PRE-BUDGET
CONSULTATIONS
ONTARIO MEDICAL ASSOCIATION
ONTARIO NATURAL GAS ASSOCIATION
ONTARIO FEDERATION OF AGRICULTURE
CANADIAN ASSOCIATION OF RETIRED PERSONS
ONTARIO PUBLIC HEALTH ASSOCIATION
ONTARIO CONFEDERATION OF UNIVERSITY FACULTY ASSOCIATIONS
COMMUNITY ESL COORDINATORS' COMMITTEE OF GREATER TORONTO
MEDICAL REFORM GROUP OF ONTARIO
CANADIAN MENTAL HEALTH ASSOCIATION, ONTARIO DIVISION
CONTENTS
Wednesday 14 February 1996
Pre-budget consultations
Ontario Medical Association
William Orovan, honorary treasurer
Ontario Natural Gas Association
Paul Pinnington, president
Bernard Jones, consultant
Janet Woodruff, chair, finance committee
Ontario Federation of Agriculture
Tony Morris, president
Canadian Association of Retired Persons
Lillian Morgenthau, president
Hugh Mackenzie
C.D. Howe Institute
Bill Robson, senior policy analyst
Ontario Public Health Association
Mary Martin-Smith, president-elect
Winston Miller, president
Peter Elson, executive director
Ontario Confederation of University Faculty Associations
Michael Piva, president
Marion Perrin, executive director
Eli Lilly Canada
Terry McCool, vice-president, corporate affairs
Community ESL Coordinators' Committee of Greater Toronto
Yi Man Ng, member
Anna Henderson, member
Katrina Grieve, co-chair
Medical Reform Group of Ontario
Ahmed Bayoumi, member, steering committee
Canadian Mental Health Association, Ontario Division
John Kelly, president
Colin Young, board member
Glenn Thompson, executive director
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président: Chudleigh, Ted (Halton North / -Nord PC)
Vice-Chair / Vice-Président: Hudak, Tim (Niagara South / -Sud PC)
Arnott, Ted (Wellington PC)
*Brown, Jim (Scarborough West / -Ouest PC)
*Castrilli, Annamarie (Downsview L)
*Chudleigh, Ted (Halton North / -Nord PC)
*Ford, Douglas B. (Etobicoke-Humber PC)
*Hudak, Tim (Niagara South / -Sud PC)
*Kwinter, Monte (Wilson Heights L)
Lankin, Frances (Beaches-Woodbine ND)
Martiniuk, Gerry (Cambridge PC)
Phillips, Gerry (Scarborough-Agincourt L)
Sampson, Rob (Mississauga West / -Ouest PC)
*Silipo, Tony (Dovercourt ND)
*Spina, Joseph (Brampton North / -Nord PC)
*Wettlaufer, Wayne (Kitchener PC)
*In attendance / présents
Substitutions present / Membres remplaçants présents:
Bassett, Isabel (St Andrew-St Patrick PC) for Mr Arnott
Carr, Gary (Oakville South / -Sud PC) for Mr Sampson
Crozier, Bruce (Essex South / -Sud L) for Mr Phillips
Marland, Margaret (Mississauga South / -Sud PC) for Mr Martiniuk
Martin, Tony (Sault Ste Marie ND) for Ms Lankin
Also taking part / Autres participants et participantes:
Fisher, Barb (Bruce PC)
Gerretsen, John (Kingston and The Islands / Kingston et Les Îles L)
Hampton, Howard (Rainy River ND)
Hoy, Pat (Essex-Kent L)
Clerk / Greffier: Carrozza, Franco
Staff / Personnel:
Drummond, Alison, research officer, Legislative Research Service
The committee met at 0930 in room 151.
PRE-BUDGET CONSULTATIONS
ONTARIO MEDICAL ASSOCIATION
The Chair (Mr Ted Chudleigh): I'd like to wish everyone a very pleasant Valentine's Day. I hope everyone has had an opportunity to buy their gifts, or they can go out at noon today, like myself, and buy some gifts.
We have before us today the Ontario Medical Association. We have half an hour together, gentlemen, which you can use for a presentation, or you can use any part for questions as well. Identify yourself, please, for Hansard. Welcome to the committee
Dr William Orovan: My name is William Orovan. I'm a urologist from Hamilton. With me is Mr Boris Kralj from the department of economics at the Ontario Medical Association.
On behalf of the Ontario Medical Association, I wish to thank the standing committee on finance and economic affairs for permitting us to make this presentation today. The physicians of Ontario and their representative association, the Ontario Medical Association, understand the very real fiscal difficulties in which the province of Ontario finds itself in 1996. The physicians of Ontario also understand that expenditures by the Ministry of Health constitute over one third of total provincial government spending.
The Ontario health insurance plan, OHIP, provided by the government of Ontario and indeed other government sponsored health insurance plans in other jurisdictions across Canada, represent the most popular entitlement programs to the citizens of Canada and Ontario. These programs, in many cases the envy of the world and certainly far superior to those offered in the United States, are nevertheless costly and there's a real question regarding sustainability of this program in Ontario, given the tight financial constraints, a growing and aging population, and increasing costs related to utilization of advanced medical technologies.
While the physicians of Ontario understand the necessity of fiscal responsibility and efficiency, they are very concerned that decisions made with respect to funding of our health care system should be based on factual evidence and not individual opinion, or made with the interests of patients and the provision of quality services, and not motivated simply on the basis of cost reduction and, as well, recognize the significant contribution and participation of the medical doctors of Ontario.
I would like to review some of the basic facts on the level of medical service costs and on factors driving their growth. Government spending on physician services totals approximately $3.944 billion in Ontario annually. This expenditure constitutes about 9% of total provincial program spending and a stable 22% of the total health care budget. This spending provides about 11 million Ontario residents with all the medical services they need and demand.
The population of Ontario receives its primary care physician services, that is, services provided by general practitioners or family doctors, at a cost to the government of 41 cents per day per person. Similarly, the residents of the province receive all of their physician services at a cost to the treasury of 98 cents per day per person. On a comparable basis, the treasury spends more than twice as much on social services, more than twice as much on education and training, more than twice as much on interest payments on our debt.
Under the provisions of the social contract, total spending of medical services has been capped for the 1993-94 to 1995-96 fiscal period. Currently the fee-for-service cap stands at $3.8 billion. Any payments to doctors in excess of the cap are recovered on a dollar-for-dollar basis through clawbacks.
I draw your attention to the penultimate page, figure 1, which demonstrates how, since 1993-94, fee-for-service payments to physicians have been capped -- 1994-95 and 1995-96 -- at $3.804 billion. During that time you can see how the population of Ontario has increased from 10.5 million to 11.3 million and, in addition, how actual billings have increased mirroring that population increase, but are clawed back on a dollar-per-dollar basis from the physicians of Ontario. In effect, doctors have been forced to provide these services to their patients and the government for free.
The burden of rising medical service utilization, which is due mostly to an expanding and aging population, government-initiated program expansions in dialysis, cardiac surgery, changes in epidemiological trends, shifts in the burden of care into the community as hospitals downsize, and a more informed patient population with higher expectations, when combined with the hard cap on total spending, has been shifted solely on to the backs of physicians. It is unreasonable and unacceptable, I would submit, to hold doctors entirely accountable for utilization growth since the vast majority of these contributing factors are beyond the direct control of individual physicians.
In recent statements during Bill 26 hearings, the Health minister stated that over the past few years the increases in utilization have been uncontrolled. The medical profession believes that utilization growth is far from uncontrolled, especially given government actions in certain areas, namely, new program introductions and expansions, and inaction in some other areas. Government-initiated expansions of cardiac surgery, dialysis, mental health, immunization and cancer treatment programs, while laudable, have not incorporated funding provisions for the additional physician services that are concurrently required. We know, for instance, for one additional cardiac operation, the additional fee-for-service payments to ancillary physicians, $10,000 per patient. None of this was reflected in the additional program funding for cardiac surgery.
The government has failed to introduce new photo-ID cards, failed to establish effective public education campaigns on responsible use of the health care system, and has failed to remove marginal services from OHIP coverage, to name a few.
During 1980-81 to 1990-91 decade, overall utilization of medical services increased at an annual rate of 5.5%. Since the implementation of agreements, binding agreements between the province's doctors and the government in 1991, there's been a marked reduction in utilization growth. Since fiscal 1990-91, utilization has risen at an annual rate of 2.5%, less than half the previous decade.
Utilization per capita, that is, utilization growth after adjusting for growth in the Ontario population, increased at an annual rate of 4.1% during 1980-81 to 1990-91. However, since 1990-91, utilization per capital has risen at an annual rate of 1.1%. You can see that depicted in the overhead.
In addition to an increasing population, Ontario's residents are also growing older. The population of elderly Ontario residents, those individuals who are 65 years of age and older, is growing at a much faster rate than the overall population. Since 1981, the overall population has been growing at an annual rate of 1.8%, while the elderly population has been growing at an annual rate nearly double that, 3.2%.
The average cost of providing medical service to older patients is significantly higher than for younger patients. For example, the average per-patient physician services cost for those in the eighth decade of life, 70 to 79, is about $770 per year. The comparable physician services cost for patients in the fourth decade of life, 30 to 39, are much less, half, $390. The Ontario Medical Association estimates that population aging adds, all else remaining the same, almost 0.5% per year to utilization growth.
To summarize, over the past four fiscal years, medical services utilization has increased at an annual rate of 2.5%. After one accounts for growth in the population, this rate declines to about 1.1%. Further, after adjusting for the effect of population aging, this figure falls further to only about 0.6% per year. Most of the remaining growth can be attributed to changes in epidemiological trends, for example, the prevalence of the HIV virus, technological advances in medicine, cost shifting, hospital downsizing and more informed patients with higher expectations.
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The impact of government budgetary constraints on the medical profession has been significant. Since the 1987-88 fiscal year, average inflation-adjusted earnings, or real earnings, of Ontario doctors have decreased by 10%. During this same period, average real earnings by industrial workers, measured by the average industrial weekly wage in Ontario, increased by almost 5%. After adjusting for increases in the cost of living, average earnings of Ontario physicians are at about the same level as they were in 1985.
Statistics Canada, for the period 1987 to 1992, the most recently available figures, indicates the average medical practice overhead expenses for Ontario physicians have increased in every year. Currently, it is estimated that average overhead expenses for all physicians amount to between 40% to 45% of their gross OHIP billings, depending on the kind of practice. The overhead expense ratio for general practice, for instance, or family doctors, is estimated to be even higher, 45% to 50%.
Overhead expenses include such items as office space rental, employee salaries and benefits, medical equipment and supplies, and malpractice insurance costs. Additionally, a physician must purchase his own retirement benefits package, that is, life insurance, long-term disability, dental, extended care, retirement plan.
Rising practice overheads coupled with diminishing physician payments are having spillover effects on employment levels in general in Ontario. One fact that is almost always ignored is that Ontario physicians directly employ approximately 50,000 people in the province. Progressively increasing numbers of doctors will have to cut back on staff employment to accommodate the new fiscal constraints.
The average annual gross OHIP billings by Ontario family physicians is about $150,000. That's gross. After adjusting for practice overhead expenses, that leaves a net before taxes of $85,000. This is equivalent to the average salary of mid-level managers in private sector organizations. It is not excessive.
The reality regarding physician incomes is much different than what is often portrayed by government and the media.
Finally, it should not be forgotten that since the imposition of a hard cap on total physician spending in 1993-94, Ontario's physicians have provided about $800 million in free services -- the disparity on the first graph -- to their patients and to the government. This translates into an average of $40,000 worth of free services, or sacrifice, per physician.
Conditions consisting of the opposing pressures of decreasing resources and rising demand for medical services that have prevailed over the past few years have created a situation of crisis in terms of quality of patient care and physician morale. The previous government's social contract and the current government's Savings and Restructuring Act only serve, unfortunately, to exacerbate this already serious situation.
One manifestation of morale problems is the rising outmigration of physicians from Canada and Ontario. Since 1988 the number of Canadian doctors leaving for the United States and receiving permanent resident status has been on the rise, having increased by a total of 245%, or by 28% per year on average. Data for 1994 indicate that for every four physicians who leave only one returns. This ratio is even higher, eight to one, in gynaecology and anaesthesia specialties.
In 1994, a total of 345 doctors left Ontario to practise abroad: 151 family doctors and 194 specialists. Given that Ontario universities produce just 600 new medical graduates each year, this is the equivalent to losing more than one half of our annual graduates.
A survey of public opinion conducted by the Angus Reid Group on behalf of the Ontario Medical Association indicates that 78% of Ontarians believe that the changes proposed in Bill 26 will have negative impacts on the quality and accessibility of health care services in their communities. In fact, 50% of the public believe the impacts will be very negative.
Additionally, almost 80% of Ontarians feel that these negative consequences on the health care system are too large a price to pay for reducing the government's deficit. Pain and suffering, illness and disability, do not recognize the business cycle nor warnings of changes in debt rating, and those who are unfortunate enough to become ill during such periods should not be asked to shoulder this burden as well.
With increasing frequency, Ontario residents are experiencing difficulties in access due to hospital downsizing, lengthening waiting lists and communities losing physicians. In addition, physicians and their patients are finding it more and more difficult accessing new health care technologies. There are emerging quality problems and concerns. Health care systems already suffered very large cutbacks in the last few years. These cutbacks have taken place without effective evaluation of the impact they are having on quality and access to care.
The OMA's concern is that government will curb health care expenditure growth in a way which will compromise quality of care by ad hoc restrictions on supply. This is already apparent from hospital closings and statements of physician oversupply. Pursuing such a strategy will necessarily restrict access to needed care. Without going into the details, I can say that the current government physician supply targets are very dated and, we feel, based on flawed methodology.
Government should refrain from spending its limited health care dollars on programs and other initiatives that have not been solidly demonstrated to be cost-effective. The process of reforming the provision of health care in Ontario must be done on the basis of objective and clear evidence and thoughtful planning which protect patient access to health care and the quality of health care.
The use of expenditure caps to meet government fiscal targets cannot be sustained indefinitely. The diversity in that graph I showed you in the first case cannot continue indefinitely. It's unconscionable that government abrogate its responsibility to the public by relying upon reductions in payment for services consumed in the health care system. Health care delivery in Ontario cannot be determined more by budgetary priorities than the actual health care needs of the population.
Recognizing the economic pressures faced by the government of Ontario, the medical profession is not confident that the province can maintain the level and quality of medical care required to meet current patient needs.
The Chair: Thank you very much. We'll move to question period. What I'm going to do, with your approval, will be to divide the question period into three, and we can each have another question if the third party doesn't appear before the appropriate time. Is that acceptable? Thank you. We'll start with the opposition.
Mr Monte Kwinter (Wilson Heights): Thank you very much for your presentation. What is your prognosis as to where the medical profession is going to be in the next three or four years if the government's policies are really carried out?
Dr Orovan: I'm very worried. I think the morale of the medical profession in Ontario is at an all-time low. I've been in practice now for 17 years. We have weathered difficulties in the past. We have not always had sanguine relations with government, but I have not seen as difficult a situation for the profession as I see now. The demand for medical care is significant. The population is growing and aging. Physicians are being caught in a very difficult situation of declining resources and increasing demand. I anticipate, because of the situation in the United States, where it's particularly advantageous at the moment, particularly for primary care physicians, to emigrate, that we will lose more and more of our better primary care physicians. Medical school applications are down significantly and I expect that to continue, as medical practice is seen to be less and less attractive for new graduates. I am more than a little pessimistic, sir.
Mr Kwinter: I'm sure, as a medical practitioner, you followed the election campaign with some interest and what each of the parties was saying about their commitment to health care. The present government said it was going to maintain funding for health care. They are now saying that what they really meant was that the $17.4 billion that was allocated for health care would be the same amount in the final year of their mandate. Is that your interpretation of what you thought they were saying?
Dr Orovan: Certainly in the interim we are seeing things that differ from that: $1.3 billion is being taken out of the hospital portion, for instance. Whether that will be reinvested, I do not know. We certainly have seen very significant pressures brought to bear already on hospitals in Ontario. We are already, in Ontario, at the lowest bed-day-per-thousand ratio of any jurisdiction in Canada, yet we are being asked in the hospital sector to take out a further 18% over three years. Where or if that will be invested, I do not know, but in the interim we will certainly see significant problems in the hospital sector.
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Ms Annamarie Castrilli (Downsview): I wonder if I could continue with that just a moment. The government's position as has just been outlined by my colleague is that the money will be reinvested later on, so that at the end it will be the same amount for health care as it was at the beginning of their mandate. In the interim what happens? Suppose they reinvest it, as they say they will. Will the situation be improved, do you think?
Dr Orovan: At the moment, as more and more dollars are taken out -- these are not the first cuts to the hospital sector, but they are by far the most significant. To this point, at least, there are no community services available to pick up the slack. Hospitalization stays are going progressively down. In the last two years in Ontario, hospital stays were reduced by a total of one day, from 8.6 to 7.6. That's a very substantial reduction. Patients are being discharged into the community much sooner, and increasing contraction of the hospital budget will result in even more of that. At the moment, there are no parallel increases in community services to take that up, and so far as I'm aware there have been no announcements to suggest increased funding for these groups. Certainly taking it out of one sector and not reinvesting it in the short term is going to have significant impact.
Ms Castrilli: If services are cut back during the next three or four years, how easy would it be to reinstate them at the end of the period?
Dr Orovan: I suppose if one was going to give back money to hospitals, the bricks and mortar would remain. The trained people would not. That would be a problem. If one was talking about reinvesting it in other programs, there's certainly significant run-up time to get those programs operational. You need to acquire people, train people, and these are not things that can be done overnight. There are substantial lead times.
Mr Jim Brown (Scarborough West): I notice that on page 2 you recognize the problem with money, because you say we spend twice as much on interest payments on our debt as we do giving it to physicians. That goes a long way. That says a lot. On page 3 and on page 7 you refer to "removing marginal services" and you talk about "cost-effective." Could you give me some examples of what you mean, where physicians can save money and where we can help?
Dr Orovan: In talking about marginal services, the schedule of benefits of insured services in Ontario is some 1,800 items. We would like to see an effort made on the part of government, in cooperation with the medical association, to define core services. What are the medically necessary core services that ought to be covered by a publicly funded insurance program, and what ought not? There are several models by which that could be accomplished. People talk about the Oregon model, for instance. There are many methodologies for this. I think we're looking at a time of constrained resources, looking into the future. We need to back up a little and see what it is the government can afford to fund in a publicly funded system and what individuals should be permitted to acquire private insurance on their own to buy. That's a substantial area in which we might have some common interest.
In the area of efficiencies, these are more difficult. Already Ontario doctors are operating in a very efficient manner. In terms of health care expenditures across the country, we are fifth or sixth among the provinces. We have a large and very disparate population, we have a highly urbanized population, we have an aging population. So I think we've done well up to now to keep the rate of growth as we have, at 0.6%. Within the system itself, I think we've wrung out, from the hospital sector, from the medical care sector, virtually all there is to wring out.
Mr Jim Brown: How many doctors share in that $3.8 billion?
Dr Orovan: There are 23,000 physicians in Ontario.
Mr Jim Brown: About what does that work out to each? I'll do it.
Dr Orovan: Sorry, I don't have my calculator.
Ms Isabel Bassett (St Andrew-St Patrick): I'm from a medical family, so I feel right at home. Things haven't changed in 40 years, in a way. Maybe they're more intense now. Anyway, thanks for your presentation. I was going to pick up on the cost-effective thing Jim was talking about, but before that, I just want to make sure that the $17.4-billion envelope the government has promised -- they do intend to fulfil that. It's just that when you close something down or restructure, you can't immediately rush out and put the money somewhere else. As you yourself say in your presentation, you do want us to think carefully on the direction we're going.
The Minister of Finance sees this committee as a place to get new ideas. I was interested in your talking about the delisting on page 7. Are there other areas you could spell out, or is it worth sitting down, which we should be doing and we are doing. We want to work together with doctors, and we really mean that, because you just have to be in a crisis to know how important doctors are.
Dr Orovan: We think there are some other areas. For instance, we have proposed to government a very comprehensive primary care reform package. At the moment, primary care is delivered in not as systematic a way as we think we could. We may be able to see significant savings if we can agree on the kind of program we want to implement for primary care reform. We think there are some technology issues that need to be addressed; we think there are some potentials for savings there. Utilization is not solely a physician-based phenomenon. There's a demand side to it.
Ms Bassett: Following up on that, the smart card that the minister is working on -- it's one of your suggestions of course -- do you think that will reduce the use and --
Dr Orovan: Yes, I think that will eliminate some user fraud. User fraud has been an issue for some years now. Trying to get a handle on how much it really is has been very elusive, but the smart card will certainly go a long way towards doing that. As I said, there's a demand side to the equation. We need educational programs for proper utilization of the medical services system and we need to make patients responsible for their use.
One of the provisions in our particular model for primary care reform involves a process called patient rostering, where patients would be required to sign on with an individual physician and receive all their primary care from him or her for a specified period. We think that would eliminate frivolous visits to the emergency department, frivolous visits to limited-care facilities such as walk-in clinics. We hope the government will embrace ideas of that nature.
The Chair: Mr Silipo has informed us that he will be late, and he's walking into the room as we speak. Mr Silipo, your turn for questions has arrived.
Mr Tony Silipo (Dovercourt): I'll pass, Mr Chair. Sorry. I apologize for not being able to be here earlier, and Ms Lankin is not well today.
Mr Bruce Crozier (Essex South): Good morning, gentlemen. It was just mentioned about wanting to sit down and discuss the problems in the delivery of medical care in the province with the doctors. Can you give us some sense of what the dialogue has been in view of the fact that there have been some significant changes in the funding certainly of hospitals and health care in the province since last June? Can you give me some sense of where we are in the dialogue with doctors? Are you being listened to?
Dr Orovan: We have had the opportunity to meet on several occasions with the minister or his designated officials. Discussions have not always been smooth. There are some very difficult issues to address. We, speaking as a profession and as the professional association, have some issues which we feel need to be addressed if we are going to be able to work cooperatively with government and with the profession. To this point we have not been able to work out those details in a method that's satisfactory to the profession or to the association. We hope that will happen. We certainly very much want a constructive dialogue.
Mr Crozier: Your answer was very candid. At least you're meeting, and you would hope that somewhere along the way these rough spots would be ironed out and you will in fact be listened to.
Dr Orovan: That is certainly our hope.
Mr Douglas B. Ford (Etobicoke-Humber): Gentlemen, welcome. I've talked to approximately 20-odd doctors in my constituency office and down here at the park and there was a great deal of concern about doctors being, as they said, forced to move into the northern areas, towns and cities. What is your idea on that?
Dr Orovan: The minister has stated repeatedly both in the House and in the public press that he is concerned about what he perceives as maldistribution of physicians in Ontario. There are underserviced areas in the northern part of the province that require servicing. The total number of doctors required to meet the need, as outlined by the ministry, is about 180 doctors, that out of a population of 23,000. We are sympathetic to the need to relocate or to locate doctors in those areas. It's our overwhelming preference that this be done on the basis of incentives rather than forced relocation or forced location based on ministerial caveat.
Bill 26, as I'm sure you're aware, gives the minister the power to prohibit doctors from moving to areas in the province which are designated as overserviced and provides mechanisms for determining physician eligibility for the privilege of billing OHIP, which would give the minister even wider powers over locating doctors. We feel these powers are excessive. The minister has stated that he is willing not to invoke them for the moment, to see how some of the other programs that we might be able to agree upon would affect the problem. We hope he does that.
The Chair: I'd like to thank the Ontario Medical Association and Dr Orovan for their presentation this morning.
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ONTARIO NATURAL GAS ASSOCIATION
The Chair: We now welcome the Ontario Natural Gas Association, Mr Pinnington, Mr Jones and Ms Woodruff.
Mr Paul Pinnington: Thank you, Mr Chairman. Good morning. I'm president of the Ontario Natural Gas Association. Accompanying me is Janet Woodruff, who chairs the association's finance committee. Ms Woodruff is also a controller of Centra Gas Ontario and Union Gas Ltd. Bernard Jones is president of Blue Apple Consulting and a resource person for the association.
We are pleased to be with you today and thank you for including the association in these important deliberations. On behalf of the members of the association, we have prepared a discussion draft entitled Positioning Ontario to Meet the Technology and Economic Challenge, which has been distributed to the members of this committee.
Mr Jones has prepared an overview of the paper which he will take us through, and a copy of that information has been provided to you. With your concurrence, Mr Chair, I would propose that my colleagues and I respond to any questions you may have at the end of the presentation. Mr Jones's discussion piece has been provided to Hansard. With your permission, we'll proceed.
Mr Bernard Jones: Good morning. The presentation we make is in three parts: first the economy, then fiscal matters, then, finally, energy and economic productivity.
Looking first at the economy, we believe the economic outlook is uncertain, that a slowdown in economic performance is quite possible this year, and we have concluded that confidence needs a boost, particularly consumer confidence.
The year 1995 was not a strong year for the economy. In fact, real growth was negative in the first half. Retail sales and housing, which are key components of domestic demand, remain weak. Hopefully, lower interest rates that have been announced recently will help. Nevertheless, the recovery from 1991, such as it has been to date, has relied significantly on exports. However, the US economy is experiencing slower growth, and forecasters have revised downward the Canadian prospects for 1996, and this affects Ontario.
We believe, as I say, that confidence needs a boost, and consumer confidence particularly needs to be lifted. You may be aware that confidence levels are much lower than they were in the 1985-88 period, that real disposable income per capita is lower than it was in 1989, and that Ontarians are concerned about job insecurity and have faced very significant tax increases over recent years.
Turning to our recommendations, as a kind of a forward there, we note that we support the government's commitment to reducing the tax burden and creating a positive climate for business in the province.
We believe the government's planned personal income tax reduction is timely and necessary. It will help restore confidence, boost spending and business investment and stimulate job creation. We recommend that the tax reduction should apply broadly and equitably, and that it should begin at a modest level on July 1, 1996, and be increased subsequently on January 1, 1997.
Moreover, to reduce bracket creep in the personal income tax, our members are suggesting that in the current environment, the indexing provisions of the income tax be updated so that inflation gains in excess of 1.5% would be indexed. We recommend that the Minister of Finance of Ontario consult with his federal and provincial colleagues to take this step to protect the real after-tax incomes of Canadians. For example, for people earning in excess of $35,000 a year, they're paying a little over $700 a year more now than they would be if the indexing had provided full protection.
We turn now to fiscal matters. We point out in our presentation that we believe that reduced budget deficits and debt are essential and the fiscal gains achieved must be made permanent. The government's projections in its November document confirmed our worst fears. We have been before this committee in past years and made projections ourselves indicating that our fiscal situation was rapidly going out of control. The government's projections confirm this.
We are pleased to see the progress being made in dealing with deficits and the debt, and we believe we must begin to plan now to consolidate those gains. In our paper, we recommend a consultative process to begin with Ontarians to try to address how we can take maximum advantage of an improved fiscal situation and the implied budget surpluses that will result.
We deal with some of these aspects in our recommendations, and I'll run through them quickly for you. ONGA urges the members of the standing committee to support the government in preparing to take maximum economic and social advantage of the promised new era in Ontario finances.
ONGA members believe that the implied budget surpluses, which could be substantial, should be dedicated, in order of priority, to public debt amortization, tax reductions and expenditure increases on essential economic and social infrastructure. We recommend that serious thought be given to putting in place legislative safeguards that would reduce the risk that a future government might put Ontario back on an aggressive public spending path.
We recommend that Ontario push for policy linkage to be established at the national level between fiscal gains and pension reform. Increases in CPP contributions, and benefit reductions if any, will be more palatable if the income tax burden is scaled back over time.
ONGA members support steps to harmonize federal and provincial consumption taxes. However, we believe there must be no resulting increase in the overall tax burden, that business inputs should be free of tax and that the tax burden on necessities such as food and residential energy should not be increased from current levels.
While respecting local government revenue needs and the principle of user-pay, ONGA members recommend against greater flexibility in local taxation and proliferation of fees and charges that could be put in place without prior consultation with affected parties, adequate documentation and costing of services and review of alternative measures.
That concludes the fiscal commentary we have. Now, turning to energy and economic productivity, as we show in our slide, the utilities, that is, the LDCs, local distribution companies, in Ontario plan to invest $3 billion in capital spending over the next five years in this province. This is a very substantial amount. The utilities employ about 8,400 Ontarians and pay wages and salaries and taxes of $396 million and $313 million respectively.
We note that there is scope for productivity gains in the economy, and we've identified three areas in our document: one is natural gas research, development and demonstration; another is natural gas vehicles; and finally, competition in the Ontario electricity system.
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The gas industry has been a source of economic stability for this province during recent difficulties. It has delivered lower gas prices and cost savings to industry and to consumers at a time when the economy was relatively weak. But more can be done.
Turning to our recommendations, we believe that to help improve the competitiveness of the economy, the Ontario electricity system must be opened to competition as soon as possible. Given the trend elsewhere, competition in electricity is inevitable in Ontario. We have the choice of managing change to our advantage or facing change that we have not adequately prepared for that could be to our competitive disadvantage. We encourage the Minister of Finance, his cabinet colleagues and the standing committee to support the early transition to a competitive electricity system. The government has a major role to play in establishing the policy and legislative framework, including fundamental changes to the Power Corporation Act.
In this regard, we as an association have made a submission to the Macdonald commission, and our perspective at this time is that there is a consensus among stakeholders that change is needed. At issue is the scope and pace of change that should occur. Our position is that privatization, which concerns a lot of people, is really a secondary issue; that progress can start on change and reform without being concerned about privatization. The natural gas experience with deregulation has been quite positive, and we've laid this information out. We have copies of our presentation to the Macdonald commission which we can leave with you, Mr Chairman, if you would like those documents.
Finally, we believe that further development of the natural gas vehicle industry in Ontario would be helpful, and its contribution to economic competitiveness, technology leadership, exports and sustainable growth hinges on the continued support of the government of Ontario and the federal government. Ontario is emerging as a world leader in NGV technologies, and we've provided some information on this subject in our document. That concludes our presentation.
Mr Silipo: Could you please expand a little more on your point that the tax reduction should apply broadly and equitably?
