysis of these one-time costs within our industry, with a wide variety of sales volumes, a wide variety of computer applications and sophistication, and a very wide range of product items, indicates to us that many of the one-time costs that have been quoted by various groups may not in fact be able to withstand careful analysis and scrutiny.

We support the idea of one governmental body administering a harmonized tax. This again has been consistent with our position since 1989. We believe, however, there are some concerns about the issues of complexity. We believe further a single tax administration should result in efficiencies and cost savings within government. However, we do communicate to your committee that while a single tax administration should result in a reduction of administrative costs for the entire business community, it requires a system which has given very careful regard to the issue of simplicity. Any change in the structure should have as one of its basic tenets the principle of ease of interpretation.

In the interest of time I will not address the issue of housing. I will just very clear put it that the building supply industry in Atlantic Canada supports, first, the concept of tax harmonization, and secondly, the principle of mandatory tax-in pricing on a very broad base.

The Chairman: Thank you very much, Mr. Ward. I was going to call next onMr. Peter Woolford, but I assume he agrees completely with what you've just said, so we can probably pass right by him.

Mr. Peter Woolford (Senior Vice-President, Policy, Retail Council of Canada): Perhaps not, Mr. Chairman. I know that will be a surprise to you, sir.

First of all, my apologies for arriving late. We were caught in winter in Canada.

Thank you very much for giving me the opportunity to appear here on behalf of our members. It is important for the retail trade. You can see the number of representatives you have here this afternoon. The importance stems from the fact that retailers are the principal collectors of sales taxes in Canada.

I have provided a written submission to the clerk.

[Translation]

I tried to fix it with your office, Mr. Peterson, to have our French translation available this afternoon? Has that been done? I frankly don't know.

We do have a translation that should be available soon.

[English]

The Retail Council has 6,500 members, representing every sector of retailing. Over 90% of them are independent retailers and they account for roughly two-thirds of retail store volume.

Like virtually everybody else here this afternoon, we have been strong and vocal supporters of harmonization. Mr. Chairman, you'll recall that Mr. McKichan, our former president, appeared before your committee a number of times, strongly pushing the case of harmonization here and in every provincial government across Canada. Our members are equally strongly opposed to tax-in pricing, and especially the perverse policy announced by governments last week.

Let there be no question that our members respect and honour the desire of customers to know the price they must pay for a product when they arrive at the cash. Our concern is that the halfway policy the government announced last Friday adds extra costs to the operations of our members, as some of those present this afternoon have detailed, and will create a very complex pricing environment that will be awkward and confusing for many consumers.

.1340

Let me detail very quickly a couple of the confusions. Consumers are going to find it more difficult to compare prices between retailers who are using different pricing practices. Consumers will be confronted with different pricing regimes in different parts of the same store.

Inevitably there will be boundary problems. What is a greeting card? What is a magazine? A product that is marked down in certain formats now will have no fewer than four prices on it: the original price, tax in and tax out, and the sale price, tax in and tax out.

Our members are very concerned that they will become the focal point for consumer annoyance and the resulting confusion. For this reason and with great reluctance, we have decided we must run public advertisements starting next week warning consumers about our fears about the price confusion to come. We regret deeply the need to take this step, but we fear that otherwise consumers will not realize the implications of this bizarre pricing policy until it is too late.

We estimate that on the cost side tax-in pricing will add roughly $90 million in wasted costs to retail operations without really producing any extra value for consumers. The costs occur in four areas: information systems, distribution logistics, pre-priced goods and advertising. Retailers cannot absorb these costs, as you've heard. They will have to raise prices, close doors, lay off people or reduce product selection. You've already heard from a number of our members as to how those impacts will play out.

We are also dismayed, frankly, that by forcing tax-in pricing in one part of the country, the federal government is in effect Balkanizing the country into small regional markets divided off from each other. We believe the governments must back away from their political agendas and allow retailers and their customers to carry on their business in a way that produces the least confusion and the lowest cost.

Thank you.

The Chairman: Thanks, Mr. Woolford.

From the Don't Tax Reading Coalition, we have Jacqueline Hushion.

Ms Jacqueline Hushion (Chair, Don't Tax Reading Coalition): Hello. Thank you for having us here.

The Don't Tax Reading Coalition has never taken a position on the record on the harmonization of tax in Canada, either in favour or opposed. However, I would assume the vast majority of our members, generally speaking, would be in favour.

We'll be submitting a written brief within a few days to address any questions that arise today. In the meantime we've submitted our opening statement, copies of earlier submissions to this committee and recent submissions to the Department of Finance.

The Don't Tax Reading Coalition represents readers, writers, teachers, librarians, booksellers and publishers. We know you've heard, both at these hearings and in your ridings, from others who echo our position. You will continue to hear our message.

First, the recent move by Minister Martin to introduce a rebate of 100% on reading material for municipalities, universities, schools and hospitals and to allow books to remain outside harmonization in the Atlantic provinces was a great start. Congratulations. It was that, though: a start.

It's wrong to tax reading. This government unequivocally promised to remove the GST from reading materials. We know it's not in the red book, but we are the only commodity to which that promise has been made.

The GST was the first federal tax on reading, literacy, education and democratic thought in Canadian history. It caused an immediate reduction in sales of reading material across this country, a reduction that still has not been made up.

Canada has the highest tax on reading of any member of the G-7. That is stunning. It is 100% higher in Canada than in all other G-7 countries. Reading is taxed at a rate of zero in the rest.

Mr. Peterson, the chair of this committee, eloquently stated in the House of Commons:

Taxing the printed word strikes a blow at lifelong learning and the transfer of information.

.1345

More than half of your colleagues in this government caucus told us in writing during the 1993 campaign that they were committed to the removal of GST from reading during the current session of Parliament.

When in opposition, Ron Duhamel, your colleague, introduced a private member's bill to remove the GST from reading material. He said at that time on the floor of the House of Commons that the application of the GST on reading material is ``contrary to fundamental, basic, democratic principles''.

This committee recently issued a report entitled The 1997 Budget and Beyond: Finish the Job. It sets out six areas for action, including literacy, student educational costs and R and D. You've been hearing from literacy groups who asked that the tax on reading be eliminated. Yesterday you heard from the Canadian Federation of Students asking that the tax be eliminated. You heard the Canadian School Boards Association back up the Canadian Federation of Students.

Prime Minister Jean Chrétien wrote to us:

Applying the GST to books and periodicals discourages reading and hinders the cause of Research and Development. At the Liberal Party's recent biennial convention, we passed a resolution calling for the removal of GST on books and periodicals. And that I will do.

The Chairman: Ms Hushion, it's not that I'm not totally delighted to hear our party history, but -

Ms Hushion: We still have tax on reading -

The Chairman: Excuse me. I'm just asking how much longer you'll be, because we're trying to limit opening remarks to three minutes a group.

Mr. Solberg (Medicine Hat): [Inaudible - Editor].

The Chairman: As long as she keeps mentioning the Liberals.

Ms Hushion: I'd just like to give Ms Aalto a few minutes. She has a very practical application, and I'm just about -

The Chairman: I'm asking you how much longer you'll be.

Ms Hushion: Under a minute; I'm almost finished.

The Chairman: Okay. Thank you.

Ms Hushion: I want to say we understand the government's financial constraints. We have been patient about repeated delays in honouring the campaign commitment. Tobacco tax increases are reaping unbudgeted windfall revenue. There are ways to pay for the removal of the tax on reading without expanding the tax onto other items or increasing the rate.

Canada's readers have made their contribution to deficit reduction. It's time to keep the government's promise.

Helena, fast.

The Chairman: Could I ask you how long you're going to be? It's just -

Ms Helena Aalto (Director of Marketing, Don't Tax Reading Coalition): Getting a little out of hand?

The Chairman: Well, I've limited every other group. I've had to cut off other opening people who've gone over five minutes. The rule is three minutes. I will make sure you get a chance to present this before you leave here today.

Ms Aalto: So I don't speak now?

The Chairman: I'm happy to let you speak, but it's just... Go ahead if you want.

Ms Aalto: Okay.

The Chairman: I've never said no to a woman in my life.

Some hon. members: Oh, oh!

Ms Aalto: I'm not going to get into the specifics of the other retailers here and talk about the costs of staffing, the systems costs and the distribution costs. We share those concerns with the other retailers here. I'm going to talk about the things specific to bookselling that are going to be affected by tax-in pricing. That is our issue and why we're here today as well.

Books are pre-priced as part of the publishing process, and often that publishing process is happening in another country - England and the United States most often. But the unique thing about books is they are sold to retailers on a returnable basis, so if a bookseller does not sell a book, we can return that to the manufacturer.

With tax-in pricing, that means not only do we have the expense of putting a price ticket on the individual book, but we also have the cost of taking that ticket off. Because of the nature of the product, the different textures of the covers and things like that, often that product will be damaged by the removal of a price ticket.

