FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, October 20, 1997

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[English]

The Vice-Chair (Ms Paddy Torsney (Burlington, Lib.)): I will call this meeting back to order. This is the third round table of the Standing Committee on Finance here in Montreal.

[Translation]

Today we will be hearing from the representatives of seven groups: from the Alliance des manufacturiers et des exportateurs du Québec, Mr. Raymond Bourque and Mr. Manuel Dussault; from the Promecan Consortium, Mr. Jean-Claude Croft, from Abbey Finestone Inc., Mr. Stanley Abbey; appearing as an individual, Mr. Hugh Rowe; from the National Association of Tobacco and Confectionery Distributors, Mr. Luc Dumulong; and also appearing as an individual, Mr. Patrick Brady.

Welcome, everyone. Each group will have five minutes, followed by questions from the representatives of each party, and if any time is left after that, we could perhaps give each group one minute for more remarks. We will begin with Mr. Dussault.

Mr. Manuel Dussault (Director of Research and Analysis, Alliance des manufacturiers et des exportateurs du Québec): I would like to thank the committee members for giving us an opportunity to express our views on the next federal budget.

I would also like to introduce Mr. Raymond Bourque, who is the Chair of our Tax and Economic Policy Committee. As you know, we are the Quebec division of the Canadian Manufacturers and Exporters Alliance. Our Quebec wing represents more than 600 manufacturers and exporters who contribute to the prosperity of our economy. I will read our opening statement, and if I do it in less than five minutes, we will have more time for questions.

In our view, the government of Canada's main priority must be to attain and maintain a balanced budget. This objective is being achieved. However, the government's financial objectives have been surpassed mainly because of the strong economy. This financial success was gained at the top of the current economic cycle. Now the government must ensure that the budget remains balanced, even if economic conditions worsen.

In the 1980s and 1990s any improvement in the government's finances quickly evaporated when the economy went through a recession. The government must take action so that this does not happen again.

As for the surplus in the unemployment insurance fund, premiums must be reduced before the economy slows down or the budget surplus must rise to $7 billion before even thinking of issuing a tax dividend. According to our own evaluations, this $7 billion is the result of the $12 billion surplus less the $5 billion that must remain in the unemployment insurance fund to ensure its financial health.

The government must transform its success with the budget into healthy economic growth and the creation of sustainable jobs. These are fundamental objectives that must serve to set the government's financial priorities. Tax cuts are essential to achieve greater prosperity and bring down unemployment, but any tax relief must be targeted so as to generate investment and to attract businesses to Canada and keep them there.

There is an extremely clear relationship between corporate profits and employment in Canada. If the return on business investment is high, companies are better able to create jobs. There lies the key to economic growth and employment.

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The Vice-Chair (Ms Paddy Torsney): Thank you very much. We will now move to Mr. Jean-Claude Croft.

Mr. Jean-Claude Croft (Promecan Consortium; individual presentation): Thank you for inviting me here and allowing me to express an opinion and shed some light on flow-through shares.

I won't give you an entire summary of flow-through shares, because everyone is quite familiar with the securities ever since they were first created, as well as all the problems that there have been and all the changes that were made. I think people are also aware of what the result was.

Today, we would like to suggest a change to the regulations for monitoring companies that issue flow-through shares:

- Whereas there have been cases of serious abuse by certain executives of companies issuing flow-through shares;

- Whereas these executives turned over control to the shareholders;

- Whereas the shareholders had no control over the way the executives were spending funds;

- Whereas the shareholders had to pay in additional funds, unfairly, to make up for the mistakes the executives had made;

- Whereas the government had not put any mechanism into place to monitor the way funds were being spent;

- Whereas it was not recognized that the administrators were the only ones responsible for the mistakes they themselves had made;

- Whereas the federal government and the shareholders suffered harm because of the executives;

- Whereas the federal government does not intend to ask the shareholders to pay for the mistakes that the executives made;

- Whereas the federal government intends to take legal action against the people truly at fault, namely the executives;

- Whereas the federal government has also found an anomaly in the exact description of certain expenses allowed as deductions for the mining exploration companies;

- Whereas the federal government strongly intends to protect investors, no matter how small the investment may be, to reduce auditing costs, auditing which at present is only being done long after the said work has been carried out, to get the Canadian economy going again, to restore Canadians' trust by allowing them to invest in job creation, with complete safety, by means of flow-through shares and to eliminate the opportunities for fraud or serious mistakes that certain executives of companies issuing such shares could commit:

The federal government proposes to make the following changes, which will come into effect on January 1, 1998:

- A committee will be set up to specifically clarify all the expenses that were allowed. This committee will have representatives from a number of different sectors: the federal government, the Mining Association of Canada, the Quebec Mining Association, the Prospectors and Developers Association of Canada, the Association des comptables agréés, the Association des administrateurs agréés and the Association des fiscalistes. This committee will be struck within ten days of this change. The committee will have two weeks to clear up the list of allowable expenses. Each party involved will pay all the costs of its representatives.

- Within the framework of free enterprise and decentralized monitoring, the monies from flow-through shares will be deposited into a trust account managed by a legal agent. This agent will be the accounting firm in charge of auditing the companies that are carrying out exploration. Management fees will be paid using the interests and the monies on deposit. A public notice shall be issued for the selection of a regional inspector. This person will have to have a computer, a fax machine and a telephone, all of which should be mobile. He will also have to have a valid driver's licence, a 4 x 4, an all-terrain vehicle, as well as a snowmobile. The inspector and the legal agent will have to provide a performance bond of $10 million each.

- The federal government will appoint a general coordinator, who will receive assistance from 10 provincial coordinators. In accordance with the provinces, these coordinators will be selected by each province. Their salaries will be covered by Revenue Canada. After funds are raised, they will be turned over to the accounting firm in charge of auditing, which will manage these funds and issue a cheque to the company that does the exploration work. Cheques will only be issued after the provincial coordinator approves the expenses. The provincial coordinator will not approve them until he has received the report from the regional inspector.

The Vice-Chair (Ms Paddy Torsney): Mr. Croft, you only have one minute left.

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Mr. Jean-Claude Croft: The regional inspector will be paid by the legal agent, who will use the funds on deposit and the interest they generate. The inspector will physically visit the premises only if specifically asked to do so by the exploration company.

To sum up, currently there is no monitoring mechanism. A regional inspector should be appointed to monitor expenses directly, on location, rather than having chartered accountants monitor them only every two or three years and then having small shareholders foot the bill. That's the problem we are trying to avoid, and our only goal is to make sure that everyone is working with the same information, thereby avoiding pointless discussions and saving everyone time.

The Vice-Chair (Ms Paddy Torsney): Thank you, Mr. Croft. Mr. Abbey.

[English]

Mr. Stanley Abbey (Insurance Broker, Abbey Finestone Inc.): Thank you very much for allowing me to be here. I didn't prepare anything so you'll just have to listen to it as it rolls out. I'm an insurance broker and, by the way, the firm is Abbey Finestone, not Firestone.

Some hon. members: Oh, oh.

The Vice-Chair (Ms Paddy Torsney): Sorry about that.

Mr. Stanley Abbey: I have two particular concerns. One of them has to do with my business as it relates to banking in Canada. I know that the banks received rights to own insurance companies back in 1992 and some of them have taken advantage of it, but nowhere near as many as could have. Banks are earning something in the way of $2 billion a day in profits and can afford to buy up every insurance company operating in Canada in a matter of weeks or months with the assets they have available to them.

Canada has approximately 25,000 insurance brokers who employ about 60,000 people. Those people depend on the existence of the insurance industry in order to make a living.

In my estimation, the biggest product that banks have today is dehumanizing service to their customers. If you can ever get through to banks, you have to learn how to punch an awful lot of numbers in order to find a human being's voice at the other end. This is the exact opposite of what is required in our business.

I think Canadians would suffer greatly if the banks ever realized the right they got to own insurance companies in 1992. The banks were denied the right to have retailing operations on their own. They could only do it through the insurance companies they owned. In spite of this, here is a flyer that came in with my monthly cheques. It reads, “Only CIBC customers get a guaranteed minimum 10% discount on their automobile insurance.” If that isn't direct retailing using their banking facilities, I don't know what is. If they're called up short on it, they'll say they're sorry and promise they won't do it again...until the next time.

The banks are stating that they need to broaden their base in financial services and get into the insurance business in order to compete internationally. That's so much hogwash. They can compete very effectively—and they are—in the general economy of the world.

I'm just asking the government, in recognizing this—and I'm sure there are a lot more comprehensive and knowledgeable briefs put before them than this one made by this lonely insurance broker—not to be too hasty in jeopardizing the futures or the livelihoods of all of these people who are involved.

The other point I want to make pertains to me, very personally, and as a result it pertains to many hundreds of thousands of people. I'm 67 years old. I've made my plans concerning my business. My plans were to sell my business and retire by the time I'm 71. It would be nice and it would be lovely, but the government has shorted me by two years and said that all of the money I have put into my RRSPs and my pension plans has to come out and I have to start drawing that money when I'm 69 years old. It doesn't take a mathematical genius to figure out that two years out of protected money being earned in an RRSP is all of the juice and gravy I had hoped to live on in later years.

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When the government in its wisdom shortened that period to the age of 69 and gave a one-year relief period...if you were 70 you didn't have to do it until the year you were 71, and if you were 69 you didn't have to do it until the year you were 70. Everybody else came under the effective date at the moment they became 69 years old.

I would like to think that the government would reconsider this, recognizing that so many thousands or tens of thousands of people did their planning based on the age of 71. When you're cutting off the last two years when a person is only 65, 66 or 67, or for that matter 61, 62 or 63, the government should institute a grandfathering clause to say that anybody who is already in their 60s when that shortened period comes about will be grandfathered, will not have to start turning their RRSP into annuities until their 71st birthday.

Those are the two main points I wanted to make to this committee, and I'll answer any questions...I hope.

The Vice-Chair (Ms Paddy Torsney): Perfect. Thank you, Mr. Abbey.

Mr. Rowe.

Mr. Hugh Rowe (Individual Presentation): I'm a financial adviser with a financial planning company.

First of all, I'd like to address the problem of government debt. The last time we had a balanced budget was in the early 1970s, shortly after Prime Minister Trudeau came to power. The Liberal government then embarked on a spending spree of epic proportions, resulting in a massive escalating deficit and a spiralling government debt as the government tried to be all things to all people in an effort to bribe the population with its own money in order to get re-elected.

Consequently, we suffered the highest inflation and interest rates in the history of Canada as Canadian savings bonds went to a mind-boggling 19.5%.

Brian Mulroney and his Conservatives were elected to solve the problem, but they took the politically easy way out. They did nothing. The compounding of the massive debt over the next ten years caused it to almost triple. At that point we had a huge debt, huge annual deficits, and a declining Canadian dollar.

When Jean Chrétien and the Liberals came to power Canada had hit the debt wall. It was obvious that with Canadians taxed to the hilt and interest on the federal debt growing like a cancer, the free-spending Liberals believed social programs were in mortal danger. Economic necessity rather than philosophical conviction finally drove them to do some of the things that had to be done.

Unfortunately, although spending has been reduced somewhat, the bulk of deficit reduction has been the result of higher government revenues—read “tax increases”—and transfers to the provinces.

At the previous pre-budget conference I attended I raised some questions. What if we do, by some stroke of wisdom or luck, manage to achieve a balanced budget? What is to stop some new spendthrift government from starting the whole process over again?

No, no, and no. Government spending must be reduced and at a much faster rate. We have confiscatory taxation in this country, and taxes must be reduced. This will actually increase government revenues as people become more productive through greater incentives to produce and to earn more, by hiring more workers and reducing the underground economy, etc.

While it is nice to have a balanced budget, it should not be done on the backs of taxpayers. There is the question of what level of taxes we impose in order to balance the budget. If spending increased by 10%, would it be proper to increase taxes accordingly in order to balance the budget? What about 20% or 30%? Of course this is totally absurd. Maintaining the tax level at current confiscatory levels in order to balance the budget is no less absurd.

Spending simply must be cut. Canadians have been smothering under a heavy blanket of government debts and high taxes for far too long. Let's throw off this heavy blanket as quickly as possible so Canadians can breathe again and become more productive citizens through self-government.

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I would like to address some of the things government might be able to do, bearing in mind that government's proper function is really to protect individual rights and not to be a charitable organization and redistribute the wealth from those who produce it to those who don't. In the taxation area I would propose eliminating the capital gains taxes. This will result in more productive effort, more investment, and will eliminate the possibility of inflation gains. We end up paying taxes on merely inflation gains, without any real increase in value.

On the unemployment issue, I would suggest eliminating the minimum wage laws. We all know marginal workers are the last ones to be hired and the first ones to be fired. Let's open up the market to everyone out there and abolish the minimum wage and create more jobs.

Payroll taxes should be substantially reduced.

In education, I think we could raise tuition fees so people will pay for their education, the students or their parents, rather than the taxpayers at large.

As far as RRSPs are concerned, I concur with Mr. Abbey here. The 69-year age limit to convert to an RRIF should be rolled back.

Raise the maximum RRSP contributions to $20,000 a year from $13,500. They were reduced down to that level.

Foreign content limitations should also be increased. There's a great scarcity of marketable issues on the Canadian market. Now they're talking about the Canada Pension Plan investing in Canadian stocks. Where are all the stocks going to come from? Where is all this money going to go? Let's have more diversity in RRSPs so people can provide for their retirement better than the government can.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Rowe.

Now we have Luc Dumulong.

[Translation]

Mr. Luc Dumulong (Executive Vice-President, National Association of Tobacco and Confectionery Distributors): Good afternoon. I would like to thank the committee for giving us this opportunity to express our views on a rather touchy subject as part of the pre-budget consultation process. Our association will be discussing tax evasion and how it relates to tobacco products on the Canadian domestic market.

Canadians are well aware of illegal distribution and sales of tobacco products. As everyone knows, the main reason for this illegal activity is the opportunity to earn considerable profits by evading or avoiding taxes on tobacco products.

I have a rather complicated presentation. I'll skip right ahead to the recommendation, and then answer questions. I hope you do have some, because there are many technical factors in this area.

