FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, November 16, 1998

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[English]

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

As you know, our first presentation will be from Canada Post in relation to the MacKay report. We have with us the chairman, Mr. André Ouellet, Mr. Philippe Lemay, senior vice-president, electronic products and services, and Mr. Michel Tremblay, vice-president, retail business.

Mr. Ouellet, as you know, you have approximately 10 to 15 minutes to make your presentation. Thereafter, we will engage in a question and answer session. Welcome.

[Translation]

Mr. André Ouellet (President, Canada Post Corporation): Mr. Chairman, thank you for hearing us this morning. I would like to tell you that Canada Post Corporation read the Report of the Task Force on the Future of Canadian Financial Services Sector with interest. Our attention focused particularly on the recommendations designed to strengthen competition in this field and, especially, to increase the power of consumers.

Some of you may recall that Canada Post, at the time when it was still a department of the Canadian government, took bank deposits through its network of small postal offices spread across the country. Since the beginning of Canada, Canada Post played a role in the financial sector.

Over the years, with greater competition and participation by the banks in all regions of the country, the government came to the conclusion that the presence of Canada Post was less necessary, particularly in the rural areas, and that the banks were sufficiently meeting consumers' needs. Therefore, over the years Canada Post has progressively and completely withdrawn this service which it offered to the public.

This leads me to say that, in view of the current debate and the possibility that Canadian banking institutions may in a relatively short time disappear in many small towns or areas of Canada, that we have come to reconsider the role that Canada Post might play, on the basis of the role that we played in this area a number of years ago.

The fact that post offices provide banking service is not, in itself, unique. As you know, in a number of countries around the world, post offices also assume the role of financial institutions. Therefore, we asked our Vice-President, Mr. Tremblay, who is responsible for our retails sales, to conduct a preliminary study to see how Canada Post might react in view of the changes that are presently taking place in Canada.

We would like to share our thoughts on this subject with you. We have not made any decisions, but we would like to tell you that we have thought about the issue. We are examining different possibilities and we would like to share these ideas with the members of the committee, Mr. Chairman. With your permission, I shall ask Mr. Tremblay to give you a short review of the research that we have carried out in the past few weeks.

The Chairman: Mr. Tremblay.

[English]

Mr. Michel Tremblay (Vice-President, Retail Business, Canada Post Corporation): Good morning, Mr. Chairman and members of Parliament.

Canada Post's commitment to retaining its network of more than 8,000 outlets, combined with less revenue from sales of postal products, imposes a cost and revenue imbalance that can only be resolved by offering additional services. Consumers are willing to use the post office for their basic financial transactions. The trust that citizens place in their post office is a valuable asset in moving to offer new services. The Australian model, where the post office represents more than 10 banks, provides a useful example.

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Offering financial services through the post office is a well-tested proposition. Canada Post has discussed the current practices with postal administrations in Great Britain, France, and Australia. Canada Post currently estimates that there are 2,700 municipalities with a postal outlet and no financial institution. There are in excess of 1,900 municipalities with a postal outlet and one financial institution or a credit union.

Canada Post is proposing to undertake the development of a retail business opportunity that will be to the mutual benefit of Canada Post, the Government of Canada, and, most importantly, nearly 30 million Canadians who benefit from the services currently offered by Canada Post.

In our view, the following benefits could flow from the initiatives. Widely available financial services would be available to ordinary Canadians and businesses at a reasonable cost. Canada Post would receive help to offset the cost of providing Canadians with traditional mail service, and new work would devolve to Canada Post employees, fostering loyalty and stability. The federal presence would be highly visible through the vast network of Canada Post retail outlets. In addition, Canada Post will enjoy improved financial health. Over the long run this will have a positive impact on the share of the profits payable as corporate dividends.

We have reviewed the concept with regulatory agents, and other interested parties revealed significant interest and support. Five models were developed and considered during this review. At one end of the spectrum, Canada Post could operate as a fully featured bank offering a full range of competitive services. At the other end of the spectrum, Canada Post could offer basic financial services for one bank and be an agent for one or several banks.

Canada Post doesn't believe that in its current situation, given the nature of its employee force and skills, it would benefit in having a fully featured bank. Given the nature of our assets and people, we think a bank providing basic financial services would probably be the area where we would consider going.

The evaluation was based on Canada Post's requirements for revenue, core competencies, access to investment capital, key physical and human assets, an ability to compete, level of technology, and internal systems. Canada Post believes that the opportunity presents a win-win scenario for all parties. Canadians, especially in rural areas, would retain their banking services, especially in the day-to-day deposit and withdrawal and bill payment services.

For the Canada Post shareholder, a continued federal presence would be assured by maintaining the network of retail outlets. For Canada Post, the opportunity to provide financial services, increase revenue, and expand the scope of its services, are consistent with the spirit of the Canada Post Corporation Act and would enable us to maintain our extensive network, especially outside major metropolitan areas.

As a conclusion, Canada Post invites this committee to give serious consideration to the corporation's proposal to offer financial services through its retail outlets. Thank you.

The Chairman: Thank you. Now we'll have a question and answer session.

Mr. Epp.

Mr. Ken Epp (Elk Island, Ref.): Thank you. This to me is a bombshell. I didn't know Canada Post wanted to get into banking and compete with the Bank of Montreal and the other big players. The next thing we'll be asking is whether the post office can lease cars and sell insurance over the counter because that's where the banks are going. I'm really quite surprised at this. How long has this study been going on? When did you do it and how long did it take?

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Mr. Michel Tremblay: This study started roughly six or eight weeks ago and it was only concluded in the last few weeks.

Mr. Ken Epp: How did you conduct your study? What did you do? Did you find out how many towns you had an outlet where there were no banking services?

Mr. Michel Tremblay: It went beyond this. Canada Post has a long history of being in the banking business.

Mr. Ken Epp: Money orders, but more than that?

Mr. Michel Tremblay: More than that. Until the mid-1980s Canada Post in its act had the capacity of acting as a bank, as a savings bank, and was an active savings bank until the 1960s.

There are several other examples of postal administrations throughout the world that have an excellent banking business, especially for their rural areas. So Canada Post just looked at the possibility of providing basic financial services to Canadians where currently financial services are not offered.

Mr. Ken Epp: In areas right now where there is a post office outlet and there is no bank in that community, what kind of services do you offer there in terms of the financial aspect?

Mr. Michel Tremblay: Canada Post does not currently offer any financial services, other than, as you mentioned, money orders and purchase of postal products.

Mr. Ken Epp: But you said that until 1960 they actually could take deposits?

Mr. Michel Tremblay: Maybe Mr. Ouellet could answer that.

Mr. André Ouellet: Yes. When you look at the Post Office Act you see there is a section that is dormant, because from very early on all the small post offices were able to receive deposits. For a number of years we've been doing some financial services for the community.

As the banks expanded their branches throughout the country, a decision was made to stop providing these services and no longer compete with the banks. So the financial institutions of Canada basically occupy all of the territories, but as the numbers have been indicated to you, there are still a lot of areas in Canada that are not covered. If the movement is to close more branches, that will mean that fewer and fewer Canadians will have direct access.

We have come here to tell you not to forget that Canada Post used to provide this service. We could do it again by just enacting the dormant section. You don't even have to amend the Canada Post Corporation Act. The section is there that would allow us to do it. You just re-enact the section and we will resume receiving deposits, as we used to do in the past.

There are different ways of doing it. We could do it on our own, as we used to do it, or, as Mr. Tremblay said, we could do it in conjunction with financial institutions, with other banks. We could do it as an agent for other banks. There is a spectrum here. Obviously we have not finalized our study and we have not come to a conclusion on which way we should go if we were to do it again. It's just a reminder to parliamentarians that in the not-too-distant past the postal outlets were receiving deposits, and we could do it again.

Mr. Ken Epp: If the section is in the act right now, is there anything preventing you from responding positively to a proposal from one of the banks to be an agent in a small community? You could do that now, couldn't you?

Mr. André Ouellet: No. In reality, we have some pilot projects with some financial institutions. In fact, we are doing some financial servicing in the north with one bank and we are also doing some pilot projects in the province of Quebec with another bank.

So we could do this. Our legislation allows us to act in cooperation with some other financial institutions, but we could act alone if the section of our legislation is reactivated.

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Mr. Ken Epp: I want to come back to this study a bit and your statistic that there are 2,700 locations with a postal outlet but no bank. I'm just thinking of one in my community—in fact, it's only a short distance from where I live—where there is a post office but no bank. However, I'm sure that the demand for a bank in the little town of Ardrossan is probably a little less than zero. The people are only 10 or 15 kilometres away from a number of financial institutions.

So did you include that in your statistic, or was there a distance involved when you said there are no financial institutions?

Mr. Michel Tremblay: The answer to this would be that we're not suggesting that Canada Post would open banks or offer financial services in all those locations. We've estimated that roughly 1,500 locations in the country, whether there are currently financial institutions or not, would probably be suitable for Canada Post to offer these services.

I just want to remind you that this is very preliminary work, and we're just investigating the potential for substituting or entering this market.

Mr. Ken Epp: Would you be wanting to give loans too, then?

Mr. Michel Tremblay: No. As I mentioned, basic financial services, basic financial transactions—

Mr. Ken Epp: But aren't small loans part of the basic transactions?

Mr. Michel Tremblay: The way we would see this is that we would become a counter where people could open or close an account, whether it's a Canada Post bank or not. It could be other financial institutions. Cheques could be cashed, withdrawals could be made, and payments could be made on behalf of utility companies.

Mr. Ken Epp: Would you be willing then to go for a complete privatization of the post office?

Mr. André Ouellet: As you know, this is a subject that has been looked at by a number of postal administrations throughout the world.

We just went through a review recently of the mandate of Canada Post. Following this review, the government indicated that Canada Post was not to be privatized.

So we are not in a position to comment on this. This is a decision for the shareholder of the company, not us.

Mr. Ken Epp: Is there not a problem if we have free enterprise banks. I think one of the things MacKay is looking at is to open the field to allow more competition, especially pertaining to niche markets, access to the payment system, and so on.

Is there not a problem if we have a bank that is sponsored basically by the government? I would think that this makes a very uneven playing field.

Mr. André Ouellet: Well, it depends. What you have to look at is the service to the community.

What is of interest to us here, and why we're here to talk to you, is that among the recommendations of the task force there is this very important aspect of the interests of the consumer.

It is said that we should empower consumers. Well, if our net worth is there to serve the public at large, this is one way to give an additional service to Canadians all across the country. That is the aspect that is of interest to us.

Mr. Ken Epp: Okay. Well, Mr. Chairman, I look forward to the day when I can go and get an RRSP at the post office. My questioning is complete.

The Chairman: Is that an official Reform Party stand?

Mr. Ken Epp: It sure isn't, I assure you. I hope you detected a little....

[Translation]

The Chairman: Mr. Bigras.

Mr. Bernard Bigras (Rosemont, BQ): Mr. Ouellet and Mr. Tremblay, welcome to the Finance Committee. I have a question concerning the very small outlets, those that only have a maximum of one or two employees.

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As I understand it, you are restructuring your network. I can tell you that, as members of Parliament, we were the first to be informed of this, from a number of sources, including our constituents and those who are running very small businesses. I shall explain.

A number of businesses in my riding, namely Thibault Tabaconiste and Tabagie Ranger, have informed me of their concerns. Mr. Tremblay no doubt knows of the first case, because I have a letter signed by him, addressed to the former. As for the second, Tabagie Ranger, it is located on rue Beaubien and is close to your former constituency, Mr. Ouellet. What they are worried about is the possibility that certain postal outlets may be moved to large shopping centres.

I am raising this with you today, because I have the opportunity to speak to you. Over the years, postal outlets were often located in small places—in my riding, one-third of the population is over 55 years old—where clients receive outstanding, personalized service. These were small businesses, who were willing to invest in order to meet the needs and expectations of Canada Post Corporation. Today, these small businesses are worried that the services will now be moved to large shopping centres.

Small businesses are, therefore, feeling insecure, while citizens no longer know where to go to obtain the same service. Here is my question: Is it the new policy of Canada Post Corporation to transfer postal outlets to large shopping areas, whether they be in pharmacies or in any other type of business?

Mr. Michel Tremblay: I will answer that question, Mr. Chairman. Canada Post Corporation's policy has been in effect for the past ten years and promotes transferring the management of postal services to franchises, particularly in urban areas.

You mentioned two cases in your riding, and I am familiar with that of La Tabagie Ranger. In that case, there is obviously a gap between the time that Mr. Ranger's contract expired and it was decided to renew it and to renew Mr. Ranger's postal franchise. This specific case is not settled, and Mr. Ranger will operate a postal franchise, as he did with great enthusiasm for many years.

More generally speaking, the postal network is being restructured on a daily basis. There are population shifts and demographic changes, and Canada Post Corporation has to adjust to all of this. Therefore, transfers are to be expected. Transfers usually happen when the contract between Canada Post and the franchise holder expires. It is often reviewed in the interest of providing better service to the public.

Our goal is not to deprive small businesses of supplementary income, but to make our postal outlets as accessible as possible to most people. The Corporation does not prefer to give contracts lo large pharmacies or large retail areas. That is not the point. The issue is to provide citizens with the most convenient access to postal outlets.

Mr. Bernard Bigras: Here is my question: is your network restructuring system a blanket policy or does it take specific situations into account? I took the trouble to describe in a minute the reality in my riding, where one third of the population is elderly. This age group is strongly represented in the population served by this postal outlet. Is your restructuring policy a one- size-fits-all approach, or does it take local realities into account?

Mr. André Ouellet: It obviously takes local realities into account. It is obvious that Canada Post Corporation, in order to serve its clients better, puts a mail box outside a senior citizens' residence, or moves a mail box from one street corner to another to provide better service by responding to local requests.

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We are attentive to representations from the public, and we try not to have a rigid national policy, but a policy that meets local needs.

[English]

The Chairman: Thank you.

Mrs. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman. I have a somewhat fundamental question, if I may. And I apologize. I came in just a few minutes late.

Is the postal service in Canada truly a business or a service? If you were going to characterize how you operate, and you had that sort of choice or balance of those two things to make, how would you characterize it?

Mr. André Ouellet: I think I would say we're both. When the crown corporation was created in the early 1980s we were given both a social and commercial mandate. Recently, as you know, there has been a review of the Canada Post mandate, and the government reconfirmed both the social and commercial mandate of Canada Post.

Mrs. Karen Redman: Thank you. You come before us with that clarification then. I realize this is a working project, as is pretty well everything in the MacKay task force, and we're trying to look to the future.

