PRE-BUDGET
CONSULTATIONS
CREDIT UNION CENTRAL OF ONTARIO
ONTARIO CONFEDERATION OF UNIVERSITY FACULTY ASSOCIATIONS
ONTARIO RESTAURANT ASSOCIATION
ALLIANCE OF MANUFACTURERS AND EXPORTERS CANADA, ONTARIO DIVISION
CANADIAN FILM AND TELEVISION PRODUCTION ASSOCIATION
CONTENTS
Tuesday 17 February 1998
Pre-budget consultations
Credit Union Central of Ontario
Mr Jonathan Guss
Ms Lorrie McKee
Ontario Confederation of University Faculty Associations
Dr Deborah Flynn
Nesbitt Burns
Dr Sherry Cooper
Mr David Rosenberg
Ontario Restaurant Association
Mr Marvin Greenberg
Mr Ken Baxter
Ms Sherry MacLauchlan
Ontario Nurses' Association
Ms Enid Mitchell
Mr Seppo Nousiainen
Alliance of Manufacturers and Exporters Canada, Ontario division
Mr Paul Nykanen
Mr John Allinotte
Mr David Burn
Mr Brian Collinson
Ontario Social Safety NetWork
Ms Sherrie Tingley
Mr Scott Seiler
Ontario Hospital Association
Mr Geoffrey McKenzie
Mr David MacKinnon
Madawaska Hardwood Flooring
Mr Ross Staples
Canadian Film and Television Production Association
Ms Elizabeth McDonald
Mr Steve Ord
ITAC Ontario
Mr Bill Petrie
Mr Stuart Bowden
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président
Mr Garry J. Guzzo (Ottawa-Rideau PC)
Vice-Chair / Vice-Président
Mr Wayne Wettlaufer (Kitchener PC)
Mr Ted Arnott (Wellington PC)
Mr John R. Baird (Nepean PC)
Mr Jim Brown (Scarborough West / -Ouest PC)
Mr Garry J. Guzzo (Ottawa-Rideau PC)
Mr Monte Kwinter (Wilson Heights L)
Mr Gerry Phillips (Scarborough-Agincourt L)
Mr Gilles Pouliot (Lake Nipigon / Lac-Nipigon ND)
Mr E.J. Douglas Rollins (Quinte PC)
Mr Wayne Wettlaufer (Kitchener PC)
Substitutions / Membres remplaçants
Mr Doug Galt (Northumberland PC)
Also taking part / Autres participants et participantes
Mrs Marion Boyd (London Centre / -Centre ND)
Mr Gerard Kennedy (York South / -Sud L)
Clerk / Greffière
Ms Tonia Grannum
Staff / Personnel
Mr Ray McLellan and Ms Lorraine Luski,
RESEARCH OFFICERS, LEGISLATIVE RESEARCH SERVICE
The committee met at 0933 in committee room 1.
PRE-BUDGET CONSULTATIONS
CREDIT UNION CENTRAL OF ONTARIO
The Chair (Mr Gary Guzzo): Our first presenter this morning is the Credit Union Central of Ontario, Jonathan Guss, president and CEO, and Lorrie McKee, government relations officer. Welcome. We have one half-hour for your presentation, which you may use as you see fit. Please proceed.
Mr Jonathan Guss: Good morning. We're delighted to be here and thank you for the opportunity. We're here on behalf of our 322 member credit unions. As many of you know, the central, our organization provides a central banking function and other services for 93% of Ontario's credit unions.
We want to talk to you this morning about credit unions: how they're faring, where they fit into today's marketplace. We also want to spend some time talking about recent initiatives of the government and make some recommendations regarding the 1998 budget, which of course is why we're here.
To provide the context, I'm going to turn it over to Lorrie McKee, and then I'll come back on some of the hard points.
Ms Lorrie McKee: As you probably all know, credit unions are community-based financial institutions. They are located in every corner of the province and they offer a full range of financial services to their members. Virtually gone are the days when the credit unions only provided savings and loan services to their members. Today they still continue to offer those same core services, they still provide their members with the loans they need to purchase necessary consumer goods, homes and cars, but they also offer their members lines of credit, RRSPs, RRIFs, mutual funds, credit and debit cards, loan insurance, and financial planning and counselling.
More than 1.6 million Ontarians put their trust, not to mention $13.4 billion of their money, in a credit union or caisse populaire. This creates direct employment for 5,000 Ontarians. In some communities, the credit union or caisse populaire is the only institution offering financial services. While linked provincially and nationally to other credit unions, each credit union operates independently under the direction of a board. These boards are run by 3,500 volunteers throughout the province.
Ontario's provincially regulated financial services have witnessed significant change in the last few years and even months. Government is taking a close look at how it regulates this industry and is questioning its role and responsibilities. Provincially regulated trust companies are soon to be transferred to the federal level.
A new commission, the Financial Services Commission of Ontario, has been established. It brings together the regulation of mortgage brokers, insurance companies, pension funds, cooperatives and, until they're transferred to the federal level, trust companies. The government is also reviewing its rationale for direct involvement in the banking business through the Province of Ontario Savings Office. One result of all of this change is that credit unions will soon become the only full-service deposit-taking institution regulated by the province of Ontario.
At the same time, changes in the financial services industry as a whole have left credit unions as the domestic alternative to the banks for consumers. The mega-merger announced between the Bank of Montreal and the Royal Bank makes the lack of alternatives even more apparent. People today are frustrated with domestic banks. You hear it every day. They are looking for an alternative.
Many of our member credit unions are taking advantage of the opportunities that have been created by the announcement of the mega-merger. You may have noticed a week ago Saturday that Metro Credit Union had a full-page ad in the Toronto Star. The heading read: "Mega-Banks? No Thanks."
Our existing members already know and understand the benefits of membership. In a recent national survey, Canadians said that for quality of service, credit unions ranked in the top three of 21 industries, behind pharmacies and hotels. The banks ranked in the bottom five. The Canadian Federation of Independent Business, which was before this committee last week, has consistently found that credit unions get the highest approval rating for small business borrowers.
At the same time, our system has maintained an impressive record. No member of an Ontario credit union has ever lost a dime of his or her deposit, nor has there ever been a need for the Ontario government to bail out the credit union system.
As in the rest of the financial service industry, our system is experiencing consolidation. We need this consolidation to achieve the appropriate critical mass to compete. Not too many years ago, there were more than 1,400 credit unions in Ontario. Today there are fewer than 400, and we don't expect the pace of consolidation to let up. The difference between consolidation in our system and that which is occurring in the banking system is that the banks are consolidating to better compete in international markets, whereas credit unions are consolidating to better serve Ontarians.
There is no question that our future depends on our ability to remain a strong and viable alternative. The regulatory environment in which we operate is a critical factor and will be the difference between our success and failure.
At this point, I'll turn it back to Jonathan.
Mr Guss: Lorrie has provided you with a picture of the environment in which we operate. I want to take a minute to talk about credit unions as a domestic alternative in the financial services marketplace. In our view, obviously credit union consumers are better served if there is an alternative. Competition, as you know and believe, is a very important thing in the marketplace. Today, credit unions are the only domestic alternative.
I was surprised when I heard Mr Martin's speech the other day and read of it in the papers. In his early speeches, he hadn't mentioned credit unions. In his most recent statement, he simply mentioned foreign banks as the alternative. I think this government owes it to the people of Ontario to be sure we are there as an alternative. It's very important, and we must be taken account of.
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We're community-based and will remain so. We have no global aspirations, as Lorrie mentioned. We are efficient, reliable circulators of local capital. When people put their money in a caisse pop or a credit union, it stays in the community. When we're profitable, it goes back to those people and gets reinvested in the community. Unlike the chartered banks, we have no global aspirations; we are not interested in competing in the international markets. When things get bad in a given town, the credit union doesn't move out. It doesn't say: "Gee, I think I'll move my money from Windsor to Calgary. The market in Calgary is high." I think I'll leave my money in Windsor, because that's where the credit union is based; that's their community.
On the financial side, some of you had experience in the 1980s where credit unions were not strong. We are now perfectly well capitalized. Our capital is at the same level as the banks', I am very proud to say, and we are profitable. But unlike the banks, we are not earning massive profits. We put member service above shareholder value. Member service is always first, so you will not read about our massive profits.
As Lorrie mentioned, the consolidation of the domestic banking system is an opportunity for us, and some of our credit unions have started taking advantage of it. But let's put it in perspective. When we talk about mergers in the credit union system, we're not talking about multibillion-dollar institutions. Our largest credit union in Ontario is just under $1 billion. Yet as noted, all the credit unions and caisses pops in Ontario have, together, on the order of $14 billion.
The Canadian domestic banks are making their profits primarily from fee income, not from taking deposits and lending, so we have started to compete in the same area. The margin on loans is very slender and barely covers costs, so all of us have to make money by providing other services for fee income. We also have gone into the business of financial advice, planning, investment products, mutual funds etc. But personal lending continues to be the bread and butter of credit unions and we will not leave our members out of the financial picture.
The other distinguishing fact about credit unions is that we cannot be bought or taken over, so while you watch the banks merge -- and they will, in the next few years, despite the brave statements of those who are not yet involved -- nobody is going to buy credit unions. We read where one Canadian western bank said, "We're going to grow by taking over credit unions." It is technically possible. It won't happen. Credit union members will not sell their shares to a bank. They cannot really be bought. We will remain community-based.
Our members want government to reduce costs and regulatory burdens, and we want you to provide the environment for credit unions to grow and serve more Ontarians. The current government prides itself on tax reduction and on reduction of the regulatory burden, yet our members are troubled by the number of initiatives undertaken by this government in the last two years, initiatives that have imposed a burden on us. I know you didn't mean to do it, but when you take them all together, it adds up to a heck of a cost. I can't come in here without walking through some of these pictures. It has left us with the impression that maybe there is no overall strategy for the financial services industry in which you see us. We think we're so important to the Ontario economy, with our $14 billion, that we have to look at the individual pieces to show you what has happened.
First of all, there's the capital tax. It's very simple. After years of encouragement to build up capital, which we responded to -- we got our capital up to over 5% of assets -- now the government has turned around and said: "Thank you for building your capital. We're going to tax it." There's now a tax on credit union capital. It's $3 million for all our credit unions, which may not sound like a lot, but you have to see the $3 million coming on $53 million of aggregate profits and on top of the other taxes we pay. So $3 million doesn't sound like a lot, but take a credit union with about $125 million of assets. It has net earnings of $380,000, and then on top of that has to pay $42,000 in capital tax. That's more than 10% of its net income. That's brutal. They're paying income tax at the 23% rate, and then on top of that they have to pay 10% capital tax. It nets out, because of the deductions involved, to a 35% tax increase on that particular credit union.
Let's be clear. The tax was introduced by this government for a good reason. It was a carrot to entice the banks to make more money available to small businesses, and we applaud that, but credit unions already lend to small businesses in a big way, and we're increasing the amount of lending we do to small businesses, so we do it without any carrots, without any sticks, and this carrot is hurting us.
The second thing I should talk about is the financial services institution. Again, it's a fine idea. It's a great and efficient way to oversee credit unions. You have appointed Dina Palozzi to be the head of it, the CEO. She's an excellent choice. She knows the financial services industry and she knows us, and we're very happy and support that choice. However, for the first time, we will have to pay a fee for government regulation, an annual assessment to pay for our examinations and regulation. Again, it doesn't sound like much. We haven't been told exactly how much it will be, but we expect it will be in the order of $3 million a year. It turns out to be pretty well the same amount as the capital tax, so you have to add that again on top of the taxes I've already talked about.
We have received assurances that the cost will be fair, and we believe it. We know they're trying to cut the cost of the regulatory agency before they actually bring in the charge on credit unions, but in our eyes it's one more hit by this government, one more tax on our profitability, and it makes it very difficult for us to build up retained earnings and capital, which we have to do.
Finally, I have to talk about the premiums on our deposit insurance. There is a schedule 3 agency, which is the Deposit Insurance Corp of Ontario, much better managed in the last five years than it had been before, working very well to help the system grow and help the system have a solid financial base. However, the premium is way out of line. Credit unions pay premiums of $2.10 per $1,000 of deposits, so every time you go into your credit union and put in $1,000, the credit union immediately has to think: "Do we want this $1,000? We have to make $2.10 just to pay for deposit insurance before we do anything with it." Why is $2.10 not right? The banks are paying CDIC $1.67, roughly 40 cents less, per $1,000 of assets. The first thing we have to do is get that $2.10 down to $1.67.
The other thing we're doing is we're paying on all deposits. We're allowed to brag that DICO insures $60,000 of deposits; in fact, we're paying for deposit insurance on all our deposits. The banks only pay on the first $60,000; we pay $2.10 per $1,000 on every $1,000 that comes in. So we're saying if DICO needs the money, that's fine; let us brag about the fact that we have 100% coverage. We've got the capital, we've got the profitability performance now; let us brag about 100% coverage, or for goodness' sake, if we're paying that, get it down. If we're only bragging about $60,000, then we should only be paying for $60,000. It's very simple. If you went to your insurer and had to pay for more than you were getting, you'd probably get a lawyer to fix it if the insurer wouldn't fix it, so it's time for the government to change the DICO premium regulation. We have started a consulting process. The DICO board has met with us and agreed to meet with us again, but we have to have assurance that by January 1, 1999, that deposit insurance premium is fair and comes down. There's no question about it.
One of our largest credit unions, Niagara -- it is our largest member -- pays $1.7 million in deposit insurance premiums. If they were a bank, they would be paying $1.1 million. It would be much more sensible and much more efficient for them to change their structure and become a small community bank under federal regulation. They have enough capital to do it. I've worked for the federal government. I know how to set one up. It would be much more efficient for them to operate as a bank and not as a credit union, and this province would lose them as a community-based organization, so you've got to take action on this or credit unions are going to look at federal regulation. We need to see changes in the premium.
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Also, the Ontario government introduced a tax on that premium, which we see as a tax on the tax. It predates the Tory government, but I have to mention that it's a tax which is very painful for us to pay. We pay 8% tax on our deposit insurance premium. All in all, we're really feeling the pressure of all these costs and burdens of government.
Finally, just to note: Our act was passed in 1994 and the main regulations came out in 1995. In the course of 1995, the government itself identified a broad variety of other regulatory changes we needed. They have never been put in place. We have been waiting since 1996 for them, for two years. We need those changes. It's a red tape issue but it simply hasn't gotten into the red tape process. It's either been rejected or set aside, and we need action on our regs.
I'll finally get to my conclusion. I've taken a little longer; I was a little more discursive than I had planned to be. You got me on my favourite subject. As you can see, government issues are eating away at the bottom line of the credit unions. The policies seem somewhat disjointed and uncoordinated. We think you need and would like to have an overall policy for financial institutions in Ontario. I think you understand, as individual members, the role that credit unions play in your community. You understand how they don't leave the communities when the economy is bad. You understand how, when the economy is hot somewhere else, that credit union money stays in the community. It's invested in local jobs.
They're very important members of your communities, they're terrific players, but the cumulative impact is hurting us and we need an overall policy that says, "We are going to help credit unions." We especially need a policy now, with the mega-mergers and the future of mega-banks in this industry that will say, "Credit unions, we recognize you exist and we are going to encourage you to grow," because we are committed to your communities and to the growth of the economies in your communities.
We'd be pleased to answer any questions. Thank you.
The Chair: We have approximately three minutes per caucus. Today being day six, we should start with the government caucus, I believe. Any questions? No. I'll move to the opposition.
Mr Gerry Phillips (Scarborough-Agincourt): I'll start off. Your primary concern is about the costs you're feeling added on to your organization. It looks to me like this year there will be a total of new costs of somewhere around $4 million to $6 million.
Mr Guss: Yes. I should clarify that the capital tax is being rolled in over a number of years, so when it reaches its peak in 2002, it will be $3 million -- by then it will be more, but if it were in right away, it would be $3 million. It's being rolled in over a number of years, but it will be $3 million, and the cost of the regulatory agency will be $3 million to us, so it's about $6 million in total.
Mr Phillips: Just refresh my memory. Is that a tax that can be "earned back" with loans to small business?
Mr Guss: Yes, and it was introduced to encourage the banks to make loans to small business, but we're already making loans to small business in the communities and it's growing. That business is growing like Topsy, and the program requires the loans to be made below prime. I think the point we would make is that if we make loans below prime, we'll lose money on them, and the people who want the loans aren't having a problem with the rate. They're having a problem with access. They're having trouble getting the money, so they would be glad to pay prime plus 1%, prime plus 2%, prime plus 3%, the kind of rates we offer. We aren't charging as much as the banks, who go even higher than that on business loans, but it's access that's the problem.
Mr Phillips: So is your argument on this one that the definition for "earn-back," or whatever the right language is, penalizes the credit unions whereas the banks may be able to "earn back" the tax through loans to small business, that you are in a different position from them and therefore it looks like you very well may have to pay the full tax with little opportunity to earn it back? Is that your argument?
Mr Guss: Lorrie, do you want to address that?
Ms McKee: I think the banks have similar concerns that I've heard with the earn-back provision. There are concerns about the size of the loan that is specified in the earn-back provision, concerns that they've focused on the rate of the loan versus the access and the volume of loans and just the red tape and bureaucracy they have to go through to actually earn it back. There are some concerns whether it's actually worthwhile. Most of the credit unions we've talked to, to date, are saying that if they have existing members, commercial clients, where they can meet the criteria they'll do it, but these are existing clients. It's not providing access to moneys for new businesses, and I think that was the intention.
Mr Guss: Also, the threshold goes all the way up to $400 million of capital. If you have $2 million or $400 million, you're treated the same way. So they're basically treating the small player exactly the same way as much larger players, and by introducing more discriminating levels of thresholds, it would be more applicable to our people without being so painful.
The Chair: Thank you, Mr Guss. I move to Mr Pouliot.
Mr Phillips: Don't we split the remaining time when one caucus doesn't want --
The Chair: Right.
Mr Phillips: So we've taken how much time?
The Chair: Four minutes.
Mr Phillips: The arithmetic is unusual, but go ahead.
Mr Gilles Pouliot (Lake Nipigon): Good morning to you, Chair. Thank you again for the compliment of your presentation. Maybe one comment vis-à-vis your spontaneity and two quick questions, if I may. With respect, you departed from form and became bold. You spontaneously said that in your opinion -- well, when you're here presenting a brief in front of the committee it is in the opinion of the credit union, I take it -- there will be a merger -- that was your tone -- regardless of the bravado of the most recent statement from Mr Martin, the federal Minister of Finance. My opinion would be that Mr Martin will be consistent as a Liberal, as an international view. Who would be opposed to, it can be anyone, but let's say Canada Steamship Lines with a Liberian flag, a crew from the Philippines and the insurance carrier being Lloyd's of London. The market capitalization in Canada is less than 3%.
Then you've said that you welcome the opportunity to niche the market, if you will, to establish a niche, which has been your mandate. I need some clarity. When it comes to deposit insurance, the max at $60,000, the chartered pay $1.67 per $1,000 of deposit and you pay $2.10.
Mr Guss: Right.
Mr Pouliot: You mentioned that no one has ever sort of "defaulted." Yet if I listen, and I'll be candid, to the caisses populaires, they're saying that on account of being pooled with you, with the credit union, it puts pressure on their rates as well. It's not whom do you believe. I would love to see the credit unions, because you're only inviting people to put in $60,000 -- that's what the coverage says, that's universal -- "No one has ever defaulted. Beware of mergers and takeovers," and you would like to pay the same rate as the banks. Otherwise, you are at a disadvantage because on the GIC rate you must compete, and compete big time. Otherwise, you won't get Miss Jones and Mr Smith tapping into your GIC.
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I'm a believer in credit unions. They're close to the community and I think everybody on the committee believes that competition in the marketplace is what the system is all about, more so than ever before when we look at a giant, and you don't want to stop their growth -- far from it -- but by the same token you want to give everybody a level playing field.
On the regulation, I don't wish to always play politics, Mr Chairman, but I truly believe that anything that would expedite, that would make your life simpler, would be adhered to by all parties. We don't have the ability to have the cabinet call the bill, but the régime du jour has had a very busy agenda, as you know. Once you are embarked on a revolution, sometimes you would wish to advance on many fronts, and that occupies a lot of time. But you have reminded them through your brief that in order to stay competitive, you need those regulations out of the way, to take place, to cut some of the red tape.
One final comment: On the life income fund, one of your pet subjects and you've attached it, you make a recommendation. I'm not talking about the RIF; I'm talking about the mechanism, the key to go from a locked-in retirement arrangement to a life income fund. You copied that from two other western provinces, where you don't have to fork over the money in the form of an annuity by the time you're age 80, and you stop at that. The dilemma that some of my constituents have is that the company has made the transition, has given them a lump-sum payment, a buyout, and it goes into a locked-in arrangement. I have this one chap -- the sum is $171,000 -- who worked many years for a mining company. He's been diagnosed with terminal cancer. He wants to go back to his roots, to England. Because the GICs are so low at present, he's only entitled to take -- he's in his late fifties -- about $10,000. I think his rate is 7.62% or something. It's his money and there is no contingency for him to have access to his money. If he were in another kind of arrangement, if he were in a RIF, of course he would be subjected to a minimum, but he could take it all out if he wanted to fix the fence, if he wanted to go to England.
I hoped your recommendations would have gone further, but I think you're right on. It was page 42 of the last budget book. Mr Baird and I have had some discussion, but they keep passing the dollars because they do such a good job in such a hurry that they keep being moved around. So now I've got to deal with Mr Young. Thank you for reminding us.
The Chair: I'm sorry, we have no time for the comment. This is not unusual here. We have no time for your response, but we thank you for your submission and for your time this morning.
Mr Guss: I was delighted to be here. Thank you.
ONTARIO CONFEDERATION OF UNIVERSITY FACULTY ASSOCIATIONS
The Chair: The next presenter this morning is the Ontario Confederation of University Faculty Associations, Ms Flynn, president. Welcome and thank you for being here. We have 30 minutes this morning and I'd ask you to introduce your associates.
Dr Deborah Flynn: I'm Dr Flynn, the president of OCUFA. To my left is Mark Rosenfeld, the government and community relations officer, and to my right is Henry Mandelbaum, the acting executive director of OCUFA.
The Ontario Confederation of University Faculty Associations, representing 10,000 university professors and academic librarians across the province, appreciates the opportunity to bring its concerns and recommendations to the pre-budget hearings of the standing committee on finance and economic affairs.
As with others in the university community, we are dismayed by the position of the current government to continue the pattern of disinvestment in higher education begun by previous governments. We are equally dismayed by the persistent shift in financial responsibility for post-secondary education to students and others in the private sector based on the questionable assumption that the benefits of higher education are more private than public.
More than a year ago, the government's Advisory Panel on Future Directions for Postsecondary Education held extensive hearings on the state of higher education in the province and released its report. The advisory panel highlighted the extent of underfunding in our universities. It recommended that the government address the problem by funding Ontario universities at the average for other Canadian provinces and reasonably in line with government support of major public universities in the United States. To date, the government has chosen to ignore one of the most important recommendations of its advisory panel.
Last year in its presentation to the standing committee, OCUFA noted that it looked forward to the upcoming provincial budget with a sense of hope for the future of Ontario universities. We stated that the time had come for the government to begin reinvesting in those institutions which contribute most to Ontario's long-term growth, foremost among these being Ontario's universities. The May 1997 budget and the finance minister's December 1997 economic statement have not been cause for great optimism for us. We can only continue to hope that as the government develops policies to position Ontario in the global economy and promote the economic, social and cultural welfare of the population, reinvestment in the province's universities will become integral to its strategy. It remains unclear, however, that this particular government has the will to make that investment.
The government has chosen to allow universities in the province to remain at the bottom of the funding scale. Ontario, the wealthiest province in the country, ranks last in Canada in provincial operating grants per capita. Over the past two years, the province has reduced operating grant funding to universities by more than 15%, a figure which significantly exceeds cutbacks in any other province in Canada. Comparisons to the United States are equally stark for the same period. Forty-eight of the 50 states have either maintained or increased their funding for their public universities. Ontario universities are consequently becoming increasingly uncompetitive with comparable American universities as well as lagging behind other Canadian jurisdictions.
In other areas of public spending, such as elementary and secondary education, health care and social assistance, the government has measured the expenditures against the national average when making its decisions about future outlays of money. The government's use of comparative statistics, however, appears to be very selective. If the government can use national expenditure patterns for elementary and secondary education to justify lowering Ontario's spending towards the national average, then surely national expenditure patterns for higher education should motivate the government to raise provincial spending on university operating grants towards the Canadian average.
Over the past five years, the province has reduced operating grants to universities by 25% or $539 million. Even with the large tuition increases for the same period, revenue from grants and fees is still $355 million below the 1992-93 level. When increases to the consumer price index are taken into account, such as a 5.9% increase since 1992-93, an extra $157 million would have been needed to keep pace with general inflation. Price increases for university books, periodicals, computers, lab equipment and other items purchased by universities are even larger than those indicated by the CPI. The cumulative increase in the Ontario university non-salary price index since 1992-93 is almost 20%.
This year, operating grants for universities were frozen, as you know, at the 1996-97 level. Ministry of Education and Training officials indicate that next year operating grants will again be frozen. In real terms this means a further deterioration in the operating grant support for universities.
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In a speech to representatives from business, government and universities last November, the Premier commented, "It is no secret that, like so many other institutions today, Ontario's universities are facing tremendous pressures on all fronts." Aggregate statistics tell one story of some of the pressures facing our universities, pressures which have been well documented by the Council of Ontario Universities. The experience of individual universities tells another story, putting more of a human face on these statistics.
Since 1990, the number of full-time faculty has declined by 1,055 and there are 1,142 fewer full-time non-academic staff positions. At the same time, full-time enrolment has grown by more than 8,000 students in the province. Universities are losing some of the most experienced teachers and researchers, which, in conjunction with a growing inability to replace faculty, threatens the quality and the integrity of academic programs. Moreover, as the government's advisory panel observed, this situation raises concern about a brain drain of Ontario faculty to jurisdictions offering better working conditions and research infrastructure.
What does this mean for individual universities? At McMaster University the number of professors decreased by 11% between 1992-93 and last year. At Queen's University the total number of non-medical faculty positions declined by 16% between 1991-92 and this year. At Waterloo faculty positions have been decreased by 13% between 1992 and last year. At the University of Western Ontario the number of faculty and staff has declined by more than 20% from 1990. Fewer faculty now teach more students in these and other universities. The result is larger classes, less time for advising students, conducting research and contributing to the administration of academic programs.
Universities are now buying 25% fewer books and periodicals since the 1970s. The amount spent for each student is half of what it was 20 years ago. While some universities are pooling their library resources, this is not possible for universities which are geographically isolated, particularly in northern Ontario. Students have increasingly less access to books and periodicals needed to complete research assignments. Faculty have less access to research material necessary for them to keep on top of their field of study.
University buildings have been aging during this time. The average building is now 20 to 30 years old and needs major repairs and renovation, while relatively few new buildings have been constructed. What has this meant for individual universities? Let me give you a few examples.
At the University of Toronto's Robarts Library, staff serving library users has been cut 25% in recent years and the materials processing staff has been reduced by half since the 1980s. As a result, there is a backlog of over 300,000 uncatalogued books at this library. Budget cuts limit the ability of Robarts Library to maintain and expand its book and periodical collection and remain a world-renowned research library.
At McMaster University, libraries were forced to cancel 576 subscriptions to academic journals and related serial publications in 1997. The health sciences library made its own additional cancellations during that time.
