CANADIAN FEDERATION OF INDEPENDENT BUSINESS
CONTENTS
Thursday 27 June 1991
Cross-Border Shopping
Canadian Federation of Independent Business
Ontario Downtowns Inc
Adjournment
STANDING COMMITTEE ON GENERAL GOVERNMENT
Chair: Mancini, Remo (Essex South L)
Vice-Chair: Brown, Michael A. (Algoma-Manitoulin L)
Abel, Donald (Wentworth North NDP)
Bisson, Gilles (Cochrane South NDP)
Drainville, Dennis (Victoria-Haliburton NDP)
Duignan, Noel (Halton North NDP)
Harrington, Margaret H. (Niagara Falls NDP)
Mammoliti, George (Yorkview NDP)
Murdoch, Bill (Grey PC)
O'Neill, Yvonne (Ottawa Rideau L)
Scott, Ian G. (St George-St David L)
Turnbull, David (York Mills PC)
Clerk: Deller, Deborah
Staff: Rampersad, David, Research Officer, Legislative Research Service
The committee met at 1018 in room 151.
CROSS-BORDER SHOPPING
The Chair: I call the standing committee to order. As members will recall, 12 hours were allocated to the hearings that are presently ongoing. We have four hours and 57 minutes left and we have a list of presenters here today.
CANADIAN FEDERATION OF INDEPENDENT BUSINESS
The Chair: The first presenter is the Canadian Federation of Independent Business. This organization has been allocated 40 minutes. You can use that as you wish. Hopefully you might want to leave some time for questions from the members and answers from yourselves. For the record, I would ask that our presenters please identify themselves, whom they are representing and what position they hold in their organization. I would like to turn the floor over to you.
Ms Ganong: My name is Linda Ganong and I am the director of provincial affairs for Ontario for the Canadian Federation of Independent Business. On my right is Pierre Cléroux, who is our senior economist.
Our organization, as you probably know since we have been here before, has about 40,000 Ontario members who are the small and medium-sized businesses of the province. About 97% of Ontario firms have fewer than 50 employees and are among our members.
I would like to turn the floor over to Pierre for the bulk of our presentation. We will try to leave lots of time for questions.
Mr Cléroux: Because cross-border shopping is such an important issue for our members, we conducted a telephone survey last May which reached 500 retailers from every part of Ontario. The brief that we are going to present summarizes the results of the phone survey.
Before talking about the impact of cross-border shopping on retailers, it is important to look at the extent of the problem. The first figures show a little bit how important cross-border shopping is for Ontario. People have always crossed the border to shop, but we have seen, in the last three years, a very significant increase.
There are many reasons for this. One of the most important is not only that more and more people are crossing the border, but the largest increase is for people who are paying the duty, what we call on the graph the B-15 form. It is people crossing the border, buying in the US, and coming back and paying the duty on what they bought. That is very significant because more and more, people consider it is worth it to cross over the border and even pay the duty before they come back. I think that shows the seriousness of this issue.
Why are so many Ontario residents crossing the border? We asked the question of our retailers, and the next chart, figure 2, gives the results of this question. Of course, the first reason, as other studies have shown, is that prices are cheaper in the US. Every time we ask retailers or people why so many people are crossing the border, it is the same answer: it is cheaper in the US. If you have the choice to buy a Sony Walkman at the Eaton Centre here for $100 or to buy the same Sony Walkman in Buffalo for $60, apparently it is a very easy choice. People are just going to Buffalo.
The second most important reason is that people will not pay the GST. I think it is more than the GST; people are fed up with taxes. They find they pay too much tax. They feel there are a lot of inefficiencies so they are just fed up. They see crossing the border to shop in the US as a way to oppose paying tax, so it is kind of a tax revolt really. The opposition to taxes and cheaper prices in the US are really the two most important factors why people are crossing the border.
Ontario retailers are really hurting right now. We can see on the next chart, figure 3 on page 5, that total retail sales in Ontario have dropped 12% in the last year. We see that retailers in every sector are hurting, but especially in a few of them like shoe stores, clothing and also furniture. In that sector, sales dropped almost 40% in the last year.
Of course, cross-border shopping is not the only factor; we are in the middle of a recession. But especially when you are in the middle of a recession and your sales are dropping, you do not need more and more people crossing the border to shop in the US. The situation is very serious for a lot of retailers. In figure 4, we can see that the closer you are to the border, the more important the effect of cross-border shopping is on your business.
For the border towns, when we asked the question, "Are you affected by cross-border shopping?" almost 70% of people said, "Yes, we are affected." If you go a little bit further, that half-hour drive from the US border which includes Toronto and Hamilton and those cities, 63% of retailers said, "Yes, we are affected by cross-border shopping." But even if you look at Ontario as a whole, 32% of people are saying, "Yes, even if we are not that close to a border, we are affected."
It is not in this report, but we looked previously at the city of Thunder Bay, which is three hours away from the US border. They were saying cross-border shopping is a huge issue over there. Retailers are losing business and some of them are going bankrupt because of that.
In table 1 on page 6, I give a breakdown of different sectors in retailing. You can see that cross-border shopping affects the different sectors of the retail industry differently. The most affected are general merchandise stores, which are kind of department stores, and 87% of people in this sector said they were affected by cross-border shopping. It is very significant. Furniture stores, eating and drinking establishments and clothing stores are also very affected.
It is interesting to note that in none of those sectors did fewer people say they were affected than not affected by cross-border shopping. Even in food stores or automobile dealers it was 50-50; they were split between the issue.
Finally, as shown in figure 5, we asked retailers, "What is the impact on your business of cross-border shopping?" Some 90% said they were losing business. They are less profitable, sales are dropping and of course they have to lay off people to face this new issue of cross-border shopping. The most shocking result is especially the next two figures -- 12% of retailers in Ontario said they were going to be forced to close their business because of cross-border shopping and 8% said they were going to move to the US to face this problem. For a lot of retailers, this is a survival issue, and especially for people close to the border.
