FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, June 9, 1998

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[English]

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

As you all know, the finance committee's order of the day today is pursuant to Standing Order 108(2). The committee resumes its pre-budget consultation process.

This morning we have the pleasure to have with us the following witnesses: Mr. Robert Waite, vice-president, corporate relations and marketing, CAE Inc.; from the Association of Universities and Colleges of Canada, Robert Giroux, president; from the Canadian Foundation for Innovation, Dr. Denis Gagnon, senior vice-president; from the Aerospace Industries Association of Canada, Mr. Peter Smith, president and CEO; and from the Canadian Medical Association, Dr. Victor Dirnfeld, president.

Welcome, gentlemen. As you know—you've been here many times before—you have approximately 10 to 15 minutes to make your presentation. Thereafter we will engage in a question and answer session.

We will begin with you, Bob Waite. Welcome.

Mr. Robert Waite (Vice-President, Corporate Relations and Marketing, CAE Inc.): Good morning, Mr. Chairman, and distinguished members of this committee. I want to thank you for the opportunity to participate in this important pre-budget consultation and commend you for beginning the process earlier this year, which I am sure will benefit all parties.

A copy of my full statement has been distributed, so I will paraphrase from there.

I represent CAE, a Canadian-owned and -operated advanced technology company that annually spends nearly $ 100 million on research and development, hires between 400 and 500 university graduates, and is able to compete and win globally in the market sectors we serve.

For CAE, the workforce of the future is with us today. We employ more than 1,600 software engineers as well as hundreds of other highly skilled employees with training in electrical and mechanical engineering, human factors, mathematics, and other fields.

On the supply side, our own experience is that Canada's universities and polytechnical institutes produce some very good and capable candidates.

• 0905

We at CAE in our own small way certainly do what we can to keep the supply pipeline full in terms of trying to help create an interest in science, math, and technology among young Canadians. We do this through support of education programs, summer camps, exhibits, and sponsorships. We have chosen in particular to focus on grades six and seven, as research tells us that it is at this age that many young Canadians, especially young women, decouple from the science track.

We at CAE do have some success in terms of attracting skilled candidates. The dilemma is that it takes two or three years of training and on-the-job experience to really make these new hires fully productive, and too many of them, after just four or five years, are currently being recruited away from us, often into the United States, where they are offered significantly higher salaries, prospects of much higher income after tax, and a cafeteria list of benefits that assuage fears about real or perceived social, health, or personal safety differences between the two countries.

This is a situation where both CAE and Canada lose. Canada loses because the Canadian taxpayer has invested a great deal in educating these individuals—tuition subsidies amounting to tens of thousands of dollars per student when you include the all-in cost of their education. We lose because companies like CAE have also invested additional thousands of dollars in training only to see the individual take that training and experience across the border, sometimes to a direct competitor.

Most importantly, though, we all lose, because when these young people leave, they take with them their innovation, their entrepreneurial skills, and their drive and energy. These are precisely the traits and the people we need to successfully drive Canada's economy into the 21st century.

How big are the numbers? It's difficult to say. Estimates range from 30,000 to upwards of 100,000, according to John Thompson, director of Canadian studies at Duke University.

What can we do? A simplistic answer is to raise salaries. Of course, that's what we and other Canadian high-tech companies have done, but there's a limit to what can be done on that front. More importantly, it does not address some of the more fundamental issues.

First, we need to look seriously at reducing individual income tax rates in this country. We in Canada typically position our tax situation in the overall context of the OECD or G-7 nations, but the reality is that we're primarily competing with the U.S. for people—not Sweden, France, or Italy.

The gap is enormous, especially if you factor in home mortgage interest deductibility and the fact that most people leaving from Canada for high-tech jobs are not moving to high-tax jurisdictions like New York or Massachusetts but to low- or no-tax jurisdictions like New Hampshire, Texas, and Florida.

We also have to rethink our definitions of low, middle, and high income. The idea in Canada that a $ 65,000 salary should be subject to the highest marginal tax rate when in the U.S. the highest rate doesn't kick in till income reaches $ 350,000 obviously creates an imbalance. At the other end of the scale, Canadians can start being taxed on $ 12,836 of income compared with $ 24,675 in the United States.

Second, we need to think about providing incentives for those educated in Canada, at taxpayers' expense, to stay in Canada. Perhaps one mechanism might be allowing those who stay to write off their post-secondary education costs on a carry-forward basis against future income, and over an extended period, perhaps beginning five years out or more.

Third, we need to recognize that higher income isn't all that matters to high-skilled workers. They also want challenging, interesting work. In fact, a recent study conducted by the Canadian Advanced Technology Association ranked the challenge of the job as the number one motivating factor in terms of staying with a firm. For most in the high-tech population, challenging work means research and development, working on next-generation products and applications.

So my third recommendation would be to retain or even strengthen the R and D tax credit program. We also would ask that the Technology Partnerships Canada program, which received no incremental funding in the last budget, be increased to allow Canadian technology companies to compete with competitors who currently have significant advantages through defence-oriented government research funding or other forms of direct government support.

Those, then, are the areas in which we would urge consideration of action: tax cuts for individuals; tax carry-forward allowances for higher education fees; and continued government R and D investments. In short, we need to invest in Canada's future by ensuring that our most valuable resources, our best and brightest people, find meaningful work here at home and get to keep a fair share of the fruits of their labours.

• 0910

To quote Industry Minister John Manley, who said at the Softworld conference in Vancouver in September of last year:

Institutions, businesses, money, teams are all important but the essential element in a thriving high tech community is people. High technology is a sector that lives or dies by its people...

I would ask that government use at least a portion of the fiscal dividend to help Canada's high-tech companies not only stay alive but stay kicking. It will pay even greater dividends to all of us in the future.

Thank you, Mr. Chairman.

The Chairman: Thank you very, Mr. Waite, for a very good presentation.

I'll now move to the representative from the Association of Universities and Colleges of Canada, Mr. Robert Giroux. Welcome.

[Translation]

Mr. Robert J. Giroux (President, Association of Universities and Colleges of Canada): Mr. Chairman, I would like to express my gratitude to your Committee for your invitation to appear here today. This committee has been instrumental in making education, knowledge and innovation a key priority of this government. We hope that the committee will continue to exercise leadership as Canada prepares itself for the challenges of the next millennium.

You have invited us here to suggest how best to use the fiscal dividend to launch strategic investments that will ensure Canada's success in the new economy. Moreover, you asked that we address the issue and the context of the "brain drain".

Our message today is that the government is on the right track. The past two budgets have announced several initiatives designed to equip Canadians with the tools to succeed in the knowledge society of the next millennium. With the Canada Foundation for Innovation in the 1997 budget and the Canadian Opportunities Strategy in the 1998 budget, the federal government has shown willingness to ensure that Canadian society has the intellectual capital or brain power to thrive in a knowledge-based global economy.

[English]

Brain drain: What is our experience? In this regard I want to address the experience of Canadian universities with respect to the phenomenon of brain drain.

Mr. Chairman, Canadian universities are having difficulty keeping experienced faculty members. Our analyses have shown that we are losing researchers in the middle of their careers, often at the most productive stage of their careers. They are often team leaders and therefore instrumental in the training of a future generation of researchers.

Last year AUCC conducted two surveys to gain insights into the flows and destinations of recent graduates and faculty. When we looked at why our faculty members are leaving the country, we found the following most cited: higher salaries; more resources for more and better research infrastructure and for improved research support in the form of lab assistants and technicians; access to research support; the ability to tap into a critical mass of research collaborators; and reduced teaching load.

The upshot of all this is that too often we are not creating an environment that generates opportunities for our students and researchers to realize their potential and maximize their contribution to Canada. Their capacity to pursue their studies and conduct research at the leading edge has been constrained.

The reasons for this deteriorating environment, particularly compared with the United States, are: first, lack of core funding for the Canadian universities compared to U.S. institutions—and we have attached to our brief, Mr. Chairman, a chart that shows this gap widening between Canada and the United States—second, continued improvement of university research funding in the U.S. compared to the constrained support of the granting councils in Canada; and third, far greater support of graduate students in the United States.

The bottom line is that often those who choose to leave have gone as far as they can go in Canada. They have greater career opportunities abroad, especially in the United States. The result is that we have become a training ground of great researchers for the U.S. and other countries.

Our answer to the brain drain issue is quite simple, Mr. Chairman: continue investing in people so as to enhance our ability to attract, educate and retain high-quality personnel for employment in Canada; and create an environment where highly skilled Canadians can realize their potential in this country. This is the ideal way to foster a climate of innovation.

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[Translation]

I would now like to speak about the challenges facing universities and colleges. First let us turn to the question of the possible future uses of the fiscal dividend.

Our objective today is to define issues which require urgent attention because they undermine Canada's capacity to innovate and turn the force of the globalized knowledge society to its advantage. I would like to talk about university research. The ability of universities to attract and retain world calibre researchers is a prime determinant of the country's capacity to innovate.

Leading edge research, which generates new ideas, processes, products and policies, as well as providing a training ground for highly-skilled people, is the foundation on which to build an efficient system of social and economic innovation and a caring society.

The experience of the last few years has shown that the forces of globalization challenge our social cohesion by exacerbating social disparities. Innovative social policies need to be developed to fight these inequalities. We must mobilize the intellectual resources of our social sciences and humanities community to address this challenge.

The prospect of an opportunity to compete for international competitive levels of research support determines the capacity of universities to attract and retain academic staff of international quality. The last two federal budgets have reversed the downward trend in federal support to university research. However, the level of support available to Canadian researchers across all fields of inquiry continues to pale in comparison to that which is available to our neighbours to the south. Our American colleagues have access to considerably greater resources to cover both the direct and indirect costs of research, as well as to provide research training to support graduate students.

[English]

Now, Mr. Chairman, a few words on the issue of international education.

Canada is a trading nation. Our future will continue to lie in trade and, in particular, in the export of increasingly sophisticated products and services to ever more diverse trading partners. To prosper in the next century, our trade will need to expand to Latin America, Asia and other parts of the globe with which we have traditionally had limited contacts. Often these are regions about which Canadians know very little at present, nor are they as familiar with us as we would like.

