Assemblée législative de l'Ontario

PRE-BUDGET CONSULTATIONS
ONTARIO TRUCKING ASSOCIATION

COUNCIL OF ONTARIO UNIVERSITIES

CANADIAN UNION OF PUBLIC EMPLOYEES

ONTARIANS FOR RESPONSIBLE GOVERNMENT

BANK OF NOVA SCOTIA

ONTARIO SEPARATE SCHOOL TRUSTEES' ASSOCIATION

ONTARIO CONFEDERATION OF UNIVERSITY FACULTY ASSOCIATIONS

ONTARIO COALITION FOR BETTER CHILD CARE

CONTENTS

Thursday 6 March 1997

Pre-budget consultations

Ontario Trucking Association

Mr David Bradley

Council of Ontario Universities

Ms Bonnie Patterson

Mr Robert Prichard

Canadian Union of Public Employees

Mr Sid Ryan

Ontarians for Responsible Government

Mr Colin Brown

Bank of Nova Scotia

Mr Warren Jestin

Mr Aron Gampel

Ontario Separate School Trustees' Association

Mr Patrick Daly

Mr John Sabo

Ontario Confederation of University Faculty Associations

Mr Michael Piva

Ontario Coalition for Better Child Care

Ms Kerry McCuaig

STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS

Chair / Président: Mr TedChudleigh (Halton North / -Nord PC)

Vice-Chair / Vice-Président: Mr TimHudak (Niagara South / -Sud PC)

Ms IsabelBassett (St Andrew-St Patrick PC)

Mr JimBrown (Scarborough West / -Ouest PC)

Mr TedChudleigh (Halton North / -Nord PC)

Mr JosephCordiano (Lawrence L)

Mr Douglas B. Ford (Etobicoke-Humber PC)

Mr TimHudak (Niagara South / -Sud PC)

Mr MonteKwinter (Wilson Heights L)

Mr TonyMartin (Sault Ste Marie ND)

Mr GerryMartiniuk (Cambridge PC)

Mr GerryPhillips (Scarborough-Agincourt L)

Mr GillesPouliot (Lake Nipigon / Lac-Nipigon ND)

Mr E.J. DouglasRollins (Quinte PC)

Mr JosephSpina (Brampton North / -Nord PC)

Mr WayneWettlaufer (Kitchener PC)

Substitutions /Membres remplaçants:

Mr FrankKlees (York-Mackenzie PC)

Clerk / Greffier: Mr Franco Carrozza

Staff / Personnel: Ms Alison Drummond, research officer, Legislative Research Service

The committee met at 1003 in committee room 1.

PRE-BUDGET CONSULTATIONS
ONTARIO TRUCKING ASSOCIATION

The Chair (Mr Ted Chudleigh): I call the meeting to order and welcome the committee back into session. We will commence with the Ontario Trucking Association. Mr Bradley, Mr Burke, welcome. We have 30 minutes to spend together. If you would like to make a presentation, we will follow up with questions later.

Mr David Bradley: Thank you very much, Chairman, members of the committee. I'll really try hard this year to keep my comments brief.

The Chair: We do keep time with my watch. You will get 30 minutes, and 30 minutes on that clock will be about 37 minutes after.

Mr Bradley: Okay. First, by way of background, I think it's important for people to understand the role the trucking industry plays in the economy of Ontario and how dependent the economy is on the trucking industry. Trucking is the dominant mode of freight transportation. About 95% of the goods moved into, out of and within Ontario depends on trucking, either solely or as part of an intermodal movement where you require a truck at either end to get freight to the rail head.

In terms of GDP among all the transportation sectors, trucking contributes over $3 billion annually to the province's GDP. The reason trucking has this dominant mode, despite some of the things you might have heard in recent months, is because of the package of service and price that our industry is able to provide. Our industry, with its flexibility and its efficiency, is geared to serving high value added manufacturing, which in turn relies upon just-in-time inventory systems, and the retail sector, where they're now moving from just-in-time to something called "quick response," which leads to even smaller, shorter distance shipments. It's because of that flexibility and efficiency that the trucking industry's been able to dominate.

Putting that in some context for Ontario overall, trade is the engine of economic growth in the province. It would be nice to have a market of 350 million people. We don't, but we have access to one through trade. Ontario's merchandise exports now account for 39.4% of the province's GDP; 10 years ago, that number was slightly over 33%, so enormous growth over the last 10 years in a free trade environment. Ontario's merchandise exports, by value, were $124 billion in 1995 and that's more than 102% greater than the $60 billion or so that existed in 1985, so a 102% increase over 10 years.

Of course, our major trading partner continues to be the United States. That makes a lot of sense, given the market is just to the south, and the major markets in the northeast, central and southeast US are all within one day's truck drive of the major markets of Ontario. Merchandise trade with the US is 89% of all of Ontario's trade.

Most of that trade moves by truck. In fact, 75% of Ontario's exports by value to the United States and 83% of US imports by value into Ontario moved by truck. The Detroit-Windsor gateway is the largest gateway of trade anywhere on the entire planet.

When you look at our major trading partners, Michigan, Ohio, New York, Illinois and California, you'll see from the chart there that trucking again is the dominant mode in those states. About 60% to 65% of our trade with Michigan is shipped by truck both ways and much higher, 80% to 90%, in the others. Even California, an extremely long-distance market where you might think that rail intermodal would flourish, you'll see that trucking there still hauls about 50% of Ontario's trade with California.

Border crossings between Ontario and the United States have been growing exponentially since the downturn in 1990-91 and at the present time the Canadian trucking industry, basically Ontario carriers, has the lion's share of that market. You'll see it narrowed during the recessionary period when we had an artificially high Canadian dollar and our industry was in the initial throes of deregulation. Since that time though, Canadian carriers have become more efficient and more competitive and we've had a correction in the dollar and are now able to compete head to head in that marketplace.

All of this leads to employment and job creation in Ontario. Trucking is not a capital-intensive industry; it's a labour-intensive industry. You'll see that overall the industry employs about 200,000 people, but if you looked at people working in just the for-hire and private carrier sectors, about 83,000 jobs in the province of Ontario, which ranks it right up there with some of the other major industrial sectors.

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Trucking will continue to be the dominant mode of freight transport for the foreseeable future. The chart you're looking at there was a survey conducted in 1992. It showed that between 1992 and 1996 trucking would see some decline in the per cent of freight bill assigned to it, most of that coming because of rail intermodal, but really a very marginal decline. A study conducted this past fall by Transport Canada for period 1995-2010 shows that the trucking industry will grow at an average annual rate during that period of 2.3% compared to 0.8% for rail and 1.1% for marine. Overall, during the period up to 2010 the market share of trucking will increase an additional 12%, and that will be at the expense of both rail and marine. Again, that is a reflection of the kind of economy we are developing here in this province.

However, that strong operational performance has not translated into significant profitability in the industry. It's a cut-throat, low-priced industry at the present time. Costs continue to go up. Taxes have continued to weigh heavily on the burden of the industry. The operating ratio, which is what we use to measure profitability -- expenses over revenues less interest payments -- it and income taxes, you'll see that in 1996, the most recent data we have, when the line's moving up, that is a deterioration in our financial performance. We've had the operating ratio hovering in the high 90s now for some time, which means very, very thin profit margins.

The result of that has been continued bankruptcy. In the period 1992-95, like all industries, we were doing quite well in reducing bankruptcies in our industry. In 1996 they started to climb up again and 1997 so far remains still somewhat cloudy.

Why I think the finance committee needs to be interested in this is because the cost of transportation as a percentage of delivered prices in Ontario is significant and you'll see that as a percentage of its revenue the trucking industry in Canada is more highly taxed than virtually any other industry out there at the present time. The reason for that is that the trucking industry doesn't get the same tax preferences as other industries. We are a labour-intensive industry, so payroll taxes hit our industry harder than some others. But most important is that the trucking industry pays tax on virtually all of its business input. This is not something that manufacturing and other producing sectors experience. We do, even though our industry is so tightly integrated into the manufacturing sector. The result of that high taxation is increased consumer prices and a decrease in the investment in plant and equipment in the province.

To look at the impact that transportation taxes have on industrial competitiveness, this shows the transportation costs as a percentage of the delivered price of goods of some of the major sectors in Ontario, everything from coal at 39% to manufactured goods at about 5%, but that could be in a broad range. It's very difficult to come up with the typical manufacturing company.

Also, when you look again at our trading partners in the United States, most US carriers are exempt from sales taxation where they are interstate or transporter carriers. This past January, Michigan introduced new legislation to exempt Michigan carriers from sales tax on the purchase of new tractors and trailers. In that way, they're able to turn their fleet over quicker for efficiency and for safety reasons.

In Quebec, and most recently now in the Atlantic provinces, they've moved to harmonize their sales taxes with the federal GST, which provides a credit on their business inputs. Western Canada's going in a different way, looking at something called a "recurring sales tax," which we hope Ontario will avoid, but now the trucking industry in Ontario has to deal with at least three or four different sales tax systems to simply meet our obligations in terms of tax.

Something that I think is important in the current context of attention surrounding the trucking industry and its safety performance is that when you look at the way business inputs in trucking are taxed, we pay sales tax on our tractors, trailers, new tires, vehicle maintenance, repair and labour, warranty repairs, and our automobile insurance premiums on all of our trucks, the case can be made that the more you invest in safety and maintenance, the more you spend on safety and maintenance in Ontario, the more tax you pay. I don't think that kind of regressive tax system was intended, but that is the result we've seen. We think one day Ontario will harmonize with the GST. It's just a matter of time. We believe that is the best way to end discrimination against service sector industries.

Also, we would like to see some new incentives introduced on the safety front. I can speak to this under the question period, but we would like to see the introduction of a workers' compensation experience rating type of system where those who perform poorly with respect to safety pay higher premiums, commercial registration fees, and those who do make the investment in safety and maintenance would get some sort of rebate.

Fuel costs are the second-largest component of truck operating costs, anywhere from 15% to 30%, depending on the type of operation. The diesel fuel tax rate in Ontario has gone up 44% in the last decade. We're at 14.3 cents per litre. The railways, by example, in Ontario pay only 4.5 cents a litre. Some of the things you've been hearing about tax discrimination against the rail sector I don't think really hold up. Overall this tax collects about $500 million a year from the trucking industry into the coffers of the province.

When you look across the rest of the country, Ontario no longer has the highest diesel fuel tax rate in the land. It did a couple of years ago, but it's at the middle of the pack right now. However, compared to where our real competition is coming from, Ontario's clearly the highest among our major US state trading partners in terms of its take on diesel fuel taxes.

At the same time, fuel taxes have no relationship with the cost of fuel or with profitability, and we have seen over the course of the last year significant increases in the rack price of diesel fuel. It's put really extreme pressure on carriers. We have had some moderation just in the last couple of weeks, but levels are still much higher than they were a year before. The moral of this story is that fuel taxes should no longer be viewed as sin taxes and the industry really can't afford any further increases in that regard.

We think though that enough money is being raised from those taxes to maintain the infrastructure. I realize, particularly against the backdrop of today's announcements with respect to hospitals and recent ones with respect to education, that it's difficult to bring the infrastructure argument into play. However, the government was elected to increase competitiveness and increase jobs, and there isn't an economist of any political stripe who wouldn't tell you that one of the best ways to do that, one of the ways you have to do that, is to invest in the competitiveness of your infrastructure.

At one point in time Ontario had a competitive advantage in this area. That no longer exists. The Provincial Auditor reported to you last year in terms of the state of the highways and how much it would cost now to fix them and how much more it will cost in the future if we don't start to get at that. In 1965 the provinces in Canada spent 20 cents of every dollar raised on the highway system. In 1993 that amount dropped to 3.5 cents. It's no wonder that the current state of the highways is one of disrepair.

When you look at Ontario in terms of its road expenditures in Canada per vehicle, it's pretty much at the lower end of things in terms of what some of the other provinces are spending to maintain their infrastructure, to maintain their competitiveness. This not only has an economic impact in terms of the longer-term competitiveness of our economy -- trucks are not going to go away; they are going to be the major mode of moving Ontario's exports -- but it's also a safety issue. You haven't heard the Ontario Trucking Association raising this in any sort of vehement fashion during the last several months and the problems with wheels off and what not, but it is abundantly clear that the state of the highways at the present time is putting increased wear and tear on vehicles and components. It's something that must be addressed also from a safety perspective.

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We have concerns with some of the new proposals arising out of the provincial government in terms of handing over the responsibility for roads and some provincial highways to the municipalities. We're concerned about the continuity of the system and the impact that will have on economic and safety issues. It's our view that any highway of provincial significance should continue to be maintained by the province or at least have the province setting specific standards for those highways, what standards they should be built to.

Those are my remarks. I would be pleased to take any questions you might have.

Mr Gerry Phillips (Scarborough-Agincourt): I'll just make a statement and then ask questions. I view your industry as absolutely essential to the future of Ontario. I don't think there's much doubt that our economy depends on our ability to trade with the US. The heart of Ontario is its auto parts and manufacturing, and you play a big role in that. An efficient trucking industry is, to me, absolutely crucial to our future. I was glad to see what appeared to me to be a substantial increase in Ontario's share of trucking vis-à-vis the US, because that was I know a major concern for many a few years ago.

I don't think we'll have time today to discuss all the implications of your report, but I can just assure you from our caucus view that we view your industry as a key both for our export business and also obviously for our internal, domestic business.

Just a couple of questions. One is on infrastructure. How does your industry feel about the use of toll roads to construct infrastructure?

Mr Bradley: In general we're not supportive of tolls. Our argument there is that there's more than enough money being collected from the road user now. In fact, the Better Roads Coalition of Ontario has drawn numbers from the public accounts which show about $1 billion a year -- less is spent on the road infrastructure than what is collected from road users.

However, having said that, it was OTA that took the forefront in the early discussions regarding how we can accelerate the construction of Highway 407. At that time we said we needed to see that highway in our lifetime, that it was important to Ontario, and therefore we were prepared to consider tolls under certain conditions, some of those conditions being that there has to be an alternate route, that the funding will go to construction, that when the debt is retired, the tolls come off -- those types of things.

In that case we were accepting of tolls, notwithstanding that we wanted to see what level they would be, and the market will eventually sort all that out. But to take an existing highway and start tolling it is not something we would be supportive of, because again the money is there; the problem is, as you well know, that moneys collected from taxes go into general revenues and then have to compete with other expenditures. What we need to do as road users and as people in government is to garner a broader understanding of the importance of infrastructure. It's not hospital beds, but it's important to people's livelihoods as well.

Mr Phillips: There is a problem right now with the perception of the trucking business. I think all the members here would probably agree that we get a lot of comments from the non-trucking public, worried about their safety. In that kind of environment we run the risk that to solve the safety problem we may make your industry slightly less competitive than it has been. Have you any advice for us in the safety area of what we should be doing?

Mr Bradley: Yes, and you're right, because trucks come from other jurisdictions into Ontario as well, and the extent that the costs of regulation were borne at a higher level by domestic carriers than outside, all you'd end up accomplishing there is moving the freight to US and carriers from other jurisdictions while making our industry less competitive.

I hope next week there will be some broader announcements on this, but we have felt that the regulatory system developed in Ontario has been flawed for some time. The things that OTA has been saying over the crisis of the last year or so are things we've been saying repeatedly for the past eight or nine years.

We need to have a regulatory system that clearly identifies what is meant by "safe," what is meant by "unsafe." There is no definition presently in the regulations or legislation. We need to then do a more efficient job of targeting those carriers, those drivers, that equipment that is unsafe, penalizing them heavily, if need be lifting their licences and getting them off the highway, out of the business.

At the same time, though, we have a hypercompetitive marketplace right now, and the market is not sending the proper signals. A safe carrier, a carrier that's making its investment in safety and maintenance, doesn't get a higher price from his customer. Right now the price is king. There are plenty of people who don't know the first thing about running a trucking business who will take any freight at any price.

What we would like to see, again, is the introduction of incentives for those safe operators to help the marketplace work, whether that's indicated through lower commercial vehicle registration fees for someone who's an exemplary operator, only granting permits for certain types of equipment to exemplary operators. In that way, the market can then get rid of this rogue element that we have in the industry. It's a small element of the industry as a percentage, but there are 80,000 licensed trucking companies in Ontario, so it does lead to what would seem to be a lot of equipment that needs improved maintenance.

The bottom line is that if you're not maintaining your vehicles properly, if you're not conducting preventive measures to make sure your vehicles are in fit mechanical condition, if they're not safe, number one, your maintenance costs are going to be higher than they need to be in a competitive marketplace like ours; you can't afford to have any component of cost out of whack with your competition. It's just like in your car. If you're not changing the oil regularly, one day your engine is going to blow up on you and that's going to cost you a heck of a lot more. You're going to run the risk of an accident. If you have an accident, you face skyrocketing insurance premiums, you face potential loss of your customer, and then whatever sanction the Ministry of Transportation or the OPP sees fit to lay on you.

I've heard the excuse, "Oh, nobody's got money to invest in safety and maintenance." That's a crock. What we don't have right now is a system that ensures that everybody is making that same investment. If we can get to that stage, then we'll have fair competition and we'll have safer highways.

Mr Tony Martin (Sault Ste Marie): I want to tie some of that into your comments about the state of our infrastructure, of the roads. How much of what we're seeing now, in your opinion, by way of the flying wheels, can be directly attributed, even indirectly attributed, to the condition of our roads?

Mr Bradley: It's very difficult to say. It is no doubt a factor, perhaps, in some of the instances. My view on the wheels and the view of my association is that if you're maintaining your wheels properly, if you're inspecting them properly, if you're installing them properly and retorquing them properly, you should minimize the risk of a wheel off. However, we have had brand-new, perfect-condition vehicles lose them as well, so I have no doubt.

Where I think it's much more evident is in suspensions and in air brakes out of adjustment, which are the largest out-of-service defect. Out-of-service defects have been equated with safety defects. It's just not so, and this is one of the fallacies that's been out there in the media and in the public eye.

When you look at those out-of-service numbers and you look at the wear and tear on the shocks, you see very clearly where the wear on components is having an impact on the mechanical fitness of vehicles. I've been as close to the wheels issue as I think anybody else, and while I believe that it is a factor, I can't tell you how big a factor, nor has OTA used that as an excuse for these things coming off.

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Mr Martin: With the trend in terms of bankruptcies and the increase, and it's not that different from some other sectors of our economy at the moment, what would you say is the major cause of the increase in bankruptcies that we're beginning to see?

Mr Bradley: It is continued depressed pricing, continued low rates, excessive discounts as people just try to generate cash flow to stay alive. Take that, combined with a continued choppy performance in the domestic economy, and when you've got decreasing prices, increasing costs and simply less freight to move so you're parking the trucks up against the fence, that's what causes the bankruptcies.

In any industry there are people who are incapable of managing their companies who go out of business, but we've really had a cash crunch in the industry over the last number of years. It gets a little better when the economy picks up, but it's very cyclical.

Mr Jim Brown (Scarborough West): Mr Phillips asked the first question I had. It was about safety. I'm wondering about all the fuel taxes that get collected by the feds and don't seem to find their way back to roads or the province. What are you doing? Are you doing anything in trying to help get some of that money back?

Mr Bradley: Yes, absolutely. I've been meeting with the Liberal caucus, meeting with the federal standing committee on transport, the federal standing committee on finance. It is true that the government of Canada takes about $2 billion a year out of the pockets of Ontario road users and puts virtually none of it back into the highway system here in Ontario.

There have been some moneys given to Atlantic Canada and the west as part of the elimination of the transportation subsidies in those regions, but the government of Canada is the only national industrialized government that does not have a national policy on highways. Therefore they do have a role to play.

I have supported Ontario, under the current government and under the previous government, in terms of ensuring that Ontario gets its fair share of that pie if and when it ever comes.

Mr Jim Brown: Is your membership mostly big guys or little guys?

Mr Bradley: It's mostly little guys, which is the bread and butter of the industry.

Mr Jim Brown: What percentage of the total industry would that be that you would have?

Mr Bradley: It depends how you look at it. If you looked at it in terms of numbers of companies, it would be a relatively small number. The ministry will tell you there are anywhere from 20,000 to 80,000 registered companies in the province. They don't know how many of those are really active, how many of them are one person, one shop, but if you look at it in terms of revenues generated, our members generate about $5 billion a year annually in sales, and that would represent anywhere from 50% to 60% of total revenues generated.

Mr Jim Brown: In those bankruptcy statistics which seem to show an increase, has there been a credit crunch from the banks?

Mr Bradley: Yes. There was in 1995 and the first part of 1996. Things have been a little easier recently, but that has been an historic problem. Trucking is either the flavour of the month -- one day they're falling all over themselves to lend money to us; the next day the capacity is gone.

Mr Jim Brown: The chartered banks, you mean.

Mr E.J. Douglas Rollins (Quinte): Thank you very much for your presentation. I have had a little experience in trucking as I started out my career in life as basically what you call a truck driver. The last few years we've seen our roads deteriorate quite substantially. The last government saw fit to continually remove dollars being spent in the budget on the highways. We increased it quite a bit this year, particularly on repairs and new asphalt. Did you see a remarkable difference -- starting to see it?

