Legislative Assembly of Ontario

PRE-BUDGET CONSULTATIONS
ONTARIO NATURAL GAS ASSOCIATION

CREDIT UNION CENTRAL OF ONTARIO LTD

ATTRACTIONS ONTARIO

CANADIAN BANKERS' ASSOCIATION

AFTERNOON SITTING

CONTENTS

Monday 4 February 1991

Pre-budget consultations

Ontario Natural Gas Association

Credit Union Central of Ontario Ltd

Attractions Ontario

Canadian Bankers' Association

Afternoon sitting

Adjournment

STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS

Chair: Wiseman, Jim (Durham West NDP)

Vice-Chair: Hansen, Ron (Lincoln 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)

Sutherland, Kimble (Oxford NDP)

Ward, Brad (Brantford NDP)

Ward, Margery (Don Mills NDP)

Substitution: Elston, Murray J. (Bruce 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 1007 in committee room 2.

PRE-BUDGET CONSULTATIONS
ONTARIO NATURAL GAS ASSOCIATION

The Chair: I think we should get a full morning of hearings and I see a quorum, so I would like to begin and welcome everyone here this morning. I would like to welcome the Ontario Natural Gas Association, Paul E. Pinning ton, president. If you could introduce your companions this morning, we will get under way. We would like to keep the time frame to half an hour, starting about now. You can begin your presentation.

Mr Pinnington: Thank you, Mr Chairman, and good morning to members of the committee. My name is Paul Pinnington and I am the president of the Ontario Natural Gas Association. To my immediate left is Mark Wolnik who is vice-president, operations, of Centra Gas Ontario. Mr Wolnik is also the chairman of the association. On my very far right is Carl D'Croix who is vice-president, administration, of Cliffside Utility Contractors Ltd, and to my immediate right is Brian Gabel, chairman of the association's finance and operating committee. Mr Gabel is also comptroller of Union Gas in Chatham, Ontario.

We are pleased to be with you and thank you for the opportunity of being here this morning. This is the fifth occasion that we have made presentations to this committee.

On behalf of the members of the association, we have prepared a brief entitled Policies to Strengthen the Ontario Economy 1991, and this text has been distributed to all members of the committee. Mr Gabel has prepared an overview of the brief, which he will take us through, and I assume it will probably take 18 to 20 minutes.

Copies of the brief have been provided to all committee members and with your concurrence, Mr Chairman, I would propose that my colleagues and I respond to questions on conclusion of Mr Gabel's presentation. The brief, along with Mr Gabel's comments have been provided to the clerk and a copy to Hansard. Additional copies of the brief are available to interested parties. With your permission, Mr Chairman, I would ask Mr Gabel to proceed.

Mr Gabel: Mr Chairman, members of the committee, thank you very much for this opportunity to speak with you today about Ontario's financial and economic affairs. The current economic and fiscal situation lends special significance to your pre-budget consultations this year. In our view, the 1991 Ontario budget will be one of the most important in recent history. We feel confident that the Treasurer will pay close attention to the committee's findings and recommendations.

The Ontario Natural Gas Association is the voice of the natural gas industry within Ontario. It has over 300 member companies and individuals, including gas producers and marketers, as well as transmission and distribution companies, equipment manufacturers, buyers, professional organizations and contractors. If we consider the four major gas utilities alone, members have in excess of $6 billion invested in the province. They employ over 7,000 persons, serve more than 1.8 million customers and pay taxes that approach $200 million. Our association has a vital interest in the economic wellbeing of the province.

We have forwarded to this committee and to the Ontario Treasurer a written report entitled Policies to Strengthen the Ontario Economy 1991. We will today endeavour to provide a brief overview of that report and the recommendations it contains. Our presentation will be dealing with four main topic areas: the economic outlook, the fiscal realities this government currently faces, the issue of the current tax burden and tax reform, and economic issues related to energy. I will recap our recommendations at the conclusion of the presentation.

Let me turn first to the economy. The economic outlook for 1991 is at present not terrific. The Canadian and Ontario economies are in a recession and a turnaround may not be expected until the end of 1991 or into 1992. Our economic woes are compounded by a recession in the United States, high interest rates and a high Canadian dollar. The conflict in the Middle East adds to our economic malaise. Consumers in the business community lack confidence that a dramatic turnaround can occur in the near future.

It is not a favourable economic outlook at all. In fact, we believe the Ministry of Treasury and Economics' December 1990 forecast to be somewhat optimistic. The ministry's forecast presumes a real increase in economic activity within the province of one half of 1% in 1991 and an average of 2.9% in the three subsequent years. Recent comments by the Treasurer have suggested that a less optimistic outlook may in fact result. In view of the weak economic situation, our association recommends that the 1991 Ontario budget avoid measures that might further depress the business and consumer confidence within the province.

For the medium term, the outlook is also far from rosy. We expect that economic recovery when it comes will be less robust than in the 1982-89 period. We can expect that increases in unemployment will take place before the recovery begins. There are two main reasons why the economy will be slow to rebound. First, consumers have relatively less capacity to spend than they had in 1982. Second, the deficit position that governments presently face hampers their ability to put forward new initiatives.

This slide shows the change in Canadian consumers' capacity to spend relative to 1982. You will note that in almost all cases -- in fact, in all cases -- there are fewer dollars to work with. That is showing the disposable income for Canadians that is taken up with various fixed expenses, such as mortgage debt, other forms of debt and income taxes and other taxes. So it is saying 50% of a consumer's income is taken by servicing his mortgage debt.

The Chair: They do not add up 100.

Mr Gabel: No, there will be other things.

Mr Phillips: I guess I do not understand that chart. Mortgages are 50% of income?

Mr Gabel: After taxes, yes.

Mr Phillips: And the other debts?

Mr Gabel: Other debts, such as car loans, credit cards, whatever else. Statistics Canada provides this kind of information on a regular basis.

Given the fiscal circumstances of government and the financial capacity of consumers, there seems little chance that we can spend our way back to prosperity. The greatest potential for stimulating an economic turnaround lies with the business community. If the confidence of the business community can be bolstered, then business activity will increase, boosting employment and incomes. Part of that increase in business activity will come from rising exports, once interest rates and the external value of the Canadian dollar are allowed to decline to lower levels.

Accordingly, as this slide shows, the association recommends that the 1991 Ontario budget contain no net tax increases and should convey a strong message of confidence in the business sector.

There is need for fundamental change in approach and attitudes if Ontario is to stay competitive in the global economy of the future. Our ability to compete and to raise our standard of living will depend to a large extent on our ability to improve productivity.

Our submission discusses the need for new problem solving mechanisms. For example. we must find new ways to communicate and co-operate in the areas of worker training and technology advancement. In that regard, programs like the new Canadian Labour Force Development Board present a new opportunity.

Mr Elston: Can I ask a question?

Mr Gabel: Yes.

Mr Elston: You just make the statement that wealth will be increased by productivity. Is that right?

Mr Gabel: Yes.

Mr Elston: Wealth from what?

Mr Gabel: In terms of gross domestic product.

Mr Elston: Yes, I know, but wealth has to come from someplace, I do not care whether it is stated in the GDP or whatever it is called. Where are you looking at this wealth arising from? What sectors are you looking at as creating the wealth?

Mr Gabel: As a general statement, I think what we are saying is that whatever industries Ontario leans towards in future years are going to have to be competitive on a global scale. In order to be competitive on a global scale, the net outputs that are achieved per unit of input are going to have to be greater than competitor nations.

Mr Elston: But are you suggesting that we in Ontario might very well choose the areas that we want to highlight for the creation of that wealth or are you just merely making the statement, "Wealth comes from better productivity"? That seems to me to be fairly self-explanatory, but --

Mr Gabel: I think both really. If we look, for example, at Michael Porter's work on the area of productivity of nations, and I think he has a book out dealing with that particular topic, he suggests that nations and provinces should not be looking to specialize in all things. You cannot be all things to all people any more than you or I, as individuals, can be all things to all people. We have to concentrate in the areas that we can do best, where we can add the maximum value. His proposition, and I think it is a logical proposition, is that by doing so you create the greatest wealth, not just for the companies but for the individual workers, because you are able to afford to pay them the maximum dollar for their labour input.

Mr Elston: So would part of your submission to the Treasurer, since he is asking for long-term as well as short term advice, be that he highlight or isolate certain sectors of the provincial wealth in which to increase productivity?

Mr Gabel: Absolutely. I think there are certain areas where we can have a bigger bang for the buck.

Mr Elston: Does that come up later in your presentation? Am I getting ahead of myself just asking these questions?

Mr Gabel: No, I think in terms of trying to isolate what the particular industries are where we might achieve the greatest returns, we have not tried to do that in our proposal. There are other people who have tried to do that. I think the Economic Council of Canada has tried to put forward some suggestions in that regard.

As I recall, the Premier's Council was moving in that direction as well, that is, the Ontario Premier's Council. So there are other people who are doing that kind of work for us. All we are saying is that we have to follow up on that work and try to make some definitive policy statements.

Mr Elston: So you are endorsing that activity then by the current administration.

Mr Gabel: Our recommendations in this area are two. First, as shown on this slide, we recommend that the standing committee review the findings and recommendations of the Economic Council of Canada on skills training and the proposed mandate and funding of the Canadian Labour Force Development Board for their implications for Ontario.

Second, we suggest that in 1991 the government of Ontario convene a trilevel intergovernmental conference with private sector participation to identify the issues and priorities and potential mechanisms for improved problem solving. Examples of issues they may wish to discuss are waste reduction and disposal alternatives and the economic consequences of public sector spending.

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Now I would like to turn to the fiscal realities that we all must face in the very difficult economy of today. We have, as the Treasurer has noted on a few occasions, a significant budget deficit. The 1980s was an era of very substantial tax increases. These tax increases financed dramatically increased government spending. Pressures for further spending continue, despite the size of the current deficit and the weak economy. It is a very difficult circumstance for a government and its constituents to face, but face it we must.

Based on the Ministry of Treasury and Economics' medium-term economic projections, ONGA estimates that if expenditures continue to grow at the rate experienced over the past decade and if taxes are not increased, the deficit could reach almost $12 billion in just four years' time. There is clearly a need for some restraint.

Mr Phillips: That is with the assumption that the GDP will grow at the rate the Treasury said it would grow?

Mr Gabel: That is correct.

Mrs Sullivan: With no added revenue or expenditure moves.

Mr Gabel: With the inflation and revenue at 90% of the GDP growth.

The Chair: Could I recommend that we go back to the format? I will take names and we will have the questions at the end in order, please.

Mr Gabel: Thank you. Ontario simply cannot afford another decade of successive tax increases. Accordingly, we recommend that the standing committee advise the Treasurer that assuming no tax increases, the expenditure growth rate over the medium term must be held in the region of 7% per annum simply to hold the deficit in the $2-billion range and that to balance the budget would require a growth rate in the 6% per annum range.

Mr Chairman, it should be noted that a 6% expenditure growth rate allows for approximately a 2% annual increase in real spending if inflation averages 4.1%, as forecast by the Ministry of Treasury and Economics.

Continuing on the topic of taxes, the tax burden in Ontario increases every year. When we reported to you one year ago, we estimated that the cumulative effect of provincial tax increases during the 1980s was to increase budget revenues in the fiscal 1989-90 period by as much as $7 billion, when compared to revenues that would have been taken had no tax increases been imposed.

During the 1980s, local governments also increased their tax revenues and the federal government has implemented tax reform. These changes in tax levels also impact on Ontario residents. It is certainly an appropriate time for a study of taxation in Ontario by the proposed Fair Tax Commission.

We recommend that the mandate of the Fair Tax Commission be decided and announced as soon as possible and that the commission address, in addition to equity issues, the equally important issues bearing on tax efficiency and simplicity and the impact of tax reform on economic growth and productivity.

We also recommend that for sales tax reform the government consider changes that would simplify tax compliance for Ontario residents and reduce tax administration costs for taxpayers and for governments.

Our final topic for discussion this morning is energy. Ontario accounts for one third of Canada's energy requirements. Our sources of end-use energy are diversified; however, steps must be taken to improve our energy security. We depend on oil for almost 40% of our energy needs and on electricity for another 20%. There are risks related to the supply of these two sources of energy, which account for almost 60% of our total end-use energy requirements. The Gulf war, for example, suggests that it would be prudent to reduce our dependency on oil. Moreover, Ontario Hydro has determined that the province faces the prospect of near-term electricity supply shortages. Natural gas and proven natural gas technologies are a viable alternative to oil, coal and, to some extent, electricity.

As I started to mention previously, Ontario Hydro's 25-year demand-supply plan indicates that even after exploiting the potential for electricity conservation, Ontario faces electricity supply shortages within this decade. The Environmental Assessment Board hearing will be assessing the requirements and rationale for new demand-supply options, including natural gas options, that have been identified by Ontario Hydro. Our association will be participating in a focused manner at this hearing.

We do have concerns, however, with the pace at which the adoption of these new electrical generation options might proceed. The Environmental Assessment Board hearing could take up to three years. For that reason, we recommend that the government take interim steps, as necessary, to ensure the timely development of parallel generation and to support Hydro in the timely integration of natural gas into Hydro thermal plants and also to encourage the economic substitution of natural gas for electricity, wherever appropriate.

One last energy topic is natural gas for vehicles, of which we have spoken to this committee in our prior presentations.

Natural gas for vehicles remains an important new market for the natural gas industry in Ontario, and member utilities have certainly been pursuing that opportunity. In excess of 8,500 Ontario vehicles are currently operating on natural gas and there are more than 40 natural gas refuelling stations within the province. We now have transit buses that run on natural gas and can refuel in seven minutes and operate for 19 to 20 hours before they are again refuel led.

It is, in our view, a market with tremendous potential, for more than $200 million of industry investment may be expended by the year 2000. If those investment levels are achieved, we might expect 400 million litres of gasoline to be displaced on an annual basis. As I said, it is a market with potential, but it is still a market that is in its infancy.

ONGA recommends that the existing NGV incentives be maintained to improve energy efficiency and energy security, to lower emissions and to provide necessary support to the NGV industry while it is still being established. and that the standing committee support this position.

To recap, we, as an association and as Ontarians, are concerned that the economic recovery may not begin in Ontario until late 1991 or early 1992, and that over the medium term economic growth may be modest when compared to the post 1981-82 period.

We are also concerned that for Ontario to compete in the global economy we must have measures implemented that allow us to improve our skills training and boost the productivity of industry.

At the same time, however, we have a concern that Ontario's fiscal situation requires a firm de-escalation of the expenditure growth rate. There is simply no room for another round of tax increases. There are, however, some opportunities for greater efficiencies at all levels. In that regard, we encourage greater co-operation among all three levels of government and between the governments and the private sector in order to jointly identify key issues and develop new mechanisms for problem solving.

Last, energy security is vital to Ontario, and demand for electricity will track higher as the economy strengthens. The government has to take interim steps as necessary, to ensure that the Environmental Assessment Board hearing on Hydro's demand-supply plan does not delay unduly the implementation of essential and viable demand supply options. We also encourage your continued support for the natural gas for vehicles program. We hope you will take account of these recommendations in your report to the Ontario Treasurer.

Mr Phillips: Thank you very much for a very thoughtful presentation. A lot of work, I know, went into it.

On one observation somewhere in here about an imbalance of revenue and expenditures: Just to remind you, there was a surplus last year, and I think any reasonable person would say there would have been a surplus this year had we not run into a tough recession. Revenues, in spite of that, will be within 1% of what was estimated a year ago for this fiscal year. I suspect many of your businesses would like to be within 1% of their revenues, as we are now.

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My question, though, really is just around the deficit. The fact of the matter is that an election was held just a few months ago. The new government was elected on the basis of not restraining spending but rather of implementing certain programs. Recognizing that reality -- your advice, I know, is to raise no taxes -- assuming that it is going to be difficult to restrain the spending in your line, would you still say no taxes and just let the deficit rise?

Mr Gabel: I think what we are saying is that expenditures have been rising at the rate of a little in excess of 10% per year in recent years. That is obviously a good deal in excess of what inflation has been running. We think the economy has reached the state where there is rather limited prospects to collect more taxes, and that there has to be every effort taken to reduce expenditures rather than to merely continue on an upward trend. I appreciate that may be more easily said than done.

Mr Phillips: It is having just gone through an election when the people spoke, and the agenda on which the party that won ran said, "Listen, there's a recession but we still are going to spend this money." I think it is going to be a little difficult for the government to implement your proposals. That is all.

Mr Pinnington: I guess the decision regarding what the government will spend we will not know until we see the budget. So to some extent, it is not appropriate for us to comment on what was said prior to an election.

Mr Phillips: I appreciate, as I say, a very thoughtful and I think extremely useful presentation. I am just trying to condition ourselves to reality.

Mr Pinnington: We recognize that the reality is extremely difficult, to curtail spending. The other side of the coin, of course, is the kinds of deficits that are projected here and they clearly could be extremely damaging.

Mr Phillips: Well, we never got our message out, I guess.

Mr Hansen: One slide there says, "Potential Ontario budget deficits: 1990-91." I notice 2.5, and I see that scary figure at the end in 1994-95 at 11.8. Could I get a comment on the source of this and the research gone into this? I thought when I was listening to the Ontario Natural Gas Association I would be hearing more about natural gas. I did not expect to be hearing more of a banker's report.

Mr Gabel: We provide some information respecting that in our report, which is the blue document that would have gone out a little while ago. There is a chart that is included there at page 27. Perhaps I will give you the brief overview of it.

What we have tried to use is the Treasury and Economics forecast as to GDP growth over the forecast period out to 1995, as well as the trend as to expenditure growth in recent years, which is an increase in expenditure growth of some 10.4% per year on average. We then have just inflated the revenues, which are from the Treasury department, and the expenditures, which are from the Treasury department, by those respective inflation rates, being the GDP growth and the expenditure growth rate.