Canada has an excellent record in assisting developing countries. This reputation has helped sustain Canada's influence on the world stage. Unfortunately, recent reductions to CIDA's resources have undermined this traditional role. The federal government needs to provide CIDA with the means to assist developing countries to realize their potential. As it is for our own socio-economic development, education is key to this objective.

Investments in international education can provide a vital intellectual underpinning for our foreign policy, as well as our international trade policy. Such investments could be directed at: developing a better understanding of foreign societies by investing in area studies; promoting knowledge of Canada abroad by increasing the number of foreign students coming to study in Canada and increasing the support of Canadian studies programs abroad; giving Canadians direct foreign experiences through academic mobility programs or work study programs; developing faculty exchange programs with developing countries to help strengthen their higher education institutions; and, of course, promoting international research collaborations.

[Translation]

I would now like to turn to the issue of core funding of universities. Canada's overall support of higher education has slipped significantly over the past 15 years. The decade of the 1980s was characterized by fiscal restraint as enrolment growth outstripped government support. Universities reacted by seeking ways to enhance their efficiency. Over the past five years, we have experienced a deepening of financial restraint as core support of universities was reduced by some $ 1 billion. These cuts translate into a 23% real loss of support which is equivalent to $ 1,500 on a per student basis, from an average of $ 6,600 per student in 1993 to $ 5,100 now.

The federal government cannot ignore the plight of universities because they are the producers of so many of the knowledge workers the country needs to remain competitive in the global economy. The initiatives taken in the last two federal budgets addressed real problems and were steps in the right direction. However, they failed to address the issue of the core funding of universities.

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Something must be done to ensure that Canada has a vibrant higher education sector, while respecting provincial jurisdiction over education.

In conclusion, I think that addressing the issue of brain drain requires creating the conditions necessary to attract, educate and retain the highly qualified people Canada needs to prosper in the new knowledge-based society.

We need to offer employment conditions that are internationally competitive. By investing strategically in research, international education, and by helping arrest the erosion of the core support of universities, the federal government will equip Canadians with the skills and competencies required to thrive in a global society. By creating the conditions that enable our highly skilled people to realize their potential in this country, we will also be creating a climate of innovation. This is the challenge we face.

Over the next few months, we intend to consult with our partners and further investigate the issues we've brought to your attention. We hope to have an opportunity to meet with you again later this summer to discuss concrete proposals on how to address these issues.

Thank you for your attention. We look forward to a productive exchange.

[English]

Thank you very much for your attention. I look forward to the exchange of views in question period, Mr. Chairman.

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

We'll now proceed with the presentation from the Canada Foundation for Innovation, Dr. Denis Gagnon. Welcome.

[Translation]

Mr. Denis Gagnon (Senior Vice-President, Canada Foundation for Innovation): Mr. Chairman, I would like to thank you and your colleagues for giving us another opportunity to present our message in the context of the pre-budget consultation process for 1999.

The Canada Foundation for Innovation is a new presence among the agencies, corporations and foundations that provide support for research and development in Canada. The CFI was established by the federal government in 1997 to strengthen infrastructure for world- class research in Canadian universities, colleges, hospitals and not-for-profit research institutions.

My career as a university teacher, researcher and research administrator, together with my experience in federal granting councils, as well as in a provincial council in Quebec has convinced me that science and technology have become an essential, if not vital element of our country's socio-economic development. This is clearly the reason why I have accepted the invitation from John Evans to join the CFI. Through my association with this new type of research-supporting organization, I believed I would be ideally positioned to build on the activities I have undertaken over the last 30 years.

The establishment of the CFI was the federal government's first large fiscal commitment as Canada was winning the painful war against the deficit. By making this significant investment in science and technology, the government was sending a strong message to Canadians about the importance of research and the training of researchers for our country and its future. This significant investment of public funds reflects the trust the government places in the research community. It also recognizes the contributions our researchers make to the prosperity and quality of life of Canadians.

[English]

The CFI will achieve its mandate by putting together national assets that will contribute to the advancement of research and will improve the environment for training of young Canadians for research- and innovation-driven careers in Canada.

The CFI will base its funding decisions on the quality of the infrastructure projects, the opportunities they provide to the research community, and the value they add to our existing pool of research installations.

As we move forward into the competition phase and the awarding of funds, I truly believe the CFI will have a profound, long-term impact, not only on Canada's research capacity, but also on the way research is conducted in our country.

As part of the application process, institutions were invited to prepare strategic plans for the development of research and the training of researchers. Based on what we have seen so far, institutions are clearly linking infrastructure to their capacity to conduct innovative research and provide a competitive environment for the training of Canadian researchers. They're telling us that the quality of the research infrastructure in their institutions is directly tied to Canada's capacity to build a truly innovative society. In the context of today's discussion, there's no doubt that science and technology should be a top priority for the government.

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The last two federal budgets have brought very good news to the Canadian research community. In 1997 the government announced the establishment of the CFI. Then in 1998 it announced an increase in the federal granting councils' budgets. The federal government's decision to ease, at least partially, the councils' budgetary situation was, I believe, a recognition that there was indeed a problem. I also hope this was only a first step towards establishing an adequate founding base to support university research.

These federal government initiatives are essential, since they provide Canadian researchers with the resources they need to successfully lead the transition to the knowledge-based economy. But however bold and encouraging these initiatives are, the fact remains that Canada has fallen behind in recent years in terms of research capability. The granting councils' budget increase, for instance, only partially compensates for a budgetary decline that had started in the 1980s. Although significant, the increase only restores the granting councils' budgets to 1995 levels, without providing for earlier cutbacks and inflation. Compared to other developed countries, Canada still under-invests in science and technology.

Overall, Canadians approve of the government placing priority on science and technology. Not only are Canadians proud of the achievements of our research community, but they often turn to researchers to understand key issues affecting our society. In a survey that was made public only a few weeks ago, Canadians indicated that they consider researchers to be among the most trustworthy people in our society.

While interesting in terms of recognizing the role and contribution of these individuals in our society, these results also highlight the concerns that Canadians have about real issues—their health, environment, and quality of life. In this context, today's discussion offers us a unique opportunity to share ideas on how to ensure that creativity and innovation are valued by Canadians of all walks of life.

Clearly the first priority—and I'm sure my colleagues around this table will agree with me—is to increase our national investment in science and technology. An incremental investment would enable Canadian researchers to become more globally competitive and to train more young Canadians for research- and innovation-driven careers. Additional funds would also help accelerate the transfer of knowledge and technology to the private sector, which is the largest provider of jobs in Canada.

But there are other areas of intervention that should be considered if we are to be successful in making Canada a truly innovative society. As I mentioned earlier, Canadians place great trust in researchers, and they look to them for answers and guidance on key issues. In the new economy, science and technology will play an even greater role that will require action on two fronts. First, we need to ensure that as many Canadians as possible have the skills to take part in the new knowledge-based economy, and second, we need to promote a shift that would encourage the development of a national culture for innovation.

As we are completing this transition, Canadians will increasingly make career decisions based on the research institutions' capacity to fulfil their needs and expectations. Their decisions will no longer be based on the vague promise of a degree and a job. Instead, before making a decision, they will ask hard questions such as: Is the institution recognized for its excellence? What installations and resources are available? What's the potential for partnership with the private sector? What's the access to globally connected research and technology networks? And how marketable will I be with a degree from this institution?

The rapid emergence of a culture for innovation will challenge all aspects of our lives and lead to a world where traditional relationships based on social, political, and economic bonds will no longer be enough to define communities and countries. But if we are able to adapt to these new conditions, Canada has a bright and promising future.

• 0930

When it comes to business and finance, nothing is more fluid or mobile than capital for which there are no boundaries. Funds will go wherever the best conditions exist. In the knowledge-based economy, brain power has become a commodity with the capability to travel fast, to recognize those who share the same scientific or economic interests, and to offer the conditions needed to ensure the full development of its scientific potential.

If Canadian researchers cannot find at home the right conditions or resources they need to fulfil themselves on personal and professional levels, then there is no doubt they will look somewhere else to find the conditions or resources they need. This is a reality for researchers and institutions all across Canada.

An article published in a recent issue of Time magazine points out that 50% of our graduates in fields such as software engineering and biomedicine leave Canada for the United States either at graduation or later on. According to the president of the Association of Industrial Research of Québec, one in two graduates in biotechnology or other highly specialized fields now go elsewhere, mostly to the United States, for a first job.

One may dismiss these examples as mostly anecdotal. However, I look at them as worrisome indicators of a potential crisis. If we are to succeed in the transition to the knowledge-based economy, we must look at all the factors that weigh on the minds of our brightest graduates' decision to leave Canada or stay.

Although we still need to do a better job in attracting more young Canadians to research and other innovation-driven careers, Canada's most serious problem is that it is simply not competitive in terms of salaries and opportunities. Moreover, the Canadian income tax structure is such that young people looking to establish themselves in life—for instance, by taking a mortgage to buy a home—need a significantly higher income than their counterparts in the United States just to offset the tax. This is also true at the senior corporate level.

Recent experience has shown the importance that governments have given to research and the development of researchers as well as the improvement of research infrastructure and the development of research networks. Canada is particularly well equipped to realize this objective. Thanks to their well-defined and complementary mandates, the federal granting institutions and the CFI constitute in effect a key advantage for Canada and its research community.

But if Canada is to succeed in its transition toward an innovative society, we must fix one problem. We must ensure that Canada can retain its talent before we carry out major programs to increase the output only to have our brightest researchers move away because our companies, universities, hospitals and other research institutions cannot provide a competitive environment for their employees. If we cannot keep the best in Canada, how can we attract the best?

The CFI can be a major help in providing an environment for exciting innovation, but one thing we cannot fix is the low, non-competitive remuneration that companies offer and the tax burden that all levels of government impose on individuals.

If the CFI is to succeed in enhancing Canadian innovation, we need the private sector and government to be much more aggressive in competing for and retaining the best talent. The CFI can provide the working environment and facilities. The private sector and the government must provide the personal incentives.

Thank you, Mr. Chairman.

The Chairman: Thank you very much, Dr. Gagnon, for your presentation.

The next speaker will be from the Aerospace Industries Association of Canada, Mr. Peter Smith, president and CEO. Welcome.

Mr. Peter Smith (President and Chief Executive Officer, Aerospace Industries Association of Canada): Thank you, Mr. Chairman, committee members. On behalf of the board of directors of the Aerospace Industries Association of Canada and its members, I wish to thank you for the opportunity to comment on the four questions that were posed.

