ONTARIO PHARMACISTS' ASSOCIATION
COUNCIL OF ONTARIO CONSTRUCTION ASSOCIATIONS
ONTARIO RESTAURANT ASSOCIATION
BUDGET PROCESS
C. D. HOWE INSTITUTE
CONTENTS
Wednesday 12 February 1992
Pre-budget consultations
Ontario Pharmacists' Association
Gary Cruickshank, president
Shirley Moffs, assistant executive director
Gary Sands, manager, government and public affairs
Council of Ontario Construction Associations
David Frame, executive vice-president
Gary Whitelaw, chairman, tax committee
Bill Empey, technical consultant, tax committee
Ontario Restaurant Association
Fred Luk, president
Paul Oliver, director, government affairs
Paul Bachand, member
Budget process
C. D. Howe Institute
Irene Ip, representative
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président(e): Hanson, Ron (Lincoln ND)
Vice-Chair / Vice-Président(e): Sutherland, Kimble (Oxford ND)
Carr, Gary (Oakville South/-Sud PC)
Christopherson, David (Hamilton Centre ND)
Jamison, Norm (Norfolk ND)
Johnson, Paul R. (Prince Edward-Lennox-South Hastings/Prince Edward-Lennox-Hastings-Sud ND)
Kwinter, Monte (Wilson Heights L)
MacKinnon, Ellen (Lambton ND)
Mahoney, Steven W. (Mississauga West/-Ouest L)
Phillips, Gerry (Scarborough-Agincourt L)
Sterling, Norman W. (Carleton PC)
Ward, Brad (Brantford NDP)
Substitution(s) / Membre(s) remplaçant(s):
Drainville, Dennis (Victoria-Haliburton ND) for Mr Jamison
Villeneuve, Noble (S-D-G & East Grenville/S-D-G & Grenville-Est PC) for Mr Sterling
White, Drummond (Durham Centre ND) for Mr Christopherson
Clerk / Greffier: Decker, Todd
Staff / Personnel: Campbell, Elaine, Research Officer, Legislative Research Service
The committee met at 1010 in room 230.
PRE-BUDGET CONSULTATIONS
The Chair: Good morning. We will resume the pre-budget consultations for the standing committee on finance and economic affairs.
ONTARIO PHARMACISTS' ASSOCIATION
The Chair: I would like to welcome the first group here to the committee. It is the Ontario Pharmacists' Association. If you would not mind identifying yourselves for the purposes of Hansard, then you may begin your presentation.
Mr Cruickshank: Mr Chairman and members of the standing committee on finance and economic affairs, my name is Gary Cruickshank. I am president-elect of the Ontario Pharmacists' Association. With me here today are Shirley Moffs, assistant executive director, and Gary Sands, manager of government and public affairs.
Before I go further, I would like to draw to your attention one error in our submission. It is in the listing of the references on page 9. Number 4, instead of reading "ibid," should read "Report of the Pharmaceutical Inquiry of Ontario, July 1990."
The Ontario Pharmacists' Association, or the OPA, is a voluntary professional association representing over 4,000 pharmacists in Ontario. The OPA provides a range of services to our members and we strive to enhance the standards and image of our profession in the interest of pharmacy and the public. We also negotiate with the Ministry of Health under the Ontario drug benefit program.
On behalf of our elected council we would like to thank the committee for extending the invitation to our association to appear before you today and participate in your pre-budget deliberations. In the context of our current relationship with the Ministry of Health, the opportunity to convey some of the concerns of the OPA to the government through this legislative committee is deeply appreciated. We understand this committee will be looking at a range of government programs that account for large public expenditures, which certainly include the Ontario drug benefit program.
Within the framework of the health care system in Ontario, the ODB program accounts for about 5% of the Ministry of Health's expenditures. Yet prescription drugs are an integral and essential component of our health care system, and as the 1990 Report of the Pharmaceutical Inquiry of Ontario pointed out in reference to the ODB program "the problem of cost must be kept in perspective."
While there is general acceptance that inappropriate prescribing and drug therapy application can have an adverse impact on an individual's health, many sometimes lose sight of the fact that therapeutic advances, appropriate prescribing and rational drug utilization has contributed, in the words of the pharmaceutical inquiry, "to improving both the quality and length of life of the people of Ontario."
The original concept of the ODB plan was to remove financial barriers as a factor in determining a patient's medication compliance. If we continue to accept that premise, then our priority now must be to fully utilize the professions to maximize patient compliance and the rational use of medication. However, given the relatively rapid rate of growth in ODB expenditures, we can appreciate the government's desire to review the program.
In fact, the first announcement of an ODB review, on April 29, 1991, by Treasurer Floyd Laughren, was welcomed by the OPA, in that accompanying his announcement was a commitment that this review was part of a "new management system in health care, in partnership with health care providers."
Unfortunately, that "partnership" failed to materialize, notwithstanding a further series of announced intentions to review the ODB program on May 14 and October 2 of last year and January 21 of this year. Each reannounced review was similarly cloaked in the same promise to consult and work in partnership. To date, we regret to say that there has been no consultation between either the Ministry of Health, or the treasury board and the OPA on any aspects of the ODB program review.
It is our contention that the failure to consult and involve others in planning decisions is not in anyone's interest and serves only to develop an adversarial climate. This closed door approach is also contrary to the repeated commitments of the government and, in the long run, does a disservice to the public of Ontario.
Pharmacists are key to the delivery of the ODB program, as we are the front-line providers in direct contact with consumers. But we recognize that pharmacists can and must play a more significant role in development of a more cost-effective drug benefit program. Our desire is to work with the government, other professions and consumers in looking at ways to control costs while at the same time striving to preserve quality of care. Cost containment in one area can simply transfer costs to another area. Improper utilization of medication can result in other problems. As the Senior Citizens' Consumer Alliance has stated:
"In 1990, some 4,000 Canadian seniors died as a result of complications with their medication. Each year, somewhere between 5% and 15% of seniors entering hospitals are admitted with a `drug' problem -- the direct consequence of either too many drugs, the wrong dosage, or the failure to take medicines properly. Experts say that most of these problems with medication are preventable."
It is our hope that this committee can prevail upon the Treasurer and the Minister of Health to take a more constructive, open approach which will yield greater long-term results. The partnership we see is one in which government, pharmacy and consumers can continue to work together on an ongoing basis in managing the program. In fact, as Minister Lankin said on January 16, the problem with our health care system is not that it is underfunded, but that is undermanaged.
The input of consumers is especially important since we know that the government interest and public interest are not always convergent. Already the OPA has seen examples of attempts to cut ODB costs that have, in our view, given less priority to the question of quality than we consider appropriate. We hope this committee will agree that the public deserves a more rational way to deal with the need to contain the escalation of ODB costs.
Our association would suggest, Mr Chairman, that the most important contribution to ODB reform this committee could make is to recommend to the Treasurer that a collaborative mechanism be established that can allow us to address the challenges government and pharmacy face and present better opportunities for successful, long-term reform.
Accordingly, it is not our intention to bring a list of specific recommendations to this committee on the complex and difficult issues facing the drug benefit program. Our suggestions, views and experience must take place in the context of an ongoing dialogue with the Ministry of Health at an appropriately senior level.
This process could also help prevent a repetition of the short-term and shortsighted measures taken by the Ministry of Health, such as the freezing of the professional fee paid to pharmacists under the ODB program. I quote again from the Report of the Pharmaceutical Inquiry of Ontario, which pointed out:
"The costs associated with the average dispensing fee, the average number of claims for non-prescribed drugs, and the average costs per claim for non-prescribed drugs, remained at levels consistent with changes in the CPI. The increases associated with these components were 3.2% for dispensing fees...clearly, these costs did not contribute in any important way to the overall increase in the costs of the ODB program."
In fact, the inquiry found that the three major factors responsible for the rate of increase in the ODB program were the number of claimants, the average number of claims for prescribed drugs per claimant and the cost of prescribed drugs. "Increases attributable to dispensing fees, claims and costs of non-prescribed drugs are minimal."
These observations were echoed by the Premier's Council on Health, Wellbeing and Social Justice in October 1991:
"ODB has grown tremendously over the past decade, posting an average annual increase of 19%. Costs have been fuelled by increasing drug prices, the introduction of new drugs, extension of benefits, the growth in number of recipients and an increase in claims per recipient."
However, rather than working with pharmacists to address these challenging systemic issues, the Minister of Health instead opted to freeze the ODB professional fee paid to pharmacists. This step was taken shortly after the minister received the report of the mediator coming out of the OPA-MOH negotiations.
We draw your attention to the report of the mediator, Dr Brian Segal, in that many of his comments and recommendations may be of interest to committee members. One of Dr Segal's non-fee related observations was:
"There are a number of specific areas raised by both parties during negotiations where collaboration between the OPA and the ministry could have an impact on reducing the long-term costs of the program while ensuring a fair and equitable dispensing fee. Both parties have much to gain from a sustained period of consultation on a variety of pharmacy and ODB issues. Such consultations should occur outside of the fee-negotiating process. It is therefore recommended that the ministry and the OPA establish a joint consultative committee."
The OPA strongly supports this recommendation, which could provide the vehicle for examining issues such as utilization, changing demographics, alternative forms of compensation for pharmacists and other issues either party may wish to review.
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A closed-door approach to ODB reform is neither appropriate nor constructive. Only by working together can we deal with cost escalation without eroding our quality of care.
We all must plan better, manage better and share responsibility together. Pharmacists can and are willing to play a greater role in planning, managing and delivering our drug benefit program. But as Premier Rae pointed out in August 1990: "A monolithic system in which one insurer has all the political cards can't work without checks and balances: professions free to speak out on the quality of care; a partnership in which planning decisions about the system emerge from a genuine dialogue and not from the cabinet room alone; above all, a sense of fairness and pluralism when it comes to the management of the system. These are all essential if the health care system is to maintain the confidence of everyone working in it, as well as the public it serves."
Mr Chairman, once again, thank you for allowing us this opportunity. We will try to answer any questions members of the committee may have in the time remaining.
The Chair: Okay. It was agreed by the committee yesterday that each caucus would have 10 minutes for questions, starting with Mr Kwinter.
Mr Kwinter: Thank you very much. It seems to me that when we talk about the ODB, we have three components. We have the government, we have the pharmaceutical manufacturer and we have the pharmacist. The pharmacist is really the meat in the sandwich because he is being pushed from either side. I would just like to get your comments. To give you an example, I understand Valium is probably the most prescribed drug there is. What does the brand name Valium sell for? Do you know offhand?
Mr Cruickshank: I do not know offhand.
Mr Kwinter: More or less?
Mr Cruickshank: I guess we have the formulary.
Mr Kwinter: The reason I am asking is that there is an incredible discrepancy between the cost of Valium, the brand name, and the generic. I would like to, just for the record, know what that discrepancy is.
Mrs Moffs: The BAP, the best available price listed for Valium -- five milligrams is a common dose -- is 0.0872 cents per tablet. The best available price for the lowest interchangeable brand is 0.0064.
Mr Kwinter: We are talking nine times more expensive for the Valium as opposed to the generic, which chemically is the same. What happens is that you have a situation where a patient comes to the pharmacy and if the doctor prescribes the brand name Valium, the pharmacist has no choice: He must dispense the Valium. Is that not correct?
Mr Cruickshank: The physician would have to indicate on the prescription, in his own handwriting, "no substitution."
Mr Kwinter: Right. I am just using that as an example in that we have a problem where there is this wide discrepancy in the cost of drugs that are interchangeable. Under the ODB I think your mandate is that you must dispense the cheapest-priced drug that is interchangeable.
Mr Cruickshank: You have the option of dispensing anything which is interchangeable, but reimbursement to the pharmacy will be based on the lowest BAP listed in the formulary.
Mr Kwinter: Do you think that is an area where there can be some significant savings made by trying to come up with a regime, particularly for ODB users, where it is absolutely mandatory that the lowest-priced comparable drug is dispensed?
Mr Cruickshank: You are referring there I think to the elimination of "no substitution," which is currently allowed under the program. I think that has been put into place for a number of reasons. One is to give the opportunity for the physician to request no substitution, for a variety of reasons which presumably the physician and the patient have discussed. There is certainly some opportunity there for savings if in fact that was the mandate that was put forward. I am not sure whether or not that would continue to provide the best care to each and every patient in the province. There may be cases where it is important, based on a drug, based on the individual receiving the medication, that they continue to receive the medication by a particular manufacturer.
Mrs Moffs: If I could just comment, I think that is a policy decision, as Gary said. Rational drug therapy is the right drug for the right patient at the right time in the right quantity, etc, and that would be a policy decision whether you wanted to take that approach. There are experts in place, the Drug Quality and Therapeutics Committee, who deem whether a product should be included in the drug formulary. Perhaps that is a question that they would be prepared to answer.
Mr Kwinter: I forget what they call the committee, but it is the quality assurance committee. What do they call it?
Mrs Moffs: Drug Quality and Therapeutics, DQTC?
Mr Kwinter: Yes. They certainly evaluate all drugs to see if in fact they are interchangeable. Once they make the decision it is, then I would assume they are satisfied that there is absolutely no difference between the two, other than the name. There may be some therapeutic benefit for doctors telling a patient, "You're going to have such and such a drug," because the patient thinks that drug is going to be good for them, but I do not see any economic reason for doing it, because in order for it to be listed in the formulary as an alternative, it has to be absolutely identical. Otherwise it will not get listed.
Mrs Moffs: I do not know if we are prepared to comment on that. For interchangeability there are criteria established by the DQTC and the ministry and they would have that information. Interchangeability is really what is allowed by the formulary, as opposed to being 100% the same.
Mr Kwinter: Could I just go to another area? One of the other concerns I have, and I hear this all the time, is that there are lots of patients, particularly the elderly, who are overmedicated. When they die and people go into their apartments to clean out their effects, they open up their medicine cabinet and find they have enough of a drug to last them for 15 years. There seems to be no control at the pharmacy end as to how many refills -- I mean, if the doctor leaves it open-ended, these people come in, particularly if they are on ODB where they do not have to pay for it, and just keep taking more and more of these drugs and feeling that if one is good, two has to be better and four is even better. For a lot of these patients, the drugs are doing them more harm than good. Do you have any comments on that?
