FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, October 16, 1997

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I would like to call the meeting to order.

This morning, at our first round table, we have representatives from the Canadian Centre for Policy Alternatives, from the Hospitals Employees' Union, from the Fraser Institute and from the British Columbia Federation of Labour. We will proceed in this fashion: Each group will have five minutes to make a presentation, pursuant to Standing Order 83.1—we are of course dealing with pre-budget consultations—and thereafter we will engage in a question and answer session, with members directing their questions to individual members of the panel.

To start, we will hear from the Canadian Centre for Policy Alternatives, represented by Mr. Seth Klein and Mr. Gideon Rosenbluth.

Mr. Seth Klein (Co-ordinator, British Columbia Office, Canadian Centre for Policy Alternatives): Mr. Chairman, thank you for this opportunity to appear before the Commons finance committee.

It's my pleasure to share the CCPABC's opening statement with Gideon Rosenbluth, a distinguished professor emeritus of economics from UBC and a research associate with our office. Professor Rosenbluth will address the issue of the method of deficit reduction thus far, and then I will deal with the issue of the fiscal dividend.

Dr. Gideon Rosenbluth (Canadian Centre for Policy Alternatives): Mr. Chairman, the government's approach to deficit reduction has been harmful, unwise and unnecessary. We've paid a heavy toll for the government's expenditure cuts and those it has forced on the provinces. Large holes have been torn in our social safety net, including health care and education. Our infrastructure is not keeping up with the population's growth and needs. Debt service costs have been raised by the forced substitution of provincial debt for federal debt. Tens of thousands of jobs have been lost in the public sector. The resulting unemployment-introduced growth has led to further job losses in the private sector.

As a method of deficit reduction, these expenditure cuts have been very inefficient because the resulting unemployment has increased the number of people requiring social assistance, unemployment benefits, health care, protection from crime, and even education. At the same time it has reduced tax revenue.

Most of this adverse budgetary effect has been pushed onto the provinces, but the public only has one pocket from which to finance both federal and provincial deficits.

By far, the greatest part of the deficit reduction that has been achieved has been due to the lowering of interest rates and to economic growth, and not due to the expenditure cuts.

What we learn from the fiscal history of the last twenty years is that there are only three ways to reduce the federal deficit that do not harm the economy: first, increased economic activity and reduced unemployment—as we've just said in reverse, this would raise revenue and tend to reduce spending in the area of social services, etc.—second, reduced interest rates, which reduce debt service costs; third, having more of the debt held by the Bank of Canada so that interest payments go back into government revenues.

These methods are of course related. Having the bank hold more debt lowers interest rates, while lower interest rates reduce unemployment as long as there is slack in the economy, which is our situation today.

This committee should demand that the Bank of Canada not increase interest rates. Such a move could wipe out the fiscal dividend. In fact, long-term interest rates should be brought down further. The long-term rate is still above 6%, with inflation running at less than 2%. That gives us a real interest rate of 4%, which is still exceptionally high by historical standards.

This committee should strongly recommend that the Bank of Canada go back into the business of holding a significant proportion of federal long-term debt, as it did in years gone by. This would lower debt service costs directly and would enable the bank again to operate in the long-term market in order to keep the rate at levels that do not restrict employment and productivity.

Mr. Seth Klein: With respect to priorities for the fiscal dividend, some have argued for across-the-board tax cuts. We believe this is ill-advised. Tax cuts are an inefficient way to go about the job of job creation. Evidence such as that provided by the forecasting firm Informetrica suggests direct government hiring and spending would create substantially more jobs than tax cuts. Moreover, government jobs are more likely to pay decent wages and are more likely to be in areas the public has identified as meeting some social or environmental objectives. Individual savings garnered from an across-the-board tax cut would also have a very regressive distribution. Wealthy individuals would save considerably more than low- and middle-income earners.

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One can make a strong case for tax cuts directed towards low-income people. This would certainly increase consumer spending. There's no reason to believe, however, that tax cuts for higher-income earners will produce similar economic benefits. High-income earners are equally likely to direct their tax savings towards investments in unproductive financial markets or overseas investments. Therefore, we recommend that there be no overall reduction in the level of taxes relative to GDP, and tax cuts for low-income people should be offset by tax increases for those individuals and corporations most able to pay.

The public sector is not, as some contend, too big. Federal program spending relative to GDP was 18% in 1993. It has now declined to 12%. That's a reduction of one-third in just four years. Moreover, according to new calculations we are gathering for this year's alternative federal budget, if the government proceeds with its plan to devote only 50% of the fiscal dividend towards new spending, government spending relative to GDP will continue to decline, as 50% of the fiscal dividend is unlikely to equal the growth rate.

As for what should be done with the fiscal dividend, we recommend that the committee and the finance minister carefully consider the policy recommendations outlined in the alternative federal budget. The fiscal dividend should be primarily directed towards new and strengthened social programs and an emergency employment investment program.

There is clearly now a need to reinvest. As the alternative federal budget sought to demonstrate, the government can reduce the overall debt-to-GDP ratio—at a faster rate than Mr. Martin is predicting, I might add—while increasing social spending and directing billions of dollars towards an emergency employment investment program.

There is a desperate need for more social housing, more elder care facilities and programs, a national child care program, and both traditional and ecological infrastructure. All of these programs are very labour intensive, and if pursued would dramatically reduce unemployment. We see as a first priority the repair and strengthening of the social safety net. The most effective means to this end is the reintroduction of the shared-cost transfers from the federal to provincial governments.

Mr. Chairman, we can afford to spend more. Canada is a much richer country today than when our current social programs were fought for and won. Per capita GDP, while it has declined in the 1990s, is 50% higher today than it was in 1972, when our social programs were at their peak. With respect to unemployment, research we have just released indicates that the government has nothing to boast about. If one takes into account the officially unemployed, discouraged workers and the underemployed, the adjusted employment rate is closer to 19%, nearly double the rate in 1989, the previous cyclical low, and higher than one year ago. The debt itself will over time diminish in significance as the growth alternative policies will promote and the gradual price increases eat away at the debt's real value.

Thank you.

The Chairman: Thank you very much.

We now will move to the representative from the Hospital Employees' Union, Fred Muzin.

You have five minutes.

Mr. Fred Muzin (President, Hospital Employees' Union): Thank you, Mr. Chairperson, and members of the Standing Committee on Finance for the ability to make direct presentation.

The 43,000 front-line caregivers who are members of the Hospital Employees' Union work throughout the health care system in British Columbia. We're also the B.C. health services division of the Canadian Union of Public Employees, and the largest union of women in the province.

For over 50 years our members have been strong advocates of preserving and improving public health care in Canada. We have watched in horror as the Liberal government adopted and deepened Mulroney's cuts to health care and other social programs. Paul Martin painted a rosy picture of the Canadian economy, but the situation for average Canadians is far from rosy. The so-called fiscal dividend will be achieved at great cost to ordinary Canadians—continuing high unemployment, unconscionably high levels of child poverty, and stagnation of real wages.

Corporate Canada, on the other hand, continues to prosper. Banks are positioned to post record profits of more than $7 billion this year. Corporate profits continue to go untaxed to the tune of $17 billion. Last year the top 25 CEOs in Canada, many of them intimates of the Liberal Party, averaged $6.12 million a year in pay and bonuses, and received average pay increases of 164%. Now corporate Canada and its political allies are clamouring for the conversion of the fiscal dividend into deep tax cuts.

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Our members will hold this government to its bottom-line promise of committing half the surplus to improved programs, but in our view, even that is too little, too late.

The government must move immediately to restore transfer payments to the provinces to the 1995-96 levels, and increase them at a rate that reflects growth in the economy. We don't need to wait for the fiscal dividend to kick in. Paul Martin can start making up for the $12.9 billion in Liberal program cuts by immediately imposing a 15% tax on windfall-inflated bank profits.

We must repair the damage done to our system of medicare and other social programs as a result of massive cuts to transfer payments. The damage has been extensive. This province received $600 million less in the current fiscal year in transfer payments than it did in 1995-96.

This has put a strain on the provincial government's ability to maintain and improve health care for a growing and aging population. We've been fortunate that our province has chosen to make up for federal cuts and provide additional funds for growth in health care. However, these transfer cuts have put severe constraints on the ability of the B.C. government to adequately fund other important social programs.

That's not the case across the country, where 24,000 health care jobs were lost between 1994-96. In the 10 years that ended in 1995, 50,000 hospital beds were closed nationwide.

In our view, this government must make a financial commitment to health care commensurate with its moral responsibilities under the Canada Health Act. The Liberal election promise not to proceed with $6 billion in planned cuts over the next five years falls far short of the mark.

Our pollsters tell us that one month after the federal election, four out of five British Columbians believed that federal cuts in transfer payments affected the quality of the health care system. I believe the government caucus received the same message quite loudly from voters in Atlantic Canada in the last election.

The government floated big plans for home care and pharmacare during the last election campaign. Home care may meet the needs of many Canadians if those Canadians continue to have access to a full range of professional caregivers. If the government's plans merely shift the burden of health care to family members in the home—primarily women—through tax measures that are inadequate to the cost of providing quality care, we will oppose those policies.

We support a national pharmacare program as part of medicare. Access to necessary medicines is as much a part of Canadians' right to health care as is access to health professionals, medical procedures, and health care facilities. Sadly, 3.6 million Canadians do not have prescription drug coverage of any kind.

To succeed, this government must stand up to the brand-name pharmaceutical companies and change the drug patent laws so that generic drugs can make it to market sooner. Otherwise, a national pharmacare system that provides universal coverage will be uneconomic.

I should add that the government's plan to dismantle the Health Protection Branch and its closing of the Bureau of Drug Research in favour of pharmaceutical industry self-regulation is both shortsighted and a representation of a further kowtowing of this government to the pharmaceutical giants.

Mr. Chairperson, the massive cuts this government has imposed on the provinces have undermined the health and economic security of Canadians. These cuts have hobbled our medicare system and invited a two-tier health care system to be established by default.

Broader cuts have also had a critical impact on the social determinants of health for Canadians. We urge this committee to put the public interest in preserving medicare ahead of the powerful corporate interests who would have you do otherwise. Thank you very much.

The Chairman: Thank you very much for your presentation.

We will now move to the Fraser Institute, Dr. Michael Walker and Mr. Gordon Gibson.

Dr. Michael Walker (Executive Director, Fraser Institute): Mr. Chairman, let me first of all indicate that Gordon has a life apart from his life at the Fraser Institute. We presume that his invitation was to him and his right as a former leader of the Liberal Party of British Columbia to be an outstanding commentator on the progress of Canadian economic and political affairs. In particular, since his main topic this morning is somewhat different from the one I'm addressing, I wonder if we might beg the chair to permit us to make separate presentations. I won't take a full five minutes.

The Chairman: Yes, that's fine.

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Dr. Michael Walker: Thank you very much.

There are two central issues that we have to face pre-eminently in Canada today. One is the fact that the United States has just agreed to cut its capital gains tax rate to 20%.

Although the federal government can take no responsibility for the tax practices of the local regime—of which the Byzantine emperor would have been embarrassed—the fact is that our capital gains tax in this province is more than 40%. This is not the kind of environment in which we are going to create an appropriate outlook toward job creation, toward any kind of economic activity.

I know this was not intended to be part of your deliberations, but I think the committee should encourage the presentations before you to ask what the implications of this recent decision in the United States will be for investment in Canada and, in particular, in those aspects of the Canadian economy that are quintessentially capital gains-type activities—namely, research and development that the government has spoken so forcefully about through the minister yesterday.

I think the main issue, if I might call it the epoch-marking issue, that the government faces at the moment is to determine and clearly define a target for the appropriate size of government. This is an issue that careful research is pointing to as really essential in determining what our long-term prospects are going to be. It is an objective that is going to be determined by default through consideration of budget deficits, dividend surpluses, and this kind of thing, unless the government makes a clear focus and says “We believe this is what the size of government ought to be in Canada”.

I think the focus of the committee's deliberations, certainly leading up to the next budget, ought to be on what the appropriate size of government in Canada is and what the relevance of that is to the average individual. The relevance is that the size of government measured as a percentage of GDP is effectively the average tax burden that we are asking the average Canadian family to bear. I think this is a subject that the government should not determine by default but should directly determine.

A recent IMF study by Ludger Schuknecht and Vito Tanzi has recently discovered that there are no significant gains in social and economic indicators as a result of growth in the size of government beyond 30% of the GDP. Canadian studies of the ideal tax rate—the tax rate that will maximize the growth rate of the economy—find that 30% of the GDP is about the maximum.

I call your attention to the graph that I have passed out. This is not a matter of rocket science that I have given you. It is one page that has a graph on it. I would ask you to turn to it, because if you have this graph, you have really all you need to know about what should happen to the size of government in Canada.

They don't have the graph? It was given to people outside. Well, let me go on, and we can return to that momentarily.

By the way, just as a matter of interest to the committee members, on December 3 we will bring to Ottawa some of the world's experts in trying to determine the optimum size of government, including Ludger Schuknecht, who, with Vito Tanzi, did that now very famous study at the International Monetary Fund. I highly recommend this to the committee, and particularly to the staffers. This would be an excellent opportunity to question this fellow, who now is working for the World Trade Organization but who until recently was working for the International Monetary Fund.

What is the implication of the discussion about the optimal size of government for the budget and for your determinations? We discover that at the moment the federal government is taking in 48% of the total tax revenue in the country. If we assume that the federal government were to continue to take in 48%, then the optimal size of the federal tax rate would be about 14.4%—being 48% of the 30%—as careful calculation, even just casual examination of the chart I've passed out, shows.

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To go from the current federal tax rate of about 18% to 14.4% would take about seven years if you were to follow exactly the same pattern of reduction in the tax rate as has been achieved during the course of the last four years.

The important thing to note about this is that it may not be necessary to reduce expenditures at all. As Yogi Berra said, if you don't know where you're going, you'll end up someplace else. At the moment, it seems to me there isn't a clear guideline that has been agreed in Parliament about where the government is trying to go.

There was a clear guideline established by Mr. Martin with regard to deficit reduction. He was able to mobilize the country and he was able to mobilize his caucus—probably the more difficult task—to achieve that target. There was a clear sense of where the policy was trying to go.

So it seems to me that at this moment the most important thing is to determine where fiscal policy trying is to go. Once you've established that—and I think you should establish it as a 30% tax rate—you may find that the natural growth in the economy will be enough to achieve the target over the next seven years without having to undertake expenditure reductions.

I would also say that if that's not the case, then you should certainly undertake expenditure reductions. Indeed, in a paper that we'll publish very soon we will point out how that should be done.

I think the graph has now been delivered to everybody. I would ask you to look at this chart. It's the history of Canada from 1931 to 1996. The solid line shows the growth rate of the Canadian economy in five-year intervals. The dotted line shows the size of government.