We recommend that the federal government apply a zero percent GST rate on tobacco products and increase the excise tax by an equivalent amount, as Nova Scotia has already done for its own provincial tax on tobacco, thereby generating the same revenues.

In other words, we recommend shifting the amount of the GST, which is collected by retailers. The amount would be shifted to the excise tax, which is collected at the manufacturer's level. This approach would mean that the money currently being collected by tens of thousands of retailers would be collected and remitted by manufacturers.

This would lead to higher federal government revenue, reduce the risk of losses in the case of bankruptcy and would also reduce the accounting burden on retailers.

This approach would also make tax evasion for tobacco products much less profitable.

Judging by Nova Scotia's experience, our recommendation to the government would have the following results: evading taxes on tobacco products would decrease radically, and the federal and provincial governments' revenues would increase considerably, without having to implement an additional structure; retailers could once again sell tobacco products and earn a reasonable profit; tobacco products would only be distributed through the legitimate distribution network, thereby serving the public interest; and all taxes on tobacco products consumed domestically would be collected.

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So this is what we are suggesting to the federal government. It has already been done in Nova Scotia, and we have even included the official figures from that province's government in our own documentation. When the government of Nova Scotia did away with its sales tax on tobacco products at the retail level and shifted it to a provincial tax on tobacco, collected by distributors, it realized that it had got $10 million in additional revenue without increasing the tax.

[English]

This is free money.

[Translation]

It doesn't cost a cent. The mechanism is already there. Manufacturers already pay taxes to the government. You would be dealing with three manufacturers rather than tens of thousands of retailers. A great deal of fraud is going on at that level. As you know, people living on native reserves are exempt from the GST and the provincial sales tax. Our documents show that these represent considerable amounts.

In Ontario, for example, 7,000 cases of 50 cartons of cigarettes are sold every week without any tax being collected on them. If my memory serves me, this represents about $70 million in losses for the federal and provincial governments, just this kind of tax evasion. There are many other kinds of tax evasion at the retail level in Canada. All this money is slipping through our fingers.

Thank you for giving us this opportunity to present our brief.

The Vice-Chair (Ms Paddy Torsney): Thank you very much. Mr. Brady, five minutes.

[English]

Mr. Patrick Brady (Individual Presentation): My name is Patrick Brady, of Traffic Developers and the Black Business and Professional Association of Montreal. I thank you very much for inviting me here today.

A reduction of the $600 billion deficit should be our first priority and should be properly addressed. At the same time, a tax reduction must be seriously addressed and a set time must be allocated to the commencement of a tax reduction structure. A payroll tax reduction should be done within a one- to three-year period of time.

The supply side economic fear of reduced fiscal and government involvement has proved to be a stimulus to the growth and diversification of the economy. This was demonstrated by the Reagan and Thatcher administrations. Government spending must be proved to be on a reduced basis, with a reduction of principal being the top priority when allocating revenue streams.

Government must review its efficiencies, commensurate with the federal pool of labour. Segments of this operation that are not profitable should be subcontracted out to firms that can be both profitable and service-oriented at the same time. In essence, government must be as fiscally responsible as any corporate firm would be.

A flat tax for both individual and corporate entities would generate a low liability for both entities, a more reliable stream for the government, and therefore greater revenue for the government and both entities on the bottom line analysis.

The fiscal burden of high unemployment rates is one of this country's greatest economic predicaments. This issue must be addressed from all direct and indirect shortages. The direct angle is much focused on the government encouraging all sectors of the economy through policies that adjust the barriers of entering such sectors within an economy. A flat tax rate is an example, along with allocation of funds to be repositioned in the stimulus directed towards unemployment issues.

Banks must be encouraged by governments to lend toward the small business sector in order to open this segment of the economy, which further encourages entrepreneurialism and creativity within diverse sectors of the economy. Special fiscal and political attention must be directed to the vision and implementation from a service-oriented economy towards a manufacturing economy that will more favourably adjust this country's balance of accounts with other nations. The continued pursuit of relationships with other countries, as seen with free trade agreements, for example, would bring greater economic windfalls and further improve the general fiscal environment—what we've seen between Canada and the United States of America in the past two to five years.

As the American government is now considering a reduction in the capital gains tax, it would initiate many transactions that are not being considered due to the tax factors that would be imposed.

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Thank you.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Brady.

We will turn to you, Mr. Ritz, for five minutes, please.

Mr. Gerry Ritz (Battlefords—Lloydminster, Ref.): Thank you, Madam Chair.

The question I have is for the gentleman from the manufacturers and exporters, Mr. Dussault. You talk about Canadian business as the engine of the economy; that's basically what you're saying. We've heard in other presentations across the country that payroll tax reduction, the small business tax credit, the $200,000, should be increased. We've talked about reductions of capital gains and reductions of corporate income tax rates, all those types of things, being an incentive for business to get out there and make it happen. Can you prioritize those? As the federal government is facing a $600-billion debt, we certainly can't do them all, but in what order do you see them really kick-starting the economy?

Mr. Manuel Dussault: I'll talk about the one we see as the most important.

We looked at the statutory tax rate. In Canada, that's combined provincial and federal. In Ontario, it's 35%, and in Quebec, 32%. We think this tax rate should really, in the long term, be reduced. If we look at competing countries, the combined tax rate is, for example: in Puerto Rico, 9%; in Singapore, 10%; in the U.K., 30%; in Ireland, 10%; and in Korea, 31%.

Considering the fiscal situation of the federal government, we didn't think it would be reasonable to propose a general reduction in the tax rate. So what we favour are targeted measures to encourage investment. As you know, Canada has to attract its share of investment. One of the measures we're looking at would be an investment tax incentive credit that would encourage manufacturers and exporters to invest and generate more jobs and more growth in Canada and particularly in Quebec.

I think if you look at the Quebec combined tax rate, it looks better than the one in Ontario, but capital taxes and payroll taxes are much heavier in Quebec and the tax burden for business is generally heavier in Quebec. This is why, to generate more growth here, I think it's important that the federal government at least do its part.

The Vice-Chair (Ms Paddy Torsney): Yes, Mr. Bourque.

Mr. Raymond Bourque (membre du Conseil d'administration, Alliance des manufacturiers et des exportateurs du Québec): Notwithstanding any of this, I would like to add a comment on what Mr. Dumulong was mentioning—I think he's the one who brought it up. To my mind, he didn't spend enough time on it. It had to do with compliance costs.

In October 1994, I believe, Paul Martin issued a report that wasn't a final report at that point. I remember the topic was something along the lines of reviewing all of the government pieces of legislation that existed, and he had inventoried something like 3,000 pieces of legislation. At that date, he had reviewed half of them, and he said of the 1,500 pieces of legislation that existed, half of them were still of a certain use but had to be looked into some more, a quarter weren't of any use any more, and a quarter were still of use.

Basically, what that indicated was that if you take a look at the whole 3,000 pieces of legislation and if a quarter of those aren't any good, that's 750 programs. It sure would be interesting to know what they are, what they are supposed to do, and especially what the budget is that is attached to each one of these. Certainly if they're around, they're having people, either companies, individuals, trusts, or who knows, shuffle a lot of papers and pay $25 for this or $100 for that. All this stuff is a waste. It's not value-added for anyone.

It would be nice if we had some kind of report that told us where all of this is at, and if we're going to talk about things that do target industry, specifically speak with people in industry and find out if there are simpler ways of communicating information that has to be communicated. The costs, the quantities of time—it's incredible.

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I was in Japan a couple of weeks ago with regard to the new foreign affiliate reporting rules the Ministry of Finance is now forcing companies to follow. I was doing this for a company that's not controlled by the Canadian shareholder for whom I work. The people in Japan just didn't understand why they had to provide us with numbers on 146 companies that we don't control. I couldn't explain it to them either. Lloyd Axworthy is for certain going to hear about it, because the Canadian ambassador in Japan is going to hear about it.

These people don't understand why they have to go to all kinds of people to collect information that exists in Japanese. It is going to be sent to us in Japanese, and we are going to be providing it to the Ministry of Finance in Japanese. They told us they didn't need it either in French or English. We would still like to know what the hell they're going to do with it.

When you create programs like this it's totally ridiculous in terms of its costs and its burdens. It stops people going to the Canadian Tax Foundation or places like that, telling us that we're on the right track and doing the right things. Programs like this are not going to get ahead.

Mr. Gerry Ritz: Thank you.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, and thank you, Mr. Ritz.

[Translation]

Mr. Loubier, you have five minutes.

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): Mr. Bourque is making me laugh, and I lost my concentration. It's true that there still are problems with the government, particularly when it comes time to do business. For example, just think of all the documentation you need to get through customs and get back in. It's not easy at all, even with all our trade with the United States, even with NAFTA.

My question is about the government's finances. Many of you said it was important to stay the course and not to repeat the errors of the past. Mr. Rowe was the most specific about that.

In the mid-1970s we started to have a wave of deficits, one right after another. What do you think—and I'm asking the question to stimulate debate—of passing federal legislation to prohibit deficits, somewhat like the legislation tabled in the Quebec National Assembly. Such legislation would direct the Minister of Finance to make a report in Parliament every year on budget overruns and how to make up for them, with a certain amount of flexibility to deal with recessions, since more government allocations are needed than in times of growth. In short, such legislation would provide some guarantee to future generations, who have shown some concerns about this kind of issue, particularly during the election campaign. So what would you think of our passing legislation to prohibit deficits?

I'm just throwing the question out. I've already asked it to other people, and I think that it is a good idea to have this kind of a debate during the pre-budget consultation, because there is nothing that would protect us from the government going back to its old spending habits.

The Vice-Chair (Ms Paddy Torsney): Is your question for Mr. Dussault or Mr. Croft?

Mr. Yvan Loubier: The question is for everyone.

The Vice-Chair (Ms Paddy Torsney): Mr. Croft, followed by Mr. Rowe.

Mr. Jean-Claude Croft: Judging by your remarks, you are against the federal government handing out goodies, and you would like it to have a reserve fund for a rainy day.

Mr. Yvan Loubier: No, not at all. What I'm saying is that everything is hunky-dory right now, and so everything is working just fine. According to forecasts for next year, not only will the federal government balance its budget, but the economy will also enjoy a nominal growth rate of 4 to 6%, and there will be a surplus too.

People are euphoric, but too often they forget that if there is a recession in two or three years, particularly one in the United States, we would be affected greatly. Right now there is no reserve fund.

Mr. Martin says that he is setting the surplus in the U.I. fund aside to help the unemployed during an economic downturn. That's nonsense. He has already spent this surplus to reduce the deficit.

It would be easy for a government to return to the old habits of the Trudeau days, that is to say, spend during periods of growth and try to pay off a little bit of the loan later.

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Would you welcome legislation that would prohibit the Minister of Finance from running an annual deficit, under certain conditions and providing for a certain amount of flexibility?

Mr. Jean-Claude Croft: In my view, the government would have to continue on the same path to do that, and would have to set up a reserve fund. If that is not done, we could not have legislation prohibiting deficits, because we would be creating a problem for ourselves.

Take the example of the West. One government out there has already created a good reserve fund, and if a rainy day comes along, it will be able to get through it. Why? Precisely because of this fund. This government could pass legislation prohibiting annual deficits.

I'm in favour of anti-deficit legislation, but to do that, we have to stay on the right track. I don't think we should hand out candy and say we should reinvest in this or that. If we stay on the same path and put any surplus in a reserve fund, that would be sufficient to meet any need that may arise in case of a recession. After that, anti-deficit legislation could be proposed.

[English]

Mr. Hugh Rowe: The anti-deficit legislation sounds very good on the face of it. The only problem with it is that in order to balance the budget, taxes may have to be raised.

In other words, as I indicated in my opening remarks, what's to prevent the government from continuing to spend ever-escalating amounts and then barely affording to...and, because of the anti-deficit legislation, being compelled to raise taxes, rather than under the current system, where they may raise taxes, or may borrow the money, or run a deficit? The anti-deficit legislation will actually compel the government to perhaps raise taxes if they insisted on spending increases.

So I would be very much against that. Even though I'm in favour of the idea of having a balanced budget, it shouldn't be done on the backs of taxpayers.

I would be more in favour of some kind of legislation that would limit the government's spending to perhaps a percentage of GDP, a much lower percentage than we're currently paying. That would be much more appropriate.

So I'm really against taxation.

[Translation]

The Vice-Chair (Ms Paddy Torsney): Mr. Dussault, followed by Mr. Abbey.

Mr. Manuel Dussault: Mr. Loubier, I think that the Quebec legislation reflects agreement among the partners present at the socio-economic summit to achieve a zero deficit. That's what I'm referring to. Before adopting anti-deficit legislation, the government's objectives will have to be made sufficiently clear to be included in the legislation.

I come back to the example of the employment insurance fund surplus. To our mind, premiums must be reduced before the economy slows down or at least increase the budget surplus to $7 billion. That's the first point.

Secondly, if memory serves me, there used to be a federal anti-deficit law in which the Minister of Finance had set a number of objectives regarding expenditures. I think that was from 1991 to 1996.

From my recollection of that legislation, it is extremely important for you, as members of Parliament, through the intermediary of the Auditor General, to have an opportunity to see whether the objectives of that legislation have been achieved.

We do have the American experience. There's a danger of smoke and mirrors in these anti-deficit laws, that is they can be circumvented or designed to be too weak to work in the first place.

Lastly, with regard to the objective of preventing any future deficit, I agree with you. We're coming out of a period where there have been too many deficits. However, perhaps the time has come to review the way the government does its accounting. The suggestion has often been made to have a capital account so that the government can also make long term investments if necessary.

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The Vice-Chair (Ms Paddy Torsney): Thank you very much. Mr. Abbey.

[English]

Mr. Stanley Abbey: A remark was made before about the euphoria of deficit reduction. I think an awful lot of the deficit reduction is what this gentlemen just referred to, smoke and mirrors. The Reaganomics trickle-down effect has me not being in a trickle-down position; I'm under a waterfall. It's all landing on me, because the federal government has passed on expenses to the provinces, the provinces have passed them on to the municipalities, they have passed them on to the school boards. All I know is that instead of paying more money out of this pocket, I'm paying it out of this pocket. The reduction in the budget is really only an increase in taxes for the Canadian citizen.