Before doing so, however, I'd like to take a few moments to describe who the aerospace sector is in Canada and what we've accomplished to date. Two short years ago the AIAC set an objective that the Canadian aerospace industry would be the fourth largest in the world by the turn of the century. Today we are fifth, and we are quite confident that we will be fourth by the turn of the century or before.

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Canada's aerospace industry is indeed a fast-growing global competitor. We offer a full range of aerospace design and manufacturing capability. Our 1997 sales rose 8% over the previous year to reach $ 13.4 billion. Our forecast of $ 15.3 billion in 1998 will be an additional 14% increase, with an impressive backlog of $ 18 billion in orders.

Exports account for 80% of output, and between 1990 and 1996 the aerospace industry contributed in excess of $ 16 billion to Canada's trade surplus. Our sales have doubled in the last 10 years.

The keys to our success are that we have chosen strategic niche markets, we have world class capabilities, and we have sustained investment in research and development—on average, approximately 12% of sales, or $ 1.4 billion per year. We have a skilled workforce, competitive prices, innovative solutions, and an attractive exchange rate. Most importantly, we have access to a risk-sharing partnership with the Government of Canada.

Today the Canadian aerospace sector commands 50% of the world commercial turbine helicopter market; 35% of the large business aircraft market; one-third of the small turbine engines; 42% of the regional aircraft market; 60% of the large aircraft landing gear; and 96% of the world market for commercial simulators.

AIAC represents 250 firms in every region of the country who in turn employ over 60,000 men and women whose average wage doubles that of the national average. Per capita, the Canadian aerospace industry employs more engineers and technical staff than any other sector in Canada, specializing in aero structures, proprietary systems and subsystems, component parts, specialized products and services, repair and overhaul, and defence electronics.

With this in mind, I feel quite confident in expressing our opinion on what priorities the government should set for the fiscal dividend. I feel we can comment on appropriate new strategic investments as well as the impact the current tax system has on our continued success. Should this committee accept our views on these two issues, we are very confident, based on our track record, we can contribute to creating the challenges and the job opportunities for young Canadians in this new economy.

Canada's aerospace sector has enjoyed this remarkable success through heavy investments in research and development. In fact, the Canadian aerospace industries' investments represent close to 14% of the overall industrial R and D investment in Canada. These R and D investments are made in the face of intense global competition where we compete against international firms backed by foreign governments who spend billions to support their aerospace research and development.

Our first message, therefore, Mr. Chairman, is that the government must not only continue to partner with us in sharing the risk in long-term, high-risk product development through the Technology Partnership Canada program, but because it is currently underfunded, it also must be increased. Failure to do so will result in the loss of opportunity to create those challenging jobs for young Canadians to thrive and prosper. Valuable R and D projects will evaporate and go elsewhere, thus lessening the Canadian value added in the ever-increasing sales forecasts I mentioned.

The Technology Partnerships Canada program has been a tremendous stimulus to such programs as the CRJ700, PW 150, Dash 8-400, and to CAE, AlliedSignal, AVCORP, and a host of other companies from coast to coast.

It is a well-established fact that the Technology Partnerships Canada program is underfunded, and unless this shortfall is addressed, world product mandates in Canada will disappear and new employment opportunities will be non-existent.

With respect to the tax system, we recognize and are most appreciative of the fact that Canada enjoys a very privileged position with some very attractive provisions that promote research and development.

We are encouraged by recent statements by the Minister of Revenue that he intends to retain and improve upon the attractive R and D tax credit provisions that currently exist. We strongly recommend this. These become in many cases the deciding factor for many of our firms—who are, by the way, 60% foreign-owned—to retain their ever-so-valuable R and D efforts in Canada and attract new advanced technology investments to Canada.

• 0940

The SRED programs have been a stimulus to R and D, and we appreciate the minister's efforts to retain and improve on this program. Of concern, however, is the high level of personal income tax, compared especially to job opportunities south of the border. Current unprecedented production levels around the world have intensified competition for skilled and experienced aerospace workers. Canada's aerospace workers are coveted by our competitors for their skills and expertise.

Canada's high level of personal income tax makes it increasingly difficult for Canadian aerospace firms to successfully compete for these workers. Given the income tax burden differential between Canada and the United States, it is not surprising that Canada is losing so many experienced workers to the U.S. competitors. We need to stop this erosion. It threatens the future growth of this industry.

Our second recommendation, therefore, Mr. Chairman, would be to use part of the dividend to lower personal income tax rates, so that the gap between Canada and our competitors is narrowed. We need to give our knowledge workers reasons to stay in Canada.

We applaud the efforts of the government to stimulate R and D through the various programs that provide for collaborating R and D with universities. The aerospace industry is taking full advantage of this opportunity, and our recommendation is to sustain these programs as a means of offering the most challenging working environment for existing and new entrants to the marketplace.

In conclusion, we feel the government is on the right course, having addressed the deficit and putting priority on gradually reducing the debt. The aerospace industry wishes to be recorded as suggesting the key to future growth is dependent on a balanced approach to program spending, tax reduction, and debt reduction.

The AIAC had four priorities this year. We wanted an increase to the TPC fund. There was a need to address the shortfall in the certification resources in the Ministry of Transport in order to cope with unprecedented sales. We propose more flexible export financing mechanisms and we urge more predictability in capital budgets for defence and the space program.

For the most part, our voice has been heard, but we respectfully request that this committee hear our appeal to increase the TPC program funding, reduce personal income tax, and provide a reasonable proportion of the dividend to reducing the debt.

I want to thank you for this opportunity. I trust that our track record of success will convince you to give serious consideration to our recommendations respecting the manner in which we wish to address this fiscal dividend. Thank you very much.

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

We will now hear from the Canadian Medical Association, Dr. Victor Dirnfeld, president.

Dr. Victor Dirnfeld (President, Canadian Medical Association): Thank you, Mr. Chair. I also would like to thank you for the opportunity. I consider it to be a privilege to be able to appear before you, and I anticipate with great interest the opportunity to enter into dialogue during the question period.

I congratulate you and your colleagues for addressing the pressing issue of the brain drain, which has become a major issue for the Canadian medical workforce in the 1990s.

Evidence of the physician brain drain in Canada since 1991 is found in the federal government's own agency's figures. Data from the Canadian Institute for Health Information, known by its acronym CIHI, shows that there has been a 130% increase. That's about two and a third more loss net of physicians leaving Canada to work abroad. That's two and a third more leaving the country in 1996 than in 1991, and the vast majority of these go to the United States. In 1996 alone, there were 513 Canadian physicians net more who left Canada than came back. This represented the annual output of about five Canadian medical schools who left this country in excess of those who came into this country.

The departure of each one of these physicians represents the loss of a major investment in highly educated, skilled practitioners, who will contribute to the wealth of the nation where they practise by fostering health in their communities. But the brain drain is not isolated only or confined to physicians. Doctors represented about one quarter of the health workers who were admitted as permanent residents to the United States in 1996, with nurses making up over double that number.

The cause is clear. It's due to the federal government's unilateral and repeated decreases in the rate of increase in transfer payments, beginning in the late 1970s with established program financing and continuing into the next decade. But even worse, it culminated in April 1996 with the severe and successive cuts in the CHST cash transfer payments for health, post-secondary education, and social programs, which represented in itself about a 30% decrease in those transfer payments. The impacts on the provinces are as we know them, and part of the result is the brain drain.

• 0945

The resulting closure of hospitals and hospital beds and operating rooms, cancellation or reduction of programs, and marked restriction in the availability of standard diagnostic and therapeutic technology, including prosthetics—that's artificial hips and knees—and electrophysiologic devices such as internal pacemakers and defibrillators and also dialysis units, have markedly limited the capacity of physicians to provide needed medical care for their patients. As well, the cutbacks in funding for registered nurses have left them understaffed, overworked, overstressed, and burnt out. I see this on a regular basis daily on the wards where I work in my hospital, as do my colleagues.

Physicians, in their frustration because of the inability to practise their profession, are leaving Canada for the United States. We are not only losing our best and our brightest but often our most committed physicians, and too often we lose them from rural and remote communities. As one long-term colleague of mine, a very talented and popular physician in rural Saskatchewan, said after he went to the United States, “At home the authorities consider me to be the problem, but in the United States I'm considered to be the solution”.

A similar situation exists with respect to physicians in the Canadian research community. This talented and sought-after world-class group of scientists has been faced with shrinking government funding for basic and clinical research. As I discussed with this committee last fall, of the G-7 nations for which the most recent information is available, Canada ranks last in per capita spending for health research. France, Japan, the United States, and the United Kingdom spend between one and a half and three and a half times more per capita than does Canada. Remarkably, it is the United Kingdom that spends three and a half times more per capita than does Canada.

As has been alluded to earlier this morning, the $ 134 million over three years announced for the Medical Research Council of Canada in last February's budget represents for the most part only a restoration of previously cut funding. Only $ 18 million, by recent calculations, would be considered new money over that three-year period, a minimal and very minor increase in both the total and the per capita funding for research.

In frustration, and because they also are not able to pursue their research interests, members of the scientific research community in medicine are leaving Canada, especially for the United States, where funds, equipment, and staff are made available to them.

Mr. Chair, the committee's first question asked that with the budget now balanced, what message do we wish to send the government as to the priorities it should set for the fiscal dividend. In answer, as we had said in the past two rounds of budget consultations, the government's number one priority, as is the number one priority of Canadians consistently in poll after poll, must be to shore up medicare and to address the crisis of confidence in the system that exists among both patients and providers. In each of the past two years we have called on the government to restore the cash transfer of the CHST. A re-infusion of funds will stabilize the system, leading to the reopening of needed operating rooms, needed hospital beds, and providing for more registered nurses for needed patient care. It will provide for more long-term-care beds so that many patients now occupying acute-care beds will be able to go into the long-term-care beds.

In answer to the committee's second question in terms of strategic investments, the government should provide infrastructure support to the acute-care medical sector to enable physicians to provide better care for their patients by improving access to health technology. By example, and because these are the cleanest figures available, take magnetic resonance imaging units, MRI. According to the OECD, in 1995 Japan led the G-7 countries, with 20 MRI units per million population; followed by the U.S., with 15.5 units per million; while Canada ranked again last, behind Germany, the United Kingdom, and France, with 1.3 units per million population.

