FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, October 26, 1998

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call this meeting to order and welcome everyone here this morning.

We have the pleasure to have with us representatives from l'Association canadienne-française pour l'avancement des sciences, the Association of Universities and Colleges of Canada, the Canadian Consortium for Research, the Canadian Federation of Students National Graduate Council, the Canadian Graduate Council, and the Humanities and Social Sciences Federation.

You've been here before and you know how this committee operates. You have approximately five minutes to make your presentation. Thereafter, we will engage in a question and answer session.

We will begin with l'Association canadienne-française pour l'avancement des sciences, Mr. Germain Godbout, general director. Welcome.

[Translation]

Mr. Germain Godbout (General Director, Association canadienne-française pour l'avancement des sciences): Mr. Chairman, I would like to say a few words about the Association canadienne-française pour l'avancement des sciences since this is our first appearance before the committee.

We are a non-profit association that has been working to promote and develop science, technology and innovation for 75 years. The association has 7,000 members throughout Canada. Its head office is in Montreal and it also has three regional offices in Ontario, two in the West and one in the Maritimes. Mr. Giroux will present the opening remarks.

Mr. Robert Giroux (President, Association of Universities and Colleges of Canada): Thank you, Mr. Chairman. Mr. Germain Godbout, from the Association canadienne-française pour l'avancement des sciences has already introduced himself.

[English]

John Service is representing the Canadian Consortium for Research. The Canadian Federation of Students National Graduate Council is being represented by Joy Morris; the Canadian Graduate Council is being represented by Rubina Ramji; and Louise Robert is representing the Humanities and Social Sciences Federation.

We have a statement to read, Mr. Chairman, but there will be a separate presentation by the National Graduate Council.

Our group welcomes the opportunity to appear before this committee as it ponders its advice to the Minister of Finance concerning the forthcoming federal budget. When we appeared before this committee in June, we urged the government to stay the course, to continue to make strategic investments in the education of people, in knowledge, and in innovation. This approach remains the best strategy, especially in these times of international economic turbulence and uncertainty. The forces at play present daunting challenges. They also offer tremendous opportunities.

Canadians assume their government will engage in prudent financial management. They also expect it has the wisdom to make investments in key strategic areas to enable Canadians to turn the forces of internationalization to their advantage.

Mr. Chairman, we applauded the strategic investment the government made in education, knowledge, and innovation in the last two budgets. We also believe the government has much unfinished business to attend to.

We are more than willing to rise to the challenge the Minister of Finance put to Canadians in his most recent presentation to this committee. We believe now is the time to make strategic and enabling investments in areas that will have a greater sustaining impact than symbolic tax reduction.

[Translation]

Our experience in recent months has shown that our reputation as a country whose economy is based on commodities and resources makes us more vulnerable to international economic upheavals. Our anemic research effort is the most telling indicator of the country's ambivalent commitment to transform itself into a knowledge-based society.

Our inability to offer internationally competitive levels of funding is one of the key factors explaining our difficulties in attracting and retaining highly productive researchers. The cuts in core funding to universities mean that they are unable to nurture a research environment to sustain excellence in research and scholarships.

Student indebtedness is discouraging many from pursuing graduate studies. Moreover, our human science research capacity is largely untapped. At a time when knowledge and brain power are the main sources of competitive advantage, we must make social and technological innovation the hallmark of our collective actions. These are the challenges we urge the federal government to confront in preparing the 1999 budget.

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Canada's lack of investments in research is well-known. What is less appreciated is the extent to which this affects the university sector. Mr. Chairman, our researchers do not have access to internationally competitive levels of support in large part due to under-investment on the part of the federal government. Figures show that the Canadian government supports university research at about half the level provided by the American government. In Canada, the provinces and the private sector invest relatively more in university research than do their American counterparts, but their higher contributions do not begin to make up for the under-investment by the federal government.

A further indication of the very large funding gap between Canada and the U.S. is the size of the average research grant awarded by each country's principal federal funding agencies. Our comparisons show that the average grant is three times higher in the United States than in Canada, not counting the indirect costs paid by the American government.

[English]

The message that Canada is a place where challenging research careers are difficult to pursue is reinforced by the continuing decline in core or operating support for universities. Total support for higher education has slipped significantly over the past 15 years. Over the past 5 years alone, core support for universities was reduced by some $1 billion across the country. These cuts translate into a 23% real loss of funding equivalent to $1,500 on a per-student basis. Again, this situation contrasts with the rising levels of funding of the higher education system in the U.S.

Madame Robert.

Ms. Louise Robert (General Director, Humanities and Social Sciences Federation): Mr. Chairman, Canada underutilizes its university research capacity. Canadian researchers are increasingly perceived as free riders, with little else to offer than goodwill to their foreign counterparts. In fact, Canada accounts for only 3% of the production of world knowledge. Our researchers must be given the opportunity to be connected to global networks and ideas so they can add to them, massage them, and put them to use for the benefit of all Canadians.

Innovation is more than a technological fix. It's more than a slogan for the high-tech industry. Mr. Chairman, we confront unfinished business here again, because we must come out of an outlook that focuses on innovation only in the technological sector, and we must look at innovation in other sectors as well. Many of the problems facing organizations, governments, and individuals are of a non-technical nature and they also require innovative solutions of a different kind.

Let me give you some examples. For instance, in the restructuring of the health care system we must now look at an increased emphasis on home care. We must look at how the changing workplace will adapt to new technology. We must look at problems with youth crime, adult literacy, child poverty, and pressures on the family. We must also find innovative solutions and innovative outlooks to the moral and ethical questions arising from new technology.

Canada needs to match its innovation efforts on the technological side with a comparable effort on the social, organizational, and policy fronts. Only through the exploitation of knowledge produced by social scientists and humanists can we contribute fully to the stability, security, and prosperity of Canadians. This knowledge helps us cushion the impact of change because it contributes to a better understanding of the economic, social, and cultural forces at play. It also helps fashion the policies and the redesign needed to mould change and enhance quality of life. This knowledge cannot be imported; studies abroad can inform the Canadian debate, but their conclusions rarely apply to the specifics of Canadian reality.

[Translation]

Health research is another area that must be studied. Canada's health care system is currently severely challenged. Research is part of the solution because it can shed light on what can be done to improve the health of Canadians and how best to do it.

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An innovative approach to health research is being developed. Called the Canadian Institute for Health Research, the approach would link, coordinate and support integrated national research. The CIHR will address the full spectrum of health concerns from fundamental research on the determinants of health and the causes of disease, to the organization, management and delivery of comprehensive health services so as to increase efficiency and accessibility. Thank you.

[English]

Ms. Rubina Ramji (Chair, Canadian Graduate Council): Mr. Chairman, we realize the federal government has come some way to prepare Canada for the knowledge society. It has done so through targeted investments in knowledge, education, and innovation, but Canada must sustain and improve on current measures.

First, the federal government cannot ignore the issue of core funding of universities. Our coalition of students, researchers from all fields, and university administrators strongly supports a staged increase in the Canada health and social transfer as part of a package of strategic investments to strengthen higher education and to enhance innovation and equality of opportunity. These investments are enabling investments. They are a necessary complement to strategic investments and direct support of university research.

Second, we urge the federal government to make significant additional investments in university research over the next five years to ensure that university researchers have access to internationally competitive levels of support. More specifically, we recommend the federal government correct its underinvestment in social sciences and humanities research by doubling the budget of SSHRC; commit to a multi-year plan to invest significant resources in the Canadian Institutes for Health Research; progressively increase the budget of NSERC by 50%; and to double current investments in the networks of centres of excellence program.

The primary objective of our recommendations is to prepare Canada and all Canadians for a globally competitive economy and information-age society. Rising to the challenges confronting Canada's society in a system of innovation requires significant strategic investments in the research enterprise.

In closing, we wish to alert you to the fact that our federal partners are less and less able to participate in, and to contribute to, the smooth operation of the innovation system. Mr. Chairman, the full range of activities that comprise our national system of innovation needs to be strengthened. All of the major partners must be healthy if the system is to function effectively and efficiently.

Thank you for your attention. We look forward to a fruitful discussion with committee members.

The Chairman: Thank you.

The chair acknowledges Ms. Morris.

Ms. Joy Morris (National Graduate Council, Canadian Federation of Students): The National Graduate Council is comprised of over 45,000 graduate students at 22 public institutions across Canada. My name is Joy Morris, and in addition to being an executive member of the council, I'm a graduate student in mathematics at Simon Fraser University.

I'd like to thank the committee for offering us this opportunity to present to you on the most urgent issues Canadians face from the perspective of our members, issues that need to be dealt with in the 1999 federal budget. We have submitted a brief to this committee, but I'll highlight a few of the points of particular importance to our members. Many of these points are very much in agreement with and support all the recommendations being proposed by the other groups, but we wished to present things from our own perspective as well.

There are four key issues I'll touch on in this presentation: the need for additional funding for the research granting councils; the need for increased transfer payments to the provinces for health, education, and social programs; the need to revoke the discriminatory changes recently made to the Bankruptcy and Insolvency Act; and the need to reverse some of the harmful measures recently introduced to the Canada student loans program.

Tax cuts aren't what our country needs. As graduate students who expect higher-than-average incomes and, consequently, higher taxation upon graduation, our position on this is not one of self-interest. The general feeling of the graduate students whom I represent is that the restoration of core funding to public programs is critical. Many public programs have gone through years of cutbacks as a result of budget balancing measures.

As a result, we've fallen behind other industrialized nations with respect to funding for some key public programs. We Canadians like to think of ourselves as quiet leaders in the world, but many of our public programs have fallen far behind those of other countries due to these funding cuts. Canadians are committed to and proud of our fully funded, universally accessible social programs. This is one of the things that sets our country apart from the United States, and we're willing to pay for that distinction.

Beginning with granting council funding, graduate students were very pleased with last year's announcement of increased funding for the research granting councils; however, the bottom line is that funding for the granting councils has only been restored to the level it had reached in 1994. This is significantly less than the 50% increase that we and other members of the research community had set last year as a minimum required. This leaves Canada well behind the times, as other countries have been steadily increasing funding for research since 1994.

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Inadequate levels of research funding will not produce the knowledge-based economy for which the government has been advocating. As graduate students, we are the researchers of the future, and will be the teachers of the next generation of researchers. This makes us the cornerstone of any knowledge-based society that may develop. Researchers whose funding is insufficient tend to leave the country and take their ideas with them, a phenomenon commonly known as “brain drain”.

We must take measures to prevent this from happening by providing adequate funding for all research endeavours. The shortage of available research funding is particularly apparent in the social sciences and humanities. Although over half of all graduate students are conducting their research in areas that are covered under the mandate of the Social Sciences and Humanities Research Council, less than 15% of the funding allocated to the three granting councils goes to SSHRC. This is an imbalance that desperately needs to be corrected.

The cliché of the absent-minded professor with his head in the clouds is simply not an accurate reflection of the reality of social research. A friend of mine recently told me that the two best problem analysts in the software company he works for have degrees in philosophy. This is not unusual. All university disciplines train students in two skills vitally important for any subsequent career—critical thinking and problem solving.

We've produced some posters this year that I'll be happy to circulate to you. They highlight some of the truly valuable research funded by all three of the granting councils. It's critical that research funding be provided through the granting councils, rather than through programs focusing only on research with a direct industrial relevance. Basic research forms the foundation for industries of the future, in addition to its inherent value as knowledge, and public institutions can afford to be more far-sighted than industry.

Graduate students support the proposal for the Canadian Institutes for Health Research as it currently stands, with the inclusion of significant funding for social research that is related to health. We need to fully understand the social causes of health problems, not just deal with the symptoms.

Regarding the Canada health and social transfer, a recent and disturbing trend in funding decisions has been an increased emphasis on funding the individual, rather than the system. We saw this with regards to education in the last budget with the introduction of the millennium scholarship fund, rather than increased transfer payments to the provinces for education.

Individual funding is certainly a critical issue. Student debt has been reaching crisis levels in Canada, and graduate students in particular face difficulties due to the length of our studies. We were very disappointed to understand that the millennium fund will not be available to graduate students. However, individual funding is of little use if there's not enough secure core funding to attract and keep quality researchers and teachers or to maintain an environment free from problems such as overcrowding.

To increase funding for the individual, with the expectation that this funding will pay for the quality educational environment, is to create a two-tiered system of education. Graduate students believe targeted core funding for education and other programs should be provided to the provinces by the federal government, and that this funding should at the very least represent the 1993 levels of transfer payments with inflation factored in.

Regarding the changes to bankruptcy legislation, I hope you've heard from students across Canada about the problems with the pernicious, discriminatory new legislation that prevents students from discharging their student loans through bankruptcy for 10 years after graduation. Bankruptcy is not a pleasant prospect for anyone. It's not something people do lightly; it's a desperation measure.

Not allowing the debt to be discharged for 10 years is not going to make it any easier for a student to pay that debt. If there are any prospects for paying debtors, they're dealt with in the bankruptcy process. If there are not, forcing a student to suffer through 10 years of hounding by creditors and collection agencies is not much better than debtors prison, something that was abolished as inhuman a long time ago.

Credit checks and other changes to the Canada student loans program: Some recent changes introduced in last year's budget mean that the criteria for being granted a student loan can now include such measures as credit checks. Student loans are supposed to be a government support program provided precisely to those people who most need it, the people who might not be granted a loan based on standard bank criteria. Adoption of the banks' criteria for the granting of student loans is another move toward the complete privatization of what has been a social program.

Thank you very much for your attention. We'd be happy to answer any questions you may have.

The Chairman: Thank you, Ms. Morris.

That completes the presentations from the panellists. Now we'll go to the question and answer session. We have one five-minute round.

Mr. Epp, would you like to begin?

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Mr. Ken Epp (Elk Island, Ref.): Thank you, Mr. Chairman. I'd like to thank you all for taking the time to be here today, and for making the effort to tell us of your concerns.

I'd like to start out with a very important question. The fact of the matter is that we have a national debt that is just short of $600 billion as a result of thirty years' worth of government overspending. However, I'm hearing you say you don't want symbolic tax reductions. You're calling for increased spending, but I don't hear any of you saying you'd like to have the debt reduced. Am I accurate in what I've heard, or do you have more clarification for me?

Mr. Robert Giroux: If I may, Mr. Chairman, I would like to answer that.

First of all, in quite a bit of depth, we have analysed the statement Mr. Martin made to this committee about two weeks ago. In it, Mr. Martin was saying it looks like the so-called fiscal dividend will be around $5 billion, meaning that there will be $5 billion to play with or to deal with, if I can use that expression. He then said that if we take out the $3-billion conditional contingency that is there, the one that goes automatically towards the debt if it's not used—that has been the practice for the last few years—we have about $2 billion left.

The point we're making is quite simple. With that small amount to deal with, we don't know what kinds of tax cuts are going to be really relevant to whatever part of the population of Canada. That's why we used the word “symbolic”. They would be tax cuts, but where would they fit? What would their impact be?

We then turn around and ask what you can achieve with, for example, $1 billion worth of investment in research, in education an in innovation. We will argue very strongly that from a long-term perspective, this amount of money invested in the knowledge economy, in innovation and education—and post-secondary education particularly—gives a much bigger bang for the dollar than you would see from the other measures being contemplated.

Mr. Ken Epp: You're all academics here. You're clear thinkers. You're analytical. I love that. That's how we have to look at these problems.

If we didn't have this debt at all—which is, of course, pie in the sky thinking, since the governments of the last thirty years have given it to us—we would have free education for every university student in the country instead of having to pay this interest. I think we have to look at the long term here, and I would really like to have your input on this.

You say “symbolic tax reductions”. We probably have I don't know how many thousands of people in this country who are classified as living in poverty but who are still paying taxes. When you come out and say that's a symbolic thing, well, I'm afraid you're wrong. It's very real to these people, who are just barely making ends meet yet still have a considerable tax bill to pay.

Don't you think it would be better to return money to these poor people, to just leave a little more in their pockets so that they can look after their needs? As academics, you surely must recognize that as a reality.

Mr. Robert Giroux: Again, Mr. Chairman, we all recognize the needs of the population. We also know there are major gaps between the richer part of Canadian society and the poorer part of Canadian society. The point I want to make is that with the amount of money that is available, there just isn't enough to make a real impact on the people you are talking about. I don't even know if those cuts would be directed towards the poorer part of the Canadian population.

Again, our point is thinking forward to the future, thinking of where you put your investments. In view of the small amount that it has available, the government has to make a very clear decision about where it appropriately spends its money. We, of course, are arguing that investments in research, technology and education are a very good alternative that the government needs to consider.

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The Chairman: Thank you, Mr. Giroux, Mr. Epp.

[Translation]

Mr. Bigras.

Mr. Bernard Bigras (Rosemont, BQ): I have two comments, the first to Mr. Giroux, and the second to Ms. Morris.

Mr. Giroux, you were quite clear about the fact that the government should make education a priority. I think we all agree on that; students, deans or professors all acknowledge the need to invest in education. The government seems to recognize it. When we read its statements, it is clear that education and health are priorities for it as well. However, in practice, we have seen that for several years now, the federal government sees two ways of investing in education. It can do so through federal transfers, that is by restoring the funding to provinces that it stole from them. That is the message we advocate. The second approach is to create new programs. Initially, the government wanted to introduce home care programs and the Millennium Scholarship Fund, worth $2.5 billion, which ultimately removed the provinces' room to manoeuvre in this area.

My question is very simple. I would like you to tell us clearly today whether you prefer to see new programs in education, or increased transfers to the provinces. Your choice seems quite categorical: you prefer increased federal transfers to the provinces, so that they can reinvest in education.

Mr. Robert Giroux: Mr. Chairman, I would just like to emphasize that the recommendation in the brief that we sent to the committee last week is composed of two parts. In the first part, we recommend that the government restore in stages—because we do have to take financial considerations into account—its transfers to the provinces and that the amount be targeted chiefly for health and post-secondary education, since the latter is a very important component of the federal transfers.

Finally, we recommend that the government continue and increase its investment and support in university research in the areas of the social sciences and the humanities, health, natural sciences and engineering. This is one of the traditional responsibilities of the federal government that is well received and is working very well in the federal system at the moment.

Thus, we suggest that the federal government take action in both areas, because we recognize that the lack of resources has had a major impact on the base budgets and operating budgets of universities at the moment. We therefore recommend that the federal government intervene in the area of its transfers to the provinces and, second, that it target education and innovation so that Canada will be well positioned in the knowledge-based economy.

Mr. Bernard Bigras: Thank you.

Ms. Morris, the members of my party agree with the comment made about the Bankruptcy and Insolvency Act. It makes no sense to pass amendments to Bill C-36 while students are on vacation. I would like you to clarify something in this regard. The amendment introduced by Bill C-36 increases from two to ten years the period during which students can declare bankruptcy. Are you suggesting that the period be reduced from ten years to two years or from ten years to zero?

[English]

Ms. Joy Morris: I would like the change to be that the prohibition is removed entirely. I don't think it's reasonable to prohibit one group of society from discharging its loan debts while not prohibiting any other groups in society from doing the same thing.

[Translation]

Mr. Bernard Bigras: I have another question about the Millennium Scholarships. There is agreement to the effect that it makes no sense that scholarships be awarded on the basis of merit. The only criterion that should be used in awarding loans and scholarships is the student's financial situation and needs. In Quebec, the financial assistance system is based on need, not on merit. Would you like provinces that wish to exercise their right to opt out of this program, which does not meet their needs, to receive financial compensation, to the extent that such funds could be invested in the province's initial program?

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[English]

Ms. Joy Morris: To be brief, yes.

The Chairman: Mr. Riis.

Mr. Nelson Riis (Kamloops, Thompson and Highland Valleys, NDP): Thank you, Mr. Chairman.

As a point of clarification, Mr. Chairman, when we had the witnesses before us to talk about the millennium fund, didn't they say that in terms of allocating the scholarships, the fact that one qualified for entrance to a particular facility would be the merit, and that beyond that it would then basically be based on need? Simply getting into a college, a university or other institute would be sufficient in terms of merit. That's my recollection.

The Chairman: There have been various interpretations of what the millennium fund's all about, of course, but that was one of the interpretations.

Mr. Nelson Riis: Thank you, Mr. Chairman. I have just two general questions.

I think I find myself agreeing with pretty well everything everybody has said, and I suspect most people around the table would agree with the points made. If we all agree with what you say, though—and I can't imagine anyone arguing against the general thrust—why is our record so anemic? I think that's what you called it, Mr. Giroux. Compared to all those others in the charts and so on that you presented, what's wrong with us as a country? It's a bit of a general question, and I'm not aiming it particularly at anybody.

We're not a dumb country. We have smart people here. You folks are here every year making the same recommendations, but why is it that nothing ever gets through like it does in other countries? What is it about Canada that makes us sort of sluggish in this area? I don't quite understand the why behind that.

Secondly, the recent Maclean's pointed out the whole issue of careers and jobs and, I guess, practical education. Do any of you have any views on funding? I'll generalize by using the college system. If we're looking for strategic funding, as you recommend, Mr. Giroux—and I guess we're all probably saying the same thing—and if we look at the college system as a place where university graduates now turn in order to find employment, what is your view on this point?

Mr. Robert Giroux: Mr. Chair, perhaps one of my colleagues could answer the first question, in order to give them an opportunity. I do have something to say on the second question about the college graduates, though.

The Chairman: Who would like to answer the first question? Mr. Service.

Dr. John Service (Chair, Canadian Consortium for Research: Thank you.

It's a difficult question to answer. From our perspective, the investment in Canadian universities in research has really become less competitive in the last ten years. It has been a very difficult problem for universities in terms of maintaining core funding, as well as in terms of maintaining the research package.

Mr. Nelson Riis: John, could I interrupt there for just a second? Nobody denies what you've said, but why is it that this happens in Canada? Why doesn't it happen in Italy, in Germany, in France, or in Austria? Why doesn't it happen in the United States, in Norway and Sweden, or in the United Kingdom? Why is it that those countries seem to be able to make that investment, whereas it doesn't seem to happen in Canada? No one will argue that core funding is crucial in an innovation-based economy and so on, so why does it not happen here when it happens in other jurisdictions?

Dr. John Service: That's a very difficult question, so I'm going to look for some assistance from my friends. Maybe I'll have to kick it back to you, Robert.