It is not meant to necessarily be Treasury and Economics's forecast of what the future would be as much as saying here is what its forecast of revenue growth would be if we take past experience in terms of expenditure growth, and this is the kind of situation you are going to be facing four years down the road.

Mrs Sullivan: I wanted to move to the energy section of your report. Like my colleague, I think this report has been very well done.

I am looking at your conclusion that there may be electricity shortages in the 1990s. You see an increased role for natural gas. I wonder if you would comment on the availability of supply, including measures that may be taken by the provincial government or required by the provincial government in terms of pipeline activity and the kinds of costs that might be needed. I also look to page 6, the possibility of need for interim measures re the DSPS. I wonder what kind of interim measures you mean. Do you mean provincial incentives for co-generation?

Mr Pinnington: I will have a go at responding to those questions directly. I could speak for half an hour on these issues.

Recognizing that we are running close, let me tell you that in terms of the supply of natural gas, it is an abundant resource in Canada. In the western sedimentary basin -- Saskatchewan, Alberta and British Columbia -- the known reserves of natural gas are in the area of 90 trillion cubic feet. In terms of Canadian consumption, we are looking at 30 years-plus, in terms of a life index. There are very substantial additional quantities of gas known to be there that could be available, as the price of gas would increase. We do not see any problem in terms of an abundant supply and competitive price of natural gas.

Pipelines we view as a mechanical proposition. Given the need for a pipeline, the financing for a pipeline, we can put a major pipeline addition in place within a couple of years; 24 to 30 months is the time horizon, for example, quoted by TransCanada Pipe Lines.

With regard to the demand-supply plan itself and the interim measures, Hydro's demand-supply plan, as you know, had an emphasis for the addition of nuclear capacity. The timing of that capacity was seen to be 12 to 15 years out, going through the whole planning process until you had the capacity in place, but clearly the demand data, the statistics that are provided, indicate that power will be required in the interim. It is in that interim period that natural gas could provide significant quantities of power. A high-efficiency, natural gas, electric-power generation facility could probably be put in, say, in a matter of two to three years. The technologies are relatively simple, off the shelf. We can produce electric power as efficiently as over 80% using co-generation, which is a term you have, I am sure, heard of from time to time. Of course, there are immense environmental benefits to be had in using that technology, as well.

There are also other things in an interim way. There is still a fair amount of electricity used in heating homes, which we think is an inappropriate use. We have been working with Hydro, and it indeed is responding to reduce the power used in electric heating, in the heating of hot water. There are still many homes that use electricity to heat hot water, and of course we believe that an inefficient use of electric power as well.

Mrs Sullivan: I guess I was really wondering about government incentives for co-generation. Are they necessary to meet that interim supply need?

Mr Pinnington: The position we have taken in the past is that this industry should not be looking for incentives in terms of financial incentives. I would like to make that very clear. What we are looking for from this government is clear policy statements indicating how these energy forms are best used; legislation and regulation that would ensure there is a proper use of energy. But the natural gas industry has not asked for financial incentives.

There is one area that we have concentrated on recently: buy back rates for co-generation. We would look for guidance from the government and assistance in terms of establishing reasonable buy back rates on the part of Ontario Hydro.

Mr Wolnik: I might just add to that, the availability of technology to make co-generation is real, the use of natural gas in vehicles is real, and the use of higher-efficiency equipment for space heating is here, it is proven. So it is not a matter of going out to develop this technology. It is being used, it is here. It is just a matter of getting the kind of buy back rate for co-generation that will make this happen. I think that is the kind of thing this committee can help with.

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Mr Elston: Just one comment about the energy section of your paper: You mentioned that natural gas could be a good alternative, but there are large parts of the province for which there is no option towards natural gas. I moved from one part of Ontario, Wingham -- northern Huron county, which is not served at all. Happily, I moved to Walkerton, where we do have Union Gas supply. I am a monthly cheque writer, or at least either myself or my spouse is. But there are large parts of the rest of Bruce county which are not served and for which there is no alternative, so we continue to heat the water with electricity and otherwise. What do you do for those people who do not have any choice? Obviously, you do not want to give away the money by putting in a pipeline until you are guaranteed a big user at the far end of it.

Mr Pinnington: Any time a utility puts a new piece of pipe in the ground, for example, to serve Wingham or the peninsula area, it must appear before the Ontario Energy Board and prove that the pipeline is cost justified. There have been programs; the distribution system expansion program that the federal government initiated some years back, where there was some subsidy, put natural gas into many, many communities.

There is now discussion going on with the Ministry of Energy and with Ontario Hydro and before the Ontario Energy Board to re-examine some of these areas that are marginal even now, to see if we cannot find ways to cost justify their number. Chalk River is one, Parry Sound, I think, is another. There is quite a number of areas we would very much like to get to.

In response to a question Mrs Sullivan asked, there is reason to believe that possibly between Ontario Hydro and the natural gas industry there may be some opportunity to find the funding for those pipelines that would be seen to be reducing the need for electricity. So we are attempting every reasonable creative activity we can to get gas to as many people as we can.

Mr Elston: You will probably agree, however, as the economy closes many plants permanently in some of these places -- Wingham, for instance, just found out that one of its two door factories will be closed permanently as of April 1991. Stanley Door is done, Premdor is basically done, Royal Homes has closed down at least until March; we will find out what happens in the spring there. Would it be rational to assume that if all those plants are closing down and there is not a large industrial user, it would be less likely that you would be able to prove the economic utility of going in?

Mr Pinnington: There is no question, the smaller the load in any given area the more difficult it is to justify the pipe. The problem you mention is, I think, a very important one to this province and one we should be looking at very carefully. We are very much aware of the closing of these facilities.

Mr Elston: I got sidetracked a wee bit. I will look at a couple of areas on the report. There are two things. One is the comment about federal tax reform, which I am interested in, and the other is the issue of the first statement, which was a recommendation that the budget avoid measures that might further depress business and consumer confidence. I presume that basically means no increased spending, no increased taxes. Is that fair, to wrap it up in those two short words?

Mr Gabel: The absolute absence of tax increases or spending increases I am not sure would be absolutely essential. But certainly directionally, we have to be moving in that way. If you read the Economic Council of Canada document, which I think was its 27th annual review, it had a survey that had been done regarding consumer and business confidence levels and it really was a very grim report in terms of business confidence within the Canadian economy. I guess what we are trying to say is that we have to create a framework where we are saying that this is a good place to do business, that there are not going to be rude surprises, that we are going to be doing rational, thoughtful things that are creating a good environment for the long term health of the province. I think that is really what we are trying to get the most.

Mr Elston: But your report, basically, to us, has said that there should be no net new taxes.

Mr Gabel: We would certainly encourage that, yes.

Mr Elston: Of the items in the Agenda for People, which I am sure you have sort of taken a look at in general, which would you highlight for us as being the rational and the ones you would say are irrational, if I can put it in your own words? An Agenda for People was the framework around which the election was fought and won by the New Democratic Party. You said that as long as the government takes after expenditures which are considered to be rational and therefore makes us look like a reasonable place to do business, we will be happy. If that is the case, which of the items in An Agenda for People would you think might be rational? Is that being too precise?

Mr Pinnington: We do not have a copy of the Agenda for People.

Mr Elston: Okay, let's take a look at a couple of items.

Pay equity: an increase in pay equity; application to the people who are not already covered by the pay equity legislation. Is that rational or irrational?

Mr Pinnington: We are in the middle of pay equity activity, obviously, at this point in time and certainly the industry is very much in favour of equitable pay. I think one of the major questions is, how do you establish that? We are certainly struggling with those kinds of questions. I think there is probably another extremely important one, and this was mentioned in Mr Gabel's presentation. As you do these things you must remember that we have an extremely competitive environment that we are working in, not just provincially, not just nationally not just continentally but globally. You mentioned Stanley Door and some of these people heading out of this province. This is an extremely critical observation. I am sure wages and salaries are one of the elements of that decision-making process, so we stand for it in principle but we are concerned about some of the costs associated with it.

Mr Elston: What would you think of the wage protection fund which was promised in An Agenda for People? Is that a rational provision?

Mr Pinnington: I think we probably have not had an opportunity to consider that. I am not sure what our corporate position would be.

Mr Elston: I am only going through some of these items because as we give advice to the Treasurer, he is going to have to make choices. When business comes to us and says, "We want to be sure that business confidence is kept at a high level and that we don't depress consumer confidence and the whole works so that our economy continues," we have to understand the choices to be made by the Treasurer, at least provide him advice on those choices. If he should not choose to go with pay equity, that is some advice that may be of help to him from your perspective. It does not mean that he is going to have to go with it. Is it going to be rational to give 50% increases to nurses in the province, as the Premier has indicated there should be? Is that rational?

Mr B. Ward: Wait a minute now, 50%?

The Chair: Mr Elston, this is going on quite a bit of time. I do not really like to cut people off, but --

Mr Elston: You are going to cut me off.

The Chair: I would like you to wrap it up.

Mr Elston: Okay, I will go to the federal government tax reform issue. Do you characterize GST as tax reform? Is it not just tax substitution?

Mr Gabel: It is part of a tax reform plan. It is really a substitution of revenue sources.

Mr Elston: Okay, that is the first part. What is the rest of their tax reform plan?

Mr Gabel: The rest of the tax reform plan, as it was put into the legislation, over a period of time involved changes in taxation with regard to pensions and there was a whole host of other matters. This all took place several years ago and it has been implemented piecemeal over a period of time.

Mr Elston: Not all of it has; actually some of the plans came forward and were denied and turned down.

Mr Gabel: That is correct.

Mr Elston: The GST is the only part that has really come forward, I suspect, and it is really just a revenue substitution, in fact a revenue enhancer, is it not, instead of a tax reform?

Mr Gabel: My understanding is that over the long term it is a tax enhancer, yes.

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Mr Elston: Is there something here in Ontario that you believe should be done with tax reform that would be characterized similarly to the GST?

Mr Gabel: I think what we were maybe trying to focus on when we were talking about the issues of efficiency related to taxation was the potential for economies between all the levels of government. The federal government now has its own version of the sales tax; the provincial has its own version of the sales tax. The federal government has income taxes: the provincial government has income taxes. They all have their own administrative procedures, their own bureaucracy to support tax collection and administration. They have their own auditors. It just strikes us as being an opportunity where -- perhaps it is not going to work out entirely as efficiently as we would like -- there are some opportunities for there to be economies realized by trying to meld these systems together to the extent that we can.

Mr Elston: So you would like to see it rationalized in terms of collection.

Mr Gabel: I would expect that the entire process could be rationalized somewhat.

Mr Elston: I just want one more line on this. That has to do with municipal taxes. because you have highlighted those as being much too high as well. Are you advocating a change in the direction of revenues from municipal taxation in terms of the programs that they pay for now?

Mr Gabel: I do not think we are trying to focus on individual programs as much as we are saying that we have three levels of government that are all bordering on the same jurisdictions. In some cases the government at the federal level will have departments that are the same as departments that you have at the provincial level. You have municipalities that are involved as well in things like welfare. Each one of them is creating its decisions in isolation to an extent. We have to believe that there is, again, potential for greater efficiencies to the extent that there can be some commonality in terms of objectives. I am going to deal with this and you are going to deal with that, folks. So we are not going to try to cross boundaries.

Mr Elston: So the association would advocate a centralizing of the taxation authority and perhaps rationalization into one or two precise areas of that.

Mr Gabel: I am not necessarily saying a centralization of the tax authorities as much as let's try to co-operate to the extent that we can. folks, find a common ground, eliminate the duplication to the extent that we can.

Mr B. Ward: I will be fairly brief. I think just for the record, though, if Mr Elston was here when the ONA were here for their presentation, they in fact stated that that 50% was a misconception played up by the press and that that was not part of their demands, just for the record. I do not believe the Premier committed to 50%.

Mr Elston: Thanks, Brad.

Mr B. Ward: Just pick up the phone and call.

Just a question on your recommendations that there should be no increase in taxes, no increase other than the 6% in spending. That would suggest that you would be recommending we would be looking at spending priorities, spending efficiencies, programs that are existing that perhaps should not be. Is that what you envision?

Mr Gabel: That would be fair.

Mr B. Ward: I noticed in your blue-book brief, and you touched on it in the black book, you mentioned the natural gas vehicles program, yet I could not find how much of a tax subsidy overall the government gives to that initiative. There can be no denying that your industry would benefit from this program, which is why you are recommending continuing it. Just so I have an understanding how much of a subsidy we are indirectly or directly giving your industry, do you have an overall tax expenditure figure for your industry if you include the NGV program? Because I could not find how much the overall program cost. You mentioned Alberta and the federal government.

Mr Gabel: I could not tell you what the number would be. What the NGV industry receives at the present time is I believe the forgiveness of the provincial sales tax on vehicle conversions.

Mr B. Ward: Up to $1,000.

Mr Gabel: Yes, up to $1,000.

Mr B. Ward: And waives provincial fuel taxes.

Mr Gabel: That is right.

Mr B. Ward: Is it possible we could get that from our Treasury, Mr Chairman, or is that something that --

Interjection.

Mr B. Ward: Thank you. So you did not actually have a total figure other than the specifics and a recommendation that we continue that subsidy.

Mr Pinnington: I am sure we have that data.

Mr B. Ward: If you can. just from your end. to see how it compares, I would appreciate that. It would help us to make the recommendations to the Treasury.

Mr Pinnington: I will commit to provide that information.

The Chair: On behalf of the committee. I would like to thank you for your presentation.

CREDIT UNION CENTRAL OF ONTARIO LTD

The Chair: Our next presenters are the Credit Union Central of Ontario Ltd; Warren Hanstead, director, and Bruce Neville, director. You could begin and perhaps you could introduce yourselves since there are more than two people there.

Ms Mac Donald: My name is Adelaide Mac Donald. I am general counsel for Credit Union Central of Ontario Ltd.

To my left is Warren Hanstead, who is a director of Credit Union Central of Ontario. He is also general manager of National Defence Credit Union Ltd in Ottawa. He is a former chairman of Credit Union Central of Ontario. Presently he is a director of Co-operative Trust Co of Canada. He is a former director of the Ontario Share and Deposit Insurance Corp and he is also a former director of our national organization, the Canadian Co-operative Credit Society.

To my right is Bruce Neville, who is also a director of Credit Union Central of Ontario Ltd. He is also president of the Workers Compensation Board Credit Union Ltd.

We are very pleased to have the opportunity to speak to your committee. Our brief includes some information about Credit Union Central, about credit unions. We also have included some notes on the economy which were prepared by our national organization and presented as part of the federal pre-budget consultation process. We have also included a few notes on some things which are credit union concerns that have implications for the budget.

Mr Hanstead will speak very briefly on what the credit union movement is, Mr Neville will speak on our role in the Ontario economy and then Mr Hanstead will briefly speak again on some budget implications. However, we would like to leave ample time for questions and we would be very pleased to answer any questions you may have.

Mr Hanstead: I think it should be clear that within our brief you do not see us make any recommendations. We do have a couple of concerns we wish to talk to afterwards.

We believe it is very important that the government of Ontario realize how large the credit union system is in this province and what implications there can be on any program you do put into effect or cancel. I will just briefly go through what is the credit union system in Ontario, how large we are and, as I said, Mr Neville will follow after me.

Actually, the Credit Union Central of Ontario is the provincial organization. It is the financial service and trade association for about 600 credit unions in Ontario. There are about 1.3 million members of credit unions that belong to Central. Central is owned and controlled by its member credit unions. Membership is not mandatory, but the vast majority of credit unions in Ontario are members. I think around 61% belong to our central, then we have another 25% that belong to two French centrals, so the organized movement in the province of Ontario is about 85% within three centrals.

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The Credit Union Central is governed by an 18-member board of directors and the current chairman is Mr Carl Zawadzki, a director of Family Savings and Credit Union in St Catharines, and Mr Ed Grad is our chief executive officer. It should be noted that the credit union directors are elected at our annual meeting each March and they come from all parts of the province, from different types of credit unions and different sizes of credit unions.

The Credit Union Central of Ontario employs 230 people, has assets of $1.2 billion and had a net income in 1989 of $6.7 million. The 586 member credit unions provided financial services to 1.3 million members, have approximately $7.4 billion in assets, employ approximately 3,000 people full-time and 1,200 part-time across the province, and have nearly 9,000 volunteers.

I think it should be noted that the number of outlets for credit unions to serve people combined is larger than any of the major chartered banks. The credit union system as a whole has the largest distribution of outlets in the province.

If we want to talk about not just the credit union system in Ontario or the central but also the Ontario movement -- the combined movement in the province of Ontario has $10.2 billion in assets -- we have 2 million members, there are 5,000 full-time and part-time employees.

The roots of the Ontario credit union system are found in the mid-19th century in Europe, where farmers pooled their savings in credit societies in order to assist those of their number who were on their own financially unable to invest in land, livestock and equipment. A similar concern for the financial difficulties of the poor led to the establishment of Canada's first credit union in 1900 in Lévis, Quebec. The Ontario credit union movement consists of people who have joined co-operatively to pool their savings. Credit unions make loans to their members at favourable rates, provide other financial services of interest to their members and return net earnings to their members in the form of dividends and interest rebates on loans.

I just got my coat tugged here. I have a tendency, when I am reading a speech, to go faster than I should. In fact, I always get tugged at the union meeting for doing the same thing. So you can always take your tape and slow it down later on.

Each credit union is locally owned and democratically controlled by its members, who are associated by a common ethnic, religious, occupational or community bond. Examples of credit unions falling into these categories are Ukrainian Credit Union Ltd, Catholic Parishes of Peel Credit Union Ltd, Provincial Civil Servants O.R. Credit Union Ltd, Auto Workers (Oshawa) Credit Union Ltd and Hamilton Community Credit Union Ltd. Local ownership, democratic control and a common bond of association, which are the characteristic elements of the Ontario credit union movement, lead members to identify closely with their respective credit unions.

