ONTARIO PUBLIC SCHOOL TEACHERS' FEDERATION
ONTARIO FEDERATION OF AGRICULTURE
ONTARIO SAVE OUR JOBS COMMITTEE
CANADIAN CHEMICAL PRODUCERS' ASSOCIATION
CREDIT UNION CENTRAL OF ONTARIO
CONTENTS
Wednesday 20 February 1997
Pre-budget consultations
Canadian Bankers Association
Mr Warren Walker
Mr Reg Kowalchuk
Mr Michael Green
Ontario Public School Teachers' Federation
Mr Jeff Holmes
Mr David Lennox
Cantaqleigh Investments
Mr Peter Westfall
Mr Dick Kirkland
Mr Garvin Lee
Glaxo Wellcome
Ms Jennifer Bowman
Mr Geoff Mitchinson
Ontario Federation of Agriculture
Mr Tony Morris
Ontario Save Our Jobs Committee
Mr Dick Tighe
Mr Ron Dickson
Daily Bread Food Bank
Ms Sue Cox
Ms Beth Brown
Canadian Chemical Producers' Association
Mr Richard Paton
Mr Mike Hyde
Mr Norm Huebel
Credit Union Central of Ontario
Mr Jonathan Guss
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président: Mr TedChudleigh (Halton North / -Nord PC)
Vice-Chair / Vice-Président: Mr TimHudak (Niagara South / -Sud PC)
Ms IsabelBassett (St Andrew-St Patrick PC)
Mr JimBrown (Scarborough West / -Ouest PC)
Mr TedChudleigh (Halton North / -Nord PC)
Mr JosephCordiano (Lawrence L)
Mr Douglas B. Ford (Etobicoke-Humber PC)
Mr TimHudak (Niagara South / -Sud PC)
Mr MonteKwinter (Wilson Heights L)
Mr TonyMartin (Sault Ste Marie ND)
Mr GerryMartiniuk (Cambridge PC)
Mr GerryPhillips (Scarborough-Agincourt L)
Mr GillesPouliot (Lake Nipigon / Lac-Nipigon ND)
Mr E.J. DouglasRollins (Quinte PC)
Mr JosephSpina (Brampton North / -Nord PC)
Mr WayneWettlaufer (Kitchener PC)
Substitutions present / Membres remplaçants présents:
Mr TobyBarrett (Norfolk PC)
Mr CarlDeFaria (Mississauga East/ Est PC)
Mrs LillianRoss (Guelph PC)
Also taking part /Autres participants et participantes:
Mr RobSampson (Mississauga West / Ouest PC)
Clerk / Greffier: Mr Franco Carrozza
Staff / Personnel: Ms Steve Poelking, research officer, Legislative Research Service
The committee met at 1001 in committee room 1.
PRE-BUDGET CONSULTATIONS
The Chair (Mr Ted Chudleigh): Could we call the meeting to order, please.
CANADIAN BANKERS ASSOCIATION
The Chair: We have before us our first deputants, the Canadian Bankers Association. We welcome you to the standing committee on finance and economic affairs in our pre-budget consultations, gentlemen. We look forward to your presentation this morning. If, when you begin your presentation, you could identify yourself for the purpose of Hansard, we would appreciate that, and we will use up any remaining time you have with questions, commencing with the official opposition.
Mr Warren Walker: Thank you, Mr Chairman. My name is Warren Walker and I'm from the Bank of Nova Scotia. I'm joined today by Reg Kowalchuk from the Bank of Nova Scotia and Michael Green from the Canadian Bankers Association. Reg, I will turn it over to you.
Mr Reg Kowalchuk: Thank you, Warren. The Canadian Bankers Association is encouraged by the progress of the Ontario government in its attempts to bring down the deficit, and we continue to support the government's approach. However, Ontario's $8.2-billion deficit and the accumulated $102 billion of debt will continue to be a serious problem. We believe the deficit reduction measures, though painful, will ultimately lead to more sustainable economic growth and hopefully job creation. We encourage the government to stay the course, not only to continue in reducing the deficit but by improving the business climate for investment in the private sector.
The important areas that we believe have a significant bearing on job creation and economic growth are taxation and regulation. With respect to taxation, the capacity to raise personal and business taxes in Canada, and Ontario in particular, has been stretched, and we believe that from a long-term perspective the ultimate goal of all governments must be to reduce the overall tax burden in Canada.
On the personal taxation side, we believe that lower interest rates are the best way to increase investment and create jobs. We are very encouraged by the steps taken in Ontario to reduce the overall tax burden on consumers and we're confident that the recent declines in the domestic borrowing costs, translating to increased Ontarians' disposable income, will go a long way in the consumer spending revival we're all looking forward to.
On the corporate tax side, we feel that the overall tax burden on Canadian corporations is high, particularly in the case of the banking sector. As you know, further corporate tax increases, particularly payroll taxes and capital taxes, only serve to discourage private enterprise. They certainly impede job creation and reduce the competitiveness of Canadian businesses.
As the federal and provincial governments, including the Ontario government last year, have often used the budget process as an opportunity to single out banks for tax increases or other policy decisions, we wanted to include some information on bank taxes so that the government representatives have a more balanced perspective on this issue.
Canada's largest banks are almost certainly the most heavily taxed business in the country, and in 1995 Canada's six largest banks paid over $4.2 billion in government taxes, of which $883 million was paid to provincial and municipal governments in Ontario.
The introduction of the Ontario surcharge, offsettable by the small business tax credits announced in last year's budget, will cost the banks an additional $10 million. That's without the offsets available under the small business tax credit. That's $10 million on an annualized basis. Since 1994, the cumulative combined total of this and other federal and provincial tax increases represents $582 million in additional taxes that have been or will be paid by Canadian banks.
Banks are subject to taxes that other businesses are not, they are taxed at higher rates and pay proportionately more due to the labour- and capital-intensive nature of the business. In fact, Canadian banks pay tax at the top corporate tax rate. That's up to 19.5 percentage points higher than that paid by manufacturing companies. We pay capital taxes which many other businesses in Canada and virtually no international companies pay, and we pay significant payroll taxes for over 206,000 employees of the banks, approximately 80,000-plus of whom reside in Ontario. Of course, there are property-related taxes on our almost 4,000 branches.
There's another form of taxation which burdens business and impedes investment and economic growth, and that's the cost of regulation. Governments must continue to eliminate duplication and unnecessary legislation and regulations where possible to reduce these costs of business, which in our mind are unnecessary costs that make Canadian companies less competitive. Legislative and regulatory overlap and duplication detract from productive economic activity and take resources away from job creation and new projects. We believe that further deregulation and reform of the legislative regulatory processes are crucial to companies' ability to lower their operating costs, particularly in the small business sector.
We support federal and provincial government efforts to rationalize legislation and regulatory overlap and thereafter, where reasonable, encourage self-regulation and integration once governments have determined the need for the remaining provisions.
Mr Walker: Mr Chair, in order to leave time for questions, I'll keep my remarks very brief. We thank you for the opportunity to appear here today. As you know, the banking industry is a core business in Ontario and a major job creator. We currently employ some 85,000 staff in the province, of which 60,000 are located in the greater Toronto area. Our industry is also a key contributor to Ontario's economic strength and is strongly committed to job creation and sustainable economic growth among its broad customer base, and I cite in particular the small and medium-sized business sector.
The economic outlook for Ontario in 1997, from our perspective, is good. Housing starts are up, resales are surging, the auto sector is robust. However, as we know, some communities in some of the outlying regions are going to go through and will continue to go through some adjustments related to downsizing and restructuring.
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The unemployment rate and the ongoing restructuring of industry are also contributing to a high level -- record levels -- of both consumer and business bankruptcies. In this context, small business remains the key driver for our future economic prosperity. Our industry in Ontario has a strong record of lending to small and medium-sized businesses. We have about $23 billion in authorized credit available to 254,000 small and medium-sized businesses in Ontario.
The Ontario committee of the Canadian Bankers Association that I represent here today is comprised of the senior line general managers of each of the major Canadian banks in Ontario. We believe, as a group, that through education programs, seminars and other initiatives, both within our broad customer base, as well as within our own organizations, we can assist small and medium-sized businesses gain better access to capital.
Our industry recognizes that the government's objective is to increase the amount of patient capital to small businesses. We generally support the recommendations of the February 1997 report of the committee on small business access to capital, in particular its recommendations to explore in partnership with key stakeholders the concepts for creation of community small business venture capital funds that would provide equity capital to smaller firms. We support the recommendation that the government look at ways which would encourage the participation of other financial institutions in broadening the financing base for small businesses.
We welcome fair competition in the marketplace and we add our congratulations to the co-chairs, the minister, Minister Sampson and Joe Spina and the members of the committee on the report. We look forward to participating in the consultation phase to follow.
In my earlier remarks -- and again I will be brief -- I mentioned our support for educational initiatives and I'd just like to take a second and cite a number of them that we've undertaken in 1996.
In partnership with the Ministry of Economic Development, Trade and Tourism, we participated in running over 2,000 seminars between 1987 and 1996, Starting a Small Business seminars. We're also in the process of running seminars entitled Partners in Your Success, designed to assist entrepreneurs improve their business planning and financial management skills, as well as gain insight into federal and provincial government support programs and services and to be export-ready through the sharing of real-life entrepreneurial experiences.
These seminars have been delivered in partnership with the federal and provincial governments, the municipalities, chambers of commerce, boards of trade and other key stakeholders. In 1996, seminars were delivered in Huntsville, Ottawa, Kingston, Toronto and Brantford. More are being planned for Toronto, Hamilton, London and other centres when sponsors are available.
We would at this point welcome any questions that you may have of myself, Mr Kowalchuk or Michael Green, representing the Canadian Bankers Association.
The Chair: Thank you very much for your presentation. That leaves us with about six minutes for each caucus.
Mr Gerry Phillips (Scarborough-Agincourt): Thank you for the thoughtful presentation.
One thing that we're particularly concerned about is employment, jobs. I keep saying that Ontario has had a disaster in job creation in the last five months. We've lost 37,000 jobs. The rest of Canada has gained 72,000 jobs. I see by your forecasts that you're predicting job growth in 1997 at 2.2% and in 1998, albeit on a small sample, something just slightly less than that, about 2%. That translates, I think, to about 110,000 to 115,000 jobs a year, which is way short of what the government had been predicting, but I must say it's the same as the Ministry of Finance people say. They say with 3% real growth, you get 2% real job growth.
Is that what we should be expecting, in the bank's collective judgement, employment growth around 2% to 2.2% or 2.3%, and if so, doesn't that leave us with almost a permanent 500,000 people unemployed, by these numbers, at least to the end of 1998?
Mr Walker: I'll add a couple of introductory remarks and then turn it over to my colleague.
The economic forecasts, as you know, get revised on about a quarterly basis. The latest forecast I saw, in particular out of my own institution, was calling for somewhat stronger growth in the current year, 1997, than we'd been looking at some time ago. Our forecast for growth is in excess of 3% for the current fiscal year. Michael, perhaps you can opine on the statistical appendix.
Mr Michael Green: We said in our presentation that the forecasts vary among the institutions and from year to year. On average, banks believe that the real GDP growth in employment will increase by between 1% and 3% annually over the next two years. That's the general sort of opinion among the industry at the moment.
Mr Phillips: I was just going by your chart here, which shows employment growth at 2.28%, and then on a small sample, 2.1%. That's I guess what you believe, about 115,000 jobs.
Mr Green: We're optimistic that the way the economy is moving right now we may even exceed that.
Mr Phillips: Exceed the real GDP of 3.3%?
Mr Green: Achieve a GDP of 3.3%.
Mr Phillips: That creates jobs at 2%, I gather.
Mr Green: That creates jobs at between 2% and 3%.
Mr Monte Kwinter (Wilson Heights): If I could just follow up on something you have in your written presentation about jobs, you say that, "Monetary easing has the potential to create hundreds of thousands of permanent jobs, while feasible fiscal stimulus has the potential to create only tens of thousands of temporary jobs." Could you just expand on the rationale behind that?
Mr Green: Our view is that lower interest rates are the better stimulant to job creation, and provided we continue to see downward pressure on the rates, the Canadian dollar sort of moving in its present range, opportunities are certainly going to increase for job creation. As you know, a large portion of our GDP in Ontario is export-related, and with the value of the dollar as it is, it's going to create excellent opportunities for exports to the USA, and by that we see excellent opportunities for job creation to continue.
Mr Phillips: Just to follow up on the jobs, one of the comments we've heard is that the financial community obviously has been investing heavily in technology and that just as the manufacturing sector eventually translated that into a much more productive workforce, if you will, I see by the job numbers that the finance, insurance and real estate sector is down about 16,000 jobs in 1996 from 1995. Do you have any feeling of your own industry, of what's going to happen to employment in the financial sector over the next two to three years?
Mr Walker: The business is changing, Mr Phillips, as you well know. This industry, through technological innovation, through external competition, is being forced to become more efficient at a transaction-processing level. It's difficult to pick up a financial publication today without some discussion of automation and technology, co-venturing, joint-venturing etc. But what we are seeing is a migration of those jobs from low-value, low-paid positions, in most cases, to higher-value-added, higher-paid financial counselling, personal banking officers replacing tellers in this industry. Across my institution we've actually added staff in the course of the past year. While we've eliminated a number of jobs at lower clerical levels, we've created more, and in almost all cases it's been through retraining that those people have kept their employment with our bank. I think that would be the case with many of the other financial institutions as well. It's our intent to preserve employment for our staff to the greatest extent possible.
Having said that, as you know, we're going through a re-regulation review in the coming months and in the coming years, looking at issues of competition and Bank Act revision that will have a big impact on that potentially.
The Chair: Mr Cordiano, do you have a brief one?
Mr Joseph Cordiano (Lawrence): Very briefly, I just wanted to address the section dealing with lending targets to small business. You state here that the setting of lending targets and mandating that may not be a good idea. You also go on to talk about the percentage of credit outstanding to small firms as a percentage of the total portfolio being 5% -- that's what your document says here -- and you talk about job creation.
I think we have a serious problem with access to capital, because small businesses are not getting access to that capital, and you even admit this in your lending target section here. It's a question of how you get to where we want to go in order to create jobs. Since most jobs are created by small business today, what are your plans to increase your portfolio lending to small businesses?
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Mr Green: That's a very good question. One thing I want to point out is that there are so many different definitions of small business. I think in the Sampson-Spina report we look at the definition being $1 million and under, but small businesses could also be defined as those with an authorized credit limit of $500,000 or more.
Let me just put into perspective what the actual lending figures to small businesses are for the Canadian banking industry across the country. Warren mentioned that in Ontario we have $23 billion in authorizations available to small business. As a whole, small business credits total some $62 billion across the country. There is no shortage of lending moneys for small business.
We also recognize that the banks are major job creators, as being the major source for small business lending. I think 80% of all small businesses obtain their financing from the banks, so we're very cognizant of the need to keep supporting that, and as the chairman of the Ontario committee said, we're going to review and go forward with the Sampson-Spina report to look at alternative ways to provide that sort of equity side of the balance sheet to small business.
Mr Gilles Pouliot (Lake Nipigon): Good morning, Chair and distinguished members of the panel. I must confess at the beginning that I court and attract a different manner of humanity, so I'm duly honoured this morning for the first time to meet with distinguished representatives of the banking association. I'm here to learn, so you will bear with me in the brief allocation that I have.
You focus on the disproportionate tax burden that the banking industry has had to endure, and your focus, reading between the lines, says that it's been compounding. You feel, if not maligned, to a certain extent in this context victimized, that you've been an easy target, that people see politicians -- and I know what happened at the federal level. That is the manner of humanity that we court indeed, but I wish you better success with this manner of humanity, but sometimes it's a nuance. You have to really look for the difference.
You feel that you're really overtaxed vis-à-vis other sectors, you're overtaxed in your sector vis-à-vis other jurisdictions. In the same breath, you bring this matter to deregulation and you speak of competition at the marketplace being the essence of the system in which we live. When you speak of deregulation, of course you will understand that there are degrees and decrees and thresholds; that on the one hand some of your critics see your situation as one, if I may be so bold, of cartel, monopolistic, that you don't have deregulation at the marketplace when it comes to the banking industry. In fact, there is a fear that this will be winner-take-all; that if given your recommendation, we will lose the equilibrium, the balance. It doesn't mean I'm right. I'm so often wrong.
I want to focus briefly on what I too believe to be -- hopefully you're right -- an optimistic forecast. The way some of us see things, all stars are aligned in a perfect fashion. You have a low interest rate, you have an export-driven market, you have contained inflation.
I will not bore you when I look at your forecast with some of the fear, some of the anxiety. As Canadians, we feel guilty. We don't enjoy good times because, oh, we're going to pay for this. But I wish to ask you, when you looked at that crystal ball -- I hear of a little pressure on wages, which will be inflationary. I hear of the perception that soon the debt will be attacked after the deficit has been addressed. I don't hear about a stronger Canadian dollar when all is well. There's always a balance here. There's always a price to pay. I don't hear about money supply vis-à-vis the money on account. Simply put, if you don't see a rise in interest rates now, this might be compounded in a larger way. I don't see any political analysis -- I know time is limited -- regarding the first and second year of the presidential tenure, a repeat, where people tend to become lame ducks and the system loses its energy rather early in the term.
I don't see the seven years of what is a bull market. I don't see the inflationary pressure on the NASDAQ sector of the New York exchange. I don't see the pressures being put on the futures on the price of crude. Will you tell me your figures? What changes do you have? I know of your track record. It's not immaculate, but by the same token, it's as good as any. What can go wrong? What would dislocate the recovery? What would jeopardize the recovery that we have now?
Mr Kowalchuk: I think that increase in the interest rates would certainly be the first item that could attack, as you put it, the recovery, and secondly in my mind, a much stronger Canadian dollar affecting the export prices of Ontario's export markets.
Mr Walker: Just to echo what Mr Kowalchuk said, I think the circumstances in the interest rate environment are critical to us, ergo political stability in the country is very important if you're looking to maintain stability from an interest rate environment. Something like $144 billion in residential mortgages will come up for renewal in this country in the next 12 to 18 months. The reduction in interest rates in Canada over the course of the last couple of years has provided $5 billion in incremental disposable income to Canadians.
You're right, Mr Pouliot, when you suggest that our recovery largely has been interest-rate driven and it's largely been export-driven. Improvements in personal disposable income will improve the domestic economy. It will improve consumer demand if we can sustain a low interest rate environment. We're in an environment today where Canadian short-term interest rates are several per cent below US rates, a historical anomaly. Longer-term rates are about at par or about half a point on the long bond market. These are very favourable circumstances in Canada. With rates coming down that rapidly, we've still retained some stability in the dollar. Very important issues.
Hon Rob Sampson (Minister without Portfolio [Privatization]): Thank you very much for your presentation. I have one question, but I'll lead off with an observation. When I take a look at the stats you've shown us here on real GDP growth and employment growth, you've got two pages here, one reflecting your estimate on what's going to happen in Ontario and the other Canada-wide, and my observation is that Ontario exceeds the Canada-wide one in every category and every financial institution. I guess I'm encouraged by your observation or your expectation that Ontario will exceed the Canada average by far in GDP and job growth.
An interesting point we just talked about here was the incremental spending capacity of consumers as a result of renegotiation of existing debt, primarily in mortgages. The number you mentioned was Canada-wide. What's the dollar amount that's going to be renewed in Ontario over the next year or so, do you know?
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Mr Walker: Somewhere in the vicinity of 30% to 40% of that, Minister. I don't have the Ontario number at the ready.
Mr Green: We can get you those actual numbers.
Hon Mr Sampson: Has that been translated into your job growth and your spending calculations as well? I know that in the majority of economic models people use to forecast, they don't take into account such things as additional disposable income as a result of renewing a mortgage where your rate has gone from 9% to 6%. I'm wondering whether in your economic models you've included that calculation.
Mr Green: We'll have to provide you with those numbers.
Hon Mr Sampson: That would be very helpful, because that's a sizeable amount of money. You're talking billions and billions that will be released as disposable income in the economy of Ontario, yet all these statistics we have here haven't taken that into account.
I want to now focus on your comments on small business financing. Time is short today; the key question I'd like to drive at is the definition, and maybe you can help us out, of small business. As we looked at the number of reports on small business access to capital over the last number of years, the definition was quite varied. Could it be that the real small business we need to focus on -- I'll put this to you and you can maybe answer me with what your definition is -- is the entity that's really looking for $10,000, $15,000, $20,000, $50,000, as opposed to the $500,000 and $1-million types of transactions? Is it possible that that's what we should be looking at?
Mr Walker: I think there are two areas: First, while it's true that small business creates the lion's share of the jobs, it's equally true that very few small businesses create the vast number of new jobs. I think it's critical, therefore, that we identify those innovative, fast-growing firms, those businesses that are able to create most of the jobs, and that we work very closely with those to make sure they have every chance of succeeding. Those are the businesses, for example, whether they be in knowledge-based industries or in export industries, that today might employ 10 people but five years from now might employ 100 people. That's one group that's very important; patient capital for those businesses, because they are growing so quickly, is extremely important.