As well, customers who take home a book that has a ticket on it and try to remove the ticket, if that book is damaged, will bring it back to us for a refund, so we have write-off costs there. Once the book is damaged, it cannot be returned to the publisher.

As well we have a unique issue in that even a relatively small bookstore has 10,000 different titles. That's not items. That's 10,000 different titles, and for each one of those there are anywhere from two to 20 copies. So there are 100,000 or more different items in even a typical bookstore.

We estimate the cost of pricing, unpricing, increased distribution costs and systems costs to be about 50¢ a book, and that would even include a book like this Canadian children's book, which retails for 99¢. The cost will be 50¢ to handle this book as often as we have to to get tax-in pricing on there.

.1350

We believe books should be zero-rated for all taxes. However, tax-in pricing is a key issue for us, and we urge you not to make that happen for Atlantic Canada.

The Chairman: Thank you, Ms Aalto.

From the Consumers' Association of Canada we have Marie McCall and Robert Kerton.

Mr. Robert Kerton (Finance Committee Chair, Consumers' Association of Canada): Thank you, Mr. Chairman and members. We're pleased to be here again.

The Consumers' Association of Canada is a non-profit, non-governmental organization representing consumers. We're about to have our 50th birthday this year.

I'll restrict my remarks to two areas: fairness and visibility.

We have participated for a long time. Fifteen years ago the Ministry of Finance was talking about a 3% tax. Three percent sounds pretty good right now. We participated in a very solid research study in the 1989 hearings, and that research stands up so solidly now that there must be a lot of people who wish we'd done it right in the first place.

To get to the point of fairness, the low-income credit is not indexed. It was a decent size of credit when it was introduced, but it gets eaten away to the extent that inflation is under 3%. So if you want to address fairness, you have to try to get that low-income credit fully indexed.

The second point has to do with the amount of taxes in general that consumers pay. From what I've heard while I've been here, the ideal tax is a tax on someone else. We as consumers feel that way too. If you compare the amount of taxes borne by consumers in Canada with the amount borne by consumers in other countries, it's not a huge difference, but here consumers are paying 27.3% taxes on consumption directly, and the average for the comparable countries, the G-10, is 25%. So we have a higher portion of that on us than other countries.

In our original work we could tell which industries were going to be struck by the introduction of the tax, who was going to suffer lost sales and so on. One of the predictions we had was the financial sector, but as you may know, they didn't get included fully. So what I'm recommending to you today - and it's interesting that the Consumers' Association recommended this to you people in writing exactly two years ago today - is that you include some of the sectors that have been advantaged so much by economic policy over the last several years.

The standard of living for regular Canadians hasn't risen since 1989, but as a result of tax changes, tax shifts to other sectors and onto consumers, and the general management of economic policy, the financial sector is really looking pretty. Why is it looking pretty? Because of government policy.

We're recommending again that you introduce a financial transactions tax at a low rate. We recommended 0.001% before. We'd be happy to have it at 0.0001%, so on a $200,000 transaction it would be $20. This turns out to raise a lot of money. The point of it has to do with fairness so all the sectors of the Canadian economy can share in the benefit of this so-called growing economy and can share the tax burden a little more evenly so we can get this rate down.

It seems to me that whatever else you do, if you come forward with some proposal that has a sensibly lowered rate as a result of the income you can collect from a financial transactions tax, you've done a lot.

You're going to hear the heavy-duty lobbyists from the financial sector saying we can't do that, or all the firms will fly to other countries. I remind you in advance that Japan already has such a tax and the U.K. has such a tax. If you put it in at a rate lower than those, you should be able to collect a suitable amount of revenue without...

On visibility, our original position as an association was that we wanted both prices on everything so the consumer would have the maximum amount of information. We changed that position in response to hearing from our own people, and in 1994 we argued the following, to read what we said exactly:

The Consumers' Association of Canada recommends... government-mandated tax-included pricing...for all consumer transactions...

This we feel can still achieve the original objective of visibility provided that the receipt you get has the taxes clearly indicated on it. That will introduce the accountability.

We're frightened about a tax grab. This whole thing was a tax grab. When it was introduced, the manufacturers' sales tax that was being replaced was 7% or 8%. It rocketed up to 13.5% before the tax came in. It was a huge tax grab.

.1355

We're worried about that in the future, but look at the experience of European countries. Whenever they change the rate, they do get active political debate. The media participates, citizens participate and certainly the political people participate. So we think that can be achieved with the record on the receipt.

We're not in favour of some of the current detailed proposals. We don't favour, say, a complicated card on the wall where you can go and read about all your tax increases. No consumer is likely to consult that kind of thing. Maybe there could be one big sign saying ``The taxes in this province are 10.5%'' or something.

Thank you, Mr. Chairman. That's the overview I wanted to present.

The Chairman: Thank you very much, Mr. Kerton.

[Translation]

We'll start our round of questioning with Mr. Bélisle.

Mr. Bélisle (La Prairie): I'd prefer to come back later.

The Chairman: Very well.

[English]

Mr. Solberg.

Mr. Solberg: Thank you very much, Mr. Chairman.

As we've heard countless times, it seems, over the last few days, people have major concerns with tax-in pricing in this country, notwithstanding what we heard from Mr. Ward and Mr. Geci. Again, to me it just points to the need to have people from the finance department pay close attention to what they're saying. If I can put it in a nutshell, I think people are saying they like a lot of what they're hearing about harmonization, but the idea of tax-in pricing is a huge, expensive and major mistake. I think that's what they're saying.

To put a fairly fine point on it, we're also hearing from Ms Hallett and we heard earlier today from MMG Management and from the construction associations that, not necessarily because of tax-in pricing but due to other implications of this, it's going to mean a loss of jobs. According to Ms Hallett of Carlton Cards it will mean 19 stores closing down. We also heard the gentleman from MMG say they have closed or will close several stores, with 74 jobs lost as a result of this. And several thousand jobs will be lost in the construction sector as a result of this legislation.

I want to ask a question of Mr. Woolford. He's been very vocal on this.

You have talked in the past about how much this is going to cost people in the sector you represent. It's going to cost a lot of money, and you talked about the cost in jobs. I wonder if you can put some numbers to that. Can you tell us how much it's going to cost you, which will be passed on to consumers or will be felt in the effect of fewer jobs, and possible job losses? I don't know if you can pinpoint that or not, but maybe you could say a little bit more about that.

Mr. Woolford: Thank you, Mr. Chairman.

We've struggled to try to come up with a clear estimation of the amount of costs that tax-in pricing will impose on the retail trade. As members may recall, we did a study with Ernst & Young last spring. Seven of our largest national members did a study for their companies alone, which produced some initial estimates. On that basis we went back and asked for volunteers among our members to go and do the necessary very thorough audit of their operations to determine what the costs would be in-depth. We'd done it kind of quick and dirty the first time around.

In the end we had 10 firms give us back detailed results. Those 10 firms accounted for a little less than 30% of the domestic Canadian market in retail sales. They found their gross costs of accommodating tax-in pricing ran to about $34 million a year on an ongoing basis, every year, year after year in perpetuity. This was balanced by some $6 million worth of input tax credit savings, administrative savings from having one set of auditors come through, and other savings they could identify in their operations, for a net loss to them annually of around $28 million.

They also identified one-time costs, the kinds of costs Mr. Ward talked about: changing software, changing prices, buying new price guns, putting up signs, and those sorts of things. Those one-time costs they found were around $27 million.

We didn't have any better way of using that other than to simply try to extrapolate it out to the retail trade as a whole, so what we did was basically multiply by three to come up with a number in the neighbourhood of $90 million. I would not attach religious significance to it, but without question it gives us a ballpark of the damage that will be caused to the trade by tax-in pricing.

.1400

I should add that that $90 million does not go away under the options provided by government last Friday. We had a conference call amongst our members on Tuesday, I believe it was, and there was a vigorous debate amongst the members at that time as to what the implications were. At the end of it there was a pretty fair consensus that most of the costs that we have identified in our more detailed submission and that the members have identified here today stay under the current system. There's not much cost relief for the trade in the changes that have come through.

Mr. Solberg: One of the frustrations I've had with this is so far the government has offered only one piece of evidence that tax-in pricing is desirable.

They said people in Atlantic Canada - minus P.E.I., I guess, for the moment at least - want tax-in pricing. But according to the government's own survey - and I don't know if you've seen it - in the context of the debate we're having today about harmonization only occurring in Atlantic Canada and the cost being passed on, in part at least, to consumers, the majority of Atlantic Canadians who were surveyed don't particularly want tax-in pricing, which I found quite surprising.

