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EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 5, 1996

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[English]

The Chairman: Could we come to order?

The Standing Committee on Finance of the House of Commons is very pleased to continue pre-budget hearings here in Fredericton.

We have with us for this round table, from the Mount Allison Alumni Association, Frank Strain, from the economics department; from the Fredericton Chamber of Commerce, Bill MacMackin; from Défendons nos droits, Jean-Claude Basque; from the Greater Moncton Coalition for the Economic and Social Justice, Mark Robar; and from AIDS New Brunswick, Claude Olivier and Ted Gaudet. Thank you very much for being with us.

I suggest that you take three or four minutes to introduce your main recommendations. I can assure you that each of you will have as much time as you wish after that, during questions and answers. If not, then you will have any amount of extra time you want to make your full case before we conclude.

We could start with you, Mr. Strain.

Professor Frank Strain (Department of Economics, Mount Allison University): I will start by stating that I appreciate the position of the government when faced with the arithmetic of the debt problem. There was really no alternative but to make substantial cuts over the last few years to put the debt on a sustainable path. But that said, at the same time the actions are necessarily extremely costly. Now it's clear that there are some dramatic and irreversible changes in the very nature of the country that have been caused by the changes in the budget, particularly some in the university sector. The CHST has especially important implications.

My main recommendation is to indicate that personally I'm very opposed to tax cuts at this stage. One reason is that I think the government is now in a position where it has to start rebuilding, looking at the long term and rebuilding some public sector initiatives rather than continuing its cutting spree. This is in part because we now face lower interest rates, some economic growth, and a high primary budget surplus, all of which puts us in a position where the debt problem is at least =75=] turning around. I wouldn't say one can be sanguine about the situation, but one has to think about how we can restore some public sector initiatives in this country.

From the point of view of the university sector, my biggest concern is that the downloading of financial responsibilities to the provinces, and especially to students, has serious implications. For the students it means that tuition fees are increasing and universities are becoming less accessible. For the provinces it means there is basically less money available to support the universities directly. One consequence of this downloading is going to be increased competition among universities. That can be positive or negative; it's not necessarily positive and not necessarily negative.

The concern I want to bring up is the pressure this will put on the provinces and universities to begin implementing out-of-province differential fees. This is an almost inevitable consequence of vesting more and more responsibility for government funding with the provinces. In poorer provinces this is especially important because of the mobility of university grads from a place like New Brunswick. A significant number of our grads go elsewhere.

When provincial taxpayers are getting more and more responsible for footing the bill, they're going to be reluctant to fund students coming from outside the province and then turning around and leaving again to seek employment. Because they aren't taxpayers within the province, in effect they are not repaying the investment that the provincial government has made in their future and their productivity. This inability to recover the investment is likely to put pressure on universities to implement differential fee policies.

That concern is a real one. We're already starting to see the implementation of differential fees on out-of-province students. This has serious consequences: first, for the mobility of grads, but more particularly for the success of the Canadian labour market. When you start putting on out-of-province differential fees, you start limiting the ability of students to go to the university of their choice anywhere in the country.

In the long term that will be especially disastrous for people in Atlantic Canada. Although generally not viewed as a regional development policy, support for education in fact is. It may be one of the best regional development policies aimed at individual citizens because it involves investment in human capital, which unlike fiscal capital is extremely mobile. People have choices when they're educated; they can stay or leave. At least if you're from Atlantic Canada and you can acquire a high quality education here, you are able to leave and compete in the national labour market. If the quality should deteriorate because of the downloading of financial responsibilities, it is going to penalize individuals in Atlantic Canada in terms of their ability to compete in national markets.

I don't have a specific recommendation on how one addresses this at this time, but it is an important issue that the committee, and the House of Commons in general, should start to think about. It is one of the many unintended consequences of what is crisis management to deal with the debt problem, and I think it's time to start thinking of the consequences of the crisis management.

The Chairman: Thank you very much.

Mr. MacMackin.

Mr. Bill MacMackin (Past President, Fredericton Chamber of Commerce): This is my second opportunity to speak to this group. I was here last year and to be quite honest, many of the comments, concerns and recommendations I bring are consistent with last year's.

The Chairman: Mr. MacMackin, before you start I'd better warn you that everybody was saying we didn't have representation here from business. I'm just delighted you're with us.

Mr. MacMackin: That's great. I'm pleased to be here.

I will take a moment to comment on the current financial situation and the results of this government to date.

The chamber movement in the business community has been a vocal advocate of deficit and debt reduction in Canada at all levels of government for many years. Current results are viewed on our part as a good start, but just a good start. Unsustainable deficit spending still continues in Canada, and it must stop as soon as possible.

The Fredericton Chamber of Commerce goes on record as stating that we must continue to focus on elimination of the federal deficit as soon as possible, after which we must focus on debt reduction to bring it to a sustainable level for the country. Through this, we will eventually create a situation where we can pass on some meaningful tax reductions to all Canadians.

The three specific areas I want to comment on are expense reductions, revenue measures, and growth and job creation.

Canadian business has in the past stressed the need for the federal government to reduce expenditures. Our stand on that continues. These reductions must again focus on deficit elimination, debt reduction and overall reduction of the cost of government to Canadians. The business community also wants, and is prepared to accept, the reduction or elimination of ongoing grants and subsidies to business as part of expenditure reduction plans.

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We must continue to focus on federal-provincial areas of overlap that can be eliminated. However, we have to be careful and watch how much we continue to push down to the provincial level and then to the municipal level, because it's important that each level focuses on meaningful reductions at its own level as well. We must also look at areas that can reasonably be privatized or commercialized at any level of government.

In a nutshell, we believe there is no scope for tax increases. We believe that the entire financial recovery should be focused on expense reduction.

With respect to revenue measures, the chamber has gone on record for years as saying that there is no room in Canada for tax increases or new tax measures. There are a number being proposed in the Province of New Brunswick right now that we oppose as well. This applies to both personal and corporate taxes.

In my own opinion, I believe this also applies to increases in CPP or UIC rates. The federal government must remember that there is only one taxpayer. Canadians do not have the will or the wallets to shell out more taxes to government.