Mr Jones: The tax reduction, it seems to us, is a pretty significant part of the economic change and reform that's occurring in the province. Over the past decade, all Ontarians have faced increases in taxes of various kinds. As you know, there have been maybe 60 or more different kinds of tax increases applied. It's our feeling that to get maximum benefit out of the tax cut and to boost spending and at the same time to have everybody feeling that they are sharing in the improved economic situation, everybody should benefit, but maybe you could cap the benefits, the flow, through the tax reduction so that those who are better-off in terms of income would receive less as a percentage.
Mr Silipo: So you wouldn't do a straight 30% cut across. You're saying modify that somehow so there is more benefit going to middle-income Ontarians.
Mr Jones: Yes, I think you can make an economic case that that should be done.
Mr Silipo: In your presentations around the economic assumptions, you talk about implied budget surpluses. Again I'd like you to explain that a little. What I take from what you're saying is that you believe that if the government proceeds in its course of action the debt will be increased -- you acknowledge that -- but you're assuming that once the deficit is reduced to zero, if the course of action continues there ought to be surpluses the government has? I don't want to put words in your mouth; I just want to be clear on what your position is.
Mr Jones: Yes. If you change the fiscal plan and you establish a trajectory where you're moving from a situation of chronic surpluses to reducing those down to zero, then if you leave your expenditure and revenue paths unchanged, in fact you produce significant surpluses. So a decision has to be made about changes to the revenue and expenditure paths so that you deal with that.
Mr Silipo: But that would assume, for example, that we could continue to maintain or should continue to maintain program spending for various areas, for example like education, at whatever the levels would be then, regardless of how much the needs would grow. Again, if you take education, enrolment in schools tends to go up year after year. So how would one reflect that, if you just assume that you could just flat-line spending forever into the future?
Mr Jones: It's a very important question and I think that's one of the reasons we're recommending some consultation here, some consultative process, so people have a better understanding about what the different scenarios could look like as you begin to approach a balanced budget, because you can paint different scenarios. What we're saying here is that once you get on this track of moving towards a balanced budget, you are putting yourself in a position where you can generate pretty significant budget surpluses. Probably only part of that will happen. It'll only happen if you decide that you want to reduce the debt, then you need a surplus to reduce the debt. You could end up in a situation where you actually end up with no surplus because you've already decided what you're going to do with it. They're hypothetical at this point.
Mr Silipo: Have you also taken into account in your analysis the economic impact of the various cuts that the government has either started to do or is going to do? Because there clearly are both some job losses as well as, I guess the jargon is, economic drag that comes as a result of whatever amounts of money the governments cuts in spending, because that also is money that is taken out, at least initially, I think we would all agree, of the economy. Have you factored that into your analysis of this?
Mr Jones: No. I think what we've done is simply look at the economy that we see today, which is a troubled economy. There are massive structural changes that you've had many people talk to you about that are occurring in the economy. We're just looking at the economic performance. We're taking the projections as we've seen them from the government and we are deducing from that there is room for a tax reduction, and that's preferable to expenditure increases at this juncture.
Mr Silipo: I'm not sure that any of us are talking about expenditure increases in a global sense, but in --
Mr Jones: It's all relative, isn't it?
Mr Silipo: Yes. If there's time --
The Chair: Thank you very much.
Mr Silipo: There isn't time, okay.
The Chair: We'll move to the government side. We have Mr Spina, Mr Brown and Mr Ford.
Mr Joseph Spina (Brampton North): Mr Jones and company, thank you very much for an interesting presentation. A couple of items that surfaced: In just addressing the point that Mr Silipo brought forward about broadly and equitably, am I correct in assuming that your point is that the middle- and lower-income people get as much of the impact of a tax reduction as possible? Is that sort of what you were driving at?
Mr Jones: Yes.
Mr Spina: So then if we were to implement, along with the tax reduction that is being proposed, the health care levy that would be levied against higher income earners, that would reduce the amount from 30%, so in fact it is not a 30% across the board. It is 30%, but then that is going to be levied back by the health care levy. Would that sort of achieve some of the objective that you had in mind?
Mr Jones: I haven't really thought too much about the health care levy and its relationship to the income tax cut. I think the government has to work with the numbers as best it can, because there will be other changes, I would presume, that would occur at the same time.
Mr Spina: Yes, because the approach is not just to have an income tax reduction. There is a domino effect between removing the employer health tax, reducing the income tax rate and charging the health care levy to the higher-income earners.
One other point: I liked your comment at the end, the recommendation about opening competition to electricity. Am I to understand that with the effects of Bill 26, which gave the municipalities greater authority, more tools, shall we say, to have the flexibility to deliver services on their own, without the provincial government mandating something or other, that this would allow you, as a gas utility, to be able to engage in other utility delivery services like electricity?
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Mr Pinnington: I'm not sure of the intent of Bill 26 in that specific regard. Certainly, the natural gas utilities have indicated their interest in participating on a broader scale in terms of supplying electricity as well as natural gas, and I think it's common knowledge that the gas utilities are already discussing becoming involved in the delivery of water in certain municipalities.
The bottom line is that we're expecting a very different competitive environment which will be, bottom line, of advantage to consumers at large and we think the economics will drive "convergence," the term that's being used, to everyone's advantage. I'm not sure that answers your question, but we see the field wide open.
Ms Janet Woodruff: I was going to add that I think the review of the Ontario Hydro situation will include a review of the relationship between the municipal utilities and Ontario Hydro, so there still needs to be further work there before there's any clarity in that situation. We are working with the utilities and looking at opportunities, but more towards the future, to consider whether there may be potential opportunities.
Mr Spina: That you can merge delivery services or inspection services, those kinds of things?
Ms Woodruff: That's right, some kind of sharing of services and offsetting costs.
Mr Spina: Very good.
Mr Pinnington: Probably another important aspect of this which is mentioned in the paper is the Power Corporation Act. As you know, as it stands today, there would certainly be some limitations because Hydro and the municipal electric utilities have certain responsibilities under that act, so that act clearly will have to be revised to make way for a number of these changes that we anticipate.
Mr Jim Brown: How many members do you have in your association?
Mr Pinnington: We have about 138 corporate members and the membership at large is about 360. The corporate members include individuals from all areas of the gas industry in the province of Ontario.
Mr Jim Brown: Your suggestion on privatizing electricity, would that mean there'd be 138 suppliers of electricity, generating electricity? Is there going to be one, like Ontario Hydro, or are there going to be many?
Mr Pinnington: For starters, the position that we've taken is restructuring is the first order of business and we think that the question of privatization will fall into place, driven by economics. There are today some 307 municipal electric utilities and the consensus is that there probably could be 30 in the not-too-distant future.
Mr Jim Brown: But they deliver it, they don't generate it? Do they generate it?
Mr Pinnington: Not now. Well, there may be some internal relationships with independent power producers on a municipal basis.
Mr Jim Brown: But in the old days, wherever water fell, there was a generator.
Mr Pinnington: Bottom line is that nobody delivers power without going through the Hydro system today, and that's what has to be changed.
Mr Jim Brown: Yes, but would you change it one for one, or you'd change one supplier to many suppliers?
Mr Pinnington: To many suppliers.
Mr Jim Brown: What would happen with water and sewage? That's another potential, I guess.
Mr Pinnington: That's correct, and again, economics will drive these relationships.
Mr Jim Brown: How much do you save us? Privatization of electricity -- any estimate on what it would save?
Mr Pinnington: I don't know that there are any hard and fast numbers.
Mr Jim Brown: It must save money or you guys wouldn't be interested.
Mr Jones: There's quite a debate on whether or not you should privatize the electricity system.
Mr Jim Brown: I know.
Mr Jones: That's something the Macdonald commission is looking at.
The Chair: Perhaps we could leave the discussion to the Macdonald commission. Can we move to the opposition, please.
Mr Kwinter: As always, I welcome the presentation by the Natural Gas Association. I think it's commendable that you go beyond your particular field to talk about the general economic area, and I'm particularly supportive of your natural gas vehicles.
I have a concern and I'd like to just get a clarification, particularly from Mr Jones. In your presentation, when you talk about the economy, you say the outlook for the Ontario economy is positive, and then you go on to say: "Household saving has declined to a low 8% of disposable income, and debt levels are historically high. Personal and business bankruptcies are running at high levels. Buffeted by low income growth expectations, job insecurity and other concerns, consumer confidence, while slowly improving, is fragile. Retail sales remain weak. Moreover, corporate profits measured as a percentage of GDP are on a long-term downward trend." I mean, if that's a description of a positive economy, we have a problem. I'm not being critical. There seems to be a dichotomy there when you say things are positive and then you paint this vision of doom and gloom.
Mr Jones: I think what I was trying to do is to avoid a very negative view. The fact is that if you compare the outlook for 1996 with what we've been through in the past few years, it's not that bad. It's not good, it's not buoyant; it's more positive than negative, but there are negative factors at work. Actually, when you look back in our presentations that we've made, I think we've been pretty accurate in our sense of where the economy was likely to go, but we've tried to avoid as much as possible being negative in our outlook because we don't think that's terribly constructive. I think what we're trying to do there is we're trying to say, "Here's a list of negative features in the economy; there are also positive features."
To this point in time, exports have been quite buoyant and strong. The interest rates are moving downward. Inflation is under control. It's a matter of the balance of factors. You may disagree, in fact, that the outlook is positive and that's --
Mr Kwinter: I'm hoping that it is positive.
Mr Jones: What we're trying to get at here is, there's no need to panic. We think things are beginning to fall into place, but there are negative features of past performance that are still with us and that we have to try and do something about, which is one of the reasons we recommend action on the tax front, because we do think it's very important to boost confidence. That really is holding things back right now. We have to get employment moving before incomes start to grow and people start to spend more, making more investment.
Mr Kwinter: I'd like to pick up on a point that my colleague Mr Silipo made. This is the Business Week magazine of February 12, so it's absolutely current, it came out a couple of days ago. They have a little piece on Canada and one of the things that caught my attention is that they're talking about the effect of the Quebec situation and how it's going to impact on the economics of Canada, but then they say, "The economy's biggest drag is from federal and provincial budget cuts." I'm going to certainly ask that question of others who appear before us who are economists: Has there been a calculation of what that drag is going to be?
Mr Jones: I haven't done a calculation. There is no doubt that when you go through the kind of structural change you're going through now, there are negative impacts. What you're doing is you're paying something in the short term to achieve longer-term security. But you're not going to get longer-term prosperity unless you go through some short-term pain. That's clear. There's bound to be some negative economic impacts from the kind of changes you're going through.
The trick for decision-makers in government is to try and find ways of taking positive steps to minimize those short-term negative impacts and maximize the long-term gain. I don't think there's any denying that there are some negative impacts.
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Mr Kwinter: Could we just pursue the natural gas vehicles? Over the last few years, there's been a lot of interest in electric vehicles, natural gas vehicles. I have driven both -- demonstration vehicles. My perception, and it may just be my perception, is that it's not really progressing. There's an interest, but for a variety of reason, you would think that given the advantages, there would be a greater pickup of the technology and it would be more mainstream rather than what I would consider to be a niche kind of role. Do you have any comments on that?
Mr Pinnington: Quickly, there's no question in our minds that we're moving ahead very substantially in the technology of natural gas vehicles. We've new storage facilities aboard the vehicles that are far lighter; that's a significant gain. There are new fuel-injection techniques that are more efficient, environmentally much better and much more flexible in terms of the vehicles they go on. We also have vehicles coming off two of the three major North American manufacturers' lines that are dedicated natural gas vehicles. So this is a very significant advance as well. We see ultimately a great future for natural gas as an alternative fuel.
The Chair: Thank you very much. We appreciate your presentation to the committee this morning.
ONTARIO FEDERATION OF AGRICULTURE
The Chair: Next, we have the Ontario Federation of Agriculture -- Mr Morris, Mr Kelly and Mr Walpot. Gentlemen, we have 30 minutes together. If you'd like to make a presentation, we'll follow with questions. If you would identify yourselves for the Hansard record on your first comments, we'd appreciate that.
Mr Tony Morris: Thank you very much, Mr Chairman and members of the committee. I'm president of the Ontario Federation of Agriculture. If I may, I would like to introduce my colleagues today. To my immediate right is Ken Kelly, who is vice-president of the Ontario Federation of Agriculture; to my far right is Darren Hannah, who is in our policy and research area; and to my left is Ed Ketchabaw, who is also in the policy and research area within the federation.
We have handed a brief around. I ask that this be officially entered on to record. I will not be reading the brief to you. I'm quite sure you're capable of that. What I would like to do is highlight some of the areas within the brief and then entertain questions.
Perhaps what I may do, Mr Chairman and members of the committee, is I would ask you, for one minute, to just give some thought to some facts that we as a province and as a nation are facing. I want you to extend your minds out to the year 2030 -- 35 years from now. If you're like me, you have perhaps some younger children who will be hopefully well ensconced in business at that time. I want you to imagine a world population at that time of nine billion people as compared with about 5.8 billion now.
I want you to think of where we have come over the last decade in technology and try to imagine where we may be in 35 years, because just 10 years ago the idea of utilizing satellites to farm had hardly been thought of, and yet now here in the province of Ontario there are many more farmers every year starting to use the satellite system to practise the art of farming. Many of the genetic improvements I am now practising on my own family farm we were doing in a laboratory only 10 years ago.
To try and imagine where we may be in 35 years is very difficult, but I want you to try and imagine forward, because with nine billion people, every single one of those people will have one common thread they will need. They will need water and they will need food. They are the only two common threads, other than that of air, everyone in this world population will have in common.
I also want you to look at the size of this room and imagine that this was the world and the surface of the world, and then take the surface of chair that you are sitting on, because that is the potential land surface that will be available to feed all those nine billion people. It's not the surface of the room; it is the surface of the chair that you're sitting on. That is the challenge we face as agriculture producers and you face as members of society in Ontario and indeed as citizens of Canada.
I want you to think about that for a minute because of the potential and the opportunity that we have in this province. As I will highlight in the brief, some of the opportunities are so enormous and have such incredible job and wealth creation prospects for the province of Ontario that they cannot and simply must not be ignored.
I will highlight those as we go through, but if I could, I would just like to run through the summary of the recommendations.
The reason I asked you to think about that possibility of the nine billion people is because the business that we're involved in will have an integral part to play, if we really want to, in helping feed those nine billion people. It will be the decision of all of us, not just those of us involved in the business of farming, but it'll be the decision that you people make and society as a whole, at what role do we take in feeding that world population.
We only have to look at places like China with 1.2 billion people. We look at the economies of the world that are growing in Indonesia, Malaysia, Korea, China, and some of the eastern bloc countries or the Pacific Rim countries, and can see the potential we have for the kind of jobs and the wealth creation that this industry -- all economic indicators from a number of different sources would tell you that for the next century the leading business to be involved in, the leading economic sector is that of agriculture and agrifood.
Also, I might add that in that would be fibre. I'll give you one statistic: In 1920, in the United States 27% of all product produced on the land was non-food product. Today, it's less than 1%. The potential for increase in that non-food product is phenomenal. I'm not going to go into individual products, but the potential is phenomenal.
I want to highlight under our summary of recommendations just a few areas which we believe to be very critical. You'll notice there is approximately two pages of them, but I want to highlight some of them, because it is on that theme of looking towards the future, towards the 21st century, that we in the Ontario Federation of Agriculture are now highlighting some of those.
Our theme for 1996 is "Farmers mean business," and that is something that perhaps many of you from the urban centres have not given full thought to over the past, because the idea of agriculture that you may have read about in books or seen in old movies is simply not the way it is today in 1996 and certainly won't be in the next century.
One of the key areas is point number (ii), which is to restore the level of funding to agrifood research in Ontario. We simply cannot allow the area of research to take a back seat to anyone. Combined with research, if you cannot put it into action, it becomes of little use.
Our next point, number (iii), is to maintain the capacity of the Ministry of Agriculture, Food and Rural Affairs to support management skills training in the agriculture sector through OATI, which is the Ontario Agricultural Training Institute, and through OATI to develop a strategy for skills and training in the agricultural sector.
I'll move to point number (vi). This we certainly believe will be a critical area as we move ahead in the next decade, and that is the area of water resources. We simply have to start putting sufficient levels of funding to support research on the water resource issue in rural Ontario because that water resource issue is not just to the benefit of us in rural Ontario, it's to the benefit of all citizens of the province.
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I'll move on down to numbers (ix) and (x). We have highlighted a program called NISA, which is net income stabilization account. That is a base level that our funding for agriculture goes to, and we call it safety nets. They are one of the pillars that we have highlighted over the last two years as necessary within the agriculture community. At the present time, there is a memorandum of understanding between the federal government and the provinces that is still waiting to be signed and has been waiting since December 19, 1994. We would certainly encourage this committee, in any way it can, to encourage that signing.
I'd like to highlight number (xiii), because along with the fact that we have a theme called "Farmers mean business," farmers are people; they are men and women, they are families that make up rural communities and they are the very essence upon which every business has to draw. One of the very key areas that we have highlighted along with groups such as the Ontario Farm Women's Network is that of child care.
I would draw you to numbers (xiii) and (xiv). We would ask that a feasibility study be conducted to look at allowing child care to be claimed as a farm business expense or to extend child care expense deductions to all families regardless of their employment status.
One that of course is still very contentious in the farm community and that we would certainly ask this committee to keep well in mind is the farm property tax rebate. For some 24 years, it has been recognized that the tax system on farm land has inequities in it and the tax rebate was provided to help offset those inequities and what we call unfair taxation. We certainly are aware that people are working hard to address that through tax reform and we simply cannot allow the tax rebate to be adjusted or tinkered with until that reform takes place.
Another one I'd like to just bring to your attention is number (xx). Because I'm highlighting certain ones does not mean the rest are not just as important. But number (xx), considering who has just sat in this chair before me, has to do with hydro and energy rates. We simply cannot in this province allow our farmers, our rural communities to be in an unfair position in comparison to other provinces and some of our trading nations.
I'll use an example. In the province of Saskatchewan, 85% of all rural homes are on natural gas distribution lines. They do it through a 2.5-inch low-pressure ABS-type pipe that is plowed into the ground, and it saves the average farm in Saskatchewan $5,000. That is pure profit.
We have very little access in the province of Ontario in many rural areas to natural gas distribution. The OFA just recently, through intervenor funding, made a presentation and a brief to the Ontario Energy Board to challenge the methodologies that it uses for the calculation when making a review of natural gas distribution lines in rural Ontario. We believe that simply has to be addressed if we're going to have the competitive advantage that we need as producers in the number of different commodities where they require supplementary heat.
The same with hydro; the provinces of Manitoba and Quebec have substantially lower rates than we do here and we would like that to be considered.
The very last one, and I highlight this because we believe this is critical for this government to keep in mind, is that when looking at revenue generation, funds collected by government or by a government ministry under legislation or regulation, whether it be fees or service fees, royalties, fines etc, be set aside for the enhancement and benefit of the sector they are collected from. There are many examples within agriculture that we could use where funds are raised through revenue generation, through fees or licence fees, that then go back into what we affectionately term, as I'm sure you do, the big, black hole and they are never to be seen again. Quite frankly, if we're going to look at changes in the way we do business, we simply have to look at the way we do business from an auditing standpoint in the collection of fees.
They are some of the highlights. I would like to turn to the actual brief and just give the committee some idea of the size of our industry. On page 1 you'll notice in the third paragraph we are an industry approaching $40 billion through what we call the agrifood chain, of which $6.2 billion are direct farm -- gate receipts. Through that agriculture and agrifood chain, which includes manufacturing and processing and retail, there are some 640,000 jobs, second only to the government, I might add, in employment, in job creation.
I might add where the difference is. The difference is that while you are considering reductions in employment, in the agrifood sector, if we are to take input-output multipliers done at McGill University, for every $1 million of farm-gate sales, 31 new jobs are created, 19 of them direct, 12 of them indirect. Carry that through to the retail sector and we have I believe another 15 jobs that then get created. That is the power of job creation that the agriculture and agrifood industry has.
When we look at wealth creation and we look at the federal government and its move to what they call 20-2000, which is by the year 2000 some $20 billion worth of agrifood export, we took up that challenge when it was first announced by the federal minister about four years ago. We are now at $18.7 billion and we will exceed $24 billion by the year 2000. So we will have gone over target from what the federal minister had asked us to look at as an agriculture sector across Canada.
I would highlight at the bottom of the page that we believe the public sector has a role to play in the present and future success of Ontario agriculture, because it is indeed the public and society as a whole in Ontario that will benefit from what we're able to do in our farming operations.
OFA certainly believes at this time that this is an opportune time for the provincial government to commit resources to assisting the agricultural industry. We would ask you to really consider that agriculture is not an expense. It is an investment into the future. It is an investment into the future jobs for your children, for my children and for your constituents' children.
We need the tools to do the job, and I know there are many other committees looking at regulations and I certainly don't intend at this time to go through those, but we will certainly be addressing those particular committees.
I would ask you to turn to pages 4 and 5, because this is where we believe that agriculture is highlighted. I want to highlight on page 4 OMAFRA total expenditures and to highlight to you how as a ministry and how as an agricultural community we have seen a steady reduction over the last five years of some 25% in our ministry's budget. If we are truly going to challenge the world and meet the demands of nine billion people by the year 2030, we can no longer continue to reduce the amount of what we believe, and what many economists believe, is the most important sector.
On page 5 we have highlighted the government of Ontario and OMAFRA operational expenditures in comparison to Ontario government expenditures, and you can well see the bottom line is where OMAFRA is reducing. We have seen that steady decline, and I might state that when we have done that, we have done it in what we call current dollars. If we change that to constant dollars, which is adjusted for inflation, the trend is far more dramatic than what is shown.
I would highlight on page 6 the graph that shows the agrifood programs as a per cent of government expenditures. Agriculture -- and the Ministry of Agriculture, Food and Rural Affairs -- has done its part to assist this province and society in helping reduce the expenditures. The challenge you have in making your recommendations must be then to look at those that have not done the same as what the Ministry of Agriculture, Food and Rural Affairs has done.
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On page 7 we highlight the province of Ontario in comparison to all other provinces as it relates to GDP in the agrifood sector. You can clearly see that Ontario is a long way behind the other provinces of Canada. We simply believe that with 25% of Canadian production, with well over 40% of the population, and we're well over 40% of the food processing industry in this province, we can no longer allow that kind of trend to continue.
On pages 8 and 9 we have tried to highlight for you agriculture is an engine of growth. We have done some work on population growths and their impact on agriculture, as I started at the beginning, and I would ask that you take the time to read it.
I would highlight one, which is China. The prediction is that by the year 2030, China alone, one country, will import 369 million tonnes of grain to feed its population, which is 162 million tonnes more than the total world grain trade this past year.
Now, think of those kinds of numbers. The opportunities are immense. The question we have to ask is, what percentage of that do we want for Ontario? That's the question we would ask the committee to consider when making its deliberations.
On page 9 we have tried to give some economic growth impact indicators through to the year 2004, and you can very clearly see that the areas of most growth are those of the Pacific Rim, and it goes on through our brief to highlight many of the areas in world consumption trends that we believe we have the opportunities to address.
But, as I say, we cannot do that without the tools to do the job, and the tools we will need will be in agricultural finance, in agrifood research, in the areas of training and education, skills development. Within the ministry itself, the message it sends to the international marketplace to relax or to relinquish or to reduce the role of the ministry within government is very critical, because it is absolutely imperative, if we are going to reach out and take a hold of some of those opportunities, then the international marketplace has to see that there is a commitment from this province to its growing industry of agriculture and food.
In the area of investment in environmental quality, Ontario leads the world. Ontario farmers, through their environmental farm plan, have been highlighted at the 1992 United Nations Conference on Biodiversity as the most proactive sector anywhere in the world when it comes to dealing with the environment, and we're very proud of that. The recent Canadian report on biodiversity used Ontario farmers as an example of what every other sector of industry could do if they would do it voluntarily and work together with the idea of making things a whole lot better. We're very interested in that, because what it does is it gives us the opportunity now to look at marketing our products with an environmental integrity, perhaps a special branding that we can market to the world to say we are the best; there is no one that can touch us.
Groundwater quality: I highlighted in the beginning that I believe water is going to be the issue of the next decade, and it's not just an issue for farmers, it's an issue for each and every one of us. We have been proactive in starting a committee called the Water Quality Working Group, of which I am part through being a co-chair of the Ontario Environmental Farm Coalition, and we will be addressing the issue of water quality and water taking and the water quantity.
Then there are any number of different areas, from predator compensation, for the very real problems that many of our farmers face from the natural wildlife; farm income safety net programs; whole-farm income stabilization. We need rural child care, and flexibility when it comes to child care, because in many rural areas it simply isn't available. The area of tax is critical to us; pension reform; harmonization of GST and PST; and a whole number of different areas as it relates to that.
One of the areas we would highlight is in the area of things like investment tax credits. In the past the federal government had ITCs for the purchase of machinery. Only 15% of the machinery that is purchased is actually made in Canada; 85% of it comes from either across the border or from overseas. The investment tax credit on machinery simply benefits those outside this nation. An investment tax credit in Ontario on buildings is a boost to the rural community because it uses local labour, predominantly Canadian material and provides jobs in those local communities and provides the opportunity for farmers to upgrade facilities.
Areas of capital cost allowance: I know perhaps that's a federal issue, but I would certainly ask that this committee give consideration to highlighting it in the future. We are told we cannot finance bonds for any longer than seven to eight years, yet our capital cost allowance does not allow us to write it off in that time period and therefore puts us at a disadvantage.
I would conclude by saying that agriculture is a growth industry. It has the opportunity, it has the potential, but we need the tools to do the job. We need a ministry that is there to tell the world that we have the products, we have the farmers, we have the quality that the world wants. I would ask this committee to give that consideration and say thank you, Mr Chairman. We would entertain questions, if there are any.
The Chair: Thank you very much, Mr Morris. Indeed there are questions. I have quite a long list. I would suggest we have two minutes from each party for questions, and would the government lead off, please, with Barb Fisher.
Mrs Barbara Fisher (Bruce): I was able to get in at the start of your presentation and was at the back and made my way to the table here. I'm very pleased to have you here, as well as all the other members of the committee, obviously.
Mr Morris, you recognize that in every ministry of the provincial government today we're in an area right now of financial constraint and potentially reduced spending in each of the ministries. I've been meeting with our local commodity groups in the Bruce over the past while. I would ask if we are, in due respect to the industry and the importance of it -- and once again you've done a very significant and important job in providing this committee with the information that you have. However, if there was to be a need for considering reduction in spending, would you feel that the reform of the taxation system in Ontario would help eliminate some of the concerns there are around the farm tax rebate system as it sits today?
Mr Morris: It's certainly a pleasure to be here with another member from Bruce county as well.
We have pushed for some 20 years for the reform of the taxation system as it relates to the tax on farm land, and certainly we support any and all initiatives that are reviewing that and would encourage meaningful tax reform, and I stress "meaningful" tax reform, because if tax reform is to take place and simply takes it from one hand and puts it in the other, that will not be meaningful. It has to be a tax reform that recognizes the inequities that we have on farm land and removes them, and so it removes the need for the farm property tax rebate. We have stressed that for 20 years, and we will continue to stress it.
I might add that we recognize the financial constraints the government's under. We are taxpayers; we are citizens. But I will say, as farmers, we came through the 1980s; we know what financial restraint is all about. But we also learned that you plant a dollar today to harvest two tomorrow, and you don't cut that dollar that's going to make you two tomorrow.
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The Chair: We move to the opposition, and I do apologize to the members of the government. I know you all wanted to ask a question.
Mr Crozier: I just have a comment. This room this morning, Mr President, has as many or more people in it than I've seen all this week. I think that attests to the concern and the interest in agriculture. What I'm deeply concerned about is that the government only gives it lip-service, invisible service, at a meeting like this.
Your budget is around a half a per cent of the total budget in this province. I think you've made good points, particularly in the areas of research, and I think it behooves the government to pursue this, in view of the fact that in a letter you sent to me there is a quote, "That's why there are no cuts to agriculture programs in our document the Common Sense Revolution." In fact, the Common Sense Revolution doesn't even mention agriculture, and I think it's a crime that they're going after 30% reductions after having said that.
My colleague probably has a question.
Mr Pat Hoy (Essex-Kent): Thank you for being here this morning. The Minister of Agriculture has announced a 35% cut to agriculture. All industries tend to be in a global market, no less so for agriculture. I'd like to ask what signal you think this 35% cut is showing to the world, and what are other countries doing with agriculture in lines of research, for instance?
Mr Morris: First, I don't think the minister's announcement will be a 35% cut. I think he has announced that they have to consider same, and we're certainly hoping very, very much that the government will reconsider our ministry in light of what we have done over the last five years.
The second part of your question, if we look at Europe, certainly within the common agricultural policy there are reductions happening in subsidization to farmers. We've seen that right here in Canada and we've seen it in Ontario, and we support that. But if we look in other areas that are green under the General Agreement on Tariffs and Trade, they are increasing their funding to agrifood research. They are increasing their funding within the education system, within training and skills development to the workforce. They are increasing in a number of areas that are green, what we term green under the GATT agreement, environment being one of them.
The United States, under the proposed US farm bill which just passed, sure, there's a seven-year phase-down in subsidization payments to farmers, but read through the document and read what else is in there. They're increasing research, increasing skills development, increasing funding to environmental remediation within the agricultural sector, because they recognize the importance in the future, and we simply can't forget that in this province.
Mr Silipo: Thank you very much, Mr Morris, for being here with your delegation. I just want to make a brief statement. My colleague Mr Hampton, I know, has a couple of questions he'd like to get in.
I just want to tell you, first of all, that I appreciate very much the extensive presentation you've put before us, and to tell you that, as someone who comes from urban Ontario, there is also a lot of understanding and appreciation for the value of agriculture as an industry, particularly in a riding like mine, where, like me, many of my constituents come from rural and farming backgrounds. It just happens that it was in other countries as opposed to Ontario, but the understanding is there, the appreciation is there, that without a strong agricultural industry all of us lose, wherever we live in Ontario.
