FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 23, 1998

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I call this meeting to order and welcome everyone this morning. You know the order of reference is Bill C-36, an act to implement certain provisions of the budget tabled in Parliament on February 24, 1998.

This morning we have the pleasure of having the following witnesses: Maria Conti from Kids First; Dr. Mark Genuis from the National Foundation for Family Research; and from the National Anti-Poverty Organization, Mike Farrell, acting executive director.

You've all appeared before parliamentary committees, I gather. Ms. Conti, you have not?

You basically have five to ten minutes to make your presentation and thereafter we will engage in a question and answer session. We will begin with Kids First.

Ms. Maria Conti (Ontario Representative, Kids First): A couple of weeks ago the CBC comedy show This Hours Has 22 Minutes had comedian Mary Walsh do her stuff in a hilarious spoof on how the recent federal budget affects families with a parent at home. The situation has become so outrageous that Canadians are now laughing at the treatment of 35% of Canadians. Really, it is not funny at all.

In its coverage of reaction to the budget, the CBC's The National focused on the single-earner family. The Globe and Mail has been openly debating the problem since November. Canadian Business, in its March 27 issue, noted the blatant discrimination against these families in a concise article by Donna Green. So did a college student at the Southern Alberta Institute of Technology in Calgary when Finance Minister Martin visited a couple of days after the budget was presented in Parliament.

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At-home parents don't get to meet with the minister, of course, which explains why I, as a representative of Kids First, am here at this committee hearing. Since the mid-1970s successive federal governments have implemented taxation strategies that have now resulted in single-earner families paying such a disproportionate amount of taxes that it cannot be ignored any longer. At every income level the one-earner family pays more in taxes than its two-earner neighbours with the same total family income. We are not talking about peanuts here, either. We are talking thousands of dollars per family each year. This can mean the difference between affording play school or not, between summer camp or not.

The enhancement of the child care expense deduction by 40%, from $5,000 to $7,000, for children under seven years of age, and by 33%, from $3,000 to $4,000, for children ages seven to sixteen is unbelievable, especially as this deduction has an inverse relationship to need and can be used for a variety of activities, from hockey camp to nursery school. In the last budget round the age limit was raised from twelve to sixteen despite the fact that children over age twelve rarely require child care. But then this deduction is really more about subsidizing the extra-curricular activities of wealthy children than anything else. Families with a parent at home pay out of pocket for these luxuries. There is no deduction for them.

While the government claims to help families with children, there is clearly a double standard operating here. On the one hand, a small part of the monthly cost of actually raising one's children is supplemented by the child tax benefit, but only if family income if below certain levels. On the other hand, a valuable tax deduction is available regardless of income for the cost of child care as long as the caregiver is someone other than the child's parent.

Another aspect that underscores this injustice is that the CCED is used to reduce taxable income. Taxable income of course determines eligibility for the child tax benefit and the extent of the surtax repealed in this new budget. Therefore, the family using the deduction will pay lower taxes and receive a larger child tax benefit than many families caring for their own children. In addition, they will also have their surtax totally or partially eliminated.

Kids First is extremely disturbed by the message being sent to Canadian society with the new caregivers tax credit. This looks remarkably like Liberal MP Paul Szabo's motion passed in the last Parliament, which called for this measure, except that Mr. Szabo had the decency to recognize the invaluable contribution families make to our society when they also have a parent at home caring for pre-school children. He included this group in his motion. The finance minister removed them in his budget proposal while leaving intact the others Mr. Szabo had acknowledged.

Dr. Hedy Fry, the Minister Responsible for the Status of Women, acknowledged the policy implications of data on unpaid work released by Statistics Canada on March 17. Child care comprises a significant portion of that unpaid work. The caregivers tax credit clearly indicates that the Liberal government is only willing to recognize certain kinds of unpaid work as valuable. Caring for an elderly relative is important. Caring for a disabled or an infirm family member is important. Clearly, caring for non-disabled children is only important when done by someone who is paid for this, anyone other than the child's parent.

The raising by $500 of the personal exemption and spousal credit, while noble in its effort, still indicates that individuals are more valuable for their contributions to the market economy than for their contributions to their children and families. Despite Minister Martin's claims about targeting relief, the results of this budget speak loudly. A family of four with one earner at an income of $50,000 will receive the peak amount in tax savings of $238. Once that income hits $65,000 this falls to $29. Yet a family of four with two earners will save $198 at a combined income of $100,000 and will save $305 at a $75,000 income. This is relief for those most in need?

With all due respect, it is obvious to parents at home that in this latest budget the government has absolutely no intention of correcting tax unfairness and has every intention of continuing to further enhance the discrimination against stay-at-home parents. The fact that this is in direct contradiction to the efforts of Health Canada in its promotion of positive parenting and breastfeeding and entirely ignores recommendations made in April 1997 by the Standing Committee on Health does not surprise us. However, the fact that such taxation policies will make it increasingly difficult for families with young children to have a parent at home deeply concerns us.

Poll after survey has revealed that parents go to great lengths to be there during their children's formative years. Research affirms that this is exactly what they should be doing.

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Canada has become a country committed to propping up the income of the wealthy double-income family on the backs of those who can least afford it: families with a parent at home providing unpaid child care to their own children.

The Canadian government clearly indicates in this budget that it is acceptable to discriminate against these families. After all, as Kids First learned when it challenged the Income Tax Act in 1993, these families are not distinguishable by race, religion, or ethnicity. Therefore they are not protected under the Charter of Rights and Freedoms. It is legal to treat them in this manner, something we would not dream of doing to any identifiable minority.

Kids First Parent Association challenges the federal government to aim for fairness, to treat all families equally, regardless of their child care choices. Surely those willing to make the financial sacrifices required to have a parent at home do not deserve to be punished further by their own government at tax time.

Thank you.

The Chairman: Thank you, Ms. Conti.

The next presentation will be from the National Foundation for Family Research. Welcome.

Dr. Mark Genuis (Executive Director, National Foundation for Family Research): If I can, I'll just take a brief moment to present, as I understand it, the purpose of Bill C-36 and part 9, and then I'll present our recommendations and reactions in that light.

It's our understanding that the purpose of this bill is to provide direct payment to families in Canada to give them more opportunity to direct their own lives, to provide incentive for families to move off the social welfare system into an employed situation and provide more independence for families, and to increase the amount of funds available to Canada's poor. If we are understanding that correctly, there are a few points we'd like to make.

First, we think it's a well-intentioned directive and we think it is likely to benefit Canadians in poverty. We also think it's a respectful move on the federal government's part to leave more discretion in the hands of the provinces, because what's likely to happen is the provinces will come up with a variety of programs, some of which will be more successful, some of which will be less successful, and will provide an excellent opportunity to carefully examine actually what works for Canadian families and what works for families in different provinces. If that is done, it will provide an excellent learning ground for the most beneficial programs in Canada for Canada's poor.

We also find the principle and direction quite respectful of Canadian parents, because, quite honestly, parents know what's best for their families. They love their families and their children more than anybody. By leaving extra money in their pockets, they will know what's best and will do what's best for their families.

The concern with regard to the directive is that the clawback seems quite steep. It's my understanding that most of the clawback system will have families cut off this system by the time they reach about $27,000 of income. Many families in poverty are in circumstances as a result of breakdown, and the responsibility of the non-custodial spouse in such situations has to be addressed much more seriously.

On to recommendations. For this, we would strongly recommend that we look at increasing the clawback to approximately $30,000. In our Income Tax Act we pay 17% tax until we reach $30,000 of income. Why then are families at $26,000 cut off a system that's meant to help them out of poverty?

Second, the Income Tax Act is not indexed according to inflation, and accordingly it's our understanding—and I would be more than pleased to examine this in a more direct manner, but it's our understanding—that some of this benefit will end up putting Canadians into a slightly higher tax bracket, and you're probably going to collect more from the same families than you will be giving out. That is an assumption, and it has to be tested, but it's something worth looking at, because we may actually be reducing their ability to take care of themselves, if that is correct.

The third recommendation is in line with what was recommended by Kids First. There are many reasons for poverty, but two very pertinent reasons are as follows. One, as we talked about, is family breakdown. A second one that hasn't been addressed is what we call general emotional pathologies, which have people drifting into poverty.

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One of the best modes of prevention of poverty in Canada would be the health and stability of our persons. If people are healthier, they're more stable and more secure, they're much more likely to get a better education, and they're much more likely to be out of poverty and independent of anyone, such as any government or any social system.

So if we are serious at all about helping Canadians develop in a positive manner, we have two recommendations. As for broken families, please look much more seriously at the responsibilities of non-custodial parents in a financial manner to ensure that the custodial parent and his or her children are able to live in the healthiest and most productive manner possible. If that's not taken care of, there is no sense of responsibility for people who leave their families, quite frankly.

Having said that, I must point out that many people who are non-custodial parents are also suffering. Their children are also suffering because children need both parents. They need access to both of their parents. So having the opportunity for children to access both custodial and non-custodial parents more freely would contribute substantially to the health and well-being of these children who have suffered from the breakdown of their families.

Statistics Canada recently said that the rate of divorce in Canada has gone down significantly over the past number of years. While that's true from their calculations, they supplied us with some information with just some raw numbers that take a look at the ratio of marriage to divorce on an annual basis in Canada.

Take a look at that. In families with those who are between 20 and 49 years of age, which is generally considered the main childbearing and rearing ages, for every 10 marriages each year, there are 4.6 divorces. If you break that down even further just for the sake of being direct, the average first birth in a married family in Canada is, I believe, at 28.6 years of age. So if you break it down to the marriage-to-divorce ratio between 25- and 49-year-olds—this may be too restrictive, I admit, which is why I put the other one out—it's actually about 64%.

So there's a lot of breakdown in this country. A lot of children are suffering. A lot of children need more access to both of their parents. A lot of families are in poverty needlessly.

The other recommendation is from all of the data that we've been able to access throughout the world and meta-analyse. People have meta-analysed this work, which is using advanced statistical formulas to analyse the research. People from all over the world have done this independently and consistently come up with the bottom line that no one can replace parents in the care of their children. Parents do a very good job. They're very competent, and in a businesslike manner, they produce very good products for our society.

So any effort to reduce the opportunity for parents to spend time with their children would be something that would concern us, because it would put at risk the children's development in a very serious manner.

To close up, there are two final brief recommendations. First, again, if there's any way possible, considering the last one, reduce taxation for families or at least provide a level playing field for families who have single and dual incomes.

Finally, because there is a program change both provincially and federally, please take a very serious look at evaluation. We have a wonderful opportunity to actually see if these things work. There are some provinces that we have been speaking with who are now taking a very serious look at....

Money is limited everywhere in the world, and we have to ensure now that our precious resources do the most good possible. The only way to do that is to provide very serious, very careful and exhaustive evaluation systems, not in a broad and general scope, but in a much more detailed way that's very possible and not extremely expensive.

So those are four or five recommendations that we would call on the government to take a very serious look at.

The Chairman: Thank you.

We'll now move to the next presentation. From the National Anti-Poverty Organization, we have Mr. Mike Farrell.

Mr. Mike Farrell (Acting Executive Director, National Anti-Poverty Organization): Thank you. Good morning. Thank you for inviting NAPO here.

I want to just say first off that I provided a handout, but I was unable to get it translated into French. I just want to apologize for that. I didn't have much time.

NAPO is an organization that represents the poor and attempts to provide the opinion of the poor on different policy, in particular, federal policy.

Today I'd like to speak mostly about two concerns that I have about the child benefit. There are certainly a number of concerns, but I just want to highlight two in particular today.

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But first I think I have to say that from the point of view of many people and many families on social assistance, the child benefit has been one of the more insulting pieces of legislation they have seen. The fact that it has been introduced as a child poverty measure to deal with the poorest children in Canada and does nothing for people on social assistance has meant that these people see the federal government—and, I guess, the provincial governments as well—telling them that they are not worth spending money on, that they are not worth investing in. A number of people have spoken to me about it and I can see the hurt on their faces. And I think that at some point, sooner rather than later, we should do something about that.

Of the two specific concerns I have, the first one has to do with sort of an implementation issue. It's been brought to my attention that there's a possibility of an 18-month delay in terms of a family receiving the child benefit. If a parent is working in 1997, let's say, and the income would disqualify the parent from receiving the child benefit and then he or she loses their job in June 1998, that parent would not qualify for the child benefit for the rest of 1998 and could conceivably not qualify for 1999 as well.

It's been explained to me that the provinces are supposed to take this into consideration and not deduct the amount of the child benefit from the social assistance cheque, as they're planning to do right now.

What I am concerned about is the appeal process. If a mistake is made by one of the provincial governments and people are denied this amount from social assistance.... I have no faith left in the appeal process at the provincial level. I've included in this document two examples of how the appeal process is working right now. Over the last few years, the question of having a fair appeal has, I think, disappeared from the social assistance programs across this country.

It's my feeling that the federal government has a responsibility to ensure.... They have made the commitment that no family is going to be worse off as a result of the introduction of the child benefit and from that point of view I think the federal government has to play a role in the appeal process. In the case of a dispute, in the case of a parent saying “I'm not receiving the money I should be receiving”, the federal government has to play a role. It cannot be left up to the provincial social assistance departments.

My second concern has to do with the child benefit as a wage subsidy. I'm not against a wage subsidy, but at the same time I find it reprehensible that we're using public money to subsidize wages that are too low to keep people out of poverty. I cannot understand how we can allow employers to pay a wage that keeps people in poverty.

I think that in the same way the federal government and the provinces have come together and developed a child benefit in unison, they should get together and develop a way to increase the minimum wage, on a gradual basis. I know there are a lot of people who believe that increases in minimum wage will destroy employment or restrict employment, and that's why I've included in the package a statement by 100 economists in the U.S. who have stated that this is not the case and that there is plenty of evidence to suggest that increases in minimum wage, if done in a gradual way, will not affect employment. I'd like that to be considered as well.

So basically I have three recommendations: first, the federal government must play a role in resolving appeals by people on social assistance to ensure that they are no worse off after the introduction of the child benefit; second, families on social assistance should be allowed to keep all of the child benefit; and third, the federal government and the provinces should begin discussions on how to implement increases in the minimum wage rates across the country.

Thank you.

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

We'll now move to the question and answer session. Would you like to begin, Mr. Breitkreuz?

Mr. Garry Breitkreuz (Yorkton—Melville, Ref.): Thank you very much for your presentations. I appreciated them.

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I have four questions. You can pick and choose the ones you would like to reply to. I'll pose all of them to you, and then let each of you comment on them.

First of all, some of you made comments in regard to the fact that the breakdown of the family, the breakdown of marriages and so on, is contributing a lot to the problems we're experiencing in our society. At the same time that you talk about the breakdown, I think it would be incumbent for you to explain how government could possibly be contributing to this. If the reason a lot of children are experiencing problems is the breakdown of the family, what government policies are there that contribute to the problems children are experiencing—i.e., the breakdown of the family? You alluded to them. For example, you talked about reducing taxation for families. How does the high level of taxation contribute to this problem? That would be my first question.

Following up on that, what measures would you like to see enacted to bring fairness into the tax system for single-income families? In my riding, I get a lot of feedback that there is really no fairness in the tax system for single-income families. What measures could be brought in to bring that about? What would you like to see done?

The third question I have follows up on that as well. How much more tax is the government forcing on a single-income family as compared to dual-income counterparts? There seems to be a discrepancy there. Have you done any number-crunching? Have you given any thought to how much of a discrepancy there is? Would you say the present tax system rewards families who pay third parties to care for their children at the expense of those who care for their own children at home? One of you made the statement that parents are more able to care for their children than a third party. Does the present system reward those parents? Some of you have touched on this briefly, but I'd appreciate it if you would elaborate a bit on this, please.

Thank you.

The Chairman: Who wants to start?

Ms. Maria Conti: I have a few brief suggestions here.

What kind of fairness does the single-income family want in terms of the tax system? I have a couple of ideas. Allow all families with children to claim the child care expense deduction. Change the child care expense deduction to a credit instead of a deduction. My understanding of the tax deduction is that it works opposite to the way it should. It doesn't help people at the lower end of the income scale. I believe that if it's a credit, it better helps those people whose incomes are lower. I'm not a tax expert, though, so don't quote me on that.

For a single-income family earning $60,000, when compared to a family with two wage earners who are both earning $30,000—so we're looking at the same family income of $60,000—the single-income family pays approximately $6,700 more in income taxes.

Mr. Garry Breitkreuz: $6,000?

Ms. Maria Conti: $6,700. It's approximately that amount. We believe this is grossly unfair. Again, it gets back to the child care expense deduction, I believe. The families with the child care expenses can deduct them.

Again with the child care expense deduction, a couple earning $200,000 can get that child care expense deduction. Do they need it? Maybe yes, maybe no.

That's it.

Dr. Mark Genuis: I have a few points, and on those four questions I would be grateful for an hour on the floor to respond. Thank you.

The first question was with regard to whether the government contributes to this. Certainly I don't think the government contributes to this in any sort of purposeful or deliberate manner. However, in the area of taxation that you have addressed, one company out of Ottawa, Compas Inc., for example, has polled Canadians, as have Decima and Angus Reid. All have come up with essentially the same findings. Canadians are saying their taxes have increased so much over the past number of years, over the past few decades, that they have to make so much more just to meet ends now. It is literally not an option for us to have a single income in the family. It is not an option for us to have one parent focused on the care and management of the family. Accordingly, we literally have no choice; we are now dual-income families.

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Compas then asked families directly a straight question: If you had a choice, would you want more of your tax money going towards a system to now support the current reality where you don't have an option, or would you prefer reality to change a bit, your taxation to change, so that you would have more options, so you could care for and manage your children on a full-time basis or you could go to work and use non-parental care?

The overwhelming majority said we would like some more money left in our pockets so that we could make the choice, please. In fact, 77% of dual, full-time working families in Canada said if they had a bit more left in their pockets, they would be single-income-earning families.

So there's a tremendous desire on the part of Canadians to care for and manage their children. Does that make a difference? As I alluded to earlier, quite honestly, it does. Even high-quality day care, even high-quality non-parental care, has not been found anywhere in the world to serve as an adequate substitute for full-time parental care; it just hasn't.

So parents do a good job. Society benefits over the long term and the short term.

As to specific types of policies, really, there are a variety that would serve to varying extents to provide options and opportunities for families. They include the conversion of the child care expense deduction to a tax credit, so that it would be open to anyone, either the higher- or the lower-income earner in the family. That could be indexed or not; it depends on the government's thought, and so forth. That is one.

A second could be income splitting in families. Essentially, you could move towards a tax system where families could combine their incomes. In that way, you are essentially saying you're a family, you're a unit, you have important work to do, and you have an important service to society. Include one credit.

The concerns about income splitting have been that it would be extremely expensive. About a month and a half ago, some economists from the Ontario Institute for Studies in Education came out and said a proper, high-quality national day care program would cost approximately $5.5 billion a year. A full, adequate income-splitting program in Canada would cost substantially less and would provide a tremendous amount more choice.

I would be pleased to provide the numbers. We have done the analysis. We're just going over it now, and that's why I don't have it. I'm sorry, I was given very short notice for today. So I apologize for not having the numbers for you, and I would be pleased to provide them at a later date—as Anne McLellan says, in good time.

Are families with dual incomes profiting from paying third parties? First, again, most families don't want to do that. Are they benefiting? Well, family A gives up a full income and still has expenses to care for the child. Family B doesn't, for whatever reasons, either by choice or by lack of choice, and they make a second income. They will probably make more money and will have the deduction straight off of their gross income.

Sure, they're profiting. Sure, it's unfair. In fact, a number of government departments have also said this and a number of government members have raised this in the House. Sure, it's unfair, absolutely.

Mr. Garry Breitkreuz: Can I get a supplementary on this point, with regard to the income splitting, before the third-person thing?

You said the income splitting would cost less. That makes me wonder, do you think tax policies are increasing costs in other areas—maybe the representative from Kids First would like to respond to this as well—such as education, justice, like the young offenders concerns and so on, medical care expenses? Are they increasing? Maybe even social assistance costs are increasing because of the tax policies that are forcing both parents out of the home, and so on.

I wonder if we're a bit shortsighted here. We think we're saving money in one area, but actually we're increasing the cost in so many other areas that it's counter-productive.

Dr. Mark Genuis: When we say that parents provide the product, what do we mean by that? What we mean is that when children are separated prior to the age of five, when young children are separated from their parents for more than 20 hours a week on a regular basis—so we're talking extensive care on a regular basis, not once in a while—we find that there is a statistically significant and in some cases a substantial risk for what we call insecure attachment, void of any other areas, insecure bonding.

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This bonding is a critical and central variable in development. When bonding is insecure we are looking at direct lines to risks for pathological development, for poor behaviour, for more medical problems, for poorer education. So the chances that these costs are being raised are very high, and yes, the risk is substantial.

The Chairman: Mr. Farrell, do you have a comment?

Mr. Mike Farrell: Yes, I have a quick point. I'm really not an expert on family matters, but it seems to me that what we want to do is provide choice to people, so that if they choose to stay at home, they can, and if they choose to go into the workforce, they can.