As far as anti-deficit legislation is concerned, I think it has its possibilities, but it has to be related to growth. If you have negative growth the government will be allowed to have a deficit position. Where there is growth in the country the anti-deficit legislation rings in and says you cannot overspend.

There was also a question before about increasing the small business limit from $200,000. I think you could see a miracle in this country if the $200,000 limit were raised to $250,000 or $300,000. You would be amazed at how many firms suddenly are earning $250,000 or $300,000.

The Vice-Chair (Ms Paddy Torsney): Thank you, Mr. Abbey.

We will now go to Mr. Brison for five minutes.

Mr. Scott Brison (Kings—Hants, PC): Just as a comment before my question, on the regulations issue—and that's a very important issue.

In the U.S. now Congress has a regulatory budget that has been established to assess the cost of each new regulation, not only in terms of the cost of implementation for a government or department but also for the cost of compliance when businesses actually comply. There are many direct costs for small and medium-size businesses in complying with a lot of these unnecessary regulations, but there is also a general cost in competitiveness. Especially for a country that generates 40% of its GDP through trade, these regulations have to be taken into account.

Mr. Abbey, I enjoyed your comments on the banks taking over the insurance companies. I'll preface my question by telling you my father is 74 years old and he has been a stockbroker for a very long time. When the company he was a member of was purchased by one of the Canadian banks, he and some of his associates left and started up their own brokerage firm. He's one of the younger members of the firm.

In any case, I understand your concerns about the growth of the Canadian banking system and the further decline of the four pillars.

You raised a very specific concern about the Canadian banking system and the purchasing of life insurance companies. We have entrepreneurs here. We have financial planners. We have representatives from manufacturing. A lot of people feel the Canadian banking system and the closed shop especially in trying to raise money in Canada are holding back Canadian industry. I've heard that raised by a lot of business people across Canada: it's much easier to raise money in the U.S. If you're in Georgia and you get turned down by the Bank of Snellville you can go to the Bank of Loganville. In Canada it's not that simple. It has held back.... In fact, there have been studies to indicate that.

Just a general question to anybody who wants to respond. From your perspective, is the Canadian banking system and the protected nature of it holding back Canadian industry? Secondly, in your opinion, will foreign competition help address that?

The Vice-Chair (Ms Paddy Torsney): Mr. Brady.

Mr. Patrick Brady: Yes, I do think the more foreign banks come to Canada, the better the chances for the small business person in this country, and especially the multinational group of people within Canada. In the United States of America they are accustomed to having multinationals in significant numbers over the past many years and they are very well planted in the banks and in the institutions. In Canada that doesn't exist. You very seldom see multinational faces in top positions in banks. So when a small business person would apply...unlike in the United States, where it is much easier, it is very difficult in Canada on the whole and right across the country.

• 1355

In Washington, for housing and urban development, you have billions of dollars put aside for contracts that only minorities can bid on. That's like 50 years.... I don't even think that's in Canada. Because of that, you have a growing population in the United States of minorities who are qualified MBAs.

My son is an MBA, at 22. He's more pro-America than pro-Canada, even though he was born here, as he was educated in the United States as an MBA.

The bank situation in Canada does not lend itself to the growing population of ethnics or multinationals. It just does not lend itself to it. I have heard this situation in Montreal and Toronto, and right across the country, while in the United States it's a much more open society from that standpoint.

We'd like to address that privately. What do you think? How could that be overcome with the bank situation in Canada?

The Vice-Chair (Ms Paddy Torsney): Mr. Abbey is next.

Mr. Stanley Abbey: I'll be very short.

I think it's a lot easier to be a third world country and to get loans from the Canadian banking system than it is to be a small businessman in Canada. You get much better treatment all the way through from banks if you're a third world country.

The other point I just wanted to correct is that it isn't only life insurance companies that I was referring to; it's P and C, property and casualty, as well.

Mr. Scott Brison: I appreciate that. With regard to third world lending, the Canadian banks have lost a lot more money on that than they ever did in character lending, which is something they don't do any more.

Also, the concerns you raised about minorities and access to capital to Canada is one I've heard before. I've also heard it from women entrepreneurs. They say it's a very difficult thing to try to raise money in Canada. Do you feel that foreign competition will help address it?

Mr. Patrick Brady: Yes.

Mr. Scott Brison: Okay.

The Vice-Chair (Ms Paddy Torsney): Thank you, Mr. Brady, for being brief.

Mr. Patrick Brady: Thank you.

The Vice-Chair (Ms Paddy Torsney): It's always good to check with the chair to see if you have an extra question.

[Translation]

Mr. Assad, you have five minutes.

Mr. Mark Assad (Gatineau, Lib.): Mr. Dussault, you stated that your organization has a membership of 600. What percentage of them employ 50 to 100 employees or less?

Mr. Manuel Dussault: From 0 to 100, it's 65%.

Mr. Mark Assad: Do the members of your association do a lot of exporting?

Mr. Manuel Dussault: In the case of small and medium business, approximately 9% of their production goes to export.

Mr. Mark Assad: Is that all? The rest is sold domestically?

Mr. Manuel Dussault: Yes, but we have to be careful here. Many are suppliers to large corporations which do export.

Mr. Mark Assad: Oh, I see.

Mr. Manuel Dussault: In our view, there are many who do export, but indirectly, without even realizing it, and they are subject to the same rules as the competition.

Mr. Mark Assad: Do your members complain of difficulty in obtaining loans from chartered banks? Is that a problem for you?

Mr. Manuel Dussault: It continues to be an irritant for us.

Mr. Mark Assad: Serious or moderate?

Mr. Manuel Dussault: I would say serious. We haven't conducted any specific studies about that. We go by what our members tell us. Some tell us that it's difficult in Quebec.

The situation in Quebec is quite different from that prevailing elsewhere in Canada. There is a lot more venture capital available in Quebec, thanks to the Fonds de solidarité and the Caisse de dépôt, than there may be elsewhere in Canada. So I'm speaking essentially about people in Quebec.

There are some who tell us that it's more difficult in France than in Canada. I heard that comment recently. But that's just an impression. Moreover, we work with the banks to provide them with a better knowledge of the situation in the manufacturing sector.

• 1400

We saw that there was an opportunity to directly raise the banks' awareness of market conditions, the financing needs of manufacturers and the services they require.

Mr. Mark Assad: Do your members invest in training or retraining?

Mr. Manuel Dussault: Training is essential to a company. There are companies that invest 3 to 4% in training. Large corporations do that.

In Quebec, for the past two years, we've had Bill 90 on training. Companies must earmark 1% of their payroll for training, otherwise they have to remit to the government the difference that they did not spend on training.

There's a lot of on-the-job training that the government cannot really capture in Statistics Canada figures.

Mr. Mark Assad: You spoke of balancing budgets. There is no doubt that just about everyone considers this a virtue, but contrary to my colleague, Mr. Loubier, I think that an anti-deficit law would really be a disaster.

A budget in deficit is an advantage. I'm not talking about abuse. Let's reflect on Keynes' philosophy. He demonstrated that the crash of 1929 was due to the fact that governments did not want to run deficits.

So if I were in your association, my approach would be much more to encourage the chartered banks to make money available to small and medium-sized businesses rather than worry about a balanced budget. Trust me, that's being taken care of.

As a member of Parliament, and I'm not the only one in Ottawa, if there's one thing that I hear about all day long from small and medium-sized business owners, it's the trouble they have obtaining money from the banks.

You're a large organization. Why couldn't you organize a powerful lobby group in Ottawa to state clearly that chartered banks are not doing their part?

Mr. Manuel Dussault: I don't think you meant to imply that the deficit or the debt are not extremely important problems. I think that it remains very important to balance the budget and reduce the debt.

One of the reasons why it's so difficult to borrow and why real interest rates are so high, is that there is a debt of $600 billion at the federal level and $78 billion in Quebec that the government must fund on the financial markets, which increases real interest rates.

[English]

Mr. Mark Assad: Is it already five minutes?

The Vice-Chair (Ms Paddy Torsney): No, actually, it's nine minutes.

Mr. Brady.

Mr. Patrick Brady: Just to concur with what the gentleman just said, you'll find out why I believe in competition with foreign banks. You'll have situations where banks have developments in Montreal, Mont Tremblant, Florida, and Jamaica, but the banks here in Canada do not finance road construction for companies or certain types of developments.

These same Canadian banks are in Jamaica. I'm also developing 101 upscale homes down there. They were financed down there 100%, including the road, land, and construction, but up here, not a cent.

So they have to compete down there. If they don't compete, they have no business. Up here, the more competition we have with foreign banks, then they're allowed to change their policies and can lend to small businesses, small companies.

The two Canadian banks in Jamaica now have to compete. They lend what they do not lend up here, because they have it wrapped up here. It's easy; they have no competition. Down there, they have to compete.

With more foreign banks coming to Canada they'll have to compete and open up much more than they're doing today.

• 1405

In the U.S.A. 67% of businesses are small business. That's the bread and butter of any country. Most Canadian banks have large sums with large corporations, not small corporations, and they take out their venom on the small corporations and not the large ones in the long run.

Thank you.

The Vice-Chair (Ms Paddy Torsney): Thank you, Mr. Brady, for being brief.

Mr. Dussault, one quick comment.

[Translation]

Mr. Manuel Dussault: Mr. Brady, I agree with you that competition between the banks is desirable, but I don't think we should put the brakes to our deficit or debt reduction because of the lack of financing. I think those are two distinct problems. If the government of Canada puts its budget in order and reduces its debt, it will be much easier for everyone afterwards.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Dussault.

[English]

Mr. Gallaway.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you, Madam Chair.

Mr. Abbey, I have one quick question. I certainly don't disagree with what you've had to say about banks versus insurance companies, but at the same time, insurance companies—at least I'm told—are spending a large amount of money to market their products. It's been suggested in certain articles that $22 of every $100 paid to an insurance agent is in fact going to marketing.

What's the industry doing to change itself to reduce the cost of sales if you are going to enter into this universe of competing with other financial institutions?

Mr. Stanley Abbey: There isn't any possibility in my mind that the numbers you're using are correct. Claims costs to insurance companies in automobile insurance...governments say the claims cost must be at least 82.5%, I think it is. That doesn't leave very much for either the broker or administration, let alone advertising.

There are approximately 240 insurance companies in Canada. I think you'll find the claims ratios run anywhere from 55% to 80%, together with the costs of running a company, which leaves the insurance companies at about 110%. That 10%, of course, is made up by investment income, because they have large numbers of dollars at their behest.

I don't think advertising costs by brokers run 1%, let alone 22%. I'm sure insurance companies have budget lines for it. I'm not current on that, but I would guess it would have to be something under 5%.

Mr. Roger Gallaway: The information came from a witness who was before this committee last year. He was a professor of economics at the University of Alberta and has done studies on regulated industries. I'm not saying he's correct—

Mr. Stanley Abbey: I haven't studied it. You can't run a business if your operating and loss ratios are 130%.

The Vice-Chair (Ms Paddy Torsney): Not for long, anyway.

Mr. Roger Gallaway: I think that's all I have.

The Vice-Chair (Ms Paddy Torsney): Thank you.

Mr. Jaffer, do you have a quick question?

Mr. Rahim Jaffer (Edmonton—Strathcona, Ref.): My question actually is directed to Mr. Brady, but just before I do that, I want to thank all the presenters. I found it very informative and I appreciate them taking the time to come out.

I was curious. During your presentation you mentioned the issue of a flat tax. I wonder if you could expand a little bit on that, what you would foresee a government adopting as a flat tax and how that would work, especially when we're talking about the issue of tax relief, given the size of our sizeable debt, how that would be concurrent with paying down the debt.

Mr. Patrick Brady: We are on the road of paying down the debt at the moment, and I'm sure they'll accomplish that feat through the GST and free trade. Those are two main things that cause the debt to be taken down now, the excessive amount of GST and free trade, the 45% increase to the United States.

• 1410

As you look at the international picture, the countries that have the least amount of taxes have cities that attract the most business. Whether it is Bermuda or Switzerland, billions of dollars flow into these countries on a daily basis.

That might be an extreme, but if you were to give more tax incentives to Quebec, for example, or the rest of Canada, you'd have more American or European companies moving in, creating more jobs. For example, in Jamaica they have—and here at Mirabel—what they call tax free areas. You create jobs and you have tax in and tax out, tax free and tax free out. It creates hundreds of thousands of jobs. That's what Quebec, for example, needs right now.

With a flat tax it has been proven that it is good for the government and good for the individual, because you create that amount of security; you bring newcomers into the country and create more jobs, and with more jobs those people will have spin-offs to pay excess amounts to the government. A flat tax is a thing of the future, and in most countries there are things along that line, flat taxes and not escalating taxes.

Mr. Rowe mentioned that you're just going to try to reduce the taxes, but if you are not taking care of it seriously, it will increase rather than be reduced. Once you take it as a flat tax, the government has to justify itself accordingly and not just spend when they feel the need to spend. They should have some means of control in that regard.

It will be an incentive for companies to move in on a regular basis. You would be surprised to see that some Americans will move into Alberta, for example, into Calgary, strictly because of taxes. That's an incentive that they have received in many countries.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Brady.

Mr. Assad, a quick question.

[Translation]

Mr. Mark Assad: Mr. Dumulong, have you made representations to the Department of National Revenue regarding an excise tax on tobacco rather than the GST?

Mr. Luc Dumulong: Sir, we've started an education and information process for politicians over a year and a half ago.

During our many representations before representatives of the Department of Revenue—I made some of these presentations personally—the answer was: "Go ahead, please, convince the people at the Department of Finance, because that's where the real decision-making power resides; we don't have that. We applaud this and we're eager to see it happen."

In the past, we worked with Nova Scotia. When there is tax evasion and especially when...

I cannot attribute this problem to a single source, but let us take the example of Aboriginal reserves which can buy unlimited quantities of normal domestic products and resell them without charging the GST or the PST. They sell them for cash. Therefore, there is no audit trail. Poof, it disappears into thin air.