It is pretty clear that the straight line across the middle is the 30% line, and it's pretty clear from this chart that our difficulties in terms of economic growth have originated from the time that the size of government got above that 30% level, which, as I say, international research and careful examination of our own history shows is probably the optimal size for government.

Thanks very much.

The Chairman: Thank you. Mr. Gibson.

Mr. Gordon Gibson (Senior Fellow, Canadian Studies, Fraser Institute): Thank you, Mr. Chairman. In addition to the required one-page, point-form summary, I've also provided to the clerk a more extensive presentation, which is too long to present in an oral form. I will concentrate on a very few issues.

First of all, I will talk about the expenditure side of the equation, not the taxation side. Second, I will concentrate on federalism, which is my area of study at the Fraser Institute, and relate the budgetary expenditures of the federal government to the principles of federalism.

Mr. Martin yesterday spoke of values. I think there's a very high level of Canadian consensus on values such as opportunity, income security and health and so on. But if there's one point I can make, it's that in pursuing the achievement of these values in a federal system, just because some government should do something doesn't mean the central government should do something. That is an exceedingly important principle of federalism. The appropriate level of government should do the appropriate things as set out in our Constitution, for example, and also as set out by good managerial practice.

For example, there's no question that we all share the values that children should be educated, elevators should be inspected, and roads and transit needs have to be provided. Everyone of those things is provincial.

As a further example, in education, and appropriate federal involvement and inappropriate federal involvement, there's a study done by the Council of Ministers of Education every year, the student achievement indicators program. That is only possible because of a $2 million or $3 million grant from the federal government. That to me is a very appropriate federal expenditure in the area of education. When you get to scholarships, I think it becomes much more debatable.

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Suppose there was a cost-sharing program with the provinces that said British Columbia, for example, can receive federal dollars for education on the condition that education is provided only by public institutions. People would be outraged, I suspect. Yet, at the same time, that's exactly what the Canada Health Act says in the area of health. I think we have to revisit the appropriate division of responsibilities and accountability in this country from that point of view.

With the new fiscal situation, you are going to be the recipients of ongoing pressures for all kinds of good works. You are going to be asked to fund social housing, now that the federal government has backed out of it. People are going to talk to you about things like forest renewal, the environment, municipal infrastructure, and so on.

I strongly advise you to keep a careful perspective on the obligations of the federal government and the province. These kinds of overlaps and intrusions not only lead to inefficiency, they are a part of the unity problem in this country.

As a second observation, the federal government tends to be a poor manager of programs. In British Columbia, the two most high-profile programs operated and managed by the federal government are fisheries and aboriginal affairs. They are both commonly considered by stakeholders and the public alike as absolute disasters. One of the reasons for that is the fact that they are run from 3,000 miles away.

Compare that with a very intelligent federal initiative in British Columbia: the Vancouver airport and the operation thereof was devolved to a local not-for-profit authority. It has been an immense success. So as far as Vancouver's airport is concerned, the federal government does the useful things it should do, such as collecting lease revenues on behalf of the pan-Canadian ownership and dealing with the American government in terms of open skies, the local people make all of the operating decisions, and it works very, very well.

These examples are reasons, in my view, for this committee to be careful and always bear in mind the concepts of subsidiarity—this means that governmental tasks should be performed by the lowest level of government that's able to do it—and the ongoing process of program review, which to the credit of the federal government has some very good principles. The two most important ones are these: should government do all this, whatever the program is, and if so, which government?

My final point relates to interregional equity, the CHST, and the dangers to the equalization program.

The CHST is inequitable on a regional basis. Our finance minister in British Columbia has referred to us as “94% Canadians” because we receive only 94% of our per-capita entitlement of the CHST in spite of the fact that we have major infrastructure and training costs as a result of migration from the rest of Canada and overseas.

In addition, I would suggest to you, it really does not make good democratic and political sense for the federal government to be collecting $12.5 billion and suffering the opprobrium for that taxation, then giving it to the provinces and getting no political credit for the expenditure.

So as quite the opposite of those who say the CHST should be increased, my submission to you is that Mr. Martin has been on the right track to date and phasing out should be continued, with the granting of tax room to the provinces, of course, so that they may raise their own taxes to continue these worthy objectives.

If there is a continuation of regional inequities under these various shared-cost programs, of which the CHST is the largest, there is going to be a danger to the equalization program in the sense that some of the larger provinces are going to see themselves as being double taxed and having double benefits going to the poorer provinces.

This sentiment is very evident in Ontario today. This will undermine equalization in the long run if it's not now set right.

Finally, as for the philosophical question of equalization, this is a very basic Canadian program. I do not expect it to disappear, but there are some technical problems with it. For one thing, the worse job any given province does in economic development in that province, the higher the reward they get in the equalization system, which does not make sense.

Second, equalization from one point of view can be seen as increasing taxes on poor people in rich provinces in order to hold down the taxes of rich people in poor provinces. This also makes no sense.

My submission to you is that there is a strong case for the federal government to consider a shift in equalization-type payments, perhaps taking some of the CHST money as well, from provinces to persons. In other words, to the extent that it is the job of the federal government in this country to be a significant contributor to equality of opportunity for Canadians wherever they live, I think it is more appropriate that those payments be made directly to persons rather than to provinces, and I think there is a significant political benefit to the federal government in terms of direct relationship to people by doing that.

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Finally, with MPs having a natural concern with the fabric of social Canada, I would submit to you that the federal Parliament, and probably this committee, should become much more active in measuring and comparing the success of social programs across this country—yes, even including education—and become a vehicle for the transmission to the provinces of best practices from across Canada and around the world in terms of the means of delivering these social programs.

Thank you, Mr. Chairman.

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

We will now move to the representative from the British Columbia Federation of Labour, Phillip Legg.

Mr. Phillip Legg (Research Director, British Columbia Federation of Labour): Thank you, Mr. Chairman and committee members. Welcome to British Columbia, and welcome to Vancouver.

I'm not going to repeat some of the points that were made by Fred, Gideon and Seth. I think the issues they have raised are important ones, and they are ones the federation feels quite strongly about and actively supports.

Although I think it's important, I realize this committee has asked us to consider a number of questions as far as the issues of fiscal dividend and priorities in the coming budget are concerned. One of the concerns that the federation has—and which we don't think has been addressed by any of the speakers so far—is this issue of monetary policy. We perceive that there is a critical flaw in the stance currently being taken by the Bank of Canada in terms of reducing economic activity, or the priority that it sees in terms of reducing economic activity in response to perceived inflationary pressures. We think that's wrong-headed.

I think Gideon touched on this a bit in his comments, but we think the consequence of the Gordon Thiessen's statement two weeks ago—he said he felt it was time to slow down economic expansion in Canada—in terms of the deliberation that this committee is having and will be having over the next couple of years, is fairly obvious. What sorts of fiscal priorities we have may become academic, because the Governor of the Bank of Canada is about to knock the legs out from underneath those priorities. So I think it's very important that this committee give serious consideration to the role the Bank of Canada plays and to what extent it has autonomy in undermining economic expansion.

When Mr. Thiessen made his comments two weeks ago, I think the reaction from several local and national groups was that they were trying to figure out which planet he was on. Here we have an economy that is still living with 9% official unemployment. In some regions, such as Quebec and the maritimes, it is much higher than that. The fact that economic recovery has not worked its way down to ordinary Canadians is a serious issue, and for Mr. Thiessen to now step up and say that enough is enough and the bank is going to turn the tap off is, I think, a critical concern. It's one we can't overlook in this discussion.

Very briefly, in terms of priorities in the coming budget, I'll just highlight three that are covered in the summary you have in front of you. They have been touched on by Fred, Gideon and Seth in their comments, so I'll just emphasize them again.

I think restoration of provincial transfer arrangements is critical. This shuffling and offloading has had serious consequence in terms of the quality of and access to either health care, education or social programs across the country. I think it has caused an enormous amount of internal tension within the economy. I don't think it makes any sense, and we need to make restoration an urgent priority.

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As for job creation—Seth touched on this—I think we have to pay particular attention to the ongoing crisis in terms of youth unemployment.

A last point would be the rebuilding of social programs in terms of national standards. We had an unemployment insurance system in this country that, prior to the reforms brought in by Mr. Axworthy, saw upwards of 80% of unemployed people receive unemployment insurance coverage. Today that number is below 40%.

I don't think that is anything to be proud of. I think it is a terrible injustice and penalty on those who have simply been caught and become the shock absorbers in terms of economic change and adjustment.

I have similar concerns on the proposed changes to the Canada Pension Plan. I think we're headed in the wrong direction in terms of reforming that policy. We need to seriously reconsider what we are doing there.

That's a very quick summary of some of the concerns we have. I look forward to some questions and debate.

The Chairman: Thank you very much.

Before we move to questions from the members of Parliament, Mr. Walker, you have heard from the panel. Obviously diverse views were being expressed this morning. What do you think of what Seth Klein has said?

Dr. Michael Walker: I think there are some things you learn from experience. By the time Seth Klein has appeared before this committee for 25 years there will be things he won't say. He won't imply, for example, that the most accomplished and the most respected central bank in the world that has, against enormous odds from the point of view of the conduct of fiscal policy, saved Canada from really terrible economic consequences.... He won't find himself criticizing that monetary policy.

I think John Crow really is a kind of Canadian hero. We now see the results of John Crow's work. We see it in terms of the interest rates that are lower than are achieved in the United States. We see it in our housing markets as more and more Canadians are able to purchase housing and so on. Of course, we don't see it in the job market, but the job market situation in Canada is a direct product of our past policy errors.

It's not as though it's a great surprise that we generated economic growth and didn't get corresponding job growth. The Fraser Institute has been talking since 1978 about the impact of our labour market policies in ensuring that we will not have flexibility in our labour market, that we will not have the kind of job responsiveness that we should have, given the economic growth we've had.

When the federal government itself took a study of what was going on in our labour markets, they compared Canada with Europe. In the study, not a single comparison was done of Canada with the United States. Now, it's passing curious that an economy with exactly the same economic structure as ours, which was producing employment levels above full employment, was not the object of research by the government. If they had looked at the United States, they would have seen a reflection of the kind of thing we have been pointing out to the government for about 20 years—namely, if you produce an unemployment insurance program that in my native province of Newfoundland is the best option for young children when they come out of high school, then you will find yourself with half the 19-year-olds in the province on unemployment insurance. You will find that you can very successfully isolate large segments of the labour market from job growth.

What do I think about what Seth Klein had to say? I think the problems we have in our labour market, and the reason we have continuing high unemployment in spite of having now got ourselves back on a growth trajectory, are due to the past failures of policies toward a labour market. It is those policies we have to change. It has been a central focus of the work of the Fraser Institute during the last year, and will be during the coming years, to target these particular policies.

Very shortly you will be seeing the proposed amendments to the Canada Labour Code coming to the House. These changes to the Canada Labour Code, for example, are in exactly the wrong direction if you want to change the labour market so as to create employment.

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So we think fiscal policy has been in the right direction. We think monetary policy has been in the right direction. The problems we have now with employment come out of structural policies having to do with our labour market.

The Chairman: Judging from your facial expressions, Mr. Klein, you seem not to agree with Mr. Walker.

Mr. Seth Klein: If I'd been appearing before this committee for 25 years I would have known that I could take a more liberal approach to my time limit.

Some hon. members: Oh, oh.

Mr. Seth Klein: Let me respond to a couple of the comments Gordon Gibson and Michael Walker have made.

First of all, in response to some of Gordon's comments, while I don't agree in terms of equalization payments, I think I heard a suggestion that there is a need for more redistribution in personal taxes, which of course we would applaud, including bringing back a few tax brackets. We don't disagree with changing governance to allow for more local governance. The point is, there should still be federal funding, and there needs to be national federal standards. The two, of course, are linked.

With respect to the whole debate around the size of government, I certainly think there should be targets set. I would like to have seen Mr. Martin yesterday set targets for the reduction of unemployment and the reduction of poverty, and to approach meeting those targets with the same determination that he's approached meeting his deficit targets.

I think the point when we talk about the size of government isn't some arbitrary number, but really to decide, as a society, first of all, what we need. Then, should we pay for it individually or should we pay for it collectively? That's really the point that needs to be considered.

With respect to federal program spending, I think the point this committee needs to seriously address is that the public is already losing confidence in the future of public services, such as public pensions and public health care. I disagree with the figure that says....

The point here, when we look at federal expenditures, as I've said before, is that first of all, federal expenditures relative to GDP were flat between the mid-1970s and the late 1980s, and they have declined ever since. As I mentioned in my comments, they have declined since 1993 by fully one-third. The point I made around the research we're doing for this year's alternative budget is that if only 50% of the fiscal dividend is directed into new spending, it will continue to decline. So the failure of public confidence in the future of public services will continue to erode if the federal government fails to put into its program spending adequate resources to keep pace with the needs of a growing country.

The Chairman: Mr. Rosenbluth.

Dr. Gideon Rosenbluth: I do agree with Michael Walker with respect to one thing, which is that the unemployment we are experiencing is the result of government policies. Unfortunately, he has failed to correctly identify the government policies that resulted in unemployment.

I think it's perfectly clear that the continuing high level of unemployment is very largely the result of a combination of expenditure-cutting at the federal and provincial levels and a monetary policy that is driven by single-minded focusing on zero inflation, as it was in Crow's day—1% to 3% inflation now, no matter what the cost in unemployment. If you look at the research that underlies this policy, it is driven by notions of a so-called non-accelerating inflation rate of unemployment, which is estimated by techniques that always make it equal to the level that has been prevailing on the average in the recent past, and that gets it up to 8% or 9%. So the minute the unemployment rate threatens to drop to around 9%, Mr. Thiessen makes more mourning noises.

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The policies that Mr. Walker says are responsible for the high level of unemployment now were in place in the 1960s and 1970s, when we had much lower levels of unemployment. You have to ask yourself what has changed.

As for comparisons with the United States, it is true that they have more flexible labour markets and lower levels of unemployment. But I would remind you that in countries where you have real labour market flexibility and no social programs financing people that are unemployed, there is no unemployment. Why is there no unemployment? It is because the only way in which you can gain a living is either by crime, which isn't counted, or by standing on the street corner and selling apples or pencils or shoelaces or your body. That's self-employment, and you're employed. Well, if that's the economy you want, it's not the economy Canadians want.

The Chairman: Thank you.

We will now move to a question and answer session, and we will start with Mr. Solberg.

Mr. Monte Solberg (Medicine Hat, Ref.): Thank you very much, Mr. Chairman.

First of all, I just want to comment on Dr. Walker's comments about the optimal level of government, the optimal size of government. I applaud him for bringing that concept to the floor. I think it's an important idea. My party has also raised this as an issue for the government to consider in its deliberations with respect to dealing with the forthcoming surplus.

