BOARD OF TRADE OF METROPOLITAN TORONTO
ONTARIO HOME BUILDERS' ASSOCIATION
CANADIAN FEDERATION OF INDEPENDENT BUSINESS
CAMPAIGN FOR A BETTER BRANTFORD
ONTARIO UNDERGRADUATE
STUDENT ALLIANCE
ONTARIO COMMUNITY COLLEGE STUDENT PARLIAMENTARY ASSOCIATION
ONTARIO ALTERNATIVE BUDGET WORKING GROUP
ONTARIO HOTEL AND MOTEL ASSOCIATION
CANADIAN FILM AND TELEVISION PRODUCTION ASSOCIATION
CONTENTS
Tuesday 9 June 1998
Tax Cuts for People and for Small Business Act, 1998, Bill 15, Mr Eves /
Loi de 1998 sur la réduction des impôts des particuliers et des petites
entreprises, projet de loi 15, M. Eves
Ontario Chamber of Commerce
Mr Douglas Robson
Mr Atul Sharma
Board of Trade of Metropolitan Toronto
Mr John Bech-Hansen
Ontario Home Builders' Association
Ms Celia Teale
Mr Peter Goldthorpe
Canadian Federation of Independent Business
Ms Judith Andrew
Campaign for a Better Brantford
Ms Sarah Bolton
Canadian Auto Workers
Buzz Hargrove
Ontario Undergraduate Student Alliance;
Ontario Community College Student Parliamentary Association
Mr Andrew Boggs
Ms Cynthia Hilliard
Mr Rick Martin
Ontario Alternative Budget Working Group
Mr Ross McClellan
Mr Hugh Mackenzie
Ontario Hotel and Motel Association
Mr Rod Seiling
Urban Development Institute
Mr Stephen Kaiser
Mr John Latimer
Canadian Film and Television Production Association
Mr Larry Malloy
STANDING COMMITTEE ON ADMINISTRATION OF JUSTICE
Chair / Président
Mr Jerry J. Ouellette (Oshawa PC)
Vice-Chair / Vice-Président
Mr E.J. Douglas Rollins (Quinte PC)
Mr Dave Boushy (Sarnia PC)
Mr Bruce Crozier (Essex South / -Sud L)
Mr Peter Kormos (Welland-Thorold ND)
Mr Gerry Martiniuk (Cambridge PC)
Mr Jerry J. Ouellette (Oshawa PC)
Mr David Ramsay (Timiskaming L)
Mr E.J. Douglas Rollins (Quinte PC)
Mr R. Gary Stewart (Peterborough PC)
Mr Bob Wood (London South / -Sud PC)
Substitutions / Membres remplaçants
Mr Tony Silipo (Dovercourt ND)
Mr Terence H. Young (Halton Centre / -Centre PC)
Also taking part / Autres participants et participantes
Mr John O'Toole (Durham East / -Est PC)
Clerk / Greffier
Mr Douglas Arnott
Staff / Personnel
Mr Avrum Fenson, research officer, Legislative Research Service
The committee met at 1615 in room 228.
TAX CUTS FOR PEOPLE AND FOR SMALL BUSINESS ACT, 1998 LOI DE 1998 SUR LA RÉDUCTION DES IMPÔTS DES PARTICULIERS ET DES PETITES ENTREPRISES
Consideration of Bill 15, An Act to cut taxes for people and for small business and to implement other measures contained in the 1998 Budget / Projet de loi 15, Loi visant à réduire les impôts des particuliers et des petites entreprises et à mettre en oeuvre d'autres mesures contenues dans le budget de 1998.
The Chair (Mr Jerry J. Ouellette): The committee will come to order.
Mr Terence H. Young (Halton Centre): On a point of order, Chair: I'd like to ask the committee for unanimous consent, due to time constraints and so that as many delegations have an opportunity to speak as possible, that we ask the delegates when they come forward, if their original time slot is longer than 10 minutes, that they give a presentation of 10 minutes to allow more people to speak. At the same time, Judith Andrew, from the Canadian Federation of Independent Business, was here when committee was originally supposed to start and is on her way here again. I'd like to ask for unanimous consent to move her down and let her present when she's able to come to committee.
The Chair: First of all, we don't need unanimous consent to rearrange, because the subcommittee allowed the clerk and the Chair to do so, so we can arrange that. But is there any further discussion on the unanimous consent for the presentations to be moved to 10 minutes? All in favour? Carried.
ONTARIO CHAMBER OF COMMERCE
The Chair: I ask the first presenters if they could come forward, the Ontario Chamber of Commerce. I hope you understand the situation as it has unfolded. As I'm sure you heard, you have 10 minutes to present. Any time remaining is divided equally between the three caucuses for questions and answers. You may begin.
Mr Douglas Robson: Good afternoon, committee members. I appreciate this opportunity to present to the committee on Bill 15, the Tax Cuts for People and for Small Business Act.
In the interest of time, we'd like to limit our presentation to touch on two portions of the bill, the Income Tax Act and the Corporations Tax Act, and to touch on two portions of the government's budget related to this bill, if we may, the employer health tax reductions and the commercial and industrial business education tax changes.
With regard to the Income Tax Act, this bill fulfils the government's commitment to reduce personal income tax to 40.5% of basic federal tax. Our membership has long applauded the government's commitment to reducing personal income tax, and we're quite pleased that the government is moving ahead with fulfilling that commitment, as we'd recommended here in our pre-budget submission.
The importance of the personal income tax reduction lies in the confidence it gives to the consumer and to business in Ontario. It makes it a more competitive jurisdiction. The tangible benefit of lowering personal income tax is the increased purchasing power for consumers. The latest economic indicators show that it is only recently that people started to feel that the economic climate has changed away from the gloomy early 1990s, the recessionary period.
Not that many years ago we talked about Ontario having a jobless recovery, primarily because the export sector kept our economy going, mostly due to auto production. The recovery has now spread to other parts of the economy and we don't talk about jobless recovery, because employment growth over the past year has topped 5%. According to StatsCan, almost 300,000 jobs have been created since February 1997.
What has the impact been of the tax cut? Most economists will tell you that the current economic recovery is partly a result of the tax cut and partly a result of lower interest rates. However, we believe that the tax cuts have had a beneficial psychological impact on the economy and that people feel better about their futures because we have a better business climate in Ontario than we had three years ago.
Regarding the Corporations Tax Act, the second part of the bill that we would like to discuss is the reduction of the effective corporate tax rate for small business. Through this legislation, the government has cut in half, from 9.5% to 4.75%, the effective tax rate on small business. A reduced corporate income tax rate is something that we feel makes Ontario businesses much more competitive. As many of you know, our mantra is making business more competitive.
There's no question that one of the key drivers for employment growth is small business. Reducing the cost of business will make the decision to hire another employee easier. Many of our members applaud this move. You only have to look at the Help Wanted ads to see how effective it's been.
The employer health tax changes are an issue we'd like to touch on. It is moving the $400,000 exemption that was to be effective January 1, 1999, to July 1998. We feel that will also have the impact of creating a more competitive business climate in Ontario and also of reducing the costs of doing business. This move makes Ontario business more competitive and should contribute to more job creation in Ontario.
With regard to commercial-industrial business education tax, we understand that the government will be bringing other legislation forth to deal with the issue of commercial-industrial business education tax changes. Nevertheless, we want to use this opportunity to say that we and many of our members are delighted that the government has chosen to lay out a definitive plan to bring communities whose business education tax rate is above the estimated 3.2% provincial average in line with that level.
It's very important for communities like Toronto and Hamilton to have a local competitive environment so they can continue to flourish and thrive. In our pre-budget presentation, we asked the government to look for a creative solution that would not decimate Main Street for the sake of Bay Street, while still understanding the importance of Toronto to the economic wellbeing of the rest of the province.
Our recent annual convention in Owen Sound approved a resolution brought forward in part by your next presenters, the Toronto board of trade, to have a uniform province-wide business education tax rate fully implemented by January 1, 2001. I believe this government's firm commitment to resolving this issue will meet with the approval of many of our members, both big and small businesses.
In conclusion, the Ontario Chamber of Commerce strongly supports the government's commitment to making Ontario a more competitive jurisdiction and to creating a climate where business and consumers can enjoy prosperity.
We'd like to leave the government with one note of caution. In our analysis, we described the budget as "a silver budget with a dark lining," silver because of the reinforcement of the commitment to competitiveness, the dark lining because the deficit still continues to linger. We urge the government not lose sight of the goal of ensuring a balanced budget before the next election and of providing a comprehensive plan to reduce the debt. Once we have control of our debt -- as you know, now at over $100 billion, and one person here said approaching $130 billion before we can turn it -- only then can we show ourselves to be one of the most competitive jurisdictions in North America. Thank you very much.
The Chair: Thank you very much for your presentation. That allows us just over a minute per caucus for questioning. We begin with the official opposition.
Mr Bruce Crozier (Essex South): Thank you for coming today, notwithstanding the delays you've had to endure.
In view of governments' -- and I use the plural -- history of borrowing for deficit spending, do you think that's a wise thing for a government to do?
Mr Robson: That's such an economic question. I'm going to turn to my chief economist and let him tackle it, if you don't mind, Mr Crozier.
Mr Atul Sharma: There are certainly instances where the government may have to look at deficit financing. Our view has been not that there should never, ever be any deficit financing, but it should be -- at our annual convention we actually looked at a resolution which stated that the budget should be balanced over a four-year period. That would allow the government flexibility in any one year, that if they needed to look at deficit financing they'd be able to do that, but that over a four-year period the budget should be balanced.
The Chair: Thank you, Mr Crozier. We'll move to the third party.
Mr Crozier: Oh, and I had my best question left.
The Chair: Sorry. We only had a little over a minute.
Mr Tony Silipo (Dovercourt): Thank you, Mr Robson, for the presentation. I understand the position of the chamber with respect to the income tax cut, and I don't presume to change your mind, or for you to change my opposition to it. But I want to ask, with the fact that the government has had to add to the debt to fund that tax cut, to what extent that concerns the chamber, because obviously you also believe, as an organization, very strongly in the need for the debt to be reduced.
Mr Robson: We think what you're talking about, though, is part of that psychological climate, that you have to set that in place to get some of the activity we've seen. We appreciate the point that things that get a little bit worse before they get better, but we think that in setting the right climate for business, it's important that you have the tax cut along with the low interest rates and less government spending. Things are really on the move. A lot of the graphs, as you know, have never been better in Ontario in decades.
