CONTENTS
Wednesday 13 February 1991
Appointments review
Brigitte Kitchen
William Blundell
Afternoon sitting
Neil Brooks
Gérard Lafrenière
Susan Giampietri
Adjournment
STANDING COMMITTEE ON GOVERNMENT AGENCIES
Chair: Runciman, Robert W. (Leeds-Grenville PC)
Vice-Chair: McLean, Allan K. (Simcoe East PC)
Bradley, James J. (St. Catharines L)
Frankford, Robert (Scarborough East NDP)
Grandmaître, Bernard (Ottawa East L)
Haslam, Karen (Perth NDP)
Hayes, Pat (Essex-Kent NDP)
McGuinty, Dalton (Ottawa South L)
Silipo, Tony (Dovercourt NDP)
Stockwell, Chris (Etobicoke West PC)
Waters, Daniel (Muskoka-Georgian Bay NDP)
Wiseman, Jim (Durham West NDP)
Substitutions:
Johnson, Paul R. (Prince Edward-Lennox-South Hastings NDP) for Mr Frankford
MacKinnon, Ellen (Lambton NDP) for Mr Silipo
Sola, John (Mississauga East L) for Mr McGuinty
Sutherland, Kimble (Oxford NDP) for Ms Haslam
Also taking part: Conway, Sean G. (Renfrew North L)
Clerk: Arnott, Douglas
Staff: Pond, David Research Officer, Legislative Research Service
The committee met at 1008 in room 151.
APPOINTMENTS REVIEW
Resuming consideration of intended appointments.
The Chair: I guess everyone has their coffee. We will call the meeting to order.
Mrs MacKinnon: I do not have a copy.
The Chair: You do not have a coffee?
Mrs MacKinnon: Oh, I am sorry. I do not have a copy of the --
The Chair: The agenda?
Mrs MacKinnon: I have the agenda, but I do not have the résumé.
The Chair: One second, we will find one for you.
Interjections.
The Chair: They have been supplied to all of the members, I believe. We will ask the clerk. Were the résumés provided to all the members? They have been?
Clerk of the Committee: Last Friday.
The Chair: Last Friday they were circulated to all of the members, but if you do not have any, the clerk has additional copies.
BRIGITTE KITCHEN
The Chair: Our first witness this morning is Brigitte Kitchen. Is that the proper pronunciation?
Dr Kitchen: It is actually Brigitta.
The Chair: Brigitta?
Dr Kitchen: It was anglicized. It is actually Brigitte originally.
The Chair: How would you like to be referred to: as doctor, professor, or any preference?
Dr Kitchen: I could not care less. I have a perfectly good first name, so Brigitta is fine.
The Chair: Okay. Would you like to make any brief remarks before we open the floor to questions from members of the committee? Any comments you would like to make?
Dr Kitchen: I am happy to be here. I am ready to answer any questions you have for me. So shoot away.
Mr McLean: Doctor, you have been recommended to this commission. I would like to find out your views with regard to the Premier's announcement and then the Treasurer's announcement with regard to the 8% tax on all businesses and corporations. How do you feel about that?
Dr Kitchen: These are the Premier's views. I am sure it will be part of what the tax commission is going to look at, but what our views are going to be would be too early to say. You know, we have not even met once.
Mr McLean: I would like your views with regard to taxation. A corporation or a business that makes $250,000 a year, do you feel that that corporation should not pay any tax?
Dr Kitchen: You are phrasing the question in such a narrow way that I have great difficulty answering it, you see, because there are principles involved and then there are particular circumstances of a given company. I could say that in principle one would say that everybody who has an income that was considered sufficient to pay taxes -- the old taxation principle, ability to pay. Then in principle one would say that such a company should be expected to pay taxes, but there may be special circumstances -- that this company is barely surviving, that it provides jobs for X number of people -- and then of course one would have to take a different look at it. But that is my position. I want to make it quite sure that I cannot speak for the commission.
Mr McLean: During the election campaign there was a promise of minimum corporation income tax, speculation tax and inheritance tax. Since the commission is being appointed, there has been some discussion that they may be backing away from that commitment. However, the Premier denied that his government is backing away from that promise that there would be these taxes, and I want to know your view with regard to a minimum corporate income tax, and that is on all corporations.
Dr Kitchen: Again I would say, in principle I would be in favour of a minimum corporate tax, but I would say that there could be special circumstances why I could see that a company would not be expected to pay taxes. That really is what the question is, you see: What is a fair tax that should treat individuals and companies equally fairly?
Mr McLean: That is the one I have a problem with, because there was a great issue made of Tridel Corp and all these large corporations that do not pay tax and the small corporations that do not pay tax and they were all going to be taxed. And now we are hearing and you are saying that under certain circumstances, but that was never a promise that was made.
Dr Kitchen: I am saying that what I say is for myself. I want to make it quite clear that I am not speaking for the government nor am I speaking for the tax commission, because as I have said, we have not even discussed what our position is going to be.
Mr McLean: I defer any further questions to Mr Stockwell.
Mr Stockwell: Sorry about arriving late and maybe this question was asked. You say you speak for yourself personally, so I take it you do not have any party affiliation.
Dr Kitchen: I do have a party affiliation, yes.
Mr Stockwell: Oh, and what party would that be?
Dr Kitchen: I support the NDP.
Mr Stockwell: You do?
Dr Kitchen: I do.
Mr Bradley: Three for three.
Mr Stockwell: Let me explore that a little further. Would you have, say, supported them last election financially or by working for them?
Dr Kitchen: No. I live in the Oakwood riding and I did not support the candidate there.
Mr Stockwell: Oh. So you belong to the NDP but there are some candidates you do not necessarily support. You are like a Conservative.
Let me just go into maybe the history of the tax system. I assume you have held some views on this subject in the past number of years on fair tax and unfair tax.
Dr Kitchen: What I have done is I have studied and written on the impact of the personal income tax system on families with children and with particular reference to single mother-led families.
Mr Stockwell: Do you know anyone else who has been requested to sit on the commission? Do you know anyone else personally or professionally?
Dr Kitchen: The only person I know professionally is Neil Brooks, who is a colleague of mine at York University.
Mr Stockwell: Right. What about, say, this unbiased review that the government has been speaking about? Do you think that with your particular background and position statements in the past, it will be a truly unbiased review of the tax system, or do you think we are coming at this maybe with a little political bent on the whole process?
Dr Kitchen: I think that I was appointed for my expertise and knowledge on how the tax system impacts on families with children, and I would see my role on the commission to make sure that the concerns and the interests of families with children are reflected in a fair and equitable tax system.
Mr Stockwell: I have another question. I do not know if you know or not, but one of the members of the commission does not live in the province of Ontario. Does that trouble you at all, that someone will be commenting on the tax system for some 9 or 10 million people and yet does not in fact pay provincial taxes herself?
Dr Kitchen: I do not know who you are talking about.
Mr Stockwell: I am sorry. It is Giampietri, I believe, from Hull, Quebec.
Dr Kitchen: Oh, but as far as I know, she works in Ottawa, so her political life is involved in the province.
Mr Stockwell: Right.
Dr Kitchen: I would think that where she chooses to live is her --
Mr Stockwell: Is academic.
Dr Kitchen: -- private decision. I mean, she --
Mr Stockwell: I see. So I will take it that it does not affect --
Dr Kitchen: No, it does not bother me.
Mr Sutherland: I was just wondering, could you tell the committee what you did your doctoral thesis on?
Dr Kitchen: Yes, Canadian family income support programs, which has one chapter on the Canadian tax system.
Mr Hayes: Dr Kitchen, I am looking at your résumé here and I am quite impressed, especially in what you have done in regard to dealing with child poverty. And I see that you were on the standing committee on health and welfare, social affairs, seniors and the status of women. That would be the federal, would it?
Dr Kitchen: Yes. The Child Poverty Action Group presented to the subcommittee on poverty on the issue of child poverty and, of course, we also talked about the impact of the tax system, which we feel impacts very negatively on families with children.
Mr Hayes: So I guess it would be fair for me to say that, you know, regardless of maybe the way some people look at this, that our goal really is to set this commission up and to have a fair tax system in Ontario. Can you elaborate for us on that, please, how you feel about that?
Dr Kitchen: I feel very excited about this, particularly that I was asked to sit on it, because usually social groups like the one I represent are simply left to respond after the action has already been taken. So I really welcome this as a wonderful opportunity and I just hope I can live up to it and I can contribute to the creation of a tax system in this province that is fair to families with children.
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Mr Wiseman: I am just looking at your education background: Simon Fraser, BC; University of British Columbia, BC; London School of Economics. One of the comments that has been made is that so many people live in Toronto, and I have been going through the résumés and I have seen that a large number of the candidates for this commission have been born and raised and educated pretty much all over the world, and I would like you to comment a little bit about your view of the world and whether you think it is a fair criticism that just because you live and teach in Toronto you have somehow lost your ability to have a wider world vision.
Dr Kitchen: I think in my case that is certainly not true, because, first, I am still in touch with some of the people I met when I was a student at the London School of Economics. I also regularly read the publications of the social security code published from Geneva -- the International Labour Organization's publications -- all dealing with social security issues. And as I said, my particular interest is the economic wellbeing of families with children. So I make it my duty to study. For instance, I know what the French tax system looks like, the Dutch tax system looks like and the German tax system looks like as regard to families with children. I can tell you they are considerably more generous when it comes to looking after the concerns of parents and children.
Mr Johnson: Dr Kitchen, I have read in the press and I have got the impression from other readings I have undertaken that in this province the wealthy aspect of our society is getting wealthier and they are paying not their proportion of taxes; the poorer people are becoming more disfranchised, they are becoming poorer; and the middle class is paying even more of their share of the taxes than has happened in the past. So we seem to be heading down the road of disparity, I guess you might say. Would you agree with that statement, and do you think there is still a chance where we can change that around and truly make the system more fair?
Dr Kitchen: I should hope so. That is what I see the task of the commission to be, and if I can be so presumptuous I will quote the motto of one of my alma maters, the London School of Economics, where social problems are treated as technical problems and therefore solvable if people have the political will to do so. And the facts quite clearly indicate that what we have seen is a tremendous increase in the shift of taxes to particularly middle-income families, to the upper end of the poor, and a decrease in the higher income tax code.
I can give you a wonderful example from my own colleagues. As you know, academics are certainly not underpaid, but for the first time in my experience my colleagues are actually complaining about being overtaxed, and what really gets them is that most of them would now be paying the top marginal tax rates, above the net income of $55,000, and most of them I would say would be $20,000 above. And so what they are really objecting to is that they should be paying the top tax rate on the $20,000 above the $55,000 net when somebody who has $500,000 above or even $1 million above is being taxed at the same rate. And you see, that is where I am a great believer in using the sharp arm of the middle class. If the middle class is dissatisfied then there will be push for change and the poor will also benefit.
Mr Johnson: Just in your opinion -- I think it is clear that the system has become less fair, generally speaking, so any direction that this committee takes would be in the interest of making it more fair.
Dr Kitchen: Absolutely. That is what the title of the commission is, you know, the Fair Tax Commission.
Mr Grandmaître: Dr Kitchen, being a tax expert, I am sure that also your commission will be asked to look at municipal taxes, property taxes, and being from Toronto, I am sure that you already know that Metro and municipal and also education takes a big chunk of your municipal taxes. Are you in favour of a Metro-wide reassessment?
Dr Kitchen: A reassessment of the property taxes?
Mr Grandmaître: Properties.
Dr Kitchen: Yes.
Mr Grandmaître: You are?
Dr Kitchen: Yes.
Mr Stockwell: You went up a few notches in my book.
Mr Grandmaître: Thank you. Very, very few people are. And I think you are going to make a great candidate. You will be a great member for that commission, because I --
Dr Kitchen: Can I just comment on this? This is a Fair Tax Commission, so everything is under scrutiny. We will look at the whole tax system and how it impacts on people in this province.
Mr Grandmaître: That is true.
Dr Kitchen: I do not think this is anything so amazing.
Mr Grandmaître: Yes, I think municipal taxes are a very, very important part of our taxation system, but I am surprised that a person of your calibre would be in favour of a Metro reassessment, because very few teachers or professors, very few tax experts, are in favour of a Metro-wide reassessment. So you must be one of the few that agrees that a change is needed, not only in Metro but right across the province of Ontario as far as reassessment or assessment is concerned.
Because in Toronto, as you know, we have not had a reassessment program since 1954. And I think it is very, very unfair, for people living in a $300,000 home paying the very same taxes as somebody who lives in, let us say, a $150,000 home. I think it is very unfair. Metro has never been in favour of a total reassessment program, so I am pleased to see that you are in favour of a Metro-wide reassessment program.
Also, being from Toronto or the Metro area, what are your thoughts on the commercial concentration tax that was introduced last year for Metro? What do you think of that? Your personal thoughts, now.
Dr Kitchen: In all honesty, I do not know anything about that. I cannot answer that question. If I did I would be bullshitting, and I will not do that.
Mr Grandmaître: Well, that gives you another notch. You would be a good commissioner.
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Mr Bradley: My questions are as follows. There was a promise that was made in the last election campaign about 60% of the cost of education being assumed by the provincial government and about taxation policies adjusted to do that. We had a guest yesterday, a proposed member of the panel, who was not certain now, as of this date in February, what that was 60% of, although a lot of people assumed in the past from the governing party that it was 60% of the cost of operating schools in the province of Ontario.
If you are particularly familiar with this, could you tell us what you believe that 60% is that the government was promising and that would require necessary provincial taxes to bring about?
Dr Kitchen: I can only again speak for myself. I had assumed it would mean 60% of the costs of operating schools, but that I do not know. I may be totally wrong. That is really an area I have not looked at in great detail.
Mr Bradley: That is something no doubt that the commission may be looking at, because we have not seen any movement towards that at the present time, so perhaps the government would like the opinion of the commission before it proceeds towards paying 60% of the cost of education. I would expect that we will hear some significant criticism, as we did when Conservative and Liberal governments were in power, of that shift away from that particular aspect.
We have already had a question from Mr Stockwell as to political affiliations. So far, three out the three people who have been interviewed by the committee have been members of the New Democratic Party or strong supporters of the New Democratic Party. Do you believe that a commission can truly bring about a fair tax system if an overwhelming number of the members of that committee come from a philosophical view which is the same and are supporters of the same political party?
Dr Kitchen: That is what I tried to say earlier on. You see, I am a great believer that there are technical solutions to social problems reasonable people can agree upon. There are certain issues that really go beyond partisan interests, and for one, I would think that regardless of what one's political colours are, the appeal of a fair tax system measured on the principle of ability to pay is not under dispute. People would agree that those with the greatest ability to pay should pay a larger amount of taxes than those who have less ability. In fact, I heard one of your colleagues say that. So I do not really see that this is going to be a problem. Besides, I also understand that maybe you have just had the misfortune to meet three or four people who are all supporters of the NDP, but there will be other commissioners who certainly are not.
Mr Bradley: I would anticipate that that would be the case, because everyone would expect that there would have to be some -- it is like all government appointments; there are always going to be the token members of other political affiliations, but we know that this government is entirely different in its viewpoint and would not want to do that.
Since the government has already announced its plans for taxation, we have heard the proposals that have been put forward in the election campaign, previous to that in the Legislative Assembly, when it was not such a kind and gentle place as they would like it to be today, we heard promises of a speculation tax, of succession duties, of other taxes that would be applied. If indeed the government has already promised this and has made up its mind, do you not feel there is a danger that your commission is simply being used as either a rubber stamp or justification for the implementation of these taxes?
Dr Kitchen: I cannot answer that. I guess that remains to be seen, but obviously, if I am going to be a commissioner I would do so in good faith, having confidence that the government will consider the recommendations put forward by the commission. But that is really what I as an individual member of the commission could expect, but obviously I would be very disappointed and, I am sure, so would be other people on the commission, that, why are we then asked to put in time and effort if what we come up with is going to be ignored?
Mr Bradley: The other choice I guess would be, if that would not be the case, that it is simply being used as a rubber stamp for justification for what the government has already decided, and this eminent group of individuals -- and I think if we looked at the curriculum vitae of each of the individuals we would find that they are people with considerable background, including yourself, considerable and impressive background in many areas of endeavour, that might well be something that we in the opposition may feel would be the case. But there is another choice, I suppose, or another contention that is put forward, and that is, if not for justification, that the commission is simply an excuse to delay the implementation of what the government feels are the appropriate taxes in the first place and some of you people on the commission may feel are important. Do you see a danger that these much-needed changes that the government talks about in fact will be delayed considerably by the lengthy deliberations of your commission?
Dr Kitchen: From what I understand, that is not going to be the case. In the literature that was given to me to prepare myself for what is expected of me as a commission member, I was told that the government would be willing, if there is already legislation in place and the commission comes up with recommendations that would run counter to the policies that have already been implemented, to change the policies. I have served on other committees, and one has to have a certain amount of confidence that one is going to be heard. Otherwise I would not be willing to serve on the commission.
Mr Bradley: Looking at your background and some of the work you have been involved in -- board member of the Social Planning Council of Metropolitan Toronto; founding member and steering committee member of the Child Poverty Action Group; member, the social action committee, Family Services Association of Metropolitan Toronto, and so on -- one would expect that you have a good deal of sympathy with people who are in a disadvantaged position, and a lot of your work has been dedicated to assisting those people in one way or another, either through your professional work or perhaps on a personal basis. We still face a situation in the province of Ontario, nevertheless, that we have to create wealth in order to redistribute the wealth, and we have to remain competitive. How important do you believe it is that, when your commission emerges with its report, that report reflect the need to understand and take into account the international competitiveness of the province of Ontario?
Dr Kitchen: From the way you have phrased your question I take it that you see that there is a contradiction between the interests of, let's say, a big business or a small business, the business world, particularly the companies that compete on an international market and the interests of particularly low-income poor families in this province. I would probably argue that at the moment, particularly since we are at a crucial stage where Canada as a whole and this province in particular have to secure themselves a competitive place within the international economy, we also simply have to take into consideration what is happening to our families.
I would argue that we cannot afford that 30% of the high school students in this province drop out before they even graduate with a high school diploma. No country that is going to survive in an international competitive market can afford to lose 30% of its population. We are not just losing their talents and what they might have contributed; they are also going to cost us, ranging from social assistance to keeping them in jail. Why would we create such an unnecessary social expense when we can prevent it? I always use the European examples. If you look at Germany, one of the economic giants, it has a conservative government which has a wonderful social program package. It has not interfered with their competitiveness at all.
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Mr Bradley: I guess what I am looking for with the members of the committee is how much concern they would pay to the competitiveness of the province of Ontario compared to others.
For instance, you mentioned big business. I would not know very much about big business. I come from a genuinely labour background -- labour union background -- and low-income background, and have never been in a position of privilege -- outside of the privilege of serving the people of Ontario as a member of the cabinet for five years, I suppose -- in this province, and my natural instincts as a person coming from that background would be of course to tax the hell out of the rich and to ensure that the wealth was redistributed.
On the other hand, when I talk to my neighbours who are members of labour unions, who know that their jobs depend on international competitiveness, they express their concerns by saying, "Please don't make our industries uncompetitive by some drastic changes to the taxation system."
I realize it is a very difficult balancing act to meet both our social obligations and to keep us competitive, and I guess my concern is: Do you feel that the commission will be keeping its eye on the competitiveness of the province of Ontario as compared to other jurisdictions, in an economic sense?
Dr Kitchen: When I look at what a tax system is supposed to do, it is supposed to raise revenue, and obviously you can only raise as much revenue as there is revenue to be raised. So before you can tax, companies have to be able to earn, just as people have to be able to earn. And so I cannot imagine that the commission would not take that into consideration.
The Chair: Mr Bradley, I know you want to be courteous to your caucus colleagues, and Mr Sola has indicated -- and you only have about two or three minutes left of your caucus time.
Mr Bradley: I will let Mr Sola ask questions.
Mr Sola: Dr Kitchen, I would like to revert back to the theory of Toronto privilege or the overwhelming number of members of the commission being Toronto-oriented, and two things come to mind.