You suggest that if we were to re-enact a clause in your mandate, you would be able to provide some services. Is that made with the business hat or the service hat on?

Mr. André Ouellet: With both.

First, as you know, in the latter part of the eighties and the early nineties Canada Post decided to close a certain number of small post offices. It felt they were losing money, or there was no justification to keeping a small post office that was literally losing money.

The former government of the day imposed a moratorium on the closing of small post offices. The administration of Canada Post now is looking at this obligation, not as an impediment but as a challenge.

We accept that we have a network, that our network can no longer shrink, and that we have to do something with our network if it's going to continue to be open. So as we see the evolution of the discussions in regard to the financial service sector in Canada, this is an opportunity.

Since years ago we were able to receive deposits—we were giving a modest service to the community, but we were giving a service—we feel that maybe we could do it again. Indeed, as Mr. Tremblay said, in doing it we would add some activities in our small post offices through our networks. Hopefully we would also generate some revenue and justify the moratorium.

Mrs. Karen Redman: If I can continue, I think it's one of the fears I've heard in my community. Although I represent a largely urban riding, we have small townships that have the post office and the bank at the crossroads of that little community.

We've heard from other delegations. I hope I'm remembering correctly that it was the Bank of Montreal that has done some activity in remote Canada with the post office. That really appeals with respect to some of the concerns I hear from my constituents. These have to do with what has happened to remote and rural Canada.

What if in addition to reactivating the clause in your mandate the government put a proviso on it? I guess, to my way of thinking, I'm trying to decide where the business part starts and the service part starts, and if they're in opposition.

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For instance, maybe it doesn't make business sense to be in remote Canada, but if you are wearing your service hat, we as the government think it makes a whole lot of difference to some Canadians. Maybe you don't have the critical mass, but it's a service that we as a country need to provide.

Is it appropriate for us as the government to say yes, you will go to remote Canada. And if we reinstate this ability of yours to be deposit-takers, you may have to man post offices for more hours, and you may have to open them in small areas where business would tell you it's not necessarily profitable to do so.

Mr. André Ouellet: Well, the government has already made that decision. The government ordered Canada Post no longer to close small post offices, in particular in rural Canada and remote Canada. That was a decision made by the government, I suppose, not having commercial ideas in mind, but social responsibility.

So we're here to tell you that we accept this decision, but we want to turn this into an advantage. We see some commercial possibilities from this directive. This is one area where we feel that indeed by reactivating the clause we could generate more activities at the post office. We could expand the line of services that are given to the community, not exclusively postal activities, but other commercial activities that could be beneficial not only to the public but also to Canada Post.

Mrs. Karen Redman: Let me turn to the nub of my question. In all those discussions has there been talk as to what degree of intrusion into the business side of it the post office is willing to go in order to have the possibility of making this challenge and opportunity?

Mr. Michel Tremblay: In rendering financial services to the population, we at Canada Post have a huge network. The network covers the whole country. In sparsely populated provinces, for instance, such as Manitoba, Canada Post operates 670 outlets. This is a fact.

We are at present in every single small community. These people have expressed a need to be able to have dealings with a financial institution. Sometimes financial institutions are just a few kilometres down the highway and sometimes they're quite remote.

To answer your question, there would be a commercial interest in rendering a financial service, but, as I said, there are many ways of doing this. Canada Post could be a bank, or it could act as an agent for one or several banks providing services to individuals.

Let me just try to give you an example of this. Someone could walk into a postal outlet with a debit card, already having a bank account set up with a commercial bank. The card could be swiped, as we do it in ATM machines, and transactions could thereby be triggered right at the post office. Utility bills could be paid, withdrawals could be made, and deposits could be made on this person's account with some bank right there and then. This is the extent.

When we mentioned the fact that Canada Post wants to enter into limited financial services...we would not get into the sale of RRSPs, loans, or complicated products. We realize that the services we want to provide should remain basic access to financial institutions. This is what we believe we could do for the Canadian population.

Mrs. Karen Redman: Thank you.

The Chairman: Thank you very much.

Let me just follow up on Ms. Redman's question. The fact that the government stated there would be no further postal office closings basically forces Canada Post to seek other avenues of generating revenue.

I would imagine that with the introduction of direct deposit and the impact of technology, you as a corporation will be facing many challenges. I'm not so sure whether all the post offices that are now open are necessarily efficient, and the issue of productivity also comes into play.

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Of course, we always face a challenge between your public role and your commercial role. That's also something you must always be debating within.

Is that correct? Do you need to basically expand, to find new products and services?

Mr. André Ouellet: Mr. Chairman, I think your intervention is quite appropriate indeed. The future of the postal service is one that is intricately linked to new technology.

As we see the way people communicate, there is no doubt that there's a great evolution in the way people are communicating. This is why our senior vice-president for electronic products and services has been actively looking at new avenues for the future of our postal service. I would invite him to say a few words in this regard.

Mr. Philippe Lemay (Senior Vice-President, Electronic Products and Services, Canada Post Corporation): Thank you, Mr. Chairman.

As we look at the evolution of the Internet over the last few years, where it is now present in many homes in Canada and certainly many businesses, there is no question that we are going to see something over the next few years. In fact we have been seeing it in the last two years since banks have been offering consumers the ability to pay their bills on-line. Over one million Canadians are already using their PCs to pay their bills on-line.

The next step is for those people to want to receive their invoices or statements directly on-line in a secure manner. This is going to be letter mail that is going to go away from Canada Post, and it is therefore revenue that's going to be lost. Given the high-cost labour structure we have, if we do not get into these services, we could be in a losing position a few years down the road.

So we are working very actively to offer these electronic-based services, providing the historic trust that the post office has brought to physical mail into the Internet environment. We are bringing the postmark into the electronic postmark.

So we are looking at all these kinds of services.

Once we have this electronic infrastructure, it can also become a vehicle to provide alternate service delivery. We know that federal and provincial governments are looking at electronic delivery of services. This network infrastructure we're putting in place can become the vehicle to also deliver government services.

If you go further and we equip those small postal outlets in rural Canada with technology, Canadians who do not have technology at home could still access government services through the technology that would be in the postal outlet. This is the future we're looking at and working on at this time.

The Chairman: Are you at all concerned about the issues of efficiency and productivity? We live in a global environment where firms will.... I mean, the borders are becoming less and less obvious to many global players. As a matter of fact, I see we're a few years away from really seeing more and more of an impact.

I'm wondering how you're responding to that particular challenge of globalization as it relates to your particular industry. Where you do see yourself as an organization five or ten years down the road?

Mr. Philippe Lemay: If we look ten or twelve years down the road, we're going to see a significant decrease in our letter mail business. What I call letter mail business is the business that is used to send bills, invoices, statements, forms. There is no doubt that the Internet is going to play an increasing role in that, and we want to be there.

At the same time, the Internet is going to generate significant new activities in terms of on-line shopping, which will lead to delivery of parcels. Therefore, we need to position ourselves to handle an increasing volume of parcels at the lowest possible cost.

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As we look further down that road, there's no question that consultation is going to be taking place in our industry. We're seeing significant movement towards postal transformation around the world. Some postal systems are either being privatized or being managed as concessions by private enterprise.

In fact we've just won a contract in Lebanon with Canadian partners SNC-Lavalin and Bracknell to rebuild the Lebanese postal system and operate it for 12 years. In Guatemala we are active in assisting a private company with postal expertise where the postal system has been privatized.

In the distribution business, globalization is going to see a significant amount of consolidation. We're going to see companies like DHL, UPS, and Federal Express leverage their international position into domestic markets. They're going to be providing additional competition there, especially in the major urban centres, but not necessarily in rural areas.

So all these global forces are going to provide significant competition to Canada Post in terms of potentially lost revenues to Canada Post. But the costs are still going to be there. So we need to look at these alternative businesses in order for Canada Post not to become a burden to Canadians in terms of losing money and having to be subsidized again.

Canada Post has not been subsidized since the early 1980s, and it needs to find these other businesses if it's not going to get into that position again.

The Chairman: You believe that consumers will go to the place where they can get the same product or service at the cheapest possible price?

Mr. Michel Tremblay: Canadian citizens are no different from other people in the world. The behaviour of a consumer is to get the best product for the best possible price as well.

The Chairman: Yes, and it's not an emotional attachment, but rather the amount of money people have to lay out. Is that correct?

Mr. Michel Tremblay: I don't think so.

The Chairman: Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you very much, Mr. Chairman.

I must congratulate you for coming forward so fast on the heels of the MacKay task force recommendations. On the other hand, I must also say that we do have some complaints about the post office, the selling of stamps, some of the agents, and so on. I just wanted to throw that out.

In our hearings we've actually had some foreign banks come forward and make presentations. We see that as much as we would like to have the competition from other parts here in Canada, it is not really readily available and coming.

On the other hand, we had some foreign banks come in here, and say, well, we'd love to have the mortar and bricks that are in place as far as Canada Post...and some of the agreements we can make in providing the services for the future.

I happened to visit some of those countries where the post office has been in the business of banking for years. If it was the case in those countries, I would have some problems today with the post office getting into that business.

You had an older generation that concentrated strictly on deposits, and therefore the post offices do not have the ability to give loans or commercial loans. I would have some problem, because you would have one segment of society, the older generation, putting in money. Where you have the need would be on the other side. It would be for entrepreneurs and so on having more access to capital. I would have some problems with that. Today, I don't think that would be used strictly for deposits. It would be more the convenience and the services that are in place.

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On the idea of Canada Post being a direct bank itself, I could see it in agreements with other lending institutions. I wouldn't have a problem with Canada Post using the bricks-and-mortar locations in order to provide the service. But I would have a problem with it being a bank itself, because all of a sudden it would not be, per se.... Even though Canada Post is not a crown corporation, there is the tendency out there to believe it's part of the government, which is seen as being in the business of banking now. As it is today, even though the lending institutions, our banks, are businesses, Canadians still believe they are public utilities and a branch of the government. How would you respond to that?

Mr. André Ouellet: We will do what the shareholder tells us to do. What we are telling you today is that there are different alternatives from one extreme to the other. As it is in many domains, the middle of the road is always the best thing. So, frankly, we feel there's a future for us there.

I think Mr. Tremblay has indicated to you that to be a full-fledged bank is not really what we are contemplating. If it's the wish of the government, though, we could become a full-fledged bank; in many other countries, postal operations are also full-fledged banks. But if the government wants us to play a certain role, we're ready to assume this role and we will play it. In terms of being one or the other, it will be up to you to evaluate under the circumstances whether we should reactivate this clause that is dormant. We certainly would like to see this clause reactivated, and that's why we're preparing ourselves: to be there to serve the population.

Mr. Gary Pillitteri: To follow up on that, personally I think it would be an enhancement to serving the public where the post office doesn't have the technology in place. In a lot of rural places, they're operating as they were fifty years ago. I think that would actually enhance things if things were done in cooperation with the larger lending institutions in terms of bringing in some of their technology. It would do that in two ways, one being to act as a post office and one being to act as a service that would be catering to customers.

I know you're saying what the government would do, the shareholder of the post office being the government. Do you personally think it should be a full-fledged bank?

Mr. André Ouellet: Our study so far has indicated that we have a long way to go in order to become like this. I think it would be unfair to pretend here that we could be a full-fledged bank tomorrow morning. I don't think we have expertise. As you know, it would also take some strong preparations and a lot of effort, energy, and investment in order to achieve this. So, to answer you, this certainly is not our preferred option.

Mr. Gary Pillitteri: Thank you very much, Mr. Chairman.

The Chairman: Mr. Szabo.

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

Thank you for your presentation this morning, gentlemen.

The prospect of Canada Post filling a need—particularly in areas such as rural Canada, where services are already probably bare-bones—and the prospect of maybe having withdrawal services provide some interesting opportunities, as you put it. There may be challenges there for Canada Post, and I think Canadians would want Canada Post to be looking at the possibilities.

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There is a question I have, however, with regard to jurisdictional regulation.

Trans-Canada Pipelines is a regulated utility, and on an annual basis, or as they feel is necessary, they would have to come before the National Energy Board for a rate-of-return determination. They then got into oil and gas properties when their new shareholder—I believe it was Dome Petroleum at the time—got them into non-regulated activities. It entered into a real quagmire of the whole issue of cross-subsidization between business segments, where, some argued, the regulated utility was cross-subsidizing the non-regulated aspect.

Now we're very slowly talking about such things, that we do have a business that has a defined mandate and a defined service range, and should you get into other theoretically non-regulated activities that wouldn't be the purview of what price would be charged for this good or this service that you would provide, it would bring into question who is going to pay for the modifications to infrastructure necessary to provide those goods and services. Who is going to pay for the training of staff, etc.? Who is going to pay for the incremental administration for all those things, and how are you going to raise the cashflow to deal with that, so that the ratepayers, i.e. the users of postal services, are not in fact subsidizing the non-regulated aspects of your business?

Mr. Michel Tremblay: I will try to answer some of your concerns. There is no doubt that each model—and we've looked at five different models, as we said earlier, ranging from the full-fledged bank to being an agent for one bank—has a different funding basis. We haven't gone down to identify each and every detail of the funding models, but there is no doubt that if we were a self-supporting bank, a full-fledged bank, all initiatives would have to come from Canada Post. Possible cross-subsidizations would have to be looked into and regulatory agencies would have to be taken into consideration as well.

If we move to the other side of the spectrum, there would probably not be as many constraints if Canada Post acted as an agent to one or several banks. I don't think there would be an issue with the regulatory agencies as well, or there would probably be a lot less.

As far as the funding is concerned, that also generates another source of revenue. We could consider supporting that activity on a transactional basis. If we act as an agent to a bank, there would be a revenue to Canada Post on a per transaction basis. That would simplify very much the accounting process of subsidizing or not the public utility service.

Mr. Paul Szabo: There would, however, be the start-up cost, and there would be some timing differences to be dealt with, but those are details we don't need to get bogged down with right now.

The final question I have is with regard to the potential impact on labour relations. To the extent that Canada Post would get into presumably profit-making activities in partnership with other financial institutions, for instance, the performance of Canada Post as an entity would all of a sudden become improved, and whenever that happens, we always get the pressures from the labour organizations for participating through negotiated changes to contracts.

This could in fact lead to disruption, maybe more disruption of service than we otherwise would incur. So I raise a question from this standpoint. Does this in fact provide a higher-risk element of exacerbating labour relations?

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Mr. André Ouellet: I don't think so. First of all, if we're dealing with small post offices, the union representing these employees has never struck. We know that the leadership of this union is very much supportive of giving more responsibility to the postmasters and postmistresses throughout the country. They are fearful of the closing of small post offices, so if they see more activities in these small post offices they will feel much more at ease and therefore would welcome such opportunities to do more.