Due to library cuts at Nipissing University, students cannot rely exclusively on the library collection to do their research for major term papers. They have to obtain books and articles through interlibrary loans at a cost of $5 per item. The average term paper may have 20 articles needed by that student, so you're looking at roughly $100 to do a term paper because you are at an institution that simply cannot afford to keep its library stocked. There are a fair number of these students who travel to southern Ontario to use the libraries of larger universities. This is a significant and reprehensible additional expense for students whose educational costs are already very high. The only alternative is to lower the course requirements for term work, thereby lowering the quality of their education.
Investment in research is critical to keeping Ontario competitive in the global economy and enhancing the province's economic, social and cultural development. Indeed, as the Premier recently commented, Ontario must do more than simply lead other provinces in research performance.
Ontario universities' research capacity has deteriorated as a result of government cutbacks to operating grants and the overhead-infrastructure research envelope. We can no longer build and maintain the university system's physical research infrastructure nor can we hire or retain a calibre of faculty who become leaders in their field. As the government's advisory panel observed, the erosion of this intellectual and material research infrastructure has made it difficult for Ontario universities to compete for federal research grants. As a result, Ontario's share of federal research funding has declined from a high of 45% in the 1980s to a level of 35% at the present time.
Ontario universities are losing leading researchers not only to the United States and Europe but also to other provinces which offer superior facilities. They offer more research funding and better salaries to faculty. The gov-ernment itself has recognized this problem. The 1997 Ontario budget noted:
"Ontario has not been successful enough in attracting and keeping these high-calibre researchers. In recent years the University of Toronto lost one of its world-class biotechnology researchers to British Columbia, one of the world's most promising astrophysicists to Princeton and a promising computer scientist also to Princeton."
The exodus continues. This year, a leading biotechnologist whose research has led to dramatic breakthroughs in understanding the aging process noted that he left McMaster University for California because of "Canada's dismal record of funding research." The problem of large federal government cutbacks to the research-granting councils has been compounded by provincial government reductions for research support.
The R&D challenge fund announced in May 1997 provides funding only for a very select group of disciplines and a very select group of universities in the research community. The fund primarily focuses on support for research-intensive universities which conduct applied research in the natural sciences, engineering and the health sciences. Disciplines and universities not geared to the production of applied, commercially viable research will have difficulty accessing this fund. In a climate of limited resources, universities will be tempted to divert support away from less lucrative basic research as well as social science and humanities research in order to obtain money from the matched fund.
Greater support for basic research in the sciences, social sciences and humanities, however, is also needed. As the Premier has observed, "Theoretical research is absolutely crucial to our ability to lead and excel in the race for the new ideas of the next century." A COU-commissioned study on provincial research policies revealed that British Columbia, Alberta and Quebec have been able to increase their share of federal research funding as a result of both a comprehensive provincial research policy and more supportive funding.
Last year the government commissioned the chair of its advisory panel, Dr David Smith, to write a report setting out a framework for an Ontario research policy. Among other recommendations, the report called for a balance in support for basic and applied research, recognition of the neglect in support for the social sciences and humanities, wider recognition of the importance of integrative-interpretive research and recognition of the link between research and training. The government has yet to respond to Dr Smith's report or indicate if it will adopt its recommendations.
While operating grants to universities have been reduced, the government has permitted large increases in tuition fees, based on the assumption that students should pay more for the cost of their education. The Progressive Conservative Party in 1992 in its policy document for education called New Directions II stated: "Tuition fees should be allowed to rise, over a four-year period, to 25% of the operating costs of universities.... As a result, tuition fees for undergraduate arts and science programs will rise only marginally, while increases for the more expensive professional programs would be larger."
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Last December, the Minister of Finance announced that universities will be permitted to deregulate professional and graduate programs. Undergraduate fees will also be allowed to increase another 20% over two years, which, compounded, means that undergraduate tuition fees will have increased by 60% between 1995 and the year 2000. This is hardly a marginal increase. Tuition fees now represent 35% of program operating costs. That is far in excess of the 25% target noted in New Directions II. At some universities, such as Nipissing, tuition fees represent a whopping 50% of operating costs. In light of the impact of government underfunding, students recognize that they are paying more and they are certainly getting less.
Government tuition policy has offered universities the classic Hobson's choice: Either universities take an extra tuition revenue and attempt to improve the academic programs and facilities or they reject the tuition increase and are left with diminishing operating grants to improve educational quality.
Tuition increases, however, have an impact on accessibility. The government has now placed universities in the untenable position of choosing between educational quality and access. We agree with the Premier's statement that the requirements of the knowledge-based economy will make access an even greater necessity for our province. Escalating tuition fees, however, is a poor public policy when it constructs barriers to access at a time when the demand for access and the demand for graduates has never been higher.
Accompanying rising tuition fees are dramatic increases in student debt loads. This year, the average debt load for a graduating student is estimated to be $25,000. The prospect of high debt loads and ever-increasing tuition fees has an impact on 1997-98 university applications. System-wide applications were down by 3.3% this academic year. Universities which traditionally draw students from outside their local catchment areas were particularly hard hit: Lakehead, for example, with a 20% decline in applications and Laurentian University with a 17% decline. When applications statistics for 1998-99 become available, we can certainly expect a similar impact.
Access to university has been threatened by a loan-based student assistance program which does not address the problem of student debt load and does not meet the needs of the students. The changes the Minister of Education and Training announced to the student assistance program last week also do very little to address the problem. Funding for the Ontario student assistance program, OSAP, will be $535 million next year. This represents a $57 million decrease in OSAP support compared to the 1996-97 figures. The demand for student assistance has increased, not declined, in this period. It is uncertain whether other forms of support, such as the Ontario student opportunity trust fund, will be able to make up the difference for effective cutbacks in OSAP funding.
The government is now placing greater responsibility on parents to contribute to their children's education costs by increasing the level of expected family contributions and lowering the threshold on family income when determining how much OSAP will lend to a student. It should be remembered that over the past decade the average real income of the majority of Canadian families has declined. This affects their ability to financially assist family members who attend university. The inadequacies of the student assistance system have also taken their toll on students' ability to devote sufficient time to their studies. The case of students carrying a full course load and working 20 to 30 hours a week in order to pay for their education is becoming increasingly common.
The education of more students with fewer public dollars might be considered efficient by some. There are casualties in such an approach, however, including the quality of education students receive, the capacity to conduct leading-edge research and student accessibility to higher education, especially for those students coming from low-income families. Surely the government does not want this to be its enduring legacy to the Ontario people.
As the government develops public policy to position the province to meet the challenges of the 21st century, reinvestment in Ontario universities must be the cornerstone of its strategy. Education expenditures should not be considered a cost to the government but should be considered an investment in Ontario's future. Three areas for immediate reinvestment need to be addressed: funding, research and student assistance.
Universities must be confident of stable and predictable funding if they are to plan changes and adapt programs successfully to the needs of students and the economic, social and cultural needs of the population. While tuition is likely to remain a significant part of the funding environment, tuition revenue which fluctuates with enrolment cannot provide the system-wide stability inherent in adequate basic operating grants.
Block grants provide universities with the internal flexibility and the long-term planning stability to carry out their mandates and respond to local circumstances. Through adequate block funding, universities will be able to respond to the pressing need for faculty renewal, research and research infrastructure support, improved library resources and expansion of information technology, among other areas of concern.
Our recommendation is that the government restore university funding to the 1995-96 level of $1.843 billion as the first step in implementing the government's advisory panel recommendation of raising operating grants to the national average.
In terms of research, Ontario needs to develop a comprehensive provincial research policy that covers both the basic and the applied research and encompasses research in the public and private sectors, as recommended by the government's advisory panel. Such a policy would help Ontario to catch up to the research efforts of leading jurisdictions in Canada and in other developed countries.
The recommendation is that the government of Ontario develop and implement a comprehensive provincial research policy adopting the criteria outlined in its own commissioned discussion paper, called Framework for a Research Policy for Ontario.
In terms of student assistance, OCUFA believes that access to post-secondary education is a right of citizenship which must be available to all qualified students. We fear that rising tuition and other education costs in conjunction with an the unreformed student assistance system will become a disincentive for students to attend university. We also fear that some student assistance reforms, such as the income-contingent loan repayment plan, will be modelled in such a way that will worsen the debt load and the debt problem students already face through large compounded interested charges, long repayment periods, inappropriate repayment thresholds and a lack of sensitivity to the needs of students from low-income families.
Like the Council of Ontario Universities, the Canadian Federation of Students-Ontario and the Ontario Undergraduate Student Alliance, OCUFA supports the student assistance reform package endorsed by the National Round Table, whose constituent groups represent university and college administrators, students, faculty and financial aid officers at the national level. The National Round Table proposals for student reform address the needs of students before, during and after their studies.
The recommendation is that the government of Ontario adopt the student assistance reform package endorsed by the National Round Table. These reforms should encompass the needs of students before, during and after studies.
The Chair: Excuse me, Dr Flynn. You have one minute remaining.
Dr Flynn: We're almost done; 30 seconds.
The eminent 17th-century English writer, Samuel Butler, once wrote, "Learning is like a great house that requires a great charge to keep in constant repair." Due to insufficient provincial government support, Ontario's institutions of higher learning are falling into disrepair. The government now has the opportunity to reverse this trend and invest both in our great houses of learning and in our future.
The Chair: I'm afraid we do not have time for questions, but I thank you for your time this morning and for your presentation. You are going to leave us a written submission?
Dr Flynn: Absolutely. There is a copy. We also thank you very much for allowing us to give you the presentation this morning.
The Chair: Thank you kindly.
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NESBITT BURNS
The Chair: The next presenter this morning will be Nesbitt Burns, Dr Sherry Cooper. Welcome, Dr Cooper. You have 30 minutes. Please proceed.
Dr Sherry Cooper: Thank you. Momentarily you will have before you a copy of my presentation, but I'll proceed to read it into the record.
Ontario's economic and fiscal outlook: Growth prospects in Ontario continue to be stellar, and the jobless rate will fall to new lows for the cycle. Indeed, I believe that the province will post growth in excess of 4% this year, building on the 4.5% pace of 1997, despite the turmoil in Asia and the rise in short-term interest rates. This could well be the strongest pace of provincial expansion in the country, followed closely by Alberta.
As well, 1999 will be a good year, with growth still in excess of 3%. This is a reflection of the multi-year easing in monetary policy, the provincial tax cut and the shift to a more business-friendly economic environment in this province.
Prospects for growth this year and next have been shaved by the Asian crisis, the related decline in commodity prices and the general uncertainly in the US federal political environment. With only 3% of Ontario's exports going to Asia, the direct effect of the crisis here is small. The impact of very weak commodity prices is also relatively muted, particularly in comparison to the effect on British Columbia, where the forest products industry has been badly hurt.
A negative although modest impact on the United States inevitably slows Ontario's exports of manufactured goods. In addition, the price of imports from Asia will fall sharply, adding further domestic competitive pressure for import-competing goods producers like the automobile industry. Moreover, the recent downdraft in the Canadian dollar and the resultant rise in short-term interest rates reduces consumer purchasing power, at least a bit.
The effects of the Asian turmoil are already evident, and more is to come. Inco, for example, has announced dramatic cost-cutting measures in response to the softness in nickel prices, at an estimated cost of 1,000 jobs.
In my view, full marks go to the Ontario government for its pro-investment initiative. While generation-low interest rates and the continued business expansion in the United States have been important catalysts, public policy shifts in Ontario have also contributed to the rebound in economic activity. The improved competitive position of local industry and resultant boost to exports, surging capital investment, tighter real estate markets and the income-supporting impact from the tax cuts have paved the way for a broad-based economic expansion of a kind not seen in nearly a decade.
The personal income tax cuts, while delaying the move to fiscal balance, have gone a long way towards reviving consumer confidence and spending. The most recent data show that Ontario's retail sales were on track for almost 7% growth in 1997, compared with virtually no growth in 1996. The tax cuts are working.
Employment conditions have improved considerably as well. Ontario generated more than 170,000 net new jobs in 1997, double the 1996 gain, and more than 90% of these were full-time jobs. Job creation in January continued strong despite the ice storms. The unemployment rate had dipped to a seven-year low of 7.8% at year-end and ticked up in January with a surge in labour force participation. This compares to a 9.2% jobless rate one year ago.
Gauging from the 21% run-up in Help Wanted advertising in the province over the past year, an additional 120,000 jobs should be created over the next 12 months. Even with a continued pickup in labour force participation, this would likely take the unemployment rate down to 7% by year-end. I estimate the natural rate of unemployment in the province -- the rate consistent with stable inflation -- to be the lowest in the country, at 5.5%. We will approach this rate in coming years, with minimal risk of inflation. Indeed, the surprise in this cycle has been the continued decline in the pace of inflation, reflecting global competitive pressures, corporate restructuring and technological advances. It is truly remarkable that the consumer price index registered zero inflation over the three months to December in the face of robust economic growth, lower unemployment and a weakening exchange rate.
Job demand in the province will be most keen for highly skilled labour, both technology and knowledge skills, as well as the skilled building trades. Training, therefore, becomes a crucial issue.
Alberta, Manitoba and Saskatchewan are already at full employment, and labour shortages there have triggered wage inflation. This is a supply-side problem that, in my view, cannot be solved by traditional macroeconomic spending programs.
There is a meaningful mismatch between the skills that business requires in today's increasingly high-technology world and the skills that are available in the existing labour force. Businesses are reporting widespread job shortages in key skilled professions such as marketing, computer design, software programming, machining and engineering. According to many surveys, labour shortages have actually emerged as the number one issue for Canadian businesses. There are roughly 20,000 to 30,000 jobs waiting to be filled in the information technology sector alone.
Business leaders and educators should work together to find new ways to train workers for the highly skilled jobs that are hard to fill today. Programs along the lines of the cooperative education tax credit fostering greater cooperation between business and post-secondary educational institutions should be encouraged.
Five underpinnings to Ontario's growth:
First, interest rates will remain low. Mid- and long-term interest rates are likely to fall further, continuing to provide impetus for real estate markets, auto expenditures, business investment and other interest-sensitive expenditures.
Second, no other province is as tightly linked to the US market, absorbing 90% of Ontario's exports, and the United States shows few signs of sustained fatigue as it heads into its eighth consecutive year of economic expansion.
Third, the Canadian dollar's depreciation will enhance the competitiveness of manufactured goods, which account for 20% of provincial GDP. The boost to tourism and retail trade is already evident, as more than two million Americans embarked on one-day shopping trips to Canada in December, the highest in 16 years.
Fourth, the automotive sector will remain strong, a boon to this province as over 90% of Canadian auto and light truck production is centred here. Production of cars and trucks rose 7% in 1997 to a record 2.6 million units; 1998 will likely be a stellar year as well, judging from scheduled capacity increases. Toyota will boost Corolla production at its revamped Cambridge facility, ranked as the second-most efficient assembly operation in North America. Honda is also expanding capacity at its Alliston plant, and Chrysler is spending $1.3 billion in upgrades to gear up its Brampton facility for the next generation of LH sedans. In sum, the auto makers have pumped $15 billion into the Ontario economy in the 1990s.
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Fifth, the pro-business stance of the Ontario government will continue to play an integral role in attracting business from other jurisdictions. This is evident in the upswing in absorption rates in the office sector, taking the commercial vacancy rate for class A space in downtown Toronto to a mere 5%. This compares to a double-digit vacancy rate one year ago.
The industrial sector is strong as well, with roughly 10.5 million square feet under construction in the Toronto area alone. Not even this can keep pace with the burgeoning demand as the industrial vacancy rate continues to fall, now at an eight-year low of 7.6%. In consequence, non-residential building permits are running at a year-over-year gross pace of 125%, a precursor of more commercial development and of course more job creation.
Fiscal performance: The Ontario government deserves credit for maintaining its commitment to budgetary reform, effectively breaking the tax-and-spend grip on the fiscal landscape of the late 1980s and early 1990s. The strategy of reducing the role of government in the economy, lowering the tax and regulatory burden and giving the private sector greater leeway for growth has borne considerable fruit. The government has been successful in cutting the deficit from $10.1 billion in fiscal year 1995 to $5.2 billion this fiscal year. This is $1.4 billion lower than the budget's original projection, reflecting burgeoning revenues from a stronger-than-expected economy.
While the deficit is lower than expected, a disproportionate amount of the revenue windfall, in my view, went into spending. I'm criticizing the government and he's not even listening. Based on the economic performance, I expected the deficit to come in closer to $4.5 billion. That said, the government is likely to post a deficit no higher than $3 billion for the 1998-99 fiscal year, with a balanced budget to follow, one full year ahead of schedule. Financial markets are expecting no less.
Recommendations for the 1998 budget: The economic environment remains uncertain, particularly so because of the Asian crisis, Middle East tensions and US political difficulties. The government therefore should continue to use a contingency reserve of $650 million and a very conservative set of growth and interest rate assumptions. While we at Nesbitt Burns are bullish on the economic and interest rate front, the government should adopt a below-consensus estimate for growth and an above-consensus estimate for interest rates for budgeting purposes. This would suggest that the government maintain its current set of GDP growth forecasts of no higher than 3.5% this year and 3% for 1999. Similarly, I would add 50 basis points to the consensus estimate for interest rates, as Finance Minister Paul Martin has been doing on the federal side. These moves to ensure that budgetary forecasts are met have gone a long way towards restoring Canada's fiscal credibility.
I support the government's move to reduce the tax burden on households and small businesses. When the last leg of the 30% personal income tax cut kicks in, hopefully within the next year, the government will have done little more than offset the series of revenue-raising initiatives implemented in the first half of the decade. The relief to date has merely arrested the multi-year slide in per capita real disposable personal incomes, a decline that began in 1990. Indeed, household income in the province, on an after-tax, inflation-adjusted basis, just managed to return to its 1989 level last year.
Even with the next round of tax cuts, the top marginal income tax rates in the personal sector will remain at 50%, compared with less than 40% in the United States. The double kick to Ontarians is that the top marginal rate sets in at incomes of around $60,000 in Canada, compared with roughly $300,000 in the United States. Given that the United States is poised yet again to cut taxes further, it is imperative that Ontario further lighten the tax burden.
The wide tax differential between Canada and the United States is not only limiting our ability to compete effectively but is also prompting record numbers of high-skilled Canadians to head south of the border, the well-known brain drain. While the data are sketchy, the pattern is clear: For every US engineer who has come to Canada in the 1990s, eight Canadian engineers have emigrated to the United States. Canada loses two computer scientists to the United States for every one it attracts. The divergence is even starker for doctors, a 12-to-1 move-out ratio.
At the very least, the Ontario government should aggressively lobby Ottawa to use the upcoming federal fiscal dividend to cut taxes and reduce the national debt. Canadian taxpayers have seen the government sector siphon an ever-greater share of national income, with revenues as a share of GDP setting a new record in the past year. The tax wedge between Canada and the United States is already at unprecedented levels.
Spending cuts should not be abandoned. I applaud the government's strategy to reduce expenditures but am somewhat concerned about the additional spending that was contained in the Ministry of Finance's third quarter update. Even with revenues $2.4 billion above target and debt service charges $144 million below projection, only $1.4 billion, or barely more than half of the windfall, went to reducing the deficit. Program spending is now projected to decline 1.9% in the 1997-98 fiscal year rather than the 5.8% decline outlined in last spring's budget.
The spending cuts to date have taken government outlays down to nearly 16% of provincial GDP, compared to the 1992-93 recession high of 19.2%. Nevertheless, the ratio remains well in excess of the 15% level prevailing when the decade began.
Clearly, the areas of education and health care are priorities as we move into the next millennium, but the appropriate method of growth in these areas should be studied carefully. Canada has very high proportional expenditures in education and health care compared to other G-7 countries, and it is not clear we are getting our money's worth. Indeed, no country spends as much on education as a share of GDP as Canada.
Ontario still has the largest deficit in the country. Its debt-to-GDP ratio was the fastest growing in the past five years, and its credit rating was downgraded three times. Although things have improved considerably, we are not out of the woods yet. Every dime the government saves from lower-than-expected interest rates or above-projection economic growth should be used for deficit reduction. Debt and the cost of servicing it remain dead-weight drags on the economy. Ontario's debt now stands at $108 billion, almost 50% higher than five years ago. It has soared eight percentage points as a percent of GDP to 32%. By the time the deficit is scheduled to disappear in 2000, only Quebec, Newfoundland and Saskatchewan will have a higher ratio of debt to GDP.
Interest charges on the debt continue to grow and are quickly approaching $10 billion, or almost 18% of revenue. The Ontario government now spends more on debt servicing than on education, and almost as much as on social services.
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The government should consider legislation that mandates a balanced budget. Several other provinces -- Alberta, Quebec and Manitoba -- have already taken this route. In addition, the government should consider long-term debt reduction targets. Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia have established such targets. They enhance fiscal credibility and reduce the political pressure to spend surpluses.
In conclusion, I believe we are on the right fiscal and economic track. The government has successfully broken the tax-and-spend patterns of the past decade and deserves high marks for doing so. What is left essentially is to stay the course of deficit and debt reduction, a course that will undoubtedly enhance living standards for all Ontarians by providing stable income growth and job security. Thank you.
The Chair: Thank you very much, Dr Cooper. I did say at the beginning that you had 30 minutes, and of course it was scheduled for an hour. I apologize. It leaves sufficient time for questioning, and we start with the New Democratic Party.
Mr Pouliot: Welcome. I've certainly enjoyed your presentation. I wish you well in your future endeavour for the prominence of your firm. In Bay Street parlance, you make several headlines in terms of mergers, takeovers, and so you're always in the news. We want to wish you well. The world's getting smaller. We live in a global economy as well. I know that aside from the immense impact of the tax cut, it's a big world.
My experience on the different indices is that if you have several days of the Dow Jones Industrial and the wider-held index drop, almost inevitably it will be followed by a TSE drop. On the commodities exchanges such as Vancouver and Alberta they are less vulnerable because of oil and les aurifères, and gold. But it's a world indeed. It starts in Asia every morning, doesn't it, and it goes to Europe and it goes to the emerging markets of South America, and an hour after it hits the US. We're all very familiar. Of course this government pretends, and it's quite right.
I'd like your comment vis-à-vis your brief when you highlight the positive effect of the tax cut, which gives more money to consumers for the marketplace. Yet in the latter part of your presentation you warned the committee, the government, about the ombrage, the shadow of the deficit, which is still a reality. I belong to the school -- it doesn't mean I'm right -- that more emphasis should be put against paying down the debt, that in my humble opinion you get better value for money.
I know you sanction both actions, on the one hand to give incentives and on the other hand to keep an eye. How do you see the future developing after the tax cut takes its full implementation -- I think we're at 23% out of 30% -- and the timetable for the balanced budget? What is your reaction to this, the balance between the two, the tax cut and balanced budget?
Dr Cooper: I actually believe we're in quite a virtuous cycle here. I believe that both provincially and federally in Canada, as well as federally in the United States, the surprises will continue to be on deficit elimination, more rapid deficit elimination, bigger surpluses than imagined and a more rapid repayment of debt than people expect, because I'm quite an optimist on the future of global growth and most particularly North American growth. I honestly think that because of the virtuous cycle of compound interest, which used to be the vicious cycle, because interest rates keep falling, in fact it will become easier and easier to pay down the debt.
That sounds crazy from the perspective of what I was saying five years ago, where I was very concerned about this tremendous increase in debt. But the fact is that bond yields right now in Canada are 5.7%, and I believe they're headed for 4.5% and maybe even lower, and sooner than people think. That has such a powerful impact on government interest costs that I believe economic activity will continue to grow rapidly and debt and deficit reduction are possible in the face of tax cuts. In other words, the size of government shrinks as the private sector becomes more buoyant.
I also believe that Canada has a tremendous competitive advantage in the global economy. It's not because of a weak currency; it's because we are truly a global leader in manufacturing and technology and in resources.
Mr Pouliot: I'm in full agreement in the bond debenture yield curve that what we're seeing is relatively short-term; in fact, on the catalyst, the 30-year treasury threshold, 5.45 last night to close to 5.75 for 30 years. What you're saying is we should invest a few dollars that were generated for the tax cut. There's only a few for the average person in the short term because long term it's coming back down. That seems to be the consensus.
I don't see anything in your brief, and I meticulously looked -- revenues are more chancy than spending. Spending, they say you can always say no. This government is spending more. They talk about restraint, but when it comes on the spending side, when you turn the page, it's clear they are spending more this fiscal year than any other government has ever spent in one fiscal year. This is the reality of it. But they've benefited by virtue of the global entity. People are buying cars big time. Some of them are on the waiting list at Mercedes and so on. That's the irony of it. It's going to take them a year to a year and a half to get a sport utility vehicle. People I associate with, it paints a different picture.
Would you like to issue a caution to this government about their spending habits, because again they're spending more than any other government has spent in any fiscal year?
Dr Cooper: Yes, and I thought I did in that I said my greatest concern is that the windfall gain in tax revenues did not fully show through in the deficit reduction. I'm pleased that the deficit reduction is ahead of schedule, but I am nervous that obviously it's much easier to spend money than to cut spending, and politically it is extremely difficult to do what has been done. I would like to see further progress on those lines.
Mr Pouliot: One last question. You seem to be able to predict anything and you're very well prepared and very impressive. I have one last question. Can you perhaps tell me in confidence -- you do so well in your forecasting -- what the Dow Jones and the Toronto indexes will be at the end of the year? Can you hazard a number? You're very bold in your predictions elsewhere.
Dr Cooper: I know. My forecast for both the Dow and the TSE is an increase of only about 8% -- call it 5% to 10% from current levels -- not the 30% gain we saw last year. But I was surprised by last year too.
Mr John R. Baird (Nepean): Thank you very much for your presentation this morning. You were asked as an expert witness, someone who could provide the committee with some insight into the economy. I'm a big believer that past performance dictates future results. I looked at your 1997 forecasts and they were close to bang on in so many areas that you could find. That's something worth noting, and to look at your presentation this morning in that context.
I did have a number of areas I wanted to get some thoughts from you on. I wonder if you could expand on your view: You mentioned in your report that household income was rising to levels that it hadn't seen in a number of years. Can you tell me what you think in terms of the relationship of household income between the tax cut, consumer spending and job creation, the relationship that you would draw between those four factors?
Dr Cooper: Clearly, the higher the level of disposable income for households, the greater the level of spending, and investment for that matter. That's very positive for the general macro economy and therefore for job creation.
The multiplier effect works and it works very aggressively, and we've seen it with great evidence in this province. The reason that automobile sales are at record highs for Canada itself is of course because of two things: Interest rates have fallen -- automobile sales are highly interest-sensitive -- and income growth is rising. The automobile industry, as an example, hires people, and this happens up and down Main Street everywhere in terms of retail operations, the financial services industry, manufacturing, the whole service sector. I believe in fact that you could describe the Ontario economy right now as booming, which is a good thing. We've had tremendous excess capacity, we've had quite a number of years of sub-par growth, and now we're reaping the benefits of very low interest rates and low tax rates.
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Mr Baird: But the tax reductions are a big part of the increase in household income and consumer spending, leading to job creation.
Dr Cooper: They're definitely a part of it. I have to say, though, that the plunge in interest rates -- remember, we've been seeing in the last year, as recently as last summer, overnight and three-month treasury bill rates of just under 3%. That's incredible. We've seen a massive plunge in household interest payments, so mortgages are rolling over at interest rates two or three percentage points below the original level, which has put money in people's pockets. The good news is it's the same thing with their paycheques, that the reduced provincial tax rate has put money in people's pockets. People spend money they have and of course invest some as well, so there's buoyancy.
