Friday 13 February 1998
Mr Hugh Mackenzie
Canadian Taxpayers Federation
Mr Brian Kelcey
Ontario Coalition for Better Child Care
Ms Kerry McCuaig
Ontario Good Roads Association
Mr Denis Merrall
Glaxo Wellcome Inc
Mr Rob Last
Ms Jennifer Bowman
Mr Bill Laidlaw
Pharmaceutical Manufacturers Association of Ontario
Mr Greg Hines
Mr Gerry McDole
Ontario Trucking Association
Mr David Bradley
Mr Michael Burke
Craaytech Painted Plastics Ltd
Mr Paul Peterson
Ontario Natural Gas Association
Mr Paul Pinnington
Mr Bernard Jones
Ontario Pharmacists Association
Mr Peter Struthers
Mr David Malian
Mr Wayne Marigold
Mr Jeff White
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président
Mr Garry J. Guzzo (Ottawa-Rideau PC)
Vice-Chair / Vice-Président
Mr Wayne Wettlaufer (Kitchener PC)
Mr Ted Arnott (Wellington PC)
Mr John R. Baird (Nepean PC)
Mr Jim Brown (Scarborough West / -Ouest PC)
Mr Garry J. Guzzo (Ottawa-Rideau PC)
Mr Monte Kwinter (Wilson Heights L)
Mr Gerry Phillips (Scarborough-Agincourt L)
Mr Gilles Pouliot (Lake Nipigon / Lac-Nipigon ND)
Mr E.J. Douglas Rollins (Quinte PC)
Mr Wayne Wettlaufer (Kitchener PC)
Substitutions / Membres remplaçants
Ms Marilyn Churley (Riverdale ND)
Mr Tony Silipo (Dovercourt ND)
Mr R. Gary Stewart (Peterborough PC)
Clerk / Greffière
Ms Tonia Grannum
Staff / Personnel
Mr Ray McLellan and Ms Lorraine Luski,
RESEARCH OFFICERS, LEGISLATIVE RESEARCH SERVICE
The committee met at 0930 in room 151.
The Chair (Mr Garry J. Guzzo): Welcome back for Friday. Our first presenter this morning is Mr Hugh Mackenzie, the research director of the United Steelworkers of America. Mr Mackenzie, thank you for coming. Welcome. You have an hour to use as you see fit. Please feel free to commence.
Mr Hugh Mackenzie: Thank you to the committee for the invitation. I should start by clarifying my affiliation. I am the research director of the Steelworkers, but I'm appearing in front of the committee on a personal basis. I guess I'm invited as a so-called expert witness. What I'm saying here is not the official position of the Steelworkers, it's the results of analysis that I've done in conjunction with some colleagues. I'd be surprised if the Steelworkers disagree with what I say, but it hasn't been vetted through any official channels.
In the invitation, the clerk asked that I try to keep it to half an hour so that there's lots of time for questions, and I'm going to do my best to do that. Let me just get started.
I decided this year to take the opportunity presented by the fact that we're almost exactly halfway through the five-year term of office that the government was elected to in June 1995 to take both a retrospective and a prospective look at how the government is doing with respect to three of the key commitments that it made during the election campaign and to look at the interactions among those things.
The three elements of the focus are the promise to have a balanced budget by fiscal year 2000-01, the 30% income tax cut and the creation of 725,000 jobs in the next five years. The real focus of the analysis that I'm going to take you through today is the income tax cut. I take that as the focus for three reasons.
First, there's a clear and obvious interaction between the income tax cut and the promise to balance the budget. It's relatively simple arithmetic that if you make a substantial cut in taxes while the government is running a deficit, it's going to make it that much more difficult to balance the budget.
The second thing is that the tax cut leads a double life in the government's characterization of its own performance. It's not only the government's signal political promise in and of itself, but as the minister says over and over again, including in his presentation to the committee on Monday, the tax cut is also the government's job creation program.
Third, and this is a theme I'm sure a number of people come back to, is that the tax cut is also critical because, as the government has strayed from the areas that it emphasized in the Common Sense Revolution into other areas that were not contemplated for government action, it's quite clear when you look at what has been happening that most of those forays into areas, some of them quite controversial, that weren't contemplated when the Common Sense Revolution was drafted, are driven by the need created by the tax cut to balance a substantial drop in provincial fiscal capacity with the need to balance the budget.
This presentation looks at the tax cut from several respects. First, it looks at how the tax cut affects the fiscal options open to government in 1998. Second, it looks at the impact of the tax cut longer-term on Ontario's fiscal position. Third, it looks at the implications of the tax cut for a growing public services gap in Ontario. Finally, it looks at the relationship between the tax cut and the government's promise to create 725,000 jobs over a five-year period. It also looks in some detail at a couple of pieces of the municipal finance puzzle that the minister announced last week, which, while they haven't received a lot of public attention or analysis, partly because there hasn't been a lot of information made public about it, will have an enormous impact on the taxes paid by many, many property taxpayers in the province.
I want to talk first about the impact of the tax cut on fiscal options. For this part of the analysis I've put together a model of Ontario's fiscal structure, the expenditure patterns and the tax patterns, and set the model up so that it's possible to project what's going to happen to the budget deficit revenues over the next three or four years to see how the likely path of Ontario's finances, as measured by progress on the deficit, is going to play out. The model is structured so that it's possible to change assumptions about the economic environment and about the government's fiscal strategy to see how those kinds of changes might affect the fiscal balance at the end of the day.
Like most models that do this kind of sensitivity analysis, it has to start with a base case, because that's what you use as the sort of fulcrum for the comparative analysis. The base case that I've used here for this analysis is essentially what we know about the current situation as it has been published in the material that the minister released as recently as last week, including the rundown of the current numbers on spending and tax revenue; second, rates of economic growth projected for Ontario for the next two or three years that are being used by the Ministry of Finance for its analysis; interest rates based on the Ministry of Finance's best guess of what Ontario's long-term borrowing costs are going to be off into the future; then on the crucial spending side, which is actually the most difficult one to put a finger on -- because of the wonders of accrual accounting and the extent to which the budget is now riddled with expenditure initiatives that are described as temporary or transitional, it's kind of difficult to figure out what the spending base might be -- for the base case what I've assumed is that the 1997-98 spending level will stay the same and that the $1.5 billion in temporary funding for restructuring will go away.
That latter assumption may be heroic, because of the political role that the restructuring funds play for the government, in particular the several hundred million that's going into the municipal sector to deal with the problems created by municipal finance restructuring. That assumption may be a bit shaky. On the other hand, we don't really know at this point where the main spending line number is. But in any case, this provides a basis for an analysis.
In the base case, the government meets its target of balancing the budget by the year 2000-01. In fact, there's a surplus of about $1.6 billion in that year. That scenario does not require any further cuts in public spending. But, as I noted, it also assumes that the municipal restructuring money will actually be temporary, which, given the political environment, may be a difficult one for the government to make stick in the long term.
I also looked at a better case. In the better case -- and I put "better" in quotes in the paper because it's better from the perspective of the fiscal balance of the government; it's not clear whether it will be better for Ontario to make some of the spending decisions that are implied in this, but it's better, certainly, from a fiscal balance perspective -- I assume that growth runs half a per cent higher than projected. That essentially stands for an assumption that the United States economy doesn't slow down at all and that the fallout from the meltdown in Asia is relatively short-lived and limited.
On the spending side, which is the other key variable here, I have made a sort of hybrid assumption that the government's internal long-term estimate that they're working on at the moment of about $42.9 billion is what they're able to stick to, but I also assume that they're not able to get out of the temporary transitional arrangements. So it's not the absolutely most stringent spending regime one could imagine, but it's certainly tighter than the one in the base case. In this case, the budget is balanced a year earlier than in the base case; the budget comes into balance in 1999-2000.
I've also looked at what I call a worst case. That's a scenario that goes with a slowdown in growth in the United States and perhaps a more persistent negative impact on the Canadian economy from the change in Asia. It is not, I want to stress, a recession scenario; we still have significant positive growth in this scenario. On the spending side, it assumes that spending is not reduced from its current level, that it stays where it is. In this scenario, even by the year 2001-02, the budget doesn't balance.
Having set this up, we look at what the impact of the tax cut promise is on Ontario's short-term fiscal options. I looked at a number of scenarios. One says, let's assume the worst case happens and we just don't proceed with any further instalments in the tax cut; in other words, that the instalment of the tax cut that is on schedule to happen January 1, 1998, and the other one that is scheduled to happen January 1, 1999, don't happen. Then it looks at what happens to our so-called base case if we do that. What happens there is that the budget balances in 1998-99 with a surplus of over $2 billion.
The third one is similar to that, looking at what would happen if the government had never cut spending and never put the tax cut in place; in other words, we didn't go through the haemorrhage exercise that started in 1995-96 and we didn't have a tax cut. That generates a surplus of $1.5 billion in fiscal year 1999-2000. If the government had done nothing to the basic fiscal structure, if it had simply kept spending at its 1995-96 level and not actively diminished Ontario's fiscal capacity, we would be a year away from a balanced budget right now.
In summary, the implications of this analysis of the sensitivity of Ontario's budget position are, first, if you compare this with what's happening in the federal context, and using lingo that wasn't present at the time, wasn't part of the debate at the time these decisions were made, the Ontario government has chosen to spend the fiscal dividend in advance. There is a fiscal dividend that's generated by growth in revenue in any fiscal system that has taxes that are linked to the performance of the economy and we spent that in advance. That decision has driven the government to adopt an unnecessarily harsh fiscal strategy, forced it to go far beyond the scope of the original Common Sense Revolution to extract revenue from transfer payment partners and it has created substantial additional debt that's attributable to the tax cut itself, and I'm going to come to that in a second; second, the next two instalments of the tax cut play a significant role in limiting Ontario's ability to deal with contingencies; the third is obvious in anything that looks at Ontario, that Ontario's fiscal position is heavily dependent on what happens in the United States.
Let me turn now to the longer-term implications of the tax cut. The numbers here all come out of the same analysis. In particular, the numbers on how the debt has accumulated with respect to the tax cut that I'm going to put in front of you now come out of the base case I've described using the Ministry of Finance's -- actually I'm old enough that I still think of them as treasury -- economic growth projections and the best guess I've described about what happens to public spending in the province.
What it shows is that by the end of the year 2001-02, Ontario's debt will have increased by $32.4 billion to pay for the tax cut. What's remarkable about this is that it takes place at a time when the Ontario economy is growing. The tax cut causes nearly as much to be added to Ontario's debt as was caused by the economic collapse in the early 1990s. Another way of looking at it is that implementing the tax cut in the face of the deficit will have increased the debt by 30% compared with what it was when the government took office.
By the end of the year 2001-02, the carrying costs of the debt -- that's the interest paid on the debt accumulated to pay for the tax cut -- will be $2 billion a year. That's the interest cost on carrying the debt attributable to the tax cut. By the end of the year 2001-02 in the base case projection, 3.3 cents of every dollar raised by the provincial government will go to service the debt accumulated to pay for the tax cut.
The next thing I want to look at is the public services gap. I'm going to run over this quickly because I don't want to run out of time for the last piece of this. Essentially what we conclude here is that if you look for a measure of the quantity of public service available to people -- sometimes it's kind of hard to come up with these numbers because some public services are hard to measure, but just using what we have -- real per capita spending strikes me as a reasonable way of looking at the general level of public services. It probably understates the pressure on public services because of the aging population and its impact on the need for public services, but it's a reasonable approximation.
What the analysis shows, compared with the base case I developed, is that by the last fiscal year of this term of office of the government, the services gap, the gap between the 1995-96 spending level in real per capita terms and what will actually be spent in that year, will be $11.8 billion or about 20%. If you think about it in real per capita terms, one thing in five that the Ontario government did in providing public services for the people of Ontario will be gone, and to link it back to the tax cut, half of that gap, $6.4 billion of that gap, is attributable to the tax cut.
There's a bit longer analysis in here about the impact of the tax cut on employment creation. Just a couple of quick things. One is that I'm not going to suggest the Ontario economy isn't creating jobs at the moment. It's clear from the numbers that we're finally moving into a job creation phase in Ontario. I note in passing that while this performance is positive, it's running significantly behind the extravagant promises the government made during the election campaign in 1995-96. The gap between the trend line and performance to date is about 80,000 jobs.
You also need to put this economic recovery in Ontario into perspective. Between 1995 and 1997 employment in Ontario grew by about 180,000. In the corresponding period in the recovery in the 1980s, between 1985 and 1987, employment grew by 343,000. So in the 1990s the recovery is a 3.5% improvement in employment; in the 1980s recovery in employment was at 7.4%.
But the most important point I want to make here is about the assertion that this economic recovery has something to do with the tax cut. If you look at what has happened in the Ontario economy tending towards the late 1990s, what jumps out at you is that this is an export-led recovery. In fact, it's more than export led; if you look at the numbers, it's a recovery that consists of a recovery in exports. If you look at the numbers the ministry itself has released about Ontario's economic performance, referencing to June 1995, Ontario's real gross domestic product measured in 1992 dollars grew by about $29 billion over that period. Exports grew by $33 billion. This suggests really strongly that the difference between Ontario's economic performance and that of the rest of Canada is due to export performance, and that the job creation activity that's taking place in Ontario at the moment is the result of this export boom.
When you recognize that what's going on in the Ontario economy is largely driven by exports, it seems to me that puts the argument that the tax cut has something to do with it into some considerable jeopardy. First, as an economist I don't know of any mechanism that links the purchasing habits of Americans or Japanese or Europeans to the tax cut in Ontario. That's what attributing an export boom to the tax cut would require. Second, one could look at the export boom and ask the question: "What's the likely cause of this? What are the likely factors that are going to influence this?" I would submit that on a list that includes continued, unprecedented employment growth and economic growth in the United States, and which has a clear and obvious direct impact on Ontario's export performance and the declining value of the Canadian dollar, which again has a clear and obvious direct impact on Ontario's export performance, it would be hard to place the impact of Ontario's income tax cut on that list.
I want to shift gears a little bit. The last thing I want to talk about has to do with the changes in local government finance that were announced last week. You'll be pleased to know I'm not going to talk about the decision not to follow through on the promise to have a uniform commercial and industrial tax rate for education. There has been a lot said about that. I may have other opportunities to do so, so I won't dwell on it here. But I want to focus on three things that may have missed a little bit of public attention here.
One thing, and this is the only thing I'm going to say about the decision not to go with the uniform rate, is that the government is freezing commercial and industrial property taxes at their current level as separate classes of property, not as a combined business class. That means the overtaxation of industrial property in Ontario relative to commercial property is going to be frozen in time in that policy. For a society that's concerned about the impact of policies on the goods-producing sector, the export-generating sector, that strikes me as an interesting decision to have made; by default, mind you, but an interesting decision to have made.
Second, not given a lot of attention in this change is that, along with all the other changes that are taking place in the local government finance sector, whether the rates are frozen or not, the business occupancy tax is gone. For those of you who haven't immersed yourselves in the arcane details of the business occupancy tax, let me just say that the business occupancy tax is basically a surtax on the commercial and industrial property taxes, and it's on a graduated scale, depending on the type of business.
For example, banks, insurance companies, chain stores, breweries and distilleries pay a business occupancy tax of 75% of their basic property tax on their property, manufacturing businesses pay 60% and small business pays 30%. The average rate across the province is 45%. So when you eliminate the business occupancy tax and fold it back into the commercial-industrial tax, that 45% gets picked up by everybody. If you're a bank, you're going from a tax that's effectively 175% of their basic tax to one that's 145%. That's a 17% reduction in tax. If you're a small business, you're going from 130% to 145%. That's an increase of 12%. Because this change is embedded in the whole approach to commercial-industrial property taxation now, it applies to the whole tax bill, not just the provincial portion; it also applies to the municipal tax bill. So this is an incremental impact on the whole commercial-industrial tax bill paid by commercial and industrial property taxpayers.
The third thing I want to touch on -- I'm actually coming close to hitting my time here -- and this is a real detail that I'm afraid you have to have a bit of a pointy head to notice: One of the little announcements that was made last week was the announcement of the bands within which the provincial government is going to permit municipalities to vary tax rates on commercial-industrial property and multiple-unit residential property relative to the tax rates that are charged on single-family residences and small apartment buildings. The bands they've announced say that the tax rates on these types of property can't be any wider than 90% on the low end, 110% on the top end of the tax rates on single-family residential property.
This sounds pretty bland and boring, because it sounds pretty technocratic, but what it means is that over time, municipalities are going to be required to drop their commercial and industrial taxes and their taxes on multiple-unit properties, their taxes on large landlords, down to no more than 10% above the single-family residential rate.
Because of the way the assessment system has operated in Ontario over the last 50 years or so, that is going to require effective rates of tax to be dropped dramatically on those properties throughout the province. You can think about it this way: You've got quite high effective rates of tax on multiple-unit residential property and commercial and industrial property; your municipalities are going to be forced to drive that effective tax rate down over time to no more than 10% above the rate of tax on single-family residential property. To raise the same amount of money to pay for public services, they're going to have to increase taxes; they're going to have to increase the general level of taxation, so in effect, the tax burden will be shifted from large landlords and the commercial-industrial sector on to single-family residences and small apartment buildings.
The extent of this shift can only be determined by looking at data for every municipality in the province. The most recent data I have is for 1996. That's the most recent set of data that has been made available by the provincial government. The data show that this shift down to the top of the band will produce a tax increase on the single-family and small multiple sector of about $1.4 billion -- that's an increase of 24% -- from this requirement alone. Large landlords will see a tax reduction of about $275 million and commercial-industrial property would see a reduction of about $1.1 billion, about a 19% reduction. So we're talking about a huge shift in the financial structure of local government and a huge shift in effect in the distribution of taxes in the provincial finance system as a whole because these are large numbers.
As the government is learning, perhaps to its sadness, the municipal sector is pretty diverse so the impact of what looks like fairly simple, easy-to-understand, straightforward changes at the provincial level varies enormously across the province, just enormously.
In this case the general conclusion that you come to is that in large urban areas, with the exception of the GTA area immediately around Metro, around the city, there's a significant shift. We're talking about, for example, in the new city of Toronto a single residence's taxes would be driven up in total -- the total tax paid by single residences -- by about 48% over time. In urban eastern Ontario we're talking about 25%; 24% in urban southwestern Ontario; about 25% in urban northern Ontario. In rural areas and in the GTA outside Metro the increases forced by this compression would be in the range of 5% to 14%.
When you take this together with the change mandated by Bill 160 that requires a single rate of residential taxation across the province, put those two changes together, you get a tax increase on single residences and small multiple-unit buildings of a little over $1.5 billion, based on 1996 numbers.
The analysis doesn't take into account the impact on municipal budgets of the download and it also does not take into account, because it can't, the disruptive impact on relative tax burdens within property classes within municipalities that are going to be created by the move to market value assessment.
In this world of perhaps unexpected political disasters, starting with the business occupancy tax and then moving to the uniform commercial and industrial tax, this one's a sleeper. If you talk to the people in the assessment division of the Ministry of Finance, which I guess is now a crown corporation, but if you talk to the people who do assessment in the province, they're quite happy to give you broad statistics about market value reassessment only really being an issue in Toronto and every place else the changes are pretty modest because assessments have been kept pretty much up to date. Don't believe them.
Many of the reassessments that are on the books as "reassessed property" were done in the late 1970s. Those assessments are now as far out of date today as Toronto's assessment was in 1969, when the province took over the assessment function. As a group of politicians you can expect a lot of agitation because there is going to be a lot of movement shifting in tax burdens within property classes within municipalities in Ontario, some of it driven by the amalgamations that have taken place but much of it driven by the fact that although the average is -- one of the things you learn when you look at the municipal sector is, don't believe averages. The system is so diverse -- the former Minister of Education is nodding his head -- that there is nothing you can do in the municipal sector that will not have some completely unexpected result because the system is so varied.
That's the thing I find most troubling about this tax-cut-driven foray into municipal finance reform. It appears the government has gotten into a lot of these things and has made commitments to do a lot of things without fully appreciating the impact of the decisions it is making. Sometimes when it sees those impacts, it changes its mind, it realizes it doesn't like the consequences of the simple-sounding solution that it originally announced, and sometimes it proceeds.
When one looks at the relationship between those things that have been proceeded with and those things that aren't proceeded with, the conclusion one is driven to is that these exercises are really not about reforming the local government finance structure; they are about moving money around between one level of government and the other and they are about crafting a political landscape.
Those are my remarks. I'd be happy to take questions.
The Chair: We have approximately five or six minutes per caucus, and we'll start this morning with the official opposition.
Mr Gerry Phillips (Scarborough-Agincourt): Thank you very much. I have a lot of respect for your knowledge in this area. I know you study this and bring a tremendous background to it, including your work on the Fair Tax Commission, which provided a useful bank of information.
I want to start on the property tax thing. It was about a year ago when the Minister of Finance came before us and we said: "You're going to eliminate the business occupancy tax. The average bank tower will see their property taxes go down $3 million to $5 million each." There's no question of that.
Mr Mackenzie: That's arithmetic. Once you've made the decision to get rid of the business occupancy tax, it's no longer public policy; it's arithmetic.
Mr Phillips: It's your 17% number times a $25-million -- that's what will happen.
Mr Mackenzie: Exactly.
Mr Phillips: You've also indicated that for small businesses, their property taxes will go up around 15%. We're all getting those phone calls now, a flood of phone calls: "What is happening to my taxes?"
Mr Mackenzie: You'd better get some extra lines, because I suspect the phone calls you are getting now are nothing compared with what you're going to get when the assessment roll comes down.
