CONTENTS
Wednesday 17 September 1997
Case of Mr H
Ms Roberta Jamieson, Ombudsman
Ministry of Finance
Mr Graham Stoodley, director, legal services branch
Mr Roy Lawrie, assistant deputy minister, tax division
STANDING COMMITTEE ON THE OMBUDSMAN
Chair / Président
Mr John O'Toole (Durham East / -Est PC)
Vice-Chair / Vice-Président
Mr Trevor Pettit (Hamilton Mountain PC)
Mr Dave Boushy (Sarnia PC)
Mr Bruce Crozier (Essex South / -Sud L)
Mr Pat Hoy (Essex-Kent L)
Mr Ron Johnson (Brantford PC)
Mr Jean-Marc Lalonde (Prescott and Russell / Prescott et Russell L)
Mr Gary L. Leadston (Kitchener-Wilmot PC)
Mr Rosario Marchese (Fort York ND)
Mr Allan K. McLean (Simcoe East / -Est PC)
Mr Bill Murdoch (Grey-Owen Sound PC)
Mr John O'Toole (Durham East / -Est PC)
Mr Jerry J. Ouellette (Oshawa PC)
Mr John L. Parker (York East / -Est PC)
Mr Trevor Pettit (Hamilton Mountain PC)
Mr Len Wood (Cochrane North / -Nord ND)
Substitutions / Membres remplaçants
Mr John C. Cleary (Cornwall L)
Mr David Tilson (Dufferin-Peel PC)
Mr Wayne Wettlaufer (Kitchener PC)
Clerk / Greffière
Ms Tonia Grannum
Staff / Personnel
Mr Philip Kaye, research officer, Legislative Research Service
The committee met at 1007 in committee room 2.
CASE OF MR H
Consideration of the Ombudsman's case report in the matter of Mr H and the Ministry of Finance.
The Chair (Mr John O'Toole): This morning the intention is to review the matter of Mr H and the Ministry of Finance. In the information provided for them, members were given the case material. If there are any people who don't have a copy of that with them or forgot their notes, there are extra copies, I believe.
I might point out for the members of the committee that we have a new clerk. I guess it's a permanent change. Tonia Grannum is with us. In the future if you have any questions on matters, direct them to her.
This morning we're pleased to be joined by the Ombudsman. Unless there are opening questions or comments by any of the members of the committee, we ask the Ombudsman to open with her comments.
Ms Roberta Jamieson: Good morning. Bonjour. Sago. Nice to see you all this morning. I believe we've given the remarks to the clerk, or we certainly will do that if we have not, so that members can have a copy of the presentation.
First, it's a pleasure for me to be here to meet with the committee at any time, but this morning we're here to consider a case report in the matter of Mr H and the Ministry of Finance. We are here this morning to consider my final report in the matter of Mr H and the Ministry of Finance. It is a case report that I have tabled with the Legislature, through the Speaker. Of course the usual practice has been to make the names of the individuals involved anonymous to maintain their confidentiality, and we have done so.
As you may know, when a report like this is tabled with the Legislature and brought to the committee, it is the last step that's open to me in the procedures set out in the Ombudsman Act. I then will have investigated this matter and raised and discussed it with the head of the government organization concerned. I will have advised the minister responsible. I will have notified the Premier of my conclusion and recommendation.
Then, as Ombudsman, since I don't have the power to compel any agency to implement my recommendations, it's now in the hands of the Legislature to do as it sees fit. So through this committee, having exhausted my role, I am now seeking this committee's support of my recommendation so that the Legislature can take broader action to ensure this matter is put right.
It also gives the public an opportunity through the committee hearing to lend its scrutiny to the issues of unfairness, which I will raise.
Today I think the case really reflects the reality that equal treatment isn't always equitable treatment. This one is a pretty classic case, where ignoring the diversity of circumstances in our population and treating everyone as if they were the same, regardless of difference, really produces an outcome of unfairness and inequity. Such is the case of Mr H.
Mr H is a member of a first nation and lives on an Indian reserve in the province of Ontario. He decided to start a business wholesaling unmarked cigarettes to first nations merchants on reserves. When Mr H applied to the ministry for the necessary permits, he was advised that he would have to post a security bond of $500,000 as a condition. Although it's the ministry's standard practice to require such a bond, this requirement had an impact on Mr H that is not experienced by non-first nation applicants.
Mr H does not have sufficient assets located off reserve to serve as collateral for a bond. Because of section 89 of the Indian Act, his property located on reserve is not subject to mortgage, charge, seizure or execution by any person other than an Indian or band, as defined in the Indian Act. As a result, the banks and insurance companies he approached, trying to meet the ministry's requirement, were not willing to provide the necessary security.
Mr H's inability to obtain a bond is not extraordinary. It has been recognized for some time that section 89 of the Indian Act presents a barrier to first nations engaged in commercial activity. The problem, for those of you who have reviewed the royal commission report on aboriginal peoples, was most recently raised in that document.
The ministry is aware of Mr H's predicament; however, it argues that the bond requirement is necessary to safeguard the province's revenues, preserve the integrity of the marketplace, deter unlawful activity and treat all applicants in a similar and consistent manner.
In the scheme of tobacco taxation, wholesalers are designated or considered by the ministry as collectors who are responsible for collecting and remitting the appropriate tobacco taxes. The ministry has indicated that if Mr H were to become a wholesaler, he would potentially hold tax revenues in trust for the ministry and that the ministry would be at risk of losing revenue if it didn't obtain a bond. The ministry, in supporting this argument, has referred to a case where in fact significant revenues were lost as a result of the ministry's failure to obtain a bond.
I appreciate the ministry's rationale for the bond requirement in situations where wholesalers handle substantial funds in trust for the ministry, but it is also clear that Mr H is a very unique situation and what he is proposing is unique as a result.
Mr H only intends to sell unmarked cigarettes to first nations retailers within the limits established by the quota system. In these circumstances, no tax would normally be collectable. The ministry has also said there are no other businesses operated in this way.
The ministry has also acknowledged that Mr H's proposal would generally not involve collecting tax revenue. However, it has suggested that there is a potential for tax liability to arise as a result of theft, fire or inventory accounting problems.
In my view, the circumstances of H's case don't involve the kind of significant risk that underlies the ministry's general bond requirements. In addition, it would be possible for the ministry to place conditions on the permits it issues to Mr H to reduce the risk of potential loss for those contingencies like theft and fire and inventory accounting.
The ministry has also pointed to the deterrence of unlawful activity as a reason for the bond requirement. Although the ministry has stated repeatedly that it has no reason to question the personal integrity of Mr H, it notes that unlawful sales could occur, for example, through a sale above quantities specified by the allocation system set out by the ministry, or to unauthorized first nations retailers. It seems to me that any potential unlawful activity is a normal enforcement issue and something to be dealt with by the ministry and other law enforcement authorities as an enforcement issue. Again, it is open to the ministry to include safeguard provisions which are not monetary in any permit it issues to Mr H.
The ministry has also indicated that it requires Mr H to post a bond to preserve the integrity of the marketplace and to treat all applicants equally. I understand the ministry's desire to treat applicants equally; however, an equal approach is not always an equitable approach. When the ministry states that it is applying the Tobacco Tax Act equally, the fact remains that first nations people who live on reserves, and who are therefore not able to have their on-reserve assets held as collateral for the purposes of obtaining a loan or a security bond, are in a very different situation than non-first nations people whose assets can be attached without restriction.