The other positive effect of the tax cut has been a shift in a more positive consumer sentiment. For years I was travelling across the country and you would hear Albertans or even British Columbians say positive things about the economy and the outlook, but Ontarians were extremely negative until the last two years. Now, finally, that sentiment is shifting.
Mr Baird: I have three other areas I wanted to go to quickly and get your thoughts on, because I know some of my other colleagues will have questions. You alluded in your report to the importance of a conservative set of growth and interest rate assumptions and how important that is for Ontario's reputation in the markets.
Dr Cooper: Yes, it's very important. It's a safety valve. Right now governments will not be forgiven, as we've seen in British Columbia, for underestimates of deficit reduction or surplus increases. Just as a cushion, I would caution you to be conservative in your economic and interest rate assumptions, because all of us live in a world of uncertainty. Shocks do happen and you can just imagine a number of scenarios.
One that concerns me greatly right now is the political fallout in the whole Quebec situation. If we were to see a very quick referendum, let's say in the next 12 months, I could imagine that leading to at least a temporary plunge in the Canadian dollar and maybe a surge in interest rates, and that of course inevitably slows economic activity. Just to protect ourselves from what is inherently unpredictable fallout, I think it's prudent to use conservative assumptions.
Mr Baird: Finally, you mentioned in part of your report the issue of continuing spending cuts, expenditure reductions. You mentioned that we should see further progress. Could you expand on that and how important you think that is for the perception of the Ontario economy?
Dr Cooper: I think it's very important, because I'm quite concerned about just how inefficient the expenditures in some cases seem to be. Education is a big issue these days, and health care as well, and we all know that there are complaints as to the return we're receiving on the health care dollar and on the education expenditure. There are many measurements of this, be it the long lines in emergency rooms or the lack of important diagnostic facilities within the province to, on the education side, the relative underperformance of our children in standardized testing.
When it comes right down to it, in the whole measure of preparing people for jobs, those people who offer the jobs know more about what they want to see in employees than professors in an ivory tower. The co-op programs are so successful and they truly are inexpensive. When we see students from Guelph or Waterloo etc, many of them come to us on a co-op program and ultimately work for us full time because they see what they need to be the kind of employees we're working for. It's very powerful.
I urge you to not succumb to the pressures that are obviously so evident in the system to just keep throwing money at these issues, but instead to use the markets. The markets, the capitalist system, does truly work.
Mr Wayne Wettlaufer (Kitchener): Dr Cooper, thank you very much for your presentation. I couldn't have said it better myself.
I have a couple of quick questions. Two years ago we heard from an expert witness -- I don't remember who it was -- that the reduction in spending on the part of the Ontario government could take some of the stress out of the interest rates by as much as, I believe, 50 basis points, if I remember correctly, which in today's environment equates to about $500 million a year. Would that still hold true today?
Dr Cooper: Today what has happened is that governments everywhere, US and Canadian, are doing just that, with rare exceptions, so the positive effect of that is being played through, and as I said earlier, we aren't finished yet. I believe interest rates are going to fall further. Indeed, there's a shortage of high-yield, high-quality debt in the world. Who would have believed it? The Canadian bond crop has failed. Our provincial bond trader has nothing to do, and the issues when you come to market are swallowed up instantly. There is more demand than there is supply for bonds, and that means ultimately higher bond prices, lower bond yields.
If you were to reverse course, spend like crazy and raise the deficit, interest rates in this province would rise sharply. It's hypothetical, but similarly, on the reverse, I believe the benefits on the fiscal tightening side have not yet been fully felt. Real interest rates in this country are still very high, and that's why I believe we're headed for 4% to 4.5% bond deals.
Mr Wettlaufer: I'd like to talk about your third paragraph on page 4, relating to a supply-side problem vis-à-vis employment. I've been very critical of our university system for many years. I feel that our universities are in competition with one another and the faculties are in competition with one another inside the universities. It's learning for learning's sake; it's a philosophy they've had for many years. I think it was just this weekend that Nortel announced they're going to require 12,000 graduates in the next five years and there are only going to be 4,000 available in the country. Do you see that the universities are making any strides towards progressing in an attitude towards directing their graduates to those areas in which they might be able to find jobs, as opposed to learning for learning's sake?
Dr Cooper: I think it's very limited. I don't have direct experience in many fields, and in the fields I do have direct experience in, which would be economics and finance and some of the technology-oriented areas like computer science, I think it's very limited. I have nothing against a liberal arts education -- in fact I had one as an undergraduate and I think it's very valuable -- but at the end of the day we all have to support ourselves and it is useful for society for people to be trained in areas where there is some demand.
There is such tremendous demand. We have job openings at Nesbitt Burns that we can't fill. We can't keep people in anything that's technology oriented. We actually are giving bonuses to employees who recommend successful job candidates in those areas. The whole technology-oriented finance marketplace, everything to do with math as applied to financial markets, is in tremendous demand, and that's just my little corner of the world.
I do not perceive that the universities are working hard to provide people with the kinds of skills we're looking for. In fact, many don't even discover that there is that demand in the marketplace until long after they've come out of university and then have to find some training themselves. The good news is that the markets work. The salaries in those fields are going up and it's attracting people.
Mr Wettlaufer: Right. So when you hear criticisms like we heard from the previous presenters about the debt load that graduates are carrying -- if they were being trained in the proper fields, in the high-salaried jobs, that debt load would mean very little.
Dr Cooper: It would mean very little. That's right.
Mr Doug Galt (Northumberland): Thank you very much. I certainly enjoyed your presentation, probably the most enjoyable presentation I've ever had here at Queen's Park. I even handled your criticism and enjoyed Mr Pouliot's comment about increasing spending, which he was a bit critical of. In the past we've always heard the criticisms about the cuts and concerns in that general area.
Anyway, you were listening to some of the preceding presentation from the faculties, saying we were one of the wealthiest provinces. I have to question that when we have a $108-billion debt and still have the biggest deficit on a per capita basis in Canada. The end result is for the students either to end up with a provincial and a federal debt, which they have to pay through taxes, or to end up with a certain amount of university debt. It's a choice. In that presentation we didn't get a chance to question, but they didn't have any alternatives other than they wanted more money. If you were an MPP, how would you respond to that presentation, having sat there and listened to it?
Dr Cooper: I did hear only the end of it.
Mr Galt: The end of it was the same as the beginning. It was consistent.
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Dr Cooper: I strongly disagree with it. We've talked about this at great length, because I've done an analysis province by province of what the lowest possible unemployment rate would be, consistent with price stability, and compared it with the United States. The lowest natural rate of unemployment in any province in the country is right here in Ontario at 5.5%, but in the United States it's 3%, just as an example. In the United States, there are areas of the country where unemployment is very low and where price stability is evident, or parts of the country like Massachusetts where you have very well educated people, tremendous labour mobility and the willingness of people to go where the jobs are. Jobs are locating in areas where there are people who can do those jobs, as we said with Northern Telecom. The markets work. It doesn't take government money. There's no question that Americans come out of university with far higher debt levels as a result of the extraordinary cost of tuition in that country.
The problem here, in my view, is that everyone for so long has expected government handouts. The whole mentality of that, that a student should believe that somebody should pay them to go to school and then somehow they just carry on in the job market and then the government takes care of them from cradle to grave -- those kids I see coming out of some of these programs are just driven to succeed, regardless of whether they begin with some debt or don't begin with debt, and those are the ones who obviously will do extremely well.
Mr Galt: We're periodically criticized, "You've come in with your program of cuts, to cut taxes and cut spending, but what's really out there is the international economic boom and that's what's saving Ontario." Do you have any feeling, in terms of what's going on in Ontario, the extra revenue coming in and all that kind of thing, about how much is due to our policies as a provincial government versus international? How big an effect are we really having in Ontario or how much would be there if we had gone the old ways and let the international market help us?
Dr Cooper: It's hugely Ontario.
Mr Galt: Is it 70%?
Dr Cooper: Easily. First, the US was booming during the tenure of the last government in Ontario. When the NDP government was in power in Ontario the US economy was booming and Ontario was still massively underperforming. Yes, of course, we had a delayed effect of the decline in interest rates, but the only reason the Canadian interest rates could fall below the US was that the markets believed that indeed we meant it in terms of deficit reduction, and we did; we proved it.
The global economy isn't that strong, you know. Canada last year had the number one growth rate of the G-7, and I believe in 1998 we're going to have the strongest growth in the G-7.
Mr Galt: And Ontario has created that for Canada?
Dr Cooper: Ontario isn't the only province that's growing, but as I said, in 1998 I believe Ontario will be the strongest, very closely followed by Alberta. Last year Alberta was the strongest, but Ontario was second and Manitoba was quite strong as well.
Mr Monte Kwinter (Wilson Heights): Dr Cooper, I want to congratulate you on the format of your presentation. It's very effective, very easy to read. The graphs are great. I particularly like the graph on page 6 where you show that in 1990 the province actually had a small surplus. We have been telling that to our colleagues on the other side for two years and they haven't believed it. It's nice to see an independent person, the virtues of whose presentation the government side was just extolling, confirming that in fact the government I represented at the time brought in a surplus in 1990. I think it's important that we see that.
The question I would like to ask you is this. You refer in your presentation to the cycle. With economists, it's on the one hand this and on the other hand that. We had Mr McCracken of Informetrica here yesterday. His thesis is that the tide is going out. Yours seems to be that the tide is still coming in and rising quite rapidly. He has access to the same numbers as you do, yet there is this dichotomy. This is something that has always puzzled me. Economists keep coming here. You get two economists and you get three opinions. Could you comment on that? Could you just tell me what your projection is, how long you think this cycle will continue?
Dr Cooper: I believe that as we head into the next millennium, literally the year 2000, there is some risk, because I, like everyone else, am very uncertain about what the year 2000 problem might mean, at least in the early part of the year. I am convinced that there could be sufficient disruption that at least temporarily we could see a fairly marked slowdown, but that's an exogenous factor that indeed would be temporary.
I'm very optimistic about a long-term sustained pace of economic growth. We're already in the eighth year of economic expansion in the United States as of April 1. This is a very long cycle. It's the third-longest expansion in the post-war period in the US, and I see no end in sight, because I, unlike Mr McCracken, believe we are in a new era of sustained low inflation. I see no inflation pressure in the pipeline.
The reason that economists differ so much with all of us having the same data is that we have different theoretical constructs in our mind as to how the economy works. In the old world, when unemployment rates fell, inflation rose, almost inevitably, and when inflation rose the central bank slammed on the brakes, raising interest rates, and economic activity slowed and the economies went into recession. What's different this time, as Alan Greenspan at the federal reserve continues to comment, is that even though the unemployment has fallen and we can say without question that the US is at full employment, we haven't seen inflation; in fact, inflation is falling. I believe the reason is because of tremendous global competitive pressure and, as a result of that, massive business restructuring. Who among us feels job security? Certainly not me. My business is about to restructure.
Interjection: Certainly not us.
Dr Cooper: No one does. No one feels job security any longer. No one has tenure, if you know what I mean. All of us have to produce that much more to become that much more valuable to our businesses. And which business has pricing power? Who can raise prices? No one. As a result, I believe we can see continued growth, with low inflation. Ontario has this tremendous advantage that we aren't at full employment yet, we still have excess capacity, we still have the ability to grow. Not only that, but we have a highly educated population and globally we have access to the world's fastest-growing marketplace, our own and the United States. So I am very optimistic.
I also believe the turmoil that we see in Asia today will continue to enhance the attractiveness of North American markets. We're stable, we're safe, we're deep, we're liquid, and we're very inexpensive. In fact, my one concern is that the companies of Canada are dirt cheap for everybody.
Mr Kwinter: Before I turn this over to my colleague, I just want to give you a feeling of security. Next Monday my son is joining your firm as vice-president of information technology and will solve your millennium problem.
Dr Cooper: Perfect.
Mr Phillips: Just to follow up on what you think reasonable targets are -- and I agree with my colleague Mr Kwinter; I found your charts useful. To go through them, on page 3 there is the employment situation. I see that back in 1988-89 the unemployment rate was around 5%, I gather, in the province. I'm just looking for what you think might be reasonable targets. Then on page 6 there is the surplus in 1990. Then, page 8, the spending-to-GDP in 1989-90 was around 15% and has been up ever since. The debt-to-GDP, on page 9, was around 14%; it's up to about 30% right now. The debt servicing costs, on page 10, were about 7% of revenue in 1989, and they're at 17% or 18%.
Are those achievements back in 1989 -- the unemployment rate around 5%, the debt-to-GDP under 15%, the spending-to-GDP under 15% -- targets that you think the current government should try to get back to, to try and achieve those kinds of performances?
Dr Cooper: I do, and I actually think it's realistic, not for the next year, but I believe the Ontario unemployment rate will be about 5.5% as we go into the year 2000.
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Mr Phillips: So you think they should try and get back to the achievements under the old Liberal government in these targets here: the unemployment rate, the debt --
Dr Cooper: The debt, the interest payments, yes.
Mr Phillips: That would be quite an achievement for them.
On the job front, you're predicting job growth considerably lower than the government is for 1998, at 120,000 jobs. They are predicting more like 170,000 jobs. Is there a reason why you would be lower on job projections than the government?
Dr Cooper: It's obviously all predicated on overall growth assumptions. If I'm wrong, I'll bet you my numbers are too small. In other words, these are conservative numbers. I certainly don't think it's impossible that we'll see stronger job growth in the province. The momentum in the job market is huge. There are literally labour shortages in many sectors.
Mr Phillips: Job growth last year was about 100,000 jobs and the economy grew at 4.4%. If the momentum is huge, why have we not yet seen it on the job front?
Dr Cooper: We have seen it on the job front. Again, the unemployment rate has fallen quite substantially.
Mr Phillips: The government presented numbers to us last week showing a growth of 101,000 jobs in 1997.
Mr Baird: It was 234,000.
Mr Phillips: No, the average for 1997 was 101,000 jobs.
Dr Cooper: I thought it was 170,000 jobs in 1997 in the province.
Mr Phillips: No, you'll find in their economic numbers that 101,000 was the average job growth for 1997.
Dr Cooper: Average job growth, okay. But for the year as a whole from beginning to end --
Mr Phillips: Right, the year as a whole, year over year. You shake your heads, but that's what the government numbers show.
Mr David Rosenberg: Are you talking about December to December, a December-to-December change?
Mr Phillips: The way the Ministry of Finance publishes the number, they say that average job growth in 1997 was 101,000 jobs.
Mr Rosenberg: It might be an average of 1997 versus 1996.
Mr Phillips: Yes, that's right.
Mr Rosenberg: We look at it on a year-end basis.
Mr Phillips: Is that what your 120,000 is, then, year-end to year-end?
Dr Cooper: It's 170,000.
Mr Phillips: No, your 120,000 for 1998.
Dr Cooper: That's our forecast for this year.
Mr Phillips: But that is your forecast, is it?
Dr Cooper: Yes. On page 3 we state that Ontario generated "more than 170,000 net new jobs in 1997 -- double the 1996 gain...."
Mr Phillips: And you're predicting 120,000 jobs in 1998.
Dr Cooper: Right.
Mr Phillips: Okay. Are there any others here where you think you may be low on your predictions?
Dr Cooper: Obviously, there's uncertainty in all of these. Again, I am optimistic about the future. I think there are risks. I mentioned one in terms of the potential Quebec situation that could lead to higher interest rates temporarily.
Mr Phillips: Can you help me with the "Income Growth has Stagnated" on page 7? Real disposable income actually looks like it's down slightly over the last seven years. As I read your chart, it continues on a flat line. Is there a reason for that?
Dr Cooper: There are a number of things. One, there has been very high unemployment, and that obviously means that job creation and income growth had stagnated. The other factor here is tax rates. This is real disposable income. It's after-tax income.
Mr Phillips: The tax cuts came in in 1996 but you're still showing a flat rate. Is there a reason for that?
Dr Cooper: What we've said is that by the end of 1997 we began to see a return to the levels not seen since 1989. It's helping, but it takes time for it to begin to show through. The boost in the job market will help as well.
Mr Phillips: So you're predicting a substantial increase in the income-growth area?
Dr Cooper: I'm predicting a further continued growth in personal disposable income of about 3% a year.
Mr Phillips: The chart here doesn't show that. Have I got the wrong chart?
Dr Cooper: This doesn't have a forecast on it; this is just history.
Mr Phillips: Okay. In terms of your priorities for us, you're suggesting further tax cuts for the upper-income sector, I gather. Even with the next round of tax cuts, you're saying further tax cuts, and the example you use is for those between $60,000 and $300,000.
Dr Cooper: No. I was just using that as a comparison with the United States. My point was that the top marginal tax rate in this province, at 50%, is still 10 full percentage points higher than in the US, and in the US the top marginal tax rate of 40% doesn't even kick in until you're at an income level of $300,000.
Mr Phillips: Is this where you think we should be putting our priorities, on further tax cuts?
Dr Cooper: No, I'm not saying that. All I'm saying is, don't be surprised that brilliant young graduates from Waterloo's computer science program go to work at Microsoft or other places in the United States, because the tremendous tax differential is a huge incentive for them to go. Another huge incentive has been the massive decline in the Canadian dollar. You truly do take a hit in terms of your overall living standard staying here versus leaving.
Mr Phillips: In light of that, it's kind of extraordinary that over the last 30 years we've been able to develop the auto industry here in Ontario.
Dr Cooper: The whole world is developing those industries. We're lagging behind the rest of the world, believe me, and the United States especially.
Mr Phillips: In the auto sector?
Dr Cooper: Absolutely. Everyone knows it.
Mr Phillips: I thought we were doing very well in the auto sector.
Dr Cooper: Everybody is developing technology, obviously, but there's no question that with the US as such an enormous magnet for Canadian talent -- let's just look at new graduates as an example -- we have to be concerned about the relative opportunities in those two countries. Say a technology company, Newbridge or Corel in Canada, makes a job offer to a brilliant young graduate. We all know that when Microsoft comes in, they cherry-pick the top of the class at Waterloo. Why is it that they're successful? Because they pay in US dollars, and Canadian graduates are concerned that the Canadian dollar, now at 69 cents, could be headed even lower as it continues to hit new record lows; and they pay based on the US tax system, and the US tax system allows you to keep more of your after-tax dollar.
The Chair: Thank you, Dr Cooper. That concludes the 15 minutes we had for the Liberal Party. Both the government and the Liberal Party had 15 minutes because Mr Pouliot did not use all his time. He now requests one minute, with their approval.
Mr Pouliot: I noted in your last rebuttal that you mentioned that Canadian and North American companies were cheap. I took that to be an invitation for investors. I ask my question to your world of expertise, by way of representation of Ontario small investors. The price-earning ratio of Canadian companies is quite high, almost historically high, and the S&P dividend yield is almost historically low. With some influx of money, would that not favour the bond market?
Dr Cooper: I do believe the bond market will outperform the stock market this year. But in the point I was raising earlier about our companies being cheap, I wasn't really just referring to the price-earnings ratios; I was referring to the value of the Canadian dollar. We're having a bargain-basement sale in our companies. Just as an example, American investors use US dollars to buy Canadian companies. The other point is that P-E ratios are high here, but in comparison to the US they're actually relatively low, in some industry sectors.
The Chair: I apologize, Dr Cooper. When he asked for a minute, I didn't know he was looking for personal advice. Feel free to send him a bill. Thank you very much for your presentation and your time this morning.
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ONTARIO RESTAURANT ASSOCIATION
The Chair: Our next presenter is the Ontario Restaurant Association. Ladies and gentlemen, thank you for attending. Welcome.
Mr Marvin Greenberg: Good morning. My name is Marvin Greenberg. I am the acting president of the Ontario Restaurant Association. I'm joined here today by Ken Baxter, chairman of the ORA, and Sherry MacLauchlan of McDonald's Restaurants of Canada, also an ORA director. We are pleased to be part of the 1998 pre-budget consultations for the development of the provincial budget and to be provided with an opportunity to discuss issues of concern to the foodservice industry.
The ORA's submission focuses on five key areas of importance to Ontario's restaurants and foodservice industry in the areas of Ontario's beverage alcohol system and the taxation of restaurant food. However, before Ken and Sherry discuss the ORA's submission, I would like briefly to provide you with some data on Ontario's foodservice industry.
We do not believe that anyone can dispute the importance of the industry to the provincial economy. There are over 20,000 units providing over 250,000 direct jobs and 150,000 indirect jobs. The industry is a major employer of youth, women and entry-level and underskilled workers, and it is an industry in which over 30% of all members of Ontario's workforce obtained early job training. However, Ontario's restaurant and foodservice sector is continuing to experience difficulty, with record numbers of restaurant closures and continuing weak sales growth.
In 1996 the rate of growth of Ontario's foodservice industry was at 2.6%, the second-lowest within Canada and far below the rate of growth experienced across Canada, which averaged 4.6%. In 1996 there were 515 restaurants and foodservice bankruptcies. This exceeded the previous record level of 505 bankruptcies in 1992. During the first six months of 1997, restaurant and foodservice bankruptcies remained high, at 243, exceeding the 237 bankruptcies experienced during the same period in 1996. For the second quarter of 1997, figures for sales growth in Ontario's restaurant industry were the lowest of all provinces. Why is this occurring? There are several reasons.
The introduction of the GST in 1991 has been devastating to the foodservice industry, resulting in over 20,000 job losses. The GST has had a direct and negative impact on the food industry's share of the food dollar, as it has dropped to 38.5% from a high 42% in 1989, much to the benefit of the grocery industry. According to Statistics Canada, between 1992 and 1996 spending on restaurant meals fell by 6.5% while spending on groceries increased by 5%.
The tax inequities between the ready-to-eat meals sold in grocery stores and ready-to-eat meals sold in foodservice establishments continue to exist despite repeated concerns expressed by the foodservice industry and repeated calls for governments to address and remedy this situation. In order to address the current difficulties being experienced by Ontario's foodservice industry, the ORA recommends government action in the areas of alcohol distribution and taxation and on the taxation of restaurant food.
The ORA firmly believes that government action on the four issues addressed in our submission will greatly assist in restoring stability and growth in Ontario's foodservice sector.
I will now ask Ken to address issues of concern to the industry regarding Ontario's beverage alcohol system.
Mr Ken Baxter: I would like to start off by thanking the government for its announcement last week regarding the use of credit cards for licensee purchases. The industry is very pleased with this.
With this in mind, the first issue I'd like to focus on is in regard to Brewers' Retail and the current inability of licensees to purchase BRI products on credit cards. As previously stated, last week the government announced that effective March 1, 1998, licensees would be permitted to purchase beverage alcohol from LCBO stores through the use of credit cards, a privilege previously allotted only to home consumers. Restaurant and bar operators collectively purchase over $500 million of beer annually from Brewers' Retail Inc. However, the BRI does not allow licensees the use of credit cards or any other form of credit.
The BRI is regulated and empowered to sell beer on behalf of the LCBO. As a regulated entity, the BRI should be required to provide reasonable purchase and sales options to licensees. The ORA firmly believes that as such, the BRI should be acting in the best interests of its consumers and should be made to meet the needs of its consumers, including the extension of the use of credit cards for beer purchases made by licensees. Since the government of Ontario is the regulator of the BRI, this should include the authority to require the BRI to accept credit cards for beer purchases made by licensees. The ORA firmly believes that the government of Ontario should act within its authority and require the BRI, which it regulates, to extend the use of credit card purchases to licensees.
The next area I'd like to discuss is the sale of beer by the LCBO to licensees. Currently, the Liquor Control Act authorizes the establishment of Brewers' Retail to operate stores for the sale of beer to the public. The act, however, does not exclude the Liquor Control Board of Ontario from selling beer or competing with the BRI, as is currently the practice. This exclusionary practice is done only by ministry and LCBO administrative policy. As a result of the LCBO policy, licensees are required to purchase their wine and spirits from the LCBO and their beer from the BRI even though the LCBO sells beer to home consumers. This practice creates an unnecessary regulatory burden for licensees, such as two separate and costly deliveries to a bar or restaurant. As well, by granting an exclusive monopoly to indirectly foreign-owned BRI, the lack of competition greatly reduces the level of quality of service received by the licensee consumer.
In other regulatory industries, such as the telecommunications industry, consumers have benefited from competition as prices have become more competitive and higher standards of service are offered to its consumers. By creating two purchase options for beer, the resulting competition will improve the overall quality of service received by the licensee community. For small hospitality owners, the ease of dealing with only one beverage alcohol supplier will reduce the unnecessary burden of two separate ordering systems and delivery organizations. By directing the LCBO to sell beer to the licensee community, the LCBO can compete for the lucrative half-a-billion-dollar licensee beer business.
The ORA estimates that this policy change would improve LCBO efficiencies and could represent between $25 million and $50 million in new LCBO operating profits which would flow directly to the government of Ontario.
Thus, the ORA recommends that the government of Ontario should amend the Liquor Licence Act to allow licensees in Ontario, at their option, to purchase their beer products from the LCBO.
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The next issue I'd like to discuss is the elimination of the special licensee fee known as gallonage tax. This is a very critical issue to the hospitality industry.
Currently, licensees pay two separate and distinct licensing fees. One licensee fee is a fixed annual licensing fee and the other is a variable volume- or price-based fee applied to licensee purchases of beer, wine and spirits. This results in two fees for every licensed establishment.
It is the view of the ORA that the volume- or price-based variable fee paid by licensees is, in practice and design, an indirect tax imposed upon customers of restaurants and bars. It is also the view of the ORA that this fee, as it acts as an indirect tax, is outside the scope of provincial constitutional powers and thus must be eliminated.
According to subsection 101(1) of regulation 719 of the Liquor Licence Act, applicants for liquor sales licences are required to pay application fees of $685 or $815, depending on whether public notice is required under subsection 7(1) of the act. In addition, subsection 101(2) requires applicants, where public notice is required, to pay an advertising fee equal to the actual cost of the advertisement placed by the Liquor Control Board of Ontario, as required under subsection 7(1)of the act.
Subsection 101(3) requires applicants to pay $240 upon the issuance of a liquor licence, while subsection 101(4), required by Ontario regulation 773/94, imposes a renewal fee of $300.
In addition to these licensing fees, subsection 103(1) requires licensees to pay an additional licensing fee of (a) $2.64 per hectolitre of beer purchased for sale or for consumption under the licence; and (b) an amount equal to 12% of the purchase price of wine and spirits, including the price of containers purchased for sale or consumption under the licence.
These volume- or price-based fees generate approximately $35 million annually for the provincial treasury. It is these volume- or price-based fees which are indirect taxes on consumers of LCBO-licensed restaurants and bars.
It is interesting to note that the indirect tax as well as the ancillary regulatory argument outlined below are the same arguments recently used by the government of Ontario to justify why in Bill 26, the omnibus legislation, municipal governments could not impose local sales taxes through a regulatory licensing scheme. The government of Ontario said these types of indirect taxes or regulatory schemes were not permissible under the Constitution.
Under the Constitution Act of 1867, the provincial governments are limited to imposing direct taxes and are excluded from imposing indirect taxes.
From past court rulings and the application of the John Stuart Mill test and the general tendency test, both used by the Supreme Court of Canada, it is clear that the volume- or price-based licensing fee is indeed an indirect tax on consumers and therefore exceeds provincial powers.
The courts have, however, held that provinces might impose indirect levies under subsections 92(9), (13) and (16) of the Constitution Act, 1867. However, the courts have held that these levies must be "ancillary or adhesive" to the valid provincial regulatory scheme and that the fees raised from indirect levies are to be used to administer regulatory schemes and are limited in amount in accordance with this purpose.