With respect to job creation and economic growth, we do not see the government as a vehicle to create jobs. We see it only as a vehicle to create an economic climate strong enough to create jobs on its own.

From my personal viewpoint, the largest killer of jobs in Canada right now is our financial situation, along with our tax levels. It is improving, but there's a lot of room for improvement yet. Fixing some of these financial situations will be the best stimulus for job creation in Canada, and I highlight the following formula. It's pretty simple. Deficit elimination equals debt reduction, which equals tax reductions, which will equal job growth. I don't think it's a heck of a lot more complicated than that.

Through this we will have the funds available for infrastructure improvements and for improved access to education, some of the concerns Mr. Strain mentioned. It will also free up capital for business growth. All of these things will help us have an economy that can grow jobs faster over the next decade.

Will all of this happen quickly? No. It won't necessarily happen as we announce a budget on a given day. But the government must show that it has the guts to push on with these initiatives anyway. The benefits of the actions will probably show up in your next mandate, if we choose to grant you one.

The conclusions I have are along the same lines. Our position is consistent with the past positions of the business community and the chamber movement. Stay on the same financial course. If anything, accelerate it because of the benefits we can accrue right now from a reasonably positive economy. With accelerated plans we could look at deficit elimination as early as 1998 or 1999. It seems from the press and public opinion that this is a stand the majority of Canadians are leaning towards as well.

The business community feels that the low interest rates we have right now, our low inflation and our strengthening economy can help us fix our financial situation a little faster if we act to take advantage of those things now. The results we've seen in the last two or three years are encouraging and they're also getting a little economic boost at this point because of low interest rates. To the business community this just reinforces the fact that if we continue down this road, it will be in the best interests of Canadians, for our financial health and for job creation.

This has to be done with the following conditions, which I stress again: no new tax measures, no tax increases, and expenditure reductions. There is only one Canadian taxpayer and he's currently taxed to the maximum.

The Chairman: Thanks, Mr. MacMackin.

[Translation]

Our next witness is Jean-Claude Basque representing "Défendons nos droits".

Mr. Jean-Claude Basque (``Défendons nos droits" Committee): The two individuals who were scheduled to make this presentation are seasonal workers. Mrs Jeannine Cyr and Mrs Ida Laplante who live on the Acadian Peninsula were unable to be here today because of car problems. They have asked me to read their brief and to represent the committee. I also work in this region and am active in the committee. I am, therefore, cognizant of the situation.

Mr. Laurin (Joliette): Whom do you represent?

Mr. Basque: I represent "Défendons nos droits", a coalition active in the Acadian Peninsula.

Mr. Laurin: Thank you.

Mr. Basque: We thank you for this opportunity to express our views on the upcoming federal budget. We attended last year's round table and we regret that our proposals were not retained by Paul Martin when this year's budget was tabled. We hope that the suggestions we will make this year in anticipation of the 1997 budget will be given more serious consideration.

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For the past several years, the federal government has been tabling budgets which call for more and more cuts. Budget cutbacks have had a far more marked impact on our region than on other regions of the country. The reason for this is that our regional economy is based largely on raw materials such as the fishery, peat, lumber and tourism, or on public services both at the provincial and federal levels.

Our economy is primary seasonal, which means that for the better part of the year, there is no work. Ice makes fishing impossible, snow covers the peat bogs and logging is only possible during part of the year. The same is true of tourism. However, public sector jobs tend to be more fulltime.

Since much of the economy is seasonal, people have to rely on another source of income to make ends meet. Up until 1994, the region's continued survival was assured by the unemployment insurance program. This is no longer the case since drastic cuts were announced to the UI program. Worse still, the latest round of budget cuts will mean that thousands of workers will be without an income for much of the year.

The overall level of poverty in our region will surely increase. The United Nations declared 1996 the International Year for the Eradication of Poverty. We think Canada must do its share to eradicate the poverty that is spreading throughout our region.

Therefore, we want the next federal budget to contain specific objectives and a description of the measures that Paul Martin intends to take to turn this situation around. The minister has set specific goals for the elimination of the debt and the deficit. We think that he should put as much effort into eradicating poverty.

As we stated earlier, much of our economy is based on seasonal work. We have been demanding for years now that the federal and provincial governments devote their efforts to creating fulltime, year-round jobs. Some progress has been made, but overall, most of the work is still seasonal in nature. I would like to state at this time that I do not necessarily agree with the representative of the Fredericton Chamber of Commerce who said that the government is not responsible for job creation, but rather for creating a climate conducive to job creation. I, on the other hand, believe that the federal government does have a responsibility when it comes to job creation.

Therefore, we call on Paul Martin to formulate in his next budget specific job creation policies and objectives. We are perfectly willing to work like all other Canadians, but in order to do so, the jobs must be available.

For over 12 years, full-time and part-time workers, seasonal workers and those on income assistance have been grappling with the effects of a very sluggish economy. Our salaries have not kept pace with increases in the cost of living. We have seen all kinds of tax increases. Services which were once free of charge are no longer so. In the final analysis, we are paying more than ever for services which continue to be cut back.

Almost every day, the newspapers report how banks are making staggering profits, how the CEOs of a number of corporations are earning salaries of over one million dollars and how our MPs are arranging generous pension plans for themselves.

We want Paul Martin to address this inequity. There must be more justice and equity between those who can truly pay and the majority of people who live from pay cheque to pay cheque, from UI cheque to UI cheque or from welfare cheque to welfare cheque. We want the next budget to contain concrete proposals for resolving these various issues.

This concludes the presentation of "Défendons nos droits".

The Chairman: Thank you very much, Mr. Basque. I will now turn the floor over to Mr. Mark Robar.

[English]

Mr. Mark Robar (Representative, Greater Moncton Coalition for the Economic and Social Justice): Good morning, ladies and gentlemen. I'd like to take this opportunity to speak to you today. However, I believe the public consultation should be more elaborate and should include travel throughout the different regions of the province so you could hear from different persons who don't have the means to travel to Fredericton.

