Canadian Federation of
Independent Business
Ms Catherine Swift; Ms Judith Andrew
Canadian Auto
Workers
Mr Jim Stanford
People for
Education
Ms Annie Kidder; Ms Gay Young
Ontario Home Builders'
Association
Mr Wayne Dempsey; Mr Albert Schepers
Bank of Nova
Scotia
Mr Aron Gampel; Ms Mary Webb
Toronto-Central Ontario
Building and Construction Trades Council
Mr John Cartwright
Co-operative Housing Federation of Canada, Ontario
region
Ms Joyce Morris; Mr Michael Shapcott
North York Chamber of
Commerce
Mr Elie Betito; Mr Lorne Berg
Greater Toronto Hotel
Association
Mr Rod Seiling
Toronto Disaster
Relief Committee
Ms Danielle Koyama
STANDING COMMITTEE ON
FINANCE AND ECONOMIC AFFAIRS
Chair /
Président
Mr Marcel Beaubien (Lambton-Kent-Middlesex PC)
Mr Ted Arnott
(Waterloo-Wellington PC)
Mr Marcel Beaubien (Lambton-Kent-Middlesex PC)
Mr David Christopherson (Hamilton West / -Ouest ND)
Mr Doug Galt (Northumberland PC)
Mr Monte Kwinter (York Centre / -Centre L)
Mrs Tina R. Molinari (Thornhill PC)
Mr Gerry Phillips (Scarborough-Agincourt L)
Mr David Young (Willowdale PC)
Substitutions / Membres remplaçants
Mr Garfield Dunlop (Simcoe North / -Nord PC)
Mr John O'Toole (Durham PC)
Also taking part / Autres participants et
participantes
Mr Peter Kormos (Niagara Centre / -Centre ND)
Mrs Sandra Pupatello (Windsor West / -Ouest L)
Clerk / Greffière
Ms Susan Sourial
Staff / Personnel
Mr David Rampersad; Ms Elaine Campbell,
research officers, Research and Information Services
The committee met at
1002 in room 151.
PRE-BUDGET CONSULTATIONS
The Chair (Mr Marcel
Beaubien): Good morning, everyone. I would like to bring
the committee to order. I don't have any great announcements to
make prior to the meeting this morning, so I think we'll proceed
with the business that's in front of us.
CANADIAN FEDERATION OF INDEPENDENT BUSINESS
The Chair:
We have representatives this morning from the Canadian Federation
of Independent Business. On behalf of the committee, welcome, and
could you please state your name for the record.
Ms Catherine
Swift: I'd be happy to. My name is Catherine Swift and
I'm president of the Canadian Federation of Independent Business.
With me is Judith Andrew, vice-president of provincial policy
with special responsibility for Ontario, and I'm sure she's known
to you all. That is, after all, our job.
Thanks very much for the
invitation to come and speak to you today, especially on
Valentine's Day. Happy Valentine's Day, everyone, and I'm sure
this will be its usual love-in as a result.
In any case, I've been here
several times in this capacity, and at this particular juncture
I'm supposedly an expert witness and my background is as an
economist. so I'll be speaking largely from that vantage point. I
know Judith has an appearance later, where she will be more
directly speaking on behalf of CFIB, but naturally the small
business perspective on issues will be what is directing my
comments here today as well.
The outline of my
presentation today-and there's a black-and-white copy of this
PowerPoint presentation in your kit, just to let you know, as
well as some other materials. I thought one issue that was pretty
important to address was our changing economic times. I always,
before I come here, look at what I said in previous years just to
see if it bore fruit at all, and I was happy to see that some of
the comments and predictions we made last year did indeed bear
out with a very good year, for example, for the Ontario economy
last year, a lot of healthy job creation, a lot of very positive
activity in the economy generally and in the entrepreneurial
small business sector in particular. But of course now it does
seem that we are getting that inevitable turn in the business
cycle.
We collect data on an annual
basis from our members on their outlook for the next year for
their business and for the economy generally. We typically get
about 10,000 members responding to that nationally and the
Ontario numbers are, what, about-
Ms Judith
Andrew: Five thousand.
Ms Swift:
Close to 5,000, close to half of that, and just like the economy,
about 40% of our members are in Ontario. So it usually gives us a
pretty good perspective on what the small business community
believes is [failure of sound system]. The small and medium-sized
business community has been growing as a proportion of the
overall economy now for over two decades and in fact now the
small and medium-sized business community represents about half
of the economy. It's a pretty good indicator of a big chunk of
economic activity. I'd like to speak to those data that we
collected late last year, and I'd also like to talk on a number
of specific public policy issues that our members prioritize as
their important issues for the next little while. I'd like to
close with just some general comments on an entrepreneurial
approach, not simply to economic issues but to public policy
issues, to government conduct and in other areas as well.
One thing I should just
mention by way of background is that there is a handout, just a
one-pager, included in the package. "CFIB Membership Profile" is
its title. It's just some background information on whom we
represent across Canada and in Ontario, the sectoral breakdown,
the demographics effectively of our small business membership,
because I think that's often of interest to see who exactly is it
we're speaking for.
Certainly all economists are
attuned very closely to what's going on in the economy right now.
There's no question we're having quite a slowdown south of the
border and there have certainly been indications of a slowdown in
Canada as well. We've had the longest period of economic growth
in the 1990s since the post-Depression era, the post-war era, so
we've had a pretty good run of it for the last number of years
and I guess it couldn't last forever. But I think too we don't
see our members as being horrifically pessimistic. We see them as
fairly realistic. They are certainly seeing a slowdown happening,
but they don't believe that it should sink into recession. It's
always wise to remember that economists are accused of predicting seven out of the last
four recessions so sometimes you have to take a lot of these
prognostications with a grain of salt.
One thing that's very
important is that the so-called economic fundamentals are much
different than they were last business cycle. Of course, no two
business cycles are alike, so you can't by any means compare
them, but there are some common factors that are worth remarking
upon. In the late 1980s, as you might recall, we had high
inflation, very high price levels in many markets, real estate
being a notable example. Our interest rates were very high. Our
Canadian dollar was 89 cents, which a lot of people forget now
because it hasn't been there for a very long time. But in any
event we had a lot of situations prevailing. Also governments
were in very serious debt and running ever-increasing annual
deficits here in Ontario as well as federally. Actually, moving
into the 1990s, we saw tax increases, which of course was the
most absurd way to deal with an economic turndown, but as the
economy slipped governments were so badly in debt because of
stupid past practices that they had no choice but to actually
increase tax levels. So we inflicted on ourselves a worse
recession. We would have had a recession anyway, because it was
global after all, but we certainly made it more painful for
ourselves in the early 1990s here in Ontario and federally.
Again, happily we see here in
Ontario, and across the country, for that matter, government debt
in better shape. It has still not gone away, so we don't want to
underestimate it as an issue, but it certainly is heartening to
see, for example, in the last few days Ontario's credit rating
upped a notch. Those things are always good. It means our cost of
debt declines when that happens and naturally, the less we pay to
finance our debt, the more we can direct that to more
constructive uses.
Tax levels also have come
down and we've always believed that was a necessary condition for
good and enduring economic growth. We've seen them come down
again federally and provincially, and we don't see inflation
being anywhere near the factor it was in the late 1980s, although
of course we've seen it bop up lately, but the sole reason has
been energy costs. Again, it doesn't make it go away, but it's
not an across-the-board inflationary growth activity that we're
seeing here; it's very specific and it's due to factors that are
different from your customary sort of inflationary push.
A number of the provincial
policies over the last number of years will help cushion the
impact of a slowdown. I mentioned that lower taxes are certainly
a very positive thing.
1010
Something that hit our
members extremely hard in the early 1990s was the whole payroll
tax area. We harp on this constantly, payroll taxes, but we do so
for good reason. Smaller firms are more labour-intensive than
larger firms, therefore taxes levied on payroll hit them
disproportionately harder. They discriminate against the smaller
business community, the more labour-intensive community. As a
result, the reductions we saw in EHT back a number of years ago
exempting those with payrolls under $400,000 were a real boon to
small firms and, we believe, one of the factors behind the very
stellar job creation record of this province over the last number
of years.
We believe now is a good time
to contemplate increasing that threshold. I believe in Manitoba
it's $600,000. Is it still, Judith, or is it higher than that
now?
Interjection.
Ms Swift:
OK. Originally, we were actually looking at the Manitoba model
because they had found that workable. We certainly feel that
increasing that threshold should be contemplated now and the
$600,000 level of payroll is sort of a logical target to be
looking at. We've got a number of information backgrounders in
the package on various tax issues, just for your information.
Another area I want to
mention is the leadership that Ontario showed in the capital
gains area. Happily, the federal government followed suit and
reduced the capital gains inclusion rate to 50%, as Ontario had
already announced several months previous. That was obviously a
very positive development that will help the business sector-and
individuals for that matter, naturally-considerably as investment
activity in Canada generally has actually decreased somewhat on
the foreign direct investment side over the last few years. We
certainly do need as many inducements as possible to keep our
economy going in that respect.
The whole issue of confidence
is also very important. Of course it's an intangible, but when we
face the kind of doom-and-gloom headlines we've seen lately,
there seems to be sometimes an overstatement of the negatives in
the economy. Although I'm not saying they should be ignored, I
think we have to balance them out.
Last year, the consumer drove
the economy to a large extent in Ontario and should continue to
do so. All indications are that there is a lot of pent-up demand
in the consumer area, but naturally that can be spooked if people
feel they're going to lose their job or something horrific is
going to happen that's going to affect their family finances.
The same with business
confidence, naturally. Even though a lot of our members are
looking to hire, are looking to invest over the next little
while, even though they have the money, they have the wherewithal
to do so, if they take a hard hit in the confidence area, then
they'll put off hiring that extra person, they'll put off making
that investment, expanding that facility, whatever it may happen
to be, and naturally, that has the self-fulfilling prophecy
element to it. Although we can't ignore some of the negative
signals we're seeing out there in the economy, we think people
should take a more holistic view and see the many positives as
well, and there are indeed many positives.
In terms of our members, they
remain pretty optimistic about 2001. I should comment that these
data were collected in late November, early December last year,
so naturally views can change, depending on what's coming out.
But we have a pretty good tracking system. We have representatives out in the field
every day. We interview across the country somewhere in the
neighbourhood of 3,000 to 3,500 business owners every week, and
we get the data weekly. I tend to feel that if there were really
serious growing concerns about the economy from our membership,
we would have heard about it in many ways by now. So far, that
hasn't occurred.
It's also worth noting on the
basis of this recent survey that small businesses in Ontario
actually worked out to be the most optimistic in Canada with
respect to their expectations for their own business.
This chart shows you the
various provincial comparisons. As you can see, Ontario just
nudges ahead of Alberta a little bit there in terms of its
general optimism. This is what our members view. The sample for
this survey was about 10,000 members nationally, by the way. As
you can see, even in some of the lesser optimistic provinces the
numbers are still not bad at all, but here in Ontario our members
are quite upbeat about the prospects for 2001.
In terms of what they expect
their own business to do, it's pretty comparable to last year. Of
course last year was a very good year, as we know. Here you can
see 2000 compared to 2001 and the numbers are really quite
comparable in all the different areas.
When we look at the sectoral
breakdown, again most sectors remain reasonably confident
overall, but there you can see the financial sector, the real
estate sector, manufacturing, business services. Community
services are right up in the top few in terms of how they
proceed. The primary sectors are at the lower end of the
spectrum, albeit still not in terrible shape.
This chart shows the index
that we compute. We've been running these data now-actually it's
from when I arrived at CFIB, interestingly enough, that we
started doing this survey. You can see over time how it has
bobbed up and down with the economy. Right now, the latest
computation of this index puts us just a little less optimistic
than our members were for last year, but expectations remain
quite high among small businesses.
We broke this down by Ontario
region as well, just to give a bit of a basis of comparison.
Again, not surprisingly, the more urban part of the province is
more optimistic and northern Ontario again does usually bring up
the rear. Nevertheless, we still see almost half of northern
Ontario small business members expecting this year to be
stronger. So the numbers are still by no means bad but a little
weaker than southern Ontario and Toronto.
In terms of employment
growth, as you can see, Ontario comes out as number two. I think
it's important, of course, to recognize that these are always
relative numbers. We're asking our members what they expect
compared to last year. Of course, if last year was horrible, then
saying they're expecting much better means something different
than if last year was extremely good in some province and then
they're still expecting things to be better.
Here Quebec, for example,
which comes out the strongest in terms of their job creation
expectations, came late to the economic recovery. As you may
recall, they lagged other provinces by a good couple of years.
We're seeing a lot of catch-up in Quebec right now, but I think
the fact that after a very strong year in 2000, our Ontario
members are number two-in other words, they're still expecting
quite a good year in 2001-is quite interesting. In any event,
just some other comparative statistics are there on that
front.
We also always ask our
members, "What would induce you to go further than what you're
planning? If something changed in your environment, what would
the factors be that would get you to create another job, for
example?"
The first factor, the
increase in customer demand, is really just a proxy for economic
growth so, not sur-prisingly, a continuing strong demand
situation would always be reason, but a lot of the other areas
have to do with public policy, which we have more control over
than the overall economy. That's not to say we have no control
over the overall economy, but a lot of outside influences come to
bear there as well.
The tax area is always an
important issue for our members. Although those proportions have
fallen some-what over time as taxes have come down-our members
have recognized and acknowledged the improvement in the overall
tax environment-we still see the payroll tax area and the other
taxes-in other words, pretty much most everything else in the tax
realm-as neck and neck as the number two factor, still a very
significant factor. I don't think we can feel we're finished yet
with any kind of tax reforms.
The bank credit area is
growing as a concern. I want to talk about it in more detail a
bit later, but that's obviously up there as well as a concern.
The firm's debt load, some of the elements of the firm itself can
have some influence on interest rates. Although they are,
relatively speaking, low now, reductions are always positive,
naturally. Then some of the other factors which are clearly not
as important are down in the lower part of the list there.
With respect to the action
areas that our members would like to see prioritized, tax
generally remains number one. Here in Ontario, of course, we have
a huge property tax problem. We've had it for a long time. It
hasn't improved. In fact, given some of the slanging matches
between the Toronto politicians right now and provincial
politicians, it looks as if things could very well get worse.
We've done a huge amount of research on property tax that I don't
want to really belabour here so much. But Ontario has a very
disproportionately discriminatory property tax environment which
discriminates against the small-business owner. This of course
has evolved over many years of politicians placating where the
most votes are-again, not surprising; that's a rational, I guess,
decision from a political standpoint, but it certainly has
negative impacts on the economic side. I don't think we want to
clean out our small businesses from downtown cores. Those are
things that have made cities work, it's generally conceded, in Ontario
compared to some other jurisdictions, say, in the United States
and elsewhere. The whole property tax environment is very much a
key component of retaining that mix in an urban setting.
1020
In Toronto right now, as you
may be aware, if you take a comparable property of the same
value, it's basically receiving the same value of municipal
service and so on. Businesses face three times what residents
pay. We know things are out of whack. They've been getting out of
whack for decades and decades now. We applaud the measures to
prevent it from getting worse that have been announced by this
government, basically to not permit municipalities to widen the
already wide gap between residents and businesses. We certainly
encourage you to please hold firm with those views. We know that
the problem isn't going to be fixed quickly. No group-residents,
business, whatever-should be stuck with absorbing significant
increases, but we just don't see how anybody wins by worsening
the already wide discrimination against small businesses in that
system.
Of course, the big chunk of
the education portion of the property tax is something that the
province also has complete control over now. We would certainly
recommend, as I know Judith has done in her tax review panel
work-a reduction in that area would certainly make a good start
at trying to narrow the gap and make that environment more
attractive and bearable for small and medium-sized firms.
The income tax area has seen
some very positive changes here in Ontario. It seems, however,
we're going to have to be fairly vigilant nevertheless about what
our competitors south of the border are going to be doing over
the next little while. We know they're talking about quite a
significant further reduction in their income tax environment.
So, again, I don't think we're done yet there, and remaining
reasonably competitive with that environment is certainly
something we're going to have to keep in mind.
The whole fuel tax area, of
course, is horrific and is hitting everyone in certain
sectors-transportation and what not-much more so than others. It
was interesting, we did a quick little research project on
looking at the margins of refiners. Refiners are making out like
bandits these days. I don't know if you've seen the money, the
kind of profitability. So all this talk about how it's these
international OPEC prices, which, no question, have a role-but to
pretend that that is the whole story in terms of what's going on
with energy prices, it is simply not the case. We know you did do
some research here and had hearings and so on to look at these
prices. But some type of moral suasion has to be brought to bear
by all governments on these energy companies, because they are
robbing consumers of energy products in all areas, and the
profitability is just outrageous. So there's no way just the OPEC
increases are driving energy prices right now.
Also there's a good tax
chunk, as we know, in all energy prices. We continue to encourage
all governments to have some concerted action together and look
at what they can do on the tax front. It's not the panacea.
Obviously, everybody hopes that this situation, the elements of
it we have no control over, such as the OPEC situation, will
mitigate itself in the next little while. It doesn't look like
it's going to be any time soon, though, unfortunately, from all
indications. But the tax area is something governments can at
least back off on, to some extent.
We'll mention one of our
perennial bugbears: harmonization of the GST-PST regime. It has
been done in three provinces in the Atlantic region, as you know.
We were pleased to see that after some typical transition pains,
our members in that part of the country received that very
positively. It continues to be something we hear spontaneously
from our members in Ontario, and elsewhere in the country for
that matter, that it is just an ongoing administrative cost that
is a nuisance they don't need. In the days, as we have now, where
governments do have more spare change around, this could be a
good time to look at measures such as that and reduce the overall
PST-plus-GST level on Ontarians.
The payroll tax area I've
spoken to earlier, at least on the EHT front, although there are
also workers' compenation-WSIB-premiums that are still higher in
Ontario than they are in many other jurisdictions across Canada.
We have seen some reductions and they have certainly been welcome
and positive. We've also seen a very rapid decline in accident
rates, which of course is hugely welcome. We've been working
hard, for our part, with our members to foster continuation of
that fortuitous trend. Nevertheless, we still have a very large
unfunded liability in that area, and we also know that new areas
are being looked at, industrial disease being one example of
something, and other areas that could blow the system right out
of the water financially if they are not approached extremely
carefully. So we should see further reductions in premiums in
that area. There is no reason not to, unless some of the
overzealous types seem to feel that we need to use WSIB to
address things that it was never meant to address in the first
place.
The whole fee area continues
to be a growth area for governments generally, Ontario and the
municipalities in Ontario being no exception. It's simply another
tax, of course. One of the documents in the package actually
outlines a number of commitments that the Premier made on a
number of different issues, and one of them speaks to fees. The
commitment there was, first of all, transparency. If we don't
know what we're doing with fees, which frankly no government
seems to know-it's quite amazing how, if you even ask one
department, "What are all the fees you levy from your
department?" you'll never get a list. I don't think this is an
accident, of course, because if you saw it you'd probably be ill.
But if you don't know what they are, obviously you can't do
anything about them. We're pushing all governments, by the way,
across Canada and federally on this same front.
The number one step is that
initially we need transparency. We need to know what these fees
are, how much they are
being increased, or what has changed with them from year to year;
and finally to not impose a fee-and Premier Harris did commit to
this-unless it is offset by a tax decrease. Fees should not be
another tax. User fees that are truly user fees are fine. If
somebody is using a given thing, they should pay for it. There is
nothing wrong with that principle, but of course we never see
that. We never see taxes or anything go down when fees go up, so
they end up just being another tax grab. Of course, the municipal
area generally is a big concern right now in the fee department
too, and there we would certainly like to see disclosure and more
scrutiny.
This is a survey we did of
Ontario businesses late last year as well. Which were the taxes
or charges most harmful to businesses in Ontario? As you can see,
property tax is number one, not surprisingly. Personal income tax
and corporate income tax are pretty neck and neck, but it's
interesting that personal income tax was ahead of corporate
income tax, because those things sometimes switch places. Fuel
tax has obviously shot up over the last number of months, not
surprisingly, and then WSIB premiums and some other taxes are not
far behind.
I want to speak briefly to
the whole credit crunch possibility. We've been keeping a close
eye on what our major financial institutions are doing. Ontario
is in an interesting position. Surprisingly enough, it is more
dominated by the Big Five banks than are other provinces. We
don't have what we call a second tier. We don't have another
layer of financial institutions that some other provinces have
more significantly. Of course, the big banks dominate right
across the country, but it's actually proportionately more so in
Ontario than elsewhere. Since TD took over Canada Trust, and they
were both primarily Ontario-centric financial institutions, it's
naturally worse.
1030
Going back to the early
1990s, one thing we want to do is avoid what happened then. We
had senior bankers tell us after the fact, after the carnage was
more or less over, how the banking community overreacted
horrifically to the downturn in the economy, especially in
Ontario, and cut off businesses that shouldn't have been cut off.
They were viable businesses and their credit lines were cut in
half or eliminated, some drastic thing that drove them into worse
financial straits than needed to happen or than otherwise was the
case. Senior bankers told us this after the fact, and they always
tell the truth, as we know. We thought this was happening among
our members and we did in fact have it confirmed.
Since then things, if
anything, have gotten even more stark in terms of the
relationship between small firms and their bankers in the sense
that we have fewer branches now. All of the institutions have
been embarking on wholesale branch closings over the last number
of years. This isn't a problem in downtown Toronto, per se, but
it sure is a problem when you get out of the major urban centres.
Some of our small business members have no bank in town any more,
no financial institution in town, and even if they have one, of
course that's the only game in town and then that institution can
charge basically whatever they want for services. Electronic
services have filled some of the gap, but especially small
business financing isn't easily cookie-cut. Some elements of
their financial dealings are, but a lot of them really do need
some kind of human judgment brought to bear.
We're actually soon going to
be making a presentation before the federal finance committee on
the banking legislation that's been reintroduced, as you're
probably aware, federally, and we'll be making some of these same
points. But what we're concerned about is that, if anything, the
relationship between the small business and the lender is even
more automated now than it ever used to be. There's much less of
a human element, much less of an element of the individual you
know in your community actually making the decision about your
business; in other words, the person who's probably best informed
about your business and therefore in the best position. Credit
scoring is used more and more, which is a very arithmetic
formula: should this business get this loan or whatever? Figure
out the numbers-no subjectivity any more, and yet at the same
time the banks are talking about so-called relationship banking.
You can't have a relationship when all you are is a few numbers
on a page. We see this as a real negative for small firms and
we're very concerned, with the coming slowdown of whatever
magnitude, that we will see a repeat of what we saw in the early
1990s, and maybe even a worse reaction on the part of the
financial institutions, of cutting off small businesses. This
will have a big effect on the economy.
We also see bank mergers
being talked about more and more in the press every day, and this
federal legislation is seen by some to facilitate such things. We
still have a big problem with bank mergers because we simply do
not have a competitive alternative at all right now in the
marketplace to the Big Five in most instances, and of course in
Ontario it's worse than in most places, interestingly enough,
even though we have a lot of branches around, certainly in the
urban areas, but again they're all pretty much dominated by the
Big Five banks. Again, we hope this doesn't happen, but we think
it bears close scrutiny because it's unnecessary negativity in
the economy. It doesn't have to happen, it shouldn't happen, and
we're just concerned that it may yet again.
Just to summarize, looking at
small business priorities in Ontario compared to the rest of the
country, we do this surveying regularly with every member once a
year so we get a tracking over time. The tax burden overall has
decreased as an issue but it remains number one and, as you can
see, in Ontario it's actually higher than the national average.
Government debt and deficit still is a very important issue and I
think rightly so. We saw what happened with our big debts and the
deficits that added to them for years and years, and our members
remain acutely concerned over debt and the need to pay down debt
so we don't get into that jackpot again.
I just want to make a couple
of comments about EI federally. I think Ontario has been a
constructive player in keeping the pressure on federally to do
something constructive with that large surplus that is growing.
You might have seen one of
the issues that hit the media recently which we have been harping
on for years: that employers do not get rebates when they
overpay. I'm sure we've been in the situation on our personal
income tax where some year we might have overpaid our EI amounts
and you get a refund. The employer can overpay. If they hire
somebody for six months of the year and then that person leaves
the job and they hire somebody else, they'll actually pay a full
year's worth for two people. In other words, they've really paid
for two when they've only had two halves of people working for
them and they don't get a rebate. This amounts to, the last
numbers we saw-it's over $1 billion anyway, major bucks involved
here. I think it was $1.5 billion across the country. We put a
handout in the package about this. So there is one with further
detail in the package on this.
Anyway, this is a real
inequity, to our way of thinking. Why shouldn't employers get
reimbursed? Basically the answer is usually, "Because we need the
money." That's the usual response, but that isn't good enough.
There's no way people should be paying more. As we know too,
we've got a huge surplus, notionally anyway, building up in that
fund. So we would encourage the Ontario government to keep the
pressure on the feds to reduce premiums on EI and also approach
some of these other issues, such as permitting employers to get a
rebate of the premiums they overpay into the system.
Just moving down to some
other issues, we continue to hear about the shortage of qualified
labour. We're actually going to come out with a major release
next week on some data on the shortage of labour. With an
unemployment rate nationally still just barely under 7%, and
somewhat lower in Ontario but still much too high, there clearly
are some huge structural problems in the workplace when so many
of our members can't find people, and that includes provinces
that have major double-digit unemployment, even in some of the
Atlantic provinces, for example. So we're not just talking about
there being a shortage of bodies; it's a shortage of the right
skill matches, a shortage of people wanting to work because
social assistance is sufficiently OK to induce people to not want
to work as a result, and of course there are education issues.
There's a whole plethora of issues there and no one simple
solution. But I think in the future to see those gaps and to see
people unemployable is a very serious social problem as well as
an economic problem.
A couple of other brief
issues-the whole area of technological change: We've been doing
quite a bit on it as an organization. On our Web site there's
quite a bit of information. There are actually courses we offer
to our members on things like e-business and how important these
elements are going to be to business currently and naturally in
the future. Something we've been recommending to all governments
is putting in place measures that can be sweeteners. There are a
lot of different ways to do it. The federal government did
something we thought was very positive. Well, we recommended it
so of course we thought it was positive. With the Y2K issue, as
you may recall, they accelerated the capital cost allowance. It
wasn't big dollars at all out of the treasury. It just sort of
changed the timing of a lot of tax deductions, because this was
accelerated, but it was hugely positive and it was directed only
at small business too. That was to help businesses get ready and
counter any potential Y2K-related problems.
We see the possibility of
measures that somehow would give somewhat of a tax break to small
firms to get into the world of e-business as also something that
again I don't want to belabour here, but something governments
could contemplate. We know a lot of our members are currently
hooked up to the Internet generally and are using it actively for
e-mail, with Web sites and so on. We have a piece of research in
the kit here on our latest data on how many members are indeed
connected and what they're using it for and so on. But
e-business, there's still a real scepticism about whether that
investment is going to be worthwhile. So we feel there's a way to
go there to change attitudes and to induce people to prepare
their businesses.
The whole issue of
co-operation with other levels of government we also feel is
extremely important. There are so many areas that our governments
just seem to be at loggerheads over. We see now a proliferation
of privacy legislation across the country: something at the
federal level; there has to be something at the provincial level.
Why can't governments get together? I think that's a pretty good
example but there are many others. We just don't see why. It
seems logical to have just one thing apply instead of everybody,
for goodness knows what reason, having to go and do their own
thing. The whole interprovincial trade area is still a big area
of stupidity in Canada, that in many instances we can trade more
liberally with states in the US than we can with neighbouring
provinces in Canada. There doesn't seem to be much of an agenda
there to push that. We've been trying to push it but, again,
everyone is in their little fiefdom and doesn't seem to feel
that's much of an issue. It's a bad economic inefficiency in
Canada that we all suffer from. We underrealize our potential as
an economy because of issues like that.
1040
Another area is the whole
area of health. Finally, there have been some positive moves to
harmonize data on health care systems. We know there are some
huge issues in that whole policy area right now that are very
important to deal with. But again, we need the data. We need to
know what we're talking about. We need the facts and we need to
be able to compare them. Some good starts have been made there,
but a lot more progress could be pursued on that front, too.
Those are just some examples.
It just seems infighting among governments often, in this
country, causes more problems than a lot of other things.
Finally, just to wind up,
something that we've felt is a very positive theme for any
government, any policy and any economy, really, is
entrepreneurship as a concept. The principles of entrepreneurship
are self-reliance, independence, wanting to make a contribution to
society over and above simply making a buck or getting by from
day to day. We see it in our membership every day. We feel an
entrepreneurial thrust couched in those kinds of conceptual ways
is a very positive way to look at the future. I think a lot of
governments right now are looking at how we as a country, as a
province, cope with the enormous changes that we're seeing in
technology, in relation to other countries around the world, in
our trading relationships and in our society generally.
Entrepreneurship is a very
inclusive concept. Anybody can be entrepreneurial. It's not
exclusive to any one group or anything. Canadians, interestingly
enough, have a pretty good record as being quite entrepreneurial,
but we think we could see a lot more promotion of this in public
policy; in other words, not to promote policies that encourage
dependence but ones that encourage independence, helping people
get the jobs that are good jobs, for example, not simply having
stop-gap measures. The recent loosening of employment insurance
rules federally was a huge backward step, just ridiculous. We'd
actually heard from our members in high-unemployment parts of
Canada that they were finally finding people who wanted to work
for more than four months. Now they've backed off on some of
those. So very negative, backward-looking policies.
The area of tax
administration is a huge issue for us. Here in Ontario we see the
bureaucracy. It's one of the worst in the country that we have
ever seen, and why, we're not sure. We're not sure if it's
because they're in Oshawa and they're just far enough away that
anybody centrally doesn't keep close enough tabs on them. We're
not sure what it is, but our members face some officious
absurdities from some of those bureaucrats.
We had an interesting case
recently come up on retail sales tax. A member mailed in their
monies; they're basically acting as tax collectors for
government. This isn't even you paying your taxes as an
individual, which we certainly always advocate, that people obey
the law. This guy mails it in, it gets there a day late and he
gets fined $1,000; never had an offence before. That kind of
stuff is garbage and just shouldn't be happening. If somebody is
flouting the law, fine, nail them. But that kind of stuff just
makes our blood boil. Like I say, the tax administration
bureaucracy here in Ontario is one of the worst in the country.
and it needs action.
I know Judith has been
working with some colleagues on things like a taxpayer's bill of
rights and so on. It is achievable. We've seen it happen with
others. We've seen it happen federally, interestingly enough,
with the former Revenue Canada; now with the revenue agency, the
jury is still out a little bit. We know positive change can be
made, but why don't we promote a more entrepreneurial approach in
the whole government sector as well?
Issues like union-only
procurement: why, when we amalgamated municipalities in this
province, did we suddenly broaden the whole notion of union-only
procurement in the public sector? In the private sector, fine.
The private sector can do whatever it wants; it's their own
money. But to take one small business's tax dollars and then
issue some kind of procurement contract in the public sector and
say, "No, you can't bid on this contract because you're not a
unionized company"-and we had many businesses that previously had
had many years of service to school boards, to municipalities,
whatever, in contracts. Suddenly they were cut out from being
able to bid on those contracts that they're paying for with their
tax dollars, another outrageous disgrace, in our view, and
something that the province could act on. Certainly in the
municipal domain we could see some action from the province.
Anyway, we feel I should
close; I've yapped for more than enough time. But we certainly
feel this whole notion of couching things in an entrepreneurial
mindset probably provides our best chance to help prepare us in
this province, and this country, for that matter, for the kind of
rapid-paced economy, technology-driven life that we see in the
business area and, frankly, in our lives in general for the next
number of years. Thank you very much. I'd be happy to try to
answer any questions.
The Chair:
We have approximately four minutes per caucus, and I'll start
with Mr Christopherson.
Mr David
Christopherson (Hamilton West): Thank you very much for
your presentation. Again, nice to see you. You mentioned the
e-business. I just wanted to pick up on that, because I know
every community, mine included, Hamilton, is doing everything it
can to promote e-business. We've actually gotten ahead of many
other municipalities across Ontario in terms of fibre optics.
We're getting the infrastructure ready. We hear that there's
still a lot of reluctance on the part of small business. What
role do you think the Ontario government can play in easing that
transition into e-business?