It is commonly accepted that the LCBO is a valid regulatory scheme. However, these fees collected by the LLBO and directly remitted to the provincial treasury far exceed the cost of administrating the regulatory scheme.
The ORA strongly believes that the licensing fees collected should be on a cost recovery basis only. Under the current system, the fees collected by the LLBO greatly exceed the administrative costs. Therefore, the LLBO is in effect collecting indirect taxes.
In addition, consumers are unaware of the taxes they are paying, as the taxes are not visible to them. This furthers the point that indirect taxes are being collected by the LLBO.
The LLBO collects over $55 million in annual licensing fees, while its total operating cost is less than $8.5 million. This means that the LLBO regulatory scheme is in fact generating over $46 million annually through the imposition of indirect taxes on Ontario's consumers.
Thus the ORA recommends that the government of Ontario should eliminate the volume- or price-based licensing fee levied on licensees, which functions as an indirect tax on consumers.
The last area under alcohol that I'd like to discuss is the alternatives to liquor licence suspensions by the Liquor Control Board of Ontario.
Under the Liquor Licence Act, sections 13 to 26, a licensee, if charged with an infraction of their liquor licence, can either receive no penalty or can be given a licence suspension. There is currently no provision in the act for the Liquor Licence Board of Ontario to impose fines or other remedial measures on the holder of a liquor licence. The LLBO is only empowered to suspend a licence permanently or temporarily.
The damage a licence suspension has on a licensee can be very severe, to a point where lost revenues during the licence suspension can put a licensee out of business. In addition in many cases, and especially cases which involve bars or taverns where the majority of revenue is derived from the sale of beverage alcohol, a licence suspension results in revenue losses that necessitate job layoffs and job losses for wait staff. The impact on employees in food and beverage establishments has been, and can be, very harsh.
In an industry that employs a large number of students, women and immigrants, a liquor licence suspension can result in job layoffs and job losses to people who can least afford to lose their jobs.
The ORA does not believe there is enough latitude available to the LCBO when dispensing a disciplinary penalty, as currently it can only suspend a licence or do nothing.
A more practical alternative, especially in cases of first-time offences and for operators who have excellent business records, would be an imposition of a fine which would levy a penalty yet protect the jobs of employees. While the ORA does not condone liquor licence infractions, we believe that many infractions warrant a penalty, but not as severe as a licence suspension. It is important that the penalty fits the crime. Today, that is not the case at the LLBO because many infractions are overpenalized with a suspension or underpenalized with no penalty.
By amending the Liquor Licence Act to include fines or remedial measures, the government will empower the LLBO to use its discretion when dealing with infractions under the act and to determine a suitable punishment for infractions which does not necessitate a licence suspension. By permitting fines, more flexibility is created for the hospitality industry. This will further help to protect the jobs of the hospitality workers in the food and beverage industry.
The ORA recommends that the government of Ontario should require the Liquor Licence Board of Ontario to develop alternatives to liquor licence suspensions in the form of fines or remedial measures, and to pass legislation that would amend the Liquor Licence Act to reflect these changes.
Sherry will now discuss the issues of tax exemptions on restaurant meals.
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Ms Sherry MacLauchlan: As you're aware, all foodservice meals over $4 are subject to the provincial sales tax. The existing PST threshold of $4 has not increased since it was established in 1987 and has lost significant value in real terms due to inflation. The $4 threshold is also not reflective of current socioeconomic realities, where in most instances eating away from home is no longer considered to be a luxury. Many segments of the population rely regularly on eating outside of the home. Students and working parents and their children eat at quick-service restaurants on a regular basis to accommodate the demands of their busy schedules.
Restaurant owners know that their customers are extremely sensitive to the provincial sales tax. This is apparent in their spending behaviour, where groups or families regularly make separate transactions simply to avoid paying the tax. In addition, the $4 threshold has become a critical pricing point for quick-service restaurants, because customers resist spending much beyond this amount. As a result, the threshold has become a marker which restaurants cannot overstep without seeing a significant decline in consumer demand. This, combined with the fact that operating costs have continued to rise while the threshold has remained fixed over the last 10 years, has resulted in a substantial erosion of margins for restaurant owners, both in mom-and-pop operations and national chain outlets.
In the highly competitive quick-service restaurant sector, for meals priced under the $4 threshold costs are almost at the point of exceeding revenues. These diminishing margins obviously have a detrimental impact on the viability of a restaurant and the owner's ability to reinvest and grow their business. This has consequences in terms of sustaining existing employment levels as well as in creating new job opportunities in the business. At its current level, the threshold has essentially become a barrier to growth for this industry.
An appropriately adjusted PST threshold will not only benefit consumers, it will restore reasonable margins for the foodservice establishments and thereby provide the capacity for business growth and additional job opportunities. The ORA therefore recommends that the government of Ontario increase the amount of the PST basic threshold from $4 to $6.
In conclusion, the foodservice industry strongly believes that immediate action is required in order to remedy the inconsistencies in Ontario's beverage alcohol system and to remove the indirect taxation of beverage alcohol. Further, the taxation of restaurant food requires a complete and thorough investigation so that the unfairness of the current system can be remedied and that Ontario's foodservice industry can remain a strong and important contributor to Ontario's economy, especially in the area of job creation.
We urge this committee to adopt the recommendations in this report. Thank you. We'd be happy to answer any questions the committee may have at this time.
The Chair: Thank you very much. We have approximately two minutes per caucus, starting with the government caucus.
Mr Ted Arnott (Wellington): Thank you very much for your recommendations. They're very straightforward and specific and I think you've done a terrific job over the years representing the members. We still do not see in the restaurant business the kind of growth I suppose we've experienced in some of the other sectors of the economy, and certainly the government needs to do what it can to help.
Thank you for acknowledging the government's announcement to permit the purchase of beverage alcohol through the use of credit cards. I agree with you. I don't know why the Brewers Retail would be reluctant to proceed in that way and I think the government should perhaps check that out and encourage them to do so. It would probably require a regulatory change. Do you know?
Mr Baxter: I think it's a policy issue.
Mr Arnott: It's a policy issue.
Mr Baxter: The government has the ability to make a regulatory change to require it.
Mr Arnott: Do you have any estimate of the cost to the provincial treasury of the recommendation of increasing the PST exemption to $6 per meal?
Ms MacLauchlan: We don't at this time. We intend to undertake an analysis of what the impact may be. We at this point feel, though, that any decline or decrease in revenues would be more than offset by business growth and new job opportunities in our sector.
Mr Arnott: We believe in that philosophy, sure, and I think you've got a very strong argument if it hasn't been changed since 1987.
Ms MacLauchlan: We've checked with Stats Canada. That $4 figure is now at $5.28; and based on, say, a moderate rate of inflation over the next number of years of even 2%, raising it to $6 at this time would give the industry another three to five years before inflation would overtake the marker again.
Mr Arnott: Thank you very much once again.
The Chair: Moving to Mr Kwinter, please.
Mr Kwinter: Mr Chairman, I just want to refer to this credit card issue. To a former Minister of Consumer and Commercial Relations, you have to understand, historically this is called the Liquor Control Board of Ontario. Its purpose is to control the sale of liquor, and the feeling has always been, from a public policy point of view, that you can't have people going into debt buying alcoholic beverages. So that's why you'd pay cash and you couldn't charge it. Obviously, that has changed in the same way that public mores about gambling have changed. I agree that times have changed and it's a different situation. It makes no sense if you've got the ability to buy your liquor with a credit card you can't buy the beer. Just so you know, it isn't Brewers Retail that sets that policy; it's really government policy. They're the ones who have to change it.
Mr Phillips: Just a question, and I agree it's a good presentation and well thought out: Some of the things seem so logical that you wonder why. In the past, the restaurant association has talked to us about video lottery terminals as a significant issue for them. This year you don't mention that. Has the association got a view on video lottery terminals?
Mr Baxter: Yes, we do. We prioritized our issues this year and video lottery terminals were brought up, but the time constraints wouldn't allow us to make a presentation on that. However, we believe that for our industry to be competitive out there and with the introduction of casinos and charity casinos throughout the province, we would like to have video lottery terminals available to licensees or the hospitality industry on a controlled basis to provide us with a competitive edge with the gaming casinos that are popping up all over. We have some sensitivity to that. We believe that the casinos are directly, at times, competitors in our industry and that we would like the opportunity to compete at the same level as they do, or some sort of level.
The Chair: I'll have to interrupt you there before you get into the grey machines, which your members already have. I know that's where you were heading.
Mr Pouliot: I too echo the sentiment: an excellent presentation. Governments of all stripes are a little -- not that they're reluctant, I suppose -- slow to react. They let the marketplace set the tone. It's accepted by everyone that nowadays credit cards are common currency. That's the way you do business. So I would hope that the government will recognize that. I don't think there's any valid argument not to use credit cards, because that's the way business operates.
On the $4, I distinctly heard a member on the government side, Mr Ted Arnott MPP, saying he was sympathetic to the issue you've raised of raising the threshold on the PST from $4 to $6. I would go a bit further in order to encourage your industry to create more jobs. Why should it be the first $6 paid on meals? Get away from the argument of the $5.99 syndrome. On the consumer's side it's quite costly. You go to a restaurant nowadays, and if you're a person of moderate means you pay 7% --
Interjections.
Mr Pouliot: Poverty is not comical. You pay 7%, then you pay an additional 8%, and then with waiters and the service trade you pay another 15%, I suppose. So that's 30%, and if you wish to have a glass of wine it's a 100% markup. You would know better. Mostly on spirits it's quite high. So you can buy, in some cases, almost a week of groceries. I recall that you used to have to make a reservation, and now from Thursday till Sunday you don't have to make a reservation in most instances.
I want to wish you well. I'm in full sympathy and I think the threshold should be raised; I also think it should be raised on the first $6. You've been very frugal in your argument. You're satisfied with little, and on the matter of the credit card, I don't have that key. We're no longer the government, they are, but I don't suppose it changes a great deal. I'm sure they would look at this with a good deal of favour and do it quickly through regulation.
The Chair: You have a minute if you want to make a comment. If not, I thank you very much for your presentation and I echo Mr Pouliot's comment. I think your requests are most reasonable and I commend you. You're one of the few who have extracted sympathy from all three parties. I hope that augurs well with our deliberations. Thank you for your time and for your presentation. We'll recess now until 2 o'clock.
The committee recessed from 1200 to 1402.
ONTARIO NURSES' ASSOCIATION
The Chair: Our first presenter this afternoon is the Ontario Nurses' Association. Come forward if you would, please. Welcome. Please introduce yourselves and proceed.
Ms Enid Mitchell: Good afternoon. My name is Enid Mitchell, and I'm the vice-president of the Ontario Nurses' Association. Accompanying me today is Seppo Nousiainen, who is a staff member.
The Ontario Nurses' Association represents 43,000 registered nurses, registered practical nurses and other health care professionals working in hospitals, nursing homes, homes for the aged, community health agencies and private industry.
We're pleased to make this presentation to the standing committee on finance and economic affairs so that our comments may be considered prior to the committee making recommendations to the Minister of Finance regarding the 1997-98 budget.
Our union has appeared before this committee a number of times in the past, and during our appearances we have consistently maintained that while there may be enough dollars in the health care system, we believe they are not being allocated in the most appropriate way. We continue to hold this position and have suggested that the system should be redesigned on a best-practice basis. Indeed, we have published a detailed description of what would replace it, entitled Dialogue on Health Reform: A Vision for Saving Medicare, and I have brought copies of that along with me today.
Central to this vision is a system of integrated delivery systems or health systems anchored to communities through regional councils with the power to allocate resources. So far, however, it seems that little has been done to rationalize the system and, as might be expected, we're beginning to see some of the real deficiencies in the system. We will address the rest of our remarks to these deficiencies.
Public accounts for 1995-96 show transfer payments to Ontario hospitals in the amount of $7.248 billion. The estimates for 1997-98 show an allocation in the amount of $6.698 billion, which is a reduction of $550 million or 7.5% over a two-year period. This is a large decrease, and it's not surprising that we're now beginning to see the serious problems emerging in the hospital sector. The present backups in emergency rooms, the closure of hospital beds and the layoff of nurses is finally producing the effects that we have been warning about for some time. The message we have for the government is to slow down the restructuring process and provide funds in those areas that require them. This would involve more funds, particularly in critical care, and some of the thousands of beds that have been closed may have to be reopened.
Residential long-term-care facilities will receive $1.164 billion in the fiscal year 1997-98, a slight decrease from the $1.167 billion they received in 1995-96. This is an unacceptable state of affairs since we have known for years that residential bed capacity is at a premium and more spaces must be made available. There's already a shortage of some 3,337 beds in nursing homes and homes for the aged and, by the year 2003, an additional 15,404 beds will be needed. We need to add capacity in existing facilities or convert existing facilities into long-term-care beds.
While hospitals have lost $550 million from their budgets, the government's total investment in all types of community-based care has increased from $1.032 billion in 1995-96 to $1.186 billion in 1997-98, an increase of $154 million. The bulk of this increase has gone into homemaking services, about $98 million, and to some extent into community support services such as Meals on Wheels, about $25 million. But none of these programs have been accompanied by an increase in the provision of professional services such as nursing services or other therapy. Indeed, in 1997-98, the estimates for the Ministry of Health show that professional services for home care will amount to $475 million, less than the $484 million we spent in 1995-96, which is quite astounding really.
The huge cutbacks in hospital expenditures have not found their way into the provision of professional care in the home, the exact opposite of what we would have expected to see, given the decrease in length of stay in the acute care sector. We are puzzled and concerned by this. If the government is not funding the increased need for home-based care, how is it being funded? We believe there are three possibilities.
The first is that people are simply doing without care in the home beyond a certain basic level funded by flat provincial expenditures, while family members are also providing extra care where they can.
Second, it is possible that individuals are paying for extra services from their own pockets. It is a well-known fact that private expenditures on health care amount to close to 30% of all expenditures on health care, a figure which has steadily increased over the past few years. It was 23.6% in 1975.
The third possibility is that physicians and other fee-for-service professionals are providing these services either through home visitation or having patients come to their offices. We note that the 1997-98 estimates anticipate payments to physicians and other practitioners to amount to $5.037 billion, up from $4.703 billion in 1995-96, which is an increase of $334 million, which tells us at the least that not all groups have had to share equally the burden of health care cutbacks. We suspect that all factors are at play and none is satisfactory.
The system of home-based health care services must be radically altered. The first step in any reformulation is to recognize that adequate funding must be guaranteed for home-based care. At the same time, it should be recognized that the current request for proposals tendering system in home care will lead to failure. Already nurses are refusing to work for the pitiful wages and poor working conditions found in many private agencies such as Comcare Canada Ltd, where our members have already been on strike for more than 15 weeks.
The aim of the RFP process is to subject the whole of the home care sector to a process where the only standard will be low wages, high turnover, poor working conditions and steadily deteriorating standards of care. All of this will be driven first and foremost by the profit motive, and other considerations, such as quality, will come second.
There is one last consideration. The privatization agenda of the government is in large part being driven by a perception that there is a surplus of nurses who will be willing to take any job at any price. This type of exploitation will not be allowed to happen, as the striking Comcare nurses have shown, and even the surplus argument is beginning to wear thin. That has already been demonstrated by the numerous reports that have been in the media recently of shortages of nurses, especially in critical care areas such as the emergency departments, ICU, CCU and the OR departments in many institutions.
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We already know that enrolment is down in many nursing school programs, and all this is happening while the average age of a nurse is increasing, and that is approximately 44 to 46 years of age. A recent report on the future supply of registered nurses in Canada points to a serious labour market shortage in future years and raises questions regarding public safety.
There is a better way, and this government knows it. The tendering process must be done away with and replaced by a per diem system which recognizes fully the cost of providing quality care and is adjusted for patient acuity. This type of system already operates in the homes for the aged and nursing homes sector, and even though just enough money has been put into the system, it is a far better system than the RFP process.
In conclusion, we have argued that after years of cutbacks in the health care system it is now necessary to take remedial action. Special attention needs to be given to the hospital sector, and in the long-term-care institutional sector there should be an infusion of money into both the capital and operating budgets. In the home care sector, we have special problems as a result of the introduction of the competitive bidding process.
Finally, we reiterate that piecemeal changes to the health care system will not bring about a comprehensive, integrated health care system but will only perpetuate inequities and inefficiencies throughout the system.
Mr Kwinter: Thank you very much for your presentation. It's an issue I have some familiarity with. I just want to talk to you about a particular situation I am familiar with. I am on the board of Branson hospital. As has been widely publicized, the emergency department has had to be closed from 10 o'clock at night until 8 in the morning. Contrary to public belief, the major reason it had to be closed was because of the shortage of emergency room nurses. A lot of the doctors have left because they see the handwriting on the wall that they're going to shut down the emergency department and they want to get located in other hospitals. But the nursing problem was the determining factor, and it created a mini-crisis. The ministry had to step in, and now they actually put North York General in charge of the emergency department, but they still haven't opened it up at night. I was just curious. Is that something that is unique to that hospital or is this happening across the system?
Ms Mitchell: It's happening right across the whole province. They're not the only employer that's complaining about the shortage of, as I said, critical care nurses, nurses who work in all these high-risk areas. What's happening is that, as people become uncertain about the future, they're not willing to hang around and wait for the inevitable to happen. They're looking for new job opportunities and they're moving to where those opportunities exist. Nurses are not only moving from hospital to hospital, but some of them are leaving the country. This isn't a situation that's unique to Ontario; this is a trend that's happening globally. We're hearing from other countries as well that there are desperate nursing shortages in other countries. It's not like we can go and advertise in Britain for nurses to come over here, because they've got their own shortages to start off with.
Mr Kwinter: What do you see as the solution?
Ms Mitchell: I think we have to look at the system as a whole and start putting the resources into the community, retraining people for those positions in the community. If they could see that there were avenues open to them elsewhere, nurses would retrain. You've got a basic scope of knowledge and you can add to that knowledge at any time. So we should retrain nurses for those other opportunities that are going to be open.
We all know from what's happening that the home care sector is going to be the largest growth area in health care in future years. We're going to need huge amounts of resources in that sector, so we need to retrain those nurses now and get them working in the community so that, as more hospitals close and beds close, the supports are there in the community to look after those patients. The acuity of the patients moving into the community is increasing considerably because of the decreased lengths of stay, so we need nurses with higher skills working in the community as well.
The Chair: Thank you very much. You have one minute.
Mr Seppo Nousiainen: Perhaps I could add to that a little bit. We've got to be careful about the hospital restructuring process too. I think there's a sense that we're going much too quickly and that we're not looking after the fallout from that process in particular. There are a number of things we must do, but I wouldn't want you to forget that particular one.
Mr Phillips: One of the huge concerns I have is that we all salute home-based care and people staying in their homes longer and things like that, but I don't have a sense of comfort that I have a measurement on what's actually happening there. With a hospital if somebody is in the hallway and can't find a room, you know they're there and you can measure it, but when we have people in their homes, I'm not aware of any standard of measurement.
We now are going to publish the scores of all of our schools. Is there a similar measurement that would allow us in the Legislature to understand the level of care in the home that should be there and the level of care that is there?
The Chair: I'm going to need a yes or a no to that. We're out of time for the Liberal Party.
Ms Mitchell: I would say yes, there is a way to do it. The way to do it is for the government to set standards. Somebody has got to define what quality is, and that has got to be the benchmark by which we hold everybody accountable.
Mrs Marion Boyd (London Centre): I'm glad I was able to be here for your presentation. On the accountability issue, I think it's important for people to understand that nurses are the ones who have been calling for accountability throughout the system at every level and have been very supportive of the notion that we need to have clear standards and a way to determine whether those standards are being met. I certainly know that this has been a very consistent recommendation on behalf of nurses.
I want to ask you a little bit in terms of that accountability, whether there are nurses who are working in the field who are at the point where they believe that their professional integrity is being really called into question as a result of the kinds of cuts that have happened. I certainly have had nurses coming to me to tell me about the kinds of work situations they have, where they are being moved from one area of the hospital to another, from one area of nursing to another, where they may not have the expertise that they had, because that's the way the hospital is managing, given this 7.5% cut that you mention in your area. Some are saying they're leaving the field because they're afraid of the liability issues and very much afraid that there has been a relaxation of standards because the hospitals are operating on a strict risk-management kind of program, they're not really looking at the care accountability. Can you comment on that?
Ms Mitchell: That's a story we're hearing on a daily basis. Nurses are angry, they're frustrated, they're trying to do the very best they can. Their workloads are increasing on a daily basis. The patients that are in the hospital are all sicker, they're going home sicker. There's just no downtime. The nurses are frustrated because they cannot give the kind of care they know the patient requires, yet it does make them think about their liability and their accountability to the College of Nurses, because there are professional standards they're supposed to uphold, and on a daily basis they're being pushed to the wall to provide care in accordance with those standards. We have nurses who are just waiting for the day for early retirement packages to come out, because they've had it, they're ready to go.
Mrs Boyd: So we're losing this expertise which we have paid for as taxpayers in terms of the subsidies we give to the training programs in the first place, and we're losing the expertise that has built up over a number of years.
Ms Mitchell: Which is going to be compounded if enrolment in nursing schools continues to decrease, because, as I said, nurses are aging. Where are we going to be in another 10 years, when the average age of the nurse who is currently practising is going to be 50 or 55?
Mrs Boyd: You talked about the Comcare situation in terms of home care, but a similar kind of thing is happening in hospitals, isn't it? Nurses have been laid off but then, to meet the actual requirements day to day, hospitals are hiring nurses back on a part-time basis, usually through an agency. That kind of lack of continuity is in the hospital as well. Am I right?
Ms Mitchell: Yes. Some hospitals do employ them through an agency. Just speaking to nurses last week, they said in an ICU situation in Hamilton they have agency nurses on a daily basis, maybe three or four per shift. It's creating all kinds of problems because that continuity of care is just not there.
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Mrs Boyd: Even though they've had to lay off nurses who used to be employees.
Ms Mitchell: They've laid off their own nurses. In other situations where they don't employ agencies, they have their own casual pool, those nurses who have been laid off are now in some instances working full-time hours as a casual part-time nurse.
Mrs Boyd: With no benefits and no security.
Ms Mitchell: Yes.
Mr Pouliot: People in the corridors; more and more of the people you represent on the verge or risking burnouts. You're asking that the revolution be put on hold until we can better assess the situation and do a more orderly transition. All this while the doctors, your partners, are being wrestled to the ceiling. One begins to wonder. If a government was intent on -- I wouldn't go this far, but suppose that a regime was intent on creating a crisis with the ulterior motive of bringing more privatization into the system. Would this not be the scenario that they would paint?
I have some of our constituents -- and I would welcome your comments -- who have been waiting months for a procedure and they're saying, "Is there any way I can buy insurance so that I can ease the lineup?" hence jeopardizing -- but they preach for their parish. It's a normal reaction. They're talking about themselves, their environment and their community. Do you see an invitation to more privatization if things keep going the way they are?
Ms Mitchell: Certainly if the government keeps on with its present position, I think it's just going to cause more and more problems in the health care system. It's going to become truly a two-tiered system. If you can afford to pay, you'll get service, and if you can't afford to pay, you won't get service.
Mr Pouliot: So the rich will be better treated.
Ms Mitchell: Yes.
Mr Wettlaufer: I'd like to thank you for your presentation. I'm not going to sit here and tell you that we don't have a crisis in health care, but as one who has had considerable experience in planning throughout his working life, I can tell you that you only develop a crisis in anything after a certain period of time, usually years, of poor planning. I have done a lot of work in the medical area since I was elected. My caucus members here will agree that I have been one of the most outspoken and certainly one of the hardest working in that area.
The more I get into it, the more I see that there has been almost no direction in the Ministry of Health for between 10 and 15 years. The more I look at it, the more I realize that previous governments were also cutting costs. In fact, the Liberal government indicated in the election campaign that they could keep costs at $17 billion. We're spending $17.8 billion in program spending alone.
I would agree that perhaps the allocation isn't quite what it should be, but that's as a result of 15 years of no planning. I sit down and talk with the administrators of our hospitals and they tell me they've had this problem for years. They've had a shortage of rooms, they've had lineups in emergency, they've had people on stretchers in the halls for 10 or 15 years at various stages throughout the year. Yes, we've had a shortage of nursing in the last year or two, more so than perhaps at any other time. Is that as a result of cutbacks? Perhaps it is. Is it as a result of poor planning at the hospital level? I don't know. Maybe it is. We're getting more into that.
I think what we have now, however, is a Minister of Health who has a vision and who bloody well knows where the ministry is going to go, and she's going to take it there. I hope it will improve the system for you.
Ms Mitchell: I recognize and acknowledge that the health care system didn't get into the situation it's in now in the past couple of years. It's been something that's developed over many, many years. As nurses, we have been pushing for health care reform. I think back to 1975, with one of the first documents that we released. We don't put all the blame on to your government. However, we really believe that what you have to do is plan first, and we don't believe that what is happening currently is good planning.
The supports have to be there in the community before you start looking at what you're going to do with the acute care sector. So before any more hospitals close or programs close in any community, we must ensure the supports are there in the community to receive those patients and care for the patients in their homes.
Mr Wettlaufer: You will find that the members of our caucus have been very vocal with Mr Sinclair, the chair of the Health Services Restructuring Commission. Several of us told him in no uncertain terms that we didn't want any more hospitals closed until he had a plan for other services in that area.
Mrs Boyd: Boy, that's an independent commission, isn't it?
The Chair: He didn't say he listened to them.
Mr Galt: I'm just curious on the shortage of nurses. I'm hearing two messages and I'm very confused. I've had nurses make presentations to me about losing jobs and there's a surplus of nurses and what were they going to do, and of course there's going to be home care in a lot of other areas. Now I'm hearing an emergency room has been closed, at least for a period of the day, because of a shortage of nurses. I'm also hearing at this presentation there are many other countries with a shortage of nurses. I'm confused. What is the truth out there, or is it just complaining both ways? It's very confusing.
Ms Mitchell: It's a combination of factors that you've got to look at. As employers struggle to deal with reduced revenues, one of the first things they have to deal with is front-line providers, because that's where the bulk of their resources go. We've moved to casualization of the workforce. We've got rid of regular part-time nurses; we've got rid of full-time positions and forced these nurses into casual part-time.
How that shortage has now developed -- you don't work full-time just for the love of it. I would love to be able to go to work and know that I didn't have to go to work, but there are certain factors that you have to cover off. You've got to live.
Nurses then look for as much employment as they can. So instead of working for one employer, they're working for two, three and four employers. That's where your shortage is created. I now work in four agencies. I might work one shift for one employer, but I've made myself available in three other agencies. Employer number 1 now decides they need me to work. They call me, but I'm already committed to work in agency B. So the casualization of the workforce is creating its own shortage.
We've got at the other end those more senior nurses looking for early exit options or just getting out of nursing altogether, and there are nurses who are in a layoff situation who are going to the States because there are lots of jobs down there. Nurses are still going to Saudi Arabia, and I know of nurses who have gone to Britain.
The Chair: I must interrupt you there. I do thank you for your presentation and for your time today.
ALLIANCE OF MANUFACTURERS AND EXPORTERS CANADA, ONTARIO DIVISION
The Chair: The second presenter this afternoon is the Alliance of Manufacturers and Exporters Canada. Gentlemen, welcome and thank you for coming.
Mr Paul Nykanen: I'd like to thank the committee for the opportunity to present our pre-budget submission and to offer some comments from the manufacturing perspective.