The first question I have, though, is really directed toward Mr. Klein. He touched on this as well and, by implication, said he didn't feel it was appropriate to set a target for the size of government. But I think, Mr. Klein, you would acknowledge that for everything, the law of diminishing returns applies, and that includes the size of government. Certainly at some point government gets to a size beyond which there is no benefit to the economy, no benefit to society. I wonder if you'd comment on that.

Mr. Seth Klein: It's very difficult to talk about diminishing returns when we're talking about the services that we're talking about. When we're talking about meeting objectives of public health care, of child poverty, where would you draw the line of diminishing returns? Respectfully, the point is that if the private sector is failing to deliver, these things need to be provided through the public system.

What's really required from committees such as this is more of a leadership position on what taxes are. There has really been a shift in thinking over the last twenty years about the role of taxes in a democracy. We now think of taxes as a burden, something to avoid. We go to tax avoidance seminars without shame. If we don't, we're considered chumps.

The point here is that there's a need to remind Canadians that taxes are the price we pay for services that we have decided to provide for each other collectively, and that we have determined to provide them collectively because it is both more equitable and in many cases, like public health care and public pensions, more efficient.

Mr. Monte Solberg: I think you would acknowledge, though, that we've seen more and more government services provided for people over the last twenty years. Despite that, however, we see a breakdown in the ability of the health care system to provide health care, a breakdown in the ability of social welfare to provide adequate services to children. In other words, the point I'm making is that money, government spending, isn't necessarily the answer—and rather obviously.

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Mr. Seth Klein: That's really a story about interest rates. You correctly point out that because of declining program spending, we are failing to keep up with the country's needs for these services. That is because of—again, Gideon pointed this out—government policy choices, Bank of Canada policy choices. Much more of the revenues that have been collected from Canadians have been diverted to interest payments on the debt, and many have gone regressively to those Canadians and other interests who least need it.

Mr. Monte Solberg: You say in your report here that you think the rich basically should pay. You say that people who are most able to pay should pay higher taxes to support tax relief for low-income Canadians. What is the level at which people are most able to pay?

Mr. Seth Klein: We had ten tax brackets in this country before Mulroney; we now have three. We suggested in the alternative federal budget that there should be the reintroduction of two upper-income tax brackets for those making over $100,000, and tax reductions for those who are low-income people. We also suggested that there were a number of both personal and corporate tax loopholes that could be eliminated. Those are all identified in the alternative budget, which I would recommend to you.

Mr. Monte Solberg: Of course, I'm sure you point out in your alternative budget that the top 1.2% of taxpayers, who are those earning more then $150,000 already, paid 14% of all the taxes, while the top 10% of taxpayers are people with incomes over $50,000, and they pay, what, 50% of the taxes or something like that.

So you're saying to sock it to middle-income people even more. Is that basically what you're saying?

Mr. Seth Klein: I'm saying that if you're making $10,000 a year, you don't have a lot to contribute.

Mr. Monte Solberg: If you're making $10,000 a year, you're probably not paying any taxes.

Mr. Seth Klein: Right. The average Canadian is making $30,000. I would argue that they are paying enough in taxes. The point is to have a more progressive system again.

Mr. Monte Solberg: Certainly you appreciate, though, that we have a problem in this country, for instance, with brain drain. We're losing all kinds of highly paid professionals to the United States. We're losing computer programmers who come right out of the University of Western Ontario and head directly to the United States. Don't you appreciate that this is a problem?

Dr. Gideon Rosenbluth: We do have the mobility of brains across our country. We have brains moving in and brains moving out. I don't know where the net balance is right now, but you can't talk about one without talking about the other.

I don't think it is likely at any tax level we are talking about that Canada is going to be denuded of capable people. The fact that you see people moving to the United States while other people are moving in does not mean that you're being drained.

The Chairman: Thank you. We'll now move to Mr. Desrochers.

[Translation]

Mr. Odina Desrochers (Lotbinière, BQ): Mr. Gibson, in your presentation you seem to be defending the Constitution. In other words, you want the federal government to respect provincial jurisdiction.

You also said it would be worthwhile to have a kind of partnership between the provinces and the government of Canada in providing assistance to young people and students. Aren't you afraid that the federal government would then be tempted to impose national standards on the provinces to ensure that these programs are properly labelled for the Canadian government?

[English]

Mr. Gordon Gibson: In my full presentation, I make it clear that in my opinion shared-cost programs ought to be entered into, or indeed continued, only in those areas in which there is provincial agreement. So in other words, there is that safeguard.

Second, I would suggest that in areas of so-called national standards, in the past we tended not to have national standards but federal standards, which are different. In areas of the constitutional competence of the province, the province says it seems we can indeed, in some cases, benefit from national standards, but they should be national standards upon which the provinces have agreed.

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That is entirely possible. In a co-operative approach, the provinces are learning more and more to work with each other. I think that is the appropriate way of the future in this country.

[Translation]

Mr. Odina Desrochers: Mr. Gibson, we know that it's very hard for the government of Canada and the provinces to come to an agreement.

If we chose to embark on such a partnership, are you not afraid that we would find ourselves going around in circles once again to the detriment of the young people for whom the program would be intended?

[English]

Mr. Gordon Gibson: No, I don't think so. Look, for example, at the field of education, in which there has never been any federal influence at all from kindergarten to grade 12. The provinces have gradually been working toward national standards that are not federal standards.

National to me means pan-Canadian; it does not mean a central or federal government. We have, in spite of the long-term established programs financing scheme, and now the CHST, never had so-called national standards in this country with respect to the level of welfare payments. Some provinces differ considerably from others.

Yet, we've never seen any evidence of the feared “race to the bottom” that is supposed to happen if the federal government vacates some field or other of national standards. Rather, we see the provinces in general paying welfare rates to their citizens that they can afford based on their provincial economies.

Again, in terms of federal domination, I'm not concerned as long as this can only happen by way of provincial agreement.

The Chairman: Thank you. We will now move to Mr. Riis.

Mr. Nelson Riis (Kamloops, NDP): Five minutes goes so quickly. I have a question for both Mr. Gibson and Dr. Walker.

Mr. Gibson, I think two or three weeks ago in Hong Kong the president of the World Bank, in a keynote address, indicated his concern that the world was on the edge of a complete crisis—he called it a catastrophe—in terms of the separation between rich and poor, which is to simplify it both geographically as well as within countries.

Just the other day, again, the president of Noranda talked to Pamela Wallin on television about am impending social crisis in our country unless we start working more closely together. I would ask whether you concur that we are to be in that kind of serious situation unless dramatic actions take place. I forget what the actions were.

Here's a second level of questioning: as a British Columbian writer, have you ever identified a single cost-sharing program between the province of British Columbia and the federal government whereby British Columbia got its fair share based on the population size of the province?

Mr. Gordon Gibson: With respect to the latter, I have not studied every program, but I don't know of any in which British Columbia was treated on a strict per capita basis. It is a fact that the federal government has tended to build a degree of equalization into most cost-shared programs, in addition to the traditional equalization formula. Indeed, that is one of the grievances, again, of provinces like Ontario and British Columbia.

With respect to the observations of the head of the World Bank, I can't comment on the world, but it seems to me that within Canada there remains a very significant public sentiment in favour of not too much dispersion in income, a decent life for everyone, and access to services for everyone.

To me, it is the job of governments to respond to this collective sentiment. My point is: what is the correct level of government to do that? It is my belief that in most of these matters we are better to have government closer to home where people both pay for and control the services they get more precisely.

Mr. Nelson Riis: Thank you. I have two quick questions for Dr. Walker.

Dr. Walker, I noticed at the top of your speaking points here the recommendation on the change to capital gains. I've always been curious—and the question is a serious one—about the time when the previous government under Brian Mulroney brought in that $100,000 capital gains holiday for a few years. I wondered at that time whether that produced anything other than a lot of extra cash for some people. Was there any empirical evidence that actually suggested that cutting capital gains taxes resulted in, say, job creation? That's question one.

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Yesterday in his speech Mr. Martin said, “There are things the market cannot do.” Dr. Walker, what would you identify as examples of things the free market simply cannot do? I assume you agree with this statement.

Dr. Michael Walker: First of all, I might have a very brief comment about the comments by Michel Camdessus about the coming crisis in the world, and David Kerr's comments.

As a matter of fact, I don't agree with that assessment. I think people are rich by nature and poor by policy. If you look at countries like Hong Kong and compare Hong Kong with Venezuela in 1950, the average income in Hong Kong was half the level of that in Venezuela. In the subsequent period, the Government of Hong Kong pursued a determined policy of open markets, low taxation and a deregulated market situation. The average income in Hong Kong now is higher than it is in Canada. Needless to say, the average income in Venezuela, which has pursued an exact opposite policy, is amongst the lowest in the world.

So I think we are rich by nature. Hong Kong, as you know, has no resources. It doesn't even have a source of fresh water. It has been able to accomplish that just by the kind of policies that were pursued. I think every country has the same opportunity.

We see now in Africa, for example, the country of Mauritius. This country, with very poor everything, is now bursting with economic growth and employment and everything else because they followed the same kind of policy. You can look at the Ciskei in South Africa and see the same thing.

With regard to capital gains tax, there is a kind of equity issue involved in capital gains taxation that first of all must be addressed in that the income flows from a corporation that produced the capital gains, reflected in the share costs, have already been taxed by the government. The income that people invest in the assets to produce the capital gain has already been taxed by the government.

So it seems to me—and this is the argument being made in the United States—that it is discouraging people from putting their money into an asset, which is now going to be taxed by the person who invested in the asset before they put their money in there. Then the income that produces the capital gain is taxed before the value can be added back, which creates the capital gain.

The United States, which is the biggest job-creating engine in the world at the moment.... I was in Germany for the last week meeting with people from all over Europe. They are beginning to recognize that they have to change their policies, including their tax policies, to emulate the United States.

With regard to things that the market cannot do, I think we used to agree as economists that there were things the market could not do. We used to say that lighthouses were something the market couldn't do. Then we found that, well, in the history of the United Kingdom lighthouses in fact had been provided by the market. We used to think there were certain natural monopolies, like telephones, that had to be regulated and so on. We now of course discover that there are cellphones, there are satellites, there are all kinds of ways where in fact the market is the best provider, even of these things that are so-called natural monopolies.

I think there are things the market cannot do in the way of social services. By “market” I mean a sort of before-profit function in the way in which we normally think about the market, but I think they can be very well done by private individuals.

I would be very delighted to see the Canadian Centre for Policy Alternatives join the Fraser Institute in calling for private institutions to deal with things like poverty, because people who are poor don't need a cheque, they need somebody to care about them. People at organizations like the Salvation Army, like the First Mission, like the Second Harvest, are private individuals.

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Mr. Nelson Riis: Those are non-profit.

Dr. Michael Walker: But these are not governments, they're private individuals who are drawn to the service of their fellow men in a particular way, and they're drawn not through the aegis of government. In that sense, if you include that sector, there are frankly very few things that the market can't accomplish in the sense of individual initiative.

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

Mr. Jim Jones (Markham, PC): We're in a global economy now. Do you feel Canadian tax policies have to be more in line with, let's say, those of our biggest trading partner, the U.S.? Do we have to be competitive with their tax policies, or are we immune in terms of jobs, meaning that we'll still create the jobs up here regardless of differences in tax policy?

Dr. Michael Walker: Are you addressing that to me?

Mr. Jim Jones: Yes, one of the two Fraser Institute guys.

Dr. Michael Walker: I'll take a crack at it.

I certainly think our tax policies are important. You have to go no further than what is happening at the level of the Canadian provinces these days in order to recognize that they have determined that tax policy is having a dramatic effect on the brain drain, for example. The question that was asked by Mr. Solberg about the brain drain is very important.

Our central asset for the future is our young people. Frankly, our young people are leaving this country in droves to take advantage of enormous opportunities that are available south of the border, and of tax rates that are a third lower than we're currently offering in most jurisdictions. British Columbia is being bled dry by our neighbouring province, Alberta—not to mention what's available south of the border—because our tax rates have gotten to be the highest on the continent. We are definitely feeling it.

So there isn't any question that when people are making.... You see, it's not the people who are there now. The people who are there now—the businesses that are locked in, or the individuals who have their homes—are not going to pick up and move. The mobile factors, and the sensitive factors to tax differentials, are our young people.

I've recently had to witness my own daughter moving to the United States, where she had seven job offers, and where her after-tax income will be something like 70% higher than it could be in Canada. I feel that very personally, so people who tell me the brain drain is not significant are people who are just not paying attention to what's happening. We're losing our future. Our future is oozing away from us as people are lured from this province to Alberta and to the United States.

Mr. Jim Jones: The other thing I know the NDP says quite often during elections is that we should be taxing corporations at a much higher rate. If you look at the top 1,000 to 2,000 corporations in the world, they have free mobility to go wherever they want and are generating tremendous economic power, whether it's in this country or the U.S.

A lot of people say small businesses are the ones in which all the jobs are being created. My question is, do you agree that the best-paying jobs, the best long-term jobs, are being created by the big corporations, and that we should be trying to attract those corporations into this country?

Dr. Michael Walker: Large corporations are not creating any jobs. Frankly, the average size of corporations in Canada has been declining since 1951. We are now down to 23% of the total labour force being employed by employers of 500 or more, which is where we were in 1925. That's likely to continue because the kinds of organizations that develop the ideas at the margin now are not large corporations. They tend to be small, aggressive firms.

Frankly, there are two things inhibiting the growth of those small firms in Canada. The number one thing that's inhibiting is labour policy. In this province, that is particularly a problem. A second thing that is inhibiting them is the tax problem and, as I mentioned before, the capital gains tax.

The way in which people get their rewards from starting a small business and growing that small business into a significant employer is through capital gains. If you have a high-tech or leading-edge person in any field, the capital gains tax rate to which they're subject is the key factor in how they're going to be rewarded for their energy and for their entrepreneurship.

These are critical things for small business, which is in fact creating all of the employment growth in the United States and, to the degree we're having it, in Canada as well.

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Mr. Seth Klein: I wanted to add to some of this—

The Chairman: Very briefly, because we have to move to Ms. Redman.

Mr. Seth Klein: It's interesting to hear Mr. Walker say that big business isn't creating any jobs. Most big businesses, when we had the free trade fight ten years ago, were promising that with free trade they would deliver on jobs. Now we're being told they're not the ones who create jobs.

With respect to the brain drain, I'm waiting to see some empirical evidence, something that moves us beyond anecdotes. Notwithstanding the loss of Mr. Walker's daughter, the plural of anecdote is not data.

