CANADIAN ADVANCED TECHNOLOGY ASSOCIATION
ONTARIO PUBLIC SCHOOL BOARDS' ASSOCIATION
SOCIAL PLANNING COUNCIL OF METROPOLITAN TORONTO
COUNCIL OF ONTARIO CONSTRUCTION ASSOCIATIONS
ONTARIO SOCIAL SAFETY NET/WORK
PHARMACEUTICAL MANUFACTURERS ASSOCIATION OF CANADA
CONTENTS
Thursday 13 February 1997
Pre-budget consultations
Ministry of Finance
Mr Michael Gourley
Ms Anne Evans
Mr Tony Salerno
Mr Hugh Mackenzie
Canadian Advanced Technology Association
Ms Shirley-Ann George
Ontario Public School Boards' Association
Ms Mary Jeffery
Mr Gary Ainsworth
Mr Dusty Papke
Social Planning Council of Metropolitan Toronto
Mr Andy Mitchell
Council of Ontario Construction Associations
Dr David Surplis
Mr David Frame
Ontario Social Safety Net/Work
Rev Susan Eagle
Ms Jacqueline Thompson
Pharmaceutical Manufacturers Association of Canada
Mr Gerry Jeffcott
Mr Bob Stinson
32 Hours for Full Employment
Mr Joe Polito
Ms Darcy Polito
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président: Mr TedChudleigh (Halton North / -Nord PC)
Vice-Chair / Vice-Président: Mr TimHudak (Niagara South / -Sud PC)
*Ms IsabelBassett (St Andrew-St Patrick PC)
*Mr JimBrown (Scarborough West / -Ouest PC)
*Mr TedChudleigh (Halton North / -Nord PC)
*Mr JosephCordiano (Lawrence L)
Mr Douglas B. Ford (Etobicoke-Humber PC)
*Mr TimHudak (Niagara South / -Sud PC)
*Mr MonteKwinter (Wilson Heights L)
*Mr TonyMartin (Sault Ste Marie ND)
*Mr GerryMartiniuk (Cambridge PC)
Mr GerryPhillips (Scarborough-Agincourt L)
Mr GillesPouliot (Lake Nipigon / Lac-Nipigon ND)
*Mr E.J. DouglasRollins (Quinte PC)
Mr JosephSpina (Brampton North / -Nord PC)
*Mr WayneWettlaufer (Kitchener PC)
*In attendance / présents
Substitutions present /Membres remplaçants présents:
Mrs LillianRoss (Hamilton West/ -Ouest PC) for Mr Ford
Clerk / Greffier: Mr Franco Carrozza
Staff / Personnel: Ms Alison Drummond, research officer, Legislative Research Service
The committee met at 0902 in committee room 1.
PRE-BUDGET CONSULTATIONS
The Chair (Mr Ted Chudleigh): I call the meeting to order. I would like to welcome back the Deputy Minister of Finance. Again, thank you for your cooperation with the committee in this continuing saga; it's like a mini-series, actually. We'll turn the meeting over to you and proceed with your presentation.
I would ask the committee and those present, given the acoustics in this room, for your cooperation in your silence in listening to the presentations today. Thank you very much.
MINISTRY OF FINANCE
Mr Michael Gourley: Thank you. I have with me today Ms Anne Evans, who is the assistant deputy minister of finance responsible for the finance and financing policy division and is also the controller. Mr Tony Salerno is the assistant deputy minister and also the CEO of the Ontario Financing Authority and the vice-chair of the board of the financing authority.
Ms Evans will start her presentation on the third-quarter Ontario finances, simply recalling for the committee's benefit that this represents a report on the financial results of the government's operations up to the end of December. It covers the results to the end of the first nine months, but it focuses on the actual results achieved in the third quarter itself.
Ms Anne Evans: The first slide -- hard copies are being handed around to everybody -- provides just the overview of what has been reported in the third-quarter finances. The 1996-97 deficit, at $7.7 billion, is down $508 million from the budget plan and $501 million lower than the second-quarter results that were reported in the fall.
The revenue outlook is $47.8 billion, which is about $1.2 billion above the 1996 budget plan. Revenues have increased primarily due to higher than expected personal income tax revenue and the strength of the Ontario economy. Total expense, at $54.9 billion, is up $662 million above the budget plan, mainly due to increased allocation to the restructuring fund. The restructuring fund, which is incorporated in both the programs expense line and the capital expense line, has increased by $900 million to $1.8 billion. The reserve of $650 million, established in the 1996 budget as a provision against unexpected economic circumstances that could have an impact on the fiscal position, is still there. If it is not required it will be applied directly towards deficit reduction.
The next slide gives a summary of the revenue changes that have been reported. To start with, as we've already mentioned yesterday and in the previous week, personal income tax revenues are $970 million higher than projected, based on data received from Revenue Canada on the 1995 assessments. In part this means that the underlying base upon which our forecasts are prepared has increased.
The retail sales tax is also up $160 million, which reflects Ontario's stronger economic performance and strength of year-to-date receipts. Corporations tax is up by $300 million against budget, and this reflects again Ontario's economic performance improvement and strength of year-to-date receipts. Land transfer tax is up is by $50 million this quarter, reflecting strength in the Ontario housing market in 1996. Finally, the Canada health and social transfer has an impact of $349 million downwards. This is tied to the upward revision of the personal income tax as well as federal data revisions related to corporate taxable income. In total, the revenue change since the budget is $1.2 billion over budget.
The next slide gives a summary of the operating expense changes. The first line refers to the major change, which is the increase to the restructuring fund of $900 million, for a total of $1.8 billion this year, less $517 million provided in transfers to capital restructuring projects. I'll talk about those in a few minutes on the next slide.
Second, public debt interest: We're showing a total improvement since budget of $195 million in public debt interest. This is due to lower interest rates as well as careful management practices.
The next line is municipal transit transfer payments. This is a $53-million accrual adjustment due to a revised estimate of outstanding liabilities as of March 31, 1996. This is an adjustment that comes out of changes that were included in the 1995 public accounts. The adjustment has an equal and offsetting impact on 1996-97 finances, and that's what that line means.
The next line is legal aid expenses. An $11-million increase reflects additional information from audit of the program that was also reported in the 1995-96 public accounts.
Moving to the next slide, it's a summary of capital expense changes. Most of these changes in capital are a result of investments out of the restructuring fund. In particular the first three items on this chart are associated with this. First, the municipal restructuring fund: The $250 million is the 1996-97 portion of the $800-million municipal capital and operating fund announced last month as part of the Who Does What exercise. The second item, provision for extended Canada-Ontario infrastructure works program, includes both the federal and provincial share of what the government hopes to spend this year on an extended agreement in this area.
The third item is the highways transfers as well as Highway 416 construction. These initiatives were announced in the 1996 budget and are fully offset by the restructuring fund. It includes $60 million to provide municipalities with additional funding to upgrade highways being transferred to them and $7 million for the accelerated construction of Highway 416.
Finally is the COIW accrual adjustments. This is the Canada-Ontario infrastructure works program that has been in place for a couple of years. This is an adjustment that relates to the 1995 public accounts, in which we reported a faster than expected pace of construction projects under that program. There is an offsetting impact in 1996-97 as we adjust the accrual amount for the end of last year.
0910
The other category is a number of other adjustments associated with some of the accrual adjustments we did in public accounts as we moved through the process of implementing in greater detail the impact of moving to accrual accounting.
The next chart summarizes the restructuring fund. As I think I've already said, this was initially put in place in the 1996 budget as a $900-million fund designed to support restructuring needs that would be identified through the year as the government moves through its restructuring program. This fund has increased by $900 million, as part of the third-quarter finances, to $1.8 billion. The allocations are $700 million associated with the municipal social assistance reserve, which is part of the Who Does What exercise, and an estimated teachers' pension plan arbitration award of $100 million, associated with outcomes of dealing with the experience gains in the teachers' pension plan. In addition, in the capital area -- I've already touched upon these -- there is the $250 million associated with the $800-million four-year municipal capital and operating restructuring fund, the proposed extension to the Canada infrastructure works program, as well as the highway transfers in 416. As you see, there's still an amount to be allocated of $483 million out of this fund.
The next slide simply revisits the balanced budget plan for Ontario and highlights that the government still is on track to achieve its deficit targets and balance the budget by the year 2000-01. For 1996-97, as I've already said, the original budget plan of $8.2 billion is now estimated to be $7.7 billion, as reported in the third-quarter finances.
The final chart revisits the point that since 1984-85 spending has grown faster than the pace of growth in population and inflation. However, the current government's focus on business planning is making significant impact in terms of returning spending to more manageable and affordable levels, consistent with the spending that was occurring in 1984-85.
Mr Gourley: Mr Salerno will continue with the presentation. I believe it will provide the answer to at least two questions that were asked yesterday in respect of debt and Ontario's financing plan. Once that short presentation is complete, we'd be happy to answer any questions.
Mr Tony Salerno: To arrive at our total financing requirements for the year we start with the PSAAB deficit, which, as Anne indicated, is $7.7 billion. That's down $508 billion from the budget. We then make adjustments to reflect the difference between the cash and PSAAB deficit. Right now, because the two numbers coincide, there is no adjustment required. That is down, actually, from the budget by $100 million.
We then include the refinancing of debt maturing during the year, which this year totals $6.1 billion. On top of that, the OFA is borrowing on behalf of agencies of the government, and the net borrowing this year is $500 million. The biggest chunk of this is for the Ontario Transportation Capital Corp that's building the 407 on the boundaries of Metro. That gives us a total financing requirement for the year of $14.3 billion. That's down $655 million from the budget.
In terms of how we plan to meet those requirements, we are planning to reduce the level of liquid reserves this year by $6.4 billion. That's a $1.7-billion increase from what we had planned in the budget. Other non-public-source funding amounts to $100 million. So we are left with total borrowing requirements -- that is, what we actually go to the public markets for -- of $7.8 billion. That's a decrease of $2.2 billion from the budget.
As of December 31, we had borrowed $6 billion, which as of December 31 would leave a balance of $1.8 billion. I should add that since December 31 we've continued with our borrowing program and have borrowed an additional $450 million, roughly, so that leaves roughly $1.4 billion to be done between now and the end of March. However, I would caution that this number includes the $650 million that's in there as a reserve, which, as the minister indicated last week, is unlikely to be used. Therefore, if that happens, if that amount is not used, the borrowing to be done between now and the end of March drops by another $650 million, so we're at roughly between $700 million and $800 million between now and the end of the year.
The next slide gives you an indication of where the $7.8 billion is being borrowed. We started the borrowing program this year with a very successful Ontario savings bond campaign. We raised just over $1 billion through that campaign. While this is down somewhat from the year before, compared to other jurisdictions that ran a savings bond campaign this year our campaign was very successful. In fact, we were faced with a very tough market this year. You could say the retail investor was faced with sticker shock when we were offering under 5% in the savings bond campaign.
We had two products we offered. One was what we call a step-up, where the interest rate is predetermined over the five years and goes up. It started at 4.5% for the first year and at maturity, in the fifth year, it grows to 9%, which yielded an average, if held for the full five years, of about 6.5%. The other option was a traditional savings bond, where the interest rate varied every six months. That one had an initial rate of 4.75%
From the domestic market, we had an additional $1.6 billion through three public offerings. We also borrowed, in the treasury bill market, $700 million. This is short-term, variable-rate financing. We issued our first French franc issue for $800 million. Again, this is an extremely successful offering, from our perspective. We were able to get extremely attractive and cost-effective funding through this first French franc issue of ours.
We also issued our first two Samurai offerings in the Japanese market. A Samurai offering is a bond issued directly to the Japanese market; it really has to do with the documentation of the bond issue. As well, we had a number of very cost-effective, medium-term note programs, most of which were targeted to the Japanese market; again, extremely cost-effective, and that's one of the driving forces of our program.
That is the $6 billion that we had borrowed as of December 31. That left the balance of $1.8 billion, which, netting out the $450 million approximately that has been done since December 31, leaves a balance of $1.4 billion to be done. The issues since December 31 were also medium-term note programs, three in the Canadian market and one European medium-term note for $95 million, again targeted to the Japanese market.
That concludes my specific presentation.
0920
The Chair: Thank you very much. We'll move into questions now. For the information of the members, we will have photocopies made of that last set of slides immediately; they should be available to us in five or six minutes. Should we start with a seven-minute round of questions, starting with the opposition, and then we will finish up the time with a second round? Mr Kwinter, would you start us off, please.
Mr Monte Kwinter (Wilson Heights): I'd like briefly to address the borrowings and what is happening in the marketplace. Unfortunately, I don't have the hard copy of your presentation at the moment, but I'd be interested to know -- your borrowing requirements really aren't a reflection on the fiscal period other than marginally. Most of it is because of short-term debt or debt coming due that has to be refinanced.
Mr Salerno: Well, $6.1 billion is refinancing of the $14.3 billion that I indicated is the total financing requirement for the year.
Mr Kwinter: Are you finding, now that Ontario has a solid AA rating, that it's more difficult to place this, not because of Ontario but because it doesn't command the same premium that some other bonds in the market would?
Mr Salerno: Quite the opposite, frankly. Looking at the spread -- that is, the premium we pay over the Canadian government issues -- one could argue that the market is treating Ontario as a credit much higher than we currently are, because that spread has narrowed quite significantly. That's for a number of reasons, one of which of course has to be the fact that the fiscal situation is showing a dramatic improvement. Essentially, the market is discounting the projection of better financial times.
Mr Gourley: Tony, I wonder if you could mention the premium we are paying in terms of basis points, the average. We want to be precise.
Mr Kwinter: I think it's 20 basis points over Canadian.
Mr Salerno: Currently, the spread right now in 10-year bonds is between 17 and 20 basis points over Canada; in the long bonds, the 30-year bonds, we're at about 30 basis points over Canada.
In fact, it's not just an Ontario story. The whole Canadian market is viewed very, very positively. Somebody may have shown a slide earlier showing where Canada has gone over the last three years. We've gone, as a country, from a situation where deficits as a percentage of GDP were 6% in 1994 to currently just over 1%. That obviously is viewed very positively by the financial markets and has led to the situation where the Canadian dollar actually has pressure on it to go up, yet the interest rates at the short end are about 300 basis points through the US; in other words, three full percentage points lower than the US, which generally in the past has been as high as 5% percentage points higher than the US. As of today, Canada is five basis points through the US in 10-year bonds, a situation that is quite rare.
When you talk the Canada story and then the Ontario story, we are enjoying extremely favourable interest rates. This is happening at a time where there's no pressure on the dollar to go down. If anything, all experts view the dollar, as Steve indicated yesterday, having upward potential.
Mr Kwinter: What is the explanation for Alberta having a 10-basis-point spread, which is like half of what Ontario has?
Mr Salerno: They are rated higher than Ontario, as you know, and one of the things they currently have is a surplus, which we don't have yet.
Mr Kwinter: What happens in the next couple of years when some of your long-term debt comes up? Do you anticipate any problems with that? What do you think the spread's going to be between what you're paying now and what could happen in that market?
Mr Salerno: It's difficult to forecast because, as I said, interest rates vary due to a number of factors. A number of factors impact on the reasons interest rates are a particular level. But there's no indication that the interest rates are going to increase. In fact, considering that the dollar is forecast to increase, considering that the deficit situation in Canada and in Ontario and Quebec particularly, the last two holdouts, is forecast to improve, all those forces would suggest that interest rates could go down or at least stabilize where they are now.
Mr Kwinter: What is the amount, what is the rate and when is it coming due on some of this long-term debt?
Mr Salerno: Over the next four years, we're looking at about $5 billion to $6 billion refinancing on average. We view it as very positive, because as we're refinancing that, we're refinancing debt with double-digit coupons attached to it. Currently, we're financing 10-year debt today at about 6.6% and long-term debt at about 7.2% to 7.3% over 30 years -- by long-term I mean 30 years -- versus debt that is coming off probably averaging around 11%. It's a big saving to us as we refinance that existing debt. It's an opportunity to reduce the total interest cost, at least on that maturing debt.
Mr Kwinter: If I could go back to the fiscal summary, I didn't quite understand when you were going through it. When you were talking about the second one, for example, increase in restructuring fund, second quarter $900 million, budget $900 million, I got the impression you were saying there is a $900-million difference.
Ms Evans: I was saying that the original budget in May had a provision for $900 million for restructuring efforts and the third-quarter finances added another $900 million to that, for a total of $1.8 billion. What the chart shows when it says "second quarter" and "budget" is simply change since budget and change since second quarter. In the case of the restructuring fund, the change of $900 million happened in third quarter, so it's a change since second quarter and since the budget.
Mr Kwinter: Doesn't it seem somewhat amazing and coincidental that virtually every one of those figures has increased by exactly the same amount?
Ms Evans: I think what that really says is that in second-quarter finances there were not many changes. There were few changes compared to third quarter. We're just identifying which changes occurred since second quarter and which have occurred since budget; it's just showing the difference between third-quarter and second-quarter finances.
0930
Mr Gourley: We had been here in November and had talked about second-quarter finances results, so if we said, "Let's talk about the difference from the budget," we would be explaining changes we'd already explained to the committee. We tried to narrow it down to just those changes which took place in the third quarter, and that's what the presentation is designed to do. It turns out that almost all the major activity took place in the third quarter.
Mr Tony Martin (Sault Ste Marie): I want to thank you for coming this morning and presenting the numbers to us. It seems to me, from what you presented yesterday and what you presented today and from listening to the economists we had before us yesterday, that Ontario is in pretty good shape.
Mr Gourley: I think that's a fair statement. Our prospects are very good. I must say that the fact that Ontario still has a $7.7-billion deficit means we have a major distance to go before we can begin to use Alberta language about surpluses and so on. So $7.7 billion is still a huge deficit to deal with; it's obviously a great improvement over what was there, but it's still a major challenge. With the prospects we face, the ability of the government to reduce that deficit I think is firmed up or confirmed. In that sense, we are in great shape to meet the balanced budget plan.
We still need to see a number of improvements, I'll say on the job creation front; also, on the need to see the consumers' behaviour responding, reflecting their confidence. It's reflected in the purchase of new automobiles and new homes, either resales or new houses, but it would be good to see that confidence reflected in their actual purchasing activity and consumption generally. You saw yesterday that was growing at 0.5% in the third quarter, compared to machinery and investment, and non-residential construction, which were growing by 38% and 12%, respectively, reflecting business confidence. Business owners and business people are reflecting confidence in Ontario's economy and I think we need to see it more on the consumer side, beyond the automobile and housing areas that we've seen it in.
Mr Martin: Certainly anybody who's been watching the economy over the last probably four or five years will tell you it has been improving consistently since the recession of the early 1990s. That's good for Ontario. I think it means we're all working really hard and taking advantage of the opportunities that present themselves and we're heading in the right direction.
The numbers you presented yesterday and this morning: How much of that is a factor of anything this government has done so far in its mandate, compared to just the general improvement in the economy? We had yesterday the Alliance of Manufacturers and Exporters Canada before us, and they said that in their experience the last five years in Ontario have seen a record investment in this jurisdiction, in Ontario, by both domestic and external business interests.
I would like to know how much of the good news we have here today is because of that activity and the improvement you've identified in the economy, and how much of it would be based on tax cuts and cuts in expenditure.
Mr Gourley: I have to rely in part on the fact that our minister has answered that question, a variation on it, several times in the following way. He starts by saying one might be tempted to say that all the improvement is a result of everything the government has done, and he would cite the 10 tax cuts in the budget and the change in investment climate generally. The fact that there's a firm plan out there to balance the budget restores confidence. It allows the international investment community to look at our bonds in a more favourable light. It allows the people who want to invest in Ontario to see an environment in which they feel a certain amount of predictability is where the government's going to go, that it's not going to be saying: "Oops, I made a mistake on estimating expenditures. They're going to be a lot higher; therefore, we'll have to cut spending in the middle of the year," or "I underestimated spending in an important program." Bringing that discipline to the fiscal plan has been an important message to Ontario.
The minister then goes on to say, "But Ontario's efforts are not alone." Mr Salerno just talked about the federal government's and the Quebec government's efforts and the fact that 11 governments are, without agreement -- that is to say, without a formal federal-provincial agreement -- working in concert in respect of their fiscal policies. They are essentially all looking to balance budgets or maintain surpluses, and that's an important signal for our economy. I'll say the signals coming from Ottawa, coming from Alberta, British Columbia and the maritime provinces are all good for confidence in Ontario.
I think it's fair to say that while many of the government's activities are important signals and have a very important influence on improvements, although we have had a large number of investments in Ontario, we haven't had the type of investments that would be typically leading a recovery in Ontario as we have had in the past.
We are beginning to see that. We saw in the non-residential construction investment statistic for the third quarter a 12% increase, and this means that industries and businesses are investing, are expanding plant. In fact, I met just earlier this morning with a vice-president of one of our banks, and he's indicating that they're seeing that in terms of activities in the current quarter, with the prospects for 1997 being very good for continued increase in that area of investment. I think with that investment, we're going to see the jobs being created that people are looking for.
Mr Wayne Wettlaufer (Kitchener): Mr Salerno, in the slide you put up on 1996-97 financing requirements: the 1995-96 deficit was $8.7 billion; total borrowing requirements were $12 billion; an increase-decrease in liquid reserves of $3.3 billion. I see a direct relationship there between the borrowing requirements and the deficit. The 1996-97 deficit was $7.7 billion, with total borrowing requirements $7.8 billion, again a direct relationship between what we have to borrow and what our deficit is. And we may not have to use the reserve of $650 million this year, so that would reduce the borrowing requirements. Is this likely to continue? Is there a direct relationship between the borrowing requirements and the deficit for the next few years?
0940
Mr Salerno: Yes, there is, obviously, to the extent that the deficit reduces the need to go out there and borrow the money to fund that shortfall between revenues and expenditure. One of the things you noted from the slide is that the deficit went down, yes indeed it went down, but the total borrowing requirement went down by a greater extent. Part of the reason was that whereas last year we increased the level of the liquid reserves towards the end of the year, this year it's a planned increase in the level of liquid reserves.
One of the things we did last year, which is part of managing the borrowing of the province to yield the most cost-effective total cost of borrowing -- in the last quarter of last year interest rates were particularly low, at historic low levels -- we increased the level of liquid reserve; we pre-borrowed, in effect, to fund some of this year's requirements.
We ended the year last year with record high levels of liquid reserves. It was over $11 billion. This year the plan is by the end of the year to reduce that to $5 billion, in part because we see interest rates having stabilized now. You'll remember that last year, the first quarter of the calendar year was followed by almost an interest rate spike, not extremely dramatic but interest rates did go up quite significantly in the second quarter. Over the year, they've now dropped off a bit again. We see interest rates stabilized at this level.
Another thing that's happened is that the cost of holding liquid reserves has gone up. Last year, what we refer to as the steepness of the curve -- the difference between short-term money and long-term money -- was fairly flat. What's happened over the year is that interest rates at the low end have gone down very dramatically without as dramatic a decrease in the long end. Clearly, it's not cost-effective to pre-borrow to hold that level of liquid reserves.
Other things we've done to manage that and to reduce the cost of even the liquid reserves we are carrying is that we've increased, quite significantly over the year, the amount of floating rate debt we carry. Fully half of the net borrowing we've added this year has been in floating notes to take advantage of the lower rates and the steepness of the curve, essentially.
Ms Isabel Bassett (St Andrew-St Patrick): We're not on that topic exactly, but I wonder if you could give us the cost of the federal government harmonizing the GST and the PST in the Maritimes and if that's impacting on us.
Mr Gourley: I don't have those numbers handy; we may have them. I know a number of issues have been raised as a result of the harmonization, the types of issues that anyone who would be looking at that topic would have to deal with -- a few I'll recall now.
Taxation of books was a major issue in the provinces, as well as the issue of the impact on items that previously weren't subject to taxation. The impact on home heating fuel and home electricity was rather significant, as was the impact on new houses, where there was a very substantial impact. It depends on the type of housing being constructed, but it was several thousand dollars being added to the price of new homes, and that was a result directly of the introduction of the harmonized program.