Mr Phillips: I believe that, but let's just stay on the business occupancy tax for a moment, Mr Mackenzie. We said, "Listen, is this what you want? Is this what the policy is designed to do?" and that is to cut the property taxes for a bank by 17% to 18% and increase them for small business, on average, by 12% or 13%. What the government said was: "Yes. We know that's going to happen, and that's just the way it works. We're bringing in uniformity."
How do you respond to that? The government said, "We know that's going to happen, we know that will be the result of the bill, but BOT is 96 years old and it's time that it met its unfortunate but none the less natural death," and this new system will come in, which has that result. How do you respond to the government saying, "Well, that's just tough luck for those businesses"?
Mr Mackenzie: Looking at it as a policy analyst, sometimes you can become a prisoner of simplicity; you articulate something that looks incredibly appealing and incredibly simple. It's very easy to make fun of the business occupancy tax. It used to be even more fun, because in its original form in 1906 it was the quintessential articulation of Victorian values. Distilleries and breweries got taxed enormously; big store chains got taxed more heavily. Industry was taxed relatively more lightly. You sort of picture -- there was a Victorian thing there. There was also a rough sense of kind of an ability to pay that was embedded in that.
When you articulate a simple response and it has that kind of dramatic impact, it seems to me that one would want to step back, look at what this is all doing and see if one can craft a way of achieving the simplicity without producing the negative impacts that you're talking about.
There is a head of steam up in the municipal sector, not among politicians so much, I want to stress, but among people who collect taxes, because the business occupancy tax is hard to collect. It's a tax on the actual business, as opposed to the owner of the property. It's hard to attach. You can't attach it. It's really a difficult tax to collect. Municipal tax collectors talk about businesses being established, running for years and closing down and they never make it to the business occupancy tax rolls because nobody knows who's supposed to be administering it.
There is no question that there's a problem with the tax. It's hard to justify the rate structure in its detail and it is hard to collect. But on the other hand, you have to ask yourself the question: In this economic environment, do you want to be increasing taxes by 12% on small business and reducing them by 17% on the banks? It seems to be you can't get away from that problem.
Mr Tony Silipo (Dovercourt): Mr Mackenzie, thanks very much, first of all, for an incredibly thorough and detailed presentation. I think it's going to take us a bit of time to actually digest it all. I want to pick up on a couple of points, the first one being this point you've been discussing with Mr Phillips on the business occupancy tax.
You've outlined the problem very clearly. I won't reiterate it, time being short, except to point out the irony that for a government that continues to say they want to support small business, they seem to be doing here the exact opposite in their tax policy, which is to increase taxes for small business and reduce them for large businesses.
From that, though, given that the minister has indicated that he wants to bring in legislation to try to fix this problem, but the only way he is proposing to fix it, as far as we could tell from his announcement, is to simply allow for an overriding of leases where right now the landlord is getting this bill because it's being shifted over, and so I think he's basically looking at a way to allow the landlord to collect or pass on to the tenant --
Mr Mackenzie: That's not a solution to this problem.
Mr Silipo: That's not a solution to this problem. What I wanted to ask you was, what would be the more sensible solution, again given that the government is prepared to open the legislation? As you said earlier, the cries for change are going to continue to increase as people begin to digest the full impact of this and all of the other tax changes. What could be done or what should be done, either on this specific piece or on the whole mix and match that's here, in terms of the property tax mess, given that the government is prepared to reopen the legislation?
Mr Mackenizie: I'm not even sure if the government has to reopen the legislation. The government has the power to create a class of property and has the power to set a lower rate of tax on that class of property.
What may require it to reopen the legislation -- I'm not sure; I haven't immersed myself in the Assessment Act enough recently to be able to answer the question. I suspect they might have difficulty defining a class of property based on the type of occupant of the property, and so they might have to amend the legislation to permit that to be a legitimate criterion in determining a class of property. But the government has virtually unlimited power in the legislation to establish classes of property, and it has virtually unlimited power in the legislation to permit municipalities to establish different tax rates on those different classes of property.
Now you start to run into the other thing we were talking about, because in order to restore the tax position of small business, you run into the problem with these bands they are creating that limit the ability of municipalities to vary tax rates.
One of the problems with reform in this area is that you repeatedly meet yourself coming the other way. You head out some way and you think, "Oh, that's me going the other way." I don't say this to be less than understanding of the problem a government has in doing something about this. The criticism here is that they ought to have known how complicated this was before they got into it, and they ought to have done some thinking through of some of these difficulties before they brought in legislation.
There are all kinds of measures of the extent to which this government keeps meeting itself coming the other way in these areas, whether it's the 180-degree turns in policy announcements or a bill and then another bill to amend the bill and then another bill to amend the bill that amended the bill, or the wonderful experience we had last fall of bills being introduced to amend bills that hadn't been passed yet.
Mr Silipo: Quickly, to come back to the broader picture you started with, your numbers indicate that the numbers I and others had suggested were even conservative, shall I say, because you're saying it would have been possible, still is possible, for the government to have balanced the budget earlier than they are going to without the tax cut and without the cuts, more importantly, in services. Also, when you link that to the job creation numbers, you point out that in fact there is no direct link between the tax cut and the creation of the jobs.
Mr Mackenzie: Let me put it this way. Without the tax cut, we could have avoided the massive cuts in public spending that we've had, and we would be sitting here contemplating a coming debate about how to spend Ontario's fiscal dividend.
Mr E.J. Douglas Rollins (Quinte): Mr Mackenzie, I want to congratulate you on coming again this year. I hope your success rate this year is equivalent to what it was last year, where you struck out completely. I think last year you predicted that the finance minister was wrong in predicting strong economic growth and consumer spending. On that point, it must be embarrassing for you to say, "I blew it last year," so on what evidence do I believe that this year will be any better?
The balanced budget by 2000, we're pretty near halfway there from where we started in our mandate. I think that's not bad off the track. We're close to 75% of the 30% provincial reduction in personal income tax. Assuming we would have had the same job creation as all the other parts of Canada had we not done that is a large assumption, I believe, on your part. The creation of 725,000 jobs: Yes, we're at 311,000. It doesn't seem to be too bad in the numbers when I look at them from my side of it.
Since when did the province of Ontario decide to set the Canadian dollar? I would like to think that Mr Eves would have that authority, but I don't think it's quite there.
The taxation of commercial and industrial that you seem to think is completely wrong, what's wrong with freezing it? It's the first time it hasn't grown in quite some time. In the last governments, in the last councils in this municipality of Toronto or the area that seems to be crying so loud that we haven't been well trusted in the cutting back of taxes, at least we put a lid on it and it has stopped growing. That must be some relief for those who are paying taxes.
You're quite quick to say, "Don't listen to them, because they're wrong, but listen to me, because I have a lot better track record than those people do, and the rest of the segments," but I think that success is in making sure we have got a balanced budget, that we are on target. The last government, if I recall -- I wasn't a member of Parliament at that time, but unfortunately or fortunately, I was a taxpayer. I was commencing to feel very unfortunate as time went on. But every time they predicted, as far as the finance minister was concerned, he missed on every projection that he put forward to Ontario. They missed badly. It's unfortunate that we, under Mr Eves, have missed badly too, but we undershot the target; we didn't overshoot the target. I think that makes quite a difference.
Those are my comments, and I suspect that some other people will have some.
The Chair: I think, in fairness, we will give Mr Mackenzie an opportunity to respond.
Mr Mackenzie: Thank you. First of all, on the overall job numbers, I don't think you can escape the conclusion, looking at the numbers that the minister has tabled in front of the committee, that the improvement that's taking place in Ontario's job performance and the economy generally is driven by exports. You cannot escape that conclusion.
Mr Rollins anticipated something that I would have said and couldn't and didn't; namely, that Mr Eves is not responsible for the exchange rate and he's not responsible for the growth of the US economy. That's my point. My point is that the growth that's taking place in Ontario is driven by exports and it's driven by factors that have nothing to do with the tax cut position of the Ontario government.
The second point I wanted to make is that I have trouble feeling too badly about my predictive potential. You may know that some considerable time before the minister froze the commercial-industrial tax rates at the provincial level, wearing my hat as the co-chair of the Ontario Alternative Budget Working Group, we released a paper which made exactly the point that led the minister to make that decision. So I think the numbers that we released on the impact of going to a uniform tax rate are perfectly consistent with what the government has generated.
My point about the commercial-industrial, and I thought I made it clear, is that I'm not going to join the crowd bellyaching about how unhappy people are that they're not going to get a tax break that they thought they were going to get. My point is that there's a whole lot of other stuff going on that's extremely subtle and that is going to have at least as profound an impact in the single-family residential sector as the uniform commercial-industrial tax is having in the commercial-industrial sector.
I want to say one more thing before I finish.
The Chair: You'll have to be quick.
Mr Mackenzie: I will be. The fundamental problem with this band system they're producing -- I suspect Mr Phillips was about to ask me that, so I'm going to answer it -- is that the implicit assumption is that the commercial-industrial property tax is the same tax as the residential property tax. That's like saying personal income tax is the same as the corporate income tax. It's not. It's a different basis. You wouldn't expect the corporate income tax rate to be the same as the personal income tax rate. Why would you expect the rate of tax on residential property to be the same as the rate of tax on commercial-industrial property?
I'm taking that decision as a matter of tax policy, but there's no particular reason you would expect that to be the case. If you get locked into thinking they are the same, then you start driving all these huge tax shifts.
The Chair: I have to interrupt you there. Thank you very much for your attendance and for the preparation and time that went into your presentation this morning, sir.
Mr Wayne Wettlaufer (Kitchener): Mr Chair, on a point of order: I wonder if we could request Mr Mackenzie, as co-chair of the Ontario Alternative Budget Working Group, to supply this committee with a copy of the alternative budget they come up with, because I believe this committee could benefit from that expertise.
The Chair: I think it's guaranteed we'll get it.
CANADIAN TAXPAYERS FEDERATION
The Chair: The next presentation this morning will be by the Canadian Taxpayers Federation, Mr Brian Kelcey, provincial director. Welcome, Mr Kelcey, and thank you for coming.
Mr Brian Kelcey: I want to thank you for the opportunity to speak today on behalf of the Canadian Taxpayers Federation. Here to help me with presentation notes is Jim King, who's manager of our new field organization here in Ontario.
At present, the Canadian Taxpayers Federation is awaiting the results of a detailed membership survey on a range of issues like privatization and health care. Since we remain as confused as all Ontarians, including government members, about several government policy objectives, my remarks today will focus on the overall Ontario fiscal agenda, including fiscal policy matters which impact on rather than appear in the Ontario budget itself.
We will follow up in a few weeks' time with some more constructive comments and a series of papers on specific savings opportunities based on the most recent guidance of our membership. Our 1997 discussion paper on hospital finance will also be available on our Web site shortly, for your interest.
It is actually an honour to speak to you today, I must say bluntly, especially if members consider the tone of the first message I received on our answering machine about these hearings. Some unknown government hack, not part of the committee staff, explained quite explicitly that we were contacted as part of a search for presenters who would be "supportive of the achievements of the government." Happily, there are some.
Mr Kelcey: I enjoy the laughter, but you're taking my time, sir. The government's progress on deficit and debt reduction and its care and attention to the cost of the debt already incurred have been an essential boost to the attractiveness of Ontario as a site for investment. Confidence in government targets is so high that I heard an opposition MPP yesterday speak to Toronto city council of a $2-billion slush fund as though the budget were already balanced.
The Ontario tax cut has returned billions of dollars to the wallets of taxpayers. While this stands in contrast to Ontario's continued acquiescence to federal tax increases through bracket creep and the CPP, it is hard to argue that the broad-based tax cut has not contributed to the healthy boom in Ontario's economy.
Also, the Ministry of Finance has done wonders for the perception of Ontario's books. Improved financial accountability, closer adherence to commonsense accounting principles and increased use of clear targets and measurable goals have been very positive.
Left without context, these three pillars of provincial fiscal policy offer outsiders the impression that Ontario's government is a commonsense, straightforward player with a steady hand on the fiscal tiller. But the structural and philosophical foundation underlying Ontario's performance, and thus the determinants of its long-term course, are not so sound. To go back to the tiller analogy, the image of Mr Eves steering over a flat ocean looks great, until you look at the compass and see the trouble the damaged rudder is creating. Our concerns today focus on three related themes: credibility, consistency and confidence. The growing lack of all three is leading to fiscal troubles down the road.
Speaking to the philosophical problem, I want to start with the small matter of a long-forgotten pledge to pass a balanced budget and taxpayer protection law. "Pass immediately" was the phrase on the pledge. "In the first sitting" was the government's phrase.
Some of you may know Premier Mike Harris, pictured here. He's signing that pledge I spoke of. In fact, all the members of the government caucus signed it except for Ted Arnott, who had been steadfastly refusing to sign any pledges, arguing he couldn't guarantee they'd be kept. Perhaps Mr Arnott knew something we didn't. I'm prepared to admit today that we didn't give Mr Arnott credit for his integrity and that we gave the promises of others too much credit.
The government has found the time to consider such urgent issues as legal sanction for an official Ontario tartan, so it should find the time to keep its word, now. We recommend the government introduce the promised laws concurrent with its 1998-99 budget, much as Manitoba did with the first draft of its balanced budget law in 1995.
I hope the chair will excuse me for one moment if I direct a comment straight at all government pledge signers present today. Note that we've seen this pledge sit unfulfilled for two years, which means you are making fools of us. In the principle of reciprocity, if our members have to wait longer than budget day for you to keep your word to the electorate, then we will have to make fools of you. I'm no longer sure that will be difficult, given all the new ammunition you've recently given us.
Next there's the issue of inconsistency, which reduces the government's credibility. This is particularly problematic on the revenue side, where the government's extra-budgetary participation in the property tax adventure is starting to impinge on the credibility of its tax cut. Consistency in taxation is a hallmark of good government. Arbitrariness in revenue collection is the hallmark of the Sheriff of Nottingham.
Our first concern is careless taxation. Bill 160's section 257.12 allows one single Ontarian to tax by regulation. The government's excuse for this outrage? They say they needed more time because they didn't yet know what the education tax rate would be. If not, then what was the logic in proceeding with the cost swap in the first place? This concern holds true not just for the upload, but for the famous so-called revenue-neutral download as well.
There are four credibility strikes here: two for making major changes to taxes without knowing the impacts in advance, one for anti-democratic taxation and one for causing all the confusion by stepping back from the original education finance goals in the first place. We have similar concerns about the shift in apartment taxes in Bill 160.
Our second concern -- not a surprise this week -- is education property taxes. Residential rates are flat, funding is expected to be flat, yet at least at the first announcement we were told that business tax rates will be differential. Any attempt to portray this as a Toronto issue is cynical, to say the least, and I direct that comment at both sides. This is an issue of fair taxation, pure and simple.
The government's stated purpose in maintaining differential rates, even in the short term, is that it hopes to defer the negative impact of wild fluctuations in property taxes. This is astoundingly inconsistent since the main focus of provincial policy in 1997 was to adopt policies -- amalgamations, downloads, tax shifts, the BOT cut, and CVA, MVA or AVA, whatever the vogue term is in the government now -- in a manner that will create instability for millions of ratepayers. Another credibility strike is deserved here.
We recognize, perhaps better than the government does, the impact of surprise shifts in property tax burdens. To suggest, as Mr Eves has, that it's unfair to shift tax burdens on businesses and then spend millions to sell and implement AVA, the BOT cut, Bill 160 and so on is ludicrous and fiscally unconscionable. Government members, if you're going to screw the taxpayers, at least screw them consistently.
Our third concern, with the business occupancy tax, is surely well known to your constituency assistants now. Somewhere amid all the sad spin about this obsolete tax, a supposedly pro-business government went ahead and cut the BOT without cutting the tax burden itself. The logic? That at least in the short term, landlords can simply charge the new cost to their tenants. Surely somebody in the government was aware that some landlords would be caught in mid-lease. Another strike, for either carelessness or ignorance, and given the number of businesspersons in this government, we think the answer is clear.
Finally, if this is all about fairness, fairness and fairness, as the taxpayer-funded ad bonanza tells us, why is there a unit assessment system for railroads and market assessment for everyone else? The government tells us that railroads need to be protected from market-driven tax fluctuations. That's nice. How about giving the same protection you've offered to Big Rail to your constituents?
If it's all about transparency, then why does the first assessment notice I've seen in the hands of a ratepayer only refer to the change in assessment as opposed to the new total? Why is there no explanation for the change? How come assessment department staff are admitting to our staff that rules are being made up as the assessment goes along?
Our greatest concern is the root cause of the government's sudden intrusion into the world of ratepayers and their lack of confidence. That cause we've nicknamed the Monster Tory Tax Shuffle. The closest official description is Who Does What or disentanglement. Anyone who's been trying to follow this process knows how ironic both names are.
Money is shifting all over the place. Responsibilities and tax burdens are being shuffled and reshuffled. The province has effectively endorsed municipal deficit spending through its Toronto deal. Downloads are starting to hit local credit ratings, and in this case I'm not talking about Toronto. The province collects $2.5 billion in gas taxes but feels free to download 24% of road costs to property taxpayers. Welfare will now rely on property taxes, despite strong Who Does What recommendations directly contrary. School boards are preserved but left with no purpose. Many taxpayers are still deluded into believing the main objective -- removal of education from property tax bills -- was met by all this.
No one can make any sense of it, and why not? Because it makes no sense.
We want to make it simple for the government because the government seems to be too busy to assess the consequences of its actions. It's simple. Once you squeeze the toothpaste out of the tube it's kind of hard to put it back in. You're still squeezing. Stop for a second. Ask yourself why.
Here are a few suggestions on how to restore some order to the chaos that is growing around you.
First, we recommend that the government adopt as its medium-term objective the implementation of the Slack-Tomlinson plan to downramp equalization of business taxes.
Second, we grudgingly recommend the government stop CVA and MVA implementation and save itself some money; grudgingly because the reason in this case is that fluctuating changes and the province's willingness to stick for some period to a differential business rate eliminates the primary motive for the change.
Third, we recommend the province set as its post-surplus goals the elimination of property tax financing for education and welfare and begin work to set time lines and measure the feasibility of this objective, given debt repayment priorities.
Fourth, we recommend that the ministries of finance, municipal affairs, social services and education be asked by this committee to prepare a detailed monster tax shuffle business plan, and in line with the government's habits, we suggest a more political name, of course, such as Fiscal Chaos: Our Next Moves Forward. The plan would include clearly stated objectives for all property tax sensitive changes, measures of performance, a history -- internal documents included -- of the decisions involved and so forth.
Fifth, we recommend this business plan be the subject of hearings by this committee, real, serve-your-constituents hearings, to try to get a single concrete picture of what the Ontario government will look like to ordinary people once the various shifts are over.
It is worth noting that this government was elected with a clear platform -- the Common Sense Revolution document -- a campaign platform that was supposed to put people back in charge and replace the bureaucratic jungle with common sense principles and policies. Now there is little that can be understood, let alone described with the words common sense, on the table in the government's day-to-day agenda.
With this in mind, we have one more very important recommendation. It's something we rarely seek in our role as advocates for the common interests of taxpayers. In fact, it's something we've only asked for, at last check, four times in almost a decade we've been around across Canada. That something is the resignation of a cabinet minister. We ask rarely in part because it's usually rare that the loss of one man or woman will make the difference.
Today we've found an exception. We believe that Municipal Affairs Minister Al Leach is making the very worst of differences to the lives of taxpayers, assisted by the finance department and everyone else who has had a chance to endorse this increasingly absurd tangent in government priorities. Al Leach has become a one-man big government, his ministry a prison that locks candour, foresight and sanity away.
Confidence in the numbers can be just as important as the numbers themselves. It is hard to retain confidence when one of the men at the tiller is the same man who has offered several descriptions of the meaning of "revenue neutral," who was elected on a promise not to implement MVA and then implemented it, albeit with another cosmetic name, and who says amalgamation will save money in one year and then offers grants and loans to municipalities to cover for the new costs in the next.
Therefore, as a budget recommendation we feel that it's only appropriate to insist on the resignation of Mr Leach from his post and from cabinet, and his replacement with someone who is willing to understand, to publicly understand, the errors made in property tax and municipal policy and correct them, for the good of the fiscal reputation of this government as a whole, incidentally.
Taxpayers have no confidence in Mr Leach. It is frightening that there is anyone left in this government who has confidence in him or his numbers, or in anything he says. He has become a captive of his misstatements, his stubbornness and his own bureaucracy, which in turn have captured the fiscal agenda of this government.
Clearly, Mr Leach's political judgements are at least one root cause of the chaos discussed today. Fiscally responsible governments cannot be seen to be ambushing their citizens. He has to go. If not voluntarily, then he should be turfed in the most humiliating, unprofessional and indifferent manner possible so that taxpayers can at least feel they've got something like a fair trade in the bargain.
The Chair: Thank you very much, sir. We have about four minutes per caucus. We will start with the New Democratic Party.
Mr Silipo: Mr Kelcey, thanks for your presentation. In the usual tradition of the taxpayers' federation, you've been very forthright. Let me try to be equally so and start actually with your last point and say that I don't agree with you in calling for the resignation of Minister Leach, not because I don't agree with the criticisms that you have of him, but simply because surely you, of all people, would understand that the kinds of decisions that are being made and that have been made and that you've been so clear in criticizing -- and much of that criticism I do in fact agree with -- aren't made by Al Leach as the minister. They are decisions that he is given the responsibility for and is told, "You carry out." Of course, he would have had some influence and some input into that, but these kinds of fundamental decisions are not made by individual ministers. So if you've got a beef, it's against Mike Harris, not against Al Leach.
Mr Kelcey: I'm very in favour of brevity today so my answer to that question simply is, for the moment there are a lot of problems; we'll deal with one minister at a time. Although I believe the member will notice I alluded in my speech to the fact that we are as angry at the people who have endorsed these decisions on the basis, one assumes at least, of the advice of Mr Leach and his department.
