PRE-BUDGET
CONSULTATION
TORONTO-DOMINION BANK
REGIONAL MUNICIPALITY OF HAMILTON-WENTWORTH
ONTARIO ASSOCIATION OF INTERVAL AND TRANSITION HOUSES
SHARING: A SHARED ACCOMMODATION SERVICE FOR OLDER PEOPLE
CONTENTS
Tuesday 22 January 1991
Pre-budget consultation
Toronto-Dominion Bank
Regional Municipality of Hamilton-Wentworth
Metro Tenants Legal Services
Afternoon sitting
Ontario Association of Interval and Transition Houses
Sharing: A Shared Accommodation Service for Older People
Royal Bank of Canada
Ontario Federation of Labour
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: Fletcher, Derek (Guelph NDP) for Ms M. Ward
Also taking part: Jackson, Cameron (Burlington South PC)
Clerk: Decker, Todd
Staff:
Anderson, Anne, Research Officer, Legislative Research Service
Rampersad, David, Research Officer, Legislative Research Service
The committee met at 1004 in room 228.
PRE-BUDGET CONSULTATION
TORONTO-DOMINION BANK
The Chair: Please introduce yourself and the people with you.
Dr Peters: I am Douglas Peters, the chief economist at the Toronto-Dominion Bank. I have with me Dr Ruth Getter, who is a senior economist in the bank. We are here to present our views on the outlook for the Canadian economy. Dr Getter is the person in my department who handles that particular forecast. She is going to make the presentation to you for a few minutes and then we will be quite happy to answer any questions you might have.
Dr Getter: Good morning, everybody. First of all, I have handed out three pieces of information. This is Canada's Business Climate, which is our latest macro forecast, which was just released I think at the end of December. That was obviously before the war started, but it gives you our latest view.
Report on Ontario: Recession and Recovery is something I put together a couple of weeks ago for the department, for our clients, for internal purposes, and I thought it would be appropriate to bring it here, because that is our latest view on Ontario. That was done on the basis of that macro-forecast.
The third item is Report on Provincial Finances, and what I would like to stress here is that this was done on the basis of last year's budget. It is a comparison of all the different fiscal positions of the different provinces, but it is obviously based on what we now know to be obsolete information, especially for Ontario, so please bear that in mind. I just brought it to you in case you want to make any kind of interprovincial comparisons. That is the most comprehensive data one can get. We will do another one of these when all the provincial budgets are released this year.
By the way, if this committee would like to have our regular updates and publications about provincial economies or anything, please let me know because we make those available to whoever wants them. I know Treasury gets all our stuff, but if anyone on the committee wants it, that is fine.
The Chair: If you could put us on the mailing list, that would be fine.
Dr Getter: I need a card, a name, whatever, a post office box.
I would like to be as brief as I can so you can ask the questions you really want answers to, but I would like to set the stage a little. I will very briefly go over our macro outlook and then talk about what we think is going to happen in Ontario. Then we can open up to various policy issues as you like, and both myself and Dr Peters will be happy to answer your questions.
In this morning's paper, in the report on Canada it says, "Pitfalls at every turn for politicians," because of the uncertain situation in the world today. There are pitfalls at every turn for economists who are trying to predict the future today. As we look at what is going on in the world, it changes moment by moment. I heard this morning that Iraq is bombing or blowing up some oil fields, so we know what that is going to do to the markets and to oil prices today. It is a little difficult to predict the future, so bear that in mind, too, but I will do the best I can.
The one thing I can talk about with some certainty is what happened in 1990, so let me do that very quickly. We know Canada has been in a recession since early 1990. We got into it in the second quarter and we have been in it ever since. Manufacturing actually went into decline before that, starting in 1989, as we know in Ontario certainly. The growth for the year in 1990 we estimate at 0.8%, less than 1%, which is the lowest since 1982, so there was still some positive growth, but it was very, very low. The weakness in the economy is very widespread. It is not just a single sector that is affected or one or two sectors. Every single sector in the economy was affected: housing, autos, investment, profits, merchandise trade, consumer expenditures, retail trade. Everybody got it.
In terms of industries, again it was very widespread. Industrial production in particular went down almost 4%, we estimate. Residential construction, manufacturing are very badly hit. The goods producing sector declined by 1.2%. The services industries were still growing at about 2%, but that is pretty sluggish.
The unemployment rate was up to 9.3% in December and in June it had been 7.5%. So the decline which started in the second quarter accelerated in the second half of the year. The unemployment numbers are really the best indicator of that, of how quickly that decline happened. The housing numbers also reflect that. Housing starts in particular we know are very bad. The numbers came out yesterday. We had estimated 182,000 and it ended up being 181,630. But that was significantly lower than 215,000 the year before. Bankruptcies in general across the country are running 40% to 50% above 1989 levels.
That is the bad news, and there is more to come, I am sorry to say. I think Mr Cross of Statistics Canada said he looked at all his numbers and said, "I can't find anything good to say," and that is kind of how I feel. There is really very little good to say.
The Chair: Unfortunately, we could not get Mr Cross to come here and give us his numbers and any projection of where he would go. We did invite him.
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Dr Getter: I am giving you his numbers. That is where I get mine.
The Chair: Statistics Canada?
Dr Getter: Phil Cross gathers the statistics, which are then available to everybody.
My next subheading says, "What will happen in 1991?" I am a lot less sure about that. First of all, there is the Gulf war; eight question marks follow that. The approach I would like to take, which is the only rational one to take, is that it is not going to be a catastrophic war where the entire world blows up. If it does, then there is nothing to talk about. I am assuming, but economists are allowed to assume. I am assuming the world is not going to blow up, and given that assumption -- okay, we assume there will be some impact from the war. It is not going to be wonderful, and it might be protracted and there might be problems in terms of oil and inflation and so on. But I have to take the view that it is not going to be the worst of news and it is not going to be the best of news. The early euphoria is, I think, dissipated. I do not think this war is going to be over tomorrow.
But there is one thing I would like to point out. Maybe it is a bit of good news. I am trying desperately to find something good to say. The world right now is awash in oil. There are tons and tons and barrels and barrels of oil around, and one of the reasons the price of oil went below $20 is precisely for that reason. People know that. I would say we certainly have about six months' worth of oil supplies, that we really do not have to panic. That is the good news. Oil prices, I would suspect, are going to climb today; I think they already started climbing last night. But I do not see them going up to $40, $50 or whatever, not in the short term, because in the short term there is enough strategic reserve to carry us through for at least six months. If the war is over by then, we will be all right.
Given that there is a war which is going to continue, say, for six months without major impact on oil prices, we expect the recession to continue through the first and second quarters of this year at least. Hopefully, if things go as well as they can possibly go, we will start coming out of it in the third quarter. We can talk about the risks to this forecast later.
I expect a decline in output in the economy of 1.2%. You have our forecast at the back of this Report on Ontario; on the back page you have our forecast for Canada as a whole and then for all the provinces. If you want to follow it there, that is fine. The reason there is a decline of 1.2% in 1991 is because we are starting the year off very badly, and even though we may start to recover in the third and fourth quarters it will not be enough to give us positive growth for the year. The effect of the recession is all going to show up in the numbers. If you look at annual numbers, it will show up in 1991.
Again, all our key indicators will decline. That you can follow more in detail in this booklet, so I will not go through it. But consumption, investment, housing, exports, profits -- across-the-board declines in all of these variables.
The unemployment rate we expect will average 10% in 1991. It will go up to about 10.3%, 10.5%. We hope that will be as high as it will go nationwide in the second quarter, and then will start to decline. I am not going to go into great detail about how terrible every single variable will be. You can ask about it if you like.
There was a great deal of discussion last year about the effect of the GST. What I am seeing and what I saw before it was actually implemented is that the news is a lot better than we thought. Because the economy is so weak, the inflationary impact of the GST has been dampened, and we see that businesses are swallowing the GST. They are giving people rebates or they are just eating it, so prices are not going up as high as we would have expected. The government said 1.25%, 1.5% inflationary impact. I do not think that is going to happen.
The CPI just came out this morning, and I think it was down in December from November by 0.1%. It was 5% year over year in December and it was a decline month to month in December, which is quite unusual. I think that is good news. If we do not have an explosion of oil prices and the GST inflationary impact is not very strong, that is very good news, because I think many of us were very concerned that an economy that is already flat on its back gets hit by an inflationary hit, the Bank of Canada tightens up and the economy really cannot revive. In that sense, that is good news.
We had expected inflation to be above 6%, and that is what you will find in our forecast here. We had expected it to be 6.3%. I think that is too high now; I believe it is going to be closer to 5% or 5.5%, less than 6% anyway. I think the initial resistance to the tax will eventually dissipate. I think within six months people will have adjusted to it. There are still some noises but in the end they will have to swallow it and they will get used to it.
I think the one factor that could still be affected by that would be the new housing, because the GST affects new houses and not resale houses. That is one sector that I expect will still be hit by that, because it is a significant chunk on every sale.
Some speculation about what is going to happen in terms of monetary policy by the federal government: We expect interest rates to continue to fall steadily, unless of course there is a real inflationary push from the war or other problems. The fear of the GST induced inflation was overstated, so I think that Mr Crow will continue to lower interest rates steadily. I think we have just revised our interest rate forecast and are expecting 10 to 20 basis points.
Dr Peters: I think it is 10 to 20 basis points a week on the bank rate, which would give you a prime rate reduction each month for maybe five or six months, with some stall in between maybe, but certainly a markedly lower rate of interest by midyear.
Dr Getter: We are looking at prime at 10.25% by midyear and 9.75% by the end. It is not a forecast of prime. Based on what the governor will do, we expect prime will be under 10% by the end of the year. The Canadian dollar continues to remain strong. It ought to be a lot lower, but it remains strong. Mr Crow has more room to manoeuvre because of low inflation, the high dollar and the very weak economy. He has more room to manoeuvre. He can lower interest rates and hopefully he will continue to do that. Everything is contingent on what is going to happen in the Middle East, but the Federal Reserve System has been easing, and as the Fed continues to ease that gives him more incentive and room to ease as well.
So we are looking at an easier monetary policy now. People wonder at what point the economy is going to start booming because we are lowering interest rates. You are not going to see the effect until there has been a sustained decline month after month. Then at some point, hopefully by the second half of the year, people will realize that maybe they can start spending again. But it is not going to happen right away. People have to see a sustained policy change, because he has been going in the opposite direction for so long.
In terms of fiscal policy, the federal government really has its hands tied. It has a huge deficit. It cannot spend, so it cannot stimulate the economy, which is what its mandate presumably is during a recession. It will have a larger than expected deficit because of the recession and higher than expected interest payments, because obviously its own forecasts for interest rates were too low. It is really stuck in terms of what it can do.
This is my own personal view. I think the GST revenues are going to exceed expectations and that is going to bail them out to some degree. That, I would like to stress, is my own hunch. I do not know that. There is no way to know that, and part of the problem with the GST is that nobody knows that, but my feeling is that revenues from the GST will probably be higher than they expected and that will be useful. There is an election year coming up and maybe they will somehow find some money, but overall I do not see the federal government being very expansionary in its fiscal policy.
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Very quickly, US and global developments: The US is in a recession and in a war. I would like to say that the problems in the banking system -- and I am talking about the big banks; I am not talking about the savings and loans. The commercial banking systems in the States, as far as I am concerned, are far worse than we know them to be. I think that because of this war and this crisis it has all been shoved under the carpet, and when this crisis is over I think we will see the real disaster that is lying under there. So I think that their financial system is extremely vulnerable and fragile and we have not even begun to see how bad it is. The savings and loan problem is the tip of the iceberg. That is something to keep in mind.
The Chair: Could I just interject a question at that point? One of the major causes of the Depression in 1929 was the beginning of the bank failures both in Europe and in the United States caused by the Treaty of Versailles and the amount of money that was being moved around. Is this really a hidden domino card? I mean, are we looking at a really major factor in the American economy if these savings and loans and banks start going under?
Dr Getter: I do not think it is going to be the same degree as it was, but I would like Dr Peters, perhaps, to address this question.
Dr Peters: The question in the United States is not a depression-causing type of banking change; it is very much of an institutional change going on in the banking system. Five years from now we may indeed look at the US financial system and find that the largest names in that financial system are not banks but rather are other concerns such as Sears, GE Capital, American Express and other items. So, there is a very great deal of institutional change going on in the US financial system.
The question about the banking system and failures there is very difficult to assess, I think there are serious problems and I really do not know if that is going to be a question that is going to cause any serious economic -- it does not have to cause serious economic repercussions; it may cause serious fiscal repercussions for the US government because of its massive deposit insurance guarantees and because of the bailouts. That has already happened at the savings and loans, and if there are major banking problems you may get other major fiscal problems because of those questions.
I do not think, though, that necessarily will translate into the kind of Depression that you had in 1929-33. In that instance, it was the Depression that caused the banking failures, not the other way around. It is very difficult to say; the reparations were part of the postwar problem, but that was not the banking failures related necessarily to that. It was the Depression itself that caused the massive banking failures in the US.
So, in this case we have a very large financial problem, its impact on the real economy, on employment and output and that may be considerably less than and certainly not depression. That is certainly not my idea on the matter at all. Does that make it a little clearer? Have I answered your question at all or have I fudged it? Maybe I have not answered your question because really, maybe I do not know the answer.
Mr Stockwell: That happens around here a lot.
Dr Peters: I am willing to admit that I have not got the answers.
Dr Getter: I just would like to add something to that. I did a paper, of which perhaps I should have brought a copy -- I will be happy to send you one -- on debt conditions in Canada versus the US. We are in far better shape than the United States is. What is very interesting is that whenever you publish something that has any positive news, nobody pays any attention whatsoever. So, in this case we have a far stronger banking system, our big companies, our corporate balance sheets are in far better health, we do not have as much debt as the United States does, we did not have that whole leveraged buyout, highly leveraged transaction mania that went on down there. We are in much better shape that way, and we should not instantly assume that just because the United States' banking system is in trouble that we are instantly going to follow.
We have a very different structure, as you know, and Canadians should feel kind of good about their conservative approach to things, because in this case it has served them much better than the American kind of free-for-all behaviour. I think we are going to ride out this recession in pretty good shape.
Let me just finish this up. The big question is, when will the US pull out of this recession? Again, the Gulf war is a big question mark. Clearly, the sooner it pulls out of recession the better it is for us because we are so dependent on them for our exports. But again, that is a question I cannot answer, when exactly they will pull out of it.
I wanted to mention just very briefly -- one can talk about this for ever, but very briefly -- I think one should remember that there are global trends that have been developing over the last, I do not know, decade or two. I believe that we are going to end up with several large trading blocs. There is going to be the North American trading bloc, which is Canada, the United States and Mexico, the European trading bloc, which as we know is being formed as we speak, and then there is Japan and the Pacific Rim trading bloc, and then maybe one or two others eventually, maybe an east European trading bloc or maybe they will end up being part of the European bloc, I do not know.
I think that the days of looking just at our own sort of national welfare, hiding behind tariff walls, bilateral negotiations and so on are passé. I think anyone who is forward-looking has to realize that being terrified of jobs moving to Mexico is probably not where one should focus. There are all kinds of reasons why it is probably not going to happen anyway in large numbers, but one has to change the way one thinks because we are going to end up in one trading bloc. There is no question about it. It will be called the North American trading bloc. We are already so interlinked globally in every possible way. That is where the future is and that is where we are going. If we pretend that the world has not changed, we would be making a big mistake. I did not mean to lecture. It is just something that bugs me sometimes.
Let's turn to Ontario.
The Chair: That does not necessarily mean we entirely agree with everything she says.
Dr Getter: I do not expect you to. I am just giving you my point of view.
Okay. The slowdown in Ontario started sooner than it did elsewhere. It started in 1989. The decline continued into 1990. The recession has really hit us hard, a lot of layoffs and closures. They are not all related to the free trade agreement. People say why and I think the answer is actually quite self-evident. The harder you go, the harder you fall when the time comes. If you look at the chart, it tells the whole story right here. If you look at the black line, that is Ontario's growth. The other line is the rest of Canada. You see what has been going on through the entire period after the recession.
Ontario has been growing so much faster than the rest of the country. Its recovery started right away after the recession and it took a long time for the rest of the country to catch up. Eventually, when things had to slow down, which they did, Ontario had farther to fall. Everything in the economy had been so overheated that when it came time to cool it down, it was really a quick cool-down period. A lot of it was a function of the overheated real estate market, high interest rates, oversupply, affordability problems and the fear of a downturn; all contributed to a total collapse of the market.
We know that both residential and non-residential construction is down and office vacancy rates are climbing. I think the last number I got was like 15% to 20% in Toronto at this point, which is really very high.
The auto sector, which is a key industry here, as we know, has been quite weak for quite a long time. The high Canadian dollar has hurt our exports.
We have been hit in Ontario precisely because we are such a diversified economy. We have been hit on all sides: in our manufacturing, in our construction, in our exports, everything. You name it and we got hit. We could talk about the other provinces later on. I am not going to talk about all of them. It is in here too.
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Now there is something that has happened, what I call the shake-out effect. I think Ontario's business sector in the last few years has gone through a major shake-out as a result of the free trade agreement, the recession and the GST. The bankruptcies between January and November, which are the latest numbers I have, were running about 70% over a year ago. The interesting part is -- and that was published by the government -- that there were almost 32,000 layoffs in 1990, which is the highest number since 1982 and the larger proportion of layoffs is permanent layoffs and closures rather than temporary layoffs, which was the case in the last recession. That is really a major change. In 1990 about 50% were complete layoffs and in 1982 it was only 22%. So there has been a real switch there and it shows you that there is something structural going on.
What we are seeing essentially is that companies that cannot compete are not making it. I am going to try to say this in as positive a way as I can. I will read you what I wrote. I said here, "Although it is painful in human terms, this does have a positive aspect. It is unfortunate, but it is true, because what is happening is that inefficient and unprofitable firms are forced to compete or else they have to bail out."
Now if it is the law of economics and the law of the jungle, I do not know, but companies that could not compete have fallen by the wayside. People get hurt by that, but that is the way it works. When things are booming and everything is wonderful, you know, you can be a marginal producer and you can charge high prices and not be very efficient and you can still make a living. When things are bad, it is the ones who are really competitive who make it and that is what happened. That is exactly what has happened.
In a way, it is good for the Ontario economy, because after this recession you are going to be left with efficient and competitive producers. We have seen this happen in Canada before, in 1986 the oil price collapse in the west. Do you know that at that time I think you had to have a price of oil of $30 or something in order to be profitable? The producers that are left in Alberta right now can be quite profitable at $15 a barrel and those are the only ones that are left. They bought each other out, or they went out of business, or they rationalized, or they became more efficient or they cut back their costs or whatever, but they can now make a living at $15 a barrel. So it was a very difficult time for the west and it did have very high human costs, but it made for a much more efficient economy.
I think that Ontario is going through a rough time, but there is something that will be gained from this. I hope you understand that I do not think it is wonderful. I am just telling you what it means.
The outlook for Ontario: My feeling is that Ontario's economy is essentially very healthy. Ontario's economy is not an energy-intensive economy, it is not a fish-intensive economy, it is not a Japanese-investment-based economy. It is very diversified and I think it is essentially structurally very healthy. It is not suffering from any basic structural defects at all.
The underlying fundamentals in this province have not changed just because we have gone through a bad time. Our location -- we are lucky -- vis-à-vis the rest of Canada and the United States is that we have access to the largest markets. I think you are the one who likes to say that we are closer to -- how do you say it about the market?
Dr Peters: We are closer to more larger American cities than any American city, in Toronto and this area, and we have within a 500- or 600-mile radius a phenomenally sized market that is easily accessible by rail, air or truck communication. That 500 miles will take you virtually from Boston to Washington to Chicago and that will include all the major cities in the northeastern United States. So Toronto and central southwestern Ontario are particularly well situated, better situated physically than almost any major American city that you would like to name.
Dr Getter: If what I said before will turn out to be right, that we are going to end up with a North American market, then we are in an ideal situation to take advantage of those markets. So we are very fortunate in that sense.
We have the majority of the population and production in this country, we have the most diversified economy, we have got everything. Our agriculture sector I believe is larger than any other provincial agriculture sector including Saskatchewan's, which sounds a little funny, but that is true. We have mining and we have manufacturing and we are the most diversified economy, which means essentially an environment that is a healthy one.
We have most of the corporate headquarters for domestic and foreign companies, we are the primary destination of foreign immigrants and will continue to be because we already have such a large immigrant population and they tend to come to their families and so on.
We have a very skilled labour force, we are the financial and commercial centre of the nation and we have had phenomenally strong investment during the 1980s. I think people tend to underestimate what has happened here in the 1980s and most of that went into modernizing plants and equipment. Our industrial base, or productive capacity is extremely modern and in very good shape compared to other provinces and states.
In the auto sector, we have also been extremely fortunate. The Big Three are hurting but the Japanese and the transplants are doing extremely well, thank you very much, and some of them are right here. We are benefiting from that, and if they continue to do well, it means employment for us and continued growth. We are very fortunate that we are not just dependent on the Big Three.
We expect the Ontario economy to begin to recover at the end of this year, the second half of this year, and in 1992 we expect growth of 3.2% which is quite respectable, and 4.4% in 1993. We expect to come out of this recession, as we did out of the last one, very quickly and quite strongly.
The unemployment rate, we expect to drop. It should be 8.9% this year, 7.3% in 1992 and around less than 6% in 1993.
We expect the housing market to continue to be weak this year. I think it is 58,000 units that we are forecasting. It will continue to be weak for the remainder of this year, there is no question about that, but will start to recover next year and the year after. The underlying demographics are changing but I do not see that there is going to be a total lack of demand for housing. I do not think that is true. There is still going to be an underlying demand. What we saw after the last recession is that there was a huge pent-up demand so we will see that cycle coming in again.
I would say that our longer-range or our medium-term forecast for Ontario is very positive. I do not see anything that is structurally wrong here and there is no reason why we should not do very well starting the end of this year if all goes well elsewhere.
Some of the issues that I thought need to be considered, I am just going to list them. This may sound clichéish but I think it is true, I think competitiveness is the key to Ontario's future economic health. The free trade agreement is entering its third year and more and more tariffs are being reduced. Canadian consumers, interestingly enough, precisely because of this recession, are becoming much more sophisticated and price conscious. They are no longer willing to pay prices they know to be higher than they should be. So they are going to demand competitive prices or they will shop elsewhere, and we know where.
Now, the tax structure in Ontario: Various studies have been done and people say, "Well, Ontario, there's too much taxes and so on." I believe that if you take in all the taxes, including the health care costs and so on, Ontario still has a competitive tax structure but I think we need to keep an eye on that. I know the gap between Quebec and Ontario has been narrowing, but between Ontario and the US I think we are still okay.
I think essentially that is all I wanted to present formally. Unless you have something to add, we can open it up to questions or whatever.
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Mrs Sullivan: I have a couple of questions, one relating to your estimates on the timing of the recovery. We were interested yesterday in hearing from the Ministry of Treasury and Economics that its view was that the recovery in Ontario following this recessionary period would be slower than that which followed the 1982 period, and in fact slower than some of the other provinces, including the western provinces. Your view is that Ontario will lead the rest of the country during the recovery period. I would like your comments on that.
The second thing is that I was quite taken with your remarks about the difficulty in the federal government providing a stimulus to the economy. If you were planning public policy in Ontario and saw a need for stimulation of the economy, where would you put your dollars and how many dollars would you put in?
Dr Getter: Do you want to answer it or do you want me to? I can do the timing one; maybe you want to take care of the stimulus. We will split this one, all right?
In terms of the timing, I think you need to think about it in this way: The west has not gone into a recession in the same way Ontario has, so you do not have this drop. They are kind of bouncing along, maybe flattening out a bit. They have been going this way. Pardon me, but you can follow me, right? We have gone all the way down to negative. We are the only province that has negative growth rate in 1990. So we have gone all the way down, and then when we start to pick up we will be going this way. We are not going to continue down there.
The other provinces that have been sort of growing positively or flat will come up a little bit. They are not going to start booming because they are coming from a high base already. There is a lag. What has been going on here will eventually -- it is already happening -- affect the provinces in the west. Certainly the housing markets in the west are weakening. We know that in British Columbia the forestry sector is in terrible trouble. So in the same way that Ontario got hit sooner, their impact will hit later. That happened in the last recession as well. British Columbia did not come out of its recession until 1984.
As I mentioned before, Ontario is so diversified. It is not dependent on any one thing. As soon as consumer confidence recovers and as soon as hopefully -- again, the big wild card here is the Gulf war. Assuming that does not turn into a disaster and confidence comes back, Ontario will start to pick up all across the board. I see that they are going to start growing just as rapidly as they did before, maybe not by 7% or 8%, and I did not say 7% or 8%; I said 3% or 4%, which is not astronomically fast growth but it is faster than the rest of the country.
Dr Peters: If I might add to that, you are quite right that Ontario will not pull out of this recession as rapidly as it pulled out of the 1981-82 recession. If you look at this front chart, you will see that the growth rates in the two years after the recession in Ontario were 6% and over 8%. We are forecasting 3%, 3.2% and 4.4%, obviously much slower rates of growth than coming out of the 1982 recession, but then of course the 1981-82 recession was a deeper recession too. So that was one.
You were asking me where you would put the money and how much. It depends on how much money you have.
