STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
SCHOOL BUS OPERATORS' ASSOCIATION OF ONTARIO
ONTARIO SEPARATE SCHOOL BUSINESS OFFICIALS' ASSOCIATION
UNITED SENIOR CITIZENS OF ONTARIO
PROGRESSIVE GROUP FOR INDEPENDENT BUSINESS
ONTARIO ROAD BUILDERS' ASSOCIATION
CONTENTS
Thursday 20 January 1994
Pre-budget consultations
School Bus Operators' Association of Ontario
Bill Heslop, past president
Dan Stock, representative
Brian Babcock, vice-president
Jeffrey Goodman, executive director
City of Toronto
Betty Disero, councillor and chair, economic development committee
Peter Tomlinson, director, economic development division
John Woods, acting commissioner of finance
Ontario Separate School Business Officials' Association
Tom Kelly, president
Pete Derochie, vice-president
Grant Andrews, past president
Ontario Chamber of Commerce
Ted McCollum, treasurer
Joe Couto, policy coordinator
Don Eastman, board member
United Senior Citizens of Ontario
Jack Dyce, president
Progressive Group for Independent Business
Craig Chandler, president
Informetrica Ltd
Michael McCracken, president
Ontario Road Builders' Association
Arthur Ryan, executive director
Brian Barrett, vice-president
Continued overleaf
Continued from overleaf
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
*Chair / Président: Johnson, Paul R. (Prince Edward-Lennox-South Hastings/
Prince Edward-Lennox-Hastings-Sud ND)
Vice-Chair / Vice-Président: Wiseman, Jim (Durham West/-Ouest ND)
*Caplan, Elinor (Oriole L)
*Carr, Gary (Oakville South/-Sud PC)
*Cousens, W. Donald (Markham PC)
Haslam, Karen (Perth ND)
*Jamison, Norm (Norfolk ND)
*Kwinter, Monte (Wilson Heights L)
*Lessard, Wayne (Windsor-Walkerville ND)
*Mathyssen, Irene (Middlesex ND)
*Phillips, Gerry (Scarborough-Agincourt L)
*Sutherland, Kimble (Oxford ND)
*In attendance / présents
Substitutions present/ Membres remplaçants présents:
Carter, Jenny (Peterborough ND) for Mrs Haslam
Morrow, Mark (Wentworth East/-Est ND) for Mr Wiseman
Turnbull, David (York Mills PC) for Mr Cousens
Also taking part / Autres participants et participantes:
Crozier, Bruce (Essex South/-Sud L)
Jackson, Cameron (Burlington South/-Sud PC)
Wiseman, Jim (Durham West/-Ouest ND)
Clerk / Greffière: Mellor, Lynn
Staff / Personnel: Campbell, Elaine, research officer, Legislative Research Service
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
THURSDAY 20 JANUARY 1994
The committee met at 1009 in the St Clair/Thames/Erie Rooms, Macdonald Block, Toronto.
PRE-BUDGET CONSULTATIONS
Mr Gerry Phillips (Scarborough-Agincourt): Mr Chairman, just before we begin, I submitted a list of questions to the Finance officials, and frankly, if you had a chance to review the answers, they are non-answers.
Yesterday we got one number from the Ministry of Finance around the fiscal situation for next year. We are operating in a total vacuum right now, and I would hope that the committee would share my view that we can't finish our work until we get some numbers from the Ministry of Finance. I had assumed that they were going to respond to my questions. I don't know whether you had a chance to look at my questions and the answers, but they are essentially non-answers.
We have no estimates of expenditures for next year. We've no idea how much the government plans to take in in revenue by account or expend by account, and I would hope that we would have the Finance officials back as soon as we can to give us those numbers. I looked at even what was provided last year and it's far more detailed, and we're presumably into an open process now.
I don't want to take the first presenters' time and I don't know that there's another time for me to raise it, but I wanted to alert the committee to that, to say that I've had a chance to read the responses; they are non-responses. In some cases I found -- how would I put it delicately? -- it was difficult to get the meaning of what they were saying out of their responses and I found some of the responses ran the risk of misleading us if we didn't get behind the language.
I would hope we'd have them back, perhaps in two weeks, but certainly before we have to begin to write our report, and I would hope they could provide us with some of the detail that we're going to need to make any reasoned conclusions.
The Chair (Mr Paul R. Johnson): Thank you, Mr Phillips. I'll take your concerns before the Finance officials and indicate that the committee would like to have some additional time with them.
Mr Kimble Sutherland (Oxford): We did have a very thorough presentation yesterday. If there are specific pieces of information that Mr Phillips or other members would like, they should probably identify them as compared to last year's presentation, just so the Finance officials could get that together. With respect to the questions Mr Phillips already submitted, the committee was given only the response in terms of answers, so I'm not sure in all cases what the specific questions were, but the deputy minister did indicate that if Mr Phillips wanted to spend some more time with them, they'd be certainly willing to do that.
Mr Phillips: I'm sorry you didn't get the questions. I sent them to the committee Chair.
The Chair: You didn't get them?
Mr Sutherland: The form that's given doesn't in all cases give all the specific questions that were asked.
Mr Phillips: I hope you have a copy of my letter to the committee.
The Chair: Every member of the committee got a copy of your letter and your questions and the answers that were supplied by the Finance ministry officials.
Mr Phillips: I'm sorry to take your time, but I think before we can proceed to write a report, we need to have revenue estimates. Specifically, last year there was --
The Chair: Mr Phillips, if I could just interject, the clerk has indicated that there certainly are a couple of half-hour slots that we could fit these officials into with regard to meeting before the committee again.
Mr Phillips: Okay.
The Chair: However, will that be sufficient time for them to answer the questions, in your opinion? Otherwise we're going to have to look at scheduling some additional time outside of what we have.
Mr Phillips: I think if they can provide us with the material in advance, it's sufficient time.
The Chair: In writing? Would that be sufficient?
Mr Phillips: Yes, then we can discuss it with them.
The Chair: Okay.
Mr Phillips: But my questions were very specific and the answers were --
The Chair: Your directions are clear now.
SCHOOL BUS OPERATORS' ASSOCIATION OF ONTARIO
The Chair: The first presenters we have before us today are the School Bus Operators' Association of Ontario. Excuse us, gentlemen, for having to deal with some committee business. However, if you would like to proceed now, we will probably run a little bit over in order to accommodate you. Please identify yourselves as you speak for the purposes of the committee members and for Hansard.
Mr Bill Heslop: Mr Chairman and ladies and gentlemen, firstly, on behalf of the School Bus Operators' Association of Ontario we'd like to thank you for the opportunity to meet you and to speak with you this morning. We understand that you'll be hearing a great many presentations during this pre-budget consultation process and we also appreciate that you'll be called upon to make some very difficult decisions regarding the fiscal advice which this committee will provide to the government.
I'll begin with introductions. My name is Bill Heslop and I'm a past president with the association and vice-president of the Canadian division for Charterways Transportation, based in London.
To my immediate right is Dan Stock, who was the association's representative on the interministerial work group that dealt with school bus safety and is vice-president of Stock Transportation Group, which is headquartered in Markham.
Also with me is Jeffrey Goodman, who's the executive director for our association, and Brian Babcock, the association's vice-president and the president of Babcock bus lines based in Beamsville.
The School Bus Operators' Association of Ontario is a voluntary association representing the interests of school bus service providers located in every county of this province. Through leadership and education, this association has striven to enhance the long-term safety record, stability and viability of the industry in Ontario.
The membership in our association represents 80% of the 18,000 school purpose vehicles currently operating in Ontario. Those buses would transport over 800,000 students to and from school daily.
It's interesting to note that, even as the industry has serviced the increased demands placed upon it by expanding education programs, the overall per diem rate increase for the 15-year period 1974 through to 1989 was less than the rate of inflation for that same period. You'll see that experience highlighted in appendix A.
To the taxpayers of Ontario, the yellow and black bus is simply the most secure and cost-effective means of transporting students. We are proud to add that our safety record is second to none. To support that, Transport Canada has observed that a child is 16 times safer riding on a school bus than any other motor vehicle, including the family car.
Both our fellow school bus operator members and our 23,000 employees -- and I would note that this industry is characterized by a majority of female, part-time employees -- are deeply concerned about considerations within the government to reduce the general legislative grant to student transportation for the coming fiscal year.
The proposed cuts may possibly be as high as $20 million. This proposed reduction is being considered in addition to the $21-million cutback announced last year and the budget flat-lining enacted during the previous fiscal year, so we're looking at a combined reduction of $41 million. When added to the industry's history of rate increases below the rate of inflation, we feel it represents a clear threat to the accessibility of safe and secure transportation for Ontario's schoolchildren.
As you are all aware, the provincial share of funding for student transportation is provided through general legislative grants by the Ministry of Education and Training. In announcing the most recent cut, the Honourable Dave Cooke requested specifically that school boards renew their efforts to realize cost savings through efficiency measures, rather than simply passing the shortfall on to municipal taxpayers.
Although the intent of the provincial government has been to improve overall efficiency of the student transportation industry by controlling total expenditure, in practice the result has not always been consistent with the original vision.
Previous funding cuts have left some students without transportation of any kind. Some students have been exposed to greater safety risks through walking to school or riding municipal transit vehicles. Future cuts may well exacerbate the situation.
The School Bus Operators' Association of Ontario believes the safety of schoolchildren ¢ª|_ÈßiÁthe first prioriJy#o~ßztsdent transpkrta_hon. We qls`ß"`ow t-ž<ßthisÏwit`m p,,cli`!se_0/00-_šß_ž`ß__`<-`Ššß<_ß_šß___0/00->š>ß-`ßžß -- -~ -- "†ß___<ÒšTMTM-_-š`<ß'ž``š_Ñò ½†ß_š_<_Š_<Š_-`~ß< -- šß>š"-0/00š_†ß_TMß_<Š>š`<ß<_ž`____<ž<-_`Óß_0/00š_ž""ßšTMTM-_-š`_†ß_TMß°`<ž_-_Ø_ß_<Š>š`<ß<_ž`____<ž<-_`ß`š<^__"ß_ž`ß_šß-'___0/00š>ß<_ß_Š_ -- ßžß>š~_ššß< -- ž<ßš‡_š`>-<Š_š_ßž_šß_<ž_-"-...š>Ó߆š<ß_žTMš<†ßž`>ß_š_0/00-_šß"š0/00š"_ßž_šß'ž-`<ž-`š>ßž`>ß`_<ß__'___'-_š>Ñ߶`ßÎÆÇÆß< -- -_ßž____-ž<-_`ß_š__''š`>š>ß_Š_ -- ß_š_<_Š_<Š_-`~ß<_ß< -- šß~_0/00š_`'š`<ßž`>ß^šß_<ž`>ß_†ß< -- ž<ß_š_ommendation today.
The measures we advocated back in 1989 included the following: combine facilities, administration and transportation offices of public and separate school boards; combine public and separate school students on the same bus; combine elementary and secondary students on the same bus; increase the flexibility of school hours to make better use of buses, to make double and triple runs viable; extend walking radiuses where safe and practical; and, wherever practical, use full-size buses.
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Effectively, what we were advocating was a substantial reduction with respect to the number of buses that would be necessary to exercise the levels of service provided at that time.
For example, staggering school hours by just a few minutes can allow double and sometimes triple routes to be accomplished by the same school bus. The marginal cost of doubling and tripling is far less than the cost of running multiple vehicles.
In many areas, coterminous boards can share transportation services by allowing elementary, secondary, public school and separate school students to ride the same bus. This practice allows fewer vehicles to be utilized to a greater capacity.
Such efficiency measures are already in daily practice in some parts of the province, although they are not widespread. Too often now, school boards need more immediate relief than that offered by restructuring the delivery of services. They opt to cut services or cut contract rate increases instead of restructuring.
Continued across-the-board cutting of funds will, we feel, do little to help realize the government's wish to maintain high safety standards while stabilizing student transportation expenditure.
For reasons of both safety and economy, the School Bus Operators' Association of Ontario has repeatedly cautioned the province to curb a trend by some school boards to transport students on public mass transit systems. We stand by this counsel today and further urge that full-cost accounting be employed to compare the total cost of transporting students by municipal transit versus school buses.
At present, heavy capital cost and operating subsidies paid to transit properties by the Ministry of Transportation remain unaccounted for in student transportation expenditure by the Ministry of Education and Training. The taxpayers of Ontario pay the ultimate price regardless of which ministry receives the bill.
We are sensitive to the need to control expenditure and reduce public debt. But we submit that the public good will be more constructively served by long-term restructuring than by short-term funding cuts.
We respectfully ask the members of this committee to recommend against further reductions of student transportation funding at the provincial level until such time as restructuring initiatives can be implemented to realize greater cost-efficiency.
On behalf of the School Bus Operators' Association of Ontario, I'd like to thank you for your time and attention this morning. At this time, I'll be pleased to answer any questions your committee has.
The Chair: Thank you very much for your presentation. We have about 20 minutes, about seven minutes per caucus.
Mr Phillips: I appreciate the presentation. There's almost a dichotomy in the presentation in the sense of the group saying there's a problem as we reduce expenditures but then saying there may be opportunities for significant cost savings if boards were to adopt your recommendations.
Mr Heslop: Yes.
Mr Phillips: My question is, is it a question that there's not enough money being spent or that the money that's being spent is not being spent efficiently?
Mr Heslop: I think the money that's being spent is probably not being spent efficiently. When you look at our recommendations, where there could be more efficiencies, we don't see that there are incentives through the funding process for school boards to look at multiple-route systems.
To give you a quick example of that, the way the funding mechanism works now, as far as transfer payments to the school boards from the Ministry of Education are concerned, a school board can be funded for one school bus operating 185 days. They get payment for 200 days for that particular vehicle doing one single run, say, doing a secondary school run. If an elementary run was added to that route so the bus is now doing another 100% and you've got two school bus routes with one vehicle, the way the funding mechanism works is that the school board will still get payment of 200 days for one vehicle and that vehicle will now operate probably 192 days because of split panels where there's a secondary day off and an elementary day off and the PD days don't coincide.
So the school board is looking at that situation and saying, "Are we going to get better funding through single routes? Yes, we are," then looking at maximizing and doubling and tripling up the routes.
If there was some incentive through the funding mechanism for the school board to look at multiple-route systems, I think there'd be a heck of a lot more efficiencies than what there are now.
Mr Phillips: I think that's a useful comment for us, because I now have a different possible interpretation on your report, or at least possible recommendation, which is not to be urging the government to spend more money but to say that, somehow or other, the way we have historically structured the grants system inhibits or doesn't reward -- doesn't encourage efficiency may be a better way of saying it.
I think one thing that the committee might even all agree on is to request the Ministry of Education, along with people like yourselves and school boards, to examine the way the funding mechanisms work to see if we can't develop something. I'd much rather pursue that route than be urging the government to spend more money or what not. If you think there's potential there, and it sounds to me like you do think there's good potential there, then maybe we can be another helpful catalyst.
The reason I really appreciate your presentation is I have a suspicion there are an awful lot of other things around in government generally where the system was set up on an old basis and if we could find the keys to unlocking the productivity, then we can indeed improve service and reduce spending.
Mr Bruce Crozier (Essex South): Mr Heslop, I'm an anonymous observer at this committee, but I have a question and then just a quick comment.
The question is, I wonder if you could give us some idea of how many school boards are moving towards efficiency -- that being separate and public boards -- by combining their routes the way we have in my riding, in Essex South, with the county school boards.
Secondly, my only comment is that there's a suggestion that elementary students and secondary school students be bused on the same bus, and if it's at the same time, I assume, I have a concern that we're mixing age groups of perhaps 19-year-olds with nine- or 10-year-olds. I have a bit of a concern there that the younger children perhaps shouldn't be bused with the older ones.
Mr Heslop: To answer the first question, I would suggest that there are very few boards that are exercising the sharing of buses with the separate and public school students. Yours would probably be unique, and it is unique. I'm fairly familiar myself with most boards' operations throughout the province, and Essex is a unique situation.
Dan, would you have a comment about any experience that you know where there's combined separate or public?
Mr Dan Stock: There's a lot of discussion currently going on, but actually working like it is down in your area, there are very few of those. We are involved in a lot of discussions and try to encourage that. We try to come up with some different ideas on how we see some opportunities. But at this point the actual implementation is still very limited.
Mr Crozier: I appreciate your encouragement to do that.
Mr Brian Babcock: I want to concur with Dan Stock's comments. We see a lot of interest. Although Essex is very advanced in its promotion of combinations between the two boards, other instances in the province are more isolated. There are some. But there certainly is a lot of interest in the year 1994 and in 1993 in combinations being pursued.
Mr Heslop: With respect to the second part of the question, and that's elementary and secondary students riding on the same bus, that's been a practice that's certainly been prevalent in the rural areas for a number of years, not so much in the urban areas, where they have separate buses for the elementary kids and for the secondary kids. I don't see it as an issue, because it's been something that's been practised for a number of years in the rural application.
I think it's something that could work effectively; if not that, certainly the multiple route system where you're picking up the secondary students first and then picking up the elementary students a bit later to follow on, using the same vehicle.
Mr David Turnbull (York Mills): Turning to page 7 of your presentation, at the head you have this discussion of "heavy capital cost and operating subsidies paid to transit properties by the Ministry of Transportation remain unaccounted for." Could you just expand on those comments?
Mr Heslop: Sure. What we're seeing is a situation where some students have been shifted from regular school bus transportation on to transit vehicles. It's something we cited some years ago and certainly saw a growing trend for municipal transit operations to capture that market. It appeared to be a very attractive situation for the school boards to buy bus passes, an attractive situation for the municipal transit operation to increase ridership, an attractive situation for the Ministry of Education to put out moneys for bus passes as opposed to moneys related to contracting out to private contractors.
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What the situation presents is a lack of full cost accounting, because who's paying for the $225,000 transit bus but the Ministry of Transportation? Those are the moneys that aren't accounted for. What we're citing is that when there are dedicated vehicles, not just transit buses that have only school students on them but transit vehicles dedicated to the system because of the number of students riding within the system, if you took the students out of the system, how many $225,000 transit vehicles could be removed from that system to look at a more efficient way to transport those students on a $50,000 school bus which has safety features second to none? So we see that there's a lack of full cost accounting. When those bus passes are being purchased, someone else is paying for that vehicle and that's the Ministry of Transportation, 75 cents on the dollar to the municipality. I believe that's the current contribution from the ministry.
Mr Turnbull: Please understand what I'm trying to do is to step back and not see it either from your point of view or from the transit unions that operate the main transit authorities. I'm just trying to see it from the taxpayers' point of view.
If you've got those vehicles, that is a sunk cost. The question is, are we looking at better utilization of those vehicles or are we looking at the fact that there would have to be more investment by the Ministry of Transportation to subsidize further vehicles? So truly your argument becomes valid, that it isn't reflecting the subsidies.
Mr Heslop: We've identified through a study that was done by Ernst and Young -- it was actually done in the Windsor area with Windsor transit -- that there were 16 to 18 additional vehicles in the system that could be extracted from the system that were transporting students. That's 16 times $225,000 or thereabouts. So we're looking at dedicated vehicles, not vehicles that are sitting in the system, where there are half a dozen or maybe 20 kids on the bus and that bus still has to remain in the system.
Mr Turnbull: We're not talking about something which is just going to do the normal bus routes and they just happen to get on with a pass.
Mr Heslop: That's right.
Mr Turnbull: This is something where you're saying, "Okay, we're going to shift them over during those hours, two or three school suburbs."
Mr Heslop: That's right. I can give you a number of examples where the municipal transit operations have dedicated vehicles where that bus does nothing but transport students. They've got the funding from the Ministry of Transportation, 75 cents on the dollar, to buy the vehicle and they're transporting school kids to and from school with those vehicles. It's widespread throughout the province.
Mr Turnbull: I think your point about full accounting for the cost is well taken. If the Ministry of Education were to move more and more people over to municipal transit authorities -- I had contact from your association a few months ago, and there was a rumour that the Ministry of Education was looking at heavily moving over these children to using transit systems where they were available -- what would be the likely impact on your business in terms of job loss?
Mr Heslop: It would be severe. We're looking at some 23,000 employees related directly to the school bus industry in Ontario. It would be substantial. There would be a number of unions affected, because a number of the bus operators have certified associations or unions. It would relate to some drastic layoffs, and to full-time employees including mechanics and so on.
The economics of students riding on transit is one issue, but I think the more important issue of students riding on transit is the safety issue. Maybe again I can ask you to elaborate on that.
Mr Stock: I think something that's important to understand here is that school bus transportation for students is a very specialized transportation. Bill said in his introductory presentation that we're 16 times safer than any other vehicle. That doesn't come by any fluke or luck. We have considerable effort that has gone into safety.
You may be aware of some of the basic requirements through the Ministry of Transportation for school bus safety, for vehicles and drivers, but there's much more of that. It involves our whole industry, all aspects, safety does. It involves drivers, it involves vehicles, it involves education of students for bus safety, it involves public awareness. It's a very specialized system that offers a very high level of safety and security for the students.
In our industry, as costs are reviewed and reduced, it threatens that proactive approach that we have had in the past for safety. We're very proud of our record and dearly want to continue it, but a long-term reduction in cost -- we still believe that through more efficient restructuring, that safety can stay in place. We're quite confident of that.
Mr Turnbull: Can we just go to restructuring in terms of hours of school operation? Essentially what we'd have to do is get the teachers' unions to agree to having different hours of work. I understand why you make the claim that there would be savings seen from the cost to transport the children, but we've got to look at the whole industry. Have you done any studies to support what the costs would be, and would some children end up with unacceptably long bus journeys to school because they were on the bus because they were going to, say, junior and elementary schools or whatever?
Mr Heslop: As far as the time on the vehicle is concerned, no, it wouldn't be excessive. We're not looking at wider bell-time changes for the schools. We're not looking at any hours extra that teachers would have to work. We're looking at moving the secondary kids in probably earlier and the elementary kids to follow with the same vehicle. Their time on the bus wouldn't be any different than what it is at present; it's just utilizing the vehicle and in some cases widening the bell times, the start times of the school, by minutes, not by half-hours or hours or that type of thing. It's something that's been very proactive south of the border, where they have made substantial savings; and in this province too, where some school boards have gone to multiple-route systems, there have been some substantial savings, but very few have really done that.
The Chair: Mr Turnbull, we have to move on.
Mr Turnbull: Just one last quick question. Is it your contention, absolutely bottom line, that overall taxpayers would pay less dollars if they were to do this rather than what they're presently doing, as compared with putting them on public transit?
Mr Heslop: Yes.
Mr Turnbull: Okay. Thank you.
Mr Sutherland: Thank you very much for coming. I just want to pick up on a couple of points from Mr Crozier. We do have schools in the province that are kindergarten to grade 13. So they would have to be bused together. There are some areas of the province where busing between the two boards has gone on for quite a long time. I believe we've heard that from the Ontario Separate School Trustees' Association in the past, and I see we have the Ontario Separate School Business Officials' Association, so maybe we'll be able to confirm that a little later.