Mr Silipo: Yes, I hear that. I want to come back to some of the other points you made. One of the things that jumped out at me, for reasons I hope you'll appreciate, is your recommendation that the province should start working towards the elimination of property tax financing for education and welfare, something that I certainly think is the direction we should be moving in. In a more jovial mood, I would say you must have taken a leaf from the NDP policy directions.
But I want to say in a serious tone that this is something I know more and more people, whether business folks or individuals, have been saying, that this really is the more sensible solution. I just want to be clear that we're saying the same thing when you say that, if you looked at what it might look like down the line, it would involve higher taxes at the provincial level, the combination of -- but what it would also mean is the elimination or the great reduction of property taxes that now go into that. Right? But just to be clear, we would be talking about both of those realities taking place.
Mr Kelcey: Over time, but not in the sense that there would be higher taxes. If you're looking at the relative share of what kind of taxes paying for what, that's more something we'd see as adjusting over time, not happening immediately.
I will tell you that the taxpayers' federation is not totally heartless. One of the reasons we're so opposed to all of the changes that the government has been making is because the downloads are putting these new tax burdens, or old tax burdens, on to the property tax bill and property taxes are easily the most socially, fiscally, economically regressive tax that anybody can think of because you're taxing somebody's home, in many cases.
That being said, I'm not sure how well publicized the recommendation was, but I believe my predecessor, Mr Pagnuelo, did recommend at one point that we would, again grudgingly, support a reversal of all these changes in exchange for -- essentially, we would have supported the third phase, if you like, of the government's tax cut, meaning a property tax relief rather than an income tax relief, precisely because we were so concerned about the broad impact of these issues.
That's not an easy decision for us to take; we're big fans of the tax cut. But again, given the regressivity of the tax system we're dealing with, to add more to those bills, or to even add the potential of more of a burden on property tax bills, is, bluntly, a stupid and inconsiderate decision.
Mr John R. Baird (Nepean): Thank you very much for your presentation today. After your remarks, I look over at my colleague in the New Democratic Party and I can just imagine what his life was like during the social contract when he heard from his friends in the trade union movement. I certainly have a better appreciation for that.
Mr Kelcey: I'm not that bitter, sir. I'm trying to be constructive.
Mr Baird: We appreciate it.
I'm interested in your comments on page 2 with respect to the taxpayers' protection pledge. I, like most of my colleagues, signed it, and would again today, and strongly supported it. I'm certainly confident that a Mike Harris promise made is a Mike Harris promise kept, as are my colleagues. We're still strongly supportive of it, and hopeful. Can you tell us why you feel that would be important not just in the short term but in the long term, what impact that would have and how it would guide public policy decisions?
Mr Kelcey: In part, we recognize that half of the power of such a piece of legislation is symbolic. While it has been expressed to me by some government members that symbolism can wait, it didn't take long to look through the list of legislation passed in this Legislature to see that there are some fairly trivial acts or pieces of legislation that could also have waited, so that you could be entitled to keep your word. The symbolic power that is there is it sets a framework in the minds of people in government and outside it, across the floor, that staying within your means is not a temporary thing, that people don't want to go through again the kind of fiscal recklessness and suffering that we've just been through for the past two decades.
I've sat and listened to, in debates on private members' resolutions, Ms Bassett, for instance, in the House sit there and, despite her pledge, stand up and argue that, "This kind of legislation would be terrible because it would tie the hands of the government," yet the government was elected fiercely arguing and agreeing with us that that was exactly what was needed.
So there's that symbolism; that's useful. But we also think it's important to get it done now precisely because you're setting that framework in place before, bluntly, the next election, and before the temptation comes upon your government to start cutting corners if absolutely necessary and prolonging, say, debt repayment plans or penalties for politicians or referenda for tax increases again.
It's an issue of credibility, it's an issue of setting the final touches on a framework for a provincial government that can work, although that framework is being upset a little, as I've said, by your property tax adventures, and it's a symbolic issue in that it makes it clear that the new standard for government is one where the books will, once balanced, stay balanced.
Mr Ted Arnott (Wellington): As members of the Legislature we represent our constituents, and collectively we represent the people of Ontario, and we're elected for a mandate. The trouble I have with one component of the taxpayer protection pledge form is the referendum on tax increases.
I wonder if any government has the right to tie the hands of future governments, given the fact that it's the right of the government to assess a level of tax that they feel is required to fund programs and then be accountable at the ballot box. I would argue that in the last two provincial elections, the propensity and the willingness of governments to raise taxes -- both the Liberals and the New Democrats probably paid a fairly severe price for that at the polls. Why do you think future governments wouldn't be constrained from raising taxes, based on that obvious eventuality, having to go to the ballot box to seek the people's final assent?
Mr Kelcey: My first answer to that would be that one of the difficulties, and I mean this as a sincere and not a negative comment, of being a member in the House is you sometimes lose sight of priorities by being partisan. Yes, the Liberals and New Democrats paid a heavy cost at the end of their various terms of office. What's of more concern to us is the people who are working hard who are paying an even heavier cost on their paycheques, on businesses that didn't need to go bankrupt but their taxes rose beyond their ability to pay them. That's a serious problem.
While we could have a good philosophical debate about whether governments should be tying the hands of future governments, something we do all the time with other pieces of legislation, I think what's really important to look at here, and the argument we've been making more and more, is -- look, almost every government I've ever seen in my lifetime has been elected on a promise not to increase taxes, not to increase the tax burden, not to do this or that, and somehow in the end, every government seems to find a way, small or large, to break that promise.
In net terms, your government is in real terms taxing less, but it's still an open question. If things really, really, really screw up, certainly in this year you'll be increasing the net tax burden on many taxpayers. That's the kind of thing that we need to discuss between elections precisely because governments are so good on the tax issue at promising one thing during the election and doing another.
Mr Phillips: Thank you for your presentation. A lot of your comments are on the property tax issue. We in the opposition attempted to warn the government about the problems with the tax issue, and the government, like other governments, tended to ignore the opposition and move on anyway. But I think the senior municipal bureaucrats, the senior civil servants at the municipal level, were uncharacteristically blunt about raising concerns about what was going to happen with the property tax system and three times came before committees to say, "Listen, please look at this."
Here are some of the things they said. The Association of Municipal Clerks and Treasurers, the senior civil servants at our municipalities, said:
"The tax system will be immensely complicated by the institution of 84 classes and subclasses and up to 156 tax rates," that the new system is going to be more complicated than the old system.
"Implementation on January 1, 1998, is a high-risk strategy for the financial health of the municipal sector. The bills will create serious problems. This is a recipe for administrative chaos. This is downloading the government's confusion and indecision to the municipalities."
As I say, I've been around here 10 years now and that's uncharacteristically strong language for bureaucrats, for civil servants, dealing with politicians. They tend to use bureaucratic language, if you will. You're an observer of the government. Why do you think the government has proceeded to move ahead at the speed they're moving ahead and with the problems that are inherent in the system right now even with all those warnings?
Mr Kelcey: As the member will know, we have friends in several parties who tell us things, and certainly I can tell you as much as to say that there is a lot of confusion on the government's side about why that is as well, which is a dangerous sign. The glib answer is to point to the record and say, "Look, the government got angry or got smart, and for whatever motive, decided to take over education and somehow all these different things had to happen to make it work, and it just got screwed up along the way." I think it is a glib answer, because something as complicated as this has to have come from some forces that were themselves more complicated.
The best response I can give to you is to say that I agree it's baffling. I don't know exactly what's going on. What I do know is that our organization, and myself from personal experience in a number of municipalities I have lived in, have seen full-blown in other provinces market value, actual value, current value reassessment, and it has been universally disastrous. Vancouver is moving away from it. Winnipeg suffered $250 million worth of appeals losses on 50,000 appeals. Just think what it's going to be like with 600,000 or 700,000 appeals.
Anybody who had been looking objectively out in the world could have seen, just as with municipal amalgamation, that this was an insane idea, but for some reason, some sort of momentum somewhere deep within the government pushed them into doing this as fast as possible, and I think the speed, for taxpayers, is terrifying.
The Chair: Thank you very much, sir, for your presentation here this morning. We appreciate your time and effort.
ONTARIO COALITION FOR BETTER CHILD CARE
The Chair: Our next presenter is the Ontario Coalition for Better Child Care, Kerry McCuaig, executive director. Welcome, Ms McCuaig. Thank you for coming.
Ms Kerry McCuaig: I want to go over some areas which I have put in the category of being themes. One, it's necessary to remind you once again that there has been a litany of cuts since the government took office, to early education and child care programs. That is listed in the brief which will be coming to you shortly.
It has not only been the direct cuts to child care programs. There have also been related cuts in other areas that child care interacts with that have had an impact on the delivery and the stability and the accessibility of child care services. That has been up until December, and we've seen the impact of that. We've seen the loss of child care subsidies, we've seen child care programs close, and we've seen programs that were on line in order to start up not being able to start up because of the impact.
Then we had the December blitz of bills. Although none of those was particularly child care bills, every one of those bills that passed is having and will have a direct impact on child care, specifically because of downloading. Under downloading, the child care funding commitments to municipalities increased by 400%, from $63 million to $333 million. Under the bill, child care was made a mandated service to municipalities, and that is a positive thing. However, attached to it and the changes that were included in the Day Nurseries Act in order to accommodate downloading, we have for the first time funding flowing through the Day Nurseries Act which is not going to regulated child care.
This brings me to my first point, which I can't stress strongly enough: If you are going to spend public dollars on child care, spend them wisely. Don't spend them in a way that produces bad child care. This is not an ideological position here. The research is overwhelming that bad child care is bad for kids, that public dollars spent on child care that don't produce good programs are detrimental for the children who are in them. When we go through these bills, we're going to see again and again that the direction, not only in terms of how much money is spent but in the way it is spent, leads to the provision of bad child care.
Specifically, Bill 142 requires parents receiving social assistance to participate in Ontario Works. Attached to the bill are 12,000 child care placements. Notice that they're not subsidies, they're not spaces; they're placements. What that means is that a municipality that's administering this program is free to direct the parents into the informal sector in order to get their care.
Again, this is a first that we've never seen before, where we've established a two-tier system of care. If you're a working parent and you access a subsidy, you're entitled to a regulated, quality child care program. If you are the child of a parent who is on social assistance, you are relegated to a program where there is no monitoring, there are no safeguards, and the parent is essentially on their own in determining what kind of care that child receives.
Bill 160 and the funding formula which is attached to it I think are going to have the biggest impact on the provision of early education and child care services. I want you to examine the contradiction which accompanies Bill 160 in that in all other areas of social policy and economic policy, we talk about partnerships. We talk about how it makes good sense not to have things operate in silos, but that there should be community partnerships between different areas in order to provide the best possible services.
Our education system, with all its warts, is probably the biggest community partnership program we have. School boards and schools and principals have been responding to community needs in a whole variety of programs, so that we see our schools as neighbourhood hubs that provide not only education but breakfast programs, counselling services to families in crisis, and yes, that are the place where almost the majority of child care programs are situated. This has been not only a benefit to those community partners that have partnered with school boards and with schools, but of benefit to the schools themselves and the kids they serve.
I think we know, and we hear again and again, that if kids are hungry, they don't learn. So what are schools supposed to do? Child care started in schools because there had been lots of documentation of children being dropped off in school yards at 7 and 7:30 in the morning, waiting for the school doors to open. Part of the partnership of having day care programs in the school is to provide for that before-school and after-school care.
Under Bill 160 -- and we haven't heard everything about the new funding formulas, both in terms of operating and capital -- it seems quite clear that school boards will no longer have the flexibility to partner with the community in offering these programs. When we look at the fact that 40% of child cares are in schools and that they rely on the support the school boards offer them, we are really looking at a great deal of pressure on child care services. In fact, we're probably looking at whether or not they can survive.
We're now seeing the impact, and you probably saw the article yesterday in the Globe, of the changes that were made in OSAP funding, where student parents are dropping out of school because they can't deal with the increased child care cost. Again, this is a first in Ontario, where we're expecting this one group of parents -- whom we've been very angry at because they've been on welfare, who get off welfare and get into school -- to borrow money in order to pay for their child care needs, yet we know that without having child care, they are unable to continue their education.
When we put this together, we're looking at child care which started out, when this government came to office, as a fragile service. The cumulative impact of these changes can go both ways. We'll either have a service that goes into oblivion or we'll have a service that no child should be put into.
I want to talk a little bit now about the child tax benefit and the reinvestment strategy. As you know, in the 1996 budget there was an announcement that there would be 200 million new dollars over five years. That money was never spent, and then it was put into a tax credit which no one has yet seen.
I want you to think about whether or not, given the parameters around the eligibility for that tax credit, any family will actually be able to make use of it, because the ceiling for the tax credit is a family income of $20,000. We know what the demographics of those families are and what their child care needs are. Essentially, those are the parents who don't pay money for child care. They are the parents who off-shift: Dad works nights, Mom works days. They're the ones who get Grandma or an aunt to look after their children, and money doesn't exchange hands. So essentially you can announce $1 billion in this tax credit quite secure in the fact that nobody is going to be able to access it.
The other thing I'd like you to note is that there has been a lot of recent attention focused on the deaths of the 50 children who have died while under the care of child welfare agencies. Here again we're talking about community partnerships. Child welfare agencies rely on their community partners in order to fulfil their mandate. We find in the inquiries into the deaths of these children that in most cases the child welfare worker tried to access child care to support those families, and in no case did those children make it into a child care program. I think it's safe to say that many of these children would be alive today if they had had the benefits of that program, if those families had had the support of that program.
This brings us to really the fundamental point I want to stress here with you today: It's not just how much money is spent, it's how it's spent. A voucher to a family participating in Ontario Works or a tax credit to a low-income working family cannot provide support to families in stress. They cannot detect a child at risk. They cannot provide developmental opportunities for vulnerable kids. They don't work in partnership with the community, and they don't provide public accountability for the dollars that we put into child care.
I'm going to give you a preview of a study that's going to be released in the next two weeks. You've probably all heard about the US studies which document that for every dollar spent on child care for high-risk kids, there's a $7 savings down the line. This was US research in a US environment. There's now a made-in-Canada study that you'll be hearing about. It didn't just focus on at-risk kids; it looked at all kids. It found that for every dollar that the public invests in child care, another dollar is created in the economy. So in economic terms, or in policy terms, it's good spending.
What we're looking for is that there be public accountability for public spending on child care, specifically that the commitment made in the 1996 budget, the full $200 million, go into improving the accessibility of quality early education and care programs for kids, and that any savings from the reinvestment strategy attached to the child tax benefit go into programs supporting low-income families regardless of their parents' employment status. This is also quite important, because if we have a program which only supports working families -- you are dealing with the new city of Toronto, which feels under siege right now. If you're only supporting the kids of low-income working families, you're leaving out one in three children in Metro Toronto, who will not have access to any of the benefits of those programs.
As an interim step, we're asking you to look at providing emergency funding for child care under OSAP in order to support those students who are in danger of dropping out because of increased child care costs. We urge you to provide sufficient operating capital funding to school boards to allow them to continue their community partnerships with child care and other programs. We want you to set funding for school boards in order to ensure that every board can institute and maintain quality junior kindergarten programs. Finally, we'd ask you to reconsider your commitment to the across-the-board tax cut.
Our organization is not opposed to selective tax cuts. However, we question why this government argues loudly for universal tax cuts, but when it comes to programs, they insist that programs must be targeted.
Thank you for your consideration.
The Chair: We have about 15 minutes, five minutes per caucus. We'll start with the government caucus.
Mr R. Gary Stewart (Peterborough): Thank you for your presentation. Certainly your presentation is most interesting. As I read through it, you suggest many of the things you want. It appears to me, if I read between the lines, that you're not in favour of private day care or child care; you're strictly interested in continuing with public child care. Am I right to understand that?
Ms McCuaig: We're interested in a mixed system of non-profit and public child care, yes, because in that system there's accountability for public dollars.
Mr Stewart: I just read the one where you're suggesting for people under $20,000 that they might have a family member or whatever to look after the children. Are you suggesting that should not happen?
Ms McCuaig: No. I'm saying that these people won't be eligible for your child care tax credit.
Mr Stewart: But maybe they want to do that. Is that something we should not be pursuing, to allow parents and grandparents and so on to look after and nurture and teach their siblings? They can't do it; only those who are qualified day care people? Is this what you're saying, that the only ones who will be able to make these kids --
Ms McCuaig: I think we're talking about two different things here. What I'm talking about is the child care tax credit, which gives a $400 credit to families earning under $20,000 provided they spend at least $1,200 a year on child care. Now, because we know the demographics of these families are that they don't have $1,200 to spend on child care --
Mr Stewart: But they may have a grandmother and a grandfather.
Ms McCuaig: Right, and if they're using their grandmother or their aunt or any family member and money isn't exchanging hands and there's no receipt, then they don't receive the child tax credit.
Mr Stewart: I can appreciate that, but I guess my concern is that maybe they don't want it. Maybe they would like their relatives to look after those kids.
Ms McCuaig: That's fine. Families make personal choices. But if you're going to announce a program which is supposed to support these families, you ought not to put restrictions on it to ensure that no one can access the benefits of the program. That's the point that we're making here.
Mr Stewart: I appreciate that but, on the other hand, we have to look at ways that certainly will make sure those children grow up and are educated in life skills etc, which many of their relatives can do.
The other thing that concerns me is, prior to you, we had a presenter who suggested that we have to watch tax increases and we have to be putting taxes down. In your presentation you are certainly suggesting various things and programs that we must have, and I can appreciate that we have to have some of them. How do we pay for them?
Ms McCuaig: Again, you are spending money on child care. We would like you to spend it properly. Just to use one example, with regard to the $120 million that you have earmarked for the child tax credit, we think you're probably going to look at the stats on next year and find: "What do you know? Nobody was able to access that." Rather than keeping that in place as it is, why not make that money -- and that's our recommendation -- available to actually expand access to child care programs? That's what families need; they need those child care programs.
You estimate that there's going to be $150 million as a result of the reinvestment strategy under the federal child tax benefit. That's $150 million that you're required to spend on programs for kids. We're urging you again not to put it into a credit that no one can access but to put it into the programs that low-income families need to survive.
You're spending $50 million on a voucher program for welfare recipients in Ontario Works. We're saying don't spend it that way, spend it so that these children can have access to quality early education programs and not be put in environments where we don't know how they're being cared for. They may be being cared for quite well, but you have certain assurances when you get into your car that there are regulations which don't turn it into a death trap, and that's all we're asking for kids.
Let's have a system where we know where kids are when they're being taken care of and we know under what circumstances and that there are safeguards for kids when they're being taken care of. Particularly if we're going to use public money, let's ensure that what we're buying is good care.
Mr Monte Kwinter (Wilson Heights): Thank you very much, Ms McCuaig. I really want to follow up on this whole area of accountability and the area of bad child care and good child care. I agree with you that there are programs available that sound good and they make the government feel good but they're not accessible and they're not effective. We had a perfect example of that with the recent teachers' strike, where parents are encouraged to send in unsubstantiated bills for $40 a day, up to $400, to look after child care that was required while the strike was on. There have been people appearing before this committee who are strong supporters of the government who are critical of that. I would like to get a better definition or maybe some examples of what you consider to be bad care and what you consider to be good care and how we can best utilize the resources that are being applied to that.
Ms McCuaig: I'll do that, but perhaps I could just use a second to say it's ironic that the government recognizes that parents have child care needs when teachers are on strike, but they don't recognize that they have child care needs and need support for those child care needs between the years when their children are zero to five. Just to flag that: Universal child care is fine when you have a teachers' strike; it's not fine for any other time.
In terms of good child care/bad child care -- and again, there is plenty of research which substantiates that good child care is a child care program which is delivered by trained staff, which is monitored and which receives sufficient public funding to ensure that the care giver is not overloaded, that she doesn't have too many children to care for. This doesn't mean that it has to be in an institutional setting. These sorts of programs can be well delivered in a home setting with a home child care provider who is trained and supported in the work she does.
Then there are the stark examples, and I will go back to the public inquiries into the babies who have died. These are babies who are identified as being at risk, and we're now looking at the child welfare system and saying, "Why didn't those child welfare workers protect those children better?" In every one of those cases the child welfare worker recommended that there be child care, that these children go into child care to support them and their families, because they knew that child care would be a support to the families and that it would provide ongoing monitoring that no amount of spot checks by a child welfare worker would have been able to produce. But there was no child care and these kids are now dead. We can talk about what price we put on something like that.
Mr Kwinter: When you talk about the subsidized care and full care parents, I've met with several groups that are saying that without that mix and without that regulation, the system can't work.
Ms McCuaig: Absolutely.
Mr Kwinter: There doesn't seem to be the realization that it requires that mix and that regulation to provide what we call quality care.
Ms McCuaig: Exactly. Ontario is unique here in that we've developed a child care system which has a range of income users. Those parents who use child care and pay fees -- and let's be very clear, substantial fees: $13,000 a year for infant care is not unusual in this city -- but their fees, partnered with the fees that come through Comsoc, are what build the system and maintain the system.
If those parents are forced out of care because of the policy changes that are contemplated or the program gets kicked out of the school because the school can no longer support it, then the whole stability of the program collapses and it becomes more expensive to buy care for those families in need who need subsidies.
Just in terms of economics, it's a good idea to have that cross-section, but it's also in terms of social cohesion, that from a very early age children mix with the broad range of members from their community. So it's good public policy and it's good economic policy to have this mix.