Given the fact that this is the only evidence the government has brought forward as a reason to bring in tax-in pricing and given all the opposition against it - and there's tremendous opposition; we've seen a lot of it here today, but there's a lot of grassroots opposition, I know, in Atlantic Canada - can you give us any reasons we should be pursuing tax-in pricing in Atlantic Canada now?

Mr. Woolford: The Retail Council understands the desire of consumers for a simple, clear marketplace, and on the face of it, tax-in pricing is an attractive way for the consumer. Earlier we heard Mr. Kerton talk about the position of the Consumers' Association that a single, mandated tax-in price was something their members asked them to advocate in the mid-1990s. In fact our members would not be opposed to that if we had a single national sales tax system, and by that I mean a single base, a single rate, and a single administration.

When you fragment the country into small markets with different rates, you get into substantial confusion problems, because retail is set up now on an international basis. Even domestic markets the size of Canada's are relatively small, so there are cost implications and there are the communication problems we observed earlier. So there are substantial problems of confusion for the consumer.

With the latest changes, it's hard to know just exactly where the consumer would find some benefit out of the version of tax-in pricing that came in on Friday. Even Mr. Kerton said they had some discomfort with the options proposed by the government on Friday, and let's remember this was a group that was in favour of tax-in pricing and is now expressing some reservations about the version that has come out.

It is very burdensome, it is very bureaucratic, and it is certainly not the way customers have shopped in Canada for the last number of generations. So I'm puzzled as to why there would be that sense that consumers would want it.

The only other thing I can offer, if you'd permit me another moment, Mr. Chairman, is that at the time the GST came in, one of our then member companies did a lot of research into consumer wishes, and that was the company Woolco. They surveyed their customers at great length. They did focus groups and a quantitative analysis of their customers. They focused in on women 25 to 45, I believe, with lower incomes. They asked them, and overwhelmingly those people said ``yes, we want tax-in prices''.

On that basis Woolco had a number of lively debates with the other members of the Retail Council about how right they were to go tax-in. In the event, they got clobbered in the marketplace when they went tax-in after the GST came into effect. They lost a lot of market share.

Just a few weeks ago, a former manager of a directly competing store against theirs in Winnipeg said the day Woolco went tax-in, his sales jumped by 10%. He did nothing; he did absolutely nothing, but his sales jumped by 10%. The business walked across the street. What happened? Did Woolco's customers lie to them? No. The conclusion from the folks at Woolco was that people thought tax-in pricing meant that the good they buy today at $9.99 plus, at that time, 7% would stay at $9.99. They felt deceived when it went up to $10.69.

.1405

It's very complex to reach inside the customer's mind, but the evidence seems to be that customers still shop the way they have for the past generations. They look for the lowest price and they do not go through a complex research process of trying to figure out what that price means. To paraphrase one of my members, the lowest price is the law. I have some members here who won't like me saying that, but it's the truth.

Mr. Solberg: I have a question for Mr. Pratt. We had quite a debate this morning about price points and I think there was a lot of confusion about it. Some people on the government side questioned the necessity of adhering to those price points, and we got into quite a long discussion about marketing. I think there was some doubt on the other side about whether or not it made much of a difference to consumers or how much of a difference it made.

You made the statement that if you pushed a $99 pair of shoes up $1, you would lose 12 to 15 sales because of it. I wonder if you could expand on that in the context of the government's presuming in a way to dictate your ability to market. Price is a very important component of marketing. The government is now proposing tax-in pricing, which will place pretty hard strictures on your ability to market by a price point. Maybe you could expand on that.

Mr. Pratt: First of all, price points are a reality. You referred to some doubt as to why we would live with those price points. You have to understand that we buy our product from a manufacturer. If a manufacturer sits in his corporate head office and views a product, he wants to make a certain amount of money on it. He's looking at a particular commodity and he decides he could probably sell a million units if it retailed for $99.

They will price it, giving us a traditional margin. There are traditional margins that wholesalers will permit, and they'll base their manufacturer's suggested retail value on that traditional margin. Now, it is not a huge margin. There are products out there you can get better margins on. But retailers are willing to put it out at that price because the trade-off is volume versus margin. You'll sell that extra volume.

The minute the government includes the tax, it's a whole new ball game. I as a retailer probably will never take that item because I cannot sell a $99 item at $112. The area between $100 and $110 or $115 is death valley. You don't want any products out there at that price point. If I am to sell an item at $99, really I have to look at a lower-priced item that the manufacturers would normally sell for $85 to generate the same total sales. But obviously it's trading down. The consumer is not going out to trade down, but she's still looking for a $99 item.

As Mr. Woolford said, customers feel that they want tax-included items, but they want the same item for the same price with no tax.

Mr. Solberg: I'd like to put a question to Ms Hushion too, if I could. The parliamentary secretary was looking quizzically when you said that you couldn't sell a $99 article at $112.

Mr. Campbell (St. Paul's): My point was that I am the customer and I can't buy it for $99. He may not be able to sell it for $114, but I can't buy it for $99.

.1410

Mr. Solberg: Right. I think that's an interesting point, but I don't think it's relevant, because I don't think the federal government has an understanding where it should even try to get into the business of trying to understand or want to learn how people do their marketing. I'm just very afraid, as I mentioned before, that we're going to have the federal government set up its own little CRTC for regulating how people merchandise their products. I find that a little bit frightening.

In fact, in other areas where the government does seem to be embracing the idea of deregulation, I would hope this would continue when we're talking about things like merchandising and that sort of thing in Atlantic Canada.

I have a question for the people from the Don't Tax Reading Coalition. You people have been working on this for a long time, and you have received assurances from the Prime Minister, in writing, that you would see the tax on reading materials disappear if he became the Prime Minister. And even since then, if memory serves, we have had Liberal policy conventions - one in 1993 and one in 1995, I think - where the government said it would love to get rid of the tax on reading materials. Now you must feel a little bit betrayed by this, given that during the election campaign, when the Prime Minister wrote to you, undoubtedly he was doing that in part to garner support for his party. It must be a little frustrating to have all of those assurances and no action.

Ms Hushion: It is frustrating. As I acknowledged, there has in fact been some action recently. And if we have to dismantle the tax on reading piece by piece, we will. We don't feel betrayed yet, because it's still an unkept promise. But if we go into an election with a tax on reading, if we adjourn this session with a tax on reading, then we have an untruth on the books. Pardon the pun, but that will be a betrayal, absolutely.

Mr. Solberg: It will be an untruth on the record, I guess.

Thank you, Mr. Chairman.

The Chairman: Thanks.

Just before I go on, I don't mean to intervene in the content of your brief, but you have indicated, Mr. Woolford, that our hearings have circumvented the consultation process. You have said there have been only three days allowed for hearings in Ottawa. Do you not feel this will give you adequate time to make your point to us? Do you feel you're being shortchanged?

Mr. Woolford: No. I'm arguing primarily on behalf of our independent members in Atlantic Canada.

The Chairman: Can you tell me of any of them who wanted to come here who weren't able to?

Mr. Woolford: Yes. I was contacted by some.

The Chairman: Did they ask to come? Did we deny them the opportunity to be here?

Mr. Woolford: I know of one at least who asked to appear and then decided to back away because of the cost. The cost is fairly substantial.

The Chairman: Yes, I know that, but we pick it up.

Mr. Woolford: The person I was speaking to was under the impression that only one retailer would be allowed to appear.

The Chairman: No, that's not true. We pick up the cost for people to travel here. If you had contacted us on their behalf you would have learned that.

Do you know of any other people who've been denied the opportunity to appear before us?

Mr. Woolford: I will try to get back to them and see. I've had a few calls.

On that basis, I withdraw my remarks and apologize to the committee.

The Chairman: Thank you, Mr. Woolford.

Mr. Woolford: But certainly the folks who had phoned the committee were left in a state of considerable uncertainty as to whether their costs would be covered. I don't know.

The Chairman: No. I can assure you that the clerk would not have done that.

The Clerk of the Committee: No. If they asked, we assured them that the cost of one witness per group is covered.

Mr. Woolford: You see, that's the phrase. They thought that because they were members of the Retail Council they would not then be allowed to come. Perhaps, just for clarity, you could make it clear what you mean by ``group''. That's all. I'm not asking for 75 people.

The Chairman: When the 47th Boy Scout Troop from Halifax asks to come, we're not picking up all of their 60 members.

Mr. Woolford: That's understood.

The Chairman: Thank you. I just wanted to clarify that issue, because we are very sensitive. We're not trying to stifle debate. You've objected to only three days in Ottawa.

Mr. Solberg: I guess that means no closure on this bill.

The Chairman: There's no closure on it.

Mr. Solberg: Good. I'm glad to hear that.

.1415

The Chairman: We act differently from other committees. We do hear a lot of witnesses. We heard over probably 300 witnesses for our pre-budget report, read 400 reports, and came in with an 80-page report within two months. Maybe the other groups aren't used to working this way, but our members are used to very intensive, long days. If this inconveniences witnesses, we're sorry, and we'll try to change if we can accommodate you in any better way. I know of no witness who has been turned down.