In regard to the larger picture of dealings with all our unions, what you probably have in the back of your mind is the difficulty we have with another union within Canada Post. It is a challenge for us at some point to establish a better understanding of what is best for all of our employees. The future of this corporation is very much linked to a better understanding by all our employees, and by the union and the leaders representing these employees, of the directions we ought to achieve and where we ought to go. It will be upon us to re-establish a better dialogue and a better understanding. But I am not afraid. If the pie is bigger, surely we could divide the pie and satisfy the parties.

Mr. Paul Szabo: I congratulate you on your enthusiasm for examining objectively the options available for a stronger Canada Post, and I wish you well. Thank you.

Mr. André Ouellet: Thank you.

The Chairman: Thank you, Mr. Szabo.

Mr. Discepola.

[Translation]

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): I would first of all like to thank our guests for their superb initiative. I will do everything I can to promote their proposal.

At the level of basic services, I noted that you propose to install banking machines in 1,500 of your 2,700 branches or distribution centres. I have some reservations with respect to this statement that you made. Mr. Ouellet said that there was a moral responsibility to all regions of Canada. How will it be announced that basic services will be provided in one given outlet, a given city, and not in another location? It seems to me that Tim Horton Donuts or Dunkin Donuts make a point of staying open 24 hours a day to give the impression that they are always available. In your case, it would seem to me that the basic service should be provided everywhere. Why should the service not be offered in the other 1,200 outlets?

Mr. Michel Tremblay: Sir, we have identified some figures that came out of the study and that show Canada Post is very wide-based, because of its postal outlets. No other network reaches into as many corners of the country as Canada Post. We cited those figures to illustrate that Canada Post is really everywhere and that, in many places, there is no financial institution meeting the needs of the people.

If we were to put forward a business plan that included offering financial services, it is highly likely that we would not plan to offer them on the same basis as we currently offer postal services. At present, we have postal outlets in some municipalities that are only a few kilometres from each other. It is very likely that, because of the initial investment and technology that such services would require, we would not be able to offer them in all municipalities. We would combine them, however. This is the basic model we plan to use.

Still, if tomorrow there was an absolutely exceptional demand for us to provide these services in each of the postal outlets that Canada Post currently operates, we would have to re-examine the economics of such a proposal. We started by basing our model on 1,500 branches in rural areas across the country.

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Mr. Nick Discepola: There seems to be a conflict here. The banks want first of all to justify the network and that's why they are asking to sell other products, while you have already set up a network that we members from the various regions of Quebec and Canada would like to enhance. It seems to me that you are in effect being offered an opportunity to justify the presence of your services in these locations. As the only possible reason, you mention the cost of acquiring automatic teller-machines or other necessary equipment. Couldn't this cost be amortized over a period of five or ten years, for example?

Mr. Michel Tremblay: Of course. But when we talk about costs, we also have to look at the technology and services required to operate automatic teller-machines. We also have to think about spending money to alter or expand existing spaces and to train the staff that will provide these services. These costs are enormous. Once again, however, I would remind you that if such services really meet the needs of the Canadian people, and we have to go much further than the first stage of the analysis that we did on 1,500 branches, we can do this without a problem.

Mr. Nick Discepola: Okay. Good luck.

Mr. Michel Tremblay: Thank you.

[English]

The Chairman: Mr. Ouellet, Mr. Tremblay, and Mr. Lemay, on behalf of the committee, I'd like to thank you.

You certainly illustrated that the forces of change, globalization and technology, are very much part of our economic reality. In reference to the debate, of course, about the MacKay task force, you have clearly given us an alternative service that perhaps many of us were not aware of. Clearly the challenges you face as a corporation relating to productivity, globalization, and efficiencies are something this committee has taken note of.

It really comes down to perhaps that the day has come in our country's history where we must establish a productivity covenant with the people of Canada to essentially address the challenges we face.

On behalf of the committee, thank you.

[Translation]

Mr. André Ouellet: Thank you, Mr. Chairman.

[English]

The Chairman: We're going to suspend for approximately four to five minutes, and we'll be right back.

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The Chairman: I'd like to call the meeting to order and welcome everyone here this morning.

We now switch to pre-budget consultations on the MacKay task force report. We have this opportunity to welcome the following organizations and their representatives: the Alliance of Manufacturers and Exporters Canada; the Canadian Aquaculture Industry Alliance; the Canadian Association of Petroleum Producers; the Canadian Construction Association; the Canadian Institute of Planners; and the Canadian School Boards Association. Many of you have appeared before this committee before. You know you have approximately five to seven minutes to make your presentation, and thereafter we will engage in a question and answer session.

We will begin with the Alliance of Manufacturers and Exporters Canada, John Allinotte, chair, Ontario taxation committee; Jayson Myers, senior vice-president and chief economist; and Joanne McGovern, director, taxation and Ontario environment policy. Welcome.

Mr. Jayson Myers (Senior Vice-President and Chief Economist, Alliance of Manufacturers and Exporters Canada): Thank you very much, Mr. Chairman, and good morning, ladies and gentlemen.

I'm very pleased to begin today to speak to our recommendations with respect to the upcoming federal budget and to participate in this discussion about the future direction of fiscal policy. I'm joined today by John Allinotte, director of corporate taxation from Dofasco Inc. and the chair of the alliance's Ontario taxation committee, and by Joanne McGovern, the director of our tax policy unit.

Thirty-five hundred members of the alliance and their 4,000 affiliates across the country represent all sectors of the Canadian economy, from forestry to software, financial services, telecommunications, aerospace, automotive to agrifood. Our members contribute 75% of the country's industrial production, 95% of Canada's exports, and approximately 90% of our R and D effort. These companies are really at the forefront of change; they're at the forefront of global competition and at the forefront of business expansion in markets around the world.

Our comments, and the recommendations we've distributed to the committee today in written form, reflect the current concerns and the priorities of Canada's innovative industrial and exporting sector. The best way to summarize our remarks is to answer directly the questions that were put before us by the committee. First, with the budget actually balanced, what are the priorities for the fiscal dividend? Ladies and gentlemen, I think the first priority for this government is to ensure that the budget will remain in balance over what promises to be a pretty tough year or two ahead. Economic growth is already slowing. We estimate that real economic growth next year will be about 1.5%. That's below the consensus estimate, but so was our 2.8% forecast for 1998, and we haven't revised that this year.

The danger of recession in 1999 is very real. We recommend that the government base its budgeting on extremely cautious economic assumptions for next year. The alliance recommends using a 2% nominal GDP growth rate for revenue and expenditure forecasting purposes.

The impact of the Y2K problem is another uncertainty that may have far-reaching consequences for the Canadian economy and for the government's fiscal balance. We recommend that adequate reserves be provided in the government's contingency fund next year to offset the potential negative impact of the Y2K problem, and the contingency fund should be increased to $6 billion in 1999 for that purpose.

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Fiscal integrity is key to maintaining a balanced budget. A great deal of the government's success in eliminating the deficit has been due to the surplus it has run in the employment insurance account. In the long term this is unsustainable, not only because it's a very regressive form of taxation, but because EI is one of the most sensitive forms of revenue and expenditure to an economic slowdown.

If the economy does slow, if unemployment rises, then the government will be forced to increase premiums further or see its fiscal balance erode. This is the time to put budget balance on a sounder footing. The alliance recommends that the government aim to lower employer premiums by 90¢ from current levels or by an amount that would eliminate the EI surplus by the year 2001.

Cost recovery is another aspect of fiscal integrity. User fees charged by the federal government now account for approximately 20% of overall departmental budgets. They increased by $600 million between 1995 and 1997. Fees charged for regulatory compliance alone jumped by 37% or $500 million over that same period.

Businesses have supported the introduction of user fees on condition that service standards be improved. Unfortunately, commitments to do so have not been met. Charges are, however, being levied at considerable cost to business, and new user fees are being introduced with little consideration given to their economic impact or to the appropriateness of related regulatory requirements.

The alliance recommends that the government commit to a thorough review of its cost-recovery programs and that a moratorium be placed on new schemes until a proper protocol of service standards and commitments is implemented uniformly across all departments.

Once the federal budget is placed on a sounder footing, the second priority for our membership is debt reduction. The alliance recommends that the government continue to allocate any unused contingency reserves or unbudgeted surpluses to paying down the federal debt or the surplus in the EI account.

In a world where jurisdictions are competing for investment on the basis of fiscal prudence, Canada must take action to reduce the public debt. The option of letting debt-to-GDP fall as a result of economic growth is simply not enough.

Recognizing that the government is running a surplus and is in a position now to make strategic investments and changes in the tax system in the long-term interest of the economy and Canadian society as a whole, the alliance recommends that fiscal priorities should be aimed at investment and innovation. Jobs depend on innovation. They depend on investment. It's a key to business growth. That's what wins companies market share around the world. Yet Canada is lagging behind in both respects. Our share of direct investment is falling. With respect to innovation, we lag sorely behind other major industrial economies when it comes not only to investment in R and D but also to the commercialization of new technologies.

We need a fiscal policy aligned behind one goal, simply to make Canada the preferred location in the world for companies to locate and innovate, manufacture, export from, employ, and grow. To that end we need a competitive tax structure that takes into account the fact that other jurisdictions around the world are already taking the initiative to lower taxes in order to build their economies.

We need a fiscal plan anchored in the realities of the international marketplace and business investment, and built on a firm commitment to long-term support for innovation, productivity, and growth.

Here are our recommendations for the short term, for the coming budget as well as for the long term, which we believe the government should embody in a three-year tax reduction strategy.

With respect to building and maintaining a highly skilled workforce in Canada, the government should in the short term reduce personal tax rates specifically by eliminating the surtaxes that were levied on personal incomes as temporary measures to assist the government during the years of chronic deficit. In the long term, further reductions in effective personal income tax rates will be necessary as well as reductions in the capital gains tax to a level more competitive with that of the United States.

With respect to encouraging investment, the government should in the short term eliminate withholding taxes on dividends between Canada and the United States on a reciprocal basis. In its long-term tax strategy, the alliance agrees with the recommendations of the Mintz commission that reductions in corporate income taxes are key, but the reductions suggested by the commission do not go far enough. Rates for manufacturers should be lowered by at least 5% from current levels to enable Canada to remain a competitive investment location.

With respect to encouraging innovation, productivity, and value-added growth, the alliance recommends that in the short term the government maintain support for its existing R and D tax credit system and the IRAP program—these are extremely important—and it should allocate at least $200 million more in additional funding for the Technology Partnerships Canada program and increase funding for technology transfer through its budget for overseas development assistance.

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In the long term, we recommend the implementation of an investment tax credit for investments in new technology aimed at increasing the commercialization of new products and processes here in Canada.

The only way the government can ensure that Canadians are prepared to take advantage of the opportunities in the new and challenging economy ahead of us is to build a fiscal system that encourages investment, productivity, and innovation. Without those three linchpins of economic growth, jobs are, and will increasingly be, on the line.

The importance of taking action now in order to implement a strategy of tax reform and public investment over the next three years cannot be stressed enough. It is time we moved from a strategy of cost-cutting and deficit reduction, but we have to consolidate those gains.

They're not enough, however. Any business will tell you that it's also essential to invest in growth, in adding value, in productivity, and in innovation. And the time to start that process is now.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Myers.

We will now hear from Brenda Dunbar and Pierre Stang of the Canadian Aquaculture Industry Alliance. Welcome.

Ms. Brenda Dunbar (Executive Director, Canadian Aquaculture Industry Alliance): Good morning, Mr. Chair, and members of the committee. Thank you very much for allowing us to participate here today.

I've provided the committee with a position paper, but I think I'd like to speak to some of the points in the paper. In fact these are specific points that relate very closely to the points raised by Mr. Myers.

We're a small but growing innovation-based, knowledge-based, biotechnology-based industry in Canada that's trying very hard to grow. But we are having a lot of problems based on the regulatory framework, the tax framework, and the policy framework we face.

We have two main segments of the industry: fin fish, which is salmon, trout, those kinds of species; and shellfish, which are clams, oysters, and mussels. Many of you have eaten these products, I'm sure, when you cook at home or go out to good restaurants. Most of that product is exported.

So, again, we're an export-based sector of the economy. We're almost entirely based in rural and coastal communities, so most of the people who are employed in this industry have no viable alternate source of employment.

In a space of about 15 years this industry has grown from zero to about a $400-million industry, which, by our standards, is quite small. Canada is currently supplying less than 1% of the aquaculture products that are grown worldwide. In a country of this size, with this amount of coastline and this amount of land-based opportunity for tanks to grow fish, that is less than 1%.

In the cold water countries we compete against Norway, the Faeroes, the U.K., the United States, Japan, and Scotland, many of our traditional industrial competitors.

Because of the combination of policies we face in this country, we are having extreme difficulty moving forward with an industry that creates biotechnology-related jobs, rural-and-coastal-community-related jobs, and innovation-related jobs.

We access programs like TPC and IRAP. We are the kind of industry that is the industry of the future. Yet we find that increasingly we are unable to move the industry forward because of the policies we face in this country.

Among other things, Mr. Myers has mentioned the need to balance the budget. I think that, again, although many people in our industry possess PhDs, are highly educated, and are very forward in their thinking in terms of science and product development, they nonetheless tend to remain a bit cautious. They come from smaller, rural communities where they balance their own budgets at home, and they want the country to balance its budget too.

At the same time we are an industry that needs some form of support, and we're not looking for a large amount of money. When you look at the industries that are forerunners today, all of these industries—whether aerospace, other forms of transportation, or the manufacturing sectors—have benefited from some form of government support at one time in their development.

The industry we closely relate to is the agriculture industry. We are farmers.

The position paper points this out, but, among other things, we cannot get access to Agriculture Canada programs because we're considered a fish industry. So that means we fall under the Department of Fisheries and Oceans. Well, the Department of Fisheries and Oceans is not a development department; it is a conservation department. It focuses almost entirely, despite our best efforts, on the fishery, and that despite the fact that many people who are in aquaculture used to be in fisheries. We could get more of them into aquaculture, but the department doesn't seem interested in that. It just wants to continue paying TAGS payments to fishermen.

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So we are unable to benefit from any sort of support from DFO. We are constantly stymied in our attempts to access Agriculture Canada programs. And as we point out in the position paper, there are a number of suggestions the CFA has made to the committee. Because we are associate members of the CFA, we endorse those positions.