Mr Silipo: Ms McCuaig, thanks very much for your presentation. I want to start with the point that you spent some time on, which is talking about the money that the government has allocated, but, as you point out, is by and large not being spent, and the need to change the way in which that is being done.
We have a situation in which a number of presenters, economists and others, while there's not necessarily agreement on what should be done with the money, are in general agreement, as we look at the next fiscal year based upon what has happened over this past year and certainly over the last couple of years, that there's at least $2 billion worth of room that the government will actually have some flexibility on in terms of what to do. Do they continue to reduce the deficit? Do they, for example, spend it on initiatives like this?
What strikes me about what you're saying is that at least within that part of it, you're not asking for the government to spend any more money than they've already said they're prepared to spend. You're saying, "Take this $200 million, the $40 million there is in this year" -- which is also, by the way, money they said last year they were going to spend but didn't spend. You're saying, "Here is a way in which, if you're serious about spending it, you actually can spend it, as opposed to the tax structure you've set in place." Is that a fair way to put it?
Ms McCuaig: Exactly. That there are a number of programs where substantial amounts of child care dollars are being spent that don't produce good child care -- don't spend it that way.
Mr Silipo: The broader thing that comes out of that and one of the links you make is with respect to what happens with many of the child care centres that operate out of school facilities. As you point out, with the changes, made under Bill 160 there's going to be particular pressure put on those centres, or potentially on those centres -- I'm told here in Toronto, for example, but I don't think it's just in Toronto. There will be a situation in which capital dollars for school renovations won't flow to school boards until they've used every inch of space the Ministry of Education deems is available, including space that is now being used for child care centres, which not only provide good service but actually help bolster the enrolment and the movement of kids from child care right into the junior or senior kindergarten programs, where those still exist. That's another pressure that's going to be there.
Do you foresee that school boards are going to have to deal with the crunch of less dollars for education and that one of the things that might happen is some choices that boards will have to make, including, for example, saying to child care centres, "Sorry, we can't afford to keep you here any more"?
Ms McCuaig: That has already happened. In the new city, for example, last September the day cares in the schools should have been signing new leases. These school boards said: "I'm sorry, we can't sign leases with you. We don't know what our circumstances are." We have examples in the Peterborough area where child care programs that were paying a minimal fee to be in the schools have now been given rent costs of $12,000 and $15,000. Also, it's now possible to tax programs on school property which are not strictly under the Education Act. Now, because there's no mention of child care in the Education Act, again we have examples of day care programs in schools for the first time being slapped with $12,000 property tax bills.
So there are two ways it can happen: You can either squeeze them out by putting additional cost on them -- because where else? You pressure municipalities, you pressure school boards; they go wherever they can to get their funds, and that's one place they can go -- or it just becomes strictly a thing where, "We're expanding, we've got portables, we've got more kids coming in; you, child care, you, breakfast program, you, family counselling service, are not education, and therefore, here's your notice." That's not speculation, that's happening.
The Chair: Thank you very much. I have to interrupt there. Our time is up. I thank you for your presentation.
ONTARIO GOOD ROADS ASSOCIATION
The Chair: Our next presenter this morning is the Ontario Good Roads Association. Good morning, gentlemen. Thank you for coming. Welcome.
Mr Denis Merrall: Thank you and good morning. We are here representing the Ontario Good Roads Association. I am Denis Merrall, president of OGRA and county engineer for the county of Middlesex. With me are Ed Metzler, a councillor in the city of Thunder Bay; Murray Dinning, operations manager for the city of Stoney Creek; and George Stivrins, reeve of the township of Seguin. Sitting in the back is our executive director, Sheila Richardson, whom you have probably met before.
For those of you who are unfamiliar with us, let me say that our organization is the largest municipal association in Ontario and represents the roads and transportation interests of over 600 municipalities across Ontario. Our members range from the large urban regions to the small rural municipalities. Our board of directors is comprised of eight elected representatives from municipalities and seven senior municipal staff. This year our annual conference, which is titled Transportation Work Ahead, is our 104th. It's scheduled in a little over one week's time and we already have 1000 municipal delegates registered.
In addition to our conference, we have actively created new products to help our members keep pace with the changes in municipal life and transportation. We have expanded our education program. Actually, checking it up, we educated over 2,300 people, everything from wheel-installer certification to road inspection and design. These are mostly municipal employees. However, we are getting a greater participation from contractors, consultants and suppliers in our courses. We have had a fair attendance actually from MTO staff in our courses as well. We are becoming quite well recognized in this area.
We have also created new projects such as the road authority information resource centre and other facilities to help people improve their performance and deal with strategic management issues. In addition, we have a technology transfer program that deals with emerging issues in asphalt, concrete and bridge design and maintenance. One of our major initiatives over the past year was our efforts on the working group on standards and performance measures. This group will coordinate ongoing development and maintenance of standards for municipal roads and bridges in Ontario.
The Ontario Good Roads Association has appeared before this committee on several previous occasions, each time coming forward with concerns and suggestions for your consideration in the pre-budget consultation process. We would like to offer the following comments for your deliberations.
Today, we are here to talk about the need to address the issues facing municipalities as they deal with the end of provincial road funding, an increase in the size of their road systems due to the transfer of over 5,000 kilometres of provincial highways to municipalities and the growing capital needs of Ontario's municipal road system.
We need to immediately address the unfunded liability that municipalities have assumed with respect to the roads and bridges in this province. Our transportation system represents a major capital asset which will continue to erode with every capital project deferred and every maintenance activity reduced. We have always said, and it is worth repeating again, that a dollar not spent on maintenance today could become hundreds of dollars when reconstruction becomes necessary due to lack of care.
I want to say that municipalities are very prepared to manage their transportation systems. It is also true that the fact that the province is removing itself from direct involvement in the municipal transportation network does not reduce the importance of the municipal transportation network in supporting Ontario's economy.
Municipalities supported the government's initiative to disentangle areas of responsibility between the two levels of government. We advised the Minister of Municipal Affairs and Housing that we have been and will remain committed to providing and promoting leadership in municipal efficiency and restructuring. OGRA supported the need to change and remains committed to making the provincial transportation system work.
In the past, road expenditures were the only significant discretionary spending item in municipal budgets. This allowed reductions in unconditional funding to be absorbed primarily by municipal road departments. Now municipalities will have a greater financial responsibility for social services, ambulance service and public health. Today, road spending is a smaller portion of the total municipal budget. It is, however, still the only area where municipal councils can exercise municipal preference and fund municipal priorities. Future increases in welfare rates or ambulance usage will likely cause additional cuts to municipal road spending.
We appeared before this committee last year and stated that the government should act on the complete recommendations of the Who Does What committee concerning the transfer of highways and the need to fund, on an ongoing basis, these highways. I want to reiterate that statement today. The government, in our opinion, should live up to the spirit of the Crombie commission recommendations and put into place a dedicated, responsive and consistent source of revenue that will allow municipalities to maintain the public investment in our infrastructure.
There is a resolution from the township of Hope being circulated among municipalities and it is receiving widespread endorsation. This resolution calls on the provincial government to implement a dedicated road user tax rebate and that this rebate be made available to local municipalities to ensure fair distribution of gasoline tax and proper road standards. OGRA will deal with this resolution at our annual conference.
OGRA recommends that to deal immediately with the growing unattended capital needs, municipalities require a dedicated portion of the fuel tax revenue for outstanding capital projects. These projects are required to bring the road system back into good shape over a period of five to 10 years.
I must address the issue of financial neutrality as it relates to the downloading of provincial highways.
OGRA has questioned what appear to be different interpretations on whether highway transfers are part of the Who Does What redistribution of services. The then Minister of Transportation, the Honourable Al Palladini, advised OGRA, "Instead" -- of a dedicated source of revenue -- "the province will give municipalities sufficient tax room to manage their responsibilities for local services by removing 50% of the cost of education, or $2.5 billion, from local property taxes."
On the same issue, the Minister of Municipal Affairs and Housing, the Honourable Al Leach, in a speech to the association of municipalities, stated: "...the highway transfer announcement was made by the Minister of Transportation, separate from the Who Does What initiative. And it comes with a separate pot of money to support the transition. These pieces were never part of the Who Does What exercise, and they were never part of the equation."
If the transferred highways were never part of the equation, then provision for them has not been made in the increased tax room. We believe that this discrepancy needs to be addressed to ensure Ontario's road system meets the needs of Ontario's industry and commerce.
Additionally, and related to the issue of the transfer of highways, is the issue of the patrol yards that are to be transferred along with the highways and the costs associated with these yards.
OGRA believes that the patrol yards are assets appurtenant to the ongoing liability of taking on these roads, and should be deeded to the municipality receiving the transferred highways, after environmental cleanup. The disposition of picnic sites and other land along the transferred highways such as historic sites must also be resolved. If this land is to be transferred to municipalities with the highways, the sites must be transferred with no strings attached. Municipalities must be free to do what they wish with these sites, including selling them if they so wish.
In addition, the financial information released by the Treasurer on December 12, 1997, indicates that fiscal neutrality will not be achieved without a further $565-million reduction in spending by municipalities in the form of efficiency savings. OGRA is aware that the Association of Municipalities of Ontario has recently discussed the impact of the Who Does What initiatives and has determined that, in the absence of additional funds from the province, the taxpayers of Ontario will have to pay the financial costs of the Who Does What initiatives from their property taxes. Of course, the alternative is you pay the financial cost by depreciating your capital investment in your infrastructure.
A look at recent municipal spending on roads illustrates the declining transportation spending resulting from reduced revenues at the municipal level. Capital expenditures on roads declined by more than $272 million from 1995 to 1996. That's a reduction of 25% in capital spending in one year.
Capital spending on roads is by far the largest single expenditure that road authorities make on their system. In fact, there is little opportunity for municipalities to find sufficient savings in other areas to restore capital spending on roads.
Total expenditures on materials and services for road maintenance declined by more than $30 million from 1995 to 1996. This represents a reduction in spending for maintenance, materials and services, of 5.5% in one year.
Similarly, total salaries spent on road maintenance declined by more than $11 million, which is 2%, from 1995 to 1996. The reduction in salaries climbs to more than $35 million, or 5.9%, in the years 1992 to 1996.
This means that municipalities are spending less on road maintenance. I believe some of the reduction can be attributed to increased efficiencies. However, the reduction in spending on materials and services likely represents a reduction in preventive maintenance expenditures such as patching, bridge maintenance and shoulder maintenance. Reducing maintenance expenditures in these areas will likely result in future road construction needs which could have been avoided.
It is expected that municipalities will continue to become more efficient in their operations. However, continuing price inflation on materials for maintenance will likely consume most of these savings. Even if it were possible to find greater efficiencies in operations to free up some money after extra costs of materials were paid for, capital spending is so much larger than spending on wages that it will not be possible to reinstate capital spending levels without financial support from the fuel tax.
I must point out we're dealing with the numbers from 1995-96. It will obviously take a while to get the numbers from 1996-97. I think when we look at them we're going to find that this downward spiral was continued in 1997 as well.
Ontario's municipalities are responsible for approximately 90% of Ontario's road system. That means the municipalities are looking after 150,000 kilometres of roads out of the total 165,000 kilometres of road in the province. Ontario's industry and commerce rely on the municipal road network for their transportation needs. An effective and efficient transportation system is an essential component in Ontario's recovery. One-time infrastructure programs are a help, but they do not contribute to long-term capital management strategies. We need to reinstate spending on the renewal of our road system through provincially sponsored capital renewal programs. In the spirit of user-pay, the best way to finance this program is to dedicate a portion of the fuel tax to capital renewal.
I also want to state that municipalities need to hear now how the funds under the community reinvestment fund will be allocated.
I would like to thank you for the opportunity of appearing before you. We know your job is not an easy one and we wish you well in your deliberations.
The Chair: We have about five minutes per caucus for questions, starting with the government caucus.
Mr Wettlaufer: Thank you, Mr Merrall and gentlemen, for appearing today. I have a question relating to the amount of taxes which go to the province and also to the feds. I've asked the ministry staff to get me the exact figure. I don't know if you can tell me what the figure is that goes from the Ontario taxpayer to the federal government in fuel tax, but it's certainly in the billions of dollars. You've asked that we apportion some of our fuel tax revenue to the municipalities. Have you spoken with the federal government about apportioning some of their fuel tax revenue derived from the Ontario taxpayer to roads?
Mr Merrall: No, we have not had the opportunity to do that. We do support the province in asking that the fuel tax be returned to the province. Roughly, the federal government collects almost as much in fuel tax from road users as the provincial government does. One of the problems the province might have in getting some of the money is not returning some of the fuel tax you collect to the road infrastructure as well. If you show some leadership in that regard, it might help you lever the federal government. We are working with the Better Roads Coalition in supporting them in their effort for a fuel tax rebate at all levels.
Mr Wettlaufer: You are aware, however, that for quite a few years now the Ontario taxpayer has been giving money to the federal government and we have got nothing in return?
Mr Merrall: Yes.
The Chair: Any other questions from the government?
Mr Rollins: Thanks for your presentation today. In your thinking of the roads, do you feel that the weight problem is a very heavy criterion towards misuse of our roads -- I say "misuse," but overuse or wearing out more quickly?
Mr Merrall: We have to be a bit careful when we deal with weight problems. We're talking about truckers hauling in excess of their legal load. There was a problem with that many years ago. My partner here, from Thunder Bay, is a retired trucking executive. But under the new programs out there, the audits that are taking place of drivers and vehicles -- we just went through a CVOR audit in our municipality checking municipal trucks, an extensive audit beyond what most people ever deal with. What we're finding is that these audits made everyone jump up and -- I'm very pleased with the results of our audit; it means that people are improving their performance out there on the roads.
Yes, what has happened in trucks, changing trucking tires to pressure of 120 pounds per square inch from the lower pressures, is harder on pavements, but it improves the truck's fuel efficiency phenomenally. Probably the truckers will say: "We can lighten up the loads and lower the tire pressures. The end result is that the increased trucking costs will be several times the cost of renewing the infrastructure." The one problem I have with that concept is that the people who are paying for the renewal of the infrastructure are not the same people who are benefiting from the greater loads.
Overall, I think trucking has changed. It's a new generation of trucking in the 1990s from what it was in the 1970s. Ed, do you want to add something to that?
Mr Ed Metzler: I think that's true. Truckers are now more responsible. I recall when I started in the business the size of the vehicles was much smaller, but in the wisdom now we have greater weights on our roads, more axles under trailers, and I don't see that in the United States. The company I was with operated in 48 states and all of Canada, and it was always discouraging to us to find that we had different regulations for every province, pretty well. The states are more consistent, but we hit the Manitoba border and there's a different set of rules. A lot of the trailers that we could run in Ontario we can't run in Manitoba or of course into Minnesota. I'm from northern Ontario, so those are our main boundaries. I see most of the states are working with tandem trailers and that's where it stops. Michigan is the only one I know that really allows weights similar to Ontario and Quebec. I don't think there's any jurisdiction in North America that allows as much weight on the roads as our province.
Mr Rollins: That's what I'm trying to say. Maybe that's one of the areas that we should do a little bit more on. I had the pleasure of being in Colorado in the last month or so, and I saw nothing about tandem-axle trailers down there, nothing about 48,000 pounds in gross weight, and I saw roads that are as smooth as the top of that. I can't find them in Ontario. I'm firmly a believer that if we put a conservative effort towards pushing those weights back a little bit -- we've gone to the peak and we need to back away from it. You and I are running on rough roads because of those heavy loads. Yes, it'll cost us more, but maybe it's --
Mr Metzler: Northern Ontario really could use some help. It bothers me to find out that a lot of the Canadian truckers are running American routes to get into Canada. In fact -- I've said this before and I'll say it again -- our Canadian mail is moving through the States.
Mr Kwinter: I'd like to pursue this problem you're having about where the potential funding for these roads is going to come from. We had the former Minister of Transportation, Mr Palladini, saying that there's going to be tax room with the Who Does What, the removal of the educational component, and then we have the Minister of Municipal Affairs saying: "No, that's a separate thing. There's a separate pot of money." Have you got that resolved?
Mr Merrall: I believe it is. The numbers that the ministries of municipal affairs and finance provided to all municipalities do not have an allowance for the highway transfers, so I assume that since it wasn't allowed in the fiscal neutrality calculations, the highway transfers were not part of them.
Mr Kwinter: So what they're really saying is that they want to transfer the responsibility but no funding.
Mr Merrall: To be fair, we received three years' maintenance funding and two thirds of the capital needs that were on the five-year program. I think most of us would like to go to anyone and give them three years' maintenance and two thirds of the capital if they'd take the roads back, because as we all know, it's the ongoing long term. But the three-year program does give the government a chance to build a long-term solution. The three-year, I think, is a stopgap to help us survive, but infrastructure takes more than the three years, and of course that's only 5,000 kilometres of transferred roads; we have to think about the other 145,000 kilometres of municipal roads out there on top of the 5,000.
Mr Kwinter: Over the years, your organization and others involved in roadbuilding have come before various committees here and complained about the deterioration of our roads and our infrastructure. At one time, when I used to drive into the States, I could hardly wait to get back into Ontario because the quality of the roads was so good. You could tell as soon as you crossed the border at Windsor: Suddenly you were on good roads. That seems to be reversing. What is your reaction to that?
Mr Merrall: Well, it's not a reaction, it's an observation. For the longest time I've had friendships with county engineers in our border states, and 15 years ago we watched the same thing happen there as what's happened over the last five years in Ontario, where the funding for roads just disappeared. The result of that was a groundswell of public opinion demanding dedicated fuel taxes. You'll remember the truckers' demonstrations in the US that forced, in that case, the federal government to return the fuel tax to states and counties for the capital projects on the roads. Since that dedicated fuel tax has been instituted to renew the interstate system as well as the other roads, we have seen the American road system go from among the poorest to among the best. Unfortunately, we've been going down and they've been going up.
Mr Kwinter: I know that consistently not just this government but all governments have said they don't want a dedicated tax. Revenues from the fuel tax go into the consolidated revenue and they will make a decision based on what the budgetary constraints are. Have you had any indication that they are prepared to change that?
Mr Merrall: I haven't had an indication to date. I think what's going to deal with it is the growing public displeasure with the condition of our roads. The road program is a utility, just like water or sewers. If you notice, the municipalities have found a way to make their water and sewer systems survive by going to dedicated user fees for water and sewer, so much per cubic metre of water you use and a sewer surcharge on that. That's about the only way you'll do the long-term capital planning.
We're dealing with billions of dollars of capital investments here and we have to have a longer term. This idea of, "This goes up, that goes down," playing games, doesn't work in a business sense. We have to take a business approach, the same approach that Union Gas would take towards its gas lines or Bell Canada takes towards its Bell lines or a PUC would take to its watermain system. We need a utility approach, and utilities are always based on user-pay.
Mr Silipo: Just to pick up on that, whether or not we agree with the dedicated road-user tax approach, the bottom-line problem you're highlighting, and correct me if I am wrong, is that there needs to be either that or just an ongoing commitment by the provincial level of government to capital investment in the maintenance and upkeep of our highways.
Mr Merrall: Yes.
Mr Silipo: That's what it really comes down to, right? So your proposal and that of others for doing this is really coming about as a result of your sense that over the years that commitment hasn't been there. That kind of ongoing funding to continue to sustain, to build and rebuild our highways has just not been there, obviously, to the level that you think should be there.
Mr Merrall: Yes.
Mr Silipo: The reason I ask it that way is because I wonder if, and certainly acknowledging that the dedicated tax would be one answer, another answer would be to try, and I'm not sure how -- I guess maybe I'm sort of arguing it around and coming back to the same point. In fact, the basic problem that remains is that in the mix and match -- and I continue to be a little bit puzzled by the two positions you've put out, even in the exchange you had with Mr Kwinter. I still don't understand, and I really mean this sincerely, what the government is telling you in terms of how, in this kind of trade back and forth, this problem of ensuring that there will be adequate dollars for maintaining our highways is going to be delivered upon. As you read the landscape now, what do you take? Is it just from those additional capital investments that you mentioned earlier? Is that what the government is saying is the answer to this, or is there more that they haven't told you or they haven't told us?
Mr Merrall: The message we have to date is the message that came out of the mega-week, which is that municipal roads are totally a municipal responsibility and the provincial government isn't going to have a financial stake other than this transition funding on transferred highways. That's where we stand today.
The next thing we stand at is knowing that with the cuts that municipalities have had to absorb through cuts in the municipal support grant and other supports and in the efficiency savings here, a lot of municipalities only have about 10% to 20% of discretionary spending, and it will be worse in the future -- it will be close to 10%. When we get a bill for ambulance, that's not discretionary; we will pay it. They will have first draw on our tax base, and that's the way it is.
The roads will account for a majority of the discretionary spending, so if you cut somebody's discretionary spending 10%, and roads are 10%, it's not hard to find 100%, and that's an important issue, because with the concept of the community reinvestment fund that is being used to equalize the fiscal neutrality of the transfers, 12% of that disappears after three years, and if roads are 10% of the discretionary spending and they're losing 12% through the cuts in the community reinvestment fund, it's going to be disastrous for capital spending on roads.
Mr Silipo: Are you worried that as municipalities have to deal with exactly that kind of mix and match that you just described and that you talked about in your presentation, one of the problems -- although I think all of us would agree that we can see the deterioration of our highway system, particularly when you compare it to some of the other impacts that, municipality by municipality, we likely will see as a result of the Who Does What trades that have been going on, it's not as immediately obvious, right?
In other words, the deterioration of our highway system is something that you notice once it has happened or you notice gradually if you're paying closer attention to it, but it doesn't compare on the immediacy scale with the closing of a child care centre or the bill for the ambulance services that you mentioned. So that also adds to the problem, that what you've got at the end of the day is a problem that's real, that's continuing to deteriorate, get worse over time, but compared against some of the other tough choices that municipalities will have to make, more immediate pressures, it's going to probably mean that unless there is some political will at the provincial level to say, "No, we've got to inject some additional funds into this," it's just going to be allowed to fester until some time five or 10 years down the road, when it's really a problem.