First of all, the fact that the previous government introduced a lot of tax measures that were aimed particularly at the GTA area, sort of a pay-as-you-go plan, you know, to pay for the transportation that was planned for this area, both public and roads, and the commercial concentration tax that was mentioned -- transportation.
The other thing is that one of your members has great experience in education, but with the Toronto board. Her experience is vast, she really knows her subject, but the problems that she encountered and is encountering in the Toronto board would be considered manna from heaven by other boards. When other boards look at the assessment base of the Toronto school board and that, other boards can just dream of something like that. So when she brings her expense, and especially in this realm, if the rest of you do not have expense in that area, will that not somehow disregard the problems throughout the rest of the province, because they will be concentrating on solving the problems for Toronto, or at least give the appearance of doing so?
Dr Kitchen: I can only speak for myself, and I would say what I have published has always been -- I looked at the Canadian tax system in general and I have always used Ontario as an example because the majority of the people in this country live in this province. So if you want to make a tax point, Ontario is a good case example to use. So, as I said, my own interests are certainly not limited to Metropolitan Toronto. Actually, next week I am going to speak to a group of teachers in Belleville. Next month I am going to Vancouver to speak to the British Columbia Teachers' Federation. You know, all these groups have an interest in the impact of the tax system on families with children. There is a real concern, not only in Metro, but I think in all parts of Ontario, in all parts of the country, that the situation, the economic health of families with children, at the moment is really not so great and something needs to be done about it.
Mr Sola: Yes, that's right, but still, the problems within Ontario are not uniform. There are areas in Ontario that fall behind in certain respects to the problems in the greater Metro Toronto area, as areas of Canada fall behind Ontario as a province. And my concern is -- as an academic, you may be able to sort of approach it from an arm's-length position and spread the experience around to take into consideration how somebody up north feels, or how somebody in eastern Ontario is experiencing this recession, or just the economic situation over there, or southwestern Ontario. But the perception of the public at large will be that you, and perhaps seven or eight of your colleagues who either live or work in Toronto, are affected by both the tax structure and the advantages and disadvantages of living in this area, and that your recommendations will be seen in the light of trying to solve the economic problems more for this concentrated area than for the vast area beyond the boundaries of Metro Toronto.
Dr Kitchen: I would counter that by saying that really depends on the particular tax issue. If we are talking about the personal income tax, you see, that applies right across the province; if we are talking about property taxes, that is obviously localized and there are differences. But I take your point and I really do not think that it is going to be a problem for the commission, because I understand we are going to have research support. There is also envisaged broad consultation with people of particular interests and I for one would want to make sure that people from all parts of the province will be heard, because after all, that is an issue that concerns everybody regardless where you live.
Mr McLean: I have a couple of questions. I have paid a lot of attention to the people who have been recommended for the commission. The majority of them, almost all of them, have lived off the public purse, taxation. I do not believe there is one person who has had to meet a payroll -- there may be one. How can a commission, dealing with the business community, with all aspects of taxation, that have not met a payroll, say what is going to be a fair tax?
Interjection: Absolutely.
Mr McLean: How can that commission operate in a vacuum?
Dr Kitchen: I would not say that the commission is going to operate in a vacuum. That actually sort of feeds into an earlier question, you see. You are setting up almost a conflictual situation between the so-called productive sector and those who are wage and salary recipients, and I think maybe that is what is wrong with looking at the whole situation. Maybe we should try to get away from this oppositional, conflictual attitude and try and work co-operatively. After all, business needs workers, workers need employers. Why do we have to look at each other as enemies?
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Mr McLean: So what you are really saying is, or what the Premier, I guess, who has appointed them, is saying, "We are going to ignore these people and we are going to bring in a group of people that is going to indicate" --
Dr Kitchen: How can you say that they are going to be --
Mr McLean: Then why are they not on the committee?
Dr Kitchen: As far as I understand, there is somebody representing business, is there not? After all, you have one person representing, I think, business, you have a person representing small business and I am representing, let's say, poor people. That is fair, is it not?
Mr McLean: I guess the question that I had was, who is on the commission that has met a payroll? You can represent a business. I see lots of professors and lawyers, professional people on the board, but I do not see any ordinary working individuals.
Dr Kitchen: I thought there was Mr Blundell. Is he not with --
Mr McLean: He is with General Electric Canada.
Dr Kitchen: Yes.
Mr McLean: But has he met a payroll?
Dr Kitchen: Does GE not --
Mr McLean: The company does.
Dr Kitchen: Yes.
Mr McLean: The company meets it.
Dr Kitchen: Is he not responsible for --
Mr McLean: But there is a difference to being a president of a company than writing a cheque out of your own bank account. And there are a lot of people who write cheques out of their own bank accounts and not out of a company bank account, and there is a big difference.
Dr Kitchen: Is Jayne Berman not -- does she not have to meet a payroll?
Mr McLean: We will see when she comes. One of my final questions is, the discussions that you have had, if any, with regard to how much pay the commissioner is getting, do you know?
Dr Kitchen: How much pay is the --
Mr McLean: How much per day or salary will you be receiving? Do you know?
Dr Kitchen: As far as I remember, I was told that there is a per-diem rate of $200.
Mr McLean: $200 for members?
Dr Kitchen: Yes.
Mr McLean: Thank you.
Mr Waters: I just have one question, Dr Kitchen, and that was -- and I think we started down this with the previous question -- I wanted to know how you feel when you look at the committee, the makeup of the whole committee. Do you think that it would be able to create a fair and balanced report back to the government of representing the province?
Dr Kitchen: Absolutely, because when you look at the people who are appointed to the committee, you have to have people who have at least a basic understanding of tax issues. You cannot just take somebody off the street and say: "We want to have a Fair Tax Commission, come on and be part of it." You have to have people who have some background knowledge, because these issues are very complex, and in their detail, sometimes I feel almost overwhelming. So I think what I see is a group of people brought together who have different interests, different concerns, but together, they reflect the makeup of the province, the different interests of the province.
The Chair: Doctor, I would like to ask you a couple of quick questions. You mentioned, in response to something Mr Bradley asked you earlier, about the government perhaps bringing in new taxes during the term of the commission, and I had asked the new chair as well about this, how you would feel as a commissioner with a mandate to develop recommendations for a fairer tax system for Ontario. If the government, during the course of your deliberations, brought in a new tax, we will say a minimum corporate tax or a speculation tax, how would you as a commissioner view that? Would you have any concern about those kinds of initiatives being undertaken while you are in the midst of a review?
Dr Kitchen: All I can say is that we have been assured if the commission comes down with a recommendation, that we will be heard. The government is the government, it makes its decision.
The Chair: But what kind of message would that send to you as a commissioner?
Dr Kitchen: I would say that we would be disappointed, obviously, because if we put in time and effort and we come forward with a proposal that is then totally ignored, or we are told that we are absolutely wrong, then of course we would be disappointed. Who would not be?
The Chair: Okay. Another quick one, we have a few minutes left. In one of your contributions you made in the discussion paper in respect to the deficit, "Ending Universality Won't Cure The Deficit," which caught my eye, what in your view will cure the deficit? And I would like to hear your observations in respect to the deficit. How do you view the deficit? Are you concerned about the growth of the provincial deficit, those kinds of things? Can you comment on that?
Dr Kitchen: I was not talking about the provincial deficit, I was talking about the federal deficit, because in all fairness I have to admit that my major concern has been with the federal tax system. That particular point was that Marvyn Novick and I costed how much was going to be saved by doing away with the universality of family allowances and the savings were something like $550 million. We did not think that would make a big bang in terms of --
The Chair: I am trying to get some more specific answers out of you. You know, a lot of academics of your political persuasion have different views in respect to the deficit. How important is the deficit in respect to its impact on the economy? I guess I would like to hear your views in respect of the provincial deficit.
Dr Kitchen: The deficit is certainly very serious. There is absolutely no way that we can ignore the deficit. I mean, there is no country in the world that feels comfortable with a huge deficit. The deficit has various aspects, it affects poor people the hardest because, if I am wealthy enough and I hold treasury bills and Canada savings bonds and I actually earn interest off the deficit, I am not nearly as much affected as somebody -- I am positively affected.
Look at lower-income people. You see, we cannot bring in the kind of social programs that are needed and so I would say we do have to address the deficit. You wanted to have a concrete answer, my answer would be to put people to work, see that they pay taxes. Anybody in the workforce pays taxes. They become assets instead of costs and social assistance or unemployment insurance. So put the province to work.
The Chair: One more quick question. There has been some talk after the transfer payment announcements the other day that the Treasurer may be looking at increased taxes with this budget coming up this year. How do you view that with a deteriorating economy, a government increasing taxes during that kind of an environment? How do you view that possibility?
Dr Kitchen: I guess it would be the question, what taxes are being brought in? Who is going to be taxed? One thing we know is that opinion poll after opinion poll has shown that Canadians feel that the personal income tax system plus the consumption tax, in particular the GST, is very unfair and it is highly unpopular. So any government that brings in more taxes on personal income tax, raises sales taxes, I think would be in for a very rough awakening. People have had it.
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The Chair: I was not looking at it from a political perspective. I was looking at it from, perhaps, the economic impact, how you feel that sort of an issue might impact on the economy generally, that is all. I gather you feel it would be negative.
Dr Kitchen: We need more spending power in the hands of people. If you want to move the economy, people have to be able to buy cars, so General Motors can produce cars. If you have a grocery store, you want your customers. People have to eat. That is how you keep things going.
The Chair: Okay. Thank you very much. We appreciate your appearance before the committee and we wish you well with your new responsibilities.
Dr Kitchen: Thank you.
WILLIAM BLUNDELL
The Chair: The next witness to appear before the committee is William Blundell. Mr Blundell, would you like to come forward, please. Welcome.
Mr Blundell: Good morning.
The Chair: Would you like to make a few brief comments before we open the floor to questions?
Mr Blundell: I really have very little to say, other than I see this particular activity as a priority of the government and I am very pleased to bring whatever talents I can bring to bear on this problem. I come with an open mind.
The Chair: Okay. We will begin the questioning with the official opposition. Mr Grandmaître.
Mr Grandmaître: I am sure you had a chance to listen to our last guest.
Mr Blundell: No, unfortunately, I missed most of that.
Mr Grandmaître: Oh. We were talking about the deficit, not only of the province of Ontario but the federal deficit. Do you think this will impose some constraints, or restraints, on your commission, the fact that the federal government's deficit is increasing? The transfer payments from the federal government are affecting not only the province of Ontario but every province in Canada. Our Canada assistance plan is being affected, our transfer payments for education and social services, all of these great universal programs are being affected.
Do you think that you people, your commission, can come up with a reasonable compromise without really taking into consideration the lack of federal assistance to provincial governments? How can you arrive at a conclusion, at a recommendation, without looking at the present situation at the federal level? Because, as you know, we all depend on the federal transfer payments. Will you be travelling to Ottawa to talk to Mr Wilson and to others responsible for taxation in Canada?
Mr Blundell: There are a lot of questions there. I guess whether or not I will be travelling to Ottawa will depend on --
Mr Grandmaître: I think you should. That is my question.
Mr Blundell: Yes. If your question is really directed at whether or not I am concerned about the level of the federal deficit, I am one of those who is very much concerned. I just feel very strongly that that is a very important constraint that is out there in addressing any kind of an issue on taxation.
Mr Grandmaître: Let's rephrase my question. The fact that the federal government is cutting back on what seems to be very, very important to this province -- that is, health care, education, social services -- do you think this will hamper you to make a decision or recommendations, the fact that they are cutting back on their transfer payments to this province? How can you arrive at a conclusion without taking the federal government lack of transfer payments to this province?
Mr Blundell: I just think that it is a reality that one has to work with when one approaches this kind of activity. I mean, it is reality.
Mr Grandmaître: You say it is reality, and I agree with you. How can you make a recommendation to this government when you know that our federal deficit is increasing daily? How can you arrive at a conclusion that will really serve this province when you know and I know that we depend on the transfer payments from the federal government? I do not have the answer.
Mr Blundell: But I think any time that you wade into any kind of an issue or a problem, frequently there are parameters out there that are givens, and I think that is a given. I guess there is no question, to the extent that that given can be challenged, that it should be done. And I think that is something that should be challenged. I am very concerned about the fiscal situation of Canada.
Mr Grandmaître: I must say that I agree with the Premier of this province when he says that we have to look at our economy. That is his number one responsibility and I agree with him, but at the same time I think we cannot look at this province in isolation and I think that is what really worries me about your commission. You will be looking at Ontario. I know that 65% of all industrial taxes are coming from this province. I know that 45 cents of every income tax dollar in Canada comes from the province of Ontario. Realizing all of this, if we want to be successful in Ontario, we cannot bring about this success on our own. We need the assistance of the federal government. And what I am trying to get at is, how closely will you be working with the federal government?
Mr Blundell: I think I know where you are going on this. There is no question that recommendations can be contexted in the overall Canadian scene, and no question that to the extent that constructive inputs can be made to the federal government as part of a package that this commission, as I see it, would come up with, I would say that it would be very constructive and I would support that.
Mr Bradley: Are you serving on any other committee appointed by this government?
Mr Blundell: I am on a small ad hoc committee that is advising the minister on the de Havilland issue. I am, with the support of the Minister of Health, chairing a small committee in Guelph which is attempting to deal with the redevelopment of the hospital situation up there.
Mr Bradley: So they are not the kind of onerous responsibilities that would keep you from this.
Mr Blundell: No, no. The first one is strictly a project and the other is a little bit more of an ongoing project.
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Mr Bradley: If a significant majority of the members of this committee are members of one political party and supporters of one political party and philosophically in gear together, do you not feel that the committee is likely to come up with recommendations which are geared in that direction, and any who did not belong to that party or did not have that philosophy are likely to have their views put on the back burner, at the least?
Mr Blundell: Well, I guess my understanding, or at least certainly as it was presented to me, is that we were to come forward as individuals with open minds. And I would expect that of fellow commissioners.
Mr Bradley: The government has already made its promises and suggested the areas in which it is moving in terms of tax changes, in terms of tax increases and some changes, perhaps some reductions. If the government has already made those announcements and has commitments, which it obviously would not want to break to the people of the province of Ontario since we know that it is a government that was elected on that basis, would you not feel, again, that the commission's results are likely not to be particularly significant -- the results of deliberations of the commission -- if the government has already made those commitments?
Mr Blundell: Yes. Obviously I would not be on this commission if I thought that way. My understanding is that the government has put out certain propositions. I guess it is my expectation that if the work done by the commission would counsel the government to modify or repackage its proposals, then I would expect the government would do that. Obviously I am not here unless I think there is going to be an honest examination of the proposals.
Mr Bradley: And the fact the government has already made announcements in this direction does not lead you to believe that the commission's report will either be there to justify what the government is doing or will collect dust on some shelf?
Mr Blundell: Absolutely. If I believed that, I would not be here. I have many other things I can do with my time.
Mr Bradley: You are a person from the private sector; is that correct?
Mr Blundell: Yes.
Mr Bradley: And your paycheque would have come from the private sector in your days of employment. Is this the first person -- I am just wondering.
Anyway, asking that question, it leads to competitiveness of the province of Ontario as compared to other provinces. And while we try to synchronize our efforts in this country, there is still a certain amount of competition that takes place between provinces, and we look carefully at what other provinces are doing in terms of their taxation, if we are wise. Also, of course, the United States is very close, and individual states, and now we are talking -- at least the federal government is talking -- to Mexico and the international trade barriers are coming down. How much emphasis, when you are dealing with matters of taxation, will you place on maintaining or perhaps enhancing the competitive position of the province of Ontario when you are involved in your deliberations?
Mr Blundell: I would say that in my view competitiveness is the overriding priority for everybody in Ontario.
Mr Bradley: And the viewpoint that you would bring to this committee would certainly reflect that.
Mr Blundell: Yes, and I passionately believe that.
Mr Bradley: A question has been asked, and we are asking it, I suppose, of each of the members, and perhaps we will wear it out by asking it every time, but we have looked at the composition of the committee in terms of its philosophical background, its political background and its geographic background to a certain extent. I believe eight out of the 10 members either reside or work in the city of Toronto; one lives in the province of Quebec.
Dwelling on the Toronto connection, first of all, and perhaps I will deal exclusively with the Toronto connection, and you have been involved in business and a resident of the province of Ontario, do you think that perhaps it would be wise -- I am not saying you would take some people off the committee -- to add to the committee people who are not residing or working in Metropolitan Toronto almost exclusively, recognizing -- I recognize it is --
Mr Blundell: No, that is fair enough.
Mr Bradley: -- the financial capital of Ontario? I mean, there is no putting that aside. But we have one person from Sudbury, one from Hull, Quebec, and the rest seem to be either living or working in Toronto. Do you not see a danger that that may skew in just some way the deliberations of the commission and the ultimate report of the commission?
Mr Blundell: It is my understanding that the intention of the process is to have fairly broad-based consultation across the province. So I am personally satisfied that there will not be a skewing or a bias towards sort of a Toronto mentality. So I feel comfortable with the makeup of the commission. That is not an issue in my own mind, if that is what your question is.
Mr Bradley: We would look at this commission, and the government uses the term Fair Tax Commission. I call it the NDP tax commission. If you had a Liberal government you might call it the Liberal tax commission or the PC tax commission. That is my use. I just do not like governments using those terminologies and, of course, I expect that others will not be repeating those, although I do not think I have been very successful in that regard because the government has been successful in having others call it the Fair Tax Commission. So, so be it, I guess, at least for one year.
Looking at your background and what you bring to the commission, I ask you this question. There is a lot of talk of redistribution of income. How much emphasis in the deliberations of the commission will you place on the creation of that wealth to redistribute, as opposed to simply spending a lot of time giving up what is in existence at the present time?
Mr Blundell: Yes. I sort of have a strong bias towards the creation side. I think that if we are really going to be a player in this dramatically new global world, then we must first focus on being competitive and creating wealth before we argue about who gets what piece.
Mr Bradley: My last question is a hypothetical question, which you can say is a hypothetical question and you will not answer it, if you want to. I understand that because I used to say sometimes they were hypothetical questions and I would not answer them. So that is fine.
Mr Blundell: I may give you a hypothetical answer.
Mr Bradley: That is probably the best answer as well. Let's say the commission were to sit for a year and it was obvious that the commission was going to end up in one specific direction or a predestined direction in particular and that your contribution to the committee was not going to be received with any degree of importance. Would you resign from the commission or submit a minority report?
Mr Blundell: Obviously I would not be going into this if I did not feel that I could make a contribution and that contribution would have some impact, and I guess I would deal with your hypothetical question at such time as I had to confront that.
Mr Bradley: That is a fair answer. Thank you.
The Chair: Mr Bradley, would you allow the Chair a supplementary? This is natural, Mr Blundell: Why do you feel so confident about that? Why do you feel that way?
Mr Blundell: I think that certainly from having worked in business over the years we have waded into a number of issues where, going in, we did not know the answer, and where we have been able to assemble a bunch of people who were open-minded. I would say that generally we have come out with a solution that has been acceptable. So I am a believer that open-minded people, given good, honest facts, will come to good, honest solutions, and I have confidence in the process.
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Mr McLean: Mr Blundell, who approached you to see if you would sit on this commission?
Mr Blundell: I was approached by the gentleman sitting right back there -- by phone.
Mr McLean: And who is that gentleman?
Mr Blundell: It is Simon Rosenblum.
Mr McLean: And did he go over the details of what would be expected of you?
Mr Blundell: Yes.
Mr McLean: And what office does he work out of?
Mr Blundell: I am not sure, to be honest. Are you connected with Treasury, is it? Yes, sorry about that.
Mr McLean: He is with the Treasury.
Mr Blundell: Yes.
Mr McLean: Thank you. Were you chief executive officer of General Electric when the Barrie plant closed?
Mr Blundell: Yes. Although it was not closed, of course, by GE Canada.
Mr McLean: The indication from the government is that it would like to institute a minimum corporate income tax. How do you feel that would have an effect on industry in Ontario?