Mr Silipo: Right, and we'll leave for another day our continuing debate about whether it's the tax cuts that have caused that growth.
The Chair: We'll move to the government members.
Mr R. Gary Stewart (Peterborough): Thank you, Mr Robson, for your presentation. It was interesting to see on television the other night that Pataki from New York had an ad saying that they've reduced taxes by 20% and how it was resulting in job creation.
I've read through this. Certainly you represent the small business sector of the province. We've been criticized that this tax cut has moved too fast and it's too big. Do you feel that the economy would have bounced back as quickly as it has if we hadn't done that?
Mr Robson: I think it may have bounced because of low interest rates, but I think it bounced faster because of this. Government is getting out of the way of people.
I can't give you the figures, but John Kennedy years ago cut the American capital gains tax dramatically. Everybody said the government would be out of money. They never had more investment, they never had more activity up to that point when he slashed their capital gains tax. I think it's a fairly well proven thing that if you do this and get out of the way of business, they'll generate more wealth to the country, and in the end you'll get more tax revenues.
The Chair: Thank you very much for your presentation. We appreciate your taking the time to come forward.
There is a vote in the House. The requirement is that we recess until after the vote.
The committee recessed from 1628 to 1643.
BOARD OF TRADE OF METROPOLITAN TORONTO
The Chair: I call the committee back to order. The time will move rather quickly. I call on the members of the Board of Trade of Metropolitan Toronto to come forward and identify yourselves for Hansard, please.
Mr John Bech-Hansen: I'm John Bech-Hansen, Toronto board of trade.
The Chair: Thank you very much for coming forward. I believe you were here, but for those who are not aware, you have 10 minutes for presentation time. If there's any time remaining after your presentation, it's divided equally between the three caucuses for questions and answers. You may begin.
Mr Bech-Hansen: All right. I'm here on my lonesome. We don't have Elyse Allan, our president and CEO, as indicated on the sheet.
Our board of trade is the largest community chamber of commerce in Canada. I should mention, in the context of small business, that two thirds of our members are small business persons.
We're pleased to appear before the committee today in support of Bill 15, which implements the revenue measures announced in the budget. The budget of course delivered six months early on the single most important tax promise made by the current government in the election campaign, which is the 30% personal income tax reduction.
The board from the beginning conditionally supported this government's efforts to reduce the tax burden in Ontario. The two conditions we've always been concerned with are that (a) the tax cuts must not compromise the attainment of a balanced budget within a reasonable time frame -- that's always been our main priority -- and (b) that there be prudent contingency measures put into place to manage the effects of a future economic slowdown. It would appear that the budget did achieve both of these measures.
I think it's worth noting that the constituency for tax reductions in Canada is growing very rapidly at this time. Canadians who endured the deficit battle are now demanding a payoff for their sacrifices as they see this battle finally being won. But cutting taxes should not be viewed just as a reward for the hardships endured during the recession. Lower income taxes will also increase the disposable income of Ontarians.
I should mention, in a Toronto context, that the budget indicates that Toronto taxpayers will receive $1.12 billion annually in tax relief. I should also mention, because the board of trade is known as an organization which has been greatly concerned about the impact of the local services realignment, that's eight times larger than the impact of downloading was on Toronto.
Lower income taxes will also boost consumer confidence; reduce the taxation of capital gains and dividends, encouraging saving and investment; discourage the growth of the underground economy; increase the incentive to work; improve the labour cost competitiveness of the province; and deter migration by talented Ontarians to other jurisdictions.
The last point speaks to a growing problem in Canada today. More and more frequently we hear anecdotal stories about graduates from our computer, engineering, medical and business faculties taking up their careers in the United States or elsewhere. I can say, from my own experience as a staff person responsible for volunteer committees of the board, we've lost some good volunteers in the last year or so to the United States. Indeed, a recent report by Nesbitt Burns noted that a staggering one quarter of all Canadian doctoral students now leave Canada within two years of graduation.
We know that many individuals of course leave Canada to pursue greater professional opportunities in the United States or better income-earning opportunities. Governments have no influence over those factors, so taxes very much come into play. We're therefore pleased that Bill 15 reduces taxes on personal income and makes changes in other areas such as small business income.
I just want to raise two concerns, though. When our taxation committee looks at the overall tax cut in Ontario, while it is very much appreciated that the income tax rate has been reduced, each stage of the tax cut has been accompanied by an offsetting adjustment in the fair share health care levy, a charge which was based on the old Ontario surtax. This does serve to claw back a large measure of the benefit of the income tax cut for higher-income individuals, the very individuals I was just speaking of who are increasingly moving to the United States to pursue their careers there.
That leaves Ontario with a very high combined federal-provincial top marginal tax rate of around 49.6%, quite a bit higher than you have in Alberta and considerably higher than in the United States. The point I just want to make about that is that, until marginal rates of income tax are eventually brought closer in line with the United States, Ontario will continue to be at risk of losing talented people in a brain drain to the United States. We anticipate that this problem is just going to get worse if the US economy continues to maintain its significant performance advantage over Canada's.
A second concern I want to draw attention to is the large number of special tax credits that were announced in the 1997 and 1998 budgets and either implemented or amended in Bill 15. We don't object to the government introducing narrowly targeted tax subsidies aimed at encouraging growth and investment in particular industry sectors such as film and television production, book publishing, computer animation, but the concern is that these incentives have been offered without specific investment and job creation targets in mind.
As I was just discussing with somebody here, the pharmaceutical patent protection that the federal government brought in was offered with specific requirements that R&D performance be attained. Specific targets were set and they were met. In the name of public accountability and prudent fiscal management, taxpayers are owed concrete performance objectives for incentives like these and an eventual reckoning of their success or failure in achieving them.
Finally, while it's not part of this bill, I do want to thank, as did the Ontario Chamber of Commerce, the government announcement in the budget relating to commercial and industrial education taxes which recognizes the need for province-wide equity and fairness in that tax. It's going to reduce the burden of those taxes in Toronto by between 25% and 50% over the next eight years. As you know, there's no other jurisdiction in North America that has higher property taxes than Toronto does, so this is going to overwhelmingly improve our ability to compete with other jurisdictions.
The Chair: Thank you very much for your presentation. That allows us approximately one minute per caucus for questions and answers. We begin with the third party.
1650
Mr Silipo: What's the position of the Toronto board of trade with respect to the level of funding and the cuts to funding to the education system and, in particular, what that's going to do in the Toronto area?
Mr Bech-Hansen: I was just going to say that our main concern is we're going to be looking at the impact locally on the Toronto school board and the Toronto Catholic school board. As you know, one of the changes that has come out of Bill 160 is that there is going to be greater equity between the public and the Catholic systems, and I think it is generally fair in the name of equity that that should occur.
We did express concern to the government late last year about the new funding formulas that were accompanying Bill 160. The great fear in those days, of course, was that the government might be eliminating as much as $500 million out of the Toronto school system and that fear certainly wasn't justified by what--
Mr Silipo: That's the sum the public board believes is going to come out over the next five years.
Mr Bech-Hansen: It is a bit unclear to us because you have two different perspectives on it, one coming from the school system and one coming from the province, but it does not look like the kind of impact that was originally feared did come to pass. I think the generally agreed-upon number of the effect on the Toronto school board might be in the neighbourhood of $90 million, which, out of a $2-billion budget, is not going to be the kind of constraint that I think will either make or break them. One of the concerns we always have about local control of education finance is that school boards really face no constraints on their spending, especially in places like Toronto where they were 100% dependent on the property tax.
Mr Young: There are more people working in Toronto now and we see a lot of construction projects. Can you comment on how our government's policies have helped Toronto and your members economically?
Mr Bech-Hansen: I think, to be fair, as an economist who looks at all the factors, it's a blend of different things that are occurring: low interest rates, low inflation, a low dollar and lower tax rates in Ontario. Certainly what you've seen from the economic reports around the country is that Ontario seems to be doing a great deal better than the other provinces on the job creation front.
Mr Young: Exactly. British Columbia has low interest rates as well.
Mr Bech-Hansen: That's right, so the difference might be tax factors. It would be too soon to say, for example, that the education tax changes you made are causing the immediate boom. But I think it will help sustain it as we go ahead because business planning is always over the long term, and if you can predict quite accurately that education taxes are going to be lower eight years from now, that's a pretty good basis upon which to make an investment decision. That's why we think we're just at the beginning of the kind of activity we'll be having in Toronto over the next few years.
Mr Crozier: Yesterday we had an outstanding presentation by Ann Pohl from the Coalition for a Public Inquiry into the Death of Dudley George, and the parliamentary assistant went to some length in saying she was out of order because she wasn't addressing Bill 15. I was a little surprised that when you concluded today by addressing something that is not part of Bill 15, the PA didn't object to that as well.
You've made reference to tax rates in the United States, our marginal rate being 49.6%, theirs being 39%. What happens if you factor in the cost of health care in the United States?
Mr Bech-Hansen: That's a question that comes up quite often and, of course, there would be some closing of the gap. But the point that I'm just trying to draw attention to here is that this government, in implementing the tax cuts, has been very good about ensuring that the progressivity of the tax system has been maintained. They've been quite good at advertising the fact that it's people at the lower end of the income scale who are getting the full benefit of the 30% cut, and not those at the upper end.
I'm just drawing attention to the fact that there are high-income-earning individuals or individuals with the potential of high-income earnings in certain high-demand professions who we are at risk of losing to the United States. This is coming up time and again lately. The brain drain is something that has always been talked about; it's just that with a sizzling United States economy it has very much come to the fore in the past year or two. That may be cause to give some consideration to the distribution of the tax cuts as we move ahead.
The Chair: Thank you very much for taking the time to come forward with your presentation. We very much appreciate it.
For the committee members, just so they understand, as you're well aware, we've had some time changes and on each of the notices that has been handed out at the bottom it says, "Subject to change." I'm going to try to the best of my ability to accommodate all groups as much as possible.
ONTARIO HOME BUILDERS' ASSOCIATION
The Chair: At this time I ask the Ontario Home Builders' Association to come forward as I understand they have a flight very shortly. If you could come forward and identify yourself for Hansard, we would greatly appreciate it.