I'll speak from two perspectives, one of a family on social assistance, the other of a low-income working family. I think one of the problems with single parents on social assistance is that they're being forced into the workforce. I think we should consider whether or not we want to perhaps provide the option to support a single parent on social assistance in taking care of their own child, if they should choose to do that, rather than trying to force them into the workplace.

Dr. Mark Genuis: That's an excellent point.

Mr. Mike Farrell: The second point has to do with low-income working families. I would suggest that if you have two parents, two children, a family of four, with a single earner earning the minimum wage in Canada, even if that person were to have no tax at all to pay, that family would still be living in poverty.

So although adjustments to the tax system are maybe necessary, people are not being paid enough to allow them the choice of staying home if they choose to. There has to be an increase in wages in order to provide people with that choice if one of the parents wants to stay home. It's not going to happen unless wages increase.

The Chairman: Are there any further comments from the panel?

Dr. Mark Genuis: If I may, I would like to provide an addition to that, most specifically with regard to families in poverty. It's my understanding that the federal government—as well as many provincial governments—has been lobbied very hard by those who are saying if you would only spend one dolar on a quality child care program, for every dollar that you put out, you will receive seven dollars back.

This is actually based on research, but it's based on the Perry Preschool program in Ypsilanti, Michigan. These folks did not run a quality day care program; they ran a family program for the highest risk, most impoverished families they could find in their area.

Why did they do it? Because they had serious problems as these children grew. These children were being killed and were killing each other. They were pregnant, they were not finishing school, they were into crime, and so forth. They ran this quality family program where they taught and helped the families become independent caregivers—of themselves.

They did this program when the children turned three years old, not at infancy. And they did it for two years and then sat back and watched. I would be happy to provide you with more details on the program, but for brevity's sake, let me say that they provided a program for two years and sat back and watched for twenty-six years.

The outcome of this family program was that these families became independent. They took care of themselves. Their children were the ones who finished school. They were not impoverished as adults, so they broke the cycle of poverty. These people were working, contributing, healthier, happier and productive members of society.

The program is the only one of its kind that has worked thus far. For every $1 they put in, they saved $7. But it was a family intervention support program: it was not simply a day care program. It was much different from that. And the child care component was much under the 20 hours.

Thank you.

Mr. Garry Breitkreuz: I think it would be helpful if you provided us with that.

Dr. Mark Genuis: I'd be pleased to do that, sir.

The Chairman: Madame Gagnon.

[Translation]

Ms. Christiane Gagnon (Québec, BQ): Good morning. I am pleased to meet you.

You raised the issue of tax credit for child care costs. This was one of the Bloc Québécois recommendations to this committee. We hope that the government will deign to accept some of the suggestions we presented.

As for the child tax benefit, the tax tables were not indexed. I have commissioned a study which concluded that the low-income families, those with income of $20,000 to $25,000, are the most affected by the fact that these tax tables are not indexed. In this study that I commissioned, it is said that over four years families received, on average, $222.24 less because of non indexation.

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Do you rely on analyses? What is the most affected class of people? Are we talking, in your opinion, about families with an income of $20,000 to $25,000? Do you agree with this analysis that was made?

[English]

Dr. Mark Genuis: To this point, a few elements.... First of all, we're aware that the Bloc has recommended tax credits. That has been reasonably well documented, and you're to be congratulated on that point.

Secondly, with regard to the indexation, we have not as yet done specific analysis on that. I have read a few other analyses from other organizations that would agree entirely, and we would be happy to provide the references for that. However, the National Foundation for Family Research and Education has recently introduced an annual family health index. We will provide our first index in November 1998, and we expect, as part of that index, to have such analysis completed. So we hope to be able to provide you with that in mid-November of this year.

[Translation]

Ms. Christiane Gagnon: This is an issue I have fought for in the House, since I was Women's Affairs critic during my first term, and I often asked the minister to index to inflation. I was told that it would come, but only when inflation would reach 3%. We are still below 3%. Therefore, it means that we might never index the tax tables. In your opinion, aren't we pursuing a goal that will forever escape us? We know that inflation is 1.4% or 1%. It's nearly zero. So the tables may never be indexed, but meanwhile the cost of living is on the rise.

Low-income families are hit in two ways. Salaries don't increase while the cost of living does. What would be a good reason to index the tax tables?

Mr. Mark Genuis: You are right. Excuse me, but

[English]

if you put a frog into warm water and you turn up the heat slowly, the frog will still burn. If you have a low rate of inflation every year, it's still going to burn people after a number of years. Over the past ten years or so, inflation has gone up about 20%. Why? Because 2% a year over ten years is 20%.

You're making a very good point. It's exactly right. Yes, it has affected families a great deal. Your point is well made.

The Chairman: Mr. Riis.

Mr. Nelson Riis (Kamloops, NDP): I would like to make the point, to continue in the same vein, that the Minister of Finance has indicated that when the seniors benefit package is introduced, it will be indexed. I presume if the government wants to index benefits to seniors, it will also then change things for benefits for children as well. That will be an interesting issue to watch as it unfolds.

I have a question to you, Mark. You commented about how everybody is short of money, all governments. I suppose that's true to a point. But later in this session we're going to hear from the Canadian Taxpayers' Federation, where they are going to remind us, at least from their point of view, of the billions of dollars that all sorts of large firms get. Rolls Royce, for example, they will point out, I think got $50 million in some form from the federal government. The federal government has decided in their wisdom that we need four submarines now to protect ourselves from some kind of an attack.

Being a government is a matter of deciding how you spend your money. What do you think about the decision to spend money on submarines and not children?

Dr. Mark Genuis: Not being a military expert, I haven't had a chance to examine the submarines, but what I will say in response—

Mr. Nelson Riis: Neither have we.

Dr. Mark Genuis: Okay, that's fair enough.

Mr. Nelson Riis: None of us are military experts, and yet the decision is taken.

Dr. Mark Genuis: Yes, the decision is made.

Mr. Nelson Riis: I'll put the question to each of the witnesses.

Dr. Mark Genuis: I would like to answer in a slightly broader context, because I think the point you are making is questioning where are the priorities of the government.

It is clear that perhaps the intention is to support families, and I think steps are being taken. I would agree with you entirely that this is what's needed here.

• 0945

Let us draw this into context. Socially in Canada, are we having any problems? Are we suffering any effects of broken families and of a societal disrespect for parenting and so forth? Well, Statistics Canada has reported that in Canada over the past forty years we have had an increase in pre-teen childhood death by suicide of not 10% or 20%, but of 1,367%. We have the third-highest teen suicide rate in the industrialized world, with an increase of 620% over the past forty years. We have a higher rate of teen suicide than the United States. We have a higher rate of teen violent crime than the United States. The increase in teen violent crime over the past ten years—this is all Statistics Canada information—is 135%, as opposed to a 60% increase in the U.S.

We are having social problems. We have to ask ourselves when we are going to begin paying serious attention to the prevention of the problem, rather than the social problems after the fact.

As a counselling psychologist, I can tell you we are well trained, we care, we work hard, we are dedicated, we give our lives to our clients. But we are nowhere near as successful as our society could be if we aimed our focus and priority at prevention. I think this is aimed at doing that, but it could go much further.

So your point is very well made. We need to take a look at what our priorities are. It has to be a very sober look, and we need to fund accordingly or change our tax system accordingly. It's a critical situation, sir.

Mr. Mike Farrell: There are a couple of things I wanted to say. One is that I'm entirely in favour of indexing the child benefit. I know that's something that's sort of still on the burner in terms of what's happening in the House. I can see no reason why not to index it if we're serious about making a commitment.

On the submarine question, I'm going to go broader, just as Mark did. I don't know if the money should be spent on submarines or not. But I do feel that right now the situation in Canada—

Mr. Nelson Riis: Are you serious about that response?

Mr. Mike Farrell: Yes.

Mr. Nelson Riis: You said that this legislation, as it presently stands, is insulting to children—insulting.

Mr. Mike Farrell: Yes, to families on social assistance.

Mr. Nelson Riis: Are you really saying that with almost 1.5 million kids living in poverty, you think submarine purchases at this point may be a reasonable decision, with no imminent threat of whatever? I can't believe you're serious when you say that, Mike.

Mr. Mike Farrell: I have no idea why the submarines are being purchased. I have not paid attention to it at all. I do not know the rationale behind it, so I can't say it's a good or bad decision. I just cannot comment on it. I can see your point. It doesn't seem to be a high priority. At the same time, I can't commit myself to making a comment if I really don't know why the decision is being made.

What I can say is that I think there's plenty of money available to deal with the problems we face. I believe the situation in Canada is at a crisis right now. Certainly in my lifetime, I've never seen things so bad. I've lived in Montreal, Vancouver, and Ottawa, and I've certainly visited Toronto a number of times. When I walk around those streets today and see the people lying on the streets, I cannot believe it is happening in Canada, not when we have enough money to deal with the problem.

I can't say it has to come from the submarine budget, but we definitely have the money to deal with the problem. The problem needs to be dealt with. It's a crisis right now.

Ms. Maria Conti: You've picked out submarines, and maybe they don't need to spend the money on them. But the government, year after year, throws money out the window. I could sit here for the next two hours and gripe to you about where I think the government wastes its money. I think anybody with common sense could see where it's throwing its money.

My pet peeve is that the government gives money to special interest groups. Kids First has never received federal funding. When Kids First first organized years and years ago, we did apply for federal funding to help us get started, but we were denied. The reason we were denied was that somewhere someone felt that we did nothing to advance the cause of women. This is why we were denied.

We're still here, and we've done it on our own without government funding, thank you very much. We're very happy that we've done so without it. That's just one of the things the government wastes its money on, as well as submarines.

• 0950

Mr. Mike Farrell: May I just make a comment? I've heard a lot about taxes, and I just feel the need to respond.

My sense is that Canadians are saying they want tax cuts. But the reason they're saying they want tax cuts is because they're not receiving the benefits of the taxes they're paying. If they receive the benefits of the taxes they're paying, taxes do not matter.

If we look at it and say that Canadians want a tax cut so we have to find out how we can cut taxes, I don't think that's the right approach. I think we have to figure out how we give the taxpayer value for the money they're spending. I don't know if it's submarines, but I think if Canadians see improvements in their health care system, if they see that any Canadian can access post-secondary education, if they see that when they're unemployed they actually receive unemployment insurance benefits, then they're not going to be as concerned about the tax cuts issue.

Secondly, NAPO receives funding from the government, and I don't have a problem with that. Certainly there's no way that low-income people across this country can organize nationally and develop their own funding mechanism. We struggle to collect our $2 membership fee from our members. It's important for the voice of low-income Canadians to be heard on federal policy. I think the federal government has a responsibility to ensure that this voice gets heard.

Dr. Mark Genuis: If I may, sir, while many people would agree that Canadians perhaps are not receiving full value for their tax dollar, when it comes to working with families in Canada, clearly, as we have identified, if parents are best able to care for their own children, they need a mechanism by which to do that. The only mechanism by which they can do that as provided by the government is to reduce their taxation so they can have more of their money that they actually earn in their pockets so they can use it.

Families are intelligent. Parents are intelligent and caring people. They know what's best for their families, and they're probably in the best position of anyone to utilize that money for the benefit of their children whom they love so dearly.

We've gone two out of three on government funding. Just for the record, NFFRE has rejected government funding. It will not take government funding with the exception of conducting research contracts on non-direct policy-related issues. If asked, we would prefer to see the money directed back to the family rather than to special interest groups and, as you said, Mr. Riis, through to various corporations as well.

The Chairman: Mr. Brison.

Mr. Scott Brison (Kings—Hants, PC): I appreciate your intervention this morning.

The basic personal exemption has been increased, as you're aware, in the recent budget by $500 to $7,000. Our party was pushing for an increase to $10,000, which would have taken two million low-income Canadians off the tax rolls. I'd like your comments on the recent budget, particularly the basic personal exemption and that meagre increase.

Second, for someone making $10,000 per year in Canada, the federal budget provided $80 per year in tax relief. That's effectively one coffee at Tim Hortons per week or the same at Starbucks per month. I would like your comments on the priorities and the tax system from that perspective, with that one particularly egregious example.

You're aware of the child benefit reindexing. Our party's Diane St-Jacques had a recent private member's bill that was somewhat successful, so that was rewarding for Diane and also for our party. We'll continue to push in the future, as will some of the Liberal backbenchers whose support we are grateful for.

Here's my last point, and I'd be interested in your comments on this. I'm an ardent free enterprise supporter, but I have a concern about a gap between rich and poor, both within Canada and in the U.S., particularly in the U.S., and the whole gated community concept, which is that I'm going to take care of my family and I'm going to pay for my police and I'm going to pay for my children's schooling and I don't really care what happens outside my gated community.

• 0955

That's very dangerous. In fact I personally believe the sustainability of the free enterprise system is threatened by the gap between rich and poor and by the lack of access to the levers of free enterprise by the poorest members of society. It's something that concerns me.

I mentioned this yesterday. I recently read an article where it was suggested by a Wall Street bond trader that Marx may have been wrong about communism, but he may have been right about capitalism, if it's unfettered capitalism. So I'd be interested to hear your comments on that.

There's been a change in the traditional family structure. You've mentioned a number of demographic changes, Dr. Genuis. Is it possible that perhaps the government has to begin to recognize that there have been systemic changes in the nature of the family and to recognize those changes and develop a tax system that supports not only the traditional family but also families that are, in societal terms, non-traditional?

The Economist magazine had a front-page leader article two years ago, I believe, on the legal recognition of same-sex marriages from a tax perspective. Their position was that by recognizing same-sex marriages, potentially, through the tax system, they could encourage lifestyles that would be more consistent with the euphemism “family values”. It was an interesting position, and The Economist magazine is a fairly right-of-centre publication as well.

Is it possible that perhaps we can, through recognizing societal changes, both within the tax system and within government policy and public policy generally, potentially prevent a lot of the disruptions and difficulties we're having currently?

Dr. Mark Genuis: You've made a couple of excellent points. The first one was with regard to your party's recommendation for the increase to approximately $10,000 for the basic personal exemption. We, as a foundation, conducted some analysis on that specific topic approximately 12 months ago. I'd be happy to provide that information for you.

If the basic personal exemption were properly indexed—and I believe for the past 10 years it hasn't been—it would be in the range of $9,000 to $10,000. So your party was essentially right on to fairness and honesty in that specific example. Clearly the federal government has moved in the proper direction, but there is room for fairness there.

The other element in relation to that is that proposal would move many low-income Canadians off the tax roll, so what more efficient way could you go than to allow these people just to keep their money rather than to bring it in, run it through an expensive system, and then feed them back a small part of it? It's just an effective, efficient mechanism to maximize the benefit to these lower-income families.

Mr. Scott Brison: I look forward to seeing your report.

Dr. Mark Genuis: I'd be pleased to provide it for you, sir.

Regarding the systemic changes in the family, our foundation is now conducting a national study on the specific elements of family structure and their influences on child development, because as a society, what are we most interested in? Is it so much the family or is it more the product of the family? Really it's the product, because we want health in our following generations. So we're looking at that specific issue.

For the record, NFFRE defines family not as a mother, a father, and children, but as any family with children. Anyone who has taken on the responsibility of raising children is critical to our society and we hope will benefit from the information.

Taking that into consideration, there are a couple of elements. Certainly anyone who is raising children should be in a position to do the best job they can. Second, in the case of broken families, we must take a very sober and strong look at what we're doing to children and custodial parents when the non-custodial parents are going out, reproducing again, and moving on. That's not in every case, but it's a very serious dilemma that's having tremendous, profound implications on the children who are going without, unnecessarily.

• 1000

Mr. Mike Farrell: On raising the exemption, I think it's a good idea and it's certainly time.

I guess what I would also suggest, which might be a little more controversial, is the possibility of increasing the number of steps after the top level. I don't understand why somebody who makes $60,000 a year is at the same tax rate as somebody who makes $200,000. Not necessarily in the sense that it's a revenue generator, but just in the sense of fairness, it seems to me that people who earn more should pay a higher rate—not to the point of 100%, but I think our tax system could benefit from a few more steps at the top end.

You've mentioned the whole problem of the gap between the rich and the poor, and it's something I am very concerned about. I'm by no means a communist, but at the same time I don't believe a pure form of capitalism is the answer either. I think most reasonable people are looking for something in between, where the roles of the private sector and the public sector are defined in some way that's acceptable to the majority of the people. I think the debate has to be about what types of rules, regulations, and laws we need to make sure we have a functioning system but at the same time ensure there is equity in terms of the outcome. When I say equity I'm not talking about everyone gets the same; I'm talking about the outcomes being fair and there's justice.

Mr. Scott Brison: Access to opportunities, equality of opportunities.

Mr. Mike Farrell: Exactly. I think the way things work right now it's tilted in favour of the people who have more money. I think it's a lot easier if you have a lot of money to make a lot more money. When you talk about equal opportunity, if you have a child who's born into a family living on social assistance versus a child born into a family earning $200,000 or $300,000 a year, those two children do not have the same opportunity in life. I don't think that's fair.

On the question of families, yes, I think we have to look at the non-traditional families. I would agree with Mark that we have to figure out what's needed to support families in whichever form they take. I don't think we can take choices away from people, but I think if people make choices then we have to be there to support them in those choices.

The Chairman: Thank you, Mr. Brison. Ms. Torsney.

Ms. Paddy Torsney (Burlington, Lib.): Thank you.

First of all, to the National Foundation for Family Research, you've cited all kinds of statistics, child suicide rates and all kinds of things. Can you please provide those with their appropriate sources? I think that's otherwise not quite appropriate.

Dr. Mark Genuis: Absolutely.

Ms. Paddy Torsney: To NAPO, Mr. Farrell, you'll be pleased to know that in fact when the finance committee did its pre-budget reports, there wasn't that much support for tax cuts across the country. In fact, people wanted us to work on reducing the debt further and they wanted to increase spending in health and education. There were some people who did want tax cuts. The national polling supports this as well; it was about a third, a third, and a third. Without a doubt, in Ontario the people are finding out the tax cut is costing them a whole lot more than they anticipated after taxes.

The other issue you raise is bracket creep. Without a doubt, this whole issue of indexing needs to be addressed, and we did talk about that a little bit in the finance committee report.

Another point I wanted to make to you was in terms of the children born into these different families. Frank McKenna was doing some work last night talking about the issue of computers and the Internet and access to learning and access to information, and how that could be the thing that starts to level off the inequities between these children and it could be this whole new generation that has in fact increased opportunity across those income disparities.

• 1005

When we talk in abstracts about poverty lines and low incomes, people are sometimes confused by what that means. What is the poverty line in Canada?

Mr. Mike Farrell: There's certainly some debate about it. I'll try to go with the short answer.

Right now the most commonly used measure of poverty is Statistics Canada's low-income cut-off lines, which they stress themselves are not poverty lines but the most common measure used in Canada to measure poverty. There is a variety of poverty lines, depending on the size of the family and the size of the community. For a single person in a city with a population higher than 500,000, the poverty line is about $17,000. There are about 36 different ones. I don't know them offhand.

Ms. Paddy Torsney: And for a family of four—two kids, two adults...?

Mr. Mike Farrell: For a family of four it is around $30,000.

Ms. Paddy Torsney: If I recall correctly, the issue, though, isn't just that people are living below that level; it is that they're living so far below that level.

Mr. Mike Farrell: Way below. On average, they're about $9,000 below.

Ms. Paddy Torsney: The Canadian Council on Social Development suggested that a lot of people were actually running out of money to purchase food by about Wednesday of each week. Is that not correct?

Mr. Mike Farrell: I'm not sure about that. I know there has certainly been a phenomenal increase in the number of families using food banks across Canada.

One of the statistics that I find most shocking is that the first food bank was established in Canada in 1981, and today there are over 900 food banks across Canada. The number just keeps increasing. Just this year people were telling me that they've opened up food banks on a couple of university campuses because students are starving.

Ms. Paddy Torsney: We heard that when we went across the country too.

You supplied in appendix 2 a couple of charts and you didn't speak to them in your presentation. I wonder if you could just elaborate on what their significance is.

Mr. Mike Farrell: Yes. The first one is for an individual. The second one is for a family of four. What I have tried to show is that the buying power of the minimum wage has been decreasing in terms of a minimum wage providing a person or a family with the ability to get by in Canadian society. That has been deteriorating. On a national basis, for an individual, a full-time minimum-wage job used to pay about 90% of the poverty line. Today it's about 70%.

It's similar for a family of four. If you have a family of four with two wage earners earning minimum-wage jobs full-time, in 1975 it used to be that this family would be at about 90% of the poverty line. Today that family is at 70% of the poverty line.

The minimum wage just has not kept up with the cost of living.

Ms. Paddy Torsney: I'm surprised that the numbers in Ontario are so close still.

Mr. Mike Farrell: That's because when the previous government was in they made some increases in the minimum wage, which the present government has not repealed.

Ms. Paddy Torsney: My other question related to appendix 3, which was the American economists. I guess this is from 1995, and you referenced that there have been several increases in minimum wage. Have no Canadian economists done anything like this?

Mr. Mike Farrell: Not that I'm aware of.

Ms. Paddy Torsney: Does your institute have anything to say about this?