In terms of the actual compensation provided to the maritime provinces, it was designed by the federal government to cushion the impact because the various rates in place for the retail sales tax in each of the provinces was different and they all harmonized to a lower level. The federal government put into place this program of so-called transitional funding of about $960 million. Essentially, we have argued that about $400 million of that funding to the maritime provinces comes directly from Ontario. Ontario, in that sense, is actually funding the harmonization or funding the safety net being put in place to fund these transitional costs.
Ms Bassett: That was the figure I was looking for.
Mr Gourley: That is a generalized figure. From an analytical perspective, I think the impacts on individuals have played a much greater role in the Maritimes than anybody expected. There have been a number of administrative challenges for the federal government and finance officials in the maritime provinces to work out; it hasn't been as simple as it was originally thought to be.
The Chair: We'll move to the official opposition for a four-minute round.
Mr Joseph Cordiano (Lawrence): I want to go over the graph which shows the balanced budget plan and the declines. I have a couple of questions with respect to the achievement of a balanced budget well into the next century, as planned by the finance minister. I want to know if you have any models you've used to determine what the impact would have been on the balanced budget plan had there not been a tax cut plan, what revenues would have been like if there wasn't a tax cut.
Mr Gourley: Basically, we've been working on the government's plan itself, and that's been the basis of all of our work. Obviously, each individual tax cut, and there were 10 tax reductions in the budget, has a specific incremental impact on the fiscal plan. We outlined those costs in the budget. I'd be happy to provide those to you. We looked at the fully annualized cost of the personal income tax reduction. That figure is in the budget, I believe $4.555 billion. I don't have at hand the specific numbers for each of the other tax cuts, but they're actually in a special table in the budget.
Mr Cordiano: I didn't follow you. So you're saying you have a specific figure for the impact of the income tax cut on the province's revenues?
Mr Gourley: Yes, we do. The fully annualized impact of the actual personal income tax was $4.555 billion.
Mr Cordiano: That's for the total income tax cut, as planned by this government.
Mr Gourley: Right.
Mr Cordiano: In other words, if we took the impact for each of these fiscal years and applied that impact on to revenues, the amounts we see here would be lower. What I'm getting at is that you would have a budget balanced faster than you otherwise would because revenues would have been higher.
Mr Gourley: That argument has been made. On the other hand, you have to say, had the level of taxation remained as high as it was, would the confidence have been restored in business and in individuals and would you therefore have the other revenues that are going to come in as a result of that confidence? It's a bit of a mug's game and I --
Mr Cordiano: What I'm getting at is that you have an economic forecast model which projects what revenues would be, given certain assumptions. If you used the models, given the tax structure that was there before the income tax cut, you could project. Obviously you have, because you're estimating that the impact of the tax cut is a $4.555-billion revenue loss.
Mr Gourley: That was the figure we used in the budget.
Mr Cordiano: The other question I have is with respect to direct foreign investment. In Market Ontario the target is for 237,000 new jobs to be created by increasing foreign direct investment in Ontario by 2% for all of North America. Their objective here is to gain 2% market share. How many of those 237,000 new jobs are factored into the 720,000 jobs this government projected as its target at the time of the last election campaign? Is that included in the 720,000 jobs?
Mr Gourley: I think the government's job creation target includes all its plans and activities. Although I don't know specifically about that particular number, I believe it is included, otherwise it would take the job target up, and I don't believe that's the intention of the government. All the activities are designed to create jobs and stimulate job creation, and the target the government has set for itself was 725,000.
0950
Mr Martin: I want to follow up on the line of questioning we were on in the last round. You advised us when we were in government, and in 1994-95 the economy was picking up. As I said earlier, according to one of the folks who presented before us yesterday, over the last five years investment in Ontario was at a high rate. Actually, 1994-95, if I remember correctly, was an historically high time of investment in the province. People I talk to tell me that some of that is based on the development over a number of years of a first-class health care system that provides some benefit to people who come and invest here, a first-class education system that provides a high quality of employee, a highly educated employee, and an infrastructure that is second to none.
Given the numbers you've presented and the fact that the economy was picking up steam, and for now accepting that your numbers are correct -- your job is to advise the government on what it's doing and how that will play out two and three and five years down the road. You agree that so far what's happening today particularly is not creating any new employment, and there are other jurisdictions that in this day of cutting and slashing and tax reduction are not doing that and are doing quite well. For example, an article in the Globe and Mail on December 18 talked about Norway having an inflation rate below 2%, the lowest unemployment rate in Europe and an economic growth of between 3% and 5% in recent years. They continue to invest very heavily in their infrastructure, in education and health care and the social safety net and roads, and their economy is doing well.
Have you done any figuring at all? Have you advised the government at all? The story we're hearing here from people who are concerned about poverty; and people from the agricultural community who are concerned about the damage to their part of Ontario by some of the decisions being made re the cutting of services and the reduction of government involvement in those areas; and students who are very concerned, some of them, that they may not even be able to finish -- when I go around my community and knock on doors and talk to people, one of the concerns they raise is, will they be able to give their children a university education?
With all that in mind, why are we continuing to cut so heavily and why are we continuing to focus on the tax cut as -- this is the word used yesterday -- the "panacea" for recovery and good times for all of us who choose to live and work in Ontario?
Mr Gourley: I'd like to comment on a couple of the statements you made and attempt to answer the question you posed at the end. I'll like to clarify that absolutely, as we go to financial centres around the world, in Asia and Europe in particular and the US, we highlight Ontario's health system, education system and infrastructure, particularly the transportation system, as a major comparative and competitive advantage we have vis-à-vis other North American jurisdictions. We also talk about, I won't call it the "accident of nature," but our geographic location vis-à-vis the US market is a very important feature we promote. That does attract interest.
Speaking particularly to the health system, as the government's promise of $17.4 billion of investment in the health system -- it actually has exceeded that in these past two years. As that number is maintained and as the total government spending envelope is reduced, obviously the proportion of moneys devoted to health will increase over time. The education system is a very important part of Ontario's competitive advantage and having a well-educated and skilled workforce is a very important element. The transportation infrastructure I mentioned.
You indicated that I had agreed that what is currently being done is not creating any new employment. I don't believe I said that. I believe we reported on 80,000 net new jobs being created in Ontario last year: 90,000 in the private sector and a 10,000-job loss in the public sector.
I would also point out in respect of the various forms of investment, the investment in machinery and equipment was, as you said, in the 1994 period reasonably positive and upbeat. That was obviously a good development for Ontario. But when you compare that with the non-residential construction activity -- this is the increase in plant, renovations of plant, and I'm looking now at the actual figures we reported in our November economic statement -- the figures for 1993 were a reduction in non-residential construction of about 20% and a similar level of reduction in 1994; in 1995 again a small reduction. Our projected level of investment in non-residential construction for 1996 is 6.1%, and we reported the 12% increase in the third quarter. I think that was there.
Coming back to your question, why is the government emphasizing the tax cut, I would say the government is emphasizing its overall plan, the whole plan. Perhaps the single most significant thing the government has done is actually this collection of initiatives to set out a plan that's clear to balance the budget. I can assure you that if Ontario were out of sync with the nine other provinces and the federal government vis-à-vis its fiscal policy, we would see quite different interest policies in Canada. We would affect the balance of Canada because of this dissonance in our fiscal policies across Canada.
We are enjoying interest rates today which I believe are in part -- not solely, but in part -- a large function of the government's policy to reduce the deficit and to establish a clear plan. Therefore, companies are more confident that the future will see a lower burden on them through such measures as the reduction in the employer health tax and other measures; they're more confident and able to invest. There has been a very significant impact on interest rates and investment as a result of the government's program.
Mr Tim Hudak (Niagara South): Mr Cordiano's questions brought something to mind about the impact of marginal tax rates on behaviour and on incentives. I think some time ago government got into a trap where it thought if it raised cigarette taxes, for example, by 50%, necessarily the tax revenue would go up by 50%, but indeed that's not the case. In fact, it changes incentives and behaviour and choices. If we were to raise the marginal income tax rate by 30% perhaps, as the Liberals would have us do, that would have an impact on the type of entrepreneurship we'd expect to see in the economy, I would assume, the types of choices, hours worked, these sorts of things.
Mr Gourley: The measure we focused on in the budget and felt was an important signal to people who were looking at the top marginal rates -- that is a rate that entrepreneurs and other people look at as a measure of the return on their work. We are in a situation where the top marginal rate in Canada is lowest in Alberta. Prior to the government's proposed tax reduction, Ontario's top marginal rate was the highest in Canada. After the government's personal income tax reduction of 30%, or over 30% in fact, in Ontario our top marginal rate will be the second-lowest in Canada.
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That's a statistic I've used a lot. Only yesterday we were meeting with a group of investors in our building and Mr Dorey and I were speaking with them and they have $280 billion in investments under management. That $280 billion was represented by five people sitting around a table asking me questions. I was able to use this very statistic as an important statement by the government of where the future of Ontario's economy is going and what the government wants to say to entrepreneurs and individuals who are going to earn higher incomes, as to whether or not the government is interested in having them here and having them stay here.
It is a matter of judgement whether people actually leave. There are all sorts of opinions one can get, but I can tell you that when I gave that statistic, these people who had $280 billion worth of assets under management wrote it down as an important signal that they were looking for from this jurisdiction about our taxation policies. I was using all the things I've used here today in terms of firm plan, commitment, overachievement, all those things that are good, but this marginal tax rate story struck a chord with them like none other.
Mr Hudak: So it's not so simple. We're not working with -- am I out of time, Chair?
The Chair: I would like to give Doug Rollins one minute, if he has one.
Mr E.J. Douglas Rollins (Quinte): Mr Salerno, in that our debt that comes due is your long-term debt -- you talk about the 25- and 30-year debt, and I know you said you were trying to get some of that down on to shorter term -- are you still trying to get a certain percentage of that into the long-term debt so that in the event that interest rates do, in the next two or three years -- I know it's not in the foreseeable future but does that hedge us against a big increase again?
Mr Salerno: We have a policy of allowing us to borrow up to 20% of our total borrowing, net of liquid reserves, and hold back in floating debt. There are times that we'll build that up and get closer to that limit or at times we'll reduce it, depending on our call, essentially, of where we see interest rates going.
Frankly, even once we have in place some floating debt we can, through our trade, through our swaps of those instruments, convert that very quickly to fixed and at the same time we can go the other way as well. It's all a matter of making a call on where interest rates are heading.
The Chair: Thank you very much. That concludes our three-part saga with the Ministry of Finance. We thank you for your cooperation in meeting our scheduling needs.
HUGH MACKENZIE
The Chair: We now have Mr Hugh Mackenzie, an expert witness with the United Steelworkers of America. Mr Mackenzie, welcome to the committee. We have one hour together with you as an expert. I see that your report is being distributed to the committee.
Mr Hugh Mackenzie: If you'll pardon me just for a second, I'm just going to get myself prepared here. I'm going to start off here, if that's okay, and then move and sit down over there once I've gone through a few little slides.
First of all, I want to thank the committee for inviting me to make a presentation today. It's a pleasure to do so. I have to confess that one of the benefits or curses of my life is that I tend to do things at the last minute. Usually that serves me well, because things always happen that have an effect on what I'm prepared to do or what I want to do, and that's in fact what happened here.
What I'm going to do is start with a few slides that in a sense are a response or a comment on the presentation the minister made to you I guess last Friday about the state of the economy and about the state of the provincial budget situation. Then I'm going to come back to some of the more focused comments on where we're going in the future that I'd like to make.
The basic point I want to make is that I found the presentation the minister made last Friday interesting because it painted a very rosy picture of the current state of the Ontario economy and the current situation with respect to the Ontario budget, obviously for a purpose. But if you take a little closer look at the data, both at the details of some of the budgetary data and at both the details and some of the context of the economic data, in fact what you find is that whatever changed between the last time the minister spoke about the economy and today doesn't have anything to do with what the data tell you about what's going on in the economy, that something else has changed. Maybe it's political, I don't know, but certainly when you look at the data, it's hard to find evidence in the data of any kind of dramatic change in Ontario's economy or any kind of dramatic change in Ontario's budgetary situation.
I'm going to start with a couple of slides about the budget deficit. I do this with a bit of a sense of anxiety, because the exercise in responding to projections of budgets is fraught with danger because the data are frankly so often manipulated, sometimes consciously and sometimes unconsciously.
Let me just start by throwing this slide up -- you'll find this familiar; there was a variant of this in the minister's presentation -- showing 1995-96. For the people who are in the back, these slides are all in the printed material, so you're not at such a horrible disadvantage. It shows what looks like very good news with respect to the bottom line in the budget deficit: 1995-96, a budget deficit of $8.726 billion; 1996-97, a budget deficit of $7.672 billion.
But there was a footnote in the tables in Ontario finances to the effect that the 1996-97 data reflect an adjustment in income tax revenues paid by the federal government to Ontario under the tax-sharing agreement resulting from the 1995 tax year. When I did some checking, I discovered that the underpayment for 1995 came to a total of $578 million. So if you're trying to get a picture of what's happened to the fundamentals of Ontario's budgetary situation, clearly, it seems to me, an adjustment that reflects changes in the timing of payments that don't reflect what's really going on in the underlying economy have to be adjusted for.
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I understand that the accounting rules the government is following say that this money -- for some reason expenditures are reported as they're accrued but money is reported as income when it's received. Somebody's going to have to explain to me how that's consistent, but as an economist looking at what this reflects about the underlying situation, clearly one ought to attribute the income of the government to the period in which it's generated. When you do that, when you take the $578 million that was reported as revenue in 1996-97, that really arises from the income tax system as it existed in 1995, and add it back into 1995-96 and take it out of 1996-97, you get a somewhat different picture. Instead of looking like that, it looks like this. So the $1 billion-plus improvement in the bottom line budget turns into a $200 million deterioration in the bottom line budget.
I took pains to protect myself, because there are a lot of games played with budgetary numbers by all governments. In this environment one of the favourite games is to start off with projections that look less favourable so there can be a modern-day miracle of the loaves and fishes and you end up with a better looking bottom line than you originally said you were going to have. But the only point I'm making here is that based on the numbers that were presented at the committee, the story is actually a little different than the numbers appeared to suggest.
Let me turn now to the economy. If you follow the minister's presentation last week what you find is that there's a great deal of emphasis in that presentation placed on the results from the Ontario economic accounts for the third quarter of the year 1996. Being a natural sceptic, I went back and looked at those numbers and tried to put them into a context to see what they were actually saying about the state of the economy and what the situation actually looked like.
I went back to 1991 to try to put this stuff into some context and measured the data in real terms, not in nominal terms, to take out the effect of inflation. You see a couple of things here that are very striking. Basically the data confirm for Ontario what has become the conventional wisdom of economic analysts. In other words there's nothing new happening in Ontario right now that is dramatically different from what analysts have been saying about the state of the Ontario economy and the Canadian economy over the past few years.
You've got a very rapid increase in exports. When I do broader presentations on the economy, I have a slide that I put up that looks at the Canada-US exchange rate, and this rapid rise in export performance coincides almost exactly with the change of policy of the federal government to allow the dollar to drop. You'll recall that around here, in 1991 -- there are a couple of points, but one is that right here we were heading into our made-in-Canada recession, right here at the beginning. When we have a recession and the United States doesn't, our exports always increase. That's sort of a natural thing that tends to happen in recessions.
The other main thing that happened was that as the Bank of Canada backed away from its insane commitment to keeping the dollar up around 90 cents and started to let it slide, you started to see export performance rising. What you're seeing here is evidence of a significant export push on growth, an export push that has been driving right through the 1990s. The only blip in this rise occurs in late 1994, early 1995, when the Bank of Canada panicked and put interest rates back up again and the exchange rate went up a little bit and we got some bouncing around in the economy.
But basically we've had a pretty steady rise in exports, the underlying evidence for export-led growth that everybody has been talking about for so long. In Ontario, export-led growth means auto industry. This is particularly significant here because as we move into this period here -- commodity prices worldwide have been relatively weak -- so this is not export performance that's driven by commodity price improvements; it's export performance that's driven by manufacturing, trade and particularly by the auto sector.
What's really interesting about the data is that if you look at both consumption and personal disposable income, both of which were cited in the minister's slide deck as significant contributors to his favourable view of Ontario's current economic situation, you find that the data show again exactly what the analysts have been saying, that compared with the rest of the economy, we've had a very sluggish personal consumption sector. The explanation for it is pretty obvious as well. The top line is personal disposable income. It shows that personal disposable income has essentially been flat since the recovery in 1994 was essentially aborted. It's been basically flat since then. Over the period of 1996 it actually went down a bit. That just reinforces what the analysts have been saying about general economic trends.
If you take a magnifying glass and look at only the last couple of years, those trends again look that much clearer. We've had essentially flat -- keep in mind these are not per capita data; these are aggregate data. If you were to take this further and look at per capita numbers, you'd actually see a greater decline going on there. You can see that in the last couple of years the export boom, looking at that shorter period, looks like it's kind of evened off a bit, and we've still got very flat performance in consumption, and personal disposable incomes are flat as well.
I stress the personal disposable incomes one because you might remember the chart on personal disposable incomes that was in the minister's deck. I may use that in one of my little shows on how to make statistics work for you, because it shows essentially this picture, although it only focuses on that last little bit, so it's hard to tell exactly what's going on. As soon as you get past the present, in other words, as soon as you get past where we know anything, it goes up. I describe that in the text as a somewhat fanciful projection. If you're looking for a reason why consumption is flat, let me suggest that this may have something to do with it.
I have another slide that goes back another five or six years. This is median family incomes in Ontario in 1995 dollars. What it shows, and if this went back further it would underline it, is that from 1975 to 1995 the real incomes of the median family in Ontario, the average family, actually went down. That period from 1975 to 1995 has been the only period since the war in which that's been the case. If you look at a very long-term chart, you see a steady increase in living standards for the median family and then a flattening out.
What we're seeing in the data is not suddenly a dramatic improvement in the Ontario economy. We're seeing a reflection of the trends that analysts have been talking about for some time.
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There was another chart in the minister's presentation which struck me. It was not terribly informative. You recall that great, big, ugly black thing with 90,000 in the middle of it taking credit for large numbers of jobs created in Ontario in 1996. I took a little look at that as well and found some interesting things. Unfortunately this chart is pretty ugly too. First of all, the job creation numbers for 1996, when you check the StatsCan data, are actually 80,000, not 90,000. I think there must have been a typo in some of the minister's material that got through to there. I checked it two or three times because I worry about these things.
The interesting thing about those data is that in 1996, 45,000 of the 80,000 jobs that were created in the Ontario economy were part-time. That's dramatically different from the job creation performance in 1995, even though 1995 was not quite as good as 1996 in terms of job creation and wasn't nearly as good as 1994, which got up into the -- actually, it was about the same.
There's a huge difference in the role that part-time employment plays in this growth scenario. In 1994 the economy was replacing part-time jobs with full-time jobs in net terms. In 1995 there was very little part-time job creation. Almost all the job creation that was going on was full-time. In 1996 we have this dramatic change in the composition of job creation so that more than half of the jobs created were part-time jobs.
If you look back a little further, looking at job creation, these are monthly data showing the number of jobs created since the corresponding month in the previous year. I've done this so that I don't have to worry about seasonal adjustment or anything, because I'm comparing December with December, November with November, October with October. The heavy line is full-time and the light line, which is a little difficult to see on this, is part-time. It shows the significant emphasis on full-time jobs as the economy started to come out of the recession in the period from 1994 to 1996, then job creation performance overall kind of flattening out as the recovery started to lose steam, and then in the critical period in 1996 you can see this huge ramp up in part-time job creation. This period here, interestingly enough, is the third quarter of 1996, which is the quarter that generated all the Ontario economic counts numbers that the minister got so excited about.
The basic point of the slide presentation is to say that it's hard to find evidence in the economic data for the very optimistic view of the minister about the current state of the Ontario economy, and it's very difficult to find evidence in the economic data for the self-congratulatory position the government has taken with respect to its economic policy.
What I'd like to do now is spend a few moments, before we get into questions, looking forward. I'm particularly interested in looking forward at the impact of the government's fiscal policy over the next two years and, in particular, its major policy on rearranging the relationship between the provincial government and municipalities, what the impact of those two facets of government policy are.
In defence of straying into the provincial-local government morass a little bit in this committee -- I'm sure this committee would rather have it happening someplace else -- let me just point out that one of the things we don't think about very much is that about half of what government does in Ontario involves local government in some way. In other words, the provincial government, historically, relies on local government, in one way or another, to deliver about half of the program activities that it undertakes. So when there's a major change in how that's done, you can see that there may be some interest in the economic implications of that.
It's a little difficult from the published numbers that the government has come out with to get much of a handle, to get a clear handle on what is happening on the spending side of the equation. We know that there's another $3.8 billion to come out of the personal income tax system, according to the government's projections, but the government doesn't make medium-term forecasts of its expenditure activity going beyond the next I think fiscal year after this one.
In order to do the analysis that I'm about to talk about, what I've done is gone back to the Dominion Bond Rating Service, which is always right in its projections, and taken the Dominion Bond Rating Service's projections of provincial program spending and debt interest as the basis for this analysis. If you look at those numbers, what you have is about a $3.8-billion reduction in personal income tax revenues as a result of government policy and about a $6.8-billion reduction in spending compared with the current fiscal year as the government rolls through to the end of its mandate.
What I've done is I've looked at the positive effect on job creation of the income tax cut and the negative effect on employment of the spending cut and balanced them off against each other. I'm not going to bore you with the details of the multipliers involved, except to say that there's a general consensus among people who do this kind of economic forecasting that income tax cuts have a relatively weak job creation impact. The analysis that I've put forward here suggests that a $1-billion cut in income tax generates about 12,000 jobs. On the other hand, a $1-billion reduction in wages paid by the public sector to public employees results in a loss of about 56,000 jobs.
The reason for that can either be very complicated or very simple, depending on how far you want to delve into the arcane regions of economic modelling, but I guess the simplest way of describing it is that what matters in measuring the economic impact of government activities is how the money that is spent circulates in the economy.
When money is put back into the economy by an income tax cut, it leaks out very quickly in many ways, particularly an income tax cut like the one that Ontario is working its way through, which is tilted towards the higher end of the income scale in terms of dollars. Money leaks out of the economy through purchases of imports. It leaks out of the spending stream through savings, through debt repayments and so on.
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In the first few rounds, those leakages are much less apparent when you're talking about direct spending, and particularly if you're talking about paying money directly to people. But the bottom line is that if you take those two main facets of the Ontario government's policy, the $3.8 billion remaining to come on the income tax cut side and the $6.8 billion that is still to come out of the spending stream and put them all together, you end up with an estimate of approximately 225,000 jobs that will be lost as a result of this government activity, of which about half will be in Ontario and about half will be in the rest of Canada.
The last point that I want to make has to do with the reallocation of spending responsibilities between the province and local government. I want to emphasize this because there has been a lot of discussion about the impact on municipalities versus the impact on the province's balance sheet of these changes, and in fact those have been taken into account in the analysis that I've done. For example, when I look at the cuts in provincial transfers to municipalities, I take into account the fact that some of that is going to translate itself into property tax increases. But there hasn't been a lot of attention paid to the economic impact of these kinds of changes, and I want to spend just a few moments talking about this.
A lot of the services that we're talking about here are services that are really critical to the long-term health of the Ontario economy, and I don't think that's a very controversial statement. We're talking about public education, and it is now conventional wisdom that public investment in education is very important for the economic future of this province. We're talking about expenditures on roads and transit and sewer and water services and other kinds of public infrastructure, and we're talking about investments that contribute significantly to a quality of life in this province that has been recognized around the world.
Quite apart from the question of what in fact the change is, just the fact that all these services, the way these services are being provided, are essentially being thrown into a hat and tossed into the air and redistributed is going to have a huge transitional impact on the public sector's ability to provide those services.
But I think the more important point, longer-term, is the nature of the division of responsibilities that has taken place. I did a quick count when I was putting these notes together of the number of bodies that have looked at the rational distribution of responsibilities between the provincial government and municipalities and school boards. I lost count at six that have gone through the exercise and produced reports in the last dozen years, beginning with the Provincial-Municipal Social Services Review, which was started under the last Conservative government and completed under the Peterson government.