Mrs Sullivan: At least $700 million.
Dr Peters: I think in a recessionary period there should be room for some discretionary spending on the part of governments, particularly where there are particular things that might be built that would be very useful in the future. There was a time here when, for example, you would have surplus excess supplies of building materials where contractors and such are not at full, where you might get better prices on buildings if you needed those particular things.
I think there may be some room for that in a recession although planning that sort of thing does take a long time in implementation. Usually the recognition problem is one that when you recognize you are in a recession, you plan a spending program and by the time you are spending the money, it is in a boom period again.
If you could, at this moment, build a building that was already planned and was on the drawing boards and ready to go, you might be able to get it built for less. I think that would be an advantage to Ontario, if they needed that project, schools, university buildings or things of that nature that would be needed in the future, and if you could get it done during a recessionary period, it would be an advantage.
How much? I do not think the Ontario government has a lot of room to move on that because I do not think you could set up a spending program quickly enough that you would be able to institute it before you were again moving out of a recession and into a boom period. You may indeed just exacerbate a boom instead of having it on a recession.
The old idea was that you would have projects on the drawing board so that you could, in a recessionary period, put those spending things forth, the things that were needed. I do not know whether there are things on the drawing board here, but if there are, I would suggest that the Ontario Legislature could indeed move those things forward to be put on the books now. I think there is some room for that. I would not like to give you a dollar amount, though.
Mrs Sullivan: If there is stimulating spending done, it should be done now rather than in May.
Dr Peters: Two or three years from now, when we are growing at 4% or 4.5% and booming.
Mrs Sullivan: But I am talking about within a very short period of time, in a fiscal year period. Now would be the time to put the money in rather than, say, March or April or May.
Dr Peters: As opposed to --
Mrs Sullivan: Of this year.
Dr Peters: I am not thinking of that short a period. I am thinking of the next six or eight months. This calendar year would be a better year to have spending actually occur, where the jobs are done, where the actual construction is done, where the roads are paved or what have you. Whatever it is, it would be this calendar year, if you could do it, rather than planning a project, having the architects draw the plans, setting it up and spending the money in 1994. That is always the problem with a major construction.
Mr Sutherland: I just want to ask, you do seem to be a little more optimistic than what some other groups have said about that. I wanted to maybe tie a couple of areas in, one about interest rates. You said we have an easing of monetary policy and our interest rates are coming down. We certainly have been hearing that they are coming down, but there is the question of closing the gap between our interest rates and American interest rates, if we are going to have some, I guess, maybe true easing of monetary policy. I do not think I caught you touching on that.
Dr Getter: I alluded to it, but not directly.
Mr Sutherland: Okay. Whether you see the gap closing.
Dr Getter: This is one of Dr Peters's favourite topics, as you may know, so I will leave it to him.
Dr Peters: We have seen some narrowing in that gap in short-term interest rates from about 5.5 percentage points down to about 4.5 percentage points recently. I would suggest that we would see a narrowing of that gap throughout the year, but not down to zero, which would be, in my view, where it should be. In other words, the government of Canada should be borrowing on Treasury bill rates at about the same level as the US government on 90 days, unless you expect exchange rates to change. That would be a target.
The movement down in longer-term rates is a little more difficult. We usually have a difference between Canada and US long-term bond rates of about 90 to 100 basis points, one percentage point. That has been up over two percentage points recently. It is down a little bit from about 2.4 to about two percentage points. I am a little less sanguine about that falling back to one percentage point. There are some difficulties there.
I would think, though, that as our inflation rate becomes a little better, as we sort of get over this GST worry in the early part of this year, as Canada's inflation rate improves, the US inflation rate, if not running at much different that ours, will be lower than ours for the next while because of the GST. So Canada gets back to a lower inflation rate. I would think that even that long-term bond rate would narrow a little bit, maybe not down to 1%, but maybe down to 1.5% or 1.75% or something like that.
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Mr Sutherland: If I may, one other question: You also mentioned when you were talking about the layoffs how a larger proportion of them were permanent closings than in the 1982 one. You are forecasting that we are not going to go as quickly as that, but I am still wondering, with all those closings, whether we are in as good a position as last time to have a complete recovery, obviously not as quick, but are we still in a position to have as good a recovery given the fact that the Ontario economy seems to be in at least a transition phase due to free trade and maybe some other things? Have we set the infrastructure and resources properly to take advantage of that? Taking that one step farther, do you have any recommendations as to how the government can help Ontario business take further advantage of research and development and things of that nature?
Dr Getter: I have been tracking layoffs, and actually I do not think we have seen the worst of it because many of the layoffs that were announced last year are not going to take effect until early this year. So we are going to start seeing these numbers climbing a lot this year. We are not finished yet.
I am glad you asked the question because it is something I wanted to mention and I did not. There is one thing that is very different in this recession than the last one, in the manufacturing sector particularly, and that is what has been going on with inventories. When we went into the last recession, we had very high inventories. When we came out of that recession, we had a year and one half worth of inventories to sell off before we could start production.
If you have cars sitting in a huge lot and you have to sell all those thousands of cars, you are not going to open up your car production plants until you have sold them. What business has done this time, and this is a structural change, is it has kept inventory levels extremely low. You have heard of this just-in-time inventory. They literally have two hours worth of inventory or some such thing. The trucks are coming in and it goes right on the assembly line or whatever.
I believe that is going to make a big difference in the way the recovery takes place. The minute we get a feeling that consumer confidence is returning and business confidence is returning, plants are going to open up and you are going to get people back into employment much quicker than you did last time. I think that is the key.
One of the reasons we have had these closures and layoffs and employment has really dropped very quickly is because businesses are managing their people the same way they are managing their inventories. They are keeping their people inventory as low as possible. In the last recession, no one had an idea how bad things were going to get, so the last thing you did was to fire the employees who had worked for you for 40 years. This time you fired the guy who worked for you for 40 years and you certainly got rid of the guy who just got on three months ago.
Business has learned a very important lesson from the last recession and I think this is going to have a big impact on the way we come out of this one. We became leaner and meaner, I am sorry to say, but in a way that means that we are going to come out of this sort of running rather than sort of crawling. So I hope this answered part of your question.
Mr Sutherland: The other part was in terms of allowing us to recover. If things are leaner and meaner and that is good in terms of the quickness of recovery, there are still a lot of unemployed people out there. In terms of helping either current businesses expand and new businesses develop, from the public policy standpoint, maybe some suggestions as to what the government could be doing in research and development and other areas.
Dr Peters: Research and development are always a plus in an economy, but what we have done over the past little while is make a major investment in business machinery and equipment, and the business investment boom of the last little while left Ontario with very modern plant and that has -- now that does not help the business that goes under in the small area where there is little mobility.
I would have thought that one of the things the government might do is to help labour mobility through training programs, to improve the training programs, to improve the skills of the people who have been laid off so that they can move and are able to move into the newer jobs, where the jobs are, and to encourage that kind of a movement. That, I think, would be much more effective in the short term. Research and development, of course, has payoffs but only very long-term payoffs. I would not downgrade those, but I think in the short term labour mobility, labour training and skills development are some key items.
Mr Christopherson: Dr Getter, you mentioned that you are still confident that in the third quarter we will begin to pull out of the recession, albeit more slowly than out of the last recession in the early 1980s. Some people are less optimistic and are more pessimistic that indeed it will maintain a negative position all the way through the year, and that we will not really start to pull out until the first quarter of 1992. Two questions: One is, could you just briefly indicate why you are still confident that it is the third quarter when we are going to pull out. The other question would be, what indicators will you be looking at in the second and third quarters of this year to determine whether or not that outlook is still going to happen?
Dr Getter: First of all, I am always being lambasted because I am too pessimistic. The Ontario government has been giving me a very hard time because I came out with a negative number for 1990 and now presumably I am being lambasted for being too optimistic, so you cannot win around here.
Mr Christopherson: Certainly do not read lambasting into my question. It was the farthest thing from my mind.
Dr Getter: The other thing I would like to take exception to is that you said I am confident we are going to come out of it in the third quarter. I am not confident of anything. I do not know how tomorrow is going to be. I am sort of suspending my judgement about what is going to happen in the Middle East. As I said, the end of the world could come tomorrow.
But assuming that nothing too terrible happens, the reason I think we are going to come out of it in the third quarter and the reason I am more optimistic now than I was, say, a month ago is the GST impact. The GST impact is far less than everyone feared and I really believe that is going to make a big difference. Everyone worried that the GST would cause inflation to go up, that consumers would pull back, that the Bank of Canada would raise interest rates, that this would contract the economy some more and it would go into a spiral and then we would not get out of this.
I am saying that we were prepared for the worst. The recession is so bad that the GST is not having that kind of impact. Consumers are going to learn to handle it, and by the middle of this year the GST will be part of life, just like all other taxes are, and the inflationary impact will be gone, so we will not have the monetary policy response.
By the end of the second quarter, we will have been in a recession for five quarters. That is a long time. By that time consumers have had a chance to kind of stop being so afraid. It does not seem to me that things are going to continue to escalate in a negative direction; in other words, the decline is not going to continue to accelerate.
We are not saying that we are dropping faster and faster. As a matter of fact, the housing numbers that came out yesterday were much higher than even the CMHC had expected, for the last quarter, the last three months of the year. I do not see anything other than the war, again, unforeseen things, to paint a doomsday scenario. I really think that after five quarters of recession, with inventories being down to about zero, with consumers sort of finally having faced reality and said, "Okay, no need to panic," we will start coming out of it. I really do believe that.
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Dr Peters: If I might add one further factor, the one further factor is the central bank. It seems to have recognized that there is a recession. I even heard one reporter say the governor mentioned the word "recession" just last Thursday, I think, for the first time, and the central bank has had some recognition -- interest rates are falling. If you want to know what I am going to be looking at in June and July for a recovery, I am going to be looking at how low interest rates have dropped. If we have interest rates down substantially, clearly the mortgage rates are off substantially and that is going to be a plus for housing, that makes housing much more affordable, it makes consumer durables more affordable. That is going to be the one factor I look at.
Mr Sutherland: And the gap related to interest rates or no?
Dr Getter: It also depends on the dollar.
Dr Peters: The gap will tell us about the dollar. The Canadian dollar will also be a key factor.
Dr Getter: One of the things I do is look at numbers all the time. I have what I call my daily update sheet and I literally put in the numbers as they come in. The key thing I always look at is employment, because that is our earliest and most accurate indicator of what is going on. There is another indicator I love, which is the help wanted index, which also comes out very early, and it is a terrific leading indicator. You could see what was happening in this economy three months ahead by looking at the help wanted index. It tells you how many help wanted ads there are in newspapers. It was sliding down, and if you followed employment, it went right with it. That is one thing.
Manufacturing shipments, auto sales and housing are the key ones I tend to look at. Housing is going to recover more slowly, but I can see where auto sales would be one of the earlier ones to pick up, because I think consumers especially were very spooked by the GST; they did not know what to do. That will be one of the first ones to recover, and that is what I would keep my eye on.
But essentially I look at everything as it comes out, and usually you see a consistent story. When the signs turn either all negative or all positive, you know there is something going on.
The Chair: Given that our next presenter is here, I will allow two very quick questions, one from Mr Phillips and one from Mr Jamison.
Mr Phillips: Your judgement is that in the manufacturing sector there is a kind of sorting out going on. By the way, you are far more optimistic. I feel a lot better now than I did an hour ago.
Dr Getter: I may be totally wrong, you understand.
Mr Phillips: Some of us have the perception that there is a sorting out going on. Some, as you say, are going out of business, but others are moving out of the province and therefore when we tramp the accelerator in six months we may be tramping plants that are not located here. That would be my first part, whether that is an exaggerated thing or not.
The second one is that you mentioned you are not too concerned about debt. I gather you include government, personal and corporate debt. Is there any advice you have for us in terms of the Ontario deficit and debt, whether that is something we should be thinking about or whether in financial terms we should not worry too much about it?
The third one: The renowned Dr Peters often is quoted on the value of the Canadian dollar. What do you feel we should be thinking about as a realistic Canadian dollar vis-à-vis the US and, as we head towards that, what is the fallout? There are lots of benefits to a lower Canadian dollar in terms of exports-imports, but what are the fall outs we might see?
Dr Getter: I can answer the first two and you can answer the dollar.
In terms of the plants moving out, I have been following, in the newspapers, closures, day by day and month by month, and it is kind of depressing. I have tried to sort out the causes of why they close and where they are going, if they are going anywhere, and I would say it is exaggerated. There is this idea that there is a wholesale closing down of plants and they are all going down to the States and that is the end of it. I would say it is a very small proportion. Many of the plants that are closing are moving their operations elsewhere, either within Ontario or to another province; that happens in some cases. But many of them just close. They do not necessarily move to the States or anywhere else.
Most of them are not closures in general, they are mostly just -- what do they call it? -- reductions in work force. They have these euphemisms for things like that. But I think there is in the press an exaggeration of the number of plants that are fleeing the province. I think there is more of what they call a rationalization going on. You could have, let's say, three companies producing the same thing and you now have two producing the same thing. Yes, there are some people who no longer have jobs, but the production is still taking place and the productive capacity is there.
The second question was debt. I would not say I am not worried about debt. What I said was that relative to what is going on in the United States, Canada is in much better shape. I do not know if we want to go into a long discussion about that.
The Chair: We really do not have that much time.
Dr Peters: One or two words, then, on that. As a banker, I would think you would always be worried about debt and always concerned about it. That will keep your banker much happier.
Dr Getter: Assuming they want to keep their banker happy. I think you had a question about the Canadian dollar and where it should be.
Dr Peters: The Canadian dollar I felt is too high. As Ruth said, it may not be the plant closures that matter; there have been maybe some missed opportunities because of the high Canadian dollar, and that has been a problem. I would think the Canadian dollar should be at 80 cents, 82 cents; anywhere around that level is a sustainable level. Most manufacturers, if you ask them, I think would agree that that is a reasonable level, that they can compete much more effectively in the United States market at that level than they can at the 86-cent, 87-cent level.
Mr Jamison: My question is about the effect on manufacturers of the high value of our dollar. I guess the question I could ask from that is what you see happening -- obviously, you follow the lead of the Bank of Canada in many cases -- with the Canadian dollar and its value on the international monetary market in the next year or so, taking into account that you have said very clearly that you expect recovery to begin after the second quarter. What do you see happening with the dollar and its value? I ask that question particularly because many of the small, medium and large manufacturers I have been talking with have expressed very clearly that the value of the dollar is crucial to their ability to do business offshore.
Dr Peters: I agree with you that that is a crucial number and that we have had a great deal of difficulty in some of our manufacturing industries in competing, with a dollar at 86 cents or 87 cents. If our forecast of interest rates is correct, that interest rates decline and that we get a narrowing spread between Canada and US rates, some easing in the Canadian dollar -- we have already seen a little of that -- you would see the Canadian dollar somewhat lower than it is by year-end. That is a forecast, and it is very difficult to put foreign exchange rates into a forecast. I am loathe to give you an exact number simply because the events in the war, Canada regarded as a safe haven if the war heats up, could move the Canadian dollar upwards very quickly, or a settlement could move it down. A lower price of oil -- we are regarded as a petrocurrency, so we could move.
Forecasting movements of the dollar in a fairly narrow range is very difficult. I would think we will probably get down by maybe two or three cents by year-end, but that is on a trend, and you can have those size of movements in a day. So I hasten to say please do not quote me. Forecasting foreign exchange rates is very difficult and fraught with danger and all sorts of possibilities. The tendency would be, in putting that forecast together, of interest rates and exchange rates narrowing, there would be a lower exchange rate. That is the trend.
The Chair: I would like to thank you for heeding our invitation and coming and speaking to us and taking time out of your day. I think as a committee we have a better perspective on where this economy is going. Any other information you could pass along to this committee that would help us in our decision-making process would be greatly appreciated.
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REGIONAL MUNICIPALITY OF HAMILTON-WENTWORTH
The Chair: As we are running a little behind, I think we could move on to the next presentation. Mr Agostino, if you would like to begin.
Mr Agostino: First, I want to thank the committee for giving me the opportunity to be here today to present some points of view and some inputs as to possible initiatives in the upcoming provincial budget. I think this initiative by the province to hold these hearings is to be commended. It is an approach that we at the municipal level certainly appreciate, and we are hoping our input will have some role in the setting of the budget for Ontario for the upcoming year.
The focus of my presentation will be primarily in the area of financing of municipal government by the province and primarily as it relates to what I think is the area of biggest concern, the social services aspect and the spiralling costs of the municipalities of this province providing full services on a cost-sharing basis that we clearly feel is inadequate. The view I will talk about today is going to focus somewhat on Hamilton-Wentworth, which is the situation I am most familiar with, of course, as chairman of the health and social services committee. However, our views are not limited to Hamilton. I think the problem is province-wide. It is not unique. The percentage of increases in social services and welfare rates may vary from municipality to municipality, but clearly it is a problem right across Ontario.
I know this committee will give us a sympathetic ear, and with the former chairman of our committee, our MPP, David Christopherson, a former colleague on council, and others on this committee, we will hopefully get something through and get some input into the decision.
I want to give something of a statistical overview of our situation in Hamilton-Wentworth. I am basically here to ask that the province first consider providing emergency funding for the general welfare assistance deficit across our region and, I would assume, across Ontario; second, that the recommendations made by the Social Assistance Review Committee and the Provincial-Municipal Social Services Review Committee report following that of 100% funding by the provincial government for general welfare assistance and social services rates in Ontario be implemented as quickly as possible.
I realize that Premier Rae has said a number of times that this government does not deal in crisis management, does not deal in emergency type of management. However, I think we also have to understand that the municipalities across this province have very limited resources, very limited methods of collecting revenue, primarily the property tax base, which I think we all agree is a regressive, archaic and unfair way of collecting taxes, and it is putting an unbelievable strain on our taxpayers, who are getting hit on all sides.
The province, of course, has many more resources. I think in tough economic times we need a large infusion of social services dollars. We need funding to be enhanced tremendously, particularly in the area of support and counselling for clients, and obviously to pay the rates that municipalities are mandated to do.
In 1990, Hamilton-Wentworth reached its highest total of general welfare assistance rates in its history. The highest before this was at the height of the recession in 1982, when it was 9,350. Unfortunately, in December of last year our rates hit 9,845, which is the highest this region has ever accumulated. This may seem small compared to Metropolitan Toronto, but obviously our population, our tax base and everything else is much smaller, and it is quite significant. It is a 63% increase from the previous year in our particular region. So we have exceeded our rate and I think this recession is only commencing.
We have increased staff by 17 people in our own department to try to deal with the case load, but we still have workers carrying cases of 130 to 140 and up, which makes it totally inadequate to address the problems the clients are facing. All we are doing is really processing cheques and ensuring people get their cheques on time. It does not allow for anything else. That is an unreasonable expectation.
In 1991, unfortunately the situation does not look any better. We are projecting approximately 11,000 cases per month in our region, which would mean an additional $7 million of regional net dollars. This is, of course, only 20% of the total cost, but the additional $7 million would be added to the approximately $10 million the region now pays out of its tax base for general welfare assistance. It is almost 10% of our total budget, and it is just unmanageable.
These projections for this year of the $17 million in my view may be conservative, based on the economic downturn. We could face a plant shutdown and we could face layoffs which would totally throw this figure right out the window. As it now stands, taxpayers in our region are going to face a 4% to 5% increase at the regional level solely due to the dollars our region must pay for welfare assistance.
A number of initiatives in my view should be taken by the province to address this. First, I think the two-tier system now in place must be looked at. Social services in Ontario are delivered under a two-tier system. The FBA and GWA acts must be combined and rewritten to recognize equality and equity for all clients. A single-tier system funded at the provincial level but administered at the municipal level would be preferred.
The rationale is as follows: Municipalities have direct political and financial accountability to the local community. We believe that we can recognize the local needs quickly and respond to emergency situations we have during this economic downturn. Many enhancements, especially in special assistance, have been driven over the years by municipal governments and we are really a catalyst for input into future planning at the local level. The province, of course, has greater access to financial resources to fund these universal programs and can look at the broader needs of the population and co-ordinate with the municipalities.
Another issue that must be addressed in the budget is the cost-sharing, which I have briefly talked about. Municipalities are the managers of the current delivery system. The management process is impeded by limitations to the inadequate funding for administration costs and limitations to staff resources. To be responsive to clients, current staffing levels and cost-sharing must be reviewed. PMSSR must be addressed and must be done immediately.
Increasing case loads have placed programs, especially discretionary programs, at risk. The provincial government must take steps to ensure that programs such as employment services, special income and child care are not abandoned to keep costs down because of case load.
In our particular situation, the cost and the increases are due to three factors, primarily general economic downturn in our community. The number of residents, as I have said, is at a record level. We face a deficit of $2.5 million in 1990 on top of what we had budgeted. That is all coming out of local tax dollars again. We had the Stelco strike --
The Chair: Could I interject with a question at this point? To what extent did your case loads decline after the 1981 recession? For example, you say you went to 9,845 cases. After the recovery began, did that decline significantly or did it remain significantly high?
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Mr Agostino: It declined over a period of time. We had projected for this year, for example, an average of cases of about 6,800. It went up to 9,000 and something. It had declined significantly. The community got back on its feet, people were working and it then started up again early last year, of course, and the trend just continued. To reflect that, also our case loads: When we hire people to reduce the case load, we normally go through a period of attrition and we do not simply keep people on when the numbers go down. People are hired on a contract basis so that we do not overstaff, but we want to keep a case load to about 100 cases per worker, which is absolutely impossible at this point.
The general economic downturn, of course, we are facing across Ontario. The changes in unemployment insurance legislation and the passage of Bill C-21, with longer qualifying periods, reduced weeks of benefits and expanded quit-fire disqualification periods, are resulting in additional residents requiring and being eligible for assistance. This change in the legislation will cost our municipality $2.1 million for 1991.
The third aspect, which is one that is not as often recognized, is the whole issue of rationalization of UI payments with social assistance. We have a system with the Workers' Compensation Board that works quite well. While a client is waiting for assistance from WCB, the region pays full service rates to the client. Then once the client receives the money, the back pay from WCB, it deducts that amount from his cheque and forwards it to the municipality. This type of arrangement with UIC has not been able to happen. They do not want to deal with us on this. They do not want to address this issue. They say it is too complicated, it is much too difficult. I realize the federal government finds things much more complicated than the rest of us, but unfortunately this is a serious issue.
Again, the impact of this change across Ontario is clearly in the hundreds of millions of dollars. This would be dollars that this province and our municipality could clearly save if UIC were to implement a system similar to what the Workers' Compensation Board has, where the back pay that is given to an individual is then deducted appropriately to compensate for the money he received through social services. A client does not receive any less money under this system and the municipality is reimbursed, of course, which allows a saving for the municipality and the province. This one particular change would save the province and simply the municipality of Hamilton-Wentworth in excess of $1.9 million. We have had no success whatsoever, but it has added to our total cost.
Another issue that we feel must be addressed is the issue of special assistance. Currently, items for special assistance in the municipalities are cost-shared at 50-50 for welfare and low-income clients, while items with supplementary assistance are cost-shared at 80-20. Both programs burn the local taxpayer. The present structure also is discriminatory, as access differs from municipality to municipality. Therefore, in the municipality that is willing to carry out that program of special assistance, the people in that area, clients, will get this type of service. Areas that do not carry out these programs are left out. We believe that special assistance programs should be made mandatory across Ontario and should be, of course, funded fully by the provincial government, as they fit and qualify under what I think are provincial responsibilities.
Another area of concern is the funding for emergency shelter and assistance. I am just going through the highlights of the brief. You can read it, of course. I am not going to go in detail through the whole brief. The municipality welcomes the Ministry of Community and Social Services announcement of $1 million to ease the pressure on food banks. However, given the present economic conditions these dollars are simply a drop in the bucket and do not in any way, shape or form adequately address the need. I will give you one small example.
There is a food bank in Hamilton that MPP Christopherson is aware of, which is Neighbour to Neighbour on the Mountain. In 1986, when this organization started, it used to deal with an average of 30 families per week. Today it deals with over 2,300 families per week. This is one small organization serving an area of the city that most people would think is a fairly well-off area. That is one of the many food banks we have in a crisis situation in the region. We need the financial assistance to deal with this. Many of the food banks are depending on day-to-day fund-raising drives, food drives, and again in tough economic times people are going to cut back. If you used to give $5 to an agency or five cans of food, you are now going to give one, simply because your own situation is much more difficult. So this I think is imperative, for the provincial government to address this more adequately in the budget and to ensure that the food banks are funded adequately to deal with the current crisis that we are facing.
In 1981, the ministry replaced the emergency shelter assistance program with a community support day program. Hamilton-Wentworth will receive $75,000 from this program in 1991. Under the new initiatives, our region expects to receive an additional $40,000 from the ministry. However, the current requests from agencies in our community exceed $360,000 for this need.
We are also hoping that this budget in the area of social services will recognize and address the various ministry responsibilities that go beyond social services. Social services over the years have evolved into a mixed bag of programs which have been conveniently placed within the municipal jurisdiction to local tax dollars' access; for example, the Ministry of Health. We feel that drugs, dental, eyeglasses and assistive devices are health issues and should be rightly funded by the Ministry of Health at 100%. Currently, over $513,000, net, will be paid by our region for such services in 1991.