Mr Blundell: l guess we would have to understand what the design of that tax is to give you an answer. My understanding is that what is being looked for there is that, if enacted, it be a fair minimum corporate tax. I understand from that that it would be fair among corporations. So we are all ready to look at that. We will be bringing to that the perspectives that we mentioned.
Mr McLean: The Treasurer has made the statement many times that there are hundreds and hundreds of corporations that are not paying tax. Do you believe that is a true statement? For what reasons would they not be paying corporation tax?
Mr Blundell: I guess they are not paying tax if they are in a situation where either they have no earnings or they have capital cost allowances that reduce whatever their statement at income is to a tax loss position. That can be good -- and it can be bad, I presume.
Mr McLean: I am pleased to see the experience that you have had, and you will be an asset to the commission, I am sure, because there are very few from the business community on the commission. The other question, I guess, that I would have, is: Has the salary been discussed with regard to the amount of time that you would be expected to spend on the commission?
Mr Blundell: I am prepared to serve without salary. The reality is that coming out of the private sector in the kind of circumstance that I have been in with a lot of exposure, my choices are to do something else in the private sector. I guess my personal feeling is that the system has been very good to me, and to the extent that I can contribute back in the system I am really pleased and honoured to have that opportunity.
Mr McLean: You are probably semiretired and busier now than you have ever been.
Mr Blundell: I am working five full days a week. I have got a fax machine at the house that chatters away all day and a telephone box -- there is lots to do.
Mr McLean: Just one last question. I said to the previous person who was before us that, to my knowledge, there was nobody on the commission who has met a payroll of his own. I got a few snickers in the back because -- whether they do not feel that is important or not. But I feel it is very important that somebody who has written cheques out of a payroll on his own bank account should be an asset to the commission. And obviously there is nobody appointed from that area of business.
Mr Blundell: Yes. Let me just say that I have been in the situation where I was chief executive officer of Camco Inc, where the partners withheld any guarantees and where we ran out of money and had a call from the bank. So I have lived with a group of employees through a situation where we were faced with bankruptcy and had to go to our suppliers to carry us until we could -- and also everybody in the company, myself included, worked without pay for a week in order to -- so I have been there. Despite the fact that I have worked all my life for a big company.
Mr Stockwell: I feel like I am there every payroll. I asked this question to everyone, actually. I will ask it to you as well because I think it is important that we get on the record exactly how unbiased and open-minded this commission is. I have a great deal of difficulty believing or buying into the processes here today; that is no secret. I think it is a bit of a charade. I also think it is a bit of a charade when they strike the NDP tax commission, because the commission is, in my opinion, overloaded with card-carrying members of the New Democratic Party. So I will ask you as well: Do you have a party affiliation?
Mr Blundell: I do not have a party affiliation.
Mr Stockwell: Okay. Well that pretty much stops it there. So this then makes you the first, so far, and only person who will sit on this commission that in fact comes with at least no political baggage.
The second question I have is, what about that comment that I made with respect to fair, in the sense of unbiased starting point? You mentioned that in business you have come into a problem where you have had little or no information and you assemble a group of people together to come to a rational, sane business decision. Do you think it is slightly more difficult with so many of the members who are recommended being from a specific political party?
Mr Blundell: I guess either you believe that they all come with open minds, or you do not. I come feeling everybody comes with open minds.
Mr Stockwell: Have you had any experience other than your experience in business with respect to the tax process and the tax situation in this province, and possibly this country? I mean, could someone ask the question, do you believe in a succession tax that continues to go on -- death tax, they call it in essence -- wealth tax? I mean, do you feel reasonably knowledgeable on these subjects, that it will not be a long learning process?
Mr Blundell: Being honest, I do not have a lot of background in the -- certainly in the mechanics of taxation, and so it is going to be a learning process. I certainly have access to people who could help me with that if I felt I needed it.
Mr Stockwell: The other question I have, and the last one, Mr Chairman: the party in power made a number of promises, a number of promises that are categorically impossible to fulfil. I think even they will admit that today, on some of them. I have seen this commission struck -- because previous to gaining power they had all the answers for all the problems and they were never, never backward about telling you what the answers were. Since gaining power they have had a serious memory loss, so we have now struck this commission to, I guess, rekindle their memory.
The question is, from the campaign that was waged in August -- and I assume you had some kind of background and knowledge of it -- did you feel there were any particular promises that this government made that you find very difficult to understand how it made them, or how they could be fulfilled? I guess that is the best way of putting it. We went through a great, long process here. A lot of promises were made that I personally think are impossible to fulfil. What is your feeling? Are we striking this Fair Tax Commission or this NDP tax commission to justify why they cannot fulfil them, and where do you stand with respect to some of these promises that were made? Are we simply wasting our time?
Mr Blundell: As I said earlier, I personally stand for fiscal responsibility and I guess we take it from there. I do not have any particularly strongly held views in terms of which of the government's policies I think are good or bad. Obviously, when you add up all of the promises in every election campaign, probably some are not affordable.
Mr Stockwell: Okay, thank you.
Mr Sutherland: You are quite comfortable, then, with the composition, the individuals, the other individuals who are serving on the commission?
Mr Blundell: Yes, and I have had an opportunity to meet the proposed commissioners and feel comfortable with them as a group.
Mr Sutherland: I was wondering if you could maybe give us some sense of how you define fairness, particularly in the taxation system. Or is that still something up in the air as far as you are concerned?
Mr Blundell: To be honest, I had not given that a lot of thought. I guess the only notion I have coming in is that that is one of the things we pursue for ever. As times change, we strive to have a society where everybody gets a fair chance, fair treatment.
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Mr Sutherland: Mr Bradley mentioned the issue of competitiveness and taxation, and there is certainly a sense that taxation is one of the issues affecting competitiveness. I was wondering if you could comment on how important it is. There are some people who seem to believe taxation is the only issue that determines your competitiveness as a province or as a country as a whole. There are others who think there are many other issues and taxation may be, in range of importance, one of the lower areas. I was wondering if you could comment on that.
Mr Blundell: I think taxation certainly can play a prominent role in investment decisions. But the reality is that competitiveness is much more a function of how the corporation and the people that make it up are organized and apply themselves.
Mr Sutherland: Okay, just one other question. I notice that you have had directorships on companies such as Alcan and Amoco Canada Petroleum and I think it would be fair to say that those companies or those industries, at some time, have come under some scrutiny for their environmental record and one of the issues that the commission is mandated to look at is the possibility of green taxes and that. I was wondering if maybe you could comment on that area. Are we at the time, and if not taxes, how do we pay for environmental cleanup?
Mr Blundell: First let me comment that, certainly in connection with those board activities, the directors spend more time asking for information and plans and commitments from managements on environmental matters than any other issue. I have heard arguments about making the market system work to promote environmental cleanup. I guess I have heard some arguments from the taxation side but I, frankly, come in pretty ignorant in that area.
The Chair: Anyone else from the government caucus? Mr Wiseman?
Mr Wiseman: You have responded to one of my questions for Mr Sutherland. Do you feel that a progressive tax system is possible? Have you given that any thought?
Mr Blundell: Could you define a progressive tax system for me so I do not misunderstand?
Mr Wiseman: Traditionally, a progressive tax system has had people who are best able to pay paying taxes and those who cannot pay or are in dire straits, living below the poverty line, do not.
Mr Blundell: That is what we have now, right? Or --
Mr Wiseman: Is that your comment on what we have now, or --
Mr Blundell: No. I just wanted to be sure. I mean, you can get trapped on semantics here. My understanding of what a progressive tax system is is that those who can afford to pay more, pay more, and I thought that was part of the Canadian ethic. I think there is another issue, maybe, and I was not sure whether you were sort of heading more in terms of below the poverty line, how that group of people is treated. I guess I have to say I am sympathetic to the needs, that you have to recognize and respond to the situation those people find themselves in.
Mr Wiseman: I would like to go down just a little different road --
Mr Blundell: Okay.
Mr Wiseman: -- more in line with your background as an engineer and as a CEO to a large company. Do you see any way or have you had any contact with the way the tax system in Ontario is structured or can be structured to encourage research and development?
Mr Blundell: Have I been involved in any discussions? I was on the Premier's Council with the previous government, and there were some recommendations made to stimulate research and development which really were not tax driven. They were more sort of seed money by the way of grants. I see research and development, again, as a priority in terms of getting that kind of activity running at a faster rate in Ontario, and I think the tax system is an option we have to promote that.
Mr Wiseman: Who owns the R and D in a multinational corporation?
Mr Blundell: That is a very complex issue. Some kinds of R and D are owned by the home country, any kind of R and D that is government-sponsored. If R and D is performed in Canada and in some way partly funded by the Canadian government, that research belongs to Canada. It has to be exploited to the benefit of Canada.
Mr Wiseman: But if a tax, if a grant was given to a multinational corporation and they did the R and D here, is it possible that that R and D would then be controlled by the head office in a foreign country and that all patents and royalties paid on that would be accrued to that country as opposed to Canada or Ontario?
Mr Blundell: It depends entirely on the terms under which those grants were given. Frequently there are constraints placed on what is done with the results of any development of that type.
Mr Wiseman: With respect to this commission, do you have any expertise in this area that you would be bringing to this commission in that specific area.
Mr Blundell: As far as the research and development?
Mr Wiseman: Yes.
Mr Blundell: Obviously, I have worked for a high-tech company and over the years we have been involved in a number of discussions where ownership of technology has been an issue. I would hope that I could bring some perspectives on that and knowledge, probably more so than most in terms of the multinational company management structure.
Mr Wiseman: Would you be prepared at this time to perhaps share your view of what you would be suggesting to the commission with respect to taxpayers' money being given to multinational corporations with respect to research and development grants?
Mr Blundell: I really do not have a view at this time.
Mr Wiseman: Thank you.
Mr Sola: I would just like to get back to the progressive tax system in one short question. At what point do you think the progressive tax system provides a disincentive to initiative? You hear hourly paid workers saying they turn down overtime because it all goes to the government. You hear people saying they refuse to invest because they are putting all their effort into a project or something and the government is receiving all the benefits. Where do you think the fine line is, that the government gets benefits and the worker or the entrepreneur still get benefits from the progressive tax system?
Mr Blundell: You have got real easy questions here. I guess you never know until you have gone too far. There is no question the tax system can be a tremendous disincentive. I worry about Canada losing a lot of its very talented people, because one of the things you have to realize is that we are in a global world. When I started to work for Canadian General Electric I thought in terms of always working in Canada. Not so with this generation. When I look at our son -- our son is working in Europe, and when you hear these young people talk today, they are very sophisticated. And it is a factor in terms of -- he works for a Canadian company. But they are very sensitive so that if it is too regressive, too progressive or whatever the term is, it can be certainly a serious disincentive. And I think it is the same to the people on the shop floor.
Mr Sola: So you do not have a definite point of view because, in speaking to small businessmen in my community, in my riding, they are getting to the point where they say you almost have a black market here in a cash economy. Certain people will do certain small jobs for cash because they have either social benefits that they are collecting or the pay scale is not high enough for them to make a living just from that one job. And also, I am thinking back to an article I read a few years ago concerning Italy when you mentioned Europe. And it seemed that whenever the European countries got together, Italy had to send two economic representatives, one from the legitimate economy and one from the black market economy because they were almost on a 50-50 basis. I would like to avoid that situation here in Ontario and in Canada; I am just wondering where that point would be.
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Mr Blundell: As I say, I would have to give that a lot more thought to even attempt it. The only thing I can say is that you know when you are there, when people have lost their incentive. I guess I would be sensitive, personally, to any work that is done in the tax area in terms of how that would impact on how people would go about doing their jobs.
Mr Grandmaître: Did I hear you say that you had an opportunity to meet the rest of the commissioners, your colleagues? What was the occasion?
Mr Blundell: It was an informal sort of get-together. There was no meeting, it was just a chance to see what they looked like and --
Mr Grandmaître: No specific mandate was given to you?
Mr Blundell: No, no. As a matter of fact we were very specifically lectured on the fact that we were not commissioners, that we were proposed as candidates, and they thought that they owed it to us to see what the other people looked like that were in this same boat. I thought it showed a lot of good judgement and courtesy.
Mr Grandmaître: But you were surprised when you learned that you were part of the Premier's Ontario International Corp but you were not appointed yet.
Mr Blundell: No, no. That was explained to me at the time I was approached.
Mr Bradley: It is a pretty safe bet.
Mr Grandmaître: Pretty safe bet, yes. If I can follow up on Mr Wiseman's R and D and manufacturing questions, your previous colleague told us that the best way to fill our taxation responsibilities as individuals -- first of all we must provide them with work, and I agree with this. I think if you want to pay income tax or -- everybody should be paying income tax or taxes in the province of Ontario -- first of all we have to provide them with the opportunity to work. At the present time I think this province is facing a very, very serious problem, especially in northern Ontario. And if I can use Sault Ste Marie as an example, Algoma finds itself in a very difficult situation, strapped for funds.
Do you think the provincial government or the federal government or both should bail out Algoma?
Mr Blundell: I have been following that with a great deal of interest. I guess that I do not personally feel that bailouts necessarily are constructive. I mean, ultimately jobs come from having customers and you get customers by being competitive. This may be harsh, but I guess my view of it is that the message has not really gotten through to all of Ontario and Canada, that is the game. I am very apprehensive about government intervention at this particular time because I sort of see Canada at a crossroads. And either we decide that we are going to compete and we do create jobs, or we start to intervene in the economy, and I think we then drift towards becoming the next Mexico and the next Brazil. And I see Canada very much at the crossroads.
Mr Grandmaître: Talking about Mexico, sir, do you agree that Canada should get involved in the free trade discussion with Mexico?
Mr Blundell: I am a strong advocate. I think it is important to Canada's future. I hear the people who think that we are going to give away a lot of jobs to Mexicans, and the reality is that that is not so. I have spent a fair amount of time in Mexico because part of my responsibility with General Electric, in addition to Canada, was Latin America. What we are trying to do in Canada is become very good at those kinds of manufacturing activities that require a lot of flexibility, a lot of training, a lot of well-educated workforce and we have proven that we can out-perform even the Americans at that.
The Mexican worker is a competent, productive, quality worker. But the outstanding characteristic about their workforce is that they can only operate successfully in a task-oriented system; that is, where you have one job to do. They just do not have the education and the training to be multi-skilled. For instance, we are starting up a plant now in Mexico on gas ranges -- General Electric is. We have been in production six months. We are still building the first model, the same model, just getting everybody trained to make one model.
You go to Montreal -- which is still in Canada -- and see the appliance factory there, we have the capability to send a different washer, dishwasher, down the line one after another. The Americans cannot do it. We have gone to a batch size of one, we load the factory the day before we execute -- in the States, they load it 12 weeks before -- and that is done with multi-skilling. With a lot of training Canadians can become, we think, the best in the world at sort of low- to medium-volume, high-variety product production. And what I can absolutely assure you is that the Mexicans are at the far end of the scale. They have to have really mass production, very little variety.
The people, if it is a real, honest deal, who will lose jobs first are the Koreans, because the $2 labour is going to come back to the $1 labour in Mexico in our trading zone; and then, second, it is going to come off the bottom end of the US production line. And we open up a market for our own production. Compared with our own, it is a population of 58 million people. I know a lot of them are below the poverty line, but at least half of them are potential consumers, so I am pro, strongly pro, US-Canada free trade and US-Canada-Mexico, North American, free trade zones. You should know that. I believe it.
Mr McLean: You indicated to Mr Grandmaître that there was a meeting that had taken place with the other commission members. Could you tell us when that took place?
Mr Blundell: Can you help me with that, Simon?
Interjection.
Mr Blundell: It was not a meeting, because I took my wife to the theatre that evening. We had dinner together and met one another, but --
Mr McLean: With all the commissioners there?
Mr Blundell: As far as I know. Maybe one was late. Did they all make it, Simon?
Mr Rosenblum: Yes. They were all there, 23 January.
Mr McLean: They were all there, 23 January. Okay.
There was some discussion earlier on with regard to the deficit and there was some indications that there was some cutback in transfer payments. Do you know the areas where those cutbacks took place?
Mr Blundell: Could you go through that again?
Mr McLean: The area. The indication here has been that the federal government is cutting back on its transfer payments to Ontario.
Mr Blundell: Right.
Mr McLean: In what area have they cut back?
Mr Blundell: To be honest, I am ignorant in that area.
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Mr McLean: I guess that is what I want to relate to you. The 30 December 1990 third-quarter report from the ministry indicated that there was a $275 million increased transfer for social services. There was an over $913 million transfer to the provincial government on income tax that had not been turned over. That was more money than they anticipated. So there was over $1.2 billion transferred from the federal government to the provincial government and I am hearing that they are cutting their transfer payments.
You have indicated that you do not know where the transfer payments are to be cut. I do not either and I cannot understand how people keep saying that they have cut their transfer payments when I read the financial report from the ministry indicating the amounts of money that I have just indicated, and obviously --
Mr Blundell: Okay, I would be happy to look into getting myself a little better educated on that one.
Mr McLean: My last question is on the deficit. How high do you think the deficit could go before we really would lose our credit rating?
Mr Blundell: I think we are drifting there now. I think we are too high now and --
Mr Sutherland: Could you just clarify? Are you talking federal or provincial?
Mr Blundell: Well, I understood that is sort of Canada-wide, or --
Mr McLean: No, I am talking about the provincial deficit.
Mr Blundell: Oh, I see; sorry.
Mr McLean: Which is about $45 billion.
Mr Blundell: I guess I would have to get myself calibrated on that. I am very concerned, though, at the overall Canadian level of debt, and from my exposure to Mexico I have seen the consequences of high rates of inflation and too much government spending and it screws them and the workers pay finally.
Mrs MacKinnon: Thank you, Mr Blundell, for your excellent résumé.
Being the only woman present, I guess it is going to be very obvious where my questions are going to come from. It sure is not going to be research and development unless you are going to talk about the kitchen and the bathroom.
Mr Blundell: I have got someone at home who can help.
Mrs MacKinnon: My first question is, you have mentioned the fact that you took your wife to dinner, so you obviously are a family man. Good.
You have spent many years in engineering and physics, etc. Inasmuch as the taxation system, as we know it right now, is being very detrimental to young moms, single moms, children, etc, I am just wondering how you feel you can contribute to this particular commission in your role. You are obviously very skilled at business, and that is great. I am just wondering if you could enlighten me, please, in regard to children, etc.
Mr Blundell: Sure. Now, we have three daughters and a son and we see them struggling with their getting into the world and I think we are very sensitive to some of the challenges that are out there. Our oldest daughter, who is a teacher, lost her husband last year, so we are very much involved in the challenges that go with that. I guess that you learn from practical experience.
Mrs MacKinnon: Thank you very much. I regret that you have had that tragedy, it is kind of hard to deal with, but I just want to make sure that you are aware that there are kids in the world. Thanks very much.
Mr Blundell: If I could also comment in connection with the Guelph hospital issue --
Mrs MacKinnon: Which?
Mr Blundell: The Guelph hospital issue. We have had a number of presentations to that committee from the AIDS committee in Guelph, battered women, pretty well every agency that is in that small community. We do have a committee which is half women and half men and we have commissioned research for that population on the needs of women in terms of the health system. So we are getting to learn a little bit about that.
Mrs MacKinnon: That is great. At least you are willing to go out and learn anyway.
Mr Sutherland: I wanted to come back to the issue related to the Mexico free trade agreement, because I think that has a strong impact on taxation issues. I guess my concern, and maybe some of the concern of other members of our party about free trade agreements with Mexico and the United States, is that if you get into the large trading bloc with them then you in some ways have to gear your tax system to be similar to theirs. There seem to be a couple of different models of development. We have seen the European system where there has been, I think, some strong government intervention, even some higher rates of taxation than we see here, and areas of taxation that we do not see here, yet many of those countries have been competitive. The United States-North American model seems to be much different -- that taxation is the great difficulty and if you lower taxes everything is going to take care of itself.
I am wondering how you see that impact then on what flexibility this province would have in its tax system if we are going into that, getting us joined into a total North American trading bloc with its dominant player, the United States, having a much different philosophy than maybe some of the other global partners.
