ONTARIO BORDER COMMUNITIES TASK FORCE ON CROSS-BORDER SHOPPING
CANADIAN FEDERATION OF INDEPENDENT BUSINESS
CONTENTS
Thursday 11 April 1991
Cross-border shopping
Ontario Milk Marketing Board
Ontario Border Communities Task Force on Cross-Border Shopping
Afternoon sitting
Retail Council of Canada
Canadian Federation of Independent Business
Adjournment
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair: Wiseman, Jim (Durham West NDP)
Vice-Chair: Hansen, Ron (Lincoln NDP)
Acting Chair: Sutherland, Kimble (Oxford NDP)
Christopherson, David (Hamilton Centre NDP)
Jamison, Norm (Norfolk NDP)
Kwinter, Monte (Wilson Heights L)
Phillips, Gerry (Scarborough-Agincourt L)
Sterling, Norman W. (Carleton PC)
Stockwell, Chris (Etobicoke West PC)
Sullivan, Barbara (Halton Centre L)
Ward, Brad (Brantford NDP)
Ward, Margery (Don Mills NDP)
Substitutions:
Fletcher, Derek (Guelph NDP) for Mr B. Ward
Fletcher, Derek (Guelph NDP) for Mr Wiseman
Mammoliti, George (Yorkview NDP) for Mr Christopherson
Sorbara, Gregory S. (York Centre L) for Mr Kwinter
Clerk: Decker, Todd
Staff:
Anderson, Anne, Research Officer, Legislative Research Service
Rampersad, David, Research Officer, Legislative Research Service
The committee met at 1009 in committee room 1.
CROSS-BORDER SHOPPING
The Vice-Chair: I welcome you to the standing committee on finance and economic affairs and our task force, in a sense on the cross-border shopping issue.
ONTARIO MILK MARKETING BOARD
The Vice-Chair: I would like to welcome the Ontario Milk Marketing Board, and I would appreciate it if you could introduce yourselves for the rest of the committee here.
Mr Core: Thank you, Mr Chairman; it is a pleasure to be here today. I am John Core, chairman of the Ontario Milk Marketing Board, and to my right is Peter Gould, an economist who works for us; Claude Chartrand, who is a member of the board representing northern Ontario and its particular interest in this subject; and our general manager, Ken Smith.
I would like to begin this morning by thanking the committee for the opportunity to make a presentation. This is not the normal mandatory opening expression of thanks. You cannot turn on a radio or even open a newspaper these days without finding something on cross-border shopping. It is the current issue. It is the most obvious manifestation of some very fundamental problems in this country. However, the dairy industry started raising alarm bells at least as far back as 1986. While it is some solace to see the issue being given its due, we have seen continuous and progressive erosion of our industry over that five-year period. That same erosion is now affecting many other products and commodities. The impact is felt most directly in border communities, but that is the tip of the iceberg, in our view. Forgone sales mean lost jobs anywhere in the country where manufactured goods or food products are produced.
In a general context, cross-border shopping is a very difficult problem to address. Border controls and duty collection are federal jurisdictions, but obviously there are provincial areas of responsibility that impact on the incidence of cross-border activity.
Perhaps what might be as difficult as anything is to change consumer attitudes. For reasons that are haunting us already, we have allowed and even encouraged Canadian consumers to take shopping excursions to the United States as a right. Who among us is going to challenge that constituency?
As you are all too well aware, another dimension to the problem is the erosion of the tax base. Do those taxes just get shifted or do we forgo services? Once either of those occurs, we enter a spiral that is difficult to stop. Canadians, like everyone else, complain about their taxes but somewhere along the line public finances have to be explained.
The problems faced by the dairy industry and dairy farmers are just a microcosm of a much larger problem. However, because of our system of national supply management, the dairy industry has a special need for effective border controls. That does not mean, though, that the impact on other industries or sectors is any less severe.
Furthermore, there is a direct relationship. As the incidence of cross-border shopping increases, the effect on the dairy industry worsens. The dairy industry has been seeking a solution to cross-border shopping for five years without success. Perhaps now that the issue is much more broadly based and being addressed in forums such as today's, there is a better chance that something meaningful can be accomplished.
In this presentation I want to do two things: provide some background on the issue from a dairy perspective and quantify the impact, and discuss our assessment of the problem and some potential solutions.
From the dairy industry perspective on supply management: To understand our concerns, I thought it might help to provide a little background on national dairy policy.
It is safe to say that supply management, as practised in Canada, has been at the forefront of the public policy debate for most of the last decade. It started in 1981 with the Economic Council of Canada's review of regulatory reform. That was followed in turn by intensive debates during the Canada-US trade negotiations, the GATT negotiations and most recently the National Dairy Task Force review.
Over that period we have been forced to synthesize and define what exactly are the key elements of national dairy policy and supply management. It boils down to three elements: border controls, production discipline and compensatory pricing.
The system only works with all three elements working effectively. Producers collectively limit their production by means of a quota system. The government carries no surplus removal responsibilities in Canada. This is not the case in virtually every other major dairy-producing nation. If surpluses are produced, they are exported at Canadian producers' -- farmers' -- expense. In exchange for limiting production, producers expect fair returns for their labour, management and investment capital. That is the compensatory pricing we were talking about. Finally, to prevent surpluses and maintain prices, effective border controls are essential.
Traditionally, supply management has been viewed by many as a program designed for farmers and by farmers. As the GATT process untangles, it is becoming more clear that our system evolved as the only viable means of sustaining a Canadian dairy industry from the onslaught of the grotesquely unfair but somehow legitimate trade practices of other major dairy-producing regions, notably the European Economic Community and the United States.
Just as a side comment, you might be interested in knowing that the surplus dairy production in the United States at the peak of their surplus exceeded the total Canadian milk production. Their surplus, about two years ago, exceeded our total production.
Too many of our critics view border controls as a means of sustaining supply management when quite the opposite is true. We discipline production because of Canada's use of article XI to put border controls in place, and in that regard we are virtually unique around the world. Just a footnote: Article XI is that section of the General Agreement on Tariffs and Trade which gives the authority to countries to implement quantitative restrictions on imports for products whose production is limited to domestic requirements. So that is the authority from which we use border controls.
To put it simply and succinctly, without effective border controls over the past 20 years it is doubtful whether there would be a dairy industry of any consequence today. We limit production to meet our GATT obligations. Canada uses article XI as the only means available to defend against other countries' predatory and unfair trade practices.
Import control measures: There are three main ways by which imports are managed. These are: the use of the import control list, the Canadian Dairy Commission Act and tariffs.
The import control list identifies certain products for which imports are currently prohibited. Examples are butter and skim milk powder. Other products are permitted but are regulated through quotas. The best example is cheese. Canada has an annual global import quota of 20 million kilograms. That is about 7% of the Canadian domestic requirements for cheese. Issues relating to prohibitions and fixed quotas are part of the ongoing GATT negotiations.
Under the Canadian Dairy Commission Act, the commission has the authority to restrict the importation of blends or further processed products containing more than 50% dairy ingredients.
Finally, tariffs exist on a range of dairy products. One problem with tariffs is that they are being phased out under the Canada-US trade agreement. This led to dairy farmers asking for and having yoghurt and ice cream added to the import control list in 1988. That in turn led to the United States' GATT challenge of Canada's authority to add yoghurt and ice cream to the import control list.
Blends have also been an issue in recent years with products customized -- and I use that term loosely -- solely to circumvent the 50% dairy ingredient provision. The most blatant example here is skim milk powder mixed with rock salt to circumvent the regulations, and, more recently, cream and sugar mixtures.
The bottom line is that the industry cannot tolerate leakage in any form. Unplanned imports undermine the viability of the entire system and national dairy policy. Controlling imports is a federal responsibility. Their attitude is not always supportive, especially at a time when they want to project a more free trade-oriented image.
It is in this context that cross-border shopping affects the dairy industry. Whether a milk product or component is imported in an illegal blend or as a consumer purchase made south of the border, the impact is the same.
There is a sideline to the yoghurt and ice cream issue. Canada has established, as a result of the agreement with the United States, an import quota of about 300 tons of both yoghurt and ice cream into Canada. You might be interested in knowing how much yoghurt and ice cream can be imported into the United States under this agreement. You can export no yoghurt into the United States because they have particular regulations saying that their USDA inspectors must inspect farms from which milk is used to make cultured dairy products. So there can be no access to the yoghurt market in the US. I believe that their ice cream quota is in the neighbourhood of about 100 tons, most of it allocated, I understand, to countries that do not traditionally export ice cream. So even though they challenge Canada on our right to establish quantitative import restrictions on yoghurt and ice cream, they in fact have an even tighter restriction, but they have a waiver from GATT that was established back in the 1950s that is not able to be challenged. I just wanted to make that side point to you.
The impact of cross-border shopping: As noted, the industry is always concerned about border leakage. In the mid-1980s, producers in British Columbia began noticing a sizeable effect on their markets as more and more consumers, particularly from Vancouver, made the short trip to the United States. No different than today, milk and dairy products were not the main or only reason for making the trips, but they certainly were a frequent purchase. Preliminary studies sponsored by BC producers produced alarming results.
Finally in 1988, Dairy Farmers of Canada persuaded the federal government that the issue was serious enough to warrant attention. Through Agriculture Canada, detailed studies were commissioned for BC, Ontario and New Brunswick. After lengthy delays, the results for BC and New Brunswick have been released. The study estimated that 7.6% of fresh milk and 4.5% of cheese consumption was being brought into BC by same-day Canadian travellers. Comparable figures for New Brunswick were 4.2% and 0.5% respectively. Those studies are almost two years old now and we know by the volume of traffic that the increase has been substantial since then.
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No figures for Ontario have ever been released. One can draw one's own conclusions. The original Ontario study only included Sault Ste Marie in 1988. A year later, it was deemed that the study had to be redone. When completed, another year later, it was deemed that Sault Ste Marie was not representative of Ontario and that some southern Ontario border points had to be examined. Last week, we learned from the minister's assistant that the Ontario study has been submitted to him -- that is, Don Mazankowski -- but findings will not be released in advance of a "solution," which rather disappoints us.
What we do know is that cross-border traffic by same-day Canadian travellers increased by 36% between 1988 and 1990 and is likely still on the rise. We also know that between 1985 and 1990 marketings of milk to the fluid plant in Sault Ste Marie have dropped by 30%. The figure today could be as high as 40%. Last fall, that plant went from operating four days a week to three. In the near future it could be two, and at that point the viability of maintaining that plant in operation is highly suspect.
Finally, we know that the national market sharing quota has been reduced by 6% since February 1990 and likely will go down 2% or 3% again next August. We look for all sorts of reasons to explain these cuts but have not put enough emphasis on the impact of cross-border shopping in that regard.
Because we have a national system for industrial milk products, lost sales not only affect the province where those losses occur. Similarly, we should not for a moment infer that cross-border shopping is not a problem in Quebec or other provinces just because Agriculture Canada did not conduct a study there.
To put the costs in perspective, each 1% loss of national MSQ ultimately translates into 200 fewer farms in this country, with lost farm-gate revenues of nearly $23 million annually.
We cannot quantify how much of these losses are associated with cross-border sales. We are simply making the point that they are contributing to them.
The dairy farm loss is only one dimension. Parallel losses occur for the processing sector, leading to plant closures, and for milk transporters, veterinarians, equipment dealers and feed suppliers. Losing dairy farms has a profound impact on the rural community.
As noted above, leakage under a supply management system is simply unacceptable. A solution must be found.
Why are prices lower in the United States? There is no disputing that prices, after adjusting for unit size and exchange rates, are lower on virtually everything south of the border. In the cases of beer, alcohol, cigarettes and gasoline, the explanation is fairly straightforward: Most of the differences are due to taxes.
For milk and dairy products, the explanation is not as straightforward. To be as brief as possible, I will outline four contributing factors.
Made-in-Canada costs: Simply put, doing business, dairy or other, costs more in Canada. The same fuel that costs consumers less when they travel across the border is a higher input cost in producing milk. Interest rates on borrowed money have been consistently 4% to 5% higher in Canada. Labour costs and most other purchased inputs simply cost more. What critics superficially allege as being inefficiency is not accurate.
Policy differences: In many respects, dairy policies in Canada and the United States have a lot of similar objectives. However, how those objectives are achieved makes comparing the two systems like comparing apples and oranges. One of the most fundamental differences is that whereas Canadians operate with production disciplines, the US operates an open-ended support price system. There are no limits on milk production regardless of market conditions. The government buys all surplus production. Second, the cost of surplus disposal is borne by taxpayers, not producers, in the United States. Both these policies belie the true cost of producing milk but result in lower farm-gate prices. An obvious outcome of US dairy policy is a very costly surplus removal program. Rather than limit production, the approach until now at least has been to lower support prices. Since 1985, producers in the United States have arguably responded to lower prices by maintaining or increasing production as a means of survival, and they are again heading towards a major surplus situation in the United States.
The previous section alluded to higher interest rates in Canada. Beyond that, US agriculture policy provides access to below-market rates for farm credit. Another significant factor is their deficiency payment program which subsidizes both purchased feeds and homegrown feeds. The net effect, again, is to lower farm-gate requirements and mask the real cost of producing milk.
Market structure: There are two levels of comparison to be made; one at the farm gate, the other at the retail level. Price Waterhouse recently completed a study for the National Dairy Task Force. It found that on a cash cost basis, costs were fairly comparable between Canada and dairy farmers in border states. The one big difference was that if a 10% return on equity was factored in, however, most US farmers had a negative return for labour and management while Canadian prices allow for positive returns to labour.
The US dairy farmers involved in this study are living on their equity; the equity is bleeding down. In an attempt to try to stay ahead they are milking more and more cows, trying to do more and more work, which is leading to a surplus situation again in the United States. So they are in a vicious spiral now with the fact that their prices are moving down; they are trying to compensate by keeping their farm cash receipts up by producing more milk, which further compounds the problem.
You might be interested in knowing that the current US farm bill calls for the United States to consider putting in place standby supply management programs if their purchases reach a certain level of overproduction. That is the first time we have ever heard of the US government talking about something like a standby supply management program.
Perhaps more significantly, the study found that one of the biggest factors in price differences between the two countries is processor margins. Processors in the United States have much higher capacity utilization -- it is not unrelated to open-ended support prices -- and they also have lower margins.
We should also not lose sight of the fact that in unregulated markets retail prices do not necessarily bear any relationship to farm-gate prices. There is no reason to think that retailers in US border areas are not using milk as a loss leader to build traffic.
Exchange rates: As mentioned above, retail and farm-gate prices are not necessarily related. In Ontario, our authority, the board's authority, for pricing only extends to the farm gate. In carrying out our responsibilities, the objective is to establish prices that provide fair returns for producers' labour, management and capital. Wholesale and retail prices are totally unregulated in Ontario.
If one looks back a few years to when the Canadian dollar was valued at 72 cents to 73 cents, US farm-gate prices for milk were virtually comparable to Canada. At those exchange rates, milk selling for US$12 per cwt, or hundredweight, equated to $37.85 per hectolitre Canadian -- less than 4% below our class 5 price, and that is the price for milk being used to make butter and skim milk powder. The same US$12 per cwt translates to $31.67 per hectolitre at today's exchange rates. Relative to today's class 5 price, which has increased modestly, the difference is 25%. Long-term policies cannot react to short-term fluctuations in exchange rates. Exchange rates are crucial to the whole issue of cross-border shopping and exert tremendous pressure on the entire Canadian economy.
International competitiveness: Ever since Canada entered discussions with the US on so-called free trade, Canadians have been beleaguered with rhetoric about globalization and becoming internationally competitive. Global trade is a zero-sum game, meaning total imports globally equals total exports. If you have a positive trade balance, you are on the winning side; it means that some other country must have a negative trade balance.
Canada was internationally competitive. In 1985, Canada had a total merchandise trade surplus of more than $20 billion. Our surplus with the US alone was of the same magnitude. Between 1985 and 1989, the surplus has dropped to under $12 billion and the surplus with the US has declined in lockstep. Exports to the US have increased by 24%, roughly in line with inflation, while imports have increased by 42%.
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Canada's monetary policy has meant that instead of exporting goods and products we are now exporting jobs and job opportunities. There is a tendency to look at details like tax structure, health care, subsidies and labour costs to rationalize differences. In theory, and usually in practice, exchange rates account for all of those factors.
If exchange rates are allowed to find their proper level, normal trade and structural adjustments will occur. Depending on the state of an industry, some goods will be less expensive in one country and others will be less expensive in the other. When a situation develops, or indeed is fostered, where all goods appear to be less expensive in one country, the other country, unfortunately Canada in this case, has serious problems. Consumers are not stupid; they will gravitate towards the lower prices. Not only do we lose Canadian purchases, we also lose a substantial American tourism that used to flow in our direction. What is happening at the consumer level is also happening at the industry level, and that ultimately is a much bigger problem.
Why exchange rates have drifted upwards is hard to rationalize. From a US perspective, it certainly has helped reduce their trade deficit. Is it the unwritten portion of the
Canadian-US trade deal? One explanation has been that we need high interest rates to attract foreign capital. High interest rates appeal to currency investors and speculators. This country needs to attract investment in productive resources and that is not likely in an environment of decapitalization.
Canada's economic health depends on our ability to export. Until exchange rates fall back to where they belong, living and working in Canada is going to be a less happy experience.
Taxes are set and collected to pay for the services we all enjoy as citizens of this country, from transportation to education, to health care, to garbage collection and public security. When Canadians go to the US to buy groceries, gasoline, electronic equipment or whatever, they avoid paying their share of the bill. Only two things can happen as a result of that; one is that the tax burden is shifted. Governments can increase existing taxes, which they are loath to do, or charge the taxes in areas which are harder to avoid, such as property taxes. The second possibility and ultimate outcome is that services will be reduced. These are tragic consequences.
The average Canadian has to be made to understand the effect of their actions. Canada, like any country, is a community of citizens where we all enjoy the benefits and similarly share the costs.
To that end, all applicable taxes, excise taxes and sales taxes -- GST and provincial sales tax -- should be collected. Furthermore, existing rules regarding duty-free opportunities -- for example, being out of the country for 48 hours to bring back $100 worth of duty-free goods, unlimited, and being outside Canada for at least seven days to bring back $300 worth of goods, once per year -- should be rigorously enforced.
These regulations did not change with the signing of the free trade agreement, although many Canadians have the perception of open borders. The only thing that has happened is the reduction of tariffs on some items. Other taxes still apply.
Along these lines, the British Columbia fast-lane experiment seems like abject nonsense, a carte blanche to smuggle, with the government turning a blind eye. If an honour system is going to be used, it has to be accompanied by an effective deterrent, including confiscation of goods not declared and/or the vehicle. If anything, we need fast lanes for American visitors. Every effort should be made to prevent further expansion of the fast-lane concept for returning Canadians. A fast lane for American visitors would make much more sense.
Dairy Farmers of Canada position: Dairy Farmers of Canada is our national organization that represents milk producers across the country. Independent of the broader implications, Dairy Farmers of Canada views effective border control on the importation of milk and dairy products as an essential element of national dairy policy. It is a federal area of responsibility, and if a key element of dairy policy cannot be fulfilled it places the entire policy in jeopardy.
While the importation of dairy products is administered through the import control list under the export and imports act, there is an exemption for milk and dairy products with a value of less than $20. Dairy Farmers of Canada believes that amending the exemption to require a stay outside of Canada of at least 48 hours would provide the authority to address the cross-border issue. Failing that, our government needs to look no further than the United States to find solutions. It is virtually impossible for US citizens to bring back milk or dairy products from Canada. If the will is there, it can be done.