The other group is the other and far larger portion, the in excess of 90% of our business customers that borrow less than $25,000. That's the reality in terms of the size of that market.
It's critical that they both have access to capital and also some assurance that the rules won't change on them, that they do get fair access to that capital.
I think over the course of the past several years you've seen a number of initiatives taken in this industry: the appointment of ombudspeople, both externally and internally in the financial institutions, to deal with small business complaints; the development of alternative dispute resolution processes where customers dissatisfied with the answers they've received from their financial institution in terms of any change in the terms and the conditions of their credit or calling of their loans can seek access to a third party to evaluate the circumstances; formalized codes of conduct that our staff are governed by and a review process that we go through internally in that regard. I think there has been significant development in both of those areas.
Mr Green: Can I add one thing to that? One of the other criticisms that has been levelled against the industry in the past is the credit approval process. I think my colleagues here would reaffirm that much of the decision-making is now being moved back into the communities, into the main branches, so those loans and those levels are getting approved. In fact, we commissioned a study by Thompson Lightstone last year, and that has shown that 84% of loans to small businesses are now getting approved; it may not be the first time, but as they go forward with the process.
Mr Jim Brown (Scarborough West): Thanks for coming, gentlemen. First, I'd like to correct a previous figure of cited by I think Mr Kwinter in terms of job gain. I think it was Mr Kwinter.
Mr Phillips: Probably me.
Mr Jim Brown: Mr Phillips. I have a labour force survey from Statistics Canada that shows that jobs on an unadjusted basis rose 56,000 for Ontario, which is two thirds of the Canadian total. I can give you a copy of that, Gerry, if --
Mr Phillips: I don't need you to correct the record, because my record is correct.
The Chair: He can't correct the record.
Mr Phillips: No. I want to be sure, for those listening, that I take the government's figures of 37,000 new jobs --
The Chair: Thank you, Mr Phillips. That's already in the record and it will appear in the report.
Mr Phillips: Just as long as it doesn't appear that he's correcting my record.
Mr Jim Brown: Thank you very much for coming, gentlemen. I had a small manufacturing company. I have lots of friends who had small businesses and now, thanks to the banks, they don't. They've had extra security requirements that have been put on increasing the coverage of their lines of credit; up to five times security from maybe two. I've got friends who want to sell into the States and you will not accept foreign receivables as security for increased lines of credit, which of course restricts employment opportunities here because small Canadian companies can't expand.
I've talked to my many small business friends who say that in spite of your massive profits, you continue to nickel-and-dime them on bank charges and that your level of service is abominable. I can't understand where you get these numbers, 84% and stuff. An interesting question would be -- you say you put out $23 billion to small business. I wonder what your coverage is of that money you put out? Is it over $200 billion? When I look at some of the statistics for small and medium-sized enterprises over the past five years, when the going got tough, you got out and they were left adrift.
I have a real problem accepting you as born-again small business lenders. I really have a credibility problem. I'd like to be reassured that you don't use your competitive monopolistic position to take advantage of small and medium-sized entrepreneurs in Ontario, because that's where the jobs come from. You know it and we know it, and those are the guys who have to be nurtured and encouraged. What are you going to do about it?
Mr Walker: There are a number of statements and I think several questions buried in your comments. I'll try to respond, Mr Brown, and if I miss anything please let me know.
The Chair: His time's expired.
Mr Walker: Mr Green indicated the Thompson Lightstone study which surveyed several thousand small business owners on bank lending practices. That's a matter of fact. If you don't have the study, we'll certainly share it with you.
Second, the last credible piece of third-party research that I'm familiar with was a study done by two university of Western Ontario professors, Larry Wynant and Jim Hatch, who took a look at back lending practices several years ago. That study determined that the bank coverage ratios, assets to loans, were about three to one on average. Yet somehow, with three-to-one coverage, we still managed to lose money virtually every time a business went out of business, because of course those coverages dissipate. Assets aren't worth in reality sometimes what we carry them, from an accounting standpoint on paper. It's hard to, without looking at a specific case, get into what's appropriate coverage and what's not appropriate coverage.
I will take umbrage with the comment, though, that we're not interested in small business. I don't think that's a fair statement at all. I've indicated here that over 90% of our business customers are small business customers. It's a business we're in because we want to be in it. It's a business we make money at, and that's the best reason for being in it, of course, as a publicly owned stock company; you have to make money or you don't stay in the business.
If there are any specific cases, acquaintances or whatever, that you'd like us to look at, I encourage you to contact either the Canadian Bankers Association, the ombuds offices, or I'd be delighted to look at them. If people are having trouble accessing export credit, send them to me. I'd be delighted to see what we can do.
Mr Green: Can I just add one comment to what Warren had said? We have an educational arm called the Institute of Canadian Bankers; that is perhaps the largest open university in the country.
We have also recognized that lending to small business is a two-way street. We say that the entrepreneur should be educated in business and financial planning skills, and that's a real fact so they can prepare proper and viable business plans.
The second thing, of course, is that we recognize that our own staff have to be well educated to be able to deal with the complexities of lending to small businesses. Last year, we launched a program across the country for seminars to educate account managers and bankers with small business. Mr Brown, we're really committed to that segment of the marketplace.
The Chair: Thank you very much, and I appreciate the Canadian Bankers Association appearing before us today.
Mr Phillips: Mr Chair, I found it useful to have the minister here. It's the first time I can recall a cabinet minister -- is it the intention of the government that the Minister of Education will be here now for education presentations, and the Minister of Health here?
The Chair: That is not government policy, nor is it my position to indicate that.
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ONTARIO PUBLIC SCHOOL TEACHERS' FEDERATION
The Chair: We next have the Ontario Public School Teachers' Federation.
Interjections.
The Chair: Can we have a little order here, please? I feel it incumbent on me to point out that the NDP is the best-behaved party in the room right now. I find that encouraging.
If we can come back to order, we have our next deputant here. These hearings, of course, are long and intensive, and to keep us all in a small room together is a challenge.
Welcome to the standing committee on finance and economic affairs. We appreciate the Ontario Public School Teachers' Federation attending.
Mr Jeff Holmes: Thank you, Chair. My colleague David Lennox is secretary of the Ontario Public School Teachers' Federation. My name is Jeff Holmes. I am president of the Ontario Public School Teachers' Federation. Perhaps as an aside, Chair, I think you have some recognition at this point of the difficulties classroom management can provide to educators in the province.
The Ontario Public School Teachers' Federation represents teachers, occasional teachers and education support personnel who work in the public elementary schools of Ontario. We have a membership of approximately 30,000 members.
The federation regards these pre-budget consultation hearings as an opportunity to provide an update on issues of concern to our membership and to respond to the government's agenda.
I would like to dwell for a moment on the economic context of taxation policy. At the commencement of these hearings, Finance Minister Eves painted a rather rosy picture of Ontario and the economy. OPSTF is concerned about the level of unemployment and the below-target private sector job creation figures. A key plank of the Common Sense Revolution was the promise of the creation of 750,000 jobs over the period of five years. To meet this target, about 150,000 jobs per year must be created. The most recent figures suggest that during 1996, the job creation numbers dropped to approximately 90,000, and that was in the private sector.
Not only is the private sector job creation falling below target, but the finance minister acknowledges a 10,000-person reduction in private sector jobs, for a net increase of only 80,000 new jobs in 1996 and an overall provincial unemployment rate of 9.1%.
OPSTF continues to be concerned that government policies will lead to a greater gap between the well-off and the poor and will foster a less caring Ontario. The federation believes that slashing government expenditure, especially the 21.6% reduction in welfare rates, will lead to more children coming to school hungry, ill-clothed and emotionally strained or worse, as their families struggle to cope with societal service costs and unemployment rates that are unacceptably high.
Child Poverty in Canada: Report Card 1996, a report by Campaign 2000, provides extremely unsettling data regarding the level of child poverty in this country. According to the report, except for the rate of low-birth-weight babies and infant mortality, all other indicators of child poverty increased between 1989 and 1994. Key to this increase was an increase in unemployment rates during the same period.
I'll turn for a moment to disentanglement. OPSTF does not support the plan to further download soft services to the municipal governments, especially welfare, child care and long-term health care. These services are vital social services which determine the general wellbeing of Ontario citizens and they should not become dependent upon the ability or the willingness of property taxpayers to support them.
I find it quite interesting that over the last period of time the government has stopped talking about people and started talking about taxpayers, and there is a considerable difference. People require services and people require support. Taxpayers require only extra dollars in their pockets.
Child care: The new framework for child care means that municipalities will have to assume 50% of the costs instead of the current 20% share. The federation's concern is that this will mean that municipalities, faced with increasing financial burdens, will look to less costly, unregulated, informal child care as an alternative to the current licensed, regulated home- and centre-based child care programs.
Now to turn to education, which of course is our primary focus: OPSTF has long advocated for a greater provincial responsibility in the funding of public elementary and secondary education. For a number of years we have watched as the government share of education has dwindled from one-time 60% rates, further and further downloading to municipalities and to the ratepayers the cost of education.
The federation does not support the plan of this government to assume virtual, total control over the funding of schools by eliminating the role of residential property taxes in paying for public education. A historical strength of school boards in this province has been their ability to respond to local needs. School boards must continue to share governance responsibility for public education in Ontario. They will not remain viable entities without taxing authority and the ability to have some flexibility in the provision of educational services.
A good case in point is that of junior kindergarten. The government has made junior kindergarten a local option. At the same time, it has cut financial support by about 50% and it has eliminated all capital funding for the program. Without the ability to raise funds locally, school boards will be unable to offer the program outside of those mandated and funded by the province itself. Without some taxing authority, school boards will become ineffective local representatives at best.
OPSTF is leery of the province's intent to assume control over education finance for a number of reasons. The federation is particularly concerned that increased provincial control is being pursued primarily to facilitate the removal of an additional $1 billion from education. The government has acknowledged that the proposed reduction in the number of school boards, for instance, will result in about $150 million in savings which, compared with the size of the education budget, is relatively scant. If this government is bent on extracting up to another $1 billion from education, then school board employees and programs become the only and obvious targets.
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Our concern about the government plans for education is fuelled by recent reports commissioned by the Ministry of Education and Training which narrowly define the classroom as consisting of the classroom teacher, occasional teacher support, educational assistants and educational supplies. Outside of this definition are the following key classroom supports: library, guidance, teacher preparation time, principals, vice-principals, consultants and custodial and maintenance services. It's our belief that the explanation for this is that the government can then target education cutbacks and still claim not to be violating its tarnished Common Sense Revolution promise not to cut classroom spending. If this is the case, parents will not be fooled, for they will witness first hand the impact of cuts to so-called outside-the-classroom spending.
OPSTF's concern about the ultimate design of the future funding model for education is also fuelled by the Minister of Education and Training's incessant manipulation of data and his misinformation to the public about education spending in Ontario. The minister repeatedly tells the public that school boards have had to absorb only a 1.8% cut in funding, when in fact in 1996 the $400-million cut to education represented 9% of the total provincial grants from the 1995 level, and a 5.3% reduction in school board 1995 operating budgets. The 1.8% figure is misleading and is used by the minister to unfairly point the finger at school boards and trustees for cutting programs and raising mill rates.
The minister also continues to misinform the public about per pupil spending in Ontario and claims that Ontario spends $600 per pupil more than the average of all the other provinces. I would draw your attention to the charts on page 6, which tells the true story.
The above data demonstrate that the amount that Ontario spends above the Canadian average is $165 per pupil, or 2.4%. Ontario's consumer prices are considerably above many of the provinces quoted that expend less. A higher cost of living results in higher salaries. Previous governments have recognized the importance of reducing class size, of providing additional funding for special education and support to pay equity.
Ontario is also the destination province for more than half of all immigrants to Canada, and the resulting costs of English-as-a-second-language programs are very high. The minister's misrepresentation of the facts about educational spending is a disservice to the public and contributes to declining morale among board employees.
I would also draw your attention to the date on pages 8 and 9 that clearly demonstrate the impact the cuts to education have had and will have over the coming months.
About a year ago we were hearing rumours of the toolkit that was going to revise education and get into collective agreements and do a number of quite mischievous things. A year ago we appeared before this committee and responded to a number of those issues in the toolkit. Most of them involved targeting teacher collective agreements for contract strips, including preparation time, differentiated staffing, administrative time for principals and retirement gratuities.
We are now facing a second round of speculation that the government continues to eye teachers' compensation and the working conditions as the source for education's "share" of the next round of expenditure cuts. Any attempt to override collective agreements would be a complete abrogation of teachers' rights to full, free and fair collective bargaining. Attacks on these aspects of teachers' working conditions would not only severely affect the morale of an already demoralized teaching force but would also seriously affect the quality of classroom education.
The section of our brief on page 11 and following should provide you with some detail on how we feel about several of the targets of preparation time, administration time and so on.
We find that the situation for teachers at the hands of the Minister of Education at the moment is both demeaning and demoralizing and that the myths he perpetrates by the things he says about education are neither helpful nor productive.
In conclusion, the Ontario Public School Teachers' Federation is concerned that the government is proceeding too far and too fast with its deficit-cutting agenda and its plans to restructure provincial and municipal responsibilities. The federation does not believe that the Ontario public wants to sacrifice the level and quality of public services to a reduction in income tax which will disproportionately benefit the most advantaged. The Minister of Finance has reported a higher-than-average forecast of revenue for this year. This organization recommends using additional revenue to address the deficit and not to attempt to fast-track the income tax reduction or if it entails proceeding with further government expenditure cuts to public services.
OPSTF believes that the restructuring and the tax reforms being pursued by this government will lead to a socially divided Ontario. It is no surprise that recent opinion polls demonstrate that Ontarians are roughly evenly divided on such key issues as the question of further income tax cuts and the appropriateness of government cutbacks.
We are moving towards becoming a society of haves and have-nots. Canadians pride themselves in their sense of social responsibility and their civility. This national characteristic is being placed at risk by the pace and extent of the Common Sense Revolution agenda.
Mr Pouliot: Gentlemen, what a refreshing presentation, in my opinion, that focuses on the human dimension by way of education. You've made some pretty serious observations in your presentation -- "mislead, misinform" -- but you have immunity at this committee, I trust. If only those observations, those charges, were a departure from the truth I would be the first one to say, and I'm sure there would be others who would interrupt, with respect, "No, no, you've gone too far," but I think you're right on.
They talk of anywhere between $700 million and $1 billion. They know there will be insufficient dollars by way of administration, and they float and they massage and they lure and they seduce the general public. They say, "It won't affect Jane or Harry in the classroom, those front liners, they'll be protected," and yet $150 million doesn't suffice to meet their target.
Do you know how they're going to do it? I hope I'm wrong. They'll do it by going after the pension plan, the contribution of the employer, if you wish, because they know there are $43 billion or $44 billion in the pension plan, and actuarial figures will attest that it will suffice to meet their responsibilities in the future. They also know that now you don't negotiate with the school boards, that you have a new relationship, a one-on-one relationship. The boss is the province. They call the shots. In French we say "action directe" and direct it will be indeed.
The right to withdraw your labour will be taken away -- gone out the door. Then they will go after the compensation and the wages. Forget about the accumulated sick leave, because they'll tell you: "You weren't sick. Why should we pay you for having been well?" They'll disregard that; in some collective agreements they will disregard that. They will go to the very heart because they're on the hook for a 30% tax break for those who need it the least. I'm sorry, but that's the way I feel.
The rest of us, the service providers, will become part of the people who have less, and those who have more will run the field and they'll rule: survival of the fittest, little human dimension, class warfare looming, not with bricks and mortar but with people getting out of the system. You are the victim of it that's coming by the hundreds of thousands.
What is your opinion? Where do you see the government going in terms of compensation for the service, the front line that you provide on a daily basis? Your membership does that. How do you see the future in the next month, in the next year?
Mr Holmes: I wish I had a crystal ball so that I could see the future. We have repeatedly asked the Minister of Education for direction on where this government, and he as minister, may be taking education and we are repeatedly told that the answer will come in full measure of time.
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If I were to speculate, and I suppose I'm as entitled to do that as any other, I would speculate that perhaps the direction this is going is towards voucher education, towards charter schools, towards site-based management, towards a whole host of issues that arise from the kind of advice that has been given by Dan Gardner and others suggesting that what education truly needs to make it viable and wonderful is a healthy dose of good old-fashioned competition so that schools go head to head with one another in an effort to improve them directly rather than through the offices of the Minister of Education.
Mr Tim Hudak (Niagara South): Am I the one and only on this side or is there anybody else who wants to --
The Chair: Mr Spina had his hand up. Time is short.
Mr Hudak: Then I'll try to be quick. I appreciate your presentation. One thing I wanted to bring up which I thought was passing strange is this sudden latent concern for the property taxpayer when you talk about the Who Does What. You know that property taxes had gone up some 120%, the education share of the property tax, and a lot of seniors had to pay increased property taxes on fixed incomes to finance increases in spending in education, I think in my area, Niagara, with a zero increase in payroll.
I think what the government is doing by taking education to the provincial level, off the property tax and off the backs of seniors and low-income people, is a very good thing to do and actually a very popular thing to do. I would think that a lot of teachers would support that too, tired of paying higher and higher property taxes, that they'd believe in this exchange.
Mr Cordiano: What about welfare?
Mr Hudak: The member opposite brings up welfare, as you did, and brings up the informal child care sector, as you did, and the exchange of services, which I found interesting. Obviously experts in education are spending a lot of time in that field, but it's curious to see the comments on the reduction in welfare rates and the informal child care market and on the Who Does What. Talking to a lot of teachers, and having two parents as teachers and a sister as teacher, I know these programs are very popular with the average teacher.
My question is, what mandate did you get from your teachers to comment on the reduction in welfare rates or in informal child care? Is this from a survey of your members or is it just an example of the people who are running the union that you represent?
Mr Holmes: Mr Hudak, I know a teacher or two myself and I spend a good deal of my time on the road talking to thousands of colleagues across this province. I want to go back for a moment to your comment about the increase to the ratepayer, and let's talk for a moment about the source of the increase to the ratepayer. How did the ratepayer come to be paying more? The answer is quite simple: The province paid less.
Mr Hudak: We know there was an increase in grants for most of those years. As a matter of fact, it's just that the property tax assessment that boards passed on was greater than the increase in grants. At least in Niagara for the vast majority of the years, to make sure the record is straight, the grants were increasing. It's just that the tax assessment increased even more. Mr Chair, I don't want to take up too much from Mr Spina.
The Chair: I believe his time is already past. Did you have a closing comment?
Mr Holmes: I would turn to my colleague.
Mr David Lennox: The only thing I can say, with due respect to the Niagara region, is that we'll send Reg Ferland around to start an education process for any of the Hudak family who need it and we'd appreciate your joining Reg for a day.
Mr Phillips: First a comment. I'm very pleased that you led with the poverty issue, because I think you're in a unique position to see it. If people don't know it exists, we're in bigger trouble than I think, because there is zero doubt that for an awful lot of young people that is an overwhelming issue for them in terms of their future.
The challenge that I think you're going to face and we're going to face is that if this just becomes a debate around numbers, the public's eyes will glaze over, and it has to be put in human terms. There is zero doubt of what the government is all about. They want to get their hands completely on education. They probably don't even mind a good fight with you. They think that may be politically popular; I suspect they think that.
I predict that there is going to be a fight. The thing has been set up for it. They are going to be in control of it. They are going to cut dramatically. They have to hit their financial targets. They'll be the first to tell you that, so you don't need a crystal ball to see that coming. I think the challenge, I would say to you -- even in your brief, with all due respect, and it's a good brief and it attempts to get at the human side -- is going to have to be, how does this impact on students, learning, the environment they're in?
I guess it's more a question to you of, has your organization or OTF contemplated perhaps a more comprehensive view of what this is going to mean? Look down the road. There is going to be province-wide bargaining; there is going to be a billion dollars taken out; there are going to be dramatically fewer services available to young people. There's no question of that.
Mr Joseph Spina (Brampton North): That's your opinion.
Mr Phillips: I am telling you what I believe. You can use your own time to make your own points. I will make my points without interruption.
I wonder if the federation is contemplating that so that the public will have a view of where all this is leading in terms of the impact on young people in this province.
Mr Holmes: There is an immediacy to teaching that you spoke about and an immediacy to the human response that teachers face every day. We have found over the last period of time that there is a growing body of evidence of the disastrous effect the continued cuts are having in the classrooms of the province. We are in the process, at this moment, of gathering as much anecdotal data as we possibly can to paint that human face for those who sit around this and other tables, to demonstrate to them that it goes far beyond numbers on a balance sheet.
The Chair: Thank you very much, Mr Phillips. I'm afraid our time is past and we appreciate the Ontario Public School Teachers' Federation for making a presentation here today.
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CANTAQLEIGH INVESTMENTS
The Chair: Our next deputant is Cantaqleigh Investments: Mr Lee, Mr Westfall, Mr Wolz and Your Worship Mr Kirkland, I believe. Mayor of Point Edward, welcome to the committee with your associates. Could you identify yourself, as you begin to speak, for the purposes of Hansard, please.