Mr Bradley: We did see improvements last year. There was a lot of pavement being put down. We're not sure how long that pavement will stand up, but certainly we noticed the $18 million that was in the last budget. However, at the same time, you know there wasn't any spending in the first year, the first budget that your government introduced. I think that all governments, and this goes back over the last 20, 30 years, are to blame for the neglect of the highway system. We're hopeful that we would see that same kind of commitment to the infrastructure in the current budget, and even that is going to take a bigger job. It's not just the highways, but the bridge infrastructure in particular in the province is in dire need of upgrading. Many of these bridges were built long before the Second World War. It's like an old shoe. If you use it enough, eventually it wears out.

The Chair: Thank you very much. We appreciate the Ontario Trucking Association presenting to us today. We appreciate your views.

COUNCIL OF ONTARIO UNIVERSITIES

The Chair: We now welcome the Council of Ontario Universities, Professor Patterson, Professor Prichard and Dr Davenport. Welcome to the standing committee on finance and economic affairs. We have 30 minutes to spend together, if you'd like to make a presentation, and we'll fill any remaining time with questions.

Ms Bonnie Patterson: Thank you so much. It is a pleasure to be here and have this opportunity. I'm Bonnie Patterson, the president of the Council of Ontario Universities. With me is Professor Robert Prichard from the University of Toronto, who serves as the council's vice-chair. I offer the apologies of Dr Paul Davenport, who chairs our government-community relations committee and is the president of the University of Western Ontario. He is on the ground, in a plane in Ottawa, iced in today.

As you may be aware, last year the government appointed a five-member panel to conduct a major review of the post-secondary education system in Ontario. The Advisory Panel on Future Directions for Postsecondary Education produced a report entitled Excellence, Accessibility, Responsibility, which contained 18 key recommendations for higher education in Ontario.

Why would we begin by referencing a government-appointed panel? The Council of Ontario Universities endorses the directions set out in that report and we urge our government to make it the framework for future policy on universities and to work with Council of Ontario Universities towards rapid implementation of the directions identified in that report.

Priority in implementation should be given to the critically important strategic directions that will make Ontario's publicly funded universities able and positioned to make their full contribution to the social, cultural and economic development of this province, to research and innovation and to technology transfer. Those four pillars, if you will, of that report are as follows:

(1) Benchmarking the government grants for teaching and research to the average of the other nine provinces and to grants at comparable publicly funded universities in the United States;

(2) Ensuring that Ontario universities have the resources to be competitive in research with comparable publicly funded universities in North America;

(3) Continuing deregulation so that boards of governors of our institutions are free to set tuition fees at levels that they regard as appropriate, program by program, but on the condition that if an institution chooses to set fees above a government-specified upper limit, it must set aside an appropriate amount of incremental revenue as financial assistance to its students, based on needs;

(4) Renewing the student assistance program in Ontario is critical to address student debt loads, by having the rate of repayment on government loans reflect in part a student's income after graduation and by instituting what we believe to be vitally important grants for students with special needs.

It's within this context of these strategic directions that we encourage you to think about the universities in our province.

Basically the state of our Ontario universities is telling. Last year when we appeared before this committee, it was just several months after the announcement of a 15% reduction in the operating grants of Ontario's universities. This $280-million reduction was according to the policy document the Common Sense Revolution, and the full cut was indeed levelled in a single year at the universities.

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We are encouraged by the fact that the government is holding to its promise from the CSR in not going beyond 15%. As you are aware, the Minister of Education and Training announced last December that operating grants to education and post-secondary would be indeed frozen for 1997-98 at the previous year's levels.

This decision by government to freeze grants cannot be viewed, however, as a resolution to the problem, but rather it's a necessary first step to turn around our dismal financial climate. May I remind the members of this committee that Ontario universities are funded at 10 out of 10 among provinces in the funding scale. Our universities are the worst per capita funded in the country.

This level of funding must be redressed, and we believe there are some incredible opportunities before us now. We do boast one of the highest participation rates in the world -- in fact, in Ontario over 33% -- and we don't want this to deteriorate any further for those participating.

We are encouraged by the remarks made by the Minister of Finance before this committee on February 6, when he stated, "We may not in fact need to find $3 billion in savings to achieve our target of balancing the budget by fiscal year 2000-01." The Minister of Finance went on to state that this budget-making "isn't strictly an exercise in meeting some number; it is an exercise in trying to provide the most appropriate service to the people of Ontario, especially in the fields of health care and education, in the most efficient and cost-effective manner possible."

The Minister of Finance's willingness to reinvest and preserve the quality of key sectors in this province is timely and, more important, comes at a critical juncture in the history of Ontario universities.

To highlight some of our challenges, in 15 of 17 Ontario universities we find ourselves incurring operating deficits, indeed mortgaging our future in order to address the physical deterioration of our infrastructure, the loss of personnel in order to meet cuts in funding, and indeed we are suffering from an erosion of our research capability. But again, let me stress, there are opportunities.

Related to operating deficits, all told, our universities have had to adjust to a 25% reduction in operating grants over the last five years. We are attempting to adjust to this funding reduction as quickly as possible, and indeed there are plans in place to move forward over the next three to five years to manage this responsibly. But let me be clear: Universities are mortgaging their future in order to meet the new government imperatives of today.

I would like to highlight a couple of other areas, one related to the loss of personnel. Excellence and innovation in university research, in teaching and in services we provide are the direct outcomes of a high-quality faculty and staff. In recent years, funding reductions have necessitated the introduction of early exit programs of our faculty and staff as a cost-saving measure. The figures in our report represent losses in personnel over a five-year period without the consideration of 1996-97. In that year alone you will see an additional 1,000-plus highly qualified individuals leaving our institutions.

The long-term impact of downsizing for Ontario universities is even more troublesome. Many of these individuals leaving are among the most experienced and most competitive in their respective disciplines in seeking federal funding.

Concurrently, the universities have less and less capacity to attract talented faculty, young faculty, to replace those who have departed in the last several years. This loss of our prominent academics and our inability to attract the best has a long-term impact on our institutions.

The erosion of research capability and competitiveness is something we've written to all of you about. We are indeed major contributors to our province's cultural, social and economic development.

The report entitled Impact of Provincial Policies on University Research, which was a comparative study of selected Canadian provinces, highlighted this fact, the fact that Ontario universities' research capacity has deteriorated because of the lack of an explicit and coordinated government policy on research and adequate financial support for research. Moreover, government expenditure reductions starting back in the early 1990s, 1992-93, have accelerated this deterioration. It has hindered our competitiveness in Ontario to seek federal research grants and other forms of sponsored research.

The report demonstrates that British Columbia, Alberta and Quebec have each expanded their share of both federal research funding and PhDs granted while Ontario's share in these two measures has declined.

One final element, the physical deterioration of university infrastructure: Our universities have had little capacity to deal with the cost of deferred maintenance of their physical infrastructure, but again an opportunity is ahead of us. The largest proportion of buildings in our universities were constructed between 1960 and 1970, the early 1970s, making the average building now close to 30 years old. The aging infrastructure requires not only constant upkeep but regeneration to reflect an evolving, information-technology-based environment. An estimated cost of deferred maintenance in 1993 was $522 million. That cost rises by $60 million to $80 million per year, and yet we have $15 million in deferred maintenance budgeted each year by this government.

Again let me emphasize that there are opportunities before you as a committee that, if we chose to act in certain ways, could arrest many of these situations. I'll ask Professor Prichard to take on the next part of our presentation around those opportunities to move forward within the strategic framework.

Mr Robert Prichard: Chairman, I'm grateful for the opportunity to speak. You have our text. Let me speak to it and try to focus on our very specific advice as to what we hope your committee might recommend to your colleagues in the Legislature and in the government.

Listening to President Patterson, you no doubt would hear a tone of discouragement, because we are in really very difficult shape at present. We need to be frank with you. The deterioration in our situation is serious, and it's having a serious impact at present on the quality of student experience at each of our universities and colleges in Ontario today, and we really feel very strongly we need to change the situation.

Despite that, I want to have my presentation be one of opportunity. We believe there is a terrific opportunity at present before Ontario to rebuild and restore these terrific public institutions of our colleges and universities in Ontario, that it's doable, that there is a roadmap how to do it, that it's affordable and that it needs to be done as a matter of urgency.

The graduates of our institutions, the young people of Ontario that you represent, don't just compete with other people from Ontario; they compete, once they graduate, with people from across Canada, young people across Canada, and around the world. The simple goal of our universities and colleges is to give them educations that equip them to compete and compete effectively in a global competition with young people graduating around the world.

What needs to be done? I want to make just six points to you.

(1) The government commissioned an advisory panel on future directions for higher education in Ontario, the Smith panel. It was a very strong panel. They consulted across the province, they did an excellent job. Our first advice is: Implement the Smith report; recommend implementation of the Smith report. No one of us would have written it quite the way it was written. Each university would have taken a slightly different view, each group would have taken a slightly different view, but on balance the Smith report represents a blueprint for action which has been unanimously endorsed by the members of the Council of Ontario Universities and which in our view is the wisest course available for the province of Ontario. First, then, implement the Smith report.

(2) The critical first recommendation of the Smith report is to set a goal for Ontario to restore public funding of our universities to the national average. It's not an ambitious goal of leading the country; a goal simply of stating that Ontario should fund its universities at the national average and work to moving us from 10th out of 10 in Canada to the national average. Our institutions are public institutions. These are public investments. These are public rights our students have to a fine public education, and we cannot deliver it without an investment that is equal to the national average.

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(3) Research funding: When Minister Snobelen announced the government's plans for no further cuts for the coming year in our institutions to stabilize funding, he also said we need to spend more on research. That was his statement, and he was right. The minister was right and the government is right to know we need to spend more. There are two specific opportunities facing us at present as a province to which we must respond effectively and quickly.

As you know, the government of Canada has recently announced the Canada Foundation for Innovation, a marvellous opportunity for Ontario to participate more effectively in attracting federal funds to Ontario. Ontario's share, as Dr Patterson has said, has been falling badly. This is a golden opportunity for Ontario to reverse the flow and to get a larger share of federal funds coming into the province as we go forward in rebuilding the research infrastructure of Ontario.

Similarly, as Dr Patterson said, we need to be effective participants in the Canada infrastructure works program as well to begin to get at the deferred maintenance problems on our campuses.

Those two opportunities together, the Foundation for Innovation and the infrastructure works program, if Ontario was an effective participant in those programs, it will go a long way to begin restoring our national competitiveness.

(4) The Smith report recommends that responsibility for setting tuition fees be moved to the governing body of each institution. We urge you to recommend to the government that it act on that recommendation. This is a necessary step to get the kind of innovation, competition and flexibility we need as each university stakes out the ground where it can best serve Ontario. This is again a recommendation of the Smith report, it's part and parcel of the Smith report, and we urge you to urge the government to act on that recommendation.

(5) Student aid: Absolutely critical to the future of the province and of the young people of the province is that we have outstanding student financial aid arrangements for our students. The Common Sense Revolution called for moving to a stronger student aid program based on some income sensitivity in the repayment schedules, providing an option for income-sensitive repayment. We again strongly endorse that recommendation. It is the recommendation of the Smith report. It's been the recommendation of the Council of Ontario Universities for five years. We now think there's an opportunity to act.

The federal budget two weeks ago indicated that the federal government wishes to enter discussions and is prepared to enter negotiations with provinces which wish to pursue this option. A number of us met yesterday in Ottawa with the Minister of Finance to pursue this further, and he again confirmed the government's willingness to work with Ontario to work on an option within the Canada student loans program to respond to Ontario's needs in this area and Ontario's expressed desire in this area.

We urge you to keep student aid as an absolute top priority and to work effectively with the federal government with this new opportunity.

Finally, the sixth recommendation we make is that you examine the success of the recent matching program over the past year, the Ontario student opportunity trust fund, which was an opportunity under which to the extent funds were given, donated to a university or college, the government matched it for purposes of student aid.

The response of benefactors across Ontario has been magnificent. The government put aside $100 million in expectation that we could raise $100 million across the province. We're now optimistic that by the last day of March, which is the last day of the program, we will have raised $100 million for student aid and for bursaries across our universities and colleges. That will be a new $200-million endowment to support our students in perpetuity.

The program has worked beautifully. It has energized each institution. It has energized our connection with our alumni and friends. We believe it's a model for the future and that you should recommend further efforts to attract more funds from the private sector and from our graduates to colleges and universities should be adopted in subsequent years building on the success of the last year.

Those, then, are our six recommendations: Implement the Smith report; move up provincial funding to the national average; strengthen research funding in partnership and in leverage with the federal government; assign the responsibility for setting tuition fees to the institutions; strengthen student aid, again in partnership with the opportunity of the government of Canada; and continue to build on the matching-fund experience of the past year which has been such a splendid success.

With those six steps, we believe Ontario will be able to get back in business, be able to get back into a competitive position, competitive with the other provinces of Canada, and begin to provide the competitive educational experience for each of our students that the young people of Ontario both need and deserve.

Chairman, we're very grateful for the opportunity to be here, and the two of us would be delighted to entertain any questions members might have.

The Chair: Thank you very much. If we could start our questions with Mr Martin, we have about two minutes per caucus, sir.

Mr Martin: Thank you very much for coming today. You certainly paint a very challenging picture, to put a positive spin on it. It's good that you present some ideas as to ways that we might improve the situation. I just wanted to focus in my brief time on the question of this income-related repayment scheme for tuitions.

I've been looking at this for about five and a half or six years now, because I was with the ministry for a while. When we were looking at it, the students were very concerned about it opening the door to spiralling tuition fees that eventually some students, for a variety of reasons, would not be able to or not want to commit themselves to, even though they could at the end of the day have some relief by way of the income relatedness of the payment scheme to pay back. It seems to me that all of their fears now are coming true.

In your request here, you're asking for an income-related repayment scheme, but you're also asking for the right to just charge tuition fees as you see fit, which is the picture those students painted that I tried to allay when I was dealing with them. Could you talk to me a bit about that? I think you need to get students on side with you on some of this stuff, and in that instance they're not, because of that very real concern.

Mr Prichard: That's an excellent question. Let me make three points. First, our position on student aid, of the need to strengthen student aid, is independent of whatever level of tuition is charged and whoever sets tuition. That is, the university strongly recommends strengthening student aid regardless, that we should invest in our students, that we should help our students in the best way possible and the fairest way possible. Whatever the level of tuition, if tuition were frozen for the next 10 years, it is our judgement that an option to have the obligation to repay your student loan be income-sensitive rather than a fixed option is a fairer, better option to make available. It stands on its own as simply a more socially just way to assign the burden of repaying student aid. But we recommend, to make the second point, it only be an option. We're not saying everybody should have to participate. If people wish to have a regular loan the way we have them now, our position to the government of Canada and our position to you is that option should stay available, that we should be adding an option for those who wish to pursue it.

On this, you may have noticed in the last couple of months in the lead-up to the federal budget there was a coalition formed of many groups, including the student groups in Ottawa, arguing for a package of improvements in student aid. The word "income-contingent" does not appear in that package, but "income-sensitive" does appear in that package and can be part and parcel of building the very coalition of which you speak, which is designed to strengthen our investments in students.

Last point: On tuition fees, when we recommend that the responsibility be moved to the institutions, you should not immediately assume that means that at all institutions tuition will simply go up. The advantage of putting it at the institutional level is you have a competitive situation where competitive forces in many cases will lead to very stable tuition fee rates, where you'll see tuition go down in some cases and in some programs. When tuition was deregulated last year for certain groups of students, tuition went down in some institutions, including my own.

Tuition deregulation does not mean skyrocketing tuition. Tuition being set at the institutional level means crafting tuition to the needs and the programs of each institution. It's a mistake, I believe, to simply correlate the two. In a number of jurisdictions around North America, and some in Canada, tuition fees are deregulated and are set by the institutional level, and it has not led to skyrocketing tuition in those provinces.

Mr Tim Hudak (Niagara South): Thank you both for your presentations. I'm very pleased as a government member to hear your support for the income-contingent loan repayment program. I don't know if Mr Martin uses "scheme" in a pejorative sense or just in a descriptive sense, but we here think it makes a tremendous deal of sense, as you said, for those low-income graduates to repay the loans at a lower rate and the higher-income graduates can contribute to pay them back more quickly. In fact, I think the minister's work in pushing this and in following through on our commitment in the Common Sense Revolution is bearing some fruit. I hope we can get it in for September of this year, but we appreciate your support and we'll keep pushing for it with the feds.

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My question relates to your view that Ontario should get to the median in terms of per capita funding at the post-secondary level for students. A quick way of doing that -- you mentioned in your following paragraph that we have a very high participation rate. One way would be to curtail the participation rate and raise per capita funding. But your approach is to ask for more money into the sector, which means less money for other government programs or going back to taxpayers to ask them to contribute more from their incomes.

Of course there are very difficult choices for the government if we were to follow through on your recommendations. What is the quid pro quo? What do we get in return in terms of accountability? What is the sector doing to make sure these dollars are spent most effectively? When students and taxpayers make a significant financial investment in post-secondary education, what reading do they have in terms of what they can expect at the end, whether they're choosing Western or U of T? Finally, what are the universities and colleges doing in terms of accountability and working together to make sure they're not all things to all people but perhaps working to areas of specialty in institutions and cooperating with the college sector?

Ms Patterson: Let me begin by making a couple of comments. You've got three or four parts to your question. Let me try to answer a couple of them.

Mr Hudak: He only gave me two minutes.

The Chair: I notice you used it all.

Ms Patterson: On the situation related to students, it's very easy to overestimate the degree of consensus around particular issues. What we believe is that in going forward with several elements of student aid reform at the same time, we have the best chance of crossing broad student groups and gaining support. That is one of the reasons we've continued our support of income-based remission, an ICR program of some type, but at the same time a more harmonized plan with the federal program at the Ontario level.

If one looks at moving towards the national average, certainly one of the criticisms we have received from some of our leading industrial partners and members of our boards is that this is a very modest objective for a province like Ontario. The push from them has been, "National average is fine, but ought we not to be targeting ourselves to be the strongest and the best, given the position of Ontario in this country?" Again we're thinking of what's practically implementable, if you will, in the short term.

You asked about what we give in the long term. If you look at an ever-increasing knowledge-based economy, if you look at where new jobs are being created, where jobs are being lost, it's very clear that the higher the educational perspective and training background from colleges and universities, the more opportunity there is to be employed, the less opportunity to be unemployed or the greater speed at being re-employed if indeed change occurs in your workforce. The robustness of the jobs people are taking on and indeed the very strong entrepreneurial evidence of jobs where individuals are pursuing initiatives quite independent of formal organizational structures -- the preparation that higher education gives you to be successful at that is directly correlated.

I think success in jobs, robustness of jobs, success in employment, success in job creation, success in terms of earning power are very much aligned with higher education and greater participation rates, which is why we have not said, "Decrease participation." We believe the opportunity ought to be there, and that's why student assistance becomes the number one priority for us as we try to ensure that those qualified and able would be able to attend.

On the accountability front, there are several new initiatives, some of which we have mentioned within our report, and we'll be glad to give you further detail on those. There certainly is a number of accountability frameworks that we have put out fairly recently that build on past success.

Mr Prichard: Chairman, could I add literally one sentence? The Smith commission addressed and answered your question by saying, in simplest terms, that the best way to get accountability, the best way to get efficiency, the best way to get specialization, the best way to reduce overlap is to have less regulation, more competition, and more financial empowerment of our students to make that marketplace work.

The Chair: I would suggest that's a very long sentence, probably an entire paragraph. You might lose marks on it, but we'll accept it today.

Mr Prichard: There was no period, though.

Mr Phillips: To correct one thing in your document, and I was at this meeting at your institution, you indicated that the operating grants to elementary and secondary were frozen at the same level. They actually were cut by $300 million that day. You may not have been aware of that, but that's just to correct the brief.

My concern is that I think we are letting our young people down right now. I don't blame this government, but the unemployment rate is extremely high. The thrust of your document, in my opinion, is to let the marketplace determine tuition fees. I believe this will happen: I think tuition fees will go up dramatically and will go up dramatically in the "preferred faculties," where you think you can get a job. I believe, for an awful lot of our young people, as those fees go up they will lose any hope of getting into those faculties. In my opinion, we are going to further divide Ontario.

I understand that you are scrambling for finances anywhere. I find it a bit strange that our young people have to contribute in their tuition fees to subsidize other young people in need. It may be that that's acceptable, but I do worry a lot about it; I don't know whether you worry about it. As you deregulate this, a lot of the young people whom I know will simply say: "My family and I can't afford that. You can talk about your loan repayment stuff, but I'm not sure I'll ever get a job. My family doesn't have the money." This may fly in Rosedale but it doesn't fly on Main Street, in my opinion. Maybe you can give me some comfort today, but I will tell you that this is very disquieting for me.