With respect to capital gains and taxes, when I listen to the debate I hear some very interesting arguments against free trade and some powerful arguments against the impending multilateral agreement on investment; that is, if these things go through, we are caught in precisely the kind of suckers game we have been talking about for a long time, where nation states end up bidding down each other, getting rid of their capital gains taxes, lowering their corporate taxes, deregulating their labour markets and cutting their social programs in an effort to attract investment—transnational investment, for the most part, which we've just heard isn't going to be forthcoming when it comes to job creation in any event.

I think what's important here too is that some of the research we've put out recently indicates that even with the increase in profits since 1992 and the fact that we're in a rebound, we are not seeing significant new capital investment in the private sector. Rates—and this is new capital investment after depreciation—when compared with GDP, when compared with profit levels, are at a post-war low. The point there is that if that is the case, the question for a committee like this one is, if the private sector isn't delivering, where do you come in?

The Chairman: Your time is up.

Mr. Jim Jones: Does their time count as my time too?

The Chairman: Absolutely. We do this collectively. I don't know if Mr. Walker likes that or not, but....

Ms. Redman, followed by Mr. McWhinney.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you very much, Mr. Chairman. I have two quick questions. The first one is to Mr. Muzin.

You mentioned the closure of 50,000 hospital beds and the impact this has had on the people you represent. It strikes me that in my own community we're really going through a reconfiguration of health care. We're going from institutional to community health care. I was wondering what your thoughts would be on the role of the federal government, if any, in that initiative.

Mr. Fred Muzin: The first thing, obviously, is adequate transfer payments, certainly for British Columbia, where we have a population that's growing, up to 100,000 people per year. The lack of adequate funding for social programs puts a big strain on it.

In British Columbia I think the model that's being adopted on how we transform the health care system allows for health care providers to be on the regional health boards and community health councils. I think some of the federal programs...as I've mentioned, the determinants of health. As long as there's a lack of adequate childcare, as long as child poverty is at a high level, it's going to have an impact on the ability of the provinces to continue to provide decent health care.

Then there's the downsizing of the federal labs. For instance, there will be no national testing for dioxins. Some of the food products will not be adequately tested. I think the federal government has a big role to play.

There's the whole issue of pharmaceuticals. Quite frankly, in the hearings on Bill C-91 some of the recommendations of that last review panel were absolutely cut out of the report that went to Parliament. I think that is wrong. I think there has been a big pay-off to pharmaceutical companies.

So there is a large federal role in making sure that the provisions of the Canada Health Act are indeed enforced.

Mrs. Karen Redman: Thank you. I appreciate that. I always see a little red flag go up when I hear people equate health care with how many hospital beds have or have not been closed. I think that's an antiquated indicator. It's not necessarily relevant any more.

Mr. Fred Muzin: I think it depends on whether you reform health care in terms of more of a preventive model or a wellness model. That's what the whole restructuring tries to do. But until you have adequate services and adequate education in place in the community, when people get sick or their child gets sick they'll go to hospitals where people are stacking up in the emergency wards and asking why they can't get the care they need. That's why they say bed closures don't mean the beds don't exist, it means there's no staffing to provide that adequate service. Until we reform the health care model—and that's going to take time—the reduction in beds will certainly be an indicator of how the public perceives its access to health care.

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Mrs. Karen Redman: My second question is actually to Mr. Gibson.

I found it really interesting that you talked about a pan-provincial health care system, as opposed to a national one. Yesterday Mr. Martin talked about partnerships. I really believe in them, but from your comments.... Can you just talk about whether or not there are partnerships that are workable between the federal and provincial governments in both health care and education?

Mr. Gordon Gibson: I think there are; however, I think the federal role in these activities has to be very carefully defined.

Under our Constitution, the provinces have the undoubted jurisdiction over the delivery of health care, with certain exceptions like military health care, aboriginal health care, and so on. The federal government has certain other jurisdictions with respect to the licensing of drugs and so on.

I think the federal government can have a very useful role in health care, in such things as financing demonstration projects, research, those sorts of things. In terms of the actual delivery of services and financing of services—the front-line, day-to-day massive servicing of what I guess is the largest industry in the country, although I'm not sure—it seems to me that this is most appropriately done under provincial administration, and very often—again in my opinion—by local and/or private providers. To me, that is how you get the best efficiency out of the system. God knows health dollars are scarce; no matter how much we try to put into health, the demand is always higher. Efficiency should therefore be a constant quest, but as I said in my remarks, the federal government is not an efficient program administrator.

Mrs. Karen Redman: I guess my question would also go to the portability of health care, then, because it's one of the tenets that this government has certainly fought to maintain. How are we going to safeguard portability between provinces if you see those lines as so well delineated?

Mr. Gordon Gibson: My first point is that the underlying enforcement of health care rights, if you like, does not come from the federal government. It comes from the public. The public makes political demands and it is unthinkable that any provincial government would go against those kinds of political demands.

To answer your question specifically, the provinces have in fact worked out a portability mechanism among themselves. It works very well with the exception of the deal with the province of Quebec, where there's not provision for full payment of services in other provinces.

Mrs. Karen Redman: Thank you.

The Chairman: Mr. McWhinney.

Mr. Ted McWhinney (Vancouver Quadra, Lib.): Thank you, Mr. Chairman. I have some questions for Mr. Gibson, drawing on his expertise both in his previous public life and as a very flourishing publicist today, with a large group of readers.

You raise some issues that go to constitutional power. One of the suggestions—your paragraph 9—is controlling the federal spending power by formalizing an agreement with the provinces, which seems to point to a constitutional amendment. Earlier, you were referring to the European Union principle of subsidiarity. You will be as well aware as anybody, any specialist in the field, that the European Community is helped by a rolling interpretation, or a more pragmatic interpretation, of constitutional powers than we've had under the system of almost dichotomous division—it's either provincial or federal.

You'll also be aware that you refer to fisheries and the experience here. You will be aware that there was an agreement—it's still officially in existence—between the Premier and the Prime Minister on joint administration of fisheries. I think it was made in June 1996.

I'm wondering how you would bring this into operation. It has been said of this particular statement by Mr. Martin that the most imaginative feature is in education. As a federal government, we moved into that area through research, science and technology, which I think we could justify with a broad interpretation under the section 91 general power. But the new approach goes further than that and gets us into other areas of perhaps blurred constitutional power.

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How effectively would you implement the principle of subsidiarity? Only two days ago, I met with the Vancouver School Board. I am getting the comment that there is a gap and that the federal government has to fill it. I am not attributing that view to the school board, but it is coming through loudly and clearly that people want us to get into education.

Mr. Gordon Gibson: I think it is entirely natural that every advocacy group will go to every possible source for money, Mr. McWhinney. Everybody asks the federal government for money, but that does not mean the federal government should supply it. I feel that very strongly.

In respect of how one makes operational this concept of partnership between governments—not just the federal government and the provinces but indeed among the provinces, such as with what the previous member was relating to in terms of health care—I have proposed the creation of a new body that I call a council of the federation. Claude Ryan called it a federal council. It would have as its purpose regular public, continuous meetings, and the publication of documents dealing with what is currently the hidden federal-provincial level of government. It would aim to make more transparent and accountable the huge number of dealings between all of these governments. I think that would be the kind of body that could make effective those kinds of partnerships.

Mr. Ted McWhinney: You will be aware that in the field of education it is a common statement—and I think it is basically correct—that the maritime provinces have given a much higher priority to education than this province, for example. B.C. is generally cited as a delinquent province—and I'm speaking of historical record, not the period when you were in the provincial legislature.

In the European Community, you see how the principle of subsidiarity is applied. How effectively can you implement that? How are you going to get this operational, short of some massive structural changes of the sort you have outlined, such as the council of the federation, which seems to almost call for a constituent assembly or radical constitutional surgery?

Mr. Gordon Gibson: To comment very quickly on that, the council of the federation could be started immediately with no formal constitutional amendment at all, in my opinion. People would simply start meeting on a regular basis.

On the other question of how one implements subsidiarity, I think we would be wise there to take a leaf from the program review process of the federal government and submit all of the things that governments do—from the smallest village to the highest councils of Ottawa—to that kind of detailed program review. It's obviously a massive undertaking that would take many years and would involve stakeholders and experts and experienced bureaucrats who know where all the troubles lie. But with that kind of review, without any need for constitutional change, and by way of delegation and agreements, you could agree that it is appropriate for the federal government to do this in this field, for example, and the provinces this, the towns this. On a principled subsidiarity basis, you gradually work your way through to the more efficient functioning of the public service. I think that's the kind of fundamental exercise that has to be undertaken. It's not a political one, but a managerial one, an efficiency one.

Mr. Ted McWhinney: Thank you, Mr. Gibson.

The Chairman: Thank you very much. I would be quite interested in receiving from Mr. Klein, Mr. Walker or Mr. Gibson, and the entire panel, some rebuttal points on some of the issues raised by groups that obviously do not share your viewpoint on what needs to be done.

I just have two final questions here. Our ultimate goal in the pre-budget consultation is to develop recommendations that eventually will lead to the improvement of the quality of life for Canadians.

I have a question for Mr. Walker, who believes in free market enterprise, which is fair enough. For example, on the issue of youth unemployment, we have programs in Canada like the youth internship program and Youth Service Canada. They are basically partnerships between government and the private sector, and in which the split might sometimes be 70-30, with 70% from the private sector and 30% from the government. They provide a very important opportunity for young people to get that very first, important chance at a job. As you know, one of the major obstacles of for young people is that they live through that experience paradox—no job, no experience; no experience, no job. Do you have room within your ideology for that type of partnership?

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Dr. Michael Walker: The question is whether this would be the most intelligent way in which to create employment for young people. I think the recent partnership that saw the federal government creating 3,000 government jobs, internships where people would go from the private sector into government to learn about life, was probably a retrograde step. I think what young people need is not an experience with employment in the public sector to train them about what life is all about. I think that was definitely a retrograde step.

On the other hand, I think there are existing policies that tie an albatross around the neck of every young person when they come out of high school. Let me give you an example.

A person who graduates from high school at the top of their class and goes into medicine is going to work for seven years not at minimum wages but at no wages. They are in fact going to invest an enormous amount of their effort and their forgone income in acquiring a medical degree.

A person who comes out of high school at the bottom of their class goes out and tells an employer they would like to work for them under any basis they would like. They would work for nothing to get some experience.

What do we say to that kid at the bottom of the class? Remember, we've said to the person at the top of the class that they may go out and work for nothing. They may go out and invest their money, as a matter of fact, to become a physician, and then go out to earn a great income. We tell the person who graduates at the bottom of the class that they may not work for less that the minimum wage.

So we are tying an albatross around every young person who comes out of school, particularly those who are least capable of offering something in the labour force to employers. I think we need to seriously look at getting rid of the minimum wage to stop that barrier. We need to get rid of the other labour market impediments, including the power we've given to trade unions to sequester the labour market. The example we should follow in that regard is New Zealand—New Zealand, a socialist country; New Zealand, which has undergone one of the most tremendous transitions of any economy anywhere in history. The last thing they did, which dropped their unemployment rate to half of its former level, was to adopt the Employment Contracts Act, which basically says that individuals cannot be compelled to be a member of a union to get employment.

So take away the minimum wage, take away the albatross of requiring people to become a member of a union and therefore to have to be paid some outrageous income before they can be employed and you will do more than anything else to make opportunities available to young people in the labour market.

The Chairman: Mr. Klein, I have one final question for you. What do I tell the middle-class Canadian who gets up in the morning, works hard, plays by the rules and feels that he's simply not getting rewarded? By that I mean he feels that the income taxes are too high and he's not getting enough benefits, all those types of things. What do we tell him?

Mr. Seth Klein: I've recently become a middle-class Canadian, having finished school and started this job with the Canadian Centre for Policy Alternatives. I pay the regular tax rate without being able to avail myself of many deductions. I don't think I'm overtaxed. The polls tell us that most Canadians are willing to pay the taxes they pay if they know the taxes are going into services they care about. That's what I meant by leadership, moral leadership, on what taxes are really all about.

Middle-income Canadians rightly know they're getting less for their tax dollars. They're getting less for their tax dollars and services precisely because of the unnecessary cuts and because of the amount that goes into interest payments. Our point is that both of those are about ill-advised government policies.

With respect to youth unemployment, I just want to state that I don't think the solution is to offer young people employment at $3 or $4 an hour, or whatever it might be without a minimum wage. I don't think that's the solution. I think we need to remember that when we as a country came out of World War II we were a poorer country with a higher debt-to-GDP ratio, and yet we figured out some innovative ways to create work for people coming out of the armed forces. In the mid-1970s and 1980s the federal government took a leadership role in developing all kinds of youth initiative programs, which Mr. Gibson will be happy to recall, many of which, while federally funded, were locally administered and took a much more active role in giving young people opportunities to engage in meaningful work that contributed to their communities.

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We know that such work still needs to be done today. I think it's really just a question of the political will to put the resources there again.

The Chairman: Thank you very much. That concludes the fist panel discussion.

On behalf of the committee I would like to express to you our gratitude. I think we're already beginning to see the first signs of the public debate on the issues we will have to deal with as a committee. Thank you very much.

We'll meet again in approximately four minutes.

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

This is round table number two for this morning's session.

We have representatives from the Advanced Education Council of British Columbia—Neal Nicholson, I believe—British Columbia Teachers' Federation, Canadian Federation of Students, College Institute Educators' Association of British Columbia, Confederation of University Faculty Associations of British Columbia, Social Planning and Research Council of British Columbia, and Private Career Training Association of British Columbia.

We will give each group five minutes for some introductory remarks. We may move after that to some rebuttals and/or we could commence with a question and answer session with members of the committee.

We could begin with the representative of the Advanced Education Council of British Columbia, Neal Nicholson.

Mr. Neal Nicholson (Advanced Education Council of British Columbia): Mr. Chair, the Advanced Education Council thanks the committee for this opportunity to appear on behalf of 22 publicly funded community colleges, institutes, and agencies in the province.

To some degree, I think the minister made my speech yesterday, but the part that I picked out was fairly small in the midst of his, so I'm going to repeat it for you.

He said yesterday that we require action on four fronts: encouraging savings toward education and training; providing financial assistance to those in school; helping students manage increased debt loads; and finally, providing incentives to lifelong learning.

Those four concepts are the core of that which has driven the presentation we're making today. It flows from our belief that an accessible, affordable, publicly funded post-secondary system is one of Canada's great strengths, enabling us to provide our citizens with knowledge and skills to compete successfully in the information-based global economy.

During last year's hearings, this committee heard what Canadians believed government spending priorities should be. We were encouraged: the last federal budget contained good news for students in the area of tax credits, RESPs and interest relief periods for Canada student loans. But more must be done.

To this end, the Advanced Education Council strongly recommends that the following measures should be implemented in the next budget.

Increase the tax deductibility of education expenses. Textbooks, computers, and other education-related expenses should be deductible.