I have a total of five more minutes so we do this democratically and we understand your problem and Bruce is more long-winded than I am. So what I will do is get Bruce to speak at this time and he can carry on.

Mr Neville: And then I will get kicked.

Leading into the economic impact, to re-emphasize, we are self-help financial institutions serving 1.1 million members in Ontario over the age of 18. We are member owned- and -controlled and we help communities; we help people in communities. We are community-oriented, we support and finance community projects such as non-profit housing through our local credit unions, and if there is a project in an area that is too large for the local credit union to handle, then Credit Union Central syndicates loans and it is handled through Credit Union Central.

We are in all areas of the province, as Warren says, and we have gone into some areas after the banks have pulled out so that we can service the members in that area. We are sensitive to our members' needs, particularly during economic downturns. The local economy in the area, the local economic outlook, impacts the credit unions which, as we said, are localized financial institutions. We help our members get through the tough times such as during layoffs that will occur now. Credit Union Central will provide increased lines of credit to the credit unions in the areas to help when members draw down on their savings, and they are drawing down on them faster than the other members in the community are repaying their loans.

I guess we should tell you that our system is consolidating and that we are in the process of developing a common vision that will allow the system to really unify and work towards a common vision in Ontario. We are working to get our message out and we want to bring our message before this committee. We are innovators in financial institutions. We are the ones that brought you daily-interest savings accounts first and the banks copied. We brought you the weekly payment mortgages. We brought you the debit cards and we brought you the automated teller machines. Because of it and because they were so successful, they were copied by the other financial institutions. I guess I will leave it at that.

Ms Mac Donald: Warren is going to speak on some of the budget implications of credit union concerns.

Mr Hanstead: One of the major items that we have been into discussion with, and Mr Elston was well aware of it in his past role, is that we were trying to work with the Ontario Share and Deposit Insurance Corp and other credit unions to finally put away under wraps the problems that stem from the early 1980s, the very high interest rates and depression which caused the credit union system of Ontario to have some problems within its own ranks.

To date, the credit union system has funded that itself. There is a large outstanding obligation that the system is also prepared to look after. However, we feel that sometimes it might be a little bit too much for one organization to carry and we were talking about approaches to the government for some $28 million of funding to help offset some of those costs. That is only $28 million out of something like $112 million or $115 million of deficits that have to be looked after. The credit union system would be paying the balance.

With the change of government and change of people in different spots, we are not sure where this is going. We do not want it to be lost or left under the table. As I said, we are prepared to do our share, but when we take a look back at the deposit insurance corporation, it has been a few years since we have had any direct impact as to how it is managed and operated, and although we are required to pick up some 60% of the bill, we did not have any democratic process.

There were opportunities for appointments of director of that corporation that could look after the central, but for whatever reason that was not taken and done. Therefore, for probably six or seven years we feel that not having an opportunity for input, and the expertise that the central has and its members have, to ask for some government assistance in retiring this obligation so that we can continue to build and go on into the future is very important. The other thing is that we pay all those premiums ourselves and it goes directly to the credit unions.

Another item we understand you are talking about is payroll deductions for civil service employees and there is some talk that maybe this will not be available. This is very important to the credit union system, not only provincially but federally, and managing a federal credit union, there was talk of that there as well at one time, but we think that is an excellent way for people to save. We think it is an excellent way to look after obligations. Somebody gave statistics on mortgage loans, what percentage has to be used each month. We find that payroll deductions are just a great way for our members to look after their obligations and we would not want to see anything done to cancel that, at least without an opportunity to make representation to the government.

Those are two of the major items. One thing I think you also have to understand is that when we talk about locations and implications of taxes, when you have the number of locations that we do have in the province of Ontario, anything that impacts even down to municipal taxes has an impact on our bottom line so that even the health tax that was put on -- when you look at the number of employees we have who used to be paid for by the employees and ourselves, 50-50, in some cases is now 100% paid by the employer. I think the gist of our whole brief and discussions is that we are much larger than a lot of people in this province believe we are and we have more to do, but we need to have discussions with the government and not be forgotten.

We had an opening of a building not too long ago in Mississauga and Mayor Hazel McCallion made a comment about how she did not need to borrow any money from the system, that Mississauga was in a positive position. One of the members of the government who was cutting the ribbon responded, "Well, Hazel, maybe you can put some deposits in the credit union system." Perhaps we could suggest to the provincial government as well, that if you have some loose cash laying around for a period of time from time to time we would be glad to take it off your hands and pay you a fair return. This gives a chance to bid on it and we would be pleased to serve you.

Ms Mac Donald: That completes our presentation and we would be very pleased to answer questions.

Mrs Sullivan: I wonder if you could review in some more detail the stabilization and rehabilitation services that are required. Given that the major part of your problem occurred during the recessionary period and the period of high interest rates, what do you see in the future as a result of this particular recession and continuing high interest rates?

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Mr Hanstead: On the stabilization and rehabilitation right now, the credit union system has really done an awful lot over the last 10 years to straighten out its affairs and those that were not doing as well as the others. I would suggest we are probably coming near the end of it, but we are going to have to do some maintenance and look after things in that way. We have some outstanding obligations with some credit unions that just cannot recover on their own and they are going to have to be helped by the total picture. As far as that part goes, we think that is basically under control and our major concerns of the past are looked after.

How are we doing now? What we have learned from 1980, 1981 and 1982 is to be better managers. I think anybody who goes through a difficult time learns to be a better manager. The programs we put into effect across the province for matching our assets and liabilities, building reserves -- which I have found very strong over the last couple of years -- etc, have enabled us to put into place that which has to be in order not to have the problems we had in the past.

I am not saying that we are not going to have a bad problem from now to now. I do not think any financial institution can get away from that. Even with your major chartered banks, once in a while you hear that a branch here or a branch there is not working very well and they close it up as it is. What happens with those institutions is that if something happens within one of the major chartered banks, it never really shows up directly on the bottom line because it is just a part of a branch system.

However, within the credit union system, because we are individually chartered with different bonds of association, if one of them happens to have a problem it becomes very knowledgeable. I think we can take the Toronto Board of Education Staff Credit Union from a few years ago that got off to the side and started to build its own Las Vegas in northern Ontario. They say those things might happen from time to time, but we feel very confident that with the risk management programs and with the stabilization programs in effect, this present recession will not have an adverse affect on us unless you tax us too much.

Mrs Sullivan: What is the current relationship with OSDIC?

Mr Hanstead: OSDIC is a separate government agency. It is the deposit insurer. I think there is one representative from the Fédération des caisses populaires on that board. That is independent of the credit union system. That is one reason why we said that we should have some help with this, because we have not had any input into it. It has been run on its own and very independent of the credit union system. It has been more of a policing and repair depot than what we think it should be: stabilization and rehabilitation. Stabilization and rehabilitation starts long before there is a problem. It starts in the training of the staff, the education programs you have, the courses and everything else like that allows us to train the people in some of the credit unions so they can manage properly.

Ms Mac Donald: I think the shareholders of OSDIC are credit unions, and normally in other corporations shareholders have the right to elect the board of directors. However, with OSDIC the board is appointed by cabinet, by the Lieutenant Governor in Council. So while credit unions have the responsibility for paying OSDIC's bills, they do not really have the opportunity to say how, or manage how, OSDIC conducts its business. There is the right under the act for Credit Union Central, for instance, to have one of its nominees appointed to the board. However, as Warren mentioned, the government has not appointed central's nominee for a good number of years.

Mr Neville: Just in response to your question on what we expect to happen during this recession, I think it is important to note that when the deficits did occur in the credit union the reserve levels legislated at that time were 1%, and now it is on a schedule to get them all to 5% by 1997. Right now within the system, the average reserve level is approaching 3% and 250 out of the close to 1,600 credit unions are at 5% or better in reserves. So we do not expect it to have the same impact.

Mr Hanstead: In fact back in 1981, if I have the right year, the net reserve position on the system of Ontario for the credit unions was a negative position. We came back basically on our own from a negative position to close to 3% reserves and scheduling 4% to 5%.

Mr Phillips: I am just chuckling to myself about that Toronto credit union because during the election one of those principals rolled his window down as I was campaigning and yelled he would not support me and had told all his friends not to, because I would not give him a big hand on getting a licence again, I guess.

My question really is whether the credit unions have kind of a perspective on the economy. We have had quite a number of groups before you, I think most have felt that come the middle or the latter part of 1991 we are heading out of the recession in the province. You are very close obviously to a lot of people and I am just wondering whether the credit union has a perspective on that or not. My other question is that I think one of the challenges will be pools of capital for businesses, whether they will need help developing jobs in the province and whether the credit unions see themselves playing a role in that or not.

Mr Neville: I guess on this first part of your question with regard to the economy and projected outlook, we get input from all of our credit unions, but we really do not take a stand on the economy or turn around and say the government should be doing this or the government should be doing that. As I say, for the most part we are self-help organizations and we worry about the economy. We worry about loaning money to our members, in effect, and helping the members in the areas when they are in trouble.

Do we have an outlook as to when the economy might pull out of the recession? I guess not a prediction, but a hope that, yes, it is towards the end of the year that you are looking better.

Mr Phillips: I did not know whether the Central tracked anything or not to sort of give the members any indication of how you are feeling about it.

Ms Mac Donald: Contrary to the situation with some other financial institutions, we do not have an official internal economist, although we do have someone who does kind of keep the board abreast of things. That is why we have included notes that were prepared by our federal --

Mr Phillips: I thought they were very thoughtful too.

Ms Mac Donald: Thank you. I think that in what they do cover they appear to be very similar to what the Treasurer has in his own economic outlook. They are not as extensive as what is covered here, but I think basically they are similar.

Mr Phillips: Pool of capital: Is there any --

Mr Hanstead: I guess Central has a lot of liquidity right now, but we need that also as a backup if we have any particular sector that requires funds in a hurry. But credit unions, as Bruce said earlier, are prepared, in local areas where there is a need for capital in small businesses that the local credit union cannot handle itself, to do it by going to Central and syndicating loans. Yes, we are prepared to do that, but we are also going to be moving cautiously. They have not needed our capital for some years, some people, but when it gets tough getting it somewhere else, then they want our capital. We are prepared to work towards that and do whatever we can. We are interested where we are.

I think you can just take some of our track record, and we also go into areas where other people have left, for whatever reason it might be, to make sure services are provided. There was one spot up in the Georgian Bay area where the bank pulled out a few years ago and the credit union went in. I also know it from my experience at National Defence Credit Union. You think it is strange, but the chartered banks pulled off the bases at Kingston, Borden and Petawawa. Borden has maybe 6,000 people on it and Petawawa about 8,000 people. and they pulled the banks right out. There are no services to those people at all.

Our credit union went in after that. It is not easy to start up a financial institution from base roots and it costs you money to do it, but our credit union was dedicated and went to those three bases and made sure financial services were there. I think there are other examples all across the province where that has happened, if we go up to northern Ontario or Dryden and Vermilion Bay and to Hudson and a few other places like that to provide those services when nobody else was there.

Mr Neville: We are not major --

Ms Mac Donald: In fact we are restricted in the percentage of assets that we can put into commercial bonds, and it is an area --

Mr Elston: Some more so than others.

Mr Hanstead: Some more so than others, but that is a different subject matter. When you get to talk about legislation rather than just on the economy and where we are going, we will be pleased to come back again because there are things we would like to do, but we do have a need for our legislation to be updated, and perhaps when that happens we can serve more people.

Ms Mac Donald: In another forum we are asking that some of those things be changed.

The Chair: Are there any other questions on this presentation? If not, thank you very much for your presentation.

Mr Hanstead: Thank you. I know I spoke fast, but we did not go much over half an hour.

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ATTRACTIONS ONTARIO

The Chair: Our next presenter is Attractions Ontario: Don Dailley, past president.

Mr Dailley: My name is Don Dailley. I represent a small but important association in the province called Attractions Ontario. We have just over loo members and they range through most of the attractions you would be familiar with, including the government and non-profit ones, together with the private and commercial attractions.

We have a problem we are going to try to stick to -- one point this morning, if I may. It is a problem that is not well understood by government. That is the problem of the amusement taxes that are charged in the province.

The opening line might be that capital punishment -- you may be surprised to hear that today -- is when government taxes commercial operations to get the capital that it needs to go into business in competition with you, and then taxes the profits on your business in order to pay for its losses. That in part is what I am here to talk to you about.

The recession has hurt people, no question. In Ontario we are struggling against high interest rates, an overvalued dollar, the free trade agreement and unfair taxes generally speaking, not the least of which is the GST. I am here to talk about unfair taxes, the amusement tax being one.

Ontario's tourism is hurting. A larger and more democratic economy must share both the benefits and the burdens of change -- I would like to talk about benefits and burdens -- and everyone must look beyond the recession to build a sound recovery, no question. We all must be more creative to help plan for new jobs and new investment. I am glad that I have a chance today to bring up some of these issues.

I would like to talk about recovery and new investment and more new jobs. Attractions Ontario has suggestions to save this government substantial money, which if implemented could be reallocated, hopefully, to the important tourism marketing initiatives.

Hon Mr Philip: Now you have our attention.

Mr Dailley: Do I? Finally. Good stuff. Okay, unfair taxes: The sales tax on admission takes an unfairly large share of the attractions' profits. The tax exemption level places the Ontario government in a price-setting role, a role that surely was not contemplated or considered desirable by government.

The tax exemption level, at $4, has not been increased to keep pace with inflation. Under benefits and burdens, the exemption of the public sector attractions is competitively unfair to the private sector. The sales tax on admissions has resulted in the deterioration of the Ontario tourist attractions. The total amount of admission tax paid by Ontario's tourist attractions does not represent a significant revenue source to our province.

Regarding more new jobs. the amount of and method of admission taxation has a significant detrimental impact on the development of new tourist attractions and the resulting capital spending and job creation.

I am thrilled to be here, and what I have to say is less important than what you need to hear. So without any further ado -- you have got copies of our briefs -- I would like to answer any questions you may have regarding the amusement tax.

Mr Sutherland: I am in need of clarification. You said the public sector attractions do not charge the tax, or do they absorb it some other way?

Mr Dailley: The tax is an oddball thing. It came out of the hospital tax, going back many decades. My attraction is African Lion Safari and I can speak more directly about it than I can about many of the other major ones. The attractions with which I compete, for instance, Ontario Place, the Ontario Science Centre and the Royal Ontario Museum -- marvellous attractions in this province -- do not have to collect this tax from their visitors. I have to collect it from my visitors coming to me. That is obviously an unfair distortion in the marketplace. It creates a very unlevel playing field.

Also, non-profit attractions which are not government funded do not have to collect this tax from the* visitors. An example would be, for instance, Casa Loma. So you look at a whole range of attractions sitting at about the $7 to $7.50 level, and the publicly funded ones such as Ripley's Believe it or Not -- let's see; I have a list -- Tivoli Miniature World and others have to collect the tax from their visitors, and yet the Ontario Science Centre and Science North and these other ones do not. They sit at about the same price level. Does that help you?

Mr Sutherland: Yes, it does. If I may just do a follow-up, you said the $4 has not kept up with inflation. Are you recommending that the exemption go to a specific amount?

Mr Dailley: Specifically, our recommendation is as follows: Although this tax is a pitfall of many, many inequities, we recommend that the exemption level be raised to $7.25. We have a chart attached -- I assume you have a copy of this and have read it. As you see from the chart that is attached, this will maintain the value of the $3 exemption level when it was introduced in April 1977 through to December 1990, and we think this is the only ultimately short-term fair solution to the government.

This does not address all the inequities of some attractions which compete with each other having to collect from their visitors the tax and others not having to. It is not even a public-private discussion, because the way the legislation is written is so specific in what is included that by nature of taxes themselves, I am told, many other attractions which were not contemplated when the legislation was last rewritten, visitors to them are in effect tax free. You get the anomaly of water parks, because they are not listed, not having to collect from their visitors.

So you get water parks at $14.95, $16.95, in that range, not having to collect any tax at all, and you get an admission at Marineland at $16.95 for an adult collecting 68 cents from their visitors; or African Lion Safari, my own, on an admission of $11.95 having to collect 89 cents from our visitors. So it is really a minefield of problems in the tax, some of them being excluded because they are non

profit, government-funded, others because they were not contemplated as potential attractions when the legislation was last rewritten.

Mr Sutherland: I think that might be a good issue for the Fair Tax Commission to examine when it comes to fruition.

Mr Dailley: I think that is a marvellous initiative, frankly, that they would even contemplate this.

The Chair: They are going through the process at this time of choosing the people to be recommended to the standing committee on government agencies, people who would be on that Fair Taxation Commission.

Mr Phillips: That is a contradiction in terms, anyway: fair taxation.

I am trying to figure out your recommendation. I must have forgotten to read it.

Mr Dailley: Let's just start in the more recent history. It was last updated to the $3 exemption level. What that means is that anybody charging $3 or below on an admission does not have to collect the tax from their visitor. That is what that meant then. That was raised in April 1977 to $3.50 and was raised in May 1983 to $4. So we are sitting with a 1983, $4 exemption level. We recommend that the exemption level be raised to $7.25. This would bring it, just using inflationary factors, CPI generally, to where that $4 level should be. We are saying to you that we recommend that as an immediate short-term way at least to get some kind of relief to the tourist attractions in the province, those that do have to collect this tax.

Mr Phillips: But you are you not recommending that the publicly funded attractions also pay the tax.