Mr Howard Hampton (Rainy River): Can I ask you a quick question about hydro rates? It's my understanding that under the rural rate subsidy structure, and you've covered it in part in your brief, farmers enjoy or receive a hydro rate that is about half of what it would be if Hydro were sold off and moved to a system whereby you pay cost. If you live in a very intensely populated area, cost would apparently drop. If you live in rural areas, cost would apparently go up. Has the federation done analysis on what the impact would be on rural residents and farmers in the province?
Mr Morris: I'll answer very quickly. It's not just farmers that get the rebate; it's all rural residents. I might add that when we look at hydro, it is not just price that we give consideration to. Some of the very, very critical areas are in quality. In areas of what we call steady state voltage or non-steady state, we have done a tremendous amount of work with Hydro so that we have now been able to set standards for steady state voltage problems and have actually come to compensatory values for the damage that it causes.
One of the key areas now is what they call non-steady state, which for those who don't know, is what we call tingle voltage or dirty hydro. We are now working with Ontario Hydro and the association of electrical engineers, who have developed a machine to actually try to measure this. It is a very real problem, and we are working with them to try and establish (1) how it happens and (2) how we get compensation for it, because it has had dramatic effects on summer farm operations.
Service is another very critical thing. Where we have barns that are absolutely dependent upon a steady quality hydro service -- the area of our poultry industry, the dairy industry, the swine industry and a number of others, from aquaculture to a number of greenhouse industries, and the list would go on -- the service is critical, because you cannot simply, at minus 30 degrees, have a power outage that cannot be addressed immediately -- or alternatively a supplementary heat source. So it is more than just price, and that is an area within the Hydro talks that we have taken a very close look at. The idea of price is obviously very critical, but quality and service of the actual delivery system are very important to us as well.
The Chair: Thank you very much, Mr Morris. I'm sorry that our time has expired. As Mr Crozier pointed out, we have had more visitors for your presentation than at any other time. I'm sure that fact will not be lost on the committee as we enter our deliberations. Thank you very much for joining us this morning.
Mr Morris: Thank you, Mr Chairman, and I do apologize for not allowing more members to answer questions. Perhaps next time we can get an hour.
The Chair: You're not out of the building yet.
CANADIAN ASSOCIATION OF RETIRED PERSONS
The Chair: I would like to welcome the Canadian Association of Retired Persons, Ms Lillian Morgenthau.
Ms Lillian Morgenthau: Ladies and gentlemen, thank you for asking CARP to present. I'm president of the Canadian Association of Retired Persons. CARP is a national association of Canadians over 50 years of age, retired or not. CARP is a non-profit association that takes no funding from any government. Our membership is over 240,000 with about 90,000 households in Ontario.
The aim of the association is to improve and maintain the quality of life for Canadians over 50 years of age. We therefore maintain a deep interest in government programs relating to this age group.
Most seniors over 65 years of age have a fixed income and limited opportunity to increase their financial security. They must live on what they have prudently saved for their retirement years. They did not have RRSPs available to them for most of their working years, and pensions are the main source of income in many households. Their simple wishes are to remain independent in their own homes, to be healthy and mobile and to be financially secure.
The prudent fiscal responsibility of today's seniors has allowed many of them to accumulate significant assets. These assets will serve to provide for the uncertainty of the future both for themselves and their children. However, the longevity of seniors today puts their retirement savings at the risk of not being enough for their older years. Over 50,000 North Americans are over 100 years of age, and we do not believe that Big Brother will be able to look after them if governments continue this tax grab. It behooves the government to make sure seniors remain independent.
This group of Canadians has, through the years, pulled the country through wars and financial crises. We would certainly have no objection to helping out again if it could be proved to us that all Canadians were being asked to pull their own weight, not only seniors. Seniors are consistently asked first to help governments out when they find themselves in a mess, and once again we will be the primary target, with the new omnibus bill.
Since seniors are the primary users of services, especially health services, we will be severely punished by the proposed user fees.
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Public service issues: In many cases a senior's largest asset is his or her house. Any changes in laws which have the effect of municipalities raising property taxes are unfair to seniors. Frequently, high municipal tax costs make the cost for seniors to stay in their homes prohibitive. Municipalities should consider a way to accrue property taxes for seniors over a certain age, and then upon death, or when the property is sold, the taxes which have accrued would be payable. This would allow seniors with limited income and cash flow to remain in their homes.
Seniors consider family values extremely important and we feel that the government should encourage this. In CARP's view the government should explore the idea of awarding provincial tax credits to seniors who perform acts which help to reduce the government's burden. For example, seniors who take in their elderly parents or their children when they have been laid off and look after them should be given a tax credit for reducing the welfare rolls. Many seniors look after grandchildren while parents are at work or go to school. This decreases the strain on government-subsidized day care spaces and should therefore result in a credit on the seniors' taxes.
CARP would like to see municipalities review zoning bylaws which prevent the building of granny flats. Granny flats are useful in two ways. First, seniors could use them to house children who have lost their jobs. In addition, seniors who require care which prevents them from living completely on their own can move into granny flats with their children and, while still maintaining some degree of independence, get the care and attention they require, all at a lower cost to the government.
Health issues: Health concerns are of paramount importance to CARP members, as they are the primary users of these services. It is natural that with age they will require more assistance and will have more health-related problems than younger people. We are concerned that they will be unfairly penalized by proposed user fees and cuts in services.
CARP recognizes the cost constraints faced by the Ontario government and the Ministry of Health. We understand that Ontario is trying to control rising drug costs through a copayment program or deductible within the ODB program. We are concerned with any fee that might deter seniors from receiving necessary prescriptions. If seniors are forced to pay higher fees for medications, they may have to do without them.
In the long term, this will cost the government more than providing the drugs at a reasonable rates. If seniors are forced, due to costs, to forgo necessary or preventive medicine, the end result may well be hospitalization for the condition the medicine was supposed to prevent in the first place. The cost of unnecessary hospitalization is surely more than the savings which would be realized by increasing the cost of drugs to seniors.
We oppose the new regulations governing the Ontario drug benefit program, whereby low-income seniors and welfare recipients would pay a user fee of $2 for every prescription and single seniors earning more than $16,000 or senior couples more than $24,000, which really is the poverty level, will pay the first $100, plus $6.11 per prescription. The threshold is, in our opinion, too low.
Moreover, unlike other provinces, there is no maximum beyond which seniors would not have to pay. CARP would like to see a higher, more realistic income level set and a maximum amount of payments.
We understand the fiscal pressures facing the Ministry of Health as the government tries to balance the budget while still delivering quality health care services. CARP believes there is enough money in our health care system. The problem lies in how the money is spent. The stakeholders should be the architects of the changes, not the politicians. As changes to our health care system are made, we are concerned about the impact of the changes on our members, since our members are disproportionately high users of medicare.
During the MTDHC public deputation sessions, a number of concerns were raised about the accuracy of the project's financial forecasts, especially its overestimation of what MTDHC hopes to save and its underestimation of the true costs of transferring programs, merging and/or closing hospitals. We also did a review of that review of the hospitals and closures and it is available to this committee. While this commentary does not intend to provide analysis on cost implications related to specific hospital recommendations, it does wish to highlight two major concerns related to the MTDHC's financial projections. I really hate initials, and if you want to know what they stand for -- I'm sure you all know -- please ask me.
When the numbers were analysed, it appears that little savings were attributable to actual merging and closing of hospitals, and the capital costs required estimated by this group to achieve reconfiguration appear to be underestimated; as a matter of fact vastly underestimated, and if you look at the brief we gave to Jim Wilson you'll see it's all been laid out. When realistic capital estimates are added to the cost of building up the primary care sector to handle increased responsibilities falling from the hospital sector, the total costs of restructuring may more than offset any predicted savings.
With respect to the government's plans to merge and close hospitals, we are again concerned that their goals and benefits are shortsighted and that we will all suffer in the longer term. The report shows that the government estimates it will save $1.3 billion, accruing over five years' time. In fact, $1 billion of this is attributable to best practice or clinical efficiencies which are unrelated to and independent of hospital mergers and closures. This means that the merging and closing of our hospitals will only save $0.3 billion. Of the $410 million annual operating cost savings estimated by this board, $215 million are attributable to best practice or clinical efficiencies, and a further $100 million is attributable to support service savings, such as group purchasing.
The government would, therefore, be doing its citizens a disservice by merging and closing these hospitals, and the small savings it would realize would soon be negated by the additional strain on the system caused by the inconvenience of having local hospitals closed.
For example, seniors who ordinarily rely on area hospitals will now have to call ambulances should they need to get to hospitals which are further away, even for non-emergency situations. In addition, the closing and merging of hospitals will make the current shortage of available beds even more critical, resulting in a greater number of ill seniors being forced to remain at home in the care of relatives.
This is really a deep concern of ours. If you have to go, because Wellesley Hospital has closed, to Toronto East General and Orthopaedic Hospital, you're not going to get there. I did try it. It's four transfers of local buses and streetcars and it takes a tremendous amount of time. You're going to be calling ambulances, you're going to be calling taxis; you're not going to be able to get there the way you used to be available to walk over. It's ridiculous to close a hospital that has access to all the transportation.
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While this may seem like a good solution in a short term, the government should realize that the relatives who stay home to care for their elderly relatives are actually costing the government money since they're no longer contributing to the provincial tax rolls as they cannot work while they're at home looking after a sick relative.
The financial projections developed by this board to support its restructuring exercise can be quite seductive to governments seeking to reduce provincial deficits through reduction in public spending, but it must be recognized that the hospital-based savings predicted by this board hinge on the ability of the community to accept the increased responsibility thrust upon it by the hospital sector.
Like a giant seesaw, changes in the hospital sector must be balanced by changes in the community in order not to compromise patient care. Consequently, government is cautious not to adopt a singular focus on what moneys can be extracted from this board's recommendation. Government must be prepared to commit funds beyond what has already been identified if patient care is to be safeguarded.
Education: Seniors have a vested interest in education for a variety of reasons. Often, seniors are finding the need to augment their income and hence need to learn new skills. Adult education classes are continually full. Seniors also have unemployed children and grandchildren who are returning home and need to further their education in order to re-enter the workforce. Seniors also pay property taxes, 50% of which goes towards education. Naturally, they'd be interested and concerned in how their tax dollars are spent.
The expected reduction in the budget for education of $400 million during the period from April 1, 1996, to March 1997 will make it more difficult for children and adults alike to get the quality and type of education they need to join or rejoin the workforce and become active, productive members of society.
While it is obviously critical for students to learn math, reading and writing, it is also the after-school activities which provide invaluable tools that will be used throughout life. Activities such as band, team sports, the school newspaper and taking part in their school play all teach children interaction and problem-solving and allow them to develop skills which will prove marketable in the future. These after-school activities also help to provide self-confidence for children who lack self-esteem. Having been in a school play myself, and the shortest one in the class -- but I had a voice -- I can tell you that it is important to be part of that kind of group.
Cuts in funding will mean reduction or elimination of most of these programs. In addition, libraries, guidance counsellors etc are all threatened. Children need guidance. They need the counsellors, more probably than ever these days with every couple having two people working. They need someone they can talk to.
Families are splitting apart. It's amazing what's happened to the family group. It's not the way it was when I'm sure you and ourselves were growing up. I think we have to have other areas for children to be able to run to, otherwise we get angry, unhappy, miserable kids. We do have to have someone around.
The proposed College of Teachers will create yet another unneeded level of bureaucracy which will be very costly and redundant. The college will require that teachers become members in order to teach or administer within the education system. The total cost for the college is $13.5 million annually. Theoretically, this will be paid by the teachers. They will also pay user fees for recertification, letters of standing etc, so the $13.5 million will supposedly be paid by teachers. Since we, the taxpayers, pay the teachers, it is in essence we who will be funding this unnecessary added bureaucracy.
A better solution would be to amalgamate the Ontario boards of education into as few as possible. The current situation with a regular board of education and the Catholic board, both supported by taxes, is wasteful and unnecessary. They could easily be amalgamated and provisions made for groups with constitutional privileges, such as Catholic and francophone communities. This would eliminate a great deal of bureaucratic overhead and prevent waste. All tax dollars could be funnelled into creating one good school system, instead of funnelling taxes into two separate less than adequate school systems.
In conclusion, the current government has made strides. For example, changing the formal pay equity legislation, acknowledging that this is a matter better served by conscience than government. This has resulted in increased investments in Ontario and encouraging the move of business into Ontario.
However, we would ask the government now to wait and to examine other situations more carefully before making wide, sweeping changes. They have only been in power a short time and really have not had time to become familiar with the different issues of their portfolio. We recognize that early in term is the best time, politically speaking, for unpopular changes to be made so that people will forget about them before election time. I will tell you, seniors don't forget. They have nothing to do but remember. However, the rampant changes that are being proposed will have far-reaching and devastating effects on the entire province, and seniors in particular.
The government must consider alternatives to simple cuts in the public sector workforce. For example, unemployment and welfare rolls are currently swelling through corporate layoffs. However, if less drastic action had been taken through companies and unions working together, this could have been avoided; for instance, cutting wages for an entire company by 4.5% instead of laying off a portion of the workforce.
This would allow all employees to retain their jobs. Although they would be making less money, it would allow them to still pay their own way and keep the government's costs down by reducing the amount of welfare and unemployment it would have to pay. Companies and government should be urged to consider other alternatives to layoffs, such as shorter weeks, job sharing. This could help to restore a feeling of security and stimulate the economy. The concept of Rae days looks pretty good to someone without a job.
Seniors feel they've been led down the garden path by this government. For years they've been told they will be looked after in their golden age through CPP and OAS. Seniors have believed this and planned for their retirement based on the assumption that the government was telling the truth. Therefore, we feel the government has an inherent responsibility to look after seniors and to ensure their welfare, rather than hitting them with user fees and forcing them to utilize their remaining assets to balance the books politicians have mismanaged for years.
Thank you all for listening, for staying and for being polite.
Ms Castrilli: Thank you very much, Mrs Morgenthau. What I especially liked about your presentation was the way you interrelated the comments you made on other elements, such as you have a holistic approach to governance, and I for one thank you for that.
We don't have a lot of time and I have a lot of questions, but let me focus on health care. We're all familiar with the Common Sense Revolution and the statements that were made there, and I refer you in particular to two statements made in that document on pages 6 and 7, if you ever want to consult it. There were two very simple statements made there: "There will be no new user fees," and "We will not cut health care spending." In the light of government action, how do you interpret those statements?
Ms Morgenthau: I think we have to really look at what those statements mean. Those statements say that seniors, I think all Ontarians, are very frightened by what's happening. Because I've always lived on a budget -- which my husband of course said was completely irresponsible -- I don't think we can not say we have to have a budget. We should leave this to the health care, to the hospitals, who say: "Okay, you want us to do certain things. We've closed our beds. Give us the money, let us do it, and have a stakeholder sit on the board."
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I think politicians mean well, I really do. I think they come in, they mean well, they're trying to do things. But we have a big deficit. The deficit should be attacked by the people who know what to do. In closing hospitals, I think they're making one big mistake. What they should say to the hospitals is: "You have a budget of X number of dollars. Stay within it." If they would do that, I think we would be able to cope with our health care in the very best way, and provide quality health care.
Ms Castrilli: Of course, Bill 26 won't allow for that kind of input. The minister will decide on --
Ms Morgenthau: No, that's not exactly true. We are not happy with Bill 26, but that doesn't mean that we shouldn't look at it from its good points.
Bill 26 gives too much power to the minister and to the government without making them responsible for that power. We feel that everybody, including government, must be responsible for its actions. Even Brian Mulroney is taking us to court because he has the right to do so. We cannot take this government to court. The omnibus bill does not allow that. On top of which, with all due respect to the government, most of the government are rookies. This is the first time that they're in government, and they should have time to become more accustomed to how government works. The omnibus bill gives too much power without any restraints. That's what's wrong with it.
Mr Silipo: Thank you very much, Ms Morgenthau. I hope the government members are listening to those words of wisdom that they should take time --
Ms Morgenthau: Well, they should. We've been writing to them.
Mr Silipo: I had the chance to hear you on Bill 26, in that committee, and I appreciated your presentation there as well.
I just want to make two points. First, I take a bit of issue with one item in your conclusion around pay equity and just of ask you to think a little about that. What the government did by removing proxy pay equity was to do for about 100,000 women what I think you're telling us the government shouldn't be doing for seniors in general, which is to in effect take out the right to pay equity for 100,000 of the lowest-paid women in the province. That's something that I, for one, am troubled by, because it was put in there to rectify an injustice that has been there over the years. I just wanted to flag that and ask you to give that some more thought.
I want to ask you about the issue of the 30% tax cut, which you didn't address directly in your presentation. It's certainly our contention that one of the key reasons the government is cutting spending in a number of areas -- including in health care where they said they wouldn't be cutting, including in education in the classroom where they said they wouldn't be cutting in classroom spending, and clearly now the minister even is admitting that taking $800 million out of the system is going to be difficult without affecting the classroom -- is for them to be able to fund the 30% tax cut.
I just wondered if your organization had any comments. What we're seeing is that even though the government initially said the tax cut was to create jobs, the minister is now admitting that those jobs aren't going to be there, at least in the first couple of years after the tax cut. Is that worth it? Is that tax cut worth the pain that it's causing?
Ms Morgenthau: I think you too haven't quite been listening, if I may. They said they wanted to do a 30% tax cut, but now the government is saying, "Well, maybe not quite so fast." It's really funny. I have four children; three of them are girls. When they got married they said, "I'm going to run my household on X number of dollars." When they got into that household, they found that they couldn't run their household on X number of dollars. I think what's happening here is that our government is finding that it can't do certain things and that it is not able to give us 30%.
And Ontarians, although they want tax cuts, don't want to pay for everything to get those tax cuts. You're going to pay for garbage, for gas, for everything under the sun except breathing the air, and I'm not sure that wouldn't get taxed if they had a way of doing it. Like I said, you have to balance things, and I just think that jumping in with both feet before you have a chance to walk is not the way to do it. I'm really suggesting strongly that government take a strong look at what they're doing, because seniors never forget and they won't forget. They voted them in and, like your own party, the NDP, they'll vote them out.
Mr Tim Hudak (Niagara South): Thank you for your presentation -- very broad. There's one issue you didn't touch on that I wanted to bring up. Some groups, the OFL and OPSEU, have suggested that the government should return to a loose monetary policy. In the past, loose monetary policy has always resulted in significant levels of inflation. The late 1970s and early 1980s are great examples. Do you think CARP and seniors in general would like to see a loose monetary policy and higher inflation?
Ms Morgenthau: It's a subject I really haven't addressed, but I would think inflation would be very bad for seniors. Inflation is really two-pronged. When they say our inflation is at 1% or 2% or 3%, they're wrong, because inflation to seniors means higher municipal taxes, higher heating bills, higher telephone, higher for the things they cannot do without -- not luxury items, necessary items: food and clothing. Then comes everything you have a choice of buying. Maybe those have come down, but in contrast, the things we need have not come down and every year have gone up. So the budget of seniors and people who have been laid off is not sufficient.
Mr Hudak: I would think it would be especially damaging, given the fixed incomes seniors tend to have.
Ms Morgenthau: I think you have to be very careful with inflation.
The Chair: Thank you very much, Ms Morgenthau, for presenting today for the Canadian Association of Retired Persons. We appreciate your attendance.
Ms Morgenthau: Thank you very much, and it was an honour to speak to you.
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HUGH MACKENZIE
The Chair: We now have, from the United Steelworkers of America, an expert witness asked for by the third party, Mr Hugh Mackenzie. We welcome you to the committee, sir. We have 45 minutes together; begin your presentation at your convenience.
Mr Hugh Mackenzie: If I may, I'd like to correct the introduction the Chair kindly offered. I am employed by the United Steelworkers of America as the research director, but I'm not here in that capacity. I could probably give a lengthy disclaimer about the relationship between the views of the organization for which I work and the views I'm going to express today, but suffice it to say that I'm here in a different capacity. I have the misfortune to be an economist, and in that capacity I spent the better part of four years working with the Fair Tax Commission in Ontario as the executive director and, along with our research director, Allan Maslove, was responsible for most of the drafting work in the commission's report. It's from that experience and that perspective of analysis that I'm coming to you today.
I'm going to spend a few minutes making a presentation to you focused on a particular aspect of what I believe to be the government's intended policy, and then comment on a couple of other things. Then, obviously, I will be available to answer any questions on this or anything else that has to do specifically with this stuff.
The focus of the presentation is going to be on the tax cut. Let me say at the outset that I would certainly hope that the previous presenter is right and that the government is losing its resolve on the question of the 30% income tax cut, or whatever the number happens to be, because I think, both as tax policy and as economic policy, it will have very unfortunate consequences for, in the first instance, tax fairness in the province and, in the second instance, for the economy of the province. The focus of my presentation is on the elaboration of those two points.
Let me start first by looking at the total value of the tax cut and the nature of the election promise, because that's in fact what we're talking about. We're talking about an election promise. The nature of the tax change that was proposed has been a little bit slippery. It has been variously described as a 20-point cut in the provincial income tax rate as a percentage of basic federal tax. As you know, basic provincial tax is a flat percentage of basic federal tax when you go through your income tax form. Ontario's percentage of federal tax is currently 58%. In some of the documents that have been used to describe the government's promise, it's been described as a 20-point cut; in other words, a cut from 58% of basic federal tax to 38% of basic federal tax.
It's also been described as a 30% cut in income tax. My math is a little weak off the cuff, but 58 down to 38 is a higher percentage than 30%, and it implies a different change in the percentage of basic federal tax. So that's a second notion of what the promise was.
The third notion that floated around during the election campaign was that the total value of the cut would be $4.7 billion.
In fact, those three notions are quite different. A 20-point cut would have a revenue impact of about $6 billion on an annual basis and result in a 34.5% cut in tax. A 30% cut would come in at a cost of about $5 billion, and that appears to be the number that most outside commentators are taking as representative of the Common Sense Revolution promise. That's certainly the number that the Dominion Bond Rating Service, for example, has been using. And then the $4.7 billion that was cited as the cost works out to be the equivalent of an individual tax cut of 28.7%. So you can see there's a variety of different notions here.
The point of these different notions is that all those tables that appeared in the Common Sense Revolution document and the various other documents that have been circulated were all based on the 20-point cut. If you work through the arithmetic and look at the footnotes, they're based on a cut in Ontario's tax as a percentage of basic federal tax, from 58% to 38%. At the same time, when it came to talking about how the books were going to be balanced, the number that was used was $4.7 billion which, as I've pointed out, doesn't correspond to the 20-point cut. Having said all that, for the purposes of the analysis that I'm going to take you through, I'm going to take the $5-billion number, which represents 30%, as representative of the nature of the commitment that's been made and focus on that in the analysis.
Let me turn you to the first bit of analysis that I've put together. Maybe I'll skip the first chart and go to the second. It's always complicated, in talking about tax incidence and the impact of tax on families, because it's a great Canadian tradition that every group you talk to, regardless of the nature of the group, thinks it's middle-income regardless of what its income is. One of the things I used to do occasionally, when I was working with the Fair Tax Commission, as a bit of a reality check for people there was to show them an income distribution chart and ask them, without betraying any confidence, to just think about where they fit on it, and therefore to think about how their circumstances fit relative to the average family. I'm going to do that to you.
This is a chart that shows a distribution of families by family income range. As you can see, there's a big lump over on the low side and it tails off to a pretty small tail on the high side, which basically makes the point that most of the people I work with and most of the people you work with are on the high side of the median income. If you look at the impact of a proposed tax cut of $5 billion in total, 30%, and look at how it's going to affect families in various income ranges, you get a pretty stark picture of the inequities in the distribution of an income tax cut.
The method in the analysis was to use the Statistics Canada social policy simulation database and model, which is a model that's been developed by Statistics Canada and is used very broadly to analyse the impact of a variety of policy changes, including tax changes. What you get when you do that is a picture that looks like this, with the highest average benefits in income ranges going to people at the very top end of the income range and relatively small changes going to people at the low end of the income range. I invite people to look at how these two compare. That will give you an idea of where most of the people are and where most of the benefits are.
When you look at the details -- on page 5 of this little set of notes -- you have an average tax cut per Ontario family of about $1,100. But more than half of the tax cut, in value terms, would go to families with annual incomes of over $90,000 a year, which represents the top 13% of Ontario families. The average cut for these families would be $4,400. The average cut for the 87% of families, with incomes below $90,000, would be $625. I've got some other numbers there, some of which you can see come directly from the chart.
The basic point is that we have an enormously skewed distribution of benefits from an income tax cut, which stands to reason when you consider that this is a proposed cut in the only progressive tax in the Ontario tax system. Given some of the other changes that are being made at the same time as part of the government's program, even the $1,000, roughly, that this would produce for a family with income between $50,000 and $60,000 a year, with a combination of municipal taxes going up as some of the impact of education transfers is absorbed in property tax increases, as tuition fees go up, as user fees go up for various other things, you can see that $1,000 disappearing pretty quickly. That's the first basic point.
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The second basic point, and let me just underline the point, is that this will make the tax system significantly more regressive and delivers a significant benefit to people at the very high end of the income scale and relatively substantially less to people at the low end of the income scale. Let's look at the impact on the economy.
I've assumed here that the government intends to keep both of its promises: that it intends to balance the budget by the year 2000 or 2001, and that it also intends to deliver on its promise of a 30% tax cut. In other words, compared with the tax system in the current state, a cut in the revenue base of the province of $5 billion would have to be matched by additional cuts in spending beyond what would be necessary if the tax cut weren't implemented. In other words, what I've done in this analysis is to take a balanced approach to this. I balanced off the revenue implications of the tax cut with the spending cuts that would be required to put it back into balance and to meet the budget deficit target, which I think now basically just about every observer of the province's fiscal scene would agree is a necessary thing to do.
Here's where the implications start to raise serious questions about their advisability in this economic environment. If income tax cuts had the same impact on employment in the economy as expenditure cuts, then the net effect would be a wash. You'd have money going out of the system through income tax cuts and you'd have economic activity being drained out of the system by virtue of the spending cuts and it would be a wash. The problem, and the economic problem the government now faces, is that tax changes and expenditure changes have very different impacts on the economy. Furthermore, different types of taxes have different impacts and different categories of expenditure have different impacts.
What I've done on the next page is to summarize typical impacts that would emerge from an analysis of discrete changes in various aspects of government activity that the government has control over. These are estimates of the number of jobs that are related to a billion-dollar amount in each of these categories. In other words, if you look at the top one, if you were to increase the income tax in Ontario by $1 billion, there would be a negative impact of 10,000 jobs as a result of that increase in income tax. Conversely, if you reduce income tax by $1 billion, you get a negative impact of about 10,000 jobs.
When I made the point about there being differences in impacts in different categories of taxes, when you come to indirect taxes -- what I mean by indirect taxes is not the legal or constitutional definition of an indirect tax, but a tax that applies in the exchange of goods and services rather than directly on economic factors, taxes like the GST or the retail sales tax in Ontario, for example. For those kinds of taxes, the impact is much greater. It's about 48,000 jobs for each $1-billion change.
On the expenditure side, cuts in wages -- for example, salaries paid to teachers, salaries paid to hospital workers, salaries paid to government employees -- there's a loss of about 42,000 jobs for every $1 billion in expenditure cut; for non-wage government expenditure it's about 20,000 jobs; for spending on capital -- infrastructure spending, subways, road repair, that sort of thing -- it's about 18,000 jobs; and for transfers to people -- you get into a debate about what kinds of transfers this lower impact would be, but it basically would be transfers to people who are fairly broadly distributed through the economy and have an effect on the economy that's similar to income tax.
In putting together the numbers for these impacts -- I'll acknowledge freely that the old statement, if you took all the economists in the world and laid them end to end you wouldn't reach a conclusion, applies to this kind of economic analysis -- you'd find disagreement about these numbers. I acknowledge that freely. But the relationship between the tax side and the expenditure side, I think you would find if you talked to any economist who does this kind of analysis, would be pretty similar. You might find that some people will say the income tax impact is bigger, the income tax impact is a bit smaller; there are some people who might say, for example, that the impact I've suggested for sales tax is overstated, but in general you're not going to find people who study these things seriously and model them seriously coming up with dramatically different conclusions.
To do the analysis, I assumed that the matching expenditure cuts that would be required in order to achieve a balance along with a tax cut would be similar to what's been announced to date. I don't have a crystal ball; I don't know what the government would do to acquire its next $5 billion, but for the sake of an analysis I made the assumption that it will be roughly the same.
I also made the assumption that a portion of an expenditure cut that went to municipalities would be recouped by municipalities to the tune of about 45%, either through increased property taxes or increased user fees, and likewise that expenditure cuts for school boards and colleges and universities would be recouped through increases in tuition fees or increases in local property tax to the tune of 55%.
For the purpose of the first piece of the analysis, I'm assuming that there are no leakages outside the province. In other words, all the job implications take place here.
What you find is that with a $5-billion income tax cut you end up with a positive impact of about 50,000 jobs, but the impact of the expenditure cuts is negative, to the tune of somewhere between 145,000 and 175,000 jobs. The variation there really depends on what kinds of judgements you make about the impact of income tax changes. You'll get towards the lower end if you assume that income taxes have a bigger impact on the economy; you'll get something towards the higher end depending on other assumptions you make about how these things are distributed. But that's roughly the range. A hundred thousand jobs is about a year's job creation in the province of Ontario, so it's a big number.
That's not the complete story, because we live in an open economy here in Canada, still, and there's a great deal of interchange of goods and services and people between Ontario and the rest of Canada. So the impacts of these changes, both positive and negative, will be distributed very broadly throughout the economy. When you factor in the enormous amount of interchange that takes place both interprovincially and between Ontario and other parts of the world, the impact of an income tax cut is still positive, but it's dramatically reduced, and so is the impact of the expenditure cuts, but to a lesser extent. The reason why that is, is because the expenditure cuts, most of them almost by definition, start off right here in Ontario, so there's a large initial impact because goods and services are being purchased here.
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So you get a net impact of, to round things, in the range of 50,000 to 75,000 jobs negatively as a result in Ontario of a balanced income tax cut and expenditure cut designed to achieve these combined promises. In just about any scenario you get a negative impact on the rest of Canada of another 50,000 jobs as a result of this.