Ms Swift:
None of these things ever end up being big-ticket items on the
public purse. But the notion of recommending some type of
corporate income tax credit, for example-again, we can talk about
how that should be structured or whatever-we don't really like
the notion of special treatment. Tax systems should be as
equitable as they possibly can be. We feel that's the way they
work the best, and once you start giving one little group special
treatment, then others should get it and the whole thing gets
complicated and messy. We certainly think that the Y2K example
that took place federally was a huge success and, like I said,
didn't cost much, but that's a possible model that could be
looked at as well.
Of course, the crash of all
the dot-coms was in a way unfortunate. Everybody knew things
weren't going to go on forever, but a lot of people who didn't
really understand why that happened turned off or became very
skeptical of the whole area of "Should I invest?" This is going
to cost money and time. For any business, it's going to cost
money and time. Your five-person firm, which is your average
small business out there-it's not huge-needs some kind of
inducement.
We've found that even though
it doesn't have to be huge dollars, putting something into the
tax system gets people's attention on the one hand. It has an
education value as well as
they save a bit of money. But the education value probably is
worth as much or more than even the money they save because it
alerts them: "There's a tax situation I should be taking
advantage of." Have it time-limited; of course, the Y2K was a
time-limited phenomenon. It was time-limited, so it didn't run
forever. We surveyed after the fact, and we found out 94% of our
members were aware of Y2K, which is a hugely high number. It
shows you what kind of success you can have with something.
I think you need to have your
tax specialist thinking about how you can structure something
like that that would be workable.
Mr
Christopherson: The other issue I wanted to pick up on
was the shortage of skilled workers. We heard it yesterday in the
construction industry. I had already heard about that. That's a
large issue, and you hear it from many different places, but I
hadn't heard that small business per se was having trouble hiring
the right kinds of skills. So I'm curious as to what kinds of
skills they're looking for that aren't there-is there a
trend?-and recommendations on what we ought to do to ensure that
we have that kind of skilled labour.
Ms Swift:
You're going to have to wait a week. We're actually releasing a
very detailed report, a week today, it just so happens. Judith
will be before this committee-
Mr
Christopherson: This is not like a cheque in the mail
sort of thing?
Ms Swift:
No, it isn't, but we can't scoop ourselves.
Ms Andrew:
I'll be here a week today.
Ms Swift:
We're just actually finishing all the nuts and bolts of the
report. But in terms of some general conclusions, it's not any
one specific area. We do hear about computer skills or
construction. You do hear about trades. Yes, we've heard about
those, too, but we've heard about everything. We've heard about
entry level, right across the board. It's amazing how broadly
based this concern is.
Again, there's no one
solution by any means. But I think there are
education-system-related solutions. There are private sector and
public sector training solutions. We've been working with the
Provincial Partnership Council here in Ontario in terms of
school-to-work transition, easing. There's a whole range of
things that could help. Maybe that's what makes it hard, because
there is no silver bullet, you know. It's not that easy. It may
be more inducement to firms to train, although there already is a
fair bit of activity in the training area. But some of it is
quite attitudinal, some of it is willingness, hiring somebody at
the entry level who basically doesn't really have a lot of
job-specific skills but they're very willing to learn. And these
are value sets that, again, you could see the education system
having a constructive role in.
1050
It's not an easy one,
because it is so broadly based and there clearly is no simple
answer at all. But we're going to be releasing quite a lot of
quite specific data, sectorally and regionally, next week.
Ms Andrew:
By occupation.
Ms Swift:
By occupation, yes. So we've just aggregated the data quite a
bit.
Mr
Christopherson: Thanks a lot.
Mr Ted Arnott
(Waterloo-Wellington): Thank you very much for your
presentation. My colleague Garfield Dunlop has suggested to me
that we should offer our thanks to you and your members for the
something like 800,000 new jobs that have been created in Ontario
since 1995. I think too often the politicians perhaps take credit
for that number, but really it's largely the small businesses of
the province that have created those jobs. So if you would please
accept our thanks on behalf of your membership, we would
appreciate that.
Ms Swift:
We'll convey it to them.
Mr Arnott:
I want to ask you about provincial debt, and we've heard again
that the provincial debt is about $112 billion. All three parties
have been party to increasing that debt load. I think it's fair
to say that the Liberal and the NDP parties have shown a greater
tolerance for deficits and debts over their administrations than
our government, but certainly our government has been in charge
when the deficits have been in the province and debt has
increased.
Do you think that your
members think we have done enough to reduce the debt level in
Ontario over the last five years, and should we be doing
more?
Ms Swift:
No, I don't think they do, and the chart that I have there in the
package show that the deficits and debt are still a huge issue.
We've seen it trend down a little bit over the last few years,
but in a way it's maybe come down less than we would have
thought, to tell you the truth. Our members were worried about
the debt 15 years ago when a lot of people were saying, "Oh, we
only owe it to ourselves." I remember those dumb arguments back
then.
Interjection: That was the
NDP.
Ms Swift:
It wasn't even one political party. We heard it from a number of
different quarters. I remember even some bank chief economists
saying dumb stuff like that. It was just so incomprehensible and
yet people thought you were really out in nutbar territory if you
said, "Do something about the debt." Then with the miracle of
compound interest, also the curse of compound interest, we saw it
go kerflooie there in the late 1980s, and of course everybody had
to act on it. They had no choice.
No, I don't think the
government has gone far enough. Our members obviously still
prioritize it right up there, and not just in Ontario but right
across the board, federally too. They feel, again, it's nice to
see things at least going down a touch. They're not going down
enough. It hamstrings us for the future.
Mr John O'Toole
(Durham): Thank you. If I may, just a quick question.
You mentioned, and one of your slides included, some of the
inhibitors in terms of small business challenges, and I want to
focus on one area specifically in the tax factors. I know
historically we've had, and you've mentioned, the employer health
tax and other payroll taxes. Even in your presentation you
recognized that the
government has in its own direct way tried to intervene in that
and also tried to intervene with the capital gains leadership.
You have acknowledged that. WSIB, of course, there was a
significant stranded debt, if you will, that has been argued
about for a decade. I think we've dealt with that. Rates have
come down something in the order of 29% on average. There's more
to be done. That's the general thrust of our message.
More recently, and I think
you mentioned it, what is more technical is the issue of
municipal tax. I know I'm getting a lot of push back right as we
speak with respect to the issue of the commercial or
non-residential tax rate, and you did mention that briefly. But I
think for the record, we've intervened with respect to
controlling the educational portion and indeed reducing it, as
you know, in the last budget, and I'd like you to comment in a
very specific way to what the shift is from. Who pays for what at
the municipal level? And there's the invisible, non-voting
business person in that they pay residential tax as well
somewhere. How can we shift that burden, and is average capping
the right way to go? Do you understand?
Ms Swift:
Yes.
Mr
O'Toole: Because it obviously has to go somewhere. That
revenue just has to go on to the residential side. I'm fighting
that on a daily basis because residents on the same side say
they're paying enough.
Ms Swift:
Sure. Of course. Nobody ever thinks they're paying too little
tax. That's part of the problem. You can theorize all you want,
but even if the multimillionaire in Rosedale is paying a quarter
of what the person with the modest house in Scarborough is
paying-that's my mother, the person with the modest house in
Scarborough-they're still paying plenty-right?-in fact, probably
too much. But that is the reality.
Why has it gotten so bad?
Because those are the political realities. Of course, the
majority of the votes are going to strongly influence a
politician's decision-making.
How do we do it? I think we
have to do it awfully slowly, which is one way to do it. Another
way: there's still a huge amount of waste at the municipal level.
We haven't even commented on this, but we're sort of assuming
there's no potential for spending reductions. Provincial
governments have found ways to reduce spending. I think municipal
governments can find ways to reduce spending too.
We still have things like
union-only procurement, which I mentioned earlier. That adds
costs. I hear school boards and whatnot beefing about the fact
they have no money. They're not willing to take measures that
will cut their costs, so they lose credibility as a result.
Municipalities are in the same boat.
The whole municipal area is
so hugely complicated, of course, it's unfortunately subject to a
lot of misperceptions. The whole shift of responsibilities is
usually who pays for what? We know a lot of municipalities ended
up with more money in their till, but do you think they'd admit
it? Of course not. They were pasting the province.
But it is a whole messy
area and there are no easy solutions. I guess all we can say is
that we don't see the growing inequities. Again, this government
has tried to at least stop the growth of the inequities and now
we would like to see a slow, managed reduction of it. Judith,
sorry, do you want to-
Ms Andrew:
I just wanted to add that the principle in Bill 140 of moving the
municipal portion to a gradual rebalancing is a positive thing.
You should build on that; you should definitely stick to your
guns on that if there are any municipalities that are trying to
get around that one.
The other side of the
equation, the education portion which the province controls,
seems to us to be the best bet for trying to get some more relief
to the business sector because the imbalances are just dreadful.
Our study that we produced, called the Property Tax Overdraft,
looked at 25 municipalities. We've bumped that up to 70 now.
That's all available on our
Web site, so for every one of your ridings that you represent you
can look at the imbalances between the residents', the commercial
property and the industrial property. They're just horrendous.
They're holding back economic activity locally. That is jobs for
those residents, so in a roundabout way you're helping your
resident voters.
Mr Gerry Phillips
(Scarborough-Agincourt): I've got two questions. I'll
try to get them both in. The first one follows up on what you
just talked about. I read your study and, on the property tax,
was slightly surprised to find that businesses in Ontario pay
more provincial property tax to the province for education than
they do to municipalities.
In other words, in Toronto,
Mike Harris collects more property tax from business than Mel
Lastman does. That was the first thing that surprised me. While
municipalities seem to take the heat from businesses on property
tax, Mike Harris has a higher property tax rate than the
municipalities.
The second thing that
surprised me was the disparity across the province. If you're a
business in Toronto, according to your numbers, that is assessed
at $200,000, you're paying Mike Harris $10,000 in property tax
for education; if you're in Mississauga you're paying $6,000; and
if you're in Parry Sound you're paying $2,000-identical
businesses assessed at the same rate, all set by the province,
nothing to do with the municipalities. Mel takes a lot of heat
but Harris is raising more property taxes on businesses than Mel
is. What's your recommendation on a solution to that?
Ms Swift:
I think Judith just gave it. We see the province in a very good
position to be able to reduce that which they are solely
responsible for.
You might recall-I'm sure
you do, Gerry-the whole education thing was such a big debate,
because we know it's very inequitable across the province, but
harmonizing or somehow equalizing obviously would be
undoable.
1100
Mr
Phillips: Let me try and get my second question in.
Ms Andrew:
You can't have a uniform rate for business across the province,
as much as that might seem appealing, because that would be
sharing the high-tax misery with the other people. What you need
to do is buy down that education rate in the higher-taxed
area.
Mr
Phillips: My second question is on tax policy. I carry
around with me the "Why should you invest in Ontario?" It talks
about our remarkable health care and education system, publicly
financed and open to everyone, and that the United Nations rates
Canada as the number one jurisdiction in the world to live. The
reasons for that, as you probably know, are life expectancy at
birth, adult literacy and educational enrolment. The province
talks about the substantial cost advantages to businesses to
locate in Ontario: a $2,500-per-employee cost advantage on the
health care versus the US.
Those things cost money. A
$2,500-per-employee cost advantage, the way we fund health care,
costs money. I think you said corporate taxes have to be lower
than the US, or certainly the government is committed to 25%
lower than the US corporate taxes.
Ms Swift:
I think competitive, anyway.
Mr
Phillips: Income taxes have to be. Where does your
organization recommend we find the money to fund our health care
system if it's not in the corporate tax side or in the personal
income tax side?
Ms Swift:
I think it can be in the personal income tax side to some
extent.
Mr
Phillips: If it's at the US rate?
Ms Swift:
You can't have direct comparability. That's why we always say a
"competitive system," competitiveness. It depends on the whole
tax mix. The capital gains is one area, because of the
international investment flows and the amazing facility of that
in this day and age, where I think you're going to have to be
pretty darn close rate-wise because that is something people put
an eagle eye on. In terms of the overall tax mix, we've got some
flexibility, but if you get too much out of whack, you're
definitely going to have some competitiveness problems.
Right now we've got a
dollar that, the last I heard, sank another 30 basis points
overnight or something like that. We've got a really low dollar.
That should compensate in our economy generally for some major
productivity thrusts that we haven't seen enough of, in my view.
Hopefully we should see them over the next couple of years and
that should help our economy along.
The notion that it
exclusively has to come from any one component of the tax system
I don't think is necessary. You can debate parts of the mix and
how they have to be comparable, but the overall environment has
to be competitive.
You talk about education
generally, as well. We seemingly are still viewed that way by
some of these international comparisons, and yet our members see
huge problems with the education system. So I don't think we
should ever think we're doing well enough, even though, yes, it's
better than many Third World countries, and yes, we're doing
better than other countries in some respects. But to say of our
education system and whatnot that we can relax, I don't think
anybody believes that anyway.
The Chair:
On behalf of the committee, thank you very much for your
presentation this morning.
CANADIAN AUTO WORKERS
The Chair:
Our next presenter is a representative from the Canadian Auto
Workers. Could you come forward and state your name for the
record, please.
Mr Jim
Stanford: My name is Jim Stanford. I'm an economist with
the Canadian Auto Workers union here in Toronto at their national
office. You are familiar with the CAW. It's the largest private
sector union in Canada and about two thirds of our members reside
and work in Ontario.
I'm going to address the
focus of my presentation today on the issue of taxes in Ontario
and discussion about further tax cuts. I will slightly address
issues about the general economic outlook. I'd be happy to get
into more of that in the question and discussion period,
especially regarding the situation in the auto industry and where
the industry is headed over the next couple of years.
In talking about the tax
cuts, I'm going to take a slightly different approach to the
whole issue. We've obviously had some real arguments in Ontario
over recent years about whether tax cuts are a good idea or not.
There are strongly held views on either side and those views will
continue, but both sides in that debate have generally agreed
that taxes have indeed been cut in Ontario. But based on the
recent number crunching I've looked at, I'm increasingly curious
and skeptical about whether or not there actually has been an
effective tax cut in Ontario. That raises issues about whether
Ontario's recent economic success, which since 1997-98 has been
very strong, can be attributed to tax cuts if we're not sure that
tax cuts actually occurred.
I apologize for drifting
off the side of the screen there, but folks have the hard copy in
front of them if they can't see it on the screen.
The standard story about
how to explain Ontario's very strong economic performance-and it
was strong by any measure in terms of employment growth, income
growth, exports, business investment, really across the board,
with the exception of public sector activity-the typical story
from the provincial government would go something like this: tax
cuts spurred strong consumer spending; a combination of tax cuts
and the welfare cuts spurred an incentive to work, pushing and
encouraging people at the same time to go out and get a job; the
businesslike attitude, a more favourable attitude toward
investment and business, spurred more business investment. Then,
the argument has been, if we're concerned about a slowdown in
that economy, in that strong growth we've experienced, what we
need are still more tax cuts to do the trick. We've had
suggestions from the Premier and others in government that in fact those tax
cuts may be accelerated in order to offset the concern about
economic weakness.
1110
Looking at the evidence,
though, even though there have obviously been significant cuts to
statutory tax rates in Ontario, particularly in the personal
income tax system, it's not at all clear that tax cuts have
really made a mark in the macroeconomic data regarding effective
tax rates, that is, the taxes that are actually collected by
government. In fact, on average, I'll show you that average
effective personal tax rates in Ontario have increased during the
period of the Harris government. That's the taxes people actually
pay measured as a share of their personal income.
It's very hard to argue
that tax cuts have had any impact on the strongest sections of
the economy, which would be investment in export-oriented
industries like auto, because those industries don't sell very
much of their output at all in the Ontario market. Therefore,
it's especially doubtful that further tax cuts could prevent the
fear of a recession, although I personally tend to agree with the
finance minister's comments yesterday that concerns about a
recession have been overstated.
Let's look at the increase
in total direct personal taxes as a share of pre-tax income in
Ontario. For 1999, the last year for which we have full data,
federal, provincial and social security payroll deductions
collected a total of 24% of pre-tax personal income in Ontario in
1999. That is a modest increase from the figure in 1995. The
average effective direct tax rate in Ontario in 1995 was 22.7% of
personal income. That, in turn, was higher than the 21.9%
effective rate that was collected in 1992.
That modest increase in the
average effective personal tax rate paid in Ontario reduced the
disposable incomes of Ontario consumers in 1999 by about $4
billion, compared to what their disposable incomes would have
been if effective tax rates had stayed at their 1995 level of
22.7%. The first figure in the handout shows the increase in that
average effective personal direct tax rate in Ontario rising from
below 22% in the middle of the last recession to just under 24%
today. The difference between average effective tax rates
collected in 1995 versus 1999 would have reduced $4.2 billion
worth of disposable income for consumers. So the notion that
Ontario consumers have been on a spending binge-and consumer
spending has grown strongly, by $40 billion in the province
between 1995 and 1999-and that that boom in consumer spending is
attributable to tax cuts in Ontario isn't sustainable, because
average effective tax rates have actually grown.
That's a combination, of
course, of the provincial income tax, the federal income tax and
the payroll taxes. Of those three, it is provincial income taxes
that were cut most aggressively in terms of the statutory rates,
but even for provincial income taxes, there is no evidence that
effective taxes collected in Ontario at the provincial level have
declined as a share of personal income in the province. In 1999,
again, the last year for which we had data, the average effective
provincial income tax rate in the province was 5.5%. In other
words, provincial income taxes collected 5.5% of pre-tax personal
income. That is down very slightly, from 5.8% in 1995. So there
was a very slight decline in the provincial income tax component
of the total tax bill facing Ontarians, but that was more than
offset by modest increases in the federal effective tax rate,
plus the increases in payroll taxes, especially CPP premiums,
that we have also seen.
The personal income tax at
the provincial level, that cut in the effective rate from 5.8% to
5.5% in 1999, increased disposable income by about $689 million.
That's the difference that consumers had in their pockets thanks
to that tiny fractional decline in the effective rate from 5.8%
to 5.5%. Again, that $689 million was more than offset by the
increased tax payments to the federal government and on payroll
deductions. So the impact on final consumer spending must have
been virtually negligible.
I stress that this is not
what some economists refer to as a Laffer curve result. You are
familiar with the argument that's been made by proponents of
aggressive tax cuts if you aggressively cut the tax rate, the
actual nominal dollars of taxes that you collect could stay the
same or even grow because of the new business activity that's
spurred by the lower tax rate. This is not what we're seeing
here, because the evidence shows that there hasn't even been a
cut in the effective tax rate, so we can't argue that it's
because the lower tax rate has spurred all this business
activity. Nominal tax revenues have actually grown very strongly
in Ontario and, again, that would be largely because of the
overall economic expansion, and it hasn't even been offset to any
significant degree by a decline in the rate of taxes that is
collected on that income.
The next figure in the
handout shows the striking stability in the average effective
personal income tax rate collected by the Ontario government.
Again, this is provincial income taxes at the personal level
measured as a share of pre-tax personal income in the province.
Through the different administrations, and if you continued this
line back to the late 1980s, you would see whether it was a
Liberal provincial government, an NDP provincial government or an
aggressively tax-cutting Harris provincial government, every one
of them collected about 5.5% of pre-tax personal income in the
form of personal income taxes. That's quite striking, quite
remarkable and goes against the kind of dominant debate we've had
over whether or not tax cuts were a good thing. In fact, at the
ground level, where the rubber hits the road, where people
actually pay, there is no evidence that there's been an effective
tax cut, even at the provincial level.
If there hasn't been an
effective tax cut at the end of the day when people are paying
their taxes, how could that tax cut explain the boom in consumer
spending? Remember, the increase in the total personal direct tax
bill, provincial, federal and payroll tax deductions, reduced
disposable income by $4 billion in the province between 1995 and 1999. That is a
combination of a very slight reduction in the provincial share of
that by less than $700 million, more than offset by the federal
and payroll tax increases and likely offset by the other tax
payments that individuals are paying that aren't reflected in the
personal income data-things like user fees, things like municipal
tax rates and so on-which have increased in Ontario at the same
time.
Even that $700 million that
at the most you could argue consumers had in their pocket thanks
to the Harris tax cuts, that $700 million is 0.3% of consumer
spending, less than 0.2% of Ontario's GDP. So to argue that it
was an important factor in the evolution of Ontario's economy
over the last five years is stretching it.
This graph shows a
comparison of the changes in the different elements of the
personal income and expenditure account. There has been a very
strong increase in consumer spending in the province, up by $40
billion in five years, and that has provided a huge boost to the
domestic economy. Again, I agree with the finance minister's
comments yesterday that most of Ontario's growth over the last
three or four years has been rooted in the domestic economy. The
exports have helped, but most of it has come domestically, and
this huge boost in consumer spending is a big part of it.
Note that the increase in
pre-tax labour income-this would be income from employment, wages
and salaries in Ontario-virtually matches that increase in
consumer spending. The increase in pre-tax incomes of Ontarians
virtually explains the whole increase in consumer spending. There
has also been an increase in other types of income on the whole
in the province, including investment income, self-employment
income and so on-much smaller.
The overall change in
disposable income as a result of the total tax burden on
individuals-that's provincial and federal income tax and the
payroll deductions-has served to reduce disposable income by
about $4 billion, so it's been going against the flow, actually.
Despite an increase in the average effective tax burden on
Ontario citizens, they're still spending a lot more on consumer
goods. The share that can possibly be attributed to the
provincial income tax cuts, that decline in the average effective
rate from 5.8% in 1995 to 5.5% in 1999, that's less than $700
million, and that's the $700 million indicated on the graph.
To argue that this little
sliver of an effective tax cut is driving this boom in consumer
spending is simply not sustainable. I know that there are some
Keynesians in the Harris government here. I know it from their
talk about fine-tuning the economy through tax cuts and helping
to offset the economic slowdown with proactive government
stimulus, but not even the most militant Keynesian could ever
argue that this little sliver could drive that boom in consumer
spending. If you were to calculate a multiplier effect by that
ratio, you would have to say each dollar in effective tax rate
delivered by the provincial government generated $70 in spending
by consumers. So that's a 70-to-1 multiplier that's implied by
the argument that personal income taxes in the province explain
the consumer spending boom.
1120
How do you explain the
boom, then, if not by reference to the tax cuts, which people
argued about but most of whom accepted that it was there? I'm
arguing that perhaps we shouldn't assume that tax cuts were
driving the development. After years of stagnation, after this
prolonged recession in the early and mid-1990s which had
virtually nothing to do with provincial policy, either pro or
con, employment and labour income in the province started growing
rapidly, starting later in 1997, and 1997 was the time that the
recovery really kicked into gear. That was when the fallout
effects of the fiscal cutbacks at the federal level, and to some
extent at the provincial level, were by and large over and the
economy was being driven by low interest rates, export growth
and, finally, the expansion of domestic spending.
The growth in pre-tax
labour incomes, as I stress, fully explains the strong surge in
consumer spending. The tax cuts of the provincial government are
hard to even see in the macroeconomic data. In fact, the total
provincial government tax take has grown as a share of provincial
GDP in Ontario in 1999, reaching its highest level in the whole
decade, reaching up to almost 16% of provincial GDP. So you've
seen a stability in the effective personal tax rate as a share of
personal income and you've seen an increase in the overall
provincial tax rate measured as a share of GDP, which again is a
kind of striking contrast to the emphasis on tax cutting that
both the supporters and the critics of the provincial government
have focused on.
I genuinely and honestly
find this kind of mysterious. How is it that we understand the
stability in the average effective rate of provincial personal
taxation and the increase in the average effective rate of
overall provincial taxation measured as a share of GDP? I think
there are a number of factors that have been at work that have
mitigated the impact of the cuts in statutory tax rates, which we
know occurred, but have mitigated those statutory cuts on the
actual effective rate of tax that's collected by the
government.
First of all, the personal
income tax cuts themselves were smaller than were often
advertised, because the fair share health levy offset a
significant and growing chunk of that tax cut on the
higher-income earners, and that health levy now collects an awful
lot of money through the personal income tax system in the
province.
Secondly, you had a
situation where the cut in statutory rates was offsetting what
otherwise would have occurred, which would have been a gradual
increase in the average effective rate of personal taxation due
to things like inflation and income growth in the province, so
that people were, fairly or unfairly, moving up into higher and
higher tax brackets.
A third factor that I think
is kind of interesting is the polarization in pre-tax incomes
that we know has occurred in Ontario and in the rest of Canada in
the late 1990s, the fact that the income earned by the top
quintile, basically the
top 20%, has grown in real terms strongly, whereas the income of
lower groups has stagnated. One interesting and completely
accidental impact of that polarization in pre-tax incomes is that
a growing share of total personal income is received by those in
the top tax brackets. That means that the average effective tax
rate across the whole population can actually increase, simply
because more and more of the income, a greater share of the
income, is being earned by very high income earners; and since,
even despite the statutory tax cuts, they pay a higher tax rate.
That means that pulls up the overall effective rate at the same
time as the statutory rate is falling.
For the province as a
whole, the boom in corporate tax collections has more than offset
the small reduction in effective personal income tax reduction.
That's where you get this stable or even increasing trend in
provincial tax revenues, despite the fact that the statutory tax
rates have been cut especially aggressively in the personal tax
system.
Looking forward, what is
the medium-term outlook for the province and where does the tax
issue fit into it? Again, I would generally agree with the
finance minister's assessment of the economy yesterday,
particularly the notion that the headlines that we've seen about
the looming recession and so on are considerably overstated and
likely very premature. His estimate of real GDP growth in the
province of 2.8% next year is reasonable to me and in line with
the forecasts of most economists and the forecast of the Bank of
Canada, for example. We are obviously looking at an economic
slowdown from the fast growth of the last couple of years, but a
slowdown and a recession are two very, very different things, and
obviously a lot of the headline writers and some of the analysts
have gone too far on a limb in interpreting and extrapolating the
effects of this slowdown.
There is going to be a
significant downturn in auto and related industries in the next
two years. That's caused by a softening of US vehicle sales,
which will decline by 10% or 15% this year and stay at a similar
level next year. We could see in Ontario up to perhaps 5,000
permanent layoffs in the auto assembly sector this year, and then
you'll see that much and more again in the parts sector and
various related supply industries. That's obviously a significant
hardship for those who have been laid off, but that loss of
perhaps 15,000 jobs in the broader auto industry and its
suppliers is not significant enough to cause a broader downturn
in the whole provincial or national economy.
Ontario's export
industries, auto first and foremost, are very strong
structurally. This is almost exclusively driven by a cyclical
weakening of demand in the US, and I would see a recovery in most
cases when US demand recovers. The one instance where there is a
structural issue is with DaimlerChryser, where they're going to
suffer a disproportionate number of the total layoffs. Now we
have a situation where the domestic industries, driven by that
boom in consumer spending-a boom which seems to have nothing to
do with taxes-have a lot of momentum.
Can a tax cut help? Can we
fine-tune the economy and reduce what I would already see as a
small risk of an actual downturn in the province? Can we reduce
that risk even further through further tax cuts? It seems quite
clear to me that tax cuts did not cause the recent growth in
Ontario. It's hard to even see the tax cuts in the aggregate
macroeconomic data. So how could more tax cuts which you can't
really see prevent a recession? The downturn that we are
experiencing, the slowdown, is driven by US conditions that tax
cuts in Ontario cannot affect. Unless we start taking our $200
cheques and mailing them to prospective car buyers in the US
instead of mailing them to Ontario taxpayers, there's no way tax
cuts can offset the downturning US market conditions, which are
filtering through into Ontario, and personal income tax cannot
affect the investment decisions of those key export-oriented
industries. They're not located in Ontario because of their
personal income taxes, high or low; they're located here because
of the dollar, because of the productivity of the industry and
because of the benefits they get from our health care system and
other social programs. So in fact if the personal income tax cuts
are ultimately reflected, as I suspect they will be, in further
deterioration in the quality of our public health care and
education, then I would see those personal income tax cuts
harming the likelihood for future investment in the province.
Some other holes in the
logic of thinking which suggests that further tax cuts will
offset the economic slowdown: remember that any cut in the
general income tax system delivers the maximum gain to the
high-income earners who pay most taxes in Ontario and in Canada.
In fact, the share of taxes paid by those high-income earners is
growing significantly because their share of pre-tax income is
growing significantly with the polarization, the growing
inequality in pre-tax market income. So those high-income earners
who get the lion's share of the benefits from a general income
tax cut are going to use much of their savings from those tax
cuts to offset their consumer debt, which is high, to offset
their recent losses in stock markets and other financial
investments. The economic stimulus that would be delivered by
those tax cuts is diluted. Remember, the provincial income tax
system collects just five cents of each dollar in pre-tax
personal income in the province. The idea that you can fiddle
around with the whole economy by playing with that nickel of the
whole dollar I think, again, is taking Keynesianism to an
extreme. It will be the trends in pre-tax incomes, job creation,
whether or not we're getting rising incomes in pre-tax terms,
that will be key.
1130
The time lags involved in
trying to fine-tune the economy through tax cuts also reduce the
effectiveness of that strategy. I think there's a growing
consensus among economists of all stripes, left and right, that
we should not try to use fiscal policy-activist, countercyclical, discretionary fiscal
policy-as a tool of demand management. We should leave the job of
trying to offset weakness or rein in an overly strong economy to
the central banks. They can do it faster, in a more timely
fashion, and they can do it more effectively, because interest
rates are far more powerful in their impact on overall economic
conditions than personal taxes are.
The reasons to either
increase or cut your taxes should have to do with your thoughts
about the programs that taxes fund. If you think there should be
more public programs funded with taxes, you should increase them.
If you don't, you should cut them. But it shouldn't be a
countercyclical demand-side argument one way or the other that's
used for and against tax cuts.
Just to show again the
polarization of income and the resulting polarization of tax
collection, this is a total for the most recent year available,
1997, total personal income taxes, federal and provincial, in
Canada by income bracket. Incredibly, now, the top 2% of
taxpayers in Canada, those who earn over $100,000 a year, pay 26%
of all income taxes collected in the system. This reflects the
fact that they are collecting an ever larger share of the pre-tax
market pie. The top 13% of taxpayers-that's those earning over
$50,000 a year-pay well over half, almost 60%, of all income
taxes collected federally and provincially in Canada. The bottom
87%, those earning less than $50,000, pay about 40% of all taxes.
The bottom 60% of taxpayers in Canada, those earning under
$25,000, pay at this point less than 10% of all personal income
taxes. So it's striking that the top 2% pays three times as much
tax as the bottom 60%. This reflects, obviously, the progressive
nature of our income tax system, but it also reflects the
incredible polarization of pre-tax incomes, the growing gap in
incomes between the rich and the poor.
If you cut the income tax
system in a general way, with a general tax cut across the board,
this top 2% will receive three times as much benefit from that as
the bottom 60%. Given how much they save and what they spend
their money on, even some luxury consumer spending by that top 2%
is not going to offset any kind of general economic weakness.
A better approach, in my
view, is to take the money that is there, reinvest it in health
care and other public programs and try to enhance Ontario's
advantage, which is clear in terms of the nature of our society
and the programs that are there. Just to put some numbers on it,
in the auto assembly sector, public health care in Ontario saves
the industry about $6 per hour worked. That's what they save by
being here on the health care side, instead of paying private
health premiums in the US. That is a huge factor in investment
decisions, and part of what explains the very strong investment
in Ontario's industry right through the 1990s.
Reinvest in economic and
social security measures at this point, when there's the risk of
a downturn. Again, I think the risk of outright recession is
small, but there's clearly a softening in the macro economy. This
is the time when we've got the money to reinvest in various
measures to help those at the bottom of the income ladder recoup
their losses.
Just a couple of other
factoids in terms of income taxes and personal taxes. There are
many myths about taxes. One of them is that Canadians are
overtaxed. I heard Catherine Swift say earlier she has never met
anyone who says they don't pay enough tax. I'll say I don't pay
enough tax, OK? Catherine has left, unfortunately. The idea that
Canadians in general are overtaxed is wrong. In fact, for the
worker at the average industrial wage, they pay less tax in
Canada than they do in the United States, believe it or not. This
is federal income tax, provincial income tax and payroll
deductions for social security and other public programs. They
collected about 17% in 1997-this is OECD data, the most recent
available-versus 18% in the United States. Even though overall
taxes in Canada are higher than they are in America, they're more
progressive in Canada, which means at the average income level
you pay less tax than the average-income person in America. To
boot, you get public health care, public education and other
benefits from that.