There is no seafood person at Industry Canada any more. There is no aquaculture person at Industry Canada or Foreign Affairs any more. There is one person who works about 10% of the time on seafood at Agriculture Canada. So how do you grow an industry at a time when no one in government seems to want to pay any attention to you? You can't get access to the programs that people who farm other products have access to. Your line department is effectively ignoring you, in all cases except when there's a cost-recovery program. Then of course you're important, because they want to eke the money out of you.

The industry, as Mr. Myers has pointed out, does not object to cost recovery and is more than willing to participate in cost-recovery programs. But as the paper points out, our experience has been negative, in that we are not being given, in many cases, a level of service that we feel equals the amount of money we are being charged. We have absolutely no input on the design of the cost-recovery program and the levels of fees that are being set.

In many cases fees are being set.... In one case we have a licence being issued in British Columbia where aquaculturalists are effectively forced.... The Department of Fisheries will deny it, but the case is that you must buy the licence to farm, and in order to buy the licence you have to pay money to one of two NGOs who oppose fish farming. The department has endorsed this because they say that these NGOs believe in traditional farming, salmon enhancement—as if fish farmers don't believe in salmon enhancement. So we are forced to pay a fee on top of the licence fee to people who oppose our industry.

It's not an easy situation. Canada has a tough road ahead of it. Our industry is really a microcosm, as I see it, of small industries that need to grow in order for this economy to do well in the 21st century.

Thank you.

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

We'll now hear from the Canadian Association of Petroleum Producers, Mr. David Manning.

Mr. David Manning (President, Canadian Association of Petroleum Producers): Thank you, Chair and members of the committee, for taking the time.

My name is David Manning, and I'm the president of the Canadian Association of Petroleum Producers. I have with me Greg Stringham, who is our vice-president, fiscal and markets, who will be joining me in this presentation.

Chair, we would like to close off some comments with respect to the technical committee that has come to be known as the Mintz committee and also of course to address the current fiscal situation and the budget.

Our industry is made up of all of those who seek out, find, produce, and ship oil and gas in Canada. Our membership represents approximately 95% to 96% of that production. Some very small producers make up the balance. Most importantly, we are export-focused as well. Over 50% of our production is exported, and we contribute $13 billion annually to Canada's export numbers.

We were the largest capital investors last year as an industry. The petroleum producers invested $19 billion last year, which puts us ahead of all other industries and of course makes up a significant portion of tax revenue to all levels of government.

We have come today to specifically address the questions you posed. Just before doing that, I'd like to point out that not only do we export product, we also are the feedstock and foundation of value-added industries such as petrochemicals. But we also export a lot of technology that is developed in Canada. We export human resources and skilled individuals, and we export regulatory regimes. Our members, who are operating around the world, in places like Indonesia, Latin America, and South America, are increasingly finding regulations that have been developed in Canada to oversee the environmental regulatory framework for this industry.

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It's also important that as we address the question of competitiveness, it's not competitiveness within Canada, it's competitiveness within other basins. The amount of production that has come from outside of Canada for Canadian members doubled from 1993 to 1996, and it has doubled again since that time.

If I can now just address the four key points you posed, I'll turn this over to Greg.

Mr. Greg Stringham (Vice-President, Markets and Fiscal Policy, Canadian Association of Petroleum Producers): The four basic tenets that CAPP uses in establishing fiscal policy are ones I think we'd like to touch on here. We believe that any fiscal policy needs to be competitive, needs to be certain, needs to be stable, and also needs to be simple. Of course, you can't achieve all of those at once, but a balance of those four tenets is what we've based our recommendations on for you here today.

First off, in addressing the question, we think it's very important to reiterate what we've already heard this morning, and that is the continuation of debt reduction. This has set the foundation for where we are today, and it's important that we continue in that mode. The government has gone a long way in trying to eliminate the deficit and is now moving towards debt reduction.

In conjunction with that, I think it's important that there be a balance again of the three items we've talked about, debt reduction being the first, the second being a reduction in both personal and corporate tax rates. We believe those need to happen together. There is a situation here in which there's an opportunity to reduce both at the same time. And thirdly, the balance needs to be taken into account, with limited spending in areas of high priority for Canadians, focusing on what those high priorities are and addressing them in a limited fashion. In doing those three things, we think you can balance and can focus on an international competitive fiscal regime that is based on those four fundamental principles, as David has mentioned.

I think it's important to address some of the comments that Dr. Mintz and his colleagues raised in their report, and I'll let David take us into that.

Mr. David Manning: We applaud the objectives. There was a desire for simplicity, job creation, economic growth, and enhancing competitiveness internationally. Speaking selfishly, the report also recognized the unique nature of oil and gas development in Canada. However, we also fear that there were some negative perspectives. We would suggest that the relationship that our industry lives within, the one between the federal and provincial governments, was not well understood.

We felt there was a faulty perspective on how royalties, and provincial royalties specifically, square with the concept of a resource allowance that is part of the federal system. This is a high-risk industry. Not only do we still have a lot of uncertainty in the science in terms of seeking out and finding the resource, but it's very capital-intensive.

What was our reinvestment number last year, Greg?

Mr. Greg Stringham: Last year, of our cashflow received, we reinvested just over 222% into the industry, so there is a tremendous draw on capital in terms of both debt and financing.

Mr. David Manning: This is an industry that eats capital. It's producing and shipping a non-renewable resource, so there is a constant challenge to replace production and to grow the industry. Of course, as you know, the potential of our reserves is substantial, but those reserves are in different places.

It's a technology-driven industry, and we're getting much better at what we do. An example would be three-dimensional seismics, which is much more effective in terms of finding the resource. Another example is reservoir engineering. Ten years ago, it was not unusual for 10%, 15% or 20% of a reservoir's resources to be produced while the balance was left in the ground. Now, numbers over 50% are not unusual. This means a much softer footprint on the surface. And it's much less intensive production for the same kind of volume, so it's a benefit both economically and to the environment.

We live in a world of volatile commodity prices and we are price takers. That is one of the reasons why the technical committee report dealt with the question of what I would call environmental taxes. Environmental taxation was a challenge for us because it purported to move or suggested that we move taxation further up to the source—to the mine mouth, if you will—as a way of influencing behaviour.

In our experience, our surveys have indicated that increased taxation is not desired by Canadians, and that their living patterns will not change with taxation. We certainly found that when we surveyed gasoline prices. You had to go to fully 50¢-per-litre taxation before 50% of Canadians would consider driving less, yet the report also recommended that part of the quid for an environmental tax would be to reduce the cost of taxation at the pump by dropping the excise tax. We thought that sent the wrong signal in terms of a post-Kyoto world. And as Canada tries to sort itself out here, the Canadian public and consumers have to be more and more aware of all of the issues.

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If I can deal very briefly with the question of resource allowance, what we have here is ownership on the part of the provinces. Since 1930, the provinces in this country have owned the resource, and this industry produces the resource as partners pursuant to a royalty system.

Greg, why don't you just touch on what the Mintz report said about that.

Mr. Greg Stringham: In the report published by the technical committee on this, I think it's key to understand that the resource allowance really does set federal tax room for the provinces to be able to collect their ownership royalties. Back in 1974, when this was discussed, and in 1976, when it was put in place, it was well understood that the resource allowance was really disconnecting the federal and provincial systems so that the ownership royalties could be collected without having to worry about one federal system versus one provincial system and the leakages that may occur between the two.

With that establishment, I think it's important to recognize that the changes that were proposed in this report actually re-established the linkage between the two of them. It therefore becomes a very critical federal-provincial issue that has been dealt with over the last twenty years and is thus raised again. We feel it's important to emphasize here that the delinkage of those systems between resource allowance and provincial crown royalties is important to maintain to allow that adjustment to happen over time.

Mr. David Manning: There were also some difficult signals sent on capital cost allowance. In its recommendations, this report overlooked the fact that since the capital cost allowance for the oilsands was reduced in 1995, pursuant to a federal-provincial scheme that was a long and studied process, fully $19 billion in new investment has been stimulated by that move, taken with some new technology. That $19 billion has involved expansion of existing oilsands plants, as well as three new plants, all of which are in various stages of creation as we speak.

Raising again the spectre of the environmental question, we would argue that the growth of production from Canada—notwithstanding the fact that it creates greater challenges on the CO₂ front because of the high environmental standards in Canada relative to other basins, such as the Caspian Sea—has balancing or offsetting benefits beyond just the Canadian economy, employment, and further development of our technology.

You have to realize that this is a high-cost game. There are two wells being drilled in the Caspian right now, and they will obviously compete in the same world. Their production will be similar to Canada's on the oil side, and one of those wells alone is going to cost $175 million U.S. For some of our wells in British Columbia and going into the Yukon, a well in northeastern British Columbia drilled by a Canadian is probably in excess of $20 million Canadian per single well because of the technology that is in play, the geological structures, and the challenges of operating in that terrain. So you have to understand the capital intensity of our industry.

Mr. Greg Stringham: Just to add on to that, in terms of the impact on investment that the changes recommended by the Mintz committee would have, there would be an increase in taxation on companies that are active and reinvesting. There would be a decrease in taxation on those companies that aren't doing anything. Therefore, the message seems to be backwards in terms of what we're really trying to incur here.

The other thing it's important to recognize is that the impact on the oil and gas industry of those recommendations was approximately $100 million, which is a significant impact on our industry. Whereas we realize the committee was charged with a revenue neutral set of constraints when they went in to review the old tax system, they did it on a revenue neutral basis for the whole Canadian economy rather than on a sector by sector basis.

Mr. David Manning: If I could summarize for members of the committee, this industry is only as strong as the country in which it resides. As we indicated again and again, this voracious appetite for capital does not come wholly or even substantially from Canada.

The history of the industry is very interesting, because Canadians bought life insurance as a rule, while foreign investors generally drilled high-risk wells. We still have a situation in which jurisdictions like New York, Europe, Boston, etc., have a great source of capital for our industry if they are comfortable with Canada. Therefore, first and foremost, we require the continuation of a prudent fiscal regime. Very positive messages need to be sent particularly during a period of any kind of currency uncertainty or political uncertainty. These are not friends of the investment community.

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We need a continuous, sustained, and focused debt reduction strategy like the one that has, we would suggest, served us very well in recent years. We need to maintain that to keep the investment flows going.

Of course, as Greg mentioned at the outset, if there was ever an opportunity to address the disparity between U.S. and Canadian corporate tax, we do know that Canadian corporations experience a disconnect, a spread—and I'm sure you've heard this from many who are more focused than us on this area. Canadian corporate taxes provide a disadvantage, but in this political world we can also see no ability to correct that unless it is done simultaneously with a personal tax reduction. So if the country is now in fact in a position to address personal taxation, all we would ask is that you also consider corporate taxation in the same breath.

Those are our opening points.

The Chairman: Thank you very much, Mr. Manning, Mr. Stringham.

We will now hear from the Canadian Construction Association, and Mr. Michael Atkinson.

Mr. Michael Atkinson (President, Canadian Construction Association): Actually it will be Mr. Kirkpatrick, Mr. Chairman.

The Chairman: Mr. Kirkpatrick.

Mr. Williard Kirkpatrick (Chairman of the Board, Canadian Construction Association): Thank you, Mr. Chairman. My name is Williard Kirkpatrick, and I'm the chairman of the board of the Canadian Construction Association. I'm the owner of Maxam Contracting, a general contractor operating in Alberta and Saskatchewan and employing some 600 employees.

With me today is CCA president Mike Atkinson and a fellow CCA board member, Katia Strongolos, who chairs our association's finance committee. Katia is vice-president of surety with the General Accident Assurance Company of Canada, which is the largest insurer in Canada.

We welcome the opportunity to provide our views respecting the upcoming federal budget. The Canadian Construction Association is the national voice for the 200,000 contractors engaged in construction across Canada. Collectively, the industry is the largest employer, providing employment for about 803,000 Canadians, which is about 6% of the total workforce in Canada. Our industry pays in excess of $25 billion in wages and, we estimate, more than $14 billion in government taxes. As such, we are arguably affecting federal fiscal and tax policies more than most.

You are provided with copies of our written submission, so we will not go into any great detail. Instead, we would propose to briefly outline some of the most important parts of our proposal and some of the most important areas of our tax impacts.

First of all, I'd like to call upon Katia to talk about our infrastructure.

Ms. Katia Strongolos (Chair, Finance Committee, Canadian Construction Association): Thank you, Williard.

Mr. Chairman, members of the committee, when we were called to this committee to address the priority areas to which any fiscal dividend should be applied, we wanted to be short. We wanted to bring the message of the Canadian Construction Association, which contends that the following should be the priority areas, but not necessarily in this order, because we believe all three are very important.

First is the issue the debt reduction. Second is tax reduction for both personal income taxes and payroll taxes, such as employment insurance premiums. The third is reinvestment in Canada's essential physical infrastructure.

Regarding debt reduction, the CCA believes this must not be achieved through increased taxes. It must come through continued annual surpluses, expenditure cuts, and strategic investments that generate demonstrated and proven returns.

I would like to briefly address the last point, Mr. Chairman. Our nation's key national and municipal infrastructure, our national highway system, our schools, our roads, our hospitals, our waste treatment facilities, and our water distribution systems cannot be neglected any more. Too often, capital expenditures like these are viewed as just that—expenditures. In our opinion, and in reality, these are capital investments that generate a benefit and a return to the Canadian economy.

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We believe Canada has no choice. We must invest in our essential infrastructure if we are to compete in the increasingly internationally competitive world. The question is not if; it's simply when and how much. The longer we defer these appropriate and prudent reinvestments, the more expensive and costly those investments will become.

For your information, Mr. Chairman, we have reproduced a joint statement that was recently signed by our counterpart associations in the United States and Mexico, and the statement addresses that point. Those countries have extensive, long-term plans involving massive reinvestments in their essential infrastructure. They have long-terms for the proper care and enhancement of their infrastructure. On the other hand, not only does Canada lag behind these countries in terms of that investment, but we also have absolutely no plan or leadership in that area.

I would like to now turn it back to our chairman, Mr. Kirkpatrick, who will talk about the employment insurance fund.

Mr. Williard Kirkpatrick: Thank you.

Mr. Chairman, it's our belief that EI premiums should be substantially reduced; however, it's important that we recount a little history. In 1989, the federal government announced that it would stop contributing to the unemployment insurance fund, as it was then known, leaving employers and employees to assume the financial responsibility for the UI program. In addition, the government also transferred major training and labour market development costs from other accounts and into the UI program, including the cost of apprenticeship training. As a result, the UI fund was expanded to cover funding for training programs, and the full cost was placed with the employers and their employees through their payments to the then UI fund.