The second area: We are hoping for some co-ordination within the ministries of Colleges and Universities, Labour, Skills Development and Community and Social Services. The four ministries are all involved in training and education programs for social assistance recipients. There is a definite need for co-ordination within the provincial government and liaison with the federal government to allow easier access to streamlined programs at all levels.
The Ministry of Colleges and Universities should recognize the basic needs of students and not expect municipalities to top up inadequate student awards. In addition, this covenant should offer adequate training allowances through provincial programs which would encourage people to retrain themselves to meet the needs of a changing economy. An immediate step, in our view, would be to clarify eligibility criteria for persons in receipt of OSAP pending a long-term solution by the Ministry of Colleges and Universities assuming responsibility for the basic needs of students, including low-income individuals.
Another area of concern we are hoping, again, that the budget will address is services for seniors. Our seniors population continues to grow and is expected to continue to expand, as it does, right across this province.
Institutional and home support services are changing. Issues specific to Hamilton-Wentworth which must be addressed are of course indicative throughout the province.
First of all is the capital renovations program. The Ministry of Community and Social Services advised that no additional funds are available until 1994 for Hamilton-Wentworth to finish renovations to Macassa Lodge and Wentworth Lodge. We now have one renovated wing and one new wing in each facility and we cannot finish the rest of the building. We then have a double standard of care, a double standard of accommodation and services for clients in the same facility. We were given full assurances by the ministry over the past two years that these programs would be fully funded. We have budgeted our share of the 50% for this, however the program is on hold and in absolute jeopardy unless the Ministry of Community and Social Services again addresses this issue and reinstates the funding to finish these projects.
The program's overall cost is $35 million. Again, if it is a three- or four-year delay, you can see what will happen to that number. It will skyrocket and therefore it will make it difficult at that point for the municipality to be able to afford it, even if the province came through with the full amount of money. So we are hoping that this will be reinstated.
Level of care funding: A cap on municipal homes for the aged -- in our situation again, Macassa Lodge -- extended care per diems and funding restrictions for the charitable homes for the aged, including St Joseph's Villa, is threatening the number of extended-care-level beds available for the elderly in our community. Interim operating dollars for all approved extended care residences is needed until long-term-care reform is implemented and resolved across Ontario.
Another area I know that this government has spoken on and hopefully will address and will recognize the need for is in the area of emergency shelter funding and for victims of family violence. We have situations in Hamilton, as we do across Ontario, where many of our facilities for victims of family violence -- women who have been abused, have had to leave their home situation -- are overcrowded. I particularly visited one home about two months ago that was licensed for 19 and had 32 people. In this particular home there were mattresses on the floor, sleeping-bag type of facilities, services that obviously were needed. The organization does a tremendous job of filling that need, but the reality is that there are not enough beds.
Additional to that, what many of the agencies are saying is clear to us: "Look, the answer is not simply adding another 200 beds to the Hamilton-Wentworth region, because adding short-term, emergency beds for victims of family violence without the support services, the counselling, the availability of help for those individuals outside of simply providing a bed is only going to force the woman, the children to go back into a situation that they had escaped from in the first place and make, obviously, a situation much worse than it was when they left it."
They have now taken that bold step. You can imagine the courage and determination it takes for a woman, after years and years, finally to leave that abusive situation. Then she is told after three months: "There is nothing there for you in the community. There is very little in counselling. There is very little in support services." The choices you really have are few in between, and in most cases they end up going back to those abusive situations. So the issue of beds must be addressed clearly and co-ordinated with support services in the community.
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Right now in our community it takes three to six months to get women into counselling programs. That is inadequate. That is unacceptable. I think it is one of the worst tragedies our community can face when you have either to turn women away from shelters or to turn them back to that abusive situation after their stay at the shelter has expired. We are hoping that there is going to be some serious discussion on this and a large amount of dollars that come to municipalities across Ontario to deal with emergency shelters and victims of family violence.
We have also identified another area of concern, particularly with young people living in the streets in Hamilton. An extensive community process has identified the need for a 24-hour drop in youth clinic, transitional and permanent housing and residential treatment for substance abuse. A proposal for these services has come forward and the need for provincial funding in this is essential.
It is hard to believe that in a region of this size, our first 24-hour, hassle-free type of no-questions-asked drop-in centre for people to walk in off the street, stay as long as they like, literally with no rules -- the hard-core individuals who do not fit into the rest of the shelters -- first opened up about a month ago. It was primarily through regional funding. A request has been made by the province. My understanding is the province is looking very favourably to approving that, but that is only a short-term measure. The budget only covers three to four months. We need this year-round, particularly in the winter months, of course. These are much more serious problems.
Day care in Hamilton-Wentworth: The number of cost-shared -- by the province -- subsidized spaces for day care is frozen at 1,442 for centre-based and 234 for private day care. Although meeting the present needs, more spaces will be required in 1991. Waiting lists do exist for private home day care, and providers are difficult to find due to low wage levels paid. In order to address needs like ours, the following province-wide initiatives can be considered.
Increase funding to municipalities for the provision of licensed child care programs: These programs serve a dual purpose. Children are cared for in a creative environment that respects and fosters their developmental needs. Parents are assured of quality, stable arrangements. Funds should be made available to support municipal efforts in the expansion of licensed child care programs.
I ask the province to look at expanded provision of in-school child care programs in co-operation with the Ministry of Education. We are also asking to extend the payment of child care and transportation costs to those participating in academic upgrading or training/employment-related activities.
Mr Chairman, as I stated earlier, our situation in Hamilton-Wentworth is not unique. It is common across Ontario. We face the third-highest level of general welfare assistance rates in the province. As chairman of the health and social services committee, I am literally having to stand up every two or three weeks at regional council and defend expenditures over our budget, defend deficits that we as a committee and as a council are facing. The problem here is not the victim, of course. The problem is not the individual receiving assistance. The vast majority of recipients are people who are in situations beyond their control. They are in situations that they are forced into. If they had a choice, again the vast majority would rather not be in that situation where they are relying on welfare and social services.
People are hurting in our community and we are not going to turn our backs on them. However, the region cannot afford to pay what has clearly been recognized as a provincial responsibility. I think all parties in the House praised the recommendations of the Social Assistance Review Committee report, and then the follow-up Provincial-Municipal Social Services Review Committee report, including 100% funding of general welfare assistance programs in the municipalities. This was recognized, in our view, as the most imperative and the most important change the province can make to municipal funding in Ontario in the upcoming budget.
I urge this committee to consider, as I stated earlier, that emergency financial assistance to municipalities be given in 1991 to cover the increases above the 1990 rates -- in our particular case, this would be $7 million, which is almost a 70% increase -- and second, the implementation of the recommendations of 100% funding of course for GWA.
If action does not occur very soon, we believe many municipalities, including ours, are going to face financial disaster. We are going to have to make decisions. This program is mandatory. We are going to continue to provide it, but it will be at the expense of many other essential municipal programs -- roads, sewers, transportation -- which in my view are very important. However, we do not have the capability, and most municipalities in this province do not have the capability, to handle this continuous growth in what is clearly a provincial responsibility and a program that the province of Ontario should be paying at 100%.
I am urging this committee to recommend to the government that these issues be addressed, and addressed seriously, in the 1991 budget. I realize your situation is difficult. I realize cutbacks in the federal funding on the various programs are going to hurt the province of Ontario, and I think that is another fight for us to take to that level, but at the same time, the municipalities across Ontario need the help of this government, and need it now, or we are going to be facing financial ruin in the next year or two due to this particular problem.
Mrs Sullivan: I want to thank you for coming before the committee and putting a human face on change in the economic situation. You have emphasized the situation in Hamilton-Wentworth, and we have certainly heard reports from Metro Toronto that its case loads are increasing by about 80%. I am interested that yours are at about 66%. In my own region they are increasing about 69%.
You have addressed many of the areas relating to integrated delivery. In your view, is the move to the next phase of implementation of the SARC report the number one priority, or is emergency funding the number one priority?
Mr Agostino: Realizing the impact on the provincial budget and the provincial coffers that it will have, I believe that getting emergency funding to cover the situation in 1991 has to be a number one priority, but quickly followed by the implementation and maybe a staging of 100% funding of GWA programs. I realize it is a big-ticket item for the province of Ontario as well, and I realize, for example, if you implemented 100% funding, it would mean $17 million for Hamilton-Wentworth in 1991. I am realistic enough to know that that probably will not happen, but I believe that the other phase of the emergency funding would mean $7 million for Hamilton-Wentworth.
We are reasonable. We understand that there is not an endless wealth and supply of money here in the province, but we are hoping that one step is immediate and the second one is phased in very quickly following that.
Mr Sutherland: My question deals with just an overall general view and outlook. You note in your first page about how communities are more accountable and able to quickly respond. It would seem to me there is a tendency that provincial programs, and maybe it is just a perception with provincial programs, are not as quick to respond. If you go to the 100% provincial funding on these areas, do you feel that there will be any losses to responding to local needs?
Is it possible you will get into a situation where overall in one year welfare cases are up 20% but maybe your specific area is up 50%, 55% and because it is provincially administered, your area may get left out in the cold, or another area may get left out in the cold? It just seems like a very delicate relationship between who is paying 100% funding and who has control of the decision-making of where those funds go. I was wondering if you could address that.
Mr Agostino: Certainly. The 100% funding, as I understand the recommendations that have come forward and the direction we would like to see it in, is of course that it be locally administered. It makes a great deal of sense. I believe it is much more efficient and we are able to respond. By "respond," I mean shift programs. For example, we had a huge increase in numbers so we had a youth team that we quickly disbanded. We had other special programs we quickly disbanded and put those case workers to simply the general welfare assistance cases. So those type of changes at the municipal level we are going to make very quickly.
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What we are hoping for is that there is a system in place in which we are going to be fully accountable, of course, about how we spend that money, but in which there are parameters set by the province for eligibility and those parameters are to be followed, but the municipality will ensure that everyone who is eligible receives the assistance and it will be funded provincially but administered locally within provincial guidelines.
Therefore, if there is an increase of 10%, your funding will increase by that much, and if there is an increase of 50%, then your funding will increase by 50% simply to reflect the community need, as long as a clearly understood set of criteria on that eligibility is relatively even across Ontario and a municipality is not paying much more liberal -- a wrong choice of words -- is not paying people much more than they should be getting, as an example, rates that are out of whack with the rest of Ontario. Those type of standards can be posted by the province but would be municipally administered, I think. It would have to be for it to work in a way that we would like to see it done at the municipal level.
Mr Sutherland: If I may, just one supplemental.
The Chair: It had better be short. We are running behind.
Mr Sutherland: Yes, I know we are running behind, and my apologies. If that is the case, then really the difference, you are saying, from the current system is that the municipal employees who now administer the program would become provincial employees, or would they remain municipally employed but with the province picking up their costs?
Mr Agostino: Right now the cost-sharing for our staffing in administration is 50-50. For GWA rate, it is 80-20. Our view would be that the only change that would occur is that the cost, the 80-20 and the 50-50 share now, would simply turn over as 100% share of the province, which has been addressed and recognized through all the reports and studies that have been done. That is really the only change we would see, that the province would fully fund all costs relating to general welfare assistance at the municipal level.
Mr Jamison: That basically answers part of my question. My question evolves around the municipality handling the case load and so forth. What I have noticed is that there is quite a difference at this point in time between, for example, home visits that are required before any funds are made available. From one area to another there is as much as two weeks' difference in the waiting time. By saying that, I want to move on to the question on the 100% funding by the province. It has come to my attention, through talking to various people working at the municipal level, that it may be important to leave some funding, a portion, at the municipal level just to keep the system working on the basis of whether or not it actually ends up costing you anything or not. That way there is an assurance that the evaluation process will carry on in a proper manner. I just thought I would ask your opinion on that.
Mr Agostino: Certainly, sir. I do not think we at the municipal level are willing to work with the province to establish criteria, a set of standards, that are applicable and enforceable, but we would be open to any checks and balances in the system, as I think we addressed in here, to simply ensure that municipalities are not abusing the interpretation of the act and that they are following the guidelines that are in place. I think that makes a great deal of sense. It would force the municipalities in many ways to be a little more accountable, of course, because when it is 100% funded by the province, then I think we would be pleased to work with the province in setting up those guidelines and the criteria.
Mr Christopherson: I am cognizant of the time. I appreciate the opportunity to speak since our guest today is from my home community. I guess I would just open by saying, is this a great province or what, Dom? How the world changes in a short period of time. I would just like to, first of all, concur with most of the content in the issues outlined by Councillor Agostino. These are certainly a lot of the issues that I ran on in the election, issues that quite frankly we saw as not being addressed properly and adequately by the previous government, which are priorities on our agenda. Taking all of that in the context of the recession and the financial situation we find ourselves in is not helpful for us, but I think you have reflected and commented on that.
Interjections.
Mr Stockwell: That stagecoach slowed down.
Mr Christopherson: This Hansard stuff is going to be fantastic for going back to for quotes. Mr Stockwell and I are going to have a wonderful time over the next four years firing back and forth on his desire to have it both ways, fiscally responsible and also pushing for all the social issues. However, that is not the issue at hand.
Mr Stockwell: Look who is calling the kettle black.
Mr Christopherson: I am always pleased to have my previous Liberal colleagues here before us. The only thing I would ask, Mr Chair, in a very serious vein, is that I did not see any reference here at all to the mandatory health programs which at the time that I left was a concern because of the lack of funding and where that put us over the three-year period. Is this meant to be just a perspective from social services or is this the priority of both those departments combined and, if so, did the mandatory programs not require the same kind of attention? I am just asking that.
Mr Agostino: Primarily, and from the perspective as chairman of the committee, we have some concerns, of course, about the mandatory health programs and the fact that we have submitted a number of programs. We were willing to kick in immediately and fund our aspect of it. This perspective here today is primarily from the social service point of view -- and again, if you gave me a choice and said which one is more immediately important, we believe that this is simply because of the short-term, immediate tax dollars and affordability for our residents in our community to pay for social services.
Mr Christopherson: One quick question, if I can, Mr Chair; I know I am pushing your indulgence. The priority here and the priority you have mentioned today is that the council's position, out of all the issues that they face, is that SARC -- I think it was SARC that you mentioned -- is the number one funding issue aside from the question of emergency funding.
Mr Agostino: Right. I am not going to speak for the rest of the committees, of course, but this is clearly the number one funding issue from the aspect of social services and health care in Hamilton-Wentworth. I think there are very few programs that would have this type of impact that we would expect to get immediate funding to any great extent. This, in my view, would be the biggest single ticket item that would clearly enhance the tax situation in support of the taxpayers in Hamilton-Wentworth.
Mr Christopherson: Okay. I just needed to be clear on that because it is important for me as a representative here. Are you saying this is just the social services committee point of view, or is this regional council saying that out of the environment, transportation, health and social services, all the other needs, this is the number one priority?
Mr Agostino: These initiatives are primarily social orders approved by council, the directions that are in here, but primarily are social service priorities. I cannot speak for all of them. I am not regional chairman. I cannot speak for all of the region, but I believe that clearly this type of action would enhance all the region. What it would do at our own level is allow the freeing up of a lot of money that we could use for other programs in environment and the other services we do provide.
Mr Christopherson: I will just close by saying, in all seriousness, that I appreciate Councillor Agostino and members of the council taking the time to come down. I think this is the kind of grass-roots input that we are looking for, and it is appreciated. Thanks.
The Chair: In the interest of supplying Mr Christopherson with quotes, Mr Stockwell can have the --
Mr Stockwell: The question is asked.
The Chair: The question is asked? Thank you for coming, Mr Agostino. I think your briefing was very well done.
Mr Agostino: Thank you very much. We thank the committee for their time. I tried very hard not to be political and to be as fair as possible. Not once did I even raise the expressway this morning.
Mr Stockwell: Were you at that meeting, by the way?
Mr Agostino: No, I did not get invited.
Mr Stockwell: Send that guy up here.
Mr Agostino: I am on the other side. I do not get invited to those.
Mr Stockwell: I wish they would send that guy up here. I have got questions for him.
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METRO TENANTS LEGAL SERVICES
The Chair: We now move to our next presentation. It is the Metro Tenants Legal Services, with Leslie Robinson. You supplied the brief?
Ms Robinson: I did.
The Chair: I would like to applaud the effort of having it on both sides.
Ms Robinson: Thank you very much. About half an hour ago I thought I would rather double-side it than staple it.
I am here representing Metro Tenants Legal Services, which is one of the legal aid clinics that is funded by the Ontario legal aid plan in the province of Ontario. We are set up to represent and advocate for tenants in Metro Toronto, specifically low-income tenants. Legal aid sets low-income criteria and the tenants we represent must live under those income criteria.
Before I go into my prepared presentation, I want to provide you with a piece of information that I am not sure everyone here is aware of. I do not know if you know that Canada is a signatory to the United Nations Covenant on Economic, Cultural and Social Rights. Through our signature to that covenant, Canada has agreed with other countries in the United Nations that signed the covenant that we feel that housing is a human right, that basic, decent, affordable and quality housing is a basic human right.
In fact we have an international legal obligation to report every five years to that international committee on economic, cultural and social rights on how we are doing in ensuring that all Canadians have adequate housing.
Before Canada signed the covenant, every province and every territory in Canada agreed to this covenant. So, while the right to housing is not entrenched in the Charter of Rights and Freedoms and the right to housing is not entrenched in the Human Rights Code, I think it is imperative for this committee, for this Legislature, the government and the people of Ontario to operate under the assumption that housing is a right, that we cannot go forward with any other perspective or any other point of view, except to say in Ontario all people have a right to a roof over their head at a price they can afford and a place that is decent and has decent facilities. It is from that premise that I wish to make my presentation this morning.
Metro Tenants Legal Services has been in existence since 1974. We have been representing tenants in the courts and tribunals since then, and primarily we represent groups of tenants. The issues that we address tend to cover a range of rent increases, repairs and maintenance, safety and security, preservation of buildings from demolition or conversion and security of tenure. In the past few years we have noticed that more and more tenants are living in buildings that are not zoned for housing, so that creates special legal tangles. They are also living in buildings where a mortgagee has foreclosed and the mortgagee is demanding vacant possession, although there is legislation working its way through the processes to address that specific concern.
But over the years we have been winning some battles and losing some battles, and measuring our gains and losses by the legal battles that we win and lose. In 1988 our board of directors spent a weekend evaluating the work that we have been doing with our staff, and we concluded that while we have been winning a lot of legal cases and doing the best we can in the courts and the tribunals, in 1988 -- and the same is true today -- our client group, low-income tenants in Toronto, had worse housing conditions than they had in 1974 when we started.
So our board said that if we are going to really serve the needs and the interests of our clients, we have to step back a little bit from the individual battles and the individual cases and focus more on the supply of housing. While we still do the rent review cases and we still represent tenants with repair concerns and we still advocate for tenants, we have also over the past three years tried to participate in the arena of housing supply. We have participated with different housing co-ops and non-profit providers and we have been taking a look at municipal bylaws and building standards and those kinds of issues.
While we have been looking at housing supply matters, it did not take us very long to conclude two things about Toronto's housing market: There is not enough affordable housing, and our client base is discriminated against when attempting to access housing that is affordable to them. Such discrimination takes the form of income criteria, credit criteria, adults-only buildings, blatant racism, and a host of other bigotries that come into operation when landlords are faced with choosing among applicants for the lucky ones who will have the privilege of living in the rental units being applied for.
You can just imagine the housing situation we have had over the past few years with a landlord considering 10, 20 or 100 applicants for one unit. Sooner or later the criteria start being, "You've got to be white," "You've got to be employed," "You've got to not have any children," and "You'd better have a good credit history and a good reference from your previous landlord."
We are asking today that your committee take into consideration both our observations when you are developing recommendations for your 1991 budget. The first is new housing supply. Ontario's budget must address the concern of the basic shortage of housing which is affordable for those in need of housing. This is the shortage that exists in Toronto and in many other municipalities throughout Ontario. I think Sudbury has surpassed Toronto for the lowest vacancy rate in Ontario. There are some municipalities -- Halifax comes to mind -- where there is a large vacancy rate, there is not an absolute need for more housing. But in most of Ontario there is an absolute need for more housing.
But the housing need is not the need for purchase homes, luxury condominiums or apartments that rent at $1,000 or $1,500 a month. The need is for low-cost housing, housing that can be afforded by the people who are without housing and that is either housing with low rents or housing that is rent geared to the income of the tenants living there.
The criteria that our clinic set for new housing or the definition of affordable housing is that it must remain affordable over time, that large rent increases just force the tenants who move in to move out again. It must be close to transit, schools, health care, shopping and other services that form the necessities to a community. It is also important that the management of the housing provide opportunities for the residents to participate in decision-making and to present their needs and priorities when management decisions are being made.
We are in a time when most tenants in Ontario, and I would say almost all the tenants that we serve, realize that they will be tenants throughout their lives. This is not a short-term place where they are living before they can buy a house and decide when the lawn will be cut and what colour the trim will be painted. A lot of us will be tenants for all our lives.
It is important that we recognize that and give people who live in rental accommodation opportunities to have some control over our housing situation and the normal control that people expect, particularly when they buy their own home, that they are going to be able to set some priorities and decide whether they are going to invest in an air-conditioning system or that maybe this is the year to fix the leak in the roof.
Our experience of government assistance in providing supply of housing has been that the non-profit housing sector does come closest to providing the housing needed by our client community. None of the programs providing money or benefits to private sector providers has met the above criteria. I recall the Ontario rental construction loan program provincially. There have been the limited-dividend program and the multiple-unit residential buildings program, and those programs do not have any assurances that the rental housing that is constructed is either in a location where people need housing or at a rent that they can afford.
The limited-dividend federal program is the only exception to that and what we find in those buildings, which are now reaching about 15 to 25 years of age, is that corners were cut and the buildings are falling apart and people are living in substandard housing. As well, when the agreements expire, the rents are going up anywhere from 10% to 48% and that is in Toronto.
We ask you to draw from our experience and, in meeting your obligation to provide housing to the people of Ontario, to take a look at the non-profit programs. While the non-profit programs, as I said, come closest to providing the housing needed by our client community, they are not perfect and there have been some problems raised. So we also ask that this committee make anti-discrimination policies mandatory for the receipt of funding for non-profit housing projects. Affirmative action policies for those who are most excluded are also necessary in order to address the unmet housing needs of people who do not measure up against the usual criteria that I listed before: You have to be white, middle class, employed and have a clean record.
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The province's housing programs have to address the reality that everyone has to live somewhere. People are evicted for disturbing their neighbours. What we are dealing with now across the province, but in Metropolitan Toronto, is an effort to get all drug dealers out of housing and that is good and that protects the people who live in those communities, but we still have to address the fact that everyone has to live somewhere. Housing has to be designed that is appropriate for the needs of absolutely everybody, because we are not meeting our obligation to provide housing as a right as long as there are people living on the streets, in hostels and living in substandard conditions or illegally doubled up.
So we ask you to address the concerns that we have presented and to make demands upon the non-profit suppliers. There was a recent Ontario human rights complaint by a woman named Heather Sinclair against Peel Non-Profit homes because she was discriminated against based on her income. They told her that her income was not sufficient, that the rent was 30% or 35% of it and she could not move in.
Instead of moving into Peel non-profit, she moved into a basement apartment which she shared with another woman and child. She paid 60% of her income on rent and she did not miss a rent payment. She settled with Peel non-profit homes. They have altered their requirements considerably. I think there is generally good faith in the non-profit sector to take a look at these issues, but we hope that through the funding and financing budget process these kinds of issues can be addressed.
In closing, I would like to reiterate what I said in opening, that this committee and this province must address housing policies and housing supply programs with the view that housing is a right. Programs must be developed to meet the housing needs of everyone who calls Ontario home.
Mr Stockwell: I assume your association receives provincial funding.
Ms Robinson: Yes.
Mr Stockwell: How much money do you receive from the province?
Ms Robinson: I think our organization receives about $400,000, but I could be off
Mr Stockwell: From the province.
Ms Robinson: From the Ontario legal aid plan, which is funded ultimately by the province and also lawyers' trust funds. The interest that is gathered in lawyers' trust funds also goes into the legal aid plan.
Mr Stockwell: What about Bill 4's effect on your association? Will it cause you to have less work, more work?
Ms Robinson: If it gets passed, we will be able to drop a number of legal cases that we are working on. We have looked at it and decided that we will need to refocus our energies into assisting tenants with repair problems and to focus on the proposal that there be more permanent rent control legislation after Bill 4.
Mr Stockwell: In fact the work will lower in one area, but you will increase your efforts elsewhere.
Ms Robinson: I did not address today the budget needs for legal aid clinics.
Mr Stockwell: No, I was just curious. With respect to discrimination, I heard you mention the fact that through the process it is discriminatory to discriminate against people for certain reasons and one of those reasons was that they had a bad credit rating. Is it against the law to discriminate or not give someone an apartment because they have a bad --
Ms Robinson: Oh no, it is not against the law. Many of those reasons I listed are perfectly legal.
Mr Stockwell: Do you consider it discriminatory if someone has a bad credit rating not to rent that person an apartment?
Ms Robinson: Yes, I do.
Mr Stockwell: On what basis?
Ms Robinson: On the basis that everyone has to have housing. Even people with bad credit records have to have housing.
Mr Stockwell: I see. Interesting.