There was the so-called Hopcroft report, a committee chaired by Grant Hopcroft, that was commissioned by the Peterson government and delivered its report just after the change of government in 1990. There was the so-called disentanglement exercise, which was an exercise of the previous government. There was the Property Tax Working Group of the Fair Tax Commission and the final report of the Fair Tax Commission itself, both of which I had some involvement in working with.
What's striking about those reports is that over a period of a dozen years, under four different governments, with three different parties coming at it from a number of different perspectives -- the PMSSR looking mostly at how to deliver social services most effectively; the Hopcroft report focusing largely on issues of accountability; the disentanglement exercise looking primarily at appropriate levels of government to deliver various services; and the Fair Tax Commission exercises looking at least in part, in addition to those other factors, at how division of financing responsibilities dovetailed with principles of tax fairness -- despite those different perspectives and different primary objectives, every one of these exercises came up with essentially the same answer: that services to people, services that relate to income distribution, services that deliver benefits that go significantly beyond the boundaries of a municipality ought to be delivered by the provincial government and services that are primarily local in nature and services that are, generally speaking, hard services, ought to be delivered by local government.
What has happened is that in a number of critical areas this government is doing exactly the opposite. I think that the long-term implications for the economy of that kind of shift are really profound. I'm frankly not terribly encouraged by the news from yesterday that one of the quid pro quos is going to be that municipalities are going to have some say in the establishment of welfare rates. I really start to worry that we're in danger of getting into a patchwork quilt in a very important area of social services driven by a fiscal agenda which, at its root, comes back to the tax cut.
The conclusion I come to at the end of all of this is that the fiscal course the government is embarked on at the moment, and particularly the emphasis on continuing with the income tax cut, is going to have a profound negative effect on the Ontario economy. The changes in responsibilities between the province and municipalities are going to be profoundly disruptive of our ability to provide those services and, in the long run, are not going to serve the economic interests of the province. My bottom line position, I guess, is that the starting point towards getting things back on track is for the government to decide not to proceed with the next phases of the income tax cut and to start to focus on some of the problems that these things have created.
In closing, from a political perspective, I ought to be encouraged by the fact that the Minister of Finance is so keen on declaring victory in the deficit and economy fight because that suggests to me that some of the criticism from unlikely sources like the Board of Trade of Metropolitan Toronto of the government's determination to proceed with the tax cut, notwithstanding the other things that go with it, is starting to get to the government.
Mr Martin: Thank you very much, Hugh, for coming before us this morning. You certainly present a different picture from what we received from the minister and his staff over the last number of days as we sat on this committee; also a different picture from a couple of economists who came before us yesterday who referred to what's happening in Ontario as a Cinderella story.
The problem I'm having with all of this, and I have to tell you I struggle with it and it keeps me awake at night sometimes trying to figure out just exactly what is going on -- I'm not an economist; I'm a politician from a relatively small community in northern Ontario that is feeling the pain of the program this government is introducing to us as a jurisdiction in Canada.
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The government and the economists who came before us yesterday seem to be spending a lot of time with people outside this country who are telling them things about what we're doing that I think make them feel that somehow the news is all good and that what's happening is, in the long run, going to be better for us and fits in with any plans they have for the future of what they're playing in, which is a global economy.
We had people come before us yesterday: students; a municipal councillor who also owns a farm in rural Ontario; a person from the Ontario Road Builders' Association; even some people from the Alliance of Manufacturers and Exporters Canada group. I suggest that all of them were painting a picture that was quite disturbing, however couched in language that was trying to win some favour or curry some favour with the government in some instances. So if you listen to the people who are out there trying to make a living and trying to create some jobs and make ends meet on a municipal and regional level in the province, you'll hear one thing.
I know that in my own community we've done a little bit of a study of the impact so far of some of the activity of the government. We determined that by the late fall of 1995, which is the first year we had this government and the cuts to welfare and the cuts in government service in the fall of 1995, we in Sault Ste Marie had probably seen a reduction in the money circulating in our community of probably close to $50 million.
If you put money in the pocket of a poor person, he spends it immediately and it creates a spinoff effect. If you give wages to nurses, teachers, social workers and others who work for government, a good chunk that money is spent in the community in which they live. They pay taxes, they improve their homes, they buy cars, and it has a very direct and positive impact on the community in which they live. Our guesstimate of the tradeoff re the tax break that is suggested is that the positive impact would be minimal. We're expecting that by the end of this government's program we will be down 1,700 jobs or thereabouts in Sault Ste Marie.
I ask as somebody who is not an economist: How do you explain the juxtaposition between the two groups and the gap that seems to be growing in terms of understanding and support for different approaches to how we do the economy?
Mr Mackenzie: People respond to things in their economic interest. If you look at one picture that I could have put up there, it contrasts I think in a really interesting way what's been happening to personal disposable income to what's been happening to corporate profits before taxes in Ontario. There has been a significant improvement in the profit picture, steadily throughout the 1990s. It didn't start with the election of this government; it's been pretty steady throughout.
If you're an operator in an export industry, export industries are doing very well because, as I said in my presentation, once some sanity hit the Bank of Canada and it started to allow the dollar to drop down to a more realistic level, the economic activity really came flooding back in the export-oriented sectors.
In some sectors like steel, with which I'm quite familiar, the principal impact has not been in employment; it's been in the profit margins the corporations are able to make on their sales of steel. As a resident of Sault Ste Marie, you can just look down the street and see one of the positive impacts of our retreat from our insane exchange rate policy of the period from the late 1980s to the very early 1990s and the impact it had initially on Algoma as Algoma was in decline, and then the impact of the change in that policy as it's moved in the other direction.
In auto parts, changes in the exchange rate actually have a significant impact on where jobs are located because a lot of these plants are very mobile, so when the exchange rate rises to a level that's not rational, the jobs and the activity tend to move. If you're an employer or a business person in an export sector, you're quite happy with the way things are going right now. There's lots of money to be made in the export sector.
But you can see from those data that that's not trickling anywhere and it's not having the impact on people's living standards that similar kinds of expansions in the past have had and part of that is because of the way the structure of the economy is changing, including the kinds of things this government is doing.
Mr Jim Brown (Scarborough West): Thanks for coming. I agree with you on letting the dollar find its true value and help people in Canada who export.
Mr Mackenzie: Can I just make a comment? One of the things that always baffles me is that I listen to my morning radio show and I hear people cheerleading when the dollar goes up. I guess all the people who are doing the cheering must be planning vacations in Florida because if you care about your job it's not happy news when the Canadian dollar starts to go up.
Mr Jim Brown: I had a little manufacturing company and I did export and I loved the low dollar.
A lot of what you say in your report is predicated on the chart on page 2 whereby you added the adjustment in 1996-97 back into 1995-96. I guess you meant to imply that we're on the accrual basis so why didn't we accrue that amount in 1995-96.
Mr Mackenzie: I'm not --
Mr Jim Brown: If I can just go on, if one follows that, being an accountant I would want to accrue something in 1996-97 of an amount equal to $600 million and then that would really take your 1995-96 -- you've got 8,148 and you would be, in 1996-97, probably 7,400. So if we did the accrual, what you're suggesting, we would even be even that much better off, which would refute much of what you said later in the report.
Mr Mackenzie: I can only assume that the people who are doing the income tax forecasts for --
Mr Jim Brown: They're going to be more accurate than they were before and there won't be any surplus? I doubt that very much.
Mr Mackenzie: One of the minister's charts actually breaks down the change in income tax compared with what they originally forecast.
Mr Jim Brown: If you think for one minute the feds would give more money than they're supposed to -- that's being Pollyanna, I think. There's always going to be an adjustment that they're going to end up giving us.
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Mr Mackenzie: I'm trying to answer your question. The minister presented a chart that broke down the changes in the 1996-97 income tax revenues and it did show an increase in revenue for 1996-97 over what they originally expected to get, over and above that $578 million. So I think that has been taken into account.
As I said, I don't confess to be an expert in accounting. What I'm looking at as an economist is, what do the numbers that are coming in tell you about the underlying economy and what do they tell you about the underlying position? I look at the adjustment that was paid by the federal government in a way as like the extraordinary items on a profit and loss statement, that you're happy to have the money, but what you want to know is what's going on underneath. I think it must be absolutely clear that taking money that arose from economic activity in 1995-96 and putting it into 1996-97 makes 1996-97 look artificially good.
I also said in my remarks that I have no doubt there are pockets of overestimates and underestimates all over the place in the budget. Just as Paul Martin has made an art out of underestimating revenues and overestimating expenditures and producing fiscal miracles every time he has a budget, I have no doubt that the people who put together the numbers here will be just as creative.
My point is just that the picture that's presented, from my perspective as an economist, doesn't help me that much. It confuses me about what's going in the underlying economy, and when you look at the numbers for the underlying economy, you don't see the basis for that.
Mr Joseph Spina (Brampton North): Mr Mackenzie, for a highly paid researcher I'm surprised at your admission that your presentation was hastily rushed together. You've claimed scepticism of the numbers that were presented by the Ministry of Finance and, frankly, sir, I'd place more credibility in the high amount of research they put into their presentation than perhaps I would yours.
I would like to clarify one thing. You indicated that in the minister's statement there were 90,000 bogus jobs. These were private sector jobs. There were 10,000 from the public sector. That was the job loss, which is the 80,000 net.
Mr Mackenzie: Okay.
Mr Spina: I would challenge you on this one item, the contradiction I see in your claim that consumer disposable income is low, is stagnant. There are numbers like auto sales being up 20% in November compared to November 1995; fourth quarter home resales have risen sharply to 176,000 and an annual rate up 57.4% from a year ago; retail sales have risen -- Statistics Canada numbers -- 2.1% in November. Are you suggesting that these are lies, that these are creations of somebody's mind, that these are creations of the Ministry of Finance and the minister of this government?
Mr Mackenzie: No, I'm not suggesting that at all. What I'm suggesting is that if you look at what's happened on employment and you look at the general trends in the economy, when we see the numbers for the fourth quarter of 1996, we will not see a continuation of the bump that happened in the third quarter. That's what I'm saying.
Mr Kwinter: I just want to tell you that our finance critic, Mr Phillips, has been making the point about that $578 million for some time, and just to answer the question that was suggested by Mr Brown, it's like on your balance sheet, if you show that you're making a profit because of depreciation and if that's the only profit you're making, you're not going to be in business for very long because you're going to have this great depreciation --
Mr Jim Brown: But a lot of companies are, Monte. You know better than to say that.
Mr Kwinter: No, what I'm saying is that it's going to look good on your statement because you made a profit because you're depreciated your assets, but that isn't a real profit per se. It shows good on the statement for the bank and it shows good for other things, but as I say, you can't make a living on your depreciation. I'm suggesting that somewhere along the line, when you change the accrual method -- and it's fair ball if that's the way it is and you show it because it could happen the other way around and you're going to lose it. I'm just suggesting that it is an issue of concern and it's something that should be looked into.
After our session yesterday there was one presentation that really disturbed and I asked about it. I went home last night and tried to analyse it, and it suddenly came to me that we're having a little problem here. I think the role of this committee is to try to balance the different perspectives. You obviously come with a perspective from the labour movement and you're going to give your particular bias. I don't mean that in a negative way. You have a particular bias; we have other people who come with their particular bias.
The thing that surprised me was, we had someone from Scotia Capital and he showed me a chart that he said the Germans just loved that showed that the combined deficits of all the jurisdictions in Canada was just over $10 billion, which made no sense. It just absolutely made no sense to me. He tried to rationalize it: "Well, it depends. There are three different figures." It just makes no sense.
Then I listened to Canada Trust and their decision that Ontario was in a Cinderella mode, it was just booming and it was really a magnificent story. Then I listened to the Ontario Road Builders' Association, and throughout their presentation they were highly critical of what the government was doing, said that it was irresponsible, said that all these things --
Mr Cordiano: Concerned them a great deal.
Mr Kwinter: -- concerned them, that it was going to be a major problem. At the very end -- I want to quote and I'm just giving you this to the background because I want to get your comment. After it was all through and they said that the auditor general has said all these different things, it says, "...continued underfunding is an irresponsible course of action." This is what they said in the body of their presentation.
In the last paragraph they say: "In concluding, we would note for the record that our association supports fully the economic objectives of the Ontario government and we commend the determination with which those objectives are being pursued." You say how could that be? Are they written by two different people or are they two different reports? Then suddenly you realize the only customer they've got is the government. Who else builds roads? So they've trashed them completely --
Mr Rollins: The municipalities do that and you don't like that.
Mr Kwinter: When you look at that, you say: "What's going on here? Are we getting the straight goods?"
Then we have a report from the Alliance of Manufacturers and Exporters and they say: "However, the domestic economy depends on consumer and government spending. It is barely growing at present, and is likely to remain weak for several years."
The reason I bring that forward is that I think this is a group that has a particular point of view but probably has a more even point of view because they represent manufacturers, exporters, business people and this is what they see. The truth has got to be in the middle there somewhere.
It would seem to me that we have a problem because, depending on who is making the presentation, we're getting a different point of view. Unfortunately one of the challenges we have is that we've got to try to come up with what is the real answer. I wonder if you have any comments on that.
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Mr Mackenzie: My general comment would be to repeat what I said earlier, that I think people tend to respond to these things based on their perception of their economic interest. I think your point about the Road Builders is quite astute, that they are internally conflicted. On one hand they're very unhappy that there's less money going into that, but on the other hand they don't want to make the government mad because they're afraid the government might take more money out of it. That's going to be a concern.
I think that people who are involved in export industries are quite happy at the moment. The exchange rate policy is helpful to them and they're not doing badly. The bottom line for people and what the economy is doing for people is what you see when you look at what's going on with disposable incomes and family incomes and employment and part-time versus full-time employment. Those are the kinds of problems that I see every day, and it doesn't look like much of a boom to me, which I find quite frightening. Right now we are riding on a bubble, an export bubble that's created by a very long-term period of expansion in the United States. Partly because of exchange rate policies, partly because of the weakness of the domestic economy and partly because of the free trade agreement our economy is far more dependent on the health of the US economy now than it's ever been.
My worry for the future is that we have an uncontrolled experiment about to happen in Ontario: What happens under free trade and the kind of exposure we have to the US economy when the US economy goes into recession? As I said, it's an uncontrolled experiment. We don't know what's going to happen, but if I have a real fear about the medium-term future, that's it, because we are incredibly exposed to the US economy.
The Chair: Thank you very much, Mr Mackenzie. We appreciate your presentation before the committee today and taking the time to come.
Mr Gerry Martiniuk (Cambridge): Mr Chair, I'm somewhat confused on a point that one of the witnesses raised. They discussed actual debt which was substantially higher than the DBS standard. I was wondering if the legislative research person could be instructed to provide us with a definition of debt as defined by the DBS. I understand that is the international comparison standard. I wasn't aware there was a distinction and I'd like that information.
The Chair: This is in reference to Mr Kwinter's comment on the estimate from Mr Manford?
Mr Martiniuk: Yes, that's correct.
Ms Alison Drummond: His table, and I believe Mr Kwinter's questions as well, actually dealt with the deficit. Are you interested in the definition of "deficit" or of "debt"?
The Chair: Is it "deficit" or "debt"?
Mr Martiniuk: Debt. The definition of "debt" that the DBS uses.
Mr Martin: On that same subject, Chair, I would be interested as well in some work by the research department comparing what Mr Mackenzie has just presented with what the government has actually presented to see if there is any basis at all to either argument for the numbers.
Ms Drummond: That's specifically on the issue of calculating the deficit?
Mr Martin: Yes.
CANADIAN ADVANCED TECHNOLOGY ASSOCIATION
The Chair: If I could just introduce the next witness, Ms Shirley-Ann George, from the Canadian Advanced Technology Association. Ms George, welcome to the committee. We have 30 minutes together. Thank you for joining us.
Ms Shirley-Ann George: Thank you very much. I understand I have about 15 minutes for a presentation and 15 minutes for questions and answers, so I'll jump right in.
I'd very much like to thank you for the opportunity to be here today. We believe strongly that an open process is the one that is going to bring about the most progressive budget and action by the government.
I'm Shirley-Ann George, the executive director in Ottawa for the Canadian Advanced Technology Association. In listening to the previous presenter, I'm not sure if it's good or bad that I'm not here to ask for more money and I'm not here to say you're doing a lousy job.
CATA represents over 450 members from across Canada; over 250 are Ontario-based corporations. These companies come from the best of Canada's new economy and include sectors such as aerospace, computing, defence, medical devices, software and telecommunications. Some of our better-known members are organizations such as AIT, CAE, Calian, Cognos, Corel, DY4, Gennum, IBM, Mitel, Newbridge and Nortel. These companies are heavy investors in research and development and generally get over 70%, often over 95%, of their revenues from outside of Canada. CATA's mandate is really quite straightforward: to ensure that Canada and Ontario remain a competitive place from which to do business, because we don't do a lot of business here.
Our members thrive in an environment where product life cycles are becoming shorter than their development cycles, where capital markets demand double-digit growth and are extremely brutal if you don't meet your quarterly targets. It is an environment where you are expected to survive only if you are in the top two and maybe, if the market is large enough, top three in the world.
It is a world where time is measured in days, and very seldom do you have the luxury of months, where solutions that are years away are as relevant as those that are a millennium away. It's an environment where Ontario-based companies are doing extremely well.
To give you a sense of the expected growth, last summer we did a small survey of 150 of our members. They projected a need for over 7,000 new employees in the next 12 months. That's direct jobs. If you use the standard three to four multiplier, that's 30,000 jobs coming from 150 Canadian organizations.
Our members must continue to experience this high growth. If they don't, they will quickly die or be acquired by others. The question for the government of Ontario is really quite simple: Where will they grow their businesses? These CEOs are proudly Canadian. Their global travels have taught them far better than most who live here that Canada and Ontario are the envy of the rest of the world. They will only leave Ontario if they are forced to, but we should not doubt that if they are pushed, they will go.
The province of Ontario lives in the same world. You must compete on a daily basis for your employment base. There is no comfortable middle ground left. Ontario must be viewed as one of the top 10 technology clusters in the world or it will simply become a non-player.
How is our competitive environment? Frankly, it's good, and the factors point that it is moving up the scale. Both the Ontario and federal governments appear to finally be serious about getting their spending under control, and we applaud you for your efforts. In order to maintain our confidence in your government, you must not waiver from your financial commitments, you must make every one, no matter how much the vested interests demand otherwise.
Your cost-cutting measures have also been selective. The Ontario government has left intact its support for industrial research and development through superallowance program. This program, coupled with the federal government's SR&ED tax incentive, is considered absolutely fundamental to our ability to continue to grow our businesses in Ontario. Unlike other jurisdictions, Ontario has almost all of our eggs in one basket, and we'd like to thank you for having the foresight to understand how important this program is. You've also moved to reduce personal taxation, unfortunately not remove it.
Our members' only significant assets are people. We cannot remain competitive and make up for the huge compensation differences that are required to offset our competitors' offers, which include much lower personal taxes. Just to give you a sense, for us our competitors are in places like Texas, where there's no state tax. If you're earning in the very high tax bracket, the top grade is around 29%. That's extremely difficult to compete against.
Even with all the hard work your government has put into ensuring our confidence in Ontario, there are some obstacles on the horizon that you should be very concerned about. Because of the limited time, I'll speak to only two of these challenges: the critical shortage of qualified human resources and a level playing field with our US competitors for mergers and acquisitions.
Although the shortage is felt in more fields than just software programmers, I'll use this as an example to demonstrate how very serious the problem is. In Ottawa-Carleton it is estimated that we need at least an additional 2,000 programmers every year. The Software Human Resource Council estimates that the Canadian shortage is now 7,000 to 9,000 and will grow to 20,000 by the year 2000. This is coupled with the "brain drain" problem.
Last year we did a small survey at the University of Waterloo with the computing and electrical engineering students. There's a copy of the report in your package. We went down there to try and determine for our members what criteria they're using to select which job they take and we were horrified to find out that 75% are willing to consider US employment. Without a good supply of ready-to-go brains, we cannot develop the products that will keep us at the leading edge.
Unfortunately, at the same time US recruiters have discovered Canada. We have become very fertile picking ground for US companies. We must develop strategies to compete with this threat. Taxation is indeed part of the problem, but it's not the only issue, and I encourage you to look at the other issues that are in this report.
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This problem is not a speed bump, it's a 1,000-foot brick wall, and we are heading at it very quickly. For some companies, they're already there. Just this weekend, in the Ottawa Citizen, there was a report of companies that are picking up and leaving Ontario because they cannot find the employees they need, but they are available in other areas.
Currently, only 700 of the 11,300 students graduating from the three Ottawa-Carleton universities and colleges have the technical skills that the information technology companies need, and not all of these are programmers. We have a critical shortage and only 6% of the graduates are qualified to take the jobs. It's not any wonder that there are thousands of jobs waiting.
CATA, in partnership with the Ottawa-Carleton Research Institute, OCRI, is working on an industry-led initiative to deliver an additional 2,000 programmers per year from Ottawa-Carleton public and private institutions by the year 2000.
There will be a key role for the province in this initiative and I encourage you to take a leadership role in working with this group. More, a lot more, must be done to increase the number of qualified graduates. We are willing to work in partnership with you if you are willing to remove the barriers and find meaningful solutions.
The final issue I will leave with you is one of those problems that comes out of left field and is undermining the progress you've made in ensuring Ontario's competitive position. Successful companies, especially IT companies, can only meet the growth targets mentioned earlier if they include mergers and acquisitions in their corporate strategy. The unlevel playing field that we are faced with is commonly known as the "goodwill" problem.
Today, US companies have two strategic advantages over Canadians when competing and accounting for buyouts. US companies record mergers and acquisitions in one of three ways. Those that meet 13 stringent requirements can never show the costs of the purchase by using something called pooling of interest. Others can take the intangible assets and write them down immediately through in-process write-downs of R&D. The third, and effectively only, option open to Canadians is to record the intangible assets as goodwill and take a hit each and every quarter on your earnings to write it off over three to five years.
For a software company, 70% of the mergers and acquisitions that are taking place in the US use one of the first two methods. The use of either of them gives them a competitive advantage over how potential acquisition targets view Canadian offers and the financial analysts view of Canadian corporations' capital value. There's a copy of the RBC Dominion report that goes into more detail on this issue.
The accounting problem belongs squarely with the Canadian Institute of Chartered Accountants, CICA. We are working with them and the Ontario Securities Commission to level the playing field. Unfortunately, we are making very little progress. Advisers to Canadian companies are now recommending that technology companies going public should seriously consider bypassing the Canadian capital markets and go public only in the US and report only using US GAAP. Canadian corporations that are already listed on Canadian exchanges are being forced to do dual US and Canadian GAAP reporting, with the Canadian GAAP becoming the irrelevant fine print in the back of the book.
Proponents of the status quo will tell you in great detail why the Canadian system is better, how the US is the one that's wrong and the one that is offside from the international standards and how there is work that is being done to get the US to change its ways. The reality is that we are 2% to 3% of the global marketplace and they are the dominant player. These proponents are not listening to what we're telling them, that solutions that are years away are useless and it doesn't matter who's right or wrong, it only matters where the competitive playing field is. If we cannot get a level playing field, we must either make one or go to where we can enjoy the same advantages as our competition.
There is a crisis in the Canadian capital market and for Ontario's fastest-growing technology companies. At a time when we have significant pools of equity capital in Ontario, our companies are going to the US for their capital needs. It is very unhealthy to have our ownership based solely in the US.
The next generation of Newbridges in the job-creating sector are queuing up at the doors of buses that will help them leave town, and they are pleading with someone to wake up and let them stay. To solve this problem we need one of two things: By far the best solution is to have the CICA allow Canadian companies to use US rules for mergers and acquisitions until they are successful in getting the US to adopt international standards. The second option is to ensure that the OSC allows Canadian corporations the same latitude their American competition uses when listing on the TSE today, and that is to report under US GAAP with reconciliation statements. Current rules with the OSC make this very difficult. We ask for your help and support in fixing this important matter in the very near future.
In summary, we are asking for you to stay the course with your fiscal commitments. Your continued support of technology companies through the superallowance and further personal tax cuts is vital. We need your support in a concerted effort to dramatically increase the number of skilled workers coming out of higher education institutions, in part by ensuring that moneys are specifically directed to areas where there is a high likelihood of employment. We need the government of Ontario to take a leadership role and ensure that all the elements affecting Ontario companies are focused on ensuring our competitive position.