A retailer who obtains supplies from that source doesn't have to remit the tax, because the trail has already disappeared. Products are identical to any other and they resell them to consumers while putting the GST and the Quebec sales tax in their pocket. This represents considerable amounts of money.

There have been many meetings and others are anticipated. Last March, in Halifax, we had a meeting with people from Finance Canada, Revenue Canada, the Department of the Solicitor General, as well as representatives of the ministries of finance of Ontario, Quebec, Nova Scotia, New Brunswick and Newfoundland.

This does represent 85% of the Canadian market, after all. These people were interested in what I would call the Nova Scotia model. They were all of the opinion that this would simplify things.

At the time, people told us: "Yes, but are you sure this is going to work?" We have the results here, sir. These are the results that were provided to us by the Nova Scotia Ministry of Finance. We see here what they've managed to do one year after the elimination of the provincial sales tax, which was 11% before harmonization.

• 1415

If we could reduce to zero the GST on tobacco products throughout the country, the harmonized provincial tax would also be brought down to zero, which would encourage the provinces to compensate for the loss through an increase equivalent to what they would lose. Provinces could increase their provincial tax on tobacco products. You must understand that there's a great deal of tax on a tobacco product. There's an excise tax, a manufacturer's excise tax, provincial tax, collected by the distributor, and then there is the GST and the provincial sales tax, which are collected at the retail level. This provides many opportunities for tax evasion. Quite obviously, if all these taxes were administered by fewer parties, there would be fewer leaks.

We deal with distributors who have established accounting systems and experts. The same is true for manufacturers. We reduce our exposure.

The Vice-Chair (Ms Paddy Torsney): Thank you very much. Mr. Dussault, Mr. Bourque, you have one minute.

Mr. Manuel Dussault: I would like to thank the committee and wish you every success in your deliberations, because this is extremely important work for the economic health of Canada and for job creation. As a parting word, perhaps I would invite you to be prudent and modest. We're coming out of a situation where Canada was in a serious financial mess and now we're seeing a bit of light at the end of the tunnel.

However, we must ensure that past experience is not repeated and that we are laying the foundation today for greater prosperity and for job creation. We must also make sure that our tax burden is reasonable and comparable to that of the United States overall, and that Canada contributes its fair share of investment.

With regard to Mr. Assad's comments on the banks and deficit and debt reduction, these are not contradictory objectives. They must move in the same direction and this is what the Alliance is proposing, namely to work together for a better economy.

The Vice-Chair (Ms Paddy Torsney): Thank you very much. Mr. Croft.

Mr. Jean-Claude Croft: I think we should slightly change the way we think of flow-through shares. Last year, $151.3 million were collected. Of this amount, $48.5 were reinvested in Quebec. Of those $48.5 million, $27.8 million or 60% came from flow-through shares. Thirteen million dollars were invested in the rest of Canada but, listen to this, $51.3 million of those $151.3 million were invested in Latin America, $17.3 million in Asia, $9.3 million in Africa and $11 million in the rest of the world. Why? Simply because of the current tax differential.

There should be a small break given to those who want to invest in job creation by way of flow-through shares, using incentives in remote areas, for instance up North, where it could be 100%. Beneath the 49th parallel, it could be 133% or 150%, which would help a bit. We all know that bringing in exploration equipment up North is a lot more expensive than to bring it here, to St. Léonard. Transporting equipment to the far North requires extensive resources. There should be more of an incentive.

Thank you very much for taking the time to listen to me, even if I speak fast.

The Vice-Chair (Ms Paddy Torsney): No problem. Thank you very much, Mr. Croft.

• 1420

[English]

Mr. Abbey for one minute, please.

Mr. Stanley Abbey: Very quickly, my two points are these. Have the banks enhance their existing services to Canadians and humanize those services. Secondly, in regard to RRSPs, have the government reinstate the age 71 limit; if not that, at least give a 10-year grandfathering clause before it comes into effect.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Abbey.

Mr. Rowe, one minute.

Mr. Hugh Rowe: I concur almost totally with the comments provided by Mr. Dussault. The only thing I could add to those would be perhaps in the area of pension reform in the sense that my wife and I have six children ranging in age from 18 to 33, with 7 grandchildren. I'm very concerned that they're going to be paying huge amounts of taxes to support the baby boomers when they hit retirement age.

I'm so upset about this. For the young people of today—especially my grandchildren but even the older children—it's not a priority with them. They're getting on with their lives, they're raising their own children, running their businesses, and they're not getting involved politically. They are the silent majority, and certainly it will become the silent majority who are going to get hammered by these taxes.

I really think we should be raising the RRSP limits so that we can all provide for our own retirement and not have to depend on the government, which in turn is going to depend on our children to support this huge Ponzi scheme, as I call it.

Thank you very much for listening.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Rowe.

Mr. Dumulong.

[Translation]

Mr. Luc Dumulong: Our presentation today focused on what essentially is the underground economy. To deal with this problem, we use law enforcement organizations. What is not addressed is the root of the problem, how easy it is to evade paying taxes. We must realize that the tax differential in Canada creates a major interprovincial market and we should strive to have a single tax system among provinces.

A zero-rated GST would help and I think this would be a win-win situation. The loser would be organized crime, the prime benefactor of the government bounty because of huge loopholes in the system. These people can slip through the system. A review of the tobacco products taxation system is needed to make tax remittance easier and streamline everything for everyone.

The government is asking how the system can be improved. Here is an easy way to do it. As was said at the meeting on March 13, with all the provinces,

[English]

this is a no brainer.

[Translation]

It's an easy thing to do because all the systems are in place. All that is needed is to do it.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Dumulong.

Mr. Brady.

[English]

Mr. Patrick Brady: Madam Chairperson, just to summarize, I would like to say we must address the deficit of $600 billion and we must address reduction of taxes for all concerned, especially payroll taxes. The government must address the banks for small businesses and especially ethnics, multinationals, across the country. We must be very realistic about the fact that there should not be any future spending, as in the past.

I enjoyed a few things Mr. Rowe said about the past, the wasteful spending for which our children will bear the burden. It should be controlled at a very serious level.

I will summarize with that and leave it to Mr. Dussault and others.

The Vice-Chair (Ms Paddy Torsney): I know Mr. Jaffer, Mr. Brison, and I were very concerned about the children paying taxes, because I think we're in the same age group as they are.

Thank you very much to all the witnesses for giving us the benefit of your wisdom today, and your ideas. If you do have other ideas or information to submit to the committee, we'll be starting to write our report around November 7. If you could get us the information before then, or if you hear of something at one of the other meetings coming up and you feel the need to comment, please make sure you get that to us.

• 1425

We will now break for about four minutes. Thank you.

• 1426

• 1446

The Vice-Chair (Ms Paddy Torsney): I would like to call this meeting back to order. We have a large panel this afternoon. We are scheduled for about an hour and a half. That brings us to roughly 4.15 p.m., which will be revised as we go through. We'll do what we've done in the other panels and have five minutes per group. In some cases the group here is only one individual, but you can divide up the time if there is more than one person here.

To introduce our panel, we have, from the Alliance Quebec, Michael Hamelin, who will speak first, Mr. Harold Chorney, who is second, and Len MacDonald. After that, from the Montreal Neurological Institute, we have Tom Gevas and John Robson. Welcome.

[Translation]

We will also hear the Chairman of the Quebec Jewellers' Corporation, Mr. André Marchand.

[English]

We have, from Genesis, Alice Herscovitch; and, from the Canadian Association of Gift Planners, Bob Kleinman.

[Translation]

We will hear Dr. Rafick-Pierre Sékaly, Director, Clinical Research Institute of Montréal; Mr. Bernard Côté, Organisation d'aide aux sans-emploi; and François Legault, with Nicole Moir, from the Quebec Federation of Senior Citizens.

[English]

At the end, I understand we'll have one individual who will join us to make a statement. Mike Flynn, if you can come up and sit beside Mr. Chorney, we'll put you at the end, if that's okay.

This is the system. After you have spoken for four minutes...please try to look up every so often and I will put up one finger. That way I won't have to interrupt you. After five minutes I will ask you to stop speaking. When the questioners ask questions they will direct their question to one individual, hopefully, and then if anyone else would like to tag on an answer, please raise your hand and I'll try to keep a speakers' list. Generally, we're trying to keep the rounds of questions to about five minutes. I'm going to encourage my colleagues to keep their questions very short and you, the witnesses, to answer brièvement aussi.

[Translation]

Mr. Hamelin, you have five minutes.

[English]

Mr. Michael Hamelin (President, Alliance Quebec): Thank you very much. Alliance Quebec is the largest community organization working on behalf of Quebec's 800,000 English-speaking Quebeckers. We are committed to the preservation and enhancement of the English-speaking communities and their institutions within Quebec. We seek, with other Canadians, fair, equitable, and compassionate solutions to the economic challenges that face our country.

[Translation]

Because of our commitment to these principles, we must remind the government of the benefits of protecting the full and legitimate status of Canadians living in a minority language situation everywhere in Canada.

But these benefits entail costs. To support these communities, the government must spend money. It should not lose sight of this fact when trying to eliminate duplication of services, transferring jurisdiction and privatizing services.

• 1450

[English]

Our ability as community-based groups to meet real needs in a timely and efficient manner should not be overlooked. As we see the operations of some of the government's departments reduced in size and scope through financial restraint, we can and have come to provide services that were once operated by government. We are able to do so in a manner that is both cost-effective and service-based.

[Translation]

Over the past six years funding to community-based organizations has diminished by more than 25%. The English-speaking minority in Quebec receives about 15% of total spending on behalf of minority official language communities, despite accounting for close to half of this segment of the population.

[English]

The cuts must stop and the level of funding should be made more equitable.

Mr. Harold Chorney (Member, Alliance Quebec): Has the pace of deficit reduction been too swift? The answer depends really upon the goals that are adopted and the macroeconomic theory to which you subscribe. Clearly, the bottom line is that prosperity in an equitable fashion needs to be restored to Canadians. This implies a substantial reduction in unemployment, which, as the Minister of Finance points out, is still far too high. Just today, in La Presse, Alain Dubuc, the editor, pointed out that in Quebec we have an even greater problem with unemployment.

Mr. Martin is quite correct, in our opinion, to reject the advice of those Bank of Canada officials and those in the Department of Finance who advised him that we cannot get unemployment below 8% without setting off an inflationary spiral. This argument, what economists call this so-called natural rate argument, is an inappropriate guide to policy at this stage of the recovery. We can do much better on the unemployment front without any danger of inflation. Mr. Martin is quite right to insist upon that.

Interest rate hikes by Mr. Thiessen may well underestimate the fiscal drag on the economy imposed by deficit reduction.

[Translation]

It is far too early to announce victory... [Inaudible]... by accepting interest rate hikes. Short term rates still govern credit charges and small business loans even if long term rates are dropping.

The government's proposed reform of old age pensions has aroused concern among members of our community.

[English]

Many members of our community are quite worried that they're now subject to downsizing and shortened careers. These are people in their 50s who are not grandfathered by the proposed changes to the seniors' pension. They may end up with incomes that don't qualify for benefits but are not really high enough to guarantee and maintain an acceptable standard of living after their retirement. After a lifetime of paying taxes and the expectation of receiving old age pensions, this comes as a major disappointment.

The emphasis in the future should be on investing in health, education, and national unity—areas of minority language funding. Debt reduction will take care of itself as long as interest rates are kept low and the economy continues to grow. By way of example, the continued commitment to the funding of minority language health care is critical to the English-speaking community.

The present agreement that exists between the province of Quebec and the federal government in terms of funding support for the English language health care system and its operation expires in 1999. We believe it must be extended.

The maintenance of institutions of higher learning is another commitment that is of benefit to all Canadians in preserving a fundamental characteristic of this country.

These are merely brief examples of areas where federal funding has made a difference and where continued funding is vital to our community. Thank you.

[Translation]

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Messrs. Hamelin and Chorney.

Mr. Marchand, please.

Mr. André Marchand (President, the Quebec Jewellers' Corporation): We welcome the opportunity of appearing before the House of Commons Standing Committee on Finance. I am here as the president of the Quebec Jewellers' Corporation and I am joined by our General Manager, Ms Lise Petitpas, and by, Mr. Robert Beaulne, member of our executive committee.

The Quebec jewellery industry congratulates the federal government for taking the necessary measures, over the last few years, to bring the annual deficit under control. We are confident that in the long term, these measures will lead to appreciable surpluses.

We believe that one of the reasons why the deficit went down more rapidly than anticipated is the fact that the economy has increased at an undreamed of rate. The deficit reduction is a step in the right direction, but one must certainly not forget the enormous debt which now has to be reduced as quickly as possible.

• 1455

As representatives of an important retail industry, we are pleased to see the return of consumer confidence in the economy. The Quebec jewellery industry is seeing for the first time a slow but palpable economic revival.

However, we are forced to admit that that economic revival would be much more evident if we were not forced to pay that unfair tax which is the excise tax. That 10% excise tax is imposed on almost all our products.

In fact, our industry is the only industry submitted to this so-called luxury tax. The excise tax was first applied in 1918 to fund Canada's efforts in World War I. When the GST was implemented, all the members of our industry believed that the new tax would replace the excise tax. Since then, however, we have two taxes to pay instead of one like all the other retailers.

We believe that it is more than time to abolish the excise tax that curbs the growth of our industry and causes more and more people to try and avoid it at all costs. When retail jewellers are billed, the 10% excise tax is included in the cost price and therefore directly transferred to the consumers, since the percentage of our profit margin takes into account the overall cost of products purchased.

In fact, the 7% GST, added to this 10% excise tax plus the 6.5% QST brings us to a total taxation of 25.35%. Unbelievable but true! The brutality of these figures will help you better understand the problem of the black market in our industry. Some unscrupulous shopkeepers, who are often to be found in the flea markets, selling estate jewellery, or at some other non-declared point of sale, manage to elude taxes and attract consumers with prices reduced by 25%, all the while bringing in their full profit margin, because they simply don't report their sales.