Include tuition for part-time studies in the base for the educational tax credit. Part-time study for credit is one of the ways in which Canadians are coping with rising education costs. Lifelong learning is a necessity. The education tax credit should be available to the millions of part-time learners.

Interest on loans for post-secondary education should become tax deductible, as it is south of the border. Interest earnings on RESP contributions are tax deferred. Contributions of capital should also get beneficial tax treatment, as with RSP programs. Revisions to the RESP, while beneficial, won't have an impact for a number of years. In the interim, provision could be made for the ability to borrow from an RSP for post-secondary education in a manner similar to that used for the purchase of housing. This would assist many middle-income earners in accessing post-secondary education, both for themselves and for their children.

In mid-life, many Canadians now have to finance additional education and training to remain employed and employable. Many of these people do not qualify for Canada student loans because they have assets. Financial aid mechanisms are needed to help adults going through career change.

Student debt is a serious and growing problem in this country. We support the provincial ministers of education, who recently called on Ottawa to pay its fair share of the costs to all provinces and territories in helping to reduce, make manageable, or avoid student aid debt.

We also urge Ottawa to address the discrimination that exists with regard to social program funding through the CHST. The money Ottawa distributes to provinces for health, education, and social services should be done on a straight per capita basis.

Under the current system, British Columbia loses about $100 million each year, while experiencing high levels of immigration from abroad and from within Canada, which has put severe pressures on our health and education systems. We understand the government is committed to reducing the discrepancies, but we feel the process and progress have been too slow.

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The public post-secondary education system in this province is in peril. In May, our Minister of Education, Skills and Training established a task force on critical issues in financing colleges and institutes. The preliminary findings made it clear that our post-secondary education system is in crisis. Despite the provincial government's commitment to protecting funding for post-secondary education, several of our institutions are in deficit situations. Most report that the erosion of public funding is affecting their ability to deliver programs and maintain quality of education. It's not that the institutions can't manage their finances efficiently. It's simply that there's not enough money to go around to meet the access demands of our citizens.

One of the ways in which the federal government can help to alleviate this crisis is by creating and separate and protected funding program for post-secondary education. Strings are attached to the funds provided to provincial health care systems. We believe this should also be done with post-secondary education. An alternative would be to return to the system we had a number of years ago, when the federal government provided funding directly to the post-secondary institutions. It worked before, and there's no reason it can't work again.

Youth unemployment is a huge problem in this country. It's a problem this government has committed itself to addressing. Post-secondary education and training is the only way by which these disenfranchised young people can become equipped to compete and participate in the economy.

In conclusion, we continue to support fiscal responsibility for all governments. We do not believe disinvestment in education is the answer. Providing adequate funding for post-secondary education is the key to job creation, youth unemployment, and a host of other societal problems. We urge the government to provide the vision and leadership to implement a long-term national economic strategy in order to ensure that public post-secondary education remains accessible and affordable for all Canadians.

Thank you.

The Chairman: Thank you very much for your presentation.

We will now move to the British Columbia Teachers' Federation, and Mr. Rick Beardsley.

Mr. Rick Beardsley (Assistant Director, British Columbia Teachers' Federation): On behalf of the B.C. Teachers' Federation I would like to thank the committee for the opportunity to present today. I would like to start off by saying we represent over 40,000 public school teachers in the province. All public school teachers are members of the B.C. Teachers' Federation.

We recognize that in a sense we have not been directly affected by the cuts in transfer payments, but the spillover effect has had a big impact on us. In other words, while the cuts in transfer payments mainly fall on post-secondary, the net result has been to squeeze the education system at a time when the demands on the system have grown incredibly over the last six years. I'd like to draw to your attention some of the features of that growth.

We have added 81,000 new students to the system over the last six years. That's more students than would be found in Vancouver or Richmond or some of the surrounding suburbs combined. We've increased our ESL population by 109% in the province overall, but if you look at specific districts—for example, Richmond—we're looking at something like at 2,500% increase over the last seven years. We've also experienced a 60% increase in students identified with special needs, those who need support services. We have seen a 128% increase in aboriginal students identified as needing special support services. We've experienced the growth in demand not only in terms of the numbers but also in terms of what teachers are required to do in the classroom with regard to the diversity.

Now, how has government responded to those growing demands in real dollars over the last six or seven years? We have seen a 7% cut on a per-student funding basis. We're being asked to do more and more with less and less. It is our estimate that 1,450 teaching jobs have been lost simply by the reduction in funding over the last six or seven years. This is not to mention jobs that might have been created by funding to meet the demands being made on us at the present time.

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It's our view certainly that government must give education a priority in order to prepare students to be responsible citizens in an increasingly interdependent world. Access to post-secondary education must be such that students are not denied entry by socio-economic status.

Increased funding will allow access, and access will give young people hope and optimism about taking their place in society. I guess that's what we noticed in the secondary schools, a sense on the part of students that it's difficult for them to find their way. If access is denied to post-secondary education, and the kinds of skilled trades training they both want and need to be able to contribute to society are denied, then we see evidence of alienation and some destructive coping mechanisms as a result. Surely increased funding on the part of the federal government will also take the pressure off the K-to-12 system.

Of particular importance to British Columbia is, in our view, the need to meet the requirements of ESL students, especially in the Lower Mainland, as I've pointed out. At the present level of service many ESL students will find it difficult to achieve the level of English necessary to integrate freely into Canadian society, and their talents will not be fully realized. Special consideration must be given to this issue. We see that federal funding must be available inasmuch as this is an immigrant settlement issue.

In our own polling we have found public support for education. We've seen particular support for increased funding for public education in the province of British Columbia.

Thank you.

The Chairman: Thank you very much. We'll now move to Mr. Brad Lavigne from the Canadian Federation of Students.

Mr. Brad Lavigne (National Chairperson, Canadian Federation of Students): On behalf of the Canadian Federation of Students I'd like to thank the committee for extending the invitation to be here. I come today to fill in for our British Columbia chairperson, Maura Parte, but as a lifelong resident of British Columbia it's good to see the committee out and it's a pleasure to present in front of you this morning.

For those who aren't familiar with our organization, the Canadian Federation of Students is Canada's national student movement. It is comprised of approximately 400,000 college and university undergraduate and graduate students from across Canada at 60 post-secondary institutions.

My presentation this morning is broken up into the two questions that have been provided. First, has the pace and method of the deficit reduction been appropriate? Second, what to do with the government's priorities after a balanced budget?

On the issue of the pace and method of the deficit reduction, I think we've already heard from the other presenters about the effects of the cutbacks on post-secondary education, particularly in the last round since 1993. In last round the student movement in this country was quite critical of the federal government as well as the previous federal government for the method of debt reduction, a reduction in spending—an approach we have vocally opposed in the past—rather than through monetary measures and stimuli for economic growth.

We continue to believe there were methods available to the government that would not have compromised key areas of government service, including education, health care and other social programs. It's important to understand some of the consequences spending reduction measures have had in terms of accessibility and quality of public post-secondary education in Canada.

On the issue of accessibility and the effects of the cuts on that, most provinces' tuition fees have increased massively to compensate for the loss of federal funds. In Ontario, for example, tuition fees have increased on average more than 50% over the last three years alone, and enrolment is down for the third year in a row. Enrolment declines in several other provinces can also be linked to large hikes in user fees.

Those who have remained in the system or have entered it since the onslaught of the recent funding cuts face mounting student debts. The average student debt for graduates has increased dramatically in the last few years. In 1990 the average graduate was graduating with a debt of $8,700. Last spring that number was $22,000 per graduate student. Next year Statistics Canada expects that the average student who is on a student loan will be graduating with a debt of $25,000.

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Even though the British Columbia government did not pass on the federal funding cuts to students by imposing higher tuition fees, the federal funding cuts have had a significant impact here in British Columbia. Government grants to institutions have not been able to keep pace with the institutions' increasing costs and the increasing demand that exists in our society and economy for post-secondary education. Many students are allocated to waiting lists until seats in programs are available. Many others have been forced to attend private post-secondary institutions. I believe British Columbia has the highest ratio of private colleges in the country, and those who go to private institutions incur the largest debts in order to pay inflated user fees for what we consider to be inferior education.

Institutions have also been forced to eliminate many support services critical to assisting students to achieve their educational goals. These services are often dedicated to providing support for students with disabilities, or for aboriginal students and other marginalized groups, or to assisting mature students to make the transition from the workforce to post-secondary education.

On the issue of quality, we're also monitoring the decline in quality at our colleges and universities due to the cuts. Libraries are not being replenished. Outdated equipment is not being replaced. Institutions are not being as responsive as they should be to the demand for new programs. Classroom sizes have increased, and the teacher-to-student ratios have decreased. And the list goes on and on in regard to the decline in quality.

What should the government's priorities be now that a balanced budget is on the horizon? Twenty-five years ago the federal government was seriously discussing the need to eliminate user fees for post-secondary education in order to achieve universal access to post-secondary education. Unfortunately, that goal of universal access to post-secondary education has been lost during the deficit reduction mania of the last fifteen years. Today, the need for universal access to post-secondary education has never been more relevant. In terms of access to adequate employment, a post-secondary education today is roughly equivalent to a high school education a generation ago. To deny someone access to post-secondary education is to deny that person access to worthwhile employment.

The federal government must work towards making post-secondary education in this country more accessible. It must work towards reducing the barriers that exist. That may mean increasing direct transfers to the provinces, creating a comprehensive system of grants for students, allocating more funds for infrastructure, targeting money towards the expansion of institutions to create more classroom space, and making funds available for technological needs.

With regard to addressing the financial needs of students, we want to urge the federal government to reconsider its millennium scholarship endowment fund. The federation applauds the intention of the federal government to address the student debt issue. While it is a clear recognition of the issue of student debts, evidence does not suggest that this fund is either an adequate or appropriate solution to the problem of debt accumulation. The problem within the debt crisis is not that it is just the smart students who are graduating with debt, it's that all students are graduating with high student debt.

To conclude with the recommendations from the Canadian Federation of Students, we recommend that the federal government implement debt reduction measures—and not debt management measures—such as a national system for grants. It should hold off the investigation of an income-contingent loan repayment plan, which will further put students into debt and increase student user fees. We call on the feds to restore federal funding for summer employment programs to 1985 levels, to make a commitment to reduce youth unemployment to the overall unemployment rate by the end of this Parliament, to investigate and implement policies to address youth underemployment and declining incomes, and to establish a national advisory council on economic security for youth.

Thank you.

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

Now we'll move to the College Institute Educators' Association of British Columbia, and Mr. Lavalle.

Mr. Ed Lavalle (College Institute Educators' Association of British Columbia): Thank you, Mr. Chairman.

The College Institute Educators' Association, CIEA, thanks the House of Commons Standing Committee on Finance for the opportunity to share its views with the committee. This is a practice that we've engaged in for four years, and I must say the constant factor is that the hotels change every year. Other than that, I can't see that we've had a lot of success from coming before these committees. Nevertheless, we have a brief for your consideration. There are six recommendations in it, and I'll simply address the main points.

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Committee members who are not familiar with the work of the colleges, institutes, agencies and university-colleges in British Columbia may find this brief of interest. I think we probably have the most developed post-secondary education system, other than universities, in the country. Therefore, I speak on behalf of more than 85% of the faculty librarians and counsellors in those institutions.

I would like to respond to the two questions put forward by the committee on the process of deficit reduction in the past and on the priorities for the future. To answer those questions it's necessary to examine the impact of the dramatic federal withdrawal of funding for post-secondary education that has occurred.

The value of federal transfer payments in paying for post-secondary education in B.C. has fallen more than 50% from 1986 to roughly 30% today. It's had a variety of impacts.

First, its impact on students. A year ago the Vancouver Sun reported that the average debt load of Canadian university students was higher than those at American private universities, where tuition fees are significantly higher. I looked into this last night and found out that the average load is equivalent to what a student has at the end of their studies at Yale.

Recently a Statistics Canada report indicated that increasing debt loads may adversely affect accessibility due to decline in employment, decline in family income, rises in tuition fees, etc. So I think we'll find that there is a declining group of people who have accessibility to the post-secondary education system who take other alternatives rather than be saddled with unmanageable debt. This situation may be made worse if income contingency loans are introduced. Because of compound interest, borrowers with the lowest income, usually women, end up paying more over the lifetime of the loan.

Finance minister Martin yesterday said that:

history proves that education and training are the best tools we have to address [inequality]. They make the economy more inclusive. They widen the mainstream. They expand opportunities.

All this is true. In reflecting on past cuts in education spending, however, committee members should reflect upon the fact that the opposite is also true. Cuts in education and training widen inequality, make the economy more exclusive, and reduce opportunities.

In terms of the impact on our colleges, institutes, agencies and university-colleges, over the past year—and this has already been reported by Mr. Nicholson—it's been increasingly difficult for B.C.'s university institute agency and university-college system to do its job. In June 1997, as Mr. Nicholson indicated, there were general findings that the system was in crisis.

I'm not going to repeat those figures. They're in my brief. There is, however, a good quote in this report. The Task Force on Critical Issues says:

This snapshot

—meaning the figures that the report produces—

does not capture four other important features of the system. First, the snapshot does not capture the negative impact on access and the quality of the learning experience that has occurred to some degree at almost every institution.

Second, the snapshot does not reveal the extraordinary lengths to which institutions have gone to keep faith with the government's goals on access and service to students and to respond to the rapidly shifting demands of students as customers. The system has done this even as it absorbed the increases in operating costs due to inflation.

Third, the snapshot does not reveal that the system has exhausted its capacity to respond to further financial and accessibility challenges without additional resources.

And fourth, the snapshot does not reveal the fiscal difficulties the [provincial] government has faced as it endeavoured to meet its commitments to students and their education.

I would venture to say these are directly the result of the deficit program that was established by the federal government several years ago.

In answer to your question on the measures to reduce the deficit, we can only say they have led to enormous hardship for many young people and others as they attempt to gain their education. They have placed huge burdens on a system that has already large responsibilities in service delivery, and they have reduced that system's ability to deliver education to people throughout our province.

Our response to your second question arises from our response to the first. There should be a significant increase in federal support for training and education in Canada. Failure to reinvest new funds into education will have two results. First, post-secondary educational institutions will be less able to do their jobs. Second, access to education will decline among lower- and middle-income Canadians.

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So where do we invest the resources? The first priority for reinvesting in post-secondary education is a restoration of the federal government's share of funding. A commitment to at least begin increasing this share to previous levels would send a strong signal to Canadians on the importance this government attaches to education. If this is not done, however, there are some specific issues that must be addressed.

First we suggest an applied innovation program. CEIA supports enhanced research funding such as that proposed in the document Sustaining Canada As An Innovative Society: An Action Agenda, which I believe this committee has received.