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I have, as a result, concluded in my investigation that treating people who live on reserves and who are bound by the Indian Act in the same way as those who do not live on reserves is inequitable and, in this case, improperly discriminatory. Furthermore, I believe the policy of the Ministry of Finance with respect to this issue in fact constitutes systemic discrimination. For while the ministry's decision to treat all applicants in the same way may appear neutral on its face, this practice has an adverse impact on a group of people who share something in common not shared by the general population; that is, they're all first nations people.
When I look at this issue, it's clear that the intent of the policy the ministry has adopted is of no consequence. It is the discriminatory effect of the policy that is at issue. So I'm not saying the ministry intends to discriminate. I am saying that the effect of its policy is to constitute systemic discrimination.
It's important to note that the Tobacco Tax Act does not require that all applicants for permits under the act post a bond. The act provides that the minister "may" -- it does not say "shall," it says "may" -- demand security from applicants for unmarked cigarette dealers' permits. The minister also has the specific discretion to increase or decrease the amount of security required. Both these areas which provide freedom for the minister are located in section 12 of the Tobacco Tax Act. The legislation, then, provides the minister with the flexibility to decide whether to require security or to establish an amount of security lower than that generally required.
I should say that in the case of collectors who were already operating in the business when the security provisions came into effect, the bond provisions, and who had satisfactory records of compliance, no security has been required. In fact what they did was kind of grandfather, which is a term that's sexist we still use in the law. They grandfathered the permits that were already out there. They said for those already operating, you don't need to post this bond, so they already have exercised a discretion. That confirms the ministry's scope for applying its requirements differently according to the individual circumstances of applicants, while at the same time maintaining their administration of the act on the basis of the principles in the act.
In the case of Mr H, this might mean, for example, setting the amount of the bond so that it reflects the amount of tax to be ordinarily collected, and I have said, as I've said earlier, that is zero.
As to the ministry's other argument, that they need to continue this practice to preserve the integrity of the marketplace, in my view the integrity of the marketplace is not protected by a practice which results in systemic discrimination against a group of people who, because of the application of federal legislation, cannot ever obtain and post security bonds.
Mr H's case is not about allowing him to gain an advantage over others. It is about levelling the playing field so that he can enter the marketplace on an equal footing with those who are not subject to the Indian Act. While the Indian Act was intended to provide protection for first nations in certain circumstances, the result of its application in this case is to create a barrier to commercial activity. The only marketplace that is being protected here is one which is absent first nations wholesalers who live and locate their assets on reserves, and by not taking action to counteract this effect, the ministry is perpetuating systemic discrimination.
The ministry has also raised a number of legal issues relating to this case, which I have addressed in great detail in my case report, which I believe you all have a copy of. Quite simply, none of the cases cited stand for any principles which would prevent the ministry from implementing my recommendation. Fundamentally then, I'm not persuaded that the ministry is not in a position to put this matter right by implementing the recommendation or that the recommendation should be changed.
There is a problem in this case in the intersection between federal and provincial legislation. On the one hand, the Tobacco Tax Act allows the ministry to require a bond from Mr H, while at the same time, as a result of the Indian Act, Mr H is prevented from obtaining a bond. I don't agree, however, with the ministry's suggestion that this is a matter that should be left for resolution at the federal level. The ministry cannot abdicate its responsibility to administer the Tobacco Tax Act in this province fairly and equitably by simply deferring to the federal government to take the lead.
Although changing federal legislation might resolve the issue, it is not necessary. In this case, the discretion already exists to devise a fair and equitable solution to Mr H's situation, without the need to change the Indian Act. We don't have to resolve all of the issues relating to the first nations in Canada in order to properly redress Mr H's permit application. I believe his case is particularly compelling. He intends to sell cigarettes only in circumstances where tax would not normally be collectible, and the ministry is clearly empowered to draft conditional terms for permits to meet its concerns.
In the interest of removing barriers to the operation of a fair marketplace and eliminating the discriminatory effect of its policy, the Ministry of Finance should make an accommodation for Mr H. Accordingly, I am seeking this committee's support for my recommendation that the Ministry of Finance reconsider Mr H's application for a wholesale dealer's permit and an unmarked cigarette dealer's permit.
I'm very pleased to answer questions if the committee members have them.
The Chair: Very good. I'll open it to members of the committee if anyone has any questions on Ms Jamieson's presentation.
Mr Rosario Marchese (Fort York): Can I ask something, Mr Chair? We're asking questions of the Ombudsman at the moment, and she's not coming back for other questions. Is that the way it's going to work? Then we listen to the ministry's arguments and we ask them questions?
The Chair: Yes, if you have clarifications, perhaps after, we could through the clerk -- we could attempt to resolve them in this meeting. Does anyone have any specific questions?
Ms Jamieson: Can I just clarify?
The Chair: Yes.
Ms Jamieson: Normally the way we've done this in the past is, I present, you ask questions, the ministry presents, questions are asked, and then there's an opportunity for me to return and make any further comments or respond to further questions.
The Chair: Sort of a summation from both parts, if necessary?
Interjections.
The Chair: That sounds good. It's more clarity. Great.
Mr Jean-Marc Lalonde (Prescott and Russell): I have one question to start with. Madam Ombudsman, on page 2, "Mr H only intends to sell unmarked cigarettes to first nations retailers within the limits established by the quota system." Who would those retailers be selling the cigarettes to?
Ms Jamieson: I'm not sure which page 2; of the final report that you're referring to?
Mr Lalonde: The one that you just presented to us, September 17.
Ms Jamieson: As opposed to the remarks, okay.
Mr Lalonde: That's the one you were reading.
Mr Marchese: Are you referring to this?
Mr Lalonde: No. The one we just got, the one she was reading, page 2 of the document that was just distributed to us.
Mr Jerry J. Ouellette (Oshawa): Paragraph 3.
Mr Lalonde: Paragraph 3, yes.
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Ms Jamieson: As I understand it, there is a quota system that's established for how many cigarettes can be obtained by first nations retailers, and then they are sold in stores. The quotas, it is understood, do not attract tax and they are sold in stores in the communities.
Mr Lalonde: When you say, "in the communities," do you mean within the reserve of the first nations?
Ms Jamieson: Yes.
Mr Lalonde: At the present time, I don't have any more questions.
The Chair: Any further questions from members of the committee on any part?
Mr Wayne Wettlaufer (Kitchener): The concern I have, and I've just had a chance to look over this today, I go back to my days as an insurance broker. We didn't provide bonds for Indians. I appreciate that. I appreciate the reason for it, that if one of the native Indians were to have a shortfall in the inventory, then of course we could not attach to any of his or her properties. This seems to me to be a concern that should be more addressed at the federal level of government, because it is expressly under the Indian Act, as I understand it, that one cannot attach to the native people's properties. The provincial government has laws regulating the collection of taxes. That's there for everyone.