The point, in conclusion, is that if you take all of this at face value and you assume that the balanced budget target is going to be met chronologically and the income tax promise is going to be met, then an analysis of the impact of these changes on the economy tells you that it's going to have a negative impact of somewhere in the range of 50,000 to 75,000 jobs in the province and another 50,000 jobs in the rest of Canada.
I should point out too that this doesn't take into account the impact on income tax revenues of that kind of job loss, so that you could conceivably get into a situation here where you're chasing a receding target. That's all I have to say by way of introduction.
The Vice-Chair (Mr Tim Hudak): This leaves a significant amount of time for questions, eight minutes per party, beginning with the third party, Mr Silipo.
Mr Silipo: Thank you, Mr Mackenzie, for the presentation. I wanted to just be clear that I understood some of the number crunching that you had done in this analysis. Going back to page 8, where you have the typical impacts by category of the different kinds of cuts, income tax, indirect taxes, I just want to make sure that I've understood that correctly. You're saying for example, per billion dollars of income tax cut, if you do that through an income tax cut there's a net gain of 10,000 jobs.
Mr Mackenzie: That's right, yes.
Mr Silipo: So similarly, indirect taxes, then, would be 48,000.
Mr Mackenzie: That's right.
Mr Silipo: And then you've taken that analysis on to the last page of your presentation, in showing us, assuming a 30% income tax cut with all the other assumptions you've built in, what the net impact in terms of jobs would be.
Mr Mackenzie: Yes. There are a number of feedback effects that get taken into account when you actually crunch it through, but if I explained all that to you I'd be here for an hour. I'm sure you wouldn't put up with it.
Mr Silipo: No, I think I followed the flow. I just wanted to be clear that my first basic piece -- that I had understood it correctly, because the rest flows from that.
One of the things that I find interesting in this whole discussion is that as we talked with the Minister of Finance last week when he was here, he was quite reluctant to share with us, first of all, any kind of analysis that had been done. I don't think we've received anything yet from the ministry officials, even though there seemed to be some indication in a second phase that we might get some numbers, but I haven't seen any.
I guess what we have to go on is the numbers in the economic statement from November, which seem to indicate that in fact there will be some additional job creation, although it's interesting that at the end of the day the rate of unemployment will be about the same. I think the government is claiming that there will be some job growth, although interestingly enough not as a result of the tax cut initially. Can you just give me a sense of how it would be that if we take what the minister said, which is that in the first year and probably even the second year following the tax cut, there would not be much in the way of job growth directly related to the tax cut? Is it conceivable that there could be such an increase in job growth in the third, fourth and fifth year to get anywhere close to 725,000 jobs?
Mr Mackenzie: No.
Mr Silipo: We'd have to be looking at pretty substantive increases in those years, wouldn't we, to get there?
Mr Mackenzie: Yes. As a general rule, when you grind through these kinds of models, about 70% of the impact of any macroeconomic change like this works its way through the system in the first year, and about 30% is distributed over a period of time.
These multiplier effects happen because economic activity circulates through the economy. As you go through these cycles, money gets siphoned out of economic activity; it gets siphoned out of direct productive activity, direct activity that produces employment in Canada or in Ontario and goes off into other things. It goes off into imports, it gets siphoned off into savings, it gets siphoned off into debt retirements, all those kinds of things that don't contribute directly or indirectly to GDP growth. As a result, the effects attenuate over a period of time. So you would get 70% of the initial impact in the first year and probably 70% of the remaining 30% -- it's kind of like depreciation, in a way.
Mr Silipo: So for the government to come close, even, to the 725,000 jobs -- I think 725,000 is the figure in the Common Sense Revolution -- at the end of their mandate as far as jobs being created, they would have to be relying on things other than the tax cut if they think they can get there, would they not?
Mr Mackenzie: Oh, yes, absolutely. It can't be linked to the tax cut.
Mr Silipo: It can't be done through the tax cut even though the claim is that the tax cut is the major job creation incentive that they're putting forward.
Mr Mackenzie: No, there are a lot of people who spend a lot of their lives studying macroeconomic impacts like this and, as I said, the just overwhelming consensus would be that the pattern of impacts from a general tax cut like that would be distributed generally in the way that I've -- different models will have slightly different parameters in them and will produce slightly different distributions over time, but you certainly don't get a kind of buildup to a wave that would be implicit in the notion that an income tax would produce a huge growth in jobs two and three years out.
Mr Silipo: The two charts that you've given us both indicate the median family income being I guess just under $40,000, if I read that correctly.
Mr Mackenzie: Yes, it's right at $40,000.
Mr Silipo: That essentially means -- again, just checking to see if I've understood these numbers correctly -- that half of the families would fall on either end of --
Mr Mackenzie: That's right. Half the families have incomes below that level and half have incomes above.
Mr Silipo: As you've shown, the numbers here -- I'm not going to repeat them -- would clearly indicate that higher-income Ontarians would end up getting a far larger proportion of the benefit of the tax cut.
One of the things I also -- and it's part of the reason why I wanted to be clear about your impacts on page 8, was when I looked at the category of indirect taxes, which I think again, if I heard you correctly, you said would be, for example, the provincial sales tax, is that fair to say?
Mr Mackenzie: Yes.
Mr Silipo: My position continues to be very clear that the tax cut makes no sense at all. If in fact the government were to look at applying the tax cut through the sales tax, then the job impacts would change pretty dramatically.
Mr Mackenzie: Yes, a sales tax cut would have a much different impact.
Mr Silipo: In fact that would result, going through your analysis, potentially, in certainly nothing near the numbers that the government would be claiming, but certainly a positive job impact.
Mr Mackenzie: Yes.
Mr Silipo: There would clearly be still the same number of jobs lost.
Mr Mackenzie: Yes.
Mr Silipo: I'm assuming that part wouldn't change, right, because it's still the same $5 billion of cuts?
Mr Mackenzie: Yes.
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The Chair: Mr Silipo, that's all the time we have. To the government side, Mr Carr, please.
Mr Gary Carr (Oakville South): Thank you very much for a fine presentation. I may disagree with some of it, but I appreciate the fact you've spent a great deal of time on it. I was just wondering, what would the average income for your membership be ballpark, because there can be ranges, but on the whole what would it be: $50,000, $40,000, $60,000? What would your membership be at?
Mr Mackenzie: The average would probably be in the 20s.
Mr Carr: Twenty thousand?
Mr Mackenzie: Yes.
Mr Carr: So if you were looking at this here, say it's the 20 to 30, and it's tough on your graph to see --
Mr Mackenzie: Sorry. Keep in mind that I'm talking about individual incomes, just to make it clear. My guess is that the average member of our union probably earns about $25,000 a year.
Mr Carr: Okay, so say $25,000. If we use this here, you'll be looking at a tax cut of, I don't know, $400 or $500, based on your thing there.
Mr Mackenzie: Yes.
Mr Carr: What do you say to your members who say, "Why are you going down in Toronto and telling the government, `Take $400, $500 out of my pocket.'"? How do you respond to your members who say, "By going to Toronto and arguing against the tax cut you literally are taking $400 or $500 out of my pocket"? How do you answer that criticism?
Mr Mackenzie: It's a good question. The simple answer, I guess, is that if you look at the impact that they are going to feel, whether it's thinking about the possibility that their kids will be able to go to community college or to university, whether they will be able to afford to do that given the changes that are likely to take place in tuition, when they start thinking about the possibility of user fees in the health care system, when they start looking at the likelihood that there will be user fees applied in a whole range of other areas, numbers like that start to disappear pretty quickly.
The other thing is that we're way past the point in budget cutting already, in my view, and certainly would be way, way past the point if a further $5 billion had to be cut out of the expenditure system in Ontario, where we can avoid cutting services that are of real benefit to middle-income and lower middle-income families. That's what I say.
Mr Carr: One other short question. As you know, your members have gone through tremendous change over the last little while. They are competitive with the world. They produce more with less. They've had to do a lot of restructuring that we're now asking the public sector to do. How do you also answer the charge of your members who say: "Look, we've had to restructure. We're doing more with less. We're producing. We are as efficient as any people in the world in creating our products. All we're asking the public sector to do is be as efficient as we've had to do"? How do you answer that charge of the people saying, "All we are doing is doing the restructuring that the private sector has had to do," whether you're a steelworker, whether you're a clerk in an office, whether you work in an insurance company"? How do you answer that charge when your members are saying, "Look, the public sector has to do what we've had to do over the last few years"?
Mr Mackenzie: There are a couple of premises in your question that I guess I'd like to explore. One of them is that you can draw an easy analogy between services that are produced in the private sector and public services. It's in the nature of many public services that the only way you can measure the output from the public services is by looking at the inputs into the public service, so there are some difficulties with the analogy. I don't think there's a whole lot of disagreement with the notion that the public service could be made more efficient. I think there is a pretty fundamental disagreement with the notion that in order to do that you have to basically destroy the foundation of public services that we provide. You've given me an opening to voice another beef that I've got.
Mr Carr: Sorry to interrupt. If I could --
Mr Mackenzie: Actually, I'd like to get this point in if I could. When we've gone through restructurings with major employers, one of the things those employers has done is they have recognized their community responsibility and they have bent over backwards to be generous in adjustment for the people who are affected. Granted, we've dealt with employers who have basically put the notice up on the bulletin board on Friday and guys show up at the gate on Monday and there's a padlock and it's all gone. So there's a spectrum there. But certainly the way the government's dealing with the impact of "restructuring" on its own employees isn't anywhere near the far positive end.
If I may, I think one of the most extraordinary things this government has done, in dealing with the adjustment impacts on its own employees, has been to remove by legislation a pension right that is available to every private sector employee by eliminating the grow-in benefits in the Pension Benefits Act.
Mr Carr: As you know, your connections to the previous government were very close. If some of your solutions that you talked about were as easy to do and as simple, how come the previous government didn't do it?
Mr Mackenzie: The previous government wasn't proposing to cut the income tax by $5 billion and match it with expenditure cuts. Since you've put the question politically, let me put my response politically. It seems to me that a government that was serious about meeting its budgetary deficit target would not be proposing to undermine the revenue system to the extent of $5 billion and match that with expenditure cuts that would have an enormous negative effect on the economy.
Mr Carr: I guess our feeling in looking at this is very simple. What we're doing in the $4 billion or $5 billion that we're giving back to your members, in letting them spend the money rather than having the government spend it for them, is the exact amount that the previous government had increased taxes over the last few years. So what we are doing is saying to your members, "We're going to let you spend the money, not have the government spend it for you." I suspect most of your members would say: "You know what? We kind of like that idea."
Mr Mackenzie: I'm anxiously awaiting the letters from the Steelworkers that occupy this part of the scale saying how valuable they think the tax cut is.
Mr Spina: What about the ones earning in the $60,000 range?
The Vice-Chair: Mr Spina, Mr Carr has the floor.
Mr Carr: Looking at the situation you've got, the previous government increased spending by 21% in four years. They spent double, triple the rate of inflation when you look at it. Your members have had to restructure and do more with less. How do you handle that argument? Regardless of the social contract, the bottom line is spending, and the previous government, which you were very close to, increased spending 21% over four years at a time when your members were doing more with less. How can you not see that your members are out there saying: "To heck with it. You know what? The government has got to do the same types of things that we've had to do, and they have to get in line with everything we've had to do on our own shop floor"? How do you handle that argument?
Mr Mackenzie: If that's all that was happening, if all that was happening was that the government was delivering the same service to people more efficiently, I don't think you'd have a lot of complaints out there. But that's not what's happening. What's happening is that there are cuts in service that our members on the shop floor will see directly, and if they don't experience those themselves, there's going to be somebody who works at the punch press next to them or somebody who's typing at the workstation next to them who is now starting to have real trouble getting to work on time because they've got to drop their kids off in two different places because they can't find child care because the subsidies have disappeared from the child care centre they used to take them to and they've had to close down, whether they got a subsidy personally themselves or not.
Mr John Gerretsen (Kingston and The Islands): Thank you very much. It's very interesting; perhaps the $10 billion that we have to cut out of the deficit in order to come to a zero balance may have something to do with restructuring, but certainly not the $5 billion that we're talking about here as far as the tax cut is concerned.
The two charts that you have here are very interesting. During the Bill 26 debate we heard over and over again from the government members that since most of the families earned $50,000 or less, therefore they would be getting most of the tax benefit with respect to a tax cut, which is absolute insanity as far as I'm concerned. Your figures clearly show that half of the $5-billion tax cut, $2.5 billion, goes to families with incomes of $90,000 or more. These are only 13% of the families.
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What percentage of families are there below the median, or what percentage of the total income tax cut would go to the families that make $50,000 or less? Have you done any calculations on that?
Mr Mackenzie: I haven't done the calculation. I've got the stuff here; I could figure it out quickly enough. But I don't think you'd want to sit here watching me play with the calculator.
Mr Gerretsen: From the figures here, it would look as if it may be about 20% of the total, just from looking at the charts, or even less than that.
The question I have really deals with page 8 and this notion that the $5 billion in tax cuts going back to the people will therefore be reinvested in the economy and it will make everything take off etc. You've sort of refuted that on page 8, because expenditure cuts have a much greater effect than revenue cuts as far as the jobs in Ontario are concerned. Would you agree with me that people who are getting the tax cut at the higher levels basically have a choice as to what they do with that money? Some may reinvest it in Ontario in one way or another, some may buy consumer goods, but some may also just decide to take a trip to a foreign country or indeed just bank the money. On the other hand, people at the lower end, when they no longer have the expenditures to spend, whether it's through the transfer to persons or in goods and services on the expenditure side of things, those people pretty well utilize all of their money by putting it all back into the economy directly by just making ends meet and paying their day-to-day expenses. Do you have any comments on that?
Mr Mackenzie: What you've done is basically described through examples what the stats show. The reason why income tax doesn't have the kind of power that expenditures do or that other kinds of tax cuts do in generating economic activity is because, to use some economist lingo for a moment, there are a lot of leakages out of the expenditure system. "Leakage," when you're looking at it in macroeconomic terms, means spending on imports, spending on travel, spending on debt reduction or simply saving. All of those things are leakages out of the flow of expenditures that reduce the impact.
One of the reasons -- it's not the only reason -- why sales tax cuts have a more powerful impact on the economy than income tax cuts is precisely because sales taxes make up a much larger proportion of the income or are disproportionately paid by people with lower incomes. As a result, in relative terms, they have a more powerful impact. You're right: People with lower incomes tend to spend a higher proportion of their incomes.
Mr Kwinter: Thank you very much for your presentation. It's going to be very useful. As you say, all economists have different viewpoints, but it will be good as a benchmark to see how it compares, and we can see those who agree or those who disagree with you. I think it's useful from that point of view.
In your modelling, have you taken into account that the $5 billion in the tax cut is borrowed money, and what impact that has on what we're doing?
Mr Mackenzie: No. As I said, I didn't look at feedback effects into the provincial budget. That means that it doesn't take into account the fact that if you take that many jobs out of the economy, other government revenues will be negatively affected. It also doesn't take into account the carrying costs. Assuming that this is borrowed money we're dealing with here, it doesn't take into account the accumulated carrying costs which, given the vicious nature of compound interest, can get pretty big.
Mr Kwinter: Also, in your modelling you are trying to anticipate what the drag is going to be on the Ontario economy. Is there a correlation in the fact that the federal government is going to be acting as well? Ontario is not in a vacuum. Not only that, but the largest number of federal employees also live in Ontario, and the federal government is going to be doing similar things. I don't expect they're contemplating a tax reduction, but they're certainly going to be contemplating cuts in services. Again, that is going to have the greatest impact in Ontario. How does that relate?
Mr Mackenzie: This analysis is independent of that, but obviously if you are looking at the next couple of years in terms of assessing the performance of the Ontario economy, you'd have to be very concerned about the impact of the cuts that are already in the system and working their way through in Ontario and the cuts that are in the system and working their way through at the federal level.
In fact, one of the things that if it weren't so serious I'd find a bit amusing is all these people who are scratching their heads, wondering why it is that economic growth in Canada is falling short of people's projections. All of a sudden it dawns on people, "Well, I guess when you've got governments cutting spending all over the place and laying people off, that has a negative effect on the economy." The light goes on.
Mr Kwinter: Do we still have some time?
The Vice-Chair: One more question.
Mr Mackenzie: Ask me about payroll taxes. I had something I wanted to say about payroll taxes.
Mr Kwinter: No, I'm interested in your analysis of the value of the cut, using the one assumption that it's going to be $5 billion. There is a contradiction. There is a contradiction in what the government has been saying, and what happens if it is the $6 billion?
Mr Mackenzie: If the change actually was the letter of what's in the examples that generated the charts that some people in the room used at the door and other people in the room certainly were confronted with at the door in what Bill Davis used to call "the great consultation with the people last year" -- some of us remember these things. There's no question that if one of the letters of the promise were adhered to strictly, namely the 58% to 38%, all of these economic impacts are that much bigger.
The Vice-Chair: Thank you, Mr Mackenzie, for your presentation. Have a good day.
This committee will now recess for its lunch. We'll resume proceedings at 1:30 this afternoon.
The committee recessed from 1228 to 1332.
C.D. HOWE INSTITUTE
The Chair: This afternoon we have the C.D. Howe Institute, Bill Robson, senior policy analyst. Welcome.
Mr Bill Robson: Thank you for the invitation to be here. I'm not sure what you've been subjected to already by people who have sat in this chair. I'm not here under the impression that you're eager to be lectured to, because you've probably been lectured to a lot already. With that what I hope is a rather graceful introduction for not delivering an integrated presentation that would make a good lecture, I thought I would come and just cover off three things, or present three angles, if you like, that might be helpful in thinking about Ontario's situation.
First, a quick take on why it is that worrywarts like me think that budgetary control might make us feel better. Second, a bit of a national political note on making sure that if we do behave ourselves better in terms of fiscal policy, we will actually enjoy the benefits of doing it. Finally, some thoughts, and they're not original with me, on what international experience might tell us about how best to get where you want to go in terms of controlling the budget. I will watch my watch and try and make sure I don't run over half the time that's available.
First of all, why might deficit reduction make us feel better, and not necessarily in the very long run, when we're all dead, but in the shorter run that matters politically and also in terms of what people are looking forward to? The short answer to that is that you get rich by saving. In private life, people know that. If you look at private sector saving rates, households and businesses added together over the years, they've consistently, after allowing for some ups and downs, saved about 8% to 10% of net income in Canada on the whole and a little bit more than that in Ontario.
I've provided a handout. It's pink, in celebration of the day. If I can direct your attention to the first chart, what I've done there is shown the situation for all of Canada. For reasons that I'll get into in a moment, it's awkward to look at this sort of portrayal of the situation with regard to a single province, especially Ontario.
But what this shows, if you look at the top line, that's private saving. It got pushed up a little by high-inflation years; in high-inflation times people tend to save a little more to make up for the fact that a lot of the assets they own are having their purchasing power eroded by inflation. But if you look through that, you can see that on the whole, private sector saving over the course of 45 years has been in not that broad a range, in terms of 8% to 10% of income.
That's a rather bloodless way of looking at it as a percentage of income. If we were to put it on a human scale, the typical Canadian family of four during the first half of the 1990s generated a net income of about $87,000 and saved about $8,000 of it, and the typical Ontario family of four, actually being a little bit richer and being a little bit more saving-inclined, saved about $9,000 every year. If that were the end of the story I wouldn't be sitting here telling this story, but when you look at the wealth of a society as a whole, what the private sector, the households and the businesses, do is only part of the story. There's also what governments do.
The bottom line on this chart shows the contribution, or lack of it, that governments have made to national saving over this same period. I've inverted the line so that government additions to saving are below the line so you can add them together and see that entire shaded area, the total saving in both the private and the public sectors. Up till the mid-1970s, governments in Canada added considerably to national saving by running large surpluses when you look at things on this national accounts basis. But since then, they've run deficits.
During the 1980s, on average, governments absorbed about one third of every dollar that was saved in the private sector, and during the 1990s it got twice as bad, with governments absorbing about two thirds of every dollar saved in the private sector on average. If you think of this again on a human scale, this typical family of four with its $8,000 worth of saving at the end of the year -- perhaps it puts it in Canada savings bonds or that saving happens inside a pension plan. Little does that family know that governments are converting about $5,000 of that saving into consumption. When you think of the family in terms of its total claims on the resources of the country, the increase in its wealth isn't $8,000, it's only $3,000. What you might think of, then, is that thanks to the public sector over the last few years, Canadians generally and Ontarians particularly have developed what I might call a consuming passion. That's what the second chart in this handout below the one I was just referring to shows. A solid line for Canada, a dashed line for Ontario shows consumption as a proportion of income.
We hear a lot of rhetoric about worrying about future generations and so on. I would submit to you that when you see consumption like that, people are clearly not that worried about future generations in any realistic sense. They're living for the here and now.
I want to emphasize one other thing that I think comes out of this type of analysis. This sort of consumption here is the highest that it's been in Canada since the Second World War. You hear a lot of people who are focused on next quarter's GDP growth or what have you, saying things like, "Until the consumer starts to spend more we're dead in the water." I just want to show this chart to make the point that whatever ails us, it sure isn't lack of consumption. We're consuming to beat the band, and I think that is a very important part of the story of why we don't feel better right now. What does happen when you consume more and more of your income? The answer is that you get rich more slowly, and if you consume enough you start to get poorer.
If you turn to page 2 of the handout, I think a key part of the story of why the 1990s has been such a miserable decade in Canada and in Ontario is told in these two charts. The top one shows how quickly national wealth has grown in real terms over the decades. As our saving rate as a country has fallen, our ability to accumulate wealth has fallen. The lighter-shaded bars that show it on a per-person basis indicate that in the 1990s we've been saving so little that national wealth has scarcely even grown in line with population. As a result, if you look at the bottom chart, which looks virtually identical, growth in real incomes per person, we are not enjoying rising living standards because we aren't adding to our wealth.
If we want the Canadian typical family of four to see rising living standards in the coming years, what we have to do is get our saving rate up. That is not primarily a private sector problem; it's a public sector problem, and it means we have to reduce the rate at which deficits are cutting into the saving that's being done by households and businesses. In this context, I want to just add one footnote about tax cuts.
I'm not opposed to tax cuts. They fit into a determined plan of budget control better than the arithmetic alone would suggest, for reasons that I'll touch on in regard to international experience. But when you think about this economic situation, whatever justification tax cuts may have, it is most emphatically not that they might boost consumer spending. That is the last thing we need. We don't need more consumption in this economy. We need more work, we need more investment, we need more saving.
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Having talked a little about the national economic situation, let me just mention a second topic that I think is important, looking ahead for Ontario. If we get out act together in this province, if we start to behave ourselves a little better on the fiscal front, are we going to actually see much benefit from it?
Well, I'll be a typical two-handed economist. There's good news and there's bad news here. Here I'm thinking of the old line that, "The economist's lag is the politician's nightmare."
The sort of relationship I'm outlining here doesn't say that if we cut deficits, we're going to see the economy rear up on its hind legs and charge ahead creating jobs at the rate of 100,000 new jobs a year. But it does hold out the hope for improvement in the short run for the same reason that if you are a family and you saved a little bit more this year, you'd have a higher income next year. It's straightforward arithmetic. If we improve our saving performance, we will see higher living standards, not in the indefinite future but in the fairly short run.
But one of the problems that we face in Ontario, and one of the reasons that I can't show as effectively a picture of Ontario's situation, is that a lot of what looks like saving in Ontario is in fact surpluses that the federal government runs in Ontario which are then offset by very large deficits elsewhere. We have the federal government shifting a lot of Ontario saving out of the province. Therefore, although Ontario's saving performance has over time been quite a bit better than the national average, we haven't felt much benefit from that in terms of our living standards. A lot of the saving, as I say, does not get invested for the benefit of Ontarians.
At the risk of appearing in this setting a bit of rabid Ontario First-er, I don't think the transfers out of the province that are being conducted on the scale they are by the federal government is good for Ontario. We save, but we don't get richer. I actually don't think they're that good for the recipients either, by and large, and I'm not sure they're good for the country. If the idea of some of these things is, for example, to bribe Quebec into staying in Confederation, I'm not sure that the logic of the situation shows that's working very well.
The other thing they do is that they are radically distorting the cost in terms of taxes of $1 of government programs in one region of the country versus another, which is one of the reasons we often seem to have debates over fiscal policy in this country that are radically disconnected. If you're in Newfoundland, you pay 50 cents for a $1 of federal government programs. If you're in Ontario, by now you're paying in the neighbourhood of getting on for $2 in some years, and we're not speaking the same language when we talk to Newfoundlanders about what we want from the federal government.
In my handout, I took a rather rough cut at showing the scale of this problem on page 3. Some of you may have seen a study that was commissioned from Mike McCracken of Informetrica by the previous Ontario government, which looked at a variety of measures of ways in which the federal government was shortchanging Ontario. I wouldn't come out the same place that study did in terms of insisting that federal transfers should be larger and more generous to Ontario. But in the same spirit of that analysis, if you look at how the federal government taxes and spends in terms of its program spending in Ontario versus the rest of the country, you can see that the federal government runs consistent large surpluses in Ontario on that primary budget, excluding interest payments, and substantial deficits in the rest of the country. Ontario is shipping over its borders large amounts of saving, large amounts of funds every year. As We are saving a lot, but we're not enjoying what we might.
It's too tangentially related to the proceedings of this group for me to go into this topic at much length, but I worry a lot about paralysis in Ottawa with regard to serious rethinking about the way the Canadian federation works. It's obvious why there's such difficulty in Ottawa confronting the problem.
What surprises me a little more is to see Ontario not taking a more active line, pushing for reforms to the structure of the federation based on the idea of subsidiarity, locating things at lower levels of government and greater fiscal accountability at the lower levels of government. I think that would be a very salutary thing. I think it would help to shake Ottawa up a little bit. I think there are a lot of other provinces thinking the same way, and from the point of view of being a bit of a rabid Ontario First-er, it would have the important side-effect that we might succeed in reducing this ongoing transfer of money out of Ontario that, as I say, I don't think is good for Ontario and I don't think is good for the rest of the country either.
Finally, and I'll be quick here, an important lesson from abroad: If you think that worrywarts about deficits have a point and you think it would be a good idea for us to raise our saving rates, cut down on these deficits and try and add more to our wealth each year, the question is, is a program such as the one we are now seeing the outlines of in Ontario, the Common Sense Revolution sort of program, the right way to go?
As I say, these thoughts aren't original with me. I commend to you the whole article, for anyone who has a taste for this sort of thing, but failing that, the summary I included on the final page of my handout of an article published late last year in the journal Economic Policy -- it's a European journal -- by some Italian political economists who drew on the experience of 20 OECD countries over 30 years and asked, among other questions, what it is that distinguishes successful budget consolidations? They defined that principally as a budget consolidation that succeeds in stabilizing and then reducing the debt relative to the size of your economy after three years. What is it that distinguishes those from unsuccessful fiscal consolidations?
On a sobering note, I should mention that the unsuccessful adjustments outnumbered the successful ones by a wide margin, although one of the difficulties they had in this study was that these things are happening more and more frequently around the world as time goes by and a large number of them were too recent to call.
In the ones they were able to have a good look at, they found that unsuccessful adjustments typically involve large tax increases, tax increases that were roughly two and a half times as large as the spending cuts. They involved a very light touch when it came to government transfer payments and government wages on average, and they found that cuts in infrastructure spending tended to take the major part of the hit.
Successful adjustments were quite different. Spending cuts were about four times as large as tax increases. Transfers and government wages tended to take a little bit more than half the hit. What was a surprising thing that fell out of the study that they hadn't been looking for and wouldn't want to make too much of because it's only true on average, nevertheless it's interesting that direct taxes on households tended to fall in the countries where successful fiscal adjustments took place.
I won't draw extensive parallels either with the experience in Ottawa during the 1980s or with what we might see in Ontario right now, but there are some lessons here that are important to learn.
One thing in terms of the political flavour of it that was interesting was that both left- and right-wing governments were quite well represented in terms of successes; in fact, left-wing governments somewhat more so in terms of both number of attempts and the success they had. Centrist governments tended not to have any successes in this analysis.
The paper, unfortunately for this group perhaps, leaves the question of what the effects were on re-election of the governments that did them for future research. However, they do observe, in looking at the economy, that growth tended to be higher and unemployment lower following successful adjustments, and to be fair, that may be because economic circumstances helped out a little bit. My own observation on this score is that practitioners of high-deficit fiscal policies in Canada over the last few years have not generally been rewarded by voters.
That is the end of my non-lecture. I hope there's time for comments and questions and personal attacks.
The Chair: Thank you very much, Mr Robson. We'll try to avoid personal attacks. We can start with five minutes each. We'll start with the government.
Mr Wayne Wettlaufer (Kitchener): Thank you, Bill, for your presentation. It's good of you to come today. I'd like to follow up what you said by putting on the record -- we've had a number of discussions in the last couple of days about the success or non-success of New Zealand. I have some figures here which have been released by the Organization for Economic Co-operation and Development. The unemployment rate in New Zealand as of September 1995, which is the latest figure available, was running at 6.1%, and the OECD's 1994 economic survey of New Zealand shows an improvement in the general government budget balance between fiscal 1990-91 to 1993-94. The budget balance went from a deficit of 3.5% of GDP to a surplus of 0.6% of GDP in 1993-94. According to the OECD Economic Outlook in December 1995, the New Zealand government experienced a surplus of 3% of GDP in the 1995 financial year which ended in June 1995.
The outlook states:
"The government has reiterated its conditions for future tax cuts, namely, net public debt to be reduced below 30%, no immediate risk of a return to budget deficits and no risk of strong balance of payments or inflationary pressures emerging. On current government projections, the fiscal objective should be met during FY 1996-97, suggesting that, subject to macroeconomic criteria being fulfilled, tax cuts could be implemented in the second half of 1996."
Gross public debt as a proportion of GDP peaked at around 77% in 1987. It declined sharply to the 60% to 63% range until 1994, when it was forecast to fall to around 55%. The net debt position reached 51% of GDP in 1992, 42% in 1994 -- according to the 1994 OECD Economic Survey, which is the latest -- and is projected to fall to under 40% in 1995 and under 30% in 1997.