While we believe the issues are separate, there is also a very close interrelationship. The dairy sector needs border controls to maintain the viability of national dairy policy and the dairy industry. However, as cross-border shopping increases and becomes more deeply entrenched as a way of life, the impact on the dairy sector grows proportionately.
The secondary effect of cross-border shopping is the reduction in domestic demand. Lost jobs in border communities and lower sales of Canadian products are just the beginning of a downward spiral.
It is our belief that the single biggest factor at play is the exchange rate. We have a situation that puts Canadian prices out of line with those of our major trading partner. Cross-border shopping is only one manifestation of the problem; the bigger issue is probably the erosion of Canada's ability to export and the attendant loss of jobs. Recent policies, monetary in particular, aimed at fighting inflation may have been effective, but they have also had a devastating impact on the economy. Is this another example of the cure being worse than the disease?
Changing exchange rates is something only the federal government can do. Right now, the Americans are the main beneficiaries of Canadian largesse.
As a country, we have allowed our citizens to gain the perception of an open border and nobody wants to tell them it is not so or that if we want to maintain the integrity of the country, it cannot be so.
Exporting jobs instead of goods and a declining tax base can only move Canada in the direction of what some analysts describe as the process of becoming a third-world country.
There are those who would trivialize this issue. They are wrong. I do not envy you your task. Cross-border shopping is a very complex problem without obvious or easy solutions. While the exchange rate is a major underlying factor, all appropriate taxes and duties must be collected and existing laws on stays outside the country must be adhered to.
I cannot comment whether or not it is realistic to expect an education program to work, but legislators, bureaucrats and taxpayers need a better understanding of how public finance works. And journalists as well.
Let me conclude by remarking that cross-border shopping has already had a serious impact on Canada's dairy sector at both the producer and processor level. Unless the total problem is addressed, I have concerns about the potential for a dairy-specific solution. Let me assure you the board and dairy farmers will assist and co-operate in every way possible. Thank you for your attention and for creating the opportunity to express our concerns.
Just in closing, Claude Chartrand, representing northern Ontario, has some particular concerns about the Sault Ste Marie marketplace and he will just make a few comments in addition to mine.
Mr Chartrand: Representing northern Ontario poses some particular problems. I am sure your confrères have talked about distances in northern Ontario. To put that in perspective, I live some 350 miles from the closest border point on my own farm. That is roughly the same whether I am talking about Cornwall, Kingston, Niagara Falls or Sault Ste Marie, and I am part of northern Ontario, 100 miles north of North Bay.
In Sault Ste Marie there has been a polarization of opinion, as you are probably well aware, between retailers, producers and consumers to some extent, to where we see a loss of between 30% and 40% of our milk sales there, and it is not just milk. You can imagine the effects on myself, for instance; I expect my gross income to decrease by 3% in the next year. You can imagine, as a resident of northern Ontario, this kind of effect. We know that you are going to have some very hard decisions to make about Sault Ste Marie, whether to pour in billions of dollars maybe to keep a seal plant, or the same amount of dollars will have to be there in welfare or some sort of social easing of the situation if unemployment gets worse. But it means that between 30% and 40% of Sault Ste Marie is not really part of the economy in northern Ontario. It is more part of the economy in the States because that is where they do their shopping, that is where they are paying their taxes in the major part. Whether we are talking about beer, liquor or cigarettes, provincial sales tax is not paid at the border and this is causing quite a polarizing of opinion. That is where the major part of discussion has been with producers at meetings in northern Ontario in the past week: about cross-border shopping and our decreased income and what we can do about it. I sure appreciate the opportunity to make these comments here, Mr Chairman.
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The Vice-Chair: Thank you. We fully agree with your statements, and that is why this committee was one of the first agenda items after setting up our preliminary budget report. We felt this was the most urgent matter that the province of Ontario had to be looking at next. We appreciate your input. Going through your brief, it is very informative. You are actually the first group that got here, one of the particular areas of milk.
We do have some questions from the committee and we have approximately 18 minutes until 11. We have another brief coming in and the bells will be ringing around 12 o'clock so we are going to have to cut that one short. We have to move on. If Mr Kwinter would ask one question; if he has another question, put up his hand again and we will try to rotate so that everybody has a chance.
Mr Kwinter: I have got a half-dozen questions.
The Vice-Chair: Oh, no, not section a, b, c and d, if you do not mind.
Mr Kwinter: Mr Chairman, seeing the constraints that you are putting on my questions, I have to pick out the one that I really want to talk about. I just have to take a second to see which. Let's talk about article XI.
When we talk about the import control act or the list, one of the problems, of course, is that the Canadian milk producers asked to have ice cream and yoghurt put on the list. The Canadian government agreed, they put it on, it was challenged by the United States. It is my feeling that if that challenge succeeds we are really on the slippery slope to getting rid of supply management.
Regrettably -- when I say this I am not trying to be partisan or political -- after the Canadian delegation went to the GATT talks in Belgium and came back, I asked the minister in the House, given the fact that these talks had collapsed and article XI was not even addressed -- he did not seem to know that -- I said to him, "What are you going to do about it?" He said: "Well, we are happy with it. We are happy with article XI as it is. We have no real interest in strengthening it." And that was that.
The question I have is, what would you suggest should be done to try to make sure that we have a strong enough article XI to allow the milk producers to put products like ice cream and yoghurt on it?
Mr Core: Dairy Farmers of Canada made a presentation to the federal minister a number of months ago. He said to us, "If we have to do something about article XI, what is it that needs to be done to it?"
We submitted a major presentation to him, with the support of other supply management groups across Canada, which became the fundamental position of the Canadian government in the current GATT discussions. The federal ministry has assured us, and our ongoing discussions with the trade negotiators have also shown, that they have been pushing very strongly on getting article XI clarified and strengthened so that it will be functional in the future.
Our position has always been, however, that if that is not achievable, then give us the other rights other countries have under the GATT agreement. We would be quite happy to have a waiver like the United States has, to be able to protect our borders with a waiver for dairy products or eggs or poultry or whatever. The Europeans have chosen to use variable import levies. Even though they are not allowed under GATT, they have been allowed to use them, and if they become legitimate under the new GATT agreement, then we will use variable import levies.
The question is, with our trade agreement with the US, what impact might that have? We have simply said that if this GATT discussion is going to be about creating new rules of trade, we think that one of the new rules of trade should be article XI.
I had some representatives of Korean agriculture in my office recently and they commented that their government is very interested in pursuing article XI now. Some of the nordic countries are, and there is a line through the new emerging European position suggesting that they are giving more serious consideration to how article XI could be used for the kinds of programs that they want to use.
Mr Kwinter: In closing, may I make a suggestion that you meet with the Minister of Industry, Trade and Technology. Explain it to him and take along some pictures and try to inform him as to the issues so that at least --
Mr Stockwell: Diagrams.
Mr Kwinter: -- if he goes to a meeting he will know what he is talking about.
Mr B. Ward: I am a little bit troubled by some of your comments and I have a number of questions, but I will just ask one which troubles me the most.
In the discussion we have had not only on this issue but other issues on government involvement, etc, primarily from Conservatives, we have been led to believe that America is a free-enterprise system with as little government involvement as possible. According to some of your comments, that in fact may not be true when it comes to the dairy industry.
I would like you to expand a little bit. I will not worry too much about the European Community because this is a cross-border shopping issue. Could you elaborate a little bit on the internal policies of the American government when it comes to the dairy industry? In fact, is it free enterprise or is it government-supported, and to what degree?
Mr Core: Through Dairy Farmers of Canada, we did a major study through the firm of Grey, Clark, Shih and Associates in Ottawa on the level of hidden subsidization to the US dairy industry. The Americans have put in place a very, very expensive agricultural policy that is aimed at supporting their domestic agricultural industry. I cannot remember the number of programs they documented, but it was well over 100 different programs that indirectly give support to the US farmer, be it dairy farmer or grain farmer, it does not matter. We went through them and then proportioned that against the dairy industry.
There are programs such as the export enhancement program, which the government uses to subsidize the export of surplus products out of the United States; the food stamp program, where they subsidize the use of food products to their domestic population that require food stamps; the grain program that we mentioned, feed grain set-aside program -- they have a massive conservation set-aside program where farmers are being paid to take land out of production for conservation purposes. The federal irrigation water scheme in the United States is a federal program which highly subsidizes the value of irrigated water to farmers throughout the southern United States.
When you take all of those programs, the closest we could come in proportioning those out to the dairy sector in the United States was that it represents a value of 12 to 13 cents a litre to the US farmer in hidden support. It is not money that may directly appear on his income statement, but it has lowered his costs or given him other sources of income. So that is 12 to 13 cents, which is about 30% of the price they receive for milk at the farm gate in the United States.
In Canada we are not clean in this situation. There are supports to agriculture in Canada as well. The only direct one is the national dairy subsidy program in Canada which accounts for about 6% to 7% of our producer income, nowhere near the high level of subsidization in the United States.
The United States is not a free trader in agriculture commodities, it never has been and it never will be. They have no intention of being that. However, they have the intention of creating rules which they hope may give them some advantage in trading with other parts of the world.
I was in Washington a year and a half ago at their Outlook conference and heard Clayton Yeutter say: "I don't know why our domestic producers are so concerned that we are going to dismantle our domestic support for agriculture. We have no intention of doing that. We are simply going to lower the export enhancement programs of ours and other countries."
It is not a level playing field. You can take away export subsidies and that does not create a level playing field. The United States has a very protectionist dairy industry. In fact, right now the organization that represents dairy producers in the United States is lobbying intensely against President Bush's request to extend the trade negotiations for another two years because they do not want to lose the protection they now have under their waiver, and they are afraid that a positive GATT round would eliminate that waiver and then they would have to use something like article XI, which they do not want to do.
Mr B. Ward: I am shocked, Mr Chairman, that America is not the bastion of free enterprise I thought it was.
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The Vice-Chair: I can see that on your face.
Mr B. Ward: All these years I have been misled by the Conservatives.
The Vice-Chair: That was a very good answer, really. That is going in Hansard so that we have a copy so that we can exchange it with other members.
Mr Sutherland: You talked a little bit about a drop in the market share quota, what it would result in, the number of farmers being lost and the number of dollars being lost. You said you first highlighted the problem in 1986. Do you have an estimate since 1986 of how many dairy farmers have gone out of business and how much money that has meant in losses to the Ontario economy?
Mr Core: Not specifically, because part of our frustration has been that the federal government's studies on the Sault Ste Marie cross-border issue have never been released. The numbers for other border crossings, as I say, the minister has not released them. So we have not been able to quantify specifically what the impact was, but I have no reason to believe the numbers from BC, for instance, are not reflective of that province. I know the border crossings in the city of Sarnia, where I reside; my brother recently talked to the supervisor of customs there. The number of declarations at the border has just risen far more dramatically even than some of the numbers appear in this document.
The Vice-Chair: If the rest of the committee does not mind, to get to the third party -- Mr Stockwell is two more down -- but is it all right if I skip ahead so we get the viewpoints from the third party also?
Mr Stockwell: Thank you, Mr Chairman. You talked at great length and made a lot of emphasis about the exchange rate. You know I have always had a difficult time understanding or at least accepting the exchange rate argument. You have a 15-cent break now. What do you want, 50 cents?
Mr Core: If you do not mind, Mr Chairman, I will ask Mr Gould to respond to the question. Peter?
Mr Gould: I guess we are trying to suggest that the exchange rate should find a level that makes goods produced in Canada competitive with its main trading partner.
Mr Stockwell: What is that rate? That is what I am asking.
Mr Gould: I would suspect something in the order of 75 cents Canadian relative to the US dollar would be adequate. What we are doing through our various policies is inflating the value of the Canadian dollar which, all other things considered, makes goods produced in Canada uncompetitive with those in the United States. It is as simple as that.
Mr Stockwell: But the argument is made that you have a 15-cent break now, and you are saying that to be competitive you need a 25-cent break?
Mr Gould: It is not a break. Exchange rates take all the factors given in the economy irrespective of what they are──you know, health care, different tax structures, all those sorts of things. If you are going to produce steel or forest products or high-technology products, this is the exchange rate that allows you to compete. If you allow that exchange rate to drift upwards for what I would argue are non-economic reasons or for artificial reasons, you are putting your economy out of line with that of your major trading partners. As we tried to illustrate in the presentation, if you go back not too many years -- and it is even true today, we still are competitive -- if you have a positive trade balance you are competitive, but by losing that competitiveness your relative position deteriorates, and that is the process we are in right now.
Mr Jamison: You mentioned access a little earlier on and how under some GATT decisions made back in the 1950s certain commodities -- we became restricted in our ability to have even that so-called free trade situation developed, especially for certain areas. I wonder if you could expand on that a little further for me so that the committee here would have an understanding of that particular concern.
Mr Core: That reference was to a special waiver the United States achieved under the GATT rules which allowed it to practise certain protectionist policies. They are allowed to address that to the dairy industry, the sugar industry, I believe, as well as some very restrictive import restrictions in the US because GATT is all about opening up trade. The Americans said they were going to pull out of the system unless they achieved this waiver after substantial lobbying within the US and they were given this temporary waiver which is still in place today.
That is just an example of the kinds of things that have happened under GATT that we hoped this Uruguay round would sort out. We have been supportive of GATT discussions, of trying to get the same fair rules of trade for all the partners in GATT and do away with special exemptions. That is what the GATT negotiations are about. They are creating the rules of trade. We simply feel that article XI, for example, is that if a country does want to practise a domestically oriented policy towards particular agricultural commodities -- and all countries have particular commodities they want to do that with -- then we should all play by the same rules. We feel with a rule like article XI, for example, it may evolve.
Just as an example, you may not realize it but the total imports of products into the Canadian dairy industry, if you take our total marketplace, somewhat slightly over 3% of our total dairy consumption is imported product, be it cheese, yoghurt, ice cream or whatever. The total imported product into the United States is below that and the total imported product into the EC is even less than the Americans'.
So we are practising supply management, domestically oriented policy, but because we are obeying the rules, we are allowing more access to our market than other countries which accuse us of being too protectionist. That is what really infuriates us. Canada is pointed at in dairy and supply management as being protectionist and something that has to be changed, whereas those other countries, the Europeans and the Americans, are even more protectionist than we are. We think if we all played by the same rules, all of us would be further ahead in a more stable dairy industry.
The dairy industry around the world is a domestically oriented industry only if you take all the global trade and dairy products. The last figures I saw would indicate that between 7% and 9% of dairy products trade globally, which is a very small percentage of the total marketplace. Most dairy industries in most countries are domestically oriented because they are fresh products, they are perishable and countries view dairy industries as being a fundamental part of their food policies in most cases.
Mrs Sullivan: I was very interested in your remarks earlier on subsidies. I wanted to ask another question which relates to some of the information that is being put before the committee from other groups in different industries and sectors, and that relates to the role of the distributor or the processor in the pricing of the product. You have alluded in your statement to the retail prices being quite different from the farm-gate price. I wonder if you would comment on what the difference in the add-ons through the processing and distribution would be in Ontario in comparison to comparable areas in the States.
Mr Core: In the National Dairy Task Force, which I am a member of, we try to quantify those. It was almost impossible to do it at the retail level. They did some studies at the processing level and found that the margins -- I do not mean profit margins, I mean cost margins -- the cost margins of Ontario processors were somewhat higher than in the United States. They identified two main causes of that, one being the fact that plants in the US have rationalized to a large extent, and their through-put or utilization is significantly higher than that of Canadian plants because we are still going through some consolidation and rationalization of processing plants. The other factor is the size of the plants. Just the physical size of processing plants lends some efficiencies. The US market is 10 times bigger than ours and it is logical that they are just going to be bigger.
So the indication was that there are some marginally higher costs on the processing margin, but they are explainable. It is hard to quantify retail prices because retail prices, so much in some products, are loss leaders: 2% milk in Ontario is a loss leader and it fluctuates all the time depending on what the pricing practices of the retail stores are. As well, butter falls into that category quite frequently. So we do not have evidence of information on retail markups.
The Vice-Chair: Mr Smith, I believe you want to make a comment on Mr Jamison's question. I sort of cut off and went on to the next question.
Mr Smith: Thank you, Mr Chairman. It was just a further clarification on waiver 22. This was given to the US to have it agree to join in the current round. It covered dairy products, cotton products, sugar products and edible oil products including peanuts, so it was a very widespread exemption from the GATT rules in that area. I just thought the committee should be aware of the magnitude of that waiver 22.
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The Vice-Chair: I want to thank you for appearing before us. It was very informative. This is what we need in order to come to some conclusions to end this problem on cross-border shopping.
Mr Core: If there is anything further that people would like to have information from us on, we encourage you to call us and we would be happy to co-operate with you. Thank you very much for this opportunity.
ONTARIO BORDER COMMUNITIES TASK FORCE ON CROSS-BORDER SHOPPING
The Vice-Chair: Welcome again to the standing committee on finance and economics. I am glad to see you back again. You appeared before this committee on our pre-budget consultation. It was very informative. This is one of the areas that we feel is very important to Ontario right now, cross-border shopping. I see by the familiar faces that everybody seems to be coming from the border towns there.
Would you please identify yourselves from the left to the right so we all know who you are.
Mr Commisso: Tony Commisso. I am from St Catharines, and I am representing the St Catharines chamber and Shop Ontario.
Ms Logan: Gail Logan, general manager with the Sault Ste Marie Chamber of Commerce.
Mr McCartney: I am Gerry McCartney with the Sarnia-Lambton Chamber of Commerce.
Mr Jacques: I am Mark Jacques, the executive director of the Windsor Chamber of Commerce.
The Vice-Chair: Okay. If you could present your brief here now to us.
Ms Logan: Thank you. The Ontario Border Communities Task Force on Cross-Border Shopping is very pleased to meet with your committee regarding the complex issue of cross-border shopping and its impact on the government, business and residents of Ontario.
The task force has representation from Cornwall, Fort Erie, Niagara Falls, Kingston, Port Colborne, St Catharines, Sarnia, Sault Ste Marie, Thunder Bay, Welland and Windsor.
As you will recall, our task force presented a brief to the finance committee at the end of January and provided background information on the issue and recommendations for the provincial government to consider relative to taxation policy. The recommendations are as follows: that the Ontario government immediately reduce the provincial tax on gasoline, based on a zoning formula; that the Ontario government negotiate with the federal government to reduce the federal tax on gasoline, based on a zoning formula; that the Ontario government negotiate with the federal government the implementation of a cost-effective system to collect provincial sales tax on declared goods entering Ontario at border entry points.
Our purpose in meeting with you today is to provide you with an up-to-date situation analysis regarding the facts of this issue. We will also provide information on programs and activities currently being implemented in border communities throughout the province as well as recommendations for action. A number of representatives from our task force are in attendance today, and we are very eager to share our thoughts and concerns with you. We would also be happy to explain in greater detail specific programs that are under way in each of our communities.
Regarding the facts, the traffic count of same-day visits to and from Ontario has gone from a net inflow in the second quarter of 1987 of 1.4 million people to a net outflow of 1.5 million people in the second quarter of 1990. The number of people making same-day trips to the United States from Ontario continued to increase by 30% in 1990, and it is anticipated that 1991 will show the same or an even greater increase.