Mr Blundell: There is no question that competitiveness is a big issue and I think, as you mentioned yourself earlier, that taxation is one element in that, but there are many other elements. In Mexico particularly, if you think our interest rates are high, you should go to Mexico, because not only are the real rates high, when you add the inflation on top of that you are looking at 30%. And that is a factor in an investment decision. So I guess, in very general terms, I would be more sensitive to not being too far out of whack with the US. The Mexican thing has a huge underground economy right now and a lot has to change down there before they are really going to be competitive.
Mr Sutherland: I guess if I can just pick up on that, if we say that we have a sense of different values within this province as to what we think is important and, for example, take health care, and we have said that our taxation system is going to pay for that, maybe even environmental taxes -- not to presuppose what your commission is going to decide, but if that comes out or if you have to cast aside environmental taxes because the United States is not on board because it has a different philosophy towards environmental issues, are we not then limiting our flexibility on how we can approach to deal with certain issues?
Mr Blundell: Yes, it is certainly limited by discussions with the US and Mexico, but it is also limited -- we compete against Korea and other countries that have far different sorts of philosophies, and we do that successfully. It seems to me that when you go into a trading zone you are trying to make that to work for you, and I think we can, if it is structured properly, make it work for us.
Mr Johnson: Mr Blundell, you have said basically that you are opposed to bailouts or intervention by governments in order to buoy up companies, make sure that --
Mr Blundell: As a generalization.
Mr Johnson: Yes. And you also mentioned free trade, and that concerns me. Governments by and large have always subsidized all aspects of society, either by direct funding grants or by the levying against with taxation or by the reduction of taxation. And that includes the poor; it includes businesses and corporations. Personally, I believe that a certain amount of protectionism is probably necessary and I will explain why.
If we were to go to a completely free market system -- and I am sorry that Mr McLean is not here right now, because I believe he is a dairy farmer, and yet I believe he advocates free trade. We have marketing boards in this province that allow our farmers an opportunity to grow products and sell them within the province, and certainly I would agree that you do not go into business to produce things for a market that does not exist.
Mr Blundell: Yes.
Mr Johnson: You want markets for your products and for your produce, in the case of farming. Ontario is, by and large, food self-sufficient. Seasonal things may vary somewhat, but I think that this is an area where we have to be concerned. The farmers in Ontario really want to be viable, and yet because of global trade and free trade we have an influx of produce from around the world that competes with our own homegrown products. And so there is an area where I think some intervention by the government is probably prudent for the society in this province. I am just curious, having a follow-up on what I said: Where do governments draw the line, and what kind of society can we expect if a universal free trade is implemented here?
Mr Blundell: I guess there is a huge grey area there. My earlier remarks, I guess, were responding to that one situation and I was giving a sort of a generic answer, and I still would hold that position.
Mr Johnson: If I could just interject and say that, for example, the Americans, our closest neighbours, could flood our market with all the foodstuffs we would ever need and we could just -
Mr Blundell: Yes.
Mr Johnson: The farmers would be nonexistent.
Mr Blundell: No, agriculture is a separate game and the marketing boards certainly have a role to play. I was with that group on Monday, by coincidence, the Farm Products Marketing Board, and I learned a little bit about that. Agriculture is not traded freely. Everybody is protecting their agriculture. And I am not against constructive government roles in the marketplace. There is a big debate about the aerospace industry, where you have governments all over the world funding the research and development of big airframes and jet engines and all this kind of thing. If that is what the rules of the game are, then obviously we in Canada are not going to blow our brains out by holding to some principle. But that is a very tough area to generalize in, you know. I think you have got to look at the specific, understand the environment and then understand what an intelligent response is. So I am not against government participation in the marketplace where it makes sense.
The Chair: Thank you, Mr Blundell.
Mr Blundell: My pleasure.
The Chair: I appreciate you appearing before the committee today and responding to all the questions.
Before we adjourn, I remind the subcommittee members that we are going to move to committee room 2 for the subcommittee meeting as soon as we adjourn. I know the lunch is being put in room 2 for us. So can just move over there. We will adjourn and reconvene at 2 pm.
The committee recessed at 1203.
AFTERNOON SITTING
The committee resumed at 1402.
NEIL BROOKS
The Chair: Come to order, please. The first witness to appear before the committee this afternoon is an intended appointee as vice-chair of the Fair Tax Commission, Professor Neil Brooks. Professor Brooks, would you like to come forward, please. Thank you very much for appearing here. We welcome you to the committee and give you the opportunity, professor, if you would like, to make a few brief comments before we open for questions.
Mr Brooks: No. I am very pleased to be nominated to the committee and look forward to the work.
The Chair: Thank you very much. You are a request of the third party and I will ask Mr McLean to begin the questioning.
Mr McLean: I want to start off by saying that you have indicated in an article that you have done, which begins, "The economy is in crisis," that there could be $7 billion to $8 billion a year saved. How would you go about doing it?
Mr Brooks: Let me say I did not write that article to bait you, but let me just tell you the point of writing the article was that numerous groups were saying that the government ought to cut back on wasteful government spending programs, and all of the groups which were urging the government to do that were simply describing and taking aim at direct spending programs. So the whole point of that little piece is just to say:
"Look, if you're talking about spending programs, the spending programs in the tax system indeed cost the government as much in lost revenues as the direct spending programs are and, on their face, appear to be as wasteful. If we're really serious about cutting back on wasteful government spending programs, we ought not to ignore the literally hundreds of subsidies implicit in the tax system; they ought to be in the review. Whether or not they ought to go is another question."
All I did in that article was try to set out kind of a prima facie case. There are billions of dollars of what appear to be, on its face, wasteful government spending here in the tax system. In any comprehensive review of government spending, let's not ignore those. That article -- I think they did quite a job of editing it, mind you -- had a much longer list than the ones that appeared there. But I think that even the ones that appear there amount to $7 billion or $8 billion. The point of it was just to say, in reviewing government spending programs, let's review them all, and on its face, those spending programs that I mentioned there amount to at least $7 billion.
Whether or not you would get rid of them all, or whether you would change them in some way, or whether you would take some of those indirect spending programs and turn them into direct spending programs is another question. But my point was just, on its face, there appear to be billions of dollars of wasted government money in spending programs.
Mr McLean: One area I am glad to see in the article, and it is of real interest to me, is to repeal the subsidy for business meals and entertainment. What estimate would you make of what would be spent on that alone a year?
Mr Brooks: Presently, businesses can deduct 80% of the cost of their business meals and entertainment. If the government were to provide that business meals and entertainment cannot be deducted, the government would save over $1 billion. The government is presently subsidizing business people who entertain and take business lunches to the extent of $1 billion a year. Again, the point I tried to make in that article was to say not only are these programs costing the government billions of dollars, not only are they inequitable, but they are just wasteful.
In that particular case, for example -- again, I just had a couple of lines to set it out -- my basic point is, if we were to cut back on this government subsidy, we might have fewer people waiting on business people, but presumably business will continue to spend its gross revenues to earn its profits and we can have more people doing productive work. Incidentally, Australia repealed its deduction for business meals and entertainment about four years ago. The United Kingdom repealed its back in 1965. The Americans certainly tightened their rules on theirs a lot recently. Disaster has not struck and they have raised a lot of money.
Mr McLean: Just a follow-up question on that, I am wondering about the civil service credit cards and the amount of money that is spent on their meals paid for by the taxpayers.
Mr Brooks: Absolutely. Whenever you are doing tax reform and you are talking about business expenses, the corollary of that is whether or not you ought to include something in the income of employees who are incurring the same types of expenses but are getting reimbursed by their employer. The answer is that employees, to the extent that their employers reimburse them for business meals or entertainment, ought to include that amount in their income as a fringe benefit. Indeed, I would go even further, since we are on this, since I am warming to this one.
Mr McLean: I like it.
Mr Brooks: I would require the value of all, in effect, implicit parliamentary fringe benefits to be included in the income of civil servants and parliamentarians. I would even go further. Let's say the government has decided, for example, that when a person is travelling he gets a $25-a-day meal allowance or he gets to stay in a hotel room that does not exceed $150 a night or something; to the extent there are guidelines to what the government thinks is reasonable for people to spend when they are travelling, I would impose those requirements on business and say: "Look, this is what we permit civil servants. If you spend more than that, you're on your own; you can't deduct it."
For example, I would not let them deduct the cost of a first-class air flight. It seems to me to be just outrageous that all those business people sit in business class and we allow them to deduct the full cost of that. There is no business reason for that. You go out to the airport, you notice the back end of the airplane arrives about the same time as the front end. What are they doing? Sitting up there and taxpayers are picking up that enormous subsidy.
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Mr McLean: I like what you are saying. I hope you are effective on that committee in being able to put some of it into action.
A further question: The Premier and the Treasurer very strongly indicated that they are looking at a minimum 8% corporate tax, income tax and speculation tax. Since the committee was established, there were some indications that they were kind of having second thoughts about it. However, the Premier has indicated that he has denied that he is backtracking on these estimates that they are wanting to bring forward. What is your opinion?
Mr Brooks: My view on a minimum corporate tax? The trouble with all these tax policy issues, while I have a view about most of them -- your recommendation or something always has an economic and social context, so that while I may have a view generally about a minimum corporate tax, the question as to whether or not Ontario ought to enact one in 1991, given the present state of the economy and so on, is quite a different question I do not have a firm view on. But generally this is the way I think about minimum corporate taxes.
What we are worried about is corporations paying tax at very low effective rates. There are three reasons why they might be paying tax at low effective rates. First, they might be receiving exempt income -- that is, inner-corporate dividends -- and I do not think anyone has suggested that inner-corporate dividends ought to be subject to tax. Second, they might be carrying forward losses from prior years and reducing their present-year profits and therefore, although they have got large profits in this year, have no taxable income. I do not think anyone suggested that we ought, in effect, to disallow or restrict in some way the ability of corporations to carry forward legitimate economic losses.
Third, they might have low effective tax rates because they are taking advantage of the subsidies that I mentioned in that little article, or some of those subsidies. Presumably you are only going to go after corporations to the extent that their effective tax rates are low because they are taking advantage of those subsidies. Those are the corporations you are interested in. Indeed, it occurs to me that one of the first things the commission might do is examine that whole question, try to find out exactly why those corporation are paying low taxes and is it because of the generous use of these subsidies. The effect of the minimum corporate tax is kind of peculiar at one level because in effect what you are saying to corporations is, "We think that if you engage in research and development or build new plant and equipment, you should get these subsidies that we are delivering you through the tax system." One effect of that is if you take advantage of those subsidies you reduce your effective tax rate.
What we want to do with a minimum corporate tax is to say, "You can take advantage of those subsidies but you can't take too much advantage." Do you know what I mean? "If you take too much advantage we're going to claw back some of those subsidies in the form of a minimum corporate tax." One could ask, "What's the sense of clawing back subsidies delivered through the tax system when you don't claw back subsidies delivered through the direct spending system?" Some corporations, while they are paying tax, are receiving direct subsidies in excess of the tax they are paying. Presumably their net fiscal position being in deficit in some sense should not matter to you as a policy analyst if you are concerned about corporations paying.
My general point is that the minimum corporate tax looks peculiar to me conceptually, and the reason that you want it, the only possible justification for it, is just a public perception problem. These corporations are paying low rates and everyone thinks that is unfair. I think perception is important, but to answer your question directly, I guess my position would be that I would want to look very carefully at why those corporations have low effective tax rates. Is it because of exempt income, loss carry-forwards or subsidies? If it is because of these subsidies, and we are unhappy about the generosity of these subsidies, maybe we ought to just directly cut back the subsidies that are delivered through the tax system and then have a look at what the rates would be. Then if we still think there is a perception problem there, maybe you would have a minimum corporate tax.
But there are lots of problems with a minimum corporate tax. You never get it right. You place enormous pressure on the balance sheet and income statements of corporations because they can manipulate those. To answer your question directly, I guess I would not be opposed to it, but it would be kind of a last step for me. It would be an admission that you cannot get your tax system right.
Mr McLean: The bottom line is, though, if a corporation has a deferred tax or has a tax write-off because it has invested in R and D or in new machinery, it is going to pay tax in the end. It is deferred, but they are going to pay. So to say that everybody should pay a minimum tax, that is what I was looking for an answer to.
Mr Brooks: I think that is right. It does sound peculiar to say to corporations, "If you do R and D, we're going to give you this large tax subsidy," and then you have got a corporation out there which does so much R and D it ends up paying no tax and you say, "Hey, that doesn't seem right." They are doing what you wanted them to do.
Mr McLean: Create jobs.
Mr Brooks: They are doing exactly what you wanted them to do.
The first thing I would want to do is look really carefully at the R and D subsidy and see how it is being delivered. Only if I could not get that right would I then deal with this perception problem with a minimum corporate tax. But there are lots of problems with a minimum corporate tax, in my view.
Mr Stockwell: Just a couple of quick questions. We have asked all commissioners about party affiliation. Do you have party affiliation right now?
Mr Brooks: No.
Mr Stockwell: No. You do not belong to any party?
Mr Brooks: No.
Mr Stockwell: Okay. Obviously, it leaves the rest in that series of questions out.
I have read a few of your columns and articles and you seem to weigh quite a bit of the basics or background for your positions on the fact that over the past 20 years industry, big business or whatever business you are comparing has slowly been decreasing the amount of taxes it is paying in the whole makeup of revenue generated. There are a lot of reasons why that has happened and it is not all because they are simply avoiding taxes and so on and so forth.
Do you come with an open enough mind? Is your mind open enough that you can accept some of these points that industry will definitely be making? From the columns I have read, it appears you are pretty firm in some of your ideas and commitments. How do I feel coming before this commission seeing that you have written in the past -- and there are some, I think, definite reasons why they have had them reduced. Profits have reduced considerably in the last 20 years. I guess that is a question a little more personal rather than technical.
Mr Brooks: It is true that I have definite ideas about tax policy. I mean, I have been teaching it for 18 years, I have been advising governments, I have been writing and researching on it. It seems to me you would have more cause for concern if I had done all that for 18 years and did not have any views. There is no question I have views. For example, I have a view on a wealth tax: I like wealth taxes. But whether I am in favour of wealth taxes and whether I think Ontario, given that no other province has a wealth tax and given the present state of the economy, should enact a wealth tax in the early 1990s are two quite different questions. On the question as to whether or not at this time Ontario ought to enact a wealth tax, I do not have a firm view. I am really anxious to listen to the evidence on that. So one forms a judgement about tax policy issues, but one always does it in a very specific context, and those contexts change.
With respect to corporate profits and the effective tax rate on corporations, it is the case that the effective tax rate paid by corporations has gone down, and it is the case that it has gone down relative to other tax sources, and it is the case there are lots of reasons for that. One is that corporate profits as a percentage of national income have declined. Another is that the personal income tax has increased. It is not so much that the effective tax rate on corporations has gone down. The effective tax rate on corporations, if you control for corporate profits, might have stayed the same, but the tax rate on individuals kept going up. So the question is, is there any sort of tax policy reasons why those two tax bases ought to move in tandem? I do not think there is, frankly.
Incidentally, normally the way I make the argument with corporations is the way I made it in this little funny thing in the Toronto Star where I just said: "Look, here's a whole bunch of subsidies. Try to justify them." I do not care whether corporations are paying too much or too little tax in the abstract, but it appears they are receiving this $1-billion subsidy through the tax system that seems to me to be quite cost-ineffective.
Indeed, one of the things that I hope the commission would do, and I certainly cannot speak for the commission at all, but one of the things I would be urging it to do is that very question you asked, to find out what the facts are. I think the facts are just crucial. Why has the effective tax rate on corporations gone down? What have been the various factors and how largely do they account for it? I would like to see the evidence on that. Frankly, no one in Canada has done a serious study on that issue. I would like to see the evidence. I hope that this commission develops models and databases that permit it to answer those kinds of questions intelligently.
Mr Wiseman: I would like to start back in the 1960s. The Carter commission did an investigation into the tax system and came back with a huge number of recommendations which have been ignored for the most part. In one ill-fated Liberal budget of 1971, Edgar Benson attempted to bring some of these changes in but was really ganged up on by people who were benefiting from them. Can you perhaps put into context how you view yourself in this current tax commission, and have you any historical ideas about where they went wrong and why what they said did not work?
Mr Brooks: Two things about the Carter commission report: One is that commissions obviously serve different purposes, and the one really essential function that the Carter commission report served was an educative function. It proceeded in secrecy for five years, then issued this large, massive, comprehensive report at the end of five years. It was a comprehensive package; you sort of took all or nothing of it. The really important thing that the Carter commission did was serve an educative function. It said essentially: "Look, here are our ideals. This is what we ought to be aiming for." There is no question that was very valuable.
For example, during the Carter commission report, when people talked about taxing capital gains, everyone was horrified. The Carter commission report set out a very closely reasoned argument as to why we should tax capital gains. People started talking about whether capital gains should be taxed. By 1972, when the government decided to tax capital gains, no one was arguing that they should not be taxed; people were arguing about how they should be taxed. There was an enormous kind of educative function that that commission performed.
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Just looking at the document in front of me about the description of this commission, I take it that the government did not conceive of this commission as having in some sense the same mission that the Carter commission report had, but rather that this commission should be more task-oriented in some sense. The government is not looking for an all-or-nothing, comprehensive tax reform package but wants the commission to deal with a whole lot of discrete kinds of areas that it can look at and implement some and reject others and slowly move the Ontario tax system to one that is equitable and fair and efficient and simple, as tax policy people are always saying.
So I take it, just on the basis of the document, that the mission of this commission is quite different from the Carter commission report so I would expect it to proceed in a very different way. And in particular, again as I read this, one real important purpose of this commission is to engage in kind of a public dialogue, to get people to rethink their premises about the tax system, to kind of rethink the role the tax system should play in the Ontario economy and to engage in that kind of reiterative public discussion about the tax system. It was never a mandate of the Carter commission report. So I think that the mission of this commission, as I read this document, is quite different from the Carter commission report.
Now, will it be more or less successful? I guess that is really going to be up to the government. At the end of the day, it seems to me whether many of these tax things get enacted is more a question of political strategy than sort of technical strategy. Presumably this government or any other government that looks at the recommendations of this commission will have to worry about its political strategy in terms of implementing that, in terms of trying to play interest groups off against one another and trying to show people that there are overall benefits here, even though there are going to be some losers. That is as much a question of political strategy as anything, and hopefully the government will give a great deal of thought, if it likes the technical recommendations, to politically how you do it. There is no question that that is as difficult a question as to get it right technically.
Mr Wiseman: Could we go down the R and D road a little bit? I pursued this a little earlier with Mr Blundell. In the past, R and D done in Canada by multinational corporations has in some cases been the property of the head office. In some cases that head office is in the United States and therefore all patents and royalties accrue to the head office and we get nothing out of it in terms of return in jobs and so on. In fact, in our current account and balance of payments we wind up having to pay for the research and development we have actually funded through our tax system. Would you comment on the equity of that?
Mr Brooks: I think that is a real problem, and I think it is a problem with many tax expenditures. I mean, the problem is not only that we are doing the R and D in Canada and then in effect the intangible property gets shifted somewhere else where it is used in manufacturing and so on, but in terms of our tax system -- I think I had this in the little Star thing and it was one of the things they cut -- with R and D you are in the peculiar situation where if you allow a sort of unlimited deduction for R and D with no restrictions at all on sort of downstream benefits from that R and D, because they can deduct it from the Canadian tax system, in effect they end up getting a deduction in Canada and yet none of the income generated by that research and development ends up getting taxed here. They take the intangible property created by that R and D and put it in a manufacturing plant in Taiwan, the United States or somewhere where it generates taxable income; it is being taxed in some foreign country. Not only do we have an industrial policy problem here; we have a real serious tax problem because we are allowing people a deduction for expenses in Canada even though we will never tax the income that is generated from those deductions, and that is just contrary to most fundamental tax principles.