Mr Peter Westfall: Thank you for your time to hear us. I'm Peter Westfall and I represent one of the investors in this development, Cantaqleigh, who is Mr Garvin Lee, who is here. We have distributed to you a summary of a casino entertainment development proposal. As well what you have in the front is a précis of the summary that is there. That will be the subject matter of the presentation.
With us is Mr Dick Kirkland, who is the mayor of Point Edward, Mr Garvin Lee, and Mr Erie Wolz, who is an assistant of ours as well. I think Mr Kirkland is going to start today.
Mr Dick Kirkland: Mr Chairman, we're here in a little different light probably than the last people. We're here to try and generate some money for the government -- not only for the government but for the county of Lambton.
Just to give you a little background on what has taken place over the years, we had CN along the waterfront for many years, and back in about 1985 they decided to pull out of the sheds as package freighters and it seemed to dwindle. The passenger ships had both burnt that used to dock there at this facility and the land has just sat, 55 acres of it, right on the water, right at the mouth of the river, just off the Blue Water Bridge. Now we have two bridges. The second one is complete. It will be open on July 12 of this year.
We have land that we have been trying to develop. We worked with CN for many years and finally got them to the point where they decided to sell this land. We've had a developer come along with a great project for the area. It's an entertainment project that we hope will attract many tourists and also the American market, which is right across the Blue Water Bridge from us. We keep trying to get them to stop in the village but it's awfully hard. When they come over the bridge, they're right on the 402 on their way out on the highway.
This project we feel will serve the needs, but we need a casino to be the engine to drive this project. As a municipality we have tried for years, as I have said, to get something to get the people off the bridge and get tourists in the area.
I just got a letter the other day from a cruise ship out of Cleveland, I believe it was. It's got two cruises up through the Great Lakes this year and both of them are booked solid, and we haven't got a spot, really, in Sarnia-Lambton area for them to dock at. We've got the facility there, but if any of you have been up there, and I know some of you have, because I think I took a few of you on a tour when you were up in the area before, we've got a building there that's been run down over the years that could end up being a beautiful building and house the casino.
Over the last while the government has passed all kinds of things back down on to the municipalities. We feel that now it's time that we, as a municipality, can look after ourselves if we have this kind of development. We had our referendum back in June of last year. In fact, we had 85% of the people in Point Edward turn out to vote at that referendum; 73% were in favour of the casino.
The only problem with this is that I feel a little bad because when I ran for mayor the last time we only had a 73% turnout, and I did get elected, but it's a little hard to take when you have a referendum and people turn out for it more than they do for the election of the municipal people.
The big thing that has happened in the Lambton area over the years is that we've lost 6,000 jobs in the Chemical Valley, and it's really hurting the whole area. We've got no new construction in homes. We've got the young people leaving the area, going west to get jobs. We've got very high unemployment, which is 15% right now in the area, or even greater.
You might read in the paper too where we've got some growth in the Chemical Valley. I think they're working on projects right now that will total about $120 million, but those two projects are not going to create one permanent job. All they're going to do is protect 70 jobs that would have been lost on top of the 6,000 we've already lost.
We know very well that this project will generate jobs. If you look at the stats we've got here, it will create about 1,500 jobs, a total of about 3,000 with the spinoff. It'll generate about $120 million, and I won't get into all these figures because that's what the developer will talk more about. When the project is all done, it will probably mean about a million dollars in taxes to the municipality, the county and the school boards. So I feel that this is very important, not only to the village of Point Edward, the city of Sarnia and Lambton county, but it's good for the whole province.
We need the jobs, we need the young people to stay at home. I always hear about families, with casinos. I've got one councillor who has a family of four, and three of them are out west right now. So really, we haven't got the family ties when we've got this kind of unemployment in the area. That's one of the big problems that we have. I know everybody thinks that over on the west side of the province where we've got the Chemical Valley, it's still booming. Well, the Chemical Valley is rolling along but it's not creating the jobs that we really need again.
In closing, as I said at the start, we're here to create jobs, increase the revenue for the government and also increase the revenue for the municipalities, which are in dire need of it.
I'm not opposed to what the government is doing in the way of cutbacks, turning things back over to us. We've got a water plant that we're hopefully going to take over very shortly. We're looking at hydro in the area as a joint venture with three or four of the municipalities. These things are going on and I feel quite confident in what we're doing, and I also feel that this project will be a very big asset to the whole province.
I turn it over to my developer, who has been very kind to the village, I must say. He's had a business in the village for 10 years. It's the first time in my 40 years of being in and out of politics that we've had a developer who comes in and he brings the whole family with him. He's not a man who is going to come in and leave us in a couple of years. He's got the whole family that he is looking out for, so that makes it that much easier when we deal with these people. Thank you, once again.
Mr Garvin Lee: Mr Chair, members of Parliament, thank you for giving me the opportunity to speak to you. My name is Garvin Lee, from Cantaqleigh. I'm slightly hard of hearing. As you probably notice, I've got two hearing aids. There's no recording device in here.
What we're proposing to do is to be able to give an opportunity to the government to be able to collect, in terms of taxes and other forms of revenue, a total revenue of over $100 million a year. What we're saying is that it's a business proposition that we are proposing to do. The proposition is going to be an entertainment and recreational complex which involves a casino. The casino is going to be the engine that drives it, a commercial type of casino that will drive it.
You'll probably notice that we've given you some of the statistics there and all that. These statistics are researched statistics from two very reputable firms. We've done two researches: one from Coopers and Lybrand and one from KPMG. Coopers and Lybrand did the first one and KPMG did the second one. KPMG, in more ways than one, confirmed Coopers and Lybrand's research, because we wanted to make absolutely sure before we went into this that we are not going to throw our money down a bottomless pit and that this is going to bring money not only to ourselves but to the region, to the provincial government, and most importantly, it is to make employment.
The statistics there state there's going to be over $122 million in revenue -- if you look right through the brochure, you'll see it -- and of that $122 million, it's going to go out to the provincial government. Of course, some of it will stay behind, hopefully for us and for the village and for everybody else. We estimated in the tax revenue, for the property taxes for the village and Lambton county, in the first year of operation a million dollars in development fees and taxes will go to the local authorities. In the final development, where the hotels and all the other complexes are added in, it's going to be about a $4-million annual contribution to the Lambton county coffers and the village.
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We will make 3,000 direct and indirect jobs -- and again, I emphasize, without costing the government a red cent. We, as the developer, and the banks are prepared to take the risk and bring this entertainment/recreational complex in.
Also, the economic spinoff -- can you imagine? We've lost 6,000 jobs in the area. The Chemical Valley, in spite of the remarks stating they are now expanding -- they are expanding but they're automating and in the process of automating, they're cutting down on the jobs. So far we've lost 6,000 jobs in the last 10 years. With this proposition we are proposing, it's going to bring back 3,000 jobs, and with it, the other economic spinoffs that will come in its wake as well.
The oft-stated statement by the government of the day says that we as a community should now be able to look after ourselves. We should be able to provide for ourselves. This is a wonderful opportunity here and now where we can put this philosophy to work. We in the region, if you can give us the opportunity, will be able to do the work, without costing the government a penny.
The details are all in the summary we've given you, sir. I must also emphasize again, ladies and gentlemen, that the money we're going to bring in, over 72% of it is going to be American money. It's not Canadian money that we're going to be taking. We're not recycling money from the left-hand to the right-hand pocket. We are bringing American money in to ensure economic regeneration.
Some people may have an objection about a casino, but I would like to point out, Detroit is going to get three big-time casinos going in there. They've already passed it. They're already on the way to developing three big casinos; commercial casinos, that is. At the present moment, there are already 13 commercial casinos in Michigan. Not many people know that. They're all situated on the Indian reserves in the centre of Michigan and the northern part of Michigan, and all of them are doing very well.
We visited one recently, about three hours away from us in Midland. They are now just putting in a $200-million expansion -- hotels and other recreation facilities, including a casino and a bingo hall -- and employment is full. They said they're employing about 1,200 people there, direct employment, and they expect indirect employment is going to be about two to one, so approximately 3,600.
The Indian band is building a new police station, new courthouses and the streets are being paved, and I'm not saying we should do this in our community but every single member of the Indian community is getting a dividend of US$17,000 to US$18,000 per year. These are the economic spin-offs, talking about the casino, it brings this way.
Why do we want to put a casino? It's simple: Because the casino is the one that will attract the Americans into our part of the country. They go past us daily on the bridge, they go past us on the 402, and with the construction of a new bridge which is now going to be finishing in August, we're going to have double the capacity. That's going to be one of the major highways into the United States and Mexico, so we in the region, in Lambton, want to take some of the traffic off the bridge into there.
How can we attract them? This has been taxing our minds for years. I've been on the business convention bureau, I've been on the tourist bureau. We've been trying to find ways and means to attract the Americans in, and what we have found from our research is the American is a avid game player. He loves his casino and this is one of the things that will attract him.
By just merely putting, say, a Canada's Wonderland -- they've got it in Disney World, they've got it in Minnesota, they've got it in Cleveland, Ohio -- it's not going to be any new attraction, but bringing a casino will be. We've found by market research that we have 26 million people within five to six hours' drive. This is the average drive time for a casino patron.
We not only want to bring the casino player in for three to four hours -- I don't want to mention some of our casino competitors where they play for three or four hours and go home -- we want to bring in the genuine tourist, because we have pristine water, we have an area in which we can accommodate the family. The family will come in for 24 hours, 48 hours. They'll stay there and decide about the delights and the attractions of the area, but the casino will draw them in.
Also, we have a boating population. There are 894,000 registered boaters in Michigan and over 200,000 registered boaters in Ontario. Together, they make over 1.1 million registered boaters.
So what happens? Nobody is catering to them. They come up and down the St Clair River, they look at us: "Oh, nice. Bye-bye." But we want that, we want to cater to that and there's a niche market for that.
Some people may ask me, why are you going to go and take a risk when you've got three casinos coming up in Detroit? Yes, we're taking that into consideration. We have a niche market. We've found a niche market. That's why we are confident when the casino comes in, together with the entertainment and recreation concept, it's not going to only benefit us, it will benefit the county. More importantly, our biggest shareholder will be the provincial government. They're going to get over $100 million a year, and we are prepared to bet on it by investing in it ourselves. It's not costing the government a penny. Thank you.
Mr Gerry Martiniuk (Cambridge): Very shortly, I just want to help the committee. Coming from Cambridge, with an unemployment rate under 7%, it is somewhat of a shock to go to this area where the unemployment rate is one of the highest in Canada, at 16%, I believe. But I just want to talk about the site. I chair the justice committee and when we were in Point Edward, the village, we had the opportunity during a lunch hour to just visit this site. It's one of the most magnificent sites I've ever seen. It's right on the river. The view to the American side is excellent. It's right beside the new twinned bridge and it has the potential to be a world-class site for this purpose. I was most impressed.
Mrs Lillian Ross (Hamilton West): Mr Lee, thank you very much for coming forward. I wanted to ask you a couple of questions with regard to some of the steps our government has taken since we've been in office to reduce government expenditures and to work towards eliminating the deficit so we can start working on the debt. The deficit has been reduced substantially. Had that anything to do with your decision to look at what you're doing? Do you think that will benefit you if the government is in a more sound financial position?
Mr Lee: I think maybe the mayor could answer and then I could come in to that point.
Interjection.
Mr Lee: I could answer it.
Mrs Ross: Talking also about things such as when you're hiring employees, reducing the employer health tax, and those types of initiatives that have been taken by this government.
Mr Lee: I must say that what the government has done by reducing, cutting down expenditures and this and that, as a businessman I must congratulate the government for taking the initiative, taking the steps. But having said that, by downloading some of the expenses on to the municipality and on to the region itself and then telling us, "Look, you've got to find innovative ways and means of helping yourself," this is one of our proposals. We are saying, "Hey, thank you. You're getting out of our hair, but give us the opportunity now to help ourselves, pull ourselves up by the bootstraps."
This is precisely what we're saying to the honourable members. Give us a chance. There is nothing to lose. If anything is going to be lost, it's only our money and our bets money. We will make the employment because we have studies upon studies to say to that effect that we will make the employment. If you read them, you'll see that we're going to make approximately 800 direct jobs, and indirect jobs is about 1,200.
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Also, we know that 200 people from the Sarnia-Lambton region are working in the Windsor casino. They drive down there every day to get a job. They work there. They've been coming to us, to his worship the mayor, saying "What's happening?" every day. We can't even meet without somebody approaching us. "What's happening? Why hasn't the government made up its mind?"
Mr Kwinter: Thank you very much. I'm very interested in your proposal. I just want to make sure you understand the process. I'm sure you know that the two major casinos -- well, the three really; one is on the Indian reserve in Rama. But the one in Niagara Falls and the one in Windsor with the riverboat are government-run institutions being run for them by operators that tender to do this. I assume that is the process the government would use, so they would (a) have to decide if they are prepared to put a casino into that particular area, and (b) would then put it out to public tender. How does that impact on your particular development if that were to happen?
Mr Lee: Mr Kwinter, I think I met you about 10 years ago in a duty-free line.
Mr Kwinter: Probably.
Mr Lee: We are very alive to what you have said. If it's got to go out to public tender, we are prepared to take our chances on that. We know the government has a present position that the government's going to run it and has the major say in it. We understand that and say, "Okay, fine." That's the position we've taken in our thinking.
But why we want the casino to come in is because we know the benefit that's going to spin off, be it government owned, be it privately owned or be it a combination of private or semi-privately owned. Does that answer your question?
Mr Kwinter: Yes. I just wanted to make sure you are aware --
Mr Lee: We are.
Mr Kwinter: When I looked at this presentation, it seemed to me that it was a private sector proposal. You say: "It's not going to cost the government anything. We'll run this thing. It's going to help us create employment and stimulate economic activity." To date, there have not been any casinos launched on that basis. I just wanted to make sure you understood that.
Mr Lee: That's what we said to ourselves: Is this going to be too good to be true for the government? It's not going to cost you a penny and everything I said earlier. It's not going to cost you a penny. We'll put in the building, and we'll say, "We'll even get a casino operator for you." Of course we want some rent for the building and this and that, but that's it. We say, come and talk to us. We will negotiate. We'll talk and we will come to an arrangement, I'm sure, that's going to benefit the whole region, and it won't cost the government a penny, one red cent.
Mr Pouliot: Thank you very kindly. I too appreciate your thoughtful and excellent presentation. This is a pre-budget consultation, and you feel that the venue to improve is through your proposal. You're simply asking for a licence to operate a casino.
Mr Lee: Can I answer that question? We came here to the pre-budget consultations to say, "Look, there's an opportunity for the government to get $100 million a year."
Mr Pouliot: A miracle. It's coming from all over: tales of Evita, and the money kept rolling in.
I just want to focus on your high rate of unemployment. You've mentioned in your submission that the real rate is in the neighbourhood of 20%; our take would be about one out of five. It was also mentioned by one of your colleagues that the young people are more directly impacted, negatively so. It's difficult for you to say, but you feel that this is the best way to do it.
The government says -- it's easy for me to say; I'm a critic -- that they will create 725,000 jobs. We want to wish them well. They've created some jobs and that's the truth, so they're on their way. Whether they reach 725,000 -- this becomes an objective; it's not a commitment, because there are too many variables we don't know, but they feel they're on the right track.
You feel that 3,000 direct and indirect jobs would benefit the region, obviously, and you've made an analogy which you claim has some validity, that there is no saturation because another jurisdiction has so many small pieces of the action; there is no saturation and you can have many casinos and everybody will just come forward.
Well, there is $100 for entertainment in my pocket per month. I go to the cinema, I go to maybe one game, but once the $100 is gone, I am gone too. How do you reconcile this? I have some difficulties, not with your presentation -- and I wish I were as candid and as nice as you people. I am not a nice person; they made me this way. But don't you feel there is a saturation? You have one in Windsor, you have one in Niagara Falls, you have one in the native community.
The Chair: I think the question has been asked, Mr Pouliot.
Mr Pouliot: I thank you, Mr Speaker.
Mr Lee: I'd like to answer that, sir. We have taken that into consideration. We've taken into consideration the Windsor Casino. We've even taken into consideration that there may be two permanent casinos in Windsor, three are in Detroit. We've told the market researchers. They've looked at it and said: "Yes. There's still a niche market." As I said earlier, we've identified a niche market for ourselves. That's going to create -- the first report says it will bring in $157 million and the second report, which is KPMG, says it's going to be $202 million, of which the government will enjoy a considerable windfall.
These small little casinos, they're fine. You're talking about the community casino, the little casino? They are there. They're good for the community. But the big casinos we have already taken into consideration. We are going to back big money into it. Do you think we are going to put big money into it without being quite sure we have a niche market for it? It's like me doing business; I'm not going to try to open a business if I don't have a market. I say we are prepared to back big dollars for that.
The unemployment situation of 15% or 16% -- it's just been published 10 days ago -- in Sarnia is one of the highest in the province. Real unemployment, as you know, sir, is not just 15%; it's probably about 22%. We know from our experience, and I'm sure the mayor can back me up, everybody we talk to knows of somebody who has lost a job, who is not working, or somebody's child is out of the province, has gone to the west, or he's gone to Toronto or to London.
Today I just bumped into somebody: "What are you doing here?" "I couldn't get a job at home, so I thought I'd come and look here." It's things like that. We feel that one out of five, practically one out of four-and-a-half people are unemployed in Sarnia-Lambton.
Mr Kirkland: You were talking about jobs and asking about unemployment. I talked to our welfare director at the county just before I came down here and he told me that the last 12 people who came in looking for welfare were all employable people. There are no jobs for them, and that's one of the big problems we have in the area with the young people today.
The other point I missed making before was that the infrastructure for this development is all in place. We did this back in 1988. We upgraded their sewage plant; we've got a state-of-the-art sewage plant; we've got secondary treatment. We've got a 42-inch watermain that runs right by the place and we've got 27.8 hydro. All the infrastructure, the zoning and everything else, is in place. The referendum's in place. All we need is somebody to say, "Yes, go ahead," and we can create these jobs and make it better for all of us.
The Chair: Thank you very much. We appreciate you coming in to make this presentation to the committee.
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GLAXO WELLCOME
The Chair: Our next deputation is from Glaxo Wellcome Inc. We welcome Jennifer Bowman and Geoff Mitchinson. We will have approximately 30 minutes to spend together today. I expect we will have a division bell at noon, which will signify the end of our session this morning.
Ms Jennifer Bowman: Thank you, Mr Chairman and members of the standing committee, for giving us the opportunity to appear before you today to participate in your pre-budget consultation process.
My name is Jennifer Bowman and I am the a senior manager of external affairs for Ontario for Glaxo Wellcome, responsible for health policy and government relations in Ontario. With me is Geoff Mitchinson, director of market access, responsible for health policy, reimbursement of our products, and pharmacoeconomics. Bill Laidlaw, who is familiar to a number of you, is unable to join us today because of a prior commitment in Ottawa.
I would like to begin by providing you with some background on our company. Glaxo Wellcome is one of Canada's largest research-based pharmaceutical companies, generating sales of more than $400 million annually.
We currently operate two facilities in Ontario, a head office in Mississauga and a manufacturing plant with development laboratories in Etobicoke. In June of this year, we will consolidate all our operations at our new, state-of-the-art facility which has been constructed adjacent to our corporate headquarters. We are excited about the opening of this new facility, which will employ 350 people in the production of tablets, creams and ointments, liquids and finished packages.
In total, Glaxo Wellcome employs more than 1,100 people in Canada. In the past seven years, our company has more than tripled its workforce with 80% of its employees located in Ontario.
Glaxo Wellcome is a leader in many therapeutic areas, including asthma, migraine, gastroenterology, oncology, epilepsy and anti-infectives. We invest more than $50 million in research and development, including $10 million in basic research, in Canada annually through partnerships with companies, academic institutions and through support of independent researchers. More than half of this is invested in Ontario.
Governments' fiscal policies, both nationally and provincially, have a significant impact on shaping the economic climate for innovative research and development-based companies such as ours. Knowledge-based companies are the economic engines of the new global economy. If Canada is to thrive in the global marketplace, it must attract and retain knowledge-based investment, investment that comes from sectors such as the pharmaceutical industry.
As a global corporation, Glaxo Wellcome Canada must compete with company affiliates worldwide for research and development investment dollars and product manufacturing mandates. Consequently, the competitiveness of our operation in Ontario is directly related to the economic climate in which we operate.
When I was preparing today's presentation, I reviewed Bill Laidlaw's pre-budget submission from February 1996. It is truly amazing how much the environment and the economy have changed during the past year. As reflected in the presentation made to this committee by the Treasurer earlier in the month, the economy has improved significantly, resulting in the fortunate situation where government revenues have increased beyond target predictions.
During the past two years, the provincial government has made significant progress to improve the economic and investment climate for business by developing a plan to balance its budget, reducing non-priority spending and focusing on delivering core services, such as health care, more efficiently.