My name is Paul Nykanen. I'm vice-president of the Ontario division of the Alliance of Manufacturers and Exporters. With me are John Allinotte, director of corporate taxation for Dofasco and chair of the alliance's taxation committee; David Burn, who is vice-president, taxation, for Nortel and also chair of our national taxation and financial issues committee; and Brian Collinson, director of commercial policy for the alliance.
Before we present our specific recommendations to committee, I'd like to just briefly state who we are and what we represent. About a year and a half ago, the 127-year-old Canadian Manufacturers' Association merged with the 54-year-old Canadian Exporters' Association to form the alliance. We represent small, medium and large members from across Canada and we cover all sectors within the goods-producing industry. Approximately 60% of our member companies are in the province of Ontario, and the member companies represent over three quarters of the total manufacturing output of the province.
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Our mission is to enhance the competitiveness of Ontario manufacturers and to increase exports. In order for us to do that, we must have a public policy environment that is competitive with other jurisdictions not only with Canada, but internationally as well. Jobs depend on profits, and I refer you to a chart in the appendix section of our written submission to illustrate this point.
High tax rates are the reason why we face greater difficulties in attracting and retaining business investment and why many manufacturers and exporters are experiencing problems in securing product mandates. Those difficulties have become more pronounced as governments around the world transform their corporate tax systems to attract new investments by guaranteeing higher rates of return.
We applaud the government for significant progress in debt and deficit reduction, and we urge you to stay the course on these measures. Ontario businesses are well positioned for success in the global economy provided they continue to invest for growth. These investments are dependent on a competitive tax structure, and I will now call on John Allinotte to provide the committee with specific recommendations from our association.
Mr John Allinotte: As Paul said, it's a pleasure to be here to present the alliance's point of view with regard to our tax structure for Ontario.
Let me first say that despite Ontario's substantial economic accomplishment, the alliance believes the province must continue to translate its fiscal achievements into further economic growth and good future prospects for Ontarians for the long term.
In general, Canadian jurisdictions are not preserving the standard of living of the average Canadian relative to the standard of living of other developed nations. What is more, Canada has underperformed its chief competitors in attracting foreign direct investment. The OECD reports that, unlike Britain and the United States, Canada had $0.9 billion less net foreign direct investment in 1996 versus 1995. This points strongly to the need for taxation and fiscal policy which is designed to actively increase levels of foreign direct investment in Canada. In the view of the alliance, many of the following recommendations will directly encourage this foreign investment.
Recommendation 1: We suggest that to further twin the goals of economic growth and employment growth, Ontario should pursue a strategy of surgically targeted tax reductions.
The alliance continues to extend its support for the debt- and deficit-cutting measures of the province of Ontario. We believe these measures should be the top priority of the government, as they are essential to the long-term economic health of Ontario.
Recommendation 2: Debt- and deficit-cutting measures must continue in conjunction with targeted tax reductions. The government should continue this activity through ongoing program revisions and rationalization.
The OECD notes that ever-increasing interjurisdictional competition characterizes the global economy. In such an environment, Ontario generally needs to lower corporate income tax rates to meet the challenges of trade liberalization and competition from jurisdictions with lower wages and devalued currencies.
Recommendation 3: There is a genuine need to lower the corporate tax burden to meet the challenges of trade liberalization and competition from all competitors.
The alliance strongly urges the government of Ontario to rally and lead the non-harmonized provinces into full and complete GST-PST harmonization. Sales tax harmonization would improve the overall domestic and export competition of industry operating in the province of Ontario. The current balkanized sales tax situation weakens the competitiveness of Ontario goods, both in the domestic market and in export markets, against those competitors from jurisdictions with harmonized sales or value added taxes. Indeed, a growing body of evidence shows that investments are being made in the harmonized provinces at the expense of Ontario. The multiplicity of sales tax regimes in Ontario is a bureaucratic excess that Ontarians can ill afford.
Consequently, recommendation 4: We at the alliance again encourage Ontario to take the lead in encouraging the harmonization of the GST with all the provincial sales taxes.
Corporate minimum tax should be abolished. The corporate minimum tax is a strong disincentive flag to potential industrial investors in the province of Ontario, having its origin in an ideology which portrays corporations as not paying their fair share of the taxation burden. Above all, the corporate minimum tax is inconsistent with the message that Ontario is open for business, a message that the Ontario government has laboured long and hard to present.
Our fifth recommendation is that Ontario should abolish the corporate minimum tax, as it is a highly visible disincentive to investment in Ontario.
Like the corporate minimum tax, capital tax is a disincentive for ownership of capital in the province of Ontario. Prior to its election in 1995, the current government made a commitment to make the capital tax creditable against corporate income tax, to render it much less punitive to corporations having assets in the province. None the less, the alliance views the capital tax as a fundamentally flawed tax which takes no account of the fact that corporations are required to pay the tax even when they have no income. Corporations that find themselves in this situation for any length of time are likely destined for bankruptcy or relocation.
Recommendation 6: For similar reasons to those in recommendation 5, Ontario should abolish the capital tax or, as a minimum or interim step, should make the capital tax creditable against future income taxes.
Enhancement of capital recovery in the manufacturing sector: The alliance is currently involved in the preparation of quantitative economic work that will document the substantial benefit that would accrue to Ontario through an improved capital recovery regime. This is a competitiveness issue, for many competing jurisdictions have exceptionally good incentives for the investment or reinvestment of capital, including a very rapid depreciation for advanced production machinery. Such a tax measure would substantially increase the cash flows of manufacturers, with a large resultant economic benefit.
Recommendation 7: The Ontario government should enhance the capital recovery regime in Ontario in order to increase the competitiveness of Ontario business taxation and encourage investment in Ontario's manufacturing base.
Simplification of the R&D superallowance: The current R&D superallowance is complex to calculate and difficult to administer. In particular, the incremental component of the allowance is cumbersome, which could be addressed by changing the superallowance into a single-rate, non-incremental allowance while simultaneously increasing the allowance rate slightly to offset the benefits currently derived from the incremental component. This measure would be revenue-neutral and would greatly reduce the administrative costs to business and government alike.
Recommendation 8: The Ontario R&D superallowance should be changed into a single-rate, non-incremental allowance.
Complete elimination of the 5/15s addback: Ontario is the only jurisdiction with a tax like the 5/15s addback of withholding tax, which imposes a tax on management fees, rents, royalties and similar payments to a non-arm's-length non-resident. The alliance believes there is little policy justification for such a tax. The addback provisions are a strong disincentive to the flow of technology and other productive goods into the province of Ontario, and the addback on lease payments has cost Ontario a number of leasing-related businesses.
Recommendation 9: The 5/15s addback should be eliminated, as it impedes the flow of technology, knowledge and productive resources into the province of Ontario.
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On personal income taxes, and following along the comments of the nurses, this is possibly part of the reason for it. The alliance believes that at least some of the economic recovery in the province is attributable to the personal income tax measures which the current government has taken since coming to power. None the less, the alliance has become increasingly concerned with the continued outflow of skilled knowledge workers from Ontario. We believe this outflow will continue for as long as Ontario and Canada continue to have such steeply progressive rates of personal income taxes.
Recommendation 10: We suggest to you that measures be taken so that this tax is reduced.
Provincial sales tax on software should be eliminated: The alliance believes there are two good reasons why software should be exempt from Ontario provincial sales taxes. First, tax policy should be designed to incent business and industry to adopt new technologies. However, imposition of PST on software has the effect of disincenting the acquisition of new technology in the form of software. Second, the provincial sales tax on software represents yet another tax on business inputs, which increases the ultimate cost of Ontario goods and thereby reduces the competitiveness of Ontario goods on export.
Recommendation 11: In order to increase productivity in the Ontario economy, to enhance the competitiveness of the industry and to avoid the negative competitive effect of additional sales tax on inputs to Ontario products, the provincial sales tax on software should be repealed.
Taxation policy must address the year 2000 computer date problem: Here we have three recommendations.
Serious questions surround the readiness of computer technology in the manufacturing sector and related sectors to handle the date requirements of the coming millennium. This is especially true among small and medium-sized manufacturing and processing concerns. Substantial business disruption may well result and lead to failure to meet contractual obligations, layoffs and bankruptcies, which may cascade and disrupt the supply chain of many large enterprises. The taxation aspect of this problem must be taken into account for the long-term economic wellbeing of Ontario.
The alliance is also concerned about the year 2000 readiness of the infrastructure of Ontario upon which manufacturing and other business concerns depend, in particular the readiness of the electrical, natural gas and other utilities, transportation infrastructures, government ministries and municipal governments and infrastructures.
The government of Ontario should review all governmental, quasi-governmental and municipal infrastructures essential to business and industry to ensure that it is year-2000-ready. It should also put in place a unified government-wide strategy for year 2000 readiness, coordinated and executed by a central body such as the Management Board of Cabinet.
Our three recommendations here:
The alliance urges the government of Ontario to adopt the accounting guidelines for year 2000 compliance costs set out in the emerging issues committee of the CICA.
For the ongoing health of manufacturing, processing and exporting activities in the province, the government of Ontario should rapidly introduce revenue-neutral tax encouragement measures to facilitate year 2000 readiness on the part of business, and especially small and medium-sized manufacturers and processors.
Third, the government of Ontario should use every means at its disposal to ensure that the governmental and quasi-governmental infrastructures that are essential to business and industry have attained the necessary level of year 2000 readiness, with particular attention being given to utilities and transportation infrastructures, government ministries, and municipal governments and infrastructures.
Furthermore, the government of Ontario should put in place a government-wide strategy for year 2000 readiness, with responsibility for its execution being given to a centralized authority.
Thank you.
The Chair: Thank you very much, gentlemen. We have about four and a half minutes per caucus, and we'll start with the NDP.
Mrs Boyd: Thank you for your presentation, both the larger printed presentation, which goes into more detail, and what you presented verbally this afternoon. I take it from all your recommendations that you are as a group not of the view that the government has any kind of revenue problem. You feel it has a spending problem but it doesn't have a revenue problem. Is that correct?
Mr Allinotte: I think, as far as a revenue problem, they have in place tax systems that are raising more revenue than our competitor countries. I mean, we only have to go across the border into Quebec and compare the corporate tax rate for our manufacturers in Quebec versus Ontario and we find that we pay more.
Mrs Boyd: But every time the government lowers taxes, as we've seen with the personal income tax lowering, it incurs more debt. This government continues to incur deficits and continues to build on the debt, and the biggest factor in that is the cuts in the personal income tax. So although they've cut drastically in programs and we're all feeling the effect of that, the reality is that they have a revenue problem, not just a spending problem. Yet you come in with recommendations that would see further cuts in the revenues to the province. If all of these things were put into effect, how would you expect a government to manage?
Mr Allinotte: From the alliance's point of view, a lot of these recommendations that we've put forward, our analysis would show that there would be economic growth. Similar to the tax reductions that were afforded in the personal regime in Ontario, we expect to see the same type in the business community.
Mrs Boyd: I think that's interesting. In fact, your financial outlook is considerably gloomier than what we heard this morning from Nesbitt Burns. You're predicting a gross domestic product increase of only 2.8% in 1998, and Dr Cooper was saying that in Ontario she expected that growth rate to be considerably higher, 3.3%, which is what you're talking about. On the one hand you're saying you want them to not charge all these taxes, but you're predicting a very conservative growth in the economy to make up for the difference in the revenues that the government would have.
Mr Allinotte: Yes, but those economic projections do not take into consideration any tax reductions.
Mrs Boyd: But the government has to take them into consideration. You said the answer to their revenue problem was that there would be growth in the economy and that would offset any reduction in the revenues that they got from taxation. It is not apparent from your presentation that this in fact would be the case.
Mr David Burn: If I might jump in, the Ontario government over the last decade or so has made dozens of increases in the business tax world. The number of reductions you can almost count on one hand.
The point we're trying to make is that the next incremental decisions of most of the non-resident investors in our factory facilities in Ontario and those, as our two corporations are, which are based in Ontario are very much determined upon what the overall costs are of doing business in this province. You heard in the presentation that already Quebec has an edge on us because they've got a harmonized GST and provincial sales tax, and that makes quite a difference.
You will also see in the presentation, I think on the very last page of the hard book copy, where Canada fares, and Ontario in particular, in comparison with the other countries in the world. We're not competitive. If there is one other country out there where all other facts are the same but their tax rate is better than ours, then they are the ones that have the advantage. If you speak to our people who try to sell the province abroad and they have to admit that there is one other country that's maybe more favourable, then the first question of that potential investor is, "Which country is that, or which jurisdiction?" That's what we have to fight.
Mr Baird: Thank you very much for your presentation today. We're certainly interested in what you folks have to say because manufacturing is one of the cornerstones of the Ontario economy. I wanted to ask you briefly, just in response to the comments made by my colleague from London Centre, is your argument that if we cut taxes, economic growth will go up and more jobs will be created?
Mr Allinotte: To the extent that we're looking for capital investment; from it comes jobs. One thing the manufacturing sector is quite willing to admit is that the growth in jobs today is not the same growth in jobs we saw in 1972, but these measures that we are looking to in this presentation are the measures that we put in, or the governments put in, in 1972 that caused Ontario to grow during the 1970s and early 1980s.
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Mr Baird: In the late 1980s and early 1990s when taxes went up, what type of effect did that have on your members?
Mr Allinotte: Capital expenditures in the province fell off considerably.
Mr Baird: And economic growth went down.
Mr Allinotte: That's right.
Mr Baird: I think the argument speaks for itself. When we're cutting taxes, revenue is going up. It's the exact same thing that happened in the previous government, where they increased taxes and revenues went down. Past practice dictates future results, in my view.
I wanted to further ask you with respect to page 9: You mentioned the personal income tax and the effect it has had on economic growth. What is a typical business that would be a member of your alliance, a typical manufacturer in a consumer good, for example?
Mr Allinotte: The automotive industry is a part of our alliance.
Mr Baird: So on the automotive sector, obviously interest rates are going to play a major part there. What the government can do on interest rates is keep debt low and keep the deficit low and eventually eliminate it. That presumably will have some impact.
As well, we learned this morning from Dr Sherry Cooper that with household income and consumer spending there is a very close relationship and that the tax cut has had a substantial impact there. Would you agree that the rise in consumer spending, particularly leading in the automotive sector, and the tax cut adding to household income and consumer spending have had a positive impact on your industry?
Mr Allinotte: I can't speak for the auto industry. I'm in the steel industry, and our steel production that goes out to the automotive industry has certainly climbed.
There's one thing I can tell you about personal income tax after being in tax practice for over 30 years. One of the things we find is that when the take-home pay of an individual goes down because of deductions at source, the place they turn to is their employer. Their employer in the 1950s, 1960s and 1970s was able to make up the shortfall that was being caused through increased taxes. Once we started hitting 1980, the global economy came upon us and we no longer could do it. The consumers, our employees, have no money to spend. Tax reductions will cause them to spend that.
Mr Kwinter: I have a question. I didn't see any reference to the whole MAI issue. Does your alliance have a position on the MAI? Have they been advising the federal government? Do you have a feeling as to what the shortcomings or the advantages of it are?
Mr Brian Collinson: The alliance is currently in the process of formulating a detailed position on that and we'll be releasing a paper in the near future. At this point in time, it would be a bit premature for us to speak about our position in the organization as a whole on that.
Mr Phillips: Yours was a very thoughtful presentation. Among other things, your advice on the problem with 2000 is important. On behalf of our caucus, I sent a letter to the minister before these presentations just asking the government to respond to it, and certainly we'll push that. Your advice on the various tax measures is important as well.
I want to just get a sense from you, because your organization probably has your finger on the economic pulse: With just-in-time delivery and what not, you probably can sense upturns and downturns, but you are somewhat more pessimistic in terms of the economy than other presenters we've had here. I realize you are talking about the Canadian economy in your brief here, but you are predicting 2.8% growth, if I'm not mistaken. You haven't commented on the Ontario economy but you're sending out some caution signals for us which are quite important because revenues tend to be driven fairly much by economic activity.
Is your sense that in the Canadian economy, and I'd particularly appreciate if you could comment on the Ontario economy, there are some things that are beginning to weigh against economic growth?
Mr Nykanen: On a domestic basis, consumer spending is way down for the reasons that have already been stated. If we take a look over the past 10 years, we've seen a continuing deterioration in terms of the Canadian manufacturers' share of the domestic market, whereas all of the growth that we have been seeing has been in the export business, where we've had the exact reversal. If it wasn't for the exports, we would be in tremendous trouble.
We are also subject to a lot of uncontrollables, if you will, in terms of the ability of Canadian manufacturers to export. Those are things such as currency fluctuations obviously, but probably more importantly, going into the automotive sector, the economy in the United States is a key factor. As long as the economy in the US is booming, people are buying more automobiles. More automobiles mean more business for Canada, which also means there are suppliers for that industry. But because we're vulnerable on so many of these external factors, there is a degree of caution there.
Mr Phillips: Has your organization had an opportunity to comment on the Ontario economy? As I say, you predict a 2.8% real growth for the Canadian economy. Have you done any work on the Ontario economy?
Mr Nykanen: I don't have an exact number on that, but our economist feels that the Ontario economy is going to be better than the overall Canadian economy.
Mr Phillips: You're pushing very hard to harmonize the GST and PST here. Actually, there's been relatively little talk at the committee about that that I can recall. In past years there was more talk about it. Have you any estimate of how much provincial sales tax is represented by exported products? In other words, how much of the provincial sales tax is revenue that goes on to products that you export?
Mr Burn: I think we've heard a number that may be in excess of $1 billion, which obviously is a fairly significant number. Having said that, that is a cost that's going into our exports, so it has increased our exports by $1 billion.
The point that I was alluding to earlier is that already we're seeing investment decisions -- plants, computers, different business activities -- being located to our east, which in due course will attract more jobs, more spinoff businesses and so on.
As long as Ontario and the federal government can't get together on this issue -- I was interested in your comment about not hearing much about the issue. This has been one of our prime issues for a number of years. When we raise it in Ottawa, they say, "Well, the provinces don't seem to think that business is pushing for this," and that is actually not the truth. We are pushing very strongly for it. We think probably it's one of the most important issues, but we just can't get it to the top of the agenda of the rest of the country, so therefore it's fallen away from the top of our agenda, frankly.
The Chair: I apologize, but our time is up and we have to move on. I thank you for your time, gentlemen, and for your presentation.
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ONTARIO SOCIAL SAFETY NETWORK
The Chair: The next presenter this afternoon is the Ontario Social Safety NetWork, Sherrie Tingley and Scott Seiler. Welcome. Thank you for coming.
Ms Sherrie Tingley: I want to thank you for the opportunity to present to this committee. I'm Sherrie Tingley. I'm with the Barrie Action Committee for Women. It has been operating for eight years as a volunteer group of women. Primarily we look at issues of poverty and single mothers. In addition, we belong to the Georgian Bay Coalition for Social Justice, so we work with our partners in the community. One of the things our coalition for social justice did was look at the welfare mess and undertake a public education campaign. When we did that, we received 400 calls on our phone line, a lot from recipients struggling with the welfare cuts.
In addition, I am the chair of the Centre for Equality Rights in Accommodation, which assists 800 people a year to get housing in the province of Ontario, a lot in Metro. As well, I sit on the advisory committee to the city of Toronto on homelessness.
I'm a single mother of a 13-year-old and I'm self-employed. I do Internet work, online work, and Web design. I spent one year on social assistance at one point, and like the majority of single parents I was glad it was there, but I moved on.
This is Scott Seiler of the Income Maintenance Group.
We're presenting on behalf of the Ontario Social Safety NetWork. That's a provincial coalition concerned about the dismantling of social protection in Ontario. The Ontario Social Safety NetWork membership includes individuals and representatives from community groups, community legal clinics, faith groups, social development organizations, labour, multicultural, seniors and anti-poverty groups, as well as disability groups.
I've never done a pre-budget consultation so I was a little lost, but I hope to have your indulgence, because I've had a budget question that in my community has been unsolvable for two and a half years. You need a blank piece of paper to do this, maybe, and you can help me with it.
You start with $957, and in my community you take away $725; that's the average CMHC rent, if you're lucky enough to get that rent. Hydro costs you $75 a month. We're up to expenses of $800 a month there. A phone is $25 a month. Content insurance, and many landlords demand that you have it, or at least liability insurance, is generally $10 a month. Laundry, if you're really careful, is $10 a month. Soap, toothpaste, those sorts of special needs, if you're very careful are $10. Cleaning supplies are $5. School supplies are $5. Transit, with four trips a month, with a child, in my community is $10. The drug co-benefit for many people works out to $10 a month. If you want to have shoes and boots for your child's growing feet, that's $10 a month. With welfare benefits of $957, that leaves $57.
My dilemma for two and a half years has been to tell people what to do and what to cut. You can cut your laundry a little and try really hard to wash things by hand, so there you have $10. School supplies you can generally cut. Some people can walk, but in many communities in Ontario, including mine, it's a real challenge, but you could try to do that. The drug co-benefit -- you can often go without your drugs and I guess risk a child's illness getting worse. You might, if you're lucky -- well, you won't any more, I don't think, in any of the hospitals in Ontario. You used occasionally to be able to get a prescription, but now they give you enough for one dose and you still have to take the taxi to the pharmacist.
That's generally a budget dilemma that I have been unable to solve. After the welfare cut, 80% of the families in Ontario were paying well over $100 above the shelter component of the welfare benefit, and in addition there was the reduced basic needs component that really had no room to take things from. So many people in Ontario with children have that budget dilemma of how to make $50 feed yourself and your children.
I don't know if anyone has any answers. Maybe this is something you can answer as you're pondering your budget, because it's a very pressing concern. We're seeing the level of homelessness just go beyond compare, and of course we're seeing more children now in shelters, and single men. In my own community of Barrie it is estimated that there are 6,000 people homeless. Increasingly, people are getting concerned. Recently, 400 people turned up for the volunteer training for the Out of the Cold program, so people are very concerned.
I know that often the government comes back and says, "Well, our rolls are down and there are 100,000 fewer children." We're concerned about where people have fallen and we're hoping that that can really be tracked. We're also concerned about where people are going to go, with the announced changes to welfare and to the housing rules as rents start to skyrocket.
We're very concerned that we've had no opportunity for public input into the regulations in the new welfare reform act and that they have not come out yet, although people's lives are going to be affected by them come April 1.
We're very concerned about what is happening with people and their children. I had mentioned that our coalition had done a myth-busting campaign and got 400 calls from October to May as the welfare cuts hit. Many of those people called us to ask us that dilemma question, "What do I do?" and for help in terms of being evicted, for information on getting on waiting lists that are three to four years long, and to tell us their stories. I've given you a copy of some stories. Some of the stories we heard were just heartbreaking.
Often people chose to double up and we're very concerned about that. That's a real hidden poverty. With 80% of the caseload having rent well beyond the ability of the shelter component of their cheque to cover, we know that at least half of those people could not maintain the housing they had, so we heard many women talk about doubling up. For children, that's very difficult. Often they're allowed to have one toy. Quite often in the evening they have to go out if they're staying in a friend's living room, and after about two or three months they have to move on to another friend's.
The shelter system for women and children is the last resort, so when you see the numbers on the shelter system in Metro -- and that applies to all communities that have high shelter costs, high rent, which is a lot of them -- that's just an indication of what is happening to families. A conservative estimate is that for every family in a shelter, there are at least 10 families in horrendous housing situations, doubled up, in friends' living rooms, parents' basements -- now, in some cases parents have great basements -- or sharing with their parents in an apartment.
We know it is very difficult for children, and when they have to change schools it's a real challenge. Again the dilemma comes into play. How do they get access to housing? They cannot find affordable housing, because we know that the shelter costs in Ontario are extremely high.
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One of our questions for this government -- I don't know how this is going to play out -- is, what's going to happen with the child benefit? I wonder if Ontario is going to have the courage to be the province that doesn't take it away from people on welfare. That's a 10% increase, and it will be a 10% decrease in what you pay out to people on welfare. I think the increase in July will be $40 or whatever. What's $40 for a child? But will you allow that family to keep that money or will you take it away?
One of my concerns is the increasing health care costs of some of your decisions. Poverty is the best predictor of a child being born with low birthweight, of a child dying in a fire and of a child having a disability. In addition now, with the determinants of health, the things that determine health, we're starting to understand -- number one, it's the gap between what most people have and then the bottom, what you don't have. We know it's not the level of richness; it's the difference between the incomes people have. We also know that it's control, the ability to make some decisions about your life and having some control. For a lot of people on welfare, there is no control. There are no choices. There is a lot of despair. There's increased drug use, Prozac and what not, depression, and there's a lack of control, a lack of hope.
We know that for a single parent it's a disaster to have a child with an ear infection, at least in my community, $20 to get up to the hospital if you can't wait until the next morning, and then it's $20 to go to the pharmacy and $2 for your copayment. You probably have to buy Tylenol, and for a child that's $15. Then the taxi back home is another $20. This is a disaster for a family. Then if you buy the Popsicle and ginger ale so your child doesn't become dehydrated and have to be admitted for two or three days with an IV, again $5. What are you going to do? It's a disaster. Families are at risk of losing their housing. With that kind of disaster, you can't make your rent.
It's just terrifying, and people are terrified. We know what that's going to do to their health and we know what it has done to their health. Again, they fall on to the street, and you know what you pay in hotel costs for a family that has fallen on to the street.
As workfare comes in for single parents -- again, many have been talking about it -- they're terrified. The stories are different. No social worker seems to know what's going on. The regulations aren't down. There are no answers. What's going to happen to that mother with that sick child? Does she go to her placement or does she send her child to school? Often you have to go to the doctor. Do you go to the doctor and risk losing your income? It's your choice.
What's the cost of not looking after that child, not seeking medical attention? I don't know if any of you are parents, but you know with the ear infection that it goes on and in two weeks you've got something else, and these children aren't feeling well. Will she be cut off if she misses three times in a week? Will the child be sitting in school? They're terrified now with CAS. If you send your child to school sick, will CAS say you're neglecting your child?
The stress levels are just beyond compare. I was hoping -- the discussion earlier seemed so complex -- that you people may have the answers for people, because I haven't been able to find answers for people at all. I hope you will read some of the stories people shared -- it was very difficult -- and I hope you will look at the mess and what we feel needs to be included in a social safety net. I'll turn it over to Scott.
Mr Scott Seiler: Actually, this is the seventh time I've presented in front of the standing committee on finance, and what's remarkable is my seventh time here is that it's almost identical to the first time I was here. I think that's a very telling statement all on its own. The only difference between the first time and this time is that the situation has got only that much worse than it has been in the past for people with disabilities, and that's my primary bailiwick, as an activist and an advocate for disabled issues.
The group I represent primarily is the Income Maintenance Group, and we have been around since 1978, asking for reform to social assistance and the programs that surround social assistance for disabled people. To be very frank with you, the situation is steadily getting worse and worse for disabled people. Bill 142 has redefined what disability is and will end up resulting in the cutting of tens of thousands of people with disabilities off social assistance in the next six months, before implementation of Bill 142 occurs.
Yes, we believe Bill 142 will not be cutting people off, but I'm afraid the people with disabilities who are going to be cut off social assistance aren't going to make implementation of Bill 142; they're going to be cut off now. I know that because I am getting, and so are many other groups in the community, dozens of phone calls from people who are being reassessed as we speak for their status on FBA as a disabled person. This is not happening only in Metro; this is happening right across the entire province and is impacting on tens of thousands of people with disabilities. The fear level out there in our community is so high right now because of the massive campaign to try and throw as many people off as possible. It is just incredible. People who get these letters are scared to death, because they know what the letter really means. It means that you're gone off the system.