Subsequently, however, the federal government announced that it would no longer fund apprenticeships, and it transferred the full responsibility for apprenticeship training programs in our industry to the provinces and to the employers. The federal government has not returned these funds that it no longer is required to spend on training, As a result, we feel there should have been a reduction in the EI program funding specifically for that particular purpose. However, in general, we are opposed to the buildup of the surplus within this fund. We understand that $2 per hundred hours would be fully sufficient to keep the fund in balance, and we would like to see the fund returned to these levels of funding.

I'd like to add a comment with regard to infrastructure as well. Infrastructure investment affects not only this current fiscal period, but it affects taxpayers in this generation, the next generation, and the generation after that. When we build roads, they do not just serve the people of Canada in 1998 and 1999; they serve them for the next twenty or thirty years. Similarly, waste treatment and water treatment plants provide protection to the environment not just this year, but for years to come.

Infrastructure is one of the few places in which the government invests where the benefits are received not just in this fiscal period, but in the periods in the future. As a result, investment in infrastructure is a very key part of the productivity of our country, of the efficiency of our country, and it plays a very key role in our productivity and productivity gains or losses with respect to other countries. You know that the United States just passed a bill that will put $214 billion into their road system. We do not have a similar program, and it is time.

In conclusion, it's not a case of whether the government should reduce debt, reduce taxes, reduce UI premiums, or invest in Canada's infrastructure. We must do all of those things in order for our country to continue to provide a high standard of living and comprehensive social programs that we Canadians have come to expect.

I thank you, and we'd welcome questions.

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The Chairman: Thank you very much, Mr. Kirkpatrick and Ms. Strongolos.

We'll now hear from the Canadian Institute of Planners, Mr. Patrick Déoux and Miss Lise Newton-Lalonde.

Welcome.

[Translation]

Mr. Patrick Déoux (President, Canadian Institute of Planners): Good morning, Mr. Chairman and committee members. My name is Patrick Déoux and I'm the President of the Canadian Institute of Planners. I'm accompanied by Ms. Lise Newton-Lalonde, the Executive Director of the institute.

The Canadian Institute of Planners is a national association of urban and land planning professionals from across Canada. There are over 4,500 professionals divided into seven provincial professional organizations representing all the provinces, with the three Maritime provinces making up one of our chapters.

We are appearing today for the first time before your committee, which shows that international affairs bring us to do things that we have not tended to do in the past.

[English]

We have submitted to you a written brief where you can read the details, but there are a few points I would like to make that we feel are extremely important.

Obviously our preoccupations, from what I have heard until now, are very down to earth, but nonetheless very important to the future of the Canadian economy and in particular youth.

We are here today to argue in favour of the extension of the youth employment government strategy and, more particularly, a subsidiary of the strategy, which is the international youth internship program, which is managed by CIDA. We have been using the internship program this year and have seen the success it has brought and the possibilities it offers for the future for youth, as well as the Canadian economy. We felt we had a duty to come before you to argue in favour of the continuation of this program.

From our experience, this is one program where we feel the value-added benefits to the economy in the future will be much greater than the immediate benefits or the expected result of such a program, which in any case was completely successful.

This is the finance committee, so I thought I would mention a few figures that are interesting. The program itself involved a $285,000 cash contribution from the federal government. This was the cost of the program. It is important to note that this program is not attached to any kind of condition of sharing or contributing an equal amount of money. However, when we looked at the figures at the end of this year, we realized that $50,000 had also been contributed as either cash or in-kind contributions by the CIP and our affiliates. Another $210,000 cash or in-kind contribution was contributed by the Canadian internship employers. This is very important, because although the program does not come with a commitment to participate or share in any way, the government contribution was matched almost penny for penny, without it being a requirement.

I haven't mentioned the benefits yet, and I have just three I would like to highlight. One of them, of course, is the direct impact of the program on youth employment. A few statistics are very interesting. The program permitted us to hire and give job opportunities on the international scene to 19 recent university graduates. Of these 19 interns, 10 are women and four are visible minorities. Two of the interns have now completed their six-month internships abroad and are now employed full-time by Canadian companies that are exporting their services, in our case land use planning, which is a sustainable development type of intellectual product.

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It is important to note that in all cases of the 19 students who were placed in those companies in the private sector or non-governmental organizations, they would not have sought jobs on the international scene. The opportunity that was created by the program made them look at such international possibilities. In most cases it would not have been possible for these students or finishing interns to find work on the international scene, and I think the program really opened the doors for them.

Another benefit, which is very important, is that although only 19 interns were able to profit from the program, the promotion that was done for the program was held in the 23 universities that offer recognized CIP programs across the country. Out of this promotion, at least 150 graduates showed an interest in participating in the program, which means we still have a bank of at least 150 graduates who are ready and willing to go abroad to work in the international market and develop their expertise.

Although we understand the program will end in March 1999, those students are still connected by an electronic network and will seek work in this area, with the help of the program or not. So the program really stimulated the minds of these young planners to work abroad and develop their skills.

Finally, there is also a longer-term impact on export development. The young professionals in this country are or will be in a position to contribute to export development, international relations, and international cooperation activities on behalf of Canadians and on behalf of our profession.

Another benefit of the program was that it gave CIP an opportunity to develop and build relationships with Canadian organizations serving as internship employers. We will continue to use the knowledge, associations, and partnerships we have developed.

We feel it's a very important component of the benefit, because as I'm sure you are aware, the future of many industries lies abroad in the international market. It is a market that is very difficult to tackle, know, and learn how to develop, speaking from experience working for a large engineering firm. We are doing very well on the international market, but I was able to see from the results of the program that we would be doing much better if those baby-boomer managers in charge of these markets had been trained very early in the process. We have so much to learn, and it's very difficult to tackle.

This program really offered young graduates the possibility of starting very early, and five years from now it will be just a simple matter for them, just as we do work here at home. But we know it's much more complicated.

In conclusion, Mr. Chairman, we are arguing in favour of the continuation of the strategy and more particularly of any program that would support young graduates to work abroad to learn and develop their experience.

Thank you very much.

The Chairman: Thank you very much, Mr. Déoux, Miss Newton-Lalonde.

Now we'll hear from the Canadian School Boards Association, Dr. Roy Wilson and Ms. Marie Pierce. Welcome.

Dr. L.J. Roy Wilson (President, Canadian School Boards Association): Thank you, Chair.

I would like to introduce Ms. Pierce, our executive director for the Canadian School Boards Association. We're pleased to be here presenting to you this morning.

Chair, you will note that school trustees in every province have been speaking to you on a regular basis because the message we bring on behalf of over one million children in this country who are living in poverty is one that needs to be heard. I think it follows appropriately from some of the messages we heard earlier, and I appreciated being able to hear those messages this morning.

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Mr. Stringham says we have limited spending in areas of high priority, and that those areas should be our targets. I agree; I think that's critical.

Ms. Strongolos, I appreciate that you said we have to invest, not spend.

We're speaking of those things this morning as we meet with you, sir. We're speaking of investing in a critical group of children in this country.

If there is a Canadian advantage in the work that we do and the work that you people do on those important things, it is that we have a well-educated workforce. Part of that well-educated workforce is the thousands and thousands of children who are not being adequately educated in our schools, and it's not their own fault. It's not even the fault of our schools or the buildings or the teachers. It's other things that those children bring when they come, or perhaps, sadly, don't bring to school when they come.

We know you're serious about this. In 1989, this House, this Parliament, passed a resolution to indicate its goal to eliminate child poverty. Mr. Riis, one of your members, was very much a part of that initiative at that time.

We also know you haven't achieved it, so I guess it may just have seemed possible in those heady days of 1989. The world has changed a lot since then, and the numbers in poverty have unfortunately increased. We're not going to argue about what those numbers mean, as that's research that your own departments work on. We're prepared to accept that there are a lot of kids out there living in poverty—over a million.

Sir, we know your government has done a lot, and we appreciate that. The national child benefit system that you have in place, the money you have targeted, the future commitments in that regard, the national children's agenda—all of these are excellent, and we really want to say thank you. But we also want to say to you—as I'm sure all these folks are saying to you today—that more needs to be done. We're not succeeding here in a very delicate and really critical area.

I don't have to remind you of this, but I have to speak on behalf of these children. We're there at the schools, so we see these kids. I have to tell you that when people come to us in poverty, they're just not able to perform at the same level as your children probably are performing in school. The illiteracy levels among these children are very high. The drop-out rate is large. Many of them are susceptible to illness. The general disorder in their behaviour is pretty obvious. We have a new term now, “behaviourally disordered children”. We didn't have that term ten years ago, but we have it now, and we know who and where the children who are behaviourally disordered are in most cases.

This stuff is really showing up every day in our classrooms, and we're saying to this finance committee to do what you have to do, but look at those children as part of your planning. That's really critical to us. As well, we are trying to do what we can do in a limited way, sir, because we have these children for only a few hours every day.

In 1997, as a Canadian organization, we launched a major initiative to, first of all, find out all we could about poverty and how it affects children. We did some research, and we really appreciated the support of Health Canada in that project. We did some background material, and we have provided that for you.

We found out that in many jurisdictions across this country there are wonderful programs in place working with children in poverty, and they are being successful. We wanted to continue this research as well to find out what made those programs successful, because it's not only just throwing money at children, it's finding programs that actually work. It's asking what is an indication of a program that works. We've had to do continuing research and continuing development to reach the action stage at which we can actually come up with a model of what a program needs.

If it's going to work with children who are poor and if it's going to be successful, what does it need? That was the next step. Unfortunately, Health Canada has found that it has no more money to finish this for us. Of course, we were counting on the completion of this, so if any of you know Mr. Rock, you might just mention that perhaps he could give us some special consideration. We've written to him to ask if.... It's such a small piece to finish, yet it's a critical piece in terms of the action stage of completing what is, for us, a major undertaking in terms of the school response to this.

So what can we say to you people today? First of all, do all you can to increase the national child benefit. Whatever you do, do not decrease it. It is working so well. In my own province of Alberta it is working beautifully in terms of health support and what have you for children, and I know they're using it in other provinces. So, please, that could easily be increased and could do so much more.

I'd like to echo the employment insurance issue that you folks have mentioned. Schools are big employers. We use over 80% of our budgets to hire teachers. Teachers are not users of employment insurance, you know. We don't lay off teachers, and that's because we need teachers. So we never use the stuff and yet we pay big premiums. We'd appreciate it if those could be reduced. If there's a surplus there, why don't you direct it to some of the thousands of children I'm speaking of? We could make good use of that in our schools. We know how to use that money.

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On the national children's agenda, you have to keep moving on that. We appreciate that you want to work on that. You've been doing some good research in government in your agencies, but we need policies and programs to further that because that's not complete. We're with you all the way on that. Would you seriously set some targets? If the 1989 objective you had to eliminate child poverty means anything at all, maybe you can slowly move to complete the circle on that, which is so critical.

As an association we appreciate the concerns and interests of this committee and we appreciate being invited here. We recognize you must balance all of the views you've heard. We would agree there is no greater priority, though, than children as an investment, as you've already heard from others here. They're part of the investment we must make. These one million children I'm speaking of today are our future too, and if we don't address their needs, their hope for contributing and being a part of the development in this country will be very much reduced.

We really want to make sure the intention you had in 1989 is a desire of all parties. We appreciate that all parties are represented here, because I think it's really critical that we move together on that. In your deliberations we speak for these children and ask you to do all you can to help us do a better job in the schools.

Thank you for the opportunity.

The Chairman: Thank you very much, Dr. Wilson, Ms. Pierce.

We'll now move to the question and answer session. It's a five-minute round. We'll begin with Mr. Solberg.

Mr. Monte Solberg (Medicine Hat, Ref.): Thank you very much, Mr. Chairman, and welcome to all of the witnesses.

I want to start by pointing out we've had three groups here call for big cuts to employment insurance premiums, and I think it's important to underline that. I want to follow that along for a moment.

Mr. Myers has mentioned that his group is recommending cuts in EI premiums down to $1.80, or somewhere in that range, which is in line with what the chief actuary is calling for. My question is to Mr. Myers and also to Mr. Kirkpatrick and whomever else would like to comment. The government has argued that personal income taxes are a far higher priority and increased spending on health care, so why bother cutting EI premiums?

Mr. Williard Kirkpatrick: The EI premium is a cost to our employers. It reduces their ability to hire more people. I believe if EI premiums were reduced, more Canadians would be employed. The net result might be that more taxes would be collected. As more people are employed, they pay taxes. As you reduce the premium rate, you reduce the deductions, and that will generate more tax. As a consequence, there are many ways in which a reduction in the premium will bring increases to other parts of the government's program. So not only would a reduction in the premium necessarily help industry, it could also help government.

Mr. Monte Solberg: Are you or anyone who has spoken in favour of these cuts to EI premiums aware of the C.D. Howe Institute study that came down recently that indicated that if CPP premiums continue to go up and EI premiums don't go down, the cost could be 200,000 Canadian jobs? If you're in a situation where your company is breaking even or even losing money, you have a profit-insensitive tax here, and that has to cost jobs, I would say.

Mr. Jason Myers: I would like to respond to that. Looking at any payroll taxes, both CPP premiums and EI, the government is looking at reducing taxes on personal income. A pretty big chunk of income is being paid in this form of taxation, and we're very concerned about where the overall rate of payroll taxes is going. If you look at the figures from 1989 to 1997, on an hourly rated basis, payroll taxes and supplementary labour benefits have increased by 97% over that entire period of time in the manufacturing sector only. Prices have increased by 18%, and the only way a company can face that type of cost squeeze is either by reducing employment, which was the case early in the 1990s, or by investing in technology and productivity improvement. This would add value so that the products and services that are being produced give the company an ability to pay that type of compensation.

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Especially looking at what we're going to see in terms of CPP premiums in the future, I don't think we can afford to go into the next couple of years with payroll taxes continuing to increase without taking action to reduce EI where possible and of course to provide for further incentives to encourage the investment in innovative production.

Mr. Monte Solberg: Mr. Wilson wanted to comment.

Dr. Roy Wilson: Sir, I made mention of this not simply because we are low users—that's taking a fairly narrow view—but because in all of our provinces now our budgets are tightly controlled. In nearly every province of Canada we no longer have taxing rights of our own, as you know, as school boards. We work on reduced budgets, and any leeway we would have in those budgets to address the problems I'm speaking of today would be welcome. This would certainly be a help to boards in terms of having more flexibility in budgeting to address some of the concerns they have if there was a reduction. So that's also where I'm coming from on that matter.