I have mixed views on your presentation. I have a school bus manufacturer in my riding and one just outside my riding. I also have a company that's heavily involved in selling buses in my riding as well. But I think all of us agree that we need to do more on the efficiencies aspect. Could you give us some sense as to how much the savings are or what percentages we'd be talking about in savings if there were more public and separate boards that were going to joint busing initiatives? Are we talking a 10% saving here, are we talking 25%, are we talking 30%?
Mr Heslop: It's difficult to pin down that number. What we were looking at originally, if the measures that we had cited back in 1989 were put in place, there could be a reduction of 10% to 15% of the buses operated in the province. Brian, maybe you would like to elaborate on that a bit.
Mr Babcock: The only thing I can say to that is without direct surveys that would update current information it is as you imply in your question; a "guesstimate" I guess is the word I would use. But I feel the range that Bill has cited of 10% to 15% is not inordinate. What needs to happen logistically is you have to stair-step into that, if I can suggest. It's difficult through the logistics to move immediately into that kind of a saving. It's a case of doing the planning so that you avoid some of the concerns that member Crozier raises, that you stair-step down to those kinds of savings.
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Mr Sutherland: None of you who are here represent any of the areas that I'm aware of that we've given money for boards to develop computerized programs, joint boards through some of the restructuring. Oh, we do have?
Mr Heslop: Yes.
Mr Sutherland: Okay. Where are we at that stage? The money has been given to the boards to develop the computerized programs. Are those systems up and running? Do we have joint busing going?
Mr Stock: I think, as I said a little earlier, there's been a lot of discussion go on. We've seen in numerous boards, recognizing that the transition funds have been out there, there's been discussions, the coterminous discussions that've gone on between the two boards.
There's been a review of what possible types of efficiency can go out there, whether it's automation, whether it's combining and coterminous, whether it's a restructuring in terms of school hours. There's a lot of that discussion going on. I would say a relatively small percentage still have actually implemented some sort of restructuring. Again, please, there is a lot of positive talk going on out there right now.
Mr Sutherland: Hopefully, you'd expect quite a few for the fall to be in place?
Mr Stock: More, but again, it continues at a fairly slow pace.
Mr Babcock: Again, I want to really support what Dan is indicating. We have one situation where there will be implementation of that plan in September 1994. Transition grant funding has been used to fully automate and integrate the two-board systems. In other situations, we see a high level of aggressiveness between the two boards to act on that. I would suggest if they don't implement it in 1994, probably in 1995. We're seeing aggressiveness we haven't seen before. So I want to support those comments.
Mr Jeffrey Goodman: I think all the members have picked up on an important thing about how to get the boards to work together. We've spent a lot of time and energy, held conferences, invited various boards, trustees, operators to come and talk about it. What we find is that, while it's a good idea, it's harder to see it implemented. What Bill pointed out earlier -- and perhaps your committee could have a role -- was in getting the incentives.
In talking to local school boards, one of the things they've identified is that when they integrate most of the savings accrue to the province rather than to the local board. They find there's not a large financial incentive.
One example that was given at a conference of board officials: Of the savings, $2.3 million accrued to the province, $300,000 to the board, out of which it had to pick up the extra expenses of doing these double runs, so it netted maybe $100,000 in savings. Then there was a dispute that the province said, "Well, there are savings and it's your job to run as efficiently as possible." They were saying, "Yes, but there certainly isn't much incentive here." If there were ways the mechanism could reward that behaviour, it might be useful.
The Chair: Our time has expired. I want to thank the School Bus Operators' Association of Ontario for presenting before the committee this morning.
CITY OF TORONTO
The Chair: The next presentation that we have this morning is from the city of Toronto. I understand that Mayor June Rowlands won't be here this morning. Councillor Betty Disero will be here in her place. If the representatives of the city of Toronto could please come forward, make yourselves comfortable and when you are ready, if you would please proceed, and also, if you would identify yourselves for the purposes of the committee members and Hansard.
Ms Betty Disero: Good morning. My name's Betty Disero and I'm chair of the economic development committee for the city of Toronto. I'm joined this morning by John Woods, who's the commissioner of finance for the city of Toronto, and Peter Tomlinson, who's the director of economic development. I'd like to, first of all, say thank you for allowing us to come and speak to you today.
The final report of the Fair Tax Commission presents an unusual window of opportunity. Such an opening might come along once in a generation or so. It is now up to the provincial government to follow through on the necessary action and the recommendations from the Fair Tax Commission.
"There is a tide in the affairs of men which, taken at the flood, leads on to fortune." That's a quote by Shakespeare which sort of sums everything up quite well. Here's an opportunity, grab it, because it may lead to fortune and better opportunities for all municipalities across the province.
Metro council has just seen two years of divisive, deadend debate on property tax issues. That experience has brought the future of Metro itself into question.
The fallout from MVA and equalized assessment debates is accumulating steadily. We see accelerating volumes of assessment appeals, leading probably to fiscal crisis. There is no room to increase tax rates to compensate for lost assessment. Tax rates are already too high, so the crumbling assessment base leads to even deeper spending cuts than those already on the table.
I can assure you the city of Toronto is going through hours and hours of trying to figure out where to cut, and has been for the last couple of months. I'm sure you've been reading about it in the paper. Such cuts are not possible without eliminating vital services. Our quality of life is very much at stake here.
We are also facing renewal of cross-border upward assessment appeals initiated by the city of Scarborough last year. You might suppose these appeals would reduce assessment losses due to downward appeals. They might have a small positive effect, but there is no justification for cross-border appeals. It's just unacceptable that home owners should be targeted and hauled out before tribunals in this manner.
We also see many small retailers in Metro facing tax increases of more than 100%. This is occurring in shopping malls as a result of reapportioning assessment between small stores and large anchor stores. Those massive tax increases are exactly what the Metro MVA scheme would have led to. They serve to remind us that transition to tax reform is just as important as the end state. It does not matter how equitable a reform system is if businesses go under and residents are driven out from their homes in the process of getting to that reformed system.
The Fair Tax Commission report convincingly documents the flaws in MVA: the instability, the unjustifiable administrative costs, the unfair location taxes tied to speculative real estate markets. I am proud to have been part of the team that halted MVA in Metro. We would have been taking one step forward in a wrong process and then, eventually, when the Fair Tax Commission came out with its recommendations, would have brought us two steps backwards. We would have started in a process that was wrong. Thank goodness we waited for the report to come out.
Likewise, equalized assessment -- Metro could not explain equalized assessment but insisted we should have it anyway. We replied that a tax which cannot be explained cannot be fair. I am proud to also have played a role in halting equalized assessment in 1993. As the Fair Tax Commission report clearly indicates, equalized assessment would have been a dead end.
To resolve the assessment dilemma, the commission is proposing a new assessment system combining unit assessment and rental value. Whether this is the definitive answer remains to be seen. However, it is essential to move forward quickly on studies to show how this would work in practice. Whether it be in the Ontario budget or in some other announcement, I look forward to confirmation that the Ontario government will carry through with this work.
There is a second issue raised in the commission's report which has actually been less divisive in Metro. Indeed, if you look at the various submissions, there is a remarkable unanimity on the issue I have in mind, which is the issue of how schools are financed. As far as the residential portion of the property tax for schools is concerned, the commission is proposing that most of it be removed to be replaced with taxes better related to ability to pay.
The commercial-industrial part of the property tax for education would remain in place, but reassessed on a uniform rental value basis across the province. That step is likely to contribute in a major way to halting the shift of business activity out of Metro. Businesses are moving to parts of the GTA with much lower property taxes. We do not have a level playing field at the present time in Toronto.
The Fair Tax Commission recommended that the province actually take over commercial-industrial property taxes for schools, as Alberta has just done. This approach is generally referred to as pooling. I'm not sure you need to go that far. The key requirement is that wherever a business locates it should pay the same tax for education. If that is the case, perhaps the revenues can be left in the localities where they are raised.
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A third issue raised in the Fair Tax Commission report is a business tax reform. The recommendation advanced by the commission is to abolish the business tax, with its complex rate structure, permitting municipalities to recover the forgone revenue through realty taxes. We believe this is an appropriate direction in which to move. Uncollectible business taxes now result in write-offs for over $1 million per year by the city of Toronto, as well as unacceptably high administrative costs.
To sum up on the subject of the Fair Tax Commission, the provincial government has an opportunity to achieve a breakthrough, solving problems that earlier governments were not able to solve.
I have to tell you that sitting as a resident of the city of Toronto and a taxpayer, I've watched over the last 10 years every political party talk about getting school board taxes off the property tax base, and in the last 10 years every political party has been in an opportunity where they can do that as a government. Not one party has done that, but everybody talks about how good it would be to somehow reform at least school board taxes and get that off the property tax base.
In conclusion, reform of the taxation system will improve the business climate and thereby reinforce job creation initiatives. I believe tax reform is an essential prerequisite for sustained economic recovery. The Fair Tax Commission has set out a general blueprint for assessment, education and business tax reforms. City council would strongly support immediate commitment by the Minister of Finance to further develop the commission's proposals. We look forward to hearing of your plans in the budget address or even sooner.
The Chair: Thank you for your presentation. We have about seven minutes per caucus.
Mr Turnbull: Perhaps, if you don't mind, Ms Disero, I will address my questions to Mr Tomlinson. I say that because I recognize that Mr Tomlinson is probably one of the most knowledgeable people on property tax assessment in Ontario.
Ms Disero: That's why he's here.
Mr Turnbull: I recognize it, and I say that when I explain why --
Mr Peter Tomlinson: You're much too kind.
Mr Turnbull: With respect to the Fair Tax Commission recommendations, I want to specifically talk about what is happening with the shopping malls on the periphery of Toronto, not in the city of Toronto at this moment but in Scarborough and North York and so forth. Is the move by the large anchor tenants to seek reductions in their assessment commensurate with the recommendations of the Fair Tax Commission?
Mr Tomlinson: No, it flies in the face of what the Fair Tax Commission says on page 710 of the report:
"Another issue concerns the allocation of property taxes within shopping malls. The current system of allocating property taxes according to actual rents favours the anchor tenants. In a value-in-current-use system" -- which is what the Fair Tax Commission is proposing -- "assessment would be based on the rental value of properties of that type and quality in the municipality, not on the actual rents paid on a particular commercial unit."
So within the commission's approach what you'd do is you would find freestanding department stores and look at the rents per square foot, freestanding small stores and look at the rents per square foot. Those would be much closer together than are the actual rents within a mall, where the large department stores, because they anchor the whole mall, can negotiate their very favourable lease terms.
You wouldn't have this kind of situation that is now happening where they're moving to reflect the actual negotiated rents within the mall. I don't know why the assessors have decided to do that this year, just at the moment when this report appears that recommends going in another direction entirely, but that's what has happened.
Mr Turnbull: The immediate effect is that some of these tenants, the small tenants, who are providing a lot of employment, have the potential for being driven out of business completely. Could you tell me the sort of increases that some of these people are facing, in percentage?
Mr Tomlinson: There are many of 400% or 500%. They've been historically assessed on a per-square-foot basis. If your store has 1% of the square feet in the mall, it will be responsible for 1% of the property tax, but a small store which has 1% of the square feet may easily have 3% of the rent, because it's paying a higher rent per square foot than larger stores. So if you allocate on a rental basis and those were the numbers, you'd be going up 200%.
Mr Turnbull: Have you got anything to suggest that these smaller stores use proportionately more services on a per-square-foot basis than the large stores?
Mr Tomlinson: There's no evidence I'm aware of that would indicate they do. The allocation of services among individual stores in a mall would probably be better represented by the square footage than it would by the rents, which have no relationship to public services at all.
Mr Turnbull: It seems to me there's an opportunity here. You and I have been through this loop before; this is how I know Peter Tomlinson on property taxes. I want to try and draw out questions to help the government, whose own Fair Tax Commission, which cost $2.3 million to prepare, has the opportunity to do something, but you need to do something very expeditiously. After my questions, I hope you will draw Peter out on this particular subject, because small businesses are going to go bust.
Very typically, a small store might pay eight to 10 times more than the anchor tenant in a mall on a per-square-foot basis. Not only are they now being asked to pay that, which is something arrived at between them and their landlord, but they're now being asked through the tax system to pay multiples of the tax that the anchor tenant is paying, based upon the fact the assessment system is saying, "Okay, because you're paying less in rent, we're going to base the taxes on the rent you pay." This is going to drive the small tenants out. They cannot take 300%, 400%, 500% increases in taxes. I'm really saying that to you to help set this up. Peter, maybe you could just comment on it, or Ms Disero, if you want to comment on this.
Ms Disero: This actually was the major fight with MVA when the mayor led that charge. Certainly what you're saying is correct, and once you start driving out all the smaller retail stores, the assessment base within any municipality declines drastically. We're finding that in the city of Toronto. That's why we're trying to cut about 20% of our budget. Not because the cost of providing service is increasing, but because the number of people or the assessment pool is declining.
Mr Sutherland: I think the example Mr Turnbull is referring to is that this is the outcome of a seven- or eight-year appeal process. It has been quite ongoing. I just want to ask -- and maybe it's not fair to ask specifically the city of Toronto folks about this -- I wonder what your opinion is of how this would benefit, say, all of Metropolitan Toronto, because we certainly know from the MVA discussions, or when that was being assessed, that some people were going to get significant decreases, others were going to get larger. From your perspective -- and maybe it's hard to ask for an unbiased perspective directly from the city of Toronto -- do you see this as being much fairer for everyone across the Metropolitan Toronto region?
Ms Disero: Most definitely. I mean, particularly with the school board tax reform. Right now, almost 56% of everybody's property taxes goes into education. Taking that off the residential tax base certainly would cut everybody's taxes in half immediately. If you allow the municipalities to take the commercial-industrial taxes and put them back into their local municipality, and then use the income tax provincial grants to subsidize those municipalities that don't have the commercial base that maybe the city of Toronto has, certainly it would make it fairer across the province, not just in Metro. Everybody in a commercial and industrial property would be paying an equivalent tax.
Mr Sutherland: Okay. Besides then taking the education portion off the property tax, what about the proposed recommendations just regarding how you do the assessments?
Ms Disero: That question you're either going to have to repeat to me, or maybe it's over my head somehow.
Mr Sutherland: They make recommendations to take it off the property tax. They also make recommendations about what type of form of assessment do you use. They propose, I believe, what they call a unit value assessment.
Ms Disero: Yes, the unit assessment.
Mr Sutherland: I'm just wondering what your comments are on unit value assessment as to its implications for not just the city of Toronto but what you think maybe for all of Metropolitan Toronto.
Ms Disero: I'll ask Peter to elaborate, but with the unit assessment, it's the amount of services that you use proportionate to the size of property and house rather than market value, and the fluctuating market value. But I'm going to ask Peter to elaborate even further.
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Mr Tomlinson: With the MVA debate, the impression got out erroneously that the city of Toronto would be harmed by MVA and everybody else in Metro would benefit, but that's actually not the case.
There were neighbourhoods all over Metro. There were neighbourhoods in North York, there were neighbourhoods in Etobicoke that were going to be harmed by MVA as well as in the city of Toronto. There were areas in the city of Toronto that were going to benefit at least from the 1984 MVA.
In Councillor Disero's ward 83% of the homes, I believe, were going to go down but they were still opposed to the MVA plan in Councillor Disero's ward because they knew that these gains could be short-lived. The system was so volatile that only a short time later they could be losing substantially, as in fact turned out to be the case when we got to the 1988 impact study and the numbers had turned around in that part of the city.
I think everyone in Metro gains from a rational, stable assessment system even though some people obviously are going to be paying more than they would on the first round of MVA. In the long run, it's a predictable system. You don't have the uncertainty; you don't have these unanticipated 200% and 300% tax increases that come with keeping an MVA system up to date, because the unit component of what the Fair Tax Commission is proposing in here stabilizes the system and makes it more predictable.
The Chair: Ms Mathyssen.
Ms Disero: Sorry, Mr Woods would like to just add something.
Mr John Woods: Just further to the specific question, there would be an enormous simplification in the administration of assessment itself under the proposed system province-wide. There would be a substantial reduction in costs for the assessment program of the Ministry of Finance under the proposed thing. So there are substantial direct administrative benefits to be gained province-wide from what's proposed.
Ms Irene Mathyssen (Middlesex): I'm glad Mr Sutherland did ask that question so that Mr Turnbull's social democratic leanings could be assuaged.
My question is in regard to page 6, and I just wonder if you could clarify something here. I understand the concept of leaving the education tax on commercial and industrial properties and pooling. You say at the top of page 6 that you think this might have some problems and suggest it might be possible for all businesses to pay the same tax rate and that the revenues be left in localities. My concern there is, might we run the risk of having situations where, like in the United States, you had rich boards and tax-poor boards in that respect?
Ms Disero: No. The reason why you wouldn't is because the money that you get through the taxes on the ability to pay, through the income tax system, would allow you then to subsidize those municipalities that don't have as significant a commercial tax base as a municipality in Metro, or the city of Toronto for that matter.
Mrs Mathyssen: So just restructure the GLGs. Okay?
Ms Disero: Yes.
Mr Phillips: I appreciate very much the presentation and the new information that we've got here. Just so I'm clear on it, the first one on page 6, I gather that the implementation of the Fair Tax Commission reports, in your judgement, would mean lower business taxes, business property tax and commercial property tax in the city of Toronto.
Ms Disero: It would be spread equitably across the province.
Mr Phillips: It would be lower, though. You're saying your problem is that you're charging higher taxes.
Ms Disero: Yes.
Mr Phillips: It's helpful to know that's the result of it, because on the Fair Tax Commission we're kind of dealing with a zero sum here and it's like x amount's going to be spent, x is going to be raised by a commercial business tax, x by other sources.
Ms Disero: Sure. Okay. Peter wanted to add something to that as well.
Mr Tomlinson: The reason for that hunch that businesses throughout Metropolitan Toronto would benefit is this: The commission is saying reassess all commercial property in the province on a rental value basis and tax them all at the same rate and that rate would raise what is now raised by property taxes from commercial-industrial for schools.
If you look at the rental value of property in downtown Toronto and similar class A office space in the city of Mississauga, the rental value, and I'm talking about gross rents, may be somewhat higher in the downtown Toronto building or North York City Centre building or Scarborough city centre, but today the tax is two or three times as high in Metro as it is in Mississauga. This is contributing to the flight of business out of Metro.
Mr Phillips: I understand that.
Mr Tomlinson: If you took it on a rental value basis, the tax would be virtually the same, so ours would come down, theirs would go up. That's the reason why we're anticipating that gain that you've referred to.
Mr Phillips: That's helpful. The second one is just that I think the Fair Tax Commission said that roughly $3.5 billion of education funding is on the residential property tax. They're not saying that the taxpayers are going to get a $3.5-billion break.
Ms Disero: Cut, no.
Mr Phillips: They're simply saying it will be raised in a different form, which I think is around a 25% increase in income tax levels. I gather that the city of Toronto has concluded from its analysis that this would benefit the residents of Toronto. In other words, they would be paying less of that $3.5-billion tab.
Ms Disero: Yes; 56% of the property tax paid by residents in the city of Toronto now goes to school boards, roughly --
Mr Phillips: No, I understand that completely. I'm just saying that I gather from your report that you've also said that personal income tax raised in the city of Toronto -- under the Fair Tax Commission's report it will go up less than the property tax that the city of Toronto residents are paying.
I gather you're here speaking on behalf of the residents of Toronto and if that's the case, then I gather once again the beauty of this recommendation for the city of Toronto is that people outside the city of Toronto will pick up a larger share of the cost of education.
Ms Disero: If their ability to pay is greater, yes, and that's the city of Toronto position and that's what we believe, that it should be through ability to pay and, yes, it would certainly benefit the residents of the city of Toronto in most cases.
Mr Phillips: That's helpful to know.
Mr Tomlinson: We did just the calculation you're referring to in our report to city council. We worked out our share of personal income tax province-wide and assumed that would go up to replace that $3.5 billion, compared that with our residential property tax today. Overall for the city it was roughly break-even; there would be some individuals who would be better off and some would be worse off and then, as Councillor Disero said, there's an overall gain in equity because it's ability to pay. So that plus what happens on the commercial-industrial side means the city's certainly better off.
Mr Phillips: That's a useful study to have. Thank you.
The Chair: Mr Crozier, you have a couple of minutes.
Mr Crozier: I'll only take a couple, thank you. I just want to comment on two items on page 6. One is that I certainly agree with your comment about business tax. There should be some method by which municipalities can collect business tax without going through the court, and I appreciate that.
The other is a disagreement I have with you and I suppose it's because I come from a community of 14,000 people, which is a small urban community, and I represent a significant rural community. I am sure that pooling should be the thing to do when it comes to the industrial tax because it then would prevent the poor board-rich board situation.
If I may say, on the other hand, I appreciate what it is for our young people, but I think the city of Toronto and large urban centres benefit from the small centres, because our best students have to move to the larger centres in order to get employment and consequently I think it makes your community better too. I would ask that you give the rest of Ontario a break and agree with the pooling aspect of it and then we'll love Toronto much more than we do now.
Ms Disero: Thank you for your comments. Certainly we do appreciate the skilled workforce that comes to the city of Toronto from your community and I'll bring that message forward to the mayor.
The Chair: I'd like to thank the city of Toronto for its presentation before the committee this morning.
Ms Disero: Best wishes on your deliberations.
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ONTARIO SEPARATE SCHOOL BUSINESS OFFICIALS' ASSOCIATION
The Chair: The next presenters this morning are the Ontario Separate School Business Officials' Association. If you would please come forward, make yourselves comfortable and whenever you are ready you may please proceed. If you would identify yourselves for the purposes of the committee members and of Hansard.
Mr Tom Kelly: We thank you for the opportunity to present to you on behalf of all the members of the Ontario Separate School Business Officials' Association.
I am Tom Kelly. I am the current president of the association. I am the superintendent of business and treasurer of the Lambton County Roman Catholic Separate School Board, which is in Sarnia. With me today is Grant Andrews, who is the associate director of business affairs with the Durham Region Roman Catholic Separate School Board. He's the past president of our association. Pete Derochie is the superintendent of business and finance with the Simcoe County Roman Catholic Separate School Board and he is the vice-president of our association.
Going by your previous discussions, you may want to get into some of those discussions with us. We've addressed our presentation today to some more current, immediate problems, but we'll be happy to entertain some of those questions along the lines of the Fair Tax Commission as well.
We accept at the outset of our discussions that provincially we have some serious financial difficulties. We want to identify for you today certain cost increases that are impacting upon education in the current year that's before us. These cost increases should be funded provincially.