Mr Prichard: Mr Phillips, I know you feel this way; we've talked about it. We have common ground on the first proposition, which is that we're letting down the young people of Ontario at present. I spend every waking minute of my life motivated by the fact that I believe the young people of Ontario at present are being shortchanged by the post-secondary system. On that we have a common view. The current situation is that we are not able to keep pace with competitive standards of quality of education for our students, even though we know the most important thing we can do for young persons is give them access to a competitive education. We know that, so the question is, what to do about it.

Our first recommendation, of the points I made, is to invest more public money in our institutions. That is first and foremost. It's recommendation number one of the Smith panel. It's the first recommendation, beyond saying implement Smith, that I put my finger on. We must raise public funding to the national average. That hasn't happened for the last 15 years in this province. It needs to happen. First and foremost -- I believe I'm with you -- increase public funding to the national average.

In addition, however, we genuinely believe that setting tuition at the institutional level rather than provincially will serve our students better, that it will lead to more differentiation, more specialization, more accountability, more efficiency in our institutions, and that the issue of access is student aid. That is the real issue. Our full package on student aid is not just more loans; it's grants for our students, it's targeted grants to those groups least well-represented in our institutions. We want a full engagement with the government on strengthening student aid to be sensitive to the very points you say. But Ontario must continue to provide tremendously accessible higher education, but it most provide high-quality education.

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We continue to have very high participation rates, but we are having the most privileged in our community bailing out of out of our institutions. The most privileged in our community are leaving Ontario and are leaving Canada for post-secondary education. They're walking out of Ontario for their post-secondary education. Why? Because they no longer believe Ontario is providing internationally competitive levels of quality.

That's the betrayal, I think, of the young people, and that's why I come back to saying that the number one recommendation is increased public funding of our institutions to the national average. With that foundation in place, let's build on it. I hope your party would strongly support bringing our funding up to the national average as the single best investment we can make in the future of young people in Ontario.

The Chair: Thank you very much. We appreciate the Council of Ontario Universities and their presentation today before us. Thank you very much for taking the time. I hope Dr Davenport was able to get off the plane, if he was only coming for this meeting.

Ms Patterson: We hope so as well. He's investing an enormous amount of time in the student world.

The Chair: We do appreciate it. Thank you very much.

CANADIAN UNION OF PUBLIC EMPLOYEES

The Chair: The next presentation will be from the Canadian Union of Public Employees, Mr Ryan and Mr Sanger. Welcome to the standing committee on finance and economic affairs. We have 30 minutes to spend together. If you would like to make a presentation, we can fill in your remaining time with questions.

Mr Sid Ryan: Thank you for the invitation to appear before your committee. I should say up front that this is not Mr Sanger. This is Mr Woodward beside me, who is our legislative assistant. Mr Sanger is sitting on an airplane in Ottawa right now trying to get into Toronto. We don't have our economist with us, so bear with me.

I'd like say good morning to the committee members. As is customary, we'd like to thank you for the opportunity to appear before your committee to present the views of the Canadian Union of Public Employees.

I'd like to note that many of my colleagues in the labour movement of this province have chosen not to appear before this committee. I fully support their decision and agree with the view that real consultation with this government is not possible. The present government of Ontario is less inclined to consult and less interested in the real consequences of its actions than any other government in living memory.

That said, I have chosen to appear before this committee because the 175,000 CUPE members whom I represent are directly affected by the actions of this government. On just about every front of this government's disastrous agenda it is CUPE members' jobs which are on the line.

Think of what the Harris government has started over the past couple of years: closing hospitals, axing child care, taking over education, privatizing Hydro, first gutting then Americanizing welfare and social services, and most recently, downloading massive costs on to municipalities. All of these actions are a direct threat to our members' jobs as well as the services they provide.

In fact, on some occasions the Premier of this province has specifically singled out CUPE members as targets for layoffs. So much for the parliamentary custom that an elected government governs on behalf of all its citizens. Given the scale of this attack, I feel I have a democratic responsibility to appear before this committee. The past year has demonstrated how fragile democracy can be, even in this, the richest province in one of the wealthiest countries in the world. I think it is my responsibility to do what I can to ensure that the institutions of this Legislature continue to function, no matter how hostile and authoritarian the current government is.

I will begin with a few comments on the Harris government's agenda and its impact on the broader public sector. Then I will focus on the takeover of education and downloading of services and costs to municipalities, before offering some recommendations for the 1997-98 Ontario budget.

This past year we've started to see what the Common Sense Revolution really means for Ontarians. In its first year, the Harris government stuck to beating up on the poor and issuing simplistic pronouncements for the rest of us. This past year, we've seen them try to put their slogans into reality. It has been ugly. The Common Sense Revolution has not been straightforward, it has not been simple and it does not make sense.

Let's look at some of these slogans and at what happens when you try to make them a realty. With his tax cut promise, Mike Harris promised Ontario voters to put "more dollars in your pocket." What has happened? The government has cut taxes. It may even bring in the second cut early. When Ontarians eventually see the difference in their paycheques, we will see that the people who benefit the most, the wealthy, are the ones who need it least. The tax cuts may increase sales at the Jaguar dealerships, but they will do nothing to help working families make their mortgage payments. It won't help young parents find affordable child care so they can go out to work.

Equally important, there has been no miraculous takeoff in employment. Finance Minister Eves recently reported that employment increased by 80,000 jobs in 1996. Ten thousand public sector jobs were eliminated, and these were offset by 90,000 new private sector jobs, for a net gain of 80,000 jobs in Ontario. This is an increase from the dismal performance of recent years. However, the increase in growth and employment is due almost entirely to lower interest rates, which are a federal responsibility. The improved economic performance has occurred in spite of, not because of, the Harris government policies.

While 80,000 new jobs may look good compared to the past couple of years, it is poor compared to the previous periods of economic growth. More than double that number of jobs were being created in the mid-1980s. Each year from 1984 to 1988, more than 160,000 jobs were being added to the economy, not for one year but for five years in a row. That kind of job growth was achieved without a tax cut.

The extent of joblessness in Ontario is hidden by a dramatic fall in the number of working Ontarians who are no longer either employed or looking for work. As figure 1 shows, if labour force participation had not dropped during the 1990s, our unemployment rate would be 14.7% instead of the officially recorded 9.1%.

The Common Sense Revolution promised the tax cut would create 725,000 new jobs over five years. To meet that promise would require more than 165,000 new jobs annually in each of the next three and a half years. Keep in mind that the number of public sector jobs eliminated in the coming years will dwarf the 10,000 cut in 1996 if the Harris agenda for taking over education and downloading services to municipalities is not stopped. Private sector job creation would have to be truly phenomenal in order to offset these public sector job losses and bring overall employment to the levels promised by the government. Private sector forecasts predict that actual job creation will be far short of these targets.

The tax cut will not deliver the miraculous growth promised by the Common Sense Revolution. As well as bad economic policy, it is disastrous fiscal policy. Having promised to both cut taxes and balance the budget, the government is now cutting spending with an irresponsible haste and lack of concern for the consequences.

This brings me to the second Common Sense slogan I want to mention. In its campaign document, the government promised to cut government spending by "cutting out the fat and waste" without touching priority areas such as health and classroom education. What has happened a year and a half later? Let's compare reality with the rhetoric.

Communities across Ontario are losing their hospitals. Just last week, David MacKinnon of the Ontario Hospital Association, our employers, told this committee that the pace of health care cuts is hurting the quality of care in this province. The same week, an elderly patient was left in a hospital corridor overnight. Nurses were short-staffed and did not check up on him regularly. This man's family found him alone and dead in his bed the next morning. Of course yesterday we found out about a child who is unable to receive cancer treatment therapy and is also in serious condition as a result of this government's cuts to nursing care and front-line workers in the health care system.

This morning we're hearing of hospital closures all across Toronto. Last week we heard about them in Ottawa. Rural communities are in an uproar. I used to live in the Kincardine area for many years. Kincardine has a population of 4,000 people. They had 7,000 out to a demonstration. I think that tells you what's happening in rural Ontario in response to this government's policies of cutting and closing hospitals. We have gone far past the point of cutting "fat and waste" when our health care system is so overburdened that medical staff cannot look after an elderly patient with dignity.

Even before the provincial takeover of education, funding cuts are forcing boards to cut programs. Junior kindergarten is disappearing. The Royal Commission on Learning said the early years are the most important. Instead of expanding the program, it is on the chopping block in many boards. Many other programs -- French immersion, speech therapy -- are also being eliminated. I don't consider these to be fat and waste.

Add to these the loss of non-profit child care spaces. Cuts to wage subsidies and provincial grants have eliminated thousands of spaces in non-profits. Regulations have been weakened, further reducing the quality of care available to parents.

Most recently, the Harris government hired a large American operator, Andersen Consulting, to show it how to take yet more money out of the welfare system. Their fee will be based on the savings they generate. Clearly, the financial incentive is to keep people off welfare by any means, instead of providing people with the means to become independent.

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As the government is only just discovering, workfare costs money and requires having the jobs available. If your real agenda is to cut costs by any means necessary, you bring in the hired guns. Andersen's fee for doing a similar job in New Brunswick amounted to 20% of the amount cut from the system. Based on this record, we estimate that the provincial government plans to take another $800 million out of welfare in exchange for Andersen's $160 million fee.

Welfare and social service workers, as well as social assistance recipients, will bear the brunt of these cuts. When Andersen was finished reviewing the social security system in New Zealand, 40% of the staff had lost their jobs.

Cutting fat and waste sounded good on the campaign trail. The reality is that more and more Ontarians are living in desperate circumstances, and the provincial government's reforms have more to do with delivering windfall profits to private operators than with making government more efficient.

The last Common Sense slogan I want to touch on is the promise to "remove barriers to growth" by slashing regulations. The reality has been sweeping changes to the Labour Relations Act, favouring employers more than ever. Most relevant to CUPE members, we know the government has considered removing successor rights in areas it wants to privatize. These include school board employees and municipal workers. Removing successor rights would allow private operators to replace public sector jobs with low-wage labour. This is not just bad for CUPE members; it is bad for services and bad for the economy.

Environmental regulations have also been slashed in an irresponsible move which will cause irreparable damage. Even where environmental regulations have not been decimated, we no longer have the staff necessary to enforce them.

What has been the payoff of these changes? As previously mentioned, economic growth has not taken off. What increase there has been is due to lower interest rates, not provincial deregulation, service cuts and tax cuts. Moreover, the present government has replaced legislative standards and regulations with increasingly concentrated power in the hands of the ministers. This direction started with the omnibus bill last year, which allows the minister to override labour legislation and collective agreement provisions.

More recent legislation, for instance Bill 103, the City of Toronto Act, and Bill 104, the Fewer School Boards Act, put unprecedented powers in the hands of unelected trustees and commissions who are accountable only to the government. This autocratic style of government is truly distressing, especially considering that the Ontario Conservatives came to power promising more direct democracy.

One thing the Common Sense Revolution forgot to mention was the Harris government's plan to take over education and download massive costs on to municipalities. The mega-dump has completely overturned the postwar relationship between provincial and local governments, yet there was not a peep about it in the Common Sense Revolution. As one journalist put it, "This government seems determined to keep promises it didn't make."

Like the rest of this government's agenda, the mega-dump started out as a simplistic pronouncement. The provincial government was going to sort out who does what. By overhauling the entire system of local government, it would reduce duplication and do more with less. So much for the promises. The result is shaping up to be an outright mess, and there is no guarantee that Ontarians will save any money. Responsibilities of different levels of government will be more entangled than before. The only thing that seems clear is that the provincial government is desperate to force costs on to municipalities so it can meet its promised tax cut.

There is no rationale whatsoever for increasing the share of these services paid for by property taxes. The only reason for transferring costs for welfare, social services, child care, long-term care, and social housing on to municipalities is to reduce provincial government spending. If this goes through, municipalities will have to either raise property taxes or make very difficult decisions about cutting important services that have already been cut to the bone.

The mega-dump is wrong any way you look at it. It is wrong for transferring more costs on to municipalities than the amount the province takes over in education. The government initially claimed the amounts would even out. Then we learned that some additional costs for municipalities were left out of that calculation, for instance, $666 million in cancelled municipal grants. Other oversights included $100 million for water treatment plants, $75 million for highway maintenance and $70 million for repairing social housing. It adds up to almost $866 million in additional costs to property taxpayers. Different estimates put the full impact on municipalities at far over $1 billion.

Metro Toronto estimates its costs will be -- and there's a typo in here. We had down $379 million, but in fact Metro is now saying it is $531 million a year. In Hamilton-Wentworth the increase will be $121 million a year. In Ottawa-Carleton it will be an additional $120 million to $160 million a year. Local costs in Sudbury will increase by $105 million per year. In London they will increase by $57 million. You cannot tell Ontarians that these additional costs have nothing to do with the provincial tax cut. The mega-dump is wrong because it matches services with inappropriate sources of revenue.

CUPE supports increased provincial funding for education. We believe it has been overly dependent on property tax revenue and provincial funding should be brought up to historical levels of around 60%. But the takeover of education is not justified by the massive offloading of other costs on to the local property tax base.

Figure 2 is based on the most recent available data showing local and provincial spending and revenue. As it shows, the cost of social services, including welfare, social housing and child care, have increased far more rapidly than education costs over the past decade. After inflation, the cost of Ontario's schools increased by 1.3% per capita each year between 1986 and 1994. This works out to be an additional total cost of $112 per capita during this period. The cost of social services increased each year by 16.5% per capita after inflation during the same period. This works out to be an additional total cost of $416 per capita between 1986 and 1994. The costs of housing and child care increased almost as rapidly, although the amounts involved are not as large.

The point is that the province is not only offloading more costs than it is taking over; it is also offloading costs which are vulnerable to rapid increases in response to a deteriorating economy.

Property tax revenues cannot respond to such increases. Municipalities, which are not permitted to borrow to cover operating expenses, would be forced to cut massively to prevent a shortfall.

Figure 3 compares what would have happened to local costs if the mega-dump had been in place between 1986 and 1994. To support the increased costs of social services, property taxpayers would pay an additional $208 per capita after inflation, instead of the actual increase of $34. The local cost of social housing would have increased $60 per capita, instead of the actual increase of $1 between 1986 and 1990. Similarly, the local child care costs would have more than doubled the actual increase.

The experts on public finance agree: Services which redistribute income should be funded out of income tax revenue. Local property taxes are the worst source of revenue to support welfare, social services, child care and social housing. Ontario is already far more reliant than any other province on property taxes for funding welfare and social services. Increasing the local share to 50% takes us back to the desperate 1930s, when the unemployed were dependent on charity and municipal relief. Do members of the Harris government need to be reminded of the human costs of the Great Depression, that the social programs built up after the Second World War were designed to prevent a repeat of that experience?

This government is returning to policies which caused enormous human misery and drove many municipalities into bankruptcy in the 1930s. This committee should not take my word on this matter. Listen to what the Canadian Imperial Bank of Commerce has to say in its most recent commentary:

"At the very least, a certain number of municipalities could find the increases in their responsibilities untenable, which would require them to make large cuts in those expenditures where they can. At the same time, their discretionary powers to do so are limited, since welfare policy and the like are set at the provincial level. In a worst-case scenario, the burdens on some municipalities could force them into serious budgetary shortfalls."

As the commentary notes, the contingency fund is unproven. We cannot know whether it will be sufficient to deal with increased costs, and there is the danger it will be used inappropriately.

This brings me to my last point. The mega-dump is wrong in terms of its stated objective of disentangling government responsibilities. Who does what is less clear than ever. In fact, the responsibilities of provincial and local governments are more entangled than before. The government's announcements are full of generalities which leave very important issues of implementation unresolved. Who will decide, and how, when a municipality is eligible for emergency funding for social services? If your aim is to streamline, why expand the need for local welfare administration? If these changes go through, the outlook is bleak not only for CUPE members but also for the many Ontarians who rely on the services our members provide.

In closing, I would like to offer some simple recommendations to this committee.

First, reverse the tax cut. It is not an economic miracle cure and never will be. By undoing the tax cut, this government could avoid the irresponsible spending cuts it has embarked upon.

Second, forget the mega-dump. It is wrong to offload additional costs for welfare, social assistance, long term care and child care on to municipalities. Many Ontarians would thank you if you stopped this misguided exercise.

As you deliberate about priorities for next year's budget, I would urge you to put aside the simplistic slogans of the Common Sense Revolution and consider the real impact on Ontarians. To assist you, CUPE is working on an alternative budget with other unions and a wide group of community and social justice organizations. In doing so, we recognize that Ontario's fiscal and economic problems are not simple. They are especially challenging if, unlike this government, you are committed to rebuilding our social programs.

Our more detailed recommendations will be contained in that document. I'm not sure whether the OFL has presented that document yet, but they will be presenting it in the near future.

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The Chair: Thank you, Mr Ryan. We have about one minute per caucus for questions. With a division at noon, I would ask for the caucuses' cooperation in this area. We'll start with the government caucus.

Mr Wayne Wettlaufer (Kitchener): I'm a little puzzled when you say we have exhibited no interest in consulting. I think the very fact that you're here today indicates that we are interested in consulting.

I'm going to try to keep this short. Last week, I met with some retired members of the labour union in my area to discuss health care "cuts." I wanted some positive input from that committee. I received not one positive suggestion. I want to point out that our health care spending is $400 million more than any previous government in the province. I would like to hear some positive suggestions from you on how we could improve health care without increasing spending to dramatic heights.

Mr Ryan: You have two questions in there. The first one was about the consultation. Let me assure you that with the exception of Janet Ecker -- the only ministry whose office I have been able to get into and sit down in a face-to-face discussion around the issues is with Janet Ecker. Outside of that, I've written to Snobelen I don't know how many times, Al Leach countless times, and the Premier we've given up on, we've asked so many times. We have been unable to get in the door to sit down face to face with any of your ministers.

Yet when AMO or any of the employer organizations have a beef, there is no question. They're in the newspaper one day complaining that there's an issue they need to discuss; two days later, you see them waltzing into the Premier's office or waltzing into some minister's office to have some consultation. We have yet to be able to get in the door to consult with any of your ministries, with the exception of social services.

In terms of the health care cuts you're talking about, you said you were talking with retired union members, I think is how you put it. You probably mean members of the public.

Mr Wettlaufer: But they are members of the union. They're retired.

Mr Ryan: But they're members of the public. If they're retired and no longer working, they're members of the public. Union members, by the way, are also members of the public.

Mr Wettlaufer: But their working group title is the Waterloo Regional Council of Retired --

The Chair: Is there a brief answer, Mr Ryan?

Mr Ryan: It would be nice if he would allow me to speak.

You've asked the public for input. What we're telling you is that we don't want you to see our hospitals closing. Mike Harris made it perfectly clear in the last election that he would not close any hospitals. Today we're seeing 10 hospitals closing.

Let me just give you one recommendation: Reverse the tax cut. If you reverse the tax cut, there is more than enough money to fund the education system and the health care system, more than enough dollars. The second thing to do is sit down with the front-line providers, sit down with the nurses, the doctors, with the unions in the health care system who work in those institutions every single day of the week, not some unelected commission. Sit down with the front-line providers in open dialogue and involve the public and involve the front-line providers. I think you'll get all solutions you need.

Mr Joseph Cordiano (Lawrence): Thank you for your presentation, Mr Ryan. I think it aptly describes the Mike Harris vision of Ontario, where a provincial government will pay less and individuals will pay more for essential public services, and they'll be paying more through their property tax increases. That's the world as it's unfolding in Mike Harris's Ontario. I think it's pretty clear, and your presentation correctly identifies that.

The question -- and this is also clear, from what we're seeing unfolding before us. This government has been in government for almost two years now and it seems to me that its intention is to put you out of business, CUPE. All the initiatives they've undertaken -- you mentioned successor rights, the offloading and the contracting out that will take place -- are going to impact on you a great deal in the future. How do you plan to deal with this? You don't have time to answer this in the short time you've been given, but it would seem to me that there will be more services provided in the future by the private sector and you and your membership will dwindle in size.

Mr Ryan: There's no question that this government's agenda is about privatizing as many public services as they possibly can. We've 100,000 members directly affected in the municipal and the education sector. We had the heads of all those locals in Toronto for the last two days, and they made it perfectly clear that if this government moves to introduce legislation in the area of elimination of successor rights, we would have no choice but to go on strike. If you introduce that type of legislation, we've got nothing to lose; there will be absolutely nothing to lose for our union. Our members are saying that this government will be putting them to the wall, and they will definitely strike in that circumstance.

If you want to get an idea of how this government is going to respond in the next little while, Kingston went through an amalgamation very recently. It didn't get much media attention, but Al Leach wrote a ministerial order which essentially limits the ability of the communities in the Kingston area to raise taxes. He put a 3% cap on it. I think that's destructive, because I believe what you're going to see in the city of Toronto is a similar thing. He's already proposed it once and he's been using it as a blueprint for other communities around the province. I think that's what we're going to see here.

If that happens, it means the mega-dump, all those figures I talked about -- it was $531 billion for Metro. They don't have the ability to borrow, so what you have to do instead, if they have imposed a 3% maximum increase in taxes, the rest of it will be made up in terms of layoffs, direct layoffs.