The Chairman: The committee will gladly pay their expenses to come here, and we've made that very clear. We don't exclude anybody.

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Mr. Robar: Canadians today are faced with a deteriorating situation that is affecting the very social fibre of our country. The reduction of federal transfer payments to the provinces has had a severe impact on both the economy and our social safety net.

We have noticed that past budgets reflect big business orientations, and we believe that it is more than time for Paul Martin's next budget to reflect ordinary Canadians' aspirations.

If we take a moment to look at the share of taxes paid in federal revenues from individuals and corporations, we find some disturbing tendencies. In 1954 corporate taxes were approximately 23% of revenues, while individual taxes were 35%. In 1994, 40 years later, corporate tax declined to a low of 10% - more than half - while individual Canadians' portions went up to 58%. This is totally unacceptable. The next budget must address this inequality. There were 81,462 corporations in Canada that made a profit in 1994 but paid no taxes, a significant increase from previous years.

In addition to having generous tax breaks, Canada is one of only a handful of industrialized countries with no tax on wealth. The other two, I believe, are New Zealand and Australia.

Statistically you can prove that the Canadian middle class is shrinking, which is creating a more divided society of haves and have-nots. At issue here is whether the purpose of the economy is just to make money, or whether it's supposed to give people the opportunity to contribute to the betterment of their own society.

In the last number of budgets we have seen cuts to health care, education and social services. Provincial governments, due to lack of federal funding, have been forced to make deep cuts to the public sector. Privatization of health care services has allowed corporate firms from outside Canada to profit on the backs of Canadians.

In the last budget, Paul Martin announced the elimination of close to 46,000 civil service jobs across the country. In a region like Moncton, cuts of any nature have more of an impact than in any other part of Canada because our pool of full-time jobs is very low. Any cut has an important effect. For example, the closure of the Moncton CN shops and Depot 5 had a tremendous negative affect on our city and the surrounding area. Some of these jobs have been replaced by part-time, casual, and other kinds of jobs, but the overall impact on the local economy has been negative. The high-paying jobs at the CN depot were replaced by lower-paying jobs, for which the high end of the scale is $8 an hour.

The recent cut to unemployment insurance is an injustice to the people in the communities of this province who have no other choice but to rely on UI because jobs are not available and because a lot of their economies are based on seasonal work.

In New Brunswick, a province with a little over 700,000 people, 300,000 people have an income of $20,000 a year or less. A disturbing question arises from this. Does our federal government want to plunge us into an ever-worsening life of hardship and inequality, or is it going to address the ever-increasing level of poverty by bringing forth some positive job creation measures in the 1997 budget?

In conclusion, Paul Martin's next federal budget must address the ever-deteriorating situation of our social safety net as well as the lack of jobs and the ever-increasing level of poverty in our society. Our country is a rich one, and there's no reason - absolutely none - to justify what is happening right now.

The budget is about choices. We believe it's time for the federal budget to reflect the choices of the majority instead of the choices of the minority made up of the rich and influential in our society. The federal government has the responsibility to govern for the majority, not the minority.

Thank you. I am looking forward to the discussion.

The Chairman: Thanks very much, Mr. Robar.

Mr. Gaudet.

Mr. Ted Gaudet (President, AIDS Network of New Brunswick/Persons Living with HIV/AIDS of New Brunswick): Persons Living with HIV/AIDS of New Brunswick is a volunteer-based, non-profit, charitable organization dedicated to the issues of people living with the disease. Our organization has approximately 70 members. We are committed to enhancing the quality of life and personal security of persons living with HIV/AIDS through well-delivered health promotion programs.

The most significant preoccupation among our members is the future of AIDS work without a federal commitment to a renewed national AIDS strategy. One of the most important components of the national AIDS strategy is support for community-based AIDS programs. Government must recognize that investing a few hundred thousand dollars to support an agency that delivers volunteer, health-related services with a value of several million dollars is a wise investment. The high cost of drugs often forces people living with the disease out of the workforce and into social assistance programs.

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On tax issues, currently the medical expense tax credit does not allow claim for a range of treatment-related expenses. The disability tax credit is interpreted too narrowly to permit many people living with HIV to qualify. Both of these issues are being re-examined by the ministerial task force on disability, and we attach a copy of our recommendation and issues presented to that task force.

The federal government has a responsibility for the welfare of disabled Canadians, including those with terminal illnesses like HIV/AIDS. Positive economic turns and reduced deficit numbers cannot be achieved...on the very Canadians least able to do so.

Voluntary health agencies provide substantial economic benefits and cost savings. The money government spends on these organizations is minimal compared with their benefits. We hope this committee will support the need for the next phase of the national AIDS strategy, and will continue to support this province's efforts to cope with and prevent the escalation of the AIDS epidemic in New Brunswick. Thank you for this opportunity.

The Chairman: Thank you very much for being with us.

Mr. Claude Olivier (Co-ordinator, Support/Health Promotion, AIDS New Brunswick): I haven't had a chance to speak yet.

The Chairman: I'm sorry. Go ahead, Mr. Olivier.

Mr. Olivier: Thank you. I also want to thank you for the opportunity to present here today.

I'm representing another provincial AIDS organization. AIDS New Brunswick has the provincial mandate to provide support and education services. We're very much volunteer-driven.

As Ted mentioned, one of the primary concerns of AIDS organizations across Canada right now is renewal of the national AIDS strategy, which is scheduled to end in March of 1998. Although it's not a direct budget consideration for this year, it's something that needs to be considered because the uncertainty of the strategy is already disrupting AIDS work.

For example, research projects often last for more than one year. It's difficult now to assign moneys to those research initiatives because we're not sure if there will be moneys forthcoming after 1998. More importantly, AIDS service organizations rely a lot on funding from ACAP, the AIDS community action program, which is a component of the national AIDS strategy.

I think the work we do is very cost-effective. Ted mentioned the extensive volunteer base. With a budget of $250,000, we're able to render services that probably amount to millions of dollars in health-related services. As well, the services we provide are very cost-effective. It's estimated that the direct and indirect cost of one HIV case is about $600,000. With a budget of maybe $250,000, our service can certainly pay for itself by just preventing one or two infections.