I think I saw in here you called that systemic discrimination. There's discrimination at all levels of society. There can be very valid reasons for discrimination. Again going back to my days as an insurance broker and as an insurance executive, I can remember when the previous government was considering mandating one price for all. It was found that it wasn't appropriate because that was reverse discrimination, because the automobile insurance rates were set on the basis of experience. So you have some discrimination. No matter how you applied the automobile insurance rules and regulations, somebody was going to be discriminated against.
In this case we have a situation where the provincial Ministry of Finance is regulating tax collection and the method by which tax collection will be assured, ie a security bond, for the protection of all. However, this runs contrary to or afoul of the federal Indian Act. So the problem is the federal Indian Act, not the provincial finance laws.
Ms Jamieson: That certainly is an issue. The member raises an issue that the ministry has raised. Frankly, I don't think it is a federal problem; I think it is a matter of an intersection between two acts, no question, but I don't think the solution need be to throw it to the federal government to figure this out or to change the Indian Act. It is within the power of the minister under the current provisions of the Tobacco Tax Act to correct this unfairness.
The way it currently operates -- and again, I'm not saying there is an intention to keep first nations people out of this business, but that's the effect of the minister's policy at the moment, because if you require a bond from those who will never be able to post a bond, you're effectively denying them entry on to the playing field in the marketplace. That's what's happening here. It is the effect of the policy that does constitute systemic discrimination, because you've got a group of people, first nations, who have their assets located on reserve, who will never be able to qualify unless they leave the community, locate off reserve and create attachable assets there. To me, to make that requirement is systemic discrimination. I think it's within the power, and it certainly would be a matter of equity and fairness, should the minister interpret this act in a way that would allow him to accommodate the situation of Mr H.
And it has been done. No bond is required from every person in the wholesale business at the moment. When the provisions came in, they did not require it of those who were already in the business. I just want you to remember that exceptions have already been made for a good reason, and here is another good reason.
Mr Wettlaufer: Well, there are grandfather clauses provided many times and certainly history is a good reason for granting grandfather clauses, ie the person or the corporation has demonstrated that he or the corporation will provide payment of the taxes. There's a history there, so it's a bona fide reason for allowing an exception.
However, we've got someone new coming on the scene. There is no bona fide reason that I can see for granting an exemption. It may be discrimination, but the problem is not provincial, the problem is federal. If that person could obtain a bond, then there'd be no problem. The reason he can't obtain a bond has to do with the federal Indian Act.
Ms Jamieson: While I appreciate the member's comments, there is a problem with the Indian Act that's been recognized widely, but it is not necessary for the Indian Act to be dealt with for the minister to treat Mr H equitably and fairly in this circumstance. There is ample room for discretion. There is a very good reason for exercising it, and not to do so is to exclude H from the market place, is to treat him unfairly.
The Chair: I believe that's the essence of the question in the committee's deliberations.
Mr Marchese: I just wanted to explore the three arguments with you, with the ministry, and then see if I have them all correct in my mind, and then you can comment on them again. The three points they make is that the ministry is worried about its generation of revenue and that this could affect it somehow. You made the point that there is no collection of revenues in this case because he would be selling within the reserve. So that argument really should not be a concern. I suspect that's not the sole, central argument that the ministry would make in defence of this.
The other one is that it could lead to unlawful activity, and you pointed out that, as with any activity, that is the job of provincial government, to enforce its rules. In this particular case, it could, you were pointing out, exercise its power and deal with measures of security or unlawful activity. It's no different from any other activity.
The third argument is that the ministry says it is committed in terms of tax administration practices and policy to equal treatment and fairness of all taxpayers. I think this is where the argument that you're making is, where we think the ministry should deal with this case differently than all others. The fact of the matter is that the situation is not equal. We would like to try to make it equal, but it is not equal. The fact of the matter is that this man is on the reserves. He's not off reserves.
The question is how you treat the situation in a way that brings about some equality. To simply say the federal government is to blame because that's what the act says, and it's too bad that it provides impediments and possibly sometimes some benefits -- in this case it is an impediment to this individual to be provided with equal opportunities. So the point is, as Judge Abella said, sometimes you have to do unequal things to come to an equal situation. I think this is where your argument says in order to treat this fellow equally, we have to look at this matter differently, and the ministry has the power to deal with that in a way that it brings about an equal outcome. That's basically the argument, right?
Ms Jamieson: That's precisely the argument.
The Chair: That's a very nice summation. Any further questions?
Mr Ouellette: How are the current retailers on the reserves obtaining their supplies?
Ms Jamieson: From those who currently hold permits to wholesale.
Mr Ouellette: So this would be the first situation where this has ever come forward? This has never happened? We don't have any other individuals who are on reserves who currently are wholesalers?
Ms Jamieson: That is correct.
Mr Ouellette: How many suppliers would there be currently, do you know?
Ms Jamieson: I don't have that information. I'm sorry. Clearly, as I understand it, the ministry has acknowledged this is the first such case.
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The Chair: If I'm permitted, I would suggest my understanding from what you've presented to us is that -- and I have one question, when did this requirement for the bond come into effect?
Ms Jamieson: I believe it was 1992.
The Chair: And anyone who was a wholesale distributor of unmarked at that time was exempted.
Ms Jamieson: Of course there were no first nations people at that time either.
The Chair: There have been none exempted under this? There have been no exemptions?
Ms Jamieson: Not that I understand.
The Chair: Have there been any applications?
Ms Jamieson: Well, this one. Other than this one, not that I'm aware of.
The Chair: So no one's paying it, or has the bond?
Ms Jamieson: No first nations people with assets on reserve have obtained a permit to do this sort of thing.
The Chair: Before or after the law. Well, it wasn't a requirement before. Okay, I don't have any questions. Mr Ouellette, any concluding question?
Mr Ouellette: Yes. Is this just in Ontario? Obviously if it deals with the federal act -- have you researched other provinces and what has taken place there?
Ms Jamieson: I have not. I have solely looked at the case of Mr H and the Ontario Ministry of Finance because that is my jurisdiction to look at.
Mr Ouellette: Just being that the Indian Act deals with all provinces and territories, I wondered if there were other cases there. Obviously you don't know. Thank you.
The Chair: I would call on the representatives from the Ministry of Finance.
Mr Graham Stoodley: Good morning. My name is Graham Stoodley. I am the director of the legal services branch for the Ministry of Finance. With me is Roy Lawrie, the assistant deputy minister of taxation. With the committee's permission, Mr Lawrie will outline some of the practical administrative issues that arise in this case. I will speak to you later and, I am grateful to say, briefly on the legal issues as they have been canvassed with the Ombudsman.
The Chair: Thank you. You can remain seated during the deliberations this morning. Mr Lawrie, you're going to make the presentation?
Mr Roy Lawrie: Yes. Good morning, Mr Chair and members of the committee. As Mr Stoodley said, my name is Roy Lawrie and I am assistant deputy minister, tax division, in the Ministry of Finance. In addition to Mr Stoodley, I have with me Mr Pat Doherty, senior manager, operations, in the motor fuels and tobacco tax branch of the ministry. I propose to make a short statement of the ministry's position in this case, following which Mr Stoodley will summarize the legal position of the ministry. We shall then be pleased to answer any questions that committee members may have.