In conclusion, I think it is pretty clear: retailers are in bad shape because of the recession, but especially because of cross-border shopping. Even if you are not very close to the border you are affected by cross-border shopping. We need to act now. I think for a long time governments have been pointing fingers at each other, but now we need action. There are some things we can do right now to ease the problem.
One of them is no more tax. I think everybody agrees with that. Individuals are fed up. They go to the US because they do not want to see any more tax. Enterprises are taxed to death really, and they need a break. We propose to have an exemption for the Ontario payroll tax for small firms with a payroll of less than $300,000. We definitely do not want to see any more taxes like the gasoline or tobacco or liquor taxes which encourage people to cross the border to shop.
We think that even if it is not popular politically, it is necessary for the good of the province to harmonize the provincial sales tax and the GST so the provincial sales tax can be collected at the border, which will add 8% to the cost of goods you buy in the US.
Those are some of the actions the government of Ontario is able to do now. They will not solve all the problems of cross-border shopping, but they will certainly ease a good part of the problem.
Ms Ganong: A final comment I would like to add to what Pierre has said is that there is really a need right now for governments to work together. It is very tempting with an issue like this for the various parties to point fingers at each other and try to allocate the blame. It is fun political gamesmanship and it is understandable, but it is not solving the problem. If ever there was a time for the three parties to work together at all levels of this government, with the state of our country right now not just on cross-border shopping but all the things that are going on constitutionally and getting through the recession, this is the time.
I would like to put out a plea to all of you to rise above the level of partisan politics and do your best to urge your leaders to start co-operating. Let's get these problems solved. We are happy to entertain your questions.
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Mr Brown: I am interested in your submission. It is not unlike a number of ones we have heard. I do not think that is surprising at all. You have brought some information to us that is at least a little different, but basically it confirms what we have been told.
Knowing that this phenomenon has increased greatly in the last three years -- that is almost directly associated with the rise in the Canadian dollar versus the American dollar, and we know that interest rates and dollars and deficits are all clearly linked -- you are suggesting here that we eliminate or cut taxes. To be fair, there is a $10-billion deficit or close to it projected in this province and the government needs revenue. To me, one of the most significant factors of this cross-border shopping is that there has been a 15% appreciation in the value of Canadian dollar versus the American.
I just wonder what your comments might be on that particular phenomenon, the combination of interest rates, deficits and the high Canadian dollar. There seems to be a very clear relationship between those.
Ms Ganong: Those are all factors, definitely. The reason we are focusing on the tax burden is because we also found, in the second study in front of you that we did last fall, that the differential tax burden between retailers on this side of the border and on the other side of the border was so profound that it was impacting on prices. As we have seen from the research, the major reason shoppers cross the border is because they get cheaper prices in the US. Our retailers can only go so low in terms of bringing their prices down, partially because of the tax burden they are bearing right now. We are not talking about the tax burden consumers are paying, but the actual tax burden the retailers themselves are paying as businesses. That is one of the reasons we focused on that. There has not been enough attention looking at that differential tax burden and how discriminatory it really is for our retailers here.
In terms of the deficit, obviously it is a problem. When we asked our members how they thought about it, they were adamant that running deficits is not the way to go. They really feel government should be focusing much more on spending cuts rather than tax increases. What is surprising to many people is that the first place they would like to see spending cuts is in all programs aimed at business: grant subsidies, all those kinds of deals for business. They would like to see those cut first.
Small businesses do not get any benefit from those programs. The red tape involved in wending your way through the system in order to get the grant -- they never get them anyway. They feel their tax dollars are paying for programs that the large businesses are benefiting from. They would rather see those cut. Number one cut: get rid of all that stuff. I have heard our president say you could probably eliminate the Ministry of Industry, Trade and Technology and maybe we would get 10 calls from members complaining, because most of our members do not get the benefit anyway. There are places where the government could look at spending. They do not support major cuts in health or education spending. They see that as a necessary, important investment in our province, but certainly in grants to business there are lots of places where cuts could be made.
Mr Brown: That is interesting. I have heard many of the same comments from business people in my area. One of the problems with that is that it might be a great idea, but the fact is that about 80% of our spending goes to what you just said: health, education, social services, things that business does not want to see cut because they are seen as investments in this province.
Ms Ganong: True enough, but some of that spending does not go directly to those services. A lot of it is tied up in administration, duplication and problems like that. There are places where government, if it really wanted to put an eagle eye to it, could do some cutting.
Mr Brown: I hear you.
Mrs Y. O'Neill: I have a very short question. I am always impressed by your extraordinary research and I am very pleased that you accommodated the committee to come.
Would you comment a bit about the new initiative of the coupons at the gas stations? I think it is Sarnia. Have you examined that at all or have your members responded? It is a new initiative that I think started just this week.
Mr Cléroux: It is not a bad initiative, but we feel we need more than that. The problem is that we are not competitive. We are talking a lot about cross-border shopping, but that is really the tip of the iceberg. Retailers are not competitive; our manufacturers are not competitive. I think those initiatives are not bad ideas, but they are not going to solve the problem. We have a really serious problem of competitiveness now and if we do not address it, we will be in a worse position and we will have a lot of lost jobs in the next 10 years.
We would like to a see a more global approach to cross-border shopping than those little initiatives here and there, because we do not believe it will solve the problem when we are talking about the Canadian dollar. It is one of the factors but, to give you an example, there was a study done by Ernst and Young: If you buy a sheet for a bed in the US for $30, that is the final price, while the retailers here buy it at $40. How can you be competitive when you buy it at a higher price than the final price in the US? That is really the problem. We have to be competitive. We have to lower our tax burden. Labour costs, transportation costs and duties are higher here. All of those are the problem. We are really looking at a global answer and not just at the local initiatives.