Mr Merrall: Unfortunately, as people are noticing now, the deterioration and the potholes and the bridge problems are happening now, and that's not because we flicked a switch like closing a day care centre. We have put things off for years, and eventually you come to the end where the Band-Aids won't hold any more; there's nothing to stick to.
I'd say that in general municipalities were quite supportive of whoever was in government reducing the deficit. I think municipalities were quite willing to do their share, and I think they really have. They have supported cutting deficits, but at the same time, day care centres are a very small expenditure for most municipalities. We could wipe out our entire library system -- I'd be the first person to argue against it -- and it wouldn't reinstate enough capital spent. That's the whole issue. To close a couple of libraries, fundamentally I have a problem with that. But what are you going to do, pave half a kilometre of road? That's where we are.
The Chair: Thank you very much, sir. I appreciate the presentation and I thank you for it. Unfortunately, we're out of time.
That concludes the presentations for this morning. We'll recess until 1:30.
The committee recessed from 1159 to 1331.
GLAXO WELLCOME INC
The Chair: Our first presenter this afternoon is Glaxo Wellcome Inc. Ladies and gentlemen, introduce yourselves, if you would.
Mr Rob Last: Thank you for providing us with an opportunity to appear before you here today and to participate in your pre-budget consultation process.
My name is Rob Last and I am the vice-president of commercial operations for Glaxo Wellcome in Canada. With me is Bill Laidlaw, the director of government relations, and Jennifer Bowman our senior manager of external affairs in Ontario.
We have approached our presentation today from two perspectives: as a business which employs skilled workers and invests in this province, and as a health care provider which develops, manufactures and sells prescription drugs. Like the government, it's our goal to make Ontario the best place to work, live and invest. Specifically, we plan to focus on how the government, in working with the private sector, can put Ontario on the global map as the jurisdiction of choice for our company's and indeed the pharmaceutical industry's investment, and improve the efficiency and effectiveness of our health care system.
Before dealing with these challenges, let me provide you with just a bit of background on Glaxo Wellcome and our activities in Ontario. Glaxo Wellcome Inc is one of Canada's largest research-based pharmaceutical companies, generating sales in excess of $400 million annually. We employ more than 1,200 people across Canada. In the past seven years, our company has more than tripled its workforce, with 80% of that job creation and employment being in Ontario. Incidentally, our Canadian headquarters, as many of you will know, is in Mississauga.
In June 1997 we opened our new technical centre, adjacent to our headquarters. This $120-million, state-of-the-art facility manufactures medications both for the Canadian and international markets.
I have a lot of information in here. I hope you read it. I'm probably going to have to jump through some of it in order to hit the time limit, though, so I'm going to move ahead here.
Canada-wide, we invest more than $60 million annually in research and development. That's done through partnerships with biotech companies, through academic institutions and in support of independent researchers. Since 1993, we have invested an average of 12% of our revenues annually in research and development.
Our company's roots in Ontario date back more than 90 years. We have had a long-standing commitment to doing business in Ontario and working with public sector partners to create the best possible health care system. Consistent with this commitment, we are here today to offer our advice on how to make Ontario the best place to live, work and invest in.
Let me start from our business perspective. We believe that the pharmaceutical industry has a lot to offer the people of Ontario. It provides medicines that improve the quality of people's lives and save the health care system money; it creates high-quality, knowledge-based jobs that are the engine of economic prosperity; it promotes and funds scientific research in universities -- in fact, the pharmaceutical industry is the largest funder of biomedical research in Canada, larger than either the provincial or federal government -- it invests in the province's infrastructure through high technology operations such as ours; it supports and maintains a strong biotech industry; and it contributes to the health of the community through philanthropic activity, including support for non-profit organizations, such as our relationship with hospice care.
We're pretty proud of the fact that we are named an Imagine company, which means we contribute more than 1% of our annual revenue to charitable donations, which is in excess of $4.5 million.
Given the benefits this industry generates, we're fortunate as Ontarians to have such a large presence of PMAC companies located here. Over 30 of the 65 PMAC companies are headquartered in Ontario, and in terms of employment, about half of the entire industry's employment, or 8,500 people, work here in this province.
Clearly the pharmaceutical industry, in terms of job creation and employment, is a major element of Ontario's economy. Our company believes that all the elements necessary to support and foster the future growth of this industry are here if managed properly. As you may know, our president and CEO, Paul Lucas, is very confident in and supportive of investment in this province and is one of the primary spokespeople for Market Ontario.
There are, however, areas where an improvement is needed to promote new investment, and I'd like to review some of the key factors which influence decisions around investment and assess how Ontario stacks up against other provinces and countries.
The first factor is the availability of a skilled workforce. Canada and indeed Ontario are performing well on this front. In fact, a 1996 global competitiveness report concluded that we ranked number one in terms of knowledge workers. Our industry's employment gains over the past five years have been primarily in research and development staff, an area that requires high levels of education. More than half of the brand-name industry employees in Canada have a university degree. The challenge in this area is to ensure that we continue to provide the right kind of education and ensure that we continue to invest in sciences and technology.
Another factor is the protection of intellectual property, which allows the industry to realize the return on the tremendous investment of upfront research costs involved in developing and bringing a new drug to market. It is estimated to cost approximately $500 million dollars to develop a new drug. Of every 100,000 molecules considered, 10 are actually brought to market and only three provide a return on that investment. So this high cost of research, that continues to escalate, is a primary reason for the drug company mergers you've probably heard about recently. Given this high cost of research, it's not surprising that there's a direct correlation between investments and support for intellectual property protection.
Many of you will have followed the recent discussions on Bill C-91 and the linkage regulations therein, and may be aware of the direct link between patent protection and the level of investment by our industry in Canadian research. Since the initial changes to the Patent Act in 1987, the investment in research and development has increased by 300% in Ontario alone, which translates again into more jobs for knowledge-based workers.
This industry sector's rate of employment growth over the past 10 years is about four times faster than the national average, and as you heard earlier, we at Glaxo Wellcome have tripled our workforce since then. However, even with these recent changes announced by the federal government, Canada is by no means a leader in the protection of intellectual property. Several countries have extended patent protection to compensate for the delay caused by regulatory approval, including the US, Japan and the European Community. While patent protection is a federal issue, we believe it is in Ontario's best interests to advocate for strong patent protection to ensure the continuation of a strong pharmaceutical presence in Ontario.
A third factor is the regulatory environment. This includes both the processes in place for product approval at the federal level and the processes in place to determine whether a drug will be included for coverage within a drug program. Internationally, this is considered a distinct disadvantage for Canada.
We agree with the objectives of the federal approval process: Drugs must prove they are safe and efficacious. However, our process is longer and more time-consuming, and it still takes on average 25% longer to move a product through the Canadian regulatory process, as compared to the United Kingdom.
Once the product is approved and receives its notice of compliance from HPB, and the price approved through PMPRB, we then have to apply to the provincial governments for reimbursement under each provincial plan. In the case of Ontario, the Ministry of Health has done an admirable job in working with the industry over the past two years to reduce the duplication associated with these submissions. However, the process itself has not changed substantially and the time from submission to reimbursement has not changed. In fact, we have not seen a revised formulary in Ontario since August 1997.
These delays at both the federal and provincial levels are detrimental from a number of perspectives. Patients do not get access to safe and efficacious medications, the Ministry of Health does not realize any system savings as a result of access to new products or services, and drug manufacturers do not see the best return on their investment. As such, we continue to be supportive of the work of the Red Tape Commission to reduce the level of bureaucracy in the ODB process and have provided suggestions to them and to the Ministry of Health as to how this process could be redesigned.
Before moving on to discuss the health care system, let me summarize our recommendations on how to make Ontario the best place for this sector's investment.
The first point would be to ensure that we continue to train and education highly skilled knowledge workers; second, to support the improved protection of intellectual property; third, to continue efforts to reduce red tape at the provincial level and advocate for the same at the federal level; and fourth, to work with the federal government to increase the level of direct investments in research and development.
Turning now to health care and recognizing the challenges inherent in managing our health care system, I want to focus my remarks on two things: how the appropriate use of pharmaceuticals can improve health and the quality of life for Ontario residents and improve the efficacy and effectiveness of the health care system, and second, the advantages of a more integrated service delivery.
Innovative pharmaceuticals save lives, reduce the short- and long-term costs of illnesses, reduce the need for surgery and hospitalization and improve the quality of life. The largest single factor in controlling and curing diseases has been the development of new medicines. It may come as a surprise to you that as a percentage of total government spending on health care, the cost of brand-name, patented medicines is actually just 3%.
One of the many examples of the tremendous impact of pharmaceutical research and development is in the treatment of HIV/AIDS. In less than a decade medical treatment has changed significantly from the initial focus on treating symptoms to today's combination therapies which fight the cause of the disease.
A large international study demonstrated dramatic benefits as a result of anti-retroviral combination therapies. One of the primary components of these combination therapies is 3TC, a drug that we're proud to say was discovered, developed and marketed in Canada through a partnership between Glaxo Wellcome and Biochem. The benefits included improved health for HIV patients, leading to about 50% fewer hospital admissions, 55% fewer outpatient visits and 53% fewer prescriptions. We now understand the potential benefits of triple therapy in delaying the progression of this disease and reducing the rate of death of HIV/AIDS patients.
Another great example is one of our products, Zofran, which reduces the nausea and vomiting associated with chemotherapy for cancer patients. Before the development of Zofran, patients often had to remain in the hospital because of the terrible side-effects associated with chemotherapy.
During the early 1990s, the ratio of chemotherapy switched from about 80% inpatient and 20% outpatient to about 20% inpatient and 80% outpatient. While Zofran wasn't solely responsible for that, it certainly played a lead role in that occurring. Doctors told us what a tremendous difference this drug made in terms of the patient's quality of life and their ability to keep patients out of hospital.
I've outlined these examples just to illustrate the value our innovative products bring to the health care system, yet we often hear about the increasing cost of brand name drugs and the need to take steps to control these costs. In fact, I would make the argument that the total cost of drugs should be increasing and that this increase is good for the health of our residents and the effectiveness of the health care system.
The overall cost of drugs for third-party payors, including the Ontario drug benefit plan, is increasing for a number of very good reasons. As individuals age they tend to require more prescriptions to manage chronic health problems. The average person younger than 65 years receives about eight prescriptions annually while the average person over 65 receives about 25 annually. As our population ages, the population as a whole will be using more prescription drugs. Utilization as a result of aging is the predominant factor in increasing drug costs, while reducing costs in other elements of the system.
New drugs are being developed to treat diseases where treatments have not been available before. I have already discussed the impact of triple therapy on HIV patients. Another example is Alzheimer's disease, a particularly important area as the population ages.
Practice patterns are also changing, and these include the use of prescription drugs to prevent disease and the complications of disease. As an example, approximately 33% of current dialysis patients are diabetics who have kidney disease as a complication of their diabetes. Studies have demonstrated that the use of ACE inhibitors by diabetics can prevent the onset of kidney disease and reduce the demand on dialysis services.
Less treatment is being provided in hospitals, so the drug costs are being transferred from the hospital budget to drug budget. Zofran, which I mentioned earlier, is a really good illustration of that trend. In fact, it's fair to say that in a number of areas the development of drugs has facilitated the move from hospital care to community care.
Increasing drug costs are a reflection of changes in demographics, changes in the practice of medicine, advances in technology and the restructuring of the health care system, all of which are inherently reasonable.
It is also important to know that we as creators of this innovative technology must demonstrate the value of a product in terms of quality-of-life improvement or savings to the overall health care system in order to be included in the ODB formulary. New drugs which cannot demonstrate their value are not approved for the formulary. As a result, the addition of new drugs to the formulary may result in an increase in the drug budget but a savings somewhere else in the system.
Unfortunately, the response by some to the increase in the drug budget has been to get those costs under control. We have seen Ontario and other provinces in Canada institute policies that restrict access to products, either by making it more difficult for physicians to prescribe the drugs or by making it more expensive for patients to take particular drugs. In light of the reasons for increasing costs, limiting access to medications which have been proven to be safe and efficacious just doesn't make sense. In fact, study after study in other jurisdictions has consistently demonstrated that reducing access to drugs increases the costs in other parts of the system, such as increased physician visits and use of hospitals, all of which drive up total costs even faster. Cost-cutting measures may result in short-term savings, but only at the cost of poorer patient outcomes and longer-term pressures in the rest of the health care system.
We also hear concerns expressed about the inappropriate use of drugs, usually associated with people taking drugs when they shouldn't be or taking the wrong drug. Inappropriate use also results from people not taking drugs as they are prescribed or not getting a prescription when one is needed. Glaxo Wellcome is involved in a number of initiatives to ensure that drugs are used appropriately.
A good example of that is the partnership we have with asthma specialists in community asthma care centres across Ontario, which are intended to educate people with asthma and their families to better manage this disease. Our preliminary data indicate that through the appropriate diagnosis and use of asthma medications, decreases in hospital admissions and emergency room visits of from 40% to 70% can be realized, the costs of which far outweigh any increase in drug costs.
The appropriate use and cost of drugs must be addressed within the context of the entire health care system. The focus should be on how the system as a whole can operate effectively to meet the health care needs of the population rather than on how to control costs within a single component of the system.
As part of our business, we interact on a daily basis with health care providers across the province and we understand the pressures they are facing in delivering the best care. As you all know, the health care system is facing tremendous changes, which are difficult to deal with in any environment. We're also aware of a number of communities across the province that have initiated work towards the creation of more integrated services. Based on our research, we believe that moves forward to improve the integration of services and eliminate the artificial barriers of silo-based planning and budgeting are a good thing.
A more integrated system offers a number of benefits: incentives for improved quality of care, better coordination of patient care across the continuum of services, more efficient delivery of services through the use of computer technology and improved accountability for the use of resources. Over the past year, we have been working with Queen's University to look at how services could be integrated and what tools are needed to move forward with integration.
I'm going to summarize my comments on health care and move right to the end, given the time, by recommending that the government work with the pharmaceutical industry to better understand the role of prescription drugs, appropriate prescribing and patient compliance; that the government manage the ODB budget in the context of its impact on the health care system, recognizing the value of prescription medicines to the system as a whole; and that the government assist communities to move forward with the creation of more integrated delivery systems.
We appreciate the opportunity to offer advice based on our experience and our shared goal of ensuring that Ontario continues to be the great place it is to work, live and invest in, and we would be happy to answer any questions that you might have for us.
Mr Silipo: There is a lot in here which, if time allowed, we would like to get into, but let me just go back to one of the first points that you made and that is about the desirability of a highly skilled workforce as one of the key factors in continuing the important role the pharmaceutical industry, among others, plays in our society.
One of the points that was made to us yesterday by the Council of Ontario Universities was that one of the areas that the government has to turn its mind to is the need to invest in post-secondary education. As I understood it, I think it was more or less along the lines of the point you're making, which is that it's by investing at the front end that you make it most possible for us to have the highly skilled workforce at the other end but also the kind of growth in the economy and in jobs overall that we all would like to see, as opposed to the approach that some would say the government has taken, which is the other way, of reducing expenditures in part as a way to try to get the jobs created. I'd be interested in your sense of to what extent you might agree with the approach that the council was putting forward to us.
Ms Jennifer Bowman: I think our point is that we have to ensure that there are those types of graduates coming out of our system. I know there is a lot of discussion about the mix of people with specific skills around things like high technology or general arts, and I think that maybe a mix of those -- I think you're right that we need to have some upfront investment in that educational system to ensure that the right types of people are coming out of your educational system to meet the needs of the industries that are out there.
Mr Bill Laidlaw: I think one of the areas that everyone forgets is that you determine whether you're going to be a scientist, which is the area most interesting to us, when you're in grade 5, 6 or 7, so by the time you're at university it's probably too late. The reality is that all the high-tech industries, all the future for Ontario, lies in science graduates, and a lot of the work has to occur much earlier than university or college.
Mr Silipo: Even before you get to university, long before.
Mr Laidlaw: Yes.
Mr Rollins: Thanks for your presentation, and once again, thanks for being such a good corporate citizen, to remind us that there are companies like yours out there, because I think it's good, that you deserve that credit.
One of the other things that you haven't mentioned but we hear about in my constituency office all the time is generic drugs, and those are products that I suspect you people take part in too. What are your feelings towards those?
Mr Last: As you may know, we participate in the generic sector of the industry as well. We believe there is room certainly in Ontario for a generic sector; in fact we have a booming and thriving generic sector in Ontario.
I think one of the misunderstandings is that there are significant debates between our two sectors of the industry, the ethical and the generic sector. In actual fact, when you boil it right down, the issues we have had with the generic sector have all been related to patent protection.
Beyond patent protection, I think we both want the same things. We want transparent processes, we want access to markets, we want to be able to work with the government and have our products available and, quite frankly, as a taxpayer in Ontario, at the time of patent expiration of any patent-protected product, if a generic comes on the market that's 25% or 50% lower in cost, fine, it should go in the formulary. I don't think we have any issue with that at all.
Mr Rollins: Glad to hear that.
Mr Wettlaufer: I'd like to draw your attention to what you said about the drug formulary, Mr Last. Last fall or last spring, we had the Deputy Minister of Health, Margaret Mottershead, in the estimates process and she explained the process involving the addition of drugs to the drug formulary. I'm wondering if you have any suggestion as to why there has been such a delay in adding drugs to the formulary.
Mr Last: I can only speculate that, historically, delays in introduction of formularies have been used as cost-containment measures of the drug budget silo. I think the point I was trying to make in the course of my presentation, though, is that that has implications in the health care system at large. While I don't know the specific issues associated with this delay, I do know that is considerably longer than what we have historically been used to.
Mr Kwinter: I'd like to follow up on that discussion. I've always been concerned that there is an inherent conflict of interest. You have the provincial government, through the Ministry of Health, probably consuming 40%. I'm not sure what the figure is now but I know at one time it was about 40% of all of the pharmaceuticals sold in the province were sold through the ODB. Is that still a number that's about right?
Mr Last: Yes, it's probably closer to 50% and it will continue to rise, of course, as the population ages.
Mr Kwinter: So what we have is that the gatekeeper, so to speak, is also the major purchaser. As a result, you have what I think is an inherent conflict of interest. Has it ever been addressed that there be a separate entity that evaluates the efficacy of the product and then leaves it to the government to choose what products they want out of those and how it integrates into the ODB?
Mr Last: In fact, Ontario is one of the lead jurisdictions in the world, along with, I believe it's New Zealand, that requires pharmacoeconomic analysis to be submitted with our products for inclusion on the formulary. The intent, as I'm sure you are aware, is to demonstrate where the value in the system is generated as a result of the introduction of these new technologies, a couple of examples of which I cited.
Quite frankly, we have products we have introduced into the marketplace that have not been able to successfully cross the hurdle of pharmacoeconomic scrutiny and are not listed on the ODB formulary. There are other products, however, which we believe do that are not on that formulary. I think there are lots of controls in place to ensure that the appropriate medications are being considered. It's really the manner in which they're being considered.
The Chair: Thank you very much, sir, for your presentation and your time today. We appreciate it.
PHARMACEUTICAL MANUFACTURERS ASSOCIATION OF CANADA
The Chair: The next presenter is the Pharmaceutical Manufacturers Association of Canada. Good afternoon, sir, and welcome. Thank you for coming. Please introduce your associate.
Mr Greg Hines: Thank you, Mr Chairman, and members of the standing committee for giving us this opportunity to outline the views of the Pharmaceutical Manufacturers Association of Canada on the government's budget for 1998-99.
My name is Greg Hines. I am the chief executive officer of Leo Laboratories Canada Ltd in Ajax, Ontario, and also the chairman of the PMAC board of directors. My colleague with me here today is Mr Gerry McDole. Gerry is the president and the CEO of Astra Pharma Inc of Mississauga, Ontario, and he is also on the board of directors of the Pharmaceutical Manufacturers Association of Canada and the co-chair of our PMAC Ontario regional committee.
We're pleased to be here today on behalf of the innovative pharmaceutical industry in Canada to offer our insight on the key issues facing our industry in Ontario. What I'd like to do is take a few minutes to present a little bit of the background on our industry and then a few of our insights and our objectives, and then ask my colleague Gerry to expand on how we think we might move some of these objectives forward successfully.
First, as a backgrounder, I begin by pointing out that PMAC represents Canada's research-based pharmaceutical industry. Our members are actively engaged in innovative research, development and manufacturing of prescription and non-prescription medicines. The member companies of PMAC employ more than 17,000 people in Canada.
I'd say that Ontario is really home to the innovative pharmaceutical and biotechnology industry in Canada. More than one half of our members have their Canadian headquarters in Ontario, and several others maintain a significant presence. Together, I think we make a very sizeable and direct contribution to the economic wellbeing of the province.
I'd cite a few examples of that. Directly, we employ more than 8,500 people in Ontario. We inject at least $1.4 billion annually into the Ontario economy, which by the way is larger than the drug budget. We invest more than $286 million per year in R&D activities. I'll expand on that a little bit more: $920 million in land, facilities and equipment. We pay more than $75 million in provincial taxes, and we're investing tens of millions of dollars a year in supporting the emerging biotechnology sector.
With respect to the $286 million, or almost $300 million, that we invest in R&D, just a little caveat as an aside here: A good percentage of those funds are targeted towards basic and clinical research at Ontario universities and hospitals. Through those R&D investments, for many of them we pay the full cost for patient treatments, including physician services, laboratories, medicines and other indirect costs at hospitals. Much of these investments made have a direct reduction in your budgetary requirements in health care.