Mr Dailley: There are many pages in our brief. Part of that says, if I may just find it quickly here: There is a problem in this, in that caught in this amusement tax are not just the tourist attractions but also sporting events and performances and movie theatres. One of our recommendations on the long term is that this whole tax be reviewed and that the tourist attractions themselves be exempted from this tax. We realize that that cannot happen quickly. It is going to be a complex issue and difficult to do. It is going to take people with some understanding and leadership who are willing to try and work their work through this amusement tax minefield. The short-term recommendation is that the admission tax-floor be raised from the 1983 $4, this spring in the budget, to $7.25.

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Mr Elston: I want to apologize to the presenter, because we do not have your presentation yet. We are about to receive it at some point, so if we are looking rather blankly at your recommendations it is because we do not have it.

I was not sure exactly how far you have gone on beyond the issue of the amusement tax. I know it is very confusing. Some of the suggestions Mr Sutherland made, for instance, are good ones and some of the things Gerry has said are good questions as well. Could you give us a bit of a capsule of what happened for your past year as a tourist operator in Ontario in terms of your competitive attractiveness, because you are located in a fairly strategic location where people could opt to go, I guess, into the US or whatever. Could you give us not a personal history but observations which might tell us a little about the industry of which you are a member, comparing that to the types of attractive options somebody might have south of the border, for instance, or something like that?

Mr Dailley: I think I understand the question. One of the last good years in the industry was 1988; 1989 started to see some changes in travel patterns by Canadians, Ontarians and Americans; and this year just past, for the first time, more Ontarians left the province than Americans came in. You probably teat that in the paper; it has been in many times. It was the first time ever but it has been a number of years in the making. Some of these are made-in-Ontario problems or even made-in-Canada problems, if you will, and that is even before the GST has had any effect.

Many of the good, valid Toronto attractions, publicly funded or private attractions, where they saw admissions drop after 1989 in the 8% to 12% range, they were dropping last year in the 15% to 20% range. Part of that is blamed on the Toronto's designer tax, the concentration tax, which has had an effect on the room rates, not much question. Part of it is just the general travel trends, perhaps participated in the GST, in part by Canadians travelling to the factory outlets in the States. and because they have to stay for 48 hours to bring back their 300 bucks they are staying over, staying in hotels down there and making a holiday out of it and visiting attractions out there. So if they are at Darien Lake one weekend, are they at my attraction the next weekend? Probably not.

So you are seeing some really deleterious trends. It is aggravated in large measure by tax issues, although I want to keep away from the broad if I can, and deal with this particular issue, which is very worrisome to my industry segment in tourism, the attractions.

Mr Elston: Although the amusement tax causes a great deal of concern, and the issue of competitive stance between you and someone funded by the government -- I understand that complexity. I presume, though, that if I were going to take my family, as a sort of uninformed member of the public, I probably would not choose to go to the Science Centre and not to go to yours because I did not want to pay the amusement tax.

Mr Dailley: You are not unaware of it coming in the gate. You look at my value and say: "Am can Lion Safari is $11.95. Is it worth it or not?" Whether there is GST in there, amusement tax, and whether it is 8% or 10% is of no interest to you. You pay your $5.50 at the Science Centre in Toronto, and you do not realize that there is no tax in there and you also do not realize that that is probably one third of what that attraction should be charging. They could easily get $14.95. It is a marvellous, marvellous attraction.

Mr Elston: In terms of competitive value, the Science Centre being subsidized by various things, including not having to collect the amusement tax.

What role would you see the gasoline tax, for instance, playing in your business? Everybody has to drive to the Lion Safari. I have been there, actually, a couple of times.

Mr Dailley: I hope you had a good visit.

Mr Elston: It is a great day. It is a great place for the kids, and adults too, I might say. What about the other tax issues you face as a --

Mr Dailley: Road tax is another one, the high cost of gasoline. Also, liquor taxes are, I think, impinging quite heavily on the attractiveness of tourism in this province. When you hear stories that of Darien Lake's 2,000 campground sites, half of them are filled every weekend with Ontario licence plates -- if that is in fact totally accurate, I am not sure -- you have some pretty serious competition right across the border that does not have the amusement tax. has lower alcohol taxes and has also smaller hotel taxes. Just put this all together and people can have a marvellous weekend in northern New York state or in Michigan and, frankly, in other places, for half the price. And it is going to get worse.

We employ one pile, thousands and thousands of students, who make a lot in our industry, the tourism industry, high school students. They are the ones who are going to end up losing their jobs if we have to start trimming seriously. But worse, if you start to trim your staff levels, you affect your service level. People coming in cannot get a hot hot dog, they cannot keep the washrooms clean, and people are going away upset. Plus, you have the high price and you are not delivering the goods at the other end.

It is a real dilemma we face, and it is not just in the attractions. I am talking broad-based comments to reflect the whole tourism industry. It is in bad straits in this province right now. Also, incidentally, tourism on the east coast and the west coast is not suffering some of these same problems that we are here. In many cases it is an Ontario or a southern Ontario problem.

Mr Elston: There are a lot more questions that would probably be better directed, I presume, when the presenter comes back to the Fair Taxation Commission. Perhaps some of us members will be able to likewise participate in that, because it looks like taxes in general are really working contrary to what your business needs at the moment. In fact, you probably would find it a significant impediment if there were increased and accumulated deficits incurred to go along with high taxes, I presume.

I wish to thank you for the presentation. I look forward to seeing the brief in written form and then we will go from there.

Mr Dailley: My apologies. I should have come better prepared. I was advised. I did talk to somebody that this brief was on the Treasurer's desk and I was advised that you would all have had a copy last Friday. My apologies. I could have easily had them here for you, at least so you had them in front of you today. It makes it difficult.

The Chair: The clerk will make copies of that brief and it will be circulated to all members of the committee. I am sorry that happened. We would like to thank you for your presentation and your input this morning.

Mr Christopherson: Mr Chairman, while the next delegation is being seated, could I ask that the committee consider what is going to happen this afternoon in terms of process? Our submissions are finished at 11:30, as far as I know, and we are scheduled to start this afternoon some discussion on the draft report that was circulated.

The Chair: Before you continue, we have another order of business that precedes that. We have a letter from the Union of Ontario Indians, who have sent a copy of their brief but have now requested that they be given a chance to do an oral brief. They originally indicated they were not going to give an oral brief, but now they are requesting an oral brief. The deadline is well past, but I need direction from the committee.

Mr Phillips: Are they here now?

The Chair: No.

Mr Christopherson: Can they be here this afternoon?

The Chair: We can find out.

Mr Phillips: I would hate to not hear them.

Mr Christopherson: I feel the same way. The important thing, though, is to get it as soon as possible so that their submission is relevant to our report, rather than coming after decisions have been made.

The Chair: On behalf of the committee, would it be all right if I recommended to the clerk either this afternoon or tomorrow morning?

Mr Christopherson: Fine. We have no problem.

The Chair: Okay.

Mr Christopherson: Having done that, if I could now return. I just wanted to ask -- and ask at this point; it is not a motion yet; it may be -- that we break at 3:30 today to allow the different committee caucuses to review some of the material. We had a meeting this morning, but it really did not give us enough time to get some of the detailed material that we would like to present to the committee. We would request the co-operation of the other two parties in looking at a 3:30 adjournment. We are prepared to have some general discussion this afternoon, if the other parties would like, and we would be prepared to start detailed discussions tomorrow morning. If there is consensus, Mr Chair, I would just ask that you direct that that is what we do.

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Mr Phillips: Hearing nothing from them.

Mr Christopherson: Yes, the Tories are certainly being co-operative today. It seems to help when they are not sitting there.

The Chair: We all appreciated Mr Stockwell's comments late Thursday afternoon, too, did we not, Mr Phillips?

Mr Phillips: From the fact he remains silent now, I assume Mr Stockwell will be --

The Chair: Silence means consent?

CANADIAN BANKERS' ASSOCIATION

The Chair: Our next presentation is from the Canadian Bankers' Association. If you could begin your presentation, please.

Ms Sinclair: Thank you for the opportunity to appear before the standing committee today. I would like to introduce my colleagues. On my right is Al Cooper, who is our vice-president of finance and financial affairs, and on my left is Margaret James, who knows everything about tax that Al and I do not know.

We had brought a brief with us. I believe it may have been circulated to you beforehand as well, but there are extra copies available for the members.

I want to make just a couple of introductory comments, if we might. First, a few words about our association. We are the association representing the Canadian banks in this country, not the trust companies, just the banks. All the banks are members, both foreign and domestically owned. There would be about 50 foreign banks and seven domestic banks who are members of the association.

Between 40% and 50% of our business is in this province. We have about 3,000 branches here. We have 89,000 employees -- that would be half our employees -- on payroll in this province. Our total payroll at this time would be about $2.6 billion.

We make a significant contribution, we think, to the provincial economy, both in the numbers I have just cited for you as well as in the revenues we bring to the province. Our estimate is that in the last year we accounted for about 8% of the province's corporate capital and income tax, and we contrast that to being about 1.5% to 1.8% of the provincial economy. In addition to the taxes, the income and capital level that we bring, we also pay significant other taxes, which we would like to return to in a few minutes.

We are very much part of the communities in this province and this country, both in terms of the corporate participation of our members and the participation of employees as volunteers and as donors. To give you one small example, we would be the largest private-sector contributors to the United Way of this particular city, making very substantial contributions. Needless to say, I think we are fairly proud to have the involvement that we do.

I want to go on to a couple of other points. The first one, which I think is clear from our paper and has certainly been part of the theme of our meetings with the province in the last couple of years, is that we believe the province is walking a fiscal tightrope. It is in a situation where, despite very large increases in the provincial economy and in provincial revenues, it did not manage to work itself out of a deficit situation during a number of years of economic good times. Now, as the economy slips, there is not the kind of flexibility one would normally like to have to be doing the things one likes to do as a government in a deficit.

We understand this government's priorities and I think it is fair to say we accept them. We hope that a longer-term view will be given by the government as to how it would see its revenues and expenditures projecting forward a number of years as the province works its way out of the recession and returns to relative good times.

The debt service ratio of the province is, we figure, probably around 12% to 13%. The estimates, which were based on a break-even in this past year, obviously no longer apply, so the debt service is probably going to be up around 13% in this current year. While that is not the level of the federal government, it is none the less the level that we think one has to be fairly concerned about, given the times that we are in.

The second point that I would like to make is that if one is going to be concerned about the competitiveness of businesses in this province, there is not an awful lot of room to move on the tax front. We pay corporate taxes which, when you go right across industrialized nations, are more or less on par, maybe a little bit higher. But when you add other tax loads, we are probably at this present point in time in a fairly uncompetitive situation as a business community if you draw a broad brush of comparison with our industrial competitors.

If you will permit me, Mr Chairman, I might ask my colleague, Mr Cooper, to elaborate on that point, as well as on a couple of others which relate to the competitiveness issue. It is an issue that we think has to be considered very very carefully in the current economic situation, because while one would like to go and be fairly generous on the social front, one does not at the same time want to cripple one's ability to generate the wealth that does lead to the ability to make these kinds of payments as economies go into downturns.

Mr Cooper: For the chartered banks in Canada, or in Ontario particularly, as Helen mentioned earlier, 50% of our staff, 50% of our domestic business is in Ontario. So like the province of Ontario, we have a very vested interest in the health of the economy, because as the economy of Ontario prospers, so will our membership. We are very interested in and keenly focused on negative consequences that could arise if the current situation of high tax loads is exacerbated by adding on to that burden. We already are seeing a number of plant closures, business closures as a result of the recession. We are seeing a lot of movement out of the province of Ontario, both in the context of small business as well as others, and it is questionable as to whether or not the province can regain many of those jobs that have left.

We believe that really the only route for the province of Ontario is that which has been explored by others, particularly in British Columbia and other provinces, which are keenly focusing on their expenditure levels. We as an industry are prepared to sit down with the province at any time to assist in any way that we can with means and methods to reduce the expenditure load of the province in terms of how it handles its business. We have done so with other provinces and we certainly are in the process of doing this with the federal government to assist it in terms of facilitation of its business in a way that perhaps can save it money. We certainly make the same offer to the province of Ontario.

An issue that is difficult for us to deal with in terms of the competitiveness of the province of Ontario -- and particularly Metropolitan Toronto, which is of course the mainstay for our head office and regional office business -- is the fact that the combination of recently introduced taxes such as the employer health levy and the corporate concentration levy, which were introduced a year or so ago, have made locating for business, particularly the financial sector, in Metropolitan Toronto, almost prohibitive in the context of other centres in North America.

Now, we understand that the assessment in the city of Toronto will be reviewed and that there is a move to put it on a market value assessment. From what we have seen, the result of that market value reassessment will be a shifting of the tax burden to the commercial sector, and the analysis that we have seen would make the financial institution's tax load for business and realty taxes in the neighbourhood of $13.50 a square foot, which would make it the most expensive premises in North American. This does not help when we combine it with the taxes and the burden that Ms Sinclair mentioned earlier. So we look, and hope that the government of Ontario can look, at means of addressing and streamlining operations and fiscal restraint in order to not be forced into a position of increasing taxes.

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The other issue that we would like to touch on briefly and bring to your attention is the issue of harmonization. I will not go into the detail in terms of the general sense, but certainly for national corporations dealing in multi jurisdictions, harmonization is a rather critical issue for us in terms of reporting and a variety of other kinds of regulatory fronts. On the tax front, we are faced with of course the GST and the provincial sales taxes.

A number of provinces, as you know, have already declared their intention to join in a form of national sales tax, or are in the process of exploring it. Unquestionably the province of Ontario will be exploring the same option that is available to it. We would plead, particularly from the financial sector, which is the provider of both exempt as well as taxable services, that if you do contemplate joining in with respect to a national tax system, you give the financial sector the opportunity to work with you in order to ensure that the payment flows work smoothly and that we do not run into a conflict and exacerbation of the current administrative burden that is foisted on the financial sector.

With those few remarks, we will be pleased to entertain any questions you may have on our brief.

Mrs Sullivan: I am interested in the remarks you made relating to the capital tax rate. I wanted to refer back to the New Democratic Party's Agenda for People, which was its election platform in the last provincial election, where it suggests that a minimum corporate tax could be imposed to raise approximately $1 billion in additional provincial revenues.

I wonder, first of all, if you view the existing capital tax as a minimum corporate tax, and what you feel the impact of that $1-billion tax would be on the competitive nature of our industrial and service sector base.

Mr Cooper: The first part, we very much view capital tax as the minimum tax. As a matter of fact, we hope that the province would entertain treating it more appropriately as the minimum tax, as they do at the federal level, as well as in British Columbia, where the tax is actually creditable against your income tax paid.

Capital taxes put financial institutions in a quandary. It is a tax virtually unique to Canada and one that the rating agencies look at rather pointedly when they are looking at banks' international competitiveness, because as we are forced to gain more and more capital to strengthen our position, in accordance with the Bank for International Settlements rules and our regulators, the greater we create the strength for the protection of the depositors and the shareholders, the higher we are taxed. So it is a unique tax and one that has nothing to do with profitability. You are going to get whacked whether you are doing well or whether you are not doing well, and it can certainly add dramatically to problems that exist in the financial sector.

As for the tax burden here in Ontario, the rate is relatively low compared to other provinces at this point in time, but again, we do not get the creditability that is prevalent and in practice in other jurisdictions. It is one of the reasons, quite frankly, that there is such a concentration of head office and staff and deposits in the province. As you know, the calculation of Ontario's share is indeed a function of where banks choose to locate their employees and the sit us of their deposit base. If it moves, so does the share.

Mr Phillips: A couple of questions, and then I guess I will get your comment. You said the debt servicing has gone to 13%.

Ms Sinclair: That was a guess, the projection based on a break-even budget this year.

Mr Phillips: How do you calculate that servicing?

Ms Sinclair: It would be your interest costs as a percentage of your provincial revenues.

Mr Phillips: It may surprise you to know that for the first time in at least a decade, debt servicing is lower than 10% for this fiscal year. It has gone down consistently and the Treasurer just released his numbers the other day. Revenue is $43.9 billion and public debt interest is $4.3 billion.

Ms Sinclair: I thank you for that clarification. My numbers came out of the Dominion Bond Rating Service, the bond rating projections.

Mr Phillips: I rely on the Treasurer's numbers.

Mr Christopherson: A faith well placed.

Ms Sinclair: They may well be right. We may be using a somewhat separate base. The projection based on the break-even budget was that debt service in the province would go from about 12.2% down to 11.8%. My only point was that given that the fiscal situation did not materialize as planned, the number is clearly higher.

Mr Phillips: I did not want to spend a lot of time, I am just quite proud of the fact that every year it has gone down, and this year, at least the way we look at our numbers from the Treasury people, it is for the first time in at least a decade less than 10%. The feds' is 34%, I think, of revenue.

Ms Sinclair: The feds' is around, yes --

Mr Phillips: It is 34% of revenue and heading up. But that was not my question; that was just a comment, because I think having been in the former government, we watch these things fairly carefully.

Just three comments. One is, I realize you do not like the employer health tax. It raises, I guess, about 20% of the cost of health. It is about 2%, I think, of payroll for you people. If you were operating perhaps in the US and paying those premiums all yourself, it might be 6% or 8% of your payroll. No one likes any tax, but if you look at one of the things that maybe gives you a significant advantage vis-à-vis your US competitors, I suspect that might be direct health payments that you make. So I would personally just be cautious of that one.

I am interested in a couple of questions. One is just to help me a little bit, whether there is more of the chartered banks' profits being recorded offshore than would have been the case five years ago or not. There is a bit of a perception out there that some of the major chartered banks increasingly have their profits outside of Canada, as a percentage, than in Canada. I would be interested in whether that is just a misconception or whether there is any truth to that.

Second, we have had at least two of the banks in. I am just looking at your prognosis for the economy in Ontario and what the collective banks are saying now about the economy. As I said to other groups, we have had expressions that we may be out of it in mid to late this calendar year -- whether that reflects all of the banks' perspectives or not.