Mr Turnbull: I compliment you on an excellent presentation. As a new parliamentarian, I am frustrated at times by the fact that when we get excellent witnesses such as the two of you, who have done an awful lot of research, we get such a few minutes to question you. I am really going to concentrate on two points you made, although I would like to ask about a lot of things.
You talked about harmonization and you also mentioned getting governments to work together. Now GST, as will be recognized by everybody, has become a highly politicized issue. Given the fact that early in this century, when the manufacturer sales tax was brought in, about 80% of our gross national product was attributable to the manufacturing sector and became more and more burdened with taxes, it can be argued that GST has spread that out a little bit.
It seems to me also that if one were to harmonize provincial sales taxes along the lines of the GST, that would give us the opportunity to reduce the amount of sales tax we have in shops and move some of that burden over to the service sector, which would probably help some of the difficulties we are having. Could you comment on that?
Mr Cléroux: Yes. We have been asking for harmonization for the last three or four years, I guess, and for the right reason. There are two reasons, really. First, if you harmonize the GST like they are doing in Quebec and Saskatchewan, you will be able to collect the provincial sales tax at the border. So when people are coming back they will pay 8%, or if they drop the rate, 6% or 7% of the provincial sales tax on the goods they buy from the US. It will make a difference in the price. It would probably discourage people from going. It will also prevent the loss of revenue for the province.
But the other also very important reason is the compliance cost. When you have two retail sales tax systems, you have to administrate two different systems with different exemptions. You have to remit to different governments. The frequency of remittance is different. This is very costly for retailers and the study we have done shows that it is even more costly for small retailers than the large ones because the large ones benefit from the computer systems. Once they implement the change in the computer systems this is it, but for the small person who has to do all the paper burden at night or on the weekend it is twice as much because you now have two systems.
So, for efficiency and also to solve part of the problem of cross-border shopping, we have been --
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Mr Turnbull: I agree with what you have said, but I was actually asking about the idea that if you harmonize, in that you tax the same items as the GST taxes, then you are moving some of the retail burden over to the service sector which is not currently taxed.
Mr Cléroux: Exactly.
Mr Turnbull: Therefore you would have lower sales taxes overall. Would that address it?
Mr Cléroux: Yes, because the retail sales tax has been implemented for the last 50 or 60 years. At that time the service industry was really not very important in our economy, but now, for the last 10 years, the service sector is one of the most important ones. I think we have to modify our taxation structure to address this change. That is exactly what you are saying, that it is unfair that only the retail side and not service sector is taxed.
Mr Turnbull: Yes, to tie in your comment about all governments having to work together, as I said, the GST has become a highly politicized issue and it is no secret that elections have been run and lost to some extent as a result of the GST, no matter whether it is good or bad. I mean, how does one sell it? You are saying to parliamentarians, "You have to work together." I agree, but I suppose the frustration I have is that I want to get my colleagues in the other parties to examine this option with an open mind.
Mr Cléroux: I would not comment too much on what went wrong with the implementation of the GST, but one of the problems was not saying the truth. At the beginning they were saying they were not going to get more revenue than the federal sales tax. We realized that was not true. We have been studying the GST for the last six years and know every angle of it. We looked at other countries and we told the federal government it was going to get a lot more revenue than it was saying and we now see we were right. Also, after that, the government members changed their minds and said, "We'll use it for the deficit."
I agree with you that implementing a tax like the GST is not popular, but when you say the truth from the beginning, I think you make things a lot easier.
Mr Turnbull: Have you done an analysis? If one were to harmonize, and we are speaking about Ontario, what level of provincial GST would one probably arrive at to be revenue-neutral, given the fact that you are spreading from the retail sector over to the service sector? How much could we reduce retail sales tax as a provincial GST?
Mr Cléroux: It is very difficult, but our estimate is 5% to 6%.
Mr Turnbull: It is 5% or 6%.
Mr Cléroux: Instead of 8%, yes.
Ms Ganong: I would just like to add something to Pierre's comment, which is to do with the issue of trust. Right now the consumers are very resistant to the GST; it is a trust level. They do not see governments managing themselves in the economy the way they would like. They do not trust that the billions of dollars that are going to raised by this tax will be used properly. We hear this from our members all the time. They pay a lot of taxes and they keep telling us it would not bother them so much if they felt the money was being properly used.
One of the political problems in harmonizing the GST is spreading the tax to the service sector. Consumers are going to be paying tax where they have never paid tax before and that whole issue of "We don't trust governments to do the right thing with this tax money" is going to come right up again.
Small business people do not run deficits. If they do not make their budgets, they go out of business, so they do not see why governments should not have the same kind of stringency and bring the same kinds of principles of good management to themselves.
Mr Turnbull: I agree with you completely. I am a small businessman myself and my wife has a small retail operation, so everything you have said this morning rings true to me.
Ms Ganong: That is one of the ways. If it is going to be made at all politically palatable, it has to start with governments getting their houses in order.
Ms Harrington: First of all, I would like to thank you both for coming. Are you from Toronto?
Ms Ganong: We both are. We are expatriate Quebeckers.
Ms Harrington: I see. I certainly would like to thank you for the research you have done. We know that getting this kind of information certainly is not cheap and you have to do a lot of work to get it.
Many different things you have said are very important. Switching taxing to the service sector is something -- as you say, the economy has changed so much and it is radically changing month by month, it seems. The trust of people in government is another big issue.
I would like to try to get to some of the things you mentioned, especially working together. I represent the city of Niagara Falls and the merchants there, of course, are very much hurting. My office is right on the main street and I have canvassed the streets over the last few years to see how things are going. I really feel that they are trying to work together, but in some ways they feel it is a losing battle.