Taxes and spending by
government, the combination of the two, play a very powerful role
in reducing the growing inequality we see in pre-tax market
incomes. This shows the ratio of the top quintile to the bottom
quintile in Canada, and the numbers for Ontario are almost
exactly similar. In market incomes, the top quintile, the top
20%, takes in 27 times as much income as the bottom 20%, and that
ratio of inequality has grown significantly over the last decade,
from about 16 to 1 in the mid-1980s to 27 to 1 today. This is
what's driving the growing concentration of the tax burden on the
high-income earner, the fact that they're getting more and more
of the pre-tax pie.
The combination of income
taxes and cash transfer payments, like welfare, employment
insurance, pensions and so on, reduces that level of inequality
to about 8 to 1. So over two thirds of the inequality is
eliminated by the tax and cash transfer system, but then you also
have to include the value of non-cash public services, such as
health care, education, infrastructure, roads, garbage
collection, policing and so on, which is a form of consumption
that you don't pay money for, right? You consume it because you
live in the society. Include the value of that in your total
consumption bundle, the value of non-cash public programs, and
the inequality ratio falls to 4 to 1. So you've gone from 27 to 1
before taxes and government programs to a 4-to-1 inequality ratio
afterwards. Even that ratio is growing, and in my view it's too
high, but the more we cut taxes and the more we cut programs as a
result of cutting taxes, the more we're going to be looking like
this 27-to-1 society instead of the 4-to-1 society.
There's a lot of
international evidence that the level of taxes collected is a
dominant determinant of very important social and health
outcomes. I'll just give you one example here, the correlation
between average effective tax rates in OECD countries and their
demonstrated rates of
child poverty. There are a lot of factors that explain child
poverty, obviously, but over 50% of the international differences
in child poverty can be explained by one variable and one
variable alone: how much of their GDP do they collect in taxes at
all levels of government? Countries which collect a lot more
taxes have a lot lower rate of child poverty, and vice versa for
countries which collect less in taxes. So again, the more we cut
taxes and the programs that are funded by taxes, we're going to
be steadily climbing up this hill and our already high child
poverty rates will get even worse. Similar data show that taxes
are systematically related to things like education outcomes,
social inclusion, participation in elections even and so on.
On the whole, my verdict on
the argument, "Should we cut taxes further in Ontario?" would be
a strong no. First of all, we're not even sure we would notice it
if we were cutting taxes. Again, the significant cuts in
statutory rates, which we know happened, did not trickle through
into more money in people's pockets at the end of the day. The
average effective tax rate in Ontario increased for the total
government sector and stayed the same for the provincial taxes.
Those tax cuts would not affect investment or employment in key
export-oriented Ontario industries. The personal tax system is
virtually irrelevant to investment decisions in the auto
industry, and if the tax cuts lead to a decline in social
programs like health care, they'll hurt investment in Ontario and
the tax cuts will lead to more inequality, more pressure on
public services, deteriorating health and social income.
I reject the notion now
that tax cuts were even significant in explaining what has
happened in Ontario over the last few years. I think the lessons
of Ontario's Conservative Common Sense Revolution have got almost
nothing to do with tax cuts. Give people a job and give them a
raise and they'll spend the money. That's what we see on the
consumer spending side. The whole boom is explained by growth in
pre-tax market incomes, especially labour incomes, thanks to
growing jobs and, finally, rising incomes.
The government also adopted
a gradualist approach to deficit reduction, just balancing the
budget last year after a several-year period of economic growth,
and Ontario was among the last of the provinces to balance the
budget. While I disagree with the way the budget was balanced, I
think that pace of deficit reduction was entirely appropriate and
helps to explain why economic growth in Ontario in the late 1990s
was not hampered by even more fiscal tightening, as was the case
in other provinces which tried to balance their budgets
faster.
Also, the fringe benefit,
the spinoff benefit for public finance of an overall growing
economy and job creation, which in my view had virtually nothing
to do with provincial government policy, either pro or con-those
trickle-down benefits for public finance are huge. The booming
tax revenues that this government has enjoyed, again despite the
statutory tax cuts, show there's nothing better for balancing the
books than putting people to work, and that's what I and others
have argued. We can argue obviously about what caused that growth
in Ontario, whether it was the businesslike attitude on the part
of the provincial government or some other factors, but there's
no doubt that that growth was the dominant factor in the
improvement of provincial finances. So that's a slightly
different take on the whole tax cut issue.
1140
I would oppose the notion
of further tax cuts, certainly not as a counter-cyclical,
demand-stimulating measure, and in fact I would question whether
tax cuts played any significant role in Ontario's economic
history over the last few years. I'm happy to take the rest of
the time for questions and discussion.
The Chair:
Thank you very much. We have approximately six minutes per caucus
and I'll start with the government side.
Mr
O'Toole: Thank you very much, Mr Stanford. I know your
premise when you started was to basically discount the importance
of tax cuts. I'm going to start. With more time, I'd certainly-I
believe the term "evidence" is used incorrectly. I think the
premise of your paper is absolutely in error and I will try, in a
couple of minutes, to give you some reasons.
Just to legitimize my point
of view versus yours or some other person's point of view,
Chrétien, when he was speaking at a university in the States
recently, said to Mr Clinton at the time, "Our tax system is now
competitive with the" United States. "If you look at Ontario, the
income tax in Ontario, provincial and federal together, is
competitive with New York and Michigan, California.... But the
payroll tax in Canada is much lower than in the US." But he went
on to attribute most of the increase in fact to tax policy, which
is absolutely the reverse of what you said.
I think your premise is
faulty because it attributes much of the impact on GDP or in the
growth of the economy to the wrong factors, of actual consumer
spending. The minister yesterday indicated domestic spending is
growing, but he also indicated, in a micro way, that the business
investment climate, which you haven't addressed at all, was the
most important driver, at 17.8% of the net effect. He did
attribute that actual consumption was only 4.3% of the whole
equation, which really kind of helps to support your numbers.
But I think even if you
look at the terms you use, which in themselves are part of the
problem with your data, you use the pre-tax personal income tax
as a reference point. What you fail to do is recognize the
relationship between the provincial rate of tax, which is a per
cent of the federal tax, as well as the mitigation of the
clawbacks through personal income tax and payroll tax, payroll
taxes being CPP and UI. The precipitous effect of that is they
did in fact-and you've substantiated that in your paper-basically
recognize that for every dollar we gave back, they took a dollar,
either in CPP-that's a tax on jobs. That's the general term we
use.
But when you actually look
at the whole phenomenon of the tax cuts-I think these are well
published, well documented by economists. I'm just reading them.
In 2001, a family of
two, with an income of $60,000 from two earners-these would be
the people who pay the lowest rates, you've said that, or
contribute the least to the amount of revenue from personal
income tax-will save $1,865 in Ontario personal income tax, or
more than 40%, as a result of our government's tax cuts. There's
no question with respect to our ability to contribute to
disposable income-it's defined by our attempt now to divorce our
tax rate from the federal rate of tax, because we couldn't
clearly demonstrate on the pay stub that they were actually
getting more money in their pocket. We could show the net impact,
but the federal government by and large clawed it all back.
In your premise again I
won't accept your data. I'd prefer to look at the ministry data
from the OECD statistics in 2000: "Canada has the highest
personal income tax rate in the G7 nations." That's the number
there and that's the number I would believe. Yours has been
crafted in a way to discount any impact of the Laffer curve.
This isn't a lecture, but
I've sat and listened politely to you. I really feel there is an
opportunity for you to present real evidence. You used the term
but I haven't seen any. There is an opportunity for you to
participate differently in the income tax process. There is the
Ontario opportunities fund where you can check it off and not get
it back. In your case, based on the fact you're an economist and
would be making more than $60,000, you would probably be getting
a larger tax break, as you've demonstrated in one of your charts,
because clearly you've said that the higher your income, the
higher tax you pay. About 85% of the tax is paid by about 15% of
the people, if you're looking at personal income tax. You have
completely ignored the corporate tax implications which might
explain some of the growth in the GDP, that is, foreign
investment, which is the global kind of interpretation that not
only Chrétien started with but every country in the world
recognizes that to be competitive it all starts with the
investment and what the potential returns are on that investment.
Business as usual-probably.
I wouldn't consider myself
a Keynesian economist by any stretch of the imagination. I think
what we try to do is create the right business investment
climate, and I think the federal government has a role to play in
that as well.
You can respond or whatever
the time permits. With some respect, if I could soften my overall
critique, it would be by saying that basically you're entitled to
present the data. I would just hope the evidence would be a lot
more comprehensive than what I see before me.
Mr
Stanford: Thank you, Mr O'Toole. In terms of the
evidence in the paper, it is all from official public sources.
The personal income tax data comes from Ontario budget documents.
The overall personal income and tax and consumption spending
comes from a Statistics Canada survey of personal income and
spending. I would be happy to provide any of the background
data.
There is a startling
difference, as you emphasize and as I emphasize, between this
evidence of the stability in the average effective personal
taxation in Ontario and the cuts in statutory rates which we know
occurred. The example that you gave of the household at $60,000
is one of the hypothetical examples that is provided in your
budget documents, and the federal government does the same thing,
about how much they should save, in theory, based on the cut in
statutory rates. But the conflict between that and what we see in
the actual evidence of personal incomes and spending suggests
that those cuts in the statutory rates, for various reasons, some
of which I've tried to hint at, are not trickling down to people
at the end of the day.
Anecdotally, when you talk
to people in Ontario, even well-paid auto workers, who get
probably a couple of thousand dollars per family in your tax cut,
have a hard time saying, "I actually notice it." Some of these
other factors explain why Ontarians don't notice the average
effective tax rate at the end of the day, because it hasn't
actually changed.
In terms of the federal and
payroll taxes, actually, for every dollar you gave back,
according to my data, the federal and payroll taxes took $6. They
took $6 more out of the system for every dollar you gave back.
The point is that you gave almost nothing back. Effective
personal income taxes in Ontario were only $700 million lower in
1999, as a result of the very fractional decline in the average
effective rate. That again runs up against the hypothetical
question, when you look at the statutory rates-if statutory rates
had stayed where they were in 1995, you would have collected $6
billion or $8 billion more. So that's the value of the tax cut
that everyone, pro and con, has been using in their argument, but
effectively, I am saying the tax cut was almost invisible.
In terms of the corporate
tax issue, the large corporate tax cuts haven't even happened
yet, so we obviously can't explain the experience of the last
five years. Maybe the businesslike attitude of the government has
something to do with it, but we haven't even seen the large
corporate cuts yet. I personally would be a lot more sympathetic
to a corporate tax cut than to a personal tax cut, precisely
because it does have an impact-I don't think a dominant impact-on
investment decisions, which are, I agree, what has been driving
the economy.
The Chair:
The official opposition.
Mr
Phillips: I appreciate your presentation and some new
approaches to looking at the numbers. I commend you for doing
that.
I have just one simple
question. We are all trying to wrestle with simple issues such
as, how much is the economy likely to grow in the next couple of
years? That gives us some indication I think of job growth and
whatnot. Have you got a point of view on that?
Mr
Stanford: We don't create our own actual forecast. We
obviously follow it, because our members' incomes depend on it,
just like your public finances for the provincial government
depend crucially on it.
I think the current consensus view of economists
that the rate in Canada is going to slow to somewhere between
2.5% and 3% seems reasonable to me and in line with the hard
numbers we're seeing in employment, which has continued to
strengthen, actually. Even the January jobs numbers were a good
sign. The total of all level of employment didn't grow, but you
had an increase of 50,000 in paid employment that was offsetting
a continued decline in self-employment, and most paid jobs are
much better than self-employed jobs.
So of the hard numbers that
we see from the employment numbers, from the trade numbers and
from the monthly GDP numbers, none of them suggest we're actually
looking at a recession; we're looking at a slowdown from a 5%
growth rate to perhaps a 3% growth rate. That's the view of Mr
Dodge at the Bank of Canada. They obviously have their fingers on
the numbers even before we do. I don't see any reason to expect
something worse, although we obviously are concerned that there's
a risk.
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Mr
Phillips: Just to calm Mr O'Toole down slightly, when
you said most paid jobs are better than self-employed jobs-some
self-employed jobs are pretty good.
Historically, I've tended
to agree with the Conservatives on how you calculate the forgone
revenue from tax cuts. Most economists who have presented to us
use a formula. They say if you don't change any tax rates, tax
revenue will grow roughly at the rate of nominal GDP-roughly.
They'll hedge it; they'll say "roughly." I've always looked at
the government's tax numbers, and they say, "If we make these tax
cuts"-and they've used different language-"there will be this
benefit to the consumer, there will be this lower tax revenue
coming in," whatever. But some language will say, "If we make
these tax cuts, revenue, instead of being over there, will be
here."
Actually, the numbers I've
looked at over at least the last five years suggest that formula
still is about right. I think the first tax cut by the government
was designed to reduce tax revenue by, in 1996 terms, $4 billion
a year. Sure enough, if you do a calculation of what the personal
income tax revenue was before the tax cuts, you inflate it each
year by the nominal GDP and you subtract the $4 billion,
you've got what came in.
I've always accepted that
the numbers the government uses for forgone revenue were
accurate. In other words, if the economy had grown at the same
rate-and you could argue that wouldn't happen without something,
but if they grow at the same rate-personal income tax revenue
would have been $4 billion higher; with tax cuts, it's $4 billion
lower. So I accept the numbers whenever they show a cost to the
tax cut. You've come at it from quite a different approach, using
a different set of statistics from most economists'. I looked at
the federal numbers, and I'm not sure whether the CAW
participated in the development of the federal economic numbers
when they had private sector-
Mr
Stanford: No, we were not one of the ones they
asked.
Mr
Phillips: OK, but they too use nominal GDP. Why would
that approach, that tends to be used by most economists, not
continue to be at least a legitimate way of looking at it, and
why would your number be so different from the one that, as I
say, is used by most of the economists who present to us?
Mr
Stanford: That's a very interesting question, and I'm
still asking myself the question. I would have traditionally
followed that approach as well: make the assumption that in the
absence of a proactive change to tax policy, your revenues will
grow at the same rate as your nominal GDP.
In practice, the evidence
over the last decade suggests your revenues will actually grow
faster than nominal GDP in the absence of proactive tax policy
measures because of things like bracket creep-which is not going
to be a problem now, but apparently was a significant question in
recent years-and because of certain aspects during a period of
expansion, where tax revenues are pro-cyclical, that is, they
would grow faster than nominal GDP. Corporate tax revenue is an
important tax that grows faster than GDP when it's growing and
falls faster than GDP when GDP is falling.
Clearly, there has been a
forgone cost to that statutory tax rate. I think we can, using
that traditional methodology, say that without those cuts in
statutory personal income taxes, the government would have
collected $6 billion more per year, or $8 billion more per year,
or whatever the formula gives you. Then there has been a cost to
those tax cuts in terms of what the government could have done
with that money if it was collecting it.
But what's interesting to
me is that what at most they've done is stopped personal income
taxes from growing as an effective share of pre-tax income.
Again, you can argue whether it would have been good or bad for
income taxes to grow as a share of pre-tax income. What you can't
argue is that at the end of the day, when the money gets into
your wallet, consumers have more spending power because of the
tax cuts.
Mr
Phillips: We can or can't argue it?
Mr
Stanford: You can't. You can argue they may have more
spending power than they would have had without the tax cut, but
relative to the spending power they had in 1995, provincial taxes
took 5.8% of that money before they had a chance to spend it.
Today, they're taking 5.5% of that money before they have a
chance to spend it.
To argue there's been a
boom in consumer spending from 1995 to 1999 because of the
provincial tax cuts is not sustainable. By the time those
statutory rate cuts which occurred get translated into effective
tax payments, after everything else is considered-the linkage to
the federal tax system that Mr O'Toole mentioned, inflation and
income growth which push people into higher brackets, the
polarization of pre-tax incomes-all of those factors meant the
average effective rate paid in 1999 was virtually identical to
what was paid in 1995. That's not to say there hasn't been a cost to
the tax cut, certainly, but to argue there's been more spending
power because of the tax cuts I don't accept on the basis of this
sort of alternative evidence.
Mr
Christopherson: Thank you very much, Jim. As always, a
stimulating presentation. For some of us it's like oxygen to hear
some suggestion other than just that the tax cuts are responsible
for what's happened. I would just put in a plug that for anybody
who wants to follow a little more of your thinking, reading Paper
Boom, your book, is an excellent step. I would urge anybody
listening to grab that.
Mr
Stanford: That's very kind. I didn't pay him to say
that.
Mr
Christopherson: No, you didn't. I didn't even bring my
book to be signed, which I meant to do.
What I want to focus on a
bit is a combination of both economics and then just some
straight politics and your thoughts on that. Right now, I think
you make an excellent argument, especially the argument about
health care, when you talk about how a better approach to the
health care system saves $6 an hour in the auto industry and that
that differential is a huge factor in the amount of auto
production in Canada, especially in Ontario, and the same with
all our other social programs. If you take the argument that the
only way to have the kind of health care system we would like,
the social service system we would like, environmental protection
etc, is to reinvest money in there-at the end of the day it's
going to take more cash to do it-when you make that move from an
economic discussion to a political one, you're left going door to
door on a platform that says, "Vote for me. I'll raise your
taxes." You can always argue it's just education, and go out and
do the politics, go out on the hustings, that sort of thing, but
it really creates a dilemma for those who want to make that
investment when you take a look at the current political climate
that has a large portion of middle class working folks buying
into this argument.
Attached to that, I would
ask you, if you had the opportunity to set the next budget,
particularly in terms of tax structure, what sort of significant
changes would you make in terms of reorienting the tax system
from where it is now under Harris to something that supports the
factors that you think are more important for the vast majority
of people? Any thoughts on those two things? I know it's not an
easy one, but your thoughts would be appreciated.
Mr
Stanford: Take an auto worker, for example, who, if
they're in the assembly sector, is making $60,000 a year, so they
fall within that group, that top 10% of taxpayers who pay 60% of
all taxes. On the one hand, you hear from them often the thing
that they don't really notice, the tax cuts they've gotten, even
though when you conduct the theoretical simulations they should
have thousands of extra dollars in their pocket. It's interesting
to explore and find out that that anecdotal response is actually
consistent with the evidence that their effective tax burden has
not fallen. That would give some cause for skepticism among even
those people who are in the top 10% of the population for the tax
cuts which have aimed most of their benefits at the top 10% of
the population.
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On the other hand, if you
also went to that person and said, "We want to raise your taxes,"
there's no doubt-and as much as I'll stand here and say I don't
pay enough taxes, most of my membership wouldn't view themselves
in the same context and it does become a tough situation. That's
why I would focus particularly on trying to preserve the current
tax base that is there. I don't believe at the end of the day
that it's actually a lack of money that's stopping this
government from reinvesting in those programs that need those
reinvestments-I agree with you entirely-and barring an outright
recession, which I don't think is going to occur, they are going
to have more and more money all the time to make those
reinvestments.
The bigger fear for me is
not how you convince people that we should raise their taxes; I'm
not yet convinced we have to raise their taxes to get the money
to do it. If it turns out that even the benefits of economic
growth, which absolutely have created a sea change in the state
of public finances here, are not sufficient to deliver the money
you need, then at the end of the day you have to go out and
convince people that, yes, they should pay a little bit extra for
those programs. That task will be a lot easier when their incomes
are growing anyway in the context of a vibrant economy.
I always find it amazing
that the 1990s were the first decade when effective tax rates in
Canada did not on the whole increase over the decade, yet that
was the decade when the tax revolt started. In the 1950s, 1960s,
1970s and even the 1980s, effective tax rates in Canada rose
dramatically and quickly, as we funded for all these new
programs. There was no tax revolt I think in part because people
recognized the value of those programs, but also because their
pre-tax incomes were growing fast enough; they still had more
money in their pocket at the end of the day despite the tax
increases. The key factor will be to maintain a vibrant
macroeconomic environment where you can kind of painlessly get
the revenues, whether you're increasing taxes or not, to finance
those needed reinvestments.
The Chair:
Thank you very much. We've run out of time. On behalf of the
committee, thank you very much for your presentation.
Mr
Stanford: Thank you for the time and for your comments.
I appreciate that.
PEOPLE FOR EDUCATION
The Chair:
The next presenter is representatives for People for Education.
Could the spokespersons come forward and state your names for the
record, please.
Ms Annie
Kidder: I'm Annie Kidder and this is Gay Young, and we
are from People for Education.
Ms Gay Young: People for
Education is very pleased to be here this afternoon. We are a
parent group. We have a network of parents around the province,
and we're parents from both the public and Catholic systems. We
have been working for the last five years to try to advocate and
protect for fully publicly funded education here in this
province. Happy Valentine's Day to all of you.
Over the years we've done a
lot of research and we have a tracking project that has been
going out and surveying elementary schools across the province.
This is our fourth year now. Last year we had 940 schools
participating, so we've learned a lot about many of the changes
that have been made to schools. We've made lots of presentations
over the years to you in different committees and different areas
and we hope today especially that you will listen to us with your
head and your heart, especially as it's Valentine's Day. We are
here because we are passionate about our children and the
children in this province and we're passionate about our publicly
funded education system and we want to make sure that it's
serving each and every child as best it can in this province.
Ms Kidder:
We've been tracking elementary schools for the last four years.
This is the 2000 tracking report. We've gone through it and we
have estimated costs for reinvesting money-and these costs are
actually direct classroom costs, as defined by the provincial
government-back into the classroom to correct some of the funding
shortfalls that we're finding in our tracking report. I'm just
going to go through them quickly and then you can ask
questions.
One of the first things we
found is that there are nearly 35,000 children in elementary
schools on waiting lists for special education services. That
list is broken down into three things. They're waiting for three
different things. Some of them are waiting just for
identification, to be assessed, that is, by a psychologist.
There's been a huge drop in schools with regular access to
psychologists. To get those kids off the waiting list would cost
$9 million.
There are children waiting
for IPRCs, which are identification, placement and review
committees. That would cost half a million dollars. There are
children waiting for placements, which would cost $19 million.
There's actually a mistake in this. This was done very quickly
this morning. I can see a mistake already. The total cost to
bring all of the children off waiting lists for special
education-I'm going to have to add in my head here, there seems
to be two of these; you add them and I'll tell you-is around $70
million. These are children who are not getting the services that
they need for special education.
There has also been a drop
in the number of schools with full-time principals in the
province. This is happening because of a gap in funding for small
schools, a gap between what is considered a small school and what
is considered the number of students that you need to generate
funding for a principal. Only 85% of elementary schools now have
full-time principals. That's a drop of 10% in three years. To
ensure that all elementary schools have a full-time principal
would cost $26 million. It's a necessary thing in schools for
them to have principals.
We are seeing librarians
disappearing out of elementary schools. Now 10% of the boards
don't have librarians in elementary schools. Librarians are very
important for information technology, they're very important to
coordinate all of the curriculum in schools, they're important
for teaching kids how to do research, and it's important that
they are teachers. To make sure that for every 350 students there
is one full-time librarian would cost $116 million.
Only 37% of our elementary
schools have phys ed teachers. Phys ed is a very important part
of the new curriculum. To ensure that for every 400 students, or
every school over 400, there is a full-time phys ed teacher,
which would give them phys ed twice a week, as is stipulated in
the new curriculum, would cost $102 million.
Only 56% of elementary
schools have music teachers. It's another very important part of
the new curriculum. To ensure that children have music once a
week you would have to have 0.5 of a music teacher for every 400
students. That would cost an additional $29 million.
This is money that's been
cut from the system going back into the system to correct these
losses.
There's been a 24% drop in
ESL programs in only three years. To correct that drop and bring
it back up to the levels of 1997 so that for every 24 ESL
students there's a teacher would cost $31 million.
These are not huge amounts
of money considering the surplus that we had last year.
A really big problem in
schools in Ontario is the gap in funding between what qualifies
for small-school funding and what qualifies to get you money for
a principal or even for a secretary. What happens is, if you have
under about 140 students in your school you qualify for
small-school funding. But you have to have 364 students to
generate funding for a full-time principal. So there's this huge
hole there. Half of the elementary schools in Ontario are in that
hole; 50% of the schools are too big to qualify for small-school
funding and too small to generate funding for a principal. This
is a real problem in the funding formula and it's a problem that
has to be fixed. A third of those schools don't even qualify for
funding or don't generate the funds for even a secretary. So we
have all of these schools in the middle there, a huge number of
Ontario schools, that don't qualify for funding, that fall
between two stools, I suppose you could say.
What we're suggesting is
that we up the number for the small-school formula, that we say
that schools of fewer than 250 students qualify for small-school
funding. That would add an additional 920 elementary schools. We
are estimating the cost based on what you get for 100 students.
We're saying, OK, fine, give the same amount on top of your per
pupil grant. That would cost an additional $67 million.
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Because these numbers that
I've just said here are just for elementary schools, we then
looked at the per pupil cost that would mean for elementary
schools, the additional per pupil cost. It's only $343 more per
pupil to correct these severe problems in elementary schools.
Then we looked at how many secondary school students there are.
We know that the cost per pupil is about 10% more, so we've
estimated that the cost to correct these problems in secondary
schools-they also suffer from problems with small schools,
problems with administration, problems with librarians, problems
with special ed and problems with ESL-would cost another $252
million.
The following totals were
for both secondary and elementary school students.
Textbooks: over 65% of
elementary schools report that they are using worn or out-of-date
textbooks. We know that in the funding formula you get $75 a year
for textbooks for elementary schools and $100 a year for high
schools. There was an additional grant made for the grades 9 and
10 new curriculum in high schools of $30 million per year. That
grant didn't include any money for teacher manuals, and it
doesn't actually cover the costs of all of the subjects taught in
high schools. It's not enough money. What we've estimated here
then is that in elementary schools, so that kids aren't having to
share textbooks-they also have a whole new curriculum-we need
another $22 million. We need the teacher manuals to go with the
new curriculum and the new textbooks for grades 9 and 10. That
costs $13 million. Then we need the right amount for textbooks
for the new grade 11 curriculum starting in the fall. This is a
one-time cost of $73 million.
Another big problem that's
happening and that we know from how many schools are closing in
Ontario this year and last year-they're closing for one reason:
because they're too small to fit in the funding formula. The
other reason they're closing is in order to generate new pupil
places. The schools in your board have to be over 100% capacity
in order to get money for new pupil places. I talked to one board
director who talked about banking those new pupil places. He said
they're kind of like air miles. The only way you can bank those
is if you have some schools that aren't full in your board. You
have to close those schools so that you make sure that you're at
or over-you have to be over 100%. For every pupil over 100% you
are, you get your new pupil place funding.
What's happening in a
number of boards where they have high-growth areas, no matter how
far they are from the other areas that are not growing, they have
to close the schools in the areas that are not growing in order
to put schools in high-growth areas. There was just a perfect
example of that on the front page of the Star this morning, of a
school that had something like 33 portables because it was in
Toronto and we'll never get new pupil places.
This is a very, very
conservative estimate here. We just took the 45 schools that are
closing in growth boards: nine of those are secondary schools and
36 are elementary schools. We costed $25 million each for a
secondary school and $3 million each for an elementary school.
These really are conservative numbers. In order to save those
schools from closing, either by reducing the capacity amount,
which is to say make it the same as it for maintenance-there was
a change made in the funding formula that you were topped up
after 80% for your maintenance costs. If we did that for new
pupil places as well or else did what the Education Improvement
Commission recommended, which was to make review areas, so you
weren't in this insane position of having to close schools in one
place in order to build a new school in another place that was
very far away, would cost $333 million.
Transportation is a very
unsexy issue but it's a disaster for boards right now. There is
no transportation funding formula at all. The money that boards
are getting for transportation is based on what they were
spending in 1997 minus 3%. Gas prices have gone up 38% since
1998. So just for gas prices-we didn't estimate anything else in
this-just to compensate for the cost of gas prices going up would
cost another $87 million. We have kids, we know from our tracking
report, who are on buses now for three hours a day because their
boards don't have enough money for the buses that they need. I
know that the education finance people are working on the
transportation funding formula but what's happening now is boards
are being left in a position of having to take that money from
somewhere else in order to get their kids to schools.
And this is leaving out
many, many things. It's leaving out the fact there aren't enough
guidance counsellors in high schools. But this is the basic
desperate need for right now. This would cost another $600 per
pupil, the average between elementary and secondary school
students, which would cost a total of $1.19 billion to put this
money back in schools.
We know that there's been
no money for inflation over the last few years, that schools and
boards spend all their time now robbing Peter to pay Paul. Every
single school in Ontario at this point is in a position where
every time they spend money, they have to think about where
they're going to take that money from. These are very, very basic
needs in schools. These are not extras. We're not talking about
more programs here. These are things like 35,000 children waiting
for special-ed services. These are the kinds of costs we're
talking about in here.
We really encourage you,
when you're looking at the new budget for this year, to use some
of the surplus. I just listened to a paid political ad on the
radio, as I was frantically driving here, which was from the
Conservatives and talked about dreaming about our future and a
vision for the future. It seems to me the most important part of
that vision for the future is that we adequately educate our
children, we make sure that our children have a fair chance to succeed in the world,
that this is the most important investment we can make for our
future. If the Conservative Party, as they are forming their
budget, are interested in the future and a vision for the future,
this is the most important investment they can make.
The Chair:
We have approximately three minutes per caucus. I'll start with
the official opposition.
Mrs Sandra
Pupatello (Windsor West): Thank you so much for your
presentation. I wanted to touch on one element that you mentioned
in terms of the small schools, the building of schools, and that
is the off-loading from the provincial government of debt so that
the finance minister could come in the other day and say what a
glowing report we have with the Ontario finances. But the reality
is that school boards now are facing significant debt, in
particular around the capital costs of building schools.
There were a number of
policies that are working together to create a climate. The
merging of various school boards meant, in almost every case in
Ontario, the merging of largely rural boards with urban-based
boards. That meant necessarily that when it comes to school
closure decisions, the inner-city schools are going to be the
ones with population changes. In Windsor-Essex county, and the
same is repeated right across Ontario, those inner-city, old
schools are not as full because of the growth in suburbia, and
those schools need to be built. Ultimately, our boards are
deciding-in one board alone, eight schools inside Windsor are
slated for closure, but the outside schools in the suburban areas
need to be built.
They talk on and on about
SuperBuild and how people can access capital money. What's
happened with school boards is they need to fund the building.
Whether their operating dollars will be increased to account for
the financing of that money, nonetheless, the board is assuming
the debt of that capital project. That means the government may
finance it over time, but the debt is moved from the provincial
books to the school board books. What the Minister of Finance
confirmed for us yesterday is that this method and this tactic
will continue. That means municipalities, school boards and
hospitals are all now assuming debts that would have been on the
provincial books and are no longer.
I just wondered if you'd
speak to that, because there are many, many policies over the
course of the second term and the first term of this government
in education policy that ultimately are resulting in the kind of
financial crisis we have in schools.
Ms Kidder:
I think that's why, when we were looking at that problem and
understanding that what it means is incurring all this debt, it
seemed to us that the best solution was to change the formula so
that you start to get the money for the new pupil places, for one
thing, when you need them, not after you're already in a
disaster, and that you don't have to borrow the same amount of
money. Especially, it doesn't mean that you have to close schools
in order to do it.
What we would recommend
would be that we change the formula so that you don't have to be
at 100% capacity, that the idea of review areas is looked at, but
also that the 100% capacity is changed to something more
reasonable, like 85%; even 90% would make a huge difference to
those schools closing. It will mean more money and it needs to be
more money in the formula, not more money that you are allowed to
borrow over time, which is the way it is right now, because
you're right: you end up with this enormous debt over 25 years in
order to fund 2,000 pupil places.
1220
Mrs
Pupatello: Moreover, the school boards are now cleverly
reviewing where they can find money in a formula for the addition
of a portable. That they can find in a funding formula, so
decisions they're making around school closures often mean
they'll close a school only to put two neighbouring schools
completely over capacity, but that's OK because the formula will
allow them to purchase a portable in order to do that. And yet
that capital cost of a portable cannot be applied to the purchase
and building of a school.
Ms Kidder:
But also for parents and for students, the bad part of that is
that it means it's actually worth it for boards to create
overcrowded schools, which is not what we want for our children.
That's the real part where that falls down. We don't want
overcrowded schools, and we're seeing that in Ottawa and a lot of
places. We're creating these hugely overcrowded schools and you
also create huge divisions among population of parents because
they desperately need schools in high-growth areas.
The Chair:
Mr Christopherson.
Mr
Christopherson: Thank you very much for your
presentation. I want to thank you for the work you do. It makes a
difference. I don't know if it always feels like it, but it does.