Mr. Robert Giroux: I think Canada still has to develop a culture of investment in innovation, in knowledge. We need to rate much more highly than we have in the past the importance of post-secondary education. Government has to be prepared to back very strongly major increased investments in science, in technology, in social sciences and so forth.

I'm sorry to do this, Mr. Chair, but I brought some charts in for you again this year. Do you remember this from last year? I showed you a chart indicating the gap between Canada and the United States, and I think it illustrates the point I want to make, Mr. Riis.

The blue, of course, is the United States. The red is Canada. Last year, we were at about this point on the chart. Since then, of course, Congress has approved an increase in the National Institutes of Health budget. They did that a few weeks ago, and it widens even further the gap in funding that is taking place. It's the same thing with the National Science Foundation versus our combinations of SSHRC and NSERC.

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Why is the United States doing this? They're doing it because they have realized that putting so much investment in research, in development, in innovation, is what will sustain their standard of living; it's what will sustain their growth and their productivity.

A lot is being said about productivity. The Conference Board of Canada mentioned productivity and all of that.

Mr. Nelson Riis: Are you saying, then, that we don't understand what you're saying? It seems to me to be so obvious.

Mr. Robert Giroux: I'm not saying that you don't understand—

Mr. Nelson Riis: I say “we”, as a society. I don't mean my friends around the table here.

Mr. Robert Giroux: No, I'm sure you didn't. I'm not saying that you don't understand it, and we have always heard very good statements from the people we were talking to about the importance of research and development. But when the time comes to put the amount of investment behind it, we always seem to be falling behind.

However, the government has done a lot in the last two years. I don't want be unkind.

Mr. Nelson Riis: Mr. Chairman, I'll forget my other question just to pursue this, if I may.

The Chairman: Go ahead. Pursue.

Mr. Nelson Riis: When the time comes to make that decision, Mr. Giroux, every other country, you seem to imply, makes that decision in favour of innovation, research, or whatever, but we don't. Why don't we? Why do they and not we?

Mr. Robert Giroux: If I could add, we do, but we do on a much smaller scale. I don't want to deny that a lot has been done, such as the Canada Foundation for Innovation and the restoring of the budgets of the granting councils to 1994 levels. But we're now moving into 1999, and that's a five-year gap, so something has to be done on that front.

Mr. Riis, I don't think I can add any more. It's not because we haven't been trying to get that message across, as I'm sure you know. We've been before you now for three years in a row.

Mr. Nelson Riis: You have failed.

Mr. Robert Giroux: Maybe we have.

Mr. Nelson Riis: I'm trying desperately to find what is it about us that is so different from all these other countries. It seems like you do a good job, and you make your cases, but it must be frustrating. It's frustrating for everybody.

Mr. Robert Giroux: Yes.

Mr. Nelson Riis: Thank you.

The Chairman: Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chairman. Thank you for your presentations.

One of the things we're facing in a global knowledge-based society is that with globalization, which is being demonized and blamed for all kinds of things, some people decry what they predict to be a race to the bottom, whereas I would argue that with the knowledge-based global environment it should behove nations to race to the top in many ways if we want to be competitive. And that's what you people are in fact espousing today, that race to the top.

On the tax side, for research and development, for instance, we know we're losing some of our best research minds to the U.S. I'd be interested to know to what extent you feel perhaps our incomes taxes are playing a role in that.

Secondly, should we be espousing or looking at some other countries' examples of preferential tax treatment. I know Ireland has done quite nicely with a very competitive and aggressive tax policy to attract knowledge-based industry.

Thirdly, in a more holistic sense, I represent a riding in Nova Scotia, in the Annapolis Valley. Acadia University is in my riding, and it's a very innovative university. We have, arguably, one of the best post-secondary education infrastructures in the country, and more universities per capita than any other province, plus a very good community college system, I believe.

To what extent should we be taking a look at regions of the country like Atlantic Canada, for instance, which has been a perpetual difficulty in terms of trying to solve that issue, and harnessing knowledge-based industry, perhaps combining it with aggressive tax policy and working with the provincial governments to in effect link education and economic development and tax policy? If we all look at these things from our own myopic perspectives, we're going to miss the greater picture in that we're sitting on an opportunity to turn around a region of the country with forward-thinking policies and also provide for Canada a generation of Atlantic Canadians who are poised not only to compete globally but to succeed.

So those are the three points that I'd be interested in hearing about.

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Dr. John Service: I might start with the first one. I spent 15 years working in New Glasgow, so I know the area very well.

We need to be very clear about the impact of income tax on the brain drain. It's an important factor, but we're not sure within the post-secondary education sector how important it is. It's anecdotal at this point. But we have to be very clear to separate that group from practitioners who are going south—physicians, psychologists and the like—to practise, as opposed to researchers going into research. I think it's clear that the practitioners are certainly going south for tax purposes and also because of some of the things that would be similar to the motives of the academics, which involve job opportunity. But it's anecdotal in terms of the impact of income tax in terms of the brain drain within academia at this point.

The whole area of using tax policy to attract business and research together, almost saying that the private sector, the public sector and universities could form much more of an intricate alliance, is something we have begun to take a serious look at, but at this point I'm not sure we have the answer to that as yet. Perhaps some of my other colleagues would like to take a stab at it.

Would you like to take that, Louise?

Ms. Louise Robert: I'd just like to say that traditionally there have never been any tax breaks for research in the humanities and the social sciences, and we certainly would welcome the equivalent in the humanities and social sciences of the tax breaks for R and D in the technological field. In a sense I'm saying, yes, please take a look at the same time, because for the disciplines I represent, that would certainly be a way of helping the research humanities and social sciences a great deal without tampering, let's say, with the individual researchers or teams of researchers. It's an area that we would welcome very much.

Ms. Rubina Ramji: On the subject of trying to tie the two questions together, you talk about how we're losing our researchers and whether tax breaks make a difference, and then you talk about building knowledge-based industry in Atlantic Canada. I think what we need to realize is that across the base in all of our universities we're lacking research structure. Basically, we don't have anything to keep our researchers in the system, we're not really recruiting them, and also we don't have very much to support them in their research. I think if we were able to do that within the university system across Canada, including Atlantic Canada, we would be able to increase our knowledge-based industry in those particular universities.

The Chairman: Thank you, Mr. Brison.

Mrs. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chair.

I have two universities in my community, WLU and University of Waterloo, and Ms. Robert, as much as they were happy we were reinstating the granting council funding, there was a real plea to have a balance in there for the social sciences as well. So that was certainly something I heard in my community.

You've made a plea for core funding this year, and we've heard other people come forward. As a matter of fact, a very articulate health care sector came forward and asked us to please put back $2.5 billion—which was one of the amounts that was put on the table—into health care, to put it in part of the CHST. We've had an undertaking on the part of the premiers that they would indeed funnel this to health care, and it's something that concerns Canadians right across this nation. Now I hear you asking to reinstate, through the CHST, core funding for post-secondary education. My question is, because this is a partnership with the provinces, how do we ensure that it does go to post-secondary education?

Another question I would ask anyone who cares to answer is how you see the deregulation of tuition fees impacting not only on university students, but I hear a plea for graduate students and their concerns as well. It would seem to me that this has to work against them, and yet it's a provincial decision that impacts students right across Canada.

Mr. Robert Giroux: I think two people will want to answer the second one; I can certainly answer the first one. I want to come back to a point that I was making with Mr. Riis.

The government has taken some very important steps in the last two budgets to help post-secondary education. But if you notice, those steps have not hit directly at the core funding of universities. They've helped with the Canada Foundation for Innovation for research infrastructure. They've restored the budgets of the granting councils to 1994 levels. It's very much research oriented. But those funds from the granting councils only go towards direct costs of research. All the indirect costs of research—the light, the heat and all of the other things that are there—come out of the basic operating funds of universities.

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Last year, with a tremendous program with respect to the opportunities strategy, the millennium scholarship fund, which will provide scholarships, the student debt issue was looked at very comprehensively, and so forth. But this also is directed towards the students, to allow the students access to university.

Of course, what the universities have been suffering a lot from in the last four or five years is that their basic core funding has been going down; we have estimated about $1 billion in five years. Now we say, fine, we at AUCC certainly felt that during the period of the large efforts at deficit reduction it was difficult for the government to do anything, but now that we're talking about more resources coming in place, we think it's extremely important that post-secondary education also be looked at very seriously in terms of restoring the CHST.

Quite frankly, with the kind of commitments the provincial premiers have made when they've approached the government on health, saying it will go towards health, we feel the provincial premiers will come back and give a commitment on education and post-secondary education that would assure the government that the money will be spent in the areas for which it is intended.

The Chairman: Ms. Morris.

Ms. Joy Morris: Your questions are pretty clearly related, and the obvious relationship is that I don't think deregulation would have had nearly as devastating an effect as it has had if there had been more core funding available to the institutions. Then they wouldn't have to rely on the individual tuition fees to make up some of that shortfall they're experiencing in terms of their funding.

Obviously deregulation of tuition fees has had an absolutely brutal and appalling effect on graduate and undergraduate students where it has happened. We recently saw Statistics Canada numbers that indicate part-time enrolment has dropped drastically precisely in the provinces where tuition fees are the highest. This is clearly impacting on people's ability to access post-secondary education.

How can we make sure the provinces don't take measures such as that? Well, I think there has to be pressure put on the provincial governments, both by the federal government and by the public, to ensure they put their money where it's needed and in the same places we're asking you to put it.

The Chairman: Ms. Ramji.

Ms. Rubina Ramji: I also want to make a point that deregulation does increase tuition astronomically, but we have to recognize also that student debt actually increases with the removal of grants. A major portion of the granting councils' budget goes towards funding graduate students.

Particularly if you look in Ontario in 1993, the average borrowing rate was about $3,000. As soon as the grants in Ontario were removed, borrowing went up to $6,000; it didn't make a difference what your tuition was.

So the granting councils really do make a difference, even in accessing it, even when you're dealing with deregulated tuition fees.

Mrs. Karen Redman: May I ask one additional question?

Ms. Morris, you made reference, and probably fleshed it out a little more than other speakers, around the changes to the Bankruptcy and Insolvency Act as it applies to students, yet implicit in some of your remarks I was hearing is that it's not just the what but also the how. It's the fact that they're more aggressively pursued during the repayment period. I wonder if that's part of your concern as well.

Ms. Joy Morris: Well, I can't speak from any experience or even anecdotally about how aggressively other sectors of society may or may not be pursued for their debts, but certainly I have many friends who are late on a payment and get letters saying they're in default. They get calls from a collection agency a month after they're late on one payment. It's this sort of thing. It's an extremely scary situation for many students.

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The Chairman: Thank you.

Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you, Mr. Chairman.

Mr. Giroux, as for your point about the tax cuts potentially being symbolic, I suspect that many Canadians might perceive some of the tax cuts that are possible as being symbolic or maybe small or token. Consider that a mere 10¢ reduction in the EI premium would cost the government $1.4 billion. A $400 increase in the basic personal amount that we all have is $1 billion. Increasing the child tax benefit by $100 would cost us $600 million.

I could go on, as the list is pretty long. Going across the board for anything is a very expensive proposition, but it means very few dollars to people. So considering our ballpark, which is that everybody is talking about fiscal dividends in the future, the order of the day still seems to be targeting where you're going to get a good return.

You're competing with targeting in other areas. Obviously, child poverty and the poor generally are tough ones to go against.

Can you give me an idea of how much your recommended changes would cost in dollars?

Mr. Robert Giroux: We have not put a dollar amount on increasing the transfer payments. We said that it should be going up in a fashion over a period of years. It depends, of course, on the availability of funds for the government.

With respect, however, to the granting councils, we have asked for this quite traditionally in front of this committee. This committee, of course, has supported in its report a kind of long-term growth, not just one amount in a given year. If you add all of them up over a period of five years, you will reach an amount that's about the equivalent of what the granting councils' budgets are right now, which is about $900 million.

So you could start at a smaller amount, then ramp it up so we would correct some of these curves we have shown you in terms of what Canada's contribution is to research and development and increase the proportion to that amount.

The Canadian Institutes for Health Research, which I'm convinced you'll hear about during the course of this week, over a period of about four to five years, account for $500 million. That's the amount that has been put forward as a target. It doesn't mean that you start with that, but you ramp up to that amount. Our other recommendations, of course, add another $400 million to the package of what's happening.

Mr. Paul Szabo: It sounds like a reasonable approach.

Because the issue of brain drain comes up so often and obviously the research community is one area in which examples do come up frequently, I'm curious as to whether anybody on the panel is familiar with a case where someone left Canada to go elsewhere and whether they know what the reason was.

Mr. Robert Giroux: I would just like to relate that we did a survey at AUCC last year of university professors who left universities for reasons other than early retirement, of which there have been a lot. These professors left to work elsewhere, particularly the United States. Our survey has shown that there was a combination of factors that guided their decision to go. Tax treatment was one of the factors. Higher compensation on the other side of the border was probably one of the factors.

There was one factor that came out very strongly. Remember now that we're talking about university professors; they're researchers. The whole environment of research they were getting in American universities had better resources. There was more funding. There were networks they could use and establish. Of course, as you have more and more researchers, you feed on that, because there's a synergy that takes place. This is what attracted them a lot.

What Canadian organizations have to do right now to try to get some of them back or attract researchers from elsewhere is give them that conducive environment.

Mr. Paul Szabo: That final dimension, I think, is important to have on the table, because it's not often mentioned. What's usually mentioned are taxes or salaries, but there's also the quality and stimulative nature of the environment.

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I wanted to ask just one other brief question, and it has to do with the millennium scholarship fund. Very often the government is criticized because of it, not so much that it's there but because, as is stated, I think, in one of the student presentations, it would only help about 7% of current students. Does anyone here have a problem if it helps none of the current students and it all goes to students who otherwise wouldn't be able to go to university—in other words, it's directed totally at accessibility to post-secondary education?

Ms. Joy Morris: We would fully support that it be directed towards those who are most in need of it so that it will increase accessibility.

Mr. Robert Giroux: And we would also.

The Chairman: Thank you.

Ms. Louise Robert: I'd like to add a little bit in terms of infrastructure and the brain drain. Part of our request is that we look at the budget of SSHRC in particular, and I think it's important to note that recently the Canadian government has been making a very major investment in infrastructure and research through the CFI and other projects of that sort. It's important to know that within that context those initiatives were not designed to give access to humanities and social sciences, which are also in need of infrastructure. So I think when we talk about brain drain, we're not talking only about the technological field. We're also talking about advances in the social sciences and to afford to humanists and social scientists the same investment in infrastructure that has been allowed through CFI.

The Chairman: Thank you, Mr. Szabo.

On behalf of the committee, I'd like to thank you very much. It was an excellent panel. There's no question about the fact that you make a very strong case about investing in people, research and development, and post-secondary education. These are all things that I think are quite important if you're trying to build a competitive economy that generates wealth and allows us to keep the type of social programs we've grown very much attached to. Your points will certainly help us as we begin to write the report and recommendations to the Minister of Finance. Once again, thank you very much.

We're going to take a five-minute break, and we'll be right back.

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The Chairman: I'd like to call the meeting to order.

I'll take this opportunity to welcome the Association of Canadian Community Colleges, the Canadian Alliance of Student Associations, the Canadian Association of University Teachers, and the Canadian Federation of Students, National Office.

You've all been here before, so you understand how the finance committee works. You have five minutes to make your presentation, and thereafter we will engage in a question and answer session.

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We will begin with Mr. Gerry Brown, president of the Association of Canadian Community Colleges. Welcome.

[Translation]

Mr. Gerry Brown (President, Association of Canadian Community Colleges): Thank you, Mr. Chairman.

[English]

First of all, Mr. Chairman and honourable members of the committee, give me an opportunity to present my colleague, Mr. Pierre Killeen.

It's a pleasure to be here today in my capacity as president of the Association of Canadian Community Colleges. As some of you may know, our association is a national and international voice of Canada's 175 public-funded community colleges, technical institutes, and CEGEPs, with campuses located in approximately 900 communities across Canada.

Colleges and institutes are community-based institutions mandated to respond to the human resource training needs and economic development needs of their host communities. As such, colleges and institutes are uniquely positioned to help Canada and Canadians respond to the opportunities of the global knowledge-based economy.

Before getting into the substance of our submission, we would like to take this opportunity to comment briefly on the 1998 federal budget.

First of all, we'd like to take this opportunity to express our support for the Canadian opportunities strategy, and our commitment to work closely with the government and federal agencies in the implementation of that strategy. We'd also like to take the opportunity to thank the finance committee for its support of government actions on the student assistance front.

I'd also like to take this opportunity, though, to underline, as I speak to many students at their institutions across Canada, that the student debt issue continues to be a very major issue for them. It's one we need to speak to continually on behalf of our students. It remains a constant; it's there. In fact, from the perspective of our association it has been identified as an advocacy issue. We have created a task force within our association to look at other ways to deal with the student debt issue, and we'll be glad to share them with the finance committee once we get those results.

Regarding the present budgetary context, I perceive this upcoming budget to be a critical junction in Canada's economic development. It will be the last before the third millennium. Hopefully, our government's finances are in a surplus position.

The recent course of events on the international financial scene are challenging governments throughout the world to reassess their influence in a truly global world that is also wired and instant. Canada's productivity performance, our output per worker, continues to be categorized as poor, as witnessed by the Conference Board of Canada's recent study entitled Performance and Potential: Assessing Canada's Social and Economic Performance. In my mind, these events make this coming budget particularly important.

Why invest in colleges and institutes? I would humbly suggest the answer is in the productivity challenge facing our nation. This federal budget has the potential to set our nation's future course as a knowledge-based society; that is, one in which knowledge, not capital, natural resources, or labour, is the basic economic engine to our economy. In this economic environment, whether we learn to be the best in the world or consign ourselves to watching our jobs move elsewhere, we believe the central economic challenge facing us today is finding ways to enhance the productivity of our knowledge workers and our knowledge industries.

Our policies must set as a priority the support of our knowledge-building institutions and infrastructure. Canada's colleges and universities are the foundation upon which our knowledge economy rests.

The emergence of knowledge as a factor of production has produced a situation in which social policy has become indistinguishable from economic policy. Investing in post-secondary education makes good, sound business sense. Moving in this direction is a fundamental shift in our thinking about the nature of public investments in education.

What are our, the colleges and institutes, 1999 budgetary priorities?

Canada's community colleges, technical institutes, and CEGEPs have been struggling with the need to do more with less. This has been a fact of life for our institutions across Canada. In past budget submissions we have called for additional assistance to the students, and the government has listened. Today we have reached a stage where continuing reductions in financial support for publicly funded colleges result in increased costs to our students. Students from our institutions cannot support any more debt, and the time has come to address the root cause of the debt problem; that is, the lack of funding for our institutions. Therefore, we urge the federal government to invest in the following areas.

First, we urge the federal government to support the infrastructure projects at colleges. As budgets became scarce across the provinces, priorities focused on human and didactic issues—or as we would say, the essential mission of the institutions. And over the year, our physical infrastructures remain idle and in increasing need of repair.

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Specifically, we recommend that colleges and institutes be eligible for funding under any program supporting investment in the area of infrastructure.

Second, we urge the government to support the educational technology and connectivity of our Canadian college system. Specifically, we recommend that the federal government establish a fund dedicated to the implementation of educational technology in Canada's colleges, institutes, and CEGEPs. This fund would be used to improve connectivity and support courseware development and staff professional development at our Canadian publicly funded colleges and institutes.

Third, we urge the government to support applied research in Canada's colleges. Colleges and institutes are designed to respond to the economic and social needs of their host community. Traditionally, industry has looked at colleges primarily for the training of its labour force. This cooperative model has led to the development of partnerships in a broad range of applied research activities. Colleges and institutes have moved into applied research in response to the demand of their partners, which are small, medium, and even in some cases large enterprises.

While the role of colleges and institutes in applied research has been recognized by the federal government through the Canada Foundation for Innovation, this program is designed to assist institutions that have already been established; it's not a capacity-building program. Colleges and institutes have the potential to meet the need for applied research on a national scale, but we need federal support to do so. Therefore we recommend the establishment of a program designed to enhance the development of the applied research capacity of our Canadian colleges, institutes, and CEGEPs.

In conclusion, let me recall that I believe we're at an important moment. We appreciate the many legitimate and diversified needs facing the committee and the government, but let me repeat the core of our message. It makes good, sound business sense to invest in our country's future. The future lies in knowledge-based industries. Educational institutions, colleges, universities, etc.—in our case, colleges, institutes, and CEGEPs—are your key vehicles to support this.

Thank you, Mr. Chairman.

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

We'll now hear from the Canadian Alliance of Student Associations. I welcome Mr. Hoops Harrison and Mr. Martin Simard.

Mr. Hoops Harrison (National Director, Canadian Alliance of Student Associations): Thank you very much. Good afternoon. With me is Martin Simard, our communications officer.

The Canadian Alliance of Student Associations is Canada's largest student organization. It represents more than 275,000 post-secondary students in Canada. I'd like to thank the finance committee for the opportunity to address you on issues of concern to students.

First, I'll echo the sentiments of the ACCC about the congratulations for last year's federal budget. We are not shy about the fact that we recognize this was the single-largest investment in post-secondary education. It met most of our concerns of last year. We're not shy to acknowledge that, however, there are still many concerns for students, and we would like to bring them forward to you now.

Enclosed with our brief is an executive summary that goes over the issues. Martin Simard spent a lot of time on this, so I hope you will all honour him and read it. A lot of students have submitted briefs from across the country so they will hopefully be heard by their elected officials.

I will not go through this and simply reiterate things that are stated here, but I will simply say that on a basic core issue, students are concerned that there is not enough funding for their institutions, whether from the provincial government, federal government, or other sources. There's not a really major concern about how they get the money to students, whether it's the provinces that give it to them or the federal government, just as long as there's quality and accessible education for them to receive.

In June, in Saskatoon, we met and wondered what we could bring to the government. What can we tell them to do for us? Our proposal calls for an increase in transfer payments to the provinces in accordance with a set of national standards for education.

I briefly heard in the last presentation that there was a concern about how we ensure that federal money reaches students through these provincial transfer payments when there is no direct control over the money. So we propose something called the pan-Canadian agreement, which is in effect national standards for education. We proposed it already to the first ministers at their meeting earlier this summer. We are hoping that they will, as a collection of provinces, come together and agree that national standards are good and parochial interests cannot dominate the major concern facing us, which is globalization. We can't afford to simply compete among the provinces, we have to compete globally.