"In addition, New Zealand was ranked 19th" -- this is as of September 1995 -- "in Euromoney's ranking of countries for investment risk purposes." Canada was 14th. "New Zealand's ranking has improved four places from September 1991, when it ranked 23rd. By contrast, Canada's standing slipped 11 places, from third in 1991 to 14th in 1995."
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Bill, what would the effect of our actions be, if you could project that? Would it be similar to New Zealand's?
Mr Robson: New Zealand's situation -- a couple of things occurred to me as you were talking about that. First of all, they had economic problems that I think put ours in the shade, and the adjustment they went through was particularly painful. Certainly the performance of the economy and the immediate aftermath of the debt crisis was pretty bad. However, interestingly from a political point of view, New Zealanders have obviously developed a very strong taste for that sort of thing because governments have been consistently re-elected on platforms of doing more of the same.
In terms of the macroeconomic stabilization and so on -- that country did not form part of this survey because they have crummy data -- it would certainly fit the bill in a major way. But the one thing that more attention needs to be paid to in New Zealand's case is some of the efforts they made in terms of reforming government services.
One of the things I'm a little concerned about as I look around Ontario -- and I won't hide that I have a particular interest in public education -- is that I don't see where the positive agenda is. In New Zealand they went for charter schools in a big, big way. They freed up the system. They really lit a fire under public sector service delivery in a number of areas. I think one of the reasons the reforms in New Zealand have developed such a strong constituency and have proved to be so popular is that the quality of a lot of the services provided by government improved in terms of their responsiveness to people's wishes.
I think there's a lot to be learned from New Zealand, and I think it doesn't only go to the macroeconomic stuff that we often hear about but also goes to a lot of what was done on the service delivery side. I would again mention education as a key area where they really shook up the system and I don't think they'll ever go back to the way they were.
Mr Kwinter: Thank you, Mr Robson. I appreciate your presentation. I am really interested in your observations that we don't have a consumption problem. To my mind, and I've been following this issue very closely, obviously, the major impetus for the tax cut is to get people spending so they can kickstart the economy. You're saying that the last thing we need is more people spending and not saving. Could you just expand on that?
Mr Robson: I think it follows pretty straightforwardly. If you buy my analysis that you have to save in order to be richer and to have higher incomes in the future, more consumption isn't the way to go. What strikes me about private sector saving is that it tends to be a reasonably constant proportion of income as time goes by, and therefore I focus on the public sector as the major source of the problem. But if anybody suggests to me that what we need from a tax cut is more consumer spending, I'd say that's not what we need at all.
If we're going to see benefits from a tax cut, and I think there are benefits to be had, it'll be on the side of the incentives to work and to save, and not when it comes to consumption. For one thing, as we know from looking at the proportion of people's spending that is imported from outside the province, a lot of extra consumer spending is simply going to leak away across the borders right away. Second, it's the wrong sort of incentive. We've been consuming in a big way over the last few years and I think the evidence is in, in terms of how much good that's done us.
A lot of this focus on more consumer spending comes from a very excessively short-term preoccupation on the part of business economists and government economists on what next quarter's GDP growth is going to be like. You add up consumer plus government plus exports minus imports and you say: "There's GDP growth. If it's higher next quarter, I'm happy; if it's lower next quarter, I'm not."
I'm dubious about the size of those effects to begin with, but I think that sort of short-term thinking is entirely inappropriate. If there's any justification for a tax cut, and I think there are justifications, I would not put consumer spending anywhere on that list. If I thought that was all it was going to do, I'd be opposed.
Mr Kwinter: I think it's a little perverse in that the government is saying: "The reason we have to take these tough economic stands is because we have been overspending, we have not got our fiscal house in order. We've got to cut back on our expenditures, we've got to reduce the deficit, but by the same token, we're saying to you as a citizen that we want you to do the opposite. We want to go out and borrow money and give it to you so you can go out and spend it. We encourage you to spend it because by you spending the money we've borrowed, it's going to help our economy grow."
Is that an evaluation of what you --
Mr Robson: I think the big damage that income taxes do to the economy is when it comes to incentives to work and incentives to save and invest. Again, I think that's where the benefit will be. I can only repeat myself: If I thought all it was going to do was boost consumer spending for a couple of quarters, I would argue very strongly against it. I don't think that's what the justification for income tax cuts is.
Mr Kwinter: One of the other things I'd like to get your comment on, because the C.D. Howe Institute, of course, is a financial institute, have you done any calculations on what the drag on the Ontario economy is going to be as a result of federal actions that we have yet to see in the budget that's coming up?
Mr Robson: It's an odd thing about real life. When you look for correlations between government spending, changes in fiscal balances and the growth of the economy, they are very, very hard to find. Most economic models, including the ones that are still very common in textbooks, do stress fiscal drag as a very important fact of real life, that when governments cut their spending or lower their deficits, it's going to hurt the growth of the economy. I can't demonstrate it, I didn't come with all sorts of charts and things, so I will just have to assert for the time being that you can look through the correlations of the data until your eyes ache and you can't find those things.
There are a number of reasons that might be the case, but one of them, I think, is that when you look at very major changes in fiscal policy, people's expectations about the future are very important. Among the fiscal episodes that were looked at in this paper that I mentioned earlier and some others that have been done looking at the experience of European countries, there are some striking examples of countries where very large budget consolidations were done and the private sector economy took off like a rabbit.
There are a lot of reasons that might have happened. One of them is that monetary policy often eases up when the economy starts to weaken, and what you lose on the fiscal side you gain from the monetary side. That's a possibility. The other possibility is just that people's expectations about the future change very radically when they realize that the future won't be like the past. One of the reasons people are justified in thinking that a tax cut might be a good thing is that at the moment there is enormous pessimism among the population that the future will be any different from the past. Clearly, the past doesn't stand out in people's minds as having been a very good time.
From that point of view, I think it's important not to rely too heavily on the models where government spending plus consumer spending etc etc adds up to GDP growth, because real life doesn't turn out to support that very well. There are examples where governments have consolidated their budgets and the private sector economy has just continued to roll on quite well. So I'm not tremendously worried about that.
If you think those effects are big, the appropriate focus of your attention would be on the Bank of Canada. If there is a big hit on the economy as a result of governments cutting their spending and the economy starts to weaken, then the question is, we've got inflation targets in place. If monetary policy doesn't ease, we're going to have deflation. They're going to miss those targets, the economy's going to be weak, and therefore you would expect monetary policy to do something to offset that. I'm giving a bit of a multifaceted answer here. If you think those effects are important, look to the Bank of Canada. I'm not so sure they are that important.
Mr Silipo: I want to try to look at the fiscal situation from what I think is the perspective that the average Ontarian would look at it, which is in terms of what it all means for them and their families, and particularly, are they going to have a job as a result of what is going on? Given the high level of unemployment, given the projections out there for the next couple of years, that likely won't get much better. You said that your view is that the tax cut in and of itself isn't going to generate a lot of consumer spending. The government is saying that it is and that that's what's going to create the jobs. What is the sense of the tax cut, as you see it, if it's not going to create the jobs?
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Mr Robson: One of the things that is a strange result in economic analysis is that when people do estimates of how much income taxes and other types of taxes cost the economy for every dollar of revenue raised, the numbers they get turn out to be huge. There is a gentleman at the University of Alberta, Bev Dahlby, who does these calculations, and he's not any kind of radical supply-sider. He uses very middle-of-the-road estimates of how responsive people are in their work effort to the taxes they pay. He figures that federal income tax rates are imposing a cost of about 40 cents on the dollar for every dollar raised -- in other words, a dead-weight loss to the economy, no benefit to anybody -- in addition to the dollar that's taken from one person's pocket and put into somebody else's. Looking at provincial income tax rates, depending on what province you're in and whether you're looking at general taxes or surtaxes, he calculates anywhere from that 40-cent figure up to an extra dollar or even a little bit more in some cases.
You might thing that an effect that size would be very noticeable in the short run, and perhaps it is. After all, in Ontario we saw some pretty substantial hikes in personal income taxes over the last few years that didn't bring in anything like the revenues that were expected. Why is that? It may well be because in fact people's decisions as to whether to work, how much to work and whether to declare their income were strongly affected by those things, but I think also what happens is that over time those effects come out in a very big way, even if overnight you don't see much.
I think that's where the real importance of income taxes is. They are anti-work. An individual's decisions as to whether to work, where to work, whether to declare income are very strongly influenced, especially over long periods of time, by the taxes that are imposed on that income. I think that's what the key benefit of lower income tax rates is.
Again, I'm repeating the point I made earlier: I don't think consumer spending is at issue here. That is a very, very short-run consideration that probably isn't even all that big in real life as opposed to certain economic models. It's the incentive for people to come to Ontario, work in Ontario, work longer hours, work in the above-ground economy as opposed to the underground economy that's the real issue.
Mr Silipo: Are you saying that will create the jobs?
Mr Robson: Yes.
Mr Silipo: And it will create the range of jobs that the government is projecting?
Mr Robson: I don't know what the government is projecting.
Mr Silipo: It's projecting 725,000 jobs in the next five years.
Mr Robson: Inasmuch as some of that is supposed to come from higher consumer spending, I'd be dubious about that. But what we do know from experience is that as income tax rates have gone up, we're not seeing the kind of revenue coming in that you would expect from that. That's an indirect but nevertheless a very important indication that in fact something is happening to people's work effort and to their willingness to declare their income as those rates have gone up. Having experimented over a number of years now with raising income tax rates, raising income tax rates and raising income tax rates again, and really not getting where we thought we wanted to go with that, I think it's well worth a shake trying to lower them.
Now I'm ambivalent on the tax cuts because I've already called myself a worrywart about deficits and the arithmetic is obviously very unfavourable. When you're paying interest rates as high as we are now, a dollar forgone now means an extra burden next year that's rather difficult to carry, as we know from experience. But to the extent that in fact what you're seeing happen with the taxes is a discouragement of work effort and a discouragement of people's willingness to declare their income, you can guess -- and you're going to have to be careful about how brave you are in making these assumptions -- that the cost in terms of revenue that you lose from those tax cuts may not be quite as big as you expect just by multiplying the rate times the base. After all, on the way up we didn't see increases in revenue of the sort that were predicted; I bet on the way down we don't either.
The Chair: Thank you very much, Mr Robson. We certainly appreciate your presentation as well as your enthusiasm for the committee today.
ONTARIO PUBLIC HEALTH ASSOCIATION
The Chair: The next group to come in is the Ontario Public Health Association. We welcome them this afternoon on Valentine's Day; we note the red dress.
Ms Mary Martin-Smith: Thank you. It was planned.
The Chair: We have 30 minutes to spend together. We will hear your presentation and then perhaps we'll go on with questions, if that meets with your approval. Would you identify yourself please for Hansard at your first opportunity.
Mr Winston Miller: I am the president of the Ontario Public Health Association. Allow me to introduce my colleagues. To my immediate right is Mary Martin-Smith and she is the president-elect of the Ontario Public Health Association. To Mary's right is Peter Elson and he's the executive director of the OPHA.
We wish to thank you for providing OPHA with the opportunity to address the committee this afternoon. It's exactly one year ago today that I recall being here, and we can truly say what a difference a year makes. We have noted that in this province what we have experienced over the past year has created a climate of both crisis and opportunity.
At the outset we would like to acknowledge that the fiscal crisis facing Ontario needs action to stem the deficit tide for the benefit of our families and communities both now and in the future. Having said that, we just want to indicate that any of our comments recognize the context in which the current government is taking certain steps.
First of all, I'd like to just indicate that the Ontario Public Health Association agrees with the view that major restructuring of Ontario's health care system needs to take place in order for Ontarians to be able to continue to afford the high quality of health care we currently have.
We think, however, that a very critical piece of that is that there must be a built-in evaluation of the cost-saving mechanisms. This is within the various sectors and also within any mechanism which has been initiated by the government, such as the Health Services Restructuring Commission. We think it's critical that we make sure that any savings that are proposed are real savings.
Along with cost savings, we feel that the future of the health system must be equitable, accessible and responsible to consumers. We also feel that a coordinated and comprehensive program of appropriate services is important. By saying that, we're indicating that simply using cost savings as the focus is not the only way to go. We do need a balanced approach.
Some of the factors we think need to influence funding decisions: We need to take into consideration population, density, demographics, size and so on. Whenever cuts are contemplated, we need to take other factors into consideration.
OPHA wants to acknowledge and note some recent steps which have been taken by the government: some of the amendments to Bill 26, such as the acknowledgement of existing structures, such as district health councils, to balance provincial and community health planning interests; the preservation of the sanctity of the health provider-patient relationship; and the acknowledgement of the role of existing community volunteers and services in the plan for long-term-care reform. We've also noted some attempts to reinvest some savings in such areas as advanced paramedic services and community-based or in-home dialysis care.
We have some specific recommendations that we'd like to offer.
We strongly recommend that in the annual report of the Health Services Restructuring Commission there be an evaluation of the cumulative impact of the proposed changes on the subsequent economic and physical health of all members of the community.
We also recommend that funding decisions should be made which take individual community health service needs into consideration.
We encourage the government to continue to take existing planning and service structures and voluntary organizations into consideration when making health system restructuring decisions.
Now I'll defer to one of my colleagues to just continue to walk us through this.
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Mr Peter Elson: The impact of social and economic policies on the health of Ontarians is a key area of concern to OPHA. OPHA holds the position that a more equitable distribution of the province's financial resources is needed to ensure that the fundamental determinants of health -- food, shelter, healthy growth and development, employment, education and income -- are within reach of everyone.
There is danger that the recent 22% reduction in social assistance rates will result in even greater socioeconomic inequities in the health status of Ontarians. In particular, the health and wellbeing of children, one of the largest groups relying on social assistance, can be expected to suffer. Recent statistics on the use of hostels show increased use due to economic rather than emotional or physical distress.
Infant mortality rates are also a recognized indicator of population health. Babies born to parents in the poorest neighbourhoods are twice as likely to die before their first birthday as babies born to patients in the richest neighbourhoods. That's not to diminish the strides which have been made in decreasing infant mortality, but while population averages may provide solace to some, they're of no comfort to public health staff who deal with people, not averages.
Neither is this phenomenon restricted to children. The death rates for men between the ages of 65 and 70 decline steadily as the level of earnings in the years prior to retirement increases. The death rates at the lower end of the income scale were about twice as high as the rates at the upper end of the scale. Low-income people also have more years of ill health than high-income people. These results are based on a study which covered half a million people, and for each individual, data from almost a quarter-century of their lives have been drawn upon. The evidence that health is determined by income distribution is clear.
Therefore, taxation policy has a profound impact on health. A progressive system of taxation is one of the most important instruments by which governments can ensure that everyone has an adequate level of income to meet their basic needs. Unfortunately, the present tax system in Ontario is regressive and increases disparities. In addition, tax reforms initiated at the federal and provincial levels have resulted in a significant shift of the tax burden from corporations and high-income earners to middle- and low-income groups.
OPHA is concerned that the proposed 30% reduction in the current rate of provincial income tax will only serve to widen the existing socioeconomic disparities in the health status of Ontarians. In addition, OPHA feels that the proposed provincial income tax reduction will impair the government's ability to bring the deficit under control and limit its ability to meet stated commitments to health and education spending.
Therefore, OPHA recommends that the government not proceed with the planned cut in income tax. If, however, the government chooses to pursue this course of action, OPHA recommends that the tax cut be progressive so the bulk of the reduction will alleviate the tax burden of low-income and working families in Ontario.
Ms Martin-Smith: OPHA believes that an investment in the future is grounded in an investment in today's children. Nowhere is the impact of the determinants of health more evident than in the health of a child. A 20-year longitudinal research study published in 1994 is a case in point. A pre-school enrichment program was provided in the 1960s to low-income children at risk of failing in school. Compared to a control group, they had significantly higher earnings, were more likely to own homes, completed more education, were less likely to have used social services and had significantly fewer encounters with the law. The researchers concluded that over the lifetime of the participants, the pre-school program returned to the public $17.16 for each dollar invested.
For reasons like this, OPHA members believe that all Ontarians should have the means to accessible, affordable, nutritious and personally acceptable foods; have access to a sustainable, safe, high-quality food supply; and eat foods that maximize health and minimize disease.
Therefore, OPHA was pleased to learn in the speech from the throne that the government would establish programs for disadvantaged children, including a school nutrition program initiative to provide children with the support and encouragement they need.
They do need it. Children who go to school hungry and children who are poorly nourished are more likely to experience school performance problems. These children experience fatigue, cope poorly with stress and exhibit a diminished attention span, all of which interfere with learning and school performance.
Therefore, the Ontario Public Health Association recommends that school breakfast programs be addressed by the government in the 1996-97 budget.
Mr Miller: Of the health services which are designed to maintain and promote health and prevent disease, it is the public and community health sector which is the leader in bringing this policy into reality in communities throughout Ontario. Public and community health are on the forefront of prevention, protection and health promotion in Ontario. The current measles campaign being implemented by public health units across Ontario reflects the capacity of public health to introduce preventive cost savings. Currently, the public health units in Ontario, at a total cost of about $4 million, will be immunizing about two million children against measles. To do that through the medical sector would cost somewhere between $16 million and $17 million.
We have the ability to respond to community needs. In 1995, over 2,000 cases of measles were reported in Ontario; 84% of these were with school-age children. Even larger outbreaks were predicted for 1996, so we needed control measures now. It was important for the public health units to respond before the situation got worse, so that is what we are currently doing.
Actually, public health units manage or oversee the delivery of 22 mandatory programs which are intended to maintain a high standard of preventive health across the province. Public health units are governed by local government representatives as well as community and provincial representatives, thereby giving both provincial and community accountability. This is a built-in feature of all 42 health units in Ontario.
We'd like to highlight the fact that preventable injuries are one of the leading causes of death, if not the leading cause of death, for everyone under age 44. Injuries account for more years of life lost before age 65 than cancer, heart disease and stroke combined and cost Ontario taxpayers in excess of $4 billion a year. Public health and community workers work to prevent falls by the elderly, promote bicycle helmet use and are active community partners in injury prevention programs. Yet, while injury treatment consumes $4 billion of our health care dollars, injury prevention has not been designated as a priority by the Ministry of Health.
The focus of public health units is the entire population of communities. They ensure the existence of conditions in which everyone can live healthier lives. Comprehensive programs are systematically established to protect the health of the community through illness and injury prevention and promotion.
Public health is an integral part of communities as well as the health system in Ontario. We believe that the province of Ontario can achieve fiscal savings while advancing the health of the public. We're recommending that the Ministry of Health establish primary health promotion and disease and injury prevention priorities based on health system cost and health enhancement, namely, heart disease, cancer, unintentional injuries and substance abuse.
Just before we conclude, I would like to draw to the committee's attention that appended to our presentation is a summary of our recommendations and also a list of community stories in which some of our members have indicated some of the kinds of impacts that our membership is having at the community level. I also point out to you a little fact sheet just indicating some of the services that public health provides at the community level, which is being used in a number of our health units across this province.
Thank you for this opportunity. We'll be able to answer any questions that the committee might have.
Ms Castrilli: I wonder if you might just tell us a little bit about who your membership is. I think that might be very helpful for the record.
Mr Elson: We have approximately 1,000 individual members who span the whole spectrum of people who are active in public and community health across Ontario. Those include public health nurses, public health physicians, dentists, dietitians, health promotion specialists and the like, people who work in community health centres, people who work in public health units as well as people who work in a variety of community agencies. We are not a discipline-focused organization but in fact represent the collective interests around policy and interest in the whole public and community health field.
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Ms Castrilli: It's good to hear from a multidisciplinary group. I was particularly taken with the suggestions you make around nutrition and breakfast programs. It's certainly something which has occupied a great deal of our attention. We are very concerned about that. I wondered if you might elaborate a little more on the effects of good nutrition and the kind of program that you feel should be in place.
Ms Martin-Smith: I think that the issue around breakfast programs is critical. Any of you who are familiar with Fraser Mustard's work at the Centre for Advanced Research, he's made a direct link between nutrition and the future productivity of the population. So nutrition was identified as key because it's critical to growth and development. I think that breakfast programs will serve a distinct purpose in feeding healthy children at the school-age level. I have personal experience in working with the zero-to-four population, where nutrition is even more critical, and that will be a gap, I think, that the government will have to address at some point: How do we feed those children who aren't in school but are still hungry?
Ms Castrilli: You mention some real economic benefits of that study that you cite. Is that a Canadian study?
Ms Martin-Smith: It's a US study.
Ms Castrilli: And it was over a 20-year period?
Ms Martin-Smith: Yes.
Ms Castrilli: Are there any studies of that sort in Canada?
Ms Martin-Smith: Not that I'm aware of, not the longitudinal type.
Mr Tony Martin (Sault Ste Marie): I have found your presentation to be very good and certainly very helpful and hopefully very challenging to my colleagues across the floor. You make some, I think, excellent recommendations here, recommendations that are being made by other groups in other venues around this building these days as we, at the committee level, do things like look at estimates and bring ministries and agencies before us to talk about their role in government and their plans for the future.
Certainly, you make about six excellent recommendations. I'm only going to focus on a couple to ask some questions. One of them, just to highlight, is certainly the one where you ask the government to consider backing away from the tax break. I want you to know that I've had opportunity to personally ask the Minister of Education and Training, the Minister of Community and Social Services and the Minister of Municipal Affairs and Housing over the last few weeks if they determine in their area, in their jurisdiction, that the pain they're inflicting by way of the decisions that they're making becomes counterproductive, will they go to the cabinet table and encourage their cabinet colleagues to back away from the tax break because it's just not, at this particular time anyway, in the best interests of the province as a whole. You certainly speak very much in favour of looking at the province from a holistic perspective.
But the two things I want to ask you about are -- and again I think it's really important, because I don't sense that this government understands the need to do planning and to have in front of them as they make decisions impact statements, like, how is this going to affect all people? You've mentioned here that they should, in making funding decisions, take individual community health service needs into consideration. That means planning; it means thinking; it means being involved and listening to other groups.
You also said, "Set in place an annual report of the Health Services Restructuring Commission, thereby evaluating the cumulative impact of the proposed changes on the subsequent economic and physical health of all members of the community." The sense I get from the government is that that's a very complicated and long process that just isn't viable from a time perspective as it tries to move very quickly to implement its agenda. How difficult is that, in light of the impact that the decisions that are coming at us at lightening speed in this province over the last six months are going to have on the people that you obviously are so much concerned about?
Mr Miller: The actual complexity of the planning process I'm not able to say at this time. I can only say that a healthy community is a productive community and that is our end, to have a healthy community. A healthy community producing makes us economically a wealthier community.
There are times when efforts to save costs actually cost you more down the road. An example we're all familiar with: Just last week we heard reports from the Hospital for Sick Children where we've had early release of mothers who have given birth. Sure, it saves the hospitals; however, what we are seeing is that a lot of these infants are now coming back into the emergency departments to seek treatment, sometimes as a direct result of those early releases.
We need to think through some of the impacts of our actions. We probably won't be able to cover everything, but we need to do some planning and think through the potential impacts before we make some of these decisions.
Mr Martin: Your recommendation number 5, which is that school breakfast programs be addressed by the government in the 1996-97 budget, it seems to me that the best place to feed kids is at home. The best answer to nutrition and poverty is to make sure that every home has adequate income.
The cut of 22% to the income of the poorest of those among us in communities and the expected moving aside of rent control will in turn increase pressure on poor families as they try to figure out where to spend their money, and one of the places that they have most discretion is in the area of food. If you were given a choice between child nutrition programs and making sure that people had adequate income and good housing, which one would you --
Ms Martin-Smith: It would be adequate income and good housing. It's interesting that you bring that up. Back home where I live, I'm a member of a coalition and we were talking about instituting a school breakfast program locally. What the parents who were part of the group said was, that was one option but they much preferred to be able to have the means themselves to feed their own children before they went to school and that if they had adequate income, they would be able to do that.
Ms Bassett: Thank you for your presentation. I'm encouraged to see that you're supportive of so many of our government's initiatives, including the need for restructuring and achieving cost-efficiencies by reducing duplication and waste and also to establish a basis of funding on which people will be served equitably, and to work towards that. There are so many encouraging signs, and also the cooperative signs.
One thing that I wanted to mention, though, concerns the planned tax cuts. As you know, the Premier has said that we are going to go ahead with the tax cuts. When you say that you hope that they'll be more in balance or favour the lesser income levels, we do have the fair share health levy and that is going to be graduated according to higher-income and lower-income people will not be paying. That will balance in a way, and so from your point of view we are trying to keep that in mind.
My colleague wants to talk about the Premier's breakfast programs, I believe. Margaret.
Mrs Margaret Marland (Mississauga South): I just wanted to respond briefly to what Mr Martin commented on, as well as having a question for you, because I think it's terribly important, especially for people when we conduct these committee hearings, that very few members of the public get to read what is said in Hansard. But when we are in this room, which is televised over the parliamentary channel around this province, it's terribly important that what we say in this room is accurate.
It was mentioned, "Would you be concerned," or however it was phrased; I guess I'll have to read it in Hansard tomorrow, but the inference was that there are going to be greater problems for some of these families because of the removal of rent controls and I think it's --
Mr Martin: And the reduction of their income by 22%. Mr Chair, might I raise a point of order?
Mrs Marland: Not on my time.
Mr Martin: Point of order, Mr Chair. Is the member calling me a liar?
The Chair: That's not a point of order.
Mr Martin: Well, it is if she is.
The Chair: No, the member is not. I can answer for her in that regard. Thank you very much. Ms Marland.
Mrs Marland: Thank you. I appreciate that. In 11 years I've never called anyone in this building a liar.
The Chair: You're using your time.
Mrs Marland: The removal of rent controls that is being proposed and at this point in time being discussed by our government, by our minister and the cabinet is not, nor has it ever been, a blanket removal of rent controls. At this point in time it hasn't been finalized, but originally it was proposed that it would be a removal of rent controls on new construction in order that we get new rental accommodation built.
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It's terribly important to people who will never own their own home and who have to rent their shelter to know they will have certain protections, and our shelter allowance program is going to be able to fund housing for about four times as many people as the previous non-profit housing program, which built bricks and mortar and which could only fund a few people by directly giving people shelter allowances where they can go and choose to live in anybody's privately owned and privately built building. They will have more options.
I think it's wonderful to hear you talk about the importance of a breakfast program because no matter what we do out in the community, even though there are some families with enough money, they still don't get up and get breakfast for their children and their children often go to school hungry just because of irresponsible parenting. Not always is that the reason, but the point is there are a number of reasons why children get to school hungry.
We admire very much your concern for them because for a very long time now Premier Harris, when he was the leader of our caucus, was trying to get a breakfast program supported by the government to encourage the private sector to help implement it, because there are examples around the world, as you are aware, I'm sure, where breakfast programs for children are totally sustained by the private sector and the corporate world, and it would be wonderful if we could still get that going with that support from the private sector.
I'm very sympathetic to your comment about early releases from hospitals because I think all of us have constituents where we've experienced where a mother and child have gone home, in some cases only to be readmitted, sometimes particularly because of a C-section problem for the mother. I want to emphasize that those releases are medical decisions made by the doctor, that it's okay for that mother and child to go home, so I don't think the government can take ownership of those medical decisions and nor would you want them to.
Have you, through your organization, worked with the private sector at all in terms of a breakfast program funded privately and not funded by the government?
Mr Elson: As an organization, we're not involved in the delivery of programs directly at a community level. Our organization supports people who in turn are active in development of these programs. I'm certainly aware, like I say, that on previous occasions the health promotion branch and others have had discussions with the private sector. I think the Pepsi decision in terms of the Toronto Board of Education is one example. You need to know what you're negotiating with and for and the ultimate purpose.
I think there's flexibility for it that already exists in many circumstances, for it to engage in certain kinds of discussions. I think from a provincial level there have been limited discussions on providing support across the province, so it's basically up to individual communities to try to nickel and dime and quarter themselves into individual ones, which from a cost-effective point of view isn't necessarily the most appropriate way to even be discussing this. It creates distortion around those who have a capacity to negotiate and with resources, though in many ways those who have get more, but I think that that's an area to be looked at.
If the government's looking at this program, my challenge would be, who is the government negotiating with in the private sector to bring them in at a provincial level to deliver this kind of a program?
Mrs Marland: Thank you for that suggestion.
Ms Martin-Smith: I was just going to say on the issue related to the government encouraging corporate citizenship, for corporations that live locally, what do they give back to the community? I think that's one of public health's strengths, being able to bring members of the community together to solve problems, and that's happening, certainly throughout different parts of the province.
The Chair: I'd like to thank the Ontario Public Health Association for its thoughtful presentation today.
Mr Crozier: Mr Chair, just for the information of these folks before they leave, and it may go to helping Mrs Marland with her question, Sandra Pupatello, the Liberal member from Windsor-Sandwich, has put together a breakfast program that involves the private sector. The planning is all there. I think it needs some staff help on the government side to move it ahead and I suspect that may be used very shortly.
ONTARIO CONFEDERATION OF UNIVERSITY FACULTY ASSOCIATIONS
The Chair: The next group before us is the Ontario Confederation of University Faculty Associations. I'd welcome Michael Piva and Marion Perrin.
Dr Michael Piva: Thank you for having us. I'm president of the Ontario Confederation of University Faculty Associations, and Marion Perrin is the executive director of OCUFA. We represent 11,000 university professors and academic librarians within the province. We've appeared before this committee in years past, though we have never appeared with the trepidation that we arrive with today.
Our concerns emerge out of a situation in which we have had two decades of underfunding within the university system. The universities have had to cope with this underfunding by eliminating waste, by seeking efficiencies, and I think we have succeeded in maintaining excellence in education during this period. It's in the context of two decades of declining funding in which we've struggled to maintain excellence that the Treasurer's statement of last November was particularly painful for the universities. The repercussions of that have not played out through the system yet; they are now in the process of working their way through the system.
We don't doubt that the government was elected with a mandate to deal with the financial situation in the province, with the fiscal realities of the province. We don't entirely agree with all the measures adopted by the government last November to deal with those, but at the same time we believe those actions were themselves sufficient to meet the primary mandate this government had during the election.