Mr Young: On a point of order, Chair: I believe we're going to try and divide the time up. I think the delegation has agreed to give up a little bit of time, to make a shorter presentation. We would want another group to come forward at the same time if that's necessary to meet your schedule. If you want them to do a joint presentation, we're just as happy for them to do a short five-minute presentation and then another group come up another time. It's your call.
The Chair: Is that acceptable to the committee? That's fine.
Ms Celia Teale: Good afternoon. My name is Celia Teale. I am a vice-president of the Ontario Home Builders' Association and a planner for a home building company in Sudbury. With me is Peter Goldthorpe, OHBA's director of public affairs. I would just like to thank the committee for accommodating my schedule. I have a flight to catch back. Thank you very much.
Earlier this year two of my colleagues appeared before a standing committee to discuss the upcoming budget. Their message had two general themes. The first was that the home building industry strongly supports the government's fiscal policies. The second was that the industry needed an extension of the land transfer tax rebate to assist buyers and offset expected cost increases. I am going to talk about the land transfer tax rebate and the condition of the housing market. Then I will turn it over to Peter to talk about the government's overall fiscal strategy.
If you were reading the headlines earlier this year, you might wonder why we are asking for an extension of the land transfer tax rebate. Provincial housing starts showed continuous growth and we expect the provincial total will be well ahead of last year. But this general trend obscures two important facts.
First, even in so-called healthy markets, buyers are extremely price-sensitive. Canada Mortgage and Housing Corp estimates that 70% of Canadians who have used a 5% down payment to buy their home could not have made a larger down payment. This means they did not have even a couple of thousand additional dollars to put down.
Second, not all markets are equally healthy. I will talk about my city of Sudbury, but what I say could be echoed by builders living in any other northern city in Ontario and in many other southern Ontario cities. We have attached five years of historical data from our 1998 pre-budget submission.
You can see that, for many cities, starts in 1997 were behind those in 1993 when we were mired in a depression. First-quarter starts for single detached homes in Sudbury paint an even more discouraging picture. In 1990, we started 140 homes in Sudbury during the first quarter. This year, we started four. In the early 1990s, we fell to a range of 40 to 70 starts for the first quarter. In 1996, we fell again into the teens. Now we are in the single digits.
Having said that, I want to hasten to add that there may be light at the end of the tunnel. Commercial construction is active and big boxers have chosen to locate in Sudbury. As well, starts are catching up a bit. We are now up to 41, but this is down from 62 from last year.
The important thing is to keep housing costs low so we can nurture a recovery when it begins. That is why we asked for an extension of the land transfer tax rebate. This rebate has helped over 28,000 families buy their first home. For many of these purchases, the $1,000 or $1,500 they get from the land transfer tax rebate is the amount that makes the difference between buying a home and not buying a home.
I will now turn things over to Peter to talk about some of the other tax measures in the bill that OHBA supports.
Mr Peter Goldthorpe: I can hear the bells ringing, so in the interests of brevity, all I want to point out is that there has been quite a bit of discussion about the timing of the income tax cut.
Between 1996 and 1999, a two-income couple earning a net income of $44,000 will save almost $2,200 from their provincial income tax reduction. If this money is saved and added to the land transfer tax rebate, this couple will be well on their way towards a down payment on their first home, and that progress is on the basis of tax savings alone.
Often overlooked in the discussion about the timing is the simple fact that families in Ontario have been treading water for the last 10 years in terms of their purchasing power. If you look at the stagnant purchasing power and rising taxes over the last 10 years, a compelling case can be made that the cuts to Ontario's personal income tax rate are long overdue. If this cut in the personal income tax rate helps the industry's customers, the cut in the corporate rate for small business will help the home builders directly.
A typical home builder in Ontario builds one to five houses a year. It's a small, family-run business operating on a shoestring that is being increasingly squeezed by rising costs and competition in a price-sensitive market, so the tax cut for small businesses combined with the land transfer tax will put the home building industry in a much better position to provide affordable housing for families in Ontario.
The Chair: Thank you very much. Actually that's five minutes and one second. Very good. We appreciate your taking the time to come forward.
1700
CANADIAN FEDERATION OF INDEPENDENT BUSINESS
The Chair: At this time we will call the Canadian Federation of Independent Business. If you could come forward and identify yourselves for Hansard, we would appreciate it.
Mr Young: On a point of order, Chair: I believe the delegation has agreed to a shorter presentation to help others make presentations today. It would be in the order of seven minutes. Is that agreeable?
Ms Judith Andrew: That's fine.
Mr Young: Thank you very much.
Ms Andrew: Good afternoon, Mr Chairman and members of the committee. I'm Judith Andrew, executive director of provincial policy with the Canadian Federation of Independent Business, and joining me is CFIB senior vice-president, Brien Gray.
We appreciate the opportunity to appear today before the justice committee in respect of government Bill 15. I do apologize. We were here at the appointed time and then we came back at a subsequent appointed time. We're here for the third time and very pleased to be here.
In terms of small business a quote from Louis XIV's treasurer, Jean-Baptiste Colbert, says it all: "The art of taxation consists in so plucking the goose to obtain the largest amount of feathers with the least possible amount of hissing." Canadian governments have become adept at plucking taxpayers in increasingly surreptitious ways, such as failing to index tax brackets, holding down RRSP deductions and increasing the less conspicuous forms of taxation such as payroll taxes, fees, licences etc. The small business sector has certainly noticed this and the small business geese that lay those golden eggs called jobs have been hissing until they are hoarse. Accordingly, the tax relief being implemented by the Ontario government in this legislation is both welcome and necessary.
I would point out that the perennial number one concern of small and medium-sized businesses is the cumulative load of taxes, levies and fees which are extracted by all levels of government. When we track total tax burden among our membership, it shows that it peaked at 91% in 1994, and more recently that level of concern has subsided somewhat to about 83%. But this leaves four in five small business owners in Ontario indicating that the total tax burden is a significant concern.
CFIB supports the Ontario government's delivering its promised 30% personal income tax cut on an accelerated basis. In fact, we suggested accelerating the tax cut in order to help jump-start consumer spending and offset the consumption-dampening tax moves by the federal government. CFIB members support the PIT cut as a means of leaving more of Ontarians' hard-earned money in their own pockets; in fact $4.6 billion more disposable income will be theirs to spend with the full implementation of this measure. With the fair share health care levy clawing back from high-income earners, the bulk of the benefit is in fact geared to lower- and middle-income groups, making it more likely that it will be spent on goods and services in support of local enterprise and local job creation.
Our Hard Facts Survey found over 80% of respondents indicating that increased customer demand is the leading condition necessary for small firms to hire more employees in 1998. This, of course, supports the personal income tax cut strongly. It also reinforces earlier findings from our 1996 study, On Hire Ground, which showed that cutting taxes for consumers is certainly key to encouraging hiring.
Our 1997 Focus on Ontario Survey found negligible support for reversing the personal income tax cut relief; in fact only 0.8% supported that in terms of Ontario's overall fiscal plan. Accordingly, our message today is that undoing the personal income tax relief would definitely not be a winning strategy in the small business sector.
When one deals first with the profit-insensitive taxes, including property tax and workers' safety and insurance board payroll tax, and then finally the personal income tax, we turn to corporate income tax, and that is the next most harmful tax to small business in Ontario. Corporate income taxes are identified by 40% of our member firms as injurious to their business. In our prebudget submission, we recommended that the province lower its small business corporate income tax rate by at least one point to move Ontario from the position of having the highest small business CIT rate in the country. We also urged the Ontario government to help press the federal government to update for inflation towards $400,000, the present $200,000 small business deduction.
Small business welcomes the measures contained in Bill 15 to enshrine into law the announced corporate income tax rate decreases, which will move Ontario's small business corporate income tax rate from the highest in the country to the lowest by January 1, 2006, assuming that other provinces do not move in the interim.
It remains of concern that these improved rates will only apply to the first $200,000 of active business income and that the small business deduction has not been updated. The clawback of the benefit is accomplished quickly through a 7.17% surtax applied on taxable income between $200,000 and $500,000. You'll see this. It's not immediately evident, but it's buried in section 11 of the bill. This means that the marginal rate of taxation on income over $200,000 is very high and, when combined with the federal rate, extracts over half of the income, which could be a potential barrier to growth and investment beyond that $200,000 level.
CFIB urges the Ontario government to continue finding ways to reduce its claim on smaller firms' revenue and to use its leverage to convince other taxing authorities to do the same. Tax relief is of little value if the vacated tax room is scooped for federal purposes, municipal purposes or workers' compensation and insurance purposes, which will detract from growing small businesses, jobs and communities.
Your kits contain a number of supporting documents that show these survey results in further detail, as well as some material dealing with the federal issues. We would be delighted to attempt to answer your questions.
The Chair: Actually, that leaves us about 30 seconds. I think we can allow one question from the government side.
Mr Young: Thank you very much. What are the most important factors --
Interjection.
The Chair: Mr Crozier, the government was next on the list. I'll allow the official opposition, when there's time for one question, for your party to have that and cycle it through.
Mr Young: What factors have you found that influence firms to hire new employees? What are the most influential factors in influencing firms to hire new employees?
Ms Andrew: The folder chits that you have contain this document, which is a coloured, glossy chart entitled, "Which Government Policies Would Encourage More Hiring"; this is from On Hire Ground, our job study. Number one is, "Reduce payroll taxes" -- 51%; then "Cut taxes for consumers" -- 40%; "Government spending restraint" -- 37%; "Reduce paper burden" -- 34%; and so forth down the list.
Mr Young: Sounds like our agenda.
The Chair: Thank you very much for coming forward with your presentation. We very much appreciate your taking the time.
1710
CAMPAIGN FOR A BETTER BRANTFORD
The Chair: At this time we call on Campaign for a Better Brantford. If the individual or individuals could come forward and identify yourself for Hansard, we would greatly appreciate it. I believe we're fairly close to being back on track again, so it appears that you may have 10 minutes for a presentation. You may begin.
Ms Sarah Bolton: Good afternoon, Mr Chairman and committee members. My name is Sarah Bolton and I live in Brantford, Ontario, near the banks of the Grand River. I hope it will be constructive for you to hear from someone living in a community that is proceeding under the charity casino scheme. The questions I will put forth to you are ones which residents of my community have not received any answers to. These questions and our story will speak to the implications of moving forward with the gaming portion of Bill 15 and thus with the charity casino project in general.