Mr. Campbell.

Mr. Campbell: I'm distressed about this continued talk - we had it this morning - about costs but no discussion whatsoever about savings. We had it from Ms Hallett and from Mr. Woolford as well.

Ms Hallett, you're the comptroller of Carlton Cards, so I presume you have at your fingertips this information. What do you currently pay in provincial sales tax on your business inputs, and what will happen to those costs after harmonization? I trust I'm not getting into anything commercially sensitive here. You have that information. You know those will be rebated.

Ms Hallett: I did not bring all my financial data with me today.

Mr. Campbell: It's too bad, because you brought one side of the equation, but I think we should look at a net number and see the other side of the equation

Ms Hallett: Okay. If you give me the question again, I can submit it to your office.

Mr. Campbell: I would like to know what Carlton Cards currently pays in provincial sales tax on its business inputs, which it will no longer pay after harmonization, because with all due respect -

Ms Hallett: Harmonization only in those three provinces?

Mr. Campbell: Yes.

Ms Hallett: We are located in Brampton, Ontario. Most of our services are purchased in Ontario, so there are very few that we buy from any of those provinces where we would see an impact with this legislation.

Mr. Campbell: Are you willing to acknowledge there will be some savings due to no taxation on your business inputs after harmonization to the extent those inputs are purchased in the maritime provinces?

Ms Hallett: I'm sorry. If you repeat it again, I'll make sure I understand it.

Mr. Campbell: Let me phrase it differently. You know that currently under the provincial sales tax system for the most part business inputs are taxed unless there's a special exemption certificate.

Ms Hallett: Yes.

Mr. Campbell: Are you aware what will happen to the taxation of business inputs after harmonization?

Ms Hallett: Are you talking about the input tax credits, what we would get back?

Mr. Campbell: Yes. Were you able to make the calculations?

Ms Hallett: Yes, we were, and it was minimal.

Mr. Campbell: It would throw up some savings.

Ms Hallett: Yes, there would be.

Mr. Campbell: Which presumably could offset some of the costs that you -

Ms Hallett: It was so negligible that it didn't have any impact on the number of stores we would close or the number of jobs that would be lost.

Mr. DeRocher: I wonder if I could respond to that same question for Woolworth.

Mr. Campbell: Certainly. Thank you.

Mr. DeRocher: We did that exercise. In fact, in our case a net loss of about $25,000 was all it amounted to, the difference between recovering the input tax credits for the Maritimes. The total cost for our business of implementing the harmonized sales tax credits for the tax-in pricing alone we estimate to be $2.5 million of a one-time cost and $2.5 million of an ongoing annual cost. So the magnitude of the input tax credit is negligible in relation to the other.

Mr. Campbell: Now, in both cases you are national in scope, and in part the reason for that negligible cost would be for the reasons Ms Hallett explained: that you purchase a great many of those inputs nationally. So for a local retailer, and maybe Mr. Woolford will comment on that, I presume that the savings from the input tax credits would be greater.

Mr. DeRocher: It also has to do with the nature of the retail business, where unless you are expanding and building new stores, there is not a great deal of capital investment. The bulk of your cashflow exchange is in expense that is not recoverable. Specifically, the biggest single components on your operating statement are rent and labour.

Mr. Campbell: Let me ask you, though, in discussing your costs you described one of the greatest impacts as being ticketing. I'm somewhat confused, because I would have thought that you reticket all the time - after Christmas, special sales, regional sales - that you don't pre-ticket or pre-price and that's the price forever. I go into stores all the time and see sale prices stickered over prices that were on the ticket before that. Surely that goes on regularly in your company.

.1420

Mr. DeRocher: To give you some perspective - and I'm not speaking of my organization, because that's confidential - traditionally an apparel retailer operates at markdowns in the range of 10% to 12% of sales. Someone who is in a non-apparel or more basic business would operate at a markdown rate significantly below 10%. So out of the 100% of the items you sell, approximately one-tenth or less are sold at a markdown price.

Ms Hallett: In addition, we use POS markdowns to a greater extent than we mark down our product through ticketing.

Mr. Woolford: Could I - ?

Mr. Campbell: Mr. Woolford, I just want to clarify this.

Mr. Woolford: Certainly.

Mr. Campbell: Where you left me before you clarified is that you pre-ticket somewhere outside the Maritimes and this is going to force all kinds of costs for the Maritimes. I'm suggesting to you that you already do that regularly in the Maritimes when you have special sales in Halifax Woolworth stores or in Atlantic region Woolworth stores. Or do you only do national price reduction campaigns from time to time?

Mr. DeRocher: No, but to pick up on what Ms Hallett said, the bulk of the way that is handled now is at the electronic point of sale terminal rather than the manual labour. You fix an area indicating that the markdown will be taken at the point of sale terminal. There is no labour involved.

In this proposed system, what we're talking about is an upfront labour cost to affect the initial pricing.

Mr. Campbell: I know one of my colleagues wants to come back to this, but I want to move on to a couple of other things quickly, Mr. Chairman, if you will allow me.

Mr. Woolford: Excuse me, Mr. Chairman.

Mr. Campbell: Oh, I'm sorry. Mr. Woolford wanted to comment.

Mr. Woolford: I want to correct you. In my remarks I made it very clear that the 10 firms that did detailed work for us identified some $6 million worth of input tax credits.

Mr. Campbell: Savings.

Mr. Woolford: Yes, savings. Plus I acknowledged other savings in the area of administrative and audit costs and I detailed those for the committee. The gross costs for those 10 firms were$34 million, leaving a net loss of $28 million.

Mr. Campbell: May I ask you, Mr. Woolford, was that done before the guidelines or after the guidelines?

Mr. Woolford: That was done before the guidelines, but we -

Mr. Campbell: So we don't know how that will change?

Mr. Woolford: We reconfirmed that on a conference call on Tuesday with, I believe,14 members present. After a fairly vigorous debate, including some who were convinced they were going to make savings, the conclusion of the members on that call was that the savings from the new policy would be minimal.

I don't know what minimal is. We haven't had time to do the kind of detailed accounting analysis that was done the last time. But everybody agreed it was nowhere near sufficient to outweigh the additional costs they'd already identified. So we are still going to be in a net loss position.

We have always acknowledged that there were some small savings on input tax credits. It's small in the retail trade because -

Mr. Campbell: You said that because I asked, in fairness.

Mr. Woolford: No, I volunteered it, sir.

Mr. Campbell: Okay.

Mr. Woolford: I volunteered it in my remarks, if you'll check the Hansard.

Maybe what people don't understand is that retailers do not pay provincial sales tax on the merchandise they buy for resale. That merchandise flows into their stores without attracting any provincial tax. That is the overwhelming cost the retailers cover, obviously.

Their other costs, as Mr. DeRocher said, are labour, which is not provincially taxed, and commercial rents, which are not provincially taxed. Those items comprise the vast bulk of retailers' costs.

The only other costs they have out of pocket tend to be incurred either in their distribution locations or in their headquarters, and there are relatively few national companies or regional companies that have their headquarter operations in Atlantic Canada.

Independent merchants will pick up a little bit when they buy software for their new computers, furnishings, and fixtures, but you don't do that kind of purchase every day of the week as a retailer. That stuff often lasts for a number of years.

So there are not that many ITC savings, unfortunately.

Mr. Campbell: Let me move on to something else. I want to clarify two things, Mr. Chairman, and then make an observation.

Mr. Geci raised the issue of additional time for business to adjust. It wasn't a delay in proceeding with tax-inclusive pricing.

Contrary to Mr. Solberg's suggestion that the government has only put forward one study and that's all this rests on, you may want to comment on why you believe tax-included pricing is the way to go, and Mr. Ward and Mr. Kerton made the same comment. And in fact yesterday I tabled three supporting pieces of research, not just one.

.1425

Be that as it may, you did make the point - a very compelling point - that business needs time. This is complicated, and business needs time to adjust. I want to reiterate what I said a couple of days ago, and this was made clear in the guidelines on Friday. While the April date proceeds, during the next six months approximately - through to August - we'll be working mostly with business on education and adjusting to this. Monitoring compliance will not be going on until that August date, so there is lots of time.

Indeed we continue to work with retailers and others to develop guidelines on advertising, which is still an outstanding issue. The guidelines with respect to in-store pricing reflect consultations that took place over many weeks, including with the Retail Council and others.

I just wanted to flag the at least 120-day period that is currently built in and is indicated in the press release that was issued earlier on.

I don't know if you want to comment.

Mr. Geci: Yes, I do.