Mr. Monte Solberg: I just have a follow-up comment. Mr. Wilson mentioned child poverty. It's a fact that in the last several years disposable incomes in Canada have dropped like a stone. Many people are really feeling the pinch. You haven't talked about this, but I might invite you to consider it. One of the ways to ease the burden on these people is to lift, for instance, EI premiums, but other taxes as well. In fact, something like two million Canadians who have incomes under $10,000 are still paying high EI premiums or premiums that are higher than necessary.

I do have a question, too. You use the LICO as your definition of poverty even though StatsCan does say the LICO shouldn't be used synonymously with the definition of poverty. Why are you still using that, and would you be willing to look at other definitions?

Dr. Roy Wilson: We're still using that and it's still accepted as a standard definition. I wasn't here to discuss the actual definition. We want to talk about the problem, but I appreciate that point you made and also the point about how to reduce it, whether you do it through looking at the taxation that poor people are paying or whatever.

We think there's enough intelligence here in Ottawa to address some of those concerns. We're telling you what shows up at the door. If it isn't fixed, then the kind of contribution we can make to these people in terms of supplying workers for them is not going to be satisfactory.

Mr. Monte Solberg: Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Solberg.

Mr. Stoffer.

Mr. Peter Stoffer (Sackville—Eastern Shore, NDP): Thank you very much, Mr. Chairman. On behalf of the New Democratic Party, I wish to thank you all for coming and taking time out of your busy schedules.

I have to admit I was quite concerned that not one of you, when you mentioned EI reductions, ever said perhaps it should go back to the workers. Not one of you ever said that. You all said it should go back to employee and employer reductions. The fact is 36% of all employees who pay into EI now can collect premiums. In 1990 it was in the 80 percentile.

I'm not going to give you a history lesson on it, but EI was set up, as you all know, to help workers in transition periods. They were either laid off or in seasonal work, and for reasons unbeknownst to themselves they couldn't get full-time work. EI was set up that way, and of course Mr. Kirkpatrick indicated that the government was also a major player but then backed out of it.

I can't agree with you more, sir, about investing in the infrastructure: roads, airports, ports, anything in this country that helps development in this country and helps to create work and attract business.

I disagree with the fact that none of you in this room said that the employees, the people who are laid off through no fault of their own, or who are threatened.... There's more harassment at workplaces now because if a person quits a job it's very difficult for them to get EI premiums, and I'm thinking in a lot of cases of women.

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Ms. Dunbar, you mentioned that DFO is just an organization that gives out TAGS and concentrates on TAGS. If you were sitting in La Scie, Newfoundland and made that comment, Madam, you would probably have a hard time getting out of the room. That was a very insulting comment. I hate to say that to you in those terms.

TAGS is administrated through Human Resources Development Canada. I agree that TAGS as a policy was a complete failure in this country, but in the end it managed to put food and other articles on people's tables for them to get through a crisis in the fishery.

The folks here are discussing child poverty. If you want to see it, just go to Newfoundland, to Labrador and to Nova Scotia, if you don't believe it exists.

After TAGS was prematurely cut in August 1998, which was almost six months prior to a written commitment by this government to see them give income support until May 1999, what happened was 11,000 people in Atlantic Canada and Quebec applied for social assistance. That means the responsibility for those people fell upon the provinces. The government just wiped its hands and said now it's the provinces' responsibility to take care of this. I'd give it consideration.

With regard to your concern on the aquaculture, you're right, it's very much a growing industry and this government must pay attention to that. As our party critic for Fisheries and Oceans, we have grave concern over the open net and closed net systems. And you say you're competing with the colder water countries like Norway. As you know, they spent almost $100 million U.S. re-engineering their aquaculture industry because of all the serious errors in their start-up programs.

I would like to discuss those concerns with you on a more personal note later on. I agree with you; you're right. It's a growing industry, but it must be one that is sensitive to our environment as well.

There is also the old slogan, “Wild salmon don't do drugs”. A lot of people in this country really are concerned about fin fish because of what pharmaceuticals are in them. Your organization needs a better public relations plan and a communications plan for the Canadian people. You need to discuss exactly what aquaculture means and what the fish are surviving on, what they are eating, and what you are doing to promote better health for them and for consumers as well.

The Chairman: Could we go to the questions? It's been a long preamble.

Mr. Peter Stoffer: Basically, Mr. Myers, you asked for a reduction to EI premiums, and I assume you're saying that because it would create jobs.

Mr. Martin, the finance minister of Canada, went to Halifax. The Chamber of Commerce represents 11,000 businesses in the metro area of Halifax. He asked them if he reduced EI premiums by 20¢, how many jobs could be promised by anybody in the room. Not one person in that room raised their hand.

So my question to you, Mr. Myers, is how many jobs could you promise Canada or, on a statistical basis, could you promise this government and the people? If EI premiums were reduced to business, how many jobs could you see in the foreseeable future?

Mr. Jayson Myers: I'd certainly be glad to provide that type of analysis. I'm not so sure if you reduce EI premiums that you're going to lead to a tremendous number of jobs being created. That's not the point we're making here. I certainly think there would be some job creation taking place. What's going to create jobs is the state of the marketplace.

My concern is that the way the system is set up now, with payroll taxes increasing if the economy turns down, then we're certainly into a period where it's much easier to lose jobs. If you're really looking at the impact of the economy on employment prospects, you have to be concerned about that.

When you look at the general condition of business in Canada today, I'm not so sure that employers or employees, or workers, as you referred to them—and I count both employers and employees as workers—can afford to continue to see employment insurance premiums stay at this level. That's our point.

I can't commit to the fact that jobs are going to be created. I can provide economic analysis that would show that if payroll taxes were reduced, that would be the effect. From a business point of view, it's extremely difficult to say that this alone would necessarily lead to job creation.

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Mr. Williard Kirkpatrick: Mr. Chairman, there was a comment earlier about the benefits that are provided by the EI program. You'll note that nowhere in our submission do we in any way indicate that the benefits should be reduced. In fact, reducing the annual rate benefits every employed Canadian, because the amount of tax they have to pay is reduced. So if we were to reduce the rate from $2.90 to $2, hundreds of dollars would be put into the pockets of every employed Canadian.

The Chairman: This is your last question, Mr. Stoffer.

Mr. Peter Stoffer: Mr. Kirkpatrick, I agree that you can't spend money you don't have, and money left in the hands of individuals is probably better than in the hands of the government sometimes.

Consider a reduction of that dreaded tax that most Canadians do not like, the GST, or the HST, which is what we have in Atlantic Canada. There are actuaries out there who say that every 1% reduction of this can create 45,000 jobs in this country. Probably the fairest reduction of taxes for every single person in this room and across the country would be a 1% reduction of the GST. We could keep reducing it until this is finally eliminated. Wouldn't you agree, sir?

Mr. Williard Kirkpatrick: Mr. Chairman, in our brief, we said that one of the things the government has to look at is tax relief for our citizens. Clearly, you have to think about which areas of your tax structure you're going to look at. Whether you choose to select personal income tax, GST, HST, or whatever, we haven't said which one is better than another. All we're saying is that in combination and conjunction, there must be some reduction in the rate.

Mr. Peter Stoffer: Thank you.

The Chairman: Thank you.

Mr. Szabo.

Mr. Paul Szabo: Thank you for your presentations.

Just for emphasis, I really just want to direct my comments to Mr. Wilson and Ms. Pierce.

I just want to thank you very much for raising again, as many others have, the issue of investing in children. It's an issue to which I think Canadians are not as sensitized as they should be, unfortunately.

In fact, the 1996 National Longitudinal Survey of Children reported that 25% of Canadian children enter adult life with significant emotional, behavioural, or social problems. The ripple effect, not only through school but basically for the rest of their lives, is costing each and every one of us enormous resources simply because of increased health care costs, social program costs, education costs, and criminal justice costs.

I think the UN report with regard to children was bang on when it said that children are our future and they indeed have the first call on the resources of the nation. So I applaud you for your focus to bring it us.

I did want to ask you, however, about the poverty angle. Child poverty is really a political synonym for the more fundamental problem of family poverty. Dealing with poverty in that sense is not simply throwing money at the bottom end, because it effectively constitutes approaching a guaranteed annual income approach, which means that it's a very non-productive approach to things.

We need obviously a broad range of initiatives. We need jobs for Canadians, training or assistance for those looking for work, and better education. He have to work with high school dropouts and do a whole bunch of things that are simply not going to happen. There are also many social problems that have to be addressed.

Lone-parent families account for about 12% of all families in Canada, but they generate 46% of all children living in poverty. This is not poverty as a result of simply not having a job, it has to do with almost a manufactured poverty because of an erosion of social values.

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I ask whether or not you have some comments on that and whether or not, in terms of the investment in children, you would agree that investing limited dollars now might be better focused on the formative years, say up to the age of three, with regard to stimulating the quality of care given and promoting better neural development and better physical, mental, and social health outcomes in children, which hopefully will then lead to a better case for maybe an enriched pre-education strategy.

Dr. Roy Wilson: Thank you. You've asked about three questions, so I'm going to comment on that, and then I'll ask Ms. Pierce as well to fill in. I think I won't get around to everything, as you mentioned so many things.

We're optimistic that in many of our provinces, if not all of them, there's a definite move toward coordinating children's services. Where that's happening, I think some of the issues you speak of in terms of the poverty concern lying just beyond the child—this is in the family, in the community in many senses, in values, and what have you—can be addressed as we prepare ourselves better at the provincial level to address this. I'm encouraged by what I see happening in my own province, British Columbia, and other provinces, where they are actually moving very aggressively to bring these things together in terms of a coordinated effort.

In the research we had done and on which we're moving, we realize as well that some of the programs we instituted at the school level could also go beyond just working in schools to involve families and parents. We were so much aware of the very thing you said: the problem is something that comes from somewhere else, and it's not just the child alone.

A lot of the work we looked at was much broader than simply, for example, feeding the child in school. It went beyond that to try to include the parents. That was clearly the case. Although, as you know, our mandate really isn't anything below kindergarten, we realize that this is where it all is in terms of the head start that children can get.

At a recent conference of ministers of education, we were there advocating having a real concern about addressing the early childhood years as important even though it does lay beyond our own mandate. Yet we know that we can't fix it by five or six; this has to be fixed much earlier.

I really wanted you to stop talking, because you make it now look so depressing. It's so big a problem that one wonders where to start. We're just nibbling away at it here. We only have our small piece to worry about, but we know it goes beyond that.

Ms. Pierce, I'll let you add to that.

Ms. Marie Pierce (Executive Director, Canadian School Boards Association): I think we would agree with you about the importance of early intervention programs. One of the key components we've been looking at in encouraging the provincial ministers of education is looking at that mandate, to expand it beyond just when the children get into kindergarten.

I know a lot of people say that what we have to do is test the kids when they go to kindergarten to see if they have this disadvantage so we can try to address that. But we also agree that we have to work with child care workers and other agencies on much younger children to try to ensure that when they go to school, they are ready to learn or at least have a better opportunity to take advantage of the programs we do have in the schools. A lot of our schools are now working with teenage mothers to try to ensure that they stay in school and to help them with their children. So we have recognized that it is a problem much beyond the mandate we traditionally have as school boards.

We also recognize that because we do have schools and school boards in mostly every community, school boards can take a leadership role in trying to bring together all the other partners. Too often, we have turf warfare where we don't work together. That's because if we helped you here they'll take money away from us there and we couldn't maintain our own staff for programs.

We're trying to overcome some of those difficulties and recognize that there are some good programs. One of the common elements in a lot of the programs that work is the cooperative nature and the integrated service approach, whether it's a child care worker, social worker, or the youth justice people.

We want to focus on early intervention. However, we can't just say that because we know early intervention works we won't deal with the children who are in our schools who have difficulties, because we have to do both as well as recognize the importance of early intervention.

We have been finding that the link between children who get into trouble with the law, such as young offenders, relates also to the incidence of poverty in their homes. We have to deal with all of those issues because these children are in all our schools. But I do agree that early intervention is one of the prime areas we'd like to focus on.

Mr. Paul Szabo: I'm sorry it's a downer, but do you know what? It's the truth. I encourage your involvement because it's important. If children are not ready to learn, you can't do your job either and your success rates are going to be diminished as well.

I wonder, just very quickly, whether you were aware that there was a major conference on children here in Ottawa just about two or three weeks ago.

Ms. Marie Pierce: Yes.

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Mr. Paul Szabo: Statistics Canada actually came out with what I thought was a very significant pronouncement. They said the quality of care during the formative years was the most significant determinant of health outcomes of children. In fact, this could correct or address any of the disadvantages or even damage caused by poverty or related to poverty considerations.

You were aware of that?

Dr. Roy Wilson: Yes, we were there.

Mr. Paul Szabo: You were there. Okay.

Thank you for bringing this important issue again before Canadians.

The Chairman: Thank you, Mr. Szabo.

Mrs. Redman.

Mrs. Karen Redman: Thank you, Mr. Chairman.

I'd like to thank all of you for coming. As has already been stated, employment insurance is an issue that I think almost every presenter has dealt with. I think one of the witnesses referenced the Mintz report. The Mintz report told us that our corporate tax structure is probably, in relation to the G-7, not very far from where Canada wants to be. Our payroll taxes are actually relatively low when you use that yardstick to compare us with other G-7 nations. However, our personal income tax is high. That's something we need to continue to address.

Each of you has made some very valid points. However, it's interesting that you all hit on EI, because since 1986 it has been part of consolidated revenue, as I'm sure everybody at the table knows. So there is no magic pot with $20 billion potentially sitting there, or whatever figure you choose to use. It has been spent.

Part of what it was spent on was bringing the deficit under control and paying down the debt, which obviously several of the witnesses have pointed out as a direction in which we need to continue to go. It has also funded some of the things in partnership with the provinces through the CHST. This speaks to the very issues that Dr. Wilson raised on behalf of Canadian School Boards Association.

I find it interesting that nobody mentioned health care around this table. It's certainly something I hear in Kitchener from my constituents. It's certainly something this committee heard right across Canada.

So I guess my question for you is really whether you can put our hat on for a moment and acknowledge that, yes, people are collecting fewer EI benefits. Those revisions were made at a time when we had our backs against the wall. A lot of Canadians have contributed to the fact that we now are on sound fiscal footing. That does us well domestically as well as internationally, and we do want to have a strong economy for all Canadians.

Having said that, I would say yes, infrastructure is important. CIDA needs to continue to fund good international programs because that does it well. Yes, child poverty is a huge issue. But I also hear from a lot of people that health care is too. So where do we find the balance? There are only so many pennies in the pocket to go around.