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Mr Cruickshank: There are perhaps a number of issues you have raised. Certainly one of the things a pharmacist does do in filling prescriptions or repeating prescriptions is to try to monitor compliance in terms of, does the patient appear to be complying with the directions that have been established by the physician? In terms of repeats, that is something we try to do on a regular basis. That has I guess become somewhat more difficult in that the mandate is that we now dispense as written and it is certainly in the mandate of the physician to order much larger quantities of medication, so the interval between prescriptions being repeated may certainly be larger than it was historically and that does make it more difficult to try to monitor the compliance a patient is experiencing in terms of taking his medication.
Mr Sands: I think one of the things we would add to that too is that you have touched on a number of issues. Drug utilization and the need to allow or provide for some mechanism of allowing for more communication between physicians and pharmacists was dealt with at great length by the Lowy report; those are some of the recommendations. Our association supports the Lowy report very strongly, and that is I guess our concern about it gathering dust at the present moment. We would like to see that report dealt with seriously, because a number of the issues you have talked about have been examined in great detail by Dr Lowy and the commission. We would be happy to pursue the kinds of points you have raised with the government. Unfortunately, we have not been meeting with much success.
Mr Kwinter: Do you have any comments on the implementation of a user fee for ODB participants? Let me give you an example. The reason I am asking these questions is that I am fairly close to the pharmaceutical industry, not only because my brother-in-law is a pharmacist, but I hear stories where people will come in -- these are senior citizens -- and pick up their prescription and the pharmacist will say to them, "That's $2." They say: "What are you talking about, $2? I am on ODB; I don't have to pay anything." "There's a $2 item in there that's not covered." "Well, then, take it out. I'm not going to pay for it."
There is a situation where a user fee -- and I am not talking about an onerous fee, but just a token fee -- would be to the benefit of some of these patients, because some of them react only on the basis of economics, and if it means that they have to put out $2, that they do not want to put out the $2, they think they are entitled to all their drugs free. Do you have any comment on that?
Mr Sands: In terms of user fees, I am not sure that our council has a set position on that. I understand from the minister that Dr Sutherland has looked at this area and has made some recommendations and the cabinet has had a couple of discussions on it. But the original concept, as we said in our brief, was that there should be no financial barrier to patient compliance with medication, so if that is going to be changed, I really think that is a political or a policy decision that is going to have to be made by this government. Other than that, I do not think we really have more comment.
Mrs Moffs: Maybe I can just make a comment. I think that is an opportunity where the pharmacist could get involved in educating the public and the patient to the role of medication and maybe influencing public expectations. The initial prescription is written by a physician in response to a patient, and maybe that is definitely a role the pharmacist could play and maybe that would be an alternative. As opposed to, as Gary said, providing financial hardship and a barrier to the patients who legitimately need medication, we could play a very valuable role in educating them.
Mr Carr: When you look at the health care costs, you know the debate that is going on. The Quebec government is now taking a very hard look at it. All governments in Ontario, whether they be Conservative, NDP or Liberal, have had problems. The costs have gone up 12% virtually every year. We have tried various things to cut the costs. We were going to freeze the doctors' salaries -- no increases -- so instead of billing five people a day, they bill 10 and the costs still go up. So you are not alone. They take a look more on the line-by-line item and say, "There's where the costs are; now here is an ad hoc quick fix." It has not worked, and again I see that in a non-partisan way. The Liberals could not fix it, Conservatives had problems and the NDP is having problems with it as well.
Very specifically, my hospital, in its quest for funds, is now getting involved in operating a pharmacy. Some of the pharmacists are upset as a result of that. I understand there are about 14 hospitals in Ontario where that is happening. Hospitals are looking at parking fees; anything they can do to make some revenue. What is your association's feeling on that, about hospitals trying to get more money by trying to expand their revenue and infringe maybe on your territory? Do you have any policy or thoughts on that?
Mr Sands: I guess the only thing I could say at this point is no, the council does not have a position on it, but I would draw to the committee's attention that we represent pharmacists and not pharmacies. So we represent hospital pharmacists as well, and that kind of issue has not --
Mr Carr: It is a tough one.
Mr Sands: It really has not come to us in terms of it being a problem, and I say that quite honestly. We have not had it discussed at our council. We would be glad to maybe raise that issue and we could get back to you to talk about that.
Mrs Moffs: I just want to stress that we see the community pharmacists as an important network in the delivery of health care in the province. We have done a good job, we want to do a better job and we do not see any reason why that should change.
Mr Carr: And it is a difficult question because you look at it from both sides and it is very difficult. I say that because I suspect, maybe as forewarning, that it may become a bigger issue. I have had calls on it and maybe some of the other folks have as well.
Getting back to the broader issue, the problems we have in health care: Quebec is taking a comprehensive look at the health care costs. Again, not party lines; you have Liberals, Mr McKenna the other day talking about what he is going to do and so on, and you have Conservatives saying things and NDP. One of the suggestions I thought might be helpful is to have a comprehensive look, like Quebec is doing, at all health care costs, because if not, you have heard a socialist government saying the system is going to collapse. So it is non-partisan. Everybody is in trouble with this. It is the biggest cost. We are going to be strangled if we do not control it as the population ages.
Do you have any suggestion, long term, about -- and I am talking now about the process, not specific solutions -- how you would like to see it done rather than this ad hoc basis where we come along and say, "Boy, costs are going up, so let's tackle the pharmacists, let's go after the doctors"? Long term, how do you see us putting together a plan with public input from all the health care front-line workers and all parties to get some type of solution? Maybe you could come up with some suggestions.
Mr Sands: I would love to. I think the first thing I would like to ask this committee to do is to try and advise the Treasurer or the Minister of Health to implement the mediator's recommendation and to look at what the mediator said and Dr Lowy said and many others have said, that there must be some mechanism put in place to allow for an ongoing dialogue, not just with the profession, but to allow for the input of consumers to deal with some of the larger systemic issues and the problems we have.
We are dealing with them right now on an ad hoc basis. Freezing the professional fee of pharmacists may appear to be great PR to some people, but it is minimal and it is not dealing with the problems, and the problems have clearly been identified. This is not my opinion. It is based on the ministry's data. They are clearly laid out, these are the problems, and we do not understand why the ministry is reluctant to talk to our association on dealing with these issues so we can deal with things like utilization, education; those are the kinds of things that will reduce costs.
I know they are very difficult and complex, but we have to start talking to each other. We have to start dealing with them. If we do not, we are going to be confined to dealing with the problem on an ad hoc, short-term basis, and I am saying that is not good enough. We are not satisfied with it. We are like the mediator, who says he has been puzzled as to why this has not been done; what is the problem? We cannot get an answer from the Ministry of Health. Why is there this reluctance to enter into a dialogue to deal with the problems you are talking about and to come up with some solutions?
Mr Villeneuve: I was in this Legislature when Bills 54 and 55 were passed. Have they been positive or negative to your organization, now that you have lived with them for a while, or is the government abiding by 54 and 55?
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Mr Sands: Generally, there are some areas of the legislation we do not feel they are living by, obviously. I have to represent the interests of our association and say that certainly in terms of the collective bargaining process they are not living by the spirit of the legislation.
Recently the auditor's report came out and there were a couple of hits in there, if you want, that I think the pharmacists took unfairly. We feel we are taking them because there are certain mechanisms that are laid out in the legislation in terms of monitoring and prices and those kinds of things, and the ministry is just not doing what it is supposed to be doing. Those are the kinds of things I can think of off the top of my head that we are having problems with.
In terms of the pricing, I guess the major concern is that setting a fair and equitable fee for the pharmacists has been the major problem. The spirit of the legislation has not been lived up to. We have a process laid out that establishes not just the collective bargaining process -- even going into mediation. We went into mediation with the ministry. The minister even suggested the name of the mediator. We went through the process, and when the mediator made his recommendation, she just tossed it out. Even the non-fee aspects. To me, that is not living up to the spirit of the legislation.
Mr Villeneuve: I have had several of my constituents come to me and show me the invoice where the dispensing fee was four times the cost of the medication. How does one explain that to somebody?
Mr Cruickshank: The fee really is a professional fee as opposed to a dispensing fee. On each and every prescription we fill we do go through a process which involves many professional aspects. It involves reading the prescription, verifying the validity of the prescription, ensuring that there are no contraindications with medications the patient is already taking, or perhaps in the case of multiple prescriptions being presented at the same time, again checking for adverse drug reactions, things of that nature, and certainly consultation with the patient, who is the end user or the end result of that dispensing process. On every prescription that same professional process takes place irrespective of the ingredient costs of the prescription.
Mr Villeneuve: I guess you have explained as far as a professional fee is concerned. I guess you should call it a professional fee, because someone sees that as a dispensing fee, and he says, "Who does this guy think he is?" It should be called something slightly different.
Mr Cruickshank: That is part of, I think, our education process in trying to educate the public of the role of the pharmacists and what their expectations can and should be when they present their prescriptions so that it is perceived as a professional fee. That is what we are endeavouring to do.
Mr Villeneuve: It is a bit of a misnomer.
Mrs Moffs: If I could just add to that, if the prescription costs were 15 cents or $15 that professional fee would be the same, because it is the same professional activity. It is independent of the cost of the medication.
Mr Villeneuve: I realize that. The formulary: I come from I think what is known as area 1, and I have fairly close contact with professional people in your profession. I gather now that it is frozen. I have always been told the formulary is two years behind or a year and a half behind, and no one is updating. Do I read this correctly that your professional fees have now been frozen?
Mr Sands: The professional fees have been frozen, yes. We have been really without a contract or a negotiated fee since June 1990. The minister just rejected the recommendation of the mediator and said, "It is frozen."
Mr Villeneuve: Did your formulary --
Mr Sands: The formulary is the prices. The minister has also indicated -- and this is where it gets a little interesting -- that the prices for drugs will be frozen. That got a lot of media play, but the fact of the matter is, she can freeze the level of reimbursement to the drug manufacturers, but the drug manufacturers, and many of them have indicated to us they have no intention of freezing their prices -- the prices they charge to the pharmacists are not going to be frozen. The pharmacists will have to eat that.
Mr Villeneuve: Time is up, thank you.
Mr Drainville: Thank you very much for your presentation. Let me explain a little bit, as I begin, the standpoint from which I come. I am an Anglican priest, and although you may wonder what that has to do with drugs and drug benefits, it means that I have been in contact with a great many people over a decade who are people, very often elderly people, who are involved with pharmacists on a regular basis to receive drugs.
I want to say that it has been my experience over the last more than 10 years of working with people in that situation that I have found many occasions in which senior citizens have been far over-prescribed. I can talk about from experience and I can also talk about my father in Montreal, whom I just left a week ago, who was in a similar situation with 23 prescriptions. Many of these people go to the same pharmacist each time; we are not talking about going to different pharmacies and therefore causing problems, but really the same pharmacist.
The need for a detailed study to take place is very important. You write, and I agree with this comment of yours, "The input of consumers is especially important, since we know that government interest and public interest are not always convergent." I agree with that, but I would go further and say that the pharmacists' interests and the public interest are not always convergent either, hence the need for us to study this particular area very carefully.
In the whole of our society, whether it is pharmacies or in terms of the medical care or dental care people receive or whatever, consumers are used and abused by our system. Somehow we have to find a way of establishing some sort of link with those who are consumers, to ensure that they can share their questions, concerns and sometimes anger and frustration at the way things are being handled on their behalf.
I would not sit here and claim I know the mind of the Minister of Health, because I certainly do not. Under the present circumstances of every government having to rationalize the expense of health care right across Canada, we can see that people are scrambling. They are scrambling to understand why the costs are what they are; why the system is not working as effectively as it needs to work. The only point I would make at this point would be to say, on behalf of the Minister of Health, that some of the problem you might have, looking at your presentation here in terms of discussions, may be due to the fact that there is a huge area for the Ministry of Health to look at right now. It may be that one of the difficulties is just getting a handle on where you go first, because everything interrelates. You look at one thing and that has an effect on this, that and the other thing, so it is like an octopus, only instead of eight arms, it looks like it has a million arms.
I just want to make that comment, but also say that there are things in here that I find very helpful, and your recommendations are very clear. That is helpful to this committee as we look at what kinds of responses we can make here, because you have put some of these recommendations in and indicated some of these reports that have been helpful to you. Hopefully we can go further and see what some of these reports recommend, and that will be helpful in our process as we write our report. Thank you.
Mr Sutherland: Mr Kwinter mentioned about there being three components to the drug system: the pharmaceutical manufacturer, the pharmacists and the patients, the consumers. I would like to suggest there is a fourth.
I am still not clear about this relationship between the doctors who actually prescribe the drugs and you, as pharmacists, who have to dispense them. I will tell you that my constituents get most upset when they hear stories of doctors prescribing over-the-counter drugs such as aspirin which goes on a benefit plan, and a dispensing fee being charged for something that is already there and presumably already a markup charge being given on that. I need to understand: If a doctor prescribes something like that, such as a bottle of aspirin or, in some cases that I have heard, laxatives that are available over the counter, must you fill that prescription?
Mr Cruickshank: If it is in the Ontario drug benefit plan and the physician writes it, yes, we have to.
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Mr Sutherland: Okay. It is maybe unfair to say this to you, because maybe we need the pharmaceutical manufacturers and the physicians -- I know the CMA is doing a new policy in terms of a code of conduct between doctors and their relationships with the pharmaceutical industry. I have a good friend who works for a pharmacy and deals with doctors and selling drugs and not only that, but letting them know what new drugs are available. I must tell you, I am a little perturbed when I think of some of the things they do in terms of convincing doctors that their drugs are in the best interests when maybe they are not. How do we improve this relationship or how do we make it more accountable so that those who are footing the bill have a sense of faith in the Ontario drug benefit plan?
Mr Sands: I think it is going back to what Mr Drainville was saying just earlier, because I think some of his comments are well put. I really hate to belabour the point, but we have to look at some of the recommendations again of Lowy. He has touched on just what you have said. He saw the relationship, or quite honestly maybe the lack of an adequate relationship, between physicians and pharmacists as being a key concern. That should be addressed by the ministry and a committee should be established composed of physicians and pharmacists to talk about certain issues.