Estimates of lost retail sales for 1991 in Ontario are expected to be in excess of $1 billion, which represents an approximate loss of $80 million in sales tax revenue to the province. An economic impact model used by Ernst and Young in their study of the economic impact of cross-border shopping on the city of Sault Ste Marie determined that for every $1 million in expenditure leakage to the United States from Sault Ste Marie, Ontario, 7.2 jobs are lost in the community. This results in lost income taxes, lost municipal taxes, and increased burden on municipally, provincially and federally sponsored social programs.
Ontario consumers are making significant purchases in the United States of gasoline, groceries, liquor, beer and cigarettes, along with the big ticket items such as automobiles and boats, building supplies, clothing, linens -- the list goes on.
Ontario border communities are showing severe signs of depression as retail and service sector businesses are closing at an alarming rate. There has also been a sharp decline in US tourists visiting Ontario during the past two years. Many reasons have been cited; however, the most frequent reason given is the high cost of gasoline, meals and beverages, all items which are subject to considerable taxes.
Ontario businesses are currently on an 8% price disadvantage with their US counterparts as provincial sales taxes are not collected on goods entering Canada at border crossing points. Retail pricing differences on gasoline in border cities throughout Ontario appear to vary only by several pennies per litre; however, the difference in price between Ontario and the US is approximately 17 cents per litre, the majority of which is provincial and federal taxes. Border communities in Ontario have lost gasoline sales in excess of 295 million litres annually and as a result the province of Ontario has lost almost $34 million in tax revenue.
It is estimated that the province of Ontario will lose in excess of $114 million in tax revenue for 1991 as a direct result of cross-border shopping, a problem which will continue to increase unless government immediately addresses this issue. Mayors of Ontario border communities met recently to discuss this issue and have formed a task force to address the problem.
Regarding situation analysis, the following information has been provided by the communities of Kingston, the Niagara region, Sarnia and Sault Ste Marie. You will also find, attached to the brief, information from Windsor, which Mr Jacques from Windsor will present.
For Kingston, available evidence is largely anecdotal to date. However, there have been well-publicized stories of long lineups of cars full of Canadian shoppers at the Lansdown border crossing returning from the Salmon Run Mall in Watertown, New York. As well, a large percentage of Canadian cars has been observed in the parking lot at this US mall. The recession and international competition have had a negative impact on local retail sales, causing a number of store closures.
What is Kingston doing and what are the results? The Kingston District Chamber of Commerce, with the assistance and support of the downtown Kingston business improvement area, the Kingston Area Economic Development Commission and area businesses, has engaged the national consulting firm of Ernst and Young to conduct a study to assess the impact of cross-border shopping on the local economy. The study will be completed at the end of April and an action plan that will consist of program and policy initiatives will follow.
Kingston is recommending the following:
Awareness campaigns calling for consumer patriotism are an inappropriate measure that only serve to publicize the perception that all things are cheaper in the United States. Canadian consumers deserve competitive prices. We must learn if indeed prices are lower in the US, or on what types of goods prices are lower. Then we must learn why, get competitive and change things. We must deliver lower prices or lose our retail industry.
At this point I would like to turn it over to the various individuals who are represented here today and ask them to comment on each of their areas.
Mr Commisso: Mr Chairman, members of the committee, I would like to thank you for this opportunity to make our presentation this morning. Once again, I would like to restate the estimates of over $1 billion in purchases by Canadian consumers across the border in the US. Niagara region's share of this we estimate to be about $150 million. It appears there has been about a 20% increase over the previous year. The statistics on same-day visits to US from Ontario since 1986 have increased: 1986-87 by 12%; 1987-88 by 22%; 1988-89 by 27%; and 1989-90 by 26%. The alarming part of this whole thing is that there is a steady increase. There is absolutely no sign of reduction in this phenomenon, and unless something is done about it, we feel these figures will continue to increase.
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The impact of this on local retailers has been quite staggering. The tax structure at all levels is very much higher in Ontario than in the United States. This creates increased costs for retailers to their consumers and lessens their competitiveness. Introduction of market value assessment will only escalate this problem, as the retail sector will be hardest hit by increases in real estate taxes. Taxes on beer, alcohol and cigarettes in Ontario have had an effect of doubling the costs of these products to Ontario consumers.
Many people in border communities are buying these products in the US and importing them without paying duties and taxes. In cases where taxes are paid, only federal taxes are collected at the border. Gas taxes in Ontario are double those in the US; consequently, many motorists fill up their tanks in the US at a much lower cost.
Supply management of many agricultural products also adds to costs of products in Canada; for example, eggs, which carry a marketing board fee of 17 cents a dozen. Also poultry, where quotas are set at much lower levels than we can consume in Ontario, thereby forcing us to import poultry from Manitoba and Quebec, not allowing us to take advantage of economies of mass production. Dairy products are also controlled by dairy boards. I do not want to go too deeply into that because the Ontario Milk Marketing Board was here just before me and I am sure they have explained the dilemma of US subsidies and other factors that impact on the cost of milk in Ontario.
Much of the media coverage of cross-border shopping is based on sensationalism, not fact. Many items have been compared by various retailers, and although some items are cheaper in the US, there are a similar number of goods that are cheaper in Canada. Several grocery surveys showed a similar number of products being lower in Ontario than in the US. An average shopping basket of grocery and drug products showed total costs as being lower in Ontario.
Recent television coverage showed people purchasing video games in the US, and claimed that they were half the price of those in Canada. There have been many reports to the contrary. In recent promotions, many Canadian retailers have been selling these same video games lower than they are in the US.
Good marketing practices by businesses in the US have helped to draw Canadians across the border to buy their products. Ontario border communities have been flooded with advertising of all kinds. There have been no co-ordinated efforts on the Canadian side to increase the number of Americans who shop in Ontario, or try to counter some of the American advertising to keep Canadians at home.
My recommendations are as follows:
First, a comprehensive study is required. The first thing that should be done about this problem is to gather all the necessary information in order to make proper government policy and marketing decisions. All major product categories should be compared and the cost structures analysed. Also, what are the reasons that people shop in the US? If we can gather this information we can start to address the problem on a more comprehensive manner.
The second recommendation is that a retail support mechanism is required. The retail sector in Canada has no formal support mechanism as do the tourism industry and the manufacturing industry. New York state has a business development office that works with the retail industry to develop this economic sector. Such a mechanism should be structured in Ontario to co-ordinate the efforts of government and business in dealing with international trade issues.
My third recommendation: a reduction in the gasoline taxes at border cities is required.
Fourth, Canada Customs must increase their workforce to ensure adequate inspection of vehicles returning to Canada.
Fifth, provincial sales taxes must be collected on goods entering Canada at all Ontario border country points.
Sixth, government should develop a subtle awareness program to inform consumers about the reasons for differences in price between Canada and United States and the distribution of taxes that are applied; eg health benefits, workers' compensation and unemployment insurance.
I would just like to outline a few things that we have been working on in our community. We have been trying to gather together all the retail organizations in the Niagara region to put on a co-ordinated marketing effort to counter the US advertising that is inundating our area every week. We have a lot of good plans, although it takes time to develop them without the assistance of the various agencies which I have recommended be put in place to help co-ordinate all these actions. So I guess in order for our community to continue to fight this struggle we need the support of the government agencies to assist us in any way possible.
I would like to turn this over to Sarnia to give their portion.
Mr McCartney: Mr Chairman, ladies and gentlemen, again thank you for allowing us this opportunity today. I am not going to give you a bunch of statistics. I am sure you have had a million of them already. What I would like to try and convince you of is the problem that we have because we are on the front line. It hurts and it hurts a lot. We are losing jobs. You can read the numbers. We have a really odd traffic-flow situation where we were up 30% at one time and now we are down 35%. That represents a multimillion transfer of bodies going out of the country instead of coming in and you know what the impact is economically.
We think -- and please correct me if we are wrong -- that the governments, both federal and provincial, obviously are having a difficult time with this because it is not an easy problem to address and it is very complex. This shopping buggy comparison thing that we see in every newspaper in the country is so easy it is almost elementary, but it does not serve, it does not really get to the root of the problem.
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What I would suggest to you and what I would hope you would listen to today is that the problem in border communities is not unique to border communities. The simple math that I know tells me that 80% of us, of Canadians, live on or near the border of the United States of America.
Toronto -- I think your own papers delivered some information a couple of weeks ago that indicates that the city of Toronto itself lost $240 million in retail sales to Buffalo. Now, unless the Niagara Escarpment had a sudden shift in the last couple of weeks, Toronto, as I remember, was not on a border. That is the most vivid example I can give you. It hurts all of us, so please try not to look at us as if we are in isolation, as if it is only going to be a problem for Windsor, Sault Ste Marie, etc.
Currently, the bigger part of the problem in my view -- and I am saying this only because I am in front of you today; if I were in front of a federal commission, I would blame the provincial government -- but we think the larger problem is the feds, quite frankly. The collection at border crossings is under their jurisdiction and we understand that. As we sit here and remind you that you are losing your 8% PST by not collecting it, clearly the feds are losing their 7% GST plus the various duties by not collecting at the border crossings.
So we have this huge problem and you are the losers along with us. I think the point that we could make most emphatically is that we are all in this together. It is not the retailers, it is not the chambers of commerce or the mayors, it is you and I and the province of Ontario that are losing this money in big gobs, and it hurts.
We have had examples, and, yes, we have a number of initiatives in our community and we think we have a responsibility, as do the mayors, as do the federal government and yourselves, to put programs on the table that educate and make people aware. But it is this euphoria that is growing by leaps and bounds every day that suggests to the average consumer -- and you had some marketing board people in front of you a moment ago. A year ago, the problem was only gas and eggs and milk and chicken and dairy products and so forth; and by and large that was true, and every once in a while, there would be an incidental purchase of a pair of shoes, a T-shirt or an appliance. It is not like that today.
I can tell you, and I invite any of you to come down to our border crossing and look at the enormous quantity of goods that come back that are far beyond those parameters now. In fact, the whole field has opened up and the common perception is that if those things are cheaper and I can buy my booze and cigarettes and gas etc, it must be that everything is cheaper over there. You heard about some loss leader advertising that the Americans are very good at. Our consumers, with no disrespect, are a little bit naïve in that regard, and they assume that if milk is 99 cents in Port Huron or Sault Ste Marie or Windsor, because of their loss leader approach, it must be that way every day of the week. In fact it is not, and we all know that.
Where we need your help is (a) to understand what the problem is and (b) to recognize that it is your problem too and that we are losing millions and millions of dollars in your tax revenues. I am afraid the situation is going to get worse before it gets better. If you have studied the American marketplace and know who the big kings are as far as retail is concerned, I can tell you without exception that not one border community in Ontario will not have a Wal-Mart in it within the next year. Wal-Mart is the king. They knocked off Sears, they knocked off K mart and they are going to knock us off too.
Have any of you -- and I know probably few of you have ever tripped to the United States for your vacation -- noticed the propensity for growth in the area of factory outlet malls? You know what they are. It is big business. I will also guarantee you that there will not be one border community in this room or any other in Ontario that will not have a significant factory outlet mall across the border.
If you want to talk countervail and dumping, I have been told by the vice-president of the second-largest retail firm in the United States that they now, in their marketing plans, through their buying offices, are targeting border communities. God bless these guys. They are really good merchants, you know. They are targeting the border communities for dumping all their second-class, lower-end, scratch-and-dent type goods because those dumb Canadians are going to come over and buy them in spades every day. That hurts, that really hurts. But you are hurting too.
I would ask for some help. We will do our part. I think we can educate our retailers, I think we will try to educate the consumers, and Lord knows we are all trying to educate our mayors. If we can do that effectively, then you need to help us in some regard as well, because it is partly your responsibility. I will remind Mr Kwinter, whom I had as a guest for lunch a year and a half ago, that the very restaurant we dined in, which was on the border, which we are very close to, is no longer there. Five gas stations that were in our community a week and one half ago are not there, and two tire companies, very significant, large ones which used to do a lot of international business, are not there.
One of the things, if I could ask you to transfer this message to the Minister of the Environment, is it would be so much easier for the tire companies in Ontario to swallow the $5 in-out tax on used and new tires if they could say to the consumer, "I know it hurts, and I know you've got this price to pay, but look at the effect it is having on our environment, look at the positive things that are happening as a result of this tire tax." But they cannot say that and we all know it.
So if we are going to have these taxes that are unusual and extraordinary, let us for God's sake please do something with them so that they are creatively and constructively handled and we can then say to our consumer, "At least you're getting this benefit out of it." Right now they say, "Where's the benefit?" Accordingly, the people who want to buy tires, which is a multibillion-dollar industry in this country are going guess where? Thank you very much for your attention.
Mr Jacques: I am going to describe the Windsor situation, which probably is a unique community because of the size of the border community which it borders on, but I am not going to describe also my presentation. Unfortunately, it did not get included in the rest, due to some time constraints, and I am not going to read it. What we have developed, and I think has developed in every community, is more than a one-stage strategy in terms of lobbying for government support. We have also always taken the initiative that there are some things that businesses have to do, that our communities have to get involved in, and each one of us here today, and all the other border communities which we represent, I would suggest, have taken an initiative, are working very diligently within their communities. In fact, I know that you have a piece that was just passed around here. That is the type of thing that is happening in every community across the country──at least across the province -- some more advanced than others.
What I do want to stress is that it is not just a border region problem, that it is not a business problem, that it is all our problem. We have described for you -- the last page of my presentation talks about focus of government contacts -- the need to create a more level playing field. We are going to have to do some things as chambers to help our businesses become better marketers or to find their product at a reduced price so that they can merchandise it properly.
But generally, we have not distinguished our approach to you from that which we are making to any other group which has a vested interest in this. What we are saying specifically is that there are some issues that are related to the federal government, there are issues that are related -- and some of these things are described here -- to the provincial government, they are related to municipalities, they are also related to businesses as a whole. There are some, I might add, that have to be addressed at the consumer level.
One of the things that I have to do, and we were talking about it briefly before the meeting here, is get across the understanding that it is more than the economic impact directly related to retail sales, job losses, the tax collection and associated duties. What it affects is deeper than that. It is things like our charitable organizations because there are organizations that give significant contributions from a corporate level, their employees do. If we have job losses there, we have also a significant reduction in those charitable contributions that go to communities, that help communities thrive and support the mechanisms that are provided to them by the provincial, federal and municipal governments.
Things like amateur sport sponsorships within communities -- if you do an estimate, and I think one of the communities here did a quick survey of people around the retail task force committee. What was that, Gerry?
Mr McCartney: It was $475,000.
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Mr Jacques: It was $475,000 that just their group had contributed to amateur sport sponsorships within the community. When those go down the drain, the burden comes back somewhere. Somebody has to fund it or we lose those services. If I could add anything, because I really do not want to read the reports -- you can do that yourself -- the statistics are staggering. What we have to do is recognize that it is a national, provincial and municipal -- and it goes down to the individual level -- concern. Anything that we can provide you with to help you in your assessment and developing plans to address it, I would be most pleased to share with you.
The Vice-Chair: Thank you. We have got just until 12 o'clock. When the bells ring we will be leaving. It is a point that we have all got to vote in the House. So if you see us all taking off when the bells ring, that is the end of the question period.
I appreciate your comments. I had brought that up earlier, that a lot of people do not realize the charitable work that goes on. It could be, say, Tim Horton's baseball team, etc. The handout that just came around is something I just put together. "Shop Ontario" does not come on the editorial page with the letters to the editor.
But the one thing I have seen now is that people in the Niagara area are taking a look at the problem that it is creating with stores closing. The store down the street that someone was used to shopping at is no longer there. They either have to drive a little bit farther or they just do not have the selection any longer. Representing a rural area like Lincoln, I can see if the small hardware store in the country closes up, then somebody has got to drive to town. If they do not have the selection there, they have to go to another store. It is very important. The business community is part of the community and we cannot lose any part of that particular community.
Okay, I am the Chairman. I am not supposed to be making all these comments and we have got quite a few questions here. Mr Ward.
Mr B. Ward: Just one question each again, Mr Chairman?
The Vice-Chair: Yes, one question each and then I will put your name back on the list if --
Mr B. Ward: If we have time.
The Vice-Chair: If we have time, yes.
Mr B. Ward: The one I would like you to expand on, and I really do not think it has been looked at in great detail that I can find yet, is the concept of an easing of the gasoline tax and a phased system or a zoned system. What I cannot rationalize in my mind is how do you justify lower gas tax and where do you draw the line. Have you given some thought as a group on how these lines should be drawn, how these zones should be formulated? As an example of my concern for this system -- and perhaps you could even elaborate on this as well -- if you take Brantford as a zone that would have less gasoline tax, Burford is just outside Brantford. Would they be included, and if they are, what about Cathcart, which is just beyond? And if they are not, how do you justify to the people in Burford that gasoline is cheaper in Brantford than it is in Burford, which is just outside the community?
Mr McCartney: The short answer is you do not. These lines are very arbitrary no matter who selects them, and no one is going to be 100% correct. Follow the theory, though, if you will, that regardless of the increment──whether it is 10 kilometres, 20 kilometres, that really is irrelevant. The point is that if one goes from zone 5 -- and let's say, for argument's sake, there were five zones created, each one with a one-cent difference -- is it going to be that much of a problem for the individual who lives, say, in a fictitious zone 6, to make the trip to zone 5 for one cent a litre? Will 5 go to 4 for one cent per litre?
Mr B. Ward: Is that what you are suggesting, that the zones be one cent?
Mr McCartney: Exactly. Now in a perfect world what we would like to see is one cent per litre from the feds, one cent per litre from the province. If you had five cents that the federal government was forgiving in the border communities, and 5 cents that the provincial government was forgiving, you end up with a dime per litre. A dime per litre is fairly significant. I can tell you that most people in my community, and I think it would be true in most, if you took 10 cents a litre off their cost -- and that is at the heart of the border; it is only nine cents at 40 kilometres out and eight cents and so forth -- you would probably prevent about 80% of the people who use gas as the trigger mechanism for going across the border from going over there because it turns out to be about a buck and a half per tank saving at yesterday's prices. No, it went down two. At last week's prices you would save a buck and a half. Big deal. I tell you, I will not sit on that bridge or anybody's bridge for a buck and a half. To save that is not worth my time, and I do not think it is worth most people's time.
So you follow the theory? And no line is going to be correct.
Mr B. Ward: Yes, I understand the theory. So you are suggesting 40 kilometres, is that what you said?
Ms Logan: In our last recommendation, if you recall, we looked at 10-kilometre increments and I believe the recommendation was for a 50-kilometre maximum. We were looking at a two-cent graduated reduction.
Mr B. Ward: A penny from the province and a penny from the feds.
Ms Logan: Matching contributions.
Mr Kwinter: Mr Chairman, can I ask your indulgence to get a clarification?
The Vice-Chair: Supplementary.
Mr Kwinter: No, not a sup; I just want to get a clarification, but I do not want to consider it as my question.
The Vice-Chair: Is this your first question, to me? Next. Sorry, Mr Kwinter.
Mr Kwinter: There is something here that puzzles me, and it is totally contrary to what you are talking about and what you are trying to do. On page 12 it says that, "Sault Ste Marie, Michigan, residents who traditionally have lived in friendly harmony with their Ontario counterparts are currently expressing strong anti-Canadian sentiment as a result of the increased shopping in their community," which I just cannot understand. Your whole argument is you want people to shop in your community, you want to get Americans shopping here. Why are they unhappy because we are going there? You would think they would be ecstatic.