Yes, CUPE members will be affected, but the services -- people in the public must understand what this is about, that every time you lay off a public sector worker, you are in fact cutting your service, because that's what we are. We don't produce widgets; we provide services in hospitals, and educational assistants work directly with children with disabilities in schools --

The Chair: Thank you very much. We'll move to Mr Martin.

Mr Martin: I share your frustration re any ability to have a productive consultation with the government we have today, even to understand what it is that motivates them, particularly when I go home and see in my own community the groups of people who are bearing the brunt of the cost of their agenda: the poor, battered women, seniors, among others.

But we got a little insight this morning, the hula hoop reference by the Premier. Health care, social services and education are going the way of the hula hoop in this province. It's a telling statement and it's one we all need to reflect on. As you bring in your hired guns to our communities to determine what it is that we can and can't deliver and how we deliver it, the outcome of that is going to be brutal.

At Matthews Hospital in Thessalon, this McFall-Lyons group in the Sault coming in to do this review has suggested that the cleaning staff, in an emergency situation where there's only one nurse, now should drop their mops and assist. That's where we're going.

Sid, I think you've said it probably as eloquently as any in your presentation, but what do you think motivates this crowd, from your short experience of them to date?

The Chair: I'll ask you for a brief response, Mr Ryan.

Mr Ryan: There are a couple of questions in there. You raised the question of the Premier's comment around the hula hoop, and I'd like to focus on that for a second. That probably speaks volumes about how insensitive this Premier is. Frankly, I think he's an insensitive clown, and I don't say that lightly. Any man who stands up and draws comparisons between health care professionals being laid off resulting in, as we saw yesterday, a young child not receiving the appropriate cancer therapy or a person dying in a hospital on a hospital stretcher up in Peterborough -- and that's just scratching the surface. CUPE has scores of cases, and we're going to be releasing them pretty shortly, of where the cuts in health have impacted.

For a Premier of this province not to be able to make the connection between the layoffs his government is causing -- the layoff of nursing staff, the layoff of front-line providers of services and of course the angst that has caused out there in the public -- and how insensitive that statement was, for instance, to the relatives of that gentleman who died on a stretcher or to that young child yesterday morning who was waiting for that cancer therapy. How insensitive can you be to say it's going the way of the hula hoop and that's what is causing these problems?

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I think it's going to cause fits of anger outside in the public, these cuts today. A Premier who just cannot make a connection means to me that he doesn't understand the health care system, he doesn't understand the high-tech nature of the industry. He does not understand the professionals who work in the system. He does not understand when he makes the cuts how it impacts directly on the public, and it speaks volumes. In one way, I'm glad he made the statement because it says more than anything else about the lack of understanding of this government and the cuts and the impacts that they're causing out there to the public.

The Chair: Thank you very much. We appreciate you taking the time to present to us today.

We now welcome the Ontarians for Responsible Government.

Mr Frank Klees (York-Mackenzie): On a point of order, Mr Chairman: While Mr Brown is coming forward, Mr Ryan makes reference in his brief that he is preparing an alternative budget. I wonder if we could have the clerk be in touch with Mr Ryan and ask him to submit to this committee that budget so that we can have it in good time for consultation. Also, could the clerk ask Mr Ryan to let us know which groups he has consulted with in the course of preparing that alternative budget?

The Chair: We can make that request.

ONTARIANS FOR RESPONSIBLE GOVERNMENT

The Chair: Mr Brown, we have 30 minutes to spend together, or until a division bell goes off, which is usually a few minutes after 12. That clock on the wall is a little fast, so I think we can get 30 minutes in. Go ahead.

Mr Colin Brown: I'll make it short and sweet. I guess I should start off by saying, "And now for something completely different."

I appreciate the chance to speak to you today. My name is Colin Brown and I'm the president of Ontarians for Responsible Government. As our name suggests, we at ORG believe in responsible government. That means we believe in government that is careful with tax dollars. That means we believe in government that's efficient and, most of all, we believe in a government that promotes economic freedom.

We came into being around in 1991 to oppose and expose the ruinous socialist policies of Premier Bob Rae and the NDP after his first budget. For four years we battled that government and ultimately contributed to its defeat at the polls in 1995.

Today we continue in our role as a watchdog on government. In fact, when Mike Harris became Premier, we put up a billboard in downtown Toronto which read: "Good Luck Mike! We're watching," and we have been watching.

Indeed, if we were to grade this government's economic performance to date, we would give it an A for its efforts to cut spending, we would give it an A for its tax-cutting program, and we would give it an A for its move to trim MPP perks and pensions. When it comes to privatization, however, we would give this government a D. To put it another way, and to put it in the context of these hearings, we believe this government's next provincial budget should stay the course on spending, stay the course on tax cuts, but it should get moving on the privatization of provincial assets and services.

Of course, of these recommendations, the least debatable is our call for the spending cuts to continue. All across the country, governments of all political stripes have come to realize that they need to cut back on spending if they are going to get their deficits under control. It's no different here in Ontario, where just a few years ago we faced a deficit of $11.2 billion. Now, thanks to vigorous cost-cutting measures, the deficit is progressively getting smaller.

That's good, but more needs to be done. We will need billions of dollars more in spending cuts to reach the balanced budget target by 2000-01. We hope that the 1997 budget sets out a clear roadmap as to how that target will bet met. Then, when that target is met, we will need to start trimming the monstrous provincial debt.

This leads to our second recommendation that the tax cut plan continue as scheduled. Needless to say, these tax cuts triggered great debates when announced last year and no doubt this committee will hear and has heard recently from some who would argue that the tax cuts be scrapped. We would see this a major error for several reasons.

First, Ontarians deserve a tax break. Years of tax-happy governments have left this province with one of the highest top marginal rates in North America. It's time to turn that around.

Second, lower tax rates stimulate savings and investment, which are critical to economic growth. They also encourage entrepreneurial activity to create incentives to work. All of this makes for a faster growing economy that is more likely to create jobs in the private sector.

A third reason for keeping the tax cuts is the most straightforward. Simply put, Ontarians voted for a tax cut and they should get it. Likewise, Mike Harris promised a tax cut and he should deliver. In this day of cynical politicians who routinely lie to win votes, we need a government that actually keeps its word.

Finally, the tax cuts, combined with spending reductions, will help the government reduce the deficit. To some that may sound strange. However, evidence in the United States and around the world shows that income tax reductions are an economic stimulus which in turn results in higher revenues for governments. You only have to look at Michigan, where several tax cuts since 1991 have resulted in a budget surplus.

Recall, at the beginning of my talk I gave the Conservative government a D for its privatization effort. That's a sorry grade for a government which came into power exalting privatization's virtues. Indeed, the Common Sense Revolution booklet correctly noted that history has shown that the private sector can use public assets more efficiently and provide better services to the public. Yet since coming to power, the Conservative privatization program has been next to non-existent. The only move to date has been some mild proposals that recommend the sale of the Ontario Place theme park and a local convention centre.

This, to us, is a mind-boggling lack of action for a government that says it's committed to making government smaller and more responsive. After all, privatization has shown itself to be the most reliable, most efficient and most popular method of reducing the size, cost and scope of big government. Yes, as already noted, this government has done a good job of cutting spending, but spending cuts aren't enough. We must have permanent structural changes. Only a comprehensive and widespread privatization program will turn this province around and restore its long-term financial health.

Today Ontario is burdened with dozens of publicly run corporations and agencies that are costly and inefficient. Imagine if they were sold off, transferred to the private sector, and exposed to the discipline of the market place. The first benefit is obvious. It would provide a much-needed cash injection to aid in the government's battle to slash the deficit.

Then there are the long-term benefits. Instead of being drains on the treasury, one-time government operations would be competitive, market-responsive companies which pay taxes and add to government revenues. Even better, these privatized companies would provide the same services as before, only more efficiently and at lower costs. In other words, privatization is a way for governments to cut bureaucracy, cut costs, and cut taxes without cutting back on needed services. In fact, services only get better. Yes, when it comes to deficit cutting, privatization allows you to have your cake and eat it too.

Of course, the importance of privatization goes beyond just dollars and cents. In fact, privatization transforms society by taking power away from bureaucrats and politicians and handing it to the people, where it belongs.

As if that's not enough, privatization provides another important benefit in that it ensures that consumers can no longer be held hostage by public service union bosses. Right now, whenever a public service goes on strike, consumers, who have no alternative, are denied a basic service. This not only provides the union bosses with great power, it shortchanges consumers, who expect and deserve the services they pay for. Privatization gives consumers a choice.

It's important to remember that privatization is not some radical, untried theory. It's a practical policy and it works. It has worked in numerous countries around the world and it can work here too. As a model, we can look to the United Kingdom, where in the last 18 years they have privatized practically everything, literally hundreds of different agencies and organizations, with a variety of methods.

Anyone in this committee who would like to learn more about Britain's privatization experience should get hold of this book, entitled Blueprint for a Revolution, which was published by our parent organization, the National Citizens' Coalition. It's written by an international privatization expert named Madsen Pirie and it talks about proven methods to restructure government, make it smaller, less costly and more effective.

Of course, you don't really need a book to know which agencies in this province are prime candidates for privatization. Three examples come to mind.

First and biggest, sell off Ontario Hydro. This outdated monopoly should have been sold off years ago. Anyone passing by Bay and Gerrard streets will see a billboard we have put up which reads, "Power to the People, Privatize Ontario Hydro." That about says it all. We think a privatized Ontario Hydro would provide better service at lower costs, a better deal for the consumers.

Next, sell off TVO. Originally established to focus on education, it has drifted away from that mandate to become a publicly funded broadcaster that's trying to compete for prime-time audiences. Simply put, the government should not be in the broadcast business. It especially should not be in the broadcast business in a day and age when consumers have so many television options provided by the private sector.

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Finally, there's the LCBO. Here's a holdover from Prohibition days that, if privatized, would provide better service at lower prices. Any Ontario privatization effort, however, should learn from what's happened in Alberta, where they recently privatized their liquor board. Although the Alberta program is an overall success, we shouldn't repeat their mistake of privatizing only the retail outlets for alcohol sales. We should privatize the whole thing and not alow government to retain its monopoly on liquor wholesaling.

To conclude my presentation, let me recap what we would like to see in the 1997 budget. Keep cutting spending, keep cutting taxes, and start privatizing. It would be tragic if, at the end of its mandate, this government, which pushed so boldly on the first two fronts, neglected to follow through on the most fundamental and the most far-reaching changes it could possibly make. Thank you.

The Chair: Thank you very much, Mr Brown. That leaves us with about five minutes per caucus. I see that the House has adjourned early for some reason, and therefore we will be able to fill our five minutes. We'll move with the first round of questions to the opposition, Mr Phillips.

Mr Phillips: As we've talked before, I used to caddy for your dad at the old London Hunt Club. I'm getting on now. At least it wasn't your grandfather I was caddying for, but it was your father. Maybe it was your grandfather too.

Mr Colin Brown: Could have been.

Mr Phillips: Time marches on. In any event, we've been looking for the big job creation payoff that's been promised with the tax cut and freeing up the market. I have been and I think most have been very surprised at the fact that we've lost 37,000 jobs in Ontario over the last five months for whatever reason. Our youth unemployment continues to be exceptionally high.

The promise in the Common Sense Revolution was for 145,000 jobs a year, 12,000 a month, so it's come as quite a shock to us that we've actually lost 37,000 jobs in five months, when in theory we should be seeing 60,000 net extra jobs created. Why would you think that has happened over the last five months in Ontario?

Mr Colin Brown: I can't really speak to that, but I will say that the type of things that we're suggesting -- privatization, making government more efficient, getting these very costly big services lean and mean and out into the private sector -- has a net effect of creating jobs, and the reason is the debt burden and the high tax loads that are required to maintain these things. For example, Hydro goes back to Sir Adam Beck's vision of power at cost. I think consumers have found out what cost that really is.

The net effect is that you will create more jobs because there will be better and more efficient operations. I think that what really holds down economic growth are high tax rates which are necessitated by extremely high debt levels and unless we go after that first, we won't achieve the second.

Mr Phillips: Do you think the government was incorrect then when it said their plan would create 145,000 jobs a year, if we've lost 37,000 jobs in the last few months?

Mr Colin Brown: If the government in fact said that it was an estimate. You have to see at the end of this term how the government stacks up. I can't speak to just what's happened in the window you're talking about. But if all these ideas which have worked around the world end up not working in Ontario, the government will pay its price at the polls.

Mr Phillips: You've indicated that it's very important to keep the tax promise. How do you rank that promise alongside other promises, such as, "We won't touch the classroom"? There was a Mike Harris task force on Metro saying, "We will retain the cities of Scarborough, North York, Etobicoke and Toronto, and get rid of Metro." He had no plan to close hospitals. I gather it's very important that he keep his promises. Do you rank education and health in the same vein of promises as the tax cut, or would you say keep the tax cut and break the other promises?

Mr Colin Brown: I don't think a politician should break any promises, but the tax cut is fundamental to putting more money in the hands of consumers and making what feeds government smaller. You know, government is like a beast and you have to starve the beast. You have to lower the amount of revenue that's coming into the government in order to make government more efficient. In terms of the examples you were talking about a moment ago, there are enormous opportunities in all those areas. In some cases, we're hung up by the Canada Health Act, in some case we're hung up by other things, but there are enormous opportunities to deliver the same, if not, better services, as they have found in Britain, at the same or lower cost to the consumer, to give consumers a choice, if we could only get moving on them. I don't have quite as negative a picture long-term as you do, Gerry.

Mr Phillips: Mike was the man of the year of your organization wasn't he?

Mr Colin Brown: That's right. Yes, he was.

Mr Phillips: Is it person of the year or man of the year? I guess person of the year.

Mr Colin Brown: We have had women, you know. Barbara Amiel won once.

Mr Martin: I have sort of a two-part question. One is, who do you speak for? I know that in your brief you mentioned that you're a spawn of the citizens' coalition. Who supports you? Who do you speak for? What do they and you have to say to the victims of this agenda out there in our communities: the people who are not able to find work, particularly the young people who aren't able to find work; the number of small businesses that are going bankrupt at a record pace these days across the province and particularly in northern Ontario?

What do you have to say to people who go to hospital, such as Mauno Kaihla in my community, and end up dying in some tremendous indignity? What do you say to the family of the person who died on the gurney at the Peterborough hospital and all of the poor people out there who now have to learn to live with 22% less than they were living on before, knowing that there are no new jobs out there for them? What do you have to say to those people?

Mr Colin Brown: First of all, as to who our supporters are, we have in Ontario about 7,000 supporters who have voluntarily joined our organization. They've seen our billboards or gotten a telemarketing call from us or seen our direct mail, and they support our campaigns. They are generally, I would say, low-middle-income types of people. A lot of them are small business owners. We do not represent big business in any way because we typically go after government. We're against any type of subsidy that government would ever give a big business.

I'll tell you that these people, our supporters, are just as concerned about the type of things you talked about. They want to hire people for their businesses. They want to contribute to their communities. They want to expand their businesses. The problems they have had in the last five to 10 years is that it is so costly and so uncompetitive to try and start a small business or run a business in this province because of the myriad of regulations, the high and uncompetitive tax rates, that it has been an uphill battle.

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They don't care any less about these things than you do. Not only that, for your story of the tragedy in the health care system, I can relate a story to you of the father of one of our supporters who died on a waiting list in Sault Ste Marie, and that was about three years ago, because he believed in the health care system and he went down saluting.

I would suggest to you that the problem we've got is structural, It's deep. It needs very fundamental change. We have to do some very big thinking, but the key to it is to get the Canada Health Act out into the light of day and allow movement to get some privatization and open up the marketplace in health care, hydro and all these areas so that we're not stuck with very heavy, bloated, top-heavy systems that simply cannot respond in the realities of today.

Mr Jim Brown: Welcome, Mr Brown.

The Chair: No relation?

Mr Jim Brown: No, no relation.

Mr Hudak: Spiritually.

Mr Jim Brown: Spiritually, yes. I think you were here when Mr Sid Ryan of CUPE made his presentation. He made a comment that he recognized that there was a growth of 90,000 new jobs and he said that the increase in growth in employment is due almost entirely to lower interest rates. Ontario being maybe 40% of Canada and the fact that we are on the right course, you know, the interest rates then, which are a market phenomenon -- it's not that anybody can rig the market. It's a function of the value of the dollar and the demand for the dollar and interest rates. It's my impression that the market then would say, "Ontario, being 40%, has really cleaned up its act and has permitted these lower rates," which is the spur to the 90,000 new jobs. These are Mr Ryan's comments. I wonder if you could --

Mr Colin Brown: I would concur with that. It's a vote of confidence. When we saw the first NDP budgets, they immediately cost Ontario taxpayers hundreds and hundreds of millions of dollars in taxes because the rating agencies moved in. As you say, it was a market response. To say that it's just a phenomenon of interest rates means that your economy's running pretty well, that there is enormous investor confidence out there. I have a lot of trouble finding trouble in that. At any rate, I suppose Sid has to find some reason to justify it.

I think the current economic climate we've got right now, the lower interest rates, is certainly helping Ernie Eves, helping Paul Martin, but please don't be sucked in by these people who say: "Now we've found some money. Now we've saved some money. We've actually created some cash and with the savings we now have, let's go spend it. Let's give some money back to the system which created the whole mess in the first place." Beware of that, please. Keep doing what you're doing, because the moment you start turning back, you might as well have not started in the first place.

Ms Isabel Bassett (St Andrew-St Patrick): Thanks, Colin, for your presentation. I want to pick up on what you said about privatization. As you know, the Premier said in the CSR that we were going to look at privatizing various things, but we don't want to be driven by ideology. When you look at something like the LCBO, which is one of the things you recommended we privatize, we make $685 million or something a year out of it. I guess my question to you is, would you say we should step back and look at each thing individually or should we privatize just to privatize because that is in theory a better way to go, in your view of it?

Mr Colin Brown: Isabel, I think if you look at the economic case for each one -- you talk about the liquor board, $685 million. I'd like to see a set of numbers worked up to an Ontario market from an Alberta market in terms of the tax base that's being generated from the privatization of liquor sales in Alberta. My guess is that the treasury would get a lot more if it was put into private hands.

Ms Bassett: Could you just say why the treasury would get a lot more?

Mr Colin Brown: Because there would be more business. You would have more people out in the marketplace paying taxes. There would be more outlets. There would be competition. There would be simply more revenue coming in on it because of the fact there would be more consumer demand.

At the same time though, I don't think you should privatize only for a reason of political philosophy, but I haven't seen a case to be made against it that can disprove it economically really anywhere in the world. For example, if you look at Hydro, the studies are in at Hydro. They've had them done. Wood Gundy I think put a valuation on what the sale would bring, which is not so much the concern. Because Hydro's got so much debt, it's not so much the cash you would get, but it's a very viable entity and it would be a win-win for the government and the taxpayers.

The Chair: Thank you very much. We appreciate your presentation to the committee, Mr Brown. Thank you very much for appearing before us today and working under a somewhat flexible schedule.

There being no further business to bring before the committee, we will recess until 3:30 this afternoon.

The committee recessed from 1206 to 1541.

BANK OF NOVA SCOTIA

The Chair (Mr Ted Chudleigh): We welcome the committee back and we welcome the Bank of Nova Scotia as an expert witness: Mr Warren Jestin, senior vice-president, Bank of Nova Scotia. We have an hour together. We'll proceed with your presentation and follow up with questions, if we may.

Mr Warren Jestin: Thank you, Mr Chairman. My colleague Aron Gampel is deputy chief economist at the Bank of Nova Scotia.

What I'd like to do is provide an overview of where we see the Ontario economy going over the next year or so. I must admit it's about the best forecast I've been able to deliver throughout the 1990s. It's been a fairly bleak period of economic performance, but I believe 1997 and 1998 are going to be the best back-to-back performances we've seen in nearly a decade.

The theme of our report is Ontario Gets Back on Track, and we see this in many sectors of the economy. What's happening in 1997 is that a broader, more durable basis for economic growth is being put in place. If you look at the newspapers, you'll see quite repeatedly that Canada is picked as the strongest performer among the G-7 in 1997 and I think you'll find that some analysts would pick Canada for 1998 as well because of the improving fundamentals. It's not only because of external trade, which remains the backbone of our economic performance, but it's also an improving outlook for a broad array of other areas in the economy. So the theme becomes that we are not only having a faster rate of growth but we are having a more sustainable and broader basis for expansion.

While I won't be going into our financial market forecast in detail, I think it's important to note that we believe the interest rate and the exchange rate environment will be quite conducive to a fairly solid economic performance. I do expect US interest rates to be rising by midyear, perhaps up half a percentage point or a little bit more, and Canadian interest rates would follow suit. But even when that occurs, our interest rate structure will remain extremely low by the standards of the last two to three decades.