We truly believe that we live and work in a wonderful place. It's a great place to grow our businesses and raise our families. We are willing to work in partnership with Ontario to ensure that it remains a competitive place to do business from. Let's put some focused effort into this and Ontario could indeed become the more attractive technology cluster in the world, and we should settle for nothing less.
Ms Bassett: Thank you for your presentation. It was just fascinating. There are of course many aspects you touched on. As parliamentary assistant to the Minister of Finance, I've been working with the Ministry of Education on an income-contingent loan repayment program. When you talk about the jobs out there and yet we need ready-to-go brains to fill them, do you think that moving in this direction will be one way to help students prepare?
Ms George: This is a very complex problem, but without a doubt we have to make sure that any student who has the capacity to work in the field has the opportunity. We can't let income, or the income of their parents, to be more specific, be the factor that determines who gets in and who doesn't.
Ms Bassett: Do you think, though, if this program comes in -- and we are all behind it; we are just waiting for the feds to come on side totally -- that it will be a step towards getting enough people into the jobs that need to be?
Ms George: It's absolutely essential. As somebody who pays university tuition on a regular basis, the reality is that we cannot expect the governments of Canada to continue to subsidize university tuition to the level they are. If that has to go, if that has to change, then we had better have something else in the backup and an income-contingent loan repayment plan just makes a lot of sense.
Mr Spina: Thank you, Shirley-Ann, for coming down. We've had many conversations in the past. I just wondered if you could explain a couple of other items on the barriers besides the taxation issue, investment at the post-secondary level and the access to capital, and that's really with over-the-counter trading and things like that. Are there any other areas that we could address and make recommendations on to the minister for this budget?
Ms George: Without a doubt, the thing that I hear most often is the human resource issue. We have to find a way to ensure that our education system is flexible enough that it can stay up to speed with an industry that is absolutely in a period of flux. I can't tell you that five years from now we're going to need 20,000 programmers. All I know is that five years from now we'll continue to have a very high need for highly skilled labour. We need a flexible and current education system.
We need an environment where our corporations feel that at a corporate tax level they are in a competitive position with their competitors in other technology clusters.
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Mr Cordiano: I appreciated your comments with respect to what's happening in order to maintain a steady flow of highly skilled, highly educated people. Yesterday, we heard from the Canadian Federation of Students -- Ontario. They made a number of recommendations, and among them were an immediate tuition freeze and a restoration of the cuts that this government has brought about in the college and university sector, which amounted to about $400 million. They were also expressing very grave concerns about the income-contingent loan repayment plans because of the high level of debt that students currently hold, and I think the average was about $24,000 per student. Do you agree that it would create a disincentive for students to continue with higher learning or education in universities if they were taking on additional debt?
Ms George: Will it disincent some? Yes. If you look down to the US, where students coming out of that system can have debts far higher than $24,000, I think you'll see that good people still go to university.
Mr Cordiano: They can, but the fact of the matter is that most of the US state schools -- let's not even talk about private schools -- have incredible funding at the public level for those public institutions. They have endowments and trusts for private universities and private colleges which offset those increases or the high levels of tuition fees that exist in the US. Most of the students there who cannot afford it or do not have the kind of money we're talking about would be accessing those institutions via those trust accounts. The kind of accessibility that's there and the funding that's there for those types of students are far greater than we're providing right now. In fact, we're falling behind the US.
Ms George: I can't speak for the entire US system, but my nephews and nieces all left university with debts far higher than $24,000.
Mr Cordiano: I went to an American school. There were many more bursaries, many more scholarships.
Ms George: Oh yes, that's true.
Mr Cordiano: That's how I got to go to one of the American schools to do an MBA. They have research assistantships. We don't provide anywhere near the kind of funding that's being provided south of the border.
Ms George: The reality is that we're in a transition phase. You have to remember that we still spend a huge amount of money on higher education, and if only 6% of it is going into areas where there are job opportunities, maybe what we can do is redirect some of that money into bursaries and scholarships in the areas where there are job opportunities.
Mr Cordiano: Do you agree with this government's funding cutbacks, which have been severe with respect to universities and colleges? That can only hurt the prospects for more highly trained and highly educated people of the calibre you need in science and technology. I think it's going to badly hurt your industry.
Ms George: It could indeed, if nothing else changes. If you look at 6% of the money going to where we need it, that provides 94% for some readjustment, and I'm not suggesting that the higher education budget should go exclusively into the technology field, but the government still has a lot of flexibility over where an awful lot of money goes. It can go into other things, including the income-contingent plan, but also into more bursaries and scholarships and funding assistance for areas where there's a high likelihood of employment.
You're right that as we make these cuts, there are going to be painful transitions, but there are also great opportunities to readjust the entire system, to re-engineer and make it more usable in the future.
Mr Cordiano: They're not funding science and technology and the areas that we need the funding to go into in our universities. They're not doing that currently. It was a cut right across the board, the $400 million, so you're not getting preferential treatment for that type of student, that kind of training that's necessary.
Ms George: Yes, and that is one of the points I wanted to make today: If you want to have these jobs stay in Canada, you're going to have to find a way to direct the money so there are more students to --
Mr Cordiano: Right. So you must disagree with the government --
The Chair: Thank you very much, Mr Cordiano. We'll move to the NDP.
Mr Martin: What I hear you saying in this presentation is that you need government to work with you to make sure we maximize the potential in this field, and that right now, one of the problems is a lack of people trained to participate and take advantage.
I agree with you that we need to be putting more effort and resource into making sure our young people have a shot at participating in this newly evolving field of economic activity. But I can't juxtapose that with the cuts being made presently to the education system at all levels. It doesn't indicate to me a commitment by a government to making sure our people have the best of opportunity and are going to be prepared to take advantage of what you indicate are rather exciting possibilities.
I want you to comment on that, and I also want you to comment on your other claim that lower personal taxes are also an incentive. If you lower the personal taxes being paid in this province, you take away from government the ability to invest in education systems. It seems a bit of a contradiction there. Perhaps you could help me understand that more fully.
Ms George: You're right that if what the government does -- and there's an opportunity here, hopefully, to influence the next budget -- are just across-the-board cuts and it doesn't either allow the universities to direct or ensure that the universities direct funding into the technology sector, we have a critical problem. Our companies will unfortunately be gone before you ever solve that, if that's what happens.
If what the government does is look at the problem -- and it's more than just money; we have thousands of history professors or whatever and not enough people who can teach computer programming at the university level. It's not just one thing, but definitely, in order to grow the number of graduates, more of the education money is going have to go into those areas.
Mr Martin: How do you juxtapose that with the personal income tax cut?
Ms George: The cold, hard reality -- let me give you one example. An executive from one of Ontario's largest corporations was working at the vice-presidential level in their operation in Texas; he came to Ontario and took a $50,000 cut in income by coming here. If we cannot attract the world's very, very best to lead our companies, we will have to take the operation and move it to where we can. If we don't get a VP of research who's willing to come into Ontario, what will happen is that we will take that research team down to where the researchers are.
We definitely have some advantages in Ontario, and companies and individuals are willing to pay a premium to live here, but we won't pay a 200% premium. No matter what we need to do in this province, we also have to be competitive, and Ontario has to fight tooth and nail to get these employment opportunities into the province. We have to be competitive more than just at the corporate rate; we also have to be competitive at the personal rate.
The Chair: Thank you very much, Ms George, for joining us today and bringing your perspective to the committee. We appreciate it very much.
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ONTARIO PUBLIC SCHOOL BOARDS' ASSOCIATION
The Chair: We now welcome the Ontario Public School Boards' Association, vice-president Mary Jeffery and associates. I want to bring to your attention that there is generally a vote at noon in the House on Thursday, so our time will be limited by that vote. I believe we will have 30 minutes together. Please identify yourself for Hansard as you begin your presentation.
Ms Mary Jeffery: Yes, I will. I'll introduce the people who are here with me; we will be making a joint presentation. I'm Mary Jeffery, vice-president of the Ontario Public School Boards' Association for the central-east region. Gary Ainsworth is a trustee with the Peterborough County Board of Education and chair of the finance committee for the Ontario Public School Boards' Association. Dusty Papke is a director of education for the Muskoka Board of Education and also sits on the finance committee for the Ontario Public School Boards' Association.
First of all, I'd like to thank you for the opportunity to be here today. We appreciate the time you're taking in trying to develop a process for this province to be taking and a direction for us to be moving in. I would like to comment on what the Ontario Public School Boards' Association is, to put it in a bit of perspective, although I know we have been here before on other occasions. We represent 92 public school boards in the province of Ontario and 1.7 million students. Therefore, I think we can safely say that we speak for public education in the province.
We are concerned about some of the recent announcements that have been made by the government and today we'd like to you briefly about some of these and make some recommendations on where see the future of education heading. We feel the hearings are very essential in the planning process and we hope the comments we have to make today will have some impact on the directions you'll take.
I am going to go briefly through the document. I think you all have a copy. I would like to draw your attention to page 4 and point out a couple of things the association has stood for for a number of years.
We have appeared before you before, as I said. We have, we think, a very simple strategy for managing school board expenditures. We continue to support this approach, and you'll see this in the two points on page 4: an adequate provincial per pupil grant based on an accurate and comprehensive costing of programs and services, sensitive to student needs in all parts of Ontario; and a new legislative framework that gives school boards more flexibility and freedom to implement new ways to deliver services and to facilitate local innovation.
We believe 1997 and 1998 will be a time of chaos for education and perhaps for other areas of the province as well. We think further cost-cutting will be or can be at the expense of Ontario students, and we are very concerned about this.
In some of the statements made recently by the government we have heard comments that only 1.8% was cut from education in 1996. We feel that some of these announcements being made have much misinformation about how our education dollar is being spent. Perhaps I could identify that Premier Harris made that particular statement. We suggest to you that in 1996 the reduction was in fact 7.97% in grants, and if you look at table 1 on page 5, you can get some idea of the impact of these cuts on some of the boards in the province.
We have also heard that for every dollar spent in the classroom, more than 80 cents is spent elsewhere. We believe this is a very narrow view of what the classroom experience is. These particular expenditures do not include libraries, guidance, school principal, secretaries, custodians, heat and light, school buses, or professional support for special needs children. In some of our minds we picture students sitting in the snow, with no desks, no light, no heat, but with a teacher and a blackboard.
We feel these fundamental services are important to education. Public boards have tried to protect the classrooms in the past year, and table 2 on page 7 will show you some areas where school boards have reduced their budgets. You can see in school capital a reduction of 37.5%; instructional supervision, a reduction of 17.4%; school administration, 8.1% less; and so on. In fact, the impact of cuts to education has hit the classroom.
Last year it was necessary for many boards to cut programs like junior kindergarten, adult education, day school programs, instrumental music, noon-hour supervision, gifted and enrichment programs, alternate ed programs and so on. We see that 1997 will continue this trend, as there is a continued reduction in operation expenditures from provincial policy decisions in 1996.
We do not agree with the government when the government says we have mismanaged funds. In fact, the government has set a mill rate increase for boards of education. The provincial government makes this decision, and you can see some information with regard to that on page 6, the third paragraph down, when you set the provincial mill rate for the grant programs.
As well, you will remember that the government has announced some funding for capital expenditures. I would say to you that we believe many of these new buildings, which are needed -- and we're pleased that the government recognized they were needed -- will not be built, because at the same time this was announced we're also faced with having to deal with the Education Implementation Commission, and we are having some difficulty in trying to finance our new schools and what have you because of the process that has been set in place by Bill 104. While I don't want to talk directly about Bill 104, I do want to mention to you that it has a significant impact on how we can continue to operate as school boards.
We have several recommendations for you. At the front of the document we have provided is a list of our recommendations so you can have a brief look at them. As well, they are identified as you go throughout the document.
One of the recommendations we feel very strongly about is that the provincial government must ensure adequate and equitable support for all students in Ontario. We believe that further cuts to education will have a serious impact on the ability of our public education system to adequately educate all students.
Mr Gary Ainsworth: My name is Gary Ainsworth, trustee with the Peterborough County Board of Education and chair of education finance for the Ontario Public School Boards' Association. I've been asked to address the issues on pages 11 and 12: appropriate regulations, the Education Act and cooperation.
What we have found as school boards is that in order to respond to the needs of the students -- many of the regulations and the Education Act itself are antiquated, prescriptive in nature rather than being permissive, and as a result we're not able to meet the needs of the students in innovative and creative ways.
Amendments to the regulations would allow for greater flexibility. In our comments to the government, the association has requested a review of all provincial mandatory legislation, such as school bus safety, other health and safety regulations, fire and building codes and environmental and employment regulations in order to make this legislation more appropriate for meeting student needs. OPSBA makes this request again.
The report of the Ontario School Board Reduction Task Force also suggested that the school board operational expenditures cannot be reduced without some deregulation. Therefore, we are asking today that the recommendations made by the Ontario School Board Reduction Task Force pertaining to provincial mandatory legislation as it impacts on school board operational costs be implemented in order to streamline administration and facilitate cost efficiencies.
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The Education Act, in its antiquated form and with its overregulated programs, has been a fragmented and reactionary approach to providing governance of education. The current legislation and regulations often discourage local cost savings. We are requesting that a complete review be made of the Education Act and its regulations in order to make it permissive so we can more adequately meet the needs of the students.
David Crombie's Who Does What panel recommended that the new Municipal Act give municipalities more flexibility to deliver services for taxpayers at a price they can afford. Since school boards are also a form of local governance, we are asking that we should be given the same considerations as municipalities. Therefore, OPSBA urges the government to rewrite the Education Act.
In the area of cooperation, OPSBA recognizes that cost savings may be achieved through reducing duplication and staffing. I am a trustee on the joint committee with our coterminous board, and we often recognize that although cooperation is something we all state verbally, to be able to carry it out has been another thing. It would be very helpful to have mandatory cooperative service delivery of board administrative services, building and school maintenance, and school transportation. OPSBA is offering its assistance to the Education Improvement Commission and the government to develop the guidelines and legislation for mandatory cooperative service delivery among school boards, where physically viable and cost-effective.
Due to the diversity of circumstances, OPSBA does not support mandatory outsourcing with local agencies, the private sector or with municipalities. This must remain an option for school boards, dependent on the viability and cost-effectiveness of the programs.
One example we discussed as we were preparing for this presentation today is that in the areas of Belleville, Peterborough and Muskoka, there is excess capacity in the secondary school system, yet there are new schools being built for the separate school boards. There's a vacant school in Belleville, yet there's an $18-million construction project of a secondary school there. It would be helpful if we could offer that school to the separate school board rather than spending that extra money on additional capital expenditures. It's the same thing in Peterborough where I'm a trustee --
Mr Rollins: It already was offered.
The Chair: That'll come up in the question period, Mr Rollins.
Mr Ainsworth: This is just an example. To encourage cooperation, we recommend that rather than spending additional funds on more school projects, the excess capacity in the public school system be used by our coterminous boards.
Mr Dusty Papke: My name is Dusty Papke. I'm the director of education with the Muskoka board, and I'm also a resource to OPSBA's education finance working group. I want to touch briefly on the issue of the restructuring of the school day and school year.
OPSBA has recommended in the past and continues to recommend that the Education Act and regulations be amended to allow school boards to define the school day and year in accordance with community needs and the educational outcomes of the ministry.
I want to talk first of all about the issue of year-round schooling. In Muskoka, we have implemented what we believe to be the first successful alternative school year. We have three elementary schools that operate on an alternative school year program. They're dual-tracked schools, so we also operate the traditional school year within those schools, but in those three elementary schools, we have approximately 250 students who attend school on close to a year-round basis.
The program has been an overwhelming success. It's entirely voluntary. We weren't sure what the reaction would be initially, but we have waiting lists for those school placements.
It's too early to really expound on the impact on academic achievement for these students, but we intend to conduct longitudinal studies over the next number of years. Our early indications are certainly that reducing that long, 10-week summer break does increase academic achievement.
We are not operating these programs for financial reasons at this point in time, although obviously there are some financial implications, where savings are likely to be garnered in the future. We've done it more in response to some of the demographic needs of our community, which we think is crucial.
There is a body of research that indicates that students are further behind in September when they return to school than they were when they left in June. Part of that, obviously, is getting used to a new teacher and a teacher getting to know those students when they return, but there's also that long break in the summer where students are out of school.
What we've been able to do with what we call the alternative school year program is reduce that long break. We've lengthened other holidays, so they are attending school the same number of instructional days but spread out over the year. Our initial indications are that academically the students are likely doing better, and we had overwhelming satisfaction from the parents and the communities involved.
It's also meant the availability of a lot of other community resources at times of the year when those resources aren't being stretched by all our schools and other agencies trying to access them. We've been able to utilize that. It's meant more efficient use of technology: We are able to have every student with access to computers during the time when other students are not there, because the holidays are not matched up throughout the year.
It's been terrific for the demographics of our community. As you know, the Muskoka economy is very much based on tourism, and for many of our parents the summer is the time when they are most busy. For those people, they're quite pleased to have the students attending school for a good part of the summer months and their holidays spread throughout the year at different times.
We've been able to do that alternative year process by applying for special dispensation, if you will, through the ministry, but it would be a much simpler process if boards were simply allowed to define the school year.
Similarly, a more flexible school day would allow more creativity in busing schedules, particularly in rural jurisdictions, which most boards in the province are. We bus more than 85% of our students, close to 90% of our students, because it is a rural community. It would certainly allow savings to be made in the transportation area, plus more efficient use of buildings if we could offset some of the time when those buildings are being used.
A combination of year-round schooling with more flexibility in the school day would certainly allow boards and communities to make better use our school facilities and our infrastructure. As you know, for a good portion of the year those buildings are sitting empty, and we think it would allow better use of those. Once again OPSBA is recommending that the act and the regulations be amended to provide boards with the flexibility to do some of these things.
Ms Jeffery: We recognize that there are several other recommendations here. We aren't going to directly touch on those. While we also recognize that Bill 104 will have a significant impact on the way education happens in this province in the next few years, we don't want to talk directly about that either. We just want to recognize that a number of the changes we are recommending will help to facilitate boards as they currently exist in the interim period and the future district boards when we move to district boards, particularly legislation that would be permissive legislation rather than prescriptive legislation, and any type of changes that would allow us to save some money in a format that would help ensure that education dollars get spent in the classroom where they can help children.
To conclude, and I'll be very quick about this, we are concerned about the government's stated intention to save money from education. Your own figures suggest that this can't be done without impacting the classroom, and we as trustees, directors of education etc, don't want to see that happen. We believe all of us here in this room want the best for Ontario's students.
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Presently, we have a $13.7 billion expenditure for education. We would hope it's the government's intention to provide an education envelope of at least the $13.7 billion, by reinvesting any savings realized in the education system in a manner that's similar to what we're seeing in the health care system now.
I would like to thank you again for the time you've allowed us. OPSBA will continue to represent all of Ontario's public boards of education and we will continue to work with our partners. Thank you.
The Chair: Thank you very much. We'll start with a two-minute round, but I'd ask for your cooperation, as we'll probably be interrupted towards the end.
Mr Kwinter: I'm interested in your analysis that, notwithstanding that the minister says 80% of every dollar that goes into schooling goes outside the classroom, you're saying it's 4%.
Ms Jeffery: Yes, in essence.
Mr Kwinter: That's a fair discrepancy.
Ms Jeffery: I think the discrepancy is around what we define as classroom support.
Mr Kwinter: You feel that 96% is really attributable to the classroom.
Ms Jeffery: Supports such as librarians and psychologists and people who --
Mr Papke: And heat and light.
Ms Jeffery: I've been reminded about heat and light. These supports are important to education and are directly attributable to the classroom. We have a disagreement around where the education dollars are being spent. Based on the figures the ministry has provided, about 4% of that money goes to administrative costs.
Mr Kwinter: Can I ask about your recommendation of year-round schooling? I assume that doesn't mean the students would be in school for a total year without any break. It would be like a semester system where it would run in the summer or three semesters a year and students would pick two out of three, something like that?
Mr Papke: A number of models have been used throughout North America. What we're using in Muskoka involves lengthening holidays: the traditional Christmas holiday to three weeks instead of two; March break -- well, it's not actually at March break, but there is another three-week break. Our students do have four weeks off in the summer during July. It squeezes all those breaks, so in essence they go year-round but it's not necessarily an even break.
There are a number of other models out there where they spend X number of weeks in, X number of weeks off, that is more like an equal semester system. Either model, I believe, or any of the models, would provide flexibility for more use of our school buildings.
Mr Martin: It goes without saying that all of us believe education is really important, actually essential, to any future we're going to have. You make some recommendations here for some changes that would be helpful, but given the cuts that have already happened and the projected need for further cuts, is it realistic to think any of this would really get us to where this government wants without really affecting classroom education and the product at the end of the day: students who are learned and able to participate in society?
Ms Jeffery: Obviously, we're very concerned. We have lived through the cuts we've had so far and we feel they have significantly impacted education to this point, so we have some very real concerns about where we're going to be and what will be available for children.
Mr Martin: Is there a breakwater mark for you, and have we already gone beyond that, in terms of negative impact?
Ms Jeffery: I think there are circumstances where, yes, we have gone beyond it. I don't know that that's true everywhere, but we certainly have some significant problems when programs are cut and you start to get an inequity in the province as to who gets to have what. For instance, some boards offer JK still; others do not. I think we have a problem, and we need to deal with that.
Mrs Lillian Ross (Hamilton West): I found your presentation interesting, particularly the discussion on the year-round program, but before I get into that I want to ask you a question. Can you explain to me why, if enrolment has only increased by about 16%, education spending has increased dramatically more than enrolment? It's been by as much as 82%, and the increase in taxes has been 120%.
Mr Papke: The figure announced by the minister was an 82% spending increase since 1985. I believe that figure's accurate. I don't think anyone's going to try to deny that. But what's not being presented as well is, where does that 82% come from? If you take the 16% enrolment off the top of that, you're down to 66%, and then I would ask some questions around that.
The years being used were 1985 to 1996, an 11-year period, a very significant period. The implementation of the special ed legislation came in in 1985, which, by the way, I wholeheartedly support. However, what percentage of that 66% is due to the costs of implementing the special education programs? I don't have those figures -- I'm leaving that question out there -- but I would guess it's close to 30% The implementation of Bill 30 was in 1987, which was full funding for separate schools. I'm not arguing against that either, but we have to recognize that that was a significant cost to education in this province, a large cost. What was the cost of employment equity programs? I'm not arguing against employment equity programs, but they cost school boards millions of dollars, as did pay equity programs, the employer health tax.
If you go back to 1985 and look at the average inflation rate -- it's been fairly flat in the last couple of years, but if you go back to 1985 it averages out to 7% a year.
The cost to school boards should probably be calculated at significantly higher than the 82% increase; I would suggest that more than 82% were costs that school boards had no control over because those were imposed costs. As I said, full funding for separate schools was a cost to the education system. The employment equity and special ed legislation -- it all came with a cost.
I recognize, now that we're in times when we're looking for ways to cut back those costs, those are programs that can't be taken out. We can't simply turn back the clock and say, "Spending's gotten away from us." I don't believe that's the case.
Mrs Ross: I'm not suggesting that we turn back the clock. What I am suggesting, though, is that perhaps over that period of 10 or 11 years, there should have been greater control. There should have been an attempt to look at how the spending was going on, perhaps a look at programs, classroom sizes and those sorts of things, as you progressed. An 82% increase with only a 16% increase in enrolment is such a dramatic increase that there should have been more control on those expenditures.
But let me talk to you about your year-long program. I would have thought a year-long program -- I'm a little confused by it, I guess, because if students are attending school for a full year, as opposed to the 10 months or nine months they attend, I don't understand how you're getting greater efficiencies. Could you explain that to me? If you're using the school for a longer period of time to graduate the same number of students, how are you getting greater efficiencies?
Mr Papke: We didn't enter into our particular program to try and get greater efficiency. As I said earlier, it wasn't done for cost savings. I believe, though, that the potential is there to do that. For instance, if we can utilize our schools year-round there will always be some students not attending. Some of this was referred to by Mr Kwinter. There will be some students attending, some not attending, but then you have less need for the capital cost for the new buildings, for the expansions. You can house more students in those facilities because they're not all there at the same time and you don't have the long periods when your buildings are sitting empty.