I can tell you, listening to your comments as you went through
all these issues-Sandra's already mentioned it reflects what's
happening in Windsor-it's like you were singing from the song
sheets out of Hamilton, exactly the same thing.
When I sit down and talk
with Ray Mulholland, the chair of the board, or Judith Bishop,
the trustee in the major area of my riding, the notion of robbing
Peter to pay Paul is going on constantly. What I just want to
underscore is that your message is so important because it's
reflecting the reality of what's out there, as opposed to a
pie-in-the-sky vision that the government likes to paint as
what's happening, and it's not.
You mentioned that there
are some children on the bus for three hours. Transportation,
like everything else in here, is a huge issue in Hamilton,
especially since we've now merged and it's a much larger
geographic city. Three hours: is this in the Toronto area?
Ms Kidder:
No, this is provincially. A lot of these are special-ed kids.
They are kids whose programs were cut in their school in their
small town. There are kids who are going to Thunder Bay for
programs from very far outside of Thunder Bay. It is especially
rural areas that have suffered most from the busing problems.
Ironically, one of the things that has happened in some areas is
that late buses have
been cut because of transportation costs, so there are no
extracurricular activities in secondary schools in quite a few
boards because of cuts to late buses. But our concern is that
when we're looking at the transportation funding formula we take
into account how long children should be on buses. I'm 47 years
old and I wouldn't go on a bus for three hours every day to go to
work.
Mr
Christopherson: Exactly. You mentioned special ed;
again, this was a huge issue in Hamilton. We've still got
children who are not in the classroom and yet, prior to a lot of
the cuts, they were. I've had mothers in my office in tears,
saying, "What am I going to do?"
At the end of the day, the
only thing that's going to change that is for the government to
change the funding formulas in the way that you've mentioned
here. The principal issue, the text book issue, the closing down
of schools-they're shutting down Scott Park high school and
Allenby school, a beautiful, excellent, inner-city community
school. It's the heart of that little neighbourhood. It's a small
school, but it makes such a huge, fundamental difference to the
quality of life of the children and to the families in that
area.
Again, for a government
that says they care about families, just like their labour
legislation that works against supporting families, they've got
an education funding formula that doesn't support kids and
doesn't support families.
I don't have any more
questions. It enrages me, and I'm just so thrilled that you were
here and that you hit all the key issues. I just urge you to
please keep speaking out, raise the issues, because at the end of
the day it means more that it's coming from parents than
politicians or teachers, or trustees for that matter. It's the
parents who can make a difference.
Ms Kidder:
We are very concerned about the kids who aren't in school at all.
For instance, I know a mother whose son has Tourette syndrome. He
only qualifies for 50% ISA funding. She says, "It's as if they
think he's got Tourette's in the morning and suddenly at lunch
he's cured." So in the afternoon he just can't be in class. He
cannot be in class without an educational assistant. He sits in
the office, if they have time to take care of him, or he stays at
home.
There are lots of kids,
there are kids in my own children's school, just waiting even to
be in the learning centre so they get extra help. There are 30
kids on the waiting list just in my children's school to get into
the learning centre. These are kids who could be helped, who will
be saved much bigger costs later on to all sorts of different
things: to our justice system, to our health care system, to
everything else. It's a very important investment that we have to
make in special ed, and it affects every child, not just the
children who are in special ed.
Mrs Tina R.
Molinari (Thornhill): Thank you very much for your
presentation this morning, for the work you do on behalf of
parents and students in Ontario and for some of the studies
you've conducted. Recently I read in the paper about the national
study that claims that Ontario's high school teachers are not
being asked to work more than teachers anywhere else in the
country. So it was interesting to read that article. Also at the
Ontario Parent Council regional forum, which your members
participated in and attended, it was good to see some of the
comments that were expressed there and some of the things we're
doing with respect to parent councils and the regulations that
are very supported by your group. So thank you for some of the
work you do.
I want to talk about some
of the issues you've raised. There are several, and time is
limited, but I would like to focus on special education, which
certainly is one that is near and dear to my heart. Having been a
school trustee from 1988 to 1999, and having been chair of that
board and also chair of the special education advisory committee
for three years, I have seen a lot of changes within special
education.
The funding model is
evolving. Because of the intricacies of the special education
child-and no two children are alike-it's an area that needs to be
reviewed constantly and that our minister has committed to
reviewing. There's a review happening now, as a matter of fact,
on some of the funding for that, to see how we can improve some
of that funding.
I also wanted to comment on
some of the points made about the off-loading of the debt. When
the funding changes were made, all of the debts that the school
boards had were assumed by the province. Because the boards no
longer have taxation ability, the province assumed all of the
debt load. So the school boards are now given per pupil funding
for the services they need to provide.
With respect to school
construction, being from York region and having been part of the
York region Catholic board, there have been a number of times
where the school trustees sat around the board table arguing over
which school would be built first and putting together our CEF,
the capital expenditure forecast list, which was one time when
trustees fought for parochial areas against each other. Because
of the way the capital funding formula was done, boards had to
submit a CEF list to the ministry, and then the ministry would go
through that list and choose. They wouldn't always choose our
number one priority; sometimes it would be number five. So the
local autonomy of individual school boards was taken away. The
funding formula now provides for a dollar amount per pupil that
boards have in excess of student space. So it allows the board,
year over year, to put that money into an account or into an area
where, when they see fit to build a school in a specific area,
they will be able to have the authority, the autonomy, to do
that.
Transportation is another
issue that is ever evolving. Having been part of a board that
co-operated well with our local coterminous board, York region
developed a very comprehensive plan for sharing of transportation
services. Before the new transportation funding model was
introduced, there weren't any incentives for boards to find
efficiencies in transportation. More money was given if you got a
72-passenger bus than a smaller bus. Now, the way the formula is done, it provides
more efficiencies. It encourages boards to find efficiencies.
That in itself is also ever evolving and there are talks going
consistently with the transportation companies because we realize
there are changes that need to be made. Whenever changes are
introduced, it evolves and you need to keep reviewing how those
are being implemented and the benefits of them, because in the
end what we want is to best serve the students in Ontario and to
assist the boards as much as we can in doing that.
The Chair:
You're going to have to put your question, Mrs Molinari. We're
running out of time.
Mrs
Molinari: I don't really have a question, Mr Chair. It
was to clarify some of the comments that were made, based on a
number of experiences that I've personally been involved in. If
I've taken up all of my time, I thank you.
1230
Ms Kidder:
Can I answer?
The Chair:
Absolutely.
Ms Kidder:
On the transportation, there is no formula for transportation
right now. It is based on the 1997 amount. The problem that
happened there is that the boards that were efficient and did
make cuts and made sure that they actually bused kids with their
coterminous boards were penalized just as much as the boards that
hadn't. Some boards-Avon Maitland, I know, for one-especially
those boards that actually tried as hard as they could to be very
efficient, were penalized, were cut just like all the other
boards. They felt they got a double cut there. But there still
isn't an actual formula.
I understand the reasoning
behind the capital costs, but the problem with it is that because
of the 100% capacity rule, because you have to be more than full
before you start to generate new pupil places, you must close
schools in other areas. The Education Improvement Commission,
which was put together by this government, expressly recommended
that that be changed so that boards weren't in a position of
closing schools in Dryden so you could have a new school in
Kenora or vice versa, so that you weren't closing schools 100
kilometres away from a place where they needed new pupil places.
I think that is our problem with the capital one.
Special ed: I know the
funding formula is being worked on. All we're saying is that the
reality is there are 35,000 children waiting for services. Even
with new funding formulae, that needs to be corrected so that we
can at least start off all right. What we did was estimate the
cost for that, which is actually $53 million, because one thing
is in there twice. It's just to get those children off the
waiting list for special education. Then when we start with the
many new formulae, as we come up with them, at least these kids
aren't disadvantaged.
The Chair:
On behalf of the committee, thank you very much for your
presentation this morning.
ONTARIO HOME BUILDERS' ASSOCIATION
The Chair:
Our next presentation is from the Ontario Home Builders'
Association. Could the representative come forward and state your
name for the record, please.
Mr Wayne
Dempsey: I'm Wayne Dempsey. Albert Schepers is with
me.
The Chair:
On behalf of the committee, welcome. You have 30 minutes.
Mr
Dempsey: Good afternoon. My name is Wayne Dempsey and I
am proud to be the president of the Ontario Home Builders'
Association. I've been a builder in beautiful Muskoka since 1975.
I specialize in building homes and cottages for both permanent
and seasonal residents and I take on a few small commercial
projects from time to time.
Joining me is Albert
Schepers. I am sure he's also proud to be the first
vice-president of the Ontario Home Builders' Association. He is a
structural and civil engineer and he has operated his Windsor
company for the last 11 years.
We are both volunteers in
the association, and in addition to our business and personal
responsibilities, we are dedicated to serving our industry.
We appreciate the
opportunity to speak with you, and I can assure you that it will
be a brief report. You have copies of our full written
submission, which you can peruse at your leisure.
I'd like to start by
telling you a little bit about OHBA. The Ontario Homes Builders'
Association is the voice of the residential construction industry
in Ontario. As a volunteer organization, OHBA represents about
3,500 member companies, which are organized into 31 locals across
our province. Our membership is made up of all disciplines
involved in residential construction, including builders, land
developers, renovators, trade contractors, manufacturers,
suppliers, realtors, mortgage lenders, apartment owners and
managers, housing consultants, economists, planners, architects,
lawyers and of course engineers. Together we produce 80% of the
province's new housing. The residential construction industry
employs approximately 200,000 people and contributes over $20
billion to the province's economy every year.
Now Albert Schepers will
bring you up to date about the current housing market and what we
expect in the future. He will also discuss the impact the housing
industry has on the economy of Ontario.
Mr Albert
Schepers: As Wayne said, we will be brief. Before I
leave this fair city, I have to pick up something for my wife. I
was gently reminded that this is Valentine's Day, so I guess I'm
stuck with that.
A healthy residential
construction sector is not only indicative of a healthy economy
in general, it is also a precursor to future growth. Economic
expansion usually starts with an increase in housing starts as
well as industrial and commercial development. This leads to new
infrastructure projects along with institutional expansion, which provides the
necessary foundation for the next generation of economic
activity.
Last year, just over
186,000 jobs were created in Ontario, and many of these jobs were
in residential construction. It's estimated that each housing
start generates approximately 2.8 person-years of employment.
Housing starts and renovation spending for the year 2000 were the
highest in this past decade, allowing our industry to provide
record levels of employment for Ontarians.
Last year our industry
contributed over $20 billion to the Ontario economy. Construction
activity also contributes significantly to government revenues.
On average, each new house contributes $40,000 to $50,000 in
taxes and fees collected at all three levels of government on the
purchase price alone. Based on over 71,500 housing starts last
year, that amounts to over $3 billion in tax revenue last year.
Add to that tax revenues collected from renovation work and the
ongoing tax revenue generated from housing, and it's clear that
our industry is a major contributor to the health of Ontario's
economy.
The year 2000 was another
great year for our industry. Ontario's housing market was healthy
and stable, showing a steady improvement. Starts last year were
up by 6.4% over the year before. Stability in the housing sector
should continue into the year 2001, bolstered by high consumer
confidence, a healthy employment market and a solid GDP.
The major highlights of
2000 include:
Starts were up across the
province, with some areas showing significant gains. Kitchener
and Ottawa had over 24%, Oshawa had 17% and Toronto had a 12%
increase in housing starts. However, there were communities that
experienced decreases. These include Thunder Bay, Hamilton, St
Catharines-Niagara, and Sudbury.
Multi-family construction
was up by 9.4% in 2000 compared to the previous year and single
detached starts increased by 4.2%. However, rental housing
construction is still stagnant despite Ontario's robust
economy.
You will find an economic
forecast survey of our members, which was conducted in November
2000, included as appendix A in our submission. Nine out of 10
members surveyed expect sales to increase or remain the same in
2001 compared to the previous year.
This optimism is reflected
in OHBA's forecast for 2001. We expect over 70,000 starts this
year, which represents the sixth straight year of growth.
Renovation spending is
continuing on an upward trend, with about $10.5 billion spent in
this sector last year. We predict renovation spending will climb
to more than $11.5 billion in 2001.
Ontario's economic
performance has been impressive over the past year. Low mortgage
rates and strong job creation fuelled consumer confidence and
encouraged many new buyers into the housing market.
While generally optimistic,
enthusiasm for the coming year is tempered with concerns over
labour shortages and rising costs for materials and skilled
labour. These increased costs, combined with increasing and new
taxes, fees and charges, could hinder future growth.
More than 60% of our
members cite increasing labour costs as an impediment to growth
in 2001 and almost as many, 58.5%, were experiencing difficulties
in finding skilled labour. The perception that increased building
activity correlates to higher profit margins is inaccurate.
Builders continue to operate under extremely tight margins; 44%
of our members say this is the key concern for them in the coming
year.
Builders and renovators are
not in a position to absorb increases in materials, labour costs
or government fees and taxes. The reality is that increased costs
seriously hamper industry efforts to provide affordable housing
for the Ontario consumer.
Wayne will now summarize
some of the key factors affecting our industry and OHBA's
recommendations. Thank you very much.
1240
Mr
Dempsey: We'd like you to consider the following
items.
Development charges and
educational development charges imposed by municipalities across
Ontario continue to concern builders. Not only do these charges
contribute significantly to the cost of housing in the province,
but there are serious concerns about municipalities not following
the intent of the act, which is ultimately to reduce charges. As
a result, development charges in Ontario have become some of the
highest in Canada.
We recommend close
government monitoring of development charges and educational
development charges and intervention where necessary to ensure
that the intent of the legislation-to reduce costs-is met.
Excessive regulation and overtaxation on the homebuilding
industry pushes the price of new homes higher and higher and
consequently puts home ownership out of reach of many citizens.
OHBA urges the government to introduce legislation that ensures
fees are based on a reasonable direct cost-recovery basis and
that such legislation allow for an appeal of municipal decisions
about fees and levels of service.
We participated in the work
of the business tax review panel appointed by the Ministry of
Finance and we encourage a thorough review of the recommendations
from that panel.
The difficulty in finding
skilled labour to meet the needs of our industry is a serious and
a complex problem. Tradespeople lost during the recession,
combined with a record number of workers retiring, have
exacerbated the situation. Informing and educating the public
about the opportunities in our industry, as well as dispelling
some of the negative stereotypes associated with skilled trades,
is a major challenge for all of us. OHBA recommends the
development of co-op programs at the high school and college
levels that actually bring students on to the job site and
provide them with hands-on experience in construction and safety
practices. We also urge the government to increase school funding
for shop facilities in order to run the programs productively. In
addition, we encourage
the government of Ontario to take an active role in urging young
people to consider a career in skilled trades.
I don't need to tell you
that rental housing is in short supply in a growing number of
urban centres across the province. Nine regions have a vacancy
rate of under 2%, and five cities, including Toronto, Barrie,
Ottawa, Kitchener and Guelph, have vacancy rates under 1%.
Despite Ontario's robust economy, the reality is that very little
new rental housing is being built. The provincial government has
undertaken a number of initiatives in the past to encourage the
construction of rental accommodations, including most recently
the PST grant program. We recommend the government renew the PST
grant program and increase funding for this important initiative
to support new affordable home construction. A review of the
program criteria is also recommended so that the grants target
the intended sector. In addition, OHBA urges the provincial
government to review the recommendations from the housing supply
working group and seek to eliminate any disincentives that
currently discourage the private sector from building rental
accommodation.
Many municipalities across
Ontario have undergone or will undergo amalgamation. While 80% of
OHBA members support the concept of amalgamating communities,
they do have concerns about increased costs and delays that are
being incurred by builders as these municipalities merge.
Therefore, we urge the provincial government to expeditiously
supply the necessary funding to newly amalgamated municipalities
to ensure a quick, effective merger of building and planning
departments, and to help them in rewriting zoning by-laws.
Once again, pressure from
the underground economy continues to be a major problem for our
industry, particularly in the renovation sector. In addition to
unfair competition, governments lose out on billions of dollars
in revenues. Health and safety standards of workers are unlikely
to be met by underground contractors, and homeowners suffer with
little or no recourse in the event of shoddy and unsafe
workmanship. We recommend the government work together with us to
seek out ways to encourage and entice consumers to use the skills
and services of legitimate, honest renovators and contractors. We
support the idea of a voluntary registration of renovators and
site supervisors as opposed to the mandatory certification
outlined in the recommendations of the building and regulatory
reform advisory group.
Mr Chairman, let me
conclude by noting that this government has cut taxes 99 times
since being elected in 1995. Last year's budget announced a
further 67 tax cuts over the next five years. At that time, your
government made the land transfer tax rebate for first-time
homebuyers of newly built homes permanent. Since this measure was
first introduced in 1996, about $106 million in rebates were
given out to over 78,000 Ontario families to assist them in the
purchase of their first home. This in turn contributed to growth
in the new housing market. We applaud the government on making
the rebate program permanent and thereby helping to ensure
housing remains affordable to first-time buyers. Let me also
reiterate that OHBA and its members strongly support the fiscal
policy of the provincial government and encourage you to continue
in the direction of spending reductions and tax cuts.
Mr Chairman and members of
the committee, thank you for your attention and interest. We look
forward to hearing any comments or questions.
The Chair:
And I thank you also on behalf of the committee. We have
approximately three minutes per caucus.
Mr
Christopherson: Thank you for your presentation. I think
this is now at least the third time, perhaps the fourth, that the
labour shortage has been mentioned. Specifically, you touched on
it briefly here, but what role do you think the provincial
government can play in meeting this? One of the answers is to
bring skilled workers from other countries here, but at the end
of the day we still have an awful lot of young people here in
Ontario who are looking for careers, and taking up a trade is
just as much a career as going to university and getting a
degree. What sorts of real, concrete steps could the government
take that would begin to entice people to get into an
apprenticeship program and provide the skills that we need from
among the existing labour force, the domestic labour force here
in Ontario, as opposed to other answers?
Mr
Dempsey: Let's face it: it's a selling job. The dot-com
industry is a lot more sexy than the building construction
industry. But even so, there are people who are not dot-commers,
who are not computer geniuses, and they have as much right to
have a very good job as the rest of them. We would like to see
the colleges and universities showing building trades as an
option. We feel at this point it's not being spelled out to some
of the students when they come out of high school that there is
another place to go other than to be a doctor, a lawyer or an
engineer. We would like to see programs happen at the colleges
side and to work with colleges and universities, but we also want
to see it happen in the early part of secondary school. I think
that's when you've got to change the attitude of some of the
people in the schools to say, "Yes, it is a good job and you can
make a good dollar there and it's a very honourable
profession."
The Chair:
We'll go to the government side.
Mr Garfield Dunlop
(Simcoe North): Thank you for your presentation. I'd
like to follow up a little bit on the skilled labour shortage as
well. I'm from the riding just south of you, Wayne, in Simcoe
North, and I've had a lot of concerns from local builders who are
finding a severe shortage of people, particularly in their 20s,
taking up apprenticeships. I've started meeting with these
groups; we've been meeting at Georgian College. I've identified a
couple of things that I hope I can pass on to you.
One is the fact that
because of the apprenticeship schooling mostly being done in the
GTA, it's difficult for people to go to trade schools. We could
develop more trade schools at the local community colleges. In
some cases in Toronto,
for example, at George Brown, they have training on Fridays and
Saturdays for 20 weeks instead of eight weeks.
The other thing that's been
identified from my group, and it includes some people from
Muskoka, is the fact that not a lot of people are actually
willing to take on the apprentices. It may seem like there is a
shortage, but if they're not being offered a chance-I'd like to
know what your association is doing to promote the skilled trades
actually taking on more apprentices.
1250
Mr
Dempsey: It's always the problem that you have to get
the experience, but how do you get the experience if you don't
get the job? What we're suggesting is that some of the co-op
programs may be a start, where we can give the kids a chance to
at least get some experience and some safety training as
well.
I think timing is really
the secret. We're all so busy. We're building as many houses as
we possibly can at this point, and we still can't keep up. You
really don't want to let one of your employees off for three
months to go and learn how to put in footings. You'd rather have
him right there working, and that's really a problem.
We're looking at some
Web-based training. If you have a rainy day-obviously in the
construction industry weather is a problem-or it's too cold to
work, maybe we can go on the Web and take some training and get
some expertise that way. Certainly site supervision and a number
of things could be in a Web-based training format.
The Chair:
Mr Kwinter?
Mr Monte Kwinter
(York Centre): Thanks for your presentation. I want to
address the issue of the underground economy. Several years ago
this committee actually had hearings on the underground economy,
and it was really quite interesting. I can't remember if it was
the Toronto Home Builders' Association or the Ontario Home
Builders' Association-this fellow was in the renovation business
and came to us and said, "It's really undermining our business.
To give you an idea, I went to quote on a job to renovate a
bathroom. It was $21,000, and someone else came who wasn't a
legitimate contractor, he was underground economy, and said,
`I'll do the job for $7,000.'" He said, "I was able to sell the
job to this person." I said, "You're either the best salesman in
the world or you've got the dumbest customer in the world."
The problem you have is
that some of these people who are in the underground economy, are
working during the day in the so-called legitimate economy. The
big losers, of course, are taxpayers, because they are forgoing
the taxes. The worker is getting his benefits on his day job and
making money on his night job. How do you deal with that?
Mr
Schepers: That's an ongoing problem. As we like to say
in Windsor, where there is a slowdown in the economy during the
summer when they have a shutdown of the plants, we've got another
1,700 renovators on the market. You're absolutely right.
One thing we have tried to
do is put out pamphlets to educate the public, and legitimate
renovators or builders will be using those to try to sell their
product. In that sense, yes, they could be good salesmen because
they can sell people on the merits of using legitimate
contractors.
I don't know of any easy
way of getting around it. It's probably going to be with us for a
long time. Something we can do perhaps in the building end of it
is implementing some of what BRRAG is suggesting-what came out of
the committee-where there is some actual training for builders. I
don't know how it works with renovators at this point, but with
the builders there would be some mandatory training before you
could hang up a shingle and call yourself a builder.
Mr
Dempsey: One of the problems with putting
recommendations on a renovator that he has to have a licence and
has to have all these qualifications is that it really turns
underground some who would normally be legitimate because they
are at the point where they are really competing directly with
those guys who are underground.
We're suggesting voluntary
registration is probably better. Let the market look at it for at
least a few years, give those legitimate operators an opportunity
to pull themselves up and then it may go mandatory down the
road.
Mr
Phillips: The rental issue is, to me, a crisis-I
represent an area in Toronto-and your figures suggest it's a
growing crisis. The numbers I've seen say we should be seeing
somewhere between 15,000 and 20,000 rental units built per year.
As your figures suggest, it is maybe 1,000 to 2,000, so it's a
huge problem. I think you also say in here that because of the
threat of rent control, there are relatively few who want to
built rental accommodation. I think we've heard that every single
year.
We can tinker around with
things at the edges, and you've suggested some things here, but
is there any significant likelihood that the industry is going to
get into building a significant number of rental units, or do we
just have to say to ourselves that we have to somehow
collectively find another solution?
Mr
Dempsey: No. Just on some of the numbers there, I think
about 2,000 rental units were built this year. We recognize it's
a lot more than that, that there is quite a pent-up demand.
Basically, when we're
sitting at 71,000 houses, which is the highest it's been in 10
years, we're tapped right out. We are working as hard as we can
to cover the needs of the housing industry. If a developer has a
choice of going with rental that may cost him more in taxes down
the road or going with private housing, certainly he's going to
go with private housing.
What we're saying is, a
condominium on Jones Street pays property taxes at certain rate.
The one next door to it pays double that.
Mr
Schepers: As an apartment.
Mr
Dempsey: Yes, as an apartment. When you go to apply for
money-CMHC will guarantee funds-the premium on a very low risk project is about 2%;
on rental it's 5%. That makes quite a difference.
What is happening is that
probably about 40% of condominiums being built now are being
rented. So the 2,000 rental units that were built this year is
sort of a misleading number, because 45% of the condos being
built are used for rental. The people in the traditional rental
we now have move into a higher bracket and that frees up some of
the lower-priced units.
The Chair:
On behalf of the committee, I would like to thank you for your
presentation this afternoon.
The committee will be
adjourned until 2 o'clock.
The committee recessed
from 1258 to 1400.
BANK OF NOVA SCOTIA
The Chair:
Ladies and gentlemen, we'll bring the meeting back to order. It
is slightly after 2 o'clock. Our first presenters this afternoon
are representatives from the Bank of Nova Scotia. I see you're
comfortably seated, so if you could please state your name for
the record.
Ms Mary
Webb: Mary Webb, senior economist, Scotiabank.
The Chair:
On behalf of the committee, welcome. You have one hour for your
presentation.
Mr Gampel:
Thank you very much. Both myself and my colleague would like to
read into the record a report that we have prepared for you on
the Ontario outlook, and we also have, accompanying it for your
perusal at a later date, a little bit more focused article on the
auto industry and its impact on Ontario.
Let me begin by saying that
we're always very happy to come to Queen's Park to give our views
on the outlook, and this is a particularly apropos time, because
we see things changing quite significantly in the local
economy.
Provincial growth will
decelerate sharply this year as the US economy hits the brakes.
Scotia Economics expects provincial output to rise by only 2.3%
in 2001, in line with the national average but less than half the
annual increases that Ontario recorded over the past four years.
This abrupt throttling back mirrors the big drop in American
growth, from 4.5% annual gains since 1997 to less than 2% this
year.
Much of the growth in 2001
on both sides of the border will be back-end loaded into the
second half of the year, with momentum building into 2002. Even
next year, growth will probably be less than 3.5% for both Canada
and Ontario. The good news is that North America will likely
return to a solid growth trajectory, underpinned by the
productivity advances stemming from new technology, low
inflation, low interest rates and pro-growth fiscal policies.
The sudden change in
prospects reflects Ontario's heavy dependence on the US
marketplace. Export volumes last year topped two thirds of
provincial GDP, and more than 90% of external sales are destined
south of the border. The US slowdown also will dampen overseas
markets that are important to many provincial industries.
The US setback has been
centred in the auto sector, which accounts for 45% of Ontario's
exports. US motor vehicle sales have slumped in response to the
declining confidence and spending power of American consumers. To
reduce decade-high US inventories, Ontario production schedules
for the first quarter of 2001 have been cut 18% from year-earlier
levels, with negative fallout to industry suppliers along the
production chain.
Despite the setback in
external markets, provincial activity will be cushioned by
continued strength in construction and locally focused service
industries. The economic revival in Ontario and the rest of
Canada lagged the US trend by a substantial margin in the early
1990s, creating a backlog of pent-up demand that continues to
underpin sales and investment. Low interest rates, a very
competitive exchange rate and fiscal stimulus at both the federal
and provincial levels also will provide us with a performance
edge during the difficult months ahead.
The Ontario economy retains
considerable momentum at this time, adding 16,000 new jobs in
January, roughly in line with the average gain over the past
year. However, mounting layoff announcements point to lower
employment in the coming months. Ontario's help wanted index, a
leading indicator of provincial hiring trends, fell 1.5% in
January. We expect provincial job growth in 2001 to be less than
half of last year's 3.2% rise, pushing the jobless rate up over
half a percentage point toward 6.5% by mid-year.
Consumer spending in
Ontario has already begun to soften after an exceptional
performance through much of last year. There was virtually no
growth in retail sales between August and November after an
annualized increase of close to 9% in the first seven months of
2000. The fall-off in spending mirrors an erosion in household
confidence, with the conference board's index of consumer
sentiment for the province down 7% from a year earlier in the
final quarter of the year. The number of consumer bankruptcies
filed in Ontario between January and November was 2.5% higher
than the year-earlier period, following double-digit declines in
both 1998 and 1999.
Housing starts reached
72,000 units last year, the strongest performance since 1989.
While tight rental markets and low mortgage rates provide
important support, softer economic conditions will make
households more cautious about big-ticket spending. New home
price increases have already begun to moderate, and the value of
residential building permits was down 2.5% from the previous year
in the fourth quarter. For 2001, we expect provincial housing
starts to edge down slightly to about 70,000 units.
In contrast,
non-residential construction should post further gains, driven by
a legacy of project deferrals from the 1990s. Vacancy rates for
office and industrial space remain very tight in many centres.
Spending on infrastructure has also revived with the improvement
in government finances.
Ontario's export-oriented manufacturing sector
has already begun to feel the brunt of the US slowdown.
Provincial manufacturing shipments were up just 4% in the 12
months to November, one third the pace recorded at the beginning
of 2000. According to the latest national business conditions
survey, 43% of manufacturers expect to cut production in the
first quarter of 2001 and 19% expect to reduce their payrolls. An
increasing number of firms, particularly those in the motor
vehicle and steel industries, were concerned about softness in
new orders and finished product inventories on hand.
By late spring, US motor
vehicle sales are expected to tumble 18% below the record sales
of 18.2 million units posted in the first quarter of 2000. This
decline is only slightly less than the 21% decrease witnessed
during the early 1990s recession. Even more worrisome is the slow
revival in US vehicle sales expected for at least the next two
years, given the low average age of the US vehicle stock and the
extended life now expected of new vehicles. As a result,
competition and pricing pressures will remain intense in the
North American automotive market, forcing cost cutting and
innovation.
In 2001, assemblies are
forecast to be cut by 12% in the United States and 11% in Canada.
For this nation, this is roughly double the cumulative decrease
in 1990-91, reflecting its large and increasing share of North
American automotive production. Since the late 1980s, Canadian
assembly capacity has climbed by more than 40%, raising its share
of the Canadian-US total from 15% to 19%. Canadian auto parts now
average $1,900 per North American vehicle, double the level of a
decade ago.
For Ontario, the motor
vehicle industry remains a bellwether indicator, accounting for
more than one fifth of the province's manufacturing output. The
industry posted more than half of the province's hefty export
gain during the past four years, beyond its 45% share of
merchandise exports. We estimate that this year's downturn in the
motor vehicle industry will shave approximately 0.7 of a
percentage point from Ontario's real GDP growth, and the result
could almost be double when all the indirect effects are factored
in.
1410
The consolidation in the
automotive industry will extend across southern Ontario because
of its widespread network of manufacturing and service suppliers.
The Big Three auto makers, having witnessed the steepest slide in
sales, are expected to trim their production by 13% this year,
while transplant assemblies will be down by only 1% to 2%. Beyond
the historic concentrations of automotive activity in Toronto,
Windsor and Oshawa, the share of automotive employment in the
Kitchener-Waterloo area has climbed, while London is involved in
heavy trucks and auto parts as well. Other centres, such as
Hamilton, are the location for key suppliers, such as the steel
industry, whose earnings are being further undermined by intense
import competition.
On a brighter note,
Ontario's auto industry should benefit from its relative
competitiveness as North American production revives. Canadian
assembly plants have higher productivity and lower unit costs
than their US counterparts, even before the low value of the
Canadian dollar is taken into account. Parts producers, after
investing more than $10 billion over the past decade, are far
better positioned than in the early 1990s. They have avoided the
excessive debt leverage incurred by their larger American
competitors, and a recent sample indicated that their gross
profit margins were 30% higher.
In this downturn, several
key industries and policy considerations should limit the
correction for Ontario, making it far less severe than the 5%
contraction in output incurred by the province during the
recession at the beginning of the l990s. Looking further forward,
Ontario's growth is expected to exceed the 1.9% average of 1992
and 1993, the initial years after the recession ended.
The automotive sector is
only one of several Ontario industries to post stellar
performances over the past four years. Other
industries-electronic and telecommunications equipment, computer
services, construction and tourism-should maintain positive,
though slower, growth this year.
A low-valued Canadian
dollar will continue to benefit many of Ontario's industries. Our
dollar is expected to appreciate only modestly as international
investors diversify away from the slowing US economy. However, it
will still face significant headwinds and is unlikely to move
sharply above 71 cents US over the next two years.
Many of the excesses that
characterized the Ontario economy in the late 1980s are not
apparent now. Commercial and industrial space, for example, has
not been overbuilt, and vacancy rates at the end of 2000 were at,
or approaching, record lows. Considerable infrastructure
spending, after a major pause during the latter half of the
l990s, is either underway or planned.
Both monetary and fiscal
policy are in pro-growth mode. Canada's core inflation rate is
forecast to remain well within its 1% to 3% target band, allowing
monetary officials to pursue even lower interest rates during
this period of slower economic activity. On the fiscal side,
Ottawa and Queen's Park have accelerated personal and corporate
tax reduction, and boosted spending. These stimulative policy
settings should be positive for business investment and encourage
consumer spending, given the considerable pent-up demand still
existing among Ontario households.