Mr. Mike Farrell: I'm not in close touch with that.

Ms. Paddy Torsney: It would be interesting to see—

Mr. Mike Farrell: There has been the odd study here and there, but not a concerted effort like this, where there's a large number of economists, three Nobel Prize winners, who have supported this.

Ms. Paddy Torsney: In the U.S.?

Mr. Mike Farrell: Yes.

Ms. Paddy Torsney: The other thing that's missing from this document is just that change. Where was their minimum wage versus our minimum wage, where an increase from their low level has obviously a different impact from a higher level? I don't know how it compares from the American example to the Canadian example.

• 1010

Mr. Mike Farrell: I think the significant issue is the relative increase, so it's the increase in proportion to where it is now, as opposed to the absolute level.

Ms. Paddy Torsney: Okay.

Mr. Mike Farrell: So I don't think whether it's at $3 or $6 is as much a factor as whether you're increasing it a dollar an hour or you're increasing it 20¢ an hour. I think that's the significant issue. If you tried to jack up the minimum wage in a particular province by 100% or something, that would have an impact. If you increase it 25¢ an hour this year and 25¢ an hour next year.... I'm just approximating; I don't know how much.

Ms. Paddy Torsney: Lastly, I want to let you know that obviously you have raised some important issues in terms of the mechanism of both the appeal process and also this whole concept that you can get stuck for 18 months because it's based on tax returns from the previous year. I will raise those issues with both of the ministers, because I think that's something we need to look at. If there's a way, as they're continuing their negotiations and discussions, that we can minimize the damage and make sure that the processes are fair, then that would be great.

I haven't had time to read through this whole big long Penny Frazier thing.

Mr. Mike Farrell: It's a good example. I've sent a letter to Revenue Canada asking for an explanation, because apparently they're going to have the responsibility for the implementation, but I haven't heard back from them yet. I hear that it's going to be left up to the provinces, and that is a concern.

Ms. Paddy Torsney: Yes. I guess the other one is, here's your bonus; now give it back. It highlights the need for communities to really help those people out. We have tax filing clinics in our offices to help people who might not have the resources or the wherewithal to complete their taxes so that they can get benefits. We try to emphasize that if you file on time, there's a benefit to doing that; you don't miss payments and things like that. Obviously we have to take that into account.

Lastly, I notice that there was some reference, Ms. Conti, to Kids First and not receiving funding for special interest groups. I want to confirm that the National Foundation for Family Research and Education is still a charitable organization, so you do get tax receipts, and you are government assisted.

Dr. Mark Genuis: For the companies, we do give tax receipts. We are a charity. That's right. So in that sense—

Ms. Paddy Torsney: So like a special interest group—

Ms. Maria Conti: If I could clarify, Kids First just received charitable status, and that was to try to get funding so that we could do this kind of thing.

Ms. Paddy Torsney: Okay.

Dr. Mark Genuis: There certainly is relief for companies who provide support for the foundation's work. That's absolutely correct.

Ms. Paddy Torsney: I'd just like to make sure that people understand that is support for special interest groups.

Ms. Maria Conti: You're right. We've just received it.

Dr. Mark Genuis: But I would argue that it's a very different level from direct cash going out to another charitable organization. But you are absolutely correct in your statement.

Ms. Paddy Torsney: Thank you.

The Chairman: Now that we've established that you're correct, Ms. Torsney, we can thank the witnesses for a very thoughtful presentation.

You have certainly given us a lot to think about. We may be back to you for some further advice. Thank you very much.

We will suspend for ten or fifteen minutes.

• 1013

• 1020

The Chairman: I'd like to call the meeting to order and welcome representatives from the Alliance of Manufacturers and Exporters of Quebec and the Alliance of Manufacturers and Exporters Canada.

I welcome Mr. Manuel Dussault and Mr. Jayson Myers, senior vice-presidents. As you know, you have approximately ten minutes to make your presentation. Thereafter we will engage in a question and answer session. Welcome.

Mr. Jayson Myers (Senior Vice-President, Alliance of Manufacturers and Exporters Canada): Thank you very much, Mr. Chairman. Thank you for the opportunity to appear before the committee to discuss Bill C-36, especially the aspects of the bill with respect to the millennium scholarship fund.

[Translation]

My name is Jayson Myers and I am first Vice-President and Chief Economist at the Alliance of Manufacturers & Exporters of Canada.

[English]

I'm accompanied today by my colleague, Manuel Dussault. Manuel is the director of research and analysis in our Quebec division, l'Alliance des manufacturiers et des exportateurs du Québec.

The 3,500 corporate members of the alliance represent almost all sectors of the Canadian economy, certainly all sectors of industry and the export community. They're drawn from all provinces across the country. Our membership accounts for approximately 80% of Canada's industrial production and about 90% of our export business. The majority of our members are small and medium-sized enterprises.

Our members are acutely aware of the problems Canada faces in ensuring a level of education and skills that meet the requirements of today's innovative, knowledge-, and maybe intelligence-based globalized economy. They're actively working with educational institutions, provincial governments, and education authorities, as well as with research organizations and centres of excellence, to design and build programs and financing arrangements for young people that are responsive to the rapidly changing business requirements and the skills gaps that currently exist across the country.

Education and skills development are crucial to the future of Canadian industry, to our ability to exploit the potential of our export markets and the growth potential of the Canadian economy as a whole, the quality of living of all Canadians. We'd like to commend the government, in the establishment of its millennium scholarship initiative, for recognizing the importance of education and skills in the global economy and for placing a priority on this critical aspect of youth employment.

Let me give you from industry's perspective an idea of the challenges that companies face today in an environment in which skills and creativity of the workforce very much determine the competitiveness and growth potential of individual enterprises.

Last September the alliance conducted a survey of its membership, and the results of that survey have been distributed. We asked our members what were the key issues affecting business performance. Five hundred and seventeen companies responded from across the country. A full 31% reported not only that they were experiencing difficulties in recruiting employees with the skills they required, but that the lack of skilled labour and expertise was becoming a major constraint on performance improvement. Marketing, design, engineering, manufacturing and export management, technical skills like welding, tool and die making, machining, and of course software development and information technology skills were all in very high demand.

Our members are working cooperatively with schools and education authorities to narrow the skills gap. Of course they face a number of challenges. One is convincing schools that they should respond to customer needs and to the needs of businesses. No mean problem. So is defining the future needs of our manufacturing and export community, managing the fit between academic qualifications and job requirements.

• 1025

Another challenge they face is the way education is funded. In fact, it's more expensive to graduate a student in engineering and with technical expertise than say an arts student or even an economist. This I think is a factor that should be built into reforms in education systems. It won't be a complete solution, but it may go some way to convincing schools to direct more of their funding to those areas that will actually make a difference when it comes to innovation and growth.

It goes without saying that our members are deeply involved with post-secondary financing systems already in place in many of the provinces. In some cases there may be gaps to be filled. In others there's a high degree of satisfaction, at least with the priorities and delivery mechanisms currently in place for student financing and with the strong liaison that has been built up over a number of years between businesses and provincial education authorities.

Our concern today is threefold: first, that the benefits of the Millennium Scholarship Endowment Fund are directed in a way that not only provides additional financing to students but that also makes a difference in the content, quality, and availability of education and skills development programs that can actually deliver a job in industry and in exporting at the end of an academic career; second, that, as the government itself has made clear, we're not reinventing the wheel, that the duplication of efforts or the establishment of parallel or competing federal and provincial systems for determining student financing priorities and delivery systems be avoided. We think it's essential at the very beginning that the Millennium Scholarship Endowment Fund be established on a cooperative basis with the provinces, building on existing mechanisms if those exist and let business and other stakeholders set their own priorities in terms of local needs with respect to the way scholarship funds are actually distributed and used.

We fully support clause 28 of the proposed bill. We stress that the federal government must negotiate an agreement with each of the provinces with respect to the administration and allocation of financing under the fund in order to ensure that the government's own objectives of providing future job opportunities for young people are actually met.

Our third concern is that not all provinces will see eye to eye with the federal government on this matter. We think the issue of education and skills development of youth employment is an urgent and important problem that needs to be addressed cooperatively. We'd like to see an arrangement in which the government would channel student financing to provincial mechanisms that work today and that are supported by business because they work. Our concern is that the funds from this very important federal initiative may be lost if a province and the federal government fail to agree on the bureaucratic infrastructure necessary to deliver to students the financing they require to take advantage of the opportunities today in Canada's job market.

The alliance would like to see the government's Millennium Scholarship Endowment Fund work, and we're prepared to work with the government to make it work. But the fund has to work within the context of student and educational financing mechanisms that are already in place in the provinces. Again, I think this is too important an initiative to be lost as a result of a failure to agree on this between the federal government and the provinces, and this latter concern is most strongly, and not uniquely, felt among our members in Quebec.

[Translation]

My colleague will provide you with explanations.

Mr. Manuel Dussault (Director, Research and Analysis, Alliance of Manufacturers & Exporters of Quebec): Thank you, Mr. Chairman and members of the committee.

The Alliance of Manufacturers & Exporters of Quebec is the Quebec chapter of the Canadian Alliance, with over 600 members. We seek to constantly improve industry's competitivity and growth of exports.

In Quebec, AMEQ has always followed closely education and training issues, since these are stakes particularly important for the survival of businesses. AMEQ, in Quebec, is one of the main partners of the labour market and, in this capacity, is regularly required to give its opinions on questions relating to education.

The members of the association thus see favourably the new public expenses announced in the education sector, but they are concerned by the public debt and the general level of spending.

• 1030

The Quebec chapter therefore hopes that the $2.5 billion earmarked for scholarships will be used efficiently to produce a competent and creative manpower. Our membership is therefore of the opinion that an investment in education by the Government of Canada is a very reasonable investment in the future for our youth and our economy.

However, in order to use wisely the public funds, the Alliance of Manufacturers & Exporters of Quebec fears that the millennium scholarship will duplicate existing structures and programs in Quebec. For example, the implementation of a new management and priorities structure could duplicate the Quebec loans and bursaries system, in place since 1964.

For this reason, the board of the Alliance of Manufacturers & Exporters of Quebec has unanimously voted a resolution supporting the Quebec government request to the Canadian government, immediately after the announcement of the millennium scholarship foundation. You will find this resolution in Annex 1.

The financial assistance program for Quebec students operates satisfactorily, according to members of AMEQ, businesses people, manufacturers and exporters. The money available should therefore be applied to improve the current system, both in terms of priorities and structures. Our membership believes the new funds would be optimally used within the existing structure, therefore avoiding any duplication.

Obviously, a negotiated solution between the government of Canada and the government of Quebec must be found as rapidly as possible. This is the solution advocated by the Alliance of Manufacturers & Exporters of Quebec. It could indeed be a transfer of funds, and terms and conditions to be determined would apply. We would be happy, at the Alliance, to help both governments to reach an agreement, if this help is welcome.

If no agreement is reached before the bill is passed, this bill will have to be modified to allow for a financial compensation to be granted to the Quebec government in lieu of the Canadian millennium scholarship foundation's activities. The Alliance of Manufacturers & Exporters of Quebec considers that these funds are too important for Quebec to be all together kept out of the scheme.

Finally, the Alliance of Manufacturers & Exporters believe in education and in training as tools to generate wealth, promote a strong and unified economy and guarantee businesses' competitivity. In the present context, the Alliance is of the opinion that the millennium scholarship foundation's funds should be used as efficiently as possible.

Thank you, Mr. Chairman and members of the committee. We will now answer your questions, if you have any.

The Chairman: Thank you very much.

Madame Gagnon.

Ms. Christiane Gagnon: It's a pleasure to welcome you today, in my capacity of member of the committee. Besides, I am quite relieved to hear your position, since I was a bit concerned, knowing the excitement created by the millennium foundation, that you would oppose the wishes of Quebec to opt out in this area.

You raised, amongst other things, a very important problem in Quebec. We know that the Canadian Health and Social Transfer has been reduced on numerous occasions and that this affects education, and everyone knows how important it is to maintain the tuition fee freeze. Considering the loss of income created by the reduction of the CHST, the millennium scholarships are an obvious insult, in particular in Quebec, where mechanisms and structures are already in place for bursaries.

I wish to speak more generally of the way the government went about this whole issue of the millennium scholarships. The Auditor General has criticized the fashion in which the monies would be used and also the lack of openness for the expenses the foundations will incur. We know control is minimal. The board's mandate is quite encompassing.

Attempts to obtain figures for the costs of managing the scholarships were made when the committee met with civil servants, but it's difficult. They say they want to help students. You are very aware of duplication. Often, in the private sector, organizations are very efficient, and duplication is very costly.

I take a general perspective. No doubt, the millennium scholarships, for provinces where there is no structure in place, will constitute a step in the right direction, but this doesn't apply where structures are already in place. The Auditor General, who knows that a system has been operating in Quebec for 20 years and that some fear other orders of government could apply it, has also targeted the methods used by the government.

• 1035

I am curious to know what you think of this administrative practice. Even for us, in this committee, it is difficult to know how the money will be used, how many employees will be needed, etc. This is all a bit nebulous.

Mr. Manuel Dussault: Your question is twofold. There is a general side and a side specific to Quebec.

[English]

Mr. Jayson Myers: I think very generally, yes, we'd like to make sure the costs of administering this fund and other government programs are minimal. Certainly the best way to do that is to work with existing systems where an agreement can be reached to do so, and there should be a seamless system of financing that is constructed at minimal cost.

Of course in any system to distribute public moneys, or private moneys for that matter, you want to see controls built in, and I think you want to see performance measures and controls at the very beginning of the process. That's just good management. But we also want to see the costs of the administration minimized so that the benefits are maximized in the scheme.

[Translation]

Ms. Christiane Gagnon: What would be, in your opinion, sound management at minimum cost? When this question was asked, the civil servants were very slow to answer that the administration costs would probably be 5% of the total cost, and could even exceed 5%. Members of Parliament for the Bloc have asked those civil servants if they had planned mechanisms or solutions, in the event that the administrative costs for the scholarships would be very high. We have asked them what would be decided if the scholarships were too costly to administer.

Mr. Manuel Dussault: I will take this point first. Obviously, under the Act, a report on the scholarships will be required. In the Canadian Alliance's submission, there are some recommendations about what information should be included in this report.

As for your first question, concerning the existing mechanisms in Quebec, I think we express a general satisfaction regarding the system used for allocating bursaries and the recourses available in Quebec. Quebec also has a tradition of partnership in the area of education. There was the open summit on education, two years ago, I believe, with the participation of business community representatives. The Alliance presented a submission to that forum. We see some changes in the right direction.

I do not think, however, that our submission is aimed at endorsing totally all that is undertaken in Quebec concerning tuition fees. For example, I believe that the Alliance has a different position and would be agreeable to an increase of tuition fees, to the benefit of the present school system.

In its presentation, the Alliance of Manufacturers & Exporters Canada recommends that the Report of the Foundation include an assessment of the goals achieved and state the objectives in terms of skills that could have been acquired, of work ethics, which is an important consideration for our members, of reading and writing. We should be able to get good mileage from the published reports.

However, the Quebec Division would rather keep the structures already in place in Quebec to manage this program.

[English]

The Chairman: Mr. Brison.

Mr. Scott Brison: Thank you for your presentation this morning. The brain drain issue and the whole issue of the exodus of some of our brightest and best young Canadians has been an issue that we're all aware of, largely due to the relatively high tax rates Canadians pay, particularly income taxes but also payroll taxes.

• 1040

After the budget, Sherry Cooper of Nesbitt Burns referred to the millennium scholarship fund and actually suggested that it would exacerbate the brain drain issue by effectively providing more highly trained, bright young Canadians who would seek greater opportunities in a lower tax environment south of the border. So I'd like your feedback on that and your suggestions on what general fiscal policies could help address that brain drain issue.

In terms of the millennium scholarship fund, I'd like your feedback on the fairly nebulous need and merit criteria. This is going to be an arm's-length foundation with $2.5 billion worth of taxpayers' money and with a significant degree of autonomy once that money is out there. There is some concern that without an auditor appointed by the government, for instance, and without very specific conditions on need or merit, the mandate of the foundation could change dramatically over the next several years.

You're suggesting quite specific criteria for scholarships and for the mandate of the foundation and that the actual control the government has over those things as time goes on will be very limited. So I'd be interested to note your position on the arm's-length nature of the foundation as time goes on.

Those are the concerns. I'd appreciate your feedback.

Mr. Jayson Myers: Perhaps I could take a first crack at it. I know Manuel has been working very closely on a lot of education issues in Quebec and he can certainly speak to those.

The issue of the brain drain is becoming more and more of an issue. I just returned from Saskatoon yesterday at an all-day meeting when there was nothing discussed but the problems of securing skilled people in that economy for the manufacturing sector, and they were covering almost everything. It's not simply a brain drain from Canada to the United States or outside of Canada. It's also a brain drain to Alberta, to other provinces and regions.

The millennium scholarship fund is an essential part of providing an investment in education and skills; there's no doubt about it. That alone is not going to prevent the brain drain. If there are not incentives for extremely well-skilled Canadians to remain in Canada, then that brain drain is only going to continue. So to that extent I agree with Sherry Cooper.

Certainly the tax system is a problem and relatively high tax rates—not only the rate of personal taxation, but the fact that you go to a higher marginal tax rate at a much lower income in Canada than you do in the United States.

Another part of the problem is the Canadian dollar. Although it's a boon to exporters, the low dollar creates a lot of problems in keeping skilled people here in Canada.

Part of the problem as well lies in industry itself, in organizing a work environment that is attractive to the creativity and skills of people and that can retain workers once they're in that environment. This is a long-term program, and I agree that the millennium scholarship fund on its own is not going to solve that.

In terms of the merit and needs part of your question, yes, the key of this has to be not just providing funds. The key is how we can actually make a difference in terms of the quality of education and the ability of students then to meet the job requirements out there in the economy. From a management perspective alone, you need a clear mandate and you need clear performance measures and controls built into the system.

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I think that is at the bottom of our concern, why the federal government and the provinces have to cooperate, because it's at the provincial and local levels where the rubber meets the road, where the people are actually being educated, and where the educational institutions are providing the content. That's why I think we need these two parts working together. If we don't have that degree of cooperation, then I think we run into problems of providing a lot of money and then looking for results at the end of the day that may not be there.

Manuel, I don't know if you have something to add.

[Translation]

Mr. Manuel Dussault: I would like to add something on the relationship between the Foundation and the government. I am not an expert on the matter, but I will nevertheless try to describe the Quebec experience.

In Quebec, corporations, the government and private funds are increasingly trying to work together in partnerships. It is, I think, a means to innovate in terms of public administration and to involve society. We should not, I think, discard that aspect.

Obviously, we will need different structures, and a different adaptation. Public sector accounting rules differ from those of the private sector. You might possibly have to innovate a little, but one should not reject the fact that different parties can co- operate even though they are not in the habit of doing so.

[English]

The Chairman: Final question, Mr. Brison.

Mr. Scott Brison: I'd be interested to hear your feedback and any suggestions on payroll taxes.

Also, many people are looking at the Canadian dollar as an indication of Canadian productivity. Do you have some suggestions on how fiscal policy could help improve the productivity and thus in the long term effect some upward movement in the strength of the Canadian dollar?

Mr. Jayson Myers: Well, very generally, let me begin with the Canadian dollar. I think the dollar has weakened over the past year because of the strong economy we've had in Canada in 1997. We're in a situation today where we live in a very integrated trade economy, an industrial economy, between Canada and the United States. Low interest rates in Canada have been good for Canadian consumers, and there's been a lot of strength in the domestic economy.

What's driven the dollar down, though, is that has been far stronger than our export side over the past year. I think investors are only looking at the problems we've seen in the trade surplus; the trade surplus has been reduced.

I think the Canadian dollar is going to strengthen over the course of this year, but investors are looking at this. In an integrated economy today, when you have a very strong domestic economy, we aren't able to substitute domestic production for domestic spending as we did before. What's happening is the strong domestic economy is bringing in more and more imports. I think it raises a real question of to what extent the Bank of Canada is able to run a monetary policy that is a lot more accommodating than that of our major trading partner. It's a big problem in terms of the independence of our own monetary policy.

Given that, the only way around that, if we are going to run a more accommodating monetary policy, is to make sure we have a very strong export performance. That's the other side of that. It's that trade problem that is the major problem with the dollar. The dollar had fallen to 71¢ before the Asia problem came about. Asia has exacerbated it.

I think we have to give full credit to the government and its achievements in eliminating the deficit. That's been crucial in bringing the interest rates down to where they are, but I think we do have to proceed with caution in terms of our monetary policy.

Productivity improvement is the only way, looking at where the dollar is...the costs of a low dollar for importers of goods as well as companies trying to retain investment and skilled labour. A low dollar has to be offset by productivity improvement. A high dollar has to be offset by productivity improvement in terms of exporters as well.

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I think this budget places some of the priorities in long-term innovation, and that's crucial for long-term productivity growth. But again, it comes down to the ability of Canadian companies to adjust to those economic conditions. That's where payroll taxes come in, because those are a significant cost on labour. It makes it more and more difficult with the payroll tax regime we have in place right now to introduce the flexibility in terms of labour and productivity that we need to respond to external economic conditions.