Tying this into work issues, right now AIDS is the leading cause of death for men between the ages of 25 to 44 in major urban centres. It's the second leading cause of death across Canada for men in that age group. So certainly it's an issue that has an impact on a productive young workforce.

The second issue I want to touch on is also important to us, and that's the Canada health and social transfer. We're quite worried that a reduction in standards around health and welfare programming, as well as a reduction in transfer moneys to provinces, will take away any sense of national standards we currently have around health and social programs.

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New Brunswick is already at the bottom end in terms of income assistance programs, and we're worried that an erosion of national standards will push people with disabilities further into lives of poverty. We need standards for health and social programs that are enforceable. Minimally, they have to provide access for all Canadians and cover basic needs, and there has to be a similarity in programming across Canada.

Ted mentioned the high cost of medication. Often that acts as a deterrent to work, because people may be forced into income assistance so they can get health cards to pay for their medication. Anything the two levels of government can do to assist in covering needed medication will contribute to people's staying healthier longer in the workforce, as well as staying in the workforce because they will be able to pay for needed medication.

Lastly I turn to the issue of tax reform. I share Ted's opinion that some reforms are needed to the disability tax credit and the medical expenses tax credit to ensure they reflect the true costs of those services. We would strongly suggest moving from a tax credit to a tax refund system so that those Canadians most affected by disabilities will be able to benefit from these types of tax credits. Often many people with disabilities are living in poverty, so they can't benefit from the credits. Some of these tax credits are transferable; however, there are some rigid restrictions on which members of families can benefit from these tax credits. Same-gender partners may be excluded.

I think anything the government can do to support families supporting people with disabilities is a positive thing. It would also save money for the government if people weren't relying on government services for their support.

I have two documents we submitted earlier to different government groups. One was to your colleague Andy Scott, for the task force on disabilities. It outlines our concerns about tax reform and the Canada health and social transfer. There is also a document we produced on the national AIDS strategy and how beneficial that strategy has been for New Brunswick. I will leave those for your consideration. Thank you.

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

[Translation]

Please proceed, Mr. Laurin.

Mr. Laurin: Mr. Strain, you spoke about the accessibility of university and, I believe, about the provinces implementing differential fee policies. Are you talking about agreements between the provinces or about federal-provincial agreements? Could you clarify your statement?

[English]

Prof. Strain: For the most part, fee assigning is the responsibility of individual universities, so it is not something governments per se will have direct charge over. But typically, fee assigning is a very political process at the provincial level. Because provincial governments directly control the funding, they negotiate tuition fees with universities in meetings behind closed doors. But it remains the case that tuition fees are set by the individual universities and not by governments. The problem is that as government funding to universities declines, they are forced to find ways of financing their operations. The obvious way is through higher and higher tuition fees.

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As an economist, I would say it is the logic of competition that will push universities in the direction of imposing differential fees. In an individual province like New Brunswick that has a very high proportion of students coming from outside the province, I would guess that the taxpayers will ask why we spend money raised within our borders to provide an education to students coming from another province and returning to their home province. These students never contribute to the tax system.

The advantage of the system so far has been that the students can go wherever they want and they'll contribute mostly to the national tax system. This money can go back into the provinces through the transfer system. It isn't as big a deal. As you download more and more of the responsibilities onto the provinces, this becomes more important. It's a pressure put on the entire system.

One of the things likely to happen in the longer term - and we are already seeing it happen in a very small way so far - is that as we hit the millennium, this is going to be more important. This will be the case especially in provinces like New Brunswick and Nova Scotia, where a fairly significant proportion of the students receiving an education are from outside the province. When you ask provincial taxpayers to pay for people who are getting an education within their borders and then leaving, those taxpayers, not surprisingly, are going to say they don't get their money back. If they say this, then the provincial governments are going to say they will allow the imposition of differential fees. Already, universities are doing this as a reaction to the general environment in which they're operating. It's not a government decision.

[Translation]

Mr. Laurin: You are correct in one respect. Quebec is complaining somewhat about the same thing; it deplores the fact that people are leaving to pursue their university studies elsewhere. You say that the same thing is happening in your province, that students are leaving to go elsewhere. We think that they are going abroad. If they are showing up in your province, we would be happy to hear it.

Don't you think that if the federal government stop cutting social transfers to the provinces, the latter would be in a better position to fund education, as this area comes under provincial jurisdiction?

Has the federal government cut back too much on transfers to the provinces? The cuts have totalled $6 billion. There is less money available for education, less for health care and even less for social programs. In fact, everyone is having to make do with less.

In your opinion, what position should the federal government adopt insofar as reducing transfers to the provinces is concerned? This same question could be put to other witnesses since many alluded to this problem.

[English]

Prof. Strain: I appreciate the crisis the federal government faced. You had two episodes where the debt-to-GNP ratio just exploded, including one in 1991-93. Faced with that, there was no alternative but to cut something. Given the proportion of the federal government budget devoted to transfers to provinces, I don't think the transfers to provinces could have gone unaffected.

As we look at the current situation and as we turn the corner - and I'm one of the economists who believe we have turned an important corner - if we can get our interest payments on the debt to start falling, it will ease up the situation. Then I hope one would again look at transfer payments to the provinces as an obvious place to start increasing spending, or at least easing off on the reductions that have been occurring over the last few years.

On the other hand, I don't see that there is much of an alternative, other than the one I don't have a problem with but other people in Canada do. I would have little problem with higher taxes. I'm in enough trouble in my classes when I tell my students I support higher taxes, let alone standing in public and saying this in a crowd. You're liable to be lynched.

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I personally would be in favour of higher taxes. We would basically get nothing for the higher taxes, but we would pay these high interest bills we're stuck paying and save some of the provincial transfers.

[Translation]

Mr. Laurin: What do you suggest we do to deal with the brain-drain problem that you mentioned? If money is not the issue, then what is?

[English]

Prof. Strain: It is a matter of money. What I'm saying is this hasn't happened -

[Translation]

Mr. Laurin: Where do you suggest we get the money? You say that we can't take it out of transfers and that the federal government is justified in cutting back transfers to the provinces. Since the province receives less money, it has less to put into education which is its primary responsibility. What's the solution?