Another point that we might make with respect to our investments is that the innovative pharmaceutical industry contributed more than $57 million to the five faculties of medicine in biomedical research in 1995-96, which is an increasing trend of 345% over a seven-year period.
Another point we'd like to make as a backgrounder is that the innovative pharmaceutical industry in Ontario is renowned for its export potential. Many Ontario PMAC companies have North American and in fact global research and development and product manufacturing mandates. For example, in 1996, Eli Lilly in Scarborough announced the opening of its multimillion-dollar state-of-the-art R&D facility in Toronto, which attracts research dollars from all over the world. As well, Janssen-Ortho Inc, another member company in Don Mills, through its facility has a global manufacturing mandate for intrauterine devices.
Maintaining these types of mandates and attracting new ones, with the accompanying jobs, the investment dollars and the economic development potential that come with them, is a top priority for our industry in 1998. But we can't do it alone. If we're going to succeed in bringing these jobs and these investment dollars, it's going to be vital for the provincial government to demonstrate that Ontario is a receptive business environment for our industry and is willing to work with us to achieve these goals.
Insights and the issues for our industry: PMAC supports the direction the Ontario government is taking to improve the fiscal and economic climate in the province. Cutting taxes, streamlining the regulatory process and spending smarter have all contributed to the province's improved economic performance since 1995.
A key part of the government's fiscal policy, though, is restructuring Ontario's health care system to eliminate waste, duplication, fraud and mismanagement. The savings achieved through this restructuring are being directly reinvested into front-line patient programs. At the same time, the government is increasing health care commitments for spending in 1998-99 to $18.2 billion, demonstrating, we believe, its ongoing commitment to providing good health care in the province.
Our industry supports the government's stated policy of improving direct patient-focused care through an integrated health system, hospital restructuring, primary care reform and other needed initiatives. Unfortunately, though, we feel that the role of pharmacotherapy, which is recognized by your Health Services Restructuring Commission and other observers for its cost-effectiveness compared to hospital and other institutionally based patient care, has not been fully embraced by the government.
As a result, we have three issues that we think we need your help on.
The first was perhaps mentioned by our previous colleagues, members from Glaxo: Market access is restrictive in Ontario. This restrictive market access for us means it's much more difficult for us as an industry to continue to invest in new jobs and in R and D.
The value of medicines and their role in the improvement of quality of life of Ontarians and reduced health care costs we don't think is understood very well, quite frankly.
We also think that the government of Ontario is making crucial decisions affecting our industry without consulting us whatsoever.
I think we've done a lot in Ontario as an industry. We are doing a lot in Ontario as an industry for the economy and for the health care of Ontarians, and if these three issues are addressed, we feel we can do one heck of a lot more in Ontario.
I'll ask my colleague Gerry McDole to address some of those concerns and provide some suggestions for how we might move forward.
Mr Gerry McDole: As Greg has already mentioned, we have done a lot in the province and would certainly welcome the opportunity to do more. To do that, of course, we have to have access to the market. To me, that's always been a rather obvious statement to make, but we seem to have to continually remind people that -- and I divert for a second for an analogy.
When we met with Minister Palladini a while ago I thought one of my colleagues used an excellent analogy. He said, "When you're trying to attract Ford and GM and Chrysler into Ontario, you at the same time tell them that Ontario citizens can't buy their cars or trucks." That basically is what we're talking about here when it comes to access to the market. By achieving it, we not only get optimal therapy for treating the diseases and better health outcomes for the patient but we address that balance between industry and the government.
We recognize that the government, particularly the Ministry of Finance, as you review programs for the health ministry, will be looking specifically at the Ontario drug benefit program. You estimated $1.3 billion in 1997-98. You also stated that some 525 drugs have been added to the provincial drug formulary since 1995, which on the surface at least would symbolize some commitment to improving patient access. But that number needs to be put into perspective, because the reality is that by far the majority of those medicines are not new medicines but rather generic copies of innovative brands.
While it's true that an aging population and an increased utilization of drugs, both of those factors, drive both the brand-name and generic drug costs -- we have forced the program costs up, one can argue -- we believe there are better ways to reduce the costs and in effect spend smarter. On this issue we're a little concerned that we have to say that the managed benefits program is quite a concern because this new scheme would appear to be linking reimbursement for specific medications to clinical guidelines. To link to clinical guidelines we clearly have no quarrel with, but unfortunately clinical guidelines frequently get interpreted as economic guidelines as opposed to real health outcomes.
As developers of our innovative brands, we have five fundamental issues that concern us about this scheme.
The first is that it fails to allow for individual therapy. Each medicine is presumed to be as effective as the other, and for each patient the same as the other, which we know is not the case.
It fails to reflect the importance of a range of options for physicians. Many diseases, such as mental illnesses in particular, often require several attempts, a somewhat trial and error approach, before patients are stabilized.
There is a new approach to drugs as a burden -- not exactly the way we would like to see it -- "the problem needs to be contained" rather than a potential solution. We need to look at real cost pressures in the system.
The evidence from other jurisdictions, whether it be provinces in Canada or other countries, which have introduced similar types of measures is that overwhelmingly the inevitable outcome is that you increase the cost somewhere else in the system, somewhat like squeezing a balloon: It pops out somewhere else. These increased costs are generally more costly services, whether they be physician visits, lab use, or particularly institutions, which of course drive up costs the most.
Despite the obvious and profound effect these new approaches might have on our business, we have not, as Greg has already mentioned, even been consulted in the development of these programs.
We recognize it's not your mandate necessarily as a committee to review the proposed policies from different ministries, except perhaps for their fiscal viability, but we do believe upon further scrutiny that the managed benefits scheme that's being proposed currently is unwise because of its potential harm to patients and also because the numbers simply won't add up to savings in the end in any case.
At minimum, we believe we can offer some guidance and experience on how to make this work effectively for patients, for prescribers, for the industry and for the taxpayers. Improving the market environment in Ontario for our industry through a more open formulary process would allow the innovative pharmaceutical industry to enhance its R&D spending commitment, increase its manufacturing activities in the province, provide more jobs and economic development and have a home-grown solution for the benefit of all Ontarians.
As we speak of the value of medicines, committing to provide greater patient access to new medicines is based on a vision that recognizes the inherent value of medicines within the health care system, not only through the contribution to improving the quality of life but also reducing the overall health care cost to the system as a whole.
The government has recognized that in order to preserve and improve our health care in Ontario we must spend smarter, and we certainly would agree with that. However, we believe that the government needs to acknowledge and understand how improving investment in drug therapy can assist in achieving your long-term goals of cost containment within the health care system.
New medicines often represent new therapies that are used in the treatment of previously untreatable diseases. We're going to see even more of that as we move into the future. HIV/AIDS is certainly a current example where roughly some 15 years ago there were no therapies as this disease first emerged on to the scene to the scale it is today. It has now been clearly established that anti-retroviral therapies not only improve the health and quality of life of patients afflicted with the illness but in fact now we are seeing an extension of life significantly beyond what it was and there's even the word "cure" being spoken of.
There's an increased cost, of course, as a result of these new therapies and they have substantial economic benefits to society as a whole: fewer hospital admissions, fewer outpatient visits, increased productivity in the workplace. These benefits can be seen already as a result of the launch of 3TC, which was in fact a Canadian discovery.
Some other examples of social and economic benefits of our medicines include new medicines to treat schizophrenia which have reduced the need for hospitalization. According to the Canadian Coordinating Office for Health Technology Assessment, with greater access we could see a further $660-million reduction in health care costs across Canada.
New cholesterol-lowering agents have been shown to reduce the incidence of fatal and non-fatal heart attacks, lowering the rate of heart surgery and angioplasty and reducing the need for hospitalization due to a heart attack or angina or left ventricular failure.
Hormone replacement therapy, used to treat the short-term and long-term symptoms and complications associated with menopause, has improved health outcomes and reduced overall health care costs, particularly in the areas of osteoporosis, cardiovascular disease, Alzheimer's disease, fewer fractures, fewer hospitalizations, less need for long-term care.
New inhalants improve the physical, emotional and social life of patients with severe asthma or other respiratory diseases. Thromboses of the leg can now be treated at home, where previously it took five days in hospital.
A recent analysis of hospitalization trends in Ontario shows that between 1990 and 1996 we've had a reduction in acute care hospital beds by some 29%. During that same period of time, the length of stay in hospitals in Ontario declined by 18%. These results are significant, and some of it at least is due to the increased use of pharmacotherapy as opposed to changes in the health care system as a whole. They do provide overall savings to society.
For employers and private drug plan sponsors the value of new medicines can be found in reduced absenteeism and reduced short- and long-term disability payments.
New medicines, therefore, when they are researched, developed and manufactured by our industry can be a key component of improving the quality of care in the province and managing the health care system at the same time. Unfortunately, we traditionally have looked upon managing this through what we refer to as a silo effect. Failing to budget in an integrated fashion and failing to recognize this means that we measure and make more cost-effective health management resource decisions difficult. It is an integrated system and therefore needs to be looked upon in that fashion when managing the cost.
From a partnership point of view, we have recognized for some time the desirability of working with various consumers. Medicine stakeholders and government four years ago launched a campaign called Knowledge is the Best Medicine. This program has a twofold objective: first, to improve the quality of care associated with medication use; second, to help manage the costs associated with medication use.
The Ontario Ministry of Health is one of our active partners in this regard, along with the Ontario College of Family Physicians, the Ontario Pharmacists' Association, the Allergy Asthma Information Association, the Ontario Lung Association, the Arthritis Society, the Ontario division of the Canadian Cancer Society, the Parkinson Foundation and the Federated Women's Institutes of Ontario. Together, in addition to our other PMAC member companies, we have played an integral role in addressing the use of medications in Ontario. We also have played an integral part in a pilot program in Ontario designed to learn more about how to provide clinical practice guidelines in a community setting and to increase awareness of appropriate drug use and patient care.
The Pilot for Appropriate Anti-Infective Community Therapy, PAACT, took place from October 1996 through March 1997. It was a community-wide, multistakeholder initiative aimed at demonstrating whether or not through cooperative educational efforts we could have an impact on all of the stakeholders and achieve optimal, cost-effective antibiotic therapy in a community setting, using the Ontario anti-infective guidelines as the yardstick. The project was a major success and provided invaluable insight into how anti-infective guidelines and guidelines for other therapeutic areas could be used as a tool to achieve the appropriate use of medicines and deliver the most cost-effective patient care. It is in fact a guideline which works well on a voluntary basis as opposed to a mandate.
Our industry has a great deal to offer, we believe. We could help the government in developing and containing health care costs and improving patient care. Increasingly, we find that the provincial government is not working all that closely with us. In fact, when it comes to crucial containment policies, we are often in isolation. The managed benefit program is certainly one example of that. We have not been asked for input or recommendations, and yet we feel there is an opportunity to share experiences that would lead to a better outcome. We'd be pleased to offer our advice in these forums or any other forum as we try to improve public policy.
We are encouraged by the Minister of Health's recent announcement indicating her intention to develop and consult on a long-term health care vision for Ontario. We would certainly support that initiative. We believe this vision should encompass the role of pharmacotherapy as well in generating patient outcomes and more cost-effective health care.
To conclude, I'd like to summarize those three points. The innovative sector is substantial now. We'd like to do more. However, in order to do that, we clearly need to have access to the market with fewer restrictions so we can continue to make new investments that will create jobs here in Ontario.
Similarly, we believe the inherent value of medicines needs to be recognized so that we can improve patient and fiscal outcomes at the same time, particularly as we go through the restructuring of health care services and focus on community-based care here in Ontario, where pharmacotherapy can play an extremely important role.
Finally, while we as an industry recognize that there are many other stakeholders, including government, to ensure the appropriate use of our medicines and optimal patient care, we would like to be able to work together with government in developing major policy decisions that affect our industry rather than embarking in isolation.
The budget process provides the government, and I guess all legislators, with an opportunity to demonstrate a commitment to improving the investment climate for our industry while also recognizing or balancing that need to have access to the market with the need to contain the overall health costs and overall health objectives. We can do this together as we meet our economic objectives.
Continued growth of our industry is linked very directly to improved patient access. Understanding the value of medicines and working with us can lead to reduced health costs overall without sacrificing either patient care or our ability to invest and create jobs in the province. In a nutshell, we want to work with you and be part of the solution as opposed to being deemed part of the problem.
I thank you for the opportunity to share our views with you this afternoon, and we would be pleased to answer any questions if you have them.
The Chair: Thank you very much, gentlemen. We have about two, two and a half minutes per caucus, starting with the government caucus.
Mr Stewart: There's probably not one of us around this table who doesn't want to be cost-effective. The question I'm going to ask you is maybe a little bit outspoken or whatever, but I have difficulty -- you're talking cost-effectiveness, yet what relationship do you have with the medical profession to keep costs under control and set standards that drugs are not issued on a "Let's issue a whole bunch" basis? You take one drug and then you have to take another one to offset the reaction, and then you have to take another drug to offset that reaction.
I recently had a constituent come into my office with the bottom of a green garbage bag full of drugs that he was not using. I look at you gentlemen, the pharmaceutical industry, and you want to market your products. The products you're creating are great; I have no problems with that at all. But what type of policing or standards or control do you have, working with the medical profession, to make sure we can be cost-effective, that we are not giving drugs out because somebody doesn't have someone to talk to that particular day?
If we're going to be cost-effective on this thing, there's got to be some type of policing. I've talked to the ministry, which looks after the costs coming in. I'm saying, "What kind of things do you have in place to control this?" and I'm being told, "We don't have a lot." I worry about that.
Mr Hines: I'd really like to comment on that. It's a major frustration for us as an industry. We don't have anywhere near enough involvement in that. We funded a study jointly between the universities of Toronto and Guelph to look at the inappropriate use of medications and exactly the problem you're talking about. That study came out with a result that showed that across Canada, inappropriate use of medications is costing the Canadian health care system between $7 billion and $9 billion a year, which is absolutely ridiculous.
We recognize, and one of the recommendations made in that particular study was, that the consumers, the patients, need much more information on the prescription drugs they're taking. Patients, consumers, have very little access to unbiased information on their medicines. They either get it from their physician during the time they're in the physician's office or while they're in the dispensary, from the pharmacist. We as an industry are not allowed to talk to the patient. The amount of information that we can transfer to the consumer is only if the consumer who is on a prescription for one of our medicines contacts our head office.
What we feel is drastically needed is some kind of infrastructure in which the amount of information that we have on our medicines, which is more than anyone else has, is put into some kind of system that's a partnership between government, medicine, pharmacy and academia so that patients and consumers can get access to information on prescription drugs. Right now, the access they have, outside of their health care professional, is the National Enquirer, magazines, the Internet etc, and it's the wrong kind of information and it's leading to exactly the type of problem that you've presented to us.
Mr Kwinter: Mr McDole, could you expand on this proposed managed benefits program? What I'd really like to know is, is it proposing that they exercise greater control on access to the drug formulary, or is it actually setting standards as to what prescriptions or what pharmaceuticals are being administered, and in what quantities? Are they in fact acting as the medical diagnosticians, saying, "Here are our guidelines, and you can only administer this particular pharmaceutical in this particular quantity to this particular patient"?
Mr McDole: I wish I could really answer your question, but due to the fact that we haven't been involved and have been kind of on the outside looking in, I can only tell you from the snippets we've picked up what we think is taking shape, or at least what I believe is taking shape. Greg can add what he thinks is taking shape.
It would appear to be an initiative whereby you have a mechanism to link the reimbursement of a particular benefit drug to the prescribing guideline that is put into place. Who sets up those guidelines would presumably be some particular committee that would be struck, with scientific background, to adjust them.
Therein lies part of the concern: Are the guidelines based on good health outcomes, which we all would expect and want them to be, or are the guidelines being influenced by the cost of the drugs that would be selected in going through those treatment protocols? There's where the paranoia on our side exists, obviously. The scientific community, on the other side, presumably will argue that they're being put forward on the basis of good health outcomes.
If you look in other jurisdictions where a similar approach has been taken, they rarely stick to the health outcomes issue. They almost always become economic outcome issues, and the costs drive the guidelines as opposed to the health outcome driving the guidelines. That is the risk I would be most concerned about here for Ontario.
Mr Silipo: I was struck by a comment you made that you just underscored, which is that these guidelines, as far as you can tell, were developed without any discussion at all with the industry, or with very little discussion. Is that fair to say?
Mr McDole: To the best of my knowledge, unless Greg has views to overturn that. They may have had discussions with certain companies, I suppose, relating to a particular drug, but to the best my knowledge there has been no joint dialogue with our industry over how to address the guidelines. By the way, if they are linked to reimbursement, they are in fact no longer guidelines. That becomes in effect a policy, and that's what dictates the prescribing choice.
Mr Hines: I think we're most concerned with how they would be implemented. When we look at the Ontario anti-infective guidelines, they aren't guidelines at all. They are a listing of drugs: first-line, second-line, third-line antibiotics. It doesn't tell a doctor when he should use a first-line, a second-line or a third-line; there's simply a listing. What we're worried about is that a bureaucrat or somebody who's got an accounting pencil is going to be telling a doctor, "This is when you use a first-line, this is when you use a second-line, this is when you use a third-line." It's more the implementation from a cost perspective.
Mr Silipo: I hope folks are listening and you'll at least get a chance to talk with the ministry officials and the minister about some of these concerns.
The Chair: Thank you very much, gentlemen, for your presentation and your time this afternoon. It's appreciated.
ONTARIO TRUCKING ASSOCIATION
The Chair: The next presentation will be from the Ontario Trucking Association. Gentlemen, welcome and thank you for coming today.
Mr David Bradley: Thank you very much. I'm David Bradley, president of the Ontario Trucking Association. I'm joined by Michael Burke, who is OTA's manager of government relations.
We're certainly keenly aware and very supportive of the government's stated policy of more jobs for Ontarians and the jobs cabinet and what not, and we hope this will be a jobs budget. There are of course many things needed to create jobs in Ontario, and we've seen significant growth in that area over the last few years, but there are two things we'd like to talk to you about today. One is to ensure fair and equitable and competitive tax treatment, in terms of business versus personal taxes, in terms of Ontario versus other jurisdictions, but also within the business sector in Ontario.
As well, to create jobs, we think it's important that we ensure that there is a proper, competitive and efficient infrastructure in this province. It seems to me -- and you'll hear from a number of economists over the next few days, but it doesn't matter which vantage point they're coming from -- if you don't have a competitive infrastructure in a jurisdiction, it's difficult for your economy to remain competitive. Trucking really is part of that infrastructure: 70% of all the land freight in the province moves by truck; 90% of everything that Ontarians consume or eat is moved by truck. Trade is the engine of growth in our economy. In fact, about 40% of Ontario's GDP is linked to our exports. Trucks haul 80% of Ontario's trade with the United States, and trade with the US represents 90% of our overall trade.
Trucking is indelibly linked into that process, and you'd expect that, given the fact that the major markets in the continental US are all within a day's truck drive from Ontario, and we see that 60% of Ontario's trade is with Michigan, New York, Ohio and Illinois.
Trucking makes a contribution, therefore, in terms of not only providing the rivers of trade for Ontario, but that's transferred through and shown and translated in terms of jobs, and the industry, if you look at it in its broadest sense, has about 200,000 Ontarians employed in the trucking industry in Ontario and has a relatively high multiplier rate as well.
In terms of the marketplace, interesting -- again, you're going to hear from all the bank economists and what not; some of them I know you've heard from already -- but trucking is a pretty good leading indicator of economic activity. We serve every industry, and usually we're about six months ahead of any trend in the economy upwards or downwards, and certainly 1997 was one of the best years in terms of the amount of freight in the marketplace that we have seen in a long time. Our industry has had to adjust to a lot of things over the last 10 or 15 years -- deregulation, free trade, the recession etc, and there has been an ongoing restructuring going on in the industry, but last year, for the first time in about 15 years, we started to see some real strength in the fundamentals.
Had you asked me in December where I saw things going this year in Ontario, I would have been extremely bullish. I am still bullish, but I would inject a note of caution that perhaps I might not have in December. Certainly with the Asian crisis, the fallout in terms of the devaluation of the Canadian dollar and the spike up in interest rates that we're seeing, I am now starting to see that in terms of the activity levels of our membership. I don't think it's anything we have to panic over at this point in time, but I still think that recovery in Ontario is somewhat fragile or at least has been made somewhat more fragile by the events of the last few months.
At the outset I said I wanted to talk about a couple of things. Let me first talk about service industry taxation, because here is an area where I believe it's important from a tax policy point of view and from an economic point of view that Ontario be consistent in terms of its tax policy and that it send the proper messages to the marketplace. Trucking, like many other service industries, pays sales tax and business input tax on virtually all of its inputs in our manufacturing process, the manufacture of our service. Presently in Ontario we're paying the retail sales tax on tractors, on trailers, on tires, but it also goes beyond that. We're paying sales tax on our insurance premiums, we're paying sales tax on our warranty repairs, we're paying sales tax on our maintenance and repair labour, so we're also paying on services. Retail sales tax is supposed to be a manufacture tax; we're paying it on some of our services.
Is that fair? We note that the manufacturing sector, the agricultural sector and others don't pay sales tax on their business inputs, and I'm sure there's a very good policy reason for that. However, trucking is part of that manufacturing process, part of the agricultural process, part of the retail process. Without us, Ontario stops, pure and simple. Also, when you go through our brief, you'll see some pretty significant numbers in terms of the increases in costs of transportation, whether that's through taxes or whatever, the impact that has on the final cost of goods sold produced in this province.