On the R and D, it is sort of a good illustration in some sense of the fact that once we recognize we are delivering these tax subsidies through the tax system, it seems to me, if one wants to look real seriously at the research and development tax credit and how we ought to be doing it, it is really essential that you put alongside that credit all the other government policy instruments that can be used for encouraging research and development. It really becomes kind of a choice of instrument problem.
Here is my central point in another way of putting it: Research and development is not a tax problem. It is true that there is this very generous accelerated deduction for research and development expenses in the tax system, but I guess the basic point I tried to make in the Star article is that it is really a spending program. We ought to use budgetary criteria in analysing that, not tax criteria. The mistake we have always made in the past is we have put these spending programs in the tax system and then treated them like they are tax deductions. We treat them like they are tax provisions and just kind of forget about them.
But it is a spending provision and we ought to evaluate it in light of our overall objectives on spending for R and D and in light of all the other policy instruments that the government uses for research and development. At the end of the day, once you have lined up all those policy instruments, it becomes kind of a choice of policy instruments problem. The government may decide, "Look, let's scrap the credit for R and D altogether and take the revenue we save from that and spend it on R and D in some other way" -- subsidizing universities, for example. No, it is just a joke.
My point is, it is really a spending problem and we ought to analyse it as a spending problem. The mistake we have made in the past is to put it in there and then treat it as a tax measure, and then the government just ends up having absolutely no control over it. All these people who argue the government should not be spending money without being accountable for it and without having control over it, they ought to be real concerned about these tax measures, because they are the most unaccountable, uncontrollable spending measure the government can enact.
Mr Wiseman: I would like to change directions a little bit. One of the comments that has been made previously about the makeup of the commission is that it is too much Hogtown here and not enough hinterland. I am just looking at your curriculum vitae and you are saying that you have been at the University of Alberta, the University of British Columbia and the University of Saskatchewan, and now you are at York University. This national trek of yours across the country, do you find that has given you a better perspective on being able to look at the various tax laws and some kind of advantage in being on the Ontario tax commission?
Mr Brooks: There are a couple of things. One is that I have done quite a bit of work for the Australian government, the New Zealand government and other governments on tax policy matters, and indeed I worked in Washington. That kind of comparative experience, it seems to me, is quite valuable when thinking about sort of the options for tax reform in Ontario, and I think tax policy issues tend not to be as culture-bound as other public policy types of issues.
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I really do not know what to say about my experience. It is true I have done other work for provincial governments and I spend a lot of time out west. I am from out west; it is where my family ties are. I do not know if any of that experience will be useful at all on this commission.
The other thing I just might note is, when you count people from Hogtown -- I am not from Toronto, incidentally; I am from the town of Caledon -- I am from outside of Toronto. I am representing the regions on this commission.
Mr Wiseman: I think that is the direction we were headed. They would think that because you work for the University of Toronto, somehow or other you have been tainted.
Mr Brooks: I work there, but in fact I live up north. I live on a little farm, a hobby farm I deduct for tax purposes. It is a tax shelter I live on. It is not, actually; it is just a joke. But I live out in the country; so I am really from the regions.
Mr Stockwell: Do you know Fiona Nelson? She is a farmer too.
Mr Wiseman: I think Al is going to be really happy that there are enough farmers on this thing.
Mr Brooks: Maybe we have too many farmers.
Mr Wiseman: Maybe there is too high a proportion of farmers -- no, it is okay.
Mr Sutherland: Mr Brooks, how would you define fairness in relation to taxation? It seems to me that before you can evaluate what changes need to be made you have to have some definition of fairness.
Mr Brooks: Let me be brutally candid about the tax system. We do talk about tax fairness and what we mean by that. What I mean, at least, is that people who are similarly circumstanced, who have the same amount of income, ought to pay the same amount of tax. Then we have all these subsidies in the tax system, and some people say those are unfair. I really do not think those are unfair, because I view them just like subsidies. We do not say the tax system is unfair because we have a direct subsidy that someone qualifies for and receives. I do not know why we should say the tax system is unfair because we have a tax subsidy that someone receives. But in the technical tax system, it seems to me to be vitally important that you get the rules right so everyone with the same income pays about the same amount of tax.
Then there is the more contentious issue: What do we mean by fairness between people at different income levels? I usually just sort of finesse that problem -- and this is where I meant to be brutally frank -- because I have argued that the tax system is the one instrument that the government has to redistribute income, and unlike many western European countries which use all sorts of other policy instruments to redistribute income, including centralized collective bargaining and all of those instruments, in a very liberal society like Canada the only way the government has to correct what I perceive to be sort of the maldistribution of income caused by the market is through the tax system. I have always argued that you ought to use your tax system to redistribute income from high-income people to low-income people.
That is not so much a question of tax fairness. Number one, I believe quite strongly that the market distribution of income is unfair. With many people, there is no ethical justification for the money that they in effect earn. An important function of government is to redistribute some of that market distribution of income, and it seems to me -- incidentally, this is a very liberal argument in some senses -- the one instrument that affects the market forces least in redistributing income is the tax system, because people are left with the freedom of all the choices they have got; it is just that you have got these kinds of progressive rates and you do a bit of redistribution.
Then the question becomes, how redistributive should the tax system be? You have obviously got some constraints. As an ethical judgement, you might want it to be very redistributive because you might look out there and say, "People look like they're working about the same, making about the same contributions; income should be distributed very equally." But obviously there are constraints on doing that. If you tax rich people too much, even I am prepared to admit, they will stop saving, they will move out of the country, they will stop working and so on. How progressive the system should be is largely an empirical question. How much fairness can you get without imposing too serious an efficiency cost on the market?
Mr Sutherland: If I can just come back to the point you made that people who are making relatively the same income should be paying relatively the same amount of income tax, what about setting up tax policy in terms of effective use of the money they are earning in terms of investment back into the economy that may be creating other jobs, or a multiplier effect versus the money just sitting there?
Mr Brooks: Actually, just kind of an incidental point, that is one of the real advantages of a wealth tax. If you had a net annual wealth tax, as many western European countries do, if you tax people on the net value of their wealth every year at some rate, one real advantage of that kind of tax is that, whether people have their money just sitting there or have invested in sort of unproductive assets or productive assets, they pay the same amount of tax; so you in effect drive them into productive assets. A problem with using the income tax to get at that kind of income is that if you put your money in unproductive uses, you do not pay any income tax. The income tax penalizes in some sense people who have put their money in productive uses.
The more general issue you raise, though, might be, to what extent do high income tax rates affect people's behaviour or choice as to whether they are going to save or consume? Many people argue that you cannot tax wealthy people too heavily on the income they earn or else they will not save and therefore it is a constraint on your progressive tax rates. If that is what you are asking, if I am concerned about high tax rates on people who are saving and therefore that people will stop saving and consume, again I am prepared to admit at some point that might happen, but in fact we are a long way from there now.
My general view is that income tax rates do not affect people's rate of savings very much. Indeed, in the United States, as you might know, in 1981 Reagan reduced the tax rates on high-income people from 70% down to 50% and said, "The reason I'm doing this is to encourage people to save, for the good of the economy." The rate of private savings in the United States went down from 7.5% in 1981 to 3.5% in 1987. Rich people just went on a consumption binge.
There is not a whole lot of evidence that your tax systems affect people's rate-of-saving behaviour. The Conservative government keeps saying, "We're going to have the GST -- a tax on consumption -- to discourage people from consuming and encourage them to save." In fact, if you look at every country in the world and you compare the rate of private savings in their economy with the percentage of tax revenues they collect from taxes on consumption, there is absolutely zero correlation. Indeed, Japan, which has about the highest rate of private savings in the world, has virtually no consumption taxes. They collect most of their taxes through taxes on corporations and fairly hefty wealth taxes and high income tax rates.
If the question you are getting at is whether or not I worry about the effect of the tax system on people's savings behaviour, I do worry about it -- at some point I worry about it -- but the evidence I have seen leads me to believe that we have got a long way to go before we have got a serious problem. People save for a whole set of different reasons and the after-tax rate of return is not a very important one.
Mr Sutherland: I was wondering if you would care to comment on the issue of property taxes, since it certainly was a major issue during the election campaign. I know many people I talked to were concerned about property taxes in terms of that as an issue of funding education or funding other public policies.
Mr Brooks: The property tax is a tax I have not looked very closely at at all. I have been involved primarily in income taxes and corporate taxes and so on, so I really do not have any strong views about the property tax. I worry about the effect of property taxes on farmers, naturally, particularly small farmers -- just a joke -- I just do not have any real views.
The Chair: Mr Johnson, you have got two minutes.
Mr Johnson: By and large you have answered the question I was going to ask you, but you have raised another issue. As I look through your résumé, you certainly indicate that you are, if not the pre-eminent tax expert, probably one of the pre-eminent tax experts, at least that I have ever met anyway.
Mr Brooks: My condolences.
Mr Johnson: When you talk about saving, are you not talking about wealthy people? You are talking about rich people basically, because poor people have a greater propensity to spend and wealthier people have a greater propensity to save. So when you talk about savings, you are speaking about a particular aspect of our society specifically. In fact, the poor do not have the opportunity to save because they spend all of their income in surviving; is that not correct?
Mr Brooks: Absolutely. With respect to poor people or even middle-income people, it does not make any sense to even talk about a propensity to save. They do not have a choice. They consume everything they earn. That works through right up into the middle-income classes, Most people at the average family income level in Canada are consuming virtually everything just to maintain a decent standard of living. The issue about whether we should tax savings more heavily or not is clearly an issue about how heavily you think we should be taxing high-income people. Anyone who argues that we should tax savings less in order to encourage people to save for the better of the whole economy is essentially arguing that we should tax rich people less.
Mr Johnson: And where we have encouraged people to save for pensions, again this is something that is an advantage really for wealthier people, is it not?
Mr Brooks: Yes. I do not think there is any question about that. I have seen numbers, and I must confess I cannot remember the exact numbers, but one of the most regressive tax measures the federal government has ever enacted is increasing the limits on registered retirement savings plans from $5,500 up to $15,000. It is going to cause a loss of revenue of about $300 million and all of it is going to about the top 3% of income earners. They did that, incidentally, in the face of a parliamentary committee which recommended that tax-assisted savings for pensions should be capped at about $34,000 or something like that.
Anyway, there is no question that all of those tax breaks to encourage people to save for their retirement are regressive. I do not mean to say that is a reason you might not do it, but you ought to know what the cost of doing it is. The cost of doing it is that you are giving an enormous subsidy to high-income people. Maybe there are other reasons why you should be doing it, but you had better be real clear what they are. Make sure you are getting some value for money there, because there is a real equity problem.
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Mr Grandmaître: I see you are a well-travelled man and I am glad you chose Ontario, the best province, to live in and to earn a living in.
Let's go back to subsidies. As you know, just like any other province in Canada, we are going through very difficult, economically dire times. At the present time we are faced with the possibility of losing maybe 5,000 or 6,000 jobs in the Sault Ste Marie area. Do you think we should subsidize Algoma to remain open?
Mr Brooks: Obviously, anyone who has got to make that judgement is going to want to know a lot more facts than I have at my disposal, but let me just make a general statement about that. It seems to me one of the things the commission will want to look at really closely, because it will be crucial, I would think -- and again, I do not mean to be speaking for the commission -- is the effect of the tax system on the location of business investments. Because it is clear, as you know, that as the economy has become increasingly globalized, we have got to worry about the effect of public policy on business investment locations.
The studies that have been done on that in the United States, for example, where they have a virtual laboratory for doing this kind of research, whether you locate in Massachusetts or Connecticut, or maybe even Texas -- businesses have all of those options and there are skilled workers in all of those -- are absolutely consistent, that generally the amount of taxes companies pay does not affect their business investment locations.
The common sense of that is that what determines where businesses locate are labour costs -- obviously an important one; your labour costs just dwarf your tax bill in most instances -- closeness to markets, transportation systems, public infrastructure, a whole range of things. The studies that have been done in the United States on whether you should give tax concessions to businesses to encourage them to locate in your jurisdictions generally have concluded there have been billions of dollars wasted trying to do that, quite ineffectively. If you want to attract businesses, the way to do it is to get your public infrastructure right, have a skilled workforce that attracts them, have markets for them and so on. Those considerations generally dwarf the tax considerations.
Again, I am not answering your question directly, just because I do not feel at all qualified to make a broad, general one, whether we should subsidize Algoma specifically. But I would begin with the proposition that providing subsidies, whether they are in the tax system or direct subsidies, to firms to encourage them to locate in your jurisdiction is generally a losing proposition.
Mr Grandmaître: You do not think that this province should be bonusing major manufacturers?
Mr Brooks: I really do not mean to be glib about this. It is obviously such a complicated problem and it really depends on each individual company. You might look at all the facts. But as a general proposition, I think if a government finds itself in a situation where it has to lure companies into the jurisdiction by subsidizing them, whether through the tax system or directly, you have got a serious problem. Where is it going to end? Then are you going to provide them subsidies?
Mr Grandmaître: Does that mean you agree with free trade?
Mr Brooks: I did not agree with free trade. I did not agree with indiscriminate liberalizing of our trade laws. I think a government that does that largely loses control over the national agenda. I worry about that. While I am certainly in favour of selective trade liberalization and so on, I worry about a government giving up all the levers that it has in controlling business investment decisions. That is to say, you might well be in favour of saying that, "Yes, we think we'll have a better economy, and maybe even a more equitable economy, if we allow decisions to be made in the marketplace about where investment will locate and so on." In effect, the government delegates to business an enormous power over the state.
We have generally done that, but I think we have to be very careful that we end up not having any control over those decisions at all. Clearly, one control that we used to have was the threat, at least, of imposing some trade restrictions. But if you just liberalize trade restrictions across the board, and give up that lever of economic control over your own economy, yes, you have problems. Then you get into the kind of thing you are talking about; so you do that and then you find you have to buy these businesses back by giving them enormous subsidies. If you are going to do that -- I do not want to sound too radical here, but do it yourself; buy them out.
Mr Grandmaître: Buy them out?
Mr Brooks: If you are going to have to subsidize them all to get them to locate in your jurisdiction, then I think you should look around for some other policy instrument. If you have given up so many of the economic levers that you cannot get any businesses to invest in your jurisdiction without picking up all their costs but none of their profits, I think you are in kind of a peculiar economic situation. I would not want to be in that situation if I were a government, I will tell you.
Mr Grandmaître: I realize that. As you pointed out, taxes in this province, or any other province, are revenues and these revenues are supposed to be distributed to needed agencies and so on and so forth. Having said that, do you think too many people are taking advantage of our social policies in Ontario? Do you think that people are abusing some of our social services at the present time in this province, or too many people?
Mr Brooks: I will make a sort of fundamental point here about the tax subsidies. I do think there are people out there abusing social programs; I do not have any question about that. But I do think that the number of people who are abusing our social programs is absolutely trivial compared to the number of people abusing our tax system.
For example, the government prosecutes about 100 people for tax evasion every year. Not one of them gets sent to jail -- I should not say one; three got sent to jail last year but they were all not only for tax evasion, they were up on fraud charges as well. These people evade hundreds of thousands of dollars in taxes. We routinely send people to jail for abusing social programs for $20,000 or $30,000. There is an enormously troublesome sort of double standard that we apply.
In terms of abusing the tax system, for example, multinational corporations -- these are figures from a Woods Gordon study that was done for Revenue Canada -- for every dollar that Revenue Canada spends auditing multinational corporations, they collect 17. That tells me there is a lot of abuse going on, billions of dollars of abuse. I am no financial guru, but if the federal government were to privatize the auditing of private corporations, I would invest in it. It seems to me a real good return on your money there.
As a tax policy person, I worry about abuse in government wherever it occurs, and I do not mean to say that I am not concerned about the abuse of social programs, but the studies that have been done both for the Transitions report in Ontario and for the federal government show that if you want to find abuse, look in the tax system. The size of the underground economy now is billions and billions of dollars and growing, and we ought to be doing something about that for sure.
Mr Grandmaître: One last question. You have seen the terms of reference for this commission.
Mr Brooks: Yes.
Mr Grandmaître: Is there anything else you would like to add to the terms of reference, or do you think the government should have gone much deeper than this?
Mr Brooks: I just have the same terms of reference in front of me that you do, that the government is anxious that the commission be task-oriented in some sense, that it begin to deal with perceived problems in the system. Obviously it does not want to engage in the kind of exercise that the Carter commission report did, where you give it millions and millions of dollars and say, "See you in six years," or something. It wants it to deal with the issues as they arise. It seems to me that the ones they have identified are certainly among a list of ones I would have chosen.
I certainly cannot speak for the commission at all, but I would have thought that one of the initial things the commission will do, and indeed will spend a couple of months doing, is refining its agenda in some sense and hearing from all groups, hearing from business groups, hearing from small business in particular to find out what problems they are having with the tax system, to listen to all of those groups, and then from that prepare an agenda for its work.
I read these terms as being relatively open-ended, and while the government clearly wants a response to these questions, as I read these I assume that the commission in some sense will be able to establish its own agenda. I hope they do a real careful job of that and, before they decide what the priorities are, listen to every affected group in the province; that is, they do not just consult to find out but consult about what people think the problems are, and once they have prepared that agenda, consult again about what some of the answers might be. But I think preparing the agenda is going to be one of the most important issues facing the commission.
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Mr Sola: You just touched on the growth of the underground economy in response to a question by Mr Grandmaître, and it seems to me you mentioned earlier in relation to our progressive tax system that you did not think we had reached the point where it had provided a disincentive for investment.
Mr Brooks: Right.
Mr Sola: That seems to me to be almost a contradiction in terms. I wonder if you could elaborate on that to see at what point you see our progressive tax system sort of reaching the end of the rate distribution to achieve equity and where it begins to provide a disincentive for either work or investment.
Mr Brooks: One argument that people make, and it is the argument that the federal government has made for reducing income tax rates and relying more on the goods and services tax, is that if you get your income tax rates too high, people will stop working, stop saving and start cheating more. They have said we have to reduce those top rates in order to encourage people to comply with the income tax laws. I am prepared to admit that if you get those rates too high, you have increased the incentive to cheat.
I do not mean to be glib about this, but just let me say a couple of things. In theory, it is not clear that if you increase the rates, people will cheat more or less. On the one hand, if you increase the rates, the benefits from cheating go up, because if the rates are 60% instead of 40% and you cheat on $100, you have saved yourself $60. On the other hand, the costs go up as well. The costs go up because the penalty for tax evasion is based upon how much tax you have evaded. Furthermore, the costs go up because as you increase the rate, Revenue Canada has a greater and greater incentive to audit you. If they audit you and find out that you have cheated and evaded $100 and the rates are 60%, they recover $60 in tax plus penalties; if the rates are only 40%, they recover only $40 plus penalties. You have some benefits from cheating; you also have costs.
You are shaking your head, so you may not believe what I am going to say, but the theoretical studies have shown that by increasing the rate, you actually increase compliance. The empirical studies also confirm that. The United States is a virtual laboratory for this kind of thing, because you have some states with really high rates and some states with really low income tax rates and you have something called the tax compliance management program that is done randomly across the country, so you can compare fairly accurately who is cheating and who is not; they find in fact that in the states with high rates there is less cheating among high-income people. Here is the thing about commonsense experience in terms of that as well: When you think about people who are cheating on their income tax, particularly high-income people, they usually point to self-employed contractors, nannies -- all those people. If their theory about high rates is right, how do they explain those people cheating? Their tax rates are the lowest in the system. They should not be cheating at all if that theory is right.
Furthermore, if you look across countries, you see absolutely no correlation between tax rates and the size of the underground economy. For example, in Hong Kong they have a flat income tax rate of 12%. The underground economy in Hong Kong is absolutely legendary. If you look across taxes, you find no correlation. There is as much cheating on sales taxes as there is on income taxes. My theory with respect to cheating is that if you give people an opportunity to cheat, they will cheat. I do not think the rates have got anything to do with it. If you want to stop high-income people from cheating because your rates go up, then you ought to structure your tax system so they do not have an opportunity to cheat.