Your response to us will likely be that these are real costs and that they ought to be funded provincially. However, there are no new funds available to fund these costs and you probably will also tell us we'll be fortunate if we can receive the same amount of grants as we have last year. In that statement there's an impact of great concern to us.
We make our presentation from the perspective of assessment-poor boards, not just separate school boards, because there are many assessment-poor public school boards. We would like to emphasize that this issue of assessment-poor boards is what we're trying to deal with.
The issue we're going to talk about today, as I said, is, apart from the education finance reform project and the Fair Tax Commission -- we all accept with the major stakeholders that the system is broken and does need to be fixed -- we would like to address the immediate problem of the equitable distribution of the current grants as they exist for 1994 and potentially into 1995 until these new initiatives are implemented.
If the announcement were made today that the transfer payment to education for 1994 would be frozen at the same level of 1993, it would be reasonable to assume that maintaining the same grant transfer package and the same grant calculation package would be fair and equitable.
This in fact is not the case and is the essence of our presentation. We must convince you that the expenditure ceilings and grant calculations must be adjusted in order to obtain a fair distribution of the revenues and an equity of burden on the local taxpayers. We hope, through some of the following examples, to describe the essence of this equity problem.
I won't take you to chart 1, but in chart 1 is an extract out of the Ministry of Education document entitled Education Funding in Ontario 1993...A Description of the Education Funding Model. The highlight of this document is, in essence, the grant equity calculation package that's built into that. At line 4 of that item, you'll see a calculation that provides for an equalized mill rate to be provided across the entire province, which has the effect of treating all ratepayers equally and have them all have to raise the same tax burden.
Chart 2, which is a couple of pages back -- I'm going to highlight some of the things that are in there. We have provided some 1994 budget projections of cost increases that are going to be faced by school boards.
On the salary component, which is about 75% to 80% of a school board's budget, the social contract is in place. However, being that it is in place, there are still increment patterns that are attributable to employees, largely teachers and other employees. Those increment patterns have to be attributed to the social contract. That increment pattern for 1994 has to be paid to the provincial government as a settlement of the social contract, so that is a new cost that school boards are going to be facing in 1994.
Above and beyond that, there is the other 20% of the salary budget that belongs to employees under the low-income cutoff provisions. By and large, those employees, where they had collective agreements in place that provided for increases or are negotiating increases, a lot of cases around the inflation rate, are also entitled to their increments as well as these increases. It is estimated that, on average, the boards could be facing a 2% to 3% increase to pay for these parts of the contract.
A hidden area of the budget which is having a considerable impact in this current year is benefits. We have large increases in Canada pension, unemployment insurance, workers' compensation, just in the indexing of the salary calculations that are used to do that.
Beyond that we have large increases in drug and dental plans. We have figures from our boards: 20%, 30%, 40% increases for usages on these plans and the cost of the drugs. As you know, last year the provincial sales tax was implemented on many of these benefit plans. Those are going to impact for the full year of 1994 on school boards.
We've had announcement of large workers' compensation rate increases: 33% over three years, 15.5% this coming year; large unemployment insurance rate increases, 7.5%.
Under the supplies section, we've got the normal inflation that's going on many of the products but we also have in a lot of localities large increases in utility costs.
By and large, all these items are beyond the control of school boards, and as we sum them up on a total per-budget basis we see that even despite all the things that are in vogue, the budgets will probably rise in the neighbourhood of 2.5% for 1994.
This has a significant impact when you go back and consider that if the grant transfer package is frozen and school boards have to face these cost increases, that is going to fall to the local ratepayers. Unless the grants are distributed fairly among all those boards, we're going to get a disproportionate share.
Assessment-poor boards are most detrimentally affected by this. We would like to demonstrate to you in a couple of the other charts that increasing the expenditure ceiling and redistributing the existing grant package will enable all boards locally to pay the same amount of money but without compelling additional money to be paid by the province. There will be some real horror stories developing in local municipalities if that is not the case.
Chart 3, which you can look at at your leisure some other time, shows the impact of freezing the expenditure level at last year's grant ceiling but while the boards are facing these increased costs and the grants are frozen as well.
The impact of these assumptions is devastating. You will note that a very assessment-poor board, with its 2.5% budget increase, is actually going to face a 16% local mill rate increase.
An average assessment board is probably going to face a mill rate increase in the neighbourhood of 5.7% and a very assessment-wealthy board could have an effect of only 3.2%.
With this 2.5% budget increase, an average across the province should be that every board pays about 5.7% in this model. It's unfair to have some boards having to pay as much as 16% and some only paying 3.2%.
We're very much concerned and we would like to convince you that, albeit the total grants available may be frozen, they should be redistributed fairly among these boards, otherwise we're going to have the assessment-poor boards very negatively affected and pushed against the wall to a point where they may not be able to cope with some of the budget measures and we're going to have assessment-wealthy boards in this time of difficulty being positively affected and having to pay less than the average across the province.
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If, on the other hand, finances are so bad that extractions have to occur from the grant transfer package and they are extracted from the ceiling, this would make it even worse. We've provided for you in chart 4 an example of how taking these grants, the same amount of dollars as last year but redistributed equally, all boards would be unable to pay the same thing.
That's the essence of our presentation today for the 1994-95 budget years that we're facing. We're available for any questions you may have for us.
Mr Sutherland: Just on your charts there about increased costs for the upcoming year, utility costs are at 8%? That's due to natural gas cost increases?
Mr Kelly: Yes.
Mr Sutherland: Okay, just a couple of other things. Then I take from the essence of what you're saying that you support many of the recommendations of the Fair Tax Commission that deal with changes from the property tax base and in terms of what it's saying about how funds should be distributed for education costs?
Mr Kelly: Yes. I'll take turns answering. Generally we haven't studied them in great detail, but we have been through them. I would say, by and large, we're in support of the recommendations that are in the Fair Tax Commission.
Mr Sutherland: Okay. Earlier -- and I'm not sure if you were here or not -- we had the School Bus Operators' Association of Ontario talking about some changes that it wanted. We also got into some of the discussion about what efforts are under way to reduce costs and what efforts are under way between separate school boards and public boards to do as many of the non-distinctive features of the two systems, to coordinate them and to reduce costs. We specifically talked about efforts on busing.
I was wondering, from your organization's perspective, if you could give us some sense of what some of those efforts are, what other things the provincial government could do, either through budget or just general policy changes, that you believe would help support those initiatives to have more cooperation between the two board systems to reduce overall costs.
Mr Kelly: Pete Derochie would like to respond to that question.
Mr Pete Derochie: I can give you an example certainly of what's going on in our community of Simcoe county and Muskoka, which is indicative, I think, of what's going on in a lot of areas in the province.
Obviously the province, through the funding mechanism, has made transportation a target. They've provided incentives, both in lowering the grants for transportation and moneys through restructuring initiatives for boards to undertake the initiatives that are required. I'll use Simcoe separate as an example of what's going on out there as a model perhaps, to give you some idea that there are successes, and it is indicative of a number of other initiatives boards are looking at.
We presently have a task force between the two boards. It parallels much of what we read in last week's paper with the hospitals and the municipalities and the Metro school boards that are looking at ways to share services, reduce expenditures and become more efficient and effective.
We've identified a number of areas, and obviously the most significant area is transportation. Through the restructuring grants that were provided to school boards, we are in the process of implementing computerized transportation systems, which is basically going to be one system administered by one board which will allow the two school boards' needs to be sort of mapped and mirrored together so that optimization of route management has occurred. We're developing that cooperatively, together, and we'll be involving our local association of school bus operators so that they understand how that impacts them.
We're very fortunate that we have the local association in our community. We have documentation that the bus operators' association is prepared to work cooperatively with boards on these initiatives. We're expecting a minimum 10% transportation savings over the course of that project.
The unfortunate part -- and this is where the community and perhaps yourselves get a little impatient -- is that shift. You can imagine two boards that had so much autonomy and basically feared each other. Breaking down the barriers to work together takes some time. Then, once we have that environment, that culture cultivated with which we've been successful in Simcoe county, you have to then get your staffs to work and initiate the projects and planning that are required.
That has taken us about a year and a half, and we will be in a position to realize the fruits of those endeavours in the summer/fall of 1995. So we've been basically two budget years from the restructuring grant announcements to when we're actually going to realize the benefits. That's just an idea of what's going on on that one initiative.
Mr Sutherland: Just one point of information. Of the total costs of a school board, what would busing be as a rough estimate?
Mr Derochie: It depends on the board. It depends on whether you're rural or urban.
Mr Sutherland: For a rural board like that.
Mr Derochie: For Simcoe separate, our transportation costs about $8.3 million of a $94-million budget. It's less as a percentage for, say, our coterminous public board because they're more urban than we are.
Mr Jim Wiseman (Durham West): A really quick question, and Mr Andrews will be able to answer this, I think. But what are the Metro board able to offer their students? I'm looking at the recognized ordinary expenditure-per-pupil level.
If my memory serves me correctly, for the separate board in Toronto, I believe they spend about $1,200 and some odd dollars above that, and for the public board in Toronto it's somewhere in the neighbourhood of $2,500 to $2,600 above that. In Durham it's $895 roughly, I think, for the public board and $295 for the separate board.
What are the Metro students getting, for that extra money above that grant, that your students in Simcoe and your students in Durham are not getting, and how significant an impact is that on their education?
Mr Grant Andrews: Wow. Actually, your figures are fairly close, by the way. The 1993 figures for Metro at the elementary were $2559, and at the secondary, $3423 above the approved limits. For the Durham separate board, we were $283 per pupil elementary and $455 secondary. What they're getting for all that extra money, actually, they'd be better to answer than I.
But in terms of what we're not getting, one of the problems we've had is we cannot pay our employees comparable wages and, as a result, we've had three strike votes in a row from our secondary school teachers, who feel that they should be paid comparable wages, either close to what Toronto's making or even their public school counterparts, because obviously we're paying a fair bit more. Our class sizes are larger too, because with a much more limited assessment base, we cannot live at the same level as they do. We attempt to live within our means.
As I'm sure you're aware, one of our sister boards, although spending much less per pupil than their coterminous board, is in a bankrupt state, even though they're spending much less than their coterminous board. They don't pay as much to their employees as their coterminous board either, but the gap perhaps isn't as large as it is in Durham.
In terms of our support staff, of course, we're much leaner. If you take a look at the Ministry of Education figures, you'll see that our administrative costs all tend to be much lower. That means we can't provide the same kind of support. In terms of programs, of course, we try to minimize the impact there. I won't try to measure what that impact will be, but certainly it does cause a great deal of difficulty for a low-assessment board such as the Durham separate school board.
Mr Derochie: I'd like to make an additional comment, if I could. It's hard to say what our neighbours are spending when we don't have access to their records and their significant programs. But I think one has to ask oneself, are the students in those comparable situations provided the same opportunities? Do dollars provide additional opportunities to one set of students who happen to attend or live geographically in a different area? Do more dollars provide more opportunities? I would propose that the logical answer to that is yes. Therefore, if that's our feeling and our belief, we're obviously flying in the face of one of the basic principles of the education funding model, that is, equality of opportunity.
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Despite the fact that we can't today answer your programs in terms of the specifics, I think you have to look at it in terms of the opportunities in a more general nature. We would propose that there is not equality of opportunity because of the funding model being what we perceive as broken.
Mr Phillips: I appreciate your presentation. The kind of fundamental message that comes from an across-the-board grant allocation on old formulas results in quite a different impact locally on the mill rate. That's your short-term fundamental message to us today. Is that right?
Mr Kelly: That's correct. The way the grant system works is because of the fact that you raise the expenditure ceiling, people feel that's acknowledgement that you're going to have to pay more grants, but that in fact is not the case. It simply recognizes costs to have grants so that if you do recognize those costs, then we get a fairer distribution of the grants rather than freezing them at the levels they were in 1993.
Mr Phillips: Could you help us out on just where things are right now? You're awaiting the grant announcements, are you? Have you been given any expectations of what they will be and when they will be forthcoming?
Mr Andrews: Last year there were certain principles announced in February 1993. We had hoped that similar announcements would be made this February and the actual details are usually distributed in March. That's what we would expect.
We are of the belief that the ministry staff are aware of the problems in terms of the existing funding model and that they want to work as best they can within the constraints with which they have to work, but of course we realize that the decisions are made at the political level and not at the staff level.
Mr Phillips: My recollection is that grant announcements were made normally in November, December.
Mr Andrews: I think what you're making reference to is the global picture in terms of the change in the total transfer payments.
Mr Phillips: That is what I'm referring to. There's been no announcement on that.
Mr Andrews: Yes, there has, actually. The transfer payments were announced for a three-year period. Last year it was zero and this year it's zero in terms of increase.
Mr Phillips: Everyone's working on just the assumption that this is what it is.
Mr Andrews: On a global basis.
Mr Phillips: Okay. What's been the actual impact on your funding? If zero comes from the province, have you kept your spending to zero or has there been a shift of the cost of education more and more on to property tax?
Mr Andrews: The latter is true. Two things have happened. There have been significant spending cuts. Some programs have been lost and staff have been reduced. On the zero, by the way, that's a little bit misleading. If the total payment is zero in an area where enrolment is growing, the per-pupil amount actually is decreasing. For example, if there's an increase in enrolment of 5% and you pay out the same amount, the impact on a per-pupil basis is a 5% decrease. Actually, if you look from 1992 to 1994, you're talking about a 5% decrease on per-pupil transfer payments.
Mr Phillips: Can you give us any indication of what you're spending has actually gone up? I'm just trying to get a feeling, as we talk restraint here, is it actually being translated against the property tax or have you seen significant increases in property taxes?
Mr Derochie: I can give you certainly our example for Simcoe separate which would seem to be an average board, but just if we had done nothing, left everything, what I tend to do is take the 1994 factors when they come in and I'll run them against the 1993 and say, "If we had left everything at zero, what would have been the tax impact?"
I've only been in the school board business six years, and in each of the last six years, within that calculation, had we left expenditures as they were the previous years, there would have been a natural increase in the mill rate just attributed to the standardized mill rate increase and the change in equalization factors that occur.
Despite what's happening on the expenditure side, just what happens within the funding model drives up the local tax bill. The boards recognize that there is that overgrant or overceiling expenditure that the boards are incurring. Some of them are local decisions, some of them are as a result of inadequate funding, but the natural trend in the funding model over the last number of years has been to increase the local taxes. It's a smoke-and-mirrors kind of situation. It's not very transparent to the taxpayer. We'll take credit for perhaps 10% of the mill rate increase, but there's also been a significant burden placed as a result of the actual mill rate assessment equalization factors.
What tends to happen, and that's the problem of an assessment-poor board, is the province in November will announce, say, a 5% transfer payment increase but when it all tumbles out in March there might be an 11% to 14% increase in the standardized mill rate. For an assessment-poor board which receives significant, higher grants, that 11% increase on a smaller share of their budget, a smaller piece of the pie, is magnified. That's the problem assessment-poor boards run up against now.
In terms of the expenditure side of your question, I think boards have been fairly successful to reduce their expenditure level increases below either growth or inflation or both factors combined. There have been successes. There'll be exceptions, but I would state that there have been successes.
Mr Kelly: Maybe if I could supplement that. There is a concern going into this budgetary year that was not there in others. As Peter and Grant have said, boards are making cuts to live within their budgets, but in this upcoming year and through the term of the social contract all the savings that might have been out of reducing programs and reducing staff, that might have gone to balance the board's budget, now under the social contract must be attributed to the social contract.
The board now has virtually lost control over 80% of its budget as far as an area to cut to balance the budget. If we don't get realistic transfer payments and grant ceilings, you're asking them to find all the money they need on the other 20% of the budget, a lot of which are utilities that are uncontrollable costs as well.
Mr Phillips: I understand.
Mr Gary Carr (Oakville South): I had a question regarding the social contract. I supported the government's theme of cutting back and I think a lot of people did. It was difficult to talk to teachers and say, "Yes, you should be cut back 1%, 2%, 3%," whatever it was.
The problem we had in the amendment that we introduced was instead of having the days off as a result we said, "Whatever the cut is, 1%, 2%, 3%, you get cut -- nurses, doctors, teachers -- but you don't get the time off." Education wasn't as bad, but in health care -- for example, before Christmas I got a call from a lady who had breast cancer and after a certain date they weren't going to have any more operations and she didn't make that date.
We had to get involved, and we're not talking education where education's important with kids, we're talking about a life-and-death situation with breast cancer. We intervened and she got in and presumably nobody else got bumped. But what happened with the social contract in the way it was done, while we agreed with the theme, we really put a tremendous burden on people and I use that as one example.
If you had been involved and had the authority to do it, would you have done it the way it was done by the government or would you have done it with the cuts? I know 80% of your costs are making those cuts, but not giving the days off. Have the days off created problems or have you been able in the education sector -- because I want to tell you in the health care it was a tremendous nightmare -- but in the education sector, with PD days and so on, have the days off been a problem for you?
Mr Kelly: I'll give Grant a chance to gather his thoughts, but I'll put an initial thing in. A lot of the concern I heard expressed around the executive council table was, at a time that we're moving into a lot of technological change and new things that have to be done in the education system, these days are going to be taken off or have been taken off professional development days.
If there's anything the teachers and the staff need now it is more professional development on the new methods of computer education and all the technologies to become professionally updated themselves to pass it on to their students. That's the one major thing I heard from the business perspective going around executive council. Do you have anything to add?
Mr Andrews: I sat in on the provincial social contract negotiations on behalf of the Ontario Separate School Trustees' Association, so I'm aware of some of the difficulties that did exist and continue to exist. I guess you have to look at it in -- the goal was to produce permanent reductions. The days off won't do that but the second, the agreement that was made between the government and the teachers, I guess ensured that there would be long-term permanent savings. The teachers really don't want unpaid days and they're forced to negotiate for a change in the pupil-teacher ratio.
What I see happening is that there will be an increase in the PTR across the province and it will be sooner rather than later and the cost of education will be reduced, and that was the goal, as I understand it. It's not without a great deal of pain and it's not going to be easy. There may be a signed agreement at the provincial level but there's still a lot of work being done at the local level and will continue to be, and still problems being unearthed. But in terms of a permanent reduction, that was probably the way to go, although I didn't like it.
Mr Carr: With regard to the funding issues, you know this government said in the last election that it would increase the funding at the provincial level, and I suspect the next time all six members sit on a platform their opposition will be one of the major promises that they broke because a lot of people really believed them, that they were going to increase the funding. Being a socialist government, they figured okay, that's one thing they might end up doing. Of course, it's gotten worse.
I sympathize in one way, and I wanted to ask this of Betty when she was in because politicians being what they are, if we move it to the income tax system or whatever, the other politicians, whether they be trustees or municipal politicians, will jump in. If we do move it, my fear is that your predecessor, Betty, will come in and say, "All of a sudden the big cost has gone into the education system. There's now room for us as municipal politicians and trustees to jump in," and the bottom line is we have a net increase in taxes. One of the ways to deal with that, which is what they did in Britain, is that when they moved it off the property tax they then put caps in place.
How do you see it working if in fact a lot of the education goes off the property tax? How do you see us avoiding municipal politicians or trustees jumping in and saying, "Okay, now they're paying that portion of it and we can use some of the property tax," whether it's Alan Tonks saying it's a good cause for capital projects or whatever? Do you think the provincial government should put caps on municipalities and say, "Okay, trustees, you can no longer have any more taxing ability"? How do you see that working?
Mr Andrews: I don't want to really try to deal with the municipal issues other than the fact that I was also involved with the Fair Tax Commission property tax working group and a signature to the minority report. Your earlier question about support for the report of the Fair Tax Commission, much of it is consistent with what was in the minority report and naturally I would support that.
But one of the concerns we had in our discussion was the very issue that you've raised. Historically, if you go back, you'll find that indeed has happened in the past, because there was a time when the education component of the property tax was reduced but the home owner didn't see it because the municipality moved in. I recognize that is a problem but I'm not about to identify a solution for municipalities. I've got enough problems with school boards.
Mr Carr: It's a big, big issue, that's for sure. Thank you very much. It was a good presentation.
The Chair: I'd like to thank the Ontario Separate School Business Officials' Association for its presentation this morning. This committee is recessed until 2 pm.
The committee recessed from 1144 to 1413.
ONTARIO CHAMBER OF COMMERCE
The Chair: Our first presenter this afternoon is the Ontario Chamber of Commerce. Make yourselves comfortable and proceed whenever you're ready.
Mr Ted McCollum: Good afternoon, Mr Chairman, ladies and gentlemen. My name is Ted McCollum and I'm here this afternoon to deliver the chamber's pre-budget submission. I'm the treasurer of the Ontario chamber. Mr Joe Couto is our policy coordinator, and Mr Don Eastman is a member of our board of directors.
The 65,000 members of the Ontario Chamber of Commerce regard the upcoming provincial budget as once again critical to the economic and social future of this province. We do not hide the fact that we've strongly disagreed with the current government's three previous budgets. These budgets have reinforced the tax-and-spend cycle, exacerbating the fiscal problems facing Ontario.
We remain hopeful, and from Mr Laughren's recently reported remarks, perhaps cautiously optimistic, however, that the harsh lessons of the last three years combined with the fiscal realities of today have taught this government that it cannot continue along the same course. The government of Ontario cannot continue to impose more taxes and more regulations on the businesses in this province, because every dollar that is taxed away from a business, either directly or indirectly, eliminates jobs. We need jobs and we need private sector jobs in the province of Ontario. That is an economic fact.
We must see a change in the mindset that treats profit as a dirty word. Profits are what create growth. Profits are used for investment, for equipment, for training and, most importantly, for jobs. Without profits there are no jobs, as we can see, there's no economic activity and there's no tax stream to sustain the social programs and other government spending.
We continue to encounter a mindset which treats business prosperity and social programs as mutually exclusive. On the contrary, it is business creating private sector jobs which generates taxes, taxes that pay for our vital social safety net.
We implore this government to adopt a fiscal strategy which helps business create these jobs, to ensure Ontario's economic prosperity and social wellbeing well into the future.
It is imperative that the government commit to no tax increases or no new taxes in the upcoming budget. When we appeared before this committee last year, we warned that increasing taxes would not solve the government's revenue problems. We said that Ontarians had hit a tax wall, the point at which tax increases actually have a negative effect on tax revenue, and we cautioned that increased taxes would destroy jobs while fuelling the underground economy.
As we predicted, despite a huge tax increase, revenue projections have come in significantly below the Finance minister's forecasts and it's clearly time for the government to rethink its approach to taxation.
Revenue is not the problem; expenditure is the problem. There is no more room to move on taxes. Every new tax is a blow against the fragile economic recovery which is currently under way.
The Ontario chamber has frequently pointed to the need for expenditure re-engineering, not just expenditure cuts, as critical to achieving a balanced budget. We reiterate our call for comprehensive, independent, value-for-money audits on current and proposed programs. In addition, we recommend:
(1) Greater emphasis on making consumers aware of the real costs of health care. We recommend that a semiannual personal health services statement be issued to each taxpayer to raise awareness and decrease fraud.