We recommend the continuation of the government's approach to ensuring a receptive business environment for our industry, which in turn will allow us to create jobs and stimulate economic growth in communities across the province.
I want to focus my remarks today on the largest part of the government's budget, the health care budget, which accounts for one third of all government spending. I'd like to discuss the role of prescription drugs today and in the future, with specific attention to strategies for realizing better health outcomes at a reasonable cost.
As a starting point, let me say that we agree with the goal outlined in the ministry's business plan to achieve a system that puts patients first and we would like to discuss the contribution of brand-name pharmaceutical companies to realizing that goal.
Our particular area of expertise is of course prescription medication, and in any discussion of medication and health care, the element of cost always arises. I want to address the cost issue from two perspectives: The first is the cost of brand-name patented drugs, and the second is the overall cost of the Ministry of Health's drug programs.
When you consider total health care costs on a national level, the largest part, 46%, is spent on hospitals, and that is why the work of the Health Services Restructuring Commission is so important in addressing overall health care costs. Some 14% is spent on physician services. Spending on medicines, including over-the-counter, patented and non-patented medicines and distribution costs, make up about 13.7% of the total. Patented brand-name medicines take up only 2.5% of total health care spending, and the cost of patented medicines is not rising. In fact, in 1995 prices declined by 1.75% over 1994.
Second, the cost of the drug programs for the Ministry of Health has not grown at a significant rate for the past two to three years. The small increases we have seen can be primarily attributed to, first, a larger number of patients receiving their prescriptions through the ODB as the population ages; second, a shift to care in the community, both in an attempt to prevent hospitalization and as a result of shorter hospital stays; and third, the introduction of new technologies.
Given these changes, an increase in the total costs of drug programs should not be unexpected, nor should it be regarded as an overexpenditure. As the health care system adjusts to the tremendous pace of change, the government should maintain the flexibility to put health care dollars where they are having the greatest positive impact on health.
It is well recognized that medication is one of the most cost-effective medical interventions available to us. Consider, for example, the impact of medicine on the treatment and prevention of tuberculosis, whooping cough, ulcers and, more recently, AIDS.
Unfortunately, a number of the strategies used to contain costs within a drug program focus on only the immediate cost of the program and do not consider the impact on the patient or on the rest of the health care system. Examples from a number of other jurisdictions, such as product delistings and therapeutic substitution, demonstrate that efforts to control drug costs in isolation often have a negative spillover into the rest of the health care system, as well as undermining patients' health.
There are ways of providing better health outcomes, at a reasonable cost. The first is to focus on optimal therapy, which is achieved when the appropriate intervention is applied to the appropriate patient at the appropriate time.
Glaxo Wellcome is involved in a number of activities to achieve this goal. For example, we provide ongoing clinical education to physicians in cooperation with a number of universities and physician organizations, including the Royal College of Physicians and Surgeons of Canada.
In partnership with Centenary Hospital in Scarborough, we have established an asthma centre which teaches patients how to better control their asthma and so prevents unnecessary emergency visits. We have partnered with Sunnybrook Health Science Centre to establish a drug safety clinic to treat patients with unfavourable reactions to medicines and educate patients and providers about drug safety and the best use of medications.
In every case, the primary purpose of these initiatives is to improve the health outcome of the patient. At the same time, the system is used more effectively and savings within the wider health care system are likely to be realized.
It is much easier to realize these savings in an integrated delivery system, where there are clear incentives to invest in initiatives that will result in long-term system savings and better patient outcomes. We support the stated intention of the ministry to move towards such a system.
Let me illustrate the advantages of an integrated approach using the example of asthma. Asthma affects between 10% to 15% of the population, with the juvenile rate estimated to be as high as 20%. Clinical studies have clearly indicated that the vast majority of asthma can be well controlled once it is appropriately diagnosed and treated. When the disease is not well managed, a patient may require emergency room treatment, inpatient hospital care and frequent physician visits.
Glaxo Wellcome has provided assistance to local hospitals to establish community asthma care centres across the province, to put in place appropriate treatment plans and provide patient education on how to recognize asthma triggers and use medication and devices properly.
In a study done at Oakville Trafalgar, after one year of operation emergency room visits by clinic clients fell from 258 to 20 visits. Prior to participation in the program, a total of 45 hospital admissions took place, and following the program, this figure was reduced to three admissions. The cost of drugs for a properly managed patient may be more, but the overall health system costs are significantly less. This is particularly relevant in an integrated system, since the additional cost of the medication is more than offset by savings on other services, and the patient enjoys a better health outcome.
We therefore recommend that, recognizing the value of medicine to the health care system, the committee support management solutions, such as optimal therapy and integrated delivery systems, that focus on patient outcomes and lead to system-wide savings.
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A second and more short-term solution is to ensure that patients receiving their prescription medications through the Ontario drug benefit program have access to the best medications as quickly as possible. The process through which drugs are approved for coverage on the Ontario Drug Benefit Formulary is tightly regulated by the Ministry of Health, and while we understand and support the provincial government's responsibility to make cost-effective reimbursement decisions on drug therapies, we feel the process can be improved for the benefit of patients, the government, providers and manufacturers.
To its credit, the ministry has made a number of changes to reduce duplication with the federal government and streamline the number of submission requirements. The next step is to redesign, or re-engineer the approval process itself. In January we had the opportunity to present our views to the expert panel established to review the Drug Quality and Therapeutics Committee, which reviews submissions for the Ministry of Health.
Without going into great detail, we believe the provincial government's process can be made more efficient by limiting the mandate of this expert advisory group to focus on the most difficult decisions, which attempt to balance therapeutic benefit and cost. Our recommendations, which are consistent with those of the Red Tape Review Commission, would result in a process that would allow patients quicker access to more efficacious products, would allow the government to realize savings from lower-priced alternatives sooner, would reduce the administrative burden on the Ministry of Health, and would reduce barriers to business and investment in Ontario. We recommend that the government redesign the ODB submission process to facilitate quicker access to more efficacious drugs.
There are a number of strategies open to the government as it moves forward with health care reform. We are ready and willing to work with the government to implement workable solutions that focus on patients. We feel we can provide some unique insights, given that we invest $1 million to $2 million in market research annually to gain an understanding of patient and prescriber attitudes and how they affect utilization. We feel that our knowledge and expertise, gained through years of research and program development, can assist the government in achieving a better health care system.
We recommend that the government facilitate cooperative relationships between the private sector and government to work towards common goals.
The final area we wish to address today is the issue of patent protection for knowledge-based companies in the innovative pharmaceutical sector. You will all be aware of the parliamentary review that is taking place on Bill C-91. I know that the Pharmaceutical Manufacturers Association of Canada has already made a presentation to this committee, and while I don't want to completely reiterate their presentation, I think some of the fundamental reasons for supporting this legislation bear repeating.
PMAC member companies invested in excess of $624 million in research and development in 1995, a rate close to 13% of sales and well beyond our commitment of 10% of sales.
Price increases of patented prescription drugs averaged below the rate of inflation from 1988 to 1994. In 1995 prices declined by 1.75% from their 1994 level. Some 3,000 direct jobs have been created by the industry since 1987, and 3,800 indirect research-oriented positions have been created through universities, hospitals and clinics across the country.
PMAC companies paid $72 million in taxes in Ontario in 1995 and injected $1.2 billion into the Ontario economy. As a key centre for research and development within the brand-name pharmaceutical and biotechnology sectors, Ontario must take a leadership role by making a clear statement that it recognizes the economic development and job creation associated with these industries and values their continued growth in the province.
We are therefore asking the government to support our industry's need for truly international standards of patent protection in order to ensure that Ontarians benefit from the present and future potential of a dynamic industry.
In conclusion, I'd like to summarize our recommendations to you: (1) Continue with the fiscal plan to promote a receptive business climate in Ontario; (2) recognizing the value of medicine to the health care system, look for management solutions that focus on patient outcomes and system-wide savings; (3) continue with efforts to redesign the ODB submission process; (4) facilitate cooperative working relationships between government and the private sector; and finally, (5) actively support our industry's need for international standards of patent protection.
We appreciate the opportunity to appear before you today in what we consider to be an ongoing dialogue with the government, aimed at ensuring that Ontario continues to be the best place to live, work and invest in.
Both Geoff and I would be happy to answer any questions.
The Chair: Thank you very much. Can we try a three-minute round of questions?
Mr Phillips: Thank you. The Ontario Hospital Association was in yesterday and gave us a fairly strongly worded brief on their concerns about the health system, indicating that we are not coordinating very well our health system. They didn't use the term "silos," but that's the jargon that's used.
I get a feeling from your presentation that we have a budget for hospitals, a budget for drugs and a budget for doctors. I might add, by the way, that I don't think we begin to look at managing our total health system. We think we're managing the big insurer, the Ontario government -- the Ontario taxpayer is the big insurer right now at $17.7 billion, but there's another $10 billion or $11 billion spent on health care that's funded by other insurers or by individuals. Have you any advice for us on how we can better coordinate that $28 billion or $29 billion of expenditures on health care in the province?
Ms Bowman: I know there's an awful lot going on in the province right now through the Health Services Restructuring Commission, for example, which is looking at hospitals and how hospitals fit into the health care system.
I'd agree with you that we do need to better coordinate services. I think the focus has to be the patient and how to manage the patients within the system. Often patients find themselves pulled between different parts of the system. The system has to be integrated around the patient's needs, and I think that's what the asthma example shows, that if you can look at what the needs of the patients are in the area of asthma and address those needs in a coordinated fashion -- there are physicians working with the hospitals, working with the patients; all of them play a role and they all come together to create both better patient outcomes and a more efficient use of health care resources.
Mr Pouliot: I am perplexed and intrigued by your lobby. As we are all avid readers, I seem to recognize the name of the company trying to elevate the art of lobbying from a vulgar profession to a most honourable one.
I would have liked to have noticed in your presentation and analysis that the drug program is open-ended, that it welcomes anywhere from between 7,000 and 9,000 new clients every month in the province. About 10,000 people a month go from 64 to 65; that's 120,000 a year. I cannot recall a year where it hasn't been oversubscribed. It's very difficult to budget because you're directly responding to public needs.
I also failed to see the extravagance of the Trillium program. When I say "extravagance," I'm talking about the accelerated, steep decline. I didn't see anything about 15% of the prescribed drugs never being used. I didn't see that.
But what I did get, and I say this positively, is a lament, a plea vis-à-vis the patent as opposed to acceleration to the generic drugs. I will be looking for balance, but this is for every government. They've been there, they're there, and we've been there as well: $1.5 billion is being spent on drugs when you throw in ODB, Trillium etc, and it is scary as hell. It's difficult to go into a doctor's office and come out of there without a slip of paper. I can go to the another colleague in the profession and get a prescription; if she doesn't get me one, I go to the next one. When you talk to people in the Ministry of Health, those professionals who are responsible for those programs, they share the same concern.
I want to wish you well. You'll survive, you'll do well, because demographics, I truly believe, is two thirds of everything. We're all getting older. The government's going to have to put the brakes on -- delist, relist, go to generics -- because they cannot make ends meet. I'm speaking on their behalf as well today.
Ms Bowman: I did try to make a distinction between the cost of drug programs and the cost of patented medicines. When we look at drug programs, some of the solutions we talked about around optimal therapy -- and patient compliance is an issue, in terms of patients properly taking the medications they receive. We do a lot of work with physicians and with other providers to educate them about how to manage diseases and what appropriate prescribing is. So I do take issue a little with some of your comments.
I realize that the drug program is a unique program in that it's one of the few Ministry of Health programs that remains open-ended. But I think we did talk about some ways of better managing that particular area of the Ministry of Health, and I would say that we feel we have a role to play in the management of that program.
Mr Spina: Thank you for the presentation. Your head office is in Mississauga, but you're right on the line to Brampton.
Ms Bowman: Our parking lot is in Brampton.
Mr Spina: I want to pick up on M. Pouliot's expression and clarify a little bit that the last government reduced a lot of the costs by delisting some of the drugs. We do recognize that there is an increasing demand because of the aging population, and that's going to expand exponentially with the leading edge of the boom hitting 50 this year. Was expanding the listings of the drugs on the ODB plan at least a step in the right direction towards assisting the needs of the patients?
Mr Geoff Mitchinson: There are really two questions in there. Number one, what is the best way to manage pharmaceuticals? The evidence seems to be overwhelming now that if you have an open formula or if you allow physicians and patients access to the widest range of products, you tend to find that costs actually are not increasing dramatically; for some reason the evidence seems to indicate that. But more important, to Mr Phillips's point as well, the pharmaceutical intervention is probably the most cost-efficient way you can go about treating a patient. People don't suddenly turn 50 and start receiving pharmaceuticals. What happens is that they start getting sicker more, they get more disease --
The Chair: I'd ask you to summarize in about a minute and a half.
Mr Mitchinson: By all means. They get sick and they start using the entire health system; they're using hospitals, physicians and the rest. Pharmaceuticals in that context are a very efficient way of managing patients. Access to them is probably a very efficient way to contain costs and probably, in the end, the ideal way to be integrated into the system overall.
The Chair: We have a division, which is going to necessitate our adjourning. We will recess the committee until 3:30 this afternoon. Thank you very much for coming in and making your presentation to us today.
The committee recessed from 1203 to 1533.
ONTARIO FEDERATION OF AGRICULTURE
The Chair: We welcome the Ontario Federation of Agriculture to the standing committee on finance and economic affairs. Welcome, gentlemen. We have 30 minutes together, and we will be interested in your report. We will fill any remaining time with questions.
Mr Tony Morris: Before I begin perhaps you would allow me to introduce my colleagues: our general manager, Mr Gerry Gartner; our vice-president, Ken Kelly; our manager of research and policy division, Cecil Bradley. My name is Tony Morris and I'm the president of the Ontario Federation of Agriculture.
You have a copy of our brief. I would ask, to begin, that this be entered officially into the record. I will speak for eight to 10 minutes and then allow questions. I will perhaps not follow the brief. Just for the members of your committee who may wish to try and follow along, I would like to begin by saying we believe that agriculture at this time in Ontario, as we head to the 21st century, offers perhaps the greatest opportunity of any sector for both job creation and wealth creation for the province, both from a societal point of view and from the basis of economics.
There are many different demographic factors and economic factors we could cite to state our case, but I refer the committee to numerous briefs we've presented in the past, and to this one that cites a number of different economic factors. Rather than go through them in detail, I certainly encourage the committee to review the brief.
Agriculture is one of Ontario's economic success stories. We have one of the most diverse production bases anywhere in the world, producing about 230 different food and fibre products, and this diverse nature of our production is spread across the province from the Manitoba border to the Quebec border, down into the Niagara region, and of course Kent and Essex and the Windsor region of the province.
It contributes greatly to the economies in the local communities, and this is perhaps where we can highlight that this really is a true engine of growth for rural Ontario and offers a tremendous opportunity and potential for the viability of many smaller communities throughout Ontario. At the same time, the spinoff effect that it provides to the urban centres, with jobs in the food processing and food manufacturing and in the retailing sector, is just tremendous.
With about $50 billion worth of economic activity, we're the second-largest economic sector in the province. We're the fifth-largest agriculture jurisdiction in North America. We are gaining -- and I believe have at the present time but I would suggest gaining as well -- a worldwide recognition for the quality and for the degree of safety and regulatory standards we have for our food production systems that grant us opportunities around the world to access some of the real growing markets, particularly in the Pacific Rim. Our farmers are recognized as producing some of the highest quality in the world, and it is consumers who receive that benefit and who also recognize, we believe, the value of Ontario produce.
In all of this over the years, over many decades of production, government has been an integral strategic partner. As we've seen, the unique partnership of this collaborative benefit go to all sectors of society and to the Ontario economy. Today, Mr Chairman, with your committee, we want to emphasize the degree of importance we place on that partnership through the Ontario Ministry of Agriculture, Food and Rural Affairs and other ministries within the government.
It is in that regard that we have some concerns as to the commitment of government as it relates to its partnership, and we stress "commitment" because we believe that partnership has to be on a 50-50 basis, which we have had traditionally in a number of areas, both from a federal and provincial responsibility and provincial and producer responsibility. There are areas such as research. These areas of research are most critical as we move into the next century in areas such as value added, and there are many opportunities that we cite in new technologies, in biotechnology, gene transfer, enzyme production, that are going to offer opportunities to the province as we move forward.
Quality is another area where research has played an integral part. A very quick example I'll use is that our soybean industry has developed cultivars that are recognized for very high-quality oil production that is in demand around the world, and that can be said for many of our different crops. I do not want to miss any of them.
Also, something that's very important in the research is replacement crops for import replacement. We have developed new crops in this province that we're seeing grown now that offer the opportunity to replace some of the imports we've traditionally had.
Safety nets are another area where there's been strategic federal-provincial partnership with producers to offset some of the risks that are related to weather, some of the risks that are related to market prices, as we see trade distortion policies from some of our partners in the south and over the seas, and those kinds of trade distorting policies have not abated. They continue to this day.
Long-term stabilization through programs such as our net income stabilization account are critical to us, and we certainly urge this committee to gain an understanding of them and to recognize the importance of the partnerships that are being created.
As we move through the present-day terminology of things like decoupling, in other words, taking production-based subsidy systems we've seen in the past throughout agriculture around the world to more decoupled programs that do not base them solely on a producer's production but more upon the marketplace, Canada has been one of the leaders in that regard, and we've certainly led the United States which just recently in the 1995 farm bill has recognized just how much of a lead Canada has and has in fact now followed with some similar types of programs.
Education and training is another area. Research is critical, but unless we have the strong education and training facilities to take that research down to the individual production level, it becomes of very little use. We really urge you to take a look at some of the initiatives that have been driven in the farm community, such as our Ontario Agricultural Training Institute, and I ask that the committee look very carefully at how they deal with agricultural training in Ontario.
Market development is another key pillar, we believe, in the infrastructure of the agricultural community. I repeat, Ontario has built an international reputation for high-quality suppliers of agrifood. It has been the Ministry of Agriculture and Food, through advertising programs, merchandising initiatives and our inspection and rigorous controls over health and safety standards that have ensured we enjoy this world-leading quality and standards, but we must continue to reinforce that image of Ontario's quality through its agricultural products. We urge the committee again, as they deliberate on budget recommendations, to think very carefully how important those kinds of images are as we enter into a global economy in the next century.
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Other recommendations we're making to the committee are based on a host of other issues that are important to not only farmers but indeed rural communities as a whole in the whole area of rural economic development. There are publicly supported drainage programs, rabies prevention programs, and for those in urban centres, you're well aware of the very real dangers that have been experienced in the United States with racoon rabies and how critical it is to ensure those kinds of problems that are being experienced there are kept from society in Ontario.
Intervenor funding is very important for us as we move through in looking at areas such as access to natural gas, access to affordable energy rates with Hydro and a host of other issues. Perhaps one of the most important areas to us, and one that is I'm sure on everybody's mind today, is viable, stable communities within the rural Ontario landscape.
With the change in the tax system and the reforms to our farm tax rebate, we really do urge government and this committee to think very hard and long about the ramifications and the effects it will have if rural municipalities do not have sufficient funding to ensure that there is a strong infrastructure of transportation, of societal programs such as health care and education, and the issues of technology in those communities -- telecommunications -- that provide the opportunity for youth in those rural communities to remain and become active participants in the economy of rural Ontario.
Many important areas are involved in environmental remediation and Ontario farmers are world leaders. We have been recognized around the world. At the 1992 conference on biodiversity, Maurice Strong, the chairman at the time, raised our environmental farm plan as an example to the world that the rest should follow.
These are initiatives that are driven by the farm community, by farm organizations, in partnership with our government sector partner, OMAFRA, and we really urge this committee to look very carefully, as we move forward in budget deliberations, to ensure that OMAFRA continues the kind of funding it needs to do the job on behalf of the farmers in the rural community. We have been very firm in our position of late that there should be no more cuts to agriculture, that if you really, truly believe in job creation in this province, the future of this province, and opportunities for everyone's children, then you cannot ignore the possibilities that agriculture and our agrifood industry will bring and the benefits that society will see as a whole.
I will stop there, and I will allow questions and be happy to answer them with the help of my colleagues.
Mr Phillips: I appreciate your comprehensive brief very much. You highlighted a couple of issues that are huge dollar issues for the government in its budget and did them in a way that I think is very useful. As you know, the government is involved in a significant transfer of responsibilities in taking education off the residential property tax and adding a substantial number of new costs. Our party believes they've added about $1.3 billion new costs and they're going to give about $335 million of extra revenue, so it's $1 billion in new costs.
Your signal in here I think for us, your concern about road infrastructure -- and by the way, they provided no money for road infrastructure downloading or for the property tax reform, where they moved to saying you must tax at the rate of 25% of the residential. Also, as you know, in many of your rural communities, policing historically has been provided and funded by the province. That's now going to be funded locally.