We also believe that the Canadian dollar, after some jitters through the first half of this year, will be getting on to an appreciating track. I wouldn't be surprised if by the end of the year we're closer to 75 cents, but again, the improvements we're seeing in cost performance relative to our principal trading partner, the United States, are more than offsetting those and we will have another excellent trade year. The dollar certainly is not an impediment to that and I don't think it will be an impediment to that even if it rises further in 1998.

The balance of my remarks is really going to focus on Ontario and where we see Ontario going. In short, we believe Ontario will be number two in growth performance not only in 1997 but also in 1998. The chances of our moving into first spot I think are fairly remote, not because the prospects aren't good here but because the prospects are absolutely stellar in Alberta and it would be extremely difficult for any province to catch Alberta over this period of time. Nevertheless, we would expect GDP in Ontario to advance by about 4.2% this year, perhaps slightly less next year, versus something around 4.5% in Alberta. This marks a big improvement from last year, where we saw overall growth of just a little over 1.5%, perhaps 1.75% growth. It's largely, as I said, because the economy is firing on a lot more cylinders.

First of all, we believe exports will remain fairly strong. We are quite confident in the outlook for the US economy, and that is our principal market in Ontario, but we're also seeing a renewed upturn in non-residential construction which is going to reinforce and sustain the strength that we've been seeing in business spending on machinery and equipment.

Finally, I believe we're going to see an improvement in consumer spending. It's not a barn-burner of a recovery. People aren't going to be running to the stores to shop, but I think they'll be walking at a faster pace than we saw certainly in 1996.

When you put that all together with the fact that the housing market has turned, that home sales have improved very dramatically, and that's going to really put a lot of momentum into residential construction, the outlook, in our view, is very promising.

A lot of the good news that I've been talking about so far, of course, is very good news for government as well. Not only is the federal government outperforming vis-à-vis its targets, but I think the provincial government will do so and continue to do so. Combined with ongoing expenditure restraint, fairly strong revenue growth and very, very low interest rates, we think the news gets much better on the fiscal scene at both the federal and the provincial level over the next couple of years.

The big shift and the most important shift that we're seeing in the economy is really on the consumer side. Quite honestly, it's not hard to be negative about the outlook for consumer spending. You've heard all the statistics: Debt relative to disposable income is at a record level. Disposable income isn't growing all that rapidly. You have a demographic shift in favour of savers and away from spenders. The savings rate in Canada is very, very low, so not only is the balance sheet on the consumer side fairly fragile, but the income flows are also really constraining the growth of saving.

But you really have to look at the outlook for consumer spending relative to changes that are occurring on a year-to-year basis, and here I think the prospects are more encouraging. First of all, we have the lowest borrowing costs in roughly four decades, and this has provided a great relief for the heavy consumers, the heavy debtors in our economy, the 25-to-44-year-olds who are establishing a household and spending much more than the older groups, who tend to be focused much more on saving. So by itself, we think there's a powerful thrust built into retail sales just on the basis of lower interest rates alone.

We're also getting a more fundamental improvement in the job market. You can see that in employment surveys, you can see it in help wanted ads, and as our report indicates, we expect about 125,000 new positions to be created in Ontario in 1997. It's a big improvement from last year. It's not as fast as we saw certainly in the 1980s but it's an important step in the right direction. I haven't got a forecast in here for 1998, but again I would expect that this strengthening that we're seeing in private sector employment generation will continue into next year.

The question is where it's occurring. Obviously, the construction industry will be a major turnaround. We expect manufacturing to be stronger. It wasn't too many years ago when we expected manufacturing to be on a fairly substantial downward spiral for a long period of time, a hollowing out of manufacturing. Times have changed and manufacturing is doing very, very well. Over half of what we produce in this country in the manufacturing sector is now exported and, as I said earlier, the export prospects are fairly good.

Moreover, in Ontario not only the growth of employment is improving, but we're finally past that big hole that we dug ourselves into in the early part of the 1990s. Last year we finally got up to the previous peaks of employment and we're establishing new ground. I might add on top of that that we're seeing more full-time employment being created. For a long time in the 1990s we were destroying full-time jobs and creating part-time jobs, and the change in that trend is obviously very good.

As a result, if you wrap up what I've been saying on the employment side and you add to it that we believe wage settlements are going to move up a little bit, you get an increase in disposable income gains in 1997 that will be stronger than the rate of inflation. That's the first time the average person in this province will have an inflation-adjusted income gain in seven years, so that is a very positive factor on a go-forward basis, and the rate of growth that we're expecting in disposable incomes in general in this year is about as strong as we've seen over the last three years in total, so it's a very significant improvement indeed.

The final point on the consumer side which I think is worth pointing out is that consumers are beginning to release some of their pent-up demand. A lot of this depends on confidence. Nobody is going to be spending if you're reading in the paper day after day that there are a lot of layoffs, and obviously firms that are in serious financial difficulty, big stories on that are going to give concern to the average consumer and that may cause a little bit of a setback. But overall, if you have stronger employment, stronger income gains, it is a confidence booster. With this pent-up demand there, we expect things like auto sales to be improving in the province -- that's good news, of course, for one of our key industries -- and we would expect in general if the housing industry is doing well that durables such as furniture and appliances would be doing well.

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So consumer spending doesn't lead the economy; it depends on strength in other areas of the economy. Consumers aren't going on a marathon recovery; they're going on sprints much more than anything else. When the Visa bills come in, they pause a little bit to pay them down perhaps. But nevertheless, the environment for consumer spending is better today than we have seen at any time in the 1990s, in my view, on a fundamental basis, on a go-forward basis.

We're also seeing a big turnaround in the construction sector of the economy, and the construction sector of the economy is one of the more cyclical ones. It's one of the ones that can add a lot of impetus to the economy in a short period of time. We believe provincial housing starts are going to be around 52,000 this year. It's certainly well less than the pace in the late 1980s, but it's the best performance we've seen since 1992.

You've probably heard about this from other speakers, but the technicals in the housing market are very good in terms of the sales that are occurring, particularly in the GTA, the fact that we haven't been building a lot of new housing, particularly in certain categories, for a long period of time, and the fact that affordability is better now than we've seen in a long, long time. For example, just 21% of pre-tax family income is required to carry the payments on an average-priced Toronto home nowadays, and this compares with over 34% at the end of the 1980s.

The outlook for 1997 that I've been painting is a fairly optimistic one, but we've already seen some statistics to date that support that. Metro Toronto sales on the housing side are off to a very good start with purchases in January and February up a solid 44% from a year ago period. Again, as the housing industry is picking up in terms of sales, inevitably it spills right into the construction side. When I talk to home builders across the province and in the GTA, I'm seeing a lot more smiles on people's faces, a lot more optimism today than I have seen in a long, long time. Clearly it is a real change, a real sea change, in market activity.

It's not only first-time buyers, who are really influenced by affordability; it's the move-up buyer that we believe is going to be back into the market, tentatively perhaps in 1997, but there, and that's really keyed off of an improvement in confidence. The fact that we are moving into a much stronger growth I think is going to build confidence in 1997.

The turnaround in housing activity that I've been talking about also points to firmer prices in Toronto and Ontario. Not too many people who own houses in the GTA and in Ontario are very happy with what's happened to housing prices through the 1990s, and I think this is the first year that you're going to see a sustained increase on the price side. Typically, if you look at MLS data, particularly for the GTA, you've been seeing a moving down in the average price because people have been buying progressively less expensive housing, but if we have the move-up buyer back into the market and the technical factors are tighter, we're going to begin to see an improvement in the overall price, and for a home owner there's nothing better in terms of being a confidence builder than to see the principal asset moving up in price certainly rather than down in price, which has been the case for too long.

There's also a big change in one other component of the construction area, and I should point out too that renovation activity we expect to be very strong. We mention in our paper that it's an $8-billion-a-year expenditure item. It's very, very large even relative to new construction, and we see that picking up, but the big change that we see in construction is really coming in the non-residential side.

For a number of years, non-residential construction has been going down. All you have to do is look around the area to see the casualties. The uncompleted Bay-Adelaide centre, for example, is a good monument to the shift from full ahead to reverse that occurred at the beginning of the decade. Now we're seeing a shift. The shift isn't from a fall to a sharp rise. I'm not expecting another commercial construction boom in Toronto or in the province this side of the year 2000. But what we are seeing is a shift from decline to a more stable footing and a tentative rise.

Indeed, we had a survey done by Statistics Canada and released a few weeks ago that is pointing to this revival in non-residential construction. In that survey, both machinery and equipment investment and non-residential construction are expected to rise by about 4% annually in 1997. I believe the trend that we've seen change this year is going to continue into 1998. So the whole area of construction, being residential or non-residential, bodes well for our performance in the current year.

The export industry, of course, is one that is very important to Ontario. If you look at Canada and strip government out of the equation, just look at the private sector, I believe we have now passed the 50% mark in terms of export orientation. In other words, more than half of what we are doing in this country one way or another is oriented with external markets: very good news when the external markets are growing; not so good news, of course, when they are in retrenchment. But we're optimistic about where the US is going over the next year or so, so it looks like it's going to be a bright area.

The volume of foreign sales in Ontario has expanded by almost 50% since the beginning of the decade. As a result, this province, this country, is now the most export-intensive of all the major OECD nations.

Why do I say the outlook for exports is encouraging? When I look south of the border, I see a broad-based expansion. Disposable income gains are roughly twice what they are in Canada, so consumer spending will remain on track. Business investment remains solid. The housing industry is perhaps not going to be increasing in terms of overall activity but remains at a very high level. We believe one of the surprises in 1997 for the US is going to be a much firmer export orientation, much firmer on the export side for that country. So overall we see growth south of the border at about 3%. That suggests a fairly substantial gain for Ontario, because over 90% of what we export is going south of the border.

What I haven't indicated in the paper but is probably worth mentioning as well is that increasingly, exports I think are going to be oriented towards offshore markets, into the fast-growing Asian economies. Not perhaps in 1997 but beyond, 1998 and 1999, the markets in Latin American hold a lot of promise for Ontario producers. So initially this year, but as we go forward, more broadly in an international context, I think the export sector is going to remain on a solid footing for the next few years.

In terms of our major industries, production of motor vehicle and equipment is expected to set another record in 1997, and of course most of that is exported to the US. It may seem a bit surprising that I say that when our overall forecast for US auto sales is down this year relative to last year. The explanation for that is fairly simple: We are producing the type of vehicles that are wanted in that market. We're essentially gaining market share, so even if that market begins to cool off a little bit, we think we will do better.

But the good news, I think, expands beyond the auto industry and the industries that are directly related to it. It goes into other segments of the economy in the high-tech industries. I've just done a series of discussions with customers, actually over the last 48 hours, in places like Hamilton and Ottawa and Oshawa and Markham. I'm talking to customers all the time, and one of the things that amazes me, not only in Ontario but across the country, is how many new small and medium-sized industries are starting up and doing very, very well, and the high-tech industry is certainly one of the ones that is growing by leaps and bounds. You may not read it in the front pages of the papers, because they don't have enough employees yet. You read it in the Toronto Star in the business section on the weekends because that tends to be the focus there, and I think that's a very useful barometer to have in the Toronto Star. But over all, we're seeing growth in the high-tech sector of about 10% annually, and it is becoming a much more solid contributor to growth as the years go by.

A final area in the economy that I haven't talked about yet is the service sector in general, which has been more sluggish -- it's not as cyclical as on the good side -- and it's been underperforming for much of the decade, but there are some strong parts there. It's been my view for some time that tourism will be one of the hot industries in Canada over the next few years. Tourism is one of the largest industries, if the not the largest industry, in Canada on a broadly defined basis and it's very important for all provinces. It affects most cities.

We are going to be doing very well not only because we are a bargain-basement vacation destination compared to other ones. We also will be doing well because the average income in countries particularly in Asia is going up so rapidly that people who a few years ago might not have been able to travel will be able to travel, whether it's this year, next year or the year after that. As they travel, Canada -- Ontario -- is going to be very high on the destination list. So tourism in our view is going to be a very important supporting industry. It's labour-intensive too, so it creates jobs.

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The housing industry is also on the rebound. It has created more activity in the real estate segment of the economy.

Even financial services, which have not been growing at an extraordinary rate, have an important contribution because they are very solid and stable contributors to the economy. I brought along a report that was produced by Boston Consulting for the Bank of Nova Scotia on the current and the potential role of financial services in the GTA. I think you'd find it interesting. Certainly in terms of overall impact on the GTA, it is the driver of economic activity.

There are a lot of stories in the paper suggesting that the industry is laying off and downsizing. I can tell you at the Bank of Nova Scotia over the last two years we have added well over 1,000 jobs. We are adding jobs this year and we see quite a lot of opportunity for expansion. I think there is quite a favourable outlook for financial services, and that is an industry that we have that is a success story in this province and in this city.

What does it all mean for the government in terms of the fiscal environment? Obviously the combination of low interest rates and slower growth has been very powerful in terms of its support for deficit cutting. If you look at the federal level, we've chopped about $10 billion off the deficit, according to official estimates, over the last year. Quite honestly, I think that's a very cautious estimate of what's going to happen. I would be astonished if at the end of the year, when the figures are finally released, the deficit is as high as $19 billion. While the government is officially shooting at a target of $17 billion next year, I wouldn't be surprised if it's much closer to $12 billion. So the era of rapid improvement is there. In fact, I believe this is the watershed year for Ottawa in terms of fiscal performance.

We talk about when the deficit is going to zero. Take a look at the Bank of Canada's statistics and you'll find over the last year that government has virtually stopped borrowing in financial markets already. It has a lot of pension funds flowing in that are captive funds; asset sales have been helping. I believe on a sustained basis the federal government will be able to get out of the borrowing game within the next 12 to 18 months. Their financial requirements are minimal, and you can see the impact of that reduction in financial requirements every day when you go and want to borrow for a mortgage or when you want to look at credit. The decline in interest rates firmly reflects this vast improvement that we have seen.

Ontario is also making fast and unexpected headway, and this has already been announced. The deficit that was projected around $8.2 billion at the beginning of the year has already been cut back, and it's my view that when the year is over with, you'll see something that is well under $7.5 billion, probably closer to the $7-billion mark, because we believe the solid basis of recovery that we're going to see and extend into retail sales and the like creates a very substantial amount of revenue growth. In fact, and this number may certainly not be the consensus, we believe the deficit in the upcoming year could be closer to $5 billion, both because of stronger revenue growth and because we certainly don't think that the contingency reserve is going to be needed in this type of environment.

Even then, Ontario, as you all know, is lagging most other provinces. We've got six provinces now that are in a surplus position and the talk there is what you do with the surplus, whether you pay down debt or not. So the move has very clearly gone beyond the deficit reduction issue.

It is important to remember that the type of economic environment that I'm sketching right here, which is much stronger than anybody would have expected even a year ago, can change fairly significantly. The next time I'm here I may be talking about a sudden change for the worse. I don't think it's going to happen, but inevitably economic forecasting involves quite a bit of crystal ball gazing, and those crystal balls are fairly cloudy at times.

So what I'm saying here is that it's important to take the very positive news that we have seen recently and to build on it and to make extra progress in reducing the deficit to reduce our vulnerability to unexpected deterioration in the economy or financial markets.

With that, I'd like to open it up to questions.

The Chair: Thank you very much. We have perhaps eight minutes per caucus, if we would like to start with the opposition.

Mr Phillips: I appreciate the presentation. I've been around here a little bit longer than some others, and you tend to be the more pessimistic of the economists normally, so this is quite an encouraging outlook that Nova Scotia is presenting here and that's very pleasing.

One of my big interests, or our interests, is in the job front. I see you're predicting job growth of around 2%, employment growth 1.9%. We've been very puzzled, actually, by what we regard as the weak job performance in Ontario over the last few months. The numbers come out tomorrow. My expectation is that they should be fairly good, but it looks like we've lost 37,000 jobs over the last five months. This report, which you'd be familiar with, indicates that in 1996 there were 35,000 full-time jobs created in Ontario; the previous year it was 72,000. The youth unemployment continues to be a huge problem. The bank association was in the other day with kind of a joint forecast, if you will, predicting job growth over the next two years at around 2% a year, which is between 100,000 and 110,000 jobs a year in Ontario.

This is probably the number one issue for us in terms of the economy. How should we look at job growth? We asked the Ministry of Finance officials how you look at job growth and they said the rule of thumb is real GDP minus one percentage point; in other words, real GDP growth at 3%, job growth at 2% and I guess productivity improvement of 1% or something like that. Can you help us out at all in terms of what we should be thinking about in trying to project jobs, and are the last five months merely an aberration, a strange statistical aberration?

Mr Jestin: It's a very good question and it's a challenge, obviously, for everybody in this country. The unemployment issue, the lack of job creation, has been the most vexing problem we have in Canada during the 1990s. I believe that given the strength we're seeing in so many sectors of the Ontario economy, that over the next few months you will see a regaining. In the last two months you have had decline in employment alone. I'm fairly optimistic about what we're going to see over the next two to three months in that area because the employment data themselves really do fly in the face of a large number of other indicators, suggesting that it should be stronger. There may be a lag in the pickup, there may simply be a statistical quirk in the seasonal adjustment process that is applied to these numbers, but overall I think you see the acceleration flowing out of the better economic outlook. Moreover, I believe that the full-time component is going to be coming faster.

In order to get the unemployment rate down substantially, though, you really need a whole lot stronger job creation than we're having in this particular forecast. One of the problems with getting the unemployment rate down is that as employment begins to accelerate, you're going to get a lot of people who have dropped out of the job market coming back in. Ontario has had a lot of dropouts; the labour force participation has gone down. So the recorded unemployment rate is going to remain painfully high even at a time of accelerating employment gains.

In terms of the relationship between productivity and growth, over a long period of time you might expect a little over 1% in product activity. Certainly over a very short period of time the differences are very substantial. For example, last year, it's widely believed, the BC economy was showing virtually no growth at all. It had three times the employment growth of the national average last year, suggesting that productivity was negative. So over a short period of time, even a period of up to a year, it's very difficult to put a lot of faith in the month-to-month trends. Aron, you might have something to add. Aron has been looking a fair bit at the employment side.

Mr Aron Gampel: I would just add, Mr Phillips, that looking at the numbers in trend forecasts on a monthly basis is exceptionally difficult. Looking at the Stats Canada numbers, the job performance through 1996 I would classify as steady job gains, because through the first half, roughly, it was divided equally between the first and second half. I would think we're creating jobs. We're, just like many other provinces, having a hard time generating a much faster momentum. But I think, as Warren indicated, the sectors that are likely to do better over the next little while are ones that are really home-grown types of activities, especially on the construction side, which I think could be a very big winner. The spillover both in terms of new construction now and the renovation side should boost that sector up quite sharply this year and take away some of the problems we're seeing maybe in the retail area, which still looks to be under some consolidation.

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Mr Phillips: My recollection was that the Bank of Nova Scotia did a study on the number of people who have dropped out of the labour force. Can you refresh our memory on that and what numbers you think may be out there, out of the labour force right now, that will be drawn into the labour force over the next two or three years.

Mr Jestin: The study you're referring to was done last spring. We simply looked at what unemployment rates would be in Ontario and various other provinces if the labour force participation had stayed the same as it was back in 1990. According to Statistics Canada, a lot of the decline in labour force participation has been due to people going back to school for higher education.

It is interesting to look at the provinces that have been doing relatively better, such as Alberta. They have not experienced the decline in the labour force participation nearly to the extent of the ones that have had a real problem with job losses. Moreover, the US has not had a decline in the labour force participation as well.

We think it's a valid correction to look at to get an indication of an underlying or a subterranean problem that exists which is not reflected in the jobless number. I'll give you the example. In Ontario, our labour force participation rate has gone down to 65.6% from 70.5% at the beginning of the decade. That is a huge decline and suggests that a 9% unemployment rate, if we had a participation rate back to where it was at the beginning of the decade, would be something in the order of 15%.

This is the challenge we face. As I said earlier, it's important to create the jobs. We're going to be creating jobs a faster clip, but it's going to be frustrating that the unemployment rate doesn't decline as fast as we want simply because we have to reabsorb the people who have, for one reason or another, decided not to enter the employment stream in the type of fashion we saw in the 1980s.

Mr Phillips: I commend you for the work you did on the financial services. I think it's worth all of us analysing that. I agree that across Ontario, but particularly in Metro Toronto, the financial sector is a huge employer. We had the construction industry in recently, which was far less bullish about the non-residential construction sector than you are, I guess because of the slowdown in infrastructure spending and the cutbacks in capital. Why would they think one thing and you think another thing?

Mr Jestin: That's an important point. One thing may have been that they didn't have access to the latest Intention survey that came out about a week ago, which was very bullish on the non-residential side.

The other factor has to do with vacancy rates. Many people would look at vacancy rates, which are still at double-digit levels for commercial space, and say, "Gee, we have a lot of extra absorption to do before we'll click into gear." But it must be remembered that a lot of this space is not suitable for current applications. A good example of that is the big boxes that we're constructing in the retail environment right now. You cannot put a retail store of that size into the vacancies that exist in malls. You can extend that to may other examples.