I'm now going to just pass
the baton over to my colleague, who will give the fiscal
outlook.
Ms Webb:
As North America's impressive expansion cools, it is increasingly
important to keep Ontario's business environment competitive. The
slower revenue growth we forecast for next year will force
difficult trade-offs in key areas, such as infrastructure, social
programs and taxation, that are so critical in attracting new
investment. The province's greatest challenge may lie ahead in
accomplishing further fiscal improvement in a slower growth
environment.
Robust expansion over the past four years has
generated 6% annual growth in Ontario's tax revenues, even while
major personal income tax cuts were being implemented. Retail
sales and corporate income tax receipts averaged annual gains of
8% and 10.6%, respectively. Each year, large interim increases
over budget revenue estimates have allowed immediate allocations
to urgent spending priorities and provided a margin for further
tax cuts the following year. For fiscal 2001, the government now
estimates that its revenues will be $2.2 billion higher than the
original budget estimate. The risk is that next year's interim
adjustments may be less encouraging.
Typically, Ontario's
taxation revenues have exceeded expectations when growth is
strong and fallen short of budget estimates during periods of
retrenchment. With earnings being severely compressed in a
growing number of sectors, softer government receipts,
particularly corporate income taxes, will highlight the
province's key structural weakness: a $114-billion debt that
requires over $9 billion of debt service annually before other
priorities can be addressed. Without the whopping annual revenue
gains that we've experienced in recent years, this burden makes
it hard for Ontario to keep pace with aggressive tax cuts in a
couple of other provinces and in the United States.
In the last couple of
years, Ontario has vied with Alberta in lowering taxes. Alberta,
however, is comfortably covering its limited, and declining,
interest charges with investment income. In contrast, Ontario
must use 14.5 cents of every revenue dollar for debt charges.
We therefore encourage the
province to fulfill, and better yet, exceed, its current
commitment to repay at least $5 billion of debt from fiscal 2000
to fiscal 2004. The initial savings appear small, but by year
five, cumulative debt retirement of $5 billion to $6 billion
would slash the annual debt service by almost $300 million.
Fortunately, the government also has substantial amounts of
high-coupon debt maturing over the next few years. The total debt
service saving from a combination of the committed debt
retirement and advantageous refinancing should total about $1
billion in fiscal 2004 and each year thereafter.
Tax cuts for fiscal 2002
should be targeted to maximize their longer-term benefit. Options
include accelerating the corporate tax cuts announced last
spring. For 2001, the province may set made-for-Ontario personal
tax brackets and rates, an important opportunity to modify the
current structure to better suit Ontario's circumstances. Key to
this redesign should be raising the threshold for the highest
income tax bracket to reflect the growth in individuals' incomes
and living expenses over the past decade.
In an environment of more
moderate growth, Ontario's profit-insensitive taxes should be
reassessed. In particular, corporate capital taxes fall most
heavily on those firms enhancing their longer-term capital.
Sustaining the province's
competitiveness also requires constant upgrading of its physical
and education infrastructure. Close coordination with junior and
senior levels of government and the private sector will be
required to adequately stretch scarce tax dollars.
The province's substantial
fiscal repair in recent years leaves Ontario much better
positioned than it was in the early 1990s to withstand the soft
North American markets anticipated. However, debt reduction will
remain the key to sustaining the province's drive to be one of
the most competitive tax jurisdictions in North America.
Mr Gampel:
Let me conclude the formal part of our presentation by focusing
on the risks to the outlook.
The economic risks are
primarily on the downside in North America's current uncertain
economic environment. The US slowdown could be both sharper and
more protracted than forecast, resulting in greater dislocation
for the Ontario economy. This development would seriously dampen
the province's revenue growth and fiscal options.
1420
The massive US trade
imbalances with virtually every nation leave Canada's key
industrial sectors exposed during this downturn. While the Bush
administration supports freer trade, particularly in the western
hemisphere, potential trade sensitivities will still exist in the
United States. Moreover, in the NAFTA bloc, Mexico could
represent an increasing1y competitive challenge to Canada as its
improving productivity builds upon its current low-wage
advantage.
The final risk relates to
Ontario's fiscal priorities. If the province delays substantively
addressing its debt burden, it will become increasingly difficult
for Ontario to match the initiatives anticipated in lower-debt
jurisdictions, such as Alberta and a number of competitive US
states. Even if Ontario comes through this correction largely
unscathed, the province requires greater fiscal insurance to face
future setbacks, as well as the longer-term demands of an aging
baby boom generation. Thank you very much.
The Chair:
We have approximately 10 minutes per caucus. I'll start with the
government side.
Mr
O'Toole: Thank you very much for a very academic and
informative presentation. I look forward to reading the more
detailed things on the vehicle side.
I'll just start with the
impression I get-you know, you're one of the leading financial
institutions. I noticed a language impression right off the bat
of a heavy emphasis on the negative, although I heard a speech
yesterday by the Bank of Canada-it was on the news of one of the
networks last evening-and they were not as aggressive as you on
the slowdown and impact and its forecasted turnaround. You're
using "slowdown," "tumbling" and "declining," those kinds of
words that perhaps are a self-fulfilling prophecy. You know what
I mean? If you're saying it, and I'm the investor in your bank,
I'm saying, "Gee, maybe I shouldn't." You know that argument I'm
sure.
But in a specific sense, I
would just like to comment on two parts in your presentation and
Mary's which I found a bit of an anomaly. I'm not in a position
to criticize you, but I am questioning you. On your second
page, you spent some
time talking about both the decline and the growth in the auto
sector. Your chart on the bottom of page 2 probably tells the
story better than the words. The decline you're referring to is
more than offset by the relative growth in competitiveness in the
North American economy. They're able to sustain the turnaround
quicker. Maybe you could comment on that.
I think you dramatize that
impact in the economy, and yet yesterday the minister was very
clear when he talked more positively about the accelerated growth
in the expansion in the high-tech sector. He didn't spend as much
time on our traditional dependence on the auto sector, not that
he ignored it, but certainly you've spent a fair amount of time
on the auto sector decline here having the longer-term effect on
the supply side.
Mary, on your side, I had
another thing too. On one of the last pages that you were talking
about-and I'm going to ask you a question-you started off by
saying, "Without a whopping annual revenue gain, this burden
makes it hard for Ontario to keep pace with aggressive tax cuts
in a couple of other provinces and in the United States." I'm
wondering, should we remain competitive? That's what they're all
saying, that we have to keep competitive with our trading
partners and certainly the ones in closest proximity. Should we
do it? In a tax policy area, should we continue with the
corporate tax cuts and the other tax cuts that encourage
investment, encourage us to be competitive for investment,
attracting investment, which would be the turnaround? The
recovery, if you will, will be the continued investment
climate.
Then at the very end of
that, you say, "However, debt reduction will remain the key to
sustaining the province's drive to be one of the most competitive
tax jurisdictions in North America." You sort of answer the
question, and the question is: should we not continue with tax
cuts, both corporate and personal, to remain competitive based on
the paper you've presented here? You've presented both sides of
it. Are you saying we should continue tax cuts, both corporate
and otherwise, or not and be competitive with our partners?
That's the question.
Mr Gampel:
Lots of questions there to answer.
Mr
O'Toole: You presented lots of them.
Mr Gampel:
It's OK. Let me try to address some of them first and then I'll
pass the baton again to Mary.
What we reported to you is
largely what has already happened in the North American
marketplace. The difference in this cycle compared to if we go
back just a few years ago to the Mexican peso crisis in the
mid-1990s or the Asian flu epidemic that swept over our shores in
1998, this time around the difference is that the slowdown-and
you have to use the term "slowdown"-that is emanating out of the
United States is internally generated. Therefore there is, in our
opinion, more risk to Ontario and Canada as a whole because our
major trading partner that we have become increasingly integrated
with is undergoing a very sharp slowdown.
The markets have already
reacted. Interest rates have come down dramatically. Central
bankers have begun cutting rates a little bit more obviously
dramatically in the United States than in Canada. The stock
markets have reacted as well to the severe profit compression
that's already underway. Markets have already reacted, and
businesses are now adjusting to the slower sales environment that
has largely taken place.
We are at a loss of course
early in this new year because we don't have a lot of data. We do
know, for example, that the national employment situation has
slowed down, although in Ontario it did not in the latest month,
but the trends would suggest that the slowdown in sales and in
production to redress the inventory is underway. As we get our
numbers, and they are lagged in this country, in this province,
we will find this slowdown is intensifying.
I don't think we're
promoting any unnecessary concerns beyond those which have
already been in the marketplace. Anyone who has looked at their
portfolio balances and their monthly statements has known for
quite a few months now that things haven't been all that good,
because the earnings weakness has been reflected in declining
stock market valuation. I think what we're trying to present is a
picture of conditions which have slowed, but are not into the
negative growth territory. We did not use words which I think
would be inflammatory. One starts with the letter "r," and we
purposely have avoided that because it's not our forecast. We
think we are cushioned and that for this year we will probably
outperform the United States, which I think in this type of
environment is exceptionally good.
Again, you had mentioned as
part of your question the competitiveness of many of our
industries. There's no question we have become a much more
regionally balanced and diversified economy, and the high-tech
sector is certainly one that we can point to as being a large
contributor. In fact, on a national basis-and of course Ontario
bulks so large that the statistics are going to be largely
Ontario-dominated-that sector of the economy that really is only
in the range around 7% of our GDP has accounted for around 20% of
our growth over the last three years.
The high-tech sector
remains very fundamentally an important part of our long-run
growth prospects, but the interesting thing is that even the
high-tech sector is not invulnerable. What we've seen is quite a
significant retrenchment in new orders. A large part of that is
emanating out of the United States, but it's also backfilling
into Canada as well. You have to remember that the economy is so
integrated that if the auto cycle slows down-the automakers are
one of the key industries that buy a lot of this technology, and
with the problems that have developed in certain areas of the
technology market, they were big buyers of technological-related
equipment and services. What we're seeing is that two of the
high-growth areas of not only the Ontario economy, the Canadian
economy and the US economy, but really the global economy, have
lost momentum. These areas are growing. They're just not growing
as fast. Of course the cutbacks on the auto side are dramatic,
but they reflect the fact that the automakers are not expecting
the sales performance
to match the stratospheric levels that they have reached. We just
came off of a decade of record-setting growth in the United
States. It's hard-pressed to ensure that Americans are going to
continue buying at the same pace that they have in the past, and
most of our production is geared toward that US market.
I think I have tried to
answer some of the question. I'll pass it to Mary as to the
fiscal question you asked.
1430
Ms Webb: I
have just one further comment to add. We look for profits in
Ontario to fall by at least 3% on average this year, and we would
definitely look for earnings declines in the first half of the
year. If we're right, and given all the announcements we're
getting from a number of Ontario's key industries, it's hard to
envision that these businesses will not respond with cost-cutting
and rationalization, just because of the realities of the
marketplace.
On the fiscal side, I'd
emphasize that we don't consider debt reduction and tax cuts as
mutually exclusive. In fact, we think they're complementary and
that they can and should be accomplished simultaneously.
Ontario's fiscal record in the past few years has shown that to
be true. I'm concerned that it has been relatively easy in the
past couple of years because revenue growth has been sufficiently
high that a whole bunch of priorities could be addressed. We
could start corporate tax reduction; we could replenish some
capital spending for universities. We had enough money to cover a
lot of bases. Our forecast shows that for fiscal 2001-02, that's
not going to be the case. Revenue growth will be more moderate,
and so it becomes a careful balancing act. That's why we were
emphasizing that tax cuts need to be targeted to those that will
provide the best longer-term structure that will optimize the
results.
Having said that, I think
Ontario's industrial structure and the growing importance of high
tech in the province only underlines the really critical need for
us to stay tax-competitive. We have the States moving ahead on
tax cuts both in Washington and with so many of the states
already having five to seven years of tax cuts under their belt,
and there's no denying that Alberta will be moving and I think
you'll see other provinces moving as well.
Mr
Phillips: I'll start. Thank you very much. Just from our
side, we like economists to come in and tell us not what we want
to hear but what is your best estimate of what's going to happen.
I think Scotiabank, if you go back over the last 10 years, has
probably been the most accurate economic forecaster. I think you
would find that. So I welcome your coming in and giving us your
best advice, and I think your bank customers do too. They want to
know what's going to happen. As I say, if you tracked the last 10
years, I think Scotia's been the most accurate of any of the
forecasters.
Having said all of that,
just your advice on a few things. One is on job growth. I look
over the history of job growth, and I've never seen job growth
exceed real GDP growth in percentage terms. It looks like job
growth's been at the rate of maybe 60% of real GDP growth. I see
in here you're predicting GDP growth of 2.2% and job growth of
1.4%, and then 3.1% and 1.7% next year. What advice do you have
for us as to what we should be looking at in terms of job growth
in the economy, what kind of a factor of GDP, or do you use
another factor for estimating how many incremental jobs the
economy's going to generate?
Mr Gampel:
I don't know, Mr Phillips, if we look at it in those terms. I
think how we tend to do our forecast is to look at the sectors
specific in that regard and try to build up. There's no grand
model here that spells out something, that there's a direct
relationship between GDP and employment. I think what we're
seeing is an attitude on the part of business right now to become
a bit more cautious because of the speed of adjustment.
I must tell you in all
honesty that in talking to customers and prospective customers in
recent months, things were going exceptionally well for many of
Ontario's and Canada's businesses up to some time in, I would
say, maybe early fall. All of a sudden things just fell very,
very quickly, and a large part of it was not domestically; it was
coming out of the United States. Of course, with the increasing
export focus of our businesses, they were feeling it, and we were
getting that sort of feedback from our customers, yet it wasn't
really showing up in the numbers until later on.
But what has happened is
that across a broad swath of industries we're seeing,
obviously-at least the feedback I'm getting is that the softening
was so dramatic that businesses are in the process now of
adjusting their growth in terms of adding. Outside of certain
industries which have already indicated they are cutting
employment, we haven't seen a lot of firms yet in this country or
in this province letting workers off. What we're seeing of course
is a change in sentiment, that they're just not hiring as much as
they have been in the past. So a lot of it is a function of the
changing attitudes and a much more pragmatic approach to the
outlook that is rapidly developing.
I think that as
policy-makers here, whether it's David Dodge or his predecessor,
Mr Thiessen, or even Mr Martin-of course Mr Greenspan has been
increasingly vocal in the United States-it's been the speed of
the downturn, not the fact that there was a slowdown coming. It
was the speed of the downturn in the United States that has
caught everyone off guard. So what we're trying to reflect
here-and a large part of this is subjective. Although Mary spends
a lot of time and a lot of the bank's money on the computer,
there's clearly an amount of subjectivity here in how we are
looking at the employment conditions. Based on what we've seen in
prior cycles, we think this is probably a very moderate response.
But anecdotally there have been a lot of indications that
businesses have become extremely cautious now and have tempered
their hiring plans.
You see it, for example, in
the high-tech sector, where there has been quite a major shift,
where the demands were so strong that you couldn't fill
positions. Certainly in our organization, which is a major
purchaser of IT types
of goods and services, the demands were so high, and of course
there is tapering off. There is tapering off across a broad array
of sectors. I think this is what we're trying to portray here,
that the demand has softened.
Mr
Phillips: There's a debate on how important exports are
to Ontario's economy, particularly international exports and
particularly exports to the US. You seem to place a higher
emphasis on the importance of exports to the Ontario economy than
others do, including, I might say, the finance minister. Why
would there be kind of a difference of opinion on the impact of
exports among those who look at the market? As I say, what I take
from your presentation is that it's going to have a much more
immediate impact on Ontario's economy than others would think,
including the finance minister.
Mr Gampel:
To be honest with you, I think we may choose to emphasize it more
because of the increasing focus that Canadian and Ontario
businesses have been putting on, obviously, expanding their
reach. So in this new age of globalization and rapid
communications there is a much more highly evolving focus on
conditions in our major trading partners and other trade
linkages. So personally I would weight that.
Upon saying that, our
forecast has growth slowing to a rate of growth that a few years
ago we would have thought was pretty good, somewhere around 2.5%,
after this superheated growth that we came to like and hope would
stay with us for a long time.
1440
So we're still saying there
is enough resiliency in the economy and enough areas of strength
that will keep us going. There are enough infrastructure projects
in this province and across the country to keep us going for
quite a while on the construction activity side. So I think there
are a lot of domestic-related strengths.
However, I think it's clear
from our standpoint that this is a much more globalized
environment, and therefore the linkages-the auto sector is a
clear example of where we are outsized producers relative to the
domestic market. Therefore it's not surprising that we would feel
that if the US shudders, we're going to feel it a little as
well.
Mr
Phillips: The government no longer gives us any kind of
revenue forecast, which I find disappointing. We kind of have a
$60-billion business and we can't get a forecast of revenue over
the next 12 months. It is done; they just won't give it to
us.
I'm wondering what advice
you have for us in terms of what factors you use to project
revenue increases-I think you hint that it's above nominal GDP in
some areas-so this committee, on the back of an envelope almost,
might be able to put together some numbers of what we're looking
at for the next year.
Ms Webb:
We forecast your three major sources of taxation revenue:
personal income tax, retail sales tax and corporate income tax.
They run off an adjusted personal income number, the corporate
profits we're looking at-I was indicating to you that we expect
them to climb this year-and retail sales growth. From that we
subtract the known budget impact, or what we've assumed going
forward, of any further tax cuts. In the particular scenario
we've mapped out for the province, we've assumed that tax cuts
are at least a billion dollars each year.
On the other revenue side,
to be honest, we work in whatever special factors there are and
simply look at the time series and what seems reasonable. Right
now in Ontario's books, of course, there's quite a bit of
complication because of the whole electricity sector, and that is
definitely making it tough to come to a final number. But it
certainly shows you the underlying trend.
On the spending side, we've
assumed it stays relatively constant at about 12% of GDP. That is
slightly more, in terms of growth, than population and inflation.
We felt that was necessary, given that capital spending had
fallen quite a bit in the latter half of the 1990s, that the
government has stated its commitment to replenish that capital
spending and that we will probably see spending growth in the
order of 4.5% at a minimum over the next few years.
Mr
Phillips: Are those calculations available to the
committee?
Mr Gampel:
I don't see why not. A lot of them are back-of-the-envelope.
Mr
Phillips: It's more than we've got from the
government.
The Chair:
With that, Mr Phillips, your time is expired. Mr Kormos?
Mr Peter Kormos
(Niagara Centre): You talked about superheated growth.
Are you talking about the superheated growth of the
Ontario/Canadian economy or the American economy?
Mr Gampel:
I was referring to basically Ontario and Canada. Both growth
rates were very high. Of course that basically piggybacked on
what was happening south of the border as well.
Mr Kormos:
So the growth was in the United States?
Mr Gampel:
It's a combination.
Mr Kormos:
I read your material and listened to your comments about the auto
sector being presumably predominant in the American economy and
one in seven jobs in Ontario being related to the auto sector,
but it's the support of the Ontario auto sector for the US auto
sector that drives the Ontario auto sector. Is that right? Have I
misread that?
Mr Gampel:
I think that-
Interjection.
Mr Kormos:
Listen, Mrs Molinari, to the man answering.
Mr Gampel:
I would classify it that obviously there are certain sectors in
this economy which rely on strong growth in other countries. In
this case, our auto production and parts sectors are obviously
closely tied to developments in the United States, as well as to
Canada. Other industries are much more domestically
orientated-construction-related activity.
In this case, what we are
showing in our forecast right now is that obviously we are
succumbing to some of the pressures of a slow international
growth environment led by the US. It's an industry which is supportive
of Ontario and Canada, as well as relying on the strength of the
United States.
Mr Kormos:
You mentioned three factors-the low interest rates, the very
competitive exchange rate, and then fiscal stimuli at both the
federal and provincial levels, and you put them in that order-as
being the things that will protect us from an even lower downturn
than what we would experience. Right? Were these factors as well
in terms of the growth of the Ontario economy-the low interest
rates, the very competitive exchange rate?
Mr Gampel:
I think they were factors in helping Ontario and Canada to exceed
the very sluggish rates of growth that we recorded in the early
1990s. I think they were factors that contributed. I think it's a
compilation of factors, a compounding effect.
Mr Kormos:
Earlier today I understand that Mr Stanford suggested to the
committee that the tax cuts didn't cause the recent growth. Would
you disagree with that? I wasn't here when Mr Stanford was here.
I know him, though, and I find him a pretty intelligent and
well-researched guy.
Mr Gampel:
I'm sure that every economist you ask will come up with a
slightly different answer. So I don't know if I'm going to be
able to help you in analyzing this. Again, I think it's extremely
hard to try to isolate one particular factor or just a couple of
factors that are contributing to or have contributed to Ontario's
very strong economic performance. I think a lot of it is
domestically generated within the province in terms of the tax
measures. A lot of it has to do with other factors within the
province in terms of worker and productivity gains, education, a
variety of other factors. A lot depends upon national changes-the
interest rate environment, which is a function of national as
well as provincial trends-as well as what's happening
internationally. So I don't know. Personally, in all the years
I've been forecasting, I've always found it difficult to say, and
not just because I'm testifying before you today, that there is
one answer or one reason why a region excels at any particular
time. I think it's a combination of factors that contributed to
it.
Mr Kormos:
There's another reference in your submission that talks about the
role of Mexico and NAFTA and the risk that that poses: "Moreover,
in the NAFTA bloc, Mexico could represent an increasingly
competitive challenge to Canada."
I come from down in Niagara
region. We've got the GM plant down there and not a whole lot of
stability in the employment there. Are you talking about the auto
assembly industry?
Mr Gampel:
I think it can be a variety of industries. I also come from the
Niagara region.
Mr Kormos:
We're both fortunate.
Mr Gampel:
That's right. I can remember a lot of industries which are no
longer there. But I think the key here is that even in very
productive sectors of our economy now the competitive pressures
coming from all over are immense. We live in this globalized
world where we want to trade, we want to grow, we want to improve
our standard of living. It's a dynamic setting where the
competitive challenges change basically on a daily basis. What
I'm saying is that it doesn't have to be old industries that are
affected by the competitive challenge; it can be new industries
as well. That's why we indicated that during this period of
profit compression the challenge, of course, is going to be for
businesses to again focus on the bottom line and productivity
enhancements, because that's what will keep us in business. There
are always going to be competitive challenges from countries and
jurisdictions around the world.
1450
Mr Kormos:
You also speak and write about the prospect of the Big Three
American automakers losing even more of their market share, and
that's not something that you can write into the variables as a
scientist, is it?
Mr Gampel:
No, it isn't.
Mr Kormos:
Last week, I read in the newspaper how the new Minister of
Finance, presumably after talking to the province's experts, had
talked about growth of-what?-3.1%. It beats 2.8%. I don't know a
whole lot about these things, so I rely upon what I read. Then I
read this week the Minister of Finance has changed his mind and
said it's 2.8%. He said one of the banks suggested this. How is a
Minister of Finance influenced so much by what a bank says when
the Ministry of Finance has the expertise over here across the
road crunching these numbers? Is that what you people call
it?
Mr Gampel:
I can talk just from our own experience. We appreciate the
comments that Mr Phillips made about our forecasting record. The
key here is that everyone was caught with their pants down this
time around. The speed of the adjustment has taken everyone by
surprise. This is a very humbling type of job. Throwing darts at
the dartboard isn't that easy. We don't spend time checking up on
our competitors, what they're doing with their forecasts; we have
a hard enough time trying to come up with the answers. But I'll
tell you that around the world there has been an almost
instantaneous downgrading of forecasts. So it does not surprise
me. Some have occurred faster, some have occurred at a slower
pace, but universally most forecasters have been downgrading
their forecasts.
To be honest with you, I
know it makes a huge difference in provincial revenues and the
outlook when you're talking a difference between 2.5% and 3%.
Remember, we were just coming off growth rates of around 5% to
6%. There has been a significant downgrading of forecasts by
everyone, and that just reflects the reality of the changing
sentiment that's out there.
Mr Kormos:
I suppose what causes concern is those variables you talk about
that can't be arithmetically measured, like for instance a
greater loss of market share by the North American Big Three; for
instance by the increasing competitiveness of Mexico.
Mr Kwinter and Mr Phillips
have been here twice as along as I have, but the three of us were
here in 1989 and 1990, when I listened-I was much younger then-to
the experts from the
Ministry of Finance. We enjoyed huge revenues. We had a balanced
budget. I remember the newly elected government being in crisis
because they were called together and they were told, "Oh, my
goodness, there's going to be a $2-million deficit," and then it
was $3 million. But of course it soon erupted into billions.
I'm wondering, what kind of
margin of error is there? I agree with what Mr Phillips says
about you. I don't dispute that he says you've had the most bang
on, accurate predictions. But what's the margin of error? People
were saying all sorts of things about the recession of the early
1990s, too, about the depth of it and the length of it, weren't
they? They were all over the place.
Mr Gampel:
Let me just go back to what I said before. What we're dealing
with here is a dynamic sort of shift. We've come off this
superheated growth, this productivity-driven growth. Economies
had seemingly moved to a new and higher plateau and all of a
sudden we've had this downshifting. Some are at lower growth
rates, some are at higher growth rates. For your own purposes,
you might want to look at consensus forecasts that are produced
internationally, which look at what is happening and essentially
average out what a lot of economists are saying. I think it's
always hazardous to hang your hat on one particular forecast.
But again, I think the
reality here is that our biggest trading partner-and I just go
back to it again-has lost considerable momentum. With the
expanded trade linkages that this country now has with that
market, it's inevitable that we will have some slowing in our
economy, in the provincial economy. What level? Again, this is
our view. There are other forecasters out there. I think you
throw out the highs, you throw out the lows, and you come up with
an average that you're looking at for your own purposes. However,
what we're trying to do is present the risk, that there is some
downside risk here and that this should be taken seriously.
Mr Kormos:
Is it also the case that you could come back in let's say three
weeks and have a totally different set of predictions? One of the
things I learned in the early 1990s as well is that over
relatively short periods of time, all of a sudden the so-called
fast and firm predictions were being changed every week. When you
talk about the variables that can't be arithmetically measured,
could you be here in a month's time with a dramatically different
prediction than what you have today?
Mr Gampel:
I think you could. There's always that chance, but I would say
it's very low. For example, every day you pick up a news report
of major layoffs that are occurring in the United States. Once
you look at what the companies' names are, there is always a link
into Canada or some other supplier that we are dealing with. I
would say we can always change our numbers in microscopic
amounts, but I don't think we're going to change for the next
little while our feeling. I think we're pretty much happy with
this type of forecast, this particular view, at this time.
Can our economists be
wrong? Of course they can be wrong. However, one thing you have
to take into account-of course, we focused a lot of our comments
today on one particular industry. You have to remember that the
temporary layoffs in the auto industry have already occurred or
they are occurring as we are speaking. The permanent layoffs
don't take effect until the second and third quarter. So there is
a delayed impact of this. We're just at the initial stages of
this. So I would be happy with where our forecast is right
now.
Mr Kormos:
I hope so. Like you, I come from Niagara. We've seen plants like
Union Carbide, and Gallaher Thorold Paper, one of the two mills
in Thorold, disappear. We've seen major downsizing at the GM
plant there. Atlas Specialty Steels-and again, you talk about the
auto industry and how it relies less and less, if at all, on
stainless steel-significantly reduced their workforce.
Have you been there
recently? The new jobs down there are the ones in Niagara Falls
in the hospitality industry, which are seasonal and low-income
jobs. I just met with a couple of hundred Gallaher workers, mill
workers all their lives, who are going to go through a job
training program and they're going to be told to become a part of
the IT economy. These are mill workers. You know thes guys: big,
beefy fingers on them. These are big, tough guys who have worked
in the mill all their lives, and they're going to start
keyboarding at the age of 60? It's tough for those guys and their
families.
The Chair:
With that, we've run out of time. On behalf of the committee,
thank you very much for your presentation this afternoon.
TORONTO-CENTRAL ONTARIO BUILDING AND
CONSTRUCTION TRADES COUNCIL
The Chair:
Our next group this afternoon is the representatives from the
Ontario Building and Construction Trades Council. Could you
please come forward and state your name for the record. On behalf
of the committee, I would like to welcome you. You have 30
minutes for your presentation this afternoon.
Mr John
Cartwright: My name is John Cartwright. I'm the business
manager of the Toronto-Central Ontario Building and Construction
Trades Council. With me is Dan McBride, who is the recording
secretary of the council and a representative of the plumbers and
pipefitters union in Toronto.
We appear in front of you
today to talk about an issue that is politics, but it's politics
expressed in dollars. That is the issue of the importance of
strong cities in this province over the next decade and the
fundamental crisis that's occurring as a result of downloading of
costs and a basically unfair division of responsibilities between
Queen's Park and the cities across this province, but
particularly within the greater Toronto area and the core of the
GTA, which is Toronto.
1500
It's ironic that even as we
move into the overwhelming majority of Canadians and Ontarians
living in cities, cities are still creatures of the province that
can have their governance changed at whim, have their funding
changed at whim, and not have a role that is constitutionally
laid out. That's not up to this committee to change. But from our
point of view, we represent people who build the cities. We
represent 45,000 skilled men and women who are in the
construction trades across the greater Toronto area and who have
built everything that you see, from the subdivision housing up to
the Air Canada Centre or the Sheppard subway line and in
between-the factories, the hospitals, the schools.
We want to ensure that what
we build is going to have some permanence. We want to be able to
hold our heads up and say that Toronto is a city that is going to
be and remain, as Fortune Magazine said some years ago, the best
place in the world in which to live, work and do business, and,
we would like to add, raise a family. In my own role on the city
of Toronto's Olympic bid committee, 2008, I want to be able to
hold my head up and say, when the IOC people come here on March 7
to 10, that they will be looking at a city which has a strong
future in front of it, and when they vote on July 13, that we'll
be well positioned to say we'll win that bid and carry out the
Olympics properly.
But we've got a crisis at
this point in time in downloading. I understand that when the
original Who Does What exercise was taking place, there were two
elements that were being talked about. One is that at the end of
the day the responsibilities divided between municipalities and
the province should be revenue-neutral. The second is that it
should give clear areas of responsibility between the two levels
of government. I think in both those cases we've seen that there
has been a total failure.
I'm not here to throw
stones, although I'm sure I can feel strongly about a variety of
issues. I'm here to actually talk about what I think is a
fundamental error in judgment that's been made and to request
that that be critically examined to see how we can do things
better for the future to ensure the strength of our cities. The
strength of our cities is not just about megaprojects and
glittering towers that our people get excited about building.
It's not just going to be about fixing up the waterfront and the
commitments of both the provincial and federal governments to
contribute to that, along with the city putting in land. It's
about what happens on a day-to-day basis to the men and women who
live in the city, to their children as they go to school, as they
look at day care, as they try to ensure they get adequate health
care. We are in a situation now where the downloading in a whole
series of areas and the cutbacks are starting to impact on
that.
The biggest example, I'm
sure, is the fight that's going on publicly or has been going on
between the mayor of Toronto and various cabinet ministers and
backbenchers from the government on who is responsible for what
and whose fault it is. I don't think I want to get into that,
certainly not that tone, but in our submission, if you look at
the areas of responsibility in the city of Toronto-and I'm using
the city of Toronto mostly at this time to talk about something
which is part and parcel of the GTA, especially for Mr O'Toole's
benefit-the things that the city has to provide from its very
limited and fixed revenue stream are unbelievable: police, fire,
ambulance, transit, roads and highways, sewer and water, social
assistance, public housing, recreation, parks, sports, swimming
pools, child care, libraries, homes for the aged, garbage
collection and disposal, and so on. To have to provide that on
the basis of property taxes, along with some mixed contribution
from the province which always has strings attached and is always
limited, is just unbelievable as we are moving into the 21st
century.
What we're calling for here
is not to say that somebody is wrong in one place or somebody is
wrong in the other place, but it's to say that we need to
fundamentally have a new deal in how the province relates to the
large urban spaces throughout Ontario, particularly the city of
Toronto. That new deal is not just about municipal financing;
it's also about school and education financing.
The funding model that has
been imposed on the school boards, particularly in the city of
Toronto but also other boards that have older cities and older
schools, is unworkable. The concept of the square footage basis
per pupil doesn't work in old schools. You have in the Toronto
Star today a major article on overcrowding in portables in the
Flemington Park area. Portables aren't covered by the funding
mechanism.