At least from the wording I read in the PR statement relative to the guidelines, it falls exactly into some of the comments you've heard about confusion and different pricing. I would even suggest, as the counter-argument to the Woolco situation, that in fact one of the reasons the difficulty arose with people, companies, or retailers including price, selling the product, and then finding out they were price points higher than their competition was that there was no set rule. We left a jungle out there, really.

What we hear all the time from the consumers when they come into our stores is ``Why are there so many differences here?'' When they come into a grocery store or supermarket... We all know that some of the supermarkets now are more than simple grocery stores with consumables in terms of basic staples; we're selling a lot of different things. What we're saying is make it very clear.

My suggestion is the following. We recognize that you're trying to address the concerns of many retailers around this table and across the country, and particularly now we're speaking about Atlantic Canada. You've addressed your legislation to the consumers. The key element, in our opinion, was the price you see is the price you pay, so the consumer outright knows what they have to go into their pocket and pay at the end when they're walking out of the POS.

The concerns that have been brought up recently regarding last Friday's statement I submit to you are adding to the confusion. I submit to you that some of the arguments about dual pricing and what's going to happen are multiplying the confusion to the consumers.

We're saying to you, have fortitude. Clearly the objective is to have a single rate. We're all talking about HST, single rate, single base, etc. All we're saying, then, is in Atlantic Canada, have tax-in clear for everything for everybody. Whether you decide to have a zero rate for books or a zero rate for tobacco products, that you'll decide through regulation, but in the eyes of the consumer and in the eyes of the retailer, it means it's the same for everybody; there's no competitive disadvantage.

Second, to the question of Mr. Campbell, it all depends where you start from. Yes, there may be some costs for certain retailers, but I submit to you, Mr. Chairman and members of the committee, that grocers are now operating on the basis that they are regional. We have national organizations. They change their price points weekly. Some of our members change 26% of the product on featuring.

What we're saying is let that consumer know when they come in - and not only through catalogues, flyers, or what have you - that whatever price they see is totally tax-inclusive. That's the best way.

Regrettably the government has not been able to convince Quebec, Ontario, and other provinces, but we have to start somewhere. If we're going to start with Atlantic Canada, let's do it, but do it right. Don't leave the confusion to consumers and then ultimately to our cashiers: ``How come I can get this product cheaper at another store?'' Because they chose the option of dual pricing, which doesn't put in evidence the predominance of the tax-in, or that other retailer chose another option.

By pursuing the multiple option as a consideration - and we understand this clearly - what we're saying to you is have a bit more fortitude and bring down the rule. You've done it for yourself. You've said that all agencies and corporations of the government must, on April 7, include tax-in in all their pricing. What you will hear soon after April 7 from your own people is that the competition doesn't have to do that because they have alternatives to show a better price to the same products. That's where the confusion starts.

.1430

Mr. Campbell: Mr. Geci, first, we said last Friday in the guidelines that there will be a further period after April 1 because we recognize that need to adjust. I said yesterday on the record on behalf of the government that you can expect administrative leniency and tolerance and understanding. This is a tax change. There are issues that come up, which some people brought up before us in the last couple of days, that are the subject of ongoing discussions. We are still working with the provinces and interested parties on advertising guidelines, because that's still out there.

Recognizing that, I don't think people have to worry that the April 1 deadline is going to see people offending against the statute and being attacked for it. So there's a great deal of opportunity for people to adjust to the new system, which we recognize.

I want to move on in the interest of time, if I might.

There has been a great deal of discussion here about prices. What this is about is making sure, as you put it, Canadians know what things cost.

Now, Mr. Pratt said that perception is important to consumers, and he used a lower price exclusive of tax to say it's important to think I'm spending $9.99 when in fact I'm spending something else.

I would suggest to you, Mr. Pratt, that while perception may be important for consumers, the flip side is that confusion or delusion may be in the interests of retailers sometimes. I've got to figure it out between the time I pick up the item and get to the cash. If I think about it, gee, it really isn't $9.99, it's something more - or I find that out at the cash. That's what Canadians have said they don't want and they don't like.

So it may work for you as a marketing tool, which I understand, and that's fair. But what consumers have said is the confusion is now. There may be some confusion in adjusting to a new system, but right now I do not know what things really cost. And what harmonization tax-inclusive pricing is about is knowing when I pick an item up what it will cost.

Your example of the person not wanting to buy in your store when it was perceived to be too expensive because you tried including tax occurs because your competitor didn't do it that way. That's the point Mr. Geci is raising, the latitude.

We're moving to a system where people will have a common set of rules. There may be some warts, as Mr. Geci has aid. There may be some things that have to be ironed out over time. But your competitor and you will be on an even footing and your consumer will be better off.

I remember there used to be advertising beamed into Toronto - there still may be - to the effect that an informed customer is our best customer, some retailer said.

Mr. Pratt: I would agree with you.

Mr. Campbell: Mr. Kerton has said consumers want the information to make intelligent choices and then the market functions better.

Mr. Pratt: I would agree with you. But the difference between my business and the peopleMr. Geci represents is that 90% to 95% or maybe even 100% of his business is derived from people who live within the harmonized trading zone. That's not the case with my business. It's not the case with most retailers in the Atlantic provinces.

Unfortunately, consumers, like it or not, are exposed to the $99 price, as you say, if they go to Toronto, if they happen to turn on satellite television, if they happen to flip on the Internet. So the reality is I'm charging them $99 and you are forcing me to charge them something that I'm not. The only difference between me and the retailer in Ontario is your tax. Why should I be punished? Why should I risk my business for your tax?

Mr. Campbell: Well, first of all, Mr. Pratt, as you know from what we're adopting, to the extent that you supply into the province or advertise in the province, you will be a part of this system.

Do I understand you, then, if advertising was required to have a disclaimer, if an advertiser chose not to advertise a tax-inclusive price, you would be satisfied if there was a disclaimer that said -

Mr. Pratt: I would maintain that consumers won't see the disclaimer. They'll flip right by it.

Mr. Campbell: Okay. So it would have to be a pretty big disclaimer to satisfy you.

.1435

Mr. Pratt: I'm telling you that the harmonized sales tax as a principle with tax-in pricing would probably be very successful if you did it on a national basis. But don't use a have-not province such as Nova Scotia, New Brunswick, and Newfoundland to experiment. We can't afford it.

Mr. Campbell: I just want to make one last point with respect to multi-employer plans. I want to respond and not let this opportunity go by.

You appeared prior to the 1996 budget during the consultations. You've met with a number of us and corresponded with a number of us. The Department of Finance has been looking at the issue. I understand an administrative solution was looked at. Your organization was involved in many discussions. I think it's clear now that we need to explore a new legislative solution. It's a complex issue and we need to get it right, because it crosses between the treatment of financial institutions and commercial employers, and moving that boundary is complex, as you know.

I just wanted to tell you on behalf of the Department of Finance and the government that we're committed to looking at a legislative solution in the months ahead.

With respect to the HST concerns that you raised, I understand they are really tied to Ontario joining in to the harmonized system, which is not really what we're discussing here today.

I hope that addresses your concerns, and please accept our reassurance that consideration of your serious concerns is actively continuing.

Mr. Darrell Brown (Legal Counsel, Multi-Employer Benefit Plan Council): Thank you for your acknowledgement and consideration.

I would just like to clarify that there are really two elements to the HST concern. It's the same basic problem. It's just that it becomes exacerbated with the HST because the rate goes up and the inequity between the single-employer plan and the multi-employer plan goes up as well.

Mr. Campbell: Yes, I'm aware of that. Thank you.

The Chairman: Thank you, Mr. Campbell. Mrs. Brushett.

Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chairman.

My first question is to Mr. Geci from the Canadian Council of Grocery Distributors. You very kindly reported that the average consumer in Canada spends approximately $110 a week, or close to $6,000 a year, and probably visits the grocery store twice a week. You also reported that we're buying more than edible goods, that we're buying a much broader range of goods, increasing weekly. You also talk about 30% to 40% of those items being taxable.

I'm wondering if you can give us an estimate of the savings the average consumer will have from visiting the grocery store selling these other things with the 40% reduction in the tax, as indicated across the provinces.

Mr. Geci: We have not calculated it in terms of savings. We presently operate on a regional basis or even within a region in the grocery supermarket area. We compete with whomever is in that area. Sometimes we might even have 10 or 15 price zones within a particular city. In that area we compete on price points, as was mentioned by Mr. Pratt or anybody else in the retail business. Depending on the products that a particular distributor or retailer wants to sell in his particular supermarket, he'll compete.

What we're saying is that by bringing in the tax-in for everyone without exception, then everybody will compete on the same level playing field.

One of the errors in the past has been with the options. Those options permit somebody to look better, which I believe is Mr. Pratt's issue. But somebody else will look better than I can if I'm going to be adhering to a particular concept. That concept is being directed not by the retail trade but by the provisions of the latitude of the regulation.