Mr McCartney: That depends, I would think, whom you ask. I would suggest that if you asked American retailers, they are ecstatic. The other consumers -- you see, with success comes problems -- volume, parking, all those good things. I will take that problem any day of the week, frankly, but they are experiencing problems in the smaller communities. Pine Grove Street in Port Huron used to be a quiet, sleepy little street that sort of went nowhere. It was one way to go downtown and another way to follow the lake. It now has 37 gas stations in about six blocks and 82% of their volume comes from good old Canada. It becomes Gasoline Alley. Socially, the people of those communities are experiencing these things that come along with success, and to that, I say, "Gee, that's too bad."
Mr Kwinter: Okay, now I can ask my real question.
The Vice-Chair: Okay, we will allow this one.
Mr Kwinter: I would like to hear from any of the members as to just how much in-depth analysis has been done about this issue of gasoline. I have a feeling that gasoline is a problem, a highly visible problem, because everybody can identify it. As I have said before, I know that at times when I was the Minister of Consumer and Commercial Relations people would drive five miles to save a penny, because that is the way they are. But generally speaking, and I would like to get your comment, I would submit that if gas prices were equal and everything else was not equal, you would have the same problem.
If you take a look at the recommendations that came out of Kingston, on page 6, I think that is the problem: "We must learn if indeed prices are lower in the US, or on what types of goods are prices lower. Then we must learn why, get competitive and change things. We must deliver lower prices or lose our retail industry." I submit to you that other than the problem of your absolute border communities -- and Gerry, I am talking about the core of Windsor -- yes, it may make sense to go across the border.
The people from Oakville, Burlington and Hamilton are not going to drive across the border to save money on gas, but we have seen statistics to show that people are going from Thunder Bay. Surely it is not gasoline that is attracting them from Thunder Bay. It is 200 miles from the border, so there are no benefits other than the very short term of that one tank that you are going to get. There is no one crazy enough to drive 200 miles to save some money on gasoline, and yet it is a problem. I understand it is a problem, but I am a little disturbed that the main emphasis seems to be on gasoline, that if we can only deal with the gasoline problem we have gone a long way to solving our problem. I think the problem is a lot deeper than that, a lot broader than that.
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Mr Jacques: If I might respond, the concern in Thunder Bay is a little bit different than those communities where it is a very short trip. There are more one-day trips, where you go and make the major purchase of gasoline, where you save significantly, and then make the other associated retail purchases. What we are expressing, though, is still consistent with what Kingston is saying: that we have to find the prices that are different and then make some changes. What we are suggesting is that is one of those prices that makes it so different, makes us uncompetitive on that one issue alone, and then people start to assume.
One of the campaigns we are suggesting is that people have to start thinking twice about what they are doing. They do not always compare prices properly. If they look at the gasoline difference and then they assume that they have saved $8 or $10 a tank on their gas, they will say: "I have a net saving now. I'll just do a few more things while I am over here." Because in many cases -- and the union president stated this in the media the other day -- they wave through consistently at least 60% of the cars that go through with goods. There is the net saving. That is when you start resulting in some saving. The gasoline is the trigger.
One of the communities I know along our borders has done a study. A couple of them also have found out that gasoline was the number one trigger mechanism for people going across the border; and that is why we are so adamant on this one thing. It does create a significant savings factor. Nobody is going to deny that. When you are in Windsor, when you are in Sarnia and you only have to drive 10 or 15 minutes at the most to save yourself $10, $12, $15, whatever it is on a tank of gas, you may make that trip because you are going to do the rest of your shopping somewhere in the States, assuming that you think everything else is cheaper on the other side. So if we can get them not to make the initial step to cross the border, then perhaps they will investigate other opportunities locally in their retail bargains.
Mr Sutherland: When I look through the report, I see what Kingston says, that it is solely prices. Then I look and see what came out of the study in Niagara Falls, which says a basket of groceries -- not milk, but a basket of groceries -- actually was cheaper here. Then I look and see what Sault Ste Marie has done with a specialized advertising campaign that indicates that it had some success in terms of --
Ms Logan: Very moderate success, very limited success.
Mr Sutherland: Limited success at its Christmas sales. It leads me to wonder, though. Then the real question is, we are not always getting the message out to the people that in many ways it is not cheaper to go across the border for everything. In areas where we can help the situation, we need to be doing a little more in terms of advertising and promotion.
None of you is from Kingston, but it is interesting, the thing about the prices. What do you do when you look at agricultural products? Quite frankly, South Carolina, in the southern states, has a warmer climate. They do not have the energy and heating costs. How are you ever going to balance out those costs?
Mr McCartney: You are not. There are some real simple mathematics at work here. We have this climate problem, we know that. The old studies that were done by the former government indicated that the main commodities that were being declared -- that is the operative word, "declared" -- coming across the borders were all things that had that common denominator, such as marketing boards. Whether it was the milk, the cheese, the chicken, the eggs, the beer, the cigarettes, etc, they all had a board attached to them.
I do not think we are going to solve those things. I think we understand who we are as a country. The very simplest mathematical equation that we all need to understand is they have got 300 million people, we have got 27 million people, who the heck is going to manufacture goods cheaper? Of course, they are.
Mr Sutherland: So what you are saying then is we really have to be willing to pay the price to be Canadians?
Mr McCartney: You are going to have to pay it to some degree, but I do not suggest that we are ever going to get a level playing field. I mean, here we sit, and we do this every day of our lives, on the border of the largest economic jurisdiction in the world, and we think we are going to be even and competitive with them? That is not realistic, but there are ways that we can be a little better than we are. But everybody has got to play the game. It cannot be just the retailer, just the consumer, just the chambers of commerce; it needs to be you too, as well as the federal government, if we are going to give ourselves a chance. Otherwise the little holes in the sieve are getting larger and larger. What will you do -- I challenge you to this question -- to recoup the $80 million from your tax revenue that you did not collect?
The argument about the gas thing is really moot, because you have not got it to start with, and we forget that. You have not got it; it is over there. Now, how can we work together to get it back, or get some of it back? But to create a level playing field in a perfect world so that we are competitive with them, nose to nose, item for item, is never going to happen.
Mr Phillips: I appreciate the thoughtful presentation. The earlier presentation I thought had a really good line in it from the marketing board people. It was talking about cross-border shopping and said: "It is the current issue. It is the most obvious manifestation of some very fundamental problems in the country."
I guess the best analogy I can draw for us all is that I think we are into a major, major battle, and you people are kind of fighting the first of the skirmishes, kind of hand-to-hand combat almost, and you have got relatively little to fight with right now. But the battle that I think we see in the border cities is going to spread up through the rest of the country. So I appreciate you are taking some very heavy casualties, frankly, in the border cities. I think we are seeing those same casualties elsewhere, but it is most obvious there. I think you have outlined some requests for some more ammunition to fight, and some of them I think will be helpful over the short term. I suspect that the milk marketing board was right when they said we were dealing with some very fundamental issues.
Having said all that, I still accept that all of us have a responsibility to help, particularly our border communities that, as I say, are fighting I think the first and the most devastating battles. I think among many recommendations here, particularly the comprehensive study is one that I think will be very useful, because we are all kind of groping for the facts. That is really an observation.
My question, if I get only one question, is: There is no mention in here or in any of the briefs, I think, in terms of Sunday shopping. Is that a tool -- and I think many of these tools, as I say, are rather kind of short-term things to minimize the damage while we try and deal with the long-term problems -- is Sunday shopping of any merit to any of your communities?
Mr McCartney: Yes. I think most emphatically. I will not do as we have been doing in our communities for the last two weeks, debating this subject with all the local politicians and so forth. It is really not a debatable item. The fact is that we had it. I will tell you, and I can speak for three of us anyway from the chambers of commerce, that we have a position in the provincial chamber that says we oppose Sunday shopping. You know that, because we have met with your various committees, etc. That was then. That was in 1989 --
Interjections: This is now.
Mr Phillips: I have heard this one before.
Mr McCartney: But is it not different when you are in power?
The things that have changed I think we all understand. At that point there was no free trade. We did not have a recession. Cross-border shopping was an everyday event that has been going on since the 1940s, but it was not this euphoric cross-border shopping that we have now. Interest rates were lower, and on and on; so things were different. That was then and this is now.
And of course, experience makes you a great learner. Once you have had Sunday shopping, which we have had since June 1990, your experience changes, and suddenly all those people -- I say all; a great majority of those people -- who now enjoyed Sunday shopping said: "Hey, you know, it's not so bad. I objected to it in the first instance, but it's not so bad. Actually, we made some money."
Now, is the argument for Sunday shopping attached to cross-border? Yes. And it is not the sole reason. I mean, anyone who would suggest to you that Sunday shopping is now the major reason why people are going to go to the United States is crazy, but it is just another one of those little bullets to put in their gun, and I think it gives them the seventh bullet.
Mr Phillips: On Sunday shopping, just in terms of where we should be thinking, the cross-border community is for Sunday shopping?
Mr McCartney: The question is, where should the government be thinking?
Mr Phillips: Yes. Well, we are not the government but the Legislature.
Mr McCartney: I think the government should consult, number one. I think you need to talk to the border communities, as you are doing in these kinds of experiences, etc.
Mr Stockwell: We will consult, I will guarantee you that.
Mr McCartney: That is good. We have been recommending that a lot lately, to find out what the impacts are. I know the mayors were here and the mayors met, and was it 10 out of 13 of them suggested that we should have Sunday shopping? Well, that is nice. Let's talk to the border communities. Let's find out what they really need and whether it is going to impact them or not.
At the very least, if it is all we can get -- and I do not agree with this morally because you get into your problem with where do you draw the line -- border communities should have some kind of an exemption, and it need not be that stringent, because they are the ones paying the price.
You suggested we are on the front line, sort of like those Kuwaiti guys that went down from Iraq. You are right. They did not have a lot of tools to work with, and that is what we are feeling like. You are taking another tool away from us, and it hurts. It is just going to add to the problem. So maybe we need to make a unique exception in this regard and look at border communities in this instance as an isolated situation and give them a tool to play with.
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Ms Logan: Just to add to that, if I might, Sault Ste Marie has had Sunday shopping for some two and a half years now, and I can assure you if that is taken away from our residents -- we are already suffering tremendously as a result of cross-border shopping -- it will just exacerbate the problem.
As an example, on Good Friday -- and I am not suggesting that stores should be open on Good Friday -- the American side was open. The lineups on the bridge were unbelievable. There was a restaurant open in one of our malls and that was the only facility that was open, and the restaurateur was standing at the window almost crying because she can see the bridge from where she is, and the steady stream of traffic going across.
Mr Jacques: Can I just add one more quick response? Gerry mentioned consultation with the communities. I think it takes some leadership, more than the consultative process, because we are aware of the concerns. As he mentioned, it is the last bullet. I think it is going to have to take some hard-line stand and to show the leadership that is required within this province and suggest that this is what has to happen in order for us, this province and this country, to survive. It needs some strong leadership shown, and give the benefits straight out.
Mr McCartney: We have a proposal, actually, and one of the things -- I will leave you with this curiosity. I have never understood why this government or others before it have always looked at the retail sector as this great sacred cow. Why is it so bad, the retail sector? I mean, is it any worse to buy a shirt in the local Zellers or K mart store than it is to have a beer in McGuinness Landing, which is open on Sunday, or to go to the Blue Jay game or to ride a cab or to go to the theatre? All these things are open on Sunday, and yet the gun comes around to the retail sector and says: "Well, but listen, Ontario. You can do all those things, but don't you dare buy a pair of socks or a pair of pantyhose." Why is that unique? I never understood that and I still do not know if I am going to get a good explanation or not.
Mr Stockwell: I think the biggest problem facing us is going to be cross-border shopping. The waters run deep on this issue, and I do not think there is a simple answer, frankly. I do not think there is a very clear, concise piece of legislation that the government could pass and, poof, our problems will go away.
I also think that to a degree you are a problem as well, people who come forward and tell us that, "Gee, it's gas that's the big hook," and so on and so forth, and, "Let's mount a campaign to tell people that it's not cheaper to shop in the States." I have not seen a study yet that does not tell you it is cheaper to shop in the States, whether you are buying a turkey or whether you are buying gas or whether you are buying a ham, etc. In fact, the studies we have seen here have all indicated it is cheaper to shop in the States, case closed.
The biggest dilemma I think we are facing is, before you can solve a problem, you better deal with it, and the problem is it is cheaper.
Maybe it is more a comment than a question, but I would love to see those studies as well, and I think what we need to do is undertake a full-blown study; but what I believe your study is going to say is, "Your consumers aren't stupid." The people I have talked to are not stupid. They are not driving from Toronto to Buffalo to save a couple of cents on gas. They are driving there because prices are significantly different on major purchases.
I guess what I would like some response to, maybe at a later date and when you have done this study, is, what are the fundamental changes that we have to make to get competitive again, because we are not competitive. I think as long as we bury our head in the sand and pretend that we are competitive and tell ourselves every night before we go to bed it is gasoline or it is cigarettes or it is alcohol, we are never going to become competitive. That is the greatest fear I have, that we continue --
Mr Fletcher: Is this a question?
Mr Stockwell: No, it is not. It is not a question. It is a comment and may come to a question.
The biggest fear I have is that we are going to continue burying our heads in the sand and having people, particularly on the other side, saying: "Well, really it's not prices. We've got to just inform the public that you're going over there but there's no real saving." Baloney, there are savings, significant savings. Maybe you could comment.
Mr Commisso: Mr Chairman, may I answer Mr Stockwell's question?
Mr Stockwell: You can comment on my answer.
The Vice-Chair: Comments, I guess it would be, rather than answer his question.
Mr Commisso: I raised the issue that a study should be done, and I have been trying to raise this issue for the last two years. You have turned it around and said we should do the study.
Mr Stockwell: Not --
Mr Commisso: My proposal is that this committee recommend that a major study be undertaken by the government of Ontario to find the answers to some of your questions. We believe we know some of them, but we are not professional researchers. We all have different jobs and we cannot abandon those jobs to undertake this research. We need some real professional research to find out what the differences are and why they are and what we can do to address them. I think that is where we have to start. That is the very beginning point, and unless we do that, we can all sit around and talk for years; we are not going to solve it.
The Vice-Chair: I am just going to make a comment on this. Three months or six months ago when we first started talking about this, a lot of the figures have changed all the way along. In our subcommittee we discussed this, that if we study it to death we will never solve the problems. It is an ongoing thing. It is increasing, it is not decreasing.
Mr Christopherson: First of all, my thanks to the presenters. It was excellent and very high-calibre, highquality, and I think you have added a lot to our deliberations. Again, I do thank you for coming down and making your case.
A quick observation, if I might: The gas issue keeps bouncing back and forth between members as to whether this is something that we need to address and will it be the panacea that changes everything or not. From where I am sitting and listening throughout all our deliberations, what I hear very clearly, and I think my colleague across the room Mr Stockwell has acknowledged it, there is no single action that any level of government or any sector in our economy can take that will reverse this crisis. There seem to be a number of key pieces, however, that are the largest chunks that perhaps we ought to be tackling first. Gas, I am hearing, is one of them.
I do not have the answer right off the top of my head either. We have heard different variations of different formulas, different approaches. Mr Winter was here last week and talked to us about the idea of a test marketing station right at the border. There is your idea of a zoned system. There have been suggestions that we just plain arbitrarily slash the price of gas across the province -- many different things.
I think, though, that it is important that we address the issue, because it does seem to be the catalyst for a number of other purchases. Before you, as you acknowledged, we had the dairy producers, the marketing board representatives, and a lot of their leakage is coming from the fact that people are already across the border. I agree with some of the comments by others. No one is going to go across, travel for an hour from Hamilton, to save $1.50 on a tank of gas. Likewise, they are not going to go over there to save 50 cents on a dozen eggs or to pick up a few litres of milk. However, if they are already across the border and they know that by adding up those purchases they can save $50 or more, then it starts to carry a little more enticement. So I think as one key component in all of this, we need as a government to be addressing that particular issue and others.
I have a question, Mr Chair, and it would be, there has been a suggestion by the mayors' task force for a trilevel government task force to look at this issue, made up of municipal, provincial and federal representatives. I would like to hear your comment. I have a sense that without that co-ordinated approach -- certainly we have acknowledged that on key issues there has to be co-ordination. My sense at this stage of the game is that really, to deal with all of the complexities and all of the issue, we need a comprehensive approach, and if there needs to be a great deal of studying done, large studies, they should be done in conjunction with the feds and with the municipalities playing a role because they are the front-line fighters in this case.
It seems to me that is what we ought to do. I would like your opinion as to whether you would perceive that to be a valid, necessary approach to tackling the economic problems of cross-border shopping, or would you perceive that as more government wheel-spinning?
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Mr McCartney: We would concur that a task force of that size and nature may be beneficial, but we would add one ingredient in order to expedite the results much quicker. If you would have as one of the key components the business community somewhere -- Retail Council of Canada, chambers of commerce, whatever it may be -- as part of that guiding process, I think we could get at the answers a little quicker.
When it came to effecting change, whether it is taxation or otherwise on the gas issues, that could be more cumbersome and certainly more onerous. I do not know where that would lead, but I think the problem is large enough. You have identified, as almost every study has, that gas is one of the trigger mechanisms, and I concur with Mr Kwinter, they are not going to go just for that; but I guarantee you, Mr Kwinter, that when they are there anyway, absolutely they are going to buy a tank on the way back. So it does have an effect, no matter where you are from.
I guess if you look at numbers like London and Kitchener, where their accommodations sector is down 26% to the year-end of 1990, you know why? There has got to be a reason, and I will tell you, their American cash deposits are down by a like amount. So they are not getting them across.
A task force would be something I think we would encourage and would almost suggest to you in very strong terms that consultation with business would almost be mandatory at that point, because they are the ones, as the Chairman has pointed out, that are right on the front line experiencing the problem every day.
Ms Logan: We would support the concept of a task force, but with a time frame, because we are looking at haemorrhaging in these communities and some of the businesses that you are depending on to provide tax revenue now will no longer be in existence. If we do not deal with this now, immediately, we just cannot deal with it.
The Vice-Chair: Mr Fletcher, better make it short, the bells are about to begin.
Mr Fletcher: I will be very short, Mr Chair. I was just following this scenario: Suppose both levels of governments cut the tax on gasoline and we say that, yes, you can do this. Let's follow that along from where I live -- and you were talking about the Kitchener-Waterloo area; I am from Guelph -- the enticement is for the gasoline and once we get the people there they buy. That is going to hurt the businesses in Guelph, and people are already going across the border to do the shopping, and it may be the gas that is enticing them. Your area now, being in a border town, is going to entice the people from my area. Now my business people are going to want an incentive to keep them there. It is along the same lines of what Mr Ward was saying. If you do it, why can my area not do it?
Mr McCartney: Actually, we looked at Guelph as sort of an incidental casualty at that point.
Mr Fletcher: Thanks a lot. That is what the voters said.
Mr McCartney: Our target market was really Toronto at that time. We did not care whether Toronto lost out on the advantage or not.
Mr Fletcher: Well, we are losing people to Toronto.
Mr McCartney: I understand. I think if you look at the real math involved, though, the average tank these days is about 50 litres. So if the total discount was a nickel per litre, are you going to go that far for that little money? Is it going to hurt your retailers? I do not know, maybe a little, but I would go back to Mr Kwinter's point. It is probably the people who are leaving Guelph to go down to Port Huron or Windsor or Buffalo to do other shopping who would then also take advantage of the cheaper gas on either side of the bridge then. But the point I make is that at least it stays there.