The Chair: Thank you very much. I appreciate your travelling the distances you have today to present before the committee. Education is certainly a very emotional subject in Ontario today, and we appreciate your presentation very much.
I see we're summing up in the House, so we have time to make it. The committee will stand in recess until 3:30 this afternoon. Thank you very much.
The committee recessed from 1200 to 1531.
SOCIAL PLANNING COUNCIL OF METROPOLITAN TORONTO
The Chair: We're pleased to welcome Mr Mitchell, who is with the Social Planning Council of Metropolitan Toronto. Mr Mitchell, we'll have 30 minutes together. If you would like to make a presentation, we will follow up with questions afterwards. Your questions will commence with the NDP, given their arrival. I'm sure they'll be here. Thank you for joining us, sir.
Mr Andy Mitchell: I would like to start by thanking the committee for giving us this opportunity to address you today. Some of you may be familiar with the organization, others not. The social planning council is a 50-year-old or more, independent, non-profit organization dedicated to social policy analysis and public education. Over the past half century or so our commitment has been to provide an independent community voice on social policy; to support citizen participation in social policy development; to emphasize and recognize the link between economic participation and social wellbeing; to affirm an active and positive role for government, working with the market and voluntary sectors for economic and social wellbeing; and to advocate for change to policies to improve the living conditions and opportunities of the poorest and most vulnerable members of the community.
Our comments today are directed largely towards the downloading announcements recently made by the provincial government during the so-called mega-week. Our presentation is based on the policy statement adopted by the board of directors of the social planning council on January 29, 1997, and is further an outgrowth of our historic commitments, which I will address later, our social vision work for the 21st century and our program priorities for 1997 to 1999, identified over the course of the full period.
It is our perspective that the downloading of responsibility for key social programs is the principal policy dynamic in the recent series of provincial government announcements. It reflects a primary and driving commitment to the offloading of responsibilities from more senior to junior levels of government, and also on to local communities and charities.
Partly, we understand, this is a provincial response to cuts in federal-provincial transfers which began in 1990 with the famous cap on CAP and was subsequently continued with the elimination of the Canada assistance plan and the rolling together of federal-provincial transfers into a single block fund, namely, the Canada health and social transfer, or CHST as it's known, with substantially less money involved in the block fund. But the chief motivation for these announcements, we feel, in the most recent round, is the need to find revenue to fund the promise of income tax cuts.
In this so-called disentanglement exercise the province has offloaded expensive and volatile expenditure items such as welfare as well as programs projected to grow in the future, such as long-term care. In exchange they pick up the relatively stable and predictable costs of education. But on top of this, the most recent figures indicate that this swap will result in an additional $900 million or more in costs to the municipalities across Ontario.
These figures apply to the situation as it stands today. We feel it's important to point out that in a future recession welfare costs will go up substantially, undoubtedly putting numerous municipalities in financial crisis. Metropolitan Toronto, for example, calculated that between 1989 and 1994 their social assistance costs went up by $80 million under the old 80-20 cost-sharing arrangements. Under the new 50-50 cost-sharing arrangements the increase would be $200 million if welfare caseloads were at the peak recessionary levels, and that was just on the general welfare component, ignoring for a moment the family benefits aspect that they will also be picking up. Moreover, ongoing cuts to unemployment insurance, now renamed employment insurance, mean that future recessions will have a greater impact on provincial social assistance expenditures, and therefore municipal social assistance expenditures, than in past recessions.
It is our view that downloading responsibilities in this way inevitably will promote a minimalist government approach and favour the relatively unfettered private market. We feel the downloading of social programs to the municipalities represents a move away from the traditional redistributive role of senior levels of government. Municipalities, with revenue sources limited to the property tax base and user fees, cannot hope to perform the redistributive function effectively, even if they want to. They are more likely to succumb to pressure to contract out higher-cost services to commercial operators or to press for cuts in social programs.
Downloading, then, threatens to further divide and fragment society. In the area of social services downloading encourages commercial enterprise to target profitable areas previously administered by the public sector and crowd out voluntary sector programs that previously received public support altogether. To take just one example, in New York state there is a company known as America Works, which is a private firm that provides job placement programs for welfare recipients to the state on a fee-for-performance basis, not unlike the fee-for-performance placement component of our Ontario Works plan. America Works, though, maintains its profitability by refusing to serve high-need clients and serving only those with high skills and presenting few barriers to employment.
Downloading policies will inevitably shift responsibility from the public realm, in which the whole society shares costs and benefits to be as broadly inclusive as possible, on to the private domain of individuals, families and communities, in which self-reliance is the paramount consideration for success and social support for the poor is left to the voluntary spirit and the goodwill of the community. This shift promises to create a more divided society with the privileged retreating to protective gated communities while middle- and lower-income groups struggle under onerous property tax burdens to maintain inadequate public services. This is not idle speculation; this is history; this is how it happened in the United States.
It is our position that it is inappropriate to finance major social programs at the municipal level. Municipalities, as we said earlier, have only one main source of revenue, the property tax base. As a resolution adopted on January 31 by the Association of Municipalities of Ontario stated: Property taxes should be used to fund programs and services that are predictable, stable, and for which municipalities can be directly accountable to their residents. Provinces and the federal government have access to more revenue sources, of which income taxes are the largest. Downloading to the municipalities therefore implies shifting the financing of social programs from income taxes to property taxes. Property taxes are regressive, while income taxes are progressive. Since redistribution is an important goal of social programs, shifting the financing to the municipalities lessens the redistributive impacts of these programs, blunting therefore their primary goal.
In a future recession municipalities will be faced with the choice of dramatically increasing property taxes, or draconian cuts in services, at a time when they are needed most. Many, as we said earlier, will be put in financial crisis. In effect, the province will have exported its cutting agenda and imposed it elsewhere. Again, this is not something that we have no experience with. This is what happened to municipalities in the Depression.
We are not satisfied with the $700-million fund which has been proposed to help municipalities cope with the rise in social assistance expenditures due to a recession. It still puts the primary responsibility on property taxes to meet social assistance costs. We don't yet know what conditions will be attached to the fund, what economic conditions will have to exist, and whether municipal finances will already have to be in crisis before any relief is provided.
It's worth pointing out that this downloading does not in fact represent a 50-50 cost-sharing arrangement. The provincial government, of course, receives transfers from the federal government for social programs under the CHST. A large part of the province's 50% share therefore is actually coming from the federal government. This represents a complete inversion of cost-sharing arrangements which have governed the financing of welfare and social services in Ontario for 30 years.
The logical consequence of the proposed cost-sharing formula is that municipalities will seek greater say in the setting of social policy and standards for social programs. As was widely reported this morning this is already happening. Already municipal officials are predicting that it will result in pressures to reduce benefits, or at least this guarantees that they will never increase. In a recession, faced with a choice between increasing property taxes and cutting social assistance, social assistance and other programs for the poor will lose every time.
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While the Minister of Community and Social Services insists that the province will set and maintain rates, those rates have never been given the protection of legislation. They are set by regulation alone and they can be changed overnight with no process or notice.
In Metro Toronto we of course recognize that there is a disproportionate share of high-need populations such as social assistance recipients and the elderly, compared with the municipalities that surround it. Maintaining programs and services in Metro Toronto will mean dramatically higher property and business tax increases in Metro than in the surrounding regions.
The suggestion of pooling social program costs with surrounding municipalities may address the risk of escalating taxes in the core leading to the flight of businesses and residents and a hollowing out, if you will, of Metro Toronto, assuming even that the surrounding regions accepted such an arrangement. It will not, however, address the basic issue of principle: that social programs should not be funded from the property tax base.
Just as a quick calculation of the net impact of downloading, the move to AVA plus the income tax cuts implemented to date reveals in Metro Toronto that a middle-income household, with say an income of $50,000, will pay about the same in increased property taxes as they are projected to receive in reduced income taxes. But, on the other hand, if you look at an individual with a high income, say over $100,000, they will get back more in reduced income taxes than they are projected to have to pay in increased property taxes, and this doesn't even include the most recent revelations about the additional $900 million in costs that municipalities are going to have to face as a result of previously unrevealed costs.
There is no support that we know of from any public groups for this downloading exercise. No such swap of responsibilities has ever been recommended by any task force or commission, including the Fair Tax Commission, the Golden task force on the GTA and the provincial government's own Who Does What panel. Groups as diverse as the board of trade, the United Way, the Association of Municipalities of Ontario, Metro Toronto, the mayors in the GTA have all condemned this exercise, for identical reasons.
This downloading is being undertaken to make room for the promised income tax cut. The reality is that for most taxpayers every dollar received in income tax reductions will simply be traded for higher property taxes or a dramatic deterioration in social programs, with terrible consequences for the quality of life in Ontario.
And there may be more to come. The finance minister's recent announcements that revenues were ahead of projections merely reflect adjustments to the personal income tax revenues of 1995 and may not continue given the current weakness in the economy. Job growth is only at about half the rate needed to meet the commitment to create 725,000 new jobs in the term of this government, and another recession may be looming in the near future because GDP growth is trending down. At least one prominent economist is projecting another recession as soon as a year from now.
Therefore, in conclusion, we feel that downloading is a deeply flawed policy for several reasons: It will widen the disparities and inequalities in society with particular hardships being imposed on our poorest and most vulnerable members; downloading policies give primacy to markets forces rather than seeking to link and integrate economic and social policy for the benefit of all citizens; and the government's arbitrary and fast-track approach to implementing its proposals denies adequate opportunity for public input and debate. These follow directly from our historic commitment at the social planning council to point out these flaws.
In terms of the five key principles of the SPC's social vision statement, the downloading policies of the provincial government will heighten insecurity within the population, especially among the poor and vulnerable; promote greater individualism and conflict rather than interdependence in social relations, given the emphasis on the marketplace over other community activities; increase inequity by reducing government commitment to redistributing wealth within the community; devalue participation that is not market-related, primarily by weakening the role and strength of the voluntary sector and its traditional partnership relationship with government; and neglect altogether public supports necessary to enable diversity of the community's peoples to make their contribution.
I thank you for my opportunity to speak.
The Chair: Thank you very much, Mr Mitchell. We will begin with a five-minute round of questions.
Ms Frances Lankin (Beaches-Woodbine): Five minutes each?
The Chair: Five minutes each, yes.
Ms Lankin: Thank you for being here today and for your presentation. There were a couple of areas in particular you touched on that I wanted to explore with you, first of all the share of government financing of various social programs. You talked about the problems in terms of the restriction on funding from the federal government, with the cap on CAP and then the move to the Canada health and social transfer.
But it strikes me that with the provincial government continuing this process of downloading, we've seen a dramatic shift in who supports what burden or share of these programs. Where in the past, and I know it changed a little bit after the cap on CAP, you would see 50% of the funds coming from the federal government, 30% from the provincial government and 20% from municipalities, we now see an inversion where it looks like the federal government is going to be funding about 30% of these costs, the provincial government 20% and the municipalities 50%. It differs a little bit between programs, whether it's social assistance or child care, depending on how expenses had grown in the past and how CAP had affected them.
I wonder what your view of that is, the municipalities taking on the largest role as the funder. I guess it touches on another point you raised about the basic principle that those who pay have the say, and what pressures will occur in the system as a result of that for the municipalities to have more and more control over the definition of those basic social programs. I guess I worry about the growing gap between communities as a result of that.
Could you comment on those general areas?
Mr Mitchell: There are a number of things I've already identified. I fear the choices municipalities will make should another recession hit. They will undoubtedly demand even greater levels of say because they will be the single largest payer in this system. While in a recession the senior levels of government typically take the lead role in relieving these costs, and there are all kinds of good reasons why those funding arrangements evolve, but they'll have thrown up their hands and said: "We're out of here. It's not up to us. It's up to you, municipalities."
Municipalities of course have got a very inflexible source of revenue to deal with. They don't have the option of taxing from different bases. They have very few financing options available to them, and so I think there'll be pressure probably not just to cut rates but maybe even to allow municipalities to vary rates. It's hard to know exactly just how fragmented the system will be.
People have asked me, just speculatively, what would happen to a municipality that refused to deliver welfare at all? My response is: "It's a mandated program. They have to deliver it." They just said, "What would the penalty be if they didn't?" I couldn't answer that question. It's hard to know just how out of control things could get.
Ms Lankin: Within a specific program area, and I'll take child care as an example, one of the concerns that I've had -- and I've raised this with the minister and have not been able to get an answer -- is that while in 1998, when this program becomes jointly funded on a 50-50 basis with municipalities, the minister has committed to making it a mandated program, a mandatory program, there are no mechanisms in place in 1997, in the current year of budget-setting, to protect the existing level of child care investment or the number of spaces or the fact that they're in regulated care. I'm hearing already about municipalities looking at options of what they can get rid of before they accept the burden of payment in 1998. Do you have any thoughts on what's happening across the province in that regard?
Mr Mitchell: Clearly, anything that's discretionary at this point is at risk because of the need to find ways to meet these additional cost responsibilities. That's one program, but there are many others. Anything that's special assistance or supplementary aid under social assistance and currently discretionary for the municipalities is also at risk. We're talking about supports for disabled people, like wheelchairs and oxygen. There are all kinds of things. You could go on and on. Clearly, those things are at risk.
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Ms Bassett: Thank you very much for your presentation. I think it's important that we make sure we don't scare people out there with all sorts of predictions of what may or may not happen. What you have to realize is that the province can't pay for everything. We have taken the responsibility of paying for $5.4 billion of education costs; that's come off the property tax municipally. Now we are asking the municipalities to pick up on paying that difference.
Adding to that all the social programs etc, we realize that cities such as Toronto, major centres, are going to have higher costs, so we've set aside moneys, a $700-million program in case of emergencies, that the municipalities will be able to buy into, and that will grow. We also have a $1-billion fund, of which $340 million or something is new money, because some of the $1-billion fund is already there. The AMO people have agreed that they will have a formula or are looking at a formula they can buy into. I think it's something we can work out.
You talk about social programs. We've always it done this way, although everybody, as Ms Lankin has pointed out, has been chipping in to social programs and who pays what. Education is a social program too. What would you do to fill the difference of the $5.4 billion that the municipalities have given up?
Mr Mitchell: I'm not arguing that the province should just pick everything up and that's some kind of magical solution. Of course, if the province were to pick up a burden of the magnitude of the education system, then there's a huge burden that's being relieved at the municipal level. I'm sure there are all kinds of deals that could be made about working with that revenue to finance education in a way that's equitable for municipalities across Ontario. The funding from municipality to municipality can give rise to inequities currently.
There are many answers and my fear is that in our haste to do this we're not considering all the answers that are possible. No deal or arrangement that the province can make around contingency funds for municipalities or whatever will ever satisfy the basic principle that these programs -- regardless of how education should be funded and paid for, programs whose fundamental focus is redistribution cannot be funded from the property tax. It simply undermines their whole purpose.
Mr Hudak: Thank you for your presentation. I just wanted to point a few things out that I thought curious. I'm trying to figure out whether there are suggestions in here for improving the social welfare in Ontario, which this committee is interested in hearing and reporting back to the minister, or whether this is more of a political document, suggesting that the province go back to the way things were in 1990 through 1995 instead of trying to make changes from that status quo.
Let me point a few things out. For example, taking education off the property tax: You said that's a stable way of funding, and you also talk about some concern about property taxpayers and regressive taxes. If anything was for sure, it was a hike in property taxes, which meant higher taxes every year for senior citizens. It is a regressive tax, so certainly taking education off the property tax makes a tremendous deal of sense for social welfare, and especially for low-income individuals and seniors.
You seem to reject AVA, but it seems to me sensible that if somebody's living in a small home in Mississauga and paying a heck of a lot more property tax than somebody living in a mansion in downtown Toronto, social welfare is going to be better off if the taxes on property reflected the value of that property.
You're worried about the voluntary sector being crowded out. Taking more services into the provincial government, centralizing services over the past 10 or 20 years, I think you have seen the voluntary sector crowded out. I think the more responsibility you put at the municipal level, the more apt people would be in that closest level of government -- it would make a lot of sense, I think, to see the volunteerism increase when services go to the local level.
In terms of the workfare programs and such, trying to move people off social assistance, off dependency, getting them back into the workforce, getting them into training programs and getting them active in society again, getting those mechanisms moving at the municipal level as opposed to Queen's Park or Toronto makes a tremendous deal of sense.
What are your suggestions, or is this just more of a political document than something to help out this committee?
Mr Mitchell: It's not just a political document; it's a warning of some serious consequences to follow from policies that are rushing ahead pell-mell. You've raised a lot of issues in your comments and I can barely get down all of them, so I'll probably forget some and you can feel free to remind me of them.
I don't reject AVA out of hand. My point about raising AVA was simply to point out that at this time, put in with the other things that are happening, here are the consequences for typical households in Metropolitan Toronto. I think everybody recognizes that the property tax system in Metropolitan Toronto is an anachronism and problematic, but I don't have magical answers to address that. My observation was simply, look what happens when it's thrown into the mix of all these things.
In terms of the voluntary sector being crowded out by absorbing it into government, no, I think that's a misunderstanding of how the partnership between government and the voluntary sector works. If you look at voluntary sector agencies and non-profit organizations of many kinds, they are funded and operate in a partnership arrangement with government where funding is derived from many sources, but contributions from different levels of government have always been a very significant and central part of revenue for these organizations. The withdrawal of government support at the same time as some more lucrative services are likely to be put out to the private sector will result in crowding out. The voluntary sector can only survive and thrive where it's in a stable and supportive environment, and that's not what we've got right now.
I was trying to get down what you were saying about the closest level of government to people. I suspect you were moving towards some kind of subsidiarity argument about which level of government should be providing what kind of services, which is a separate argument, although related to a funding argument. Metropolitan Toronto is arguably a level of government closer to people and maybe a reasonable level of government to deliver welfare services, as it does now, but funding is a separate issue, I would say. The same argument could probably be applied to other things as well.
That's all I've got down. I don't know if there were other --
The Chair: Thank you very much. We will move to the official opposition.
Mr Kwinter: Thank you very much, Mr Mitchell. The Social Planning Council of Metropolitan Toronto is really a policy analysis group and an educational group. You don't have any agencies that deliver services or anything else; you're strictly a policy commenting group. Is that true?
Mr Mitchell: That's correct.
Mr Kwinter: In your analysis -- and I'm sure you must be watching what's happening -- there seem to be two issues. One is the merger of the seven governments to make one, and I would say the jury is out as to what people think about that. Some are in favour, some are opposed, depending on who you talk to.
In your observations, have you found anybody who is supporting the downloading on to the property tax level of social services, long-term care and the other areas the government is planning? Is there anybody out there supporting that?
Mr Mitchell: Not to my knowledge.
Mr Kwinter: I would challenge the government to find one single anybody who says that's a great idea, other than the government caucus. Doesn't it seem bizarre that on the amalgamation issue there are all kinds of people out there who think it's a great thing? Quite frankly, if I could be shown that there are economies, I'd support it. Why not, if it's a good thing? As I say, it's mixed; it depends on who you talk to. I haven't found one single entity -- not just a person, nobody -- other than the Conservative caucus and the Conservative government, that supports it.
I raised an issue in the House the other day. The Economist, which is arguably the most influential economic publication in the world, in its comment on what was happening here said -- and this wasn't what someone else said; this is what they said -- "It is plain that as the population grows, social costs are going to go up, educational costs are going to go down." This was their analysis. You can't write them off as a bunch of wackos. This is the Economist, which normally would be very supportive of what this government is doing.
As a matter of fact, if you take a look at the editorial in the issue that came out today, the cover story is about ministers going abroad to sell their things and how they're opposed to it. They're saying, "This is what governments should do." I have to say, with deference to my friends on the other side of this room, many of the things they're advocating are exactly the things this government is advocating. You have to understand that they are not your normal sorts of people who would be critical. They are generally supportive of many of the things this government is attempting to do. But they say absolutely that it makes no sense. David Crombie, who was appointed by this government to advise them on this, said that it makes no sense, that it's ludicrous.
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There is no one who supports it, and yet the government stands up and it says: "No, educational costs are going to go up; welfare costs are going to come down; it's a wash. And if it isn't a wash and there are some little adjustments, we will provide the funding."
What hasn't happened is a realization that any objective observer who does any kind of analysis says it makes no sense. There is no way it can make sense. You can try it any way you want, unless you're just going to be blindly saying, "Trust me, it works." It's not going to work. You don't have to be any kind of economic guru to say that. It doesn't make any sense.
My question to you is: In your experience, in taking a look at social policy, do you have an idea of what the implications are going to be if this in fact goes ahead?
Mr Mitchell: My only guide is what's happened in other jurisdictions and at other points in our own history and I think I alluded to both of those briefly in my presentation. American cities have gone through this. We saw what happened to New York city in the 1970s. We've seen what happened to Minneapolis-St Paul and many other cities where you see this hollowing out of the downtown core and this complete disruption of urban economies. In some places where they're trying to do things to address this, they're barely beginning to recover.
Our own history is full of this. If you read the history of the Depression in Ontario, there is what happened to municipalities, which at that time bore the chief responsibility for social assistance, for example. Many were on the verge of bankruptcy. The history is full of this whole story. This is exactly what caused senior levels of government to intervene.
Another recession will come in Ontario and those costs are going to go up. Long-term care is demographically set to go up. We're set to see municipal finances thrown into chaos. I've said it two or three times today: The funds that are proposed are not an answer to this problem.
The Chair: Thank you very much for coming in and making your presentation to us, Mr Mitchell. We appreciate your input.
COUNCIL OF ONTARIO CONSTRUCTION ASSOCIATIONS
The Chair: We now welcome the Council of Ontario Construction Associations, Mr David Surplis. It's good to see you. Thank you very much for joining us.
Dr David Surplis: My name is David Surplis and I'm president of the Council of Ontario Construction Associations. With me today is David Frame, our executive vice-president. As I note in the things, we cover all knowledge. He knows all that can be known and I know the rest. I'll run briefly through our remarks here, and David certainly has a wealth of information to impart to you by way of answering questions, so we'll try to get to that.
I should point out that we represent about 50 construction associations all over the province: the local mixed ones, the specific trade ones, general contractors, fencing, road building, you name it. There are about 9,000 contractors providing employment to about 210,000 workers in this province, so we're an important part of the economy of Ontario.
One thing we want to point out, and it's kind of ironic -- we did so last year and we continue to do it -- is we want everybody to understand there are two parts to the construction industry, if you look at them. Number one is residential, people who build homes, and the other is everything else. The Ontario home builders represent the people who build homes and we represent everything else.
However, everybody we encounter, including MPPs and cabinet ministers, when they think of the word "construction," thinks of home building. So when somebody phones up and says: "How's the construction industry doing?" we say, "Terrible, thank you." They say: "What? I just saw all those figures. Everything's booming. There's housing going up all over the place." Well, that's fine, but that doesn't help our sector, which is everything else, as we call it.
As I say, that might seem like a silly distinction, but believe me, it's really important to our members, and we'll get to some of the figures in a minute.
I alluded to the boom that's going on in residential construction. It certainly looks that way and to that we say great, hurray for all our colleagues on that side of the industry. But we want to point out, as graphically and specifically as we can, that the non-residential sector in the economy of Ontario is in dreadful shape, and has been for seven years.
The revitalization of the Ontario economy that we see in so many sectors today just isn't being realized in our sector. The number of contracts our companies have to bid on is still dwindling. The workforce is dwindling. We're losing companies, we're losing contractors, we're losing workers. It isn't a happy scene.
Figures published just last week by CanaData for 1996 show that the value of non-residential construction in Toronto -- just in the GTA -- dropped 29% from 1995's levels to $956 million from the $1.4 billion it had been in 1995.
In terms of our workforce -- again these are Toronto figures because they're the only ones we were able to get for this presentation -- and the historical average for labourers and carpenters, which are the main trades that are hired directly by general contractors, the hours they put in last year totalled three million. In 1989 at the peak of the boom they were doing 12 million. Historically, from the time we started keeping those records, about 1974 to the present, it's about six million. So we're at one half our historical capacity and a quarter of our peak capacity.