We had the Shop Ontario campaign that originated in our area and I tried to get involved in that. I am just wondering about Canada Day this weekend when we go to celebrate as a community, if we can feel that kind of importance of being together. My father started a small business and it was a family business. The whole family worked in the business, so I know what it is like.
Also I should mention to you, at an NDP convention in British Columbia some years ago, when we got off the plane we were met by representatives of small business -- I think it is the small business federation of British Columbia -- with leaflets saying how they were willing and had worked together with an NDP government there and were trying to influence, of course, our convention delegates in that direction. So I really think that is the only way to go.
Have you had any involvement in working with the government or against the government? I know there is supposed to be a demonstration today. Have you been involved in that at all?
Ms Ganong: That demonstration is organized by a group called, I believe, People Against the NDP Budget. They are just a group of citizens who felt like they needed to do something. Some of them may be members of ours, but they are not part of our association, they are not part of any political party. It is a real grass-roots protest.
We have been working with all governments. Our organization is in its 20th year right now and it has been working with governments for the last 20 years at all levels. We are actually beginning to work to some degree now at the municipal level. We started out at the federal level. We were able to expand our capacity to work with all provincial governments. We have worked with NDP governments in British Columbia, Manitoba and Saskatchewan before and now with this government. So, yes, we are definitely out there. That is what we do: we represent the views of our members to the government constantly.
Ms Harrington: I think your bottom line is absolutely correct, that we have to work together because we want jobs in this province, and tax money, of course, to keep things going, to improve things.
Ms Ganong: Part of the difficulty with governments today, because they are so complex and there are so many different ministries, is that oftentimes it is difficult to co-ordinate the policies across all the different ministries so that they are all focusing in the same direction.
Taxation policies, labour relations policies, things that have to do with cross-border shopping are all going to have an impact. What the Treasurer may be trying to do, say, might be cancelled out by something that the Minister of Labour is bringing forward, because it is all part of a package. Keeping that co-ordinated focus just across government is difficult enough in these days and it is really crucial.
Ms Harrington: I would like to tell you that it is something our government is certainly addressing. During the summer we will be making some strategy and plan as to what the future is.
Mr Duignan: Just some quick comments before I ask a couple of questions: You mention the fact of government getting its house in order and small business having a budget to work within and if it does not, it goes out of business. One thing that we have to do as a government is that we have a human element involved.
What do you do with a large number of people who are laid off? What do you do with a large number of people who rely on the government for some assistance to get themselves over some problems, such as in this recession? Governments have a human element to deal with too, as well as trying to get their house in order, and sometimes that can get very difficult.
I just want to follow up on Mr Turnbull's point on harmonization of taxes. In Europe, for example, in the value added tax you have different levels of VAT. You will find there is a different level of VAT on clothes and a different level on services and again a different level if you are buying appliances, for example. Could you see a system like that in this province, where you would have one or two levels, some lower dealing with, say, clothes and services, and a level higher dealing with more high-priced ticket items?
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Ms Ganong: I am going to speak to your point about the human element and let Pierre talk about the VAT system. Obviously, governments have to deal with people's concerns. In fact, small businesses do too. Ms Harrington, as you mentioned, it was a family business and the people who are there working in the business are often family members, friends, neighbours, people who are very close. No one wants to see those people get laid off.
There is one way of dealing with the problem, which is trying to patch up after people have been laid off and try to ease the pain. But the more farsighted, long-range way of looking at it is to try to prevent the job loss in the first place, to bring in the policies that are going to stem the haemorrhage of jobs, that are going to help in job creation. To be sure, no one wants to see people suffer when they lose their jobs, but surely the best thing to do is to make sure the job loss does not happen and to cushion against the job loss happening. Those are the kinds of policies we are talking about.
Sometimes the policies the government brings in to try to ease the pain actually exacerbate the job loss, in which case you are no further ahead; you are actually further behind. So that human element also needs to be considered. Let's try to keep people in their jobs. Nobody wants to lose a job.
Mr Duignan: In some cases, though, such as the impact of this severe recession, some of these things you are talking about are sometimes out of the control of --
Ms Ganong: There are no easy solutions, definitely.
Mr Duignan: That is what I am saying. There are no easy solutions.
Ms Ganong: But often a balance does need to be struck. For instance, with some of the labour relations programs that are coming in with the wage protection fund, the balance may need to be struck by, instead of giving 100% compensation to workers who lose their jobs that way, giving them something less but making sure there is not as big a drain on the Treasury as there may be. Everybody suffers. Business owners, when they go out of business, do not get to draw on the wage protection plan. They do not get unemployment insurance. They have already lost their house, their car, their personal assets. They are right down the tubes. So there are balances that need to be struck and they are not easy decisions to make.
Mr Duignan: Hopefully we can strike the balance in that piece of legislation. We have tried to. Hopefully we will hear from you during the course of the summer on that.
Ms Ganong: Definitely. We have been consulting on that all along and we will continue to do so. I will let Pierre speak to the VAT issue.
Mr Cléroux: The problem we see with having different rates is its complexity. If you have different rates or if you have exemptions, you increase the complexity of the tax, which is very costly, not only for business but also for the government. People have the impression it is a very progressive tax if you have lower rates for clothing and food, for example, because poor people spend a bigger part of their total revenue on clothing than rich people. On the other hand, rich people spend a lot more money on clothing than poor people, so it is not really progressive. A study people have done shows that when you have different rates it is not necessarily progressive.
The way we prefer to see it is tax credits: having the same rate for everybody but helping the poor with tax credits. The retail sales tax they are paying, for example, they will get back through the tax credit. It seems to be a lot easier way for everybody, not only for business, but like I said, also to administer for the government.
The Chair: Unfortunately the time allocated to your organization has expired. We want to thank the Canadian Federation of Independent Business for its presentation today. We will make sure you get a copy of our report when it is completed.