(2) Rationalization of ancillary services in education, to move a greater percentage of the education dollar from the boardroom to the classroom.
(3) Social programs based on self-dependency rather than social dependency. Programs can be re-engineered to encourage work transition, to encourage part-time or lower-paying, full-time employment with government supplementing shortfalls to social service support levels.
(4) Consolidation of government services, in infrastructure, in buildings and in administration in local areas would reduce overhead expenses and share administrative and ancillary services.
(5) A specific plan to significantly reduce direct government labour costs, including tighter controls on the use of outside contractors, an immediate hiring freeze and restrictions on wages, overtime and other employee-related expenditures.
There remains a strong perception among most Ontarians that there are simply too many government employees. The government has, to some extent, recognized this in initiating the social contract process. However, we were disappointed that the so-called savings came not directly from the Ontario government itself but from the broader public sector -- cuts to hospitals, school boards, municipalities and teachers' pension funds -- in many cases transferring, not eliminating, costs.
While these steps may have been necessary, they are only a small part of the problem. This approach does not address the fact that the government is still spending too many tax dollars on its own operations. Redundant studies, unnecessary committees, duplication of services, wasteful paperwork, layers of bureaucracy and hollow consultations are examples of government needlessly spending money on itself.
As business has done over the last several years, the government must embrace and aggressively adopt the concepts of total quality management and empowerment, to reduce costs, improve efficiency and enhance service.
After last spring's budget, the Finance minister was quoted as saying: "I really believe the bulk of the move has to be on the expenditure side. You can only raise taxes so much." We hope the minister remembers these words in his upcoming budget.
We've been asked by this committee to take a few moments regarding the final report of the Fair Tax Commission. The Ontario chamber is still reviewing the many recommendations and hopes to provide the Finance minister with more extensive comments in the near future. However, we must reiterate our concern that the commission failed to address the key issue, which is the overall level of taxation.
It is frustrating for business to see that the Fair Tax Commission was essentially oblivious to the link between the tax system and the economy and that the way to generate higher tax revenues is to promote a vibrant economy, driven primarily by private sector jobs and investment. Taxation policy must be adjusted to encourage job creation and hence more tax revenue, even if at a lower tax rate.
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We do support some of the Fair Tax Commission recommendations such as harmonization of the provincial sales tax with the federal GST, which would significantly reduce the paperwork and cost of compliance for taxpayers. We urge the government to act immediately to harmonize the PST and GST.
Unfortunately, the report also contains many recommendations which, if implemented, would negatively affect business in this province, and with that, the economic recovery and the growth of private sector jobs. We urge the government to be very careful on the issue of Fair Tax Commission recommendations. Businesses in this province simply cannot afford more taxes, regardless of what they are called and how they are collected.
When the standing committee on finance and economic affairs looked into the issue of the underground economy last October, we submitted that an increasing amount of economic activity was going underground to escape taxes and regulations. Many of those participating in this underground activity feel it is a matter of survival: Either avoid paying taxes, passing on the savings to customers, or lose those customers to competitors and go out of business.
It is a commentary on our level of taxation that many normally law-abiding business people have begun to resort to this type of activity as a means of survival. The government's response to this situation has been to emphasize enforcement, instead of tackling the real problem. In other words, the government persists in trying to treat the symptom and not the cause.
We find it exasperating that the government continues to refuse to even acknowledge that Ontarians are overtaxed, instead choosing to tinker with the collection system. Collection is not the main problem. The amount that is being collected is what is driving so much of our economy underground. As well, growing distrust of the way tax dollars are being spent by the government is further fuelling the movement towards tax evasion.
Again, government waste and the perception of widespread government waste is a critical issue. As long as businesses and individuals continue to see the government spending money needlessly, especially on itself, the underground economy will thrive. We do not condone this activity, but it is essential that the government address the root cause, not simply paper over the symptoms.
The most critical message we can leave with you is the concept of sustainable government. A government which is viable and sustainable into the future is directly tied into the health and vitality of the private sector, which ultimately pays the taxes that make the public sector possible. Hopefully, we all agree we cannot have a public sector which is larger than the ability of the private sector to pay for it, yet this is precisely where we are today.
The Ontario Chamber of Commerce believes that the province has come to a fork in the economic road.
We see our economy doing better in 1994 than in previous years, thanks to a more robust US economy and a restructured, more competitive private sector here in Ontario, particularly in manufacturing. We are confident that Ontario companies will continue to spend more on new equipment, more on training their workers and more on becoming more competitive. We are also hopeful that the increase in exports will result in more consumer confidence and more consumer spending in the province. Even a modest growth in the economy of, let's say, 3% would be a welcome relief to our members.
As far as the government's role in our economy is concerned, it is our opinion that it cannot maintain a business-as-usual attitude during this modest recovery. We hope it is clear to the government that deficits are nothing more or less than deferred taxes and that what we need is a sustainable level of government.
The government itself has admitted that it simply cannot continue to grow without serious economic consequences. The attempt to spend our way out of the recession has only resulted in double-digit unemployment, massive deficits, a spiralling debt and a negative business environment that benefits our competitors, the competitors of businesses in the province of Ontario.
It is simple economics that government jobs do not generate new wealth but simply absorb taxpayers' money. Ontario needs entrepreneurs to invest and commit their skills and drive this province's economy. We agree with the Premier when he states that his government's top priority is job creation. However, we must clarify: That is job creation in the private sector. More government-funded jobs will only compound the deficit problem, not solve it.
The Ontario Chamber of Commerce recently surveyed its members through local chambers of commerce and boards of trade across the province, asking which issues they felt were most important for ensuring economic growth in Ontario.
The number one issue of importance to Ontario's business community is the size of the budget deficits, considered a major obstacle to job creation. A balanced operating budget must be a primary objective for the government. We submit that the upcoming budget should clearly state this goal, with a specific time frame for achieving that goal.
Our members often express their frustration, not only with the size of the deficit itself but with the government's continued insistence on using creative accounting methods to produce fiscal numbers that we quite frankly do not believe. We have continuously asked for a clear set of books by which to judge the fiscal health of the government and of the province of Ontario, and we're still waiting. Even the Provincial Auditor has been critical of the way Ontario's financial picture has been represented. Naturally, bond rating agencies and potential investors are not impressed either.
What particularly troubles the Ontario chamber is that the government seems to believe that a deficit of under $10 billion can somehow be termed a success. Not only is this detrimental to the economy, but it also leads to a budget process whose primary objective is to present the deficit below this magical level rather than stating the true bottom line. The Ontario chamber believes that a clear set of books is essential if the government is sincere in winning back the confidence of the people of Ontario as well as the trust of potential investors from outside this province.
Let me point out that on the night of last spring's budget, the Ontario chamber calculated a deficit of $11 billion based on the limited information contained in those budget documents. As you know, that figure turned out to be much more accurate than the official projections. It is our contention that if we were able to calculate an accurate deficit figure based on such limited data, then the Finance minister should have been able to do so as well.
We refer you to addendum A at the end of this submission, which is our assessment of the government's current fiscal situation. We have attempted to provide you with the factual numbers as we best can, and have attempted to be conservative in our estimates.
We are presenting you with this as a challenge: Please show leadership. Be honest with the people of Ontario. Deal with the deficit issue by exposing it clearly and developing a plan to eliminate it. We implore you to put fiscal integrity above political posturing. Tell us the truth so everyone has the proper knowledge to develop workable economic strategies.
In conclusion, the Ontario Chamber of Commerce is committed to working with all stakeholders to improve our economy. But let me be frank with the members of this committee. We understand that you are elected officials and that an election is approaching. The temptation to try to be all things to all people must be very strong. However, we believe that Ontario's economic recovery is too important to be at the mercy of politics. The Ontario chamber believes that the upcoming budget must be based on common sense to aid the economic healing of the province of Ontario.
In summary, we urge the government to commit to no increases in direct or indirect taxes; to set out a specific time frame for a balanced operating budget; to provide a clear set of financial statements; to reduce direct government expenditure by streamlining and downsizing the bureaucracy, empowering employees and eliminating waste. We encourage you to harmonize collection of the PST and GST at the earliest opportunity, and to work with the business community to create a climate to create private sector jobs.
We urge the government to lead Ontario out of these difficult economic times and not to hamper our recovery with more borrowing and more spending.
All of which is respectfully submitted by the chamber and our president, Mr Stu Verge, and our executive director, Mr James G. Carnegie. Thank you.
The Chair: Thank you very much. We have five minutes per caucus. We'll start with Mr Phillips.
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Mr Phillips: I very much appreciate the chamber's presentation. It's thoughtful, as usual. I'd make one comment and then ask a question.
I think your exhibit on page 9, "Restated Deficit," without getting into detail, is probably not far off. I haven't looked at the numbers in detail. I can assure you that we are working -- at least the Liberal caucus is, and I think the Conservative caucus is as well -- to get the books reported in a way that gives a fair statement. I hope that will come sooner rather than later, although the indication we had from the government yesterday is that they don't plan, with this budget, to incorporate the Provincial Auditor's recommendations; they plan to do it six months or a year from now, which I think is a big mistake.
Mr Sutherland: September.
Mr Phillips: I think September is longer than six months. So in this budget we will not see what I would regard as a proper disclosure of the finances of the province, but I think we can get around that. As I say, I appreciate your work on that.
My question, though, is whether you can be helpful to us on the revenue side. A big problem that we see is that somehow or other revenue is just simply not coming in to the province anywhere near what one would have expected on the old basis of looking at it.
As we said to the Minister of Finance yesterday, taxes have gone up $3.5 billion in the last three years. You would've normally expected tax revenue to go up $3.5 billion and tax revenue has actually dropped by $2 billion. We are seeing a very profound change in the economy that cannot be explained on any normal basis. I wonder if the chamber and its members can give us any insight into what's causing this almost inexplicable revenue problem?
Mr Joe Couto: I think it's been very clear to us as we've surveyed our members on the underground economy and their thoughts on the future economic growth of the province. Quite frankly, a lot of people are still very uncertain of the future. There's a lot of frustration out there where they, and I'm talking about our business members, see their competitors in neighbouring American states, and even perhaps in some of our competing provinces, starting to move ahead, starting to have a groundswell of, "The future's looking brighter," while in Ontario we are not sure of the financial picture in the province. That's why we call for a balanced budget.
Quite frankly, a lot of people are just putting off making those investments that we need in the province in terms of expanding, investing in new machinery, new employees, that kind of thing. But I think it goes down deeper and that really there is a feeling of uncertainty. There is a mistrust of government, if I can call it that. That's reflected quite frankly in the underground economy, where it keeps growing. Reaction from government has been enforcement instead of tackling the problem and being honest, that we have hit what's called a tax wall.
Last year we came and said that any tax increase was going to push us beyond that point where you're actually going to start seeing a decrease in revenues. I think we've reached that point. If it's not loud and clear now to the Finance minister, then we don't know what else it's going to take to get him to realize that we just have no more room to move on taxation.
Mr Monte Kwinter (Wilson Heights): Thank you very much for your presentation. I agree with much of what you say, but I have a comment and a criticism. On page 5, you say, "What particularly troubles the Ontario chamber is that the government seems to believe that a deficit of under $10 billion can somehow be termed a success." I raised this point yesterday with the Deputy Minister of Finance. I think the media and the chambers are part of the problem.
In 1990-91, when the deficit projection was $9.7 billion, we had demonstrations outside Queen's Park. It was a big deal. It was a huge deal. Now every year, when the government floats a figure that it could be $13 billion or it could be $16 billion, it comes in at around $10 billion. The media, the chambers are saying, "We're not happy but it could've been worse." It's gotten to the point where that figure is accepted as acceptable.
In your presentation you're critical of that but I find, and I look for it after every budget, that the business leaders, the banking community, the media, the chambers, are saying, "At least it's under $10 billion." You've sort of bought in to this level. I'd like to have your comment on that.
Mr Couto: I would not accept that we've bought in to the $10-billion figure. If it's being construed by the media that somehow chambers of commerce in particular, and I won't speak for the business community as a whole, find $10-billion deficits to be acceptable, it's just not so. We know that the $10-billion deficit this year is nothing more than tax increases in the years to come and on our children.
I think what we're trying to say in this paper, Mr Kwinter, is that we have to have a real change in mindset here. This particular government is no different than governments in the past and in other jurisdictions. They do something before every budget, putting out some figure that's $4 billion or $5 billion more than what's going to come down as the deficit, and then we all have a tendency, because we're human, to say, "Well, at least it wasn't $14 billion," and I think that's something we all have to work on.
I want to make it very clear that nowhere in our 205 chambers of commerce do people think that a $10-billion deficit is acceptable. Indeed, we have urged our members to look for what are the real numbers, and what we're saying here in our addendum is we think the real deficit is closer to $12 billion. I can assure you that whatever figure the government comes up with this year, we are going to study it very closely, and our chambers of commerce are going to make sure that their local MPPs understand that it clearly cannot go on this way, that we have to have a plan to get rid of this annual deficit and that we have to have a plan to deal with the deficit situation we have in this province.
Although I can sympathize with what you're saying, that it's very frustrating for you as opposition members to see people breathing a sigh of relief at a lower deficit figure, in no way are we going out and saying that we're pleased it's not higher.
Mr Carr: I appreciate the presentation. I wish there was more time.
I spent the last couple of months going out as our critic for Economic Development and Trade, talking to business and what we're going to be able to do to create jobs. I want to tell you that there's so much anger out there at political parties at all levels and of all political stripes. People are usually pretty kind to their own members, but when you get out to other ridings they really let you have it, and they don't care if you're Conservative or Liberal or NDP; they think we all are creating problems.
I would love to spend time getting your opinions on WCB, employment equity, Bill 40, all the things I'm hearing, but since you focused on the financial issue, I want to talk about the big issue that this province is facing, and the federal government as well. You say that jobs are going to be created in the private sector, and I agree. I think governments at all levels and all political stripes have put up more roadblocks over the last little while and have been one of the biggest problems to business succeeding in this province.
The question right now is that, as you know, governments like to be perceived as doing something. Politicians like to be out there cutting ribbons, whether it's a courthouse opening and so on. The province has spent a great deal of money on job capital programs thinking that was going to stimulate the economy and create jobs. The federal Liberals were elected on their program of spending $6 billion. Could you give us your honest assessment of that program?
Would the chamber, knowing the fiscal situation -- you know it's a share-in with municipalities and federal and provincial, so that's why I'm asking you -- on this program that we're going to undertake at the federal level, the $6 billion of $2 billion, $2 billion and $2 billion, do you think we should be doing it, or would you rather see us put that on deficit-reducing taxes? What's your honest assessment about what's going to happen with the federal and provincial governments' program in job creation?
Mr Don Eastman: Mr Carr, you have hit on, I think, one of the fundamental problems that we've faced for a long period of time, and that's that politically a job that you can take credit for is worth a lot more than jobs that are created that you can't take credit for.
Mr Carr: That's right. It shouldn't be, but it's the case.
Mr Eastman: That's a political reality and I don't know how we change that. I guess the comment I've got on the job creation program is that if government is going to spend money, it's at least helpful if it goes into real assets that have a long lifetime. To the extent that this program does that, we would prefer to see the government money spent that way than in some other ways.
The numbers that are presented still pretend that this money drops out of the air someplace, that it doesn't come from someplace else in the economy where it's actually costing jobs. If you really do the right equation that says, "Okay, it has to come from someplace. Where's it coming from? What are we really paying for it?" then I have some real concerns that what we're doing is, once again, moving some jobs away from the taxpaying private sector into the tax-absorbing public sector.
Mr Carr: Let's be very blunt. I appreciate where you're coming from and you have to be diplomatic. Should we do it? Yes or no?
Mr Eastman: In my opinion, I would prefer to leave the money in the hands where it will create jobs, in the private sector that will pay taxes.
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Mr Carr: Another question: I think that at the federal level the Reform Party called for elimination of all government handouts and grants, whether it's the Ontario Development Corp in the case of Ontario. Speaking to a lot of businesses, they said the same thing. They said, "We never source them. It's only the de Havillands and the Algomas that get them." Again, government likes to think that it's done something. They put this pool of money together. Most of the job creators, the small and medium businesses, never source it.
Businesses are saying to us, "Whatever amount the Ontario government spends, $500 million, $300 million, $200 million, in grants and loans, take that money and reduce the employer health payroll tax, starting at the lowest companies up." It would do more to create jobs and help the business climate in the province of Ontario. One political party in this country called for that, because the federal Conservatives gave out money and were there to cut ribbons too; the Reform Party did not.
Would you like to see the Ontario government get rid of government grants and handouts to businesses, and not just take that money and then spend it on welfare but reduce taxation levels? Yes or no? What would you like to see done?
Mr Eastman: I would like to see them get out of that. One of the problems we've got is that as long as those programs and those types of programs remain in place, even if you want the rules changed, you still have to play the game the way the rules are currently set. You may feel that a point after touchdown is a waste of time.
Mr Carr: A good analogy.
Mr Eastman: We would like to see the rules changed, but if it's your team, you're still going to kick for the point after, even while you're trying to get the rules changed. I would like to see the elimination of those kinds of programs, but as long as they're available, I think any business that doesn't try to take advantage of them is crazy.
Mr Carr: A quick question on the WCB: You didn't touch on that, but the assessment on that. Speaking to businesses, they say that's another tax. We're looking at 33% increases and they think that's terrific. The problem we have with the WCB is the same as with taxation. This government thinks it has a revenue problem. It does not. It has a spending problem. Until we start looking at reducing the cost, cutting it back like New Brunswick has done to 80% instead of 90%, you're not going to be able to deal with it.
Businesses are telling us that this is killing jobs. The average employee doesn't realize that, because of course they don't pay it. With respect to the WCB, what is happening out there? What is happening in terms of jobs? Is the WCB cost killing jobs? What would you like to see done with the WCB, which has an unfunded liability of about $12 billion and we haven't included that in the deficit? What would you like to see done?
Mr McCollum: I'd like to perhaps let Don or Joe talk about the Workers' Compensation Board, but as a representative of an employer here in the province, the Workers' Compensation Board, health care taxes, income taxes are all factors which go into your equation to find out whether it's a reasonable thing to do to make investments in factories which are in this province.
In my company in particular, we're a worldwide company, so it doesn't really matter to the overall corporation where it makes the investment. I think that any time one of these taxes or more of these taxes start to build up, they're all part of our cost of goods, if you like. Every time we add to this, what we do is we tend to make our goods and services less competitive, and that hurts jobs in the province of Ontario, no question about it.
Mr Sutherland: I thank the chamber for coming. I want to refute a few of the statements made in your presentation. First of all, let me say that when you talk about the direction of the social contract and when you talk about the so-called savings coming from hospitals, school boards, municipalities, the teachers' pension fund, and not the government itself, I think this is part of the problem and part of the perception problem you talk about. You're reinforcing that perception.
Over 70% of what the government spends goes to transfer payment agencies; 30% in the MUSH sector and the rest through different, other types of organizations for payment. So the money is going to organizations that are providing the services, the vast amount of it, yet you here are putting forward that when we make the cuts to school boards and hospitals, it's not the government cutting. The government funds most of them. I think you're playing into some of that perception.
You talked about employee empowerment. As part of the social contract, many of the negotiators wanted to have employees have more say in decision-making. Many of the management representatives rejected that outright. We have made initiatives on many of these things you have put forward, and I guess I'm just a little frustrated by hearing this perception that government is completely wasting money when most of the transfers are coming from the provincial government. If they're saving, we're saving through the reduction in the transfers.
I want to ask you about one of your summary comments. You say, "Commit to no increases in direct or indirect taxes." I'm not sure whether it's the chamber itself, but certainly many business people have told us that on certain types of processes, for fees and licences, we should do a direct cost recovery, try and recover those full costs. I've had many business people tell me on the $50 registration fee, on other licences -- we've heard the Liberals and the Tories call them "tax increases," the increases in licences and fees. Is it the chamber's position that it supports full-cost recovery for the costs of birth certificates, drivers' licences etc as a way of getting a handle on our expenditures and helping to control the deficit?
Mr McCollum: My comment on that would be that it seems when ideas like that come forward, one side of the equation comes forward, and that is, "I guess now we'll start to direct-charge for some service," but we haven't seen where that then gets reduced. So what you're doing is shifting the way that you're collecting taxes, depending upon the kinds of taxes you're collecting and the kind of users that are involved. It may be a good way to go. But if what you're doing is just adding, adding, adding taxes without taking away, I think that's the perception we have, that in the whole idea that we have of raising taxes, it actually is increasing the tax burden; it's not shifting the tax burden to the services that are being used.
The Chair: Mr Jamison, we have less than two minutes.
Mr Norm Jamison (Norfolk): I have the 10 seconds you just took.
The Chair: Well, now you've just wasted another 10.
Mr Jamison: All right. Just a comment, then, really, and I'll try to run it into a question. People said the change in the economy is unexplained. I think it's rather obvious that globally economies are suffering everywhere. Let's get real when we talk about the economy that way, the US, Japan, Europe, whatever.
I just want to point out that when you give a presentation we understand that the public and the press and so on realize that you give it from a rather right-wing perception of things. Whether that be true or not, that's the perception. I just want to remind you that growth projections are highest in Ontario.
You talked about the $10-billion deficit. We're not happy about that deficit. We're not happy to have to run deficits. Deficits during recessional times are quite normal. But at the same time, our deficit was supposed to be in the range of $16.7 billion; it's now projected at $9.5 billion.
If you look at the percentage of the budget that was dealt with, you'll find that federally a Conservative government, which people tend to connect your philosophies with somewhat, ran a $46-billion deficit, and it continually got higher. So I'm saying be fair in your approach. We hear what you're saying. There is some pretty good thought, as far as I'm concerned, put into your approach.
If we hadn't taken a balanced approach and had just simply cut, which is the approach from the chamber I keep getting year after year -- regardless of anything just cut -- people in this province would have suffered much more severely. There is no question about that, none whatsoever.
The argument made really talks about your perception that we all have to come down to the lowest common denominator. Although there may be some truth to that, there's still some untruth to that. Canadians and Ontarians who are average Canadians and Ontarians do not agree with you on that.
The Chair: Mr Jamison.
Mr Phillips: Hear him out.
Mr Jamison: I can tell you that trying to come out in the first part of your document and say that you support the social programs and then taking a large shot in the last part of it confuses me severely, and I'd like you to explain a little further what you mean by that.
Mr Couto: If I can make a very short comment, because I know Don wants to have a comment too, let me just say that you made a good point in saying "perception." Whether or not you believe your numbers are correct, whether you believe that you're doing the right thing, I'm telling you that our membership, quite frankly, doesn't believe your numbers, and that has a significant impact on jobs in this province.