I guess my question is this: If we are correct -- and we think we are correct, and the government has not been able to refute the numbers that the government is downloading $1 billion, and that for many rural communities it could be substantial because, as you point out, many of the roads that are going to be transferred will be in rural communities -- have you any advice for us on the impact that might have if there is a significant shortfall in the costs the government is transferring versus revenue the government is transferring on things like community policing, on things like roads and the property tax at 25% of the residential property tax?
Mr Morris: It's very hard for us to give a definitive answer as to what the impact will be specifically in small terms. Perhaps what I can talk about is looking at the macro-picture.
We are very concerned with anything that is going to leave Ontario farmers in a position where we are not competitive in this global marketplace. Our tax system must provide us with the opportunities that, when we're running our businesses, it does not place an unfair burden upon us. Our transportation system has to be such that we move products quickly and efficiently to the marketplace. When we receive reports in our office about bridges having a 50% loading capacity put on them because of the lack of funds to repair them and the farmers are unable to get their trucks across with full loads of feed, that causes us concern because that gets directly to the competitive nature of our industry and our ability to compete on the world economy.
Much of what we produce, some 54% of Canadian produce, is marketed in the export market. In Ontario we enjoy almost $5 billion worth of exports. The Premier and our minister, Noble Villeneuve, have indicated they wish to see that double to some $10 billion by the year 2000. Ontario farmers have responded and said, "We can achieve that," because along with that growth in exports will come a multitude of jobs, many thousands of jobs. Although we cannot correlate exactly, the federal minister has indicated that for every $1 billion worth of exports at the federal level, there are some 15,000 new jobs.
When we look at the infrastructure that is there in rural Ontario to ensure efficient transportation, to ensure an efficient and competitive labour force, to ensure an efficient and competitive tax system, then obviously we have a great deal of concern about the different methods used to correct problems that there may be with the economy. We have offered on many, many occasions, and continue to do so and have been pleased to be part of many discussions as to how some of those changes may affect that competitive nature of Ontario agriculture.
Rural development is another key issue. Many of our youth today are moving from the rural communities to the cities. That has a dramatic effect on the tax base in many of those communities, and indeed upon the future of the management and labour force that will be available. We have to provide the infrastructure that ensures we not only maintain but we attract that rural youth to the communities for the future of this province and our industry.
We try to look at it on a much larger scale, rather than to get down to individual items, but we are very interested in seeking investment into agriculture. From an agricultural budgetary standpoint, we don't view it as a budgetary expense for the government of Ontario; we view it as an investment into the future of the province.
Mr Pouliot: Thank you very kindly and thank you again for the courtesy extended to me. I not only recognize the name, but it's a renewed pleasure. Some of us go back in our debate some 12 years now, and you've been most consistent, in fact the voice of farming and farmers in Ontario. Your brief states that you have 40,000 members. If we factor in the indirect component, you'll reach 12.5% to 13% of the labour force.
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Most countries in the world pay special consideration to their farming community, to an industry that feeds its people, and those incentives are mostly by necessity. Since we're one of the few countries that export more than we consume, sometimes we feel that we're not as necessitated. We are as worthy but we really don't need, given the marketplace and our force in export, the same special consideration.
Mr Phillips, the finance critic for the official opposition, has mentioned that, yes, there will be a decrease. The government has decreed there will be a decrease in road, in infrastructure. In fact, the CSR, the Common Sense Revolution document, states that no less than $300 million will be taken out of that infrastructure under the Ministry of Transportation. We've now experienced, in January, the second instalment of a tax cut, the 30%. That's supposed to filter through. We'll watch the future closely, but that's going to cost $5.4 billion when all four phases of instalments are implemented, and they said they would -- we want to wish them well -- balance the budget. Simply put, all those things cost one heck of a pile of money. There's no getting away from it.
But times are good times. The money keeps rolling in, but in short order the money will have to come from production. It will not come from tax revenues, so the one third of the money that comes from the PIT, the provincial income tax, will have to made up elsewhere. As we continue to ride that bull market, revenues will become the real bitch that they really are -- there are no other words for it -- and it will become a challenge of enormous proportions.
The Chair: I'm not sure that's parliamentary, Mr Pouliot.
Mr Pouliot: I have some questions. You state in your comments that you're concerned about the government's commitment when it comes to a safety net. You're concerned that when you start to decipher between the schemes, you'll be left holding the bag, you'll really be on your own, that the partner won't be there. Not that you'll be out the door, but you will have gotten older, you will not be as consequential, and you'll be asked to stand on your own two feet. When the market conditions change, will you be able to do that?
I've read in your brief that you commend the government -- most people do that; they're generous and heaven knows they're patient -- but when you develop the theme down the line, where are the pitfalls in the next year or two? If you were to press a switch here and identify one, two, three dilemmas, impasses that you will have to face with this group, what are they? What do you fear most in the future?
Mr Morris: There are a number of fears that could be brought to light, particularly as we look at trade discussions at the World Trade Organization, but what we look at is, let's look at the opportunities and how committed is the government to the opportunities, and indeed society as a whole? What is society's view of having one of the strongest agricultural economies in North America leading the job creation and wealth creation that the province so desperately needs?
If we just think of three billion people within a five-hour flying time of Bangkok who don't have the ability to feed themselves and we think of the resources that we have in this country, if we think of 640,000 jobs that are offered in the agrifood industry in this province, there's no other sector in this province that can boast as many jobs as agriculture and agrifood, the economic activity that we can create, and yet we still have the ability to do far, far more. So there are many things that we can say we fear because we don't know what they will mean, but from the Ontario federation's standpoint we like to look at, what are the opportunities where, together, we can really create a future for the province?
We don't know what World Trade Organization standards will come down. We don't know what will happen in an economy such as North or South Korea. We can only guess. But what we can do is look at the opportunities and try to show the province and the people of the province that land use is so critical to us. We cannot afford to continue to lose farm land if we're going to move to the future. We cannot cut agricultural research when the opportunities are so great in the economy. We cannot cut our risk management tools, such as our safety nets, when we see the global competitors that we are competing against enhancing their agricultural programs. We can't cut things like our educational programs in agriculture at a time when the need for knowledge is so desperate.
Yet here in the province of Ontario -- almost 30 years ago we put a man on the moon -- we've still got 60,000 people who are on four-party lines and can't access a fax machine, let alone get on the Internet. We simply have to address some of the very basic infrastructure needs that rural communities need, that farmers need to be able to go after that global marketplace so that we all benefit.
There are many things that we fear but I would rather look at the opportunities, as we do in business, because we think they're there but we believe that's in partnership.
Mr Toby Barrett (Norfolk): I want to thank Mr Morris and colleagues for coming out this afternoon. I know the federation has been hosting meetings all across Ontario with respect to farm taxation and I think much of this is generated from recent announcements by our government with respect to the elimination of the 26-year-old interim measure, the farm tax rebate. I had the pleasure of attending both the Haldimand federation and, just last night, the Norfolk federation meeting. There were about 150 farmers out.
The discussions are not only getting rid of the farm tax rebate and, as you would know, setting the farm residential and one acre of land at 25% of the residential rate, but the discussion of yanking education off property tax and off farm land. Many seniors, municipal councillors and farmers themselves certainly have asked for this measure, and sometimes when you ask for something, you get it. This has opened a Pandora's box and it has become very confusing, especially for some urban people, to understand what's going on with respect to the change in taxation.
How would you see farmers and the federation helping to explain to urban people some of these changes, and secondly, how can you help us achieve our commitment of a 10% reduction in property taxes by the year 2000?
Mr Morris: To go to your last question first, if I may, we believe that to fulfil that commitment will be along the same lines as what we believe to fulfil the desire of the Premier to double our exports. It will be a partnership. We're not going to do this if we see continued pullbacks by our partners as we move forward.
You made the comment about 25% of the residential rate. Perhaps for the committee I may clarify. It is farm land -- not the farm -- the production base that is taxed at 25% of the assessed residential rate. The farm residence, the bricks and mortar, are at the same rate. I think that's a misunderstanding by a lot of people because for 50 years, since 1949, farm land has been recognized as being unfairly taxed.
We have been consistent in our voice saying that people services should be paid through the income tax system, not through the property tax system. We believe very strongly that if there are to be people services, then that is the best way of doing it. We believe there are many different things that can be done to enhance the tax system. Our tax working group has made many recommendations, one of which is the reinvestment into rural communities, the municipal sector, so that those areas that have a strong agricultural base are not going to be impacted by the loss of the farm tax rebate. The tax rebate was not a subsidy. I want that on record. It was never a subsidy. It never will be. It never has been. It has been a rebate of taxes that should never have been collected in the first place.
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We will work very hard because we believe that if you are going to see a reduction in expenditure or a reduction in taxes, it comes about from the creation of jobs, from the creation of economic wealth. If you can think of another sector around this committee that will give you as much economic growth in the future of this province as agriculture, then we would love to know what it is because I've heard no one in any other industry say they are going to double their exports by the year 2000 -- no one.
The Premier of this province has written to me, the Minister of Agriculture, Food and Rural Affairs has made the statement that they believe we can double it, the farmers agree, that we believe we can double it, but we can't do it without our sector partner, that of OMAFRA.
When you talk about how you will achieve it, you will achieve it, if I may be so bold as to say, because you invest in agriculture and food and recognize its importance. You will see the benefits of increased job creation, increased taxes from those people who are actively working, and it will allow you then to decrease many of the other taxes that I know so many people are asking to be decreased.
But this is the sector that will do it, and before I close, I'd like to bring an example of that. At this committee last year, this organization, the OFA, made recommendations for the removal of the provincial sales tax on building materials for the farm community. We're very pleased the government took the advice of the federation, and over the past year we've had that reduction in the provincial sales tax and we've seen the results in rural communities. We've seen the kind of building boom that's taking place on many farms as they modernize and expand their operations. The beauty of that system is that it is local labour with Canadian material.
We urge this committee to review very carefully and make the recommendation that you continue that program and continue the programs, such as Grow Ontario, that provide such value to the communities and to the agricultural sector in looking at new initiatives and new research and new market opportunities to compete with the growing global marketplace.
The Chair: We appreciate your appearing before the committee today and sharing your views with us. Thank you very much for coming in.
ONTARIO SAVE OUR JOBS COMMITTEE
The Chair: We now welcome the Ontario Save Our Jobs Committee, Mr Tighe and Mr Dickson. Welcome to the standing committee on finance and economic affairs. We have 30 minutes to spend together if you'd like to start with a brief. Are there samples available?
Mr Dick Tighe: As a matter of fact, part of the presentation will be that we are going to -- I didn't want to bring anything into the place because I wasn't positive it would be proper. We have a small sample that each member of this committee will receive tomorrow. it's a new product that we have and we will have it delivered here. I just didn't want to be presumptuous enough to bring it and violate some rules. That would not be the way to impress a committee.
The Chair: I understand. Our conflict-of-interest rules would not allow us to accept anything we would not receive if we were not MPPs. I'm not sure whether it's a conflict or not.
Mr Tighe: You ought not to have a problem.
The Chair: Please proceed with your presentation.
Mr Tighe: First of all, I'd like to introduce myself and tell you a few things about me. My name is Dick Tighe and I have with me today a representative of the Canadian Auto Workers who's a member of our Ontario Save Our Jobs Committee.
I appreciate the opportunity. To be last on a committee is not the easiest time. We will try not to bore you and we will try not to keep you here even the 30 minutes if we can help it. We should be able to get our point across.
The Chair: We are going through till 6 o'clock and you're the second one this afternoon. So we're fresh.
Mr Tighe: Okay, fine.
I've been employed in the distillery industry for some 37 years. I've watched it over those years and I've seen it grow. I was the president of my union for some 15 years and represented the employees in that particular plant, and then for whatever reasons I was chosen to get into the marketing field and became a sales representative for them. So I've been very close to it, but also close to the people I work with, the employees, and understand maybe their plight, to some degree.
I'd like to speak briefly on some of the things that are happening to them and how the Ontario government and the federal government, for that degree, play an important role in what's happened to them as of late.
The tax on liquor is some 83%. Eighty-three per cent of the price of spirits is taxes, either federal or provincial. The provincial government's is the largest share. When we address this issue with politicians, very few differ with us that we do not have a problem, and that it's impeding our business. Most of them recognize that problem, but very few can find reasonable ways of amending it.
One of the situations that exists today is the rate of tax on spirits in comparison to beer and wine and the difference is significant. This is causing a downturn in our business, and I want to address that first.
The beer industry is taxed at the rate of some 60%. It could be a small amount less, but that would be approximate. I believe the wine industry is 55%. Our industry is 83%.
We cannot bear that difference. We need some type of help to close that gap so that we can compete fairly in the marketplace. We're not talking about improving and increasing volumes of people drinking; we're talking about people in business who have to survive and who have to compete against each other.
Just yesterday I bought a Chrysler minivan and I had to pay the total tax of 15% on that minivan. That's fair. Chrysler had their price and the government's entitled to its money. But had I bought a pickup truck, had I bought a Ford instead, had I bought a GM product, that tax still would have been 15%. So it was equal and fair for all those in the same business. When you look at the spirits industry and the liquor industry and the brewery industry, the difference is significant. Those in the distillery industry are at a complete disadvantage and have a very difficult time competing in the marketplace.
Somehow this situation has to be addressed. If something is unfair, and most of the politicians we talked to recognize that it is an unequal situation and ought to be amended, I ask you the question, is it right to just let it continue to exist? I know the problems you're faced with. I know the cutbacks. I'm also the mayor of my community and have been for some 15 years, and sat last night up till 11 o'clock on a budget, and the Ontario government's name came up more than once, as you can well imagine. To be honest, there are a lot of people recognizing what they're trying to do.
Mr Pouliot: That's all that's left of the bottle after last night?
Mr Tighe: There's a whole story behind that, but I'll let my friend tell you about that.
We are trying to preserve the social programs, so we know what you're up against, and we know when a group like ours comes before you and says, "Look, we've got a problem with taxes," the biggest problem you've got is you may recognize that problem, but how do you solve it?
Recently, and I believe it's coming into effect, you're taking some of what you call the equal assessment, in so far as property taxes are concerned, and I think you're all familiar with it. It's a time bomb. We did it in Essex county so I know about it.
The easiest thing would have been to leave it alone and just let the thing stay. But we're obligated to serve the people as elected politicians so we didn't do that, and this was the Ontario government. They're trying to do the same thing in Toronto, as I understand, today, which is going to be a difficult task.
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We had a situation where somebody was not paying enough tax and others were paying on their behalf. The provincial government said, "That's wrong." We went to our constituents, and we had some real battles, because they said, "Why should I have to pay more taxes on this?" Somebody was paying too much, and that wasn't right. It was amended, and there was a lot of criticism at that particular time. But in the meantime, we bit the bullet.
What we're suggesting is that we've got to some way close that gap between the wine industry and the liquor industry. Give us a chance to survive. Give us a chance. We're not talking about increasing volumes of spirits; we're talking about having our products on equal footing so that we can survive. This has cost us thousands and thousands of jobs. It's not the only thing, and I'll get into the others as I go along.
The total tax on a 750 ml bottle of liquor in Canada is $16.14; in the United States, it's $5.51. This is what we have to deal with. It amounts to 83% tax for Canadian spirits and 44% on US spirits. In the United States, a 750 ml bottle costs $9.50. On the black market, which is very significant, which is costing us tax dollars and jobs, it costs $13 for the same bottle that costs $9.50; in Canada, the cost is $20. You can see how the black market survives. They get $13, and they only pay $9.50 for it. That's a good profit. All this is in Canadian dollars; it has nothing to do with US dollars. A 1.75 litre bottle of spirits in the United States is $16; on the black market, $28. We did a test in Windsor in one of the parking lots in one of the factories, and in 10 minutes we had an individual purchase a 60 oz bottle of smuggled liquor, 1.75 litres, for $25. In Canada, it costs $45.
Just recently we attended a court case. We were to appear on behalf of the crown to testify on the impact smuggling is having on our industry; fortunately we didn't have to, because the defence did not argue that issue. The individual involved was sentenced, you may have read recently, to some six years in the penitentiary and a $1-million fine. If he doesn't pay the fine, he's got to do three additional years.
What we're talking about here is thousands and thousands of cases of whisky coming into this country via one individual. I believe they estimated that they know approximately 350 loads came into the province via this one individual. The mounted police, I believe, spent somewhere in the neighbourhood of nine months investigating this individual. Somebody has to pay those costs. The bottom line is, we all know who pays: It's the taxpayer.
But the big thing is the revenues that were lost. At least the judge in the end believed that a good portion of the money had been removed from Canada and was on the islands. This is where the $1-million fine comes in. The individual had a Mercedes, had an airplane. His licence plates had the initials "SM" on them; it's short form for "Smuggler." That's pretty blatant, but there are hundreds like that.
We sat with the mounted police for a two-day seminar in Cornwall. They tell you they can't begin to touch it, because we've created a market for it, and as long as there's a market, they're going to continue smuggling. We killed that with the cigarettes. We don't compare ourselves to that, because the cigarettes that were being smuggled were Canadian cigarettes that were made in Canada and sent back. At least we didn't lose the jobs. You lost the taxes, but you did something about it. I believe that if you looked very closely at the picture, you would find that the amount of revenue lost, if any, was very minimal and the jobs were saved.
When I talk about that industry, the people who were complaining were those in the small grocery stores, who weren't selling milk and bread and things like that because people weren't going out to buy cigarettes. If you ever talk about anything that was blatant, they were selling them on the streets right out in the open in front of the police. It was sort of accepted. You could buy them in Windsor at legions and everything.
I was in Sarnia recently making a call at a licensee, and two cars pulled into the back of the parking lot. The individual came in to talk to some customers. Both cars opened their trunks, and they were full of 60 oz bottles of spirits. They were selling them as fast as they could hand them out; $22 for 1.75 litres. We can't compete with that. We've created a market for illegal activity. In the meantime, the ones who are suffering are the employees who are employed by the industry and, most of all, the taxpayer, because when you don't get the money and the federal government doesn't get the money and the municipal government doesn't have the money, they can only turn to one individual, and that's the individual at the bottom, and that's the taxpayer. That money is gone. The jobs are gone, and they're non-recoverable, can never come back.
Ladies and gentleman, the fact is that 25% of the spirits consumed in Canada are illegal spirits. This is not Dick Tighe saying this or Ron Dickson; the mounted police will tell you this. It is costing us millions and billions of dollars, and it's lost because we've created that avenue. Where do those illegal dollars go? We don't know. But we know one thing: They don't go into the United Way, they don't go into Meals on Wheels, they don't go into social services and community service groups that look after the seniors' foot care; they don't do that with it.
They go into drugs and prostitution. The provincial police or mounted police were following an individual not far from the city because of alcohol smuggling. They had to turn their attention, because this same individual was involved in child pornography, far more serious. That's the type of thing these illegal dollars are going to; they're not going to the good of the people in this province. That's the tragedy of it.
The lost federal revenue: In Quebec, they lose $47.8 million in lost taxes; in Ontario, which is the bigger, it's $84.1 million. This is federal excise revenue lost, but these are the provinces' figures. In all of Canada, $159.4 million is lost.
Provincial: The province gets the biggest share of taxes on spirits, not the federal government. In the province of Quebec, $173.8 million is lost on illegal spirits, and this is in a year; in Ontario, $295 million. How many hospitals and how many of the cutbacks that are taking effect could we do if we had that money?
It may not seem like much in the big picture, but if you live in my town, in Belle River, the people there are concerned they may not be able to keep the transit system for seniors. We don't know if that's going to be cut back. That's big money to them, if you just trickled down $4,000 or $5,000, because they're not sure they're going to be in existence, the transit system that we paid for, not the Ontario government, the service clubs.
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Honestly, I'm not trying to be critical here; I'm trying to be honest and let you know. What could we do with those revenues if we had them? How much good could we do in this country and in all of Canada -- $600 million; that's a lot of money. This does not speak to the jobs it would create when the people go to work and the people produce the product and the spinoff effect. That's what we're talking about.
The impact of smuggling on the manufacturing facilities: I don't want to attempt to mislead you that the total decline in spirits is all due to smuggling. There's certainly been a change of lifestyle and people are becoming much smarter and it's good and it's healthy and we recognize that. But we know that at least 40% to 50% of the decline is due totally to smuggling, and those jobs will never be back. In Quebec we had six plants; three are closed, all this in the last 10 years. In Ontario -- that's our province -- we had 15 plants; nine are closed. That's a lot of jobs gone.
When we talk about the jobs we're also concerned about the spinoff jobs. We had the group just before us, the agricultural group, their concerns, because if you're not making alcohol you're not using grain. So it is with the people who make the bottles, the people who make the boxes, and it goes right on to trucking. It goes right on down the line.
The impact on employment: I'll close with that because I think that's going to cover us. We get into billions of dollars that are lost. But I'd like to talk about employment because that's what I'm here for. I don't represent the corporations. I'm not a lobbyist. I don't get paid for what I do. I receive no pay. But if I can help save 100 jobs or 200 jobs or 300 jobs or stop one distillery from closing, then I'll have done my part; a pretty satisfying experience when you go home if you can say, "I helped contribute to save those jobs."
