STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
PRE-BUDGET CONSULTATIONS ROYAL BANK OF CANADA
ONTARIO RESTAURANT ASSOCIATION
ONTARIO HOME BUILDERS' ASSOCIATION
CANADIAN MENTAL HEALTH ASSOCIATION ONTARIO DIVISION
ONTARIO GOOD ROADS ASSOCIATION
ONTARIO NATURAL GAS ASSOCIATION
CONTENTS
Tuesday 25 January 1994
Pre-budget consultations
Royal Bank of Canada
Mark Chandler, assistant chief economist, treasury and financial markets
Ontario Restaurant Association
Paul Oliver, president
Rachelle Solomon, manager, government affairs
Sharon MacLauchlan, member
Ontario Teachers' Federation
Jim Head, president
Margaret Wilson, secretary-treasurer
Ontario Taxpayers Federation
Paul Pagnuelo, executive director
Doug Hindson, member, advisory council
Ontario Medical Association
Peter Fraser, chief executive officer
Dr Tom Dickson, president
Ontario Home Builders' Association
Stephen Kaiser, president
Ward Campbell, vice-president
Canadian Mental Health Association, Ontario division
Glenn Thompson, executive director
Carol Roup, senior director, policy, research and branch services
Ontario Good Roads Association
Vik Silgailis, president
Gerry Lalonde, second vice-president
Ross Hastings, board member
Ontario Natural Gas Association
Paul Pinnington, president
Bernard Jones, consultant
Gary Lowes, chair, finance committee
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:
Jackson, Cameron (Burlington South/-Sud PC) for Mr Cousens
Morrow, Mark (Wentworth East/-Est ND) for Mr Wiseman
Also taking part / Autres participants et participantes:
Crozier, Bruce (Essex South/-Sud L)
Clerk / Greffière: Mellor, Lynn
Staff / Personnel: Campbell, Elaine, research officer, Legislative Research Service
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
TUESDAY 25 JANUARY 1994
The committee met at 1007 in the St Clair/Thames/Erie Rooms, Macdonald Block, Toronto.
PRE-BUDGET CONSULTATIONS ROYAL BANK OF CANADA
The Chair (Mr Paul R. Johnson): The first presenter this morning is Mark Chandler, representing the Royal Bank of Canada.
Mr Mark Chandler: I understand you have a busy day over the next few days. This is the fourth year I've been here and I guess we will proceed along the similar sort of format that we have in pervious years, talking about where we see the Ontario economy and national economy and some of the implications that we expect it to have for Ontario's finances.
I'll just start by saying that in terms of our outlook for the past year, things have been weaker than what we had expected. But even given that weakness, I think it's fair to say the sort of deterioration you've seen in public finances above and beyond the weakness we've seen just in GDP growth and the unemployment rate and retail sales and so on -- so we're quite concerned in terms of public finances right now for Ontario.
In terms of where we see this year and next, I'll give you our view on where we see the global economy, the US, Canada and Ontario. I'll try to keep it brief because I think what you'll find is that our forecast is going to be pretty similar to some of the other ones that you hear and that you have heard and that you will hear over the next couple of days. It looks like you spread out some of the forecasters this year, more so than in past years, so maybe you can only take it in small doses. Essentially, where we see things is not too much different than treasury sees things for Ontario. Therefore we would expect, given this sort of outlook, that their forecast for revenues and expenditures would appear reasonable based on the inputs that go into it.
Essentially, what we see in terms of growth this year is better growth in North America but still weak growth worldwide. Growth in the US is expected to be about 3% and growth in Canada, for the nation as a whole, is expected to be 3.9%.
The one thing that's different now, for example, than what we saw in 1983 is that there's not a great deal of coordination in terms of growth around the world. We expect to see quite weak growth in Europe, for example, only 0.5% on average this year in Germany, and very weak growth in Japan as well, 0.5%.
The good news from that sort of outlook is that it should prevent a sharp upward rise in interest rates as the world gets back on track. In particular, with inflation low worldwide, we don't see bond yields under much pressure to rise. In fact, in most countries you'll see them coming down and we expect that to be the case as well for Canada. So that's good news in terms of the cost of financing the debt.
The flip side of that is that commodity prices are expected to increase only marginally. Typically, an increase in commodity prices is good for Canada as a whole, although for Ontario it's a question whether it's good for the provincial economy.
In this kind of outlook we expect to see Ontario and Canada doing reasonably well in terms of the external sector. That's export growth, which really picked up, particularly towards the latter half of last year, should continue to do quite well this year.
We're seeing that in the manufacturing sector. If you take a look at shipments and new orders in manufacturing, they're up in excess of 8% in terms of year-on-year growth. Manufacturing employment's up about 1.8% from a year ago and the profit picture for those industries is starting to look a little bit better.
A lot of that is driven by increased demand in the US, in particular increased demand for consumption goods and autos. We see that continuing through 1994. Given the importance of auto sector for Ontario, once again that's a pretty good sign.
The bad news is that while we think that the Canadian dollar and Canadian labour costs now are quite competitive compared to most overseas economies, with the weakness in demand in those countries, we won't be looking for much of an increase in exports overseas. So we're going to have to wait until we see better demand in those countries.
When you start to add it up, you see that this year for Ontario, we will not expect to see a banner year in terms of growth but some improvement. Real growth is expected to be 3.9%, and not much on the inflation side, so nominal GDP growth should be slightly in excess of 5%. We see a similar sort of thing for the consumer, with retail sales only up about 5% this year before advancing in excess of 6% in 1995.
In terms of the employment market, improvement there will be slow. We see the unemployment rate stuck, on average, at 10.5% this year and 9.3% next year. That's going to continue to put some pressure in terms of the expenditure side on Ontario's finances.
Again, on balance, the outlook for economic activity in Ontario is little different in substance from that forwarded by the Ontario Ministry of Finance late last year.
In terms of the implications for financial markets, we expect interest rates will remain low this year in spite of a modest increase in US interest rates as we head forward over the course of this year. On average, the three-month treasury bill rate is expected to be 3.85%. That's down more than a full percentage point from last year's average of 4.9%, and a similar sort of full percentage point reduction can be expected in long-term yields.
This outlook would suggest some cyclical improvement in Ontario's finances. The problem is, the improvement's going to be pretty slow, and of particular concern is the fact that the unemployment rate remains high.
The most recent figures for Ontario placed the deficit for the current fiscal year at approximately $9.5 billion, up from a projected $9.2 billion from last year. Last year's budget called for a reduction in the deficit in fiscal 1995 to $6.8 billion. I think it's fair to say that we're going to have a lot of problems trying to meet that sort of target this year. The way things are going right now, the deficit will be closer to the $9-billion range.
That brings to light the question: How long can we sustain these sorts of deficits? For the nation as a whole, a couple of points bear notice. One is that Canada as a whole still has a chronic savings problem. Deficits and debt as a percentage of GDP is extremely high relative to most other OECD countries. The fact that we've been borrowing for an extended period of time suggests that it's getting to the point now where, if we don't do anything over the next couple of years, we're going to have to look at some more dramatic cuts being imposed upon us, either through something happening in financial markets or externally. Really, I think what we have to look for in the next couple of years is to try and look at reasonable ways we can do it ourselves, without having it imposed upon us.
Just as a personal aside, I think the C.D. Howe report that was released recently in terms of what it suggests for getting the deficit down is pretty reasonable. I agree with the fact that the baseline scenario will not suggest that there's going to be an imminent crisis; it builds up over time. But if something goes wrong in terms of a steady economic outlook, the probability of a debt crisis increases quite dramatically.
Their proposal is a four-year freeze on program expenditures, and if you just do back-of-the-envelope calculations with that, it's reasonable to assume under that sort of scenario that you could get the deficit down to, say, $6 billion in fiscal 1996, about $4 billion in fiscal 1997 and about $1.5 to $2 billion in fiscal 1998. That assumes flat program expenditures, debt charges will increase, and it assumes the capital expenditures laid out last year in the budget plan.
If you look at some of the comments that are made by debt rating agencies such as Moody's and Standard and Poor's, that would be the baseline forecast that they're looking for when they look at the debt rating of the province. So I think that's something the province should look closely at in terms of where we go from this point forward. That's basically a minimum.
If you want to have increase in program expenditures instead of having them flat for four years, look for a marginal increase. Then you'll have to look at doing more on the expenditure side, and on that side I have a little bit of concern. I think it may prove self-defeating in terms of the revenues generated from further tax increases. That's about it in terms of my comments on the implications for the finances from the Ontario Economic Outlook.
We're asked to give any thoughts that we might have on the report of the Fair Tax Commission. I don't have anything in particular prepared, but I have read the report fairly closely and I've got some thoughts on it.
There are a couple of things that we should keep in mind when we look at the recommendations from the Fair Tax Commission. One is, you've got to keep it in context of where Canada stands and with the foreign-debt-to-GDP ratio right now of about 48% of GDP, that's far and away the highest in the G-7 countries and one of the highest for all the industrialized world in terms of foreign debt to GDP.
We have a chronic savings problem within the country, so any tax measures that Ontario may be considering, either unilaterally or with the federal government, should keep that in mind. In particular, they should not be an incentive to dis-save. If we're changing the tax structure, we should keep in mind that what we should be trying to do is encourage that saving.
The second thing is, given the performance of the economy over the last couple of years, we have a serious problem in terms of our labour market and an extremely high unemployment rate. Against that sort of backdrop, what we should keep in mind is that there should not be incentives against employment and against hiring.
For those reasons, I have some concerns about the suggestions in the Fair Tax Commission about increasing the personal income tax rates and shifting some more of the revenue emphasis on to the personal income tax. I think that shift in the tax structure on to the personal income tax base could be self-defeating.
One of the things the Fair Tax Commission mentioned is getting rid of the exemption for small businesses as it relates to payroll taxes. I think that once again that wouldn't be a prudent approach, given the fact that our unemployment rate remains so high. So it really kind of ties your hands.
A further point in terms of the Fair Tax Commission report: I have some concerns about the shifting -- this is part and parcel with what we said in the personal income tax base -- from property taxes to increases in the personal income tax base. Strictly from a revenue standpoint, the property tax has some things going for it in terms of it's a relatively immobile tax base, and while it may not be a progressive tax, it seems from the work that the commission has done that at least it's a neutral tax, and I think there is some wealth component there that would suggest it's favourable from a fairness or equity standpoint. I have concerns about shifting in general from a property tax base to a personal income tax base.
That doesn't mean that it should negate what the Fair Tax Commission said in terms of education, moving away from having the property tax base earmarked specifically for education. Those two recommendations need not go hand in hand.
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That's it in general in terms of some of the implications from the Fair Tax Commission report. There are 134 recommendations, so I won't comment on them all, but I'd be happy to address any questions you might have on some of the specific recommendations in the report.
The Chair: We have about 10 minutes per caucus. We'll start with Mr Phillips but, just before we do that, if you could turn to the Ontario page, right at the very bottom, it's got the consumer price index. Is that just a typo, where it goes from 1986 dollars being 100% to 1987 dollars being 105.1% and then below that 5.0%? Shouldn't that be 5.1%?
Mr Chandler: Yes. It's just rounded.
The Chair: I was just curious, that's all. Mr Phillips.
Mr Gerry Phillips (Scarborough-Agincourt): I was going to ask the same thing.
The sort of net take-away from you is that in terms of the economy in 1994, I think you were right about at the average, it looks to me. You're predicting around 3.9% real growth. Others are a little bit lower than that. I think the government's estimate is 3.4%. You're looking at the labour force growing by 1.6%, which I think is about 85,000 people -- that's what that works out to -- and the number of jobs growing by 93,000, I think, so the number of people unemployed will drop by about 8,000, I gather. I think you've highlighted the challenge for us, because even with quite good job growth, it is essentially just matching the labour force growth, so the unemployment rate stays very high. Your numbers are, again, about where the government is, I think, on that.
You do, though, just in detail in 1995 have a much lower labour force growth than other estimates we've seen, where I think the government is much more at 2% labour force growth and you're at 1.2%. That accounts for the big drop in the unemployment rate. Why would you show a much smaller growth in the labour force than others are doing?
Mr Chandler: That's notoriously difficult to forecast, as it depends on participation rates and, as you know, when the economy starts picking up some people come back into the workforce and also it depends on migration rates. I would say that either one, 1.2% or 2%, is a reasonable forecast. The thing to take away from it is that an unemployment rate in the range of 9% to 10% is not unusual.
Mr Phillips: Okay. I think we around here feel that there are 150,000 to 200,000 people who have dropped out and the history suggests that when the economy picks up, they begin to come back in and that's why I think the government is predicting the labour force growing much faster than the 1.2%.
Mr Chandler: That's a fair comment.
Mr Phillips: We get conflicting signals from the financial community. On the one hand, we often hear what we've heard today about the debt crisis and we're getting close to the wall and that sort of thing. Then today's paper shows that the bonds that the province issued yesterday, I guess, were extremely well received around the world. Sometimes that says to people who look at it that the real litmus test is how the financial markets respond to Canada's finances or Ontario's finances and they seem to love it. How do you explain the kind of dichotomy? Even your message today was, "Boy, you in government better recognize how close we are to the wall."
Mr Chandler: If you take a look at what's happened with countries in the past when they have experienced problems, it doesn't happen in a gradual fashion. If you look at what happened in Italy, New Zealand, the UK, when they had fiscal crises, three or four months before they occurred you wouldn't have been able to tell from their bond market that it was imminent. I think there are a couple of things going on right now that might -- bond reception might look good.
One thing is bond markets worldwide are on a very good roll, and for good reasons. So when you look at the reception to that issue it looks good. The other reason is that I think the province has done a fairly good job of being creative in terms of the sources of their financing, but in some sense they're shooting their own foot. As the success of their debt program grows, more people are attracted to using the same methods of financing: the global bonds and the medium-term notes and so on.
Mr Phillips: What was the second one you said?
Mr Chandler: Medium-term notes and facilities and so on. This is something that Moody's addressed, actually last week, when it was in town, that it's looking for broadening the base in terms of, "Who can we get to support our external financing?" Other constituencies are looking at the same thing and the competition for those dollars is going to be tough. It could just be that the reception was good because, given that window of this month -- part of it's due to the stability and strength of the Canadian dollar since the end of last year -- they had an appetite for Canadian dollar issues.
I wouldn't look at an individual issue and say from that that we can determine that people aren't concerned. A lot of the people who pick these up pick them up with the idea that there's going to be a secondary market and they're going to be able to get rid of them if they choose to.
Mr Phillips: Are we running any risks we should be concerned about on the amount of offshore borrowing we're doing?
Mr Chandler: Yes. It's a very serious concern. As I said, if you look at Canada's external debt relative to GDP, that's really where we're out of line with the other major industrialized countries. If you look at our federal debt and even our combined general government debt, it's large but it's not large to the same degree as our external debt is. The problem is that we've been running these debts and deficits and we haven't been able to finance a lot of them internally, so that heightens the chance that what you're going to see is some crisis in the foreign exchange market and through that through credit markets in the price that we pay on our debt. So yes, the big concern is that we're not financing it internally.
Mr Phillips: Has the spread that Ontario pays on its bonds stayed pretty much the same over the last few years versus the Canadian?
Mr Chandler: I don't follow it on a regular basis; I follow it on an irregular basis. But the last time I looked at it, it's narrowed. I think with bond yields falling across the world, a lot of people are looking for that little extra yield pickup that you see, so there's been a flood into emerging markets, there's been a flood into corporate issues and so on that have narrowed the spread and there's been a flood away from national debt and into the provincial debt and so on. So I think provincial spreads as a whole have narrowed. Part of it reflects the fact that cyclically, we're also going to see some improvement on the deficit.
Mr Phillips: The debt per family in the province now, when you take the federal and provincial debt, I think is about $75,000, roughly speaking. I think the challenge is that none of us ever think we owe that; somebody else owes that money. From a banker's perspective, what kind of income do you have to earn to service a debt of $75,000? If I were coming to you for a loan, what would you look for? I'm trying to get an idea of what families are going to need to service this debt in the future.
Mr Chandler: Our mortgage people would have a good example of that, where they look at it, but typically a rule of thumb has been 30%. Your interest payments can't exceed 30% of your income. I think a way to look at it in terms of the national economy is to take a look at what we're paying away in terms of interest payments. Can we afford to continue that? It's about 4% of GDP, which is extremely high, that we pay out in the current account detail, that we pay out in interest payments on our debt. We're going to have a lot of trouble trying to close that savings imbalance that we have as a nation.
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There's been no country that over the years has been able to run continually the current account deficit of 4% of GDP that we currently have. There is some evidence that a current account deficit in the range of 2% can be run for an extended period without "dire consequences." So we have a ways to go in terms of closing that. Sorry I can't give you an exact answer. It would be best to talk to bankers themselves and get a rule of thumb on that.
Mr Gary Carr (Oakville South): Thank you very much for your presentation. As always, we enjoyed it. My question is regarding some of your figures here. As you know, the government announced, with the federal government, the infrastructure program. Was that included in these numbers? Did you factor that in?
Mr Chandler: No. This is very much back of the envelope. What I did was just take what was in the budget last year in terms of the capital expenditure plans.
Mr Carr: So you're going to revise the unemployment figures downward as a result of yesterday's announcement?
Mr Chandler: I don't think you can do it on a one-for-one basis.
Mr Carr: So what we're talking about with what was announced yesterday won't change any of the numbers in terms of growth rate or unemployment; we're just scratching the surface with that program? To quote Mr Manning, we're trying to start a 747 with a flashlight battery.
Mr Kimble Sutherland (Oxford): You like quoting the Reform Party an awful lot, Gary.
Mr Carr: Is that the equivalent of what we're doing? Is he correct with that or is he wrong? Is that what we're doing with this program that was announced yesterday?
Mr Cameron Jackson (Burlington South): He's quoting Karl Marx, guys.
Mr Chandler: We can't kid ourselves in terms of where employment growth is going to come; it has to come in the private sector. I think you get the biggest bang for your buck by improving the incentives to employ people. If you turn it on its flip side, what's been the most damaging in terms of employment growth may have been the increase that we've seen in payroll taxes recently. I think any government capital expenditure program is going to be very limited in terms of the full-time jobs that are created over time.
Mr Carr: We'll probably see a rash of ministers and the Premier and probably even members opposite out cutting ribbons at these various projects. One of the things that was said in the last federal campaign --
Interjections.
Mr Carr: I probably won't get asked to do any of those; I never do. But when they were announced, one of the things that Mr Chrétien said in the campaign was regarding consumer confidence. He said, "When people see the cranes, they will go out and spend money." I think there will be a tremendous amount of publicity for this, because it will be fairly high profile. The Premier will be out there with Art Eggleton. Will it do anything for consumer confidence? Is Prime Minister Chrétien right that people will now feel good and start to spend, or is that something where we're just playing in the margins and consumers aren't going to run out as a result of this spending program and thinking things are getting better?
Mr Chandler: Oh, no. Most of the changes in consumer confidence, if you look at what determines it, you can take a timed series of income growth and employment growth and that will explain almost all the variation in consumer confidence. So if you get the income growth, you get the employment growth, that's what's going to lead to changes in consumer confidence. If you get onetime shots that are associated with things like -- we saw it at the end of the Gulf war in the US, where there was a one-shot increase in consumer confidence and that came away quite rapidly. So the sort of public events that are associated -- you know, you look in the paper and you see the cranes -- are not going to lead to any substantial change in consumer confidence.
Mr Carr: I wouldn't be as opposed to some of it if there were other initiatives, like the payroll tax, looking at WCB, looking at all the other things, but there aren't. This seems to be the whole initiative. So let me ask you this: If you were the government, would you be spending the money that they're going to spend on a program like this to create jobs?
Mr Chandler: I think the number one priority for the government is to hold the line on taxes and keep to the expenditure program.
Mr Carr: Is that a no?
Mr Chandler: I can't comment on the specific program. It's up to the legislators to decide how the pie is cut up. The point is, if you want to have lasting effects on consumer confidence and employment and income, make sure the pie grows at a reasonable rate.
Mr Carr: I understand that the bank still has to be careful of what it says about governments, particularly with your title and so on.
Regarding the unemployment figures, people don't remember that when this government took office the unemployment figure was only 6.3%. I remember sitting in the Legislature when the Treasurer got a standing ovation. They were going to spend their way out of the recession. I look at the unemployment situation. They spent their way out, ran up the deficit and the unemployment situation got worse.
Looking back on the famous first budget and so on, and of course everyone was critical at that time, hindsight being what it is and as an economist, was the government successful in fighting the recession with that first budget which ran up the deficit?
Mr Chandler: I don't know. It's hard to attribute it. It certainly wasn't a major factor behind the recession. The recession was felt everywhere. I think if you want to look back and learn some lessons from what we saw over the last decade, in the middle part to the late part of the 1980s we should have been running surpluses and we weren't and it tied our hands. We're still at a level of expenditures that is above the trend line if you look back over the last decade or decade and a half. I think it was ill-timed really to do that. They didn't understand the seriousness of the problem.
Mr Carr: There's no doubt when we had the big expansion we still spent double and triple the rate of inflation during the mid- to late 1980s, which was bad.
A question regarding taxation: As you know, the Treasurer said he's not going to have any net increase in taxes, but as socialists they believe in rearranging it and making different groups pay more. I don't want a comment whether that's right or not, but one of the problems we've had dealing with the underground economy is when you shift it people find ways of avoiding it.
I don't want your comment on whether that's a good thing to do, to social engineer and take more money from some people and help the poor and so on, but when you're trying to take money away -- and I think that's what their whole proposal is in terms of shifting the tax -- knowing the economy the way it is, knowing that people can move money in this day and age very quickly to other jurisdictions, if they take that route through the Fair Tax Commission and try to shift the burden -- ironically the shift seems to always fall on the middle class -- but if they do that, will they be successful or will people just move their money into other jurisdictions and they'll end up with less net taxes like we've seen over the last couple of years?
Mr Chandler: As I said in my comments, I think it's important to keep that in mind, that there is a lot of shifting and tax avoidance. The biggest capital is particularly mobile and we have a savings problem. So if you're trying to tax more savings, I think that will in the end prove self-defeating.
I think what you should be doing is talking to the Ministry of Finance and getting pretty good estimates on exactly how much shifting does occur when tax rates move. I don't think we have a good handle on that. That's why once again in my submission, I have some concerns with moving away from the property tax base because obviously that's something that cannot be shifted that easily, even though from an equity consideration it may prove to be the best thing to do. From an efficiency and revenue standpoint, it's going to be extremely hard to replace.
Mr Carr: The only comment I would make in summing up is, I agree with a lot of what you said. I hope the government listens.
Mr Sutherland: I have two questions. First of all, you made the comment that only the private sector can create jobs, but I think even you would admit that by itself there is benefit for governments to participate. I think of the expansion of the Metro Convention Centre. In terms of that type of expansion, public investment in partnership with the private sector in terms of the benefits for hotels, restaurants, the hospitality industry, tourism, where you can see some mutual benefit in terms of public investment and the government helping not only short-term jobs but helping to reinforce longer-term jobs in those other sectors, I would like your comments on that.