It is not Sarnia that is trying to gain by this, it is not Sault Ste Marie, it is bloody Canada, and that is what we have used in our community, the subliminal message of a maple leaf with an envelope slot and a loonie coin going into it. Let's keep it at home. That is the message.
The Vice-Chair: We are running over 5 after 12, and I would like to thank you for appearing before this committee.
The committee recessed at 1206.
AFTERNOON SITTING
The committee resumed at 1539.
RETAIL COUNCIL OF CANADA
The Chair: If the Retail Council of Canada could come forward, please. It is Alisdair McKichan, president; Peter Woolford, vice-president. Welcome.
Mr McKichan: Thank you. I am Alisdair McKichan and my colleague Peter Woolford is on my right. We represent the Retail Council of Canada and we value the opportunity to appear before the committee. With your permission, Mr Chairman, I will not attempt to regurgitate verbatim the content of our submission but would rather give you a summary of it so that more time is available for discussion.
I should first say that the constituency the retail council represents constitutes, within our direct membership, retailers who, across Canada, perform something in the order of 65% of total retail store volume. That excludes automobile dealers, gas and accessories and restaurant dealers, but is about 65% of the store trade. That is drawn from virtually every sector of the industry, but of course with the predominance of our members being independent. We represent something over 6,000 actual businesses and we have affiliated with us many regional and specialist associations. In particular I would single out the Canadian Council of Grocery Distributors, which is the organization speaking for a large proportion of the grocery trade. So we are here speaking both on behalf of the general merchandise and the grocery sectors.
Let me touch on what we perceive as the dimensions of the problem. We have not commissioned or seen an accurate computation of the volume of Ontario business lost to cross-border shopping. However, individual cities have run measures based on a count of cross-border same-day shopping trips and correlated that with interviews with returning residents. Matching the results of these tests to the numbers of cross-border trips makes it reasonably certain that the volume lost from Ontario must exceed $1 billion per annum. The rate of growth of the problem can be derived directly from the Canada Customs figures of same-day trips counted on a year-by-year basis. As the table on page 4 of our submission demonstrates, and you have probably seen it before, there is a very steep increase in that figure, rising from 11.7 million visits from Ontario in 1987 to 22.4 million last year, a rate of growth somewhat ahead of the national results where the 31 million visits in 1987 had grown to 58.1 million in 1990. As you will see, figures for the Niagara Peninsula area are even more significant. The economic loss and in many cases the hardship caused by the loss of business is well known to the committee and I do not think I need to expand on it.
Let me touch, however, on our perception of the nature of the problem. We do believe there is a considerable misunderstanding of the problem's actual nature. In our view and that of our members, the cross-border shopping issue is not primarily a question of inappropriate or ineffective border controls, although, as I shall mention later, we should get the border situation right and we are aggravating the problem by not dealing with it promptly and decisively. But even when we fix the border issue we shall still, we believe, have a huge problem on our hands.
Some of the factors influencing Canadians to shop in the United States we can correct. Others we have to accept but to some extent we can compensate for. Obviously geography plays its part. Our cold climate, long distances and the sparseness of our population make for diseconomies. These are built-in handicaps that we have to accept but somehow work around.
Second, consumer markets are in a state of flux and change, but that is a condition which affects retailers both south and north of the border. The effects, however, tend to be more severe in a smaller market. Domestic suppliers face some of the same impediments as retailers and indeed we also have a handicap in relation to imported goods because Canadian tariffs tend to be just about double those that apply in the US to goods that are imported from overseas or from Central and South America.
Another disadvantage is the relatively heavier public sector burden -- taxes and government-mandated expenses -- which weigh more heavily on Ontario firms than those in the US. There have been suggestions that a couple of high-profile measures could cure our problem. One is the suggestion that most of the problems stem from the Canada-US trade agreement, and abolishing that would fix the problem. That, in our view, is a myth. In point of fact, the tariff concessions granted by Canada and the US apply only to goods which are certified through a source-of-origin certificate as being, in fact, manufactured in one or the other country and so entitled to the modified rate of duty now applicable under the agreement; or duty-free in the case of the relatively few categories of merchandise that have achieved that status at this point.
Consumers, of course, cannot readily obtain source-of-origin certificates. On the other hand, there is no doubt that consumers construed the description of free trade quite literally, and assumed that it meant what it said. Of course, they could not have been more wrong. In any event, the conclusion of the agreement seems to have piqued the interest of Canadians in what might be available advantageously, as they believed, in the United States.
Nor do we believe a forced devaluation of the Canadian dollar a solution. Such a devaluation would mean a substantial impoverishment of Canadians, because many of the goods they buy would become proportionately more expensive, and inflation would again be stimulated.
So let's talk of some of our notions on solutions. We believe solutions will be assisted if we have better facts and an overall better understanding of the facts which are already available. It was to achieve these ends that we, as an organization, convened a meeting last October of all the principally involved Canadian parties, including representatives of the federal, provincial and municipal governments, the community groups and individual trade representatives, to review the issue and see what might be done, either separately or jointly, and what further research was required. Out of that meeting came a decision to embark on a study on competitiveness. A pilot study has been undertaken by the federal Department of Industry, Science and Technology, and the results of that study are to be presented at a second meeting of the group on 22 April in Niagara Falls.
The meeting also reviewed the various initiatives which have been taken by local communities and heard Revenue Canada's views on the situation. The department was encouraged to embark on actions which would result in collecting a higher proportion of moneys due without, it was hoped, creating situations that would deter visitors from coming to Canada. Out of this, presumably, came the BC experiment, which we are watching with interest, but of course we do not yet know whether it will work.
At the April meeting we shall be determining what further research would be useful and helpful. We also believe that there are some constructive things that the private sector can do on a joint basis within the sector. Merchants and local groups in some communities have attempted to fight back through a variety of measures, including public communication programs, stressing the benefits of keeping economic activity in the community, through special promotional events, co-operative advertising, improvements in service and adopting, where possible, more aggressive pricing policies.
Some of these initiatives have been undertaken with the assistance of the Ontario Ministry of Industry, Trade and Technology which has provided advice and help, especially with respect to marketing. Obviously that kind of help is welcomed but neither the initiatives nor the help are, in our view, the long-term solutions.
Another response of the private sector will be in the form of accelerating improvements and achieving even greater efficiency and competitiveness, but however heroic Canadian efforts are in this area, they will not be able to surmount or compensate for the cost disadvantage that I shall mention in a moment.
Let's turn now to the public sector initiatives. We believe, in fact, that it is within the public sector that more can be done than in any other to help solve the problem. The first section is relatively simple and easy of achievement. We believe that the federal and provincial governments should come to an agreement whereby federal customs inspectors collect not only federal duty and the federal goods and services tax but also the provincial sales tax. That action would be much more practicable if the provincial sales tax regime were harmonized with the federal goods and services tax. We have recommended that harmonization for other reasons, and in any event the border problem, we believe, is the most powerful argument of all for bringing about that harmonization as quickly as possible, and we commend it to your committee.
The other actions required of governments are neither as easily defined nor as capable of immediate application. However, because the twin problems of significantly higher taxes and explicit or implicit costs from regulatory action are of much higher dimension than those bearing on our US competitors, we believe that the provincial government must start reappraising virtually all existing or planned significant activities and programs affecting business, with a view to weighing their design and utility against the competitive criteria. We shall certainly be making a case for this with the Fair Tax Commission, but the mandate of that commission is not sufficiently wide, in our view, to embrace all the forms of costs to which we allude. We must also look at government programs already in force or now being contemplated in areas of marketing practices, employee protection and benefit legislation, and other policies which bear on all employers, manufacturing as well as distribution.
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We are not necessarily suggesting that any of the objectives of the particular pieces of legislation are undesirable, but we believe that the government should study whether there are not other less expensive, less burdensome ways of achieving the same or similar objectives which would not carry the penalty of reducing sales in Canada with the consequent loss of jobs, of income, of tax base and so on. Some programs, we suggest, will just not represent a good bargain in terms of their side effects on our competitiveness and thus jobs.
We know that we are proposing a formidable and challenging program for the government. We believe, however, that the project is better attacked now than two or three years hence from a position of even greater comparative disadvantage and more economic weakness. We shall look forward to a period of discussion with you.
That is our submission, which we submit with respect.
Mr Sutherland: Thank you for the presentation. We have heard a couple of presentations. We had John Winter in last week and he gave a very thorough analysis of the situation. We also heard this morning from the Ontario Border Communities Task Force on Cross-Border Shopping, indicating concern that Ontario border communities are now becoming the discount capitals for American retailers in terms of their scratch and dent and second-level clothing and that type of stuff.
I am just wondering, in terms of the measures that you talked about in your presentation, even if they are carried out, how are we still going to be able to counter this type of discounting and major dumping in the border communities by American retailers?
Mr McKichan: Obviously, as far as competitiveness is concerned, you have to be comparing like with like. We will never be able to compare a full-line type of service with a discounted minimal-service type of operation. That is as true within Canada as it is within the United States.
However, there are many customers who do not want to buy ends-of-lines and less than full-service types of merchandise, just as there are in the United States. I think one of our obligations there as merchants is to differentiate in our marketing what we are offering, and how sometimes the comparisons are made erroneously. But we are still not competitive with full-service US firms on the other side of the border. In essence, retailing has become an internationally traded commodity, and the damage which now is most apparent in the border communities is not confined there.
The proportion of Toronto residents who make shopping expeditions to the US is large and growing, and when you consider that within Canada 90% of the population lives within 100 miles of the US border, virtually the great mass of our population is within access and I think we have to take account of that in our policies.
Mr Sutherland: The other studies have indicated that the higher the income the more likely you are to participate in cross-border shopping. What would you say to those people who seem to be reaping the many benefits of our social programs in terms of some of the extra costs they are putting on to retailers and some of the things that you have mentioned? What would you say to those people who want to have it both ways? They want to have all the benefits yet they want to be able to have low prices when they are purchasing their goods.
Mr McKichan: I think we share a perplexity in relation to that situation. I think some attempts have been made through public service advertising to illustrate to consumers that when they buy a piece of Canadian merchandise they are also helping support employment in Canada and paying part of the social costs of running our system. Unfortunately, a great many people do not make a correlation between long-term and short-term benefits and they give precedence to what they perceive as their short-term economic advantage. I wish I could provide you with a magic solution to cure that attitude.
We have contemplated an advertising campaign designed to bring out that question, but it is very much a two-edged type of initiative. On the one hand, you are saying: "There are bargains there, folks. We don't think you should have anything to do with them." It tends to emphasize the fact that if they are really smart and not particularly scrupulous, they can benefit. I have some difficulty accepting that as a good strategy.
Mr Sterling: Thank you for coming. I really do appreciate the thoughtfulness behind your presentation, because Mr Winter had some suggestions that I found difficult to justify, such as putting artificial barriers at the border and saying, "We're going to charge you $5 to come in," or they are going to have long lineups in order to discourage people and that kind of thing. I do not believe that in the end it answers any of the real questions.
I really do feel that an aggressive approach by the provincial government -- and that is whom we are dealing with here -- to collect its provincial sales tax would in some ways discourage perhaps, I do not know, maybe 10%, maybe 40%, who knows, from crossing the border.
When we had the Minister of Revenue in front of this committee a week ago, it appeared to me that she was not being very aggressive about taking this issue in hand. In fact, when I asked the question of how much had been declared through customs, she or her three officials who were with her could not answer that question, which I thought was amazing in terms of the Minister of Revenue having no idea of how much revenue she might be losing a year.
First of all, I have no trouble with sales tax harmonization. I think that makes economic good sense within our boundaries as well. I think it will allow you as a retailer and the whole operation probably to do business here cheaper, as well as make the situation easier at the border. The problem that I find with the suggestion, is that the provincial government has to say, "We want you to collect it, but we're willing to do something positive about that." Now, that can be either an offer of cash or a couple of points on the scale or it can be an offer of going and actually helping collect the money at the border.
I would like you to comment on what you see as the provincial government's responsibility in doing this. It is not popular for a politician to collect tax. I am certain that Otto Jelinek does not want to be the fall guy for collecting provincial sales tax at the border. Therefore, in fairness, I think the province should have some responsibility in this and some visibility.
Mr McKichan: I agree with you. Mind you, I think the federal government is very keen to achieve harmonization, because it is well aware of the potential economies of scale in the collection of the tax generally, not just the border tax but the tax overall. I guess they worked with some diligence to attempt to achieve that during the planning of the GST but were not able to get provincial support. I think even without any encouragement they would probably be prepared to take on some collection duties, but even if they wanted to make that a shared-cost operation, it seems to me it would still be a great bargain for the province. One could conceive of the feds getting a percentage of tax collected or some such arrangement, and 97% of the tax collected is a better bargain for the province than 0%.
Mr Sterling: I agree.
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Mr McKichan: It seems to me not only would both fiscs win, but it would have a significant effect in maintaining more business within Ontario because there is no doubt about it, the ambition of the customer to avoid tax is a particularly cherished one. People like to save money but especially they like to save tax moneys. That is just the nature of the human soul.
Mr Sterling: I think Frank Miller proved that back in, what was it, 1983 or 1984 when he gave a tax holiday on automobiles. It was probably the most responsive provincial government program that had ever taken place.
Mr McKichan: Yes. If a merchant announces a 10% discount sale all you get from the public is a big yawn but if the government says it is going to remove a 7% tax for a while the public reaction is instantaneous.
Mr Sterling: Yes.
Mr McKichan: It is a curious element of psychology.
Mr Sterling: Can I ask one other question? Not only for the retail business but other businesses, one of the most shocking parts that I found about these hearings in dealing with cross-border shopping -- as Terence Corcoran wrote in the Globe and Mail the day after John Winter was here -- was that the cross-border shopping issue is just one very small indication of how uncompetitive we are in just about everything we do. Are there some specific taxes which the retail trade would like some relief from or which would affect them perhaps more than other business interests, because they are the ones that are facing the onslaught of this threat?
Mr McKichan: I think when you compare the costs of a US retailer with a Canadian retailer the most significant statistic that stares out at you is the differential in the cost of occupancy. That covers rents and real-estate-related taxes, business taxes and of course in the Toronto area the concentration tax. It is a fairly common occurrence that the cost of occupancy, which in Ontario will tend to run a merchant 11%, 12%, 13% of overall costs, will probably be just half that across the line.
I guess the second most important element of tax is all the payroll taxes, because retailing is a labour-intensive industry so anything that attaches to the cost of labour is significant. Again, the differential between Canada and the US is very significant except, I guess, in the case of the bigger companies, the cost of health care which curiously tends to be higher in the United States than in Canada because of the inherent high cost of the US health care system.
Mr Sterling: They have the argument about us having a social conscience, but we should really discount that in terms of this phenomenon, because you are saying that cost is already included in the retail price over there in a lot of cases.
Mr McKichan: Yes, but their payroll-related taxes, other than health, are substantially less than ours. All their occupancy costs are very significantly less. That is compounded with the differential on the cost of land, which, if you look through that, of course, also leads back eventually to a lot of tax reasons. There is a huge and, under the present regime, insuperable cost differential.
Mr Mammoliti: I am somewhat concerned about same-day trips. On page 4 you have given us some examples that go back to 1987. These are statistics that you got where?
Mr McKichan: Customs Canada.
Mr Mammoliti: Customs Canada. These statistics are compiled, I take it, by people who tell the truth at the border?
Mr McKichan: No, these are just people counted going across the border. You do not know whether --
Mr Mammoliti: And when they are stopped, they say, "Yes, I did some shopping."
Mr McKichan: Not necessarily. These are just the raw number of crossings. The estimates made of volume are derived partially from these raw figures, but also looking at the surveys which have been done by particular cities and towns in border situations where they have done returning-as-resident interviews asking: "Did you shop in the United States? If so, how much did you buy?" They have compiled figures for their areas.
Mr Mammoliti: That is what I am getting at. These are the people who have said, "Yes, I have shopped in the States."
Mr McKichan: Not these figures in the tables. That is just the raw crossings.
Mr Mammoliti: Okay, so how accurate could they be then?
Mr McKichan: Very accurate; completely accurate. Customs count the number of people who pass the border.
Mr Mammoliti: Yes, but how do they know they are shopping?
Mr McKichan: They do not. We are not saying these people are shopping; we are saying this is just an indicator of the rate of growth of the phenomenon because we assume that probably about the same proportion of people who went to shop in 1987 went to shop in 1990. We do not know, but we assume, and we assume most of these people who are crossing the border are crossing the border for the purposes of shopping.
Mr Mammoliti: Are there any statistics on how many people are actually shopping?
Mr Woolford: Can I pick up on that just a little bit? Talking with the Revenue Canada officials as well, they have made clear that the basis of their judgement on these numbers is that most of these people going across for a single day are in fact going for shopping. There are a small number of people who go across for job-related matters, workers who live perhaps in Windsor and go across to Detroit to work. There are some locations in Canada, for example, where schoolchildren will cross the border daily.
What they do say, though, is that the vast increase they have seen since 1987 is primarily for shopping purposes and they get a feel of that from talking with their field staff, from looking at the number of the collections and the number of seizures and so on that they make. They report that the number of people looking to pay duty on purchases in the States is going up very rapidly as well, but they do not have as good and clear numbers and as consistent numbers as they had on this side, so we put these in.
Mr Hansen: When we got into the auto free trade pact, individual citizens were not allowed to participate in that; that was between companies. I believe this free trade also was mainly between companies in Canada-United States, but people interpreted it as private free trade, so that you could bring things back into Canada. As you see from the figures 1987-90, everything just about doubled since free trade came in.
I know we are trying to fast-track this to get down to some solutions. I had brought up one suggestion. It is now law that when you come back into Ontario, it is the obligation of the returning person purchasing merchandise in the United States to voluntarily remit the 8% Ontario sales tax. If we could just get the federal government to hand out envelopes at the border people could send them in. If you do not have an envelope, when you get home, you forget to send in that 8%, whereas a form you could fill out. But maybe one step further to get things moving is that little bit of co-operation with the federal government. That slip that you make on declaration: If it is not sent in, we would have a service charge for actually billing the person to send in that particular money. I would just like to hear your opinion. Do you think something along this line would work and help the retail trade here in Ontario?
Mr McKichan: The point you make is well taken, and it is a curious anomaly that probably 95% of the population of Ontario are not aware that they have an obligation to pay Ontario tax on merchandise that they purchase outside Ontario, including the other Canadian provinces.
It is also a surprise, I think, to many Ontario residents, when they buy something in another Canadian province and they buy it from a retail company which has national outlets or outlets in several provinces and they find several months later they get a bill from the Ontario sales tax collection department for the tax due on the amount of their purchase. That is achievable by the department because they can oblige a company operating transprovincially to supply them with records of purchases made outside Ontario by Ontario residents. The company is obliged to do that and does it.
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It is anomalous that the sales tax collection authorities should enforce that right for purchases made in Canada and not make any effort to collect tax from purchases made in the United States. Certainly anything that can be done to encourage collection would be welcome from the point of view of the retail trade. The suggestion you make, while I think it would improve the situation, would be not nearly as effective as mandatory sales tax collection along with the federal tax and duty at the border. You might get 30% of the duty through the method you suggest. With federal collection you would get the same proportion as the federal duty.