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We can forward that information to you as well, but that's the funnel by which we're hoping that educational funding will be transferred.

“Needs assessment” is not a very flashy term. The media doesn't really pick up on it. It's not as big as the debt or the banks, and it's not evil or something like that; nonetheless, it's something that very much impacts students' lives. Needs assessment means the criteria by which students are assessed in terms of whether they need grants, loans, bursaries, or what have you. There are many flaws in the system right now. Albeit it's a difficult process, it has to be improved.

We have the honour of having last year's human resources development committee chair and finance committee chair here. Both of their reports noted the importance of having this addressed. We have seen a needs assessment review being done by HRDC that has since just been thrown out because of some of the problems in the research process. This is something that simply cannot wait. It's something that the public really doesn't pick up on. It's something that informed people like you must consider.

We are forwarding a document that will be ready for the national stakeholder meeting in December. We're really hoping that the committee and the members of Parliament will affirm their support they mentioned last year.

As Mr. Brown mentioned, student debt is still an issue. We are giving the initiatives in last year's budget an opportunity to work before we criticize them, so you will not see us lambasting you here today.

However, I have to say that I had the pleasure of being at the western booksellers association meeting this weekend, and we are putting together a coalition on tax-free learning. Some coalitions have already been incorporated in the past, but our two main goals are to make sure that textbooks and other mandatory academic materials are exempt from GST and that those materials are included in the education tax credit. We don't have anything for you here because we just formally passed the resolution, but we'll have something for you shortly.

The last thing is that in February, this past term, I came before this committee. Not all of you were here, but some of you were. I had amendments to Bill C-28, which is the bill that made ancillary fees eligible for a tax exemption. But in Bill C-28 was a clause that excluded student association fees as a part of ancillary fees to be eligible for this criterion. We forwarded this document to you, called “Getting Our Money's Worth”.

We stated what we thought at the time were fairly good reasons why students should not be discriminated against simply because they are adults and they are forming their own student associations and providing services for their students. We have not heard anything from the committee in terms of why our views were not addressed, and so forth.

So I have the authority from my members to say how deeply disappointed we are that there appears to be some underlying bias against student associations and students in terms of their credibility in providing services for students. These people are adults, not children. I don't know perhaps what happened at student associations when you folks were going to school, but they're now multimillion dollar organizations that are fundamentally necessary because of cutbacks in funding, and these services must be provided by someone if the government or the institution isn't going to do it.

So we respectfully request that someone put forward some sort of recognition of this. That would be the most direct way.

I don't want to leave on a bad note, and I would like to give up my time here for everyone else. I would like to thank the committee for this opportunity, and I look forward to answering your questions.

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

We'll now hear from the Canadian Association of University Teachers. Mr. Robert Léger is the senior policy analyst. Welcome.

[Translation]

Mr. Robert Léger (Senor Policy Analyst and Government Relations Officer, Canadian Association of University Teachers): Mr. Chairman, members of the committee,

[English]

the Canadian Association of University Teachers welcomes the opportunity to appear before the Standing Committee on Finance to make a pre-budget submission. CAUT represents 28,500 university teachers, academic librarians, and researchers at universities in every province in Canada.

For the past decade, Canadians have suffered significant reductions in government support for post-secondary education, health care, and social programs. Since 1993, direct government funding of universities has decreased by 13.3% in constant dollars. A major factor in these funding cuts is the reduced level of transfers from the federal government to the province, which have been reduced by about $7 billion since 1993-94.

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The federal government has justified its funding cuts in the name of deficit and debt reduction, despite the fact that a study by Statistics Canada revealed that social programs contributed minimally to the increase in the deficit in the past. That has put Canadian universities at a disadvantaged position vis-à-vis American universities. This is even true for the University of Toronto, Canada's largest university.

Post-secondary institutions and provincial governments have responded to these cuts by increasing tuition fees and seeking more support from the private sector. Average tuition fees for undergraduate arts students across Canada have increased by over 90% during the last eight years, and students are experiencing higher debt loads. Higher tuition has, in turn, diminished access to college and universities.

Furthermore, funding cuts are threatening the quality of university education in Canada. One example is the worsening of the student-faculty ratio. Another example is the standing of our research libraries, which has declined compared to what it was a few years ago. The market-oriented demands of the private sector threaten the integrity of the university and its commitment to academic freedom and to a balance between basic and applied research.

It is time to recognize that the damage will soon be irreversible. In this presentation, the Canadian Association of University Teachers calls on the federal government to act decisively to restore funding through a mechanism that assures the money is spent in the designated program area.

CAUT believes the federal government should introduce a post-secondary education fund, governed by a post-secondary education act that outlines responsibilities for the federal and provincial governments, establishes standards, enacts enforcement mechanisms, and determines a funding formula. The objective of this act is to ensure that certain national standards are met. These include public administration, accessibility, academic freedom, mobility of students, and maintaining and strengthening research.

[Translation]

We acknowledge that Quebec does not share this approach and we respect its right in this regard. Until such time as a solution is found to the impasse in relations between Quebec and Canada, we favour special arrangements with Quebec that would not necessarily be available to the other provinces.

[English]

On student aid, we want to reiterate what we said in our May 1998 brief to the Standing Committee on Finance about the necessity of converting the millennium scholarship fund to a fully needs-based grants program.

[Translation]

I would also like the committee to pay particular attention to the request made by the Canadian Federation of Students regarding student aid, because we will not dwell on this point too long.

[English]

On research, as we indicated in our brief to this committee in June, we fully support increased funding to the three granting councils. We would also like to express our support for funding for the Medical Research Council-proposed Canadian Institutes for Health Research.

[Translation]

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Léger.

[English]

Now we'll hear from the Canadian Federation of Students, national office, Elizabeth Carlyle. Welcome.

[Translation]

Ms. Elizabeth Carlyle (National President, Canadian Federation of Students—National Office): Good afternoon and thank you for your attention. I represent the Canadian Federation of Students. We are the largest organization in Canada and the second largest in the world.

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[English]

I'm with the Canadian Federation of Students, which represents students attending nearly 60 colleges, universities, and institutes from coast to coast. Through the federation's biannual national general meetings and working with the alternative federal budget, which I'm sure many of you are familiar with, members have shaped an analysis of the 1998 federal budget and have laid out a blueprint of measures that would fulfil students' needs for the 1999 federal budget and beyond. We have worked closely with groups like the Canadian Association of University Teachers, and we have worked closely with the Association of Universities and Colleges of Canada as well, on measures on which we have agreed, and certainly what has come to the forefront is that core funding for post-secondary education is clearly the most important recommendation that we have for you today.

In a broad sense, however, students across the country believe that the federal government has failed to begin to solve some of the most pressing dilemmas facing students and have expressed disappointment with what the government has dubbed the 1998 education budget.

On the issue of existing and emerging trends, we know that between 1993 and 1999 $7 billion will have been cut in federal transfer payments to the provinces for post-secondary education and training. Provincial governments have increased revenues from other sources and the most common other source is certainly in tuition fees levied on students.

Drastic increases in tuition fees, compounded with the student financial assistance program which is based primarily on student loans, has led to a generation of learners who are shouldering huge debt loads and living below the poverty line while working their way through school and facing unemployment and underemployment upon graduation.

[Translation]

Twenty-seven percent of Canadians living below the poverty line have a post-secondary education. Despite the need for post-secondary education, the number of part-time registered students looking for a job has dropped since 1993. In Newfoundland, the percentage of such students is 45%

[English]

In his recent economic and fiscal update, federal Finance Minister Paul Martin bragged that spending on social programs was the lowest that it had ever been since 1949, so in addition to raising tuition fees, many institutions have also sought to seek private partnerships to fill the funding gap. The many real dangers of privatized and corporatized education are evident in such cases as the abrupt closure of Career Academy, leaving several hundred students in Newfoundland with nowhere to turn besides the provincial government; the plans of University of British Columbia president David Strangway to offer better schooling to those who can afford it; and the unprecedented level of control exerted by millionaire donor Joseph Rotman over the University of Toronto's faculty of management.

The federal financial assistance plan for students is built around loans to low-income students and tax credits and other incentives to upper-, middle- and high-income students and their families. Nevertheless, the average student debt load will be $25,000 for students graduating this spring.

However, the news from last year's budget is not all bad. The new Canada study grants for students with dependants was a welcome measure, as well as increases of funding for research granting councils. Expanded interest relief will provide assistance to some students. However, students have much reason for dismay over last year's budget. The millennium scholarship foundation will help only 7% of students each year and should be accountable to the Canadian public by being administered through the Human Resources Development Canada mechanisms that exist.

The changes to the Bankruptcy and Insolvency Act and plans to conduct credit history checks on student loan applicants discriminate against students. And certainly the increasing privatization of student loans administration has led to restricted access for students and decisions by politicians behind closed doors as to who is eligible for student loans. Eligibility criteria for the new debt remission program are overly restrictive and federal education tax credits are non-refundable and will therefore provide no help to students whose incomes are too low.

Canada education savings grants are also problematic because they tend to be available to those people who have sufficient funds to save for their children's education, which is not by any means the majority of Canadians.

Now for our recommendations. As a beginning to improving accessibility to high-quality public post-secondary education in Canada, we urge members of the committee to implement the following recommendations. Our most important recommendation, and I must reiterate that this is by far our most coveted recommendation, is that we feel there should be dedicated and increased cash transfers to the provinces to at least 1993 levels, taking into account inflation, of course. And we are in agreement that there needs to be—and we have brought this to this committee for years and years now—dedicated funding and there need to be some criteria attached for the provinces to ensure that money is spent in the areas for which it is dedicated.

We also need to see improvements in student financial assistance. Some of the most pressing issues coming out of last year's budget are that risk-sharing agreements with financial institutions are not working well for students or for the financial institutions themselves and they should not be renewed. We need a more adequate debt reduction program to be available from year one of repayment and we need the Canadian Millennium Scholarship Endowment Fund awards to be based solely on the criterion of need. We would certainly agree with others in the post-secondary education sector that merit is not a useful criterion, simply because it tends to allocate resources to students who already have access. Also the fund, as I said, should be administered publicly.

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The third recommendation is that we must eliminate the 10-year bankruptcy prohibition for student loan debt holders. It is clear discrimination and it must be eliminated. And underemployment and unemployment need to be addressed, and they need to be addressed in the context not just of students but of young Canadians in general. We need funding to the provinces and territories for training to be restored, and that has a very important impact on CEGEPs, for example, in Quebec. Canada's apprenticeship programs must be improved and expanded. And as part of the strategy for full employment in Canada, the federal government must lead the way with job targets that make sense for Canada and programs that provide meaningful, fair-wage work for students and recent graduates. Also, young Canadians are feeling the brunt of the new unemployment regulations and we feel that they must be amended to allow more students and recent graduates to qualify for unemployment insurance.

We also agree with the other members around the table that funding for research councils is a priority. Certainly SSHRC has been underfunded disproportionately and the restitution of that situation is required. We also feel that tax fairness and improving tax measures for students are very important. A long-standing request of students is to increase the tax-free portion of academic scholarships and bursaries from $500 to $2,000, which would account for inflation since 1973-74, which was, I believe, the last time this item had been changed. And we need to make tax credits for tuition fees and other education expenses refundable so that all students can benefit from them.

As far as tax fairness goes, we would like to see many of the measures suggested in the alternative federal budget implemented. Those are such measures as have already been discussed by this committee, such things as insuring that Canadians in middle-income brackets have a fair tax burden and that wealthy Canadians, the corporations and people making financial transactions internationally, are paying their fair share of taxes.

But overall the Canadian Federation of Students urges members of this committee to call for a reinvestment in core funding for post-secondary education. No amount of tax credits or cuts, targeted assistance programs, public-private partnerships, or even student grants, will bring about the long-term improvements to accessibility and quality of post-secondary education in Canada that are so necessary.

Thank you very much.

The Chairman: Thank you very much, Ms. Carlyle.

Now we'll move to a five-minute question and answer round. Mr. Epp.

Mr. Ken Epp: Thank you very much. And thank you for your lucid presentations.

Having worked in education for 31 years before I got into this business, I have a lot of empathy for both the universities and colleges and the students. I was in the middle of some of those downturns and downcuts and saw the class loads increase and funding decrease, and generally it was very devastating, even to the particular place where I was working at the time, which was a technical institute.

I have some specific questions, though. One that rather intrigues me is this idea of having colleges eligible for infrastructure funding. I think that hasn't been thought of before and I'd like to commend you for bringing it forward. At least I'm not aware of it, let me put it that way, Mr. Chairman, just in case I'm wrong there. But this is the first time I've heard that.

With respect to core funding and funding from the federal government, we know that post-secondary education is administered by the provinces, and, of course, that the present government has rolled all of the funding into one big core and then said now let the people in each province hold their provincial politicians responsible for how they divide it. And I'm hearing more and more now, both from the health sector and also now from the educators, that they would like the federal government to go back to where it's all designated and it must be spent as x number of dollars for health, y number of dollars for education, and so on.

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Do you really think you get a better kick if you have distant politicians in Ottawa controlling that level of funding than if you give flexibility to the provinces? Perhaps they are able to move some money from health or from one of the other programs into post-secondary education, and they would do that with perhaps greater flexibility if they weren't limited by restrictions from the federal government. So I'd like your response to that.

Ms. Elizabeth Carlyle: Certainly I think we do want to see a strong role for the federal government in allocating funding for social programs for education and for health care, but we certainly believe it will never work, just given the reality of the provincial-federal structure in Canada and given the reality of what's happening right now in the province of Quebec.

We feel that there needs to be significant agreement with the provinces, and that should take the form of federal legislation, but there needs to be buy-in from the provinces, otherwise it is empty legislation that will never have the support of the provinces. We need to understand that educational decisions are made primarily at the provincial level and that there needs to be communication and working together on that issue.

Mr. Ken Epp: Thank you.

Mr. Hoops Harrison: Being in Alberta this weekend, I had a chance to talk with a few people from Sherwood Park, Mr. Epp, and they told me that they don't really care about the provincial-federal jurisdictional concerns right now about who has authority over what. The simple fact is, they said, when you go to this committee meeting, keep it real; just tell them flat out that we need more assistance.

In terms of who should be setting the standards or who should be administering the criteria, there's a realization we all have to come to that we can't just live within our own protective little pocket of our country any more. There's an entire world out there that we have to compete with. Our sinking dollar and everything is an indication of that. So rather than worrying about the federal government exactly targeting where the money should go or whether the provinces are going to have to do that, we should come together as a nation and set a standard. We should set a minimum standard for quality and accessibility no matter where you go to school in Canada, so you know if you get a Canadian education, this is what you're going to get.

In order to do that, we need to have a pan-Canadian agreement, and we need to ensure that we have the funds to fund an education system like that. That is why we're asking for the CHST increase.

The Chairman: Monsieur Léger and Mr. Brown.

[Translation]

Mr. Robert Léger: Our problem is with the current system, Mr. Epp.

[English]

The problem is the CHST, and what we are arguing today is that it should be reformed. We are not sure if separate funds would be better, and we are not arguing that there should be less or more money for health or things like that, but it should be clear that the money should be for post-secondary education, it should be clear that the money is for health, and so forth.

What we are telling you is that there is a very urgent problem in financing the core funding of universities, and something must be done about it. That's why we are raising this issue here today.

The Chairman: Mr. Brown.

Mr. Gerry Brown: I echo the comments of my colleague. On the issues being raised here this morning, we've not included this as an integral part of our presentation, but the fact that we went in the direction we went in is probably, in a way, trying to create a paper trail for the transfer of funds. I think that's the difficulty we see now.

When I talk to college presidents and college communities across Canada, inevitably the whole issue does centre around the fact that there has been a reduction in core funding. Problems have begun over the last couple of years as a result of that.

There's no question about the fact that they want that addressed. Whether it's addressed in the form that's being suggested is a debate that I guess you folks will have to look at. But clearly, I echo the comments here this morning that transfer payments are creating a problem.

We've gone the route of saying we want a paper trail for this; we want to see where it goes. If you're going to transfer money, we want to see the paper trail. If we could find a formula that says increase the core funding and have a paper trail to show where it goes, whether it be health or post-secondary, and so on.... Whether it be the college or the university, I think when I speak to my membership there's a sense of a need to increase the amounts and for some sort of paper trail.

The Chairman: Thank you, Mr. Brown. Thank you, Mr. Epp.

[Translation]

Mr. Bigras.

Mr. Bernard Bigras: I would like to make three brief comments before turning to the briefs we have heard.

First of all, Mr. Léger, you make a good point when you say that the current situation of our educational system was caused by the reduction in transfer payments. You recommend a reform of the Canada Health and Social Transfer. We were the first to call for such a reform. The introduction of the CHST resulted in reduced transfer payments to the provinces for education and health. I quite agree with you on that.

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Mr. Harrison, you say that national standards should be included and followed in the federal government's action plan. I would like to point out that education is an area of exclusive provincial jurisdiction. Any interference and any introduction of national standards, through any program whatsoever, is an unjustifiable intrusion by the federal government. That is my comment.

Mr. Harrison, I would not want you to hold it against me, but I am closer to the positions taken by the Canadian Federation of Students than to those taken by the Canadian Alliance of Student Associations.

I agree with you as to the co-operative agreement that must be reached between the federal government and the provinces. It's called the Canadian social union. Quebec wanted to be involved in that, but Mr. Chrétien rejected it. Those were my comments.

Before turning to the brief, I will focus almost exclusively on the Association of Canadian Community Colleges, represented by Mr. Brown. I have a few questions for Mr. Brown.

I am pleased to see that you spoke about the Canada Health and Social Transfer, because I found it strange that witnesses from the universities all spoke about the impact of the reduced transfers, while you do not seem to mention it at all in your brief. I am therefore very pleased that you did refer to it in answering Mr. Epp's question.

You say that you are concerned about student debt, that this is an important matter and one that you are studying. I will also ask Mr. Harrison and Ms. Carlyle to answer my questions if they wish. Have you thought about an income contingent repayment method for student debt? Have you thought about freezing the interests at the time students get a job and asking them to make loan payments proportional to their income?

I would like to remind you that in Quebec the average student debt at the end of their education is currently around $11,000, whereas, elsewhere in Canada—Ms. Carlyle will be able to give us the exact figures—the figure is over $20,000. Have you already looked into a specific loan repayment method?

Mr. Gerry Brown: For the time being, we have not thought about a specific method. We devoted a great deal of energy to our work on the budget last year. We had somewhat the same reaction as the federal government, and we thought that, in some ways, the problem was solved. However, in speaking with our members and many students in our colleges, we have found that the problem is still very much there.

As we say in our brief, once we realized this, we set up a task force to study this issue in greater depth. Once we get the results, we will be quite prepared to give them to you.

We should also point out that we are working somewhat outside the loop. The purpose of our study was to identify the problems with student debt loads, and to see whether there were some solutions that had not be considered before. That is where we are at. We hope to be receiving a report soon.

The Chairman: Ms. Carlyle.

Ms. Elizabeth Carlyle: Thank you for this question—it really reflects one of the greatest concerns of students. We think that in the long term, the amount of the loan will have to be reduced, and that no repayment program will be able to meet students' needs. In the document entitled Compromising access, we say very clearly that so far no income-contingent loan repayment model has worked for students, anywhere in the world. The reason is that the repayment is tied to interest payments and to significant increases in tuition, and therefore to larger debts. Because of this, it is almost impossible... I understand that the Quebec student movement is recommending a somewhat different model, namely, that the government pay the interest and that the government and the institutions agree to ensure that there will be no tuition increases. This model might perhaps work, although I doubt that it could in the rest of Canada, given our relationship with the federal government in this area and the models we have looked at so far. This model could not satisfy Canadian students who have already borrowed significant amounts of money and who will not be able to afford larger tuition increases as well as their interest payments.

• 1250

[English]

The Chairman: Mr. Harrison, did you have a final comment?

Mr. Hoops Harrison: I just wanted to clarify our position on this, because I think there's a little bit of a misunderstanding. We stated earlier that we're looking for national standards. We are not presenting to the finance committee here and looking for the federal government to implement legislation that would be the like of a national education act, akin to a national health act.

The reason we presented our pan-Canadian agreement to the provinces at the first ministers meeting in Saskatoon is because we are looking for the provinces to come together, as you said, in a sort of social union to agree on standards by which Canada is going to lead the world. So we are not looking for any infringement on provincial jurisdiction, but what we are looking at, to be quite frank, is to stop the infighting inside of Canada so that we can start competing globally.

I just wanted to clarify that.

The Chairman: Mr. Riis.

Mr. Nelson Riis: Thank you, Mr. Chairman.

I just have one question. I want to say that all of the briefs were excellent presentations.

Mr. Harrison, your call for auxiliary fees to be made tax deductible seems to be a very modest request when you look at the size of those fees, and we're talking about $100 or $150. I know this is rather important. Why are you so modest? Why wouldn't you be a bit bolder and suggest that all the costs of post-secondary education that would be borne by an individual be tax deductible? We allow that for the costs of doing business. I'd suggest up to some reasonable level, but make them tax deductible upon graduation over a number of years.

Many years ago we decided that in order to enable everyone to access a reasonable amount of education, we would have tuition-free high schools. We don't charge tuition fees for high school. It's open to anybody up to grade 12. I don't know when that was set, back in the 1920s, I suppose, or the 1930s. If it was 12 years in the 1930s, surely you can make the case for 16 years in the year 2000.

Why wouldn't you be calling for tuition-free universities and colleges, as most other progressive countries have done years ago?

Mr. Hoops Harrison: First, on the issue of ancillary fees, currently tuition fees and the cost of education are eligible for a tax credit; the only ones that aren't are student association fees. They're particularly discriminated against, which obviously, I have to say, kind of hurts. I've devoted a great portion of my life advocating for students, and I believe in it, and the fact that someone would have this bias towards us is a little bit disheartening.

With regard to free tuition, personally I'm not in favour of it and a lot of my members aren't, because in effect it's a benefit to the rich. It's a supplement to the rich. You see that about half of all students need financial assistance. Half of the students are in intense need, and other students are able to meet the current demands. If you make it all free—

Mr. Nelson Riis: Did you distinguish between high school students and college and university students? Are you against or in favour of charging tuition fees for upper-income high school students?

Mr. Hoops Harrison: I'm not going to comment on high school students. I don't represent them, and I don't have the authority to comment on that.