Ms Robinson: You have to live somewhere.
Mr B. Ward: Is it possible that you could elaborate on your comment that in your opinion the private sector does not provide the adequate housing supply that is needed for rent-geared-to-income or affordable housing even though there has been an opportunity, perhaps, in the past for a provincial or federal grant system? Even with the grant system, the private sector did not appropriately react to the housing need. Could you elaborate on that? Is that possible?
Ms Robinson: We have not had a housing supply program for the private sector that is federal or provincial since about 1987, but they seem to come in waves. Sooner or later someone will have the idea, "Oh, let's just give either low interest rates on mortgages, loans, forgivable loans, interest-free loans, or whatever, to the private sector and get them to build housing."
In 1981 the Ontario rental construction loan program was introduced. It created housing but not in Metro Toronto. The most housing built under that program was built in a city that had the highest vacancy rate already and that was London, Ontario. But that was 1981. So they were not targeted. Basically the money was in a pot and developers were told, "Come and get some money and build some housing," but there was no targeting to need. Second, there is no control over rents.
I am working right now with a group of tenants who live up at Kipling and Steeles in the north end of Etobicoke, not terribly low-income people, working-class people, but they are mostly families living in two- and three-bedroom apartments that are over $1,000 a month. One of the biggest reasons they have had a rent increase is that 15 years ago their landlord got a loan that was interest-free for 15 years. Last year the interest got added on and it hit the tenants in the form of one great big, whopping rent increase.
People are moving out and the other phenomenon we see is that people are doubling up. There are two and three families living in every apartment. That is an atrocious situation. Those people are living in fear that they will be evicted. The services are not capable of meeting their needs and a lot of those people would not even put their names on the voters' list because their landlord had access to the voters' list and then the landlord would find out that these extra people were living there.
There are a lot of shadow people living in Metro Toronto. Metropolitan Toronto Housing Authority estimates that there are 13,000 families living doubled up just in the housing authority stock.
Mr B. Ward: In your opinion, if the provincial government was looking at funding affordable housing, your recommendation would be, rather than utilizing that funding as a grant system to the private sector, that the money be ploughed directly by the provincial government into affordable housing to be constructed or developed by the province.
Ms Robinson: Yes, it is our opinion and experience that that is the kind of housing that our clients' funds -- accessible and affordable and decent housing.
Mr Sutherland: Actually, if I could just follow up on one question by Mr Ward: by the province or from community groups willing to, I guess, maybe make the difference? The provincial government doing it or the provincial government supplying the funds for different individual community groups to do it?
Ms Robinson: I think you could look at both or either. There is a lot of debate as to whether it is government's role to directly provide housing or provide it to community groups. There are a lot of community groups providing some very good housing, and in part our experience has been that the smaller the bureaucracy the more directly it addresses people's needs.
On the other hand, I do not think that problems that exist in Ontario Housing Corp housing or housing authority housing are necessarily because the province owns the housing. I think a lot of those problems relate to the fact that the buildings have some of the highest densities in some of the worst neighbourhoods with the least facilities known, and then you cram in a whole lot of people who have a lot of needs and do not give them anything and you are going to have a problem community. It is not because the province owns the building, it is not because they are poor, it is just because of a host of those kinds of situations.
Mr Sutherland: If I may, the question I wanted to ask was the concern that seemed to come up about -- I am not sure if integrated housing is the right way of saying it -- but strictly low-income housing units versus mixed incomes with low income. Would you care to comment on that issue?
Ms Robinson: Yes. It is a hot issue federally these days. We hear opinions from tenants on both. We hear tenants who say, "We do not want to be ghettoized, we do not want to be put into a community that is labelled low income, therefore when we tell anyone our address they know exactly who we are and they put a label on us."
We have also heard from people who say: "I got to where I am today organizing my tenants' association because I am among my peers. I live with poor people, I am organizing poor people, I don't have to sort of compete against people that have skills for leadership in my organization. I don't have to deal with my kids coming home and saying, `Why can't I have a 10-speed? The boy across the hall has a 10-speed.'"
We hear both and we hope that programs would be flexible so that they could construct housing that is either all for low-income people or for a mix of incomes. We certainly hope there will be lots of units created for low-income people, rent geared to income. We have thought that a 50-50 split is probably appropriate, but any smaller percentage of rent geared to income than that starts creating problems because there is not enough built for poor people.
Mrs Sullivan: I was going to ask the very question Mr Sutherland has just asked relating to the integrated complexes. I would like your comments on two things that kind of follow from that. One relates to the requirement that the municipalities provide a certain percentage of affordable housing as part of their planning mix and the second relates to the time factors relating to the development in moving through the planning process itself.
Ms Robinson: On the first, as you know, under the Planning Act the Minister of Housing a couple of years ago created a housing supply policy that said that municipalities had to ensure that 25% of the new housing that is developed is affordable. Our concern about that is that it is not being monitored and that nobody has any idea which municipalities are and which municipalities are not meeting those criteria.
Mrs Sullivan: I am not sure of that. I think that is not right.
Ms Robinson: That is what we are told from the developers of non-profit housing, because we in the non-profit sector have been trying to do the monitoring ourselves, given that we cannot seem to get the answers from the ministries of Municipal Affairs or Housing.
It seems to be a good policy and heading in a good direction. What people do not tend to want is the municipality to say: "Okay, 25% has to be for poor people. There is this piece of land over here by the expressway and the other one by the garbage incinerator that no one is going to build on anyway, so let's put a whole bunch of low-income housing there and then we have met our criteria."
Mrs Sullivan: Have you seen that happen?
Ms Robinson: I see that in the existing housing. If you drive up and down Highway 427, a lot of the high-rises near Burnamthorpe Road are all either limited dividend or Metro Toronto housing, a lot of the buildings that are on the Don Valley Expressway, over at Oak Street on the edge of Regent Park.
Mrs Sullivan: Certainly that is not the case in my community.
Mr Stockwell: That is not true.
Mrs Sullivan: But I am wondering if it is the case elsewhere.
Mr B. Ward: That is your opinion.
Ms Robinson: That is my opinion. That is my experience in the buildings I have gone into. Maybe a lot of the buildings are not.
Mr Stockwell: There are all kinds that are not.
Ms Robinson: Okay, fair enough. It is our experience that a lot of buildings for poor people are either in neighbourhoods that are not yet developed and do not have transportation and services, or on lots of land that are less desirable. That makes a lot of sense because it is harder to market that land.
Mrs Sullivan: And then the planning process itself. I do not know if you want to throw in a comment about the maximum unit prices or not, but I think that would be useful.
Ms Robinson: Yes, I must say it is not something I am totally familiar with. The maximum unit prices I think have to have some more flexibility so that they reflect the reality of land costs and other costs in Metro. I think, as well, particularly with the introduction of Bill 4 and rent controls, that the province needs a program to convert private sector buildings into non-profit housing where there is an opportunity, where there is either a threat to affordability or a landlord saying, "I'm going to walk away from this building." But we have to be prepared to then say, "Okay, that housing is prime housing to be converted into non-profit housing."
Mrs Sullivan: With the province's participation, ie, purchase of the building?
Ms Robinson: What the province has now under the non-profit program, under the existing Homes Now program, is a portion of the units or allocation set aside for conversion of existing buildings rather than construction of new buildings, because a lot of the problem is just finding vacant land.
The Chair: Thank you for coming. I think you have given us some food for thought. We will reconvene at 2 pm.
The committee recessed at 1215.
AFTERNOON SITTING
The committee resumed at 1404 in room 228.
ONTARIO ASSOCIATION OF INTERVAL AND TRANSITION HOUSES
The Chair: I see a quorum. Before us we have the Ontario Association of Interval and Transition Houses, with Eileen Morrow, Trudy Don -- Trudy is not coming today? Okay -- and Lisa Duggan. You will present your brief and then, if we have questions, we will move on from there. You have roughly half an hour.
Ms Duggan: We did not prepare a written brief of what we are talking about today, so we ask that you listen. What you do have in front of you are several things we will be referring to in our statements. What we want to start with is to give a little bit of history in terms of funding of shelters in Ontario and what we would like you to consider in terms of the direction for funding for shelters in Ontario.
We would like to start by talking about a standing committee on social development that was put together in 1982, and it was a three-party committee that looked at the issue of wife battering in this province. One of the recommendations that came out of that standing committee, which was unanimously supported by all three parties, was recommendation 23, which is on page 57 of that report, and this is the report.
It says, "The Ministry of Community and Social Services should fund shelter services beyond room and board on a block funding basis." However, these recommendations were not implemented and funded and as a result shelters fell into severe financial crisis and were in danger of closing, so in 1985 there was implementation of the bailout and stabilization funding, which led to the initiation of a review of shelter funding by Brian Low, which is referred to as the Brian Low report. When the provincial funding review was completed in 1986, the recommendation was recognition for funding of expanded shelter services. The draft recognized block funding, but it was dropped from the final report in favour of improvements to the per diem funding and deficit funding.
OAITH opposed the lack of block funding that did not occur in the final draft of that. That model was opposed because block funding was not included in the final report. The more positive recommendations of this report were not funded or implemented.
Ms Morrow: I am going to go on from there to talk a little bit about what happened next in the trend after the provincial review of the shelter services which was designed to stabilize the funding and secure funding for shelters so that they would not close. Review and consultation was taken within the Brian Low report and responses were gathered. The result did not come about until 1988 when the Ministry of Community and Social Services presented a funding formula which was designed to alleviate the problems in transition houses for abused women. This was announced in February and was to be implemented on 1 April, so that shelters in the province of Ontario were given one month to respond to the proposed funding formula and to give their comments back.
There was a groundswell of opposition to the short length of time that was given for response to the report. As a result of the opposition to this plan, there was a prolonged consultation period undertaken which resulted in negotiation across the province of Ontario with shelters in OAITH and regional groups of shelters in OAITH, with both the corporate branch of MCSS and the program supervisors in the local regions of MCSS. Within this negotiation, what happened was that MCSS requested that the shelter network, if it was in opposition to the new funding formula, the result of Brian Low's work in effect but without incorporating his recommendations -- they suggested that we provide an alternative funding formula, which was done and was approved by the membership of OAITH after much consultation among us.
What happened after that was that a group of people from OAITH and from the MCSS civil servant group began to negotiate around the alternative funding formula and the original funding formula. The end result of that made absolutely no difference in terms of the plans for funding of shelters. What did happen, however, was that MCSS promised to incorporate some of OAITH's definitions of what the shelter network was in fact providing already in the province of Ontario, and to recognize the services that were being provided in the shelters but not funded by public policy or by public money.
The result of that was Alternate Vision of the Provincial Funding Formula for Interval and Transition Houses/FRCs, which is the first thing you have before you. OAITH's alternative to the funding formula describes a definition of what actually takes place in shelters in the province of Ontario today. The funding formula which was ultimately designed as a so-called compromise by MCSS, however, recognized the work that was being done but would not recognize that it should be funded. So we won recognition of what was actually occurring, but without any corresponding support in terms of a policy to support it.
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The Ontario Association of Interval and Transition Houses did not, as a group, support the final document, and does not to this day support the final document. In fact, we have yet to see the final document. We understand that the final funding formula is finished and ready to go out. In fact, we have been told it will go out for consultation. Needless to say, we are of the opinion that we do not need any consultation any more.
In 1988-89, some movement was made in some areas within the needs of the shelter network. Specifically, the province did increase some salary funding for shelter workers, which is a severe problem, and did increase slightly the staffing complements in shelters under what was known as the salary compensation and the ministry staffing ratio increases.
The staffing, for instance, was done to provide minimum staffing in order for shelters to function because, recognizing that all of this work was being done and yet not funding it, what we believe the ministry was recognizing was yet again another crisis. In other words, it was another emergency measure which was designed to keep the shelters for assaulted women functioning in the province of Ontario. What it provides is a minimum -- I would underline "minimum" -- staffing just to function in the shelter, and some increase in salaries in order to provide some sort of alleviation of turnover, burnout and the kinds of things that are going on on a day-to-day basis in women's services generally.
OAITH has protested the inadequacy of these measures and has on an ongoing basis reminded the province of the provisions that we requested in the Alternate Vision formula. I should also mention that in terms of the historical overview, since 1986 the province of Ontario has been involved in an interministerial approach to the problem of wife assault, which included from that time a five-year initiatives plan that focused on 15 different ministries in Ontario and provided some funding to address a diversity of problems that abused women face, including problems in the criminal court system, community counselling, education and so on.
Ms Duggan: However, because of an inconsistent and inadequate recognition of shelter services, shelters, despite all our best efforts, are not able to meet the needs of abused women consistently in Ontario. Shelters struggle to provide the services that are recognized in Alternate Vision. However, demands are increasing and are diversifying as education, partly supported by the province -- however, education programs within the shelters are not funded although specific education requests are -- supports women's rights to assistance.
The gap is widening, however, between the services we provide and the public commitment to service for abused women, as well as between the problems the public policy has identified and the actual changing needs of abused women. The province is falling behind in its support for assaulted women and their children.
Ms Morrow: I would like to turn now to an examination of our alternative funding formula, which is before you. Obviously I am not going to go through this tooth and nail, so to speak. We of course hope that you will read it. We did not provide you with yet another brief because the alternative funding formula approved by the membership of OAITH describes what the membership of OAITH, in working directly with assaulted women, sees as the way that the funding should flow at this moment and the way that the financial arrangements should be made.
I would just like to go through the highlights of what the alternative funding formula vision provides for, which is not being provided for adequately at this time.
It provides for all of the services abused women and their children require to be funded and provided. On page 3 and 4, for instance, you will find on the bottom of the page the elements of a new funding formula which describes what shelters in the province of Ontario consider to be core services; in other words, basic minimum services for abused women and their children.
These include much more than simply what often in the past has been more or less a flop house with baby-sitting approach to addressing the safety of abused women and their children. This list provides what we believe to be an adequate minimum number of services and kinds of services that abused women need in order to deal with the terrorism in their lives. As you can see, it is a comprehensive program. These kinds of functions are now recognized by the province of Ontario, but not funded.
This funding formula alternative also recognizes the need for community response to violence against women. Specifically, for example, it recognizes the need for a more comprehensive and better funded public education program rather than what is presently happening, which is a sort of project funding of specific small projects, usually in November, that will address short-term kinds of public education, but usually without the funding that would support the human beings who have to engage in this education. We feel that prevention and education are a very central point in this problem and that this is where we will begin to address the problem of wife assault on an ongoing and long-term basis.
This funding formula recognizes the need for that community response. It also recognizes and outlines specifically the staffing levels and salaries that are required to provide these services. Just to point out, one central factor in the staffing would be a requirement and a request for double staffing of shelter services 24 hours a day, seven days a week. This currently does not happen in any shelter in the province of Ontario at the moment, so we get minimum staffing during the day and we get staffing by one person, usually, at night. I think everyone who has any knowledge of violence against women and domestic assault will recognize that the safety factor here is really quite key and central, and that double staffing is required in order not to jeopardize the safety of the residents in the shelter and the staff who work there.
Apart from that, it also recognizes the incredible demand increases from women in the community who respond to education on a broader scale and who are calling the shelter and visiting the shelter without actually staying in the shelter and doing the residential service. I think everyone might also recognize that in providing those services, we can alleviate some of the distress without always engaging in very costly residential solutions, so double staffing is extremely important.
The funding formula, Alternate Vision, also recognizes and demands that the government address the issue of pay equity -- equal pay for week of equal value -- in the shelter system, which is another one of those systems which is currently not covered under legislation requiring a male comparator because this is an area where the staff is all female. It is another one of those areas where women are job-ghettoized. There is no male comparator.
In the meantime this alternative, which was written two years ago, requires that there be an average minimum level of salary of $35,000 per shelter worker in the province of Ontario, with a minimum of $30,000. Since that time the province has increased its percentage base 4.5% and then 5.5%. So at this point the average salary request in the alternative is $38,500.
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It has always been our experience that the closer one gets to working directly with assaulted women, the less money there is available to pay for that work, so that what is happening is that advocates for abused women who are advocating to government officials are remunerated at about one third the level of the person whom they are advocating to in many cases.
This is very stressful, very draining, sometimes very dangerous work. It is appalling that there is no recognition of the value of this work in our communities. So this alternative funding formula recognizes the value and asks that it be recognized by public policy.
The alternative funding formula also outlines the need for a change from the funding mechanism, from per diem funding from the municipalities and deficit funding of the deficits after per diem funding is subtracted from the shelter budget. It proposes that the change go, once again, to block funding, the block funding that was proposed almost 10 years ago by the standing committee on social development.
The alternative funding formula also provides for phasing in, as did the original funding formula, of the improvements with definite time lines. Time lines were not given in the original funding formula, so it was more or less a wide-open situation.
I would turn your attention to pages 5 and 6, which outline the three phases that we would suggest. I would particularly like you to note that phase 3, which was the last phase that we suggested, was to be implemented 1 April 1990. That was a suggestion that there be legislated funding of shelters for abused women and their children and that the province take on that funding 100% -- gross funding, in other words, block funding -- directly from the province of Ontario. I cannot help but notice that the province of Ontario is already one year behind in terms of accepting our recommendations and of funding the shelter network appropriately.
Those are the highlights that would impact on funding in terms of the alternative funding formula vision. Before we go to questions, I would just like to speak a little bit to the main focus of our presentation here, which is to encourage and support the idea of block funding, a change in the funding mechanism, for the shelters in the province of Ontario. Block funding should be instituted. Block funding has been consistently supported and proposed for the last 10 years. It has been supported in commission reports, such as the standing committee recommendations of almost 10 years ago in the first draft of the shelter review done by Brian Low. It was also suggested in Transitions, the report of the Social Assistance Review Committee.
I will give you the recommendation numbers so that you will not have to read through it all. Recommendation 244 and recommendation 247 speak to removing the funding of transition houses from the social assistance legislation and regulating them through special residential services legislation that is specific to the field; also that it be secure and not based on a per diem funding or the number of residents who are occupying the beds on any particular night or day.
What is happening that is a very big concern to us, however, is that the province, through the Ministry of Community and Social Services, in fact seems to be focusing on moving in exactly the opposite direction, which would be to reinforce the same inadequate and insecure funding models which we presently have in existence.
Specifically I would like to draw your attention to the report of the Provincial-Municipal Social Services Review Committee, which has been released and is now under consultation in the province of Ontario. This is the latest report supporting these inadequate models and which will increase the municipal funding responsibility and control. That increase in municipal funding responsibility results in more inadequate rather than improved services for abused women and their children in the province of Ontario.
The presentation package that we have given you includes OAITH's response to the PMSSR and outlines specifically and in detail the problems that we have and the problems that will ensue for abused women and their children if this is implemented in the province.
Before questions -- I know our time is running out -- I just want to leave you with the strong suggestion that this committee recommend the block funding and begin the financial and economic arrangements that need to be undertaken to provide block funding for shelter services and that this be implemented immediately as suggested in phase 3 of OAITH's alternative funding formula vision and according to the recommendations of all of these many commission reports and groups for the last 10 years.
We have not had time and we will not have time and do not have time to even touch on the other areas affecting funding for services which address abused women's safety, for instance, in the criminal and family law system, in the education system, in housing, in children's programs, in community counselling programs, in economic support systems that address poverty, day care and so on. We do not have time for that.
However, we have included in your package copies of the statements that were made by OAITH in its lobby of provincial MPPs in November. All of you should have a copy of that already, but just in case papers are lost under piles of other papers, we have provided you with another copy. That document basically outlines all of the things that we see right now that need to be done to address the issue of women's safety and programming for women and children. It also impacts, obviously, on funding and financial arrangements of the province and the commitment that the province has made time and time again to taking action to address this issue.
Some of these statements and some of this is also included in the lobby backgrounder which all of you have a copy of. It was sent to you or picked up by you at the lobby or through the mail. It also on the back page talks about the various areas that are involved in the interministerial work on this issue and all of the suggestions that we have made and continue to make on how funding needs to be implemented to address the problem.
What is required, I think, at this point, and OAITH has suggested this before, is that there needs to be implemented emergency funding arrangements and emergency measures taken to begin this work rather than some slight increases in the base percentage. We need to have a massive influx of funds at this point in order to resolve some of the problems that are continuing and are building in the province of Ontario.
Mr Sutherland: Two questions: One, I just wanted to know if you could give us some idea as to what the additional costs would be in terms of going to the block funding model. Two, is it your sense that some of the education programs are working and that is why your shelters are becoming more burdened?
Ms Morrow: To answer your first question about the additional costs, no, I cannot give you a figure. I think that is something that needs to be worked out in consultation with us. We have stated in the past that in terms of the shelter service, it would not be beyond the bounds of possibility to suggest that the funding would have to be doubled. I know that I personally I have been told that that is a ridiculous request.
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Mr Sutherland: Just on that point, do you have a sense of what -- I do not have a sense of what the provincial funding amount is right now.
Ms Morrow: It is very difficult and always has been for us to get numbers. The numbers seem to be different every time we get them, depending on the configuration of what is included. The last analysis I saw was dated 1989 and the bottom line was $40 million across all of the five year initiatives, in other words, not the shelters, but everything, so all of the interministerial committee funding mechanisms.
Okay, second question: I knew there was something else. I thought, what are they all sitting there for? I have to answer this other question. Around the education programs, I think it is really pretty clear every November, when we have increases in calls because ads are going on the television, that just that one initiative by the province of Ontario does result in increased demand and what little public education is allowed to happen in other ways, through the Ministry of Education and through the incredible efforts of shelters across the province of Ontario to provide it in spite of the fact that it is not funded, yes, I do believe that it makes a big difference.
I in fact am a public educator. That is my job personally in my shelter. I see the results of education when I go out to speak and I know that that results in women calling the shelter. Quite frankly, sometimes there is this real sense of being torn as a public educator, for instance, in knowing that you will give women information that it is their human right to not be assaulted, that assault is a crime and they have a right to safety, knowing that when they call the shelter or the community counselling program, it will not have the space to serve their need.
Mr Sutherland: I guess related to that, do you see the problem as growing? Are there more assaults occurring or are more women getting out of abusive situations?
Ms Morrow: There is a debate. Even on the front lines, there is a debate about that right now. I do not think anyone has the definitive answer to that question. To those of us working in the field, my shelter is four years old and the demand for our service is so overwhelming at this point that it is at breaking point. I am not sure how long we can go on and we have more than the absolute minimum staff because we fund-raise and we raise the money ourselves. Even then, the gap widens every year and we are falling further and further behind.
There is going to be another shelter crisis just like there was in 1985, and then someone is going to have to come in and bail us out. All of that will happen over and over again. It is extremely irritating and extremely frustrating and extremely cost-ineffective, I might add, in terms of what your interest is. But all I can tell you is that it really does not matter in some ways to us on the front lines, whether the problem is -- of course it matters, but in some ways, on the day-to-day basis, when we have 600 crisis calls in our first year and four years later we are getting 2,000 crisis telephone calls, never mind.
We are not funded to answer the telephone. The Ministry of Community and Social Services funds us to put in the telephone. They will pay the telephone bill 100% under emergency telephone crisis line, but they will not pay someone to answer the telephone. So what happens is that the women come into the shelter expecting service, but you are having to answer the telephone all day long and you have to balance.
Lisa is a front-line worker and she can give you an example.
Ms Duggan: For example, I work a 12.5-hour day which tends always to be a 14- or 16-hour day by the time you have finished writing up your notes. Just to verify Eileen's point, I went in to work one day at 6:40. At 7:40, I started my day and at 7:40 that night, I sat down and did not even talk to the women who were in the shelter and that only included the phone calls and the people who came in for counselling who are not in the shelter. I think that there is an increasing demand on our time. It is certainly not fair to all of the women who need the service.
Ms Morrow: Unfortunately, the province of Ontario in the past has seemed to have this policy that would seem to indicate, and perhaps I am being cynical, that shelter services should not increase their services. There should be no non-residential stuff going on there. One way of preventing that from happening is to say, "We won't fund it."
In my community, unfortunately, which is a large community with more services than most communities in Ontario, there is group programming, for instance, in a community agency, so we have community counselling program. We have the shelter crisis intervention program, residential, but nobody except us, who do it free of charge, provides crisis intervention counselling for women who are not in a long-term situation but who are also not wanting to go into what for the province would be an expensive residential service.
All of that range of services is required and they need to be funded. Our point is that it is not going to do any good to develop a mass denial attitude on this, that if we do not fund it, it will simply go away or that it does not exist unless it is funded, because it does exist and the shelters are doing all of this work. They are doing it right now.
Ontario has this fantasy that it funds shelters 80%. I also do all the financial planning and budgeting -- we do many different things in our line of work in my shelter -- and I know that in my shelter Ontario funds 35% of our budget. But because the funding formula says the province of Ontario funds 80% of the deficit after the municipality has given the per diem, there is this fantasy that Ontario funds 80%. In fact, it does not. It does not even recognize some of the full-time workers who work in my shelter. They are funded 100% by the taxpayers through fund-raising.
Mrs Sullivan: I want to be really matter of fact in getting responses from you. I think as a woman a lot of the things that you have said I am really responding to in terms of community services, but I would like to know what your estimates of the costs required for emergency funding are now, what the cost of block funding is not only to shelters which are members of OAITH but to those shelters which operate and which are not members of your organization, and any indication that you have of requirements in relationship to funding of secondary housing.
