Thursday 15 February 1996

Pre-budget consultations

Royal Bank of Canada

John McCallum, senior vice-president, chief economist

Carlos Leitao, economist

Bank of Nova Scotia

Aron Gampel, vice-president, deputy chief economist

Canadian Bankers Association

Michael Green, Ontario regional director

Andrew Kenyon, vice-chairman, CBA Ontario committee

Steve McNair, chairman, CBA Ontario committee

Barbara Amsden, director, financial affairs, CBA

Michael Lowe, senior vice-president, Bank of Montreal

Canada Trust

Patti Croft, managing director, chief economist

Board of Trade of Metropolitan Toronto

Mike Lauber, vice-president

Don McIver, chair, economic policy committee

Ontario Association of Children's Aid Societies

Mary McConville, executive director

Ontario Public School Boards' Association

Donna Cansfield, president

Gary Schleuter, trustee, Waterloo County Board of Education

Mike Benson, executive director

Association of Colleges of Applied Arts and Technology of Ontario

Brian Desbiens, vice-chair, Council of Presidents

Police Association of Ontario

John Moor, president, PAO

Paul Walter, president, Metropolitan Toronto Police Association

John Miller, chairman, PAO

Paul Bailey, president, York Regional Police Association

Ontario Chamber of Commerce

Wallace Kenny, president

Ian Cunningham, director of policy

Ontario Public School Teachers' Federation

Reg Ferland, president

Dave Lennox, general secretary


Chair / Président: Chudleigh, Ted (Halton North / -Nord PC)

Vice-Chair / Vice-Président: Hudak, Tim (Niagara South / -Sud PC)

Arnott, Ted (Wellington PC)

*Brown, Jim (Scarborough West / -Ouest PC)

*Castrilli, Annamarie (Downsview L)

*Chudleigh, Ted (Halton North / -Nord PC)

*Ford, Douglas B. (Etobicoke-Humber PC)

*Hudak, Tim (Niagara South / -Sud PC)

*Kwinter, Monte (Wilson Heights L)

*Lankin, Frances (Beaches-Woodbine ND)

Martiniuk, Gerry (Cambridge PC)

Phillips, Gerry (Scarborough-Agincourt L)

Sampson, Rob (Mississauga West / -Ouest PC)

Silipo, Tony (Dovercourt ND)

*Spina, Joseph (Brampton North / -Nord PC)

*Wettlaufer, Wayne (Kitchener PC)

*In attendance / présents

Substitutions present / Membres remplaçants présents:

Bassett, Isabel (St Andrew-St Patrick PC) for Mr Arnott

Carr, Gary (Oakville South / -Sud PC) for Mr Sampson

Colle, Mike (Oakwood L) for Mr Phillips

Marland, Margaret (Mississauga South / -Sud PC) for Mr Martiniuk

Martin, Tony (Sault Ste Marie ND) for Mr Silipo

Also taking part / Autres participants et participantes:

Wildman, Bud (Algoma ND)

Clerk / Greffier: Carrozza, Franco

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

The committee met at 0933 in room 151.


The Chair (Mr Ted Chudleigh): This morning we welcome the Royal Bank of Canada as an expert witness. We will have 45 minutes together, gentlemen. I understand you're going to start with a presentation, and then perhaps we will have an opportunity to ask some questions. Identify yourself for Hansard at your first opportunity. Thank you very much.

Mr John McCallum: My name is John McCallum. I'm chief economist at the Royal Bank.

Mr Carlos Leitao: My name is Carlos Leitao, and I'm an economist with the Royal Bank.

Mr McCallum: I'd like to thank you for the invitation. I'm pleased to be here. I'd like to spend not more than 15 minutes, if that would be appropriate, in opening comments and leave lots of time for questions.

I was thinking before coming here about how to address this issue as an economist. Just to give first a broad outline, it seems to me there are two big issues. One big issue is how to deal with the deficit and debt. The second big issue is the way to go about it, taxes versus spending.

I think on the first point it's really quite easy and quite simple, that there's an all-party consensus across this country that somehow or other one has to get the deficit and debt under control. That seems to me to be more or less uncontroversial these days. But the second question of how to go about that is much more controversial. I think the answer to that is about 75% politics and 25% economics.

We see a spectrum across the country. At one end we have Saskatchewan, which balanced its budget through a mixture of tax increases and spending cuts; in the centre we have, let's say, Paul Martin and perhaps Ralph Klein, who focus mainly if not exclusively on spending cuts; then at the other side of the spectrum we have the government of Ontario with tax cuts as well as spending cuts which are larger because of the tax cut. So all of those parties agree on the need to get the fiscal house in order but have very different ways of going about it.

My view would be that this spectrum, from Roy Romanow to Mike Harris, is at least 75% political. The government of Ontario was elected with a clear mandate to go about this approach perhaps, as was Roy Romanow perhaps to go about this different approach. As an economist, it seems to me my job is not to question or discuss or debate the grand lines, because those have been established in an election, and my view on that is kind of irrelevant and unimportant on those global issues.

So what I thought I'd do is focus more narrowly to talk briefly about the economic assumptions and risks involved in the budgeting process, to say a little bit about what we think the numbers mean in terms of ability to reduce taxes and then to spend most of my time on the implications of all this for the level of economic activity and jobs, which of course is of primary importance.

In terms of the economic assumptions, the full picture is not yet on the table. It's a little bit like reading tea leaves; we have some information but not a complete package yet. But from the information we have, it seems to me that the basic underlying assumptions are reasonably prudent, not that different from our own, not that different from mainstream forecasts in terms of what is assumed about gross domestic product, which is very important for the revenue side, and what is assumed about interest rates. Those seem more or less in line with what people are saying today.

But I would emphasize that the downside risks are greater than the upside risks, that the Canadian economy and the US economy appear weaker now than they did some months ago and that one should err on the side of caution in these forecasts. We just had bankruptcy statistics yesterday. I think the consumer remains extremely weak, so I would err on the negative rather than the positive in terms of looking forward for the economy. I think one also has to bear in mind the wild card of Quebec. We're assuming that there won't be a great resurgence of the political uncertainty over the coming couple of years, but none of us knows that. So that is a wild card that could enter the picture and put the interest rates and possibly growth assumptions into disarray.

In terms of what the projections imply, we looked at this, and our analysis gave results not terribly different from those of Mr Gerry Phillips. We think that, given the assumptions and the deficit targets, it would be possible to have a tax cut in the order of $2 billion in 1996-97, given the proposed spending cuts and given the deficit assumptions. But we also think that before the full tax cut was delivered, one would need to have additional cuts, if our projections are right, perhaps in the order of $1.7 billion by 1998-99. I should emphasize these numbers are based on incomplete information and they're fairly crude, so I wouldn't stand or die by them.


Finally and most important, in terms of potential contribution that I could make, I'd like to just make a few comments on the relation between the budget process and the level of economic activity or employment in Ontario and I'd like to address three issues on that topic.

The first is whether from this economic point of view it's better to do the spending cuts quickly or gradually, and the second would be whether it's better to have the tax cuts front-end loaded, fast or gradual, more slowly. That question of the timing of tax cuts is critically dependent on what one assumes about other things, so I'd consider that under two categories.

First, the timing of the tax cuts: If we take the deficit targets as a given, because that means more tax cuts would require more cuts in government spending and, second and quite different, what about the timing of tax cuts if we take the spending cuts as given? In the first case more tax cuts would mean more spending cuts, in the second case more tax cuts would mean a higher deficit, and those are two quite distinct and different cases to consider.

Let me begin with the quick versus gradual spending cuts. I guess the conventional wisdom, if you just plug into an econometric model, would be that gradual is less disruptive of the economy, particularly when the economy is weak as it is today, and that very large and abrupt and sudden spending cuts would be more damaging. There's a lot of truth in that. It's a kind of commonsense argument.

But I think there's another aspect that one should consider, and let me just give you an example. Suppose you had 100 people in a room and you announced to those 100 people, "Well, 25 of you will lose your jobs," or whatever number, 20, 25, 30, "but we won't tell you which 25 for three years," as opposed to saying 25 will lose their jobs and you name them right away.

In the one case you get it over with and the 75 remaining will have some assurance of job stability. In the other case you've got 100 people worried about their job for three years or two years, and if one of the problems of the economy is consumer confidence, you've got 100 people feeling insecure for a prolonged period of time, as opposed to the first case where the 75 at least would know that they had reasonable security. I don't know quite how this nets out, but I think that in terms of getting it over with and giving a certain amount of stability and confidence to those who remain, a case could be made on economic grounds for front-end loading the spending cuts.

The second question is taxes sooner or later given the deficit. Again I'll contrast the conventional view with questions that might question that conventional view. This case where we talk about tax cuts given the deficit implies that if you go faster on the tax cuts, you have to go faster on the spending cuts. Again, the conventional view would be that if you're worried about economic activity and jobs, you'd go slower on the spending cuts and the tax cuts rather than faster because the conventional view would be that the net impact of a tax cut financed by a spending cut would not be positive. If you take $1 away from a civil servant and give the $1 away to somebody in a tax cut, what will be the net effect on spending? The conventional view would probably be negative, that the reduction in spending by the civil servant would be greater than the increase in spending by the taxpayer.

But again it's not clear that that will necessarily be the case because there are certain psychological or non-quantifiable things which could take it the other way. I mean in particular, if the government is trying to sell itself as making Ontario open to business and thereby attracting more foreign or even domestic investment, which would be good for jobs, then the fact that the tax cuts have actually been delivered, in combination with other measures that the government is taking, could be taken by investors that Ontario was again open for business, pro-business, and that could be a positive fact, attracting that investment, and it's very hard to quantify.

We don't know quite how investors would react, but if that were part of the selling package to potential investors in the Ontario economy, then it could have a positive effect, which would conceivably offset this conventional effect. Taking a medium- or longer-term view, it's clearly important from a competitiveness point of view that the tax situation be competitive with other provinces and, perhaps even more important, with neighbouring states, now that we're into a NAFTA world; and it's clear that historically and today, the burden of taxation in Ontario is high relative to other provinces and even higher relative to certain competitor states. But that's a more medium-term argument, as opposed to the direct argument exclusively concerned with the timing of the tax cuts.

The final point I would like to make, and that will be the end of my initial comments, is the question again of the timing of tax cuts, this time not assuming a given deficit, but a tax cut sooner or later, assuming a given spending cut. So in this case we're asking, should we cut taxes faster or slower, given that the speed of those tax cuts will impact on the size of the deficit?

Here again the conventional wisdom -- I'll start again with the conventional wisdom -- is that if we bring in the tax cuts faster and thereby allow the deficit to be higher or to come down less rapidly, that would give some net stimulus to the economy because we're giving people back more money and we're not cutting spending. In return, we're just allowing the deficit to be a bit higher than it otherwise would be, and the conventional wisdom would be that this would help consumers and cause spending to be higher and that would be good for jobs.

The counterargument, of course, is that there are costs in not bringing down the deficit. I said at the very beginning there's almost now conventional wisdom across the countries, across all political parties, that we have to get the deficit under control, and I think there would be a significant risk if Ontario were to have higher deficits than the ones that have been announced in the plan, given that the speed of reduction of the deficit is not terribly rapid in comparison with what other, poorer provinces have succeeded in doing.

There would be a risk that people would not even regard those tax cuts as permanent, necessarily, if they were accompanied by a higher deficit, and if people think the tax cuts are not permanent they would tend not to spend them more. So you wouldn't necessarily help the economy that much. There would be risk to the credit rating, and also the argument that Ontario is open for business would be weakened if it were perceived that this deficit was going up again, or at least not coming down from the high level that it's at. So it might jeopardize the general program or the general effort to sell Ontario as a good place for business to invest.

I guess if you allow the deficit to go above the targets by means of a more rapid than otherwise reduction in taxes, in the short term that could get a little bit of extra economic activity and consumer spending, but I think in the medium term there would be important concerns arising from (a) the credit rating, (b) the feeling by consumers that the tax cut might not be sustainable and (c) the effort to portray the province as now being open for business and a good place for business to invest with confidence.

I'll leave it at that, Mr Chair. Thank you very much. I'd be happy to answer any questions.

The Chair: Thank you very much, Mr McCallum. Ms Castrilli, since you were, I hate to say late --

Ms Annamarie Castrilli (Downsview): I wasn't late but my colleague wasn't here.

The Chair: -- would you like to begin with the third party and rotate that way, if that meets with the acceptance of the committee?

Ms Castrilli: I'd be happy to defer to the third party for the moment. Thank you.


Ms Frances Lankin (Beaches-Woodbine): There's an old joke about the definition of an economist and I can't remember what it is, but I think I just witnessed it: "On the one hand, and on the other hand." I remember discussions with Treasury officials that went much like that when we were struggling through the budget-setting process.

A couple of questions came to mind immediately as I was listening to you. I think the one thing you do feel strongly about is that if the government was unable to meet its own deficit-reduction targets as a result of proceeding with the tax cut at this point in time -- ie, they felt they couldn't take greater spending cuts to balance it -- you would argue against that; you would say, probably, stay with the deficit-reduction targets as a more important goal than the tax cut at this point in time.

Mr McCallum: I would certainly say it would be more prudent to wait until you're sure those deficit targets will be hit, especially given the fragility of the economy, the uncertainties over revenues, even the Quebec situation, and the reaction of financial markets, credit rating agencies and all of that.

Ms Lankin: It's always important for us to put the Ontario economy in the context that you just spoke of: what's happening certainly internationally; keeping our eye on the States and what's happening there, given that so much of the even very small growth we have in the economy right now is being led by exports; the Quebec situation; what the Bank of Canada does with monetary policy. All of those things are critical and have an impact much more profound than what the provincial government may do around the edges of the plan as long as they're moving in the right direction as far as the financial community and bond rating agencies and others are concerned.

But in terms of our local economy, one of the critical things is the balance between the return of business confidence and of consumer confidence. I think that business confidence will be more quickly returned -- I'm taking your argument here -- if the government takes the more prudent route of keeping to those deficit-reduction targets. In fact, I would argue it might be more sensible to forgo the tax cut at this point in time in terms of the income tax cut and to concentrate on the deficit, but that's a difference in opinion.

On the consumer confidence side, there's no doubt that the approach of the government in terms of spending cuts, in terms of the job reduction that will necessarily result from that in their own workforce as well as in the broader public sector -- when you put it all together, that's 900,000 people across the province who are wondering what's going on. If the government takes the additional $1.7 billion that you talked about in spending cuts in order to finance the tax cut and keep to their deficit targets -- and I know those are preliminary estimates -- I worry about the economic drag that's going to result from that and the continuation of the lack of stability in consumer confidence and in the sense of economic security of families and communities. Could you talk a little bit about that and how we could try and meet that fine balance that's required?

Mr McCallum: In terms of the additional spending cuts required, the government doesn't have to make a decision on that yet because there's room for at least some tax cut within the parameters, if the government cuts as it seems to be saying it will, for 1996-97. So it's possible to have a tax cut, according to our crude numbers, maybe in the order of $2 billion in 1996-97 if the spending cuts are carried out and still meeting the deficit target. Farther down the road, in 1998-99 and 1997-98, there may have to be further spending cuts, but I think there may be major changes in the economic situation by then, so those numbers are very much unclear at this point.

In terms of your general question, yes, I think there is this tradeoff here, but one doesn't know for sure what direction it will go. I think across the country, federally and in the provinces, in hindsight we did a really silly thing by building up the debt in the relatively prosperous years of the 1970s and 1980s, only to have to cut it in the less prosperous years of the 1990s. In hindsight, it was a terrible policy act across the country by virtually every government. Now we're in this mess, what do we do? If we cut fast, we lose jobs and confidence and get problems in the short run. If we don't cut, we delay the problem and perhaps allow it to worsen and fester.

Ms Lankin: Just on that, because you mentioned two possibilities there: There's a third one, which would be the spending cuts as they have been set out forgo the tax cut at this point in time, and see the deficit come down much more dramatically and much more quickly than under the current government's proposed plan.

Mr McCallum: It's kind of strange that you'd be taking that position and I'm taking the other position.

Ms Lankin: Well, isn't it an interesting point?

Mr McCallum: You're saying let the spending cuts happen, forgo the tax cut and let the deficit come down faster. It's true that a lot of people in the financial markets are saying just that. I'm perhaps less conservative than some on Bay Street, which isn't necessarily saying very much, but I would tend to think that yes, we have to meet the --

Ms Lankin: And far to the left of the group sitting across from me here, so don't worry.

Mr McCallum: We have to meet the deficit targets -- you and I agree on that -- but I think if we have spending cuts that allow a tax cut while at the same time meeting the deficit targets, from an economic activity point of view let's have the tax cuts. We sure need extra economic activity, and those tax cuts would put more money into people's hands and that would help the economy.

Ms Lankin: Yes. Let me ask you about that. You're right that we both agree on meeting the deficit targets. I'd actually like to see the deficit targets met a bit earlier than what this government's proposed plan is, but that's neither here nor there; we're dealing with the plan that's in front of us. I think you're also right, I would agree with you, if you can accomplish the spending cuts as the government set out -- ie, no cuts to health care, no cuts to classroom education, no cuts to law enforcement -- and meet the deficit targets and finance the tax cut, that's great too. I don't believe you can do that. I'm sorry, there are no free lunches. I spent a few years struggling with some of those numbers and I don't think that is doable. Seeing the cuts the government is making that go against its own commitments on those areas -- that's not doable.

Mr McCallum: Then maybe the differences between us are minor, because I agree with you. If for whatever reason the spending cuts are not doable, then I would delay the tax cut rather than allow the deficit to rise.

Ms Lankin: You said that if it is doable, you would like to see the tax cut proceed because of the economic stimulus. It seems to me that the one thing economists probably would agree with, wherever they come from on the spectrum of opinion, is that there will be a lot of -- I don't know the term that's used -- leakage from that tax cut, that a lot of it will go to vacations or investments and not direct stimulus of production. Is there an alternative form of tax cut which would be more stimulative to the economy?

Mr McCallum: I certainly agree that Ontario is a very open economy, so any kind of tax cut will have a lot of leakages to imports etc, but all I'm saying is that the tax cut would give some stimulus. Whether it would be a lot or a little is unclear. Well, it's not unclear; it depends on the size of the tax cut. One can make estimates. But there will obviously be leakages whatever the form of tax cut.

Ms Lankin: It's pretty unclear to us. We can't get any estimates from the government on what the stimulus is.

Mr Jim Brown (Scarborough West): Would you agree that small and medium-sized business creates 80% to 90% of all new jobs?

Mr McCallum: A very high fraction of new jobs, yes.

Mr Jim Brown: A great proportion of all new jobs?

Mr McCallum: Yes.

Mr Jim Brown: We've had numerous groups that have commented and made presentations, small business and medium-sized groups, the hotel people and restaurants. They've all said there is a real non-existent source of capital and that their expansion plans are dependent upon sources of capital. In the major chartered banks, that is pretty much the only source of real capital, yet with high interest rates, many small business people would say that the high level of bankruptcies is caused by a self-fulfilling prophecy on behalf of the chartered banks. You probably disagree with that.

I'm concerned that we will do all these things, we'll do the tax cut, we'll reduce the deficit and so on, we'll have the demand and we won't have the source of capital that's economic. Really, the chartered banks are the ones on the hot seat in this case. I'm really fearful that the chartered banks are going to limit job creation.


Mr McCallum: I'm not a politician nor a banker, I'm a simple economist, but I'll try to answer your question. It's not right to say that the banks are the only or the dominant source of capital. The banks are the dominant source of certain kinds of loans, but venture capital and other sources of capital are extremely important as well.

I believe it is true that in the past, particularly following the recession of the early 1990s, the banks' behaviour vis-à-vis small business left something to be desired and still could be improved, but the banks have made adjustments, improvements, new programs, with respect to knowledge-based industries, venture capital funds, other initiatives, partly in response to political pressure -- I certainly agree with that. The banks are working pretty hard now to try to accommodate the needs of small business and I don't see why, as economic conditions improve, the banks wouldn't be there to help finance small business.

But banks are by no means the only parties involved in this. There is venture capital and other forms of long-term equity capital which are not primarily the business of the banks.

Mr Jim Brown: But if the banks don't show any confidence, the other sources don't show any confidence either.

Mr McCallum: I don't see any reason to think the banks won't show confidence.

Mr Jim Brown: They haven't.

The other thing is the high level of interest rates. In fact OPSEU came in and said that the ability of the banks to create money, based on you keep 8% or 10% on deposit and you can lend out 100, really means that with higher interest rates the profits of the banks become even more, so there's an incentive really to have higher interest rates; the profits go up with high interest rates.

Mr McCallum: There I know, as an economist, that's not right, because the banks don't make money as a function of the level of interest rates, the banks make money as a function of the spread between the interest rate they charge and the interest rate they pay, so banks don't do terribly well when interest rates are sky high. For one thing, sky-high interest rates damage the economy and more people can't pay back their loans. Banks are doing quite well now and interest rates are historically relatively low today and getting lower.

Mr Jim Brown: But if you can make 12% on $100 and you only have to give out 7% on the $8 you have to keep in your till at any time, the spread is quite dramatic, and as interest rates go up, it becomes even more dramatic.

Mr McCallum: But the spread doesn't necessarily go up when the level of interest rates goes up. The point I'm making is that the interest rate could be 5% or 10% or 15%; that doesn't tell you anything about how much money the banks are making. It all depends on the spread between the cost of funds to the bank and the interest rates charged. Historically, the banks have not done better when the general level of interest rates has been high. The banks, as I said, are doing quite well today and the interest rates are relatively low.

Mr Wayne Wettlaufer (Kitchener): John, the deficit we have now is $100 billion, and in spite of the deficit-reduction program we have, we still see that deficit growing to $120 billion by --

Mr McCallum: The debt.

Mr Wettlaufer: I'm sorry, the debt, yes. We see it still growing.

Mr McCallum: It's not that bad, the deficit, thank goodness.

Mr Wettlaufer: We see it growing to $120 billion by the year 2000 and 2001. Could you speculate on what it might grow to if we did not have our deficit-reduction program in place.

Mr McCallum: Higher. But the general point I would make is don't just look at the debt in dollars, look at the debt in relation to GDP because GDP is the capacity to pay back the debt. According to our estimates, that debt-to-GDP ratio will start to come down, albeit slightly, in 1998-99. The trouble with these projections is that virtually every fiscal projection you ever see has that debt ratio coming down some time out into the future, so we'll have to wait and see whether it happens.

If the government carries through on its actions, it'll at least start that debt ratio turning down and I think that's very important, because you add that debt ratio to the federal debt and it's over 100% which is one of the worst in the industrial world.

I don't think this is controversial. As I said at the beginning, all parties agree on the necessity to put the fiscal house in order and the Ontario program will -- if the projections are correct, that ratio will start to decline in a couple of years.

Mr Wettlaufer: Could you give a comparison of our debt-to-GDP ratio compared to our neighbouring competitors, the states and the neighbouring provinces?

Mr McCallum: In 1995-96, Ontario's debt was 30.9% of GDP, which is lower than every province east of Ontario and lower than Saskatchewan; it's higher than Manitoba, Alberta and BC. So Ontario's problem is not so much that it has an out-of-line debt, but it has an out-of-line deficit which is making that debt grow really fast. In a sense 30% is too high; when it's added to the federal it's over 100%. Some provinces like Newfoundland, for example, with 54%, at one point could hardly borrow at all because that debt was getting totally out of hand. Relative to other provinces, Ontario is not out of line in terms of debt, except one could say all of the provinces are out of line.

The problem Ontario has is that deficit is so big it's making that debt skyrocket up and the current programs I think are designed to address that issue. I don't have the numbers here about state debt but generally states are far indebted than provinces so they don't have this same problem. Moreover, for the federal government in the US, its debt relative to GDP is somewhat lower than for our federal government.

Our fiscal situation is worse than the US, there's no doubt about that, which creates a problem because we have to compete with them. With a higher debt, we have to have higher taxes to finance those higher interest payments, and that reduces our competitiveness vis-à-vis the Americans. For Ontario, it's becoming at least as important to compete with Ohio and other states as it is to compete with provinces to the east and west.

Mr Gary Carr (Oakville South): It's a pleasure to have you here again. Also, as a constituent, I appreciate you and your fine advice. I also want to thank you; I remember meeting with Mr Harris and you, as we were putting the Common Sense Revolution together and deciding on the tax cuts, and you were giving your input.

I hate to do this to a constituent, but if I could put you on the spot and ask you, if you were the Premier or the Minister of Finance of this province -- I guess ultimately the Premier -- and you had the choices you've laid out very clearly here between further reductions of $1.7 billion and doing the tax cut -- you've laid out both options very clearly -- what would you do in terms of the tax cut and the spending cuts?

Mr McCallum: I really hate to disappoint my own MPP --

Mr Carr: As long as you vote for me, you won't.

Mr McCallum: -- but it's 75% politics and 25% economics, as I said before, so I'm not here to be a politician or to pretend to be a politician. You may think this is a copout, but as an economist I think my job is to lay out economic implications. If I were Premier, I'd be at least 75% politician and so my answer might be rather different. If you ask me whether I would go ahead with the tax cut, I don't know. It depends on my own politics and I don't want to introduce my own politics into the discussion.


Ms Castrilli: Mr McCallum, it's very useful to have you here today. What we are trying to do is gauge a wide variety of opinions and put them in context and try to give some advice to the government. We've had, over the course of the last two weeks, as you might imagine, a wide variety of opinions as to what that advice ought to be. I think it would be very useful to put to you some of the evidence that has been put to us and ask for your comment to help put that in context.

One of the issues that has come up is that there is likely going to be a very slow growth in the economy in the foreseeable future, and that that, coupled with a rigid monetary policy, will make it virtually impossible to meet deficit targets and get out of the economic dilemma we're in. I wonder if you might comment on that?

Mr McCallum: I wouldn't call the monetary policy rigid, for one thing. I think the Bank of Canada knows as well as anybody else that the economy is very weak, that inflation is not a problem, and they're doing everything they can to get interest rates down as fast as they can. If they go too fast, it's going to boomerang on them, as has happened sometimes in the past. We already have a zero gap, more or less, between short-term rates, Canada and US. I think the Bank of Canada is doing as much as it can, but it can't do much more than it's doing.

Fiscal policy is in a straitjacket really for deficit reduction reasons, and what other instruments do we have? We have the Team Canada approach, which might help our exports. We have structural policies which are critical to improve training, education, to adapt people to the new world and all of that. I agree with you basically that the instruments governments have to create jobs more rapidly are limited and we are into slow growth, but I think that the projections we've been discussing are realistic and that we can make progress and have some reduction in taxes and all of that even with slow growth. If the growth gets even slower and we have a recession, then clearly we'd be in the soup. I think that's unlikely, but certainly not impossible.

I think we're on a sustainable track in all likelihood, but we have to be aware of the risks that things could get worse than they are today.

Ms Castrilli: You believe that the government projections are realistic in the circumstances.

Mr McCallum: They're just a touch more optimistic than us --

Ms Castrilli: How much of a touch?

Mr McCallum: -- not that we're the font of all wisdom, but I think the government projections are, by and large, very close to the private sector consensus.

Ms Castrilli: Another issue has come up with respect to the tax cut itself: We've had a great deal of evidence that tells us that the average per Ontario family is around $1,100. More than half of that would go to families with annual incomes of over $90,000 a year, which are the top 13%, and the average cut for those families would be about $4,400, and then there are all kinds of figures in between.

For the average family, because of the various surcharges and extra cost of services and service fees that will be levied, that will be pretty much eaten up so that there won't be that kind of spending in the economy the government is anticipating. Any views on that?

Mr McCallum: Clearly, if the question is that you have a given spending cut and you're asking, suppose we can meet the deficit target with this tax cut, should we cut taxes or not cut taxes? As I said earlier, I say cut taxes. Now, the stimulus from that might be massive, it might not be massive, but at least it will be in the right direction.

And I have no brief for any particular kind of tax cut. The government made a commitment in the election, the government was elected, so I guess it's committed to that tax cut. It's not necessarily the tax cut that would give the maximum stimulus.

Ms Castrilli: What tax cut would?

Mr McCallum: You're going to think I'm ducking the question, but it's really difficult to know --

Ms Castrilli: It really would help us to have an answer to that.

Mr McCallum: If you take again the conventional view and plug it into a macroeconomic model, I would say probably a tax cut that was more equally received, like a cut in sales tax, might have more economic stimulus. That would be the conventional view, and you'll get that, probably, if you put it into an econometric model.

But I think you have to think of other things which are not easily modellable and then the answer becomes greyer. There would be these confidence effects. There would be the ability to attract the bright people from the US to come here or prevent top people in terms of productivity from leaving Canada. There could be these effects on foreign investment, which are very hard to quantify.

The conventional answer to your question is that a sales tax would give more stimulus, I believe, but once you factor in these things that are difficult to quantify, it becomes more murky.

Ms Lankin: Mr McCallum, you've convinced me that I've become conventional.

Mr Monte Kwinter (Wilson Heights): I just want to pursue the tax cut. Yesterday we had a presentation by the economist at the C.D. Howe Institute, the senior policy analyst.

Mr McCallum: Bill Robson?

Mr Kwinter: Yes. He said that if the purpose of the tax cut is to stimulate consumerism, then he would unalterably opposed, that we have too much consumer spending at the moment and what we don't have is enough savings. The question then comes up, and I don't know whether you agree with him, but his proposition was that you get rich by saving, you don't get rich by spending. If that is the case, as a government, when you're giving this tax cut, when his supposition was that the last thing you want is more consumer spending, you want more saving, how do you do that? I don't know whether you agree with him, but you can comment.

Mr McCallum: Again, it's a long run versus short run. I think in the long run, if we save more, we'll get richer and that's good. In the short run, we need more economic activity, so I would certainly be in favour of more consumer spending.

Consumers are incredibly weak. Whatever Mr Robson might say, my opinion is that the economy needs people to spend more, and I think the solution to the issue is if we spend more and get activity higher, people will have higher incomes. If people have higher incomes, they can both spend more and save more. If we can get some growth going, there's enough extra income to save more and spend more, but I certainly think that consumers have been extremely weak and what we need now is more consumer spending. If we can get higher consumer incomes, that could be consistent also with more saving. But I would put more emphasis than Mr Robson, I think, on the need to get some growth soon, rather than the long-term question of savings rates.

The Chair: Thank you, Mr McCallum, for joining us this morning and giving us what the Royal Bank of Canada believes is the direction of our economy.

Mr McCallum: I'm afraid on many issues I had two hands, but thank you very much.



The Chair: Our next expert witness is the Bank of Nova Scotia. Mr Gampel and Ms Webb, welcome. We have 45 minutes together this morning. I assume that you will be beginning with a brief and we'll move into questions afterwards.

Mr Aron Gampel: Sounds good. I'd like to read into the record a little brief we have prepared, and then, like my predecessor, we'll be willing to take your pointed questions.

Both Mary and I believe that Ontario has a big challenge ahead of it, strengthening the fiscal foundation in a soft economy. Recent data suggest that Ontario's economy ended 1995 on a soft note and is slow getting out of the starting blocks in early 1996. Even with the anticipated pickup in growth as the year progresses, provincial output will only manage to advance 1.7% in 1996 after posting an estimated 2.3% rise last year. Because of the early-year softness, cautious forecasts prepared just a short time ago may well prove to be optimistic.

The export locomotive, which has been largely responsible for pushing provincial output 5% above the prior peak established in the late 1980s, has lost some steam. The slowdown in the United States, as well as in Europe and Japan, is hurting because trade bulks so large in the Ontario economy. Exports of goods and services account for about 60% of provincial output, with almost 90% destined for the United States. Domestic producers are adjusting schedules to reduce bulging inventories.

Domestic demand has been unable to fill the gap. Ontario's economy has been buffeted by ongoing structural adjustments and intensifying fiscal retrenchment. Household spending has been dampened by a big erosion in consumer confidence and purchasing power. Retail sales and housing activity are still soft.

Early readings on the Ontario economy in 1996 are fairly sparse. Motor vehicle sales are beginning to climb from very depressed levels with the help of incentives. Businesses began to hire more workers in the fall, reversing the losses recorded earlier last year. However, the pace of job creation has slowed again, with just 12,000 new positions added to provincial payrolls in the three months to January.

Accommodative monetary policies in both Canada and the United States should help kickstart economic activity. The downtrend in borrowing costs will help boost affordability and underpin retail and home-buying activity. Strengthening US growth should bolster domestic orders in coming months, with a low-valued Canadian dollar keeping our products competitive. Tourism remains a big beneficiary of the currency realignment.