Mr. Nelson Riis: But you feel that grade 13 is significantly different from grade 12 in terms of charging a fee for education.

Mr. Hoops Harrison: There's a reason there is a distinction between university and secondary education. There are differences between them.

The fact is we're against high tuition fees and poorly designed student aid programs, but we're not necessarily in favour of free tuition, because it's a supplement to the rich. We need to target the needy students first. Then we can enter into perhaps times when budgetary surpluses allow for us to reduce tuition to a level of no cost.

The Chairman: Thank you, Mr. Harrison.

Mr. Brown, did you have something to add?

Mr. Gerry Brown: No.

The Chairman: Okay. Mr. Brison.

Mr. Scott Brison: Thank you, Mr. Chairman, and thank you all for your presentations.

Now, I know, Mr. Harrison, that you're supportive of the millennium scholarship fund, and it's very difficult, I guess, to look a gift horse in the mouth. But you've advocated today restoring transfers, and there are some good reasons that should be done. Wouldn't you argue that if there were more cooperation federally and provincially and if we had a more focused approach to education on a national level, the needs of education or health care could be met or those decisions could be made more effectively by provinces if we were in fact to restore funding? And to go even further than that, if we had that $2.5 billion that went into the millennium scholarship fund, that would go a significant way towards filling the potholes that have developed since 1993 with the slashing of the health and social transfer.

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The millennium scholarship fund does represent a significant fly in the ointment when it comes to the relationship between the federal and provincial governments. There can be agreement, for instance, with CHST funding as to the percentage that should go to health, to education etc., but shouldn't the decisions as to where to allocate that education funding be made at the provincial level? For instance, as my colleagues from Quebec have pointed out, they have a very good program for student aid at the post-secondary level.

There are issues of accountability with the millennium scholarship fund as well, as pointed out by the Auditor General.

I would urge you not to be seduced by the gifts of a millennium scholarship fund without being realistic about the limitations and inherent difficulties of a program costing $2.5 billion that will only benefit 7% of students seeking higher education, when in fact there are alternatives. I would appreciate your feedback on that.

Mr. Hoops Harrison: Thanks very much.

First, about the millennium fund only benefiting 7% of students, there are lies, damn lies, and statistics, and it all depends on how you cage it. If the millennium fund is targeted the way we're hearing it is going to be formally targeted, it will target needy students the most, in which case it will affect 100,000 students a year, and there are some 400,000 students on financial assistance. So it will, in effect, benefit 25% of the neediest students in Canada. So it is a measurable impact.

It is a gift horse, and as we've all seen, the Prime Minister is doing pretty much whatever he wants to these days, and if he's going to dedicate $2.5 billion directly to students, I'm not going to say... It's direct funding.

The reason we're pushing for CHST in accordance with national standards is because if you give us the CHST increase right now, Mike Harris is going to put it towards tax cuts. We're advocates for students and the education system, and we need some assurance that money is going to go to the national interest or to other interests for educational purposes.

The Chairman: We'll now turn to Mr. Léger, followed by Ms. Carlyle.

[Translation]

Mr. Robert Léger: Mr. Brison, we think it is important that the millennium scholarships go to students who need them the most. That is why we say the criterion must be need, not merit. If scholarships are awarded on the basis of need, the poor students will benefit.

[English]

And that's the important thing. Poor students should benefit from this fund, and in the present form I don't think it's going to do that job. Thank you.

Ms. Elizabeth Carlyle: I think some of these comments illustrate some of the great difficulties with the millennium scholarship foundation. It bears remembrance that without core funding, things like the millennium scholarship foundation will never provide the assistance that is required to the vast majority of students, because it's not true that only 400,000 students require financial assistance. There are a great many more who are not on student loans who also require financial assistance and who have to work their way through school with two and three part-time jobs. Many situations like that exist.

Overall the problem for Canada is that we are only one of two countries, the other being Japan, that don't have a system of national grants. That is also compounded by the fact that our funding for post-secondary education is inadequate right now. So I think before we talk about whether the millennium scholarship foundation is a gift to students, we need to establish a system that will work and to think it through. The millennium scholarship foundation was not well thought through, and it does not provide assistance where it's most needed.

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The Chairman: Mr. Brown, final comments.

Mr. Gerry Brown: I'm concerned about making a direct equation between the millennium fund and core funding. I'm a little concerned about that. What I'm hearing from the colleges and institutes and CEGEPs we represent is that core funding goes to a lot more than just dealing with student debt. If you study student debt carefully, tuition is only a small portion of it—a fact that my colleges to the left and right would probably argue.

Core funding has a lot to do with the quality of the instruction, the infrastructures we have in place, and those kinds of things. I think that's where core funding is important, and that's what I'm hearing from my institutions.

In the meantime, we live in the real world here and core funding has been reduced. We do have a Canadian strategy program. We do have a millennium fund. So we deal with the best of what we have at this point. But I wouldn't want the equation to be made between student debt and core funding at this point.

The Chairman: Thank you, Mr. Brown.

We'll have two final questions from Sophia Leung and Mr. Reg Alcock.

Ms. Sophia Leung (Vancouver Kingsway, Lib.): Thank you, Mr. Chairman.

I want to thank you all for your fine presentations.

Mr. Brown, you did state a number of recommendations, such as support for infrastructure and a fund for technology, etc. I wonder how you feel about the innovation fund. That was a very big support. I didn't hear any of you comment on that. It really could answer some of your recommendations.

Would you like to comment on that?

Mr. Gerry Brown: Do you mean the Canada Foundation for Innovation fund?

Ms. Sophia Leung: Yes.

Mr. Gerry Brown: The fund that's been set aside for the colleges, or the fund in general?

Ms. Sophia Leung: In general.

Mr. Gerry Brown: Well, in general, we're not a major player in that from the point of view of the community colleges and the CEGEPs and the institutes. In fact, it took a fair amount of work on our part, advocating on behalf of the colleges, to convince the Canada Foundation for Innovation that we in fact are legitimate players in the whole issue of research.

To their credit, they recognized this. We have established a fund, and now our aim is to go out and prove the point that in fact our colleges are legitimate in the area of research. We're hoping the next time around we will get an even greater part of that fund.

So yes, we see the innovation fund as very much a part of it. In fact, the third area we're talking about, supporting applied research for Canadian colleges, stems a lot from the experience we've had in this whole area.

Ms. Sophia Leung: Regarding the research, those of us from the north and the western caucuses have heard from four of your representatives from the NRC. They really gave us quite a bit of in-depth information, so we sympathize with and certainly understand your position.

My next question is directed to Mr. Harrison. I'm very interested in what you were saying about the transfer support in the provinces. You say you have a special kind of recommendation on how we prevent conflict between the provincial governments and our federal support. Quickly, would you go into that? I'm from B.C., and we have a lot of problems, so if you have any...

The Chairman: Do you have any final comments, Mr. Harrison?

Mr. Hoops Harrison: Sure. I don't think I can do it justice in two seconds, but I will say in general that what the framework does is establish a baseline and minimum for the quality and accessibility of post-secondary education in Canada. It is designed so that all the provinces can come to the table and agree to it and buy in on what the basic levels of education should be in Canada, and on the costs of it, the support, and so forth. It's called “Setting the Standard” and it's a pan-Canadian agreement, and I'd be more than happy to provide you with a copy of it.

Ms. Sophia Leung: Maybe you can convince Mr. Glen Clark with that?

Mr. Hoops Harrison: It's not really a matter of convincing. It's rather stating that this is the world we live in, these are the needs, and if we are going to compete, then we're all going to have to come to some agreement, because we'll lose the educational race if we don't.

The Chairman: Thank you, Ms. Leung.

The chair acknowledges Mr. Alcock.

Mr. Reg Alcock (Winnipeg South, Lib.): Thank you very much, Mr. Chairman.

I'm here today with my colleague from Peterborough. Although we're not members of this committee, we both have been very interested in these issues for a long time.

I want to respond to the question Mr. Riis brought forward with the earlier presenters about why these issues have been so persistent and what this community could do. I would argue that over the last few years in particular, we've seen a significant coming together of the student organizations, the colleges, the universities, the teachers, working as a unit and coming forward each year making these presentations. I think it's had a very positive effect. I think it has produced, each year, recognition. Your committee, Mr. Chairman, has responded to the needs expressed in this community in a positive way every year, and the budget has followed up on it.

• 1305

When you've been around long enough, this process also proves that the world is indeed circular. These issues sort of come around all the time. It wasn't that long ago, when I was wearing a provincial hat, that I met with representatives of all the organizations that are here. You came forward and said that whatever we did, we shouldn't give any more money to the transfers because you weren't getting it. It was all going elsewhere because there were no controls on it, no limits on it. In fact, if I recall correctly from the statistics—and there were statistics produced by CAUT and CFS and others each year—they showed that only about 75% of the money that was being transferred to my province of Manitoba for post-secondary education actually went into education. I think Quebec was the only province in the country that was using 100% of the transfers. In fact, it was going further by augmenting it.

So I'm interested in the work that has been done. In the past two years, it has all been in areas where the feds have the ability to see that their investments are realized and have a direct impact in the universities. It's not for the credit, but just to ensure that the money goes where we want it to go: infrastructure with the Canada Foundation for Innovation, enhancement to the research grants, increased student aid and student support, etc.

Now we're moving into the final area, and that's the message you're carrying about having a framework, having some accountability. A national program doesn't mean national administration. It just means national accountability for funds spent. Are you carrying the same message to your provincial counterparts? If so, what response are you getting?

Thank you.

The Chairman: Ms. Carlyle.

Ms. Elizabeth Carlyle: We've certainly had a post-secondary education agreement on our policy books for a number of years. That would include involvement from the provinces, as well as from members in the communities across the country.

With our provincial components across the country, we've always had a very strong message that, on the one hand, the provinces must be accountable to the education sector for the money they're spending. On the other hand, we require of the country a strong federal role in post-secondary education. The message has not changed, and I know it's consistent across the country.

I remember that when I met with you as a provincial rep last year and the year before, the message was clear. We had a concern that the province wasn't spending the money where it was supposed to be spent. However, we felt there could not be reneging for the responsibility either on the federal or provincial level. There needs to be an effort by the federal government to take some leadership to recognize the issues that are occurring in Quebec and other provinces, and to really get in there and do some work to make an agreement happen.

There is need for either an act or an agreement. Obviously students want some kind of agreement that has some teeth. That may take the form of an act as the most efficient and appropriate manner, but I think we need to start somewhere. Canadians have not seen leadership from the federal government in that area, so we need to see that.

The Chairman: Thank you, Ms. Carlyle.

We'll have a final comment from Monsieur Léger.

Mr. Robert Léger: Monsieur Alcock, before presenting this brief, we consulted with our provincial affiliates. We plan to do that again so that they, in turn, will be able to talk to the provincial governments.

On the special arrangement in Quebec, we certainly are planning to talk with the Fédération québécoise des professeures et professeurs d'université, with which we are in accord. We want to talk to them about these issues because the provincial aspect of this problem is very important to us.

Thank you.

The Chairman: Actually, a final comment will go to Mr. Harrison.

Mr. Hoops Harrison: Just very briefly, I'd like to answer Mr. Alcock's question about how the provinces are responding.

As you're probably well aware, harmonization of the student loan product is under way right now. That is evidence of the fact that when there is an issue of concern across the country, the provinces can sit down and agree on something. Hopefully a national standard for education will be one of those messages.

Most recently, I got a letter from the Ministry of Education in Newfoundland, and I'd say they are very supportive. After seeing the brief at the premiers conference in Saskatchewan as well, Alberta is also supportive of the idea.

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

On behalf of the committee, I'd like to thank you all. This has been a very interesting panel. They always are with you folks, by the way. Every year, you provide us with insightful information that is really helpful in giving us the foundation for our recommendations to be built upon. Once again, thank you.

We're going to take a two-minute break, and we will be back with Monsieur Yvan Loubier.

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• 1313

The Chairman: I'd like to call the meeting back to order and welcome everyone here. In accordance with its mandate under Standing Order 108(2), the committee now resumes its study of the report of the Task Force on the Future of the Canadian Financial Services Sector, known in our committee as the MacKay report.

We have the pleasure of having two members of Parliament with us. Yvan Loubier and Odina Desrochers will be giving a report on their findings as they consulted extensively in the province of Quebec.

[Translation]

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Thank you very much indeed, Mr. Chairman. With me today is my colleague from Lotbinière, Mr. Odina Desrochers.

First of all, I would like to thank you personally and on behalf of my party for two things: first, for agreeing to hear from us on the important issue of the future of the financial services sector and, second, for responding to our request, which came from some of the population as well, which was to broaden and extend the consultations on this crucial issue until March 1999.

The Canadian financial sector is subject to extraordinary pressure from within, but also from without, as part of the ever-changing international environment, in which borders tend to be less and less clearly defined.

Quebec and Canada are not immune to these pressures and certainly cannot escape them altogether. We have two options: simply to go with the flow, accept the changes and allow ourselves to be outclassed by our competitors, or start playing a more active role now and get ready for the new order for the greater good of Quebeckers and other Canadians.

That is the task we have been called to, and it is one that must transcend political partisanship, emotion and the pros-and-cons debate that is all too easy to fall into. Billions of dollars in assets and income—our assets and income—are at stake. Also hanging in the balance are thousands of existing jobs held by Canadians and jobs that might be created if we do the right things and do them quickly. It is a matter of controlling our own financial system in ten years or letting it fall into the hands of foreigners whose interests are not necessarily compatible with the interests of Quebec and Canadian society.

The Report of the Task Force on the Future of the Canadian Financial Services Sector (MacKay-Ducros Report) underscores again and again the major changes in the market and the speed with which they are taking place. In the less than two years it took for the task force to complete its report, no fewer than 15 changes or upheavals occurred within the Canadian financial sector. I would refer you to page 49 of the main report of Messrs. MacKay and Ducros, which refers to all the changes that occurred during the drafting of the report on the future of financial services.

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These major changes and challenges are certain to increase with the with the liberalization of world trade in financial services, a process that is well under way through the North American Free Trade Agreement and the most recent GATT and WTO negotiations.

In view of the challenges before us, we as legislators must pursue two objectives. In the first place, we have to ensure that the interests of consumers, regardless of their income bracket, and the interests of workers and businesses are well served by the reforms that will have to be made. This first objective presupposes that the new regulatory framework applicable to the financial services sector will generate a certain level of competition by Canadian businesses and new foreign players.

Second, we also have to foster a reorganization of the Canadian financial services sector and work to strengthen the sector's ability to compete against international competitors by attaining an optimum size that permits economies of scale and by forming strategic alliances or networks. Globalization may offer great opportunities for Canadian businesses, but it brings risks as well; we therefore have to be fully prepared for stronger competition and more relaxed domestic regulations.

Attainment of these two objectives goes beyond the simple issue of merging the big four Canadian banks. With or without those mergers, the need to make changes in order to adjust to the new national and international environment is undiminished. The task now is to determine how to manage those changes, how fast we have to change and which of the priorities among the 124 recommendations in the MacKay-Ducros report will have to guide us.

To meet these objectives, we suggest that the federal government proceed in three phases.

We urge the government first and foremost to change the rules on ownership to permit and encourage the amalgamation of small and medium-sized financial institutions into financial holding companies, as suggested by the MacKay-Ducros Report. For example, a bank could join forces with an insurance company, an investment company and a brokerage firm. This first step would make it possible to create large new Quebec and Canadian financial institutions that would be capable, for instance, of providing healthy competition for the megabanks should the mergers go ahead.

To complete this step, the federal government must establish a transition period—not too short and not too long—to give these holding companies a chance to get set up before any decision is made to allow the bank mergers.

These holding companies would be subject to the ownership rule that limits a single shareholder's stake to 10%, and their activities would have to remain separate, at least for the first two years of operation.

Mr. Chairman, this would mean an additional period of change in the sector, at time to take measures to boost competition with the help of major new players throughout Canada that could counterbalance the big banks.

In phase two, the federal government could then reassess the issue of bank mergers in view of the new competitive environment resulting from regulatory changes and opportunities for further deregulation. The new environment could consist of eight to ten major players of comparable size, thus ensuring healthy competition in the domestic financial industry. Such competition is fundamentally important if consumers and small- and medium-sized businesses are to receive services which are readily accessible across Canada at a competitive price.

In the interest of equity, if banks merge pursuant to a decision by the Minister of Finance, they should do so at the same time the multi-sector holding companies are constituted and become operational.

In phase three, the federal government could gradually open up the Canadian financial services market to international competition, potentially ahead of the schedule set out in the international, North American and American agreements, so as to secure reciprocal benefits from its trading partners.

In addition to this three-phase strategy, Mr. Chairman, I would like to highlight several other matters the Bloc Québécois considers very important.

First, being aware of the human aspect and the socio-economic effects of the necessary changes to the financial sector, we must immediately promote the introduction of measures to secure access to financial services for all classes of the general public throughout Quebec and Canada. To this end, we will continue to promote the concept of community reinvestment in the social role of the financial institutions in less well-off communities, as the MacKay-Ducros Report seems to advocate as well.

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Second, we support the MacKay Report's suggestion concerning the establishment of a monitoring mechanism, which we hope would be a parliamentary mechanism, to measure the effects of the changes made to the financial industry's regulatory framework on competition, bank service charges, employment, credit access, transparency and services in rural areas and less well-off communities so that the necessary corrective measures can be taken and adjustments made.

Third, we hope the government will draw on the proposals made by the Association pour la protection des épargnants et des investisseurs du Québec, the APEIQ, the group chaired by Mr. Yves Michaud, to ensure greater democratization of the banks and other financial institutions.

Fourth, we were pleased to see that the MacKay-Ducros Report is silent on the issue of establishing a Canadian securities commission. When questioned on this point during the proceedings of the finance committee, the Vice-Chair of the Task Force, Mr. Ducros, confirmed that such a commission was not needed because the provinces were doing an admirable job in this area of jurisdiction, which is their own.

Fifth, we were somewhat less pleased by the lack of consideration for provincially-registered insurance companies, which, for lack of harmonization, are unable to purchase blocks of insurance from federally-registered companies. Two years ago, L'Entraide Assurance-vie of Quebec City encountered this limit, which restricted its ability to expand. At the moment, the Act is still not being amended to correct this problem.

Sixth, as the necessary changes to the rules governing the financial industry are made, we very much hope that the federal government, as the MacKay-Ducros Report requests, will respect the jurisdiction of Quebec and the other provinces, particularly those concerning consumer protection and the existence of civil law.

Seventh, if the decompartmentalization of financial institutions goes so far as to enable Canadian banks to sell insurance products, it is crucially important that those banks operating in Quebec comply with the provisions of Bill 188 recently passed by the National Assembly. This legislation represents a compromise and strikes a certain balance between the needs of consumers, insurance brokers and the Mouvement Desjardins. Bill 188 guarantees privacy, information confidentiality and standards respecting professional requirements, while providing for the monitoring of the industry's operations for the benefit of consumers and savers. Lastly, Bill 188 is the subject of a consensus in Quebec, being the result of efforts and debates that lasted nearly one year.

To conclude, Mr. Chairman, I would like to ask the federal government to rule out, once and for all, the status quo as a possible option for the financial sector. It would be the worst kind of mistake to believe that in a few years' time, this sector will look the way it has up to now. Major changes are on the horizon and if we don't act quickly, we may come out the losers in the important transformations that are currently taking place and that will be even more intense in the future.

It is also essential that we not limit debate to the bank mergers. This would be a mistake, because it is the industry as a whole that must adapt, for the sake of preserving thousands of jobs and ensuring that the sector participates in economic growth.

If the debate is conducted in a positive spirit, without each side digging in its heels, we believe there is a way to reconcile the industry's concerns, the needs of the employees and the interests of consumers in all income groups, with the help of an adequate regulatory framework and the gradual changes we are proposing.

Thank you, Mr. Chairman, for your attention. I apologize for now having given you a copy of the English version of my text, but given the time that was allowed to us and certain technical difficulties, I was unable to do it today.

The Chairman: Thank you, Mr. Loubier.

[English]

Mr. Epp.

Mr. Ken Epp: Thank you. I have a couple of questions for my colleague, and I thank him for his presentation.

First of all, I wonder just exactly what you're getting at when you're saying that we must pay attention to both Canadian and international competition. Banks have tried to come into Canada in the last number of years and most of them have turned around and left again. There hasn't been a great deal of competition in our country. What do you think we can do to actually increase it, and is that desirable?

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[Translation]

Mr. Yvan Loubier: Thank you for your question. If domestic competition in Canada were keener than it is today, the debate surrounding the bank mergers would not be as keen. If there were 7 to 10 major players who, over the years, had established strategic alliances, consortiums and holdings that counterbalanced the banks, the debate over the bank mergers would be less intense than it is.

As for foreign banks, you are right in saying that we have tried to attract competition over the years. These efforts have been somewhat successful, although the competition has not been on as large a scale as we might have hoped. Moreover, on page 49 of the MacKay Report, we see some of the developments that have shaped the changes in the financial sector. In the period of less than two years that the work of the MacKay Report lasted, there have been many changes.

Foreign banks and financial institutions do not occupy a bigger place on the Canadian market for a good reason: the current regulatory framework does not attract them. For example, until very recently, and this will remain true until the end of 1999, if my memory is correct, foreign banks could not open branches in the Canadian market. Instead, they established subsidiaries, which had to raise a minimum of $20 million of equity capital, which discourages the entry of foreign banks and curbs competition in general on the market. There is a whole series of similar regulations that act as checks. The MacKay Report, moreover, recommends changing these regulations.

[English]

Mr. Ken Epp: And do you agree with the idea that those rules for foreign competition should be slackened?

[Translation]

Mr. Yvan Loubier: Look, we cannot, on the one hand, endorse market globalization and, as the big Canadian banks do, take in between 35% and 50% of our revenue from abroad, from the United States, from the Caribbean and elsewhere throughout the world, and on the other hand, seal off our borders to foreign competition.

Nor should we forget that increasing domestic competition will be in the best interest of consumers. This is currently the main stumbling block. In the stand-off between the supporters and the opponents of the bank mergers, the main stumbling block is that if we allow the merger of the four big Canadian banks that have already announced their merger plans—in January for the first two and in April for the second two—we will have megabanks and mega-institutions leading to greater concentration, and consumer interests may not be as well served.