Another issue, the concern with seniors in terms of the drug utilization review that Mr Drainville was raising, we are particularly concerned about too. In fact, we wrote to the ministry back in 1990 suggesting a drug utilization review with physicians, with consumers. It took them over a year to even respond to the letter. They are still dragging their feet on the thing. We want a drug utilization review with the input of consumers and physicians and whoever else is appropriate. A smart card would be another helpful innovation. They are dragging their feet on that one.
We try to do what we can to improve that relationship and make people more aware through initiatives such as Pharmacy Awareness Week, those kinds of things, but we cannot do it alone. We do need to have a partnership. I am not saying we are the white knights or anything. Obviously there are things that we have to do better; we recognize that. But we have to all start talking to each other. Government, consumers, doctors, pharmacists -- let's get together in some sort of collaborative mechanism and start dealing with the problems. We are not.
Mr Sutherland: In addition, picking up on the question about generic drugs that Mr Kwinter asked, I had a person who worked in a pharmacy come into my office concerned about some of the things that they had seen, the amount that a person was able to claim on the drug card. One week they were getting laxatives; the next week it was the opposite type of medication. The concern they expressed to me was that there are two types of forms or something; that for example, if they come to you and you are going to give them a generic prescription rather than the brand name, they can go back to a doctor and get a specific type of form -- I forget the code name for it -- and if the doctor says okay and signs that code name, then you have to give them the actual brand name even though the generic may work.
Mr Cruickshank: That is basically what we were alluding to before. The process is that for someone covered under the Ontario drug benefit program for a no-substitution prescription, the physician indicates "no substitution" and completes what is called a PC-34. It is a form which the pharmacist then is required to submit, along with a special paper billing, to the ministry in order to be reimbursed for the actual brand dispensed as opposed to going to the lowest product cost.
I would just like to go back, too, to the question you raised on the over-the-counter products and the reference to ASA. One perhaps is clarification, in that the suggestion was that on all of those over-the-counter products there is reimbursement at cost plus a dispensing fee. In actuality a good number of the over-the-counter products in the formulary are reimbursed to the pharmacist at a markup, much more the traditional front shop system, so you are not actually paid a dispensing fee yet you still perform that same professional function in filling the prescription.
Your ASA example is an excellent one, because ASA is a product which is of great concern with a number of other medications. Someone, for example, taking Coumadin should not be taking ASA, because potential problems can occur. So to just say OTCs with a broad sweep of the hand may in fact be a problem, because it is a medication that can certainly interact with other medications.
Mr Sutherland: Just one other: This may be a tough question to have a pharmacist answer, but in general, do we have a problem with either too much drug use or too much inappropriate drug use or mixes of drugs, from the perspective of the pharmacists' association?
Mrs Moffs: I think that has been identified, for example, in the Lowy report. The goal of pharmacy is rational drug therapy, so experts more qualified than us have identified that there is a problem. It is along the lines of what Mr Drainville and you yourself said. The initial process is a physician and a patient. They both come to that interaction with expectations. They come with a certain amount of information, the physician's information which you mentioned.
In the Lowy report the commission came up with the idea or the recommendation that the information going to a physician may not be totally unbiased. That is one of their recommendations, that they need a source of unbiased drug information. We agree. We consider the pharmacist a valuable source of drug information. The physician and the pharmacist should have more interaction. They should be trained together. That is one of the recommendations of Lowy. Their education in school should be together so that they learn about drugs together and build that relationship.
Just as an example, there is a lot of documentation on the overmedication of seniors. There are papers every day talking about the number of seniors who present at emergency departments with adverse drug reactions and the cost of hospitalization. Just to give you an example of what is possible, in another province, New Brunswick, they did a study on six months' usage of benzodiazepines, which are a very commonly prescribed sleeping pill or tranquillizer type of product. From the information they gather from drug programs not unlike ours they now are able to target specific interventions which will reduce the inappropriate use of those products and the length of use of those products. That is with the cooperation of the pharmacists, the physicians and the consumers. That is a pilot project we could do in Ontario. We have a lot of the same data; we just need the will to pull it all together and involve all the participants. Let's do something.
The Chair: Thank you for appearing before this committee. I think the committee members have learned a lot of things in a lot of areas that might have to be looked into.
We will adjourn for 15 minutes, until 11:15.
The committee recessed at 1057.
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COUNCIL OF ONTARIO CONSTRUCTION ASSOCIATIONS
The Chair: The next group we are going to be hearing from is the Ontario Restaurant -- no, the Council of Ontario Construction Associations. I had everybody scared on that one. Gentlemen, if you would not mind identifying yourselves and your positions with your association, and if you can leave some time at the end of your presentation for questions and answers, we will be running until 12 o'clock.
Mr Frame: My name is David Frame and I am executive vice-president with the Council of Ontario Construction Associations. Gary Whitelaw is the chairman of our tax committee and is president of Mollenhauer Construction. Bill Empey is with ARA Consultants and is the technical expert to our tax committee on these issues.
I want to start today with a bit of an explanation. We were called in at the last minute to meet in front of you. We are very happy to meet with you today but we are not quite as well prepared as we would like to be. We have been preparing for the Treasurer's process and were able to get together late yesterday and put together a presentation. The notes you have in front of you give an overview of what we are going to talk about to you today.
As I said, we are the Council of Ontario Construction Associations. We represent 49 member associations consisting of trade associations, local and mixed construction associations and prime-constructor builder associations in Ontario. A full list of our membership is appended to the documents we have given you. We have the responsibility of speaking for the broad industry, including industrial, commercial, institutional, engineering and residential sectors, on a wide range of issues related to provincial legislation and regulation.
The COCA tax committee has been extremely active over the last little while monitoring and making presentations to the working groups under the Fair Tax Commission and of course most recently in producing research and proposals for this spring's budget. Our pre-budget presentation for the Treasurer will be delivered to his office this Thursday. It will contain an expanded package of research from what you will see today. I will make sure that you receive a copy of all this material through the committee clerk. I am now going to pass it over to Gary Whitelaw to proceed with our presentation.
Mr Whitelaw: Good morning, ladies and gentlemen. It is a pleasure to be here. Mr Chairman, that might have been a bit of a Freudian slip at the beginning. Probably about the only thing worse than being a contractor these days is being a restaurateur.
I am here today to speak as both the president of a construction company and an architect and broadly on behalf of the industry. I thought we might start with a summary of our proposals and then try to take you through the rationale behind those proposals.
We believe there are three broad initiatives required right now in order to restore confidence, promote economic renewal and social justice. They fall in the category of a very much needed boost to capital spending in Ontario, which is something that is being talked about by the government of Ontario as well as many of the other provincial governments across the country. We feel this should follow the categories of joint federal-provincial housing assistance through the RRSP withdrawal program -- we endorse that -- a national program to improve our infrastructure and some separate provincial initiatives to stimulate $1.5 billion in capital projects. We believe many of these could be funded through the private sector. We would like to elaborate on that later. We believe that whereas there are serious fiscal problems for the public sector in certain pension funds and other pools of capital, there is an ample source of capital available that remains to be tapped.
We believe it is a time to consider some tax initiatives. Mr Empey has come up with what we think is a rather innovative suggestion for a refundable investment credit in exchange for loss carry-forward benefits. We believe this investment credit could again spur some capital development and economic growth. We would like to cut the small corporate tax rate from 10% to 8% to fall in line with some of the federal initiatives under tax reform and to boost activity in a much-needed area, the small business area.
We respectfully suggest a cut in the corporate tax rate for construction companies, from approximately 15.5% to 14.5%, to fall in line with other industries that face the same cyclical concerns. We also feel we must note that, in recognition of the deficit concerns, there needs to be continued action to address the operating expenditures. We suggest that we limit discretionary provincial expenditures and programs through the current review process we understand is taking place.
Those are our recommendations.
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I thought I might step back and talk a little about the construction industry for a moment. The construction industry broadly represents contractors, architects, engineers, building material suppliers and equipment manufacturers. It may not often seem so because of the fragmented nature of the industry, but it is in fact the second largest industry in the province. We will throw a couple of support graphics up as we go.
There are over 120,000 unionized workers in the province. This is characterized by a great many small firms. The majority of firms are in fact such that they have annual revenues under $250,000. That is one of the reasons the small business tax credit is of paramount importance to our industry, and it is another reason this industry is being so hard hit by the current slowdown -- because of the small and fragmented nature of the industry and the fact that these are not large corporations with substantial capital reserves to see them through the economic slowdown. It is an extremely volatile and risky business, in fact, orders of magnitude more risky than other industries.
There is a major multiplier effect that results from spending. The dollars that go into capital projects translate not only into wages for tradesmen on the sites but also to trucking contracts and printing and banking and a host of other ripple-effect businesses that are positively affected by new capital spending and very detrimentally affected by any cutback in capital spending.
A longer-term point but one which we feel is very critical is the relationship between proper infrastructure and productivity and competitiveness downstream. Not only are we concerned about the immediate and short-term impacts in our industry, we are also very concerned about the difficulty we may have being competitive on a global scale if we do not continue to maintain our aging infrastructure and invest in the future. We are going to dig ourselves into a position that will be exceedingly difficult to overcome in future years if we cut back heavily on capital spending.
Government spending has traditionally increased the volatility in this sector, in large part because the spending has been procyclical and not countercyclical. In fact, government spending represents 51%, more than half, of all non-residential construction in the province. Last, as we have indicated in our brief to the Fair Tax Commission, construction actually pays above-average taxes because of its inability to claim certain deductions and preferences that other industries can.
Ontario's current challenge: I certainly do not need to elaborate on this. I am sure everybody in this room is far more familiar with the challenges than I am. But I want to state for the record that we understand the pressure the province is under and the fact that there are no short-term solutions to these problems. For the province of Ontario this is clearly the worst recession on record, much worse than the 1981-82 downturn. That is particularly the case, as some of our further graphics will indicate, in our industry.
That cyclical problem is supplemented by structural problems, free trade, globalization of trade, GATT talks and the potential impact there. All those things, together with the federal cuts to transfer payments, could not come at a worse time.
The impact of this broad economic problem is dramatically magnified in the construction industry. Unemployment is now heading towards 30%, and by our estimates will exceed 30% by next month, March 1992. That is three times the national average. We are talking about 110,000 unemployed people in the construction industry. You can see by the graphic chart the level of unemployment relative to the national average.
Bankruptcies: We are exceeding again by orders of magnitude the level of bankruptcies in the last recession. That is true for most industries -- for retailing and for manufacturing in general -- but we have probably twice the level of bankruptcies in the construction industry that we do across all other industries. Here is a graphic to demonstrate that. You can see by the chart on the far right, the white being the construction industry and the cross-hatched being the average of all other industries, that we are in very dire straits in the construction industry.
I should also note anecdotally that while certain segments of the construction industry may lead the economy in recovery, such as the housing industry, single-family housing, most other sectors of the construction industry lag. Certainly, large projects, non-residential construction, lag economic recovery. There is so much excess capacity that needs to be utilized before new projects are commenced that the majority of our members will lag the economic recovery by at least 12 to 18 months. Anecdotally, in my firm we built $150 million worth of construction in 1990, $100 million worth in 1991 and I am hoping we will do $30 million worth next year. It is not getting better, it is getting worse every day.
Our recommendations and the reasons for them: Boost capital spending in Ontario. We have listened with interest to the government's proposal to utilize the RRSP withdrawals and we endorse them. We think it is practical to set certain limits, so that all of one's retirement earnings are not invested in a home and there is provision made for a rainy day and retirement, but we do feel that, with certain caps, it is a very prudent thing to do.
Again, we endorse the program for national infrastructure. We believe the province should be investing in approximately $1.5 billion in capital programs. We believe there are various ways these could be financed. For example, there has been talk of an Ontario investment fund. There are enormous pools of money in large pension funds, OMERS, teachers', Ontario Hydro, as well as a great many corporate pension funds that are active investors in the real estate market. One of the big problems these funds have, however, is finding quality product to buy. The vacancy rates are climbing and the covenants of so many tenants are questionable that there is an oversupply of capital and an undersupply, right now, of private sector real estate considered to be of investment grade.
There are a number of projects which are now being innovatively financed, such as Terminal 3, private sector ownership, public sector long-term lease, the new Ontario Hydro complex in North York, the CBC building and a number of federal buildings which are slated to go that way. There are in fact hospitals in Newfoundland which are being privately financed and Mr McKenna, of course, has been calling for private sector financing of portions of the Trans-Canada Highway.
We believe these pension funds would be all too eager to invest in some of the public sector spending that is greatly needed, with much more certain returns through public sector tenancies than would be the case through the private sector. So we would urge you to recommend the channelling of these funds into investment in public sector capital spending, through either a pooled pension fund along the lines of the caisse de dépôts in Quebec or through other initiatives that encourage individual pension funds to invest in capital spending.
The benefits for Ontario: I have touched on some of these, but there are numerous research links that tie improved productivity to higher infrastructure investment. Examples of these, of course, for any of us who have driven along the QEW, are the traffic delays, the aging problems that we have with the Gardiner Expressway and getting on and off the ramps. Free trade is a fact of life. We need to be able to move our goods and services southward to the US faster and with less congestion. Perhaps one of the only good things about the current recession is that it is easier to get on and off the QEW than it was a year or two ago; but we are greatly concerned that, unless we are able to find ways to boost spending through this period, as soon as the economy recovers -- and it will -- we will be back to the same productivity problems we had in 1987, 1988 and 1989.
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Another major advantage to the province is that now is an awfully good time to buy construction. By most standards, the cost of construction has dropped 25% in the last 18 months. There is an opportunity to be countercyclical, not procyclical, to buy this construction at much lower cost, much better quality. One is able to get good tradesmen, qualified people today, and the ensuing quality is of a much higher standard than it was through the boom of 1987-89.
Additionally, there is the multiplier effect that we have talked about. In the government's own brief last week it mentioned that the multiplier effect for capital spending -- road improvements, for example -- raised provincial output by $1.4 billion for every $1 billion of investment, whereas the government cited tax reductions having only a $700-million impact for every $1 billion of tax credit.