Motor vehicles and parts will continue to dominate Ontario's exports. Canada's auto and light truck production, which is largely based in Ontario, is expected to reach a record 2.5 million units in 1996. Ontario accounts for about 16% of North American assembly capacity but only 7% of purchases. Domestic assemblers enjoy a production cost advantage and a favourable vehicle mix; 45% of domestic capacity is geared to the popular vans and sport utility vehicles which are likely to account for most of this year's growth in North American sales. The auto parts industry is expected to gain additional market share. The proportion of Canadian parts in each vehicle has already increased over 20% from the late 1980s.

High-technology industries are providing a further boost to the province's manufacturing capabilities. The production of electrical and electronic goods has soared almost 60% since 1992, riding the strong wave of business spending on office and telecommunications equipment. Wholesale trade has been buoyed by computer sales. Business services, such as accounting and engineering, have reported impressive gains over the past three years as they become increasingly focused upon export markets. Plastics and chemical manufacturers are expanding following big export gains to the United States over the past two years. Canada's first PET plant for plastic bottles, and that's those little bottles with the mineral water that we're all drinking, will be built in Millhaven this year.

Consumers have been reluctant spenders because purchasing power has been squeezed. Households have had to contend with job uncertainty, sub-par income gains, high household debt levels and diminished public sector spending.

One of the biggest constraints facing Ontario residents has been the lack of employment opportunities. While the private sector has been adding to payrolls, total provincial employment has been limited by the retrenchment in the public sector. Competitive restructuring has forced businesses to focus on boosting productivity through streamlining operations and implementing new technologies.

Ontario payrolls are still 44,000 below the pre-recession peak, even with the rebound in employment since 1992. The shortfall in full-time positions is even greater. Moreover, the job outlook is still quite soft. Help-wanted advertisements have been declining. Firms in the export sector are no longer big employment generators despite the outlook for further gains in this key sector.

Household incomes have also been held back by low wage settlements. Adjusted for inflation and taxes, incomes of Ontario residents have declined by nearly 1.5% in the 1990s. Discretionary income will be further pinched by the expected pass-through of some cost of public sector services.

The Ontario government's proposed cut in personal taxation would provide residents with some relief. However, the lack of specifics regarding the composition and timing of the tax cut makes analysis of its net impact difficult. There is no guarantee that Ontarians would fully spend their tax saving. Residents may opt to spend less and save more in this uncertain environment. Ongoing business restructuring, increased fiscal cutbacks by all levels of government and concern over programs such as the CPP will continue to reinforce consumer caution.

Some bounce-back in Ontario housing starts is expected this year, after falling to a 43-year low of 36,000 units in 1995. Homebuyers will benefit from improved affordability. Mortgage rates have tumbled three percentage points since early 1995. Home prices are still on the soft side. For Toronto residents, homeownership will become increasingly attractive as an already tight rental market tightens further. Nevertheless, residential construction activity will continue to fall well short of the boom in the late 1980s.

Non-residential construction in Ontario will be supported by a number of major corporate investments. Auto and minivan capacity is being expanded. The demand for modern workspace is increasing, but the recovery in office construction will be limited by the large amount of government office space anticipated on the market over the next few years.

The province's economic performance differs widely among regions. While the greater Toronto area remains the dominant force in provincial output, other regions have made sizeable gains in attracting and expanding business activity. Only two of Ontario's major regions, central and northern Ontario, have recorded sizeable employment increases in the 1990s.

Central Ontario has been the clear winner in the job-creating sweepstakes. Auto and parts manufacturers have expanded their operations. The region has become an attractive investment destination for high-growth, high-tech firms, compensating for the rationalization of traditional manufacturing industries. There has been diversification into new growth areas, such as medical products and services.

Northern Ontario has benefited from the expansion of its primary industries. Mining and forest products producers have responded to the pickup in global demand for commodities and higher prices.

Eastern Ontario has eked out only minimal employment gains over the past five years. The region has developed into one of Canada's top centres for computer services and telecommunications, but federal downsizing and the consolidation of industrial capacity have offset much of these gains.

The southwest region has struggled to reverse the job losses incurred at the beginning of the decade. Manufacturing has been given a boost by the expansion of auto-related production and parts facilities. The Windsor casino has helped revitalize tourism in the region.

The greater Toronto area was hit hard during the early-1990s recession. It has been slow to recover even with the auto sector regaining its momentum. The region has made some inroads into reducing its dependence on traditional manufacturing industries by shifting to higher value added services. Restructuring should enhance the region's position as a major North American manufacturing and service centre. However, intensifying public sector cutbacks will be a factor dampening growth in this region.


Ontario's fiscal dilemma is severe, but not unique. Even with big cuts in program spending, the deficit is still forecast to remain above $9 billion in this fiscal year and $8 billion in the next fiscal year. Other governments too, both here and abroad, are grappling with debt-induced budgetary strains. Many jurisdictions are contending with an underperforming economy. They are all dealing with volatile financial market conditions.

Ontario is relying on cutting expenditures to tackle its deficit problem, mainly because spending is still way out of line with the revenue-generating capacity of the province. The government's fiscal plan calls for outlays to be reduced by about $5 billion through the next fiscal year. Most other provinces have already put the big squeeze on program spending, enabling six provinces to balance their budgets or realize surpluses. Federal and provincial outlays are slated to fall by over 2% in the current fiscal year.

Are there other ways for Ontario to deal with its fiscal problems? A period of strong and uninterrupted economic growth would help, but Ontario will be hard-pressed during the remainder of the decade to match the annual growth of over 3% experienced during the 1980s expansion. Policymakers have little room to raise taxes. A large share of retail and renovation transactions have already gone underground. Maintaining a competitive tax regime is essential. Ottawa can offer no support, since planned cuts in federal transfers will necessitate additional rounds of provincial belt-tightening.

Lower interest rates also would help, particularly if they trigger a strengthening in economic activity. Yields have been trending lower in response to the softness in activity on both sides of the border and further declines are likely through midyear. The province will realize some interest savings from the lower rates, though the structure of Ontario's debt is significantly longer-term than the federal government's. Furthermore, over 6% of Ontario's outstanding bonds must be refinanced in fiscal year 1996-97.

How have other countries dealt with their budgetary problems? A recent study of 20 OECD countries between 1960 and 1992 identified two common characteristics in the fiscal policies that accomplished sizeable reductions in debt burdens. First, restraint was focused on spending cuts, not tax increases. Second, the spending cuts had to pare social welfare programs and the government wage bill, which bulk so large in government finances. Governments that failed to reduce substantively their debt burdens left these politically sensitive expenses virtually untouched.

Expenditure reduction offers the best hope for reducing Ontario's debt burden. However, it will be much tougher to achieve the government's fiscal targets in the current slow-growth environment. An underperforming Ontario economy will likely put upward pressure on program expenditures. At the same time, provincial revenues may be softer than expected because of weaker trends in personal incomes, retail sales and corporate profits. These three tax sources account for over 80% of provincial revenues.

It is critically important for the government to maintain its focus on deficit reduction. With provincial debt closing in on $100 billion, Ontario has been caught in the debt trap that snagged Ottawa earlier on. The province will pay almost $9 billion in debt-servicing costs this year, essentially the same amount as the budget shortfall. The rising tab is already taking one quarter of provincial tax revenue.

Countries making significant fiscal progress typically emerge with stronger economies and lower unemployment, according to the aforementioned study. The risk premia on interest rates shrink, providing a boost to activity, if governments stay the course. Ontarians are already experiencing part of the payoff from the retrenchment in the public sector. Interest rates are trending lower, though yields are still very high relative to the underlying improvement in inflation. Canadian short-term rates are now around 5%, about four and a half percentage points lower than their average of the past 20 years. A government of Canada long-term bond is yielding just above 7.5%, close to three percentage points under its historical average.

However, the transition to a stronger fiscal position is often arduous, particularly if the adjustment occurs during a period of slow growth. This is Ontario's conundrum. Accordingly, the government should take precautionary steps to ensure that it remains on its stated deficit reduction path. Like their federal counterparts, Ontario policymakers should factor in a contingency fund which would deal with any slippage stemming from adverse economic or financial developments.

There is a possibility that the economic and revenue gains stemming from the government's proposed personal tax cut may not be as great or as immediate as expected. Even deeper spending cuts may be needed to ensure that the government's deficit targets can still be achieved.

I am now more than prepared to take your questions.

Ms Isabel Bassett (St Andrew-St Patrick): Thanks, Mr Gampel, for your presentation. It's certainly informative. You mentioned that ways that Ontario should deal with its fiscal problems should include maintaining a competitive tax regime. You say that's essential. Could you just elaborate a little bit on that vis-à-vis attracting business?

Mr Gampel: I think most studies would indicate that the tremendous rise in taxation rates, whether it's on corporate or household taxes, in recent years has been a factor which probably dissuades businesses from investing in Ontario. It doesn't stop it totally, because there are other factors that have to be taken into account.

But certainly I think moving towards a tax regime which is much more in line with our major trading partners, whether within Canada or south of the border, is essential towards attracting new investment and attracting new jobs, obviously, to this province. We have a long way to go in reaching that stated objective.

I know on my radio this morning I was pleasantly surprised to hear that Metro is planning to boost property taxes to help pay for the Sheppard subway line. I can tell you just from my own experience in travelling through Ontario and talking to businesses, giving presentations to customers and potential customers of Scotiabank, that the mood of the public is not for tax increases. They feel that they are overtaxed -- I think the data confirm that -- and that in order to give a little bit more punch to the economy obviously some rollback is warranted.


Mr Joseph Spina (Brampton North): Thank you, sir, for the presentation. Each of these is a little bit more enlightening. I always wonder if the phrase "conventional wisdom" that's used by economists is an oxymoron.

You indicated that the province should stay the course with respect to its deficit reduction targets and that deeper cuts may be needed in order to accommodate the proposed tax reduction. You also indicated that the tax reduction may not result in a short-term benefit in terms of stimulation. On a longer-term basis, however, do you feel that a tax reduction would contribute to the recovery of the province and that the additional deficits would be just as important to accommodate that tax reduction?

Mr Gampel: There are no easy answers to this type of question, and I appreciate the difficulty that you have in planning and I think you can appreciate the difficulty that we have in speculating on this type of future activity.

I would say that given the tremendous amount of uncertainty in the economic environment right now, there is absolutely no guarantee that a $100 tax break to individuals would translate into $100 of spending into the economy. Therefore, in my opinion, the impact may be more muted because of other factors that are going on that are affecting Ontario at this moment that are much more international in scope.

As I indicate, and that's why I wanted to read the statement in so I wouldn't miss some of these points, most of our major trading partners are undergoing similar type of problems. They're all in a slow-growth mode. There is a tremendous amount of downsizing coming through, through industrial restructuring and government retrenchment around the world. There is no guarantee that the uncertainty that is pervasive right now would quickly turn around with the advent of a new round of taxes.

I think that Ontarians would probably look to see what their total tax bill will be once they get hit by user fees and the like and property tax hikes that are likely to come through, so the net effect may not be as great in terms of what the spending power would be. I think, in short, a tax cut would probably stimulate some spending. How much I am not sure at this particular point. I can remember many years ago in this province taking advantage, and I thought it was very good at that particular time, of a program of tax relief that was geared to a particular sector. That was the home sector. Obviously, you can then quantify with a little bit more precision the net impact.

But what we're talking about right now I think are much more nebulous concepts. Right now there is so much pervasive uncertainty about the job outlook that there probably would be a decision made to save more, spend less, and pay down existing liabilities in order to protect themselves.

Mr Spina: Just on that point of the international market impacting on us, interest rates obviously are a key factor. Could those interest rates be, shall we say, worse if we don't get our fiscal house in order now? Could that impact us adversely down the road?

Mr Gampel: I think it could. I think there is a new sense of optimism in financial markets about Canada. I think that we are seeing it now being tested in the marketplace where we are beginning to see some sense of coming to a much more normal spread between Canadian and US rates, which is the benchmark for Canadian rates. The Bank of Canada is doing its darnedest to deliver lower interest rates. The currency has managed to stabilize around its two-year average, just under 73 cents.

I think there is some optimism that governments in this country, whether federal or provincial, are now seriously redressing this situation, and I think we are slowly but surely seeing the impact in terms of the downward trend in interest rates and the narrowing in differentials, especially at the short end of the yield curve.

As we move out longer-term where governments have tended to do more financing, there's still some scepticism, and rightfully so, because we know that the debt-to-GDP ratios continue to rise into the future no matter what is being done today. So I think there has to be a hard-won degree of confidence before investors both here and abroad fully give us the low interest rates that we probably deserve and need at this particular time.

But saying that, rates are down. They're likely to stay down unless there are some unforeseen shocks to the system. Last year we were essentially blindsided by a few of them in terms of the Mexican peso crisis, which is not anywhere close to our borders but swamped us immediately. The Quebec situation is a wild card in the outlook, and your guess is as good as mine as to what the implication will be.

But all these factors suggest that interest rates are just not in our control. What is in our control is taking the corrective steps and maintaining I think decided progress in getting deficits down. Again, I don't think we're debating the fact that we are moving towards lower deficit. I think it's the speed of the adjustment which is probably critical at this time.

Mr Spina: So it's important to move.

Mr Kwinter: Thank you, Mr Gampel, for your presentation. It's always useful to have people like you come in and give us their perspective so that we get an overview of what the different perceptions are.

One of the things I'd like to talk about is, there seems to be a conflicting message coming out of the government. When the minister and his deputies and staff appeared before us, they spent some time in telling us the importance of Ontario's credit rating and the fact that it wasn't just the interest rate that was impacted, but that once you get to a certain level, certain bond buyers are precluded from buying your bonds because they have to achieve a minimum investment level quality. Today, the Minister of Finance is quoted as saying he doesn't really care about the bond rating services' rating, he is going ahead with his tax cut regardless of what they are saying.

Would you have any comments on that and what the impact would be?

Mr Gampel: I guess how I would comment on it is that the sort of recommendation, the last paragraph which we put in, was that maybe it would be a pragmatic approach in order to ensure that the fiscal targets are met and which have, to a great extent, been accepted by the rating agencies at this particular time. Maybe the government should ensure that the deficit targets would be reached by cutting spending even greater if they wished to put that tax cut through, the magnitude of which again I think will probably change by the time we get to the next budget round.

I think credit ratings are important. I think anybody who holds an Ontario bond would feel the same way. Therefore, I think it's incumbent upon the government to continue to act in a prudent manner in terms of its fiscal objectives, and I would expect that the government would follow through on their commitment to bring the deficit down. How they get there is obviously important. If they continue to push for their tax cut, and I have no reason to believe that they won't, then maybe one way to ensure that the targets and the credit rating can be maintained is to cut spending that much deeper at that particular time. That's one way of ensuring that we can basically maintain the province's credit rating as it currently stands.

Mr Kwinter: Could we pursue that a little bit? There's no question in the minds of most economists that whenever you start cutting expenditures it does provide some sort of a drag on the economy, and we have the double whammy of Ontario being the major recipient of whatever drag the federal government's actions take plus what the province is contemplating. What I'd really like to find out from you, as an economist, is what is the -- not the rationale in deciding it, but what is the ratio between your suggestion that, well, if you're really committed to the tax cut then go ahead, but that means you're going to have to cut further into your expenditures; and what is the net result of that, given the fact that you've already said there's no way of knowing what the net increase of economic activity is going to be because of a tax cut, but I'm sure you can probably come up with a model that would show you what the drag is going to be by cutting further into expenditures.

Mr Gampel: Again, we make the assumption that further cutbacks will have a more negative impact on the economy. It may, it may not. It all depends upon how economic activity in the economy and our trading partners is doing at that particular time. For example, if the taxes phased in were -- let's say the biggest tax cuts come two years down the line as opposed to next year, we may be in a different economic environment, a stronger economic environment where the Ontario economy is doing much better so that we could probably tolerate the extra expenditure cuts without seriously damaging the economy, or let's say forcing a further contraction in jobs or the like.

Again, it's very difficult to say that this is going to permanently impair the ability of the economy to grow. I don't think that's the case. I think we are, unfortunately, caught up in an international environment right now which is stuck in a low gear, and because Ontario's economy has now dynamically changed more towards an exporting platform, we have to hope that our trading partners, in the United States in particular, start to show better growth, and we think they will.


I think that as we move out through 1996 and into 1997 and probably 1998 as well, the macroeconomic conditions that Ontario will be involved in will be doing much better. That's a very important benefit to the province to continue to cut spending during that period of time. If the economy is stuck permanently in a low gear, then obviously there will be much more negative impacts on employment and overall output. But a lot depends upon how the economy is doing two years down the line, for example, when the full implementation of these tax cuts comes through.

The one thing I've tried to impress upon you today is that -- and I think it is very, very important; and you have so many people advising you -- the best way maybe is to take a consensus of the forecast and knock it down by a half percentage point and do your forecasting on a very, very conservative basis over the next year or so, because the economy is weak and there doesn't seem to be a lot of stimulus coming from it. But events can change. Lower interest rates in the United States should be, I think, a very favourable development to getting that economy back on its feet. Once Americans start going to the malls and start buying cars again, then we're going to see a little bit different performance in Ontario. That will probably have a big impact on how Ontario fares.

I think the domestic side is going to be weak, it's going to be hard to get new jobs coming back at the pace that would fully offset the retrenchment in the public sector, so that we are going to be running a slower pace of job creation for the foreseeable future. That doesn't necessarily mean that the Ontario economy is going to do poorly during that period, it could actually start to revive, again piggybacking on improving fortunes in the United States and around the world. I think a lot depends upon -- you know, we're asking questions, but what is the immediate impact? I think we have to only take one year, at most, two years, out. Looking beyond that is just too difficult to predict at this particular time.

Mr Tony Martin (Sault Ste Marie): Thank you very much. Certainly your being here today has been helpful and informative. I just had a question around the issue of decisions made by government, where we're going and the premise upon which some of those decisions are being made and the question of consumer confidence and stability. Certainly out there today, as I walk around my community and talk with people who are working, or not working, involved in various organizations and functions re economic development etc etc, there is quite a high degree of anxiousness, a sort of lowering of the level of confidence that their own economy will be healthy moving into the next year as they look at what's been done and what they're anticipating will be done by this government by way of both the speed and the depth of the cuts that are being made and the tax break that is being promised.

I wanted, in my own mind, to get some help from you so that I could perhaps share that with the folks back home. How do you reconcile the statement that the economy is soft with the fact that so many major corporations at the end of the year 1995 are declaring historically record profits? In the province of Ontario, we had in fact historically record investment in 1994. Ontario is by all measurements very, very competitive with the rest of the world. I don't think I'm saying anything that can't be quantified or proven there -- with the fact that the government is saying we have a soft economy and we have to be doing some things to reflect that. And you're saying today, in coming before us, that we have a soft economy. Yet what I'm seeing by way of the reports that are coming out is in fact somewhat different. Can you reconcile that?

Mr Gampel: I don't think that the connection between corporate profitability and what happens today in the economy is as direct as you'd like to probably make it. Overall corporate profits are slowing down at the moment because the economy has slipped into a lower gear. But businesses have done a lot in this province and in this country to improve their ability to generate bigger earnings and I think we're starting to see that reflected in the stock market. The markets are essentially giving a vote of confidence in many firms in this province and in this country and their ability to generate income and activity and contribute to the province's longer-term output.

I don't know if there is that much of a connection. As we've seen before, it's a highly cyclical economy, it's a highly cyclical profit picture. The profit numbers are probably going to look a lot different over the next six to 12 months, as slower growth and slower momentum in both domestic and foreign markets take a toll.

Right now what we're talking about is the economy still at a very high level of activity, but in terms of the net addition to growth, it has certainly slowed down. It's not producing the addition at the margin that we would like to see. The markets right now are suggesting that companies are able, even in a slow-growth environment, to generate higher rates of earning than they may have done in previous cycles, and that probably is good news for maintaining employment levels and output.

Mr Martin: I just want you to know that I'm not just pulling figures out of the air. I'm reading the reports that are coming out and we have many, many companies that are known by all of us in this province that have declared historically record profits in 1995 -- and by way of, at least, the activity in the stock market. Again, I don't pretend to be that familiar with all this because it's not my area of expertise but certainly I can read, I can understand and I can relate sometimes these factors.

The companies are declaring record profits. We have investment in the province that's very healthy, and we have the stock market doing quite well -- actually, if I might use the word "bullish" -- because what they see ahead of them is a set of extremely promising conditions, at the same time as we're being told by the government that we have to batten the hatches, cut programs and cut expenditure at a speed and to a depth that I think is going to have major repercussions in every way including economic.

Mr Gampel: You have to remember, too, if I could add just add one comment, that in the early 1980s there was a very tough recession and many resource companies in this country, in this province, went through a major transition phase in order to streamline, to get out from high levels of debt and to modernize. Now we're at the forefront in terms of profitability and their ability to generate income and output in this province, in this country.

The tough recession at the beginning of this decade basically has forced a rationalization in manufacturing and we're now starting to see it in terms of many companies able to generate better earnings performance and maintain high levels of output. A lot depends obviously on the markets that they are addressing but, essentially, the economy has faced the challenges of being in an open market economy, of recessions and downturns, and basically forcing this rationalization. Various sectors have done it. The service industry is going through it right now. We're seeing a rationalization in many areas of that large industry.

It's just that now the time has caught up for governments to basically rationalize their operations.

Mr Martin: I don't think anybody is arguing with you that that shouldn't happen and I think we were doing it as a government when we had control of the handles, and this government should too. I guess what we're questioning is the timing, the depth, the tax break, all of those factors that are new to the equation.


I just want one other question, if I have time. It's the follow-up on a question by Ms Bassett on the competitiveness of Ontario. Indeed, I would disagree somewhat in the view of Ontario as being competitive. I believe Ontario is very competitive and all of the indicators are saying that we are. I believe we're competitive because our workforce is very well educated; we have a healthy populace because of the health care system that we have in place; we have a Workers' Compensation Board that works very effectively to protect companies as well as protect workers and get them back to work again. I think we're very competitive in terms of our hydro rates and the fact that we look after people and we don't let them fall through the cracks. When we compare ourselves with countries, particularly in the eastern part of the globe, we have to understand that the reasons they're competitive are factors like the use of child labour and the very low regulation that's there re health and safety and the wages that they pay people.

What I'd like to know from you, because it's obvious the government hasn't done it, is, what studies have you done re the human factor and some of the conclusions that you've come to? Have you factored in the cost of not providing good health care, the cost of not providing good educational opportunities for people, and do you know at what point a major cutback to those very valuable programs becomes counterproductive re continued economic growth and continued economic health for this province?

Mr Gampel: Obviously, those factors are included in the type of analysis that most economists would do, because we obviously include it in the type of productivity numbers that we would build into our forecast and base it on. But we also pay a price for that, because we have this dead-weight drag of carrying $100 billion of debt in the province, which is really the cost of these services that we have built in over the years. So I think it is not easy just to break it out and to say that these factors alone are boosting our competitiveness. They all help; there's no question about it. I am not going to say that having a healthy or well-educated labour force is not a prime decision for businesses locating in this province.

I'll tell you one factor that you didn't mention which is of course not in our control directly but indirectly -- the currency. We'd have a much weaker economic performance in this province and this country if the Canadian dollar was back at 90 cents, where it was at the beginning of the decade. The dollar itself has been a factor which has helped us regain some lost competitiveness and given us time to restructure.

There are a lot of factors -- ones that you've mentioned, other ones that have to be built into any forecast. It's hard to isolate any one as being the most critical. In many areas, we probably are very competitive because of the requirements of an industry, whether it's labour force and the like, which makes investing in Ontario that much greater. But overall, if we're looking specifically on the tax side, then I think the evidence suggests that Ontario still has some ways to go.

The one other question my colleague who's very good with numbers has just indicated: On the profit side, if we look at pre-tax profits -- and I would assume that is nationally -- for Ontario in 1995 pre-tax corporate profit as a percentage of GDP was 8.5%; in 1990, it was 8.6%. So it all depends upon how you want to measure profitability as to how well we've done. Obviously, if we're looking at it as a measure of the ability of the expansion of the economy since that period, we really haven't done as well as some of the headlines would indicate.

The Chair: Thank you very much, Mr Gampel. We thank the Bank of Nova Scotia for appearing today.

Mr Gampel: Thank you for allowing us to talk.


The Chair: Our next presenter -- this could be known as the morning of the banks -- is the Canadian Bankers Association. Welcome. Please identify yourselves for Hansard at your first opportunity. We have 30 minutes to spend together, to make a presentation and perhaps leave some time for questioning at the end.

Mr Michael Green: Good morning, Mr Chairman, ladies and gentlemen. I'm Michael Green and I'm the Ontario director for the Canadian Bankers Association. I'd like to introduce the members of our banking group here today: Mr Andy Kenyon, who is a senior vice-president with the CIBC, the vice-chairman of our committee; Mr Michael Lowe, senior vice-president, Bank of Montreal; Mr Steven McNair, senior vice-president, CIBC, and chairman of the Ontario committee; and Ms Barbara Amsden, who is the director of financial affairs of the CBA. So that's our team.

Mr Andrew Kenyon: I'm going to be leading off the comments this morning. By way of further background, my background is in taxation, and the gentlemen to my right are "real" bankers. I will just go quickly through my comments; they should take about 10 minutes.

Getting control of the provincial debt and deficits is the single most important political challenge we face in the 1990s. Our total debt and substantial deficits have pushed us to the edge of an economic abyss. If we do not get the debt and deficits under control, we will be unable to remain economically competitive, our ability to deliver social programs will be further eroded and we will pass on a truly dismal economic inheritance to succeeding generations. None of these are outcomes of which we should feel proud, but they can be avoided provided you as legislators take the lead, with support from business and the public.

The government of Ontario has begun the process and it must stay with it until we are living within our means once again. Difficult decisions have been made in initiating this process, and more difficult decisions have yet to be made.

We support the government in its actions and strongly encourage it not to waver in either intent or execution. In our recent submission to the Treasurer, we offered the following six-step approach to continuing his campaign against debt and deficits.

First, take action now in order to avoid taking more drastic action later. Ontario's net public debt is expected to climb to $97.2 billion in 1996. That works out to about $8,750 per capita. At this level, Ontario's debt and deficit burden is unsustainable. By making the necessary spending cuts now, opportunities for sustainable economic growth will be improved.

Second, set realistic but ambitious deficit-reduction targets. The immediate goals for the Ontario government are clear: Meet, and ideally improve on, the deficit targets for each of the next five years until the budget is balanced, by no later than the year 2001. Once deficits are eliminated, the government can focus on maintaining the total debt of the province at a level that can be afforded in good times and bad. Carefully done, this should lead to economic growth. Job creation will follow and will be sustainable once the province is no longer hostage to unaffordably high interest payments.

Third, educate Canadians about the importance of the debt and deficit reduction. It is important that Ontarians generally understand the link of deficit reduction and debt control to creating and sustaining jobs. Without this understanding, Ontarians will not accept the logic of reducing government expenditures. It is equally important that they understand that raising taxes on business is not a solution at all and will lead only to a false sense of security and a worsening of the current situation.


Fourth, expenditure controls, not tax increases. We believe the government should continue its commitment to deficit elimination and debt reduction through expenditure controls rather than tax increases. Experience has shown us that our existing expense structure is unaffordable and inefficient. We must eliminate unnecessary programs and improve the efficiency of the remaining programs. In achieving the efficiencies of the remaining programs, the government should have a blueprint in mind as to what the revised programs should accomplish at the end of the expenditure reduction. Cutting expenditures should be accomplished within a logical framework, not indiscriminately.

Experience has also shown us that raising taxes to cover the cost of ineffective and inefficient programs is at best a short-term palliative. In Ontario and federally, we have gone as far as we can with tax increases. As matters now stand, Canadian tax rates are uncompetitive with tax rates in bordering states. Within Canada, Ontario has the second-highest marginal personal income tax rate. Since Ontario lags most of the other provinces in deficit management it is likely that the other provinces will be in a position sooner to begin reducing personal and corporate tax rates and thereby make them more competitive jurisdictions.

A range of undesirable consequences arises from high and uncompetitive tax rates. The higher the marginal tax rate becomes, you actually give rise to diminished tax collections per percentage point of increase, as more of the economy is driven underground and business and individuals migrate to more hospitable tax climes. Reduced returns on investments lead to reduced investment in the province, with consequent impact on jobs. Higher taxes give rise to uncompetitive pricing as Ontario products and services bear a higher tax cost component than goods and services produced elsewhere. Finally, higher taxes result in reduced savings, which leads to more borrowing from non-residents to finance expansion in Ontario. That too puts us in a spiral with respect to managing the deficit. Together, those undesirable consequences are a potent brew.

Our view is therefore that a stable, low-tax environment is important to attracting and maintaining investment and encouraging private sector job creation.

Fifth, address the real roots of the deficit problem: government spending and unnecessary regulation. Canada's deficit and debt situation is forcing federal and provincial governments to rethink their roles and how they operate so that they focus only on those things that governments are in the best position to do and to do well. The banks recognize the difficult choices facing governments and the problem of allocating spending cuts among departments and agencies, but government must find ways to efficiently deliver those services which are truly needed.

The banks strongly support the government's initiative to reduce or eliminate unnecessary legislation and regulation. This will reduce the out-of-pocket costs of government and will free up resources to be employed in a freer and more competitive private sector. In particular, one opportunity that Ontario could look at is to eliminate duplication in financial institution regulation. Federal financial institutions are already subject to comprehensive federal regulation, oversight, inspection and audits by the office of the superintendent of financial institutions, the Canada Deposit Insurance Corp, Revenue Canada and to other federally mandated audit control systems such as those of external audits and internal inspection and compliance. For this reason, regulation by a provincial body on top of the already existing federal regulation provides little greater protection to depositors, and yet the costs of another layer of regulation, which are borne by Ontario taxpayers, would not seem to be justifiable.

We also support the establishment of a national securities regulator with a mandate to protect investors wherever they reside in Canada, reduce unnecessary duplication and multiplicity of requirements between provinces, and reduce costs and enhance operational efficiencies for the securities industry.

Finally, we believe that integration of the federal and provincial sales taxes, rather than their harmonization or any significant full-scale change, could significantly reduce costs for most businesses, particularly small businesses, and there would also be some small cost-benefits to the government in terms of reduced overhead.

Sixth, apply taxes fairly. We believe that all Canadian taxpayers, both individuals and businesses, should pay their fair share. Many Canadian wrongly believe that the burden on businesses has diminished. In fact, average tax rates as a percentage of revenue have been significantly higher for corporations than for individuals over the past 30 years. While corporations now may be contributing proportionately less to total taxes collected than in earlier years, this is because their share of national income has declined.

No industry should be singled out to pay more taxes than others. To the extent that government resorts to tax increases, they must be minimal and significantly less than the expenditure cuts. They must be temporary and applied equally across as broad a base as possible, or at least on all businesses in all industries.

We're bankers, so I guess I have to make a comment about the position of the banks on taxation. Banks are subject to higher taxes than most other businesses. We pay proportionately more due to our labour- and capital-intensive nature. Based on 1994 data, banks had nowhere near the top return on equity of the top 1,000 public companies. The best bank stood somewhere around 174th, and not a single bank was in the top 75 of these companies in terms of an average rate of return over the past five years.

Two final facts with respect to our tax position: In 1995 the banks paid over $880 million in taxes to the province of Ontario and its municipalities. In 1995 the six largest banks paid $3.7 billion in taxes in Canada in total.

In summary, we urge the Ontario government to continue its commitment to deficit reduction through expenditure cuts, including business subsidies, rather than resorting to tax increases. Tax increases will not solve, nor do they address, the real structural problem caused by overspending on obsolete, ineffective and inefficient programs. Tax increases will discourage private enterprise and impede job creation. This will lead to less government revenue rather than more over the long term. In particular, we urge you to recommend against broadening the base or increasing the rate of any fixed type of tax.

Although federal and provincial governments must take the lead role in restoring our country's fiscal health and fostering a favourable business environment that encourages investment, the private sector also has a real interest and an essential role in this struggle against debt and deficit. Businesses in Canada must be encouraged to generate economic growth, create jobs and compete domestically and internationally so they can contribute to government revenues that pay for our public sector services and programs.

We believe that your committee understands this fundamental approach to sustainable economic growth and prosperity and we hope that after Mr McNair's words you will come to recognize and accept the significant contribution we are making to the economic development of Ontario.

The Chair: Thank you very much. We appreciate your presentation. Could we start a six-minute round of questions with the opposition.

Mr Green: Mr Chairman, I wonder if perhaps Mr McNair could just say a few words on economic development, which would help to stimulate the flow.

The Chair: My apologies. Certainly, sir.

Mr Steve McNair: My name is Steve McNair, a "real" banker. I don't know what that means, but anyway, I just want to say a few things about the banking industry, some of the support for economic development in Ontario and some of the conversations I've had over the last couple of years as a chair of the Ontario committee for the CBA. One of the messages we're trying to communicate within the province of Ontario is that the banking industry is a core business in the province of Ontario. It's a very important strategic industry for this province.