We believe it's important to recognize that at some point a declining debt-to-GDP ratio will make funds available, either for further reductions of debt, for reinvestment in public programs that are vital to the province, or for tax reductions. We believe we will reach that point in the near future, not the long term. We believe the evidence strongly suggests that we will have a situation where we will have a declining debt-to-GDP ratio by 1996-97 and that it is to growth we have to look to really resolve the problems.
We're concerned that a further round of cuts would put growth at risk. We note that growth slowed significantly during 1995; we believe as a result of the cuts that were announced. There are a number of worrisome economic indicators. There's a low savings ratio in the province; there's very low consumer spending in the province; and there's much unused capacity in the province, all of which indicate that the potential for real growth in the economy is there. Our concern is that further cuts would put that potential growth at risk and indeed could bring on renewed recession.
We believe that this would be particularly the case if in fact there were additional cuts in the spring in those areas we believe should properly be seen as investments in social and economic growth and development. We believe that post-secondary education is clearly one of those areas that should be understood to be investments in growth and development.
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Most observers recognize that education enhances the human capital of the province and of the nation. Graduates are better able to contribute in innumerable ways to the development of their economies, their societies, their cultural life, their environment and their democratic institutions. It is precisely because education enhances the ability of Ontarians to contribute that parents want university education for their children; it's why adults in the workforce return to our institutions in ever-increasing numbers; it's why young adults want access to our institutions in ever-increasing numbers; it's why employers hire university graduates; and it is why neighbouring jurisdictions south of us in the United States are all increasing their contributions to universities.
I think the contribution that universities make to value added, if you will, to the human capital of the province is fairly easy to demonstrate, and the statistics are all there. University graduates are far more likely to be employed, and employed productively, in high-paying jobs, but this is a particular concern as the new century approaches because of the shifts in the economy that have occurred already and are going to occur in the near future.
We observe that between 1989 and 1994 the number of jobs for university graduates increased from 844,000 to 978,000, while jobs for those without degrees decreased from 4.1 million to 3.9 million. All of the studies indicate that as the economy changes over the next couple of years and into the new century, there will be increasing economic need for a highly educated workforce, and the universities make major contributions in providing that workforce.
It is precisely because of this economic need that access to the system is so critical. Not only is there an economic demand for graduates, but Ontarians recognize that need, recognize universities as the vehicle for qualifying themselves for those new jobs of the future, and that's why enrolment has gone up and demand has gone up.
I'll only observe that over the last 18 years, the level of full-time equivalent enrolments in Ontario's universities has increased fully 48%, and there will be increasing demands over the short term. Most of the demographic studies show that the age cohort from which we traditionally have drawn most of our students is increasing. There is also an increase in the participation rate within that age cohort. There's also tremendous increase in demand from return learners: adults already in the workforce who want to return to universities to upgrade.
OCUFA believes that a university education is a right of citizenship and that access to that right of citizenship must be available to all who are qualified.
The contributions of university education go well beyond the educational services we provide to our students. Universities also conduct research. It is one of the features of a branch plant economy that the private sector invests relatively smaller amounts of money in research and development. In Canada, research and development investments among G-7 countries rank ahead of only Italy. I would also observe that universities provide 26% of the research and development that is conducted in this country, and that's a much higher percentage than in Japan, the United States, France, Germany or the United Kingdom. So universities contribute substantially to this economy's ability to innovate and ability to sustain state-of-the-art research, and that again gets to the heart of Ontario's ability to maintain its competitive position, particularly as the new economies come on stream.
Universities contribute in other ways as well. Spending for universities translates into spending within communities that sustains small business. Often, universities are the major employers within their particular communities. Viable universities also act to attract other investment to these communities. Universities also contribute to helping these communities grapple with the problems they face.
University faculty and academic librarians all contribute in helping us grapple with social issues like the social strain associated with industrial slowdowns. University faculty and academic librarians help first nations work with the problems that they face. We help develop strategies to reverse environmental degradation. We contribute to the cultural and artistic life of our communities through concerts, art shows, theatre. Faculty also contribute their own time and their own intellectual expertise to their communities through voluntary work with social service councils, district health councils, police services boards and any number of other vital community activities.
Investment in Ontario universities is in fact quite efficient. There is a mistaken notion abroad that there is fat within the system. I'll only observe that, in constant dollar terms, spending on a per-student basis in 1994 was only 77% of what it was in 1977-78 and that we have dealt with that decline by seeking efficiencies. Whatever fat was in the system has long since disappeared.
I think one can compare and measure the efficiency of investment in universities in this province by comparing it to other jurisdictions. I'll only observe that per-student spending, on average, among the other nine Canadian provinces is $1,000 more per student than in Ontario; that during the 1990s Ontario, in terms of per-student spending, has ranked either eighth, ninth or 10th among Canadian provinces. This is not an anomaly; it's a historical reality.
Another way of measuring the efficiency of this investment is to compare it to comparable jurisdictions outside Canada. I'll only observe that per-student spending in the United States in public post-secondary education is 22% higher than in Ontario.
Another way of measuring the efficiency of investments in post-secondary education is to look at per-client spending for other transfer partners. Over the last 20 years per-client spending has increased in hospitals, it has increased in elementary and secondary schools, it has increased in other areas such as adult offender institutions. But in post-secondary education it has declined during these years.
OCUFA believes that the reality facing the province is that it will become increasingly impossible to maintain our enviable record of excellence in education and access without the commitment of adequate public funding. We support Ontario's system of publicly funded, autonomous institutions. We believe that is in fact the strength of the Ontario system and is the explanation of how we have been able to innovate, to change, to adapt and to maintain excellence in the face of declining funding. It is precisely because autonomous institutions have been provided with the kinds of flexibilities needed that we're able to develop and innovate new delivery systems such as distance education, the rapid expansion of part-time studies, the emergence over the last several years of increasing numbers of new interdisciplinary programs, the development and expansion of shared programs both among universities and between the universities and the colleges, and the rapid expansion in information technology.
We would reject a shift in the current balance between the public and private contributions to university education. As public institutions, meanwhile, we recognize that Ontario's universities must be accountable to the public. We applaud the sunshine legislation brought in recently on the broader public sector salaries and benefits. For your information, we have attached our policy document on openness and transparency in university governance. We would also hope that the recommendations of the Task Force on University Accountability not be left on the shelf to collect dust. There were many valuable recommendations that were made in that task force.
In conclusion, then, universities play an important role in enhancing economic, social and cultural life within the province. By any standard, universities in this province provide a high quality of education through a reasonable level of public investment. Over time, our universities have become increasingly efficient. We have expanded our enrolment, our program offerings, our delivery options to meet a broad range of public policy and social demands that have been articulated. However, it's equally clear to us that the level of quality, the level of accessibility and the level of innovation cannot be maintained in the face of further funding reductions. In our view, the options are clear: Ontario must either fund its university system appropriately; restrict funding and thereby restrict access; or fund at a lower quality of education for a larger number of students. OCUFA does not believe that either of the latter two options is acceptable or politically palatable. The decision on how to proceed and the responsibility for the consequences of that decision of course lie with the committee.
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Mr Martin: Thank you for your presentation. It's certainly consistent with other presentations that have been made and discussion that's been had out there in the broader public around the reduction of resources to very valuable institutions that have been built up over years to participate in the economic life and vitality of communities in the province. Certainly you, I think in a very clear and articulate way, shared with us the contribution that colleges and universities make to the life of communities, particularly the economic life.
For example, in my own community, which struggled in the early 1990s through some very difficult times, I don't think there was one of our major industrial players that didn't experience some downturn and require as a result some major restructuring and laying off of significant numbers of people who needed to be retrained so that subsequently they could be either taken back on at those particular workplaces -- you know, Algoma Steel, St Marys Paper, the Algoma Central Railway, Lajambe, and the list goes on.
As these companies restructured, they brought in a new technology, they brought in a new way of working together, and a lot of the load to prepare the workers to participate in that in a productive and constructive way was carried out by the university and by the college. I would suggest that where communities have been able to restructure and come out of the very difficult recession that we were in in the early 1990s, colleges and universities played a major role in making that happen. As a matter of fact, I don't know how some of these folks would have handled the transition had there not been the resource of the college or the university there to take them in and to adapt to their very real needs and to support them as they move forward.
More and more we're seeing in our communities today an older population of people starting to go back to school because of the changing times we're in. I don't think that you're here today to tell us that universities and colleges don't need to change and adapt and be flexible and recognize the realities of today, but I think what I hear you saying is that you have to be really careful. Too much, too fast as opposed to allowing it the time that it needs to adjust can kill an organism as opposed to causing it to get healthier.
You've painted a picture of the impact that colleges have and the impact that changes proposed by this government will have. What would you suggest are things that could be done alternatively to have colleges and universities participate more fully even in the changing economy that we're facing now and to be ready to face up to the challenges of the next century as we come at it, as opposed to what the government is proposing here, which is major cuts?
Dr Piva: From my perspective, the most vital thing is adequate funding. Universities are grappling with all sorts of problems and they have over the last near term developed innumerable efforts, in a variety of ways, not only to improve the internal operations and delivery of programs, not only to expand access, not only to seek efficiencies by developing cooperative programs between themselves and other universities, but also to seek better connections, if you will, better transfers, if you will, between research and the private sector; I think of Waterloo in particular with its engineering faculty.
I think those efforts need to be encouraged. I think they're all vital. The problem from my perspective is that it's difficult to do those things in a situation in which there are substantial cuts and reductions in programs and funding cuts that require restricting access. My feeling is that the problems that came out of the Treasurer's statement of last November are now working their way through the funding of the system. They will be difficult enough to grapple with, and universities clearly need time to make those adjustments; they are substantial. So right now the biggest problem is adequate funding.
Mr Wettlaufer: Do I understand you correctly? When you say that funding is a problem, do you not consider then that the deficit is a problem?
Dr Piva: No. In my brief I think we make fairly clear that we do think that the government was elected on a mandate to deal with the fiscal realities, and I do think the deficit and debt is a problem. I don't entirely agree with the government's decisions on particular ways of handling that problem, but I think the point of this brief is that we have relied upon the economic modelling provided by the institute for policy analysis at the University of Toronto. They updated their analysis in January to take account both of the lower growth and the increased funding cuts that were announced late last year. Their model clearly projects that the measures already adopted by the government are sufficient to meet the mandate upon which it was elected; that we will turn the corner on this problem in the near term, not the distant term; that once we reach a situation when we have declining debt relative to GDP, we will in fact be in a position where we can make decisions free of this. So we believe that the long-term solution is not to dampen continued growth.
The Bank of Canada in November 1995, in its monetary report, made the observation that we have 3% unused capacity within this economy; 18 months ago we were projecting significantly greater growth than in fact materialized in 1995-96. I don't believe we're hitting a debt wall; I think low interest rates are an indication of that. My concern now is that a second round of cuts would in fact put growth at risk and I believe we'd run the risk of throwing the economy into recession. If that were to occur, then in fact we really would have an even more serious deficit problem.
Mr Wettlaufer: Okay. Let's assume for a second that you're correct, but in the event that you're not correct, we have to have a contingency plan in place. How would we go about that? Would we close universities, would we reduce faculty incomes, would we increase tuition a greater amount? What would you suggest?
Dr Piva: I would suggest crossing that bridge when we come to it, but what concerns me at the moment --
Mr Wettlaufer: Not if we're going to plan properly.
Dr Piva: If you're going to plan properly. But as a representative of faculty, I'm not entirely sure I'm in a position to speculate on those kinds of things.
My view, however, is that when you make these decisions, it is similar to a private company making decisions when it faces a problem on what to invest in. My view is that post-secondary education has to be understood as a public investment that historically has traditionally always paid dividends and that we know will continue to pay dividends in the future. I think when you're facing that kind of situation, to cut back and choose not invest in value added productive capacity is a mistake.
Mr Wettlaufer: But one of the problems we in private business have had over the years is that we always have to develop contingency plans. In many cases, we develop three, four and five contingency plans, and because government doesn't do proper planning, our contingency plans go out the window.
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Dr Piva: The problem universities have is that we too have our contingency plans, but the planning process in Canadian universities has been made particularly difficult over the last couple of years because, if you will, the goalpost keeps changing. I know of no universities that don't have strategic plans, that haven't been working on strategic plans over the last four, five or six years. What the universities need is stability in their funding, and without that stability, it is extremely difficult for universities to adapt because of our inability to plan.
Right now, I think the primary need of the universities is some degree of stability in the face of what has already taken place last November in terms of the funding cuts. Those are going to be difficult decisions to implement at the university level, those funding cuts. I think right now our ability to adapt and our ability to maintain excellence in the province will be dependent on some degree of stability that will allow us to do precisely the planning that you're suggesting. Universities do do it, but it's a difficult process when in fact the funding environment changes as rapidly as it has in the province over the last little while.
Ms Marion Perrin: I'd also like to add that when you're looking at any particular plan to implement, you always have to look at the outcome of what's going to happen with that plan. When you're looking at increases in tuition beyond that even recognized by the CSR as what the Conservatives wish to see -- we're beyond that stage now -- when you look at those types of things, you have to see what the consequences are and where is the enrolment. Are you now discouraging people from getting the very education that is needed to help our economy grow? I think that's part of the problem with saying, "Well, perhaps we should just do X," like increase tuition. I think you always have to look at what the consequences of those actions are going to be.
Mr Crozier: Thank you and good afternoon. When you talk about stability, we can be reasonably certain of a couple of things. One is that the government seems to be insistent that it's going to give its tax cut. They're going to go out and borrow $20 billion over the next four and a half years, on which we're going to have to pay $5 billion of interest and raise the debt from $90 billion to $120 billion. We seem reasonably certain of that.
Last year at this time, if you'd read the Common Sense Revolution, you could have been reasonably certain that reduction in education spending was going to be in the terms of several hundred thousand dollars, anywhere from $200,000 to $400,000. Now it's a billion. The Minister of Education has come out and said, "We have to find $1 billion." Can you give me some perspective of what that does, compared to the original amount of a couple of hundred thousand that you were looking at?
Dr Piva: I'm not sure I'm able to respond to that. My reading of the Common Sense Revolution is that they projected $400 million from post-secondary education, they projected another $400 million from the primary and secondary sector, and my understanding is that the $1 billion that's being talked about now is in the primary and secondary sector.
Mr Crozier: But it will have some effect on post-secondary education.
Dr Piva: Yes, it will. But the primary effect that it'll have, the $400 million that was taken out of post-secondary education, I think, is to seriously impair access. The faculty-student ratio within Ontario has already increased from 13 full-time equivalent students to 18 full-time equivalent students per full-time faculty over 20 years. That number will increase sharply. Our classrooms are already overcrowded. That's going to be exacerbated, so the quality of education's put at risk in that way. Ability to innovate with new delivery systems like distance education is impaired if the money is not there and has to be pulled back for vital programs. The range of programs will be cut back. Tuition will increase, as it is already doing, and that will make it increasingly difficult for people to go to university. So I think the primary result is larger classes, higher student-faculty ratios, less contact between student and faculties, restricted programs and serious jeopardy to the open system of Ontario universities.
Ms Castrilli: Thank you very much, Professor Piva. We've met before, and I've always been impressed with the clarity of your thought. You've reminded us very well today of the nature of post-secondary education, it's true nature, which is an investment in human capital and economic growth, and I think we would agree that there is no modern successful economy that doesn't rely strongly on research and high-quality post-secondary education.
We could go on a long time, but I'm going to ask a very specific question dealing with the universities as net creators of job or job creation. You are no doubt familiar with the study that was done by McMaster University for the COU, the Council of Ontario Universities. I wonder if you might comment on universities as job creators. We agree totally on the quality and accessibility and autonomy.
Dr Piva: For many communities within the province, it's absolutely vitalizing to the health of the local community economy, because in a lot of regions, universities are the largest employers within their communities. Certainly on a riding-by-riding basis, universities are frequently the largest employers within a particular riding.
As such, university spending, both in terms of salaries and wages paid to its employees -- and they go far beyond faculty and academic librarians -- that money is spent sustaining innumerable small businesses within these communities. That spending is spent in the domestic economy on the purchase of goods and services throughout the economy.
So the study that was done by McMaster, I think there's a parallel study for North Bay that talks about the economic effect of pulling out that investment from these local communities where it demonstrates quite clearly what this means in terms of lost municipal taxes when funding is cut to these communities. In many cases, the direct economic contribution to the functioning of the local economy -- the purchase of goods and services, the generation of economic activity -- the universities are vital institutions within most of the communities in which they are situated. Even in Toronto, where one cannot argue they're the largest employer, they still are major contributors to local economic activity.
Ms Castrilli: Just for the record, the conclusion of that study was that even a 17% cut to university budgets as a whole would end up not having the savings that the government projected. In fact, they would be in the nature of $20 million or $30 million savings as opposed to the $400 million.
Ms Perrin: A 20% --
The Vice-Chair: Thank you for the comments. I'm sorry. Our time has expired this afternoon.
Ms Castrilli: But I think it's important to put this on the record, because it's a statistic that might be very useful.
The Vice-Chair: Give me a quick comment on that, please, just a quick one.
Ms Perrin: A 20% cut in provincial grants means a loss of $1 billion in sales for businesses in this province. I won't go into the rest of the statistics since the Chair has said our time is up.
The Vice-Chair: Thank you very much, and on behalf of the standing committee, thanks for your presentation today. Have a good day.
ELI LILLY CANADA
The Vice-Chair: Our next delegation is Eli Lilly Canada.
Mr Terry McCool: I'm the vice-president of corporate affairs for Eli Lilly and company. I certainly appreciate the opportunity today to appear before your committee and to offer some of our views on your pre-budget consultation.
I'd like to begin by stating that we support the government in its efforts to reduce the deficit and bring spending under control. A balanced budget and a stable economic environment are critical for industry to make long-term investments. Equally critical through the process of deficit reduction and spending control is that the goal of quality, efficiency and effectiveness of services not be compromised. We'd like to offer some comments today from the perspective of a significant investor in Ontario and a provider of health care products and services.
First I'd like to provide you with some background on Eli Lilly. We are an integrated health care company that's providing innovative pharmaceutical products and health care services within the Canadian environment. We are an Ontario-based company. Our head office and fully integrated manufacturing and research facility is located in Scarborough. We employ more than 550 people across Canada, and 430 of those are employed within Ontario.
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Our global mission is to create and deliver superior health care solutions by combining pharmaceutical innovation, existing pharmaceutical technology, disease prevention and management and information technologies in order to provide customers worldwide with optimal clinical and economic outcomes.
We have begun the transition from a traditional pharmaceutical company to an integrated health care company through the purchase of Rx Plus, a health benefits management company located in Sudbury, and through the establishment of Health Management Services, a disease management organization. Through our integrated approach to health care, we will ensure better utilization of existing health technologies to provide more optimal outcomes. As well, we will explore opportunities to provide information that will help prevent diseases and utilize information and information technology to better manage diseases and improve outcomes.
Eli Lilly will also continue to discover breakthrough compounds focused on unmet clinical needs, and our research focus is in five therapeutic areas: endocrinology, specifically diabetes and osteoporosis; infectious disease; cancer; the central nervous system; and cardiovascular disease.
I'd like to comment a little bit about our track record in research and development in this province. In 1995, Lilly R&D investments in Canada exceeded $30 million, which represents 12% of our sales. In Ontario, Eli Lilly has invested greater than $70 million in research and development since 1990. This includes the analytical research laboratory at Sunnybrook Hospital and a $15-million research agreement with Allelix Biopharmaceuticals.
We are currently constructing a $25-million R&D facility at our Scarborough site. This expansion, our fifth major expansion since 1946, is expected to be completed in September of this year and will enhance Eli Lilly's position as a leading funder of R&D in Ontario. We are also in the process of purchasing an additional four acres adjacent to this site for future expansion.
The economic climate in Ontario: We realize Ontario has experienced challenging economic times in recent years. The recession and current slow economic recovery have taken their toll in terms of job losses and reduced investments. Previous government efforts to stimulate growth and job creation through increased government spending, while well intentioned, have not produced economic recovery and have resulted in obviously increased deficits. As well, relatively high taxation and an excessive regulatory climate have increased the cost of doing business in the province, making Ontario a less attractive place to invest.
This is particularly concerning for our company and for our industry. Eli Lilly is a global company operating in 120 countries worldwide. Our Canadian operation is one of five integrated operations including manufacturing and R&D. The others are located in the US, the UK, Germany and Japan. As the Canadian affiliate of a growing and expanding company, obviously the expanding markets in Asia, Latin America and eastern Europe present new areas of competition for achieving these global investments.
We view the duplication of regulations between governments and the interjurisdictional rivalries within Canada as a negative factor as we compete in the global marketplace. As we will mention later in this presentation, harmonizing the federal and provincial roles in regulating the health care sector is a critical factor to ensure a competitive environment.
We support the current government's commitment to create an economic environment that attracts investment and allows the private sector to create jobs. The government can do this by implementing policies that encourage the private sector to invest in Ontario. Balancing the budget, reducing government red tape and regulatory duplication to create an environment receptive to business investments are important components of this plan.
At the same time, we believe in the government's role to continue to provide support for an effective safety net including health care and social services for those most in need. Through increased efficiency and decreased waste in the system, these programs do not have to be compromised by deficit reduction and spending controls. We believe that decisions regarding social and health reform should be made with appropriate consultation to ensure a balance is met.
I'd like to focus now on the specific steps we believe the government must take to create the economic climate for the private sector to create jobs.
The annual Ontario budget deficit is approaching $10 billion. Debt in the province stands at approximately $100 billion, and we have reports that it could climb to $120 billion by the year 2000. Interest on that debt is costing $9 billion annually and growing. This severely undermines the international confidence in Ontario as a place to invest and a place to do business. With so many public dollars going to service the debt, we believe that it also prevents government from spending tax dollars in areas that improve the quality of life of Ontarians.
It is crucial, therefore, for the government to commit to balancing the budget and getting the province's finances under control. This government has announced its intention to make balancing the budget a priority, and we fully support this goal. We recognize that it will be a difficult challenge to meet. However, we see this as absolutely critical to the economic prosperity and investment future of this province. We also encourage the Ontario government to work with the federal government to address the national deficit and debt.
The only realistic approach to cutting the deficit is to cut spending. This will not only allow a balanced budget but will also increase economic prosperity and ultimately reduce the debt and tax burdens of Ontarians. We believe that government, like other sectors of the economy, must deliver more with less. It means that government services must be more effective and more targeted. As jurisdictions across North America are looking at ways of reducing government, Ontario cannot be an exception.
While we support a smaller, more effective government, we also believe that there is a role for government in the health care sector. The government is committed to maintaining funding for health care at $17.4 billion. However, we also believe that there is a need for flexibility in applying this budget cap. We believe there are efficiencies that can be realized in our health care system and that those savings can be reinvested in the system. Ontario also has a growing population and demographically we are all getting older. This will create an increased demand for health care. Therefore, some flexibility for funding is needed.
Increased health education, both from a prevention and optimal use perspective, offers one of the greatest opportunities for savings within the system. Lilly's own experience within the area of diabetes management has demonstrated that increased education can result in a significant reduction in diabetes-related complications, resulting in increased quality of life for people with diabetes and a decreased cost to the system. In 1992 it was estimated that diabetes cost the Ontario government between $700 million and $850 million in direct costs. Studies have also shown that early educational intervention can significantly decrease the main drivers of this cost, including the number of days in the hospital and emergency room visits.
Another area which offers significant opportunity for savings to health care is an effective and comprehensive drug program. Pharmaceuticals are recognized as one of the most cost-effective interventions within health care. We are currently developing new technologies that will offer improvements in a number of different areas, including cancer, diabetes, osteoporosis and schizophrenia. These new treatments will not only improve the quality of life, but will also help to lower overall health care costs.
To achieve significant savings in health care from the new technologies requires the Ministry of Health to review its budgeting process. The current budget structure within the ministry does not allow it to recognize cost savings from new medications in other areas of the health care system. Eliminating silo budgeting would also allow savings from reduced hospitalizations and physician visits to be realized. We hope that in this budgeting consultation, government would look to a more flexible internal budgeting process.
Lilly Canada believes that working towards appropriate utilization of drugs, rather than restricting or not providing access to certain drugs, affords the greatest opportunity for savings. We also believe that more timely access for patients to new drugs through the elimination of regulatory duplication will provide savings to the system sooner and a better opportunity for more optimal care.
An efficient regulatory system is necessary to ensure a strong private sector and a healthy economy. As part of the private sector, the pharmaceutical industry has been greatly affected by excessive regulation and duplication in Ontario.
For example, pharmaceutical manufacturers currently submit extensive safety and efficacy data to the federal health protection branch. This information is thoroughly reviewed before permission to market a product is given. As such, it is unnecessary and costly to provide this same information to various provincial bodies, such as the Drug Quality and Therapeutics Committee in Ontario. At a time when regulatory bodies in Europe, the US and Japan are looking to harmonize their systems, Canada still operates 10 overlapping provincial and one national system.
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We recommend that the Ontario Ministry of Health require only proof of the federal HPB approval and appropriate cost-effectiveness data which demonstrate the value of the product to the payer and to the consumer. Elimination of excessive regulation will bring therapies to the consumer faster and will result in lower administrative costs for government and for manufacturers.
As well, we see similar issues at a local and regional level, particularly in the greater Toronto area. The economy of this province and indeed this country is dependent on the economic engine of the GTA. As a company with facilities in the area, we believe that the government must make every effort to support the integration and development of the GTA. This is vital to the future economic prosperity of the province.
One of the current objectives of the provincial government is to eliminate unnecessary and duplicative regulations, and we support the government's initiatives through the Frank Sheehan Red-Tape Review Commission and other internal process to reduce regulatory duplication and streamline various approval processes.
Eli Lilly supports a fair tax system and paying our fair share. While Ontario has a relatively high corporate tax rate when compared to other global markets, we believe that the current tax credit system for R&D and manufacturing is a good method to encourage more investment in the province. It is crucial to our company and our industry that these incentives are maintained in the system to ensure competitiveness with other jurisdictions.
Eli Lilly Canada is concerned about the uneven tax structure across the province, particularly as it applies to Metro Toronto. We have made a decision to invest in Scarborough but we are watching the deliberations on tax reform in the GTA closely. We have seen a number of our competitors locate outside of Metro Toronto when expanding or relocating their operations.
In these days of limited funding and shrinking budgets, governments must rethink their roles and responsibilities. In this field we believe there are a number of ways in which government can work with industry to deliver cost-effective quality goods and services to the people of the province. At Eli Lilly, we are already embarking on this route through our funding of research in public universities and hospitals and our own facility. We are also setting up disease education programs to help people better manage their disease, and we feel that there are a number of areas where government and industry can cooperate for the benefit of all. We feel that the research, science and technology sector is an excellent area for partnership and we hope that we can work with government to invest in this vital sector. We would be interested in working with the government to examine new opportunities in this area to help meet your objectives.
Eli Lilly has a significant and long-term commitment to Ontario. The opening of our new $25-million research and development facility in Scarborough in September demonstrates our desire to invest and create jobs in Ontario. Our ability to sustain this type of investment will depend on the investment climate in the province and the country. Stability and predictability within our markets is critical. We must have an assurance that access for our products on the provincial formulary will not be delayed by lengthy, unnecessary and duplicative processes or by unrealistic and counterproductive budget caps.
We hope the government will use this budget to send a clear signal on a number of issues, including moving towards a balanced budget, reducing government spending and improve efficiency in the health care sector, easing the tax burden on business, eliminating excessive regulation and duplication with other levels of government and fostering a new willingness to work in partnership with industry. We believe these measures will attract investment and result in long-term growth and create jobs and prosperity for Ontarians.
We do not believe these choices are easy. However, it is important that action be taken now, for to do nothing will only mean tougher choices in the future.
Thank you. I'd be pleased to answer any questions.
Mr Jim Brown: Thanks for thinking about buying four more acres of land in my riding, and thanks for providing all these extra jobs. Have you any estimate on how many jobs you're going to be adding through the current expansion?
Mr McCool: With the new R&D facility, we'll add approximately 20 new jobs to that site. But you have to remember if you look back in history, we had in 1986 about four people in Canada in our research area, and by the end of this year we will have well over a hundred, and these are all jobs at the scientist level. A lot are masters and PhDs, and it's kind of preventing the brain drain that we used to see in our industry in the past.
Mr Jim Brown: You've got to hire more than 20. They all have to be right around your factory.
One of the things you said was that you were concerned about the federal debt -- you're concerned about the federal deficit -- and you seemed to be saying that we were doing the right thing, but that what we were doing might be somewhat limited by the feds and what they were doing. Can you expand on that? Do you think they're going limit the effect of what we're doing?
Mr McCool: I'm not sure they'll limit the effect, but I think there's been a lot of downloading of responsibilities associated with the debt from the federal government to the provinces, and the provinces to the municipalities. Ultimately, there's only one payer.
I think our concern is that sometimes in the past the federal government has created some kind of tax relief only for it to be overturned at the provincial level with additional taxes, and I think that's very counterproductive. One thing the provinces have to do is work with the federal government to do a better job of deficit and debt reduction.
A number of provinces have already made great gains in terms of balancing budgets and reducing their deficits, or at least have plans to do so. The two major provinces in this country plus the federal government have a long way to go.
Mr Jim Brown: The provinces can do whatever they can do, but there is still a limiting factor in the federal government.
Mr McCool: Yes, there is. But still, there has to be an attempt to do it.
Mr Carr: One of the other pharmaceutical companies that was in talked about the government moving to end the practice of offsets in product listing, and I wonder if you could explain a little bit further, because there's been this mentality, the silo budgeting, what more the government can do to move in this area.
Mr McCool: One of the things that is difficult in the Canadian health care system is to provide some management expertise overall, and we've seen a government budgeting process where there's a certain amount of money provided for physicians, and a certain amount of money for hospitals, and a certain amount of money for pharmaceuticals, and it's very difficult to transfer money across budgets, when you can clearly demonstrate that certain new technologies in pharmaceuticals will either reduce hospital expenditures or reduce, sometimes, physician procedures. There's no way to capture that money. We think the government needs to do a better job of looking at how to capture those savings and transfer it across those different budget silos.