The other question: We've had a few other forecasters in and while everyone has talked about concerns regarding deficit and concerned about not increasing taxes, at least two of them, the Conference Board of Canada and Mike McCracken from Informetrica, indicated that you must be wary of how you go about deficit reduction, that if you do too much at once, you may have more of a negative impact on the economy than doing a gradual reduction over a period of time. So if you could comment on both those two.
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Mr Chandler: In terms of the first one, I'm not quite sure how to answer that. It is true that direct public spending will do something in terms of creating jobs and obviously there's a role for government to play in terms of that, but I think in some senses you kind of miss the forest for the trees.
If you're looking at what will help tourism in Canada, obviously things like a competitive level for the dollar and better income growth get people to travel. If you look at what the determinant of travel is, it's income growth. Income growth and making it affordable are far and away more important than one individual facility. I don't want to say that it won't create jobs. Obviously it does, but you've got to look at the whole picture. If you don't do anything to create that income growth, employment growth, and get people to afford to travel, you're not going to have anybody filling up those hotels and convention centres. But that's not a specific comment.
The other part, about how do you go about reducing the deficit, it's a legitimate concern. You can cause some damage if it's mistimed, and timing's incredibly hard to pick. You can't time when your expenditures will be in place to help relieve the recession because you don't know when it's going to come and you don't know when the impacts of the spending arguably are going to be felt. So the timing issue is very important.
If we had the room to manoeuvre, you can also make the case that maybe we can continue to run these deficits, but just if you look at where other countries in the past have gotten into problems with their debts and deficits, we're approaching those levels. When you see accumulated debts over 100% of GDP and foreign debt in excess of 50% of GDP, you'd be hard pressed to find countries that were in that situation that didn't have that debt crisis that forced a more dramatic cutback in the deficit. So I'm saying, let's take control of it now.
Mr Sutherland: Okay. The advice we've got from all the forecasters is that we do need to take control of it. I think the forecasters said they would be looking to see, both at the federal and provincial level combined, a few billion dollars being reduced versus some who suggest that we should at least provincially go to a deficit of $2 billion, $3 billion for 1994-95, and saying that would take too much out of the economy at once and that would be too dramatic an impact, that in the long run you'd have more of a negative impact on your recovery by such a dramatic decrease at once rather than a planned, gradual decrease over several years.
Mr Chandler: Yes, and I think the C.D. Howe did a pretty good job of looking at that with its report. Their recommendation was the government freeze at the federal and provincial levels in program expenditures for four years and it didn't involve aggressive tax increases, and with that, you have a pretty good chance, certainly a very good betting chance, of avoiding any kind of debt crisis.
I don't know the probabilities they came up with but once again, I think within three years you'd be up above 100% of GDP in terms of combined debt and above 50% of GDP in terms of foreign debt. I don't know if you could find a case of a country that got through that. So it would have to be done; you'd have to get the deficit down to that 3% to 4% range combined within a few years if you were going to avoid that sort of scenario.
The Chair: Thank you for your presentation.
ONTARIO RESTAURANT ASSOCIATION
Mr Paul Oliver: I am Paul Oliver, president of the Ontario Restaurant Association. With me is Rachelle Solomon, our manager of government affairs, and Sharon MacLauchlan from McDonald's Restaurants, a member of the association.
On behalf of the Ontario Restaurant Association, I'd like to say that we're pleased to appear here before you today and have an opportunity to comment on the proposed changes contained in the Fair Tax Commission report, as well as to put forward a number of new ideas developed by the Ontario Restaurant Association.
The ORA is a non-profit industry association which represents the restaurant and foodservice industry in Ontario. It was founded in 1931 and currently represents approximately 4,500 members, representing thousands of foodservice establishments.
In the packages distributed earlier are the formal submission developed by the ORA, a copy of a recent study commissioned by the ORA by Ernst and Young which examines the tax levels on the restaurant and foodservice industry, and a copy of an economic study by the Conference Board of Canada which examines the tax rates in Canada versus our American counterparts.
I want to make one brief comment on the conference board study. I think you'll find it very helpful in your deliberations, looking at the way taxes are applied. It only looks at taxes applied to the operator; it doesn't look at consumption or consumer taxes, but what it found was that the tax level in the US versus Canada was relatively similar for the tourism industry when they're profitable, but because it's based more on ability to pay in the United States, the system is more progressive, and the tax burden drops substantially when profitability declines or is eliminated.
The past several years have been particularly devastating for the foodservice industry in Ontario. Over the last four years, real industry-wide sales have declined in excess of 20%; 1993 fortunately has seen a stabilization of sales within our industry. However, the industry remains extremely vulnerable to any weakening in consumer confidence.
Even with the stabilization in sales, profit margins, which are typically very thin, have virtually evaporated. Bankruptcies in our industry are continuing at record-high levels. Formal bankruptcies in 1992 exceeded 500, and in 1993 they exceeded 450.
As you are well aware, the restaurant industry has been severely hurt by the current recession, which has been exacerbated by the introduction of the GST. We now must be, as a society, particularly vigilant to ensure that new taxes or regulatory initiatives do not further strangle this very price-sensitive industry and upset the fragile economic recovery which is under way.
Since our formal submission covers in detail our response to many of the proposed changes contained in the Fair Tax Commission report, we'll limit our comments to just a few of the proposals.
In the report, the Fair Tax Commission recognizes the need to apply taxes fairly to the business sector. Unfortunately, in its recommendations it is more concerned with the ability to avoid payment of taxes on profit than the ability to pay based on profitability. In their haste to reflect the realities of the mobility of capital, the commission appears to have abandoned tax fairness, as has been advocated, towards tax policies. The ORA is disappointed that the commission only pays marginal attention to the ability of consumers to take their money elsewhere and to spend it elsewhere.
The foodservice industry is greatly aware of the impact of taxation on consumption, having experienced the loss of sales due to three areas of consumer choice, caused in part by high taxes in Ontario: The foodservice industry has lost market share to the grocery and convenience stores due to the inequitable tax treatment under the PST and GST; restaurateurs in border regions have experienced further loss in sales to the phenomenon of cross-border dining; and the entire tourism and hospitality industry in Ontario has witnessed a loss of sales to other, less costly jurisdictions. Any consideration of tax fairness that considers mobility must also be aware that the tax options have an impact on consumer choice between competing jurisdictions and between competing industries.
Ms Rachelle Solomon: One area of taxation which is of particular concern to the hospitality industry is that of beverage alcohol taxation. Although the commission alludes to the high taxes imposed by the federal and Ontario governments on beverage alcohol, the ORA was disappointed to note the lack of any concrete discussion or recommendation on this subject.
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Beverage alcohol is notably more expensive in Ontario than in other jurisdictions in the United States which compete directly with Ontario for tourist dollars. The price differential on beverage alcohol has eroded Ontario's travel deficit. Not only is the Ontario tourism and hospitality industry finding it difficult to attract foreign visitors to Ontario, but many residents of Ontario are travelling to other jurisdictions because the cost of vacationing in Ontario is increasing at an alarming rate compared to other jurisdictions.
A major cost component in travel decisions is the cost of food and beverage. Next to transportation, this is the largest expenditure category. Ontario now has a record travel deficit which is continuing to grow. In order to compete with neighbouring US destinations, the Ontario hospitality industry needs wholesale pricing of beverage alcohol, the single product that is most notably uncompetitive between the two jurisdictions.
The ORA strongly encourages the government of Ontario to produce wholesale pricing for beverage alcohol sold to the hospitality industry through the reduction of provincial markups and the elimination of the gallonage tax. Provincial and federal government revenues as a percentage of the price of beverage alcohol have risen sharply from about 40% in 1955 to about 63% in 1993.
Another subject of great interest to the restaurant industry is that of the business meal deduction. The commission recommends that Ontario should seek the agreement of the federal government to establish and strictly enforce rules applicable to corporate expenditures which provide employees with personal benefits such as meal expenditures. Where possible, the personal element of such expenditures should be attributed as income to those who derive the private benefit. Through this recommendation and the discussion in the report preceding it, the commission clearly recognizes the necessity of the deduction for business meals.
Research by Crest Canada demonstrates that business meals are claimed by Canadian workers from all sectors of the economy, including truck drivers, real estate agents, travelling sales representatives and employees working overtime. The ORA strongly supports retaining the business meal deduction. Its retention is also in the best interests of the government of Ontario.
Research indicates that business meals accounted for 5% of commercial restaurant sales, or approximately $385 million in Ontario. A recent study for the ORA by Ernst and Young entitled Contribution of the Restaurant and Foodservices Industry to Government Revenues in Ontario estimates that these business meals generate $30 million in taxes for the provincial government and 9,700 direct jobs. Any further reduction in the deductibility of business meals would jeopardize sales taxes and jobs. As well, the elimination of the business meal deduction would result in a net reduction of $15 million in net provincial taxes.
Ms Sherry MacLauchlan: In the area of payroll taxes, the ORA supports the commission's conclusion that the government should not increase the tax reliance on payroll taxes. The association is concerned by the recommendation that Ontario should eliminate the graduated rate structure for its existing payroll tax and replace it with a uniform rate of tax based on all remuneration.
Given the mandate of the Fair Tax Commission and the commission's clear stand opposing regressive taxation and in favour of ability to pay, the ORA finds it odd that these two fundamental principles would be discarded for the taxation of businesses. The graduated rate for the employer health tax is the only concession in the current structure for payroll taxes in the province of Ontario to the regressive nature of the tax, and to remove this allowance is a rejection of the concept of ability to pay when applied to businesses.
Trends show that as these small businesses grow, they are better able to handle incremental costs such as increased payroll taxes because of the economies of scale inherent in growth. Without an initial break, such as the lower rate for the EHT on businesses with payroll less than $200,000, a considerable barrier is placed upon starting a new business and providing new jobs. The graduated nature of the EHT is an important concession for the industry, and approximately one half of the foodservice companies fall under the $200,000 payroll threshold.
The foodservice industry is dominated by small businesses, which account for 78% of foodservice companies. The industry is labour-intensive, with a mixture of entry-level positions and higher-paid skilled and semi-skilled occupations. An elimination of the lower rate of application of the EHT for the foodservice industry would jeopardize the very existence of thousands of small, independent restaurants providing jobs across the province and would present a significant barrier to entry into the foodservice industry.
Therefore, the ORA strongly recommends that the Ontario government maintain the graduated rate structure for its existing payroll tax.
In the area of the retail sales tax, the ORA has a number of concerns. It must be noted that the newly elected federal government has stated its intention to review the national system of taxation, with particular emphasis placed upon removing the current goods and services tax and replacing the revenues. ORA recognizes that this development only became clear upon the election of the new government and after the Fair Tax Commission had completed much of its work. The ORA understands that the Fair Tax Commission was not in a position to re-evaluate and rewrite major recommendations based upon possible outcomes of the federal vote.
For the purposes of this presentation, the ORA will not attempt to second-guess the upcoming work of the federal finance committee and will respond to the existence of the federal sales tax.
For the most part, the recommendations to harmonize the Ontario retail sales tax with the federal goods and services tax makes sense from an administrative standpoint as well as an economic standpoint as long as the precedent set by the Quebec sales tax disharmonization with the GST is avoided at all costs.
The ORA fully supports removal of business inputs from the tax base of the RST and considers this recommendations worthwhile even if Ontario's tax base is not harmonized with the federal tax base. However, the ORA has the following concerns with the commission's recommendations pertaining to the sales tax. First, the recommendation to broaden the tax base is not accompanied by a recommendation to lower the rate of tax. Second, the commission ignores the 10% retail sales tax on beverage alcohol consumed in licensed establishments. Finally, the commission recommends that the extension of the tax base include the elimination of the threshold for meals under $4 but not include the taxation of what the federal government has termed as basic groceries.
The ORA recognizes that taxation of food is a highly contentious issue. However, the issue is critical to the goal of tax fairness, as the current tax base for the GST has created a legislated inequity between two competing industries: the foodservice industry and grocery stores.
The growth of the foodservice industry was achieved in part at the expense of grocery stores. By offering convenience and value, the foodservice industry developed growing markets among working women, dual-income families, tourists and business travellers. The industry's market share of the food dollar grew from 18% in 1963 to a peak of 42% in 1989. Grocery stores and grocery product manufacturers have recognized this trend and adjusted their product lines to offer consumers greater convenience and more highly prepared, ready-to-heat meals.
The introduction of the GST in 1991 distorted a marketplace in which fierce competition was already raging between these two industries. It has been concluded that the GST had reduced foodservice sales in 1991 by 7%. Since the introduction of the GST, the foodservice industry's share of the food dollar has dropped from a peak of 42% in 1989 to 37% in 1992, representing a 12% drop in market share. Sales in grocery stores continue to grow.
ORA appreciates the recognition by the Fair Tax Commission of the current inequity between ready-to-heat meals sold in grocery stores versus ready-to-eat meals. If the upcoming federal review of the GST results in minor tinkering with the tax base, there's no question that the items mentioned in the commission's report must be included. However, in its quest for tax fairness, the Ontario government should seek equal treatment of all food, regardless of place of purchase.
I'd like to speak a little bit now about the $4 exemption on meals. The Ontario retail sales tax recognizes this competition to a certain extent through the $4 exemption for low-cost meals. However, it should be noted that groceries are exempt from the retail sales tax, even luxury items such as caviar.
Increasing the cost of prepared food, which would result from the elimination of the $4 provincial sales tax exemption, would mean higher costs for an important element of food consumed by Ontario residents. The burden of this increase is highly regressive in nature because it ignores an individual's ability to pay and punishes those individuals who are required to purchase basic prepared foods due to employment, family or school commitments.
Although restaurant meals might be thought of as a luxury item, this is no longer the case due to significant social changes which have occurred. Lower-income households spend a larger percentage of their income on food away from home and would be disproportionately impacted by the elimination of the $4 exemption.
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Food consumption away from the home is no longer a luxury and should not be treated as such. The elimination of the $4 exemption would severely undermine the health of the hospitality industry and cost foodservice jobs and would hurt low-income people such as students, senior citizens, working mothers and any individuals on a fixed income. This is a policy which we strongly believe should not be pursued.
To address this serious issue of food taxation, the ORA recommends that the Minister of Finance and the Minister of Agriculture and Food initiate a multistakeholder review of food taxation which explores both direct and indirect taxation applied to food.
Mr Oliver: In the area of environmental taxes, the Fair Tax Commission recommends the application of a number of user fees relative to water, sewer and garbage collection. The ORA supports this recommendation and will take the opportunity to point out that most commercial establishments in the province are currently metered and charged for water and sewage services separately.
User fees in this area are the most fair tax option. This recommendation, however, should ensure that the introduction of metered services is not used to unfairly shift the cost burden from the residential sector to the commercial sector and that environmental taxes should be designed only to change behaviour and not increase overall government revenue.
The ORA would also recommend that the government look to alternative revenue sources rather than increasing taxes in the near future. With the introduction of casinos in Ontario, the provincial government has clearly recognized the opportunity to generate revenues without further expanding traditional sources of taxation. The ORA applauds the government of Ontario for taking this initiative.
The ORA, however, suggests that an even larger source of revenue could result from the introduction of video lottery terminals, VLTs, which would represent a double benefit to Ontario. Every province except British Columbia and Ontario has introduced or is in the process of introducing VLTs. VLTs represent a significant income stream for the government of non-tax revenue. The ORA conservatively estimates that it could be as much as $500 million per year.
As well, the introduction of VLTs in age-controlled LLBO-licensed establishments represents a potential source of revenue to the operation which will sustain many establishments which are struggling to survive. The introduction of VLTs into licensed establishments will also provide the hospitality industry with a competitive advantage in border regions and we believe will encourage more American cross-border travel to Ontario.
The ORA recognizes the social and political aspects surrounding the introduction of VLTs. However, we believe that the government should proceed with the introduction of VLTs in age-controlled, licensed establishments.
In conclusion, the ORA strongly supports reforming the tax system so that it is based more on the ability to pay, over regressive taxes such as payroll taxes, consumption taxes or property taxes.
The extension of payroll taxes in the current economy offers little encouragement to the thousands of residents of Ontario who are unemployed or want to work. To increase the tax burden on employers wishing to provide jobs and to new businesses by the removal of the lower rate and graduated structure for the EHT would stall job creation in the exact types of businesses which are providing new employment: small businesses which are labour- intensive in the service sector. Reliance on consumption taxes is not only regressive but would ignore the mobility of consumer purchasing, particularly in the area of tourism, where the world is literally a global market.
The ORA believes that the provincial government should embark upon an aggressive strategy to foster economic growth in the province and not increase taxes in the next budget. Its recent announcement to invest in the Metropolitan Toronto Convention Centre is a decision applauded by the ORA. More, however, must be done to examine the regulatory policies which are hampering growth and to stress options which will allow sectors such as the food industry to grow.
We appreciate the opportunity of appearing here today.
Mr Carr: Thank you for your presentation. I was interested in your ideas regarding some of the regulatory policies, your recommendation 2.
I've been spending some time on our task force dealing with small and medium businesses and how we're going to allow them the opportunity to grow and prosper. In each industry, we're hearing a tremendous number of problems when we speak, whether it's day care people or whatever. You could go on for ever about the regulations that have been put in place by governments at all levels.
With regard to your industry, what are the few regulations that you would like to see removed that you feel would be helpful to your industry? Is there anything specific you'd like to see the government do?
Mr Oliver: One of the ones that jumps to mind is the hours of operation for licensed establishments. Currently, Ontario is the only province in Canada that has closing hours of 1 am. Even provinces like Prince Edward Island have longer hours now.
It's a disincentive in the border regions where we have Ontario residents crossing to the US or into Quebec, and with them go jobs and tax dollars. But it's also a disincentive for attracting convention business to Ontario. It's certainly a factor that goes into that, and costing goes into selecting a convention site. Every major tourism destination in North America has longer hours and every province in Canada has longer hours, and we think that just by contemporizing the legislation, that would make a first step towards creating employment and generating more taxes. It would also help address the black market that has grown in illegal, after-hours booze cans, which have grown at a staggering rate.
Mr Carr: Obviously, you wouldn't be able to give an indication of the amount of jobs that would be created if that happened, even ballpark?
Mr Oliver: We're actually surveying our members right now as to who would take advantage if there was an extra hour or two. Then from that we can use their employment numbers and develop that, but we probably won't have that available for another three or four weeks.
Mr Carr: I suspect you could probably project increased revenue too.
Mr Oliver: It would be increased revenue by shifting beverage alcohol and food consumption away from illegal after-hours clubs that aren't paying taxes, aren't paying payroll taxes, aren't paying consumption taxes, and then also shift consumption away from the home, where a lot of paid house parties are taking place now.
Mr Jackson: Have you made any presentations with respect to the Windsor Casino, to adjust the hours of operation for that, or are they going to allow the casino to stay open till 2 but the bar has to close at 1?
Mr Oliver: We've suggested to the government that contemporizing or updating the legislation is something that's critical, and the Windsor Casino will demonstrate how important it is that we're competitive with other jurisdictions. We can't look at the hospitality industry just within Ontario; we have to look at all competing jurisdictions, Detroit, Atlantic City or wherever.
Mr Sutherland: On that point about the extension of hours, I haven't seen any information about drinking and driving rates in the other provinces that you say have later hours. Does the restaurant association have any information or comparisons? Maybe we can ask research to see if they could find that. I'd be interested in knowing, because that's one of the arguments against doing it, what impact it would have on that.
Mr Oliver: Yes, we've looked at it in quite a few American jurisdictions and then also in some Canadian jurisdictions before and after they went to extended hours and we have not been able to identify any marked, dramatic increase. What we've proposed also is that the extended hours be tied with the introduction of a server training program in licensed establishments in Ontario.
Mr Sutherland: You have a very extensive brief, as usual, and quite a few recommendations here. Several of them include reduced taxation, which I don't think surprises any of us. But given the fiscal situation and the deficit situation, and you heard the Treasurer say revenues are going to be down significantly, I think it's fair to say that not all of these recommendations, particularly the ones on reduced taxation, would be put in.
If you had to choose one of them that you really think the government should implement, that you think would not only help your business but particularly help employment and hiring more people, which one would you recommend the government implement?
Mr Oliver: Actually, to the best of my knowledge I think very few of the recommendations pertain to reducing taxes. The only major one that suggests reduced taxation is the introduction of wholesale pricing to licensed establishments.
Mr Sutherland: But of the 23, if you had to choose one, which one do you think would have the greatest impact in terms of increasing employment in Ontario?
Mr Oliver: They would all have some degree of impact. Probably the most damaging thing the government could do is increase taxes overall, increasing sales tax or eliminating the $4 exemption. I think staying with the existing tax level would be the most important thing.
The government should also, at the same time, look at the introduction of things like the VLTs, which would generate additional revenue. We know now that there are approximately 10,000 illegal video lottery terminals in Ontario. Let's bring that back into the mainstream. I think the introduction of that would be a major thing.
Introduction of wholesale pricing would also be a major benefit. The economic work that we've done would suggest that by introducing wholesale pricing, you're actually going to shift consumption from home consumption to the value added licensed establishments, and in turn the government would net more tax revenue.
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Mr Wayne Lessard (Windsor-Walkerville): I always appreciate the presentations from the Ontario Restaurant Association, and there were a number of things that caught my attention. One was your comments about environmental taxation. I agree that they should be introduced only to change behaviour, not to simply raise government revenue. I also appreciated your comments about alternative revenue sources and the impact the casino's going to have not only on the Ontario economy but in Windsor as well.
I'm a bit wary of the introduction of VLTs across the province in licensed establishments, however, but I do agree that a lot of regulations with respect to alcohol in the province are holdovers from the Victorian era and need to be reviewed.
I was interested in your work on the econometric research about the discount pricing for alcohol as well, because, as you know, Hiram Walker is located in my riding. Through their association, the Association of Canadian Distillers, they have suggested to us that we consider a reduction in the price of alcohol of $4 a bottle. You have a bit of a different approach you've suggested, a discount to licensed establishments rather than an across-the-board reduction. I'm interested in seeing the research you've done that says we can make some adjustments and still have the same revenue, but I wonder whether you've discussed with the distillers' association the different approaches you have and whether there's any disagreement or concern on its part.
Mr Oliver: We certainly have had extensive discussions with the distillers' association, and certainly there's a consensus between our association and theirs that the tax level on distilled spirits is too high and it's generating a massive black market. We've been working with them on their tax proposal that they've been developing, and they've been using some of the research out of our econometric work that Dr Kibursi's done. I'd be more than happy to provide you with a copy of that.
I think it's just different approaches as to how to arrive at it. Ours is very focused specifically on our industry and it looks at shifting existing consumption from home establishments and illegal establishments to licensed, taxed establishments. Theirs is broader, looking at the broader issues.