We employ 85,000 people in the banking industry, of which 54,500 are in the GTA alone -- that's in Ontario, in the GTA, a very large workforce.

We are committed to supporting all sectors of the Canadian economy, and in particular small and medium-sized businesses, which are going to be continuing to drive the economic renewal in the province of Ontario.

We support 73,000 businesses in Ontario with over $5.2 billion of authorized credits in amounts under $500,000. We've had a lot of feedback and messages over the years in terms of what our role should be to try and support economic development, and through that process we've been told clearly and frequently that the role of education and information supporting business development and business plan development is the key role we should play. Through the years, and specifically over the last three to four years, we've become actively involved in a number of activities in partnership with the private sector; as well, obviously with both the federal and provincial jurisdictions.

A couple of quick examples would be, we do provide financial support and active participation by CBA staff in delivering what we call the Running Start program. This is a program that's to help people who would like to start small businesses and understand what that would mean, to develop a business plan, and the good news is that 50% went on to try and start a business plan or start a small business; the other good news is that the other 50% decided they weren't ready to do that and, rather than run the risk and perhaps have a business failure, they decided they weren't quite ready to go forward and went back and perhaps repositioned themselves to come back at a later date. So the result is lower loan losses for things like new ventures, and people who, frankly, would find themselves in a position to have success because they now know that a small business either is or is not what they want to pursue in terms of their future.


We have participated in many seminars, in partnership again with the province. We have had people from the industry participate in 1,800 seminars over the last seven or eight years to support small business.

We have created a series of small business seminars called Partners in Your Success, which has been delivered across the province. In 1995 we had seminars in Woodstock, the region of Durham, the city of Mississauga, Huntsville, Orillia, North Bay and of course across the greater Toronto area.

We've also delivered a seminar or have modified a seminar, called Financing Your Success, to educate and support our aboriginal entrepreneurs on reserves to improve their financial planning skills as well. Three of these seminars were delivered in 1995. Also, the Ontario committee has brought on staff an individual full-time to support how we can better position the industry to support aboriginal banking opportunities across the industry.

Between 1994 and 1995, in partnership with the federal Department of Foreign Affairs and International Trade, the Export Development Corp, the Canadian Commercial Corp, the Canadian Manufacturers' Association -- if I leave one out I'm in trouble -- the Canadian Chamber of Commerce, MEDTT and the Canadian Exporters' Association, we delivered The World is Our Market, which is a trade finance seminar educating approximately 300 Ontario SME exporters on trade financing and export marketing assistance programs.

In 1995 our committee, the Ontario committee of the CBA, sponsored Innovation '95 -- Creating Wealth from Innovation, a one-day conference hosted by the Association of Professional Engineers of Ontario on behalf of their Ontario centres of excellence.

We also see a role for making sure that our employees within the industry are also well-positioned to support the emerging needs of our customers. In 1995, the Institute of Canadian Bankers and the CBA launched The X Factor: Increasing Our Export Potential seminar series. It's designed to educate our commercial account managers and business branch managers on various aspects of trade finance.

Seminars were hosted by our committee in 17 communities in Ontario, educating approximately 2,000 bankers to better position themselves to meet customers' needs.

We play a very active role within our industry, and certainly within the province of Ontario, in terms of meeting the employment equity responsibilities we have. In 1995, in partnership with the Canadian Council for Rehabilitation and Work and Humber College, we delivered a 24-week skills training program in partnership with those groups for 20 people with disabilities, all of whom were offered and received jobs within the industry.

We've also just recently agreed to partner with the Toronto YMCA for a federally funded Young Women's Entrepreneurs Program for 25 young entrepreneurs who will undergo a 10-month training program on business management and financial planning. The industry, through the Canadian Bankers Association, will undertake a six-month mentorship program for the 25 course participants. Industry women account managers-branch managers will undertake the mentorship roles. We've also provided financial support towards a retail learning initiative in partnership with Ryerson college.

In summary, a lot is happening, and our challenge as an industry is to share what is happening. What I've described today are things that are industry-led initiatives, not things that, by the way, are unique to each one of the financial services that we represent here today. Each one of the individual banks has also announced or actively participated in major programs to try and find ways to meet the differing needs of our customers.

Frankly, some of those programs we won't describe today because they're seen as an opportunity to get a competitive advantage over each other. While some people may think that the banking industry is not competitive, I can assure you that the kinds of programs that each one of our major banks is pursuing in Canada would challenge that point of view.

One example we have today -- we are updating this information as well -- is just one example of how the various banks, the Big Six banks in Canada, are in fact pursuing opportunities to serve the needs of small business. This book is basically full of all the individual bank-initiated programs, whether it's charity, education, seminars, publications, new service packages, government partnership programs, knowledge-based industries and so on. This is just one sector of the opportunity in terms of how the banking industry is trying to do an increasingly better job of meeting the needs of Ontarians.

In closing, what I do want to reinforce again -- I will keep on saying this because as a "real banker" in the province of Ontario I want to see my business succeed and I also want to see the industry succeed within the province of Ontario -- if somehow we can get an understanding of the importance of this industry to this province, never mind to the country -- it's very important to the country as well, believe me -- and the unique positioning of this industry that's in the province, then we're making great progress towards the future. Thank you.

Mr Kwinter: I'm delighted to have a panel of "real" bankers in front of me because I'd like to put you in a position: If you were sitting on a loan committee of your respective banks and a commercial borrower came in with a business plan that stated they were going to be running a deficit of about $10 billion over this year, maybe $8 billion the next, $6 billion the year after that, and suggested that they wanted to declare a dividend and wanted you to lend them the money to do it, what would your reaction be?

Ms Lankin: This is a "real" banker's answer we want.

Mr McNair: I think I'd want to look at all of the elements of the business plan before I decided on that particular aspect of the proposal they were suggesting.

Ms Lankin: That's a politician's answer.

Mr McNair: I understand the basis of your question. In all seriousness, when you look at businesses that are undergoing difficulty, and certainly in our business we face that reality every day, whether you're in the good part or the more challenging part of the business cycle, you really have to look at what are the overall implications of what that business plan is going to be and what would be the impact of investing in a business, if you want to suggest that, or advertising or doing whatever you might want to do, that might generate some economic activity and will in fact generate the economic activity that will over time create the right kind of sustainability of the business. I think that's how I would view someone who wanted to invest and spend, or give up revenue perhaps to invest and potentially receiving more revenue over a longer period of time. That's really the best answer I can give you.

Mr Kwinter: Any other comments?

Mr McNair: I doubt it.

Mr Kwinter: I just want to tell you that I commend you for bringing to the attention of this committee, and hopefully to the citizens of Ontario, that there is really a false impression when you see profits. Profits aren't there in isolation; profits are there on a return on investment.

Someone may make $100 million in profit and we say "Wow," but they've invested $6 billion to get it and they're in terrible shape. Most people don't understand that. I want to thank you for bringing that to the attention certainly of the committee and to people who may be watching these hearings. Notwithstanding that, it does seem perverse, almost, that the banks are doing so well and the economy is doing so lousy. I wonder if you have a reaction to that.

Mr Kenyon: My observation on that would be that we're a little countercyclical. We make loans in the good times and they continue to perform through the earlier part of the downturn in the business cycle, then our bad loans start to come into play later on, usually when the businesses have gone through their down cycle and they're on the recovery trail. There may be a little bit of a false impression in terms of where we are in relation to the business community itself. We trail their results.

Mr Green: Maybe I could add something to that too. One of the things the banks have really done right over the last few years is get their loan portfolios in much better order. The quality of the credits has increased, and of course loan loss provisions dropped substantially, so a lot of the profit is because banks are probably getting their businesses right and we're not seeing so much in the way of write-off.

Ms Lankin: I wish I had substantially more time because there are a number of things I would like to pursue with you. Let me first just say that I appreciate the efforts the CBA and the institutions themselves have made over the last few years in addressing the real concerns of small business and in attempting to reach out. We've had many of those discussions over the last few years, and I was pleased to work with you on things like Running Start and other programs. I think there's been a good job done in starting to address that.

I was interested in your last comment, Michael, in terms of banks getting their loan portfolios in order. I think it is in a sense an admission of some of the problems that the institutions had themselves over the period of the 1980s. At the same time governments were doing some things pretty wrong, so in fact were the banks. I think of the ease with which loans were written to the Campeaus, the Reichmanns and others, and international investments and the cost of that, and the cost of that to small business where we pulled back. That also had an effect on the economy, as did government spending and government debts and deficits.


I'm just pointing out that sometimes it's quite easy to point the finger at governments only. While I think we all should take responsibility for that, there were other parts of our economy that contributed overall to where we are here now and perhaps a mutual recognition and working it out together and coming out the other end is important as well.

Mr McNair: I'd certainly agree with that comment, the opportunity to work in partnership to create a better tomorrow; I don't disagree with that point at all, and that's the case. But I also would echo that if we look at the improved profitability, much of that has been driven by reduced loan losses over the last couple of years as opposed to just incremental economic activity on behalf of the bank.

Ms Lankin: I understand that. There are a couple of things I want to challenge in your presentation, and I do this because I think it's important that at some point we start to have a common basis about how we promote Ontario and describe Ontario abroad.

While I don't disagree with the thrust of the macromessages you're delivering to the government, as to the premises on some of them, like the lack of competitiveness in our tax system, I have got pages of stats from the Ministry of Finance, produced under this new government, provided to me as the Finance critic, on tax competitiveness, that roll up payroll taxes, property taxes, corporate income taxes, look at comparisons with G-7 countries, with US trading partners, particularly the Great Lakes states but beyond, and other provinces; it says, in fact, on the corporate side that we are very competitive.

On the personal income tax side, the comment you made in terms of in comparison to other Canadian provinces, in the top marginal rate, you're right, but you fail to mention at the middle level or at the lower-income level where we have lower rates of taxation, so let's get a fair comparison as we talk about it.

The other thing you mention in terms of Ontario lagging in deficit management: Here again let's look at total indebtedness in the public sector. We know that in fact the federal government has passed down some of its debt problem to be managed where it could be better managed through program delivery at the provincial level. Fair enough. We know that through equalization payments that has had an impact on provinces like Ontario and others greater than others.

We also need to look at what's going on at the municipal sector. You may be surprised to know that just again in answer to a question I've put to the Ministry of Finance, they were provided with the documentation that says the total combined per capita indebtedness of populations and provinces in the broader public sector shows Ontario not as the highest, but as the fourth highest, and behind provinces like Quebec, which we know has a big problem, but also behind provinces like Manitoba and Saskatchewan which have presumably dealt with their provincial deficit problems and are dealing with their debt problems. But part of that is because it's been pushed down and we haven't in the past had the same level of indebtedness at the municipal level.

If we're going to say there's only one taxpayer, then let's look at the overall levels of indebtedness and make the comparisons. I still agree with you that they're too high, but we are not uncompetitive in that sense, and it's damned well time we all started working from the same set of figures and promoted Ontario with some positive sense that we are getting our house in order and that there are good things happening and that we're not out of line in terms of other jurisdictional comparisons.

Sorry to take up the time to do that, but I feel it is really important that we not just promote myths and that we actually use real statistics to keep governments accountable but also the business sector accountable in the positions they put forward.

Mr McNair: I think the banking industry would support the view that we need to deal not in myths but what the realities are in terms of the industry, as well as the opportunities. I'd agree.

Mr Kenyon: I was just going to comment that taxes are one aspect of Ontario's competitiveness, generally speaking. There is a range of business environment issues of which taxes are a component. So when you include taxes in the overall picture, Ontario has problems from a competitiveness perspective. Barbara, do you have some information on that?

Ms Barbara Amsden: Yes. First of all, just in the case of the banking industry, all of the studies I've seen, with one exception, do not look at the financial services industry directly. Most of the studies you'll see, and probably we've seen many of the same ones, will have manufacturing, telecommunications and so on.

Ms Lankin: Primarily, it's true.

Ms Amsden: One of the real areas of concern for the banks is the continual emphasis on capital taxes. Capital taxes are fixed-rate taxes. There's been a double bonus to any province that has them, and all provinces now do as well as the federal government, being that the banks over the past 10 years have been forced to increase the capital they hold. They're going to be forced to increase this even more because banks south of the border, the American banks, have built up capital well in excess of what they're actually required to and for Canadian banks to compete with them, they're going to have to be as well capitalized.

The second issue you raise is a very valid one, which is perception and how do you get out the message in those other industries? I'm sure you've probably at least begun to read the GTA task force report and it goes into a lot of these issues in a great deal of depth. They raise the tax issue and they look at it to some extent on an industry basis for key industries, and they've identified banking as one of those key industries. They've identified that for every $1 increase in non-tax costs, there is an additional generation of benefit of $2 within the rest of the economy. By the same token, to the extent that taxes are increased --

Ms Lankin: I realize that, yes.

Ms Amsden: -- you could see a negative multiplier effect. That's why there is a real concern about tax increases, even if there is competitiveness with other jurisdictions.

Ms Lankin: Fair enough.

Mr Douglas B. Ford (Etobicoke-Humber): Good morning. I'm going to ask you about the invisible economy. What is your view of the underground economy and how big do you estimate it to be? What effect does this have on the overall economy? If you don't have any opinions on it, that's fine.

Mr McNair: In terms of the scope and size, I wouldn't have.

Mr Kenyon: We have no information on that.

Ms Amsden: I have seen a federal study, and I don't recall the amount on it, but the federal study concluded that the underground economy was considerably less than some other numbers that were being cited.

There are two issues with the underground economy. Some people don't consider it to be as serious as all that because presumably the people in the underground economy are still spending within Canada. But there have been, I think, more and more seminars on how people can move their money offshore completely legally and so there is probably a lot more going offshore and not being spent in Canada now.

The second point is that with the perception that there is a considerable underground economy, there comes that unwillingness to be fully compliant with the tax laws. There's a credibility issue that if people don't believe the tax system is being enforced, if they don't believe the taxes are fair, you have a breakdown and it can only get worse. That's why I think just as we're restoring credibility to the economy, Ms Lankin had said, we need to restore credibility to the tax system.

Mr Ford: Do you believe this could be an asset or a liability? I'm talking about small business. In other words, they can't get capital so they go into this underground economy and start a business so in that context it could be an asset, getting the economy moving in their sphere.

Ms Amsden: Actually there is a very recent report out of Nova Scotia that does sort of suggest that a blind eye be turned on some of these micro-sized -- there's definitely economic activity there and you would hope that ultimately it will come above ground, but there is the question of what message this sends to ordinary salaried taxpayers.

Mr Ford: This is what we're basing it on the tax issue there.

Mr McNair: From a social issue, my feeling is, I think there would be a concern if we're creating a sustainability that that's okay as opposed to creating businesses that can thrive and exist within the structure in which we want to function.

I'll be frank with you. It is a challenge at times with organizations or individuals or entrepreneurs who would like to get small business financing, but perhaps are not prepared to disclose the source of their earnings and obviously as an industry we can't support that. We would obviously expect individuals to declare.


The Chair: We're running out of time. Mr Hudak, do you have a short question?

Mr Tim Hudak (Niagara South): Yes, I do, a very quick question. I thought it essential to ask some bankers this question. We've seen a competing economic program from the OFL and CUPE, I think, that says we don't need to cut government spending; we just need to permanently lower interest rates, maybe to fix them at a very low level. I don't know if they're trying to do that with the real interest rates or just nominal interest rates.

My economic understanding is that's based on a fallacy, but could you perhaps explain that to us? Is it possible to permanently lower interest rates and peg them? What would the impact be on capital investment and long-term growth? Would we be experiencing then inflation as a result, a return of stagflation? What's the problem with that model?

Mr McNair: I think you heard some excellent presentations -- I didn't hear all of them -- in terms of some of the banks' economists, in terms of the fact we're not a separate entity. We are part of the world economy and clearly what happens in Ontario is driven by our competitiveness, but also our position in terms of how we can demonstrate that we have our house in a position in which the international market is prepared to support and invest in Canada, as well as Ontario, as well as the municipality of Toronto for that matter because they raise funds internationally as well.

I think the model saying you can do it in isolation of what's happening in the global scheme of things wouldn't work. I do understand and accept that if loan costs or borrowing costs are lower, the cost of supporting my own home, as well as the government, would be less, but you can't sustain that without the impact on the Canadian dollar, which affects our ability to be internationally competitive and so on. The days of not having ourselves respond to the international community are over.

Mr Michael Lowe: You have to recognize that it puts it in a different framework. It becomes a support program as opposed to a competitive one.

The Chair: I thank the Canadian Bankers Association for joining us and sharing your opinions with us.


The Chair: Our last presenter for the morning is Canada Trust, and I believe our final expert witness. Ms Croft is managing director and chief economist with Canada Trust. We welcome you to the committee. We have 45 minutes. Perhaps you could start with the presentation and then we could finish off with questions.

Ms Patti Croft: Thank you and good morning. I have provided you with a handout. Unfortunately, I don't have written text, but I can provide that afterwards if that's required.

What I would like to do today is to spend some of my allotted time in analysing Ontario's economic and fiscal position as to where we stand today and the outlook, but what I would also like to do is to take a step back or away, if you will, and to share with the committee my global perspective of the province of Ontario.

I've had the pleasure of spending the last 16 years on Bay Street and I've had the opportunity to work very closely with some large holders of Ontario's debt in all corners of the world, everywhere from New York to London to Tokyo. Beyond debating the government's current fiscal plan, what I really hope to do today is to bring to this committee the view of Ontario, not from room 151 in the Legislative Building but indeed from the global marketplace and from those who are actually making the call or the judgement to buy or sell Ontario debt and the factors that are influencing their very critical decision-making process.

First I'd like to deal with Ontario's economic and fiscal position. The facts are very clear. You're all, I'm sure, very familiar with them, but what has happened of course is that cyclical and structural forces have combined to produce what in the market has been viewed as a startling deterioration in Ontario's finances over the past six years. As recently as 1989, the surplus of $90 million subsequently ballooned to a deficit of over $12 billion in 1992, and for Ontario the worst recession since the 1930s was unfortunately combined with relatively strong program spending growth and that proved to be a deadly combination.

Since 1992 deficit reduction has proceeded, but from the market's perspective it's proceeded at a very frustratingly slow pace. The deficit is projected this year at just over $9 billion, and of course after seven years of running huge budgetary deficits this has caused the debt load in Ontario to skyrocket. It's more than doubled to almost $100 billion currently.

I would like to point out that again the market's view is that Ontario's performance has been in stark contrast to that of the other provinces, very much out of step. This year alone, seven out of 10 of the other provinces are set to report budgetary surpluses. Indeed, my job of forecasting provincial deficits as an economist has become progressively easier over the last seven years because basically what you do now when you're projecting deficits in Canada is you just take Ontario, add Quebec and the job is essentially done. But there's a lot more work to be done in the two largest provinces, and in my view, Ontario's turn has now come.

I think that the fiscal plan of the current government is absolutely essential to get Ontario's financial house back in order, but I would stress that Ontario has come very late to this deficit reduction game. As a result, I think the pace of deficit-reduction must be front-end loaded, with the bulk of the deficit cutting accomplished through very deep spending cuts. I think the severity of the deterioration in Ontario's fiscal position fully warrants the very tough fiscal action which has already taken place with more to come. I also would stress that I see the proposed tax cut as being critical in achieving the proposed deficit reduction targets.

Now, some have argued that Ontario should reduce the depth of the spending cuts and forget about the tax cut in order to facilitate this deficit reduction process, but I must say, to me, that's like treating a terminal tumour with a Band-Aid instead of the fact that a scalpel is really required.

I think to reduce this deficit to zero and to place the province of Ontario in a position where it can run sustainable budgetary surpluses quite frankly requires radical surgery. I think spending must be cut deeply and quickly, because if indeed we only reduce it slightly, then I don't think it's going to solve the underlying problem. Rather, what it's going to do is put it off and in the interim we will continue to rack up Ontario's debt and that's going to be a legacy that future generations of taxpayers will continue to have to deal with.

Even though that's the strategy and I'm very much in favour of it, I will point out that there are risks. I think the biggest risk right now to this plan is that Ontario is attempting to downsize government's share of the GDP in the province at a time of relatively weak economic activity. I think that this does run the risk of tipping the province into a period of sustained sluggish growth, and that's why I do believe that the deep spending cuts must be offset or followed up by the tax cuts.

Just to take a step back for a minute away from Ontario and to Canada in general, I often get asked this question: What is wrong with the Canadian economy today? Mortgage rates are at a two-year low, housing affordability is at its best level in years, the prime lending rate is just 7%, and yet no one is rushing out to buy. You've seen the figures on retail sales, you've seen the figures on car sales; 1995 was the worst year in over 10 years. Why aren't people spending?

I think it comes down to two fundamental reasons: One is job security and one is income growth, because let's face it, to be successful in the 1990s, in both the private sector and the public sector as well, both have found that shedding labour is absolutely critical to cut your costs and improve your productivity and ultimately the bottom line as well.

What that has done for Canada is it has really hamstrung the country and the province of Ontario with an abysmal record of job creation, despite four years of so-called economic recovery.

And those who do have jobs are actually making less now in real terms than they did five years ago. When I make presentations and I talk about we're in the fourth year of economic recovery, no recession in sight, it's a good-news story for Canada, a lot of people come up to me afterwards and say: "Gee, I don't feel all that wealthy, despite the fact that we are now four years into economic recovery. Why is that?" The sad truth is that when you crunch the numbers, people are absolutely right. Real per capita income in Canada is actually $155 lower today than it was when the recovery began in 1991.

Part of this is because of the sluggishness of job growth, which goes back to the restructuring story in both the private and public sectors, but a large part of it as well is because of higher taxes, and indeed if we do compare Ontario as a tax jurisdiction in terms of North America, it is relatively high.

Looking forward, unfortunately it's hard to be very optimistic about either Ontario's or Canada's job creation prospects, either in 1996 or 1997. I think eventually that successful corporations will require additional labour to meet stronger demand, but that eventuality, as of today, is still quite elusive.

As I see it, the problem from a policy point of view for Canada is, how do you get consumers to spend in a low-interest-rate environment in the absence of strong job growth? Well, I think the way you do that is through lower levels of taxation.

I think governments not only here but everywhere are finally coming to the realization that indeed when you raise taxes, you don't get more revenue. When you have a top personal marginal tax rate of 53%, what ends up happening is you get less revenue as you do drive more of the economy underground.


So by cutting taxes, I think what would happen is that's going to provide a very powerful offset to the deep spending cuts, and it does have very strong potential spinoff effects, because quite frankly, when consumers buy more, when they have additional disposable income, demand rises, production rises, that creates additional jobs, additional income and spending and so on.

Indeed, as far as I see it, the greater risk for the province of Ontario in trying to achieve these dramatic deficit reduction targets is in the absence of these proposed tax cuts. I think without the tax cuts, the risk is that the Ontario economy will be even weaker than is currently projected, and I think there could possibly be reduced political support for deficit reduction if the promised tax cuts are not forthcoming.

Some will argue that these tax cuts only benefit the wealthy in the province of Ontario, but the government's own numbers say that a middle-class family of four with an income of $50,000 will save $4,000 in taxes over a three-year time frame, and I think that's quite a substantial amount of money.

In addition, this government has proposed to introduce the health care levy. That's a progressive tax that is more weighted towards the wealthy taxpayer, and that only kicks in after you earn $50,000 in income.

Finally, the revenue from this tax would allow the government to abolish the payroll tax for small businesses. Given that these small businesses are creating an estimated 80% of the new jobs in the province of Ontario, surely removing that payroll tax will only enhance the job-creating potential of the small business sector.

If anything, I must say I would urge the government to introduce the tax cuts sooner rather than later. I know there's a debate going on right now, should it be July 1996, should it be January 1997, should it be as promised or should it be delayed, but I think it should be sooner and it should be as advertised.

The reality is, the spending cuts are already in place, and their impact is already being felt. As we know, the welfare expenditures were cut by 22% in October. And surprise, surprise, if you look at the retail sales data for the province of Ontario, retail sales in that month alone fell by 2.5%, which is a huge decline. That knocked $165 million off the base of retail sales. The reason why is because people on welfare tend to spend every dollar, so as it was cut by 22%, the impact of that was clearly felt on the side of retail sales.

As of November, which unfortunately are the latest data we have, Ontario's retail sales have declined very sharply. Right now they're about 1.5% below where they were a year ago. And if we turn the clock back, at this same time in November of 1994 they were 9% higher than the level a year earlier. So there's been a dramatic deceleration of growth in Ontario's retail sales, and tax revenue as well. To me, this is a red flag right now which is flashing for the province of Ontario, because 20% of provincial revenues come directly from retail sales taxes.

In addition, we know that retail sales are weak, but the job creation record also has stalled out in the last two months. We saw lots in the newspaper, in the press, about how strong the Canadian job performance was in December and January. The nation as a whole created 93,000 new jobs, but Ontario's employment was only up 9,000 over that same period. So the province of Ontario only accounted for about 10% of that massive job creation, despite the fact that Ontario accounts for 40% of the total share of Canadian employment.

So something's happening right now in Ontario. It is a cautionary flag which has been raised, and I would stress that to me it underscores the reality that the tax cut is required in order to stimulate the Ontario economy.

To understand Ontario's fiscal problem, I think it's very valuable to take a look at the deficit figures in a little bit different way. What I'd like to do is to ask you to turn to chart 1 in the handout that I've provided. In chart 1, what I've done here basically is just plotted Ontario's budget deficit against what I call the primary balance. Quite simply, the primary balance is total revenues minus total spending, excluding debt servicing. So take the total revenues of Ontario, subtract out program expenditures and capital expenditures, forget about debt servicing, and that's what the darker bar on this chart shows.

Now, I think this chart tells a very compelling story, because what it shows is that Ontario ran a primary surplus from 1986 to 1990, but what happened after that is quite frankly the wheels fell off.

But you can see there is a good-news story in here, and I'd like to stress that. The good-news story is that the size of the primary deficit has declined considerably. Back in 1991 it was about $70 billion, but as of 1995-96, the current fiscal year, it's almost zero.

What this chart tells you is that in the absence of debt servicing spending, Ontario's revenues and expenditures would roughly be in balance during this fiscal year. But I must confess that the operative phrase here is "in the absence of debt servicing." We all know what's happened to Ontario's debt load, and that's shown in chart 2, one which I'm sure I don't have to show you but we'll go through it anyway.

As shown in chart 2, Ontario's debt load has doubled in the past six years, and coinciding with this of course is debt servicing costs have tripled. They've gone from $3 billion to $9 billion, and I think we should look at this in a little bit different way, as shown in chart 3.

What I've done here is I've taken the debt servicing costs and then plotted them as a percentage of the total revenue that the province collects. Basically, what this chart tells you is that Ontario used to spend nine cents of every revenue dollar on servicing the debt, but today almost 20 cents of every dollar we take in on revenue goes right back out on interest costs.

What Ontario must do in order to fix this situation is that the province must run increasingly large primary surpluses. The revenue must exceed program and capital expenditures by an increasingly large factor, and that's got to be achieved mainly through lower expenditures. This is absolutely essential for Ontario to reduce the deficit and also to stabilize the critical debt-to-GDP ratio and ultimately reduce it.

In a recent issue of the Economist magazine there was an article about deficit reduction and debt stabilization and it was called, It's Not What You Do, It's How You Do It. In this article, researchers looked at countries around the world that had successfully cut their debt-to-GDP ratios: How did they do it?

What they found was that the fiscal policies that worked were those that cut spending, not those that raised taxes. I think that message is loud and clear in North America; we don't have to enforce that. But what I found interesting as well was that the countries that were successful, what they cut were welfare payments and government wages. In other words, the politically difficult choices in terms of spending cuts were really the ones that produced the most definitive results in terms of deficit reduction and a stabilization in the debt-to-GDP ratios.

Clearly, those are very difficult choices for the province, and I'm also asked very frequently by people: "Okay, we're going through a lot of pain here. Where's the gain? Where are the benefits from all this?"

Well, the benefits I think are becoming tangible for Ontario, and that is, if financial markets believe that a government is serious about cutting its debt, then the risk premium on its debt will fall. In other words, part of the interest rate structure for Ontario is a risk premium, on the fiscal side, and that will be reduced if financial markets have confidence that the province is on the right road to reducing the deficit.

That leads me to the second point which I'd like to cover, which is my global view of the province of Ontario. I'd like to turn away, if I can, from Queen's Park and just take a look at the world of global financial markets.

Ontario is one of the world's largest non-sovereign borrowers, and like it or not, how the world views Ontario I think is a critical factor in either the success or failure of any government's fiscal plan.

This year alone, in fiscal 1995-96, Ontario will tap the capital markets for about $14.5 billion. That's over $1 billion per month.

And foreign investors have become increasingly significant stakeholders in Ontario's debt. Today Ontario has about $100 billion in outstanding debt. Of that, about $40 billion is non-marketable. It's not out there trading in the hands of investors; it's held by pensions and so on. But of the remaining roughly $60 billion of marketable debt, about 40% to 45% of that is foreign-held. That amounts to between $24 and $30 billion, and this is why I'd like to stress today the global view of the province of Ontario.

In terms of the trend, it's been dramatic. Five years ago, the marketable debt of the province of Ontario was close to zero. So foreign ownership has gone from almost zero to 40% in five years, and that is simply the reality of trying to finance over $1 billion per month in global capital markets.

If we take a look at who owns the debt of the province of Ontario, the majority of it, over 50%, is held by US investors. I recently spoke to my contacts in New York to try and gauge right now how US investors are viewing the province of Ontario and the outlook for the credit. Most US investors are very positive about Ontario right now and its largely due to this new fiscal direction that we have in the province. Indeed, I found it quite interesting that a lot of people think that Ontario may be at a ratings trough. Even though the rating agencies are being quoted about their concerns about this plan going forward, the market view is that Ontario indeed in the next several years could be in for a credit rating upgrade.


One of the ways I think we can measure the market's view of the province of Ontario is not what I'm going to tell you here today, but to actually take a look at how Ontario's debt is trading in global capital markets. The way we do that is to take a look at the spread between US dollar Ontario bonds over US Treasury bonds, and that's shown in chart number 4. Excuse this messy chart, but it came directly off a Bloomberg screen. Basically, what that squiggly line is showing is exactly that. That is the difference between Ontario's US dollar denominated debt and US Treasury government debt. In the past, this spread had traded as if Ontario had a credit rating of a low single A. In other words, Ontario was being penalized in terms of its fiscal outlook in the marketplace. The market believed that the credit rating was at risk, and that interest rate differential rose. But as you can see from this chart, that spread has tightened and right now it trades closer to a AA. That is indicative of the market's confidence on the outlook for Ontario.

You can also see from this chart that the average spread between Ontario and Treasury's right now is about 55 basis points. That's down about 20 basis points from just two years ago, and indeed before the government was elected Ontario's spread was about 60 basis points over Treasury's. Post-election, as you can see in this chart, it narrowed back into 50. It got a bit of a bump during the referendum campaign, but post-referendum it's tightened back in very quickly, and as of today sits just 48 basis points over Treasury's.

A similar story exists for the domestic spread, which is shown on the next chart. Here we see that Ontario's spreads over Canada's -- again, these are 10-year bonds -- have narrowed significantly, and as of today they stand at just 27 basis points. It wasn't that long ago when Ontario's spreads traded well above those of New Brunswick and Manitoba, which actually have lower credit ratings, but that anomaly has narrowed quite significantly. Ontario is trading almost on top of Manitoba and New Brunswick. Again, this is a clear message financial markets are sending in terms of their confidence in the government's plan.

I asked US investors about the tax cut, because I think clearly that is the most controversial element of the fiscal plan. But when you talk to US investors, of course we can't forget that we're talking about a nation that, through Steve Forbes, is actually contemplating a 17% flat tax on all income. So these people are very familiar with the reality of taxation. None the less, US investors in general feel that there is absolutely no room for this government to raise revenue through tax increases. That's quite clear. On the converse, they actually support tax cuts as a way to restructure Ontario's tax base, ultimately to give the province more flexibility and more room to raise taxes if that ever was required, because right now I think Ontario is basically tapped out, with very little fiscal capacity for higher taxes.

US investors are very aware of how high Ontario's taxes are and they understand quite clearly the need to offset the fiscal drag of the spending cuts with tax cuts. Also, many US investors draw the parallels between Ontario and Alberta, the Klein revolution: deep spending cuts early in the mandate in order to lower spending to a point where budgetary surpluses are achieved and are sustainable. Unfortunately, of course, Ontario doesn't have the blessing of windfall oil and gas revenues, but none the less this strategy of cutting deeply and early is viewed very positively by international investors.