A couple of figures in here for your interest: In 1990 construction employment -- this is all across Ontario -- was 324,000; at the end of 1994 it was 266,000; at the end of 1995 it was 263,000. We don't have the full figures in for 1996, but it doesn't look like we have increased very much at all.
Another disturbing factor in terms of the economy of Ontario is there were 394,000 people in 1989 who claimed to be in construction. That has dwindled now to 300,000 or less. In other words, we've lost almost 100,000 workers in Ontario since 1989-90.
There are very serious and dramatic problems affecting a very large and usually very dynamic part of Ontario's economy and we want you to know about them. We think, and it's something perhaps others could look into at another time, that this loss of regular -- if we can call them that -- jobs has led to or contributed a lot to a huge increase in the underground economy, the amount of work that isn't tracked, isn't taxed etc, and I'm sure contributes to some headaches for Mr Eves, among others.
As a matter of record, COCA is in favour of the direction the government is going, getting the deficit and debt under control. We've supported that position for years. But one of the things we've had to grapple with is the fact that the war on deficit financing has also brought an end to counter-cyclical financing.
During the downturn in the commercial sector in the 1980s Mr Davis's government increased its capital spending by 48%, and it sort of balanced off and we didn't lose all that many workers and there wasn't so much disruption in the industry. But if that isn't possible today and you don't have enough money to do all the things people want done, and we surely recognize that, we also suggest that counter-cyclical financing can be achieved in other ways. There are ways to enable the private sector to take up the slack, and we'll be talking about a couple of those in a second.
While all the indicators are down for a very important part of the industry and the economy, there are some potentially hopeful signs.
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When the Minister of Municipal Affairs and Housing originally announced his intentions about rent control, about a year and a half ago, and when the government announced it was getting out of the public housing business, we had very high hopes for a resurgence in the building of apartments. That hasn't happened. In 1996 multi-unit housing starts dropped 45% from the 1995 levels and there isn't much on the horizon.
We look around for potential: Where can the private sector spend some money? Where can you help them spend some money? There is literally billions of dollars' worth of work to be done on rehabilitating apartments and multi-unit dwellings in Ontario. We've been pointing that out for years. There is literally billions of dollars' worth of work to be done in rehabilitating and improving the infrastructure, particularly the water and sewer infrastructure for Ontario. We wanted to point that out very clearly to you, that there are some opportunities and we just need some help to get there.
The problem with rent control -- we don't want to argue rent control of course, but we just wanted to point out to you how sensitive our industry is to political issues and political answers to problems. As you know, from the 1950s on, the graph charting apartment building in Ontario just went up and up until 1975 when, in response to a threat from Mr Lewis, Mr Davis announced rent controls and that graph just crashed. No more apartments were built in the private sector -- well, virtually none -- and they aren't to this day. They simply aren't built.
I was sitting in this very room when they convened a committee in 1977 to assess what had happened to the apartment building industry. They asked everybody -- Greenwin and all the big builders -- "Will you build in Ontario again?" The answer was no, and they didn't and they aren't; they still haven't. We need some help in that area to get people investing in that market.
We know the money's out there, but it's just not happening. The investors tell us they're looking for a positive cash flow from any project, but moreover they're looking for a positive cash flow that won't be abruptly altered with a change in government. Nobody can ensure against that, but it's that threat that's keeping them out of the market, so unfortunately we're not getting much work in that area.
Our contractors have parallel concerns about things that are happening today. Taking roads for an example, it's fine to pass on responsibility for roads to other levels of government, but our members want to make sure that the funds that used to be spent on roads by the province will continue to be spent on roads by the municipalities and regions in other areas. I think that's a legitimate concern. One of the contractors mentioned to me the other day that they have some concerns about leaving decisions about roadbuilding to councils where one or two stirring speeches can sway a vote and move a whole allocation from roads to something else.
The reality is that keeping all roads in top condition benefits the Ontario economy. With so much trade transported in trucks, decisions on where to locate factories and warehouses can change dramatically depending on the state of the roads. In this regard we have long suggested that the revenue generated by highway traffic and gasoline taxes and so on should be dedicated to roadbuilding and maintenance. We're very supportive of the reintroduction of the federal-provincial infrastructure program and we're delighted that Mr Eves seems willing to participate, but again we would suggest that a program like that be ongoing and not just ad hoc.
In another area, the Ontario Sewer and Watermain Construction Association, which is part of COCA, has been attempting for years to impress on governments the absolute necessity of upgrading Ontario's seriously deteriorating water and sewage infrastructure. We hoped the report of the Provincial Auditor a couple of years ago would help that, but we haven't seen much action.
We want the committee to be aware of the real need that has been expressed for a transition program to follow the end of the municipal assistance program, MAP. We need to ensure that municipalities have sustainable financing for their infrastructure and this could be done, we suggest, by mandating reserve accounts to be kept by the municipalities and by publishing guidelines as to appropriate water rates according to the size of the municipality and so on. We would also suggest that municipalities should have a business plan in place for infrastructure before a government allocates any block funding or grants.
That would help, and of course the Ontario Sewer and Watermain Construction Association has for years been advocating a movement towards full-cost recovery for water. We pay full cost for everything else -- gas, cable, television, anything else that comes into the house. We're not advocating we jump immediately to full cost in those communities that don't have it, but across Ontario, for instance, it costs about $850 to supply fresh water to a house and the average cost to the ratepayer is around $350. It's being subsidized to that tune. That could help Ontario or whoever is going to be making up that shortfall to the tune of about $250 million to $450 million a year.
We've lost a lot of resources. We are losing a lot of resources. Construction companies have been disappearing, names that you probably all remember: Milne and Nicholls, they're gone; Mollenhauer's gone; Cape is gone. For Mr Kwinter in particular, what could be more synonymous of commercial construction in Ontario than the name Ellis-Don? But fully 70% of Ellis-Don's business is done outside of Ontario and is growing. They are having less and less success getting work in Ontario. PCL, the other giant in the area, has indicated exactly the same thing, that they probably will have to cut back on their presence in Ontario. There's just nothing to do here in Ontario. We find that's bad.
On a brighter note, we're pleased to have begun discussions with the Ministry of Finance about public-private partnerships. There's quite an interest shown there. We hope we can help them with the expertise in our committee and with the public-private -- what's it called? -- Donald Macdonald's organization, at any rate. We think a lot can come out of that.
Private-public partnerships: If you're going to suggest and promote them, and I hope Mr Eves and the rest of the government will, we've got a few suggestions just off the top. So many of the ones that have been undertaken now, particularly by municipal governments, have really just been fishing expeditions. Companies have spent a lot of money putting together proposals only to find out that the government decides, "We're not going to do it that way after all." We're suggesting that any kind of private-public partnership be on a pre-qualified basis and 1% of the cost of the project be set aside to recompense the losing bidders, which has been done in a couple of instances. It helps; you get better work that way and also you can attract bidders.
Last year, we suggested to this committee that you recommend the establishment of a permanent panel of public and private sector leaders to make recommendations to the government for stimulation of capital development, and we repeat that suggestion this year.
We anticipate that Mr Sampson will be creating an advisory group concerning privatization, and one or more of our contractor experts could assist such a panel greatly.
In conclusion, what we're saying is that our industry is not at all healthy. We would like to work with the government, the committees, the ministries, any and all of you, in partnership to help restore Ontario's second-largest industry, behind retail, to vibrancy and health. We don't want handouts and we certainly don't have all the answers, but we firmly believe in cooperation and innovation.
I would close by saying that the contractors of COCA and our workers, and it's very much a joint effort in construction, are here to assist you. With that, perhaps we could get some dialogue instead of monologue.
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Mr Jim Brown: Thanks. Good presentation. Are you aware that Ontario motorists pay -- I guess you are aware -- $2 billion in gas tax every year to the feds for roads?
Dr Surplis: Yes.
Mr Jim Brown: You don't get it and we don't get it.
Dr Surplis: That's right.
Mr Jim Brown: We both could use it.
Dr Surplis: Let's all go together.
Mr Jim Brown: Yes. Have you made representations?
Dr Surplis: The Canadian Construction Association has, yes.
Mr Jim Brown: You're hopeful?
Dr Surplis: It would help; it really would.
Mr Jim Brown: You're really running into deaf ears there. They want to keep the money.
Dr Surplis: That's right. Most governments are loath to dedicate funds.
Mr Jim Brown: Even though they take it for a dedicated purpose, they don't want to give it up.
Dr Surplis: Right.
Mr Spina: Thank you, Mr Surplis. This government has done a few things, and I think you can appreciate some of the changes we've done, like streamlining the building code, simplifying some of the planning approval processes, changing the Development Charges Act particularly, which is what hits commercial on a greater scale than residential construction. I understand your position that we ought to be looking at greater areas where we could try to give your industry some incentive, but we are trying to do some of the things.
I guess your complaint about the lack of multiple-dwelling housing units, for example, or apartment buildings, which are considered commercial types of project, really tends to focus more in Toronto. I'm seeing that you're looking at that in Metro. I can fully understand that, because there was a vastly unfair system of property assessment in Metro and in Ontario, apartment buildings being assessed as commercial properties as opposed to multiple-dwelling residences, and the development charges attached to that. I think those are some things that can be addressed.
But under this exchange that we are in the process of trying to implement, of removing the education taxes and transferring some of the responsibilities to the municipalities, we're trying to save some money in that regard and also simplify the process so that the province doesn't clutter it, but I understand your concern about the imbalance from community to community.
The other side of it is the property assessment issue and the equality that we need to have across this province, because as you know, one of the reasons industry was chased out of Toronto was the high assessment rate of commercial-industrial property. No wonder they migrated to Peel, York and Durham. We all had --
The Chair: There's a question coming, Mr Spina?
Ms Lankin: Or is this a filibuster?
Mr Spina: Isn't that a good example of a solid initiative to assist your industry without actual spending on capital projects?
Dr Surplis: I wish actually we'd had some time to lay out -- there are lots of things we're in favour of. We didn't want to come here and sound like we're complaining all the way down the piece, but yes, we duly recognize them, we acknowledge them. We're not opposed to anything virtually that's happening to stimulate business that's on the agenda of this government. There's no problem with them and we'll recognize them when they work.
Mr Kwinter: Thank you, Mr Surplis. As always, it's a pleasure to hear your presentation. I'm a little discouraged. I thought, given the fact that the hotel market is red hot -- God, hotels change ownership; there are people really beating the bushes to buy hotels -- you'd think there would be some new hotels on the horizon. The office business is changing. There's still some surplus, but it is certainly changing. You hear glowing reports from the Treasurer about what's happening to business and how it's very bullish and investing in equipment and plant and you'd think that would mean some building as well. Are you not getting any of that at all in your industry?
Dr Surplis: Very little. The investment going on, by and large, is not in bricks and mortar. A lot of it is in the export, high-tech stuff. There's such an overcapacity. When you mention Toronto commercial space, there is still, as of a month and a half ago, 10.6 million square feet of commercial space available in the downtown core, basically the Yonge Street corridor.
Mr David Frame: One of the keys too, if you look at what's being sold, it's being sold often at half to two thirds of what it would cost to build. If you can buy something for half to two thirds, why would you build? That's the problem we're facing.
Mr Kwinter: In your industry you need lead time. You don't suddenly get an order tomorrow.
Dr Surplis: Right.
Mr Kwinter: You've got to bid, you've got to go through the competitive process. From what I understand, you've painted a pretty gloomy picture. I assume that means there isn't a lot on the horizon as well, which means that notwithstanding what happens, it's going to be a year, a year and a half or two years down the road before you'll see any change, even if there is change.
Dr Surplis: Yes, other than those two areas we suggested that are just ready for immediate action: infrastructure -- sewer and watermain rehabilitation -- and apartment or multiple dwelling rehabilitation. The building is right there.
The schools program: It's been announced that there is $650 million worth of new schools coming on. We're very grateful for that. Those will be built this year, and we're getting that and a number of other things. It's not that there's nothing out there, there's just nothing along the lines that we were -- we're at half the capacity and lower.
Mr Kwinter: Are you also finding that you're losing tradespeople because of that?
Dr Surplis: Very much so. Alberta is advertising here. Alberta faces a worker shortage. Klein predicts 155,000 jobs will need to be filled in Alberta in the next four years. So a lot of people are attracted. Construction is, of course, very transient. When it isn't working here, you go there, and vice versa. Of course, so many came here in the 1980s when we were booming.
Mr Kwinter: One last question. You referred to Milne and Nicholls, Mollenhauer and Cape and you say they're gone. They're not gone from the scene, they're just gone from Ontario.
Dr Surplis: No, they're gone, period.
Ms Lankin: I want to welcome the two Davids. When I'm particularly gentle with these two presenters, I don't want any of you to be suspicious, so I'm going to fess up. They're both constituents of mine, and as you can tell from the presentation, they are very sound political supporters of mine. I did not say of my political party, I said of me. I just wanted to make that clear.
David, there are a couple of things I wanted to talk to you about: capital budgeting of governments and public-private partnerships. But I just wanted to very quickly respond to the comment you made about the $600 million for schools. I don't want to dampen any hope there is in the industry, but I want to indicate to you that it's become clear to us that while the moratorium was supposedly lifted, with the introduction of Bill 104 and with expenditures of school boards of over $50,000 being subject to confirmation by the Education Improvement Commission, which doesn't come into being until the bill is passed and which has a whole process of approvals, it appears that unless the board has the money sitting there ready to go, and in most cases they don't, they will not be able to proceed with these projects. We are actually asking the minister questions about this and trying to get to the bottom of it, but we think there is a grave danger that those projects are not going to go ahead. They're much needed in the school system as well as a much-needed boon to your industry, so that's something you might want to follow up.
I wanted to ask you about capital budgets of governments, because this is something I came to an appreciation of over the last few years that I hadn't had before. You talked about the Davis years and some cyclical financing. I think that's important. I think it's perhaps not as effective as it might have been with the economic restructuring that has gone on, but it's still important.
It seems to me that when governments need to make cuts and fiscal conservatism takes over, small-c conservatism, capital budgets often are hit the hardest because you don't see the impact.
Dr Surplis: They're easy.
Ms Lankin: They're easy. You're not taking social assistance away from individuals or cutting off their health care or whatever.
I became very convinced that it was a healthy thing for governments to separate their capital and their operating budget, to look at the need to have a balanced operating budget and get rid of your deficits etc, but to understand the investment into long-term capital projects.
Unfortunately in the last few years all parties are at fault. It got bounced around as a bit of a political football in terms of how numbers are accounted for. But that separation of capital and operating I think is a fundamental tenet of business budgeting and accounting, and I don't understand why it shouldn't be within governments. I wonder if you have a comment on that.
Dr Surplis: We've been recommending that for years actually. The multipliers are there that we can bring forward for investment in construction, investment in infrastructure.
You hit on a very interesting thing about political. It doesn't matter, we're not here to be political with anybody, but a decision -- it was Art Eggleton frankly who said: "I don't know about this infrastructure stuff. Voters can't see it." He's right. He wasn't just speaking for himself or his party but everybody. They want to do things that can be seen. So it's a problem getting that message across, that it's worthwhile to redo all these infrastructure programs just so that down the road you have an attractive economy when you're moving again.
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Ms Lankin: I think in terms of our highway systems, the investment in the 407 is an example.
Dr Surplis: An investment. That's exactly right.
Ms Lankin: Just-in-time deliveries depend on it. If you want to site plants etc, all of that is critically important.
Let me just ask you about the public-private partnerships, because again this is an area that I experienced, that we ran head-on into when we tried to explore that through the 407. Maybe it was just too big a project to take on, but the private financing wasn't there in a way that actually made sense to the taxpayer. No doubt if you're looking at options of building and lease-back sort of thing, it's going to cost you more in the end, but you can look at amortization and you can make a decision whether or not it makes sense.
On some of these very large projects, although it makes eminent sense to build the expertise and the capacity in our economy and be able to export that etc, there are additional costs to the taxpayer. We ran into that in trying to figure out the financing on the 407. I wonder if you've got any models, or is that what the purpose of this committee is, to see if there are ways to reconcile some of the difference between the public sector needs and the private sector needs when it comes to available capital?
Mr Frame: There are lots of models out there. David mentioned earlier the organization we're involved in, the Canadian Council for Public-Private Partnerships. They are a private sector group that brings together models from all over the world that can be studied. We've been looking at a lot of those and really what we've found is that Ontario lags behind in the sophisticated nature of what's being developed all around the world.
All we're asking is to bring government and the private sector together in a group that can meet and draw up some principles of what the government can do, identify the type of programs that would make sense and get the government to initiate some of them.
Ms Lankin: I think that makes a lot of sense.
The Chair: I'd like to thank the two Davids for appearing before our committee. We appreciate your attendance and your advice.
ONTARIO SOCIAL SAFETY NET/WORK
The Chair: We now welcome the Ontario Social Safety Net/Work, Reverend Eagle and Ms Thompson. Welcome to the committee.
Rev Susan Eagle: We are here today to represent the Ontario Social Safety Net/Work. In fact we presented to you last year as well. We're here on behalf of that network to express grave concerns about the unravelling of social programs in our province and an escalating social deficit.
The Ontario Social Safety Net/Work is a provincial coalition. We have at last count more than 900 members -- individuals and organizations. We were created to inform communities across Ontario about changes in social programs that make up our social safety net. In fact we've been very busy in the last year just trying to keep on top of the changes that have been announced.
Our membership includes low-income individuals, anti-poverty groups, faith communities, people with disabilities, labour organizations, legal clinics and social service providers.
A year ago we lost the protections afforded by the federal Canada assistance plan when that legislation was repealed and replaced with the Canada health and social transfer, a federal transfer payment vehicle which eliminated standards and opened the door for more American-style social programs to be introduced in our country.
Ms Jacqueline Thompson: Yet we have had a different heritage as we have developed as a nation. Frequently studies and surveys have demonstrated that Canadians care about their neighbours and about the provision and protection of social programs. Just two years ago, the federal standing committee on resources development, after extensive hearings and consultations across the country, concluded: "Across the land, there is a strong sense of ownership in our social programs and the values they represent. Canadians want to be involved."
This is the same conclusion our Ontario Social Safety Net/Work has reached as we daily encounter Ontarians who are committed to the provision of social security, the elimination of child poverty and the goal of sustainable community development as well as the redress of fundamental inequalities in our taxation system.
Canadians have a history of a traditional commitment to fairness and compassion, and it is from that perspective that we wish to speak to you today. Decades ago, as Canadians struggled to survive the Depression of the 1930s, a commitment to social safety evolved out of the pain and misery of hunger, homelessness and unemployment. Those who survived the Great Depression envisioned a future where never again would our children go to bed hungry, where never again would the homeless languish in our streets and where never again would the sick be refused access to equitable health care.
Ms Eagle: This social vision was so strong and clear and valued that it was enshrined in the Constitution Act, 1982, which reads:
"36(1) Without altering the legislative authority of Parliament or of the provincial legislatures, or the rights of any of them with respect to the exercise of their legislative authority, Parliament and the legislatures, together with the Government of Canada and the provincial governments, are committed to
"(a) promoting equal opportunities for the wellbeing of Canadians;
"(b) furthering economic development to reduce disparity in opportunities; and
"(c) providing essential public services of reasonable quality to all Canadians.
"(2) Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation."
This vision of Canada has not been limited to internal legislation and policy documents. Canada's commitment internationally has received worldwide recognition and put us at the forefront of international agreements such as the Universal Declaration of Human Rights, the International Covenant on Economic, Social and Cultural Rights and the International Convention on the Elimination of All Forms of Racial Discrimination.
Article 25 of the human rights declaration signed by Canada states:
"1. Everyone has the right to a standard of living adequate for the health and wellbeing of himself and his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
"2. Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection."
Three sections of the International Covenant on Economic, Social and Cultural Rights are also important to note here. Articles 6 and 7 state:
"6.1. The states parties to the present covenant recognize the right to work which includes the right of everyone to the opportunity to gain his living by work which he freely chooses or accepts, and will take appropriate steps to safeguard this right.
"6.2. The steps to be taken by a state party to the present Covenant to achieve the full realization of this right shall include technical and vocational guidance and training programs, policies and techniques to achieve steady economic, social and cultural development and full and productive employment under conditions safeguarding fundamental political and economic freedoms to the individual.
"7. The states parties to the present covenant recognize the right of everyone to the enjoyment of just and favourable conditions of work which ensure, in particular:
"(a) Remuneration which provides all workers, as a minimum, with:
"(i) fair wages and equal remuneration for work of equal value without distinction of any kind....
"(ii) a decent living for themselves and their families in accordance with the provisions of the present covenant."
Article 13 of the same covenant "recognizes the right of everyone to education" including "higher education [which] shall be made equally accessible to all, on the basis of capacity, by every appropriate means, and in particular by the progressive introduction of free education."
The International Covenant on the Elimination of All Forms of Racial Discrimination guarantees the right of everyone, without distinction, to:
"5(e) Economic, social and cultural rights, in particular:
"(i) The rights to work, to free choice of employment, to just and favourable conditions of work, to protection against unemployment, to equal pay for equal work, to just and favourable remuneration;
"(ii) The right to form and join trade unions;
"(iii) The right to housing;
"(iv) The right to public health, medical care, social security and social services;
"(v) The right to education and training."
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How then are we to interpret the recent actions and policy decisions of the Ontario government? Should we conclude that Canadians have changed their minds, casually decided to reverse decades of progressive, reasoned social policy and program development, abandoned Canadian constitutional rights and international commitments? Are we to believe that Ontarians no longer have any inclination or obligation to protect the inherent dignity of the human person and the right to an adequate standard of living, health care and education?
Last year, Philip Alston, Chair of the United Nations Committee on Economic, Social and Cultural Rights, reminded the Canadian government that as a party to the covenant it has an obligation to pursue policies and programs which comply fully with its commitment to the International Covenant on Economic, Social and Cultural Rights. His letter also requested a report from Canada outlining how it is complying with its obligations. I might mention that the provinces are under those same obligations as the Canadian government.
Ms Thompson: Since taking office in the summer of 1995, the Ontario government has slashed social programs, cut back on social assistance rates for the unemployed and offered tax breaks for the wealthy. In doing so, it announced that it was getting the deficit under control and getting Ontario back to work. Neither goal has been reached. In fact, it is our belief that these policy initiatives have had the regressive impact of putting both of these goals even further out of reach of Ontario.
While there are others who speak more eloquently to the fact that a tax break and subsequent revenue reduction is counterproductive to getting the deficit under control, we will address the other goal of getting Ontarians back to work.
Ms Eagle: In October 1995 people on social assistance suffered a 21.6% rate cut in benefits. As a result, a single person on welfare now receives a maximum monthly income of $520. A single parent with a small child receives a maximum of $957. A couple with two dependants, a child and a teenager, receives a maximum monthly income of $1,214. Since the rate cuts many recipients have had two allowable rent increases, but no shelter adjustment, and so are paying even more rent than before from the basic needs side of their assistance cheque.
Attached to this presentation is a budget sheet of a real client who is trying to maximize all sources of income and yet having trouble budgeting all her expenses. We invite your expertise as a finance committee to come up with a workable solution for her. As work is scarce, she may be on assistance for some length of time and therefore needs to budget in such items as clothing and furniture etc.
To continue with her story, though, is to add another piece. Since the announcements of mega-week last month, the city administration where she lives -- and I know that city -- has announced that city inspectors will no longer carry out some of the standards bylaw enforcement that previously was done. One of the items that is to be cancelled is pest infestation inspections. Her building is one of the ones that has had persistent cockroach problems and a landlord who only responds when threatened by city action. Where does she go now for help? Should we also be budgeting in that amount on her budget sheet?
Ms Thompson: The Ontario Social Safety Net/Work has been part of Workfare Watch, which is a monitoring and assessment of the implementation of workfare across the province. Far from creating employment, it has become a divisive municipal initiative that we forecast will cost millions of dollars to implement. It will replace paid employment as well as usurp existing student and community service placements.
Will it be successful in getting Ontarians back to work? Social assistance administrators are openly admitting that this is not, nor is it designed to be "a job creation program or in-depth skills training." That was in the London Free Press this week.
The alternative federal budget paper that was released yesterday reminded us that unemployment is still at 10% and that one in five people and one in three families experience some form of unemployment every single year. One out of every six Canadians now lives below the poverty line, which makes the national total 5.2 million.