Mr Carr: One of the reasons is that when you make a reduction in one area, what governments have done is they never made reductions to fund in other areas.
Mr McCool: That's exactly right.
Mr Carr: The criticism you get is the opposition saying that you're cutting health care when in fact we'll be lucky to keep it at $17.4 billion with the growth. How do you get around that from a political standpoint?
Mr McCool: You have to remember that there are about 700 vested interest groups in health care, so it does become a political football. It does take some political will to make tough decisions. Canada does have an excellent health care system, and I think at the end of the day, you want to maintain the standards associated with that, but action does have to take place. It does need some reform. Good luck.
Mr Kwinter: Mr McCool, welcome. I've had the opportunity of visiting your plant on several occasions over the years, and I have to commend Eli Lilly as probably a model that others should emulate as a corporate citizen. I just want to congratulate you on that.
I agree with a lot of what you've said, and I'm just curious to get your reaction to one of the major problems that I see. I remember when I was a minister, there was a real sort of -- it was kind of a friendly fight to see whether Quebec or Ontario was going to be the pharmaceutical centre of Canada. I would say even now, it's a pretty even distribution of pharmaceutical companies in both provinces.
One of the great attractions, notwithstanding the perception that this might be a higher corporate tax jurisdiction, was the fact that we had the basic infrastructure. We had the universities, we had the hospitals, we had the ability to do clinical trials, we had the pool of people at universities where you could do cooperative research, things of that kind.
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Do you see that impacted at all by cuts to universities, to hospitals, to programs of that kind? Is that going to have an impact on you?
Mr McCool: Governments everywhere are cutting research spending. The federal government's cutting it, the provincial governments are cutting it; they're relying more and more on the private sector to pick up the slack, so as cuts do happen, the potential exists for that.
I think if you talk to the research community that works down here at the University of Toronto or McMaster or Western Ontario or Queen's, you would probably hear that they are reliant on the industry partnerships to maintain the research funding that they've been used to. Obviously, cutbacks in things that you need to move towards a new, innovative economy are critical to that movement. I guess it just has to be done with some kind of understanding that those are some of the things that governments want to invest in and not necessarily cut back from.
Mr Kwinter: I'm also very supportive of your proposal that we eliminate duplication. We have the DQTC here and we have the federal body. Is there any reason why Ontario just can't accept what the federal regulatory authority does, as far as their testing the efficacy and the quality of pharmaceuticals, and that it shouldn't be accepted as a standard for everybody in Canada?
Mr McCool: There's certainly no reason why they shouldn't. What you've seen is that cost containment in health care has put up barriers to new technology. It's not just Ontario that does this; most of the other provinces have put in similar kinds of bodies, and it's more to say this new technology comes with a certain cost associated with it and there's a reluctance to accept it, so they've all put in place these review bodies that just delay access until they are absolutely certain that it should be part of a benefit in the province. It has hurt the investment climate here in Canada; even though it is a relatively good investment climate, the market that you need to support those investments gets hurt by that.
Mr Kwinter: What about the whole issue of generics, how does that impact on your industry and what are you doing, for example, where they're mandated to prescribe generics when you're putting all this investment into research? How do you counter that?
Mr McCool: We've had it for quite a number of years in Canada. We have to learn how to operate within that kind of a system. You have to remember that a number of the other developed countries where we operate do not have such things as mandatory substitution. They allow generics to be available but they don't insist that they have to be used by physicians and reimbursed by governments. They have a more flexible system.
Mr Martin: Thanks for coming today. I've certainly found your input very interesting and challenging. There's a lot in here that I would have no difficulty in agreeing with, certainly in terms of approach and speed and timing. Those are some of the things.
You start out your presentation built on some premises, the same premises, actually, that the government is rolling out its program built on: that the economy is not doing well, that in Ontario we have a crisis of sorts and that because of that, companies are not willing to invest in Ontario. How do you reconcile that with the fact that we actually had historical record investment in Ontario in 1994? That's a fact.
As I read the year-end reports of many of the major corporations in the province, since we're into that time of year, I discovered that they're all recording historically record profits: "Barrick Gold, 10th straight year of record profits"; "Scotiabank defends record earnings"; "GM tops them all, $1.3 billion, sets profit record." Then we get into Brascan, "1995 profit of $312 million, best in 96-year history." We move on to another paper where it says "Petro-Canada declares a profit of $196 million for 1995," and this increase comes despite major layoffs in their company and the charges that brings with it.
Then we read as well in another paper here somewhere that last week, I think it was, the stock market was roaring. I'm not that familiar with the stock market; maybe Monte is more than I am. I'm not sure.
Mrs Marland: Somebody else made this point last week, Tony, when you weren't here.
Mr Martin: It needs to be made again. The reason the stock market is roaring is not that they're so much interested in the present, although I think I've shown you what's happening in the present -- companies are making record profits -- but their activity is based on what they see is ahead of them, and what they see is a set of extremely promising conditions.
Given that this is the situation for a whole lot of major corporations in our province -- Brascan, for example, owns Great Lakes Power, which is in my community, a record investment in 1994 -- how do you reconcile that with the picture that's being painted of an economy that's in crisis?
Mr McCool: I don't think my words were that the economy was in crisis. They might have been someone else's. What we tried to comment on is, how do you continue to stimulate the investment and growth of business in this province? You can't just take a look at a snapshot in time and extrapolate that to, "Businesses will always be successful." You can't have a philosophy that profits are not a good thing, because profits get reinvested and create the jobs and the investment that are necessary to survive.
Mr Martin: I couldn't agree with you more.
Mr McCool: I guess I'd be a little concerned about your point that this is likely to continue forever and we should live happily ever after. I just don't see that.
Mr Martin: I'm not saying that. All I'm saying is that I question somewhat your assertion that Ontario is a less attractive place to invest, given that companies that are already here are doing quite well, actually.
Mr McCool: Let me apply it to our industry, then.
Mr Martin: Around the question of reducing government spending, you make some good points that we do need to take a really good look at the way we spend money and we need to be more cost-effective and deliver more with less. We were doing that as a government too, if you remember the social contract.
Mr McCool: I remember it well.
Mr Martin: Nobody will ever forget the social contract -- Gary won't, anyway -- and the expenditure control plan that we brought in and all of that. I recognize that you are suggesting that we continue down that path, except that you don't want us to put a cap on drugs available to people.
Mr McCool: That's not what I said. I said we should be careful with putting a cap on health --
Mr Martin: The question I have for you --
Mrs Marland: A point of order, Mr Chair: I'm sorry to do this, because I haven't had to do it last week or previously this week, but I think in fairness, when we invite the public to come before a committee to speak and we ask them questions, we should allow them to answer. It's a common courtesy.
The Vice-Chair: Mr Martin, did you have a quick question, please?
Mr Martin: Do I have the floor?
Mrs Marland: It's common courtesy.
The Vice-Chair: A quick question, please.
Mr Martin: Thanks for the lecture and the homily.
I'd like to know, in light of your wanting to do as much as you can in your area to provide the best of pharmaceutical services to people and in light of this government struggling with a financial situation that is very difficult, would you at this particular point in time suggest that they go ahead with the tax cut?
Mr McCool: They were elected on a tax cut and I think the public is fully expecting that, so I think that's the mandate they have.
The Vice-Chair: Thank you, Mr McCool, for your presentation today. Have yourself a good day.
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COMMUNITY ESL COORDINATORS' COMMITTEE OF GREATER TORONTO
The Vice-Chair: The next delegation is the Community ESL Coordinators' Committee of Greater Toronto.
Ms Yi Man Ng: Honourable Chair and members of the committee, my name is Yi Man Ng. Today, I'm with Anna Henderson and Katrina Grieve. We are speaking on behalf of the Community ESL Coordinators' Committee of Greater Toronto.
The committee was established in the early 1980s and currently represents 42 community agencies in greater Toronto that offer adult ESL programs. Of these agencies, 24 deliver newcomer language orientation classes that are funded by the Ontario settlement and integration program through the Ministry of Citizenship, Culture and Recreation.
The mandates of the committee are to liaise with funders on demographic changes and immigration trends, on fostering of partnerships with school boards and community groups and on support to learners' settlement needs; to study and research new directions and programs to meet the changing needs of our learners and our communities; to promote coordination of programs and to facilitate effective cooperation and mutual support; to coordinate professional development for ESL coordinators and instructors; to deal with issues affecting ESL delivery and ESL learners.
We were pleased that the Ministry of Citizenship, Culture and Recreation renewed its commitment to immigrants in funding the NLOC program for 1995-96. This funding has enabled us to continue essential ESL and preschool programs within our communities for this school year.
According to the Report on Settlement Language/Orientation Activities and Newcomer Language/Orientation Classes (NLOC) Grant Program 1993-94 prepared by the Ministry of Citizenship, more than 16,500 learners were enrolled in ESL classes within the greater Metro Toronto area. These are part-time and full-time classes conducted seven days a week in the morning, afternoon and evening from early September to the end of July yearly. They are offered at literacy, beginner, intermediate and advanced levels as bilingual or unilingual classes. As well, there are citizenship preparation classes and integrated classes with skills training components.
Most classes are cosponsored with various local school boards. Classes are held in schools, and with support from the communities they are also held in community recreation centres and churches. These ESL programs form a critical part of the broader settlement services we offer to immigrants and refugees in our communities.
ESL programs are composed of learners of different backgrounds and from over 100 countries. Based on A Broad Vision: Immigration Plan, prepared by Citizenship and Immigration Canada, about 52% of newcomers to Canada arrived in Toronto in 1994. According to the Report on Settlement Language/Orientation Activities and Newcomer Language/Orientation Classes (NLOC) Grant Program 1993-94, prepared by the Ministry of Citizenship, the ESL programs in the greater Toronto area represent more than 75% of the total learner population in Ontario. These statistics indicate a great demand for ESL classes. Newcomer language classes are instrumental in assisting immigrants in acquiring the English language in the settlement process.
ESL citizenship and classes with skills training components are essential for immigrants to more fully participate in the broader aspects of society socially, economically and politically. They are critical to immigrants' successful adaptation to Canadian society. For many years, these programs have provided opportunities for them to familiarize themselves with their immediate neighbourhoods as well as to understand the different aspects of Canadian life.
In addition, English-language acquisition is a major stepping stone towards entering employment or skills training programs. Once employed, immigrants augment the growth of the Canadian economy, which benefits our society. Over time, immigrants contribute more tax than the Canadian-born. They also bring in a wealth of knowledge and global experiences that are advantageous to the growth of Canada in many aspects. Therefore, investing in adult ESL classes is a significant benefit to our society, socially and financially.
There are many Canadian citizens who attend ESL classes because of their limited knowledge of English. Many of them are highly skilled and educated. If given opportunities to learn English, they will be able to tap into their wealth of resources and consequentially contribute to the Canadian society.
Also among the learners are those who have worked in Canada for a relatively long time but have now lost their jobs due to plant closures, downsizing or restructuring. Since most jobs now require strong communication skills in English, these adults need to have access to programs to improve their English skills so that they can return to the workforce.
In addition, ESL programs are crucial for immigrants to provide adequate support for their children's learning through elementary and secondary school. Parents who can communicate in English will be more likely to participate in their school community. Perhaps most important, parents with strong English language can support their children's learning at home by helping with homework and being a resource. Without parents' ability to communicate to teachers and school officials regarding the needs of their children and the ability to support their children in their learning, immigrant children will have a difficult time in school.
Now Anna is going to do her presentation on ESL classes delivered at the community level.
Ms Anna Henderson: Through the Ontario settlement and integration program, which we call OSIP, community agencies have developed creative, innovative programs over many years and adapted them to the changing needs of immigrants and refugees in our province. Agency staff have developed considerable expertise in how to help immigrants adapt quickly and successfully to Canadian society. Some of the innovative programs developed by agencies funded through the Ontario settlement and integration program include ESL programs with an emphasis on skills training and job-specific programs. Skills training ESL programs have been developed based on demand for retraining, computer training and training for entrance to specific professions. Many of these programs assist foreign-trained professionals in learning the technical language associated with their profession and in gaining orientation to the Canadian marketplace.
The success of community-based language and orientation programs has been due largely to our ability to provide links and supports to new immigrants that address their settlement and training needs in a holistic fashion. As community agencies with a wide range of programs, we are able to assist individuals with their basic needs, such as child care and housing, in order that they may participate fully in language and skills training programs. Through a strong network of community-based agencies, we are able to refer newcomers to many specialized programs that provide training to meet their very specific needs. Our programs are flexible and responsive. Because of our close involvement with the individuals and the communities that we serve, we are able to identify common needs as they emerge and adapt our programs accordingly. We play an important role in assisting immigrants and refugees who have significant barriers to overcome. These programs allow immigrants to gain the support they need in order to adapt to our society and to obtain employment quickly.
Provincially funded ESL programs have been major pioneers in the development of ESL programming for adults. Through these innovations, Ontario ESL programs have become models to emulate for programs across Canada. Every year ESL programs provide essential language training and orientation to over 19,000 adult immigrants and refugees in Ontario.
As a program OSIP is cost-effective, with extremely low administrative and delivery costs. According to the Report on Settlement Language/Orientation Activities and Newcomer Language/Orientation Classes Grant Program 1993/94 published by the Ministry of Citizenship, the total grant expenditure was slightly more than $2 million. This grant served 454 adult ESL programs throughout Ontario. The average cost for each learner per hour was 40 cents.
These community-based programs are only partially funded by OSIP. There has always been the expectation that our agencies would complement the grants with funding from other sources, including foundations and private fund-raising. Also, free facilities such as church basements, community centres and recreation centres are utilized to deliver these classes and programs. In addition, many of the programs are supported through the work of dedicated volunteers from the community who give many hours of their time in tutoring one-on-one as well as in the classroom setting. However, without OSIP our ESL programs could not continue to survive and the expertise and innovative programs developed over many years would be lost.
In conclusion, we would like to say that we recognize the Ministry of Citizenship, Culture and Recreation is facing the challenge of budget constraints. We would like to stress that the newcomer language/orientation classes, NLOC, which are funded under OSIP have served to promote immigrants' independence, integration and economic contribution to Canadian society. We ask you to continue your support for the settlement language programs that make such important contributions and we look forward to working closely with the ministry in ensuring that immigrants in Ontario will have continued access to quality community-based language training programs.
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We have three recommendations like to make.
It is recommended that the provincial government recognize the significance of English language training for immigrants and refugees settling and seeking employment in Canada.
It is recommended that the provincial government maintain the present level of funding for ESL programs.
It is recommended that the government ensure the continued existence of community-based ESL programs in order to provide continued access to those programs for immigrants and refugees in Ontario.
Thank you. One of our co-chairs of our committee, Katrina Grieve, will be pleased to answer questions.
Ms Castrilli: Thank you very much for coming today and sharing your thoughts with us. I'm impressed by your presentation and particularly by the notion that what public funding there is really provides seed money. You provide a service at a very low cost with a number of volunteers. Am I reading this correctly? Do you want to comment on that?
Ms Katrina Grieve: Yes, that's correct. As we said in the presentation, there's always been an expectation that funds from the Ontario NLOC program would be matched -- not exactly matched, but would be supplemented by funding from other sources, including fund-raising by individual agencies and other grant sources. Most of these programs that we're representing are held in community-based organizations that get funding from a variety of sources, municipally and provincially and federally. These programs are not only supported by the Ontario government, but they're supported by all levels of government in addition to private foundations, donations and fund-raising activity.
Ms Castrilli: What percentage of your funding would be from the provincial government?
Ms Grieve: For this particular program I think it varies tremendously from organization to organization. There are some new immigrant groups who have arrived fairly recently in the country who don't have access to the same kinds of resources that some of the other organizations who have been settled and perhaps operating for 50 to 80 years in Canada would have better access to -- other funding sources. It varies tremendously. I don't have particular figures to give you, but I could submit those if you're interested.
Ms Castrilli: Your paper indicates that your grant for 1995-96 has been left as is. Is that right? It's assured?
Ms Grieve: There was a cut to the program this year. I believe on average the cut was 5% to the NLOC program.
Ms Castrilli: And what you'd like is to continue your funding at that level? Is that what your concern is?
Ms Grieve: I think that would be acceptable, given the budget constraints of the Ontario government. We understand the difficulties that you're facing at the moment. In addition to that, we have heard news that the department that gives support to these programs within the Ministry of Citizenship will be closed as of March 31. There have been additional reductions in the administrative support provided to these programs, including support in terms of materials development that are used widely across programs in Ontario. Those will be additional reductions that have taken place on top of the 5%.
Ms Castrilli: What do you envision would happen if the funds were seriously decreased? What happens to the 16,000 learners you have?
Ms Grieve: We also have to remember the context in which cuts are taking place. They're not only taking place at the provincial government level at the moment, they're taking place at the federal level and the municipal level. A lot of the agencies that deliver these programs are run very efficiently using many volunteers to run the programs.
Our fear is that as funding is reduced from a number of different sources, immigrants and refugees will have less and less access to programs that would help make the link into further training programs, into employment opportunities. We fear that that would result in a great deal of isolation of individuals and that there would be additional cost to our health care system that would result. We would have more people on social assistance for a longer period of time. We feel that these programs are an investment and they're preventive. They help people in a relatively short period of time to adapt to Canadian society and find employment.
Mr Kwinter: Does your client base have free access to the program?
Ms Grieve: Yes, that's correct.
Mr Kwinter: I have seen speculation that, as part of constraint, various levels of government, both the municipal level and the provincial level, are looking at possible user fees for programs such as this. Have you done any analysis of what the impact would be on the uptake of the program if there was a user fee?
Ms Grieve: We haven't done any studies on this issue particularly. We have the sense from participants in our programs that a very small user fee might be acceptable, and we're talking about a $5 or $10 per course kind of level. They're willing to contribute something to programs. However, many of these individuals have very few resources available to them, and I would be very wary of imposing user fees. At the current time we are already feeling the results of cuts to social assistance in that many participants in our programs are having to drop out because they can no longer afford TTC tickets to get to the programs. Imposing additional fees on top of that would be an additional problem for many participants.
Mr Martin: Thank you for coming today and doing such an excellent job of explaining to us how money that's spent in this way is in fact an investment in a human resource that will come back to pay dividends eventually to society and to communities and to government and make Ontario a better place for all of us to live and to work and to play. I'm saddened when I think of what may happen to programs such as yours that are so obviously valuable. We hear this government talk about -- is it $1 million a day or $1 million an hour?
Mr Jim Brown: A million dollars an hour.
Mr Martin: A million dollars an hour that we're spending. There's the sense out there that that's money into a big black hole or into a Swiss bank account somewhere where it's just kind of disappearing, it has being washed out to sea.
This group today has painted a picture for you very clearly, and I hope you saw it, that money spent by government is an investment, whether it's in capital or people, that comes back to pay dividends eventually. If you don't spend it, things start to fall apart, people get sick and eventually, in many, many significant ways, it comes back to bite you, to hurt you in ways that are going to be more costly than if you kept the programs going in the first place.
As you look ahead at what this government is proposing, that government moves out of the way and that the public sector backs off and that the private sector will move in and in a more cost-effective way deliver in the areas that have been vacated programs that are necessary so that everybody can participate, and we'll all sort of move along with this new economy that's going to be generated, are you comfortable with that notion? Do you think the people you represent and speak on behalf of today so very clearly and eloquently will be served well in this new Ontario and that they will be ultimately able to contribute in the way that they are now once they get through these ESL programs down the line?
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Ms Grieve: There have been a number of discussions in a variety of areas. One area is perhaps that many of these services can be provided by volunteers. The other area is perhaps that these programs could be provided better by private organizations. We already use volunteers to a large extent in our programs. At some point you need someone to coordinate the volunteers; volunteers just don't coordinate themselves. In the delivery of language training programs, we feel it is essential to have qualified language instructors teaching these programs. I suppose one fear of going to a privatized model would be that the high standard that currently exists would be eroded.
Another fear of pursuing the privatized route is that only individuals who had the best chance of a quick success rate would manage to go through those programs, that the private companies would tend to prefer to accept people of whom they could show, "Look at our success rate and the people that we turn around so quickly and place in jobs so quickly." The individuals who need some additional supports would be left out. That is one concern about private language instruction.
Currently, private language instruction in Canada is geared more to visitors to Canada, students from overseas, than it is to immigrants and refugees. The people involved in ESL training programs have developed quite a bit of expertise over time in the specific needs of immigrants and refugees and making sure that the language instruction programs are based on their particular needs.
Mr Jim Brown: Just for Mr Martin's benefit, the $1 million an hour that goes out is not an investment. It's a payback to the bond holders in interest, and interest is an expense. It's a total waste of money, interest.
Mr Martin: Then why is it the poor who are carrying it on their backs?
Mr Jim Brown: I'm still on, Mr Martin. You had your chance.
The Chair: Are you asking a question, Mr Brown?
Mr Jim Brown: Well, when I have a chance.
You seem to do very well with $2 million; you do exceedingly well. I noticed from past budgetary figures in the Ministry of Education's expenditures that there was a figure of $68 million that the previous government had spent on ESL and yet you do all Metro Toronto on $2 million. Do you have competition? Are we funding other ESL programs that aren't as effective as yours, to your knowledge?
Ms Grieve: The way this grant actually is used is to provide some resources to community-based programs to help provide these programs. They are provided, for the large part, in co-sponsorship with local boards of education. The boards of education are actually providing the instructor's salary, so that would account for considerably more expenses being incurred by the boards of education versus this program.
This grant from the Ministry of Citizenship provides the resources for different communities; for example, sometimes it's a community-based program in a multiservice organization. We have quite a number of those in Toronto. In other cases, it might be an ethno-specific organization dealing particularly with the Somali community. They would like to develop programs based on the needs of that particular community.
The NLOC program provides some funding for a variety of different models of service delivery whereas the boards of education offer programs both in co-sponsorship with us and on their own. The classes they offer on their own are in school sites and don't have additional supports for their learners, as do some of the settlement agencies that can provide translation, assistance with counselling, assistance in pre-employment linking to skills training opportunities.
Mr Jim Brown: So you could not do the job without the instructors in the schools who are paid for out of the Ministry of Education?
Ms Grieve: That's correct. It is a partnership with the boards of education. Currently, in other parts of the province I believe there are some different models in existence. There is not always the involvement of a local board of education. It depends on the individual situation. I think in some of the more remote communities, for example, an agency is run primarily through the use of volunteers and a coordinator who would coordinate the program. It's quite a flexible program that has been developed to meet the particular needs of each situation across Ontario.
Ms Bassett: Just to pick up on what Jim was asking -- and I thank you for your presentation and I agree it's a necessary program and all the rest -- if we were trying to determine how much as a province we were putting into ESL, just to know what we're paying, we can't do it by looking at the fact that you're very efficient with your $2 million, because you're doing other things with that $2 million, I presume; or is it just ESL you're doing?
Ms Grieve: That's just the ESL part alone, that NLOC program.
Ms Bassett: So we have to get the adjunct from the boards as well to get a figure. I'm just trying to get it in my mind because people are always saying to me, "How much do you pay on ESL?" I can't say $2 million, because it's $68 million --
Ms Grieve: I'm afraid I don't have those figures with me here. You would have to go to the Ministry of Education to get those figures.
Ms Bassett: Do you think it's a streamlined program across the board, from what you see, or do you think there are places that in the delivery of the system -- and I'm not saying yours particularly, but you're obviously expert at knowing what we're doing. It could be more, because we're cutting right across the board. Are there ways we could be looking at turning it over more to people such as yourself, or whatever? I don't know.
Ms Grieve: In the past few years the local boards of education, at least within Metro Toronto, have been cutting back on ESL program delivery. For the last three years we have had a freeze on opening any new classes and we've had a considerable reduction, of up to even one third, of classes offered. So there has already been a considerable reduction, and right now the boards of education are looking at ways to increase efficiencies of running the programs, perhaps consolidating some programs in some areas and even reducing the number of hours of instruction per year. Those measures have already begun.
One of the areas, when you look at the whole picture and how can we assess what to do in order to save money and use the money most efficiently, there could be negotiations with the local school boards, there could be negotiations with the federal government as well on how to use the money most effectively for the best possible outcome. That would be my opinion.
The Chair: Thank you very much. We appreciate the Community of ESL Coordinators' Committee of Greater Toronto for its presentation today.
MEDICAL REFORM GROUP OF ONTARIO
The Chair: The next group is the Medical Reform Group of Ontario. We welcome Dr Bayoumi.
Dr Ahmed Bayoumi: The Progressive Conservative government of the province of Ontario is preparing to bring in its next budget. This budget is likely to include cutbacks in several areas and a possible decrease in taxation rates for higher-income Ontarians. This budget has the potential for bringing about profound changes to the structure of Ontario society. Possible features include more cutbacks to social programs, the widespread implementation of user fees, further widening of the gap between the rich and the poor through regressive taxation, and the entrenchment of poverty. The Medical Reform Group believes that these and other proposals will systematically dismantle the social support systems that our society has achieved.
The Medical Reform Group of Ontario, formed in 1979, is a group of 200 practising physicians and medical students. The MRG represents the views of its members on health and health care matters through research, public statements and consultation with other groups which share our aim of maintaining a high-quality, publicly funded, universal health care system. The MRG believes that health is political and social as well as medical in nature and that health care is a right.
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The current government has proposed to decrease its expenditures on social services in order to decrease the provincial deficit. The scale and scope of the proposed cuts is unprecedented and the consequences of these cuts have not been well considered.
The relationship between cuts to social programs and health should be clear. Evidence clearly links health to such fundamentals as good nutrition, basic child care and a strong education. These determinants of health are as important, if not more, than a formal health care system. Simply put, as doctors we cannot effectively treat patients whose fundamental needs have not been addressed. We have already seen the effects that these cuts have had on our patients who receive welfare. It is unacceptable to put individuals in the position of choosing between paying for medication or paying for food. This, however, is precisely the effect of the proposed cuts.
The Medical Reform Group opposes any further cuts to social programs. We recognize that programs need to be efficient and abuse needs to be curtailed, but savings in these areas have already been accrued. Any further cuts will result in further decreases in services to those least able to withstand them. We are in real danger of losing some social programs. The role of government to support those most in need must be preserved through protecting social programs. This government is in imminent danger of abdicating this responsibility.
The November 1995 economic statement and Bill 26 have instituted a user fee for those Ontarians who use the Ontario drug benefit plan. This means that at a time when an increasing proportion of the poor are relying on food banks to fight hunger, user fees on drugs have been introduced. Medications are not a discretionary item. Yet there is no doubt that even small user fees will act as a deterrent to utilization of services.
Given that user fees will decrease utilization, will they have an adverse effect on health? Canadian data shows us that the poor have a larger proportion of chronic illnesses than the affluent. Morbidity and mortality increase as income shrinks. The poorer one is, the shorter one's life expectancy. In Canada, that translates into a difference between the richest and poorest quintiles of 5.3 years for men and 1.8 years for women.
The evidence should speak for itself: User fees have an adverse effect on health because they act as deterrents to access. They should not be used as a revenue-generating strategy by this government. User fees open the door for growing fiscal penalties for the poor. Paradoxically, by deterring access to care, user fees have the potential of creating further adverse health effects and increasing costs to the health care system. These adverse health consequences will end up costing all of us much more than any savings realized from copayments. User fees should therefore be opposed.
Instead of user fees, we urge the government to implement the organizational and fiscal reform of the health care system which will provide the proper incentives, checks and balances to produce the outcomes we all desire: the delivery of high-quality health care, better health outcomes and satisfied consumers. For example, rather than charge user fees on medications, a more appropriate strategy would be to improve physician prescribing and achieve cost savings in more efficient methods of drug distribution.
The government has promised to cut taxes for high-income earners by as much as 30%. The government believes that this will stimulate economic growth through increased spending and that the benefits from an improved economic situation will eventually benefit all members of society. Similar theories, when put into practice, have had disastrous effects in the United Kingdom and the United States. In these societies, the gap between rich and poor has increased and the health status of the poor has decreased. As discussed above, evidence has consistently shown that income is related to health; that is, those individuals in society with higher incomes have better health outcomes than those with lower incomes. Further, redistribution of incomes is an effective way to increase the aggregate health of societies. Progressive taxation rates are a fundamental aspect of this policy.
The tax cuts promised by this government are objectionable for several reasons. First, in order to decrease social spending while simultaneously decreasing revenue, this government must severely reduce its expenditure on social programs. This will result in a direct and measurable human cost.
Second, regressive taxation rates will increase the margin between the top income earners and the lowest income earners. Thus, the poor will be directly financing major tax cuts for the rich. This policy is socially regressive and ethically reprehensible.
Third, independent analysts have questioned the ability of the provincial economy to withstand a tax cut of this magnitude. Of course, any further economic downturns will have their most significant impact upon those least able to withstand them, the poor and marginalized.
The Medical Reform Group believes that progressive taxation rates are an effective and just means by which governments can and should increase health. As physicians, the members of the Medical Reform Group belong to a group whose earnings are more than average. Individual members of our group stand to profit considerably from the proposed tax cut. Nevertheless, we renounce this cut in the strongest terms. No personal benefit can justify the societal costs these cuts will incur. We accept and support a progressive taxation rate as a basis for a compassionate, responsible society.
Ontario's Progressive Conservative Party promised to change the status quo in health care while preserving the province's total health care funding at $17.4 billion. The Medical Reform Group believes that reform of Ontario's health care system is long overdue. Medicare could be dangerously compromised by a reactive approach which emphasizes cost savings and therefore, by omission, allows not the transformation of the status quo, but its ultimate collapse.
The association representing physicians in this province would be very happy to leave the fee-for-service non-system intact and negotiate fees, caps, thresholds and insured services instead. The result of this, given the fiscal pressures in Ontario, would be the emergence of a two-tier health care system: an ever-shrinking list of insured services for the have-nots and more and more deregulated non-insured services for the haves. This would, in the short term, satisfy both politicians, who suffer from fiscally induced headaches, and most physicians whose incomes would increase, but this scenario would not be in the best interests of the millions of Ontarians who support, finance and depend on our health care system.