In order to provide some context, I shall briefly describe the way in which Ontario's tobacco tax is administered, as well as outline the allocation system used to control the exemption from tobacco tax which is a right of first nations people. Tobacco tax is collected from consumers by retailers who pay the tax to designated tobacco wholesalers for remittance to the Minister of Finance. Eighty of such designated collectors currently remit tobacco tax on cigarettes to the ministry.
The cigarette manufacturers supply the ministry with a monthly tax memo which details sales of cigarettes to collectors. Such sales from manufacturer to collector are made at a price which does not include the Ontario tobacco tax. The ministry uses the tax numbers from the manufacturers to verify the tax liability of each collector as reported on their monthly tobacco tax return.
The only exemptions from tobacco tax are for first nations people purchasing on reserves and for diplomats resident in Ontario. While taxable cigarette stock is marked -- the familiar yellow tear strip on the pack -- tax-exempt stock sold to first nations people and diplomats is unmarked. It is a clear tear strip.
Sixteen of the 80 tobacco tax collectors also sell unmarked cigarettes to first nations people. This requires possession of a permit to deal in unmarked cigarettes. The 20 geographic locations of these 16 dealers in unmarked cigarettes are shown in the handout we brought with us; on the reverse are a few statistics relating to tobacco tax.
The allocation system for unmarked cigarettes was created to ensure that first nations consumers received the tax exemption and that all others paid tax. The system takes into account the on- and off-reserve adult population of first nations and the smoking patterns of first nations people in Ontario, as reported in the 1991 Aboriginal Peoples Survey by Statistics Canada.
Briefly, allocation limits are set annually for each reserve, based on the previous year's adult population statistics supplied by the federal government. Each authorized retailer on a reserve is assigned a share of this allocation. Those collectors who hold permits to deal in unmarked cigarettes are responsible for ensuring that retailers do not purchase cigarettes in excess of their allocation. Allocations are increased by an additional 10% to allow for special occasions on the reserve, such as powwows, and by a further 20% for band councils which enter into a written agreement to assign the allocation among the band's retailers and to monitor the tobacco sales by retailers on the reserves.
Currently, 33 of Ontario's 117 reserves have controls upon their supplies of unmarked cigarettes; the other 84 have no controls. Through the monthly tobacco tax returns of the 16 dealers in unmarked cigarettes, sales of exempt product to all reserve retailers are monitored for anomalies and quantities clearly disproportionate to reserve population. In much the same manner as tax memos from cigarette manufacturers are used to monitor compliance by collectors, information from the tax returns of dealers in unmarked cigarettes is used to monitor the quantities purchased by first nations retailers in order to identify possible abuse through sale of unmarked product into the taxable market.
Turning to our security requirements, in 1992 the federal government amended the Bankruptcy Act to remove provincial crown priority over secured creditors in bankruptcies. Previously, funds held in trust for the province by commodity tax collectors had priority over the claims of secured creditors. Even with this advantage, there had been multimillion-dollar losses suffered upon the insolvencies of two tobacco tax collectors. In order to minimize future losses, the ministry was given statutory authority to require security from designated collectors and from dealers in unmarked cigarettes. For collectors, minimum security was set at $1 million, and for those permitted to deal in unmarked cigarettes, an amount of at least $500,000.
Since 1992, all new collectors and dealers in unmarked cigarettes have been required to post security of these amounts. The ministry believes that it would be inconsistent and unfair to collectors and dealers who have posted the required security if exceptions were to be made for anyone. Giving Mr H an exemption from the requirement of a minimum $500,000 security would give him an unfair business advantage over those who have posted and have been required to maintain the $500,000.
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There are many ways in which tax revenue can be lost to the province, even by a dealer in unmarked cigarettes selling only to first nations retailers on reserves: Sales can be made in excess of allocation to retailers on a reserve under allocation; sales can be made to unauthorized retailers; sales can be made to retailers on reserves not under allocation, but in quantities so large that intended diversion to the taxable market is unquestionable; poor record-keeping can make it virtually impossible to determine whether or not the eventual consumer is entitled to the exemption; thefts and unaccounted-for sales can conceal diversion of unmarked product to the taxable market.
Without security, the ministry has no recourse against a dealer in unmarked cigarettes who permits abuse of the exemption. With security, the ministry can protect itself from tax losses which can occur as a result of unmarked product being sold to those not entitled to the exemption; it can assess the dealer for the tax associated with any significant quantity of unmarked stock which has not been accounted for and obviously immediately collect because of the security.
The ministry is also concerned that if Mr H were exempted from the requirement to post security, there might well be a resulting proliferation of wholesalers, with serious implications for the costs of administration and the risk of revenue losses. Since Mr H's inquiries, the ministry has received four separate inquiries from other first nations people interested in wholesaling unmarked cigarettes. Full details of the conditions which would apply to the permit, in addition to the security requirement, have been supplied.
There has also been an inquiry from an existing wholesaler interested in now selling unmarked who was similarly informed of these necessities. As an existing wholesaler in 1992, he was not at that time required to put up the $1-million security, but in order to expand his business into unmarked cigarettes, he will have to put up the $500,000 minimum as well.
The requirement to post $500,000 security has not caused adverse comment from any of these five different groups that have expressed interest.
To summarize, the ministry's position is that maintaining the posting of a minimum of $500,000 in security for new dealers in unmarked cigarettes is essential to treat all applicants in a consistently fair manner and to preserve the integrity of the tobacco tax system.
The Chair: Thank you very much, Mr Lawrie. As a first question, do you have a copy of your presentation?
Mr Lawrie: Yes.
The Chair: I would ask the clerk to make sure, if members are interested, that they have questions. I'll open up questions to the committee.
Mr David Tilson (Dufferin-Peel): I'd like to ask a question with respect to section 12 of the Tobacco Tax Act, which has been referred to, and specifically this is the security section. Obviously it's discretionary that the --
Mr Lawrie: It uses the words "the minister may require security."
Mr Tilson: Yes. So it is discretionary. Speaking generally across the province, can you tell me about the exercising of the minister's discretion as to when a bond or security would be decreased or eliminated entirely? Can you tell me -- obviously not giving me specific examples; I think that would be inappropriate -- at least the rationale as to whether that ever happens, whether you say: "In certain cases you won't have to have a security; you won't have to have any security," or "In certain cases it won't be half a million dollars; it'll be something substantially less, depending on the circumstances"? Can you give me some history about what has gone on in the province?
Mr Lawrie: With respect to the minimum security requirements of $1 million for a collector --
Mr Tilson: I'm sorry. You're right: a million, yes.
Mr Lawrie: -- and $500,000 for a dealer in unmarked cigarettes, there has been no occasion on which those minimums have been reduced in any way.
Mr Tilson: Anywhere in the province.
Mr Lawrie: Anywhere. Since 1992.
Mr Tilson: Are there regulations -- I'm sorry. I should let you finish.
Mr Lawrie: There is a caveat to that. There are minimums. For example, a collector is subject to security of $1 million or the tax value of the average of three months' sales, whichever is greater. In one instance where a collector had to put up considerably more, many millions of dollars more in security than the $1 million because they're a large collector, after two years of putting up this security they came to see us and argued that there was too much security required, given the way in which they did business. As a result of negotiations, we reduced their security somewhat. As I recall, it was reduced by about a third, but it is still substantially more than $1 million.
Mr Tilson: That's the only time this discretion has ever been exercised that you know of?