We would also like to propose an applied innovation program that would address the applied side—as opposed to the research side—of education. Parenthetically, let me say that all our members are most of the people in the province who do trades training, career education and training, and technical training. An applied innovation program would target the training and instruction that goes on in our colleges and in our workplaces. It would provide funding for the design of innovative courses, for innovative work experience programs, and for the upgrading of people working in the trades and technical education fields.

Finance Minister Martin said yesterday that a country with the very best learning culture in the world will fail if there is not the opportunity to develop and apply newfound skills in an innovative workplace. We believe this applied side of innovation has not been sufficiently addressed by the government in its current programs like the Canada Foundation for Innovation. An applied innovation program would address the critical issues of providing skills for Canadians in the technical, the career, the polytechnic, and the trades areas.

Other issues have already been addressed, so I won't repeat them. There are important areas such as the reduction of the burden of debt on students in the post-secondary education system, the effects of which have been spoken to by other speakers.

Additionally, we commend the finance committee for its recommendations last year in the area of literacy, and we suggest there is still work to be done. We would urge you to call once again for an increase in federal programs in support of literacy. The last thing we would say is that we would recommend that institutions would benefit from federal programs in support of libraries, technology acquisition and infrastructure.

The Prime Minister recently suggested the importance of education for Canadians, when he announced the creation of the millennium scholarship. As my mother used to say, we can't wait for the millennium. We need some form of assistance now. For Canada to succeed in the next millennium, we will require an increasing, not a decreasing investment in human resources. For that to happen, the federal government must become a full partner in the support of post-secondary education in Canada.

Thank you very much.

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

Now we will hear from the Confederation of University Faculty Associations. I believe Mr. Robert Clift will be speaking. Welcome.

Mr. Robert Clift (Executive Director, Confederation of University Faculty Associations of British Columbia): I'm the executive director of CUFABC.

With me today to assist you in answering questions later on is our president, Professor Tony Sheppard, and our colleague and president of the Canadian Association of University Teachers, Professor Bill Bruneau. I also note that as my knowledge of French is limited and my accent is not very pleasing to the ear, Professor Bruneau will take on any questions from the francophone members of the committee.

This is the third year in which our organization has appeared before this committee, and this year we do so with some optimism. There is little doubt that the cessation of further cuts to the CHST, the establishment of the Canada Foundation for Innovation, and the announced millennium scholarship fund, will be benefits to the post-secondary community. Mr. Martin's unexpected good news yesterday also gives us some hope that the federal government will begin to reinvest in post-secondary education research in a substantial way.

I have to be blunt with you, however, and tell you that the fight against the deficit has resulted in casualties in Canada's universities, colleges and institutes. Our written submission will give you the detailed figures and a number of examples of the difficulties in B.C. universities, but in brief I can tell you that the problems we are experiencing in universities resolve around there themes: research, the student experience, and the training of new researchers.

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A recent Industry Canada report indicates that Canada trails its largest trading partner, the United States, in several measures relating to inventiveness, innovation and research. The cuts in support for the federal granting councils have further hampered our ability to bridge this gap.

Such public funding of basic and applied research is all the more important in light of the forthcoming study from the United States that indicates that 73%, almost three-quarters, of the research papers cited in support of U.S. patent applications are the result of publicly funded science in the United States.

Yet, while the United States has increased its support for its national granting agencies—at the back of our package, you will see some graphs giving a representation of Canadian funding and some international comparisons—Canada has instead cut its support and sought to direct the remaining funds into areas that the government has decided are important.

Now, think about that for a moment. The government is mandating those areas in which Canadian researchers are to be innovative.

Forgive me for my skepticism, but I don't think that's something that government can or should do. It has a very important role in fostering a climate of innovation, new research and discovery, but in deciding what that is, you essentially cut out that which you are trying to do, which is innovation. Innovation means you don't necessarily know what's going to come. You want to foster that, however.

The most obvious reason why government should not be taking these decisions to direct where research funding should go is that the political winds change as quickly as do the economic winds. As management guru Peter Drucker observed, we need institutions in society like universities to act on the longer-term interests of society. One of those functions in the universities, of course, is basic research, whose economic and social benefits may not be realized within a given economic cycle or political mandate.

Such short-term thinking is also apparent in the federal government's approach to student financial aid. The policies of successive federal governments have largely been to put more debt on the back of students and then attempt to make that debt manageable. It seems to us that a longer-term solution would be to avoid this debt in the first place. Brad has spoken amply on this topic, so I won't cover it further.

The student experience, which Brad also pointed out, is less than pleasant in the classroom because of successive years of cuts in federal support.

Just yesterday, I received an e-mail note from a faculty member in the economics department at the University of Victoria. He reported to me that as a result of a lack of funding and an increased pressure to increase student numbers in the institution, all the first-year and second-year classes in economics have been compressed into huge class sections. Students are no longer able to develop their writing and critical thinking skills through the use of essay assignments and such because there simply is not enough time and people to meaningfully mark those assignments.

In the third and fourth years of undergraduate study and at the graduate level, the department has simply cancelled elective courses. There are things you can no longer study at the University of Victoria in economics as a result of funding cuts.

This faculty member observed that the students still get a degree with the same name, but the content is weaker. Simply more degrees are produced, not a more educated society.

This spending restraint has not only compromised our ability to do research today and to serve students today, but it also threatens our capacity to conduct research in the future. We fear that the best and brightest of our university graduates are not choosing to take advanced studies in graduate schools, which would prepare them for a research career. They quite rightly are not prepared to accumulate more debt and pay more opportunity costs in the form of lost wages to seek a career with an uncertain future.

Yet, the public sector and the private sector need such people, and if the prognosticators are to be believed, we need them in greater numbers.

In our minds, the solutions are really quite simple. They are essentially the same solutions that we have proposed to this committee and to the federal government of past years. The amount of money for the federal support of post-secondary education has to increase, and the federal support of the national granting councils must also increase.

We know that these propositions are not fashionable, but that doesn't mean they're wrong. Our capacity for flexibility in the post-secondary education research community has been virtually eliminated.

As a result of not having that basic funding to the operating grants we can draw upon for institutions, we can no longer have the small bits of money to, for instance, support a promising graduate student or to offer another bursary to an undergraduate student who is in need, or have that little bit of extra money that is necessary to facilitate a private research grant or contract to bring money into the institution and the province.

Faculty members and students alike are literally paying for our public post-secondary education system out of their own pockets, and we are reaching the point at which they will simply quit. A faculty member in engineering, once again at the University of Victoria, reported to me last week that they recently lost three bright, young faculty members because the support for their research and teaching was simply better elsewhere. In one case we lost a promising computer engineer who went to Europe. This person left the continent, not only the country.

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If this committee and the government feel compelled to continue down the route of directed funding in small initiatives, then there are three proposals detailed in our written submission to which we will add our support. This committee, if it has not heard of them already, will hear about them from other organizations. I won't belabour them at this point; they are are in the written submission.

I have to add that we don't think these proposals will adequately address the problems we raised in our written submission. It is clear that we must get more money into our post-secondary education system if we are to survive. If it has to come in this forum, then so be it.

Thank you. I look forward to your questions.

The Chairman: Thank you very much, Mr. Clift. Now we will move to the representative from the Private Career Training Association, Mr. Gordon Mulligan.

Mr. Gordon Mulligan (Representative, Private Career Training Association of British Columbia): Thank you very much, Mr. Chairman. I thank the committee for inviting the Private Career Training Association. It's important maybe for a bit of a different perspective.

I empathize a little bit with my confrères from the public sector who deal with educating our citizens. I spent a couple of happy years in that environment, and I have three children currently accessing that.

However, I would like to offer a perspective that might be a bit different. It may even be a bit trite, but we'll try to deal with it.

As a private career trainer, I personally deal with individuals on a daily basis. We're often trying to assist in redirecting their careers. We do have students in their early twenties, but we do have students who have worked for a number of years who have to be retrained because of difficulty with health or they were laid off after 20 years and have no computer training, and those sorts of things.

I hope to offer perspectives from not only the trainers who are in small- to intermediate-sized businesses but also the very people with whom we deal on a daily basis who are seeking work or re-employment.

With respect to the first issue we were requested to deal with, deficit reduction, I guess I'd like to offer this perspective: our businesses couldn't survive if we constantly targeted deficits. We would like to suggest that, again being somewhat trite, having an attitude of building surpluses would be a far better attitude to approach now that we actually are near one. I was pleased to hear from the minister yesterday in that regard. It's important for us in doing what we do every day to recognize that we will always have problems with shortfalls for various reasons.

We also observe, as taxpayers, that the cap toward the surplus has significantly benefited from having low interest rates up to this point. However, we do see this prognosis for rising interest rates, which again will affect the interest component of the budget. There's just too much risk for that to be able to cause a reversal of what has successfully happened so far. We humbly suggest that more surplus targeting is necessary, and keep going.

Notwithstanding that, to echo the comments that were made from fellow members here today, I would concur as well that the issue here is investing to make Canada an internationally competitive country with people who can pay more taxes by way of training, grants and loan guarantees, and seed money for research.

We have a side issue that we cope with on a daily basis because our students have to access support in some cases. Part of a program has occurred whereby there has been a transition of the federal dollars for training to the provinces. These have been difficult to try to determine. We've seen a situation in which the handover was not really clear, yet we see a duplication of services, a certain lack of communication, between the two levels of government.

The bottom line is that I have people coming to me who say they have no idea where to go. They used to be able to talk to So-and-so in the federal government, and now they have no idea what to do. So some attention needs to be addressed there. We don't have any difficulty with the transfer occurring, but we do have a difficulty with how it's occurring.

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With respect to the future and the priorities, while I, like everyone else, would be happy to have a tax reduction, in fact we believe still that the issue on interest and its impact on the deficit situation currently is what's at issue here, and that debt has to be reduced.

We have thought about an idea, which we propose. It's in your briefing notes. Simply put, when the GST was first introduced it was sold to most of us as the way in which the deficit and debt could be reduced. In other words, it was directly tied in such that I as a citizen, when I paid the GST, would realize that it was towards targeting debt.

In fact, the GST seems to have disappeared into general revenues. We believe if it was brought back out as a high profile...where some portion of every dollar I pay in GST goes to debt reduction, and it in fact occurs, the citizens would participate in the decision-making.

We also suggest that once some target levels of debt reduction have been achieved, a reward to citizens should be provided—in other words, a drop in the percentage rate. We believe, in fact, that reducing the GST is more appropriate than income tax reductions because those would benefit lower-income citizens, at least proportionately.

I've also provided a booklet for you prepared by the Canadian Coalition of GST Exempt Service Providers, which says that we, as private colleges, but also others, such as day-care centres and homes for the elderly and infirm that are privately run, where we have to, by the nature of the law, offer GST-exempt services, still have to pay 100% of our GST expenses, unlike my confrères, who, under the publicly funded colleges, attain a 67% exemption for those expenses.

We're very much active in the areas of employment and health. We ask that the committee address the issue of at least allowing a level playing field in terms of how we provide those services.

Thank you very much.

The Chairman: Thank you very much.

I will now move to the question and answer session. We'll start with Mr. Harris.

Mr. Dick Harris (Prince George—Bulkley Valley, Ref.): Thank you, Mr. Chairman.

I've listened to all the submissions. I thank you for coming today. I have some comments I'd like to make, and a question.

First of all, I have to make a comment in relation to a comment Mr. Lavigne made that I take very great exception to, that private schools in this province offer, in his opinion, an inferior education.

I fail to understand how you can make that comment when in fact statistics show that the grade averages coming out of private schools in this province, and in fact in this country, are higher than those coming out of public schools. So I wanted to make that comment to clear that up.

Second, I want to assure you all that on a personal basis I do have a lot of sympathy for some of the things that are happening in the education system in this country. I would also like to say that my sympathy probably lies more with the students than with some of the things you have brought to us today.

I sympathize with the fact that we have students who are leaving post-secondary education with an enormous student loan burden. Of course, that is certainly not the way I would want any young Canadian to begin their career.

I sympathize with the fact that the present government and former governments have made cutbacks to education in this country. I think those cutbacks should be restored in some manner.

I think there was one common thread that ran between all of your presentations, possibly with the exception of Mr. Mulligan's, who gave a little different perspective on it. I seem to get the feeling that all the blame lies with the fact that you're short of money, that most of your problems would be solved if you had more money. I think I have to question this.

• 1430

I think you have to take sort of an inward look at the education system in this country and in the provinces. I don't know how you explain the fact that in this country we spend more per student to educate our young people than do a number of our competitors, the countries we compete with. In many cases, however, our grade average is considerably lower than what is realized in some of these other countries, such as Japan, Switzerland, or Germany. In round figures, we spend approximately $6,000 per student per year to get them through elementary and high school. In Japan, for example, I think the figure is somewhere around $4,000 per student, yet their grade average when they graduate is far higher than it is in Canada, and particularly in this province.

How can we explain that? How can we explain the fact that we spend more money on education in this province, in this country, yet when our young people finish their schooling we come up with a lower grade average than many of the countries we have to compete with? Regardless of the fact that there may be a shortage in funds, don't you think there is something wrong with the system as well, with the way in which we deliver education to the students, the way in which we educate our students?

I would like to invite your comments on that. We can start at either end.

The Chairman: We have approximately three minutes to answer that question. I don't think everybody is going to get a chance to answer, but there will be other questions that you can answer.

Mr. Dick Harris: Then how about we just direct it to the B.C. Teachers' Federation, perhaps Mr. Lavigne's organization, and these two groups over here. I'm sorry, but there are more groups here than I have papers for.

Mr. Rick Beardsley: I'd be pleased to answer the question, or at least address it.

In comparing Canada to Japan in terms of education spending and the performance of students, it's my view that we're not really spending more. A few years ago I spent some time in Japan on a Japan Foundation scholarship in order to look at their system. It seems to me that their spending is understated in international documents. If you look at their own ministry of education documents, they spend approximately 6.3% of GDP, while we spend 7%. They have an older, faster-aging population than we do. On a per student basis, it's probably not that much different.

We would have to look at cultural differences, at the attitudes of parents towards education, and at the amount of spending parents put into education—not to send their kids to private schools necessarily, although 25% of senior secondary students are in private schools in Japan, but the money they spend on tutoring and what are called juku tutoring schools. In other words, they don't expect the public school system to deal with learning disabilities, Japanese as a second language, and so on. Many of those burdens are borne by the family, as opposed to by the public.

I asked a professor at Ochanomizu University in Tokyo what he thought their real spending was on education. He thought it was around 13% of GDP if you factored in all of the money that is spent by families. And if you asked Japanese families where they thought they fit on the socio-economic scale, 90% say they are middle class. If you look at their incomes, their incomes are relatively high.

With regard to performance, we've had anecdotal reporting, particularly with graduates of our engineering programs, that our engineering graduates are much better at problem solving than their engineering graduates. They look at taking in co-op students from our universities and technical schools. I've had the experience personally in my own family, where a nephew has done that. He went to Toshiba.