ONTARIO DOWNTOWNS INC
The Chair: The next presenter this morning is Ontario Downtowns Inc. Please come forward. Your organization has been allocated 40 minutes. You can use as much of the 40 minutes as you like for your presentation, and whatever time we have left over will be used for questions and answers. I understand you have a radio commercial you would like us to hear. I would also like to ask you to identify yourselves for the record, whom you represent and the positions you may hold within a particular organization.
Mr Etele: My name is Gabriel Etele and I am the president of Ontario Downtowns, which was formerly known as the Ontario BIA Association, business improvement area. We are really an association of small business districts all across Ontario. We represent mainly small business and business improvement areas. With me is Ian McFarlane, chairman of our government affairs committee, who has prepared this report I will be reading to you.
May I first take the opportunity to thank you and the whole committee here for inviting our association to represent our views regarding the impact of cross-border shopping on our members, particularly with regard to the effect on job losses, decreased sales and tax avoidance.
As you probably know already, Ontario has over 230 business improvement areas. Not all of them are members in our association, but in the past year, of the 230, 163 have been members of our association. The others are generally considered to be very tiny. In most instances they do not even have staff and therefore operate on a fairly basic level, very grass-roots, mother-and-father kinds of operations.
Our membership, incidentally, also represents about 150 municipalities. In our existing membership we hold access to about 24,000 commercial businesses, again small businesses, and of course we contribute about $12 million to improve communities across Ontario.
Business improvement areas were created by the government of Ontario primarily to stop the deterioration of downtown districts, urban centres and so forth. They were put into operation by municipal bylaw and in all cases are governed by volunteers. We also have representation on all of our boards of municipal aldermen, councillors and so forth.
Through wise planning, physical beautification projects and careful promotions, we are involved in all of these particular areas to varying degrees, depending on the size or development stage of the particular BIA, whether it is a new BIA in a particular district or whether it has been around for a number of years.
We have been very successful in a couple of areas: one, in retaining historical aspects of Ontario downtowns, revitalization projects -- a lot of that is physical improvements -- and in competing with the widespread commercial proliferation of the retail malls that were established in the expansion to the suburbs in most of our communities. Malls are not a problem for us other than the fact that we are trying to recreate the uniqueness of the downtowns. We have been evolving.
However, nothing affects our business improvement areas more than what we call market shifts. When our customers decide to visit another area to purchase consumer goods, visit financial institutions or request services which are readily available in their own home town, then this is what we call a market shift.
How else can we describe cross-border shopping than a market shift, a very significant one? What are the effects of cross-border shopping on business improvement areas? I think at this stage of the game it is too soon to measure these effects, although we are getting a number of documents coming forward that are coming up with some interesting figures. The Canadian Federation of Independent Business is one example. The chamber of commerce is involved in a number of studies. Ernst and Young have completed a number of activities as well.
With respect to the Ernst and Young studies, they are in the process of determining the business losses attributable to cross-border shopping. Just yesterday we received information from Kingston, a member of our downtown BIA, that the preliminary report by this company for the Kingston area, which was commissioned in May of this year, shows that approximately $101 million in income has been lost, which equates to approximately 720 lost jobs. We understand that a similar survey by the same consultant done earlier in the year in Sault Ste Marie showed the same ratio. In effect, according to their figures, we are looking at losing 7.2 jobs for every $1 million that is lost out of Ontario. Let's say seven jobs; there is no such thing as a 0.2 person.
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What can be done, or should be done, to discourage cross-border shopping? First of all, how can we, the business improvement area, stop this market shift to the United States? I guess another way of looking at it is, what can we do to make ourselves more competitive, to keep people here in Ontario to purchase our own products and to provide jobs for our own people? We can do a couple of things.
First, we have to inform our customers of the social and economic effects of cross-border shopping. At the present time, BIAs are spending literally thousands of dollars in information advertising, promoting our own products locally. We have two radio commercials which try to point out the effects of cross-border shopping by using a positive "Shop in Canada" theme. With your permission, at this point I would like to play these commercials for you.
[Audio presentation]
Mr Etele: This is part of an information campaign. We ourselves also encourage our members to use this "Shop at Home" theme in their own advertising wherever possible. This is just one of the things we try to do ourselves.
Another major area, basically, that we should be looking at is better service to our customers, in terms of changing the attitude of our merchants, our retailers, our customers and so forth, and as well as to provide motivation for companies and small merchants to stay in business. Training becomes a very key area for us in terms of our future directions.
Ontario Downtowns will continue to work to solve these problems in the coming year, primarily in these two major areas. How can the government help? Can the government help? I think so. We believe the government of Ontario, which already recognizes the problems created by cross-border shopping, can take action fairly immediately in three specific directions.
The first one is a mass media information campaign, similar to the radio spot you heard, involving industry, government and, if possible, retail and commercial organizations, primarily to convince and motivate residents of Ontario of the social effects of cross-border shopping and the losses of social benefits which might occur.
Second, the provincial and the federal governments should be working together to collect taxes at the border which can now be avoided, the same taxes you and I must pay when we buy a product or service in our home-town community.
Third, both governments must work to produce, hopefully, a harmonized or combined tax refund form for Americans who shop in Canada and pay extra taxes. A standard simple tax refund form would include information on custom and excise duties, goods and services tax, provincial sales tax, etc. These forms could be available in all retail stores and at border crossing points. This is something we hear consistently from many of our own individual members.
Ontario Downtowns believes these three simple suggestions might help to reverse the market shifting out of Ontario. It might also indirectly increase patriotism for Canadians, pride in the products that are made in Canada and pride in the social benefits provided by both the provincial and the federal governments across Canada.
We also hope there will be an increase in American purchases in Ontario, for when you combine the tax refund and add the US dollar rate of exchange, the US shopper has very strong buying power here in Canada.