So in that context, what we're saying, contrary to some other points of view that you've heard, is level the playing field and make sure the rules of the game are the same for everybody and then everybody will compete. We believe the grocery industry has probably the lowest-margined food operators in the world. Canadians benefit from it, the consumers benefit from it. And we strongly believe that competition will drive those price points too, whether it be $10.49 or if the new term ends up being $10.99 instead of $9.99.

Mrs. Brushett: Mr. Geci, there should invariably be a savings as well if the tax goes down from 19% to 15%. So we should see a savings on at least 40% of those items that all of us will be buying at least one or two times a week.

.1440

Mr. Geci: That's correct, and a question will be the transition of moving from that tax-out. The consumer sees those prices with the tax out, and all of a sudden, at a given point in time, there will be a sign or a ticket giving the price tax-in. The first reaction will be ``Oh, the price has gone up''. But if, mentally and at the cash, they find out very clearly, we'll see that in Atlantic Canada, yes, you're right, some of the tax savings will be at 3% or 4%, whatever those tax rates were.

There's no question that some costs might be involved in adjusting our systems. What we're suggesting by the extension for the application of tax-in is to minimize those costs.

The retail industry is such that everybody will wait. As for the comment of Mr. Campbell that it will come into effect April 1, but there will be a monitoring, the retail trade will always use up until the last day to change the pricing over, because that's really the competitive aspect of the retail trade. What we're saying is give us those 120 to 150 days for changes of systems and you'll find on that date, September 1 or August 1 - and we need that length of time - people will compete according to the new rules.

Mrs. Brushett: Thank you.

I have one more comment, if I may, Mr. Chairman.

We've had before us the Atlantic Provinces Economic Council, APEC, with their chief economist, Elizabeth Beale, over the past few days. Repeatedly we have heard that the advantages of this harmonization far outweigh the disadvantages or the downside.

I think everyone around this table today would agree that the Atlantic provinces are not consuming provinces; they're exporting provinces. Per capita we are probably very close to the highest exporters in this country. I've heard Newfoundland say in the past that they are the highest. I don't have data to substantiate that today, but we are exporting provinces.

Is it not true that this harmonization would generate jobs in that sector? The Alliance of Manufacturers have told us the advantages are substantial for job creation and for a self-sustaining economy for the Atlantic region. I would challenge anyone around the table to rebuke that or the APEC platform as to the merits of the harmonized sales tax.

Mr. DeRocher: I'll speak to that.

I don't think any of us have any concern with the issue of harmonizing the tax. It's the issue of the tax-in pricing that we have a concern with.

Ms Hallett spoke earlier about the potential closing of stores and losses of jobs. We did a similar exercise. We currently operate 126 businesses in the Maritimes, employing about 1,200 people. We estimate that the ongoing annual costs will average approximately $25,000 per store.

We identified the stores that were marginally profitable or marginally lossed and asked what would happen if we hit them with an additional $25,000 worth of costs. Potentially it meant we would consider closing approximately one-quarter of our 126 stores, meaning the loss of approximately 300 jobs. So there is a definite negative impact, and that is completely in accord with what Ms Hallett said.

Mrs. Brushett: I have a final comment and then I'll pass.

In our pre-budget hearings we had many people come before this committee - and the Carlton Cards group may be an example - telling us that because of harmonization, they would look at relocating from Ontario to the Atlantic region. The savings and the advantages are of that great a magnitude. We have heard before this committee that there is a great advantage in doing this. I put it before you that it's the testimony we have heard in the past.

Mr. Woolford: We agree with the hon. member. Harmonization is excellent for Atlantic Canada. The tragedy here is that the consumer will never see the benefit.

Mrs. Brushett: Mr. Woolford, with all due respect, this is a package. It's been a package since this government came into operation in 1993. We inherited the package from the previous government. It's a matter of looking at the entire package.

Through previous hearings on GST alone, this committee travelled the country and witnesses said to us, ``We need the tax-inclusive pricing''. That's part of the entire package if it is to work to the advantage of all Canadians, including the manufacturer, the retailer, and the consumer. It is a total package.

.1445

If the manufacturer and the retailer get over the initial step, they will pass those savings on to the consumer and our economy should benefit.

Thank you.

Mr. Woolford: All I can add is that our hard evidence shows the savings are more than outweighed by the costs and the policy outlined by the government will be very confusing for customers.

The Chairman: Mr. Ward.

Mr. Ward: I don't wish to get into a public debate with my learned colleague to my left, but -

The Chairman: Oh, go ahead. Why not? Go for it!

Mr. Ward: It seems rather coincidental that the two divergent views in a retail sector are sitting side by side. I probably, in looking around this table, happen to be the one person from Atlantic Canada.

A witness: No.

Mr. Ward: All right; my apologies.

The point I make with respect to the consumer in Atlantic Canada is this. Number one, there is a difference between the PST-GST rate in Newfoundland and the 15% that is presently being proposed. Secondly, the industry I happen to represent, the retail building supply industry, probably has the most complex computer system of any retail sector in the country. I can't think of any other one that buys a commodity one way and may in fact sell it five different ways and still has to have the computer capability to deal with it.

I can say to the committee that we have done an analysis in terms of computer conversion and we do not see it, ladies and gentlemen, as a major issue for our industry.

Having said that, with respect to the savings to a business within Atlantic Canada in a harmonized zone, it has to be communicated to the committee that yes, indeed, there are operational savings because of input tax credits in areas where the business community does not presently get an input tax credit. And if you're making capital purchases and major expenditures on other issues, then in fact there is a saving in that area.

The Chairman: To follow up on that, I take it the higher the number of inputs you acquire in the harmonized provinces, the greater the benefits are to you. So if you come from away, dump the merchandise in, and sell it, you're going to have fewer input tax credits and fewer benefits, because you're creating lesser economic activity overall in the region.

Mr. Ward: Yes, but there is still a saving in terms of the input tax credits.

The Chairman: Thanks.

Mr. Kerton.

Mr. Kerton: On the question of confusion, first of all, quite a bit of the leadership of the Consumers' Association comes from the Atlantic region. Based on the sample of people I've seen there, they're number one special, and they're very intelligent when it comes to knowing where prices are. After they have the experience of buying something out of province and being surprised with the sting and then buying things in the province with no surprise, they will quickly learn there is a difference in the treatment.

For the system we've allowed to exist, which generates this confusion, we clearly see that the tax-in prices would eliminate the confusion. Whether you look at the experience of the consumers in Canada or at some of the academic, policy-oriented research, confusion doesn't benefit anybody but the charlatan who has some deal that isn't very good. If consumers can find out where the appropriate purchases are that they really want to buy and what the full price is, they can make intelligent choices, and the businesses selling those goods that meet the consumer needs will be the ones that succeed, not the other ones.

That said, I do admit there are some shifts when you tax one industry and you don't tax another industry. That's obvious. But surely no one in the room really wants to defend not telling the truth. Who wants to stand up and say ``We don't want to tell the truth; we don't want people to know what the price is''? That's why we have to have the tax in.

The Chairman: Ms Whelan, please.

Ms Whelan (Essex - Windsor): Thank you, Mr. Chairman.

My first question was going to be to Mr. Kerton, based on Mr. Woolford's comment that the lowest price is the law. I was going to say the lowest total price is the law in the mind of the consumer, but you've just summed that up.

Mr. Kerton: The consumer has a certain amount of budget, you see, and it gets spent.

Ms Whelan: That's right.

Mr. Kerton: Some of the discussion about where it's spent is important to the individual seller, and I appreciate that, but in fact if you gobble it up in one store or in another store or you get surprised at the counter and lose it there, that means you can't spend it in the other store. You lost it in the grocery store and you can't spend it in the clothing store. So the total budget determines how much the consumer can spend.

.1450

Ms Whelan: So you would say a better informed consumer is obviously a more confident consumer as well?

Mr. Kerton: The ideal marketplace will work better if the consumer is well informed.

Ms Whelan: Thank you, Mr. Kerton.

I wanted to follow up briefly with Mr. Pratt, too. You mentioned the cost in your business and the fact that someone shopping out of province, for example in Ontario, would see a different price. In fact, in Ontario we have a combined rate of 15% right now, so they're not going to see a different end price from what you have. And you have a benefit over people in Ontario right now because your price has been lower up till now. So you've enjoyed that added benefit in your particular industry because in Ontario we have provincial sales tax on shoes as well. So you've enjoyed that benefit for the time being.

But you're still going to have another benefit that we're not going to have in Ontario, which is for people visiting your province from the States. They will be able to get their 15% rebate when they leave the province. I would say to people who are in the retail industry in the Atlantic that this has to be an added benefit for people coming to visit internationally. You do have quite a market that does come up from the United States.