For example, on income from salaries and wages, we withhold the tax. No one cheats on salaries and wages; you do not have an opportunity. Why do we not withhold taxes on interest and dividend payments or capital gains payments? Those are the incomes we know there is an enormous amount of cheating on. We could stop that in a minute, just by imposing a withholding tax in the same way that we withhold on wages and salaries. We should have more comprehensive information returns. I will tell you this one just to say there is no correlation between tax rates and cheating.
In the United States, the Internal Revenue Service estimated it was losing $8 billion a year because people were claiming dependants they did not have, saying or claiming "I've got four kids." What they now require in the United States is that when your kids reach the age of five, they have to have the equivalent to our social insurance number, and if you claim them as a dependant, you have to put their number down there. They stopped that cheating overnight, in effect. In the United States when you claim your dependant's deduction, you have got to put down your child's social insurance number; it is called the tax identification number.
Anyway, when they looked at who was cheating, there was absolutely no correlation between who was claiming excess dependants and their tax rates; it was just spread randomly across. That is what you would predict. I mean, people cheat because they are cheaters, not because their tax rates are 20%, 50%, 60% or 70%. It is a peculiar argument, frankly, for rich people to suggest, "If you increase my rate too much, I'll cheat; so don't do it." In fact, there is a basic immorality in even making that argument, I would have thought. "Oh, you're going to cheat? Well, cheat." What we ought to do is start withholding on them; send more of them to jail. Lowering rates is not a very good way of increasing income tax compliance. There is absolutely no evidence it works.
Mr Sola: Okay. You have looked at it from the angle of cheating, but how about looking at it from the angle of disincentives. You can go to people who work on the line at Ford, General Motors or any other unionized environment where they are on a computerized payroll, and they will tell you that after they make a certain amount they refuse overtime because they are working for the government, not working for themselves. It does not add to the number of people that company will employ. It just creates an added burden on the people who do accept the overtime, in trying to stretch themselves too thin.
Also, small businessmen that I have talked to say that it is almost impossible today to find somebody who will do a minimum-wage job, like wash your car in the car wash or dunk your doughnuts or something, if they are not paid in cash. Either they are on unemployment and do not want to infringe on that benefit or they are on some sort of social assistance and the money they can make at that job is not sufficient incentive for them to get off the dole, so to speak. Where is the demarcation line, where is that fine line where it is a disincentive or where it is an attempt at equity?
Mr Brooks: I agree there is no question that tax rates can affect people's behaviour, to work, to save, to take leisure, to cheat, all of those. It has some effect. No one is arguing it has zero effect. The question, though, is how great is the effect. Given other kinds of counterbalancing policies we are trying to implement, we obviously have to weigh those kinds of incentive effects against other things.
The interesting thing is that the argument that tax rates affect cheaters would not explain why the person will not dunk doughnuts, because I assume that most people who will not dunk doughnuts unless they are paid in cash are in the lowest tax bracket. The theory that tax rates affect work incentives would suggest that they should be quite prepared to dunk doughnuts and report it. It is the higher-income people who want to get the cash.
You worry about the incentive effect. Again, just to deal with work incentives in particular, the best evidence we have is what the Carter commission found -- this is what virtually every study in Canada I have seen has found -- that tax does not affect people's work incentives very much. Back in the 1960s our income tax rates were 80% and yet there was not mass malingering down on Bay Street, as far as I could tell. Lots of people were paying at 80%. It seems high to me. I certainly do not want rates that high. In the 1960s they were 80%. We had our highest rates of economic growth. We had the lowest rates of unemployment. I do not know. Maybe it is a good thing; I do not know. Maybe people work harder. There is kind of what economists call conflicting substitution income effects. If you tax people more, they might work less because now their leisure becomes less expensive and they will take more leisure. On the other hand, if you tax them more and what they want to do is maintain a particular standard of living, they have to work harder to maintain that standard of living, and so some people will work harder. There is lots of anecdotal evidence to show that is the case.
Mr Sola: You mentioned you have got international experience. I wonder if you are familiar with the Italian scene. A few years ago I read several articles indicating that Italy, which is a G-7 nation -- at that time I think it was a G-5 nation -- whenever it went to international economic summits, actually had to take along two finance ministers: the one of the legal economy and the one of the underground economy. I wonder if you are familiar with that and if you could explain how that --
The Chair: Professor Brooks, I am going to interject here because it could be a very lengthy response. That is a rather open-ended question and I am going to give you 30 seconds to respond. Then we will move on.
Mr Brooks: I will just plead ignorance. On the other hand, we do hear these stories about other countries. Italy has got a fairly booming economy; it has not been doing so badly. They collect lots of revenue in Italy; more tax than in Canada, incidentally. The amount of tax they collect as a percentage of their gross domestic product -- even the recorded GDP, and their underground economy will not be in those numbers -- is much greater than Canada's. Canada internationally is a very low tax jurisdiction. We collect about 34% of our GDP in government revenues. The average European country collects 40.5%. I just forget the figure for Italy, but it is up in the top 30s; they are collecting a whole lot of tax. People have done studies of the underground economy by using such things as the amount of cash there is in the economy and various kinds of indicators. I think by those indicators Italy does not come out so badly. It might just be a stereotype we have.
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The Chair: Mr McLean, you have got about five minutes.
Mr McLean: I have about three short questions. Do you have a full-time job?
Mr Brooks: I am a professor at York University, yes.
Mr McLean: Is that full-time?
Mr Brooks: Yes.
Mr McLean: Do you feel you will have enough time to be able to be part of this commission?
Mr Brooks: Yes. The government has assured everyone on this commission that the commissioners' time will be three or four days a month. That is all I do: work. I work seven hours a day; I could find three days in there, I am sure.
Mr McLean: Do you live on the farm near Bolton?
Mr Brooks: It is not a farm; it is a joke. It is 10 acres. It is in the country.
Mr McLean: It is not a tax write-off then?
Mr Brooks: It is no tax write-off, no. The government would owe me a whole lot of money if I were to deduct my losses on that farm, I will tell you.
Mr McLean: The first few questions you were asked, I was very enthused with your replies; but as time went on I got to have some concerns with regard to your statements on capital gains and the amount of money exempt from tax. I am getting the feeling that you feel that capital gains would be a great revenue for the province.
Mr Brooks: I think they could collect some revenue by taxing capital gains, yes.
Mr McLean: I want to give you an instance. Not many of you on that commission who are farmers or know very much about meeting a payroll on a farm. I am a farmer, and if something happened to me, and my son took over my farm, I am afraid he would have to sell it to pay any capital gains, which I do not believe would be right or proper. So when you talk about raising the amount of money to help offset some of the expenditures on capital gains, it is a concern to me.
Mr Brooks: Mr McLean, I do not just say this because you are a farmer. I feel very strongly about farms and I feel very strongly that in Canada, as a matter of national policy, we should retain the family farm, even though it is costly to us, even though it means that it is costly to the economy to maintain the farm community, for a whole lot of values other than economic.
On the question as to whether or not we ought to be subsidizing farms by giving them capital gains, as you know, when a farmer dies or a farm is passed on to children there is a $500,000 exemption; then you can roll it over to your children without a tax consequence. But again, in spending terms, think about that $500,000 capital gains exemption we give farmers. In effect, it is a subsidy. We say to farmers, "When you sell your farm what we're going to do is make you pay the $200,000 tax," or whatever it is on the $500,000, "and then we're going to write you a cheque back, but just offsetting." It is a $200,000 subsidy to farmers who sell their farms.
Think about it this way: Ask whether that is a sensible policy for encouraging family farms. Number one, who gets it? I argue it is distributed absolutely wrongly. The people who get it are, for example, people who have their farms near an urban area. If you have got a farm near an urban area, and you happen to sell it to a developer, you are going to get the full subsidy. If you happen to have your farm in the middle of Saskatchewan and have to sell in an economic downturn, you get zero subsidy. That is a peculiar policy. Indeed, you get the subsidy only if you sell your farm. If we are interested in family farms, why the hell are we giving them a subsidy when they sell? We should be giving it to them when they are operating. I know all sorts of farmers. They want a subsidy so they can operate their farms. They do not want a subsidy when they sell it.
Furthermore -- I will just make this general point -- I worry a lot about the effect of our tax system on small business and farms. Again, I hope this commission will order studies on what effect the tax system is having specifically on farmers and small businesses.
Mr McLean: The bottom line with this is you are not subsidizing the farmer, you are subsidizing that consumer who buys his food. That is who is ending up with the golden deal out of it all, not the farmer. If they paid him what it is worth, he does not need the subsidy.
Mr Brooks: Right.
Mr McLean: Our deficit is a major concern to a lot of people. What would be your recommendation in the commission as to how we are going to lower our deficit?
Mr Brooks: That, I take it, is one of the issues the commission would be looking at: how you can get your tax system most equitable. Once you have got an equitable tax system, it is up to the government to decide what it wants to do. The sense of my article in the Star, that little blurb I did, is just nothing, but this is my bottom line -- is that if the government wants to reduce the deficit by cutting back on spending programs and not increasing taxes, then the review of the spending programs it cuts back on it had better include these tax spending programs. My guess is that when you put those alongside all your direct subsidy programs, you will find that there is more wasteful spending and more cheating through the tax system than there is in the direct spending programs. So I would cut back on some of those.
Mr McLean: Do you think we have a bloated civil service?
Mr Brooks: I think everyone ought to be efficient and work hard, and we ought to have a civil service that rewards efficiency and good work. Whether we have got that kind of civil service or not, I do not know.
The Chair: Thank you, Professor Brooks. We appreciate your appearing here today and your very helpful responses to the variety of questions. Good luck.
Mr Brooks: Thank you very much.
GÉRARD LAFRENIÈRE
The Chair: The next witness to appear before the committee is Gérard Lafrenière, an intended appointee to the tax commission. I want to remind members of the committee that Mr Lafrenière's review is a 45-minute review and each caucus is limited to 15 minutes of questioning. This is a selection of the government party, so I will ask the government caucus to open up the questioning.
Mr Waters: I see in here you have worked quite extensively with co-ops. I was wondering how you felt your background with the co-ops would interact with your duties on this committee.
Mr Lafrenière: I think it would give me a perspective that is more closely associated to l'économie sociale, or social economy, as opposed to a perspective which is more oriented towards a bottom-line type of look at business. I think that the work I have done within the co-op movement has given me a kind of broad look at what one could call an alternative economy.
Mr Johnson: Mr Lafrenière, it is often heard that banks do not pay their fair share of corporate tax. I just want your opinion. Do you think banks pay their fair share? I understand some banks do not pay any corporate tax. Given that they are in the business of money, and it appears from documents that I have seen that banks profit quite handsomely from their business of handling money, do you think they should pay some tax back to the province?
Mr Lafrenière: The only thing I can answer to that is, if it is true that they do not pay their fair share of taxes, and this is a Fair Tax Commission, I think this is an area that definitely should be looked into. I do not have any pre-set attitudes towards this. It is just that I remember -- I do not know, three or four years ago -- there was an article in the paper that the Royal Bank of Canada had paid less tax than the latest cashier it had hired that year. It does not appear to be fair to me; I think it definitely should be an area that should be looked into very attentively.
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Mr Sutherland: Mr Lafrenière, looking at your résumé, it is very impressive. You have done a wide range of things. Some people may question the fact that you do not have a lot of direct experience with the taxation system. Do you see a problem with that? Or what type of perspective do you feel you are bringing to the Fair Tax Commission?
Mr Lafrenière: I am certainly not bringing a perspective of an expert on taxation, because I am not. The perspective that I hope I would be bringing to the commission would be more of a philosophical or analytical perspective. I was involved in teaching social philosophy for a number of years. I think I can bring in a view that could perhaps balance people who would come in from a traditional school of commerce approach to taxation. But definitely my contribution could not be viewed in terms of expertise on taxation.
Mr Sutherland: If we went around this room and asked the members of this committee how you define fairness, and how you define fairness in terms of financial or taxation issues, we might get a different opinion from each of us. I was wondering if you could comment on how you define fairness, maybe first of all from a philosophical standpoint and then maybe from the standpoint of taxation.
Mr Lafrenière: Fairness is an equitable participation of people in a group towards whatever the cause may be. If we are talking about taxation, it is that those people who benefit from the institutions and the government under which they live should contribute equitably, not equally, not mathematically, but equitably; that is, in proportion to the benefits they derive through a variety of sources of income.
To me, fair taxation is a system where there are no groups or subgroups which benefit from loopholes in the system and which get an edge simply because of a status that they occupy in society or because of the nature of a certain part of their income.
Mrs MacKinnon: I have maybe a couple of questions. I will try not to make them very long. First of all, could you please explain to me what distance education is.
Mr Lafrenière: Oh, very simple. Distance education is any form of education where the teacher and the learner are separated either in time or in space or in both.
Mr Stockwell: That is as clear as mud.
Mr Lafrenière: I will give you a simple example. We have a teacher at the Ontario Institute for Studies in Education here in Toronto who teaches a number of students in the master's program in education in Timmins, Sudbury, North Bay, Sault Ste Marie, Parry Sound and places like that. This is an example of distance education.
Mrs MacKinnon: So you are talking about TV, correspondence, etc.
Mr Lafrenière: Yes, or teleconferencing, or any combination of these things.
Mrs MacKinnon: I thought that would be your answer, but I just wanted to be very clear.
The other thing I have noticed is that you have travelled a great deal in northern Ontario. Having been up to northern Ontario on a few short visits, I tell you, you must have some real type of constitution to do it on a regular basis. However, I am wondering, do you feel that having been in northern Ontario will be helpful to you on this particular commission on fair taxation?
Mr Lafrenière: I sure will bring to the commission a point of view that will be somewhat different than that which I would have if I lived on Bay Street. There are a number of things I noticed on the way down; for example, where we are paying 64 cents a litre for gasoline, there was a sign somewhere along the way, not too far from here, at 50.8 cents. People of the north are somewhat sensitive to these things, especially since Dr Hans Strauss of the economics department of Laurentian University made an analysis a few years ago of the cost of gasoline in northern Ontario and determined that the cost of transportation, which was the common excuse given for the differential in price, accounted for less than one cent per gallon in the price of gasoline. So there are definitely some areas of the economic reality that would relate to taxes for which I would bring probably a more sensitive approach because of the fact that I live 450 kilometres away from here.
Mrs MacKinnon: Thank you for that information. So I can assume that you do not live in good old Toronto.
Mr Lafrenière: That is correct.
Mrs MacKinnon: I have one other question, and if it is out of line please just say so and I will withdraw it. I notice that you are a married man. Are you a father and a grandpa? No, you are not old enough to be a grandpa.
Mr Lafrenière: I am old enough to be a grandpa, but thank God I am not yet.
Mrs MacKinnon: Oh, it is the most wonderful time of your life. Trust me. The reason for my question is perhaps obvious. I am the only woman in this particular committee today, so I am just wondering where you feel your expertise lies in regard to the taxation as it affects children of the less fortunate groups, single moms, etc.
Mr Lafrenière: Would you repeat the question? I was thinking in another track. I just do not know exactly what you want for an answer.
Mrs MacKinnon: I was just wondering, if you are a father yourself, do you feel you will be able to relate to this tax system as it bears on the children and the single moms -- and dads, for that matter -- throughout Ontario and the hardship that the taxation system is putting on them at this time?
Mr Lafrenière: Yes, I would presume that I would have as much or as little sensitivity to that aspect of life as anybody else on the commission.
The Vice-Chair: Time is running short, but Mr Hayes is next.
Mr Hayes: Mr Lafrenière, you mentioned in your activities here that you gave over 40 weekend seminars to boards of directors and senior staff of caisses populaires and co-operatives throughout Ontario. I would just like your opinion. Do you think caisses populaires and credit unions, for example, should or could be playing a stronger role in our communities and especially in the rural communities across this province?
Mr Lafrenière: I have committed over 20 years of my life to that thesis, sir, and the answer is yes, I believe it should play a much bigger role. But in order for credit unions, caisses populaires and other forms of co-operatives to do this there would have to be a review and a restructuring of the Co-operative Corporations Act, which is the legal framework in which co-operatives operate. There has been, to the best of my knowledge, a review going on that is almost a decade old but somehow the child is never born. Yes, I am totally convinced they should play a bigger role.
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The Vice-Chair: Two minutes left if there is anybody else who has any questions. We can pick them up later if need be.
Mr Grandmaître: Are we equipped for translation? Not yet?
The Vice-Chair: We are waiting for the headsets to come. When they come we will be, but they were not prepared yet.
Mr Grandmaître: Does that mean I have double time?
The Vice-Chair: No.
M. Grandmaître : Monsieur Lafrenière, en tant que le seul francophone nommé à cette commission, je vous souhaite la bienvenue au Canada, à Toronto, à Bay Street, à Queen's Park.
Let me ask you a question. You were asked what was your definition of "fair" or "justice." I listened to you very carefully. Do you think this province should subsidize northern Ontario better than we do eastern Ontario?
Mr Lafrenière: I must confess I did not get up at 4 o'clock this morning to ponder that question.
Mr Grandmaître: It is a fact.
Mr Lafrenière: That it should subsidize northern Ontario, yes; and if studies show that eastern Ontario should equally be subsidized, then I would be in favour of that. I think there has been historically a bit of an unfair distribution of the provincial wealth. Mrs MacKinnon said you have to have a strong constitution if you travel in northern Ontario. Yes, and you also have to have good nerves because our roadways are somewhat less spectacular than things you have when you drive around Toronto on 14- or 16-lane highways. I am not saying we should have 16-lane highways right up to Sudbury or beyond, but I find, and studies have shown, for example, that somewhat of an unfair percentage of taxes related to mines and other natural resources seem to flow in a much broader river towards the south than the reverse. They flow south and they trickle north. I think it is worth looking at. Maybe there should be somebody looking also at the flow going east. I lived in Ottawa for eight years and I remember the roads of the Ottawa Valley were not that much better than the roads up north.
Mr Grandmaître: You should excuse yourself. They are twice as bad as northern Ontario.
Mr Johnson: There are big potholes in Ottawa.
Mr Grandmaître: Absolutely. There is one on the Hill. I have worked in northern Ontario, as you may know, for 11 years and that is how I met my wife, from Noelville, Sudbury. I worked for Imperial Oil, especially in Sudbury and throughout northern Ontario, and I did not find a difference between eastern Ontarians and northern Ontarians, except that northern Ontarians are not happy-go-lucky people. But they are great people to be with. They enjoy life, maybe more than Bay Street people or eastern Ontarians. They enjoy life.
Mr Lafrenière: You do not want to levy a tax on that, I hope.
Mr Grandmaître: What I am getting at is that northern Ontario has been criticizing not only the provincial government but the federal government, saying that it is not getting its fair share. I know we are pumping your resources every day, every week, every year, and you are claiming governments are not returning a reasonable percentage of these revenues back to northern Ontario, as you pointed out.
You talked about the difference in gasoline prices. I can remember -- I am going to name the person -- the present Tory leader used to criticize the former government because of the gasoline price differentials between eastern Ontario, northern Ontario and Toronto. I was there three weeks ago, and I do not know where you bought your gas at 64 cents, but I think you got gypped. I paid 57, and that is only three weeks ago. You can buy gas in Toronto at a much cheaper rate. They claim it is transportation, so that is why it is much higher.
But let's go back to the commission. First of all, I am glad that there is somebody from northern Ontario. It is too bad there is nobody from eastern Ontario -- yes, we do have somebody from eastern Ontario, but she lives in Hull; it is right across the bridge from eastern Ontario. I am glad we are going to get the northern Ontario perspective on this commission.
Going back to subsidies, I know you are living in an area where a lot of businesses -- mining, especially mining, and the pulp and paper industry -- are asking this government and the federal government for more subsidies. Do you think we should provide these mines and pulp and paper mills with more subsidies?
Mr Lafrenière: I think this is the type of question that should be asked in 1993 after the commission has completed its work. My work does not bring me into dealing with tax questions; I do not have any pre-set attitudes. If the industry is absolutely non-viable and the plant should be closed, then maybe it should be closed. On the other hand, in Timiskaming, just across the river from the province of Ontario, near North Bay, we have Tembec Forest Products, which was closed by CIP because "it was not a viable operation." It was taken over by the workers. It has been expanding ever since and it is now operating on the international markets.