Mr Lawrie: It's been exercised in terms of the three months' sales and do we really need --
Mr Tilson: Yes.
Mr Lawrie: The minimum has never been reduced.
Mr Tilson: Okay. Can you tell me, are there regulations that assist the minister in exercising this discretion?
Mr Lawrie: With respect to the security itself, no. There's a regulation which permits the minister to operate the allocation system in place for regulating unmarked products on reserves.
Mr Tilson: I'm interested in what guidelines the minister follows or doesn't follow with respect to the discretion to reduce or completely eliminate -- I'm not talking about history, I'm just talking about this section.
Mr Lawrie: There are no --
Mr Tilson: There are no guidelines?
Mr Lawrie: There is no set of guidelines; there are no written guidelines, even within the ministry, in policy. The established practice of the ministry is not to go below the basic minimums of $1 million and $500,000 respectively because they're regarded as providing a minimum level of minimization of risk of tax loss. That was the whole purpose of having them there in the first place.
I should also point out that although the existing collectors with a good history of compliance were grandparented, if there's any change, any corporate reorganization in an existing collector, they become treated as a new collector and have to put up security as if they were new: for example, a merger of two or more collectors or a merger of a collector with another corporation outside. The overall intention of the ministry is eventually to have security from all collectors because of the very significant risks involved in commodity taxes where the tax value is such a large part of the end price of the product.
Mr Tilson: Notwithstanding the comments that were made by Ms Jamieson, I'd like to turn to the question of discrimination. Let's say the minister exercises this discretion and decides to reduce or completely waive the security on a particular reserve for whatever reason, perhaps for the reasons that are given by Ms Jamieson, I don't know. Have you got any legal opinions about someone off the reserve, someone who is not a member of the first nations, or it could be anyone, saying, "Listen, you're exercising your discretion on that particular reserve and that's discriminatory towards me"?
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Mr Lawrie: I am not aware of a legal opinion on that, but common sense would tell you that a collector without security off reserves competing with a dealer in unmarked product on a reserve who didn't have to pick up security would feel that they are being hard done by and discriminated against if that were the case.
That's one of the concerns of the minister and perhaps the major one. After all, if you put in a security requirement, in essence it's inherently discriminatory because it discriminates against all people who don't have the kind of financial wherewithal to put up the surety bond or obtain a letter of credit. That's unfortunate, but it's inherent in having any sort of security requirement.
Our position is that with the security requirement it has to apply to all collectors in the same category, ie, all new collectors, to be fair. That's what tax administration is about. In order to perhaps redress, let's say there was a requirement that a first nations dealer on a reserve was not to put up the $500,000. We would have to then go back to everyone else who has put up the security and give the security back to them to be consistently fair.
Mr Tilson: Perhaps we should give other members of the committee a chance. Thank you.
Mr Marchese: Mr Lawrie, I understand the practice and policy of equal treatment and fairness and that such should be applied to all, and I agree with that. I'm not sure that anybody here would disagree with that. But Mr H has a problem. He's on the reserve, and section 89, I think it is, prevents him from obtaining a bond and you require one. Can the principles of equal treatment be applied in this situation?
Mr Lawrie: The ministry position is that if you don't apply the same rules for everybody inherently, you're giving one putative dealer or a collector an advantage over another who doesn't put up security.
Mr Marchese: I appreciate that, but I'm trying to deal with the issue of the principle here.
Mr Stoodley: But there is, Mr Marchese, the reverse of that principle. Mr H is on the reserve. He cannot use on-reserve assets or he chooses -- there's no way of seizing those assets because of the Indian Act.
Mr Marchese: Right.
Mr Stoodley: If he had off-reserve assets, they could be used to provide the security.
If I am not a native person and I am not on a reserve and I don't have enough assets to satisfy the bank's requirement, to satisfy the guarantee/surety company, I can't post the security either. The inequality part of the problem that the ministry has, aside from a basic disagreement with the Ombudsman as to whether or not our policy is systemic discrimination, for which the ministry is responsible, the basic issue, is that in this situation, because of the change the Ombudsman would ask for, Mr H on the reserve with no assets, say, could be entitled to a bond whereas a person off the reserve with no assets would have no case at all. He would be entitled to the bond not because he is ajudged a good or a bad security risk but entitled because the Indian Act of Canada prevents any person other than a band or an Indian from seizing assets on the reserve, an advantage that first nations people have, by law are entitled to enjoy and have maintained in spite of the commercial consequences of it.
There are in the Indian Act in section 89 examples where the federal government, in the case of leasehold interests of designated land and in the case of chattels sold by conditional sales, has abrogated that exemption, I would guess for good commercial reasons.
I don't want to make the whole of my presentation in response to your question, but I wanted to rise to the issue that there is an inequality and the inequality is in the treatment of people who are not on the reserve and who have no assets, versus those who are and have no assets.
Mr Marchese: I do want to pursue it. I'm not sure that I can grasp it legally in all the ways you might be presenting it. If you are off the reserve, you have the ability to raise money and to have capital. You have the potential to do so. This fellow on the reserve has no ability to do so. He's prevented by that section from doing so. So we have two different situations. You will admit that is the case.
Mr Stoodley: He is not prevented from raising capital --
Mr Marchese: Off reserve.
Mr Stoodley: He can raise it off the reserve, yes. But you're right, if he wishes and he's entitled to do so, I agree, if he wishes to maintain his capital, either in real property or in liquid assets on the reserve, it is immune from execution and he will be unable, in the normal course of things, to get a bond.
Mr Marchese: Right. But the argument I make is that we've got a problem in terms of how we treat this situation, and that's why I raised the other issues the Ombudsman has raised in terms of the concerns you have, and that is the collection of revenues. But if he sells within the reserve, there is no collection of revenues -- that was one. The other you've raised is the whole issue of the possibility of sales made in excess of the allocation, sales to unauthorized retailers, poor recordkeeping, thefts, so you have no recourse to deal with some of these problems, you were saying, including your fear about the proliferation of such wholesalers, should you make this exemption.
I'm assuming you have measures in place to deal with all of these concerns.
Mr Stoodley: And one of them is the requirement for that security.
Mr Lawrie: Actually, that's the principle. It's not the only method in which to ensure that a dealer in unmarked cigarettes doesn't turn a blind eye to a retailer diverting unmarked product into the taxable market. Obviously, if a dealer did not put up security and was resident on a reserve, in effect the judgement proof over any assessment made against a dealer for wittingly or unwittingly permitting diversion of unmarked product into the taxable market, the protection, if you like, is the security we require, although I hasten to add that the main reason for changing the security had nothing to do with potential dealers in unmarked from reserves. The reason for doing it was the change in the federal Bankruptcy Act and the very large losses we had suffered in a couple of cases.
Mr Len Wood (Cochrane North): Along the same lines, what the finance branch is saying is a collector should have to put up a bond for $500,000. In this particular case, because the individual wanted to become a wholesaler and a retailer, his percentage of cigarettes that he's selling into the market is probably going to be 95% or 98% non-taxable products because he's selling on reserve, and a very small percentage of cigarettes that are taxable.