Workfare unfairly targets unemployed people as the problem instead of being victims of a far greater problem of unemployment. It also unfairly perpetuates the false and hurtful stereotype that unemployed people want to be unemployed and must be coerced back into working for their income. In fact, voluntary job training or placement programs have been oversubscribed as unemployed people have gone on waiting lists searching for any and all opportunities to get back into the job market.
We would ask you to be reminded that as the province downloads the family benefits recipients into the municipal delivery, many people who are currently on disability and are sole-support parents taking care of young children are the people who are going to be getting the welfare-workfare program because most people on social assistance general welfare are only on welfare for four to six months. That's research done by municipalities across the province. Again, we see programs targeted on women and the disabled unfairly.
Ms Eagle: This past October the Ontario Social Safety Net/Work released an anniversary report that tracked the impact a year later of the series of cutbacks that began with the social assistance rate cut of October 1995. We found that the cuts have hurt the most vulnerable people in Ontario. Most people affected by the cuts are children, single mothers and people with disabilities.
Ms Thompson: What was already a serious housing problem has become a housing crisis. Growing numbers of people are going without food and necessities to pay rent, as evictions rise and more and more people become homeless. In Metro Toronto in 1995, 33% of recipients paid above their maximum shelter allowance in rent. By April 1996 this had doubled to 66%.
It was reported that Ottawa-Carleton rooming-house operators were putting bunk beds in what had been single rooms, increasing occupancies in single houses from six to eight to 10 to 12. Many people have lost or soon will lose telephones, hydro and other services. The crisis is deepening as governments abandon any effort to maintain affordable social housing.
In addition, in London we have CAS workers reporting that due to the cuts of October of last year, they are now taking children into care over the winter months at the end of the months when people's hydro is cut off. That costs extra money because foster children care is double the amount of natural parent care under this legislation.
Ms Eagle: Ontario is facing a hunger epidemic. Food bank use has skyrocketed. Some examples are a 102% increase in the Belleville food bank from June 1995 to June 1996, a 150% increase at the Rainy River food bank and a nearly 400% increase in emergency food calls to a London agency. These are just some of the statistics that came in when we sent a call across the province to the different member agencies which are part of our network asking for stories. More people, including children, now go hungry regularly in Ontario.
Ms Thompson: The mental and physical health of impoverished people in Ontario is deteriorating. Persistent hunger and malnutrition seriously impair health. Mental health is particularly jeopardized.
Ms Eagle: Welfare recipients can't just earn back the difference, as the government claimed. Only a few of the people who remain on welfare have been able to get part-time jobs or substantially increase their earnings from part-time employment. The economy would have to generate $80 million to $90 million per month in additional wages to compensate for the actual losses from the cuts. The cuts have made it much more difficult for people to find work. They have been forced to give up phones and newspapers and they have no transportation money or money for haircuts, clothing or other personal needs to be presentable for interviews.
Ms Thompson: Other supports in the community are being decimated just are they are needed most. Voluntary sector and private non-profit social service providers are closing at an alarming rate due to funding cuts.
Ms Eagle: The cuts have hurt local economies across Ontario. The cuts have removed almost $1 billion from local economies.
Ms Thompson: The situation is going to get much worse. More people will fall through the social safety net before the end of the winter of 1996-97, and we believe that tax cuts are going to help all the wrong people. As we reminded you at this time last year, before you implemented the tax cut, a simple tax cut will be unfair. Households with incomes over $95,000 make up less than 10% of all households in Ontario, but they will receive nearly one third all of the total tax benefits that you generate with this cut.
Ms Eagle: Those were the conclusions that were drawn when we presented our anniversary report a few months ago. All the MPPs were mailed a copy of that report but we did bring extra copies today just in case any of them missed reading it when it came out in October.
Our recommendations: First of all, we believe that it is still possible for this government to stop the tax cut and reverse the social program slashing. In fact, we believe that the physical and mental health of many impoverished Ontarians, particularly women and children, is at stake.
Ms Thompson: We also believe that should the government continue along its present course of action, it will bequeath a social deficit with more devastating and more far-reaching consequences than any financial deficit it is now using to justify its current decisions.
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Ms Eagle: Finally, we'd like to take issue with the decision to hire the Andersen Consulting firm of Calgary for $100 million to redesign the welfare system and reduce costs by $1 billion to $2 billion. We'd like to know more about that contract, we'd like to have information about it and we believe that any considered cuts such as $1 billion to $2 billion being taken out of the welfare system as part of a redesign would demolish the system and devastate the people already struggling to survive. We take issue with the fact that that contract has been offered to Andersen Consulting.
I think that's all we'd like to say at this point, but we're ready to take questions.
The Vice-Chair (Mr Tim Hudak): Very good. That leaves us with about two minutes per party for questions.
Mr Kwinter: Thank you for your presentation. I had a chance to look at your monthly budget, the actual case of a woman with two children, a sole-support mother who was on welfare. I noticed that their total income was $1,356 and if you took just the first three items -- rent, hydro, food -- they would be left with $93 a week to look after everything else. How do they survive?
Ms Thompson: CAS takes the children into care and they don't eat. Parents aren't eating now, children are starving, they're going to school malnourished. We are hearing these great ideas of creating breakfast programs in schools so that schools start feeding kids. There's no reason why people can't be given good resources to feed their children in a home where they're loved and cared for. There's no reason why they should be going into care through a CAS when their parents love them and are trying desperately to care for their children at home.
Ms Eagle: Jackie and I are here representing the safety network today but both of us in our worklife work at the community level with people who are trying to survive on these budgets. What we're seeing is that people cycle lower each month and become more desperate. I talked a week ago to a woman who said: "I thought I might survive. I lost my job after I had started to pay a mortgage on a house. I thought I might be able to hang on. It looks like now I'm going to default on the mortgage. I'm not going to survive. I don't know what's going to happen to me and the three children."
We're just finding a worse and worse fallout as people become more desperate. I know women who just don't eat at the end of the month, quite simply. Last summer we had a situation where a woman lost her telephone, then she lost her hydro. She took her children, dumped them off at children's aid and went home to commit suicide. Luckily she was not successful.
But those are the kinds of stories that are coming to us now and we sought this opportunity to present to you today because we don't know how else to reach you. We don't know how else for you to hear the stories of the people in the community, except to come before these committees.
Ms Lankin: Thank you. Susan, when I received the copy of the anniversary report and I read through it, particularly a number of the highlighted quotes, people telling their own stories, I was both moved and angered that this could be happening in such a way in Ontario.
You've just talked about some examples. I was speaking with some directors of children's aid societies who have told me that in the past -- first of all, the volume of caseloads they're dealing with has gone up dramatically -- but in the past the primary reason why children would be taken into the care of the CAS would be a situation of either extreme violence in the home or addictions of some sort. The single largest reason now is a category called "Parents cannot cope." That's it, just can't cope, and it's like the woman you just talked about.
I don't have a specific question for you. Take the other minute that I have and just talk to the government members because they're the people you have to convince that the policies, the directions are wrong.
Ms Eagle: Well, let me read you what some children in North Bay had to say about what poverty is:
"Poverty is not getting a hot dog on hot dog day, not getting pizza on pizza day, not going to Canada's Wonderland, not being able to have your friends sleep over. It's pretending that you forgot your lunch, being afraid to tell your mom you need gym shoes, not having any breakfast sometimes, not being able to play hockey. It's sometimes really hard because my mom gets scared and she cries. It's hiding your feet so the teacher won't get cross when you don't have boots."
I guess our appeal to you is not to cast off the poor. With the downloading to municipalities and now the news that you may allow municipalities to even set rates for social assistance, we know that it'll be an even quicker race to the bottom. I haven't lived a long time, but in my memory I have not seen a government that has cast off the poor the way it seems this government is trying to do. We're appealing to you not to do that.
Mr Jim Brown: Thank you for your good presentation. In terms of your recommendations, I would like to ask you about your comment that you'd like to challenge the decision to hire the firm Andersen Consulting of Calgary for $100 million to redesign. I'm not aware of any expenditure of $100 million to do this redesign. Could you tell me more?
Ms Eagle: I can't tell you much more than that. We have heard from the company that they seem to think they're getting $100 million for doing this job for the Ontario government, but maybe you can clarify for us.
Mr Jim Brown: You phoned the company or the company phoned you to say that they had this deal and they're going to the bank and they're banking it already?
Ms Eagle: No, it came in a more roundabout way and we wouldn't be prepared to disclose the source, but that certainly is what we were told.
Mr Jim Brown: So you have not been talking to the company yourself.
Ms Eagle: Not myself, no.
Mr Jim Brown: So you really have no indication that's it's $100 million.
Ms Eagle: We're asking the question and we'd really like to know if that's what's happening.
Mr Jim Brown: They could be theoretically doing work for free. They could be doing it on a contingency basis or they could not be doing it at all.
Ms Eagle: I understand possibly that they get their money if they can save $1 billion on the welfare system, and to me that would really be literally taking food from the mouths of the hungry.
The Vice-Chair: Thank you, Mr Brown. That concludes the time. To Ms Thompson and Rev Eagle, thank you very much for your presentations and your submissions. Have a good day.
PHARMACEUTICAL MANUFACTURERS ASSOCIATION OF CANADA
The Vice-Chair: The next deputation listed is the Pharmaceutical Manufacturers Association of Canada, Mr Gerry Jeffcott. Is the association in the room? I'd like to welcome the Pharmaceutical Manufacturers Association of Canada on behalf of the standing committee. I understand you have presentations to be handed out to the members that are arriving shortly. Introduce yourselves for the sake of Hansard and begin when you're ready. You have half an hour. Any time left over can be used for questions.
Mr Gerry Jeffcott: Perfect. Thank you, Mr Chairman and members of the committee. We appreciate the opportunity to appear before you today. My name is Gerry Jeffcott. I'm the director of national/provincial affairs and pharmacy relations for the Pharmaceutical Manufacturers Association of Canada. My colleague Bob Stinson is manager of government affairs for Ontario for Merck Frosst Canada Inc and he's also a member of our PMAC Ontario committee. We are pleased to be here today to offer the PMAC committee's comments on the government of Ontario's budget process for 1997, and we are pleased to provide our views on the economic factors facing the province and the brand-name pharmaceutical industry in Ontario.
Let me begin by providing you with some background information on the association. It represents the interests of Canada's research-based pharmaceutical industry. These are companies which are engaged in innovative research and development and manufacturing of prescription and professional non-prescription pharmaceuticals. PMAC members employ more than 17,000 people in Canada.
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Thirty-four members of the our association have their Canadian headquarters in Ontario and several others have a significant presence in the province. Together, they make a significant contribution to the economic wellbeing of the province, including directly employing 8,000 people here in this province; we inject approximately $1.2 billion into the Ontario economy annually; we have invested $268.1 million in innovative research and development in the province in 1995; and we invest tens of millions of dollars in supporting an emerging biotechnology sector.
Almost one quarter of our industry's research and development investments are spent externally. As a result, the brand-name industry is a major contributor to the basic and clinical research conducted at universities and hospitals throughout the province. In 1994-95, the brand-name industry contributed approximately $50 million to the five faculties of medicine in Ontario, which represents approximately 14% of the total amount spent on biomedical research in these facilities.
The brand-name companies located in Ontario have a tremendous export capacity. As a result, many of these companies have been awarded North American and global research and product manufacturing mandates. With more than half the pharmaceutical companies located here, it is vital that the provincial government demonstrate that Ontario has a receptive business environment. This is important in order to maintain current investment and employment and to attract future investments into the province.
As the cornerstone of the government's economic policy, this provincial budget has a direct impact on the ability of our industry in Ontario to compete within the global marketplace. The economic climate that is created by the government's fiscal policy is important to our association's members, who compete for global research and development and product manufacturing mandates within their respective companies.
The 1997-98 Ontario budget will outline the government's plan to create an economic climate which will allow the private sector to grow and create jobs in the province. Key components of this plan, from our industry's perspective, must include managing the provincial health care budget effectively; streamlining the drug submission and evaluation process at the ministry; and supporting a strong patent protection framework for the innovative pharmaceutical and biotechnology industries in Canada.
During the past two years, the provincial government has maintained an annual budget within the Ministry of Health at $17.4 billion. At the same time, the ministry has implemented fundamental change through restructuring the delivery of health care services through eliminating waste, duplication, abuse and mismanagement from the system. The savings achieved through these processes have been reinvested in front-line patient programs.
The PMAC believes that as the government of Ontario, in particular the Minister of Finance, reviews program spending in the Ministry of Health for 1997-98, particular attention must be paid to the role that drug therapy, provided primarily through the Ontario drug benefit program, plays in providing cost-effective, quality health care to citizens across this province.
The government spends approximately $1 billion annually on the ODB program. While it is true that the ODB program budget has grown in recent years, demographic change and increasing utilization have been the primary drivers of this cost increase. Indeed, drug usage, particularly the increasing number of recipients, accounted for almost 35% of the cost increase associated with the ODB program between 1985 and 1995. As well, it is estimated that an increase in one prescription per ODB-eligible recipient adds approximately $50 million to the budget.
The PMAC believes there are ways to reduce the costs of the ODB program and spend smarter. We support the government's efforts to abolish silo budgeting, which will enable cost savings to be carried over from one division of the ministry to another. This will allow savings from reduced hospitalizations and physician visits from new medications covered by the formulary to be realized. The association recognizes that the ministry has endorsed the concept of an integrated delivery system and is looking at ways to implement it at the community level. The PMAC would be most willing to work in partnership with the ministry to achieve these objectives.
Ensuring the appropriate use of drugs is also crucial to reducing costs within the drug program budget. The PMAC supports the Ministry of Health's goal related to appropriate drug use, as stated in its 1996 business plan, and maintaining a firm commitment to optimal therapy. Indeed, the PMAC is an active partner with the ministry and other health care stakeholders with respect to the Knowledge is the Best Medicine campaign, which promotes appropriate prescribing and responsible use of medications, and it encourages consumers to become more knowledgeable and aware of their prescription medication use.
In summary, if the Ministry of Health implements these changes, we believe the provincial health care budget can be managed more effectively.
Our second point concerns the need to improve and streamline the drug submission and evaluation process within the ministry. The current approval process for obtaining coverage for drugs under the ODB program involves a significant amount of unnecessary and costly regulatory duplication with the federal health protection branch. Reducing this regulatory duplication would result in improved and timely access for patients to new medications, provide a more welcome environment for companies in our industry to invest and may also reduce costs to government.
There's also a need to introduce greater transparency into the submission review process. The PMAC believes that making the review process more transparent has advantages for the industry and for the Ministry of Health. For example, currently the Ministry of Health directs requests for information through the lengthy and time-consuming freedom-of-information process. An improved, open process will result in a faster review of submissions as well as facilitating more efficient decision-making and it will reduce the time patients have to wait for new important medications.
The PMAC would like to acknowledge at this time the work the Ministry of Health has undertaken in the past year to reform the process and make it more efficient. We appreciate and support the efforts made by ministry officials to respond to our suggestions for improvement. However, we believe there is more that can be done to streamline the process, such as eliminating the submission requirements which duplicate safety and efficacy documentation already provided by manufacturers to the HPB for its review. We urge the provincial government to continue its efforts to streamline the regulatory process and improve the economic climate for our industry.
We would also like to acknowledge the work of the Red Tape Review Commission and express our support for the recommendations contained in its final report concerning the Ontario drug review and approval process. We urge the ministry to work with our industry to implement these recommendations, which focus on eliminating duplicative or unnecessary submission requirements, improving the transparency of the submission process and enhancing the timeliness of the overall process.
I'm going to ask Bob, my colleague, to focus on the third and final component of our presentation, namely, ensuring a strong patent protection framework for the innovative and biotechnology industries in Canada.
Mr Bob Stinson: My name is Bob Stinson. As you know, I work for Merck Frosst. It's a pharmaceutical company with a significant presence here in the province.
As you've already heard, Ontario is the key centre for investment for research and development within the brand-name pharmaceutical industry. It also is Canada's leader in biotechnology, with the largest share of biotech firms in the country, representing 3,500 highly skilled scientists, engineers and technicians who work in these Ontario-based biotech companies.
The growth potential of this industry is significant. It's currently growing at 11% a year. Ernst and Young released this information recently in a press release that will be part of their document on a review of the biotech industry that will come out sometime in mid-March. It's going to be quite stunning, because we're talking about an industry that was extremely small a decade ago, something like 100, 120 companies. It's now at 229, which is a relatively conservative estimate, and it's their prediction that it will be a $1-billion industrial sector by the end of the century. This is truly a Canadian success story.
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These are people working in these biotech facilities who have graduated from universities. They are people who have appointments at universities, be it York University, U of T. They're people who teach currently at Seneca College, who now have cross-appointments and work in these biotech companies. It's a wonderful transference of discovery and ideas at the university level going over into a technology transfer, coming out with products that will be aimed at treating diseases currently not being addressed and not being treated.
It's a new technology, and as taxpayers here in Ontario we've contributed significantly to the education of these people through the taxes we pay every year to support the universities and college, and now we're getting the benefit of this through the emergence of this biotech sector, which Ontario is the head of.
The brand-name and pharmaceutical biotechnology industry sectors have experienced significant growth in Ontario during the past decade, largely due to an improved federal protection law known as Bill C-91. Bill C-91, which was passed in 1993, brought Canadian patent protection for pharmaceuticals just about up to world levels.
During the past 10 years, the brand-name pharmaceutical industry has surpassed the commitment it made when C-91 was passed to spend 10% of sales -- this is Revenue Canada-approved R&D, so it's Revenue Canada that decides whether or not this is true R&D. Then it goes through another body, called the Canadian Patented Medicine Prices Review Board, which again looks at the data we supply to them and approves it as being true R&D. So it's pretty rigorous, and we've lived up to our commitment. Indeed, the research spending has risen by more than 276% in Canada, reaching a total of $3.2 billion since 1987.
Moreover, price increases of patented prescription drugs have averaged below the rate of inflation from 1988 to 1994. In 1995, prices declined by 1.75% from their 1994 level, which is significant. In terms of job creation, 3,000 direct jobs have been created by the industry since 1987, with 3,800 indirect, research-oriented positions that have been created through universities, hospitals and clinics across the country.
It's important to note that the generic pharmaceutical industry has experienced significant growth as well, since patent protection was brought up to world standards under Bill C-91. You're going to hear a report shortly from IMS that will report generic growth of 22% during the last year versus a growth of 0.6% in dollars for the brand-name industry. This is quite a dramatic turnaround.
Later this month, Parliament, the federal government of Canada, will review Bill C-91 under a mandated legislative review process to determine the benefits associated with the legislation. Preserving the economic gains mentioned above and enhancing the province's potential to achieve even more growth in these sectors must be the focus of the government of Ontario's position during the 1997 parliamentary review.
We're asking the Ontario government to support international standards of patent protection for the innovative pharmaceutical industry, including maintaining the 20-year patent term for pharmaceutical and biomedical products. This is exactly the same patent status that exists now for the television monitor in the room. For pharmaceutical products, biotech products aimed at human health consumption, the patent is being brought up to the same level as what you can get for any other patent for any other knowledge-based sector. The only reason we're here to discuss this particular issue is because a quarter of a century ago, patent protection for pharmaceuticals was weakened significantly below what it was for other knowledge-based products. Now it's coming back up to that level, and that's where C-91 is aiming it at.
The second point is that we want to encourage the federal government to provide market compensation for drugs delayed by regulatory approvals by establishing a form of patent term restoration for up to five years.
We want to support the enshrinement of linkage regulations, which prevent illegal copies of drugs from being sold in Canada, in the Patent Act itself. Right now these are linkage regulations, and as legislators you know the difference between regulations and legislation.
We'd like to advocate greater stability and certainty to the intellectual property rights in Canada by eliminating the need for formal legislative reviews at statutory intervals of the Patent Act respecting pharmaceuticals.
We're asking the government of Ontario, through you, the members of the standing committee on finance and economic affairs, to make a clear statement that it values the economic benefits associated with the strong brand-name pharmaceutical and biotechnology industries in the province. Ontario can lead the way in biotechnology and biopharmaceutical development. Ensuring federal patent laws reflect the province's commitment to economic development and job creation is central to that leadership. We ask the government to support our industry's need for truly international standards of patent protection in order to ensure that Ontarians benefit from the present and future potential of a truly dynamic industry.
In conclusion, the 1997-98 Ontario budget provides the government with an opportunity to demonstrate its commitment to improving the investment climate for the innovative pharmaceutical and biotechnology industries in the province. The keys to the continued success of our industries in Ontario during 1997-98 are linked to the effective management of the provincial health care budget, streamlining the drug approvals regulatory system in the Ministry of Health and obtaining the government of Ontario's strong support for maintaining the international standards of patent protection for intellectual property in the innovative pharmaceutical and biotechnology industries in Ontario and throughout Canada. PMAC would be pleased to work with the Ontario government to meet these objectives.
Ms Lankin: Consistent with my practice earlier in the day, I want to inform the government members that Mr Stinson is also a constituent of mine. The Beaches is just a wonderful place to live.
Interjection.
Ms Lankin: I'll let Mr Stinson comment on that.
Bob, I wanted to ask you a couple of things, but the comment you just made about enshrinement of the linkage regulations in the Patent Act itself, how would that have affected some of the notable court cases that we have seen take place, the dispute about whether something's out from under patent or not and distributable or not?
Mr Stinson: That's a very good question. Frances is a very able member and I have no problem saying that to this committee. Frances has extensive experience in what can happen when legislation is not there to protect the players in the domain. The linkage regulations as they stand now do not allow for protection of patent-holders. What we would like is for the linkage regulations to be strengthened and also to be enshrined in the legislation.
The issue is that C-91 was a huge compromise. It's a traditional Canadian case. Generic drug manufacturers were given the ability to manufacture and stockpile a generic copy of a patented product three years before a patented product would lose its patent, which is fabulous for people who are concerned with budgets, because it would allow a generic drug to come on to the market the day after a patent expired.
Ms Lankin: Governments have a great interest in that as well. That's why they would have supported it.
Mr Stinson: Absolutely, and I subscribe to that. The day a patent expires, then that product is available for the public domain. But you see, by allowing someone to take three years in advance to go and manufacture and stockpile the material, there's no mechanism for preventing the manufacturer of that generic product to come on to the market. The linkage regulations will do that, because it will allow the justice department to look at the patent status and not allow patent infringement to go into the marketplace, causing governments, who are payors, huge problems. Thousands of hours were put into fighting legal battles because they went into the public domain instead of being dealt with by appropriate legislation.
Ms Lankin: Try being a minister with both sets of lawyers and lobbyists coming to you and telling you to sort this all out.
Mr Stinson: I don't know how you ever survived it, but you know, you did the right things.
The Vice-Chair: Thank you, Ms Lankin.
Ms Lankin: Is there a chance just for a quick comment which may --
The Vice-Chair: I'm sorry. We've gone over the time. On the government side I have Mr Brown and Mr Spina.
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Mr Jim Brown: Mr Spina first, then Mr Brown.
Mr Spina: Thank you, Bob and Gerry. Don't go to Vermont. You know why. A quick question that I wanted to ask you: There is a duplication of the approval processes. Once the federal government has put it through, then the provinces individually have to go through that same process. What's that costing the industry, the manufacturer? If that was simplified, what do you see is the real benefit? Would that mean cheaper drugs?
Mr Jeffcott: I'm not sure we've got specified figures that I can quote to you, but I can tell you this. What it involves is literally volumes of material which is submitted to HPB, and I'm talking rooms full, at times, of clinical data, which is passed on to HPB, then being reproduced 10 times to meet the requirements of each of the individual provinces and not reproduced the same in each of those 10 provinces, but customized and moved around appropriately in order to meet those requirements. You can imagine the time consumption and the staff power that's required to pull that kind of material together for essentially the same information to be shared with 11 different jurisdictions.
Mr Spina: Same standard?
Mr Jeffcott: I beg your pardon?
Mr Spina: Are we trying to achieve the same standard here, in Canada?
Mr Jeffcott: Clearly, the issue here is we're trying to develop some consistency, first of all, to assign to the HPB the responsibility for reviewing data that's important to it and ask the provinces to leave that material alone and look at material that is important to them, but more important, once we can create that distinction as to who's responsible for what, then one submission which we can utilize across the 10 provinces instead of 10 different submissions.