We would like to see that rectified. I can recall that in years gone by at this table, current government members were quite supportive of these concerns when we raised them in the past and when previous budgets seemed to single out the trucking industry for special treatment in terms of increased taxes. We know there hasn't been the fiscal leeway; however, we're hoping that the situation is being amended.
As well, what we're seeing is a tax on safety. As someone once said to me -- and I believe it to be true if you think about it -- in the trucking industry in Ontario at present, the more money you spend on maintenance, the more money you spend on safety, the more money you spend on newer, safer, more environmentally friendly equipment in this province, the more tax you pay. I don't think that's the intent that people want, but certainly I argued three or four years ago, when the sales tax on insurance premiums came on, that that was clearly an example of a tax on safety.
How do we rectify it? Governments in the past have provided exemptions and that kind of thing; however, those kinds of ideas are passé. The best way that we see, and we think the best way for the government as well, is for Ontario to get on side with Quebec and the Atlantic provinces and make some real effort to harmonize the provincial retail sales tax with the federal GST. That is the way to go. A value added tax, from a tax policy point of view, is the most effective tax.
I think as well that through various exemptions, through tax credits and the like, the impact that might have on low-income-earning people or others who are disadvantaged can be addressed. However, from a business point of view and from the point of view of government having to help maintain and manage two sales tax systems, as we presently do, it doesn't seem to make a whole lot of sense from an efficiency point of view.
As well, we need the Ontario government's support and leadership on another issue that impacts upon the employees in our industry, and we're having a tougher and tougher time finding people to come into our industry. In 1994, in the federal budget Paul Martin reduced the allowable deduction for meals from income tax from 80% of the cost of a meal to 50% of the cost of a meal. At the time, it was convenient for him to argue that he was simply following the lead of the United States, which had similarly reduced the allowable deductibility amount, but also Ontario, which some years previously had reduced the allowable amount from 80% to 50%.
We're not talking about $150 meals at Winston's or $100 bottles of wine at SkyDome. We're talking about truck drivers who are on the road every day of the week for many weeks at a time and whose stopping times and the places they must stop are dictated by hours-of-service rules and other things, not by anything else. It's really a question of subsistence for these people, and we estimate that the combined impact of this meal tax deductibility, the change in the rules, is taking about $1,000 a year extra out of the pockets of these employees. Even if the company were to offset that, the company therefore then pays a higher tax than it otherwise would have to.
What has changed is that this past summer the US President signed a budget bill introducing a phase-back of the 80% deduction up until the year 2003, I think it is. So the precedent has been set in the United States and we're working with the federal minister, but this is clearly an area where Ontario, in its expressed concern for small business and for the worker, could have some equalization of the playing field in that regard.
Infrastructure, as I mentioned, is a key component of the competitiveness of this economy. I hear a lot of people talking about the crowded state and the congestion on our highways, particularly here in Metropolitan Toronto. Sadly, some of them like to blame the trucking industry for that almost entirely. However, that is a sign that the economy is doing well. If the trucks weren't out on the highway, you could take that as a pretty good indication that there's not much happening overall in the economy.
We need to invest in our infrastructure. Back in 1965, the Canadian provinces as a group spent about 20 cents of every dollar collected on road infrastructure, either expansion or maintenance. By 1995, that had declined to something less than 3.5 cents for every dollar. We know the demands on government. However, if you're trying to attract direct investment into this province, one of the most attractive things is access to transportation infrastructure -- roads, highways, rail etc -- and we are falling behind in that regard.
The Better Roads Coalition, which is a coalition of road users, of which OTA is one, the CAA and others, has done some calculations -- you could find this yourself, I think, in the public accounts -- which show that more recently, the Ontario government has been taking in about $1.25 billion a year more in road-related revenue than it has been spending on the road system. Finance ministers forever and again have been arguing, "We don't dedicate taxes in this province." What I'm saying is maybe we should and in fact, if you look, there is an historical summary in here of every time the Legislature has looked at that question, and they have indicated that road user fees should go directly to the infrastructure and there have been a host of them over the decades.
The only recent look at that situation in Ontario has been through the Ontario Transportation Capital Corp which of course is the company currently responsible for the tolls on Highway 407, which raises an interesting point. We're paying the tolls on that highway now to the extent that trucks are using it, but we're also still paying the fuel tax, which I think is somewhat unfair.
Also, in terms of the infrastructure, we are concerned about the downloading of the costs for roads and some provincial highways to the municipalities. We're not necessarily so concerned. We do have some concerns about that in a practical sense, in terms of ensuring the continuity of the highway system and the road system in Ontario, but we're also concerned in so far as we are still continuing to pay the provincial fuel tax for travelling on those highways. At the same time, the Ontario taxpayer is paying through property taxes as well and we don't think that is right.
Safety as well is a key consideration here. I know full well and you know full well the stories that have come out of our industry over the last number of years in terms of the wheel separations and the like. I'm not going to blame those -- others have -- on the state of the infrastructure, but I can tell you it is an indisputable fact that the wear and tear on our vehicles, on the trucks these days in Ontario, is like we have never seen before. That is impacting upon our costs and it is also impacting upon the level of maintenance of the vehicles.
In fact the Transportation Association of Canada, which is an association of all the provincial governments and the federal government, calculated that if we brought the national highway system up to standard in Canada it would save annually 160 lives and prevent 2,300 injuries. The cost saving of that would be $20 million per year for the next 25 years, so looked at in an economic sense as well it makes good sense.
In previous years, I've taken up the whole half hour talking to you, but this year I'm going to stop at this point and allow you the opportunity to ask me some questions. Thanks very much for the opportunity.
The Chair: Thank you, sir. We have about 15 minutes. We'll start with the Liberal caucus.
Mr Kwinter: I was interested in your last comment that a lot of the problems the truckers are having is a direct result of conditions of the roads. I was sort of reading ahead and I thought you were going to hit it, that you were talking about your support for the 407 toll road. What has been your experience with that and is it your feeling that is the way to go to resolve this problem?
Mr Bradley: You've raised two issues. First, in terms of the state of the roads and the impact on maintenance, the industry is spending now more than it ever has on maintenance. While perhaps the perception is that that's not showing up in terms of the results on the highways, I can tell you the investment is being made there.
Highway 407, an interesting point. I think there is the money there now to maintain and expand the highway system if, with all the competing interests government faces, the infrastructure got its fair share. However, at the same time, we are realists and the Ontario Trucking Association was one of the first groups back in the early 1990s that proposed to the former government, "Look, we don't like tolls, but we're prepared for a project as important as Highway 407 to accept tolls under certain conditions." There had to be an alternative route, the numbers had to be public in terms of reducing the debt or paying down the debt, and a number of things.
That did show up in legislation and we wanted to be sure that was in legislation so that at some point in the future, we wouldn't end up seeing tolls on existing highways where there is no alternative and that kind of thing. In that respect, we are very supportive of Highway 407 and I think, quite frankly, it has been an engineering miracle the way that highway has been constructed, or at least the first part of that highway has been constructed.
However, are the trucks using it? No, they're not and they're not using it for the simple reason that it is not economical for them to use it. The trucking industry fully expects that we would pay more to operate on Highway 407 than cars. Certainly, trucks impose more wear and tear on the infrastructure than do cars. We're not disputing that. We never have. So we expected to pay more. However, the current rate is simply out of sight and it's out of sight particularly when the fact is we don't have the bypass yet, we just have the first section. You have to jog north and cross the highway back down again, so any time savings you might have had are non-existent. The other problem is that it makes no economic sense whatsoever to impose any toll in the middle of the night -- and a lot of trucks try to operate then, to stay away from congestion -- when there's no traffic on all of the alternative highways, which are free.
I really think the Ontario Transportation Capital Corp took a rather cavalier attitude to the trucking industry and said, "Oh, yeah, we've heard them complain before and we saw how in the States they complained and they all ended up using the highway," but you can do your own straw poll and stand on any bridge over the 407 and you won't see very many Ontario-based trucks on that highway. You'll see American trucks and Quebec trucks, because Ontario can't collect the toll from them. So we're supportive of Highway 407, in this case we're not opposed to the tolls, but it's a free market, thankfully, and we have an option, and for the most part the truckers aren't using Highway 407.
Mr Kwinter: What is your attitude on these tandem trailers and things of that kind, and how does that impact on the economics of your industry in Ontario?
Mr Bradley: There are only so many ways that our industry can improve its productivity. I think the industry has done an admirable job. I do think as well, though, that every time the industry has improved its efficiency or its productivity overall historically, governments, plural, have used that as an opportunity to tax that away.
However, in terms of how we can increase our productivity, it's by increasing the cubic capacity of the vehicles that we operate or by increasing the hours of service that someone can drive. Obviously, there are only so many hours in the day and we don't want zombies behind the wheel. We can't move Toronto any closer to Montreal, which would really help our productivity, so the only thing left is to look at the vehicles and make sure that under all the constraints that have to be there in terms of safety and performance and the like they are as productive as they can be.
Quite frankly, Ontario is now falling behind the jurisdictions that surround it, in terms of western Canada, Quebec, New York and even Michigan in terms of some of the vehicles they are allowing, some of them obviously under special permit, but that they are allowing in Ontario.
It's interesting that you'll hear from people who will say that what we need to do to protect the infrastructure in Ontario is reduce truck weights, because Ontario has the most liberal truck weights in Canada and North America, blah, blah, blah. That's not really entirely true, but the Ministry of Transportation in Ontario last year did a study of that. In fact, there were some proposals for some moderate decreases in truck weights and dimensions. They took a look at it and what they found was a 42-to-one ratio in terms of the cost that would impose on the economy of the province versus the savings that would accrue to the infrastructure.
There's really nothing to be gained from reducing the cubic capacity or the size of the trucks. What we have to do is in a measured and a controlled way look at where we can maximize the cubic capacity of the vehicles and therefore also maximize the management of scarce infrastructure.
Mr Silipo: The point that you made on Highway 407, have you come up with or could you give us any idea of what kind of changes would have to be made to the fee, to the toll structure? How much would they have to be lowered for them to become attractive or useful for truck operators?
Mr Bradley: I have to admit I don't have the number. One could, I suppose, try to model that, but it's abundantly clear from the experience now that it's too high. Whether it needs a 10% or 20% reduction I don't know. Ultimately, the market will determine that.
I think as well that when the truckers looked at Highway 407 initially, we thought we were getting the entire 407. We got the first section last year; now we've got the western section coming on stream. When that hooks up with the QEW, that's going to improve the attractiveness of that highway, and obviously, if we ever get out to 35/115 in the east, that will enhance it further. So it has been a bit of a moving target. All I know is in the present market the current levels are --
Mr Silipo: It doesn't surprise me to hear you say that. My own sense is that the present toll structure is a discouragement even for other drivers to use, let alone the trucking industry. I'm not surprised by what you're saying, and I think I'd be interested in seeing what information the ministry has as they're continuing to look at this in terms of what actually is going on.
Mr Bradley: So would we.
Mr Michael Burke: I think it's fair to say also there have been some administrative concerns with respect to the whole process, and that has been discouraging from a usage perspective as well.
Mr Silipo: What would those be?
Mr Burke: For example, some people who have been operating leasing companies have been billed when clearly they were supposed to be billed for power units and those types of things.
Mr Silipo: I think your points are clear in terms of the kind of overall points you're making around taxation and about the need for continued funding, increased funding perhaps even for the infrastructure to be maintained, and we certainly heard a little bit more on that also earlier on from other presenters. I just note that's obviously something that needs to be looked at and acted upon.
Mr Rollins: Thanks for your presentation. As a bit of my background, long before I got into politics I was a truck driver, so I have a bit of an idea of spending a few hours a week behind the wheel of one of those machines.
I find it quite interesting that you people all talk the same language as far as decreasing the size of capacity of your truck for your load when we are the leading jurisdiction in North America as far as weight is concerned and particularly when I see so many American trucks coming in, and they basically double their loads to come across to Ontario and take advantage of using our roads, because we allow the weight structure that we have on them.
Do you not feel that somewhere along the line we probably should -- I know we've got the brakes on and we're not going to increase it, I'm sure of that, but should we not maybe decrease it some to add to the life of some of these roads? Weight has got to be an admissible factor in the cost of wearing these roads out.
Mr Bradley: Interestingly, some truckers might agree with you that we should reduce the weights, because that would put more trucks on the highway, more loads and more pay, and I guess perhaps the market could adjust to that over time. It's who would be in business during that time. It's clear that the shippers aren't going to pay any more money. It's pretty tough to put that genie back in the bottle once it has been let out.
When you look at the scientific research and literature that has been conducted in terms of pavement wear and tear, as I said from the outset, obviously a tractor-trailer or a B-train combination with 140,000 pounds on it is going to impose more wear and tear on the life cycle of a highway than a car. However, the wear and tear from trucks is not really a significant contributing factor to the deterioration of the highway system. In Ontario, clearly the major problem is the freeze-thaw cycles we have in the weather. Trucks, the heavier they are, it doesn't necessarily mean they're putting more weight on the highways, because what you'll have under those vehicles, under those trailers, are more axles, and therefore, the axle weight per vehicle doesn't change a whole heck of a lot.
The studies that Ontario did really demonstrated that the economic downside of reducing truck weights was so astronomical, particularly for heavy industries like steel, forestry, for Ontario-Michigan trade where Michigan does have more liberal weight laws than Ontario, that the cost was astronomical, 42 times higher than the savings to the infrastructure from reducing those weights.
Quite frankly, while you'll find even people within the industry might argue from time to time, "Let's lower the weights back to where they were in the 1970s," I guess we'd all like to hearken back to the 1960s and 1970s on certain things, but that's not the way the world is going, and if we're going to maintain our competitiveness, if we're going to continue to attract new direct investment into Ontario, we have to be able to get the product in and out of here as cheaply and as efficiently as we can.
Mr Rollins: What if we were as a government to sit here and say, "Okay, fine, if you're only going to draw light loads, we'll give you a lot better break as far as your tax and your insurance is concerned" -- so that we would encourage more trucks on the road with lighter weights -- "and for you people who want to draw that extra weight, you're going to have to pay a little more"?
I just came back from Colorado, and believe me, they have freeze and thaw down there just the same as we do and their roads were as level as that. There was no grooving in them, but their weights are horrendously lower than ours.
Mr Bradley: I would also suggest to you that Colorado has probably spent more per capita as a state than Ontario has. There's no way we can get around it. We have to invest some money in the infrastructure here. The bridges are a bigger problem than the highways. There's no doubt about it. So you're not going to get around it. If we took all the trucks off the highways, it's not going to solve that infrastructure problem.
You might be able to convince a trucker, "Hey, we'll lower your taxes if you lower your weight," but you've got to remember what the trucker's doing. He's hauling the freight of Stelco, Dofasco and people like that. You can't just change the size of steel ingots overnight. It often becomes a truckers' issue but at the end of the day, I guess, if you change the rules, the truckers will haul whatever the rules are. But it's the manufacturer, the shipper in this province who is manufacturing the goods that we're moving, that's where the cost is going to be really seen in the end.
The Chair: Thank you, Mr Bradley, thank you, Mr Burke. We appreciate your time and we appreciate your submission.
CRAAYTECH PAINTED PLASTICS LTD
The Chair: The next presenter will be Craaytech Painted Plastics Ltd, Paul Peterson. Welcome.
Mr Paul Peterson: Thank you very much. It's good to see you all here, especially Gary Stewart. Let me just tell you a little bit about Gary.
Mr Peterson: How long have you got?
The Chair: You get an hour under those circumstances.
Mr Peterson: I want to tell you that Gary is one fine MPP for Peterborough. He's hardworking, he's well networked in the business community, he's there for the people. Gary, you're a tribute to us and you're one of the finest MPPs we've had for a while.
Mr Stewart: Thank you, sir. Unsolicited too, by the way.
Mr Peterson: Unsolicited. And I want to say hello to Monte Kwinter too. Monte probably doesn't remember this, and it goes back a while, probably about eight or nine years ago. I was a program chairman for the Society of Plastics Engineers. There was an election coming up and you guys were so far ahead in the polls, you said, "There's not much risk here." You were our guest speaker that night, or supposed to be, and voilà, an election left me scrambling to find a new speaker because you were no longer the Minister of Industry and Tourism.
I'm going to give you a little small business perspective today. I'm the president of Craaytech Painted Plastics in Peterborough. We've had a little bit of growth. We're up to 98 employees now, Gary. It shocked me when I had to sign the paycheques the other week. It took me an hour. But anyway, we started small. We started going about eight or nine years ago and we only had about 12 people back then, so it has been a progress. Let me give you a little bit of a small business perspective, especially since I spent six years as a director of the Greater Peterborough Chamber of Commerce, including a year as president. So I think I've got a little bit of flavour of the small business community in a community the size of Peterborough.
First of all, let me praise the current government. Let me praise you because I think you inherited a hell of an economic mess. In a relatively short time you've turned that around. The best thing you've done for business is you've rebuilt the confidence of the consumer and you've done that by wrestling this deficit and you've done it by cutting taxes. That's the best thing you've done for business because those are our customers. When they feel good they're spending more money and we're going to grow with them. Now we've got something we can sell to people. They've got money to spend. That's the best thing you've done.
When you first took power, the current government, you were in this chop-chop mood. I don't blame you; it had to be done. There wasn't too much sympathy from the business community when you started cutting back on government. There hasn't been too much sympathy in the last few months when you were wrestling with the school problem, not that business people aren't sympathetic people. It's just that we went through all our bloodletting during the recession, and I'll tell you, it was massive. The ones that survived are still here today to attest to it. That's reality.
One of the things you did cut I'm a little sensitive to, and that's the Ontario Development Corp. You almost eliminated that. I think you're just basically in a collection mode. I know ODC had a lot of failures, but it also had a lot of successes. My business is one of those successes. When I look back to 1989 when I took over Craaytech, it was a fledgling business ready to go bankrupt. I mortgaged my house, put money into it, and with a loan from ODC we were able to put in some moulding machines, put in a strategy that worked and turn it around. We've grown and developed.
If it hadn't been for ODC, we wouldn't have been able to do that, because the banks certainly weren't going to do it for us. No way. The banks are great at coming out with, "We do a lot for small business," and they make these beautiful brochures, but when you come down to their office, face to face, and you're sitting across from them, they are not risk-takers. If it hadn't been for ODC, we wouldn't be here today. I mention to you too that we've got 98 employees.
Also, if it hadn't been for ODC we wouldn't have survived the recession, because we had some tough times. The market dried up for a while; and it was lengthy, it was a good three years. Interest rates were high. Free trade: We were faced with a shakeout of our manufacturing sector. We just dried up. We lost customers to sell to, missed some payments, went interest-only for a while. We could not have done that with the banks.
I'm a big promoter of ODC if you manage it right. If you go back to the days when it was structured, I think it was under the Bill Davis government, the intent was good. I think it got out of hand, you made some bad loans. But all in all, small business needs capital and we can't get it from the banks.
Let me tell you something about small businessmen. We don't personally need to make a lot of money; we just need to make enough money to be comfortable. We have this entrepreneurial flair. We've got these dreams and goals and visions. We want to develop our businesses. We don't need a lot of personal money, so what we're doing is we're rolling the money we make back into the business to grow the business.
In your absence from ODC the last couple of years, in a way it's been a little fortunate that the feds, under the BDC, have picked up the slack. They've got some good programs. They've got the Small Business Loans Act, and I've taken advantage of that a couple of times. That's a good program, and one of the reasons that program is probably more successful is that it's administered by the banks. I want to tell you, they're tough with it. Their risk is very minimal; it's almost non-existent through this program. I've used it three times and you'd swear it was their money the way they make you go through your due diligence. You should take advantage of that type of act and look at what you can do in the provincial sector along with it. And bring the banks into this. They talk a good story, but until their risk is going to be minimized, they're really not going to be there. So let's pull them into the front if we really want to help small business. You've got to get creative here.
Another thing you can do if you want to seriously consider doing something with ODC again is doing it so perhaps future loans are tied so that you're networking with another financial institution. Let's say the small businessman puts in some cash, ODC puts in some cash and maybe another financial institution puts in some cash -- maybe it is the BDC -- and then collectively you have enough money to go ahead.
On the other front, we need more money because of what's happening nowadays. I'm a manufacturer and, even though my primary market base is Ontario, I'm faced with competition now because of free trade from the States. I'm faced with people from New York, Ohio, Michigan who do the same things I do coming into our markets. I've got to compete with them, and they're already serving the greater US market so they have bigger machines, tooling that can produce more per hour. We've got to compete with that, so we need a larger pool of resources. This is why I'm suggesting that maybe you take a real good hard look at how you're going to do this. We do need some help.
I've also taken advantage of what they call the technical personnel program. We hired an engineer in our growth years. We were just coming out of the recession. Picture this: You've gone through three and a half years of hell and now all of a sudden the market economy is picking up but you've got no money to keep pace with it. I needed help. I'd cut down to the bone; I had to in order to survive. This program allowed us to pull in an engineer, which really helped our business. It helped us professionalize some of our engineering services, which allowed me to capture some more customers. I think that's a good program to reconsider. Small business needs help.
Listening to the gentlemen previous to me who were speaking about the 407, I think it's time you gave a real good thought to how big you want to see Toronto get. If you want to put the brakes on Toronto, certainly don't put the brakes on the economy. We need growth. But Peterborough could double if we had a major link like the 407 coming right through. I think if you accelerated your plans to bring that highway up through the Peterborough area, it would be a blessing for our community.
I'm going to close by saying this: No matter what you do, this current government is going to have a hell of a time getting re-elected unless you solve this health care problem. I had to take my wife in for a gall bladder operation a week and a half ago. She had to spend a whole day in the hall; I'm talking 24 hours. She couldn't even get a glass of water.