But if there were foreign competition and if we gave ourselves two or three years to strengthen it and to create respectable consortiums that were able to counterbalance the banks and the megabanks that we wish to create, there would be fewer concerns over the protection of consumer interests, or even the interests of the industry's employees.

[English]

Mr. Ken Epp: Okay, but you're saying that consumer protection is a provincial jurisdiction—at least, I believe you said that in your report. You are therefore suggesting that the federal government should stay out of this, yet I think we all must agree that regulation of the financial institutions by our country is important. You may want to comment on that.

I also have another very important question, and it is with respect to Bill 188—you mentioned that act—and insurance sales. I'm probably not as familiar as I should be with the rules that govern sales of insurance by financial institutions in the province of Quebec, but I would like you to comment on the implication of that for insurance-granting institutions. We have a very strong insurance sector in this country. I'd like to know what regulations you have found in Quebec that are good and which ones perhaps are not so good. That way, we can learn from them if we're adopting a similar type of thing for the entire country.

[Translation]

Mr. Yvan Loubier: I will begin by answering your second question, because I think it's a very important one. Bill 188, which was adopted by the National Assembly, among other things, allows the Mouvement des caisses populaires Desjardins to sell insurance at its branch offices. This legislation provides a framework for the entire sector. Two years ago, insurance brokers were fiercely opposed to allowing the Mouvement des caisses Desjardins to sell insurance. They demanded that the insurance sales people employed by the Mouvement Desjardins be required to have professional qualifications similar to those required for insurance brokers. This provision is now part of Bill 188. The legislation also provides for an agency to monitor all matters relating to the protection of consumer interests and the effective operation of the sector in a competitive setting.

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I must admit that the debate on this while question lasted for nearly one year. This debate was very heated at times, but Bill 188 nevertheless allowed us to reach a compromise and a certain balance between the needs of the Mouvement des caisses Desjardins, which is a flagship of the Quebec economy and which had been selling insurance for a few years, without being subject to strict conditions like those provided for in Bill 188, and the needs of insurance brokers, while providing good service to consumers.

We were able to achieve that balance. By adopting Bill 188, we managed to send a signal to the practitioners in the insurance industry, that is, the Mouvement des caisses Desjardins and the insurance brokers. We said to them: “We have new rules now, they are the provisions of Bill 188. Now you have a clear framework for your insurance sales activities.”

Last week, a man named Jean Charest stated that Bill 188 should be abolished and we should return to the former rules. In my view, these are statements by firebrands in the financial sector. You cannot dismantle, month by month, the legislative and regulatory framework that has been agreed upon. You cannot say, as part of an election platform, that when you come to power, you will destroy all that and scrap overnight a consensus that was reached through considerable discussion and efforts by the three parties involved, the Mouvement des caisses Desjardins, the government and the insurance brokers.

Such a proposal is inflammatory, especially as you, Mr. Epp, and I know that the financial sector seeks certainty and stability. The framework of Bill 188 is a compromise; on both sides, there are people who are satisfied and dissatisfied, but generally speaking, they are very satisfied with the balance achieved, which deserves to be copied.

If one day the Finance Minister decided that the banks should sell insurance, the Bill 188 model is the one he should copy for Canada. It is one of the most progressive pieces of legislation, from the point of view of decompartmentalization, as well as respect for the confidentiality of data, personal information and various areas of insurance activities.

With regard to your first question, the federal government can put in place the changes that I proposed to you in three stages. It can also do so while respecting the jurisdictions set out in the Canadian Constitution. Moreover, Mr. MacKay mentions in several places in his report that discussions should take place with the provinces, to ensure that the new regulatory framework complies with the Constitution and respect the fields of competence that it gives to the provinces, and to Quebec in particular. An agreement could be reached on this. We could also give you a number of examples of peaceful cohabitation that could serve as a model for a good agreement between the federal government and Quebec or the other provinces.

In the financial sector, the challenges are so great and so serious that the necessary compromises will have to be reached. We are talking about tens of thousands of jobs for the future. The services sector, including the financial sector in particular, is one which, in the last ten years, has seen a dramatic increase in job creation and in contribution to the GDP in industrialized countries.

We should therefore avoid too much partisanship in this debate, as well as fighting over jurisdictional problems. The Canadian Constitution clearly stipulates that the provinces and the federal government have their own spheres of competence. I am afraid that we are in danger of missing the boat. That is why we, the Bloc Québécois, wished to appear in a non-partisan way, on the MacKay Report.

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[English]

The Chairman: Thank you, Mr. Loubier.

Mr. Ken Epp: Can I have just one really quick follow-up question?

The Chairman: Yes, go ahead, Mr. Epp.

Mr. Ken Epp: I would like to ask you for a very fast comment on the results of the changes brought about by Bill 188. Have insurance costs for consumers gone down, have they stayed the same, or have they gone up? Has availability changed? How many jobs have been lost in the insurance sector? What were some of the direct results of that bill?

[Translation]

Mr. Yvan Loubier: It is too early to know the results that are directly related to Bill 188, because it came into effect only a few months ago.

Mr. Odina Desrochers (Lotbinière, BQ): Before the holidays, before Saint-Jean-Baptiste day.

Mr. Yvan Loubier: It was promulgated before Quebec's national holiday, June 24th. However, the Mouvement des caisses Desjardins has definitely been selling insurance for a number of years, although its right to do so was challenged by insurance brokers. This resulted in lower insurance premiums, among other things.

We will have to wait a few years before knowing the impact of Bill 188. One thing is certain, however: when we look at the way the world is changing, or even the way the Canadian and North American financial sector is changing, we realize that the byword is decompartmentalization. Not an all out decompartmentalization of financial activities, but an intelligent decompartmentalization that will allow us gradually to ensure that consumer interests are well served. This was the main concern of Bill 188, although we are asking at the same time that the adjustments demanded be made gradually so as to avoid sending shocks. This was also taken into consideration with Bill 188.

I can tell you that at the very end of the process, when there was a standoff between insurance brokers, consumer protection associations and even, at times, the Quebec government, we eventually managed, by talking to each other and debating with each other, sometimes vigorously, to reach a certain balance that must absolutely not be called into question now for basely partisan considerations like those expressed by Jean Charest last week. This issue is too important.

When he starts attacking one of Quebec's flagships, the Mouvement des caisses Desjardins, one wonders how Mr. Charest could defend the interests of Quebec. He would be partially demolishing what the Mouvement des caisses Desjardins has built, affecting thousands of employees who work in this area.

There is another aspect which should not be overlooked. Bill 188 stipulates that training should be given to the employees of the caisses populaires Desjardins who will be selling insurance products. These training programs are already underway, everyone counting on the legislative environment that is Bill 188. And now we hear talk of throwing it all out. It doesn't make any sense. If Mr. Charest had made such a statement in Canada regarding the rules for the entire financial sector, he would have been torn to pieces by all the major players in the sector.

[English]

The Chairman: Thank you, Mr. Epp.

Mr. Riis.

Mr. Nelson Riis: Thank you, Mr. Chairman. I have two questions.

Mr. Loubier, I think you indicated that you're here today on behalf of the Bloc. Based on what you've seen, heard and read so far, what is the Bloc's thinking on the bank mergers at this point? I realize the process is not complete, but can I have some of your general opinions at this stage in the deliberations?

Secondly, at the beginning of your presentation, you mentioned a call for new financial players in the market in order to provide more competition and so on. I might have missed that, because I was a little behind in terms of some of the points you were making. Recognizing that a good part of the new economy is going to include people who are self-employed in businesses based in the homes, in businesses with few hard assets, if any—in other words, this new innovation technology and new innovation business that's developing—will these proposals help these people in terms of new players? Or are you simply assuming at this point that more competition will likely help these people?

[Translation]

Mr. Yvan Loubier: Yes. To answer your first question on the Bloc's position regarding the mergers, I think that we have already spelled it out fairly clearly. We have said from the start that we consider the bank mergers to be one element in a debate whose scope has perhaps not been equalled since the Carter report on taxation in the 1960s. The MacKay report in effect gives us the opportunity to take stock of the challenges we will be facing.

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We are not saying that mergers like those that take place between car makers and in sectors other than banking are a bad thing in themselves. A merger is a strategic decision, a business decision that institutions may take in the environment in which they wish to work, with a view to meet their need to be more competitive.

We believe that the issue of bank mergers should be part of a much broader debate.

[English]

Mr. Nelson Riis: Excuse me, I just want to ask for a point of clarification. Are you suggesting in your response that a merger between two of Canada's largest banks is the same as a merger between two auto companies, two grocery chains or whatever? Are you saying banking is no different from any of the other sectors of the economy?

[Translation]

Mr. Yvan Loubier: Absolutely not. Moreover, Mr. Riis, we believe that before making any decision regarding the mergers involving the four big banks, we have to ensure that there are enough major players domestically, that is on the Canadian financial market. That is why we are suggesting that, in the first phase, we change the regulatory framework to allow for the creation of major financial holding companies, to counterbalance the six big Canadian banks that exist now. In two or three years, after these regulatory changes have been implemented and 7 to 10 large holding companies have been created—this can take place more quickly than we think, the sector is evolving at amazing speed—we will reevaluate the timeliness of allowing these bank mergers to take place.

But the discussion doesn't end there. We must be prepared to make constant improvements. The most important thing is to protect consumers, employees and the thousands of jobs that currently exist in the financial sector or that are likely to be created if we make the right decisions. The third important element is the set of regulations that will apply to the financial sector.

Since the first merger was announced in January, we have made a foray into practices around the world. We took our job seriously and examined the matter carefully. We found that, over the last 25 to 30 years, concentration in the financial sector had increased and regulations had kept up, ensuring effective protection of the interests of consumers, workers and the neediest in society. This is the spirit in which we are presenting our non-partisan analysis.

Mr. Odina Desrochers: I would like to add a comment to the statements by my colleague Loubier. We also want to ensure that all the players leave from the same point at the same time. If we authorize the merger of certain banks, we must also think about the other banks and financial institutions that do not wish to merge or support the mergers. When the Canadian government makes its decision, it will have to ensure that everyone is on an equal footing and is in a position to compete.

[English]

The Chairman: Thank you, Mr. Riis.

Mr. Szabo.

Mr. Paul Szabo: Thank you, Mr. Chairman.

With regard to provincial securities commissions, this issue was discussed quite a bit when Wal-Mart came into Canada and, I believe, incorporated in New Brunswick. One of the discussion points was basically that they picked New Brunswick because it had the fewest restrictions or conditions under which you could incorporate in Canada. In fact, it was the only jurisdiction under which they wouldn't have to disclose their financial statements.

Subsequently, the federal securities legislation was amended to basically the lowest common denominator. For me, I guess that serves as an example of why more discussions are needed about the relative merits of or problems with having national standards and a national securities board or body to ensure that competition and fairness for domestic firms versus foreign investors are fact.

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I would be interested in your comments about having separate securities regulators. Is there some way in which we can deal with the problems of individual differences between provinces that may in fact frustrate the rights or competitive positions of domestic firms?

[Translation]

Mr. Yvan Loubier: Mr. Szabo, you will have the opportunity to hear the chairs of the Ontario and Quebec securities commissions. I would like to make the following observations. It goes without saying that there is unequal organization across the Canadian provinces with regard to securities. On the other hand, this is no reason to penalize provinces which, a number of years ago, created an environment that was favourable to the development of a securities sector having very respectable institutions that intensely monitor what is happening in the securities sector and that manage the sector. It is the Canadian Constitution which confers this right on Quebec, Ontario and British Columbia in particular.

We do not need a supra-provincial commission, that would bring an additional player into the securities sector, sow confusion with regulations that varied from those that are already established in the different Canadian provinces and Quebec, and add some uncertainty for participants in the securities sector, who would always wonder whether it was under provincial or federal government responsibility. In my opinion, there is already enough confusion in the financial sector in general without the federal government barging in and setting up a Canadian securities commission.

I would also remind you that it is important to make sure that the provinces sit down together—Quebec, Ontario and several others do it—to harmonize certain securities practices, so as to avoid there being eight or nine sets of rules for issuing securities to investors, to ensure there is only one or two and that there is a standard format.

Up to now, the provinces have dealt with this challenge admirably. Four years ago, when the finance minister proposed establishing a Canadian securities commission, he said he had the support of almost three-quarters of the provinces. Today, no one wants a Canadian securities commission.

When Mr. MacKay and Mr. Ducros appeared before this finance committee, I had the chance to question Mr. Ducros on this matter. In their report, they discussed the changes needed so that the financial services sector can go into the third millennium forcefully and dynamically. When I asked him whether he thought a Canadian securities commission was essential, as the finance minister had claimed four years earlier in a speech from the throne, he simply said no. He said that they had not proposed such a commission because it was not essential. I think that that says everything.

[English]

The Chairman: Did you have any further questions, Mr. Szabo?

Mr. Paul Szabo: The MacKay report is obviously concerned about defining public interest, and one of those areas certainly includes job losses. In your consultations, did you find a consensus position with regard to what is going to happen in the financial services sector or, maybe more narrowly, in the banking sector, regardless of whether there are mergers? Did you find a consensus in terms of what's happening in regard to employment or job creation? For instance, is there a view that the banking sector is in fact purging jobs, that maybe mergers are necessary—along with other concessions like insurance—simply to deal with that technological consequence?

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[Translation]

Mr. Yvan Loubier: That's an excellent question, Mr. Szabo. In the coming years, the financial sector—be it banking, insurance or mutual funds—will be developing rapidly. Ten years ago, we could not even have imagined everything that has taken place in banking or in the other segments of the sector in general. There have been dramatic developments.

Jobs have been created also. As I mentioned, the services sector, including financial services, has seen a considerable increase in its contribution to economic growth and to the creation of high-quality employment. We are talking about high-tech jobs and very specialized jobs. No one can predict the future. Moreover, I have talked about this with many people since the start. I've had the opportunity in this committee, during its hearings, to listen to witnesses from throughout Quebec, and Canada. They always repeat the same thing. There is a consensus: whether we agree or not, in a dozen years, Canada's financial sector will not be what it was in the past or what it is now; it will be transformed.

We are the ones who will determine whether, ten years from now, the balance sheet for job creation in the financial sector is positive or negative. If we don't act quickly to establish the foundations of a regulatory framework that will be more in keeping with the financial sector's current and future needs, we may find ourselves facing considerable job losses in ten years, because as international negotiations proceed, including World Trade Organization talks and North American talks, more and more borders are being opened up and the regulations governing our commercial partners are being relaxed. If we're not careful, if we do not strengthen our financial sector immediately, we may regret it. This is the consensus that all the specialists have reached. If we don't take the bull by the horns right away, we may be too late and miss the opportunities offered by globalization. This is what we must realize today. Mr. Szabo, you too must have heard the representatives of the financial sector, economists and accountants say that we have to initiate transformations, and not just be subject to them and lose out in the end.

[English]

The Chairman: Thank you, Mr. Loubier. Thank you, Mr. Szabo, Monsieur Desrochers.

As a point of clarification, this is the view as expressed by the Bloc Québécois, of course. Apparently you have consulted extensively across the province on this particular question. How many people participated in your various outreach programs?

[Translation]

Mr. Yvan Loubier: I did not count the number of people who participated in these consultations, but I think that you're confusing the pre-budget consultation that we conducted during part of the summer and in September, and the consultations that took place regarding the MacKay Report. That's not the same thing.

Today, we're presenting the result of our consideration of this issue since January, since the announcement of the first bank merger and since we became interested in what the MacKay Report may contain. We also worked for a good part of the summer. As a matter of fact, I had informed the finance committee about the fact that this issue was critical and fundamental and that we were waiting for the results, the excellent report tabled by Mr. MacKay and Mr. Ducros. Therefore, this is the result of our own reflection and the consultations we had with experts, union representatives, representatives of community groups, etc. We looked at all these consultations and we produced a synthesis. Of course, to be more complete, our presentation should have included everything that may have been said from January up to now, including our reactions to the MacKay Report on the day of its publication.

Following the publication of that report, some of my colleagues, among others my colleague from Lotbinière, undertook consultations with the business community and community groups in their ridings. Personally, I did so with business groups. Moreover, next week I've been invited by the Chamber of Commerce in the Montérégie region to express the same point of view that will be presenting here today. Therefore, this is not something we hatched overnight. As my father would have said, it's a position that has matured slowly, like good wine, all the way to the finance committee.

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The Chairman: Thank you.

Mr. Odina Desrochers: I also have a comment to make.

As you are aware, on September 9, the entire Bloc Québécois caucus received the presidents and the main banks, including the four that intend to merge. We also heard from the Bank of Montreal, the Bank of Nova Scotia and the Desjardins Movement, who came to explain their point of view, and their testimony is also reflected in our brief. We were in the vanguard in that sense because we took the initiative to meet each of them in turn during a full day that began at 9 a.m. and ended at 5 p.m.

[English]

The Chairman: Thanks.

We'll get a final question from Mrs. Redman.

Mrs. Karen Redman: Thank you very much, Mr. Chair.

Very much along those lines, my question is twofold. You have articulated quite well what the Bloc's position is, but what are your constituents telling you? Have you gotten feedback from the people of your province—not the experts, not the people with a vested interest, but the people who live in the communities?

Secondly, have you heard the kinds of concerns in rural Quebec that we've heard across Canada, those being fears that these mergers, the technology and globalization will somehow end up hollowing out rural Canada? Have you heard anything with those kinds of themes?

[Translation]

Mr. Yvan Loubier: Personally, I haven't heard of it, but that's not the issue, Ms. Redman. The issue is to figure out what we must undertake today to be successful in 10 years. That's the issue and that goes beyond the issue of bank mergers.

What we're proposing is to examine several of the recommendations of the MacKay report that we have prioritized, because there are 124 recommendations in that report. We must therefore set priorities. In our opinion, these priorities should be to reinforce the financial sector, to ensure that it serves the objective of job creation and that it serves consumers. Those are the priorities we've presented to you. The point is we have to change the regulatory framework. When that framework is changed, we can evaluate whether or not we will go ahead with the bank merger, but we will have an economic environment that has changed. We will have a different financial environment and regulatory framework to oversee this financial sector. It's in light of that that we should evaluate the bank mergers.

Today, all those we met with in the Maritimes and in the West and who came to talk to us about the MacKay Report, and especially the bank mergers, told us they fear for jobs, for consumer services, for costs to be borne by consumer accounts and also for small business.

What we're proposing is a way of doing things so that doesn't happen: that there be no loss of jobs and the prices offered to consumers and small business...

Because of a more competitive environment than the one we would have encouraged with amended regulation, as proposed in the MacKay Report, we are now in a situation where there are many important players who counterbalance the major Canadian banks. The sector has organized itself very well, and there's also a certain degree of deregulation, which means that we are now in a situation where, starting with a system that is excellent right now... I agree with all the people around the table: the Canadian banking sector is a good sector; it has very solid foundations. If we manage to achieve progress starting from this positive aspect of the financial sector and also defend consumer protection, the future of the industry and thousands of existing jobs, I think that we will shouldered our responsibilities as legislators. That is what's very important.

I've always deplored the fact that the Minister of Finance—I did say that I would not engage in a partisan debate and what I'm about to say is not meant to be partisan—on the day after the publication of the MacKay Report, which is a significant report that deals with all segments of financial activity, resuscitated the debate by emphasizing bank mergers solely. We're on the wrong track if we do that. That's not what we should be doing at all.

Mr. Odina Desrochers: I have a brief comment, Ms. Redman. I think that the potential advent of bankinsurance makes brokers very fearful. In that sense, they were told that we would take action to have the equivalent of Bill 188 so as to protect the markets. Of course, if bankinsurance became a reality and brokers disappeared, that would be detrimental to our rural communities. What we're telling them, is that the debate is not only about mergers, but also about the reorganization of financial services in this country. That reassures them.

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Mr. Yvan Loubier: With legislation like Bill 188 in Quebec, as I mentioned earlier, we can make sure that there's a certain balance, that the needs of brokers, consumers and the need for expanding the Mouvement Desjardins are fulfilled. This is a balance that we must always bear in mind when we undertake, as legislators, the task of amending the regulatory framework of the financial sector. As a matter of fact, that is the essence of what led Mr. MacKay and Mr. Ducros and their team to propose gradual modifications. What I deplore, and I've already said this to Mr. MacKay and Mr. Ducros, is that there was no real priority established among the 124 recommendations. Some of them are critical and must be implemented immediately and others are secondary. They could have said: “Here are our priorities.” If we want to strengthen Canada's financial sector, and there are other issues that merit discussion and debate later, we must first of all implement these highly important regulatory changes that I propose in my brief.

As I mentioned to you, Ms. Redman, if we take up rigid positions at the outset, despite the fact that I've heard people say they were against all that, we may end up breaking our necks as we say in Quebec, because as legislators, we will not have understood that we really need regulatory changes to reinforce our financial sector. Thus, on the domestic side, we ensure that consumers and workers are protected, and on the international side, faced with globalization, we ensure that we continue to be major players who can compete with extremely large players. We're not talking about small players here, but players with international stature.

[English]

Mrs. Karen Redman: Thank you, but my question really was predicated on what you were hearing from your constituents. I appreciate the fact that this is a very comprehensive report. I agree that it has much more to do with mergers. But I would also tell you that I hear regularly from my constituents, whether or not I seek their input. These are the kinds of concerns I'm hearing, although that's not to say they're the only things we should base our decision on. My question was whether or not you are hearing similar concerns in the province of Quebec that we've heard across Canada.

[Translation]

Mr. Yvan Loubier: Ms. Redman, that's a question we have to debate. In fact, on the issue of the MacKay Report, the Bloc Québécois has requested and obtained from the Liberal government that we have an extension of the consultations until March because initially we will have to submit the final report in December, along with the pre-budget consultation report. If we didn't feel that this was an extremely important issue that must be debated as broadly as possible, we would not have insisted on an extension and a broadening of these consultations, to enable more Quebeckers and Canadians to have their say about this.

Having said that, the role of the legislator and the role of the politicians in general can be seen in two ways. The first is to gather up what people want to hear and repeat it; the second way is to explain to people why we need fundamental changes and tell them that as legislators, we are proposing such and such a change. This morning, we took our second role very seriously by saying that there is a three-phase strategy that appears to us to be highly necessary if we want to succeed. We're tabling this for debate purposes, and we do not fear debate. Moreover, this summer, as I had an opportunity to mention, and Mr. Desrochers did as well, we consulted all of Quebec on our suggestions regarding the use of budgetary surpluses this year and we were not afraid to put everything on the table; we were not afraid to compare our ideas with those of the people who appeared before the Bloc Québécois commission in Quebec. That's also why we're here.