I'd be more than happy to share it with you. We are still working with the distillers on their proposal and they've used a lot of the research that we've developed.
Mr Lessard: They'll be here Thursday and we can ask them more about it.
Mr Phillips: How big a deal is this simplification recommendation here? You're not the first one who's brought that recommendation to us. How much focus do you think we as a committee should be putting on that?
Mr Oliver: For small business it's a major issue. We've been doing some surveying of our members. Small operators are spending between 40% and sometimes more than 50% of their time doing government compliance, filling out forms, and they often can't figure out why they're submitting one to federal government revenue and another one to the provincial. It's just major confusion for them, which wastes time and places a further financial cost. We think the productivity could be enhanced substantially both for business and government by simplifying the system.
The work that the federal government's doing looking at single-number entry for all government correspondence to be using, in that case, the GST number, we think would be a major benefit, because then your EHT number, PST number and liquor licence would all be the same. That by itself would make tracking a business -- but we also think it would help the government by simplifying it. Having one number for taxes, for example, would eliminate someone having a different payroll number for workers' compensation than EHT or payroll tax deductions. For the government it would make compliance certainly far easier and in the long term that would generate substantially more revenue for the government.
Mr Phillips: The casino recommendation: We've obviously been following that with a lot of interest and you presented to another committee that we were on. Do you have any advice for us on how things are proceeding around North America on casinos?
The concern, I think, the committee that looked at it had was that this is like a gold rush, that every community in North America is on to this one because it looks like it's just going to be a golden goose that keeps laying terrific eggs. The challenge, I think, is that -- I believe the Windsor casino's going to cost $250 million to build. I think that's kind of the pricetag for other ones and there's a worry by some that we may end up with six or seven of these things around the province pretty quickly but with three, four or five of them being public white elephants because in the end the public will be on the hook for them.
Have you been monitoring the progress around North America and are we unduly concerned about the possibility that when they all get built in Detroit, in Buffalo and in upstate New York, as well as Ontario, we may have a glut of them?
Mr Oliver: Certainly that should be a concern of the committee and I think one of the ways of addressing that is by making sure that the casino is very closely linked to the tourism industry. We've seen this revolution in the Las Vegas market, for example, where they've shifted their entire focus from the single junket -- the person coming down, gambling for two days and back on the plane -- to a family atmosphere which is tied with a lot of tourism attractions, revamping the entire accommodation or hotel structure that they have. They're recognizing that they've got to distinguish themselves.
We in Ontario we are going to have to do that too. We have to demonstrate why we're different than a casino if one is developed, say, in Detroit and I think that even for the other jurisdictions that have gotten into it.
The first ones into the race built very basic, almost warehouse-style casinos. You went in, you gambled, nothing else, and you went out the other side without any money. But now they're getting into elaborate structures, complementing it with the local tourism and hospitality industry.
If we do that, the real benefit to the Ontario economy will not be the casino but the additional tourism and convention business it potentially could generate. There has to be a very close link between the management of the casinos and the local hospitality and tourism industry.
The Chair: Thank you for your presentation today.
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ONTARIO TEACHERS' FEDERATION
Mr Jim Head: I am Jim Head, president of the Ontario Teachers' Federation, and I have with me Margaret Wilson, secretary-treasurer. We represent over 130,000 teachers in Ontario.
Our intent is to not read the whole presentation but only particular sections which we wish to have in the record, but more of a reporting as we go through. With your indulgence, we'll go from the beginning to the end with comments as we go. It will be my intention to deal with the first half and then Margaret with the second half.
In our 1993 submission to this committee we had a number of points. I'd like to emphasize particularly the second point, "Priorities and commitments are identified by the human and financial resources allocated," and the fourth point, "Education is the key to our collective future as a province; real educational reform requires working and workable partnerships between stakeholders and government, and sufficient resources to succeed."
A strong educational system is central to the development of a healthy economy. By education, of course, we mean lifelong learning from pre-kindergarten right through to training. The removal of effective resources for learning today will be felt in schools and workplaces for a generation.
Under our section on effective management of the present fiscal situation, we argued that in 1993 the 1992 transfer payments had affected the delivery of education programs in the province. At that time, we argued that there was strong evidence that the reduction in transfers was having the dampening effect on wage and benefit expectations desired by the government. I guess the latest transfer announcement doesn't help us an awful lot either.
Indeed, as partners we did try to do our part. You will notice in our second paragraph on page 2 in regard to the Ontario teachers' pension plan that we agreed with the government to use $325 million of anticipated gains in the fund to reduce the social contract targets for members of the plan during the first two years of the social contract. Those $325 million would otherwise, under the terms of the Teachers' Pension Act, have been available for future negotiations of improved benefits or contribution rate reductions.
We do feel that the teachers, not only prior to the social contract but during, certainly made a strong contribution to Ontario. However, the continuing preoccupation at all levels of government with the deficit and the slow recovery is overwhelming the ability of people and organizations of reasonable goodwill to find reasonable solutions.
I noticed in an economic report that I get from the States called Taipan that in its 1994 forecast for Ontario and Canada that the ability of people to have money to spend is certainly going to curtail the development of Canada, from its perspective.
Under junior kindergarten, I'd like to read this section for the record: In January 1992 the Minister of Education, Tony Silipo, made clear the intention of the government to proceed with the full implementation of junior kindergarten programs across the province by September 1994. The issue of junior kindergarten had been high on the priority list of the previous government and remains so with the present government.
The teaching profession and the government, as well as parents and researchers, believe that junior kindergarten programs provide a critical link between home, child care and school. The importance of effective kindergarten programs is well documented in a 1993 research publication of the ministry, What Makes Exemplary Kindergarten Programs Effective? With the pre-social contract cuts, some boards saw their existing JK programs as expendable, while still others who had yet to implement saw them as postponable. The ministry has put out a directive to try to make this totally functional by 1997.
Discussions have been ongoing between the Ministry of Education and Training, the school board associations and other stakeholders, including the federation, regarding the capacity of the school system to meet the time lines laid out. Although there appears, again, to be reasonably clear direction from the Ministry of Education and Training to school boards, there is continuing uncertainty about the compliance of some of the boards.
Collective bargaining: The lack of fit between the social contract and the School Boards and Teachers Collective Negotiations Act has led to some particularly prolonged and intractable difficulties on the collective bargaining front since the spring of 1993. I take you over the page to the indented paragraph pointing out that this is not true for other sectors of society under the social contract. It seems particularly true to education.
As we say, to the best of the federation's knowledge, the extreme behaviour on the part of some employers is unique to the elementary and secondary education system, and has not occurred in other parts of the broader public sector, despite the fact that similar provisions for unilateral change exist in the Ontario Labour Relations Act. Under the OLRA, it's only 10 days. We have 60, yet that sector is not experiencing the kind of trauma we are.
Institutions, like human beings, respond defensively and protectively when their wellbeing is threatened. If complete paralysis in the education system is to be prevented, there must be some assurance to school boards and their employees that there are no more rude surprises awaiting and that there will be opportunities to adjust to the present change and to restore the sense of equilibrium and reasonable security necessary for teachers and schools to do their daily jobs well.
The impact of the social contract has been fraught with difficulties and certainly has caused us some problems. Despite agreements in late October to use an expedited arbitration process and a declared interest by the teachers' organizations in mediation arbitration, there are now 17 days scheduled, extending into June 1994. I think it was the government intention originally that this would all be secure in September 1993.
In early June the government created the job security fund as an incentive for broader public sector unions to continue their participation in the social contract process. A debate has now erupted at the sectoral task force regarding the eligibility of employees to access the job security fund.
The present thinking of the government appears to be to confine access to the benefits of the job security fund only to those individuals whose layoffs can be directly attributed to the social contract. I might point out that is very difficult to prove. Current information appears to indicate that the number of layoffs directly attributable to the social contract will be very low.
The federation believes the social contract was but one part of a larger restraint package that includes the provincial expenditure control plan announced in April 1993 and further cuts being made within the authority of the transfer agencies at the local level in the broader public sector. The federation has a genuine concern regarding the justice of singling out one group of employees for benefits when the various legs of the restraint stool are firmly interconnected. That concern is further exacerbated by the fact that the funds to support the job security fund come from the two largest employee pension plans in the broader public sector.
The knowledge that spring and the 1994 Ontario budget are rapidly approaching leads the more cynical among us to wonder if the very narrow approach to access to the job security fund will provide new savings to be applied to the deficit.
The impact of the increment freeze on young teachers: I think it's fair to say that the young teachers who came into the profession were prepared to do their part in a wage freeze and even a wage rollback. They also bought homes and made other significant purchases that saw them going ahead with some sort of increment that would not be curtailed. Some people have been doubly hit up to the tune of $28,000, as high as $70,000, depending on their particular situation and interpretation. The point we want to make here is that if we're looking for money for the economy, this group particularly won't have any.
I'd like to read the last two pages into the record in terms of our recommendations on page 10.
The school system must be given some assurance of financial stability over the remainder of the term of the social contract so that it may begin to restore working and workable relationships between employers and employees and get on with the business of learning and teaching.
The job security fund must be used positively to rebuild and restore confidence among broader public sector employees.
Consideration must be given to those younger employees whose working lives have been disproportionately disrupted and to those whose prospects for employment in professions like teaching have been delayed.
Margaret will carry on with the remainder.
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Ms Margaret Wilson: I'd like to address first the question of the financing of education. The reductions in transfer payments over the past two years combined with the social contract put heavy stresses on the present system of financing education. Assessment-poor boards which rely heavily for their operations on transfer payments have been hardest hit by the provincial cuts, but Metro, which relies totally on the property tax to fund its schools, has been hardest hit by the recession and property tax defaults. Indeed, at a conference that I attended on Saturday, one of the panellists I heard talked about Metro having half of the unemployed in Canada.
The relationship between the province with its overarching responsibility for education and independent city-states such as Metro Toronto and Ottawa is becoming increasingly fragile as new stresses are added. Indeed, when we talked to school trustees and to staff at the Ministry of Education, the estimate of the number of school boards approaching fiscal collapse, in serious financial trouble, is somewhere between 17 and 30. It never goes down below 17 and it hasn't gone above 30. We're talking about boards which may or may not be able to meet their payrolls if the issue of education finance is not addressed.
The Fair Tax Commission has recommended moving education away from its dependence on the property tax. At present, over 60% of the cost of education in the province comes from this tax source. The commission is looking at a system more reflective of ability to pay. In addition, it identified major weaknesses and inequities in the present system of property assessment and equalization which make quick fixes suspect and unlikely to succeed. The current gridlock in Metro over market value assessment is one indication of the major problems with the property tax system and the overwhelming difficulties in making changes smoothly.
None the less, our tax system and our system of financing education must change. The education system needs a stable source of revenue and reasonable equity among jurisdictions. One interim possibility for increasing fairness while offering time to reform the assessment system is to use a more sophisticated mix of indicators than equalized assessment to determine the relative wealth or poverty of school boards and subsequent rates of grant.
The catchphrase of the new social and fiscal engineers of the province for the past two years has been "restructuring to new ways of doing business." The federation has often been critical of the bureaucracy in the Ministry of Education. In fact we're often critical of the bureaucracy in school boards, as a couple of you who are ex-trustees know. But we've watched with considerable dismay and concern the dismantling and reassembly of the Ministry of Education and Training. Indeed, we've got some concerns about the amount of talk that's in the newspapers about the dismantling and reassembly of school boards without significant public consultation.
In terms of the ministry itself, we would like to make the point that the role of a Ministry of Education and Training is a role which varies, depending on the section of its activities that we're looking at. In terms of the education system, the Ministry of Education and Training should have the capacity to establish a framework around which specific schools and boards can organize their programs within their communities while adhering to a common standard and to the needs of a mobile society. Look at some of our boards and they'll tell you that 69% of the students were not in the same school the year before. We're talking about a society whose mobility is extraordinary.
The fulfilment of the role of developing a framework in which the schools can operate rationally across a province the size of Ontario requires some insider knowledge of the education system and sufficient understanding of the teaching-learning process to produce effective policy.
The federation understands that structures and bureaucracies must change with changing times and realities. Indeed, we support the concept of moving all the education enterprises, colleges, universities, schools and training, under the aegis of a single ministry, but we do believe that the policy role with respect to the various components is quite different.
Elementary and secondary education, for instance, is not expected by the public to be as autonomous at the individual institutional level as the university or college system. This means that the role of the Ministry of Education in relation to the schools is different from the role it would play with the universities.
In our 1993 submission to this committee, we documented the systematic dismantling of the Ministry of Education's professional staff in curriculum and assessment over the previous six years. We gave you numbers. This steady reduction turned into a haemorrhage with the Ontario public service 80 factor. It is true to say that one does not know whom to phone at the ministry about a particular problem at this time. One does not know if the person is still there. One is apt to be told, "I'm here for two more weeks," and quite often it's people in charge of very significant portfolios.
Now the Ministry of Education and Training has advertised for 65 secondments of professional educators to refill the lost professional expertise. Unfortunately, there's an inherent instability in secondments. They're a stopgap measure. The question of rebuilding the professional expertise and the lost institutional memory of the ministry remains unanswered.
We'd like to finish by talking to you about some good news in the education sector. It was a case of money helping to get something going and going to good effect, and we thought the committee would be interested in it.
In January 1993 the federation, with funding support from the Ministry of Education and Training, launched Creating a Culture of Change. We've brought for you the November newsletter of the project. This is a unique reform initiative in that it places resources directly in the hands of the professionals at the classroom level.
The project provides teacher-facilitators to work face to face with groups of teachers on project initiatives of the local teachers' own choosing. The facilitators, for instance, would go into a school that has stated an intention to change the way it's doing business and would help them figure out how they want to do what they want to do. The facilitator doesn't tell them what it is they're supposed to do. It's a means of assisting people to change.
In addition, we have an electronic network linking teachers across the province through a peer-moderated conferencing system, so it's not computer hacker talking to computer hacker. Conferences are advertised. Groups of teachers can search for other teachers interested in a particular topic. A moderator who is trained to moderate the conferences will take the groups of teachers on.
We were told in the fall of 1992, when we were designing the project, that we would be lucky to have 1,000 teachers enrolled in this kind of network within one year of its startup. There are over 4,000. We now have a group of professors of education from several universities interested in studying the project, because nobody else has been able to get so many people involved in this sort of thing so rapidly.
It's a cost-effective method of doing professional in-service with teachers. It has also proven a cost-effective vehicle for the dissemination of Ministry of Education and Training documents. The Common Curriculum is now on the network and we have designed a means for teachers to feed back to the ministry analytical comments about that particular document.
We believe that the phenomenal growth in activity in this project flows from one simple fact: Teachers don't have to get permission from anybody in order to plug into the network. They don't have to ask a department head or a principal or a superintendent. A superintendent doesn't have to ask anybody else and we have superintendents on the network. Indeed, we have some staff members at the Ministry of Education on the network.
The project's now in its second year of operation and funding is being sought from the Ministry of Education and Training for a third year. The federation itself is making a substantial contribution in terms of staff time.
Our experience with the network led us to form a partnership in the spring of 1993 with three provincial organizations of supervisory officers, the school superintendents, to develop a comprehensive proposal for telecommunications infrastructure for elementary and secondary education in Ontario.
This proposal, which is currently under consideration at the Ministry of Education and Training, would establish a provincial cooperative of stakeholders and the ministry, with responsibility for installation, management and support of a provincial networking system which would allow boards, teachers, administrators, the ministry and ultimately students to use the available technology for learning and work. By creating a critical mass of activity and users and establishing links to other partners in the education sector, the telecommunications age can become both universally accessible to Ontario's schools and affordable.
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In terms of the affordability issue, if you remember that Ontario is as big as western Europe, the reason that the network is stuck at 4,000 right now is that long-distance costs are substantial. If we can develop the telecommunications infrastructure you're talking about, reducing the per-person costs for a year of usage of the network from around $130 per person to under $5 per person, at that point it really does become possible to network the kids. So we are waiting for a response from the ministry and hope that it will be positive.
I'd like to turn to the two recommendations on the sections that I have read which are on page 11. Difficult issues like property tax and education finance reform must be faced with imagination and tenacity. People have been talking about education finance reform since I became a teacher. The system is now so badly broken that it must be fixed. There is no choice.
Tentative steps towards resource sharing and cooperative ventures among and between institutions and stakeholders must be encouraged and appropriate incentives provided. Our pride in leadership and innovation must become as important as, perhaps more so than our present preoccupation with cost-cutting and deficits.
Education's impact on the economy has a long and continuing horizon. The child who enters junior kindergarten in September 1994 will enter the workforce in 16 to 18 years. The fiscal decisions made now and their effect on our schools will reverberate for at least a generation. It's part of your role, committee, to ensure that as far as is possible the effects are positive.
We thank you for the opportunity to talk to you.
Mr Mark Morrow (Wentworth East): You've hit something that's come up in my office quite a bit, the job security fund. I understand that there's a problem when, say, a teacher gets laid off, in proving it's due to the social contract. But as a federation you have resource staff too, although, because your higher-end staffing is being cut back, their staffing would also be cut back. Can you give us some idea of a way to get around that?
Ms Margaret Wilson: I think our real point about the job security fund -- and in addressing it we're not addressing it necessarily as a teacher issue, because we think that our retirements will be such that this is not a substantial teacher issue. It will be a smaller issue for us than for other employees. Our real point is that the social contract is so intimately tied in with other fiscal decisions that have forced expenditure restraint that it is less than honest to tie the fund exclusively to those few job losses which we think will be identifiable directly with the social contract, that the expenditure control plan job losses should be covered by the fund as well.
Mr Phillips: There's lots I'd like to ask, but I guess we only get one question. The unfunded liability in the teachers' pension, which is not the responsibility of the teachers but of the government, I just want to make sure you're in agreement with the plan the government's enacted. I think they've passed a bill to withdraw about $140 million that they put in last year, take it back out, and then they take another $150 million out this year and then take a three-and-a-half-year holiday from making any payments against that.
I think they plan to spend, in 1994-95, about $400 million against the unfunded liability. I think the plan is to spend none of that and just let the unfunded liability run up until I guess the middle of 1997.
Does the teachers' federation have any concerns about that? Do you share at least my concern that by making no payments for three and a half years against the $7-billion unfunded liability, and then suddenly when it kicks in, as you know, I think the brand-new payment is about $500 million a year, are we just kidding ourselves in saying that's an expense we shouldn't be servicing right now?
Mr Head: I'll just start off, Gerry, but Margaret has a bit more knowledge in some of the funding of it than I do since she sits on the board. I simply say our initial concern was in the first place to be involved in this in terms of our pension fund and the social contract, and we hope that will never happen again.
Having said that, though, it is all perfectly legal in terms of how it was worked out. It's not a simple matter of how it was worked out. It became a major concern. I can remember spending at least six months trying to find appropriate language to do what was going to be done.
So, yes, we had an initial concern. We hope that won't come back. But in terms of the actuaries and what they're telling us, I think we're fairly comfortable with that.
Ms Margaret Wilson: The pension board had advice from its actuary and had legal advice. When Jim is saying it's within the law, it's also legitimate in the eyes of the actuary in terms of actuarial projections.
Should it make us nervous? Yes, because you create a bulge when you come out of the period. But it is within the Pension Benefits Act as well as the Teachers' Pension Act.
Mr Phillips: But only because the Legislature passed a bill that exempted this from the Ontario pension act. If we hadn't passed that bill, it would have been illegal to take the money out of the fund.
Mr Head: That's correct, but I think any government would have had a similar problem in the sense that the actuaries did project, in terms of their assumptions, a surplus and I think any government would have had to have dealt with how they would deal with that surplus. There might have been other ways of dealing with it that might have been a smoother transition.
Mr Phillips: It wasn't a surplus, it was that the unfunded liability, instead of being $8.4 billion, was $7.2 billion, wasn't it? Technically it wasn't a surplus.
The Chair: We're going to have to go on.
Ms Margaret Wilson: Why don't we come back at that again, one on one.
Mr Jackson: I appreciate your brief. Margaret, you were a member of the Fair Tax Commission. I found the words, "Difficult issues like property tax and education finance reform must be faced with imagination and tenacity," those two words I've always used to describe your work in education. I wonder if you could share with the committee something that could help me understand a little more what you meant by the imaginative -- I'll get the right words. There was some imaginative pulling together of new factors, "a more sophisticated mix of indicators." Could you expand on that a little bit more for my understanding, especially with your background?
I know I won't have time for a second question, but if I could leave this one with Jim Head: Right sizing or downsizing, no matter what we're going to call it in this day and age, is affecting everybody. Although I appreciate you've given us warning signals about its impact, do you have some suggested areas where we might save that lessens its impact at the classroom, which is ultimately your concern? I'm going to leave you with that one, Jim, and maybe Margaret could expand on the use of a more sophisticated mix of indicators for me.
Ms Margaret Wilson: I'll try to be quick. I don't want to take the blame for being on the Fair Tax Commission. I chaired the property tax working group, and that was enough.
The thing I want to say to the committee is that the education community is divided on the issue of education finance reform. The divide is often taken to be a Catholic board-public board divide, but it isn't really a Catholic-public divide, it's a rich-assessment-based board-poor- assessment-based board divide.
The assessment system itself must be simplified, it must be more fair, it must be believable to the public or you're not going to be able to fix the ed fi system. That's one thing you've got to realize, and I think the property tax working group report really laid out in bold black and white the problems with the assessment system.
We continued to do some work cooperatively with the Fair Tax Commission after the property tax working group reported, and one of the things we were looking at in terms of education funding -- the ministry was going in a fairly complex direction, and a group which included representatives from the Catholic boards and the public boards helped gather data for staff of the commission. Then we went and we got very useful data from Statistics Canada.
We were looking at something as simple as using community wealth measured by Revenue Canada statistics and the literacy level of mothers. There's a very close correlation between the literacy level of the female parent and the wealth of a family. There's also a very close correlation between that and the success rate of kids in school. There is all sorts of research.
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We were looking at something that would cut through all the elaborate weighting factors. I know that the Ministry of Education received a lot of the information that we worked on. I don't know what's happening with it. I know that they were still very tied up in a paper-clip counting exercise; in other words, allocation of expenditures. One of the members of the committee comes out of Metro and will know exactly what I'm talking about when I say that provides infinite possibilities to lie about what's going on.
The Chair: Thank you for presenting this morning.
ONTARIO TAXPAYERS FEDERATION
Mr Paul Pagnuelo: Mr Chairman, committee members, I'm Paul Pagnuelo, executive director of the Ontario Taxpayers Federation. With me today are Doug Hindson and John Lavin, members of our advisory council.
The federation is a non-profit, non-partisan citizens' organization promoting the responsible and efficient use of taxpayers' dollars. It's one of five provincial member organizations of the Canadian Taxpayers Federation, which nationally has over 80,000 supporters. Our presentation today will deal with both spending and taxation.
"Churning." No, it's not Bob Rae's latest hit tune. Coined by New Zealand's former Finance minister Sir Roger Douglas, it's a term which refers to the billions of dollars governments remove each year from the pockets of taxpayers and consumers. Politicians take taxpayers' money from them and then give it back in the form of monopoly services which deprive taxpayers of choice.