Those are really my two questions. Is there a growing offshore profitability for the banks relative to Canadian profitability and, second --

Ms Sinclair: Could you repeat the second question,please?

Mr Phillips: Yes. What is the Canadian Bankers' Association prognosis for the Ontario economy? We have heard, I guess, from two of your members directly.

Ms Sinclair: The answer to your first question is that there has been a fairly significant drop in the percentage of our business which is offshore. Prior to the 1981-82 recession, around that period, it would have been in the 40s for everybody and the high 40s for a couple of the banks. At the current time it is down around 30%.

Mr Phillips: Of your profits are recorded offshore?

Ms Sinclair: No, of our business. Now, the profits through the 1980s, up until last year, were obviously very poor because of the Third World debt problems. Last year for the first time the rate of return on our international business was almost exactly the same as our domestic. So it carne up again the same time as our domestic profit rate dropped and the two more or less met last year for the first time in a decade.

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Mr Phillips: The recording of profit. I have this vision, that may be incorrect, of the Cayman Islands. But that is a declining portion of --

Ms Sinclair: Very, very much declining. It has been right through the 1980s. It would be fair to say that in the 1980s, the banks focused very heavily on the development of their domestic business, and also fair to say that, as they talked about the future, they say you build your capital at home and you go abroad very selectively and only where you can earn an adequate rate of return. This is where our system differed substantially from, say, the Japanese and American banks over the last decade. We did not go into these Euromarket deals where you could not get a rate of profit. We said if there was not an adequate return we were not interested, and we backed away from them, which reflected, then, in our earnings and our balance sheets.

Some government officials were very critical and said that the banks were abandoning their international operations and were turning their backs on the global marketplace. I guess our point today, as we watch the Japanese and the Americans and the British follow our example, is that the only point of competition in the global marketplace is, first, who survives? Second, have you got capital strength? To say your international assets are growing faster than your domestic may mean nothing at all in terms of your global competitiveness. In fact, what we have learned in the last half-decade is that if you were in that position, your global competitiveness was probably going downhill rather than uphill.

The answer to the second part of your question, I think, would be that, first, the banks feel this province's economy has been very hard hit by the current recession. A number of our members would say to you that we are at a point in this current recession which makes it a deeper one than the 1981-82 recession ever was in this province. The reverse, of course, would be true in the west. We are seeing some buoyancy in Alberta and British Columbia even today. Maybe it is slowing down, but there is considerable relative buoyancy in comparison to the Ontario economy. It is a bit of a teeter-totter in that sense.

The point that Al Cooper made about the loss of competitiveness, the closing of manufacturing plants, which has worried us -- we watched our customers even before the recession establish new plant capacities south of the border -- that point, of course, has been exacerbated during the recession, although I think it is fair to say that some of the problems we saw in the manufacturing sector in the last recession have not been present in this one. For example, we did not see a problem of excess inventory, which is a terribly, terribly serious problem. That is where you are borrowing, as a manufacturing business, and that has not really been the big problem in this recession.

In terms of looking forward, I think there is a very high focus on where interest rates go and a hope that interest rates can continue to move downwards. Obviously, there is also some focus on the level of the Canadian dollar, though it is understood that in an economy that is as indebted as ours is, one does have to attract the foreign capital to finance the debt. The debt cannot be financed at this time by internal savings. But there is some cautious optimism, I think I could say, that by midyear the Ontario economy will have begun to turn.

Mr Phillips: This calendar year?

Ms Sinclair: That is right.

Mr Elston: I was interested in one thing. Mr Cooper and Ms Sinclair as well had indicated how much of a presence the banks have here in Ontario. That is quite true. I think you went on, Mr Cooper, to say that the rates of occupation of rental space and taxation and all of those things, of course, will contribute to either a continuing presence or, obviously, a possible move of some of their head offices, potentially.

When you talked about the amount of capital in savings and everything that was to be attributed to a corporation's presence in Ontario, I was aware that it was about to be affected by a move in Quebec, where they would attribute or ascribe to a particular institution a minimum amount of capital presence in their profits, and in fact that could damage the locatability of that institution to Ontario or in fact to BC or wherever, because if you were going to pay a minimum tax in Quebec it might make it worth while to have a minimum amount of presence there.

Can you tell us whether there are any other jurisdictions doing things like that? First, for the importance of this study, maybe you can verify whether that is correct -- I would not want people just to rely on my information; second, whether any other provinces are trying to make institutions in Canada relocate to their province by similar means, and third, what the banks intend to do about it, if anything, in terms of fairness inside Canada and in terms of trying to have a harmony among the provinces, which are looking for the presence of large institutions to help fuel our own economies -- in 25 words or less.

Mr Cooper: We have tried to get the provinces, including Ontario, for the last, oh, I would say, probably six or seven years -- there has been virtually an intense almost rivalry, if you will, in terms of issues such as the capital tax, dissatisfaction in some jurisdictions with the formula I was talking about, in terms of how much British Columbia's share should be of bank income and capital tax as opposed to Ontario and Quebec. No one is happy with it. While there have been a number of proposals to look at a fairer way, every time someone is going to give up something so that someone else can get more, obviously there seems to be an impasse and people go away again.

I agree with you. Now what we are seeing is a new attempt to perhaps circumvent the sharing formula, which again is another demonstration that it perhaps is not as appropriate as it should be or as fair as it should be. Most of the provinces -- certainly in the western sector, BC -- have been going in the opposite way, rather trying to woo financial institutions with respect to dropping capital tax or, where capital tax remains, making it creditable against your income tax. Of course, you are well aware of the rather sensitive issue of the international banking centres and trying to expand the level of activity that could transpire there; almost rewards, if you will, for moving your head office, if you could, to the province. So we have seen some of that. The other provinces, certainly in the west, tend to be following that direction. I would suspect it will be their tendency.

Quebec is very much focused on creating a very hospitable environment, shall we say, in terms of its total tax picture, particularly for the financial sector in general. As you know, their corporate tax rates are the lowest in the country. Their overall package tends to be a very attractive one. I have not seen the detail yet of the minimum tax in terms of what it may mean to banks, in terms of whether it would be sufficient enough to actually cause the kind of reaction you are talking about: "If I have to pay that much, well, then maybe I should move some more people there." We have not completed that kind of analysis, to say whether it will have that kind of effect or not.

Mr Elston: That sort of leads me inevitably, although it is slightly off topic, to ask a question about how appropriate it would be to have a Canadian bank headquartered in Quebec if we were not dealing with the Canadian nation.

Mr Cooper: We have two of them now.

Ms Sinclair: The Royal Bank, the National Bank and the Bank of Montreal, I believe, are all headquartered --

Mr Elston: I realize that, but in line with what is taking place, with those sorts of arrangements that are already taking place now from a taxation point of view, there are going to be some very wild practical questions, I guess, to be asked and answered about the economies which are going to be operated under by these banks, because your members all have to show a competitive margin, obviously, nationally and internationally. How do you do that if you are going to be subject to all these jurisdictions even in a more heightened fashion, presumably?

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Ms Sinclair: Not to comment on the issue of national unity per se for the moment, but to go back to Al's theme that if you can manage to harmonize your system, if you can do what the Europeans are doing, and ensure that you do not have inter jurisdictional impediments to trade, in a very broad definition thereof, then you should not be too concerned. That is really the issue.

We cannot help but be struck by the fact that within this country today, we have greater impediments to interprovincial trade -- some of the ones Al has mentioned -- than we will encounter in Europe, in fact, than we encounter today moving across national borders.

I do not think there is any doubt at all that the Canadian banks' commitment to the overall marketplace -- I am talking about Quebec and the other provinces -- will remain regardless of what happens constitutionally. I do not think that is at issue, but there is a question as to how effectively you can do it and what the cost of barriers to trade actually are.

Mr Elston: Not to go further, although that is an extremely interesting line of questions to get into, I have a couple of other places I would like to go with respect to your presentation.

One was an indication that there was not much room for manoeuvring with respect to taxes in the province, although I read -- quite quickly, I realize, but read none the less -- an interview of our Treasurer in the Sun, which was reported last Sunday, I think it was, wherein Mr Laughren was saying that there is room for selective taxes in the province of Ontario. I did not go right through and pick up exactly which areas he might be looking at. It seems that your presentation contradicts that. Would you say that is true, or would you go along, perhaps, with the Natural Gas Association, which said as long as there were no new net taxes, you could live with that type of situation?

Ms Sinclair: I do not think we are familiar enough across the board with the taxation of other industries to give you a comment about whether there is room there. I think we tried to impress that in our case, we are paying 8% of your load and we are about 1.5% of your economy. If you see those kinds of burdens in other sectors, I think you do not want to think pretty hard and fast about how much moving room you have and you would want to really look internationally to make sure you are not doing in a global industry sector relative to its international competition. Whether there are selective opportunities, I am not sure we can really help you address that issue.

Mr Elston: Just a couple of other quick questions. Mr Rae made a speech a week or so ago wherein he basically made a request that the banks, financial institutions -- but generally banks, I think we will be seeing -- should enter into some kind of co-operative partnership with government in helping to shore up our business community. I know you are not responsible for loans on your own, but your association members are. Can you tell us what steps have been taken by any of your members, or whether the association, in getting together, has talked about formulating a plan to develop such a partnership with government to shore up business during this recession?

Ms Sinclair: We would see that there is a good coincidence between the Premier's wishes and what in fact is of benefit to our own members. When you have a borrower who is in difficulty, the last thing you want to do is call the loan and have to realize on security. That is a lose proposition. We will be releasing a study in about a month's time dealing with the small business sector, which will be, I think, of specific interest, which shows that your realization on security is about 60% on average of your outstanding loan. So you do not, as a lender, look to your security to recover your position, and that is exactly what you have to do when you pull the plug. So it is really for that reason that we will initially work with a borrower and try and restructure loans. That would be a very frequent action. We will encourage borrowers who we are unable, we think, to support to find alternative financing. Many of them do. Those borrowers who in the end we feel we have to call loans on have really been on our books for about 18 months from the point in time that the problem was identified to the point in time when the loan is called. Those are probably a minority of your situations.

The point we have to make back to government is that we do not benefit the borrower and we certainly do not perform our fiduciary duties if we keep a company which is not able to make it, if we keep a company going indefinitely. We have about $1 of capital supporting every $15 in deposits, and our number one duty is to safeguard those deposits. That fiduciary duty rises above all others.

I think it is particularly at this point in time when you can look to the United States and what happens when you neglect that duty. You see an illustration of how crippled not only your banking system becomes, but your economy. The fact that you are reading in the newspapers today that the Canadian banks have been asked to come in and buy up portfolios of the US banks or to buy US banks themselves simply speaks to the point that you have had an industry which for the last decade or so was not observing its fiduciary duties and has abrogated on prudential lending practices. We do not really think, in that situation, that the Premier is suggesting we ride along.

Mr Elston: I just want to follow a couple of points then. In my part of the country, which is Bruce county now -- it used to be Huron-Bruce. but I think generally one might say "the agricultural sector" -- one of the forerunners of a lot of loans being called is a movement of branch managers, and they bring in the cleanup hitters. I have seen a number of people move in the last three or four months, six months, to new locations, and new people being brought in to take a new look at new loans, particularly in the farming community. It means that there are going to be again a number of cleanups.

My concern is that partnership may very well extend to small business at a certain level, but it is not being extended to the agricultural sector, which is in fact worse off now than it was in 1981. In 1981 when the recession began, those people had some stamina built up, they had some deposits, they had some equity. Recovery, although buoyant in some areas, was not buoyant enough in the agricultural sector to meet the needs of sustaining another downturn. What, if anything. has been developed among your association members, or have you talked about it at the association level, to help sustain the agricultural sector, in co-operation with the provincial government?

Ms Sinclair: I think the comments I have made about small business do apply to the agricultural sector. In fact, the study which will be released samples many thousands of loans in the branch's files, including agricultural and small business loans. It covers both situations.

We do have a very close relationship with the provincial Ministry of Agriculture and Food. We have had numerous discussions about what can be done to assist the types of borrowers you are talking about. I think our fundamental proposition is the same, though, whether you are talking about a small businessman or a farmer, and that is, you walk a very narrow line between doing what is right, particularly in an economic downturn, from the perspective of helping the customer through a temporary set of problems, you hope, and observing your fiduciary duties to your depositors.

The Chair: These questions are very interesting and I am --

Mr Elston: It is almost crucial to the people in my area. If they cannot get money, my people go down the tubes.

The Chair: I know it is very crucial to people. It is crucial to people all across Ontario in these circumstances. What we are trying to do at this point is to specifically reference information that we can then pass to the Treasurer.

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Mr Elston: My last question was going to be, what are the discussions that they have had with OMAF and what are they going to recommend that we do for agriculture? The whole line of questions was coming sequentially to that.

The Chair: Then I will allow you to finish your questions.

Mr Elston: Can you tell us what your discussions have been with OMAF and what recommendations you are making to assist the agricultural sector in Ontario?

Ms Sinclair: We have not arrived at any firm set of conclusions or recommendations at this point in time. All I can tell you is that we have had an ongoing discussion with them. As you know, in the mid 1980s we participated very actively in that the groups which reviewed farmers' debts were private sector, involving both the banking industry and the farm community, where we looked at the debt situation of individual farmers who chose to bring their cases to the board.

We had some reticence, I should tell you, going into that exercise. We felt that it operated in the end fairly well. In fact, one of the things that surprised us about the whole thing is that we found that the farmers who sat on this board with us in many cases were far tougher than our own people sitting and adjudicating on the cases. But in terms of the current situation that we are in, I am sorry, I do not have at this particular point in time any conclusions or recommendations.

Mr Elston: Do you expect to have a recommendation for the Treasurer before he does his budget?

Ms Sinclair: We certainly could have a recommendation for the Treasurer if that were called for.

Mr Elston: If it were called for. If we, as a committee, ask for it, you could provide that for us.

Ms Sinclair: Absolutely.

Mrs Sullivan: Could I just have a supplementary on the agricultural question? One of the perceptions of agriculturalists has been that when there is an interest rate reduction program, the bank interest charges are in fact increased because the market will bear a little bit more with the government reduction of the interest rate on those programs. We have heard that on many occasions and I wonder what your response is.

Ms Sinclair: The most recent program that we have operated with the provincial government has been in the province of Saskatchewan and I do not think there has been a complaint. The program has involved a certain level of interest rate reduction for the farmer below market rates and the province has absorbed the cost of that reduction. I am not aware of any complaints in the direction that you are suggesting.

Mrs Sullivan: It is certainly a complaint in Ontario.

Ms Sinclair: It might be of interest for the province to talk to Saskatchewan. We met with them fairly recently -- I am sorry, I should restate that. I met with the people involved from our side. We actually have a meeting scheduled in Saskatchewan for later this month. What I understand to be the case is that the province is very pleased with the way that program is running, and our people feel that it has been a good partnership as well. It may serve as a model.

Mr Stockwell: I certainly feel for your position when it comes to calling the loans, etc. You are damned if you do and damned if you don't. If you call the loan, you are damned because everyone screams that you called it too early or there were reasons for the losses and so on. If you do not call the loan, you are just allowing companies that have no hope of recovery to go further and further into debt.

I guess it brings to the debate that competition is the lifeblood of free enterprise, and eventually there are winners and eventually there are losers, and if there are no losers, there are no winners. It is a difficult and precarious position to be in, I understand, and I also understand that you do in fact go a long way.

I have met with my own bank managers and I scream and yell every time they tell me what I have to do, but a couple of weeks later I always think to myself, "Well, that probably makes sense." You eventually in fact do what they advise you to do.

The question I would like to drive to is the debt.

Mr Elston: I thought you were independent.

Mr Stockwell: I am independent, that is right. Everyone depends on one person -- that is who loans him the money.

I have a real concern about the debt of the country, not just specifically the province but the federal debt. I guess politically the problem is that politicians tend to look at the numbers and view the debt whatever way looks best for them. I certainly do not blame Mr Phillips, but you can see him saying: "Gee, I heard the debt is -- it's the first time it's under 10%. That's an astounding figure." Except when you realize that, yes, the debt is under 10% for the first time but we have had the best booming economy for five years, revenues have gone through the ceiling and you would almost assume that in the last five years the debt has gone down.

The Chair: I hope there is a question here.

Mr Stockwell: There is a question eventually. You would almost assume the debt has gone down, except for the last five years it has gone up by $10 billion.

Mr Phillips: Federally it has gone up to $400 billion.

Mr Stockwell: I am not arguing whether theirs has gone up or gone down. The fact is, this debt has gone up by $10 billion and yet you have people saying, "Gee, it's less than 10%." This is how you get into trouble with huge debts, because people get a little bit of statistics and they start arguing one way and before you know it your debt is higher and they are telling you it is lower.

The question I have is, how important is this national debt and this provincial debt? It seems to me in business it is a killer -- any kind of debt is a killer -- and as it grows it will limit your abilities to adjust and change and deal with the marketplace. How important is it for the province and the federal government to get the debt to a more manageable level, in your opinion?

Ms Sinclair: Very. The issue cannot be understated. The old thing they used to teach you at school, that in good times government should run surpluses so that it can run deficits in bad times, is something that we have moved away from but they still teach it.

Mr Phillips: No, the provincial government ran a surplus last year. Make sure you remember that.

Mr Stockwell: I guess this is classified as an interruption.

Ms Sinclair: They still teach the principle in our schools, and when you ask the guys who teach, "What are you thinking when you teach that?" they say: "My mind goes numb. I can't believe I'm saying it, but we haven't got anything else to replace it with." The theory has never been replaced. The view still is that sound fiscal management in government means running surpluses in good years so that you can run deficits in bad years and so that you are not in the position that the federal government is in right now with 34 cents on every dollar of revenue going to service the debt and where you can say, "Our operating expenditures are down, our operating expenditures are flat," and it effectively does you no good.