I hope that you will hear and that we will hear many people express their views on this issue between now and March, because I feel that it's very important and that the decisions that we will make regarding that sector will shape our entire social and economic lives for the next 15 or 20 years. That's why we can't afford to make a mistake.

[English]

The Chairman: Thank you, Mrs. Redman, and thank you, Mr. Loubier, Mr. Desrochers.

Colleagues, we will be back at 3.15 this afternoon to hear from the Canadian Imperial Bank of Commerce.

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• 1534

The Chairman: I would like to call the meeting to order and welcome everyone here this afternoon. As everyone knows, we're presently studying the report of the Task Force on the Future of the Canadian Financial Services Sector.

This afternoon we have the pleasure to have with us, from the Canadian Imperial Bank of Commerce, the chairman and CEO, Mr. Al Flood; and the president of the Personal and Commercial Bank, Mr. Holger Kluge.

Welcome. We look forward to your comments. You may begin.

Mr. Al Flood (Chairman and Chief Executive Officer, Canadian Imperial Bank of Commerce): Thank you, Mr. Chairman. I apologize for being late. I hope it wasn't an inconvenience to your committee.

Thank you again for inviting us. As you know, we've been invited here today to talk about our vision for the financial services industry and our response to the MacKay report. But in doing so, I would like to talk about some of the profound changes we are undergoing in our overall economy, because I believe the two are deeply and intimately connected.

• 1535

Today countries around the world, especially modern economies such as Canada, are moving from the industrial age to the information age, driven by the rapid advancement of information and communication technologies. These advances in technology have created unprecedented levels of interdependency and global integration. They have intensified competition among nations as well as individual companies, and they have presented new and unique challenges to legislators and regulators worldwide.

Canada enters the new millennium with a strong economy and a quality of life that is the envy of the world, but we face such powerful competitive forces that we cannot take our well-being for granted. As we move into the new millennium, the question we all face as bankers, corporate leaders, legislators and ordinary citizens is this: how will we preserve and enhance the extraordinary success we have achieved?

I see three major and powerful forces shaping our future success—issues we must address as a nation. The first is technology, which is without question the great shaper and driver of modern economies. Under its pervasive influence, we are fast discovering that the assumptions and policies appropriate to the industrial age are inadequate to the demands of the digital and information age. Advanced technologies have radically altered cost equations and have created new ways to add value and to leap the traditional entry barriers to consumer and business markets, whether it be in financial services or in the sale of books or automobiles.

Second is the human factor. People, not resources, are the wealth of nations. The wealthiest of nations are those that can produce, attract and retain people who are well educated, with advanced and flexible skills. Investments in education and training will become even more critical. But we also need to ensure that we have industries with good prospects for the future, able to provide the good jobs to keep our children in Canada. In the past 15 years, more than 30,000 top-flight Canadian professionals left Canada for better opportunities.

The third factor is productivity. The more interconnected world of today means we compete not only as companies but as countries. Productivity gains are the ultimate foundation for rising living standards. Without them there can be no increase in the purchasing power of Canadians. Income gains that are not rooted in productivity improvements lead only to higher prices, not greater spending power. As one of the most trade-dependent economies in the world, we must ensure that our productivity growth allows us to remain competitive on the world stage. For more than two decades, we have failed to meet this challenge.

Mr. Chairman, we have provided you and your colleagues with some charts that illustrate this. Thirty years ago, Canadian productivity and manufacturing was above U.S. levels; today it is more than 20% lower. One measure of this alarming decline in competitiveness has been a reduction in Canadian living standards. Real income per capita has fallen almost 5% so far in the 1990s—the steepest decline in the post-war era. Another measure of our faltering competitiveness has been the currency, which recently plunged to a all-time low.

We have much to do in Canada to address each of these issues. I believe ensuring that we continue to have a strong, innovative, competitive Canadian-owned financial services industry that is able to meet the needs of consumers in our home market and grow abroad should be a critical part of our response to these issues as a nation.

The MacKay report makes an important contribution by providing a framework to achieve this. Canada's banks have a critical role to play in supporting our country's transition to the information economy in two important ways. One way is our traditional role as lenders, advisers and investors in knowledge-based industries at home and abroad. But in addition to our banking role, we are also builders and investors in technology in our own right.

• 1540

Let me take one example. At CIBC we spend $1.2 billion a year on technology. Part of that is to build and maintain the high-volume computer systems that support our nationwide branch, credit card, Interac, telephone banking and automated banking machine operations. Recently we formed a joint venture with Hewlett-Packard to extend that capability into commercial applications for electronic commerce. We plan to market these applications throughout North America and the world. As a result, we have created a global centre of excellence and new job opportunities in Canada in one of the fastest growing areas of the new economy.

Strong banks create good, knowledge-intensive jobs, not only directly but also in a range of supporting industries such as marketing, law, accounting and technology. The average salary in the banking sector last year was one-third higher than the average Canadian industrial salary. The number of knowledge workers at CIBC alone has grown by more than 25% in the last three years.

Strong banks are important overall contributors to improved productivity in the broader economy. Studies show that countries with efficient, well-regulated financial services industries have the fastest rates of growth. Regulators in the United States recognize that consolidation in the banking industry is necessary to support continued productivity growth, and they have given speedy approval to dozens of large mergers.

In Europe, governments in smaller countries such as Holland and Belgium have encouraged their banks to consolidate to improve efficiency and ensure that their industries can remain strong in the face of growing competition from much larger financial institutions in neighbouring countries.

Technology, people and productivity are the key prerequisites for any successful economy in the 21st century. I believe a strong Canadian-owned, Canadian-headquartered industry can play an important role in supporting Canada's transition to the information economy.

The MacKay task force has described with eloquence and in great detail the kinds of changes and challenges we face as an industry. They have stated, I think quite accurately, that the status quo is not sustainable. They have described the powerful international competitors, both bank and non-bank, we face as a result of worldwide consolidation and deregulation.

The emergence of massive powerful competitors with vast resources to invest in technology, people, product development and marketing is rapidly breaking down local geographic barriers to markets and making them global. This new competition is good for consumers and businesses who are benefiting today, and will continue to benefit, from greater choice and lower prices.

As the task force demonstrated, Canadians now have among the lowest-cost banking services in the industrial world, and we must continue to improve these costs. This is good for our economy because it helps improve productivity, contributing to our standard of living.

Our vision of maximum consumer choice from maximum competition is one we shared in our submission to the MacKay task force a year ago. But a critical part of our vision is also to ensure we continue to have strong Canadian-owned financial services companies. A detailed outline of our vision is included in the kits we have distributed.

When we looked at the powerful forces shaping our industry, we at CIBC concluded that we faced a choice. Either we would have to consolidate with a competitor to achieve sufficient size and efficiency to allow us to continue to provide the range of consumer and business banking services we do today, or we would have to reduce or eliminate our presence in some businesses and markets. As the MacKay task force commented, mergers are simply one option.

We propose to merge with the TD Bank because we believe our two companies are such an excellent fit that not only will we be better able to compete in our home markets, but we will also be able to grow our business in North America and abroad. Combined, we will be the most North American of any Canadian bank, with enormous potential to grow and repatriate profits from abroad. We would continue to grow through acquisitions outside our borders.

• 1545

We recognize the relative size of Canadian banks raises issues about competition, and that is why we support the task force proposal to open up the Canadian markets to greater competition. And that is why we're working closely with the Bureau of Competition Policy to look at the market impact of our proposed merger.

We also understand Canadians have concerns about the impact of mergers in communities. We think the MacKay report's proposal to conduct a review of community impact is a good one and we will support that process. We are proud of CIBC's commitment to communities, including the involvement of our employees. Last year we were the largest corporate donor in Canada, and we are recognized as a leader in community participation and commitment.

To sum up, Mr. Chairman, the issue before the committee is not just one of mergers or even of financial services reform. The real issue, the real imperative, is to lay the foundation for a competitive and successful nation with world-class productivity that enhances wealth, a nation at the forefront of the information age, a nation rich with opportunity for its young people. A key part of this vision will be a financial services system that is customer-centred, offers an abundance of choice, is open to all competitors, and has strong, efficient, Canadian-based, Canadian-owned players.

To realize this vision we need public policies that are responsive, flexible, timely, and adaptive to the rapid changes that are transforming the world. The work of this committee, Mr. Chairman, will be critical in helping to develop those policies. It is a challenging task. You must satisfy many groups, all of whom have different agendas.

The MacKay task force has shown the way. It calls on all of us involved in financial services reform—government, regulators, banks, and advocacy groups—to look beyond our immediate interests and work together to build a financial services system that truly meets the best needs of Canada and the Canadian consumer. No single institution will come out a total winner in this process. The only total winner will be the consumer, and that's the way it should be.

Following the task force lead, I believe we can create a Canada that is unmatched in the world for the strength and stability of its financial institutions; its ability to compete, innovate, and thrive in the coming millennium; and the opportunity, wealth, and quality of life it offers to all its citizens.

Thank you very much. I'd be glad to take some questions.

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

We'll now begin with Mr. Epp.

Mr. Ken Epp: Thank you very much. I appreciate your being here and your presentation. I have a number of questions arising from both your statement and a few other issues you didn't talk about.

First of all, you talk about the advantage of technology, and certainly technology has come to the banks in a big way. However, I am totally mystified by the fact that over the last number of decades since I was first in a position to earn money and have a bank account, the fees have been greatly increased. As a consumer, I feel the banks are as much out there to take advantage of me as they are to help me. And here you are promising things such as that the only winner is going to be the consumer. In fact, that's an exact quote. You said “the only total winner will be the consumer”. You mentioned “customer-centred” and all that, and I wonder how you reconcile it.

When I first graduated from university and opened my first bank account, they paid me to bring my money in there. Now I have to pay to make a deposit or to withdraw my money. I won't mention which bank this was because I think that would be inappropriate, but I opened an account—I was forced to open an account by a bank—in order to achieve a little process I wanted on payments to my MasterCard bill. They forced me to open the account, and then they cleaned my account out because it was too small. And they wouldn't give me my money back.

• 1550

That happened not to be your bank, but what I want you to address is this whole question that we and many, many Canadians have as to whose side the bank is really on, and whether this talk of more competition being good for the consumer and everything is just a bunch of window dressing that's meant to make easier the greater control of the total financial industry by the banks.

Mr. Al Flood: I've been in the banking business since 1951, so I've seen a lot of change, and I would say to you the benefits you have seen over the last several decades... You mentioned it's been some time since you first opened an account, and you've been involved in the industry for a long time.

Many years ago there was a lot of cross-subsidization in interest, whether it was on deposits or on loans, and I would say over a long period of time we've moved to where it's really a user-pay system. I think it's a much fairer system today. The people who use the services pay for the services. The people who make the deposits get paid for their deposits. And the people who do the borrowing pay competitive rates.

I think we are truly in a very competitive society, in a very competitive industry. You can compare that... MacKay did a number of studies and looked at this around the world, and I think he came to the conclusion that Canada has a very competitive and low-cost delivery system, and that we do have one of the more efficient banking systems in the world. Having lived outside of Canada, having banked outside of Canada, and having talked to many other people, I can tell you many people have come back to Canada and said they can't believe how great this system is.

I would encourage you to go to another country, open up some accounts, see what you pay, and then come back and test some other people. I think you will find... I think what we're talking about is opening up this economy to open competition on a global basis, because that's what's happening. The forces of globalization and technology are going to open up our borders the likes of which we've never seen before. And I think you're going to see it, and you're going to feel it. So will everyone.

Mr. Ken Epp: Undoubtedly. And I can't argue with you with respect to the efficiency of the banking system in Canada. In fact, I'm quite aware we are enjoying in this country from our banking organizations a very good, solid, stable, long-term business that most Canadians trust.

So I'm not knocking that part. What I'm saying is that people are talking to me about the erosion over the last 30 or 35 years of what they get out of the bank versus what they have to pay. The question is why we should then trust them for the future as they gain more and more power?

You've given me a partial answer to it, but I'm not sure it's totally satisfactory to many Canadians.

Mr. Al Flood: I would compare it to other services. What do you pay for a newspaper? What do you pay for a telephone? What do you pay for a cable service? As long as you have good competition and competitive rates, it's going to be driven down to the lower cost. I think the banking system as a whole, over these last several decades, has been an efficient system. And I think maybe Canadians take it too much for granted, but we have to recognize... Maybe we have to communicate that more and continue to show data that show the evidence, because the evidence is there. I think MacKay, as an independent committee, has confirmed that as a third party. So I don't apologize for that.

Mr. Holger Kluge (President, Personal and Commercial Bank, Canadian Imperial Bank of Commerce): Mr. Chairman, maybe you can allow me to add to that. There are over 42% of Canadians who do not pay any service charges. If you're over the age of 60, you do not pay service charges. If you're a young adult, you do not. Students receive fees at 50% of the normal charges. The lowest-based account could be $2.50 with 10 transactions. We have worked with several organizations to help people to minimize service charges. There are options open to them at a much-reduced cost.

If you just take a transaction...if you are in B.C. today and you take money out of your account, it could be either free if you live in Toronto or Halifax, or you're being charged 40¢ or 50¢. Sometimes the transition cost is higher than what we're charging you for that particular transaction. Maybe we haven't explained it sufficiently, but service charges are a necessary evil sometimes.

Mr. Ken Epp: But do not the banks also make the money from the transaction cost, because you own the system?

• 1555

Mr. Holger Kluge: We do, but think about the investments we have to make. We have close to 4,000 ATMs. Next year, we'll have close to 6,000 ATMs across the country.

The average ATM costs you about $50,000 to $60,000. You have to maintain these ATMs by putting money in and taking deposits out, and there's a cost to that, it's not free, and so it takes you some time to recover these costs.

The Chairman: Thank you.

Do you have a final question, Mr. Epp.

Mr. Ken Epp: Already? I can't believe that.

The Chairman: Time flies.

Mr. Ken Epp: I just barely started with the first half of my first question. Anyway, let's not waste time discussing that.

The thing is that over time, it seems to me that you're going to a user-pay cost recovery system, yet you're trying to have us believe that if you merge... By my way of thinking, merging will reduce competition. Instead of having four, five, or six big banks to deal with, we'll have two or three depending on how it all shakes down in the end. So there will be less competition, and your monopoly of the transactional part of the business will certainly increase around the world. When that occurs, what's to prevent you from increasing the charges to the consumers?

We were told many years ago that when we got these automatic machines and computers, the cost per transaction would be so much less. It would be just wonderful. At that time we had no charge for talking to a teller to either deposit or retract money. Now we have charges even when we're talking to a teller, and certainly to the machinery. So the promised efficiency did not come back to the consumer.

Mr. Holger Kluge: It did happen, though. If you do a transaction with the teller, it costs us $3; if you do it by ATM, it will cost us about 50¢. So costs do go up. We're encouraging consumers to use means that are less costly and more efficient for them.

Mr. Ken Epp: I'm not finished, but I'm going to have to quit, I guess.

The Chairman: Thank you, Mr. Epp, not for quitting but for your question.

Mr. Ken Epp: Yes, I know.

The Chairman: Mr. de Savoye, go ahead.

[Translation]

Mr. Pierre de Savoye (Portneuf, BQ): Mr. Flood, Mr. Kluge, I was listening to the statements made by my colleague of the Reform Party regarding service fees and I read the following in the document that you presented:

...Canadians now have among the lowest-cost banking services in the industrial world. And we must continue to improve these costs...

Mr. Flood, I fail to see how you can continue to reduce your costs, because on my bank statement, they haven't stopped increasing since I was very young. If you were to tell us that you will stop increasing them, that would be a good start and you would have some credibility, but when you say that we will continue to reduce them, that doesn't wash, because you have not reduced them in known memory, or at least for a heck of a long time. That brings me to my question.

Since technology has lowered your costs per transaction—you refer to 50 cents for an automatic teller-machine transaction compared to $3 for a transaction with a person—how come these fees continue to climb? Please explain that to me.

[English]

Mr. Holger Kluge: As I said earlier, it really depends on the transaction you're trying to do with a financial institution. The people-to-people transactions are more expensive, so it's your choice how you would like to interact with us as a financial institution. If you do choose the electronic means, it's less personal but more effective, more efficient, and less costly.

I do agree with you that if we could do away with service charges, then I think Canadians would be pleased, but there are investments that you have to make in order to initially recover your costs.

Mr. Pierre de Savoye: But the question I'm asking, Mr. Kluge, is this one. You are using ATMs to lower your cost per transaction. How come my costs are not lowered? Maybe it's because you make more profits. Tell me.

Mr. Holger Kluge: As I said to you, depending on the services you use, I think we can prove to you that your costs overall would have probably gone down. A good banker should show you how to reduce your costs to the minimum, but it really depends on you and how you like to interact with the bank. If your bank in Quebec doesn't do that, I'd be happy to show you how CIBC can reduce your costs for you.

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[Translation]

Mr. Pierre de Savoye: Mr. Kluge, you're a good salesman, but I would not be a good buyer. You state in your report:

...either we had to consolidate with a competitor to achieve sufficient size and efficiency to allow us to continue to provide the range of consumer and business banking services we do today. Or we would have to reduce or eliminate our presence in some businesses and in some markets.

Could you be a little more specific? I understand that the major rationale behind mergers is to enable you to position yourself better. Without revealing your strategic plans, could you explain exactly what happens in option one? What are you going to reduce? At least in my riding, you will not reduce anything because you are not present there. What will you maintain if you merge? Try to give us an exact image. What is your agenda?

[English]

Mr. Al Flood: Let me try to answer that.

This is what I think we will see in a merger. We haven't laid out specific details because we are still negotiating with the Bureau of Competition Policy. We're working through to see what shape of company we would end up with if we indeed met the requirements of the guidelines of the bureau. The rationalization would be basically at headquarters and in our operational computer systems. We would also spread marketing costs over a larger customer base. That's our technology spending. Then we would look branch by branch and community by community at what type of services we can sell through those branches by combining our operations and adding more services and products. We'll look at how we can maintain the viability of really a branch network as well as an electronic banking network, because we now are evolving with two networks at the same time.

In addition to that, when we talk about competition, there are many other competitors as well. The banking industry has changed. The financial services industry has changed. People have moved to mutual funds, so the depositors have become investors. People have used alternate methods of interfacing.

So the whole world of banking and financial services is moving into a whole new era of what I would call choice and options. As you look to the future, our customers are going to have much more choice with many other suppliers, including the existing banks, insurance companies, mutual funds companies, money managers, and financial planners right across the nation. They're going to have different ways of interfacing, whether it's through the Internet, ATMs, telephones, computers, or the branch networks. So we're moving into a new era of our industry. That's what we have to grasp. That's what's going to change. That's where the competition is going to be quite dramatically different from anything we've seen.

[Translation]

Mr. Pierre de Savoye: Let's talk about competition, Mr. Flood. There are banks that will not merge. To hear you talk, for the CIBC, without a merger, the end is nigh. Are you claiming that the banks that do not merge are heading straight for disaster? What's the difference between your bank and those that don't want to merge? Why is it so important for the CIBC to merge? What differentiates you from the others?

[English]

Mr. Al Flood: Every group is taking their own strategies and making their choices. Some are going to build a larger platform that will compete not only in Canada but in the United States and elsewhere. Others will only compete maybe in Canada. Others will compete only in certain products like credit cards, mutual funds, or mortgages. There will be niche players.

There's going to be a whole different series of competitors. We've sort of gotten accustomed to these six banks and five insurance companies, but the world is going to be much different tomorrow. So you're going to have many different suppliers, large international competitors, global competitors coming into Canada, foreign competitors, as well as Canadians who are moving to compete on a broader basis. Then you're going to have many niche, selective, and monoline competitors. So the make-up of the competition is going to be quite different.

Think about the telecommunications industry and what it looked like 20 years ago, what it looks like today, and what it'll probably look like tomorrow. It has quite dramatically changed. There are a lot of similarities between financial services and telecommunications.

The Chairman: Thank you.

Mr. Pierre de Savoye: I'll come back to more questions later. Thank you.

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The Chairman: Mr. Riis.

Mr. Nelson Riis: Thanks a lot, Mr. Chairman.

Mr. Flood, I think two or three issues ago, Reader's Digest had this rather moving story about this young girl who made a deposit in one of the banks and was proud of the fact, but when she went a little later to make a withdrawal she actually owed the bank money because of a number of service charges, which again goes against the point you were making earlier about including young people. Maybe Reader's Digest had it wrong, but I just thought it wasn't a helpful story to come out now.

I have three questions. I'll just say them and then ask you to respond in whatever order. The case is that a bigger bank means a better bank for a variety of reasons, yet some reports have indicated that once a bank reaches $5 billion in assets its efficiency doesn't continue. Perhaps you can respond to that.

Secondly, banking today actually includes a whole lot more than banking. As a matter of fact, you can make the case that banks don't do much traditional banking, as we normally define it. As you move into areas—you've indicated an interest in the insurance sector and auto leasing—where will this new range of services end? I don't suppose it will end. Could you conceivably see the banks getting into offering funeral services, travel services, or other useful services for people through your phone centres, branches, etc.? It may sound like an odd question, but it's actually a serious one.

Lastly, you mention on page two of your presentation, Mr. Flood, the capability of entering into commercial applications through electronic commerce and the revolution e-commerce will create, particularly in your sector and in the whole service sector, for things like travel, the brokerage business and so on. Could you just speculate on what this e-commerce will do to your banks in terms of the services they will be able to provide in the future?

Mr. Al Flood: Let me respond to your first question, where you talk about bigger and better and size. There's been a great debate about the size factor. Today, as we move into the digital and electronic world, size is very vital. If you look south of the border to the Bank of America, or the Citigroup, with Travelers, and if you look at the banks in Switzerland and Europe, in the global market size will be critical because you will see huge investments in technology, huge investments in marketing and advertising, and huge investments in people.

We've already lost people who told us they don't think we're large enough to be sustainable on the global scene. So we're going to have to limit our resources to the size of our company.

Mr. Nelson Riis: Can you think of something specific? By not being as big as some of these large players in the international market, what couldn't you do, or what couldn't you do as well?