In the process of "churning," governments deduct a large slice of money: first, to pay the civil servants, who unnecessarily act as middlemen; and second, to invest in wasteful projects which are politically appealing but always end in failure. The result is that taxpayers lose out twice, both in dollar terms and personal independence.
Ontario faces a fiscal emergency. The weight of unsustainable and inefficient public spending has started to collapse the taxpaying economy. The Finance Minister continues to argue that Ontario's deficit is due to a revenue problem, but he is gravely mistaken. Since 1989-90, total government spending has skyrocketed by some $12 billion, from $41.1 billion to $53.1 billion. That's a 29.2% increase in the last four budgets. Revenues, on the other hand, have increased by $2.8 billion, or 6.7% during that same period. If it had not been for tax and fee hikes of some $4.2 billion, revenues would have actually shrunk by $1.4 billion.
The point is that had the government simply held the line on spending at the start of the recession, taxes could have been lowered, and we wouldn't now be faced with a growing mountain of debt which is costing us over $7 billion a year just in interest payments, a debt which the Treasurer projected in his last year's budget would reach the dizzying height of some $90 billion by 1995-96.
The tax well is dry; so dry it has been sealed over with concrete. We've reached the point in this province where tax increases have become counterproductive. The growing underground economy, weak consumer spending, business closures, record bankruptcies and the flight of capital and jobs to friendlier jurisdictions are all the consequence of the excessive tax burden in Ontario. As the Treasurer has found out the hard way, if you want to lower government revenues, hike spending and hike taxes. On the other hand, if you want to increase government revenues, lower spending and lower taxes.
The Ontario Taxpayers Federation believes that the traditional approaches to spending control, such as across-the-board cuts and massive service disruptions, unnecessarily consume the limited political capital the NDP government has to implement change. High-pain cuts and visible disruptions play into the hands of spending coalitions that are fighting vigorously to preserve the status quo.
Ontario is dangerously exposed to transfer payment cuts from a federal government that has little choice but to make spending cuts. In this demanding environment, the Ontario government must consider wholesale structural reform of government operations and programs to improve the value for money now spent on present services and to prevent further erosion of its tax base. It's time to focus on the forest and not the trees.
We urge the government to create a framework for measuring performance and fully loaded costs of public services. Stop wasting valuable time and political capital by micro-managing services to cut costs. Define outcomes and outputs in a performance measurement framework that allows comparison and choice among competing service delivery alternatives.
The province can save billions by ending the monopoly character of government services, by exposing high management overheads and by ending perverse incentives to waste taxpayer money. Done properly, the NDP government could position the reforms as better management that seeks more value for money. This is far more useful than the negative tone of the present debate that focuses on cutting services and cutting jobs.
Focus on outcomes. The present debate which favours the spending coalitions focuses almost exclusively on inputs or the spending of money. You can get more value for money in government by focusing on competition and performance measurement.
It is to the advantage of this government to reframe the whole debate about government services in terms of outcomes. It forces the proponents of more spending and higher taxes to justify monopoly and privilege for a relatively select group of workers.
Decentralize and deregulate services, like New Zealand did in the late 1980s. Depoliticize government operations. New Zealand's Labour government managed to overcome the spending orientation that drives traditional bureaucracy by freeing managers to manage, to hire and to fire, to make or buy services, to sell assets with little central interference, to reward performance and to maximize value for money. Specifically, they addressed perverse incentives caused by spend-it-or-lose-it budgeting and the closed-monopoly civil service hiring system.
These reforms shifted the debate about privatization and contracting out of the political arena. Ministers no longer waste their time justifying why some service or property in some far corner of a government agency was contracted out or sold. The manager, down three levels, has the information to justify decisions that were made. In short, such a system depoliticizes decision-making in the public sector and effectively neutralizes the spending coalitions and the superficial press.
The OTF cannot overemphasize the urgent need to structurally reform the three major areas of provincial spending: health, education and social services. Spending in these areas cannot be sustained at their present growth rates. Once again, we point to the principles of competition, choice, the measurement of outcomes and the comparison of costs between alternatives.
Focus on reducing resources absorbed by administration. Be aware that the present system has strong incentives to recommend cuts to visible front-line services. Use vouchers to create parental choice, competition, efficiency and quality in the education system. End the costly and ineffective bureaucracy and monopoly of the public sector school system.
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The present welfare system encourages dependence. Shift emphasis from passive assistance to active assistance through training, and from welfare to workfare. Deal with the high cost of transfer payments to municipalities and the property tax burden created by uncompetitive, high-cost, overstaffed municipal and regional governments.
Introduce a value-for-performance framework and competitive tendering of services into local governments as a requirement of transfer payments. Finally, take the heat off government and your political colleagues by legislating spending limits and by creating a framework for greater taxpayer input into spending decisions.
Introduce a referendum mechanism to require taxpayer approval of large capital projects at the municipal level, and signal your commitment to the Ontario taxpayer by announcing a referendum on an effective balanced-budget law.
Turning to the issue of taxation, we would like to comment briefly on the recommendations of Ontario's Fair Tax Commission.
Death and taxes are the two certainties of life. It used to be that the only way to escape taxes was to die, but now even that may change if the Fair Tax Commission gets its way. In the current year's budget, the Treasurer decided to tax the sale of dirt. Now the commission is recommending he tax us when we're covered with it.
In its quest to find new and more novel ways to tax us, Ontario's Fair Tax Commission is urging this government to tax the dead. Among its 135 recommendations, the commission wants local property tax exemptions for cemeteries eliminated. It also suggests the province sell the Chrétien government on the idea of a national wealth tax of 30% on estates over $1 million.
On and on it goes; in all, 1,114 pages of the commission's report. The essence of its theme is to redistribute the tax burden by soaking the so-called rich who can afford to pay more, the rich, in its eyes, being families with a combined income of over $50,000. In a move similar to letting a drunk go on a shopping spree in a government-owned liquor store, it feels Ottawa should give Ontario the power to set its own personal income tax rate structure. As part of its deep-pockets mentality, the number of tax brackets would be increased from three to 10, and the top marginal rate for combined federal-provincial taxes hiked to the 60% mark.
The only enlightened part of the commission's report is what it calls the cornerstone of its recommendations: property tax reform. Market value assessment once and for all would be trashed as the standard for property tax assessment. But its replacement, unit value assessment, would only replace one flawed system with another.
In place of basing assessment on the price the property would sell for in the open market, it proposes moving to a scheme which would incorporate the rental value of the property. By rejecting the more straightforward, simpler method of pure unit assessment, which would only use the physical characteristics of the property, the assessment system will continue to be highly subjective and extremely costly to administer.
Even the commission's most prominent and welcome recommendation, which would shift the cost of general welfare and education from property taxes to the province, falls short of what taxpayers have been seeking. Local school boards would still be able to use property taxes for discretionary spending to the tune of 10% of the total funding they get from the province. Businesses would still get hit with a property tax for education, except it would be paid to the province.
For the large majority of Ontarians who love to hate the GST, the commission suggests pouring salt in a still festering wound which has given rise to an explosive growth in the underground economy. Under the guise of a national sales tax, the scope of the provincial retail sales tax would effectively be broadened to cover a whole range of goods and services which are now exempt.
While we favour the harmonization of the two consumption taxes as a means of eliminating the costly duplication of administration, the bottom line is surely to be that the province gets to milk the cash cow for even more.
Fairness, as the commission would describe it, has nothing to do with equality, nor does it mean reducing the suffocating cost of government. Fairness, in its mind, is penalizing you for making more than the other guy, and that says a lot about the virtue of striving for a better education and the ethic of hard work.
What Ontarians need in order to achieve fairness in our tax system is fewer taxes not more. We need a system which is simpler, more efficient and one which all taxpayers will buy into as being fair.
We strongly advocate the government move to a single tax system for income, one which will replace graduated or progressive rates with a single rate applicable to both individuals and businesses, one which will remove tax preferences and which will treat all income sources in the same manner, one which is simple to calculate and less costly to administer.
This time around, let's stop tinkering at the edges. It's time to re-engineer government and to move it into the 1990s. We urge the government to undertake reforms which will redefine its role, restructure the method by which it delivers services and which treats all taxpayers equally, without preference or discrimination.
Mr Monte Kwinter (Wilson Heights): I'd like to make an observation and then I'd like to ask you a question. Number one, I agree that one of the major problems that we have with this government is its preoccupation with the revenue side of the equation and not enough attention to the spending side.
Let me give you an example. There was an announcement that the government hired a Capitol Hill group to lobby the federal government to get funds for Ontario, an absolute absurdity. Last week, if you saw the headline story in the Star, they hired Deloitte and paid it $4.2 million so it could count the computers.
Last week, I noticed an ad that ran in virtually every newspaper in Ontario that just drove me up the wall. They're advertising for members of the Advocacy Commission, nine members, and they took, in the Sun, five sixths of a page and in most every other newspaper in Ontario it was a half a page. I haven't been able to calculate the cost but it had to be hundreds of thousands of dollars. To compound the horror, this morning I opened up the paper and the ad is running again.
I can tell you, if that ad was an inch square they would get hundreds and maybe thousands of applicants, and here they are, spending hundreds of thousands of dollars to get nine people to respond to a particular commission, where as I say, there are probably thousands of people going to apply and they would have applied if it had appeared in the want ads.
Mr Jackson: Which they're going to hand-pick anyway.
Mr Kwinter: That's right, and they've probably picked them all anyway. That is an example of the kind of things that the government is not doing.
What I would like to ask you about is this basic concept of freeing managers to manage, to hire, to fire, to make or buy services, to sell assets with little central interference, to reward performance and to maximize value for money.
How do you reconcile that with a representative democracy, where if you give it to a third-line person and say, "You make the decision, you go out, if you want to sell off some of our assets, that's fine," you then have, I would think, either anarchy or chaos, where one manager decides, "Yes, I'm going to sell off this public asset," and without any sort of integration as to how it fits into everything else that we're doing? Then how do you deal with the elected accountability, where suddenly someone questions why did you do that, and you say, "I don't really know why it was done, but that was a manager's decision and we gave him the authority to do it." How do you deal with that?
Mr Pagnuelo: Politicians have, number one, got to give the authority to the bureaucracy to be able to make those decisions. You've got to be prepared to do that. You've got to be prepared to manage government the same way you would manage a corporation and you vest your senior managers with the power and the authority to make those sort of decisions.
Senior management in a corporation, the executive in a corporation, set policy and they set the general framework in which they expect their managers to perform and then they let their managers perform. They don't interfere in how they do their job, provided they stick within the guidelines that have been set out, and government can operate exactly the same way. It's been done in New Zealand, it's been done elsewhere, it can be done here. There's no reason why it can't be.
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Mr Phillips: I appreciate your thoughts. I wish we had more time to talk about the one tax rate.
Your recommendations on property tax: essentially your property tax will be determined on the basis of, I gather, what you call physical properties?
Mr Pagnuelo: That's right.
Mr Phillips: One of the challenges -- and I see your head office is in Ajax -- is that it may very well be that a local business would say, "Listen, surely because I have 5,000 square feet here in Ajax I'm not going to pay the same property tax if I had 5,000 square feet in a high-traffic area in downtown Toronto." Or similarly, many people moved to Ajax because they felt they could get a much larger home for less cost than in downtown Toronto.
Somebody shakes their head, but I think there are many people who believe they got a much larger home in Ajax than they could have afforded with the same amount of money in downtown Toronto, in the expectation that their property taxes wouldn't be on the basis of the physical characteristics but on the basis of the value of the property. Is that a concern at all to you, or do you think that can be overcome with your physical properties?
Mr Pagnuelo: The difficulty with when you're looking at the value of property, particularly on the commercial side, is that there can be some real sweetheart deals cut in lease rentals. Rentals themselves don't necessarily reflect a realistic value.
Mr Phillips: Agreed.
Mr Pagnuelo: What you need to look at is in terms of municipal services that are being delivered. You've got to really bring the debate back to paying for what you participate in or what you get and value has nothing in that equation, whereas physical characteristics of a property in terms of size come much closer to fairness and equity in terms of how you measure what you've received in services.
The other key thing in the debate about property tax reform is administration of the system, and do we need to continue with an unwieldy, large system that's difficult to administer, that's complex to administer, that's highly subjective? When you talk about turning to rent or lease values, how do you determine that for most residential properties? It's going to be very, very subjective.
Mr Phillips: I appreciate your recommendation. I assume you've kind of run the process through and determined that is the most fair way of determining property tax levels.
Mr Pagnuelo: The other thing too is, let's remove a lot of what is on the property tax burden today off the system. Education is an example. That's why we were very strongly in favour of that one recommendation that says the cost of funding education should come off property taxes.
Mr Phillips: And on income tax, your group would support that?
Mr Pagnuelo: Well, moving it to general government revenues. I'm not suggesting it has to come specifically from income tax. We saw the Toronto Star poll on the weekend which suggested people are split right down the middle, and the reason most taxpayers are split down the middle on this issue is because there's a concern that, if it moves over to "income tax," there's going to be another huge tax hike, an income tax gouge, and people are going to end up being net losers as opposed to net gainers.
Really, what the government needs to do is look at transferring the cost of education back to the provincial government, look at being able to reform the system so the cost of education in aggregate can come down. You've got to look at more novel and unique ways of being able to do that. We've suggested in our presentation today that you've got to break the monopoly of the public sector school system.
Mr Carr: Thank you very much for the presentation. As usual, I think your organization has played an important function. I think sometimes you might not think that you do. Certainly last year we had the biggest tax increase in the history of this province and a lot of people were upset with that, but I think you hit the nail on the head. You need to keep saying that we do not have a revenue problem; we have a spending problem.
The poll that was in the Toronto Star this weekend said that most people now believe the one that says cut services, don't increase taxes. The underground economy is nothing but the biggest tax revolt in the history of this country and people will do anything and everything to avoid paying taxes to governments at all levels and of all political stripes.
They don't think the Conservatives have the answer, they don't think the Liberals have the answer and they don't think the NDP have the answer. Quite frankly, if you look across this country, Liberal governments have overspent, Conservative governments -- Devine's record is terrible. No political party can take credit for this. I think fundamentally what you're saying is right. We need to realize that. I encourage you to keep saying it.
I want to ask you a question with regard to the upcoming budget. The Treasurer has said there'll be no new net increase in taxes, but as you know, as a socialist government, they like to social-engineer and rearrange it. Unfortunately, when they increased the taxes in the last budget, the surtax they put on the average middle class -- and I use the example of a Ford worker got a massive surtax. When Bob Rae ran across the province in the 1990 campaign and said, "Don't worry, we can have all the spending, somebody else will pay," the workers at the Ford Motor Co in the CAW didn't think they were going to be the ones who got hit with a massive surtax.
My question to you is this: What do you say to a government that still believes that it can increase taxes? Quite frankly, they're going to attempt to do it, whether it's by rearranging it, and all that's going to happen is people are going to move their money to other jurisdictions. I think you've been successful in some regards, but what do you say to the government that still believes there's somebody out there that it can hit up for increases in taxes? How can you convince them not to do it?
Mr Pagnuelo: You can only convince them if they want to listen and if they want to be realistic about the situation. The reality is that people who are in the higher income brackets simply will not put up with it. They will move their assets elsewhere; they will move jobs and businesses elsewhere; they will seek friendlier tax jurisdictions, and wealth, whatever exists and remains in this province, will continue to flee the province. We will end up with a province that has become really poor in terms of seeing its wealth disappear.
The other, more important, thing which concerns me very significantly is the underground economy. That continues to grow because people at the middle-income level are now saying that they're being considered high-income earners and they're being taxed accordingly. They are seeking new and innovative ways; just as government is seeking new and innovative ways to tax us, the average taxpayer is looking at new and innovative ways to avoid tax.
Our concern as a federation is once you have taxpayers move into the underground economy you never get them back; you lose them. Once they start in one area, whether it's alcohol, whether it's tobacco, they will continue to explore other areas. We lose not only the revenues from provincial sales tax and the federal sales tax, but we also lose the revenues from undeclared income tax. What happens is it places more and more of a burden on those of us who are honest about paying taxes, whether we like them or not, to the point where it's going to suffocate the economy.
Mr Douglas Hindson: Mr Chairman, if I just might add to Mr Pagnuelo's comment, I think that perhaps the only way that government is going to come to the realization that we have a serious problem is for this government to understand that really what it's engaged in is theft. Friedrich von Hayek said back in the early 1900s that governments engage in legal plunder and you and I, or we as average citizens, will respond in kind.
Very often, the average citizen is criticized for flouting the law, ignoring the law. Really what we're doing as average citizens in developing a deeper underground economy is responding to legalized theft from our pockets. I think more and more people are becoming aware that really what we're engaged in, and the tax issues in this country have to do with, is theft of assets and theft of wealth. I suspect that if this continues, we will have a major breakdown in our society in the future.
Mr Carr: Thank you very much and good luck. You do fine work. Keep it up.
Mrs Irene Mathyssen (Middlesex): I have a couple of quick questions. First, in your brief you say that Ontario was dangerously exposed to transfer payment cuts from the federal government that had little choice but to make spending cuts. I wonder, given that about 40% of federal revenues come from Ontario, if you could speculate for me, if the federal government is apparently so cash-strapped, why it only cut transfers to Ontario and didn't cut the transfers to Quebec? As you know, we get 29-cent dollars and Quebec gets 50-cent dollars.
The second question is, I understand this voucher system for education that you're talking about but my concern is, would that not create a kind of disparity in education among the rich and not so affluent? Won't public education be underfunded to the point where less-affluent children get a lesser education, in the same way that the Americans are experiencing?
Mr Hindson: If I might respond. I'd like to take the second question first. I think it's important for society to understand that one of the real resistance areas that has to do with changes in education is that the education system is fundamentally re-engineering our society without any acknowledgement or approval of the society to do so. Where they have engaged in the voucher-type education systems in the United States, there has been absolutely no indication that there has been a disparity arise.
Let me give you an example. In Harlem, which is one of the poorest areas of New York, they raised the level of their education substantially to out-of-state areas that had higher levels in the fist place simply by giving parents the choice of where they put their children.
The second aspect of the voucher system is that it does in fact force costs down. I'd like to remind this government that teachers in this province, when you work 250 days a year, are being paid the equivalent of between $70,000 and $80,000. Our teaching staff are substantially overpaid. If you take and put education into a competitive environment, you'll have your costs of education come down to what is more competitive both domestically in North America and internationally.
I also would like to remind the government that Canada's education expenditures -- and as was quoted in the Economist, we spend more money than any other country in the world with no significant benefits to show for it. I think the voucher system and giving people the ability to structure the schools around a system whereby parents, a principal and probably a board rep would effectively hire, they would set the curriculum along guidelines and they would remove the fluff from the system that today is really getting in the road of properly educating our society.
Mrs Mathyssen: So education would become a business rather than a service.
Mr Hindson: It doesn't necessarily have to become a business, no; it can remain in the context of a public system. The only thing the government does by giving a voucher to a parent is allow that parent to choose a school that perhaps has higher standards and has a higher quality of education.
We use "quality" in this province in a very bad sense. We don't really know what educational quality is. It's something that we get fed by the educational élite and really it's the parents who are your customers, it's not the kids. The parents are the ones who should be making these decisions and they're capable of making the decisions, as has been shown through numerous jurisdictions in the United States where they've attempted. Also, the system is moving into place in Great Britain, not without some hiccups. Any time you try to change a system it's going to have difficulty, but it's in place in Great Britain as well.
To come back to your first question on transfers from Ottawa, I think what you're involved in is a political play and I don't think Ottawa is in any different condition financially than any other political jurisdiction in terms of its transfers.
We have to understand that what we're doing with debt in this country is we're not picking up the costs for this, ladies and gentlemen, we're saddling our children, we're saddling our grandchildren. It is taxation without representation and it's high time all of us, irrespective of ideology, became aware of what we're doing. If we sink, if you want to see this society collapse, and collapse in a sea of debt, if you want to see the repercussions, then I suggest you continue doing what you're doing.
The Chair: Thank you for the presentation.
The committee recessed from 1225 to 1409.
ONTARIO MEDICAL ASSOCIATION
The Chair: The first presenters this afternoon, from the Ontario Medical Association, are Dr Tom Dickson, president, and Peter Fraser, chief executive officer.
Mr Peter Fraser: Thank you, Mr Chairman, and members of the committee. I'm Peter Fraser. It's a pleasure to be with you this afternoon to make a few comments on the report of the Fair Tax Commission, and I'd like to compliment the government on creating this commission and also Monica Townson and her colleagues for producing a very comprehensive analysis of some very complex issues faced by Ontario taxpayers.
I think all of you have our written submission. I don't intend to go through it in a lot of detail because of the time constraints. But before I talk about the three issues I'd like to address, I'd like to provide you with a little background which will perhaps help you understand why we're as concerned as we are about some of these measures.
I think all of you know that under the social contract we signed last summer, physicians' fees are frozen until March 31, 1996. You also probably know that physicians' expenses of practice account for almost half of their gross income. Last year, the government extended the employer health tax to the net earnings of self-employed individuals, and for physicians this represented a further 1% tax, if you will. A couple of years before that, the federal government introduced the goods and services tax, and this had an impact on physicians as well and increased their expenses by about 2%. As you all know, physicians' fees, as far as insured services are concerned, are limited to the benefits paid by OHIP, so there really isn't any effective way for most physicians to pass on these increased costs of practice.
Now I'll just talk a bit about the three issues that are the most important for us today.
The first has to do with the retail sales tax and the possibility that the provincial government might harmonize the provincial sales tax with the goods and services tax. You may be aware that doctors' fees are exempt from the GST, which means they can't pass this tax on to consumers, whereas physicians do have to pay GST on various goods and services used in their practices and, as I mentioned earlier, this increased their expenses by about 2%. Needless to say, OHIP hasn't recognized this increased cost of practice in the schedule of benefits.
You may not be aware that hospitals are zero-rated for GST purposes, which means they get input tax credits for GST paid on goods and services purchased by hospitals. We recommend to you that if Ontario follows the GST approach with respect to the retail sales tax, you consider granting physicians input tax credits, just as hospitals have these credits.
The second issue is the recommendation to freeze the registered retirement savings plan contributions at current levels. This would be a problem for physicians. Most physicians are not able to start contributing to their retirement savings until their mid-30s, and as a general rule physicians don't have as long to contribute as most other self-employed individuals.
The RRSP tax reforms which began in 1990 were designed to produce a level playing field in terms of benefits between participants in registered pension plans and retirement savings plans. I can tell you that there are relatively few physicians today who are able to retire with the national revenue maximum annual pension of $5,000 per month. There are many members of private pension plans who are able to retire with this maximum and sometimes more. We would therefore strongly recommend that these RRSP limits not be frozen. We would also recommend that RRSP contributions be treated as deductions from taxable income rather than as a tax credit, as suggested in the commission's report.