As much as people are receiving fewer EI benefits, one of the strategies that were used was the fact that we were trying to break that cycle of dependency and encourage people to retrain and get back onto the road of paid employment, because that's really what most people on EI and welfare want.

My challenge is not going to be directed at any single individual, but at where that balance is that we as a finance committee need for making recommendations to the Minister of Finance that won't jeopardize the gains we've made as a country. These gains were largely contributed by every Canadian. All of the people you represent have contributed to the good fiscal picture we now enjoy. So where are those strategic expenditures that we need to make, acknowledging that health care and education are the two hot buttons I hear about right across Canada?

Mr. David Manning: Thank you very much for raising that. We do a survey every year.

It's difficult when you come to one of these committees because we have a very limited period of time, a lot of members, and a lot of issues. And who knows who has gone before and who will follow? You have a pretty diverse crowd. You have aquaculture sitting over there, and you have kids over here. I think between the two of us, we account for nine children.

Voices: Hear, hear!

Mr. David Manning: So is it important to Greg and me? Absolutely. Would we love to come and talk to you for an hour? Absolutely.

We lost our friend from the maritimes, but the biggest growth area for the oil and gas industry right now is in the maritimes. And yes, TAGS was a struggling program. We still think the best hope is employment. We still think that the best hope right now in the maritimes is my industry and aquaculture combined. We think that's a great opportunity, but it requires a whole lot of education and training. We have a tremendous resource there, as you well know.

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In our survey, the top priorities were: jobs, 71%; health, 70%; and education, 66%. Where's the other stuff? Well, it slides on down.

Take the environment. Some would have us believe that the environment is always the most important thing or that it just stays right below the surface. Well, it's down in the 49% range, which is still pretty important, but compared to health, education, and jobs, we know where the focus is among Canadians.

Of course, we also know that if your health system is in disrepair, it doesn't enhance the real issue for our industries, which is in fact to attract the best-skilled people.

I think I probably speak for most of those on this panel. Brenda is in a high-technology industry. We have a high-technology industry. It's very frustrating for those of us in the resource sector when we hear about the knowledge-based industries. We hear a lot about the knowledge-based industries in Ottawa.

First of all, which are the non-knowledge-based industries? Which are the dumb industries? That would be my first question. We have a very high utilization of technology in computers and what not, which all requires education. First and foremost is training. We know it's a balance. We also think there were a lot of political gains made in terms of balancing budgets and lowering costs.

Some would argue that we have moved too aggressively on the health care side. But having been involved on this issue for a number of years, I see that part of the difficulty of the 1980s was that the population was not increasing. Disease generally was not increasing, but utilization was going up dramatically. It was climbing at a rate of 15% per year.

So I had the misfortune to be involved with the provinces from a legal standpoint in my former life in trying to help sort some of that out. That's a real challenge. Technology has given us a tremendous amount of gain, but it also comes at a price.

Do we need to hang onto the Canadian respect in the system? Absolutely. Are we a model for the world? Of course we are. Are we going to be under increasing demands? Absolutely.

I guess that's why you do what you do and we do what we do. You're the balancing act, but we have to do the best we can to call for the conditions that will allow us to grow.

We have a very real risk. This is the year of the oceans. There's going to be a major event in Nova Scotia in a couple of weeks, and we suspect that there will be a major environmental move made on the Gully. That will have a dramatic, potentially negative, impact on our industry, aquaculture, and others. It will send a very difficult message if it's done in a very rash way.

Last year, our industry created a park. We wrote a letter jointly with the World Wildlife Fund with the oil logo on one side and the panda bear on the other. The letter was signed by me and Monte Hummel. We wrote to the Premier of British Columbia demanding that he create a park.

So 26% of the Northern Rockies Park is off-limits. We're allowed to operate in 74%, with the highest-possible environmental standards. Pad drilling, heliportable seismics, etc., cost much more, but we're maintaining the subspecies, etc.

So while we think we found that balance there, we aren't even getting that opportunity in the maritimes at the moment. We fear that the government will move much too quickly.

What I'm saying to you is that we're here to talk about balance, and given the opportunity, we'd love to be engaged. We want to attract the best people into our industry. We need the best educational facilities to maintain that competitive edge, but we also require quality of life. I think your point is very well taken, as is Paul's and Dr. Wilson's.

Thank you.

Mr. Williard Kirkpatrick: Mr. Chairman, living in a province that has gone through some rather dramatic changes in the way we provide health care, I would say that one of the ways in which better health care has been provided is through investment in better facilities. You've seen that the way the governments have been able to reduce their costs is in the investment in facilities. Within the fiscal structure within Canada, it seems to me that as far as the federal government's role in health care is concerned, you cannot look at it in total without looking at the investment in facilities very carefully.

It's the same thing with education. The facilities utilized to provide the services are a very key part of it. They're a very key part of the cost and the ability to stay on the cusp of technology. As a consequence, you have a way to directly impact the quality of the facilities. I think that's an area, if you want to look at health care, that you should look at.

The Chairman: Are there any further comments? Ms. Dunbar.

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Ms. Brenda Dunbar: Mrs. Redman, I just wanted to note that my family comes from Kitchener-Waterloo, and actually, both of my parents died in the past two years. They utilized the health care facilities of that region, which were excellent. I very much appreciated the quality of care that was available for people who live there.

Having said that, I guess as a personal comment I would say that looking at the importance of health care.... As businesses, there are many things we can do to help create jobs for people who live in Canada. So the scope of our activity or the opportunity for us to create that opportunity for Canadians is there as a basis of tax policy and other fiscal policy. But in the end, most jobs outside of government, of course, are created by industry, whereas in the case of health care in Canada....

I just spent a weekend in Chicago. Many Americans don't know about our health care system or they have incorrect information. But in Chicago, where there's a well-informed population, they know a lot about Canadian health care. The message we get is that we have, or have had, a superb system and that we should be commended for that.

I see a role for government that would be just like keeping fish healthy. They're one of our biggest assets. We're obviously not in the business of selling people, but in the case of fish farmers, fish are our biggest asset. What do we do to keep our fish healthy? Most of what we do, or learn to do, is prevention. As Mr. Stoffer pointed out—he's unfortunately not here to hear this comment—salmon don't do drugs. But in the case of fish that are raised, I guess he believes our fish do take drugs.

In fact, fish farmers use a very low percentage of drugs. Fewer than 2% of the fish that are grown are given drugs. Why is that? Drugs are expensive. Drugs create side effects. Drugs create a reason to have more people on the site to treat the fish, and therefore there are higher labour costs. There are many reasons, in terms of running a business, to keep your fish healthy, and you should do it in the front end rather than the back end.

I guess that's the same message I would deliver to the government. How can we, as levels of government, work together to design a system that encourages people up front to develop healthy lifestyles, minimize the number of visits they pay to doctors' offices and hospitals, and to not believe they need to have every test done that's known to man to determine what's wrong with them if indeed their diagnosis can be determined with less? Generally, they should not expect too much from the health care system unless we're all willing to pay for that. We all have to be good managers of our money, as we are in other areas, to ensure we have the most effective health care system possible.

The Chairman: Thank you, Ms. Dunbar.

Mr. Pillitteri.

Mr. Gary Pillitteri: Thank you, Mr. Chairman.

Thank you very much for the presentation this morning. I find it a little tough, really, to accept all of these demands. We talk about the things that should be done, and you come up here with a package.

Let me put it in my perspective, how I see it. We talk about taxes being too high in Canada in terms of income tax, corporate tax, business tax, GST, and EI tax. It's all taxes. There's no differences in taxes. Yet then we compare it to taxes south of the border. Compare corporate tax and income tax. They have no GST. We forget there's a higher contribution in the form of EI and those types of taxes in the United States. Say we didn't have a medicare system. We forget really how much it would cost us employers to provide that to our workers. That's a benefit to Canadian manufacturers and producers.

So there's almost no difference. We're getting the mergers of the banking institutions. What everybody's talking about is all cherry-picking. That's all we're doing here.

• 1250

Specifically now on the issue of the EI fund, everybody's trying to pick on this one here. Mr. Myers made a recommendation that the EI fund should be reduced by 90¢. A 90¢ reduction would be about $6.3 billion. He also made a recommendation to increase the contingency fund from $3 billion to $6 billion. That puts another $3 billion in there. I'm not a mathematician, Mr. Chairman, but that's about $9 billion or more that would be taken out or would not be there.

So what I'm trying to say is that seeing as it could only be a dividend—one Canadians paid dearly for through some of the cuts that have occurred—of about $3 billion to $6 billion, then either the government forgets about medicare, about this dividend Canadians have been promised they should get part of.... Two things; either we forget about enhancing medicare and other social programs for which we paid dearly in the last few years in order to get our house in order, or we forget about that and just go and.... There's not even enough from the demands to fulfil those by the EI cut and higher contingency.... Being a politician, as some of you have said, I think we owe something to the Canadian people in this social dividend, as we call it. They've paid the price in the last couple of years.

Are there any comments?

Mr. Jayson Myers: I'd like to answer that directly, or at least the thing on the EI and contingency fund, and then I'd like to have John Allinotte respond on the tax levels.

With EI and the contingency fund, our biggest concern here is that, faced with a slowing economy, if EI premiums are not budgeted downwards we're going to see exactly the same thing as happened back in 1990 take place once again: premiums going up at the expense of jobs and less and less ability to fund what government commitments have been made, so at the same time the surplus, at least in that account, would be shrinking anyway.

I think the other reality here is that we are facing a major uncertainty around the year 2000 problem. The government is providing, with National Defence especially but also police forces, a response to that problem. But we don't how bad that problem is going to be. We don't know what the impact is going to be on the economy and we don't know what the impact is going to be on the government's ability to collect revenue.

Those are two considerations that really do require the government to look very differently at whether or not it has a surplus next year, and to budget accordingly. Our recommendation was that some of the contingency fund, if not required, be used to pay down the EI account.

But I do want to have Mr. Allinotte respond with respect to what you said, Mr. Pillitteri, on tax competitiveness, because I think from the point of view of business it's not that competitive, and particularly when we look beyond the United States at some of the other economies where companies are looking at investing today.

Mr. John Allinotte: In regard to your comment that we compare ourselves to those south of the border, when we speak about the payroll taxes, your comment is correct. The standard of living that the Canadian population enjoys because of the indirect and direct taxation through EI premiums and health care costs, or CPP, however the situation is allowed, is a better standard of living relative to that south of the border. But when we take a look at corporate taxation, we do not compare ourselves solely to the U.S., because the U.S. is no longer our only competitor. We have to look to the world with regard to where our competition is coming from, and from that standpoint, the Canadian corporate tax system does not provide a competitive tax situation.

• 1255

One of the things Canada is very proud of is the fact that we have a very lucrative R and D investment tax credit to encourage research in this country, yet we are always criticized from the standpoint that we are falling behind research being done throughout the world.

One of the reasons for that is that for companies to do research in Canada they generally have to transport it out of Canada to commercialize it, because our tax system in Canada does not make it competitive to bring it into commercial production. Consequently, if our tax system went beyond simply doing the research, and started to benefit infrastructure with an investment tax credit relative to production equipment and facilities, that would encourage companies to develop the research, it would add to the jobs and the prosperity of Canada. And what we are seeing today, and what we've enjoyed over the last few years, of growth in Canada is about to change.

My background is with the steel industry. We are seeing hordes of imports from third world countries coming into North America that will cost this country many jobs if something isn't done about it, and part of it is giving us a competitive tax system.

Mr. Gary Pillitteri: Yes, I do understand what you mean by corporate tax, but let me also clarify something about corporate tax in Canada. We're about in the middle of the G-7; we're not the highest, we're not the lowest. And if you take a look at all types of taxes, the ones I've just mentioned, put together from the G-7, only one country is lower than us in total tax and that is the United States. Italy, France, Germany and Japan are all higher. The only one that's fairly close to us is the United Kingdom. So we've looked at those.

We could cherry-pick certain issues about our taxation system, but in reality, in those countries that I mentioned, and specifically if we take a look at south of the border, the reason they are lower is that they do not have the social programs that we have as Canadians, that we have learned to enjoy, specifically medicare and the advantage it gives us over their corporate...in the United States.

I thought I'd make those comments. Thank you.

Mr. Jayson Myers: Mr. Chairman, there's no doubt that the provision of social services, especially health and education, here in Canada is a major advantage for companies. When we ask companies about what the major consideration is for making an investment location, the provision and access to skilled labour, for instance, rates very highly indeed. So there's no doubt about that.

The question here is, given that this is a competitive advantage and is expensive, given that the size alone of the American market is a major attraction for investment, given that.... I'm not here to argue about how great the G-7 tax system is in Germany and France, because it's not, but I'd be making an even stronger argument if I were before a finance committee in one of those countries.

Now, jurisdictions like Ireland and Singapore, and today India, are the jurisdictions for investment where global companies are looking, and many Canadian companies as well are looking around the world. We are losing highly skilled labour, especially into the United States, and it's not simply the tax system. A great deal of it has to do with the fact that the career opportunities are there in the United States, that companies manage innovation better in the United States, and Canadian companies have a great deal to do to improve the career prospects for any young person here in Canada.

But given all that, I think we have to start looking at a maybe not-so-long-term strategy, a three-year strategy to begin to coordinate our efforts on tax and investment. Even our EI request or recommendation is over a three-year period. I think we have to put all of this together and make it a much more coordinated and rational system than it is right now, and get rid of some of the contradictions that exist not only in our regulatory system but in our tax system as well.

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The Chairman: Thank you, Mr. Pillitteri.

Before we go to Ms. Meredith, I want to go back to an issue that speaks to a framework. I've been advocating a productivity covenant for this country where that would be in fact the key component, where we would see everything as a function of productivity. We all know this word scares a lot of people. Productivity has nothing to do with people being lazy or not. Productivity is really the reason we enjoy the standard of living we do today, and if we don't work on this particular issue, it will be the reason we won't be enjoying this standard of living for a long time.

I wonder whether the time has come in this country's history to really start focusing on that particular issue much more than we have in the past, so that your tax arguments, the innovation issues, the education issues, everything, comes through a filter where there is an overall vision that embodies the kind of discussion we are having, rather than everyone showing up in front of the finance committee or anywhere else in this country and advocating and trying to pull something that they want in their own sort of turf-protection way.

The reality is, Mr. Kirkpatrick, when you talk about infrastructure, if you view that in relationship to a productivity agenda, it may make a lot more sense than if we were looking at it in isolation. I wonder if you sense the same thing as I do, that as a nation we need to start looking forward, that a one- or two-year vision is simply not enough, that we need to plant markers on many issues rather than focusing just on the immediate. I'd like to get from this panel a sense of what you think about a productivity covenant.