We're not saying to cut to the bone and throw people out on to the streets. What we're saying is that there are areas that you haven't touched, like do we have to spend $300,000 on a NAFTA dog-and-pony show which basically reaffirmed your government's position and served no one's ends? These are the types of things we really get upset about. That's why we don't accept $10-billion deficits. That's not coming from left wing or right wing; it's just a commonsense position.
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Mr Eastman: If I might, in terms of perception, if this has come across from us as being a challenge specifically to the deficits run by this government and no other, then our representations were not. We have a real concern about the deficit situation that existed in this province when you took office. It was a problem that needed to be addressed then, not made worse. We have a real problem with the deficit situation that we have with the federal government.
The real message from those deficits, whether they be federally or provincially -- and yes, there is right now an economic problem -- is one that says, "Hey, that $10 billion represents the difference between our standard of living and how much we're borrowing against the future, how much we're borrowing from other people, how much taxes we have decided we will let our children pay for us."
The one message that I would have liked to have got through in this, and I don't know how we accomplish that, is a concept of sustainable government and why you can, on a short-term basis, run deficits. On a longer-term basis, the level of government that is sustainable is only that which can be supported by the taxpaying private sector. I think the public sector is tremendously important, but there is no way that you can have a healthy, dynamic public sector unless you have a healthy, dynamic private sector that's supporting it.
What these numbers say is that right now we have a serious imbalance that we have to get fixed, and that's a problem that all of us have to deal with. I think the real solution to that isn't to substantially diminish and cut the heck out of what we're doing in the public service, but to see what we have to do to get private sector employment and activity back up to where it belongs. But you cannot continue into the future with this imbalance, because the more the private sector drops, the more it will pull the public sector down with it. That's the fundamental message we want to get across here.
The Chair: Our time has expired; in fact, we've gone somewhat over what we were allotted. However, I would like to thank the Ontario Chamber of Commerce for making its presentation before the committee today. Thank you very much.
Mr Carr: I have a point of order; maybe not a point of order, but a quick question to Mr Jamison. You're the parliamentary assistant for what, Mr Jamison? Can I ask that?
Mr Jamison: The Ministry of Economic Development and Trade.
Mr Carr: Thank you very much. I just had a quick question.
Mr Jamison: And you're the critic for?
Mr Carr: The Ministry of Economic Development and Trade. I just wanted the chamber to realize that the parliamentary assistant --
Mr Jamison: They know full well who I am. I can tell you that.
UNITED SENIOR CITIZENS OF ONTARIO
The Chair: Would the next presenter would please come forward: Mr Jack Dyce, president, United Senior Citizens of Ontario. I would like to apologize to you, sir, for being a little bit behind schedule. Please make yourself comfortable, and whenever you are ready, you may proceed with your presentation.
Mr Jack Dyce: Before I open my comments, I would like to express the fact that we will not take too long. We will make up for the time that you have lost.
Thank you for this opportunity of presenting some of the thoughts of seniors with respect to this pre-budget consultation.
We appreciate the fact that both federal and provincial governments are apparently coordinating their efforts to reduce both the national and provincial debts. We understand the continued rising costs the government is faced with in the funding of the various ministries. We know that cutting costs and raising funds through taxation is mandatory.
Seniors, like all others, strongly support a fair taxation system, and we are fundamentally in favour of the principle of universality. With these two basic thoughts, we would like to present the following for your consideration.
First, each of you has received a copy of our brief directed to Premier Bob Rae, his cabinet and members of the Legislature, including all members of the opposition. In this brief we covered many of the problems of the seniors population. Increased costs of health services, nursing homes, home support services and housing were well underlined. We will try to avoid any repetition of these points in this presentation.
One fact we might stress is the passing of Bill C-91 by the federal government. We strongly disagreed with the passing of this bill and subsequent acceptance by the provincial government because of the construction of a building in this province by one of the pharmaceutical manufacturers. This Bill C-91 increased the cost of drugs, thus affecting our Ontario drug benefit plan to the extent that many needed drugs are being withdrawn from the plan to save costs. The Prime Minister has indicated his interest in having Bill C-91 rescinded, and we trust that we will get your complete cooperation.
We believe in a progressive base of taxation: The higher the income, the better the ability to pay. Increase in rates should have tax brackets established on a more frequent basis. A senior earning in excess of $50,000 is subject to the clawback in order to repay the old age security. The practice of universality would eliminate the clawback and the income derived would be taxed progressively. We understand that only 3% to 5% of seniors taxpayers are in this category.
Our tax forms are much too complicated. It is necessary to make the tax form more simple and easily understood, rather than the present one requiring a Philadelphia lawyer to unravel. As a result, many seniors do not fill in the tax form for the purpose of obtaining tax refunds for sales tax and the property tax, which was originally provided to seniors for the relief of school tax. Many seniors are not aware of the refund available or how to go about claiming it. Many in the rural communities cannot get assistance from the government tax office or other agencies providing free tax assistance. Others cannot afford to pay a tax consultant. As a result, the government must be saving millions of dollars due to these circumstances.
Income and taxes are inextricable. Similarly, taxation to a great extent is interwoven between the federal and provincial taxation programs. We are well aware of the many loopholes that exist in the corporate income tax structure. I had an acquaintance, a multimillionaire who has since passed away, openly boast that he never paid one cent in taxes. He took advantage of every loophole and tax shelter possible. It is general information that it is possible for an individual to earn up to $14,000 without being taxed. The regular taxpayer has to pick up the shortfall.
We recognize the need of some corporate tax concessions in order to prevent the migration of industry to a better tax haven.
Mr Kwinter: Excuse me. Can I just ask you a question? You said "$14,000" and the text says "$41,000." What is the right figure?
Mr Dyce: I'm sorry; $41,000 is the figure.
However, the level of restraint on concessions should be linked to the profitability of the corporation.
Interest has been directed to taxing an individual in an organization for his portion of the meal expense when entertaining a customer. When a municipality entertains a group of seniors at a Christmas affair, how can they be taxed? This can be best described as nitpicking, particularly since the government can afford to establish an unnecessary and costly level of bureaucracy in the long-term care health system. Nineteen long-term care offices have been furnished throughout the province and are being manned by well-paid bureaucrats. At the same time, plans are being implemented for the long-term care function to be conducted by 34 district health councils and their long-term care committees, with subsequent plans to set up multiple-service agencies in each community. This duplication must increase health care costs.
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Volunteers are essential to the wellbeing of our society. Many service organizations, charities, health agencies etc could not function without a large staff of volunteers. The government has not only endorsed and encouraged the use of volunteers, but has actually relied on their availability in several areas. The Ministry of Health, in introducing the long-term care program, stipulates that the long-term care committee will be basically manned by volunteers; 30% to 35% must be seniors.
Similarly, this situation will exist in the establishment of the multiple-service agencies. A reasonable estimate would be that over 80% of volunteers are seniors. They have the time and the experience. It is estimated that Canadians contribute over one billion hours of volunteer services annually, valued at more than $13 billion. Some volunteers get compensation for mileage for the use of their car. Most only get personal satisfaction in rendering service.
If the provincial government wanted to get full satisfaction from volunteers, some recognition should be given in their income tax in compensation for expenses associated with their volunteer services. Potential volunteers may be very willing to donate their time. Some may not be able to afford any expense that they may incur. American volunteers can deduct from their taxes most of their expenses incurred while serving the community.
Income taxes actually increase when a spouse dies. There is little impact in the year of the spouse's death, but income taxes often increase dramatically in the years after the husband or wife dies. Many examples can be provided. This tax problem, however, is federally based, but it is increased by the present method of basing provincial taxes on the taxes paid federally. The unfairness of this federal system, the federal tax, thereby automatically is transferred to the province.
It seems that much consideration is given to the possible elimination of tax exemptions for seniors. The elimination of the Ontario tax reduction program, the scrapping of property and sales tax credits, the abolishment of the age tax credit and the pension income credit are an indication of what is in store for seniors. Moreover, it has been suggested that an increase in taxes, beginning at the $20,000 level, be levied.
The proposal to include all goods and services to be taxed under the Retail Sales Tax Act brings a further tax invasion. Seniors objected strongly to the services taxed under the GST. Some items, such as the tax on funeral services, were considered unjust. Many seniors try to prepay their funeral expenses and are forced to pay this death tax.
According to a chart published by the Ministry of Community and Social Services, less than 1% of the recipients of social services are seniors; 47% of seniors live below the poverty line; 74% of these seniors are female and do not receive the benefits of the CPP since they do not qualify. Yes, we believe in fair taxation, but not just for everyone else.
The Chair: Thanks very much, Mr Dyce. We have about six minutes per caucus.
Mr Cameron Jackson (Burlington South): Mr Dyce, most of the members have had an opportunity to read your association's brief, which was more fulsome in detail in a variety of areas, so I will just raise a couple of the issues that flow from today's presentation, if I may.
One of the other major contributing factors on the Ontario drug benefit reduction discussion by the government also had to do with its desire to shift it to those on social assistance, to assist them to leave social assistance but maintain their drug benefits so that, economically, there would be an incentive to go and take employment at those rates. You didn't mention that, but I wanted to make sure you were aware that the government's attention, very much a part of the discussion, was around moving the Ontario drug benefit plan to assisting the poor generally and not as the genesis for the plan, which was to assist seniors first and persons on social assistance second.
Mr Dyce: I'm sorry, this was for those who have disabilities?
Mr Jackson: No, this is for persons on welfare. The three groups that we've discussed all participate in the Ontario drug benefit plan, but the government publicly admitted that it was making some of the cuts to seniors and their specific geriatric-type drugs and highly utilized drugs from the formulary in order to make up the money so that they could allow social assistance recipients to stay on the drug plan while they move out of social assistance. That was very much part of the public debate. You didn't mention that, and I just wanted to make sure that you and your organization were aware of the shifting priorities of the government with respect to who utilizes the Ontario drug benefit plan and to ask if you had any comments about that.
Mr Dyce: No, we're perfectly aware of this. Basically, we looked upon the elimination of a number of drugs that were not only needed but necessitated a greater use during the day. In other words, some of the drugs that were presented for one-a-day type of thing ended up with four times a day, which required a much more careful observation of other drugs that were taken, particularly when some of the seniors are taking anywhere from 10 to 15 drugs. To have to time these drugs during the day, this is one of the problems that exist.
Mr Jackson: The other area that you discussed was in terms of long-term care. This is a very complex area of health care for seniors, but you've identified at the outset the government's extensive investment of moneys to develop an infrastructure, and yet we're still waiting to see the elements of increased program access.
I wondered if you wanted to provide some additional comments with respect to the fact that we have no clear statements from the government for the expenditures for extended access to home-based, home care services and so on and so forth. We've seen the spending. You've identified the spending to set up a bureaucracy. You're here because you're concerned that those services are focused towards the seniors and received in the home or in an institutional setting or wherever. But we're not seeing that part of the equation; we're only seeing the amount of moneys that have been diverted to build this new infrastructure.
Mr Dyce: Basically, in our discussions, I'm relating the experience that we have with the long-term care committee. This was established back a couple of years ago and some of the problems attendant with that were the setup of the health care under the district health councils and subsequent expansion under the MSAs. At that time, we felt that the burden of the long-term care offices under the jurisdiction of the province directly -- I'm talking about the 19 that were established. We figure that's a level of bureaucracy that should not have been, because of its cost.
When this program was being developed, they had established the offices. By the same token, they were going to the various municipalities or the counties and setting up under the district health councils a program that was expanding at the time, and it was necessary to expand. They had allocated -- I believe the figure was $647 million for the purpose of doing this, and yet only up to $100 million has been spent at this time, to the best of our knowledge. Therefore, we feel that there's something radically wrong when we establish two basic organizations, if you would have it that way, to provide long-term care.
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Ms Jenny Carter (Peterborough): I think you raise a lot of very valid and interesting points. I'd like to start with the drug question, and I certainly agree with you that the federal government didn't help very much by bringing in Bill C-91, which is going to put up the cost of drugs for the drug benefit plan quite astronomically because we will not be able to access the generic drugs that would have replaced some of these high-priced drugs.
Now, you mention changes to the formulary, to the drugs that are available. I'd like just to point out that this is an ongoing process. This isn't something where there's been a change in policy. We look at drugs from the point of view of cost, or rather the special committee to do this, which consists of experts, looks at it. It looks at their effectiveness, and if a particular drug is costly and something else will do the job just as well, then the costly one is eliminated. If something is deemed to be ineffective, then it also would be removed. Of course, new drugs are brought onto the formulary from time to time.
You mentioned the long-acting drugs and I think the point there is that those long-acting drugs are several times more expensive than the similar drug that is taken a little bit more frequently. That was the rationale for removing them.
Mr Dyce: May I make a remark in that respect?
Ms Carter: Sure.
Mr Dyce: The seniors are not basically aware of the fact that there's a discrepancy between a one-drug-a-day against four of the similar type of drugs.
Ms Carter: Yes.
Mr Dyce: It's quite obvious that the four drugs to do the same thing, to the senior's mind, would be more expensive than just to have one drug on an extended basis.
Ms Carter: Actually, it is much cheaper to have the four doses than to have the one drug, and that's the reason.
Mr Dyce: By the same token, one of the problems attendant with seniors taking drugs is the fact that they have been overdrugged. When 4,000 Canadians died in 1989 through being overmedicated and when our hospitals have got a large quantity -- I think 40% of the hospital attendance is for seniors, and 40% of those seniors are in there for overmedication.
Ms Carter: I absolutely agree with you. I think some seniors have far too many drugs, and we are working on that in different ways, trying to get information out to people. As you may know, we now have a computer system which is installed in pharmacies which connects up with the ministry. The pharmacist, as he dispenses the drug, can see what that person is already taking, what drugs he or she has, and can eliminate possible interactions.
I absolutely agree with you on that. I think we have to look at reducing the total medication of seniors, which will of course not only improve people's health but reduce the cost as well.
Another point you raised was the property tax. My understanding of the changes we made to that was that instead of having a flat rate rebate, I believe it was $600, it now depends on income. It's in the income tax, so that a senior who is actually not affluent, who, say, has less than $20,000, which is very common, is actually going to get a larger rebate than he did before. I believe it can be as much as $1,000 for a senior whose income is low.
Mr Dyce: We are aware of the fact that there is a certain group of seniors who are being paid more than they originally got through the $600 and the $50 for the sales tax.
Ms Carter: Those are the low-income ones.
Mr Dyce: We recognize this. By the same token, we also recognize the fact, and this is what was covered in this brief, that there are many seniors who are not registering and therefore get nothing. So they've not only lost the $600, but they've lost the $50 sales tax as well.
Ms Carter: I see.
Mr Dyce: This registration was the problem I brought out here because the seniors in rural areas do not have access to the tax offices or even those agencies that provide free taxes. As a result, they're left out there, and there are many of them who are left out there without getting proper information with respect to how to approach to get this rebate.
Ms Carter: They would need to fill out a tax form.
Mr Dyce: Yes, it's essential that they have to do that, but they're not aware of it. You can readily realize that many of them being out in what we refer to as the boondocks, on farms and so on, isolated, do not have the ability or the availability of getting transportation into an area where they can get this type of help. We know that many of them are not taking advantage of this situation.
Ms Carter: That is a problem we have to address. I absolutely agree on that.
Mr Dyce: That's why I mentioned this here.
Mrs Elinor Caplan (Oriole): How much time do I have?
The Chair: Six minutes.
Mrs Caplan: There really were two issues, questions I wanted to explore with you, and it's nice to see you today. It dealt more with the financial aspects. I understand the impact of taxes on everyone in society, but I know it's particularly hard for people on fixed incomes and seniors of course fall into that category, and so your recommendation and strong suggestion on behalf of United Senior Citizens of Ontario that the Treasurer not increase taxes is a very important message.
The second point was the importance of maintaining the essential services to seniors, but implicit in that, and the suggestion that you are making, as I read and listened, although I wasn't able to hear all of it but I did read your brief, was the suggestion that there was a lot of existing waste that could be cut if you were looking at maintaining the services and only eliminating that which was wasteful.
I wanted you, if you could, to give us some examples from your personal experience where you've seen the kinds of wasteful expenditure that could be eliminated without affecting the kinds of important services that seniors receive. That's question number one.
At the same time, you mentioned in here a concept where seniors could be productive and active, but can't afford to volunteer. How expensive is it to be a volunteer? The recommendation that you're making here is that if there could an income tax deduction up to a certain amount for volunteers, particularly for seniors. That was something you mentioned on page 4. I'm interested in how you would see that working.
Mr Dyce: I'll deal with the last one first. From the standpoint of expenses pertaining to volunteer services, it can vary considerably. If a person has found it necessary to use their car, it happens in many cases where they can't get a rebate or at least a payment for the use of their car. There are many cases where seniors have required transportation, and I'm speaking again out in the outer areas, not in the metropolitan areas, where they can't get to a doctor or can't get to have health services, many things of this nature, even to the dentist or the banks and so on. They have to rely on neighbours or people who are associated with an agency to provide this type of service.
Therefore, I think automobile costs are major, but on top of that there is the time. I could get into the fact of respite care where volunteers are used for that purpose on a health basis and so on. There are many things of this nature and I know that there is consideration given ultimately, or there will be, to respite care factors. But these are things we're faced with all the time and we're trying to get some way of getting some compensation for that particular point.
Now to get back to your first question. Was that related basically to health services?
Mrs Caplan: No. In fact, I think seniors certainly receive a large number of health-related services, and you mention particularly drugs and long-term care, but I think seniors use a lot of services that are provided both directly by the provincial government as well as by transfer agencies, and you might have had experience where you can see where the service could be maintained but provided in a better way that could be less expensive while still maintaining the service. I'm just wondering if you had any experience or examples where you felt that government could provide the service better and it would cost less.
Mr Dyce: You're leading into a very good point. At the present time, I happen to be a director of the East Wellington Advisory Group for Family Services. There's one organization that is the recipient of funding from the Ministry of Community and Social Services to quite a large extent, and particularly in this area of seniors. We get good service from that standpoint; there's no question about it. But you look at the chart that was put out by the Ministry of Community and Social Services and you'll find that less than 1% -- they indicate 0.9% actually -- assistance for social services go to seniors.
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You asked me to cite my own particular instance in this, and yes, we do get help through the Ministry of Community and Social Services in proportion and sometimes we find that even in -- I can cite cases where the distribution of the funding from the Ministry of Community and Social Services is not specifically spent in the areas where it's required. We have knowledge of this type of distribution. We're satisfied up in our area.
Mrs Caplan: That's very helpful. Thank you.
The Chair: Mr Dyce, I'd like to thank you for making your presentation before the committee today.
Mr Dyce: Thank you. May I make an observation that if any of the members of the committee have not received our brief to the government, I've given some extra briefs to the secretary so that they can have them.
The Chair: Thank you very much.
PROGRESSIVE GROUP FOR INDEPENDENT BUSINESS
The Chair: Next is the Progressive Group for Independent Business, Mr Craig Chandler, president.
Mr Craig Chandler: Today I'm going to review a couple of things that are sort of bothering the business community. We've done a few things in relation to the Fair Tax Commission, which I'll go over, but I'd like to start off with Bill 79, employment equity, or what our organization calls the employment inequity bill. I'd like to go over a few sections we have a problem with.
I'll start with section 9: It says the employer will conduct employment equity workplace surveys and collect other information to determine the extent to which members of the designated groups are employed.
Our response: Firstly, the collection of this information shifts much needed time for the employer away from business to focus time on conducting petty surveys. Secondly, employees have the right to decide whether to answer the questions in the survey, which will result in lack of accurate workplace data.
Section 10: The employer will review workplace policies and procedures and determine which ones should be changed or dropped in order to remove discriminatory barriers to the employment and promotion of target group members.
Our response: This is out and out racism and sexism, as the employer is to promote or target certain groups in society not based on their qualifications but because they are of a certain group. We cannot claim to live in an egalitarian society on the one hand and promote target groups on the other. It also takes too much time for employers.
Section 11: Employers will prepare an employment equity plan which must provide for the elimination of barriers identified; the implementation of positive measures to recruit, retain and promote members of the designated groups; add specific goals and timetables for changing the composition of the workforce to ensure that the workplace in all occupational categories reflects the number of individuals from the four designated groups in the same proportions as exist in the community at large.
The only true employment equity plan, we feel, and positive measures of recruiting, retaining and promoting members of designated groups, is by the employer hiring employees based on professional merit and skill. No other equality plan is acceptable to the business community or to any egalitarian society. Quotas are racist and sexist, no matter who they relate to.
Enforcement: The government will establish a quasi-judicial tribunal to enforce the act. It is charged with levying complaints from employees who believe an employment equity plan has not been implemented or is ineffective. Should an employer fail to comply, the tribunal has the authority to implement, review and revise the employer's plan. Non-compliance with an order from the Employment Equity Tribunal could result in a maximum fine of $50,000.
Out of a poll of the members of the PGIB, the members support employment equity based on promoting the best people from all areas of society. It makes the only logical sense for Ontario. Also, the business community in Ontario is horrified by the socialist idea of the government monitoring the collection and reporting of reams of material. Voluntary is one thing, but compliance, in our mind, is communism.
Moreover, our organization feels that for an employer to do a proper review of the workplace to ensure that there is adequate representation of the target groups will cost thousands of dollars for permanently retaining employment equity consultants or training existing staff. Businesses in Ontario do not have the money to do this, nor do they have the time.
However, even though during public consultations many participants recommended the use of financial incentives and grants and the provision of low-cost or free technical resources to employers to loosen the financial burden of compliance, we do not see this as an answer at all. The government must not only keep out of the employer's hair in relation to employment equity, other than promoting the merit system, but the government must also keep away from business subsidies and grants, as we are in a serious deficit and debt crisis. Giving away more money we do not have will dig our debt hole even deeper. Handouts are not the answer.
The commission, the Employment Equity Tribunal: We can't afford another layer of middle management. It seems that the only jobs the NDP can create are in the public sector, but it is destroying jobs in the private sector. Our research shows that 36% of all businesses in Ontario are considering moving part or all of their business to the United States and another 18% are considering moving to Alberta or British Columbia; anywhere but Ontario. I guess we can review some of the NDP's track record.
The Ontario NDP has increased our deficit 219% to $9.7 billion, which we all know is out of whack already. The Ontario NDP has had billions in tax hikes. After the 1991 budget -- way back -- business taxes were 30% higher than either Quebec or New York state, which are going to increase, even under the Fair Tax Commission.
Bill 40 serves only the interests of organized labour, whereas the other 66% of workers are forgotten. Bill 40 has promoted American business at the expense of business in Ontario. Bill 40 revokes the right of secret ballot for workers. It is estimated that Bill 40 alone will cost Ontario 250,000 jobs.
The Rae government refuses to research new methods to produce energy, naïvely thinking conservation is sufficient. The NDP's taxes have cost Ontario $3 billion and 14,000 jobs, which is now out of date again.