Mr. Pratt: Unfortunately, you're leaving it to me to inform these people that the price they see isn't the real price, because in fact for those people that is not the real price. The price that is indicated with tax included, with the tax characteristic, is not the price these people will in fact pay. They will pay 15% less. You're asking me to educate those people, and I don't think that's my role.

Ms Whelan: Mr. Pratt, with all due respect, if you visit Europe, you'll see the VAT tax and you'll see it works very well and that people who visit there know quite clearly -

Mr. Pratt: But the difference with the VAT tax is that it's everywhere. You're isolating Atlantic Canada and telling us to inform the 99% of North Americans who don't live in Atlantic Canada that this is the way the tax structure is, and I don't think that's right.

Ms Whelan: I personally believe that you're going to be getting an advantage. And I think that when my border communities in Ontario hear about the advantage your border communities are going to have, they're not going to be too happy.

I also have one other comment to the Retail Council. I'm not sure I understand the national retailers, because I've gone to The Bay, for example, on what we'll call Bay Days, where you have no PST and no GST sales. The reality is, though, on my bill I pay PST and I pay GST. You roll back the price to what it would have been without, and then you add it back in. So somehow your computer is able to do all these marvellous and wonderful things at no cost on those days, I'm assuming. Otherwise, you wouldn't have these sales monthly. I wouldn't have Bay Day sales at least once a month or Sears Day sales or whatever you want to call them, or Canadian Tire sales. They happen over and over and over again.

Somehow the retailers have these marvellous computer systems so that they can change bar codes in a second and they can roll back tax and change prices in a second. I'm talking about the big stores that do this. Yet we seem to have big stores before us today that are telling us nationally they don't have those capabilities. So either on the days they do this there's a large, large cost that's involved, or somehow they have an ability to do it and they afford the sale.

Mr. DeRocher: Let me take a whack at that one, if I could, please.

Ms Whelan: Sure.

Mr. DeRocher: With ``beat the tax'' or ``we pay the tax'' or ``no GST, no PST'', we're taking a markdown on the goods. We are taking a POS markdown that is a calculated markdown on our terminals. It's a basic transaction. It has nothing to do with the calculation of tax at all. The tax is still calculated exactly the same way as it is on a full-price item on a non-beat-the-tax day. It is nothing more than a different name for a sale, and it has nothing to do with the issue we're talking about today. It really doesn't.

Ms Hallett: If you look on your receipt from The Bay, you'll notice that they've discounted it equivalent to your PST and your GST. We call that a POS markdown. It doesn't cost us anything because we have the capability on our system to do that. But we are not repricing any item in the store. That is the major difference.

Ms Whelan: But the system wouldn't have the same ability to reprice the items?

Ms Hallett: No.

Mr. Woolford: The other side of this is that there are a large number of other systems that retailers operate. Let me give you a simple little example. In a store that sells on commission now, they are going to have to go in and create essentially two parallel systems for sellers operating on commission, one for those sellers who are reporting tax-included sales and one for those who are reporting tax-exclusive sales in the other 92% of Canada. You've just duplicated your system's costs. You've duplicated all that time and effort on your hardware and on your software. This is one small example. You will have discrepancies in how you calculate your markdowns and markups, because you've now got a different price for a different part of the market.

.1455

At the heart of all of their systems is the price the retailer charges for the good. When that starts to shift around on them for reasons other than business reasons it gets very complex for them to manage. And increasingly what retailers have tried to do is integrate those systems so it is very seamless. All your reordering is done on the basis of the information you get off your point of sale.

Some retailers have gone to the point of sending reorders directly from their point-of-sale terminal right back to the supplier. So what you've got is something that's very different from a simple markdown that's done at the point of sale electronically right there. It doesn't touch the rest of the system.

Ms Whelan: With all due respect, Mr. Woolford, when you talk about commission sales you've lost me. When something is $115 tax-inclusive or $100 before tax, it works out to $115. The commission is on the $100, I'm assuming. I'm assuming you never pay commission on the tax. Your cash register is going to spit out a receipt at the end of the night. It's going to tell you what your net sales were and what your tax-included sales were and how much the tax was. So I don't see the difference or the difficulty there.

Mr. Woolford: I'm not a programmer, but there are big differences.

Ms Whelan: Somehow I'm missing that.

I've worked in retail too, and I do understand the markdowns. I do understand that time and time again when you go and change prices, you pull stickers off and you put stickers back on, those things do happen. I'm saying that if the groups were to sit down and work out a system, I think there are possibilities to be worked out here.

I think in the end your ultimate goal is to satisfy the consumer. Your ultimate goal is to ensure that the consumer is happy. Survey after survey has told us that consumers want tax-included pricing. We've just heard from the Consumers' Association of Canada, and they've told us the same thing: consumers want tax-included pricing. I believe that Mr. Geci and Mr. Ward said basically the same thing. So if your ultimate goal is to satisfy the consumer, then satisfy the consumer. Tax-included pricing is what they want.

Mr. Woolford: Our challenge there is that we're faced with a conundrum. If we give the consumer what they want, we will face additional substantial costs. That will play out in the form of higher prices in a very small weak part of the domestic market. This is not a powerful domestic economy, as someone mentioned earlier. This is not a consuming economy. This is, if anything, a resource-based exporting economy. So we are going to be forced as retailers to load additional costs onto a relatively small, relatively weak part of the Canadian market. We have very little opportunity to swallow those costs.

Ms Hallett: Can I add to that? When you address these surveys in which they want the tax-inclusive pricing on the good, are they willing to accept that at the cost of increased prices and their jobs? Do they understand that? I don't think that is being asked of consumers when you address that question to them.

Ms Whelan: Mr. Chairman, just one quick point.

The Chairman: Just before you go on, with permission of witnesses and members we will go past three o'clock. I apologize.

Ms Whelan: I just want to make one quick point.

Overall, Atlantic businesses will save $700 million. There will be some costs for tax-included pricing, but I think the costs before the guidelines were announced were estimated at about$100 million. So you still have a net savings of over $600 million before the guidelines. Now, the guidelines were introduced to increase that savings, to increase the $600 million. So there's got to be an added benefit somewhere in there for consumers if business is going to save $600 million.

Ms Hallett: I don't have the benefit of knowing your information of the $600 million and$700 million. All I can say is what the impact of tax-inclusive pricing will be on my company, my employees, and my customers. You're hurting all of us. That's what I'm saying.

Mr. Woolford: Mr. Chairman, I would add that I did not hear anybody here today say that they liked the guidelines.

The Chairman: Some have liked them very much, Mr. Woolford.

Mr. Campbell: The Canadian Federation of Independent Business two days ago.

The Chairman: Ms Whelan, is that it?

Mr. Whelan: Well, I believe Mr. Kerton did say...

The Chairman: Sorry.

Mr. Kerton: There are some suggestions in your guidelines that may be a little towards overkill, and you may be able to save a lot of expense for the retailers, which of course leaves us with the final price we pay as consumers. The item that struck me as being maybe excessive was a whole card of information on the wall. The consumer wants to know the final price. The only other thing he might be interested in is how much of it is tax.

.1500

Ms Marnie McCall (Director, Policy Research, Consumers' Association of Canada): If I could add to that, there's been a lot of talk around this table that consumers want tax-in pricing. Please, let's remember, everybody, consumers do not want sales taxes - period. Consumers prefer not to have any sales taxes.

The Consumers' Association's basic position is that we are opposed to sales taxes. Given that it looks as though we're going to have sales taxes for the foreseeable future, we think there are certain ways in which sales taxes do the minimal amount of damage to consumers, and that is to have a single, very broad base with a very low rate with fully indexed rebates to low-income people.

What consumers really want is consistency. Consumers will live with something that's less than their first choice if it's consistent, if everybody knows what the rules are and if the rules apply to everyone. That's a very key thing. I think the consistency that people would prefer is tax-in, because that's how much has to come out of their wallet, as Mr. Geci said.

The other thing that has to be recognized, though, is that until and unless the other nine jurisdictions of Canada sign on, there will not be consistency. If you are going to not have consistency for the foreseeable future because the rest of the provinces and territories have not signed on, then the preference may very well be, if you ask people that specific question, to have tax out.

I agree with Ms Hallett that consumers have not been asked if they want tax in if it also means this. Those questions have not been asked. We have a general floating perception that people know the total final cost, and that's true, but they haven't been asked under the circumstances, under these conditions, knowing that there is this downside. We don't know the answers to those questions.

Finally, Mr. Geci's suggestion that there be a fixed date and a single rule that applies to everyone will, we believe, minimize the confusion that will take place when there is a switch. A related issue is that compared with the introduction of the original GST, when there was a lengthy consultation period, when there were working groups on implementation and on how things were going to be done, this process has been much less than satisfactory with regard to getting all these questions sorted out and answered before the roll-out. That is something that's of major concern to all the retailers. It just increases the level of confusion for consumers.