Clearly, there is a need for additional educational capacity. Again, we believe that some of these educational facilities could, in fact, be owned or leased by the private sector, as could courthouses. There is no reason why not. Benefits for construction are clear. The cyclical declines impose an enormous human cost on our industry and one which we feel will be very difficult to counteract in the latter half of this decade, because there are simply fewer and fewer people entering the construction industry these days. The workforce is aging; there are very few skilled tradesmen under the age of 50 and we are going to find ourselves with enormous increases in labour costs and declines in productivity when we get around to improving our capital structure if we do not do something soon. Obviously, improved financial results will come with long-term productivity and competitiveness.
Our second category of recommendations is tax initiatives. Mr Empey is recommending a refundable investment credit in exchange for current loss carry-forwards. There would have to be some ratio. We are not proposing a dollar-for-dollar credit. Perhaps, if there is time for a question and answer period, we could respond in a little more detail. But the concept would be one whereby a corporation could in effect trade in its loss carry-forwards for a tax credit utilized specifically for the acquisition of equipment or buildings or some form of specific capital investment that gets the economy working again.
There are a great many companies holding millions of dollars of tax loss carry-forwards and quite frankly they do not have any income these days against which to apply those carry-forwards. For some ratio, be it 50 cents on the dollar or what have you, many of these corporations, we believe, would trade in these potential loss carry-forwards for tax credits to acquire the plant and equipment they need to be competitive on a global scale. Our company, like so many others, is being told we have to go global. We have to compete in a broader marketplace. But the simple fact is, we do not have the profits, the retained earnings or the financing capability to get out there and borrow the funds from a bank in order to be competitive, so we are caught in this vicious circle that is very hard to break. We are recommending here an opportunity to use loss carry-forwards in a way that gets the economy working again.
We believe the small corporate tax rate should be cut from 10% to 8% at the provincial level to complete the process of tax reform initiated in 1987 by the federal government. My understanding is that the federal government did cut the tax rates for small corporations, but the province did not do likewise. We are recommending the same. For reasons that are rather complicated, we would recommend a cut in the corporate tax rate for construction from its current 15.5% to 14.5%.
Our brief, which was submitted to the Fair Tax Commission, goes into great detail as to the reasons for this, but our research, which has been quite detailed, indicates that construction is paying a disproportionately high burden of tax at the moment. I am sure that almost every industry representative who comes in front of you makes this claim, but there are other cyclical industries such as mining, forestry and certain portions of manufacturing that have deductions and offsets which do not exist for the construction industry and we feel these should be considered.
I would say in passing that if tax reductions, although we strongly advocate them, are not acceptable, at the very least let's not increase taxes in the corporate sector. We cannot withstand the kind of blow to business confidence that would represent. I remind you that in our industry the vast majority are small firms, owner-managed, and an increase in corporate taxes for them is identical to an increase in personal income taxes at a time when there is simply no capital available and no investment available to absorb these additional costs.
We believe the tax credit will counter the incentives that are being offered in the United States and luring so many businesses and industries to the United States, and that quite frankly there will be a minimal loss of revenue in the near term as there are just not that many corporate profits being generated outside the financial sector, for example, to be taxed.
Our last category of recommendation is restricting current operating expenditures. Again, we would urge the government to continue its program of limiting discretionary programs through current review and seek to reduce our longer-term operating costs through attrition and perhaps early retirement or other forms of dealing with the problem on a reasonable and medium-term basis.
I guess the best analogy I would draw in a personal sense is that we would liken investment in our infrastructure to a household or an individual's investment in an RRSP or a personal pension plan. Just because you are having trouble paying the rent does not mean you can afford not to contribute to your pension plan or your RRSP. Somehow we have to find a balance between contributions towards the future, investment in the future, and current operating expenses.
I guess as a citizen and as a contractor, I am very concerned that the easy solution to the current deficit is to avoid investment in the future until it gets easier to do so. We feel there is a very hard reality that has to be addressed and a balance attained between investment in the future through capital spending and control of what we would call the rent, the current operating costs.
We believe there are ways to minimize those costs. I am sure they are all being studied in great detail. Certainly the decentralization program that has been considered may have a short-term increase in terms of the relocation costs but again we believe that a number of the facilities being considered -- the OPP headquarters in Orillia, for example; there are no end of pension funds that would be delighted to own that building and lease it to the OPP. Many of those short-term relocation costs, we believe, would be happily borne by the private sector which is looking for investment-quality real estate.
Thank you for being so patient. If time permits, we would be quite happy to address any questions.
The Chair: We have five minutes for each caucus, sir. Mr Villeneuve.
Mr Villeneuve: Thank you very much for your presentation. I know labour reform is not part of, and has not shown up at all in, your recommendations. I see that 120,000 of the construction people are presently unionized. What sort of signal are you getting from the business people regarding the labour reform presently being looked at by this government?
Mr Whitelaw: Maybe I will ask David to respond to that. He is involved with our labour relations committee.
Mr Frame: I think it is fair to say that our membership is very concerned with the proposals that have come forward. We have done a lot of work in that field and we have been making representations to Mr MacKenzie, etc. Like you, we get letters every day, we get phone calls every day. There are a lot of upset people in the construction industry and the reason is really twofold.
The first one is investment income structure, and the concern is that construction prospers only when we have a growing economy. As Gary showed you, the situation we have been in for the last two years, without a growing economy, has hurt construction greatly. The concern is that is going to continue because of a reform like the proposed labour reform.
The second one is how it is going to change our relationships with the construction unions. There largely is an extremely good relationship with the constructions unions right now. We believe it is somewhere close to a balance. Everybody can argue where that balance is, but we believe it is at least close to a balance and those reforms will tilt the balance very drastically to the other side. We believe that will make our labour relations much tougher, not easier and smoother, so we are very concerned with those proposals.
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Mr Villeneuve: You speak of using funds from RSP. I understand presently many of the RSP funds are being used to varying degrees in construction. You have not touched upon something that I think should be looked at by all levels of government, that part of mortgage interest should be included as a tax exemption up to a certain amount, which would promote the ownership as opposed to the rental of accommodations. Maybe you can comment on that.
The Americans have that in place and it certainly has contributed to wanting the benefits of ownership as opposed to rental accommodations. I know we all live somewhere. If you do not live in a home you own, you live in an apartment. I guess construction has got to look after this, but I think the promotion of home ownership would have very definite positive effects on the construction business. You can maybe comment on that.
Mr Whitelaw: I think that is a very fair comment. We also have several condominium projects and are seeking, like so many others unfortunately, to try to sell these condominium units in a market that is not very interested. The simple fact is that the economics of home ownership in the absence of any deductibility of interest does not make sense in Toronto today.
I can rent the same unit for about two thirds what it costs me to service the mortgage. We are seeing prices plummet dramatically as a result of that. It has got to the point that the only way home ownership makes sense is if you believe in the capital gain and the run-up in values, which has created a severe problem in the industry.
We are all seeking to try to minimize the speculation, the run-up in land values, the lack of affordability that results from that kind of inflationary game. But if we are truly into a low-inflation environment, going forward, it makes the economics of home ownership even more difficult in the absence of this kind of deductibility.
It certainly makes it much more attractive for an employer or an employee to relocate south of the border when for roughly the same salary they can deduct their mortgage costs. It is something that is of real interest to the housing industry and something that is of broader interest to the economy of the province.
Mr Sutherland: Interesting. Just picking up on the RRSP, we are still researching, trying to find out how much RRSP money is actually used here in the country for development in terms of some of the proposals the Premier has come up with.
You mentioned the ripple effect, and that is the other question, because we have many groups come in and say, "Spend on this because it has this type of ripple effect within the economy." You mentioned what was put in the fiscal outlook document, the 1.4 for one. How does that compare with other areas? Is housing construction better than road, better than sewers in terms of the type of spin-around? If we are looking at a tight fiscal situation, where specifically within construction should we focus to get the most bang?
Mr Whitelaw: I wonder if I could make a brief comment and then respond in writing in the next week or so to that question.
Mr Sutherland: That is great.
Mr Whitelaw: We do not really have a good answer and I do not want to mislead you. One of the reasons we think investment in this industry makes sense is because there are not only short-term ripple effects but because there are long-term productivity and competitiveness effects. Once we see our way through the current problems we are all facing, as I am sure we will, we are then going to have to face the bigger question of our competitiveness on a global front. To that end, I believe infrastructure spending in areas that broadly improve our competitiveness and our productivity as an economy are better than ones that are narrowly focused to the particular individual, so I would say here airports, roads, educational facilities, water and sewer to the extent that they are becoming dramatically limiting factors in some of our outlying regions.
If one is going to make a rather generic widget, it probably does not make sense to do it in downtown Toronto. It might make an awful lot of sense to do it somewhere along the Queen Elizabeth Way or somewhere along Highways 400 or 11. But many of those communities simply do not have the water and sewer capacity to be able to accommodate these industries.
Those are the particular kinds of investments that I believe have not only the short-term multiplier effect but the very dramatic long-term competitiveness and productivity effect that we desperately need.
Mr White: I am interested in the RSP, or the retirement savings plan issue you brought up in terms of renovations, home construction. I have also read recently a proposal by an MP, David Barrett. He was suggesting a solid, large fund, somewhat similar to the American one, where registered savings plans could be invested and those moneys would be used by municipalities and provinces in terms of infrastructure repairs and extensions. That would be basically, as you were suggesting, a countercyclical fund which could be used selectively. Any comments on that proposal?
Mr Whitelaw: Yes. If I understand the question, that is not so much the RRSP but larger pension plans.
Mr White: That is right.
Mr Whitelaw: Corporate or public service pension plans, etc. Yes, we think that makes enormous sense. Again I have to emphasize there is no shortage of money. OMERS, poor old OMERS, gets $6 million a day that it does not know how to spend in investment; $250 million, I am told, was allocated to real estate last year and they fell well below that target and have no idea how they are going to spend the next $250 million because they cannot find appropriate real estate in private hands to buy. The really good-quality real estate is still not being sold. There is distressed real estate around, no shortage of that, but the pension plans do not want anybody else's problems either.
There are numerous opportunities for these funds to be channelled in a coordinated fashion into good capital programs that make economic sense, not boondoggles, not just driving construction because there is a supply of cash out there, but things that are needed. There needs to be very careful review, no question. We should not be necessarily expanding medical facilities when we do not have the operating funds to run the wards, that sort of thing, but there are a number of programs that could be financed. I believe in the law of large numbers. The fact that you would be diversifying any one fund's risk by participating in a pool makes a great deal of sense.
Mrs Y. O'Neill: You said you made a representation to the tax commission. I just wondered how specific you were. Maybe you could say a little bit about the kind of deductions and offsets that would be helpful.
Mr Whitelaw: Our proposal to the Fair Tax Commission was specifically to the working group and the commission on minimum corporate taxation. Our very strong recommendation there was that a corporate minimum tax was not necessary to be promoted at this point in time, that it is still too early to tell what affect the 1987 tax reform is having.
Most of the early indications suggest that tax reform has caught most of the abuse that existed previously by way of certain preferences that allowed profitable corporations to effectively avoid tax year after year. Second, our understanding is the working committee itself has been entirely unable to find one approach that satisfied the concerns of simplicity, enforceability and, frankly, productivity. In the absence of the working committee being able to come up with one model it could endorse and that makes sense, again, let's not dabble at a time when the economy is so fragile, when investor confidence, when consumer confidence, when corporate confidence is at an all-time low. We are probably not going to raise significant revenues by way of a corporate minimum tax anyway, so let's wait a while, see what comes out of the 1987 tax reform, get the appropriate data and assess the situation downstream.
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Mrs Y. O'Neill: Thank you. That is very helpful.
Mr Phillips: I appreciate some of the creative suggestions you have made here. My own worry is that we do nothing that kind of misleads us over the haul. I do not know whether you have been through the budget or not. I personally think the way capital is now accounted for is bogus. They should be showing a depreciation charge of maybe $4 billion. In tough times you spend $8 billion and in good times you spend nothing, but you show a constant number.
Mr Whitelaw: Absolutely.
Mr Phillips: I think it is a deliberate attempt to understate the deficit, the way it is there. But I have made my arguments. We voted against it, but the legislation passed anyway. I worry similarly about misstating moving from the government building something to the government leasing, because that is very simple to do, but then you pay out of operating the 20-year lease costs. I do not mind doing that if you state it in a way that everybody understands.
Similarly with the use of the pension funds. The government is going to use them in a different way, as you know, as a venture capital fund -- that is the plan now -- as opposed to capital. But I think you make a reasonable point. OMERS just bought the Scarborough Town Centre, I believe. Maybe it would have been better to use the OMERS funds to purchase some of the capital, because we are borrowing offshore when we could be borrowing there. I think there is some merit in it.
My biggest worry -- I guess I am more making a statement than a question -- is that if all we do is mask the real numbers and we find that we have, in the interests of getting through this, burdened ourselves with some long-term lease costs that we cannot manage even in good times, we have done ourselves a disservice.
I think you have been creative in your suggestions and some of them are very worthy of looking at. What we owe to the public is to say, "We are raising our capital in a different way and we are going to spend the capital in a different way." As I say, right now I think the way the government has done it is the Premier wants to get up and say: "Our deficit now is only X billion." Put all the capital into that fund. They are going to spend $16 billion in capital over the next three or four years and show an expense of maybe $2 billion. I think it is bogus.
The Chair: I would like to thank you on behalf of the committee. All of us here appreciate your being able to be here with the short notice you received. I think, getting on to 12 o'clock, everybody has the same idea about the restaurant association. We are all looking at going and getting something to eat.
Interjections.
The Chair: Again, I say thank you.
Mr Whitelaw: We are submitting a brief and have been invited to participate in the round tables next week. If it would be helpful we would be pleased to submit copies of the brief.
The Chair: Okay, fine. It helps all the members here, the way you have laid out your areas, and it is very easy for us to pick up on a lot of your points, too. It is done well. Thank you.
This committee is adjourned until this afternoon.
The committee recessed at 1205.
AFTERNOON SITTING
The committee resumed at 1429.