Ontario's ability to successfully borrow overseas I think underscores the market's underlying support. Here's where we can see the tangible evidence of positive market sentiment and how it's going to benefit the people of Ontario. If the fiscal plan is viewed positively, then Ontario will be able to finance its $1-billion per month at relatively cheaper rates of interest. That will reduce borrowing costs and that will help turn around that trend line that I showed you earlier on with debt servicing steadily rising and eating away at Ontario's revenue dollars.

In conclusion, I focused a lot of my comments here on US investors. I did that because they do own the majority of the foreign-held debt, but I can tell you that the same view on Ontario is shared in London, in Frankfurt and in Tokyo, as well.

So while we here may debate the details of which programs are being cut and by how much and which political promises will be broken and which ones will not, what I hope I was able to do today is to move the debate away a little bit, into the markets, and highlighting the fact that the markets' perceptions of Ontario has already changed, and that with fiscal prudence the norm around the world, I think it's very dangerous for Ontario to stray from its stated course.

I'd like to thank you for the opportunity to come and speak to the committee today and I'd be pleased to answer any questions.

Ms Lankin: Thank you very much. That was very interesting. I do have to start off by acknowledging that some of the comments you've made about the comfort of the markets, and particularly the US markets, while I understand the importance of it, I also have a sense that we're talking about very different cultures, not just US and Canadian, but the marketplace and the values of the marketplace versus the job of a government and the need to ensure that our citizens have basic provisions. So I understand the points that you're making, but I think that in a longer period of time there are some points of discussion and counterpoints that should be addressed within that.

I wanted to ask you a couple of questions specifically about your presentation because I would say that you are perhaps in a slightly different place in your support for the government proceeding with the tax cut, almost no matter what, compared to many other people in the business community and in the finance community, and that interests me. It particularly interests me because of some of the arguments that you put forward that I may not have understood but I thought actually argued for some moderation in that approach.

You said that you thought the tax cut was actually quite critical in the government being able to achieve its deficit-reduction program; in terms of bringing the deficit to zero, that the tax cut was there. I on one hand understand the point you made about the political acceptance of the spending cuts. That if in fact the population decided that was a very negative approach of government and political pressure was put on government to slow that down, that could jeopardize achieving the deficit targets. That's one of the reasons why many people argue to a government: "If you're going to do it, do it in the early years. Don't do it as you get closer to election." Everyone understands the political cycle that's involved there as well. You said that the tax cut may be an offset to the political downside of cuts and from that perspective it's important to proceed.

What I'm hearing, politically, out on the streets and in talking to people, is that they're quite concerned with the more domestic and perhaps -- I can't think of the right adjectives -- the political promises around not cutting health care spending, not cutting classroom education and law enforcement, and the concern that these cuts are happening despite the government's promises and the perception that it's being done in order to pay for the tax cut. More and more, people are saying, "I wouldn't be angry at the government if they didn't proceed with that tax cut if it meant that we either balanced the budget earlier and got ourselves out of this problem so that we didn't limit our ability in the future to restore some kind of a social safety net, or if we cut the difference, slowed down the cuts a little bit and balanced the budget a little bit earlier, I'd give up my tax cut."

I'm hearing that more and more, so I'm wondering, on the politics of it, whether you hear a different message out there. Could you respond to that for me?

Ms Croft: You're absolutely right. My perspective is vastly different than the political arena would be. A lot of what I do is talk to people who actually own the credit, and when you're sitting in Tokyo, London, New York, you're not concerned about which programs are being cut and what are the social costs, which is something obviously we can't ignore, but don't play a big role in the market realities. So, yes, the perspective that I bring today is vastly different than the political one.

Just to clarify something, the reason that I think the tax cuts are so essential is because I do think that the enormity of the spending cuts is creating a huge drag in the Ontario economy. The risk to the fiscal plan is, if it's not offset by these tax cuts, then we could end up with a significantly weaker Ontario economy with even less revenue, and that would cause deficits not to decline but rather to increase. So I see the tax cuts as being a critical offset in order to stimulate the economy, given that the spending cuts, for a large part, have already been enacted, put in place.


Ms Lankin: Announced.

Ms Croft: Announced.

Ms Lankin: That's quite different. Just as the markets speculate and discount for what they think is going to happen, or increase, the public attitude and consumer confidence has taken some of this into account, but in many communities we haven't actually felt the impact of the cuts yet.

Ms Croft: Right.

Ms Lankin: Let me just explore this, because I think this is one of the issues that is very important: What will the stimulative effect of the tax cut be? I think you're quite right that the size of cuts and the drag on the economy either needs to be lessened -- and there's one way of going about that -- or offset. You sort of challenge the perception that the majority of this tax cut was going to benefit the wealthiest. You used a four-year number for average Ontarians.

I haven't done four years, but just on an annual basis, more than half of that lost revenue -- it's almost an expenditure on the part of government, a spending program -- is going to go to families with annual incomes of over $90,000 a year. Now, that's the top 13% of Ontario families. The average cut for those families is going to be $4,400 on an annual basis. The average cut for 87% of the families in Ontario, with incomes below $90,000, is going to be $625. The average for families with incomes over $150,000, obviously it goes up, then is $9,400. For a single-parent family with an income between $30,000 and $40,000, the average is going to be $345.

You acknowledged yourself the impact of the cuts to social assistance rates and what effect that had on consumerism and retail sales etc. We know that poor people, the working poor and middle-income people are more likely to spend any disposable income they have and that with higher-income people there's going to be more leakage -- let's refer to it as that -- of that money in terms of how it goes to stimulate the economy. I can't get past this real worry that the majority of the money that the government is paying out is going to go into savings, into perhaps some luxury items, perhaps holidays -- a lot of leakage -- not into stimulating productivity, production in the economy. So I worry that it's not the right stimulative effect. I'm not sure it's the right thing to do, but if you were going to cut taxes, I'd almost rather see them do it on the sales tax because I think it would have more of a stimulative effect in the economy to promote consumerism and consumer confidence.

Ms Croft: There are very different ways that you can package the tax cut. In response to your figures -- I've seen them quoted as well -- what I would like to see is an analysis of the last eight years. For that same percentage of the Ontario population that will benefit from the tax cut in a dollar sense, how much have they been hurt by the progressive increase in taxation over the past 10 years?

Ms Lankin: That's true.

Ms Croft: I would argue that what will happen is that the tax cut will actually benefit them less on a proportional basis. In other words, they're only going to be getting back a smaller percentage of what they've had to pay in the last 10 years as compared to the other income classes. But I think it's something worth looking at.

Mr Wettlaufer: Patti, thank you for your very enlightening presentation. It's different than anything we have heard, and we appreciate it. One thing that I would like to address is this issue of savings; the NDP and the Liberals constantly raise it. We heard this morning that the lack of confidence that the consumer is showing today is contributed to in part by the fact that their savings have been reduced as a result of the higher taxes. Do you expect that the savings rate of the average Ontarian would be increased and, in turn, that their confidence level would be increased as a result of the fact that the government would take less out of their pocket?

Ms Croft: I'm not sure that the savings rate and the confidence necessarily go hand in hand. If we look at not only Ontario but Canada in general, right now the savings rate is at a 30-year low. The reality is that in order for people to continue to consume, to maintain a half-decent standard of living, they have had to draw down on their personal savings. If we look at the savings rate, you can actually disaggregate it into two components: There's discretionary saving, what you and I decide we're going to save, and then there's contractual saving, part of our pension plans. What has happened is that discretionary saving right now is zero or negative, so people are actually dipping into their RRSPs or whatever in order to continue to spend.

So in order to raise the personal savings rate, if you cut taxes I agree with Ms Lankin that what's going to happen is that some of that money is probably going to be spent as opposed to saved, because the people at the middle and lower income who do get additional disposable income will spend that income, as opposed to saving it. The people at the upper end could very well increase their savings, but that's probably not going to have a huge effect on the national savings rate.

Mr Wettlaufer: So there would be some lag time there.

Ms Croft: Yes, I think so.

Mr Wettlaufer: To carry that one step further, then, looking at how the foreign markets look at us and the fact we will have reduced interest rates for Ontario, that in effect reduces the Bank of Canada rate and it in turn reduces the interest rate that people would have to pay on hard and soft consumer goods and mortgages etc. That would increase their savings and would increase their discretionary spending.

Ms Croft: I don't think Ontario necessarily sets Canadian interest rates, unfortunately. My point is that Ontario's spread or difference over Canadian rates -- that can narrow, which will reduce Ontario's debt servicing costs and get us on a firmer footing, and that will benefit people in Ontario, because if we're paying less in debt servicing, we can pay more on program expenditures.

But in terms of that having an impact on Canadian interest rates, maybe a little bit at the margin, but those Canadian interest rates again are really determined in the global marketplace. That's the view of Canada; it's a standalone credit. What the government's fiscal plan can do, though, is to lower the difference between Ontario's interest rates and that of the Canadian government, and that will have a positive impact, yes.

Mr Hudak: I'll ask a couple of quick questions, if I could -- Ms Croft, thank you for your presentation -- then I'll pass. I think Mr Brown has some questions.

As I mentioned to the last group, we've heard a couple of different models on how to reduce the deficit. One sponsored by the OFL and CUPE, I think, was to maintain government spending at its current levels and reduce the deficit and debt by permanently lowering and freezing interest rates at some arbitrary level. First of all, is that possible to do? Is their model based on a fallacy?

Ms Croft: Again, I'm going to bring you the Bay Street perspective, but I would say absolutely not. Canada does not operate in a vacuum. That experiment has been tried. That experiment is being tried right now. If you look at the difference between Canadian and US short-term interest rates, right now it's almost zero. My concern in the marketplace right now is at some point international investors are going to wake up and say, "Wait a minute, I'm getting no risk premium for investing in Canadian short-term interest rates?" The Canadian dollar is either going to weaken off or that spread is going to have to widen. So that argument would be very nice if we could lower interest costs, because that's what's driving deficits in Canada to a large extent, but it simply doesn't work in the global marketplace.

Mr Hudak: Yes, it's a small global economy. It's economic fiction to think we can permanently lower interest rates.

My second question also addresses another model we've seen where they more or less will say that a dollar spent by the government is equivalent to a dollar spent by the private sector; if you raise a marginal dollar through an income tax rate hike, the cost to the private sector will only be one dollar, but if my understanding is correct, they're not including any kind of incentive effects, any dead-weight loss, any administrative effects. Am I right in my thinking?

Ms Croft: Yes, very much so.

Mr Hudak: What would be the cost, do you think, of raising an additional dollar?

Ms Croft: Through taxation?

Mr Hudak: Through an income tax hike.

Ms Croft: I think that would be disastrous, because it would be just so out of step with what's happening everywhere else around the world and in every other province in Canada. To even consider raising taxes I think is out of the question.

Mr Hudak: One economist, I think it was Bill Robson from the C.D. Howe, said that it costs an additional dollar at commercial tax rates; it would be $1.40 to the private sector. The converse would be if we lowered the marginal tax rate by a dollar, the gain of the private sector would be even greater than a dollar. Am I right?

Ms Croft: I don't have a model that has pumped through the numbers, but my own intuitive sense is just that, that it would have tremendous spillover effects, because I tend to believe that a rising tide lifts all boats and that what a tax cut would do is, even though the numbers say it's going to disproportionately benefit the wealthy in the province of Ontario, the numbers also say it's going to put money back in the pockets of lower- and middle-income people. They're going to spend that money. That's going to create demand, that's going to create jobs and production and it becomes very much a self-fulfilling circle.


Mr Carr: Thank you very much. That was an overwhelming endorsement of the government's program. As you know -- and I've watched Mike Harris say it many times -- what we're doing is, we're downsizing the public sector while we upsize the private sector, and he said that everywhere from Wingham to Wawa. I can tell you this, he is determined to continue with that. I think also, knowing the Minister of Finance and the Premier as well as I do, that they are now looking past that. Once we balance the budget and are in a position five years down the road, I think they're thinking: "What do we do now? Pay down the deficit or further reduce taxes?" Because I know they're determined to follow through with this plan, they will. That's what you're suggesting they do. I can tell you, I think they will.

But giving them suggestions down the road when we hit this point of the balanced budget, with our tax structure being what it is, what would your advice be long term: continue to lower taxes or to get that debt taken care of in terms of paying it down? What would your suggestions be to the minister?

Ms Croft: Well, I guess the first thing I'd have to say is that I'm assuming we exclude the political cycle because we've seen what's happened right now in Alberta. They're at the point where they are running large budgetary surpluses well in advance of the plan, an election is forthcoming, and suddenly there's some hints that perhaps debt down payment isn't as critical an issue, perhaps there are more fundamental things we should look at like reinstating some funding for certain programs. So the political cycle is very much going to play a factor in that decision-making process.

Personally, my advice would be to pay down the debt because that is the legacy we will pass on to future generations of taxpayers in the province of Ontario. If we get to the point where we get the deficit down to zero, we're running hopefully a small, sustainable budgetary surplus, then I would like to see any additional revenues put towards paying down the debt as opposed to increasing program expenditures, or even further cutting taxes. I think the debt down payment will be the critical factor once we get the deficit down.

Mr Kwinter: Thank you very much for your presentation. I found it very interesting. I agree with virtually everything you said -- not everything that you've said -- in theory. In practice I have some concerns.

First of all, on your chart, I'm sure you'll agree that when you fill your debt servicing and percentage of revenue, during the next four or five years those bars are going to continue to climb. So what is going to happen is, you're not going to see a sudden downturn, it's going to keep going up. We have to deal with that particular aspect, that regardless of what else is happening, you can't put on weight for 20 years and expect to reduce it all in one year. It took you 20 years to put it on, it may take you two years to take it off.

What is going to happen is that you've got your debt servicing continuing, and I don't think anybody, other than some groups that have a particular interest, is in any way objecting to getting your fiscal house in order, not increasing taxes. No one is coming -- I shouldn't say nobody -- virtually no one is coming forward and saying, "We've got to raise taxes." Everybody admits, taxes, it's a non-starter. Everybody admits the government's got to get its house in order.

The problem we have is that everything is being done on an economic model. You come in, you sit on Bay Street, and you've got to worry about where you're attract capital, where you're going to attract investment, because capital is fluid, it will go where it will get its best return. If it can't get its best return, it isn't interested in your internal problems, they're gone. Would you admit to that?

Ms Croft: Yes.

Mr Kwinter: Okay. So what I'm saying is that you're saying that if you do the cuts, program cuts, without the tax cut, it's like putting a Band-Aid on it. You've got to do them both. My concern, again in theory it works beautifully. You can model it, you're doing fine, but you're not doing it in the real world, because in the real world you've got Metro announcing today they're going to put a 1% tax levy to finance the subway, and then you've got North York saying they're going to charge $5 a bag of garbage, and then people are talking about user fees. Now the government itself, through its Bill 26, is opening the door for a whole range of user fees. So what, in fact, could happen is the amount of tax saving with the cut not only gets eaten up entirely, but could even be greater than what the tax cut is. So on that side of the equation you have a total unknown.

On the other side of the equation, you know that the government is fond of saying that the debt of Ontario costs $1 million an hour. The tax cut is going to cost about $1 million a day to service. That is a constant. Once you make that decision, that is a total constant. What you don't know is what the positive impact is going to be. And it could be very negative, because there could be no real tax benefit to the taxpayer because the federal government is a player and may do something to them, the regional municipal governments may do something to them, and there's also the added component of the drag on the economy from the federal and provincial measures. Could you respond to that?

Ms Croft: Again, I'm going to put on my Bay Street hat and say, "How are financial markets going to look at that?" That would be a concern if it began to appear as if much of the revenue that would be put back into the economy through the tax cut would be taken away through user fees and increases for taxes on certain services. That would become a concern to those foreign bond holders for the very reasons that you've stated, because it could very well mean that the offsetting stimulus provided through the tax cut could entirely be eaten away if indeed we do see increased user fees and so on. That would reduce the economic benefit and potentially reduce the revenue effect for the province of Ontario and again make deficit reduction and deficit reduction targets much more difficult to achieve.

What I bring to you today is the perspective of where we stand today, and that is, there is complete support for deep spending cuts early on in the mandate. There is large support for tax cuts because they are seen as being absolutely critical to offset the fiscal drag of the spending cuts, but the issues that you raise are ones which are not currently being priced in the market but, I agree with you, are concerns that ultimately could appear.

Mr Kwinter: That was the point I want to make. When you bring the perspective of the market, the market doesn't look at all of the other aspects of it. They're saying, "In theory, of course, if you're going to put that much more money into the economy, it's going to do all of these things."

The interesting thing, and I know there certainly is some controversy about his proposals, but Bill Robson of the C.D. Howe Institute was here and claimed that the problem in the economy of Ontario, and I assume in Canada, is not consumer spending, it's consumer saving, and that one of the problems that we have is that people are spending too much money. It seems to be a contradiction and I haven't quite got my head around his particular concept. Certainly the C.D. Howe Institute has got some credibility and this is what their feeling is. Do you have any comments on that?

Ms Croft: Just that the reduction in savings, what that means for Canada and for Ontario is that if there is a reduced pool of domestic savings in order to finance deficits, we can't finance them internally because a dollar of savings is not there, so we as a country or we as a province have to go out into the global capital markets to finance any shortfall. If Canadian consumers continue to spend for standards of living as they were five years ago, and yet the income growth isn't there, then they are eroding their personal savings to do that. That's saddling them with an enormous load of debt, making them vulnerable to any interest rate shocks, and it's also reducing the domestic pool of savings to finance government dissavings. So what it means for Canada as a whole is increasing our foreign reliance on capital inflows because we can't do it domestically any more.

Mr Kwinter: I have two short questions that I'd like to ask you. One is your comment that the average -- I assume, Ontarian, and maybe Canadian -- not only has depleted their savings but are actually in debt, which means any tax cut they get may not necessarily go to spending, it may go to paying off debt and trying to top up their savings. Secondly, your comment about Alberta, and I notice with some interest and some -- not dismay but I couldn't quite also figure it out. Everybody is touting the Alberta model. Today the Ministry of Industry in Canada announced bankruptcies in Canada at their highest level in history and the largest component of that is Alberta bankruptcies.

Ms Croft: Business or personal?

Mr Kwinter: Both.

Ms Croft: Both, in the province of Alberta. As I said, Alberta has benefited tremendously from these windfall revenues from oil and gas, so that's really helped them achieve budgetary surpluses well in advance of what the plan had indicated but, yes, there have been economic costs. Fortunately, Alberta already was in the position of a relatively low level of taxation, but even they're talking about tax cuts in order to help offset some of the fiscal drag. But the costs are real, yes.

The Chair: Ms Croft, thank you very much for appearing before the committee today speaking about the economy and making it interesting, or indeed a challenge. You've accomplished that today, and we thank you very much for appearing before us.

Mrs Croft: My pleasure.

The Chair: That concludes our presenters for this morning. There is the item that we were going to discuss, referring to the proposed outline of the committee's pre-budget report and the proposal that it would be done by topic or by witness. It is my understanding that there is some proposal concerning that. Did you have a proposal as to whether we would write our final report --

Ms Bassett: Excuse me, I just heard as I came in. Yes.

The Chair: -- by topic or by witness?

Ms Bassett: We were going to do it by topic. We feel that's best.

The Chair: By topic? I understand that this is somewhat traditional. Is there any discussion about it?

Ms Bassett: Is that all right, Tony? Thematic, it's easier.

The Chair: If we can give that direction to our researcher then, that would be very appropriate. I'm sorry to infringe on our lunch-hour, but it is today truly a lunch-hour. We will see you all at 1:30. The committee stands in recess.

The committee recessed from 1231 to 1332.

The Chair: If I could call the meeting to order and welcome everyone back from lunch, the committee has before it a submission from the Ontario Secondary School Teachers' Federation. They are unable to appear before the committee, but they wanted us to have their written submission.


The Chair: It's my pleasure to welcome the Board of Trade of Metropolitan Toronto to the committee. Welcome, gentlemen.

Mr Mike Lauber: I'm Mike Lauber. I'm vice-president of the Board of Trade and I'm a partner at KPMG. Don McIver is the chair of our economic policy committee and he's the chief economist of Sun Life, and I think you heard from him earlier in the week with that hat on. John Bech-Hansen, who is the staff economist with the board of trade. We very much appreciate the opportunity to appear before the committee today and present our views. We're basically focusing on the issue of deficit and tax reduction.

The board's been appearing here over many years, and we're very happy to be here again in support of the government on its initiatives. We believe that the government's fiscal and economic policies are on the right track and we very much support the speed with which you're acting to get things in order.

This government's focus on the deficit is very well placed and I think we have to emphasize that the deficit is the number one item in our agenda. Ontario and Quebec have been lagging in starting on the road of deficit reduction. We're pleased to see Ontario is now well established and Quebec is starting to make some noise.

The previous track of the previous governments and so forth, running at $9-billion and $10-billion deficits a year, was just going to lead us to bankruptcy. With the economy appearing to stall from time to time, it was really a particularly dangerous position to be in.

I understand this committee is particularly interested in the business community's views on the 30% tax reduction, and we'll try to frame that as we talk today. We understand obviously that it's a central plank to your platform on election.

It's a difficult one. There are differing perspectives on this issue in the business community. We've had a lot of debates within our own group as to the order on it. There are those who believe that an immediate substantial tax cut is essential in order to restore confidence in the province and put some real spending power back. Subscribers of this believe the tax cuts will create a dynamic effect in the economy and a multiplier effect with consumer spending and create jobs and so forth. This is the central thesis to the Common Sense Revolution. The trouble is, the broader continental or global slowdown could short-circuit the whole process, leaving the government with an even larger revenue shortfall and nothing to show for it. So there's a risk in that direction.

Others primarily believe that the objective should be to get to a balanced budget and surplus as quickly as possible, the attainment of which might be compromised by offering the tax reduction now. As you know, at least one bond rating company is firmly in this camp. It takes a more static view of the impact of cutting taxes, that it will simply result in lower revenues and minimal stimulus to the economy, especially if there's another recession.

Both viewpoints accept the need to eliminate the deficit; what divides them is the perspective on the dynamic effect of cutting taxes. The board strongly believes that the number one objective is the deficit reduction.

Income tax relief is urgently needed in Ontario. We have among the highest rates in North America, second to British Columbia. Member surveys that we and other organizations, such as the Canadian Federation of Independent Business, have conducted indicate that it's one of the stronger deterrents to business investment in the province. It's also a major factor in driving the underground economy.

In the United States, there are two states that have marginal rates approaching that of Ontario, but you're only reaching those levels at the $250,000 income level, and that makes a big difference from the place where we're reaching it, which is the $60,000 range. In addition, the US has much more liberal deductions in completing income tax, such as mortgage deduction.

Compensation studies by William Mercer and Price Waterhouse really do show that the US income tax system does play an important role in attracting the best and brightest of the Canadian labour force. It also makes it hard for Canadian-based multinationals to attract people from the global workforce to come to Canada. So I think we really have to focus on those rates as well.

Credibility is at stake, I know, for this government. You promised the tax reduction. You have an obligation to deliver personal tax reductions in order to maintain that credibility.

I think it's fair that you should not expect immediate results out of a tax reduction. It's going to be a long-term effect. It will make the province a better and more attractive place to invest, to be an entrepreneur or to stake out your career. It should not be treated as a tool for creating immediate economic stimulus. Current high personal debt loads, low consumer confidence and lack of security in employment will result in these tax cuts mostly being saved. They're going to be used to pay down a mortgage, they're going to be used to put into an RRSP; they're not likely to be used to buy a refrigerator or a car or other consumer goods that may drive the economy quickly on a short-term basis.

Our fourth point is that we believe that the cut does not have to be a flat 30% across the board; it can be a variable cut. I think you have some flexibility in proceeding on that basis with this tax cut.

In those issues, I think the deficit is the number one thing. The tax cut: You promised it, people expect it, you must deliver it. I think there's some flexibility on timing and on the way that you implement that.

I'll pass it to Don, to deal with the final point.

Mr Don McIver: Basically, that brings us down to the recommendations that we would like to put forward.

The first thing that we would strongly suggest is that we see as soon as possible, that the community see as soon as possible an explicit plan as to how the government expects to achieve the twin goals of eliminating the deficit according to its fiscal plan and achieving the tax reductions that have been promised. The last statement in November didn't provide us with that information, and we would strongly suggest that the Ministry of Finance provide us with the explicit path, hopefully in the next upcoming budget.

Again, with respect to our recommendations, we emphasize the importance of keeping to that balanced budget target, to that path. You heard perhaps, if you recall earlier in the week, my observations with respect to the desirability of mounting a contingency plan, as opposed to contingency funds; that is, a thought-out-ahead-of-time program that would address what would happen if growth is slower than anticipated, interest rates are higher than anticipated.


As Mike suggested, there's some degree of variability that can be attached to when you bring in the tax cuts and the magnitude of the cuts when they occur. So a well-thought-through program ahead of time would communicate to the community, to the financial community and to the citizens of Ontario, what they could expect from government in the event that the economic environment was not as friendly to the stated paths of government as had been anticipated or as may be anticipated at the time of the budget.

In fact, we would ask that, having done that, having put that program together, the government then involve members of the economic community, of the financial community, of the rating agencies -- the general interested observers of the economies of the province's fiscal condition -- involve them in reviewing that program for them to be assured and for government to be assured that it is a viable program.

As was suggested, we really believe that this process can go a very, very long way to mitigating the uncertainty that exists today and that is in all likelihood likely to persist during 1996. With that, I think we're available to answer your questions.

The Chair: Thank you very much. We have a six-minute round. We will start with the government. Mr Spina.

Mr Spina: I'm sorry, Mr Chair; I thought I was fifth on the list.

The Chair: No, there were only four people.

Mr Spina: I'll defer to one of my associate members, if I may.

Ms Bassett: Mr McIver, nice to see you here again. I'd like to pick up on one of your last points, about the need to establish consumer confidence out there. I think in the Sun Life presentation you were pointing out that we need to hear about a plan and then almost a contingency plan. I wonder if you'd just elaborate what we'd need in that plan other than, I think you said, we'd reduce taxes and how we'd reduce spending. Do you see other things in that?

Mr McIver: First of all, the first building block that you have is a budget that says what you expect to happen under the most likely set of circumstances. Then in the event that an untoward, unforeseen event occurs, which as an economist I know all too well dominates the scene; it doesn't matter what your base-case scenario is, the chances are pretty good that something is going to come along during that period, especially in today's environment, to upset it.

So all I'm suggesting is that ahead of time -- that is, with the budget -- you say, to use a specific example: "Okay, we would like to introduce the first tax cuts effective January 1, 1997. In the event that the fiscal plan is being thrown offtrack by slower-than-anticipated revenue growth because the economy, instead of growing at 2% or 2.5%, is growing at 1%, or in the event that there's an interest rate spike, we will then do the following."

Ms Bassett: Of course, and you want to see it in the budget, the contingency.

Mr McIver: Precisely. Again, the pre-eminent goal is to meet the fiscal path. If government is unwilling to reduce the amount of tax cut, because it's part of the economic parcel, then tell us where you would cut additional spending from the economy to maintain the integrity of the fiscal path.

Ms Bassett: And that does not throw people off.

Mr McIver: That's right. I mean, all you're saying to people is: "Look, you know as well as we do what today's GDP is. In the event that it's 1%, this is the course of action that we would pursue rather than the stated course of action that we intend to pursue if it's 2.5%."

Mr Spina: I'm better prepared now to ask a question. Gentlemen, thank you for the presentation. As a former president of a board of trade myself, I can appreciate what you go through, because we did many of these same things when I was president five years ago. Lobbying hard against the employer health tax: You may remember that little battle.

What I wanted to indicate was that earlier today we had an economist who indicated that the tax cut, if it was limited to about $2 billion in the next two years or to the end of the 1997 calendar year, I guess, would probably be able to be absorbed, provided we were able to keep our deficit reduction targets on schedule. Is that a reasonable comment for that person to have made?

Mr Lauber: We don't have a model that says that. We don't have any ability to model that. What we're saying, though, similar to this economist, is that your deficit targets are sacred and, bearing that in mind, to the extent you can proceed with tax cuts, that's great. If you proceed too quickly with the tax cuts and miss your deficit targets, we'll be back here telling you about it.

Mr McIver: I would just quiz you as to exactly what that economist was telling you. Was he saying that your fiscal path can be maintained and you can give a $2-billion cut in taxes without prejudicing that fiscal path? Is that the issue?

Mr Spina: As long as we maintain the reductions in the debt at the stage or at the levels that we are continuing to pursue, the $2 billion, which according to the Common Sense Revolution is the 15% -- in other words, half of the 30% -- in the first year we would introduce it, whether it was 1996 or 1997. It was a she, by the way, and she indicated that it would be able to be absorbed. Even with the economic drag that is in place, we would be able to, as a government, because of the current consumption levels, sustain that.

Mr McIver: Sure. But you are going to have to, in the budget, spell out of course the necessary expenditure path that is going to enable you to achieve that. It's reasonable, but you've only got two thirds of the equation, I guess. You need the other third, and that's going to be specified in the budget.

Mr Spina: So once that's laid out, do you feel that would give a larger degree of confidence to business, and particularly perhaps to small business, which we know comprises a majority of your membership and employers in this province?

Mr McIver: Absolutely. I guess I'm taking off both my Sun Life hat and my board of trade hat when I say this and just speaking as an economist, but quite frankly, I think the major benefit of the tax cut is really twofold. One is the credibility, because it's been promised. But most important, it's the confidence that comes, as Mike has suggested.

It doesn't necessarily get spent and there aren't any grandiose multipliers that are going to come into play that, in my opinion, are going to result in a major thrust to the economy. But the single most important part of the tax cut is that it says that Ontario is ready to do business in a businesslike manner and is ready to start giving its citizens and its taxpayers the opportunity to make individual decisions as to how they spend their money. That is a tremendous confidence booster.

Mr Spina: So it's as much a psychological factor as a dollar figure. Thank you.

Mr Kwinter: I'd like to pick up on that last statement. I think I could fairly say that I am perceived as a fiscal conservative. Bill Davis once said to me that I was far more conservative than anyone he ever had in his cabinet. If I thought in my mind that this tax cut would help, why would I not support it? Of course I'd support it. I happen to be in the camp of the bond rating agencies, who don't see this as something that you can really count on. It may happen, but also it may not happen, and if it doesn't happen, we're going to be in worse shape than we were when we started.

What I'd like to do is address your number two point where you say credibility is at stake. I think this is the crux of the problem in that you have to understand that the Common Sense Revolution was an election document. It wasn't a governing document. It was issued two full years before the election, and I think my friends on the other side, if they were truly honest with themselves, when that document came out and they were at 27% in the polls, most of them did not expect to get re-elected, and they've told me that.

Mr Carr: Yes, we did.

Mr Kwinter: Give me a break. Some of your cabinet ministers have told me that. But just one minute. What I'm saying is, that was an election document. Now they are a governing party and their credibility is gone already on Bill 26, and the next poll, they'll be down to their core support. So it has nothing to do with credibility; it has nothing to do with the Common Sense Revolution. It has to do with economic sense, and I'm saying if I could be shown, and others as well -- I'm not in isolation -- that this was going to work absolutely, why would I not be supporting it? I'd be out at the front lines saying: "Absolutely. Let's do it."


I commend you. Your document is balanced. You're saying, "Yes, we think so, but...," and you then outline all of the potential problems. I'm saying it's those potential problems that bother me, because if they're wrong, and there is a chance that they could be wrong, we are going to be in far worse shape than we were if they didn't do it. As I said to the bankers today, before you declare a dividend, get your house in order. Then declare the dividend. I'd like to get the response to that.

Mr McIver: That's our case. That's exactly what we've been saying. I am not as agnostic about the prospects of the Common Sense Revolution working. I'm not 100% in the camp, I have my doubts, but it's as good a play as some of the broad Keynesian approaches that we've taken in recent years.

Our bottom line in everything we have said is that the deficit comes first. The reason I say we are in your camp is that I think the notion of a contingency plan addresses precisely the concern you're raising. That is, what if during the year, as things progress, you see, "Hey, it's not working"? Whether it's because of external circumstances or because the program is fatally flawed, it doesn't matter. If it's not working, then how do you react to it?

I think it is incumbent upon government, and it's probably incumbent upon the opposition too, to have a sense of what should be the response if it's not panning out. You certainly don't want to go to the credit rating agencies and say, "Hey, take this on trust." What you want to be able to do is to go to them and say: "Look, this is what we think. If it's not turning out, this is what we're going to do." I don't really see any conflict between what we're saying and the concerns that you're raising.

Mr Kwinter: I don't have a conflict with you; I have a conflict with them. But I've learned the hard way. During the campaign -- and I was Minister of Financial Institutions, of Consumer and Commercial Relations, of Industry, Trade and Technology, all of the economic portfolios, and I was one of our chief spokespersons -- I went to see the bond rating agencies and I went to see the people who sold our paper and who bought our paper. We gave them a fiscal model that we were campaigning on, and it's no secret I opposed our government's position on the 5% tax cut. I said: "Why would you put yourself in that kind of straitjacket? Let's see the results, then do it."