In conclusion, we, the Ontario business improvement areas staff and volunteers, will continue to do our part through our own communication efforts and by supporting the programs which the government of Ontario may wish to introduce, perhaps jointly as partners, to halt this market shift of cross-border shopping and hopefully to build stronger, healthier downtowns throughout Ontario.
I might also add just as a footnote that we are currently in the process of meetings with the Minister of Municipal Affairs and trying to set up partnership arrangements in servicing the government's needs to distribute information, as well as our needs in terms of servicing our own members to be more competitive, to be able to survive and provide jobs. If businesses do not stay in business, then the jobs that are lost basically become the responsibility of government and, one way or the other, we are going to be paying for them. As business in general has been traditionally the driving force of the economy, I think it is incumbent upon all of us to work together to try to keep it very successful and prosperous.
Again, the community we represent is the very small businesses, in large proportion. I would say a good 80% of our members are in small communities around Ontario. I am not looking at the Toronto market, because Toronto really is immense, but if you go outside this particular municipality, in terms of the Miltons and the Streetsvilles and the Kingstons -- and even Hamilton, for example, where I come from -- we are very small communities of 300,000 to 400,000 and less. Most of our members, in fact, are two- to three-people, owner-operated businesses. Those are the people we represent. They are currently going through tremendous stress and strain. Some of them are virtually spending most of their time earning money to pay the taxes, and what is left in terms of a profit margin often forces them into bankruptcy.
Mrs Y. O'Neill: I am very pleased that you were able to come. I have a very soft spot for downtowns as opposed to malls, having basically been born and brought up on Bloor Street in Toronto, which certainly was a downtown shopping area.
I am happy you brought the commercials. I had not heard that. I have seen some print media that are similar in their presentation. I would like you to say, if you could, what the response has been to some of that. Have you had any response? Have you had positive or negative response?
Mr McFarlane: I come from Belleville and I know the Kingston area fairly well. We used these commercials at Christmas last year, and not only our own members were positive about it but also the general public, who said, "Yes, that's a good idea." The comments we got were favourable to this type of advertising. We did not expect much comment from the public, but we were pleased when we got it. Even the newspaper noted that we were doing it.
Mrs Y. O'Neill: Oh, good. Because there has been at least some impression given that people will not like to be directed or told where to spend their dollars. In fact, even that kind of advertising could backfire in that it does seem to be -- what should I say? "Preachy" is the word I am going to use. I am glad that was not your case.
If I may ask a couple of other brief questions, you mentioned service and then you just brushed that very lightly. Could you tell us anything you are doing about initiatives to make your members more aware of service, or are you into any co-operative training efforts with any educational components in the communities?
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Mr Etele: Essentially, this is a relatively new area for us. We have just gone through a devolution process with the ministry where we have taken over privately, as an association, the delivery of a number of services -- a newsletter, surveys of our particular membership in terms of our own organizations, how we operate and so forth. We are now into that phase, and that has been over the last three years.
We have basically made great headway in that area. This is a restructuring of Ontario Downtowns, so we are now at the point of the structuring or the formulation of these kinds of services in terms of training people to be positive in their outlook, to embrace the customers when they come in, because in fact the customer is always right and you have to service them well.
According to a Gallup study, I understand, in the United States service is the key. When you walk into an American retail operation, they are friendly. They practically hug the customer. The prices of course are significant. It is hard to fight those kinds of things. Here in Canada we tend to be a little more conservative and a little more staid. Our whole goal is to work with perhaps the Ministry of Municipal Affairs and people like the Retail Council of Canada.
There are programs to increase services and to motivate people in these areas, but I do not believe they are effectively administered or widely distributed at this point in time, so our whole focus, hopefully, in terms of our objectives for certainly the next short term is to build partnerships with, let's say, the Retail Council of Canada, or with the Canadian Federation of Independent Business perhaps, with the ministry as a component. Together, collectively, we can kick in fewer dollars, because dollars are always very tight, and yet we can have a bigger impact on the general community of small business. It is a new area that certainly we are looking at focusing on. It is by no means that unique in the sense that there are programs out there, excellent ones.
Mrs Y. O'Neill: I am very happy to know that you are working with the Ministry of Municipal Affairs. I think that is very healthy. I am certainly happy with the partnerships you are building beyond that.
Could you say a little bit about your response to what is happening in Sarnia this week, their new initiative, tying the purchasing of gas and vouchers? Have you discussed that at all?
Mr Etele: Not in particular, but again, that is similar to, I understand, the zones proposed by the Ontario Chamber of Commerce. Is that not related?
Mrs Y. O'Neill: No. At the gas stations they are giving coupons from, I think, about 25 retailers within the city -- some of them have a value of up to $15 -- on all kinds of things from services to merchandise. I feel it is certainly a good move. I think people like to feel they are getting a bargain in whatever way the bargain is achieved.
Mr Etele: It has to be a relatively new program.
Mrs Y. O'Neill: It just started this Monday.
Mr Etele: It has not yet filtered down to us as of this date, and certainly not for this meeting, unfortunately, but I can certainly find out. They are very active members of our association. They are always trying to come up with innovative programs, as are some of the other communities. Kingston, again, has the same kind of thing. Windsor and all those border areas are trying to look at -- mind you, they are not the only ones.
As you probably know, one of the main areas we have to battle is parking. Malls supposedly provide the perception of free parking. It is by no means free.
Mrs Y. O'Neill: I know it is a real problem in Kingston.
Mr Etele: That is correct. However, many of our BIAs have all kinds of parking coupons and parking discounts and vouchers, free parking for a day and half a day in certain particular periods. We do that kind of innovation on a fairly regular basis. In this instance, it is with regard to cross-border American shoppers and trying to keep Canadians here.