My first question in regard to Bill 15 is the repeal of VLTs. The concerns leading to their abolition were about this type of electronic gambling usually being faster and more addictive than other forms. Ivan Sacks of Canadian Gaming News said that to suggest there is a speed differential between VLTs and slots is like saying a Ford is faster than a Chev. My question then is, if this government's slot machines are slower than VLTs, why has the government not revised its projected revenues accordingly? Will this government's slot machines be any slower and therefore less addictive than VLTs? It concerns me that on April 9, when Mr Hodgson revealed the new scenario, there was no decrease in the expectation of how much gamblers would be losing at slots versus VLTs.
Many would say that when it comes down to it, slot machines are no better than video lottery terminals. Again, Ivan Sacks said, on CBC radio, that he advised the government a long time ago to avoid the controversy of VLTs and that slots are better because people are more comfortable with them, they make nice noises and people get the thrill of real money coming out. Does this make them less addictive?
Charities didn't need VLTs and they don't need slots. Who does? I suppose that would be the government and the casino operators. Under the charity casino scheme, one is led to believe that for every gaming table there would not be more than 4 slot machines. That's how all of the ratios work out. But there is no guarantee of this. I've noticed that our proponent is increasingly using the term "gaming positions," which avoids any specificity regarding slots and table games. I would hope that caps to slots and tables be secured in legislation.
Before moving on to my next question, I think I should explain the kind of facility that is in the process of approval for Brantford. You're likely familiar with the recommendations of the Coopers and Lybrand study and the gist of the requests for proposals issued by the province. If so, you may be surprised at what is taking shape in Brantford. I think it's important that everyone understands the reality of implementation of the charity casino project and that we have a common understanding of what a charity casino is.
In terms of tables and gaming machines, RPC Anchor Gaming is seeking licence for an increase of at least 500% over what the Coopers and Lybrand study determined Brantford could sustain. RPC Anchor Gaming has assumed, in all of its projections, a minimum of 80 tables and 300 slots. Mr Garth Manness, president of the Ontario Lottery Corp, indicated in the letter of May 4, 1998, "It is our understanding that the government of Ontario is prepared to allocate the number of table games and machines requested." In principle then, unfortunately, it seems this government does not have a problem with gaming expansion in my community.
Thankfully, in that same letter to the chair of Brantford's gaming committee, Mr Manness requested "any information that you may have ensuring the expansion contemplated will not impact the viability of future neighbouring charity casinos." Although it requested only thumbs-up information, we had to assume that the Ontario Lottery Corp would want all and any valid information. This committee should be aware that the Six Nations Indian Reserve bordering Brantford is vehemently opposed to the city's plans out of concern for their own options. We have communicated this and many other issues to Mr Manness. However, both the gaming secretariat and the Ontario Lottery Corp advised us that they couldn't give us the guidelines they would be using, that they weren't available at that time. I guess the concern here is, is this a situation where you have to be an insider to know what's going on and what the rules are?
The Chair: Excuse me, I'm going to have to interrupt you at this time. I'll just hold your presentation as is to allow the members to go for a vote. We will be back shortly after the vote.
The committee recessed from 1714 to 1722.
The Chair: I call this committee back to order. You may continue.
Ms Bolton: Stephanie Bolton, who is of no relation to me, of the Gaming Control Commission information office, said that one of the key distinguishing factors of the charity gaming clubs were their size. She explained that they would be one tenth the size of commercial casinos. But according to data reported on all 55 casinos across Canada in the July 1997 Casino Executive Magazine, the charity gaming club considered for Brantford would have the fifth-highest number of tables and the 13th-highest number of electronic gaming in the nation. That is to say that 91% of Canada's casinos, commercial and charity casinos considered, have fewer table games and 80% have fewer gaming machines than what is being proposed as a minimum request for Brantford. For instance, Casino Windsor, a commercial casino, has 77 tables; Brantford's charity casino is slated to have 80.
Coopers and Lybrand said that we would be eligible for a seasonal/part-time casino. We are now expecting a permanent, 24-hour, 365-day-a-year facility. The casino will be open 8,760 hours a year in a city accustomed to not more than 752 hours of Monte Carlo gambling. This is an increase of 1,164% in casino-type gaming in my community.
The building conditionally purchased for a charity casino by the operator is a 60,000-square-foot facility. There is the potential to provide 42,000 square feet of gaming space, which exceeds what would, by industry standards, be considered an entry-level, full-scale commercial casino and certainly exceeds the 10,000 square feet usually associated with charity casinos.
Except in border communities like Niagara Falls, the justification for size and suitability of charity casinos is based on local patronage. The province was divided into market area groupings. Our proponent's business plan ignores these constraints and has claimed that 90% of their patronage would be taken from at least seven other market areas. This figure has been questioned by the Conference Board of Canada and by professor William Thompson, a gaming expert of the University of Nevada at Las Vegas. The casino proponents still stand by this assertion and even go further to say that the propensity of residents of Brant county, in which Brantford is located, will actually be much less than the accepted average. For whatever reason, only 25% of our residents will have the propensity to gamble, they say.
In spite of the shift to a tourist destination rationale to justify a larger casino, no tourism study was conducted. An expert tourism panel could have been assembled to study this feasibility. Mr Boose of RPC acknowledged that there are no empirical data to support their market-draw assumptions. This is the proponent who was screened and chosen for our community by our government. This is a so-called small charity casino, for which there was absolutely no public consultation, nor consultation with charities.
Please remember that Brantford city council had originally voted unanimously against rezoning for a charity gaming club anywhere within our city on April 1, 1997, against rezoning for a charity gaming club anywhere within our city, and Premier Harris has stated unequivocally that there would be no more commercial casinos until a province-wide referendum had been conducted. A year later our city council again did not end up approving rezoning for a charity gaming club. This time, at the very last possible moment, any mention to charity was removed. Brantford city council approved rezoning for a gaming establishment.
My second question with respect to Bill 15 is, what legal obligation does the Ontario Lottery Corp have to provide money to charities from the casinos, and conversely, what legal right do charities have to expect to receive money from these casinos?
Section 8.3(1), paragraph 3, gives the government the options as to whom to distribute proceeds. The OLC could give money "for the benefit of charitable organizations and non-profit corporations," which is what we are told this whole thing has been about, or they could give money "for the support of other" beneficial "activities and programs." Our reading of this bill indicates that not one cent of casino money must be given to charities. Most, or even all, of the so-called charity allotment could potentially go to any ministry or agency that has an activity or program that could be classified as beneficial.
The British Columbia court ruling said it very well, that health care and education are not issues of charity, they are issues of duty. But undoubtedly they could be interpreted as programs for the benefit of the people of Ontario such that, as it exists here, Bill 15 allows for funding of basic services to be determined by the spin of a wheel and the luck of the draw.
My third question is, is the government misleading us? These are not charity casinos by criminal law definition. Ours is not defined as a charity casino at the most basic municipal zoning level, and Bill 15 clearly suggests that at the provincial level there is no obligation to charities. I'm not confident that my community has been receiving the straight goods. Seeking swift approval of their casino proposal, Bill Rutsey, president of RPC Gaming Ltd, discouraged Brantford from undertaking any independent analysis of his project. Although promoting a parallel project in Sarnia, Rutsey denied that Sarnia was conducting an independent evaluation. As it turns out, not only has Sarnia commissioned such a report, but Mr Rutsey's company is in fact paying for it.
Brantford is not getting a fair deal. People started playing this high-stakes game behind closed doors. Minutes from in camera meetings at which casino issues were discussed last year were just recently obtained from our city under the Municipal Freedom of Information and Protection of Privacy Act. These indicate that on March 26, 1997, a representative of a group of commercial casino investors wrote to our chief administrative officer claiming that, in spite of Premier Harris's statements against more commercial casinos, "At the moment, ministers who are favourable to casinos and/or the provincial revenues from casinos are in the right portfolios."
The Chair: I need to interrupt again. If you could summarize, we would appreciate it, please.
Ms Bolton: Okay.
At a committee of the whole meeting less than a week later, our CAO indicated, in response to questioning from our mayor, "The group interested in putting a casino in the Icomm has strong connections with the Conservative government." What we don't know is if this is a commercial casino or if this is a charity casino. By all legal definitions it doesn't seem to be a charity casino, and if it's a commercial casino we would really appreciate it if Premier Harris would allow a province-wide referendum first.
The Chair: I very much appreciate your bringing your presentation forward. Unfortunately we have no time, as I'm sure you're well aware, for questions and answers. Thank you very much.
1730
CANADIAN AUTO WORKERS
The Chair: We call on the next presenters. Would the members of the Canadian Auto Workers come forward and identify yourselves. Just so you know, you have 10 minutes for presentation time. If there's any time remaining at the conclusion of your presentation, it's divided equally between the three caucuses. You may begin, please.
Mr Buzz Hargrove: Thank you very much, Mr Chairman, members of the committee, for the opportunity to be here to comment on Bill 15. The thrust of Bill 15 is the finalization of the government's tax cuts.
I just want to take the opportunity to try to express to the committee the feelings of our members at the Boeing-McDonnell Douglas plant out in Malton. Over 2,000 of them were notified that by the end of next year their plant will be closed and their jobs gone. Tax cuts aren't very meaningful to people who don't have income, who don't have jobs. They wanted the committee that's with me -- Alex Foulds, on my left, is the president of about 1,500 plant workers. Charles Aisling, on my right, is the president of over 200 office workers. Danny is the chairperson for the plant workers who are here.
Premier Harris's dismissing the concerns of our membership when the announcement was made by Boeing that the plant was closing, for him to just say that we're a casualty of the global economy, that we're not competitive, was insensitive, at best. It certainly showed a lack of understanding of the facility, a lack of understanding of the industry.
I just want to make three or four points, if I may, and hopefully the committee will have time to comment.
This facility's workforce is one of the most highly skilled and produces some of the best quality and best productivity in the aerospace supplier industry around the world, well recognized in every aspect of their work. Their problem is not the plant being uncompetitive, it's working for a company that didn't keep up with the leading edge of technology, the leading edge of what was happening in the airline industry, and found themselves producing jets that weren't acceptable in the marketplace.