Of course since profits on their sales are not declared, they are beyond any kind of control and taxes which should paid on those profits to both levels of government are never paid.

The excise tax is therefore a 10% levy paid by manufacturers on the sale price of items manufactured in Canada and by importers on the duty-paid value of imports. All jewellery, including costume jewellery, is subject to this tax, except for religious items, watches of a retail value not exceeding 50%, as well as precious stones and jewellery of less than $3, I repeat, less than $3.

This tax is unfair and discriminatory for our industry since jewellery is not necessarily a luxury item. In fact, the average household spends approximately $130 a year for the purchase of jewellery, which is less than a yearly subscription to a newspaper.

By curbing the sale of jewellery and the growth of the jewellery industry, the excise tax also slows down job creation. This is unfortunate particularly since our industry has a great potential for job creation.

In Quebec, there are approximately 9,000 full time and part time workers in our industry. We strongly believe that the elimination of the excise tax would lead to a substantial reduction in costs which in turn would open the door to job creation and growth in our industry.

In Quebec, the jewellery sector is made up of 1200 companies with an average of seven employees per company. The tax is a costly administrative burden for the small businesses since it adds to the time and energy spent in filling out forms and thus reduces our efficiency.

The elimination of the excise tax on jewellery would help Quebec jewellery manufacturers regain the share of the market they've lost to jewellery, diamond and other precious stones smuggling. By eliminating the excise tax, you would reduce smuggling of imported jewellery significantly.

A study has shown that the tax accounts for more than half the price differential between smuggled jewellery and similar items purchased in Canada, and that takes into account the 25.35% in taxes. If smuggling disappears, Quebec and Canada would stop exporting their jobs to other countries.

Federal government revenues generated by the excise tax on jewellery total approximately $50 million which is a small amount compared to total revenues since it only represents .004 cents for every revenue dollar.

The Vice-Chair (Ms Paddy Torsney): Thank you, Mr. Marchand. You can finish during our question and answer period.

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[English]

Alice Herscovitch, please.

Ms Alice Herscovitch (Executive Director, Project Genesis): My name is Alice Herscovitch and I work for a community organization called Project Genesis. It's an organization that helps people with concrete, everyday problems in access to government services and entitlements, housing, immigration, poverty-related issues, services and benefits for seniors. We do a great deal of advocacy regarding peoples rights. We work largely through volunteers. We do a lot of local community work to help people help themselves, and we work on social problems. Unfortunately, more and more, we are working with other coalitions on large social problems relating to cutbacks in welfare, health care, and a wide variety of social programs.

I could present very theoretically this afternoon. We have already presented many briefs about the federal and provincial governments, about different ways of dealing with the deficit, and about the cutbacks to the programs and the potential impact of those cutbacks on people. But I'd like to really talk about the consequences of the decisions that the federal government has made over the last few years.

We believe very strongly that the wrong choices are being made. They are the wrong choices about the speed of deficit reduction. They are the wrong choices particularly on how the deficit is being reduced—that is, through cuts solely to social programs. I live with them at the level of consequences everyday.

I mean consequences when I talk about 30,639 interventions—people coming in or making phone calls—by people in need of our services and who appealed to us last year. That's an increase of 25%, and it has been increasing every single year. Our walk-in clientele is up 30%, and our homeless clientele is up 73% over two years. We see people who can't eat. We see people who cannot buy their medication. We see people who are being evicted and who have no legal recourses left.

I'm here not because I believe this consultation will change a great deal. I'm here because I believe we owe it to the people with whom we work and the volunteers who struggle every day to help these people with less and less hope.

A few years ago, the federal government cut $7.5 billion in transfer payments to the provinces. It also cut about $5 billion from employment insurance, or what used to be then called unemployment insurance. What do we have as consequences? I'm just going to mention a few of the areas.

We have greater poverty in Canada. We have 20.5% of Canadian children living in poverty. In 1989, the Canadian government made a commitment to eliminate child poverty by the year 2000. Since then, child poverty has gone up 46%. Children in families with working parents are 57% of the poor families, so work is not a solution for most people—at least not inadequate work or inadequately paid work.

Of single, unattached people, 36.1% are now poor in Canada. Of single women over 65 years of age, 43% are poor in Canada. There are 700,000 more poor Canadians—that is a June 1997 stat—than there were at the time of the previous federal election. Those are some of the consequences of the cutbacks that have been practised.

We have a health care system in which the principles of the Canada Health Act are supposedly upheld across Canada, except that services are now considered elective. Bypass surgery has now become elective surgery, with only a twelve-month waiting list. Hip replacements? Twelve months. Cataract operations? Eighteen months. These are some of the choices we've made. We have increasing privatization in physiotherapy and lab services. Soon, meals and laundry services in our hospitals here in Montreal will be privatized.

We have a public perception of a great deterioration in health care services. A recently published study—it came out a week ago—done by Léger & Léger shows that 77.7% of the public in Montreal believes there has been a great deterioration in health care services; that 66% are unable to look after their family members, even though the health care system expects them to do that increasingly; that 72.3% believe we have a two-tiered system, one for the rich and one for the poor;

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There have been changes in pensions, and we are waiting for a new seniors' benefit, which will effectively impoverish more seniors. We are redefining what is considered a poverty line at which people are eligible for benefits, whether it be seniors' benefits or child care benefits or medication insurance in Quebec.

We have an employment insurance program for which very few people are eligible, so people go straight to welfare. Welfare in Quebec has been cut about $465 million this past year. That means a single person living on welfare lives on $490 a month. A single-parent mother with two children gets $763 a month. That's $75 less than she earned three years ago, and that is aside from all the cuts to other social benefits that are impacting on the poor.

The second question you ask participants to address is the issue of how to reinvest or what to do about the reduced deficit.

I think it's time we started talking about corporate responsibility, social responsibility, and Canadian values. We have banks, the big five banks in Canada, earning $9.8 billion in profits last year. I don't think many of them created jobs.

Bell Telephone, with $1.4 billion in profits and deferred taxes of over $2 billion, closed down 14,500 jobs.

I certainly don't believe it's time to give tax breaks. I certainly do believe it's time we reinvested, and not in small amounts and not with small targeted programs for those who are the deserving poor, some of whom might be working but were earning less than the poverty line. I think we have to invest in the future if we want to have a future as a Canadian nation, which is different from that of the American nation.

Thank you.

The Vice-Chair (Ms Paddy Torsney): Thank you, Ms Herscovitch.

Mr. Kleinman, please.

Mr. Bob Kleinman (Board Member, Canadian Association of Gift Planners): I'm representing the Canadian Association of Gift Planners, which is an association of 700 members coast to coast, and our job is to try to influence and push charity in Canada.

The question of debt reduction versus cuts to services is obviously a very difficult one. We've seen the results of debt reduction, that is cuts to services. When that happens, of course, something is going to give. There's a limit to where we can get dollars from, but of course one limit that isn't there is charitable donations.

In essence, charitable organizations become a new partner in the debt reduction portfolio in that if we reduce the debt, cut costs to organizations and services to people, then the charitable organizations should try to make up for this. Of course, “should try” means they require dollars, and dollars come from Canadians—individual Canadians. So the debt reduction message is smaller government but corporations and individuals should replace government to some extent in order to make up the difference. In essence, we have a voluntary tax called the charity donation. It's the only voluntary tax that both parts of the system are happy about. The donor who's giving up his wealth, even with a tax deduction, is happy to do so, and of course the institutions receiving the dollars are very happy.

The Minister of Finance, in the last two budgets, has actually created some positive changes to the system in order to tell Canadians that they have a new, expanded role in our social program scene.

I want to talk about two issues right now.

In the last budget we had what's called resolution 21, which was a new measure to counteract what the minister's office felt was an abuse of the Income Tax Act. Instead of dealing with the abuse in particular, they effectively decided to wipe out the sector, and the sector we're talking about is gifts of private company shares. Those who are just beginning the gift planning mode in Canada—and it's going to be a growth industry—understand that the future for large gifts in Canada will come from private companies and owners of private companies. That's where the wealth in Canada lies. It's a question about our income tax system as to why that's the case. It's different in the United States.

At this time, when the Minister of Finance has given some positive advances in relation to charitable giving, resolution 21 does the opposite. It cuts out something that is very necessary for social programs, because that's where moneys are going to come from.

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What we prefer is an association where, when there is an abuse—and there are abuses—the sector works together to dismantle the abuses, not to dismantle the system. That's what we have with resolution 21. We ask that resolution 21 be put aside until our group can get together and decide what is best for the community.

My second point is this. The system of defining charitable legislation is very weak in Canada. The minister's office, as it relates to charitable law, really deals with it mostly on their own. They ask for some advice, but it's ad hoc advice.

To summarize the positions of everyone around the table, the politicians seem to want to do some things. They seem to understand with debt reduction that individuals and corporations must take a stand. The finance office is against these types of things. They're economists, so they don't want to give out dollars away from Ottawa. The charities are not very well organized. They don't have money for effective lobbying. Donors aren't heard at all. Revenue Canada does not get along with Finance, so they don't have great communication there.

Carl, as you know, a senior employee of Revenue Canada, has offered a new system where an ongoing commission on charities be put together with all of these groups to start to look at all of the issues surrounding charities, small issues and larger issues. We need something different going forward into the 21st century. We're sort of reverting back to the 19th century very quickly in how we're dealing with this.

Our sector will be a growth sector. We have to deal with this differently. Resolution 21 has to be abandoned, and then we have to look at new ways of creating important tax legislation for charities.

Thank you.

The Vice-Chair (Ms Paddy Torsney): Thank you.

Now we have Dr. Rafick-Pierre Sékaly, director of the Institut de recherches cliniques de Montréal.

Dr. Rafick-Pierre Sékaly (Laboratory Director, Institut de recherches cliniques de Montréal; Council Member, Council for Health Research in Canada): I'd would like to correct that. I'm not the director but the laboratory director at the institute. I also represent today not only the institute, but also the Council for Health Research in Canada, le Conseil pour la recherche en santé du Canada.

[Translation]

As a taxpayer I would first like to congratulate the Finance Minister and the government of Canada for showing such discipline and leadership in the fight against the deficit and for having eliminated this burden which was slowing down the country's medium and long-term growth.

We are now facing new choices. Without spending again across the board, we should define our investment priorities for a strong and sustained growth in Canada.

As a researcher and as a representative of the biomedical research community, I want to stress that the haemorrhage in research budgets we have seen in the last few years must be stanched. In the next few minutes, I want to tell you why we believe that research is essential for the country's growth and why we believe the federal government should renew its investments in research in the coming years.

Research is a crucial element for the development and culture of a country. More specifically, biomedical research is an essential element for the maintenance and preservation of Canadians' health.

It not only furthers the maintenance of the health of Canadians, but it also creates an academic elite in a country, an elite which often becomes an economic engine for the country.

It generates the bases of technological, industrial and scientific development in a country. Research can help create short and long-term jobs and also stimulate the productivity and the competitiveness of the country's economy.

In fact, the cuts which affected all research budgets, in the field of biomedical research as well as in engineering and other fields, have contributed to the decline of the infrastructures necessary to the continued cultural and economic development of the country, with an intellectual and economic impoverishment in the medium and the long term, as a more tangible result.

In fact, when I say economic and intellectual impoverishment, I am talking about a number of people in which the Canadian government has invested for years and who are now leaving the country—a real brain drain—to settle abroad, or people who never come back. Although the Canadian government invested hundreds of thousands of dollars in those people, over many long years, they don't come back to this country to participate in its development.

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The consequences are numerous. Fewer and fewer students go to university and the highly qualified work force, already trained, does not come back to the country or, even worse, leaves the country. This enormous waste of talent, of human resources and of invested funds is one of the more tangible consequences.

Those budget cuts also made Canada the last of the G-7 countries as far as research investments go.

In one of the documents that I have circulated, if you look at the budget of the National Institute of Health, in the United States, you can see that between 1990 and 1997, the budget increased by almost 80%.

When you look at other countries like Australia, the United Kingdom, Germany and France, you see that the budgets of these countries, in biomedical research, has increased from 20% to 50% while in Canada, the same budgets have generally decreased from 10% to 30%.

Canada has created an innovation fund which is part of the solution to this problem. The funds will be used to create new institutions or to renovate the existing research centres, but they cannot help in repatriating or in keeping the precious human resources in which the governments have invested for at least a decade.

This is why we must increase the research budgets, for instance by investing directly in research. We cannot give pharmaceutical companies only the role of replacing the government by showing leadership. The government must decide which investments will be its priorities. We can also act indirectly, as my colleague on my right said, by lowering taxes and by making donations to research more attractive and by ensuring a better coordination of all governmental investments in research, thus avoiding the creation of a multiplicity of research programs. The government must centralize and focus on existing councils like the Medical Research Council or the Natural Sciences and Engineering Research Council, instead of creating new umbrella organizations which in my mind lead to a waste of resources, even if new funds are invested in research thanks to them.

The Vice-Chair (Ms Paddy Torsney): Thank you very much.

Mr. Côté, please.

Mr. Bernard Côté (Organisation d'aide aux sans-emploi): My name is Bernard Côté and I work for the Organisation d'aide aux sans-emploi. The people I work with are mostly welfare recipients.

Our viewpoint might not be shared by all, but our major concern, in my personal opinion, is to maintain the present threshold for social programs. According to us, if we are to maintain our social programs at their current level, we should among other things reduce our debt now that we are about to have no more deficit.

The majority of our social programs have been established at a time when neither deficits nor public debts were usual. Our national debt mostly grew in the 70s, 80s and even 90s. At the time, I was a young man who could see our deficit growing. I was one of these young students who saw the Canadian public debt increase to the point where it equalled our gross national product.

That is the future we are now building for several generations. Now that we have eliminated deficits, we want to preserve social programs that are already much less than they used to be. Our social programs, which other countries are looking at, are supposed to be self-financed.

We have a welfare system that was established on the basis of visions of fairness that held sway in the sixties and seventies, but those values no longer exist today unfortunately. Equity has a very different meaning at the present time.