Mr. Al Flood: I'll give you an example of a monoline credit card company—three of them have already come into our market here. Because of their size, the amount of money they spend on research and development in technology, and their flexibility in offering their credit cards, we believe they're already operating at a 15% better efficiency rate than we are. They have the economies of scale. They can advertise and send you 25 letters a year, whereas we might only want to send you three or five letters a year. But they're quite willing to make that commitment in investment because they can afford to do it. There are all kinds of examples of that in the marketplace.

We really haven't recognized yet the pervasiveness of the digital economy and the technology and communications, and how that's going to change the competitiveness. Size indeed will be very important. The Citigroup have 100 million customers around the world. When they build systems, they can get the economies of scale and we have to compete against that. If we go head to head with them, we will lose every time. So don't lose sight of that.

The other side is we have tried to be a full-solution provider, whether we're dealing with the consumer or a business. We will come in and provide everything a person needs, and that's our strategy. Whatever you need in the way of insurance coverage, credit card lending, mortgages, investments or financial advice, we would like to provide all of the solutions you require, and it's the same way with corporations. That's our goal. We might not be able to do that if we don't have the platform large enough, so we come back to the economies of scale.

• 1610

When it comes to electronic commerce, I think you will see that the speed from business to business will grow enormously over the next three to five years. We are already putting a purchasing system in our own bank so 85% of our purchases—we spend about $1.5 billion to $2 billion a year—will be done automatically in the future, and that's very efficient. All the bill payments and everything will be done. It will start first of all from business to business and then from business to consumer, and the consumer will have easy access to electronic commerce.

Five or ten years from now, the young people who come in to do business will not do business like we did; it will be quite different. We have to be prepared for them. If we don't have the systems and the capability to look after them we will lose them, and that's vital for us.

What we're building today is a transition. We're keeping the bricks and mortar and making sure we look after the traditional banking as people want to do it. But there's a whole new wave of people coming down the road who want to do it differently, and this will change the face.

Mr. Nelson Riis: Will you comment on the travel agency and the funeral parlour service?

Mr. Al Flood: Strategically, I've always said in our bank we will stay in financial services, so we will do business that's related to financial services. We don't wish to get into other businesses that are not related to financial services. Our joint venture with Hewlett-Packard is providing the base core of operational electronic commerce to our financial services, but it has to be related to financial services. That's where we'd like to be, because we think that's far enough and is as much as we can manage.

Mr. Holger Kluge: Mr. Riis, let me expand on one point. You may ask “Why can't you afford it? You're spending $1.2 billion on technology and you're saying on the other hand you can't afford to spend the money to compete against some of monoline players”. The fact is that 75% of those technology expenditures is for maintaining existing computer systems and only 25% is for new research and development. If you take $1.2 billion, that's $300 million for new research and development. That is spread over 20 or 25 products, so when it comes to credit cards we're lucky if we can spend $15 million to $20 million on them in one year. The monoline players that are only in one business can spend 10 times that amount, therefore we believe we are at a competitive disadvantage.

By merging with another bank like TD, we hope we won't have to spend the same amount on maintenance, and we may be able to spend $500 million or $600 million on R and D. It would give us a better way to compete.

Mr. Nelson Riis: May I have one last question, Mr. Chairman?

The Chairman: You may have one final question and then we'll go to Mr. Brison.

Mr. Nelson Riis: Thanks, Mr. Chairman.

On the issue of insurance, we've obviously heard a lot from the various insurance brokers and insurance agents. We're hearing from them in our own constituencies, and the issue is not so much tied selling as almost coerced selling. If the banks can offer such an array of services, whether it's stated or not, the implication would be that if we do a package deal with the bank we'll get a better rate than if we simply buy insurance from Bob the insurance broker.

How do you respond to that?

Mr. Holger Kluge: I agree fully with you that there is a concern about tied selling and coerced selling. As part of our policy that is certainly not the case, but we shouldn't forget we've been in the insurance business for 25 years and we seldom have a complaint. It's what we call creditor life insurance. For instance, if you buy a mortgage or finance a car with the bank, we offer, if you like, life insurance so in the event of your death the loan would be paid. We have on average right now in our insurance company 2.2 million insurance customers already, both creditor life and property and casualty insurance.

This year we received at the branch level a total of 13 complaints on coerced selling. Only 4 were escalated to the management level and none went to the ombudsman level. I appreciate it is a concern, but we will try to manage it as much as we can. With 2 million customers, only 13 complaints and 4 complaints at one level, I think we're doing a pretty good job.

• 1615

The Chairman: Thank you, Mr. Riis.

Mr. Brison.

Mr. Scott Brison: Thank you, Mr. Chairman, and thank you for your presentation today.

On the concerns raised by some of the other members relative to P and C insurance brokerage in the branches, auto leasing, and concerns raised by the life insurance people, these sectors have been saying the banks' involvement will not improve competition in these sectors; these are already fairly competitive sectors and the consumer won't benefit from the banks' involvement in these sectors. We're being told by these groups—by the brokers, for instance, on the insurance side—this would result in a bank takeover of a viable sector.

I would like to get your response to that. How important is it to your banks to be able to broker these services through your branches?

Mr. Al Flood: Strategically we see the more products we can sell through our branches the more viable those branches will be. Also I would say the consumer is asking for those services.

The MacKay task force looked into that and indicated we would indeed make the insurance industry more competitive if we were in that industry. They argued there was a segment within the insurance industry that was not being well served, and because of our distribution system we would probably reach out to that group.

Second, if you look at automobile leasing in the United States where the banks are allowed to compete with the automobile manufacturers, the cost of a lease is something like $650 a year less than it is in Canada, therefore it is much more competitive. So the fact that the automobile manufacturers here can control 80% to 85% of the market without any bank competition—and by the way, they are owned by Americans—they have a competitive advantage. I don't know of any country in the world that provides foreigners with a competitive advantage over their own people. I find it incredible.

The evidence is there. I think MacKay has shown that automobile leasing is more competitive in the United States because other financial institutions are able to compete against the automobile manufacturers. Here in Canada we have this unique arrangement, if I can call it that, that favours a foreign automobile manufacturer over a Canadian financial services company. I don't understand why there's any debate about it, quite frankly.

Mr. Holger Kluge: On insurance, allow me one example. In the province of Quebec for a number of years the caisses populaires and the National Bank have been allowed to sell insurance. The average cost of a $10,000 life insurance policy in the province of Quebec is $245; in the rest of the country it is $324. So there's proof that if you have more competition in one area, you lower the cost of insurance.

Second, on job losses, I guess a presentation was made to you that a number of brokers in Quebec have lost their jobs. But la Caisse centrale Desjardins du Québec, for example, has tripled their employees to over 1,625 and the net gain has been more rather than less. Some people have closed their brokerages and become employees of the caisse, but overall the consumer has benefited.

The last item is that 17% of low-income Canadians don't have any life insurance at all because the insurance premiums are too low to service that market.

Mr. Scott Brison: One of the interesting areas of the MacKay report—or one of the areas I think is underestimated in terms of its potential impact on the financial services sector—would be the new banks, for instance the broader ownership rules, the capital tax holiday of 10 years, and full access to the payment system. I'd like to get your feedback on this. How quickly do you feel it would take for the implementation of these recommendations to have an impact, if you feel they would have an impact? How soon would we see regional community banks and that sort of thing? I think MacKay is suggesting that with $10 million in capital you could start up a bank.

• 1620

One thing we might do, or one consideration we can look at as a committee, is to perhaps increase the incentives a little further than what MacKay has suggested. For instance, perhaps we could say to these new banks that they could have full, unfettered access to insurance brokerage, and full, unfettered access to auto leasing. Perhaps the larger banks could be prohibited from participating in that. That could be one of the compromises that might be brokered.

I would be interested in your feedback on other suggestions of ways in which we could actually ensure, through provisions or recommendations that we make as a committee, that there is in fact some take-up on this so that we do in fact see a large number of these new banks that are able to provide some of the services in communities at some point in the future, particularly in rural communities in Canada.

Mr. Al Flood: It's a difficult question to answer. As for how fast people will take advantage of it, I think you will see a number of new players come in. I think the MacKay task force has recommended that the existing banks not be allowed to move into auto leasing or insurance until January 1, 2002, so as to give the other suppliers and competitors an opportunity to get started. I think that's probably reasonable, because it would take us awhile to gear up even if we did get into it. It's not something you're going to turn on by flicking a switch. We'd have to do some marketing, and we still have some very powerful competitors in the insurance field. I don't think people are going to move immensely overnight. It's the same with automobile leasing, in which the dealers and others are going to still be pretty active.

The other balance you have to look at—I think MacKay also mentioned this—is the balance between safety and soundness versus innovation and growth, and we've learned from that as well.

This is a very humbling industry to be involved in, by the way. It's a harsh market. When you go through financial cycles and recessions, there are lots of loan losses and lots of other losses that occur.

Mr. Scott Brison:

[Editor's Note: Inaudible] ...and I've been a Conservative since 1993.

Mr. Al Flood: Well, I've been a banker since 1951. It's a business in which you have to be careful. You have to strike a balance between safety and soundness. I think we said to MacKay a year ago that the critical factor is to always maintain that safety and soundness, along with the trust and confidence of the system. With the opening up of the payment system and with the opening up to new players, you don't have to be large to compete, given technology and communications today. That's the great benefit of technology and communication. You can compete against giants by focusing on a specific region or focusing on a specific product, and you can still be a very viable competitor.

Mr. Scott Brison: You don't have to be large to compete.

Mr. Al Flood: That's right. You can be a small niche player. You can have large players, you can have tier one and tier two, and you can have niche players and monoline players. That's what I think you're going to see in our industry, and that's why our industry is going to look so different five years from now compared to how it did five years ago.

Mr. Scott Brison: This argument that, through technologies, you don't have have to be as large to compete is a little inconsistent with the argument for mergers, in a sense.

Mr. Al Flood: It depends on what strategy you want to follow and what market you want to play in. If you want to play in big markets, then you had better be large. If you're going to compete with Bank of America, Citigroup and some of those players in the world, then you had better have the platform to compete. If you want to compete as a community bank, such as those they have in the United States... And then you have the growth of the credit unions. They have done very well in many parts of the country, and I understand they're mobilizing their forces and will be even stronger.

I think we're going to have a different competitive landscape, and that's what we're proposing. I think that's opening it up, and that's what MacKay is proposing. I would encourage the committee to look at that, because I think that's the vision.

Mr. Holger Kluge: What Mr. Flood is saying about technology is that we could help some of these small banks to clear their cheques, to use our ATMs, to use the infrastructure we have as a national bank. They can use it as a community bank. We can work together so that they don't have to make those investments.

The Chairman: Thank you.

Mr. Valeri.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman.

Mr. Kluge, I think in response to Mr. Riis you mentioned the example of the caisse and how life insurance in Quebec is actually less in terms of premiums when you compare it to other parts of the country. As a committee, we've been told that CIBC was certainly at the bottom of the market in terms of the price of its insurance when it first entered the market, but we were also told that it's now in the middle of the pack. I just wonder how that argument squares with what you said earlier.

• 1625

Mr. Holger Kluge: I gave you the example of the caisse. That is fact, and I think one can check the life insurance premiums that they pay on a $10,000 term policy. From CIBC's point of view, our pricing continues to be in the bottom third. From that point of view, we are in the best pricing range, among the top 25% or 30% of the market. Naturally, there are certain risks with higher-risk insurers, but I think we continue to show we can be competitive in the market.

Mr. Tony Valeri: Not necessarily the cheapest, but competitive.

Mr. Holger Kluge: Not necessarily, depending on—

Mr. Tony Valeri: With the caisse example, I just got the impression that you'd be at the bottom of the pack.

Mr. Holger Kluge: But I think it's a good example that shows it can be done.

Mr. Tony Valeri: I think part of my question was answered, Mr. Flood, but I just wonder if I could get your reaction to something. Earlier this year, Michael Porter, from Harvard, talked to us on the subject of banking and said something about scale. He said he was skeptical on scale because there is increasing evidence that you don't need as much scale as compared to ten to twenty years ago in order to be efficient. We've learned about outsourcing, so efficiency gains are not really an issue even in the technology sector. Yet your argument today was really based on the need to combine resources and to grow in order to invest in technology and take advantage of efficiencies.

How do you react to Mr. Porter's comment?

Mr. Al Flood: You have to keep in mind that Mr. Porter is an American. He is looking at the size of the companies that are in the U.S. marketplace. If you look at the market capital of Bank of America or Citigroup today, they have a market cap larger than that of all of the Canadian banks combined. We have to look at ourselves in a much smaller... We're in a small country with a 65¢ dollar. When you put the CIBC and the TD together, we're still about a fifth the size of Bank of America or Citigroup as far as market cap is concerned, so that's what we're competing against. Again, you can look to other competitors in the United States, such as Wells Fargo, Bank One, Key Corp., Mellon, Bank of Boston, and many others. Those are examples of the size of company that we'd be competing with.

Mr. Tony Valeri: So you don't necessarily disagree with his statement, it's just that CIBC and TD combined are perhaps really not as big as what Mr. Porter's talking about.

Mr. Al Flood: That's right.

Mr. Tony Valeri: Okay.

With respect to the actual mergers themselves, I am assuming you agree that the informal doctrine that big shall not buy big should be abandoned. Do you see any exceptions to that?

Mr. Al Flood: In our submission to the MacKay task force a year ago, we proposed that the 10% ownership rule be eliminated and that the minister be given the discretion. MacKay is now recommending that the ownership be moved up to a 20% barrier, and even then with some exceptions. I think that's appropriate, given what they're recommending.

What was in our minds too—and we had a great debate about this—was that a country must maintain control of its banking system. If we went out today and wanted to buy one of the major clearing banks in the United Kingdom, or if we had the wherewithal to buy one of the major banks in America, I don't think we'd be allowed to. The rules might not even be written, but I think the issue of the sovereignty of America or Germany or Japan or the United Kingdom would make sure that they maintain control over their key major banks.

I think that's what Canada should do as well. It should make sure there's sufficient discretion at the government level to allow our government, from a public policy standpoint and over a long period of time, to maintain control so that we have a Canadian banking system. To me, that's the choice, and this committee has the ability to recommend that. The other choice is to become a branch plant, to admit that Canada isn't large enough to compete on the world stage and, therefore, to eventually allow the banks to become branch plants.

Mr. Tony Valeri: So even though you recommended the elimination of the 10% rule, my sense now is that you would be supportive of what MacKay is proposing, because he has maintained that 10% rule over $5 billion.

Mr. Al Flood: Well, he would take it to 20%, so I think we're not very far apart. The task force hasn't gone that far from where we were. And I must admit, we wrestled a long time internally with that particular issue.

• 1630

Mr. Tony Valeri: The other issue—and you talked about it—is the competition that's out there now with the monolines, and the GE Capitals, and credit cards and that, yet this committee has heard...and as parliamentarians we often hear from constituents that their fear is that the competition won't be there in the core banking services. How do you respond to that?

That's really what the debate is about, at the constituency level anyway. Everyone wants to have choice. Certainly there's competition in mutual funds and in credit cards, but it's the core banking services, and I think the members opposite were alluding to that earlier in their line of questioning.

In your mind, how do you see the future, and how do you see that future ensuring that there's competition, not only in the monolines but in the core banking services that Canadians are so accustomed to?

Mr. Al Flood: I think that's critical, and I think you've hit right on it. If we open up the payment system to allow insurance companies, mutual fund companies and other money market operators, and new start-ups within Canada, as well as lowering the barriers to foreign entry, I think you're going to see the competition. It's going to be there. Whether it's going to be in every community or not is the other question. But we will be in those communities—certainly we and at least one other major supplier—and we expect there's a couple of others. There are still some very important competitors out there—the National Bank, the Bank of Nova Scotia, Canada Trust, as well as the credit unions.

So I think you're going to see that those core banking transactional accounts are going to be there in the various communities, not only through the major companies that we're proposing, such as us and the other groups, but also through community banks and credit unions, and all of those. This might take a little time to evolve, but I think you'll see it.

Mr. Tony Valeri: Do you really believe that foreign banks will come in and compete for core banking services?

Mr. Al Flood: They are, in one way or another. If you look at ING today—

Mr. Tony Valeri: The Hongkong Bank is here.

Mr. Al Flood: The Hongkong Bank and ING are here, and I think you'll see Citibank and Bank of America.

Once they've completed their mergers and settled down in the United States, it's easy to cross a border into Canada, and move into Mexico and into the western hemisphere. That's what we're basing our strategies on. As we move out into the next couple of decades, we're anticipating that we're going to have a lot more competition.

Mr. Tony Valeri: So you're anticipating that foreign banks would come in and compete for core banking services, and that builds part of your strategy and your response to future competitors.

Mr. Al Flood: They will come in and go after our very best customers. They might not go into every community and go down-market as much as one might anticipate, but they will come in and attack us with our best accounts.

Mr. Holger Kluge: Mr. Valeri, the big difference from 10 years ago was that foreign banks did not establish branches, because there were barriers of entry. It's very costly to build 1,400 branches like CIBC has across the country. Technology now enables you, as ING has done, to have a data centre and reach customers through telephone banking, ATM banking, and PC banking. You don't have to build the infrastructure that we have built.

I'll tell you, Citibank is building the largest direct bank in the world. They want to have a billion customers around the world. These include many Canadians. But it's not in the traditional way; it's through the new electronic way that they want to reach these customers.

Mr. Tony Valeri: I have one final question.

As we were touring these past couple of weeks, starting in Vancouver, I think it was in Saskatoon that a number of witnesses came forward—and actually a couple came forward, each from a different perspective. It had to do with the position that MacKay had taken with respect to legal undertaking as part of the merger review process.

On one hand, individuals said legal undertaking should be enforced in terms of the merger; and then other individuals said there's no place for legal undertaking and there's no way you can enforce these things. What's your position on that?

Mr. Al Flood: I'll go back to your previous question for a second.

One area we haven't talked about in other delivery is Loblaws and all the supermarkets and what not. That's another banking access that people are going to have.

But coming back to your undertakings, I think if we get into a merger agreement, we will have to make certain undertakings, but what we have to be careful of is guarantees. We can only guarantee certain things if we have the revenue stream, and I don't know whether we're going to have the revenue stream, because of the competitive factors. Also, there are economic and financial cycles. But I think there are some undertakings when we enter into an agreement such that we will have to take those legal undertakings and live up to them.

• 1635

Mr. Tony Valeri: You don't dispute that aspect of Mr. MacKay's report?

Mr. Al Flood: No. My only view on that would be that I would prefer to see it remain in the civil courts rather than the criminal courts. That's only a personal view.

The Chairman: Thank you, Mr. Valeri. Ms. Leung.

Ms. Sophia Leung: Thank you, Mr. Chair.

Mr. Flood, thank you for your kind presentation. We heard you present a very strong and of course positive picture for the merger; however, we do hear many others who oppose that. I want to ask you a few questions on that.

First, there are concerns and a great deal of fear and uncertainty, especially in the rural areas, that perhaps once the merger occurs they will totally lose services. That's a very realistic concern.

Second, from a humanistic point of view, there's also a great deal of fear about job losses. You did talk about advanced technology, productivity, etc. I'm sure a lot of machines will replace human productivity.

Would you like to comment on the two parts?

Mr. Al Flood: Those are two sensitive areas. One is the rural service and the jobs. Charlie Baillie and I have both said that we will be very sensitive to the rural areas. Where we have a branch and we're the only branch in town, we will not close it. We will, at the very least, work out some type of arrangement for the banking services. We'll be very sensitive to that particular community. We'll make undertakings to that effect.

Going back to the previous question, we would see that as part of some of the undertakings we would probably be faced with, and we will commit to that.

Insofar as jobs are concerned, we recognize that in the early stages there will be some job redundancy. Our goal is to manage that through attrition, if at all possible. We have said we are confident that five years from now the new CIBC will employ more people than the combined operations would in the normal course. But we recognize that we could very well go through some cycles here.

The other side of that is when we talk about competition. I'm not sure how many of the new competitors are going to take away some of our people. When we look at this as a group, we should look at the whole industry and say, is this a growth industry and are there going to be more jobs created that are good, knowledge-based jobs? We're convinced that's the case.

I can't sit here tonight and guarantee you that they're all going to be working for CIBC. They might be working for foreign concerns, credit unions, or start-ups, but I think the growth in the industry is there. There are more demands for the financial services industry.

All I'm going to try to do with our team—that's me and Charlie Baillie—is try to have the best competitor in the marketplace, generate the most revenue, and employ the most people. As for whether we can do that or not, we're going to be driven by the markets, competition, and opportunities. Our goal is to do this through attrition and be as sensitive to employment as we can.

Mr. Holger Kluge: Maybe I can add a live example. This year we spent $130 million in the Greater Toronto area to redesign our branches and be more advice-focused. As a result of that, a lot of the back office functions were removed. There were 650 people displaced. We were able to redeploy more than 85% of them through being either in telephone banking, electronic banking, or insurance, because actually a lot of our people who know banking can do any of these functions well with proper training.

So with redeployment, we will try to do as best as is possible. The biggest challenge will be in the rural areas, because somebody may not want to move to a larger urban area to be redeployed. But we will try as best we can through training to help people gain new skills.

The Chairman: Thank you, Ms. Leung.

I have one final comment here before we wrap up. I was reading your last page, which is page five, when you said:

...and work together to build a financial services system that truly meets the best needs of Canada and the Canadian consumer. No single institution will come out a total winner in this process. The only total winner will be the consumer—and that's the way it should be.

Should this be the consumer's round?

• 1640

Mr. Al Flood: I think what you have to get through here is that there are lots of vested interests, there are lots of special interest groups, including the banks, and so I think the benefit of MacKay, and I think the benefit of your committee, is that if you can look at this from the eyes of the customer, whether it's the consumer or business, and look at it in its holistic way, I think we'll end up with a better system for Canada. That's where I was coming from today, at a very high level... And let's not cherry-pick these recommendations that MacKay has made, but let's look at it in a package. Let's look at it through the eyes of the consumer.

We did that too when we looked at our submission to MacKay a year ago. We said consumer choice and Canadian ownership, when we brushed everything else aside, whether it's safety and soundness or who's going to grow and who's not going to grow... If you look at it from the consumer and the Canadian ownership perspective, I think you're on a solid foundation.

The Chairman: So you believe, as I do, that this should be the consumer's round?