They were taken over by Boeing Corp and within a few months they announced they were discontinuing two lines of the jets, the MD-80 and the MD-90. Its most recent announcement was a discontinuance of the MD-11. That leaves our plant at the end of next year with 300 or 400 people building wings for the 717, which was formerly the MD-95 of McDonnell Douglas, which Boeing renamed.
The decision not to produce wings for planes that don't sell is a very intelligent business decision, one we would support. What we don't understand is the government not understanding the significance of this facility, a government that claims that tax cuts are about job creation willing to dismiss 2,000 jobs. Most economists, even Conservative economists, in the aerospace industry will argue that the spinoff of these jobs is about four to one, which brings the number well over 10,000 jobs in the greater Toronto area. The most important spinoff is the development of new technologies, new methods that are able to be spilled out into the rest of the economy.
As one example, the Canadarm that's used in the space system was developed by Spar Aerospace, which was a spinoff of the de Havilland plant. There are literally hundreds of suppliers out there that produce parts for McDonnell Douglas but also take advantage of the development of new technology in their own businesses and end up as entrepreneurs that provide a lot of other jobs. All of these people will be impacted.
We have 2,000 jobs in an industry that is supported by government around the world. Anywhere where the aerospace industry thrives and grows it's supported by government, whether it's in Europe, where most of the industry is owned either wholly or partly by government, or in the United States, where it's supported by military purchases. All of the major players have major commitments from the military which allow them to develop new technologies and new ideas that are spinoffs not only for their companies but for the industry and the economy as a whole.
Here in Canada we have consistently, up until the last two or three years, recognized the importance of this industry and how you support it. Just an example was the de Havilland company. Boeing moved into de Havilland and decided it could build a small commuter jet a few years ago, around 1990. It found out after two or three years and $1 billion that they couldn't and they withdrew, and the plant was scheduled to close. We had about 1,300 people working in that plant in Malton, Ontario.
We went to the government and made the same argument. The government of the day was the Bob Rae NDP government, as you're aware. We said, "How do you talk about building a modern economy of high-tech, high-value-added jobs if you start by giving up on the very high value added, high-tech jobs that are currently there?"
After a lot of debate and, by the way, with the opposition of the third party that was led by Mr Harris at that time -- I don't know how many people here were around -- we still were able to convince the NDP government of the day, which Mr Silipo was part of, to pull together a package of some $300 million. They bought a share, 49%, they brought in a private sector partner, they put in $200 million in interest-free loans, and what happened? We went from a plant of 1,300 and closing to a plant of over 5,000 people and hiring. The payroll alone for the greater Toronto area for just this plant, never mind the spinoff effect of it, is $260 million, over a quarter of a billion dollars. The taxes that people pay who work there, the taxes that the company pays on the purchases of goods and services and supplies and parts for that facility, are phenomenal. We are on the leading edge of both the commuter jet and the executive jet, the global express at de Havilland.
I want to conclude by saying this plant can't be dismissed, this decision can't be dismissed. I've been part of so many situations over the last 10 or 15 years like de Havilland where people are too quick to write off current jobs, good jobs. I go back to the early 1980s when a lot of people wrote off Chrysler and the Tory government of the day, Bill Davis, didn't write them off. They came in and supported them. What do we have today as a result of the Liberal government in Ottawa and the Tory government in Queen's Park supporting the survival of Chrysler? We have one of the leading-edge companies in the auto industry today. It's producing some of the best products around the world today and just announced a merger with a major German company, which moves it into the second largest capitalized company in this industry around the world.
These are decisions that are being made today that could very well be the good-news story that we talk about four or five years down the road. So I am, Mr Chairman and members of the committee, appealing to people to talk to people who know a little bit about this industry before we dismiss this many jobs and this many families, the impact on communities.
I listened to the small-business group here make a presentation talking about the tax cuts. Our people support the small-business community both in terms of the jobs and the work we do in the McDonnell Douglas-Boeing plant and also in the paycheques that are spent in the small businesses, much more meaningful than the tax cuts we're talking about up to the year 2006. I think most business people in that area would tell you, if you were to go out and talk to them, the same thing.
We're talking about a bad-news story that should be and could be a good-news story if we pull together people around the table. Mr Harris, in response to my letter, has now said he's willing to do that. I've talked twice to Mr Palladini. He assures me there's going to be a meeting. But, you know, one thing we've learned over the years: Don't sit back and wait. Keep pushing and rattling the bushes. There's too much at stake: too much at stake for our members, their families, their communities, too much at stake for the province and the country. You can't let these high-tech, high value added jobs go and write off the future opportunities for the development of new technology in the province of Ontario.
Thank you very much. I'd be happy to answer any of your questions.
The Chair: That allows us just enough time for one comment or question, and I believe it's the official opposition.
Mr Crozier: Thank you, Mr Hargrove. I appreciate your comments today. I guess since we have very limited time, my comment would be that I share -- well, no, I don't. When you said you were surprised that Mr Harris would simply dismiss this loss of jobs, I think anybody who will take $37 a month away from expectant mothers and say that they spend it on beer and then says his reading material is Mr Silly -- it's not surprising he would come up with a comment like that.
Mr Hargrove: Our members drink our share of beer. The pub owners love it.
The Chair: Thank you very much for your presentation. We very much appreciate your taking the time to come forward today.
ONTARIO UNDERGRADUATE STUDENT ALLIANCE
ONTARIO COMMUNITY COLLEGE STUDENT PARLIAMENTARY ASSOCIATION
The Chair: At this time I would call forward the Ontario Undergraduate Student Alliance and the Ontario Community College Student Parliamentary Association, if you could come forward and identify yourself for Hansard. You have 10 minutes for presentation time. At the end of your presentation, the time is divided equally between the three parties. You may begin.
Mr Andrew Boggs: Thank you very much, Mr Chair. My name is Andrew Boggs. I'm the executive director of the Ontario Undergraduate Student Alliance. With me today are Ms Cynthia Hilliard, who is the executive director of the Ontario Community College Student Parliamentary Association, and Mr Rick Martin, who is senior policy analyst with OUSA. We appreciate the chance to address the committee on behalf of college and university students across the province.
1740
Ms Cynthia Hilliard: As members will be aware, the government announced this year the most fundamental shift in funding of higher education we have seen in decades. By eliminating government restrictions on how much tuition can be charged for a long list of programs, the government has shifted a great deal of the cost of higher education to students.
This new approach raises a great many issues, questions about how much is fair to charge students and, quite apart from questions of fairness, how much it is realistic to expect students to pay. One of the most significant developments in recent months has been the clear indication by banks involved in delivering student aid that more must be done to deal with student debt load and that without serious attention to this issue, many students will have higher debts than they can reasonably be expected to pay.
Our organizations have always held that little can be said about what level of fees is appropriate without taking financial aid into account. We want to focus today on what must be done to help maintain accessibility in a deregulated environment.
Mr Rick Martin: To begin with, we have to give the government credit for one measure that has already been taken. In announcing the details of deregulation, the government made it clear that any institution which raises fees above current levels must provide enough financial aid to ensure that every student is able to attend. The needs assessment model which is part of the Ontario student assistance program will be used to determine how much each student needs, but the amount of tuition fee covered by OSAP will not rise above current levels. It will be up to institutions to provide aid for students whose resources, as measured by OSAP, will not cover these additional fees.
This rule is one that we lobbied for, and we are grateful to the government for implementing it. We know that it was vigorously opposed by some university presidents. The extent to which deregulation affects access will depend largely on how serious the government is in policing this matter to make sure that colleges and universities live up to their obligations.
Mr Boggs: While we regard this role as essential to protect access in the current environment, we also realize that it's far from ideal. It means that the increased cost of student aid will be borne by students themselves through increased tuition fees. The philosophical issues this raises are obvious. Some of the practical problems it raises are perhaps less apparent.
To begin with, by shifting so much responsibility for student aid to the institution, the government has created a more complex administrative structure. Each institution will now have to have a sophisticated set of student aid measures administered in-house. There are currently many schools, particularly the smaller ones, that do not have the staff or resources needed for this project. Even if such structures were already in place, the fact remains that they would be more complicated and less efficient than a single centralized approach. This is an obvious irony in that the government hoped to create a more cost-effective system. As the American example makes clear, the cost of providing aid at this level is much higher due to the duplication it inevitably involves.
Ms Hilliard: It is also the case that it will lead to inconsistencies and inequities in the kind of aid provided. Some schools have more resources than others and therefore will be able to provide more student aid and to make a larger portion of their aid non-refundable.
It would be extremely difficult for any school to run its own loan program. What is more likely to occur is that deals will be struck with various banks to provide loans to students in different programs, but it is very likely that some students, or perhaps some whole programs, will not be thought good risks by the banks. Keep in mind that they will be asked to give loans over and above what the government is giving already so that most of those involved will have very substantial debt loads.
Mr Boggs: In short, what we'd like to say is that the requirement for institutional student aid is necessary, but we beg the government to see it as a stopgap measure. In the long run, a more thoughtful and systematic approach to student aid is essential, to look at the issue from a province-wide perspective. What we're looking for is not just broad consultation, but a broad involvement in formulating creative solutions to the student aid issue in the province. What we have circulated is a proposed working group on how we could begin addressing this issue.
I'd like to thank the committee for the opportunity to speak with you this afternoon.
Mr Silipo: Thanks very much for the presentation. I just wondered, in terms of the process that you're suggesting here, whether you've had any chance to raise this with government representatives, from the minister on to anybody else, and what, if any, reaction you've received.
Mr Boggs: We have had a commitment from the minister on a number of occasions that he's committing himself to consultation on this very issue. What seems to have been slowing it up was exactly what form it would take, so we've taken the initiative of creating the form we'd like to see it occur in. We will be meeting with both members of government and members of the ministry over this coming week in order to sell our proposal.
Mr John O'Toole (Durham East): It's great to see young students. I commend you for your presentation, and I'm certain the consultations would be beneficial.
More of a comment: I have three children of my own who are in university, and I know it is a challenge. We certainly need to be involved as part of that learning process.
I'd just ask, without trying to be trite or strident about it, who really should pay for your education? Is education an investment? Maybe that's too practical a question.
Mr Martin: Perhaps I could respond. This is a question that obviously comes up a great deal when tuition levels are discussed.
Mr O'Toole: I'm wondering if I should be paying for my children or you should. Who should be paying for your education? Who should make those fundamental choices?