• 0950

I note that question two also asks for suggested changes to the tax system. In response, and again, consistent with what you have heard this morning from other individuals presenting, I would point out that Canada has the highest total personal income tax burden among the G-7 countries. Various tax policies in Canada, compared to the United States—where the greatest majority of our physicians go—have resulted in a significantly less personal after-tax income in Canada, compared to the United States.

As well, as this committee noted in your own report to the House of Commons last December, the issue of the unfair application of the GST on physician services and purchases merits further study, but Canadian doctors say it merits immediate action.

Your question three asks how can we help Canadians prepare to take advantage of the opportunities offered by this new era of fiscal dividends?

In answer, one of the most important ways is to provide more support for post-secondary education, whose institutions have been squeezed to the point where governments have announced or are proposing measures to allow these institutions to drastically increase tuition fees.

Two measures threaten medicine in particular with respect to the universities. The first has been the tendency for institutions to differentially increase tuition in professional faculties. The recent announcement in Ontario of the deregulation of tuition for all professional faculties is the first harbinger, which will, I assure you, march across the country in this regard.

A first-year medical student entering the University of Toronto medical school this fall will pay more than double the tuition fees of a student who entered a year ago. That tuition will now go to $ 11,000, compared to $ 4,800.

By way of giving you an example of the opportunity I had as a medical student, I had four or five months between the end of one term and the beginning of the next year to go out and earn funds to help augment my payment for tuition. That hardly exists any more in Canadian medical schools. It has been shortened to two months between first and second year that students can go out, and subsequent to that, they work virtually year-round as clinical clerks.

The Canadian Association of Interns and Residents and the Canadian Federation of Medical Students, with whom I have had intense and prolonged discussions on this matter, estimate that the individual graduating medical student's debt will be up to $ 140,000 and rising as a result of these measures. It should therefore not surprise us to see increased numbers of doctors moving to the United States to be able to repay their debts more quickly, when you consider that the average net physician income in 1993 in the United States was $ 265,000 Canadian, compared with an estimated $ 111,000 in Canada.

Secondly, some jurisdictions have proposed charging tuition to post-graduate trainees—residents—who are providing a large service component, and they do so for modest salaries. This will also increase the likelihood of medical graduates going to the United States for their post-MD training, not because Canadian schools and training centres are deficient in quality, but because there will be no and there has been no tuition charge in the United States for this post-MD training.

Your final question, sir, asks what is the best way the government can help us to ensure that there is a wide range of job opportunities in the new economy for all Canadians?

We must redirect our focus to the positive contribution of the health industry to the economy. The health industry is not a consumer of resources but a producer of resources, and we must create a sustainable environment that provides both fulfilling opportunities for those working in the health field and accessible, quality care for all Canadians, which is their highest priority.

I would leave you with this final thought: providers of health care are the solution in Canada, and not the problem.

• 0955

I want to thank the members of the committee again for inviting me to participate in this segment of your pre-budget consultations. We look forward to appearing before the committee on equally pressing issues that need to be addressed in the 1999 budget. I expect, Mr. Chair, that you will be holding a round-table on access to quality health care and the financing of our health care system, and we look forward to participating in this critical discussion once again.

Thank you.

The Chairman: Thank you very much, Dr. Dirnfeld.

We'll now move to the question-and-answer session. I'm going to go to Ms. Redman first and then back to Mr. Ritz.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you very much, Mr. Chairman.

I have two questions. The first one I'd like to direct to Mr. Giroux.

You talked about comparing Canada to the United States and you made an interesting suggestion about writing off post-secondary costs for education. I'm wondering if that's happening in the States or if you have a model that you're suggesting that be based on.

Dr. Robert Giroux: I'm sorry; I don't recall making the suggestion of writing off the costs of post-secondary education.

Mrs. Karen Redman: I'm sorry; it was Mr. Waite.

Mr. Robert Waite: To my knowledge, that is not the case in the United States. This idea really was meant to address a particular problem we have here: losing talented graduates to the United States.

When I sat down and fashioned this idea, I was trying very hard not to recreate the exit tax that one saw in the Soviet Union. The Soviet system obviously was unpopular for many reasons, and that possibly could have been one of them. So I tried to come up with something that utilized the tax system rather than a clawback approach, but something that would benefit people who stay behind in terms of their income situation. To my knowledge, though, there is not such a system in the U.S.

Mrs. Karen Redman: One of the things you've all touched on, and obviously it was one of the questions you were asked when you were appearing before us, is the brain drain. Have any of you done studies on the brain drain in the United States or on whether it's occurring in more countries than just Canada?

I keep having this sense that it's looked at as a short, straight line between our taxing structure, amongst other things, and the United States' tax structure. The comparison continually seems to be made, and yet my understanding is that brain drain happens in countries other than Canada.

Mr. Robert Waite: We have done a bit of work on that. CAE as a company has benefited from other people's brain drains over the years, most particularly, in the 1950s, the U.K. Engineering staff were trained quite well, and still are today of course, in the U.K., and we used to recruit hundreds of qualified engineers out of the U.K. in the 1950s, 1960s, and 1970s.

We attempted to go there for some very specific skills about 18 months ago and had a very interesting reaction, which taught us something. We spent a good deal of time and effort, and at the end of the day, where we needed 50 or 60 people, we ended up with two. If I had to distil down the reasons for not being able to attract people into Canada, one was, believe it or not, our personal income tax rate.

I actually went to university in the U.K.—and I'm showing my age here—at the time of the Beatles, when people left the U.K. to avoid high taxes, a 91% marginal rate at the top end. Today—and these people told us this—the marginal rate in the U.K. is much lower than in Canada.

Then you have the strength of the pound versus the dollar, and while you try to explain to people that you're going to be living in Canada, so you're going to be paid in dollars and spending dollars, somehow it just doesn't compute when it looks like in pounds sterling they're getting half the salary they were getting there.

And third, quite frankly, we have a facility in Quebec, and there is a little bit of uncertainty regarding the political situation there.

Dr. Victor Dirnfeld: With respect to physicians, there has historically been the immigration into Canada of very qualified physicians from the United Kingdom. In fact in our rural and remote communities, we depended on doctors who trained in the United Kingdom to come to Canada. That has since diminished very significantly, as their work conditions and availability of resources in the United Kingdom have improved and also their compensation has improved.

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In addition, we have had significant numbers of physicians trained in South Africa coming to Canada. They are also very competent and well-trained physicians. They have increased in numbers over the recent decade, and that's been partly because of the political instability and the political crises, either real, perceived, or anticipated, in the United Kingdom.

Those areas for Canadians to avail themselves of physician supply are limited now because the Royal College of Physicians and Surgeons of Canada, as of July of last year, will not accept the training credentials of physicians in any foreign country, except those trained in training programs in the United States. They have assessed and inspected those training programs and found them to be on par with Canadian programs.

For example, in the United Kingdom, the Queen's Square neurology unit was the jewel of the world and the paragon to which we compared ourselves about a decade and a half ago. The Royal College of Physicians and Surgeons in Canada found its calibre to be lacking, and would not accept its graduates into Canada.

Finally, with regard to the United States, there have always been very few physicians coming from the United States into Canada. It has been just a trickle, and that continues to the present time. Even in the face of the difficulty in which American physicians find themselves in the changing environment of health maintenance organizations and the like, they are still not coming to Canada.

The Chairman: Mr. Smith.

Mr. Peter Smith: Just to speak specifically of the aerospace sector, and to comment on some of Mr. Waite's experiences, in general, I just want to point out that in the aerospace industry in Canada, approximately 60% of the companies are foreign-owned. The majority of them are U.S.-based.

We have not done a study on the brain drain from the United States to Canada, but we certainly have noticed companies that brought employees who are American citizens into Canada, and have had to not only deal with the exchange rate, but also top up, with respect to income tax differentials, and it is exorbitant.

When companies like Boeing come into Canada, based on the fact that they are virtually doubling their production in their line of aircraft and have visited Montreal and Toronto, it is very attractive to the extent of the salaries they're offering, the exchange rate and certainly the personal income tax rate, so it's a normal phenomenon because of the proximity to Canada.

We also have the benefit of attracting European companies to Canada as well as employees. Nevertheless, the biggest problem we seem to be facing is that of south of the border.

The Chairman: Dr. Gagnon.

Dr. Denis Gagnon: We at the Canada Foundation for Innovation have not done a specific study on brain drain, so I can't answer the question directly. But on May 1 we had our very first competition that was open to all Canadian researchers across Canada, in all universities and hospitals, just to help those that were established between July 1995 and May 1997.

I can assure you that from the demands and the pressure we have had at the foundation, people in our universities are looking for major infrastructure, funds, and support. Again this is very new here. We've seen that in the strategic plans that were sent by all universities and hospitals across Canada, who told us “Please try to do something, try to help us better establish our research capacity; otherwise these people who have been so difficult to recruit in Canada will definitely leave.” Again I would like to have very clear numbers to tell you that we have a problem there, and that creates a brain drain.

Let me remind you there is not one single cause for brain drain. We have to be very cautious about that. We see it by looking at the research infrastructure again in Canada. We say if we cannot have better infrastructures they will leave, but there are other factors.

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Brain drain is a problem with many factors. That is why we wanted to talk about the tax burden—let's call it that for the time being. We wanted to talk about job opportunities, salaries, and so on because this is what we are hearing from Canadian researchers. So if we want to have a very good approach to brain drain, we have to look at many factors. No one single factor will explain it.

The Chairman: Okay. Mr. Riis, do you have a supplementary?

Mr. Nelson Riis (Kamloops, NDP): As a supplementary to the point Mrs. Redman was raising, to what extent is the brain drain occurring? I guess we think in terms of going from a Canadian company to an American company, or from a Canadian university to an American university. To what extent is a brain drain a reality of movement of personnel within a corporate structure? Mr. Smith mentioned that 60% of the firms here are foreign-owned. To what extent are Canadians moving from Canada to the United States, for example, simply through being transferred within the corporate system?

Mr. Peter Smith: There is a little movement within corporations, but I would suggest the aerospace industry is such a volatile industry that experience is gained by moving from company to company.