In 1991, the Rae government negotiated a 5.8% pay raise for most civil servants. Government wages have risen from $480 a week to $735, compared to $480 a week to $608 in the manufacturing sector. The provincial civil service has increased by 90,000. The jobless rate has doubled. The province of Ontario's losing jobs. Many taxes are increasing and our debt and deficit are going way out of control.
The facts are absolutely horrifying. All another layer of middle management will do is create more taxation for business and make our province even more lethargic and uncompetitive. We feel, rather than creating this new layer of useless civil servants, that concerns about employers' hiring practices and their policies should be addressed by the already existing Ontario Human Rights Commission. Why duplicate? Why spend millions of dollars that we do not have on a new and unnecessary layer of middle management, especially at a time when our government should be streamlining?
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The power of the commission: Welcome to communism. The power of the commission is absolutely dictatorial. This commission has enraged the business community and has surpassed the democratic principle of innocent until proven guilty, because without a hearing the commission can order an employer to take any steps dictated by the commission that it considers just in achieving obedience with its decree from Red Square. The penalty for failing to comply is $50,000, which is enough to put most companies in the red, and this is very anti-business.
Moreover, this tribunal can even appoint someone to write and implement the employment equity plan for a business, at the employer's expense. This means that only those who are faithful followers of the tribunal agenda will be appointed, which will have results and quotas. Because an employment equity plan is an all-encompassing document ranging from policies, practices, work conditions, size etc, it is as if an employer no longer owns his or her own business if someone is running it for them. Who needs the hassle? No wonder so many companies are leaving.
Furthermore, if the tribunal chooses to audit, the commission has the right to arrive at an employer's workplace without announced notice and demand access to all documents. This is a remnant of the Stalin era of sheer and utter communism. Section 26 provides that anyone can launch a complaint that the legislation has been violated. This is ridiculous, as an employee who is in the least bit frustrated with their employer could see launching a complaint as a means of revenge for their grievances. Employers will be audited every other day. Let's get practical and realistic. We want to keep our own businesses in Ontario, not drive them out because of slowdowns and bureaucratic paperwork.
The merit principle: Quotas are not consistent with the merit principle of qualification. We agree with the Progressive Conservatives when they state, "If barriers to employment are removed, members of the disadvantaged groups should be able to be subjected to the competitive process and hence hired only on the basis of merit."
Any society which bases its hiring practices on qualifications grows unambiguously and it flourishes, as the best people for the job are hired regardless of their race, language, gender or culture. Therefore, the NDP in proposing Bill 79 made its biggest oversight by making no mention whatsoever of job qualifications and does not give the employer the right to hire the best individual for the job, thus dictating to the employer and making us less competitive in the global marketplace.
The conclusion of this analysis of Bill 79 is that the only government policy or program the government should be promoting is voluntary programs, as government intervention is no substitute for qualification in the workplace.
No artificially based quota system can represent true equality as a simple policy of equality of opportunity, which we all have. We believe no segment of society -- school, church, interest group or government itself -- can guarantee equality of outcome. However, every successful result of each individual rests in the hands of that individual, and that is why we must pursue equality of opportunity to enable the cream to rise to the top.
Bill 79 is a blatantly racist and anti-business bill, as its basic premise is that all employers must engage in deliberate and systematic discriminatory practices and it blames all inequalities which presently exist in the workplace on employer conduct. Further, the bill ignores educational barriers, social conditions and the operation of seniority principles in collective agreements. To rectify these factors and at the same time demand utopian employment equity is unrealistic and a double standard.
Lastly, according to the Ontario Progressive Conservatives, by the year 2003, over 80% of new entrants to the workplace will come from the four distinct groups. So if the tables will eventually even out, why legislate?
The PGIB feels that Bill 79 is wrong for the business community, as employees should be hired based on their merits and skills. Employment equity based on race, language, gender or culture is wrong and we will lobby against any policy or party which promotes these hiring practices. Therefore, the Progressive Conservatives in Ontario have once again shown that they will help foster a better business atmosphere in Ontario, until I hear others come up and speak against it.
Annette Peck, who is the chair of this committee, would be happy to hear from any of you at any time.
That's what we feel about Bill 79. I'll just briefly go over a few things until I run out of time -- then you can just cut me off -- in relation to the Fair Tax Commission.
We haven't got it all done yet. Our municipal affairs committee is looking at a lot of the aspects. We just got the provincial committee, which threw this together.
Basically, as the intro says, once again the dictators from the Red Square in Toronto have not heard the cries for relief from the masses they claim to represent. They are creating two classes: the poor and the politicians. The rich can move capital quickly out of the province or the country and the poor can live for free off the system and make a very good living doing nothing.
Therefore, only a select few are truly being hit by the new Fair Tax or "more tax" Commission. These select few are business and the middle class. There is a war on the middle class in this province. This commission has done nothing but give the NDP a plan of where to tax more. It is nothing but tax grabs, where those who contribute to the economy and the already brutally taxed will be paying even more.
It is sheer insanity that there will be higher personal income taxes for families earning more than $40,000. Unfortunately, rather than implementing a fixed percentage flat tax on income, regardless of income bracket, this commission punishes those who are even the least bit successful, because the more you make the more you are taxed. Whether it is $20 in extra taxes or $2,000 in extra taxes, it is that much less going into the economy.
Even now, according to Mike Harris, "Ontario's top marginal tax rate of 52.4% is already the highest in Canada, the third highest in the western world and is costing the province significant jobs and indirect losses."
Moreover, the proposed multistage tax will be a nightmare to administer and will mean more consuming paperwork for business and frustration for consumers. This commission is killing programs which provide incentive and is showing that it has no understanding even in the least of the way business is done. This commission and its members are either really stupid and have no grip on reality whatsoever or they purposely are out to systematically exterminate business and jobs. The NDP and its commission of communism are one step closer to creating two classes, the proletariat and the bourgeoisie.
A quick summary of some of the new policies from the Fair Tax Commission, and I hope you're all paying attention to this, because you can talk later in your social groups. I came here and I'd like full attention, so you could listen. Thank you.
(1) The Fair Tax Commission is setting up a central agency, so it's more bureaucracy.
(2) It's disallowing deductions for business to woo clients, which is necessary for business.
(3) It's increasing audits, which is wasting business time.
(4) Elimination of the capital gains exemption is killing incentives.
(5) Taxation of dividends and capital gains is destroying capital.
(6) Establishing a special enforcement is more bureaucracy.
(7) The national wealth tax is a taxation on success.
(8) Subsidizing business is spending more money we don't have and it has a dislocative effect.
(9) Promoting worker-owned co-op workplaces allows no specialization; therefore, not allowing us to compete properly in the global market.
(10) Broadening the retail sales tax to include all goods and services; we can't afford it. We've already seen the effects of the GST.
(11) The retail sales tax will be multistage rather than at point of sale; consumers hit at every stage.
(12) Taxing prepared foods is unfair. Food is a necessity, not a luxury and some people like myself, for example, who have to go around and make noise across this province so some people will hear, have to get prepared foods in order just to live, so it's totally unfair to those who are busy people.
(13) The joint management of the RST will take billions to administer.
(14) Income taxes are going up under Ontario income tax for families earning more than $40,000.
I'm not going to read what the Fair Tax Commission has said, because all of you have read that. I'm just going to read our response so we can get done quicker and you can question me and point out the discrepancies that you may have seen in my verbiage here.
The Fair Tax Commission: In the highlights, point 3, it talks about the central agency and what not. What we say is that the government and this commission just do not seem to have a grip on reality at all because establishing a central agency is just another layer of bureaucracy we do not need. The public sector is already too big and once again it is evident that the only jobs this present government and its commissions are capable of creating are government jobs.
To drive my point home, I'd like to give some facts about the civil service of Ontario. There are 950,000 public sector jobs in Ontario, one in every five workers. Of 27,500 major layoffs, 50 workers or more, reported in 1992, 1,500 were in the public sector. Obviously, when the business community is streamlining and downsizing to become more competitive in the global market and to avoid running deficits, the government should follow suit.
Since 1980, private sector employment rose 10% while public sector jobs increased 47%, and under Bob Rae and the NDP it has gotten worse by 90,000. Almost all public sector employees are covered by pension plans, compared to one third of private sector employees. In 1992, the public sector unemployment rate was under 5% compared to more than 12% in the private sector.
All that creating this central agency will do is create another layer of thick middle management, make our province more lethargic and increase taxes on business and the consumer, because you're going to have to pay for it somehow.
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The Fair Tax Commission and the recommendations again: Section 7(e) talks about "publish an annual tax expenditure account." This is somewhat of a start. It's not all negative. However, all moneys, we feel, brought into government and spent should be published, as the taxpayer is the shareholder in the company called Ontario Inc. We feel there should be a financial statement each year allocating where every penny has been spent, and the government should balance the budget every three years or call an election on that issue alone.
Paying other people's taxes, problems of compliance: Section 9 in the recommendations talks about the Ontario government seeking the agreement of the federal government to establish and strictly enforce rules applicable to corporate expenditures, limiting meal expenditures and business deductions and what not.
The Fair Tax Commission's exact words are, "Ontario should seek the agreement of the federal government to disallow any deduction for business entertainment." We're sorry, but the deductions allow business to woo clients, as part of the wooing ritual to get them on your side, to get them to buy your product. The tax communism commission is saying we can never take our clients or prospective customers out, which is a totally normal aspect of business.
The Fair Tax Commission, under section 10(b), (e) and (f) talks about Ontario should improve compliance by increasing rates of audit and penalties, emphasizing cooperative efforts with other levels of government, devising special enforcement. We say the NDP and its more tax commission is encouraging more bureaucracy for all levels of government, because that is the only way you'll be able to have cooperative programs with all levels in identifying underground economic activities. Moreover, the NDP is promoting a KGB-type police state, because they will be devising special enforcement groups to report and force compliance.
The reality of the situation, which this commission could not see, is that the whole reason we have an underground economy is because of the high taxes and strict regulations on business. By destroying legitimate business expenses, they are making the situation worse.
If you ask any company, domestic or foreign, why they're downsizing or leaving Ontario they will give you these reasons: Bill 40, Bill 79 and the incredible taxation. Business says Ontario owes too much, spends too much and taxes too much. The NDP taxes too much because they're in so much debt and are spending millions on the interest on the debt alone. However, what even this commission has not realized is that the first step to getting out of this debt hole is to stop digging, and the first step to getting the economy on track is to lower taxes.
Taxation of dividends and capital gains: It talks of an elimination of it. All eliminating the capital gains exemption is doing is eliminating incentives. The Fair Tax Commission is penalizing success. Capitalism is about rewarding successes, giving entrepreneurs incentives, giving them a goal to strive for. Communism is about penalizing the successful and creating two classes, the poor and the politicians. This is exactly what the Fair Tax -- or more tax -- Commission is doing.
Business and individuals in Ontario are already paying the third-highest amount of taxes on the face of the planet and the highest in Canada. By lowering taxation, you will increase investment and create a wider tax base for the government to draw revenue from. Business will come in droves because there's a safe haven and Ontario will look like a place to do business once again. After all, it is the entrepreneur who takes the risks and pays the taxes along the way, and the capital gains exemption is just the reward after taking that risk in the first place.
The Fair Tax Commission, in recommendation 30 states, "Ontario should make the changes in the Ontario income tax." Our suggestion would be to have a flat tax on a percentage basis for individuals and corporations.
Taxation of wealth -- we call it taxation on success -- talking about a national wealth tax: Our response is by overtaxation on the wealthy, you will drive them out. This will not generate additional revenue for the government but will result in a severe drop in tax dollars, as these people will leave. Remember, they can shift their capital. The middle class can't; the wealthy can, so you're driving your tax dollars out by putting that tax in.
The Fair Tax Commission, in 39, talks of subsidies and economic development programs. Although I can understand why this is in, we feel that business people must take a leadership role in calling for an end to business subsidies. Subsidies to business, which have been a feature of Canadian public policy for the last quarter-century, are one of the major long-term causes of the crisis we find ourselves in today. Money spent on subsidies must come from either taxes or borrowing, which increases the debt and only delays the tax burden. PGIB rejects the idea that business should seek financing from governments at the expense of Ontario taxpayers.
Business subsidies have a dislocative effect. By definition, subsidies go to firms that have trouble raising capital in private markets. When governments ignore market signals, they in effect transfer capital from other enterprises that could make more efficient use of capital. Thus politicians often credit themselves with the jobs they create without acknowledging the opportunity cost of jobs foregone in other companies or industries.
PGIB believes that the elimination of business subsidies would have a significant impact on the deficit and would eventually lead to lower government debt, lower taxation, lower interest rates and ultimately a lower required rate of return for business investment. Free markets must prevail.
Fair Tax Commission, under "Taxation of Small Business and Cooperatives" in the recommendations, appendix 44: "Ontario should amend the worker ownership component of the Ontario investment and worker ownership program to permit employees to operate a worker-owned enterprise as a cooperative."
We're giving our response on the basis of what we understand this to mean. I can be corrected if this is not the proper one, because I myself have a little bit of a misunderstanding about this one. From the perception I get, and please correct me if it is wrong because I'd be happy to know, our perception is we are against this, as an enterprise owned by workers does not only follow the communist idea of the workers owning everything, but there will really be no authority in the workplace.
Moreover, if these enterprises are to be operated as cooperatives, there will be no true specialization in the workplace, as most cooperatives demand sharing of responsibilities such as alternating jobs. Therefore, we will not be competitive in the global market if we are not highly specialized and we will not have efficient productivity as workers are moved around too much.
Retail sales tax: The Fair Tax Commission, under 57, says we should broaden the base of the retail sales tax to include everything, all goods and services.
Our response is we can't afford the taxation they will be paying on purchasing, services and necessary materials. Business will have less money to expand, grow, improve or create new jobs. Furthermore, this will substantially curb consumer spending, making our underground and black market economy substantially larger and will put cross-border shopping through the roof. Once again, the government and its commissions are helping kill business which pays the bills for everything that we value in society. Taxation is not the solution, it is the problem, and all a broadened tax base will do is broaden the destruction in relation to retail sales.
Recommendation 59 talks about not making a single-stage at the point of sale any more, but as a multistage. We feel this is just an attempt at a massive tax grab. What this commission doesn't realize is that by hitting business and consumers at every stage, this commission is drastically reducing consumer and business spending which will lower the tax revenues. Therefore, they will defeat the purpose of the multistage tax in the first place.
Fair Tax Commission recommendation 60(b): "In negotiating its participation in a national sales tax" --
The Chair: Mr Chandler, you have five minutes. Whatever you choose to do is at your discretion.
Mr Chandler: I guess I can stop at this last one. Basically, this national sales tax system is ridiculous because of the fact that we are paying well over 50% of our income to the government. We are so busy trying to make a living that some of us are forced to purchase prepared foods in convenience and grocery stores, and taxing it just perpetuates this vicious cycle of being overworked to pay bureaucrats, commissions and unaccountable politicians. Food is a necessity of life. Prepared or not prepared, it is still food and keeps us alive.
When you talk in 61 about joint administration of the harmonized tax and joint establishment of all aspects of the sales tax policy, this is another layer of bureaucracy. It is giving the provincial government a new taxation level while it doesn't have its spending under control. The NDP is ignoring the will of most Canadians and Ontarians by proceeding with the new retail sales tax.
The NDP and the Fair Tax Commission should take lessons from the Conservatives and the hated GST. When the GST was introduced in 1990, federal spending increased by almost $15 billion. Moreover, the GST cost the government $2 billion to set up, and this is exactly what will happen when this tax is implemented. The setup and the administrative burden will fall on the shoulders of business and the consumer, resulting in higher costs and inefficiency in the tax system for consumers, business and government alike.
Those are the main areas I wanted to cover. We do have solutions too, but I only had time to address what our problems are. During the question period, I'm sure I'll have plenty of time to come back with answers.
The Chair: You'll have about three minutes or so.
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Mr Chandler: Fire away. What's most important?
Mr Sutherland: I just want to say that we're not going to ask any questions. I just want to make one comment, just to say that we fundamentally reject and disagree with most of the analysis that's been provided. Thanks.
Mr Phillips: Unfortunately, we don't have much time for questions, but I'll start with one of the more important ones. Mr Chandler, your recommendation was to eliminate tax concessions for the business community, or tax breaks, whatever you want to call them. That's a recommendation that's not inconsistent with what we've heard from several business groups.
My understanding is that there's about $4 billion of tax expenditures in the province for the corporate sector. Is it a fair characterization of your recommendation to say you would be in favour of the elimination of all of those?
Mr Chandler: Yes, we would be, very much so. Even talking to members such as Fearmans or other businesses who receive subsidies of some sort or help from government, they feel if you just eliminate those and lower taxes in general, they won't be coming to the government for subsidies or grants or anything of the sort.
The bottom line is lowering taxation and maybe even reducing the provincial sales tax from 8% to 5%, getting rid of the thick layer of bureaucracy we have, because 1,000 middle management positions phased out saves us about $70 million or $80 million per year. That's what we've come up with.
We really do feel that the subsidies at the time were well thought out, we thought it would be a good idea. But at present, because of our deficit and debt crisis, and the IMF breathing down Canada's neck, we should show the world that we're taking a responsible measure, and eliminating those would be our recommendation, yes.
Mr Phillips: That's useful, Mr Chair. Thank you.
Mr Carr: Thank you very much, Craig. I wish there was more time. I would have loved to go into some of the other issues, the WCB and so on, but you have hit on a couple of them. In my riding, as you know, living in and being part of Burlington, on employment equity, I had more calls when I was in the paper than I have had on any other issues, when I came in and said, "You know, the position of our party is that if it's still in place after the next election, we will remove Bill 79." I had 100 phone calls, which is more than I have had on anything else; people of all different communities, minority communities, a lot of women calling about their kids. It all was a part of the job ad that I think twigged everybody to what was going on. So I appreciate your comments on that.
The same with Bill 40. You know, Mr Harris's position is not only to withdraw Bill 40, but to go further and introduce secret ballot provisions for ratification, strike votes and for certification. I just want to be very clear on Bill 40. You would support that, secret ballot provisions, for things like ratification?
Mr Chandler: On Bill 40, which was also passed around there, our organization is not only for elimination of Bill 40, we're for making Ontario a right-to-work province. We will be pushing vigorously for that as well. We're the first organization to come out and push that. We are stocking up funds for the war chest for the campaign to make that a public issue, because we feel basically the right to work is neither pro-union nor anti-union; it's just basically supporting the freedom of the individual. That's what our organization is about, freedom of the individual.
Bill 40 is coercive, not only to union people because they do not have the secret ballot or they are not allowed to walk off on strike if they feel like it; they no longer own their own labour. What the right to work is about is allowing the individual to own their own labour.
We have talked to Mike on various occasions in relation to Bill 40. We are in total support of elimination of Bill 40 because we do feel it's coercive.
The Chair: Thank you, Mr Chandler, for making your presentation before the committee this afternoon.
Mr Chandler: Our other stuff is in here, so you can just read through it. Give us a call any time if you want to tear a strip off us or something. We'd be more than happy to hear from you. Thank you very much.
INFORMETRICA
The Chair: Next is Michael McCracken, president of Informetrica Ltd. We have 45 minutes for you today.
Mr Michael McCracken: I've summarized my comments and I'll just make a few brief ones in light in the handout that has been provided to you.
You invited me here to speak to the group about the economic outlook, any comments on the budget outlook and also to provide any comments on the Fair Tax Commission report, which I've tried to do in a fairly brief form. I hope to not spend a long time on my formal comments and allow you to put the questions to me.
I'm not representing any group or small business groups or large business groups or labour or anyone else, but I guess trying to think of the tough task all of you have, whatever party you're with, of trying to understand where we go from here and what would make sense. So if I can shed a little bit of light from the limited information we have, I hope it's of help to you.
In setting a budget, one of the questions is, where are we in the economic outlook? I've been talking with you all now for a number of years. I think in the last four years, this is the most optimistic outlook that we've faced, for the year 1994-95: 3.5% to 4% growth for the Canadian economy for the two years; inflation remaining low, in the 2% range; nominal interest rates low, at least relative to what we have had; and declining real and long-term interest rates.
Unfortunately, even with a growth rate that sounds high by recent standards, unemployment will be declining only slowly. It's likely to stay above 10% nationally in 1994-95, given the pace of growth and a rather large backlog of discouraged workers, which we feel will keep the unemployment rate from declining or make it very difficult to decline without much more vigorous growth.
At the present time in the national economy there is a very large output gap, as we call it; that is, a large difference between what we are doing and the level we're operating at and the level we should be operating at if we had some notion of full employment or fuller employment. The estimates of that output gap at the moment range from something like 10%, if we were to move the unemployment rate down to the 7.5% to 8% range, to perhaps as much as 20% if one took a view that full employment is more like 4%, a level we haven't had in over 20 years.
If we grow around 3%, the gap essentially stays unchanged; we have to grow more rapidly. We should be aiming for real economic growth in the 5% to 6% range per year, or more vigorously, and we'll need to do that for a number of years before we can close the gap.
Ontario's economic performance, in light of this national forecast, is likely to be better than average. We would expect in 1994 and 1995 real economic growth to be about 4.5% each year in real terms. This should be reflected in improved revenue and, hopefully, enough growth to bring down social assistance, but at least to reduce the growth rate of it, and interest costs will be helped by lower interest rates as well. I think what we should be seeing is some growth improvement in the fiscal position of the Ontario government as well as of the federal government.
In terms of the budget, this may be one of the simpler budgets, in theory. The implications, I think, are rather simple: Don't do anything. You basically don't want to increase restraint and jeopardize the recovery. You want to do what you can to help growth, recognizing that you've got some constraints on your hands. I do express some concerns about what the federal budget will be. If they do move to some restraint, that's going to make it more difficult for the Ontario government, and if they do further offloading, this may create a problem of some magnitude.
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Essentially, the prospects for improved balance should keep the rating agencies from panicking. Lower interest rates should help. If there is some sense that interest rates are going to back up again in the US or in Canada, either linked or independently, then this also could serve as a constraint.
I understand yesterday you received some updated numbers from the Treasurer. I won't attempt to comment on those -- I've not yet gotten my copy -- but certainly they, if anything, strike me as a sensible, modest deterioration because growth has come in slower in the last year than had been anticipated, but certainly nothing that should cause anyone to run out and panic.
I chose on the FTC recommendation side in terms of my response to simply do them in -- I read through the report fairly carefully, looked at each of the recommendations. If I thought it was a recommendation that made some sense, fitted with other work that I was aware of, I said nothing. So don't take the fact that I've only counted on a few of these as meaning the other ones are all bad. I would say, in general, I would think that you have in your hands a number of very useful recommendations with the Fair Tax Commission. I think that the study itself and the background papers that I've looked at are first-class: a good research base, a lot of time and care has gone into this and it's clear to me that this will be a very difficult body of work to reject in the relatively offhanded way that you heard a few moments ago.