Mr Martin: I'd like to suggest that it is an investment. It has to be seen as an investment for the individual and for the society as a whole. There's no doubt that it leads to higher employment levels and to higher average incomes. These are all good reasons both for the individual and for society to support education.
One way this question is sometimes phrased is, "Who benefits most from your education?" If the question is put that way, there's no doubt that an individual benefits more from his or her education than anyone else. But I'd suggest another question: "What do you benefit more from, the fact that you as an individual are educated or the simple fact that you are part of an educated society?" If you think of the benefits you receive from the people who design your cars and from your doctor, your lawyer, the people who write your laws -- the list goes on and on -- I don't think there's any doubt that the benefits which flow to every member of this society, because of the educational basis it has, far exceed the marginal benefits that an individual gets from that.
Mr Crozier: I think your answer was just fine. Some would have such a narrow view that they would say, possibly, that the individual who goes out and earns the money is the one who should make the investment, but I agree with you that all of us have a responsibility to invest in an educated society, and we have to invest in our young people. To simply put that those who go to school pay to go to school -- if we had taken that view over the years, there may be even some in this room who wouldn't have had a university education.
I feel a little strange, because it's people of my generation and maybe a little bit younger than me, who have had the benefit of an educational system supported by the public, who are now saying: "Wait a minute. You should pay for yours all on your own." I don't recall anybody coming before the committee and saying, "When I went to university, I insisted that I pay for it all on my own." So I think your answer was absolutely right on, that we all have a responsibility to support a well-educated society.
The Chair: Thank you for your presentation. We very much appreciate you coming forward.
ONTARIO ALTERNATIVE BUDGET WORKING GROUP
The Chair: At this time we would call on the Ontario Alternative Budget Working Group, if you could come forward and identify yourselves for Hansard. You may begin.
Mr Ross McClellan: Thank you, Mr Chairman, members of the committee. My name is Ross McClellan. I'm legislative director of the Ontario Federation of Labour and coordinator of the Ontario Alternative Budget Working Group, which is a coalition of labour, church and community action groups that engage in an ongoing process of analysis and discussion of Ontario's budgetary policy. With me is Hugh Mackenzie, who is the research director of the United Steelworkers and the co-chair of the Ontario Alternative Budget Working Group.
We've distributed two documents. One is a technical paper that we produced in March that has an analysis of the tax cut and what it means for Ontario's debt and deficit, and the second is an op-ed piece that Mr Mackenzie wrote, which you may have seen in the Globe and Mail a few weeks ago.
Before I turn things over to Mr Mackenzie, let me just say that we regret very much that we're not in the finance committee, that we're in the justice committee. We hope very much that the justice committee will resume its very important task of conducting an inquiry into the death by police homicide of Dudley George. The labour movement and our constituent organizations feel very deeply about this issue, and we hope that it will get back on the public agenda as quickly as possible.
1750
Mr Hugh Mackenzie: I want to talk about a number of the elements of Bill 15, principally the income tax cut, but I also want to address several other matters that are raised by the bill.
Earlier on today I spent some time with the finance committee in Ottawa engaged in a discussion about how to allocate the fiscal dividend from the recovery of the federal government's finances. I was struck, as I was heading down here on the plane to come to this meeting, by the opportunity to provide for a reasonable and sensible restructuring of Ontario's finances that has been squandered by this government in its hell-bent effort to cut income taxes.
One of the things I want to stress at the outset is that one of the key pieces of analysis that we've done of the government's taxation policy indicates that if there had never been a Common Sense Revolution, if there had never been a Mike Harris, if there had never been an Ernie Eves, if we had simply left things the way they were and not a dime had been cut from public spending in Ontario --
Mr E.J. Douglas Rollins (Quinte): We'd be bankrupt.
The Chair: Order, please.
Mr Mackenzie: -- we would be barely months away from balancing the budget in this province. The numbers speak for themselves, sir. This government has simply squandered an opportunity by pushing forward with an income tax cut at a time when the budget was in deficit. It's just a fabulously irresponsible exercise.
The consequence of proceeding with the income tax cut with the budget running in deficit is that by the time this term of office of this government ends, the debt that will have been accumulated to pay for the income tax cut will be at $30 billion. That is as much debt accumulated because of a government decision to proceed with an income tax cut without having balanced the budget first, without having gotten the government's finances in order -- an accumulated debt roughly equivalent to the debt that was caused by the recession in the early 1990s, the most serious recession that Ontario has faced since the 1930s.
Another interesting little fact about the tax cut measure is that by fiscal year 2000-01, the interest cost that we will be paying to carry the debt incurred for the income tax cut will be $1.8 billion a year. That works out to 3.9 cents out of every dollar that Ontarians will be paying in tax which will be paid to cover the interest only on the tax cut.
It's a common understanding now that the distribution of the benefit from the tax cut is extremely regressive, that people at the very high end of the income scale get a disproportionate share of the benefit from the tax cut. I'm not going to go into that in great detail. One thing I do want to say, though, is that there has been a lot of puffery from a number of sources alleging that the income tax cut is responsible for Ontario's positive economic performance.
I want to respond to that at two levels. One is that there isn't a credible person who does econometric analysis of the impact of public policy on employment who would ascribe anything like the kind of benefit to the tax cut that's being claimed for it.
The second point I would make, and I think this is quite telling, is that if you take as a reference point June 1995, which many people in this room might remember, and compare it with the most recent quarter for which data are available, you find a very interesting thing about the pattern of economic development in Ontario. What you find is that the growth in exports is greater in dollar terms, not just in percentage terms, than the growth in GDP during that period. What that means is that more than all of the growth that's taken place in Ontario is attributable to exports, largely to the United States and largely in the automotive sector. If somebody can show me how an income tax cut in Ontario influences the purchasing habits of somebody in Arkansas, then I've got a bridge in Brooklyn to sell you.
I wanted to make one comment about the cut in taxes for small business. Some of you may remember that at one point in my previous life I was the executive director of the Ontario Fair Tax Commission. We did an analysis at the commission of Ontario's regime for taxation of small business comparing it with the regime for taxation of small business in the United States. What we found is that even with the rate of small business taxation that existed then, which is being cut by this government, the structure of the tax system with the dividend tax credit meant that an individual would pay less tax, in total, earning their income through a small business corporation and paying themselves a dividend than they would if they were paid directly.
In other words, somebody doing exactly the same work, receiving exactly the same payment, if they earn it through a small business corporation and then pay it to themselves as a dividend, their net tax burden is lower than if they were paid directly. That's been a phenomenon of the Canadian tax system for some time because the dividend tax credit has gotten out of whack with the structure of the personal income tax system. Ontario's reduction of the small business tax rate simply exacerbates that problem.
It's interesting that when you do tax comparisons between Canada and the United States, as a lot of people in this room like to do, one of the things you find is that the prevalence of individuals carrying on businesses through corporations rather than as partnerships or as individuals is substantially higher in Canada than it is in the United States. The explanation for that is that we have this warped tax system that provides an additional incentive for people to carry on business through corporations rather than being paid the money directly, which is a primary benefit to the accounting and legal professions because they provide the services that complete those extra forms and tax returns.
Two quick comments on other aspects of the bill. One of the things that I found very disturbing about the run of corporate tax changes that has taken place, not only in this budget but also in the previous budget, is the reintroduction into Ontario's corporate tax system of a plethora of little tax incentives here and there, little tax credits here, little tax credits there, running 180 degrees against the trend that's been established in corporate tax reform at the national level over the past few years. I think it's a regrettable development.
The last comment that I will make as I'm winding up, going from the sublime to the ridiculous, is that there is one thing in Bill 15 which I frankly just do not understand. That's the elimination of the sales tax on the 25 cents that you put in the telephone. On my way here, I tried to make a telephone call with 23.15 cents; it didn't work. It strikes me as a completely ludicrous proposal to do that, a straight out transfer to Bell telephone corporation. To suggest that has something to do with benefiting consumers is ridiculous.
1800
The Chair: Thank you very much for your presentation. Unfortunately that does not allow us any time for questions and answers. We very much appreciate you coming forward with your position.
ONTARIO HOTEL AND MOTEL ASSOCIATION
The Chair: I would call on our next presenter, the Ontario Hotel and Motel Association. If you or your group could identify yourselves for Hansard, we would greatly appreciate it. You may begin, please.
Mr Rod Seiling: My name is Rod Seiling. I want to thank you for the opportunity to appear before you today regarding Bill 15. I will try and touch very briefly on the more salient points of the budget as they relate to our members during the short time we have at our disposal.
I am president of both the Ontario Hotel and Motel Association and the Toronto Hotel Association. I can tell you without a doubt that the response from my members all across Ontario, be they big or small businesspersons, has been very positive to the budget as put forth by the Minister of Finance, the Honourable Ernie Eves. This support, I would suggest, is based on the fact that the budget specifically addresses in a positive manner inequities or needed initiatives they have perceived that have existed for them either as an individual carrying on a business in the province or in their role as a private citizen. As individuals, they all appreciate the continued cuts in the personal tax rates. That is a given. Furthermore, they are pleased with this last cut coming early as a sort of a bonus. As the majority of my members, I should point out, are small businesses, I would be remiss not to mention the favourable response also to the cut in the small business tax rate.
What pleases them most, I would say, with the personal tax cuts is not what it does for them on an individual basis, although it is appreciated, but what it represents for them collectively for their respective businesses. My members, being in the accommodation and hospitality businesses, deal in a large part with discretionary spending, and any initiative that leaves more money in the hands of their customers for them to decide where to spend it has proven to be good for business. Business for my members has and continues to be improving. They all report the reasons for this can be traced back to the fact that people in this province, who still represent the majority of their business, now have more money available to spend and in fact are now prepared to actually spend it.
This leads me into the support Mr Eves outlined in the budget for tourism marketing, $120 million over the next four years. Our industry applauds the minister and the Minister of Economic Development, Trade and Tourism, the Honourable Al Palladini, for making this investment in tourism. Tourism is the world's largest and fastest-growing industry, a fact that governments all across this country and the world have recognized and are investing resources in to create new jobs and, as an important by-product, recoup that investment via new incremental tax revenues. Tourism is already an important industry in Ontario. It represents $10.6 billion annually to the province's economy; $5.2 billion in exports, making it the 4th largest; 400,000 jobs, which is 7% of total employment and a major source of jobs for young people.