ONTARIO RESTAURANT ASSOCIATION
The Chair: We will resume our pre-budget consultation. I would like to welcome the next group, the Ontario Restaurant Association. I announced you earlier in the day, just before lunch. I must have been getting hungry at that time. It is good to see you here. It is 2:30 and we have 40 minutes. We are running until 3:10. If you would not mind identifying yourselves and your position in your association, you can start your brief.
Mr Luk: My name is Fred Luk. I am the president of the Ontario Restaurant Association and owner and operator of the Filet of Sole Restaurant. With me are Paul Oliver, director of government affairs of the Ontario Restaurant Association, and Paul Bachand, vice-president of Cara Operations.
On behalf of our association, I would like to say that we are very pleased to appear before you today, have the opportunity to discuss the current health of the foodservice industry in Ontario and outline some of the major challenges facing employers and employees of our industry.
The Ontario Restaurant Association is a non-profit industry association. It represents the restaurant and foodservice industry in Ontario. The association was founded in 1931 and currently represents approximately 2,500 members, representing thousands of foodservice establishments throughout Ontario. Our association represents restaurants, both licensed and unlicensed, contract caterers, accommodation establishments, quick-service restaurants and many other foodservice establishments.
Approximately 80% of the restaurant industry in Ontario comprises small businesses. Many operations in our industry are struggling to survive. The costs of doing business for the hospitality industry in Ontario are increasing at an alarming rate. As well, many operators find the administrative and legislative environment in Ontario overwhelming. Additional government legislation that is introduced must recognize the special needs of small business operators so that the small employers are not burdened to the point that they are inhibited from creating new jobs.
The food and beverage service sector is a major employer across Ontario. More than 234,000 Ontarians work in food and beverages, servicing restaurants, caterers, taverns, hotels, sport arenas, leisure clubs and other establishments. The foodservice industry plays an important role in providing employment opportunities for members of society who otherwise face great difficulties in finding employment. Relative to other industries, the restaurant sector employs a significantly greater percentage of young, female, uneducated and minority workers.
In 1989, 63% of foodservice industry employees were women, as opposed to 48% of workers in all Ontario industries combined. The industry is a particularly important employer of younger people, especially young female workers. In 1989, the average age of food and beverage service industry workers was 25.5 years old, compared with 36.3 years old for all Ontarians holding paid employment. The restaurant industry provides a key source of employment for those who have not completed high school or do not have workplace experience. Some 43% of our employees have less than a secondary school diploma.
The restaurant industry is very proud of the jobs and employment opportunities it provides to Ontarians. Recent statistics indicate approximately 30% of all members of the workforce in Ontario received early job training and experience through employment in the foodservice sector. This is especially important to new immigrants who work in the restaurant industry while learning the language and for unskilled or inexperienced workers who are upgrading education while working.
Our industry should be viewed in the broader context as a training ground for all of Ontario's labour force. Unfortunately, due to the recession and government policies, the restaurant industry's ability to hire these individuals is being severely limited.
Mr Bachand: The past several years have been particularly devastating for the food industry in Ontario. In 1990, real industry-wide sales declined by 3.2%. This was followed in 1991 by a dramatic real sales decline of over 18%. All sectors of the foodservice industry have been severely impacted by negative sales. The fast-food sector, which traditionally has been resistant to recessionary impact, has also been severely affected. In 1991, the real growth in the take-out and delivery sector declined over 25%.
Bankruptcies in the industry are at record highs. Bankruptcies in 1990 increased over 85% over 1989 and 1991 has witnessed a further increase in the number of bankruptcies. Profit margins on sales, which compared to most other sectors are typically very thin, 2% to 5%, have virtually evaporated, as has financing. Several major chartered banks and lending institutions have stopped all loans to the industry as a matter of corporate policy, few will even examine new loans and many have cut operating lines of credit 30% across the board and have justified this action as a result of the November 1, 1991, minimum-wage increase.
The restaurant industry has been severely hurt by the current recession, but the import has been enhanced by the introduction of the goods and services tax, unfair taxation policy, a decline in tourism, cross-border dining and a significant increase in the cost of labour. As you may be aware, the hospitality industry has been very severely hurt by the current recession and recovery in our industry will be much slower than in most other sectors.
The hospitality industry has been hurt by the high Canadian dollar, the GST, cross-border shopping and a marked decline in tourism. Unfortunately the hospitality industry has been squeezed on both sides during this recession. Not only have sales declined, but our industry has been hurt by escalating costs. This combination of a decline in sales and an increase in operating costs has enhanced the job losses in our industry. Many of the cost increases are a result of provincial government initiatives. Our industry has been hit by an increase in operating costs as a result of increasing payroll tax, a 22% increase in the youth minimum wage and an 11% increase in the general minimum wage in 1991. These significant increases in the cost of doing business have cost jobs in Ontario. The restaurant industry in Ontario has lost more than 50,000 jobs over the last 18 months.
As we understand it, the government of Ontario is now examining taking additional initiatives that will further increase job losses in the hospitality industry. These initiatives include another major increase in the minimum wage, the elimination of the youth differential, more payroll taxes and an increase in the provincial sales tax. These policies are a direct disincentive to job creation and cannot be absorbed by most operators in the hospitality industry. Instead of encouraging small employers to hire new employees and create new jobs, these policies will result in additional job losses.
We would like to draw your attention to two new studies examining the employment impact as a result of the changes in the minimum wage. The first study, commissioned by the Ministry of Labour, suggests that a 10% increase in the minimum wage would lead to a loss of up to 26,700 jobs in Ontario. The second major study, by the Institute for Policy Analysis at the University of Toronto, found that planned increases in the minimum wage will cost women 45,000 jobs in Ontario. Many of these job losses will be in the restaurant and hospitality industry.
Mr Oliver: I want to draw your attention to some of the graphs we have included in the package. Table 1 examines the sales decline in the industry. You can see how dramatic that sales decline is, compared even to the last recession we had in the early 1980s. This has been a significant impact on our industry. Between 1989 and 1991 is the first postwar period that sales of food consumed away from the home has actually declined. It has declined 4% over that period. Table 2 outlines the significant employment decline in our industry that started in 1987 and has continued right to 1991. We saw a significant decline between the latter part of 1989 and 1991.
Table 3 outlines, as I was saying, the food consumed away from the home, partly as a direct cost. The consumer is so cost-sensitive now. We have situations where we are competing against prepared, ready-to-eat foods in grocery stores that have zero tax applied to them. All our restaurants have 15%, including the PST and GST put together.
Table 4 gives you some numbers on bankruptcies in our industry, which are proportionately much higher than even in the last recession. The 1991 figures are for the 11 months ending November 31. The breakdown for our industry has not been released yet. It should be within the next couple of days.
On the retail tax in Ontario, already Ontario restaurant operators must compete with the combined sales tax rate of 15% on food items and 17% on beverage alcohol. This is a major burden placed on the foodservice industry, especially when competing with ready-to-serve or prepared meals that can be purchased tax-free in variety stores or grocery stores. The Ontario Restaurant Association is very concerned about the obvious unfairness in the tax system, which penalizes service establishments that provide employment through value-added services.
The 1989-91 period witnessed the first postwar decline in the level of food consumed away from the home. This decline in food consumed away from the home is a direct result of the unfair tax policies, which favour prepared foods that are sold as if they were groceries.
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The Ontario Restaurant Association is also very concerned about proposals that would increase the rate of the retail sales tax. An increase in the PST would have a severe impact on sales and employment in our industry. An increase in the rate of the PST would discourage tourism, increase cross-border dining and further disadvantage our industry relative to our competitors in the grocery industry.
The Ontario Restaurant Association is also concerned that the increase in the retail sales tax would be a severe blow to consumer confidence. Only through increased consumer confidence and spending will Ontario emerge from this current recession. We believe that sales tax increases would only enhance and lengthen this recession and have a severe impact on our industry.
Increasing the retail sales tax is also, our association believes, a regressive tax policy. Increasing the rate of taxation on restaurant food increases the cost to those members of society who can least afford it. Although restaurant meals might be thought of as a luxury, this is not the case today. Lower-income households spend a larger proportion of their income on food consumed away from the home. I will refer to table 7 for this. As you can see, the breakdown of family income as a percentage of food consumed in restaurants declines as the income level goes up, but applying a tax across the board hits everyone in those categories and enhances the rate of taxation paid by lower-income people.
Increasing the rate of tax on food consumed away from the home would force low-income households to pay a greater share of their income to cover the increased costs of restaurant meals.
Mr Luk: I would like to talk a bit about beverage alcohol taxation. The taxation of beverage alcohol has reached a point of diminishing returns with severe consequences for restaurants and all licensees. As well, declines at LCBO and in the marketplace indicate clearly that the alcohol taxation has reached a saturation point. Unfortunately alcohol taxation is applied in a manner that unfairly impacts licensed establishments. This is an unfairness that needs to be rectified.
Consumers in Ontario are very familiar with sticker shock when they buy beverage alcohol at retail outlets. People are aware, however, that licensees receive no concession for their volume purchases. We pay retail prices and we charge retail-plus prices to our customers. With the application of GST and PST, often restaurant markups are applied. Restaurant consumers actually pay approximately 25% more taxes for beverage alcohol purchased in licensed establishments. This practice of higher-layer taxation applied to licensees unfairly disadvantages restaurants and acts as a direct disincentive to tourism and convention business.
To rectify these obviously unfair taxation practices, the association recommends the immediate elimination of gallonage tax, which is 12% applied to licensees, and a reduction of the 10% alcohol tax applied in licensed establishments to the standard 8% PST.
I would like to refer to table 6. It is an excerpt from the Toronto Star, dated December 15, 1991, which tells about the provincial revenue generated from beer taxes compared to the federal government revenue.
Also, I would like to talk about international competition -- back to table 5. The foodservice industry in Ontario not only faces significant competition domestically, but the restaurant industry must compete in an international market. If we were located in London, England, or in France, we would not have the problem, but our neighbour is the USA.
Approximately 21% of tourists' expenditures are spent on food and beverages. The cost of food in restaurants is a major detriment to a tourist's and convention planner's decision on where to travel and visit. I talked to Mr Bill Duron, president of the Convention and Visitors Association of Metropolitan Toronto. He told me that last year two major groups wanted to book conventions in Toronto from the United States. One was 3,000 and the other was 4,000. They came into Toronto and had a meeting with him and the hotel people. They were waiting to sign papers, book the rooms and so on and so forth, and they went across the street to have lunch in one of the restaurants. After they spent $4 for a beer and $10 to $15 for a meal, they said, "Forget it. We're not coming to Toronto."
Adding to the costs of operating with an accumulated 15% to 17% sales tax applied to customers' bills are significant hidden taxes, such as the employer health tax, liquor taxes and the commercial concentration tax, as well as significant increases in the cost of labour as a result of recent and planned increases in the minimum wage. These costs have led to the impact of discouraging tourism and convention businesses in Ontario.
Aside from discouraging international tourism in Ontario, the restaurant industry faces a growing problem: cross-border dining. Restaurant operators in the border regions of Ontario have been severely hurt by competition from American foodservice establishments, which compete from an unfair playing field. As in table 5, if you look at the price of chicken, the price of beer and the average cost of the minimum wage, we are severely handicapped if we are going to compete with our big neighbour down south of us.
Mr Oliver: Those numbers in table 5 are converted into Canadian dollars, so it is a direct comparison.
Mr Luk: The last thing I want to talk about is the business meal expense. In 1987, the federal Department of Finance reduced deductibility of business meals expenses from 100% to 80%. Recently the restaurant industry in Ontario has become very concerned about initiatives by the Fair Tax Commission and the Ministry of Treasury and Economics to review the possibility of reducing the deductibility of business meals expenses in Ontario. This policy would result in a further disincentive to conduct business in restaurants, and would have a severe impact on sales and employment in the foodservice industry.
Mr Bachand: The increasing level of payroll taxes has taken a serious toll on the foodservice industry. Because the industry is labour intensive, increases in the level of payroll taxes, especially the employer health tax, have a disproportionate impact on the foodservice industry.
Recent analysis by association members suggest the rate of payroll taxes has increased from 2.7% of revenues in 1989 to 4% in 1991. Increasing payroll taxes is a direct disincentive to job creation. To encourage job creation and limit the impact of regressive payroll taxes on small businesses, the Ontario Restaurant Association encourages the government not to increase the overall rate of payroll taxes and to introduce a $500,000 payroll exemption for small businesses.
I would like to cover briefly the changes to the Labour Relations Act. The Ontario Restaurant Association has made a reply to the discussion paper put out by the Minister of Labour, copies of which we could give you, but I would like to briefly talk about one area of key importance in that document that would hurt the restaurant industry drastically, and that is the area of replacement workers.
This proposal would have a devastating impact on the hospitality industry because it would have an unfair and disproportionate impact on our industry. This proposal is clearly designed to force businesses to close during a strike, even when only a small bargaining unit is on strike. Any disruption in business or a closure for any reason threatens the long-term viability of establishments in the hospitality and tourism sector. Because the profit margins are so slim and our reliance on cash flow for survival is so great, even a short-term interruption could force a small establishment to close permanently.
During a work stoppage our industry could not draw upon inventory or cash reserves to survive, because they simply do not exist. Any interruption in a hospitality establishment threatens the continuation of the employer, as well as many suppliers and related businesses.
The Hospitality Employment Task Force recognizes the replacement worker ban is a very contentious and polarized issue. As you will see in our formal response, we have developed an alternative that we believe will accomplish many of these things for government goals, while preserving the long-term viability of hospitality establishments.
Since the goal of the replacement worker ban has been proposed so as to limit the impact and length of long-term strikes, we propose a phase-in of the replacement worker ban only if the strike drags on, or if the parties are bargaining in bad faith. We propose that the replacement worker ban would not go into effect until after the first 30 days of the work stoppage. If either party is bargaining in bad faith, then the 30-day implementation period could be moved forwards or backwards as the Ontario Labour Relations Board instructs. This would ensure that an operator in our industry would not be forced to close permanently as a result of a short strike.
As I say, there are many other issues that were covered in the discussion paper and we have put together responses for many of the points that were raised and some alternatives that the government could look at.