When you've got a
population like the city of Toronto, where we are proud to boast
we have people from 169 different countries who speak 100
languages, the result of that kind of diversity, which is our
strength economically and socially, is that it has huge impacts
and burdens on the education system. So the city of Toronto's
education systems must have a responsible and rational funding
basis for them to carry on what they have to do.
It's not just about new
Canadians coming here that we have to deal with those various
social services. There's also the fact that if you're living in
northern or eastern Ontario or Atlantic Canada and things aren't
going well for you and work has slowed down, Toronto is an
economic magnet. We, throughout the GTA, attract a whole host of
people who are moving here from other provinces, and not every
one of them finds success. When they don't find success, they end
up being part of the cost of social service burdens that, again,
must be borne based largely on the property taxes that are
raised.
The figures the city of
Toronto has recently released show that of every dollar raised
from Torontonians in the form of taxes-income taxes, fuel taxes
and other taxes-a nickel, in fact less than a nickel, derives to
the city of Toronto through property tax, through its own
sources. All those other services we talked about before have to
come out of that nickel, which is absolutely crazy. Obviously,
that does not account for the education tax coming back, in the
footage, but it's not much more than that nickel.
So you've got a fundamental problem of an area
that everybody talks about as the economic engine, the economic
centre of this country, with a totally inadequate funding base to
be able to deal with the issues that are its mandate and
responsibility. Add to that the housing crisis, which in this
province affects Toronto, with a vacancy rate far less than 1%,
much harder than any other city. Rents are rising as tenants are
being evicted, and thanks to the Landlord and Tenant Act or the
Tenant Protection Act-whatever it's called-units are delisted and
rents have risen over 4% just in the last year. Thousands of
people are facing eviction every month, as it becomes more and
more in the economic interests of landlords to ensure eviction so
they can free up those apartments and raise the rents.
Affordability of housing
has gone down the toilet, essentially. There are all kinds of
high-rise condos being built. If you drive around here, there are
lots of cranes. We're really happy for the cranes, very happy for
those cranes. They keep the people we represent busy and give the
next generation we're trying to train as apprentices a job
opportunity. But the fact is that if all we are building is
luxury condos and huge, sprawling single-family homes in the
suburbs, we are not dealing with the issue of affordability of
housing.
One of the elements we
think the government of Ontario has to do is come back into the
housing area in a very real way. You have to come back and start
funding the creation of affordable rental housing. You have to
come back and get over the distrust and dislike by this
government of co-operative and non-profit housing. The studies
all said the costs were the fault of the developers who jacked up
prices on the land, not the cost of construction of that stuff
and not particularly the cost of subsidies. But the reality is
that we've now been waiting for six years for private sector
developers to start building rental housing, and they're not
going to do it because they can't do it at something that's
affordable on the basis of 30% of family income going to
rent.
We're saying it's an
absolute responsibility of this government to get back into the
affordable housing field. We've said the same thing, by the way,
to the federal government. We are also going to talk a little
about transit in a minute, and the message on that is the same to
the feds and the province. In our opinion, the downloading of
social housing, the downloading of Ontario housing on
municipalities, is fundamentally flawed even though it comes with
a chunk of money, because once again you're back to a base of
property taxes to pay for thousands and thousands of what were
formerly Ontario housing units, and the ongoing cost of those
things is going to escalate and put on more and more
pressure.
1510
I'm going to move on to
transit. In the decade between 1987 and 1995, we spent a lot of
time talking to anybody who would listen about the absolute need
to develop rapid transit in Toronto and in the greater Toronto
area, and the requirement for seamless transportation through
there in order to deal with what would become transportation
gridlock and trucking gridlock as the GTA expanded. For a period
of time, what was called RTEP, the rapid transit expansion
program, was on the books with four lines. In 1994 that was cut
down to two lines, and in 1995 that was cut down to one line, the
Sheppard line going from Yonge Street over to Don Mills. The
government of the day, in dialogue with Metro and the about-to-be
mayor, Mel Lastman, agreed to continue funding the Sheppard line,
as they had committed to.
But the reality is that the
Toronto Transit Commission is going broke. You can't have a major
subway system being paid for from the fare box at the level of
81%. It's a recipe for disaster. There is no other transit system
in North America that does not get funding for operating capital
from senior levels of government. We had the TTC as the premier
transit system across this continent and being given award after
award until the time it lost its funding source from the
province. Essentially, it's like a stranded entity at this point
in time.
We're saying, as part of
the 10 points we want to talk to this committee about, that the
province has to return to a funding formula of 75% for capital
costs and that we want you to support the operational costs of
public transit at a level of 30%. That's not just for the TTC;
it's for all public transit systems throughout the province.
As a society, we're
supposed to understand that we've got to deal with environmental
issues and transit issues in a much more progressive and
forward-thinking way than we have in the past. There are lots of
folks who want to build more and more highways, but the reality
is that if you want to deal with environmental issues and the
Kyoto commitments of this country, we have to move more people on
to public transit. The province of Ontario can't close its eyes
and pretend it doesn't have to be part of the solution.
We've got 10 points,
starting on page 2. Maybe I'll take you through them now. The
first one is the funding formula for capital costs and
operation.
The second is the social
housing monies. The federal government gave the province a pot of
change when it downloaded responsibility, and the province hasn't
quite found a way to pass all that change on to the various
municipalities. We think that should happen.
Housing: we think the
province should enter funding arrangements with non-profits and
co-operatives to provide 5,000 new affordable rental units every
year.
There needs to be a more
rational funding model for public and separate boards of
education that reflects the real need of providing full
educational opportunities for all children in Ontario. There has
been a lot of talk in the last couple of years about early
childhood education; Dr Fraser Mustard was the hero of the year
just before the last provincial election. That needs to be
followed up with funding to make those things happen, along with
a respectful approach to the boards of education rather than an
approach which denigrates the role of the boards of education and
their elected trustees.
Point number five is around
the environment. It's interesting-and you'll forgive me for
coming back to the
Olympics-but I think people in this House sometimes view comments
from the trade union movement as something that can be easily
ignored. The reality is that one of the three pillars of the
Olympic bid is the environment. It's required by the IOC. We have
had a continual crisis around the environment in this province
since the massive cuts to staffing and funding of the ministry
and the ability to prosecute. The figure that came over a couple
of years ago of 1,000 violations where only two were prosecuted
is intolerable in the year 2001.
We understand we have a
responsibility to fully protect the water, air, soil and public
health of the people of Ontario and that the provincial
government has to play a lead role in that. So we're calling on a
return to the full staffing and funding for the Ministry of the
Environment-also the Ministry of Natural Resources, I suppose,
but that's not as much in the GTA issues-and to move forward on
ensuring that energy saving and pollution control measures are in
place to meet our share of Canada's Kyoto commitments.
The sixth point relates to
the specific element of the commercial tax level in the city of
Toronto. That's been an item for years and years. That's been our
problem, the unequal level of taxation on commercial properties
in Toronto. It is being evened out, but at this point today the
province of Ontario levies a far higher amount of tax on
commercial properties in Toronto than on any other city in this
province in order to fund education.
Am I getting in people's
way here; I'm not sure.
The Chair:
I'll manage the meeting sir, I think, if you keep continuing your
presentation. I don't need any help this afternoon.
Mr
Cartwright: Thank you, Mr Chair. That's very kind of
you.
The commercial tax should
be immediately dropped to the provincial average and allow the
city of Toronto to spread its property tax rates over from just a
single-family home over to commercial to balance that off so that
the family homeowner is not faced with the highest tax
levels.
We want to see provision of
funding for recycling and composting by municipalities to achieve
a 65% solid waste diversion by the year 2008. Nova Scotia is the
first province in this country to reach a waste diversion target
of 50%. It did that in only four years. Once it put its mind to
it and applied some political will to doing that, that was in
place. The province needs to actually move behind those kinds of
initiatives rather than flogging the Adams mine solution to death
and trying to jam that on to unwilling municipalities.
The seventh point is around
a general concern that we have over how we place Ontario on the
cutting edge of competitiveness around environmental
technologies. If you look at what's happening on the Ballard fuel
system, that's going to have a massive impact on how our whole
economy works two or three decades from now as you move away from
a carbon/petrol-based economy on transportation. There are other
areas that are equally important around building design, building
technology, what is called green construction, and we want
Ontario and its businesses to be at the leading edge of that so
they can garner the benefits of business opportunities and also
job opportunities.
On the SuperBuild, we're
very concerned about the mandate that much of the investment
there has got to be done in private-public partnerships. We think
the SuperBuild fund should be delinked and should be applied for
those facilities and infrastructure that are required.
The final recommendation
that we would have, which we made before to other different
committees, is that the province of Ontario should undertake a
complete energy- and water-saving retrofit of all government
buildings, including those controlled by agencies, boards and
commissions. That is an area that we worked on, pioneering in the
city of Toronto, about eight years ago. Of course, the massive
increase in utility costs and natural gas costs now show the
wisdom of spending a bit of money, doing the energy retrofit
today and bringing those savings so that in some cases you'll
have utility and energy savings of 60% to 70% as a result of
those changes, and that's going to be to the benefit of the
taxpayers as well as reducing the amount of electricity needed
and generated and reducing the CO2 emissions into our
air.
I'm going to allude a bit
about the gun to the head, because we've talked a lot about gun
to the head in dealing with some labour relations issues, and
move on to what I think is important for us to look at
collectively, regardless of partisan positions that people have
on either side of the House.
1520
From having a role in the
last nine years as manager of the Toronto-Central Ontario
council-again as I've said, of the people who build this city,
build the greater Toronto area-I've come to understand through
being on economic development committees, through involvement at
waterfront regeneration trust and other areas, just how complex a
large urban space like Toronto is and the vision that people have
been talking about, where we're moving away from competition
between nations and even regions and we're moving toward
competition of city states essentially, and a different kind of
role that cities are going to play in the 21st-century economy
and the 21st-century global life.
We are shortchanging
ourselves if we continue in a role that does not adequately
provide the financial supports for the kind of rich social fabric
that our cities have enjoyed and need to enjoy in the future, the
kind of economic diversity that our cities need to have, the kind
of infrastructure investment, the education investment and the
public health investment, that will allow Toronto and other
cities in Ontario to play a lead role in this century. I guess
that's the message I want to leave you with, and I hope that I'll
be able to answer any questions.
The Chair:
We have a couple of minutes per caucus and I'll start with the
official opposition.
Mr Kwinter: Thanks for your
presentation. I agree with virtually everything that you've said.
I have a problem with it, though, in that it would be a lot more
helpful to me as a member of the economic and finance committee
that's in a pre-budget hearing to at least have some estimated
costs of all your recommendations.
We had a submission earlier
today by a group called People for Education. They had a wish
list as well, but they costed it. So at the end of the day when
they left, we had an idea of what it was they were asking us to
find for them, so we had a quantitative amount.
When I look at your
recommendations, virtually every one of them has a cost attached
to it. You're asking the government to fund this, to fund that,
to do that. Have you done any work at all as to what this is
going to cost?
Mr
Cartwright: We don't have the resources to do the kind
of economic analysis that large organizations like the Bank of
Nova Scotia and others do. Much of the information that's there
is shared by other groups involved in the housing area, in the
transit area and in education, so I don't have numbers to put on
those.
But I guess, Mr Kwinter, I
also want to make it clear that I don't want to get bogged down
in the question of, is this going to cost $1 here or 98 cents
there? What we want to do is paint a picture about the
fundamental need for a new relationship between cities, large
urban spaces, and the province.
Rather than having that
message getting caught up in a disagreement over, I said it's
going to cost $180 million and somebody else said it's going to
cost $190 million, we want to bring to this committee-because as
I said, finances are politics and politics are finances-that
sense that there needs to be a different approach, that there
needs to be a fundamentally new deal struck between the province
and its cities and boards of education in order to ensure that
our cities are strong for the rest of this century.
The Chair:
Mr Christopherson.
Mr
Christopherson: Thank you, John, for your presentation.
It's interesting-you made how many recommendations?
Mr
Cartwright: There were 10.
Mr
Christopherson: You made 10 recommendations and, lo and
behold, not one of them is a tax cut. If you'd been here this
morning or yesterday, and certainly listened to the government
members and some of the people they've asked to come here to
speak, you'd swear that was the only thing that was going to
solve the problem of dealing with the downturn. Whether it
becomes a recession or not becomes academic actually. They're
saying that everything is tax cuts.
Your folks are recognized,
by and large, as receiving decent wages and decent benefits. Why
are you not suggesting that tax cuts are something that should be
of benefit? The government likes to say that it's not just the
very wealthy in Ontario who benefit; it's the average working,
middle-class family who benefits. You represent thousands of
those very families. How come it's not one of your
recommendations, John?
Mr
Cartwright: I guess there are a couple of reasons. One
is that what we're seeing happening is, as the costs are being
downloaded, the taxes are being shifted elsewhere. So instead of
taking it out of your pocket on a weekly basis, it now comes out
of your property tax or your new user fees for your recreation
centre, your swimming pool.
I remember in the early
1990s having debates with the federal Conservative government of
the day around cuts to unemployment insurance. The issue was:
"We've hit a deficit. Everything fundamentally has to deal with
that." What I have seen, and to the best of my understanding, is
that the actual total debt of this province has increased in the
last number of years, and rather than having a reduction in
revenue, which is what a tax cut represents, we would be
recommending the opposite: there should be no further tax cuts.
The deficit should be paid down once a new financial arrangement
is reached with our urban centres. Because all the tax cuts in
the world don't do you much good if your school is either
overcrowded or being closed or if your kids have to suddenly
start paying to be on a minor soccer team because the schools
can't any more afford to give you that park or that school ground
for free.
Mr
Christopherson: They don't do you any good if you don't
have a job, either. What we're seeing, of course, is that there
are literally thousands and thousands of people who, in the last
little while, have been given pink slips. For the government to
say, "We're going to solve the issue of the downturn by providing
tax cuts"-that's going to do absolutely nothing for those workers
and their families. As you point out, there are increased costs
all around them that they're paying for.
Mr
Cartwright: There's an element of this, too. Without
wanting to be a pessimist, the fact is that every day we pick up
the papers and there's a new story about layoffs in the auto
industry here, about downturns in the United States. I think we
have to recognize that it's easy to throw money around during the
boom, and when the boom ends, you've got to start talking about
how to pay for that. If you cut taxes and reduce your revenue,
which I understand has gone up something like 53% since 1992-the
government of Ontario's revenue-and you reduce the income by tax
cuts, when it starts to slow down and the American market no
longer wants everything you sell in the same way, suddenly you're
going to have a drastically reduced revenue. The result will of
course be demands for cuts to more social services, more cuts,
more downloading, and that's only going to hurt our people in the
long term.
Mr
Christopherson: Thanks, John.
Mr Doug Galt
(Northumberland): Thank you for your presentation. I'm
not going to criticize or get into a debate on the content of it,
but I'm curious how I should respond to my constituents. My
riding is Northumberland, the first riding immediately east to
the GTA.
You're talking about more
money for infrastructure in the city of Toronto or big cities. My
riding is about 50-50, whether they're in small towns or cities,
or on concession
roads. Those roughly 50% on concession roads are part of the
three million people in Ontario who pay 100% for the
infrastructure of water and septic systems. They also pay for the
inspection; there's no support or assistance for them. I'm going
to have to ask them for money to support the big city for their
infrastructure, from what I'm hearing from your comments.
I need to know from you
what I would say to them when I vote that way, if I was to vote
that way, to build the Toronto transit when they're on a gravel
road. I need to know how I explain to small-town Ontario-from
what I'm hearing from landlords, and I certainly know in the
apartment building my mother lives in near Kingston, the vacancy
rate is increasing significantly. There are affordable apartments
there. What do I say to those landlords who are putting money
into affordable housing in the city of Toronto? What's my
response? How do I explain myself as a politician, to answer to
them when I am asking them for money for what you're asking
for?
Mr
Cartwright: I guess you look them in the eye and you
say, "Do you want to go to Ottawa or Kingston or Toronto and see
something that looks like Detroit, or do you want to be able to
go down to the Eaton Centre and take in the theatre or do
something special or go down to a lacrosse game at the Air Canada
Centre and feel, `Boy, this is a great place to be'?" Because
that's really the kind of alternatives we're talking about.
A fundamental new deal
between the province and municipalities isn't just about the city
of Toronto; it's about all municipalities or regional
governments. As some people are always fond of saying, there's
only one taxpayer. So people, if they're going to end up paying
for stuff out of property tax and having it loaded on there-it's
still a cost to them, as compared to seeing services reduced,
education being reduced, and the general safety and economic
prosperity, because as Toronto is an economic engine, as we move
toward the reality-and this wasn't preached at me from labour
economists, by the way; this was somebody that Alan Tonks brought
up from Texas, back when we had Metro, talking about the city
state and how we have to transform into city states with very
strong regional economies and that's going to be the basis. The
hinterland in those areas will live or die based on that
prosperity.
1530
We also represent,
obviously, a ton of members who live not in the city of Toronto.
The majority of our members live in the 905, in fact, but those
members who live in Georgetown or Acton or Northumberland and
drive into Toronto and work at de Havilland Aircraft or work at
the General Motors plant, or who drive across the 401, are now
having services like the 401 provided to them by the taxpayers of
Toronto because the highways have been devolved to the city of
Toronto. If fire trucks have to come for a fire on the highway,
that's something that's now been devolved on to the city. So
we're looking essentially at a fundamental new deal that really
talks more about the integrity of urban spaces, of large urban
centres, because the reality is that's the changing nature of our
economy on a global scale.
Mr Galt: A
very large number on concession roads in my riding-
The Chair:
Mr Galt, we've run out of time.
On behalf of the committee,
gentlemen, thank you very much for your presentation this
afternoon.
CO-OPERATIVE HOUSING FEDERATION OF CANADA,
ONTARIO REGION
The Vice-Chair (Mr
Doug Galt): Our next delegation is the Co-operative
Housing Federation of Canada, president Joyce Morris and Michael
Shapcott. Maybe just state your names in case I didn't say them
clearly enough. Welcome. You have a half-hour in total for
presentation and questions from the three parties, which will be
divided up equally among them.
Ms Joyce
Morris: Thank you, Mr Chairman. Yes, you did get my name
right. I'm Joyce Morris, and with me is Michael Shapcott.
Thank you for the
opportunity to make a pre-budget submission on behalf of the
125,000 women, men and children living in non-profit housing
co-operatives across Ontario. I am the president of the Ontario
council of the Co-operative Housing Federation of Canada. With me
today is Michael Shapcott, our manager of government relations
and communications for the Ontario region.
I live in the New
Generation Co-op in Kitchener. About 30 families find our co-op
to be a good place to call home. If you were to visit-and, Ted,
I'm still waiting for that visit; I hope every member of this
committee will stop by-you would think that our co-op is a very
simple but pleasant single-family neighbourhood, well maintained
by residents who are obviously proud of their homes, and you'd be
right.
The 550 co-ops in almost
every part of Ontario come in lots of different shapes and
sizes-high-rises, townhouses, single-family dwellings-but there's
one thing that makes every one of them special: the members who
live in the co-op own and manage their homes. Housing co-ops,
much like farm co-ops, credit unions and our other co-op
partners, are based on the self-help principle. We work together
to operate efficiently as small, community-based businesses, yet
we also take very seriously our responsibility to provide
good-quality homes to low- and moderate-income people.
Since our appearance on
February 3, 2000, in front of this committee, there have been two
important developments regarding housing in Ontario that we would
like to address in our pre-budget submission for the year 2001.
The first is the Ontario Social Housing Reform Act, proclaimed on
December 12, which completes the transfer of provincial social
housing programs to municipalities. The second is the
province-wide housing crisis, which has grown even worse in the
past 12 months despite efforts by the Ontario government to
encourage affordable private rental construction.
The Ontario government transferred the cost of
provincial social housing programs to municipalities in January
1998. The Ministry of Municipal Affairs and Housing put the total
cost at that time at $905 million. Last year, the ministry
started billing municipalities for the cost of the provincial
bureaucrats who administer Ontario's social housing programs.
About 250,000 social
housing households are directly affected by the provincial
transfer. As the rental market deteriorates in almost every part
of Ontario, it is absolutely critical to protect this important
asset.
The decision to download
the cost of social housing to local taxpayers is a controversial
one, and it is still difficult to find any social housing
providers, municipal leaders, business representatives or others
who support it. Nevertheless, the government pushed ahead with
its plan. The passage of the Social Housing Reform Act starts the
process of transferring the administration of social housing
programs to municipalities. By June 2002, the transfer is
expected to be finished.
We join with municipal
leaders and others in saying that social housing programs should
not be funded from the municipal tax base. The province has the
responsibility, and the capacity, to fund social housing
programs. Our first recommendation to this committee is that the
funding for the entire cost of provincial social housing
programs, including the cost of administration, be restored to
the provincial level.
A significant amount of the
social housing stock that the province is handing over to
municipalities is already funded by the federal government. This
includes the housing programs transferred from Ottawa to Queen's
Park when the social housing transfer agreement was signed in
November 1999. The federal money goes to the Ontario government.
The province hands the money over to the municipalities. With the
federal government already paying its share of social housing
costs in Ontario, there is no reason why the provincial
government should not also pay its share.
The co-op housing sector
has a plan to administer co-op housing programs that was tabled
at the last federal-provincial-territorial housing ministers'
summit in Fredericton in September 2000. Our plan calls for a new
national agency that would administer federal co-op housing
programs. A high-level committee of officials representing Canada
Mortgage and Housing Corp, the Co-operative Housing Federation of
Canada and several provinces is examining this proposal. In
meetings with the last two ministers of municipal affairs and
housing, we have suggested that Ontario join this initiative by
transferring administration of provincial co-op housing programs
to this proposed new agency. Unfortunately, neither minister has
chosen to take up this plan. But whether the province embraces
our agency proposal or not, it should pay its fair share of the
cost of social housing by restoring provincial funding. The
provincial social housing program cost an estimated $905 million
in 1997, according to ministry estimates. Municipal taxpayers
should not be burdened with this amount.
Our second recommendation
is that the province immediately top up the critical shortfall in
the capital reserves of housing co-ops and other nonprofit
housing providers. The capital reserves for social housing are
supposed to be built up during the early years of a housing
project. They help pay for necessary repairs as the buildings and
their systems age. Any prudent homeowner puts aside a small
amount of money on a regular basis to pay for major repairs such
as a new roof or a new heater as they wear out.
The need for capital
funding is most acute in the former Ontario Housing Corp stock,
which was transferred to the municipalities on January 1 of this
year. Much of the housing was built more than two decades ago,
and repairs are needed to deal with the aging of the buildings
and their major systems. Most co-op and non-profit housing in
Ontario was built more recently. We have been able to build up
some capital reserves over the years. However, policy decisions
by the provincial government over the last decade have led to
serious shortfalls in co-op and non-profit capital reserves.
Queen's Park made a partial top-up several years ago, but the
shortfall remains.
There is no reliable
estimate on the dollar amount of the shortfall. Peel region did a
study in 1999 and, based on a local analysis, projected that the
provincial shortfall could be as much as $1 billion. This number
could be high, or it could be low. This is the amount needed to
top up reserves, not the annual cost.
Several municipalities have
started a detailed audit of the provincial social housing stock
in their communities. Co-ops are of course co-operating with
them. We expect that this process will, in time, reveal a more
accurate number as to the dollar shortfall in capital reserves.
What we do know now is that the shortfall is substantial and that
the province has a responsibility to make sure that capital
reserves are adequately funded before the transfer of Ontario
social housing programs to municipalities is complete.
We want to make a few
comments about the rental housing sector in Ontario. We think it
is important that this committee understand the scope of the
problem facing renter households in order to appreciate our
recommendations for the necessary solutions.
1540
The housing crisis has
grown much worse in Ontario since we last appeared before this
committee. Every indicator points to a crisis in the rental
housing sector that is generating more distress and increased
homelessness.
Overall, the Ontario rental
vacancy rate dropped in the year 2000 from 2.1% to a critically
low 1.6%. That means that throughout the entire province there
were only 10,000 vacant units out of a total universe of
611,000.
When the province stopped
the funding of new social housing in 1995 and cancelled 17,000
units that were under development, it said the private sector
would pick up the slack. In 1996, then Minister of Municipal
Affairs and Housing,
Al Leach, confidently predicted the private sector would build
20,000 new rental units in the greater Toronto area alone. Only
about 1,300 new private sector units have been built over that
time, and most of these are high-end rental.
The private sector has
failed to build even a fraction of the 17,000 units the Ontario
government cancelled in 1995. Canada Mortgage and Housing Corp,
using numbers from the 1996 census, estimated that Ontario would
need about 80,000 new rental units from 1996 to 2001 to meet the
needs of new rental housing. The private sector has built only
8,000 of these units, again much of it high-end rental.
The supply problem is made
worse by two additional factors. First, the demolition and
conversion of existing rental housing has reduced the amount of
housing available, even as the need grows. Hamilton and Ottawa,
for instance, have seen a net loss of hundreds of rental units in
recent years. This trend can only get worse as the effects of the
decision in 1998 to cancel the Rental Housing Protection Act
continue to be felt.
Second, as of 1998 the
province has cancelled more than 3,000 rent supplement
agreements, mostly with private landlords. The most recent
numbers are not available. Former Minister of Municipal Affairs
and Housing, Tony Clement, has said the province intends to
continue to cancel these agreements, which allow low-income
households to find affordable accommodation in the private rental
market.
On the income side, tenant
households in Ontario earn, on average, about half of what owner
households earn. In most parts of the province, tenant household
incomes have been stagnant or have declined in recent years.
Tenants have less money to pay rent, yet rents have continued to
increase. The latest rental market survey from Canada Mortgage
and Housing Corp shows that rents have increased in every part of
Ontario. In most places, rents are climbing faster than the rate
of inflation.
The supply squeeze means
there are fewer affordable rental units available for a growing
number of low-income households. The affordability squeeze means
that tenant households have fewer dollars to pay for growing
rents. So it's no surprise that homelessness has reached crisis
proportions throughout Ontario. Barrie, North Bay, Peterborough,
Ottawa, Kitchener and Toronto all report homeless shelters at or
near capacity. The biggest increases are in the number of
families, including children, that are homeless. There has been
an increase of 130% in the number of children in homeless
shelters in Toronto in the last couple of years. Every year,
about 1,000 children will crowd into homeless shelters in
Ottawa.
Over the years, the Ontario
government has offered a wide range of incentives to private
developers to build affordable rental housing. Rent controls were
gutted, which raised millions of dollars for private landlords. A
number of changes were made to development regulations. A $2,000
grant has been offered for every new private rental unit. In
March 1999, the province announced a new rent supplement program
to fund 10,000 new private sector affordable units. Money for
this program came from the federal government. According to the
latest figures, only 470 units have been funded to date. Last
September, the province realized the private sector was not
picking up the units, so it offered the program to co-ops and
non-profit housing providers. However, when the federal dollars
expire, the responsibility for the program will land on
municipalities. They will either have to cancel the subsidies to
low-income households or fund the units from the property tax
base.
The former Minister of
Municipal Affairs and Housing, Tony Clement, has acknowledged
that the private sector has not been building new affordable
rental housing, despite the provincial incentives. He even went
to Dallas, Texas, to see how the private sector is working there.
Dallas is not a model for Ontario, nor does the rental market in
the United States offer much hope. The shortage of affordable
housing is so severe that there are three low-income households
for every available unit, according to US federal figures. The
Texas Low-Income Housing Coalition reported just last year that
"Texas's worst-case housing needs are at an all-time high." The
US Department of Housing and Urban Development issued a major
research report on January 19 this year which reported that there
are "severe and worsening shortages of rental housing affordable
to extremely low-income renters."
In Ottawa, the federal
government is reported to be proposing a new cost-shared
federal-provincial housing program, with funding up to $170
million. This program may be announced before the provincial
budget. Co-op members have serious concerns about the proposed
design of this program, and we are communicating our concerns to
federal legislators. However, we believe that Queen's Park should
set aside a funding envelope of $50 million annually to allow it
to participate in a possible new shared-cost program.
Mr Michael
Shapcott: I'll continue, if I may.
This alone will not be
enough. Ontario should create a unilateral provincial social
housing program, as it has in the past. Provincial programs have
a record of success in creating good-quality, affordable
housing.
The Social Housing Reform
Act of last December allows municipalities to create new social
housing, but they need provincial funding. We're proposing a
two-part program based on one-time-only capital grants and rent
supplements for qualified households. This program would be
easier for municipalities to administer than previous provincial
programs and would deliver the units Ontario so desperately
needs.
Based on technical studies
of the cost of building new housing, a provincial grant of up to
$40,000 per unit would be sufficient to create new affordable
housing. In some high-cost areas the full amount would be
required, but in other parts of the province a smaller grant
would be required, as land and construction costs are lower.
Co-ops are willing to be
partners with the province in developing a new provincial housing
program. We have 30 years of experience in developing affordable
housing. We believe
that one-third of any new provincial units should be targeted for
new co-ops. Co-ops can make detailed recommendations on program
design in another forum.
Our third recommendation to
the committee today is that the province commit to a new
provincial housing program to deliver 20,000 new units annually,
and this would cost about $800 million.
In order to make sure these
new units are affordable to the lowest-income households and to
expand the number of rent supplement agreements, we're also
recommending that the province fund a total of 20,000 new rent
supplement agreements annually. As many as three-quarters of
these units could be allocated to the newly constructed housing
that would be built under our first recommendation, and the
remaining 5,000 units allocated to low-income households living
in existing private or not-for-profit housing. The total cost of
this package to the province would be about $100 million
annually.
The final number of units
that would be created will depend on the actual rents in the
various rent supplement agreements, but the overall spending
envelope would allow for a monthly supplement of slightly more
than $400 per unit. This would be a little less than what is
actually required in some of the bigger urban areas like Toronto,
but would be more than is required in other parts of the
province-for instance, in Dr Galt's Northumberland.
Our fourth major
recommendation to this committee is that the province create,
using provincial funds, a new rent supplement program to deliver
20,000 units annually at a cost of $100 million.
We'd like to end with a few
recommendations that we haven't been able to cost out, but we put
them before the committee for your consideration. We believe
there are other recommendations that also address other aspects
of the private rental market as they affect low-income
households.
First, we believe
additional staff and additional offices need to be added to the
Ontario Rental Housing Tribunal. Recently, there have been cuts
to staff, hours and locations, which make it more difficult for
tenants to gain access to this very important tribunal.
Second, we recommend to
this committee that the shelter allowance portion of Ontario
Works be brought to realistic levels. Shelter allowances for
welfare recipients were cut by 21.6% in 1995. The majority of
welfare recipients live in private sector housing, and I can say
to this committee that I don't know of a single landlord who cut
rents by 21.6% in 1995. With inflation, that cut now amounts to
almost 30%. Rents for welfare recipients have continued to
increase over the years, even as their shelter allowance has
remained the same, and those rates were barely adequate in 1995.
We believe the shelter portion of the welfare cheque should
adequately reflect the true cost of housing, because of course
the majority of welfare recipients do live in private rental
housing. We think this is an urgent priority, and we urge this
committee to accept that recommendation.
On behalf of Joyce Morris,
I thank you for the opportunity to make these submissions on
behalf of co-op housing members across Ontario. We look forward
to your questions.
1550
The Chair:
Thank you very much. We have time for a couple of questions each,
I guess; a couple of minutes.
Mr
Christopherson: Thank you both very much for your
presentation. Again, affordable housing continues to be a main
theme of everybody who comes in and talks about what is happening
to literally millions of people in Mike Harris's Ontario who
aren't benefiting from the tax cuts, which of course is the
broadest number of people.
I have to say, on the off
chance my mother happens to be watching, that I love co-ops. All
my public life I've been very active in social housing and care
passionately about the issue, but if I don't make that statement,
I'm in deep trouble. You never know when she's watching.
I have first-hand
experience, both as a local alderman and in my own family, to see
the difference. In the building my mom is in, she was on the
founding board. She served as president. She served as the
representative on the regional council of your federation-very,
very active. As I got to know the other women in the building,
this has just made such a tremendous impact on their lives. I
know that for virtually every one of them in that co-op, if they
weren't there, given their circumstances, this committee would
probably be ashamed of the quality of life those Ontarians would
have to live in. There are those who really prefer the co-op as
opposed to just any social housing because they like the idea
that it is their home. They set the rules, they do the work, they
take the credit and they take the responsibility. I can remember
the outcry in the neighbourhood. Remember NIMBY? This building
has turned out to be one of the biggest assets in that immediate
neighbourhood. I can never say enough, and I'm glad you're here
making the case.