[English]

Prof. Strain: To repeat, my view is that over the last five years the federal government has had little choice. Now we're entering an era when suddenly we have some choices.

To be honest, the problem is not as severe right now as it will be four or five years from now. My concern is that over the next four or five years we're going to continue on the current track. This means dramatic reductions in cash transfers.

I would agree that as soon as we can ease up a bit, we should look at easing up on the cutbacks to federal-provincial transfers. In fact, those transfers should be increased as a way of avoiding this particular problem. When I'm saying I'm in favour of the cuts, I'm saying there was no alternative but to cut things or raise taxes. I would have been happy with raising taxes. Again, it is the people in power who have to make a decision about whether they want to risk raising taxes to solve it, but you can't avoid interest payments.

The Chairman: The only two Canadians who want to raise taxes, excusez-moi, are you and Herb Grubel.

Prof. Strain: Yes, I know. Herb and I agree on this.

[Translation]

Mr. Laurin: On the contrary, I have never said anything about increasing taxes. I realize that everyone claims to be virtuous, but that many say they are incapable of it in actual fact.

I have a question for Mr. MacMackin. You spoke about the deficit. We must continue our efforts to tackle the deficit, because this is only a starting point. The deficit is declining, but the debt has not yet begun to shrink. On the contrary, it continues to increase and each year, we must allocate at least $50 billion of our tax dollars to service the debt. In fact, the debt will rise this year by anywhere from $25 to $35 billion.

We have started to bring the deficit under control and we foresee the day when we really start to tackle the debt. Do you feel that we should slow the pace of this operation given the fact that ordinary people and the most disadvantaged are the ones who must bear the heaviest burden?

[English]

Mr. MacMackin: No, I don't feel we should be decelerating. As a matter of fact, I think I said that we probably should be accelerating, if you look at it from the perspective that it's not going to get any less painful by dragging it out and slowing it down. We drag it out over extended years. We add to the debt accumulation over extended years and we just prolong the pain.

We are in a situation right now in Canada where we have the benefit of the economy on our side, at least for a little while. We have low rates. We have low inflation. We have a level of economic growth, and although it's spotty - up some months and down some others - it seems to be progressing.

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If we couple this with the same strategies employed over the last few years on deficit reduction, and even speed them up a little bit more, we can fix this. We can get on the right track and deal with the reduction of some of our debts, and we can then begin to look at a way to pass this back to Canadians through tax decreases. We can also look at other areas of concern, education, health, etc. My standpoint is let's speed it up.

[Translation]

Mr. Basque: We mustn't go too far. Some are saying that in addition to paying down the debt and the deficit, we should go even faster. I certainly can't accept that. We seem to have lost sight of our objective. The government says that it has no choice, that it must impose budget cuts. However, regardless of whether it is headed by Brian Mulroney or Jean Chrétien, the government does have choices to make. We don't talk anymore about free trade, but what impact did it have of on jobs in Canada? It destroyed a portion of the manufacturing sector and cut into the government's share of revenues because those people who were working paid taxes.

We don't talk either about transactions on international markets which are not subject to taxes and which hinder the Canadian economy because they are unpredictable. We don't talk about that. We only hear that the debt and deficit problems must be resolved and that further cuts must be made to social programs. We don't talk about taxes, whether it be the GST or other taxes which have increased. People are the ones who pay these taxes.

Shouldn't we be looking at corporations which earn profits and which do not pay their fair share of taxes? Corporations benefit from some $40 billion in tax exemptions as a result of tax expenditures. Corporations benefit from either direct or indirect taxes and this includes members of the Fredericton Chamber of Commerce. Why not try to recover some of this revenue which is not finding its way into the government's coffers.

However, the government does seem prepared to make further cuts to unemployment insurance. The business community is calling for even more drastic action in this area. It argues that unemployment insurance premiums are equivalent to employment taxes. Honestly! The government is prepared to make cuts and to get its revenue from workers, from UI recipients and from the sick. It is prepared to reduce services in order to settle the debt and deficit problems. The other side is not prepared in any way to go along with these proposals. They may say they are willing to refuse federal government subsidies, but I would like to see the reaction of the business community the day that happens.

Choices were made, they had a negative impact and they continue to have a negative impact on the majority of Canadians, and even more so on the residents of New Brunswick. People have had enough of untenable choices. They are poorer for them and this is not how things should be.

The last federal budget was of no help to us. The next one must be an improvement. It must address the other side of the equation. People are tired of the budget being one-sided and of having to deal with cuts at all levels.

Mr. Laurin: My last question is for Mr. Basque. You stated that MPs have voted themselves hefty pensions, thanks in part to the work of the Bloc québécois. We have succeeded in having these pension provisions amended so that members can no longer collect a pension at 40 or 45 years of age.

I'm surprised that you didn't talk about another federal institution which costs $53 million per year to operate. Few witnesses mention it. Is it that people want this institution to be maintained or is it simply an oversight on their part? The Senate of Canada costs taxpayers $53 million per year and for many years, people have questioned its usefulness.

We have tabled resolutions in the House of Commons as well as petitions signed by over 30,000 Quebeckers calling for the abolition of the Senate. The government has never taken any action. I am surprised that you didn't talk about this $53 million expenditure.

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Is it that you support this institution?

Mr. Basque: No, it isn't necessarily that we support this institution. We could have focused on many other subjects in our submission, but we chose not to.

If we give any thought to abolishing the Senate, I think we would have to replace it by a body which would do the same type of work, but much more efficiently. Clearly, the Senate's contribution at this time is minimal.

Mr. Laurin: You would like to replace it. If it serves no purpose, why replace it? We don't replace something that is useless. Don't you think MPs could do the job on their own?

The Chairman: I must assure you that Mr. Basque is next in line to become a New Brunswick senator. Thank you, Mr. Laurin.

Mr. Laurin: With your permission, Mr. Chairman, I would like him to finish his answer.

Mr. Basque: The next senator will be Fernand Robichaud because he can't get himself re-elected.