It is a terribly serious problem at the level that this country has come up to. It is one that creeps up at you. The mathematics of it are quite exponential. To dig ourselves out of it at this point in time is going to be truly difficult.

Mr Stockwell: I could not have said it better myself.

Mr Phillips: The problem is I think we have a major banking group here that does not realize that is what the provincial government has done in the last five years, to run a surplus. I am just saying I agree with what you have said. That is what the provincial government did, but no one knows; not even yourselves know it.

Ms Sinclair: I am sorry, but we simply quoted the numbers from the bond rating agency. If they are not correct, we will have to go back and look at the other --

Interjections.

The Chair: Excuse me, we are starting to overlap here. This nattering can go on for a long time. Are there any other questions of this committee or of this presentation? I see Mr Phillips is -- did you have another question to go on the record?

Mr Phillips: No, I thought it would be useful to have the budget there.

The Chair: Then I would like to thank you for your presentation and information this morning.

The committee recessed at 1229.

AFTERNOON SITTING

The committee resumed at 1405 in committee room 2.

The Chair: Before we begin this afternoon's deliberations on the document, I need direction from the committee as to whether this part of the hearings and the process will be done in camera or open. What is the feeling of the committee?

Mr Sterling: My party prefers it to be done in the open.

Mr Phillips: That is fine with us.

Mr Christopherson: And us.

The Chair: Okay, then they will be done in the open. The next item of business then is to move forward on the interim draft report that was made available to all parties last night at 6 o'clock. I guess the procedure for this would be to open it to discussion and to proceed with any amendments or any changes that are deemed appropriate at this time.

Mr Elston: Can I just ask a question? Bearing in mind that we are leaving here at 3:30, so that people can really take this stuff under advisement, should we be talking about general format of the report? I do not want to usurp what people are going to be talking about later on in the day. It sounds kind of difficult, but if we start getting into stuff and people have not talked about it, how do we talk about it, I mean, as a caucus. if people have not discussed it?

The Chair: If we talk about format and so on, that is a useful place to begin and to read through it and maybe make any changes that are deemed appropriate.

Mr Christopherson: We are prepared at this point to go through the text, the format. There may be something that we ask to be deferred pending our discussions, but basically on what is here we have some responses to it and some positions. It was specific conclusions of the committee and the recommendations themselves that we were looking for a chance to talk further about in caucus.

Well, Mr Chair, I do not know how you want to proceed. I am prepared, not having gone through this before, just to plow ahead, if you will, and offer up some comments that we have. But if anybody who has been through this process wants to offer up any suggestions or jump in, that would certainly be welcome.

Table of contents: We would look to strike the words "answers in" and make the word "partnerships."

The Chair: Well, it has been brought to my attention on the table of contents that we had some recommendations over the last little while about taxation, if we want to include a section just to summarize what those recommendations were. Basically this part of the report should be a summary of what was said, as opposed to any recommendations. Any recommendations will be discussed starting tomorrow or the next day.

Mrs Sullivan: We have had a lot of recommendations relating to taxation issues and it is appropriate that they be summarized.

Ms M. Ward: Under which section?

The Chair: The table of contents.

Ms M. Ward: As a separate, main category or under a subcategory?

The Chair: That is up to you.

Mr Stockwell: It cannot be a big deal.

Mr Christopherson: Page 1, first paragraph, middle of the paragraph where it says, "although their analysis was not as thorough," our preference would be that "their analysis was not conclusive."

Mrs Sullivan: I like it the way it is.

Mr Christopherson: So what am I going to do? Every change, do you want me to pose it in the form of a motion, Mr Chair?

The Chair: Why do we not discuss it and see what kind of consensus we can build or where we want to go with that. Maybe present what you have as an alternative. If it needs to be a motion, we can do that.

Mr Stockwell: May I ask a question? Would it not be better to deal with the committee's observations, conclusions, in essence? Let's deal with those. If we can reach some kind of agreement on that, or if we cannot, then we will know better as to what we are going to do through the actual verbiage in the report. I think that is important, but if we can find we have common ground somewhere and it is on observations and conclusions and we can debate that, discuss it and reach it if we are going to -- if we are not, then that is fine too -- and then go back and try to redefine what the report says.

Mr Christopherson: The only problem with that is, first of all, this is really meant to be the basis from which the committee observations and conclusions are drawn, basically. Still, this has been done by a neutral party, the legislative staff; not by our staff, not by your staff. I think maybe it is important that we at least substantiate and finalize what that is going to look like.

Second, if we jump to the observations and conclusions and agree on that without having done this, it may lead us back again to finding we do not agree with the observations and conclusions, because they have to be consistent. I just disagree in terms of what is the easiest process, Chris, not with any kind of one-upmanship in mind.

Mr Stockwell: Fine. I just thought the committee would agree, but if it does not, I understand.

The Chair: Can we proceed then?

Mr Christopherson: I have a proposal in front of the committee and I am in your hands as to how you want to handle it, whether you want it just as a suggestion for now to see if it will fly and then a motion, or do you want me to just move quickly to motions and the other parties will do the same?

The Chair: Let's throw it out and see if it flies and we can do it by consensus. If not, then we can have it in the form of a motion.

Mr Christopherson: Okay, then I will repeat: to strike the words "as thorough" and put "conclusive."

Mr Stockwell: We do not care.

Mr Elston: Does it not say they did not do a whole economic modelling, as compared to what other people did? It just says it was not as in depth. I think if that is what the reports and the deliveries to the committee showed, you should say it. I am not going to spend a lot of time over it, but if they did not come forward and say, "This is the modelling we have done, and this the analysis that follows through," and somebody else was able to show a much deeper analysis -- I am sure the banks did more economic discoveries with statistical material than others -- then what is the damage in just leaving it as it is?

Mr Christopherson: It just seems a little negative, regardless of whom it is referring to, to say that they did not do thorough work. There is an implied description of the quality of the work and that is why we felt the word "conclusive" was more acceptable.

Mr Sterling: In the first paragraph, can I just make one comment in terms of the content. It gives, in my view, a false impression of what I read from most economic groups and it has no political bearing on us one way or the other. It says, and I agree, that most forecasters agree that we are going to come out of the recession in the second half of 1991, but I got the impression that most of them said, including the Treasurer actually -- that gives the impression that 1992 is going to be a real blip up and I got the impression that it was going to be a slow climb out.

Now, I do not know whether that is worth while putting another way or not. When I read that, I thought, "Gee, you know, if I was picking that up, I would think that we are going to be on the way to boom times in 1992." I do not know; I throw it out.

Mr Elston: You might too throw it out.

Mr Sterling: I just think it would be more accurate to say that we expect to come back -- you know, to start out in 1991 -- but that the recovery will be slow, or the recovery will be gradual.

The Chair: How about if that was changed, that there will be slow but some growth?

Interjection.

The Chair: Well, "slow," "some," "steady."

Mr Sterling: Why do we not leave it with the drafters and see if they can come up with something?

The Chair: How is that?

Mr Elston: We can attack them later.

Mr Stockwell: Slow and thorough growth.

Mr Christopherson: It is too bad Hansard is on.

Interjection: It is on.

Mr Christopherson: That is what I said, it is too bad it is on.

The Chair: I think we have discussed those two. We can look for those changes in the next draft. Shall we continue on? This is a rather lengthy document. At the rate we are going we will be here until next Sunday.

Mr Christopherson: A simple one, the sentence after in the same paragraph: "It should be stressed that there `has been' no shortage of oil," as opposed to "is," just to reflect the fact that we do not know where it is going to be and just to keep it timely. Again, at the end of that sentence, "has not been affected by the war `to date.'" It may be implied in the date of the report, but we would like to make it very clear that this is to the best of our knowledge right now. That is us for the first page.

Mr Phillips: A bit nit picky, but in the second paragraph, "Unlike Canada, the American industry went through a considerable rationalization process in the early 1980s." I am not sure I have really seen the evidence of that and the implication of that comment is that therefore the Canadian industry is going to go through a big rationalization process in the early 1990s that they went through in the 1980s. I do not remember the presenters actually making that point.

The Chair: Am I allowed to interject?

Mr B. Ward: As Chair, you can do what you want.

The Chair: I think one of the steel presentations indicated that there was some rationalization that took place in the American steel industry that had now put them in a better competitive position.

Mr Phillips: That was one example. It is quite a broad statement that I have personal difficulty in attaching my support to without more information. I just throw that out to the committee.

Mr B. Ward: If I may, the impression I got was not so much rationalization but a restructuring of the economy and perhaps that would be more acceptable to Mr Phillips; instead of the word "rationalization," "restructuring" because that was the impression I got over and over again, that the United States economy went through a restructuring period during the last recession, primarily in its manufacturing base, and the message, that I got anyway, from the major groups in forecasting the Ontario economy was that our economy was going through a restructuring similar to what went on in the United States in the last recession.

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The Chair: What would you like there?

Mr Phillips: I would take this sentence out because I do not have the proof, but I do not feel that strongly about it. I like to support things that I saw the evidence of, but it is not a big point. If nobody else feels it, leave it in.

On the bottom one, The current recession is characterized" --

The Chair: I had better just ask the question. is there any objection to removing that sentence?

Mr Phillips: I do not feel one way or the other.

The Chair: "Unlike Canada, the American industry went through a considerable rationalization process in the early 1980s."

Ms M. Ward: We have to retrieve the following sentence that carries that further. You will have to take that out too.

Mr Elston: You see, it is also not quite true. I take a look at some of the little plants that I remember, and I was here in 1981, 1982 and 1983, when we were discussing a whole series of issues around the recession and the high costs that were placed on Canadian businesses. I remember the number of foundries that closed down in Canada in answer to the restructuring in the auto industry. I remember the people who were laid off in Windsor permanently. It does not quite ring true from my own personal information. I know, for instance, that a couple of businesses in what used to be my home town underwent a whole series of changes, modernizing their equipment, they laid off people, they hired more people back, they recapitalized. So maybe somebody's observation was not particularly apt. Maybe it should not have been repeated because I know there are a bunch of people who never have been hired back from the jobs they lost in 1981.

Take a look at Brantford and a whole series of other places that have gone through, in this last decade, one of the most horrendous sorts of readjustments anywhere. You take out White, you take out Massey-Ferguson. Good Lord, if that is not restructuring and reshaping, I do not know what it is, for Canadian industry.

Mr Christopherson: I understand there was a suggestion of the word "restructuring." I do not know if that solves it. It was pretty clear. When we had our caucus discussions on that clause, we heard that message very clearly from a number of sources.

Interjection.

Mr Christopherson: No, but in this fashion. What we have been hearing from many people is that this is not like the early 1980s; the Americans did go through that restructuring, that rationalization, but we did not. I am sure you can point to communities like Brantford, but on the whole, we did not go through that at the macro level in the same sense that the Americans did in the early 1980s. I am not judging whether it did or did not happen; I am saying that is the consistent point I think we heard.

The Chair: Could I offer a suggestion here, then? Perhaps we could take that phrase out and say that the Canadian economy is in the midst of a restructuring process. We can use either the word "again" or "now." I do not want to pass any premature judgements, but I think the point to be remembered here is that if we put it in here, this might tend to become seen as a word of truth. If we say it, it becomes a word of truth.

Mr Elston: This is our committee's report. I am not going to be prepared to stand up and say that, unlike Canada, the Americans went through restructuring, because I remember sitting here and listening to people and that is not what I remember it being, the way it was.

Mr Sutherland: I think it is the degree. Several other presenters said that the amount of permanent job loss this time was far more substantial than last time.

Mr Elston: Say that, but do not say that Canada was not restructuring like the United States did, because we lost a pile of people in 1981 to 1983.

Mr Sutherland: No one is denying that. I think we are all aware of that. I think this statement is coming out of the fact that several went out of their way to highlight that fact, that there is far more permanent job loss this time than last time.

Mr Elston: Fine, let us just say that.

Mr Sterling: Where is the evidence?

Mr Sutherland: Murray, I do not think you were here at the time, but there was evidence supporting what you are saying and that in coming out of this recession they did not think it would be as deep because the rationalization had already taken place in the early 1980s. Companies were leaner and meaner coming out of the early 1980s and therefore they were better able to cope in this recession. So I do not disagree with what you are saying. I found this whole thrust a bit queer myself, but I do not know how important it is.

Ms Anderson: It is not clear whether you want those sentences in or not.

The Chair: I think what I am hearing is that what should go in there is something like, "We are undergoing a restructuring at this time, and it is resulting in a greater degree of permanent job loss than occurred in the earlier recession."

Mr Phillips: "The current recession is characterized by historically high real interest rates." That is a fact, is it? I cannot remember whether they proved -- there were lots of times when the interest rates were substantially higher than they have been, but it is the real interest rates that are at a historic high.

The Chair: My understanding is that it is the spread between inflation and what the interest rate is. Does anybody have any problems with page I now? Page 2?

Mr Christopherson: I will just list the concerns we have about that first paragraph and then leave it for consideration. We are not comfortable with the first sentence and we would like to see it struck. We would change the second sentence so that it reads, as you head into the third line, "substantially as a result of reduced transfer payments, rising social welfare costs and reduced revenue."

The next sentence would start where the words "transfer payments" are in the seventh line. The next sentence then, after "reduced revenue," would be "transfer payments." It would start there.

Then the last sentence of that paragraph, just to finish our thoughts on this paragraph, is "At the same time, any windfall from the GST," as opposed to "an unexpected." "An unexpected" would be withdrawn and replaced with "any."

Mrs Sullivan: Could you read the paragraph --

Mr Christopherson: What the paragraph would look like? From the top, then:

"In Ontario, the deficit now stands at $2.5 billion and it is possible that it might increase substantially as a result of reduced transfer payments, rising social welfare costs and reduced revenue. Transfer payments to the provinces have been declining, and provincial governments have had to find ways of meeting the shortfall through the introduction of innovative policies or by reducing their own expenditure. At the same time, any windfall from the GST might assist the federal government in its attempt to bring its deficit under control."

Mrs Sullivan: I would suggest that the second sentence read, "In Ontario the deficit now stands at $2.5 billion and it is possible that it might increase substantially as a result of reduced transfer payments, rising social welfare costs, reduced revenue plus expenditure decisions."

Mr Sterling: Evidence was presented to the contrary. The Treasurer came in and said he got an $800 million windfall from the transfer payments. That is why his deficit is not $3.5 billion.

The Chair: Just a minute. I want to deal with this first one, "plus expenditures." What was the phrase?

Mrs Sullivan: "Plus expenditure decisions."

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The Chair: "Plus expenditure decisions." Are we living with this or are we going to die on this one?

Mr Christopherson: We are listening.

The Chair: "Plus expenditure decisions"?

Mr Christopherson: I did not say we agreed. I said we are listening.

The Chair: I am listening, too, and I am trying to get a sense of --

Mr B. Ward: Could we have Barbara's rationale?

Mrs Sullivan: Given some of the announcements that have been made since the change in government relating to capital works, relating to elimination of the retail sales tax on the GST, social assistance rate changes, child care announcements, housing starts and so on, clearly, one of the contributing factors in relationship to the deficit -- the other two major factors, of course, relate to announcements very early on in this government's administration relating to SkyDome and relating to UTDC. As a consequence, those are very much factors in the current-year deficit and will continue to be a factor in the 1991 deficit.

Mr Phillips: I am not sure what this means. I thought we were talking about this year's deficit. Are we forecasting next year's deficit here? What is the intent of this paragraph? If that is the case, for me at least, we are only eight weeks away from year-end. The Treasurer was just in here. He was saying he feels fairly good that this $2.5 billion is what we are going to have. So I do not think it is realistic to say it might increase substantially.

Personally, I think we have the $2.5 billion pretty much in sight. Therefore, I would be more inclined to say it now stands at $2.5 billion and it looks like that will be the case for this year, this deficit, relative to the expectation of surplus, as a result of somewhat lower revenues, about 1% lower revenues; and then, it seemed to me, there was $600 million for welfare payments, $400 million for UTDC and $400 million mainly for SkyDome. I think we must determine what we are trying to talk about here with the deficit. I would be very surprised if the deficit is going to be higher than $2.5 billion.

The other one -- and this gets a little political, but I remember transfer payments are about 10% of the revenue. It is nice to blame the feds, but 90% of the revenue comes in from other sources, so there is a limit to how much we are going to be able to lay on the feds, although I would like to blame the feds for everything.

So my question is just that if the intent is to talk about this year's deficit, I cannot imagine that it is going to be much off the $2.5 billion, and it is fairly clear where it comes from.

The Chair: I think that is a good question. What is the intent here? What do we want to say in that paragraph?

Mr Phillips: Because later on we get into forecasts. I think it is just a matter of what we are talking about here, and I think we are talking about the current deficit.

Mrs Sullivan: The Treasurer says it will not increase.

Mr Christopherson: So what is the current proposal, then?

Mr Phillips: If in fact we are trying to say, "In Ontario the deficit now stands at $2.5 billion," I do not think it is true that, "it is possible it might increase substantially as a result of" --

Mr Christopherson: I hear where you are going. I would have to ask the authors. I think we took it to mean next year's fiscal budget, or were you referring to the $2.5 billion? Anne or David? In that sentence, as the author, were you referring to fiscal 1990-91 or 1991-92?

Mr Rampersad: I got the impression that we were saying that during the course of the year we might have an increase.

Mr Christopherson: Which year, though?

Mr Rampersad: In 1991-92.

Mr Christopherson: So this is for next year?

Mr Phillips: Mr Chairman, if we are going to talk about next year, then we get into a whole set of things, it seems to me, about other expenditures.

The Chair: Maybe we should get something clear, that is, what the purpose of the preamble to the recommendations is. Are we doing the state of affairs now or are we doing a projection? If we are doing the state of affairs now, then perhaps we would want to look at that in light of --

Mr B. Ward: The heading of the section is "Current State of Affairs," so in fact it does refer to this year's potential deficit of $2.5 billion. I think it is simply rearranging this paragraph to reflect that it is anticipated, based on input given to this committee, that the $2.5 billion will be maintained as far as the deficit for this year is concerned, because it is the current state of affairs. That is what you were trying to get at, was it not, Gerry?