I want to point out a
couple of things. I want to give credit to the Liberals, if you
can believe I actually said that, Monte. I know. Somebody help
Monte back into his chair. But when you passed the Rental Housing
Protection Act, I was an alderman on Hamilton city council, and I
can remember dealing with that legislation. Everybody was really
nervous about what this meant to people's freedom in terms of the
people who owned the building, and we all walked very carefully.
In most cases we still allowed it because there were other
overriding reasons, but there were times when it was the right
decision to say, "No, this particular building is not going to be
lost to the community. There's housing stock here. There's no
good reason for this, and we're going to maintain it." You know,
the hue and cry wasn't as big as you would think it would be from
those who weren't allowed to do whatever they damned well pleased
with their property, and that was the way they saw it.
To lose that act-and it
went quietly. Because there are so many big parts of the
revolution, there are so many relatively smaller pieces, but so
significant, that have been lost, and this is one of them.
I'll jump to my question. I had a lot more to
say, but I know the Chair's going to cut me off if I try.
You mentioned some numbers.
I watched some of the government members. You could see the
reaction on their faces when they heard $800 million. These are
big dollar figures. Would you just comment on your opinion of the
implications for our society on the economic side? The heart side
of things, even though it's St Valentine's Day, doesn't seem to
necessarily get through to the government members, but at least
let's try and reach their pocketbook. Would you just comment on
what we face economically in Ontario if we don't make a
substantive investment in affordable housing for those Ontarians
who need it?
Ms Morris:
I guess a lot of it still goes to the heart, but economically, if
you don't have a place to live-studies have shown that if you're
concerned about whether you are going to have a roof over your
head next week, you're not concentrating on your job, you're not
going to get ahead, you're not going to have that income.
You're looking at a rise in
health care costs. You're looking at a rise in childcare costs in
terms of fostering because parents can't cope. If I'm living on
the street, I'm going to foster my children because I don't have
a choice. Think about what it would be like if somebody told you
you didn't have a place to go home to; they asked for your
address and you couldn't give them one. That's the bottom line.
It affects everything in your whole life. It's your place, and if
you don't have that place, nothing else really matters.
Everything ties into this. This is the glue that holds everything
together. This is the keystone, affordable housing, knowing that
you have your own front door and your own roof and that your kids
have a safe place to live and a safe place to play.
Mr Arnott:
Thank you, Ms Morris and Mr Shapcott, for your presentation.
Thank you also for again extending the invitation for me to come
and see the New Generation Co-op in Kitchener.
Ms Morris:
I hope you will.
Mr Arnott:
I hope my schedule will permit me to do that before next year's
pre-budget hearings.
This process, as you
probably know, is being broadcast live on the legislative
channel, so people across the province are able to hear the
presentations of people like you and our responses. I was just
thinking that probably there are a lot of people who don't
understand the fundamental concepts of how co-op housing works,
how it's paid for and so forth. I was wondering if you would want
to, in simple terms, just give us a primer of how co-op housing
works in Ontario today for the benefit of the people at home who
maybe don't understand the fundamental concept.
Ms Morris:
Thank you for the opportunity. Co-op 101 in brief. Michael, why
don't you?
Mr
Shapcott: Housing co-ops are owned and managed by the
people who live in the housing co-operatives. Therefore, our
owners are in fact the people who live in them. We gather
together and elect a board of directors, and they manage the
affairs of the co-op.
However, to construct and
develop housing in Ontario or anywhere is an expensive
proposition. That's why the private sector's not doing it. It's
one of the reasons why co-ops have been unable, without
government support, to build. For instance, I just got today from
Statistics Canada the latest apartment building construction
price index for last year. They show that nationally, Toronto and
Ottawa lead the nation in terms of an increase in the cost of
apartment building construction. For co-op members, when they
come together to create their co-op, they need some support in
order to help with land costs and construction costs, and that
support is given in the form of capital grants to co-ops, which
in some co-op programs we've negotiated in the past with federal
and provincial governments are either fully or partly repaid. In
others, they're grants that are simply given out.
I want to say, going back
to Mr Christopherson's question, that there is a benefit in terms
of this public money invested in the housing co-operatives that
goes beyond just the creation of much-needed affordable housing
for the people who live in it. There are benefits in terms of
jobs. We did a study a few years ago which found that for every
1,000 units of new co-op or non-profit housing that's created,
about 2,000 or so person-years of employment are generated, and
about $45 million in tax revenue back to municipal, provincial
and federal governments. There's a substantial benefit in
economic terms as well as the social benefit of housing.
Housing co-ops are owned
and managed by their members. They remain a public asset, unlike,
for instance, condominiums, which are bought and sold and where
the price can increase. With co-ops, because they remain within
the ownership of the co-operative corporation, the price never
increases.
The Chair:
Thank you very much. Mr Kwinter, I have the same problem with my
chair. I think there's a lean in the floor at this end of the
room, so don't feel uncomfortable because you've got a similar
chair.
Mr
Kwinter: Thank you.
I was interested in your
comment about the summit that took place in September of the
federal, provincial and territorial housing ministers. The
proposal you made, is that just for co-ops or is it for all
affordable housing?
Mr
Shapcott: The proposal was strictly for housing
co-operatives. We're of course the Co-operative Housing
Federation of Canada. Our members are housing co-operatives. We'd
be delighted if other non-profit housing providers would join
with us, but at this point it's strictly a proposal we placed in
front of the federal government. There is a committee, composed
of officials from Canada Mortgage and Housing Corp, four
provinces, not including Ontario, unfortunately, and the
Co-operative Housing Federation of Canada that is negotiating at
the national level the details of that agency. Ontario was at the
meeting in the form of Minister Clement, but Ontario has not
participated in that to date.
Mr Kwinter: That's what I was
leading up to. When you say they chose not to take up this plan,
have they actually turned it down or have they just not
responded?
Mr
Shapcott: Maybe I'll turn this back over to Joyce,
because Joyce has attended meetings with two of the previous
housing ministers and the issue has been raised. I don't know if
we ever got a flat "no," but perhaps you could explain.
Ms Morris:
We didn't ever get a "no." What we got was, "Send us a proposal.
We'd be happy to read it."
Mr
Kwinter: Has there been a proposal?
Mr
Shapcott: Yes.
Ms Morris:
To both previous ministers, yes. The proposal has been sent.
We've sent offers of, "Let me sit down with you face to face.
I'll answer your questions. I'll talk about the proposal." This
is like a whole new opportunity, because part of the problem of
course is that all the levels of government are saying, "We want
to get out of administration of social housing." We're saying,
"Pick us, coach. We'll do it." We've got the experience. We've
got the years. We don't have the funding. We need help with that,
but we've got the experience and we'd like the opportunity. We're
willing to take on the responsibility of managing this, and if
other forms of social housing want to join in, I don't see a
problem with that at all. I think we'd be happy to embrace all
facets of the stock.
The Chair:
On behalf of the committee, thank you very much for your
presentation this afternoon.
1600
NORTH YORK CHAMBER OF COMMERCE
The Chair:
Our next presentation is from representatives from the North York
Chamber of Commerce. If you could please come forward and state
your name for the record. On behalf of the committee, welcome.
You have 30 minutes for your presentation this afternoon. Go
ahead.
Mr Elie
Betito: Let me first introduce myself and my confrere.
My name is Elie Betito. I'm the president of the North York
Chamber of Commerce. I'm also a senior director of a company
called Apotex Pharmaceuticals, based in Ontario, with about 3,500
employees. The person sitting beside me is a director of the
North York Chamber of Commerce and also executive director of the
Black Creek Business Area Association. I'd like to start my
presentation by first saying thank you for allowing us the
opportunity to present.
The North York Chamber of
Commerce represents a broad range of business, primarily located
in north-central Toronto. We've got close to 1,000 members, but
60% of that membership is small and medium businesses. The North
York Chamber of Commerce and its business advocacy council has
been successful in isolating issues affecting business in the
Toronto area and identifying resolutions which meet the needs of
a diverse membership and still meet government mandates. It is
with great pleasure that we participate in this pre-budget
consultation process.
The North York Chamber of
Commerce would like to address four specific issues of concern to
our membership. These concerns include maintaining a competitive
climate, the creation of a strong Ontario transportation
infrastructure, an uncertain Hydro situation and fiscal
responsibility.
On the first subject, in
terms of maintaining a competitive climate, following world and
North American events over the last two months, the membership of
the North York Chamber of Commerce is concerned about the impact
that the looming American economic slowdown will have on Ontario
businesses. Over 90% of Ontario exports are to the US market, of
which approximately 40% are auto-industry-related sales.
Traditionally, these types of economic slowdowns have a relevant
spillover effect on the Ontario economy. Traditionally, as the
American economy moves into periods of stagnation or decline,
cities and states to the south of us become more aggressive in
pursuing our local businesses. This action is used to bolster
their sagging economy. Combine these incentives used to entice
businesses to relocate and compound them with our current
property and corporate tax inequities, and it becomes quite
difficult to retain businesses in Ontario and to attract new ones
to open facilities locally.
Under current provincial
Ministry of Finance and Ministry of Municipal Affairs and Housing
legislation, our cities are unable to compete in business
retention and attraction. One successful business development
program used by American cities and states which is
tax-revenue-neutral is tax incremental financing, TIFs. TIFs are
a proven effective method of supporting business investment and
promoting employment generation which has a minimal negative
effect on local and state/provincial budgets. Increased tax
revenue which is generated in a local area by local improvements
is partially recirculated back into the specific community to
spur further economic growth. The remaining portion is used by
the city as general revenue.
The North York Chamber of
Commerce urges the Ontario government to help businesses brace
themselves for a potential spillover of the American slowdown and
to help minimize the adverse impact on the Ontario economy and
the workers who make it possible.
In terms of the question of
property taxes and clawbacks, the North York Chamber of Commerce
would like to see the government take the initiative in levelling
the playing field for businesses in the city of Toronto by
exercising leadership, first in mandating municipalities to move
their tax rate structure to comply with the provincial range as a
fairness within a set period of time, and in creating a maximum
tax rate on business property throughout Ontario, not just among
the 416 and 905 areas.
Most of our members are
both business owners and residents in Toronto. We understand the
need to protect residential realty taxpayers from property tax
shock, but we also
understand the reality that if too many businesses leave, more
tax burden will be placed on the homeowner, and that adjustment
would cause a huge problem. Businesses are moving out, not just
from Toronto to the 905 area, but out of the province.
The North York Chamber of
Commerce is seeking provincial intervention in remedying the
whole gap between residential and non-residential tax rates
within Toronto. Businesses which are entitled to reductions in
their taxes under current value assessment need immediate relief.
They have been paying more than their fair share of tax for some
time now and they deserve to realize the full benefits of those
reductions. Tax relief after they leave Ontario is no relief at
all.
The North York chamber also
recognizes that other businesses will have their property taxes
rise dramatically under current assessment. The chamber believes
that measures can be taken to soften the blow facing massive
property taxes without relying on the clawbacks to achieve
this.
On transportation-I didn't
think I was actually going to make it today; it took me and hour
and a half to get here-the gridlock and congestion we have in
this city is a huge problem from a business perspective. The
North York Chamber of Commerce applauds the provincial government
on its recent commitment to create healthy community policies
which address everything from land use planning to adequate
provincial transportation infrastructure. It is not enough to
create a job. The proper consolidation must extend toward moving
the goods, bringing the labour force the facility and providing
proper living environments for the people who produce the
goods.
Our concerns continue to
focus on the preservation of employment property for employment
use and recognizing the importance of local employment
opportunities. The decentralization of employment areas has been
a vital ingredient to the success of Canadian cities over our
American neighbours. Policies must be created to protect this
occurrence and budgetary allowances must be provided to the
Ministries of Economic Development and Trade and Tourism to
become a full partner in the joint municipal program underway
aimed at rebuilding our local communities.
Getting people to and from
their place of business in a timely and efficient manner is an
integral ingredient to a successful, healthy economy. The North
York Chamber of Commerce is pleased to be managing the
Transportation Management Association in the northwest section of
the city of Toronto. It is a pilot project. The association's
mandate is to seek transportation solutions currently preventing
businesses from operating at full capacity. This is a public and
private partnership involving the North York Chamber of Commerce,
York University, Bombardier, Knoll, the city of Toronto and the
city of Vaughan, as well as other interested parties.
We encourage the province
of Ontario to join our efforts in creating solutions to traffic
gridlock and alternative forms of employee transportation. The
benefits of this successful pilot project are more efficient
local transportation infrastructure and a healthier environment
and employee base. The applications this association creates can
be duplicated in other regions across the province where needed.
We are doing a pilot project for all of the province.
Consolidated provincial
transportation infrastructure plan: as part of the successful
healthy community strategy, a fully integrated provincial
transportation infrastructure must be developed. The North York
Chamber of Commerce is seeking you to take back jurisdiction over
transportation from the municipalities. A strong inter-municipal
transportation infrastructure is required to ensure a strong GTA
regional economy. Products and goods are manufactured by
companies with plants across the GTA and southern Ontario, yet
there is no coordinated transportation system in place to support
people or product moving between the locations.
Public service and rail
transportation is limited to moving people from the peripheries
to the core, but not between our employment modules. This is a
prime ingredient for development sprawl and the promotion of
private car use. Only the provincial government, working with
both federal and municipal partners, can efficiently and
effectively create a regional transportation infrastructure which
includes land, water, rail and air transportation covering
southern and central Ontario.
1610
The North York Chamber of
Commerce also encourages a provincial and federal transportation
infrastructure partnership to gain access to the federal monies
set aside for transportation and for the environment under the
Kyoto accord.
The federal government
currently has a budget surplus. If the looming American recession
spills over into Canada, this will be the time to focus our
efforts on rebuilding our provincial transportation
infrastructure to take us into the 21st century. The job creation
from such an undertaking should more than compensate for any
shortfall from the auto industry. The result would be strong
Ontario and Canadian economies, resulting in a dominant place in
the global economy, once the American slowdown has passed.
Another important area,
from our perspective, is the privatization of Hydro. The
privatization of Ontario Hydro and the creation of private
distribution corporations is a major concern of businesses across
Ontario. Let us not fall into the same situation as California.
corporations and smaller businesses are suffering because of an
uncertainty regarding future power supply and rates. Stable
energy sources and costs are essential for a strong and
prosperous economy. The chamber urges you to revisit the subject
of energy creation and distribution across this province.
On fiscal responsibility,
the North York chamber would like to applaud your success in
balancing the provincial budget. We anticipate the efforts you
will make now toward reducing the provincial debt. Minimizing the
debt will help us place the province on a strategically global platform and
progressing through the 21st century.
The members of the North
York chamber are counting on your leadership and innovation to
carry us through the current fluctuating economic environment.
Our commitment is to work with you in ways possible to see our
great province weather these economic times and come ahead. Our
membership welcomes the opportunity to contribute expertise and
advice on provincially related business issues. This is a time of
opportunity, a chance to raise the province to a position of
economic stability required to maintain our premium standard of
living. We are here to participate and we thank you for listening
to our presentation.
The Chair:
Thank you very much. We have approximately five minutes per
caucus. I'll start with the government side.
Mrs
Molinari: I'll start, and I'm sure Mr O'Toole has some
comments as well.
Thank you very much for
your presentation. You've indicated a number of challenges that
we have and that we're going to be facing. Transportation seems
to be the continuous one. I live in the city of Vaughan, so I
drive here on a daily basis. It's only about 22 kilometres but it
does take me an hour to get here all the time. So I experience it
on a daily basis. Certainly, my constituents as well have called
my office quite often from their cellphone when they're stuck in
traffic and indicated all of their frustration.
York region, as a matter of
fact, has just recently set up a York region transit system,
which hopefully will assist in some of the gridlock within York
region. The Greater Toronto Services Board also has some
responsibility for this. Are you familiar with their work so far,
and can you give some suggestions and some input on what they
should be doing and what they should be looking at to resolve
some of the issues you've indicated?
Mr Lorne
Berg: Sure. The Greater Toronto Services Board has been
a good start. They've been around for, I believe, three years
now. They are looking at different issues, transportation being
one of them, other types of services also included in this,
consolidating all the different types.
The project that is
currently being worked on, the Transportation Management
Association, that was mentioned in the presentation, is one that
Vaughan is actively participating in. These are linking up
different forms of transit, different forms of transportation
systems together so that they all work together and people don't
have to come down or into locations separately. They're looking
at carpooling, buses types of things, private enterprises of
moving people between locations.
One of the projects that
hasn't been looked at extensively through the GTSB is the smart
pass, but that's one of the projects that is being promoted at
this point. That's linking all the transportation systems-Vaughan
Transit, Brampton Transit, Toronto Transit Commission,
Mississauga Transit, all those together-so that it's a
one-fare-type system that covers the whole region. This is a
great starting point because they're in place now. It's just a
matter of finding a way of consolidating the management and
financial running of that system.
Mr
O'Toole: Just very quickly, on the Hydro or power supply
question, I just want to put it on the record clearly that the
issue really isn't a privatization question; it's a deregulation
question. I'm not trying to be smart. Also, clearly, it's
absolutely the opposite equation than California. We have a
supply surplus actually and we're at excess capacity. The
Macdonald commission was started extensively to look at moving
the debt around.
Without it sounding so much
like a lecture, because the public is watching, about 60% to 70%
of California's power is natural gas. In their first deregulation
they froze the price, but those real costs were never passed on
to the consumers and were carried as debt of the generators. The
generators themselves are just loaded with debt, so the state has
stepped in and is now buying the natural gas. The price of
natural gas went through the roof. Our baseload is about 70%
nuclear, which is, at the kilowatt rate, the lowest, cheapest and
most efficient, apparently, on the planet. So I think it's
important to get that on the record.
Our issue, on the retail
side, is making sure that Hydro One-that's the old Ontario Hydro
retail-doesn't set up a monopoly. I'd like your reaction because
you're absolutely right: the actual sustainability and
predictability of price as a cost of doing business is critical
to you. I'm interested that you commented on it, but I hope you
see that the government's attempt was to create competition, hold
prices down, and there are some things on the generation side as
well.
Mr Betito:
We agree and we accept your comments. From a large business-look
at us; we have 14 facilities across this city-it's important to
have stability in pricing because, as you know, you have to plan
for your next year's costs and so on. We're just raising the flag
that we're concerned that if that issue-we know it's not the same
as in California but we need to have it looked at and looked at
carefully by the government.
Mr
Phillips: I appreciate your presentation and I
appreciate the work you do on behalf of Ontarians and the people
of North York.
I'll start with the
property tax. The Canadian Federation of Independent Business was
in this morning to talk to us about this. They point out that for
the businesses in North York, you're paying more property tax to
the province, Mike Harris, that your property tax for education
is higher than your property tax for municipalities. In fact,
they point out here that if you're an industrial building worth
$200,000 you'll be paying to Harris, in the provincial education
property tax, $10,300 and to Mel and the group $9,546. I don't
think a lot of businesses know that or have recognized that the
bill they pay in property taxes, more than half of it goes to
education and the rate is all set by the province. Mike Harris
sets that rate by what's called regulation.
That business in Toronto pays $10,300. If you
crossed the border into Mississauga, you'd be paying
$6,200-identical businesses-and if you go up to Parry Sound, an
identical business; you'd be paying $1,900. This is all CFIB
documents.
As I say, I'm repeating
myself slightly here, but for the chamber, I think sometimes your
members may not all appreciate that when they get a property tax
bill, over half of it goes to education and all of it is set by
Mike Harris.
My question will be this:
Have you met with the government officials and said, "Listen, on
property taxes, over half goes to education. You're setting it
all. You told us that there would be equity across the province,
but I see that I'm paying $10,300, an identical business across
the road in Mississauga paying $6,000 and up in Parry Sound
paying $2,000"? Have you raised that issue with the government in
your meetings with them, and have they given you any indication
what their plans are to correct that?
1620
Mr Berg:
Yes. Actually, for the last 18 months we've been participating on
the city's business reference group on property tax reform. We
were part of the group that put in the recommendations to the
province for a set of tools on how to remedy the tax situation.
Our members are aware of this split in the bill and which part
goes to who. That is something that we've been quite clear on
whether it be through our newsletter, reporting back to our
association or through meetings. We've met with Mr Young twice
already on this situation and Mr Eves once. We've met with the
city staff on this issue. Yes, we're well aware of the figures.
We do also realize that on the municipal end the tax rate is
quite high in relationship to the places that you mentioned. So
both ends have to be adjusted to bring Toronto and North York on
to a level playing field with the rest of the province.
Mr
Phillips: On the Hydro issue, I wish I could be as
confident as Mr O'Toole is about how well this is going to go. I
would just say the fact that the launch of the deregulation has
been delayed twice always causes one some unease. The generating
part of Ontario Hydro has frozen rates for five years, but the
only way they were able to do that was to do some things with the
books that the Provincial Auditor said did not follow normal
accounting practices. They used something called their special
privileges to essentially pre-write off a bunch of expenses. So
there is a perception there is a rate increase buildup there just
waiting for the deregulation.
I just got my own Hydro
bill recently and the distribution part of it looks like it's
gone up about 15% to 18%, just on the distribution part. Because
distribution is a relatively small part of your bill, it doesn't
look like much in total. We don't face the same situation as
California did, which is shortage of production, but my
understanding is that certainly all the new generation can be
sold into the US, if they want to. So I'm not sure of all of the
protections.
I think your suggestion
here is, and I believe that we in the Liberal caucus have
suggested, that the committee that's looked at this in the past
may want to re-look at it, just to update themselves, allow a
public airing of it, as I say, because there an enormous unease.
The government got out at the end of the diving board, looked
down, didn't like what it saw, got back off the edge of the
diving board and went back out again, looked and backed off. I
think it causes all of us some unease, but particularly the
business community that is used to some certainty. So we in the
Liberal caucus would follow up your suggestion. As I say, I think
there's a way to do that in some public forum so that there can
either be the comfort for you or, if it's a problem, we can
become aware of it.
Mr Betito:
I'd just add a comment to Mr Phillips's situation. We, as a
company, were approached by a state to move part of our
facilities and they were offering no hydro rates for five years
and all kinds of other issues. So we are in a very competitive
situation, as we've said in our brief. It is very clearly a
situation that businesses need to know where their costs are
going in the next few years. We want to re-emphasize that. That's
why it's a very important element. We appreciate where you're
coming from.
Mr
Christopherson: I'll just pick up on the last point that
was raised, because I was going to mention that also in terms of
the bonusing that American cities are allowed to do under their
laws. I know the government has indicated they are planning to do
a complete rewrite of the Municipal Act, which is going to have
incredibly significant implications, depending on what they
do.
Having served on a local
council, I've dealt with the frustration of not being able to do
anything, and there are times when you want to be able to provide
some incentive. But when you stand back and take a deep breath,
you realize that at the end of the day it's probably best that we
don't have bonusing allowed. All it really does is pit your
community against my community of Hamilton, and at the end of the
day some Ontarians are still going to be the losers. That's not a
game we want to get into.
I just wanted to touch base
and see if that's still where you are, or is your thinking
changing around that?
Mr Berg:
Our membership is not endorsing bonusing. What we look at are
factors that are enticing our businesses out of Toronto, out of
Ontario and out of Canada, and what is needed to keep them here.
We don't believe that bonusing is the way to go. Historically,
what happens in the States is that a company will be enticed to a
certain city for tax relief for 20 years. Once that 20 years is
over, they hop to the next city that's offering a 20-year term.
That's not the solution.
One of the systems that was
mentioned in this presentation was tax incremental financing.
That does not go directly to the business; it goes to the area
the businesses are in. It's based on an area being defined as an
employment area, a total assessment being taken of the area and,
knowing the revenue-generating capacity of that area, infrastructure money being
invested into it by municipalities, the provinces and the federal
government-or, in the American situation, by states and the
United States government-and then benchmarking from there the
increases in assessed value over a specific period of time.
What happens traditionally
is that the area's assessed value will rise. A percentage of the
increased revenue will be recirculated into that area to help pay
for further progress in the area, and the rest will be reabsorbed
into the municipality it comes from-whatever revenue goes to the
province or state that it's in. So basically everybody wins out
of that situation by a small investment in the area. What happens
is that the areas then start attracting more businesses, or the
ones that are on the fringe of either expanding or leaving
usually end up staying in those areas and expanding. So it
solidifies these areas as employment areas, which in turn creates
more income for the different levels of government. It's not
paying a company to stay in; it's actually developing the
environment where the businesses want to stay.
The other thing is the tax
situation, which is driving businesses out in that it goes for
the education and municipal portion. It's just impossible at this
point for businesses to know what's happening. Three businesses I
deal with are each experiencing $1 million in clawbacks per year
in their taxes. That $1 million is being used to subsidize
someone else who has a cap on their taxes. So they are overpaying
quite a significant amount to keep someone else in business.
Those are the types of issues that help keep businesses where
they are in Ontario, in Toronto and in North York.
Mr
Christopherson: I would underscore tax reduction. We
have the same situation in downtown Hamilton. The one thing we
were going to benefit from the reassessment was that finally the
property tax rates would be where they should be. They are
strangling right now. If you have to rent a property in downtown
Hamilton, you can't rent it for the amount of money it costs you
just to pay your taxes. It's the same thing in Westdale. We have
the same situation as you. There are other areas that are capped
in terms of their increases, and nobody wants to see them
damaged. But the government is the one that started this whole
process, and to continue to leave areas like downtown Hamilton,
and I use the word advisedly, in a depressed sort of mode is
wrong, and I know it applies in other communities.
1630
One doesn't have to be a
business owner or a member of the chamber to appreciate that the
property taxes in downtown areas in a lot of our older cities are
so far out of whack that businesses are leaving-you'd have to be
blind not to see them leaving-and we're not getting new
investment coming in because other communities nearby, along the
QEW, have the ability to compete because they are at the other
end of the deal. They've got newer areas, new development, they
are closer to the centre of the province, meaning Toronto, and
it's deadly for us.
I want to underscore the
support we in the NDP give to that statement and the comment that
something has to be done about accelerating that. If you just
wait till the end-I think they accelerated it and beefed it up
from eight years to five years in the last budget announcement.
But even at the end of five years, the amount of devastation I
can see happening in downtown Hamilton breaks your heart, because
people want to invest, especially with the new city.
The Chair:
Gentlemen, on behalf of the committee, thank you very much for
your presentation this afternoon.
GREATER TORONTO HOTEL ASSOCIATION
The Chair:
Our next presenter is the representative from the Greater Toronto
Hotel Association. Could you please state your name for the
record. On behalf of the committee, welcome. You have 30 minutes
for your presentation.
Mr Rod
Seiling: Thank you for the opportunity to appear before
you today. My name is Rod Seiling. I'm president of the Greater
Toronto Hotel Association. My intent is not to read my
presentation, which I have distributed to you today, but rather
just to table it and briefly go over some of the more important
areas for you.
Just a quick overview:
industry performance over the past number of years is much
better-remarkably better, in fact. It's hard to believe that just
six short years ago the industry here in Toronto and across
Ontario was virtually bankrupt. There are a number of reasons for
that, one of the major reasons being the tax policies of the
government. Cuts in corporate income tax and personal income tax
have been very important. When you are an industry whose
customers require disposable personal income, putting more money
back in your customers' hands is always a good move. So that's a
very important factor in this.
Corrections to the Ontario
property tax system are starting to bear some fruit, as well as a
recommitment to tourism marketing via the Ontario tourism
marketing partnership. While it's going to take years to reverse
the damage done by cuts in the tourism marketing budget over
previous years, it can be done. The federal government moved
Canada from 13th place to seventh place in international
arrivals, so we know that formula can and will work.
However, we do have some
concerns. At the height of the business cycle, return on
investment is still insufficient here for new investment. New
investment is going to other areas where returns are better.
However, as I said, the industry does appreciate the work of the
government. We view it as work in progress.
You've got to continue to
cut your taxes and, in that vein, we are very appreciative of the
statement made by the Minister of Finance, Mr Flaherty, yesterday
of the government's intention to continue on that announced
stance. We applaud the government for its leadership in this area
and urge it to continue to prod the federal government to do the same. In the
end, Ontario and Canada must be seen as an attractive place for
investment and job creation. We need to be competitive on a wide
range of fronts: on taxes and on continued investment in
infrastructure, especially health, education and
transportation.
Now to the specific areas.
Profit-sensitive versus profit-insensitive taxes is an important
principle here. We want to focus and urge the government that it
keep its attention on profit-sensitive taxes. Property taxes,
capital taxes, minimum corporate taxes and payroll taxes are all
insensitive to profit and act as a disincentive to attracting
investment. If you look at chart number 1, you can see that the
recent actions of the government are starting to move us in the
right direction as it relates to profit-insensitive taxes.
Property tax: Canada is the
undistinguished leader in property taxes. As chart number 2
shows, we are the leader as it relates to property taxes versus
the share of GDP. Unfortunately, Ontario leads the way in Canada,
and in Toronto we're the king. If you look at charts 3 and 4, on
page 6 of my presentation, you will see why no new hotels have
been built in Toronto in over 11 years, despite an accepted real
need. You will see that we're basically the leader. If you look
at chart number 4, you are looking at almost 13% of revenues
going to pay property taxes. You can see why investors have been
reluctant to put any new investment into Toronto. However, we
want to commend the government for the steps taken to date. The
system has been broken, as I said, for over 30 years, and the fix
is not easy and will take time.
We have three areas of
concern. The first is an assessment issue. OPAC has shown little
desire or need to recognize the business value in hotel
assessments, despite the fact that there is business value in
every assessment. They have allowed a 3% deduction for management
fee, but it's woefully not relative to the actual business value
in every assessment. In fact, what's happened is that property
tax for hotels has become an income tax. As our revenues have
gone up as rates have gone up, our property tax has gone up and
our evaluation has gone up almost in lockstep. As I said, we
don't see any real break in that regard. In fact, it seems to be
worsening. So we urge the government to take a look at
recognizing the business value and give an order-the minister has
the ability to change the methodology for valuing hotels.
The second area is the
ratio of residential property taxes versus business taxes. Here
in Toronto, businesses pay eight times that of homeowners.
Compared to the surrounding area, which is about 50% less, you
can see the competitive situation that develops.
The impact on
competitiveness is not just here within the province of Ontario.
It also stretches across the country and to other countries
across the globe.
For example, the per room
tax on a hotel in Mississauga averages about $1,500. If you move
a couple of hundred yards down Airport Road, the only difference
being you're now in the city of Toronto, the same per room tax on
a very similar hotel is over $5,000. So you can see how that
impacts on competitiveness within the marketplace and also the
ability to attract investment here into Toronto. It's just not
there.
However, we do appreciate
the attempt by the government to inject some fairness and equity
into this system. The recent passage of Bill 140 hopefully starts
to address the inequity between business and residential tax
rates. Many municipal politicians have recognized their inability
to do it on their own and have said, "We need the province to do
it. We might yell a little bit, but they ultimately have to solve
this problem for us." So we congratulate former Minister Eves for
his fortitude in introducing Bill 140 and we urge the new
minister, Mr Flaherty, to monitor the situation very carefully
and, if further action is required, to move on it.
The other issue creating an
imbalance is the education tax. For businesses, the education tax
portion of their tax bill represents over 50% of it. Again, we
congratulate Mr Eves for accelerating the payment schedule for
this year. As I think you well know, the government instituted an
eight-year program to pay down the education tax so that
businesses in areas where they are over the provincial average
will get down to that provincial average. We urge Minister
Flaherty to actually move that ahead, to accelerate the program
even more, and to take one further step to ensure that the
municipality can move into that field, because we've seen that in
Toronto already-a request by the city for you, the government, to
move on the education tax to allow them to move into the field,
which literally defeats the purpose.
High property taxes inflict
a long-term negative effect which ultimately threatens the
economic viability of the industry here. Hotel investors expect a
competitive return on investment or they will, and do, invest in
other areas where they can get it. Operators know this and they
do what they have to do to try to produce that return. Sometimes
they are forced to cut expenses, which can impact on service. For
an industry that lives on service, this is especially damaging
and ultimately suicidal. You can end up turning a four-star
property into a three-star, and a three-star into a two-star and
so on. Toronto does not have a five-star hotel, you may be
surprised to learn, and there is a correlation between that and
property taxes.