Third, the recommendation to remove the graduated approach to the employer health tax will impact on physicians, who usually have one or two employees. Once again, this higher tax will mean an increase in the cost of practice with no ability to pass it on.
In the interest of time, I won't say any more about our submission. I will try to answer questions when it's appropriate.
Dr Tom Dickson: I'm Tom Dickson, president of the Ontario Medical Association. Last week, the Treasurer of Ontario painted a bleak economic picture for this year. The minister expects $1.6 billion less in revenue for fiscal year 1994-95 than projected; this despite the province's three-pronged attack on its deficit last year.
Last year, 1993, was a difficult year for everyone. The medical profession, both as deliverers of quality health care and as taxpayers of this province, certainly felt the effects of the province's deficit reduction program. Wage cuts under the social contract will reduce gross incomes of physicians 5% this year and a continuing 5% in each of the next two years. A series of legislative measures will remove hundreds of millions of dollars in public funding from the Ontario health care system.
Taxpayers were also hit with a series of tax hikes, some of which hit doctors more profoundly than other groups, including other professionals. Mr Fraser has already discussed a number of proposals in the Fair Tax Commission report tabled last month that, if adopted, will only increase the growing frustration within the medical profession.
It's difficult to imagine the fiscal situation getting any worse, but as the minister himself pointed out, we'll have to wait a few more months for the economy to pick up steam. The OMA is well aware of the fiscal pressures facing government and the fact that health expenditures consume one third of the operating expenditures of the province. It is our job to preserve the integrity of the province's health care system and continue to provide the quality health care we were trained to provide.
We know more changes have to be made. Efficiencies must improve, and doctors have a major responsibility in managing the health care system effectively. The OMA has been engaged for the past two years in a sincere attempt to assist the government in the management of the health care system and achieve significant savings so that the people of Ontario retain access to high-quality, medically necessary services. That is essentially what our agreement with government did in 1991.
The 1991 framework agreement formalized the profession as a partner in the management of the health care system. Doctors already had a social contract in place long before anyone else, and we were making it work.
The OMA- and government-sponsored joint management committee, or JMC, has made progress. It's estimated that JMC initiatives have saved taxpayers hundreds of millions of dollars already, and the potential for more savings continues to increase as studies are completed and policy objectives come to fruition.
There are more than 50 projects under way through the Institute for Clinical and Evaluative Sciences to assess medical technology, analyse the way physicians practise and deliver medical services, and to develop new clinical guidelines. The JMC is working, but it hasn't been easy.
Then in the summer of 1993, the OMA and government signed an agreement to implement a number of expenditure control measures, to commit the government to a series of reform initiatives and to meet the government's legislated social contract requirements. Through this agreement, we have tried to temper the slash-and-burn approach to health care that the government had initially proposed earlier in 1993. We simply could not stand by and let this happen.
The OMA and government, though this agreement, will establish rational measures to control the supply and distribution of physicians in Ontario. The OMA and government will be studying voluntary retirement plans for older physicians. The OMA and government are developing special incentive programs to encourage physicians to practise in underserviced areas.
We are also pressing the government to adopt a systematic approach to drug reform, including a drug utilization review, improved eligibility under the Ontario drug benefit plan and guidelines for physician dispensing.
Health card fraud will finally be given the attention it deserves, provided government lives up to its commitments. In addition to a new photo ID card for adults, government and doctors will establish a verification and reporting system to detect and prevent fraudulent use of health cards.
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With consultation, we are also improving the management of third-party referrals for medical services, tightening the fee schedule and working with government and the public on the delisting of certain medical services considered to be discretionary, at least by some.
We're examining alternatives to fee for service, including alternative payment plans for clinical teachers and physicians working in settings poorly served by traditional fee for service, such as the recent agreement mentioned in the newspapers and small-volume emergency departments around this province.
There are activities under way to educate the public on responsible and appropriate use of the health care system. We have urged governments for years to do this.
We will work with government and the public to ensure that the medical services we provide are necessary and, more important, appropriate.
If total expenditures on physician services go beyond the limits we have agreed to with the government for the next three years, physicians will be obligated to pay back the amount exceeding these limits.
For my members, the most pressing concerns in 1994 will arise from the accelerating effects of the social contract on our profession and on the health care system as a whole. Our ability to cope with increasingly severe health and access problems will be tested like never before. Our challenge is to do more with less, since patient demand continues to grow. The general population is aging and demanding more service, and the prevalence of chronic disease is on the rise.
Access problems will be worsened by hospital bed closings, never mind the compounded effect on hospital physicians, who are already coping with the impact of the social contract on hospitals, including Rae days and reduced operating room availability.
Physician groups within certain specialties are aging rapidly and those retiring are not being replaced; as an example, general surgery.
Ontario's academic health science centres are threatened. With the constraints imposed on the OHIP budget by the expenditure control plan and the social contract, there is a great potential for compounding negative effects on the funding available to support the work of faculties of medicine. The result could be a loss of much of Ontario's ability to educate future physicians and conduct research.
Pressure on clinical faculty to earn clinical income has left insufficient time for them to pursue research and teaching. They too are subject to administrative pressures and income ceilings, resulting in a decline in the appeal of academia. As a result, we often are losing our best academic physicians to greener pastures south of the border. This can only lead to a shortage of clinical teachers within the next decade, undermining the very foundation of our health care system.
Physicians in smaller communities lack access to appropriate facilities and backup personnel. They are seeing more patients, working longer, taking less time off for continuing medical education and vacations. Many of them are facing burnout. The OMA is in the process of designing a locum program which hopefully will alleviate some of the difficulties facing these physicians.
All of this propels the province down a dangerous path. Patient care will suffer. It has suffered.
Compounding this already bleak situation is the threat of more controls, caps and higher costs placed on the medical profession. Increasingly, it seems physicians are being singled out, although we are net contributors to the system. We employ thousands of Ontario citizens and stimulate and support our local economies. The medical profession is doing its part. It has and will continue to act responsibly and professionally.
While it has been, sadly, tempting to do otherwise, we have fostered a strong working relationship with the government in hopes of improving the delivery of medical care. We've been good partners. On the other hand, the government has not held up its end of the 1993 interim economic agreement. It has fallen far short in several areas, particularly in its commitment to introduce measures to reduce utilization.
Here are but a few examples:
As committee members may be aware, the province recently rejected OMA recommendations aimed at helping the medical profession fulfil its social contract obligations in an equitable and planned fashion. To meet government's expenditure reduction targets on physician services, OMA council adopted resolutions calling for mandatory unpaid social contract days for doctors, as well as an individualized approach to a year-end clawback should recovery of additional funds be necessary. The Minister of Health's response was simply no.
A pilot public education program on responsible use of health care services was delayed for two months. The small-scale program in London was launched only two weeks ago. From our perspective, this project and others to follow have to be more than PR exercises. Educating users is critical to producing significant savings in health care.
The series of commitments to reduce health card fraud mentioned earlier, including a new health card and elimination of the version code, has been delayed indefinitely. We have received no assurance that the Minister of Health has moved on her promise, agreed to in our agreement, to introduce the new health card. An agreed deadline of December 31, 1993, for an announcement was ignored.
Government has also fallen far short on its promise to help us control physician supply and other distribution measures such as controlling the influx of doctors from outside the province, thereby stabilizing physician supply. These delays and others not only have prevented the government from recouping significant amounts of money but have only further angered and alienated my members.
Is this government serious about health care reform that will achieve real, long-term efficiencies and maintain high-quality care? We're becoming increasingly frustrated with a government bent on imposing hard caps on expenditures of physician services while repeatedly failing to fulfil its obligations to enact programs that would reduce the abuse and misuse of public funds.
As you prepare your recommendations and reports and as the Finance minister prepares the provincial budget, we urge you to consider the following:
We have reached the point where we have grave concerns about the depth of cuts being made to health care without a concomitant understanding of their impact.
Reform for its own sake can never work. It has to be undertaken in such a way that will allow the system to be stable and effective during and after the process of reform. Reform must rely on the expertise of the people who are currently making the system work.
The system is at a very delicate point, with no fiscal relief in sight and an aging, increasingly demanding population which continues to be promised unlimited access to all services.
Our challenge as physicians is to continue providing the care we were trained to provide, despite government's awkward and often, it seems to us, illogical attempts to reform the system by cutting deeply here and there.
We subscribe to health care reform that does what it is supposed to do: increase cost-efficiencies, improve access and in particular maintain or, better still, enhance the quality of care we can provide to our patients. Implementing that kind of reform without a fundamental grasp of how all the pieces must fit together is doomed to fail.
If universal, comprehensive coverage can no longer be provided by government, government must say so. This intellectual dishonesty about the ability to maintain the system as we know it serves no one well. Despite the temptation to blame physicians, we are part of the solution. We've shown what we can do when we can work together towards real, rational and enduring change.
On behalf of my members, I urge you to remain sensitive to the health care needs of our society. In striving to contain costs, we must not jeopardize the quality of the system we all cherish. Please let us take care of our patients without more distractions, incursions and economic barriers. Our patients deserve no less.
Mr Phillips: Thank you, Dr Dickson and Mr Fraser. I'm trying to understand the financial side of this because at some stage we'll be probably trying to comment on what money should be put in the budget for health care. Is the easiest way for us to understand it to look at your August 1993 document on the interim economic agreement? Would that tell us what is in the budget for the Ontario taxpayer portion of the doctors' fees?
Dr Dickson: That document lists the gross amounts that are budgeted for the current year and for the subsequent two years for physicians' services, yes.
Mr Phillips: So this year's budget -- I'm looking at page 4 of that document you handed out -- is something like $3.9 billion, going down to $3.864 billion in 1994-95 and $3.864 billion. Is that fair?
Dr Dickson: Yes, it's flat-lined in effect, at a lower level.
Mr Fraser: You take $100 million off the $3.9 billion in the current fiscal year and $145 million off that number in 1994-95, 1995-96.
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Mr Phillips: I'm glad to hear the joint management committee is working; not perfectly, I take it from your comments, but your feeling is it's working. Last year there was a figure given to us, but I haven't got a figure this year. How much would the physicians be able to bill outside of this for third-party services?
Dr Dickson: In comparison to the $3.8 billion, you mean? That's a difficult number to quantify, but with workers' compensation and third-party services, what would be a rough guess, Peter? It's not that large.
Mr Fraser: No, it's not. It would be strictly a guess. It could be, I suppose, $50 million, $100 million. We just don't know. The third-party legislation that was in the 1993 agreement hasn't really taken effect yet. The government's indicated that it will take effect on April 15 of this year, and I think only time will tell what that really means.
Mr Phillips: It is in the $100-million range as opposed to $10 million or $500 million?
Dr Dickson: Oh, yes. For the vast majority of physicians, their services are entirely included within what's mentioned there.
Mr Phillips: It's one of the things I'm interested in. The federal numbers on health care show that about 80% of health care is funded from the taxpayer publicly and about 20% is funded elsewhere. I'm interested in understanding where we're going on that. This says to me that on the physicians' fees it's still 98% funded.
Dr Dickson: Exactly.
Mr Phillips: The incorporation provision: One of the things we're hearing a lot about at these meetings is tax expenditure programs, and in some respects incorporation is a tax expenditure program. I guess the proposal is that your physicians could incorporate as small businesses and take advantage of the small business taxes. Have you any indication for us of what we should expect in terms of the numbers who might incorporate on the tax expenditure side of that?
Mr Fraser: I think the number will be relatively small. I'm sure you can appreciate that this only makes sense for a physician who has some discretionary income and someone who's got a few high-earning years. I would be surprised if more than 20% of the profession would look at incorporation seriously.
Mr Carr: You mentioned the social contract and higher taxes. Do you have any figures on the number of doctors we're losing in the province? Is it up or down, and what specialties are leaving, if any?
Dr Dickson: It's difficult to pin down exactly Ontario numbers. We know that the most recent numbers for Canada at large were at a record high in the current year, around 650 across the country. Approximately 40% of the doctors in the country are in Ontario, so presumably our numbers represented 40% of that, which would place us again at a record high, higher than we've seen since the mid-1970s, when the numbers also went up.
We've done some private polling among chiefs of staff around the province and there's absolutely no doubt that there's an accelerating trend in physicians leaving this province, often from two particular areas: either rural and isolated areas, or university teaching centres. We're losing particularly obstetricians, gynaecologists, neurosurgeons, that kind of group, the highly trained specialist. We're losing them in vast numbers.
Mr Carr: Is that going to lead to a shortage at some point?
Dr Dickson: Absolutely. The story is that out of 10 neurosurgeons who graduated in this country last year, all left the country. As time passes, we will experience a shortage, and as the training time interval to replace those people will be at a minimum five to six years once the problem is recognized, it'll take many years to correct the problem, unless we want to search overseas.
Mr Carr: That's scary. Not only what's happening now, but the future is even scarier, particularly for some of us who are a little younger and have some time before we need some of the services, hopefully.
I want to get to health card fraud. Any idea how much it's costing the province right now?
Dr Dickson: The best numbers we've seen is that it's somewhere between $20 million and $700 million, and that's the most frightening part of it: Nobody knows. It's a hidden cost to the system. It's a place where we obviously should save dollars first, rather than cutting proven necessary care for people who are insured. If we could eliminate that aspect from the system, whatever the quantity is, it's all to the good. It means we have money -- extra money, in fact -- to spend on Ontario residents who are insured and do deserve the care.
Mr Carr: What does the OMA think it is? It's a big range; doctors are a little more exact than that.
Dr Dickson: I don't know. I suppose the best number we would feel comfortable with would be in the $200-million range.
Mr Carr: One last question, about the public debate on health care: I don't think there has been public debate. Politicians of all parties, both at the federal and provincial level, are scared to talk about it. The former Prime Minister was going to throw herself on the railroad tracks to protect it. This Prime Minister I think has done a good job. He's going to set up a public debate on health care, and I think it needs to happen.
Your joint management committee is great, but the public hasn't been involved. They are starting to sense some of the problems in health care now. How would you like to see the Ontario government proceed to get the public involved? Cuts are going to have to happen. We're going to have to go through a tremendous period; it's not going to be politically happy for any of the political parties out there. We need honest debate. How would you like to see it set up?
Dr Dickson: The number one thing we have to get over is our reticence about debating health care publicly. It has been, as everybody refers to it, a sacred trust, and everybody's afraid to touch it because it's politically so hot. We have to involve the public. Clearly, the decisions about what the system is going to contain, what it's going to pay for, who it provides services for, must not be left to politicians and it must not be left to the providers and physicians as a specific group. The public and society at large have to honestly debate what they want out of their system and what they're willing to pay for. Once having decided that, then they have to live within that. Right now, unfortunately, or maybe fortunately, we're trying to be all things to all people, and it's a very expensive system. It has evolved for 25 years and it's time to take a hard look at what we need and what we can afford.
Mr Carr: I'd agree 100%. Good luck.
Mrs Karen Haslam (Perth): I'd like to start with the idea of the joint management committee and the fact that both partners in that joint management committee were to bring forward suggestions for things to be delisted. One of the things suggested, and I believe this came from the medical side, was the delisting of your annual checkup. Am I correct that came from the doctors and the OMA?
Dr Dickson: Yes.
Mrs Haslam: If that is delisted, that then becomes a discretionary charge that doctors may put up on the wall along with a list of other things they have up on their wall already that they can charge above and beyond what OHIP pays. Am I correct in that?
Dr Dickson: If it were an uninsured service, yes.
Mrs Haslam: That's right. I find that very interesting when we're talking about lower costs for health care and the fact that doctors have a discretionary availability to other funds.
On page 3 of the first submission, January 25 -- I believe this was given by you -- it says that approximately 800 physicians had billings above the threshold levels of $450,000. What percentage of doctors is that?
Mr Fraser: About 4%.
Mrs Haslam: Then 4% of the doctors are making over $450,000 a year.
Dr Dickson: That's incorrect.
Mrs Haslam: Then what is correct?
Dr Dickson: To use the term "making" implies that that's what --
Mrs Haslam: Being paid by OHIP, over $450,000.
Dr Dickson: Billed in their name, that is correct.
Mrs Haslam: Okay. I would like to know a little about one of your programs. On page 2 you say you are looking at voluntary retirement plans for older physicians.
If I remember correctly, when I was in the ministry, there was a minor percentage of doctors over 80 whose billings to OHIP were in the millions of dollars. I wondered how successful your voluntary retirement plan was through the OMA.
Dr Dickson: There's obviously some confusion on that. There are very few physicians over 80 years of age.
Mrs Haslam: That is what I'm saying, a minority. There is a percentage of doctors over 80 years old, but the billing to OHIP is in the millions of dollars.
Dr Dickson: Oh, for all of those individuals combined. That's not to suggest that any one of those individuals is billing $1 million.
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Mrs Haslam: No. They couldn't, because we're looking at a threshold of $450,000. I'm saying there is a percentage of doctors over 80, a small percentage, but the billing to OHIP is in the millions of dollars. I'm asking how successful your voluntary retirement plans for older doctors are.
Dr Dickson: The agreement was that we would develop a voluntary retirement plan with government, and that hasn't happened.
Mrs Haslam: You're still working on that?
Dr Dickson: It hasn't even been discussed at this point. It's one of the things --
Mrs Haslam: Is this part of your joint management committee, that will be discussed at that?
Mr Fraser: Yes.
Mrs Haslam: Fine. On page 3 you say, "The general population is aging and demanding more service, and the prevalence of chronic disease is on the rise." It was my understanding that one of the major problems for seniors is overmedication, and that again would relate to how doctors prescribe to this senior population.
Dr Dickson: The overmedication problem is a legitimate and genuine one. It's not necessarily prescribed medications; it's all medications they take. Seniors are heavy users of over-the-counter medications. They often are double- or triple-doctoring and there's often confusion about who they're seeing, and often there's simply confusion on the part of the patients themselves over what they are to take. We're trying to address that through pharmacy and through coordination through computer systems.
Mrs Haslam: I'm glad you're working with the pharmacists, because the pharmacists have come and said, "There are times when I see an incorrect prescription, or there are times when I would like to have more input and be able to contact doctors when we see this happening all too often with seniors."
On page 4, you say, "The medical profession is doing its part." On page 5 you say, "We've been good partners."
I'd like to go back to a comment the first gentleman said about passing on, that you can't pass on some of the financial costs of doctors. In small rural hospitals right now, doctors are giving ultimatums to hospitals indicating that unless they pay them extra for emergency on-call, they will withdraw their services from the hospital for that care. Given that the comments are, "We are good partners," and "The medical profession is doing its part," I wondered if you'd comment on that particular issue. Obviously, I have a rural riding in my background and I'm concerned about this situation. I don't think it's all the doctors' fault. I'm going to be very upfront here. I'm not saying it's all the doctors' fault. I'm just concerned that this is what is coming about and the fact that it's around more money.
Dr Dickson: It's not as simple an issue as that. I'm glad you brought this up, because this is a severe problem that must be solved, and we've agreed to work with government and the OHA in trying to solve it.
One of the difficulties we have in keeping doctors in small rural areas is burnout. These individuals often are working every day and every night and are expected to be on call 365 days a year. Quite frankly, they can't do it. It's intolerable to them. Their families are complaining. We cannot attract people to go and work in rural areas. Once they get there, we can't keep them there because the working conditions we impose on them are totally unacceptable.
One of the parts that is most unacceptable is being forced to be on call in an emergency department in the evening, which may not generate any income whatsoever, then be expected to do a full day's work the following day in the office serving an underserviced community. It's a problem that must be fixed. The doctors have been living with this for a generation now. We can't take it any longer. It needs to be fixed.
Mrs Haslam: What about going away from a fee-for-service situation to another method of payment for doctors?
Dr Dickson: For these situations?
Mrs Haslam: No, period.
Dr Dickson: The OMA has always supported other methods of payment than fee for service as long as physicians and patients have the right to move in and out of that system voluntarily. We do in fact support an alternative payment system for physicians in these small-volume emergency departments. We've stated that already.
Mrs Haslam: Not emergency. I meant fee for service, period. I know my time is up.
The Chair: Our time has expired. We must move on.
I want to thank the Ontario Medical Association for making its presentation before the committee this afternoon.
ONTARIO HOME BUILDERS' ASSOCIATION
Mr Stephen Kaiser: Good afternoon. My name is Stephen Kaiser. I am president of the Ontario Home Builders' Association and I am a builder in the Niagara area. With me is Ward Campbell. Ward is vice-president of the association and a builder in the Hamilton area.
I understand that you are interested in our comments on budgetary items and on the recommendations that were released in the Fair Tax Commission's final report. I also understand that we have 30 minutes. In light of the time constraints, we will just touch lightly on some major themes and then throw things open for discussion. We have circulated a draft copy of our submission to the Treasurer for the 1994 budget. It provides a more detailed look at the points we will be raising. I will start off with the tax commission, and then Ward will talk about the state of the housing industry and relate it to the budget.
In commenting on the commission's recommendations, I want to make it clear that I am setting aside fundamental issues about the political ideology that runs through the report. If we got into that debate today, I am not sure when we would adjourn. What I want to do instead is focus on two very specific issues that affect the home building industry. These issues are the underground economy and development charges.
The commission identifies the home renovation industry as a major source of black market activity. They are correct in that assessment and we said as much at the standing committee hearing last October.
The commission then goes on to discuss two possible approaches to curbing underground activity. One approach is to have customers withhold the tax that is payable on a renovation project and the other is to raise penalties and increase enforcement. Neither of these options will work.
The idea of having the customer withhold the tax will not work because that in effect is what they are doing right now. Most cash deals are done at the instigation of the customer. These folks will gladly withhold the tax. The only problem is, the group they are interested in withholding the tax from is the government.
It is very important that this point be understood. The black market is about getting more for less, there is no disputing that point, but it goes much further. It is about saying to the government, "You get enough of my money and you are not getting any more." If you do not understand this point or if you do not accept it, you will not be able to deal effectively with the black market. This is also the reason why stiffer penalties and increased enforcement will not work. If you follow this option you will only be adding fuel to the fire.
I think it is important to point out that the industry is as interested as government in seeing a reduction in black market activity.
For the government the underground represents lost revenue. We think it is in the range of $1 billion a year. For industry it means unfair competition, but we are very concerned that any steps to control the black market do not simply tip the balance even more against legitimate business.
The other recommendation by the Fair Tax Commission that I want to touch on concerns development charges. As you know, the commission recommended that education development charges be abolished. We agree with the reasoning behind this decision and we fully support the recommendation. The only thing I would want to add is that the Development Charges Act was conceived and implemented during a time of rapid growth. For a number of reasons, the market at that time was willing and able to absorb large and frequent increases in costs. The rapid growth we saw in the 1980s is not likely to return. Even more important, many of the factors that made buyers willing and able to absorb price increases are no longer present and they are not likely to re-emerge.
For both of these reasons, I believe the Development Charges Act is the wrong piece of tax legislation at the wrong time. In years ahead it will bring more harm than good for both municipalities and the industry. I strongly urge the government to rethink and fundamentally revise this legislation.