I was going to point out something else as well, to reinforce the issue with respect to the tax differential. I mentioned that the aerospace industry's average wages are almost twice that of the national average. We probably employ a group of people with the highest engineering capability per capita in the country. But we just recently completed a study where the average earnings at the manufacturing level in Canada are about $ 748 a week, while the average earnings of the same class of employee in the aerospace industry is $ 940 a week.

So when you take a look at the attractiveness, if you will, of companies like Boeing and others coming into Canada to try to attract the skills out, it's certainly not a wage issue as far as Canada is concerned. As far as we are concerned, it is the tax issue that is most attractive. But in the United States they can also, because of the exchange rate difference, provide the other incentive of making almost 40¢ more on the dollar than what they're making today.

So to answer your question, the companies do not necessarily attract their Canadian employees down to the United States. Some do go, but I find it's more in relation to the gross efforts of the various products they're dealing with. I would simply reinforce that the one thing that keeps the highly skilled professional in the aerospace industry is the challenge respecting the work environment and the creativity allowed to them in the research and development field.

Thank you.

The Chairman: Mr. Ritz.

Mr. Gerry Ritz (Battlefords—Lloydminster, Ref.): Thank you for your presentations here today.

If there's one common theme through everything we've heard here this morning, it's that you all want a slice of the fiscal dividend, a piece of that pie. Unfortunately, it's not here yet. There's one element you're all missing, in that we're still spending 32¢ of every dollar on interest on the debt. We don't consider there is really a fiscal dividend until we get that monster under control.

So how do we, as legislators, justify to taxpayers who are overburdened—I agree with you we're all paying too much, whether it's personal or business or whatever—that we need to increase the funding to all of your institutions, as well as give them tax relief? Where do we find the money to do that?

In the information we've seen here today, the Canadian Foundation for Innovation has roughly $ 1 billion they will be working with over the next couple of years. The university system says they're short $ 1 billion. Is the answer that the program shouldn't have started and should have gone to the universities to begin with? Do we need to see some rejigging of the way we fund situations here in Canada? Do we need the private sector more involved than governments in a lot of institutions? How do we rejig and do this transition for Canadians into this world economy without sending out our best and our brightest? Do you have any kernels of information?

Mr. Peter Smith: I can't speak for my colleagues, but there is one point I would like to raise. I think we need to have a sensible approach to continuing to invest. We just can't stop everything and address the debt completely.

• 1010

On the issue of engaging the private sector, I would simply use the Technology Partnerships Canada program as an example, which is a $t 250 million program. However, for every dollar that the government puts in, industry puts in three to four dollars. So it's not simply a government subsidy. It's a matter of leveraging the money available in industry to try to help the government create the jobs necessary to sustain the desire to get into and grow a knowledge-based economy.

In my comments we did include the ever so important debt to be addressed, but on the other hand, I think we ought to have a much more balanced approach than we have now. We commend the government for its record in addressing the deficit, but we cannot continue to put every cent we have into reducing the debt.

Obviously you have seen the reactions of my colleagues in the various sectors in the country. We need to ensure that those young men and women who are graduated from university have challenging jobs so that you get the revenue from a tax base—both corporate and personal—in order to be able to sustain a reasonable contribution to the debt over time.

Mr. Robert Giroux: I would like to respond to that by supporting the concept of a balanced approach.

Provisions are being made to address the debt in terms of the forecast that the Minister of Finance has put in place and so forth, and it's a legitimate consideration. But we also think it's very important that you make investments in the economy, because as your economy grows, the proportion of debt to GDP becomes less and is less of a concern in terms of the fiscal situation of the government.

We are of course arguing that certainly from a post-secondary point of view, one of the major areas of investment is education, very much so, and the government has recognized that in the past two budgets. We also feel this because we see a lot of the polls and the focus groups showing that a healthy and well-educated Canadian population is the key to growth in the future. And the government will have to continue making investments in those areas in order to sustain that level of growth.

So we are in favour of a balanced approach. We are in favour of fostering innovation, of fostering post-secondary education, but at the same time we know that something needs to be done with respect to the level of tax, particularly the personal income tax, and we also know that there should always be provisions for working down the debt without putting all your eggs in that one basket.

The Chairman: Mr. Gagnon.

Dr. Denis Gagnon: Yes. I must say, sir, that I can feel your problem. It's a very difficult one. I totally agree with that.

What I wanted to say—and Robert has touched upon it just a bit—is that what we're looking for, I guess, is a balanced approach from government.

Let me tell you that I have a problem: I have a bias. I'm one of those who believes, after my 30 years of work in universities—and in the private sector to some extent—that science and technology is the only way for Canada to grow. It's the only way for Canada to increase wealth and to make sure that what can be gained from the development of science and technology in Canada can then be returned to other measures and other programs.

I sincerely hope that Canada will be able to manage to help further the development of science and technology across the country. I'm not expecting the Government of Canada to put all its eggs in the same basket, but I hope there will be something for the development of science and technology. I sincerely hope so.

The Chairman: Do you want to comment, Dr. Dirnfeld?

Dr. Victor Dirnfeld: Yes. Obviously, as we've recognized over the past five to ten years from the sins of our predecessors, we have to learn from the past. Our approach has to be responsible. It's clear that we can't, as has been mooted in these chambers in the last six to twelve months, expand into new programs which we can't afford. And as you say, the servicing of the debt, although perhaps not as serious before because we have growth in revenue and in the economy, is still very serious.

• 1015

So we can't expand programs. We have to reduce the debt and share the fiscal dividend, which is a reasonable approach. But we have to declare what exactly in medical care will be covered and then fund it adequately. And for that which can't be afforded by the public sector, we'll have to look for partnerships in the private sector, either because they're more efficient or because, for example, in information technology they're more advanced, have a greater capital base and can afford to do that. Information technology is the next new wave of medical care.

With respect to students and keeping them here and allowing a situation where.... In my generation, my decades, students who came from families with modest incomes were able to go to university and become doctors, so we had a broad cross-section of the community represented on the basis of merit in our medical schools.

But now, if what is happening continues, it will only be the very richest who will be able to afford to go to medical school, and that would be a tragedy. And instead.... The increases can't be completely deregulated. They must be regulated, they must be reasonable, and they must be locked in step with some provision of loans for students, along with a strong commitment that the students repay those loans once they complete their training. I think those are important concepts we have to deal with.

The Chairman: Mr. Smith.

Mr. Peter Smith: Just to put some figures on this, perhaps, to try to reinforce the appropriateness of a balanced approach to addressing this issue, I will use the aerospace industry as an example.

In the next four years there will be releases of products such as the Global Express, the CRJ-700, the Dash 8-400, the Bell Textron, the 427 helicopter, and Pratt and Whitney's 150 and some derivatives. These have taken six to fifteen years of development work. This is the reason why I suggested that at the close of 1997 we had $ 18 billion worth of back orders. As an example, the Global Express, the business aircraft, has not even been certified yet, and we've sold over 70.

We're suggesting that we need to sustain that research and development so we don't have the interruptions in the out years, so the momentum can continue. We feel confident that we have identified the appropriate niche markets, but every sector represented in this room has the same demand for the sustaining of research and development to bring product to market.

I think the track record of the aerospace industry is one you could use as a model in regard to the extent of the partnership that has been established between the government and industry, with industry contributing its share three to one, or four to one, as the case may be, to provide for those out sales. This is why today you're seeing the reaping of those investments. And we need to sustain those for the future.

Thank you.

The Chairman: Mr. Waite.

Mr. Robert Waite: Just briefly, first of all, I do commend the view there needs to be a balanced approach, and certainly that is of concern to Canadian business, including ours.

The only additional point I want to make is again with regard to the brain drain. What's different for us—and what I think is disturbing—from years past is that we've always lost a portion of our employees to other activities but before it was a smaller number and most of them stayed in Canada. Now it is a larger number and most of them are going to the U.S.

Let me tell you why it's particularly disturbing from my perspective as a Canadian. These individuals who used to leave us would go off and start their own small software companies in Canada. And small companies, as I'm sure you all know, are engines of growth in terms of hiring. Also, they provide a new tax opportunity for government and they create whole new industries.

So people used to leave us because they felt they would be happier in a smaller, entrepreneurial environment, and they would go away and start companies like Cinerom, Alias|Wavefront, and Alias Software, which have become big companies in their own right. Now, because of the tax situation, they're more likely to go south to find those entrepreneurial opportunities. That's a loss for our future and our children's future.

The Chairman: Thank you, Mr. Waite.

[Translation]

Mr. Desrochers.

Mr. Odina Desrochers (Lotbinière, BQ): I would to thank all our panelists for coming and explaining their expectations and demands.

The text tabled by the Canadian Medical Association shows that in 1996, 513 doctors left Canada. You also say that this number increased significantly from 1991 to 1996. You identified one of the causes of this exodus, namely the cuts in transfer payments to the provinces made since 1993.

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My first question, Mr. Dirnfeld, is whether you have any statistics on the number of doctors who have left Quebec to go to other provinces?

[English]

The Chairman: Dr. Dirnfeld.

Dr. Victor Dirnfeld: Thank you.

Yes, there is information available. In 1991 we had, from Quebec, 85 physicians moving abroad, and in 1996 we had 108. That's 23 more, which would represent about a 30% increase from 1991 to 1996.

Bear in mind that if we want to speak about the net change, in 1991 there were, returning to Quebec, 47 physicians, and in 1996 there were 52. So there was a net increase, as well, in Quebec.

Finally, I would answer that physicians in Quebec are less mobile than physicians in the rest of the country, for two reasons. One of course is culture and language, which binds them to their home province, where they have deep roots and where they want to stay. The second is qualifications. Quebec medical schools are just as good and as fine and as advanced as any other medical schools in Canada. But a significant number of physicians in Quebec do not take the examinations that other physicians in English-speaking Canada take in foreign countries—particularly the United States—to allow this mobility to occur.

[Translation]

Mr. Odina Desrochers: With reference to the cuts in transfer payments, do you have any idea how much would have to be reinvested to restore what you called a balance? Have you done that calculation?

[English]

Dr. Victor Dirnfeld: Yes. As the Canadian Medical Association presented to this committee last fall, we have asked that at a minimum there be a re-establishment of the CHST transfer payment to the 1996-97 level. That's at a minimum. We consider that to be a platform or a starting point.