We may be seeing a continuation of double-digit vacancy rates historically because we have this excess supply from the 1980s at a time when new competitors are coming to town, new industries are growing and their requirements are vastly different. We see the private sector -- obviously that's where the growth is on the non-residential construction in this particular forecast -- as doing quite well, and the Statistics Canada survey certainly validates that conclusion.

Mr Gilles Pouliot (Lake Nipigon): Thank you, gentlemen. I too wish to thank you not only for your time but for your expertise on this eve of the provincial budget.

Perhaps the most startling revelation, in my humble opinion, has been your prediction, your forecast of a full 3% growth in the United States, and may you be right. It would be the first time that in the second term of office, a year after the presidential election -- and this is better forecasting than the Super Bowl, I can assure you. That track record has proven to be somewhat immaculate. You've reminded us that the recovery we're now enjoying has been export-driven. You also forecast that this will continue and that it will be joined with an internal recovery.

You mentioned consumer confidence, a perception. Someone should have told Eaton's that we are overretailed. The consumer debt, to my understanding -- you would know better than I do -- is at an all-time high because of the consumer-supreme attitude of the 1980s. My understanding is that saving is not doing all that well, that some of the jobs that have been created are jobettes as opposed to real, high-paying jobs, but that's about to change. You will have an inflation rate -- what is it by your forecast for inflation?

Mr Jestin: I'll be staying under 2%, I think, in this environment, on consumer prices.

Mr Pouliot: So under 2%. Okay. It's 2.2% now, so it's going to be -- okay. You've mentioned wage increases. You've also mentioned that the housing inventory is sort of drying up, and because of low interest rates and the momentum, that you will see a rise in the price of housing -- you didn't tell us how significant it will be, but that there will be a rise in the price of housing. There will be some wage pressure and inflation will go down.

Mr Jestin: Inflation won't go down. Inflation will actually, on an average basis, be going up.

Mr Pouliot: We're at 2.2% now. How do you see the year's inflation ending: 2%, 1.8%?

Mr Jestin: Around 2%; maybe slightly less, yes.

Mr Pouliot: Around 2%. You're forecasting that you would pretty well stay the same.

Mr Jestin: On an average annual basis, yes.

Mr Pouliot: The way I'm trying to learn here, I see that your stars are all perfectly aligned, that things are going very, very well hopefully things will be absolutely great. But if you were a devil's advocate, what sector -- let's say as opposed to being bottom-up, you'd be top-down in marketeering. You wouldn't go so much as intrinsic value, but you would just say sector and index; that would be your guiding line. Where could we go wrong? What could derail this forecast?

Mr Jestin: In your preamble you raised an awful lot of issues which, as you pointed out at the end, could go wrong. One of the ones you started out with was US GDP growth, which we are quite optimistic about for a variety of reasons, which I outlined earlier, in terms of solid consumer spending, disposable income growth and the like.

If you were to have a much slower US growth profile, inevitably that would hit back into our export growth as well. There is no chance that I see this year, absent a major financial market shock, that the US is going into a downturn. In fact, monetary policy there is very accommodative and income growth in the US is solid right now. Business investment, which is put in place after a very long planning period and therefore is reflected in intentions that are quite strong, looks as though it is going to be quite sustained this year. That's one Achilles' heel perhaps because, as I said, over half of what we're doing in the private sector nowadays is export-oriented.

Another factor, as you point out, is Canadian consumer confidence, which has been a fragile thing throughout the 1990s. We have seen in the conference board surveys and the like that it has been turning up. It has been likely to increase because job growth, we believe, is going to accelerate this year. We believe that wages are, or at least disposable income is, going to beat inflation this year -- not by a lot.

We're not saying the stars are totally in line. There are still a lot of problems out there. Debt is high; the saving rate is low. But the fact that we are getting an improvement in employment, the fact that there is a bit more income in an average person's pocket, is enough to give a little more strength to consumer spending.

The other Achilles' heel is very clearly pointed out in what you were saying, however, and that is the consumer. If something goes wrong to turn the consumer off, inevitably you are going to end up with a much softer retail sales environment, although even then I don't think we will end up with the type of softness that we saw last year, where retail sales actually declined, and we're already beginning to see much more momentum here.

In terms of the housing market, we've got two months' data that suggest that the year started off very strongly whereas last year we got off to a very slow start.

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Mr Pouliot: So if I worked at Mount Sinai Hospital this afternoon, I might go out and buy a car tomorrow.

Ms Bassett: Thanks for your presentation. I wanted to pick up on your report. As parliamentary assistant to the Minister of Finance -- we're looking for recommendations. In the Boston Group report, or I guess maybe in your report, you point out that in the GTA there are 320,000 jobs in the financial services industry. I guess the idea is that we as a society and we as government should be recognizing that. How can we cooperate with you to create those jobs that you just said help stimulate consumer confidence? What could we be doing more than we are doing?

Mr Jestin: I think the Boston Consulting Group report did a number of things. First of all it was designed to show that the financial service sector was very important to the GTA, and this would almost seem like a no-brainer. But if you read the strategic plans or the statements as to where the high-growth sectors are going to be in the economy that have been produced at the various levels of government in recent years, you very seldom see the words "financial services" anywhere in there.

Part of it was an educational one. Part of it also was to be really a warning against complacency. Boston went into the Bank of Nova Scotia, the CIBC and one of the life insurance companies and did a very detailed study of what jobs were there and which jobs were firmly planted towards the local economy and which ones were really oriented towards external environment and have the risk of moving, and they found roughly half the jobs that exist in the financial services sector are potentially mobile.

This, I think, should be cause for concern. It's also an opportunity, however: If they're mobile here, they're mobile at other places and we can track them in. I think as a first step, and the chairman of the bank, Peter Godsoe, is taking this step, is to join together and develop a group that will really discuss with government the role of financial services.

Ms Bassett: Have we done that?

Mr Jestin: We're in the process of doing it right now. I think it's important that in any documents that are putting out and in any policy shifts that are occurring we should be, in general, looking at what industries are effective, are they going to be negatively affected or not, and financial services, because of the strategic importance, I think should be fairly top on the list.

We're not asking for special handouts or favours, subsidies or tax reductions or anything like that. What would be quite useful is to have the industry considered when new policies are being brought in to make sure there's not an untoward negative impact on the industry, particularly because of the extraordinary increase in mobility that is occurring in financial services today.

Mr Gerry Martiniuk (Cambridge): I read in a recent issue of the Economist that Canada itself is not doing that well in productivity. If I recall, they rated Canada at 70 compared to a base of the United States at 100. We weren't as bad as Australia at 54, I think. However, I found that a matter for concern. Would you comment on that rating?

Mr Jestin: There's a deceased economist in the United States by the name of Albert Sommers, who used to be head of the conference board, who used to call productivity "the statistic from hell." The reason why he described it that way is that it's so extraordinarily difficult to measure, not so difficult to measure perhaps in the manufacturing sector but definitely in the service side when you're having so many changes occurring. In fact, I believe that because services are becoming increasingly dominant in the Canadian economy, the productivity measures are becoming increasingly tenuous.

But that said, our productivity performance certainly can be enhanced by improvements in machinery and equipment investment, investment in general and the growth of the high-tech-sector areas that are very productive and innovative.

While we may not have been doing that well during the 1980s relative to the 1970s, and the 1970s relative to the 1960s, I think the 1990s are a period of massive transition, which will inevitably unleash a very sizable improvement in productivity in the service sector, which again is the dominant component of the economy. Whether it shows up in Statistics Canada figures or not, I think it is very much there, and I think we all live that every day. We can see changes that exist that are increasing our efficiency or our effectiveness, whether it's a fax machine, the Internet or a variety of other vehicles that may not get in the national accounts. It may not improve the productivity measure on a national accounts basis, but we live it every day. I think Canada, by the way, is doing very well in that regard.

Mr Joseph Spina (Brampton North): How much time do we have left, Mr Chair?

The Chair: About three minutes.

Mr Spina: I have a couple of questions. Thank you for the presentation. It reinforces some of our thoughts and feelings about the economic situation. You definitely did not specifically tie in any of the current government's actions with regard to the positive economic conditions that you've indicated. Are there any there that have contributed to that, in your opinion?

Mr Jestin: Inevitably over the longer term, I think the deficit reduction initiatives, simply because they free up spending that would have been towards interest payments, are going to be very, very positive. There's an enormous debate as to the impact of tax cuts in the overall environment, as to whether they are offsetting some of the spending cuts that exist.

The problem with the tax cuts that are occurring right now is that they're being offset in many ways by actions that are being taken in other areas. I think many people in the province were a bit surprised -- more than surprised -- when they opened their pay packets in early January after realizing that a tax cut was in place and seeing that their income hadn't increased and in some cases had actually declined because of what happened in employment insurance and the CPP. Simply maintaining the current environment without having taxes going up or the overall take on the pay packet is positive.

On the other side of the coin, however, we're going through massive change, much of it very necessary, that is almost impossible for an economist to quantify with any precision as to what its impact is on the economy. Whether it's at the municipal level, whether it's health or education, it defies simple economic analysis.

On a longer-term basis, the best policy is to eliminate the deficit and bring back those interest payments that are sapping the government. If we did not have to make interest payments on outstanding debt, which would mean that we did not borrow the money in the first place, we wouldn't have the problems we're having in downsizing in many of these sectors. We would have adequate funds. Longer term, staying the course on the deficit-reduction initiative is the best advice. As to the tactics that are being used, you could get 10 economists in this room and get 15 answers as to whether you're doing it right or wrong.

Mr Spina: You mentioned small business briefly, and that's my particular responsibility within economic development. You indicated that this is really the direction in which the job growth, job creation will come from. We just did some studies, some analyses and made some recommendations with respect to broadening accessibility to capital through competition, in other words, trying to get more cash from something beyond the Big Five, and some other recommendations. I don't know if you've seen the draft or not.

Mr Jestin: I haven't, unfortunately.

Mr Spina: Do you think broadening the scope of commercial lending would assist the growth, startup and expansion of small businesses and job creation?

Mr Jestin: The Bank of Nova Scotia, and our chairman specifically, is on record as welcoming increased competition throughout the financial service industry. In fact, we've been on record for some time on the foreign-banking initiative as to basically opening up the doors, making sure that you follow safe and prudent rules, because we think that is the best way of assuring that businesses, or consumers for that matter, get the necessary initiatives.

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We believe the current levels of interest rates are very attractive for business in general. We believe there are adequate vehicles for businesses in a wide variety of areas to meet the types of requirements. Certainly at the Bank of Nova Scotia we've been expanding small business lending very aggressively through the 1990s. All the banks have been doing that.

More competition? I don't think it's a problem. I think more competition is, in many ways, very beneficial.

The Chair: Thank you very much. We do appreciate the Bank of Nova Scotia for putting together a marvellous report and taking the time to come in and present to us today. We appreciate your active involvement.

Mr Jestin: It's a pleasure.

ONTARIO SEPARATE SCHOOL TRUSTEES' ASSOCIATION

The Chair: We now welcome the Ontario Separate School Trustees' Association: Mr Daly, president; Mr McCabe, deputy executive director: and Mr Sabo, associate director of education, York region. Welcome, gentlemen. We have half an hour to spend together. If you would like to make a presentation, we can fill any remaining time with questions.

Mr Patrick Daly: Thank you, Mr Chair and committee members. As you indicated, I'm joined today by our deputy executive director, Mr Earle McCabe; on my right John Sabo, the associate director of education for the York Region Roman Catholic Separate School Board; and joining us Monsignor Dennis Murphy, our director of Catholic education.

The Ontario Separate School Trustees' Association was founded in 1930 and represents the 53 Roman Catholic school boards in Ontario which collectively educate over 600,000 children from junior kindergarten to grade 12. As noted in our brief, the mission of all Catholic school boards and their schools is to create a faith community where religious instruction, religious practice, value formation and faith development are integral to every area of the curriculum. Catholic school boards provide this education according to the constitutionally determined rights of Roman Catholic parents.

We appreciate very much the opportunity to present our brief to this standing committee on finance and economic affairs. It is our intent to set out the funding issues that have an impact on the quality and equality of educational opportunity available to all elementary and secondary pupils in Ontario.

As noted in our executive summary, our brief is split into two areas: part A dealing with the transfer payments and part B relating to capital and transportation. I will focus my comments on part A and then invite Mr Sabo to speak on part B.

On page 6, you'll note that we indicate that our association is extremely pleased that the government will introduce legislation to reform the way we fund elementary and secondary education in Ontario and strongly supports the government promise of fairness in educational opportunity for all children everywhere in our province.

The ability of the education system to deliver programs and services mandated by the province to students in Ontario should not depend on the local property taxes available to that school board. The province must be responsible for the funding of education that is universally accessible. We believe the question of what tax mix should be used should be determined by the province, provided the constitutional rights of Catholic separate school boards are respected.

We look forward, hopefully in the near future, to receiving details of the new funding model to determine how provincial grants will be distributed to each school board. In our brief, we indicate our support for the discussion paper released by the ministry a number of months ago, Meeting Students' Needs. As you will recall, it set out eight principles of education funding as a basis for the new funding model. We endorse these principles and agree that as many dollars as possible must be devoted to the student in the classroom.

We are heartened by the minister's assertion that, "This model will provide funding so parents can be sure that no matter where they live in Ontario, their children have the same opportunity to excel." The minister went on to say: "There's no such thing as a second-class student in Ontario. The new funding model will recognize that different communities face different challenges to providing high-quality education." Again we want to unequivocally state our support for that statement and urge the government to proceed in that direction.

The rights of Catholic boards, as set out in the Scott act, are protected in the Constitution Act of 1867. These rights include the right to levy taxes on separate school ratepayers. We are pleased that these constitutional rights are specifically recognized in Bill 104 and expect and believe that in the upcoming legislation on the funding model these rights will once again be respected. In this regard, we recommend that the government be commended for its commitment to implement a new fair-funding model that achieves equity in educational opportunity for all children in Ontario; further, that the constitutional rights of Catholic separate school boards continue to be recognized in any funding changes.

On page 7 of our brief, we indicate our strong belief that the funding of education must continue to be a high priority for this and future governments. We believe this requires a continued central role for the province in the establishment of standards for health and social support programs for children at risk and funding to implement these standards across Ontario.

In this section of the brief, we indicate our real concern for the impact of the changes as a result of Bill 104 on the staff who work within school boards across Ontario. It is our responsibility to treat justly and compassionately those employees who will find themselves vulnerable in any restructuring. We believe there must be adequate funding so that the redeployment of staff and any necessary reductions can be achieved in accordance with social justice principles.

We go on to indicate that the new allocation model must be based on provincial standards that address the unique funding costs of each board. We outline that issue at length and invite you to read that at your leisure.

On page 8, we discuss an important issue, the need for recognition by the province of realistic costs. You will recall in August that a report was released, a study on costs in education, and the report indicated that Ontario school boards were spending $6,917 per pupil in 1995-96, which was $319 per pupil above the weighted average of the other nine provinces. Unfortunately, the report didn't highlight the fact that school boards do not spend equally and therefore should not be treated as if they all do.

The 53 Catholic school boards we represent are spending less than the average in all provinces save and except for Prince Edward Island. If Catholic boards spent the same amount on a per pupil basis as public boards, the cost would be $1 billion a year greater than what Catholic boards are currently spending.

We, as Catholic school trustees and the staff who work within our system, are proud of our long tradition of the efficient use of taxpayer dollars. We recognize that there is increasing public pressure for less bureaucracy and less duplication of services. Our boards have a long record of lean administrations which can be demonstrated by a recent survey of administrative costs of all boards in Ontario.

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We recommend in this section that the government maintain education as a priority in funding; second, that the transfer payments recognize the realistic costs of delivering programs and support services to provide equal opportunity for all students across Ontario; and third, that the province consult with school boards in the development and refinement of an allocation framework model.

On page 10, although briefly, we speak to a really important issue in the development of the new funding model, and that is the assurance that the new funding model will allow local autonomy, decision-making and flexibility. As you know, there is great diversity in communities across Ontario. Local autonomy is required to respond to the unique needs and priorities of these different communities and, according to management theory, local decisions are more likely to be realistic. A large portion of the provincial grant to each school board should be unconditional to allow each board to meet the specific concerns and needs of each community. In particular, we want to indicate that it must be flexible to ensure that the distinct nature and mission of the Catholic school system across Ontario is promoted.

We recommend, therefore, that there be adequate unconditional funding provided in the new funding model to enable school boards, acting as local and autonomous governments, to accommodate local needs and priorities.

The final issue I'd like to speak to is one that is of significant concern to Catholic school boards across Ontario, the continued funding of junior kindergarten. The educational and social value of junior kindergarten is unquestionable. It is documented in research. The opportunities to develop a strong foundation in socialization, thinking, problem-solving, language and literacy development and physical co-ordination emphasized in junior kindergarten are especially critical for those children who find themselves in situations that limit physical, social and perhaps intellectual growth.

Junior kindergarten is an integral part of elementary and secondary education and therefore should be funded as part of the mandatory program in the new funding model. As well, accommodation for junior kindergarten should be recognized in the funding for new pupil places.

We recommend, therefore, that junior kindergarten be recognized as an essential component of the learning program and, further, that junior kindergarten operating costs and accommodation be recognized for funding in the same manner as other regular programs and services.

Mr John Sabo: The two areas I'd like to speak on are with regard to transportation and capital, which are often overlooked and not considered.

In 1997, provincial transportation grants to school boards will be further reduced by an estimated $39 million in addition to the reductions of $19 million made in 1996. OSSTA is concerned that the reduction in funding for transportation will have a disproportionate, negative impact on separate school boards since most separate school boards are larger in geography than their coterminous neighbours, with pupils dispersed over a wider area.

OSSTA continues to support efforts to identify and implement more cost-effective ways of providing pupil transportation. It is important to recognize three factors in this quest for savings. First, transportation of pupils by school boards is not an end in itself but rather a means to provide educational programs. School boards use transportation as a way of achieving savings across the system. To illustrate: achieving savings by closing small schools with costly pupil-teacher ratios and busing students to nearby schools where space is available. A third factor is that for many school boards transportation is an alternative to address their lack of accommodation caused by lack of capital funding for new school construction.

OSSTA supports a thorough examination, on a case-by-case basis, to determine the most cost-effective ways of providing transportation for students. It is essential that school boards control how and when transportation will be provided in order to ensure that education purposes are served for all students. OSSTA therefore recommends that efforts continue to identify and implement efficient and effective transportation models on a case-by-case basis for transportation of pupils in Ontario.

With regard to capital, capital is an essential component of education funding and, I'll stress, is often ignored.

On January 9, 1997, the Minister of Education and Training announced the government will invest $650 million in school construction over the next two years. We are pleased that the government is honouring its funding commitments for projects affected by the moratorium on capital announced with the 1996 general legislative grants. It is important to note, however, that the provincial program funds only a portion of approved costs. School boards are expected to raise over $280 million of that figure from their local tax base. Questions of course remain as to how school boards are to raise funds for their local share once the residential property tax is no longer available for educational purposes.

Despite the $650-million allocation, the need for capital investment remains high. Many school boards are faced with increased demands for instructional spaces because of rapidly increasing enrolments. Many reports have document this, most recently a report of the Ontario Association of School Business Officials. Many school yards are currently jammed with portables; often 30% to 40% of pupils reside in portables. In other cases, students are being bused some distance, resulting in increased transportation costs. Other boards face the difficulty of aged facilities which require updating.

The funding for capital must be considered an essential component of the new funding model for elementary and secondary education. No distinction, we believe, can be drawn between the delivery of education programs and services to pupils and the physical facilities in which they are delivered. Therefore, OSSTA recommends that the government continue to recognize capital as an essential component of the new funding model for elementary and secondary education.

Mr Daly: Briefly, in conclusion, our association, representing 53 school boards across Ontario, recognizes the challenges we all face in providing an exemplary education in these difficult times. Catholic separate school boards are willing to work together with all parties to provide education of the highest quality and in the most efficient way possible.

We thank you for giving us this opportunity and again urge the provincial government to implement the proposals in our submission.

The Vice-Chair (Mr Tim Hudak): Very good. I thank you. That leaves about three minutes per party for questions, beginning with Mr Pouliot.

Mr Pouliot: Gentlemen, I appreciate your presentation and your candour. I say candour by virtue of the notice that you wish to thank the government for what will be a revised funding opportunity that could perhaps make you comparable to the public school system. I hope you do believe that in the reforms that are being proposed this was the motivator. It was exactly for that reason that during the mega-week proposal the government has chosen to take over what is now the education portion at the residential level. It was only to bring you closer to the public schools. That's why they've done all of us and it takes a great deal of courage.

You mentioned junior kindergarten. You've also mentioned busing. You have mentioned portables that are beginning to be more like permanent portables. Teacher-pupil ratio, I'm sure if you would have had more time, would have been of some concern. Are you familiar with words such as "charter" and "voucher"? Does that ring a bell?

Mr Daly: We're aware of what they are, yes.

Mr Pouliot: You're quite aware of it. You see, I represent our party and I'm not here to criticize. I'm the first one to say the government is doing great when they're doing great.