I recognize that I've been brief and have likely raised a lot of unanswered questions. I will be happy to try to answer these, but first I want to turn things over to Ward to talk about the state of the housing industry and specific budget items.
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Mr Ward Campbell: Good afternoon. Last year, 1993, was the worst year the home building industry has undergone since the recession in the early 1980s. There is a tendency to ascribe a lot of the weakness in 1993 to the cutbacks in non-profit housing. It is certainly true that the majority of the 20% decline occurred in multiple-family units, but the single-family market also declined. That is bad news.
What I have now is good news, with some cautions. These cautions carry important implications for government policies in general and tax policies in particular. I'm going to dwell on these cautions and implications, so in effect I will be looking at the empty half of the glass. But I do not want to lose sight of the full half: The good news is that most signs suggest we are poised for a recovery in the housing industry in 1994 and beyond.
The cautions I want to discuss fall on both the demand side and the supply side of the market. On the demand side, we have a consumer who has had a lot of wind taken out of his or her sails. We can talk about a return of consumer confidence, but consumer confidence should not be confused with the free-spending, devil-may-care attitude of the 1980s.
Household debt has more than doubled since the recession in the early 1980s, and the debt service ratio for households has climbed from below 8% to nearly 10%. On top of this, many people have seen portions of their equity eroded and they have seen growth in some or all of their savings stalled. Put all this together and you have a consumer who is very sensitive to anything that reduces his or her buying power.
The implications of this are simple: The government should not do anything that reduces consumer buying power. That means no increases in taxes that reduce disposable income, it means no increases in taxes or fees that add to the cost of products, and it means no changes in regulations that add to costs. I will return to the point about regulations in a minute, but first I would like to shift attention to the supply side.
Our forecast for 1994 is for a very modest recovery that will still leave us below the 1992 levels. This forecast is in line with the government's own forecast.
One of the key factors in our forecast is the availability of serviced lots. Even if demand were higher, there are not enough fully serviced or draft-approved lots to meet a demand that is higher than what we are forecasting.
The Urban Development Institute estimates that there is an eight-month supply of lots in the greater Toronto area. These lots are scattered across the entire region, so it would not take much of an increase in sales in any area to reduce supply and drive up prices. In the near term, a small price increase might push some fence-sitters and stimulate sales. But for every fence-sitter who is pushed forward, there are more who will back off. As I explained earlier, we are not on the threshold of another housing boom.
The sensitivity of the consumer to price increases and the short supply of building lots bring me back to the point I raised about regulations. Two weeks ago, we held a press conference to describe the impact that the building code changes have on the housing industry and the economy. The last two rounds of code changes have added upwards of $8,000 to the price of a house. Our estimate is that an increase of this magnitude has the potential of forcing 125,000 families out of the market.
A similar point needs to be made about the approvals process. The supply of land can be limited in two ways. One is to slow down the process so that supply cannot keep pace with demand. The other is to place restrictions that limit the amount of land that can ever be developed. Either of these limiting factors will drive up the cost of lots that are available and will force families out of the housing market.
The government is currently considering a number of changes to the planning and approvals process that will trigger both of these factors. The policy statements that are now undergoing a section 3 consultation are vaguely worded, and they are not accompanied by implementation guidelines. This makes it almost impossible to assess the full extent of their impact, but it is safe to say that less land, not more, will be available for development.
A bigger problem, however, lies with the vagueness and uncertainty. It will slow the process as builders and developers, municipalities, provincial agencies and other interested parties attempt to sort out their differing interpretations. Inevitably, this will mean more trips to the Ontario Municipal Board.
As I mentioned at the beginning of my remarks, we are poised at the beginning of a recovery, but this is not a recovery that can be taken for granted. Decisions about key government policies will go a long way towards determining whether the recovery actually occurs.
The Treasurer should ensure that there are no tax increases in the budget that will reduce disposable income or increase the cost of products, and the Treasurer should convince his cabinet colleagues that the first and overriding priority in any debate over policy should be its impact on costs.
As Stephen warned, we have covered a lot of ground in a hurry. Most of these points are developed in more detail in our written submission that we circulated. We will now try to answer any questions you might have.
Mr Carr: On page 4 you talked about the government's commission on planning and development. You state there that you basically have some sympathy with the goals and so on. If it's left in place, the way it's going now, will it be good or bad for your industry?
Mr Kaiser: I'll answer that and then perhaps Ward could fill in. We have deep concerns in regard to the process right now and the consultation period and deadline that's before us. The critical point for our industry is that we finally see some light at the end of the tunnel and a chance to get this industry going and back on its feet. Maybe you could compare it a little to the Super Bowl and the coach walking in an hour before the game and saying, "There's a whole new direction for game plays," or whatever, and as far as implementation guidelines are concerned, not even coming up with a play book in terms of how this is going to be carried out. We have deep concerns in regard to the process right now.
Mr Carr: On page 2 you also say that because of a lot of regulations, "It is clearly very difficult for the private sector to provide affordable housing for the all-important first-time buyer." As you know, the government's out of money. We had the non-profit housing people in last year. In Mississauga, the waiting list is 7,200. They wanted 800 new units and they said, "Even if we get them, the waiting list will be longer next year." I think it's very clear that without the private sector, we'll never solve the housing problem.
You paint a bleak picture. You're saying the picture's fairly bleak because the public sector can't afford to build non-profit housing, especially when it does it at two and three times the cost of what the private sector does it for. Notwithstanding that, there isn't enough money even if they were efficient in doing it. You seem to be saying here that the private sector can't afford to do it because of a lot of the regulations. If we stay where we are, what do you see happening to your industry over the next couple of years?
Mr Campbell: First, I'd like to say that the private sector is meeting a large portion of the demand of first-time buyers, especially in the condominium market and the small singles. You'll see it all over the province. What we'd like to say is that we want the government to make sure it doesn't make any changes to any regulations that are going to slow down the process we're already dealing with. Quite honestly, we'd like to see the government put a moratorium on all new regulations for the next couple of years so we can just get caught up with where we're at and work from there.
Mr Carr: The scary part is that we hear this from different industries. It's not only yours. Every industry is saying the same darn thing about the regulations, and that's even scarier, because it isn't just your industry that's facing this problem. As you can well appreciate, we deal with different industries rather than your own.
The question of development charges: You've been very clear about that. You've laid out that there was a time when they didn't create too many problems. What would you like to see the provincial government do on development charges?
Mr Kaiser: I think you have to understand the underlying issue in regard to development charges. I heard it effectively put forward by a gentleman at a council meeting when he explained that effectively you were asking the new home buyer to pay this development charge up front, to be part of a community and pay for every new service, be it the added infrastructure and everything that is encompassed within the development charges, yet on his first tax bill, he's then asked to pay for repairing the old within the community. I think the unfairness of that was pointed out.
Mr Carr: What percentage of starts do you think development charges have killed in your industry? How many more starts would we have had had we not had development charges? Any idea? A ballpark guess percentagewise?
Mr Kaiser: It's hard to put a number on that. The reduction in housing starts that our industry has seen is due to many different factors, and certainly development charges would have to be one of those factors to be considered.
Mr Carr: It's a challenging time. Good luck.
Mr Campbell: If you look at it, you'll find that the effect of an $8,000 price increase would put about 125,000 families out of the housing market. You're looking at those kinds of numbers. So for every $2,000, you're looking at one percentile of your market.
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Mr Sutherland: When you're talking about development charges, when they were coming in, interest rates were much higher. Some of that would have to be taken into account, would it not, in terms of what your figures are and how many people would be or wouldn't be?
Mr Kaiser: Certainly. As we mentioned, there are many factors. We've seen lumber go up 67% in the last year. You have to look at all those factors combined.
Mr Sutherland: There are a lot of variables in it.
Mr Kaiser: But certainly when you add a cost on, you knock people out.
Mr Sutherland: You commented about regulations. Not to make light of the severe tragedy in California, but I wonder how home builders make any money in California with their very strict regulations and building codes for everything out there. It would be interesting to see how they get stringent building codes but obviously people are still making money. There must be some way they're able to have stringent building codes without extra cost.
You said no new tax increases in your submission. I didn't see any comment in either of your submissions regarding what the Fair Tax Commission has recommended about taking the education portion off the property tax and looking at using other forms of taxation, income tax etc, to pay for education. I wanted to know whether you thought that would have either a positive or negative impact on your industry in terms of new homes and what potential taxes would be.
You didn't give us any estimate as to what your organization felt the number of housing starts would be for the 1994 year. We've had several forecasters in and they've given us some estimates. I'm just wondering if your estimates would be similar to theirs. If you did, I didn't see it. I'm sorry.
Mr Kaiser: Good. I'll try to answer both questions. On the education development charges, obviously we're in favour of the recommendation of the Fair Tax Commission. As you know, we have a challenge in the courts with the government of Ontario.
In regard to the education portion of the Development Charges Act, if I could use an example which might illustrate this, in a new subdivision you may have a retired person who has been a part of this community for a long time moving into a new unit with an education development charge.
Mr Sutherland: I'm sorry. I didn't mean the Development Charges Act portion. I'm talking about the regular education property tax portion that the commission recommends we take off the property tax base and put either through income tax or through some of the other income tax bases, the $3.5 billion of education.
Mr Campbell: We'd have to think that it would be positive for housing. Education is the responsibility of the entire population and it should be shared that way. Just because one person has one kind of house in a municipality, why should they pay more for education? We think it would be a fairer system.
Mr Sutherland: Okay, and an estimate for the year?
Mr Kaiser: In regard to our starts, I was at a meeting today and we had various economists and groups together. The starts forecast for 1994 that the Ontario Home Builders' Association is putting forward is 55,000, bearing in mind that today the starts for 1993 were released at 45,140.
Mr Sutherland: So you came in about 2,000 below what your estimate was, then, last year.
Mrs Elinor Caplan (Oriole): I want to thank you for an excellent brief and just focus on the prioritizing of your recommendations from your executive summary. You've mentioned tax policy as well as government regulations. I'm wondering if within your industry you could tell us whether or not you believe there are regulations which are not serving the intended purpose and are just the kind of time-wasting paper forms that you wonder whether or not anybody does anything with these things.
I'm not that familiar with your industry and I would be interested in what you have to say about some of the specific regulations and whether or not you feel there are any that could be eliminated without having an adverse impact on the public.
Mr Kaiser: We discussed, as we mentioned in our brief, the changes in the building code.
Mrs Caplan: Yes.
Mr Kaiser: Those changes, the added regulation, took place in between the major revisions which happen every five years in the building code, which we estimate tacked $8,000 on to an average house in the province of Ontario while our industry was experiencing tough, tough times.
In regard to regulation, obviously we all share the quest for affordable housing. In our industry, we believe that each and every Ontarian has the right to decent and affordable housing. I believe the government, as we've discussed with the minister, has the same idea, but we have to remember that in this quest for affordable housing the key to affordable housing is in the land component, and we have to ensure that we have a ready supply available of serviced land in order to meet that demand and keep land prices under control and thereby provide affordable housing.
Mrs Caplan: The cost of servicing land has risen dramatically over the last couple of decades, primarily through processing time of applications, through the planning processes at the different levels of government, is that correct?.
Mr Campbell: It's a couple of factors. One is the length of time, and certainly it's an extremely long process to get through and there are a lot of delays; some are necessary and some are unnecessary. Two, the level of standard that is being required by the municipalities and by the province on the product that we put out has increased. Twenty years ago, you put a subdivision in and they'd put a ditch in a rural-type area, but now it's all got to have curbs and sidewalks and it all adds to the cost.
Mrs Caplan: What I'm hearing you say is that you accept the fact that these things have changed and that the standard has been upgraded. What you're requesting at this time is that there not be any further change in regulations that is going to add to the cost of either the development of the land or the production of the house, as the issue of regulation; and secondly, on the tax policy side, that tax policy not have an adverse impact on consumer discretionary income or spending which might deter someone from a home purchase. Those are the two basic thrusts of your presentation?
Mr Kaiser: Yes. With regard to the land component, as you mentioned, we're saying now is not the time to change the rules of the system with regard to bringing land on stream. It's not perfect in this province but it's not a time for sweeping changes of the system. We need to have some consistency and to know the rules of the game right now so we can bring land on stream.
With regard to the regulations of the actual building code, what we're saying is that enough is enough, let's get this industry back on its feet and get people back to work. If we can move the starts 10,000 above forecast in terms of a positive attitude and working together, we're effectively putting 25,000 people back to work.
Mrs Caplan: If we want to see housing starts and job creation in the construction industry in the building of homes and housing in the province, then what you need is a stable environment from the government in areas of both regulation and tax policy, which will at least maintain the status quo so that you can get on and do your part in job creation. Is that a fair statement?
Mr Kaiser: That's a fair statement. We'd like to use this as the level playing field and go from that. What we're saying is just leave it alone for now.
Mrs Caplan: Got it; thank you.
Mr Kwinter: In your summary you talk about the critical shortage of fully serviced and draft-approved lots in some parts of the province. Is that a result of the decline in the economy and the reluctance of developers to invest money or is it because there isn't sufficient sewer and water capacity available in those areas?
Mr Kaiser: The answer to the question would be the second. There isn't the forethought or the planning ahead as to where we go next. We're very concerned that we're running into urban area boundary expansion problems. We just don't see where we're going to go from here in terms of development within the province, and yet we do see a strong demand. Those two coupled together will hence raise the cost of serviced land.
Mr Kwinter: Do you have any idea what the time lag is between expanding those facilities and being able to put lots on the market?
Mr Kaiser: The planning process right now is somewhere in the area of four to five years.
Mr Kwinter: So what we don't have today we're not going to have five years from now, and whatever we do now is going to be at least that much longer after that.
Mr Campbell: There are some lots in the system that aren't in the eight months' supply. They could come up faster than five years. It will not take five years to get more lots on the system, but to take a project now and take it through you're looking at a five-year time frame. It's one of the reasons we don't want the regulation to change, because that's going to slow it down even more.
The Chair: Thank you for your presentation.
Because the Ontario Pharmacists' Association has cancelled this afternoon, we will recess until 3:30 sharp.
The committee recessed from 1512 to 1532.
CANADIAN MENTAL HEALTH ASSOCIATION ONTARIO DIVISION
The Chair: Our next presenter this afternoon is the Canadian Mental Health Association, Ontario division. Representing the association are Carol Roup and Glenn Thompson. Please proceed whenever you're ready.
Mr Glenn Thompson: We're pleased to be here today. I want to say who Carol is in terms of her position in the organization. I'm the executive director at the provincial office and you'll hear a little bit about the organization when Carol describes it. She'll tell you who we are and give a context, really, for what we want to say to you by way of recommendations today.
I might just say that in many respects they're not dissimilar from what we said to you last year. The mental health field doesn't change that rapidly, unfortunately, and so our recommendations will sound familiar to those of you who were here last year. But we also want, and Carol will do this as well, to say to you what our assumptions are behind those recommendations. So if I can suggest, Mr Chairman, Carol will go ahead and then when we get to the recommendations section, I'll chime in. We're assuming we'd have about 15 minutes to speak.
The Chair: The half-hour is yours. You can use it however you want. If you'd like to leave a little bit of time at the end for questions, that would be appreciated.
Mr Thompson: We won't talk for more than 15 minutes maximum.
Ms Carol Roup: I thought it might be useful for you to know a little bit about our organization before we proceed. You have a copy of our presentation, so I'll go through it fairly swiftly and just highlight points and you can read it at your leisure.
The Canadian Mental Health Association, Ontario division, is an incorporated, registered non-profit organization chartered in 1952. Over 3,000 volunteers are active in direct board and committee service in a network of 36 branches located in communities across Ontario. The Ontario division, that is, the provincial office, and branch services and programs are funded through provincial government grants, local United Ways and supplementary fund-raising activities.
We very much appreciate this opportunity to present our views to the standing committee on finance and economic affairs.
In our submission last year, we provided quite a lot of information, especially concerning prevalence of mental disorders in our population and the need for changes in the system and much of that information still applies.
Some of these figures were confirmed in a recent document, Putting People First, which is the Ministry of Health's policy framework for mental health reform which was released in June. I'm sure you're all familiar with it, but I thought some of those figures were at least worth reiterating: 75,000 Ontarians have a serious mental illness; 1.5 million Ontarians seek mental health care each year; 30% to 40% of homeless people have a serious mental health problem; in 1992-93, Ontario spent more than $1.3 billion on mental health services; in that same year, approximately 80% of the mental health budget, excluding OHIP expenditures, was spent on institutional care and only 20% on community services.
Despite these expenditures, I think we all know that there are still enormous gaps in community services across this province, and we're also aware, I think, that people have to travel many miles to get service, and usually many miles away from their home communities.
As an organization, we've certainly applauded the government in its release of Putting People First and the very wide-ranging mental health reform implementation activity which is taking place within the ministry and within related agencies.
At the same time, we've certainly urged the ministry to move very rapidly on a shift towards community-based services, because we believe that this shift has a very real potential to deliver services within an individual's home community, maintaining their attachment to family and/or close friends, to their employment, to their housing and all those vitally important threads which attach all of us to our communities, physically, emotionally and financially. I think we all have a sense of that in our communities.
We know that care in the community will not always be cheaper, but for those where it is feasible and possible, and we believe there are many such individuals, the extent of their care within the community can be much broader for the same expenditure. Most importantly, in addition to sophisticated psychiatric and psychosocial care, community-based services can include support to people with all their common human needs, such as housing, skill development, employment, social networks. While in hospital those critical community threads are easily broken and the expenditure is required principally for round-the-clock medical care.
What follows are our assumptions which are basic to our recommendations to you, and in many cases, as Glenn Thompson has said, they are similar to last year's assumptions.
The economy, we believe, will continue to experience a very gradual improvement and the long-term impact is going to be substantial.
Ontario will experience a continuing high unemployment rate of about 10% to 11%.
Stability in housing, employment, training programs and income, we believe, are fundamental to workable social programs.
While significant adjustments related to the free trade agreement will continue, Ontario, as with the rest of Canada, will now have an extended adjustment period related to free trade because of the North American free trade agreement involving Mexico, the United States and Canada.
We believe that further significant economies could be achieved through increasing efficiency and effectiveness of the public service in areas of operation, regulation and coordination of efforts with the private and the non-private sector.
I'm sure you're all aware too of the recent announcement by the federal government to give most of its attentiveness to the national deficit and we certainly support that, but we also realize that this will constrain its capacity to be helpful in health care and social service areas. It appears that they're also giving a lot of attention to job creation financing, and while this is also certainly to be applauded, many mental health clients are not ready to launch into the regular employment sector without extensive support.
Those are the assumptions on which we've based our recommendations, and I'd like to turn it over to Glenn now to deal with the recommendations.
Mr Thompson: As Carol has said, committee members, if a person who's experiencing a mental disorder doesn't have a basis for support in housing and in his training programs or social assistance, economic and housing support in particular, he doesn't have much in terms of all the other extensive and expensive programming that may be provided for him.
While all of that is very difficult to maintain in this environment, we're certainly going to be pressing hard upon all members of Parliament to say we've got to try to maintain an adequate safety net for people with mental disorders, one that does allow them to get themselves back in the workforce or, even better, to keep themselves there if they can. That's really a very important and maybe self-evident recommendation, but sometimes the focus in the mental health system gets steered entirely to those services that are specifically psychiatric. We'd like to see the needs of people and do see them much more broadly set than that. As a second recommendation, we want to make a point about accountability systems. While we think very much that they need improvement, both in the institutional and the community sector, especially in the community sector I would say, we're very concerned that those who invent accountability systems may invent ones that are so highly sophisticated and demanding of time and money that they won't well apply to the size of the community sector.
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It's a caution, I think, that while we need to have very thoughtful kinds of accountability systems, they also need to be geared to the size of a system that we have in the community and to its state of development, as many of you know. I know at least some of the members here are active in community service work. You're certainly aware that agencies need a lot of developmental assistance in their support services. So to apply accountability systems the same as one might apply to a very sophisticated hospital doesn't really pay off or won't pay off, I think.
In the area of volunteers, we're a volunteer organization, as you know, and very much have the belief that volunteerism can be and should be expanded dramatically in the province. There are all sorts of people like me who've retired at least once and who can be recruited to do other things, often in a volunteer capacity entirely. Many bring all sorts of skills to our various workplaces and we should be harnessing that resource much more than we are at the moment.
It's anything but free as a resource. My experience, especially in correctional services with good volunteer programs, was that they were anything but free but they multiply the time that can be spent with individuals absolutely dramatically. So the payoff is in the delivery of much more time to individuals who need it.
We think as well that there can be, and in some cases is but we need to improve much, the collaboration between industry and labour and non-profit organizations in the whole mental illness prevention and promotion area. Workplaces, in my experience, especially around the Labour ministry where I saw it up close, often don't pay a lot of attention to that or they sort of relegate it to employee assistance programs, which are really important but don't necessarily see the central role of both unions and management in the direct confrontation of issues that are preventive and promotive in terms of mental health.
We also think that there needs to be a significant effort made with youngsters at a primary prevention level to get at difficulties before children reach the teenage stage, or a much more advanced stage than the small youngsters. Then the problems usually have many different overlays on them, frequently, in my experience, delinquent overlays, and then you have several problems to solve.
There's much that can be done and organizations are offering that kind of advice in a significant way that we're participating with at the moment to get at early and primary prevention and provide assistance to young parents long before they get into difficulty with their youngsters. Again, I think some of that assistance could be provided through volunteer help.
I guess stress in the workplace seems to be something that people talk about as though it's increasing dramatically these days. Whether or not it is, there seems to be a lot of it around and all of the recession complications have certainly increased it for many people.
There's much that could be done, we think, between industry and unions and government and the non-profit sector to work with workers and managers in the workplace to help reduce that kind of stress. We do know something about that, we think, and some of our branches do significant work with workplace programs, but much more could be done there.
I think of the WCB, for example, as an organization that might well take a major kind of initiative in a promotive sort of way, as opposed to simply waiting for the insurance bill to come in for the stress-related illness. There's much that could be done there and we're advocating that to them.
We certainly think, and this was mentioned earlier, that a simplification of the application of government regulations is achievable and desperately important, both for industry and government itself and for the non-profit sector, but maybe especially for the non-profit sector. Because of the size and scale of our organizations, people are usually feeling as though they're sitting under a deluge of governmental material coming to them, both in the form of reports that we subscribe to a great deal, like Putting People First and long-term care documents, but also in terms of regulations that relate to health and safety and pay equity and employment equity and so on.
If you're a small branch of the Canadian Mental Health Association with five or six workers, it is really a tall order to absorb all of that. We don't resist the fact that these regulations are needed, but some method to simplify their application and people's education about them would certainly keep the time of staff who presently are applying themselves to those things directed to the services that the organization is there to deliver.