So we would have liked to see lower payroll taxes here in this budget. I think it does make a difference, and it is a problem for many companies. This is an issue that always comes to mind. That, as well as other tax issues, is always discussed among our members.

The Chairman: Mr. Valeri.

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

In your presentation, Mr. Myers, you make reference to the alliance believing that other things need to be dealt with outside of the millennium foundation, such as institutional restructuring and subject content. Certainly the government believes that education is under a provincial jurisdiction. Are you suggesting that there is a role here for the federal government as well?

Mr. Jayson Myers: I think we have a tremendous problem here in this country, in terms of education and skills. I think there is a role for government cooperatively to attack that problem. I think the provision of funding and the exact relationship here between the federal and provincial governments has to be a negotiated one, taking provincial funding mechanisms and provincial priorities into account.

But clearly there is a problem in the way education is delivered. Our modern education infrastructure really does not get at, especially in the area of manufacturing and exporting, the issues and content that students have to cover in order to get a job today and is not keeping up with technology. There are certainly lots of changes we would like to see in that, and some of them are financing changes.

I mentioned the problem that it's more expensive to graduate engineers, which is a real problem when you come down to the allocation of openings for students at the university or technical college level. So there are problems here, but I think the Millennium Scholarship Endowment Fund may provide an opportunity for the federal government and the provinces to work more closely together and cooperatively, although we stress that there has to be cooperation there for this to work.

Mr. Tony Valeri: Sure. It's been quite clear right from the beginning that the federal government has always had a role to play in providing Canadians with equal access to education through financing mechanisms.

What I hear you saying, though, is that—I just want to confirm whether this is a position of your organization—it can go further than that by cooperatively dealing with some of the more substantive issues of education across the country.

Mr. Jayson Myers: I think our response here is only with what is being proposed in the bill that set up the Millennium Scholarship Endowment Fund.

Mr. Tony Valeri: I'm just responding to what you have in your brief. I'm surprised to see it.

Mr. Jayson Myers: In the provision of financing through the fund, I think our point is that this provides a source of financing to strengthen some of the existing systems that are in place.

It's vitally important, I think, in looking at educational reform, that this is done within the context of the existing institutions. We certainly want to stress our involvement in a number of those reform measures being undertaken right now.

The provision of financing through this scholarship fund on a cooperative basis to strengthen the initiatives being undertaken right now with the provinces is currently what we would like to see. I don't think we would like to see at all a stronger federal initiative in the area of trying to influence what's going on at the local level. This is quite advanced as it is.

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Mr. Tony Valeri: I am not suggesting that. What I'm saying is the position of the federal government is that education, in terms of curriculum and the responsibility for education, is a provincial jurisdiction. We've said that quite clearly.

Certainly the other aspects of the millennium fund and the position of the government have been quite clear as well. I'm hoping you've heard these comments, and I think they've been reflected in what you've said so far—that the federal government does want to avoid any duplication with respect to what's going on at the provincial level, that we want to build on the existing provincial needs and assessments, so you want to eliminate any additional costs that may be incurred in putting together this foundation.

But what I also heard you say—and correct me if I'm wrong, and I'm paraphrasing here—is this issue is really of critical importance to not only members of your association but Canadians at large. We're talking about trying to provide skills training to young people so that they are able to go forward with the necessary tools to be able to get a job and compete. What we've done is try to take it out of the political domain and provide the opportunity for a panel of experts to go out and decide on how this should work, in consultation with all the provinces in this country.

I want to ensure whether you're in agreement or disagreement with that. I want to be clear that I'm not putting words into your mouth.

Mr. Jayson Myers: No, it is a critical issue, and I think it's an issue that is so critical that we want to make sure these funds are provided in the best way possible. I think that's our point. Our concern is that inevitably this may become more of a political problem or a matter of politics, and we don't want to see that impede the provision of this funding to the issue that is so important.

Mr. Tony Valeri: I'm sure no one around this table and no one in the House of Commons would want to see that happen either.

Mr. Manuel Dussault: Maybe if I can add to what you are saying, our position is also that it's not a constitutional position; the question is what works for businesses, where they do business, and what kind of people they need. For example, in Quebec you already have a system of bursaries, of funds, and we're working to make this work already. We are concerned about duplication and lack of harmonization also. So it's really a business position we're taking here today.

Mr. Tony Valeri: Certainly everyone is concerned about duplication, and that's why the effort is being made. Certainly the ministers, and the Prime Minister in fact, have been quite clear in saying every attempt is being made to avoid duplication, because no one wins in an area of duplication.

Mr. Manuel Dussault: But we already have a structure in Quebec.

Mr. Tony Valeri: But negotiations are going on today to ensure there isn't duplication.

Mr. Manuel Dussault: That's right.

Mr. Tony Valeri: I would hope you would at least recognize that fact.

Mr. Manuel Dussault: Yes, they are, and if we can help, we'll be happy to help. We hope they succeed.

Mr. Tony Valeri: That would be very appreciated. Thank you.

Thank you, Mr. Chair.

The Chairman: I will move to Madame Gagnon, who I'm sure will agree with Mr. Valeri.

[Translation]

Ms. Christiane Gagnon:

[Editor's Note: Inaudible]... Mr. Valeri. We are being asked to pass this bill fairly rapidly, and it may be done during federal-provincial negotiations. We know for a fact that under Part 1 of the bill, there will be no leeway to transfer to the Quebec government the share that is being negotiated. It will be impossible to do so because section 1 will not allow it.

We have met with the counsels of the Department who said that it would be impossible. The legislation would have to be amended should an agreement materialise between Quebec and the federal government, which I doubt very much, but which we are hoping for. This compensation would not be allowed under section 1. According to subsection 29(1), the only possibility would be to strike an agreement on assessment criteria and on the publication of a list of people entitled to the scholarships. Despite that, the redundancy of these millennium scholarships would remain as per the Act.

• 1100

I recognise that Mr. Valeri is sincere, but that is not what his government wants. Why should we expedite the adoption of this bill when negotiations with Quebec are still in progress? If ever the transfer to Quebec could be agreed to—allow me to dream—, section 1 would have to be amended. There is no rush to pass this bill, as it would not be applicable.

The transfer of funds and of management powers to Quebec that you are hoping for would not be applicable. On the very first day of hearing witnesses on the millennium scholarships, on Bill C-36, we were told that it would be impossible to accomplish.

You may not be aware of the fact that one of the criticisms of the Bloc Québécois is aimed at this problem in the bill. Why should we propose an amendment? We will not be discussing a piece of legislation where the desired flexibility is a concern.

There are already mechanisms in place in Quebec. There have been enough cuts to the Canada Social Transfer. A large coalition— and you should know because you are part of it—is asking for a transfer of funds to put an end to redundancies and overlappings. We were first elected to stop these overlappings. We pay federal income tax. Give it back to us so that we can start managing these funds. Quebec would have more leeway if it could take over a part of this money; this solution would probably be less expensive than the mechanisms already in place.

There are other problems in education, particularly with dropouts. We are confronted with the whole problematics of education in Quebec.

You should listen carefully, Mr. President, because you will to one to advise your Minister.

Are you aware of this problem, of this section being a problem concerning the desired flexibility?

Mr. Manuel Dussault: Actually, we are looking for a negotiated solution. We think that both parties are acting in good faith and are trying to find a solution. If we can make a contribution, we would be pleased to do so.

This is an extremely serious matter and it is extremely important to Quebec manufacturers and exporters. According to me, there is too much parliamentary procedure. Parliament is sovereign. I think that we can express the opinions of our members, which is the best we can do.

Ms. Christiane Gagnon: I am happy to address you this morning because if the bill being discussed in the House of Commons is passed, it will not be possible to give you satisfaction by granting Quebec the compensation it is looking for. Under section 1, this is not possible.

The only possibility is to enter into an agreement with Quebec on the assessment criteria and on the communication of a list. We were told that the Foundation would not be mandated nor authorised to grant scholarships, that Quebec would have to deal with this aspect. Forget it! Under the proposed legislation, it will not be possible. What we are saying to this government is to wait until the end of the negotiations with Quebec. Why should we adopt legislations that will need to be amended afterwards? You know how difficult that is. Once the legislation is passed, it will be said: No, we can't do it. It is up to the Foundation. All I wanted to say is this legislation will provide no flexibility for Quebec.

Mr. Manuel Dussault: Page 5 of our presentation states the following:

Failing an agreement before the bill passes, amendments will have to be made to allow for a financial compensation to the government of Quebec in lieu of the activities of the Canada Millennium Scholarship Foundation.

Ms. Christiane Gagnon: We will be your spokespersons. There will be a debate in the House of Commons and we will be speaking on behalf of Quebec on this issue so that the bill is not passed before Quebec can have its compensation for the millennium scholarships.

Thank you.

The Chairman: Thank you, Ms. Gagnon.

[English]

Mr. Riis.

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Mr. Nelson Riis: Thank you, Mr. Chairman. I apologize first of all for not hearing the presentation, so I hope my question isn't duplicating something that has already been said.

In your presentation, what I'm hearing is that the interest you have in the Millennium Scholarship Endowment Fund is that an improvement of skills is a widespread complaint among Canadian manufacturers and exporters. In your presentation you outlined some of the areas: problem-solving, work ethic, communications, creativity, and responsibility. In a sense, this is quite a condemnation of our existing educational system, isn't it? These are skills that have been presumably in the system forever, skills such as learning how to solve problems, how to be creative, how to be responsible and how to take initiative. This is a little bit off the topic from what you folks are saying, but are you saying that you just can't find these skills coming out of our colleges and universities? Because if that's the case, this Millennium Scholarship Endowment Fund is probably not going to change that.

Mr. Jayson Myers: Unfortunately, it is a bit of a condemnation of the system that is in place. Part of the survey we carried out last fall asked our members who had recently employed graduates from high school, colleges, and universities about their degree of satisfaction with those new employees, and the results weren't particularly good. I think only 36% said that they were fully satisfied with the new employees who had graduated from high school. It didn't go up very much more than that when it got to university, and colleges were slightly less. I think the result for universities was something like 48% said that the skill levels were good; everybody else said fair or poor. That just doesn't cut it today. It is a bit of a condemnation when you look at communications capabilities and the ability to creatively come up with solutions to solve problems.

For part of that I think companies have to take a degree of responsibility themselves, because the organization of people at the workplace is a very important part of what's happening in the new creative economy. Certainly the skills problems and educational problems go well beyond just the technical skills that are offered, but to the whole nature of education. I think that's where we're looking at changes. We really have to rethink what education is all about today in order to solve that. These are long-term problems and there's not going to be any silver bullet there. But at the same time, you don't get at those problems without being able to finance students to go into the educational system and to take full advantage of what we have right now. Certainly we want to see lots of improvements in the way education is offered there, but I don't think the financing here, this fund, is going to solve some of these more structural problems in the system.

The Chairman: Thank you.

I'll go to Mr. Szabo and then for a short question to Mr. Solberg.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you, gentlemen, for the presentation.

Could either of you give some comment with regard to whether you're aware of the level of excess capacity available in the system now, in the manufacturing sector, as far as the ability to provide more goods and services is concerned? Because we're ready to go, we just need more business. Have you got an idea of what that might be like?

Mr. Jayson Myers: Maybe Manuel can respond for Quebec and I'll give you the view across Canada.

[Translation]

Mr. Manuel Dussault: Quebec in particular is lacking good technicians, boilermakers, specialised welders, workers with good technical training, and adding the skills listed by my colleague Jayson Myers, a type of work ethics.

Figures are being circulated. Within Quebec, our associations and our partners in the labour market are currently trying to assess the number of available jobs, but I do not think that there is an assessment of the excess capacity, as you say, of what we could produce.

• 1110

On the other hand, I can say that if Quebec can manufacture quality products at reasonable prices, with a value-added skilled manpower, there is not limit to what can be achieved.

That is how we should see education. It must be seen as an added element to our capacity to manage the economy, and not only as an addition to what is already in place.

[English]

Mr. Jayson Myers: I think for the economy as a whole what we're seeing today, I can tell you, is it's harder and harder to get companies to come into some of our meetings and seminars because everybody's too busy trying to meet their customer requirements. The order books are full in a lot of sectors. That's going to be driving manufacturing production well into the second half of the year. There are a lot of capacity constraints right now. In certain areas the ability to get raw materials, for example, is a major problem, especially in the steel industry right now.

But there are always opportunities for growth. I think the expansion of modern industry today does not only depend on investment in new equipment and new plants; it's very much an investment in people as well. There are cases now, especially among smaller companies, and I heard a number of stories again in Saskatoon yesterday, where companies have given up trying to bring in people, software developers or plant managers, simply because they can't find those people. As a result of that, they are not taking advantage of some of the business opportunities they have today.

Of course there's still also a problem in financing expansion. It's not all a financing problem; it's also a business problem from the standpoint of providing a good case for that expansion to financing institutions. But there are constraints there. There's a lot of opportunity, especially on the export side. We estimate that about 62% of what is manufactured in Canada today is exported outside of the country. If you look at the suppliers to major exporters, that would probably go up to about 80%. That opening of the market has certainly driven lots of opportunities for companies. The big problem is how do you find the resources to get up there.

Mr. Paul Szabo: Based on your assessment that there is not a lot of fat in business and our supply and demand are relatively balanced and in fact we'd have more business to do if we found the people, it doesn't say a lot about the 8.5% unemployment rate and the quality of those who are unemployed in Canada.

Mr. Jayson Myers: Yes, that's right.

Mr. Paul Szabo: Yet it is somewhat of a dilemma that we don't have a good fit between the people who are looking for work and the work that may be available.

Mr. Jayson Myers: I think that's exactly right. It's a big problem. If you look at the manufacturing unemployment rate in the country, it's less than 5%. That's almost the natural rate of turnover. That's why 31% of companies are saying they can't find the skilled people and yet we have too high a rate of unemployment generally across the country. But the fact is today you're not going to move someone who has just come out of high school into an automotive assembly line, let alone a higher-tech automation system, say in the furniture industry. It's not the way it was ten years ago.

That's a part of the problem in our education system: moving. First of all, and we face this, convincing young people that if you want to travel around the world, if you want work at the forefront of technology and if you want to take part in the most rapidly expanding sector of the economy, manufacturing is the place to be today, because that's where the job opportunities are. But we need first of all to build that awareness at the public and high school levels. We need programs that will deliver the types of skills that are necessary to reduce that gap between job requirements and reduce the general unemployment rate. For sure that's one of the major problems we face.

Mr. Paul Szabo: Thank you.

The Chairman: Mr. Solberg.

Mr. Monte Solberg (Medicine Hat, Ref.): I'm curious to know to what degree the problem of finding skilled labour is exacerbated by brain drain, especially among the most highly skilled. How big a problem is it for you people?

• 1115

Mr. Jayson Myers: It's a considerable problem. We discussed it a little bit earlier.

It's not only finding people, but also retaining employees. The rate of turnover is exceptionally high, but not just in the manufacturing area. We represent a lot of other business sectors, apart from manufacturing—the banking sector, the information technology and software development sector, telecommunications sector. Right across these areas, there is not only a problem in attracting people, but a real problem in keeping them as well.

Mr. Monte Solberg: If you aren't successful in attracting them and keeping them, ultimately the business probably has to move. Would that be accurate?

Mr. Jayson Myers: That's happening as well. One of the key factors in any location decision for business is the accessibility of skilled labour.

Mr. Monte Solberg: Is there a regional difference in terms of training and finding skilled people? Is it easier in different parts of the country?

Mr. Jayson Myers: My feeling is that there are big regional differences. Part of it is because of the nature of the industry and the provision of training. In Quebec and Ontario you have more technical training because that's where the industrial infrastructure is located, and of course a lot of the engineering and technical schools and institutes provide the training in that area.

When you move to the Atlantic provinces, when you move—again my experience yesterday in Saskatoon—to Saskatchewan, it's more difficult to attract and to find people in that area, because the training, the education, and the infrastructure is not there to support modern technology, which is one of the most driving sectors of the western economy today.

I certainly feel that there are great differences. Again, from Saskatoon, there are two issues. One, I can't find plant managers here. There isn't enough experience in the province. I have to attract those plant managers from Ontario or from Quebec or from the United States. If I'm going to do that, then it's almost like attracting Wayne Gretzky into my plant. I've got to pay a salary that's going to bring them there, and that's a major cost problem. And secondly, I lost my welder to the oil patch because they can make a much higher salary there. I can't even keep the people who I thought I could have in my plant last year and secure that.

Perhaps Manuel could address that.

Mr. Manuel Dussault: Yes, that's a very good question.

In Quebec, our experience is that there's a certain amount of brain drain. Also, because our labour market is weaker, because Quebec people are less mobile because of the language issue, we find that actually the fact that there are well-trained people available in Quebec attracts businesses in our region. So it's one of the arguments we use to increase our rate of investment in Quebec.

The situation is very different, depending on the region.

The Chairman: Mr. Myers, Monsieur Dussault, thank you very much for your input. It certainly generated a great deal of interest. We look forward to seeing you as we deal with other issues in this committee. Thank you.

We're going to suspend for approximately three to five minutes and then we'll be back.

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The Chairman: I'll call the meeting to order and welcome Mr. Robinson from the Canadian Taxpayers' Federation.

You've appeared before this committee many times, so you know that you basically have around ten minutes to make your presentation and thereafter we'll engage in a question and answer session. Welcome.

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Mr. Walter Robinson (Federal Director, Canadian Taxpayers' Federation): Thank you, Mr. Chairman. As the federal director of the Canadian Taxpayers' Federation, it is indeed a great pleasure to appear before you again this morning.

[Translation]

I will be making my presentation in English only, but I shall try to answer your questions in your preferred language.

[English]

Mr. Chairman, before I begin my remarks with respect to part 1 of Bill C-36, I have one housekeeping matter to clear with this committee. During my appearance before you last fall, I spoke extensively on the subject of corporate welfare and where this government should end direct financial assistance to business. Last week we released a 16-year study of corporate welfare. I promised Mr. Solberg and Mr. Riis that when I had that study, I would table the document for the committee's perusal. I'll provide that to the clerk at the end.

Turning to the Budget Implementation Act, Bill C-36, allow me to preface my remarks with the following observations.

We applaud the fact that Mr. Martin has indeed balanced our books for the first time in 28 years, yet the road taken to arrive at this destination is not the route that was laid out before taxpayers five years ago. In 1994 Canadians were promised that each dollar in tax increases would be accompanied by $5 in spending cuts. Unfortunately the reverse has been the case: each dollar of spending cuts has in fact been accompanied by $4 of tax increases.

Furthermore, some of the most fundamental and constructive recommendations that were forwarded by this committee in Keeping the Balance were not implemented. Specifically, I speak of your recommendations concerning a substantive increase in the basic personal exemption, killing bracket creep, and implementing achievable debt-to-GDP ratios. Perhaps I can explore these issues further with you following my formal presentation.

Turning to Bill C-36 and part 1, the millennium scholarship fund, we believe some fundamental issues must be discussed.

First, allow me to express our support for the principle of directed assistance to Canadian students, as envisaged in the millennium fund. We have long advocated that if the government is going to deliver program or entitlement payments, this delivery should be through the most direct route possible. In the vernacular of commerce, “cut out the middleman” would be the most appropriate phrase to describe our support for source-to-recipient direct delivery of government funding.

Indeed, such an approach is the most cost-effective, transparent, and accountable way of delivering government funding. We only wish the government would employ this approach in the delivery of its funding for aboriginal peoples, for example, but I digress. This is a subject for another day and, fortunately, another standing committee.

Although we support the principle of directed assistance, we cannot support the millennium fund as currently proposed. Our opposition is rooted, first, in the inappropriate accounting treatment of the fund, as enunciated during the budget speech on February 24; and, second, in the question of constitutional encroachment into an area of exclusive provincial jurisdiction.

While provincial representatives best elaborate the constitutional question and provincial concerns, allow me to state the obvious. Section 92 of the BNA Act of 1867 and its successor act, the Constitution Act of 1982, clearly delineates that education is a matter of sole and exclusive provincial jurisdiction. Most notably, the Government of Quebec has clearly denounced the millennium fund as an encroachment into its sphere of provincial jurisdiction.

We believe that the devil of this initiative is indeed in the details and that provincial calls for opting out with compensatory increases to CHST provincial funding floors will be forthcoming. This eventuality may derail the millennium fund initiative.

However, honourable members, the aforementioned issues of direct funding and the constitutional question pale in comparison to what I can only describe as our vehement opposition to the accounting treatment of the proposed fund.

Let me cut right to the chase. Recording the millennium fund as an expenditure as opposed to an appropriately footnoted liability only serves to, and I quote from the Auditor General, “weaken credibility of the federal government's reported results”.

This is a scathing indictment of the federal government's desire to play fast and loose with objective accounting standards as recommended by the Canadian Institute of Chartered Accountants' Public Sector Accounting and Auditing Board, PSAAB for short.

For two decades the PSAAB guidelines have been developed to ensure that the books of the Government of Canada are viewed with the utmost integrity and respect. Three successive auditors general have worked hard to make this a reality, in concert with all governments of the day, yet this reality has now been perverted. The finance minister, his deputy, and the Secretary of the Treasury Board fail to realize the serious problem of discarding two decades of work and progress between public sector audit professionals and the accounting profession.