Also, we're seeing the diminishment of the kinds of support services that persons with disabilities need out there in the community, for education, training, health care. As these systems deteriorate, so does the likelihood that people with disabilities will be able to build a better life for themselves either now or in the future. We're seeing that diminished almost on a daily basis here in the province, with the cutting of specialized programs for persons with disabilities on all kinds of levels, everything from special services at home being scaled back and disabled single parents with disabled children having to go through the welfare cuts, as well as the changes going on to workfare and others. There has been no evidence shown by this government that single parents with disabled children, for instance, will be exempt from workfare. If that is the case, that they will have to do workfare, I would like to ask the government members who is going to look after that disabled child, or will that disabled child have to be given up and the state ending up paying for that?
There's a lot of real silliness going on here. We save money in cutting back on welfare payments to individuals with disabilities, but we also increase the stress level, which increases the amount of hospitalization of psychiatric survivors, which increases the amount of money the health ministry has to spend. So in one area you save money; in the other area you spend three times the money you save. This is a common occurrence when we start piecemeal to try and save money. This is what is happening across the board. We're already seeing our emergency departments in our major hospitals completely overwhelmed, and that's only going to get worse as time goes on and as the cuts go further and further.
We've got problems. For instance, out in Mississauga, the United Way has said to the Mississauga area United Way agencies that the chances are that they're going to have to shut down for three months this year because the money isn't there to run the United Way agencies. Once you add downloading to that, God help us all.
The Chair: Thank you very much for your presentation. We have approximately two minutes per caucus, the government caucus first.
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Mr Galt: Thanks for the presentation. I'm a little disappointed about some of the myths you're sharing with us here this afternoon, but so be it. I don't think there's anyone around this table who isn't empathetic to those who are less fortunate and wants to try and help in some way or other.
Once upon a time, the churches took quite a responsibility in looking after charity and the government sort of took that away from them. But from what I'm hearing here this afternoon, you're telling me, at least that's the interpretation I'm picking up, that the government should be totally responsible and the churches and other organizations in other areas shouldn't have a responsibility for those who are less fortunate. Is that what you're telling me this afternoon, that it should be all the government's responsibility?
Ms Tingley: That's what the International Covenant on Social and Economic Rights says.
Mr Seiler: And you are a signator.
Ms Tingley: You signed it. You're held up and judged in a world context.
Charity relies on giving to somebody in need and just giving them what you think they need. We had a social assistance system that had single people on for an average of five months and single parents on for an average of three years, not like the United States. We had a system that was relatively working. We had a number of supports. We had a system that caught people. The churches used to provide health care and hospitals in this country. Should we take that away from them?
Mr Seiler: Would you like to go back to the 1840s?
Mr Galt: You didn't answer me yet. Does the church not have a responsibility for helping, and some other organizations?
Mr Seiler: No.
Mr Galt: The church doesn't?
Ms Tingley: It has a role.
Mr Seiler: Not for the basic support and basic needs of people with disabilities --
Mr Galt: No, I didn't say that. I asked whether they do not have a role, and you said no, they don't have a role to help charities.
Ms Tingley: I think they have a role comparable to their role in the health care system.
Mr Galt: A role comparable to the health care system?
Ms Tingley: To their role in the health care system.
Mr Seiler: Going in and friendly visiting people, supporting people but not providing income to people.
Mr Galt: Not providing money or not providing any other services or anything else, the churches become a very expensive social club to belong to. That's what I'm experiencing with the one I belong to; I've cut off giving to mission and services. With this kind of attitude -- and I understand you're a minister of the United Church.
Ms Tingley: I'm sorry, I'm not a minister.
Mr Galt: It says "reverend" here. I've been told that in the past.
Ms Tingley: No, I'm not.
Mr Seiler: That's Susan Eagle.
Ms Tingley: Susan is the chair of the Ontario Social Safety NetWork.
Mr Galt: Anyway, your comments about the churches not having a responsibility were interesting.
The Chair: I think we've answered the question. We'll move to the Liberal Party.
Mr Kwinter: For the last several months the Minister of Community and Social Services has regularly announced that social welfare rolls are down. The perception is that they're down because these people have now found work and are able to sustain themselves, able to do all these great things that don't require assistance from the taxpayer.
My question to you is, in your experience, is it the case that there are people who are on there fraudulently and have been discovered? Is it that they have in fact found jobs for these people? In real terms, have more and more people been put back into the system or is that not the case? Could you elaborate on that for me?
Ms Tingley: I would say it's not the case. In the studies they are referring to, they couldn't locate 60% of the people. Many didn't have phone services. Of those contacted -- this is the government's own study -- only 27% had found work. That's just like the regular turnover.
In terms of fraud, they haven't been able to find any increased fraud. What did they find in Metro? $2.2 million. Often they were administrative errors. My welfare administrator up in Simcoe defrauded the system of $500,000, half a million dollars. He's facing fraud charges. Maybe you need to look at the welfare administrators if you're trying to save money.
Mr Seiler: Actually, I was told an interesting thing by a university professor a couple of years ago. The reason they switch workers on social assistance recipients on a constant basis is for that exact reason. In the past, they've found that social assistance administrators putting family and friends on the system is a common occurrence.
Mr Pouliot: I certainly welcome your presence. This is a pre-budget consultation where groups, organizations and at times individuals share their expertise and education with all of us. Also, they give recommendations on the eve of what is the most important tabling of legislation, that of the fiscal year budget. You're most welcome here.
This is a time of recovery, by all accounts. Governments, regardless of stripe, try to put their best foot forward. In terms of the human dimension, you must feel that the recovery, for the people you represent, has passed you by, that you weren't given a chance to be like the others.
I often wonder -- many do, I suppose most do -- when they see the disparity, when they see the wealth in our vast and magnificent land and when they hear people like you tell their stories and say $5 for laundry, $10 for gifts. Most of us here spend more than this without noticing it. Fully 40% or 45% of the people on general assistance are children, and unless you help the environment, you cannot do that. It's really shocking.
I have social difficulty in accepting. I want to wish the person well. I have immunity here, Chair. I know that Mr Stronach and others have been success stories in our relative terms. You turn around -- and there's nothing wrong with giving incentives. We agree most people will say, "I pay too much in taxes." You give Stronach, because of your philosophy -- I don't want his millions, I can do quite well, thank you. You give him more than $3 million extra a year. He made $38 million last year with bonus and salaries. He gets $3 million and you turn around and cut them by 21.6%. You call that a hand up and you want them to integrate. If we are as rich as the poorest link in our society -- I mean, give me a break. You can't do that and get away with it. You will get away with it because it's easy to press the button, but you're developing a caste system.
You don't want to do this. You don't want to deliberately harm people. Maybe you will pray for them. Like you said, go back to the church. Are you annoyed when you see them with your very eyes, when the only thing separating us from a worse lot is our support system, a few dineros, dollars in our pockets and the ability to be with and like the others? Without a paycheque or supporting spouse, the family and the community unit, this is what the lot is for us.
The Chair: I'll have to interrupt you there, Mr Pouliot.
Mr Pouliot: I don't want an answer, but there is no need for this kind of attitude. People pay us the compliment of their visit. This is what it's all about. They have just as much right. We rolled out the red carpet for the bankers this morning. We rolled out the red carpet for Nesbitt Burns when they were selling us more Bre-X. But for the people who have nothing, they should apologize by virtue of being on the list? No, Monsieur.
The Chair: Thank you, Ms Tingley and Mr Seiler, for attending and for your time and your presentation.
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ONTARIO HOSPITAL ASSOCIATION
The Chair: The next presenter this afternoon is the Ontario Hospital Association, Messieurs MacKinnon and McKenzie. Gentlemen, welcome and thank you for attending.
Mr Geoffrey McKenzie: Thank you, Mr Chairman and members of the committee. My name is Geoffrey McKenzie. I'm the chair of the board of directors of the Ontario Hospital Association. With me is David MacKinnon, president of our association. On behalf of the OHA I want to thank you for this opportunity to speak with you today.
In my professional career I was the managing partner of a major management consulting firm, and therein lies my background in terms of my work experience. As a hospital trustee I have served as a board chair of the Riverdale Hospital and most recently on the board of the OHA. In both my professional and voluntary capacities I have learned a great deal about the complexities of health care and the problems facing hospitals and the many stakeholders that are involved in the current environment.
Over the past few years we at the OHA have observed and participated in many of the changes taking place in the health care sector and particularly in hospitals across the province. We have had the opportunity to study closely the results of those changes and the implications they have for the future delivery of health care in the province.
Based on our observations and widespread consultations with consumers, hospital boards, managers, physicians, nurses and other front-line staff, we've been able to assess the current situation and are now prepared to make recommendations for the future. We see this afternoon as an important opportunity to communicate to the Legislature our views and concerns in this regard.
We believe it is time to challenge conventional thinking and to move forward on an agenda which is based on reliable information which will deal with the real needs and expectations of the consumers of the province. We have come to the conclusion that it is time to make some fundamental shifts in thinking about how health care should be delivered in the future. David MacKinnon will now make our presentation.
Mr David MacKinnon: Thank you very much, Mr Chairman, for the opportunity to come before the committee again. I recall our discussion last year and the very useful questioning that arose from it.
Since 1992 Ontario's hospitals have experienced a cumulative reduction of funding that's equivalent to nearly $1.8 billion after you consider population growth, inflation and the nominal cuts that have been made, which are slightly under half that amount. While these dollar savings, very significant savings, have been realized, they have come at a very high price. The public confidence in hospitals has deteriorated somewhat, and you'll see that in an attachment to our presentation that's being delivered to you. You will see that we have charted public confidence in the system over the years.
We believe it's now time to stabilize. The need for stabilization of the system is important. We think the government did recognize that with the deferral of the third year of cuts to hospitals announced in last year's budget and we're also pleased to say that the funds budgeted for restructuring are now helping in a very significant way.
But I'd like to go beyond our normal discussion and talk about why hospital issues are so prominent in the television news and in newspapers these days. Most of the news, we are aware, is troubling to taxpayers, and we certainly know it must be especially troubling to legislators who must act on their behalf. We would like to suggest a basic change in Ontario health care that would provide much better health services and significantly lower the decibel count.
The headlines we see relating to budgets, overcrowded emergency departments, long waiting lists and all the other issues are symptoms of a far deeper problem. They're symptoms. The real problem in Ontario is that over the past 15 years we, as have several other provinces, have with the best of intentions put in place fundamental health policies which are not rooted in evidence or fact.
Short-term funding fixes, the patience of consumers and the endurance of front-line staff have all shielded us from the effects of this problem for a very long time. But sooner or later we cannot function normally and the dam bursts. An accumulation of small problems can easily turn fundamentally flawed policies into a crisis. So what are the policies that cause us so much difficulty?
The key non-evidence-based policy is the transfer of care and funding from institutions to what is called "the community" in the language of the health care sector. Policymakers have felt, with little or no evidence, in our view, that consumers want this shift, that they are able to assume the additional burdens associated with it and that it will somehow lead to better or less expensive service. It is also assumed that this shift, which involves hundreds of thousands of people and hundreds of organizations, can readily be accomplished. It's almost as though we think that if we wave a wand long enough it will happen.
We're aware that our repudiation of a basic policy pursued over 15 years by governments of three different complexions may seem harsh. But we have been examining this issue most closely. No reasonably conclusive evidence exists to support this cornerstone policy of Ontario's health care system. I'd like to express this in more human terms.
In the pursuit of this policy over many years, we may have shifted a large number of mentally ill people to the streets and in some cases to prisons. Is this what we want?
Do we risk causing other problems as well? In our view we do. We risk causing TB outbreaks among the dispossessed and having innocent people pushed in front of subway trains, to cite just two examples.
We also run other risks. Can the women of the province, who carry much of the burden for this shift, assume new responsibilities at a time when very large numbers of them are caring for parents, children, jobs and homes, very often without the support of a spouse? Maybe they can, but we think not. Whether they can expect or be expected to do more is a very serious question that our society must soon answer.
There are further risks, some of them perhaps unexpected. In the last British election one of the parties included in its platform a promise to pay people to stay away from work to look after friends and relatives. I guarantee that serious requests for an extra billion or two for such a program here would cause quite a stir in the Frost Building, and yet we can almost expect them.
It can be argued, and it has been argued frequently, that all these problems can be avoided if we can find the budgets for additional community support, if we can put them in place in time, if the transition proceeds without a break of even half an hour, if it can be coordinated and if the doctors and the nurses and the front-line workers of all kinds don't buckle under the stress, and they are indeed stressed.
This list of ifs, a very incomplete list, is nevertheless a very large list. We argue that from where we stand now, several years into a major transition without a plan for that transition, it is in fact an impossible list from any practical point of view.
Our proposal is that this government must take a very different path. The people of Ontario have many billions of dollars invested in hospitals. They are, all our polling shows us, among the most valued of social institutions. They also have most of the managerial infrastructure in the health care system and are guided in their affairs by people from all parts of the community, many of them people of great distinction and accomplishment. Legislators should reinforce hospitals rather than weakening them through further budget cuts to support non-evidence-based transfers of their functions and services elsewhere. Hospitals can be used to integrate the health care system. We have clear proof that it is possible to broaden the role of hospital boards and to use hospitals in this way. The proof is that in many parts of Ontario this is already under way.
One of the best examples is in Parry Sound. If you visit that community, you will find a hospital board that has broadened its functions to encompass a hospital, a nursing home, a community care access centre, air and surface ambulance services and a variety of other related programs. People have one-stop shopping for a very large number of health services in that community. They have it in many other communities in Ontario. Virtually all hospitals in Ontario are evolving in this direction today.
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We know that to break with 15 years of policy and to extend these models across the province is a very large task indeed. We know in particular that it needs a huge sense of partnership with the rest of the health care community, very genuine partnership that would demand as much of hospitals as it would of the others. New alliances would also be needed with the private sector, where many of the skills we will require for the future are located. I'll come back to that point.
Again, hospitals and other providers have put hundreds of these kinds of arrangements in place, enough to demonstrate that any model we can imagine can become reality because it is being practised somewhere in Ontario today.
In short, a new direction is open to us. Consumers can readily access a wide range of health services right on their doorstep. Services could be delivered in the workplace, at home or in institutions, with seamless boundaries among them. Costs could be avoided, because much greater flexibility becomes possible.
Gains would be possible in other areas. Physicians and nurses would be better supported. We are particularly conscious of the nursing issues. In any event, both groups are under rather severe pressure due to changes in the system around them. This kind of grouping of services would also provide increased support to other clinical and front-line staff in nursing homes, in mental health facilities and a whole variety of other aspects of the health care system.
I'd like to briefly cover one or two other areas. In the last few years, it has become apparent to hospital managers throughout the province that hospitals need to work together more effectively. OHA has adopted a new program with our members to achieve this goal. The most important new initiatives that we intend to implement are technological. The front door of every hospital should in part be based on the telephone, through telephone triage and the educational possibilities of the Internet.
We also want to put in place advanced telecommunications facilities to connect all hospitals with each other. Again, these steps may seem very abstract until you put them in human terms. But just imagine what it would be like in Ontario if the expertise of physicians and nurses in any one hospital could be delivered to all the others instantly. The barriers posed by our formidable geography would be reduced significantly.
Imagine also what it would mean to young, busy families to know that the skills of the nurse practitioners and the physicians at their community hospital can be accessed with only a telephone call. This also would relieve the pressure on overloaded departments. In fact, if I could ask you to remember only one word of my presentation today, it would be to remember the word "imagine." Imagine what we can do by grouping facilities. Imagine what we can do with telephone triage. Imagine what we can do by linking hospitals together so that the services of any one of them can be delivered through all the others.
I would like now to talk briefly about hospital budgets. The financial and operating conditions in hospitals are not nearly as stable as we would want. We also know that the combined cuts to hospitals since 1992 range up to 25%, taking nominal cuts of $800 million, inflation, population growth and population aging into consideration. By some measures, the final impact may be equivalent to cuts of $1.8 billion, as I mentioned in my opening comments, but the nominal cuts of course have been much less than that.
Today in the Ontario hospital system, a flat-line budget allocation is estimated to be a cut of approximately 4.5% by the time collective agreement grid movement, inflation, allowances for population growth and other similar factors are taken into consideration. So a flat-line budget for hospitals is in fact a significant cut. Translate this 4.5% across the hospital sector and it equates to approximately $250 million. These kinds of problems are causing growth in the consolidated deficit position of all Ontario hospitals.
Preliminary analysis of available hospital audited financial statements for 1995-96, for example, identified a consolidated deficit of $70.3 million. Analysis for 1996-97 found a consolidated deficit of $112.8 million, or a year-over-year increase of about 60%. Clearly, the system cannot withstand the pressure for long.
In short, we have run out of room. For many years, in the pursuit of policies based on evidence that was not present or present only to a very limited degree, we have introduced significant instability into one of the most important collections of health care skills and assets in North America. We believe that's a tragedy. It's especially tragic because if ever there was a sense of crisis induced by faulty policy not grounded in fundamental issues of finance or demographics or, most important, consumer preference, this is it.
It goes beyond this. Without the institutional changes I have suggested or others like them, we can only accommodate additional cuts by reducing services or accessibility or both. Those further cuts would come at some cost to the basic principles of the Canada Health Act. Hospitals and all their partners really hope that can be avoided. For that reason, I hope you will carefully consider the fundamental suggestions we have made today.
The Chair: We have approximately 12 minutes for questions, four per caucus. We start with the Liberal caucus.
Mr Gerard Kennedy (York South): Thank you for your presentation. We understand the very significant pressures that hospitals are under. That has been highlighted publicly in recent weeks, but we do know it has been going on for a period of time.
I really want to go to the thrust of your report. When you say "faulty policy," when you say that you perceive the remedy for the problem as very different from the direction the government is taking right now with the Health Services Restructuring Commission, that seems to be a very significant statement on your part. I wonder if you can elaborate on how urgent you think it is that the government reassess the policy direction we're going in right now and respond in the manner you've suggested.
Mr MacKinnon: It's important that we all think about that fundamental issue very differently. As I say, it goes back many years. However, there's no question that we feel a real sense of urgency. We believe we can do a whole lot that will involve much better delivery of health services, and we can do it in partnership with many others. We know we can, because in some communities in Ontario we are doing it today. I mentioned the Parry Sound example, but I could have mentioned 15 other communities.
We really need to move very quickly to build upon those established precedents. If we do, some of the worst problems can be avoided. If we don't, we think we're in for many more years of constant problems coming out of some unexpected directions in very unexpected ways.
Mr Kennedy: To be clear, you think if the commission continues the way it is, in terms of community services receiving funds that used to go to hospitals and so on and that they operate in separate spheres, you do see fundamental problems with that. Is that correct?
Mr MacKinnon: We see fundamental problems with continuing with that transition without either (a) fundamental evidence with respect to most of its principal directions or (b) understanding just how huge a project it is. This kind of restructuring, as I mentioned before, is like the Manhattan project. It's huge. It's one of the largest of its kind. The chances of being successful in continuing with it, given that we're several years into it without overall planning and are experiencing considerable difficulties, are quite low.
Mr Kennedy: You've also published other reports about the pressures on hospitals that support what you're saying. You've had the CIBC talk about finances, and the Richard Ivey School of Business talk about how that change is very difficult to do when the direction isn't clear and when it doesn't seem to make sense to some of the people in it.
I wonder if you'd talk a little about the cuts you've mentioned. Even this year, we've had $800 million in cuts that came after flat-lining. You're suggesting about 25% of the resources of hospitals have been removed over the years, and I guess most dramatically in the last two years, when it has lost $800 million. But you're suggesting that effectively hospitals face a shortfall of 4.5% just from normal pressures. Is that correct? In other words, even if the government doesn't implement the third year of cuts, which it has suspended temporarily, that is still a factor that will be pressuring hospitals to reduce service?
Mr MacKinnon: Yes. You have to add the 4.5% to any actual nominal cut to get the real impact. If, for example, we proceeded with the third-year cut of 8%, the effect of that cut would be equivalent to 12.5% -- and choose any other percentage level.
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Mrs Boyd: Thank you for the presentation. I'm having a little difficulty visualizing exactly how you see this working. Do you see the hospitals as huge corporate structures that encompass under their direction all these various forms of health care?
Mr MacKinnon: No. We believe, as I hope it comes clear in my presentation, that the changes that would have to be made would be as transformational for hospitals as they would be for everybody else. However, the hospitals are the largest part of the infrastructure and are under the most extreme pressure at the moment. We believe that just given their size, integration of the health system probably cannot occur without their leadership, and we're willing to provide it. But any such idea that we have contemplated does depend upon serious transformation for everybody, including hospitals.
Mrs Boyd: I'm glad to hear that, because it didn't come out quite clearly that you also see hospitals transforming their mission. Much of what has been done in hospitals has been as little evidence-based as some of the decisions around home care. If we're talking about a rigorous subjecting of everything we do in the health care system to some evidence base, that is not something that people would generally disagree with, but I think they would want to see it happening right across the whole spectrum.
I agree with you. Sometimes the rhetoric makes it sound as though we don't need hospitals, acute care hospitals or hospitals for those who are chronically going to be experiencing either mental or physical health difficulties that require a very intensive kind of care, and that distresses me as well. It's almost as though we're going to suddenly change and do everything in another way when you listen to the rhetoric. I think you rightly point out that that's not going to help. I agree with you absolutely that expecting this huge change to be managed in the short period of time this government appears to have given it is unrealistic unless there are huge infusions of dollars to drive and lever that kind of change, and that obviously isn't the case.
Do you believe, however, that there is a place for health care organizations other than hospitals in a reconfigured system?
Mr MacKinnon: If you look at the Parry Sound case I mentioned, of course there are. There's a nursing home, there's the ambulance services, the community care access centre. They're all grouped under the one board, and the hospital board has transformed itself; it includes representation from those sectors to do it. Clearly those services are essential, but many of them can only be planned and delivered locally, because the situation in each community of Ontario differs significantly in terms of the availability of any particular set of services.
Absolutely, our proposal -- I think I emphasized it, but I emphasize it again -- does depend upon partnership that would be every bit as demanding of us as it would be of others.
Mrs Boyd: But the Parry Sound example is a very difficult one, because the Parry Sound example was a hospital that was taken out of active acute service and all of that conglomeration of services that you talked about indeed did occur, and occurred under our government with our approval. This government has suddenly put acute care back into that picture when it wasn't there before, at the time that they're closing hospitals all over the rest of the province. It seems counter-rational, quite frankly, for a government that is closing hospitals all over the province to reopen the one hospital that was taken out of acute care services in the first place.
The Chair: You have time to answer, but you'll have to be brief.
Mr MacKinnon: All the cases have been challenging where we've created broadly structured health enterprises. Every single one of them in different ways has been a challenge. We don't underestimate that.
Mr Baird: Thank you very much for your presentation. I appreciate it. You've given us a lot to think about in our deliberations. I'm a new member here so I don't have the experience some members do, but I did find your presentation, appendix B, to be quite telling, where you looked at the number of beds staffed and in operation between 1987 and 1995, when my colleagues opposite were in government. We see that 10,000 beds closed; that was the solution. In my community that caused a lot of concern because we had a lot of shells that were sitting half-empty.
I look at the Queensway-Carleton Hospital in my riding, which I know is a member of your association. They have a number of beds being used as long-term-care beds, costing $200 or $400 a day for someone to live in a hospital where the quality of life isn't good. Would you not agree that the best solution would be to take those long-term-care beds out of the hospital and consolidate the other hospital services in those beds?
For example, they're building in my community a new long-term-care facility, Villa Marconi, with capital funding and licensing from the provincial government and operating moneys of more than $1 million a year; 60 new beds there. In long-term care, part of the $100 million reinvestment, $400,000 more is going towards one of the long-term-care facilities in Nepean. Would it not make sense to consolidate your services in that community hospital which is the backbone of the health care system and to free up that money to go into long-term-care facilities which might cost $100 to $125 a day, with a better quality of life for the patients?
Mr MacKinnon: As I emphasized in relation to the previous set of questions, a broader range of services other than those provided by hospitals is necessary and they have to be provided in partnership. But it's the speed of transition that's the real issue here. If you're taking money out and putting it into somebody else, you have deliberations of this committee, deliberations of the Legislature, deliberations of the ministry, the time required to scale up computer systems, the time required to hire new people and so on. So our analysis fundamentally is that the problem in part is how we're organizing that shift. If we can transform existing institutions, hospitals and group practices looming quite large, then it's much better because that shift will take place locally, as much as possible within organizations. That saves a huge amount of time and complexity and probably produces a better result.
Mr Baird: To be clear, how many hospitals have closed? Of your members, how many hospitals have closed to this point today? By my estimation, only one.
Mr MacKinnon: At the moment, you could count them on one hand.
Mr Baird: Just one.
Mr MacKinnon: It would be a very small number that have actually closed to date.
Mr Baird: I count just one, Pembroke; that's the only one. If those hospitals were to close and we consolidated the services and there wasn't the long-term-care money there, I'd be tremendously concerned, but the minister, to her credit, has been very clear that unless those communities supports, those long-term-care beds, are open we certainly wouldn't want to throw anyone out on the street. It will be our responsibility to ensure that there is a close mesh there, that those services are available with no gaps, because that would be a tremendously bad situation. It would just be more of what has happened in the past.
Mr MacKinnon: The issue is the complexity of that. The example I have used is that we have talked about arranging this shift almost as though if we wave a wand enough it will happen. But the restructuring of that kind across Ontario is one of the largest of its kind ever tried on the continent, and it won't just happen because our intentions are good. It happens for all the reasons I've mentioned, because literally tens of thousands of decisions have to be made by hundreds of different organizations representing tens of thousands of people. Our observation is that if we continue with that in the way in which we're proceeding, we will go into further difficulties of the kind we are experiencing. We believe there's a simple alternative and that we've demonstrated its practicality in many communities now, which makes that shift that you talk about much more straightforward and reduces the risk to the population.
Our observation is that we can integrate the system. We think we can provide the leadership to do that. If we do, that will be a much less difficult solution to the people of Ontario than would the present path of taking it out from one and putting it into another and relying on hundreds of intermediary stages of detail to go well.
The Chair: I am afraid we are out of time. I appreciate your presentation and your time here today, gentlemen. Thank you kindly.
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MADAWASKA HARDWOOD FLOORING
The Chair: The next presenter this afternoon will be from Madawaska Hardwood Flooring, Mr Ross Staples, president. Mr Staples, please come forward. Welcome, sir. Thank you for attending. Thank you for bringing the sheriff of Madawaska with you, Mr Jordan. Mr Jordan, nice to have you with us, sir. Please feel free to commence.
Mr Ross Staples: In many ways I'm surprised to be here today. Let me tell you why. In 1994, Madawaska Hardwood Flooring was the recipient of the Ontario Chamber of Commerce outstanding business achievement award. It was at that September 13, 1994, dinner in Toronto, attended by over 1,200 business leaders, including Mike Harris, that I first expressed my extreme disappointment with the NDP's unfair labour legislation. The following is a direct quote:
"On a sombre note, I want to talk about the terrible labour legislation that was introduced by the province of Ontario on January 1, 1993. Bill 40 is such an unfair act that it discourages companies from modernizing and expanding, thereby hindering the economic growth of the province."
I finished my talk by saying, "We are now asking ourselves, 'Why expand in Ontario?' particularly with the excellent opportunities that exist in New Hampshire, Vermont and upper New York state."
At that time, I decided to put a hold on all capital expenditures and product expansion plans. In fact, I had already started my investigation to relocate to the state of New Hampshire by having a breakfast meeting with Governor Steve Merrill and William Bartlett Jr, commissioner, Department of Resources and Economic Development. They showed a high level of interest in the Ontario business community.