But the number one question that I was asked by everybody was, "Yes, that sounds great, but what if it doesn't happen?" You say, "Well, then, here's what we're going to have to do." "Well, you don't tell us what you're going to have to do," and that's why I support what you're saying. But that is the number one question: What if it doesn't happen? And my question to you is, what if it doesn't happen and there isn't an effective contingency plan?

Mr Lauber: All you can do is go with further cuts in other areas. You're not likely to turn around and raise the taxes again right away, are you? That's the risk, and if the government wants to proceed, if proceeding with a substantial tax cut puts the deficit reduction at very high risk, then I would caution them very, very strongly against doing that. If all the indicators are that it's a fairly nominal risk in achieving the level of tax cuts, we'd love to have them both, obviously. Everybody would love to have the tax cuts and the deficit targets. It's just a question of the risk and balancing it off.

Ms Lankin: And free lunches are a wonderful thing.

Mr McIver: Absolutely.

Ms Lankin: Exactly. Let me continue on this point, because Mr Spina told you about an economist who was before us this morning. The gentleman said, on the basis of looking at the plan as he could see it now, without any expenditure projections or revenue projections -- limited information -- that the first $2 billion of the tax cut might be achievable with the deficit targets being maintained if in fact the expenditure reduction announcements are carried through with. Of course, that was the key piece to it. But he went on to say that to do anything more, ie, the rest of the tax cut that had been promised, would take, in his estimation, at least another $1.7 billion in cuts to finance that. So he was raising the prospect that what we've seen so far isn't enough to make that fiscal plan work.

Your point -- I'll read it: "As yet, the government has not produced detailed revenue and expenditure projections which demonstrate" the feasibility of the twin goals. You're absolutely right. Perhaps where I differ with you is that it's not only in the budget that we should be seeing that. We should be having that information in front of us today so that we are commenting on what options there are to deal with the scenarios.

We know economic growth is slower; projections now are slower than in the November statement. That means probably lower revenues coming into government than in their November statement; that means, when we see the decline in retail sales performance, slower retail sales tax coming in etc. So we know that probably there's a flatter revenue line than they had projected. That's a larger deficit, unless there's corrective action, which is either greater expenditure cuts -- should that happen or should they slow down on the tax cut? This is the kind of advice that we could be giving if we had any real information in front of us, so I object profoundly to the position that the government has placed these hearings in and the public coming forward to participate.

The other thing I wanted to address -- I'm sorry I'm not asking specific questions here -- is that you said this is good if it works, but what if it's not working, the government's plan to implement only so many cuts and balance the budget and give a tax cut? It is already not working, because part of their plan was a very clear promise to the people of Ontario that there would not be cuts to health care, to classroom education or to law enforcement, and we have seen cuts in all those areas.

I understand perhaps from your perspective that you understand that and can accept that, but on the basis of the Common Sense Revolution, which you referred to, it's already not working, because it was a promise of a free lunch and there are no free lunches. The people who went out on the campaign and said, "You can't lower taxes by that amount, balance the budget and protect health care, education and law enforcement spending," were right. It can't be done. So there are tradeoffs, and I think that's what we should be advising on: What are those tradeoffs?

I appreciate the point you're making, and again, particularly Mr McIver, your pitch for the contingency plan. I think it makes a lot of sense. I suspect that Ministry of Finance officials have been on the phone and on planes down to the bond rating agencies as of yesterday and today, trying to reassure them that the minister really does care what they think, because if we see any kind of a credit watch or a decline in our credit rating, our cost of borrowing will go up and it throws the fiscal plan off again. It means we'll be paying more in debt interest to borrow the money to give the tax cut, and I sort of worry about all of that.

The psychological point that you make about the tax cut is an important one -- consumer confidence and government credibility, all of that's very important. It's a bit intangible. The results aren't clear immediately. What I wanted to ask you is if you have to take greater cuts in government expenditures because of lower economic growth and revenues or whatever in order to keep that promise, and you experience the economic drag more up front and the economic benefits are more long-term, would you argue for a modification of the tax cut, perhaps not quite as much up front, or a slower pace, or do you think it's so important that it be done right up front, so if in order to meet the deficit targets something has to give, it should be greater cuts to spending?

Mr McIver: I'll just pick up on a couple of points. First of all, one thing to bear in mind is that in the event of a slower economy, particularly if it's a consequence of a slower economy in the United States, the prospects are that we'll have lower interest rates; that is, the debt service burden will be declining. You can actually experience expenditure cuts which are not program expenditure cuts. I make that as an aside.


The issue of how you should address the balance between further expenditure cuts and the tax cuts is a very difficult one. If you will recall, earlier in the week when I met with this committee I suggested that there were a lot of never-befores in the Canadian and in the Ontario economy. What those never-befores mean to an economist -- our stock in trade is historical data. We extrapolate, just as people in Finance do, on the basis of historical relationships and trends. If those trends and those relationships are no longer bearing fruit, if they're no longer true -- and I know you've probably had a lot of people come in here and present different models and come up with different conclusions from plugging in different numbers -- then the whole basis of those models is rather suspect. That applies indeed to the Common Sense Revolution, as it does to any other economic model. The Common Sense Revolution is based on an economic model that says certain things will happen if you do certain things. Hence my personal concern for, what if things don't work out that way? I recognize that. But to answer your question, there isn't a simple answer. I wouldn't like to try to hazard that answer without a good deal of thought, under the circumstances that prevail when I have to make that decision.

Ms Lankin: And some information in front of us as to those circumstances.

Mr McIver: Yes, but you're never going to get 100% of the information, any more than the people at Finance are going to get 100% of the information. They're flying blind whether they're working for you people or whether they're working for those people.

It's a very difficult call to make, and it needs to be made in the context of the prevailing environment. It is a philosophical decision based upon one's political philosophy. I have no doubt that the answers you would get would be quite different from the answers they would put together, and I couldn't promise you that one would work and the other wouldn't.

The Chair: Thank you, Mr McIver. That brings our time to a conclusion. We appreciate the Metro Toronto board of trade coming in and presenting to us today.


The Chair: The next group before us is the Ontario Association of Children's Aid Societies. Mrs McConville will be presenting.

Ms Mary McConville: Thank you, Mr Chairman. I'm executive director of the Ontario Association of Children's Aid Societies. I hope I don't lose track or squint here or something. I've had some eyedrops put in my eyes and I'm not seeing very well.

Before I begin my presentation I would like to draw your attention to what's in your package of material, because if you have a few moments -- I know you're pressed for time and have many presentations to consider and a lot of material -- I think it would be of interest to you to take a look at what's in here. The orange document is just a very brief position paper that several children's associations submitted to the Minister of Community of Social Services on the restructuring of public services. We've also attached previous recommendations to this committee on the subject of restructuring and child welfare services.

This book is something that I think you will find educative if you don't know a lot about child protection services. It's called the Intervention Spectrum, and it is an eligibility tool for intake workers. It defines the legislation of the province, the Child and Family Services Act, and attached to the legislation are risk factors. We use this for public education purposes, as well as for the use of front-line workers. I think it gives you a good feel for the kinds of decisions that front-line child protection workers are making and the kind of cases that come to the attention of your child protection agencies in the province.

Given that this is a budget committee, I think you'll find this article -- I'm sorry. It came from Wisconsin so it's not very clear, but it's worth reading. This article demonstrates the link between inadequate family income and pressure on child protection services, and it particularly takes a look at the state of Wisconsin very recently. This is one of the leading states in the USA, as you may know, on social assistance reform, and that state has watched some of the fallout of the transition that took place in the state in terms of reduced social assistance payments to families. Their foster care costs have absolutely skyrocketed in a relatively brief period. Their costs have in fact increased tenfold since they began their social assistance reform process.

I don't want to suggest for a minute that social assistance reform isn't needed. That's not the point of this document being in here. What we're trying to ask people to do is give some really careful attention to the social policy that's attached to social assistance reform and the impacts of social policy, because some unintended impacts are inevitable if we don't learn from some other jurisdictions.

There's also some material in there for you that just defines the purposes of a children's aid society, your child protection authorities and some fact sheets.

Since we last appeared before the committee approximately one year ago, a new government of course has been elected in the province, and the government has made a commitment to the people of Ontario to reduce the deficit and to reduce government expenditures and has made a further commitment to redefining its role in our society and to the restructuring of public services, both inside and outside of government.

We'd like to recognize this new mandate and speak to you briefly today about the impact of the changes in our society on the vulnerable families and children served by the children's aid societies of the province. The children we serve -- as you know, there are thousands of them -- are not the children who are safe in their natural homes and they are not the children who are often safe in certain communities in this province. They are the most vulnerable children in the province because of that, because the place that should be the safest place -- that is, home -- is not safe.

Children's aids work with thousands of vulnerable children in their own homes and we cooperatively work with hundreds of organizations across the province, including schools and doctors and all kinds of other organizations to provide support to our system so we can strengthen, wherever possible, high-risk families to maintain the children they are responsible for themselves.

When children are removed, which does happen, without the consent of parents, that only happens in situations where children are considered in need of protection, and the family courts of this province ensure that these most intrusive measures, such as apprehending a child and admitting a child to care and court-ordered supervision of families, are only used when other, less intrusive approaches to support have failed or are not viable, given the difficulties of the family.

The child welfare system in Ontario, I feel it's always important to mention, is rather unique in Canada because it has strong community roots, which is not the case in many of the other provinces. It does make extensive use of volunteers and consumers, parents themselves, and children, who are all integral to the planning of our services and the delivery of our services. We have an extensive network of volunteers who work at all levels of the organization, from the board level all the way through to front-line assistance with foster parents and staff.


The principles of community-based care and support have been practised in this province for decades. Each year the children's aid societies of Ontario provide substitute care to more than 18,000 children. We also serve approximately 100,000 families every year -- that's a substantial increase since the early 1990s -- and in those 100,000 families there are thousands more children we try to keep safe while they're in their own homes.

You might be interested to know that 43% of children in care in the province are wards of the state or wards of the crown; they are the responsibility of this province. Also, 11% of the in-care population are children between 18 and 21 who are trying to complete their education and move towards independence. These are also wards of the state, who are on their way towards independence.

Throughout the recession of the 1990s the demand for services has continued to outstrip our resources. CASs cared for an increase of 4% more children in 1995. That may not seem such a dramatic increase, but when it comes to costs it is a very substantial increase for the child protection system. The cost of caring for a child in care is at least 10 times the cost of caring for a child in the family in the community, and often far more than that. But at a minimum it costs you $10,000 to service a kid in care and more like $1,000 to $1,200 to serve a child in the community. Some of our kids in care cost $60,000 a year and more.

Two per cent more families received service from children's aid societies as well. What we're finding, in the late part of 1995 and early 1996, is that the increase in case openings is continuing. The observations of our staff right across the province are that the pressures are related to the protracted impact of the recession, the jobless recovery, unemployment and other stresses on family life.

Families and many community service agencies tend to turn to CASs as a last resort when the other community supports fail. We're particularly concerned about multiple impacts of cuts on community services, because we work with schools, we work with family doctors, we work with public health services, we work with community health agencies for children. When these organizations are all beginning to contract and lay off staff we need to work with to support high-risk families in the community, that tends to increase the pressure on the fail-safe system, the CAS system, to provide the service when the community no longer has it.

We've drawn your attention here to the impacts of poverty on children, and there is a direct link to child welfare services. A very large proportion of our clientele is single parents, parents on social assistance, people with inadequate income.

The children's aid societies, all the while they're trying to cope with the fallout of broader societal pressures, have continued to see decreases in their base budgets and have tried in a variety of ways to find savings within their system. We are, though, finding this increasingly difficult to do. Administrative costs have been reduced, programs have been eliminated, staff has been cut, but the families keep coming.

We are noticing a change in the kinds of problems we're being presented with. Some of the staff who have been in the child welfare system for 25 years or more are saying they're beginning to see cases present themselves that they have not seen in at least a generation. They are reporting that families and children in some communities are going hungry. Families are increasingly reporting that they can't provide the necessities of life. We have had specific cases of families approaching the children's aid to take their children solely because they cannot support them financially. We're also beginning to see organizations like food banks come to the children's aid to help feed a family when the food bank's run out of resources and the welfare cheque's been spent.

All of these kinds of pressures translate into service demands and direct increased costs to children's aids, which sometimes even have to hand over additional money for clothing and food and sometimes the rent, because it's cheaper than bringing a child into care.

I'm not going to go on. We've talked to the government in many forums about the impact of cuts on CAS services. I'd like to turn at this point to our message, because we recognize that there are difficulties all around. The government has a mandate and we have to find some solutions here. We would like to state as clearly as possible that more across-the-board cuts to children's services that service high-risk kids will be devastating. We'd also like to say, though, that we recognize that major reform and redesign of our public services is necessary despite these pressures.

Restructuring of human services in the province we believe is essential to protect the health and wellbeing of all Ontarians and to meet the financial challenges the province faces, but we feel we require a vision that recognizes the need for individual families and communities to receive their public services in an integrated way and to be able to contribute to community life in a holistic manner. We urge the government not to tinker with public services but rather to engage in major reform.

Fundamental structural change is needed to ensure a healthy social environment for our kids. Children's services are funded and provided by several ministries of this government: Health, Education, Community and Social Services. Each of these ministries is making decisions today based on its own priorities, its own business plan and its own decisions for the system for which those ministries are responsible. While this makes sense for individual ministries and programs, it doesn't make sense from an overall government perspective, given the challenges that we face. I think at its worst we can describe a silo approach to restructuring as a situation that constitutes mismanagement of our scarce and vital resources. So we're asking for the creation of a comprehensive evolution, if you will, of restructuring which will enable integrated planning and coordinating of services in our communities for children and high-risk families.

Children's services are part of a spectrum of community health, education and social service programs, and we cannot plan for child welfare, for children's mental health, for young offenders, for the education of our kids in isolation. These services can't be planned for in isolation of one another. The historic reason for structurally linking children's services with social assistance programs has now disappeared; that is the Canada assistance plan. It's time to create provincial structures which will support effective service networks and sound planning.

We believe that devolving government funding to local authorities will strengthen community involvement -- that's what the orange paper is about in the back of your package -- and that communities need to be responsible for meeting their respective needs. The right vision, the right public policy and a wise investment of public dollars will strengthen families, individuals and communities.

During these early years of restructuring, which can best be described as the transition years, your transfer payment partners, including children's aid societies, require some support. We need clear definition of government-funded core services for children; we need to define government priorities for public spending for children; we need to provide agencies with time to plan and restructure at the community level; we need to remove disincentives for finding savings; we need to provide opportunities for communities to reinvest some of those savings; and we need to create opportunities to pool resources to strengthen our prevention programming.

Specifically for your child protection services in the province, we've requested a number of things over the years, but especially the rationalization of the multiple regulatory mechanisms affecting this system and the promotion of a self-regulatory accreditation model of accountability, and we'd like to see the promotion of the development of a rational funding formula because mandatory child protection services are funded in one of the most irrational manners that I've ever seen in the history of the province.

I'll end there and let you ask some questions.


Mr Mike Colle (Oakwood): I guess the last time I saw you, Mary, you were working for Covenant House and I think you were the director.

Ms McConville: Right.

Mr Colle: Welcome. One point you seem to be making is that it's better to look at the long-range implications of what you're doing, that there's going to be an effect felt in your area if you're not looking at the consequences. I guess one example I've been finding is that there are parents with disabled children, for instance, who got that 22% cut, the social assistance. Some of these parents were first to lose their jobs because they had to basically give their children total care all day long. The cut was made and was just supposed to be to the mother because she's able-bodied, supposedly, but in effect what they've done is they've cut the child too because the mother was the sole caregiver in this case.

The point I'm trying to make is that if that mother or father is allowed to stay at home and be the caregiver, it's much cheaper to provide that care in the home. Once that mother or father is unable to provide that care and they're institutionalized, the government costs are going to skyrocket. I guess that's what you're telling us, that there are costs down the road if government doesn't have the foresight to look at the consequences, as we can see in Wisconsin. I think the number of children going into foster care has gone up by 60% because of the cuts to social assistance.

Ms McConville: Your social policy and your economic policy have to be integrated and there has to be a look at the impacts, or these are the kinds of difficulties you're going to inherit. You're going to hurt people and, from an economic perspective, the solutions may not be solutions at all.

Another example of that: In the state of Wisconsin they require that a mother who's receiving social assistance go out to work when the child is just six weeks of age. They have found a dramatic increase in admissions to care of very young children as a result. These are the kinds of issues that have to be very carefully thought through.

They've had tremendous success in other ways in terms of working people, getting people back into the workforce with training and appropriate child care. But there have been some very negative impacts of the policy that they're now trying to reassess.

Mr Colle: You're finding the real warning you have is the impact on children and the fact that there will be other requirements, whether it be on the health system or the educational system, that when you do make those cuts you have to perhaps look at the family or the family unit that you're affecting. You're not just affecting that parent who should be out working; you're also affecting --

Ms McConville: You are affecting the whole family, and especially children.

Mr Colle: The other thing is, in terms of the impact of the cuts so far on your ability to provide for these services, what's the most acute area that has been felt by the children's aid services across Ontario? Where is it most acute?

Ms McConville: It's acute right across the service. We're really struggling to maintain services to support families that have reached a critical stage. There's no point in investigating child abuse and neglect if you can't follow through with some supports to strengthen the family. You've got two choices: You strengthen the family or you remove the kids. Those are your two choices. It takes services and supports to strengthen these families once they reach that stage where they're knocking on the door or they've been referred to a children's aid society. So we're trying to sustain front-end supports and keep our communities on board with us, because we need a range of services. That's becoming increasingly difficult.

We're also struggling, once you get into the system, once children come into the system, with maintaining our appropriate support to our foster care system. We are starting to see an erosion of services there as well. Our foster parents in this province take care of enormously difficult kids and they need proper supports in order to do that. If we don't provide them with proper supports, the placements break down, the kids end up escalating in terms of behaviour and end up in children's mental health centres and group homes, all of which cost a heck of a lot more money, and also the bouncing around is damaging to children.

Mr Martin: Ms McConville, I think you paint a very clear picture of the challenges that you face in trying to carry out your mandate from government to protect children and to work with families to that end. I appreciate your support as well for the government's attempt to reform the system. Certainly, I don't think there are any of us around the table who don't realize, particularly if we're at all rooted in the communities from which we come, the need to fundamentally change in significant ways the ways that we deliver programs and create better efficiencies, as well as effectiveness within that.

Given that, and given that that's a very important goal, what would you have to say to the government re the other pieces of their program, the more important aspects of that as I see it: the speed at which they're moving and the most obvious target of the first decisions re the very poor, the 22% out of the pay packet of families that are at the bottom end of the income scale and the depth of the cut, 22%? I was shocked in July when I heard that figure. I anticipated that there was going to be some cut, but not that dramatic.

What would you say to the government as well re the question of the tax break at this particular point in time, given the very laudable goal of trying to reform the system so that it works better?

Ms McConville: That's a lot of questions. I think it's fair to say that the cuts to date -- not in all instances but in some instances; it depends on the nature of the cut -- have hit the most vulnerable members of our society the hardest, and it's particularly tragic to see the impact of that on children. If anybody believes that children are not being hurt, they are kidding themselves, because we know for a fact that they are.

I'm not going to get into arguments about the economic theories and debate whether or not a tax cut will work in terms of generating the economy; that's for somebody else to debate, but I will say this: It would appear, given the depth of the province's problem financially, that the only way to find your way towards the kind of tax cut that's being proposed is to cut further, to reduce government expenditures considerably more than we had originally thought the government might have intended. I have grave concern about the impact of that, again, if it's done over a very short period of time on the kinds of people we're serving in this province.

The other concern I have is the pace of change. I said in here that you're not looking at a public service system, at least not entirely -- perhaps some parts of it are not willing to change and try to look at a more efficient way of getting business done, but I think largely the public sector is, especially on the transfer payment side. But you have to give people time to do this, especially in social services, because you're not dealing with large institutions like hospitals, colleges, boards of education; you're largely dealing with hundreds of very small organizations that in fact have very little ability to manoeuvre financially, so it will be quite complex restructuring this system.

It needs to happen, but people need time to plan to do it right. Otherwise, we're going to erode our services and it will be very hard to sustain the level of service that I think this government wants, as well as the rest of the province.


Mr Carr: Thank you very much for a very thorough presentation. I was particularly pleased with the comprehensive orange one. It really looked at the restructuring.

I know what your organizations have had to go through. I'm from Halton and we've met many times with some of the major concerns out there. I don't want to put you on the spot, but one of my concerns rests with the ministry. They're the ones who are going to have to take the lead on this in terms of restructuring.

I know you have to work with them so you have to be a little bit diplomatic, but are you confident -- you know it's going to be a difficult question -- in the ministry's ability to do this restructuring? Do you think they have a clear sense of where they're going? I understand that puts you in a difficult position, which may not be fair.

Ms McConville: No, it doesn't.

Mr Carr: Could you comment on that? Do you think the ministry has the capabilities to do this restructuring?

Ms McConville: I am confident the ministry can do this restructuring, given certain conditions. The reason I put this orange document in the package was to be very clear that the Ministry of Community and Social Services cannot solve the problems of the world. Public services have to be restructured in an integrated way.

Our ministry can do a certain amount of this complicated work by taking a look at the specialized children's service system, for example -- that's what we're doing now -- and focusing on a piece of restructuring, say over the next 18 months to two years. They're also looking at child care, and social assistance of course is a major program that needs to be rethought.

What concerns me is not the Ministry of Community and Social Services but the government at large. There has to be a broader vision of restructuring at the cabinet level if you truly want to safeguard effective public services and reduce your expenditures. You are spending billions and billions of dollars on health care and education and social services, much of that duplicative spending, and virtually no integrated planning at any community level.

It doesn't take a rocket scientist to figure out that there are probably better ways to spend your money and more effective ways to deliver your service if you begin to think of a more integrated planning approach and enabling communities that can get their arms around something doable to plan across the spectrum of services. There's no capacity in this province to do that, and as long as you've got the silos and the envelopes that everybody protects and holds on to, we're going to continue to waste money and I think ill serve people, because they're going to run up against service barriers continually.

It's the broader vision I'm concerned about, not the Ministry of Community and Social Services. I also think that if that broader vision isn't grasped by the government at large, our ministry and our services are going to be the services that really get lost, because they're viewed largely as soft services, they're easy to forget. It's easy to talk about volunteers and the community should do more, but when you take a look at the kinds of services you're talking about, services for the developmentally handicapped, children who are extremely disturbed, children who are unsafe in their own homes etc, there's a limit to what the community can do here. These services have to be owned by the community, owned by the government and redesigned so that they're better supported by the broader public service system. We're a long way from that in Ontario.

The Chair: I thank the Ontario Association of Children's Aid Societies for its presentation. It's a very sensitive area. We appreciate your time, Mary.

Ms McConville: Good luck with your budget.


The Chair: We have with us now the Ontario Public School Boards' Association. Mrs Cansfield, welcome to the committee. I ask you to identify yourself and your associates for Hansard.

Ms Donna Cansfield: My name is Donna Cansfield. I'm president of the Ontario Public School Boards' Association. Gary Schleuter is a trustee from the Waterloo public school board and Mike Benson is the executive director of the association.

I'd like to say thank you for permitting us to have the opportunity to come and speak with you. We are going to try and give you our message succinctly so that you'll have an opportunity to ask us questions.

First of all, very quickly, who we are and what we represent: As a public school board association, we represent public school boards and they represent 1.3 million children and youth and over 500,000 adults in this province. We are here to recognize some of the difficulties the government is facing and to raise some very serious issues from our perspective dealing with education finance, both current and future.

I would like to say that we recognize there is a very serious deficit problem in this province and we also recognize our responsibility as elected representatives to deal with the current and the future debt load of this province. From our perspective, obviously if you're going to educate children, it makes some sense to give them a future in which to use that education.

We would also like to bring to your attention that the comments we're going to raise are really not new comments. We brought these positions forward early in 1993. For those of you who do not know, the school board associations and their member boards have been going through restructuring for some time now. First of all, we had expenditure controls, and then of course we had a social contract. So we have put forward issues around deregulation, as I said, as early as January 1993, so nothing you're going to hear is new; it's all recycled.

One of the things we want to emphasize is that everything we put forward is to try to minimize the impact on the students in the classroom, but also we recognize that this is a serious difficulty and that in fact we may not be able to do that.

We value not only our students, we value our employees. They are as important to us. The teacher in the classroom is a critical part of what we do in our business, as is the bus driver who takes the child to the school and the maintenance person who keeps a safe and clean environment for our youngsters.

One of the most important things we need are the issues around the fiscal tools. In November 1995, Minister Eves was very direct when he indicated that $400 million would be extracted from the education system. We accepted that. We understand the debt load and that it has to be dealt with. We also recognize that to deal with this in a province the size of western Europe, with school boards that are as small as the isolate boards in the north that have very few children, to the very large boards in Metropolitan Toronto, you need flexibility and a very broad range of tools in order to provide to meet the phasing in of those cuts.

That also brings the issue of the phasing in. Timing is critical for us. All along, we've indicated that we need time to be thoughtful and careful in how this process is to be done. Again, we want to minimize the impact on the classroom and minimize the impact on the teachers and the students, and obviously as well on the ratepayer. This is critical to know, that to keep some of the programs -- places in the north, for example, do not have unified arts to cut, they don't exist, so when you start cutting programs, you're cutting core programs. That's the last thing we want to do, so we need some time to phase in some of these cuts.

The other is we need that broad range of tools. How many times have I been here to say no one solution will do for a province this size with the different kinds of complexities. You must recognize that from each of your own jurisdictions. You have to provide a broad range of tools, that the boards can sit down and work out to meet their particular needs.


I could give you example upon example where if you use this in Etobicoke, it doesn't work in Shining Tree. If you use this in downtown Metropolitan Toronto, it doesn't work in Waterloo. There are examples throughout the province and that's why it's critical to have this broad range.

I'm going to actually read these into Hansard so that they are there.

The Ontario Public School Boards' Association does not support a grant reduction timetable which will decrease funding to public education by $1 billion during one school year. We recognize the issue of working with the government in the government's fiscal year. If the government moves on reductions of that magnitude, school boards will require a phased-in approach to allow for an appropriate restructuring and to minimize the impact on students, programs, employees and the local taxpayer.

Secondly, the association states that school boards need an appropriately broad range of strategies or tools which will totally offset any provincial grant reductions and which will not result, and I underline will not result, in increased property taxes.

I'll ask Gary to carry on with the second part.

Mr Gary Schleuter: I'm going to refer to the document you have in front of you and I'd like you to turn to page 5 if you will, if you'd like to follow along. I'm not going to read it; I'm just going to highlight a few of the areas, and I'd like to read into Hansard the recommendations and some of the rationalization I have for them.

Beginning with education finance reform: Education finance reform is more essential now than ever before. The main objective of educational finance reform must be quality education for all students by distributing funds to better reflect the needs of Ontario's students, and to promote cost-effective practices within the education system.

We need a new model for education finance reform, which should have the major components, the very least of which should be an ABC, which is an activity based accounting approach.

OPSBA must emphasize the need for the cost-out of the components of education and define the levels of service.

OPSBA recommends that the Ministry of Education and Training education finance working group be given enough time to fully review the comprehensive package of reforms, including the costing framework, new distribution formula, new grant structure, revenue issues and impact analysis on key recommendations.

I must emphasize that impact analysis is absolutely imperative. We must know what's going to happen if we do whatever it may be that is coming down to us in the next couple of weeks.

OPSBA recommends that in future years there be a permanent joint school board-ministry committee for the analysis and assessment of education delivery costs, provincial and local; recommendations regarding levels of services and projected funding levels required; yearly update of the grant distribution formula; financial impact analysis of new programs and policies on the provincial and local tax bases. We would like to know, specifically, what it does to our local constituents.

OPSBA recommends that the Ministry of Education and Training allocate adequate ministry resources to maintain and update yearly the school board expenditure data.

I'm now looking at page 6. I'm talking about school board fiscal year. As a professional accountant, it is my opinion that it is high time that school boards in Ontario had a fiscal accounting process that equates to the school year. It would give us a better control of cash flow, budget expenditures, and of course it would allow us to have a much better control on site based managements.

We need a new distribution formula. OPSBA recommends that a new distribution formula, based on student equity, be developed. The factor should be based on factors such as demographics, socioeconomics etc, as shown on page 6.

OPSBA represents two thirds of the children of this province. We are participants in the Ministry of Education working group. We have stated since day one that we cannot decide on a position that is published until we see the impact analysis, and I'm going to emphasize that again. We must know that and we must know the rationalization before we can give an opinion.

OPSBA believes that rather than revenue-sharing and its associated constitutional implications, a significant degree of funding equity can be achieved through a new grant model with a distribution formula that is more responsive to students.

OPSBA supports a new, more responsive, education grant distribution formula as the first and foremost step to achieving student equity.

Currently, school boards provide a variety of social support programs and services, such as speech and language support, psychological services and all of those items that we commonly think of as special education. They are very expensive, extremely expensive.

OPSBA strongly recommends that in the future health and social supports for students should not be financed from the base per-pupil grant. Rather, there should be a separate program grant under the Ministry of Health and the Ministry of Community and Social Services.

Dealing with revenues for education, we need to analyse the impacts of the GTA report and the Sweeney report. We support and we agree with those reports, but we need to see what the impact is before we can give you a further opinion on that.

We state that OPSBA does not support provincial pooling of the residential and/or the commercial and industrial tax base. We'd be very willing to enter into a discussion with you on the reasons for it.

Turning to technology, educators must equip students with the skills necessary for literacy in this information technology. The Minister of Education himself has stated that he supports computerization.

It is our opinion that we must free up time for teachers to teach students. Presently, our staff are using archaic administrative systems. Computer systems which integrate teaching and student needs are imperative, and a very high priority for OPSBA.

OPSBA recommends that the provincial government in the 1996-97 budget increase financial support to school boards, capital and operating support, for information technology equipment.

Ms Cansfield: The last area we'd like to speak about very quickly is around the issue of capital, and for those who live in areas where there are old schools, I don't need to emphasize how difficult it is when you start looking at the issues around renovating schools, especially because of the issue around regulations.

I'll give you an example: Try putting in an elevator in an old school, especially if it's 50 years plus. Suddenly you're into $300,000, $400,000 because, as you touch that old building, guess what? You have to bring it up to building code, and this is an area we need to deal with quickly, because it's an issue around deregulation. We have more red tape that hampers us in terms of trying to get our job done in an efficient and effective way, and again this is nothing new. We've brought this forward many times. So the capital area has been neglected, and I do understand that the ministry is trying to address this.

For us, it's a critical issue as well that never should there again be built a school across the street from another school. Multi-use joint facilities must be the order of the day in the future. It makes absolutely no sense to spend that kind of money when there should be a willing and cooperative venture between both public, separate, French public and French separate boards. As you know, our position has always been there should be one publicly funded system anyways.

I again would like to read, though, into the record, because we have concerns around the financial support and the lack of it for the capital budget that we need to meet, first of all, that we recommend that we have increased financial support for those areas for school capital to meet the pressures of growth, and that we also recommend increased financial support from the school facilities renewal program, which are current dollars that are already there and have been allocated. They simply have been frozen.

Finally, we do recommend that the provincial government streamline legislation and regulations to encourage multi-use facilities between school boards, municipalities and other community agencies.

It has always been, again, the position of this association that there's an opportunity to bring in the municipalities. I give you good examples, and they're called libraries. Again, why can't we work together in a cooperative fashion rather than having multi facilities all over the place as opposed to working with one another?

We'd be pleased to answer any questions.


Mr Martin: Thanks for coming today and for making such a good presentation. It's always informative and educational when I get a chance to hear of your concerns and your recommendations to government.

I don't think anybody would dispute that in a province such as ours that has so much to offer, and that all of us are so quick to praise when we're out of the province and to talk about in a positive light, that we want to do everything we possibly can to keep it that way.

As a matter of fact, in reading some of the information that I've read in preparing for today and other committee opportunities that I've had over the last couple of months, and indeed over the last five or six years, Ontario, in spite of the challenges that we all face and the need for us to be responsible and responsive in front of the challenges that coming to the end of a century present and the changing economy that we're facing, we all need to be doing different and progressive things; that we still have a system that's good, that is producing a product by way of students who participate very actively in the economic life of this country and of the world, and that Ontario is still seen by many as a good place to invest.

I would suggest it's seen that way because of the very excellent education system that we have in place at all levels, the very excellent health care system that we have in place to make sure that all of our people are well and looked after and healthy, and a myriad of other social assistance programs to look after people.