While some may view this as an argument for accountants, allow me to frame it another way. If I were to follow the government's example, then I should be able to claim a $2,500 RESP deduction for my seven-week-old son on my 1997 tax return, even though I have no intention of actually making this investment or this contribution to an RESP until the year 2000. Revenue Canada would immediately put the kibosh on this and flag me for an audit so quickly it would make my head spin. Yet this same fiscal sleight of hand is how the federal government has recorded the proposed millennium fund.

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What is even more troubling is that the federal government has demonstrated a willing and repeated contempt for PSAAB standards. Whether it be the millennium fund this year, the innovation fund last year, or the GST-PST harmonization fund the year before in compensation to the three Atlantic provinces, the Auditor General, I believe and we believe, has been very correct to sound the alarm. As he has noted, such accounting policies, and again I quote:

open the door for governments to influence reported results by simply announcing intentions in their Budgets and then deciding what to include in the deficit or surplus after the end of the year once preliminary numbers are known.

Honourable members, this is precisely what has happened. By booking the millennium fund in fiscal year 1997-98, Canadian taxpayers were effectively denied $2.5 billion of tax relief and/or debt reduction.

If I can stray from my text for a second, if you argue from the other side of the spectrum—not to speak for members of the NDP—you could say Canadian taxpayers were denied $2.5 billion of spending on health care or education.

This is patently wrong and seriously undermines the legitimacy of the office of the Minister of Finance, and Minister Martin has a great deal of credibility and respect in our eyes.

I cannot overstate the seriousness of this situation. Expenditures that are booked in a given fiscal year must be actual expenditures for that same fiscal year. To build slush funds with hard-earned taxpayer dollars violates an explicit contract between Canada's 22 million taxpayers and the Government of Canada, no matter how noble the cause. In essence, it is taxation without representation and without results.

In closing, let me raise a political concern. Above and beyond the cogent and fundamental accounting arguments I have put forward, I believe you should also consider the following political argument. By booking the millennium fund in fiscal year 1997-98, the government has effectively recorded an expenditure that we know is not really an expenditure; it's more of an accounting shell game. This expenditure has been recorded in the budget of a government, the last government, whose legitimacy and mandate stem from the general election of 1993 and the 35th Parliament. Yet the millennium fund is an initiative of the new mandate given to the Liberals on June 2, 1997, and a product of the 1998 budget speech, the first budget speech of the Government of Canada for the 36th Parliament. In other words, it amounts to fiscal revisionism, attributing an initiative of this Parliament to a previous one.

Where will this irresponsibility end? Are we going to allow the government to rewrite the public accounts for the last 5, 10, 50 years? Of course, we wouldn't, but this is precisely the precedent we set if we allow the government to walk down this very dangerous road. Again, this is a serious matter, and I can say that we do not support the millennium fund as currently proposed.

We urge this committee to take a principled and I believe non-partisan stand to tell the finance minister that established accounting standards must be respected and adhered to by the Government of Canada. To do anything else, we believe, risks a crisis of confidence in the books of the nation.

With that closing point as food for thought, I look forward to your questions. If my past appearances have been any indication, I think we'll have a spirited question period.

[Translation]

Thank you. I am ready to field your questions.

[English]

The Chairman: Thank you, Mr. Robinson.

Mr. Solberg.

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

Thank you, Mr. Robinson, for your presentation, and congratulations on your report on corporate welfare. It was outstanding.

I'm interested of course in your comments about the dispute between the Auditor General and the finance minister. The finance minister has justified transferring the millennium scholarship fund into the past budget year by saying that he has borrowed this practice from business. Why doesn't that make sense to you?

Mr. Walter Robinson: I followed the paperwork, Mr. Solberg, between the Auditor General and Mr. Clark, the Deputy Minister of Finance, and Mr. Harder, the Secretary of the Treasury Board. Indeed they both seem to be reading from the same public sector accounting standards book and both justifying their points with some very valid arguments.

But why it's okay for business but not for the Government of Canada, in our opinion, is because business is a private entity, a going concern, and there are a set of accounting standards for them.

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Section PS 3410 of the Public Sector Accounting and Auditing Board handbook clearly states that if you book an expenditure, it has to be an actual expenditure. The reason it is wrong, from our point of view, is because it is a fundamental issue of taxation with representation. If you're going to tax 22 million Canadian taxpayers who freely give the sovereign that right to tax them and acquiesce to the all-encompassing power of the Government of Canada and Revenue Canada, there must be some accountability for that money being spent in that fiscal year directed to a certain project. That, we believe, is the fundamental difference. We're not dealing with private money; we are dealing with public money. I think this is the paper trail that has been laid out on behalf of the Auditor General in response to Mr. Clark and Mr. Harder.

I'm not looking forward, if I can say so, to the Auditor General's report next Tuesday in chapter 9, where he's quite effectively throwing the book at the Government of Canada for flouting these regulations. We've worked for two decades to get to an area where the Government of Canada's books are respected around the world. We can quickly downplay ourselves into a situation like British Columbia, where a lot of investors won't invest because Mr. Clark and Ms. MacPhail are playing with their books in that province.

Does that answer your question, Mr. Solberg?

Mr. Monte Solberg: I think so. You think the consequences will be or could be that people just won't have confidence in the books any more.

An important issue here is whether the Public Sector Accounting and Auditing Board is any longer in charge of setting the rules for accounting and auditing for the government, or whether the government will simply choose to live by the rules it finds convenient.

Mr. Walter Robinson: That is the issue. And if the government wishes to restate the way it does its books in concert with the accounting profession, it has every right to do that. It's been done in the past. We record our accounts differently than most other OECD nations, which actually means we were running a surplus last year, as opposed to a balanced book. We've been very conservative in that regard.

But as long as those standards are in place and the Auditor General, being the most impartial fiscal watchdog.... As much as we believe we're non-partisan, the Auditor General is that much higher on the non-partisan scale, and if the Government of Canada is not going to listen to his counsel and advice, it is very troubling.

The Chairman: Thank you, Mr. Solberg.

[Translation]

Ms. Gagnon.

Ms. Christiane Gagnon: Your remarks concur with those of the Bloc Québécois. The day after the minister's budget was tabled, criticisms were levelled at the fact that those $2.5 billion were included in the expenses in spite of the fact that they hadn't actually been spent. I agree with you that this is tantamount to cooking the books.

There is no way your are allowed to doctor your tax report, but that does not stop the government from doing it. It is hardly surprising that the public no longer trusts politicians. When the government itself does not preach by example, it is quite understandable that the public lose all respect for the politicians.

You say that you do not agree with the way the government intends to spend that money, but can you offer an alternative? Other criticisms were voiced. When you're dealing with a foundation, it is difficult to forecast the administrative costs, the expenses, the number of staff and their salaries. So we are rather concerned about the administration of this foundation. Is it going to be very costly? Will it finally be of benefit to the students?

We know that in some provinces, there will be some duplication because some mechanisms already are in place and the current legislation precludes any migration of power that would allow the provinces to administer the funds. We are taking all this into account and we feel that our population has been sufficiently penalized by the cutbacks imposed by the federal government, and that the provinces will continue to suffer from these cutbacks in the fields of education, health and social welfare. For once, there is surplus money—one should have the decency to recognize that there are surpluses—, and we are concerned that these $2.5 billion may be spent haphazardly.

We have heard various witnesses, among them university professors who advise the minister, and we asked them what advice they had given him, but we never managed to get a straight answer.

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So I doubt that the administration of the Foundation will be closely monitored. I also asked the witnesses if mechanisms had been set up in case of excessive administrative expenses and how costs would be evaluated, but they were not able to give me an answer. So, I'm rather concerned about the manner these scholarships would be administered. We are not interested in high visibility for these scholarships. All we want to do is to help the students as well as the provinces which are currently in trouble because of the cutbacks. Thank you.

Mr. Walter Robinson: Thank you for your question. You raised a number of questions. I have four answers for you.

Concerning the government of Canada, I agree with you that it should set an example for the taxpayers. Currently, the manner the government is dealing with these funds sets a very poor example.

The second question dealt with program costs. There are costs associated with each and every governmental program. The purpose is to reduce the costs and the administrative expenses. There are currently no detailed information concerning the fund. I do not have a clear idea of the current costs and of the management structures for the fund.

The third question dealt with the issue of overlapping between the federal government and the Quebec government, which already runs the same type of program. This fiscal reform does not benefit the taxpayers. There is no specific plan for restructuring the funds. I have never seen any and I have no idea of the advice that was given by the experts to the minister of Finance or to Mr. Pettigrew, the Human Resources Development minister. I do worry because no agreement currently exists between the prime minister of Quebec and the prime minister of Canada concerning the fund.

[English]

They've respectfully agreed to disagree.

That is where the devil is in the details and where the millennium fund I think could unravel among the various provincial governments, who have some concerns about their area of constitutional jurisdiction dealing with the finance minister and Mr. Pettigrew on how this fund will be structured.

There have already been demands from the Government of Quebec, as one of its bargaining chips, if you will, that they don't want to participate. And there's a great example where the Government of Quebec in the past has not participated in federal cost-shared programs, if you wish to call them that, and received a compensatory payment instead because they're already administering a program that lives up to some sort of national standard. Whether it be manpower training, the Quebec Pension Plan—there are already valid examples there. So I think the Government of Quebec—not to be a spokesperson for the Government of Quebec—has some very valid points. And I think other governments may also exercise that autonomy or guard their constitutional rights and privileges with the same force.

[Translation]

Ms. Christiane Gagnon: A brief question to conclude. The bill that was submitted to us will not authorize the Foundation to delegate to the provinces that have already established mechanisms the power to grant these millennium scholarships. We're being pressured to pass the bill while negotiations are still being conducted, and yet they say that federalism is flexible. We have doubt it. Flexible federalism is a totally different thing.

I hope that other provinces will be able to set up mechanisms comparable to the ones we have in Quebec where the government is very close to the population. It is always difficult to come to certain conclusions in relation to a population. Canada is a vast country and some of the provinces may already have conducted analyses. We must act very quickly if we want to serve the population well and to take remedial action at the proper time.

The millennium scholarships program may be a good thing for provinces where no such program exists, but not necessarily for those that already have their own. If we are really serious about not spending too much money on administrative costs and about avoiding duplication and overlapping, we should respect the provinces' autonomy in the field of education.

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Mr. Walter Robinson: Allow me to clarify a point.

[English]

I'm not saying that I hope provinces raise these concerns; I'm just raising them as a red flag. I cannot speak for the provinces. I raise some of the same concerns the Government of Quebec has.

I agree that this may be seen as exacerbating tensions within the confederation and an intrusion into areas of provincial jurisdiction. But again I applaud the initiative of the government in terms of education as extremely important. They're taking initiative. I think they've just chosen the wrong administration and the wrong vehicle and the wrong accounting treatment.

The Chairman: Mr. Riis.

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

I know you could argue forcefully about the jurisdictional issue and maybe the moving into provincial jurisdiction. I think you could also argue as forcefully for a need for a more national perspective on educational funding, training programs, national standards for both education and training. I think it's one of the problems we face as a country that our constitutional divisions have gotten us into some difficulty as a nation in this respect. But that's not, as you say, why we're here.

I won't comment on your comments about the Auditor General. I'll have a chance next Tuesday to presumably continue along this way.

I have two questions. In terms of the allocation of scholarships, do you see any difficulty or any problem allocating scholarships along provincial lines based on population of provinces? In other words, in order to get a fair and equitable distribution, would it be a reasonable approach to say that if province X has 6% of the population or 20% then they should get 6% or 20% of the scholarships or whatever? Do you see any difficulty with this?

Mr. Walter Robinson: I haven't given that question much thought, Mr. Riis. That's allocating scholarships on a representation by population type of basis. That's why we have 103 members of Parliament in Ontario, for that matter. At the same point in time, there can be an argument made that there are other disadvantaged parts of the country where perhaps the educational opportunities are less lacking. You see an outward migration of students from the Atlantic provinces or from Saskatchewan into Alberta, or from British Columbia into Alberta. So there may be an argument to say there may have to be some adjustments.

I think the representation by population argument is probably the most equitable and fairest way to go. We don't have an equal federation. We have inequalities in many things we do in the federation. What you want to do is find a base-level denominator and stick with it. That seems to be the fairest way. Base it on the way our electoral system is built.

Mr. Nelson Riis: Okay, thank you. I appreciate that you haven't had time to think about this and it is perhaps not in your area of expertise.

Earlier in your comments you referred to the study that you released the other day. Earlier today we heard from people advocating on behalf of families and poor children and referring to the child benefit packages in this legislation. We've heard countless representations from people who feel there's not adequate funding for their areas of interest. I suspect the next group we're going to hear from will be arguing similarly.

Your organization has released this study that basically, if I can summarize, says that those folks in the corporate sector who were calling upon the government to tighten their belts and to become more prudent in their expenditures are.... Not only have they jumped in the public trough, but they're in it up to their shoulders, wallowing in this thing, getting billions and billions of dollars. And as your report indicated, this is just the tip of the iceberg. Your study says that just in looking at one small area, all these incredibly wealthy firms continue to get handouts, and huge handouts. You question whether Rolls Royce needs a handout. Does General Motors need a handout? Do all kinds of folks need handouts? I guess that's the question you're proposing.

Your study ended in what year?

Mr. Walter Robinson: In 1997.

Mr. Nelson Riis: In 1997. We're talking about the past, to be fair; this is what's been going on with various governments over a number of years.

As someone who probably understands the system here better than most, to what extent is this handout process continuing, this giving loans to firms knowing full well that they'll never repay it all, or perhaps even any of it? Is this continuing? Because if it is....

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We're going to have a vote next week on whether we can afford to support people with hepatitis C. The government says we don't have the money to do this. You're really saying we might not have money to help people who are victims of hepatitis C, but we seem to have unlimited funds, hundreds of millions, in fact billions, for people who apparently, in your judgment, don't need any help at all. Can you help us understand particularly if these trend lines are still continuing, or have we essentially turned this tap off somewhat?

Mr. Walter Robinson: To answer your question very briefly, our study found $11 billion of Industry Canada-authorized assistance, grants, loans, contributions, repayable loans, conditional repayable loans, loan guarantees—the gamut of government financial assistance—to business, and other levels of government, to be fair, over the last 16 years. Of $11 billion, 75 of this country's wealthiest companies received almost 50% of that authorized assistance; five companies received 18% of that assistance. To us, let me be very clear, it's offensive.

In terms of the priorities, it is a question of priorities. This committee very rightly identified, and I quote from page 58 of Keeping the Balance: “The Committee estimates that as of 1995, partial indexation added over 840,000 low-income families”—not individuals, families—“to the income tax rolls” of this country.

This committee made a very bold and courageous statement. It said, “Mr. Finance Minister, please end bracket creep. It is killing low-income Canadian families.” Yet the finance minister ignored the pleas of this committee. For every percentage point of inflation, that's an extra $700 million into the pockets of the federal and provincial governments. That was a very poignant observation this committee made.

So on the question of priorities, do we help low-income Canadian families? I don't have a mandate to speak to hepatitis C victims; I can only, as an individual, urge members of Parliament to vote their conscience. Are we going to hand out money to large corporations or are we going to direct our priorities into things this budget also identified, such as education? That's the challenge, Mr. Riis, and we think it can be better directed to individuals in that regard.

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

I just want to take this opportunity to say we have a delegation visiting us from the public accounts committee of the North West Province Legislature of South Africa, here at the Parliament of Canada.

We certainly would like to welcome you. Today the finance committee is studying Bill C-36, the budget implementation bill. We've had a number of witnesses. You are witnessing now the proceedings, and the representative here is from the Canadian Taxpayers' Federation. Welcome.

Mr. Brison.

Mr. Scott Brison: The first question I want to ask is whether Stephen Harper is a pretty good boss. No, no, I'm sorry.

Some hon. members: Oh, oh!

Mr. Scott Brison: On a more serious note, the millennium scholarship fund and the Auditor General's lack of involvement in the procurement of the dispensing of the funds, this trend of third-party or arm's-length foundations is indeed disturbing, and your organization has been extremely vigilant and adamant about this.

Do you have difficulties with the auditor for the millennium foundation being appointed by the board of the millennium foundation when $2.5 billion worth of Canadian taxpayers' money is involved? That's my first question.

Secondly, the mandate of the foundation is fairly nebulous: need and merit. It could vary significantly based on the make-up, for instance, of the board over time, and it may or may not reflect the educational needs of the particular period, depending on the make-up of the board.

Thirdly—and we discussed this earlier today—is the brain drain issue. I know your organization has been involved in observing the effects of high taxation on Canada. Sherry Cooper, after the last budget, did refer to the millennium scholarship fund as actually being able to take the brain drain and make it into the brain train by increasing the numbers of highly educated young people we have in Canada to send to the U.S. So those are a couple of questions.

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Lastly, on national testing, I know this isn't directly a budget issue, but I wondered whether your organization had taken a look at that and had a position on primary and secondary testing in education.

Thank you.

The Chairman: Thank you, Mr. Brison.

Mr. Robinson.

Mr. Walter Robinson: Mr. Brison, to begin, I do not work for Stephen Harper. The NCC and the CTF are two separate organizations, although—

Ms. Paddy Torsney: That's a matter of opinion.

Some hon. members: Oh, oh!

Mr. Walter Robinson: Mr. Brison, just as an aside, I saw your name mentioned as a possible leadership contender, so maybe you'll be competing against him. Who knows?

The Chairman: Okay, now let's talk about Bill C-36.

Mr. Walter Robinson: With respect to the Auditor General, this move to quasi-judicial boards and agencies is part of the government's move to take a more businesslike approach to running the affairs of the nation, and nobody can fault the government for doing that. It's the same issue with the Canada Pension Plan board.

The conduit for taxpayers' money is still a tax, and the people taxpayers still look to are Mr. Szabo, Mr. Valeri, Mr. Solberg, you, and Mr. Bevilacqua, to say where did that money go? In that sense, you need the Auditor General, who is the taxpayers' watchdog, to audit the books. If these boards wish to look at other things and have another auditor audit their books, that's fine, but I believe the Auditor General should always have access, because it's still a tax that is going to pay for these quasi-judicial things.

And Ms. Torsney as well. I didn't forget you. I saved the best for last. When you name somebody, you end up hurting somebody by not saying it.

Ms. Paddy Torsney: I thought maybe you were only looking at the men.

Mr. Walter Robinson: My wife will have my head this evening.

With respect to the mandate of the board, again, we're not against the principle of direct funding for those scholarships. It's almost like vouchers. It's almost saying, “Here's the money; you choose where you want to go to school”. In that sense, that's a very progressive thing the government has done. But the mandate, I agree, is a bit nebulous, and this thing is still in its formative stages. So I can't comment until I see the entire package.

With respect to the brain drain, or the brain train—I've never heard that one—all the way to New York City or Charlotte or wherever, if I can divide that into two sections, the brain drain in the public service is partly a creation of the early departure incentive and early retirement incentive programs that the government downsizing went on. You had some very key and effective senior public servants who took the buyouts knowing full well that they were in charge of program renewal and some of the landmark things in the 1995 budget and restructuring the public service, knowing they would come back the next week or the next month on very nice and generous per diems, because they were the ones who had the program delivery and the restructuring up here and not on paper.

So we've lured the best and the brightest out of the public service, yet they're back consulting to the public service. So in that sense there is an issue where we all share some collective responsibility in not designing that properly.

As for students, $80,000-a-year Carleton computer science graduates taking off for Charlotte as opposed to Kanata because of the tax regime, there is an issue of brain drain, but I don't think that's an issue I'm necessarily charged with dealing with today. I've spoken to this committee in the past on tax levels and where I think those should go.

On national testing, the federation does not have a point of view. I ran for school board in fits of foolishness, I now believe, as a very young man. Thank goodness I didn't win, given the restructuring that's happening now in school boards. I am personally in favour of national testing. People will say you're going to test to certain standards. Well, if we identify what those standards are, whether you're in Surrey or Kings—Hants or Medicine Hat or Mississauga South or Kamloops or Burlington, you're going to want to have people taught to certain standards so we all have an equal playing field in terms of numeracy skills, literacy skills, and those sorts of things.

So national testing, when done properly, I have no problems with, and I don't believe it's an incursion into provincial jurisdiction, because Human Resources, in concert with the Council of Ministers of Education, already administer some of those tests across the country.

The Chairman: Thank you, Mr. Brison.

Mr. Szabo.

Mr. Paul Szabo: I wish I had an hour, but I'll keep it to five minutes.

“Credibility of the finance minister” was the phrase you used. I gather from many of your comments that the issues of credibility, fiscal responsibility, etc., are extremely important. You also let us know that you have a youngster at home. You said if you were to put something on your tax return with regard to an RESP, which you have no intention of making this year but rather in the year 2000, that you would be audited just like that for having done it. I would like you to explain to the committee exactly where in the Income Tax Act, either currently or proposed, there is a deduction for making a contribution to an RESP.