On another occasion, September 20, 1996, at the McCarthy Tetrault employment and labour law client conference held in Toronto, with the keynote speaker being the Honourable Elizabeth Witmer, then the Minister of Labour, I told the following story:
"Had it not been for the election of the Mike Harris Conservative Party in Ontario, our company would have relocated lock, stock and barrel to the state of New Hampshire, taking with us 60 jobs and a great potential for expansion."
The prompt introduction of the new labour bill, Bill 7, and the program under the Common Sense Revolution made our decision to stay an easy one. Since their election, not only have we remained in beautiful Renfrew, Ontario, we have spent over $1 million in new capital expenditures, and with the assistance of Mayor Howie Haramis, town council and particularly the Renfrew Industrial Commission, we have purchased a 142,500-square-foot building, the vacant former Blue Bell plant.
Presently we are arranging financing to cover capital expenditures of approximately $5 million to install four new dry kilns, purchase a new, top-notch flooring prefinishing line -- and that commitment has already been made for that line -- and install new production equipment. In addition, we are going to add a second shift, with most of the hardwood lumber coming from Ontario. The net effect on employment will be an initial increase of about 60 jobs, increasing from 60 to 120 employees.
I say without reservation that the election of the Progressive Conservative Party and their approach to governing has allowed our company to continue with its success and expand in a climate which encourages business to place its confidence and its investment dollars in this wonderful province of opportunity. The benefits of the Common Sense Revolution and Mr Harris's accomplishments were spelled out most effectively by William Thorsell, editor in chief of the Toronto Globe and Mail in his January 10, 1998, article. They include:
"A smaller proportion of Ontario's population is on welfare, and more people are working at lower unemployment rates.... And again this year, Ontario is set to lead national economic growth, along with Alberta.... Mr Harris is directly increasing the disposable income of Ontarians, with a clear bias towards lower-income people. His 22% provincial income tax cut (on the way to 30%) is highly progressive, taken together with the health-care levy he has applied to higher-income Ontarians. But it still lowers the net provincial income-tax burden on everyone, stimulating private consumption and all the benefits that flow from it.... deficit is falling faster than...promised, because of robust economic growth."
Added to the above are the reductions in health care and education costs and the amalgamation of numerous towns and cities.
These kinds of accomplishments have inspired business people to invest in the province of Ontario and produce more product here. More people pay taxes, to the benefit of everyone. Business people can't help but be impressed with the cost cutting that has taken place. In health care, the reduction of the number of hospital beds through closure of hospitals was the only way to free up money, to improve outpatient services and home care. Introduction of the new health cards will also eliminate duplication and non-Ontarians obtaining health services to which they are not entitled.
I encourage the government to continue with the following programs:
Tighten the student loan program to reduce the default rate, tie in reductions to the loan, but only when a student completes the program, and have the institutions whose graduates have high default rates share in the cost. The latter point is sound if institutions are providing an education where no jobs can be found.
Sell off social housing units, or at least part of the 84,000 now managed by the Ontario Housing Corp. I read recently that there are 1,864 units, mostly detached houses in working-class districts, not normally considered as public housing units.
Welfare and workfare: The reduction in what was an overgenerous welfare system was certainly warranted. I have spoken to several people who have objected to these cutbacks. They included religious officers, social workers, teachers and doctors. Unfortunately, these people have never worked in a plant environment or had to hire unskilled workers.
Here is an example of what happened in our plant. I personally know these individuals. After the tightening up of the welfare program, we were visited by two members of our town's police force. They investigated three employees whose wives or girlfriends were collecting welfare. All three were breaking the law. One spent three months in jail, the second was fined $4,000 in back payments and the third got off the hook, not because she wasn't guilty; it was because her boyfriend was smart and lucky. His parents lived in our town, and he did not claim his live-in girlfriend as a dependant on our fringe-benefit program.
In another case, my wife's two nephews asked me for work. They had both quit school, got a job and gone on unemployment insurance, which was eventually exhausted. Hesitantly, we employed both. A number of months later, they both quit and went back on unemployment insurance. You guessed it, they were back at my door a year later, looking for a job. They only wanted to work when they had to. The reply was an easy one.
Another example is a letter to the editor that I read in our local newspaper which was highly critical of the government for their cutbacks to the welfare program. He talked about not being able to find a job, wanting to work, had tried hard to find employment and the like. That individual had a job in our company. He lasted one and a half days and then left without any word. The reason is probably, "If I can collect welfare, not have to get up in the morning and be able to watch the soaps in the afternoon, why work hard?"
I do not mean to imply that there are not legitimate cases where help is needed; there are, and by all means let's help them.
Workfare: There is much controversy about the program. The unions are dead set against it, and many in the non-profit sector are not supportive either, maybe because they have been threatened by unions withdrawing donations. I support the idea and I have promised Mayor Howie Haramis of Renfrew that when our new equipment arrives in July 1998 and we put on the second shift, we will work closely with the person in charge of workfare in our town. The only thing I ask is that they do the preliminary screening, and we will do the rest. We do not want to be subsidized, nor are we looking for any kind of assistance. Many of the 40-plus new jobs we'll be creating will involve non-skilled and inexperienced workers. The starting wage is $10 per hour, plus a sound fringe benefit program.
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Business grants should be discontinued. It is not only in the area of social policy that effective cost cutting should take place. It is not the responsibility of governments to bail out companies or to give grants to encourage them to build a plant or to modernize. If a business is not able to pay its way, it should close and allow that production to be produced and sold by other, more efficient operations. As far as general financing is concerned, companies should rely on labour-sponsored venture funds, banks, investment houses and angels to source their needs. Also, professional lobbying should be effectively controlled. Regulations should be imposed and enforced.
Areas the government should not support include the idea floated by a federal MP to have another national holiday, Heritage Day. We already have 10, which in most cases mean 10 days of lost production, never mind the cost of the days' pay. When I read about countries like France legislating a cut in the workweek of four hours, I can't believe they would consider such a stupid move, particularly with a global economy and with such a competitive environment. And they think this is going to solve the unemployment problem? Continue to do what you are doing and employment will increase.
One area the government should support is training in the high-tech area by encouraging students at the university and technical school level to register for science, computer, mathematics and electrical engineering degrees. Subsidizing tuition fees to the extent of 50%, provided the student completes the program and obtains a job in Canada for at least five years, is worth considering. Working with the schools to develop programs and build the infrastructure is probably the most necessary part of this program. Involving the high-tech companies in this endeavour will help to enhance its success.
On the business front, rather than grants to companies, improving infrastructure is the way to success. In our neck of the woods, four-laning the highway, without a median, from our part of Renfrew would be extremely beneficial. It would reduce the number of deaths on that part of the highway, as well as encourage other companies to locate to our town and take advantage of all we have to offer. Approximately 500 citizens commute daily to their place of work between the two towns. Also, there are many people commuting to both Kanata and Ottawa to work in the high-tech industry. This highway is the main transportation route for our industries shipping their product to eastern Ontario, Quebec, the United States, and by container to the pan-Pacific countries and Great Britain through the port of Montreal, and by train to the west coast. A few hundred more jobs, an increase in tourism and a more attractive place for seniors to live would be what is necessary to cure unemployment and expand our tax base.
Second, if airline flights out of Toronto which now fly to Pembroke were also to fly into Arnprior, this would be very helpful. It would cut travel time by an hour per return trip for a number of major employers in the area.
Future budgetary actions which, from a business point of view, would be beneficial:
(1) Put our fiscal house in order by concentrating our efforts on eliminating the $5.2-billion deficit and then attack with vigour our substantial debt. The $10 billion now paid in interest charges then could be used to enhance our quality of life and reduce taxes. Consideration should be given to establishing firm targets that are enshrined in legislation so that elimination of the debt would become a commitment that could not be altered without a referendum.
(2) When one considers that the government, by the end of its present term, will have reduced or eliminated the deficit, reduced provincial taxes by 30%, cut welfare payments and enhanced employment, thereby appreciably meeting most of its major Common Sense Revolution targets, its next program should be debt reduction. Many of us may be willing to wait for the big payback once the $10 billion in interest charges is eliminated. The above should be accomplished without any increases in taxes.
(3) Encourage the federal government to utilize most of its forthcoming surplus to reducing their substantial debt also. Significantly increasing spending or tax cuts other than to low-income Canadians would be wrong. Any savings in interest could be used to help the poor.
In summary, we must encourage all walks of life to become more self-reliant. We must continue to promote user pay. It never ceases to amaze me how different levels of government are involved in a diverse group of handouts, subsidies, grants, support payments, student loans and the like. The cost to administer these programs must be astronomical. A better way may be to consider working with the federal government to determine the feasibility of introducing a guaranteed wage. We have sent an invitation to the Premier and are looking forward to his visiting Renfrew. We're depending on our member, Leo Jordan, to arrange it. I'd like to have his ear and express these comments personally. Thank you.
The Vice-Chair (Mr Wayne Wettlaufer): Thank you, Mr Staples, for your presentation. We have about three minutes per caucus left for questions. We'll start with the NDP.
Mr Pouliot: Thank you for your presentation, Mr Staples. You go beyond in privilege: You have a very good, long-standing member, by name of Leo Jordan. He certainly does care about the people he represents, and his track record speaks for itself.
When I began to assimilate and digest your brief, one of the questions that came to mind -- I'll be candid -- was, how long have you been a card-carrying member of the Progressive Conservative Party? You remained consistent in this promotion throughout your presentation, but in the latter stages you were perhaps searching for equilibrium, balance. In fact, at the last, before the "respectfully submitted," you talked about introducing a guaranteed wage, so I felt better that way. You talked about putting a second shift on, and that's an awful lot because we don't know how the next election will go.
You took a shot at unions. That's fair; I respect you and your opinions. If you start at $10 an hour, at 2,080 work hours, which constitute a designated workyear, that amounts to $20,800 per annum. I like unions, Mr Staples. It's very simple. To do similar work, if you belong to a union in the province of Ontario you get 20% more in wages and you get 17% more in fringe benefits -- proven -- for equal work. That's the reason I like unions, because I like to have more money in my pocket as opposed to less.
When you look at your summary of the tax cut on the one hand -- and you like that; it creates incentive. And then I sense you're more adamant regarding the deficit. Shouldn't the government put more emphasis on the deficit rather than the tax cut so you can get to the debt quicker?
Mr Staples: Let me preface my comments by saying --
The Vice-Chair: Mr Staples, I know we would really love to have an answer to that question, but Mr Pouliot, as usual, has used up all the allotted time. We have to move now to the government caucus.
Mr Baird: Thank you very much for your presentation. I wanted to explore a few things but we've only got a few minutes, so I'll go to the first one.
You mentioned that Bill 40, in your opinion as a small business person, the only person who is going to create jobs and economic growth in our province, was a major disincentive to your maintaining your business operations here and indeed in a decision to expand here, but when it was repealed in Bill 7 in the fall of 1995, you decided not only to maintain your plant here but not to move to New Hampshire, where Governor Merrill was pushing you. You also said you were planning on reinvesting in new equipment sales. Can you expand on that?
Mr Staples: Yes. I felt that the labour legislation that was introduced in 1993 was antidemocratic -- that wasn't good for the employees, in my opinion, and it wasn't good for the company -- where you had employees who disagreed with unionism and they were not allowed to cross picket lines, where there were no secret votes. I just thought that was very, very unfair.
I might point out I had never worked in a plant that was not unionized until I bought Madawaska Hardwood Flooring. My previous 34 years in the business world involved nothing but unionized plants, and let me make it perfectly clear: I have a lot of respect for most unions. What I'm objecting to is the legislation. With regard to the wages we pay, that $20,000 is the minimum for sweeping the floor. There are very few people in our plant today who are not making better than $25,000 a year and have a 35% fringe benefit program. Just give us a level playing field, that's all I ask for, and then we'll take it from there and we'll create the jobs.
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Mr Baird: I did notice in your presentation that four-laning Highway 17 without a median from Arnprior to Renfrew would be extremely beneficial. I tried to remember where I'd heard that before and then I realized I had heard it from Leo Jordan on probably half a dozen occasions in the last year alone.
Mr Staples: I've been prompting him frequently.
Mr Baird: He's certainly prompting us and the government.
Mr Staples: That would be very beneficial, seriously; it really would be. Sixty per cent of our product is exported and most of it's got to go by that highway.
Mr Baird: A lot of traffic goes between the west end of the region of Ottawa-Carleton and the upper valley there.
Mr Staples: Yes, and all of our container shipments are going into Montreal. We ship into China, Singapore, Malaysia, Hong Kong. From that point of view, eight or nine companies in Renfrew would very much benefit from that.
The Vice-Chair: If there are no further questions from the government caucus, we'll move to the Liberal Party.
Mr Phillips: We appreciate your presentation. I too was a business person. I had 300 employees or so, so I've got a little bit of appreciation of the challenges.
One of your recommendations here is that you're suggesting the federal government shouldn't be looking at tax cuts other than to low-income Canadians. The provincial government tax cut meant that the total cost of the tax cut to people making more than a quarter of a million dollars a year, $250,000, was $500 million. So the provincial government has gone in a little bit opposite direction from your recommendation by having a tax cut where $500 million of the tax cut went to people making more than a quarter of a million dollars. Is that a good idea, from your perspective? I suspect from your recommendation here that you would have said it should have focused on low-income people.
Mr Staples: I accept the 30% tax cut, but I think that should be the maximum. Eliminate the deficit and then any money that's generated should go towards reducing the debt and not further tax cuts.
Mr Phillips: We've had quite a few business people in who would disagree with you on that, if I may, in that one business group said we should take the small business taxes down by $50,000, move it from $200,000 to $400,000 and have the small business rate on that. Another business group suggested six or seven different programs that we should look at, faster capital cost appreciation and things like that. So again, not all business groups are in agreement with you. You say focus on the deficit and debt; other groups are saying, "No, we think you should be spending money now on helping business out." Are you in disagreement with some of those business groups that are recommending that we should be looking at some ways of helping business out now?
Mr Staples: Yes, I am. My attitude, and I tried to state that, is that we have to become more self-reliant. We always go to the trough. I don't care if it's business or individuals or associations, we all want something for nothing. I'm saying it's about time we say no and that we'd better learn to operate our businesses and pay our own way and stop expecting governments or anybody else to pay our way. If I'm not a good enough businessman to make the kinds of returns we are making, then I should do something else with my life. I feel very strongly about that, sir.
Mr Phillips: I appreciate that. Just to summarize your views then, you would just say the tax cut should be for those low-income people who really need it and that we shouldn't have been -- well, "shouldn't have been." The cat's kind of out, although this budget there will be another cut in taxes of $150 million to people who are making more than a quarter of a million dollars a year. Do you think the government should still proceed with that cut for people making more than a quarter of a million dollars a year?
Mr Staples: I guess my thought was that what has been announced and what's done is done, and from this moment on I don't think there should be a tax cut granted to any of us other than low-income people.
Mr Phillips: Thank you. That's very helpful.
The Vice-Chair: Thank you, Mr Staples. I appreciate it.
CANADIAN FILM AND TELEVISION PRODUCTION ASSOCIATION
The Vice-Chair: Our next presenters are from the Canadian Film and Television Production Association. The names I have here are Elizabeth McDonald, president and CEO; Robert Pattillo, government relations; and Steve Ord, tax committee. Please introduce yourselves for the record. You can begin at any time.
Ms Elizabeth McDonald: Mr Chairman, members of the committee, my name is Elizabeth McDonald and I am the president and CEO of the Canadian Film and Television Production Association. With me today is Mr. Steve Ord, senior vice-president and general manager, Atlantis Films. Mr Ord represents one of Ontario's most significant production entities, with its head office here in Toronto. Atlantis is one of the most active members of the association's Ontario producers panel.
Our association is the national trade association that represents the interests of over 300 independent producers that operate in every region of Canada. The reason we are here to address issues of particular relevance to our Ontario-based membership today relates directly to the fact that Ontario remains the most significant region in the country, both in terms of volume of production and job creation.
Mr Steve Ord: On February 13, 1996, I appeared along with other members of the CFTPA's Ontario producers panel before this same committee asking that you recommend to this government the establishment of a refundable tax credit for the Ontario production industry. At that time we underlined the fact that the previous OFIP program had been quite effective. We acknowledged that Ontario's current fiscal situation had created a situation where the industry would have to be flexible and work with the government to identify new approaches to encourage Ontario-based production companies to do business in this province.
On May 7, the government of Ontario responded positively to our proposal and announced the establishment of the Ontario film and television tax credit. Subsequently, in its second budget, on May 8, 1997, the government announced plans to increase the rate of the OFTTC, as it is called, by 5%, along with special incentives targeted to the animation sector of our industry.
In making our proposals, we had suggested that establishing a refundable tax credit regime would have a number of positive benefits for both the province and the industry. This has proven to be true. In 1996, the year the full impact of the cancellation of the OFIP program was felt, the volume of domestic production fell to $277 million. The raw numbers for 1997, the first year that the OFTTC program has been in place, indicates that the volume of domestic production activity has increased significantly, to $414 million. This proves that ongoing support for the film and television industry in Ontario ensures that we will be able to continue to make our outstanding contribution to the overall economic growth of the province.
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CFTPA's Ontario members have welcomed both of these announcements enthusiastically. Based on the amount of production activity in Ontario over the past year, as well as the plans our members already have in place for the forthcoming production year, we believe that the introduction and enrichment of the OFTTC was sound public policy for Ontario in both industrial and cultural terms. They ensured that the production infrastructure in Ontario would continue to expand. Not only was this of benefit to the larger production companies like Alliance and Atlantis, but it guaranteed that small and medium-sized production companies would be able to grow in Ontario.
Beyond coming here to thank you and all the members of this government for continuing support of this industry, we have a significant concern that we would like to raise. In November 1997 the Ontario government announced its plans to create the Ontario film and television production services tax credit. The goal of this program was stated quite clearly: to enhance Ontario's competitive advantage in film and television production. We understand the attraction of fostering foreign investment in our industry. At the same time, however, we want to be assured that the primary focus of any government programs or policies targeted at our sector are for businesses committed to staying in Ontario. Our collective goal must be to foster the growth of an indigenous industry. This is the only sensible industrial strategy. It is the smartest long-term job creation strategy. We must encourage the commitment of companies like Alliance or Atlantis that have longer-term objectives that reach beyond the immediate attraction of access to a cheap labour pool because of the present fluctuations of the Canadian dollar.
Ms McDonald: Mr Chairman, members of the committee, we have come to you with two recommendations for your consideration today. First, when Mr Eves announced the creation of the Ontario production services tax credit, he also stated that this government intended to consult with the federal government regarding the 48% cap on qualifying labour expenditures for the domestic film and television tax credit. We believe the time has come to remove the cap altogether and replace it with one simple calculation, a percentage of Ontario eligible labour. This would create a level playing field for Ontario-based companies operating alongside the foreign production companies developing projects here. It would also make Ontario competitive with other provinces such as British Columbia and Quebec, which have established very attractive tax credit programs to encourage production companies to film in their provinces.
Second, when the Ontario refundable tax credit program was originally established, access was limited to those productions that have the highest levels of Canadian content as measured by the federal government's 10-point program. Technically speaking, these were CAVCO, which is, for your benefit, the Canadian Audio-Visual Certification Office, certified Ontario productions, that received a minimum of eight out 10, to a maximum of 10 out of 10, Canadian content points.
At the time, this approach made sense, but with the recent establishment of the production services tax credit for foreign productions plus the aggressive nature of some of the tax credit programs established in other provinces, this limitation has created orphans in terms of Ontario-based productions. By extending the program to these types of productions, it would guarantee that the OFTTC would maximize the opportunities for production activity created and controlled by Ontario-based companies.
On that basis, we would recommend that this government expand the criteria for eligible productions for the Ontario refundable tax credit program for the film and television industry to permit access by those CAVCO-certified Ontario productions that achieve a minimum of six out of 10 Canadian content points.
When we appeared before you in 1996, we underlined the fact that stimulating activity in an Ontario-based film and television industry would provide a net benefit to the province in terms of both investment and jobs. We spoke to you about working as partners to create an environment that would allow companies like Atlantis to create jobs and stimulate innovation and economic activity in Ontario. Today's recommendations are based on those same principles and objectives. They are merely enhancements to an already existing and successful program for the domestic film and television industry that is working. We believe that if our recommendations are accepted, they will bring some balance to the incentives recently put in place to benefit foreign interests operating in this province.
Finally, while this is a program that generally works on all fronts, one of our goals is to continue to work in partnership with the Ontario government to simplify and reduce the administrative burden that is presently encumbering the federal refundable tax credit program. There is a real opportunity for the Ontario government to take the lead in this type of initiative.
We have decided not to go for the whole half-hour and to leave some time for questioning. Thank you for your attention this afternoon. We would be happy to answer any of your questions.
The Chair: We have approximately seven and a half minutes per caucus, and I'll start with the government caucus.
Mr Baird: Thank you very much for your presentation this afternoon and the time you took to put it together. I have certainly taken note, as I think all members have, of the two recommendations you made for this year's budget, and they are ones that I think merit a considerable amount of consideration on the government's part. We'll certainly reflect on them and get a better sense of what sort of effect they would have on the economy.
I did want to ask you about the reforms and the tax credits that were brought in and changed in last year's budget and the year before, to try to get a sense of how effective they were to the goal. You mentioned on page 10 of your presentation that the industry is looking to find a way through the tax regime of providing a net benefit to the province in terms of both investment and jobs. That's very much along the lines all three parties want.
I'm not from the Metro Toronto area -- in fact, I'm not from this area at all; I'm from eastern Ontario -- but I am constantly amazed even when I walk around Queen's Park. You'll see productions taking place right here in the building or right on Ontario government property. Just on the weekend, in front of Osgoode Hall there was the big hammer and sickle, a red flag hanging from Osgoode Hall. I was a bit startled to see it and then I wasn't startled; I realized that no, it was actually a movie and it wasn't reality.
Wherever you go around the downtown core on any given day, inevitably you will find a production taking place. I'm just startled at the number of jobs I have seen, even in just a 10-block radius of this place, whether it's at the University of Toronto campus or between here and Bay Street.
Can you give the committee a sense of the effectiveness, in terms of both investment in job creation and in supporting your industry by means of the tax system, the last change and the subsequent amendment to that change had for your industry so we could have an appreciation?
Ms McDonald: I think I'll start and let Steve finish. I have here a profile -- I gave copies to the clerk -- for 1998. It generally reflects, of course, numbers before 1998. In our oral remarks we talked about the fact that in 1996, when the OFIP program was frozen and there was nothing to replace it, the volume of production fell to about $277 million. In 1997 the raw numbers are telling us $414 million. Considering that at least 55% of all production budgets is spent directly on labour, and then it goes up to about 75% when you consider the indirect impact, when you have a drop like that you can clearly see that production activity affects jobs and affects the number of jobs.
In this profile you'll note that we found for this year, this was the first time in 10 years we reported flat growth in terms of jobs and we couldn't figure out why. We started looking back and realized that these numbers do not reflect the 1997 activity in Ontario but the 1996 activity, and when you take a program like OFIP out and before you replace it with the Ontario tax credit, that has a dramatic effect, so we stayed at the same level of activity. We already know that our 1999 profile, which we'll really talk about the year before that, will reflect an incredible growth in Ontario. So it's not only what you're seeing; in fact, it's what we can actually tell you is happening. When Ontario steps away, then our ability to create jobs in Canada is severely impaired, because this is the most significant province and it has been steady in that way.
Mr Ord: I think you have raised a couple of good points and good questions. It is a very labour-intensive business. As Elizabeth was saying, roughly 60% of the costs are labour costs. It's not an industry of buying machines; it's an industry of buying very skilled technical and creative labour. There's this very rough rule of thumb that every film shoot that shows up and blocks traffic and uses the U of T and all that typically is hiring directly about 100 people who come to work every day on that show, not counting the people who are building sets and costumes and those types of things that would be contracted out to other companies. It's very labour-intensive and it's terrific for jobs. It has one flaw, which is that it's very mobile.
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I think the changes announced last year have been very helpful in finding ways not only to keep all that production in Ontario but to keep building it here. Toronto is the third-largest producing centre in North America after Los Angeles, New York and Toronto. Vancouver is probably fourth. It is an area where our province has a huge, competitive advantage. One of the problems with the initial program that was rectified was that there were, for example, caps on how much an individual production could access through the tax system. The way I look at it is that my job at Atlantis is to find ways to finance these television programs. I'd rather come to work in the morning and figure out how to finance a show and do it in our backyard than come to the office in the morning and try and figure out how to move that to British Columbia or Nova Scotia to try to find the last 3% or 4% of the money that would make the difference as to where something goes. I think that was very sound public policy. I can tell you from our own experience that in 1997 we produced more television in Ontario than we have ever done in our history. It's something we're very proud of. We like to produce in our own province.
Mr Baird: Our job as legislators will be to hear what folks have said before the committee, to reflect on it and make recommendations to the government. A conclusion you would draw is that the Ontario film and television tax credit was, not the only factor, of course, but a big factor in the $120-million or $130-million increase year over year in terms of investment, in job creation?
Mr Ord: Absolutely. No question.
Ms McDonald: I think Steve and I have appeared together too often. I was going to say "absolutely" as well.
The other thing you have to look at is what has happened in other provinces. About two or three years ago Alberta shut down their Alberta Motion Picture Development Corp and took away all their support. Now Mr Klein is desperately looking to put in a tax credit for Alberta because he was told the industry would leave. He thought they would stay anyway and there's hardly any production industry in Alberta. It has all gone to British Columbia or Ontario.
One of the important things about the first tax credit program of this government was that it solidified Ontario-based companies. That's one of the important messages. While we understand the government's need to compete with other provinces in terms of foreign producers, what we are concerned with is that Ontario-based production companies continue not only to exist but to thrive. Certainly, that's what that tax credit program allowed to take place. If you hadn't put it in, I suggest to you they would have gone to Quebec, they would have gone to Nova Scotia, they would have gone to New Brunswick, which is booming. Our report shows the activity in the Atlantic a year ago. We were talking to somebody on our board who is associated with one of the banks who said it has doubled and tripled from what we're saying here. All of that is because of tax credit programs. Clearly it's good for Ontarians.
Mr Ord: The other thing I think is a very important message to leave is that our sector is in the export sector. If you take Atlantis as an example, we earn money from selling or licensing our shows to broadcasters. Last year 89% of our licensee revenue came from outside of Canada, only 11% from Canada; the US was about half and international outside the US was the other half. I think from a public policy point of view what's good about our sector is that instead of just exporting dollars out of the country for other people's shows, by making shows here and exporting our shows out of the country, dollars come into our country and we make jobs out of those dollars. So it is very much a commonsense industry from that point of view, because the economics are so labour-intensive that it has been good for the economy.
Mr Kwinter: As always, I am very supportive of your industry. As Mr Baird said, the fruits of your labour are seen in the streets in Toronto almost every day.
It seems to me that the tax regime is only part of it. Skilled labour at reasonable prices and post-production facilities are also a real attraction to these production companies. How do we stack up against these other jurisdictions you're talking about like New Brunswick, BC or Nova Scotia? It would seem to me that it's one thing to be able to give a tax incentive, which doesn't require anything other than a policy decision, and it's another thing to build up that post-production infrastructure, that technical capability, so that producers have a comfort level that they can produce world-quality programs. Do you have a comment on that?
Ms McDonald: I'll take the first part and I'll let Steve take the second.