And in view of the aging of the population, the increase in the number of the population, the increase in new technology and the more intense treatment of people with advanced diseases, we would like to see a return back to the 1995-96 base year, which would, I think, be adequate at least.

[Translation]

Mr. Odina Desrochers: Can you put a figure on that?

[English]

Dr. Victor Dirnfeld: Yes. The CHST transfer payments now are at $ 12.5 billion a year. That includes health, post-secondary education, and social services. About 41% of that represents health and about 30% represents education. If we were to return to the 1995-96 base year, that would be $ 18.5 billion instead of $ 12.5 billion, so another $ 6 billion would return.

By way of explaining what the impact of this would be, if you do a cascade or a cumulative effect over the seven-year fiscal framework of the current government, from the base year 1995-96 to 2002-03, there will be a decrease in the actual dollars transferred in CHST of about $ 40 billion.

[Translation]

Mr. Odina Desrochers: You also say in your brief that Canada ranks last as regards spending on health research. My question is for all our analysts. How much is spent, and what should we be doing to become more competitive in the G-7?

[English]

The Chairman: Dr. Dirnfeld.

Dr. Victor Dirnfeld: As you see in table 3 in our handout, per capita payment spent by Canada for biomedical research in Canada was $ 22. Japan spent $ 35 per person, and it went up to the United Kingdom, which spent $ 78 per capita for biomedical research.

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We are appalled at those numbers. They are embarrassing. We in Canada have coat-tailed on the United States. We have drawn research dollars from the National Institutes of Health in the United States from funding agencies. At the very least, we would expect that Canada should have what might be an average of those G-7 nations if we were to remain a leader in biomedical research in the world.

The Chairman: Mr. Giroux.

[Translation]

Mr. Robert Giroux: Committee members definitely know that the AUCC has appeared before the committee two or three times to present its projections on university research, including those done by the Medical Research Council and other granting councils.

Last year, we made a proposal that recognized the government's fiscal reality, but that recommended, to all intents and purposes, that the budgets of the Medical Research Council and the Natural Sciences and Engineering Research Council be increased by 50% over three years. We also asked that an effort be made to increase the budget of the Humanities Research Council by 50%.

We are in the process of reviewing these projections and we will be presenting them to you later this summer at your request. These figures are very conservative. They recognize that there had been some growth in this area in Canada, and this was a complete change from the situation that had existed for several years, and that as a result, we were in step with the G-7 countries and the OECD. However, we are not at the same level at all as the United States, Great Britain, France and even countries such as Sweden and Norway. The recommendations we will be making later this summer will certainly be based on these facts.

However, the important point, is that researchers—and that is the theme of today's meeting—have some hope for the future. They are hopeful that the situation will not remain forever unchanged, because there is nothing worse when you want some funding stability. We want to see a long-term progression to assure our best Canadian researchers that there is some hope here and that they will be able to do their research, because the climate will be favourable to this activity.

[English]

The Chairman: Dr. Gagnon.

[Translation]

Mr. Denis Gagnon: To give you some idea of what is going on throughout the country, I would mention that two years ago, at your committee's request, the federal government created the Canada Foundation for Innovation and gave it a budget of $ 800 million. That is considerable, and we must recognize that fact. That was an incredible gesture on the part of the government.

This year, we held our first two competitions. If we were to spend all the money that was requested of the Foundation this year, in its first two competitions, because of the extremely difficult state of research infrastructures throughout Canada, we would use up almost all the money you gave us for five years. So that gives you a good idea of the situation in Canada at the moment. I would like to repeat that these requests for funding came to us when we were receiving the strategic development plans from universities.

Some priorities have been set. The universities have done a wonderful job in this area, but despite that, if we were not careful, we would spend the entire amount you gave us for five years in the first year. The question needs some reworking, but I did want to give you some idea of the situation.

I certainly don't want to launch a debate, but I must respond to my colleague from the Canadian Medical Association, who said that one of the reasons Quebec has less of a brain drain is Quebec's French language and culture. That is no longer true today.

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Given that it is difficult to do research in Canada, there has been a brain drain for several years, from Quebec in particular. I acknowledge that this is a new phenomenon. This brain drain is very similar to the one going on elsewhere. When we realize that even our French language and culture are no longer enough to keep people in Quebec, we have to wonder about our current capacity to do research in Canada.

[English]

The Chairman: Mr. Iftody.

Mr. David Iftody (Provencher, Lib.): Thank you, Mr. Chairman.

I was at the presentations made a number of months ago for the pre-budget consultations with the research groups, and I find this presentation strikingly familiar. We've heard this previously. I certainly recognize that there's a problem, but I don't see some kind of clear pathway here.

I want to, if I can for a moment, just outline this. I appreciate what Mr. Gagnon said about there being a number of different variables responsible for what's occurring. I've heard that we're lacking in education facilities, yet I hear that we have top-notch scientists and students and that the problem is funding for health care and historical cutbacks since the 1970s, but the real problem is tax cuts and comparative tax rates between us and that of the U.S.

There seem to be in the presentations, in my own mind, conflicting views about what we do with the problems and with some of the scarce resources. Is this distinguished panel of representatives here saying that what the government ought to do in its next budget is to reduce taxes for doctors so that they'll stay in Canada? Or do we put more money into education and health care? If we put more money in health care, do we increase the number of long-term hospital beds or do we give doctors a raise? Is that the answer? Is it some combination?

Again, speaking in scientific terms, how many variables are here? Say we only have one to choose in terms of cause and effect and that from a public policy point of view, we're trying to get the best outcomes for Canadians on this. What specific direction can you give this committee? I really haven't heard much of that here this morning for the past hour and a half.

The other thing I'd like you gentlemen to consider is this particularly when we keep using the U.S. as a comparative example. We talk about the tax rates. What we haven't talked about is the fact, Mr. Chairman, that to get a master's in engineering, for example, at one of the more reputable U.S. universities, after five years of education, isn't that going to cost you or your family or somebody in that circle $ 100,000 U.S.? Who's going to pay for that?

As well, we talked about health care costs for the average worker in the U.S. Where is that 10% or 15% off of his or her salary coming from?

You can't have it both ways. You can't have comparable tax rates to that of the U.S. and yet at the same time not pay for those health care costs and education costs, which is where large federal, provincial, and public expenditures are going right now. In other words, what I'm saying, Mr. Chairman, is that you can't have it both ways. You can't have lower tax rates comparable to that of the U.S. and continue taxation on health and education to pay for this public kind of services.

I just want to make a comment on the aerospace industry as well. I appreciate the point that we have to compete with a number of different countries, but even in this morning's papers, The Globe and Mail and The Financial Post, there's a dispute between Brazil and Canada over who's subsidizing the other country the most. We can't sell any airplanes or aircraft around the world because we're getting into these disputes with some of our trading partners.

• 1035

It begs the very obvious and painful question, I suppose, that if this is the major stumbling block to it, maybe we have to revisit some of these investment programs, because they're hurting us rather than helping us.

So I would like to ask some very difficult and candid questions of you very distinguished folks, because I don't think we've talked about some of these things. I'm going to start with that basic one. What's your fundamental recommendation to this committee, since we only have about 25 minutes remaining now? Is it tax cuts or is it transfers?

The Chairman: Mr. Smith and then Mr. Waite.

Mr. Peter Smith: If I could just comment on the aerospace issue, one thing we have to be very conscious of—and it's a very difficult debate, and I appreciate the question you raised—is that notwithstanding the success of the aerospace industry, the issue today is whether the work will remain in Canada or go abroad.

I'll use the example that unless you provide an opportunity for the companies to sustain their research and development, which will sustain their manufacturing here in Canada, the Canadian value-added of those increased sales will diminish immensely. I use as an example the Global Express, where the wing is being built by Mitsubishi in Japan. The fuselage for the Dash 8-400 and the transmission for the PW-150 for the first time ever are in Italy.

The reason for this is that there are more attractive areas where this can be done to reduce the cost. Cost is very important to all of us, in the sense that it's being determined by the carrier, who basically buys the aircraft.

When you take a look at the issue of the choices, my particular position is that $ 250 million to invest, which would allow for industry to put $ 3 or $ 4 for every $ 1 put in to create the $ 18 billion to $ 20 billion worth of sales, is a means of leveraging the appropriate funds to create the employment opportunities we're looking for.

As for the issue of taxes, it was simply a matter of raising the fact of what is going on in the industry today. You raised the issue of Brazil. That could be debated, obviously, for hours, as it has been under investigation for some time.

We're not saying two wrongs make a right. The fact of the matter is that many aerospace sectors in the world are owned by their federal governments, be it France; the U.K., which is now privatizing; or Brazil, which is now privatizing. We too would like to see no further subsidies in the aerospace industry, but it's not possible in the competitive world we're working in.

There are World Trade Organizations and General Agreements on Tariffs and Trade that are reducing these, and they are in fact correcting the marketplace. But in the meantime, we in Canada cannot just stop and say “No subsidy”, because you may as well allow the aerospace industry, which has been quite successful, to evaporate and go on to do something else.

The Chairman: Mr. Waite.

Mr. Robert Waite: I want to first of all thank you for being so direct, because I think it will be helpful to us. We do of course represent varying interests. My company, for example, is not part of the 60% that Mr. Smith.... We're a Canadian-owned and -operated company, and only about half of what we do is in aerospace. So I speak to some broader issues.

One thing I would point out is that when we do lose people to the United States—young software and electrical engineers—quite frankly, the last thing they're worried about is health care and all of the things surrounding the social fabric. That's perhaps surprising and unfortunate, but they are typically in their late 20s; they think they're invincible, both professionally and physically. They go down.

They have packages that actually fill in the gaps. The companies are pretty smart about doing that, because they know that's what will attract Canadians, so those gaps get filled in.

Our worst nightmare, quite frankly, is that these people will return in their 40s and 50s with 17- and 18-year-old daughters and sons ready to be educated at our expense and, much as I am in my 40s, ready to spend more time in the health care system with aches and pains. That is the worst nightmare.

• 1040

Getting to your very direct point on what's most important, I would say, well it may not be ordered this way in my testimony—actually the most important thing to a company like CAE and to some of the biomedical firms that were mentioned earlier and in answer to an earlier question would actually be finding a way to leverage the R and D tax credit program better.