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Mr. Walter Robinson: First of all, with respect to the credibility issue, my remarks clearly state that it seriously undermines the credibility of the office of the Minister of Finance. I want to make that very clear: it is the office and not the individual. I try to stay away from any sort of personal aspersions. I put that in writing to the finance minister, so I stand behind that comment.

With respect to the RESP deduction, I believe that was proposed in this budget—allowing Canadians to make deductions. There were some positive things in the budget. For example, withdrawing from an RRSP to fund your education is an initiative that this government should definitely be congratulated for. I think it's a very wise step.

If I can find my budget notes, there was a provision where you could make RESP contributions as a part of the 1998 budget as proposed.

Mr. Paul Szabo: RESPs have been around for many, many years and there is no deduction currently and there is no proposed deduction. I want to make that clear to you. Unlike an RRSP, you do not get some sort of a refund because you made that—

Mr. Monte Solberg: That's beside the point. What about an RRSP?

Mr. Paul Szabo: Let me deal with the witness, okay?

The point is that there appears to be a problem with what you've said here. You've said something—if you want to check it out, that's fine—and provided incorrect information, whether it's because you're not informed on this.... I raise it because there are other examples with regard to your testimony before the committee today that would suggest a pattern. I raise it in the context of credibility of testimony, because your testimony does include some flaws.

For instance, your assertion that booking an accrual for the millennium scholarship fund takes away from the government's ability to either give tax breaks or to reduce debt is wrong. In fact, booking or accruing an item has no impact whatsoever on cash. It has no impact on your ability to fund another expenditure or to increase or reduce it. Whether or not you book an accrual for the millennium scholarship fund does not affect the dollars available, the cash position of the government. In fact, the dollars you're talking about have been used to pay down or to reduce the amount of borrowing requirements. So your point that we did this and therefore we can't do that is wrong, and it leads to your credibility because it's wrong.

In this report on corporate welfare you also stated, and if the article in the Ottawa Citizen is correct and if your statements to Don Newman on Newsworld were correct.... You said that less than 10%—I think it was about 6%—of these loans have been repaid, yet of the $3.2 billion in loans you were talking about—$1.2 billion to TPC, $2 billion on DIPP—none of the $1.2 billion is currently repayable yet. It should not have been included in there, but it helped your numbers. On top of that, Industry Canada, which provided you with the numbers for much of your survey, confirmed that not only were your numbers incorrect, but 70% of the loans were going to be repaid. This was their statement.

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You and Mr. Riis have described these things as handouts, giveaways, yet you know—I have to assume you are informed—these are 100% repayable. They're not just giveaways without strings attached. In fact, $1 of TPC contribution generates $4.25 of private investment. That's $1.6 billion in the first year of the TPC, or $30 billion in sales and about 10,000 jobs.

Mr. Chairman, I think this is extremely important.

If the committee is going to believe anything you say, how can you come here and give part of the information?

Mr. Chairman, with regard to the accounting thing, it has nothing to do with cash, although we've been led to believe it does.

The second point was with regard to jurisdiction. I am sure this gentleman would understand the federal government does have a role to play in post-secondary education and health. He's come here and said secondary education is a provincial jurisdiction and therefore we shouldn't be doing this millennium scholarship fund. Would he also say that health care is the jurisdiction of the provinces? Will he also be critical of the government for proposing Pharmacare, home care, or any other things to do with bringing benefits to the health and well-being of Canadians?

Mr. Chairman, I think the issues I have raised clearly go to the issue of credibility. I did not hear the Canadian Taxpayers' Federation come forward when the government made provisions in its accounts for the downsizing of the civil service, which was done when the budget came down. I did not hear the Canadian Taxpayers' Federation come down on the accounting for the Foundation for Innovation—$800 million—when it was announced in a budget. But now they're coming forward and all of a sudden this is a travesty.

I think you have to understand that if as a member of Parliament I am going to try to make some decisions, I look to the witnesses to bring us the facts, true, full and plain disclosure, rather than rhetoric and innuendo without substantiated basis.

The Chairman: Mr. Robinson.

Mr. Walter Robinson: Thank you.

Mr. Szabo, you raise five very important points.

With respect to the RESP, I stand corrected on that. I will restate my example. Whether it be an RRSP or buying equipment for your business—putting it as an expenditure on your taxes this year, but not buying computers until the year 2000—the issue I bring forward is still the same.

On the second, I will check on the cash position issue.

Third, with respect to credibility and dealing with Industry Canada—I saw your appearance on Newsworld, I believe it was. You appeared afterward and had Mr. Deacon's TPC lines down extremely well.

Let us deal with that issue very quickly, and let me correct a factual inaccuracy in your statement. TPC loans are not 100% repayable. According to Industry Canada, they are conditionally repayable contributions. You may get more than 100% or much less than 100%, because those contributions are based on a function of how many sales you have, your revenue levels and royalties from a certain number of products sold above a certain threshold.

Let me also correct a factual inaccuracy that the private sector money is put in first and the government money second. Our point is that if these are near-market R and D opportunities and the private sector money has already been found, the project has proven itself viable in the eyes of venture capitalists, so why should the government be in the venture capital R and D game?

With respect to the returns on this money, the inconsistencies come from the Department of Industry. Their first TPC annual report states that they will receive $1.12 back for every dollar of government money that goes in. Yet in response to our study, Bruce Deacon, the executive director of TPC, states they are going to get $1.73 back for every dollar they put in. If the returns are going up that exponentially, I can't believe Warren Buffett and Wall Street haven't come down here to get more money into this program, because it looks like a sure thing.

Then again, the annual report says they're going to make this thing 50% self-financing. We have three different numbers out here from the Industry Canada spin doctors.

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Let me deal again with the DIPP program of $2 billion. Industry Canada's number of expenditure is $2.2 billion—authorized $2 billion expenditures. To date $81 million has come in over the past 17 years on a program that was up and running for a quarter of a century. Yet the aerospace industry representative—Mr. Smith at AIAC—says all the money is going to be paid back by the year 2005. But Mr. Deacon and Mr. Manley say it's going to be back by the year 2025.

There is the inconsistency. There is the credibility gap on the Industry Canada numbers.

And if I may go further, we included the TPC and we did not say that none of the TPC money has come back yet. What we said was that many of the same companies—I have listed them here and I will table it for the committee's consideration—who receive money under DIPP continue to receive money under TPC. Knowing the 6.35% repayment schedule over the last 17 years on DIPP money, we know that money has not come back.

The Auditor General himself has stated that these loans were given out under, and I quote from the Auditor General's report in 1995—bear with me for one second, Mr. Chairman, because I believe it is an issue of credibility and Mr. Szabo raised some important issues. It says:

...in reviewing the Department's assessment of strategic considerations and economic benefits, we found that information contained in business applications is often based on optimistic forecasts of potential sales and economic benefits. Usually it is not possible for departmental officials to verify this information. They rely on their own knowledge and experience and other economic and business data from similar projects and businesses.

That report was dated 1995, and the Auditor General has since come out with his summary report in 1997, where he stated it looks like the industry department has gotten its act together. It basically says a lot of this didn't happen on the watch of this government; it happened before. Yet the flagship program that the minister is so proud of, TPC, is based on the same flimsy conditionally repayable criteria that has got us into trouble for 18 years in DIPP.

Those are the facts, and ignoring them does not make them disappear.

To add one other point, we have requested a summary under the access to information law. The industry department, under Minister Manley's watch, commissioned Consulting and Audit Canada to look at how this money was being repaid. Could you give us a sense of how much would actually come back on the forecast loan repayments over the next 15 to 20 years, out to year 2025, to take the minister's word for it?

That document will be severed. Canadian taxpayers will not have a right to see what companies are in there. We know, through inside sources—and we will be releasing that in May—of the severed document. It talks about uncooperative companies not paying back and hiding figures, and we will put that forward to the Canadian public.

Those are the facts on corporate welfare. I agree with you that with respect to bringing those points forward, those are the facts. No one has challenged the government on what we found in Industry Canada through access to information.

The final point to note is that we have challenged the minister. I've offered to meet with him but he's been very dismissive to date. We have challenged the minister to bring forward and table those repayment schedules, whether in Parliament or any other forum, so that we can see, whether it be Pratt & Whitney, Bombardier, Air Ontario or Canadair.... These are some very successful companies that we all have a great deal of pride in.

Let us see what they're forecasting to repay and what their record has been in terms of what they've forecasted and what came back. We are assured and we know. Mr. Szabo, I believe the facts will bear out that the repayment schedules have been horrendous. Those are the facts with respect to Industry Canada and corporate welfare.

I have spent six months combing up and down those numbers. I've combed up and down contracts and filed access to information request after access to information request.

We are quite disheartened with the fact that the minister and people within Industry Canada have thrown out figures, almost out of thin air—it's Tuesday, so the return must be $1.82 today. That's what's really frustrating for us, and I hope it would frustrate you and all members of this committee as well.

The Chairman: Thank you, Mr. Robinson.

Mr. Valeri, final question.

Mr. Tony Valeri: Thank you, Mr. Chairman.

Mr. Robinson, I have a couple of comments.

On the Auditor General, as Mr. Riis has mentioned.... I look forward to Tuesday, and we'll look at that issue more in-depth, so I won't get into it today.

On the other issue, and I believe you mentioned this in your testimony, so I want to make sure it's clarified—the Government of Canada has always had a role in providing Canadians with equal access to education. I thought you had stated in your testimony—correct me if I'm wrong—that the millennium fund was an infringement of the jurisdiction of the provincial governments.

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We all readily accept, and certainly the federal government has stated quite clearly, that the education curriculum and all of that goes with education is a provincial jurisdiction, but the funding of education has always been a position of both the federal government and the provincial government; thereby the millennium fund falls into that particular category.

The other statement you made was with respect to opting out of a federal program. In essence, the millennium fund is not a federal program; it's an arm's-length independent foundation. As a result, there is not the opting-out provision because it is not a federal program.

I just wanted to make sure we were in sync in terms of our understanding of those two issues.

Mr. Walter Robinson: To answer with respect to the constitutional question, I raised as an argument that there were others who were more adept at arguing it than I would be. I'm glad you raised the question, because I did not answer one of Mr. Szabo's points with respect to funding and I'm glad I have a chance to come back to that.

We readily agree to the Canada health and social transfer, which replaced the established programs financing. This block funding concept was another positive initiative of the government in terms of saying, “You want more autonomy, here's your block funding, distribute it as you see fit, given your areas of delivery of health care services as a provincial realm and delivery of education as a provincial realm”, and so the funding will continue. We all acknowledge the federal government plays a role, raises the taxes, which again, in turn, become transfer payments.

Mr. Tony Valeri: As it does through the Canada student loans program, which is essentially—

Mr. Walter Robinson: The Canada student loans program is an established program. There is already an agreement between the Government of Quebec that they have their own loans program. That's what the Government of Quebec is arguing with respect to the millennium fund. We have a specific infrastructure; we built a specific culture in here. Is there a way to work it out? This was the purpose of Mr. Bouchard's visit, I am led to believe, with the Prime Minister less than a month ago.

Mr. Tony Valeri: Let's understand that the Canada student loans program is a federal program and therefore there is the opting-out provision. This is an independent foundation.

Mr. Walter Robinson: It's an independent foundation, but respecting those agreements and those arrangements that have been in place between the provinces and the federal government.

I cannot argue for the Government of Quebec. It is just my reading and my research into the story that this is what they are looking to do. I'm saying the devil is in the details. You may see other provinces as we see in the federation...other provinces are always wishing to assert their autonomy and perhaps the odd time take a little smack at Ottawa when they think...and the other time Ottawa says, “Wait a minute, we have a federal role to play”.

Mr. Tony Valeri: I'm sure you're also aware that the federal government is saying there will be every attempt to avoid any sort of duplication, and the fact that there are negotiations going on right now—

Mr. Walter Robinson: Which is why I didn't directly answer the Bloc representative's question with respect to whether it's going to be set in stone. You can set it in stone, but there are always amendments to acts and statutes and laws that you will work through in terms of implementation. No program is perfect, and as parliamentarians you will work through to make it the best, based on what your constituents want you to do.

Mr. Tony Valeri: Okay, thank you.

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

Mr. Robinson, thank you very much for a very thoughtful and informative presentation. It certainly generated debate, which is always a healthy component of a democratic process.

Mr. Walter Robinson: Mr. Chairman, I always enjoy a spirited debate with Mr. Szabo. I have the utmost respect for the petitions he brings forward and for his representation on behalf of the residents of Mississauga South.

Thank you very much.

The Chairman: We're going to suspend for one minute.

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The Chairman: I'd like to call the meeting to order. I'd like to welcome representatives from the Child Poverty Action Group, Ms. Christa Freiler; from Tristat Resources, Mr. Richard Shillington; and from the Caledon Institute, Mr. Ken Battle.

You've all attended parliamentary committee hearings before so I really don't need to tell you how it all happens. You have approximately 5 to 10 minutes for a presentation and then we'll proceed into a question and answer session.

We'll start with Ms. Freiler.

Ms. Christa Freiler (Program Director, Child Poverty Action Group): Thank you very much.

I have brought with me speaking notes. Unfortunately, they're in English only and I would like to apologize for that. I didn't get it done in time to have it translated.

I'm also having the clerk distribute a copy of a report that Status of Women Canada released last week, and I have brought copies in both English and French. The comments I am about to make today are drawn from that so you will have it in French.

The absence of strong family policies in Canada, we argue, remains a major barrier to the reduction and prevention of child poverty as well as to the social and economic equality of women. We've decided therefore to focus attention on the national child benefit from two perspectives that do overlap but have some differences. One is from the perspective of how well a national child benefit lays the foundation of a national child poverty strategy. Secondly, how well does it act as the basis on which to build strong family policies that promote women's equality?

I want to begin by saying that we saw the national child benefit announced in the 1997 budget as the first promising sign in a long time, for two reasons I want to highlight.

First, it signalled the federal government's re-entry onto the social policy stage.

Secondly, if expanded and improved, a child benefit becomes an important component in a child poverty strategy.

To begin, let's look at the national child benefit as the foundation of a national child poverty strategy. Even though an income-tested benefit, which goes to all parents, irrespective of what their source of income is, is a great improvement over what we have now with the means-tested social assistance, the approach does have some weaknesses when assessed as the foundation of a broader child poverty strategy. I will go through these quickly.

The first and most obvious one is serious under-investment. The $850 million in 1997, the $850 million in 1998, for a total of $1.7 billion, falls far short of even meeting the limited goals the child benefit set for itself, that is, extending the benefit to working poor families. It falls, of course, even shorter of meeting the goals of a serious child poverty strategy and the family support measure.

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Secondly, the goals are too narrow and too modest. Reducing child poverty is being confused with reducing welfare case loads. As important as reducing welfare case loads is, it is not the same thing as reducing child poverty. Specifically, the benefit does not go to families on social assistance nor does it go to modest income families, and that includes families with a combined income of $30,000 who are struggling to survive. They're above the line and so they're not going to be benefiting. That's part of the problem of having very narrow goals.

Thirdly, the goal of reducing the depth of poverty, that is, bringing people closer up to the poverty line is not a very ambitious goal since even a minimal improvement would bring people closer to the line. We are proposing, as have a number of other groups, that a reduction in the rate, that is, the proportion of poor kids as a proportion of all kids in the population, is a more worthy goal for a government that is calling this approach a child poverty strategy.

Fourthly, the child benefit supplement approach that is being promoted is based on some false assumptions about the labour market. I don't want to belabour these, but one of them is the assumption that the low-wage labour market has the capacity to address child poverty. That is an assumption in the strategy that is not only unsubstantiated but probably also contradicted by the evidence.

The work disincentive effect that supposedly exists, or the welfare wall as it's being called, acts as a behavioural disincentive to people. There are economists' theoretical approaches to this that can demonstrate there are benefits to being on social assistance. Whether or not these numerical benefits necessarily translate into behaviour is highly questionable, and again, it is not supported by the research evidence.

The fifth concern is that there have been no long-term commitments to address child poverty by the government—no road map, no specific plan with timetables and targets.

Finally, there has been—and I say “no” here, and that's probably an overstatement in this case—insufficient federal government leadership to ensure adequate and consistent living standards for women and children. We're arguing that the developmental needs of children, and for that matter of their parents, and the economic needs of parents don't vary that much from province to province. A strategy that devolves much of the responsibility for what kind of program will be available to the provinces doesn't reflect the fact that there are a common set of conditions that have to be met. Given the fiscal capacities and the different political cultures of the provinces, a patchwork of provincial programs is now emerging with little recognition of the common needs of families and children.

I know some of you will not agree with this, but we feel very strongly that without a federal leadership role, the province of residence may in the future become a better predictor of the living standards of children and their parents than the country of citizenship.

The second set of considerations is how well this national child benefit promotes or lays the basis of family policies that promote the social and economic equality of women. Some of this will repeat some of the themes, but we're getting more specific and we're tying it to women.

The scale of the benefit, as we have seen so far, is inadequate to address the economic vulnerability of women. Lone mothers in particular are one of the most, if not the most, economically vulnerable groups in our society and yet lone mothers are underrepresented among the ranks of those who are going to benefit.

In fact, some estimates have been that only about 10% of lone mothers in poverty are going to benefit from this national child benefit, the reason being a very simple one: they tend to be overrepresented among social assistance populations and underrepresented among the working poor. So any benefits targeted to the working poor that do not extend and improve benefits to social assistance recipients, one could argue, discriminate against lone mothers.

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Picking up on the point I made earlier, the reliance on welfare-to-work strategies may in fact be misplaced in the absence of a serious assessment of the capacity of the labour market to address the poverty and economic vulnerability of women.

Here are some statistics that aren't new but that people are surprised about when they see them all together. In Canada, nearly 17% of women working full time earn less than $15,000 a year. More than 35% of lone mothers work at jobs paying them less than $10 an hour. This is the situation that women are going to be moving into.

Canada has the second-highest incidence, after that of the U.S., of low-paid full-time employment for both men and women, although it's more dramatic for women. And not coincidentally, Canada has the second-highest rate, after that of the U.S., of child poverty in the industrial world.

The national child benefit supplement approach also does not recognize the value and legitimacy of caring for young children. Provinces are now allowed to deduct dollar for dollar the amount of the federal enhancements, including those going to lone mothers. This is even though, in many cases, those lone mothers may not even be defined as employable and therefore not required to be looking for work under provincial social assistance rules.

So we're saying that this approach appears to support what we're seeing as an increasing denigration of lone mothers on social assistance as dependent. It certainly does not recognize the value of the work they are performing as mothers.

Finally, child care is not being recognized as a critical support. Again, this is a very important labour market support if you're expecting people to move off social assistance and into the labour market.

Our conclusions are that addressing child poverty requires the focus both on reducing the rate of poverty for those currently in poverty and bringing them closer up to the line, but also a focus on modest-income families. Those are the people who are anywhere between $25,000 and $45,000, who are most likely to end up in poverty in the case of economic disruption. Those are the people who ended up on social assistance or in poverty with the last recession.

We're arguing that it's bad public policy to pit modest-income families struggling to survive against working poor families, or for that matter to pit working poor families against social assistance families. This kind of targeted approach is not only divisive, it's not particularly successful as a child poverty strategy. We know this because that's the approach the United States uses, and their poverty rates are even higher than ours.

The first round of investments—this is the $850 million in 1997 and the $850 million in 1998—should be seen as a first step. We are recommending that serious commitment or consideration be given to a second round of investments.

Finally, we argue that public policies currently condemn women to poverty as either mothers or workers, and the child poverty approach that we're seeing does not address that situation.

So our recommendations are to enhance the basic national child benefit so that families on social assistance, economically vulnerable women, and other modest-income families see a significant improvement in their benefits by no later than the year 2000. So that would probably mean a commitment in the next budget.

The expansion of the basic benefit should occur at the same time as the expansion of the supplementary benefit, and not, as some organizations and individuals have argued, after the supplement reaches maturity. We are risking serious divisions in this country if we continue to put money only toward benefits that one portion of the poor benefit from, while the other portion does not even benefit from it and modest-income families don't see a penny of it. I think there's a real problem with that kind of approach. So we need to be addressing both of those purposes simultaneously.

Second, in order to recognize the value and legitimacy of caring for young children and the special hardships of women raising children alone, we recommend that lone parents with preschool children on social assistance should immediately benefit fully from the federal enhancements. What this means is that provincial governments should not be allowed to deduct, dollar for dollar, the enhanced benefits going to lone mothers with young children.

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In some provinces, such as Alberta, the requirement is that women whose youngest child is six years old be in the labour market. In other provinces, such as B.C., it's seven. So they're all over the map. There would obviously have to be a set of national principles that determine that we consider the role of caring for young children to be important, that we will not punish lone mothers, and that we would not necessarily expect them to be in the labour market for a few years.

The other point of course being that the research shows that by far most lone mothers are in the labour market by the time the youngest kid is six anyway, with or without incentives.

Finally, commit the final instalment toward the supplementary benefit. We're kind of stuck at $1.7 billion for the foreseeable future. Even to meet the modest goal of extending the benefit to working poor families would require, according to the provincial governments, about $2.5 billion in investments from the federal government.