Mr. Al Flood: Yes.

The Chairman: On behalf of the committee, I'd like to certainly thank you for your presentation.

I really enjoyed this presentation, particularly because, quite frankly, it didn't focus on the mergers. It spoke about the elements and the forces of change that are here already and having a great impact on the financial services sector. So in many ways you have helped us try to define what the future of the financial services sector is going to look like, and for that I'm very grateful.

On behalf of the committee, once again, Mr. Kluge, Mr. Flood, thank you very much.

We're going to suspend for five minutes.

• 1642

• 1651

The Acting Chair (Sophia Leung): In accordance with its mandate under Standing Orders 108(2) and 83.1, the committee resumes its pre-budget consultation process.

I want to welcome our witnesses, Mr. Pierre Beauchamp and Mr. Gregory Klump.

Each of you can have a five-minute presentation, and we'll go over your written material. After that, we will have an open discussion with our MPs.

Mr. Beauchamp, would you like to start?

Mr. Pierre Beauchamp (Chief Executive Officer, Canadian Real Estate Association): Thank you very much, Madam Chair. We have provided copies of our detailed written submission in both official languages. Therefore, what I propose to do is just take a few minutes to give you some context and to draw your attention to some of the main highlights.

I have had the opportunity to discuss a variety of issues with you on several occasions over the last couple of years. I think you know the Canadian Real Estate Association represents some 70,000 realtors in Canada, the vast majority of whom are residential brokers, agents, or sales people. Within that membership is a division of about 7,000 specialists in industrial, commercial, and investment properties.

The first part of our submission addresses debt, spending, and taxation issues. Our first contribution on debt and spending was a research paper that was published in 1984. This was a blueprint for eliminating the deficit and reducing the national debt by cutting spending. Ten years later, Finance Minister Martin adopted plans that were very close indeed to the ones we had offered back then.

Our motivation then and now is a belief that the greatest contribution the federal government can make to housing and real estate is to get the fundamentals right. If government maintains sound basic policies, we believe the industry can do the rest.

In 1984 a $32-billion deficit and out-of-control spending were barriers that greatly reduced the government's capacity to give us the right fundamentals. Today, the books are balanced and spending has been reduced, but the growing national debt now stands as the barrier that reduces the government's capacity to control those fundamentals.

Last year we welcomed the minister's commitment to give priority to reducing the debt as a percentage of GDP. We believe the debt repayment plan introduced in last year's budget needs to be more aggressive in paying down the debt in absolute terms. The current plan relies on a contingency reserve of $3 billion to reduce the debt, but the reserve is only available if the economy outperforms the government's prudent projections. Failing to pay down the debt during periods of growth is squandering an opportunity that won't be available during downturns in the business cycle. We all know the warning signs of a downturn are already evident.

• 1655

Just as credit cards have a minimum payment against accumulated balances, the debt should trigger a minimum annual payment. We favour clear debt reduction targets to be set and met every two years. These would be modelled on the government's highly successful deficit reduction strategy. As well, our submission proposes the interest on any employment insurance surplus be used to pay down the debt.

We're pleased the minister has made clear that current global economic uncertainty makes this the wrong time to undertake major spending programs.

In our view, the minister is correct to focus on the health care system as the top priority for any marginal increase in spending. We urge the committee to lend its weight to resisting increased spending as government's revenues improve until the debt is substantially reduced in absolute terms and global economic stability is restored.

Madam Chair, our submission contains some significant research on the impact of current federal taxation across the spectrum of incomes. The chart on page 8 of our submission shows the net taxation of filers earning less than $60,000 has fallen. This is not surprising, given the minister's priority of providing relief to low- and middle-income Canadians. However, the chart also shows net federal taxation has grown every year since 1992 for those earning more than $60,000. It is significant that the tax burden has been growing for the income bracket most closely associated with the brain drain phenomenon in Canada.

To achieve its stated goal of slowing or even stopping the brain drain, the government is going to have to cut taxes for those making more than $60,000. Unfortunately, current global uncertainty really rules out any major general tax relief at this time. Still, one small but symbolic measure should be implemented. The 1998 budget scrapped the general surtax for taxpayers earning up to about $50,000. We believe, Madam Chair, the time has come to scrap the surtax for all Canadians.

We are proposing a cap be placed on the employment insurance surplus at a level that would allow for stable premiums over the business cycle. As I mentioned earlier, interest earned on the EI surplus should be used exclusively to reduce the debt and to reduce premiums to break-even levels. This would help lighten the burden on small business profitability.

Madam Chair, I'm pleased to report the homebuyer's plan continues to be highly popular with first-time buyers. The latest data we have obtained from Revenue Canada show more than 728,000 users have invested more than $7 billion in homes. The data also suggest that 93% of users are repaying their RRSPs as required, in instalments over a 15-year period. This plan continues to be of enormous economic as well as social benefit.

When we last met, I was arguing against the seniors benefit. We are of course pleased the government has listened and made the correct decision, which was to drop this particular proposal. The Canadian Real Estate Association's original concern was to protect RRSPs as a retirement savings vehicle for many realtors who depend on them. We have now returned to that issue in partnership with other associations and pension experts in the Retirement Income Coalition.

You will be hearing from the coalition on November 10, Madam Chair, and I would urge you and the committee to support the coalition's two primary recommendations, which will deal with raising contribution limits of RRSPs to provide stability and certainty for RRSP users, and raising the 20% limit on foreign property held by RRSPs and pension plans in increments until it reaches 30%.

• 1700

By the way, we have produced, as we did last time we met, an MLS housing market analysis, which is attached to our proposal and provides you with the existing status of housing in Canada. Interestingly enough, it will give you very solid information about some of the larger markets, from Vancouver to Calgary to Toronto to Montreal.

I can't close without putting in another plug for improved disclosure of mortgage prepayment rights and terms. This issue seems to have taken a back seat to the government's efforts to regulate better disclosure of the cost of credit. No doubt that issue deserves the priority it's getting, but we hope the committee will share our view that it's high time we saw at least draft regulations on both of these subjects.

At this point, I wish to thank you for allowing us to appear before you today, and we are now open to questions.

The Acting Chair (Ms. Sophia Leung): Thank you, Mr. Beauchamp.

Mr. Ritz, would you like to start?

Mr. Gerry Ritz (Battlefords—Lloydminster, Ref.): Thank you, Madam Chair, and thank you, gentlemen, for your time and presentation here today. I have two points on your presentation.

Under the RRSP, you're talking in terms of raising the limits. We're seeing that people are not using the full amount that they can use at this time. To what extent would you raise them, and so on?

In regard to opening up the foreign content rule in your RRSP, given the volatility that's out there in the world economies, is that a good idea?

Can you expand on those two thoughts?

Mr. Pierre Beauchamp: As a very brief comment in response, those two points will be fully developed by the Retirement Income Coalition when they appear before you in the month of November. I would simply suggest at this stage that they will present you with full supporting data that will, in part, demonstrate experience in other countries and will make the point why Canadians should have more liberal treatment with respect to RRSPs, as well as with the foreign question that will be raised by them.

Mr. Gerry Ritz: Thank you. I'll look forward to that.

The Acting Chair (Ms. Sophia Leung): Thank you.

Next is Mr. Rocheleau.

[Translation]

Mr. Yves Rocheleau (Trois-Rivières, BQ): Mr. Beauchamp, I would like you to tell us more about your desire to see consumers have the opportunity to reimburse their mortgages quickly, or at least more quickly. What would be the advantages? Why did you raise that point? What would be the impact of such a measure and what changes would be necessary to implement them?

Mr. Pierre Beauchamp: Very simply put, right now, the general public does not have the means to truly understand the advantages and disadvantages there are in accelerating the reimbursement of a mortgage, when they have to make that decision. We're simply asking that this information be disclosed. We're asking lenders to clearly explain their position at the point where the consumer signs a mortgage contract, and to explain whether or not early reimbursement is possible and at what cost. It's as simple as that.

At one point, there was an attempt to change the law. Now, it is my understanding that the finance committee, this very committee, has agreed that the regulation be changed and asked us to contribute actively, together with the departmental staff, to the drafting of the regulation that would impose more complete disclosure of information to the consumer.

Mr. Yves Rocheleau: Do you mean that the lender would have to be more transparent or more pedagogical in his approach and explain what impact this will have on his portfolio?

Mr. Pierre Beauchamp: Exactly. First of all, he must explain whether the consumer has the right to make early repayments, and secondly at what cost. That way, the consumer would have the information at the time that he makes a commitment by contract and not when he's faced with a major problem, two or three years after having signed the contract. It's a simple matter of information.

Mr. Yves Rocheleau: Does that mean that right now, the consumer is not encouraged in any way to reimburse faster, and therefore save on interest?

Mr. Pierre Beauchamp: It's not a matter of reimbursing faster first and foremost. Very often, certain consumers want to pay off their mortgage before maturity for all kinds of reasons. We're asking that in those cases, all the lenders, and not only... As you know, most of the major banks in Canada do afford this privilege to consumers, but at variable rates, and there is no obligation to disclose in advance what the conditions are or even whether this will really be allowed when the consumer requests it. All we want is for all lenders to have the same obligation at the point where the mortgage contract is signed.

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We have undertaken this after having been informed of the situation that exists in Canada, on the national level, by real estate agents. Right now, consumers don't all have equal access to this privilege.

Mr. Yves Rocheleau: Do I have time for another question?

[English]

The Acting Chair (Ms. Sophia Leung): Sure, go ahead.

[Translation]

Mr. Yves Rocheleau: Mr. Beauchamp, I would like to hear your opinion about the utilization of employment insurance surpluses. You are aware of the hypothesis under which the federal government would decree a general tax cut following a reduction of its deficit and the surpluses that might eventually result from that. This hypothesis would be preferred to another that consists in reducing employment insurance premiums or redesigning certain programs. You know what I'm talking about; there is a preference for favouring people who have never contributed to employment insurance and have them benefit from the improved financial outlook. What is your position regarding a general tax cut?

Mr. Pierre Beauchamp: I will ask my colleague, Mr. Klump, to answer.

[English]

Mr. Gregory Klump (Senior Economist, Canadian Real Estate Association): Thank you.

In terms of it being a choice of one or the other, it actually can be both. According to a confidential memorandum by Human Resources Development Canada's actuarial services department, the premiums that are currently in place are over and above what's necessary to keep premiums stable over the entire business cycle. So you can have a reduction and still keep premiums stable. True, that won't generate as big a surplus; however, with the accumulated surplus that's there already, you will continue to add to it.

We're proposing and we advocate that the interest earned on the account be split, half to the contingency fund to pay down the debt and half to be used for tax relief.

The Acting Chair (Ms. Sophia Leung): Thank you.

Mr. George Proud.

Mr. George Proud (Hillsborough, Lib.): To continue on that, I guess the assumptions are that this great surplus is there. There probably isn't one. But I too would agree with your recommendations that there be a broad, across-the-board tax break for Canadians.

Mr. Beauchamp, you mentioned the people above $60,000, which sounds like a lot of money today, but in reality it's the middle class. These people have not had a tax break for as long as I can remember. I think that is a way that would be acceptable to most Canadians.

Yes, I think the premiums on the EI have to come down some, and they have come down some each year in the last five years. I think we have to continue to do that.

I really believe, as you people are saying, that we have to lower the taxes for these middle-income earners.

Mr. Pierre Beauchamp: In light of the fact that the government has seen fit to take away the surtax on income groups below $50,000, we're simply suggesting that the same policy be applied to individuals whose income is over $60,000. We look at that as being a very modest change. It's not a huge change. It wouldn't cost the government that much money, but it certainly would be a gesture of good faith when we consider that that particular group of Canadians has seen their taxes increase substantially in the last few years. We're not advocating huge...

Mr. George Proud: The other thing you mentioned was the prepayment of mortgages. Maybe you said this and I missed it, but what do you consider to be a fair amount that the lenders would have to come up with. I have a lot of concern about this. People come to my office and talk about prepaying their mortgage and having to pay this penalty. What do you people consider would be a fair formula?

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Mr. Pierre Beauchamp: We have discussed this at length with the Canadian Bankers Association. As you well know, most of the large banks in Canada—well, in fact all of them—allow the consumer to pay down their mortgage. The problem is that not all lenders in Canada are required to do that. To our knowledge, none of them actually come out with the formula they're going to use to advise the consumer of the penalties at the time they sign the mortgage.

We are not trying to set a penalty to which all lenders would have to adhere. That is not the business we're in. We believe, however, that disclosure is a critical element for the consumer in the prepayment of mortgages.

The Acting Chair (Ms. Sophia Leung): Thank you.

Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Madam Chair. I'll just keep moving along with what George started, the 3% surtax. You've stated here that you would like to see it abolished for all Canadians. You said it wouldn't cost that much, but if we totally eliminated the 3% surtax, it would cost the federal coffer $1 billion a year. You don't consider that a lot of money?

Mr. Pierre Beauchamp: It is a lot of money. There's absolutely no question that $1 billion is a lot of money, but the interest that would be generated by the EI fund is even more than that, and we're suggesting that there's a balance there between the two. There's no new money involved if you end up generating that kind of money.

Would you like to add to that?

Mr. Gregory Klump: Yes, thank you.

In the last budget, what was at the time it was introduced a temporary measure to eliminate the deficit was eliminated for those making $50,000 or less, and that was at a cost of more than $1 billion. Just rough meatball calculations put the figure at less than $1 billion for all Canadians. They said last year's budget began the process of general tax relief, and we're saying that general tax relief is for all Canadians, not just for those making $50,000 or less. Now with the deficit eliminated, it makes sense to eliminate what is a temporary measure. Of course, income tax was a temporary measure too.

Mr. Murray Calder: That's right, and that happened during the war.

The question that begs to be asked then is, would you give me your definition of what general tax relief actually is?

Mr. Gregory Klump: Lower taxes for all Canadians.

Mr. Murray Calder: Right across the board. We have to be very careful as a federal government when we do this, because if you put personal income taxes, for instance, into general tax relief, you're working with the ad valorem tax system at that point in time, whereas the provinces basically piggyback on the tax system we have by 50%. For instance, if we came up with a personal income tax break for Canadians of $500 apiece, then the province immediately would lose $250 worth of revenue. The taxpayer would be very happy because he's going to have $750 in his pocket, but it would be much harder for the provinces to balance their budgets, because we've just shorted them. In Ontario, for instance, we've shorted them by $250.

So you have to be careful when you make a blanket statement like that. I'd like your comments on that.

Mr. Gregory Klump: Well, there are means other than lowering the actual federal tax rate, such as the allowable deductions—for example, child care expenses that those earning $60,000 and above do not take advantage of. There are other things that they may be able to take advantage of, such as increasing the RRSP contributions, for example. So there are other ways of looking at how to talk to assessed and taxable income without actually looking at the rate levied.

Mr. Murray Calder: Okay.

Pierre, you made a statement here about the growing national debt. In the last budget we balanced the books. In fact, we came up with a surplus of about $3.5 billion, which was directly put towards national debt reduction. In fact, when we took office the accumulated public debt was heading towards $600 billion. It is now sitting at $579.7 billion. And I'm wondering how you can make that statement about a growing national debt.

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Mr. Gregory Klump: In the last budget, the best it was looking at doing was holding the line on the debt. If you take a look at the tables that were contained in the budget document, it became clear that during a period of economic growth what was being envisioned was holding the line on the debt and having a contingency fund that, should the things play out the way it was hoped, would be used to be part of the debt repayment plan. If things did not occur the way it was hoped and they needed that contingency fund to meet their budget projections, then there would be no money to pay down the debt. And what we're saying is that the debt has to be pared down more aggressively and the contingency fund boosted, because the best that can happen is that the line is held in a period of economic growth, and that's a squandered opportunity.

Mr. Murray Calder: I agree with you in that instance. I had a chance about three months ago to cross-examine Gordon Thiessen on that same issue, the matter of where we should have the accumulated public debt, whether it should be at $400 billion, $300 billion, $200 billion, $100 billion or where, and quite frankly, he didn't have an answer as to what the figure should be.

Currently, we have our currency problems with the United States because our accumulated public debt versus GDP is around 71%, versus the United States at 49.6%. And obviously anybody who's working with the international money markets is going to take a look at that and is going to invest in the U.S. dollar because they figure it's a safer haven. But the other side of the coin is that since we balanced our books our economy probably this year will finish off at 3% growth, and I would imagine for 1999 and the year 2000 we're probably looking at 2% to 2.5%. We're no longer adding to the pile, we're actually decreasing the pile. With the debt servicing that's incorporated within the budget plus the growth of the economy, it could be by as much as 5% each year that we're moving those two apart.

By my math, in four to five years we'll be very close to where we are with the United States. That shows on a percentage, and it may not be an actual figure as to what we actually owe. But what international investors are looking at is basically the percentage. I'd like your comment on that.

Mr. Gregory Klump: We applaud the progress that's being made on the debt-to-GDP ratio. Our viewpoint on it is that it's relying too much on growth to pare the debt-to-GDP ratio, that better progress can be made by attacking the debt. Having growth certainly does its contribution to lowering the ratio, but as it stands we think one of the things that can be done is more aggressive paydown of the debt to improve that ratio more quickly, especially during a period of economic growth.

Mr. Murray Calder: Actually, what you had stated before—that whatever surplus we had, 50% should be used to pay down the debt and the other 50% should be used for tax reduction—is pretty close to what we campaigned on in 1997. The only thing is that what we said was 50% would be going into program spending and the other 50% was going to be split in half, with 25% going to debt reduction and 25% going to specific tax cuts. So we're pretty close here.

The Acting Chair (Ms. Sophia Leung): Thank you, Mr. Calder.

Mr. Paul Steckle.

Mr. Paul Steckle (Huron—Bruce, Lib.): To continue on that line of thinking, Mr. Klump, you just indicated what I'd been saying for a long time. You're in the housing business; mortgages are real facts of life for most people and ultimately you have to pay the mortgage down. It doesn't matter how much money you make relative to what the mortgage is; ultimately you have to pay the mortgage down. And I think that's where we stand as a government. There are those who share the view that if the economy grows as a percentage of that GDP your debt becomes smaller. But in reality, it doesn't. You have to pay it down. And I applaud you.

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With regard to the way you view that, are you receiving wide, applauded support for that view? What kind of support are you finding, or don't you really know? In terms of paying down, if there is a dividend... I don't believe we have any surpluses, and basically whether we have a dividend or a deficit there in the EI fund, the Government of Canada will always be responsible for those people in Canada who share in that fund, whether we have one or the other, because we've been in a deficit position for so long. I'm just wondering if you're finding that a lot of people share your view that we ought to pay down the debt more quickly in real terms, rather than giving back part of the dividend.

Mr. Pierre Beauchamp: People want the debt to disappear. It has made a huge impact on Canadians, not just on realtors, in the last decade, and finally we've seen some really encouraging signs. So that to me has been the key direction of most of our members and, indeed, of the other associations we speak with, and it probably echoes many of the positions that have been given at this very table in the last month.

Mr. Paul Steckle: The other thing I want to touch on for a moment is foreign investment in RRSPs. Your view is that we ought to escalate from 20% to 30% with 2% increments. What logical rationale are you using to come to that conclusion? How are we helping Canada by investing in foreign investment when in fact we're deferring taxes here in the process?

Mr. Pierre Beauchamp: I think the idea is not just the foreign investment; it's simply to liberalize the policies that exist in Canada, particularly when we compare them to policies that exist in the United States and the United Kingdom, which policies, as you well know, are much more open than ours. I would defer, however, to a full presentation by the Retirement Income Coalition, and we're a member of that, when they come and visit you in November. They will expand a lot on the comments we have made in our paper on that subject.

Mr. Paul Steckle: The final question is on another matter, that is, the GST. Is the rebate on new homes versus the resale of other homes still an issue for you people, or is it not an issue any more?

Mr. Pierre Beauchamp: It's not an issue.

The Acting Chair (Ms. Sophia Leung): Thank you, Paul.

Mr. Lincoln, would you like to ask any questions?

Mr. Clifford Lincoln (Lac-Saint-Louis, Lib.): No.

The Acting Chair (Ms Sophia Leung): I just want to make a comment. During the last two weeks this committee travelled east and west, and we heard many concerns and wishes. It's interesting you mention paying down the debt, which a lot of people asked us to do, and there are also tax cuts. Another very important area is social programs, which cover health and education. You have not mentioned that. If we do concentrate on the first two items and we do have a tax cut, if each person were to save $600, it would cost us $9 billion that we don't have. I'm sure we're all concerned about health care, and universal health care is the pride and joy of Canadians. I have not heard you mention that.

Mr. Pierre Beauchamp: The detailed paper we have presented makes reference to the fact that we are quite aware this is not a good time to spend, but if there's going to be spending, I believe we do identify health as being a concern that should be addressed by the government.

The Acting Chair (Ms. Sophia Leung): So you feel that's very high on your list of priorities.

Mr. Pierre Beauchamp: That's right. We have said that if there were small amounts available, that would be one area that should be considered very seriously. We support many others in that particular respect, and I believe our paper identifies health specifically if marginal amounts are available, in addition to the other comments we have made.

The Acting Chair (Ms. Sophia Leung): That's good.

In Saskatoon, I believe, the witnesses urged us to provide home care and pharmacare, and they asked for $2.5 billion. Of course, we have to consider which ones are more important. I just wanted to share that.

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Today we had a very good presentation on post-secondary education. We all know that involves a big price tag, and we are very concerned about the brain drain occurring in our country. So there I just added one more item, and that is education.

I just wanted to get some feedback. I'm not going to begin to mention all the other things. So there are health care and education.

Mr. Pierre Beauchamp: Again, understanding there is a limited amount of money the government has to spend, we have suggested in our paper that in order to deal with the brain drain, we treat Canadians who are earning over $60,000 the same way we did the others, by doing away with the surtax. We feel that's one way that wouldn't cost too much money and that would at least give a signal in the right direction, that we want them to stay in Canada. So we have looked at it from that perspective. But in concept we obviously are in agreement.

The Acting Chair (Ms. Sophia Leung): Thank you.

Are there any other comments?

I want to take this opportunity to thank you both for coming and talking to us. You have given us some very good suggestions and recommendations. We will definitely look them over, and the committee will review your suggestions. Thank you very much.

Mr. Pierre Beauchamp: Thank you very much.

The Acting Chair (Ms. Sophia Leung): The meeting is adjourned.