• 1435

I was in Japan this past summer. The Japanese government announced a massive reorganization of the Japanese education system. They are collapsing the junior and senior schools together to have a continuous 7-to-12 system so that they get rid of examination hell. While they've been able to produce some quite good results in the technical sense, they see shortcomings on the creative side. So I think it's a very complicated issue.

Thank you.

The Chairman: Keep the answers brief, and also the questions.

Mr. Lavigne, you're next.

Mr. Brad Lavigne: Go to CIEA first. I'm still writing my notes.

The Chairman: Oh, are you? You'll be mailing them to us?

Mr. Ed Lavalle: I'll try to be very brief. I think Mr. Harris's questions on costs were directed mainly to the K-to-12 system.

On the post-secondary education side, my recollection of the OECD figures is that we're really somewhere in the middle. But that's a bit tricky, because the American percentage of GDP is very high. Then in the post-secondary area it is dominated by very expensive private institutions.

On the training side it turns out we're very low in terms of GDP. On the contributions made by business to research through training institutions, we're very low. So it's a mixed bag, but we're not expensive and our outcomes are rather good in terms of the general thrust of post-secondary education.

On the question of private training and grades, I don't know if you were talking about private training being inferior. I don't know if it's inferior; I only know that in the province of British Columbia, of the 1,000-odd private training institutions registered only less than 100 have been accredited. Accreditation is very important, because that's the way in which you move seamlessly into the articulated, accredited public post-secondary education system.

The Chairman: Are there any final comments, very briefly?

Mr. Brad Lavigne: I think Ed stole some stuff about the private institutions. By no means did I want to offend anybody who provides private college training. That wasn't our intention at all.

I think the one area that hasn't been touched on yet is the suggestion that if we get more money we'll solve all our problems. We don't believe that. There are many things that also need to be done, but certainly replenishing some of the cuts will start to begin to heal some of the problems that have been caused because of the cuts.

There's only so much we can do within a system that is so cash-strapped for money without it affecting the quality and these kinds of things. So I don't think you can throw money at a particular problem and solve all the problems, but I think it would certainly help to a significant extent to repair the damage done.

Mr. Dick Harris: I merely was suggesting that I think there's a two-pronged approach to this, but there is a lot of work to be done within the education system itself in cleaning up its act in addition to increasing the funding slightly.

The Chairman: Okay. Monsieur Desrochers.

[Translation]

Mr. Odina Desrochers: I would like to put the same question to Mr. Brad Lavigne, from the Canadian Federation of Students and Mr. Rick Beardsley from the BC Teachers Federation.

We all agree that education is an area of provincial jurisdiction and that for some years now, since the Liberal government has been in power, the provinces have undergone drastic cuts. You all agree that this policy has been very detrimental to the education system.

Yesterday Mr. Paul Martin announced that there would likely be a surplus and I'd like to know your position on this. Don't you think that Mr. Martin should start paying his dues to the province instead of creating new problems that will once again impinge on an area of provincial jurisdiction?

[English]

Mr. Brad Lavigne: Our organization has basically a two-pronged approach on how to go about replenishing: one, to increase the transfers to the provinces through the Canada health and social transfer, and two, to bring in mechanisms to ensure that the money targeted for post-secondary education goes to post-secondary education.

• 1440

On the second idea, that of separate programs, in the areas where the federal government has programs such as the Canada Student Loans program, for example, we don't believe new programs should be set up. We don't think there should be drastic alterations to the payback mechanism of the Canada Student Loans program. That's a program provinces can opt out of, as Quebec has, as the Northwest Territories has.

So there are some examples where increased funding directly to the provinces would benefit our membership and some cases where direct federal involvement would happen. But every time we talk about the federal government's role in post-secondary education, we always make sure to note the particular distinctiveness or uniqueness of Quebec as well as first nations.

Mr. Rick Beardsley: I guess the position we have is that the restoration of funding for post-secondary will help relieve the pressure on the K-to-12 system.

With regard to federal funding for K-to-12 programs, our real concern right now is providing some relief on the ESL issue.

The Chairman: Mr. Riis.

Mr. Nelson Riis: I liked Mr. Mulligan's comments about phasing down the GST as a beginning to put tax relief in the hands of those most in need.

To Mr. Lavalle, I think your applied innovation program makes a great deal of sense in terms of what's required and in terms of complementing existing programs that have been announced. I certainly want to applaud you for that recommendation.

My question would be to Mr. Lavalle and Mr. Lavigne. Yesterday's comment by Mr. Martin spoke a great deal about access to education and training, which is a lot of this discussion. It seems to me that a few years ago we as a society decided that grade 12 was the minimum level of education that was needed to be a contributing citizen, and therefore funded it through the tax system to provide universal access. Surely to goodness we would all agree today that grade 12 is inadequate, that people must go beyond that if they're going to play an appropriate role.

Isn't it time now that perhaps a leadership role the federal government could play is to sit down with the provincial governments and say our way of supporting access to post-secondary education would be to pick up the tab for tuition fees for students and do away with tuition fees as a barrier?

This is not a new idea. Many countries do this. Why wouldn't we be bold? Am I missing something here? A little loan program here, or increase this grant here or bursaries there—these seem to be rather piddling little steps we're taking. Why not be bold and say, listen, if countries X, Y and Z and A, B, C, D, E, F and G have done this, why don't we?

Mr. Lavalle, I'd like to hear your response to that on behalf of the instructors, and Mr. Lavigne on behalf of the students.

Mr. Ed Lavalle: It's very easy to respond, Mr. Riis. I agree with you completely. In fact, this is not the position of my organization, but I could go even further. When I was a young student I took a pilgrimage to Quebec, because the most advanced student movement was in Quebec. I came back, and we wanted to march for what was called prêts scolaires. We wanted not only no tuition fees but also a salary for youth. That would certainly create a level playing field. But that was a youthful dream. Now I dream about the restoration of EPF and the abolition of tuition fees. I think that would really democratize our system substantially.

One of the major barriers to people going on to post-secondary education is the fact that they have to pay relatively high tuition fees compared with, say, their European counterparts. They get into debt. I think people don't appreciate sufficiently what a negative psychological effect debt has on a student with a low income or, if I can say it, from a working class family. The more up front the grant, the more up front the remission of the loan, and the better off you are. Of course, abolition of tuition fees would negate the necessity of that.

Mr. Brad Lavigne: It has been one of the longest-standing goals of the student movement in this country, which goes back to the late 1920s in Canada, to ensure that access is ensured for everyone, access being fundamentally different from enrolment. As tuition fees have gone up, so too has enrolment, but there's a fundamental difference between enrolment and access.

• 1445

About two weeks ago, the Canadian Federation of Students released a document called A Blueprint for Access: A Strategy for Change. It outlined steps that the federal government and the provincial governments could take to ensure access for all Canadians. One of the major planks of that was the elimination of the up-front user fee, in addition to the implementation of a national system of grants.

To follow up on some of your points, Mr. Riis, the countries that don't have the up-front user fees include most of western Europe. Ireland just abolished its user fees in 1995. It had approximately or roughly the same user fees as we did, if we exchanged the dollar.

In Quebec, there are no user fees in the first two years of instruction at the CEGEP level. As well, they have the lowest tuition fees in the country for the subsequent three years at the university level. They have the highest levels of participation, as well as stats that prove access is better in Quebec than it is in other parts of the country. That's due to these kinds of policies that are in place.

You're absolutely right, it wouldn't be that much. If we took a percentage of our gross domestic product and put it up against what the user fees are contributing now, it would be a fraction of the overall GDP. Currently, tuition fees comprise $2.2 billion annually. If we put them up against our GDP, this would be minuscule in terms of taking the steps in the right direction. As Ed said, it would begin to level the playing field.

The current system that we have now, with the high user fees—the average user fees are higher than in the public system in the United States—we have two tiers of graduates. There are those who come from wealthy backgrounds and who graduate without debt, and those who come from middle- and lower-income families and who graduate with massive amounts of debt and never catch up. Even if they were to get the same jobs at the end of the day, those students who had to go into debt would never catch up to their wealthier counterparts. So, absolutely, we agree with the longstanding proposals of the Canadian Federation of Students, and we'll make sure that you get a copy of our document.

The Chairman: Mr. Jones.

Mr. Jim Jones: Thank you very much.

I have a quick comment on the issue of user fees. Somebody brought it up to me the other day. I think it would be an admirable idea, but you'd have to put some caveats in place, such as having to pass. If you fail, you're out, and you don't get the free education. We would have to implement tough national standards so that the people going there are going to be the ones who are going to succeed. I think it might be worth investigating, but it just couldn't be open for everybody.

I heard the same thing that Mr. Harris heard, that it would fix the problem if only you had more money. Let's assume that there is not going to be any more money to fix the problem. Are there alternatives for education other than classroom education? I don't know who will take it, but can you comment on how we can augment this? We're not only in university-type education and post-secondary, we're in lifelong learning education criteria. The average person is going to change careers and has to be re-educated probably six or seven times over his or her lifetime. Are there ways in which to get people educated other than in the traditional classroom?

Mr. Ed Lavalle: There are, and we do them now. In the college institute and agency system, we do trades training, we do workplace-based training, we do co-op placement training, but they all cost money too. For example, we don't have a training tax, we don't have a large investment by employers in training, but they expect public institutions to deliver. The public institutions in B.C.—that is, the colleges, institutes and agencies—have in fact engaged in this kind of training. But other than the applied training, a portion of which is job-specific and in which the person can actually be an income earner, the student supports have to be there, along with the instructional and learning environment supports.

One of the noted ways of training outside of the classroom, or with a minimal part in the classroom, is apprenticeship. That still requires funding. In fact, in the province of British Columbia we've been very hit by the fact that the federal government has withdrawn from apprenticeship. It has cut down the amount of unemployment subsidies or employment insurance benefits available to apprentices, and it has reduced its outright financial commitment to apprenticeship training.

• 1450

So we're hurting here not only on the formal side in what we think of as a traditional university education, but in the whole continuum of training and education in the province. Last year we took a $55-million cut just on that.

Mr. Jim Jones: I was thinking more of what your idea is on an Internet university training degree.

Mr. Ed Lavalle: The infrastructure costs for doing that on the Internet—I see Neal wants to answer that—are surprisingly high. I'll just let someone else speak to that one.

Mr. Neal Nicholson: I've only been involved in the college sector for a little more than four years. One of the things I've found to be remarkable is the level of co-operation among the faculty, staff, and administration in moving into alternative delivery methods, which are the kinds of things you're talking about. The Internet is probably the most common example.

Unfortunately—I think it's why all of you have chosen to serve on this committee—everything eventually comes back to dollars, cost versus benefit. It costs money to develop the revised curriculum and find the methods to make it work.

I'll make a point that I expect Ed or Mr. Clift would make. In the end, it's really difficult to find an adequate substitute for the interaction between the teacher and the student. I know that this is where I learned best.

Nonetheless, I think the system has gone to the greatest possible lengths in exploring those kinds of delivery system alternatives, and we're prepared to go further. We want to get as far as we can, but we can't abandon quality in doing it.

Mr. Robert Clift: The price we pay for going to something like an Internet-based university is that if you want to do it well, it costs money. Somebody has to revise that material and keep it updated.

In fact, lectures in front of the classroom, for all of its “ancientness”, is a very flexible system. Say the lecturer, instructor, or professor in the classroom reads the newspaper that morning and finds that the federal finance committee has come to town. If this would give an excellent counterpoint to something he's bringing up in the classroom in his economics class later that day, he can do it.

The person mounting the on-line course will have to go on-line and then make these changes. It's literally like publishing a magazine or a book every time you want to change a lesson. While there's value in that—there's much more flexibility for the learner in that the learner can then take away that book, magazine, or Internet web page—it's fixed at a point of time; it's no longer flexible or responsive. For those students who learn best with face-to-face interaction, they are not getting that from those means.

I think the value in what the new communications technology has offered us lies in recurrent training. After we have a chance for people to get basic training, whether trades in vocational training or an undergraduate university education, and once we've prepared them to learn, then these new technologies are going to help a great deal in helping them to train themselves and to take on new learning.

The prospect that it's going to replace what we need to do in the first instance just hasn't been proven.

The Chairman: Thank you, Mr. Clift. Mr. Valeri.

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

There's no question that I concur with what Mr. Harris said earlier and certainly with what Mr. Jones said just recently, that the request is for greater funding for education. There hasn't been any mention of how much funding would be required in order to satisfy and provide a system that you think would be sufficient and the kind of system you'd like to see in Canada. I'd also be interested in hearing a response to the question of how we measure the outcome or success of that type of increased investment in education.

Also, more specifically, I'd like to hear what appropriate new strategic investments or changes to the tax system would be required to meet what you feel are the educational needs. That question is very important for us in establishing the priorities for the committee.

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I also want to test the comment that was made earlier by Mr. Gibson in this morning's presentation. He made the comment that perhaps the role of the federal government should be one of assessing the outcomes on a national basis and providing perhaps a best-practices approach to education right across the country rather than provincially.

My colleague from Quebec indicated that the federal government has continued to infringe on the jurisdictional areas of the province with respect to education. I would be interested to hear how you feel the federal government could continue its role, and play a very strong role, in the area of education without infringement.

I also want to make this point. Given the fact that we're in British Columbia and there have been a lot of comments made about how government cutbacks and transfers have really hurt the educational sector—I'm sure there probably isn't consensus around the table—I just want to make the point that the reduction in transfers through the Canada health and social transfer with respect to British Columbia is equal to 1% of B.C. revenues.

Also, with the recent announcement about the elimination of the announced cut, British Columbia will receive $800 million back into the Canada health and social transfer over that five-year period. We hope, I guess around this table, that this would be reinvested in post-secondary education.

So perhaps, Mr. Clift, you might want to start off with the response to the strategic investment or where we can go in the tax system to help you achieve those objectives.

Mr. Robert Clift: Unfortunately, I left my copy at home. I know that if this committee has not received it already, it will receive a copy of the document Mr. Lavalle referred to earlier, which is “Sustaining Canada as an Innovative Society: An Action Agenda”.

In that particular document, which is primarily the product of the Association of Universities and Colleges of Canada and the Canadian Association of University Teachers, there are a number of special initiatives relating to the support of research and research training at the national level. Unfortunately, I left my copy at home, so I don't have those numbers in front of me.

A third part of that document was a specific plan for restoring funding to the national granting agencies. The effect would be—Bill can correct me if I incorrectly remembered this—and I think it was for five years, approximately a 60% increase in those funds.

Somebody has a copy, so I will be able to tell you.

In 1997-98, the Medical Research Council of Canada, the Natural Sciences and Engineering Research Council of Canada, and the Social Sciences and Humanities Research Council of Canada received a total of $759 million in funding to support research and graduate students.