We compete -- and I made this mention this morning when we had, if I dare say, a rogue's gallery of bankers in front of us all morning making some very valid arguments for a market-driven approach to the way that we change, the way that we do business in Ontario and the way that we look after people and strengthen communities. We compete with countries in the world today who see as their competitive advantage child labour, no health and safety regulations, very, very low pay for workers, and the list goes on and on.

I would think we'd want to protect for ourselves that which we see as valuable and that which makes Ontario a good place to live and to work and to play in. Certainly, when I look at education and I see the challenges that it has faced and the way that it has responded, you know as I know that whenever anything happens in the community, the first place it ends up at is the door of the school. So teachers are challenged to be all things to all people; school personnel are challenged to be all things to all people.

And as we see the changes that are being made, not only to education but to a lot of the support services that you in education count on to help you in dealing with some of the socioeconomic, some of the health issues that you confront every day as children with different disabilities arrive at school, and recognize that ultimately at the end of the day somebody has to deal with that and, in many instances, particularly in smaller communities, the school is the only source of expertise, and people with training.

Given all of that and given your concern --

The Chair: Thank you very much, Mr Martin. Do you have a question? You have expired your four minutes with your presentation.

Mr Martin: Could I ask a question?

The Chair: Well, you have expired your four minutes, sir. I think we should really move on.

Mr Martin: Just a quick question. In light of that tremendous challenge, and the time lines, what recommendation would you give the government re the question of the tax break?

Ms Cansfield: The association does not have an official position on the tax break, but I will very quickly give you a position on something in addition.

First of all, you make a darn good argument for locally elected school boards, because we are good at what we do, and we have proven that over the kinds of things that we have done. But the other is that I think it's time for us to look at managing the changes within infrastructure in order to protect that classroom and the student. The time has come to do that and I believe, working together, that we all can do it. Listening to the presentation before and the frustration around the issue of regulation and infrastructure that limits and prohibits the ability to do the work you need to do is what we need to get at.

I think it's a challenge. You have to understand the challenge, but I also believe you have to meet the challenge, because at the end of the day are the children and the youth of this province, and they're our ultimate responsibility. It's not going to be easy and nobody likes the cutbacks, but it is necessary to work this out. I believe people of good faith can do that if we really believe in the kids.

Mr Spina: Thank you for good, comprehensive recommendations. There are very clear-cut recommendations in your submission. There's been a lot of public criticism of the trustee system, I guess, the taxation system that takes place and you, as representatives, or all trustees across the province, really are facing a tough row to hoe, as they say, acknowledging the reduction that we are facing. There are two elements, I guess, that I would like to ask your greater or expanded opinion on.

First of all, as a member of the Red-Tape Review Commission, you mentioned some of the points that you were facing with regard to red tape. I'd be interested in hearing a couple of those items that you feel could be addressed by that commission. I'd be happy to take this, by the way, to that commission, or if you want to give the commission another submission, then that would be as welcome by the chair.

The second element is, I guess, the flexibility that the school boards perhaps would like to have. There is a phenomenal amount of rumour about the famous toolkit that the minister has been distributing. The interesting fact is that all the teachers' unions seem to have it and have already done their own interpretation on it, and yet it has not even been released to caucus for consultation because it's still being drafted. I would be interested in hearing what tools you feel would be good for the school boards to have in order to be able to accomplish the government's objectives and still keep the quality of education where we all would like to have it.

Ms Cansfield: Very quickly, I would be delighted to send you 28 recommendations on deregulation which we had previously sent, and I'll give you a good example of one. Currently, the Education Act prohibits school boards from entering into relationships with municipalities. So when a school board suggests that it might do joint tendering with its municipality, if the municipality says no, guess what? It's no. The same could be said with other school boards. For example, with the public and the separate boards, one would think they would work together. In many instances they do, but because the law says they don't have to, it's conveniently used as an excuse not to. There are significant dollars to be saved. There are neither public buses nor Catholic buses. There are yellow buses that take children to and from school, and all children should be able to ride the one bus. Those are examples.

Very quickly I'll give you some mandated -- and we say mandated cooperative ventures between public and separate boards because we know of the extraordinary reluctance on behalf of some of the boards to participate. There are significant savings that are to be met. Never again, as we indicated, one single facility when a multi or joint-use facility -- the fact that there have been buildings that have been built for 100 students that cost $7 million is outrageous and the school down the street is half empty. That should not occur, and never should have occurred.

We need to look at the areas of technology. Although it originally costs a little, it will save a lot in the long term in terms of distant learning, professional development, working with teachers. You know, our teachers don't have a telephone in their classroom, much less computers. Think, if you want to talk in a telecommunication-information age, we don't have those types -- think of the time that could be saved just by installing a telephone in everybody's classroom. There are a variety of ways.


We have a book called Removing the Barriers which we put out. In it we also recognize we would like some flexibilities around retirement gratuities, around the issue of the school day and the school year, but they're not new. We knew those when we brought out the social contract. You can't cut an arm and a leg off a teacher in northern Ontario to 4.75 if there are two teachers. You need to work with some flexibility. It doesn't mean you have to do it everywhere. I'd be pleased to give you both of these. In addition, this is the other one; and it's managing, it's the actual legislative changes. We went through and came up with our recommendations and I'll forward them both to you. We have put forward a variety.

We've always said it needs at least a couple of years, the government's fiscal years, and then some of them -- obviously, if you have a retirement gratuity, you honour that contract. You freeze and you phase out the new hiring, but of course you must honour existing. There are a variety of things that we know we could do if in fact we had some ability. You know, we can't even put a sign in our school buses that says "Sell milk," because if we do and we get money for it, they take it off our transportation grant. What an incentive. I could give you a list of them.

Mr Colle: I really don't know where to start, having been in the teaching profession myself for 18 years. I guess the first comment I have is that it's certainly critical that this government do something about the duplication, there's no doubt about it. I know in the middle of Metro we've had schools sitting beside each other, one with 100 students, one across the street filled to the gunnels, and then they would go build another school somewhere else. Then in the high school system empty schools have to be basically underutilized while you have to go spend taxpayers' dollars building new schools on dump sites; I can give you some cases. I hope they do something about that. I think that's where a true saving is, and it will have to be a strong government that takes the leadership to do that, to ensure there is sharing of resources.

You didn't mention user fees, seeing that this government is very much enamoured of user fees. They're obviously going to be moving in that direction in education. There have been some hints of user fees for everything from junior kindergarten to heritage language classes, other so-called non-essential educational services. What is your association's position on user fees in education?

Ms Cansfield: Our position on user fees is a bit of both. I've never heard of anything that really raised red flags, except something around collective agreements, as much as user fees. I suspect a little common sense actually in the school board's decision would -- I'll give you an example: If there is a child care centre down the road that has to transport children to a local school, currently school boards do not do that because of the cost. But doesn't it make some sense that if they were enabled, through a small user fee, to allow the parents to pay for that transportation from child care to school, it would help the parent, it would help the child and it could minimize the cost of what that transportation would be? There's an example.

If it came down to music or heritage language, many schools would like the opportunity to allow the community to pay a couple of dollars a week in order to have heritage language classes on Saturday if they could keep their music program. Again, I think you need some flexibility and you need to allow school boards to make those decisions based upon their community needs, which are as wide and broad as this province. So it's not cut and dried.

Think about the issue of books. I bet I could go to every home, including yours, and find a school book that you didn't return.

Mr Colle: There's a few hundred in my house.

Ms Cansfield: Absolutely. Think of the cost to the system. Now, if this were rampant in somebody's system, or they thought it was, allow them some opportunity to deal with it. It doesn't mean they charge for the books. They might in fact do what they do with adults now, and that is put on $40, and if you return the books you get your money back. There are lots of ways that you can enable the school boards to be more effective. That's not permitted now.

Mr Colle: I think the critical thing is for flexibility in the school boards to make that decision, not the ministry.

Ms Cansfield: Absolutely. Flexibility is a key.

The Chair: Thank you very much to the association of public school boards for coming in and presenting to our committee.

Ms Cansfield: Thank you very much for this opportunity. We'd be delighted to forward the documents, as was requested.

The Chair: If you could forward them to the clerk, we'll see that they're distributed to the committee.


The Chair: We now welcome the Association of Colleges of Applied Arts and Technology of Ontario to the standing committee on finance and economic affairs.

Dr Brian Desbiens: My name is Brian Desbiens. I am the president of Sir Sandford Fleming College and the vice-chair of the Council of Presidents. I'm joined by Sheila Sim, the director of research and planning, and by Vicki Hodgkinson, the governor and president of services representative from our association. We thank you for this opportunity. If I might present then for about 15 minutes and then we'll take questions, Mr Chair, we have given you a package of speaking notes and I will follow those speaking notes, with your indulgence.

First of all, I'd like to say thank you for the opportunity, and second, the concerns we're going to present to you are not just those of the presidents or ACAATO, but really we have almost three quarters of a million individuals who receive instruction on a full-time and part-time basis in the colleges. We have about 17,000 staff, faculty support and administrators. On behalf of all of those, plus probably between 10,000 and 15,000 volunteers who serve on our advisory committees and boards, I bring these concerns to you.

First of all, we do recognize government concerns around budget, both the provincial and the federal governments. We do recognize the fact that we as colleges have to be part of the solution. We recognize that in 1996-97 we will be reduced in our funding and we want to, in the presentation today, share with you our concerns about the financial and fiscal situation that we're in. But we also want to be part of the solution because we believe that both our provincial and our federal governments, which affect our colleges in Ontario, are committed to restoring prosperity to our province and we think the colleges can be part of that solution.

The colleges continue to take a strong leadership role in building a competitive Ontario and I want to share with you some of the reasons why we believe that to be true.

First of all, Ontario colleges have striven to maintain accessibility. As you note there, we believe we have done that. Between 1986 and 1994, the colleges actually grew by 39% in our post-secondary area at the same time as our operating grants were reduced by 33%. So reductions are not new to us, nor is growth and demand new to us.

We believe that the colleges are extraordinarily cost-efficient. The colleges actually receive 30% less per student than our comparative counterparts: elementary, secondary and universities. You can see the statistics in the report.

We also have experienced a substantial reduction in the funding units that we get per client. This is not just in comparison to education; it's also in comparison to the other public sectors, such as health and the Ontario public service. So reductions have been part of the world that we have lived in. That's in the past. Our experience, of course, in facing 1996-97, is that we want to bring to the attention of the committee the fact that the colleges are not only experiencing a significant reduction because of the provincial cutbacks of $120 million; we are getting a double whammy that other sectors are not getting. The colleges this year will experience a $55.5-million reduction by the federal government in the apprenticeship area and in areas such as training or the academic upgrading areas of the colleges.

Thirdly, we are also anticipating the announcements around the Ontario Training and Adjustment Board, and signals have been sent to us that this represents about a 20%, or $80-million, reduction. So you can see that it isn't just the grant reduction that we're having to experience. When one totals it, it represents $255.5 million or, in other words, double really what the province announced last November. This is what we're trying to cope with, and it's a double hit. We don't believe that other jurisdictions are experiencing the hit to the degree that we are and we want to bring that to your attention.


We have been given a tool to deal with only a small portion of it, and that's through the tuition. The colleges were able to raise tuition this year by 15%; that's 15% on around $1,000, or $150 a student. That 15% only represents about $34 million of our problem of over $200 million, or less than 15%. Our fellow post-secondary educational system, the universities, has been given the ability to raise tuition 20% on approximately $2,500 tuition per student, a larger base, or about $500 a student, which allows it to recapture about 40% to 50% of the gap. So the gap for the colleges is considerably greater, and we wish to share that with you because we believe that trying to treat both systems in a similar manner is not equitable.

Ontario colleges are also committed to change. We this year have drafted, through the leadership of our academic leaders, a paper, Learning-Centred Education in Ontario's Colleges. Learning is what the colleges have always been about, but being learning-centred and taking a look at how that will refocus the way we go about doing education we think is a critical thing at this juncture in our history. What it does is help us redesign or rethink the kind of learning and the learning outcomes that are necessary. This is a major thrust in the colleges. It's a thrust to take a look at how we use our space, how we use our resources and how we use our staff, and trying to redefine and look at learning outcomes.

Part of this initiative, of course, comes from the need for accountability in the colleges as well, to ensure that those who come to the colleges actually exit the colleges with the right kinds of skills and knowledge. We are an accountable system and we have many mechanisms in place. We have community boards that provide direction to our colleges. We have employer-driven advisory committees. Over 10,000 people serve on our advisory committees -- alumni and employers -- to help us adjust our programs. We have annual reports and we also have operational reviews, and some colleges have initiated new quality approaches and assessment approaches.

In your package you'll see a document on accountability. We want to develop our own accountability mechanisms for our college system to try to develop the right kind of performance indicators that you as the government, the public in general and we as educators would be interested in, to determine that we are on the right track and measuring our outcomes effectively.

We also believe that the colleges have been a major force in economic development and renewal in the province. We have, during the 1980s, been very effective in assisting the private sector in retraining its workforce. As we know, they went through it before government. We believe that the colleges can also be an effective force in the 1990s, assisting government and the public sector in retraining and assisting people to get the skills that are required in order to again contribute to our society.

Colleges have been entrepreneurial. Many colleges have individual relationships with universities and the private sector. Colleges together have developed what is called Con-nect. Con-nect is a mechanism for the colleges to go, as a system, to the private sector, to governments, as well as provincially, nationally and internationally, to address what services we can bring.

College also graduate graduates who get jobs. Even in the middle of the recession, 78% of our students in 1992-93, were employed six months after leaving our college. There is no mistake taken when we see twice as many university graduates now coming to the colleges as there were in the 1980s, coming to us because they know that the employability skills that they get from our applied programs make a difference.

Statistics Canada just reported in the last quarter that 70% of the new jobs out there require a post-secondary education. Also, Statistics Canada indicates that post-secondary-educated graduates from colleges and universities have less unemployment during their lifetime and have significantly greater income capability. So the investment in post-secondary education is a worthwhile one.

Education and colleges are supported in Ontario by the public that you're here to serve and we're here to serve. Let me just share a couple of statistics. First of all, the demand for the colleges is greater than it's ever been. Seventy-three per cent of the people in Ontario indicated that they actively participated between 1980 and 1990. The third area here: There's a myth out in Ontario that universities are the first choice. This is true in terms of status; however, it's not true in terms of the way students are voting with their feet. One hundred and ten thousand students applied in 1994 to the colleges as compared to 57,000 to universities: a 2-to-1 ratio. Of registrants, 56,000 registered in the colleges and 38,000 in universities: 1.5 to 1. The citizens of Ontario are using the college system, to their benefit. Our enrolments have continued to go up, not go down; this winter almost an 18% increase in applications to our college system. Forty per cent of Ontarians say that they have actually taken courses, and we know that in the Ekos Research -- there's a graph attached -- 73% of people in Ontario say that they're going to participate in post-secondary education in the next five years; 58% of those said that they want to go to colleges.

We're popular, and there's support. Sixty per cent of citizens say that they would be willing to pay more to ensure that education and training are available. In that same Ekos study, education, health care and debt and deficit were rated the highest -- tied. So the citizens support it.

What are the issues we have to face? Obviously this demand, this tremendous demand that we're facing for post-secondary education, particularly at colleges. There's an issue coming before us that I want to alert you to. With the changes in secondary school reform, from five years to four years, in the year 2000-01 we're going to have a double cohort. That means those 110,000 applications might double to 200,000, and those numbers who want to register at colleges could go from 57,000 to 114,000. We need to prepare now and invest now so that we can be able to serve those citizens and those students when they move from the secondary panel. We're very concerned about that and we need to prepare now for it.

Downsizing of government is substantial. We expect tens of thousands of people to be dislocated in the next year or two. The colleges can provide assistance, as I said, similar to what we did in the 1980s for the private sector.

The colleges in Ontario are exiting the social contract, and this is of grave concern to us because as we return to normal collective bargaining under the same terms and conditions with no additional tools, the reality is that these are going to be very difficult times, because the educational framework we're in because of the economic times we're in has changed, and therefore the structures that we have will also have to change. We expect this to be a very difficult year as collective bargaining continues.

Colleges are trying to do a quality and career-relevant education and are being asked to do that. However, the reductions make it very difficult for us. As we face a 20% to 30% reduction due to the double hit from the federal and provincial governments, we have to look at things like laying staff off, campus closures and reductions of programs. These are not things that we take lightly. They are things, however, that the colleges are prepared to do.

However, we are concerned about access to our system. One of the ways to be able to assist us is through investments in information technology, and we'd ask the government and you to consider this. We have had our capital cut, not just for our buildings but for our equipment. These advanced-technology institutions need the latest technology. We'd ask for you to give us opportunities to make sure that the learning experiences for our students are there. Also, information technology can be extraordinarily helpful to us to address the question of access in our communities which are threatened at this time.

In conclusion, the message that I wish to convey to you is that you have a college system in Ontario that's cost-efficient, in demand, publicly supported, responsive, accountable, and prepared to assist in solving the problems of the day. We need you to look at us and treat the college system in an equitable manner -- rather than in the same manner, in an equitable manner. Look at the full impact of federal and provincial financial reductions on the college system and give us the tools to be able to assist you in serving the citizens of Ontario.


Mrs Margaret Marland (Mississauga South): Thank you very much for your excellent presentation. As a former board member at Sheridan College, I understand the passion with which you speak and the sincerity of what it is you're saying.

I guess the story that I want to relate to you -- because I was taken aback by this experience and surprised and tremendously impressed. Very recently I ran into a staff member of the Credit Valley School of Nursing, which as you know very well is the nursing school for Sheridan College. It was about two weeks after Sheridan College had decided, because of the cutbacks, they had to cancel the school of nursing.

This staff person is losing her job. She is an instructor in that program. She will lose her job when the program is complete at the end of the summer. We talked about the fact that the students are being protected. The current year of students are either graduating, or if they're in their second year, they're going to be accommodated over the summer for their third year, and as you know, the first-year students are being transferred into equivalent programs.

But what amazed me about this staff person -- and the reason I'm putting this story on the record is because I feel this woman epitomizes the kind of staff that we have in the college system and it's one of the reasons that our college system has been so successful all these years in the province. This woman said, "You know, we have two mortgages and we have our own children," but she said, "I want you to know, Mrs Marland, that although I personally and my family are directly being hit by the cutbacks, because I am now losing my job," in a program that had to be cancelled, "my family is 100% behind what it is you're doing and we understand why it has to be done."

I thought this showed a very real person in a situation who understands, in spite of the impact on her personally.


Mrs Marland: I think it's unfortunate that someone with the seniority of my friend and colleague Mr Wildman would have the little dramatics that he's just having while I'm telling a very sincere story, and it is a sincere story. I think that, as I said, is why our college system is in such demand by students around this province.

Your presentation to us today will certainly be a very serious part of our deliberations and the deliberations of the Minister of Finance while we continue to make these difficult decisions.

Ms Castrilli: Thank you very much for appearing today on what I think is one of the critical issues facing Ontario. Ontario's colleges have in fact been hit and the students have been hit in ways that other sectors have not. I think you'll agree with me that the average age of college students is something in the order of 27, the last statistics I saw. That means that it's an older population, which in order to go to school has to finance through employment or through sometimes social assistance and needs help with respect to day care and housing and so forth, all areas which are being cut. So it's really a hardship of a higher magnitude than other areas. I wondered if you might comment on that.

Dr Desbiens: It's very true that we have a large percentage of mature students who attend the colleges, as I mentioned, many of them who have already been dislocated from work or want to return to work and need the assistance. There is a dramatic increase in students on OSAP. There's a dramatic increase in the debt load that students are incurring, and colleges are having to develop methods to be able to provide assistance. Many of the support structures are threatened -- day care and other support -- so it is becoming much more difficult for our students.

We're also concerned that some of the programs that are support structures, such as our academic upgrading programs that have helped people get the skills to then be able to succeed, are also being eroded. So these are very difficult times for the students in the colleges.

Ms Castrilli: What do people do? On the one hand, they're being encouraged to train, to upgrade, if they're displaced to train in brand-new fields. On the other hand, the very programs which should be helping them may not be there for them to access. What's the result?

Dr Desbiens: The result in some cases is that people aren't able to go to college, aren't able to get the skills that are required. The colleges have continued to stretch themselves. You've noticed that there continues to be an increase in enrolment. I always find it remarkable that the colleges continue to try to do these things. We will continue to do that. However, there are individuals who are now not able, who are caught in the catch-22, without the support to be able to go; if they go, then they incur increased debt. I'm afraid that is going to significantly increase.

There's the opposite of that coin too, if I might, and that's that with the reduction in the public service jobs, the layoffs in the public sector, many of our graduates or students are trying to prepare themselves for the public sector. So we have a crisis coming also in terms of the graduates from our colleges having to compete. We have the double cohort problem of getting in, we have the dislocation of support structures and we have a job market that's going to be very difficult.

We want to work with all of you to try to address these problems but they are getting more severe each year.

Ms Castrilli: So just at the time when you're most needed, you're not accessible?

Dr Desbiens: We're very concerned about it. That's why I mentioned we have to find new ways. Information technology can be one way that we can try to reach out, through technology. We have to sustain our ability in smaller communities. We've got to link ourselves together. The first speaker mentioned the rationalization of programs. That is part of it as well. We're trying to rationalize programs so that we can get centres of specialization. This does mean, however, that people will have to perhaps leave their communities. So there are a lot of adjustments the colleges are doing, but we are concerned about the expense and the ability to afford college for our citizens.

Mr Bud Wildman (Algoma): For the time constraints, I'll just make a comment and then ask a question. What strikes me is the contradiction between the government's stated agenda and what in fact the impact of the cuts is. There's a demand by the government, which I think most of us would support, for people to upgrade themselves and gain employment skills so that they can be productive and contribute to society and provide for themselves and for their families. At the same time, they're making cuts to the very program that would make it possible for people to do that.

You've talked about the increase in demand for training, the expansion of enrolment you've experienced. You've also said that colleges are prepared to change and to cut programs and staff, rationalize programs and so on. You've talked about the increases to tuition and you've expressed concern about access. You've said that you're prepared to do those things that are required. In fact, you're already doing them. While I appreciate your presentation, it was good, it would have been helpful I think to the committee if you could have outlined what has happened, what are the cuts in programs, what has happened in terms of staffing and what you predict for the coming year and perhaps the year after in terms of enrolment and access. So I'll give you the opportunity to do that now.


Dr Desbiens: Mr Wildman, we're in the middle of it; that is really where we are, so to give you a summary at this time would be very difficult. I'd be pleased to come back. I can tell you, though, that around the Council of Presidents' table -- we do round tables -- there is no question that there are going to be large-scale layoffs of staff that have been identified. At least eight to 10 colleges are reviewing campuses which are in communities --

Mr Wildman: And this will affect classroom education.

Dr Desbiens: It will affect the availability of post-secondary education in our communities. I can share with you that, as was indicated at Sheridan, almost every college is reviewing all of its programs and having to downsize the number of options that are available in our communities. These are direct effects not only of the provincial government --

Mr Wildman: No, I understand.

Dr Desbiens: About half of the gap the colleges are experiencing is because of federal reductions as well. We're getting a double whammy in the colleges right now, at the very time when in fact they're needed.

Mr Wildman: Could you predict -- I know it it's difficult to predict -- what you anticipate might be the effect on enrolment? I've quoted your colleague recently in estimates. She said it was about 5% to 7% down.

Dr Desbiens: Yes. We have 25 colleges in Ontario, and about five or six of those colleges will be growing, mainly because three of them are francophone colleges that are getting supplementary assistance to do so and a couple of the colleges have also been given assistance because they've been part of this realignment for the francophone colleges. So they do have plans to grow. The remaining colleges all are looking at 5% to 10% reductions in order to have the fit.

Mr Wildman: So despite the fact that you are anticipating an increased demand, an increased need for training, more people wishing and wanting to go, you anticipate a decline in enrolment?

Dr Desbiens: We anticipate a decline in enrolment because of having to cope with the reductions that we're receiving, yes.

Mr Wildman: That's, in essence, the exact contradiction I was referring to.

The Chair: Thank you very much for your presentation. We appreciate the Association of Colleges of Applied Arts and Technology for its presentation this afternoon.

I would like to inform the committee that we have submissions, although not presentations, from the Ontario Nurses' Association, from Harbour Management Services Ltd and from the Association of Canadian Distillers, which will be distributed to you by the clerk.

I would also be remiss if I didn't point out that it's Ms Marland's birthday today. Many happy returns.

Ms Lankin: Mr Chair, is it in order to sing Happy Birthday on Hansard?

The Chair: I suspect not.

Ms Lankin: Happy birthday, Margaret.

Mrs Marland: Thank you very much. I appreciate the extension of the greetings very much. I also appreciate the fact that you're not asking me which one.

Mr Colle: That won't be in Hansard.

Mrs Marland: Thanks.


The Chair: It's now my pleasure to introduce the Police Association of Ontario. We have 30 minutes. We'd appreciate it if you would identify yourselves as you open your remarks. Welcome to the committee.

Mr John Moor: Good afternoon and thank you, Mr Chairman, members of the committee. My name is John Moor and I'm the president of the Police Association of Ontario. I'm also a sergeant with the Windsor Police Service and I'm also the president of the Windsor Police Association. Accompanying me today are three of my colleagues who will also be speaking during this presentation. John Miller is the chairman of the Police Association of Ontario. Paul Walter is the president of the Metropolitan Toronto Police Association. Paul Bailey is the president of the York Regional Police Association.

The Police Association of Ontario is the umbrella organization for Ontario's 23,500 front-line police personnel. Our membership includes all front-line municipal and provincial police officers and front-line civilian support staff working within municipal police services.

We're here today to urge this government to keep your pre-election promise to maintain police funding, a promise that we took very seriously, a promise which convinced many people in the province of Ontario to cast their ballots in favour of a Mike Harris government. It's a promise that was broken by the government's financial statement of November 29 and the enabling legislation of Bill 26.

As you sit here today, municipalities and police service boards are working together in this province to reduce their police budgets, cutbacks that will be achieved by reducing the number of police officers and front-line staff through layoff and attrition.

Before, during and even after the election, the Mike Harris campaign team portrayed public safety as a foundation of the party's platform. Following are quotes from various documents that we, as well as the people across this province, have received from the government:

"Feeling unsafe in our homes and on our streets makes victims of us all." That's from the throne speech by the government.

"Take the cuffs off the police and put them on the criminals by giving the police the support and the tools they need to fight crime." That's from a campaign letter by Mike Harris.

"Funding for law enforcement and justice will be guaranteed." From the Common Sense Revolution.

"Funding restrictions have direct effects on the ability of police to meet the needs of their communities." "Police should be given greater priority and support, including the allocation of existing resources." That's from the Blueprint for Justice and Community Safety in Ontario.

The cuts announced on November 29 are proof beyond a reasonable doubt that this government has abandoned its promise to law enforcement. Frankly, our members are feeling betrayed.

On January 9 our members adopted a resolution calling for Premier Harris, Solicitor General Runciman and the government of Ontario to fulfil their election promises by placing a moratorium on reductions to police funding levels. Although we've met with the Premier, we've met with the Solicitor General and we've met with several cabinet ministers, our call has gone unanswered. Twice we appeared before the subcommittee on Bill 26. However, the government was too busy piecing together its own amendments to Bill 26 to attend to our concerns.

We're here today to tell you that calls for service in many police services are going unanswered and police officers are becoming too busy to attend to the number of calls that are being received. Reductions to police budgets will only serve to exacerbate these difficulties, compromise public safety and place our members at undue risk.

My colleagues will now elaborate on some of the concerns that we are facing in policing today.

Mr Paul Walter: Good afternoon, Mr Chair and committee members. My name is Paul Walter. I'm the president of the Metropolitan Toronto Police Association.

I would like to alert you to a very serious and potentially violent scenario which is unfolding across this province as we sit here today. As you know, the Ontario Public Service Employees Union is currently holding a strike vote for its members. Many observers continue to comment on the strategic political gain for this government in the event of a public sector strike. Given the nature of your jobs, I'm sure that most of you are focused on the political impact of a public service strike for the fortunes of your own political parties. Let me assure you that there are far more serious implications that you should be aware of and that you need to consider.

During the past few months, we have seen an escalation of violence by anti-government demonstrators. Many groups, frustrated by the actions of this government, are expressing their frustrations by violence. Just last week, four of our members, four police officers from Metropolitan Toronto, were hurt during a student protest in front of the Legislature. According to our analysis, this level of violence is likely to increase, at least in the short term. In Metropolitan Toronto, we simply do not have sufficient police personnel to redeploy police officers from important policing duties, such as tracking the serial killer. I could tell you right now, with the amount of police officers who are deployed looking for the serial killer in Scarborough, if we had a demonstration in front of Queen's Park, I doubt if there would be sufficient police personnel who could be mustered to provide the necessary level of protection if the demonstration got violent. In addition, for all of our members who must police these confrontations across this province, it means a significant increase in the likelihood of serious injury. Along with picket lines, and particulary with replacement workers, there's confrontation and police officers get injured.


So I would like to say to this government, in the very strongest of terms, that we are not going to compromise police officers' safety for the sake of and for the purpose of the negotiating agenda of this government. Police officers are not going to be used as tools for this government's negotiating position with OPSEU. I would much rather see a broken window in the front of the Legislature than a police officer with a broken nose.

Under Bill 7, which repeals the previous government's Bill 40, this government is currently in a position to hire replacement workers in the event of a strike. In fact, the head of the government's negotiating team, the Chair of Management Board, has stated publicly that replacement workers will be considered as part of the government's commitment to ensuring that public services are delivered.

The use of replacement workers leads to violence, as I said, and based on our experience, this form of violence, again, leads to injuries to police officers. I urge you as government members to consider the safety of our police members and not your political strategies when you make these decisions.

I'm also not very proud when I tell you that I live, and I'm sure some of you live, in the bank robbery capital of the world, Metropolitan Toronto, and that armed robberies have jumped by 164% in the past 10 years. I take absolutely no pleasure in reminding you that crimes of violence in Toronto have increased nearly twofold over the last 10 years, and it is saddening to me that women in our society are afraid to walk our streets, that our daughters are conscious of their own safety wherever they go and that many women are victims of violence in their own homes.

What disturbs me most is that it is only getting worse. While some analysts take comfort in the suggestion that certain crimes have decreased in the short term, the overwhelming evidence is that our society has become more violent and less safe over the last 10 years.

Front-line police officers and front-line support staff are well aware of the toll that crime has inflicted on our communities. Police personnel across Ontario took notice -- and believe me, we did take notice -- of the promises made by now-Premier Harris and his party colleagues during the election.

During the election, the Metropolitan Toronto Police Association forwarded questionnaires to all Metro area candidates. Those candidates who responded in a positive manner on law and order issues were endorsed by the association in a full-page ad in the Sunday Sun. The ad was not only intended to signal our support for this government's position on law and order issues, but as a public statement of our determination to hold the endorsed candidates, some of whom are sitting here today, accountable on behalf of all Ontarians.

I can only tell you now that this level of support by our police association and by the police members across this province was dealt a dramatic blow, and I say this sadly to the government members. Police personnel across this province feel a tremendous sense of betrayal, and that betrayal is at the hands of this government. In discussions at Police Association of Ontario meetings and meetings of the Metropolitan Toronto Police Association, police staff are reacting with anger at the anticipated funding cuts and changes introduced through Bill 26.

As crime rates double, police strength in my community, in Metropolitan Toronto, has dropped by 700 officers in the last five years; 250 more police officers are expected to retire in Metro Toronto under an early retirement incentive package by the end of March, without adequate plans to replace them. In fact, there are no plans to replace them. We already have 300 fewer police officers today than we did 20 years ago. Given the growth in crime rates and growth in population, this is truly frightening. As police officers, we find it unacceptable that our citizens do not feel safe in their own communities. It is clear that priorities must change. Mike Harris told us that policing would be given renewed priority and support. We're asking him and you, as the government, to deliver on that promise.

Police management and police services boards may or may not tell you that all is well. You are supposed to be comforted when they tell you of their commitment to front-line policing. You are to take solace in the suggestion that our streets are safer than many American cities whose inner core have been gutted by crime. Yet while our neighbours to the south get tougher on crime, tougher on violence and tougher on parole, we continue to walk down the path of social tolerance and naïveté, nurturing an environment which deters respect for the property of others, numbs us to violence against our neighbours and invites organized criminals to find haven in our backyards.

Our capacity to respond to priority calls continues to be diminished. Investigative units like the sexual assault squad, drug enforcement, detective units and street crime units are reduced to augment front-line staff. Police managers move magnets on their deployment charts like the Dutch boy moving his finger from hole to hole in the dike. We may be able to stop one leak, only to see others develop slightly out of our reach. And I really ask the question, is this the type of protection we should expect in our communities? Obviously not.