I deal with wholesalers who are selling on the reserves and I know for a fact that when the orders come in, if they're a little bit different in any way from what the previous orders were, the wholesaler has to phone Sudbury and get permission to sell an extra five, 10 or 15 cartons of cigarettes on to the reserve, no matter which of the 10 reserves I represent. The way I'm looking at it is that this person is not necessarily a collector because probably 100% of his cigarettes are going to be non-taxable if he's selling them to retailers on reserves. For a lot of the reserves or most of the reserves, there's no way in and out other than by water in the summertime and by air in the wintertime or drive on winter roads. Some reserves are accessible by road, but not that many.
As Mr Marchese had pointed out, I'm concerned that this person, by federal law, is not allowed to own or use his property on the reserve as collateral, so he's being prevented from doing a job that he wants to do to be able to feed his family because of the Indian Act and the provincial demand that he put up $500,000, but he's not allowed to use property he might own on the reserve as collateral.
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Mr Lawrie: Yes. The ministry has sympathy for Mr H's case too, but on the other hand, we have an obligation to protect the province's revenues, and certainly in our view, virtually the only way to do that, to guard against unauthorized diversion of unmarked product into the taxable market, in this circumstance is to have security.
The Chair: Any further questions, Mr Wood? It's getting to the point of it. We have a question before I get back to Mr Tilson.
Mr Gary L. Leadston (Kitchener-Wilmot): I just wanted some clarification. In the report, this document that was submitted, you had indicated there were 16 locations.
Mr Lawrie: There are 20 locations from 16 dealers in unmarked cigarettes. Some of them have more than one location.
Mr Leadston: So there are 16 locations.
Mr Lawrie: There are 20 locations from 16 dealers.
Mr Leadston: Including the one in Quebec?
Mr Lawrie: Yes.
Mr Leadston: And in excess of one million cartons of unmarked cigarettes sold?
Mr Lawrie: Yes. The total unmarked market in Ontario is approximately 1.5% of the taxable market in terms of volume.
Mr Leadston: In the other document we have, prepared by the counsel and research officer within the assembly library, on their schedule they list nine locations with a total yearly allocation of cartons of just a little over 200,000.
Mr Lawrie: I'm not aware of it. I'm sorry.
Mr Leadston: Is there any reason there's such a significant difference? Is there anyone who could answer that question?
Mr Stoodley: Perhaps the counsel who prepared it.
The Chair: I believe it's based on what we've been told is a quota allocation, Statistics Canada. Mr Leadston, there is a quota allocation, if I understood, that's developed from Stats Canada of the first nations inhabitants etc, derived down to the number of adults, which entitlement plus 10% for other on- and off-reserve locations, 20% -- so they come up with an allocation. Is that not your question? Why they have a large number? They probably have a lot of people living on reserve.
Mr Leadston: Could you provide me with the names similar to what has been provided in this document? For example, Couchiching, and then it gives the reserve, Couchiching IR number 16A and the yearly allocation of 15,554 cartons. Is that possible?
Mr Stoodley: Let me answer for us, sir. To the committee, we will try to resolve the discrepancies. I think it cannot be done here without our records. But we cannot give certain information that is confidential to us, whether or not that information has been obtained or given by someone else. Of course, we can't answer for the content or accuracy of a document that we didn't prepare.
The Chair: Does that answer your question, Mr Leadston?
Mr Leadston: That's fine. Thank you.
The Chair: Mr Tilson, and then we'll go to Mr Cleary.
Mr Tilson: I'd like to just refer to Ms Jamieson's remarks, specifically on page 2, and various comments in this document, which I trust you've had an opportunity to look at or you've heard what she said. She has responded to the position of the ministry. The ministry has taken a position as to why it is taking a certain action and Ms Jamieson has in turn responded to that. I'd like to read a paragraph from page 2 and ask for your comments as to what she's saying.
"The ministry" -- referring to Ms Jamieson's written remarks -- "has acknowledged that Mr H's proposal would generally not involve collecting tax revenue. However, it has suggested that there is a potential for tax liability to arise as a result of theft, fire or inventory accounting problems." Ms Jamieson then says, "In my view the circumstances of Mr H's case do not involve the type of significant risk underlying the ministry's general bond requirements. In addition, it would be possible for the ministry to place conditions on the permits it issues to Mr H to reduce the risk of potential loss from these contingencies." She also makes some comments in the next paragraph.
Have you got any comments on her response to what the ministry's position is on these things?
Mr Lawrie: Yes, I certainly agree with the Ombudsman that it would be possible for us to place conditions on the permits. In fact, with the four additional first nations applicants for dealer permits that we've had since Mr H originally expressed an interest, we have given them a list of the conditions that would apply.
Mr Tilson: Given Mr H --
Mr Lawrie: No, all of the other four applicants. Mr H's interest never got to conditions. Because we did say there would be conditions on the permit, it never got really beyond the security issue. He didn't actually formally apply for permits. I would point out that although it's true we could place those conditions, and indeed with applicants for a permit for selling unmarked cigarettes whether first nations or not there will be conditions on those permits in addition to the security, without the security there is no enforcement of those conditions. The security itself is the enforcement. The putative dealer knows that if he doesn't maintain the conditions applied to the permit, the ministry will assess the tax on significant quantities of unaccounted-for, unmarked product against that dealer and will immediately collect from the security held. If there is no security held, there is no sanction, and I guess my submission is, very little adherence to the conditions on the permit as a result.
Mr Tilson: I have just one final question. Unfortunately, I arrived late and I wasn't able to ask Ms Jamieson what she anticipated those conditions would be. But you're saying that it doesn't really matter, that without some form of security, you, the government, would have absolutely no control. That's essentially what you're saying.
Mr Lawrie: That's right. In essence, that's the basic principle of tax administration in the self-assessment system.
Mr Tilson: Thank you, sir.
Mr John C. Cleary (Cornwall): My question has partially been answered, but you mentioned there were 16 wholesale dealers on reserves.
Mr Lawrie: Currently there are no dealers in unmarked cigarettes -- wholesalers, if you want to call them that -- located on reserves. There are none. There are 16 such dealers located off reserve who supply unmarked product to reserves.
Mr Cleary: Do any of the other dealers find themselves in the same position as Mr H?
Mr Lawrie: Yes, since 1992 three new dealers have put up security in order to be able to sell unmarked product.
Mr Ouellette: What are the implications of any decisions on this, as they relate to Inuit or Metis as well?
Mr Lawrie: Sorry, I didn't catch that.
Mr Ouellette: The implications for a decision on this as it relates to Inuit and the Metis as well. Have you looked at those?
Mr Lawrie: No, because I don't think there are any reserves in Ontario for Inuit and for Metis. Its applied to first nations reserves. Basically the allocation system which controls unmarked product sold on reserves is only applied where there has been a history of abuse of the exemption. That's why it only applies to 30-odd reserves, about one quarter of the 117 in Ontario. The rest have no restrictions at all, although we do monitor sales to those reserves to make sure a problem doesn't spring up.
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Mr Wettlaufer One of the biggest problems we have with businesses establishing today is failure to obtain capital. Would you agree with that?
Mr Lawrie: I think that's an obstacle for most small businesses, yes.
Mr Wettlaufer: We have in my riding in Kitchener a young lady who recently wanted to set up a retail operation selling clothes. She had a business plan, which I had a chance to review, and I thought it was an excellent business plan. But of course she could not obtain the necessary financing because she didn't have anything to start with. We have this all through society today. We have it in Ontario; we have it in every other province.