I don't think the Senate is doing any kind of job right now. It serves no specific purpose. If we were to replace it, we would probably have to change its mandate and make it an elected chamber.

[English]

The Chairman: Mr. Grubel.

Mr. Grubel (Capilano - Howe Sound): I wanted to thank all the witnesses for coming here. It has been for me, the couple of times I've been here, an educational experience to find out about local problems, especially from people who are representing people in need. I hope the government will listen to you.

I would also like to welcome Frank and thank him for arranging the interesting meeting with his class last year, I think it was. It was a very interesting thought you had about the loss of human capital to the rest of Canada. Do you know anything about the relative numbers of people from Atlantic Canada who study in the rest of Canada and the rest of the world relative to the number of foreigners, including non-Atlantic Canadians, who study here?

Prof. Strain: I don't have numbers at my fingertips. I can say that it depends on the size of the province.

There is an awful lot of interprovincial mobility within the Atlantic provinces. For example, at Mount Allison University, I would guess that fewer than 50% of the students are from New Brunswick. But we have a substantial number from Newfoundland and Nova Scotia. If you went to Dalhousie, you'd find they have a substantial number from Prince Edward Island and New Brunswick. So there is a lot of mobility, as one would expect. Within the region there is a lot of mobility and there is less mobility the further away you are.

Mr. Grubel: A region like the Atlantic provinces sends as many students to the rest of Canada as there are people from the rest of Canada coming here. They both go back home after studying. There is really no net loss to Atlantic Canada. I think before we make any great institutional arrangements to compensate for what you have postulated is a loss of resources for Atlantic Canada, we should look at the overall balance. People come here from the rest of Canada, study, and then take away the expenditures they embody from the people who have done the financing.

You know the articles I have written on this subject. I would also say that if people from the Atlantic provinces are educated here and then decide to move away, in a sense this is increasing their welfare. They're much better off. In some ways it may be a very good use of resources if the people of the Atlantic provinces assure their children have a good life afterwards. I think we would have to work a little more on your proposition.

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Prof. Strain: On the last item first, it is a fact that the proportion of out-of-province students receiving education in New Brunswick and Nova Scotia is substantially higher than elsewhere in the country.

Secondly, I'd agree - and it's one of the arguments I made about universities being a regional development policy - that it makes sense to invest in human capital precisely because it is so mobile. If you're going to subsidize some sort of capital acquisition, then human capital is the best because it's a regional development policy. People can decide to stay if that's what they think is in their interest, and can contribute to the local community even if it involves a lower income as part of the choice of staying. They can make that decision or they can go into the national labour market, go elsewhere and compete if that is their personal choice, and they bring that investment with them. This is unlike physical capital, which is not very mobile. The education investment is a relatively good one, even as a regional development strategy, precisely because it's vested in individuals and they can do with it what they think is in their interest.

From the point of view of the community as a whole, there's still the problem of those individual interests. Given that the students are at a certain age and they cannot completely finance their education, the local community in a sense is providing finances. It's the extent to which they're willing to provide those finances that I'm calling into question.

I think Atlantic Canada is very different from the rest of the country because our net losses exceed our net gains from the rest of the country. I don't have the numbers at my fingertips, but I can easily get them. I have them at home, and papers I've written on this particular subject. They're just not on the tip of my tongue, unfortunately. But there is a difference, precisely because Atlantic Canada is relatively poor and the opportunities for university graduates are less here than elsewhere.

The Chairman: Ms Brushett.

Mrs. Brushett (Cumberland - Colchester): Thank you, Mr. Chair. I have three questions.

I would like to address Frank Strain first and present the other side of the past policies of the federal government under the CAP program. It has been argued very strongly that under CAP we in the Atlantic were really the losers, when today you're saying we are the losers under the CHST. The other side of that argument is that under CAP the cash transfer was based on per capita of population. We in the Atlantic had many more students in our universities than we had per capita population. Therefore, if the formula had been based on student population in universities, we would have been far better off than under the old CAP formula of the population.

That's something you must bear in mind and it should be on the record for our minister to hear. Under the CHST we will in fact do Atlantic Canada a great benefit. I believe, as many of our universities do - and I think Mount Allison is the model for them all - that you will draw the students as you have in the past, and therefore you will have that revenue coming in because of the high quality of education.

I would like to add that because we have been so highly recognized for educating our youth...is it all bad that they leave? My own two children are in the United States. I regret that, but at least they are working; they have jobs.

I would like to invest in our human resources here, in the Atlantic, and do what we do well, and that is education. I think we can excel. Although I regret we can't employ them all - it's a real sadness for me - I don't see that we can change it quickly. Therefore, we should continue to do well what we know how to do, and that is educate to the highest standards and let other people come. Give the jobs, take them; at least we are creating that great human resource here in the region.

Prof. Strain: I don't think what you're saying is very different from what I was saying when I made the point about human capital and its transferability. It goes with you wherever you go.

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Education is an incredibly important investment. As someone who grew up in Atlantic Canada, I think it's important for me and for my children to have the mobility to go and compete with anyone from any other part of the country and to have that type of education system available.

You're right, under the EPF program we did suffer a relative disadvantage because of the proportion of students of the total population that we were educating. Under the CHST that per capita funding formula hasn't changed very much. It's not as if we were adjusting for numbers of students within that formula, and actually, that's not what I'm advocating either. It's an adjustment in the formula, but I don't think the CHST really changes things that much, although I might be missing something about the CHST in comparison with the EPF.

Mrs. Brushett: Thank you for that. I want to assure you that we will be diligent in continuing to educate our youth the way we have in the past.

I have two questions, Mr. Chairman, one to Mr. MacMackin for the chamber. He's advocating strongly that we terminate any assistance to the SME from the federal government or any subsidies to business. I'm wondering if you're advocating that same principle to your provincial government. We read in the papers constantly of the luring through tax benefits or subsidies, whatever -

The Chairman: Oh, no, no.

Mrs. Brushett: - to this promise of jobs from other provinces or wherever. Do you give the same message to your provincial government?