We also want to recommend to you support for the consolidation of management in the mental health system. As you know, Putting People First and the organizational changes announced by the Ministry of Health last Friday put the community mental health and the institution sectors together, but we believe strongly that there should be a delegation of those responsibilities now as much as possible out to regional and local structures.
Just finishing up, we're anxious to see the provincial deficit continue to be worked on in a strenuous way, but we do think that even as that's done, there is an opportunity to use the funds much better in a reframing or re-engineering, I guess people would call it these days, of the mental health care system. The outlines for that are in Putting People First, but there's much to be done in the implementation process there.
I should stop at that point and allow some questions.
Mr Sutherland: I just have two quick questions. One issue that stands in the way of going to more community services and integration, of course, is that some communities, out of a lack of knowledge about mental illness, are reluctant to have community facilities in their neighbourhoods. There's certainly a concern about that and we unfortunately have that type of controversy going on near my area right now. I'm just wondering if you could comment a bit on that.
More specifically, in your presentation you talked about some of your concerns about funding. If there's one specific thing you would ask the government to change to support mental health services in terms of a funding priority or whatever for the upcoming year, what specifically would that be?
Mr Thompson: I think we'd say there needs to be an amount of money, not a large amount, to prime the pump. To change from institutional care to community care is tough if neither side has any money to facilitate that change. It will happen anyway, but it will happen more slowly and there will be tremendous turf battles over who is funding this change process, which need not necessarily be as acute.
Mrs Haslam: Along the same idea, there were a couple of points on page 5, and I wondered if you might give some examples. You said that "much could be done collaboratively between industry, labour, non-profit organizations and government to develop and implement both mental health illness prevention...."
I wonder if you could give an example of that, and also, another two stars down, collaborative effort at all levels to educate workers -- this is the finance and economics committee -- and how you felt the money could be spent in those types of programs when we're looking at very tight fiscal constraints.
I have some concerns around page 6 when you talk about, "believe that government must continue to address the reduction of our provincial deficit as one of the highest priorities," but then you go on, on page 7, to say that you're concerned about the decreases in funding within the institutional sector and being sure that the money's in place within the community.
I understand that, but it's a difficult balance. You're caught in that balance and I'm finding that your solutions don't have solutions. You have identified the problem. What we were saying is, you can't on the one hand say, "Control the deficit," and on the other hand say, "Increase our monetary position." I wonder if you would elaborate briefly on those comments and maybe give an example of the things I've asked you about on page 5.
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Mr Thompson: Let me speak to the last point first. What we're seeing and people in the Ministry of Health are seeing in large measure is that in the general hospital psychiatric units, and in chronic care units as well, I understand, there's a rapid evaporation of funds as those general hospitals are experiencing constraints. They're evaporating often down the hall to surgery or to some other element in the hospital.
From the mental health field's point of view, we're concerned to have that $1.3-billion envelope not have several leaks in it. We're not looking to have more money in it, but rather to have that money contained as much as possible and reallocated into the community, where we think, as we said earlier, in many cases it can have a higher payoff because the money can stretch further in those community programs. That's one element of speaking to your question.
In terms of examples of what one might do in the workplace, I look at the gigantic expenditures in the Workers' Compensation Board system and think, isn't it a pity that we're waiting until those things have happened, as opposed to doing more to promote wellness in the workplace as well as everywhere else? That certainly relates to stress in the workplace and all of those other things. As any of us knows, workplaces can be organized in ways that are stress-enhancing or stress-reducing, including the Legislature, I don't doubt.
Mrs Haslam: Boy, you should be here some days.
Mr Thompson: It wouldn't take a lot to do some of that work.
Mrs Haslam: But isn't there some of that work being done already within the workplace?
Mr Thompson: Yes, certainly there is, but there are many workplaces across the province that are doing anything but stress reduction, and those employers are paying for that in spades in terms of productivity.
Mrs Caplan: Four minutes is not a lot of time to get into anything in depth, really. I want to thank the Canadian Mental Health Association for its presentation. I was very interested in the discussion with Ms Haslam over the notion of an envelope for mental health services. That does not exist today, is that correct?
Mr Thompson: It exists only for those things that are the provincial psychiatric hospitals and the community mental health programs and addiction programs.
Mrs Caplan: So there's no guarantee that the psychiatric services provided in general hospitals will be protected or are part of an overall mental health envelope.
Mr Thompson: Certainly, while I was at the ministry making recommendations to them, I was saying, "Yes, you should be protecting that," but as recently as this morning, I was being given an example of a hospital where there's quite a drift of money away.
Mrs Caplan: The other thing you said that I very much agree with you, as you know from things I've said before -- I'm not going to pretend I don't have a history on mental health issues -- was that you believe you could see significant reallocation within an existing envelope if all those dollars could be identified so that you could better serve the needs of the public and individuals in need of mental health services.
Mr Thompson: No question about that, I think. I met many people in my six-month sojourn at the Ministry of Health looking at these problems in hospitals who the staff didn't feel needed to be there. They were saying, "If I could get a program in the community for this person, he could be out of here."
I remember one of the physicians at Penetang's hospital saying to me: "I don't need any of the people on this ward to come here. If I could put my service in the community, it would keep the person anchored there better." They were providing, I thought, a very good service, but it was a 12-day turnaround. He was saying: "We need the people here for three to six months if we're going to do something intensive, and by that time they've lost touch with the community. Preferably, we'd handle them in their own community." That's difficult, the more wide-ranging the area is, but they wanted to take a crack at that. I hope they will.
Mrs Caplan: The network that the Graham report envisioned -- Whitby was actually supposed to be the first example; the Whitby redevelopment with the local hospitals and the community -- saw a structure that would permit that reallocation to take place so that you were not talking about more or additional dollars, but about better use of existing resources. Do you know any place in the province where you'd have that kind of structure in place today that would allow for that kind of reallocation or a structure that could be a model for other communities?
Ms Roup: There's no question that each region in the province will develop its own kind of structure, that because of geography and just in terms of the kinds of service and the service spread, the expectation is that different kinds of models will arise.
Mrs Caplan: But there's no structure in place in the province today to allow for that kind of reallocation that you know of?
Ms Roup: Not as a model. I guess Whitby is one and I think having the district health councils in place lends itself to an authority of some sort or a coordinated structure of some sort. In most communities it could move quite quickly, if that was what was needed.
Mrs Caplan: Have the mental health subcommittees of the DHCs been able to even gather in what the existing resources are that are available in the community hospitals? Do they know? Does anybody know?
Mr Jackson: They're downsizing them.
Ms Roup: We don't have data of any sort that are reliable; not in terms of who's being served at any given time and what services they're utilizing. That is probably the most serious deficit in the province, because without having those data, how do you plan? DHCs are in a tremendous bind. We support their key leadership role in all this, but they need a lot of support to play it effectively, data being just key.
Mrs Caplan: I agree.
Mr Jackson: I'd like to build on Ms Caplan's excellent questions. I know that in Halton region, our DHC has looked at mental health services and it's resulted in downsizing because of the pressures on hospitals. These are generally the least controversial programs in the mind's eye of the public and that's grossly unfair.
Adolescent suicide is up dramatically in this province. It's one of the most unspoken statistics that we should be dealing with and we're not. Young men and a lot of young women in my riding are having to go to Whitby from Burlington because we've been shutting down our adolescent psychiatric beds. I've seen evidence of DHCs dealing with it, but not dealing with it well. I think you're being far too kind to suggest they need additional resources. The future is an envelope and we're not well positioned in mental health services.
Where I want to move you to in terms of a response is that I see increased pressures. It's different if your cohort, your client, is remaining sort of a constant. Then Glenn's comments about constant dollars he could live with; stop the haemorrhaging and we'll deal with our population, thank you. But recently, the new Minister of Justice announced that in response to the reductions in his budget for the incarceration of violent criminals, psychiatric-based criminals -- he's indicated now on two occasions that these would be referred to the Ontario health system. This is what he was indicating.
When you consider that a disproportionate number of these convicts will be released into the community in Ontario, they become in a sense part of your response that's required of you. This is a large cohort. I want to ask you first if you're tracking or have any information on this now that we've had the first major policy statement from the federal government on this one aspect of justice.
The other issue, since I may run out of time, has to do with the increased incidence of Alzheimer patients. I have a disproportionate number of Alzheimer patients in my community who are hustled out of their hospital beds and put in psychiatric institutions. I'm talking about psychiatric hospitals. They're put in chemical straitjackets and they die, quite frankly and, I have to say publicly, prematurely in that environment. That's no slight against our psychiatric hospitals; it's just not the appropriate place for treatment for an Alzheimer patient. We've been tracking it in our community of Halton and I'm very upset by it because this is a mental health matter and long-term care reform is not dealing with it, but it's a cohort that's growing in terms of your responsibility.
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So when I see your report I think you're being far too kind in terms of the increased demands on mental health services when they are dropping so disproportionately. That's not what we're seeing a lot of before this committee. We're seeing a need for additional resources without the expressed additional demand. You are one of the few groups that have come forward where I see that growing.
Can you please share with us some of your tracking on these two or others that you're aware of? I've mentioned three. They're areas of concern. I know they're being quantified. How do we deal with it? We're running into these people in our streets and that's not fair to them nor to a society that has a lot more capacity for compassion.
Mr Thompson: Let me start on that, anyway. There is a significant forensic service study under way in the Ministry of Health's mental health care area, and that I think is liable to help to move this forward. But to be specific, I think that we should be using some of the very experienced psychiatric resources that we have in the provincial psychiatric hospitals, as some of the patient group are moved out to the community, to take on increased work with some of the people that you've just described who come out of the forensic system.
If we were to not worry about what institutions were called, Correctional Services probably has 1,000 people in institutions today who need the services of those staff. Whatever building you put them in, whatever you call it, they're certainly not getting those services today, through no fault of people in Correctional Services. They're not geared up to provide intensive psychiatric care.
Mr Jackson: These are in some instances dangerous, violent offenders.
Mr Thompson: Some are; not all, by any means. But even if they are, they still need that kind of environment of support and assistance. Increasingly, over the years the psychiatric hospitals have not wanted to deal with that clientele. I know while I was a Correctional Services administrator I could usually count on the fact that if one of my physicians referred persons to a psychiatric hospital who was an acting-out kind of personality, they would be back before the sun set, with the hospital saying, "We just can't handle this kind of person." That seems still to be the case.
Wherever they're going to be handled, they need to be surrounded by people who know something about caring for that kind of individual, and as the mental health system changes there is going to be a substantial number of those 8,000 staff who are in the provincial psychiatric hospitals who will either move into the community or could move to deal with that clientele.
The Chair: Thank you for your presentation.
ONTARIO GOOD ROADS ASSOCIATION
The Chair: The next presentation will be made by the Ontario Good Roads Association, and I see there's a long list of people who will be coming forward to assist in this presentation. I had a peek at your written remarks so I know that you're going to introduce everyone. That's important for the members of the committee and Hansard, so that whenever anyone makes a comment we make sure we attribute the right name to the comment.
Mr Vik Silgailis: Good afternoon. We are representing the Ontario Good Roads Association and I would like to introduce our delegation. I'm Vik Silgailis, president of OGRA and commissioner of works for the regional municipality of Durham. With me are: Len Rach, first vice-president of OGRA and director of engineering with Metropolitan Toronto's transportation department; Gerry Lalonde, second vice-president, councillor of the township of Cumberland; Ross Hastings, board member and mayor of the township of Tiny; and Sheila Richardson, our executive director.
As you may know, the Ontario Good Roads Association is a municipal association representing the road and transportation concerns of over 750 municipalities across Ontario. Our members include Metro Toronto as well as small rural municipalities. Our board is comprised of elected representatives and municipal staff, including engineers, road operations and administrative personnel.
We are here this afternoon to offer our comments on issues that we wish to see addressed in this year's provincial budget. At the outset, I want to say that we are aware of the continuing and indeed mounting financial pressure with which you must contend as you contemplate the coming budget. Municipalities are budgeting with shrinking resources and increasing demands on those resources.
OGRA welcomed the federal government's initiative concerning infrastructure renewal. We believe that these projects will assist in the economic renewal of our communities and result in desperately needed projects going ahead. OGRA believes that it is critical that the projects be aimed at the renewal of our infrastructure. Roads, bridges and sewer and water projects should be first priorities for funding. These are all labour-intensive projects and will create many jobs. As well, the results of the expenditure of these public funds will be easily identifiable to the taxpayers and the public investment in our infrastructure will be protected. The residents of this province have, out of necessity, watched as public infrastructure maintenance and upgrading has fallen further and further behind schedule. Delayed maintenance work costs all of us. It results in additional costs as the work required increases. It reduces the life expectancy of our infrastructure and raises issues concerning safety and liability. There are also related costs due to the impact of deteriorating roads and bridges on our commerce and tourism activities. This program will allow us to deal with this neglect.
OGRA believes that it is equally important, however, that the provincial government not increase its deficit to participate in the program. Nor are we recommending an increase in the tax revenue. We recommend that the program be funded from existing revenue sources. We realize that this will necessitate a reordering of priorities and a shifting of resources among programs. Hard choices will only get harder, and we do not make these recommendations lightly or easily.
OGRA is pleased to have been involved with meetings to discuss the guidelines for the infrastructure program. We have submitted comments to ministry staff outlining our concerns on certain administrative aspects of the program and we have requested that these issues be dealt with as soon as possible. We also need assurance that existing grants to municipalities will not be cut as a result of participation in this tripartite program. In order to plan and implement road programs, municipal road funding cannot be reduced as a result of this program.
At this point I would reiterate a long-held position of our association regarding the need for a portion of fuel tax revenues to be dedicated to road needs. We recognize that dedicated taxes reduce availability of funds for those sectors that do not have an obvious source of revenue, but we believe that road needs are the legitimate recipient of these funds.
Roads continue to be underfunded. There has been a significant change from the 1955 to 1965 period, when transportation comprised between 26% and 33% of the total provincial budget, to 1992, when it represented only 4.8%. At the same time, the municipal road system is expanding. The total municipal road system has grown 4,000 kilometres between 1985 and 1992. The total system now measures 136,510 kilometres. From 1991 to 1992, almost 500 kilometres of new paved roads were added to the system and during the same time period just over 1,000 kilometres of gravel roads were overlaid in rural municipalities.
I want to deal briefly with an issue raised in the report of the Fair Tax Commission concerning infrastructure funding. OGRA believes that the financing of infrastructure projects that are required as a result of specific growth is a legitimate use of development charges. Development charges are calculated to recover the capital costs of providing infrastructure for specific developments. Beyond that, operating and maintenance costs are done by the property tax. We believe that this is an equitable and necessary manner of funding new growth.
I also want to restate an issue that is of critical importance to municipalities, and that is the need for more predictability in both revenues and programs. The downloading must stop. Municipalities recognize the need to govern efficiently and manage resources prudently and we have taken many steps to do so. What we need now is cooperation and agreement from the government of Ontario. Provincial legislation, regulations and programs established by the province are often delegated to municipalities for administration and too often become their financial responsibility as well.
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A related issue is the need for municipalities to know early on the financial resources that will be transferred. Budgeting in the absence of both program requirements and financial resources handicaps municipalities, strains their credibility and hurts the provincial-municipal partnership.
I want to mention, for the members' information, a program that our association is involved with. OGRA, in association with MTO, the Municipal Engineers Association and the Association of Ontario Road Superintendents, has initiated a Cooperation Pays campaign for the public works departments across the province. The program focuses on increased cooperation because we believe that there are significant opportunities for improved efficiency available to transportation agencies through shared resources and joint planning. The program has identified several general areas where opportunities for increased cooperation might exist. They include the sharing of equipment, facilities, inventories and services as well as group purchasing and coordinated functions, such as snowplowing and staff training. The program provides education to alert municipal councils and staff to possible savings, facilitators to assist in implementing identified cooperative ventures and a tool kit that provides forms and information to assist in cooperative efforts. The program was initiated in the summer of 1993 and will run until the end of 1995.
We are also working with the Ministry of Transportation to revise the current methods by which MTO assists municipalities in funding transportation services. The objective of the review is to develop a simpler funding arrangement to ensure equality, efficiency and effectiveness while at the same time providing municipalities with more autonomy in selecting projects, materials and methods. A draft report is now under review by MTO and is expected to be available to municipalities at the end of January 1994. OGRA, on behalf of MTO, will coordinate municipal input through a series of meetings across the province. MTO has advised that it intends to implement changes arising from this exercise in January 1995. We have already advised MTO that the review of the funding formula must not be used as a means of reducing the provincial transportation transfers to municipalities. It should be used strictly to develop more equitable funding arrangements between MTO and municipalities.
I want to conclude by stating that OGRA welcomes the opportunity to attend your deliberations. We know your task is not an easy one and we have attempted to offer some suggestions for your consideration. We have not come with simply a plea for funds but with a request for the tools to do our job. Municipalities have, I believe, demonstrated to the taxpayers that they are willing to respond to shifting priorities and shrinking funds. We ask for your assistance.
I hope our comments will be useful and your deliberations fruitful. Thank you for your attention.
Mr Kwinter: I was interested in your comments in support of the announcement that was concluded yesterday with the infrastructure program. I'm just curious to know how you envision this is going to work. You suggest that we can't increase the deficit, we can't increase the taxes, so there's got to be a reallocation of revenues.
My concern is that a lot of these revenues are going to be allocations that have been made under the capital works program of every level, whether it be federal, provincial or municipal, and just shifted over so that each participant can lever the other two for an equal amount of money.
So you'll have the province taking money out of capital funds that it's already got and saying, "Okay, this is part of the infrastructure program." The municipalities are going to have to take money out of their capital projects to do it. The only other choices they have are to raise taxes, increase their deficit, which is very difficult for them, or reallocate other resources.
How do you see this working at any level but particularly at your level, at the municipal level? Where are you going to get the money to participate in this program?
Mr Silgailis: It is a very good question and a difficult question to answer and this is something we will be struggling with, of course. However, we felt that we needed some injection and this is the injection that's coming, two thirds. We will do our darnedest to find our third.
In my particular municipality we're looking at the water and sewer projects primarily. In the general tax levy we've been in a zero world for I don't know how many years and primarily bailing out social services. Our only hope is to go to sewer and water, and we are looking at debenturing to come up with our third because there are so many projects that are on the shelf which haven't gone anywhere and we're in a critical situation. We have plants which are hardly meeting compliance etc which have to be expanded.
This was quite a strong debate within our board meeting and everybody was supportive of this program but very concerned that the deficit would increase. The brief basically suggests a shifting of priorities. Maybe some of my colleagues may want to comment but I guess we're looking at possibly shifting from some of the other soft services to the hard services because the hard services have taken such a difficult kick in the pants over the years. When our share was 33% and now it's down to 4.8%, there has been some major shift somewhere.
Gerry, do you want to comment?
Mr Gerry Lalonde: Thank you, Vik. Like you mentioned in your deliberations, you've been downloading on us for a couple of years now, like the social services, and you have increased our waste management requirements. This was all initiated by the provincial government and then at one time it was dropped in our laps and that's where, as far as we're concerned at the municipal level, there should be a review by the provincial government to relook at how much money is being spent on those social services or some adjustment should be made in the social services programs because there have been all kinds of changes in the infrastructure programs by downloading, giving more and more responsibility to be paid by the municipalities.
There is something wrong, especially when you go from 25% to 30% to 4.8% in 20 years and we still have to rely on our road structures more and more in the transportation end of it. An especially good example is when you look at the GM and Ford plants in Canada using the road systems versus the rail systems and yet we're not putting as much money into our road systems to maintain them.
I think personally, as a politician at the municipal level, we have to restructure our social services.
Mr Silgailis: Ross, the mayor of Tiny township, may want to comment.
Mr Ross Hastings: Thank you, Vik. I appreciate the opportunity. I have to agree with the social services issue. Last year I was the warden of Simcoe county and in 1993 we were $1 million over our budget in county dollars and that's hurting us. In the last two years we have been unable to use all the MTO subsidy.
I definitely feel that there have to be some changes. A graph that came out in one of the local papers said 44% of the recipients were kids under 21. I think our system is going the wrong way, and hopefully we could get more money into our roads, create more jobs and get this social services budget down. It's killing everyone and it's a very great concern I know in Simcoe county in my own municipality. So I think that's one major area where maybe some money could be shifted and I think we all realize there's only so much in the pot and it's got to go around.
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Mr Carr: How far along are you with discussions with the government of how much you're going to get? Where are you at with it?
Mr Silgailis: The announcement came this morning. I have received the numbers for our municipality.
Mr Carr: What are they; do you know?
Mr Silgailis: For the regional municipality of Durham, it's $23 million; that's a two thirds, and then we would have to come up with $11 million.
Mr Carr: Is it too soon to tell how many jobs are going to be created and how much municipalities will --
Mr Silgailis: It depends on the project, of course, but the rule of thumb that we use is 15 person-years of labour for $1 million worth of expenditure.
Mr Carr: How much are you getting for roads, total?
Mr Silgailis: For the regional municipality of Durham it was $35 million. I don't know how much there will be in other municipalities.
Mr Carr: Thirty-five times the 15 gives you the number of man-years.
Mr Silgailis: Yes.
Mr Carr: I appreciate you're saying taking it out of existing revenues. What do you think is going to happen, and I guess it's difficult because different municipalities are at different levels of cutting back and so on, but what is your feeling percentagewise? What can people look for in terms of increases in municipal taxes as a result of this program?
Mr Silgailis: Maybe my political confrères can respond.
Mr Lalonde: For us in Cumberland township, we had our budget deliberation last Thursday evening and we came up with a zero increase but we had to do an awful lot of cutting, also, of services.
Mr Carr: But that didn't include this announcement; right? So now you will have an increase?
Mr Lalonde: We are fortunate that we do not have any debts at all, and we're one of the very few municipalities in the province of Ontario. We have the resources in hand to be able to provide our share, whatever the amount of money we will receive. We're hoping to get some for the north-south link, the project we've been looking over the last four or five years. We've been waiting and we're prepared to proceed. So we have the money in hand, but we're, like I say, very, very fortunate.
Mr Carr: Yes, because a lot of municipalities don't. I think Toronto's looking at a 1% increase and so on. Also, you mentioned that you were looking at getting into debt. As you know, we have a debt crisis in this province. Each of us owes about $25,000 for every man, woman and child, if you combine the federal and provincial debt. The federal government's broke; you can say whose fault it was, the Liberals, Conservatives, it doesn't matter. The same provincially, we're in debt. It can be the NDP, Liberals, Conservatives; it doesn't matter, we've got a debt problem.
You're now asking us to allow municipalities to go further in debt in some of the bills that have been put forward allowing the municipalities to borrow, all for worthwhile jobs. I can tell you, the ratepayers in my area say, "We've got two levels of government broke; we do not want a third level."
What do you say to people who are saying, like yourself, "Just allow us to borrow more and to go into debt," at a time when other governments at other levels have just made an absolute disaster out of it?