I took far too long, but thank you.

The Chairman: Thank you. Mr. Duhamel.

Mr. Duhamel (St. Boniface): Thank you, Mr. Chairman.

I'm often asked what it is I find exceptionally appealing about my job. Let me tell you, it's the challenge. As I listen to this testimony this morning and this afternoon, to the various positions and differences of opinion, I need to make some sort of sense out of this. It is extremely challenging. I wish I had the time to probe those differences, but I do not.

I would like to limit myself to one comment. I am sensitive to the time and to the extent to which you've been here, with other witnesses waiting.

I want to thank those witnesses who spoke about the tax on reading. I want them to know that what I said before, I believed, and still believe. I'm delighted we've made some progress. I am hopeful we can make some more. I've noted your determination that this be done.

I will limit my remarks to that, Mr. Chairman. Merci beaucoup.

Mr. Kerton: Did you arrange for this meeting to take place in a room that says ``The Spirit of the Printed Word''? Next time I'd like to have one that says ``The Spirit of the Consumer'',Mr. Chairman.

Some hon. members: Oh, oh.

The Chairman: Ms Hushion.

Ms Hushion: If you want to satisfy consumers I'd like to remind the committee that more cards, letters, and petition names have been submitted to this government - and in fact those numbers come from the government, not from us, so I have to assume they're correct - asking for a zero-rating of tax on reading than there were communications to the government on the combination of the closure of the CN lines and abortion, which has two sides.

.1505

I would suggest that consumers have made the point. And when consumers were asked in our public opinion polling by Environics, what would you tax at a greater point level then, or how would you shift money around, how would you reallocate, how would you pay for that, they said that's the government's problem; the government should do it.

What we're saying is that as voters, taxpayers, and consumers, we don't want tax on literacy and productivity in our country, period. So I'd just like to sort of throw that in from the consumers' perspective.

The Chairman: Did you want to add something, Ms Aalto?

Ms Aalto: We support that completely.

The Chairman: Mr. Duhamel.

Mr. Duhamel: I simply wanted to acknowledge the fact that you did indicate that we had made some progress.

Mr. Hushion: Absolutely.

Mr. Duhamel: I appreciate that.

The Chairman: Mr. Geci.

Mr. Geci: I just want to reiterate Mr. Woolford's comments that I think all of us agree that having numerous alternatives and different ways and means to arrive at a particular conclusion, which is the intention of the government, is not the way to go. You may have to make some concrete decisions, but make it simple, make it clear, and make it definitive at a period and point in time.

Once we know the rules of the game, the marketplace will work itself out for everybody's intentions.

The Chairman: Mr. Solberg.

Mr. Solberg: Mr. Chairman, I have just a brief comment on the discussion that was going on earlier. I'm wondering if it's the government's intent to have people standing by to ensure that when Bay Days occur all the prices are marked down, each individual price is marked, and then the next day when the sale prices are off and they go back to the regular price that the finance department officials will be standing around to ensure that everything is marked back up again to the other price. I think it's an important logistical point, and I don't think it's one that has been discussed. I think probably the finance department people should have some answers for retailers.

The Chairman: Thank you.

Mr. Campbell, you wanted to -

Mr. Campbell: Just to clarify, Mr. Geci, I understand that in your business many of your products are zero-rated but that you do have a substantial portion that are taxable supplies and taxable sales. Is that the case?

Mr. Geci: That's correct. It's about 30% to 40%. Depending on the size of the store, it could go up to 22,000, 30,000, or 35,000 items in a store. So 30% to 40%, depending on the kind of store, would be taxable.

Mr. Campbell: And dollar volume for your...?

Mr. Geci: That's very difficult because of the size of stores. It really depends whether it's a 10,000 square foot grocery store to a supermarket of 40,000, 50,000, 60,000, or 80,000 square feet.

The more skews you would have, the more the taxable items; the fewer skews you would have... Skews are stock-keeping units, items, whether perishables, non-perishables, grocery items such as paper products, and any other items that might be seasonal, such as lawn chairs and barbecue items during the summer and in the wintertime there would be different kinds of items being sold...card displays, book displays, etc. They vary depending on the kind of marketplace and who you're competing with.

Mr. Campbell: A substantial proportion of taxable supplies?

Mr. Geci: As I said, about 30% to 40% would probably be taxable. It would be in that vicinity, depending on the kind of store, yes.

Mr. Campbell: Thank you.

The Chairman: Thank you, Mr. Campbell.

Mr. DeRocher, take one of your clothing products, say a $20 shirt: what percentage of those would be priced by the manufacturer?

Mr. DeRocher: It would be 95%.

The Chairman: And they would all be the same price for everywhere in Canada?

Mr. DeRocher: Yes.

The Chairman: Would they be the same price for the Yukon as in downtown Toronto?

Mr. DeRocher: Yes.

The Chairman: How many of those would get repriced before they're sold? How many would be repriced the moment they hit the floor?

Mr. DeRocher: As I said earlier, the markdown as a percentage of your total sales would be in the 10% to 12% range.

The Chairman: I'm sorry, I don't understand that. So 95% of them are priced at the same price coming from the manufacturer, and 5% are not?

Mr. DeRocher: No, 100% are priced at this same price and 95% would be physically ticketed at the manufacturer's facility.

The Chairman: Okay. And how many of those get repriced to meet local conditions?

Mr. DeRocher: Zero. Initially it is zero.

The Chairman: Okay. So initially it's zero. And how many of those get repriced before they're ultimately sold?

.1510

Mr. DeRocher: Approximately 10% to 15%, but it would be done on a national basis. This is one of the other interesting problems.

The Chairman: I just wanted to know that. I can understand that.

Mr. DeRocher: If we found a good was not selling in one area and it was selling in another area, we would transfer it. If it is at a different price, we no longer can do that.

The Chairman: Sure, I understand.

Ms Aalto.

Ms Aalto: I'd like to echo what Ms Hallett has said and what was said earlier about the stores in the Atlantic provinces. Those are not really consuming provinces.

We have a real issue as well with potential store closures. Many of our stores operating in the Atlantic provinces are marginally profitable or unprofitable. The additional cost of tax-in prices, if it were only in those stores -

The Chairman: Is this Chapters you're talking about?

Ms Aalto: Chapters is a company that was formed by the coming together of Coles, Smithbooks, and the Book Company bookstores in the Atlantic provinces. Many of those stores are marginally profitable.

The Chairman: Which stores are you talking about? All the bookstores?

Ms Aalto: I work with Chapters, so I'm talking about Smithbooks, Coles, and the Book Company, but this is also very true of independent bookstores in the Atlantic provinces. Many of those stores are operating on marginal profits or verging on unprofitable.

The costs of tax-in pricing would push many of those stores to the point where we would have to make decisions that those stores could no longer operate. I know the independent bookstores would have even graver concerns. A larger company maybe could absorb a bit of unprofitability, but not to the extent that tax-in pricing requirements in the Atlantic provinces would lead.

The Chairman: You mentioned earlier it costs you 50¢ to reprice a book.

Ms Aalto: Yes.

The Chairman: I take it that's manually.

Ms Aalto: That's a combination price based on the manual repricing in the stores, write-downs of returns that have been damaged by taking off the stickers, customers returning goods that they couldn't cleanly get a sticker off of, and increased costs in our distribution centres and our systems for carrying two prices in our national information systems.

The Chairman: It seems a lot to me.

Look, we obviously don't have unanimous support for tax-included pricing. We have tremendous support around the table for a harmonized system. When it comes to tax-included pricing we have heard from people who will be hurt and from people who feel very strongly that it will be to their benefit.

We have also seen that the input tax credit benefit to business impacts differently on various people, depending on where you get your business inputs. If you buy them in the harmonized provinces, you are at an advantage over those who bring them in from other places.

I don't think any of us ever thought this would be easy. Very few things are when it comes to fundamental tax reform, because sometimes you have winners and sometimes you have losers. I can say on behalf of all politicians here that none of us like to be accused of creating losers.

I'm very sympathetic to the book industry. I would hope that at some time we will be able to get rid of all taxes on it. I would hope we can get taxes down in Canada. I would hope we can do a lot of things. I wish I could do it for you right today, but I'm not going to be able to make that promise and keep it, so I won't. I know you'll keep the pressure on.

I hope those who feel disappointed with whatever comes out of here will continue to work with us, because we approach this with a great deal of humility. We know we may not have it right, in spite of your representations to us, but we are determined to get it as right as we possibly can, with your ongoing help.

Having said that, may I thank every one of you for having taken the time to be with us and to share with us the benefit of your wisdom. Regardless of the results, we look forward to working with you in an ongoing way in the future. If we are hurting you, we want to try to minimize the costs to you, to consumers, and to Atlantic Canada.

Thank you very much. This meeting is adjourned.

Return to Committee Home Page