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Mr Luk: Perhaps I could add to what Paul said a minute ago about the replacement worker situation. In my situation with one restaurant located in the University and King area, I do not have an inventory buildup like Chrysler, Ford or General Motors. Every time you order a piece of fish from me, I cook it two minutes after I take the order. If I am closed Thursday, Friday and a Saturday night in any given week right now for this coming year, for three days and no cash flow, it will put 100 people out of business, out of a job. I will be out of business completely. I cannot look after the payroll. The bank will call on me immediately. It is very different when they deal with a big operation like manufacturers, when they have an inventory buildup. For our business, we do not have inventory. We cook every minute. We produce our food when you order it. I would like to stress that if possible.
In is the same thing with payroll taxes and the payroll situation. I would like to use a model that is not an ideal model, but it is an average model of a restaurant in Ontario. They sell $1 million to $1.5 million in business in Ontario. The average labour force for $1 million to $1.5 million at a restaurant in Ontario is probably about 30 to 40 employees, full-time and part-time; I would say two-thirds would be full-time. Their payroll would be in a range of $350,000 to $400,000 and the profit margin for that $1 million to $1.5 million in sales at the restaurant to the owner would be anywhere from 3% to 5% before capital repayments and corporate taxes. That is his profit.
If you close us up for three days, we are finished. At the same time, on the payroll situation, if there is any desire by anyone out there to increase the PST, they should consider that our industry is a different industry, a labour-intensive industry. You can have five people selling computer software and do $10 million in business out there. We are out there right now looking at a 3% to 5% profit margin and we have to employ those 50 people. By increasing PST you discourage us from hiring people out there. I think that is very important to stress.
In conclusion, business and consumers are already severely burdened with high taxation, which is suffocating consumer confidence and limiting Ontario's ability to effectively respond to this recession. It is imperative at this time that the government of Ontario make the difficult decisions and cut spending. Further tax increases in Ontario cannot be absorbed.
On behalf of the Ontario Restaurant Association we would once again like to thank you for the opportunity to appear before you today. We are very interested in some of your comments regarding this very important issue.
Mr Sutherland: First of all, let me say congratulations to you in terms of your response to the labour relations proposals. We have certainly heard from many businesses that say they are opposed to them. Very few have offered some constructive alternatives and I think you should be complimented for that.
On your point about the conventions leaving, I read in the paper, I think yesterday or today, that they are also looking at expanding the convention centre because they cannot handle large conventions and are losing them because of that.
There is no doubt the industry is hurting. Looking at the graph on page 3, I would like you to comment in terms of whether there is a decline solely due to the recession, or whether you have reached a saturation point as to how far you are going to go on eating food away from home? It would seem to me there has got to be some saturation point there.
The other question I have is on the area of service. I have been talking to people in my riding who unfortunately go cross-border shopping, and more and more of them are telling me that while price is an issue, there are a lot more concerns about service. It is not just the restaurant association; it is retail here in Ontario as well. I wonder if you could indicate to us what types of training programs go on, not just in terms of training in how to serve effectively, but in terms of overall customer service. What type of thing does the restaurant association do in that way and what impact do you think that is having right now?
Mr Oliver: Perhaps I could respond to all three of those things. First, I think the percentage of food consumed away from the home is a trend we are seeing in Ontario and in Canada. It is enhanced more in Ontario. In Ontario we were actually at about 41% in 1989 -- these are Canadian statistics -- and it is now down to 36% and may be a bit lower than the rest of Canada. That trend has not taken place in the United States. They have a higher percentage of food consumed away from the home.
The biggest drive behind that is sticker shock. When you get a $10 meal and you have 15% tax applied to it and then a 15% tip, if it is a sit-down restaurant as well, it is a $13 meal all of a sudden. A frozen pizza that you buy at a grocery store could be $8 or $9 or whatever it is, but you do not pay any tax on it. If you order it from Pizza Pizza or one of the delivery places, you get 15% applied to it. That is one of the things; it is part of a sticker shock issue.
On the service issue I will refer to table 5. This gives you an idea. Part of the service issue in a restaurant operation is that you can only spend so much on labour costs, and the consumer will only pay X amount. They will not pay more than that. What we see is that we are at that threshold now and people are starting to eat at home now as a result of the cost of eating out. But in the United States, for example for Detroit and Windsor, a table server costs $2.90 per hour. You can have two or two and a half table servers for the cost of one in Ontario. That gives the service and the extra benefit the customer receives, but he does not pay extra for it. That is in Canadian dollars.
Mr Luk: I can talk about the training situation. I do not know the full name of the particular organization, OTEC, but it is spearheaded by the Ministry of Tourism and Recreation. It is a group of Tourism Ontario, the Ontario Restaurant Association, and the Ontario Hotel and Motel Association, which all kicked in a lot of money to certify and train foodservice operators and also the staff from servers -- waiters and waitresses -- bartenders, all the way to cab drivers out there. We are very gung ho about this. It is the first that the industry has come together, both the industry and the unions, all together, to spearhead this.
I cannot tell you the full name of OTEC right now, but I sat in on the first meeting and we have an executive director already picked out and the first course is being offered by the colleges. They have one-third classroom training and two-thirds basically onsite training in a restaurant. I think we are going to be very proud of the Ontario level of service in the next few years because we are going to have better quality service coming up.
As to the expansion of convention facilities, my understanding is that it is difficult for us. If we do get a chance to bid for a huge convention. We do not have the opportunity because our facility is not big enough. According to Bill Duron, we have not had any major convention booked for the next two to three years.
Mr Phillips: I have a full appreciation of the depth of the problem. Your industry is probably as hard hit as any. My question really is, if we can only do one or two things, what are those one or two things that you think we should be trying to do or trying not to do that would be of most help to your industry?
Mr Oliver: It is very hard to narrow it down to specific initiatives. A proactive approach that the government could look at doing, as opposed to maintaining things now and not doing even more damage, are the two categories it should be divided into. Not to damage the industry more would be not to increase the minimum wage at the rate targeted. There are the three different minimum wage categories: the youth differential, the server differential and the general minimum wage and they all impact us differently.
We have actually commissioned a study from Ernst and Young that looks at the impact on employment in our industry. It will be released shortly and everyone will be provided with a copy of that. It comes out with numbers that show about 12,000 additional jobs will be lost as a result of minimum wage adjustments. We have already seen a lot of jobs lost as a direct result of the minimum wage. That is one area where the government should not want to damage the industry even more.
To help the industry is to start clarifying provincial sales tax. The system now is that if you go into a 7 Eleven store and buy one of the refrigerated hamburgers and take it to the front, you do not pay PST or GST on it. If you put it in the microwave and then go to the cash register, you pay provincial sales tax on it. But with most operators, it is not enforced that way. It is classified as a general grocery item even though it competes directly with a McDonald's hamburger or a meal in a sit-down restaurant. That system has to be clarified overall. Looking at lowering, even on a temporary basis, the provincial sales tax to stimulate the economy I think would be a significant initiative for this government to look at.
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Mr Luk: Mr Phillips, just to expand on the minimum wage situation, last year one of the hardest things to swallow with increasing the minimum wage generally was one of the categories, the tip differential, meaning the liquor server or people who make gratuities when you go to a restaurant; they serve you and you leave a tip at the end of the meal. There was an 11% increase in that category. That summarizes into a 3% increase in total payroll. In a sense that is 3% less of a profit margin. There has been no profit margin in the last two years in most restaurants out there.
I do not think it is for the government to try to help those people. In one of my restaurants they take home a $100 night in gratuities. We had a study done by one of our members. For every dollar of wages, they earn anything from $1.50 to $3.00 additional in tips. We have asked the Ministry of Labour to do a study and the last time I talked to them they said they do not have any funds to do any more studies. We asked them: "Would you mind? We'll split the funding for it. We'll pay 50% of the funding if you do the study." They were quite shocked that we wanted to have this study carried out.
I said: "You can come and look at my books any time you want. I'll show you the credit card vouchers, anything you want to look at to tell you that they're making good money."I want to promote a lot of my staff, bartenders, to management. My manager makes around $30,000, $35,000 or $40,000 a year in salary and my bartenders turn the job down because they say it is a loss of income for them. I really want to stress that. In the United States and even in union negotiations in Canada, there is a differential of anywhere from 30% to 50% in minimum wage for the person who makes tips. Right now there is a 50-cent difference between minimum wage and the person who makes gratuities.
There used to be a pretty good percentage three or four years ago, but you increase it every year by 50 cents or $1.00. Right now the 50 cents does not mean anything any more and if we change the minimum wage --
Mr Oliver: Even if you speak to the unions or organized labour in our industry, they will freely admit that they know there is a problem there by having only a 50-cent differential, because they have a situation where the back of the house, which earns above minimum wage, is getting a zero per cent increase this year and the people at the front of the house receive --
Mr Luk: The other part of the minimum wage equation is student wages. Realizing there is a pending court judgement to categorize that is a student wage, we are proposing a training wage out there in place of a student wage because again there are a lot of workers out there who are not normally hired by any other industry. We are the only industry out there hiring all those people who do not speak English or French, first time in Canada, no job experience, uneducated people. We are the major employers of those people.
The first time someone looks for a job we will likely say: "Look, we'll give you a training wage. Let's try it for a month or two and see what happens. Then we'll give you full employment, full benefits and full wages." By eliminating the student wage or the training wage we are proposing, you are only hurting those people, hindering us from employing those people.
Mr Carr: I have a question along the same line of the wages. Are you finding it difficult to get people to come into your industry with the wages still being low within our scheme of things? Are you finding it difficult for people to get jobs because of the difficult time with people --
Mr Luk: I think the perception, sir, is that wages in the hospitality industry are low, but I disagree with you. This is only a perception. In my restaurants I have about 250 staff working for me. None of them makes minimum wage. They are all making above minimum wage. My dishwashers make $8 to $9 an hour. It is a perception, sir. The key thing right now is people who come into our industry for a short period of time, ie, summer jobs. They have two jobs and they only can work weekends or two nights a week. Those have student wages.
I think a lot of operations would like to keep that because it gives them an opportunity and they are not the sole breadwinners of their families. They have two jobs and live at home. But full-time workers who have a family to support, are breadwinners, do not make minimum wage; they make way beyond that.
Mr Carr: You are saying you do not have a problem getting people?
Mr Luk: We had problems I guess during the heyday. Paul, perhaps you can talk about that.
Mr Bachand: The problem occurring at that time was that there were no people to get. That was being suffered across every industry, not just the restaurant industry. It had nothing to do with the wages; people were just not looking for jobs. The restaurant industry does pay well. I will reiterate what these gentlemen have said. The increase to the minimum wage drastically affected the people who were being tipped. They received 11% increases. I can tell you right now that in our company in union negotiations there is no money left for the back of the house. The people who need something are getting nothing.
Mr Carr: As you know, and you mentioned it, governments have always looked to the tax on booze, beer and liquor and so on. This government has terrible revenue problems. You have said that if you increase them you are not going to get any more revenue because people will not come out. I am speaking about restaurants that offer liquor. Do you find people are going out but not having liquor? What I am getting at is, can you somehow get around it with people going out, so that where they would normally have maybe a beer with their burger for lunch they are now just having the burger and a milk?
Mr Oliver: We are noticing that. The other trend we are noticing is that people, especially for evening dinners and things like that, are drinking at home and then going out on the road to a restaurant, which creates a problem with consumption of alcohol that way. But it also creates major problems for operators. They do not know how much people have drunk before they arrive at the establishment either. The percentage of overall liquor that is sold, both home consumer and restaurant, a couple of years ago was over 20% in licensed establishments; it is down to about 15% now.
Mr Luk: On the revenue side of it, everybody is cash-strapped and wants additional revenues and so on and so forth. I might want to talk about a simple economic or business explanation for this: 15% of booze or liquor sold in LCBO is for licensees and restaurants, only 15%. Very simple mathematics: If I buy a bottle of rye, a bottle of rum, I can sell a 40-ouncer of it 40 times and collect sales tax for you people. If there is anything that is not more profitable than anything else, it is selling to the consumer what he consumes for himself. At the same time the effect of creating jobs, the effect of bringing in tourists and making us more competitive is very important.
By having this old notion, this old idea of giving a break to the licensing operation for volume discount or wholesale prices per se and then turning around and saying, "Then we lose revenue," I think is absurd. By giving us a better break on the liquor we can create more jobs, bring more tourist dollars into this province and create more sales tax for you people. You cannot deny that. As to the old notion that by giving us a break you get less revenue, I do not think I buy that.
The Chair: Time has run out. I appreciate your presentation before this committee. You are well informed of the areas of concern in your industry.
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BUDGET PROCESS
C. D. HOWE INSTITUTE
The Chair: I am sorry we are a little late getting started; we were a little late getting started with the first consultation. You are Miss Irene Ip and you represent the C. D. Howe Institute. We do not have a brief as yet, but I guess you could get started on the budget-making process, consultation and secrecy, as I believe it is called.
Ms Ip: I think it is worthwhile putting this subject into the context of the federation since this was brought up by the federal government in its constitutional package. It is one of the least interesting to the public items that were a part of the proposals for a stronger economic union. However, I think it deserves some scrutiny since you are looking at it from an individual province point of view, but being a federation and because each individual province's actions affect other provinces and what the province does affects the federal government and what the federal government does affects the provinces and so on, anything that makes available more information in advance of the budget would probably help us have a more rational budget-making process in the whole country. On the kind of proposals the federal government was looking at, even though I do not think it is that useful to have them in some sort of legislation, I think an effort to move to this openness would benefit that whole process for the country. This is the general, federal context.
I have interpreted the way you are looking at it very broadly. I have done this because if you are going to open up the budget process to the public, I do not feel there is going to be that much gain if it is incomprehensible. I think it brings up all kinds of ancillary problems, other than simply going to the public and discussing options the government has. They do not have sufficient background. It brings up a lot of issues that are discussed from time to time and have been brought up over the years.
I myself have written about these things for a long time. We can look at them in general terms. The way I have said we should see them is in the aspects of accountability, of comprehensiveness of the statements, of accounting standards that are standards that are recognized by a reasonably respected body so there is some similarity from government to government, and of where they are transparent so that one does not have to go rummaging around or trying to make a lot of phone calls to figure out what important things mean in it.