In Quebec, 5,200 jobs lost; in Ontario, 9,400 jobs lost. What could we do with those revenues today? What could we do with those taxes that those 9,400 people would pay, and especially with what's going on with education and everything? In Canada a total of 22,850 jobs.
I'd like to turn it over just briefly to my colleague Ron Dickson, and then I'll have a closing remark and we'll wrap it up.
Mr Ron Dickson: The reason I brought this bottle along was to dramatize. This is not an 83% tax rate. This was done up for a presentation for the province of Alberta. They're much more generous; they only charge 80% tax. So you have to remove about 3% in your mind when you look at this bottle, take about 3% out of what's left and that will come through an 83% tax.
I'm not here defending the distillery. They've got people to do that themselves. But out of what is left in that bottle they have to buy all their materials, engage in collective bargaining with us, pay wages and all the other things they have to pay out. I don't know how much is in there, about two or three ounces of whisky. All of this went to the government, either federally or provincially, but mostly provincially.
At least the province does something to earn that money -- it has set up a system of distribution of that product which is very effective -- but the federal government literally doesn't do anything. Years ago you had to have a federal stamp go over that cork before you could put it on the market and those stamps were supplied by the federal government. You go into any liquor store today, you won't find one of those stamps. They don't even do that now. That cost a tremendous amount of job loss in that industry, just the removal of that stamp.
In many respects the federal government is more responsible for our condition today than the province, because at least the province does something. I have always believed that taxation of liquor and beer and wine is a fair means for government to raise revenue. Twenty years ago, had I been asked to come here, I would not have come, because 20 years ago, when you had that vibrant, healthy industry with lots of employment and lots of profit, they could absorb an 83% tax rate. I've been in the industry for 38 years with Hiram Walker in Windsor, and I'm convinced they can no longer absorb an 83% tax rate.
One of the most labour-intensive operations in distilleries is the bottling operation, and you'll find mostly older women in these jobs. It's those older women who are now being thrown out in the street, because the best-selling Canadian whisky in the United States today is called Canadian Mist and it is bottled in the United States. Hiram Walker in Windsor and Seagram in Amherstburg are only a step away from exporting all those jobs to the United States. That will be a tragedy for the city of Windsor because Windsor and Amherstburg are dominated by the auto industry and we all know how cyclical that is. You have these tremendous highs and tremendous lows, so Seagram and Hiram Walker help diversify the economy of Essex county. If they close, we'll have lost much more than just another distiller. I might add that the Hiram Walker distillery has been on that same site since 1858, and that would be a tragedy of historic proportions.
As Dick said, we have talked to the Alberta government, we've talked to the federal government, we've talked to the Ontario finance department, and we're getting a little bit of a runaround. We go to Ottawa and the people there will listen with interest, they're very polite, but then they say: "Yes, but what will the provinces do? If the provinces make a move, then we'll make a move." So we go to the provinces, and up to now they have said: "Have you been to the federal government? If the federal government makes a move, maybe we'll make a move." It's very frustrating.
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There have been 19 distillers closed in Canada in the past 10 years. I suggest if that were any other industry but this industry, it would be regarded as a national crisis, as this should be.
I know the social problems associated with this product, you can't hide from that, but the vast majority of people who drink do so in moderation. Some people can't, even in moderation, so the best bet for them is not to touch it at all.
We're not asking here for a cut in that tax rate. I don't think that's necessary. I think what we have to do is even the playing field a little bit. What we're suggesting, if you look at it closely enough, would be revenue-neutral. It's not easy for any politician at this time, when we're closing hospitals and cutting medicare, to say, "Yes, let's cut the tax on distilled spirits."
The Chair: Gentlemen, I wonder if I could ask you to sum up in two minutes.
Mr Tighe: I won't be long. First of all, again, I appreciate the opportunity to be here.
I have a letter here from Mayor Hurst of the city of Windsor. If Hiram Walker did move to the United States, it's in here the amount of revenue that would be lost to the community and the amount of jobs. There are also two other municipalities in Essex county -- they would be Amherstburg and Maidstone townships -- that would be adversely affected if either Seagram or Hiram Walker moved. So their mayors have come from time to time and made presentations.
What we ask you to do is take into consideration what we've said and remember what the government of the day has said. They have said they will take away those things that are impeding the progress of industry. That has been their mandate. They have said that and they keep saying it, but they're not helping in this particular industry. We need help and we need it now. Tomorrow will be too late.
I thank you for your time, sir.
The Chair: Thank you very much. You've used your 30 minutes so we won't have any time for questions, but we do appreciate your making a presentation to this committee today.
Mr Tighe: I'd like to leave this letter, if I could, from Mayor Hurst. I do not have 30 copies.
The Chair: If you give it to the clerk, we'll have it duplicated and distributed to the committee.
Mr Tighe: I'll give Mr Carrozza the little -- it's just an example of something that costs us 34 cents but we have to pay $2.25 to even give it away -- so it tells you a little something when you see it tomorrow. Thank you very much.
DAILY BREAD FOOD BANK
The Chair: We now welcome the Daily Bread Food Bank to the committee, Ms Cox and Ms Brown, I believe. Welcome to the standing committee on finance and economic affairs. We have 30 minutes to spend together.
Ms Sue Cox: I'm Sue Cox and this is Beth Brown, one of our research workers at Daily Bread Food Bank who has done some of the work on the brief that we've put together.
I'd just like to explain to you, if I may, and take a minute to talk about who Daily Bread is and particularly what our interest is with the finance committee.
We're the central organization in the greater Toronto area for the solicitation of donated food products and distribution to about 160 different food relief organizations right through the area.
We are a membership organization. The members are the food relief distributors, food banks, hostels for the homeless, children's breakfast clubs, meal programs, programs for moms and tots, prenatal programs and so on and so forth.
We also work with other food relief organizations in the GTA, sharing information and statistics about hunger and the need for charitable food relief. Our member agencies, for instance, report monthly to us the number of people they served the previous month, and a lot of our statistical data are based on their reports. We also do primary research with food recipients, annually interviewing about 1,000 food bank households about their situation, about their history, so we can design our programs better to assist them better, and also for public education purposes and for the information of committees like yours.
We don't receive government funding. We don't want it either. We rely instead on the general public, primarily on the business food industry for donations to the food bank, but on other parts of the business sector for a lot of the things we receive. We operate on a very tight budget. We primarily solicit goods and services.
We're committed to ending hunger. We're committed to ending the need for food banks. It's often been said that we want to put ourselves out of business, and we do, because we think a humane society will find better ways to ensure that people are fed than food banks.
I think the most important thing, and perhaps the reason why we're here, is that we're in a situation right now where the charitable sector is just unable to keep pace with the hardship that's resulted in part from unemployment but in part from the cuts this government has imposed on the very people we serve. We'd like to just spend a bit of time giving you a snapshot of what's happening to us, a picture of the people who use food banks, and I hope some constructive ideas that we have about what might be done about it.
Food banks have had a struggle for many years now. Food bank need grew right through the 1980s, even when jobs were very readily available. Then food bank users were primarily single moms and people with disabilities, and the problem was that the cost of living, particularly the cost of rent, was rising.
Food bank use, of course, went through the roof in the recession. We had an incredibly difficult time keeping pace with the number of people who were using food banks, but as employment improved, the numbers went down. By the summer of 1995, food bank use was very low; not as low as it had been perhaps in 1988 and 1989, but still a very heartening trend. Things changed very dramatically when welfare was cut. At that point, once again our numbers went up to something that looked like the recession numbers we'd been dealing with.
We think we're beginning to see a slight decline right now in numbers. We couldn't be happier about that. It's too early to open the champagne, but there does appear to be a little bit of trending down. Improved employment is the reason for that, but we're far from out of the woods now. We're still really not able to cope with the number of people seeking help.
Let me just give you a snapshot, as I say, of some of the folks we're seeing and what their situation is. Interestingly, the worst hit by what's been happening have been two-parent families with kids -- I think there's often a bit of a stereotype about young singles or about single moms -- but while they are not the most numerous group of people, they certainly are the ones who are suffering the most significant hardship.
For them, when their welfare was cut by 21.6%, their after-rent income was actually cut by more than 50%, so they lost half of the income they had to buy food at that time just because of the structure of welfare. Three quarters of the two-parent families with one child and 84% of the couples with two kids diverted part of their welfare basic allowance -- in other words, their food money -- to pay their rent. Many of them paid rents that were 50% above what welfare was able to pay them for their shelter, and that's the main reason for their need for food banks. Their situation was significantly worse than any other group.
The policy that makes it worse for two-parent families makes sense in times of good employment; it makes no sense in times of poor employment. At one point it would have been an incentive that one parent should have been able to find a job. A lot of the families we're seeing now -- well, all of the families virtually -- simply cannot find work.
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It's interesting, the recent study that the National Council on Welfare came out with also found that, across the board, this is not just food bank users. Couples with two children living at 67% of the poverty line are in a worse situation than single parents who live at 75% of the poverty line. These families that we're seeing now can't move to cheaper accommodation because the ability to move has been cut, and anyhow, for a two-bedroom apartment in Metro the vacancy rate is 0.6% right now.
Their situation changed quite dramatically after the welfare cuts, but single parents are still at higher risk and the majority of them are headed by females. Some 15% of the children of single parents we see at food banks go hungry at least once a week. There are some charts in the brief that outline some of the impact of hunger on a lot of those families.
Single parents have various constraints in entering the job market. We've noticed, for instance, that many of the young, employable males who do not have children to support oftentimes have been able to survive because they're able to pick up odd jobs. They'll get a call, they can go out and deliver flyers tomorrow or something. The single mom doesn't have the child care opportunities to be able to use some of those flexible employment opportunities. In fact, most of the women who use food banks actually are supporting children at the same time. Family breakdown poses a great risk of food bank need. Among the women who use food banks who are separated and divorced, 69% have kids.
Kids are now going hungry across the board in one- or two-parent families more frequently than they did before the cuts. About a third of the kids are going hungry at least some of the time; parents go hungry twice as often in order to spare the kids.
We don't think that the answer to this is things like breakfast clubs. Given the amount of money that was cut out of there -- and we support breakfast clubs, I might add. Daily Bread itself supplies food to them, so we certainly don't oppose them, but the measures that are needed are significantly more than just a bowl of cereal in the morning. We see that the vast majority of kids don't have access to breakfast clubs, don't have access to schools with them. Nine out of 10 are not able to utilize those programs where kids get fed. The pre-schoolers are not affected by it; they can't use those programs. They're just not a way to ensure that kids grow up happy and healthy, and of course they're not there in the summer.
Hundreds of millions of dollars in support for children have been taken away, and it's been take away not just by the welfare cuts but also in reduced access to child care and drug co-payments and things like that. We'd like to suggest to you that this is perhaps not the best kind of fiscal management because we think we're going to see the effects of poor health and nutrition eventually, particularly for those kids who are growing up poorly nourished. The adults, we are finding, are becoming less employable than they were before the cuts. We have to create some better support systems for poor children.
One of the things we would suggest, for instance, in order to do that is something that happens in New Brunswick and Quebec, where there's a shelter subsidy directed towards those families. People who are way above the welfare shelter limits get a maximum of an extra $90 a month so they don't have to use the food money to pay the rent. We think that's a good investment in our kids. We were sort of interested in the fact that the Northwest Territories actually pays all of a welfare family's rent. It's probably not possible, particularly when we look at the situation in Metro, but I think that's a very sound idea.
We think an emergency food benefit would be a very good idea for poor families with kids, so when they run out of food they can get it. Oftentimes just $25 or $50 would be enough to get them through to the welfare cheque without having to go to a food bank. Frankly, the hunger that exists is there in spite of the fact that food banks are available for them, because a food bank can only supply a two- or three-day supply of food. On average, it does it on a once-a-month kind of basis. That's the maximum that people are able to go to most food banks in Metro and most food banks in the province, and it's quite a rigorous process of interviewing and screening when people go into food banks. I think food banks would like to be able to give more and they'd like to be able to give more often, but we simply haven't had the food to make that possible.
The third thing we would propose, with the new federal benefit for children, is to allow poor families in Ontario to keep their welfare at the current rate, so it would be a top-up for them; in other words, not reduce the welfare cheque by the same amount that they were getting in the federal benefit. There are probably other programmatic responses that are being considered right now, but we have kids who simply can't afford to eat and we have families that can't afford to put food on their table. I think that would be an enhanced provincial benefit.
I want to talk a little bit about employment. We've had twice as many part-time workers using the food bank as was true about 18 months ago or two years ago. The number of full-time-employed people who still need food banks has remained about stable. In spite of the low wages, we know that people would much rather work than be on welfare. We think there are lots of ways that could be encouraged without punitive and costly programs like workfare that seem to be predicated on the belief that people don't want to work, and that's not our experience.
Four out of 10 of the unemployed people who are using food banks, for instance, indicated to us that they were laid off from their previous job; 15% left because of illness, injury or disability. Half of the people who use food banks just began to do so in the last 12 months. Three quarters have only lost their job in the last two years. These are not lazy people. The evidence does not point to people who really are just sitting on welfare because they want to. We would agree, I'm sure, with everybody on this committee that the best social program is a job. We think so too. We'd rather see people working and not coming to us.
Interestingly, the average age of the head of a household is in the mid to late thirties, so usually people who are in their most productive working years in a different economy or a different employment situation from the one we're in now. Although a poor education increases their risk, there are still very many of them who are very well educated -- 16% graduates of colleges and universities -- and certainly more than half of them are high school graduates. In some ways they're very impressive. We've noticed over the years that food bank users, we joke and say, "seem to be getting smarter."
There's been a lot of talk about whether welfare is a disincentive to work. We have to say that the sort of retraining programs are only going to work if there are jobs for people to have. You know that; I know that. I'm sure we have complete agreement about that, but there have been some things that have made even the retraining or re-educating more difficult. People who used to receive general welfare and some OSAP have been very hard hit by the changes that allow them only to receive OSAP.
We'd really like to see the province launch a provincial discussion on employment distribution as well. We've got to find some ways to explore finding and creating more jobs for people. We think it's worth a discussion of a four-day week. That could happen through the Employment Standards Act. We at least urge opening the discussion up. We don't know all the answers to that. We think it's an intriguing concept.
Disabled people are particularly threatened, I think, right now. There's talk of a redefinition of disability that would put a lot of permanently unemployable basically on to general welfare rolls. These are people we know very well. Interestingly, they very often work, and work very well, in the food bank, so indeed they can work. We wouldn't deny it. The trouble is they can't work all the time. They very often have mental health problems, sometimes cyclical physical problems. We would like to sit down with the province and discuss some employment opportunities for that segment of the population so they could retain an income level of at least what they have now, and in the long run I suspect we would save some bucks and get them off provincial welfare or even perhaps municipal welfare systems.
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We think we could talk about an employment kind of package that looks at OSAP, that looks at new discussions about the hours of work and some pilot programs for flexible employment for disabled people.
Finally, I'd just like to mention welfare benefits. The cut, as I said, has been a main cause of increase in food bank use. Another discussion about allowing municipalities to set their own welfare rates: In a sense we would agree with that; in another sense we would disagree very strongly. What we'd actually like to see is for the provincial government to begin to set some standards of what it actually costs to live in a given community. I think that could be done in consultation with everybody, from the Fraser Institute to us to Stats Canada to the social planning councils. Bring them together, determine what is a standard package that would be reasonable in any community, and by that standard municipalities could perhaps play around with welfare benefits. In some circumstances they'd be higher in some places, like in Metro Toronto where it costs more to live because of rent, and lower in some other communities.
I've still got a little bit of time.
Mr Pouliot: Yes, you do, for questions.
Ms Cox: Yes, for some questions. We're very frightened about the downloading on to Metro because we saw what happened in the last recession: a lot of their welfare benefits -- not the actual rates but the welfare benefits -- when they were cut, what people got, like ability to move, first and last month's rent, bedding, dental costs. People had to pay for them. They went to food banks. They used the food money to buy those things. It was a major reason why food bank use was so serious during the course of the recession. If municipalities don't have the ability to borrow and if municipalities don't have the flexibility of the province, we're very frightened of what could happen with downloading and feel quite strongly about that.
We would also like this committee to consider some job creation things. Frankly, the feds have dropped the ball on that one. I don't know why the province couldn't do it, why they couldn't do a better job, why they couldn't do something. We must have the resources to take a look at strong job creation programs. I don't mean just tax cuts. I think the tax cut is a bad idea when so many people are going hungry, and I'm not convinced it's going to create employment, but some aggressive ways to talk about doing that.
I'll just repeat that we can't pick up the slack. We can't take any more. The other charities that feed the hungry and take care of the homeless are all in the same situation. We don't want your money. We want to get out of business. Let me just stop there and ask for questions.
The Chair: Thank you very much. That leaves us about three minutes per caucus.
Ms Cox: We were late. We went on five minutes late.
The Chair: I know. We don't go by that clock. We go by my watch here. It was given to me by my children on my 50th birthday. Don't argue with my clock.
Mr Kwinter: Since that time we went to digital watches.
The Chair: Thank you, Mr Kwinter. We'll start a three-minute round with Mr Pouliot.
Mr Pouliot: Thank you, Chair. It's nice to see that the children are recognizing their father, that they recognize their parents.
We live in an intriguing, sometimes bizarre world. We started this morning with the Canadian Bankers Association. I say this with the highest of respect. Part of their excellent brief -- they're so well prepared and resourceful, you expect no less -- was the taxation rate and policies and they said they were maligned vis-à-vis other industries.
Yet as the day rolls on we have a potpourri of different organizations, different associations, different corporate members. They too lobby. Sometimes it's spoken from the heart; sometimes it's hard to tell. Most times it's quite well documented. There isn't a member, I trust, when we talked about the food bank -- I mean, this is Canada, this is 1997, this is the height of a recovery; things are going well. Mr Martin and Mr Eves tell us money is rolling in. Exports are doing fantastically well. Look at the futures market. We're getting good prices for our commodities.
At the height of this recovery you have as high a number to use the food bank. Of the people who go and use the food bank, over 60% don't have enough, in Canada, in Ontario in 1997, to feed themselves. I know it scares me, really. If nothing else, when all is said and done, something is wrong. It's not only a matter of philosophy; it is that too. Some people will pray for the poor. They won't help them but they'll pray for them, to whom I don't know. Other people will give. Again, when you look at your clientele -- it's so easy and so convenient. They're not powerful. When there's a lineup they fight for nothing because they have nothing. Your clientele changes. I'll be selfish and I'll say, "That could be me." The only thing that's separating some people is either a spouse in some cases or a job.
No one is immune. We could be on a waiting list of sorts, and yet to have that number of people for all of us -- and I say this regardless of stripe. If it were that easy, we'd just press the switch. No one is callous. There isn't anyone who, when they see somebody, for no other reason than seeing themselves, says, "What gives?"
I don't have an answer to your dilemma. We were the government, we were the third party and we went around, each and every one of us, but suffice it to say that your presentation, the courage you see on a daily basis, is impacting and it is certainly food for thought for each and every one of us.
Ms Cox: I'd just like to say that I don't think there's any -- food bank use has risen, I have to say, through the three last governments. It's happened. I don't believe any government has intended to have that happen, I don't believe that for a moment, to create hunger.
I think the reason we do research is to find out what the answers can be. We're very committed to doing whatever we can to enter into whatever dialogues we can to find some solutions to that. We feel that very strongly. But I have to say it's going to cost some money. For this committee I think the important thing is -- you know, we're used to going to the social development committee, right? I think we've got to marry the social policy and fiscal policy in such a way that this kind of thing just doesn't happen. They simply can't be separated and taken apart.
The Chair: Mr Brown?
Mr Jim Brown: Mr Hudak.
Mr Hudak: Mr Chair, I have a quick comment then I'll gladly pass the microphone to Mr Brown.
The Chair: You don't have time.
Mr Hudak: I'll be very quick. Thank you both for coming in today. I appreciate your presentation, especially the history of the food bank. I think it's important when you see the trends in food bank usage, if you look back at the Peterson years and some strong economic growth, that the food bank rate eventually doubled. Then I think late in the Peterson term they increased welfare rates and you still saw a substantial increase after that in food bank usage. So you see the trends. I think we all agree that the best way to make your smaller business a bigger business is to create jobs. I think that's what Mr Brown wanted to speak to, Chair, so I'll just pass it over.
Mr Jim Brown: You do a great job, and I agree with you that the federal Liberal budget didn't do very much for job creation. The bankers were in here this morning and I don't think they do very much for job creation. In fact, they probably destroyed more jobs in the last six years.
I'm curious, from your perspective, other than a four-day workweek, do you have any ideas on how this government can create more jobs?
Ms Cox: I think there are a lot of things that can be considered. For one thing there's a disabled community that could be enabled to work and that wants to work. I think that's one kind of thing. Certain kinds of infrastructure programs are perhaps -- I have to confess it's probably not a popular word, but I'm a bit of a Keynesian in that respect, although I don't think we've ever looked at a recovery that was quite so jobless as this one, but I think that kind of thing --
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Ms Beth Brown: Child care?