Ms Morrow: Second-stage housing?
Mrs Sullivan: Yes.
Ms Morrow: I will have to answer your question the same way I answered a similar question. I do not have those estimates. I should point out, however, that the vast majority of transition houses in Ontario in fact do belong to the association. There are six or seven that do not at this moment.
I cannot give you those numbers. I guess the other way I would respond to that is that I think it is really not possible for us to give you those numbers. It is not our responsibility to figure out the costs. It is our responsibility to tell you what is needed to keep women safe in this province. We get that information from abused women and their children and we pass it on to you.
To suggest that an association which has two staff members for an 80-member organization or to suggest that individual shelters which go through the kind of constraints that I can certainly give you in detail, including the 16-hour shifts a day working directly with abused women, should be also researching and discovering what it would cost the government to provide what is needed to give women their human rights is not appropriate or possible.
I simply cannot give you those numbers. We cannot. We do not have the time to do it and we do not have the kind of machinery that this committee would have at its disposal, but we are certainly prepared to tell you what it costs us in time and resources and what is currently being given to shelters in detail, and also what else is required so that we can make those calculations and figure that out.
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I guess what I would say in terms of being philosophical about it is that I do not think that money is a consideration here. We do not support the assumption that there is no money or that there is very little money, and that if the government takes it away from battered women, it will have to take it from homeless women to do that or sexual assault victims will not get support if we give the support to abused women.
I think what is required is the political will to make the decision to do this. There is plenty of money for war, for instance, and we are all too familiar with that today, and if we felt that this was an emergency, that body bags coming out of our local community homes were just as important as body bags coming out of F-618s or 925s or whatever they are, we would find the money to do this. We have never supported, nor do we support today, the idea that there is no money and that we have to be careful.
We are telling you what will keep women alive. You must do it. It is non-negotiable. It is a social human rights issue. And I cannot give you those figures.
Mrs Sullivan: And second-stage housing?
Ms Morrow: I do not have the figures for second-stage housing either, although I would suggest that second-stage housing is very important for some women. That needs to be there but what is even more important is that permanent housing must be there, that many women who are in second-stage housing are in second-stage housing because there is no permanent housing that they can afford and that is safe for them and their children.
Mr Jackson: Again, thank you for your presentation. It is such a large, complex issue for you to have to deal with and then try to deal specifically with finances.
Perhaps you could react to these brief, short statements to get a better sense of where we are at and then I have a suggested closing recommendation that you might wish to make to the committee.
A few years ago there was a figure of 10,000 on a waiting list, or put more specifically, 10,000 women who were denied access when presenting themselves or appealing for shelter. Are we far from that figure, roughly, today, to get a sense of how many women are being turned away?
The second statement is that, since this is a financial committee looking at impact on budget, knowing we are going into a recession, statistics have indicated that the incidence of abuse rises in this period and domestic homicides also marginally increase so that we are actually even -- although we sometimes rationalize that these are tough times for government -- you must understand, we can point directly to this issue to see that this is a more complex, more compounded problem period for you.
The final point to react to is that even though the alternative funding formula is being presented again -- I have seen three years of presentations on it --
Ms Morrow: And it will keep coming back.
Mr Jackson: -- but other provinces have bought into this structure in some form. There is stabilized staff funding in several provinces. It would be fair to place Ontario's commitment, legislatively staffing dollar-wise in protection. We are falling further behind and not making the progress that we are seeing in other provinces.
Those are statistics that I have seen that maybe would be helpful for this committee to understand. We are not maintaining here; we are losing ground relative to other provinces in terms of their legislated commitment.
Could you react to those three statements and then I will briefly suggest a recommendation for the committee, if you would permit me.
Ms Morrow: In terms of the 10,000 women on the waiting list, I can tell you that nothing has changed with regard to that, that we still turn away every second woman and every second child from shelter service in Ontario generally. In large urban areas such as Toronto, where there is no housing, you will be looking at a situation where women come into the shelter, then cannot get out of the shelter because there is no housing, and a turn-away rate moving upwards towards 1 out of every 9 or 10 women getting shelter and the other 9 or 10 being turned away. So it is still a serious problem and it continues to be a serious problem. It is a problem in my city as well and everywhere else in the province of Ontario.
With regard to the recession, I would make a couple of points. Yes, I think that will have a negative impact on the demand for shelter services in the province of Ontario and everywhere in the country, obviously. However, having said that, I would caution that you remember that that is not why violence happens, but that it certainly is a trigger that will increase the incidence of violence, that you remember that it will not be the cause, that when there is not a recession there will be, you know, the toothpaste not being put in the right place. But certainly when you have a good excuse, like a recession, to behave in a violent way, then it certainly removes some of the restraint from persons who are violent. That will be a problem for us.
With regard to your third statement about other provinces having block funding, yes, that is true and that has been true for some time. The province of Ontario has not developed secure funding arrangements in a similar way. In spite of the fact that we have a bigger shelter network and we have more services in the province of Ontario, they still are not being managed and we are falling behind in terms of public policy for managing that system.
Mr Jackson: Your last statement is for us not to forget that on a per capita basis, though, it is expected that the largest province with nearly 10 million people would have more beds, but on a per capital basis we are still in the lower 25% in this nation.
If this committee does not see fit specifically to isolate, and it has the power to isolate and specifically recommend that the Treasurer look at block funding -- they may not go that route, they will discuss that and debate that. However, it is possible for this committee to make a strong recommendation to the Treasurer that a block funding formula be fully costed in consultation with you and then we would have some firm figures to examine.
Traditionally every year you are before this committee. I have had the pleasure --
Ms Morrow: No, actually we have never been invited before.
Mr Jackson: Well, the rape crisis centres presented some of the violence agenda in past years and they have dealt with transition homes as part of the network. However, it was not your reluctance to cost it, it is that these are very complicated figures. You do not wish to get into a debate with the ministry over them if they are your figures. It is a lot safer and easier if the ministry costs it as at least a partial sign of its willingness to look at your proposal and it is hard for it to look at it properly if it is not willing to cost it and share with you the real cost.
Would you like us to recommend that and nothing else to the Treasurer?
Ms Morrow: I would like you to recommend that block funding be implemented.
Mr Jackson: We understand that.
Ms Morrow: I understand that part of that process is that it has to be costed, obviously, but I would not be prepared to suggest that it just be costed, because people have been talking about implementing or recommending block funding and I am not prepared to suggest that what we want here is that somebody should recommend it again.
What I am saying is that somebody should implement it. It has already been recommended and if it has to be costed to be implemented, then obviously that is one of the steps that have to be taken. We understand that and we also want it to be done in consultation with us, certainly, but I do not feel it is our responsibility to produce the costs, the bottom line, so to speak, to speak in financial terms, but to consult and assist in providing those kinds of figures.
But obviously we are talking about a system where we would like to see equal pay for work of equal value, for which we cannot even give you a reasonable salary cost at this point. We can tell you what it costs right now and then we can tell you that we are being paid inappropriately. So I do not want a situation where you take what the average shelter worker in Ontario gets and then you cost a system that would have more of these underpaid people. The entire system has to be revamped in order for it to be done appropriately and with consultation and assistance. We are always there. We are always at these meetings. We are always saying we do not want another recommendation that it be recommended; we want it done.
The Chair: We are running a little behind. I would like to thank you for coming and for a very good presentation. We will be considering the information you have given us.
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SHARING: A SHARED ACCOMMODATION SERVICE FOR OLDER PEOPLE
The Chair: Our next presentation is Edna Beange of Sharing: A Shared Accommodation Service for Older People.
Ms Beange: Thank you for scheduling time for our concerns today. I am here as chairman of the board of Sharing, which is a non-profit matchup service assisting older unattached persons to find suitable partners from among their peers or younger people with whom to share accommodation.
In the province as a whole, there are 16 home sharing organizations funded by the provincial Ministry of Housing in partnership with municipalities on a 75%-25% split, with a $40,000 cap on the provincial share. Of these 16 agencies, four are geared particularly to seniors: Ottawa, Hamilton, Niagara and in Metropolitan Toronto -- Sharing.
The Task Force on Housing for Low-Income Single People, in Toronto, triggered a pilot project in 1985 which led to the establishment of these other groups throughout the province in the following year, 1986. Sharing itself began with New Horizons funds in October 1983 and was not accepted into the provincial stream until 1987. As you can see, these organizations have been in place for some considerable time, but the funding from the Ministry of Housing has been on an ad hoc, year-to-year basis with, in the case of Metro Toronto, matching funds.
I would now wish specifically to address Sharing and its present dilemma. Designed as it is, its activities address the needs of older adults in several ways. One of the home sharing partners must be over 55. The resulting match provides a number of benefits: reduced costs, freeing up necessary funds for other needs; live-in companionship, alleviating the loneliness often experienced by older people living alone; mutual support given over periods of illness and when problems arise; and a greater sense of security, especially in the event of a health crisis.
Becoming increasingly aware of the needs of the frailer elderly for assistance to continue to live as independently as possible, Sharing embarked on a share and care project which was two-pronged. A needs study was funded through a federal seniors independence program grant and has just been completed. I say I have brought executive summaries and unfortunately they are not in your kits. I will be happy to send them to you.
Second, a 30-week pilot project was funded by the Ministry of Community and Social Services to employ part-time staff to work with semi-independent elderly to effectively match them with persons willing to share accommodation and provide some reasonably minimal support in exchange for reduced rent. This is not designed to provide a full-time companion and frequently involves someone who works outside the home. The senior providing the housing would be in receipt of support of community services such as home help or Meals on Wheels, or have a supportive family, but needs a presence in the home overnight. There are many variations. Naturally, the 30-week funding ran out some time ago.
Because Sharing was loath to lose the momentum of something which is obviously meeting a need as part of the long-term care spectrum, we have managed to limp along with some financial assistance from a service club and a foundation. At the same time, we have developed a proposal for the Minister of Community and Social Services, who has scheduled a meeting with us early in February. We have had no response from the Minister of Housing, to whom we also addressed a copy of our proposal.
Our current problem is the lack of commitment on the part of the Ministry of Housing for all the home sharing programs in the province, I might add, not just sharing, but we are specifically zeroing in on this. We were advised that funding would cease as of 31 December 1990 and Metro Toronto also followed suit with a similar withdrawing of funding. As a result of ongoing discussions, three months' funding has been provided up to 31 March 1991. The accompanying letter announcing this arrangement contained the very disturbing comment that if the continued funding was not put in place, it would give the agency time to wind down. In light of the ongoing discussions on long-term care it does not make sense to dismantle something which is working effectively with minimal staff and considerable volunteer activity.
During the past year, Sharing was given a goal of 35 matches. By 31 December 1990, we had achieved 43. This represents 11 from the Share and Care program with the balance a part of our regular stream. If this program were not in place, those 86 persons in many cases would be in need of possibly subsidized housing, a placement in a long-term care facility or some other supports. At the very least, the companionship and quality of life would be lost.
All of the home sharing agencies perform a very useful role in finding housing for a considerable number of people, without which any of these applicants would possibly be a burden on another part of the system. I was just given a statistic on that, that there were 17 until about a month ago when the Etobicoke home sharing had to discontinue because of lack of funds. In 1990, the 17 home sharing agencies made 836 matches -- that is the kind of impact -- and also a number of the other agencies are more housing registries than match ups. In addition to the 836 matches, they had 859 placements of putting people into self-contained units, so for a very minimal amount of money there is a lot accomplished. The advice and counselling which is incidentally provided to applicants is immeasurable.
To turn again specifically to Sharing, we are a small standalone organization with an effectively operating structure which, if funding were to cease, would have to be dismantled just at a time when there is such concern for provision of appropriate support to enable senior members of the community to maintain their independence to the limit of their abilities. We recognize that one-service agencies are not particularly acceptable in these days of rationalization, and for this reason have explored a number of avenues, seeking to join with another appropriate body. So far we have been unsuccessful. However, we are open to any suitable suggestion.
We are fortunate to be able to rent office space in a Metro Toronto-owned building, which of course would be lost were we to cease operations on 31 March. Skilled part-time staff would undoubtedly be scattered and a loyal team of active, well-trained volunteers would move on to other things. Then, when the direction of long-term care becomes clearer, the wheel would have to be reinvented. It does not make sense that for lack of $40,000 of provincial money an effective organization which is addressing some of the most pressing needs of our older population is to be dismantled.
Thank you for the opportunity to present our concerns and ask for your consideration of the very real need for this service.
The Chair: Questions from the committee.
Mr Sutherland: I just have one. Most of the ones that you talked about seemed to be in the central Ontario area. Do you have any knowledge of any of these --
Ms Beange: The other home sharing programs?
Mr Sutherland: Yes, sort of trying to get them throughout the rest of the province.
Ms Beange: There are 16 scattered throughout the province. There are, I think, six in Metro Toronto. Ours together with Ottawa and Niagara and Hamilton are the only ones that specifically address the needs of seniors. As you can imagine, in a matching program, particularly with seniors who are somewhat more sensitive about whom they share a house with, it is quite a time-consuming effort, so it is rather a specialized type of thing.
Mr Sutherland: Is there any movement afoot or any groups that have contacted you for expanding the Sharing aspect specifically for seniors, in the other areas?
Ms Beange: No, we are a Metro Toronto agency, and a small one, as I say.
Mr Sutherland: I just thought that they might come to you for information.
Ms Beange: I think Sharing is regarded as sort of the grandmother of the group in that we have been growing since 1983, and certainly directions and activities that we undertake are appreciated by the other agencies in the province.
The Chair: Thank you for coming. It was a very nice presentation.
Ms Beange: It did not seem very urgent after listening to the women's shelters, I agree, but I think I am speaking on behalf of a quiet group of people. The seniors who are somewhat frail or somewhat housebound or are in need of assistance I think are the kinds of people for whom I am speaking. They are not quite so high profile as some of the others, but the need is there and overall it is about $900,000 for the total province, all the home-sharing agencies. Individually, it is $40,000. We think we are somewhat unique and we do need some assistance.
In your package you will find a couple of letters from SPRINT, which is Senior People's Resources in North Toronto -- I will not read them to you, but you can find them there -- commenting on the effect that our services had on some of their clients.
I thank you very much for listening to us. At least we have raised your awareness.
The Chair: That is the most important thing to do in the first stage.
ROYAL BANK OF CANADA
The Chair: Our next presentation is from the Royal Bank of Canada, Alex Thomson, vice-president of economics. I would like to thank you for responding to our invitation.
Mr Thomson: It is my pleasure, Mr Chairman. I would like to illustrate my remarks with some slides. I sometimes find it easier to talk with pictures. It is sometimes easier on the audience.
The Chair: I think we should probably turn out the lights and pull the drapes. Unless we are going to watch it on Mr Phillips's shirt, I think we may have to ask him to move. Maybe we could take just a short break.
The committee recessed from 1503 to 1507.
Mr Thomson: My name is Alex Thomson. I am vice president of economics at the Royal Bank. My responsibilities are to manage the economics department of the bank. Accompanying me here today is Mark Chandler, who is my assistant chief economist, who is based in Toronto and is quite knowledgeable about the economy of Ontario.
What I would like to do is to speak for about 20 minutes on the Canadian economic outlook, with particular focus on Ontario. I would like to focus in basically on three things: The first is, where do Canada and Ontario stand now in terms of the economic cycle? Second, what challenges and risks do we face as an economic nation? The third thing is the outlook for Ontario as we see it.
The first thing I would like to point out, which is obvious, is that Canada and Ontario are in recession. Essentially we have had a very strong 1980s. We have had the longest recovery and expansion phase of the economic cycle in our postwar economic history, for a little over seven years. As you can see from this chart, the economy of Canada began to decelerate in the early part of 1988. That deceleration continued through 1989, and in the early part of 1990 we moved into the negative growth range where the economy began to contract. The definition of a recession is that the economy is in a phase of the cycle where the level of economic activity is actually contracting. That is where we are now. While we do not have the full figures available, we expect that when they are available they will show that the recession in Canada has extended through to the present day.
Obviously, with the slowdown in economic activity we are seeing a decline in terms of employment growth, and as you can see from this chart, paralleling the movement and economic activity as we moved towards the latter part of 1990, we began to see actual declines or job losses within the Canadian economy. Similarly, with the decline in employment, as you can see, the unemployment rate in Canada has moved up from its cyclical peak or low point of 7.2% in the early part of 1990 to 9.3% today.
The movement in Ontario has been similar in magnitude. However, because of the extraordinary growth in the economy of Ontario during the period of expansion, as you are well aware, the level of resource utilization and the unemployment rate moved down to about the 5% level in the province at the peak of the cycle. Since the recession has begun, the unemployment rate in Ontario has moved up by about the same magnitude as the rest of the country but at a lower level, with the unemployment rate in the country now being just over 7%.
In terms of the recession, it is the culmination of a number of factors within our economy. One is simply the fact that we had the longest recovery and expansion in our postwar history. With that long expansion, imbalances and excesses began to develop in our economy. Therefore the economy moved into a period of slower growth, which is part of the natural ebb and flow of economic affairs.
The second thing that has occurred, of course, has been the slowdown in economic activity in the United States. Because 25% of Canada's economy is dependent on trade, and the bulk of that with the United States, with the slowdown in economic activity in the country south of the border, it has had impacts on our economy here.
The third thing, of course, is that we are seeing a rise in the price of oil, at least had seen until just a few days ago. Because of that rise in the price of oil, the change in relative prices and the income transfers that take place because of that rise in the price of oil, our economy went into a period of adjustment which also slowed economic growth.
At the same time, there is no question that one factor in terms of the slowdown in economic growth which we have seen has been the high level of interest rates in Canada, in comparison with the United States particularly and also in real terms -- that is after deducting the rate of inflation -- which gives you a measure of the real cost of funds within our economy. As you can see from this chart, while rates have come down to that point in December and have come down early in January, we still are seeing in Canada rates which are very high relative to the United States and very high in real terms.
I would like to make several points about interest rates in Canada and their complementary price within the economy and the exchange rate, because the exchange rate and interest rates tend to move in tandem. The first is that the way in which we have divided responsibility for our economic policies within the country, the Bank of Canada is responsible for attempting to maintain a low and stable rate of inflation. That is its job for our economy and the single job to which it is allocated. From the Bank of Canada's perspective, we have been facing and continue to face a relatively serious inflation problem.
As you can see from this chart, the rate of inflation in Canada has been hovering around the 5% rate over the past year or so. We have achieved a 5% rate of inflation, but a 5% rate of inflation still means that we would lose, over a 10-year period, about 40% of the purchasing power of our money. Therefore, because of that, we are concerned -- I am sorry, over five years we would lose approximately a third of the purchasing power of our money. I was calculating as I was going along there and did it wrong. That level of inflation with that decline in purchasing power would lead to substantial unwarranted income transfers within our economy and therefore it would not be conducive to solid economic performance.
The other point I would make about our inflation rate is that we have achieved a 5% inflation rate in an environment over that period of time in which our exchange rate has appreciated very significantly. Because of that appreciation of the exchange rate and the fact that we import approximately 25% of the goods consumed within our economy, effectively what we have done is suppress domestic inflation as measured by the CPI because of the relatively low cost of our imports. We would estimate that effectively we have parked about 2% of a general price rise in the Canadian economy in our high exchange rate. When the exchange rate unwinds, as we believe it eventually will, that price rise will be released back into the Canadian economy. So we are, in terms of our measured inflation performance, facing an unacceptable situation.
The second point is, in terms of costs, we also have seen wage and salary rates in Canada move up to about the 6% to 6.5% to 7% level in Canada, and considerably higher than that of the United States. Effectively, since labour makes up approximately two thirds of the overall economic costs in our society, wage and salary increases at this level were inconsistent with maintaining our inflation rate even at the 5% level.
To top it all off, as you are aware, we have faced now the introduction of the GST on 1 January. As a consequence of the GST, we are likely going to see about a 1.5% increase in terms of our measured inflation rate during the early part of 1991. There was considerable concern in this environment that we are facing, with respect to price and cost increases, that the introduction of the GST would lead to even higher wage and salary increases which would feed through into prices and, therefore, lead to a round, secondary and tertiary rounds, of price increases that would feed through into a permanent rise in terms of the rate of inflation.
So for all those reasons, because the Bank of Canada has a responsibility for inflation within the allocation of responsibilities within our system, they were quite concerned about the inflationary situation. But that does not explain in my mind why we have interest rates so much higher relative to the rate of inflation in recent years than we have seen in the past.
During the postwar era it seemed that real interest rates in the order of 3% to 5% were sufficient to slow down the level of activity within our economy. More recently, we seem to be seeing real interest rates in the order of 7% to 10% as being necessary to slow down the economy and also to dampen inflationary and cost pressures within our economy. I think a large part of the reason why we have much higher interest rates today than we have in the past is an imbalance or mismatch between our monetary policy and our fiscal policy.
What this chart shows is essentially that we have seen mounting levels of government debt, particularly at the federal level. And as you can see, we are continuing, until we have seen a very sharp rise in terms of the percentage of debt outstanding by the federal government to gross domestic product and, at the same time, we are continuing to see a deficit at the federal level of approximately $30 billion a year. The federal deficit and the financing that accompanies that place stress on our financial markets and interest rates rise in order to force other borrowers to withdraw from financial markets in order to leave room for the federal government, because the federal government, as the premier credit in the land, always gets the funds that it requires. It is other borrowers that must make adjustments.
As a consequence of the federal government placing that strain and demand on our financial markets and the necessity of having interest rates rise in order to encourage other borrowers to leave the market and to leave room for the federal government, interest rates have gone up. At the same time, part of that process has been that we have turned to foreign capital inflows in order to balance demand and supply within our domestic financial markets. As you can see from this chart, Canada also has been sharply increasing its reliance on foreign debt. What that means is that every year we are asking foreign investors not just to maintain their investments or holdings of Canadian securities, but also to increase their holdings of Canadian securities, increase their allocation of funds to Canadian debt in order to balance demand and supply in Canadian financial markets.
Essentially, because we increasingly rely on foreign borrowers, we also have to provide increasingly attractive interest rate incentive for those borrowers to hold Canadian dollar securities relative to securities issued by other borrowers.
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The consequence of those foreign capital inflows has been that the Canadian dollar has increased quite significantly. As you can see from this chart, while it has been fairly volatile over the course of 1990 and 1991, it has tended to average at about the 86-cent to 87-cent level relative to the US dollar. Our basic view is that the level of the Canadian dollar that would be consistent with Canada's underlying price and cost structure relative to our trading partners would probably be in the order of 80 cents. Therefore, in effect, because of the foreign capital inflows that are encouraged because of the mismatch between monetary and fiscal policy, we are seeing those foreign capital inflows, which is leading to a sharp rise in the Canadian dollar which is causing distress for people in the export business and also Canadian manufacturers and producers who compete directly with imports.
Mr Phillips: A point of clarification, if I might: The percentage of foreign debt at 35%, is that for the federal debt or for the total debt of the country?
Mr Thomson: That is for federal.
Mr Phillips: The federal, the $350-billion to $360-billion debt in Canada.
The Chair: Do you have any raw numbers in terms of absolute dollars the Canadian government owes overseas? How much of it is domestic and how much is offshore?
Mr Thomson: I do not have that at my fingertips. The overall federal debt is about $350 billion. Certainly a portion of that would be denominated in US dollars, a relatively small proportion. The other part would be Canadian dollar securities held by foreign investors. At the same time, what would also happen is that other borrowers, provincial and municipal and corporate, would be turning to foreign capital markets because of the pressures within Canadian financial markets. Therefore, it would be the entire group together that would represent our obligations to foreign borrowers, which would be creating the kind of environment in which we set interest rates.
The Chair: Just to pursue this for a moment, I think Diane Francis wrote an article in the Financial Post that the foreign debt of the Canadian government is $57 billion owed overseas, but that the private sector owes something like $260 billion overseas. Is the fact that the private sector debt is so large also part of the equation that leads to the high dollar and the foreign borrowing?
Mr Thomson: Let me put it another way. Essentially, we have had a deficit in place through quite an extraordinary expansion within the Canadian economy. An appropriate fiscal policy at the federal level and other government levels could be that you would borrow and have a deficit during times of economic weakness. When you move into periods of economic strength, the borrowing demands of the private sector move up quite significantly. What should happen in order to balance financial markets in that environment is that the federal government should move into a cash surplus position. In other words, rather than drawing funds away from the market it should be contributing funds towards the market.
What we have seen is that over the period of the expansion of the 1980s, the federal government has been a continual taker of funds in financial markets, with the consequence that other borrowers -- in effect, the federal government is using up available savings provided principally by the Canadian consumer, by Canadian families. They are investing in those government instruments, which then of course leads other borrowers, where those funds are not available to them, to turn to foreign savers in order to capture or obtain the funds they want to make the investments or whatever other purpose they wish to borrow for.
The fact that private borrowers have gone abroad is neither here nor there. The issue is that altogether, in terms of the demands placed on Canadian savings because of the addition of the government borrowing demands over the period of the economic upswing, when the increase in private sector borrowing occurs, we continue to see heavy demands by the federal government, which has caused other borrowers to turn abroad. Does that answer your question?
The Chair: Yes, it does help.