Mind you, we are not satisfied with the percentage of duty due actually collected by the feds, but they say they are conscious of that and are working at some ways of improving that ratio. Of course, we encourage them. You are probably aware of the experiment they are undertaking in British Columbia whereby people who cross regularly will get a permit and will have a basis for paying, their theory being that some people now smuggle because they are discouraged from paying the duty because of the long lineups required to make the payment. They believe if they can facilitate that process they will get a higher proportion of duty. I do not know if that is right or not, but that is what they hope to demonstrate from this experiment.
Mr Hansen: I think the one big problem is with the congestion at the borders. We have seen in other studies that we have lost the American tourist up here in Canada. It is a fear I have found -- I have been visiting relatives down in the States -- that you come to Canada and it takes you two or three hours to get across the bridge. It discouraged their trip to visit us up in Ontario. The word is spreading, and I guess it is publicized in other papers throughout the States, about the problem we have at the borders. I think that express lanes should be opened up to American tourists coming to Canada before we open them up in other ways.
Mr McKichan: We are very sensitive to that and we certainly believe that whatever we do, we should not impede the US visitor coming to Canada. Nothing could be more counterproductive than discouraging visitors who are going to come to spend US dollars here. I certainly agree with that.
Mrs Sullivan: I just have kind of a throwaway question to ask you in the beginning, but it is not the important one. I had not realized that the retail council had in the past taken a position opposing supply management programs, which you appear to have done in this brief. It is not the major thing that I want to ask you about, but if there is time you may want to comment on that.
Mr McKichan: Let me just say we are looking at effects and not methods of organization. If this is demonstrated to be a severe impediment to the maximization of the sale of the product in Canada, then probably it is not the best way to organize the help to the agricultural community.
Mrs Sullivan: We will not debate that right now, but I did want to pursue further with you the whole question of the distribution system in Canada as it compares to the United States. My impression is that the manufacturerwholesale-retail chain in fact brings in far higher costs in Canada than are found in the United States. The margins are higher at each step of the way. That is leading to retail merchants in Canada themselves turning to the United States for supply of their product rather than dealing through the distribution system in Ontario.
I certainly have spoken with people in the white goods industry, for example, who are able to buy product for resale in Canada that meets CSA and energy-efficiency standards and are buying that product through American distributors rather than in Canada and are still able to make a reasonable margin putting them into their stores here. Have you seen that trend? Is it unique to a certain sector of the retail industry and do you see it growing?
Mr McKichan: I guess heretofore, most sectors of Canadian manufacturing, and I will concentrate on manufacturing for the moment, have been higher-cost operations than US; not universally, but mostly. It is not surprising when you consider that mostly we have been dealing with smaller volumes, with many more different types of product per plant and usually with higher costs of operation and higher costs of labour inputs and so on. I guess one of the intentions of the Canada-US trade agreement was to attempt to redress that by allowing Canadian manufacturers to have bigger production runs and more specialized production. I guess that will be achieved, or else the companies will be wiped out because within the lifetime of the phase-in of the free trade agreement all the Canadian companies will be competing in price with the US operations. So in terms of the cost of deliveries of continentally produced goods, we are in essence looking at a transitional problem which lasts only as long as the free trade agreement phase-in period lasts. It will persist, however, for imported goods because, as we say in our submission, Canadian tariffs, on average, tend to be about twice those of US tariffs. So on imported goods the US will continue to have an advantage.
Turning to the issue of retail margins, again you find that usually the Canadian margins are slightly higher, comparing like type of distribution with like type of distribution in the States, traditional department stores with traditional department stores, discount stores with discount stores. But of course, the Canadian margin tends to be based on a higher initial buying price, so in effect the dollar margin is greater. It is not surprising that it should be for all the reasons that we have mentioned, because we do have much higher occupancy costs, about double those of the US, we have higher labour costs, higher fringe benefit costs. Many of the other services which retailers buy, like advertising and so on, tend to be proportionately higher and these are the difficult and intractable problems we have to deal with.
I conclude by saying there is one other phenomenon: There have recently been developed in the US novel types of distribution stores which we have not yet in all cases replicated in Canada. For instance, there is no one in Canada to my knowledge providing the kind of service that a company like Wal-Mart provides at the margins that Wal-Mart is able to hold them down at, and that is very largely a question of scale on the one hand and style of merchandising on another. But these store types are developing. Some of them are US-owned in Canada and I would think it would not be many months or years before virtually all of them are replicated to some degree in Canada.
Mrs Sullivan: I would just like to follow up on your response, if I could. We have looked at and heard about some of the innovations that are being made in the retail industry to come to terms with some of these competitive factors, and we see price clubs emerging, we see integrated manufacturing-retailing operations, such as Ikea. Habitat, I understand, may be moving into this market. One of the effects, however, of those kinds of retail operations may be that the downtown retailer finds a new kind of competition that he is unable to meet on our own national turf. I wonder if the retail council has looked at that kind of issue and the ultimate economic effect of that.
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Mr McKichan: Retailing is a highly dynamic type of business, and I guess most of the changes in the style of retailing have worked to the benefit of the consumer. I guess the classic example is the supermarket which, 50 or 60 years ago, delivered groceries at significant cost advantage compared to the previous system of distribution. These novel forms of retailing are achieving the same thing. You are getting companies able to deliver a wide range of general merchandise with margins of something like 24% in some of the US chains, compared with figures in the high 30s for more traditional types of distribution. Mind you, you get a different kind of service. The customer has to choose what they are willing to trade in respect of price, but it is good for the customer and it gives the customer choice. I think these kinds of innovations do produce higher standards of living. When one compares the situation in a dynamic North American distribution sector with, say, Russia, you realize the tremendous value that is delivered to the consumer through an efficient and competitive distribution system.
Mrs Sullivan: Why is it that a retailer in Canada buying an imported piece of merchandise from a distributor, say, Japanese electronic equipment, and an American retailer buying identical equipment, also imported -- why does the Canadian retailer have to charge a significantly higher price to make any profit on the sale?
Mr McKichan: I guess the most obvious cost differential is that of duty which, as I say, is roughly double in Canada what it is in the United States. Apart from that, there are obviously questions of scale, of the US market being 10 times the size of the Canadian market; presumably the US importer is able to get the volume discount substantially better than the Canadian importer. There would also be economies of scale in distribution. I would assume, if the merchandise flows through a professional importer in the United States, that importer's operation is probably significantly bigger than the equivalent in Canada, and the market may be more competitive in the United States at the wholesale level. I think these are all factors in the situation.
The Chair: Ms Ward, then Mr Sorbara.
Ms M. Ward: You are a national organization. I understand this is a problem across Canada from, we have heard, St Stephen, New Brunswick, to places in British Columbia and so on. I wonder if you could comment on the degree of the problem in other parts of the country, if there is any action they have taken you can tell us about, or anything we could learn from them, and are there any different circumstances?
Mr McKichan: It is very significant in the lower mainland of British Columbia. The lineups at the border crossings are comparable to those at the Niagara area in Ontario. There is also the similar phenomenon of US firms establishing virtually in green pasture, with no concentrations of US population round about, and obviously designed to cater to the Canadian business.
Ms M. Ward: That is BC, is it?
Mr McKichan: Yes, and they have a particular problem there, I guess, with the daily sale of dairy products and gasoline to people who are resident in the southern part of the lower mainland, who would not think of shopping for these necessities anywhere else but across the line. Of course, it also affects general merchandise and other food products. It is not so much of a problem in Alberta, because the large concentrations of population are just that much further from the border, and there are no sizeable US cities to the immediate south. That is somewhat the situation in Saskatchewan as well, and to a lesser extent, in Manitoba. In Manitoba there is Fargo, and one or two other midsize cities.
In Quebec, it is becoming more of a problem, but Montreal is somewhat further removed from Plattsburgh than is the case in the border cities here. As you say, it is a significant problem in New Brunswick, particularly the St Stephen crossing. It is not much of a problem in Nova Scotia, Prince Edward Island or Newfoundland, because they are insulated by distance.
Ms M. Ward: Is any action being taken in those areas?
Mr McKichan: Everyone is wrestling with exactly the same questions that we are here. As you know, Saskatchewan has integrated its provincial tax with the federal tax. We believe that Manitoba is contemplating that, largely for the reasons of collection. Alberta, of course, does not have a sales tax so that is to their advantage in the comparative pricing of products; and, of course, Quebec has integrated their sales tax again with the notion that the feds will collect it. We are encouraging all the provinces, incidentally, to move ahead with integration.
Ms M. Ward: Did they not do that originally, Quebec and the others?
Mr McKichan: They did it before. Yes.
Mr Sorbara: In your brief, in describing the dimensions of the problem, you stated that the very short notice given for submissions to the legislature means that it has not been possible to do much research in this regard. Anecdotally and in a word, how serious is this problem?
Mr McKichan: I would say that for many of our members it is the single most important public issue or competitive issue that they are facing. It is very important for the grocery trade. It is important for anybody selling clothing or footwear. It is somewhat important for people selling small appliances. It is not so much the major appliances just because of the difficulty of moving them and of servicing them; and all the other trades, to a greater or lesser extent, whether it is jewellery or housewares or whatever. But the big areas are clothing, footwear, groceries and household linens.
Mr Sorbara: The council has always done good research, I believe. That has been my experience over my period in government. Politicians have a different approach to measuring the severity of the problem and my own estimation is that you are absolutely right. It is an extremely serious problem.
Let me give you my political experiences: an encounter with someone in Windsor who said to me: "I don't spend any money in Canada any more, like milk, bread, gasoline, new tires, nothing. If I am going out for milk, I cross the bridge and I get milk and cigarettes and bread and do a little shopping and maybe even my dry-cleaning. I do not spend any money in Canada."
Someone on my own staff, a couple of Christmases ago, went for a Christmas vacation to the Ramada Inn in Buffalo on a shopping excursion; $59 a night for a family of four in marvellous accommodation and a guide to where all the best bargains were for Canadian shoppers.
A third and final anecdote is that I live in Richmond Hill and I represent the people of Richmond Hill. There is a great new shopping mall there called The Promenade. One day about two weeks ago I went there and when I came out, on my windshield was a flyer advertising, I think the lead was, "Buffalo Direct. Write to us and we will show you how to shop in Buffalo." That seems to me to mean now that the market penetration is well into the greater Toronto area.
Mr McKichan: Absolutely. It is well into the hinterland.
Mr Sorbara: I put all that before you because I am going to ask you what three or four things you think the provincial government should be doing. But what I want to concentrate on is the question of Sunday retailing. By the way, what is the council's position on Sunday retailing?
Mr McKichan: We are neutral, Mr Sorbara, because we have members on both sides of the fence and we found it impossible to get a consensus.
Mr Sorbara: As I understand it, the government in its wisdom is considering a general law to close stores on Sunday but it is proposing to make an exception for border communities. Could you tell the committee where the council would suggest drawing the line for those border communities? Would it be through Hamilton or Burlington or up Yonge Street, or where would that be?
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Mr McKichan: I find it difficult to respond in this area simply because of our neutral position. I think most people acknowledge that there is a correlation between Sunday opening, the availability of shopping opportunities in Canada, and the damming of some outflow of business, but opinion differs as to how serious or how much of a cure Sunday opening would represent. I really do not feel equipped to give you a response on that.
In terms of where you draw the line, it seems to me that the instant you draw the line, the more will be the pressure on the other side of the line to move it another five or 10 miles or whatever.
Mr Sorbara: Well, if, for example, you said stores in Hamilton and then southward throughout the Niagara Peninsula can open, but the stores east and north of that, say through Oakville and through Halton and then Peel and Metro Toronto, could not open, would that be fair? Would that be fair for retailers?
Mr McKichan: I can tell you what the effects will be. If the line is drawn immediately east of Hamilton, the merchants of Oakville will be rising up in wrath. I do not have the answers. It is an intensely difficult problem.
Mr Woolford: Can I pick up on that for a minute? As a former federal civil servant, I was involved in the exercise of drawing lines across Canada for some of their financial support programs for companies. Great efforts were made to draw these lines through unpopulated parts of Canada, and they caused excruciating pain for the government. They could draw a line through the middle of prairie farm land, and inevitably it went down the middle of a factory somewhere that they did not know about. Drawing lines in densely populated southern Ontario is going to be a difficult job.
Mr Sorbara: Is the appropriate conclusion then that the marketplace, the market forces, ought to be used to determine who ought to be able to stay open on Sunday and who not if the issue is cross-border shopping?
Mr McKichan: Unfortunately, I regret that we are hobbled in our inability --
Mr Sorbara: Well, you should not be hobbled any longer. You need to take a position on this. It is time for courage.
Mr McKichan: Our general philosophy is that we do not need unanimity to take a position, but we do require a reasonable consensus, and in this area we just do not have a reasonable consensus.
Mr Sorbara: No, but there is no doubt that the flow of shoppers across the border on Sunday is particularly significant, is it not?
Mr McKichan: Absolutely.
Mr Sorbara: Well, okay. The provincial government controls the regulation of retailing and shopping on Sunday. It controls a variety of taxes, it controls workplace issues, it controls highways. I guess it could close the highways into the US on Sunday; that would be interesting. Somebody has suggested while they go about Sunday closings they might also prohibit Sunday crossings, which would be typical. What three or four things would you suggest that the provincial government do quickly in order to at least stop the haemorrhaging?
Mr McKichan: Number one, harmonize the provincial sales tax with the goods and service tax and have the feds collect it at the border. That, in our mind, would be the most significant thing they could do.
Second, work with the federal government in encouraging the highest possible level of collection of duty and taxes at the border.
Number three, embark on an instant study of the major additional tax components which Ontario businesses have to bear vis-à-vis their US competition and see if there are ways of minimizing these or other ways of accomplishing the objective which the obligation on the business requires.
Mr Sorbara: Just to interrupt, that would be a study of competitiveness as between the two jurisdictions?
Mr McKichan: Precisely right.
Mr Sorbara: Just one final point, if I might. There are some differentials in the price of gasoline as well.
Mr McKichan: Yes, very substantial.
Mr Sorbara: Is that, in your view, a significant factor?
Mr McKichan: Very substantial. Things like gasoline, cigarettes and milk are the very basic commodities which give people an initial excuse for going, and once they are there, of course, they buy other things, but the differential -- and there are very significant differentials in the price of these commodities -- are a spur to people in the border communities. To the extent that you can do something about that, that is going to be helpful.
Mr Sorbara: Just a final comment, not a question, is that I really do encourage at least the Ontario section of the retail council to come up with a policy on Sunday shopping. If you do not, the risk you run is that we will get very bad public policy in this area.
Mr McKichan: We have offered our services as a technical resource, if you like, but without offering an opinion on policy.
The Chair: Thank you for your presentation this afternoon.
Mr McKichan: Thank you, Mr Chairman.
CANADIAN FEDERATION OF INDEPENDENT BUSINESS
The Chair: Our next presentation is from the Canadian Federation of Independent Business, Linda Ganong, director, provincial affairs; Catherine Swift, vice-president, research; and Pierre Cléroux, senior economist.
The Acting Chair: It is not a coup. I would ask the representatives from the Canadian Federation of Independent Business to introduce yourselves individually and then commence with your presentation.
Ms Ganong: Thank you, Acting Chairman. We had asked for some audio-visual support for an overhead projector. I notice there is one here. I do not know if it is plugged in and ready to go.
In the meantime, I am Linda Ganong. I am the director of provincial affairs for the Canadian Federation of Independent Business, the Ontario branch. This is our vice-president, research, and chief economist, Catherine Swift; and setting up the AV equipment is our senior economist, Pierre Cléroux. Thank you very much for inviting us here today. I will turn it over to Catherine.
Mr Sorbara: So that is what senior economists look like.
Ms Swift: We are very versatile at the CFIB. We do everything, of necessity.
Mr Sorbara: It is always good to see you again.
Ms Ganong: It is good to see you too.
Ms Swift: We would like to present some of the research work we have been doing on cross-border shopping. It has been going on for, I would say, almost a year now. This is not a particularly new issue, as you probably know. In fact it is probably decades old, but of course what has brought everyone's attention to it over the last 18 months to two years is the incredible growth rate we have seen and the incredible loss to our economy that has resulted from the expansion in cross-border shopping by Canadians.
Most of the work we have done has focused on tax-related issues. There are a number of ways you can go at this one, and that has been our focus so far. Mind you, we are continuing work on it, so it will not be our exclusive focus. That is not to say, of course, that there are not many, many factors underlying the problems in the growth in cross-border shopping. Indeed, we believe it is very much a composite of factors, such as our high dollar, high interest rates, high taxes we have seen at all levels of government, higher wage rates in Canada, lower productivity levels; basically, overall higher costs of doing business in Canada. One thing I have heard recently from a number of members of ours is that such things as higher tariff rates in Canada for offshore manufactured goods get built into a price factor in Canada that is not found in the US. So obviously there is a wide range of factors underlying this. Naturally, the recent imposition of the GST has done nothing but exacerbate a problem that was already very serious.
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As a result of the complexity of the issue there are no simple solutions. A lot of people have talked about devaluing the dollar. That is what Third World countries do, basically, and although I agree that there is a need for a more logical level of the dollar than we have now, people who are looking to that as a solution are just postponing a true solution to this issue; and indeed the longer you postpone it, as we know, the worse it gets and the more draconian the solution has to be. So although I have a bit of sympathy with that as a part of the answer to this problem, I do not think we can look for any quick fixes on this front.
We put together a study pertaining to Ontario last October, and Pierre Cléroux is going to go through the highlights. He is also going to add some other information that has come out of another study and some more recent data that we have.
Mr Cléroux: The first thing I would like to talk about is the extent of the problem. This graph shows the people crossing the border at the six most important border points in southern Ontario. That is including Niagara Falls, Windsor -- the six most important ones.
Revenue Canada registers people crossing the border in three different ways. The first way is verbal declaration: As you cross the border you say, "I bought less than $100 worth of goods and I have been there for at least 48 hours." If you declare yourself like that you will be in the first category. Between 1987 and 1990 the increase of the number of people who make this kind of declaration was 285%, so in three years it almost tripled. The second category is the written declaration. It is for people who declare less than $300 worth of goods for a trip of at least seven days. Again, the increase is very significant. The last one, what they call the B-15 form, is actually people crossing the border and paying the duty on the products they bought in the US.
The first conclusion from this graph is, of course, that the cross-border problem is very important. When you see a 300% increase up to a 500% increase, that is significant. The second conclusion is, more and more people are ready to pay the duty on the product they buy in the US. They consider that, even by paying the duty, it is still worth it to cross the border, pay the duty and come back home. So the most important increase is actually in people paying the duty.
The second issue I would like to talk about is a report of a study by Ernst and Young. The study was done for the city of Sault Ste Marie. We know the cross-border shopping problem is very extensive there.
They asked people what they like about shopping in the US. As you can see from the graph, the most important one was the price. People are crossing the border because it is cheaper. They like the selection, they like the service in the store, they like friendly people, but the most important and distinct one is really the price. At the same time, people see some advantage to shopping in Canada. They find the quality of the merchandise better, it is cleaner here, it is safer here, but still they are crossing the border and the bottom line is the price. So it is really an argument against people who believe that better marketing strategy will really help our retailers in Ontario, because even if you have better marketing strategy, people are still looking at the price, and if the Sony Walkman is $50 cheaper in the US, they will just cross the border and go to the US.