Look out your windows. Read the papers. Talk to your constituents. We're not fearmongering or using scare tactics. Why is the alarm industry thriving? Why are many women carrying cellular telephones and personal security alarms? As a bit of an aside, I purchased a cell phone for my wife because I am concerned about her safety. Look out your windows, read the papers and talk to your neighbours and know that escalating crime is making them victims because they don't feel safe in their own homes.

The government members of this committee have the ability to restore confidence in this government by fulfilling your election promise to maintain police funding. Let me close by reminding you of the promise made in the Common Sense Revolution, which states very clearly, and I'm sure you're all very well aware of it: "The people of Ontario are rightly concerned about community safety in our province, particularly the increasing incidence of violent crime." -- and this is a direct quote from the Premier -- "That is why funding for law enforcement and justice will be guaranteed."

Mr John Miller: Mr Chair and members of the committee, my name is John Miller. I am chairman of the board of directors of the Police Association of Ontario and a director with the Ontario Provincial Police Association. I am also a sergeant with the OPP assigned to the Huronia West detachment at Wasaga Beach.

As you have heard earlier this week, the OPP has been managing change for the past several years by implementing a comprehensive organizational review to identify efficiencies and areas that could be restructured to realize savings. This review was held out to others as a model for change and efficiency. It has become, in our view, a model of trying to do more with less, stretching the thin blue line even thinner.

Now the government seems intent on breaking that line beyond repair. Rumoured cuts to the OPP range from 10% to 20%. It is beyond comprehension how this government can abandon its promises so quickly and turn the knife on the very people they undertook to support.

We know that these are difficult times, and in difficult times people have to identify their priorities and stick to them. This government told us that policing was a priority. It makes sense: common sense. People will not set up businesses in communities that are ravaged with crime. Tourists will not flock to communities where they do not feel safe to walk the streets.

It took years for police to quell the problems at Wasaga Beach. Outlaw motorcycle gangs and rowdy troublemakers were known to favour this area, which served only to deter law-abiding families from making this their vacation getaway. Over these years a significant police presence has returned the beach to the law-abiding citizens and families and reinforced the sense of public safety. Unfortunately, budget cuts have resulted in reductions in staff allocated to this area, and the outlaw motorcycle gangs and rowdy troublemakers are starting to re-establish themselves in this area. We no longer have the edge.

In the singleminded focus to reduce costs, one thing has been forgotten: A reduced presence of police in our communities serves only to invite increased rowdiness, vandalism, property crime and, ultimately, violence, at a time when violence in our communities continues to be on the rise.

In many communities across Ontario, including Wasaga Beach, the OPP provides policing services free of charge. One method of augmenting existing police resources and bringing balance to the funding process would be to require that all communities which receive police services throughout the province pay a proportionate share of those costs. Money raised should be invested into improving community safety and revitalizing policing.

Another issue of importance to our members is the impact of a looming public service strike on police resources. At last week's Police Association of Ontario membership meeting, representatives from across Ontario voted unanimously to request that the province provide funding to cover all costs incurred by police forces, including the OPP, in responding to a public service strike.

Unfortunately, policing in Ontario is ruled by a "rob Peter to pay Paul" approach to managing resources. Without sufficient staff and money to address all policing needs in our communities, increased resources to a particular priority come only at the sacrifice of another. Officers who are called in to provide security at the Legislature or in protests across the province are pulled from their regular duties. This means that either their regular jobs are not being done while they are away or, if staff are required, they are called in on overtime.

If police officers are required to attend picket lines, deal with disputes or provide access to those who cross the picket line, these officers will be called in from other assignments and duties. More calls for service may go unanswered. Other services are placed on the back burner, and the thin blue line will be spread even thinner. It is a deplorable state of affairs which will only deteriorate further if the government does not renew its previous commitments to law enforcement and community safety.


Mr Paul Bailey: Good afternoon. I'm Paul Bailey and I am the president of the York Regional Police Association. I am also a police officer. It comes as a great surprise to me that police in Ontario would have to resort to attending public hearings to plead for resources, begging the government to keep its promises and provide the necessary resources and support to police across this province.

Of significant concern in my area, across the Golden Horseshoe, and in other areas of this province is the proliferation of organized crime. Organized crime represents, worldwide, $750 billion annually. While Mike Harris may tell you that Ontario has not been open for business for a number of years, the fact is that business has been extremely promising and rewarding for organized criminals. What other business ventures offer such rewards with so very little risk?

York region is not unique in the fact that a variety of organized criminals have established lucrative operations within our communities. In addition to the well-rooted and commonly known Italian Mafias and outlaw motorcycle gangs, we also offer a range of opportunities for eastern European criminals known as the Russian gangs, Colombians such as the Medellin cartel, Jamaican posses and Asian gangs like the Triads.

Depleted resources, soft approach to sentencing, weak monetary and immigration laws and the proximity and ease of entry to the United States present a wide range of opportunities for organized crime. Unfortunately, while the business opportunities for these criminals continue to flourish, the resources available to the police in monitoring and targeting these activities have been eroded to unacceptable levels.

Each organized criminal group brings its own brand of violence to its community. Each has a code of silence, which keeps law-abiding citizens within their communities living in fear, and each has shown resilience to police penetration.

Consider for a moment the violence and aggression that erupted in Quebec last year -- I'm sure most of you heard about that -- as rival motorcycle gangs wrestled for control of the lucrative spoils. An innocent child was killed in Quebec, and the effects of this violence also spilled over into Ontario, including where I work in the region of York. Newspaper articles as recent as this past Sunday's Toronto Sun vividly portrayed the activity of these callous criminals and discussed in detail their expected infiltration into Toronto and the surrounding regions in the months ahead.

These terrorists have put the citizens of Ontario on notice that they intend to set up business in Mike Harris's Ontario and have demonstrated that they will react with violence to anyone who stands in their way, this at a time when police resources are already stretched, when a public service strike threatens to increase the demands placed on our officers and when Mike Harris's government's cuts are being meted out throughout police services. Ontario is ripe for the picking.

The Quebec government responded to the tragedies with increased resources. Is the Ontario government going to wait for blood to be spilled before police funding levels are increased? It appears that you are more concerned with beefing up your own security than living up to your promises to improve levels of safety within our communities.

I would be remiss if I did not comment on another issue which is of concern to many police personnel in the greater Toronto area, and that is the suggestions of a "superforce" for the GTA. It is the view of my association and the Police Association of Ontario that the most cost-effective method of delivering police services is further refinement of existing regional models.

The citizens of Markham, Brampton, Whitby and Milton should not see their policing levels depleted further to provide an infusion of needed resources into the Metro area. While there may be further efficiencies that can be found within our regional forces, a move to a superforce would be counterproductive and actually increase your capital expenditures through complex technological support systems for the larger entity. Most of the police services within the GTA have already devoted significant resources to increase their technological support systems based upon their own needs and independent of their counterparts.

Policing is labour-intensive. While police managers promote community policing as a goal, the fact remains that we continue to distance the working police officers from the communities they serve. As of today, our chief announced that he was cutting our Street Beat program, which teaches the kids in the schools. He's taking members from our morality unit and our intelligence unit and putting them back out in cars because we do not have enough policemen on the front line. Amalgamating the police services into the GTA model will only serve to remove the police and the decision-makers further away from the community.

Regional police forces in the GTA sit within the optimum range on the bell curve of efficiency: large enough to exploit any efficiencies which could be found through reduced administration, yet not so large as to reduce community control and autonomy. For the citizens of York, there is nothing to be gained and much to be lost by the creation of this GTA force. Unfortunately, too many politicians seem eager to hold out change as solutions without sufficient consideration of the impact of such change. As you consider your budget for the coming year, I urge you to take great care in the deliberations.

I should also mention that on April 1 York Regional Police is taking over Highway 11 from Steeles Avenue to Bradford, approximately 35 kilometres of the second-busiest highway in Ontario. We did not get one dollar of government funding and we didn't get a one-policeman increase in our budget for 1996 or 1997. So we're taking over a highway that now requires over 30 policemen and we didn't get one cent or one extra police officer to do that job.

Mr Moor: The evidence is overwhelming, I believe. The examples today are but a few of the problems plaguing policing. We could provide you with many, many more examples. As my colleagues have told you, we expected more from this government. We truly believed that you were committed to improving community safety. Cutting police budgets only serves one group of individuals, and that's the criminals. It doesn't improve community safety; it reduces it.

We have three requests for this committee:

First, place a moratorium on reductions to all police budgets, including the OPP's, until such time as the Solicitor General's ministry has, in collaboration with the police community, completed its review of police service delivery and determined an appropriate course of action.

Second, we are asking this government to pay all costs incurred by police services, including the OPP service, in responding to a public service strike.

Finally, keep your promises, now and in the future. Fulfil the guarantee of funding for law enforcement and policing. Reinvest savings found within the justice system to improve community safety. Work with us, not against us, in the fight against crime.

Mr Chairman, just before I close, I'd like to bring your attention to your own government's Party Policy that's put out on the Internet, which we just accessed this morning or it would have formed part of our presentation. If you look through it, all of it deals with exactly what we've talked about your government doing: telling the public one thing and doing something else.

These four pages before you speak about safety in our community, safety of the public, what you intended to do if elected, and now that you are elected, to maintain that. There are just a couple of areas that I'd draw your attention to.

On the second page, under "Violence Against Women," your government makes the statement, "Every woman has the right to feel secure in her home, community and workplace." The last paragraph is really interesting: "A Mike Harris government will make our streets safer and will deal with the products which incite or glorify violence...." I'd ask you, Mr Chair, if you could tell us what your government has done to live up to that.

If you go to the third page, under "Support for Police," all four points are very appropriate. You lead off knowing what seniors and individuals in this province want: They want safety in their streets. In the last line you indicate, "A Mike Harris government will guarantee funding for law enforcement in order to protect individuals, families and their property."

On the last page of this document, the first line: "A Mike Harris government will pass a Victims' Bill of Rights to ensure that victims aren't victimized a second time...."

We're here again, Mr Chairman, to tell you and your government members that you're not living up to those promises. You're not living up to any of the guarantees that were made to us.

Mrs Marland: We passed the bill of rights.

Mr Moor: Exactly. You passed the bill of rights, and the bill of rights is only as good as the people who are there to make sure it's working. If there are no police officers out on the street to respond to these people when they become victims, you can have all the bills you want and it's not going to help anybody, I would suggest. That's exactly what's happening here.

You come out with statements like that. You told everybody you were going to maintain funding for law enforcement, and we've yet to receive, from any member of this government to whom we've spoken, one assurance that funding was going to be maintained. There is not one member from the Premier on down who's indicated what steps were being taken to ensure that the funding levels were maintained. Thank you very much.

Ms Castrilli: On a point of order, Mr Chairman: Mrs Marland mentioned the Victims' Bill of Rights. The Victims' Bill of Rights has been passed, but subject to available funding, which is akin to not passing a meaningful act at all.

The Chair: Given our time constraints, I wonder if we could ask for one short question from each party. We'll start with the opposition.

Mr Colle: Mr Chair, on a point of order: This is a such an important issue. We're talking about an issue that hits every Ontarian. I wonder if it would be in order to extend the time so we can respond to some of these very serious concerns that the police officers from across Ontario have brought forward. I would think that's in order, that we have unanimous consent for an extension to have 15 minutes.

The Chair: Is there unanimous consent? No.

Mr Colle: I think there is unanimous consent.

The Chair: Is there unanimous consent? I thought I heard a no. I'm sorry.

Ms Bassett: Could we have a five-minute recess to discuss? It's going to hold up everybody.

The Chair: Okay, there's a five-minute recess.

The committee recessed from 1603 to 1605.

The Chair: Did I hear a motion that we'd have five minutes each from each party?

Mr Spina: So moved.

The Chair: So moved, and I take it there's general agreement from the committee? Thank you very much. We'll start with the opposition.

Mr Kwinter: I was hoping I'd be able to ask Mr Walter a question.

Ms Lankin: Mr Chair, I think you need to wait for Mr Walter to return.

Mr Carr: Do you want to change the order and I'll go first?

Ms Lankin: Sure.

Mr Carr: Thank you for the accommodation, and thank you very much, gentlemen, for a fine presentation. Obviously, the sincerity and the compassion comes through. I know you're fighting on behalf of your members.

My question is also particularly for Paul. As you know, in Ontario we have a commission which, Paul, your chief has already said he will go to if there are cuts. What do you see happening if there are any cuts with the budgets by municipal governments and they go to the commission? What do you see happening if in fact that process takes place?

Mr Walter: With the greatest of respect to the OCCPS, which is the civilian authority on police services, I would suggest that whatever government direction they receive they will take with regard to funding. Not to impugn their integrity, but they will obviously take their lead from this government if an application is made with regard to reduced funding.

Mr Carr: Do you see that Metro -- and I haven't followed the budget deliberations going on now -- is heading towards that?

Mr Walter: No. What I see happening is that a retirement incentive package has been put forward. Of a force of 5,000 police officers and 2,000 civilian members, over 2,000 people who have made inquiries and approximately 200 people have already committed to the retirement package. Interviews are taking an extremely long time. The projections are that 325 to 350 people will be taking the retirement, of which about 50 will be civilian members. There are no plans to replace these people. There is a long-range projection in hopes of hiring 150 of what they call cadets-in-training next December so it will form part of the 1997 budget, but by the time they are trained and on the street it will probably be summer 1997.

I'm having a difficult time being able to comprehend what's happening to policing in Metropolitan Toronto. The calls for service are just not being responded to. A friend of mine had an $8,000 laptop computer stolen from her car last Friday night, stolen from the Toronto-Dominion Centre. She called the police and they advised her: "We don't have any police personnel available. Possibly on Monday someone can come around to your business premises and take a report, or alternatively, we can take the report over the phone."

Most calls for service now in Metro Toronto, unless it involves violence, if the theft is less than $10,000, you won't see a police officer. Reports of motor vehicles being stolen are being taken over the phone. There is no investigation done at the scene. There could very well be a fraud by whoever's calling in.

There are so many instances when thefts are reported that simple police investigation, something that maybe the complainant isn't aware of, can determine who the culprit and who the suspect is. For instance, perhaps it's an elderly woman reporting her jewellery stolen, and all we do is check back and find out that she had a student painting firm come in and we'll find out who those individuals are. I'm thinking of particular cases where that in fact did happen. Now there's no police officer attending, there'll be no resolution to that crime and for the most part, a lot of people are just not reporting crime.

Mr Carr: Getting back to the budget process for a minute, I think the safeguards are in place now with Metro. As you know, their debate is that some councils want to cut more but the mere threat of being able to, as the chief has said, go to the commission may prevent that. I see one head shaking no. Your belief is that you think Metro will make the cuts to policing?

Mr Walter: The entire process with regard to police funding of Metropolitan Toronto is budget-driven. There were and are no plans. There are some just starting to be formulated now with regard to long-range police hiring and police presence in Metropolitan Toronto, but it was strictly the dollars, strictly budget and to hell with service, to hell with the type of response.

Before other committees, I've recited instances where a cab driver was held up with a knife, four suspects. He called for the police for an hour and a half to respond. There was no response, and eventually that taxi driver was directed to 54 division to report the crime there.

Other statistics, and we can show you the printouts, show that there are no police officers in numerous divisions at any given time. In one where there was a stabbing witnessed by an eight-year-old boy -- the son, as a matter of fact -- there were no police units available, and no police units available in seven different divisions within the proximity of 11 Division where the stabbing occurred.

Police officers don't want to work under these conditions. When I go into a division now, police officers don't ask me about salary increases or pensions or vacations. Police officers, a lot of them, are telling me: "I'm afraid. I'm afraid when I'm out on the street because I know there isn't any backup." If there's a violent situation -- and with the proliferation of firearms, there are gunshots every night -- they are concerned for their own safety. Two or three years ago I wouldn't have heard that, but there are so few police officers on the street now that they know when they get into a jackpot, to use street language, there's not going to be another police officer there or the likelihood of another police officer backing them up is remote.

We have a recipe here for some police unrest and police strife. God, I just urge this government, don't remain focused with tax cuts down the road. We're concerned about public safety. Please, please do whatever you can in caucus to make sure that comes first and foremost, that police funding is maintained.

Ms Castrilli: I am struck by the comments you make about the incidence of violence. I was here last week during the student protest, both inside and outside. While I didn't feel in any imminent danger, I must tell you I was very grateful to an OPP officer who escorted me in the building to collect my things and out again.

I have one simple question. I'd like to go back to the Common Sense Revolution and something you stated as well. I have the sixth edition, and right here in big, bold print it says, "funding for law enforcement and justice will be guaranteed." What did you think that meant before the election?

Mr Walter: Just exactly what it says.

Ms Castrilli: Would you think most people believed that in fact that's what it said, it was guaranteed?

Mr Walter: I feel a little embarrassed, as a police officer for quite a few years, and so have my colleagues --

Ms Lankin: You're good at spotting a con job.

Mr Walter: Frances, you came pretty close to taking the words out of my mouth, and that's what's happened here. In our business, we negotiate and we take people at their word and everything isn't written down, because a lot goes between an agreement and finally getting a written agreement. We believed what we were told. We had full confidence that what we were being told -- and it wasn't spontaneous; it was over a period of a couple of years that we were being told this, and we bought into it. We sent out circulars, and I know there are members present who responded to that and gave a commitment to funding levels being maintained.

Mr Colle: I have a quick question then. I guess the message here you want to give to Ernie Eves -- he's going to make the decision on the tax cut, because this is all being driven by the tax cut. I guess what you're trying to say -- I know what my people are saying in my area. They're saying: "I would rather have a police officer on the corner than a tax cut. I want policing first, and don't jeopardize my safety for a tax cut that's going to go to people who might not spend it in the community."

Mr Walter: Obviously, we agree with that, and I'm not going to get into the entire budget process, but obviously tax cuts, if they are to come, should come for those in the lower-income levels who are going to recirculate it back into the economy. I think for the rest of us we can sort of wait out the period until the deficit has been properly-addressed. I guess that's the best way to describe it.

I also wonder too, and it's another bit of an aside, but I hear Chair Tonks today is making a recommendation for a 1% increase in the mill rate of Metropolitan Toronto to provide for the Sheppard subway. That represents $6 to $10 per household. If we in policing had that money, which would generate over $250 million, we wouldn't be here today. We wouldn't be making this plea to you. I'm just wondering, what the hell's the sense in having a subway if the people who are riding it aren't going to feel safe in riding it?

Mr Kwinter: Paul, earlier today we had a presentation by the Board of Trade, and one of its major points was that credibility is at stake on the fact that if the government doesn't follow through on its tax cut, its credibility is at stake. When you take a look at education, health care and policing, they've already lost their credibility, and you'd wonder why they would zero in on the one thing where they must maintain their credibility is on the tax cut. Do you have any comment on that?

Mr Colle: They still have credibility to the police department.

Mr Walter: I guess where we come from, when you make a commitment, unless there are forces stronger than yourself, you maintain that commitment. You maintain that undertaking. If you're individuals of integrity, then you won't compromise your integrity, you'll deliver on what it is that you promised.

Mr Kwinter: If I could just make one last constructive comment, I think your presentation would have had a lot more force if some of the references to ethnic associations with crime had been removed. I think you may be doing a disservice by calling it the Italian Mafia as opposed to Mafia. I just think it adds an unnecessary component to what I thought was an excellent presentation.

Mrs Marland: I agree.

Ms Lankin: I think your last comment -- and any of you might want to add to Paul's comments on this -- with respect to integrity and credibility of government and delivering on promises is an important one, but the problem that this government has is that it made a promise that never could be kept. They told the people of Ontario that you can have a tax cut, you can have a deficit reduced in this length of time, and we can do it without cutting health care, classroom education or law enforcement. That was never doable, and there were some other folks in the political arena who tried to make that point -- unsuccessfully, granted -- but it was never doable.

So in fact the government is going to have to break a promise, and I guess it's a question of trying to convince them what's the morally and ethically right thing to do when you have to -- in light of circumstances that are different than what you thought or what you knew or what you told people, whatever that is, what's the right promise to break?

My own inclination is that for the sake of our communities, not just the safety of our communities but the health of our communities and the future of our children, the promise should be to maintain the health care, classroom education and law enforcement commitment that they made and to put off the tax break until some point in time when we can afford it. I wonder if any of you would like to add to Paul's comments, or, Paul, if you have anything more to say on that.


Mr Moor: I would certainly like to add to it, because it started right with the government member to my left who made his comments earlier that -- what we've maintained in all our presentations is that commitments, as you indicated, have been made to the police community. They were made quite clear. They were made not only to us but to the public.

Now we're here saying that the funding's not there and that we are witnessing police services across this province being cut, being reduced, and this isn't fearmongering or it's not overemphasizing. But now we're told, or we're led to believe from the government, that there's a safety net put in place, that OCCPS will review any disagreements over police budgets that may be brought forward by police services boards.

That's not true, not in this case, because what's happening -- only half the story came out -- what's happened here is, all the appointments, or very many of the appointments to police services boards that were made during the previous government, have not been reappointed. Those appointments are sitting vacant in many communities.

In my own community, the chair of the Ontario police services board came from my community in Windsor. Her appointment wasn't renewed. Our police services board is now controlled by council appointees. They're not going to object to a budget that council's --

Mr Colle: Conflict of interest.

Mr Moor: Exactly. Council's approving it.

Ms Lankin: Mrs Tepperman you're speaking about?

Mr Moor: Exactly. So to say that OCCPS is there as a safety net for us, it's not there. In many, many localities in this province, it's not there. So we're getting the same commitments that aren't being lived up to.

Ms Lankin: I'd also like to pick up on Mr Carr's comments, because it sounded to me an awful lot like deflecting the attention to Metro and Metro council's decision with respect to the police budget when in fact every council is going to be forced with making horrendously difficult decisions as a result of massive cuts in funding from the provincial level to the municipality. Unless they write into that what areas are sacrosanct, like law enforcement, there is no way this government could deliver on its promise not to touch law enforcement.

But let me come closer to home. John, this is directed at you. The one thing I learned around policing in the period of time I was in government was a lot more about the OPP directly, because as a member of cabinet, not the Solicitor General, we had a direct relationship in looking at what was happening there, and certainly in Mr O'Grady's representations on behalf of the force and the need for more officers.

The recent articles that have been in the paper have quoted people from Mr Runciman's office saying that they couldn't guarantee there wouldn't be any cuts and in fact quoted the Solicitor General, Mr Runciman himself, saying that the Ontario Provincial Police will be subject to the same kind of spending cuts as other areas of government. He hinted that even investigative units of the provincial force could feel the effects.

In many communities, there are no other police forces. It is the OPP.

Mr Moor: That's correct.

Ms Lankin: And I don't think it's true that in rural or small-town Ontario there's less crime. It's a different kind of crime, but there's a lot of problems out there and a lot of communities feeling unsafe.

Could you comment on the Solicitor General's, Mr Runciman's, indications that you're going to be facing the same cuts as any other area of government and how that accords with the promise that you were given?

Mr Miller: At the present time, our resources are stretched as thin as they can get. Response times -- much like Metro, we don't respond to a lot of calls now. There's a threshold when you'll go out to a break-and-enter or a theft, and a lot of that was driven by resources. We just didn't have the personnel to go around, and if they're going to stretch or cut our budgets even further, I don't know what we're going to do. We're going to have start cutting investigative expertise, such as our specialized units that complement the officers who are out on the road, such as identification, surveillance units and things like that that go towards help solving some crimes. Those are the first things that'll be cut, but they're support services that keep the front-line officers active in solving crime, and it's going to affect rural Ontario.

The Chair: Thank you very much. The time has expired and I do thank the Police Association of Ontario for coming in.

Mr Spina: Point of privilege, Mr Chair, please.

The Chair: I don't believe there are points of privilege in committee.

Mr Spina: I want to make a statement to go on the record for the information of the entire committee. Peel Regional Police has just hired, last week, 30 new officers.

Ms Lankin: Oh, please, could we have a response from York region on that? If Mr Spina wants to put things on the record, let's talk about the population growth in York region and how many new officers they've had over the last number of years and what it means.

Mr Bailey: We've had 55% growth in 10 years in York region. In the last five years, we've hired 30 officers. Our population's going up 55%.

Mr Spina: Good luck.

Ms Lankin: You can't defend yourself on this one, Mr Spina.

The Chair: I appreciate the emotion of this subject, as is evident with the committee, and that emotion in this situation will not go unnoticed in our report, I can assure you. Thank you very much for appearing.


The Chair: The Ontario Chamber of Commerce is the next group, and I welcome you to the committee. I apologize for the meeting running somewhat late today. We have had an interesting afternoon. Mr Cunningham, thank you for joining us today. If you would introduce your associate, we do have 30 minutes to spend together.

Mr Wallace Kenny: Actually, I'll introduce us both. My name is Wallace Kenny and I'm the president of the Ontario Chamber of Commerce, and with me today is Ian Cunningham, our director of policy.

The Ontario chamber, if you are not aware, and I'm sure most of you are, is the largest business organization in the province and we have 200 federated community chambers. The Toronto Board of Trade I think spoke to you earlier in the day, one of our members. We have representation from small, medium and large business and we provide millions of jobs in Ontario.

I want to talk to you about a few basic areas today, the first being some general comments on the economy and where our membership sees us headed in terms of growth.

Basically speaking, the consensus of our members is that we can expect only weak or modest growth of approximately 2% to 3% over the next several years. Much of that economic growth we think is going to be export-driven. That means that we're not going to have the same sales tax revenues as we might otherwise expect from that. Until such time as some of the cost cutting kicks in and some of the benefits kick in, I think we can anticipate that kind of modest growth.

Now, I think that means that what we have to realize is we're going to need to be extremely conservative, in the small-c sense, in the preparation of our revenue forecasts, and I would urge the government to take that into account in the budgetary process.

For several years, the primary policy themes of the Ontario chamber have been threefold: Sustainable government, competitive taxation and competitive regulation.

When we speak of sustainable government, we speak about a government which can remain strong and viable into the future and one that understands the role of the private sector in creating jobs and economic activity in this province, which provide the tax revenues, which provide our services. Those things are fundamental to us, and I don't think one can have a sustainable government without recognizing that.

Competitive taxation means simply that if we are going to attract business and keep business in this province, we must have a regime of taxes which places the province of Ontario in a similar position to its competitors, and that doesn't mean exactly the same tax laws but it means in total a set of taxes that allow us to operate and attract business.

Similarly, competitive regulation is simply regulation which does not unduly burden Ontario relative to other jurisdictions. It's a wonderful thing to suggest that one ought to regulate this or regulate that, and we've seen lots of that in the past, but there has to be a recognition that there is an envelope that one must stay inside of.

We in the Ontario Chamber of Commerce applaud the actions of the current government in restructuring and right-sizing government to create it in such a way that it is going to be sustainable for the future, and that is for the future generations of Ontario. It's not a lot of sense to put a lot of laws on the books and provide a lot of services that you frankly can't afford, and we've seen a lot of that happening in the past, to the extent that we're now spending this $9 billion to $10 billion extra a year. So we applaud the actions of the government in attempting to get us back to some level field where we can see some prosperity in the future.


We think the government understands that the route to sustainability has no room for tax increases, but instead involves reinventing the way public programs and services are provided, and we commend the government for the expenditure reductions announced in the Ontario fiscal overview in July and also in the 1995 fiscal and economic statement in November. We believe you're moving in the right direction, towards sustainable government, and we recommend that you maintain that course of action.

It should be recognized that at any time when one is required to make those kinds of cuts and deal with those kinds of decisions, you are going to make mistakes from time to time. The micro-issues aren't necessarily always going to turn out the way you want, and I don't think you should be embarrassed in fine-tuning those cuts and refining where you're going to make those savings over the course of time. As a government, you've got to recognize that the big picture and the small picture won't always come together, and from a business point of view we anticipate that you will be sensitive to that.

On the matter of competitive taxation, we believe that WCB premiums having been frozen, pending a comprehensive review of that system, and the hydro rates having been frozen, also pending review and restructuring of our electrical power system, are good starting points. In the medium term we believe there is room for both of those to move lower to make Ontario more competitive.

There was a significant amount of work done by the business community under the auspices of the Premier's Labour-Management Advisory Committee, and frankly I have rarely seen such a commitment to a subject as that group put towards workers' compensation. There were some very viable solutions put forward to bring our workers' compensation premiums into line, although the previous government chose not to implement those recommendations, but I would commend them to you because they are a comprehensive solution to that problem. It is a significant problem at all levels of business. Workers' compensation premiums are out of sight and it is discouraging further investment in the province.

Further, we believe the elimination of the employer health tax on the first $400,000 of payroll will remove a barrier to new job creation. It is very important to recognize that payroll taxes are a disincentive to job growth. I have heard that statement made by this government. We believe that it recognizes that, but we need action in that regard if we intend to create the jobs that are going to give us the revenues which are going to provide us the services we all desire.

Put bluntly, we believe Ontarians are too highly taxed; I think Ontarians generally believe we're too highly taxed. I don't think that's a surprise to anybody. Since taking office about seven months ago, the government has made some headway in relieving Ontario business from unnecessary regulation and some burdensome paperwork. We are very interested to see what emerges from the Removing Barriers to Doing Business in Ontario study, which frankly identified a wide range of impediments to business success. We are eager to see where that takes us, because if we can restart the economic engine of Ontario we are going to be in a much better shape in the future in terms of revenues.

Harmonization of the PST and the GST: We raise this subject. It may be a dull subject, it may not be a subject that seems to get a lot of press these days, but we see it as a critical subject which has to be addressed by this government. We continue to support the harmonization of the federal goods and services tax and provincial sales taxes. Not only does it reduce the paper burden, but also the cost of compliance for business, and it provides a simple, more efficient administration for government. It can also provide some increased consumer spending if it is done in the appropriate way. The delay in finding a solution to this issue risks the re-emergence of a manufacturers' sales tax, something which crippled our domestic manufacturers in their own markets. This is not something that can be placed on the back burner; it's something that we think the government ought to be addressing, and ought to be addressing in 1996.

I'd like to make some comments about the proposed personal income tax reduction. During the election campaign the government campaigned on a platform of policy proposals which were outlined in the Common Sense Revolution. In that document it stated: "Our tax rates, which are currently among the highest in North America, will be cut by 30% over three years, with half of that cut coming in the first year. This plan will give Ontario the lowest provincial income tax rates in Canada." My understanding, actually, is that that would take us back to 1990 rates, which isn't exactly what I'd call a dramatic shift; it's actually kind of shocking to think that a 30% tax rate cut would take us back to 1990 rates. I wonder how we increased those rates over that period of time quite so quickly.

We applaud the government's determination to live up to its election promise and commitment to reduce provincial income tax rates. We see that as a significant benefit to business. Government doesn't spend quite the same kind of money in the retail sector as do consumers and we see that some reduction in provincial income taxes should boost consumer confidence and indeed provide some real increases to people who have not had their disposable income increased in several years. We also think that it will signal a better place for others to come and grow businesses and build careers.

We as a chamber do believe, however, the primary focus of fiscal policy must be the elimination of the deficit by March 31, 2001, as promised by the government. That is the single most formidable impediment to investment and job creation. In addition, debt service charges utilize increasing amounts of tax revenue and the debt pushes interest rates up and creates a high-risk premium on Ontario investment. This is all not news. I think we have to continue to recognize and continue to focus on the basic things that this government has accepted as its goals. So we urge you to do that.

We do believe it is possible to reduce the deficit and at the same time implement the provincial income tax cut. Having said that, we also think it would be prudent on the part of the Minister of Finance to prepare a contingency plan in the event that revenues do not materialize as forecast, and that contingency plan should require ministries to address where they will get the further savings necessary in order to meet the deficit-reduction goals.

In closing, let me say that the Ontario chamber is pleased with the fiscal direction the government has taken. The government has recognized that we are at a crisis point in Ontario. Had we had that recognition 10 years ago, we might not be sitting here today with quite the problem on our hands. This is nothing new for the Ontario Chamber of Commerce. We've been saying these kinds of things and been making these submissions for a long period of time. We in fact are thankful that, to some extent, the government is moving in the appropriate direction. We are not in a situation now where one can tinker or tweak or refine the status quo; it is just simply not on. So we are confident that the general direction that you're moving in is a good one and we think that it will create a more prosperous Ontario.


Ms Lankin: Thank you very much, Wallace. It's good to see you. I appreciate your thoughts on the budget process. I actually wish that we had much more information in front of us in terms of medium- and long-term projections on expenditures and revenues so that we were giving concrete advice about what moves and what measures, and to what extent, the government should be taking as opposed to a general discussion about the general direction of the government, because I think that's not as helpful. I think it's a shame, in a sense. Whether or not you agreed with the previous government's directions, the opening up of the budgeting process and the provision of information is something I hope we would all demand of this government, if not this time, at least as we head into future budget rounds.