Mrs Y. O'Neill: I will just close on an upbeat note. A couple of weeks ago, I spent the weekend in Stratford, Ontario, and I have never been served better in every establishment I was in, whether it was the hotel, the restaurants or the stores. I certainly thanked those who were serving me. We are not really all, as may be pictured, disinterested. There are communities that really do know how to serve the public, and I found one.
Mr Etele: I agree.
The Vice Chair: Mr Duignan?
Mr Duignan: First of all, let me thank you for coming here this morning and making this excellent presentation. I have a couple of points.
I guess we have not always done a very good job in promoting ourselves. Hopefully, one of the recommendations coming out of this committee is that we do an aggressive media campaign. I think it is very important not only to keep people here in Canada but to attract people from the United States to Ontario as well.
I want to focus a little bit on the tax refund form that has always been available. We have always done a very poor job in selling the fact that the American visitors or foreign visitors can in fact get some of the tax back, not like in Europe where in some countries the sellers make a very aggressive point of it to the tourists coming in.
I was wandering around downtown Toronto last night and all of a sudden I saw appearing in the stores signs actually indicating that you can get a refund on the GST and PST taxes. It is the first time I have seen that happening and it is starting to happen. I was quite pleased to see that happening here in Toronto and I think we have to get a little more aggressive as a selling point of the stores.
In Europe, again, when you want to get a tax refund, you go to the service desk within that store and they fill out the form and stamp it saying you have purchased it and it is a bona fide purchase. When you leave at the airport, some airports in fact have an instant refund desk available where you actually get your money back in a number of different denominations, and they facilitate you to get the tax back. I was wondering if we should be a little more aggressive in doing that and how we could go about doing it.
Mr McFarlane: One of our directors, Peter Mercer, who is in Ottawa, has been working on the answers and the solutions to this simple form or simple availability of refund for quite some time. I cannot say any more than that our association is looking into exactly that question and hopefully Peter Mercer and his committee will be able to answer that question fairly soon. As soon as they do, we will forward you the information on refunds per se for American tourists.
Mr Duignan: Or indeed any tourists coming into Canada or Ontario. I think it is a really good selling point and I think it will be an excellent selling point to attract American tourists to Ontario.
Mr McFarlane: He was very strong, if I may mention, on the co-operation between the provincial and federal governments on rebates for the provincial sales tax as well, on that form we have mentioned in this submission. We hope the government too may do something in that regard.
Mr Duignan: We have to be a little aggressive on it, not just do a flim-flam and not follow it through, making it easy for people to get the refunds. That is an important point, too, either at point of exit or in fact as a fast refund by mail. We cannot let the tourists hang in for two or three months waiting for a refund, because it is amazing how word spreads that you have to wait a long time to get it. We have to look at how to get that money back into the hands of the tourists in a fairly smart fashion.
Mr Etele: Just to add to that, in Hamilton, for example, one of our hotel owners is very heavily involved as well in trying to look at simplifying the forms. The key elements here are that it has to be simple and it has to be convenient. If you do not have those ingredients, then what will probably end up happening is the tourists will come up on a trip but they will be reluctant to come back the next time. As we all know, the tourism trade in Ontario and Canada has dropped for whatever reasons, perhaps the dollar or service. I do not know if all the figures are in, but that would be the key in developing any kind of system and then selling it to the tourists, because it has to be, as you said, a simple sign like, "Come on in here, fill in this very simple form and you will get your dollars back immediately."
Mr Duignan: I could not agree with you more. One final point, the signs I saw at the store last night say people from other provinces can also apply to get the rebate on the PST, so I think that is the start of a good sign.
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Ms Harrington: I do not know where to start here. I represent Niagara Falls and of course we have a downtown board of management which resembles very closely what you are describing. We have had a physical renewal of the downtown, which looks lovely. I very much believe the downtown is the heart of the whole community and you cannot let it die. It has to be vibrant and that will then have ripple effects on the rest of the community.
First of all, the radio announcements and informing the public of the problem and what they can do about it is good. I am just a little afraid, especially in my home town, that people will say: "You cannot tell us what to do. We have this right and this option to shop wherever we want." I think you have to be a little careful. People have to realize for themselves how it will impact them; their son's baseball team is not going to be sponsored by the local merchant and all of the other ripple effects of a dying business community. I really hope people will see it for themselves, and somehow we have to encourage that vision.
I wanted to question the bargains in the United States. If somehow it can be brought to light that a lot of the things that maybe are seen as bargains or drawing cards to get you over there, once you get there and spend on other things, in the end I do not believe in many cases that people are actually making great savings. I think it is a façade in some cases that these places are cheaper. When you look at the whole picture, I do not think there are as many bargains as are claimed.
Finally, what your organization is involved in, downtown communities, is the whole answer to this. We have to see all of our cities as healthy communities; that is, the different sectors in the community, whether they are the social agencies, industry or tourism and business, all have to work together. Things seem at this point rather discouraging, but I guess I am an eternal optimist. I think things have to turn around soon, and I do not know what you can suggest to us that can help. You have made some suggestions here, but I would like to say it is very important for the communities and the merchants themselves to get together and be part of the community as well.
Mr Etele: I agree with all of your sentiments and you are quite right that what seem to be bargains in the United States may not be so. However, just recently -- and there will be copies and I hope you have them or will have them soon -- I think in yesterday's Hamilton paper, Buffalo Place, for example, has the dollar at par, so there is a tremendously aggressive campaign to lure tourists down to the United States. You are quite right; when they get there, you cannot return things, there are all kinds of other problems, so in the final analysis the time you took may not be to your benefit if, let's say, you save $50. It negates itself. However, they are banking on the fact that when you are there you are going to go into their restaurants, have dinner and a drink or whatever and you are going to buy gas, and in essence it still works. It is a loss-leader kind of approach in terms of their marketing.