The proposal contained in this briefing paper says that by 2001-02, the total amount would increase to $1.145 billion. So that's an increase of just under $400 million.

That's a compromise document. We view it as being a somewhat conservative number, but this would go a long way in dealing with the issues we referred to in research.

In terms of tax measures, certainly a number of the measures Mr. Nicholson mentioned earlier with respect to ways to provide tax relief for students are most welcome and would help a great deal. They won't solve the problems, as we said earlier.

The other thing I would like to take note of that is in my brief is that we do talk briefly about tax relief, since this is an issue this committee is considering. We make the observation on behalf of our members that our members are paying expenses out of pocket that most other employees in this country would have their employers pay for them.

I received a communication last week from a Simon Fraser University professor who indicated that in her department there is no longer a budget for office supplies. Each professor has to buy their own pens, pencils, pads of paper, and literally chalk, in some case, for the classroom.

I think our members would be happier not to pay for those costs than to receive a tax break at this time, though they are certainly as keen as any other Canadians to have a tax break after they have to stop paying those costs in order to do their job.

The Chairman: Mr. Mulligan, is there anything you would like to add?

Mr. Gordon Mulligan: I wanted to address the issue of outcomes. Again, as a private trainer, we've actually always been measured by how well we can help people, in one measure, to be re-employable. Within a 90-day timeframe, we're expected, in fact, through the work we do with the counsellors at HRDC, and so on, to ensure that people are re-employed in some aspect that's directly related to the training they receive.

• 1500

In the public system, I'd like to also point out—and maybe this is a take-off on a question Mr. Jones asked earlier—that we might also see measure of outcomes by how involved our students do get into the workplace. Mr. Lavelle referred to it earlier as co-op programs. We're seeing more and more of that. In fact, my own children are involved more and more in that. They're actually beginning to be able to see that after two years at college they're able to get some work with it, apply it for four or eight months, go back to the university or college environment and reapply it.

So there's a mental step involved here, measuring things like employability, not just average grades. Those are almost meaningless in some respects, because there is too much variation.

The Chairman: Mr. Lavalle.

Mr. Ed Lavalle: I have a very brief comment. Outcomes are not elusive. The province of British Columbia, as do most of the provinces in Canada's Council of Ministers of Education, has rather sophisticated outcome mechanisms in place. We can track what happens to a student from the point they arrive to follow-up studies in terms of not only where they're working but also whether they're working in a related field and what the level of income is.

So the problem, then, is not finding the outcomes but determining criteria to say this is high success, this is low success. That gets me to the questions of how we do all this, and establish how much. Probably what we need is a national agenda for education in which the federal government co-operates with the Council of Ministers of Education in establishing that.

In terms of how many dollars that costs, I don't know. Everybody seemed pretty happy in 1986 when 50% of post-secondary education was paid for through transfer payments. You could start by cranking it back up to 50%. If that's not scientific enough, meet with your provincial counterparts and establish the shopping list that people like us are prepared to contribute to and decide what the responsibility level is.

I think that's actually beyond the capacity of interest-based organizations, and more something the federal government should do in partnership with the provinces.

The Chairman: Mr. Nicholson.

Mr. Neal Nicholson: I'd like to take the opportunity to respond to the question about taxation and expand just a little on one of the points in our brief.

The use of RESPs is a long-term one if you expand the ability of people to save in RESPs by making the contributions deductible, taxable on withdrawal. The effect is a number of years off. Straightforward integration of the RESP program with the RRSP program would effectively make the large pool of capital that's in the RESPs available to fund post-secondary education for not just the children of the RESP holders but often the RESP holders themselves who need retraining.

I think one of the critical features that's necessary—unfortunately, we didn't address it in our brief—is that the taxation of the amount received should fall to the beneficial recipient, to the student, not necessarily to the person who put the funds away.

The Chairman: We're going to give Mr. Riis a very brief supplementary.

Mr. Nelson Riis: When we talk about targeting tax relief for students, or dipping into parents' RRSPs to assist students, I wonder how many needy students' parents actually have an RRSP that would be worth dipping into, and how many students attending post-secondary education pay taxes at all. So you would have to keep that in mind in any tax relief in terms of tax credits and so on. But I suspect the parents of the kind of people I know who need help don't have RRSPs.

The Chairman: Mr. Jones.

Mr. Jim Jones: This is not a supplementary, this is a new question.

The Chairman: A good question, you said?

Mr. Jim Jones: No, a new question.

The Chairman: I thought all your questions were good. But maybe I shouldn't be taking that for granted. Go ahead.

Mr. Jim Jones: What do you think about the idea of privatizing education at the university and college level, that the government should be involved only in things where we need national standards, such as medicine, engineering and other things?

• 1505

If we did privatize this type of education, could we deliver education more cheaply? This idea was brought to me by a university professor I was on a plane with when I was going to Atlanta last year in January. He said this is what we should be doing, and that the only things the government should be involved in are the ones in which we need the standards.

Professor Bill Bruneau (President, Canadian Association of University Teachers): This is an enormous question. It touches on the whole history of the Canadian state, and on the provision of a tremendous range of public services that the community has deemed to be absolutely essential to its security and to its happiness.

The argument in Canada since the turn of the century has been that public education at all levels, including higher education, is as central and essential to its sense of well-being and security as are the armed forces, the police, the firefighting agency down the street, and so on. So it seems to me that it's this sense of social security and well-being that is answered by having a public education system at all levels, including the advanced education level.

There's another argument for keeping it public. This is an extraordinarily precious and important resource. That is to say that a person who has a higher education has an enormous advantage in our society. It seems to me that this advantage should be fairly distributed, should be available to people who have ability. It should be available just because people are going to become citizens of the country. It's their right in virtue of being democratic citizens in a democratic society, and of having ability. Those two things should be decisive in determining whether or not people are going to be educated, not their ability to pay, not how lucky their family has been over the last ten or fifteen years in what has been a fairly brutal economy and brutal economic situation.

So for the good of the society, on historic grounds and in a sense on the grounds of efficiency too, if you want a society that makes the most of its intellectual resources and has the highest possible level of political participation, surely you'll want to ensure it through public participation in the provision of education at all levels.

In a nutshell, there is a five-part answer to what in fact deserves a lot more discussion, it seems to me. That's not to say that private interest and private participation in some sense has no part to play at all in the provision of education in the country. There's a long tradition of private interests, private corporations and individuals playing their rightful part in the provision of education in the country, but not in its governance, not in the assurance that everyone will have his or her share of the educational pie. In that national insurance scheme, the government role is absolutely crucial.

So I would say that the answer to the question has to be no. We've gone far enough in the direction of privatization already.

The Chairman: Mr. Lavigne.

Mr. Brad Lavigne: I'd just ask Mr. Jones what the professor was teaching. What program is he in, or what is he a professor of?

Mr. Jim Jones: He was in engineering. He was going down to the University of Georgia. He is going to get a research grant of $1 million there. That's why he's leaving Canada.

Mr. Brad Lavigne: Just to add to what Mr. Bruneau said, I would say that in this country we should have the debate, because the privatization is already a well-established fact, particularly at the private college level here—that's already been mentioned—but also at the university level, and much more so in central Canada than it is here. In some cases, such as at the University of Montreal, they're selling professors' names. At other institutions, like York University, they're selling class titles to corporations that bid the highest. At Carleton University they actually sell the individual seats in which you sit. Privatization is here.

I would say that most Canadians would recognize that there are some things market forces cannot be applied to. I would strongly suggest post-secondary education is one of those to which you cannot apply market forces in order to determine who gets in, what gets taught, and who teaches it.

The Chairman: We'll have two final questions. One will go to Mr. Solberg, the other to Ms. Redman, and then we're done.

Mr. Monte Solberg: Thank you, Mr. Chairman. I have a question for Mr. Lavigne.

Not everybody has the aptitude to go to university, but I think you're proposing that we essentially have free tuition. In other words, you're asking someone who is perhaps a cab-driver, somebody with a low income or someone who doesn't have the aptitude, to pay for somebody else to go to university. I think that's basically the essence of it.

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Now, I accept that these people who go to university contribute a lot to society, but they're also rewarded commensurately. How can you justify asking people who can't go to university to pay for these people who do go?

Mr. Brad Lavigne: We would justify it in simply two ways. One, we would say that the cab-driver or that the child of the cab-driver currently pays taxes that help subsidize the post-secondary education system, but the cab-driver's child can't get into the system because it costs roughly $3,000 a year. So their tax dollars are actually going to subsidize a system that they can't access. The current system is flawed, and I think the cab-driver should be justifiably mad. If we removed the financial barriers, that cab-driver's child would be able to get into the system much more readily. At least it would be based on merit rather than on the wealth of the family.

Mr. Monte Solberg: Is it true that in France, though, where they don't have tuition fees, they have a very low graduation rate compared with even the U.S., for example, where they have pretty high ones?

Mr. Brad Lavigne: There are issues of attrition even in Canada. For example, I know it's a major problem in the post-secondary system in Quebec, where attrition rates are higher than the national average for some strange reason. The question becomes, is the user fee going to ensure that people don't drop out? I would argue no, I think there are other factors.

The University of Calgary did a very interesting study of people who stopped going after their first year. They said they had to juggle three part-time jobs just to be able to afford it. They're failing their courses because they're spending so much time at part-time jobs they can't study. They would be getting very good grades had they not had all these distractions with the financial barrier.

So attrition is tricky, and keeping people in the system is not easy, but having high user fees has nothing to do, I would suggest, with attrition.

The Chairman: Final question, Mrs. Redman.

Mrs. Karen Redman: Thank you.

Given that we've had the suggestion that there would be no tuition fees—and I would like to put that aside, because that's not the basis of my question—Mr. Lavigne, I think it was you who referenced earlier that the average debt load of students equals that of those at Yale. Can you answer what an appropriate debt load is, then, for a student to come out of university with?

Mr. Brad Lavigne: That comment about the debt loads came from Mr. Lavalle. Our debt loads are significantly higher than both the private and public systems in the United States. It's a good question, and I think that's where we should be starting from. In an ideal system the average debt load would be zero—that is, there would be no debt incurred, similar to if I were to break my leg and we had medical...we would not have to sell our house. What is the appropriate debt to go into to have medical attention in this country? It's zero debt.

Now, that's under the ideal system. A debt load of $25,000 is too high. When we take a look at trying to find a uniform debt load it becomes very challenging, because no two individuals who walk out of the system will have the same incomes afterwards. We know $25,000 is too high, and zero is the ideal. Anywhere in between there is basically a political choice that we're going to make collectively.

I think we can start off by suggesting that maybe we should set a target. We do targets for many things, including the deficit and carbon dioxide emissions, for many bases, even if we don't reach them. However, I think a 1990...a target of $8,700 would be a nice short-term gap to go to.

Mrs. Karen Redman: May I ask Mr. Lavalle, since it was his comment, if he could respond as well to that question.

Mr. Ed Lavalle: I don't want to be redundant, because I think Mr. Lavigne answered that very well, but I think it would be good if we could come up with a system in which there was no debt. Other than that, I think we should try to get a mutually agreed upon debt reduction program between the provinces and the federal government. We should certainly standardize the amount of remission of debt.

I'll illustrate with an example. I had a former young student over for dinner last night. They're engaged, trying to start a family, all that kind of stuff. He has $23,000 worth of debt that's federally based. He had $18,000 worth of provincial debt, of which he only ended up paying $240 because of remission. So the burden is disproportionate, the application is unfair, and I think we really need to study that. We need to start a program to ratchet that down.

The Chairman: Thank you very much.

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I have a final question. What's the percentage vis-à-vis how many people graduate with that debt? What sum is it—$25,000, $5,000, $10,000? Most students graduate without debts.

Mr. Brad Lavigne: Right now 50% of all full-time students in Canada are on student assistance. Those debts vary. Some are quite low, some are $60,000. That's where we get the average of $25,000. So it's roughly half of full-time students.

Part-time students are ineligible for many loan programs across the country. When we take them out, the number is 50%. There are about 800,000 to 900,000 full-time students in the country.

The Chairman: The average lifetime earnings of a person with post-secondary education is 50% higher than the average worker with, say, a high school diploma. That's a fact. It's a stat I know. What other investment can a person make in our country that would give that type of return?

Mr. Brad Lavigne: I would point to other social programs. I would say that our health care is a similar investment.

The point that the individual contributes back to society is very true, but why then should who gets into the system be based on how much money they have up front? We want to pay back. We want to contribute back to society. The Canadian Federation of Students has never wanted a free lunch, but we'll contribute back through the tax system.

The Chairman: Do you have any thoughts on the increase from 18 to 30 months in interest relief? Do you think that was a wise move by the government?

Mr. Brad Lavigne: Yes, it was, and that's on par with other international figures.

The Chairman: What about the increase of 57% over five years, $2.5 billion, to the Canada student loan fund?

Mr. Brad Lavigne: That's 57%...?

The Chairman: The increase in the amount of money—

Mr. Brad Lavigne: The weekly allowance?

The Chairman: Yes.

Mr. Brad Lavigne: Although that was welcome, because I know that the students at the time were calling for it, the Provincial Conservative Party had frozen the weekly allowance since 1984. It had not gone up. The Liberal government, in its first budget, increased it. However, it went from $105 per week to $165 per week. Unfortunately, when we did increase that allowance—which is good, because now we could eat in February and March—what happened is that the debts went through the roof. We didn't balance well enough the need to eat in March with the increase in debts. What Mr. Lavalle is talking about, remission and grants, would go a long way to ensure it was balanced.

The Chairman: What about the special opportunities grants announced through the latest change to Canada student loans, which dealt with issues such as women pursuing doctoral studies, low-income and needy students and part-time students? Are you happy with that?

Mr. Brad Lavigne: Yes. We lobbied very aggressively for them, and we're pleased to see that the students with parental responsibilities are the fourth in line of the three categories. But these are patchwork. We don't want to suggest that we don't appreciate these steps in the right direction, but they are modest in numbers. There is a great need out there. Right now 20% of all Canada student loan recipients are students with parental responsibilities. Even with that step in the right direction with the special opportunities grants, maybe a handful will get them.

So we applaud that, but it also suggests that those who are hard done by with tuition fee increases can get in, which is still not the case. It's providing a handful of people much-needed relief. We applaud that, but we must keep going. We should make those kinds of grants universal.

The Chairman: But would you say that the general thrust is correct, that we're heading in the right direction?

Mr. Brad Lavigne: We're heading in the right direction.

The Chairman: Okay. Thank you very much.

What this panel clearly illustrated is the important role education and training plays in building a competitive and compassionate society. Indeed, to benefit from economic growth we need to enhance the type of tools available to achieve a better educated, more accessible society vis-à-vis education.

I thank you on behalf of the committee. We might come back to you for further advice. I'm sure you'll make yourselves available.

The meeting is adjourned.