Mr Lalonde: I think we understand what you're saying and this is why our recommendation is to look into essential services with this program. Again, rehashing what I said earlier, we should look into the social services and try to do some adjustment because I think in the last few years there has been more and more money sent toward the social services. What are we getting back? Are we improving things there? We've been getting less and less money from the provincial level for the road infrastructure and we're trying to keep it up and we've been going to our taxpayers. Even the social services, you've been pawning some of those responsibilities on us lately.
Mr Carr: I know it's outside of the mandate, but being a municipal politician, just because you have mentioned that issue, what's happened in some provinces, for example, Alberta's tightened up the social assistance and people have just moved to BC, very simple. We have transferred it. Do you think Ontario should do the same thing as Alberta's done?
Mr Lalonde: I'm sorry, I don't know the politics outside of the province so I'm not prepared to answer that one.
Mr Sutherland: I'd like to just make a few general comments. First of all, I think we'll be able to help municipalities predict what they're getting from us when we're able to predict our own revenues. As you know, in the last four years, the revenues clearly have been anything but certain. That needs to come into effect.
Mr Carr raised the point about having to go into debt to carry out some of the infrastructure programs, but debenturing for capital projects is something municipalities have done in this province for many years, so it's not something new, debenturing for capital.
Just the other comment too, a couple of you have mentioned about social services. I do want to remind you that there was a deal between AMO and the province to deal with a substantial amount of social services, general welfare, the disentanglement deal that had been negotiated and unfortunately was turned down by municipalities despite the fact that their representatives had negotiated on that behalf. So efforts have been made to try and take that off the property base.
My question is, in terms of more specifics about roads and bridges, from your sense -- I know I have a couple of townships in my riding that have a significant number of older bridges that were built in the 1935-40 period that now need replacement. I'm just wondering whether you have any advice to the ministry as to whether that's a consistent problem across the province, and in terms of looking at how the ministry is funding, whether maybe the overall amount is the same but more should be allocated to do bridge replacement rather than specifically to roads. I was wondering if any of you had any specific comments on that.
Mr Silgailis: As I pointed out, the Ministry of Transportation is reviewing its allocation formula and approach and we will be working with it. As far as whether more should go to bridges or roads, our position's been more in regard to giving more autonomy to the municipality to make the decisions. We certainly are very interested in receiving adequate funding, but as far as the decision-making process, whether it should go to bridge replacement or road replacement, that should be left at the local level.
Mr Sutherland: I understand that the way the infrastructure program is operating in Ontario, it is municipally driven in terms of establishing what the priorities are against broad criteria.
Mr Silgailis: That's correct. Money has been allotted now. There will be a screening process for the projects, but it'll be municipally driven, yes.
The Chair: Thank you for your presentation.
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ONTARIO NATURAL GAS ASSOCIATION
Mr Paul Pinnington: I am Paul Pinnington, the president of the Ontario Natural Gas Association. Accompanying me is Mr Gary Lowes, the chair of the association's finance committee. He is also the senior director, management information systems and corporate development, for Centra Gas Ontario. On my right is Mr Bernard Jones, president of Blue Apple Consulting, and a resource person to the association.
We are pleased to be with you today, and thank you for including the association in these important proceedings. This is the eighth consecutive time that we have appeared before this committee, and we respect and appreciate this opportunity.
On behalf of the members of the association we have prepared a discussion draft entitled Economic Recovery and Income Rebuilding, Not More Taxes or Tax Reform. This text has been distributed to members of the committee. Mr Jones has prepared an overview of the paper which he will take us through. I propose that my colleagues and I would respond to questions at the conclusion of Mr Jones's presentation.
The paper, along with a copy of Mr Jones's overheads, have been provided to the clerk and the representative of Hansard. Additional copies of the paper are available to interested parties. With your permission, Mr Chairman, I'd ask Mr Jones to proceed.
The Chair: There is one problem, I must say. If you are required to speak, Mr Jones, it makes it very difficult because Hansard will not be able to pick you up. So we're going to get you a mike.
Mr Bernard Jones: Thank you. In past submissions to the standing committee, the Ontario Natural Gas Association has focused on policies to strengthen the Ontario economy, and we've dealt with issues like economic growth, budget deficits, that kind of thing, and looked at issues, including productivity and budget deficits.
This time, there seems to be a great interest in the level of taxes in the economy and the impact that possible tax changes could have on economic growth. As you know, the federal Minister of Finance is visiting various regions of the country and discussing with participants in conferences what the options are for fiscal changes, including taxation. So it seems to be on everybody's mind, and we thought it would be interesting and useful to put forward some of our views on taxation.
We picked this title for our document, Economic Recovery and Income Rebuilding, Not More Taxes or Tax Reform, simply to focus on the fact that we feel that what the economy needs more than anything is improved consumer and business confidence and longer-term stability, not more taxes or tax changes.
In the work that we did for the Fair Tax Commission and put before it, we identified what we felt were some useful principles for guiding fairness in distributing the cost of government.
The first principle was improved economic performance and competitiveness. The second was that there should be no increase in the overall tax burden. The third was that there should be no increase in the number of taxes. Fourth, there should be a focus on increasing the visibility of the costs of the services provided to the public and on user-pay. Fifth, there should be a priority to horizontal equity over increased vertical equity in taxation. Sixth, there should be vertical equity reflecting the true costs of services and benefits and, seventh, any major new taxation initiatives should be joint federal-provincial actions. We can discuss obviously any of those areas as we move along.
We took a look at the Fair Tax Commission report. Our preliminary assessment is that despite the fact that the Fair Tax Commission has recognized the importance of the economy and reviewed the issues that taxation raises for economic performance, in reality, economic efficiency and concerns for the economy take a back seat to tax reform per se, to tax progressivity. In terms of tax neutrality, if the proposals of the tax commission were implemented, it would amount to a major increase in the overall tax burden. In terms of the number of taxes, the implementation of the proposal would amount to a proliferation in taxes and fees.
In terms of user-pay, the focus is too narrow because it's focused principally on environmental fees and not really on the broader question of how one uses the user-pay approach to improve the visibility and awareness of costs to users of government services, not an easy issue but nevertheless one that has to be dealt with.
The question of equity, vertical equity particularly: The thing that worries us is that the past achievements that have been achieved in income redistribution are not really addressed in the report. The report seems to take the position that we're starting from scratch and that we have to start building progressivity into the system, without actually documenting the extent of redistribution that occurs at the present time.
In the document that we gave you and in one that we put before the tax commission, we used Statistics Canada data to show that there's an extensive amount of income redistribution occurring when you look at income tax and transfer payments combined. We've just used one number in the document you have. It shows, for example, that if you take the richest income group and the poorest income group, before tax, the ratio of the rich to the poor is 19 to 1. After tax, it's 5 to 1. Now, you may argue that 5 to 1 is still too much of a disparity. The point is, the system does work. The question is, does it work well enough?
As far as federal-provincial coordination is concerned, it's also worrying to us that there's nothing original in terms of how the federal and provincial governments can better coordinate the development of taxation policies. Clearly, as the report recognizes, the federal government has a major influence on the ability of Ontario to implement reforms. So our assessment was that the Fair Tax Commission report really did not meet the kind of test that we would apply. Now, perhaps there are others who would apply different tests.
Turning to the economy, we believe that the number one priority must be global competitiveness. It's true that the economy is undergoing economic recovery, and we hope it will continue. In fact, we believe it will continue. But at the moment, if you look in global terms, it's primarily a North American recovery. Japan and Europe are still very much in recession. In fact, conditions are worsening there. We can expect that from a cost point of view and in terms of trying to deal with their unemployment problems, they will try to become more competitive in the North American economy, which means that Canada is going to have to be even more awake than in the past in the NAFTA context.
Despite the large tax increases imposed during the past decade -- and if you look at those tax increases, they really are quite staggering, both in absolute number and in the billions of dollars added to government revenues -- as you well know, public debt, borrowing and deficits are major obstacles to economic recovery. It's our feeling, certainly the feeling of the members of the association, that the tax burden should not go higher.
We wanted to make a note here as well that in the Fair Tax Commission report there are several statements to the effect, either by the commission or quoting hearing participants, that the purpose of the tax system is to eliminate poverty and to deal with the problem of low incomes. It's our position that obviously these problems have to be dealt with, but it's not the job of the tax system to do it, that the solution to those problems lies with economic growth, not simply with the redistribution of income.
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Looking at tax progressivity, which is the principal focus of the work certainly of the tax commission and many advocates of tax reform, the OECD countries, and this includes Canada, during the 1980s implemented a wide range of reforms. Every single one of those reform exercises that you investigated had fairness as a key priority, a key objective. We don't believe that tax equity as such took a back seat to other aspects of reform during this period.
As I mentioned before, we feel that the recent work on tax reform has ignored the fact that income redistribution is already accomplished to a considerable degree in the current tax transfer system. Unless we come to understand what that level of support is, it's very difficult to decide whether or not you need more or less.
The third point is that the tax commission evidence is largely rhetorical and there's a lot of supposition in it. I've read the thing closely, I know a fair amount about taxes and I think if you -- several of the commission members voiced concern along these lines too. There are serious problems with the research. Just to give you some examples: You look at various percentiles of the income distribution and it's assumed that the people within those percentiles are all homogeneous, and they're clearly not. If you don't understand who occupies the various percentile income groups, your conclusions on progressivity will be wrong.
There are lots of examples where -- for example, subjectivity. A lot of the conclusions seem to be drawn out of subjective analysis rather than hard facts. Nevertheless, it is a lengthy document and it's easy to criticize, but we think these are two fairly serious weaknesses of that document.
The tax commission recognizes that cost-effective tax administration and compliance is very important. Nevertheless, it recommends more taxes: a national wealth tax, new payroll tax calculations, a new carbon tax, new vehicle registration systems, a new environmental tax, new and intricate user fees, new environmental excise taxes, restructured property tax assessments and so on. All of those changes to us imply a real risk of a major increase in the administration and enforcement in client costs of the system. These are costs to government and to people who have to collect, remit and file their tax returns.
Two examples, incidentally, of tax-related systems that are in need of major administrative improvement right now: the GST, where the collection is way behind, and the OHIP registration system. The Ontario Natural Gas Association, as you know, represents energy providers and consumers of natural gas and is interested in the energy recommendations of the Fair Tax Commission. The Fair Tax Commission proposes harmonizing the goods and services tax and the provincial retail sales tax. It also proposes the carbon tax, a tax on ozone-depleting substances and a broadening of the tax for fuel conservation.
Our reactions to those proposals are, first of all, as we have suggested almost since we've been making submissions to the standing committee and certainly since the GST has been in effect, we have recommended harmonizing the two taxes, but we feel that if it is harmonized, then residential energy should be exempt from the tax as food is, that it is as much a necessity. We feel that Ontario, from the point of view of economic competitiveness and other reasons, should avoid a provincial carbon tax.
I might put two "ifs" in. If it could be shown that global warming is really a problem and if it could be shown that the carbon tax was the correct instrument to apply to solve the problem, then it's our feeling that such a tax would have to be applied at least on the North American level to make sense for this province and for Canada to participate, that it's very dangerous to move on the provincial level.
As far as the tax on ozone-depleting substances, you will have noted in the report that the commission itself recognizes there are protocols that indicate these substances are going to be regulated out of use over the next few years. So it would seem a little bit incongruous and inefficient to impose a tax at a time when you're going to regulate the problem away.
The last point I'd like to make is in terms of the overall approach on energy. There are tax expenditures, as you know, and our feeling is that it's useful to continue to support alternative fuel vehicles such as natural gas vehicles. They are highly energy-efficient and have low emissions. So there are other ways of trying to deal with environmental problems.
Very quickly, as far as federal-provincial taxation goes, we view this obviously as a pretty serious area of concern for the government of Ontario and for the standing committee. Most of the proposals made by the Fair Tax Commission require federal agreement to implement. It is our feeling that there are more important federal-provincial priorities that should be addressed: One is a national debt-reduction strategy -- we need something along those lines; we need elimination of costly duplication of federal-provincial services and programs; we need a more equitable fiscal arrangement -- that is, sharing the responsibilities and the resources to meet those responsibilities; and we need to restore confidence in public administration.
We had proposed previously, and we'd like to repeat here, that there is a need for some kind of national forum for deciding taxation goals and strategies so that we avoid tripping over each other in terms of jurisdiction.
To conclude, we feel that economic recovery and income rebuilding, not more taxes or tax reform, are the way to go. We think the upcoming provincial budget should focus on making the public sector in Ontario leaner and more efficient and not on providing it with more resources to do more things. Thank you.
Mr Carr: Thank you very much for a good presentation. With regard to the taxation situation, as you know, this committee will form a recommendation. Would you support a recommendation to the government to freeze taxes and any new fees that the province collects in the upcoming budget?
Mr Pinnington: I think the answer to that is yes. With respect to fees, I think it's probably opportune at this time to indicate to you that certainly a number of our members -- I'm not so sure about other jurisdictions, but we've experienced some immense increases in fees in the past six months or so, orders of magnitude where we paid something in the order of $6,000 for a right-of-way fee to the Ministry of Transportation and that number now I think is around $120,000. We're experiencing these consistently.
We wrote the Premier with regard to this. We had been advised this was a cabinet decision. We subsequently received a letter from the Minister of Consumer and Commercial Relations, the Honourable Ms Churley, indicating that there was nothing they could do, that this was part of the process. User-pay was the signal that we got. We've had them now from MCCR and from the Ministry of Transportation and we're trying to make an assessment of what the total implications are, but the order of magnitude is immense on these licensing fees.
Mr Jackson: It's passed on to the consumer.
Mr Carr: As my colleague says, obviously that gets passed right on to the consumers.
Just what transpires of course is that governments like to say that user fees will come in, and that would be great if other taxes got lowered. They don't. That's the problem. If you ask the public, they say, "Oh, yes, we're in favour of more user fees; the people who use it should pay." No government has been able to reduce taxes -- and I don't even think it's the politicians who do it. Quite frankly, I think it's the bureaucrats who tell them what to say and the lingo to use, because all three parties have been guilty of doing that. That's the big problem with the fee structure, and that's why I think you're going to see more increases in fees.
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I want to tell you, something as simple as the corporate filing fee has done more to discourage business than anything else in this province. I have never seen more anger. It's the silliest thing, it's only 50 bucks, and of course they said it would be a one-time and then it wasn't. I've never heard more anger come out of people over what I guess some bureaucrat originally thought was something simple, "Here's a quick $10 million, $20 million, whatever we can make." They're absolutely furious. It's the straw that broke the camel's back, because it goes hand in hand and deals with the expenditure side.
We have not had a comprehensive review with public input to the reviews that are necessary. What has happened, as you know, is that as the revenue goes down, the Treasurer goes back and says: "We're going to cut x amount to keep it at $10 billion and you're going to cut and that's it. If the revenue goes down more we'll cut more, and if it doesn't we won't."
I think we need a comprehensive strategy to look at the review of spending, to look at social assistance reform and all the other things that are in there.
What we've called for, and what I'd like to see, is the equivalent of a fair expenditure commission that looks at the expenditure side and may include everything in health care. Would you support something like that where we look at the provincial government's spending, instead of doing it the way it is now where our revenue drops and the Treasurer comes in to each ministry and says, "Boom, you're going to get x amount"? Would you like to see the public involved? Maybe you could just let us know how you see that working if the public did get involved in a comprehensive review of spending.
Mr Jones: In principle I agree, because obviously there are two sides to the same question. There's spending and there's revenue, and the only purpose of raising revenue is to fund legitimate spending that society wants and can afford.
As far as the process, one of the difficulties with the revenue process we saw through the Fair Tax Commission was the fact that because it was a provincial review, it suffered from the fact that it didn't have a federal input and consequently a lot of the proposals, whatever their merits, would require federal review and federal support for implementation.
Whatever process was set up to review spending, I think it would be helpful to have some kind of a federal-provincial input into that. I'm not sure at what level that begins, but it would be opportune, because there's an interest, I think, in taking a new look at the way responsibilities are split between the federal and provincial governments, and also the opportunity for adjusting revenue sharing. The two sides go together. Do the provinces, for example, take over the income tax and the federal government take over the sales tax? It's that kind of dimension. You really have to begin to think in those fundamental terms, matching the revenues more with the responsibilities.
Mr Carr: I agree, and we have heard the Premiers and the new Prime Minister talk about better federal-provincial cooperation like that. Over the next few years, do you think we'll see it?
Mr Gary Lowes: We're optimistic.
Mr Pinnington: I'm not so sure it's a question of whether we think we'll see it or not. I think we've reached the stage where it's a necessity. I expect that we can't proceed much longer with the sort of indifference to what the other fellow's doing.
I think I'd like to pick up one other aspect of this question. I think what we're talking on the expenditure side is the accounting process. We would certainly be supportive of opportunities, and I think we consider this an opportunity in fact, to discuss kinds of spending and where moneys go. I guess we see ourselves participating in a public forum by being here, but there's also an internal process within government. The Management Board of Cabinet of course has an accounting responsibility. I wonder if maybe to some extent there might be a more public opportunity in that regard in terms of examining how expenditures are being made. Most especially, we're moving even more into this question of licensing fees and fees for service where those who are paying for the services should have some opportunity to discuss the costs that they're being charged.
Mr Sutherland: I guess now that we have a federal government that's willing to work with some provinces, as we've seen through the infrastructure, we might be able to make some more progress on these other issues of concern about overlapping responsibilities and duplication of resources.
Watching your presentation and your slides, I did think, when you talked about increased tax enforcement and compliance -- you didn't list the ones, though, that they say to delete, for example, the municipal business tax, and there were other examples in the Fair Tax Commission of taxes that would be deleted under some of the changes. In terms of gaining a perspective, we need to put both up and see where the pros and the cons come up.
The surprising recommendation, though, on your slides that really caught my attention is that the natural gas association wouldn't be supportive of a carbon tax. Maybe you'll have to bring me up on my science. I thought natural gas was a much cleaner fuel in terms of the amount -- maybe you can help me on what the carbon content is in natural gas versus other types of fuels etc. It seems to me that one of the marketing strategies of selling natural gas is how much cleaner a fuel it is.
I understand your point about whether it should be federal or provincial, and one of our forecasters, Michael McCracken, I think agreed with you that fossil fuel tax should probably at the minimum be done at a federal level. But I'm surprised your sense seemed to be opposed to the general concept of a carbon tax.
Mr Lowes: Without getting into the engineering, because I get too deep into it, and carbon, obviously natural gas is the least carbon-intense fuel, compared to oil and other fuels. Our problem with it is as much with economics as with the fuel aspect, because you have to have a level playing field for economic purposes for industries. We serve the north and we're very concerned with the industries in the north and being able to survive, and it's important for them to be competitive. If you introduce taxes that aren't held North America-wide, you have that competitive edge that may go somewhere else. That's part of our point with the carbon tax.
You're quite right; we're very much encouraging the use of NGVs because of that carbon aspect. We're very afraid if you introduce a tax for the wrong reasons and not understand the ramifications on the competitive side -- again, we're comparing -- and then compete against electricity, electricity does not have probably the same tax structure. We're concerned by that. You're quite right that NGV and natural gas is preferred fuel.
Mr Sutherland: What if the recommendation had said you take all the taxes you have on energy and add up the amount, say on a national basis, and you use that as the starting point for how you define what your carbon tax would be? So rather than necessarily adding on, you're going to replace your existing energy taxes on the basis of its environmental friendliness, I guess, and use that as the guide, so those that are more environmentally friendly would have much less tax; those that cause a greater damage would have a much higher level of taxation.
Mr Pinnington: Let me just make an observation. In terms of competitiveness of manufacturing industry: For example, in the province of Ontario, if we had a carbon tax, regardless if it was a weighted average or however you tried to make it more fair, you find yourself in a situation where you're penalizing Ontario industry, and Ontario industry already feels it's paying more than its fair share in terms of taxes. We are having difficulty competing with industries in the United States, so that's a problem.
The other question in terms of carbon tax is, we feel that energy use by home owners is as much a necessity as shelter and food and it should not be taxed in that regard as well.
Mr Kwinter: In your presentation you say that the per capita public debt is escalating to unheard-of levels, indicating that society cannot afford the existing levels of services, and by implication I assume you mean the services should be cut back. I think many, if not most, people might agree. The question is, which services?
The presenters just before you, the good roads association, felt that there should be some reprioritizing of our expenditures and they were calling for cuts in the social services sector. I'm sure that if the social services sector were sitting here, they'd be saying: "Why are you investing in things and not in people? Cut the amount of money you put into things and put more money into people." How do you reconcile the fact that everybody feels it's okay to cut, as long as it isn't my particular area you're cutting? And how do you do it even if you call a federal-provincial conference to decide it, because each region has its own priorities. One priority in the Maritimes would be totally inappropriate, say, in Ontario or other places. How do you deal with that?
Mr Jones: That's part of our problem. The reality is that it's elected representatives in the end who carry the final responsibility for those decisions. You listen to views from all sides, you get pulled in all different directions, but in the end, that responsibility rests with the elected representatives. Various groups will provide advice on where they think cuts should be made. I suppose few would offer up cuts out of their own pockets. There's no easy answer. So far, it's been easier to raise taxes than to cut spending. I think everybody understands that.
If you believe you've reached the limit of increasing taxes and if you believe it's important to get the debt down -- and the numbers are staggering. The Canadian Tax Foundation data suggest that Argentina, Brazil, Mexico, Poland and several other what we call less-developed countries have a lower debt burden than Canada, whichever basis you look at, and that in terms of the developed countries, I think only Italy and Belgium have a worse debt-to-GDP ratio. Only Italy has a worse debt-to-export ratio and no developed country has a worse ratio of interest payments to exports.
We're in trouble and this is one of the reasons the federal minister is wandering the country seeking advice. But in the end, the federal government will have to make to involve pain for some groups. I suppose to ask people its decisions and make its best judgements and it's goingto altruistically volunteer up their piece of the pie -- it's tough.
Mr Pinnington: Maybe in partial response to Mr Kwinter, I took some satisfaction to your saying everybody is saying, "Not me", so we're all in this together. Maybe what you need to do is call these people in and say, "Give us a list of your priorities and we'll take the one off the top or the one off the bottom or whatever," so that everybody has to give something up.
Mr Bruce Crozier (Essex South): Just a quick comment. I skipped ahead in your report and glanced at your comments regarding the proposed tax changes. On page 21 under the Fair Tax Commission's proposal about taking the education tax off residents and having a common commercial-industrial tax across the province, your comment was that, "Such a major reform at this time would be extremely disruptive."
I guess my comment more than anything that you may have something to say about is, when is the right time for a major disruption? I recall municipally when we usually get the answer, it's, "This just isn't the right time to do it," and it seems to acknowledge that we have a system that has a large disparity in it, but we just don't know when to fix it. I think these are the kinds of things we have to, much the same as you've said, call everybody in and say, "It's time to bite the bullet." I think that may be the case on those kinds of things as well.
Mr Jones: I agree.
The Chair: I thank the Ontario Natural Gas Association for making its presentation before the committee this afternoon.
The committee adjourned at 1704.