Mr Phillips: Yes. Later on I think we get into forecasts and that is when we --

Mr B. Ward: Perhaps we can just have staff reword that whole paragraph, to reflect, for the Treasurer and everybody else, that the deficit should be $2.5 billion.

Mrs Sullivan: We might even specify it more by putting that fiscal year end of 1990-91.

Mr Sterling: I think it is important that you have the information in the report as to what in fact the deficit is. I would really like to see the deficits of the province and of the federal government. I would like to see the per capita debt of both, and the cumulative deficits as well, because in my view those things are to be considered in whether or not you spend money to get out of a recession.

It would be interesting for me as well to know what the per capita debt is in the American jurisdictions around us, because we continue to talk about the competitive situation. That is why I am interested in knowing that information: What do I recommend to the Treasurer to do in terms of his budget? You recommend on the basis of: Does he have any room to spend money? Should he drive the deficit higher by trying to spend his way out? Or should he be more concerned about holding the line? That is, I think, the political decision you make after the evidence is produced.

So what I would really like to see is an appendix to the report saying that the deficits are -- I do not think anybody said the deficit was not substantial. I think there were several groups that said it was substantial, both here and at the federal level, but I would really like to know what the facts are, and per capita debt is an important number for people to relate to.

Mr Sutherland: To alleviate the wording problem, if after "billion" you deleted "and it is possible it might increase substantially," the sentence would seem to flow well and indicate that it was referring to this year.

Mr Christopherson: So it would read, "In Ontario, the deficit now stands at $2.5 billion as a result of reduced transfer payments, rising social welfare costs and reduced revenue."

Mrs Sullivan: I would still like the words "plus expenditure decisions" included there as well.

The Chair: Does anybody have any problems with that?

Mr Sutherland: Maybe we should just leave that one for now and come back to that issue.

Mr Stockwell: You cannot say you have a $2.5-billion deficit and then, in the same sentence, blame it everywhere except on the guy who is spending the money. For goodness' sake, let's be reasonable. If you have a $2.5-billion deficit, yes, some comes from social welfare costs, some comes from reduced revenue, I agree, some comes from transfer payments. But yes, some comes from spending money.

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Mr Sutherland: If you want to put it from policy expenditures. that is fine, but we could get into quite a debate about SkyDome and UTDC. Whether you want to say policy expenditures by this government or by the past government, for that matter, we could debate that for hours.

Mr Stockwell: How about policy expenditures by both governments?

The Chair: Just to interject, I think the phrase was "policy expenditures." Policy expenditures are expenditures. It is pretty open. It does not blame anybody.

Mrs Sullivan: "Expenditure decisions."

The Chair: It does not really blame anybody, does it? I mean, who is footing the bill?

Mr Christopherson: "Plus expenditure decisions." Let us get back to you.

Mr Phillips: What about "expenditure and revenue decisions"? That would reflect that the revenue is down by $70 million, too, because of the decision.

Mr Christopherson: We will have to set that aside for now and we will get back to you on that.

The Chair: Is that paragraph substantially okay?

Interjections.

Mr Stockwell: Let's move on and see what else we are not going to agree on.

Ms Anderson: Can I suggest this? We just take that first sentence, really, and then we will add some things about the current state of the per capita debt and move the rest of it later.

Mr Phillips: Transfer payments to the province have not been declining.

Mrs Sullivan: The rate of increase has been declining.

The Chair: Are we happy there?

Mr Christopherson: I am just a little unsure about exactly what is going to happen. I could not hear the researcher.

The Chair: This is the way it is going to stay unless we get directions to do something more specific with its the changes we have heard: "In Ontario, the deficit now stands at $2.5 billion as a result of reduced transfer payments, rising social welfare costs.... Such deficits have prevented governments from adopting" --

Mr Christopherson: No, no. no.

The Chair: That is out?

Mr Christopherson: Hold it, Mr Chairman, please.Slow down. We proposed what we would like to see in this paragraph and then we left it there to sit. The only thing I heard come back was from Mrs Sullivan, who asked that the words "plus expenditure decisions" -- and then Mr Phillips suggested perhaps "expenditure and revenue decisions" -- be tacked on after the words "welfare costs." Mr Sterling asked that there be an appendix regarding certain information. Those are the only three things I heard come out.

Our response was that we wanted just a chance to caucus later on and get back to this group on the request for "expenditure and revenue." Our concern is how the UTDC thing is going to play into it. and the SkyDome, and that is what we want to talk about. But I can appreciate the arguments made by Mrs Sullivan and Mr Stockwell. As to the rest of it, unless we hear something contrary, I am assuming it is out.

Mr Phillips: The rest of that paragraph?

Mr Christopherson: As the last time I read it, at Mrs Sullivan's request.

The Chair: Read it again, please, the way you envision it, whatever changes you want to make.

Mr Christopherson: "In Ontario, the deficit now stands at $2.5 billion as a result of reduced transfer payments, rising social welfare costs and" -- and the rest of it is still to be finalized. Then it picks up with, the next sentence is, "Transfer payments to the provinces have been declining and provincial governments have had to find ways of meeting the shortfall through the introduction of innovative policies or by reducing their own expenditure. At the same time, any windfall from the GST might assist the federal government in its attempt to bring its deficit under control."

The Chair: Are we happy with that?

Mrs Sullivan: I do not know who said it. It is not transfer payments that are declining; it is the rate of increase in transfer payments.

Ms M. Ward: Having taken that first line out, the last sentence really has nothing to hang on. The paragraph does not have a good structure in terms of sense.

The Chair: It lacks unity, emphasis and coherence.

Ms M. Ward: That last sentence is like a thought thrown in that has nothing preceding it in the paragraph.

The Chair: Should the last sentence be deleted?

Mr Christopherson: I think the earlier reference to "federal" has been removed.

The Chair: So that should go?

Mr Christopherson: Yes.

Mr B. Ward: I do not know what details we have to get in here, but I would like to add the word "approximate" before "$2.5 billion," because we are not really sure it is exactly $2.5 billion. It is approximately $2.5 billion.

The Chair: Okay. Next paragraph. Is anybody not okay? The third paragraph?

Mr Christopherson: One small change at the end, the last sentence. "It" -- meaning Ontario -- "retains a good industrial structure and it `remains' the most attractive destination for immigrants."

The Chair: Any problems with page 2? Page 3? I wish some of my students were here to see how we are going through this word by word. A good lesson in writing.

Mr Phillips: It is like eating in a fine restaurant. You never want to go in and see how the stuff is made.

This is a detail, but, "However, the current recession is a natural reaction to a long period...." I have trouble accepting that.

Mr Christopherson: So do we. The fact is, we want it struck.

Mr Phillips: I think you accept that you never have a -- okay, good.

The Chair: That "however" sentence is out? Where are we?

Mr Phillips: I am only one member of the committee.

Mr Christopherson: We were going to propose that.

Mr Phillips: At the bottom, Mr Chairman, "The Canadian economy operates in a barrier-free North American market." I am not sure it is barrier-free as yet, and what is the definition of "North America"?

Mr Elston: It used to include Mexico.

Interjection: I think it should include Mexico.

Mr Elston: Mexico City, North America.

Mr Phillips: I just do not think it is an essentially barrier-free North America. It is an essentially barrier-free US-Canadian trade market.

The Chair: Almost. Is that "an almost barrier-free"?

Mr Phillips: Well, "almost barrier-free" or "essentially" or whatever is a better word. "US-Canadian market" as opposed to "North American."

Mr Elston: I would have even gone further with a contrary view to that being the case. In fact it is not barrier-free. There are more impediments, in my view, under the free trade organization's dispute resolution mechanisms and the problems that are inherent in state legislation than I think a lot of the federal authorities want us to believe. I think it certainly is not true as it pertains to trade between Ontario and Quebec or Ontario and Manitoba or Saskatchewan. I just think that is much too lenient a description of our trade deal of the moment.

Interjections.

Mr Elston: The fact of the matter is that this is not correct, the way that we define the North American economic union about to be, if that is what it is going to become, because it just is not barrier-free.

Mr Christopherson: What would you suggest?

The Chair: I think the point here is to talk about what we have and the concern about where we might be going if we see the free trade agreement extended to Mexico and how that impacts on us. I think that is what that is meant to do.

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Mr Elston: I just object to the "barrier-free" because I know that it is not.

The Chair: The suggestion is to take "barrier-free" out. "It is important to remember that the Canadian economy operates in a North American market."

Mr Christopherson: Actually, we have got a problem with the whole paragraph, to tell you the truth.

Mr Stockwell: What is your problem with that? Is your problem that you do not think it is going to happen or is your problem that you do not want to see it happen?

The Chair: My reading of what has been said is that it is not a real reflection of what is actually taking place.

Mr Stockwell: I understand what Mr Elston has said. It is talking, as I see it, in present terms and in future terms. We are talking about a market that is beyond our own. I suppose it is going to happen or it looks like it is going to happen. Now, we do not really have a lot of control over that. Are we simply ignoring the obvious because we do not like it? I guess that is what I am trying to point out. I am not saying we have to like it or dislike it.

Mr Jamison: It is not really barrier-free. Even the bilateral deal is not barrier-free, if you look at it. The Americans at this point, quite frankly, have the ability to article-301 us or counter vail us or whatever.

Mr Stockwell: I do not want to get into a whole free trade debate. We are not going to agree on that. I guess what I would like to know is --

Mr Elston: You said, "What is your problem?" What is your problem?

Mr Stockwell: I think this is going to happen. It is going to happen because the federal government looks like it is committed to making it happen and I do not want to simply omit it because we do not happen to agree with the federal government. It is a fact of life, and shutting your eyes and hoping the lion does not see you is not the way of doing it.

The Chair: Mr Stockwell, with all due respect, I think that the debate here is whether or not it is barrier-free. Your part of the argument, from the way I understand you -- and correct me if I am wrong -- is that you are saying that it is barrier-free and that is the way we are moving. The argument that I hear from Mr Elston is that in fact there are lots of impediments. They are municipal, they are city-wide, they are state-wide and there is still the free trade deal itself.

Mr Stockwell: You have misunderstood my argument. My argument is that we are moving more towards a barrier-free --

Mr Sutherland: Why do you not say "tariff-free"? That is really what the free trade agreement was, to make it tariff-free not barrier-free.

Mrs Sullivan: I think we should just leave those words out.

Interjection: The whole paragraph?

Mrs Sullivan: No, just "barrier-free."

Mr Elston: All you need the paragraph for is to set the context for the operation of the economy, right? The pressures that are generated by increasingly hemispheric trade initiatives -- maybe we should put "are going to cause a considerable period of rationalization" or"go hand in hand with the past three years," something like that. You have to set the context. That is what this thing is supposed to do for us, to forecast for the people reading this report that there are troubles ahead unless the government responds in a particular way, I presume. Since this is advice to the Treasurer, we are presumably alerting him and his colleagues in cabinet of the fact that he has got to do something.

The Chair: It is also a document, as you pointed out earlier and I think is worth repeating, that a lot of people are going to read and use as the gospel according to this committee. I will just leave it there.

Ms M. Ward: Given that a lot of people have called this a made-in-Canada recession, including people appearing here and what you read in the newspapers, can we really agree with the first sentence that, "It is impossible to point to...causes of the recession"?

Mr Stockwell: Oh, come on, name one person who says it is a made-in-Canada recession.

Ms M. Ward: I can find it in some of these briefs.

Mr Jamison: We had about three presenters who said that.

The Chair: The Royal Bank.

Ms M. Ward: I think the Conference Board of Canada did also.

The Chair: The Conference Board, the Automotive Parts Manufacturers' Association, the --

Mr B. Ward: Blame that on the federal government.

The Chair: It is a good job you were not here, boy,your ears would have been burning.

Mr Stockwell: If it is a made-in-Canada recession, we certainly have far-reaching powers because we now reach Europe and the United States and we are a major leader in world affairs.

Mr Jamison: Mr Stockwell, we led the way into the recession. We were there ahead of other countries.

Mr Stockwell: No, no, you said -- we did not say we led the way into the recession. You said it is a made-in-Canada recession, meaning very clearly that no one else is in a recession and it is only through our ineptness that we are in a recession. Totally unbelievable, it is absurd.

Mr Christopherson: We would feel most comfortable just removing that first sentence.

The second thing we would change is that in the next sentence, the last sentence of page 3, the word "opportunities" be removed and replaced with the word "pressures." Actually, it would be "opportunities provided" replaced with "pressures." It would then read "partly in response to the pressures under the FTA."

Mr Elston: "Pressures generated by"?

Mr Christopherson: "Generated by the FTA."

Mrs Sullivan: I think it is important to leave the first sentence in. Indeed, it shapes what is a factor that is clearly on the table at the federal level. It will have a major impact on Ontario over the longer term, and the federal government is at the table on that issue. Whether the current administration in one of the provinces concurs or does not concur, the thing is that it can very likely happen, which is all that says. I think it should be there. It is a reality.

Mr Elston: Why do we not say that "the Canadian economy operates in a North American market that is quickly moving towards a hemispheric" --

Ms M. Ward: I thought we were talking about the first paragraph.

Mr Elston: Oh, I am sorry. I am bouncing around. We were talking about the last sentence in the last paragraph on page 3, and I thought we were at the first of that. I am sorry.

Mrs Sullivan: First paragraph on the page and the last --

The Chair: Can we deal with this paragraph and then glue it together? Could you read your suggestion again, Mrs Sullivan, about how you would like to see that last paragraph worded?

Mr Elston: Okay, that is where I thought we were.

Mrs Sullivan: Yes, that is where I thought we were too. I am getting all confused. I would simply leave the first sentence in but for the words "barrier-free." Unlike the NDP representative who recommended that be taken out, I feel it is important for it to remain in because it is a reality that is going to have to be faced and "might even" is enough of a hedge that it describes the next phase of development, presumably, in an expanding market.

Whether the second sentence is changed to replace "opportunities" with "pressures," indeed there have been some opportunities for rationalization and increased productivity within Ontario under the FTA, and some of the pressures have lead to closed jobs. So, one or the other. Clearly, there has been a rationalization, not only due to the FTA but partly in response. Why do we not just say "partly in response to the FTA"?

Mr Christopherson: I am a little unclear. We are certainly open on this. We are not hard and fast on the position.

The Chair: Could you read your whole paragraph as you see it?

Mr Christopherson: Yes, but I am a little confused.

Ms M. Ward: Maybe I misunderstood, Dave, because I brought up the point about the first sentence on the page and I thought that was the sentence that you were referring to. It is not?

The Chair: No. We are dealing with the last paragraph. We will get back to your first paragraph. Could you read your last paragraph again?

Mrs Sullivan: "It is important to remember that the Canadian economy operates in a North American market that is likely to be expanded in the near term and which might even become a hemispheric market in the medium to long term. The Canadian and Ontario business sector has undergone a period of considerable rationalization during the past three years, partly in response to the FTA."

Mr B. Ward: Could we add one word? "It is important to remember that the Canadian economy primarily operates" because we do have trade with Europe --

The Chair: "Primarily."

Mr B. Ward: "Primarily operates" recognizes that most of our trade is with the United States.

Mr Stockwell: Fine.

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Mr B. Ward: However, the reality is that we do have some trade.

Mr Christopherson: Somebody had already jumped to the last paragraph before we had a chance to do the second one. I did not want to throw us off, but --

The Chair: Let's do the first paragraph under"Causes of the Recession."

Ms M. Ward: I just brought that point up. I was not making a recommendation. I do not agree with that statement that, "It is impossible to point to" maybe not "a specific cause" but "the causes of the recession." The interest rate was what concerned me. I do not think there is much emphasis on it through here.

Mr Elston: So you just take out the first sentence and start off, "Numerous factors have converged...." It does not make much difference.

The Chair: Strike that first sentence: "It is impossible to point to a specific cause or causes of the recession."

Mr B. Ward: David probably worked for hours on that sentence. We are taking it out, Mr Chair?

The Chair: I am at the will of the committee.

Mr Stockwell: Fine, take it out.

The Chair: Paragraph 2?

Mr Christopherson: I just want to mention early on, we have changes but some of the chapters, if I can call them that, did a very good job, as we saw it, of attributing statements to the groups that came in. They were very clear that this group said this, a number of either labour groups or business groups or economic forecasters. Then there were some chapters or sections that did not. This was one of them where we thought there should be more attributing of some of these statements, as opposed to just making them straight up. For the note of the researchers, we saw pages I and 8 as good examples of doing that a little more thoroughly.

The third paragraph, middle of the paragraph, "The high exchange rate of the Canadian dollar is caused by a number of factors, none of which can be considered in isolation." We have a bit of a problem with that to the extent that, although this may be a philosophical departure point, the whole concept of the made-in-Canada recession and why the Canadian dollar is where it is we see as clearly a decision of the Bank of Canada at the behest and support of the federal government. To just say it is caused by a number of factors and not point more specifically gives us a real problem.

The Chair: Could I have a line or something from you that you can live with there?

Mr Christopherson: Yes. Let me throw this out for discussion: "Is caused primarily by the Bank of Canada."

Mr Stockwell: We need a reference point.

Mr Christopherson: We did throw in "primarily," Chris.

Mr Stockwell: No, we did not.

Mr Christopherson: I thought so.

Mr Stockwell: The trouble is in the second paragraph, "The onset of the American recession." I guess you would have to include, "led by Canadian policymaking," if it is a made-in-Canada recession. I forgot that.

Mr Elston: No, it says, "had a major effect on helping to deepen the recession."

Mr Stockwell: But I am saying you will have to include the only reason they are in a recession is because we led the way.