However, on the positive side we have companies like Bata here in Canada. I do not know whether any of you have seen the campaign, but I have also got a little article in there talking about the republic of Bata. I think it is fantastic. Here is a company that is aggressively saying, "We are going to take American lines that are made in Japan" -- I think these shoes are all made and manufactured in Taiwan and Japan -- "and market them through brand names and basically try to structure our pricing so that, including all taxes, you are paying the equivalent of the American price." That kind of business approach should be encouraged in whatever form we can, both from a legislative point of view if possible, if there are restrictions, and any other way perhaps. That is relatively new, and in fact I had just stopped into our own Bata store in downtown Hamilton and noticed all of these signs, the cost comparisons and everything else, and it was excellent. We have to encourage that from our independent businesses.
Again, I am now referring to the people we represent who are the independent business owners. We are not now talking about large franchise operations that are, let's say, operated out of Toronto, Montreal, Vancouver or wherever. We are now talking about the mother-and-father operations, independently owned, people who can do these kinds of things very effectively or pattern their activities effectively after a company like Bata. If Bata can do it, then other retailers should be able to look at it, unless of course we are looking at economies of scale. We might perhaps look, as a government, in terms of some tax rebates, for example, for the very small businesses that are paying X dollars in tax but cannot take advantage of the volume discounts that, say, a Loblaws Superstore or Bata can in the marketing of its particular products.
One example I can give you at this point to shore up that point a little stronger is a very small florist, mother-and-father operation. A couple ran it with one son in Hamilton. It started off very successfully, they were making a little bit of a profit margin. I spoke with them about two months ago. He indicated to me that because there were fewer suppliers in the market selling flowers, unless he purchased a certain volume of flowers he would have to pay a premium. For the small operator, I will tell you, it killed him. He could not afford to pay the premium and buy the volume because he could not sell it, so eventually he looked at his bottom line and said: "Listen, there's not enough profit margin for me to stay in business. I'm not making any money." Therefore, he closed his doors before he ran up any debt, so that is a credit to him.
Perhaps for those kinds of businesses, where two, three, or four people are employed, we might look at some tax concessions, because these are the people who are really hurting the most.
The Vice-Chair: Thank you. As they say in the trade, we have technical difficulties and we need about five seconds to correct.
Mr Drainville: Actually I will take no time at all. I just wanted to give my apologies to the presenters. I was in the House speaking and I could not be here for your presentation. There was no lack of respect for you, but I had other duties to perform before I came here. I just wanted you to know.
Mr Duignan: I have time for one brief question. You raised a very interesting point: volume selling and how it excludes the small retailer from getting the discount. Is that a major problem?
Mr Etele: It is becoming a major problem in that you are now seeing a trend in business generally where the large companies -- I think it is still happening -- were buying up smaller successful companies, getting larger and larger, reducing the competitiveness of the independent enterprise. The examples I can think of are, as I mentioned, the shoe store -- the flower business is the best example I can speak to, because that is one I have recently had dealings with. There used to be, I think, 10 suppliers for flowers, from medium to large suppliers, growers of certain types of roses and so forth.
There are two problems here. One is that a number of them have gone bankrupt so there are fewer suppliers. They are selling now to these street vendors. Now there is another issue you have to contend with here as well: These street vendors buy up bulk volumes of flowers, whip them into their cars, set up shop at the corner of Don Valley and whatever and sell them at very reduced costs because there is no overhead. It is disastrous for people in the flower business, the small retailer, let's say in our particular case in an urban centre where he has overhead, he is paying business improvement area levies, business tax, a premium for his product and there is virtually no profit margin left.
Even the floral vendors on the street are making a bit of a profit margin. Probably just enough to survive, but they are not raking it in, as it were. These are issues I think should be looked at, because those are unlicensed, for the most part, in terms of street vending. What does that do to the relationship of those businesses operating correctly? This is again the human race's sort of trend to try to survive: You now have people renting a hotel room and bringing in a whole bridal show. It basically does not help some of the bridal salons that are operating 365 days out of the year. So you are getting that kind of activity on the increase at this point because it circumvents some of the tax implications of paying your business tax, having a permanent location and paying BIA levies.
We represent an organization that virtually taxes itself. We can have either a zero budget, where nobody pays any extra -- they decide themselves by a proper board -- or they can have a budget and then they can spend that dollar themselves. There are some very interesting trends here and it is not a simple issue. It has to be looked at very carefully.
Mr Duignan: So in fact, if the small independent retailer cannot get access to a fairly competitive price from the wholesalers, no matter what we did the problem would still exist.
Mr Etele: Yes, that is true. But it is a trend in the society in a sense to homogenize things, to sell in bulk. It is cheaper. Again, we are driven not only by price but service as well. Both are equally important components. For somebody who has just been laid off, for example, it does not matter whether it is made in Canada and it is $50 more expensive. If it is cheaper for him to buy it somewhere else in Bargain Harold's or in the United States, that is where he or she is going to go.
Mr Duignan: I have noticed that the large supermarket chains are going to these club packs, starting to buy in volume -- the Price Club. You do not go in there to buy just one item, they are wrapped in fours or sixes or big volumes.
The Vice-Chair: Thank you, gentlemen. We appreciate your presentation, and you can be sure you will see a copy of our report when it is complete. Thank you very much for coming today.
For the information of the members of the committee, the next thing we intend to do is to discuss our report. Do members have a copy of the draft report with them this morning? If you do not, we will see you get them. The clerk will distribute additional copies to those members. With the wishes of the committee, do we want to have this discussion in camera, or how should it proceed?
Mrs Y. O'Neill: The writing of the report usually is in camera. It just gives us a little bit more leeway.
The Vice-Chair: That is the usual fashion. I just wanted to get consent. I guess we have consent.
Agreed to.
The Vice-Chair: The committee will now go into camera until 12 noon.
The committee continued in camera at 1133.