Mr Rollins: When are you going to start?

Mr Pouliot: You see, I was expecting not too long ago, and I need your help, anywhere from $700 million to $1 billion, because I can see the books like everyone else who is exposed to that. It's not all that complex. They have to find quite a bit of money, because maybe you didn't notice but we're going through a tax break kind of thing. Then they've got to balance the budget at the same time. It's quite a mix, a lot of pressure. They're having a lot of pressure, a rough time because they said all kinds of things before the election and they got enough X's so now they're the government, you see.

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Who's going to negotiate with the school teachers when they come calling for an increase because they haven't had an increase for some time? Do you feel that they're going to get an increase?

Mr Daly: Just to respond to the first part of your question, we'll leave it to others to speculate on the motivation as to why certain things are happening. We want to express our support for this or any government that achieves equality in educational opportunity for all children in Ontario. Our parents and our children have been waiting for over 150 years for that and we think it's long overdue, so we will support any government that moves in that direction.

To answer your question, we strongly believe that bargaining should remain at the local level between the board and the teachers' federation and are hopeful that the funding model will allow for that and would strongly support continuation of that. One of our real strong commitments is to the continued existence of the Ontario English Catholic Teachers' Association. We consider them to be partners with us in the education of our children and look forward to working with them.

Mr Pouliot: Thank you for your emphasis on social justice as well.

Mr Wettlaufer: Mr Daly, thank you for your presentation; it's very positive. I'm a separate school ratepayer. Do you believe that separate school education is any less quality than public school education?

Mr Daly: I would answer that in a couple of ways. I don't believe it's of less quality, but I think because of the inequities in funding, clearly the children in our schools do not have access to resources in the coterminous public systems, and I would say the same is true of assessment-poor public boards not having the same resources as assessment-rich.

Mr Wettlaufer: I wonder if could follow that up. I don't think that it's any less quality of education. I think what the separate schools have done is remarkable considering that they have had less funding over the years, and I think all that does is demonstrate what our government has been saying, that there is an inequity in funding and that there are efficiencies to be found and that we should all be working towards finding those efficiencies, just like the separate schools have done so.

Mr Spina: Thank you, gentlemen and Monsignor, for joining us today. Somebody whom I think you all know, Mr Meany, was in my office just last week and we had this very same conversation, as a matter of fact. No, he didn't bring me this report but there was a lot in it that I recognized and recalled.

Mr Pouliot brought up a point earlier and I just wanted to follow that up a little bit. It was a concern that some people have expressed, I would venture to say, mostly from the public school side about the "danger" of the voucher system, the "danger" of the charter school system.

It was my opinion that this kind of funding structure, for at least the basic services -- because of course there has to be a formula for special services, ESL and some of the other programs for challenged children. But I would think that this kind of funding structure in a fundamental way would be very much in favour of the separate boards. Is that a fair expectation or opinion on my part?

Mr Daly: In terms of the funding model and relating it to the voucher system, I'm not sure that would be a fair assumption. Clearly the directions as outlined in the Meeting Students' Needs document would support the children in our schools as well as in assessment-poor public boards.

Just on that note, I might not get another opportunity but I would like to go on the record as indicating that our association for many years, together with the Ontario Conference of Catholic Bishops, has supported the funding of other faith groups in Ontario as a matter of social justice for the children of those parents, and we would like to see that occur as well.

Mr Cordiano: Thank you, gentlemen, for your presentation. I just want to go back to a couple of points that were made, the point with respect to separate schools and the facilities, where I think we draw the line in terms of where separate schools do not have the same -- they are not on the same footing, there's no question about that. While we can discuss equalized funding, which is a good thing, on the one hand, on the other hand the government is reducing its funding of education overall. So you may get it equalized, but you're going to get a lot less. It might be more equal, but a lot less overall, and I think these cutbacks are having a devastating impact in our schools.

The overcrowding that is seen throughout the separate school system -- my children attend separate schools and it's not evidenced in public schools, to be clear. In some areas where there are high-growth situations, obviously that is a real pressure on those systems.

The capital funding that's been announced, it remains to be seen when that will be implemented and what the rules will be around that, but I'm sure that's being worked out. That's been long overdue.

I think your point here in your brief with respect to autonomy is rather interesting because you still call for adequate unconditional funding to enable school boards to act locally and more autonomously. That isn't going to be the case from here on in. What are your comments with respect to the government's initiatives in this regard with the Fewer School Boards Act and taking over the funding of education throughout the province strictly as a provincial responsibility?

Mr Daly: We've indicated our support for a move in that direction provided that the funding model respects the constitutional rights of Roman Catholic school boards. In terms of local autonomy, what we're indicating is that the funding model should be developed in such a way that a significant amount of it was unconditional for the decision-making at the local level by locally elected trustees. We think that is critically important and one thing that our association will insist on.

Mr Cordiano: Where is the indication that that's happening with respect to the initiatives undertaken by the Minister of Education recently? Have you had some assurance that is the direction they are moving in or that there is anything to indicate that would be a provision of his policies? I haven't seen it, so I'm wondering what your insights are that aren't the same as ours.

Mr Daly: I could ask Mr Sabo to comment more specifically maybe on the funding model, but we have received assurances, although no one has seen the new funding model, that that flexibility will be provided in that new funding model.

Mr Sabo: We haven't seen the details of the discussions we've had. Going back to the government on Meeting Students' Needs, the concept that's being advanced is dollars per pupil being equal and equalized and allowing it more on a block grant basis. We have been lobbying, and so have our public board counterparts, to have that amount allocated to individual school boards and let them prioritized what they would like to do with it.

Mr Cordiano: But that's not what the government's agenda is.

The Vice-Chair: That's all the time we have. Gentlemen and Monsignor, thank you very much for your presentation. Have a good evening.

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ONTARIO CONFEDERATION OF UNIVERSITY FACULTY ASSOCIATIONS

The Vice-Chair: The next group has just arrived, the Ontario Confederation of University Faculty Associations. Folks, welcome to the standing committee on finance and economic affairs. Thank you.

Mr Michael Piva: I am Michael Piva. I'm the president of the Ontario Confederation of University Faculty Associations. I'm accompanied by Donna Gray and Mark Rosenfeld, who are both professional staff officers with the confederation.

OCUFA would like to thank the standing committee of finance and economic affairs for the opportunity provided for presenting our views, which represent the views of 11,000 university professors and academic librarians across Ontario.

For many years OCUFA has attempted to document to this committee what we see as the corrosive effects of over two decades of inadequate funding for our universities. Despite these efforts, the university system continues to bear the brunt of successive governments' decisions to disinvest in higher education and increasingly shift financial responsibilities to students and others in the private sector.

OCUFA, however, would like to view the upcoming provincial budget with a renewed sense of hope and optimism for the future of our universities. The reason for that optimism is two independent reports that have recently been released. The first of these came in December 1996 and it is the Advisory Panel on Future Directions for Postsecondary Education, which added its voice to the many others decrying the abysmal state of underfunding in the post-secondary system.

This panel was established by the Minister of Education and Training in July 1996 to make recommendations on the appropriate sharing of costs among students, the private sector and the government; to identify ways to promote and support cooperation between colleges and universities and the secondary school system; and to provide advice on meeting the expected levels of demand for the post-secondary sector.

The second reason for our optimism follows from Finance Minister Ernie Eves's statement in November 1996 which indicated that the government expects to exceed its deficit target of $8.2 billion this year, as economic growth is rapidly outpacing the government's original projections.

Private sector forecasts for the next two years paint a picture of an Ontario economy characterized by continued economic growth in output and jobs, a declining unemployment rate and very low inflation. As the finance minister states in his Economic Outlook and Fiscal Review, the Ontario economy has turned the corner. We believe that the time has come for the government to reinvest in those institutions which contribute to Ontario's long-term economic growth and we believe that foremost among those institutions are Ontario's universities.

For many years, Ontario has been falling behind the other Canadian provinces in operating grants for its universities. Ontario now ranks last among Canadian provinces in operating grants, no matter how measured.

The cut to operating grants last year, the current academic year, was five times higher than the average in the other nine provinces. This has greatly accelerated the funding gap between Ontario and the rest of Canada.

Ontario universities are also becoming increasingly uncompetitive when compared with American universities. In the two-year period from 1993-94 through 1994-95, while Ontario grants were cut by 2%, state appropriations in the United States increased by 8%. Ontario then cut 16% from operating grants in 1996-97. Perhaps most ironically, the more the Ontario economy has invested in high technology and knowledged-based industries requiring post-secondary graduates, the fewer resources the government Ontario government has been prepared to spend on the necessary education.

Between 1980 and 1996, the proportion of Ontario's manufacturing value added provided by high-tech products and information-based technologies increased from 9.6% to 18.1%. Since 1985, 95% of all net new jobs have gone to those with post-secondary degrees or certificates. Despite this, between 1980 and 1996, the universities' share of total provincial government spending decreased from 5.5% to 3.4%, while enrolment in our institutions increased by 34%. Even as recently as the current academic year, government operating grants to universities were cut 16%, while the provincial government spending overall declined by approximately 5%.

The Minister of Finance clearly understands the connection between higher education and economic growth. In his November 1996 economic statement, the Minister states: "Education provides a competitive advantage by boosting productivity and innovative capacity. Higher education is particularly important in today's knowledge-based economy."

We believe that now is the time for the government to act and to invest in economic growth by reinvesting in our institutions.

On the basis of the evidence presented in 185 briefs, the Advisory Panel on Future Directions for Postsecondary Education concluded that "the high quality of the post-secondary system cannot be sustained in the current financial environment.... Ontario must accept the principle that the total resources available to our colleges and universities must be similar to the total resources available in the colleges and universities in other jurisdictions in North America."

The advisory panel calls upon the provincial government to renew its financial commitment to post-secondary education and, again, I'm quoting recommendation 2 of the advisory panel:

"We recommend that the provincial government support of universities and colleges in Ontario be comparable to the average through other Canadian provinces and be reasonably in line with government support of major public university and college systems in the United States. This goal should be achieved by arresting reductions in government grants now and by building towards this goal over several years in ways that strengthen excellence and accessibility."

OCUFA recognizes that in freezing funding to Ontario universities for 1997-1998, the government has taken the first step towards fulfilling this recommendation. We would remind the government, however, that the increase in consumer price index for Ontario for the past academic year averaged 2%, thus further eroding the funding base of Ontario universities. At an absolute minimum, a 2% increase for the 1997-1998 is required merely to keep our universities at the same real dollar funding level as 1996-1997.

The freeze in the current year is clearly insufficient if we are to arrest the further damage created by a 16% cut in funding in 1996-1997. To accommodate those, payroll costs have been reduced by layoffs, by leaving vacant positions unfilled, by additional losses to early retirements, by days without pay and by salary cuts. These have all be required to reduce our costs. Maintenance costs to aging university infrastructure has again been deferred. These clearly are stopgap measures within our institutions and they cannot provide long-term solutions to the universities' dire financial circumstances.

OCUFA recommends that for 1997-1998, the Ontario government restore university funding to the 1996-1996 level of 1.843 billion. This we believe is only a first step in achieving the advisory panel's recommendation. In future years, additional funding would be required if we were ever to approach the national average.

The advisory panel also recognized that investment in the research function of Ontario's universities is fundamental to keeping Ontario competitive in a global economy. We in Canada spend far less per capita on research and development than almost every European country, and we spend as half as much as the US and Japan. Moreover, Canada relies upon its universities for fully one quarter of its total research.

The proportion of grants from the federal research councils received by Ontario universities meanwhile has declined, from 42% of the national total just over a decade ago to 36% now. This is less than Ontario's share on a per capita basis.

Certainly, a part of our research difficulty stems from the policies of the three federal granting councils to fund only the direct costs of peer-adjudicated research. In 1986 the minister established a research overheads and infrastructure funding envelope in order to cover some of the indirect costs of sponsored research. At the time, the Ontario Council on University Affairs, OCUA, acknowledged that $25 million put into that fund was only partial recognition of the shortfall in funding in research overheads. Since then, the amount in the envelope has declined, both in real dollars and relative to Ontario's share of federal research grants.

OCUFA supports the panel's recommendation to increase the value of the overhead and infrastructure envelope to approximately $100 million annually. The advisory panel pointed out that the current fund of $23 million does not represent full cost recovery and is contributing to the deteriorating infrastructure within our institutions. It is also making it more difficult to attract and retain top researchers and scholars.

The advisory panel concludes that government funding of university research, particularly of the indirect costs of research such as libraries, equipments and facilities, has clearly been inadequate to now.

The panel also recognizes that in order to remain competitive we must offer competitive compensation packages and strong research support to our scholars. The panel acknowledged in its reports, "Problems are already beginning to emerge with respect to active scholars leaving Ontario universities and the difficulty in attracting first-rate junior and senior scholars to Ontario universities." OCUFA agrees with the panel's assessment that the cause of such difficulties lay in the loss of competitiveness associated with "working conditions (heavy teaching and administrative loads), inadequate support for research, and to a lesser extent, uncompetitive salaries."

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Between 1990-1991 and 1994-1995, the number of full-time faculty at Ontario universities declined by 890. Since then we have lost additional faculty members because of the early retirement packages that were put in place after last year's funding cuts. Clearly, the need for faculty renewal in Ontario is pressing.

The endowment funds approach to faculty renewal as recommended by the advisory panel represents, in our view, at best a panacea to what is a fundamental problem. Universities need sufficient base operating grants if they are to hire the faculty necessary to meet the demand for post-secondary education.

On the issue of tuition, OCUFA always starts from the principle that post-secondary education is a right of citizenship and must remain available to all qualified students. Our fear is that riding tuition fees will become a disincentive to attend as rising costs and compounding debts lead students to turn away from our institutions.

All of the evidence, including the government's recent discussion paper, makes clear the rising demographic demand for post-secondary education. The government instructed the advisory panel to look at ways of accommodating the expected increase in demand of up to 10% over the next decade. Moreover, this demographic demand is compounded by the economic requirement for increasing numbers of graduates.

In October, OCUFA pointed out to the advisory panel that there was already some evidence to suggest that there was a slight decline in enrolments in post-secondary institutions in this province. Now, four months later, statistics on 1997-1998 applications show a 2.5% decline. In some northern universities the decline in applications is reported to be as high as 20%. Escalating tuition is poor public policy in our view when it constructs barriers to access at a time when demand for access and demand for graduates has never been higher. Institutional budgets meanwhile become increasingly sensitive to enrolment and therefore become less stable as increasing tuition becomes a larger and larger portion of total institutional revenue.

The advisory panel recommended the implementation of a corridor funding system for the community colleges precisely in order to free them from the "unproductive competition for students" which results from an enrolment-driven formula. The community colleges effectively argued before the panel that their enrolment-driven formula "skews institutional behaviour towards quantity over quality."

OCUFA believes that the very problems the panel suggests be avoided in the community colleges will resurface in the university system as tuition rises, accessibility declines and funding becomes increasingly enrolment-sensitive. While tuition is likely to remain a significant part of the funding environment, tuition revenue cannot provide system-wide stability inherent in adequate basic operating grants distributed through the corridor funding model.

There is no doubt that implementing the advisory panel's recommendations will require the government to substantially increase its investment in the province's universities. Based upon Ontario's economic outlook for the short and medium term, we are confident that the government can begin immediately to implement the panel's recommendations while continuing its program for deficit reduction.

The Institute for Policy Analysis at the University of Toronto is projecting real GDP growth for the Canadian economy of approximately 4% in each of 1996 and 1997. Ontario is expected to lead the country in growth in 1996, with annual growth perhaps a full percentage point higher than in Canada as a whole. Employment growth is expected to be robust over the next two years, with inflation remaining below 2%. CIBC Wood Gundy economists meanwhile estimate that the fiscal policies currently being pursued by the two levels of government have lowered the real rate of growth in Canada by 1.6% in 1995, by 1.4% in 1996 and will lower it again by 1% in 1997.

Now that the fundamentals in the Ontario economy are strong, and projected to remain strong at least through 1999, this committee should recommend that the provincial government end the drag on growth created by the current fiscal policy of spending and tax cuts, and by selectively increasing spending in those areas of the economy which contribute directly to economic growth. It's crucial that the upcoming provincial budget recognize that building for a strong economy in the future means reinvesting in the province's universities now.

The government's Advisory Panel on Future Directions for Postsecondary Education has concluded that government financial support for the university sector is seriously inadequate and puts our universities' competitive position in North America dangerously at risk. OCUFA calls on the government to rectify this situation in the 1997-98 budget by implementing two of its recommendations: first, that the Ontario government restore university funding to the 1995-96 level of $1.843 billion as a first step in implementing the advisory panel's recommendation of raising operating grants to the national average; and second, that the Ontario government implement its advisory panel's recommendation to increase the size of the research overhead and infrastructure envelope from its current level of $23 million to $100 million annually. These two measures will allow all universities to hire the faculty they need to meet the growing demand for post-secondary education and to provide for all faculty competitive working conditions and research support.

As the provincial government develops public policy to position Ontario in the global knowledge economy, reinvestment in Ontario's universities must be a cornerstone of its strategy. Education should not be seen as a cost to the government. Public funding in post-secondary education is an investment in the development of this province's human capital, which pays substantial dividends to both the community as a whole and to the government. This government has the means, we believe, to make the investment. All that is uncertain at this point is whether it has the will. I thank you for your time.

Mr Wettlaufer: There's so much I want to ask and so little time to ask it. I'll start with the CPI. You say that it's averaged 2% for the past academic year and that it eroded the funding base of Ontario universities. For years and years and years, almost a whole generation, I've heard the argument that everybody should have wages increased to equate with the CPI, and I think that is one of the concerns that has got us into the problem we're in.

The CPI is a faulty measuring stick. As you're aware, the CPI is made up of the cost of all goods and services, and not everyone who purchases goods or services is affected equally. I suggest that you might only be affected by 60% or 70% of the components which make up the CPI, and it's quite possible that the universities could get by with 1.5% or 1% or perhaps a reduction. I would suggest that's something we should be looking at. Instead of comparing to the CPI, let's look at what our actual costs are.

Another thing that I really want to address quickly is the R&D expenditure. Historically, universities in Canada have considered themselves above obtaining funding from private industry, and I think it's only recently that they have started to market themselves to industry to obtain funding. I know of many, many companies that would love to give money to universities to assist them in their R&D work. Perhaps this could be addressed as well. I'd better quit here, because my colleagues won't have a chance.

Mr Piva: I would agree that the CPI is an imperfect measure for university costs, but university costs have clearly been increasing because of inflation. Perhaps you're right, perhaps I shouldn't use CPI and we should have better costing. I don't have access to a precise number, so I have used CPI as a surrogate, but I would agree with you that it is not precise. It is, however, I think representative of the problem of declining real dollars.

On the issue of research and development, I would disagree with your notion that universities have never been interested in these things. Perhaps we haven't been interested enough.

Mr Wettlaufer: Not nearly.

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Mr Piva: But I think universities have gone after private sector research dollars. I think they have been doing a good job over the last little while in improving their record there. I think they need to improve their record in that area. But the reality of the university funding situation is that even if we were to double the contributions from the private sector through research funding, it would make only a small impact on the basic financial situation of the universities, because those contributions represent only about 4% now of the total university revenues. I would agree that we must do more in this area, but I caution that this is a real solution to the underlying underfunding issue because again it represents, even if we were to double, 8% of revenues.

Mr Spina: Just quickly, thank you for a well-researched document, obviously part of the advisory panel stuff. I'm not sounding too intelligent. I apologize; it's a late day. The only question I wanted to ask you was --

Mr Cordiano: That's the final word from the Tory caucus, "We're not sounding too intelligent."

Mr Spina: Thanks, Joe. You want to burn that up?

If we were trying to find more dollars to be able to allocate to the universities on a per capita basis, would you say that we have more universities on a per capita basis in Ontario, which puts a capital cost burden on the post-secondary system in this province higher than any other province in Canada?

Mr Piva: I'd have to agree to a degree, but I don't think it's really germane to what I see as the underfunding issue. Certainly, given the nature and the size and the geographic spread of our population, the need for northern universities, for example, we do have a relatively large number on a per capita basis. I think, however, if you combine the basic operating grants, the infrastructure envelope grants and the capital expenditure grants, we still fall well behind the other Canadian provinces in terms of financing.

Yes, to some degree our costs might be a little higher because of the geographic spread of our population within the province, but that's just the nature of the Ontario reality we have to face. There may be some additional costs. It doesn't, however, obviate the more underlying problem of our expenditures on a per capita basis, even including capital expenditures, being low, significantly low, relative to other Canadian provinces and also, and I think more importantly, declining relative to our competing jurisdictions in the United States.

Mr Cordiano: I want to thank you for this brief, because I think it clearly points to the erosion of our system of post-secondary education in this province, and it's a stinging indictment of this government. This government is now approaching the halfway mark of its administration, and I think it's quite clear from your brief that we have serious problems in the system. You talk about the loss of faculty. You talk about the lack of adequate funding for research.