Mr Christopherson: No.

Mr Stockwell: No?

Mr Christopherson: A made-in-Canada recession does not mean --

Mr Stockwell: We pulled them in with us.

Mr Christopherson: No.

Mr Stockwell: Okay.

Mr B. Ward: They have their own problems.

Mr Stockwell: I see. So we have a made-in-Canada recession, a made-in-the-United-States recession, a made-in-England recession. It is kind of weird how we all go in at the same time.

Mr Christopherson: That sentence is very carefully structured and as far as we are concerned it is very accurate.

The Chair: Could I have again, for the sake of the researchers, the change that you are proposing for that paragraph, then, Mr Christopherson?

Mr Christopherson: At this point it is, "The high exchange rate of the Canadian dollar is caused primarily by the Bank of Canada" period, striking "by a number of factors, none of which can be considered in isolation." That part is struck in our proposal.

Mr Phillips: I know it is a lot of fun to blame this on Crow, but I thought the credit people had a reasonably good observation in their notes on the economy they gave to the federal government. As I say, it is fun to blame it on Crow totally, but one of the reasons he had to keep it high is we can only get money to service our debt nationally offshore. You can only attract it by the interest rates. It is not as simple as we would like.

I think we all think, "Reduce interest rates, the Canadian dollar drops to 80 cents, we are all out of the woods," whatever. But as he says here, or as the credit union people say, for example, "Overseas investors have significant investments in the short-term instruments. This money could leave the country quickly, producing a sharp drop in the Canadian dollar," which we all might like, but as I say, I think we have to be a little bit careful of being overly simplistic, and that is why maybe the writers put that in. I do not want to minimize the fact that it is not going to be simple to reduce.

Mr Jamison: I think that what we are trying to say, and say clearly, is that there is an extremism on the part of the position of the dollar at this time.

The Chair: If I could interject here, rationalization for the high Canadian dollar is not what you said. The constant reminder of the Bank of Canada is that the dollar is high because of inflation. That is the reason it is high, to curb inflation. That is the primary reason, as I understand it, and not that one of the presenters indicated that the dollar would not fall, that interest rates would not fall.

Mr Phillips: I think all the banks said, "Listen, we now have a substantial part of our debt that is offshore and one of the challenges in taking the dollar down, taking interest rates down is whether we will be able to service our national debt or not."

The Chair: In response to a question that I put to one of the bank associations about that -- I asked to what extent our debt was offshore and to what extent the federal deficit was being financed offshore instead of just buying it within. The response that came back was that most of the federal deficit is financed here and the problem lies with the industrial sector that had borrowed its money offshore in response to the shortage of money here because the federal government was taking it up, and our interest rates were held high in order to curb inflation.

Mr Phillips: I would have to reread Hansard. I have just a different recollection.

Mr Stockwell: The Canadian Bankers' Association said exactly what Mr Phillips just said, word for word. Exactly that. I think it is unfair, and again, you can play games and put it all on one person, but the last deputation made that exact point.

The Chair: We have heard many others.

Mr Stockwell: Okay, but there are always conflicting views, and to simply say that is the primary reason is unfair.

Mr Christopherson: Mr Chairman, in recognition of the comments made -- and we are an easy-going bunch, as you will find -- to include "primarily caused by the Bank of Canada and federal government deficit," we can live with that.

Mr Elston: I may be out of turn, but do we have to pinpoint all the reasons behind each of these problems? Are we not asking in this paragraph to identify the reasons why we find ourselves in a recession? Yes, we find ourselves in a recession because of some global problems; yes, the tight monetary policy contributes to the recession that hit us; yes, there is a problem with the value of the high exchange rate of the Canadian dollar. Are we charged with trying to determine exactly why everything has happened that way? Are we not just enumerating those as causes of our recession? So why are we worried about whether or not it is attributable to X, Y or Z? Let's just identify those as problems with which we have to wrestle. I mean, we are not here to solve the world's problems.

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Ms M. Ward: I think we have two different things here that we are arguing about. Mr Phillips is objecting to our blaming it on the Bank of Canada, saying that the Bank of Canada may have some valid reasons for its actions. But I do not think that stops us from identifying it, that the high Canadian dollar is caused by interest rates. That there might be an argument that those are justified is a separate thing.

Mr Elston: I just say to identify that high interest rates cause problems, high exchange rates in the Canadian dollar cause problems and let's let the Treasury people figure out what the problems are.

The Chair: Can we live with that?

Mr Christopherson: I understand what Mr Elston is saying, but what is his proposal vis-à-vis what is in front of us?

Mr Elston: I just basically said let's not try to attribute the blame. All we have to do is identify.

Interjection.

Mr Elston: Well, you can just identify it and say tight monetary policies or global problems, whatever. What does it say? "Circumstances peculiar to Canada and Ontario are also responsible for the local recession. In part, they are part of the response to the global changes described above. The tight monetary policy of the Bank of Canada...the high exchange rate of the Canadian dollar." Just list them.

Mr B. Ward: So you are saying "these circumstances include."

Mr Elston: Yes. If you start saying it "is caused by" then perhaps that is where we are going to have some problems with dissent and we may never get by this paragraph. But it is certainly clear, I think, and all of us can agree, high interest is a problem for us in Ontario; the exchange rate on the Canadian dollar is a problem for us here in Canada, and in Ontario in particular. The policies, from the Treasurer's point of view, are going to have to be developed to help minimize those influences on our economic condition. So let's let him figure that out.

The Chair: Can we live with that?

Mr Elston: Let's just list them.

The Chair: The first three sentences would sit as they are, and then you are suggesting "the high exchange rate of the Canadian dollar" --

Mr Elston: -- "is also a contributing factor," if you want, and then you do not even have to say what it is caused by.

The Chair: I think he said the high interest rates, the high value of the Canadian dollar. Just list the factors and then get on with it.

Mr Elston: I may be missing something, but is that not maybe enough for it?

Ms Anderson: Yes.

Mr Christopherson: The only thing I would suggest, though, is that what we have heard from most of the people who came forward is that it was a two-punch. You have to tie the high exchange rate and the high interest rates hand in hand.

Mr Elston: They are listed there together.

Mr Christopherson: But I am saying they should really be in one sentence, in the same sentence so that they are given equal weight, that is all.

Mr Elston: I think of this report to be read by somebody who just got laid off and who would try to identify whether or not we were doing real work or whether we were being a little bit fictitious. Would they agree that they have been affected by, or the economy has been affected by, high interest rates, by the high value of the Canadian dollar internationally and by global changes? I think they would understand that and say, "Yes, that's probably pretty clear." Now, are they going to be as concerned about whom to attribute those problems to, consistent with their own problems? I think they are not as concerned about that, but they want to know that this is a valuable piece of advice for the Treasurer, so that if we can identify the problems, then the Treasurer can take steps to deal with those issues, if he can.

Mr Christopherson: I am sure they will want to know in 1992, but in terms of right now, your point is well taken. I think as long as we took the tight monetary policy of the Bank of Canada in addition to the high exchange rate and tied a sentence in that way, if that is a fair compromise, that meets our needs and I think it might go a long way to meeting yours. I do not know about Mr Stockwell.

Mr Stockwell: Fine.

The Chair: We can write off page 3?

Interjection: Sounds like it.

The Chair: Page 4.

Mr Phillips: Can we be more specific on that, "in the long term, political uncertainty in Canada, caused by the NDP election"?

Interjections.

Mr Phillips: Okay, I am kidding.

Mr Christopherson: And I thought we were bending over backwards to be non-partisan here.

Mr Phillips: I assume that does refer to --

Interjection: The Constitution.

Mr Phillips: Yes.

Interjection: Maybe we should spell it out.

Interjection: Where is this?

Mr Phillips: Two lines, halfway down.

Mr Christopherson: Do you want to say "constitutional uncertainty in Canada"?

Mr Phillips: This will elicit, I am sure, some discussion, you know. I believe it. Specifically what it will be is something the committee should discuss.

Mr Christopherson: I think that is a fair point. Whenever the Treasurer is having consultations with people, wherever possible he tries to ask them what their thoughts are on the constitutional question. I think that is a recognition of the impact that whole matter is having on dollars and investments. That is why when you mention it, I think it is well worth making it very clear, when we say "political," we are talking about the constitutional uncertainty. I think it is a valid point.

Ms M. Ward: Is it possible, though, that the words "cannot fail" are a little too strong? Are we not saying it is a foregone conclusion that it is going to happen.

Mr Stockwell: Are you going to put those in?

Ms M. Ward: No, the words are there, "cannot fail."

Interjection: "May"?

The Chair: We could say, "Constitutional uncertainty in Canada could have an adverse effect on investment decisions."

Mr Stockwell: Do you really think that is watering it down? "Could have"? I mean, it is going to have.

Mr Christopherson: It is having. But to what degree? We are not measuring degrees here, but if anybody wants to make the statement that it is not having an impact out there, I would challenge it.

Mr Stockwell: I think pretending it could have -- you are suggesting that it is not here.

Ms M. Ward: "Is expected to"?

Mr Stockwell: It is here. It is having its effect.

The Chair: Then you could say, "Constitutional uncertainty in Canada is having some adverse effect on investment decisions."

Mr Elston: If you wanted to hedge your bets a little bit, you could put in some escape words for the committee's benefit. If you cannot pinpoint a definite presenter, you could say, "It is the committee's feeling from the general sense of presentations given that the constitutional uncertainty surrounding Canada's future is having an adverse effect on...." If you want to escape being definitive, that is the way to do it. I think it is a general sense that I get from listening to members in turn, who have heard more of the presentations than I did, that you feel --

Mr Stockwell: It has been stated.

Mr Elston: Okay, then you should just go right ahead and say that.

Mr Christopherson: Unless others have a problem.

Mr Elston: How far do you want to go as a committee in underscoring that for the purposes of somebody who does political analysis of committee work in this Legislature, for the benefit of investors in New York or some other place, jurisdiction? They read this stuff. Particularly the people in the state of New York, for instance, are looking at any advantage at all. If they can hold up a committee report that says our own committees are identifying now that the constitutional uncertainty is a reason why people are not investing in Ontario, you may find yourself compromised just slightly by that as you try to go the rounds to say, "Don't set up your new business in Buffalo.'`

It is just something that you have to be aware of once you get into the position of writing these reports, because whether they are seen to be government-adopted reports or not, these are government workings in the province of Ontario, government in the small-g sense. So consider the wording from that point of view, I think.

The Chair: Since you put it that way, should we take it out?

Mr Christopherson: Let's come back to it. You raise a valid point and I think we would like to chew on it.

The Chair: Does anybody have any problems with that page?

Mrs Sullivan: I am looking at the very last sentence in the first paragraph, page 4. "At the same time, because companies that have been unable to compete successfully have failed, only the most efficient producers are likely to survive and be competitive in the post-recession period." I think what you are looking at here is a statement that really reflects the reality only -- maybe not only, but specifically in the manufacturing sector.

The discussion about productivity increases and competitive successes largely related to an increase that was also occurring in additional value added in those sectors. Certainly in any recessionary period the tough fighters are the ones that stay in, but I think, by example, of the construction industry, where a lot of their failures are market driven rather than productivity-driven. I think that is a little too all-encompassing.

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The Chair: How would you like to change that?

Mrs Sullivan: I am not sure. Maybe the writers can come up with something that would take into --

The Chair: Would you prefer something along the lines of, "In the manufacturing sector, some companies have been unable to compete successfully because they have not been efficient producers" --

Mrs Sullivan: No.

The Chair: I am just trying to be helpful here.

Mrs Sullivan: No. A lot of the companies in the manufacturing sector have all sorts of other issues affecting them. I just think there are other forces that have caused companies to fail and close down. The brush is just too broad there.

Mr Elston: I am also concerned, because this could suggest to people that the only reason companies are closing their doors here is because they are not competitive, while in fact the truth of the matter is that several have been purchased by foreign concerns and are now moved beyond our boundaries, particularly in the United States.

One of the first big issues that had to be dealt with by the new government was the issue of Consumers' Gas and who should buy or who should not. It does not mean, because these plants no longer operate in Ontario or in Canada, that they were not productive. Their loss is very hard felt here, but because they are so competitive, because they had good products, they now perhaps are manufacturing someplace else. I want to attribute some blame to the good product lines that are manufactured by some of these concerns that now are being made other places.

The Chair: How do we do that?

Mr Elston: I do not know. It just makes it more complex. I know the desire is always to try to go as quickly and as simply --

Interjection.

The Chair: Multinationals closing branch plants and moving them to the States.

Mr Elston: And taking product lines with them.

Mr Jamison: That is right. Restructuring once the buy out takes place. That is happening quite frequently.

Mr Elston: I do not want to make it look as though the Ontario marketplace is so highly uncompetitive and therefore we are all closing down. It is not the only story in town. That is all.

Mr Hansen: I would have to agree on your point, Mr Elston. We heard for a period of time that it was consolidation, that there were plants in the far south that had the capacity to run another shift. I think we would be letting the word out to other companies that want to locate here in Ontario that it is a scary place to come. I think you are correct in that sense. It was multinational companies that were consolidating their product lines.

The Chair: We need to give some direction here about what we would like to do with this phrase. Should we just take it out?

Mr Elston: It is strange. It seems to be a given that only the most efficient producers are likely to survive. It is a just the problem that in Ontario's economy the most efficient producers also are being taken away. I just do not know how you wed the ideas in there.

Mr Christopherson: I think the points are well made. We are comfortable with the writers taking another run at it, bearing in mind some of the things that have been said here, and we will all take a fresh look at it.

Mr B. Ward: I think it is also important, the point Mr Christopherson made about having the writers reflect which organizations expressed these opinions. That would be helpful as well, because we have met with a large number of groups and I do not recall which organization, if any, told us, "At the same time, those companies which were unable to compete successfully failed." I do not recall which organization told us that. When they redo this report, when they slot these opinions in, then as a committee, under observations and recommendations we can agree, disagree or expand on whatever we have heard.

Mrs Sullivan: You might want to look at the CIBC. The chief economist for the CIBC was quite direct in her discussion relating to the lean and mean operations that would exist after coming out of this recessionary period.

Mr B. Ward: As most of us have, I missed some meetings when we were consulting with the organization. So as they redraft this report, to slot in which groups or which representatives expressed these opinions would be helpful as we firm up our own observations and recommendations.

Mr Phillips: Can I make another general point?

The Chair: Are we off that point?

Mr Phillips: Just because I think we are going to break at 3:30. The challenge for us. I think, is to make sure we do not forget areas that may be important but did not appear before us, that we each reflect on them a little. I think there is always a tendency to hear the squeaky wheel. I do not know whether I have them all right, but there were very few people from the environment here; a year ago or two years ago, I think we would have had them here. I think we should at least think about that so our report is not incomplete. Similarly, I do not think there was anybody from policing here, whether that is an issue or not, nor rapid transit. We had all the road builders, but none of the --

Mr Sutherland: We did get Transport 2000.

Mr Phillips: Did we? I do not remember that. We had somebody from pulp and paper -- I guess they did send one in -- and mines. Those were five things that at least I am going to think a little about, to make sure we do not forget. They are important areas; just because they did not happen to make an appearance. I wanted to raise that before we go away so that when we issue this report somebody does not say, "Well, how could you ever consider an economic report without" -- whatever it is.

Mr Christopherson: Mr Chair, we are a few minutes away from adjournment. Maybe we should end it right there. We have completed page 4 as far as we are concerned. As long as we have another month and one half, we will get through this, no problem. But we would like to adjourn rather than start into another page, which could take us into --

The Chair: Perhaps if we could all come back tomorrow morning at 10 o'clock having examined it, we could maybe move a little quicker through the preambles, and then we can get into the recommendations.

Mr Christopherson: By way of process, I assume we will continue this way; if we can expedite it, fine. At least having done it once, we have some sense now of how this might work. It would appear that there are some differences but at least a certain level of co-operation on all parts, and I think that is very helpful.

Could I ask how we would proceed with the observations and recommendations part? I understand how we will do the text. Does anybody have any suggestions? For instance, does one of us want to start out with what our thoughts would be on it and then let the others put theirs out, or what would you suggest?

The Chair: Just by way of interjection, we have -- I guess we will be getting it by tomorrow morning -- all of the recommendations that all of the groups put forward. This is just a thought, as you asked --

Mr Christopherson: You are not going to suggest we do every one.

The Chair: Perhaps we could go through it as caucuses, and decide what we want to do, where we want to go with this, or, if you want, how you want to come back with recommendations.

Mr Christopherson: Let me try something out. We can come back, if you wish, as we have done here: We will take first cut in terms of what we would like to see, and then let's see if there is any chance at all of any kind of consensus that could be found by tinkering or playing with it; if not, then maybe a recognition that that is going to be our position, it is the majority position, and that the dissenting reports that are more than likely to follow are going to take their own position.

In fact, if either of the two opposition parties wants to counter with its proposal to show that maybe we are not that far apart, that we can close the gap, then by all means. But if there is a recognition that we are way off the beam, then why beat a dead horse? The reality is that the majority is here and you have your opportunity for dissent. What I would like to see us focus on maybe is those things we could work to find compromise, to find consensus, because that is going to be the real beneficial material, quite frankly, because it has the non-partisan hat.

Mr Stockwell: I do not know about the other parties, but our recommendations are ready. I do not know if you have had a chance to do your recommendations.

Mr Christopherson: No, that is what we are going to do now.

Mr Stockwell: If you can bring those recommendations forward, I do not see that it would be a big problem if you want to exchange and see if there is any common ground. Frankly, I do not think there is, but I am prepared to discuss them.

Mrs Sullivan: We read yours in the paper the other day.

Mr Elston: To quote from page 5, Mr Chair, "The general theme is one of considerable uncertainty."

The Chair: We are adjourned.

The committee adjourned at 1531.