To better understand why the prices are so different between the two countries -- there are different factors, but we believe that taxation is one of the most important ones -- we built a model which includes 12 different retailers in Ontario and the tax burden they bear compared to the same retailers in Buffalo. Those data are based on what we call an average firm designed by Statistics Canada and we calculated for each of those firms the total tax they have to pay every year, which includes payroll tax, municipal tax, sales tax and income tax.
You can see that the people located in Toronto have a higher tax burden than those in Buffalo. Actually, the difference is pretty wide. If we take the example of a food store, if you are located in Buffalo you will bear half the tax burden you will support in Toronto. For the large firm, the difference is smaller.
Mr Sterling: Can I just ask how old that slide is? How old is that information?
Mr Cléroux: This was completed in October 1990; it is about six months old.
In this graph we distribute the total tax burden in different components. We can see that the killer here is really the municipal tax. If you are located in Toronto, you pay four or five times the municipal tax that you would in Buffalo. We understand that the cost of land in Toronto is greater than in Buffalo because of the specific situation of Toronto, but still, if you are a retailer in the Eaton Centre, you have to compete with the retailer in the Galleria in Buffalo to attract customers. So for the small firm the difference is very important, and there is one reason why the difference is larger for small firms than large firms.
There are two very bad taxes for small businesses, the municipal tax and the payroll tax, two taxes which are independent of profit but are based on your intensity of labour and the intensity of the space you rent or you have. I think this graph is pretty clear. The income tax is pretty comparable if we look at the income tax of the two countries. The sales tax is a bit lower in Buffalo, although the payroll tax is a little bit higher in Buffalo, but really the municipal tax made the difference.
We also compared another region of Ontario, Thunder Bay with Duluth. We were wondering why people in Thunder Bay are ready to drive four hours to shop in Minnesota, so we did this tax comparison, and although the differences between the US and Canadian firms are not as important as Toronto and Buffalo, they are still pretty significant in some sectors. In only one of the 12 sectors is our tax burden competitive with the US.
Finally, if we combine the 12 sectors, we see that especially for small firms, if you are located in Thunder Bay, Ontario, you will bear a higher tax burden than in Minnesota, and again, if the sales tax is a little bit lower in the US, the income taxes are pretty comparable, the payroll tax is pretty much the same, the municipal taxes are definitely higher than in the US.
The last point I would like to make here is, you really see the impact of the fiscal structure of Ontario on small firms, because here almost 55% of the total tax burden is the payroll tax and the municipal tax for a small firm, which are really independent of profit. It is only about 30% for the large firms, so we see this tax structure really favours large firms compared to the small firms.
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Ms Swift: Thank you very much, Pierre.
I would like to sum up and leave a lot of time for questions. There is further detail to this research that we would be happy to answer to.
I am sure a lot of the testimony you have been hearing indicates that the damage to our provincial economy that we are sustaining because of this cross-border flow of dollars is of significant magnitude. It has the potential and indeed it is in the process of doing long-term damage to our economy.
Cross-border shopping is really only a symptom of a larger problem of uncompetitiveness that we are facing fairly acutely in this province right now. I think as lobbyists we are hearing an awful lot from our retailer members, and it is even getting beyond the retail sector. Of course, that is just the front line and this will trickle back into wholesale, manufacturing, service, communities, where the base for the community collapses and on and on.
I think we have heard a lot of rhetoric from politicians. There has been a lot of taking of potshots at free trade, monetary policy, whatever basically is not their particular responsibility, pointing the finger at another level of government, "It's their problem." Well, naturally, it is all of our problem, and this type of rhetoric is not particularly helpful. It is also inaccurate, because on the basis of our research and others it is policies that are being pursued by all levels of government that are causing the problems for businesses. As a result, the solutions require co-operation among levels of government as well as a little more responsibility-taking by each level as to what it can do in its own bailiwick.
I have divided up our recommendations, if you will, for action into long term and short term. Some of them I suspect you may have heard before.
The short-term possibilities, which naturally to some extent are things we can see some result from in a reasonably short period of time -- the first thing in Ontario right now is not to increase the cost of business. The problem we have is a cumulative effect of taxes, interventionist government policies, payroll measures, legislation which imposes costs on business, higher wage costs, etc right down the line. The best thing to do in the short term is not to make it any worse than it already is. It is terrible right now, and I think this is showing very clearly that this is an abysmal situation.
I think too that a lot of seemingly well-meaning policies by governments are believed to be aimed at the large corporate community. Inevitably what we find is that the small business community ends up paying for them. It should not be believed there is this wealth of ability to go after the corporate community or the business community. The differential effects between large and small are significant. Of course, the interesting thing about small firms is that they do not have the options that large firms do. As we know, large firms have a tendency to move out of the country, move their profits elsewhere or whatever. Small firms do not have that option. They more frequently just go out of business, and I do not think any of that is particularly desirable for anyone.
As I heard Alisdair McKichan mention in the previous presentation, we sure do not like the GST. You probably know we fought it pretty vociferously as an organization. On the other hand, we have it now and it is causing all kinds of grief. So we would say that although we prefer not to have it at all, we feel that since we are stuck with this thing, at least for the next little while, harmonization of the GST with the PST has to be a main priority of all governments across Canada.
It is interesting to note that in Quebec, where they have sort of harmonized it, and in Saskatchewan, where they have also harmonized their provincial tax, there are discussions under way right now on the collecting of the harmonized tax at the border. Again, this is really putting a Band-Aid on the haemorrhage, but to try to discuss short-term solutions, I think we do have to look at the odd Band-Aid.
I think there is another thing that Ontario can do. In Ontario, we have over 40% of the national economy. To pretend that Ontario does not have an impact on monetary fiscal policy at the federal level is just folly. Of course it does. As a result, keeping our finances under control in Ontario, and as a result not pushing inflation or not pushing interest rates federally -- I do not like what John Crow is doing, I do not think anybody does, but we do not have to make it any worse than it already is. Naturally Ontario, with such a large chunk of the national economy, is a major player. That is another positive thing to consider in the next little while.
I think in the long term there is no question that we need to look at a major review of all our tax policies in this country at all levels. I know Ontario is undertaking a partial look along those lines. We are sorry they are not looking at the whole range of taxes. We feel if you are going to undertake that major an undertaking then we should be looking across the board.
Certainly, when we talk about competitiveness and business competitiveness we are looking at governments having to be competitive as well. The government sector is not a particularly productive sector of the economy. We do not export government services. As a result, when we are looking at productivity as a nation and competitiveness, and basically our own standard of living down the road is what this all translates into, government competitiveness has to be looked at. Our current constitutional discussions may well result in a downsizing of government, maybe not quite in the way we all would have chosen, but less of our productive capital going to finance government is a desirable outcome in all jurisdictions.
I think too, as Pierre's data clearly showed, the pushing of costs off to the local level might seem expedient in the short term. The impact of it tends to hit the small business community disproportionately. We saw that pretty clearly with the market value reassessment activity in the Toronto area last year. The people hit most quickly and in such a large measure were the small firms; we find that regularly with these local tax issues.
In summary, the cross-border problem is really just proof positive of the kinds of conflicts that arise when policymakers try to pretend they can ignore market forces. Canadians are voting with their feet right now. We view what they are doing really as a form of tax protest. They cannot take it any more. The system is stretched to the limit and obviously it is a vicious cycle because the more money that leaves the country, the less we can afford those programs we would like to retain in Canada -- better social networks and so on and so forth.
So if all governments would stop pointing the finger and blaming the other guy, whether it be the other level of government or whatever, and start to look co-operatively for some solutions, both within our own jurisdiction and with other levels of government, business, labour etc, I think we could start to address some of these problems we have discussed today.
I would be happy to take any questions or discussion you have at this time.
Ms M. Ward: I have a simple question, or I think it is. I would just like to ask you to explain that table, either table 1 or table 2. I saw this in another presentation and I do not understand the varying percentages. If you look at table 1, Toronto is shown as 100%. But why is there the variation between the other businesses in Buffalo? Variety stores show 55%, drugstores 70%. What is the basis of that? I did not understand that chart.
Mr Cléroux: It is based on a statistical firm, an average firm that we took from Statistics Canada. For example, if in one sector there are more people because it is more intensive, like a shoe store -- they have more people selling shoes than in a clothing store, for example -- the payroll tax will affect them more. That is why in each sector you could have a different impact from the different taxes. If their profit in that sector is higher, the income tax will be more important for them than for another sector, so it is really because they represent a typical firm. You have a typical firm of 12 sectors. That is why it is different.
Ms Swift: Also, 100 was the index.
Ms Ganong: Comparable to the Canadian, then.
Mr Cléroux: Yes.
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Ms Swift: I was just going to say that it is random. You can choose Buffalo as the index too. It is just an index measure, so you are really saying it is sort of in percentage terms. You would of course find differences if you compared the Toronto shoe store to the Toronto hardware store, but just for simplicity's sake we set that at 100 to regularize it, that was all.
Ms M. Ward: Okay, that answers my question.
Mr Sorbara: Just as a preliminary matter, I was interested in your comment about government services not being something that we export. Some of us are willing to trade the member for Guelph for your 25th draft choice, if you could just let us know what it is. We could make a deal perhaps after --
Ms Swift: Probably get an antidumping ruling or something on that.
Mr Sorbara: Ruth Grier will tell you where to dump it too -- my riding.
The Chair: That is a sore point here. Let's just forget dumps.
Mr Sorbara: One other collateral matter: You mentioned your top priority was for governments to stop unloading things on to the sector that you represent, because even if you just did that, it would be viewed as some relief. On that point, the government today announced a program to guarantee all wages where businesses go into bankruptcy or are in receivership or are abandoned. I am wondering if the Canadian Federation of Independent Business was broadly consulted on the preparation of that proposal.
Ms Ganong: Yes, we were. This government has been consulting us to death. I have never sat in so many consultations as I have this past winter with this government. Yes, we were consulted.
Mr Sorbara: Are you happy with the product?
Ms Ganong: As we said in the consultations, we really felt where the solution should have been addressed was at the federal government level. When you are talking about bankruptcy issues, the federal government has been dragging a large portion of its anatomy for the last 15 years in this area. If the federal government had gotten with it, the provincial government would not have needed to move.
Mr Sorbara: One of the reasons why this committee is holding these hearings is, believe it or not, as a result of the court decision which recently upheld the previous government's bill to regulate Sunday shopping. I do not want to go through the convoluted method by which you go from a court decision to a committee hearing on a certain topic, but all I can say is, welcome to politics.
Does the Canadian Federation of Independent Business have a position on Sunday retailing?
Ms Swift: There is no question the things are interrelated. They do not have to be and the cross-border issue is by far the larger issue, if we want to measure it from an economic perspective. However, it is being looked at. It is high time. If it happened to Sunday shopping, so be it.
We are as split as the retail council, typically. We have a lot of membership similar to the retail council. Also, just for your information, we are doing some updating of our own research work and our own data. As you know, we poll our members to death on everything under the sun and we are doing an update because we wonder if the Sunday shopping situation has thrown a new wrinkle. We are just in the process of doing it, so we do not have hard numbers but we will, probably, in two to three weeks.
I think we are going to see a softening of opposition to Sunday shopping, but it is like the lesser of two evils. That is really the only way to look at it. The large proportion of small retailers are not in favour; they are often family businesses. I am sure you have heard all those arguments. They are not in favour of open Sunday shopping. They tend to find it increases their costs and their revenues do not change. They maybe just grasp on to a bit of market share that they would lose otherwise, so there is really no incremental advantage to that.
However, right now we have the case where if your market share is moving across the border, it is a different ball game. Again, I should have some better information on this about three weeks down the road. We think it might be softening in terms of opposition, not because they like Sunday shopping but because they feel that loss of business to them, and ultimately perhaps the loss of their own business as a result, is a worse outcome.
Mr Sorbara: Without having polled your members on this subject, and I appreciate how important polling is to the CFIB, the government, in its wisdom or lack thereof, is considering the designing of sort of fictitious borders to identify border communities and grant them an exemption to a law which would otherwise close all stores on Sunday.
My first question is, how do you think your members would feel about that? And notwithstanding how they might feel about that, where would you recommend the border be drawn to identify border communities that would be exempt from a Sunday closing law and communities that would not be exempt?
Ms Swift: There is that type of policy. It has absolutely no foundation in economics or any kind of justification, in our view. We have not specifically gone to our members on it because we have not had reason to, but all that kind of thing does is move the border. It just shifts the border from a Canada-US border to a Hamilton-Toronto, I do not know, whatever you want to talk about.
I would suspect -- and I never like to second-guess our members; they do surprise us from time to time so we have to be careful, of course -- that measure is just a non-starter and the maldistributive effects it will have even within the Canadian retailing community are enough reason not to contemplate it.
Mr Sorbara: Is there any other way your members would distinguish between those businesses which could open with the permission of the state and those businesses which the state could keep closed on Sunday?
Ms Swift: Given that those types of regulations which discriminate in one way or another are ones that our membership tends to oppose on principle in every other area, I really cannot see the principle behind it being a workable one for our constituency.
Mr Sterling: Thank you very much for coming here. I guess I have difficulty with all of our reluctance, including business, to criticize government spending regardless of what good or social benefit it might have to one group or another at this time in our recession. I have seen this government make two steps in the last week which have spent over $200 million of additional taxpayers' money. One was the unilateral decision by the Ministry of Education to move into integrated education without any consultation with the teaching profession, by withdrawing from a lawsuit in the Ottawa area. This means that in the future, handicapped students are going to have the opportunity to go to their local schools and incur all of the costs associated with providing that social service, a very difficult thing to argue against as a politician and as a caring human being.
Notwithstanding that, it is going to cost a significant amount of money. I do not think anybody believes the provincial government is going to pick up all of that tab for that kind of expenditure, and you can continue to expect to see your municipal taxes go higher as a result of it.
The second one was the announcement today about the wage protection fund, which is $175 million.
Mr Sorbara: Much more than that.
Mr Sterling: That is what their figure is. Notwithstanding my concern about the protection of wage earners, etc, we have not seen the details of it so it is very early to try to judge it. It concerns me that we continue to create social expectations at a time when we are seeing in this committee that we are not competitive with the social expectations we have already provided. I would like to hear them say, "We're going to cut $175 million from some other social program." Then it would be acceptable to me.
Interjection.
Mr Sterling: No, that is your job. You are spending the money, you have to cut the money. I am referring to the government. If it wants to spend more money, then I think it has the obligation to do the other end of it.
I found table 2 on the Thunder Bay-Duluth tax comparison interesting because the differences were not nearly as great, of course, as the Buffalo-Toronto. We have had in front of our committee, and I had met with, the Northwestern Ontario Associated Chambers of Commerce, I think, two weeks ago. They were talking very much about the cross-border shopping between Duluth and Thunder Bay. The border is 65 miles, but Duluth is 200 miles away, so in effect the border is 200 miles away in that whole area. When I look at the comparison in table 2, the tax comparisons do not seem that great, yet they seem to have a significant problem there. What are the other causes that are making people go? Why is the price cheaper in Duluth than it is in Thunder Bay?
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Ms Swift: The other thing I should mention, by the way, is that what we are looking at is the tax cost to the firm -- what gets built into their prices, in other words. So it would not include sales taxes, it would not include GST or PST, just as part of an answer to that question.
The other factors, naturally, are the ones that we did touch on very briefly earlier. There is no doubt that the relatively high value of our dollar and high value of interest rates in Canada versus the US are two biggies in terms of affecting all businesses, both their cost of doing business and the inducement for consumers to go across the border. They are not unique to Thunder Bay there. They are everywhere, naturally. The tax part is the part that we wanted to point out as one actionable area by all levels of government. I think we have less control, really, in our current environment, over interest rates and our exchange rate.
Mr Sterling: There was a suggestion made to me by some members of the Northwestern Chamber of Commerce in private discussion that the retailers in Thunder Bay were really just not competitive enough, were not sharp enough in their business practices.
Ms Swift: We have heard a lot of this, and frankly, I do not see too many people running businesses who say that. Our members really do not have a whole lot of sympathy for that kind of remark.
Mr Sterling: I do not imagine they would.
Ms Swift: A lot of them are scrabbling, have cut things to the bone, and they are finding a lot of the problem is what is imposed on them by various levels of government. They find they have got two hands tied behind their backs.
I am sure you could always find a firm that is not an effective marketer in Canada; and you could find very, very good retailers who are very competitive and sharp, etc, in Canada and the US. So I find that a real copout, frankly, because although there is a little fiddling around the edges -- we can do with things like marketing sharpness, whatever you want to call it, as the data that Pierre presented showed pretty clearly, when your price is so significantly different; and I have seen some of the other testimony you have heard from John Winter and other people, where you have got massive differences, the wholesale price in Canada is incredibly higher than the retail price in the US -- that really does not hold a lot of water in the big picture. That may be 1% of the problem.
Mr Cléroux: Taxation does not only affect retailers, it affects all levels of industrial sectors. We did another study which compared the tax burden of Ontario, Quebec, Alberta and BC, and you can see that manufacturers in Ontario support the highest tax burden in Canada. So if you manufacture something here you pay more tax, and you sell it to the wholesaler, who pays more tax, who sells it to the retailer, who pays more tax. At the end, it makes a big difference in the price.
Mr Sterling: Yes, so the retailer is going to get hit almost three times. You have focused on tax comparisons in your presentation. How much of the cost of business does that represent? Have you got any estimate of that? Even with the layering?
Mr Cléroux: No, it is difficult to know. It varies across different sectors, and we do not have any data on that. I look around and it is really difficult to assess, but it could be significant, especially for the small guy.
Mr Sterling: It really makes a difference --
Ms Swift: I would say between a third and a half again, depending, because there are all kinds of sensitivities to payroll taxes and so on. I am sure those data are available. It is just that we have not crunched them lately.
Mr Sterling: Pierre, I would like to see that other study if you would give me a copy of the one comparing the taxation rate across Quebec, BC and Ontario. Thank you.
Mr Sutherland: Your comment about how people are protesting with their feet against high taxes was interesting. I was wondering, if you told all these people who are shopping across the border, "Look, okay, we can cut down on the taxes, but then you have to pay for the health care yourself, you have to pay for the other benefits, the environmental standards, the occupational health and safety standards." And in terms of that, "Oh, by the way, if you decide to continue shopping, you can forget about your local businesses supporting your son's and daughter's hockey team and baseball team and you can forget about raising the money in the community for the community complex or the hospital campaign" --
Mr Sorbara: You are talking about giving them a lecture.
Mr Sutherland: No, the fact is that I do not believe a lot of people are realizing the impact.
Mr Sorbara: You should legislate a little lecture before everyone crosses the border.
Mr Sutherland: I will let you comment.
Ms Swift: Out of curiosity, I have done a fair bit of media on this issue and have been on some national shows. And I have never got so many letters from angry people asking me what right I have to say to them -- mind you, it has been a little exaggerated by them perhaps, but people are very defensive about this issue. So I think a lot of people, more than you might think, make that connection. They know in the final analysis it is hurting their economy. You would really have to be a fool not to -- to think that you can spend millions and billions of dollars. So I think that connection is being made. It is being made more and more and more of course as this problem gets more public profile.
But in the final analysis, if you are out of a job, if you are trying to get by on a low income -- I was just listening to somebody who was unemployed in Vancouver and they were saying, "Boy, I am so glad I live close to the US border because I can really save money." And you know, that is the circularity of this problem.
You can do all the moral suasion you want, which is really what you are talking about. And most people might not want to admit it, but I think deep down they make those connections. But that short-term advantage of paying less and what not overcomes that. That has not happened to them yet. Right now they are enjoying low prices and free health care, so in their current reality that is not a factor and it is not changing their behaviour. Quite the contrary. As this gets more publicity, more of it seems to happen. So I do not know. I wish it were that easy, but I do not think it is.