I do not want to repeat what is usually said because a group of welfare recipients will not have a major influence over government decisions. The best way to maintain their dignity... Some people might need help in case of disparity, whenever society, labour or the service industry is evolving, the latter being one of the most specialized areas of work, or when the resource industry is crumbling away. When people working in those areas have not had the opportunity of retraining and readjusting to today's modern society, they need some help. Social services or health services are not the most expensive of all.

If we do get to a zero deficit, we should not reinvest immediately in those programs, but we should make sure we prevent any more cuts to those services. If we decrease the level of service even further and use our budget surplus to decrease our national debt, one of these days, I am convinced that politicians will no longer be able to pretend that we need to reduce our debt or eliminate our deficit in order to attack our social programs. They will have to find other excuses if they want to do it. At that time, it will be what I have just said, a simple excuse. We will then see a real change in our values and a new discourse that at least will be genuine. As a spokesman for welfare recipients and community groups, I think this is one of the directions one could take to answer the question.

My remarks are very brief, but I think they are crucial. Of course, using most of our budget surplus to reduce the public debt does not mean that we should allocate all surpluses to this purpose.

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Some people have not had the opportunity of being trained and lost their jobs in the resource industry. At present, there are huge training needs among the Canadian people. There are education problems in the research area. It is a very real problem and the province of Quebec is lagging behind in that regard.

Before public education became compulsory in this province, we were already far behind Ontario. In Quebec, we need those things. We need to make sure that the federal government will not decide to increase those surpluses, once we do have surpluses, by reducing transfers to the provinces even further.

It is very important because what the federal government did, short of cutting social programs directly, was to make sure provincial governments would do it. Cuts would unavoidably have to be made by another level because there wouldn't be enough money.

To cut even further into our social programs would be to destroy the social system we have all contributed to build, because all of you are a bit older than I am. You worked very hard to set up that system and I am convinced that you all want to maintain it at all costs for the benefit of future generations.

The message that is being sent is very different. It is not being said that we should work together to build a better society. The only message that is being sent is that we must do everything we can to eliminate annual deficits. That is already a positive message: we should manage our finances properly.

For once, people are consulting one another to see what could be done with those surpluses. They have to be used in the most proper way and we should take our time to spend the money in those areas where it is most important for future generations.

Thank you very much.

The Vice-Chair (Ms Paddy Torsney): Thank you very much for you presentation. I now give the floor to Mr. Legault and Ms Moir, from the Fédération de l'âge d'or (Golden Age Federation).

Mr. François Legault (President, Quebec Federation of Senior Citizens): I want at the outset to thank the federal government through its Standing Committee on Finance, for inviting us to take part in this round table.

Here are the comments of the Quebec Federation of Senior Citizens about the next federal budget.

First of all, in terms of deficit reduction, the FADOQ, a Quebec organization that has more than 210,000 members over the age of 50, agrees that it is important for all Canadians that we put in order our financial situation and that we reduce and even eliminate our deficit.

However, in the pursuit of that goal, our elected representatives should not forget that cuts affecting federal transfers have had huge impacts on those Canadians who had to bear the consequences, particularly in health services. Even though the situation of seniors has improved in the past few years, half the people aged 65 and over are still living at or under the low income level. More than half these people are single women, according to information provided by the Seniors Council.

Because of those cuts in conjunction with low interest rates, the federal government has reduced the deficit more rapidly than expected. However, Canadians did not get any real spin-offs—such as tax relief or a GST decrease—except for learning with satisfaction that we will soon no longer have any deficit. In addition, let us not forget that the public debt is still a very heavy burden for our economy. Here, therefore, are our priorities for 1988-99.

According to economists, interest rates will likely remain low in 1998, which is a good thing for our deficit reduction goal.

However, we should immediately implement a budget strategy aimed at debt reduction. Before considering any tax reduction, we should allocate more funds to the Canadian Social and Health Transfer programs so that provincial health and education services are maintained at their present levels.

As citizens, seniors often feel that only the very wealthy, large corporations, and financial institutions are able to benefit from tax breaks and that they do not make a fair contribution to the Canadian economy and public revenues.

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That feeling is being strengthened by the fact that in 1997, banks have made huge profits. Even so, they did not hesitate to cut their staffs. The government should review tax policies regarding the contribution of corporations and institutions to our collective wealth.

As a complement to this intervention, the State must not touch the tax relief measures for the elderly who have an income of less than $50,000. Moreover, could we study or propose some other mode of taxation which would eliminate the black market or tax evasion? Moreover, there was a program on television yesterday evening where they were saying that it was practically a part of our accepted morals to take advantage of tax evasion. As for me I find this is an anomaly and the federal government should see to this.

That's all for the moment.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Legault.

Now, Mr. Gevas and Mr. Robson.

[English]

Mr. Tom Gevas (Associate Director, Planning and Administration, Montreal Neurological Institute): Dr. Robson and I are here today to talk to you, and also to echo earlier statements, about what we consider to be a Canadian crisis, and that is science funding in Canada.

Let me repeat some basic observations that were mentioned earlier. One, the federal government budget for academic science has been cut deeply, 25% in the last four years. Two, academic science funding has increased in all other G-7 countries. Three, Canada's strong science infrastructure is crumbling, badly affecting the productivity of its scientists. Four, top Canadian scientists are taking their talents to better-funded countries.

Some basic facts. One, scientific research benefits society; the commercial use of basic research generates wealth, creates jobs, and keeps Canada competitive among the world's industrialized nations. Two, government has a responsibility to support university-based science over the long term. Three, commercial and academic science research are complementary but distinct.

Some basic solutions. We think we must communicate the consequences of the science funding crisis effectively to government leaders. Two, establish a pool of non-partisan, university-based scientists to advise government on priorities and to raise public awareness about the need to maintain proper science funding. Three, encourage business leaders to promote the commercial benefits of science research.

John.

Dr. John Robson (Associate Director, Scientific Affairs, Montreal Neurological Institute): I will expand on a couple of the things Tom has just gone through.

Funding for university-based science is the responsibility of government and a national investment, not an expense. University-based science pays off in innovation, economic growth, cost savings, training the next generation of scientists, and the development of a science infrastructure that's essential for long-term national interests.

Current efforts to target research or to shift the responsibility for funding university-based research to business are non-viable alternatives. Funding from business is an add-on, not a substitute for government support. Importing the science of other countries, which is the solution implied by some of the current Canadian policies, is also untenable. In order to benefit from science a country needs to do science and create its own science infrastructure.

Canada is the only G-7 country pursuing a negative growth policy for university science. Most of the G-7 countries that are fighting budget deficits and large national debts, as we are, are nonetheless pouring money into university science in order to be competitive in tomorrow's idea-based economy.

Japan, which has long prospered by developing the science of other countries and is now having its own economic problems, nonetheless has targeted large sums of money over the next five years toward university-based research in order to create its own science infrastructure. In the United States, funding for academic research has increased at a rate exceeding inflation every year since 1971. Funding for the National Institutes of Health has increased 40% in current dollars over the past eight years and has been a major stimulus in the development of a $50 billion biotechnology industry.

In contrast, funding decreases in Canada will have chilling effects on the productivity of our scientists and their students, on the scientific infrastucture that has been so successfully built over the years, on the vitality of our universities, and on Canada's future competitiveness in innovative technology.

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In all provinces of Canada, members of our academic science community are doing a lot of wondering, and not just about scientific questions. They're wondering about the future of university-based research, basic science research in Canada.

The future doesn't look very good. Two years ago our federal government decided to reduce the budget for university science as a deficit-cutting measure. Adjusted for inflation, these cuts amount to 25% over four years. That's $1 out of every $4 cut from the budgets of Canada's three science councils. Science in Canada is now like a horse with three legs.

We believe that cutting funds for science is badly misguided government policy that will affect all of us, scientists and non-scientists alike. It's timely now to renew some of these recent cuts and reverse these trends.

Mr. Tom Gevas: Because the stakes are so high, we'll need more than an intellectual commitment to carry the day. The former president of British Petroleum, Robert Horton, once observed that you cannot be an effective leader on calm analysis alone. Nobody will follow a turnip. To lead, you need passion, order, zeal and enthusiasm.

We think Horton is right. It is time that Canada heard the voices of impassioned yet sensible university leaders, civic scientists and business people all speaking up for the value of basic science. Let's keep our campuses as places where investigators and their students can frequently be astonished and surprised by their discoveries. The pay-off will be huge, not only in an economic start for Canada but also in the vibrancy and health of our universities.

The Vice-Chair (Ms Paddy Torsney): Thank you.

Our last presenter is Mike Flynn, from the Canadian Catholic Organization for Development and Peace. Welcome, Mr. Flynn.

Mr. Mike Flynn (Representative, Canadian Catholic Organization for Development and Peace): The two questions posed are whether the pace of deficit reduction is too fast or too slow and what the priorities for the future are. In a sense I'm not prepared to answer either one.

However, I come with a concern that is more about the direction of the cuts than the pace. I think it echoes a lot of what we've heard around the room in terms of cuts in social expenditures and the social infrastructure of this country.

Our own particular organization is the aid and development organization of the Catholic church in Canada for overseas aid purposes. The particular concern that I bring to you today has to do with what I would say is the disproportionate allocation of the burden of debt reduction to the development assistance program of Canada. We've seen it in the last several budgets.

Foreign aid has been reduced by 40% since 1991-92 versus an overall government expenditure reduction in the neighbourhood of 23%. We are now at a 30-year, all-time low in foreign aid allocations by Canada.

At the same time as that circumstance exists, we also see an expansion of the aid envelope to include a whole bunch of items and areas which were traditionally not part of development assistance, so the combined impact is a gross reduction in Canada's aid and capacity to aid the poorest.

My intervention today is quite brief. The government, in looking at a circumstance where it has met its targets and surpassed its targets, should re-examine reductions that have already been announced in foreign aid for the coming period. In the new prioritizing, the government should try to see whether it is possible for Canada to reassume its traditional role of leadership in terms of concern for the countries of the south and in terms of its preparedness to work at international development.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Flynn. That was very brief.

We'll now move on to questions from the members of Parliament. Again, just to reiterate, hopefully the questions and answers will be short. If anyone else wants to tag on an answer after the question has been directed to somebody else here on this panel, please indicate to me by signalling. I'll keep a list of speakers.

[Translation]

The Vice-Chair (Ms Paddy Torsney): It's your turn, Mr. Ritz.

[English]

Mr. Gerry Ritz: Thank you, Madam Chair.

I'd like to thank all of the presenters this afternoon. You've done an excellent job of getting your points across. I know it's always tough to find time in a busy schedule to do these types of things. We really appreciate it.

A couple of people have talked about the tremendous cuts in the social program situation that we've seen in all provinces across the country. I'm wondering if you have given any thought to the level at which we should have the deficit and the debt before the federal government should start to reinvest in the social program safety net, which we've seen eroded away, and to what extent.

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Should we be looking at doing it immediately? Should we be doing it after we've balanced the budget projected for 1998, or should we be waiting to really put lots of dollars back in when we get our debt down to 60% of GDP, as some people have suggested?

What extent of funding would you see going back into those programs, given that in 1993 they were at $18 billion? Of course, five years later our dollars don't buy as much. Do you have a magic number in mind that we should be budgeting for? How do we ensure the stability of this very important funding after that time?

Ms Alice Herscovitch: I wish I had a magic number, but I think the time is now. In fact, the time was when the cutbacks started.

We are dealing with a time when Canadians are poorer than they have been in a long time—in decades. The solution is not to disinvest in social programs.

A budget has two sides to it: revenue generation and expenses. Perhaps there are ways the government should consider increasing its revenues. I know that many groups and organizations have presented proposals to the government that would generate additional funds, and could even respect the deficit targets that have been set by the minister.

I think the time is now because we are in a crisis. I didn't talk about individual cases today, but I could have. People are struggling to survive in Canada. We're not talking about people doing without luxuries; we're talking about people doing without essentials.

The Vice-Chair (Ms Paddy Torsney): Mr. Chorney and Mr. Legault, s'il vous plaît.

Mr. Harold Chorney: If you look at the government's own statement, the government is, from the point of view of financial requirements, in a surplus position—not from the point of view of the narrow definition of what constitutes a deficit but in terms of financial requirements, because they're off-budget items, which are revenues when you look at our actual position.

There's a surplus now of roughly $1.7 billion, and by next year, if there's no recession and if interest rates don't go up very much and growth rates continue as they are, there will be a much bigger surplus, probably as much as $10 billion or more.

Whatever one might have thought about what happened in the past, there's an opportunity now to begin to put money in an investment sense.... I think the gentlemen from the Neurological Institute put it quite correctly: health and education expenditures are investments; they're not current expenditures. We express them in our budgets that way, but it's an error to do that, from the point of view of the long-term benefits that they bestow on our society.

It seems to me the time is now, and the position is reasonable. Just try to control the short-term rates, because that's where your problem will lie. If he pushes the rates up, all bets are off.

The Vice-Chair (Ms Paddy Torsney): Thank you.

Mr. Legault.

[Translation]

Mr. François Legault: Well I'm not enough of a specialist to answer that question. However my personal point of view remains that the government should first and foremost maintain the existing programs and improve them, and only the surplus could be used to decrease the debt. First and foremost we should keep what we already have now, and not reduce the benefits granted to those people who need them. And even, as Mr. Chorney was saying earlier, with a surplus, we could improve existing services.

The Vice-Chair (Ms Paddy Torsney): Thank you, Mr. Côté.

Mr. Bernard Côté: I agree completely with the statements just made by Mr. Legault. As a matter of fact, what does a $10 billion surplus mean when the debt is beyond $500 billion? I believe that the federal public debt is nearing the $600 billion mark. For many years, we had deficits of $25 and 30 billion and we let them slide. There are the future generations, generations who no doubt need education and for whom there is an already existing system which has not yet been amputated. The existing system still offers, for the time being, health care and still offers, for the time being, a certain amount of social security.

If we don't go any further with the cuts, if we could have budgets, or surpluses which would be redirected to the reduction of the debt, we have a chance to get something done. I do not know how long it will take to get rid of it. I don't even know if I have any chance of seeing the end of this public debt before the end of my own life. That's my opinion.