Companies like CAE who are really engines of research and development actually have unused credits and if they were a way we could try to utilize those unused credits I can assure you we would spend considerably more money on R and D and hire more engineers assuming we can keep them.

But, again, thank you for trying to get us to be more focused because that's always useful.

The Chairman: Dr. Dirnfeld.

Dr. Victor Dirnfeld: I, as well, welcome the opportunity to frontally be presented with a request for specific solutions as well as an opportunity to talk about some of the other ideas that you've brought up.

With regard to talented people, our capacity in Canada to produced high level accomplished doctors, even in the face of a constrained budgeting for universities and medical schools, I think that speaks to the calibre of the people of the talent we have, both teaching in our schools, their commitment to teach, as well as the calibre and the merit of the people who are going through medical schools.

A lot of learning is self-directed in medicine. It accesses world and international literature much, by the way I must tell you, in terms of textbooks and learned journals do come from the United States because of their cutting edge and leading edge research and scientific knowledge in that country.

The costs of health care in the United States that you brought up and how that factors in the income tax differential has been estimated in MacLean's, for example, this coming week in their current edition to be about 2% or 3% difference in income tax when the full income tax difference between our two nations at the highest level is about 13% or 14%. So, that's still even taking into account the health and other social services that citizens have to pay for in the United States leaves a large differential in disposable income because of decreased taxation in the United States compared to Canada and that cannot help but attract young people as was just said who do feel invincible and are willing to take risk and the like.

The whole area is not a single issue, but there are multiple areas which impact on why individuals throughout the whole spectrum of what we call the “brain group” make a decision to leave Canada and go to the United States. They are going to universities here and when you compare and you ask about universities in the United States where tuition costs are greater, they're not that much greater in the public universities in the United States. They are significantly greater in the private ones, but the private ones are richly endowed and there are many compensations for especially students who come from families who do not have means, there's an ability to compensate them, augment them and to help them. And even those who come from families who are middle or upper class, should they incur debt they have the capacity to recoup that debt at a much more accelerated manner in the American economy no matter what their discipline is, including medicine.

Now, with respect to increasing the funding it's clear that we have a limited amount of funding and we have an allocation decision that we have to make in this country and part of it, we talked about it in a balanced way, should go to debt reduction and the rest we believe I think collectively here should be judiciously apportioned to other areas.

With respect to health care, as I said before, there has to be a declaration and it has to be explicit by governments to say what we are going to cover in health care and when that decision is made and we have methodologies and templates and methods of doing that, once that decision is made then there has to be adequate funding for adequate access for what's going to be covered in health care. For the rest we should partner with the private sector and we should curry investment, although ideologically that may not be acceptable to some individuals and to some constituencies. I think we have no alternative if we are to maintain the current level of service and to move forward.

• 1045

Finally, with regard to tax, it should be stated that there is a large and very influential body of opinion that says decreasing taxation increases wealth production; that governments may not be the smartest and the most wise in how to apportion the income of individuals; and that individuals should be afforded the opportunity to generate, to create, to be entrepreneurial, and to increase the wealth of the nation.

The Chairman: Thank you.

Mr. Giroux.

Dr. Robert Giroux: Mr. Chairman, I don't think it will surprise the committee that certainly on behalf of the university community we will be strongly supporting increased investments in post-secondary education, in the area of research, and in the area of international education, as we mentioned in our brief today.

We have brought to your attention also a problem that is emerging very strongly as a result of reductions in direct financing of universities, in terms of the problem of the base budgets of our institutions. Certainly we will be advocating very strongly, with more data supporting this, when we come back to you later on with concrete proposals.

The Chairman: Thank you, Mr. Giroux.

Dr. Gagnon.

Dr. Denis Gagnon: Maybe just a few words. As I said to your colleague just an hour ago, I do agree with the fact that you're facing a very difficult problem. If I had to give you one suggestion, I would say I'd hope that the federal government would take the best decisions to strengthen the Canadian economy and to make sure that we're in a position to create wealth for Canada, because I see that as the driver for the future economy.

In my view—and again, I might be wrong—the strengthening of the Canadian economy goes through innovation, goes through the development of science and technology. This is why I feel it is important for Canada to do something more within this area of activity.

Again, I think what I'm looking for is a balanced approach from Canada, but a very focused eye on the development of the economy through innovative procedures.

The Chairman: Mr. Pillitteri.

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

Some of the remarks I was going to make were addressed by my colleague, but I just want to refresh some of the panellists' minds as to the cost factor and comparing us to the United States.

I have a very good friend, who is so close to me it almost could be me, and on a $ 100,000 property in Florida he pays $ 1,900 in taxes a year. He pays $ 261 on property insurance, which only accounts for $ 30,000 in coverage; $ 214 on flood insurance; $ 180 on wind insurance; and higher hydro, telephone, and cable television. This is not counting all the other expenses. And he doesn't have medical coverage. So if we're comparing one or the other in taxes, that's not really the issue here.

Also talking about costs, I just had a niece graduate as an optometrist from Philadelphia, and she has a debt of $ 140,000 U.S., and hasn't even started work yet. So let's get something straight. We're only counting here in Canada where our students have a debt load of $ 25,000, so let's start comparing something else.

Doctor Dirnfeld, you made a remark about social transfers—$ 12.5 billion versus the $ 18 billion it would have been. Did you also take into account how much in tax points was transferred to the provinces at that time? This is one part of the question.

Also, you said 41% went to health and 30% to post-secondary education. That leaves 29% that would be left in the Canada Assistance Plan. But on the other hand, provinces could spend whatever they want. It's no longer earmarked. So how much was in the transfer of tax points from the $ 12.5 billion to $ 18 billion? Because these are not really the figures. We're only talking about $ 12.5 billion as far as the cash goes, but $ 18 billion was the total combined of five years ago.

• 1050

Now that's one part of the question, but I think I'm going to throw out another question to everyone. Have you done any studies? Second, has the brain drain increased or declined?

What I'm trying to say by this is that I recall a few years ago when my own children were looking forward to going down to the States. They were finely educated and all were university graduates and they were trying to go down to the States. They were almost at the tail end. Their friends who had been there a few years earlier were finding good jobs in the States. Then there was an opening here in Canada. Now, in the last few years, it's getting better for students.

Is it the age when the brain drain is continuing, or is it up and down? Have any of you done a study to see if it goes in a five-year or ten-year cycle? I'd like to have some answers to that if possible. Or when you come forward next time, you can bring that forward.

Dr. Victor Dirnfeld: In answer to the questions directed, thank you very much for bringing these points up. I'll answer the last question first.

With regard to the brain drain, certainly in medicine, it is on a continuous upward grade. Now on that upward slope—we have figures from the Canadian Institute of Health Information—from 1991-96 there had been some cyclic aspect to it, but it always was on an upward slope. We have provided a table for you to review in this regard.

With regard to the example you gave of the debt of the niece in optometry, I would point out that the projected debt for a medical student, that's undergraduate and medical training, is projected to be about $ 140,000, given the change in the University of Toronto and others in Ontario and what's soon to occur in a university near to you. This is the projected debt, which is similar to the one you spoke of with your niece. But your niece will have, by the figures that we have available, twice the capacity of earning power to recoup that indebtedness, plus there's the endowment in the richer private schools in the United States to offset that by scholarships and loans.

With regard to the tax points, that's a very tricky area for me. I'm not an economist and I'm not an actuary. I'm not a politician, and I don't know the finer elements of this, but I do hear from and read, for example, experts like Mr. Tom Kent, who in December of last year presented at the Caledon Institute of Social Policy. He is considered to be the godfather of Canadian medicare and was instrumental in the production of social policies in this country along with Lester Pearson in the 1960s. He stated this, and he stated it again at the International Institute for Research Pulse Conference, which was held last month in Toronto—I also presented there—that the tax point issue is a dead point. It's an argument that is a non-starter, and he gave certain reasons why this is the case.

I have to admit to you, sir, that I have neither the training nor the opportunity to study these in depth, but I'm willing to get the background documents from our staff and of course from Mr. Kent. With regard to the approach and the interpretation of other experts, the tax point issue is really a non-issue in this discussion.

The Chairman: Mr. Riis.

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

Mr. Gary Pillitteri: Just a minute, Mr. Chairman. Possibly we could hear from our own research what the value of the tax points was so that we would be able to answer next time when this question comes forward.

The Chairman: Okay.

Mr. Gary Pillitteri: Thank you.

The Chairman: Thank you, Mr. Pillitteri.

Mr. Riis.

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

Gentlemen, I'm trying to think if there's a theme in all of the presentations. There are many of them. I guess the one that strikes me is “Houston, we've got a problem”.

• 1055

I listened to Dr. Dirnfeld describe what he says is indeed an existing crisis in confidence in our health care system, and he laid out the reasons why. I noticed in the newspaper over the weekend that the federal government has signed a deal with the Department of National Defence to send National Defence physicians into Newfoundland on an emergency basis because there are not enough doctors to do the job there in some of the rural areas. I guess this is the ultimate indication of a crisis in health care, certainly in that part of the world. Then the others talk about a pending crisis in the brain drain and science and technology funding and so on.

I have two or three questions. Mr. Smith, I hope you won't mind if I ask you this question. Some time back we had the Canadian Taxpayers Federation here, and they pointed out a problem in terms of a lot of the grants and loans that have been made to high-tech companies, which is they never get paid back. At least that was his thesis. He identified it as being billions of dollars that are paid out but never paid back. What would be your comment to him after he made that accusation?

Mr. Peter Smith: We've had several debates on that particular issue, and my comment to him would be the same as my comment to you: that, unfortunately, what happened was that he had data provided to him that was a snapshot in time that indicated a total amount of government assistance to business, some of which was contractually repayable, some of which not.

Having said that, the most recent articles that you have no doubt seen in the paper indicated that one of the companies, Bombardier, has only paid about 5% of its total amount of government contributions. I can't indicate whether that percentage is correct or not today, but I can indicate to you that any money given to Bombardier with respect to the development of an aircraft can take up to 15 years from time of concept to product development into the marketplace and sales.

What I find very frustrating is the sense that when you take a look at a particular contribution of that kind that has a contractual obligation to pay, it only cuts in at a time and when the product becomes a profitable product. In one case, for instance, Bombardier would have to sell 400 aircraft before it becomes a break-even situation. So it's after the four hundredth aircraft that the repayable cuts in.