With respect to tuition fee increases, I'm glad to see that you've pointed out that the substitute is not income-contingent loans and that those would solve all of the problems and are sort of panacea, because we happen to believe in our caucus that deregulating tuition fees and allowing universities to increase tuition fees at will is going to be a serious problem for students right across this province from different income groups. It's not sufficient to say we'll have income-contingent loans to repay these debts over a period of time when students and young people are saying, "There are very few jobs out there, and should I graduate with a huge debt load, it becomes a real disincentive." I don't think that's the answer to our problems.

The fact of the matter is we have a serious shortage of funding, as you've rightly pointed out in your brief, and I think it's quite interesting, as you point out as well, that government operating grants to universities were cut by 16% while provincial government spending overall declined by approximately 5%, rather interesting. This makes the point that it's the system that's been targeted and post-secondary education has really felt the brunt of these cuts. That's more by way of comment and just to agree with your brief.

I'd like to ask you what, if any, response you have received from the minister in terms of your brief and your concerns. Has there been any hint or suggestion that he would like to move by increasing funding for research, that there are any initiatives being taken to mitigate against the high cost of tuition fee increases?

Mr Piva: We didn't present our brief to the minister, but I did meet with the minister last week and we discussed issues that arose out of the Advisory Panel on Future Directions for Postsecondary Education. My view was that the minister did recognize that there was a problem. In the discussion -- we had a very short discussion last week; I hope to be following up with the Ministry of Education and Training -- he didn't signal that the ministry was prepared to act immediately. He did not commit itself. However, I think the meeting was productive to the degree that we were able to point out our concerns to the minister and he, to some degree at any rate, recognized the problems that were addressed by the advisory panel. Again, the response was non-committal at the time.

The ministry is looking at issues. I'm very hopeful that we will see some progress in the next couple of years and I would hope that this committee's recommendations on the budget will reinforce what I see as some hopeful signs. I think it's important that this committee reinforce that.

Mr Pouliot: Welcome, and I appreciate the confidence you have in the committee. It will make recommendations, but you know only too well that at the end of the day the majority shall have its way. It's not supposed to be this way at the committee level, but this is at the end of the day where the direction is, that the majority will recommend; the Progressive Conservative Party of Ontario will come up with a budget.

I was somewhat surprised. Ontario is now last in terms of transfer payments. Regardless of the methodology, by whatever standard, we're last in terms of transfer payments?

Mr Piva: Currently, yes.

Mr Pouliot: You have indicated also there's a decrease in enrolment. Is a much higher tuition fee the catalyst or is it many things put together?

Mr Piva: It's difficult to judge now. I may have misspoken myself. We have not seen evidence of a decrease in enrolments. What we have seen is a 2.5% decrease in the number of applications to the system. There has been a slight decline in numbers in a few institutions this year, and the indication on the basis of applications is that there will be a decline next year.

I believe it's related to the disincentive of costs that we are seeing, with a 58% increase in tuition fees over the last little while. We have been worried about this and we pointed it out to the advisory panel last October, but at that date, we had only limited evidence. We now have more.

Clearly, if you look at the government's discussion paper that went forward to the advisory panel, they asked the advisory panel to plan for a 10% increase in demand, and every indication is that that's what we should have expected. I believe the only reason we're seeing a decline in applications is the disincentive of costs. I believe it is a serious problem.

Mr Pouliot: If you have a decline in applications, its natural evolution would lead to a decline in enrolment.

When I listened to your presentation, I began to wonder -- I've heard things talked about such as private universities etc. At one time, if you weren't very gifted -- if you were, you could get a bursary -- you had to be well-off to go to university. You had to come from an upper-middle-class family in most cases. It's so vital to the future of the nation and the world community that we educate. That's the only way out. That's the best we have. When you mentioned that you would like to see the budget -- $1.43 billion, did you say? -- match the 1996 level, how much is that? What would be the increase necessary? Would it be $20 million, would it be $150 million?

Mr Piva: The current level is $1.548 billion. We're asking that it be increased back to 1995-96, and at that point it was $1.8 billion. We would like to see it restored. I would remind you that $1.8 billion is still below the national average, which was what the advisory panel recommended.

The Vice-Chair: Thank you, Mr Piva, Ms Gray, and Mr Rosenfeld in the back, for your presentation this evening.

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ONTARIO COALITION FOR BETTER CHILD CARE

The Vice-Chair: Our next deputation is the Ontario Coalition for Better Child Care, Kerry McCuaig. Good afternoon, and welcome to the finance committee. You'll have 30 minutes for your presentation.

Ms Kerry McCuaig: My name is Kerry McCuaig. I'm the executive director for the Ontario Coalition for Better Child Care. You'll be receiving the brief our organization prepared. In the interests of time, I'm just going to highlight a few points from it.

One is that since taking office, this government has consistently cut funding to child care. The cuts are listed on page 2. The new money for child care announced in last spring's budget has not materialized and the Premier has now admitted that provincial spending on child care will be less in 1996-97 than in previous years. This is unprecedented. No previous government has ever cut funding for child care. Recognizing the changing nature of the workforce, governments have consistently expanded funding for child care.

The government appears intent in pursuing this line in two areas, both by continuing to cut funding for child care and through policy changes which will have a big impact on both the quality and accessibility of child care. We want to note that to date the cuts have had a major impact in that 9,000 of Ontario's 70,000 child care subsidies have been eliminated in the last 18 months; there are waiting list freezes for child care across the province; waiting lists for child care continue to grow; and child care programs have closed.

We are looking at two major announcements made in the last couple of weeks. One is that there will be a new funding arrangement for child care: Municipalities will be expected to increase their current contribution for child care from the current $63-million contribution to $330 million, an increase of over 400%. The other change we saw is that municipalities were instructed to make child care a mandatory service. Mandating child care is a positive step; however, as the Toronto Star noted in its lead editorial this week, making child care mandatory without the money to pay for it or setting out standards is a recipe for disaster.

Coupled with this we see other policy changes. In child care, sometimes policy changes can have more of an impact than funding changes. We see that municipalities are being instructed that they must maintain their current level of child care services but they do not necessarily have to maintain them in the regulated sector. This is probably the worst policy change we have ever witnessed and it will result in the collapse of regulated child care.

What we have seen is a complete change in the way child care has been funded since 1990. In 1990 the federal government contributed 50% for the cost of child care, the province 30% and the municipality 20%. We now see that this is completely flipped around, with the municipalities being made the largest contributor towards child care, being expected to contribute 50% of the cost while the province and the federal government share the other 50%.

When we take these budget changes and policy changes together, it means it will be difficult to maintain the level of child care that now exists and it also means there can be no growth in child care.

I want to highlight some things, particularly for the government side. I've noted from some of your minister's statements that there is a misrepresentation of what child care is. It is relatively, on the provincial agenda, a small service, but the reason it's a service that doesn't go away and a service you always hear about is because parents need child care.

There has been a statement that only 10% of children are cared for in regulated care and the rest are cared for in the informal sector. That is a fallacy which probably makes you wonder, if it's such a small service caring for so few children, why it is that you hear about it so often. The reason you hear about it so often is because it's inaccurate that only 10% of children are in regulated care. That figure comes from a national survey which looked at children between the ages of zero and 13, and it's quite true that there's not a lot of 13-year-olds in child care.

When we look at the main child care years of between two and six, 35% of children are in child care. When parents look for alternative care -- the majority of them care for their own children, 44% of parents in shifts; you know, mom works days, dad works nights. That's how they provide child care. In fact, only 23% of children are cared for in the informal sector where money changes hands. Nevertheless, this seems to be the area to which the government seems to want to redirect funding, the informal sector.

From the government side, when we monitor your announcement about what you would like your agenda to produce, we find we have a lot of things in common. On pages 5 and 6 of my submission -- and by no means is the research exhaustive -- I've outlined highlights of some research on the impact of early education on reaching some of the goals you yourself have stated are important.

One is that if you want children to do well in school, one of the first places to start is with quality early education programs. The National Forum on Health in 1997 just said that a key determinant of health in children and adolescents is quality early education programs. The National Forum on Crime Prevention has just stated that a key component in the prevention of youth crime is early education care programs. Canadian research shows that welfare costs can be reduced by supplying child care. Child care also has a proven record as a support for children at risk, for reducing child poverty and for economic stability.

The one thing that all the research is unanimous about -- and for such a small service, child care is very well researched -- is that if you want to get the benefit of child care, it has to be high-quality child care. From our organization's point of view, we'd like to appeal to the government that if you're not prepared to put public funding into high-quality child care, then don't put any public funding in. It is worse to provide poor-quality child care than it is to provide no child care.

There's an assumption on the part of parents that if there is public support for a program there will be regulations, there is a level of quality that is guaranteed. If you don't plan to provide that quality, don't mislead parents in terms of funding it. I'm not trying to be alarmist here, but the research is unanimous that poor quality care is actually worse for children than no care at all and that even the best parents cannot compensate for children being in poor-quality care arrangements.

It's for this reason that our organization and others like us are particularly alarmed that the government is looking at redirecting public funding into an area of care for which there is no public accountability and for which the research overwhelmingly shows that the level of care is inadequate.

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I would like to point out one of the studies to you on page 7 of the report. It seems that in the last week this government has listened to people in Metro Toronto who said they did not want a US-style city. What we are saying to you is that we do not want US-style social programs. When we look at the way child care is funded in the United States, a large amount of the money, in fact the majority of the money, goes in what are called direct payments to parents and then parents are free to go shopping around in the marketplace for the care they want, which is largely in the informal sector.

US studies show, and this I think is very alarming, that 9% of care produced this way is actually rated as good quality; 56% is rated as adequate, that it does the child neither harm nor good; but 35% is rated as inadequate. "Inadequate" is defined as harmful to the health and safety of the child. There is a situation where public funding is being used to put children into care arrangements where one in three are actually harmful to the child's health and safety. This is a US-style model. This is the model which the government is moving in the direction of and this is a model which we'd like to urge you not to move into.

There is another point we'd like to emphasize, that is, that built on this is that public funding for child care must be accountable. If funding goes into the informal sector, there is no accountability for that funding. We do not know what we are buying. We often end up paying twice this way. I'll give you an example from Alberta where a colleague of mine runs a child care program which receives additional funding from the federal government. Children who receive subsidies in Alberta's informal child care sector are bused to a half-day program to get what's called a head start program. Here we have children who are funded once in terms of having a subsidy for informal care and then have to be funded twice for this head start program to make up for the fact that the care they are getting in the other half of their day is inadequate. This is just one example of poor use of public funding. It's paying for a service twice.

What we hear often is that child care is too expensive and that is why the government is contemplating the direction it is. The average cost of a subsidized child care space in Ontario is $6,400. That's on a par with what Ontario pays for public school education. I think this says something. When we're looking after children who are under five, it's more labour-intensive; these children need, if anything, more intensive care and we're spending no more on them than we're spending in the public school system. When we look at child care where there is no administration, where there is no infrastructure cost, next to none, where 85% to 90% of the costs come in staff costs, we're getting quite a good price for child care. I would argue that it's not expensive.

In terms of maximizing what public funding there is for child care, we're urging you to look at spending public funding on child care in a way which enhances funding partnerships with other parts of the community and other levels of government. Child care in Ontario is a $1-billion service and 50% of that funding comes from parents. However, some of the government's stated policy direction would undermine that partnership. Let me give you a few examples.

One is that by eliminating the wage subsidies, if programs have to compensate for the loss of the wage subsidies by charging parents, it would cause fees to rise by $15 a day. For many parents, child care is already their major cost. They cannot assume those kinds of increases. If the wage subsidy is removed, full-fee-paying parents will leave the system, and if anything, subsidies will then become too expensive both for the municipalities to provide and in terms of the user fees which will be placed on subsidized parents.

When the government talks about targeting child care subsidies to families most in need, what they don't recognize is that this is a very expensive way of providing child care, and it eliminates that large amount of money that comes in child care user fees from families who are subsidized. To look at Metro Toronto alone, Metro Toronto currently spends $27 million for its share of child care funding; $18 million of that comes from the parents who are subsidized. If you go and start targeting those subsidies to a narrower and narrower income range of parents, what you're doing is taking out of child care those large amounts of money paid by parents who are now receiving partial subsidies.

By eliminating the major capital fund, this government has just left itself out of the possibility of forming partnerships with the federal government around its infrastructure program. Again, if we use Metro Toronto as an example, they have put aside capital funding for child care in order to be able to access federal infrastructure money.

Also, with the changes in educational funding the government is looking at -- 40% of child care in Ontario is in schools. Public education benefits from this but child care also benefits from this. What we're hearing from the school boards is that if these changes go through as contemplated, there will not be any room for child care in the public education system.

Finally, public spending on child care should produce public support. What is unique about child care in Ontario is that there is a mixed-income user base, that families across an income spectrum use child care, and because there is that range of access there tends to be more public support for child care. If we are going to have public spending, we should spend it in such a way that it's accessible to a wide range of families in order that there be public support.

Our recommendation to you is that this can be increased, that we can look at a larger sliding income scale so that those moderate-income families who are now spending millions and millions of dollars in the underground economy in child care could bring that money into the regulated sector. The government would also have tax revenues from this.

Finally, just a quick point on the integrated child tax benefit, that wonderful go at child poverty that we saw in the federal budget. Our remark would be that this is hardly a child poverty strategy, that if the federal government was interested in child poverty the money would go to all children who are poor. That's not the case. What we have is a welfare reform project under way in partnership with the provinces. The main thing that child benefit ignores is that if parents are going to make the leap from welfare to the workforce, they must have child care and that child care should be good. Thank you.

The Chair: Thank you very much. That leaves us about three minutes per caucus for questions.

Mr Cordiano: I particularly enjoyed your brief, because it sets forth a number of concerns which have been largely overlooked by this government. On a scale of priorities, child care has been sliding off that scale in the recent past. We need to better understand the link and the relationship between child care and providing good child care and what happens in our economy.

Just as the environment has taken a back seat to what's going on in the economy, so too has child care, and for that matter, concerns regarding women and their situation in the workplace. We have to elevate that and understand that it's not just women who are affected but entire families who suffer as a result of the lack of proper child care.

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Your comments with respect to the downloading -- as you quote the Toronto Star, making child care mandatory without the money to pay for it or setting out standards is a recipe for disaster. Those standards will not be maintained throughout the province.

Can you elaborate further on that? I think what we're seeing is a government that is determined to use the private sector in many fields to deliver essential services such as child care. We're going to see an increase in privatization and an erosion of standards. I'm trying to square that with what this government is doing by mandating and then setting standards that I think will be at sub-par levels compared to where they are today.

Ms McCuaig: The approach the government took around downloading and based on the discussions they're now having with municipalities is that rather than taking the steps they've outlined in the Ecker report, many of which received such a negative response from the community at large and from the media -- this also is being downloaded to the municipalities but the municipalities are being given what's called flexibility in order to provide child care.

I highlighted one issue, which is that they must provide child care but not necessarily in the regulated sector, that they can move their funding into the informal sector. There will be a great deal of pressure on municipalities to do this because not only is the cost per space less, but in doing so they are not responsible for their share of the wage subsidy and they're not responsible for licensing. By definition, if it's informal it's not licensed, it's not monitored. There will be great cost pressures on municipalities to go that route.

The other issue is that what the municipalities are being told is: "Don't worry so much about the cost. When our new legislation comes down, while you'll have staff looking after more kids, you won't have to worry about some of the more costly items in the Day Nurseries Act. You can control costs that way." Again, it leads us back to this: Don't fund child care if you're going to fund it badly.

Mr Pouliot: Ms McCuaig, your presentation could not be more apropos. Most people recognize that there is a need. I wish I could be certain that the needs you've addressed will be addressed in turn by the government. This is a government that when it has a choice between child care, women and banks, the banks win every time. This is a government that on the one hand puts tens of thousands of dollars through a tax break to people who need it the least -- in its extreme, bank presidents, who make $2.5 million, $3 million with options, a year -- and the very next day announces they are shutting down 11 hospitals. That's the kind of world we live in. It doesn't make much sense to some.

With child care, the downloading, what about standards?

Ms McCuaig: There are none. There are very few.

Mr Pouliot: We know the exercise is not revenue-neutral. We know very well they're going right to the very heart. When it comes to social programs, it is the people who can least defend themselves, those who don't vote or are too young to vote, those who don't have the clout of money, who are asked to carry the agenda of these people. When it comes to the human dimension, when it comes to caring for those who are less fortunate, they cannot resist the seduction of those who can run the fastest. They've made their choice. For the rest of us, what you're looking at is the erosion of the middle class.

I wish you well. We'll be on your side. We'll fight the fight together, but it's going to be difficult, especially in the next two years, until the electorate of Ontario do what inevitably they shall do, but they'll have to wait a couple of years to do that.

Mr Martiniuk: I can't help but comment. I can't imagine a government that has done more in this country to eliminate the middle class than my friend from the third party.

However, I thank you for your presentation here today, but there's one basic philosophy I have some real difficulty with. When I was in economics some time ago, in the late 1950s and early 1960s, our friend Laski from the London School of Economics and his preaching of universality was the conventional wisdom, as Galbraith once put it. I can understand that. To me, it was a very good thing at that time.

With the shrinking pie -- we've set up a social system which depends upon an unemployment rate of 5% or 6%, and all of a sudden the pie has got a lot smaller, not just for ourselves but also in Europe. They have an unemployment rate in France, as you know, of 12%. Germany is there. We're all having difficulty coping with the pressures and the needs, and there's no doubt there's a need for child care. We understand that, and I agree with everything you've said in that regard.

My problem is, how long can we continue to subsidize the wealthy or the middle class? That's what a wage subsidy on child care staff does. In effect, what's the morality of taking money away from people who are really needy and providing it to people who are making $60,000, $70,000, $80,000 a year? Because of the shrinking pie, I've had to change my mind, because I think it's more important to benefit those who are really in need than to subsidize my friend's "rich friends," as he wishes us to do.

We could come out with a program such as Mr Martin has -- their cousins, the federal Liberals -- come out with smoke and mirrors and say we're doing something.

Interjection.

Mr Martiniuk: We know it's a farce, and that's why he's getting a little excited there, because he knows that too.

What are we going to do about universality? That's what you're advocating.

Ms McCuaig: No. What I'm advocating, and I tried to be very clear here, is that when we spend public money it should produce more money. By having that funding in child care, by having that wage subsidy in there -- I'm not going to argue with you that that isn't a subsidy for middle-income families, but without that subsidy, middle-income families would not be able to afford child care. Don't forget, they put in a great deal of money.

If your daughter wants to buy an infant space in Metro Toronto right now, she's going to be spending $1,200 a month. That's with the wage subsidy.

Mr Martiniuk: Oh, I see. So it's not universality; we're arguing about how high the level should be, that's all. But there should be a needs test. You do agree with that?

Ms McCuaig: I am urging you that if we really want to have a partnership between parents out there who are using child care and the public funding that goes in, what public funding should do is produce more parent revenue. The way to produce more parent revenue isn't by targeting it to those in most need, because if you do that, you lose the parent revenue, not an insignificant amount; $500 million of parent revenue goes into child care. If you want to change the way it operates to target it, to force the middle class out of it, what you're doing is forcing the $500 million out of it. You're losing that partnership you now have between an income range of parents who are paying a share of the cost of child care along with those who are more heavily subsidized.

Mr Martiniuk: What would happen if you don't do this? Does it mean they're out of the market totally?

Ms McCuaig: Absolutely. If you take away the wage subsidy grant, the cost per day of child care for that infant space goes up 15 bucks day. Already for many parents, child care is their most major cost. We can't pretend that you can raise child care 15 bucks a day and you're still going to have those parents using regulated child care. They can't afford to.

Mr Martiniuk: Then we're in agreement that it's a matter of need and examining the needs rather than doing an across-the-board subsidy to the wealthy?

Ms McCuaig: No. What we're talking about and what we've been arguing for some time now is that what we need is a graduated income tax which goes across a wide range of income users. Maybe I can't spend a thousand bucks a month for child care, but I can spend $600; right now, if I can spend $600 I don't have a space; I have to spend that in the informal sector. In Metro Toronto alone, that informal sector is $450 million.

Mr Martiniuk: The problem is that by subsidizing wages, you lose control of your means test. That's the problem. There's the basic disagreement.

Ms McCuaig: What the research shows is that good child care cannot be supported through parent fees alone, even if they are subsidized. It brings us back to the fact that without that public funding going into child care, what we're going to get is bad child care programs, and that's not in anyone interest.

The Chair: Thank you very much. That brings us to the conclusion of our day, the conclusion indeed of these hearings. We thank you very much, Ms McCuaig, for your presentation to us today.

We have the business of a subcommittee meeting at some point in time. We have a vote coming up in the House. Perhaps, with the committee's approval, we could have a conference call subcommittee meeting next week. Would that suit the needs of the committee? We have to decide on Bill 106. Okay. We will do that next week, clerk, if you can arrange an appropriate day.

Thank you very much. There being no further business to bring before the committee, the committee stands adjourned.

The committee adjourned at 1803.