I am a strong believer in the co-operative formula, and if you look at what is happening in France, in England, in Italy, in terms of worker co-ops, I would like to explore much more fully than I have done alternatives to either closing down plants or pouring taxpayers' money indefinitely into a kind of bottomless pit. I do not know if that answers your question. I have nothing against some subsidies provided that they make sense, but I definitely do have something against subsidizing something just to keep it alive when it should die.
If I look back at the Tembec experience, we had a situation where the mill was profitable in the sense that it was not losing money, but according to the dictum of the head office, which was in the United States, it was not making a fair contribution to the overall profit picture of the company. I believe it was around a strike or negotiation or something. They decided to close the mill. As I said, it was not a money-losing mill.
Before I would answer a blanket yes to your question, I think each situation has to be looked at and other alternatives should be looked at before pouring in a lot of money in subsidies. In my opinion, there have been too many cases of companies which received a lot of subsidies, either federal or provincial money. It does not matter who pays; it is always the taxpayer at the bottom of the pile who forks out the money, which has been kind of wasted. I would hope that the commission would look at that and come up with some reasonable recommendations.
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M. Grandmaître : Monsieur Lafrenière, vos expériences dans le domaine du système coopératif, vous avez été impliqué dans le mouvement depuis un certain nombre d'années. Ma question : il y a deux ans ou peut-être deux ans et demi, l'ancien gouvernement a présenté un programme qui s'adressait surtout au nord de l'Ontario. C'était un mouvement coopératif pour susciter de l'intérêt dans la petite entreprise pour créer des emplois. C'était un mouvement dont les employés et le propriétaire pouvaient créer un genre de cooperative. J'étais le ministre du Revenu à ce moment-là et je me souviens que nous avions divisé la province en quatre parties. Le nord de l'Ontario était la région qui a fait appel à ce programme. Je crois qu'il y avait trois ou quatre nouvelles compagnies qui ont été formées sous ce programme.
Qu'est-ce qui manque ? Ou peut-être que c'était le gouvernement qui faisait une erreur. Nous avions présumé que le nord de l'Ontario était pour répondre en grande majorité, la plupart de l'argent avait été pointé vers le nord de l'Ontario et très peu de gens ont répondu. Pourtant, les gens du nord de l'Ontario sont des gens avec une imagination extraordinaire.
Pourquoi pensez-vous que les gens du Nord n'en ont pas profité ?
M. Lafrenière : Une des raisons pour lesquelles les gens du Nord n'auraient pas profité de ça, à mon avis, c'est que nous, les gens du Nord, sommes essentiellement des travailleurs, des bûcherons, des mineurs.
We have been working for huge companies, Inco, Falconbridge, Abitibi, CIP, etc.
Et les gens ont perdu l'habitude de prendre en main leur propre destinée.
If you take Sudbury and Inco, at one time Inco employed 18,000 people.
Mr Grandmaître: It was 27,000.
Mr Lafrenière: Somewhere they must have employed 18,000, on the way up or on the way down. The Inco cheque was simply a guarantee. You could count on your cheque on Thursday morning the same way that you could bet that the sun would rise in the east. It was same thing with the lumber companies. Therefore, you developed a population who lost the ability to do things for themselves because they were going to do it. Mother Inco was coming up with a cheque every week and it was guaranteed. Anybody who weighed a minimum of 150 pounds and was tall enough to see above this counter was hired by Inco, and at big wages.
If I can give you an example, probably about 1958-59 I had a brother with a master's degree in commerce from l'Université Laval who was teaching at l'Université de Sherbrooke and making $4,800 a year. I had two brothers -- one of them had not finished his primary school -- working at Inco, making $5,300 a year as base salary plus another $2,500 to $3,000 a year in bonuses. These were the days when you could buy a brand-new car for $1,600.
You had a situation where there were jobs that were readily available, that paid a lot of money and that were more or less guaranteed. They were almost as guaranteed as tenure in the university system today. It developed a population that just forgot how to take its own destiny into its own hands. That would be my answer, because when I tried to work with a group in Kapuskasing when the mill wanted to close the two-by-four mill and in South River where there was another mill, we met with the people and they were afraid to assume or to take into their hands their own economic destiny. It is scary. It is easy to blame Inco. If Inco buys a company that makes batteries, and then it loses millions of dollars, the people there are a bunch of stupid idiots. If Inco invests somewhere else and loses money and has to lay off people in Sudbury, again they are idiots. If you are in a worker co-op or if you are in an employee-owned type of business, it is more difficult to say "they" are idiots because "they" are us and it is a scary thing and people are afraid to take the step.
The federal tax system as it applies to co-ops makes this unattractive because it penalize the workers who own their own business in a co-op because of the patronage return.
La ristourne est considérée comme un boni et donc c'est taxé au maximum.
This is federal tax and not provincial, but the --
The Chair: Mr Lafrenière, I am going to have to jump in here because we are under some pretty tough time constraints and we are over the allocation. We are going to have to move on to Mr Stockwell now.
Mr Stockwell: Quickly, I have a couple of questions that I am asking everyone who comes before this committee. Do you have any party affiliation?
Mr Lafrenière: Do you mean am I a card-carrying member of any party? No.
Mr Stockwell: No, I did not ask you that. Have you belonged or do you belong to any of the provincial parties? If it is Conservative, I can understand.
Mr Lafrenière: Do I belong to a provincial party? No. Define what you mean by "belong." You asked, "Do I carry a card of any party?" The answer is no.
Mr McLean: Is he a supporter?
Mr Stockwell: Okay. How about a supporter then? Are you a supporter? Did you work or contribute in the last provincial election?
Mr Lafrenière: I did not work. I did make a contribution to a party, yes.
Mr Stockwell: Which party was that?
Mr Lafrenière: I supported the NDP in the last election with a huge contribution of $50 or $100 or something like that.
Mr Stockwell: That would almost make you a supporter of the NDP, though, would it not? I do not find a lot of people who support me end up giving money to the NDP, so it is just a curious coincidence, I suppose. I am not real shocked. I did not find a lot of people who gave me money supporting the NDP either. That tends to be how I align people, if they work or give money or something else, something like that.
Having now confirmed so far that four of the six we have interviewed have supported or carry a card or in fact lean towards the government, do you think we will get a very unbiased review of the tax system or do you think it is going to be slightly slanted?
Mr Lafrenière: No, I think it is going to be unbiased because most NDPers I know are very open-minded and fair people, like most people of other parties.
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Mr Stockwell: If everyone is so open and unbiased, why did we end up with so many members of the NDP on this?
Mr Lafrenière: I am sorry, sir, nobody asked me to make the selection for this commission, so I cannot feel any responsibility for the list of names or where they come from or anything. I was simply asked if I would consider sitting on this commission. I thought about it and I answered yes. That is the only thing I will plead guilty to at this time.
Mr Stockwell: Okay. There are obviously political agendas at work outside here, outside your appointment alone, and clearly that is why I asked the question. It has nothing to do with your abilities or your background, other than the fact that you belong to the NDP.
Mr Lafrenière: No, I do not belong to the NDP.
Mr Stockwell: Or work for them. I am sorry; or are a supporter -- how about that?
The next question is with respect to wealth tax or death tax, minimum corporate tax, these kind of things that were kind of mouthed by the government in August and sort of backtracked on in September. As I said before, they have had a memory loss. Really what I would like to do is find out from each commissioner, do you have any firm views on those kinds of taxes right now? Do you believe they should be implemented? Do you think it is something we should be implementing or in fact examining ways it can be implemented?
Mr Lafrenière: I do not have any firm views on any aspect of taxation in the sense that this is not part of my daily preoccupations. I have general views. I find, purely on the basis of equity, that I would tend to support a system of taxation where there would be some form of taxation on inheritance, for example.
Mr Stockwell: You do?
Mr Lafrenière: Yes.
Mr Stockwell: You think that is something we should be examining and in fact looking at ways to implement?
Mr Lafrenière: I think the commission should examine everything.
Mr Stockwell: No, I asked specifically, and your response was that you have some agreement with some kind of inheritance tax.
Mr Lafrenière: Yes.
Mr Stockwell: A death tax, in other words.
Mr Lafrenière: No, not a death tax; an inheritance tax.
Mr Stockwell: That is a nicer way of putting it, I suppose, but to get an inheritance someone has to die, so it is just a different way of viewing it, I suppose. Okay, that is basically all I would like to know.
Mr McLean: The Treasurer and the Premier on many occasions have indicated they are very much in favour of a minimum corporate tax, and I am wondering about your views on that.
Mr Lafrenière: The whole aspect of corporate taxation is very, very complex. At this time, 3:45 today, I would say I have a certain leaning towards a form of corporate tax, but exactly on what basis and in what circumstances, I do not know. The same thing with the inheritance tax; I do not have any preconceived idea as to where it should start to kick in on something like this. In today's economy, are we talking about $500,000, $250,000 or $1 million? I do not know.
Mr McLean: If a small business made $250,000 a year, would you think that it should be able to not pay any taxes?
Mr Lafrenière: If a small business made $250,000 a year?
Mr McLean: That was their gross income.
Mr Lafrenière: That would depend on what their expenditures were. Taxation, as far as I understand taxation related to income, has to take into account what the expenses were in relation to that income. If the small business in question spent $300,000 in order to generate a gross revenue of $250,000, maybe that company should not pay income tax in that fiscal year.
Mr McLean: That is exactly what I wanted to get at. The Treasurer had indicated that he was looking at pretty well all corporations paying some form of tax, and there are many corporations and small businesses in the province, and specifically farmers, that have large incomes and yet they can still lose money. I would hate to see you taxing those types of businesses.
The Chair: The government caucus has a couple of minutes left if anyone wishes to ask a question. Any further follow-ups? No? Okay.
Mr Wiseman: Mr Sola did not get a chance to ask a question. Perhaps you can give him the two minutes.
The Chair: Do you want the two minutes?
Mr Sola: I thank the government very much for giving me these two minutes.
I must say first of all that I am somewhat biased in your favour because you come from my home town, and you also attended the same university as I did, tempered somewhat of course by your support of the NDP.
Speaking of biases -- since you do represent the north, since you are from outside the Metro Toronto area -- does it bother you that the commission is made up mostly of either residents or people who work in the greater Toronto area? Do you think that will have any bias or effect on the report you will come up with or on their observing of the situation in Ontario as a whole?
Mr Lafrenière: Not knowing the basis on which the nominations to the commission were made, it is very difficult for me to answer that. I would presume that the variety of people and the variety of backgrounds that they have would reflect a variety of points of view. In and by itself, because somebody comes from Toronto or lives in Toronto is not a guarantee that that person suffers from tunnel vision. I did not even know that a number of people come from Toronto, but the fact does not bother me particularly.
Mr Sola: But to use your own words, if I recall correctly, you said, "Benefits flow south but they trickle north." If we have eight members of the committee who have the opposite view, that benefits flow north or flow east and trickle into the Metro Toronto area, do you not think that will have some effect on the report you bring out? Because it will be a vote of eight to one or eight to two, depending on what is at issue.
Mr Lafrenière: The fact that these people live in Toronto is no guarantee that they hold a view that you impute to them. I do not know. The commission is not created. We have not met yet. I do not know what their views are. But even in the hypothesis that they held views as you have just described, I would attempt to analyse the facts. My views are not based on scientific analysis of facts. They are based on newspaper articles, discussing things with business people in the north, sort of the general lore; maybe this is founded, maybe it is not. I would hope that the working groups that will be set up for the commission would provide the commissioners with the data to either confirm or infirm these views and that on the basis of a sound analysis of data that would be produced, the commissioners would use their judgement in order to come up with a fair recommendation.
The Chair: Thank you very much, sir, for your appearance here today. I appreciate your responses to the various questions and wish you well.
Mr Lafrenière: Thank you, and I would like to thank the committee for having accepted putting my time today rather than tomorrow, because it really suited me better.
The Chair: You are welcome.
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SUSAN GIAMPIETRI
The Chair: The next scheduled witness is Ms Giampietri. Perhaps you can introduce yourself for the record.
Ms Giampietri: My name is Susan Giampietri, and I am an executive vice-president of the Public Service Alliance of Canada. I am also a vice-president of the Canadian Labour Congress, based in Ottawa.
The Chair: Welcome to the committee. Would you like to say a few words in opening with respect to this intended appointment, or would you like to just get right into questions?
Ms Giampietri: I do not really have any opening remarks to make. I just would like to thank the Chair and the committee for accommodating my needs and rescheduling my interview for 4 o'clock. I very much appreciate that. With that, if there are questions, which I am sure there are, I will do my best to try and answer them.
The Chair: All right. You were selected by the official opposition and we will lead off with Mr Sola.
Mr Sola: Ms Giampietri, your place of residence is Hull, Quebec.
Ms Giampietri: It is the national capital region, Ottawa-Hull, yes.
Mr Sola: Yes, okay. The reason I ask is that was one of the bones of contention when we were going through the résumés of all the members of the committee, and much was made of the fact that you are an out-of-province resident. I suppose you work in Ottawa, do you?
Ms Giampietri: Yes. Perhaps it would help the committee to understand a little bit about my residence and my work. I am not sure it is clear in my CV. I came to Canada when I was six years old. We moved to Toronto, and that is where I grew up and where I was educated. My work with both the federal government and the union has always been in Ontario, until 1985 when I was elected full-time as an executive vice-president of the Public Service Alliance of Canada; a requirement of that full-time position was that I move to the national capital region, because that is where our headquarters are.
Yes, I do live in Hull, I work in Ottawa, I am based out of Ottawa, but my background, in terms of both work with the federal government and particularly work in the labour movement, is very much Ontario. I still am very much involved in the labour movement in Ontario, with the Ontario Workers Health Centre, on its board and a vice-president. I do not know if that helps the committee.
Ottawa is a particular community. It is Ottawa-Hull. Very often we do not say Ottawa or Hull; it is Ottawa-Hull. What I noticed when I moved there five years ago was that they do not make a distinction. There are Ontarians who live on the Quebec side and work in Ottawa. There are Québécois who live in Ontario and work in Hull or who live in Ontario and work in Ontario. It is not uncommon, and it is something that is quite normal to have. Residency is not a question of province necessarily. I do not know if that helps you any.
Mr Sola: I think it is good to clear up because there was one question raised, is it appropriate to have somebody who does not pay Ontario tax on this commission? I guess you would be paying Ontario income tax --
Ms Giampietri: Sure.
Mr Sola: -- but you would not be paying Ottawa property tax. So it is good to put that on the record.
Another question we have asked every member who has appeared before us so far is, do you have a political affiliation, and if so, with which party?
Ms Giampietri: Certainly, I do. I am politically affiliated to the NDP. I am a member.
Mr Sola: A card-carrying member?
Ms Giampietri: I think so. I know that I support the NDP and I make contributions and it shows up on my income tax. I suppose I have a card. I have probably misplaced it somewhere, but yes.
Mr Sola: Okay. Since you are one of the two out-of-Toronto members of the committee, do you see any effect of the heavy Toronto bias of the members who sit on your committee in their approach to the taxation problem? Do you think it will have some sort of reflection in the report that you bring out that the vast majority of the members will be Toronto-area members?
Ms Giampietri: As I said, I am originally from Toronto and I belong to a national union, so I can share with you that sometimes it was better not to say I was from Toronto because I got a lot of ribbing and a lot of sarcastic comments. Toronto is a unique situation. It is a large city and it has its particular problems because it is a large city. I think that if you live in Toronto you will bring to any issue a particular viewpoint and a particular experience that is inevitable. But I think the members who have been nominated for this commission will be representing not necessarily a geographic concern but a concern of constituents. It may be a different complexion for that constituency if they are in Toronto rather than being in northern Ontario or in the national capital region, but I think the more important representative aspect they bring is that of the constituency they represent and not necessarily the geography they come from.
Mr Sola: What I am getting at, though, is not a conscious bias but an unconscious one. For instance, the person who was in your chair just a few moments ago, when he was describing what it felt like to be from northern Ontario, he said -- and I think I am quoting him -- that the way that northern Ontarians viewed Toronto was that benefits flowed south from northern Ontario and only trickled back up north. You, having been originally from Toronto and now having moved away for a number of years, may have been able to actually take an objective point of view and see what the difference is from the narrow focus of being a Torontonian to somebody who has now moved to another area. People who live here may have picked up certain biases that they are not even aware of, and that may be reflected in the report you will be bringing before the government.
Ms Giampietri: That may happen. But I think part of our responsibility as commissioners is that those of us who are not from Toronto or who have moved away from Toronto, I think having recognized that there could be an unconscious bias, will need to be sensitive to that and try to help each other to flush it out if there is and make sure we do everything we can to minimize that unconscious bias.
Mr Sola: Thank you. I will turn it over to my colleague now for the rest of our time.
Mr Grandmaître: Ms Giampietri, you answered my colleague that you are a card-carrying member living in Hull. What address is on your NDP card?
Ms Giampietri: I financially support both the federal and the provincial; in terms of the provincial, it is the Quebec NDP that I am assisting financially.
Mr Grandmaître: I see; not the Ontario NDP.
Ms Giampietri: I am not sure. When I get solicitations, I normally write out a cheque and I do not often check where they are going, except when my budget comes in at the end of the month.
Mr Grandmaître: Being from the Ottawa area, I do not consider myself living in the national capital district, because it does not exist. It exists only on a map, as you know. But I am surprised that you qualify yourself as living in the national capital district. This is a dream of the National Capital Commission.
Ms Giampietri: It is Ottawa-Hull. That is how I always refer to it, as do many people I work with who live and work in Ottawa-Hull; it is really integrated. In other words, there are people --
Mr Grandmaître: I know. I was born there.
Ms Giampietri: Oh, okay.
Mr Grandmaître: And I am very surprised that you would identify yourself as being from the national capital or the Ottawa-Hull district. The only time I have heard this connotation was when we were talking about tourism or the NCC.
Anyway, let me ask you about transfer payments from the federal government. What do you think of the cutbacks of the federal government when it comes to provincial transfers?
Ms Giampietri: What do I think about them?
Mr Grandmaître: Yes.
Ms Giampietri: On a personal level?
Mr Grandmaître: Yes.
Ms Giampietri: I suppose it is a fair enough question. I am not quite sure what relevance my personal views have. I mean, I would certainly want to look at the issue and at the variables and the rationale behind it. On an initial reading you would want to say there really ought not to be any transfer payments. But when we talk about a complex issue, I would prefer to dissect it and examine its parts and work with and consult people who are knowledgeable before making a determination of precisely is it good, is it bad, should it be modified? An initial reading would be that there should not be cuts in transfer payments. If there are, let's examine the reasons for that; let's examine the consequences of not cutting them.
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Mr Stockwell: There are a couple of issues that I have very real problems with, such as the fact that you live outside the province. I will be perfectly blunt and forthright. I do not know the area very well -- I am certain you know it and probably others on this committee know it better than I do -- but a good portion of this tax commission, and even of some members appointed, has to do with property tax, education tax and so on and so forth. It seems absolutely unbelievable to me that out of nine or 10 million people in Ontario we cannot find 10 to sit on a commission who live in the province. Frankly speaking, whether you want to call this a district or whatever, it does not sit well with me. I do not really believe that the majority of residents of Ontario who potentially will have to live by some of the recommendations made by this commission would be very pleased to find out that one of the commission members, or 10% of the voting bloc on this group, would not even have to pay some of those taxes themselves.
I will be forthright and abrupt and tell you right off the top that I have great difficulty with it and I think most people in this province would have great difficulty with it. Frankly I cannot believe that the Treasury department, or whoever did this review, either knew or investigated this kind of information before making the recommendation.
Having said that, we will continue on, obviously, because this is a recommended commissioner by the Treasury department, and I will ask some of the questions I asked the other members.
Ms Giampietri: May I respond to that concern of yours?
Mr Stockwell: By all means, sure.