Ms Cox: Yes, child care is an example. It not only creates jobs but it enables other people to get them in certain circumstances. I even believe that if people who are on welfare had a greater opportunity to earn more and retain some of their benefits, it would be a much more natural transition for them. But they've got less ability than they used to have to retain their benefits and still work, which is why we have so many more part-time workers in the food banks.
There are a lot of transitional things that don't have to be punitive, that don't take away people's dignity, which I truly believe workfare will do. I think it's costly and misguided. Yes, we could talk about a lot of people and I think it would be a very interesting thing to sit down with some of the people themselves who use food banks and get their ideas because they're good ones.
Mr Kwinter: Thank you very much for profiling the users of the food bank. I can tell you that in conversations I have with people, most people think that users of food banks are street people. They feel these are people who are just out on the streets and they line up like in the old-fashioned soup kitchens to get their food.
When you put out the profile that 16% of them are university graduates, half of them are high school graduates and more than half of them have just come on to the food bank in the last year, that's a rather chilling list of statistics. Do you see that trend continuing? You said you've noticed a bit of a drop just recently, but the kinds of people who are utilizing the food banks, to me anyway, are not what I traditionally thought were the users of food bank facilities.
Ms Cox: Do you want me to talk to that? I haven't let Beth speak at all, have I? I talk too much.
Ms Brown: It's because you're so well-spoken. I guess we've noticed a shift in our demographics. We're surprised to find that the average age is 39. We're disconcerted that there are so many children. Forty-one percent of the people we serve are children, and yet in the greater Toronto area that is only 22% of the population, so they're almost overrepresented two to one.
If we could look at programs for supporting families, maybe that would ease some of the future trending. I think if unemployment stays at 10%, we're not going to see a decrease in that family component, because they're also the ones who seem to be trending consistently through the welfare system. Until there's some kind of family-based support plan, maybe that is what we should be looking at as a province: really tackling the whole question of child poverty from looking at supporting families at risk and families at the low end of the economic scale. That may be a way to get at that "What does the future hold?"
I think ultimately these people are at the most vulnerable level, but they're also the ones who most desperately want to work, have the most work history. We see work history coming out of people's ears. We're asking people on our survey this year, "How much work history do you have?" I've been looking at the preliminary results and most people are averaging about 10 to 20 years of work experience, so these are not neophytes. They've got some experience under their belt and just would like to find some work. What we could do to keep that group from being in a food bank population would be initiatives like job creation, honest-to-goodness job creation. That's the only thing I can think of.
The Chair: Thank you very much. We appreciate your coming in. I appreciated your statement that all three parties look forward to higher employment rates in Ontario, and we also look forward to your success with less business in the future.
Ms Cox: Thank you very much. In the meantime, don't forget the food drive is coming up. Any fire hall; drop the food.
CANADIAN CHEMICAL PRODUCERS' ASSOCIATION
The Chair: We now have the Canadian Chemical Producers' Association. Mr Paton, welcome to the committee.
Mr Richard Paton: Thank you very much.
The Chair: We have 30 minutes together. If you would like to make a presentation, we will fill any other time with questions. If you would identify yourself for Hansard as you begin and perhaps introduce your associates.
Mr Paton: My name is Richard Paton. I'm the president of the Canadian Chemical Producers' Association. On my right here is Norm Huebel, who is the regional director of our association for Ontario. We have Mike Hyde on my left, who is the director of public affairs at Dow Canada, but who's also the chairman of our business and economics committee for the Ontario region. We've brought together a team today which I hope can provide you with some information on our industry and give you some insights on how you could create some jobs in this province which would help the former presenters solve their problems.
Having witnessed some of your previous presentations, I'll try to keep my remarks as brief as possible so that you can ask some questions.
My opening statement is that Ontario is making progress in working to reduce its deficit and create a business environment that can attract investment and create jobs. However, there still are some policy impediments that are limiting growth and the development of the chemical industry, which as you probably will see from our brief is a significant contributor to jobs in this province.
A little bit about our association: We represent 71 members. We represent the chemical producers. Those are the companies that produce the main chemicals that go into a lot of the products you may use in your house or your car or your carpets or many other processes of manufacturing throughout the province.
We represent 90% of the chemical industry in Canada. Our shipments are $15 billion a year; about 55% are exported. I noticed one of the members mentioning earlier that exports are up. We're a big exporter and we've been exporting more and more. We compete globally every day. I'll come back to this global competition issue because it's very important to how one can increase investment and jobs in the province.
We are a key supplier to sectors in Ontario and we provide the building blocks to many of the industries in Ontario. For example, every car you and I drive has at least $3,000 of products that come from the chemical products we produce -- the plastics which make the cars lighter, the fabrics which are on the seats, the rubber that's either on the tires or being used in other parts of the car.
Our industry is also known internationally as being the inventor of what's called responsible care, and responsible care is our environmental management regime where all the CEOs who belong to our association must commit themselves to responsible care. It's a commitment to continuously improve our environmental performance, to be open with the information we have with respect to emissions, to work with communities and the public in terms of managing risks, and to make sure we manage chemicals as responsibly as possible and minimize their impact on the environment and on the population.
You might be interested to know that our manufacturing is concentrated in Ontario: 47% of the manufacturing base of the chemical industry is Ontario-based; Alberta is 30%; Quebec is 18%. However, it is important perhaps also to note that Ontario's position is declining relative to the rest of the country. Alberta has been growing rapidly in this area and Ontario relative to the world chemical industry is not as strong as it was in the past.
In recent years one of the things we have been known for as an association is we undertake full competitive assessments of our industry, where we're positioned vis-à-vis other competing jurisdictions like Texas or Louisiana. We do a kind of scorecard sheet, which probably is one of the more interesting things in your big pile of paper here. Often political leaders, such as yourselves, find this is probably one of the most interesting documents that summarizes the competitiveness factors of our industry.
We do these competitive analyses nationally and then we do them regionally. In the case of Ontario, and I'll return to it in a minute, we've done a complete competitiveness analysis of the industry and where we position ourselves, because if you don't understand who your competitors are, then you're not going to know why the investment is either coming or not coming to your province.
We developed quite sophisticated analytical tools, tax models and studies, and we worked on these studies very cooperatively with various levels of government, and we have, in the case of Ontario, worked quite effectively with Mr Saunderson's ministry on the most recent version of that report.
I'll just talk a little bit about some of these factors that are on this chart. There are a number of key factors that affect our competitiveness. One, as you imagine, is what we call energy feedstocks, the raw material that goes into the products we will use to produce chemical reactions and then produce various other products. We feel Canada is a good place for petrochemical feedstocks. We're competitive on that score. Sarnia, for example, has access to the Cochin pipeline. However, we don't have in Ontario any major advantages on feedstock, such as Alberta at the present time, and it's something that gives us a relatively good position but not a very highly favourable position in terms of competitiveness.
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Energy and electricity: I know that's an issue that's quite important in Ontario these days. A lot of our industry has relied very heavily on electricity. For some of our inorganic chemical producers, their electricity costs are as high as 65%. So electricity is extremely important to the competitiveness of our industry.
Ontario has in the past been a good province to locate in, in terms of electricity rates, but is increasingly becoming not such a good province for electricity rates. Other jurisdictions are coming up with much more innovative regimes for deregulating electricity, creating independent transmission systems, allowing people to cogenerate electricity and sell into grids. This is increasingly a problem for our industry and I know the recommendations of the Macdonald committee, to introduce free access to transmission systems, competition and consumer choice, were made to the government, and those are things our industry feels have to be considered seriously in the future to keep us competitive.
The third major factor for us, plant construction costs: If you can imagine, a petrochemical plant can run you easily into a billion dollar expenditure. If you're building that plant and you've got to put out that kind of cash, you're asking yourself the question, does it cost more to build it in Louisiana, Texas, Ontario, Singapore or some other location? Unfortunately, Canada has some locations which are not very good in terms of labour construction costs, and one of them is Ontario.
Ontario's construction labour costs for new projects are 35% above our competition on the US Gulf coast and 25% above those in Alberta. Why is that? That's largely because of the way our labour regime is structured, the way we bargain as province-wide bargaining.
I'll give you a little bit of insight into that. If you're building a petrochemical plant, you're likely to have at least 15 different unions involved in building that plant, and since all of those unions have bargained provincially, they all have hours of work, times for breaks, ways of working that are quite different from each other. Yet unlike a normal situation, they are all working together in a very interdependent way to build that plant. The pipefitters have to work with the other people and whatever. It can put us in a very difficult position in terms of running a project for construction.
When people make the key investment decisions on where to put a plant, whether it's Ontario, Alberta, Louisiana or Texas, and they look at 35% more in construction costs that they've got to put out right off the top and they've got to amortize those costs over the life of the project, they're very reluctant to invest in this province for new construction. That's affecting Sarnia. That's affecting a key chemical area that has been a leading chemical area in this country.
This is a hurdle over which a lot of investments will simply not be able to jump, so that is one of the main messages I have here today.
Taxationwise, Ontario's overall corporate tax burden for the capital-intensive chemical manufacturing industry is competitive, but just barely. We're not advocating changes to corporate taxes. I heard earlier one of the associations argue for changes in the tax system. We're not arguing for changes at this moment. However, one of the things one has to keep in mind is that other jurisdictions are coming out with extremely innovative tax regimes.
For example, in the property tax area, which represents for a capital equipment area a fixed cost that you're going to have to pay whether you're productive or you're not productive or you're making money or you're not making money, places like Texas right now are inventing whole new kinds of property tax regimes based on sales and other kinds of things which are a lot more flexible. Texas seems like a long way away, but Texas is probably one of our major competitive alternative jurisdictions.
Regulatory burden: Ontario's overall regulatory burden is I think generally better compared to the United States because the United States is a highly litigious society. I know Ontario has been making a number of efforts to look at red tape and regulatory burden.
Ontario's Ministry of Environment has looked at some initiatives like recognizing voluntary initiatives, or something that's called Performance Plus which recognizes the kind of efforts we make as an association to voluntarily manage our environmental regime very well. We believe these kinds of regulatory initiatives create a positive environment that is a competitive advantage for us vis-à-vis the United States, because as many of you know, even if the United States wanted to deregulate, given the highly litigious nature of their system and the way their Congress is set up, it's very hard for them to do so. So we have a lot of advantages in our government system to be able to create the right kind of working relationship between government and business that can create both a good environmental regime and a good business regime.
On the environmental area, Ontario has been making some efforts to create some positive changes to the environmental regime. However, I have to mention that you may have noticed that the federal government and Minister Marchi have tabled the Canadian Environmental Protection Act which is aimed at preventing pollution and moving forward on the environment. However, it is a 220-page act full of all kinds of demands and requirements for industry to deal with, and a number of questionable initiatives vis-à-vis harmonization which will not lead to harmonization. Notwithstanding the efforts Ontario is making to streamline regulations, the federal government is coming along and actually making it even more complicated again, and that's something that will ultimately affect our industries and our competitiveness.
Finally, a couple of good news areas: Transportation is a very large competitive advantage for Ontario. There's something like 180 million people within one day's trucking distance of Sarnia, for example. Our transportation system is relatively good, although that's an area you may want to think about investing in a little bit as the infrastructure program rolls out; and also our trade system I think has done us very well in terms of allowing us to export to the United States, which has been a large and important market.
Just to conclude my comments, we acknowledge that efforts to create a positive business climate have been made and are being made by Ontario and we encourage those efforts. However, Ontario is still not attracting its share of new chemical investments, its share of the world investments and even its share of Canadian investments. One of the reasons for that is that certain competitiveness factors have to be addressed. Our electricity costs are too high, so we must move quickly to start introducing more competition, choice and allowing cogeneration facilities that could sell into the networks. Our transportation infrastructure is good, but should be looked at as an area we could build on in the future.
Our outlook for 1997 is good, but we could have a better outlook that would create even more jobs if we were able to deal with some of these competitiveness factors. The absolute number one constraint to more investment in Ontario in the chemical industry -- by the way, $1 billion of investment produces at least 45,000 jobs considering the construction and spinoff jobs -- is the construction costs which limit the possibility of usually multinational companies deciding to invest in Ontario for their major capital facilities.
Thank you very much and I'll be happy to answer any questions, along with Norm and Mike.
Mr Spina: Gentlemen, good to see you again. I was at the Red Tape Review Commission when you made your presentation, and we appreciate your input here. You excel when you come to make a presentation because you put it in a nutshell and it makes it easy for some of us who have difficulty plowing through pages of copy.
The two areas I was looking at were the disadvantaged areas that you indicate on the chart, which are the domestic economy overall assessment and the infrastructure overall assessment. You indicate there were disadvantages in these two key areas but you're showing some improvement. I guess what I'm trying to get a handle on is, when did these areas begin to really drop in Ontario, how recently, and was it in the last six months, 12 months, eight years, five years, that sort of thing? If you're saying that it's beginning to head in the right direction, are there some specific policies that have been implemented that are helping in that direction and do you have some sort of time frame for turnaround?
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Mr Paton: I'll let Mike answer this because he's chairing that business and economics committee and he's got his hands on all that information.
Mr Mike Hyde: I'll see what I can do. As far as timing is concerned, I think Richard has alluded to the fact that Ontario has not gotten its share of the chemical investment that is happening in North America. Our estimate is that there's a potential for $40 billion to be spent in North America in new petrochemical and chemical infrastructure. It is estimated Ontario will get about 1% of that today. We don't think that's a fair share; we need a lot more than that. Back between the years 1974-82, the chemical investment in the province was $3 billion. The following eight years after that, there was only $1 billion invested in this province, so you can see how it started to tail off at that point.
There are a lot of challenges for Ontario. Ontario has one major strength and the major strength is that it's very close to a huge market, the northeastern United States, and the Quebec and Ontario infrastructure here. It has some disadvantages in that it's the end of the pipeline for feedstock, which is very important for us. Energy is extremely important as far as our industry is concerned, and when you see Ontario Hydro building up tremendous debt, when you see it increasing its cost, that not only builds the perception that Ontario is doing something wrong for business to invest but it also builds the perception that Ontario is not open for business. I believe that happened several years ago, Joe.
What is happening now is that with the present government and the approach that the government is taking to regulatory reform, making it simpler, getting rid of ted tape, addressing the WCB and the debt, Ontario Hydro looking at things like the Macdonald committee report and free access to transmission -- looking at it; it hasn't happened yet -- the trend is and certainly the perception is that Ontario is again open for business, we want some more investment, and that helps our industry as well. We have some very focused things like Richard talked about, construction costs in the area of Sarnia, and we must address those. We must do something with them.
I think we're on our way. We have to keep going further and further. If I may just -- Mr Chairman, you can cut me off if I keep going here.
The Chair: I'm not in the habit of cutting off witnesses; I'm ruthless with the committee, though.
Mr Hyde: I just want to add one more thought, Joe, to this. We too want investment in Ontario. I'm very focused on Ontario and I fight within my company competitively to get more investment in Ontario, as do my colleagues. But it's not a simple thing. It's an external infrastructure, like the governance system and the burden and some of the challenges that we have with the debt load that we've got right now, but it's very internal as well.
My company, like many others, is a large, global, international company, and when we want to put a new piece of investment in a certain business, Ontario, as a major manufacturing base, competes with other areas all around the world. We put together documents like this one which I brought and I thought you might be interested in. It's a document we use internally that addresses the governance in Canada, Ontario, Alberta; the strengths, the weaknesses. We use that for our businesses so that they can take a look, and then we compete. We compete very heavily to try to get the investment in this particular province. So there's an external factor and there's an internal talent of selling as well.
Mr Phillips: I appreciate the presentation. The competitiveness review is about a year old now. Do you have an updated one that's available?
Mr Hyde: We do not, but we plan to update it as soon as the new budget comes down, Gerry.
Mr Paton: It would be fair to say, unless the budget changes a lot of things, I don't think we would see a lot of shift in these dots here.
Mr Phillips: A couple of questions. You indicate here that the preference for R&D at headquarters outweighs other advantages. Could you explain a little bit on that.
Mr Paton: The R&D costs or the R&D --
Mr Phillips: A disadvantage is proximity to headquarters, head office, I guess.
Mr Norm Huebel: I'll be happy to talk to that one. I think what that's really saying is, if you look at the taxation regime, if you look at that sort thing, it's all right. The nebulous thing you're dealing with is the factor that a chief executive officer likes to look out his window and see his research facility. He likes to walk out the door to his research facility. It's an emotional thing; it doesn't make any sense at all but the reality is it's there. If the head office is in the United States, then he preferentially wants to see that research facility sitting down the street.
Mr Paton: Just to add to that, notwithstanding the huge advantage we have -- the R&D costs in Canada are, I think, the lowest of any OECD country, so we have significant advantages -- but most corporations regard R&D as part of a corporate function. If you have a German corporation, you'll find most of the R&D will be heavily located in Germany. In other words, if we had another 35% advantage on R&D through tax credits, it may not make any difference to location.
Mr Huebel: It's the crown jewel. They want the crown jewels close to home. That's really what it amounts to.
Mr Phillips: You indicate that the labour force is an advantage here.
Mr E.J. Douglas Rollins (Quinte): It's a disadvantage.
Mr Phillips: No, they say it's an advantage. I'm sorry, am I --
Mr Huebel: The labour force is an advantage from the perspective of the training, the education, the productivity. The problem is in the labour cost for construction, which is an entirely different issue.
Mr Phillips: But you indicate here that the labour force is an advantage for your day-to-day operations --
Mr Huebel: That's correct.
Mr Phillips: -- on virtually everything, including a significant cost advantage, attitude and that sort of thing, which is interesting.
Mr Paton: In fact, the operating costs of our plants are lower in Canada because of the productivity of our labour force. The trouble is building them.
Mr Phillips: Some 10% to 40% lower, which I'm glad to see. My question then is on the one-time construction costs. If your workforce, with all its productivity, is operating efficiently, what is driving the 35% to 40% higher cost in construction?
Mr Huebel: The province-wide bargaining and the fact that you are unable to have competition with respect to labour wages is really the problem.
There's one other point I'd like to make and I don't think it's been made. You look at the score card. The score card offers a whole bunch of factors. They are not equally weighted, obviously. The reality is there is are number of factors that stand out and if they are not right, you can have all the other ones right and it won't make a difference.
Mr Phillips: You said the number one issue is construction cost.
Mr Huebel: That's correct.
Mr Phillips: I'm trying to find out why the construction costs are 35% to 40% higher and your labour costs are 10% to 40% lower. That's what I'm trying to get at.
Mr Paton: As Norm is saying, you've got provincially bargained wage rates and conditions of work. Nova went through this experience recently, built an expansion in Sarnia, and Bayer also built an expansion. Bayer tried to get a negotiated arrangement with all the unions on a site basis. I forget what the number is. They got eight of the 10 unions or nine of the 11 -- eight of the 10 unions. The two biggest didn't agree and that was the end of the agreement.
In any other jurisdiction -- in fact, I think another option to that would be if 75% of the unions agreed to a site agreement, then the others would go to arbitration. That would be a more reasonable way to do that. Or if you wanted to go even more extreme, you could said that you could have competition. In some jurisdictions -- not something that I'm sure some parties here would support -- but in other jurisdictions in the United States, that's what they've done, and that's what we've got to deal with.
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Right now we're held hostage. In the case of this Bayer plant, we were held completely hostage to the fact that two unions were unable or unwilling to work on a site deal, even if there are about 4,000 workers in the Sarnia area who are unemployed. We think a plant would take up a considerable amount of that unemployment. But even if that union wanted to, it would also have a problem, because it's part of a provincial structure and may not be able to even have its own flexibility. So you have some unions among those 10 who wanted to do this and they were unable to do it.
The whole thing is a very serious impediment to a fairly rational, even a negotiated kind of solution that would have worked out a better arrangement for how to build that plant, and a least-cost arrangement. Change like that would make a big difference to investment -- a big difference. We estimate in the $1-billion to $2-billion category at least in a period of two or three years.
Mr Huebel: The thing I'd like to just add too: The reason for that is when you calculate a return on investment for a facility, the time value of money makes the upfront money very, very important. If the construction cost, which is front-end money, is greater in Ontario than in other jurisdictions, then your return on investment is dead before you even start. That's the problem. That's why it's so critical that construction cost is righted, because it's upfront money.
Mr Pouliot: I too am puzzled, not so much in terms of operating and construction. I know that multitrade timing is everything. It connects. It's meshed and everything is dependent. Yet I too looked yesteryear at Olympia and York, at the Tridels and the Cadillac Fairviews of this world and they too deal -- not as complex, but in some cases complex nevertheless -- with multitrade. That's the nature of their business. When I price equivalent material and factor in the season, their cost per square foot, I fail to appreciate a discrepancy, a difference of some 35%.
You've mentioned twice Alabama. It would be too easy to say thank God for Missouri and Mississippi, where costs are always cheaper and red tape is nonexistent, but don't rejoice too quickly because to build a chemical plant near one of those national parks is becoming increasingly challenging. The future can last a long, long time if you're near the Grand Canyon.