In your presentation, you said you support the personal income tax cut, but I think -- I'm paraphrasing, obviously -- I heard you say, "If push comes to shove, you're going to miss your deficit targets as a result of this."

Mr Kenny: No. If push comes to shove, I think that one ought to look at how government ought to be cut further in order to ensure that these consumers can get money back in their pockets. It's a question of how you distribute this money, whether you put it in the hands of consumers or leave it in the hands of government and where it is going to do the most good. You can have a raging philosophical debate about that issue. We happen to think that from a business perspective it's better in the hands of the consumers than in the hands of government.

Ms Lankin: From an ideological perspective and/or a business perspective and/or a general approach, I understand the position that you put forward. Here's the query that I have, and we've been given no information from the government to answer these concerns. Every economist who has come forward whom we've questioned has generally said that the tax cut, the way it's proposed, which would provide more income to higher-level earners in our economy -- that there will be a lot of what they call "leakage" from that; ie, that it's not going to all go back into the economy, that there will be certainly debt reduction, there will be additional savings, there will be investments that could be offshore or vacations or whatever. It's not necessarily going to be, cent for cent, dollar for dollar, stimulative in terms of the productive capacity of our economy.

At the middle-income and lower-income levels, where we see a downward pressure on wages, where the money that's coming back from the tax cut is minimal and largely offset by additional user fees, where that money would actually immediately go back into the economy and be more stimulative and affect that, they're not going to have the disposable income to do it.

So my problem is that we know there will be an economic drag from further cuts in order to accomplish the tax cut, right? I'm not talking about the cuts they've already announced, but if they have to do more, like you say, there's going to be an economic drag from that. The stimulus effect of the tax cut is certainly unknown, and anyone who said there will be says it won't be for two or three years out. Is there not a danger of a slide back into a recessionary state at this point in time?

Mr Kenny: There's a danger doing many things. I don't think the tax cut is going to be something that's going to encourage us sliding back into a recessionary situation. I actually don't think the government cuts are likely to do that either. We've heard a lot in the press about the government cuts, but Ontario created jobs in 1995 and it's anticipated it will create jobs in 1996, so I'm not sure if you can look at those issues in isolation.

We would disagree in terms of whether or not the tax cut for low- and middle-income earners will be eaten up by user fees. I think there are significant cuts being proposed to that group, cuts that those people will consider to be significant and will likely spend. I think that obviously is where those tax cuts ought to be focused, as opposed to the high-end earners. But there's a mistake when one talks about how that money gets put back into the economy, because if somebody pays down debt, that money is available for somebody else to borrow. If that money is invested, that money can be invested in Canadian business. So there are a variety of ways that money can be used in the economy; it's not simply at the consumer level. What you want to do is free up money so that the private sector, the private citizen, has money available to it as opposed to the government. That's something the chamber applauds.

The Acting Chair (Mr Gary Carr): I'm afraid we have to move on to the government side.

Mr Wettlaufer: Thank you, gentlemen, for your presentation. You'll have to excuse Frances Lankin for not being able to understand the nuances of economics.

Mr Kenny: I wouldn't say she can't understand that.

Ms Lankin: On a point of personal privilege, Mr Chair: There are a number of things I would like to say to the member opposite, but let's just proceed on the basis of some attempt at mutual respect for differences of opinions and differences of approaches within the context of listening to members of the public and their presentations.

Mr Wettlaufer: Point taken, Frances, point taken.

The Acting Chair: If the Chair could intervene here, I appreciate it's been a long committee hearing. We're at the end of it. We have some people presenting for us. If we could try to just carry on. Mr Wettlaufer, you have the floor.

Ms Lankin: I don't appreciate your intervention in the middle of my point of personal privilege, Mr Chair, in support of members of your caucus.

The Acting Chair: It wasn't a point of personal privilege.

Mr Wettlaufer: Frances, I did say, "point taken." I apologize to you.

The Acting Chair: If we could continue on. Thank you very much, Mr Wettlaufer, you have the floor.

Mr Wettlaufer: We have heard from the economists today and yesterday that we should cut spending deeply and quickly. We have heard from them that the tax cuts were necessary, that we should carry through on them; that in some cases, yes, it would go to savings. We have heard that in some cases that would increase confidence. We have heard that in some cases it would be used to increase spending. Would you care to comment on the implications if our government did not carry through on its deficit program as we have outlined it in the Common Sense Revolution?

Mr Kenny: You are talking confidence issues here, and right now, interestingly enough, consumer confidence isn't reflective of where our economy sits. Consumer confidence should be higher. I see it as being critical to the direction in which this government is headed for it to fulfil what was its basic commitment to the broad sector of taxpayers in this province. That will create confidence.

You have been more successful than I think any government in the last 15 years at actually doing what you said you were going to do. But this is a rather significant component of your platform, and much of your credibility and much of the confidence that you have generated in the direction that you're headed is indeed dependent upon it. So it's a confidence issue. We like it because we like the money going back to the private sector, where we think it is more effectively spent.

Mr Kwinter: Mr Kenny, you say that the chamber is the voice of business. I'd like to pursue your comments on harmonization. I find that as the voice of business your members are not singing from the same prayer book or hymn book in that we've had various groups appear before us, which you would certainly be considered the voice of, giving contrary views. For example, the Ontario Restaurant Association is unalterably opposed to harmonization. The Ontario Hotel and Motel Association is unalterably opposed to harmonization. Today we had the Canadian Bankers Association saying, "We believe that integration of the federal and provincial sales tax, rather than their harmonization, should be pursued."

I'm not taking a side one way or the other, I'm just saying we're getting mixed signals in that you're coming forward and the Canadian Manufacturers' Association is coming forward and saying, "We absolutely have to harmonize the GST and the PST," and then we have component members of your organizations coming forward saying, "Absolutely not; it would be disastrous for us if there was harmonization."


All I'm trying to get is a handle, because we're going to have to be making recommendations. It's one thing to say, "The Ontario Chamber of Commerce says this, but some of its members are opposed to it." Then you say to yourself: "Well, which way is it? Where are we going? Should we be harmonizing? Should we be recommending to the Minister of Finance that he should pursue harmonization or should we say, `We've got some pretty significant components out there, the bankers, the restaurants, the hotels, saying no, it's going to be a problem for them'?"

Mr Kenny: I'm sorry, you indicated that the Canadian Bankers Association suggested integration as opposed to harmonization, and I'm not so sure I understand the distinction between those two.

Ms Lankin: I do, but Mr Wettlaufer wouldn't want me to comment on that.

Mr Kenny: I actually have some confidence, Frances, that you would. Well, you know, we act for small, medium and large businesses, and we appear here, and our general membership indicates to us they believe harmonization is good. There will always be components of our economy that see it as disadvantageous. That doesn't mean that overall we should not move on it. I'm not sure I have enough time to get into this in great detail with you, but we'd be happy to get into it in more detail at another time.

The Acting Chair: Unfortunately, you're correct, we are out of time. The four minutes was up.

Ms Castrilli: That's four minutes?

The Acting Chair: Oh, well, go ahead, I'm sorry.

Ms Castrilli: I'm interested in your certainty with respect to the provincial income tax reduction. I wondered if it would surprise you to know that there are some eminent entities, that no one would accuse of not having economic knowledge, who feel otherwise. Would it surprise you to know that the Royal Bank of Canada, for instance, is a little ambivalent as to the net effects of the tax reduction when you look at timing and leakages and so forth? Would it surprise you to know that the Bank of Nova Scotia this morning, an expert witness, said: "There's no guarantee that Ontarians would fully spend their tax saving. Residents may opt to spend less and save more in this uncertain environment. Ongoing business restructuring and increased fiscal cutbacks by all levels of government and concern over programs such as the CPP will continue to reinforce consumer caution" and therefore, one would conclude, negate any benefit that there might be from such a reduction? I wonder if you might comment on that.

Mr Ian Cunningham: It's not a surprise. We consulted with some of the bank economics departments in the preparation of our presentation.

Ms Castrilli: You obviously don't agree with the position the banks are taking, is that it?

Mr Cunningham: That's correct.

The Acting Chair: Thank you very much. I thank the Ontario Chamber of Commerce for its presentation.

While the next group comes forward, if we could, the clerk informs me that he will be handing out the underground economy submission from the Fraser Institute to all the members. He's doing that now.


The Acting Chair: I'd like to welcome the Ontario Public School Teachers' Federation. Please identify yourself for Hansard and begin when you're ready.

Mr Reg Ferland: Good afternoon, members, and thank you for the opportunity to speak to you. I'm Reg Ferland. I'm the president of the Ontario Public School Teachers' Federation. With me today is Dave Lennox, secretary-treasurer and chief administrative officer for the federation; and our government relations officer, staff officer Vivian McCaffery.

The Ontario Public School Teachers' Federation represents 36,000 teachers, occasional teachers and educational support personnel who work in the public elementary schools across this province. The federation welcomes the opportunity to participate in the pre-budget hearings of the standing committee on finance and economic affairs and, more specifically, to comment on the agenda of the present government.

The first page of our brief is an outline of the long-standing concerns of the federation regarding provincial funding for education and our assessment of the lack of progress on these issues. I will leave that for your reading.

What I would really like to focus on today is the government's agenda, the Common Sense Revolution agenda. We do not accept the key assumptions of the Common Sense Revolution agenda. We do not believe that the government can fight the deficit and rejuvenate the economy through drastically slashing public sector jobs and services or by redistributing income to the wealthy through the proposed 30% reduction in income tax.

The PC Party sold its cuts in government expenditure and tax cuts as a way to stimulate job creation and consumer spending. According to the projections of the Minister of Finance, the CSR goal of creating 750,000 jobs is not realistic. The government is projecting increases of 81,000 to 100,000 jobs in 1996 and 1997 respectively. Given the downsizing in the Ontario public service and across the broader public sector it is inconceivable that employment figures will grow to match the government target.

The federation also disagrees with the rationale for the cut in income tax rates. The CSR proposal to give higher-income earners the greatest benefit of the proposed tax cut will do little to boost consumer spending. Lower-income earners who spend a higher portion of their disposable income on consumer goods will not have much additional income through the tax cuts. We also suspect much of the tax benefits will be eaten up by user fees and increased cost for municipal services.

We fear much of the surplus tax income which goes to higher-income earners will go to offshore vacations and investments rather than to stimulating the Ontario economy. We also fear that this government is taking us closer to the American model where there is no public health system and where there is a two-class system of universities. The difference in taxation between our two countries is accounted for by our higher health and education spending and by transfers to low-income groups. These expenditures are essential to preserving our humane society.

On the issue of cuts to education: In order to recoup part of the loss in revenue due to the proposed cut in income tax rates, the government is planning to cut $1 billion from education spending. In order to sell this policy, the Minister of Education and Training has been on a provincial tour claiming that Ontario spends more per pupil than any other province, and that, as a result, we have a $1.3 billion overexpenditure. Data from Statistics Canada reveals otherwise, and I ask you to look at the chart on page 5 of our brief to witness those numbers.

Contrary to the assertion of the minister, Ontario spends only $165 per pupil above the Canadian average, and less than the two territories and than Quebec, Manitoba and British Columbia. It should surprise no one that Ontario spends above the Canadian average. Ontario consumer prices are considerably higher than those of provinces which expend less. A higher cost of living results in higher salaries. Previous provincial governments have supported important programs through the grant structure, such as reducing primary class size, expanding special education services and supporting pay equity legislation. Another item, Ontario is the destination province for more than half of all immigrants to Canada and the resulting costs of English as a second language are extremely high.

This government has violated its election promise of reducing education expenditure outside the classroom. The ministry is today cutting $110 million from the junior kindergarten funding. The minister is reported to be considering a number of targets for expenditure cuts, including teacher preparation time, the number of principals and vice-principals within our schools and enabling school board to hire non-teachers to perform certain functions, to mention just a few.

On the issue of preparation time: Classroom teachers are outraged by the attempt by the Minister of Education and Training to characterize preparation time as a non-classroom expenditure and unrelated to teachers' productivity in the classroom. This totally misrepresents preparation time and reflects a complete misunderstanding of the nature of a teacher's day and workload. I direct you to the chart on the bottom of page 8, which provides a general overview of how teachers use their preparation time.


I would also like to share with you the contents of a poll conducted by the ministry. I've read through a lot of polling questions over the course of my career in OPS as an executive member, and I've never seen anything like this one. The questions are blatantly leading and provocative. This is not just my view, but considered the opinion of Dr David Livingstone from OISE, who is the principal investigator on public opinion polls. I'd like to highlight just a few from the paper that I've just distributed to you in particular, and I'll go right to the very end. They seem to be more meaningful.

I'll go to 15, for example. "In Ontario, we spend $600 more per pupil than the average." We've just seen statistics that totally eradicate the validity of this number, so we have to challenge that particular question in a polling type situation.

"16. Since teachers have had it so good for so long, should they not be asked to suffer a little too?" I'd like to know what was the expected answer from that one.

In 17, if I might highlight, "How could teachers contribute to match the sacrifices others have made" in society: "5% cut in salary, loss of preparation time, loss of sick days, loss of retirement gratuity?"

I want to highlight the bracketed portion, that the respondents had to answer one of these. There was not an opportunity to say "No comment" or "No answer." We find this type of polling to substantiate opinion rather complex and perhaps questionable.

In a speech yesterday to public school trustees and directors of education, Mr Snobelen referred to some recent research the government has done on ways to cut education funding. I can only assume that the poll you have before you is that research, and I challenge anyone to conclude that this is a responsible way to seek public opinion and to set policy for this province. he poll exposes the government's crass attempt to mislead the public on some key issues that affect the quality of education in this province.

On the issue of administration time: The proposal to reduce the number of principals and vice-principals in elementary schools also reflects the government's failure to examine the impact of such a move. Principals and vice-principals provide the direction and leadership in school organization, in management, curriculum instructional programming and developing communication with parents and the broader community. They are also responsible for all accountability mechanisms in place in schools and for ensuring a safe school environment.

The expectations from the community and from the ministry itself for the school leaders are increasing and becoming more complex. A major time-consuming focus for principals this year, for example, will be the establishment of school councils. Another is the implementation of provincial Common Curriculum. Principals and vice-principals are being asked by the provincial government to take on more, not less, responsibility. It is hardly the time to reduce administrative time in our schools.

Differentiated staffing: The federation is particularly disturbed by a proposal from the Ontario Public School Boards Association to amend legislation to allow school boards to hire non-teachers to replace such teachers as teacher-librarians, computer and guidance specialists and junior kindergarten teachers.

The government should reject such a proposal unless it wants to see a decline in the quality of programs and in the ability of schools to successfully integrate school curriculum. Education levels, teacher training, a broad knowledge of curriculum and of child development are all essential qualifications which teachers bring to their positions.

Previous cuts to education: The education sector has already been hit by expenditure reduction. Teachers have already seen their incomes fall, their class size increase and school support services diminish or totally disappear. School boards have been cutting back their budgets since 1992 when they received less-than-inflation transfers from the province.

Downsizing at the school level continued throughout the social contract and the expenditure control program. Enrolment in the public elementary schools is increasing, while staffing is declining. Specific figures are provided for you on the bottom of page 11 in our brief.

Given the expenditure cutting that has already gone on and given the amount of the proposed cut to education spending, this government cannot possibly deliver on its promise to cut education expenditure without affecting the classroom, no matter how you define it.

In concluding, I'd like to propose a few alternatives to be examined. We urge this government to look beyond the figures on the ledger and consider the real impact of cutting $1 billion annually from transfers to school boards. We believe that this government is moving too far, too fast with its plan to cut expenditures. We believe that there is a general concern on the part of the Ontario voters, and that is evidenced by the latest Environics poll. Those polled expressed particular concern with respect to cuts to health and education.

We believe that the government should do more to encourage some of the very innovative joint ventures initiated by some school boards to save on administrative costs. We believe that slashing the public sector jobs at this time of economic fragility will only delay any potential economic recovery. We urge the provincial government to reform the tax structure so that those individuals and corporations with the highest income pay a fair share of the tax revenue. We also urge the Ontario government to take a lead role in promoting a lower interest rate policy and a reform of taxation at the federal level. Thank you for your attention.

Ms Bassett: Thank you very much for your presentation. You raise a number of interesting points. As you know, the Minister of Education hasn't come down with anything definite, so we're waiting for everything.

For clarification, you say on page 10 of your submission about substituting trained staff for less-trained staff, and I wonder which jobs you're referring to specifically. You say, "to amend legislation to allow school boards to employ non-teachers to perform a number of specific roles." I wonder what type of roles you were thinking about, just for clarification purposes.

Mr Ferland: I'll highlight a few, if I might. One is the teacher-librarian, the removal of the teacherness for that person and that person becoming a library technician, if you will, who would manipulate books and stock shelves and order books. It would be a very negative use of our well-staffed and well-stocked libraries across this province if they only became book depositories, if you will, and not being used as a teaching area.

Other areas are guidance counsellors, for example, who work within our schools. The proposal is that these people would not be teachers but social workers of some format.

Ms Bassett: Does that matter particularly? I know everybody wants the system as we've known it. That's what I've grown up with and am used to, but I wonder, in terms of the librarian, for instance, if you had a volunteer in who knew a lot about books who could help the children, given the crunch in funds that we have right now.

Mr Ferland: We're going to get into a development of what is a teacher-librarian and what a teacher-librarian does, if we're focusing on that one. I have no belief that we as a concerned community would want a person in a library in a school who would not be able to help the students learn. Knowing something about books does not make you a teacher, and we have to define the role of a teacher-librarian in a much broader sense than just a person who puts books on the shelves and so on.

A teacher-librarian controls and helps the learning from a structural point of view within that particular building by helping teachers prepare for units of work, getting the research material, finding a place where research can be accessed, whether it's through the computer network or an actual text material. And the list goes on: working with students one on one or in group settings to direct them and help them. The teaching strategies are used from the beginning of one's teaching career to the ultimate end and would apply differently. But we could not expect that same service from a library technician. They're not trained individuals to do that.


Ms Bassett: Are there any areas where you could see teachers, if you couldn't afford them any more, putting in substitute people who were less trained, as, say, they put in with the police the green hornets? Not that you can equate them, but that idea of just using in areas expensive staff and putting in less-expensive people.

Mr Ferland: If I hear your question properly, is there a particular subject that we believe is expendable within the curriculum and we do not need a teacher to deliver that part of the curriculum --

Ms Bassett: Or area, not subject, in the school system where you're using teachers where maybe you don't have to use them.

Mr Dave Lennox: The answer, to be quite frank about it, would be no. The reason I'm saying no is that we have already filled in those spots with teacher aides, with library technicians, with lunchroom supervisors who are not teachers. All of those roles are outside the teacher domain right now, so to move into the teaching curriculum roles with non-teachers in not acceptable to us. I can't identify any area between kindergarten and OAC where we're dealing with students in an academic learning environment that we would not require teachers.

Ms Bassett: You've already done, then, what I was looking at.

Mr Lennox: Yes.

Mr Colle: I guess the interesting thing is really this push poll. I have been asking all over and I'm trying to find out whether any other government department has ever done push polling and whether this is something that has been done around Queen's Park. But the gall of the Minister of Education to spend I don't know how many hundreds of thousands of dollars on this push poll, because the nature of push polling is not like ordinary polling where you do a select sample. The idea is to contact as many people as possible.

I know my next-door neighbour phoned me one day and said, "Boy, I was on the phone with this person for 45 minutes and he was slandering teachers," and I said, "I bet you it's some Tory organization." Then I find out it's the minister basically using taxpayers' dollars to essentially denigrate, destroy teachers as a profession and to make them look in the worst light. I wonder how much this cost. I know that our critic has put forward that request.

If you look at the questions, they're just so ludicrous, they're so obvious in their intent:

"In other jobs, people often prepare outside their work time. Should teachers be expected to do the same?"

"As a taxpayer, do you think there should be a rise in taxes to support education?"

Who's going to say they want an increase in taxes? It's just an obvious, blatant attempt to manipulate public opinion, basically to soften the public for what's coming.

The question I'm going to ask is, obviously the agenda's been set, that the cuts of an unbelievable magnitude are coming to teaching and to classroom education and to students. How is this going to affect children who are right now in stressful situations because of the ongoing growing class sizes etc that are already in our schools?

Mr Ferland: Thank you for the question. You make a good point about the poll, first of all, and through your question. The effect will be a very drastic effect, there's no doubt. At this point in time, if we continue to remove the resources in the classroom and the support mechanism for the teachers in the classroom, it's going to start to affect all special-needs students, whether at the top end of learning or at the lower end of learning, whichever their needs may be. The teachers, by having more students in their classroom, will not be able to bring attention to the individual child. That's a given.

In response to the question about the poll, something comes to mind that perhaps this is creating a bit of a crisis before the storm that is going to hit us with the cuts and this is helping to make that a reality, in case it hasn't been public enough to this point.

Mr Colle: Obviously what's happened, it looks like they've created a crisis now, the softening before the final assault. What I'm worried about is, how are you going to be able to react and defend those children in our schools from the dismantling of an education system? This is what I'm worried about, because these so-called tools -- and this is the first tool they've used. They talked about Snobelen's tool kit. This push poll is the first hammer, you might say, to soften the public on it.

Have you got a contingency plan in terms of protecting students on what's to come? That's what I'm worried about, because it seems to me it's inevitable. They've already made their mind up; they're coming. He's been going around the province telling everybody, "It's coming, it's coming." Is there any contingency protection plan for those students in our schools who are vulnerable?

Mr Ferland: I'm going to give you a preface before answering the question. It's odd that the Ministry of Education, which has been entrusted with the care of the students, seems to have no concern about students; also very odd that the trustees of this province, who are supposedly entrusted with the care of delivering education to the students, have brought forward many of the tools that the minister is now proposing or contemplating at this point. I guess it's even odder that it comes to the teachers of this province to have to defend education, one of the few elements that we find ourselves having very little credibility in, because as soon as we speak on behalf of education, one accuses us of being very self-centred and egoistic in our concerns; egotistical, if you will.

The plan is going to be unfolding as we see what the tools are going to be and what the announcements will be from the ministry in the coming weeks. We are going to have to assess what the hurt is, where the cuts are and the impact of those particular cuts and come back to those who want to hear and those who want to listen, whether it's the community or whether it's the parents. Hopefully some concerned individuals perhaps in power at this point will be concerned about the quality of education in this province. We are certainly going to keep tabs on this particular situation and be very responsive and make it public.

Mr Wildman: Thank you very much for your presentation. I'll make a couple of comments and then I'll direct a question.

Obviously, all along through the development of the education system in this province we've had a lot of different people and groups who have an interest in education. The community at large, students, parents, teachers, trustees, the government, the business community, labour and so on all have an interest; taxpayers, generally. All of us have an interest. But up to now we've striven through Tory administrations, Liberal administrations, an NDP administration, to have a student-centred education system. What we're doing now under this administration is moving to a taxpayer-centred education system.

In cutting $400 million from the grants, you've pointed out that this works out to $1 billion in one year in cuts for the boards and for education in the province. The minister himself has admitted that it's at least $800 million, so double the $400-million cut in the grants in one year.

I'd like to ask you a question on that specifically and then I'd like to ask another on the poll. Is it possible to cut $1 billion out of the education system in this province and not hurt classroom education? Honestly, is it possible to do it, and if so, why?

Mr Lennox: It's not possible to cut $1 billion out of education in this province without hurting the student in the classroom. More importantly, if it were possible to cut $1 billion, it's not possible to cut it in this time span.

Mr Wildman: In one year, yes.


Mr Lennox: In one year and four months. Boards have to line up this $1 billion for next September, the start of the next school year, so what you're asking for is the education system to be hacked at, to be gutted, next September. You have to understand that what we're talking about here right now is that something has to happen to between 10,000 and 12,000 teachers in the province.

Mr Wildman: They're going to be laid off, aren't they?

Mr Lennox: They're gone. Close your eyes now and decide what happens when 10,000 to 12,000 teachers are not there next September. It doesn't take much imagination to know what education system we've got left. That's what we're looking at.

Mr Wildman: And the cuts to prep time obviously directly relate to classroom education. This poll says in number 6: "High school students spend five hours per day in class. Teachers spend 3.5. Is this fair?" That gives the impression that the teachers, for the other 1.5 hours, are sitting at home or sitting in the staffroom or whatever. How do you deal with a poll like that, that gives that kind of impression? What's the purpose of this kind of poll?

Mr Lennox: I'll try to remain calm while I answer this. This is about the 15th example from the Minister of Education, whom I take to be a fairly bright individual, of conniving and shaping situations that are totally demeaning and demoralizing to our front-line educators. When you take these types of blatant comments, his value added business jargon, that if you're not in front of a classroom and don't have 40 kids in your classroom, you're not being productive enough, and to not recognize the fact that you need preparation time for the many intricate things that need to be done in that preparation time -- and teachers also work outside the end of the school day.

Mr Wildman: Well, it says here in number 8: "In other jobs, people often prepare outside their work time. Should teachers be expected to do the same?" Doesn't that give the impression that teachers don't do that?

Mr Lennox: As I say, this is the attitudinal situation that the minister and his staff are perpetuating out in the province right now. You ask how we save the students in the classroom. You don't save them by totally demoralizing and demeaning the teachers of the province.

Mr Wildman: I don't understand the reason for this kind of polling, Mr Chair. I've been here 20 years. I've seen lots of polls done by all governments, and I have never seen a poll like this. I think this committee --

Mr Wettlaufer: On a point of order, Mr Chair: We don't know that this is the exact --

Mr Wildman: I understand. I know this is not the exact poll --

Mr Wettlaufer: That's what I was going to get at. This is a reconstruction.

The Acting Chair: You said you had a point of order. Could you get to it, if it is a point of order?

Mr Wettlaufer: If I could do it without being interrupted. This is a reconstruction; we don't know the exact terminology.

The Acting Chair: This is not a point of order.

Mr Wildman: That's exactly what I was coming to, Mr Chair. I understand the point, and it's a very good point. I was going to raise that matter. I would like this committee to agree to request that the Minister of Education table the poll so we see the exact questions, and not only table the poll itself but the data collected through this poll, the methodology used, the amount of money spent on it -- and the justification for this kind of polling. If he can't give a decent explanation, I would request the government members of this committee to repudiate this kind of manipulation of public opinion by a government.

The Acting Chair: As you're not a member of this committee --

Mr Wildman: That's why I was just making a suggestion. I wasn't moving a motion.

The Acting Chair: Ms Lankin may be willing --

Ms Lankin: I would certainly like to suggest that we have unanimous consent to request of the Minister of Education the tabling of the exact wording of the poll and, as soon as they've been tabulated, the results of the poll and certainly the costs of the poll.

The Acting Chair: Is there unanimous consent?

Mrs Marland: Ms Lankin is making a request for information, and we have dealt with this kind of thing previously in these two weeks. It is entirely in order for any member or group of members of this committee to request information from any of the ministers. As a matter of fact, I'm looking at a response to a question I made last week to the Minister of Finance about boards of education budgeting for deficits. We got the answer in writing as of yesterday's date and --

Ms Lankin: Mr Chair, on a point of order.

Mrs Marland: No. Excuse me. I haven't finished.

Ms Lankin: But it's a point of order.

Mrs Marland: Oh, are you going to interrupt me?

Ms Lankin: On a point of order, I am. It is within my right as a member of the committee to request unanimous consent for the request for this information to come from the whole committee, only because I believe it carries more weight. That is within my right as a committee member, which is what I've requested.

The Acting Chair: Is there unanimous consent?

Mrs Marland: May I just respond? This information was requested, but it wasn't requested with unanimous consent of the committee. Bud, you weren't here, but it was requested without unanimous consent and we did receive the information.

The Acting Chair: I take it that's not unanimous consent. But you can introduce a motion, as I understand.

Ms Lankin: I actually haven't heard what the response to my request for unanimous consent is. I know I can table the question individually. The point is, I think this is a question that all members of the committee would want, and I want to know whether government members want to know the answer.

The Acting Chair: Is there unanimous consent for Ms Lankin's request?

Ms Bassett: No. I don't think we need it, Mr Chair.

Ms Lankin: That's the point. The government members don't want to ask questions. They don't want the information.

Mr Wildman: Mr Chair, this is in line with the Premier's comments at the time the minister was appointed, in which he said too much knowledge is a dangerous thing.

The Acting Chair: The time has expired. I'd like to thank the Ontario Public School Teachers' Federation for the presentation. This brings to a conclusion our hearings.

Mrs Marland has a question about procedure.

Mrs Marland: I just have one question on procedure, members of the committee. Looking at the tentative agenda for next week, I notice that on Thursday the 22nd at 1:40 in the afternoon, the scheduled deputant is Mr Peter Kormos, member of provincial Parliament, the member for Welland-Thorold. What I am going to suggest -- well, let me phrase it very directly.

When I was in opposition, there were many occasions when I would have thought it was just great to come before a standing committee of the Legislature and have a full 30 minutes to express whatever it was I wanted to express about the government of the day. However, as elected members we do have an opportunity as members of the committee and, I might add, even as visitors to the committee. A member of the Legislature can sit down in any committee and ask to speak as part of the deliberations of that committee in terms of deputations before it, or if they're going through clause-by-clause, there's nothing to stop a member coming and joining a committee and participating in the business of that committee.

But I think it's a very dangerous precedent to have a currently elected member come before the committee as a deputation. I don't know whether this is a direct request from Mr Kormos or whether he was on one of the caucuses' lists to come before the committee. In any case, I am suggesting -- actually, since everyone isn't here, I don't know whether you want me to move it as a motion that Mr Kormos have that explanation that it really wouldn't be appropriate to have a currently sitting member of the Legislature come as a deputation before the committee. Otherwise, I think we're opening the floodgates to have this happen a lot. I mean, I might as a government member want to go before a committee as well.

Mr Kwinter: Could I speak to that same point? I can't recall in the years I've been here that a member has ever appeared in that capacity. We've certainly had situations where -- for example, a committee was sitting last week looking at the security of this precinct, and members were invited to comment because it impacted directly on them. May I suggest that we ask the clerk or legislative research to look into the precedent, if it's allowed under the rules of our committees -- just what the precedent is.

Mrs Marland: Thank you, Mr Kwinter, because that was the other point I should have made. Last week I was invited as a deputation to the Legislative Assembly committee to give my historical perspective on security in the building, and there have been times, very critical times, when it has been a request of all members of the party. I can think of hearings involving our colleagues when members have had to come before a committee to give evidence, frankly. That is entirely different from this situation, but it would be interesting to know what the precedent is.

Ms Lankin: I certainly would be interested in the results of that search for information by the clerk, but in the absence of having spoken at all to my colleague with respect to his request, I should place on the record that I am well aware of his long-standing history on and particular interest in this issue, which I am sure that most members of the Legislature would be aware of, and the particular role he's played historically with respect to this issue. I'm sure that is the reason that prompted him to apply to come before the committee and provide us with his perspective on this.

I would be interested in the results of that search, but I think it should at that point still be open for discussion as to whether an MPP who has a particular area of expertise or interest or whatever can contribute to the knowledge of a committee, and whether that's only by invitation, as it has perhaps been in other circumstances, or whether he feels he could apply. I think that is still worthy of discussion. I wouldn't want the results of the search to dictate the answer this committee arrives at.

Mrs Marland: I was going to move a motion that his request be declined, but I will just table my inquiry until we get the response back from the research into Mr Kwinter's question about whether there is precedent, and we can deal with it on Monday.

The other question I have about a deputation next week is that because of the subject matter before the committee for the next two weeks, which is automobile insurance -- maybe the clerk has to answer this question. Is there an expectation that groups that would come before the committee have a direct involvement and interest in the subject matter? Again based on my experience, I am wondering if the deputation preceding Mr Kormos, the Halton Region Coalition for Social Justice, falls in the category of automobile insurance as an area. I just don't know how that group got on the list.

Clerk of the Committee (Mr Franco Carrozza): All the groups and individuals on this agenda have called because of the advertisement. We as clerks do not have authority to ask the groups from which side they wish to speak.

Mrs Marland: No. I understand that. I'll withdraw the question. For every other group I see listed here next week, it's easy to understand the connection with the subject matter of automobile insurance.

The Acting Chair: What I will do on behalf of the committee is instruct the clerk to get the answers that Mrs Marland and Mr Kwinter requested.

Ms Lankin: Mr Chair, I just wondered if I could table a request for some information from legislative research. Alison, some of the presentations we've heard over the last week and a half have referred to the New Zealand experience, in particular to the state of the economy now.

Mr Kwinter: I already asked yesterday.

Ms Lankin: Did you? I wasn't here.

Ms Alison Drummond: I'm working on it even as we speak.

Ms Lankin: I appreciate it if that's already been asked. I'm eager to find the results of that. Monte, I'm always following you.

The Acting Chair: There being no further business, this committee stands adjourned until 9:30 on Monday, February 19.

The committee adjourned at 1735.