I suspect that if we were not dealing with a native Canadian we wouldn't be here today, because this situation is a little bit unique, but nevertheless it all boils down to his failure to obtain capital. Is that correct?
Mr Lawrie: Yes, I would agree that probably there wouldn't be this ceiling today if that wasn't the case.
I don't regard this particular problem of security being an issue particularly of first nations people. In all tax statutes, the areas that are most likely to be abused through tax avoidance and tax evasion are exemptions and reduced rates. It's simply because there's this exemption in the Tobacco Tax Act that the risk of loss is so high surrounding it. I don't believe it's an offence under the act to purchase, no.
The Chair: So I could personally go in and buy them if I smoked.
Mr Lawrie: There is an offence provided for possession of significant quantities of unmarked cigarettes without an entitlement thereto. I think it's beyond five cartons, if my memory serves me right.
The Chair: I'm understanding you to say that if they had sort of surplus amounts they could set up a little store, I could go in there and buy them. I couldn't resell them, though.
Mr Lawrie: No, that's true. The sanctions are against the sellers and hence the offence of being found in possession of quantities which would lead the average person to think you intended to sell them, not use them yourself.
The Chair: That's right, that you're into some kind of business.
The other one I had was also raised by a question asked by Mr Ouellette -- or Mr Wettlaufer perhaps. Could the band itself, or does the Indian Act prevent them from posting a bond or securing the -- for example, in the state of some of the casinos that are operated by first nations. I suspect there's some kind of security arrangements. Are the bands able to underwrite or secure the bond?
Mr Stoodley: No, not with respect to property on the reserve. The act applies to --
The Chair: What if they own something off the reserve?
Mr Stoodley: That's different for both band and first nations individuals.
The Chair: If there are other questions that have arisen out of the discussion on both parts --
Mr Stoodley: Excuse me, Mr Chairman --
The Chair: Oh, you would like to make yours, pardon me.
Mr Stoodley: I did want to say a couple of words to the committee.
It's always with some reluctance that we find ourselves unable to agree with the Ombudsman, but from the ministry's point of view I only wanted to say to the committee that we, the ministry, simply don't agree that our policy is improperly discriminatory. The Ombudsman finds systemic discrimination, finds a result that discriminates against a first nations person, and then concludes that the ministry is improperly discriminatory as a result of what she has found.
Our position, as the Ombudsman has indicated, is simply that we, for reasons of tax administration, which Mr Lawrie has explained, believe that a consistent and equal requirement for security from all people who want to handle the wholesaling of cigarettes is (a) the most economical and practical way to administer the tobacco tax system and (b) the best way to protect the revenues for all of the people of Ontario from erosion. Although this case only involves the Tobacco Tax Act, there are other significant provincial taxes, commodity taxes such as gasoline and fuel, that are similarly administered and where there are similar security requirements.
Believing that the need for security is one of our principal tools of administration, we simply can't agree with the Ombudsman. There isn't a large legal debate that we could have here, thank God. It comes down basically I think, members of the committee, to an area in which we in the ministry, on the basis of tax experience and administration, say we can't agree with you that we are improperly discriminating. We think the issue arises because of a provision in the federal Indian Act, a provision that has both advantages and disadvantages for first nations people. It is a provision that first nations people can, in some circumstances, if they can amass off-reserve property, avoid if they wish to go into business.
But we do believe that the level playing field and the marketplace require that equal treatment, and that if there is discrimination -- and clearly I think there is a sort of discrimination in the Indian Act in the special status that it gives to reserve property -- if that discrimination exists, we did not cause it and the result is not our direct doing or intention. If those things are so, then we cannot accept the Ombudsman's conclusion that our actions in maintaining a consistent policy for a minimum security from all Ontario wholesalers is improperly discriminatory.
That's all I ask the committee to recognize. I think there can't be more said than the Ombudsman's belief that the result is systemic discrimination and, because we perpetuate the result, we're improperly discriminatory. The ministry's view is that our policy is not based or intended to discriminate against anyone; that the discrimination that does arise is as a result of a federal statute over which we have no control. We therefore do not feel responsible. Members of the committee, thank you.
The Chair: Thank you very much for your presentation. At this point, if there are no further questions of this presenter, we will ask if the Ombudsman's office would like to sum up in any way.
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Ms Jamieson: I've noted just a few points that I think need to be responded to. But before I do that, there are two procedural issues that I think I need to raise.
One is a question. You'll recall that when we dealt with Ms C, we had a situation where the representatives from the ministry involved then introduced new evidence during the presentation of the case. At that time, the committee adjourned because the evidence that was presented was not provided to myself or my office before the committee hearing. It's been a pretty long-standing rule at committee that that be the understanding.
I would urge the committee to make that known to ministries that are appearing, because once again today that is precisely what has happened. The evidence I'm referring to had not only to do with the statistics that were presented, but the additional applications that were received and so on. That information was not shared with my office in advance. That, I think, is a pretty serious oversight on the part of the ministry and I want to raise that for the committee's attention.
The Chair: I would ask the clerk to clarify that we have complete understanding of what you're implying here. The committee will consider that and make some recommendations across all ministries.
Ms Jamieson: Thank you. I would ask for three minutes in camera with committee to talk about the second procedural issue at the conclusion of today, if we could. It's an important issue, but I'd like to discuss it with committee in camera, if I may.
Now, as to the issues that were raised that I think do need some response, the first one is that if there are additional applications of which I am not aware, the fact that the ministry has said we have additional people who have not complained who fit this same characteristic does not mean that Mr H's situation does not have merit and that there is not an unfairness here. Whether you have three people, one person, whomever, the fact that they've got four or five people who are silent about it may speak more to the courage of the one than the fairness of the situation. So I think that's an important point to make.
The other point that the ministry has made is that without the security of a bond, they would have no recourse. I think there are a number of things that the ministry can consider for them to have recourse.
First of all, throughout public administration, conditional permits are given all the time. Permits can be cancelled, permits can be revoked. Permits can be revoked in pretty short order. One of the things that could be done in this circumstance, if a permit were granted without a bond or with a very minimal bond, is to have increased reporting responsibilities -- monthly reports -- to have insurance provisions for fire, which they apparently are concerned about and is one of the reasons they're worried that without the security bond they may suffer losses.
So there are things that can be done. If the worry is that there be a multimillion dollar loss, then make reporting tight, revoke the permit if it's offended, and if something more egregious occurs, there are the enforcement provisions that are widely available.
The other concern that was raised is that there may be a proliferation of wholesalers if we do this. This was raised, I will say, in meetings that I had with ministry officials. If people are eligible for permits, then they ought to obtain permits. If the denial of Mr H's permits and others similarly situated is about being worried that there'll be too many people in the marketplace, I certainly have difficulty with that. It is not the task of the Ministry of Finance to determine when the market is saturated and when it is not and to protect the businesses of some entrepreneurs over others who may be eligible.
The last and probably the most important issue that the committee is discussing today has to do with the situation that Mr H is in. Here we have a public administration that is trying desperately to treat people fairly, equitably and, as they understand it, equally. The problem is Mr H isn't the same as the Mr or Ms A, B, C located off reserve. To say that he must be treated the same as them, he will just not make it. He is different, and it's that difference that is in front of the committee. How do we recognize that people in our society are different, and still be fair?