I think the Ontario labour force stands up quite well. To date, a lot of the training is done in cooperation with the community colleges and the industry itself, and there has been a large input from the federal government. Clearly, as the training in human resources activities devolves to the provinces, we'll be doing training programs on a provincial basis. We're already actively speaking with the Ontario government. It's the most active.
Another important factor is how calm we can keep the labour front. We're going into a set of very important labour negotiations with the major unions, including the performers' union. British Columbia is clearly, particularly at this time of year, an attractive place to work. It's a very difficult labour environment and the government has done very little to discourage that. Now, even though the dollar's low and they do have a tax credit program, there are productions that are choosing to go other places because it's almost an impossible labour situation.
We have a concern, as we put incentives in for the US-based industry, that some of those labour problems that came from LA and went directly to Vancouver could start coming into Ontario. Not that we don't want to see Ontario unionize workers, work and be well paid and have decent conditions of work. That is not the issue. What's happening in British Columbia is that people are choosing now not to work there because of the labour environment. We're willing to work with our partners in the labour unions, but it has to be one where we hope the government will help to keep both sides on it. We're expecting a difficult set of negotiations this year. We're worried about the influence that the US production industry might bring here, because it really has poisoned the environment in BC.
Mr Ord: I think our colleges and universities turn out excellent people -- Sheridan College in the animation area. I see a lot of résumés through the course of a year and I'm always astonished, when I look at those résumés, at how many people have actually studied film and television, whether it be Ryerson or York University or Sheridan, and I think that's good. Things that have been very helpful for growth are a steady financial environment. It's already a very cyclical business, or can be, so to try to at least keep it as stable as possible is important.
On the labour side, it is a competitive industry and every little problem that occurs in Canada gets loudly advertised and exaggerated in the US, because whether it's Florida or California, people are always looking to find a problem with Canada, to kind of badmouth Canada. BC has been hurt by that, no question. I think stable labour relations are key because just a little problem turns out to be a big problem when you read about it in the trades, so that is a concern.
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Mr Kwinter: I would imagine the Canadian dollar doesn't hurt you in attracting investment here and production here.
Ms McDonald: Could I just interject?
Mr Kwinter: Sure.
Ms McDonald: The Canadian dollar certainly has created economic activity, but I think we have to be careful because that creates the activity of people who aren't building businesses here. They'll be here, they'll be in Mexico if the peso goes down further, they'll work wherever the currency is attractive and there's a well-established labour pool.
Part of what we're trying to say is we want to see companies like Atlantis, like Owl, like Breakthrough that creates Dudley the Dragon and other programs continue to thrive -- Sound Venture in Ottawa, which is a regional producer, S&S Productions in Hamilton, all of those companies that are creating jobs in Ontario but are committed to staying in Ontario with the Canadian dollar. You're right, but we're talking about a long-term strategic view that ensures the Canadian-based industry will continue to be here regardless of the dollar.
Mr Kwinter: One of the other things I've asked a couple of the presenters about and I haven't got any response -- people are kind of concerned about it but haven't really done anything about it -- is the MAI, the Multilateral Agreement on Investment, which will have, depending on where Canada goes with it, a direct impact on levelling the playing field for everybody and could have an impact on what you're doing. Has your industry made any representations to the federal government on that and what is your position?
Ms McDonald: Yes, we've been very active. We did a parliamentary blitz two weeks ago and the MAI was the main part of it. We've talked to Minister Marchi a number of times. We are active on that front and tried to maintain the cultural exemption.
Mr Pouliot: Welcome. In 1997 it was your best year ever. Is that accurate?
Mr Ord: I think that would be correct, yes.
Mr Pouliot: How is 1998 shaping up?
Mr Ord: I think 1998 is going to be like 1997 and a little better. The Ontario government sent out very strong signals and I think those have been heard. The company I work for, Atlantis, but others, are establishing our production plans now. What we will do in the next month or two will determine what we do for the year so it's a critical time.
Mr Pouliot: That's good news indeed.
You mentioned, grosso modo, some 60% labour incentive. In terms of the spinoff, could you give us an indication of where the spinoffs occur? What contribution do you make to Ontario's economy?
Ms McDonald: It's a $2.8-billion industry and the volume of activity in Ontario is about -- I'll take off my glasses -- $1.3 billion. So the majority of that activity takes place in Ontario and the majority of the job creation takes place in Ontario.
Mr Ord: Keep in mind that Ontario offers full-service post-production, labs, sound facilities. The special effects companies that are in Ontario are in my view better than the companies in Los Angeles, far more competitive, so there are a lot of good things on the infrastructure side. Really, other than importing some actors, there's not a real need to send money outside the province.
Mr Pouliot: You mentioned in your presentation that the mere perception -- there are some potential unstable situations vis-à-vis the labour front, for instance, that these can take on extraordinary proportions. Yet in the first part of your presentation you mentioned that both British Columbia and Quebec had further incentives that make them perhaps more competitive. What is the difference between the incentives that are presently offered here in Ontario and those offered, as per your presentation, in both sister provinces?
Ms McDonald: BC has just introduced a program and they've done it to actually try to maintain production in that province because they are starting to get people pulling away. The British Columbia program is actually only coming into effect on April 1. The Quebec program recovers about 33% to 45% of eligible labour expenses incurred by Quebec production companies in the production of certified Quebec film or TV programs.
Mr Ord: So in Quebec you're comparing 20% of labour to a floor of 33% and up. It is more.
Ms McDonald: The BC one -- I'm trying to remember this -- is a two-level one. There's one for the domestic industry and one for the foreign production that takes place there. A further incentive for people who work outside the zone, which I learned when I was in Vancouver, for the announcement of their tax credit is in the Vancouver area. So you do very well if you're doing production in the Okanagan.
The Chair: Thank you, Ms McDonald, for your presentation and for your time. We appreciate it.
ITAC ONTARIO
The Chair: The next presentation this afternoon is ITAC. We have with us Mr Bowden and Mr Petrie. Welcome, gentlemen.
Mr Bill Petrie: We have a presentation that's in the folder which we've handed out, and we'll go through this if you'd like to follow along behind.
ITAC Ontario represents the information technology industry in Ontario. Our sector, the IT sector, is the second-largest industrial sector behind automotive. We have sales of about $36 billion. We employ about a quarter of a million people. We have exports of $17 billion and are growing at about 12% per annum. The average size of a firm in this sector is around 20 employees. They range anywhere from mom-and-pop shops up to the big IBMs, but your typical firm has about 20 employees, and small firms like that are growing at about 40% per annum and are very export oriented. They're niche firms.
ITAC Ontario has been working with the Ontario government to lower costs and improve service. We've tried to form constructive relationships with this government. Our public sector business committee advises the government on use of information technology. We're working on procurement issues such as how the government should buy and use computers to become more efficient. We've worked with them on year 2000 conversions, and I'm happy to say that on that issue the Ontario government is off the sick list; they're actually doing a pretty good job. We're working with the government on its computing strategy.
We're also partnering in the design of smart systems for health with the provider community and the Ministry of Health. The smart systems will reduce health costs while improving service. It will save hundreds of millions of dollars that the Ontario government wants to reinvest in health care. This is a unique effort, that the government has actually forged a partnership between industry, users and the ministry to cooperatively design a system. This hasn't been done anywhere else in the world. The results are already showing. As far as automating health care and introducing IT to health care, we're light-years ahead of anywhere else in the world and the results have been excellent.
The main problem facing us is a skills crisis. There are an estimated 30,000 jobs going begging right now in Ontario. We're working with high schools to improve technology and introduce youth to the opportunity in the industry. We've taken two high schools -- Emery in the Jane-Finch corridor and Parkdale -- and we're working with them to introduce computers. We're sending in mentors and speakers. We want to develop a model which we can start to move across Toronto and the province. We're working with a bunch of organizations to do that.
We're working to better link colleges and universities to industry and we've also developed a strategic plan for the sector to help the government create systemic change that will be acceptable to all parties.
Our stance is that the government has to eliminate the deficit and reduce personal taxes to make Ontario competitive. We are experiencing a significant brain drain. Half the University of Waterloo class and 75% of the Sheridan College class is going to the States. I've had an American headhunter come up here and tell me he's taken 1,000 people out of Ontario this year. The Americans have half a million vacant jobs, so they're coming up here. So the personal tax issue has been good.
The 1997 budget was good news for our industry. The repeal of the 5/15 royalty surcharge produced a tremendous boost for our industry. It has led to millions of dollars worth of investment. The university challenge fund to retain professors here was a welcome thing. The brain drain from the universities is frightful because that really has an impact on the skilled labour shortage, and the challenge fund was a way of addressing that.
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The Ontario business research tax credit encouraging investment in universities was far-reaching.
The simplification of the retail sales tax to software, where it's simply being charged on packaged software, while controversial, was accepted.
Our recommendation for budget 1998 is to stay the course. We're growing at 12%, so we are basically happy and we're creating a lot of jobs. We need to continue to make Ontario globally competitive. We also have to enhance the environment in which we all live. Our industry recognizes that we still require prioritization of spending and the enhancement of the efficiency of government.
Ontarians believe that deficit reduction, health care and education are priorities, and our industry supports this view. We support investment in health care and education in order to preserve our quality of life and our global competitiveness.
If we have concerns, our concerns centre on Toronto. About half the Ontario industry is here. We're concerned about Toronto's fiscal condition. Toronto has unique social spending needs due to migration and the number of poor who come into the city. Business cannot neglect its social obligations. We look at high business taxes in Toronto which threaten the industrial base of the economy. However, we see that municipal mergers represent an opportunity to reduce waste, and the savings can be directed to areas of social need.
Again, we want to continue our theme of partnership. We're working with this government on a number of areas. We want to work with municipal government and other business groups to find savings. We believe they can be found. We want an infrastructure that supports the creation of jobs and opportunity by attracting business investment.
In conclusion, we've worked in partnership with this government on a number of issues. We want to continue to work in a constructive manner to help this government achieve its objectives. We're cognizant of our obligations as citizens of a great province.
Information technology is Ontario's premier generator of good jobs as well as an enabler for more efficient government. All Ontario's people win with the prosperity of the information technology sector. Not only is it a creator of jobs but it is a saviour and an enabler of other sectors as well. We just heard that from our friends here in the movie industry, how IT is helping revolutionize that sector with such things as multimedia.
The Chair: Thank you, sir. We have approximately seven minutes per caucus.
Mr Kwinter: I'm very interested in this industry because I think it is the future. No one else is going to be able to really prosper without interfacing with information technology.
Having said that, I'm really concerned about the issue of the skills crisis. It seems to me that a lot of lip-service has been given to it but there really isn't an effective program in place to address it. Compounding that, of course, is the fact that there are US headhunters who are skimming off the cream of the crop to begin with anyway. Could you respond to that?
Mr Petrie: It's a vastly complex issue. I like to think that we, in all our wisdom, have all the answers. We've discussed this thing to death. I just met with my human resources committee today, and it's a vastly complex issue.
We are doing point programs such as setting up a computer database to link colleges and universities and industry, and we're working with some high schools and blah, blah, blah. These are Band-Aids, but we're trying to create models of cooperation that can be used and expanded throughout the province. We're working very closely with other sister associations.
We have looked at the model we used in the program management office of health. That is where this government brought together the affected parties. In this case it would be colleges, universities, student groups, industry and government. Guys, we all know what the problems are. When you put a hundred industry people into a room, everyone's in violent agreement; everyone gets emotional. We all know what the problems are, but they're so complex. This is not a simple thing. We're talking about massive systemic change.
This problem has been going on for 30 years. It's not something that has crept up on us. The Premier's Council report in 1987 identified it as a crisis. We now have to tackle it. How we have advocated tackling it is taking the top people from the different sectors -- from universities, colleges and industry -- putting them in an office, giving them a deadline, nine months, looking at what's being done today to solve the problem, looking at the studies that are being done and giving them a time deadline to come up with recommendations. We look at this office as being the start of a process of change that will create real systemic change.
The key issue is who pays. The government doesn't have any money and students claim they're broke. We have some theories on that. But when we talk about systemic change, we feel the methodology we've used in health can apply to education. We've been advocating this and the government is picking up on it. But we're putting together immediately some point programs that would go a long way, if expanded throughout the province, to solving the problem.
Mr Stuart Bowden: At the risk of oversimplifying, when I went to school it was reading, writing and arithmetic. It was a rhyme that was taught through a hickory stick. Perhaps what needs to be added as far as long-term systemic change is a vision where information technology forms part of that basic fundamental change in our society. Education is the cornerstone to our success in the future and of our wellbeing. The Band-Aids are important in the short run, but we also have to form a long-run vision. We have to invest those tax dollars in those ways. That is something that we as an industry consider important.
Mr Kwinter: I'm glad you brought up the Premier's Council report of 1987. I was the vice-chair of the Premier's Council.
Mr Petrie: Yes. It was a good report.
Mr Kwinter: It was an excellent report, and that's the reason I'm so disturbed, because that was 10 years ago. The problem of the knowledge-based economy was identified. There were lots of recommendations by some very prominent people who thought they had the answer, and here 11 years later we're still talking about the issue and people are still not coming to terms with it.
Mr Bowden: I think if you look at that time -- I can remember starting in this industry over 12 years ago, and software was the glint in someone's eye. I'm from the software side, as opposed to hardware. There is a critical mass momentum that has occurred. If I can make an observation, when I entered the industry, you taught yourself as a businessperson. Today we have graduates coming from colleges and universities. There is positive progression. It has taken a great deal of time and a great deal of money and investment.
Schools now are starting to have some computers in classrooms, but we need to find the momentum and the resources to ensure that when those kids get to grade 1, they have access to that technology or some form of that technology so they're up and running and using the stuff. These kids are not afraid. My children are not afraid of technology, and I presume my grandchildren will be there. It will take time, but what we have to do is have a vision and move forward on that vision. We have to communicate that vision and then basically measure ourselves against it, and measure ourselves responsibly. Industry can help.
Mr Petrie: I would say one thing in that the Premier's Council report came out in 1987. If you look at Ireland in 1987, they were the basket case of Europe, but they embarked on no less than a Marshall Plan to re-educate the population. They poured everything into universities, training and IT. My next-door neighbour, who left Ireland 10 years ago, said it was a basket case. His father hadn't worked for 20 years. Now Ireland is growing at a compounded rate of 12%, the fastest of any western industrialized nation and as fast as almost any nation in Asia. Its median income has gone from the bottom of Europe to now above average, and it's still growing at 12% or 13%. But it took a concerted national effort.
I think the political will to tackle this issue wasn't there from 1987 to 1990 under Peterson; it wasn't there in 1990 to 1995, because the issue wasn't staring us in the face. But unfortunately, there is no easy solution. A wise man only understands the depth of the problems.
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We're trying to build the political will to tackle it. I think the political will will come; I'm very optimistic. I think a cooperative, dedicated venture is going to be required to pull it off. I don't think the Ministry of Education, ITAC Ontario, the universities and colleges on their own can solve this problem. I don't think the horsepower exists, certainly not within us. But working together, I think we can. We're trying to build those linkages now at ITAC Ontario and we're alerting the government. We're optimistic something is going to happen.
Certainly we've talked to your leader about it as well. He's amenable; Dalton McGuinty sees this as an issue as well. It's starting to bubble up in all the parties. So there's great optimism here.
The Chair: Let me interrupt you there and move to Ms Boyd.
Mrs Boyd: Thank you for the presentation. I'm curious about what the nature of this partnership and working together is. Are we talking about an investment strategy? I'm quite curious as to the form it takes.
Mr Petrie: You mean education?
Mrs Boyd: Yes.
Mr Petrie: "The answer is money, stupid. What's the question?" is the old saying. It's going to take a lot of money to change the system, and who pays? That's going to be the critical thing.
Does the government have the money? Certainly industry has invested a lot in community colleges and universities. However, there's a limit to what it can invest. It certainly doesn't have the right to force students -- slavery has been outlawed, thank God. We don't have the right to force students to come to our company just because we've invested in a program. Do the students pay? These programs will cost money, and that is the political hot potato: Who pays?
Some people will argue that students will pay $20,000 to get a year's education in IT. When they're walking into a $50,000-a-year job it's not a big deal. When a student comes out of the University of Waterloo in computer science and starts at $90,000 or $100,000, $80,000 worth of debt doesn't look too bad. When they graduate out of an arts course in sociology at York and they're looking at a $20,000 debt and they're waitering or waitressing, that's a horrible debt. So who pays?
But we also have to also preserve accessibility. My roommate came from an impoverished background. He never saw a dentist until he was 21. He suffered from malnutrition as a child. Now he's a senior executive at Canada Trust. We have to preserve that. This is why the issue is not a simple one. It's not something where we can wave a magic wand, but it has to be tackled.
Mrs Boyd: I couldn't agree with you more. I think it is a very complex one. I would take it from what you've said that you would certainly favour some move towards an income-based repayment program for student loans or something like that, given the example you used.
Mr Petrie: Yes.
Mrs Boyd: You seemed to suggest that people were going to the United States because of a tax situation. What are the wages that are comparable, and the working conditions and so on, that people can get in the United States that might draw them away?
Mr Bowden: The company I work for is the eighth largest in the world. We have no debt. We did the equivalent of $1.5 billion Canadian last year. We're growing at 20% a year. We have an office which is very nice. It's in downtown Toronto.
But when I go down south, there are 17 buildings with about 3,000 employees. They are on a university campus with green grass. They have a cafeteria which is subsidized, day care, health care, schooling, tennis courts, the full nine yards there. You go to Redmond, Washington, and you look at Microsoft, which is a $1-billion enterprise; you can go to Armonk, New York, IBM. These are very romantic locations. It is absolutely amazing what these companies are capable of doing, and to the young kids who have really never seen this type of thing, it's quite romantic.
You hear a bit about Disney coming here, you hear a bit about some of the companies coming up here perhaps for research and development tax credits at a federal level and because the skills are here. But when you sit at marginal tax rates at a $50,000 or $60,000 income level, which tend to be about 41%, and you compare that to 20% and move very slowly upwards to $250,000, there's a tremendous incentive to staying down south.
Mrs Boyd: Well, not if you add the cost of health care, not if you add some of the other costs.
Mr Bowden: I'll give you an example. Most of these companies provide health care trusts. The deductions per month for health care -- full coverage, just like in Ontario -- is $75 a month. They self-insure and they provide a quality of health care that's probably comparable. I agree with you that the inequity --
Mrs Boyd: Oh, surely given the -- well, all right. I won't argue with you.
Mr Bowden: But my point is that the young individual going down there will look at this. Health care generally, if you are 20 to 25 years old, to the average individual -- I'm talking average -- is not a major concern. They will look at the dollars that are offered, which are substantial, they will look at the environment, and they'll make their choices.
Mrs Boyd: So you're telling me that they pay higher wages --
Mr Bowden: Yes, they do.
Mrs Boyd: -- and they have better working conditions.
Mr Bowden: They can and they will.
Mr Petrie: The smaller firms here can't compete with the big American firms, although places like Northern and Mitel can. Typically, what happens is a kid will leave the University of Waterloo, go down to the States for 10 years, because health care is not a big cost. When you're under 30 years old, health insurance is not a big cost. They go down there, make tons of money. They can deduct their mortgage, build up a capital base. They go down there for their 10 most productive years, work their buns off, make a pile of money and then, when they get pregnant and want to be near grandpa and grandma, they come back to Canada, generally in their early thirties. That's typically the thing, but we lose them for 10 years. They make their bucks in the States, they come back here with their house paid off, their cottage paid off, and $200,000 in their RRSPs. Then they settle down to living here.
It is a better quality of life. I'd never, myself, move to the States and there are certain numbers of Canadians who wouldn't. I think no matter what, because of the situation, we're going to lose people. There is an argument for going down there. I know friends of mine who have. A lot of it centres around taxes, unfortunately. It's just a fact of life.
Mrs Boyd: It strikes me as odd that we've got a situation where there are so many jobs going begging and we have a lot of people who've been displaced from work that one would think would make them logically retrainable in those positions, yet that doesn't seem to be happening. In fact, what's happening with all forms of adult education is a real erosion of the ability of adults, once displaced, to retrain for the very jobs that are required. Do you have a comment on that?
Mr Petrie: We're trying to address that, because one of the things is, why can't we retrain people for this industry? There are different levels of training needed, but basically if you look at ITI, which is a private sector place, they're taking people with university degrees who can't find jobs, and for $20,000 they're turning them into people in demand; 90% of them get jobs within four weeks after graduation. They come out with a $20,000 debt, but it doesn't seem to be a problem; they're bursting at the seams. In some ways the private sector is trying to address that. There's a big market niche there. The community colleges now are starting to develop crash programs to take people off the streets.
For example, four members of my association have partnered with Centennial College to develop a networking program so they can program routers and stuff. It's a nine-month crash program which actually is taught by people in the private sector. Cisco and CGI are sending people in. They've built the lab; they're sending in instructors. So it's starting to happen, but there's a huge pool over here and there's a huge demand over there. It means lengthening the tube -- money -- and right now it's being financed by student debt, although it doesn't seem to be a problem because they're walking into high-paying jobs. But we're working to expand that. We're launching some programs at ITAC Ontario to expand the pipe as well.
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Mr Baird: Thank you very much for your presentation. I won't use up all the time because I know my colleague from Kitchener has some questions as well.
I'm from Ottawa-Carleton, so I'm certainly well aware of the importance of the high-tech sector. It's a big job creator there, and the skills shortage is certainly something that has caused us all a great amount of concern.
I have noticed one thing. This is one of the few issues that tends to be not a partisan issue but one where we're all particularly concerned. This is about the first time in this process where we have seen this. It has come up a few times but particularly with your presentation. You have given us a lot to think about, and I want to thank you.
There are some issues, and I wanted to get a sense from you along those lines, in terms of the tax rate and its relationship to the brain drain. The University of Waterloo co-op program is one of the biggest. There are 900-odd students in my riding alone, a good number of them from Waterloo, at Nortel and Newbridge and what have you. I understand Microsoft actually has a recruiting office right at the University of Waterloo. Not that it's a race to the bottom, not that we could ever compare -- I mean, Washington has no state income tax, so we'll obviously never get there -- but when you compare the quality of life, health care and the other benefits, how much of the tax rate on the income side would you identify as a problem?
Mr Bowden: Certainly it can be a very big one if it's sold properly to the individuals. When we transfer an individual south, for instance, within our own organization, the two things that are basically sold to the individual are the tax rate and the purchasing power of that dollar. It can be a very persuasive argument, especially if you're single and don't have family considerations. I think family, when you make this kind of move, is very important, and I don't think there is anybody here who would discount that. How do you tell somebody who potentially can earn US$100,000 a year and be sitting in a marginal tax rate at 32% when you compare it to 50% in Canada? How do you deal with that? It's a very difficult thing. Some people are motivated by things like that. Those are some of the considerations.
I think we have to do a better job of selling what we have. We have a good health care system, we have a good education system, and we are progressive as far as tax legislation is concerned. We certainly look at competing within Canada, but in our industry we have another problem. We must compete globally. We must compete with the United States, which is our biggest neighbour to the south, and there are international competitors as well. Our capital is intellectual capital, and unfortunately, intellectual capital can get on an airplane and move. That is one of the difficulties, where we have to be most creative in retaining people. We have to be able to sell them on something other than tax rates to get them to stay, but that's not to discount the issue. The tax rate is an issue.
Mr Baird: One quick question, because I know my friend from Kitchener has a question. You mentioned the debt-salary ratio for new graduates as an issue. Is that fairly widespread? I think there are ways we could expand high-tech education placements in universities or community colleges: (1) new money or (2) taking from Peter to pay Paul; or the third way would be to simply allow tuitions to increase for those areas where it costs more, where there is a higher salary expectation or reality, even if there were some sort of guarantee. At Queen's University, for example, the tuition for one of their programs is $20,000, and you don't have to pay it back until you make $50,000 a year or more, and they're getting their money back.
Mr Petrie: I was talking to one very prominent person at a university and he said, "Go in and bash those SOBs and tell them we need some money." The taxpayers don't want to pay any more taxes -- I think that was made fairly clear in the last election -- and you've got to balance the budget, so I don't know where the money is going to come from. This is a big problem, and yet, as my buddy with the false teeth at 22 will tell you, we have to preserve accessibility. He said: "If we didn't, I wouldn't be here. I wouldn't be making what I'm making. I wouldn't be where I was." Quite frankly, I wouldn't be where I was and neither would my father. My father wouldn't have done well and I wouldn't have done well if my dad had gone broke.
I believe, however, throughout all the talking that's been going on, these high-tech courses -- if you're going to put a workstation in front of a student and teach them advanced graphics, it's going to cost money. These workstations cost money, and an instructor to come back and teach multimedia, a good one, is going to be $150,000 a year. Students are going to be sitting in front of a $10,000 or $15,000 terminal and the terminal only has a life of a year and a half before it's junk. Where is that money going to come from? The government doesn't have it; we don't think it does. We wouldn't ask for it.
At the universities, some of their buildings are starting to crumble now. Eventually, if the students graduating -- if they get people at Sheridan into a $65,000-a-year job and that's the average salary and it's going up by 20% a year, maybe they can afford to assume a $30,000 debt to get that $65,000-a-year job. Otherwise, as Sheridan argues, those places aren't going to be there.
However, we have to ensure that if a student comes from the background that my friend does, a tarpaper shack in Timmins with an alcoholic father and four brothers, they can have access to that funding as well. The funding has to be based on merit. He went through on grants. We have to ensure that the funding is based on merit as well. I go to Emery and I see kids who are third-generation welfare. Computers are their way out. They're lining up at midnight to be on those computers down in the Jane-Finch corridor. It brings tears to your eyes. You want to make damned sure those kids are going to be in the university course at the University of Waterloo, and the funding had better be there. If they have to pay for it, the funding had better be there. That's what we believe. If it comes from the student, fine.
My niece is going to the University of Waterloo. Her family doesn't have money. But if she graduates with $80,000 in debt into a $100,000-a-year job, it's not a big issue; I keep telling her that. She'll pay that off in three or four years. With an $90,000 or $100,000-a-year job, you can pay off that debt fairly quickly. Live in an apartment, take the bus to work for a couple of years and it's gone, right? It's better than waitering and waitressing through an arts course.
Mr Bowden: I think we have to prioritize. We have to choose how we want to spend our money. If you look at the job growth since 1990, I remember that in the late 1980s, early 1990s, we lost a quarter of a million manufacturing jobs. The economic engine here was on the ropes. We as an industry have been able to make that back. We've been able to make it back through some fairly rough times, which means I think we've hit something here; I'd like to think so anyway.
If it is the will of the people of Ontario or the will of the Legislature to prioritize this from an education standpoint, we should communicate that to our constituents. It's one thing to educate people over time, but we have to have a vibrant industry at the other end as well. Education by itself is not isolated. We have to have the regulatory environment and the financial environment to provide and grow healthy businesses, because as we all know, healthy businesses produce jobs. High technology at the moment produces some very high-income jobs and produces a very high royalty base for the government to reinvest.
There are no easy answers, but somebody has to stand up and show that there is a vision here and say: "Maybe it's not only reading, writing and arithmetic. Maybe there's something else we need to do." I think we're partially there. It's at the universities and colleges. Now we've got to bring it to the high schools and to the public schools. It may be a step-by-step process, but we've got to look at that.
The Chair: I have to stop you there. We are out of time. I thank you for your time today and for your presentation. It was very much appreciated.
Mr Petrie: Maybe you should know that for every technical job you create two non-technical jobs. I'm a marketing guy and Stuart's a financial man.
The Chair: Members of the committee, we'll stand adjourned until 9:30 tomorrow morning in room 151.
The committee adjourned at 1729.