I find your presentation very much balanced, and came away with a sentiment that when all is said and done, location is very important to and from market. Transportation: You scored it high, relatively. Just-in-time delivery: We're doing well there. Regulations and red tape: In some cases it's better here, you've mentioned. Taxes: You recommend no changes. You can live with the corporate responsibility vis-à-vis taxes. Labour: When you throw everything in, you seem to be satisfied, and you rely on your workforce to produce the good time.
One question I have is -- well, a comment, I should say, vis-à-vis Ontario Hydro. They're not in the mood of loading the grid. Engineers like to build things, especially after the brownouts of some years back. Ontario Hydro tells us they're 10% to 15% overcapacitated, so they're not likely to welcome anybody and put the watt on the grid. If they do so, you won't get too much per kilowatt.
Let's say that factor would remain true throughout. There's been a freeze, after all, for the last three years and one for the next two. You're export-driven. People tell us how much of your production capacity is exported and goes elsewhere. What's one penny, one cent on the Canadian dollar? You see, with this government, gentlemen, the Canadian dollar will appreciate. I wouldn't be surprised if within relatively short order we will achieve par, because people will notice that we have such a driving economy and it will boost our currency. People will want to invest. Is that not the way the global economy runs? If you have parity with the Canadian dollar, how would that do with your industry?
Interjection.
Mr Pouliot: It's been reported too, Mr Rollins.
Mr Paton: So the question is on the Canadian dollar?
Mr Pouliot: Yes.
Mr Paton: We've done a whole range of assessments of exchange rates, from 65 cents to 85 cents. We haven't imagined a parity scenario yet. I don't know, maybe that's in the cards, but let's say it's out there in the future a little bit. That would change by 21%. That means we would have to have a cost advantage of --
Mr Huebel: He said 80 cents.
Mr Paton: Oh, at 80 cents, so 15%. We're benefiting significantly right now by the dollar's cost, so we would have to increase our efficiency or our competitiveness factor by another 15%.
Mr Pouliot: Unlike your production costs, I take it this would be an ongoing cost for whatever the currency market would last, obviously; daily. When I factor things in, if I project, the construction cost is a one-shot deal. Once it's done, it's done, right? But I would have to look at many factors, notwithstanding that if you live on export, you can be negatively impacted by export. That's a factor, is it not? Like you have forestry -- because you're resource-based as well to a large extent -- mining, farming, anyone who exports.
The Chair: I'm afraid I'm going to have to bring this conversation to an end, Mr Pouliot. I appreciate the Canadian Chemical Producers' Association attending today. Mr Paton and gentlemen, we appreciate your input. It's quite fascinating. Thank you very much.
CREDIT UNION CENTRAL OF ONTARIO
The Chair: Our next deputant is the Credit Union Central of Ontario, Mr Guss. Welcome to the standing committee on finance and economic affairs. We look forward to your presentation. We will follow on with some questions, time permitting. Would you start by introducing your associate.
Mr Jonathan Guss: I'm Jonathan Guss. I'm president and CEO of Credit Union Central. This is Lorrie McKee, our director of public affairs. We're very pleased to be here this afternoon and appreciate the opportunity to be here representing our 371 member credit unions.
I want to provide a quick overview of the system. A few of you have quite a bit of experience with it. Mr Kwinter, I know, and Mr Pouliot, at least, and others as well I'm sure are familiar with it through past associations.
Central is both a central banker for the system and an association for the system. We have two roles. We have 93% of Ontario's credit unions as our members and our members employ about 4,000 people. If you're wondering what that's in the order of, it's the same as Labatt. They have about 4,000 people as well. So we've got a lot of employees.
We have $8.6 billion in assets. The system as a whole, including credit unions and caisses populaires, is $13.5 billion in Ontario, money raised in Ontario and invested in Ontario, and we're very proud of that. There are over 1.7 million Ontarians who are members and use our services.
We have a proud record in Ontario. No member of an Ontario credit union has ever lost a cent, and although we had a troubled time in the 1980s, the government never had to step in to bail us out. They did provide a guarantee, no different than the guarantee provided by the federal government through the CDIC to the banks and trusts, but you never had to step in and give a penny of support to the system.
We've survived many tests of our strength and many tests of wealth and we've emerged through a very troubled 1980s as the only real alternative to the banks. It's a bold claim. We only have 6% of the market, but when you look at what's happening in the rest of the financial services industry, we really have survived and are flourishing.
The banks are much bigger and they have the lion's share of the brokerage business, the insurance business and the trust companies. The trust companies, those that are still standing, really seem to be trying to look like banks. The insurance companies have not stood still but their real pressure has been into the wealth management and financial planning area for their clients. The foreign banks, another battleground for financial institutions here, are not really competition to us. They will try to cream the midsize commercial market, so they're really competing with the banks.
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Having said all that, we are not immune to the many pressures in the market. One of the forward pressures, one of the good pressures, is the pressure to provide a broad array of services. I should point out, first of all, that we do own major shares in two insurance companies, Cumis and the Co-operators. You're very familiar with the Co-operators, I'm sure; it's the second-largest casualty company in the country. We also have a trust company, we have a brokerage firm now and we have a mutual fund company. We are there in terms of readying ourselves to provide all those products. Also, the pressure for personal service, both in-branch and through computers, is on us. But what we're doing is what we've always done well, and that's putting our members' interests first. We are member-owned and member-controlled, so we're going to maintain that interest up front.
We have a proud history also of innovative products. Most people don't know that we were the first with daily interest accounts, the first interactive ATMs, the first with weekly-payment mortgages, all that kind of stuff, so I'm always happy to talk about those things.
For the future, we've got the rights to the VanCity home banking system, VanCity credit union, the largest in the country. We've made that available through our credit unions in Ontario. We're part of the Mondex cash card project. I'm sure you saw some media about it last week. The Guelph pilot was launched by CIBC, Royal and us. We're happy to be in on that project at the ground floor.
Personal lending of course remains our bread and butter. It's the heart of what we do, providing people with the money for their houses, their consumer products, all the things that are manufactured in Ontario, and also for savings and pensions for retiring.
We don't do some of the things our competitors do. When you want a small loan now at a bank, they get you to put it on your credit card, and those have high rates. When people come in with high credit card balances, we still do what's best for the member, and that is, give them a small loan at a reasonable consumer rate. We don't charge them the 16%.
That leads right into our role in the communities. We're very attached to the communities, we're based in the communities, we raise our funds there, we reinvest there. When things get hot in another city or another province, of course our credit unions don't take your money and invest it somewhere else; they stay right there and reinvest there. That's where their livelihood is. In a few minutes, I'm going to get back to the efforts of Mr Spina in that regard.
We think we're more community oriented than the banks, and in fact it's been proven for us. The CFIB, the Canadian Federation of Independent Business, does an annual review of their 60,000 members to see how they feel about their financial institutions. For every year I've been in the system, and that's 16 years now, every year they've done that survey we have come out on top, head and shoulders ahead of the banks, when it comes to small business satisfaction with their financial institution.
There are a few issues I want to address, having gotten that background out of the way. The first issue is the state of the economy. Many of you know a credit union manager. These are people who run $100-million and $200-million companies in your ridings, in your districts; some of them run $5-million organizations. They're small beside banks, but a $5-million organization in some of our towns in Ontario is a big organization, and they have a real feel for the economy. Coming into this meeting, we surveyed them and tried to find out how they felt about the economy, where things are warm, where things are cold, where they are flat, where they are developing quickly. I'm proud to say I got a pretty good reading.
The general point I think I should make has to do with consumer uncertainty. I know we like to think that consumer confidence is rising, but our view from these people is that there's still a lot of uncertainty, some of it driven by job uncertainty. Even though the major cuts seem to have been done, people still feel very nervous that they could lose their jobs; they don't understand why, and therefore they're always nervous about it.
So our reading is that there's still, unfortunately, a low level of consumer confidence. That's important because consumer confidence, everybody says, is what's going to drive the next uplift for the economy. People remain risk-averse more so than any time in the past, and it's probably driven by this.
For our part, we've had a rough run. I don't want to say that we aren't profitable. We've remained very profitable but not nearly as profitable as the banks, because we've kept our service fees in check. At the same time, our credit unions are telling us they can't shoulder any more tax burden, they can't shoulder the burden of any kind of capital tax. I think it's important for me to table that with you.
We think that whatever the government can do in its budget to repair consumer confidence is extremely important, and that's where the real emphasis should be placed, fostering economic growth and job creation across all segments of society.
I have a point about credit union competitiveness, and it sits right on our deposit insurer. CDIC insures bank and trust deposits; our deposits are protected by DICO, the Deposit Insurance Corp of Ontario. The main point to make here is that our premiums are higher. The CDIC premiums the banks pay, our competitors pay, are $1.67 per $1,000 of assets. We pay $2.10 per $1,000 of assets. That disadvantage is multiplied by the fact that we pay insurance on all deposits, not just insured deposits. We pay insurance on 100% of our deposits. We pay on the $60,000 that is published as covered. We pay on anything over $60,000. If a municipality uses a credit union and puts in $1 million or $2 million, we have to pay deposit insurance at $2.10 per thousand on the whole deposit. We pay on US deposits, which aren't insured, and we pay on deposits with maturities over five years, which aren't insured. It places an additional burden on us. As I said, the CDIC doesn't charge on any of these, only on the $60,000 insured.
To add insult to injury, we're not permitted to publicize that we pay on 100% and that in practice we have 100% coverage. I should emphasize a point here, and that is that the whole fund is funded by credit unions, just as the CDIC fund is funded by the banks. It's not government money we're talking about.
If we were to pay the same premium rate as the banks and calculate the premium using the same formula as the banks, the deposit insurance costs would be reduced by approximately 33%. One of our largest members states that their insurance costs would be reduced by 33%; that's $500,000. In the case of that particular credit union, that's half their net earnings. So they would double their profit, what they could return to the community and the membership or return to capital and reserves, if it were dealt with differently.
More to the point, we'd be happy to pay for 100% if we could talk about it, if we were permitted to advertise it or publicize it. That's very important to us as an alternative. It's a double-edged inequity, as you've heard, and competing in today's competitive marketplace, where margins are paper thin -- there's really no margin on mortgages; financial institutions now make their money on fees and dividends from the securities firms they own -- we would be in much better shape.
We've got the confidence of the members to put in more than $60,000, but we'd very much like to state our position, which is either to pay premium rates equivalent to those paid by our competitors or be given the right to publicize the 100% coverage. It's a serious issue for us, and we need attention to it now.
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The third issue I want to raise has to do with the locked-in retirement income funds. It's what people do with their money when they've been in a registered pension plan. I'm sure you're all familiar with it somewhere in your own life. You've been in a registered pension plan. As you know, when you retire it goes into a locked-in income fund. We'd like to change the rules of those. I've covered it in our written brief so I'm not going to dwell on it now, but I just need to hammer a couple of facts.
One is, in Alberta and Saskatchewan they've already seen the light. They've changed the rules. If we can offer these, there will be more competition for insurance companies, which have a monopoly on this market because of the way it's structured. It's very important that the rule be loosened up so that people over a certain age have more choice. In giving them more choice, you'll enable them to get more income for their retirement and you'll enable other financial institutions to get into the market of providing that income.
The fourth point has to do with small business and capital. I'm glad to see Mr Spina here. I truly appreciate the announcement that was made by Mr Sampson and Mr Spina earlier in the week. I guess it was last Friday; it's been a quick week. We're very happy with the approach that's been taken. You've heard what I said about credit unions in the community. We raise funds in the community and we keep them there. The approach that's been taken with this initiative is terrific. It's very community-oriented and we're pleased with that. It fits with our philosophy. It fits with the way we operate and with our principles, so it's practical as well as principled and philosophically sound.
We are going to respond in more detail in writing. We appreciate that invitation. We look forward to a meeting with you on that, Mr Chairman, and we look forward to helping people provide jobs in the community. Those are the jobs that last, those small business jobs that have the commitment of local people.
There are two points I'd like to make on it now. One has to do with the creation of talent pools. If you can find a way to build into it, a means of having people around who have a lot of experience who can advise small borrowers, that's what they need. When they're getting a start, it's not enough to come up with a plan. The banks and the credit unions always say: "Well, you need a plan. We need to see your projections. We need to see all that." None of us takes enough time to give them the advice and the mentoring that they need, and if we can build in an incentive for that, it's very important.
Secondly, we need mechanisms so that people who are creating these pools can access the existing labour-sponsored venture capital funds. That's a very important point that's been raised and we've got to find a way to do it. Those pools have lots of money and they're having trouble finding a home for it. The chairman of my board is on the board of one of those and he says it's terrific but they're looking for homes for money. If we can bring some of that over, very helpful.
So we will put in a comprehensive submission. We're looking forward to doing that.
In closing, I'll recap my four key points. One is general lack of consumer confidence. We have to do anything we can to make Ontarians feel secure, build back consumer confidence. Second, the deposit insurance premiums: We need action now. Premium rates must be equivalent to those paid by our competitors. If we continue to pay on 100% of deposits, and we're surprisingly willing to, we want to be able to publicize that. Third point: amendments to Ontario pension legislation to change the rules on the locked-in RIF to make sure there are more options available for our parents and for us in a few years, all too few I'm afraid. Finally, encourage government to go ahead with the plans on community development. I think it's the right approach.
I want to thank you for your attention. I've talked as fast as I can. I know I haven't left much time for questions, but I'd be glad to handle a few.
Mr Kwinter: Thank you very much for your presentation. It's like déjà vu. As you know, I used to regulate the credit unions and was very much involved with them. I just want to clarify a couple of things. Your concern about being able to advertise 100% deposit insurance: Right now, up to $60,000 is 100% insured, but you are forced under the regulations to insure everything?
Mr Guss: That's right.
Mr Kwinter: So you want to be able to advertise that everything above $60,000 is also 100% insured?
Mr Guss: That's right. In the three prairies they actually advertise it. They have the same kind of coverage. They have some wonderful ads, and in the middle they just slip in "and our deposits are 100% insured."
Mr Pouliot: Every dollar?
Mr Guss: Yes. In BC it's $100,000. So we'd like to do one or the other.
Mr Kwinter: The other thing I'd like to talk about is the differential in the insurance rate. I assume there's a new acronym. It used to be OSDIC. I guess they've changed the name to whatever it is. But the main reason for the differential was that there was a different requirement for reserves, and credit unions have a very small threshold of reserves and banks have a very large one, so that really reflected the premium rate. I notice that the reserves have been increased, but how do they compare to the chartered banks?
Mr Guss: I can't remember exactly when you were minister, Mr Kwinter, but the reserves are well over 4.65% on average in our part of the system, and the requirement at this point is 4.6%. I think that's what it just went to as of January 1. Our part of the system alone is at 4.65%. If you take the system as a whole, including non-affiliated credit unions and caisses populaires, I think it's at 4.88%. The bank requirement is 5%.
In the early 1980s the banks only had 2%, but the predecessor to OSFI imposed the 5% rule in those early years and the banks moved up very quickly by going to the public markets. But we didn't have access to the public markets, so we've had to build that capital by retained earnings, by earning money and putting it aside, earning money and putting it aside. It slowed our overall growth tremendously, but we've gotten back to the levels I just told you and we're ahead of the legislation, so we're very pleased about that. We think we've shown a maturity in the last five to 10 years that perhaps wasn't there before that we've made those targets and we're very proud of it.
Mr Pouliot: A renewed pleasure. Thank you kindly. Every presentation you privilege us with a surprise. I want to turn your attention on your presentation, page 8, one of your four recommendations. It deals with the locked-in retirement fund at age 80. In other words, whichever is left in the locked-in is to be converted under present statutes to an annuity.
Mr Guss: That's right.
Mr Pouliot: Being aware that you have both a minimum and a maximum when it comes to LIF, whereas when it comes to an ordinary retirement savings account you have only a minimum and you have the same beneficiary policies, while I appreciate your boldness, your courage, if I was to stray from the premise that after all it's my money, both the employer's and the employee's contribution, it's done by contractual arrangement, it is in most cases defined, it stops being defined once it switches to a locked-in, why should it be locked in in the first place?
The government could get its money faster if I had no maximum. Under RIF I don't have any such a thing, but under LIF I have such a thing. Why burden me in having the life insurance companies hope I could get just past 80 and having the beneficiary hope I don't get to 80? Why not just make sure that I get the transfer, tax-free, tax-sheltered, into an RRSP which is self-directed or not and take it from there? That's what I do with my contribution to an RRSP. Why should the employer's portion dictate the philosophy when it comes to their and my RRSP by way of partnership?
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I also have one small comment because we dealt -- I said it was a renewed pleasure of course -- on the portion that Mr Kwinter dwelt on, on the rates themselves. I've taken from your answer to Mr Kwinter that you're not opposed at all to the $60,000 minimum protection?
Mr Guss: No, it's a complicated factor because in effect the way our deposit protection agency works, people get 100% protection. They step in to stabilize the situation. They seldom if ever close it up and pay off the deposit, so the effect is 100% coverage. In effect, we favour 100% coverage. We're paying for it. Why not publicize it?
Mr Pouliot: I'm a miner by trade so these complexities don't come easily. I must work hard at these things, therefore I need your help. Would I be right in saying that one day I read that you were wrongly pooled by this? Because I talked to les caisses populaires and they told me, if my memory serves me correctly -- maybe I go too far sometimes, I rely too much on it, but you'll correct me -- if we weren't pooled with the credit union, me too, our rates would be lower too. Were they fair in their comment?
Mr Guss: That may have been true one day, but I remind you that --
Mr Pouliot: So there was a risk factor involved? That's why you're paying the higher premium.
Mr Guss: Yes. But the biggest loss in the system of course was the caisses populaires, so you do have to be careful when you're listening as well as when you're speaking. They've had their problems as well.
Mr Pouliot: But knowing the caisses populaires, they were doing the preaching. I can assure you I was listening.
Mr Guss: But they're doing very well now, I'm glad to say.
The Chair: Thank you very much. We go to the government side. With some trepidation we go to Mr Brown.
Mr Jim Brown: Trepidation? The Canadian Bankers Association were in this morning and being a former small business person, I'm not in love with them and I don't know -- I tried to conceal that this morning. I did a good job.
I'm on the committee with Joe Spina, access to capital, and I believe that small- and medium-sized enterprises are the job generators and I think they have been severely damaged over the last six years by the overly conservative, only six chartered banks. Of course we're trying to open that up and increase the competition for sources of supply to small business, even at any rates of interest because it's just getting the money.
I've had some communities come to me, like the Armenian community. They want to set up a credit union. They have small business people in their community they want to put the money out to, employ people, which is the business we're in. They came to me because they had great trouble forming a credit union. I've been phoning all the bureaucracies and getting my fair share of voice mail, but one of the things that came home to me was that in the last 15 years there has only been one new credit union.
What have we done in terms of regulations and red tape and all of the apparatus to prevent credit unions from blossoming and using money that's got into the community, plowed back in the community to employ people in that community? What can we do to get the credit union moving?
Mr Pouliot: We'll cross the floor at the same time. Is that okay?
Mr Rollins: You would probably turn around at the back.
Mr Guss: I appreciate the question. We've referred to some of the difficulties in the past and I don't want to dwell on them at all, but because of that, the rules had to become very strict. If you look at the banking legislation federally, you need at least $10 million in capital to start a bank. You need at least $5 million to start a trust company. While that's what it says in the act, the regulators insist on much more than that to start either one of those.
A credit union can actually start with about 10 people and a few thousand dollars, so you can start one but you have to be sure it's going to be viable. There are real demands in the marketplace on these organizations that require a lot of capital, so we encourage them to start. We worked with Mariposa, helped get it started. What we tend to do if a community comes to us is find an existing credit union and get them to start a special branch. Now, for the Armenian community -- is that what you mentioned?
Mr Jim Brown: Yes.
Mr Guss: They don't want to join the Ukrainians, of course. So maybe they need their own credit union.
Mr Jim Brown: But you're going to make some more proposals to the access to capital committee. Will you put in that proposal things that we can do to make it easier for credit unions to flourish and to become independent and to help the communities create jobs? Are you going to tell us how to do that?
Mr Guss: We're going to tell you what kinds of incentives, what kinds of programs will work to entice credit unions and other financial institutions to make the pools of money available. We're going to show you, I hope, how we can facilitate the creation of those pools in communities, whether the community is the Armenian community or a physical, locational community.
Mr Jim Brown: Are you going to make it easier?
Mr Guss: But it's never going to be easy to start a credit union. I don't want to mislead you on that. The rules are going to be strict and enforced with great discipline because of the problems we have seen so recently. So I can't promise you that. I'm sorry.
Mr Jim Brown: Well, I guess we'll be talking more and more.
The Chair: We thank you for appearing here and Ms McKee for appearing for the committee. We appreciate your input and your representation to us.
Mr Guss: Thank you for the opportunity.
The Chair: Before we start switching seats, there being no further business to bring before the committee, we stand adjourned until next Wednesday at 10 o'clock.
The committee adjourned at 1806.