I would offer some specific comments and I'll very quickly tell you what they are because even though I'm sure you've heard about these recommendations, you may not yet be down to the point where all you have to do is say, "Number 3, response 7." We may get to that point before long, which would make your task very easy, but the third recommendation was where Ontario would establish an essential agency responsible for maintaining government databases, comparability of these databases and publishing information about the public finance in Ontario. There used to be in fact be a statistics Ontario, if you will, that was, about 10 years ago or eight years ago, chopped for economy.
The only thing I would add to the list of things that have been put down here is this group should also be involved in developing national and international standards for the reporting of fiscal information because it's very important that Ontario's progress and fiscal position be comparable to that of other provinces, other levels of government, and that we all earn some sense playing with the same set of information. A lot of work has been done in that way; it's not like you have to reinvent the wheel here. There are some things that are underway. There have been a few joint US-Canadian studies of fiscal presentations at the federal level and I think a lot could be built on. But I think it would be useful for that group to have the active participation of a provincial government where the particular problems of provincial government accounting could also be highlighted, and this particular committee might be particularly well-suited for making that comment.
Number 7(e) is the recommendation that one should publish an annual tax expenditure account. These are useful in that they bring tax expenditures to the same level of visibility as regular expenditures. My recommendation would be that given the propensities of people who have to do the work, they should be encouraged to do the provincial-only tax expenditures first, those that are peculiarities of your provincial tax systems, and not simply take 57% of the federal ones and publish the list. We already have that list. In fact, we just got an updated one last Friday, at the federal level, for the federal tax expenditures, which one could then quickly pick up the provincial implications for.
So get them to start working on some of the tougher ones: What does it mean to exempt food from the retail sales tax? What does a specific treatment or exemption or other activity mean in the other tax systems in the province?
Number 28 is a recommendation to take a look at the dividend tax credit. These are basically the wish-list part of the whole set of federal tax commission things they would wish the federal government would fix, useful to have, and indeed you may find more quick response on this set of recommendations than on some of the others in the next budget.
But in number 28, the question of the dividend tax credit is raised. The question mark I would just put there -- as you perhaps are aware now, the purpose of it is to essentially account for the fact that under a standard system, dividends would have effectively paid a tax at the corporate level and now you're in essence trying to apply a second tax at the personal level. So it's to avoid double taxation of the income from dividends. A number of countries are in fact looking at the Canadian system with some envy and some interest. So if we're planning to get rid of this, we may find it's kind of like indexing in the federal system: We got rid of it the same year the US adopted it.
It is conceivable to me, though, that rather than using an arbitrary corporate tax rate, one could overcome some of the concerns and abuses that are perceived here by using the actual taxes paid by the corporation and have that flow through to the dividend. This would at least bear some resemblance and if there are corporations that are not paying tax, then there would not be an associated tax subsidy or tax credit associated with their dividends. But I'll leave that one to you. Others would say, "Bump up dividends to the same level of interest and make them deductible and this issue goes away and then you would tax it in the same way you would interest payments." That's certainly feasible.
Number 46 is a discussion of payroll tax and indeed that whole section, recommending that "Ontario should eliminate the graduated rate structure...and replace it with a uniform rate of tax based on all remuneration." It occurs to me, we may want to think about a front-end exemption on the payroll tax. We're talking here about the so-called health tax, the one they wish to rename. The purpose of that would be to essentially turn the system into a progressive tax by having that front-end exemption. It also means that an employer looking at adding a person versus extending hours would face a situation where that was a somewhat more sensible choice. There would in fact be an incentive to bring on another one.
There may be some administrative issues with this. One may have to sort out just how you do this and you may want to find a way that's easy for reporting, not subject to any abuse. But the concept you're after is essentially an exemption of a front-end part and a continuation. This may well mean that you have to have a higher rate on the balance. That's not the issue. The question is, what's the signal that you're giving people?
Number 60 has to do with some comments on the comprehensive sales tax at the federal level. This again is a hypothetical issue. Ontario and the federal government five years ago were very close to having an integrated tax in the precursor to the GST; there were a few slips 'twixt cup and lip and that didn't get done. There is, I think, a spirit out there at the moment to say, "Let's try it again." I don't know whether it's going to get done this time around or not.
It would, however, have some advantages. In the recommendations that they are laying out here and I guess particularly in 60 but you could think of it as a whole group, I would ask you to reconsider, in your deliberations on this, insisting on zero-rating so-called basic groceries, prescription drugs etc. You may well want to go into those negotiations with a view of not having any unacceptable kinds of changes, because it may well be that we could get a greyhound kind of system out of that if we in fact said, "Let's not try to do our social engineering through the GST system," and do it through other devices. No exemption, no zero-rated system could well give you an extremely simple administrative system, an extremely fair system and one which would have minimum distortions.
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Similarly, with government of all ilk paying their taxes on this so that one doesn't have to keep track of who is the purchaser; all of that's feasible when it is a jointly managed system. We ought not to necessarily complicate it at this stage. We can talk about that if you have particular questions on it.
We've looked at a number of different systems. We did quite a few simulations back in the 1980s on a joint system for the provinces, funded mainly by the provinces, so we're not unaware of what some of the issues are that come up.
Number 64 is a recommendation to put a tax "on all fossil fuels consumed in the residential, commercial and industrial, and transportation sectors based on the carbon content of fossil fuel energy inputs." My reaction when I first saw this was a desire on the part of the government of Ontario or the tax commission on behalf of the government of Ontario to recommend that they occupy some tax room out there.
I don't think it's one of the brighter ideas in here and essentially perhaps would put it to you this way. If you're going to do CO2, which is a global emission that goes into the atmosphere and affects the climate around the world -- and indeed the climate will be affected in Ontario, regardless of what you do, by CO2 emissions elsewhere -- one ought to see this at least as a tax that you should coordinate very carefully with other provinces and with the federal government. Indeed you might say, given the global nature of it, where the most effective way for example at the moment of coping with the CO2 emissions may be to improve the quality of the coal generation system in China, that may be, from Ontario's viewpoint, the best payoff for a buck.
It would seem to me that there's lots of other problems in the environmental area that the province could focus their attentions on rather than this. There's nothing, in principle, wrong with tax measures for getting the signals right. I would say the ones that you're, at the provincial level, most concerned with would be those affecting the local and provincial environment, some of the air and water, solid waste, items which have a deposition in the region and an effect you might want to control.
The end of the world doesn't happen if you do that. This high correlation between energy and carbon content -- and there's some reasons for trying to conserve energy and so on -- so I'm not going to leave the province if you decide to go ahead with this, but it may be a bit of a waste of your skills.
Number 67, just a footnote when you're looking at systems for taxation of vehicles, particularly trucks: There is some evidence in the US that intercity use of roads and the wear and tear on those roads is related to the axle weight of the trucks and not just the proportional to it, but in fact in a very non-linear way by the square or the cube of it. So, if you are looking at systems based on characteristics of the vehicles, you may well want to take that into account. For the intercity movement, it means virtually no tax on cars for that purpose. You may have taxes for other purposes on them, their energy use. But if you're worried about road wear and tear, this axle weight squared or cubed would be appropriate. I think the people in the transportation system are aware of that. Whether it comes forward to you as a proposal remains to be seen.
Just two other quick points. On number 69 there is a discussion of user fees. User fees are a euphemism for taxes, or if they're not, then it's because we can really relate that user fee to some service that's being delivered. If it's the latter, if it's a service charge for something that the government is providing, then the one thing you as legislators would want to ask is, is that price that's being charged for that user fee appropriate? In other words, is it a regulated price or is there competition? Is there some signal that we're getting that that is the appropriate price?
In particular what you want to try to avoid is that that price becomes a monopoly price. In other words, when you get some civil servant telling you the price he's charging is what the market will bear, that's when you want to kind of touch him up against the side of the head and say: "But that's not what we're after. What we're interested in is you charging a user fee associated with the marginal cost of that particular additional service, or the incremental benefit to the individual. We're not trying to turn some of what we have chosen to put together in, say, water and sewage systems into opportunities to extract monopoly rents from our citizens."
I would say also, though, if you're going to use the price system, use it. If you say, "I want to start charging for sewage and water because that will encourage people to use less water and sewage; I want to get the signals right," then for God's sake don't go trying to do social engineering through exempting particular people from paying that price. So, do not -- read my lips, if you will, and you still may well ignore it -- say, "If you're poor or old or handicapped or living in a rural area, we're going to not charge you this particular amount." Charge everyone an amount, let them make the decision to use less of it, and if you want to protect them because you've hurt them in some way, ie, the poor, for example, change social assistance by the amount that the average person in that group would consume.
Then you've got everyone working on conservation for you. You don't have the poor people sitting there saying, "I have no incentive to save." In fact, they have a very high incentive. They get the payment regardless of what they use and they can conserve and in fact get improvements in their position out of that. So you don't have two classes. It makes it a lot more simple to go down this road.
Number 97, just a final note on that: This is the recommendation that crown lands should continue to be exempt from local property tax but should be subject to full payment by the province in lieu of all local property taxes, based on assessment of similar property. I think that it's (a) a useful provision, but (b) you ought to encourage the federal government to play the same game. I think it's important for all levels of government to behave in a civil fashion, in both terms of the word, with each other. As you all may be aware, the federal government in the last few years had frozen its contributions in lieu of property taxes, to the great difficulty of offloading problems on municipalities.
Just attached to this are the most recent numbers. We're still in the process of freezing these, but they represent the latest information we have incorporated in here for you, a forecast of what the economy looks like out over the period through 1998. I didn't include out to 2020 because I thought that your horizon might not be quite that long as we approach a provincial election, but at least it'll get you through this one and into the next one in terms of the economic outlook.
Let me stop there. I always enjoy chatting with you and hearing your questions more than I do just talking with you. So who wants to shoot?
The Chair: We have about nine minutes per caucus.
Mr Phillips: I appreciate the thoughtful presentation, and actually this is probably the fourth year I've sat here. I think it's the fourth year you've been here, and there's a similarity to the presentations. You tend to be, historically and this year, at the optimistic end of the scale. If I understand your numbers for 1994, you're looking at real growth in the province of 4.6%. Is that --
Mr McCracken: Yes, and that's about a point higher than the province I think released more recently. It is internationally about seven tenths of a point higher than the Minister of Finance gave us a few months ago or a month ago, but I think you'll see a more up-to-date, more upbeat forecast from him in February.
Mr Phillips: Right. On the employment side, I think you're looking at 120,000 jobs next year?
Mr McCracken: Yes, on average year-to-year.
Mr Phillips: I think that's probably around 30,000 to 35,000 higher than the estimate we had from the minister yesterday.
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On the consumer price index, I think you're at 1.9 and you're a little bit higher, I think, than the minister's estimate.
In any event, none of this is different than in the past where, as I say, you've tended to be the more optimistic one. My conclusion from all of this is we're hearing from the economists bracketing the government's numbers. I suspect we'll have a few lower and a few higher.
Your advice is the same as your advice you gave us four years ago. I think your comment on the NDP's first budget, the $9.5-billion deficit, was that that was a good idea and was something I think you felt quite supportive of. You were one of the few economists who were. In hindsight now, as you look back on that, I think an awful lot of people, including -- I think even the Minister of Finance at one stage came close to acknowledging that that budget may have been -- that maybe they should have acknowledged that there was a need for restraint and for not simply "fighting the recession" but for fighting the deficit. I happen to believe strongly we're paying a substantial price for that particular budget, which was in my opinion a mistake. But you've had a chance to watch it too. Do you still believe that that was the right approach?
Mr McCracken: What makes it a difficult judgement is to determine what else would have been different if you had not stimulated the economy in Ontario in 1990. If you didn't stimulate, you didn't go ahead and try to do some job creation at that stage but had just simply sat on your hands or indeed even moved towards more restraint, then, yes, you would have better-looking numbers today on the fiscal side but you would have higher unemployment and you would have had higher unemployment over that entire period of time. So in that sense I would still say they did the right thing back four years ago.
Another possible scenario, and one that sometimes is implicitly there in the businessmen's minds or in others, is if the province hadn't stimulated at that point in time, the Ontario economy would have slowed down enough and gotten trashy enough more quickly, and Mr Crow would have perhaps not have continued his vendetta as long and the feds may not have gone towards more restraint to the same degree that they did.
In other words, someone else could have got the blame for trashing the economy, and we would end up exactly where we are today, because the feds would have done less damage because the province had chosen to do more, and what would be different is the provincial balance would have been in a bit better shape and the federal one a bit worse. But it would not have been a major change.
From that viewpoint, if you are provincial in your outlook, in both terms, you would have said: "Yes, we should have held tough. We should have moved to restraint and let the feds carry the can on the cyclical problems."
At the time, in 1990-91, in fact in direct discussions with Mr Laughren, which I think you will remember, I said to him: "What the hell are the feds going to do? If what happens is you go this way and they go this way, then all you've done is in a sense twisted the economy, there is no net progress, and what you've done is in some sense given a confusing signal out there in terms of, `What do you want me to do? Do you want me to spend? Do you want me to save? Do you want me to hunker down? Do you want me to expand?'"
What we got -- I think the failure to communicate is primarily from the feds to the provinces during that period -- was people operating in opposite directions at cross-purposes, and no one won in that particular environment.
I'm very hopeful that that's behind us and that there will be a much healthier discussion between the federal and provincial governments now in Ottawa. Certainly, the experiences of the last few years should have shown the benefits of some chatting.
To some extent, let's say that at the present time it was a strongly held view by the federal government that they needed to restrain the economy, then that would be something the provincial Minister of Finance would want to know, because there is no point in his trying to go in the opposite direction unless he is convinced that he can stimulate in his region and let the feds pull back on other regions.
I'm not sure I would play it differently, Mr Phillips, but I think it really depends on what that alternative is. If we were coordinating policy at that time, one could conceive of a more sensible policy if the concern wasn't somehow that Ontario or Toronto was overheating, that a more clever approach might have been to say, "Well, let's pull back on that area, let's restrain that one area that we seem to be hung up on because of concern about inflation breaking out, and not disturb the rest of the economy."
It's conceivable that we could come up with such tax instruments that would do that. We could at least not spend money in the areas that are overheating and would have certainly helped control it. But we're not there, and I guess at this point the reason I'm not recommending restraint is that I feel we're not out of the woods. We have a long way to go to close the gap.
I have been criticized for the last 20 years in never saying "Exercise restraint" and always saying "Stimulate," and I must say that's true and the reason for it is we haven't had, in my view, full employment for 20 years. I do promise, if we ever get this economy operating in a decent fashion, that I will at some appropriate time say, "Now is the time to exercise restraint on the fiscal side." As I say, we haven't been in that position, including even the period 1988-89-90 when allegedly people were of the view that we had grossly overheated in Ontario. I wasn't convinced of that. In fact, I'm not even convinced today that overheating in a specific regional area is a problem we should be reacting to on a macroeconomics basis.
I'll try to make my other responses a little shorter so as to not eat into your thing, but that was a pretty general philosophical question you asked me as well, and I wanted to make sure you got a proper response on it.
The Chair: We're just about out of time for the Liberal caucus. Do you have anything further?
Mr Kwinter: If I could just get a short response. I see in your projections you show a very dramatic increase in dwelling starts in 1994-95 --
Mr McCracken: Well, 1994-95 is up somewhat; much bigger in 1995.
Mr Kwinter: You're going from 58% to 93%. What is the rationale for that?
Mr McCracken: We basically have a period of continuing declines in real interest rates, mortgage rates. We have some improvement in real incomes of consumers as we finally begin to get employment picking up. We also nationally have vacancy rates, at least looking at housing in a rather broad sense, that are getting extremely low. We are indeed concerned that we may be pushing pretty hard on the housing front, and this is a response to that.
The normal amount required to match household growth is about 200,000, maybe 210,000 if you count the ones that burn down and are torn down, with the current levels of immigration we have. We've been running under that now for about four years, and particularly large shortfalls in 1990-91-92. That's basically the backlog, the low interest rate, the affordability, if you will, improving substantially and a sense, which will grow as each month unfolds this year and next, that things are in fact finally picking up.
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Mr Kwinter: One last, very quick question: Given the importance of the housing industry to the economy, why is that not reflected in the increase in the gross domestic product, when in fact you're showing a slight decrease in 1995 over 1994?
Mr McCracken: We are getting above-potential growth. We're getting 4.5% growth per year in Ontario, so it is reflected. At the same time, we still have a problem of a consumer who is not as strong as we would like to see. The consumer still has real disposable income growing very slowly. Wage gains are not there hardly at all, essentially matching price change. The only gains in real disposable income are coming from employment increases. The tax bite is still there, holding down private disposable income. So 60% of the economy is hanging back a bit, and that's why it's not even more vigorous than what we should have here, but 4.5% growth would be more rapid than we've had in any year since 1989.
Mr W. Donald Cousens (Markham): I'm looking at the same charts. How do you come about it when you talk about your "workshop"? Is that just a nomenclature that you use internally?
Mr McCracken: No, we have a process. There was a forecast before this that we tabled with a group of people. We brought about 60 people together for two days and discussed the assumptions that we're making on the national side, on the international side, on the provinces. As a result of that, they say, "That's very interesting, but you ought to recognize, for example, that we don't think that commercial building recovery in Ontario is going to show any hope of change in 1994 or 1995. It's more likely going to be pushed out to 1996 or beyond; some will even say to the end of the century."
So we try to check that information, reflect it and incorporate that into the forecast. This is a continuous process. This has been going on on a provincial basis twice a year since 1980 and involves different people. It involves provincial governments, federal governments, private groups and associations. At the same time, information bases change every day.
Mr Cousens: So you're giving credit to the fact that it's a gathering of information you've gone through.
Mr McCracken: Yes, and it's an integrative process.
Mr Cousens: I'm looking at the investment that goes into machinery and equipment in 1993. There were big numbers back in 1993, and then 1994 continued to be higher than for a long time, and for 1995. One of the things that our committee has a chance to do in making recommendations is, are there any ways that you could suggest or recommend -- and this is going beyond where you sometimes would operate. But I see that as one of the key indicators for us to get industry going and make Ontario competitive again, which is all our desires. If we're able to find ways in which the Minister of Finance can give incentive to more such investment, do you have any thoughts on that, because it really seems to me you're giving us a good message there, but I also want to reinforce it.
Mr McCracken: Sure. If you wanted to make it stronger, how would you do it? You can basically pump up the demand side, which will require businesses to say: "My God, I'm going to run out of capacity sooner than I thought. I need to raise my level of investment now to keep my position in the marketplace." That works usually pretty well. You can try to push them up by reducing the tax burden more generally or by more rapid write-offs on machinery and equipment.
Mr Cousens: Traditional things.
Mr McCracken: The trouble with that is it sometimes is like pushing on a string. It does help the people, but it's slow. In the US it was -- and may still; it's off again, on again -- we're suggesting a temporary investment tax credit on the margin, meaning you would get the investment tax credit only on the level of investment above the amount that you had the previous year, and that would only be for investments that you made, for example, in the next year or the next two years.
Some of the work I've seen on that in the US suggested it was a very good bang for the buck, because you didn't lose on all the infra-marginal investment and you could use a one- or two-year average investment of that firm as the benchmark, and it was temporary, so that it wasn't something you were locking in for ever. In Canada it's a little trickier for a province to do something that the feds aren't going along with in that area.
I think one other item is, if we do go to an integrated tax -- none of us will want to use the term GST, so we'll call it, I don't know, an integrated BTT or something -- to the extent, as it should be, that there's no cascading of taxes and that there are refunds on tax-paid inputs to business, then that will act as a substantial stimulus to machine and equipment investment as well, because you will not be paying the retail sales tax on machine and equipment in the first instance; you'll be paying it as you embody it in the goods and services that you sell subsequently. That turned out to be a fairly positive stimulus federally when the GST replaced the MST on the federal side.
Mr Cousens: I guess one thing I want to say, if we can through our research office -- it's one area which has been brought out, and I don't see it in too many presentations and others that I've looked at -- and when we're making our report we can come back and look at some of those numbers because, to me, there's an issue here where if we can inspire investors to continue that trend, which we have seen significantly over the last year and a half, into the future, it can be one of those things where, through the Legislative Assembly, we incent more such investment.
Mr McCracken: And not only do you get some jobs out of that during that period, you also get higher real incomes through a higher capital labour ratio and more productivity growth. The one footnote on that is that a lot of that machine and equipment is imported, and so the bang for the buck in terms of jobs is somewhat less.
Mr Cousens: What do you mean by "implicit deflator"? What is that?
Mr McCracken: That's like a price index but it's done by taking the current dollar over the constant dollar number. So the top three numbers you have there, in current dollars, the third line, the gross domestic product in the province this year is $260 billion. In 1986 dollars, it's $210 billion. The ratio of those two is 1.25, or, since 1986, you've had 25% of that increase accountable for by inflation. So this would be like a broad price deflator for Ontario, very analogous to the national GDP deflator. This one is provincial.
Mr Cousens: In 1986 dollars; that's the --
Mr McCracken: In 1986 dollars equals one, yes.
Mr Cousens: Gotcha. I appreciate your report. I wish we could all share the optimism that you're bringing. I look at those numbers at the bottom and I see the growth. You just start adding on and it soon accumulates. It's a really big help.
Mr McCracken: Yes, it helps. I should say that before the workshop we were about seven tenths of a point higher for Ontario. The effect of the consultations and the reactions and the discussions was to lower the outlook, not raise it. Ontario also, in this forecast, is likely to be the most rapidly growing province in Canada.
Mr Cousens: Our unemployment rate, how is that going to compare to other provinces?
Mr McCracken: Most of the western provinces will be lower. It'll be like a ski slope, starting lower in Alberta, Saskatchewan, BC, and rising gently until you get to Ontario, and then it'll be picking up rather rapidly through Quebec, the Maritimes and Newfoundland.
Mr Cousens: Is Quebec facing more unemployment?
Mr McCracken: A higher level. Probably in this recovery they will do fairly well but not quite as well as you and, as a result, their unemployment rate will come down somewhat more slowly than Ontario's. Basically, the engines of growth in this recovery are, foremost, exports, within that particularly autos. That spells Ontario. The other component that's very rapid is investment, particularly machine and equipment. Wherever that happens in this country, a lot of that investment is made in Ontario. So you get a double-dip from that.
Another way of putting it is, when we look at what happens to the Canadian economy with lower interest rates and a lower dollar, the one province that benefits most from either of those two moves is Ontario, and you've got both of those factors working for you, so any way you cut it -- put it perhaps in the negative sense. If you don't make it here, folks, we've got a problem nationally. If you're pessimistic, that it's going to be 2% or 3% here, that will translate into numbers half or 1% lower nationally, and if you get below about 3% nationally, the unemployment rate goes up; it doesn't come down.