My second question is to Mr. Basque, Mr. Robar or any of the gentlemen who wish to answer it. You've asked specifically for government to create jobs in these rural, depressed areas. What do you suggest? I ask this because we don't have a good record of a government creating jobs. What do you suggest we do specifically to create those year-round jobs?

Mr. MacMackin: We're on record quite clearly in the last two or three years, in briefs we've made to the provincial government in New Brunswick, as advocating that subsidies and grants be eliminated. Frequently in this province there have been instances when that's not been paid attention to, and I'm not sure we have the support of every business person in this community when we say that. But I'm a believer that it's a reality. We can't afford to do it. We fool ourselves when we think we can, and we're clearly on record saying that this is the case.

The Chairman: Thank you, Mr. MacMackin. Mr. Robar.

Mr. Robar: [Inaudible - Editor] public sector decreasing jobs, decreasing services. We have seniors living in nursing homes where there's one worker to 25 clients. The social safety net is in a shambles. If you could place a fair tax on the corporations' profits - and I stated earlier that their contributions have gone down to a low of 10% - clearly job creation could follow that. You could start with the public sector, restoring it to where it should be.

Mrs. Brushett: Are you saying that with such measures we would be creating the jobs rather than say we're going to paint all the fences and churches and school yards throughout the Atlantic region?

Mr. Robar: Creating jobs within the public sector - hospitals, nursing homes - puts money back into the economy. If there were a fair tax on corporations and individuals, clearly job creation could come out of that. There's a whole lot of money out there not being taxed.

Mr. MacMackin: This is like déjà vu from last year all over again with respect to ongoing discussions about the long lists of specific corporations that do or don't pay tax. I can't foresee a specific list or proof that those corporations individually listed do so. If they do, they do it outside of normally accepted accounting principles.

With respect to that same issue, there is an implication that profits left within profitable corporations have no positive benefit on the economy. Frankly, that is not true. Obviously, the taxes they have reported are after tax, so tax has been paid - property tax, income tax, all kinds of contributions to the public coffers from that corporation. The contribution to the economy is the capital investment corporations have to make every year in technology, information technology, all kinds of things.

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Also, there are shareholders as well that gain on their assets. I'd like to remind folks around the table that some of the largest shareholders in this country who own these corporations are public and private sector pension funds, union organizations, public sector organizations as well as private companies. It's not wealthy people who sit on top of the hill somewhere who own these companies. They are average citizens. They go to the contributions that help maintain those pensions, that help maintain people's RRSPs. So as for whether there's scope for increased corporate taxes, quite frankly, no, there isn't.

The Chairman: I don't think Mr. Robar agrees with you completely.

Mr. Robar: One name I think of is Irving and the amount of money he's made in the province of New Brunswick and how much of that money is put back into the economy and isn't kept in foreign banks. It's a fact that his family, in order to inherit that money, had to keep it out of the province.

Mr. MacMackin: I guess I'm not in the habit of defending the Irvings. I won't defend them any more than I defend any other individuals. However, I will argue that you can probably not highlight an example of a company or a group of companies that does more investment in their ongoing operations than they do. I am always of the belief, personally, with the exception of the investments they've made in the state of Maine and in businesses outside New Brunswick, that they have put unbelievable amounts of capital investment back into the economy, more so than any one of us could ever afford to do.

The Chairman: Mr. Robar, we'll give you the last word on this.

Mr. Robar: Visit Saint John. From an entrepreneurship or small business point of view, the reason job creation is so poor in that city is the Irving family. If something is being run successfully there, it's only a matter of time before the corporation comes in and offers to buy it, or offers to buy it and let you manage the operation. If you won't do that, you find yourself in direct competition with the Irving family. Job creation in that city is very poor when it comes to the small business person.

Mr. MacMackin: Can I have the last word?

The Chairman: Mr. Basque and then Mr. MacMackin.

[Translation]

Mr. Basque: Someone asked if there was some way for the government to create jobs. I think the answer to that is yes, particularly in rural regions. Let me give you the example of Shediac, a region outside of Moncton. The government decentralized one of the branches of the former Department of Supply and Services which handled social security numbers, thereby creating 400 jobs in a rural area.

By decentralizing some of their services, the federal and provincial governments could create jobs and help regions where much of the work is seasonal in nature. Unless public services are brought into these regions, it is difficult to increase the number of jobs in any appreciable way. More conversions could be carried out, but that's a whole other matter. I believe decentralization is an effective way for the federal and provincial governments to help the regions.

I also believe that the infrastructure program introduced in the first Liberal budget should be extended. However, it should be much more specific and focused more on the infrastructure of small municipalities with 500, 1,000 or 5,000 residents. These small municipalities truly stand to benefit and to create jobs in the region. It must also be understood that in a municipality of 2,000 people, the presence or absence of 10 federal or provincial government jobs makes an enormous difference. In this sense, I believe the federal government has a role to play.

The Chairman: Thank you very much, Mrs. Brushett. Mrs Chamberlain.

[English]

Mrs. Chamberlain (Guelph - Wellington): Mr. MacMackin, is the Chamber of Commerce in favour of an infrastructure program?

Mr. MacMackin: It's funny, I had this discussion with somebody this morning.

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The Canadian infrastructure that exists at the moment is not in good repair. We have a lot of problems with roads, especially in the province of New Brunswick. We've had ongoing negotiations with the federal government to try to do something to help us rebuild our highways.

I guess we're reluctant to say we're supportive of something that would be used in a couple of different ways: as a nice election package that could be flogged from one end of the country to the other, or as something that could be used in the wrong way. But there are communities in need. Mr. Basque outlined the need for sewage infrastructure and water infrastructure. There are roads that need rebuilding.

There is investment required that belongs to you folks. It's federal infrastucture in some cases that needs a reinvestment. I guess if it can be worked into a fiscal framework that still matches our objectives of deficit elimination and debt reduction, yes, we would probably be quite supportive of that.

Mrs. Chamberlain: I also want to ask Mr. Gaudet or Mr. Olivier a question on the AIDS issue. You talked about a disability tax credit and said you'd rather have a tax refund. Do you have any figures on that? Do you know what it would cost, how it would work out? It seems to me that you have a case for it. It makes sense to me to some degree, but dollars always have to come into it. Have you done any research on that?