Mr. Williard Kirkpatrick: Mr. Chairman, I'd like to start.

First of all, I want to compliment you on your perception of the connection between a nation's infrastructure, its roads, its railways, its highways, its airports, and all of the other facilities, including its hospitals and its schools, and how that impacts the quality of life and the productivity of a country. Countries invest in their infrastructure when they're poor, and they become rich. I haven't seen a rich country yet that invested in infrastructure after they were rich. Infrastructure came first.

As a consequence, I think if we're going to look to the future, one of the things we can do is look to the past to see what made this a great country. What made this a great country was that we invested in our railroads, in our ports, in our schools, and in our hospitals, and we created a country with a standard of living and a productivity that may not be what we would like, but we are still a very desirable country to live in. I think if we don't continue to look at the past and see how we got here, and invest in a similar way to get to the future, we will find ourselves in a real problem in 10 or 20 years.

Mr. Michael Atkinson: If I might add, to even put more emphasis on the point you've raised, when you're looking at the essential physical infrastructure of this nation's national highway system, even its municipal infrastructure, for which the current government did have a program at one time, currently there is absolutely no plan—not even one, two, three or four months, let alone years. That says a lot about a country's future, when the infrastructure is so essential and so important to its long-term prosperity and there is no plan whatsoever.

Forget about the size of the investment. Forget about coming and asking how much we have to invest. The fact is there is no plan. There is no one in this country at any level of government who has a plan with respect to how we care for, upgrade, enhance, and maintain our essential infrastructure in this country.

So I would very much also like to applaud your way of looking at this whole problem, because it isn't just a problem for this budget when we talk in terms of things like infrastructure, health, education, and the other things we've talked about here today. We have to look ahead more as a country to what investments we have to make today to make our children's and our grandchildren's Canada a better place to live. So I really would applaud that long-term look.

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Mr. Chairman, one of the problems has been that “a long time” for some politicians has been defined as the next election, and “eternity” as the election after that. So from that perspective, part of our long-term planning really has to be long term—10, 20 or 30 years out.

The Chairman: In this committee we've abandoned the electoral map and we've gone for a generational map.

Mr. Myers.

Mr. Jayson Myers: Mr. Chairman, your suggestion makes a great deal of sense, and certainly we'd be happy to work with you on making that type of conference work. That's exactly what we should be aiming at, an overall vision here for the country in terms of fiscal policy that we can aim to productivity growth.

Looking at the experience of Canadian industry over the past decade, productivity is not just about cost reduction; it's also about adding value, and that's been the secret of the success of Canadian manufacturing and exporting.

It's interesting if you look at productivity improvement, at value added per worker in Canadian manufacturing. It increased by 34% in current dollar terms since 1989, and all of that improvement has taken place since 1992. It did not follow all of the lay-offs, where 450,000 jobs were lost between 1989 and 1992. Productivity stayed flat during that period of time.

Productivity increases have come about as a result of adding value, and that really preceded the growth in employment, the 500,000 net new jobs in manufacturing since 1992. It preceded the compensation increases; we're running at about 3.5% a year right now. And it preceded the reduction in unit labour costs that has helped the long-term competitiveness of the industry.

So if we can somehow take this notion of productivity, which is vitally important, we can make people understand that this is not just about cost reduction and lay-offs, it's about adding value in the Canadian economy and how we can do that. And value can come in a lot of different ways: in terms of economic value, in terms of infrastructure, in terms of health care, in terms of education. A great deal of the problem in setting priorities in the fiscal side can then be met.

The Chairman: Mr. Manning.

Mr. David Manning: Productivity, Mr. Chair, is paragraph one in every business plan in our industry. Our industry has to compete all over the world. There's no real difference in the molecules, no matter where they come from. When we talk to the financial planners, who run our lives more so than I care to admit, publicly they always use the two words “productivity” and “Canada” in the same sentence when they talk about the Canadian currency value.

You have set the context. I think we have the human resource potential. We have some infrastructure. We have the educational institutions. We do have the people, and God knows we have the natural resource base. So the disconnect, I would suggest, is exactly what you said; it's the productivity. You have put in context the conversation we must have.

The Chairman: Thank you, Mr. Manning.

Mr. Déoux.

Mr. Patrick Déoux: Planners may not be experts in taxes, except perhaps the real estate kind, but we are definitely experts in vision. We develop that as part of our work.

I would like to point out that the submission we made was precisely about a vision for the long term. It was about investing in young people and creating jobs for them. It was about developing the skills that these people in the next few years will need to build a healthy economy in Canada. Building healthy neighbourhoods is directly related to the health that Mrs. Redman was talking about, the health of the population.

For us as planners, health is very much a concern. We work at it at the community level. The quality of life we try to develop is very much part of the individual health that people will live, and so is the economy.

So I definitely go along with developing a vision and perhaps keeping in place some of the government investment that is short term for now but seems to be having a very important long-term effect.

The Chairman: Thank you.

Are there any further comments?

Ms. Dunbar.

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Ms. Brenda Dunbar: I just wanted to point out that the alliance is one of 29 human resource sector councils established by Human Resources Development Canada that cover a significant portion of the Canadian working population, well over 60%. The model developed out of the sector councils is unique to Canada, bringing workers, unions, employers, educators, anyone who's interested in human resources issues to the table to develop training and education programs for a particular industry.

We also come together as sector councils in a council of councils, where we share our information with respect to who we use as consultants, what plans we develop to get from A to Z. We generally explain to each other what each other's industries or sectors are about, what problems we have and what solutions we develop to help each other solve our problems. That model is now being peddled internationally, through the help of CIDA, as a new approach to bringing the parties together to engage people in human resource issues and to find new solutions to improve that element of the productivity model.

More Canadians should probably know more about that. It has been developed in the past five years. Perhaps this committee could look at this as one of the inputs to a productivity conference, where you already have many of the players coming together to discuss human resources issues. You could simply expand the agenda.

The Chairman: Thank you, Ms. Dunbar.

One of the initiatives that the Americans are in fact trying to copy from the Canadian economic model is working quite well, particularly as it relates to young people. I remember making an announcement where 1,000 young people were taken on by some major car manufacturers that, as you know, recognize the shift from the mechanic to the auto technician. The sector councils really recognize those trends.

Any further comment? Yes, go ahead.

Dr. Roy Wilson: When I first saw the list of presenters today, I thought, my God, why are we here with all these people? It seemed out of sync, but it isn't at all; it's exactly in sync. I think your idea is excellent. The schools will play the part, as they have. We're accountable; we're prepared to compete; we're prepared to show our results. Our only concern is also what Mr. Szabo so eloquently underlined. We're worried, though, about all those children who can't get on the competition train. So if we can keep them and bring them along with us, we're there, we're with you in terms of anything you plan.

The Chairman: Thank you.

Ms. Meredith.

Ms. Val Meredith (South Surrey—White Rock—Langley, Ref.): Thank you, Mr. Chair, for the opportunity to ask a couple of pointed questions.

I represent a constituency in British Columbia, which is bordering on the United States border. I probably don't have to tell you people here just how many business people, how many professional people, how many young people are moving down to the States. They're taking their assets, they're taking their spending dollars, and they are moving down to the States. For example, a specialty paint operator who used to buy his materials in Canada is now buying his materials from Georgia and he is operating out of the States because of the tax structure. If we don't recognize that and deal with it as a country, we will be the worse off, obviously.

Because of my type of constituency, I have individuals who are concerned about the cost of transporting goods on both sides of the border. Some have difficulty with some of the American policies. One is called Buy American. I want to specifically ask the manufacturing industry and the construction industry these questions. Do you run across this problem, where we have this Buy American program that interferes with NAFTA? What do you feel this government should do about it?

Mr. John Allinotte: I can comment with regards to the U.S. concept of Buy American. Constantly we are dealing with a North American industry relative to steel. Constantly the steel industry in Canada is being charged with dumping into the U.S., and I can tell you that the Canadian steel industry does not dump its product. The productivity we have developed in the last 10 years has made us competitive to our U.S. counterparts and consequently they use their trade laws to try to hamper us.

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Ms. Val Meredith: I want to talk about infrastructure and particularly the road network we have. I did two cross-country trips, one on the Trans-Canada Highway, and because of that bad experience I came back through the U.S. There is no comparison between the national road systems.

I understand there's a cost of almost 20% to 30% on consumer goods because of transportation. When your industries and organizations get together to talk about what can be done, is that something you look at?

I just want to add that I understand the extra time to transport something from Asia to Los Angeles is a day and a half, and in order to negate that extra day and a half of transportation time they are putting $2 billion into a cross-continent transportation network to be competitive with the routes in the northern United States and in Canada.

What do you feel this government should be doing to try to make sure Canada is not the end loser because of a transportation system that can't compete?

Mr. Williard Kirkpatrick: To answer that question, first of all we need a plan. We don't have a plan for our highway system.

Second, I would entirely agree with your comments that the Canadian road system is inferior to the American road system and that this is costing our manufacturers and our taxpayers money. It's causing a great deal of annoyance to taxpayers as well. Let's face it, if you hit a pothole every day you get mad every day.

Ms. Val Meredith: I wasn't thinking of potholes, actually; I was thinking of major routes for transporting goods east and west as well as north and south.

Mr. Williard Kirkpatrick: But still, the cost of transporting is a major cost in our country. We have a very large country, and the quality of our highways determines the time people spend on them. The quality of our highways determines the amount of time our citizens have to spend and therefore their productivity. So the quality of our highways impacts our productivity.

Incidentally, there's another study that shows if we had better-quality highways we'd have less pollution. The less time cars are on the road, the less pollution; the less greenhouse gas emissions we get.

I just want to have my colleague comment for a moment about one of the CRCI initiatives.

Mr. Michael Atkinson: We are part of a coalition that also includes highway users—the tourism industry, the trucking industry, etc. There's no question that we hear from them all the time about the costs they incur in moving goods west to east or north to south.

What is really serious is not so much our coming here and asking or suggesting that more money has to be reinvested in our highway system; it's the fact that there is no plan in place. There is a plan that's collecting dust at Transport Canada that has been approved by all the provinces. The one group that hasn't signed on yet is the federal government, but the plan is there.

On your question about Buy American, yes, we run into that once in a while, but what is more serious is what we meet with respect to our own interprovincial barriers and preferences. In fact many of our members find it easier to work in the United States than in a neighbouring province.

Ms. Val Meredith: Can I have a final question?

The Chairman: I'm sorry, Mr. Myers would like to jump in.

Mr. Jayson Myers: Just one quick point. We're certainly aware of the problems faced by businesses in British Columbia, due not only to their residency in British Columbia but moving their business outside the province. Certainly interprovincial barriers to trade and regulatory barriers in the transportation industry make it advantageous for many of those companies to transport goods through the United States rather than Canada.

With respect to the Buy American program, we find this often, particularly for any company selling to U.S. states or municipal jurisdictions. It really does have an effect, not only on manufacturers of standard products, but in the high-tech industry it's a major impediment to doing business. It's one reason we were so supportive of the Multilateral Agreement on Investment, because it would start to look at some of those problems.

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That's certainly a major concern. We're going to be talking further to the Department of Foreign Affairs and International Trade here in Canada about making it a priority of where we go in terms of our future negotiations with the United States, but also the WTO.

Ms. Val Meredith: Mr. Wilson, you raised the issue of the young people and the need to make sure they are well prepared. Having sat on the immigration committee when we talked about bringing in offshore workers to the tune of 5,000 to 22,000 people, I would like to know what your commitment is, as industries, to the apprenticeship and training programs your companies and industries require from Canadian young people. Why do we constantly have to look offshore to bring in skilled and trained workers, educated workers, when we have young people who can't get jobs? I'd like to know from all of you what your commitment is to see that industry dollars go into the training of young persons.

Mr. Williard Kirkpatrick: Our industry utilizes the apprenticeship system very extensively in our training programs. It's a system the federal government reduced its funding to by millions of dollars over the last three years. We contribute about 80% of the cost of training our employees through the fact that 80% of the training is on-the-job training. The apprenticeship system provides one of the most cost-effective training systems in Canada. We participate very actively in this training program through the CLFDB. I was the co-chair of the national apprenticeship committee for a period of time and I'm quite familiar with what challenges we have.

Our industry will probably add 200,000 employees over the next 10 to 15 years, at the same time we'll be losing older employees. We have a major training challenge ahead of us. We recognize that and will be doing as much as we can, as employers, to meet the challenge. However, we have not found a similar commitment on the part of the federal government.

The Chairman: Are there any further comments? Mr. Myers?

Mr. Jayson Myers: In our latest survey of our members, something like 70% of 542 manufacturing and exporting companies said the lack of skilled personnel was becoming a major impediment to performance improvement and growth potential. It is important and there are lots of factors that are driving that.

It's not simply the people who are coming out of school, although there's a big question about whether we're graduating enough technicians, engineers, business people, designers and marketers. Canada has the biggest rate of humanities graduates of any OECD country. There's nothing wrong with that. You can even become an economist and sit around doing this, but it is a problem. We are trying to encourage more immigration of skilled workers. But I think part of the overall productivity program is to look at the problems of bringing children into the education system and making sure they stay there and take a concerted look at the content of what is being taught there.

We are very supportive of the government's Millennium Scholarship Endowment Fund because this, in terms of the investment programs innovation fund, is putting money into education. It's important that it offset the different costs of graduating engineers versus humanities students.

But you were asking what business is doing. Again, according to the survey, 60% of businesses are increasing their training budgets. They are training more young people. In fact, if you look at the training that is being done by business, it is very specific to the technologies that are being used by business.

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But I don't think very many businesses are looking looking at providing literacy training or training in the basics. We depend on the education system to train young people in that. Maybe more companies should be doing that, but certainly it is a very focused approach in industry.

One of the big problems is that the young people who are unemployed generally do not have the background and the general skills, not necessarily the technical skills, required to fill some of these positions. That is a major problem and it's one of the major reasons you see this growing disparity between the employable young people in our country and young people who are not only employable but are going more and more to very attractive employment opportunities in the United States.

The Chairman: Are there any further comments?

On behalf of the committee, I'd like to thank you very much. It was an excellent round table and I think you made some excellent points. You obviously see the challenges we face. There are many, and the choices are many, and we need to prioritize, but we need to do it within a framework that looks not only at the present budget but well beyond it. After all, nations are built; it's work in progress, and you need to always have some long-term targets. It's the only way you can shape the future. Thank you very much.

The meeting is adjourned.