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Mrs Mathyssen: I just have a couple of quick questions. You made reference earlier to not making any more cuts and I know that it was reported yesterday that there is expected to be a $1.6-billion shortfall due to less PIT. Your recommendation to the Treasurer would be not to be rattled by that.
Mr McCracken: That's right. I would say, "Take a Valium" -- or some generic version thereof, since people seem to be upset about C-91 -- and if we get the kind of growth that we're looking at, you should get that recovery. If you try to do something about that, you run the risk of aborting the recovery. If you know you're doing something dumb or inefficient or wasteful, we all agree, all-party agreement, we're going to cut that.
Given that we have done that, though, and we're sitting here with $1 billion, the question is, is the sensible thing to do to use that for deficit reduction, or should we find some better use for that $1 billion? My recommendation is there are a lot of things I can think about that would be better use of that $1 billion, whether that be in job creation, in education, in R&D, and on and on.
That's the way to think about it, is if you're going to go out and cut something, the status quo is never the right place; other people always think it's the right place, but it's generally not the right place. But at the margin, if you've made some reduction in an activity, then where do you want to move your resources to? So I have no problem if the Ontario government wants to change the mix of spending, in the same way that if you look at what the federal government is doing at the moment, it's changing the mix: cutting back on defence, raising it in some other areas, in infrastructure, R&D. But they're not changing the overall fiscal position.
I guess I'm saying to the Treasurer, don't get excited about changing the overall fiscal position; maybe focus your attention more on the mix. If you feel you have to do something, if there are some things that you're doing that are grossly inefficient, fine, stop doing them and spend the money over on these 78 items which no doubt will help you -- and he may know what those are and if he wants them, I'll be happy to tell him -- but don't try to get deficit reduction through discretionary moves on expenditure cuts or tax increases, because we've got a very fragile recovery under way, we've got a long way to go, we need lots of vigorous growth and it's better that you keep that moving and also that you don't give a signal to the federal government.
Let's face it: If the feds smell that the provinces are going to go do a tax grab somewhere, they get word of it and their budget's before yours, guess who's going to be in there first? Or even if you've gotten in there, they may come in later. In fact, look at our history in tobacco taxation, just to raise it as a point. The issue was not health; the issue was getting room. We had three or four years of an orgy of federal and provincial tax-stacking going on. They put the price up and Jeez, nothing seemed to happen; they put on some more, and "Nothing's happening yet." Then all of a sudden, we now have half of our population being scofflaws and some irritated smokers in the process.
Mrs Mathyssen: My second question --
Mr McCracken: I'm sorry. I'll try to be shorter.
Mrs Mathyssen: Oh, no, I appreciate your answer. I must say, I was a teacher and there was no such thing as a short answer to a question.
You were talking briefly about the equipment purchases and unfortunately, some of them being offshore. It reminded me of a comment that I heard from an economist yesterday that I found rather confusing. He was looking at the fact that our imports were up by something I think in the neighbourhood of $415 million. I could be wrong on that, but it was quite significant. He said that's a sign of health; we're able to go out and spend all this money on imports. My reaction was, if we're spending it on imports, then we're not spending it on domestic goods that will create jobs here. How do you react to that?
Mr McCracken: In a general sense, with almost anything we buy in Canada, we're spending 30% or 40% of that dollar on imports somewhere down the chain. Sometimes it's more; sometimes it's less. Even when you buy a piece of machinery equipment made in Tulsa, Oklahoma, it will have some Canadian content in terms of the retail and wholesale margins, the distribution, after-service etc, so that tends to mitigate it. Yes, when you look at the monthly trade numbers or even the annual trade numbers, one of the reasons imports go up is because the sectors of the economy that have a high import content are expanding more rapidly, so it would be an appropriate indicator.
It doesn't mean that you have to be happy about it. One of the things you are looking always for is, are there opportunities to replace the imports you have with equally efficient options in Canada? I stress "equally efficient options." If we can make computers here as well as they do somewhere else, then why not? Now the problem is, they're not always equally efficient and we want to be careful that we don't try to create industries here or companies here providing machinery or equipment behind some protective wall.
Also, importing them has another thing that comes with it. That is, you may be importing, depending on what you're buying, state-of-the-art technology. This may give you an edge, so it's important to have that option.
Having said all that, one of the hopes is that as we do have a more global outlook in our companies in Canada, that increasingly, some of them will take on the manufacture of investment goods for the world and the state of the art, so that when we then also buy those in Canada, we'll be buying ones which are principally made in Canada. In essence that's what happens now with heavy trucks, that's what happens with a lot of the older kind of investment goods, where we tend to be somewhat weak in terms of having domestic content in some of the leading-edge computer software systems etc. Some of that we're overcoming.
We now have Digital in Ontario making a certain class of computer, so if we buy that class of computer in Canada, we will be getting state of the art and it will be domestically made, but if we buy class B or a different brand over here, then it may be coming in imported. But we're becoming better in that area. There's nothing at all wrong with imports. Imports give you that access to technology, they often give you as a consumer more choice, and they give you lower price. In some sense, that's why we import. We do that because we don't make those very well and we sell them things we make pretty well and we're both better off in the process. So it's nothing to get worried about.
Anyone who looks at the monthly trade numbers, by the way, and tells you anything is -- just don't listen to them. Those things are so volatile they're all over the map, particularly at this time of year. If there's a freeze-up on a lake or a bridge that won't open, it can move the trade numbers around by a ship being one day late. So be patient; look at it over a three- or four- or five-month period. We've been doing very well, though, on exports relative to imports over the last 12 or 18 months. Thank God we have had that source of strength in the economy, because most of the other ones have been pretty weak. Machine and equipment has not been too bad, but most of the other sectors have been pulling us down.
The Chair: Regretfully, our time has expired. I want to thank you, Mr McCracken, very much for making your presentation before the committee this afternoon.
Mr McCracken: It's my pleasure. In the future I'll always try to respond to it, even though it does have the danger of, as you repeat here, that people will sometimes remember what you said the year before and remind you of those forecasts. If any of you have any questions or individual follow-up you want, don't hesitate to call me. I'll be always happy to talk with you.
ONTARIO ROAD BUILDERS' ASSOCIATION
The Chair: The next presenters are the Ontario Road Builders' Association, Mr Barrett and Mr Ryan.
Mr Arthur Ryan: I'd like to read our short, standard brief. We come here every year and talk about the same issues. We try to address issues which we have some interest in and some knowledge of. We don't try to provide expertise in areas in which we feel we're not competent to do so. I'll read the brief and then we'll be delighted to answer your questions.
Introduction: The Ontario Road Builders' Association represents virtually all of the major firms involved in constructing and maintaining Ontario provincial highways and municipal roads. The association was formed in 1927 and now comprises more than 170 companies in over 50 communities across Ontario. Our members represent a large, labour-intensive industry, both union and non-union, working in an area which has had a substantial impact on the quality of life of Ontarians and the economic viability of the province. We welcome this opportunity to present our views to the Ministry of Treasury and Economics and trust they will be given due consideration in the preparation of the 1994 budget.
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Economic development: The roadbuilding industry is an important segment of the Ontario construction industry, which latter is the province's biggest industry, its largest employer, Canadian-owned -- largely by small entrepreneurs -- pays the highest wages and is the province's largest taxpayer. These facts cause our industry to have a substantial impact on all segments of our society. We fully concur with the Treasurer's statement that Ontario must generate the economic renewal that will create and maintain jobs, attract dynamic new investment and promote business confidence.
Economic renewal: The current government has consistently stated that economic renewal can only be achieved from jobs, training and investment. In these times of severe economic restrictions it is virtually impossible to attain these aims through normal economic and fiscal policies.
Deficit reduction: The concern with deficit reduction is laudatory. However, deficit reduction is not achieved only by reduction of expenditures or tax increases. Increases in revenue far outweigh the current commitment to cost reduction. Increased revenue for the most part can only be created through increased employment. We feel very strongly that this administration must emphasize the job creation aspect of the equation to achieve any substantial reduction in the deficit. When revenues are increased through job creation, the effects are extraordinary. These increases have immediate impact on economic activity. The general confidence generated causes reduction in interest rates and, as we have seen in past years, sparks economic recovery.
Capital investment: Our industry is obviously very pleased that the government of Ontario has taken the initiative and made substantial commitments to infrastructure and building renewal in this province. There is no doubt in our mind that money spent on capital investment for new highways, new roads and new infrastructure in general has an immediate and extremely important impact on economic development in the province. We support the government's position and stance in announcing these programs.
We are fully supportive of the government's differentiation between capital and operating expenses. We support the formation of crown corporations to ensure that the differentiation is specific. Our concern is that the government should ensure that the formation of these corporations does not become a bureaucratic quagmire.
Infrastructure investment: The phrase "infrastructure investment" has today become a household word. From the new federal government's announcement a number of months ago on its commitment to job creation, and job creation based on a commitment to capital infrastructure investment, it would appear that there has been a philosophical change in the public's perception of the key to economic prosperity being deficit reduction to the more sensible approach to that particular problem through economic development and job creation.
For the past three years, and many of this committee here today have listened to our representations over those years, our association has maintained that the resolution of deficit reduction is predicated on the basis of cost reductions, but by far the most important factor of deficit reduction would be through a revenue stream, which can only be achieved by job creation.
We laud this current administration for its total commitment to differentiating between expenditures made for capital and operating, as we mentioned. Over the past years we have dealt, as an association, with many administrations. Each of these administrations has made varying commitments to job creation created by investment infrastructure. The current administration has followed through very strongly on that commitment.
The new federal government has announced a $6-billion infrastructure investment, and indications are at this time that each of the provinces has been able to resolve significant concerns and commit to this kind of investment program.
Members of this committee may not feel as committed as ourselves to the implications of the benefits of infrastructure investment. We can only assure those members that we have been involved over the past many years with advisers from various sectors of the economic mainstream who have fully supported the benefits of infrastructure investment.
A dollar spent directly in construction generates at least the same in terms of all the ancillary industries involved in that process. A dollar spent in construction means an immediate commitment to job creation.
A dollar spent in the manufacturing industry unfortunately needs much more lead time to generate specific economic returns in that industry sector.
The concern in this province today, and this may well not be reflected across the country, is a lack of confidence in the public as to whether there is commitment towards job creation and that they can feel some confidence in maintaining their present positions or jobs.
This committee's responsibility, as is the present government's, is to rebuild confidence in the Ontario public to ensure all segments of society are working towards the common goal of creating jobs, increasing prosperity and generally affording the stability of lifestyle that has been missing in the past couple of years.
Private sector involvement: In the coming weeks there will be announced by this government a massive highway project, the likes of which has not been seen before in this province. This will be the first time that the private sector has worked hand in hand with the provincial government to move towards the common goal of lifting this province from its current economic doldrums.
Our association represents a diverse group of contractors, probably 95% of the contracting industry in this province. Obviously, as an industry there are individual concerns that some of our membership may not benefit from this massive program, which at first blush may favour large contractors. We make this comment simply to explain to the committee that when commitments are made, whether it be by industry, labour or government, there may well be some negative undertones to that commitment. As an association, we believe we have resolved these concerns. We are totally supportive of a commitment for the private sector involvement in the upcoming major project which will be the building and tolling of Highway 407.
Our comments, in some sense, have been general, but we would appreciate specific questions from the committee relative to the forthcoming announcement of private sector involvement in building Highway 407 and the continuing commitment we trust government will keep in the coming years to work closely with industry and labour to achieve a tripartite resolution to our economic problems. Thank you, ladies and gentlemen.
The Chair: Thank you, Mr Ryan.
Mr Ryan: This is Brian Barrett, the president of Steed and Evans Ltd and also the vice-president of the association.
The Chair: I believe you made a presentation before this committee last year.
Mr Ryan: Yes, I did. That's right.
The Chair: We have about six minutes per caucus.
Mr Cousens: Thank you and I appreciate your presentation. I appreciate the positive nature of it as well and also agree with the sense of urgency and importance in building the infrastructure, which really is something that we all have to see happen.
One of the questions -- and I haven't had it updated for a while. For every dollar that is spent on building roads, how many dollars does that generate in other ways in the community? It has such a ripple effect. I heard once years ago that for every dollar you spend on road construction it generates five other ones, but is there a number that you know?
Mr Ryan: No. You know, these figures get bandied about so often, but generally I think the consensus is, it varies from -- you know, different economists will go from either $1.50 to $1.80, I guess, realistically. So for $1 spent, you'll generate another, say, $1.75 perhaps in the rest of the industry.
But the key is, as we mentioned in our presentation, the immediate impact of that. Once a job is announced, right away you're creating jobs and you're creating additional, because our industry has suffered, not as much as the general construction industry certainly, but in terms of the downturn compared to the burgeoning 1980s perhaps we certainly felt it.
Mr Cousens: The positive impact of 407 is not unlike what the subway did to Toronto.
Mr Ryan: Very much so.
Mr Barrett: Yes.
Mr Ryan: To give you some specific numbers, and this is why our industry is so excited about it, in a normal Ontario fiscal year we would be looking at in terms of dollar volumes for the provincial highway system, not including the municipalities now, something in the order of $375 million. This year, because of the Jobs Ontario Capital fund, which the government has committed to heavily -- as you know, March 31 is the end of the fiscal year -- we've already had, in the winding-down fiscal year, something in excess of $500 million to date. So it's been a good year, exclusive of 407.
When 407 comes on stream, hopefully starting in April of this year but the next fiscal year -- I'll give you an example -- the project will total something in the order of $2 billion just for 407.
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Mr Cousens: Over how long?
Mr Ryan: Over five years. It's an accelerated program. This is why we're happy about the private sector involvement. On the initial government plans that part was to be completed in the year 2015. Now the private sector's gotten involved, and I'm not saying that's the answer, but the generally accelerated program will now be completed by 1998, 17 years ahead of schedule. That's the forecasted construction time frame. It'll be close to that. The indications are that it will be close.
In terms of the volumes of work to do that, just dividing the $200 billion over the span of five years, we're talking $400 million, in addition to what the current provincial allocations will be. The government, even with the cutbacks in the operating costs and things of that nature, has maintained at this point -- frankly they've done very well in maintaining the capital program and they've told us they will continue to do so.
Mr Barrett: The only comment I want to make is that Art is giving the impression that maybe there's a lot of work out there; potentially there's a lot of work. The other side of the coin is, municipalities are spending a lot less money in our industry and the private sector is spending no money in our industry. So our industry is certainly down, but we look forward to the 407 as being something that will hopefully lift us out of the doldrums.
Mr Cousens: Yes. I'm as excited as anyone about 407, and to the surprise of my colleagues across the way -- to hear me celebrate 407, for them it's a rare moment. The speed at which it's going is excellent.
Can you comment on how you come together as the consortia -- there's the Ontario consortia and the Quebec consortia that are doing the bid process and that's a separate subject that I don't want to get into -- the way in which you're working with all members of your industry? What have you done there to bring this sharing?
Mr Ryan: I guess we just met and debated. It's just two groups, two consortia. Even we only realized frankly a few weeks ago who those particular members were. So we have board meetings and obviously we have people around the board who were involved in the consortium, which they don't discuss.
Other members are concerned that perhaps when these contracts are awarded, some of the larger contractors in our association would be the beneficiaries and the smaller contractors would be left out of that process. We've pretty well resolved that. There's no answer to that and there's no question that certain larger contractors will benefit enormously, but there's so much work out there.
Brian is right in saying they cut down in municipalities, but if the 407 goes through on schedule, there should be sufficient work for all of our industry, relatively speaking. That's all we can really say to the membership because there's no simple answer. We can't guarantee anything. We don't know what's going to happen.
Mr Cousens: Is there any way in which you can have a rating between Ontario's roads and other neighbouring jurisdictions' road networks? Because I hit a pothole this morning and it seems to be an increasing problem. I could drop into a real big one. How do you rate Ontario roads versus other jurisdictions? There's an increasing feeling that they're better in Kuwait, you know.
Interjections.
Mr Wayne Lessard (Windsor-Walkerville): That has nothing to do with the Road Builders, though.
Mr Barrett: No, but I don't think arithmetically we have measured it. I suppose the Better Roads Coalition could probably address that because they've done numbers that would indicate a percentage of investment in the infrastructure relative to the value of the infrastructure and that sort of thing. A personal impression would be that where we were miles ahead of the Americans 10 years ago, we're certainly not today.
Mr Cousens: That's my sense too.
Mr Ryan: That's exactly right. That's the sense that we get now. As Brian says, the Better Roads Coalition, TRIP as well, is another group that did some data analysis on the road systems. The standard of the highways has dropped considerably since the good years when moneys were being spent. But every government has faced that problem.
Mr Sutherland: I guess I'm a little spoiled being in Oxford and all the work being done on the 401 there to six-lane it. You drive that section, you think the roads are in really good shape. I know Mr Barrett's company has been doing some of that work and it looks really good and has certainly improved safety concerns. I compliment the previous government for announcing going ahead with the project, and we've tried to speed that project up.
I want to ask a couple of questions about cost factors and some other quirks that all the members get asked about. The first is, what does it cost to do a kilometre or mile of road, a rough estimate?
Mr Barrett: That job we're doing is an $8.5-million job and it's about three kilometres long.
Mr Sutherland: You're making that a six-lane highway, so that's a big difference.
Mr Barrett: Yes, and that's a relatively expensive piece of highway because there are about six structures in the three kilometres.
Mr Sutherland: Yes, bridges and things like that.
Mr Barrett: So it's probably below $3 million.
Mr Sutherland: And a two-lane highway?
Mr Barrett: It would be dramatically below that. We don't price work that way, so it's a figure that I don't have in my head. We tend to price on unit prices.
Mr Sutherland: In terms of measuring quality of roads, what about the improvements in the industry in terms of the quality of asphalt etc? Are the roads we're building now going to be lasting longer due to those improvements?
Mr Barrett: Yes, I don't think there's any question about that, although I caution you that some of the work that the MTO is doing is experimental; they've had some failures in roads that are only a couple of years old and they've made changes based on that experience. But there's no question of the quality of today's product. It far exceeds what we gave you 10 years ago.
Mr Sutherland: And the labour intensity of your industry: I guess one would look at it on the surface and say most of the money goes into gravel or into asphalt." What percentage of the costs would be going into labour in roadbuilding versus say housing or so on?
Mr Barrett: I'm not sure what it is in the housing industry, but in our industry it's about 20%.
Mr Sutherland: Right, okay.
Mr Kwinter: Thank you for your presentation. I am very supportive of the work you do and I've always been an advocate that the economic wellbeing of Ontario is directly related to the wellbeing of its roads, and the whole idea that if you got it, you got it by truck. It's true, when you had to do it by road.
I have a concern and I'd really like your impression of this. One of the things Mr McCracken talked about, one of the things my colleague Mr Phillips is constantly talking about, is the appropriateness of the user fee.
When we talk about Highway 407, which I'm totally supportive of -- I have some concerns about the toll aspect of it -- the rationale by the government is that, "We can accelerate the construction of it and we really feel that those people who are using it should pay for it." On the surface it sounds like a logical response, but when you hear your association and others, the economic benefits that accrue to the whole province are going to be enhanced by the 407. People who do not use the 407 will still be benefiting from it, but they won't be effectively paying for it. I'm sure the total cost of the project will not be covered by tolls, but it's going to be a substantial component.
My fear is that the rationale is being used to sell the concept, but the real reason for the toll is to try to reduce the obligation of the taxpayers to a service that I think they should be obligated for. I have no problem with people getting very, very specialized services and paying for it, because it's not something that most people get. But on the other hand, when you're building things that I think are absolutely basic and absolutely a prime responsibility of a government, which is to provide an adequate road system, then I think that should be paid for by all of the taxpayers, because all the taxpayers will benefit, regardless of whether they're actually travelling on that highway or not. Any thoughts about that?
Mr Ryan: Yes, I'd like to address that. That's been given a great deal of thought, and not just by our association, because it's not our mandate to take that position. But in all the publications relative to toll-road funding, that issue has always been addressed.
I believe -- but I'm not sure, because the proposals being made by these two consortia, nobody knows why they came up with it at this point -- but certainly that kind of thinking is incorporated in their presentations; I'm sure of that, because there's a concern there, exactly as you say, that the fact that a toll is just to be funded by the user of the system, there are a lot of other beneficiaries besides the user of that particular system at that time. So I think in some way that that is being looked at. What the outcome is for that, I don't know.
In Europe some tolls are constructed on that basis; in other words, the toll revenues have been brought into general funds, but the governments in those particular countries have charged everybody some portion of a fee. I don't know what the methodology is, but the economic benefit of that tolling system has been charged through some other means within the government revenue stream. I think it's a common approach in the sense that it's looked at, but what the answer is, I don't know.
The other thing about 407 specifically is that -- and again, it's always part of the proposition when tolls are discussed -- there's a lot in the route. One of the reasons that the public has accepted it, in the sense that there have been a number of polls taken -- of course, it's relative to how the question is asked, but there seems to be a general acceptance by the public of the 407 being a toll road as long as they have access to the 401, which will be an alternate route that they can take without having to pay any tolls.
I know the trucking association and the automobile association -- particularly the Toronto section of the automobile association, because it takes various positions in various cities -- the Toronto CAA is supportive of tolling the 407. The trucking association is supportive of tolling the 407 only because of the fact that the people will have an alternate to take.
I haven't given you a very specific answer. I know what your question is, and all I'm saying is I think it's looked at and it's attempted to be addressed, but how it will be specifically, I don't know on this, because we feel the same way. There are economic benefits which far outweigh the fact that somebody is dropping a couple of dollars when he's riding on the highway.
Mr Barrett: There's always another way of doing it, and that would be a fuel tax increase that would be a broader user pay than just tolling the 407. It would hit all drivers and only drivers. Of course, today nobody wants to see any tax increases, so that's not very acceptable.
There was a poll done by the Canadian Construction Association recently as to whether people would prefer tolls or a general tax increase to pay for roads. Something like 60% or 65% preferred the tolls. The reason given was they felt that the tolls would be dedicated, and a general tax increase would go through some bureaucracy that would use up a lot of it before it ever got back to whatever roads, or whatever it was going to be used for. That was an impression people had, that at least with tolls supposedly every penny went directly for the road.
Mr Kwinter: Is that in fact the case, that this toll is going to go directly to the road, or is it going to go to the consolidated revenue fund?
Mr Ryan: The tolls will be going to the consortium, to the private sector.
Mr Barrett: Yes, to pay them back for building it.
Mr Kwinter: Is there going to be a government tax on those revenues, GST and things of that kind?
Mr Ryan: I don't know. Right now all these two groups have been asked for is to make what they call a value engineering proposition to build the 407, and at this point that's all anybody knows. The ministry is right now going through voluminous reports and submissions.
The Chair: Thank you, Mr Ryan and Mr Barrett, for making your presentation this afternoon.
We stand adjourned until 10 am Tuesday next.
The committee adjourned at 1715.