This lack of momentum in reform was acknowledged by the Honourable Jim Wilson, Minister of Health, when he stated, "Anyone who knows anything about Ontario's health care system recognizes the need to stop tinkering with it and to move ahead with comprehensive reform of the system itself."
The Medical Reform Group hopes that the 1996 budget will reflect and facilitate a population-based approach to the provision of primary care for this province. A strengthened, coordinated primary care system of primary care funded through a capitation formula would address many of the problems facing us. In order to provide a better, cheaper care, we need to build on a strong foundation of good primary care. Without this foundation, any attempt at reform becomes a house of cards waiting to crumble.
Ontarians do not want a two-tiered health care system with user fees. For many years we've witnessed the terrible inequities of health care in the United States, the suffering associated with care denied or forgone because of inability to pay, and the huge financial burden associated with chronic or catastrophic illness.
The United States model of corporate, for-profit health care is resulting in deteriorating health care for middle- and low-income earners and destructive infringement on the autonomy of health care providers. The United States has also shown us how corporate health care maximizes profits by providing care to low-risk individuals who use less care, leaving the public system to pick up the pieces and provide the more expensive care required by sicker patients. The MRG is concerned that the government has recently expressed its support for such a system in Bill 26 and in its attitude towards new facilities reinforcing the move towards privatization in Ontario.
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The US-style model is the worst possible direction for Canadian health care. Data confirm that the Canadian health care system is more efficient than the American system. At the same time, it is more equitable and accessible. This system needs to be strengthened, not weakened.
The government should commit itself to two strategies to protect our public health care system. First, the Canada Health Act should be strictly enforced. User fees and other illegal charges should be prohibited and those charging them should be aggressively prosecuted. Second, this government should commit to reinvest any cost savings back into a publicly funded health care system. Shifting spending to the private sector is not only unjust, it is also inefficient. We are committed to the maintenance of a universal, accessible, not-for-profit, publicly administered health care system in Ontario.
The upcoming budget has the potential to fundamentally change the structure of Ontario society. Ontarians are committed to their health care system. User fees and privatization will systematically destroy this system. Alternative funding arrangements can immediately strengthen it.
Preservation of health needs more than just a strong health care system. It requires strong social programs funded through a fair, progressive taxation system. We urge the government to stand by its commitment to preserving our health care system through these measures.
Mr Martin: Thank you for taking the time to come forward today. I find your presentation very informative, and actually, as I take it in and begin to try to comprehend the impact of some of what you're suggesting is about to happen as Ontario unfolds and this government continues down the round of reform and makes the cuts that it does to the programs that all of us depend on this province, I can't help but be a little bit shaken. For anybody listening to you and listening to the groups coming before us, and putting all that in the context of the statements of July 1995 and November 29, 1995, and the noises that are being made by the various ministries this government is now in charge of, it's actually shocking, and frightening is what it is.
You talk, I think very eloquently, about the impact of any change to the health care system by way of move to two-tier or user fee, the impact on the poor and those who can least afford to pay, those who are already struggling. You know, as I do, that this government has moved very aggressively to hurt those people.
Mrs Marland: Oh, give me a break.
Mr Martin: Are you saying you're not, Margaret?
In July they took away 22% of their pay. In November they diminished the resources that are available to them to help them cope with that. We hear the Minister of Housing talking of removing or changing the system of rent control. We hear the Minister of Education talking about user fees. We hear the Minister of Health now talking about user fees. It goes on and on; it just doesn't seem to ever end. The target and the victim seems to be nearly in every case those who can least afford to deal with that.
What do we do? This government has been given a mandate. They have a majority government here and they're going to do their shtick for three or four years until such time as the populace of Ontario has a chance re-evaluate and maybe do something different. In the meantime, it's my grave concern that a whole lot of people are going to get hurt. Have you any suggestion what we might do to mitigate against that or assist in any way so that the impact is minimized?
Dr Bayoumi: In the reform we talk about of the health care system, the fundamental aspect we see is to move towards a capitation-based system. The system we have now is if you preserve a system where each physician bills for each service they provide for each patient. It's an inefficient system. It's a system that increases costs. It's a system that has no containment built within it. It's a system that lends itself to arguments for user fees and that ultimately, as we're seeing, will not be sustainable.
A capitation-based system, whereby patients are rostered and see physicians on a regular basis, but physicians are paid per patient on their roster rather than fee for service, would first of all, I believe, improve the quality of care the patients receive and allow for better economic management of the costs of health care.
Mrs Marland: Dr Bayoumi, I'm assuming that you are a doctor of medicine. Am I correct?
Dr Bayoumi: That's right, yes.
Mrs Marland: You say that the Medical Reform Group is currently 200 practising physicians and students.
Dr Bayoumi: That's right.
Mrs Marland: Can you tell me how many are graduate physicians and how many are students?
Dr Bayoumi: The large majority of our members are graduate physicians. I think we only have 10 to 20 student members at this time.
Mrs Marland: The last time I looked at the membership of this group, it was mostly Toronto members. Is that still the case?
Dr Bayoumi: Our membership is based in Toronto, in Hamilton and throughout the rest of the province.
Mrs Marland: But primarily it is urban-centred, isn't it?
Dr Bayoumi: We have several rural members, but most of our members are urban-centred, yes.
Mrs Marland: I thought they were. I knew they were in the past. Of 23,000 physicians in the province, your 200 represents about 0.86% of physicians practising in the province?
Dr Bayoumi: I haven't done the calculation, but if that's what it works out to.
Mrs Marland: My question refers to a comment you have on page 3 where you say, "For example, rather than charge user fees on medications, a more appropriate strategy would be improve physician prescribing and achieve cost-savings in more efficient methods of drug distribution." Now if I were a physician, I think I would be somewhat insulted by the suggestion that we need to improve my ability to prescribe medications for my patients. I just would like to give you an opportunity to clarify what your inference is when you say that we need to improve physician prescribing.
Dr Bayoumi: Sure.
Mrs Marland: The second part of my question is, how would you achieve the "cost-savings in more efficient methods of drug distribution." Perhaps you could answer both those questions for me.
Dr Bayoumi: Sure. The evidence from numerous studies has shown that physicians are not rational in the way that they prescribe medications.
Mrs Marland: Are not what?
Dr Bayoumi: Rational in the way that they prescribe medications.
Mrs Marland: What does that mean?
Dr Bayoumi: I'm not talking about individual physicians. I'm not picking out myself or any other physician. I'm talking about, as a rule, physicians tend to prescribe newer medications before they prescribe older medications, even when the older medications are as effective; physicians tend to respond to advertising from pharmaceutical manufacturers more than they respond to scientific literature showing that one medication is more effective or less effective than another.
There's lots of research looking at how to change physician prescribing behaviour. One such example is what's been called academic detailing. In other words, the same way that representatives of pharmaceutical companies visit physicians to give them information about their medications.
Mrs Marland: Are you suggesting that they prescribe irresponsibly then?
Dr Bayoumi: Again, I'm not saying that individual physicians prescribe irresponsibly. I'm saying that, as a rule, physicians have a tendency to prescribe newer medications before older medications, to prescribe more expensive medications rather than cheaper medications if they are newer and if the information that is presented to them is what they have to deal with. Part of the problem is the information that's presented to them. Many physicians are busy and rely on pharmaceutical manufacturers for the information about medications and which medication to prescribe.
Mrs Marland: How would you exercise cost-saving in the methods of drug distribution, which is your other criticism of how your colleagues in your profession serve sick people in this province? I think it's a very serious criticism that you make.
Dr Bayoumi: The most immediate benefit would be to lift the user fees that are going to be implemented in drug distribution. The user fees are not going to be helpful. Medications are not a discretionary item. Patients do not have the information about whether or not they truly need to take a medication. They're not operating in a market environment. They take whatever medication their physicians prescribe for them.
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Mrs Marland: Are you suggesting that patients can be educated to challenge a professional who's been at school for 12 years?
Dr Bayoumi: Not at all. Not at all. It is the role of the physician to decide which medication to prescribe for his or her patient. My patients don't challenge me about which drugs I prescribe for them. They don't have a choice really about which medications I prescribe for them. If I prescribe a more expensive drug rather than a cheaper drug, they don't have the information in order to ask for the cheaper drug. That's the expertise associated with being a physician.
Mr Kwinter: Dr Bayoumi, I'd like to just follow up on that subject that we've been discussing. I think there are two perceptions of the user fee. One is that it's a method for the government to raise revenues. Another one is to inhibit what they consider to be frivolous access to pharmaceuticals, and if you put a so-called nominal user fee, then hopefully only those people who really need the drug will use it and those people who are abusing the system will not. You were getting into that kind of discussion on the last question, could you just expand on that?
Dr Bayoumi: Let me take your second point first. There's no doubt that the studies we've been shown show that user fees do decrease utilization. If the purpose of user fees is to decrease utilization, user fees work. The problem is that they decrease utilization disproportionately. They decrease utilization more among those who are least able to pay for them. In other words, the poor decrease their utilization more than the rich.
They decrease utilization indiscriminately. They decrease utilization for both appropriate and questionable interventions. In other words, if you charge a user fee for patients visiting an emergency room, and there's a perception that many patients who visit an emergency room could seek their care elsewhere, the poor who seek their care in an emergency room will not come for both appropriate and questionable reasons. The implementation of user fees will have a direct impact upon the poor, to decrease their utilization more so than among those willing or able to pay for it, and will have direct negative consequences upon their health.
The second argument -- the first one that you mentioned -- was that user fees would be revenue generating. Again, it's difficult for me to see how user fees are supposed to decrease utilization, that they will simultaneously be revenue generating. At best, that argument should be that they would be revenue-neutral. I can't accept a policy that's revenue-neutral and has negative health consequences.
Mr Kwinter: I'd like you to just explore the concept of capitation. Correct me if I'm wrong, but under the proposal each doctor would have a roster of their patients who were assigned to them and they would take over the health management of that particular patient. I assume the patient, other than in an emergency situation, would be discouraged from going somewhere else. If they had a health problem and probably even an emergency they'd be encouraged to go to their doctor. Is that a fair assessment of what it's going to do?
Dr Bayoumi: In general terms, yes. Different capitation models have been proposed; some with more ability for the patient to choose where they seek their care and some with less ability. We favour maximum options for the patient to choose where they could seek their care, but essentially patients would belong to a roster and would seek their care within that environment, yes.
Mr Kwinter: What would happen if two things happen: (a) the doctor and the patient are not compatible, and (b) they are assigned and put on a roster for a doctor who is less conscientious than say another doctor. They find that, notwithstanding they are on that roster, they can't get access. How do the mechanics of dealing with those problems work?
Dr Bayoumi: Patients wouldn't be assigned to a roster so much as they would choose a roster and patients would be able, within limits, to change which group they belonged to. So there are many ways to ensure that patients have the ability to seek their care where they see it's most appropriate and with doctors whom they find they get along with the best.
The Chair: Thank you very much, Dr Bayoumi and the Medical Reform Group of Ontario, for presenting your views to the committee today.
CANADIAN MENTAL HEALTH ASSOCIATION, ONTARIO DIVISION
The Chair: Our final group of the day is the Canadian Mental Health Association, Ontario Division, and we have with us Mr Kelly, Mr Thompson, Ms Stoddart and Mr Young. Welcome.
Mr John Kelly: My name is John Kelly and as president of the Canadian Mental Health Association,Ontario Division, I am pleased that you have provided the opportunity for our organization to make a presentation to you concerning the 1996-97 provincial budget.
I would like to introduce to you Colin Young; he is a retired businessman and a member of our board of directors and policy advisory committee; Glenn Thompson, our executive director; and Ruth Stoddart, who is the manager of policy planning and development at our provincial office.
The Canadian Mental Health Association, Ontario Division, CMHA, is an incorporated registered non-profit charitable organization which was chartered in 1952. We have approximately 4,000 volunteers who are active in direct, board and committee service in a network of 36 branches located across Ontario. CMHA Ontario Division and its branch services and programs are funded through government grants, local United Ways and supplementary fund-raising activities.
Since our founding, CMHA -- Ontario Division has made significant contributions to the development of mental health policy in Ontario. We have consistently advocated for community mental health services which would allow individuals with mental illness to remain in their home communities, close to their families and other natural supports.
In each of our pre-budget submissions over the past several years the CMHA -- Ontario Division has recommended that a central target for the government be the reduction of the provincial deficit. It is our view that major transformational changes are required in the health care system, especially in that part of the system with which we have the most experience, the mental health system.
We believe in the following four principles and we will talk about each more explicitly during our discussion. However, I'd like to review these four principles now with you:
(1) That the CMHA -- Ontario Division supports the principle of deficit reduction.
(2) That the government's key goal should be to preserve the protection afforded to the most vulnerable in our society.
(3) That there should be a single point of accountability within the government for children's mental health services.
(4) That in order to maintain the overall health budget at $17.4 billion and to retain the mental health envelope, there must be effectiveness, efficiency and economy in spending and the reallocation of funds from institutions to community.
We believe it is important that the government and this committee have a conceptual framework within which the potential impacts of the 1996-97 provincial budget may be examined. The New Framework for Support document prepared by our CMHA national office provides that frame of reference. This document has been widely circulated and is in active use in other parts of the world. A copy of the community resource base portion of the framework has been attached to our submission as appendix A.
The New Framework for Support indicates that to live a fulfilling life in their community, persons with a psychiatric disability need more than the formal mental health services provided by hospitals, community agencies and private practitioners. They need to have at least the same opportunities to access basic socioeconomic support as other Canadian citizens, namely jobs or other productive activities, good housing, appropriate education and, finally, adequate income. Dr Fraser Mustard and others have argued that traditional health care may contribute 25% to a sense of wellbeing for the average citizen, while 50% of our sense of wellness comes from socioeconomic conditions. The prospect of job loss, with the potential of no longer being able to afford decent housing, adequate food and other necessities and reasonable educational and recreational opportunities for oneself and for one's children, is a frightening prospect for most people. For someone with a serious mental illness, the situation is especially daunting. Not only can their illness separate them from basic socioeconomic necessities such as the ability to work or to maintain a home, but the lack of those necessities in their lives has a direct and damaging impact on their mental health and thus their prospects for recovery.
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The community resource base contained in the framework document demonstrated the ideal range of resources that should be available to a person with serious mental health problems if they are to live a fulfilling life within the community. The basic socioeconomic conditions of income, housing, work and education make up the foundation of this model. If people with serious mental illness do not have access to these fundamental supports, their ability to benefit from other services available to them is severely diminished. Use of the framework model will ensure that decisions are made which will facilitate the integration and coordination so needed to improve mental health care. We encourage the government to ensure that the 1996-97 provincial budget includes provisions which provide the authority and impetus for positive change within the mental health system in Ontario.
Now I would like to turn to Colin Young, who will present our views concerning the mental health reform process in Ontario.
Mr Colin Young: In the first of my brief remarks I'd like to focus on the second of the four points which our chairman identified: that in our view the government's key goal in formulating a budget for next year and subsequent years should be to ensure that in any deficit reduction program a very deliberate effort be made to preserve the protection for the most vulnerable and therefore most dependent people in our society.
One of the problems that those of us who advocate for and on behalf of the mentally ill in past years has been that there was a lack of definitive data as to prevalence and how many and how severe and things of that sort. If the committee is not familiar with the Mental Health Supplement to the Ontario Health Survey -- this supplement was published in the fall of 1994 so it's eminently up to date -- the data contained therein, I think, is on the one hand useful but, much more importantly, fascinating and disturbing. This survey, which was financed jointly, I believe, by the Ministry of Health and the Ministry of Community and Social Services, using internationally recognized technology and so on, established the prevalence of diagnosable mental illness at the rate of 18% or 19% across the entire population of the province. That may seem shocking, but I assure you, that is the evidence. It's broken down very extensively by region and sex, by principal diagnoses, differentiated between urban and rural, and so on.
It's an astonishing and disturbing number but it's a unique number, in that this is an Ontario database. So the first point is the prevalence rate of 18% or 19%. The second point I want to make is that may be bad enough, but the prevalence rate in what are called transitional youth, namely those persons aged 16 to 23, is 40% or more higher at 25%. If we're concerned not only for this generation to which we belong but the impact of future generations on the economic wellbeing of this province, I think we need to look with grave concern at numbers of that magnitude.
I highlight those data as very clear evidence that mental illness is indeed a major issue confronting the province in many dimensions, not only health, but also that when you dig below the roughly 20% prevalence rate, you come down to a prevalence rate of not less than 1% and more probably 2% who are severely mentally ill; that is to say, not only suffering from a serious diagnosable illness but totally disabled in consequence and where that disability is chronic and ongoing. Those are, of course, the group called severely mentally ill, the most underprivileged, and the group where we trust -- and we've made many submissions to other ministries, where in looking at a whole variety of measures we recognize how severely some of those might impact on that group, which otherwise has really no hope. In many cases, the alternative to the level of care now provided to them is homelessness and death on the streets, and I mince no words about it.
So that is essentially our first point. It covers the need to do our utmost to ensure that however we reduce global expenditures, we have the least possible impact on those most severely in need, who explicitly include a very large number of Ontario residents.
I've covered my chairman's second point, which was the need for single-point accountability for children's mental health. Our executive director will be speaking more fully to that point in just a moment.
Let me move ahead, then, to the fourth point, that in assessing future allocation of expenditures and so on in health in particular but also in other social service areas, we trust the committee and the government will pay particular attention to what we would call the three defining principles of effectiveness, efficiency and economy, each of which has a slightly different meaning but which taken together add up to a set of standards which will determine whether the money is being well spent, if I could put it as simply as that.
Let me note first, of course, that the total health budget appears to be frozen at roughly, I believe, $17.4 billion, and that whatever changes and/or improvements are to be made will occur within that global total. Quite frankly, perhaps with some reluctance, we accept that. We think the key issue is: How is the reduction, the reallocation, the transformation and so on to be accomplished to meet the overall goals most effectively? In that respect, we point out first that spending on mental health is not much over 7% of the total health budget. Given the overall prevalence rate that I indicated of 18%, 19%, closer to 20%, that does not go very far.
Secondly, as has been demonstrated of course in the mental health reform process that has been ongoing since 1988, something like 80% of that money goes to what are called institutional purposes and only 20% to community purposes. It's useful to define the difference. Institutional services are those provided to patients occupying beds in a hospital, and community is everything else, including services that might be provided by a hospital but to outpatients or day hospital or day surgery or whatever.
Needless to say, we very much believe that is a totally inappropriate distribution of the available resources. There's a wealth of data accessed in the mental health process to demonstrate that this amount of money can be spent much more effectively, efficiently and economically in supporting community-based services, outpatient in other words, and by that I don't mean purely on medical purposes, but supporting the range of supports, case management, crisis intervention, things of that sort that the severely mentally ill need.
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So we advocate most forcibly for: first, retention, as an absolute minimum, of the total amount of money now in the mental health package or, if possible, some addition to it within the overall budget, recognizing the prevalence and severity of mental health as a problem; second, the promptest possible action to reallocate those moneys away from institutional uses towards community-based uses.
Some of my remarks, by the way, if I may just interrupt myself, probably apply equally to other branches of medicine where, due to many different kinds of advances, the need for in-bed care is no longer as high as it once was, where people can either be turned around much more quickly or not admitted in the first place and handled through outpatient surgery and in all sorts of other ways. I think the combination of those is vital. The obvious point, of course, is that the more one can de-emphasize the institutional side and pick up the local -- either local hospital services or local community services -- and build them into a functioning matrix, the more likely it is to be a totally efficient, effective and economical package. We advocate strongly for that.
My final point, and I raise this only because it's currently at issue, is the role of the provincial psychiatric hospitals. I think, given the direction of mental health reform and given the very significant proportion of available funds that is spent on supporting these institutions, it's mandatory that a careful and detailed study be made of the role of those institutions, of their relationship to the balance of the system. In the Graham report, which kicked this current round off back in 1988, the phrase "the solitudes" was highlighted, where the PPHs were managing their affairs and the general hospitals theirs and community agencies theirs, and there was no integration into a properly functioning system.
If I may, I'd be happy to deal with questions after this and turn the floor over, for the moment, to our executive director.
Mr Glenn Thompson: Mr Chairman, honourable members, I'm going to be quick about it. I'd like to say something about children's mental health issues; housing in so far as it impacts on people with mental disorders; employment; and forensic services. I'd only mention enough about each of those to perhaps tempt you to take a thorough look at the paper we've submitted, and you may want to ask questions about that.
It may seem self-evident -- but we don't act as though it is in the services we provide in the province -- that our children's services should be well organized and well integrated and that we should use those services as a preventive kind of device for people going on into the adult service systems in the mental health care area particularly. But we desperately need a better integrated set of services, anchored in each community, that is focused on the diversion of people, on early childhood education, on assistance to mothers with newborn children and on the early incipient indications of mental disorder among children. I'd just encourage you to think about the organizational framework that could be created, probably with the same dollars that we now use, I would suggest.
If one looks at the Golden report, I think there are all sorts of opportunities presented there about how we might approach service systems at the local level and unbundle them from all of the other levels of government but ensure that there's a proper set of criteria set out for the local level to operate under. It's very evident in that report how much this greater Toronto area and indeed the centres across the province are in many ways the engine of economic growth in the country, and how much, if we don't care for the quality of life here, including the children's quality of life, we'll pay for it in economic ways; we'll certainly pay for it in every other way.
So I'd encourage you to consider, in the development of the budget, those matters that relate to the early childhood development of children and certainly early incipient child mental health issues.
It's often said by people with mental disorders that their problem is less their mental disorder than it is employment and housing, and so whatever can be done to ensure the availability of reasonable and decent housing, particularly for people who have serious mental disorders, and opportunities for either employment or proper income support is vitally important. Pouring money into the treatment side of the system simply isn't a good economy if those other things are not there.
A moment on forensic services, those areas where people are in touch with both the mental health system and the courts: Those systems have been badly fragmented over many years. I worked for 20 years in the correctional services system here in Ontario and experienced it close up. We need to do a great deal there in the planning of the devolution of provincial psychiatric hospitals and the development of those services to ensure that forensic services, appropriate ones, are available to the courts and available to our communities.
I think I won't say more.
Mr Kelly: Just in summary, thanks again for the opportunity to make this presentation to you today. Let me repeat our four principles that we believe in: (1) that the CMHA -- Ontario Division supports the principle of deficit reduction; (2) that the government's key goal should be to preserve the protection afforded to the most vulnerable people in our society; (3) that there should be a single point of accountability within the government for children's mental health services; and (4) that in order to maintain the overall health budget at $17.4 billion and to retain the mental health envelope, there must be effectiveness, efficiency and economy in spending, and the reallocation of funds from institutions to the community.
Thank you for your time.
Mr Carr: Thank you very much for a fine presentation. One of the problems we've got in the present system -- and I'll try to be as quick as I can -- is that right now hospitals make decisions on the mental health services that are going to be provided. Mental health services historically, in the broad sense, have been one of the more expensive programs because of the tremendous need. So that when cuts were made -- and I think of the hospital in our area. When they looked at it, they said, "Okay, we're going to cut it out because of the budget constraints," with no planning for where people would go. Some of the tough measures, including Bill 26, will allow the ministry to coordinate those services and, say, if Joseph Brant gets rid of it, Oakville-Trafalgar will. Up till now, they haven't because the board has only cared about its own particular area. In light of some of the circumstances that your program may be one of the ones cut, do you support this idea of planning outside of these silos, like we've done in the past?
Mr Thompson: Let me respond to that, if I may. We were speaking earlier today, some of us, to the individual within the Ministry of Health who's looking at the devolution of provincial psychiatric hospitals and saying, "Maybe what you need is a mental health restructuring group, area by area or region by region, around the province." Certainly someone needs to take charge of that process that will happen in the general health restructuring apparatus and bring the people to the table. So we'd very much encourage that the government take charge of that and not simply devolve the hospitals and let things happen as they may or they may not.
Mr Carr: With regard to where you see some of the services -- and I asked this before -- mental health services, children, they have Education, some is in some Comsoc and it's in health care. I think one of the ways to manage it will be in the health care for adults. What about for children? Do you think more can be done in the education system? Where should some of the children's mental health services go? Can they be across these three ministries if at all?
Mr Thompson: I think the important area of organizational structure is the community, and it's essential that the services that are delivered in Thunder Bay, for example, be understood by the community of users in Thunder Bay, and that, as is happening with long-term care, a reduced number of access points occur. That ability to get into the system to find it and get into it is more important, in my opinion, than the upper-tier government or the provincial government organization, though we think that it's very important to create one place in the provincial government itself that is the focus for children's services. But if that isn't replicated or mirrored at the local level, then probably not much will look different to the person who wants the service in Thunder Bay.
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Ms Castrilli: My question really springs from my experience as a former member of the Lieutenant Governor's Board of Review. You will know that individuals kept on a Lieutenant Governor's warrant are among the most seriously ill in our community, having been found either not guilty by reason of insanity or unfit to stand trial of various crimes. As you know, there are different types of institutions and different serious levels of institutions. One of the issues that inevitably came up was the movement of people from one institution to an institution that was less secure. Inevitably, there was difficulty in placing these people in a timely fashion.
One of my concerns, as I look at what's happening in health care, is, what will happen to individuals as funds shrink, as institutions really can't cope? There are no places for them. What happens to those individuals? I should say that in virtually every case the common thread among those individuals was what you called disadvantageous living accommodations, particularly in early life. Do you worry about that? I think there's a reason for the public to be concerned, but I'd be interested in your views on that.
Mr Young: Could I take a first and perhaps only brief small piece of your question? I think the first and most important distinction to draw is between the forensic situation as such and the general situation. I think it's dangerous to mix them because they can lead you perhaps in opposite directions. That's my first point.
My second point is that we have under way at the moment a study into the forensic situation involving multiple ministries, and while that final report is not yet available, my hope and expectation is that it will deal uniquely and exclusively with the problems of the forensic population.
There are not only mental health issues involved; there's the whole question of public safety. There is the whole question of the safety and wellbeing of people providing care and services to that population. For that reason, what I want to do is not avoid your question but make sure that we separate it from the large body of people who are not forensic people at all. I think a separately funded system for the forensic category which takes into account all of these issues, public safety and all sorts of things, is appropriate.
Ms Castrilli: So you'd advocate separate funding for the two?
Mr Young: Yes, very much I do.
Mr Gerretsen: Would you agree then that basically what's required is that before we start letting people out of the psychiatric hospitals -- I think there was a major movement of this in the late 1970s as well. One of the biggest areas of complaint at that time was the fact that once these people came out in the hope of reintegrating them into society, there were almost no services for them, and a lot of those people ended up being in a lot worse situation than they would have been if they had simply remained institutionalized. Is that one of the fears you have?
Mr Young: Yes, absolutely and categorically. The deinstitutionalization process that occurred from the late 1950s through whatever, the 1960s and early 1970s, brought about in large part because of the tremendous advances in the available medications, was in retrospect an absolute, utter disaster for precisely the reason you state. If I may tie my answer in just a little to the question Mr Carr had earlier, it has to do with silos and the failure of planning. The deinstitutionalization then and now will fall on its face and be a total disaster if there isn't a careful integration of planning and of services. That is precisely at the essence of the mental health reform process, is trying to build exactly such an integrated planning system. Did I answer your question, sir?
Mr Gerretsen: Yes.
Mr Martin: I'm going to try and get two questions in quickly, if I might. One is in reference to your point of supporting the government in its efforts to reduce the deficit at the same time as raising a red flag re the question of who it targets in doing that -- the poor and the vulnerable. In light of the dichotomy that's there and the speed at which this government is moving and the depth of the cut and of course the engine that's driving it all -- the tax rebate -- what would you tell this government in preparing for the budget of 1996 that would tie all that together and express most adequately your position?
Mr Young: I think there are important issues of public policy which you raise, sir, which it is not really our place to deal with. Choosing political priorities is, after all, why we have elections and legislatures. I quite candidly would say that in a perfect world I'd be here asking for more; of course I would. But by the same token, I don't know that it's a responsible position for a body like ours to take. So that when we say we support it, as we have done in preceding years, as the record will show, it's in an attempt to balance, if you will, the total set of issues.
The second thing is that yes, if you only have 100 units, then use it for those who most need it. If you have 200, we'll help you spend it, but if realistically you only have 100, here are our proposals as to how to go about it. I'm not trying to avoid your question.
Mr Martin: You've done it, though. I'd suggest that if we had more time we could talk about the impact of not focusing on your second concern re the long-term cost, eventually, to the system.
You talked about the determinants of health in many interesting ways and so did the presenter before you. I think it's important that we understand those. You mentioned specifically the question of housing, and I think we've seen the result of poor planning. Mr Gerretsen referred to that in his question re the deinstitutionalization that took place in the 1950s and 1960s and how we didn't plan and we didn't know, actually, what was going to happen down the line. Today we have people, some of them victims of decisions made back then, sleeping on the streets of our city. Three of them froze to death over the last couple of weeks without a whimper from this government as to a review of why that happened. This government is proposing to move out of the area of public housing and turn it over to the private sector and either get out of or change the system of rent control that we have at the moment. Do you have any concern re that whole thrust?
Mr Young: I referred earlier to this document. I can only say, and I say it equally to the committee as a whole, the case that is made here for the social determinants of health is quite unequivocal. It makes it abundantly clear that issues like housing -- clearly, income first, housing, clothing, employment, education, dealing with child abuse, dealing with violence, dealing with all of these things, are fundamental determinants, and I totally agree with that.
One of the reasons we talk about single-point accountability for children's health, one of the reasons we talk about the criteria of effectiveness, efficiency and economy, is that they lead you back to the central issue of accountability and evaluation. One of the great weaknesses of too many government programs historically is that they haven't established accountability and they have not been based on valid analyses of effectiveness over time. So one of my hopes is that if we could get those criteria built in, then the system would self-correct to devote more time to the determinants of health. So I come the long way around of saying, yes, you're dead right in that sense. Nothing would please me more than to see whatever funding is available focused much more clearly on the specific things that the facts demonstrate determine health, including mental health.
The Chair: I'd like to thank the Canadian Mental Health Association for coming in and making a very thorough presentation to us this afternoon.
Having completed our agenda for today, we will stand adjourned until 9:30 sharp tomorrow morning.
The committee adjourned at 1711.