Ms Giampietri: As I indicated, yes, I do live in Hull; I work in Ottawa. The issue of my nomination was the community I represent. I do not represent the community in Hull. The community I represent is labour in Ontario. I was put forward as a nominee by the labour movement in Ontario. My credentials in terms of participation in the labour movement in Ontario, my network, my contribution, are very clear. For the last 12 years I have worked, lived and been a member of the labour movement in Ontario. That is the constituency and it is those points of view and it is that input that I will be working with and bringing to the commission. It is the representatives of labour, working people in Ontario, who have put me forward as a nominee.
Mr Stockwell: That may well be the case, and I think there may be justification or rationalization -- I am not sure -- we may have sectors that are represented and so on but in my opinion we are all representing the greater constituency of Ontario. Frankly, if you live in Hull, Quebec, I am not even certain you could run and get elected to this Legislature. I am not certain of rules or conditions, but if you could not even be elected to this Legislature because you live outside the province, it bewilders me that the government would appoint you to a commission of 10 people to review taxes, and taxes that are being paid by every man, woman and working person in this province, and that we cannot find 10 out of nine or 10 million astounds me.
But having said that, do you have any views on the minimum corporate tax, the death tax or any of the taxes outlined by the NDP during the campaign that they promised to implement and apparently have had a serious memory lapse about? Do you have any personal opinions on any of those particular taxes that were outlined in An Agenda for People?
Ms Giampietri: As a member of the commission, in my own way I am a politician as well, so I am a political activist and I certainly have views on a whole number of issues. I have some views on those issues as well. Labour has some views. But I think at this point I feel very uncomfortable putting forward publicly my personal views or labour's views on an issue that we have decided we want to establish a commission on and have that commission establish terms of reference and work on a system of research and consultation. I feel really uncomfortable in discussing my personal views or labour's views outside that process. I feel that in a way it is inappropriate to prejudge the terms of that commission, which the commission will determine, the input that the commission will consider.
As a member of the commission, I want to come to the work of the commission with an open mind. So my personal views, and labour's views, I want to share them when we sit down as a commission and finalize our terms of reference and finalize ways of consulting with the public and constituency groups.
Mr Stockwell: One last question. I am sorry I will not be staying for your entire visitation. I apologize in advance. I must go to estimates because the Treasurer is up there giving a state of the union address on the Treasury department.
In the House during the last session I said that this will be a one-sided commission, that it will be slanted and biased towards government policy, government initiatives, NDP platforms. I was assured at that time, as best you can be assured, that it would not be. Considering the fact that now we have got at least five active members of the NDP appointed to this commission, and I think we still have three or four more to interview, it appears there is going to be very close to a majority, if not a substantial majority, of people on this commission who belong to one political party which received 37% of the vote last election. Do you think it makes for a good forum to come up with constructive, open-minded, clear and fair tax initiatives when so many of them belong to one particular party that outlined very, very clearly what its position was on fair taxes and so on?
Ms Giampietri: I can give you my personal commitment that I certainly come to the commission with an open mind. I certainly will be there putting forward the perspectives of labour, there is no doubt about that. But I can share with you from personal experience that if the commission operates in the manner which so far has been established, which is openness, building consensus, getting input from the constituents who are affected by the different areas that we want to look at, then I think the policy you develop will have the support. I would think that if we do not follow the terms we have set for ourselves, the decisions you make will not have support. I think it is in our interests, despite the card that we carry, that we do the outreach and involve people who are going to be affected by the changes we are looking at.
As I said before, there may be a bias there, but recognizing that there is a bias, we need to ensure that our processes minimize that bias so the decisions you make, the public policy you reach, is in the interests of the general public, the Ontario people.
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Mr Stockwell: You agree, then, there may well be a bias.
Ms Giampietri: You raised it, and I said if it is recognized, then we will deal with it.
Mr Stockwell: Okay; at least a perception of a bias. Let's leave it at that.
Ms Giampietri: That is right. If there is a perception of a bias, what I also know, as a member of the labour movement in my own union, is that sometimes you have to deal with perceptions, because they can be a barrier if you do not deal with them.
Mr Stockwell: We should deal with that perception then, because I perceive a serious bias.
Mr McLean: You have made speeches and written articles on fair taxation and tax reform. In two minutes, what would be the basis of those articles you have written and the speeches you have made with regard to fair taxation?
Ms Giampietri: I should apologize to the committee -- I am chairing my own committee; so I may seem a little incoherent at times. The general principles of a fair tax are its neutrality; it is based on a progressive scale of taxes, not on consumption. Those are some general cornerstones of a fair tax system. It is not just equitable, but it is perceived to be equitable. It is understood, and having been understood, it requires or can generate legitimacy.
Mr McLean: We have had some people before us whose sentiments are with the Treasurer and the Premier with regard to the 8% corporate tax. Do you believe the philosophy that they indicated during the campaign with regard to corporate tax would be the right philosophy for Ontario to take?
Ms Giampietri: Again, you are asking me to deal with a specific in a very complex issue. Do I believe that taxes should be fairer? I would say yes. Does that include the corporate sector? I would have to say yes. But to get down to specifics, I think that is the reason the commission has been put together and why a cross-section of constituent groups has been recommended to sit on the commission.
Mr McLean: Do you believe there should be a minimum corporate tax on all businesses and corporations?
Ms Giampietri: As a general principle, yes, but what we need to work out are the details; we need to work out the consequences and the impact. In fairness, in trying to reach that goal, you want to involve the people who are affected and the experts in that area so we have something that is workable and that is not just fair but perceived to be fair.
Mr McLean: Then you would be saying that a corporation such as Tridel that had made about $65 million in a year should pay corporation tax, regardless of any expenses it has?
Ms Giampietri: I do not think it is appropriate for me to start giving my personal opinions without going through the consultation process and looking at how we can work it out.
Mr Sutherland: I want to follow up on Mr McLean's direction of questioning in talking about issues related to taxation and process. I was wondering if you could give the committee some idea as to what you feel the process should be for this commission -- I know that is difficult because it has not been decided as a whole group -- or some of the things you would like to see as part of this commission.
Ms Giampietri: Again, I do not want to prejudge what the commission will finally determine as its terms of reference, but perhaps I could just use the example of what happens in a union when you have a complex issue that needs to be explored and important decisions have to be made on. The process itself can sometimes be as important as the results you are trying to achieve.
If we are looking at a complex issue like tax reform, there are many components and many issues involved in tax reform. There are many areas in the tax system that we need to look at. It is putting a process in place that allows people who are going to be affected to have input into that issue. It is trying to build consensus among some very competing interests that can happen when you are discussing a very complex issue like tax reform, and building that consensus. It is working out solutions that are fair, that are perceived to be fair, and that are understood and supported by the public, who in the end is going to pay the taxes.
Mr Johnson: I wanted to ask a question, but I just want to make a couple of comments that I suspect will kind of give you a better indication of what I want to ask.
We have many perspectives in life, and certainly when we talk about whether you come from the Ottawa-Hull area, or Ottawa or eastern Ontario, whatever, we get into some semantics about where you live. I used to live in Scarborough at one time and people would say, "Where are you from?" and I would always proudly say, "Scarborough." They would say, "Where's that?" I would ultimately say, "Toronto." It is semantics really, I think.
What is important is who you represent and who you are representative of. For example, one might say we as the government of the day in Ontario are more representative of the ordinary people of the province than any other government has been. That may not necessarily be so, but certainly from my perspective and the perspective of many of my colleagues, that is the case.
I want to ask you, because you do live in Hull -- I do not hold that against you personally.
Ms Giampietri: Thank you.
Mr Johnson: Nevertheless, you work in Ontario, you work in Ottawa and you are representative of a group of people. You are the executive vice-president of the Public Service Alliance of Canada. You have many members in Ontario and you are representative of them; they pay taxes in this province and they live here. You either are representative of or represent them in this instance, and I just want you to elaborate on that somewhat for me.
Ms Giampietri: Okay. I thought I had, but I do not mind doing it again.
Mr Johnson: It may be that I was absent from the room.
Ms Giampietri: I understand my union, but not many people do. That is fair enough. In terms of my own union, I hold a full-time elected office. I am the executive vice-president. Our membership is 170,000 from coast to coast to coast and overseas; 70,000 of those people live and work in Ontario. So I represent 170,000, but 70,000 live and work right here in Ontario.
I was a vice-president of the Ontario Federation of Labour when I was working here in Toronto from 1982 to 1985. I served on committees of the Ontario Federation of Labour, more particularly the women's committee. When I first became involved in the labour movement in 1978, I began as a local executive here in Toronto. I participated on committees of the Labour Council of Metropolitan Toronto, on its executive board and as a delegate to that council. I am currently, as I said, a full-time vice-president and I am also on the executive of the Canadian Labour Congress. That is who I represent. It is workers, a great many of them here in Ontario. I continue to represent them.
Mr Johnson: Then in my opinion, I think you are going to make a very worthwhile contribution to this commission.
Ms Giampietri: Thank you.
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Mr Waters: I just have one question -- I think I have asked it once before -- and that is, how do you feel the makeup of the overall committee is going to work in creating a report to go back to the government? Do you feel it will create a report that is representative of the whole mosaic of the province, or do you feel there is something lacking because of the Toronto issue?
Ms Giampietri: I do not think so. As I said before, I think the constituent groups that are represented are far more relevant and important than the geography that one comes from. But that having been flagged as a concern, the terms of reference -- without having been confirmed as a commissioner yet, as I said, I feel a bit awkward trying to talk about terms of reference that we have yet to agree to.
However, general principles on the terms of reference are that the commissioners themselves are one group of people and there will be a certain type of responsibility of co-ordination, supervision, directing research and co-ordinating consultation. Recognizing that Ontario is more than Toronto, the commission will have to ensure that working groups put together to deal with any specific tax issue bring together expertise from those constituencies and look at getting input from different sections of the province. Part of our terms of reference will have to be to ensure that this happens so that the end result is that you have consulted on a broad base and received input from people who are going to be affected. I think you are going to get a better product in the end if you make that effort to involve a broader section of people.
Mr Hayes: You have been highly recommended to sit on the Fair Tax Commission, mainly because of your experience with the Public Service Alliance of Canada, the Department of Employment and Immigration, the Unemployment Insurance Commission, the OFL and the OFL women's committee. Our colleagues across the way here, especially the one in particular who is not here now, would have us believe that the previous governments in this province have never appointed anyone out-of-province to a commission board or agency in the government. You have spent most of your life, and of course living and working in Ontario; even though you have lived the last few years in Hull, do you think that would really hinder you from participating in this Fair Tax Commission and doing your job?
Ms Giampietri: Absolutely not. I tried to indicate that before. First of all, I am a Canadian, a naturalized Canadian. Second, if you ask me what province I come from, I come from Ontario; I am an Ontarian. This is where I grew up. In Ottawa-Hull, to me it is not uncommon that the residency is different from where you work and there are people who consider themselves Ontarian who live on the other side of the river, a kilometre away. So I personally do not think that it is going to inhibit or hinder my participation at all.
Mr Hayes: I think we are pleased to have you here, especially representing a sector that has not had a real strong voice when it talks about what we do with their taxes in this province.
Mrs MacKinnon: I wish to commend you for your résumé and for coming to be with us today. And where you live and what you do are very important in your life.
I will tell you what is important in my life when it comes to this commission. That is the women and the children of the province of Ontario who are suffering as a result of the high taxation that has been brought on this country in the last few years. What do you see your role as in that very regard, in regard to the women's issues and the children as they are affected by this taxation?
Ms Giampietri: Before when I was asked the question that implied, "You come from Toronto so you're going to bring that bias with you," I think we could call it a bias or we could call it our life's experience. I am a woman. I am also an immigrant and I very much am concerned about children, so I bring that life experience with me. I am involved in the labour movement, but as part of the labour movement I have also been very active in the women's movement and I bring that perspective, I bring that sensitivity that women in our society are very disadvantaged, that children in our society are very disadvantaged. I mean, we have poverty with our children, women particularly are affected by poverty, and if there is any way that a tax system can help improve the fairness, then I think that is something else that I would like to work on and that I could contribute to.
Mrs MacKinnon: Thank you very much. That was the only question I had. It is slightly obvious why I have it. I am the only woman here, apart from yourself.
Ms Giampietri: I have been in that situation before.
Mrs MacKinnon: I have been that way for the last two days.
Mr Wiseman: I would like to ask another question. I am a firm believer that the broader the world view that you can bring to issues, the more analytical and comprehensive you can be when you make your determinations. So I am not particularly worried about where you live currently. But with your labour experience and your union experience, maybe you could enlighten us as to the number of foreign delegations you have been in contact with, in terms of conversations or committees you have sat on, or any of the international approaches to issues that are of major concern to you, these experiences that you will bring to this committee.
Ms Giampietri: My involvement so far has very much been in Ontario and, in the last five years, Canada. Recently I have been appointed on behalf of the Canadian Labour Congress to the women's committee for Central America. However, that committee has not met yet. In fairness, I cannot say that at this time I could bring that international perspective. I have not had the opportunity to work with international bodies.
The Chair: Mr Sola and Mr McLean wish to ask questions. Before you do, I would like to jump in with one. In responding to Mr Stockwell, I think it was, or it may have been Mr Sola, in respect to your out-of-province residence and your ability to serve on the commission, you made reference to the fact that you were representing a group of people, the Public Service Alliance of Canada, and are really a labour choice as representative on the tax commission.
I am just wondering, in terms of your own personal relationship with labour, is it expected of you to report back in some way, shape or form to the labour movement with respect to what is occurring or developing, in effect looking for direction with respect to positions that should be taken so that you are indeed representing the views accurately of these organizations?
Ms Giampietri: Yes. The kind of system that would be in place obviously would have to conform with my role on the commission, but certainly if I am there representing labour, then I need to ensure that I have a way of dialoguing with the network in Ontario that is labour, because otherwise I would be bringing a single voice to the commission and that is not the purpose. My purpose is to sit there as a representative of labour to work with the other commissioners, who have constituencies of their own. I am sure, just as they will want to keep in very close contact with their constituencies, so will I. But it will be within the terms of the commission and what is appropriate within the terms of the commission's work.
The Chair: I am just wondering what kind of position you could perhaps find yourself in if indeed the commission made a number of recommendations that were not supported generally by labour. You are the only elected official, if you will, serving on the commission. You could find yourself in a difficult position.
Ms Giampietri: That could happen. When you build consensus, that could happen.
Mr Sola: I would like to carry on in that vein, because that was going to be my original question. All the other members who have appeared before us so far have stated, no matter what their party affiliation or allegiance, that they were approaching this commission with an open mind, that there would not be bias or prejudice, having supported the governing party and its party platform. I find it a little bit disconcerting that you are saying you are coming here representing a large body of people and I am wondering, in doing that, if you can come in with an open mind, or do you come in with marching orders?
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Ms Giampietri: I have no marching orders. I have been nominated by the labour movement in Ontario and I will be sitting as a commissioner, hopefully, and I will have an open mind, but that is not to say that I will not be bringing the perspective that I have from labour. That is my life experience and that will be the perspective I bring. What ultimately comes out as the end product may be something of what I brought to the commission, or it may be something from another commissioner. That will be the end product. It will not necessarily be just labour's perspective, but like other commissioners, certainly I will be bringing a perspective to the work of the commission.
Mr Sola: I do not think the other members represent a constituency for the most part -- quite a few of them are academics and in the private sector and that -- so I do not see how you can say that they represent a constituency whereas you do. If the labour movement has a certain approach to matters of taxation, I do not see how you can say you can approach it with an open mind if you are going to be representing that approach.
Fairness for them may be as in one of these articles we have, The Politics of Envy: tax the rich. Now they may be spitting into the wind and getting hurt by the effects -- the minimum corporate tax, the death tax or inheritance tax, some of those things -- but some of the other members have stated that they have biases neither for nor against them or have not even considered them. But they have stated they are coming in with an open mind. You are stating that you are coming in representing the point of view that the labour movement has come to at a convention or something. I think there is a contradiction between approaching it with an open mind and representing a group of people who have come to a consensus to arrive at a decision.
Ms Giampietri: When you put a group of people together who have diverse viewpoints, you start from that point. So the principles that I bring will be labour's perspective. How we work out those principles, how we determine what the workable solutions will be, that is what I will bring an open mind to. So I may have my principle as a representative of labour, but when we get down to determining what is a workable solution, certainly I have an open mind to that. At this point I do not have all the information to say to you that I will take this position or take that. That would be prejudging the work of the commission.
Mr Sola: When it comes to signing the final report, will you be able to do that on your own or will you have to check back with the union before you can sign it?
Ms Giampietri: Again, I will be signing that report.
Mr Sola: Without prior consultation with the union?
Ms Giampietri: But, as I indicated before, that consultation will be ongoing within the proper parameters of the commission's work. I think what you are asking me are things we have not yet decided; so it is very hard to speak hypothetically.
Mr McLean: There have been 10 people recommended for appointment. We have gone through a process here today; we have asked you many questions. Regardless of what we have asked you, your appointment will be confirmed. Can you tell me what you think you have got out of this process here today?
Ms Giampietri: That is putting me on the spot, right? What have I gotten out of the process?
Mr McLean: Is it worth while, or is it necessary?
Ms Giampietri: It is not as bad as I thought it was going to be. I think you are in a better position to judge that. I certainly do agree that appointees to public bodies such as commissions should have an interview by an all-party committee. I do think the process is a good idea. The thought behind it is worth while, so I think it was beneficial.
Mr McLean: The reason I asked the question is that this committee was supposed to have an open process, whereby people were supposed to write in to apply for positions in government. Everyone we have interviewed has been asked to submit a résumé, or it has been done through the Treasury, and as far as I have gathered, we have spent two or three days here and it is not going to make one bit of difference in the outcome; all 10 people who are recommended will be appointed.
The whole process, in my estimation, is nothing but a farce, a waste of taxpayers' money. You have not indicated that you have gained anything from us and we have not gained anything from you, because we do not know your background, other than what your résumé says. How are we to find out whether you have been in trouble with the law or anything? What they are wanting to do is to put the blame on the committee if anything goes wrong after the commission is appointed. I find what we have gone through a real charade and nothing but a farce.
The Chair: Okay. Thanks, Mr McLean.
I do have one additional question to the witness. You talked about being the nominee of organized labour in Ontario. What is the process for organized labour to come forward with your name to the government? How did that process work, as you understand it?
Ms Giampietri: It is my understanding that my nomination and recommendation were put forward by the Ontario Federation of Labour, which is the central labour body representing unionized workers in Ontario.
The Chair: Were you contacted by the OFL prior to your name being submitted to ask if you had an interest?
Ms Giampietri: No, I was not.
The Chair: So this more or less came out of the blue for you. You were contacted by the government in respect to this initially.
Ms Giampietri: It did not come out of the blue, because I understand how the labour movement works. I have been in the labour movement for 12 years now. I participated on the OFL; I was a vice-president. I continue to work in Ontario with the Workers' Health and Safety Centre. The fact that I was contacted by the Treasurer's office and not directly by the OFL does not mean it came out of the blue for me. I knew very well where my nomination came from; it had to come from the body in Ontario that represents labour.
The Chair: It just seems passing strange to me, as an observer on the sidelines. If I were going to nominate someone, I would certainly initially contact them and say, "Would you be interested in me nominating you for this particular responsibility?"
Thank you for much for your appearance here today; we appreciate it.
Ms Giampietri: Thank you.
The Chair: If the members of the committee could remain for a couple of minutes, we have a request from Mr Grandmaître that we consider changing the schedule somewhat tomorrow to accommodate his needs, and it may conflict with other members' plans. If we want to change, we are going to require unanimous consent to make a change. What Mr Grandmaître is suggesting is that, rather than a 2 o'clock start tomorrow afternoon, we look at a 1 pm start, which would give us about a 45-minute lunch break, back at 1, looking at a 4 pm adjournment rather than a 5 pm adjournment. Any discussion or comments? How do we feel?
Mr Johnson: Sounds good to me.
The Chair: Do we have unanimous agreement for that change? So be it. We will start in the afternoon at 1 o'clock.
The committee adjourned at 1639.