Mr Thomson: For example, suppose we did have balance in our domestic financial markets, then a private borrower goes abroad. What would happen in those circumstances is that if a private sector borrower or any other borrower goes abroad and we have a demand and supply balance in our Canadian financial markets, we would obviously have a surplus of funds here in Canada, which would then cause us to purchase debt or other instruments abroad, so on a net basis we would come out the same. See what I mean? Looking at Canada, it is the overall gap between demand and supply which is the problem.
The Chair: Okay. I will not make my political comment.
Mr Thomson: Because of this mismatch we have had very high interest rates and a high exchange rate. What that means in terms of the current recession is that it has been relatively unbalanced. Because of the high level of interest rates and exchange rate, interest-sensitive areas and exchange-rate-sensitive areas such as export industries have paid more than their share in terms of the current recession in comparison with the past.
As you can see from this chart, with industrial production, the slowdown became more pronounced earlier than in the rest of the economy. And as you can see from the chart, the negative numbers for industrial production basically began earlier and have been deeper than for the rest of the economy. The goods sector of our economy, and most particularly the manufacturing sector of our economy, which is concentrated very much in Ontario and Quebec, has been more affected by the current recession than they would have been if we had a more balanced economic policy structure.
One point I would like to make is that in terms of our manufacturing sector high interest rates and a high exchange rate are an important part of the problem, but they are only part of the problem. What this chart shows is average hourly earnings in manufacturing in Canadian dollars for both the United States and Canada over the past five years. As you can see, the index in the United States has been moving down, principally because of the appreciation of the Canadian dollar. The Canadian index has moved up quite significantly.
Over that period of time, it turns out that average hourly earnings, or unit labour costs, in Canada have increased in Canadian dollars at something like 42% more than average hourly earnings or unit labour costs in the United States. Only about 40% of that increase has been due to the exchange rate, even though we are taking a period of time, in 1986, when the exchange rate was at a record low of approximately 70 cents. So over that time, when our exchange rate has appreciated from about 70 cents to approximately 86 or 87 cents today, that only accounts for about 40% of the overall deterioration in the unit labour costs in Canadian manufacturing relative to the United States. The remainder of that change has principally been due to the higher increase in wage costs that has occurred in Canada, which is roughly the same as the magnitude of the increase in the exchange rate.
The other factor is that we have seen some fairly significant productivity or efficiency improvements in US manufacturing over that period of time. We essentially have seen a flat picture for productivity or efficiency in the Canadian manufacturing sector.
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Mr Sutherland: Could I get a clarification? You said the overall difference on the scale was 42%?
Mr Thomson: Yes.
Mr Sutherland: You said 40% of that has to do with fluctuations in the exchange, and the other 2% is due to labour costs?
Mr Thomson: That is right.
Mr Kwinter: Does this average hourly earnings include fringe or is that just the nominal labour rate?
Mr Thomson: I believe that is just the basic rate. I do not think it includes fringe.
Mr Kwinter: Do you have any figures about what happens when you add the fringe in?
Mr Thomson: I could certainly get them. It really would be about the same.
Mr Kwinter: The reason I ask that is that we have always had an advantage in Ontario -- and we had someone in this morning who sort of confirmed it -- as far as our labour costs are concerned when you take everything in, when you add the fringe, when you add the universal medicare and all of that stuff. I am just wondering whether you have figures on that, because this gives the impression that our labour costs are non-competitive, when, certainly in the auto industry I have always heard there is an almost $10-an-hour differential between Ontario and, say, Michigan in favour of Ontario.
Mr Thomson: Somewhere buried in this mass, I have it by industry. There is no question that in terms of the differential between the United States and Canada the auto industry is one that is quite favourable relative to the others, but when you move into some of the other industries or manufacturing sectors in Canada and Ontario it deteriorates quite significantly.
The one point I would make is that regardless of how we talk about the levels, what we are talking about here in terms of the last five years is a change in the relative labour costs within our sector versus that in the United States. Of course, regardless of the levels, that deterioration is still going to have an impact on the sector here.
Mr Phillips: I just want to make sure I understood the answer you gave to Mr Sutherland. You said there had been a 42% swing in the differential between Canada and the US wage rates.
Mr Thomson: Yes.
Mr Phillips: I thought you said 40% of that is due to the exchange rate and 60% is due to wage changes. If your answer to him was that 40 percentage points was due to the exchange and two percentage points due to the wage differences, which is the right answer?
Mr Thomson: I am sorry. It is that 40% of that is due to the exchange rate change. The remainder is due to both productivity and wage rates.
Mr Phillips: That is, 60%?
Mr Thomson: Yes.
Mr Phillips: That is what I thought, but you said to him --
Mr Thomson: I am sorry.
The Chair: Given that there is such a discrepancy in the wages paid in the United States -- this average is for the entire United States -- do you have any sense of what it is in the immediate area around Ontario: New York state, Ohio, Michigan?
Mr Thomson: I do not.
Mr Chandler: The Ontario Ministry of Treasury and Economics has done some work in that area. They find that Canada, and Ontario in particular, is more competitive with the northeast states. But once again it is a question of rates of change, and any competitive advantage we might have had over the last several years has certainly been eroded. If you look at it, particularly with more of the southeast states, there is a big cost disadvantage there. It is something that has become more and more of a concern for the Ontario manufacturing sector. They have done some extensive work in this area and part of it involved as well what kind of benefit you get from OHIP. How is that comparable to what is being paid in terms of private insurance in the US? It turns out it is not a huge advantage for Canadian manufacturers, something in the 6%-of-payroll range. So we cannot continue to count on that as a benefit.
Mrs Sullivan: My understanding is that the comparison of, say, employee health coverage in border states, which are highly competitive with Ontario and in fact are our markets, is about $3,800 per employee, whereas in Canada in the same sectors it is about $800. So you are talking about a singular advantage.
Mr Chandler: Yes, but about 60% of production costs is made up of wages. So this, overall, would have a bigger impact. Once again, we are talking rates of change. I would refer you to the Ministry of Treasury and Economics for its studies along these lines, but it is something of big concern to manufacturers, and that is what we hear often when we go on the road and talk to them.
Mr Thomson: Let me turn to the outlook. First, let me say that we have made some fairly benign assumptions with respect to our outlook. We are making the assumption in terms of our forecast that the oil price will be in the $20 less range per barrel. As you can see from this chart, if we were to see a sustained level of a $30 oil price, then we would see a negative impact in terms of the growth prospects for our major trading partners as well as ourselves. Clearly, because of the negative impact on our major trading partners it would have a negative impact in terms of our export performance. While we are relatively self-sufficient in terms of oil and gas and other forms of energy, a rise in the price of oil of that magnitude over a period of time would lead to fairly significant income transfers within the country that would have to be accommodated with detrimental impact in terms of our growth. We are making the assumption in terms of our forecast that we will not have this kind of environment but have an oil price of $20 or less.
We are also making the assumption that we will not see any major reduction in terms of the structural deficit at the federal level. In fact, because of the recession and the effect it has on revenue generation and increased expenditures by the federal government, likely we will see an increase in the federal deficit over the next several years. We are expecting it to move up to the $35-billion range in the coming fiscal year.
Offsetting that to some degree, because of the slowdown in the demand by the private sector for funds we should see an improvement in terms of net private domestic savings. But we will continue, because of the gap between private domestic savings and the demands by the federal government, to rely heavily on foreign funds over this period of time, which has implications for our interest rates and exchange rate.
We are also making the assumption in terms of our inflation rate that we will see the consumer price index move up because of the introduction of the GST, but we are also making the assumption that the labour market will behave in a rational way and the workers or employees will not try --
Mr Kwinter: Do you hear that, Gordon?
Mr Thomson: As you obviously cannot get a tax back from your employer in a non-inflationary environment, if you are going to protest a tax there is little point in protesting to your employer; you protest at the ballot box. So we are making the assumption that the labour market will behave in a rational way, that the labour force will absorb the reduction in real incomes that accompanies the GST, and therefore we will move into a more subdued cost-increase environment. As a consequence of that, we are expecting the rate of inflation in Canada, as we move forward into 1992, to fall back to about the 4% level.
With that environment, we are expecting that Canadian interest rates will decline, with the short-term commercial paper rate moving to just below 10%. We are expecting the differential with the United States to decline. Even with that, we will continue to see real interest rates of above 5%, which will be relatively high in comparison with the past, at least prior to the last several years.
With that reduction in interest rates and differential with the United States, we are also expecting the Canadian dollar to depreciate to about the 83-cent level over the next several years, which should provide some relief to our manufacturers and export sector and import-competing areas. Nevertheless, we still think the dollar will be remaining above the level over the next several years, which should provide some relief to our manufacturers and export sector and import competing areas, but nevertheless we still think the dollar will remain above a level which is consistent with our underlying cost and price structure relative to our trading partners.
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The Chair: I asked this question this morning and I would like to hear your response to it as well. Given that in January 1990 the central bank lowered its prime lending rate, which led to a decline in the value of the Canadian dollar and an immediate response on behalf of the central bank to increase the prime lending rate back up, what is it that makes you optimistic that the dollar will decline and do what you are suggesting or that the central bank rate will allow it to decline?
Mr Thomson: I can give you a half-hour answer to that, but let me try to capsulize it in a couple of minutes.
The Chair: It would certainly help if you were to do that.
Mr Thomson: What happened in January 1990 was that the Bank of Canada was looking at a series of economic numbers that looked as if the economy was in a recession. We and others were visibly revising our forecast to incorporate a recession occurring at the end of 1989. The Bank of Canada began to gingerly reduce interest rates, and as you know it reduced interest rates or the bank rate by about 25 basis points, with the consequence that the exchange rate fell very sharply by, I believe, about 3.5 cents in the space of a week or so.
First of all, I do not understand the reaction of the strange marketplace in that environment. As it turned out, that was not why interest rates rose later. What happened was that almost as soon as the Bank of Canada began to reduce interest rates, new economic numbers came out which showed that the economy, rather than moving into a recession, was still relatively robust. For example, business investment was still strong. Housing starts remained extraordinarily strong through the first quarter of 1990. Basically the economy looked to be relatively robust.
The Bank of Canada then went on to increase interest rates at that time, not because it wanted to protect the dollar but because it felt that the economy was now moving in a direction that it had not foreseen and did not expect, as did the rest of us. That is the reason the interest rates went up.
At the same time maybe the market was prescient in the sense that it thought the economy was stronger than economists were reading, and therefore reacted to the reduction in the bank rate that took place as being in some way the surrender by the Bank of the Canada with respect to its inflationary policies. That may be the case.
The point is that if the Bank of Canada makes an interest rate move that is considered by the market to be an abandonment of its inflationary policy, the exchange market will react badly. This time around, as you know, we have had reductions in interest rates over the past little while, but they have not had the same kind of impact on the exchange rate as they had earlier. Basically, I think the market does have confidence and trust in the Bank of Canada with respect to its inflationary course and thinks it is seeing signs, and we think we are seeing signs, that it is beginning to be successful.
Because of the slowdown in the economy, those signs that we appear to be relatively successful in reducing inflation are turning around the inflationary situation. The market in that environment is willing to accept interest rate reductions by the Bank of Canada in a relatively stable and gradual lowering, rather than abrupt lowering of the exchange rate. Does that help?
The Chair: That does not answer one question, why it is that our inflation rate is only about 0.1% or 0.25% higher than the American inflation rate and yet they have such a low central bank rate. If what we are really doing is battling the inflation rate using a high central bank rate, why is it that their rate is so much lower than ours at a time when our interest rates are so much higher?
Mr Thomson: The first point I would make is the one I made earlier, which is that in terms of our underlying inflation rate, the CPI is not measuring that properly. Because of the appreciation of the exchange rate over the last several years, we have dampened our measured inflation rate because of that. It is parked there. It is going to be released back into our economy.
The second point I would make is that in terms of underlying cost and price movements within the United States, particularly in terms of wage costs and other costs within its economy, it has been performing at rates that appear to be relatively favourable compared with Canada. Therefore, the market, I think, is tending to read a somewhat more favourable situation there than in Canada.
If we can move to an environment whereby our inflation rate moves down, and moves down below that of the United States -- because I certainly do not think the American experience with inflation in the last few years is entirely satisfactory either -- then hopefully we can move to an environment whereby our rates will be down to their levels.
Mr Phillips: Still on the same point, this will take the dollar down by two or so points over the year, I gather, so the foreign capital markets will see their capital here in Canada appreciate by 2% or 2.5%. You see this contributing maybe 1% inflation to the economy, based on that thing you went through.
Mr Thomson: Yes.
Mr Phillips: You went to an 80-cent dollar, you think it is 2%, so 1% of inflation in the economy; second, how do you manage your way with our foreign borrowers, that they do not vacate the market or --
Mr Thomson: That is an excellent question. Clearly, if you are going to have a depreciation, the thing you should do is have it immediately, because if you do have expectations that your exchange rate is going to depreciate gradually, then that feeds through, of course, into the interest rates that foreign investors will expect in order to keep them whole in terms of their own currency. But essentially what we are expecting in terms of this environment, rather than looking at sort of the smooth gradual decline, I would tend to think that over this period of time we will see the exchange rate move to a lower level.
One of the risks in terms of our forecast, of course, is if we see an abrupt decline that is considerably greater than we are expecting here. For example, because of political uncertainty, because of the constitutional debate within this country, if that causes foreign investors to question or lose confidence or demand a risk premium in terms of Canadian assets, then that could have a sharper impact in terms of the exchange rate. Also, if we have for whatever reason some catalytic event that causes foreign investors to lose confidence in Canada and its economic prospects and policy environment, that could also have a sharp impact in terms of the exchange rate. As I say, we are making the assumption of a relatively benign economic climate for our view in terms of the forecast.
What we are expecting in terms of our forecast is that we are essentially looking for the recession to end by the middle of this year. Effectively, what we are looking for is a relatively, if I could use this term, normal recession. We are looking for a recession that will be approximately 40% to 50% as severe as the one in 1981-82.
One of the discouraging things, I think, in terms of the outlook is that when we move into the recovery phase in the latter part of this year and in 1992, it will be a relatively modest recovery. Canada's potential rate of growth is about 3% per year. What that means is that the growth in our economic output should be about 3% per year in order to maintain a constant utilization of our economic resources because of growth in the labour force, because of improvements in productivity and because of capital investment. The capacity of our economy is growing by 3%. Therefore, we need to grow by 3% just to keep things even.
We do not expect to reach that 3% level until well into 1992. Therefore, by the end of 1992 we will probably only then have achieved the level of economic activity that we experienced at the peak of the economic expansion in the first quarter of 1990. Part of the reason for that, of course, is the fact of some structural difficulties with respect to our costs. Also, while we are expecting the interest rate and exchange rate to decline, we are expecting that we will continue to see relatively high levels in those two areas.
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This is kind of an awkward colour and I apologize, but perhaps I could just sort of explain. This shows real gross domestic product growth in Ontario. Essentially, Ontario experienced a somewhat deeper recession at the initial stages of the recession. The decline or deceleration of the rate of growth was somewhat steeper in Ontario relative to the rest of the country. We are expecting that Ontario will also show negative growth in 1991, about 0.3%, and we are expecting in 1992 that the growth in the Ontario economy will be roughly about the national average, just about 2.5%.
In terms of the unemployment rate, again, we are expecting to see the unemployment rate move to about the 7.5% level in 1991 on average over the course of the year. We are expecting to see it decline somewhat moderately to just below 7% in 1992 with the recovery.
Essentially, in terms of the level of unemployment in Ontario, we are expecting the rate to be approximately two percentage points below that of the rest of the country. Therefore, in terms of the utilization of its labour force and labour resources within the province, the level of utilization within the province will be greater than that for the rest of the country taken as a whole.
In terms of retail sales, we are expecting quite a weak picture. In 1990, retail sales declined by close to 2% in nominal terms. When you take in our rate of inflation of 5%, clearly that was a very sharp drop in after-inflation terms.
In 1991, we are expecting to see an increase of about 2% in current terms. Much of that is principally due to the GST and the increase in prices associated with that. In real terms, we expect to continue to see a sharp contraction in terms of retail sales within the province.
Of course, this reflects the higher levels of unemployment, and with the prospects or concern about people, about their job security as well as the decline in housing prices in southern Ontario, this is having an effect on confidence and people's commitment to spending. So we are expecting to see a relatively weak picture in 1992. We are expecting to see an improvement in terms of sales, but after inflation it will be a relatively modest improvement.
Mr Kwinter: In your projection on retail sales, have you factored in cross-border shopping and is that a significant component?
Mr Thomson: Yes, we have to some degree in the sense that the figure for 1990 clearly has been affected by that. Therefore, we are taking that into account in terms of the overall picture.
Mrs Sullivan: If you were looking at constant dollars for retail sales in 1991, what level would you be looking at, about the 1988 level?
Mr Thomson: If you are looking in constant dollars in 1990, you have a decline of close to 7%. You are looking at a decline in 1991 of about a further 4%. Putting that together, it would bring you back to where you were in about 1988 or 1987.
In terms of housing starts, clearly we have seen some very substantial declines in Ontario. We are expecting that to continue in 1991, part because of what occurred in Ontario and part because of speculation that took place in that particular market, but effectively the level of housing starts and housing completions earlier, prior to the recession, were well above demographic demand, particularly taking into account the fact that interprovincial migration into the province has fallen quite sharply, and therefore of course the province has an excess supply of inventory that must be worked off in order to lead to a recovery in terms of housing starts.
We are expecting in 1992 to see some modest improvement in terms of housing starts, but clearly the level of housing starts and housing construction that takes place would be well below that experienced in the latter part of the 1980s when the recovery was in full swing.
In terms of non-residential investment, here we are expecting to see in 1991 -- this is in current dollars as well, so when we show zero in 1990 of course we are seeing a decline in real terms or a contraction of about 5%. A decline in 1991, which will be completely concentrated in terms of commercial construction, will also be sharply negative, of approximately 7% or 8%, and we are expecting to see modest increase in nominal terms in 1992 and probably a further contraction in real terms.
The one point I would like to make about non-residential investment, however, is that if you look back Ontario and the rest of the country also experienced extraordinarily rapid growth in terms of overall investment. Essentially, in 1989 investment as a proportion of the economy reached a record high level. I think there were a number of factors that were taking place. The first was that after the longest recovery and expansion phase, a number of regions and sectors were hitting capacity constraints and therefore were making the investments in order to increase their production capability.
I think the second thing is -- much of this investment was taking place in the manufacturing sector and principally in southwestern Ontario, because of the global competition and the increased competition because of free trade or expectations of competition because of free trade -- that substantial amounts of investment were taking place in order to rationalize the production process in order to improve efficiency and reduce costs for that kind of competitive environment.
The third thing, I think, that was happening was that the cost of technology, computers and telecommunications, has come down quite significantly. In addition to that the application of that technology is now well known. Five years ago, when businesses bought a computer, the first thing they had to do was figure out how to use it. Now when you buy a computer the applications are there and they can be applied and the expenditure on that equipment can become productive and substantially improve efficiency almost immediately. Therefore, there was substantial expenditure on high technology, computers and telecommunications, in order to improve the efficiency of production processes and office systems. That was also part of the investment that was taking place.
When you put that all together, even though we are seeing a reduction in investment taking place in the recession that is now occurring, we do not expect a reduction in investment in percentage terms to be quite as severe as it was in 1981-82. At the same time, because the economy is coming off a very high level of investment, we expect that the proportion of investment and the degree of investment that is taking place within our economy will still remain relatively favourable. It would have been even more favourable if it were not contractive, but given that we are in a recession, it is still in a relatively favourable phase.
With that, I would like to end my remarks and I would be happy to answer any further questions you might have.
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Mrs Sullivan: I want to pursue your last slide in relationship to business investment. Your chart shows the decline in the rate. Can you give us an idea of what the actual level of 1989 business investment in Ontario was in current dollar terms?
Mr Thomson: I could certainly provide that number to you at a later time. In terms of the overall proportion of the economy which was accounted for by investment it would be approximately 17%.
Mrs Sullivan: It would be 17% of the economy.
Mr Thomson: Yes. With the reduction we are seeing, we would expect that to decline.
Mr Jamison: Your report dealt with many of the economic signs presented this morning by the Toronto-Dominion Bank.
Mr Thomson: Okay. I did not know that.
Mr Jamison: We had the honour of their presence this morning, and one question that was asked basically related to the ability to rebound from the recession and jobs. There is a phenomenon happening right now that makes this recession, again, different from the recession of 1982. It seems to be that permanent layoffs are occurring at a much higher level and the effect of that is obvious as far as rebound in the economy. Our figures, the figures that the government of Ontario collects, only equate to 50-plus employer groups. My feeling is that many of the 50-minus groups are disappearing. What effect will that have on our ability to rebound and what type of jobs, if any, are replacing those?
Mr Thomson: You put your finger on a critical question and one that we are examining very, very closely in our shop, and I am sure it is happening in other economic shops as well. But the answer to your question is, I do not know, and the reason is that I am not sure about the permanence.
I have heard the argument, and I hear it very often, "But this is different from the last time because the job losses last time were cyclical; this time they are permanent." Now, let me sort out the strands of the answer.
The first thing is that if you look at manufacturing employment, essentially what happened was, during the period of the late 1980s, in part because of the very low level of the Canadian dollar, in the 70-cent range -- I said that now the Canadian dollar is overvalued and is hurting our exports and import-competing industries. That kind of dollar, in the 70-cent range, was clearly undervalued and it was providing encouragement to exports and import competing sectors.
When we look at the employment levels from about 1986 through 1989, there was a very sharp rise in manufacturing employment in Canada and Ontario. As we move into the last little while, we have begun to move down in terms of manufacturing employment and we have not seen something yet that is as severe as 1981-82 and we have not come back to trend. By trend, I mean the trend in terms of manufacturing employment within our nation. If you want a trend through the last 15 years, we moved well above trend in the last five years and we are beginning to come down, but we are not back to trend.
The second point I would make is that if you look at manufacturing in Canada relative to the United States, the manufacturing sector in Canada has performed; at least in terms of employment, has done considerably better than the United States.
The other point that is made is, and I have heard examples and I have talked with people, "Lose the jobs or move into the United States." I am sure it has happened, but in terms of the aggregate numbers, that happens whatever, whether we are in a recession or whether we have free trade. It has been happening for years, but other jobs are occurring in Canada or jobs are moving here. As I say, in terms of employment, we have not yet seen anything to suggest that we are into something permanent.
In terms of direct investment by Canada in the last little while, as you well know, in the late 1980s we had a very high level of foreign direct investment by Canadians abroad. Those numbers have been coming down. At the same time, in 1990, through the period we have to date, foreign direct investment in Canada has gone up; not by a whole lot, but it has gone up. So the answer to your question is that it is difficult to grasp anything, that this is permanent as opposed to cyclical. You really have to almost move to certainly the industry level, probably the company level, in order to be able to aggregate enough cases to come to some kind of sensible solution. But it is something we are looking at very carefully.
We have sort of looked at as many numbers as we can. To answer your question, we are not sure whether we can make the statement that this recession is different in the sense that structural changes are occurring across manufacturing as a whole -- and I will point to individual examples on either side of the argument -- but for manufacturing as a whole that this is occurring, that it is a structural and permanent job loss.
Mr Phillips: I feel better now than I did when I came in here this morning, because both you and the TD, I think, are predicting that we will come out of the recession kind of in midyear. That is far more optimistic than I have been. The numbers I had seen were that in Ontario, for about six straight years we created 135,000 jobs; 1989 was 85,000; 1990 was minus 120,000. Full-time jobs were minus 165,000 because part-time went up by 45,000 or thereabouts, and there were 10% fewer manufacturing jobs at the end of the year than at the start of the year. I feel a bit like the person who is maybe falling and being reassured that the parachute is going to open. Both you and the TD have assured us the parachute will open.
Just how important do you feel the manufacturing sector is to the economy? It is 20% of the jobs and, I have always thought, 30% of the domestic product or something like that. Is it something we need to be worried about, or is the whole world going to fewer manufacturing jobs anyway, and just let it happen?
Mr Thomson: From an economic perspective, whether you work in resource extraction, agriculture, manufacturing or service industry, they are all making a contribution to the economy. At issue is, are you providing the goods and services that the market demands and that you can produce efficiently and well? Canada and Ontario do have advantages in terms of manufacturing, and what I would like to see is, are we creating the conditions within our country that permit that to thrive and prosper? Frankly, I do not think we have it right in terms of providing the conditions and environment in terms of policies that would permit that to happen.
Is it necessary that we produce automobiles? The answer to that is no, if we can do something better -- banking, take your pick -- in terms of technology or telecommunications or software or whatever it be. If we can do that better and we can create a market for that, then that is what we should be doing. But from an economic perspective, one job is not better than another.
By the way, just to illustrate the point I was making earlier, I realized I did have a chart there and it gives you a picture of where we are in terms of manufacturing between Canada and the United States.
Mr Phillips: But I gather, as a percentage of the work force, that has probably gone from 33% down to 28% or something like that.
Mr Thomson: Yes, something like that.
Mr Sutherland: First of all, I want to thank you for the lesson on international finance and money exchange markets. I have read many articles and never quite understood it, but it is a little clearer today as to what the underlying bases are. I am not afraid to admit that I am one person who has not a great understanding of economics. I am sure some of the opposition would think we have very little understanding.
Mr Thomson: Why do I think I am being set up here?