Unfortunately because of the cutbacks by previous governments, Ontario has been losing market share in what is a growth market. Since 1990-91, marketing dollars for Ontario had been cut almost 60%, which works out to about $15.2 million. The cuts left Ontario with less money than Quebec, at $25 million; British Columbia, at $23.5 million; or even the Atlantic provinces, with $15.5 million. Worse still, last year for example Ontario left $4 million to $5 million of Canadian Tourism Commission matching dollars funding on the table because it did not have the money to participate. This money was Ontario-taxpayer-earned, earmarked for Ontario, and when not used was then available to other provinces to promote their tourism businesses at Ontario's expense.
As attachment 1 indicates, according to the government's own research, the lost opportunities have cost Ontario thousands of jobs and millions of dollars in forgone revenues for business and tax receipts for government. The numbers are actually more, as the chart is only up to 1995. Briefly, the chart shows the losses as follows: $2.7 billion annually in tourism receipts, almost 60,000 full-time equivalent jobs and $382 million annually in provincial tax revenues.
The commitment to properly market Ontario is a wise investment. Ontarians will benefit with the new economic activity that will follow, not next year or the year after but right away. There is no time lag with tourism. Increase demand by increasing awareness and you automatically increase jobs. Research conducted on destination marketing by the pre-eminent firm in the business, which just happens to be based here in Toronto, Bill Siegel's Longwoods firm, indicates that for every dollar invested by government in destination marketing, that government earns a direct return of at least $20. For those of you who have made the odd investment over the years I dare say there is not one of you who would not agree that a 20-to-1 return is something that virtually every one of you would jump at if the opportunity was there.
Our members are also very pleased with other provisions contained in the budget. Moving up the timetable on the cuts to the employer health tax is a prime example. Members are of one mind when it comes to payroll taxes: They are job killers. We hear this time and time again and we want to commend the government for accelerating this cut as well as the cut to the small business tax rate, which I mentioned earlier. Hopefully it may allow these owners to earn a return on their investment, but what we see for the most part is that the savings will be reinvested in their respective businesses so as to ensure they remain competitive.
We have also received a lot of favourable comment from the members on the government's decision to end the inequity in the funding of education for commercial and industrial property owners. Obviously they all wish that there were no phase-ins but they also recognize the fiscal restraints and therefore understand the reasoning behind the minister's plan. Even with the phase-in, the reductions flowing to property owners will be significant. For example, in Toronto, where the imbalance appears to have been the worst, and certainly the most public, we estimate a 3% reduction in property taxes for commercial property owners for the first year.
In conclusion, I want to take this opportunity to congratulate the government for listening during our prebudget hearings presentation. We consulted with our members prior to making our presentation as to the content and it is obvious that the minister was listening during his consultations, based on what he has brought forward in his budget.
If there is any time remaining, I would be pleased to answer any questions.
The Chair: You have exactly a minute and a half per caucus. We begin with the government side.
Mr Rollins: Thanks for your presentation. I was, unfortunately, looking for a hotel this weekend and found it extremely hard to find one. I won't tell you how long I drove and how many hotels we were at. Are they suffering from that fullness quite often?
Mr Seiling: It depends on the time of the year. You need to be full more than just four months in the summer to be a successful business operation. If you would like a hotel room during December, January or February, I can get you a very good rate anywhere you want in the province.
It is getting better. It's recovering. Occupancy is getting better but we still have a long way to go in rate. We're still an excellent buy compared to other major destinations, whether it be here in Toronto or across the province vis-à-vis what you pay in other jurisdictions.
Mr Young: Just a quick comment. You said here that a lot of young people work in the travel and tourism industry. Can you comment on the kinds of people who work in the industry other than young people? There are people who are between jobs, an unemployed actor or that sort of thing, who might not be able to find any other kind of job.
Mr Seiling: We say that we're the port of entry, whether it be for young people or for those people who have been out of the workforce or out of a job looking to re-enter. Our industry spends an inordinate amount of money on training and upgrading skills so that they learn a new skill. A lot of them stay in the business. There are a lot of good jobs there, but a lot of them use our business as a stepping stone to something bigger and better for them.
Mr David Ramsay (Timiskaming): Rod, I want to thank you very much for your presentation. In the Liberal caucus we understand the importance of the tourism industry to the economy of Ontario and certainly respect the contribution that your association makes to that. Again, thank you for a well done presentation.
Mr Silipo: Mr Seiling, thanks for your presentation. I certainly continue to be as strong a believer as you that investing in the tourism industry is a good business decision on a lot of fronts.
I don't want to try to defend some of the decisions that were made in the government that I was a part of, but I do find one part of your presentation puzzling and I just want to clarify this. There are two separate points that you're making here. You talk about the reduction of funding back to 1990 and then you talk about the fact that last year there was $4 million to $5 million of Canadian Tourism Commission matching dollars funding that was left on the table. I just want to be clear: You're not blaming the former government for that, are you?
Mr Seiling: In fact, the cutbacks that the former government made made it so that Ontario could not participate to the full extent in the Canadian Tourism Commission programs. That's correct.
Mr Silipo: Presumably if this government thought differently, they could have made a change to that. What I'm getting at is, criticize us for decisions we made back then, but how can you hold us accountable for decisions this government made or didn't make last year?
Mr Seiling: You can only participate to a certain degree in CTC programs if you have the funding available. If you're trying to say that the government of the day could have added more money to the budget, you're correct; in fact, they did add some. They added $2.5 million during the year to the domestic marketing program. In fact, it was one of the business cases we made in our pre-budget submissions and I think you were here for that. Calls to the 1-800 number jumped 40% during that time period.
I'm not here to ascribe any blame at this point in time. What's done is done. But during that time period I referenced in my presentation, the budget for tourism was slashed dramatically, and during that time period, tourism receipts did fall dramatically.
1810
Mr Silipo: Mr Seiling, I'm not --
The Chair: I'm sorry, we're past the one minute. Thank you very much for your presentation. We appreciate you taking the time and being here today.
URBAN DEVELOPMENT INSTITUTE
The Chair: The next organization we would call forward is the Urban Development Institute. You may begin.
Mr Stephen Kaiser: Mr Chair, members of the committee, ladies and gentlemen, good afternoon, or almost evening. My name is Stephen Kaiser and I am president of the Urban Development Institute. With me today is John Latimer, president of Monarch Development Corp, a member company of our organization.
We would like to thank you for the opportunity to speak briefly today regarding Bill 15, An Act to cut taxes for people and for small business and to implement other measures contained in the 1998 Budget. I would also like to thank you for extending this afternoon's session to allow us to have the full 10 minutes.
Most of you are familiar with the role of the Urban Development Institute; however, for those who may not be, our organization has acted as the voice of the real estate development, building and property management industry for the past 40 years.
The institute is a non-profit organization supported by its members, which include firms and individuals who own sizeable holdings of development land, apartment units and business space. Our membership is engaged in all aspects of the planning and development of communities and the construction of residential, industrial and commercial projects.
We are here today to deliver one message to the committee and I hope by the end of our presentation you will clearly understand why we are endorsing the principle adopted in the 1998 Ontario budget that tax cuts do create jobs and economic growth. Specifically, our comments are focused on the success of this government's first-time home buyer land transfer tax rebate program and how this initiative clearly demonstrates this model.
Included in our presentation is a copy of a position paper we delivered to this government in the spring of 1996. The paper highlighted the state of the residential construction industry in Ontario, with housing starts reaching only 35,818 in 1995 compared with a little over 105,000 in 1987 and just about 63,000 in 1990. At the same time, new starter housing faced a huge burden in terms of taxes, fees and charges paid to three levels of government. As you will see from the charts we have included in the presentation, even today across the greater Toronto area a large portion of the purchase price of a starter home is directly attributed to taxes, fees and charges. For example, a town house in the region of Halton with a purchase price of $150,000 has included in that cost a total of $32,271, or 22% of the total cost directly related to these fees.
With these factors combined, we proposed in 1996 a first-time home buyer land transfer tax rebate program. Our proposal indicated that such a program would in fact create new jobs through additional housing starts through both direct and indirect employment related to residential construction; that it would allow many young families the opportunity to purchase a home and would help to create further consumer confidence within the sector; and that the initiative would prove to be a revenue generator for the province through additional taxes created by economic activity.
Since the program began in May 1996, a staggering 26,000 people, many of them young families, have taken advantage of the program and purchased their first home. Provincially, housing starts have climbed from 35,818 in 1995 to a little over 54,000 in 1997, and even higher levels are predicted this year. Close to one third of the homes purchased since May 1996 in Ontario have been purchased by people using the program.
Clearly this tax cut, the first-time home buyer land transfer tax rebate, has had a very positive impact directly related to the recovery of the home-building industry in Ontario. A recovery of this sector is clear evidence that tax cuts do create jobs and economic growth.
I now would like to turn our presentation over to John Latimer to provide you with his own perspective.
Mr John Latimer: Monarch Development Corp is an integrated public real estate company based right here in Toronto. We were founded in 1917, and we've been in the land development and house-building business for more than 81 years.
Just to follow up on Stephen's comments, if I can just show you some tangible evidence as to how the land transfer tax rebate increased our revenues from 1994 until the end of 1997, in each of 1994 and 1995 our real estate revenues were approximately $128 million. In 1996, when the land transfer tax rebate was begun, our revenues climbed to $140 million, and last year, as the rebate was extended, they climbed to a total of $189 million.
I believe this $61-million growth is primarily attributable to the tax strategy this province has instituted. It certainly has given purchasers the incentive to buy new homes, and with that, provides further economic growth in the way of many, many other purchases required to set up a new home, things we all are aware of: appliances, carpeting, paint, lighting, garden hoses and the dreaded lawnmower, I guess. As well, it has certainly provided employment for those men and women who are in the construction business.
As builders and developers in several US states, we often compare corporate and personal tax rates as part of our decision for future investment. Several of the states we work in have no state income tax, which certainly is an attraction for people to live and work in those states. I understand the difference between American and Canadian tax structures, but I do think that lower tax regimes always have an attraction for not only personal investment, but corporate investment as well. To give you an example, from 1992-96, our company invested $95 million in the US. Over that same period, we invested $35 million here in Canada. Already this year, we have invested $50 million and we're on the way to $100 million. That's just in this year alone. So not only is the new home purchaser more confident investing in this province, but we as a corporation are as well.