That is the essence of treating people equitably: to recognize that some of us have certain abilities, some of us do not. Some of us are located in rural areas, some of us are in urban areas. Some of us are different in our approach, in our legal status, and those differences need to be taken into account. That's why discretion exists broadly in public service and elsewhere: to take into account the differences.
Well, here's a difference that really does need to be taken into account. To say that it's a federal problem -- "That's the Indian Act over there; we didn't cause it, therefore we're somehow to be absolved of responsibility for taking note that it exists and discharging our responsibility so that we level the playing field," I think is not a reasonable approach to take.
The final thing that has been said is that there is a concern about the allegations of discrimination that would occur from those located off reserve. To grant such a permit to a person like Mr H would give unfair advantage to Mr H, as opposed to giving finally fair treatment to Mr H. If one goes along this path, I'm afraid where you end up is concluding that it is therefore better to discriminate against the Mr H's of the world than to face the complaints that would arise from those off reserve who would not see readily the unfair circumstance that Mr H is in at the moment.
I think fundamentally what the ministry is obliged to do is to provide access to those schema, those responsibilities it discharges, to level the playing field and still at the same time to fulfil their responsibilities towards all of us who are the taxpayers of the province. I think there is ample room for the ministry to do both in this situation. There is ample room to do it under the current legislation. I would urge the committee once again to support the recommendation that I have made that Mr H's case be reconsidered by the ministry officials. That's all that I have to say.
The Chair: Very good. If there are no further questions, there have been a couple of requests, certainly one request made by the Ombudsman that I would ask the committee to consider. If I may, with the indulgence of the committee -- I suspect I can have another question, or ask the committee if they have any other questions of the ministry people out of this full range.
Mr Tilson: I appreciate your response to the issue that I was raising and that had to do with your response to the issue of whether or not there was a tax liability. Your comment was you can put conditions, and your answer that you could revoke the license was good. That was a good response.
The one area that I still have is, and I call it reverse discrimination, that you do something to someone on a reserve but you don't do the same thing to a person off the reserve. It could be conditions, it could be reducing, it could be eliminating. Hence we get into a debate as to what is systemic discrimination. I suppose that's where we end up. We end up in that debate.
I'm just telling you that in my view, as a politician at least, I believe there'll be a whole pile of people out there who would call that reverse discrimination. I don't know whether you have a response to that, but that's my assessment as a politician representing a constituency in this province.
Ms Jamieson: I guess the current situation, Mr Tilson, the way you put it, is that I would be asking H, somebody on reserve, to be treated differently than somebody off. The reality is that we are treating Mr H differently than we are treating others, because he can never qualify, he can never be eligible for the permit.
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Mr Tilson: I can tell you of people in my own riding who will never be eligible for that permit. I can name people. I'm not going to in this public forum, but I can tell you that there are people in my own riding who will never, ever be eligible, who have the same economic standing, the same education.
Ms Jamieson: No, no. Let me be clear. I am not arguing that H is not in an economic situation. This is not about impoverished people applying for permits. This is not about impoverished people.
Mr Tilson: No, I understand.
Ms Jamieson: This is about someone who, because his assets are located in a first nations community, cannot pledge them. I don't want to make that case because that's not the case I'm making.
Mr Tilson: I understand that ultimately it will end up as to, what is systemic discrimination? I believe that you and I, if we pursued this, would ultimately end up in that debate. I can only tell you what I perceive people in my riding -- and I don't know how other members of the committee feel, but I know people would say to me, as a politician, "That's reverse discrimination, no matter what you say."
Ms Jamieson: I appreciate that that view is out there and I appreciate how difficult it is to meet that view in a way that helps people to understand that we're different as people, one among the other, to understand how society has to be willing to bend and shape and accommodate so that people are treated fairly because we are not identical. Thank heaven we're not identical.
Mr Tilson: I agree.
Ms Jamieson: If we all came out of cookie cutters, life would be easy. But it isn't, and it's a tough issue and a tough sell.
The Chair: We'd invent some problems.
Ms Jamieson: But this case is classic systemic discrimination and ought to be dealt with that way.
The Chair: The final question, I guess, is Mr Marchese.
Mr Marchese: You comment on it, but I think it's important to repeat, three areas quickly. Mr Stoodley says, "If discrimination exists, we did not cause it." They have no direct relationship to it or intent to discriminate. Obviously that's true. They didn't cause it and they're not directly involved in discrimination, nor is the intent the case.
But I certainly get the feeling from the arguments that have been made that this is an issue where discrimination is the consequence of an individual who, by virtue of living on the reserve, is not able to use whatever capital he's got to be able to make the pledge to have the bond, and that's the difficulty. In this case, you're arguing, as I am I guess, that the province can fix that problem if it wants to, as opposed to saying, "The problem is section 89, we can't fix it." We're saying, and you're arguing, that you can by controlling it.
Ms Jamieson: Yes.
Mr Marchese: You recognize that there's an unequal problem and in recognizing that, this is how we can control it through these enforcement mechanisms.
The problem of reverse discrimination links directly to employment equity, which this government has dealt with, I say, unfairly. It's probably true that Mr Tilson says in his communities they're going to say it's reverse discrimination. But it seems to me we have an obligation to understand whether or not this fellow Mr H in this case is being unfairly treated, and if you don't make that argument, your people are going to say, "Yes, of course, it's reverse discrimination." But if we help to make the argument and to show that there is unequal treatment to begin with because there is an unequal condition, then we're going to deal with it fairly for those people and for those who are likely to say this is reverse discrimination.
I hope the members will consider that this Mr H is facing a difficulty and that we as a province can fix it if we want, and we fix it by having the proper controls that the Ombudsman was speaking to. I think that would deal with it in fair way.
The Chair: I'd just ask the Ombudsman, could it be established in the frame here that if it was established that it was discriminatory to request the $500,000 bond to sell unmarked cigarettes, the same case could be made that there should be the ability to sell off reserve because people who have not been discriminated are allowed to sell on reserve? Would this be the first step, in your view, to establishing a full dealership?
Ms Jamieson: I didn't look at that.
The Chair: That's where I would go with this. I'm not sure if you're going there. Is this the first step --
Ms Jamieson: I'm not going there and that's not what this applicant asked to do.
The Chair: Okay. It's strictly that the applicant was to -- unmarked.
Ms Jamieson: On reserve.
The Chair: Okay. We have one other question. I would ask the committee to consider the question for a three-minute in-camera request. My other comment is that I personally believe, since we've had a full discussion on this case, that we give it consideration before we adjourn. So it's at your leisure.
Mr Marchese: That's agreed, Mr Chair. I think it's a matter of seriousness probably.
The Chair: Yes, it is very important. Those in favour of granting a three-minute in-camera session with the Ombudsperson, all those in support? That's carried unanimously. We will now convene in camera.
The committee continued in closed session from 1147 to 1158.
The Chair: The committee is reconvened. The committee has considered the case of the Ombudsman and the case of Mr H versus the Ministry of Finance and has decided to oppose the Ombudsman's position. That will be the recommendation of this committee. That being the decision, this committee is adjourned.
The committee adjourned at 1158.