Mr Sutherland: At the same time, I want to ask a couple of specific questions about Ontario. You talked quite a bit about the national debt and the federal debt. I wonder if you could make some comment on whether you have any concerns about provincial debt at this time, whether it is the annual deficit or overall debt picture.
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Question 2 relates to the fact that the thing that irks me, not coming from the Metro Toronto area, and listening to the governor of the Bank of Canada talk about the inflation rate, that Ontario's economy was overheated and that was pushing up inflation all across, is that when Toronto's inflation rate seems to be about 1 to 1.5 percentage points ahead of the rest of the province, the entire province suffers from that fact when the Bank of Canada is reacting to that. I was wondering if you could comment whether you feel that is to some degree an overreaction or whether, as Metro goes, the rest of the province has to suffer along.
Mr Thomson: I sympathize with what you are saying.
The Bank of Canada, as I say, has the assigned responsibility for controlling inflation. It has one instrument for doing that and that is the interest rate. It only has one interest rate it can control, for a variety of reasons, and that is the 90-day Treasury bill rate.
When the Bank of Canada is setting monetary policy, it has to look at the nation as a whole and therefore sets monetary policy on the basis of the nation as a whole, not regions. Ontario, because it makes up close to 40% of the overall national economy, clearly has a major influence in terms of what are deemed to be national economic conditions.
In an appropriate environment, what we should he doing is using monetary policy and fiscal policy in tandem. Therefore, if we do have national policies that are geared at slowing down some regions of the country, whereas we have other regions, because of the disappearance of the fish stock or because of negative conditions in international grain markets affecting the west, the Maritimes or northern Ontario for a variety of reasons, the role of fiscal policy, because it has government spending, because it can be targeted directly, is to try and balance out the inequities between regions and sectors.
What has happened is that we have lost fiscal policy as a discretionary tool in this country because of the deficit. Effectively, we have no room to move in terms of the deficit. We are spending approximately $40 billion a year on debt service by the federal government. The old story: 35% of every tax dollar you send to Ottawa is going to debt service payments. We cannot increase the deficit in a discretionary way because of the effect it might have in terms of the confidence that foreign investors have, in terms of economic policies here. Effectively, we have lost the ability to have a discretionary fiscal policy and we have to face up to that. That is the mismatch between monetary and fiscal policy that we have in our country.
Mr Sutherland: If I may just pick up on that, if we do not have the discretion fiscally -- there seems to be this very tight monetary policy -- in your opinion does it seem then that there exists more flexibility in the monetary policy than has been demonstrated? You said you want to keep inflation under control and you want to slow down the economy. Somewhere there is that balancing between doing that and putting the economy into a total recession, is there not? I guess what I want to know is, at the end of it all, if you go too far one way and put the economy in a recession, is that worse than maybe letting the inflation rate run a little at 4% or 5% or whatever?
Mr Thomson: We are running an inflation rate of 4% to 5%. We are talking about having an extraordinarily tight monetary policy. The monetary policy's job is to try and contain and hopefully reduce the rate of inflation. We went through that in the early 1980s, and I hope we never get back to that kind of experience again. But on the evidence, we have not seen a monetary policy that has been overzealous in terms of reducing our inflation rate; anything but. What we are seeing is the Bank of Canada, which has as its role a responsibility to maintain a low and stable inflation environment within our country -- because through other actions we have effectively reduced or made impotent fiscal policy, does that mean we have to also throw away monetary policy? Does that mean because we have rendered fiscal policy impotent, we say, "Okay, let's let the inflation rate go"?
The inflation rate, if it rises, becomes a self-perpetuating movement. Clearly, if we learned anything in the latter part of the 1970s and the early 1980s, it is that higher rates of inflation lead to bad economic performance because of the speculation that takes place and also, frankly, because of the enormous swings it has in terms of wealth and income within our society which are unearned and basically arbitrary.
Mr Sutherland: If I may, I am just going on. My little knowledge of economics indicates, though, that the inflation rate during the last period, the late 1970s and so on, was substantially higher than the inflation rate of 5% to 6%.
Mr Thomson: Yes, it was.
Mr Sutherland: We were even talking double-digit inflation. I know the theory is you want to keep a control on it and not let it go, but it seems to me there is a little more flexibility this time around than last time. That is from my basic knowledge. Do you agree with that or not, or are there other factors?
Mr Thomson: To be honest with you, I would not. Maybe I am getting too old, but when I was growing up they used to call stagflation 3% inflation. Why were we having inflation of that magnitude? Now we seem to be saying 5% or 6% is okay. As I said, with 5% or 6% you still, over time, have enormous effects in terms of the level of prices and the value of money. For older people, it has a very negative impact. Also, of course, you get into a race in terms of your society as to trying to keep ahead. It also leads to a misallocation of resources such as we saw in terms of the housing market in southern Ontario, where effectively you had over investment in the housing market because of the sharp rise in prices, which also of course led to massive changes in terms of the pattern of interprovincial migration, which frankly was a misallocation of resources taking place. Because of that kind of inflationary environment, it led to a less efficient economy.
What I think we ought to do is say, "Look, why don't we move" -- I am not wedded to zero -- "to somewhere where inflation doesn't become a factor any more?" We do not worry about it, whether that is 2% or 3% or 4% or 5%, but certainly I do not think it is more than 5%.
As I say, just because we have rendered fiscal policy impotent, let's not throw out monetary policy just to make it a clean sweep.
Mr Sutherland: I am sorry, could I just get the other question about the provincial debt?
The Chair: We are 20 minutes over already.
Mr Sutherland: Fair enough then.
The Chair: One last question from Mrs Sullivan.
Mrs Sullivan: I wanted to just move back a bit and perhaps take you out of the hat that you normally wear, Mr Thomson, and look at some of the things you have talked about in your presentation, one being structural change that has occurred, partly because of adjustment and partly because of this particular recession. As we look ahead to demographic change, which may well change our requirements in housing starts, and as well over the past couple of years an extremely high level of business investment in capital which may not move on as quickly or at the same levels as they have had in the past, if you were a government and had adequate moneys to do so, where would you put stimulus? What sector would you pump money into? Or would you use money in a different way, perhaps in human resources policies?
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Mr Thomson: First of all, let me stress that I am a simple economist, not a politician or one who is responsible. I want to keep this to economics, not my own personal judgements about what things should be done, but one of the things I think we should be doing is not thinking about, "Gee, where do we spend the money?" That is the industrial policy view. While I recognize that within my profession there are various views as to whether an industrial policy is an appropriate course for a government and a society to follow, my judgement is that probably not.
I think we are going through enormous change within our economy in Canada, not just this year but likely over the decade. I think we are going to see profound changes in terms of the economic environment. I do not think that government, using the application of all the wisdom that it has both from the civil service and from the elected representatives -- I just do not believe that you are going to be able to make the best choices. I think that where you get the best choices is you create the environment where the market makes those decisions, for several reasons, not because the market is smarter.
We are talking about individuals who are making decisions. They are making mistakes and they are making good decisions and sometimes they are lucky. But what happens in the marketplace is you make those decisions, and if you are wrong, you back up. Okay? Also, you are not making one decision, you have got five people in competition making five different decisions, and one or two or three or hopefully all five will be successful. Then people can see what is happening with respect to that and follow it through copying or diffusion, as the term is in economics.
Therefore, I think the market provides more of a trial-and-error and smaller-scale approach in terms of deciding on the right course for your economy than government policy, because with all due respect, government policy tends to be focused on particular sectors, the more money the better sometimes, and once you have made a mistake, it is tough to back out. I think the market provides a better environment for doing that.
As I say, the private sector has got all those faults too. You have big companies that do grandiose things. It is the wrong thing to do and they recognize it too late and they are slow to back out. That happens, but what you do with the private sector is you have multiple sources of moving ahead, and it is the market that will decide. So I think that is the way in which it should work.
With respect to what do you do, as I say, I think you create the environment whereby the private sector will work. That is not a right-wing agenda. It is just saying, "Look, there's no question about what proportion of resources government takes versus the private sector." If you have a private sector, regardless of what resources are allocated to it in terms of your society, let it work. Therefore, what you do is you try to create the environment that makes that private sector work.
What you do is, one, you have a low rate of inflation, and two, you have a fiscal policy that is structurally balanced. That does not mean you have a surplus or zero every year, but over the economic cycle, you have a truly structurally balanced fiscal position where you have a deficit that is zero. What you do is you create the environment that allows the private sector to work, which can be facilitating change.
One of the ways of doing that is to try to encourage a set of policies that reduce the interest rate to levels that are consistent, with a real rate of interest that is consistent with that of other countries, in particular the United States. What you do is you provide facilities for helping the labour force change in terms of the changing economic environment we are facing. I am sure that there are many other policies that we could do in terms of that way, but that would be the answer I would give to your question. I hope I was not too strong.
Mrs Sullivan: No, I think it has been very useful to us. Thank you.
The Chair: I would like to thank you again for responding to our invitation to come and speak to us today. I think you opened up a huge can of worms at the end there that some of us would have liked to have grappled with, but our time is running out and I am sure that our next presenters will pursue some of these ideas. Thank you very much for coming. I enjoyed your slide presentation and your graphs.
Mr Thomson: I forgot to mention that there is a handout which has much of what I have talked about and more. Thank you very much. It was a pleasure.
ONTARIO FEDERATION OF LABOUR
The Chair: Our next presentation is the Ontario Federation of Labour, president Gord Wilson and consultant John O'Grady. They have also responded very graciously to our invitation to speak to us today, and we thank them for that. Now I assume we are going to hear a different point of view.
Mr Wilson: A slightly different point of view perhaps from the previous presenter. I cannot resist the pun that I noticed during his presentation most of you were kept in the dark.
Interjection.
Mr Wilson: We cannot match that. We are a frugal organization with limited resources, so we cannot resort to high-tech processes. At your invitation, Mr Chairman, I cannot help but make comment on at least one aspect of the Royal Bank's presentation with regard to the exhortation of marketplace policies. We should perhaps keep in mind that they have served us so well that we are in the position that we are in today in 1991, and by that I mean unfettered marketplace policy.
I want to congratulate the committee for its sensitivity in inviting obviously such diverse groups as the Royal Bank and the Ontario Federation of Labour. I do not know who the careful planner was who put us back to back today, but it might be useful to the committee to see the two opposite perspectives.
I want to thank you all for the opportunity to appear on behalf of the federation and to introduce on my right Ken Signoretti who is the executive vice-president of the federation, who is appearing with me today. In our presentation, and I believe you now all have copies, I would like to focus not on the broader scope of economics but perhaps on how workers are to be dealt with within the Ontario economy with regard to what I would argue is currently a restructuring that is taking place, as opposed to the comments perhaps of the previous presentation.
Wage protection: The Ontario Federation of Labour is aware that the Ministry of Labour currently is undertaking on behalf of the government a consultation on wage protection. As members of this committee are aware, that ministry circulated a consultation paper at the end of December. We take this opportunity to address the wage protection question for two reasons. First, a wage protection scheme will inevitably entail a provincially underwritten guarantee of benefits, and second, in all likelihood a dedicated tax measure will be required to fund any sensible scheme that goes beyond providing token protection.
Both of these steps involve fiscal policy. The Ontario Federation of Labour hopes that the government will use the occasion of its 1991-92 budget to spell out in particular the details of its dedicated tax measure.
The consultation paper released by the government at the end of December was frankly disappointing. We hope that it does not signal the manner in which the government intends to handle the wage protection question. As members of this committee will recall, wage protection was one of the first policy issues on which the government announced its intention to move quickly and with serious intent.
The philosophical position of the Ontario Federation of Labour is quite simple: When benefits and entitlements are conferred on workers by statute, then the access to those benefits and entitlements must be certain and assured. The reality, of course, is quite different. In a sizeable proportion of small employer insolvencies, workers do not receive the full extent of their legislated entitlements to back wages, vacation pay, termination notice and severance pay. Among insolvent employers with fewer than 50 employees, some estimates suggest that 40% may fail to fulfil their legislated obligations to their employees.
The relevant policy question is not which legislated benefits should be ensured by the provincial government; rather, the relevant policy question is how does government ensure that all benefits and entitlements that are intended to be universal will in fact be received by the workers. Surely it would be difficult to improve termination and severance benefits as measures to deal with recession and economic restructuring when a large proportion of workers do not even receive their current statutory entitlements.
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There are four, and we would suggest only four, ways to guarantee a statutory entitlement: first, pre-funding of benefits through a regulated trust fund, as in the manner of pension plans, usually backed up by a provincially underwritten guarantee fund; second, mandatory private insurance; third, social insurance in which a guarantee fund is financed through a dedicated tax measure or premium, such as UI or CPP; and fourth, a guarantee fund replenished by transfers from the province's consolidated revenue fund without any explicit dedicated tax measure.
The net claims on any guarantee fund can be reduced by two supplementary measures. The first is by according statutory wage and benefit claims a precedence over other unsatisfied creditors. The second is by increasing the personal liability of directors and officers of corporations.
The government's own estimates of the cost of guaranteeing all legislated entitlements, for example, back wages, vacation pay, termination and severance pay, is just under one tenth of 1% of payroll, and this is hardly an onerous burden.
Mr Kwinter: Do you know what the real number would be?
Mr Wilson: The total number? I would have to go back to the office and check my notes, but $150, $170.
We urge this committee to recommend to the Treasurer: first, that the government adopt a principle that when benefits and entitlements are conferred on workers by statute, then the access to those benefits and entitlements must be certain and assured; second, that the government adopt a social insurance solution to the problem of wage protection, relying on supplementary measures related to precedence of claim and/or director's liability to reduce net claims on the guaranteed fund.
Let me just speak to that second point for a moment. It is our view, strangely enough upon advice from the banking community, that what would likely happen with regard to directors is they would simply secure more private insurance to cover their liability.
Countercyclical measures: Prior to prorogation the government announced the details of the government's throne speech commitment to inject new demand into the economy through public works spending. The Ontario Federation of Labour applauds this action. We agree with the government that spending on the construction sector is probably the most effective type of countercyclical spending.
Since the government announced its countercyclical fiscal measures three developments have occurred:
First, it is now clear that the recessionary momentum is greater than expected, even in the fall of last year. This is especially evident in the decline in retail sales in December.
Second, responding to this more recent sharp downturn in the economy, the province of Quebec has adopted significant countercyclical measures. The Quebec government estimates that its measures will have the net effect of injecting final demand equal to 1% of gross provincial product. The measures announced by Quebec are substantially greater than those announced by Ontario.
Third, the outbreak of hostilities in the Gulf has added a new element of uncertainty that will probably cause both families and businesses to defer major spending commitments. That is greatly speculative, I admit.
On the positive side, one notes a modest easing of the interest rates, although the Bank of Canada apparently is continuing to pursue its high dollar policy.
The OFL urges this committee to recommend to the Treasurer that he reassess the countercyclical measures already announced with a view to increasing the scale of provincially supported spending on social housing and public works. The scale of Ontario's countercyclical measures should be approximately commensurate with those adopted by the government of Quebec.
Measures to deal with the structural side of the recession: The recession which is currently under way in Ontario has a much more significant structural component than did the previous recession in 1981-82. The Ministry of Labour's data on plant closures give some indication of the structural dimension to the recession.
With regard to permanent layoffs affecting 50 or more employees, I draw your attention to the chart before you, in particular 1982.
If you look at it, there were layoffs of just under 10,000 due to plant closures. Layoffs due to all causes were 46,047. The trigger figure is the column on the right: plant closure layoffs as a percentage of all layoffs, 21.5%. In 1990 that number is now 48.35%. I would rather use 1990 than either 1987, 1988 or 1989, because of the number of workers involved.
What I am saying is that we are clearly seeing a pattern evolve where a much higher percentage of the work force now being laid off and out of work is as a result of closures which are in effect structural changes in the economy. Those jobs will not be there for people to go back to, if and when the economy picks up or, more correctly, when the economy recycles itself and does pick up.
The above table tells us that in terms of the province's permanent layoff indicator, the current recession is already 70% as severe as the 1982 recession, which incidentally was the worst recession since the 1930 Depression. More important, the layoff indicator tells us that a much higher proportion of job loss is attributable to permanent and complete plant closures.
The Ontario recession clearly has a much greater structural component to it than was the case in 1981-82. In that regard, the Ontario recession will be similar to the structural recession experienced by many states in the northeast and midwest of the United States in the period 1979 through 1983. This was the period in which the term "rust belt" entered popular economic discourse.
The demand management types of measures that are suitable to deal with a cyclical recession are far less effective when confronting a structural recession. In a structural recession, workers are not called back to their former jobs. The signature of a structural recession is a growing pool of long-term unemployed workers, many of whom are older workers whose seniority could not protect them against layoffs caused by plant closures. Seniority, of course, has a zero currency when involved in a closure. A structural recession requires a major labour adjustment strategy. Just how ill equipped Canada and Ontario are to deal with a structural recession is evidenced by a study published by Statistics Canada. The study examined the labour market experience of roughly one million workers who were permanently laid off during the period 1981-84.
The highlights of that study are as follows: the largest single cause of permanent job loss was plant closure or relocation -- 36% of the total; 13% of these laid-off workers permanently exited the labour force; 15% of these workers were able to find only part-time employment; of the 72% of these workers who found full-time re-employment, one fifth were laid off again by 1986; 45% of workers obtaining re-employment suffered a wage loss, and this loss averaged approximately 28%; only 17% of workers took retraining, and of these only 5% identified that training as government-sponsored.
The source was Job Loss and Labour Market Adjustment in the Canadian Economy by Picot and Wan Nell. These data are an indictment of labour market adjustment in Canada. Moreover, structural pressures on the labour market are going to be greater in 1991, given the higher incidence of closures.
The OFL believes that the government must spell out a strategy to deal with the structural side of the current recession. The experience of the Canadian Steel Trades Employment Congress stands in marked contrast to the pattern revealed by the Statistics Canada study. CSTEC is an example of active labour market policies. It points to the scope for breaking out of the Canadian pattern: 62% of laid-off steel industry workers take retraining; labour force exit involves roughly 20% of the laid-off workers, and of those who remain in the labour force, 95% obtained reemployment; the wage loss of those who are re-employed following training averages 5% to 10%. Prior to the implementation of CSTEC programs, real wage loss averaged over 30% consistently with the general pattern revealed by Statistics Canada.
If one were to assume that approximately half of the unemployment caused by the present recession is structural, that the six-month retraining experience of CSTEC is a useful benchmark and that Canada Employment and Immigration Commission will co-operate with a program that gives greater emphasis to retraining -- as they have done, incidentally, with CSTEC in waiving the rules -- then the likely costs of active labour market programs would be in the order of 1.5% of the payroll base. This admittedly back-of-the-envelope estimate is broadly consistent, however, with the experience of northern Europe.
We would urge this committee to recommend to the Treasurer that Ontario move towards the implementation of active labour market adjustment programs. This will entail Ontario assuming an economic role in a field in which it has hitherto deferred to the federal government. The Ontario commitment to active labour market policies should be implemented in stages, but it should be anticipated that the fully articulated adjustment programs will entail costs equal to 1.5% of the payroll base. Estimating costs in this manner does not imply that payroll taxes should be the principal fiscal instrument to finance these programs.
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The OFL also believes that addressing the restructuring problem in this province will require active capital market strategies. In particular, we believe this province can ill afford to export its pension capital. It is surely a bizarre irony that the pension fund savings of workers are invested abroad by pension managers to the detriment of the economic security and future of the very workers who created these pools of savings. The only restriction on the export of pension capital is the Revenue Canada regulations that limit the proportion of a pension plan that can be invested abroad. This limit was set at 10% but is rising under the current federal government in stages to 20%.
Ontario has a residual right under the Pension Benefits Act to regulate the investment policies of pension funds. In our view, the Ontario government should exercise this residual authority. Additionally, the government should establish specialized investment vehicles for facilitating the diversified investment of pension funds into industrial restructuring.
Finally, the Ontario government should recognize the direct link between investment priorities and the control of pension funds. Indeed, to the extent that the government strengthens the voice of unions and employees in the management of their pension system, it will reduce the regulatory burden on the Pension Commission of Ontario to actively monitor investment policies.
The OFL urges this committee to recommend to the Treasurer that the 1991-92 budget announce the government's intention to more actively regulate the investment policies of pension funds and, in particular, to limit their ability to invest outside of Canada. It would also be appropriate for the government to use the budget speech to signal its intention to reform the governance of the employer-based pension system.
Measures to reduce future vulnerability to recession: The OFL recognizes that measures to deal with the immediate recession must be the top priority for the 1991-92 budget. However, it is also important for the government to direct its attention to reducing the vulnerability of the Ontario economy to recession. We are cognizant of the limitations on both a relatively small economy and a provincial government. Nevertheless, there are two areas in which we believe the government should initiate policy development.
The first policy area which the government should be examining is the propensity for economic expansion to be based on credit. The increased reliance on credit by both families and businesses is one of the important distinguishing characteristics of the 1980s economic expansion. It is probably related to financial deregulation. Excessive reliance on credit introduces a significant fragility to economic growth. When businesses or families experience an erosion of their confidence, they respond by extinguishing some of their debt. This increases the recessionary momentum.
The most important segment of the financial sector is obviously the banking system. Banking, of course, is in federal jurisdiction. Nevertheless, the province does have some leverage over the financial system through its regulation of the trust and credit union segments of the financial system. The OFL believes that the policy of wholesale deregulation of the financial sector has been of dubious economic value. We believe the government should reappraise the policy of deregulation which it inherited, We also believe the proposed Fair Tax Commission should be asked to examine the economic impact of the incentives to reliance on credit by businesses.
The second area of policy development which the OFL urges the government to pursue is the adoption of reserve funds paralleling the Swedish model. The Swedish reserve funds allow companies to set aside in tax-sheltered funds a certain proportion of their profits. These funds can then be drawn down without incurring a tax liability if they are used for an approved countercyclical purpose related either to investment or to labour force development. The reserve funds introduce into the Swedish economy an important countercyclical device. Given the fiscal restraints on governments, it may be desirable to facilitate the emergence of other countercyclical instruments such as reserve funds. Such reserve funds could be especially useful in resource based regions of the province where the economic cycle is typically more severe
In closing, the federation appreciates the opportunity which it has been afforded to present its recommendations to this committee for the 1991-92 budget, and we stand prepared to respond to any questions that may be asked by members of the committee.
Mr Kwinter: I have a couple of questions. I want to address one of your recommendations, "The scale of Ontario's countercyclical measures should be approximately commensurate with those adopted by the government of Quebec."
If we were to use 1% of the gross provincial product, that would be approximately $2.5 billion. The government had announced that as a measure to deal with the recession, it was going to inject $700 million into the creation of jobs in the way of public utilities, roads and things of that kind. The feeling is that in this fiscal period, even though the $700 million is dedicated they will use a very small fraction of that by the time the budget comes around. I think the estimate was -- what? -- $40 million, somewhere around there. What you are going to have is a $700-million commitment, of which very little -- I am not faulting the government; it is just a matter of having the ability to put this thing into effect.
It would be exactly the same if you were to suddenly find you have a $2.5-billion fund that has to be implemented. My feeling is that by the time you got it organized, by the time you decided which projects you wanted to fund, you would be well into the recovery period and you would have taken an incredible amount of capital out of the system with very little impact on addressing the problem. Do you have any comments on that?
Mr Wilson: I cannot resist one. If they had a little more money, if they knew what they had when they opened the door to the shop --
Mr Phillips: Easy, easy.
Mr Wilson: Okay, I will be nice. It is a matter of public record, anyway.
I am using the wrong title, but the Canadian federation of mayors and municipalities did a rather extensive study about three years ago in which it called for considerable expenditure across this country as required, in the neighbourhood of $5 billion to $7 billion, if I recall, to restore Canada's infrastructure: roads, sewers, bridges. A lot of that work has already been done. If you take a look at the city of Toronto, the sewer system in many parts of the city is well over 100 years old and, as engineers will advise you, is rapidly approaching the point where a decision will have to be made about what is going to be done about the infrastructure. So that money can be dedicated quickly, in the first instance.
The other aspect of their national study which I thought was intriguing was that it estimated that 68 cents of every dollar spent by government returns to government in some form of tax or other, so there is a pretty darn good investment. I believe we said in our comments that it should be introduced in stages. We recognize that you cannot watch an expenditure -- as you have estimated, $2.5 billion in one month as laid out -- happen within the next six or eight months. But I think it is a philosophical question in part that people have to address. In a period such as we find ourselves, the recession and the retraction of the economy, do we utilize what I would argue has been proven to be effective in the past, that is, a considerable amount of dollars dedicated to social spending, for the reasons we spoke about earlier, not only return to government but also the savings the government would have with regard to expenditures it does not have to make because people are unemployed and other matters such as that?
Mr Kwinter: I have one other question. There is another recommendation you make. It has to do with the whole issue of pension funds. I am sure I do not have to remind you that I used to be the minister responsible for pensions. Your recommendation is that "the government use the budget speech to signal its intention to reform the governance of the employer-based pension system." The biggest problem, and it is still out there -- it certainly is there with the OSSTF with regard to the teachers' pension fund -- is responsibility. Certainly organized labour has taken the position that it would like to see some sharing of responsibility for the administration of the pension funds, but basically it wants someone other than itself to guarantee the solvency of it. That is certainly the big hangup with the teachers. I do not know what the position of the current government is, but the previous government said: "If you want it, you can have it, but don't count on us to guarantee it. If we have to guarantee it, then we want to control it. If you want to control it, then you guarantee it or take your chances."