Mr Sutherland: You talked about the issue of competitiveness. I guess your view would be then, based on the information you provided here, that in retailing -- not necessarily manufacturing but in retailing -- price is the key difference?
Ms Swift: Sorry, in terms of price of the final product of --
Mr Sutherland: Yes, in terms of price as the key factor --
Ms Swift: Certainly these slides seem to have indicated that it is the compelling factor in the cross-border shopping issue. That implies the price differential is so great that it overcomes any other benefits people may see. You may buy something at a 50% reduction in price if the quality is a little bit less, say 10%, if your service is 10% less and so on, but you would not buy something that was only 10% less in price. I think what that indicates is not that price is the only factor but that the price differences in this instance are so enormous they overcome the fact.
We saw that in Canada they feel they get better quality. They get better safety and better cleanliness and all these kinds of things. It is not enough though. Obviously price is different enough to drive them across the border. So maybe if the price differential was 10% we would not have a problem. But given that in some cases it is 100 to 200%, we have got a major problem.
Mr Sutherland: It is interesting to note in this survey about how people feel they are friendlier in the United States. That goes against the general thought that Canadians are friendlier than Americans.
Ms Swift: I do not think that is a general thought, is it? A lot of polls have shown that they think Canadians are aloof.
Mr Sutherland: Okay. One other question, in the area of taxes and particularly municipal taxes -- I am not familiar with how much education taxes the businesses in the United States are paying. Is there any comparison and do you have any of that information?
Mr Cléroux: On the graph we show that we see the difference. I think what you want to know is, how much tax there is at the municipal level here compared to --
Mr Sutherland: Yes, for businesses paying education tax in comparison to businesses here.
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Mr Cléroux: It is very difficult because it really depends on the city. In Ontario and generally in Canada the province will structure the tax that the city can charge, but in the US it is more free. At the city level you can have a sales tax, school tax, garbage tax, property tax. But generally what we saw from this study is that the level of property tax is a lot lower because the contribution they have from the central government is more important.
What we see in Ontario and also in Quebec and British Columbia and other parts of the country is that the federal government cuts its transfers to the provincial government and the provincial government cuts its transfers to the municipal government. What I would like to say is that it increases the tax by the back door. That is really what they do, and why we are seeing more and more difference between the municipal tax here and in the US.
Mr Fletcher: Just a few comments and a few questions. As far as cross-border shopping is concerned, this is not new. It did not just start yesterday. It has been going on for quite a while. In fact, I remember when I was younger, which was not that long ago, a lot of people I knew were skipping down to the United States, just across the border, to grab -- usually it was beer, but other things. That was 18 or 19 years ago.
Ms Swift: It is just the volume.
Mr Fletcher: It has started to overflow now.
Ms Swift: And frankly vice versa.
Mr Fletcher: When did it really start picking up? About what year?
Ms Swift: Two and one half years ago, roughly. If you want to track in a time-trend type of thing, it really did move a lot with the exchange-rate changes, because we had an 82-cent dollar, for example. I think that is the interesting point. You know that the exchange rate and interest rates and those kinds of things fluctuate; they are very cyclical. They will come back down again and this problem will to some extent abate. But I think the important thing to think of from a policy perspective is the underlying structural burden that we are putting on our economy, on businesses -- on consumers, for that matter. They are getting hit pretty hard with taxes at all levels too and have less to spend. So all of this is cumulative.
You have these fluctuations of exchange rates happening while your overall trend is a sort of creeping growth in the cost burden to your economy. As a result, over time, you get more and more vulnerable. Now we have a relatively high exchange rate, we are a lot more vulnerable than we were back in the mid-1970s when we had an exchange rate over $1. We did not see the same haemorrhage then as we are seeing now, because we are just that much more vulnerable. We are also right in the middle of a recession. So we have absolutely everything working against us at the same time right now.
Mr Fletcher: About two or three years ago, the actions that were being taken by the provincial government, in combination with what was going on, have now come to a point where there is a --
Ms Swift: That is true. All levels of government over the 1980s -- it was not that the 1980s were unique in this respect; I think we just saw more of it in the 1980s. We had a period of economic growth as a province and even as a country through most of the 1980s, since about 1983. What we saw was that governments, instead of using that period to get our fiscal house in order, to pay down debts and so on, used it to expand government, to increase expenditures, to make forays into areas of the economy they did not make forays into before. Then the economy turned down and we still have a fixed cost burden attached to all those programs as well as high taxes to pay off those debts that did not get taken care of in the good times and so on.
So there is no question, we are paying now in spades for policies that have been pursued by governments at all levels through the past decade and, for that matter, the past 30 years.
Mr Fletcher: So if we did nothing -- and some people say that is what we are doing -- if we did not do anything when it came to raising taxes or anything else, that would not alleviate the problem? That would not fix anything?
Ms Swift: It would not alleviate the problem. We need some serious tax reform. I would certainly rather do it in an environment before our economy has collapsed. You see the federal government's most recent budget, and you wish they had scope to give some fiscal stimulus to the economy. They do not have it because they are just up to their eyeballs in debt. And provincial governments are not exactly exempt from that either. So you see how hamstrung we become. You are forced to take solutions at the times you do not want to take them, and in more extreme ways than you would like to take them.
So I am saying the do-nothing approach is a short-term minimum. Do not make it worse. It is already severely bad. Of course, making it better is the ideal solution, but we are not neophytes in this ball game. We do not think we are going to see tax decreases in the next six to eight months. By tax, I do not just mean income tax or sales tax. I mean payroll taxes, things that cost business money, and that can be any kind of interventionist policies right across the board. So no, doing nothing is not enough, but it is better than doing something negative.
Mr Fletcher: As far as cross-border shopping is concerned, if I were to go across the border to buy groceries, the store I am buying them from in Detroit -- I cannot remember the name; I know they are affiliates or subsidiaries of companies here in Canada. The money is going to the company. The company is not suffering. I am still spending my money with the company that owns the store.
Ms Swift: Is it a Canadian-owned company?
Mr Fletcher: No, it is part of the US conglomerate that owns most of our stores anyway.
Ms Swift: Not in our constituency.
Mr Fletcher: I know what you mean, but when I am saying "groceries," I know that Zehr's has branches in the United States.
Ms Swift: A Canadian sub or whatever.
Mr Fletcher: Right. And so if I am doing that -- and I was talking to a person who is setting up shop in the United States and he said that his startup costs are 150th of what it would cost to start up here. That is why they are setting up shop down there, and yet they are going to continue to live in Canada and just operate their store across the border.
Ms Swift: There are some firms doing that. For your information, we have a survey out right now on trade issues generally, and we are actually asking our members -- we know we have heard anecdotal stuff, but we want to be able to quantify it -- "Are you considering setting up an operation in the US or elsewhere?" The US is the most likely venue. And yes, that does happen. Let's face it, we hear from our members that they are willing to pay a premium to stay in Canada, but it is like the price issue for the consumer: Once that premium gets beyond a certain breaking point, they either have to go or not stay in business any more. It becomes a crunch issue. We are starting to hear that the crunch is being reached now; it is no longer that 20% differential they are willing to pay because they want to stay in Canada. They just cannot stay in Canada and continue in business any more. When you get to that point, you know, we are in big trouble.
Mrs Sullivan: I am very interested, as we go through these hearings, in the discussions relating to the competitive factors attached to decisions that ultimately purchasers make in going across to the States to buy merchandise. I have looked at several studies and I note that your study concentrates particularly on tax competitiveness. There are other factors that other economists have looked at, adding them to the tax factors, including the cost of health care, the cost of workers' compensation, the cost of hydro, for example. What they show is that, on a cost-comparative basis for the basic economic facts, there is more of a competitive factor than you would believe by just examining taxes.
There are several major economists, not the least of which is the Toronto-Dominion Bank, which have looked at that issue. I think Coopers and Lybrand have done a study that is comparable, and I believe the feds have as well. The Ministry of Treasury and Economics has been making that kind of a study for a period of time.
We understand the argument of the CFIB, and that is one particular sector of input that CFIB members are very concerned about. I think the Toronto-Dominion Bank has said that tax structure is verging on being uncompetitive as part of the full component of costs and that any additional steps would put the tax factor right over the edge. You are saying it is already over the edge and there is still some discussion there.
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If we look at all those factors, I would like to have your comments on what studies CFIB has done in relation to the other costs. If your conclusion is that the other costs imposed by governments do indeed add up to a competitive factor, then what other areas provide the problems? I hear from retailers that one is the extremely high cost charged by wholesalers for goods supplied to them, partly because of Canadian standards, whether it is an energy efficiency standard in white goods or CSA standards on electrical products, or whatever. There is a sense among retailers in my community that a lot of the distributors and wholesalers are gouging. I just wonder if you would like to go from there.
Ms Swift: I am aware of the other studies that have been done. We never would presume to say that tax is by any stretch the only factor. It is one, and it is one that we chose to hive off in this particular study. We will certainly be doing more work to look at the wider factors. It also happens to be one, though, where you can say, "Okay, it's actionable in this way," whereas things like the exchange rate and interest rates are driven not only by domestic factors but by international ones. We have control to a point, but we certainly do not have the control we have over our own tax levels. That was one reason we decided to focus on it.
Also, I think you should keep in mind that studies like the Toronto-Dominion Bank's and others look at the macro-picture. We purposely divided out small and large firms because in the macro sense you may find XY is competitive, but it is the differential between small and large firms that is very interesting, and without exception small firms bear a proportionately higher burden. There are a lot of reasons for that.
Part of it is simply the same reason that the middle class pays the brunt of personal income taxes, because that is where all the numbers are and they have less mobility. As you probably well know, if you tax a large corporation more, especially if it is a multinational, especially if it is a foreign-owned multinational, it just cooks its books and shifts its profits somewhere else and you end up actually getting less revenue for government as a result. The small business community is a much more captive, vulnerable market for taxers to get at.
In terms of wholesale prices, I was quite intrigued by the data that Winter came up with recently where he just chose a few product categories and tracked their evolution. There are a lot of things that affect what a Canadian retailer gets. We have members in the wholesale industry, too, of course. We have members right across the board and none of them is exactly rolling in dough these days either. I would be interested to see if American wholesalers are perhaps gouging Canadian wholesalers.
I think we have to realize too that we do have a smaller economy. We do not have the same economies of scale; we never will. We never have, either, so that is not a new argument; that has been around for ever. That is not a causal factor, but it is a contributing factor and it is part of the reason why we usually tend to have a dollar that is valued lower than the US dollar. We do have certain cost disadvantages in this country -- low population, large geography and all that kind of thing -- which we are probably always going to have.
I do think there is undoubtedly some gouging going on here or there. I suspect there is never a time where there is not. I do not really have particularly good data on it, but we are pursuing some of the Winter analysis; it just intrigued me, because I do not know the answer. I know part of it is the third-country tariff. I know there is a difference in many areas, the tariff we pay in Canada versus the American competitor's much lower rate, so naturally our guy is at a disadvantage right off the bat. And the chain of distribution issues and so on are all important contributing components, no question, but I do not have an answer as to where the gouging is most predominant right now. I just know that all businesses and all sectors are struggling rather desperately in Canada right now, so I cannot imagine anybody is really raking it in in a big way.
Mrs Sullivan: Probably this issue has been exacerbated by the recession and may be seen as an easy out, as well, in terms of the identification of an issue that retailers can point to. Clearly the evidence is that the increase in cross-border shopping has had an enormous impact, but some of the decline in the retail sector may be related to the recession as much as to cross-border shopping.
Ms Swift: No question. It is the worst possible time for everything to be going in the same direction. There is no doubt it is a cumulative impact.
The Chair: Just while you are talking about economies of scale, one of the big selling points of the free trade deal was that Canadian businesses were going to be able to take advantage of economies of scale. In my riding, I met with a manufacturer. He has been told that the parent company will not allow his branch plant to compete in the American market with the product that it makes there. So he has no economies of scale. He is confined to the Canadian market by a dictate from the parent company. Have you done any kind of studying or matched any of that kind of --
Ms Swift: Not really. Naturally, we do not have any foreign-owned multinationals in our membership. One of our membership criteria is the firm has to be Canadianowned. I have heard that, talking with people in other business associations who do represent some of these larger firms. I do not think that is typical. In most instances, business is business. I know of some instances where it has turned out, for whatever reason -- maybe there is a plant already there or whatever -- a US plant has been shut down in favour of the Canadian location. So I do not think it is universal.
There is no doubt, however, that free trade and then cranking the dollar up to 87 cents was just unbelievably ludicrous policymaking, because all businesses were predicating how they would deal with the free trade agreement on roughly the value of the dollar that prevailed at the time, which was around 82 cents; ideally, maybe even an 80-cent dollar, a little bit less.
The Chair: Sorry, the dollar in 1987, when the free trade deal was signed, was 72.5 cents.
Mr Sorbara: That's right.
Ms Swift: Was it that low?
The Chair: Yes, it was 72.5 cents. And what is interesting is that the central bank rate went up the Thursday after the free trade deal was signed. It started to climb and it has stayed climbing ever since then.
Ms Swift: Except for the last six to eight months or so. I do not subscribe to that kind of paranoia.
The Chair: I think I have one question left with Mr Mammoliti.
Mr Mammoliti: You mentioned earlier that in your opinion 95% of the public, I believe it was, know the damage they are doing to the economy by shopping across border. Do you believe that we can work on their guilt perhaps, somehow? Perhaps advertising of some sort may be a solution. I do not know.
Ms Swift: I do not think it is a bad idea to expand that awareness as reasonably as possible, but still and all, knowing human nature, you know the big picture but what you do is what you do. As I said, I have been amazed at the very negative mail and phone calls from consumers who have heard me say -- not necessarily that they are doing the wrong thing. You know what is motivating them and in many instances you have a lot of sympathy, because these are people who are out of jobs, who are operating on a fixed income if they are elderly, and so on. So you understand what is driving them to do it, but like I say, they get very mad at you for suggesting they are unpatriotic and that kind of thing, if that is the way they read it, and some have.
This sense of protest, "I'm not going to take it any more," is definitely out there in the consumer community.
Our retailers are hearing it, post-GST in particular. That was a real sort of lightning rod. Things were bad before then, things have been worse since and they are hearing: "I'm not paying the GST. I'm going across the border."
So I do not think increasing awareness is a bad idea at all, but I think people are aware, and the more you try to work on that guilt, I think they will just resent you, to be honest, rather than change their behaviour.
Mr Mammoliti: Thank you for answering that. Has it increased substantially since 1 January, since the GST has come in?
Ms Swift: We do not really know, because some of the data are a little slow to come. Interestingly enough, coming down here today I just took off the wire at the office, "Sales at department stores tumbled in February after falling sharply in January, Statistics Canada said." These are national figures.
Mr Mammoliti: I personally think it has.
Ms Swift: Gotten worse?
Mr Mammoliti: Gotten worse.
Ms Swift: I think it has too, on the basis of anecdotal evidence. I just do not have a nice neat figure that it has gotten X% more.
Mr Mammoliti: That brings me to my next point. You mentioned earlier that we should not be pointing the finger, and I really believe that we should.
Ms Swift: Okay, let's say, not exclusively point the finger.
Mr Mammoliti: Let me finish. I believe that we should be pointing the finger. I believe that we have touched on three or four different areas that pertain to the federal government and what it has done to make this problem worse. Interest rates, the federal cuts and taxes are just examples of what we talked about.
Ms Swift: That is fine. We know you are going to point fingers because you are politicians and that is what you do.
Mr Mammoliti: But at the same time --
Ms Swift: Exactly.
Mr Mammoliti: -- we do have to work together, and I am not convinced that the federal government wants to work with us. I am not convinced of that.
Ms Swift: In what respect? How do you mean? In harmonizing the GST with the PST?
Mr Mammoliti: No, in anything. Let's take the federal budget, for instance, and all the cuts that they have made. That proves to me they do not want to work together with us.
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Ms Swift: We do not say the political challenge is a small one, and we are very critical of what the federal government is doing too, as you probably know. That is fine. I guess what we see, and what our members certainly see -- because they are the ones who are losing their homes and their businesses and something they have worked on for 20 or 30 or whatever years -- is a lot of politicians pointing fingers with a lot of political rhetoric. No one is without sin in this particular area and in the whole broad area of economic policy. So pointing fingers is fine, but let us not do that exclusively.
Mr Mammoliti: It is just a comment, that is all. You mentioned it and I just threw that out because I feel guilty not pointing fingers.
Ms Swift: We would never want that to happen and we would never expect people not to point fingers.
Mr Sorbara: Just one final comment, Mr Chairman, because I am just sitting in on this committee. If our guests and our witnesses care to comment after, I would appreciate that. I have appreciated their testimony so far.
It arises from the comments that you were making, Mr
Chairman, about that manufacturer who is a subsidiary. I think you are right, and increasingly with the free trade agreement there is, among trans-nationals, going to be a dramatic rationalization of one North American market. It may be that a Canadian branch of that trans-national has an opportunity to bid on supplying an identified portion of that North American market, but it may well be that the subsidiary or component of the company does not get an opportunity to bid. I think the unfortunate reality of the free trade agreement that we are saddled with now is that the opportunity to bid and to participate in supplying the North American market will be based on competitiveness; and in a market that has in one jurisdiction 26 million people and in another market 250 million people, we are going to have to look at issues on competitiveness.
That comes right down to the question of cross-border shopping, to the extent that the indicia of competitiveness are way out of whack. The problem of having to stop and talk to a customs official is not going to be a significant impediment to the decisions that consumers make, and cleanliness and security are going to be minor issues; but the harmonization of hours, the harmonization of standards are things that we are going to have to be confronted with.
It was, I think, central to the free trade debate when it was going on in Ontario and Canada that our social standards would be threatened, and we are going to see that happening; and our safety nets were going to be threatened, and we are going to see that happen, because in some respects there is a growing concern and growing belief that we cannot afford them any more because our very economy is threatened. I do not have any answer to that other than, on the issue of cross-border shopping, I think it is crucial that we start looking at reasonable standards, given the marketplace that we really are in.
Ms M. Ward: In terms of taxation, I am looking at your charts here and I think one of the things that the Fair Tax Commission will be looking at is different types of taxation and what is funding what. It seems to me that a shift from local municipal taxes to income -- you know, a buck is a buck -- would certainly be very beneficial to small business. Overall, you cannot expect to change the picture as a whole, because you cannot reduce the amount of money, but would you agree that it would be beneficial to small businesses?
Ms Swift: Yes, that is the main point we found in our research, that really the main reason small businesses ended up paying a higher dollar overall in taxes was that they had this higher component of income-insensitive taxes, in both local property taxes and payroll taxes. It does not matter if you are not making money. You do not pay income taxes but you sure pay all those other taxes. There is this stable chunk. Now, mind you, that is why governments like them, because you can forecast the income stream. Why do you think the GST has so much appeal? It is hard to escape paying it. That is the same thing with payroll taxes. So from a government perspective, naturally, the downside is that in a downturn you get much more of a hit on your revenues. Mind you, in the final analysis, do you want businesses around? Presumably, in the long term, it is more desirable to have a functioning economy than the dips in the recession of tax revenues.
The Chair: Thank you for your presentation this afternoon and your comments. The committee is adjourned till next Thursday.
The committee adjourned at 1746.