The government has made an effort in this direction with its Ontario Fiscal Outlook, which it has brought forward. It has said the reason for bringing this out is to generate an informed, open debate on the budget. We have to perhaps take that as a starting point, to see if this goes any distance in achieving it. I have picked out and documented a number of aspects of it that I think could be improved and that cause concern if the objective is to be more open.
One of the major problems is that when a government puts out a series of publications they frequently do not follow the same format, and usually the official documents in the public accounts come up very late and are not that widely available. The budget document seems to me to be the most public statement that is given out about the government's operations. It is possible this Ontario Fiscal Outlook might become as widely spread as that as well. Nevertheless, these types of documents should all have similarities. If one is going to have one presentation in the budget, one should be able to pick up the other document and see comparable tables.
There are many ways of putting out the government's accounts and they all have different purposes. It is probably insufficient if you want a healthy, informed debate to have just one way of putting it out. The budget has tended to put things out consistently by ministry, which is fine if that is the way the Legislature wishes to vote on things. But for the public or analysts or people who want to get involved in it, it is not that informative when one thinks of government policy because often there are different policy objectives, the spending on which is spread over more than one ministry.
A useful way of putting it out is by function. This is a well-tried way of looking at government accounts. It fits in with the way Statistics Canada puts out one set of financial statements on the government. This means you can see how much is spent on education, and you can even have it split at levels of education; on health, which again could be split into two or three categories; on the environment; on regional development, and so on. One could develop a reasonable number of levels without letting it get out of hand but without having it so concentrated it is meaningless.
The other way of presenting it is by objective. In this way sometimes you can go through the documents and make up your own set of accounts on it, but it is a lot of work and if you want to do things quickly you are probably not going to bother. This is having wages and salaries for the civil servants shown separately, transfers to individuals, transfers to other levels of government, interest on the debt and capital spending. Those are the economic objectives of spending and that can give rise to other forms of analysis.
I would suggest that some form of consistency we are going to be able to live with for the next decade or so be thought out, so that we do not go from year to year being faced with different tables.
In particular, when I go back to this fiscal outlook, it has some rather strange tables in it. The ones there are not directly comparable to the ones in the budget. There are other tables for which it is not clear. They have interesting information, but they do not add up to anything. It is hard to really see how they fit in with policy, other than this program costs this or this program costs that. I do not think that is particularly informative. One must always have as the objective of this information that the government has a policy in a certain direction and how this spending is furthering us towards that.
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The other thing I find is a shortfall is that when this outlook comes before us we want to know how we have been doing in the current year. We want to know whether the government was able to fit in with its original plan and where we have gone wrong. It is very difficult to take the budget if it is not in the same format, and even if it is in the same format, it is awkward to take the two documents. I do not know why the initial budget plan is not put there as a column and then the estimate that is available at that particular time put at the side of it, so that is another shortfall.
Even so, the statements that restrict the information to perhaps one year of history, the current year, and then a couple of years of forecast are insufficient for any reasonable assessment of the way government spending is going. Many people, and I agree with this, have suggested a reasonable length of time is 10 years: five back and five forward. We are moving in that direction in some aggregate numbers, but not in sufficient detail. There frequently is not enough history given.
We saw in the Ontario Economic Outlook, which came out in the fall, a very useful appendix with a lot of history. There is no reason why the Ontario Fiscal Outlook should not mirror that and have some appendix tables with some history and the five years forward, because usually the government is doing this exercise anyway. If we are going to be open about it, we should make that available to the public as well. That is what I recommend as a longer period of time.
In addition, when putting out the numbers on their own, there is often a need to have some background information. I have included on page 3 some examples of these kinds of things. In a program with a certain number of clients, such as welfare, it is useful to have the client numbers, the history of the numbers and the expected ones that underlie the estimates that are in the outlook. If there is a new program or or a new initiative, it should be itemized separately.
The one I have mentioned on page 3 of this submission is the pay equity program. There are bits and pieces of information about this program in the budget and in the fiscal outlook, but it is impossible to tell what they are referring to. There is no adding up of the entire cost of this program: how much of it when it is mentioned in the text relates to the pay equity among civil servants and how much it is when it is paid to help out hospitals and universities etc with their programs. We need a summation of this. Since this is a new program and is not, presumably, mature yet, that needs to be documented somewhere until it does start stabilizing. Otherwise we have no idea what influence this is having on the budgetary projections and the needs for financing.
Another item was the employee wage protection program; there were no numbers attached to that. If new programs are introduced, the expected costs of these programs at the time should be put in and the history of those programs as they develop should be shown. All the ways of putting the transactions in should follow some kind of approved accounting convention.
All the way through this submission I make reference to the Canadian Institute of Chartered Accountants' public sector accounting and auditing committee, because this has been a careful study of the way governments do their accounts and I think that should be a framework for the way the Ontario government puts out its accounts as well. I mention a number of items here I think we should address to make sure that as we change the method of accounting, or from year to year, the user knows the conventions that are used. Otherwise it gets confusing and trends are difficult to develop. One example is that when a payment is made in advance of the year, such as to municipalities, you need to know if the number includes that in the year it was due or in the year it was paid. It is preferable to have it in the year it is due because unless you do this consistently it becomes difficult to compare one year with another. It is simply a matter of making clear the conventions being used.
Last year there was an innovation introduced that many economists have been advocating for many years; that is, a separation of capital spending from current spending. This is a very useful way of doing it, but I think there are a lot of pitfalls in dealing with this. I would simply say -- I do not know because I have not seen any statements about it -- was this done in conjunction with the Institute of Chartered Accountants of Ontario? The particular problem I have is treating a transfer as a capital at the level of government where the transfer originates. If it is treated also as the same amount as capital spending by the recipient government, we are going to get into some problems here about the financing and what it means. Again, for this we need to have some clear definitions. This is very important for policy. It is quite appropriate to borrow for capital spending, but you must be sure it is really for capital spending only, not somehow bringing some other things into it.
We have to decide how to treat money that is not the actual investment by that level of government. Also, I think one has to have some idea about government money that goes into bricks and mortar that are not productive. I do not think that simply because it is something that is hard and that you can see, it should go in as capital spending. It is good that we have this attempt to do it in this way, but I simply say it needs a lot more care and consultation to be guided in the right direction so that policy is helped by this innovation.
Where I find a lot of weakness in the statements available to the public, other than the public accounts, is in statements of assets and liabilities. Here I think a lot more could be done, particularly the evaluation question of when you have financial assets. When it comes to be sold, if it is depreciated markedly, that becomes something unexpected that we have not heard about before. One needs to be able to keep track of this over the years. We need to have some conventions on how to treat the evaluation of assets.
A particularly irksome thing -- I am looking at page 4, if you are following along with me -- is presentation of revenues, which by and large is dealt with much better than the spending side. Here is a question of trends, directions and things like trying to measure tax burdens. If we are using the personal income tax system to deliver a social program, which is an efficient way of doing it, should the credit that is being delivered on the back of the personal income tax program be treated as a reduction in revenues, or is it really spending? This needs a lot of careful thought. It is my feeling that the property tax credit for seniors is a social payment and therefore should be taken out of the revenue side and added to spending. Those are clear-cut when they are credits.
It becomes more problematic when you deal with non-refundable credits. There is a lot of argument for some of those to also be treated as spending. I recognize there are difficulties here. Where do you draw the line and so on? I think this is something we should continue to examine and not completely shelve as impossible to do. I draw anyone's attention to the fact that other provinces have an appendix in their budgets showing estimates of the value of tax expenditures. The Ontario government has also done that in its fall document in the past. At the very minimum, that is something very useful for an analyst or the public to have.
We come next to what should be included, what is government. Again, there is a lot of debate and disagreement about this. I think one has to recognize that there are a lot of agencies and corporations that are government-owned or government-controlled or are in the end answerable to the government, even if they have a fair amount of autonomy. To be truly open with the public and really let people know what is going on, we need to have some summary reporting of these other agencies. We do not want to start consolidating them all, but some of them do need to be included.
I am particularly concerned that no provincial government in this country puts information about the operations of its Workers' Compensation Board in its budget documents. It is the one operation that is the hardest to get information on, and yet it is financed by a premium that is virtually a tax. The taxation ability of the government has to take that into account because it is a payroll tax. If you ignore the workers' compensation premiums, then you are not really evaluating what you are doing on the tax side as well.
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The Liquor Control Board of Ontario is also completely run by the government. We need not just to have liquor control board profits showing up in the revenue side, but we need to have some idea of the operations of these, maybe to the extent of showing how many people are employed and the salary component, just an abbreviated kind of financial statement. I realize these statements are made public eventually by the agencies themselves, but most people do not get hold of those. I point out that British Columbia has made quite a big effort in this area to include in its public statements accountings of all these various entities.
Accountability is a very important issue and it shows up in many forms. In many cases it refers simply to the fact that if you are going to have a program the public needs to know how you plan to finance it. Initially a responsible government will not introduce a new program without giving a longer-term view of where the money is going to come from to finance this program. On the one side you are going to have this five-year expectation of expenditure growth, particularly if it is a new program, but on the other side what does that mean for the tax source or other charge that is going to be raised to finance this? If we did this most of the time, people would realize more easily that they eventually have to pay for the program, and perhaps they would then, before it is introduced, say, "Maybe we should not introduce this just yet." It would at least give people a more responsible way of analysing government's proposals for new programs.
I have referred to the bottom of page 4. Particularly when there is the introduction of a new tax and there is a statement when it is introduced that this tax is for a particular reason, then government ought to continue to mention that reason the tax is in place. The revenue from the tax should not simply be added to general revenues and disappear into this pit. An example I have drawn is the 1989 environmental initiatives with the tax on new tires, which was supposed to be for recycling, and at the same time the additional charge on liquor, which was also supposed to be for recycling. These amounts are small when seen in perspective of overall revenues, but because they were introduced for such a purpose, it behooves the government to say how they are spent. Otherwise they are going to lose credibility with the public.
Those are the recommendations I have brought forward to show how the public can be brought into a more informed debate, so that if we are going to go to it for more consultation, it will have some idea of what is involved. As far as the consultation process itself is concerned, what I have included here, and I do not intend to go through it, is what goes on in some other parts of the country.
In general, internationally there is a big difference from country to country in how one looks at secrecy. In the United Kingdom, for example, as I am sure you all know, it is paramount; it is just impossible to break that budget secrecy. Australia follows a similar system. In the United States, however, the political system means that it is a very open budget process and that is probably much healthier. One might argue that it leads to things never getting passed, but perhaps that is a good thing.
In Canada, if you go from the Atlantic to the west, you find it becoming less open, interestingly. The Atlantic has started opening up considerably. I have given a brief description of recent developments in New Brunswick and Nova Scotia which I think are quite interesting.
Of the other provinces, Alberta in particular has a very closed process, receiving submissions by groups, which is common across the country, but not discussing them: they simply receive them. However, they are beginning to feel a bit uncomfortable with this process, and in response to a lot of upset seniors they are now actually consulting with seniors' groups. I do not know whether that is a reflection of the age makeup of Alberta, but perhaps that will be extended to other groups in the population later.
Quebec's is also a fairly closed system, really just receiving groups and discussing it with them. There is no solicitation of submissions or any effort to put forward budget outlooks or statements of any kind.
Having looked at what is going on in the rest of the country, and with the backdrop of constitutional discussions and, it appears, the rise in popularity of the town hall type of meeting, I suggest that Ontario examine that format for this province, to see if there is some reasonable amount of popular consultation that could take place in the small group type of situation.
That is my presentation.
Mr Phillips: I really appreciate your thoughtful comments on the process. I tend to very much agree that we need a consistent approach to laying out the numbers. Maybe it is just what any political party would do, but I think the government is traumatized by its deficit number and will do everything it can to report a different deficit. Maybe that is just human nature, but I do not like the way the capital account was set up and reported. I agree with the establishment of the capital account, but it is, from my perspective, not an accurate way of setting it out.
I think you will see the government continuing to do things. Whether it be, as you point out, giving tax breaks instead of direct spending -- I think the worker ownership plan is a different way of expenditures, but a way that takes it off expenditures and puts it on loss of revenue. I think we see Ontario Hydro picking up programs the government previously would have done. I think you will see WCB picking up some things that may have previously been handled through government expenditures. I think you will see the training thing -- it is about $2 billion worth of expenditures -- move into an independent body, government spending decline and it will raise its own money, through some form of payroll tax or something like that. I think you will see the use of pension funds for what previously may have been handled by organizations like the Ontario Development Corp.
The reason I raise all this with you is that I think yours is one organization that watches this stuff a little. I am just alerting you to what I think may very well happen, as you have already alerted us. Is your organization, or is there some organization, attempting to recommend to governments a standard way of reporting that is consistent across jurisdictions and over time, so that governments -- I think this government is no different from other governments -- find what really irritates the public and then try to find a way to get rid of it? What is really irritating the public right now are the consistent, huge deficits. If they want to get re-elected, they find a way to reduce it in real and artificial terms. Is your group or are other groups trying to find a way to standardize the accounting system?
Ms Ip: I personally have already published in this area, and presumably all the provincial governments, and anybody else, have access to what has been said. We are only an institute. We cannot do anything other than make recommendations whenever there are opportunities to say this. This is an area that has come up constantly, and everything we write about in fiscal policy brings up the issue of accountability, transparency, having standard systems.
We have recently been involved with the constitutional conference. As I mentioned, that came up there. It is something that will continue to go on. I think, however, that you have to hand it over to the accounting organizations to work with governments, because we are not accountants. All we can do is state the principles that should be behind it. It is there, the studies have all been done during the 1980s and I think one has to keep on reminding everybody that those studies are there. You have an Auditor General who comments on the way you do your work. I have noticed in the long years I have been watching government accounts that in general there has been an improvement, an effort to unravel things and to put gross ahead of net. It is slow but we are not slipping backwards, so I guess that is a plus. I would simply say that it is just something one has to keep at and that we intend to keep on working at it.
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Mrs Y. O'Neill: I am glad you highlighted the tax expenditure line. I think that is very important. We have had some representations, and I guess I can indicate that the truckers were asking us to consider very directly, as did the chamber of commerce from northwestern Ontario that I met with this morning, that we should be looking at a more direct relationship, a bridging relationship, between moneys that are collected, for instance from the fuel tax and the gas tax, and placing those on the infrastructure of the highways. We have had this debate regarding such things as the tire tax before.