The other three recommendations do not relate directly to the national child benefit but are part of a comprehensive child poverty strategy. Two of them are pretty obvious. One is to develop an action plan, meaning an action plan where there will actually be action, on child care. The second is to establish strategies and targets for increasing the supply of good jobs in communities across Canada.

The final one I won't spend a lot of time on, because it's complex: explore the introduction of a type of family leave or family care supplement to complement the national child benefit. It would act as an alternative to social assistance for women primarily, but also for other parents with young children, and it would act as an expanded parental leave.

Thank you very much. I think I've said there are copies of the full report in both English and French. If you want further copies, you can just get them from Status of Women Canada. Thanks.

The Chairman: Thank you very much for that.

The next presentation will be made by Mr. Shillington.

Welcome.

Mr. Richard Shillington (Tristat Resources): Thank you for inviting me to make this presentation. My thanks to the clerk for assisting with translation of the submission. That was very helpful to me. I'm not representing any organization, I don't have staff, and no one is paying me to be here.

I'm not going to read my submission, but I'll just take a few minutes to touch on the highlights. I'm not going to talk about a lot of the details of the child benefit in terms of which families are benefiting and which ones are left behind. I'm happy to talk about that later, but for this stage of the submission, I'm simply going to talk about indexation and why indexation is important.

At the end of my submission are my name, my address, and also a web site address. If anyone is interested in visiting the web site, you can read ad nauseam my comments about child benefits there.

Indexation is absolutely fundamental to reversing a trend, a trend that is declining levels of support through the child benefit for low-income children.

The changes in the child benefit that were announced in the two most recent budgets are the last in a long range of changes, starting with the 1985 budget, then 1989, 1992, and 1996. Each of those budgets had a common theme. I'll read some of them to you.

In 1985: “Changes in these programs which may result from this review should improve benefits for those most in need.”

In 1985: “The changes will ensure greater assistance to families with lower incomes....”

In 1989: “The federal Government promises less child benefit money in coming years for wealthy families and more for the needy.”

In 1992: “Lower-income families with one child will receive a monthly payment of up to $144, significantly more than the monthly payment of $35 they now receive”, an apparent quadrupling of support for poor families.

In 1997: “Some 1.4 million families with 2.5 million children would receive higher federal benefits.” You all understand the importance of the word “federal” in the accuracy of that statement.

In 1998: The budget and the child benefit will “...provide better support for low-income families with children.... Over time, this initiative will build a more secure base of benefits and services for Canada's neediest children.” A benefit that is not indexed to inflation will over time provide a more secure base for benefits, we are told.

So over the last 15 years we've had a range of changes to the child benefit, each of which, we are told, will benefit low-income families with children.

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There have been no cuts announced to the benefits for low-income families with children. Not one budget announced that they are going to cut support for low-income families with children, yet low-income support is less now than it was in 1984-85 for most poor families, and for certainly the vast majority of families with children.

There was no debate about these things. How did this happen? Let's take stock. We're now spending less on child benefits than we did in 1984 or 1985. The majority of children is receiving less support.

If you look at the chart on page 4 of my submission it tells an interesting story. It tracks the level of support for a family with no earned income, the so-called welfare family. You can see that in 1984 and 1985 it was about $1,075. This chart has been adjusted for inflation.

In that budget of May 23, 1985, they announced increases in support for poor families, and that's what you'll see between 1985 and 1988. They also announced in that very major budget of May 1985 that there would no longer be indexation protection for family allowance, or for child benefits, or for the tax system, or for old age security. They rethought old age security and reinstated full indexation.

So you can see the long-run effect; the benefits were increased as the budget was put in place, and then after 1988 the lack of inflation protection took effect. By 1992 you're back to the level of support that existed in 1984; and after 1992 and up to 1997 you'll see the continual erosion of support for the poorest of families.

The proclamations with each budget...and, of course, each budget gets a lot of press coverage, press releases, discussion. Each budget talks about increased support for poor families, as this budget has attracted that type of discussion. The steady erosion due to inflation receives virtually no press coverage, no studies. The 10 people in the country who know what's going on struggle to try to get people who understand, but, effectively, to no avail.

The decline since 1988 is about $200 per child and this continues. As long as inflation is running at 1% to 2%, that decline will be worth about $10 to $20 per year. The current budget leaves this trend in place. The government clearly wants this trend to continue. How can there be such discordance between the public announcements and the reality? Inflation is the tool to allow cuts without announcements. It's not the only tool that's available to governments that want to appear to be increasing support for poor families when in fact it's not happening, but it's certainly one of the most effective ones.

Because of a private member's bill, the government has been explaining to us their opposition to full indexation for the child benefit. We are told you can't index a child benefit because that would open up the Income Tax Act. Well, the bill before you opens up the Income Tax Act, so I don't think that's a sincere explanation of why you can't fully index the child benefit.

We are told you can't index the child benefit without indexing the whole tax system and you can't afford to index the whole tax system. Yet the seniors' benefit was fully indexed without fully indexing the tax system. My submission includes the explanation from the government on why it was so important to fully index the seniors' benefit. I don't think anybody here is going to object to that, but I'm at a loss to understand why the same arguments don't apply to the child benefit.

Also, indexing the full tax system is a totally different issue from indexing the child benefit. You can't index the child benefit without indexing the full tax system. One of the important reasons for doing that is that the lack of indexation in the tax system doesn't affect poor kids. It doesn't affect welfare kids. They don't pay taxes.

The lack of indexation of the child benefit affects welfare kids, the $200 per year that I've estimated. So if you want a good reason, there's a good reason for fully indexing the child benefit, even if you're not willing to fully index the whole tax system.

Why doesn't the government want to fully index the child benefit? I honestly don't know, except you can see some political reasons why it's useful to leave the child benefit not indexed to inflation.

I believe that inflation protection is vital because it's key to stopping a campaign of misinformation that has accompanied the changes to the child benefit over the last 15 years. This campaign has reduced income support for the vast majority of children, while boasting the support is actually increasing.

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For those looking for hopeful signs, we have the fact that the private member's bill to review the indexation of the child benefit was supported by a majority of the House of Commons. Unfortunately, it was opposed by the government in the cabinet.

I recognize that the lack of indexation protection is a very useful tool politically. I don't think it's an accident that the budgets that have increased child benefits modestly in an ad hoc fashion have been pre-election budgets. Without indexation you can increase child benefits just before elections, you can appear to be supporting the poor, and you can count on inflation over the next three or four years to pay for it.

Indeed, on the $850 million that we will hear discussed several times in the next few days, I contend that the first $850 million announced in 1997 and the second announced now is mostly an illusion, without full indexation, because the government has said that the cost of full indexation is about $160 million to $170 million a year. Over five years that's $800 million. Most of the increasing support that's going to go to the working poor families through the child benefit is coming from other families with children—families on social assistance and vulnerable families—because they are losing through indexation, which nobody knows about, in order to free up the money that's going to go to the working poor families.

It's for those reasons that indexation is vital to securing support on a long-term basis and to securing support for the most vulnerable of children. I call on you to recommend that full indexation.

Thank you.

The Chairman: Thank you for your remarks, Mr. Shillington.

Mr. Battle.

Mr. Ken Battle (Caledon Institute): Thank you. I appreciate the opportunity to appear before the committee again.

What I want to talk about today is quite different from my colleagues. Before I get into that, I should say that the national child benefit is really an issue that has divided analysts, to say the least, on their views of it. We share some very important opinions about the role of child benefits and the importance of child benefit reform. We certainly don't agree on how we're going to get there. I don't want to get into that debate right now, except I just want to endorse a couple of things that Christa and Richard said.

Taking Richard first, on the issue of indexation, when Richard talks about the 10 people who talk about it, I think Richard and I are the two people outside of government who've talked about this more and done more analysis on it than probably anybody else. I have no idea how many times I've talked about this over the years.

We're working on a new report on the impact of partial de-indexation on the GST credit, on the personal income tax system, and on child benefits. If you want to be ghoulish about it, it's an issue that has given us stuff to work on for many years because it's there.

I echo Richard's point about the politics of it. It's what I'd call social policy by stealth. It's a mechanism that is still in place and it's causing a very serious distortion and erosion of the tax transfer system. And Christa certainly would agree.

It's very important to say this over and over again so that one has a fair and realistic view of what one can accomplish with child benefits, no matter what design. None of us has ever tried to sell child benefit reform as the Holy Grail of child poverty. There's no way that a problem as deep, as complicated, as persistent, as long standing as poverty among families with children and poverty in general could be solved by one income security program. It's just not possible.

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So the child benefit is a very important step forward, and, as Christa said, it's the first bright light after years of retrenchment in social policy. It certainly shouldn't be sold as some kind of a magic bullet, and I think that's worth saying.

There's an important commonality amongst our groups in our long-term vision of the child benefit. We all believe it should be expanded far beyond the level required to replace social assistance for children, which is roughly $2,500 per kid.

The Caledon Institute, for want of a better number, has put up as a target $4,000 per kid as a maximum benefit, which would go not the whole way, but a fair chunk of the way towards meeting the child-rearing costs of low-income families with kids. That's a longer-term objective, although we have said that's an objective that should be reached in the first decade of the next century. That would be a very important step forward.

So it's not just that we're talking about child benefits. A greatly enhanced child benefit, which would improve benefits for families on welfare as well as for other low-income families, is a very important part of the necessary restructuring of the social security system in Canada. It's a very important step forward in dismantling the welfare system, of which I can admit of no solution but dismantling. We will never reform welfare as it stands now.

Just to go back a little bit to politics, the national child benefit is a very important step towards rebuilding the federation. It's a very important form for the revival of cooperative federalism.

Let me now switch gears quite a bit here to get into some more technical issues.

First, I must apologize to the committee. I've been working on this presentation this morning and last night and I've had to throw stuff together fairly rapidly, so it's not as elegant as I usually like in terms of presentation, but I think I can make the point.

What I want to focus on fairly quickly is what we can do with the second $850 million that was thankfully announced in this year's federal budget.

Both Christa and Richard have alluded to the kind of conflicting objectives that are going on here, all of which were tempered by the long winter of fiscal restraint that we're hopefully coming out of now. There have been difficult trade-offs over the years.

There's no question there's been a substantial erosion of child benefits for non-poor families, especially if you go back to the beginning of the changes that I've looked at from 1984 and then compared them to 1998. Michael Mendelson and I put out a fairly lengthy report on setting an evaluative framework for the new child benefit. It goes into this in great detail, so I'm not going to repeat it here.

There has been an erosion. There have been modest improvements in child benefits over the long period for lower-income families, but certainly at the expense of an erosion of benefits for modest middle- and upper-income families. That remains a problem we would want to rectify in the course of rebuilding the system.

The problem is, of course, how quickly we can restore benefits to non-poor families. That becomes the problem, if we only have another $850 million increment, which is what I'm focusing on now. The government has not announced a third instalment, and a third, a fourth, a fifth, and a sixth instalment were badly needed. I'm just focusing on that second one; there are some tensions in how we might proceed.

Let me just try to make it simpler before I get into the detail. If we continue on the theory of the national child benefit...I remind you it's that political agreement between the two levels of government, whereby as the federal government increases its Canada child tax benefit, provinces are allowed to deduct social assistance on behalf of kids, although they've agreed to reinvest that in other programs and services for low-income families with children, and that appears to be under way.

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The problem is where we are going with this reinvestment, and I want to make a fairly passionate case for the importance of continuing to improve benefits for lower-income families. It would be tempting to try to start to repair the damage that was done to benefits for non-poor families. The problem is that if we took the second $850 million and put it into modest middle-income families, then we can't increase benefits as much to lower-income families.

The difficulty with that trade-off is that if the federal government reneges on its commitment to raise the maximum Canada child tax benefit, provinces quite rightly would be able to turn around and say “You've broken your word yet again. We had a political agreement”—it's not a legislative agreement but it's the new federalism, I think—“that you would increase maximum child benefits and we in turn would shift from social assistance to other programs”.

If the federal government doesn't follow through on that commitment then it's breaking an implicit political contract with the other level of government, and I think that would be tragic given that this is one of the first cooperative ventures we've had in many years.

Let's go down another layer. How do we allocate that second $850 million? The simplest choice, of course, would be to just do what we did the last time—in other words, the first version of the Canada child tax benefit—and focus that increase on lower-income families and maintain a system where all the increases go to families below the $25,921 threshold. That would certainly be one way of keeping to the commitment to keep investing more federal money for lower-income families.

The problem with that, and I'll show it in a minute, is that we have to keep increasing the reduction rate, in other words the rate at which the benefit disappears between $20,921 and $25,921. We have to much more steeply target it. The more you increase the maximum, the more you have to sharply decrease it if you want it to not extend above $25,921.

Economists make a big deal of this—Christa referred to this—but I'm not a big fan of this fixation on marginal tax rates. But there's no question that if we were to put the second $850 million totally into lower-income families, we would have to make that slope substantially more steep than we have now. Families in that fairly narrow income range would be subject to higher total marginal tax rates. That's the contribution of the Canada child tax benefit to the existing taxes they pay in terms of Canada Pension Plan, employment insurance, federal income tax, provincial income tax, and other things that flow in and out, like tax reductions and other things that affect marginal tax rates.

I'm trying to make a case for a kind of compromise where one would still devote the majority of the increase—the second $850 million—to lower-income families, but we would extend some of the increases to around $29,000 or $30,000. I've just done some guesstimating here, so there aren't final figures by any means.

That would do two things. One, most of the increase in benefits would still be focused on lower-income families according to the national child benefit system agreement, but there would be a modest increase to some of the modest-income families. As Richard and Christa were reminding us, those families have not seen an increase in recent years. Indeed, with partial indexation they have seen a continuing decrease. So it would kind of meet both objectives. It would not meet the second one, the modest income, fully, but it would be a start and we would have less of a ski-jump-shaped design.

Let me try to show this. This is hard to talk about. If you look at figure 2 in the handout, I've made some graphs.

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I'm focusing here on families with two kids, and I've limited it to families of between $20,000 and $30,000 to try to make the picture a little—these are the families that we're mainly talking about. The very thin line along the bottom just below $3,000 is the amount of the federal child tax benefit under the old system—the system we'll be replacing this July. It was roughly $2,900 for this family—I won't get into all the benefit rates—and it declined to $2,592 and it carries on. That's the shape of the benefit.

I want to focus on the new Canada child tax benefit, which is shown in the thick black line. There's another line that goes onto it that I'll talk about in a minute. That's the new system, which as you can see will modestly increase benefits to families. Just below $26,000 there's no longer an increase. That's where it ends.

I show a couple of different options for what we can do with the second $850 million, the second phase of the Canada child tax benefit. The dotted line at the very top of the graph shows what it would look like if we put all of the increase on lower-income families. It would bring them from the current $3,300 roughly to about $4,100. A fairly substantial increase would be possible. It would be about $400 a kid—that's a rough guesstimate—and it would just build onto the first stage.

Another option would be to do the opposite, letting all families get an increase this time around and not focusing it on the poor. This would be a more modest increase to all child tax benefit families. That would be such a modest increase—it would be around $130 per kid—that it doesn't even show up from the current system. But it would be a slight increase and it would go for all families, even up to about $70,000, where there would be a modest increase.

Finally, there is the compromise that I'm suggesting, which would be an increase for lower-income families, but we would allow some increase for modest income families up to around $29,000 or $30,000. That's what that one would look like.

Figure 3, which will confuse you even more, shows marginal tax rates. By marginal tax rate we mean that for every dollar—

A voice: We know.

Mr. Ken Battle: Okay, so we won't go into that.

So for every $1,000 in earnings, how much are you paying back to the federal and provincial governments? In this case I'm modelling Ontario in terms of the provincial income tax system. The very thin line along the bottom shows the combined marginal tax rates when we had the old child tax benefit for these families. Again, the thick black line shows the marginal tax rates as they will be this July under the Canada child tax benefit. The dotted line along the top shows what we would have to do....

If we wanted to focus all of that second $850 million increase to lower-income families, we would have to substantially increase the reduction rate between $20,921 and $25,921, which for those families would push their marginal tax rates up to almost 70% in some cases. It would be a pretty steep increase for a narrow band of families, although there are a lot of families in that range.

If we were to adopt the sort of compromise that I was suggesting, which was easing it somewhat so that the reduction rate wouldn't be quite so steep and increasing benefits up to about $30,000, we would actually have to.... Let me explain this. They would keep the current marginal tax rates for the lower-income families. For families between $26,000 and around $29,000 or $30,000, we would have to increase marginal tax rates to some extent. That would be the price paid for them to get more child tax benefits.

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Overall, I think it would be a somewhat better picture. If you think of this as kind of a compromise position, it would be more palatable to the economists who worry about marginal tax rates, and although they might complain about the family between $26,000 and $30,000, that's the trade-off. We would modestly begin the process of reinvestment in child benefits for non-poor families, but it would be a beginning.

Mr. Paul Szabo: Does this chart say that if you make $25,000 of net family income, your marginal tax rate is somewhere around 50%?

Mr. Ken Battle: You've got it.

Mr. Paul Szabo: In Ontario?

Mr. Ken Battle: Yes.

Mr. Paul Szabo: This is so much bunk it isn't funny, Mr. Chairman. It is not true. Income of $25,000 has a federal rate of 17%, and in Ontario the rate is about 58%. Even if you take 60%—

Mr. Ken Battle: And you add CPP, EI, and the Ontario tax reduction and the new federal.... It's the total marginal tax rate. I'm putting in everything because there's an interaction between all of these benefits.

Mr. Paul Szabo: Carry on.

Mr. Ken Battle: I have fair confidence in these figures.

I'm sorry for all these bloody lines and the complexity. Let's go back to talking about this, because we can get caught up in the details.

Let me go back and talk about money. If we could put as much new money into the Canada child tax benefit as we wanted, and as rapidly as we wanted, we could avoid a lot of these problems. We could reindex the child benefit system. We could substantially increase benefits for all low-income families, including social assistance families with kids that under the current phase of reform are not seeing an increase. We could start trying to ease the marginal tax rate issue. We wouldn't have to so sharply target it. We could start restoring child benefits for modest- and middle-income families. You could go back to the drawing board if you had all the money in the world and get a nice smooth, decent curve, and you wouldn't have all this craziness. That would be the optimal, and I don't think it's totally unrealistic. We wouldn't do it overnight, but it could be done.

It is a matter of how much money the federal government is willing to devote to the reform of child benefits over the next five or ten years. I will just repeat my first point. I think it's worth it. I think this is very important. It's not the only thing to do, but it's an important component of trying to do more about the problems of child poverty, to do more about the problems middle- and modest-income families face in trying to provide for their children. It gets us back to some of the earlier purposes of child benefits, and I think it would help us create a more rational social security system overall because we could begin to dismantle the welfare system.

I'll stop there.

The Chairman: Thank you, Mr. Battle.

I'll move to the question and answer session, starting with Mr. Solberg.

Mr. Monte Solberg: Thank you for your presentation. It's interesting, and it's such a complicated issue because there are a million different variables involved here, everything from the problem of unemployment to various benefits and how they integrate and that kind of thing. It's quite complex. Just focusing on this specific issue, which is sort of hard to do, I appreciate the fact that you've taken into account the problem of marginal tax rates, because I do believe it's a problem, and I've talked to economists about it before. I think they make a pretty compelling case that when you combine all the benefits, there is a problem with a very high marginal rate at the low end.

Addressing the specific issue of the $850 million, I think an argument could be made to have a longer phase-in up toward the $30,000. I think that makes some sense.

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But the next issue is this. Say you introduce into the system some other changes. This would not be through the child benefit but changes to the basic personal exemption and things like that. If you start to raise those up, then that marginal rate goes down a lot more, and pretty soon you have to leave a lot more money in people's pockets.

I'm wondering what you would say to the idea of not only having the child benefit extend out toward the $30,000, but also essentially doing what we can to get rid of federal income taxes for people on low incomes. What kind of impact would that have?

Mr. Ken Battle: If I can just respond quickly, all I can say is yes, I couldn't agree more. You're right that it all connects. That's the bloody problem: the tax system, child benefit system, GST credits, and welfare are all connected, but they're not integrated.

Mr. Richard Shillington: That's the problem: they're not integrated.

Mr. Ken Battle: The problem is that they're not integrated. For some time, I have been arguing that we need what I call, for want of a better term, an integrated tax credit system that would try to look at the tax credit for unemployment insurance premiums, which is another issue that I could spend half an hour talking about. That's a very regressive tax. The CPP increases are going to most hit lower-income workers. The erosion of the GST credit is another serious and totally ignored problem. There's the impact of the partial indexation of the tax brackets and the credits.

So yes, it all fits together. I think a very important case could be made that this is the time—I say this for two reasons—for the federal government to revisit tax reform, which we last looked at in 1988. First of all, this is because of the erosion of the tax system over 10 or 11 years from partial indexation.

Second, there's the fact that a number of provinces want more freedom in redesigning their own provincial income tax systems. Under the current system, they don't have much range to change the basic definitions. That could actually end up being good or bad. We could end up with a more disparate income tax system than we have even now. So I'm of two minds about that.

From a policy point of view, I think it's very important that both levels of government try to keep in focus what you're saying, which is: what about the tax burden on low-income people? We've done estimates to show that the federal tax pain threshold has plunged. The recent tax relief in this budget is just a tiny little blip, and then it goes down again. It does very little.