Mr. Olivier: I think there has been some research. I may....

Mrs. Chamberlain: If you don't have it, perhaps you could forward it to us.

Mr. Olivier: Sure. I remember reading some estimates on what it would cost.

Mrs. Chamberlain: It's easy to say we want to change, but we always have to evaluate the costs and how it would affect us, obviously. It seems to me there would be some merit in looking at that proposal.

Mr. Gaudet: We're hoping the task force on disabilities will make strong recommendations to Revenue Canada on taxation.

The Chairman: Could I ask either Mr. Gaudet or Mr. Olivier, have the new drug therapies using multiple drugs given new hope to those with HIV and AIDS?

Mr. Gaudet: Speaking as a person living with the disease, I can tell you yes. I'm very hopeful that these new drugs will prolong my life and maintain my quality of life to a certain degree.

The Chairman: There's some evidence to date that they are doing that, isn't there?

Mr. Gaudet: All studies point in that direction, very successful.

The Chairman: What is the usual time from infection until HIV becomes AIDS?

Mr. Olivier: There's a tremendous range, but on average someone would have an AIDS-defining infection, a cancerous set of symptoms, roughly ten or eleven years after infection. We're talking about adults here.

The Chairman: Is it different in younger people?

Mr. Olivier: Children frequently would progress more quickly than adults. For babies being born to infected moms, it can be as short as a month.

The Chairman: Have you found that over the last couple of years AIDS has become somewhat de-stigmatized, and that Canadians accept it as an illness that can affect anyone as opposed to a plague on the gay community?

Mr. Gaudet: We have as many success stories as we have horror stories. I believe great progress has been made, but it's a small dent we've made in creating AIDS awareness throughout the population.

The Chairman: Thank you very much. Mr. Laurin.

[Translation]

Mr. Laurin: Mr. MacMackin, Quebec is recommending the establishment of a second infrastructure program, but in this case, the federal government would be kicking in 50%. Furthermore, it is recommending that the provinces be allowed to use money already budgeted in view of their serious indebtedness.

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Do you agree with this proposal?

[English]

Mr. MacMackin: It's a very specific question. I'm not sure I'm aware enough of the specific mechanics of the previous restructuring program to comment.

I would like to see a program of this nature to ensure that every dollar spent goes where it bloody well needs to be, to ensure that we're not creating projects, and for lack of a better example building hockey rinks, as opposed to paving roads where roads are needed. If they can be matched up with existing provincial capital expenditure plans that are of a high priority to that province, and somehow we can marry the two systems, and if overall this makes better use of the dollar for the taxpayer and gets some jobs done that need doing, I think it is a reasonable proposal.

But I must say, I'm not clear enough on the mechanics of the proposed or the old plan to comment much more than that.

The Chairman: If you don't like hockey rinks, would you approve boccie courts?

Mr. MacMackin: It's not that I don't like hockey rinks. It's just that I think in many respects it's how we use the bucks.

The Chairman: Mrs. Chamberlain.

Mrs. Chamberlain: This is just a quick comment on his last point.

I know the hockey rinks thing is easy to throw around, and I know there's a question around it, but it can also be argued that it does improve the quality of life within the community and it attracts people into that community, just as many things do for industry.

Mr. MacMackin: Absolutely, without a doubt. We're down to debating best things, not necessarily good or bad things. In reality, right now in many communities there are much higher priorities. There are water systems having problems; there are sewer systems having problems. It's what is most important.

The Chairman: I think boccie courts, quite frankly.

On behalf of all members, I want to thank you.

Frank Strain, I say to you, as someone from Ontario, that we have an incredible tradition of sending our young people to Atlantic Canada to be educated. We do it with a great deal of pride, because we know of the superior education they get. There's just one aspect of this. I suspect we're benefiting greatly by doing it. I know we are. I see springing up now in Ontario alumni associations to help these universities do fund-raising in those areas. That might be a way of getting some of the investment back.

Mr. MacMackin, we had some people in the previous session who said, this government has done nothing but adopt the business agenda and we haven't see the jobs; it's time you abandoned what you're doing; it hasn't worked; you're hurting us; go back and spend, big time. I know what your answer will be and I know what my answer is. When the single biggest expenditure we have in our budget today is $50 billion for interest alone and the next biggest is $20 billion for pensions for seniors, we just can't sustain it. We were absolutely irresponsible as governments to get ourselves into this mess where we have to make this expenditure on interest. If we had been more prudent, that money would have been available, at the same tax levels we have today, for expenditure on social programs. That is the tragedy of where we have got ourselves.

But I also say to the chamber and to business that there's a certain amount of justification. We know you have to face the competitive realities. It will be in the interest of all Canadians, including our business community, if we get more Canadians back to work. The more you can do to encourage your members to go the extra mile to help us with what is a major social problem and phenomenon - people who want to work and who just can't find it here in this country - the better off we'll all be. I'm sure you know that.

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[Translation]

Mr. Basque, you spoke of people living below the poverty line. It is very important for us to recognize that even though we are one of the wealthiest countries in the world, there will always be disadvantaged Canadians who are entitled to humane, civilized treatment and to the same opportunities that are available to other Canadians. Thank you very much for your contribution.

The same goes for you, Mark.

[English]

You've talked about people who are in need, and we must constantly be reminded. Our role as politicians is not an easy one. We have choices to make and we have to try to look out for the long-term best interests of all Canadians. We don't do this from a doctrinaire, philosophical point of view. This is why it's important to have the people we represent before us.

Ted and Claude, our hearts go out to people who have illnesses, and your request for a national AIDS strategy to be in place by 1998 is not unreasonable at all. Your plea to us to at least help you maintain the community-based health care delivery systems you've established - and it's such a fortunate thing that we have them staffed by volunteers...we're crazy if.... It's probably one of the best investments in health service delivery we can have in this country. Let us hope we can devote more effort to stamping out this incredible plague for all of us. On behalf of all members I thank you.

The meeting is adjourned.

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