Have you any thoughts on that kind of philosophy? We do get requests, I think particularly from the users and from the major municipalities. I do not think any government in Ontario has had a really strong, direct relationship between those, particularly in the gas tax and infrastructure component of the budget. Would you say a little bit about that?
Ms Ip: Yes. On page 4, I referred to that under "Accountability." Transportation is linked with gasoline and diesel taxation. I think in general the whole issue of accountability brings up the idea of user charges in general. Everybody would like to have user charges, but public services cannot readily be linked with user charges. It is just impossible. But there are areas where one can do this.
Some provinces have tried, for example, to take the sales tax and label it as a health tax. I do not know whether that is a particularly useful way of doing it. I do not think people remember that every time they buy something they are paying towards their health program, and they do not show a health account in the budgets, where the health spending is set against the tax.
It also raises a question. If it should happen that the sales tax is very large, would you automatically spend it all on health just because it is a revenue? It is not a simple issue, but there are some taxes that lend themselves very well and you pick on the one that does.
A fuel tax is a very useful tax to apply to infrastructure. In fact, it is my feeling that the federal government should get out of those taxes and leave them to the provinces, since the provinces have to fund that type of spending. But that is for another publication which will be coming out in about a month.
On the health side also you can argue, as I have mentioned here, that tobacco taxes are frequently increased with a preamble by the Treasurer or the Minister of Finance that we all know how tobacco harms people's health and therefore they are raising the tax. What happens to the tax? Is it a matching with programs against lung cancer or something else? Does this go on?
There is a loss of credibility when you make those kinds of statements, but there is no effort to show people how they are linked. I think it would be useful. One could take liquor taxes and tobacco taxes and have a health account. I think one should experiment with which revenues can be logically linked with some spending, but one cannot push it to absurd limits. It is just impossible.
I think it is more important, as I mentioned earlier, that a program is shown to be able to be financed at the time it is introduced, that it is clearly stated that in order to bring in this program, which is projected to grow by this amount over the next 10 years, it is going to be financed by an increase in the personal income tax, by an increase in the sales tax or whatever it is and that people understand that this is where it is going. If they then object to that, they can say so. The problem is simply introducing a program and later on a tax is increased, so there is no link made because for that program it was left too late.
Mr Carr: I think one of the big problems we have is that governments at all levels have always had a tough time planning. We seem to be making cuts in an ad hoc manner because we reach a crisis situation. I think you have given us some ideas on how to do that with the process. I think changing the process will help. I was thinking of post-budget. I appreciate the pre-budget and I want to talk about that in a minute.
In post-budget there are some items, particularly tax items, where you might not want to let people know you get input. If, for example, you are going to raise the gasoline taxes, there would be a mad rush the day before or a week before, if people found out, to get gasoline and hoard it or whatever. There needs to be some secrecy. What happens is that after a budget there is a time frame before legislation comes in that actually enacts that particular tax, even really up to that day. How do you see that being handled? Is there a process that once the budget is down that is it, it cannot be done? Or, for example, if something like the gasoline tax comes in where the auto workers and the auto industry are opposed to it, there is some time frame to change it and say: "Wait a minute. We don't think it was good." How would you see the post-budget period being opened up a little bit? Do you have any thoughts in that area?
Ms Ip: You mentioned the gasoline tax. I will try to use an example. I do not see any problems with people rushing out and filling up their gas tanks as much as they can. What are they going to do, put extra tanks in their backyards? There is a limit to how much you can take advantage of that piece of information. I think the secrecy idea is when you have one favoured group that is going to benefit from it. If the whole province can get its gasoline and take advantage of it, more power to it. I do not see that the secrecy is very important in those issues. Far better to have had the discussion in the pre-budget process as to the options of raising extra revenues, such as: "We could raise the gasoline tax by this amount. It would yield X dollars. On the other hand, we could do it on taxes, we could do it on liquor. How do people feel about that? Let's get the input." There is no secrecy problem then since they are just discussing what the options are.
Usually there is not a problem in having it effective from the night of the budget, even if the legislation comes in later. I have never heard of that being a problem. But if it is, I would simply say that the government would have to take that into account in its revenue estimates. We had a gasoline tax announced for January 1, 1992, did we not? That was not done right away. I suppose everybody rushed out on New Year's Eve and filled up their tanks; I do not know. I do not think these are important issues.
The federal government made this point in its statement about this: You could afford to be much more open than you are, and there are few occasions when it is quite clear that by announcing it in advance a few people -- it is getting less; those opportunities are smaller and smaller because we have fewer and fewer tax shelters. It was those sorts of things that helped people benefit. An example at the federal level which would also affect the provincial government is the capital gains tax, because some people could benefit from that. The biggest problem is not the secrecy of that. I just raise this as a particular issue. The biggest problem there is that the people who have used it would have had a windfall gain and the people who were not able to use it are the losers. That has nothing to do with secrecy.
Mr Carr: There are retroactive provisions used all the time anyway.
Ms Ip: Yes. There is a kind of a commitment. I think it is important that you make commitments to people and perhaps phase things out. That is an argument not only for not having secrecy but also for having a long lead time before you make a change to give enough people a chance to make use of it. I think one has to use a bit of judgement here as to the secrecy. I do not see it as a major problem.
Mr Carr: I was interested in your comments about adding -- I agree with Gerry that this government is trying to get away from doing that. You hear the Premier, even when he was away, talking about capital projects as if somehow that is a little bit different. If people knew of the unfunded liability of the WCB and Hydro situations, they would be really shocked, if you add those numbers, and the average public does not.
On that public consultation process, I like the idea because I saw that happen with, for example, the redirection. They had an open meeting, nobody talked and they just took input from that. The big problem is what happens afterwards when people get let down when they do not hear what has happened. Could you explain how that has worked in Nova Scotia? Do the people feel better about the process? I know the politicians do because they can justify anything. You get 100 people coming in and they will pick the one who agreed with them and say, "There you go; that's why we justified it." How do the people in some of these jurisdictions feel? Do the grass roots feel better about the process?
Ms Ip: You have to recognize that in Nova Scotia it is very new. It started last year in a very broad context with everybody coming in and going up to mikes. It is only this year that they experimented with the workshop thing, which is the constitutional model. So it remains to be seen. They moved on to that I think because the other one was so popular and they found they wanted to have more consensus-building rather than having a free-for-all. We are sort of moving through a kind of process here. It appears to have been working very well.
They tell me what it amounts to is that it is an opportunity. They have said about 75% is giving information to those people -- it is an educational opportunity -- and 25% is receiving ideas. The people are told that this is to weigh different things. I think that if it is handled properly, what you say is: "We're the government. We have to decide this in the end, but we want to hear particular constraints and difficulties."
Drawing on the experience of the Halifax constitutional conference, in the workshops I was in I noticed that the enthusiasm of ordinary Canadians, in having their input, was in principles. They would say things like: "If Quebec is different, we should try to accommodate it in some way. We don't really think you need to call this thing asymmetry. We aren't really sure what it's going to involve. You have to decide that. We aren't the ones who do that, but we want you as our representatives to go out there and work this problem out within this framework."
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When you consult people and give them respect for their opinions, I think you will find that they are not going to start pouting and saying, "My particular thing was not" -- people understand that. It is the fact that they are not being asked, are not being told. They feel the wool is being pulled over their eyes. That causes alienation and the loss of credibility. I think we have to give the general public credit for understanding the constraints that governments are under.
Mr Carr: Just on the estimates process, I sit on the standing committee on estimates as well and of course that gets into details. This year, with the total expenditures of all the ministries, we will look at a very small fraction of that total spending. That is where it is done in detail. Keeping in mind that you said you wanted the consultation to be fairly broad, do you see any input from the public on the estimates for particular ministries where we really get into details? Would you like to see that done or is that best left under our present system? In other words, how do we see estimates, which are more detailed, fitting in with all this?
Ms Ip: I mentioned at the beginning the different ways of reporting, and I do not think the discussion by ministry is very useful for the public. It is an organization of government. It is an organizational thing. That is why I referred to the idea of looking at spending by function, by program or objective, which they can understand. People understand that. I think it is necessary to translate the ministry numbers into those categories and then talk to people in that way. The input you get on those programs then has to be translated to the ministry level. I just cannot see it being very fruitful to go out to the public and talk about this minister spending this and this minister spending that without people being able to translate it into the programs they see.
Mr Carr: You were very helpful.
Mr B. Ward: Thank you for your very thoughtful presentation. I enjoyed your comments very much. Mr Chairman, through you to research, is it possible to get additional information on the Nova Scotia method of pre-budget consultations? I think that is something this committee could examine in closer detail. I have a question on the Nova Scotia model. You may not know the answer, but how would the government ensure that the people who attend the workshops have enough information beforehand so that there is some base of knowledge to work with rather than simply going into the room cold and then being shown facts and figures? Is there some groundwork that has to be done before?
Ms Ip: Yes. There is a statement that is made so that they have something to base it on. The idea is that originally, as is usual, the government circulated these documents just within the cabinet, then it started to open it up and make the same documents available to groups and then those documents were made available to these meetings. That is part of the whole process, making the statement so they have something to discuss.
Mr B. Ward: To work with.
Ms Ip: Yes. The provinces I did not contact were Prince Edward Island, Newfoundland and Saskatchewan. I did not contact Saskatchewan because I knew it had a history of quite a lot of consultation. I was not sure about the budget one, but I did not have time to do all of them. It did seem that Nova Scotia had gone the furthest and that it might be useful for someone to go down. They are doing the meetings right now, I believe. I do not think they are over. It might be worthwhile for someone to attend one and find out how it works, because it will not be coming around till next year.
Mr Sutherland: That makes me feel good, because that is the kind of process I have been using. The federal member and I are having joint public meetings on the Constitution and we have used the Globe and Mail series of articles on the Constitution as the basis for discussion, and it has worked. The first one worked very well. We had 125 people at our public meeting, so we were quite impressed. We did not even say a word. That was something unique too.
Just on what you were talking about earlier in response to Mr Carr's question about program objective, about presenting the information that way rather than by ministry, one of the problems we have as a government -- and I think all the levels of government have this -- is that when I look at the issue of how we deal with violence against women, the funding for that comes through, I think, at least 13 different ministries. You are saying we should present it that way, but I am just wondering how we transfer that over to present it to them all that way and still keep track of the way we can keep a handle on it.
Ms Ip: I do not see that there is any problem. You have an objective to reduce violence against women, and let's say, for example, there is an increase in the budget in protection of persons and there is an increase in the budget in social welfare. I am just pulling these things out of the air to deal with it. That is fine; that is the way it is going to be administered. But I do not think the public is that interested in knowing all those sort of little details. They are interested in the end objective of reduction of crime against women.
If you have a program that is supposed to reduce smoking, they want to have some results about that, and they do not want to know simply how many cigarettes are sold in the province either, because they might be brought over the border. They want to have some realistic yardstick to see if the program is working.
That is the other form of accountability which I did not deal with. I think that when there are such programs, they need to be summarized every so often. We have this program, this is the goal, these are the means we use to deal with it, this is the spending that has been put on it and this is how we are succeeding. I think it is good for the members of the government and the opposition to look at it this way, because you have to step back every so often and say, "They're spending all this money, and there is no change. Maybe we should do something else." It is a kind of discipline. I think that is the way it should be done.
Mr Sutherland: You have presented us with so many good suggestions on how to do it. As I was reading through it, my only thought was, how big would this budget document be, either the pre-budget one or the actual budget, if you incorporated many of the things you have here? I am just wondering, do you see that you can still present all this information and not intimidate the members of the public by having it too big a document so that they will not even open the cover?
Ms Ip: The best way is to use appendices intelligently so that you refer people who wish to have more detail to those appendices. Across the country we have an incredible variety in sizes of budgets, from the massive one from Newfoundland to some quite thin ones in other provinces; Saskatchewan is quite thin. You also have accompanying documents. Quebec puts out a very hefty budget with accompanying books, and I must say I find the Quebec one to be one of the best in the country. The useful thing is that they tend to repeat things year after year, so you get used to looking for things. Personally I cannot stand it when governments keep on changing the format. It is like going to your favourite supermarket and finding they have changed all the aisles. It is terrible when you are doing an analysis rapidly and you cannot find anything. It does not help; it is not useful. It should be a friendly document people get used to.
It is not supposed to be a glamorous thing. It is supposed to be something that is functional and easy to read. You do not want a lot of extra tables. If you are worried about the size, get rid of some of the crap, because there are some tables in there that have no use. There are loads of charts that are totally and utterly meaningless. Who cares how many millions of dollars have been spent in the last 10 years when they are shown in current dollars? What does that mean? What do you do with that chart? It does not mean anything. You just have a bar chart there and say, "Oh yes," but it should be related to something. The inflation should be taken out. It should be done per capita. I do not know why it is there. There is a lot of room for trimming out unnecessary junk and putting in useful stuff.
I do not think it is going to become too large. Obviously you presumably have a committee; I mean, you like committees. You would discuss the format and someone would come with a prototype and you would tear it to pieces, and eventually you would come to something everyone likes.
Mr Sutherland: If I could, just one quick comment: Our researcher has provided us with a document of comparison of how they do budget preparations in other jurisdictions outside of our parliamentary democracies. I think she has a couple of the states there, the American system. Their system kind of lays everything out on the table and goes through the process until you get to the final thing. Do you care to comment on how you see us adopting any of that in terms of any of that process being beneficial to the public's understanding of the process?
Ms Ip: I do not think the US model is very useful, because their whole political structure is different and the way they have their division of powers creates a naturally open environment. I do not think it is very useful to follow them. It is probably more useful to study maybe the German situation. There are a number of other ones, but as I said earlier, why follow the UK? They just do not give anything out. It is not in the least bit open, and Australia is not either. There are other countries that if one wishes, one could look for, but I would think that stacked up internationally, Canada is not so bad.
The Chair: Fine. I would like to thank you for appearing before us with the generous information that you have given to this committee to make other decisions and on opening up the process.
The committee adjourned at 1603.