So yes, I think we have to look at everything. That's the difficulty with looking at child benefit reform separately from income tax reform. You could then make changes that might not make sense. So I think we have to look at both.

That being said, I wouldn't want to say that we can't reform child benefits until we do the income tax system, or vice versa, but it's a very serious problem. I think the heavy tax burden on low-income people is an issue that can unite people from different parts of the spectrum. The Globe and Mail has been talking about this in its editorials.

The Chairman: Thank you.

[Translation]

Ms. Gagnon.

Ms. Christiane Gagnon: You are quite right not to expect other reforms; if that was the case, we would be lagging behind as far as the child tax benefit is concerned. During my first mandate, we were promised $600 million the payment of which was delayed because the level of inflation was not yet high enough. So we have really been in a deficit situation for the last four years. The $850 million are already short of the $600 million that should have been invested as soon as 1993. So we agree with you on that point.

So I commissioned a study on the non-indexation of the child tax benefits. It is a rather thorough study. What bracket was particularly affected? They say that it is the low income people, those who earn between $25,000 and $30,000, who suffer the most from the fact that child tax benefits and other benefits are not indexed. Those are the families that are the most deeply affected. They claim they have been losing $250 per year for the last four years. So we are really trailing.

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We would have liked the government to adopt a much more general policy about poverty, a wish that Ms. Christa Freiler expressed in her presentation. We had asked for a poverty commissioner who would have studied other possible measures that the government could have used to fight child poverty. Our current economy is rather buoyant. I find somewhat strange that there are more and more poor children and that the gap between the rich and the poor is getting larger. One of our young people launched a cruisade against the unfairness of the system. Also, the members of the middle class are heavily taxed. As far as we're concerned, we can handle it, but I'm extremely worried about the future of our youth. We must have a family policy that encourages our young people to have children in order to contribute to our population growth.

That is what we were going to work for. In any case, there are figures that support yours and some situations are indeed, of much concern. The government is already lagging behind. I mentioned it several times to the minister, who seems to think that enough is being done. He does make an effort, but I think it is not sufficient to eradicate child poverty. So we do not disagree with what you're saying this morning. All these cutbacks have been very hard on the public. In our constituency office, we realize that many people tend to fall back too quickly on social welfare.

Other measures could be taken. For instance, we know that there are billions of dollars in the employment insurance fund. As a result, families get poorer and soon have to rely on social welfare. There are 220,000 more welfare families. It is very difficult to escape from the spiral of social welfare. I know it for a fact, because I know people who lived on welfare for four years and who found very difficult to reenter the labour market.

I would like to bear witness to this situation. It is good for us to welcome groups such as yours, that encourage us in our efforts to obtain certain adjustments. We often feel that we are preaching in the wilderness. This committee will help us to proceed with a more in-depth study. There is not enough money. We should have a much more targeted approach to our fight against poverty. As Ms. Freiler said a moment ago, more global measures should be taken against poverty.

Could you give me a figure? The child tax subsidy has not been indexed. How much money did that allow the government to save? Have you any figures to offer?

[English]

Mr. Ken Battle: Richard has estimated that to be about $170 million a year. That'll be going up with the increase in the benefits. So it's a bit complicated, because it not only affects the amount of the benefit, but it also affects the threshold and the percentage of families that are actually getting the maximum benefit and then all the way up.

I'll just say one thing about indexation that's very important to remember. It affects middle-income families' child benefits too, not just that of low-income families. It erodes all the way along. Over time, it kind of just pushes the system right down the income scale. It just goes down like that.

Mr. Richard Shillington: If I could just add a couple of comments, yes, it's about $170 million a year. Some people would say that's what the increase in government spending would have to be to fully index. I'm saying that's how much is now being removed. We're not asking for an increase in the spending; we're actually asking for its purchasing value to be maintained.

Back in 1992 we said $3.1 billion had cumulatively been removed, if I remember correctly. Officials said this was wrong; they were wrong.

We've now had, six years since then, probably $1 billion a year roughly. Right now, it's $800 million, depending on which year you choose. Spending is about $1 billion less now than it would have been if it had been fully indexed. We've had that since 1992, so we could be getting up to close to $10 billion that has been cumulatively removed from child benefits.

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Again, as Ken says, it's not just the maximum amount that's not indexed to inflation; it's the income thresholds. I've forgotten the figures, but I had an estimate of how many children every year moved from maximum benefits to partial benefits because their family income went across $21,921, but the threshold stayed the same. That maximum benefit for the basic child benefit, $1,020, has been $1,020 since 1991. That $25,921 threshold has been $25,921 since 1991.

Also, every year, 50,000 or 60,000 children move across that threshold. They go from maximum to partial. They're not deserving enough.

Another 50,000—I've forgotten the figure, but I could check if you really care—move across the far end. They go from getting some benefit to no benefit.

Canada is essentially unique in industrialized countries for having families that get no tax recognition for parenting at all.

Consider for a moment a proposal that says that the deduction for a company car that self-employed businessmen get will be income tested. You can deduct your company car, the full cost, if your income is less than $25,000. But if your income is more than $25,000, we will not allow you to deduct the cost of your company car. That deduction will disappear if your income is more than $50,000. It would be considered ludicrous because it would violate fair taxation. It would violate horizontal equity.

We all know that we have, since 1989, been violating a basic principle of tax fairness by not allowing any tax recognition for families with incomes of more than $67,000 if there are one or two children. It would never be allowed if it was a business expense.

The Chairman: Thank you.

Mr. Riis.

Mr. Nelson Riis: I liked that explanation pointing out the differences in the tax system. That will be a useful one to have.

I don't even know where to begin, so I'm probably not going to begin, because there's no point. I have hundreds of questions, as I'm sure we all have. I don't have a corner on questions on the points you folks have raised. I do have a couple of comments, and I just ask you to check my validity.

It seems to me, Christa, you're saying that in the development of social policy.... Again, you referred to it as “by stealth” or something. We hear “stealth” now regularly about this business coming in to get us. The development of social policy is one component. I think what I'm hearing from you is that this whole issue has to be much more comprehensive. It's a step in the right direction, and let's acknowledge that.

What worries me particularly are the terms you used that without really saying it.... You were saying, Richard, that the government wants this trend to continue in terms of not indexing, because if we wanted to change it, presumably we would. We all know around this table that this is harmful. It erodes benefits.

But perhaps more important, it's duplicitous. You do this and you say you're going to increase this knowing full well that it's not really going to be increased a couple of years later. No wonder people don't like us any more. No wonder people are frustrated with us. I don't mean “us” meaning the Liberals or—

The Chairman: You mean the NDP, right?

Mr. Nelson Riis: Yes, I'm including the NDP.

The Chairman: Okay. That's fair.

Mr. Nelson Riis: Governments generally say one thing at budget time while trying to look good, but nobody believes us any more because they know we're conning them in some way. We're saying on the one hand you heard of the income tax blip and you're going to benefit from that. A little while later we're right back where we started. Everybody feels the erosion of purchasing power, the declining standard of living, and on and on.

As a group, I think you've done us a service in providing, from your perspective, serious problems. You heard in our report that we were conscious of this whole issue of indexation and the role inflation plays in terms of eroding benefits.

I guess I don't have a question, but I would just say thank you for helping us to understand really what has to be done and what we need to deal with.

Ms. Christa Freiler: I'd like to answer the question in case I don't get another chance.

Very briefly, I have two points. I want to respond to Ken Battle's proposal, which is a very concrete one.

Mr. Richard Shillington: I want to answer this.

Ms. Christa Freiler: You can; you're next.

Mr. Richard Shillington: Oh, thank you.

Ms. Christa Freiler: I think it's definitely a step in the right direction. Expanding the supplementary benefit or the number of recipients to a higher cut-off to include a number of modest-income families is very important. It doesn't go nearly as far, obviously, as we would like from the comments I made, but I think it establishes an important principle and an important precedent.

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Mr. Nelson Riis: What's the principle?

Ms. Christa Freiler: The principle is that it should not just be low-income families who are benefiting, even when we say money is scarce. I think it also reflects a change of position somewhat from the Caledon Institute in terms of the timing of this stuff, not necessarily in terms of final principles. I think expanding it upward in recognition of the fact that modest-income families have been suffering.... Who knows what the reasons are? Arguments for social cohesion, anti-divisiveness—there are a lot of different arguments one can use to support the position.

The second point relates to Madame Gagnon. I think where I probably do not agree with Mr. Battle's position is I think we should take a probably more open view of the amount of money that is available. If you believe you are circumscribed by the amount of money that has been committed so far—and I realize to some extent we are today—then you have to talk about what kinds of compromises do we need to strike and how do we divvy it up in such a way that we're still achieving the purposes and not spreading it so thinly as to make it ludicrous.

I don't think I would agree with Ken's assessment of whether or not there could be more money. As Madame Gagnon pointed out, we are in a surplus situation. The $850 million that was committed the first time was considered modest; the $850 million that was committed the second time was considered more modest, because it's now being spread over two years. I think the child poverty community has been very generous to the federal government, quite frankly. I think they will begin to be less generous after the 1999 budget if there isn't a more direct and explicit display or reflection of its commitment it has stated.

The Chairman: Did you want to add something?

Mr. Richard Shillington: I do think the issue of trust is really very important, because much of what's going on here with the new child benefit is based on trust. Government officials and politicians are coming to the child poverty community and saying provinces will reinvest this money for children, and depending on where you are in your trust dimension, you're going to say “oh yeah, right, sure” or “maybe they will”.

A lot of my reaction to the proposals I think is because I have become more and more cynical, frankly, partly because of the obvious situations in which governments have misled Canadians that these proposals were going to help poor children when in fact they weren't, and never were intended to. I think it undermines the whole process. And I do think it's absolutely non-partisan; government is government.

Paul McCrossan was the first member of this committee, back in 1986, a Conservative from Toronto, who said to me, “You're trying to tell us that because we won't index the child benefit, we won't increase the levels. Trust us; we will review them.” In my submission I give you a list of quotes over time of people of various political stripes all saying we don't need indexation, we'll increase the support. They didn't.

Let me give one moment just to tell you something that happened in 1992, which I thought was kind of earth-shattering. The 1992 budget changed child benefits so that the child tax credit went from an annual cheque to a monthly cheque. It was about $500 then. A welfare family in 1991 got half the money from the annual child tax credit and half the money from family allowance. The 1992 budget changed that so it was a monthly cheque only; they got rid of the annual cheque.

This is the white paper released with that budget. It's the thinnest white paper ever. I carry this in my briefcase all the time, and when I'm talking to people about honesty in government.... Here is a quote:

Lower-income families with one child will receive a monthly payment of up to $144, significantly more than the monthly payment of $35 they now receive. Approximately two million families with incomes below $50,000 will receive larger monthly payments than they do now.

So the monthly cheques go up. Why? Because they got rid of the annual cheque, of course. These families got no extra money on an annual basis.

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You go through the analysis that was done by the Department of Finance. There's no analysis of monthly cheques. It's all annual cheques. I have that information.

What did the Globe and Mail say the day after that budget?

...reforms will sharply raise support for low-income families with children. The plan will allow Ottawa to make monthly payments of up to $144 for each child in a low-income family, four times the current family allowance. About two million families with incomes below $50,000 a year will receive larger monthly payments than they now do.

Where did I read that before? So there was no increase in support, not a penny, for welfare families in this budget. This type of...I say active misinformation. There's nothing in here, by the way, that acknowledges that welfare families will get nothing more—nothing. It creates an impression. It was bought by the Globe and Mail. I can rant and rave and I might get a letter to the editor, but you know the ultimate effect of that. Then a couple years later, the same officials who wrote this will sit down with us and say, “Trust us; we are actually going to put this money into families with kids”.

The Chairman: Mr. Brison.

Mr. Scott Brison: I also want to thank you sincerely for your presentation this morning. I think it points to the lack of transparency in the tax system. If you combine the effects of consumption taxes, payroll taxes, income taxes, tax credits, tax benefits, and so on, it's tremendously difficult.

When you look at this chart, for instance, figure 3, the marginal tax rates...I don't agree with Mr. Szabo when he refers to it as bunk. I take it quite seriously, because I believe the combination of taxes is very confusing, and I think very few people are aware of the insidious nature of particular types of taxes.

For instance, payroll taxes have a tremendous impact on employment, and arguably, having the child tax credit available to some levels of income and not to others does create a combativeness between income levels, but also a disincentive to upward mobility for a lot of people, where actually making more money means they receive less. It does seem perverse.

Diane St-Jacques from our party and her private member's legislation had some success recently, and she has spoken to me at length about this.

How do you feel, individually or collectively, about a simplification of the tax code, of tax policy, a flattening of the tax code and direct funding for areas like child poverty, for instance, based on the premise that taxes are designed to raise revenues and should be relatively neutral beyond that, and that social spending, which is extremely important to ensure equality of opportunity, should be paid for through government funding, direct funding, targeted funding that recognizes, for instance, a problem like child poverty that needs to be eradicated? From a general philosophical perspective, how do you feel about a simplification of the tax code and social spending being targeted and directed and having some level of focus placed on it as opposed to a general tax system that clearly is not working?

Ms. Christa Freiler: I can give a very quick answer.

Certainly we would be in favour of simplification. If you're talking about a flat tax, I think we would be against that.

Taxes serve many purposes. Taxes also serve the purpose of income redistribution. Taxes serve social policy purposes, and raising revenue is one of the purposes. I think taxes should continue to serve those other purposes.

So I guess while I agree with the intent of what you're saying, I think I would not agree with the details or the substance of it.

Mr. Richard Shillington: I'm certainly in favour of simplification and I'm certainly in favour of a clearer thinking about how various components work, but the tax system serves many purposes, and if you want to tax on ability to pay, you're going to recognize a lot of different things. So simplification to say no deductions.... Well what about a deduction for disability? No, it's very complex.

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In terms of graph 3 here, are you still suggesting that Ken's graph is bunk, Mr. Szabo?

Mr. Paul Szabo: Well I'm sure he's going to provide us with data. It would be helpful just to—

Mr. Richard Shillington: I quickly look at it with a 17% federal tax rate and 8% provincial tax rate. I think the GST credit is a 15% reduction rate. The child tax credit in that narrow range, if you have three or more children, I think is 26%, if you look at the legislation. There's an Ontario sales and property tax credit, which I think is 4% or 5%; Ontario tax reduction, which phases out at 15%; CPP contributions, which is 3% to 6%, depending on whether or not you pay the employer's share; and UI. It's not hard to get to 70%.

The Chairman: Mr. Brison.

Mr. Scott Brison: Mr. Chairman, if I could, I have a point of order. I've been holding this back since Mr. Szabo's comment. I felt offended.

I believe you owe Mr. Battle an apology for having referred to his information as “bunk” without having had any questioning of his information to him. I don't think it was parliamentary, and I don't think it was appropriate. And I don't think it was consistent with Paul Szabo.

I think, Mr. Chairman, you should ask Mr. Szabo to provide an apology to Mr. Battle.

The Chairman: Thanks very much for all that advice, Mr. Brison, but I'll leave it to the members of the committee, who I think are fairly honourable people who understand if they made a mistake or not. I'll leave the lecturing to you.

Mr. Szabo.

Mr. Paul Szabo: I would ask for the information, because the chart says “marginal tax rates”. What Mr. Shillington has just described is all taxes that Canadians pay for all purposes.

The information you provided here I believe is misleading, based on what's described here and based on the assumptions that have been made. I hope you will provide the committee with the data and with descriptions of what each of the items are. This is the public record; people will read this. And if the answer to my question was that somebody at $25,000 a year has a 50% marginal tax rate, I think that people will believe that unless the record is straight. So we'll wait until you provide the data.

I wanted to use a moment just to give some suggestions to the panel about other ways in which they can approach this problem. I'm with you on this. There's no question that if we continued simply to give the child tax benefit at ever-increasing levels until we pushed family income up to the LICO, you wouldn't be here. But that's not a good strategy, because we know it's very expensive and we know it would be a disincentive for self-help. There has to be a partnership here.

What you didn't mention, and I think you should, is that according to Stats Canada and the Vanier Institute of the Family, lone parents—and thank you for using lone parents, not single parents, because lone parents is a more correct description—lone parents represent about 12% of all families in Canada, but they account for 46% of all children living in poverty. Ultimately, almost half of the problem you're talking about has to do with family deterioration.

There is no simple solution. There has to be a comprehensive solution with a multiplicity of approaches. I think that you have to address the issue with regard to the breakdown of the Canadian family, and the fact that we have manufactured poverty by virtue of the fact that a family of two parents and two kids living in Ottawa making $35,000 are not living in poverty, and when they split up all of them are living in poverty. It's manufactured poverty.

The second issue has to do with marginal tax rates and if we split out over everybody.... I mean, this is clever stuff, but why don't we simply look at what happens with regard to welfare benefits? Welfare benefits don't take into account simply your income stream; they also take into account your assets. And there are a tremendous number of cases where people do not have current income streams because they have a wealth of capital and they're getting capital appreciation but no income stream that's measurable. That deals with the clawback.

Maybe we should be looking at refocusing the eligibility or the amount of child tax benefit where legitimately it is targeted to those who are in legitimate need and not in mathematical need.

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I think the benefits that could be generated through those kinds of considerations, by dealing with preventative measures as well as legitimate need measures, would generate far more benefits than the kinds of things you're trying to nickel and dime here.

Very simply, if you look on page 4 of this handout, look at the differential in the value of the child tax benefit based on the inflation thing, the difference we're talking about is very close to a dollar a week for a child over that period of time from 1984 to 1987. The differential in value is about a buck a week.

Mr. Richard Shillington: If you start in 1984.

Mr. Paul Szabo: Yes. It's about a buck a week. This is not going to change the quality of life of any human being. I'm sorry. There's a lot of work done here, but not very good value for the investment.

So maybe, just maybe, there are some more creative ways, by considering the social reality we have in Canada and looking at maybe some more realistic approaches from a fiscal standpoint so that the dollars in fact are targeted at those who have a legitimate need.

The Chairman: Are there any comments on that?

Ms. Christa Freiler: We may want to split this up. I would like to address the first set of questions about the manufactured poverty, which is a phrase I've never heard before.

Mr. Paul Szabo: I'll take the credit.

Ms. Christa Freiler: Okay. Well, if I quote you, I'll mention you by name in the future.

First of all, since you mentioned the Vanier Institute, according to the Vanier Institute of the Family we have exactly the same proportion of lone parents in 1995, which was the latest year, as we did in 1931. This is not a new issue. The reasons for lone parenthood have changed, but there have always been a significant number of lone-parent families. That is point one.

Point two is that there has, in recent years, been an increase in lone-parent families in all industrialized countries in the world. This is not a Canadian phenomenon. This is not an American phenomenon. You have it equally in all European countries. The countries that have high poverty rates among lone parents are Canada, the U.S., Great Britain, and Australia.

There is a table on page 31 of the report that I've circulated that I think is quite compelling. It was done by the Centre for International Statistics and shows that before governments' intervention, before child benefits or other kinds of tax and transfer measures, the poverty of lone mothers, because they're the most vulnerable, is high in virtually every country. After tax and transfer, the kinds of benefits we're talking about, the poverty rates range from about 3% or 6% or 7%, or even 10% in a number of European countries, to the 60% and 64% that they do in Canada and the U.S. This suggests that poverty among lone mothers is in fact manufactured, but it is manufactured not by deterioration or marriage break-up, it is manufactured by federal government policies that choose to under-invest in families with kids.

One of the consequences of that under-investment in Canada and the U.S. is incredibly high child poverty rates, or poverty rates among lone mothers. It doesn't have to be that way.

The other thing is there is no evidence to suggest that any kind of public policy—punitive, helpful, or otherwise—aimed at forcing two parents to stay together is going to work. For whatever reasons, this is 1998, and the situation is different from what it was 30 years ago. Families do split up. I think it would be hard to say that kids should suffer because of the decisions taken by their parents. In fact, they're decisions that parents don't take lightly.

Regardless of whether one agrees with divorce or separation, the point is it's a fact. The question is why should women and the kids end up as victims simply because families choose to separate or divorce, often for reasons that are perhaps not even avoidable?

That would be my response to that one.

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Mr. Richard Shillington: I'll just quickly respond to the comment that the indexation issue is a dollar a week and is not a major issue. It may be a dollar a week, but it's $170 million a year. Over five years that's $800 million. If that's not a significant issue, then the $850 million that's been invested is not a significant amount of money.

It strikes me as odd to hear that in Ottawa, where all the civil service has fully indexed pensions and all the MPs have fully indexed pensions. Obviously indexation for seniors was a big issue. I don't see why it's not a big issue for children.

The Chairman: Thank you very much, Mr. Battle, Ms Freiler, and Mr. Shillington. You're always very helpful to parliamentary standing committees. I remember during my years at human resources development that many of these were coming up. Some, unfortunately, aren't being solved as quickly as we like.

You can rest assured that our objective here is to try to improve the quality of life for the people of Canada. That's really ultimately the litmus test for any public policy decision we make.

Thanks very much.

The meeting is adjourned.