Mr Kwinter: Gentlemen, it's always a pleasure to hear from you. I want to commend you and your industry on the work that you've done. I have to admit I was a little sceptical when C-91 was proclaimed. I was hoping that the industry would not be making up the R&D component just for clinical research but it was doing some really true greenfield kind of research and, after visits fairly recently at both Eli Lilly and Glaxo Wellcome, I was very impressed, and they're just a representative grouping of the industry.
One of my concerns that I see in your presentation is about what is happening with the utilization costs. The government makes a big deal of the fact that it's keeping funding for health at $17.4 billion each year, but that doesn't take into account the growing population and the growing utilization. Now it's true that they say that they're doing things more efficiently. Is there enough saving in the efficiency to combat the increase in utilization, or are we actually getting to the point where, because of the restrictions, there are people who are not able to access the drugs they need?
Mr Stinson: Are you asking whether the restrictions that are now in place are preventing patients from getting drug treatment?
Mr Kwinter: What I'm saying is that the allocation for health is $17.4 billion. That would be fine if everything stayed constant. It doesn't stay constant. The population is aging, the population is growing, new drugs come on, all sorts of things happen. To counter that, there are efficiencies put in the system by whatever they're doing. All I really want to know is, is there a match there or are we finding that the utilization is greater than whatever the efficiencies are?
Mr Stinson: I think I must applaud this government for letting the Ontario drug benefit budget float upward as the demand for drugs increases for the reasons that you have stated. There has been no movement by the government to reduce the expenditures on drugs. In fact, there's been a recognition that drugs are one of those cost-saving components in the budget of expenditure on health that should be perhaps looked at and maximized. Efforts are being made to look at utilization to ensure that there is appropriate utilization, and we're working with the government to ensure that there is not inappropriate utilization of drugs, but rather appropriate. That will probably mean there will be an increase in the expenditure on drugs as time goes on when appropriate uses are really looked at and determined.
The company I work for has just entered into an agreement with Nova Scotia on a $6-million project with the government and a number of other stakeholders and we're looking at the appropriate use of cardiovascular drugs. The number one mortality cause in Nova Scotia is heart disease and they're looking at ways of managing their patients more efficiently. They realized, when we went into this project together with the university and a number of private sector partners, that they would probably end up having to spend more money on some drugs simply because they were not being utilized appropriately. That's the direction we're going.
The Vice-Chair: On behalf of the standing committee, thanks, Mr Stinson and Mr Jeffcott, for your presentation.
32 HOURS FOR FULL EMPLOYMENT
The Vice-Chair: The next delegation is 32 Hours for Full Employment. I have Joseph Polito and Anders Hayden on my list. Welcome to the standing committee on finance and economic affairs.
Mr Joe Polito: My name is Joe Polito. This is my daughter, Darcy.
Ms Darcy Polito: Good afternoon.
Mr Polito: I've got a few props here. Thank you for the opportunity to provide some feedback to the budget process. My name is Joe Polito. I'm a member of a volunteer group called 32 Hours for Full Employment. We're a diverse group of ordinary citizens trying to make a difference. I'm very proud of the group's rapid growth and accomplishments, but we're a new group, still defining our identity and positions, so I've included the latest drafts of our principles and a brochure which we are preparing.
Please keep in mind that though the group delegated me to make our contribution to the budget process, any deficiencies are mine. We haven't yet had our first annual membership meeting to solidify some of the details of our positions, nor did we have time to prepare the presentation with the full input of our membership. In other words, if you like anything, it's to the group's credit, and if you dislike anything, it's me you blame.
Our presentation will focus on a few modest goals for your budget: to save billions of dollars for the budget annually, to improve our international competitiveness, to reduce unemployment and to reduce provincial and municipal debts. But more on that later.
Scholars tell us that our fiscal budgets are a statement of who we are and what we value, so first let us focus on Ontario's identity and values, which are the foundation of this budget.
Our identity is strongly linked to the roots of the North American capitalistic miracle -- the strongly principled people who left religious and political repression in Europe in search of freedom and an opportunity to fulfil their potential. These people brought the religious work ethic to free enterprise. It was characterized by hard work, self-reliance, justice and mutual respect. Such business people were famous for honouring their word or their handshake. Their admirable business skills were only a part of a life which was governed by spirituality and ideals, as with that classic Dickens character Ebenezer Scrooge after his memorable Christmas Eve experiences.
Spirituality and idealism are still abundant in Ontario. All the great religions and cultures are now represented here and we have armies of citizens who are humanitarians, environmentalists, politicians, feminists, human rights advocates, anti-racists, members of terrific charities and volunteer groups. Governments at all levels have more than their fair share of such people, people who care and want to do the right thing. Such elected leaders went to considerable expense to ensure travel, building access and washroom services for the disabled, even though it might decrease our competitiveness. For generations such leaders working with Ontario's remarkable populace have helped build the most civilized, humane, tolerant society of the 20th century, and perhaps in the history of the world.
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Ontarians believe that a job is the best social program. It gives esteem, sustenance and dignity. A job allows people to contribute to the wealth of the nation rather than depend on it. Efficiency in the private and public sector benefits all of us, permitting us to utilize our resources most effectively. We believe that democracy with a mixed economy and a vibrant private sector is the best way to manage our resources, meet the needs of the people, improve the quality of life, and provide a just and safe society. We also believe that budgetary conditions should not compromise our principles about health, education, child labour, employee benefits, health and safety, the environment, and many other items that might affect our competitiveness.
The perspective of our group, 32 Hours for Full Employment: As our name suggests, our group is focused on one particular component of society's multipronged attack on unemployment, the deficit, child poverty, food banks, youth and native problems, cuts to health care, the environment, the family, quality of life, better profits, Canadian competitiveness and on and on we go with all the problems that we are faced with. Obviously, our group and those of you burdened with the challenge of fashioning a budget have common enemies, in particular the impact of the inevitable economic downturns.
For the budget, these slowdowns mean a significant increase in safety net expenses and a reduction in revenues. When the slowdown is prolonged, as with the last seven years, the resulting deficits are quite alarming. The downturn's impact on the budget may be obvious, as with enormous welfare payments, or it may be subtle, as suggested in the February 2 newspaper report on the National Forum on Health. The headline, "Joblessness Called Our Number One Health Threat," reminds us of the great health care costs of unemployment. The forum report listed the physical and mental health consequences of unemployment, including more cardiovascular disease, emotional problems, increased problems for children, especially teenagers, suicide attempts and lingering health problems even after regaining employment.
For our group, and I am sure for everyone in public office, the concern is the disproportionate impact on a small percentage of the population. A small percentage loses their jobs, their businesses, their families, their health, their marriages and their self-respect, while the rest of us experience very little change except that our payroll taxes and income taxes are increased to preserve the safety net. An astonishingly high number of these victims are young people.
Our young people are better educated than ever before, but far too many of them must postpone their dreams of a career, family and home because work is intermittent, part-time or unavailable.
I brought one prop to illustrate that point. She and so many of her friends are better educated than young people ever before and yet so many of them who graduate from some post-secondary institution can't find work. Some of them are even offering their work for free. The Globe recently published a headline, "Good News Excludes Our Youth." "The unemployment rate for ages 15 to 24 remained above 16% and the work that they get is often underemployment or worse."
We are advocating a course of action which will address their plight. Simultaneously, this action will contribute significantly to restoring financial health and preventing such a financial crisis from occurring again.
Our view is not some impractical pipedream. We all know Ontario's short history has witnessed an economic miracle based on free enterprise, technology, managerial science and democracy. The result is the finest standard of living in the history of the world. But most of us forget that the miracle was also accompanied by a gradual reduction of the workweek, often in response to economic slowdowns. Historians have documented 70- to 80-hour workweeks less than just 200 years ago. Imagine what the unemployment rate would be today with a 70-hour workweek.
At the beginning of this century, the standard industrial week was 60 hours. It dropped an average of three hours a decade until the 1950s and has been stuck there ever since. Is it sheer coincidence that since the 1950s the unemployment rate has increased? Is it sheer coincidence that social problems and crime have increased ever since?
The future: We've talked of the past. Let's talk of the future. Part of the concern about budgets -- federal, provincial, municipal -- is the debts that we can pass on to our children, to her. Surely ensuring future jobs for them is just as valid a concern. Does anyone here deny that the next 100 years of continued improvements in technology and management won't mean a dramatically reduced workweek? At one time in Ontario, 80% of the population was involved in agriculture; today it is 1%. That same thing is being repeated over and over again in industry and in every form of life. It means we have to reduce the workweek.
The gentlemen who came here previously were talking just about that. They're getting more and more efficient and hopefully they're going to grow very rapidly. I wish them luck. Maybe they'll hire her. But it won't be enough unless we shorten the workweek. It's inevitable.
Even if every future federal, provincial and municipal policy works, we cannot avoid economic downturns, and this is the key point we're trying to make here. Let's assume that everything all of you are doing at all levels of government makes the economy work better than it's ever worked before, that we don't make any more mistakes. We still are going to have problems unless we shorten the workweek; that's the main point.
It's estimated that 25% to 40% of private sector activity involves trade with the US. If the US goes into a prolonged recession, our provincial budget, no matter what things we do here, will be in tatters.
In the business section of this paper there's an article here about an economist who is "a lonely bear," and the gentleman's name is Mark Mullins. If I'm not mistaken, he was highly involved in formulating the Common Sense Revolution policies. He predicts that we're probably going to go into a recession in 1998, and the only reason he makes that prediction -- he has no concerns about the Canadian economy in itself; we're very competitive now, the dollar is down, interest rates are down -- the one reason he sees a recession and the other economists don't is that he sees a recession in the United States. If that happens, we're helpless, this budget is in tatters. The only way to address that is by shortening the workweek.
A successful national model: In the 1990s Japan has gone through a protracted downturn. It had two speculative bubbles burst: the stock and real estate markets. Historically, just one collapse, one burst bubble, would cause a depression; they've got two. Their economy has been rocked, there's no denying it, by these experiences, yet their unemployment rate is still at 3%. Why? Largely because the average hours worked per year in the last five years dropped from 2,100 to 1,900; that's a drop of 10%. If they hadn't done that, they would have 13% unemployment. Imagine what that would do to their welfare and unemployment bills. Imagine what that would do to their budget.
More recently, France and Quebec have been working towards reducing work time to increase employment. Each is examining incentives to do so. In Germany, 43% of the full-time employment created from 1983 to 1992 was due to the reduction of normal work hours. Furthermore, the German government has been examining methods of reducing the use of overtime to create more jobs. Many jurisdictions have been increasing mandatory holidays to increase employment.
In Belgium, the 1995-96 government economic plan to increase employment, competitiveness and financial equilibrium includes an annual bonus for each job created when work time is shared.
It is important to note that this approach does not magically end a recession. It simply distributes work fairly, spreads the pain and reduces pressure on the budget, thereby preserving valuable public services like health.
This isn't something that just governments are doing. Lincoln Electric is a famous company in the United States, a very conservative company, but they never lay off employees during a slowdown. Instead, everyone's hours are reduced. We've all heard of Hewlett-Packard, another remarkable firm. It's had extremely successful workweek experiences in Europe, actually making plants more successful. Employees' wages were proportional at first, but they were so successful and so efficient, productivity gains were so good, that they actually are now working fewer hours at the same original pay, and that plant is one of its most profitable.
The Big Three recently added paid holidays to their contracts, leading to 1,000 new workers being hired. I understand all of the Big Three in Canada are reporting record profits.
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Savings to the government: These models could dramatically reduce the $64 billion governments spend on unemployment. We all know that unemployment adds tens of billions to unemployment insurance and welfare expenses, but few realize that it also adds many billions to crime, health and education expenses.
Savings to taxpayers: Shortening the workweek is a much better way of reducing government expenditures. Currently, it is very difficult to accept government cuts in good conscience when we know that it means less food for an unemployed person. It especially bothers me because this past year my mother-in-law had to wait eight months for a heart operation, and a subsequent error because of the compression of care almost killed her.
I have a friend right now in the hospital. He went into the hospital with heart pains, chest pains. They put him on special medications, blood thinners. It's been over a week and it wasn't until today that they were able to do a procedure to save his life. They just didn't have the rooms, they didn't have the personnel. This is something new in my experience in Ontario.
Savings to business: Experts have found that when the workweek is cut by 10%, there is only a 5% increase in new employees. That's a 5% cut in costs, or a 5% increase in productivity, which translates into profits. It may well be that the slowdown in productivity in the last 50 years is related to the static length of the workweek in the last 50 years. UI payroll costs would also go down. That would reduce business costs and make us more competitive.
Contribution to the goals of all governments: It would cut waste and the deficit without reducing services; create more jobs; reduce the UIC payroll tax; reduce provincial and municipal debts; improve the competitiveness of business and attract investment; improve the quality of life for all citizens, especially young people and families; avoid cuts in health care, municipal transfers, junior kindergarten and the like; alleviate the pressures on new Canadians, who are the last ones to be hired and the first ones to be laid off.
Contribution to the effectiveness of all levels of government: Shortening the workweek would reduce the pressure, because it would help you to save costs, to implement changes at too hasty a pace, which is alarming to ordinary citizens and has many risks. I know two people right now who went through the Second World War. One was in London during the air raids. They say they feel more nervous, more insecure than they did then because of all the changes that are taking place. For us little people, us ordinary people, change is an extremely stressful thing. Shortening the workweek would give you the time to make those changes at a pace which the working public could tolerate. By shortening the workweek we would have healthier finances and thus the time to phase in and test each proposed change one at a time.
The recent problems with the family support plan demonstrate that it takes time for new ways of doing things to work well. This isn't a criticism of the changes that are being implemented. We all know that when we renovate a room or a department or anything, the transition requires extra resources and a need to go through a learning curve. Once the change is implemented, we can move on to the next project and do it well. Shortening the workweek would give us the time to do those things well.
Myths for the budget-setters to avoid:
Myth 1, the cause of our economic downturn: Some experts tell us that the economic stagnation of the last seven years was the result of an inability to compete. We are told that our safety net, payroll taxes and government services contribute significantly to this problem and discourage investment. The solution, we are told, is to cut back. Many economists argue this, many professionals. This isn't anybody's political position.
Yet if competitiveness is the problem, why are we having an incredible boom in exports? We are enjoying a trade surplus with the US of such staggering proportions that it's becoming a serious concern to some American politicians. They may come after us the way they went after Japan. Half of that surplus is Ontario's, although we're only one third of the population, so we must be doing pretty well here already in terms of competitiveness.
The book Unnecessary Debts analyses the unemployment and debt problem. The two graphs from that book summarize the conclusion: The primary cause of high debts and unemployment was the high interest rate policy. The monetary policy exactly parallels the growth in debt.
If you take a look at the last page of the document that I passed out to you, on the back I've photocopied a couple of pages from that book, Unnecessary Debts. The top page is the actual debt. You can see how the debt's grown; it's no secret to anybody. The bottom figure, though, shows you that in about 1980 there was a tremendous increase in the average real interest rate paid on the public debt. The two processes are exactly parallel. As soon as they pushed up -- through monetary policy trying to fight inflation, monetarism -- the real interest rates, the debt grew much more rapidly; it really accelerated. Why? The magic of compound interest.
It has the same effect on debt as it does on your savings. If you can find a better investment at a higher rate, your savings will grow much faster. It does the same thing to our debt, and that's what that graph demonstrates beyond the shadow of a doubt. The cause of our current plight was not competitiveness or anything wrong with anything that goes on in Canada; the cause was monetary policy. That I think has been fixed and it bodes well for our economy. I think things are really going to pick up.
Unfortunately, high rates slow growth and reduce government revenues while increasing expenditures in unemployment, welfare, health and subsidies for housing, drugs, day care etc. Experts say these costs of unemployment are about $64 billion. The problem is not that we can't afford social programs; the problem is that we can't afford high unemployment. Whether we're in boom times or a downturn, we can avoid high unemployment by shortening the workweek. That's the key thing. It's the downturns that are going to kill us, folks. The next recession will kill us. There was an article in the Globe this morning saying just that.
Budget problems also lead to a rash of tax hikes imposed to cope with the increasing debts. For 15 years our real rates have been too high. The new era of low rates will reverse the damage.
The second page, on the back of that page -- I tried not to kill too many trees -- is a graph from the Globe and Mail Report on Business Magazine. There are two items here. One is real family incomes. You'll note that the real incomes plateaued in 1980 and 1989. What happened on those two occasions? In 1980 it was Paul Volcker, 18% interest rates; I remember that. In 1989 it was John Crow who pushed our rates 5% above those in the United States and we collapsed.
The impact on industry? No secret again; this isn't rocket science. In 1982 the average retail sales per capita dropped from almost $7,000 to almost $6,000. In about 1992 or 1993 the average retail sales dropped from almost $8,000 to about $6,800. That's astonishing; no wonder we saw so many people going bankrupt. That was all monetary policy.
Myth 2: We're living beyond our means. We are currently experiencing debt paranoia. Debt has become the storm god of the modern era. We are asked to sacrifice people on the altar of this god. We must appease it or our world will collapse. On that altar we place valuable government programs like health, justice and education; we place valuable people like environmentalists, health inspectors and nurses. The supposed reason for all this pain and sacrifice? We've been living beyond our means.
When well-meaning politicians feel forced to cut our services, it recalls one man's vivid and perplexing memory of the Great Depression. In his community there was a broken tractor, a hungry, unemployed mechanic and an unharvested crop. The resources existed to feed the hungry, fix the tractor and harvest the crop, but the obvious solution was not happening. Today we have the hospitals and the trained professionals to vastly improve our health care, but instead waiting lists for surgery grow and the quality of care deteriorates.
The great irony is that cutting back is part of the problem, not the solution. Why is it a jobless recovery? We've done it to ourselves. At all levels of governments -- no single party is to blame -- everybody has accepted the same paradigm. There has to be a paradigm shift. The shift is: Shorten the workweek and you won't be forced to make these cuts.
I was talking about the impact of monetary policy. The same is true if government cuts expenditures. We saw that in the Second World War, when government increased expenditures, we went from the Great Depression to full employment. When we cut government expenditures it has the same effect: a reduced demand for goods and services. Governments buy computers, governments buy furniture, governments employ construction workers. They're part of the total demand for goods and services. We have been creating our own jobless recovery by cutting government expenses. I'm not saying we shouldn't have cut them, but we should have cut them the smart way. A smart missile: Reduce the workweek.
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Myth 3: There's a lot of fat in the system. For at least six years, and more in health, governments at all levels have been rationalizing and downsizing. There's no more fat there; we're going at muscle now.
Myth 4: The great threat to our children is the burden of future debts. Bruce Little -- page D1, Globe and Mail, February 8 -- demonstrates that the deficit is about to fall rapidly and the real problem will be managing our future surpluses. If this seems silly, look at Alberta. They went from a worse debt than ours per capita and now they're in surplus. Their economy wasn't hit the way ours was by the terrible monetary policy, but it's the same system.
"Let the good times roll," says Bruce Little. He shows our debt plummeting and he explains why. It's simple arithmetic. Everybody expects it. If I look back at this graph here, if you look at the Canadian debt, it was starting to come down in 1988. We had made the right moves, the right changes. We were okay. John Crow came in and it collapsed.
Myth 5: Cutting back stimulates the economy. A few years ago everybody was trumpeting New Zealand's success with deficit fighting. As they downsized from 1985 to 1992 they had no economic growth, while the rest of the developed countries grew 20%. Unemployment doubled. Hospitals closed and waiting for surgery increased. As detailed by Jane Kelsey's book, Economic Fundamentalism, they experienced a seven-year recession. They cut their deficit all right, and they also cut their own throats.
Moody's Investors Service observed that the restructuring process had been long, "tortuous, and quite painful." That's Moody's Investors, not me. The Economist magazine noted that New Zealand had among the largest "increases in income inequalities" among its citizens.
It was New Zealand type policies which savaged the German economy in the 1930s and made the German people desperate enough to elect Hitler.
If it wasn't for the extraordinary boom in exports the last few years, we would still be in the recession which started in 1989. Without all the layoffs at all levels of government, we would not have had a jobless recovery. Furthermore, our government balance sheets would be in much better shape.
Myth 6: Our workers are overpaid, lazy and uncompetitive in the global market. Our exports are booming.
Myth 7: If we take wage cuts, we will prosper. For generations we have raised our standard of living through technological and managerial advances. Those who focus on ways to cut wages and to outsource are not increasing our wealth. They are simply practising the pre-Christmas Eve Ebenezer Scrooge philosophy of management: transfer as much income from the worker to the employer.
I'm sorry there won't be time for questions, but I don't know the answers.
Conclusion: The single best method of reducing the deficit, improving employment and reducing government expenditures is to shorten the workweek. This strategy would have more benefits than all the other government measures combined. A New Zealand style of restructuring makes the recovery jobless, slows growth, reduces consumer confidence and reduces the quality of life.
I want to emphasize, again and again, what we're talking about especially is that if a recession hits us we are defenceless. There are no reserves left.
In the past seven years, in response to the deficit, several provincial governments have believed that they have had no alternative but to close 8,500 hospital beds, lay off thousands of trained professional health care workers, close junior kindergarten in some jurisdictions etc. These tough choices could have been averted if we had implemented some of the myriads of methods of reducing the average workweek.
We know that this government and previous governments have been trying to do the right thing. What we're saying is that if they had made a paradigm shift they wouldn't have had to make these tough cuts they have been and are making.
In a province founded by and still populated by a remarkably spiritual and idealistic people, surely everyone would agree that sharing our work is an expression of that ultimate law: Do unto others. They would say that we should shorten the workweek because it is unjust for the impact of economic slowdowns to fall almost exclusively on a small percentage of people who are laid off or denying our young people a job.
The alignment of the budgetary stars is in your favour. The government is currently preparing to make fundamental changes to the Employment Standards Act. The changes we have advocated will repair provincial finances without the kinds of cuts that have occurred in the past seven years. Those changes will also prevent such damage in the future, and that's the key thing.
We urge you to send a representative to see Jeremy Rifkin on February 25, a world-renowned expert. You've got to send one member of your group to see him. We urge you to talk to the author and economist David Foot here in Toronto. We urge you to consult with Bruce Little from the Globe and Mail.
Crunch the numbers. Consult with Arthur Donner, one of the world's foremost experts on redistributing the workweek. Like so many other great Canadian academics, some day some other nation will probably give him a national award. He has headed two commissioned reports, one in 1987 here in Ontario and one in 1994 for the federal government. Please examine his reports. We've got a few suggestions in the appendices here, but the information is there.
Crunch the numbers. Show Queen's Park the wonderful effect a shortened workweek would have on our budget, health, education and crime costs. There are no significant risks to shortening the workweek; there are all sorts of risks if you don't. The appalling, nightmarish ghettos of people who are denied jobs, and youth and native unemployment, are the stuff that radical politics are made of.
This is a government, this is a people and this is a province not afraid to break traditions. It's time that we break a harmful tradition: the static workweek. For our children, our nieces and nephews, for everyone, we should implement this as a better way to deal with recessions, and before the next recession.
Thank you for the opportunity for making the presentation here, and before I take questions -- I see there's no time left -- I'd like to point out that we've included some appendices to examine in depth some of the ideas about the economy and how to facilitate a shorter workweek. I'll end my presentation with one of the questions and answers from the appendices. The question is, are there any employment problems that a reduced workweek would not contribute to? The answer, I'm afraid, is yes. There seems to be no help for you folks, the politicians, our public servants. You're workaholics. The proof of that is you're here listening to me tonight.
The Chair: Thank you very much for that presentation. We began our day at 9 this morning, so at the time of pre-budget consultations you're quite right. You have used your 30 minutes and we do appreciate your coming in and presenting your views. I can assure you they are unique. We appreciate that, because it's those kinds of views that make you think. That's a very important part of the process. Thank you very much for coming in.
Mr Polito: No one else was able to come from our group because they're all busy working.
The Chair: I don't know of any relationship other than father and daughter where you could refer to your partner as a prop. With that, our committee stands adjourned until 10 o'clock Wednesday next.
The committee adjourned at 1757.