I thank you.

The Vice-Chair (Ms Paddy Torsney): Thank you very much. Mr. Côté.

Mr. Perron, we're listening to you. You have five minutes.

Mr. Gilles-A. Perron (Saint-Eustache—Sainte-Thérèse, BQ): Good day, ladies, good day, gentlemen.

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It seems that we're wanting to get money to get the decrease the federal government debt down as soon as possible.

Considering—and these are figures given out by the Department of Finance—that fiscal expenditure relative to businesses, for example deferred taxes, amounts to a billion dollars and also that the capital remissions amount to $1.5 billion, and finally considering that some companies use branches in tax havens where no taxes are collected, don't you think that, to succeed in getting that additional money, it would be time for this government, rather than cutting into its normal procedures such as social transfers, to carry out an in-debt reform of corporate taxation and make personal taxation more equitable?

Ms Alice Herscovitch: I totally agree with what you are saying. It's obvious. Moreover, several organizations have already presented briefs, both to the Quebec government and to the federal government, regarding tax reform that could be done while pursuing the objective of a zero deficit without increasing poverty.

Yes, I agree and I believe that the federal government would have the means in hand, if it wanted to, to establish a balanced budget which would take into account the realities that Canadian citizens are living with. I believe that that is quite possible.

The Vice-Chair (Ms Paddy Torsney): Mr. Marchand.

Mr. André Marchand: I believe that often it happens that governments have very good intentions. For instance, you wanted to stop the 72 companies. We remember the story of the NDP well. They were saying that these major companies didn't pay any taxes at all. To this effect you have implemented a tax on capital. What happened was that these companies, through all kinds of fiscal strategies and others, have continued to pay little or no tax, whereas small businesses, even in the years where they have a deficit, have to pay a capital tax while they are already losing money. It is a shame that we're aiming at one and that the other has to pay. We should perhaps, before implementing taxes like these, be sure that we attain the objective we have envisaged, and not the opposite.

Ms Nicole Moir (Quebec Federation of Senior Citizens): I think that Mr. Perron is perfectly right in what he says. We are often left with the impression that governments, at least over these past few years, have made all kinds of cuts without really looking at all the possibilities. We repeatedly asked that the whole tax system be re-examined and reviewed. We have even mentioned things such as people who invest outside the country, and who obviously choose those places where there are no taxes to avoid paying taxes. We've also mentioned the question of the large family trusts and also, a question which was raised earlier, this whole question of banks.

We hear people saying that banks are making record profits. Certainly some will say that these profits must be in balance with the profits made by banks internationally. However, making as much money on one side and cutting jobs on the other side, does not seem at all logical to us. Mr. Côté talked earlier about the unemployed. We have just created a new category of people who have difficulty in finding employment. The whole question of the working elderly is also being raised.

All this goes to say that the tax regime in Canada should be revised. And provinces should also look at this matter closely from their point of view.

• 1545

The Vice-Chair (Ms Paddy Torsney): Thank you, Mr. Brison.

[English]

Mr. Scott Brison: First of all, I want to thank each of you for your presentations. There were some very thought-provoking presentations here today, which help us to recommend and formulate policy. That's important for all of us.

I think one of the failures of these types of meetings is that everyone has an individual perspective based on their own organization or groups of people they work with. That leads to a sort of myopia and a tendency not to look at the issues from the self-reference criteria of other people around the table. For instance, someone advocating more social spending can defend that, and quite rightly, by suggesting that there's a social investment, or an investment in the future, especially when you consider things like investments in children up to the age of three. One dollar invested in a child up to the age of three in education will save the taxpayer $7 by the age of 27. Those are the types of things.... I think it's very important to bring that about.

A business organization recommending tax reductions in EI premiums, for example, is looking at it from their own perspective. But the fact is that those reductions would help stimulate economic growth, which would help all Canadians, including poor Canadians. I think that's something very important to consider.

My question is specifically on research budgets and increasing funding for research. The Canadian health care system is in a crisis, and that's something that's occurring across Canada. The health care system is in a severe transition. Earlier, Ms Herscovitch referred to it as a two-tiered system. I think to a considerable extent that has been what has occurred.

Do you see more investment in research as one means by which, through creative and innovative solutions, we could ultimately reduce the cost of health care in Canada, or at least provide more effective health care?

Mr. Tom Gevas: Yes, I do. Let me give you some examples. A newly developed drug that keeps schizophrenic patients out of hospital will save $400 million a year. A relatively inexpensive $4.5 million dollar investment in a study showed that aspirin can prevent strokes in patients with heart arrhythmia, and that stands to save $220 million a year in health care costs. I can go on and on with this.

The Vice-Chair (Ms Paddy Torsney): Mr. Sékaly.

Dr. Rafick-Pierre Sékaly: There are many other examples of that. I think people in the Montreal area and in Canada are very proud. In Montreal, BioChem Pharma created, originally with funds from the Medical Research Council of Canada, the drug 3TC, which is used not only for AIDS, where it has really generated a tremendous impact, but also for hepatitis-B. That is clearly slowing down the rate of hospitalization of patients and decreasing health care costs.

All the new drugs that have been generated for AIDS offer a tremendous cost reduction for health care. Just go around the Montreal area and look at the number of people who are hospitalized right now in AIDS care units. The number of people has decreased by over 80%. That's really a great example of how biomedical research in Canada has led to a reduction in health care costs in Canada.

[Translation]

The Vice-Chair (Ms Paddy Torsney): Thank you. Ms Herscovitch, please.

[English]

Ms Alice Herscovitch: I think certainly there are savings to be generated in the health care system. I think we have to look at where expenses are, and look at the issue not only from a deficit reduction viewpoint but obviously from a health care viewpoint. What is better health care? Is community health care better? Let's invest in communities if that's less expensive, but let's make that investment before we close down our hospitals.

If we're concerned about drugs that could in fact save millions and millions of dollars, that's terrific. But we have to look at our drug patent law, which is the most protective law that exists, and talk about how much that costs us in terms of health care costs, not only how much medication costs but why medication costs are so high. I think the whole issue needs to be examined much more fully.

[Translation]

The Vice-Chair (Ms Paddy Torsney): Ms Moir, please.

• 1550

Ms Nicole Moir: I'm far from being any kind of expert on medical research, but—I'm going to make a perceptive statement—our population is aging, and aging fast.

If we do not do medical research on diseases related to aging, it's going to cost the government a fortune. Research must absolutely be done. We know that. At a certain point, it has been said that over half of the people aged 80 years or over will be suffering from Alzheimer's disease. I think that this research was done in the United States. If the government doesn't do something, and quickly at that... There is medical research being done regarding illnesses linked to old age. We know that we have an aging population, and the government will have to invest even more in terms of research, at least in that particular field.

[English]

The Vice-Chair (Ms Paddy Torsney): Mr. Kleiman.

Mr. Bob Kleiman: In terms of your question about investment and return on investment, I never believe those things. Not so many years ago the federal and provincial governments were giving away millions of dollars in government grants and loans and all kinds of things, so there was less money available for it. It's like a different era now. But what happened to those dollars? Did it make any sense to do that? It didn't seem to. Things seem to go on regardless of that. We spend billions of dollars in certain areas and in tax cuts and different things.

We talked about BioChem Pharma. It does work here in Quebec because it's the best place in the world to do research, from a government incentive point of view. The tax credits are the best anywhere. I used to be a tax specialist in scientific research.

That doesn't necessarily mean the universities are being helped by this. They are doing their research and BioChem Pharma is going to do research if it feels it can make a buck out of it as fast as it can. There are obviously some relationships between government and the universities, and here in Quebec the province is trying to create those relationships.

I think we have to back up. When you talk about one dollar for three and one dollar for seven and all these things we have history and we just sort of go on. I don't think we learn from our history. I don't have the solutions. I listened to what you said, and I've lived through many of my clients getting government grants. They used them for their own purposes. They didn't hire more people or they hired them for the short term. Their profit was their goal, and that's what it should be.

I simply wanted to make that comment.

The Vice-Chair (Ms Paddy Torsney): Thank you. Mr. Chorney.

Mr. Harold Chorney: If you look back in Canadian history, in my home province of Manitoba the Red River floodway was built amid quite a lot of controversy for perhaps the equivalent today of $200 million. It saved $1 trillion many years later. It's prevention. It's the idea.

I think you've hit upon an excellent point. You invest the money and prevent much greater expenses later. It's not a question of giving grants away to companies who may not use them for useful purposes, but generally speaking, most of the investments are just that—they're investments in the future well-being of our society that we all live off.

[Translation]

The Vice-Chair (Ms Paddy Torsney): Mr. Côté.

Mr. Bernard Côté: I like the notion of investing in research very much. Yes, it is important. This question is one which is always on my mind. We were talking about patents just a while ago. Already, in Montreal, the patent law permits a certain form of investment. Montreal is one of the best pharmaceutical centres, recognized the world over, where an enormous amount of research is being done already. Which fields will obtain priority in research? Which disease will obtain priority? Alzheimer? AIDS? Diabetes? Cancer? Heart disease? There is an enormous amount of them and the very same thing will happen again: everyone will be speaking for their own particular sector of research, and the same problem will come up once again.

This is a problem which will remain with us unless we look at a solution somewhere else. Private companies are now starting to invest in research because people have to look elsewhere if there are no government subsidies. This might be one of the advantages of this situation, as dramatic as it is. Such is the situation at this time.

We have to learn to live with it. To do so, we have to work together. Do we have money to invest in research? I believe that the first area in which we should do research is the social field. This is very important.

We now have problems throughout America, where we still welcome cultural communities from all over the world and where there is a need for integration. There are integrations where Canada and Quebec have an inverted pyramid with a greater number of older people than youths. What will happen later? Why not do some research in this area do make it easier for newcomers to fit in?

The areas which seem most important to me are still training and education for young people, since they are our future and will be able to build on what was done in the past.

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If there is one group which should be made a priority, it is our young people. When I talk about young people, I mean children and students in our grade schools and high schools. Training should perhaps be our main priority, which means that people should do some research in that field.

The Vice-Chair (Ms Paddy Torsney): Thank you very much. Mr. Gevas.

[English]

Mr. Tom Gevas: I would like to comment on that statement.

Actually, BioChem Pharma shows how government and the commercial sector can work well together. The government sector, prior to their cuts, funded quite a bit of research in the areas that BioChem Pharma was researching, through their MRC grants, etc. These tax credits that BioChem Pharma was able to access allowed them to come back and reinvest in university research done by those scientists who had produced viable results.

So I disagree; there is some success there that we can put our fingers on. It's not just throwing the money away.

John.

Dr. John Robson: I'd like to make two comments. One is that it's important to appreciate how basic research works. Not every grant is going to lead to a product or not every grant is going to lead to a discovery, because people are exploring things and looking into the unknown and it doesn't always work out the way they hypothesize it will. Sometimes while investigating one thing you make a discovery in another area. That is a benefit of basic government-funded research that you won't get from industry-funded research.

Second, it's hard to put a finger on the kinds of benefits you get from basic research. You can come up with examples, but as this gentleman said, he's seen plenty of grants that didn't lead to what he sees as benefits to society.

But I'm convinced those benefits are there. If you look at biomedical research in the health industry, it's quite obvious that there have been tremendous advances in the last few years, and I think the promise for continued advances is even greater now with the advent of molecular biology.

One way we can find out what those benefits are is to cut off the pipeline. If you do that, I think you're going to find that the benefits were much greater than you ever realized and that cutting off the pipeline would be a real detriment to our society.

[Translation]

The Vice-Chair (Ms Paddy Torsney): Mr. Assad, you have five minutes.

[English]

Mr. Mark Assad: Tell me, doctor, with regard to the legislation passed concerning Bill C-91, which extended the patents to the pharmaceutical companies with the promise they'd invest more money in this country, particularly in Montreal, along with the fact that the cost of their prescription drugs would not exceed inflation, has this lived up to expectations or were we led down the garden path?

Dr. John Robson: I'm sorry, but I can't comment on that. I'm new in the system here and I just don't have that knowledge. Perhaps Tom can say something.

The Vice-Chair (Ms Paddy Torsney): Mr. Assad, maybe we could focus more on pre-budget consultation. I'm not sure whether your question is more appropriate for the industry committee.

Mr. Mark Assad: You were mentioning the role of the Bank of Canada with regard to the inflation rate. I think that's one of our big troubles in this country; monetary policy is like a state secret. Everybody thinks you have to be a mathematical genius to figure out how the monetary policy works.

It's not that complicated. I'm not saying it's simple, but it's not that complicated, and we have a tremendous amount of resources in the universities and the faculties of economics in this country. In Montreal we have a very distinguished member in Pierre Fortin, who I got to know a few years ago. There are others from Manitoba. You name them, they're across the country. They are rarely heard on these subjects. Their research has pointed out that there is no inflation in this country. If anything, we have been suffering from deflation in a lot sectors and that has created a lot of havoc.

When I listen to people around the table, it's obvious that the governments have done a good job in scaring us to death with the deficit. I'm not saying we didn't have to deal with the deficit, but it became a regular obsession. We were willing to cut off our arm. We were willing to go to extremes. There were a lot of people out there coming up with ideas on how we could settle the deficit problem, or at least part of it. Nobody alone can maintain that they had all the answers.

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So I ask you, what is the possibility, be it through Alliance Quebec or any kind of organization, that public debate will be brought to the forefront, and that we question the monetary policy of the Bank of Canada?

The Vice-Chair (Ms Paddy Torsney): Mr. Chorney.

If there's anyone else, please indicate.

Mr. Harold Chorney: I certainly share your frustration. There's a very famous book in the United States, called Secrets of the Temple, about how the federal reserve runs the United States. One could write a Canadian variance of that. I myself wrote a small pamphlet with both the late John Hotson and Mario Seccareccia, called The Deficit Made Me Do It, about what's going on in this country.

You have to understand the nature of the Bank of Canada's economists. They're technocrats, as are the Department of Finance's economists. They're principally drawn from several institutions with a very strong tradition of what is called monetarist thinking—in other words, the kind of thinking Mr. Crow and Mr. Thiessen represent.