If I could just add a little global perspective to all of this, our major shareholder, Taylor Woodrow, which is based in London, England, has six principal markets in which it operates: first, in the United Kingdom, where the tax rate is just slightly above 30%; in Malaysia, where it is about 28%; in Australia, where it is 36%; in California and Florida, where it is 39% and 37% respectively; but here in Canada tax rates are 44 1/2%. In order to be competitive within this global economy, but more than that to be fair to each of our citizens, we should always be reviewing taxes within this country with a downward bias when we can afford it. It is for this reason that I am here to support Bill 15, An Act to cut taxes for people and for small business.
The Chair: Thank you very much for your presentation. That allows us just enough time for one question or comment, and that's from the third party.
Mr Silipo: Gentlemen, if time allowed, I'd go into a little bit more detail. I take issue with a couple of your conclusions, but I'll just have time to be able to get into one of them, and that is using the land transfer tax program as an example to say that all tax cuts therefore create jobs.
I would agree very much with your statistics that that has been a very good incentive for people to buy homes, and I think it's something that is very worthwhile, but we certainly heard from many economists that if you look at the larger issue of tax cuts in terms of the income tax cuts, even those who say they have provided a positive contribution to creating jobs would rank that very low in a list of four or five other items that they would say are far greater contributors to creating jobs. I just wanted to make that point. If you have any reaction or comment to that, I'd be happy to hear it.
The Chair: You've got 10 seconds.
Mr Latimer: That's why I provided the examples of our company and how our revenues have grown. They correspond with the tax cut.
The Chair: Thank you very much for your presentation. We very much appreciate your being here this evening.
1820
CANADIAN FILM AND TELEVISION PRODUCTION ASSOCIATION
The Chair: We have one last presenter, the Canadian Film and Television Production Association, if you could come forward. We very much appreciate your being here.
Mr Larry Malloy: My name is Larry Malloy. I'm pleased to be here with you today to deliver a statement prepared for your committee by the Canadian Film and Television Production Association, the CFTPA.
At the outset, I must apologize that I am the one reading this statement today. In a case of unfortunate timing, the chairperson of the CFTPA, Linda Schuyler, and her national executive are involved in their annual meeting in Banff, Alberta, which began Saturday and runs right through the week.
The Canadian Film and Television Production Association is the national trade organization that represents the interests of over 300 independent film and television producers that operate in every region of the country. The CFTPA felt it should make a statement before your committee today because Ontario remains the most significant region in the country both in terms of volume of film and television production and job creation in the industry. As you can appreciate, the CFTPA membership coming from Ontario is of course very important, and the association has worked hard to address issues of particular interest to them.
Over the past few years, the CFTPA has been very pleased with the positive relationship which they have been able to build and develop with the government of Ontario. During this period, the government has expressed a real interest in the economic and cultural value of maintaining a viable film and television production industry in Ontario.
In February 1996, the CFTPA's Ontario producers' panel recommended that the government establish a refundable tax credit for the Ontario production industry. At that time, the association underlined the fact that the cancelled Ontario film investment program, OFIP, had been quite effective in maintaining a viable industry here and needed to be replaced in some way. However, the industry acknowledged the fact that Ontario's fiscal conditions had created a situation where it would have to be flexible and work with the government to identify new approaches to encourage Ontario-based production companies to not only continue to do business in this province, but to expand their investments here.
On May 7, 1996, the government of Ontario responded positively to this proposal and announced the establishment of the Ontario film and television tax credit, the OFTTC. Subsequently, in its second budget, on May 8, 1997, the government announced plans to increase the rate of the OFTTC by 5% along with special initiatives targeted at the animation sector of our industry.
In making its proposals, the CFTPA had suggested that establishing a refundable tax credit regime would have a number of positive benefits for both the province and the industry. This has proven to be true.
In 1996, the year the full impact of the cancellation of the OFIP program was felt, the volume of domestic production fell to $277 million from somewhere in the $350-million range. The raw numbers for 1997, the first year in which the OFTTC program has been operating, indicate that the volume of Ontario domestic production activity has increased significantly, to $414 million. You can see some of this activity, of course, on the street outside Queen's Park today.
In the May 1998 budget the government continued to support the film production industry by eliminating the corporate and project caps which had existed under the OFTTC program. This action, which is a very positive initiative, particularly to the larger production companies, is certainly welcomed by the membership of the CFTPA. In addition, the CFTPA wants to go on record in support of the new tax credit for animation, which will offer a major boost to Ontario's growing high-tech animation industry. Once again these initiatives will result in additional investment and sustainable job creation in Ontario. The CFTPA fully supports their inclusion in this bill.
Ontario's ongoing support for the film and television production industry has ensured that the industry will be able to continue to make an outstanding contribution to the overall economic growth of this province. Based on the amount of production activity which occurred last year in Ontario, as well as the work already planned and completed during the 1998 production year, it is clear that CFTPA's Ontario members have welcomed this program and subsequent changes most enthusiastically. The CFTPA members believe that the introduction and subsequent enrichment of this program is sound public policy for Ontario in both economic and cultural terms. This policy has absolutely ensured that the production infrastructure in our province will continue to expand.
It should further be noted that the program is not only of benefit to the larger, publicly traded production companies like Atlantis and Alliance, but guarantees that our small and medium-sized production companies are able to grow in Ontario as well.
Beyond coming here to thank the government and the Legislature for continuing its support of the industry, the association wants to take this opportunity to highlight a few other points raised in the CFTPA's pre-budget presentation in February of this year.
In November 1997, when the Ontario government announced its plans to create the Ontario film and television production services tax credit, the goal of this program was stated quite clearly: "To enhance Ontario's competitive advantage in film and television production," by attracting foreign producers into the province.
The CFTPA understands the attraction of fostering foreign investment in the industry. At the same time, however, the local industry wants to be reassured that the primary focus of any Ontario government programs or policies targeted at this sector are for businesses committed to staying in Ontario. The collective goal of the government and industry must be to foster the growth of the indigenous industry. This is the only sensible industrial strategy and the smartest long-term job creation strategy. It is hoped that the government will encourage the commitment of companies like Atlantis and Alliance that have long-term objectives in Ontario that reach beyond the immediate attraction of access to a cheap labour pool because of the present fluctuations of the Canadian dollar.
In the same pre-budget presentation to the Legislature in February 1998, it was suggested that the province consider removing the 48% cap which had been placed on qualifying labour expenditures for the domestic film and television tax credit. The CFTPA suggestion was to replace the cap with one simple calculation, a percentage of Ontario eligible labour, which would create a level playing field for Ontario companies operating alongside the foreign companies developing projects here. It would also make Ontario more competitive with other provinces, such as British Columbia and Quebec, which have also established very attractive tax credit programs to encourage production companies to film in those provinces.
The third point is the issue of Canadian content as it applies to the tax credit.
When Ontario first established the OFTTC, access to the program was limited to those productions which have the highest levels of Canadian content as measured by the federal government's 10-point program. Technically speaking, these are productions that receive a minimum of eight of 10 Canadian content points as certified by the Canadian Audio and Visual Certification Office, CAVCO.
At the time this approach made sense, but with the recent establishment of the Ontario production services tax credit for foreign productions, plus the aggressive nature of some of the tax credit programs since established in other provinces, this limitation has created orphans in terms of Ontario-based productions.
By extending the program to these types of productions, it would guarantee that the OFTTC would maximize the opportunities for production activity created and controlled by Ontario-based companies.
On that basis, the CFTPA would recommend the Ontario government expand the criteria for eligible productions for the Ontario refundable tax credit program for the domestic film and television industry, to permit access by those CAVCO certified Ontario productions that achieve a minimum of six of 10 Canadian content points. The CFTPA hopes the government will also consider accepting this recommendation put forward by the industry. By doing so, the government will enhance an already existing and very successful program for the domestic film and television industry, one that is clearly working. This change will bring some balance to the incentives previously put in place to benefit foreign interests operating in the province.
In summary, when the CFTPA first appeared before a legislative committee in 1996, they underlined the fact that stimulating activity in an Ontario-based film and television industry would provide a net benefit to this province in terms of both real investment and sustainable job creation.
The CFTPA spoke to you about working as partners to create an environment that would allow the Ontario member companies to stimulate economic activity and investment. This investment would clearly create an atmosphere of innovation leading to an expanding offshore market for Ontario-produced products and, again, a strong, sustainable job market here. The CFTPA believes that the partnership between the industry and Ontario has worked out positively for everyone, including the taxpayer, and will work to continue to improve that partnership relationship.
One other specific area in which the CFTPA feels it can expand this partnership with Ontario is in the much-needed simplification and reduction of the administrative burden that is presently encumbering the federal refundable tax credit program.
These views have been brought to the ministries of Citizenship, Culture and Recreation and Finance recently. The CFTPA believe that there is a real opportunity for Ontario to again take the lead in this type of initiative as it has done over the past few years.
Thank you for allowing me the time to address the committee on behalf of the Canadian Film and Television Production Association today. I extend my regrets on behalf of the executive who, because of their annual meeting, cannot be here to respond to any specific questions you might have. Should it be the pleasure of the Chair and the committee, the executive members would be pleased to meet with you at a future date to respond directly to any questions you might have, and hopefully provide you with some updated statistics on the positive effect the OFTTC program and its ongoing changes are having on the province's economy.
The Chair: Thank you very much for your presentation. That allows us one quick comment from a government member.
Mr Young: I understand that Ontario, particularly southern Ontario but Ontario as a whole, is now number three in North America for filming, production, of TV and movies and that when a film crew comes into a community it's like bringing a whole village. You have actors and performers and dancers. In some cases you have makeup artists; you have costumes and electricians and carpenters. What you're really bringing in is a community within a community that comes in and invests a lot in the community. Maybe you can just give me your thoughts on that and the employment picture when you have a production.
Mr Malloy: In fact the employment picture here is now so strong that there is real competition between companies for the existing talent pool out there. It's not only actors, but certainly the people you talked about. The technicians, the carpenters and so on are very much in demand. Right now, it's a very heavy market.
The Chair: That concludes today. Personally, I'd like to thank the committee members as well as the presenters and the staff for the commitment expressed today. This committee sits recessed until 0900 June 11 in committee room 1.
The committee adjourned at 1831.