When you take a look at the projections of the repayables, and particularly in this case, I think they were referring to the defence industry productivity program, my understanding is the federal government recovered $ 93 million last year and expects $ 73 million this year. And in the case of Bombardier, they have the right, contractually, to pay back up to the year 2025.

So I don't deny that the position is the same today. It may be 5% based on the overall amount that has been given, but I think it's unfair to suggest that it all should be paid today, for the simple reason that it has progressed over a period of time, at which time the products are released and there's a break-even situation. Unfortunately, I think, in Mr. Robinson's case, he fails to accept the fact that it is a leveraging of private sector money and fails to accept the fact that it's over a period of time in which the government could conceivably, on the success of the product, reap more than what they contributed, in that it can go into perpetuity with respect to the products that are being sold.

Mr. Nelson Riis: The other problem, as I see it, when it comes to personal income tax.... And if there's been a theme in the presentations, it's obviously that we must invest significantly more in health care in terms of restored funding, the same with R and D support for science and technology, and at the same time we need to reduce personal income taxes.

Yesterday the panel before us was making a compelling case that there's no choice but to reduce corporate taxes, and if we don't we're going to be in serious difficulties. There's a dilemma here that we have to face: it's difficult to do both, plus forget the side of the issue of the debt repayments. Perhaps people would want to make a quick comment about that.

Also, specifically to Dr. Dirnfeld, in terms of restored funding to health care, how far would this go to reduce the brain drain, particularly in the medical field? I realize it's not as simple as restore funding and then that will take care of it, but to what extent would it take care of the problem if we were to bring funding up to what it should have been, as you say in your report?

• 1100

Dr. Victor Dirnfeld: Thank you. Very briefly, we don't have numbers or figures, but we have in our surveys a significant number of physicians who had moved who gave the lack of accessibility to health care facilities and technology as a reason for their leaving.

For example, the two orthopedic surgeons who left Prince George three years ago because they couldn't get hips and knees to put into their patients, let alone operating time, went to Minot, North Dakota. That's not a place I would choose first on my list, but they had unlimited access to unlimited resources there and they were an asset to the community.

Others in the academic field have left because, again, they have had both research and clinical opportunities that have been made available to them.

So it's a qualitative rather than a quantitative answer, and I think it would be significant in the retention both in the urban centres and the academic centres, but especially in the rural and remote areas.

The Chairman: Are there any further comments from the panel? Mr. Riis, do you have any further questions?

Mr. Nelson Riis: I have an observation. Perhaps somebody could respond.

In terms of the firms that you represent or that I'm aware of, if someone from Boeing's plant in Seattle or wherever is told they have to now go and live in Canada, this must be a horrible experience for them. In terms of what you folks have described, this must be a fate worse than death to have to go and practise your profession in this country. Is it that bad actually?

The Chairman: Mr. Waite.

Mr. Robert Waite: I can answer this from two perspectives. One is in terms of my own company, we have been trying to attract people into the company, actually at very senior levels, for some general manager types of positions, and it's a mixed reaction. I think, quite frankly, they see this as a wonderful country and a beautiful country and see all the positive aspects. It's the down side when they sit down with their accountant that often brings them to a different decision. There's nothing negative there from a quality of life aspect. It's quite the opposite. I'm sure you would agree with that.

Mr. Nelson Riis: I would agree with that. I forget which of you two gentlemen made the point that the number one point in terms of people being attracted to a job is job satisfaction.

Mr. Robert Waite: The Canadian Advanced Technology Association, in a study, made that point just this past week.

I was going to say, also—

Mr. Nelson Riis: If it is job satisfaction and there is this movement, this mass exodus—perhaps not mass, but serious exodus—out of the country, presumably then for them job satisfaction is not the case. If that is the case then we don't have job satisfaction.

Mr. Robert Waite: The point I think a number of us made—and it is a common theme—is that in addition to the tax situation we described, there is a need to have “meaningful work”, and that typically for people in these types of professions includes research, exciting, ground-breaking research. I think that's why you're getting more than one answer here. There's more than one issue.

M. Peter Smith: Mr. Riis, I'd simply like to suggest that six or so senior executives who I know who have come up in American-owned companies have all been paid in U.S. dollars. They're absolutely delighted to be in Canada for the quality of life and certainly the attractiveness. They hate the winter, but nevertheless that depends on where they're working.

I think it would be difficult to accept if you felt that there was a reason for them to exit the U.S. and come to Canada without having an incentive, and the incentive basically is being paid in American dollars and they don't lose anything out of their pocketbooks in that regard.

Dr. Robert Giroux: I'd like to add very quickly, because you talked of the theme of job satisfaction, the point we are making here this morning, particularly in terms of research assistance, is that one of the key factors our studies have shown in terms of keeping top-flight researchers in Canada is the total research environment, from the infrastructure to the direct assistance, to the technicians and so forth. That is currently lacking in many of our institutions. That's why there's such a high demand with the Canada Foundation for Innovation, and that's why we need more assistance in that area.

For us, in our surveys, that was a key factor, not necessarily the level of taxes or other things. It was the key factor.

• 1105

The Chairman: Thank you, Mr. Giroux.

Dr. Dirnfeld.

Dr. Victor Dirnfeld: Mr. Riis, you raised the Newfoundland situation, where the Canadian Air Force medical personnel are going to be brought into Newfoundland to provide care because of under-servicing there.

I had the opportunity to discuss this and many other things with Mr. Brian Tobin, Premier of Newfoundland, four days ago, and he lamented the exodus of physicians from Newfoundland. Part of it was the inability to practise because of lack of infrastructure. The other was the fact that physicians in Newfoundland are getting compensation that is more than 15% less than the rest of Atlantic Canada.

The use of the Canadian Forces represents a band-aid approach. It's probably an indication of too many band-aid approaches to how we're dealing with the funding issues in health care and access issues in the country. I'm glad you've brought it up.

The Chairman: Thank you, Dr. Dirnfeld.

On behalf of the committee, I would like to thank you very much for what I think was an excellent round table on this very important issue of brain drain.

As you have gathered already from last year's recommendations in the report Keeping the Balance: Security and Opportunity for Canadians*, this committee is very sensitive to the issues you've raised over the years. We're quite happy to see that the Minister of Finance actually acted upon those recommendations.

One of the challenging things we face as a committee, of course, is that we hear different views coming from different perspectives, and brain drain is yet another example. As you know, there was a study published by Statistics Canada in which it was argued that Canada is in a net brain gain situation. By that I mean Canada has more immigration of skilled workers from the rest of the world than the losses to the United States. Also, participants in a recent C.D. Howe Institute conference examining the issue concluded that there was really no particular problem in reference to brain drain.

We of course take note of the points you have raised, but there are also two schools of thought on this particular issue.

My question is specific to the issue of taxation. As you know, Canadians feel their tax burden has increased over the years, and it's an issue they would like this committee to focus on quite seriously. It strikes me that if we were to address the issue related to the individuals you're referring to—meaning the high-paid Canadians, because that's who you're talking about, doctors, scientists and researchers who are now, as you say, leaving to go down south because of preferential treatment they may get there—you are essentially talking about, more or less, an across-the-board tax cut, because for us to get up to that level we need to start thinking about an across-the-board tax cut.

Do you think now is the time to do it, or do you think we should continue doing what we recommended last time and target tax cuts, starting with low-income Canadians, and work our way up as the fiscal situation improves?

Who wants to answer that question? Mr. Smith.

Mr. Peter Smith: I think it should be across the board. I think we would be sending the wrong signal in making choices. If there were a gradual across-the-board recognition that, in comparison to the other G-8 countries, Canada is now in a fiscal position to at least modestly address the issue, it would give a very strong signal to all classes of employees and would be that reassurance they need.

It doesn't have to be much, but I think as long as there's an indication there is an earnest desire on the part of the government to address all classes in the most modest way possible, it would be a signal that would be applauded by all.

Thank you.

The Chairman: Mr. Waite.

Mr. Robert Waite: I would echo that it should be across the board. In instances I've described, which may be somewhat different from my colleagues', I'm really talking about people with five or six years of experience who are in their late twenties and are not making six-figure incomes. They're making more in the $ 40,000 to $ 50,000 range. I think just a move in the right direction would allow them to believe that things are moving more in their favour in terms of take-home income.

• 1110

I agree that it doesn't have to be big, but it has to show the beginning of a commitment. To give and take and then give and take is not the right answer. So if this is something you would do for a year or two and then whoever took power after an election would take it back, that would almost not be worth doing at all.

The Chairman: But people are leaving because the tax cut and tax benefits are substantial. If you just give them a tax cut that is minimal, what makes you think they would stay?

Mr. Robert Waite: Depending on how it was marketed to the Canadian public, if it were seen as a first step in tax relief and if they were given the information as to why it could only be an incremental first step—because of the reasons we've been discussing, the budget deficit and other issues—I think that would give people pause.

Can we match U.S. salaries on an after-tax basis? Absolutely not. The gap is quite large, even given some of the issues that were raised about the cost of health care and property taxes and all of that. But I think it would send a signal, and I think signals are important.

The Chairman: Mr. Smith.

Mr. Peter Smith: To add to that, and to add to a comment Mr. Riis had made, I haven't spoken to anyone who has gone south of the border or to anyone who has come north who hasn't applauded Canada as one of the most wonderful nations to live in. The issue is that there are substantial tax differences and substantial wage differences.

All that is required—and I agree with Mr. Waite—is a signal that Canada has now addressed its deficit situation and is now responsibly looking at a balanced approach to increased program spending within our means and to addressing the debt.

I think that long-term incremental signal that we are finally wrestling with what is perceived, at least, by people abroad as a very unfair personal tax situation because of the large differentiations between the percentages—particularly south of the border—is probably the most appropriate signal that can be given, because Canada is a wonderful place to live and no one would suggest otherwise, certainly not those who have crossed borders with facility.

The Chairman: I have one quick question to all the panellists. You have $ 1 billion worth of so-called fiscal dividend surplus. How would you split it—debt reduction, tax cuts, social spending?

Mr. Peter Smith: A third, a third and a third.

The Chairman: A third, a third, a third?

Okay. On behalf of the committee, I would like to once again thank you very much.

The meeting's adjourned.