So until such time as the government decides to try to balance the kinds of voices they listen to inside government, politicians of all parties—and I include all the parties, no matter who gets into government—are going to say the same thing, because they're going to get the same advice.

Why don't you sponsor hearings on monetary policy and invite a whole range? Don't just invite Western Ontario or U of T monetarist, rational-expectation economists; invite the whole gamut. Then you'll hear a discussion. There are plenty of excellent voices, including Mr. Fortin; Lars Osberg; the late John Hotson, who was a wonderful voice in this area; and me. I have something to say. Lots of people have things to say about this, but we haven't been heard. That's the nature of the economic establishment inside Ottawa.

The Vice-Chair (Ms Paddy Torsney): Just as a PSA, our committee will hear from Mr. Fortin Thursday morning.

Mr. Harold Chorney: Good. I'm sure he'll do a good job.

Mr. Mark Assad: I got to know the late John Hotson in the Committee on Monetary and Economic Reform, a very enlightened group, needless to say, on the subjects that are rarely heard.

[Translation]

Naturally, Mr. Côté, we are well aware that people with low incomes or no jobs have had a hard time because of the cutbacks in government services.

Has your agency made any efforts to retrain some of those people? Did the money for retraining those who lost their jobs come from the public purse?

Mr. Bernard Côté: No public funds were invested. Our agency is now setting up a job counselling service to help people rejoin the labour market after being left out for a while to teach them how to return to it. We have to use what is already there. We will probably be asking for subsidies for existing services, including in Quebec, because of what should be developed in the social economy.

Funds were available. I do not think that this will require a large investment by the states, but it will require a lot of imagination because what those people need most of all is a way to rejoin the labour market since they were left out of it for a certain period.

In addition to any prejudice they must face, they are going through some real problems. They lost the habit of work and their self-confidence. They are no longer sure of themselves or know that they can accomplish something, those things that seem quite normal for anyone. Other people have the stress of going to work every day, but when this stress is replaced by the need to feed and house your family, the dynamics are completely different. It is these dynamics which have to be put back in the lives of these people. This is what we are working on to help people find a job.

The Vice-Chair (Ms Paddy Torsney): Mr. Gallaway.

[English]

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you.

Mr. Marchand, I have a quick question. I must tell you, I have a neighbour who is in the jewellery business, and every time I see him he pesters me about the tax.

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Is there any evidence, any facts, that would support that the elimination of the luxury tax and the excise tax would in fact create a number of jobs within a given range? In other words, can you show that the government, if it could wean itself from this revenue, would in fact realize other revenues through employment, through some other method or avenue? Does that exist?

[Translation]

Mr. André Marchand: Some studies have shown that the smuggling of jewellery—and I can tell you that there is a lot of it—creates jobs in other countries.

If this jewellery smuggling is reduced or eliminated because our costs are truly competitive, there will be more jobs created in Canada rather than elsewhere. This is what the studies have shown and we could send you copies of them.

Mr. Roger Gallaway: What is the level of tax in the States?

Mr. André Marchand: I must say that I don't know. I did not think that I would be asked that question today. I don't know the rate, but it is certainly less than here.

Fortunately, and I do say fortunately, the reason why American jewellery does not come into the Canadian and especially the Quebec market is that the rate of exchange allows us to remain competitive. We have the advantage for exports.

I would like to add one last point. Diamond mines are becoming more and more important in Canada. From the studies that have been done, I can even assure you that the quality of the diamonds found in Canada will have a major impact.

Compare us with Australia, which is a major producer of diamonds. Their rough diamonds are worth about $10 a carat. In Quebec and Canada, rough diamonds will probably be worth an average of $70 a carat. It is very close to the best quality of diamonds now found in Russia. This is coming very soon. We have the same type of rocks as in Russia and people are now setting up diamond-cutting works, diamond exchange markets, and so on. The federal government is working on it and this will become very important. You know as well as I do that what we want is to export diamonds. We have to recognize that the market is limited in Canada because of our population. This is an extremely important market worth billions of dollars. We could do imports, but without this excise tax because there is no such tax on the export diamonds elsewhere.

If the tax is removed for diamonds, why not for other items?

The Vice-Chair (Ms Paddy Torsney): Thank you very much.

[English]

To both of you, there was a jewellery excise tax report done by Ernst and Young, a study you may want to get a copy of and either dispute or....

Mr. Gallaway, there seems to be a bit of conflicting information there.

This brings us to the end of the main questions section. We have only one minute for comments per group. I will start with Alliance Quebec. You can use the moment to add something you forgot, to reiterate something you've already said, or to make a specific point about a program you'd like to see cut or added to. It's your minute. Use it as you wish.

Mr. Hamelin.

Mr. Michael Hamelin: Thank you very much. I think the major thrust of our operation is the notion that if we are looking toward investing in the future, the perspective of the alliance is that investing in communities of people, specifically the linguistic minority communities in this province and in this country, will add great benefits to the value of the country.

In addition, I think today we look at organizations like ours differently from how we might have looked at them even 15 or 20 years ago in that we see ourselves playing a very important role as a link between government and the various communities.

The example I raised earlier, about the development of a youth employment service centre of Alliance Quebec in 1992, serves as a means of providing information and job training to young English-speaking Quebeckers who want to remain part of Quebec and invest their futures here on the part of Quebec.

There are numerous examples of how organizations like ours can operate in that fashion with government and with the private sector and with the communities in terms of making this country a much better place to live.

Thank you.

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The Vice-Chair (Ms Paddy Torsney): Thank you.

[Translation]

Mr. André Marchand: As for the 10% excise tax, we are not asking for charity. Abolishing this excise tax would not constitute privileged treatment for our industry as we are the only ones to pay this tax. We are simply asking for fair treatment.

We really hope that the members of this committee will follow in the footsteps of the committee that looked at the issue last year and recommended officially that this tax be abolished as no one can justify it.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Marchand.

[English]

Madam Herscovitch.

Ms Alice Herscovitch: I'd like to add that although the importance of training and developing possibilities for employment should not be neglected, we should also remember there are people who cannot work and there are people for whom there will not be work. We've had an unemployment rate of over 10% since 1981 in Quebec—that's the official rate—so I think we have to look at social programs that are income support programs that give people a decent quality of life for their social contributions.

Thank you.

The Vice-Chair (Ms Paddy Torsney): Thank you, Madam Herscovitch.

Mr. Kleiman.

Mr. Bob Kleiman: To reiterate, the only people who don't look for a return on investment in all of these organizations are donors who probably just want their names on a wall or something. We need these kinds of dollars, whether it's for basic research, income support programs or whatever. Resolution 21 says we don't want those dollars to come in, we want a whole sector of our economy to not contribute to these voices, so we don't want them. I think it's wrong. The type of process we talked about in resolution 21 has to change. We should have a process that brings in everyone's point of view so we can have fair legislation.

Thank you.

The Vice-Chair (Ms Paddy Torsney): Thank you, Mr. Kleiman.

Dr. Sékaly.

[Translation]

Mr. Rafick-Pierre Sékaly: I would like to emphasize the fact that medical research saves lives and promotes economic growth while creating jobs.

Let me give you two examples. Research subsidized by the Medical Research Council have produced between 2 and 3 billion dollars in savings in the area of heart disease.

As for creating jobs and wealth, I can give you the figure in the United States: 80% of patents issued in the States did not come from pharmaceutical research done by private companies, but from research subsidized by the American government.

If we want to promote economic growth through the creation of new patents and through inventions, the government must show some leadership.

The Vice-Chair (Ms Paddy Torsney): Thank you very much. Mr. Côté.

[English]

Mr. Bernard Côté: I would like to thank all members of this committee for the opportunity

[Translation]

which we have had to express our views. I thank you very much. I would like to add one thing. For me, research is still essential. I have always been very attached to research and I think it is very important.

I believe that all sectors of the economy, be it jewellery or any other, are all important. We need to find a consensus about a priority list, which is very hard to do in our society. That's something we seem unable to do, for whatever reason. It is up to the government to decide. The people around this table are the ones who will decide which views are worthwhile among all those expressed. I hope that more young people and others will also see things that way.

Then there is the question asked by Mr. Assad about the money required to promote employability. It would be nice to have that money but if we don't get it, we will carry on just as we are right now, the important thing being that the dividend be put to good use.

As Mr. Legault was saying earlier, if everybody made sacrifices in an effort to bring down the debt, we would at least have the satisfaction of having settled the problem.

The Vice-Chair (Ms Paddy Torsney): Ms Moir.

Ms Nicole Moir: Before contemplating tax cuts, the government should restore transfer payments to provinces for health, which affects seniors, and eduction, which affects our young people, in order to prevent further deterioration of those significant sectors of our society.

[English]

The Vice-Chair (Ms Paddy Torsney): Dr. Robson, please.

Dr. John Robson: I would like to reiterate that basic science research is a long-term, open-ended and high-risk endeavour that's central to the public interest and is deserving of federal support.

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I might mention one other thing we haven't really discussed much, the training of future scientists. If we cut our current funding, we're also cutting the funding available to train those future scientists.

What we're going to see if we continue these downward cuts is a reduction in the future generation of scientists. There will be fewer scientists available, and we might be starting a downward spiral that will be very hard to recover from.

The Vice-Chair (Ms Paddy Torsney): Thank you, Dr. Robson.

Mr. Flynn, the last word is yours.

Mr. Mike Flynn: A couple of years ago I saw a cartoon of a father sitting around with his family. “Times are tough,” the father in the cartoon said, “and I'm going to have to let one of you go.”

Voices: Oh, oh!

Mr. Mike Flynn: Here's the concern. Do we look at what we're going to do with better economic circumstances in terms of feeding the kids or paying the mortgage when we're talking about paying off the debt? Do we educate the kids? Do we pay the mortgage? Do we live up to our responsibilities in our own community or do we pay the mortgage?

I think as individuals we would all answer those questions in a similar way, and I think the government needs to answer those questions with that kind of priority in mind. The long-term good of eliminating the debt is to be worked at, but it's to be worked at in a context that respects social priorities.

The Vice-Chair (Ms Paddy Torsney): Thank you very much, Mr. Flynn.

Colleagues, this group of witnesses is now finished, but we do have one more witness.

To all the witnesses, thank you very much for your participation today, for your energy, your commitment, your ideas and for making your presentations in such a clear and concise manner.

If there is anything else that you hear about as we go across the country or if there's something that you want to get to us, November 7 is the deadline. That's when we start writing our report. If you have more numbers, facts or disagreements, I encourage you to get the information in to us.

Thank you very much. We'll adjourn for a short break.

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[Translation]

The Vice-Chair (Ms Paddy Torsney): We have one last witness, Mr. Bourget. Mr. Bourget, you have five minutes to make your presentation.

Mr. Maurice Bourget (individual presentation): My name is Maurice Bourget. I think that the House of Commons should pass legislation to authorize home owners to renovate their homes with their RRSP money since they're not given a good return on it anyway. This could create jobs and fight the underground economy. It would be very useful for home owners, a great number of them being forced to sell their house. An old house is just like an old car: it needs a lot of repairs. I have been thinking for a while now that governments should help homeowners with RRSPs by putting those RRSPs to good use.

That's about all I wanted to say. Thank you.

The Vice-Chair (Ms Paddy Torsney): Fine. Thank you very much. Are there any questions, Mr. Jaffer, Mr. Ritz?

[English]

Mr. Gerry Ritz: Would this be a program similar to first-time homeowners using an RRSP to buy a home? Are you thinking of a parallel like that? Would you allocate the RRSP to renovations as opposed to buying?

[Translation]

The Vice-Chair (Mr. Paddy Torsney): Do you understand?

[English]

Mr. Gerry Ritz: This would be a similar program. Right now you can use your RRSP to purchase a new home, and you're thinking of the same type of application for home renovation. You'd have to pay it back within 15 years or whatever.

[Translation]

Mr. Maurice Bourget: I don't understand much.

Mr. Mark Assad: Mr. Bourget, this gentleman wants to know if you recommend that homeowners with RRSPs be authorized to use part of this money to make repairs to their houses.

Mr. Maurice Bourget: That would be very useful.

Mr. Mark Assad: Sure, but what about somebody who does not have an RRSP? What should he do? Do you suggest that the government give subsidies to...

Mr. Maurice Bourget: They could benefit from some kind of tax relief because they have renovated rundown houses.

Mr. Mark Assad: You're talking about renovating houses. For low income people, renovations can be very costly these days. So you want the government to provide some kind of subsidy to help people make renovations.

Mr. Maurice Bourget: Personally, I need a new roof and I have to change my furnace, this will cost me about $20,000. If I could draw on my RRSP, it would be a big help.

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Mr. Mark Assad: I see. You want to use money from your RRSP to repair the roof and the heating system.

Mr. Maurice Bourget: As far as the roof is concerned, I don't have any choice, it's urgent. The heating system can wait. But if I could use the money from my RRSP, I could renovate everything.

[English]

Mr. Mark Assad: That's your question, then.

[Translation]

The Vice-Chair (Ms Paddy Torsney): Mr. Perron.

Mr. Gilles-A. Perron: I don't know if I got this right. If I understood you correctly, you have a certain amount of money invested in an RRSP and you would like to use part of this money to make repairs to your house without paying tax on it. Do you intend to put this money back into your RRSP?

Mr. Maurice Bourget: I will be willing to put this money back in the same way that homeowners benefitting from tax deduction can put the money back in. The same provision could apply for renovations and that would help create jobs and solve the underground economy problem.

Mr. Mark Assad: That's a good argument. If people could use their RRSP, they might not resort to the underground economy. It would be worthwhile to suggest that.

The Vice-Chair (Ms Paddy Torsney): I believe the Canadian Housing and Mortgage Corporation has a program that subsidizes home renovations.

Mr. Bourget, thank you very much for coming here today. We will look at your suggestion and it might find its way in our report to the minister.

Mr. Maurice Bourget: Thank you for the opportunity to speak.

The Vice-Chair (Ms Paddy Torsney): Thank you very much.

[English]

We will now adjourn. Tomorrow morning we're in Fredericton.