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This is exactly the same situation. You know we have had some very serious discussion as to who owns the surplus and all of that. The standard response you get from management is: "We manage it. If there is a surplus we have created it; if there is a deficit we have to make it up. If you want to manage it, then you have to share that same kind of responsibility."
That has been, in my opinion -- certainly during the time I had responsibility for it -- the major problem we had in coming to terms. I think most fairminded people would say: "Sure, you guys are putting in money, you should have some say. But as long as we have the responsibility, then we can't be manoeuvred into the position where you are making decisions that may impact on us negatively, because you don't have the responsibility of picking up any of the shortfall and we do." Do you have any comments on that?
Mr Wilson: First, I have a question I would like to ask, because I am not familiar, as you would be as the minister, about the particulars of the teachers' pension fund. Does it meet the full solvency and funding requirements?
Mr Kwinter: Yes. What had happened is that, I think it was in 1975, the then government in a sop -- that is the word I can use -- during an election agreed to fully index the pension fund. What they did not do was provide the commensurate financing to do it. As a result, since 1975 there was an unfunded liability that actuaries had a look at and said, "There is a staggering unfunded liability." Barbara, you may know the amount.
Mrs Sullivan: It is $25 million.
Mr Kwinter: No, no, it is way up around $800 million to $900 million. By the year 2010, I think it was, the actuaries felt that unless something was done to put that on a sound actuarial basis, they were going to run out of money. In the year 2010 the teachers would not have any money in their fund to take care of the obligations of those retirees. The actuaries said it required a 2% increase in contributions.
The Treasurer said: "We can make a decision. We can either let it go and let whoever is around in the year 2010 deal with it, or we can put it on a proper basis." The proposal made to the teachers -- I am not trying to be political; this is what happened, and they have a different interpretation, of course -- was: "We, as the government of the day, will pick up all of the unfunded liability. We will put in an additional 1%, you put in an additional 1%" -- which would not be used for the accumulated unfunded liability but to make it solvent -- "and on that basis we will guarantee the solvency of that fund."
The teachers' position was: "If we have to put in more money, then we have to get something for it, because right now we have a plan that's fully indexed. You guys have the commitment and you're going to have to fund it. If you want us to put more money in, then we have to get something for it." One of the things they wanted is to be able to control. They wanted to be able to say, "It's our money and we don't think it has been administered properly and we want to control it."
The Treasurer of the day said: "Fine. If you want to control it, then you have to take responsibility for it. We can't let you control it with us guaranteeing it."
That is the same thing that happens in most of these, whether it is organized labour or unorganized labour --
Mr Wilson: No unorganized labour.
Mr Kwinter: Whatever. If anyone who has a pension plan says, "We want to be able to take some control of the pension funds," the immediate response, whether it be government or management, is, "If you want to share the responsibility of administering it, then you must also share the responsibility of any negative impacts of those decisions." Usually, the response is: "No, that isn't what we want. You take the responsibility. If there are any deficits, you pick them up. But because it's our money, and we look upon this as deferred wages" -- you know that whole argument. I am just curious to know what your response is.
Mr Wilson: Let me comment first from a teacher's perspective. I admit that I am not a teacher and really have no right, but you asked me the question and I will try to respond to it. Were I a teacher, I would interpret the events with regard to future liability that the person who made the promise, the government, was now saying I had to pay for it. It was not the teachers who agreed in 1975; it was the government of Ontario, the way you related the situation, who said, "We're now going to provide indexing." That does not mean indexing just from the point 1980 backwards or 1990 backwards or 1995 backwards. That means funding, which includes with it obviously full funding not only in future credits but also for unfunded liability for past service. So I would respond, I would think, much in the same fashion as the teachers, saying, "It's your promise and now you want me to help you pay for your promise." That is from a teacher's perspective.
Second, I remember the arguments generated by employers around the very lengthy hearings held with respect to the Friedland commission, where this issue was front and foremost. I believe the most constant argument advanced by employers relative to surplus ownership was risk. It was argued, as you have said, that, "We take the risk and therefore if there's a downside we have to pay for it."
But when you looked at the numbers that were worked up around the Friedland commission research, it was either from the period 1940 forward or from the period 1945 forward, to that year -- and that is three years ago -- there was only one year in which pension funds found themselves in a deficit position, and it was only minor. The reality was that pension fund surpluses were a transfer of assets away from those who had already retired and lost purchasing power, as surpluses were simply a reflection of inflation rates which were also reflected in interest rates. What you had was current retirees on fixed incomes or non-indexed pensions seeing an erosion of their benefit level and a direct transfer of that to the income of the fund, which employers then said became theirs because it was now a surplus, it was over the actuarial projections.
I want to tell you we argued with that. We did not think that was fair or kosher and still do not. With regard to the governance of pension funds, what I am trying to signal in our proposal today, Kenny and I, is that we see a possible avenue of alternative capital to allow this province to be utilized, with the proper safeguards, as investment capital in some form or other, which would generate upward movement in the economy and strengthen it and at the same time give you this countervailing pool that would allow you to deal with those who come from other shores to Canada and say, "We will invest in Ontario and this is what we want." You would be in a position to say: "We welcome you to Ontario. These are what our rules are. If you don't like it, I'm sorry, we can't cut a deal, goodbye. We'll use this over here."
Pension capital generated along with community investment funds -- I would argue before this committee that if you were to say to people in northern Ontario and many places where there are single-, two- or three-industry towns, that were they given the ability and the encouragement to develop community investment funds or RRSPs, for example, rather than putting it in a bank instrument they would put it in a mutual fund dedicated to that community, not much different from the greater Vancouver experiment, and say that those funds could be utilized for investment in their community, my guess is that they would opt for that.
I would guess that workers would feel more secure that their funds were being used to generate economic activity within Ontario and within this country than they do by finding out that their funds and pension funds have been utilized in east Asia to provide facilities that are going to erode their job security in this province. That is what that suggestion is all about.
But we cannot get to that because it is not yet recognized in the law that plan participants, organized workers, middle management people and others have equal governance over the funds as the plan's sponsors.
This is my final point. I can tell you that during the whole Friedland debate, and this is the God's truth, I had numerous calls -- I did not keep a record of how many, but obviously quite a few -- from people who were middle management people in manufacturing and retail, in the service sector and the banking sector, who belonged to pension plans and were saying to me, "I can't say anything publicly about this, but you guys can and keep it up, because we're with you."
Mr Kwinter: Another problem is that Ontario has 37% of the work force in Canada. We have 70% of the private pension plans. Private pension plans are not mandatory, they are voluntary.
Mr Wilson: About one third of the workforce has pension plans.
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Mr Kwinter: But as I say, of the pension plans that are there, 70% of all the private pension plans in Canada are in Ontario. In order to make this really work you would have to make pension plans mandatory, because otherwise you have some people being able to benefit and other people not and you are penalizing the good guys as opposed to the bad guys. The point I am making is that the more onerous you make the governance or a pension plan when it is not mandatory and is voluntary -- instead of having a defined benefit plan, they say: "Who needs this? Who needs all this sort of hassle of having to sit down and do all this? We're going to go to a purchase money plan."
Mr Wilson: They did the same thing with income tax when they started -- we found ways to deal with them.
Mr Kwinter: That is the final thing. How do you deal with it?
Mr Wilson: You find ways to deal with it in the same way you do on the Income Tax Act. You can introduce a regulation, or if necessary legislation to deal with those kinds of situations. I do not think that anybody creates a pension plan as a plan sponsor without giving some consideration to how their offer or their situation fits within the competitive mould, when they are competing for services with people who work in their enterprise.
Pension plans in the organized worker sector have a somewhat different bent to them, but relatively they are the same thing. They are negotiated and we have always looked upon them as a deferred wage. They are counted as part of the package when they are negotiated. The employer gets credit for that in the package calculation in terms of its argument in trying to be competitive within the industry. I do not see any conflict there; I really do not.
Mr Kwinter: The conflict I see is that when you have a defined benefit plan, it is a promise. It is a promise to the worker that when he retires he is going to get X. When there is a defined payment plan, all that says is: "You put in X dollars. We'll put in X dollars. It will be administered and if there is money at the end, good luck to you, and if there isn't, that's too bad."
Mr Wilson: Let me give you as an example one of the larger crown corporations, Ontario Hydro, which sits down with surpluses that have been generated and dedicates an amount of that as an increase in inflation recognition factor for those people who are currently on retirement. They also use part of that surplus to generate a higher level of benefit for those people who are currently in active service. Then they also hold a portion of that back in reserve.
That pension plan has not gone broke. I would suggest to you that both the union and the employer in that situation know fully what they are doing. All I am suggesting to you is another avenue of the assets of Ontario Hydro's pension plan. I have not got it with me. I can certainly find out where they are invested, but it would seem to me that we would want to take advantage of giving people the opportunity to be able to invest those funds, and they are vast in this province, in Ontario and in Canada, as opposed to shipping them off to southeast Asia.
The problem we have is that the money managers, the pension fund managers, have a fiduciary responsibility which says they are required to bring the highest return possible within group investments. So now when we have allowed the federal ceiling to increase on a threshold up to 20%, that gives them more opportunity to play the dollar markets out there, but all of that has a negative effect in total in the end upon us. We have the cases of examples, two that I am aware of, where workers' pension funds in Ontario have been invested offshore to build a duplicate facility which closed the one in Ontario. That is absolutely, with great respect, asinine.
The Chair: Before moving on, I would like to indicate that having been involved in the pension debate with the teachers, it is a little more complex than what we heard. There are some very serious disagreements between the federation and the government. I am not going to get into it, but actuarial projections differed from the federation and from the government and created a huge difference in terms of what money would be allocated.
Mrs Sullivan: I am not going to make a political statement before I go into my question. I have been interested for a long time actually, Gord, in the kinds of proposals that I read about first in the newspaper the other day. I think you had a news conference or something on your pension proposals. If we look back at the history of Quebec, we see what kinds of very interesting changes they made in their economy through the pooling of capital through the caisse populaires. In fact, I do not find your proposals coming from any political spectrum, if you like.
In my view, Michael Wilson has already recognized the potential of using the investment pool of, for instance, OMERS, in which we must invest every day $2 million into the markets. Wilson has introduced a program through which capital pools such as OMERS or other pension plans can place their funding through venture capitalists into private sector operations, and they do. They have been very effective in moving emerging companies into being surviving and growing companies.
Mr Wilson: Barbara, if I can, the current private sector pension plans had no restrictions.
Mrs Sullivan: No, I know. One of the things I am saying is that I am interested in seeing additional dialogue in this area at the provincial level, seeing where and if the federal program, which has proven to be successful for emerging companies, can be balanced or whatever. I do not think that in this next budget -- who knows what the Treasury will come up with? I just do not see this becoming something that can be a major part of this budget, because it seems to me that there has to be a lot more review of this situation.
One of the areas that has concerned me about the proposal, both in terms of what you said today and in the news conference that was reported last week, is where the return on investment would come from for the pension plan, and there must be a return on investment, if the investment was in labour adjustment programs. If that capital was being moved into labour adjustment programs, where does the ROI come from for the pension plan, and if there is no ROI then what would the position of the Ontario government be in terms of providing a guarantee of funds going back into the plan or in terms of working and directing those labour adjustment programs?
Mr Wilson: I think there are two things crossing over here. I do not think we suggested nor did we talk today about pension fund investment in labour market programs in the sense of labour adjustment. What we talked about was economic labour market policies on the one hand which also can be complemented, for example, although I did not say it specifically, with community development funds. That is where some moneys could be spent. You have to change the rules. The rules have changed out there, so we have to be concurrent with that, be able to get some of our objectives in Ontario and, strengthening our economy, be able to change some of the old rules under which we operated.
One of them is the fiduciary responsibility, as an example, where you might say to pension fund managers in this province -- not only the question of restriction of overseas investment -- "We may relieve you 4%, 5%, 10%, 12% or 15%" -- I do not know what the number is; we would have to sort that out -- "of those funds in that pension fund," which could be invested in some form of social investment; for example, affordable housing.
It may not kick an immediate rate of return that would be equal to the highest private market rate of return, but you are only dealing with a small percentage of the funds. Even if you took that amount, it has a considerable impact on an economy like ours, particularly if they were co-ventures where the municipality or the province is sitting on land and is prepared to get involved in processes like this. This is how you could really rev it up.
There would be guarantees for the pension fund, because the return on those mortgages, assumably, would bc at least equal to one or two points under what the investor -- I had better be careful. It would be less than what you could get in stocks and bonds in most cases, but not all cases. If you averaged it out over 20 years, you may be trailing three points on the private market, but only for a percentage of the funds. In return for that you are giving people access to a commodity that they might not otherwise have, including some people who are participants in that pension fund, so there is a balancing act there.
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The other thing is that I think I make the argument of restructuring and I really do believe it, and for another reason other than the arguments around the trade agreement. If you look at what is taking place in the world today, the US is the largest debtor nation in the world. They are attempting to redress that debt. Part of that strategy is the trade agreement with Canada and part of it is their import and export arrangements with countries like Japan and Germany where they are going to start calling in chits and already have. They have a serious problem and have to address it. Number one for them is going to be them.
Being aware of that, I would suggest to you that the numbers we recount in our submission can be measured with some validity in that there is a restructuring going on, part of which is a response to the US's position in trying to address its own deficit. That is why you are seeing some multinational corporations, US-based, moving operations out of Canada. What allowed them to do it now is the trade agreement, which now lets them back in, where before they might not have under other trading arrangements that existed prior to the trade deal. You are familiar with all that argument anyway.
If that is true, then we have to start changing the approaches we have had traditionally in how we attract investment to this province. One of the ways you do it is to set up a countervailing pool of capital, not maybe sufficient yet, but the Caisse de dépôt is a classic example where they quite frankly have been able to do it, to generate sufficient capital, admittedly around a cultural recognition that we cannot take advantage of in the same way as Quebeckers do. But maybe we can find that single force in Ontario that unites people around an identity with Ontario much in the same way the cultural identity has been in Quebec. If we created a Caisse de dépôt in Ontario with the same allegiance that the Caisse de dépôt has to Quebec, then you can say to multinationals: "You want into our markets?" -- if you can deal with the trade agreement in another way -- "Then this is what our deal is. If you don't like it, have fun."
Mrs Sullivan: Can I just ask if the OFL has looked at the federal program in terms of the pension fund investments. Basically what happens is that through the venture capitalists there are equity investments made that are singularly important in that it is not debt that is going into the company.
Mr Wilson: You have to be careful, and I recognize the point that with pension funds you are dealing with people's future livelihoods. That is why I argued you can dedicate funds to certain sectors in the economy which are safe and at the same time provide a social good for the entire economy. I really do not see venture capital in the way that term is normally applied being very attractive to pension funds if you are concerned about security, but there are, in some community development situations, funds that can be developed for that community where you can make a go in a venture capital sense of investment; for example, secondary industry around mining, where you can become quite competitive. You have the work force there and you can generate the growth of communities rather than the decline.
You would deal in those kinds of activities, but you would have to be very careful about it. You cannot just say, "Here's a licence to go out and invest pension funds holus bolus." That is why I tried to say a more prudent course is to begin with a percentage of the fund being dedicated.
Mrs Sullivan: That is what the federal program does.
Mr Wilson: I cannot understand the federal government's reasons, then, for going the other way on the foreign investing; I really cannot. If they are trying to get to that, to encourage investment in Canada, why are they making it easier to invest more money -- not easier, but allowing pension fund managers to invest more money -- outside the country? They are in opposite directions.
Mrs Sullivan: They also make money through the emerging companies, substantial money, because the emerging companies have to pay higher prices than, say, the existing stable companies with traditional access to markets.
The Chair: Mr Phillips?
Mr Wilson: Wait a minute, Gerry. I make speeches for nothing; I charge for questions.
Mr Phillips: How about answers? We have heard today from a couple of banks that are more optimistic, I think, than some of us felt coming in here. I have about five points, Gord. You could say you only get one question.
First, I would not mind the OFL's point of view on when we may come out of the recession. Second, I think some of us felt that perhaps there were more jobs moving elsewhere, manufacturing jobs, than the banks seemed to think. I would like your thoughts on whether you have any handle on that and whether we should be concerned about it. The third thing is that two of your big recommendations, the wage protection fund and the labour adjustment, are in round terms -- I do not know -- $200 million and the other is $1 billion. You mentioned payroll tax in both cases. Is it tied to the payroll tax? Is it a quid pro quo in your mind or is it, "We've got to do this," and one suggestion is to fund it through payroll?
Let me just finish off here. The fourth one: Your pension thoughts, I think, are extremely interesting. The one philosophical argument that I get into down the road on pensions is that I think employees feel they could take money now in salary or defer their salaries into pension. I think down the road, increasingly, individuals will see the pension as their money -- no one else's, but their money. Therefore, your recommendation, which is to tell them that they must take a part of their money and put into a lower rated return, will it wash, I am saying, with employees down the road?
The last one: I did not see anywhere in here, in terms of the recession material or the economic outlook, recommendations, as we go through this restructuring, that would encourage and help employees to acquire firms. I thought that, just as the pension thing was here, we may have seen some recommendations from the OFL in terms of that being helpful.
Mr Wilson: First, we might comment on is the rate of return. Do not overexaggerate it, because what I said was that if you took a 20-year frame, given the rises and falls in the market, a stable investment in real estate is likely to yield substantially not much less. It is going to be minimal under the marketplace, I would argue, if you take a 20-year frame.
If you are talking about employee stock ownership plans, the answer would be no, we are not interested in that. You have equity in the company, you have investment in the company but you do not have any control over it. If you are talking about some of the experiments that have been engaged in in the United States and one or two in Canada, where effectively a group of employees bought, controlled and operated a fund, yes, there is some interest in some segments of the membership of my federation. There is not an interest in others. It becomes an ideological grating point in many ways.
Mr Phillips: That is why it is not here, I guess.
Mr Wilson: You might say that we are not unlike governments, trying to find the best solution for everybody.
Mrs Sullivan: He was not elected on that platform.
Mr Phillips: The recession in the manufacturing --
Mr Wilson: It is interesting. The person shall go unnamed who used to be very close to the Prime Minister and is now the chief executive officer of Campeau Corp. I checked numbers with him yesterday at a function I just happened to be at and he was at. Our projection together was that I do not see any upturn in the economy until probably the third and fourth quarter of 1992. And by the way, the prediction was a prime rate of about 10.25% by the end of the year, our bank rate, a prime rate.
The other was the significant difference between 1982-83 and our coming out of ours. The 1982-83 line was almost straight up. It was a quick recovery and it was a fast and strong recovery. This one will linger like a shallow soup bowl. For a long period of time we will have a very slow growth factor. Part of that is the restructuring application.
If you look at the analogy we made with the 1979-83 period in the United States, they went through a structural impact upon their economy while our recession in 1982 was a reaction to their restructuring. Ours was cyclical, therefore -- for that and other reasons. But if you went down to the bottom of the pot, you would probably find out that was the most substantial reason. What is different now is that they have undergone their restructuring. The auto industry was carved by a third, the steel industry was cut in half. A great amount of their manufacturing base was severely restructured. We went through a cyclical turn. Now we see the exact opposite. We are undergoing the restructuring and they are in a cyclical downturn. They are addressing it through their policies to deal with their deficit and the recovery of their balance of payments deficit.
I see this recession in Ontario as not one that is going to be enjoyable for anybody, particularly the workers. Why did we specifically focus on the points that we focused on? Because the people who are the most severely hurt are those people at the lower end of the income scale or those people who have no control over the decisions that impact upon them; that is, either workers in unions or workers not in unions. The reality of it now is that unions exert very little control over those investment decisions by, particularly, multinational corporations as to whether or not they want to remain in Ontario and produce or whether they want to go somewhere else. So what we are seeking is, in the budget, some indication of moving to protections for those people.
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Mr Phillips: One question I do not think you answered, at least directly is just that the presentation from the two banks today left me the impression that once we start out of the recession, which they think we will start out in midyear, and tramp on the accelerator the manufacturing jobs come back.
Mr Wilson: To where?
Mr Phillips: That is my point. I guess their point was that they come back to the plants that right now are still there and will just gear up. I am interested in your perspective.
Mr Wilson: Where are the jobs? We are not seeing any influx of --
Mr Phillips: I am asking the question.
Mr Wilson: You have also to remember, I think, in the context of whom you heard it from, that banks never go through a recession. They win on the wave up and they win in a trough too.
Mr Phillips: They just plain win.
Mr Wilson: That is right. I think that message was conveyed to them, if I recall, by the Premier about a week ago, with great joy and enthusiasm throughout the retail and manufacturing sector of employers, who said: "Yes, that's right. Why are we always taking the goring?" not to mention workers on mortgages and the rest of it.
I do not see where the replacement of jobs will be. If we drift to a larger measure of part-time and service sector jobs, yes there will be jobs. If you are at a CEIC you count job for job, so it does not matter, to use the popular vernacular, whether you are flipping hamburgers in McDonald's or whether you are a highly paid industrial worker. It is a job in their stats. Where it shows up is how many small businesses go belly up because workers do not have decent jobs that pay good money that allow them to spend in the local economy and in the Ontario economy. Therefore, I do not see where all of these jobs are going to be replaced as value jobs. The bank may be looking at numbers which talk about part-time jobs, that talk about accumulation of part-time-full-time jobs in the retail sector or jobs in the service sector, all of which are paid considerably less than the jobs we are losing. What we are losing in this province, by and large, is the well-paid industrial job that has been the mainstay of many of our communities. They are not going to be replaced.
Mr Phillips: Just on the last, on the payroll tax, how tied are you, in your recommendations, to that being funded by payroll taxes?
Mr Wilson: You are talking about the wage protection fund?
Mr Phillips: Both of them.
Mr Wilson: You could do it by that or by a combination of the other measures we have proposed. Why we suggested the liability tax -- I will be quick on it, okay? -- is that we have had experiences, particularly in the garment industry, where company A, owned by Mr B, closes down and then two weeks later he opens company C down the street. It is essentially the same business. The workers are out of luck. Why? Because the company went insolvent. Insolvency means everything you have is an asset. It is already pledged and so there is nothing left for the workers to recover. But it does not prevent the owner and/or the directorship from moving down the street and opening up another operation. I said to you we did a little checking with some people we know in the banking industry. We asked how directors would react to that. They said they would simply increase their directors' liabilities through private insurance.
So there is any number of vehicles you could use. Then the insurance companies would have to bargain.
Mrs Sullivan: Yes, I just think if you are sure that they could, given the extra liability insurance that is now required and the pollution protection and so on --
The Chair: Come on. We are running a little late.
Mrs Sullivan: It is optimistic.
Mr Jamison: Are we finished? Okay. An interesting part of your submission, Mr Wilson: You allude to a structural recession requiring a major labour adjustment strategy. Further on in your submission you mentioned one particular scheme or plan that went forward during the steel recession, the CSTEC.
My question really is whether or not you could explain further what that particular plan was about and, secondary to that, what we as a government can do to assure the development of skills that are required for the future. My opinion is that we cannot do it alone. It is going to take a partnership approach. I would be interested in hearing your point of view on that.
Mr Wilson: I guess the short and sweet of it is that Stelco and other steel companies understood that they were going to undergo a restructuring. The unions' reaction to that was, "We have two choices, we can either be in the dialogue or out of it, but it is going to happen anyway, so we are far better to be in it."
Admittedly, the CSTEC experiment dealt with downsizing. What it did though was calculate that the people affected by the restructuring were going to have to be facilitated in such a fashion that they could be useful either in that sector or in some other capacity as workers who are home working for a living. So that is simply what they did. They approached it that way. They did not take the view that neither the company nor the union -- that okay, the worker is going to be unemployed. "We are sorry you are unemployed and good luck." I mean, they felt some responsibility for what they were going to engage in and then began to put in place the mechanisms that allowed people to be able to recover themselves. That was essentially the experiment of CSTEC.
Now there is another one, EEMAC, or the forest products experiment out in British Columbia, the electrical industry of forest products, where it is more proactive in terms of talking about how people move within the industry or within the sector and keeping them active and gainfully employed. Of course, there is some difficulty with that now, not so much in the electrical industry now, but certainly with the forest industry out west in that some of the federal government policies around the trade agreement are causing great discontent on both sides of the equation. I hope that answers it, but that is a simple form of the discussion.
Mr B. Ward: Just a quick question because it is late: I guess there are two avenues of thought. We are in a recession, I think, no one can deny that any more. We have to admit that we are in recession and facing tough economic times, but one school of thought is to take the laissez-faire attitude of, "Do nothing; get your financial house in order; the private sector will eventually pull it out." The other school of thought is to direct government involvement to do as much as possible through capital expenditures. The gist I get from this document is that it is the position of the OFL that our government of Ontario should take a proactive approach to battling the recession through capital expenditure programs and, as well, conducting that battle, planning for the future through progressive policies, which is what the four pieces of information that come from the document --
Mr Wilson: We would argue that the government should be an interventionist government when the market prices are unable to meet the needs of the people within the jurisdiction of this province.
Mr B. Ward: Take a proactive approach to the recession.
The Chair: I would like to thank you on behalf of the committee for coming and giving your views. We appreciate the input. This committee is adjourned until 10 o'clock tomorrow morning.
The committee adjourned at 1730.