Capital taxes: Canada is
the only major country that we're aware of that levies a capital
tax. Alberta has already recognized the damaging effects that
capital taxes can play on the economy as it relates to jobs and
investment and has announced a plan to eliminate it. Ontario has
sent similar signals inasmuch as it has set a schedule for
raising the threshold for small business over a number of years
from $2 million to $4 million. Capital tax can be a real negative
to attracting investment, as I said. Other countries, at least
major countries, do not have one. It represents an extra line of
tax, a tax that must be explained to potential investors. It's a
tax that is insensitive to profit. It must be paid even if you're
not profitable. Inasmuch as the tax calculation for capital tax
includes loans, you might aptly say it's a tax on debt.
Accommodation industry investors require a large
accumulation of assets to start up a business. As well, there is
a long road to profitability. Therefore, capital tax acts as a
major negative to attracting investors, especially when they can
go elsewhere where there is no capital tax to pay. We urge the
government to reduce capital tax rates as a first step in an
identified plan to eventually eliminating the capital tax,
period.
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Destination marketing:
Ontario has recognized the importance of tourism marketing as an
investment, as has the federal government. Such investments
provide new jobs and incremental tax revenues, and there is ample
evidence to document this and prove it conclusively. Ontario has
increased funding to the Ontario Tourism Marketing Partnership to
$70 million annually. Ontario can now leverage the federal
government's money in the Canadian Tourism Commission and its
$75-million fund.
The problem, however, is
inadequate funding at the local level, as both provincial and
federal programs are on a matching-fund basis. The problem
impacts on Ontario as it is not earning the returns it can or
should. I want to clarify: we are still earning a return; it's
just that it's not to the extent that it can or should be. Quebec
and British Columbia are moving into this void. Toronto, which
represents almost 40% of tourism in this province, is
underperforming. We're losing market share in the growth market
as, you should know, is the province. Its convention and visitor
bureau, Tourism Toronto, is seriously underfunded and ranks 43rd
in North America, and that figure continues to drop.
In 1998 and 1999 the total
number of visitors to Toronto was up about 5%, but we still lost
market share. Based on traditional market shares, that loss is
approximately 1.5 million visitors: 369,000 domestic, 784,000
from the US, and 381,000 from overseas. That represents a loss to
the economy here in the Toronto area of almost $670 million. To
the accommodation industry alone it is $337 million.
As well, it's interesting
to note, the province's share was an $85-million tax loss. But,
as I said earlier, this is not just a Toronto problem. While the
final numbers are not in for 2000, we do know that Ontario lost
1.2% in market share for the year while BC gained 1.6% and Quebec
almost 4%. It is as well interesting to note that the BC gain of
1.6% took place while Vancouver was basically shut down for the
summer with the hotel strike. As I said, the federal government
has proven that we can reverse the downtrends but it must be done
before it's too late.
Canada moved from 13th to
seventh in international rivals. Ontario has mirrored the federal
program. The problem now is we need to find funding for local
municipalities, local CVBs, to buy into programs so we can lever
both the Ontario Tourism and Marketing Partnership funds and the
Canadian Tourism Commission funds. In Toronto, it should be
interesting to note, hotels spend over $150 million annually
selling their respective hotels, so it's not a case of the hotel
industry not paying its fair share; that money is spent on
selling the property. We need the new funding to market the
destination. The municipalities cannot be expected to fund this.
Toronto already is giving $4 million; it used to give $8 million.
They have had to cut it back, as I am sure you're all aware, with
current funding problems. It is unlikely to give more and it will
likely give less.
We urge the Minister of
Finance to work with the industry to identifying a new funding
mechanism for destination marketing at the local level. With key
principles in place like dedication of all monies raised, a
return to source and limits on the amount each funder
contributes, we are sure that the industry can find a solution
working together with the government.
Access to capital: Access
to capital for the accommodation industry basically is
non-existent. The only funding that exists exists on a personal
basis. That means it must be fully secured. The Ontario bank
capital tax earn-back provision is not working. The community
small business investment funds focus on university research and
labour-sponsored funds basically focus on high-tech. We do not
have a recommendation, as greater minds than ours have worked
with this problem, but we do want to draw this problem to the
attention of the government. Without funding it's very difficult
to grow an industry.
Cascading taxes: Cascading
taxes, in other words, a tax on tax, are patently unfair. There
are two examples I want to draw to your attention: (1) in
Ontario, the 10% gallonage tax; and (2) federally, the GST on
gasoline. We urge the minister to drop the gasoline tax. The $35
million it raises is insignificant to the government but means a
lot to the industry where margins are in the 2% to 3% range. It
really means that wholesale pricing to the hospitality industry
is retail plus 10%. It also adds the perception that Ontario is a
high-tax jurisdiction, and this can be very problematic because
for many of the people who come here, whether it is on business
for a convention or on a holiday, we leave the perception with
them that this is a high-tax jurisdiction, and yet we're going to
go back later and try to convince them to invest in this
province.
Similarly, the GST on gas
works the same way: 70% of our business is still
rubber-tire-related, so with the GST increasing the cost of
gasoline, it's not just a problem for ordinary business but it's
a problem for the tourism business. We urge the minister to prod
his federal counterpart to do something with the GST on
gasoline.
Debt repayment: today's
debts, as you all know, are the future taxes for our children.
The government needs to remain vigilant regarding spending, and
we congratulate it for eliminating the deficit. We suggest they
need to identify a plan to eliminate the debt. This plan may
change with the business cycle. We also suggest it must continue
to invest in infrastructure, as I said: health, education and
transportation.
Quality of life is a major
factor in the investment decision-making process. Ontario must
continue to be seen as a place where people want to live and
work. We urge the
government to focus on this and to identify a debt repayment plan
along with a continued commitment to invest in
infrastructure.
Payroll taxes are among the
major negatives to hiring people. The government has shown
leadership in reducing the employment health tax, workers'
compensation fees and holding the line on the minimum wage.
Ontario needs to continue to advocate with the federal government
to reduce the EI premiums-they're an outright grab-on behalf of
Ontario businesses. We also urge the government to reduce
employer health tax premiums here to $600,000 to make it
consistent with the paperwork threshold.
GST-PST harmonization: I
referenced earlier the need to work to be perceived as a province
that is not a high-tax jurisdiction. A single line of tax instead
of two will help. In that regard, we urge the minister to look at
the possibility of harmonizing the GST and PST, as long as it
does not result in an increase in taxes to our industry.
In summary, the GTHA
recommends that the government focus on controlling spending and
reducing the tax burdens on corporations and individuals and that
the focus return to profit-sensitive taxes.
Second, we urge the Ontario
government to ensure that the methodology for assessing hotels
for property tax purposes deducts the business enterprise
value.
Third, we urge the Ontario
government to continue to ensure municipal property tax rates for
business are fair relative to residents.
Fourth, we urge the Ontario
government to accelerate the paydown of the business education
tax to those areas still above the provincial average.
Fifth, we recommend the
Ontario government eliminate the capital tax or reduce the tax
rates as the first step in a plan toward elimination.
Sixth, we recommend the
Ontario government work with the industry to identify and
implement a means of revenue generation for destination marketing
at the local level.
Seventh, we recommend the
Ontario government eliminate the cascading beverage alcohol tax
and that it advocate to the federal government to change its
cascading tax application of the GST on gasoline.
Eighth, we recommend that
the Ontario government investigate ways and means whereby access
to capital for business investment becomes available.
Ninth, we recommend the
Ontario government outline a debt repayment program that includes
a recognition of the need for investing in infrastructure.
Tenth, that the Ontario
government continue to reduce payroll taxes in recognition of
their negative impacts on job creation and that it raise the
threshold for EHT to $600,000.
Finally, we recommend that
the Ontario government examine the feasibility of merging the PST
and GST, without an increase in taxes.
Thank you very much.
The Chair:
We have approximately two minutes per caucus, and I'll start with
the official opposition.
Mr
Phillips: Just a comment on the methodology for
assessment, and that's kind of a technical thing, Mr Seiling.
Advice from the committee would be useful, but I glanced through
it and my intuition would be that you have to work with the
assessment corporation as well.
I have many questions, but
your comments on focusing on taxes that are not-I think you
called them-
Mr
Seiling: Profit-sensitive, insensitive?
Mr Phillips:
"That the focus returns to profit-sensitive taxes." That
would run in the face of the thrust of the government, which is
to put the focus on corporate income tax reductions and personal
income tax reductions. Do you think it is wrong to be focusing
there? Do you think the focus should be more on the
non-profit-sensitive ones?
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Mr
Seiling: Two things, first on the methodology: quite
frankly, working with OPAC has been fruitless. They don't want to
acknowledge it despite the fact that it is a real fact of life
that there is business value. We're coming to the government
because we haven't made any headway with OPAC.
In terms of
profit-sensitive versus profit-insensitive, we believe the
government has been focusing in that direction. In dealing with
companies that look to invest in this province, prior to the
announcements, our tax rate structure was uncompetitive. We
simply weren't getting the investment. The taxes we're talking
about were put in under previous governments. I understand why,
some of the facts, it was put in. I don't think it made sense
because it has been a disincentive to invest. I think ultimately
the government is going to have to look at it, because when you
talk to people who do invest and you try to explain to them why
they have to pay tax if they didn't even make a profit, and they
have to include their loans in that tax, it's a very difficult
sell, especially when they can say, "I can go to another
jurisdiction and not have to pay this tax. I think I'm going to
head there."
I believe that it's
something the government has to look at. On the other hand, they
have to continue to work on cutting taxes to make sure that we
are competitive. We saw what happened in Alberta the other day.
We know in fact that some Canadian companies are already looking
to moving assets into Alberta, and so we need to make sure we're
competitive there. And, God forbid, if Mr Bush gets his
$1.6-trillion tax cut through in the United States, we've got
another problem on our hands.
Mr
Christopherson: I had a number of other comments and
questions, but I have to say that when you got to page 15 you
stopped me cold. You're recommending that the government hold the
line on the minimum wage. I'd like you to tell me in good
conscience how you can suggest that since the American government
has increased their minimum wage twice and theirs is now higher
than ours, how you possibly come in here and suggest that people
should continue for I don't know how long-it's already been six
years now-how can you suggest that someone should continue to
receive less than $200 a week to live on?
Mr Seiling: First of all I
don't think your comparison is correct. We compete here in
Ontario for workers by and large with other provinces in Canada,
and until such time as the other provinces get up to what the
minimum wage is in Ontario we won't be competitive. In fact,
we've found that if you continue to raise minimum wage, what you
do is eliminate job opportunities for young people.
We're in an industry that
employs many young people. We're the port of entry. We give
people their first jobs. We give people who are looking to
re-enter the workforce or new Canadians their first jobs. We give
them job skills, we give them life skills. Some of them will stay
in our industry lifelong. You can come in as a waiter and end up
being the president of the company, or you can come in and go
somewhere else.
But the fact is, simply
raising the minimum wage in actual fact, if you're getting it out
of whack, which it was in this province for some time, you're
doing a disservice to young people. They simply don't get hired,
because there is only a certain amount of money available in your
wage pool and people will just hire less.
Mr
Christopherson: I'm sorry, but the studies that came out
of the United States showed that that's not the case. That whole
argument has been made. I'm sorry, I'm shocked. You're the first
one so far who has actually come in here and said that it's OK to
keep people in poverty. I really have trouble with that, sir.
Mr
Seiling: Please don't put words in my mouth.
Mr
Christopherson: You're running on the minimum wage, sir.
That's what you're doing.
Mr
Seiling: No. They can start there, but they can move on
very quickly.
Mr Arnott:
Thank you, Mr Seiling. It's good to hear that the hotels in
Toronto are doing better, because you've made presentations to
this committee over the years and I remember some fine
presentations, but talking about the difficulty the sector was
having, and it's good to see that things are improving.
You have recommended that
we increase the threshold for businesses, in terms of paying the
employer health tax, to $600,000 of payroll. I agree that that's
something the government ought to consider, and I would hope that
we can do that in the upcoming budget. You've asked that this be
made consistent with the paperwork threshold. Can you explain to
me what that means?
Mr
Seiling: The paper threshold. When you file there's
a-I'm not an accountant so I don't want to get technical, but
there is a threshold for business under which that $600,000
you're filing is much different and all you would be doing is
making it consistent with that number.
Mr
O'Toole: I'm very fascinated. Over the course of
time-I'm sorry that Mr Phillips isn't here, but he's made some
references to the onerous industrial-commercial municipal tax
rate. I just want to make sure I've got this down right.
Apparently it's 8-to-1 commercial to residential in Toronto?
Mr
Seiling: In Toronto it's 8 to 1. It's about half of the
905.
Mr
O'Toole: We feel it's bad at 3.4 or something in Durham.
That's commercial to residential. I think it should be emphasized
that that decision is made-where? By the province or-
Mr
Seiling: No, by the city.
Mr
O'Toole: Oh, by the city of Toronto.
Mr
Seiling: The municipality sets its own tax rates,
yes.
Mr
O'Toole: But that would mean, say, if you want to raise
$1 million, and they're going to change apportionment, they'd
have to move it to somewhere else. If they lowered it to, say, 5
to 1, where do you think they would move that to?
Mr
Seiling: Under Bill 140, the city is limited to where it
can move things, and we're very appreciative of that change, as I
said. Many councillors have told us privately that they don't
have the wherewithal to do that because there isn't the political
will within the city, and I can understand that.
Mr
O'Toole: But it's easy to blame Mike Harris, though,
isn't it?
Mr
Seiling: I guess they need to blame somebody, but the
fact is, they have the power to set their own rates. We urge the
government not to change those hard caps, because certainly we're
aware that the city has been in to see various people within the
government, trying to make the hard caps soft caps, and it would
defeat the purpose of the legislation. Ultimately, if we're going
to get investment back into Toronto, you're going to have to
reduce the property tax burden on businesses. If you drive around
Toronto and you get rid of the condo cranes, you find hardly a
single construction crane on commercial or industrial building.
Drive around the 905 and there's all kinds of it. There is a
relationship.
I would also suggest one of
the reasons there's so much residential building here in Toronto
is, when you're faced with a residential tax rate of roughly 1.2,
and that number can vary from 1.4 to 1.6 out in the 905 area, and
if you're a builder looking at-
Mr
O'Toole: Guess where-
Mr
Seiling: Guess where you're going to build.
Mr
O'Toole: That proves the point, though, because the
condos in Toronto are taxed-
The Chair:
Mr O'Toole, we've run out of time. On behalf of the committee,
thank you very much for your presentation this afternoon.
TORONTO DISASTER RELIEF COMMITTEE
The Chair:
Our next presentation is from the Toronto Disaster Relief
Committee. Could you please come forward and state your name for
the record.
Ms Danielle
Koyama: My name is Danielle Koyama. I would like to
thank you for allowing me to make this pre-budget submission to
this committee today.
I'm presenting here today
not only on behalf of the Toronto Disaster Relief Committee, but
in memory of those who
could not be here with us today. I make this presentation in
memory of Al, who was found dead on a grate in front of Queen's
Park on February 4, 1999; in memory of 20-year-old Jennifer
Caldwell, whose burned body was found in the Don River valley in
March 2000, along with the remains of her charred sleeping bag
and her makeshift shelter; in memory of Stanley Fontaine, found
murdered in his sleeping bag in front of Osgoode Hall in
September 2000.
I make this presentation in
the hope that you truly consider the following evidence and take
the opportunity before you to help end homelessness in this
province.
The TDRC: who are we? The
Toronto Disaster Relief Committee is a group of social policy,
health care and housing experts, academics, business people,
community health workers, social workers, AIDS activists,
antipoverty activists, people with homelessness experience, and
members of the faith community.
We have worked with
homeless people, studied homelessness, served on numerous
committees and task forces, and have watched the homeless crisis
worsen daily. We have bandaged the injuries caused by being
homeless and have attended the funerals of many people.
Our founding members
include nurses, university professors, housing advocates, lawyers
and people who have homeless experience. Each member brings their
specific experience and expertise to the collective efforts of
the TDRC. Together we cover a wide range of the related issues
and speak for a large and broad community. This community
includes people who are or who have experienced homelessness,
frontline workers, activists and concerned citizens; and, though
centred in Toronto, spreads across the country. Our work has led
directly to the formation of at least two other organizations,
working hard and fast to end homelessness and ease the housing
crisis: the National Housing and Homeless Network and the British
Columbia Housing and Homeless Network.
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The TDRC is endorsed by
over 400 organizations, including the city councils of Toronto,
Ottawa-Carleton, Nepean and Vancouver, and the big city mayors'
caucus of the Federation of Canadian Municipalities, the Federal
Caucus of the New Democratic Party, the Canadian Housing and
Renewal Association, the Co-operative Housing Federation of
Canada, the National Anti-Poverty Organization, the Canadian
Labour Congress, the Canadian Auto Workers, the Canadian Health
Coalition and the Children's Aid Society of Toronto.
The emergency declaration:
by endorsing the TDRC, these city councils, national
organizations and citizens of Canada indicate their support for
our declaration that homelessness in Canada is a national
disaster. Our emergency declaration reads:
"That the provincial and
federal governments be requested to declare homelessness a
national disaster requiring emergency humanitarian relief and be
urged to immediately develop and implement a national
homelessness relief and prevention strategy using disaster relief
funds, both to provide the homeless with immediate health
protection and housing and to prevent further homelessness."
We are encouraging all
people, organizations and levels of government to explicitly
recognize homelessness as a disaster and to immediately take
appropriate action in all communities throughout the country. We
are also urging the federal government to declare homelessness a
national disaster.
Why is homelessness a
national disaster? We have asked ourselves these questions:
Why is this human crisis
not treated the same as other crises where people lose their
housing and have their family and community networks disrupted,
like the ice storm in Quebec and eastern Ontario, or like the
floods in Manitoba? Why are governments not responding to the
physical and mental harm, including death, caused by
homelessness?
Why are they ignoring the
spread of disease such as tuberculosis, HIV/AIDS and
hepatitis?
Why is it that our public
officials fail to recognize that tens of thousands of people
without housing and without adequate food and health care
constitutes one of the largest and most serious national
disasters that Canada has ever faced? Disasters, natural or
man-made, are not restricted to countries in the tropics, but
their consequences are similar.
The evidence that the
crisis of homelessness in the city of Toronto, this province and
this country has become such a disaster started to accumulate in
late 1995 and early 1996. This included serious overcrowding of
our day and overnight shelter system; a 38% tuberculosis
infection rate among the homeless; clusters of freezing deaths of
homeless people; a rise in overall morbidity, including
malnutrition; the spread of infectious disease; and a rise in the
number of homeless deaths.
A study conducted by Dr
Stephen Huang of St Michael's Hospital and the University of
Toronto's medical school found that homeless men in Toronto aged
18 to 24 had a mortality rate eight times that of the general
population, and men aged 25 to 44 had a mortality rate four times
as high. This is unacceptable.
Despite Canada's reputation
for providing relief to people made temporarily homeless by
natural disasters, our governments are unwilling to help the
scores of thousands of people in Canada condemned to
homelessness. We urge you to mobilize in the face of this
homeless disaster and come to the aid of this one's victims
before the next person dies.
What does it mean to
declare homelessness a disaster? Declaring homelessness a
national disaster and emergency allows all levels of government
to immediately implement emergency humanitarian relief and
prevention measures. The strategy must provide the homeless with
immediate health protection and housing, and it must institute
measures that prevent further homelessness. In any disaster,
people are provided with emergency assistance, then permanent
measures are implemented.
The solutions to homelessness, its elimination
and prevention are: housing-all homeless people require adequate
and appropriate housing they can afford; income-all homeless
people require enough money to live on, for example, a job, job
training, adequate pension or social assistance; support
services-some homeless people require support services.
The first such measure must
be a massive reinvestment in the construction of affordable
housing. Money spent providing expensive services to people
without a place to live is money down the drain.
Homelessness is a serious
human rights violation. All human rights violations are acts that
disregard human dignity and the rule of law. The moral and
ethical codes of the world's religions, international law, the
Canadian Charter of Rights and Freedoms, and federal and
provincial human rights legislation oblige Canadians and Canadian
governments to refrain from acts, omissions or other measures
that result in violations of human rights. The very existence of
people who do not have any housing is by itself a most serious
human rights violation.
On December 4, 1998, the
United Nations committee on economic, social and cultural rights
in Geneva, in its review of Canada's compliance, issued its
strongest criticism ever of any Western nation's human rights
record. This severe criticism of Canada reminds all nations that
the failure to address and prevent homelessness is a most serious
human rights violation. Eight paragraphs in the committee's
report on Canada refer to homelessness. One refers to the Toronto
Disaster Relief Committee's national disaster declaration.
In paragraph 24: "The
committee is gravely concerned that such a wealthy country as
Canada has allowed the problem of homelessness and inadequate
housing to grow to such proportions that the mayors of Canada's
10 largest cities have now declared homelessness a national
disaster."
Paragraph 34: "The
committee is concerned that the state party did not take into
account the committee's 1993 major concerns and recommendations
when it adopted policies at federal, provincial and territorial
levels which exacerbated poverty and homelessness among
vulnerable groups during a time of strong economic growth and
increasing affluence."
In March 1999 the TDRC
submitted a detailed report to the United Nations human rights
committee. This is the other of the two major human rights review
committees within the UN. The TDRC report had a clear and blunt
title, Death on the Streets of Canada: A Report to the United
Nations Human Rights Committee Regarding Compliance with Article
6 of the International Covenant on Civil and Political Rights by
Canada. This report helped draw the UN committee's attention to
homelessness, resulting in the following comment in the
committee's final report on Canada:
"12. The committee is
concerned that homelessness has led to serious health problems
and even to death. The committee recommends that the state party
take positive measures required by article 6 to address this
serious problem."
In addition, there was
enough evidence of the role public policy has played in Canada's
homelessness disaster for an embarrassed Canadian government
delegation to promise the UN to hold parliamentary hearings into
the human rights concerns of the committee. The UN committee
explicitly reminded the government of Canada of this promise in
the third paragraph of its final report, issued on April 7,
1999:
"The committee welcomes the
delegation's commitment to take actions to ensure effective
follow-up in Canada of the committee's concluding observations
and to further develop and improve mechanisms for ongoing review
of compliance of the state party with the provisions of the
covenant. In particular, the committee welcomes the delegation's
commitment to inform public opinion in Canada about the
committee's concerns and recommendations, to distribute the
committee's concluding observations to all members of Parliament
and to ensure that a parliamentary committee will hold hearings
of issues arising from the committee's observations."
The Canadian government has
not kept its promise.
Societies with homeless
people amidst great prosperity have established and are
maintaining homeless-creating processes: day-to-day normal
mechanisms which result in people becoming unhoused and remaining
unhoused, often for long periods of time. These are dehousing
processes. The most basic human rights of a group of people
within our communities are being violated. We cannot sit idly by
and let this misery and death continue. The time to act is
now.
The homelessness disaster
in Toronto and across Ontario: in Toronto the disaster is
flourishing. You will see it in a hundred ways every day,
including the people panhandling for spare change to survive; the
older men and women shovelling leftover casseroles from a soup
kitchen into little plastic bags to take home to their rooming
houses or squats; the wet sleeping bags left in a pile on a
street corner; the permanent homes erected in alleyways, on
grates, in squats, parks and under bridges; the church basements
that are now open for emergency shelter, filled with people
following a path of forced migration from church to church every
night of the week in the winter.
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There is no longer enough
room in Toronto's emergency hostel system to provide safe shelter
for this disaster's victims. On many nights, the city reports
that the hostels are totally full. It is dangerous and unhealthy
to run any shelter system at 100% capacity.
In Toronto, the largest
growing group of people suffering in this disaster are children
and families. The report of the mayor's Homelessness Action Task
Force, released a few years ago, tells us that families make up
46% of people using Toronto hostels in 1996. The Children's Aid
Society of Toronto found that lack of adequate housing was a
significant issue for almost one in five of the children coming
into their care. In the Toronto Report Card on Homelessness 2001, an
increase of 130% was found in the number of children in shelters;
6,200 children are living in shelters in Toronto.
The housing crisis looms
ever larger all across Ontario, bringing more and more people to
the brink of homelessness and then on to the province's streets.
Where's Home?-the most thorough study and the latest data on
housing conditions currently available-tells us that over 300,000
tenant households in Ontario are paying more than 50% of their
incomes on rent. Many tenants are at immediate risk of becoming
houseless. In most parts of Ontario, tenant incomes are falling
even as rents rise faster than inflation. About 16,000 new rental
units are needed annually, according to Canada Mortgage and
Housing Corp, but almost no new affordable rental housing is
being built. In Barrie, a town representative of many in Ontario,
there was a 1,235% increase in stays at homeless shelters from
1994 to 1998. The Mission shelter in Ottawa recently had to open
a palliative care unit to respond to the growing number of
homeless deaths.
The State of the Disaster
Winter 2000: A Report on Homelessness in the City of Toronto-this
is appendix A, which all of you have received a copy of. The
Toronto Disaster Relief Committee published the State of the
Disaster report in October 2000. This report concerns itself with
the dire situation in Toronto in the fall of 2000. Over 60
homeless women and men were interviewed to discover what it's
like to be homeless in Toronto. The situation they described is
disturbing and frightening. When asked for a solution to the
problems they described in the shelter system, the most
frequently given answer was this: "Open more shelter beds."
Overcrowding was one of the
most common problems experienced by shelter users. It related to
people's high stress levels and causes some people to be unable
to use the shelter system, both because they cannot get in and
because, if they could get in, they are unable to tolerate
crowded conditions. Overcrowding also contributes to rampant
infectious health problems such as continuous upper respiratory
conditions and skin infestations such as lice and scabies. It is
one of the primary causes of more serious problems such as
increasing tuberculosis infection.
Hygiene facilities, lack of
privacy and forced movement are other problems faced by people
who are homeless. Virtually every homeless person we spoke with
who was staying in a shelter had witnessed theft and violence.
Two out of three of them had personally experienced theft or
violence.
The most important reason
for the explosive increase in people living outside is the lack
of shelter beds in conjunction with the huge increase in
homelessness generally. People living outside have made it clear
that many of them fear the existing shelter system. For some
people, living outside becomes a rational decision, the lesser of
two evils. One of the most serious problems facing people forced
to live outside is the lack of security of living space. People
living outside are also less likely to have an income source. As
a result, they face more difficulty obtaining basic necessities
such as food, clothing or medication. The lack of hygiene
facilities is also a great difficulty faced by people living
outside.
As the recent epidemic of
homicides illustrates, homeless people living outside face a high
risk of violence. Since the end of May 2000, five homeless people
have been murdered in Toronto.
In concluding this report,
the Toronto Disaster Relief Committee made recommendations to the
city of Toronto to respond to the crisis in the shelter system
and on the streets. These recommendations included the order of a
moratorium on shelter closures; the opening of 1,000 new shelter
beds, which would increase access and decrease overcrowding to
ensure that the existing shelters and the new facilities at least
meet the United Nations' standards for refugee camps, as well as
the North American disaster relief standards.
Appendix B is a death list.
It is a sketch of known deaths of people who were homeless or
marginally housed. It is only a sketch, containing confirmed
information from reliable sources. There have been many more
deaths than these, but information is difficult to confirm.
During the year 2000, 35
homeless people whose names we did know died. A distressing trend
was the dramatic increase in murders of homeless people. Over a
five-month period, five people were murdered on Toronto's
streets. John Currie was beaten to death at University and
Dundas. Casey Smith was shot to death in Moss Park. Adrian
Fillmore had his throat slashed in a bus shelter. Stanley
Fontaine was found beaten to death on the lawn of Osgoode Hall.
Michael Tilley was beaten to death in a parking lot. None of them
had safe shelter when they died.
On June 5, 2000, Adrian
Fillmore was murdered in a bus shelter at the corner of Bay and
Wellesley. On June 8, there was a moment of silence in the
Ontario Legislature for Mr Fillmore. We would like to thank the
legislators for this, and we ask that you put your feelings into
practice by committing to real solutions to homelessness, so that
no more homeless people are murdered.
Evidence of the disaster:
disturbing evidence will now be presented to allow you to see for
yourself the disaster we are facing. The following is an example
of why we urgently need action.
Video
presentation.
1720
Ms Koyama:
This should not be our response to the growing crisis of
homelessness. We need immediate relief and long-term
solutions.
Emergency relief: in
September 2000, the Toronto Disaster Relief Committee met with
former Housing Minister Tony Clement. Following this meeting, the
province turned over the former Princess Margaret Hospital to the
city of Toronto to be used as shelter or housing for people who
are homeless. We commend the province for this initiative;
however, we ask that the province provide the needed resources to
convert this building
into affordable housing. We ask that the province continue this
initiative and conduct an inventory of surplus provincial
properties in Toronto and other cities to determine suitability
for shelter.
The additional money
announced by the province through the Off the Street, Into
Shelter initiative provided some needed resources. However, at
this point there is nowhere to go from the street. The city
shelters are running at 95%-plus capacity on average and
sometimes reach full capacity. There is no affordable housing to
go to.
Long-term solutions:
emergency response is necessary at this time, but it is not the
solution. The Toronto Disaster Relief Committee supports
proposals made by other organizations to restore funding for a
social housing program. We are asking for a new program to create
20,000 new units, which would cost $800 million annually. In
addition, we are calling for the province to fund a total of
20,000 new rent supplement agreements annually. This would ensure
that the new units are affordable to the low-income households
and would cost $100 million dollars annually. The total cost of
this initiative would be $900 million dollars annually. How much
are the lives of Ontarians worth?
The disaster of
homelessness has been compounded by the 1995 cuts to social
assistance. People can no longer afford to pay their rent and
evictions are skyrocketing. The Toronto Disaster Relief Committee
strongly urges you to restore the 21.6% cut and increase shelter
allowances for welfare recipients to reflect the realistic cost
of housing. In addition, we ask that access to the Ontario Rental
Housing Tribunal be increased. Additional staff and additional
offices are urgently required.
In conclusion, Ontario's
homeless are not a special-interest group. The homeless and
under-housed in Ontario do not constitute a special interest
group. We are not asking for favours or charity. Adequate and
affordable shelter is not a luxury; it is a basic human right
that is being denied to far too many people in the province right
now. You, the Ontario government, have the means to change that.
We urge you to act, and to do so immediately. It is your
responsibility to address these problems and crises. No one else
has the means to do so. We, the people of Ontario, through our
government, have both the means and the responsibility to act
now. For you do to anything else, and for us to proceed in any
other context, is to misinterpret why we elect governments in the
first place.
We ask that you provide
immediate emergency relief to the shelter system, provide the
necessary support services, implement a new social housing
program, build affordable housing, provide adequate income
support measures and end mass homelessness in Ontario. Thank
you.
The Chair:
Thank you. There are two minutes left. I'll have one question. Mr
Christopherson, it's your turn.
Mr
Christopherson: You know what I'd like to do, Chair? I'd
like to the give the presenter an opportunity to dialogue with
the government members. We're already on side; I think she knows
that. Why don't you ask them. Let's start getting some votes over
there to do something about this. Why don't you ask her a
question? Dialogue about this. Talk about this.
The Chair:
Does anybody have a question?
Mr
O'Toole: I appreciate your presentation. We've had a
number of presentations, as you probably know, using similar
numbers on the issue, and it is an important policy issue. I
think many say that all levels of government have a job to do
here.
It's not the appropriate
time to talk about comments made by Mayor Lastman yesterday that
may contradict some of the input you've given us here today, but
certainly, as I've indicated by reading the papers and paying
attention to my own community, it's not something I'm unaware of.
I think you've given us an excellent presentation and I
appreciate that.
Ms Koyama:
You're welcome.
Mr
Kwinter: I want to pick up on what my colleague just
said. I'd like to get your reaction, because I think all
governments have a responsibility, at the federal, provincial and
municipal levels. I was really quite disturbed to see the
reaction when the city council committee recommended that the
city provide 1,000 beds in shelters and both the budget chief and
the mayor said that there are 10% vacancies right now and there
is no need for these. Do you have a reaction to that?
Ms Koyama:
Obviously we were disappointed with the reaction of the mayor of
Toronto. All I can say is that a lot of evidence has been
presented to the city to indicate that we are in a crisis and we
need an immediate response. I just hope that at the next
committee meeting they do take part responsibility for ending
this disaster and vote in favour of opening those new beds. But I
agree, it's a responsibility of every level of government. So
today I'm asking you, as the Ontario government, to please
respond to this disaster.
The Chair:
On behalf of the committee, thank you very much for your
presentation this afternoon.
There is no announcement.
This committee will be adjourned until 10 o'clock tomorrow
morning.