Regardless of how this problem fell in our lap, without trying to lay blame, it has to be corrected, and corrected soon, before the next election, if you want to get re-elected. If you don't, you're going to have a real tough time. I'd like to see you get re-elected, because I think the current government has the economic policies and I'd like to see another term to continue with that, because my business is tied to consumer attitude and confidence. If that attitude and confidence continues or even improves, my business can grow right along with it. From a business perspective, I'd like to see the current government get re-elected, but for God's sake, solve this problem fast. It needs to be solved so that by the time of the next election it's a non-issue. Now I'd be happy to take any questions.
The Vice-Chair (Mr Wayne Wettlaufer): Thank you, Mr Peterson. We have about 20 minutes, which would be six and a half minutes per caucus, beginning with the NDP.
Ms Marilyn Churley (Riverdale): Thank you very much. I'm sorry I missed the bulk of your presentation, but I was here for enough of it, I think, to understand where you're coming from. I have to begin by saying that I don't agree with you on one factor: I don't want to see this government re-elected. Surprise, surprise.
Mr Peterson: Careful, now, I get a chance for rebuttal.
Mr Baird: Oh, Marilyn, come on. That's not very nice.
Ms Churley: They're taking up my time, Mr Chair. I guess I provoked them.
I heard you express concern about health care. We're hearing on the news that in the dialogues the Premier's having that seems to be a major concern. I expect we're going to be seeing the government slow down on some of that stuff because it is a problem for them.
I wanted to talk a bit about small business. I have three or four, now with the new ridings maybe five, BIAs, business improvement areas, in my community, some of which have been very successful. I've been working with them -- I was on city council before I ran provincially -- and still work closely with them in terms of revitalizing and improving the area. Where are you from, by the way?
Mr Peterson: Peterborough.
Ms Churley: Peterborough. Let me ask you a question, then: The education tax that there's a big fuss about in Toronto, what do you think about that?
Mr Peterson: We don't like taxes.
Ms Churley: But in terms of fair taxes across the board, do you have sympathy for Toronto in the context of -- obviously you don't want your taxes raised. I agree that in order to equalize taxes, I would not want to see Peterborough or any other community have huge increases. But do you agree with the basic premise of fair and equal business taxation?
Mr Rollins: We put a freeze on it.
Ms Churley: Yes, we know you put a freeze on it.
It's a tough one, I know, because --
Mr Peterson: No matter what I say, you're going to have someone on the other side of the fence to say no, but let's put it this way: I think school boards have been out of control for a long time, and the probability for that happening is that they're electing themselves, former teachers and that type of thing. They're padding themselves all the way up the line. They don't get a lot of sympathy from me.
Ms Churley: But I'm not talking about the teachers and all of that, I'm talking about taxation, which is a really tough one, I know.
Mr Peterson: But it leads to it, you see. Toronto's probably the biggest abuser of it, so now they're looking at paying fairer tax --
Ms Churley: Oh no, you're sounding just like these guys. You see, as a Toronto member I thoroughly disagree with that. It's interesting that Ernie Eves blamed past Toronto councils and school boards for higher taxes here when in fact the GTA, the greater Toronto area, was getting $200 million in education grants and Toronto wasn't, and furthermore a lot of their Tory members, like Derwyn Shea and even David Johnson, who was the mayor of East York, and people like that, were in charge of the finances then. So I tend to disagree. I would say that money was not squandered by these people.
Mr Peterson: Let me give you a Peterborough perspective.
Ms Churley: But I wanted to ask you another question, and I've almost run out -- is that okay? -- about business and ODC.
The Vice-Chair: You have about three minutes.
Ms Churley: I understand that you have some concerns about your relationship with the government and that you would like to see the channels of communication opening up more. Is that a concern of yours?
Mr Peterson: No, I think what I said is I'd like to see some of the loan programs that ODC used to have restructured and restarted.
Ms Churley: How is that hurting small business in particular, not having those loans there?
Mr Peterson: It's just another lack of a source for capital. We need capital to grow.
Ms Churley: And you're finding it's difficult to get startup funds and loans from the big banks still?
Mr Peterson: Let's say your house was worth $100,000 and you had it paid for; they'd probably lend you $70,000. What are you going to do if you need $200,000? This is where we're at.
Mr Stewart: Thank you, Paul, for coming and making a presentation today. Paul's operation is a success story, and I had the privilege of making a statement on his business, on what he has done as a small businessman, in the House back before the we rose.
We've heard today from some of the presenters that our tax cut was the worst thing that could happen to mankind in Ontario. I guess we had two problems. First of all, we had the deficit, which we had to get down. We also had one bigger problem, and that is job creation. I think some of us who are supportive of the tax cut believed it would create jobs. I look at the small business community in Peterborough and I believe it has done that. I'm not trying to put words in your mouth, but do you believe that if you look around our community, the tax cut has a ripple effect on small business and has created jobs in the area?
Mr Peterson: Yes, it does. I really solidly believe that. What we're seeing now, and I see it among my own employees, is confidence. They're out buying new cars, they're maybe trading their houses up. Especially in the real estate area in Peterborough, this year has been their best year in the last four or five years.
In my particular business, I sell to other businesses, to other companies, other factories, other manufacturers. All of them have development plans in action right now. So the job growth that you've seen so far, you're just at the outside of it. Wait two more years; you're going to really see the job growth.
A lot of the things I deal with take time to develop. First of all, they have to have confidence. Someone has to go out and make a business plan and get some capital; they've got to get their engineers and do the development work and the designs; they've got to tool up for it; they've got to bring on the myriad of other components; they've got to debug it; they've got to get to the consumer market. Then you're in a growth cycle. It takes time. It takes a couple of years. So with the projects that, through my customer base, I see on the books happening, you haven't even seen the surface yet. You're going to see solid job growth and it's all on confidence. It's confidence at the consumer level, it's confidence at the business level. Right now it's the best we've seen in about four or five years.
Mr Stewart: One of the comments you made was about the access to money. Certainly, knowing a bit about small business, you're right. It has been difficult over the last number of years. I'm a great believer in partnerships, one being the bank, one being the government, one being the private sector. I think a good example is the infrastructure program that's between the municipalities, the feds and the province that's been out for a couple of years and was pushed to continue.
But one of the problems over the last years, and you get into that difficulty during the recession and during recession times and so on, is the controls and the people taking advantage of it. Certainly the banks have been very hesitant, as they have, because of being burnt. The government has as well. I guess I have difficulty with programs that really don't do a whole lot unless there's a true participation by the other people. How do you put the controls in it? Because small business sometimes goes in and out of business very quickly. How do we put the controls in it?
Mr Peterson: I'd really be happy to answer that. Just download it; take it off your table, your bureaucrats, your politicians. It's not your expertise. Put it where it is. The banks have got the expertise. Bring them in. Give them a little piece of pie so they can make on it. Let them share a little bit of the risk and let them administer it. Perfect fit. There's your fit. You provide the capital. Let them administer it.
Mr Stewart: The other comment: We talked about health care, and I hope Sandi is better, by the way. Unfortunately, if we don't create the revenue which is created by jobs, then we don't have the funds to offer additional dollars in health care and education and so on. To me, everything comes together on it.
I go back to the job creation and the tax cut and the efficiencies and the accountability. We've heard about restructuring at the municipal level. For the life of me, I cannot understand why all three levels of government have to do the same damned thing, whether it be health care or whether it be social services.
We are accused for restructuring and trying to put services at the level that they can be delivered most efficiently. We get accused of that every day. Yet I look at the feds -- and health care is a good example. They have to have control, we have to have control, municipalities have to have control, all of which have big administrations taking money away from the patient.
My point is, I appreciate where you're coming from. We have to have that revenue, we have to have that job creation and small business is what's doing it. Yes, we should be catering to them.
Mr Peterson: Let me tell you how I feel about it, and it's not really fair for me to comment without studying it, but just my own feeling. We're all consumers, we're all people, right? We've all got loved ones and all that so we're all sensitive to this, no matter what party we're from.
There are lots of empty beds in that hospital. I snuck up, went up to the second and third floors. There are all kinds of empty rooms up there with beds in them. So all I think it's going to take is two or three more people working in the emergency ward and whip them up another floor. At least they're in a bed and they're getting some care, instead of out in the hall in bright lights and dying out in the hallway.
I had to take my mother-in-law who had a little heart problem there two or three months ago and she had to get naked into this gurney in the bright hall with people walking around. It's not dignified. Beside her there was this elderly man holding his wife's hand. She's got this death wheeze. She was there for hours.
For God's sake, Gary, let's not die in the hallway. Hire a couple more people. Something's got to be done at the management level and you guys have got to force it. That night in Peterborough, if they had had two more staff in emergency it would have done it. You take the total cost of running that hospital, the extra cost of two more bodies wouldn't be that significant to solve this problem. They've got the rooms.
Mr Kwinter: I want to comment on your observations about the ODC. I agree that it plays a very useful part in the life of a small business. Just to clarify the situation, the ODC was eliminated in its previous form because of an ideological perspective. The minister admitted this. He felt that governments do not create jobs, that this is not the role of government, that the market should work and the role of government is to create an environment where businesses will prosper.
Your comment was that you thought the reason they got out of it was because they had a lot of losses. I was the minister responsible for ODC. I was criticized because we didn't have enough losses, because if you're going to operate like a bank and just do exactly the same thing as a bank does, then you don't need the ODC. The ODC was there for people like you who could not get conventional banking and who were, no question, a greater risk, but they also had great potential as an entrepreneurial small business to grow. You're now at what, 95 employees?
Mr Peterson: Ninety-eight.
Mr Kwinter: That was the concept behind it. I am fully supportive and I'm delighted to hear you fully supportive of that. I just wanted to clarify that for you as well as the technical personnel program. That's another thing that was initiated -- I didn't initiate it but it was initiated during my particular tenure as minister. One of the biggest problems small business had was that in order to compete they have to have the technical knowhow and in many cases they can't afford to have those people on staff, so by initiating a program where they would pay -- I think they paid virtually the whole thing the first year and then 75% the second year and it kept --
Mr Peterson: It ended up being about a third.
Mr Kwinter: These are the kinds of things that I think government should be doing to help small businesses get that leg up so they can compete. As I say, I'm delighted to hear you being supportive of that. Maybe you can tell your friends over there that that's something they --
Mr Peterson: Oh, is that how it's divided?
Mr Kwinter: Very much so.
Mr Peterson: I wouldn't mind speaking to that. There's something happening out there called ISO 9000, the International Standards Organization. Actually, it's a very sophisticated management system for quality standards with worldwide recognition. It's being dictated now by the larger companies and it's filtering down, and now it's going on about the 10th year or more and it's becoming more and more demanding. It has gone from prime manufacturers to tier 1 manufacturers to tier 2, right down to tier 3. There's a ton of small businesses out there that just can't afford this but they need that help, and without it they're going to find themselves without that market to serve and they'll have to really scramble or they'll go out of business.
We could use some programs to offset those, something like the technical personnel program, that specializes in the ISO. I know I've spent over 50 grand on this damn thing myself, but I was just fortunate enough that I caught it where I'm coming out -- I'm still struggling, mind you. Every dollar is going back in and we're tight and we're just making the payroll type thing; we're growing. I had to put it in, but it was a real strain, believe me.
Mr Kwinter: You make an excellent point, because the actual cost runs now, for an ISO 9000 accreditation, at about $75,000 a year. I was just reading an article that even law firms, if they want to act for companies that are ISO 9000, have to have the same certification. You're absolutely right. That's another role where government can help small businesses that want to be able to be suppliers to the General Motors of the world and everyone else that requires that their suppliers all be ISO 9000 certified, that there be a program to allow them to attain that certification.
Mr Peterson: On that point, Mr Kwinter, it's not just throwing in money to offset the cost. There's a benefit to it, because once you work through this program, your business becomes better because the 23 elements of the program force you to become better. You address all these key elements of managing a business and you become better. Our business became better, and hence, as we're more and more into this program, we're managing our business more professionally than we ever have in our life before and we're getting more customers because we're doing things better and more economically and there's a spinoff effect. We're growing with it and we're improving, so it's an investment in the future.
Someone should ask me something about students. We've got to something about the young; we've got to get the young employed in the scheme of things. We really do, guys. We've got to do something about the youth.
The Vice-Chair: Thank you, Mr Peterson.
ONTARIO NATURAL GAS ASSOCIATION
The Vice-Chair: The next group is the Ontario Natural Gas Association. Please introduce yourselves for the record.
Mr Paul Pinnington: My name is Paul Pinnington. I'm the president of the Ontario Natural Gas Association. Anne McGrath is the manager of taxation services for Union Gas Ltd. Barry Remington is the manager of property taxes for Consumers' Gas Co Ltd. Bernard Jones is president of Blue Apple Consulting and a resource person to the Ontario Natural Gas Association.
We're pleased to be with you once again today. This is the 11th consecutive opportunity we've had to participate in these important proceedings and we appreciate that. On behalf of the members of the association, we have prepared a discussion draft, entitled Effective Public Policy Implementation and Competitive Taxation: Underpinning for a Competitive Economy, which has been distributed to members of the committee. I would ask Mr Jones to take us through the executive summary of this discussion draft, and with your concurrence, Mr Chairman, I propose that my colleagues and I respond to any questions you may have on the conclusion of Mr Jones's presentation. Copies have been provided to the clerk and the representative of Hansard, and additional copies are available for interested parties.
Mr Bernard Jones: As you can see from the title of our brief, we clearly hold the opinion that positive government actions are crucially important to the province's economic performance. In our view, this committee's past reports and recommendations have helped provide the foundation for improved public sector finances in a healthy and growing provincial economy.
We support policy change that enhances Ontario's economic competitiveness and secures our ability to fund basic social programs. To ensure lasting benefits from the policies, we believe the government and the legislators must focus on making sure that implementation is as efficient and effective as possible and that the benefits of change are publicly communicated. As well, the government must put in place and strengthen mechanisms to measure progress and to improve program leadership and accountability.
Our 1998 brief addresses five areas of concern to ONGA members: first, the economy; second, public sector restructuring; third, the fiscal balance; fourth, the taxation climate; fifth, energy policy.
The opportunity for positive change may never be better. Now is the time for the members of the standing committee to provide timely advice to help ensure that the major policy initiatives recently undertaken in Ontario are implemented as smoothly and efficiently as possible.
Let me now take you through our executive summary and recommendations.
First, on the economy, ONGA shares the Minister of Finance's optimistic medium-term economic outlook. The fundamentals are strong; however, a challenge remains to increase productivity and employment.
The Ontario natural gas utilities invest more than a billion dollars annually on economic infrastructure in this province. Opportunities exist for gas transmission and distribution system expansions greater than currently planned, and for gas and electricity market reforms, which together can make a substantial contribution to productivity and employment growth in the provincial economy.
Public sector restructuring is important to our continued economic prosperity. We think now is the time to take stock of the progress made and to consolidate and document the gains, and in this context we have two recommendations.
The first is that we recommend that the standing committee propose to the government that, as a matter of budget policy, no major new government restructuring actions be taken before existing policies are more fully implemented and the gains consolidated, documented and communicated.
Moreover, given the human resources' drive to the public sector, the government should place emphasis on leadership development and skills upgrading in the public sector for improved performance and accountability.
We believe these steps would help preserve the fiscal balance.
It's been 27 years since an Ontario or federal government reported a budget surplus. The public debt burden on Ontarians has escalated to the point where it is a threat to future generations. Balanced budget legislation is receiving consideration in other jurisdictions. In that context, we repeat our recommendation made in previous briefs that consideration be given to putting in place legislative safeguards that would reduce the risk that a future government might put Ontario back on an aggressive public spending path.
We also recommend that the government engage in public dialogue regarding the distribution of the fiscal overpayment, or surplus, by taxpayers that emerges once the budget deficit is eliminated. Advance consultation and debate over the allocation of this overpayment to debt reduction, tax cuts and expenditure increases is highly advisable.
In our view, a firm federal-provincial commitment to reducing Canada's debt while also shaving the tax burden would do wonders for consumer and business confidence and help boost investment and employment in the long term. A stable, predictable and competitive taxation climate is also important to encourage investment, economic development and employment growth in Ontario.
As you know, realty taxation is on everyone's mind these days. Pipeline companies pay property taxes well in excess of any amounts that could be justified by local services provided to the pipeline companies. In this context, we recommend that for fairness and ease of tax compliance, the property tax treatment of pipelines should be consistent for both municipal and education taxes, that the tax rate for the education portion of realty taxes should be set by the province, that changes in the education tax should be phased in parallel with municipal taxes, and that the tax should be regionally based.
We also recommend that no additional realty tax burden should be placed on the pipelines as a consequence of elimination of the business occupancy tax. The pipelines were previously not subject to this tax and are promised tax neutrality within the property class.
For fairness and to avoid unjustified and costly tax administration, pipeline assessment should be subject only to a minimal uniform rate of tax. The room for municipalities to tax pipelines should be limited by the province to prevent any worsening of the current overtaxation relative to services provided.
Finally, in this context, compressors and pumps are machinery and equipment, not real property, and should be excluded from the property tax base of pipeline companies.
The recent experience of the pipeline companies has shown that they are vulnerable to arbitrary and unfair taxation.
ONGA proposes that the standing committee recommend to the Minister of Finance that there should be no increase in tax on pipelines, which are already, in the opinion of experts, overtaxed.
We are encouraged by recent government announcements on ranges of fairness designed to help property classes that are unfairly taxed, whereby pipelines are to be taxed at 0.6 to 0.7 times the residential rate, and by the province's intention to set one education tax for pipelines in each upper- and single-tier municipality.
On the question of income taxation, ONGA supports the government's initiatives to reduce the income tax burden. Relatively high taxes go hand in hand with relatively high unemployment.
We recommend that the standing committee advise the government to stay firmly on its debt reduction path.
ONGA does not support carbon taxes or the taxation of residential uses of energy.
Let me comment briefly on the issue of user charges and cost recovery. We are concerned that while some taxes may decrease, government entities might be tempted to raise funds in the form of excessive and unjustifiable user and other cost-recovery charges. In this regard, we recommend that the ministry and the government review the guidelines proposed in 1995 to the federal government by the Business Council on National Issues and the Canadian Chamber of Commerce -- we've outlined them in this paper -- with a view to achieving user charges and cost recoveries that are equitable and least damaging to the provincial economy.
Now let me talk briefly about energy policy. There are several areas of energy policy with considerable potential to boost investment and employment that warrant the attention of this committee.
The government is aware of the broad-ranging stakeholder support for electricity system restructuring. We propose that the standing committee urge the government to move as quickly as practicable to table draft legislation for review by the Legislature and stakeholders.
There are several restructuring issues on the electricity front within the purview of the Minister of Finance that will impinge on the 1998 and future budgets. Therefore, we have a number of recommendations regarding the implementation of the government's vision of a competitive retail electricity market: first, that the financial structure and obligations, including taxation, of the intended Ontario Electricity Generation Co and the Ontario Energy Services Co be fully consistent with fair competition with private companies and with a level playing field; that there be no undue subsidy to electricity compared with competing forms of energy; that the role and mandate accorded the regulator not be a barrier to the implementation of competition; that the interim electricity supply market be made as open as possible and as competitive as practicable; and finally, that stranded costs, if any, be recovered from electricity system users, not from taxpayers, and that any stranded cost recovery mechanism encourage increased electricity generation business efficiency and cost savings by Ontario Hydro.
We also need to enhance competition in the natural gas market. Legislation to change the Ontario Energy Board Act should be introduced. Moreover, steps must be immediately taken to ensure adequate consumer education and protection in the continuing transition to a fully competitive marketplace.
We recommend the removal of legislative impediments to gas commodity title transfers or sales in Ontario; the removal of regulation by the Ontario Energy Board wherever there is, or is likely to be, effective market competition; legislative change to give the force of law to gas industry initiatives designed to help protect residential and small commercial customers from undesirable sales practices; that the Ministry of Consumer and Commercial Relations, under the Consumer Protection Act and the Business Practices Act, take a more active interim role in ensuring adequate consumer education and protection in energy markets; and finally, that energy policy and taxation in natural gas and electricity be concordant.
In closing, let me just mention briefly natural gas vehicles. We urge the government to continue to support the development of the natural gas vehicle industry in the province. The displacement of gasoline by natural gas in vehicles dramatically reduces pollutants, including NOx and C02, and is an important component of Ontario's smog plan.
We recommend that the provincial sales tax rebate of up to $1,000 for the purchase of NGVs and the exemption from the fuels tax be maintained, that businesses be provided with sufficient tax incentives to encourage them to buy NGV fleets and invest in infrastructure to fuel them, and that the government introduce an NGV fleet bill along the lines of the federal bill.
Mr Pinnington: We're prepared to respond to any questions you may have.
The Chair: We have about five minutes per caucus, and we'll start with the government caucus.
Mr Baird: Thank you very much for your presentation. You certainly gave us a lot to reflect on, particularly on pipeline taxes and other issues, so I appreciate the time you spent to put your presentation together.
I was interested, on page 4 of your presentation, when you spoke about taxation policy in general and encouraged the government to stay firmly on its tax reduction path. Can you tell me, is your industry better off than it was two and a half years ago, and did you feel the tax reduction had played a part in any economic success of your industry?
Mr Jones: I'd echo the comments of the previous speaker that it takes time for tax cuts of a general nature to impact into the economy to affect incomes, to affect investment and saving, and that we will see increasing benefits from tax cuts in a very substantial sense in the years ahead.
I think the immediate effect is more psychological. People have greater confidence to commit themselves -- both business, in terms of investment opportunities, and also consumers. I think both of those two things have been reflected in the improvement in business and consumer confidence that's been really quite noticeable in the past two years.
Mr Kwinter: I want to explore your concerns about what is happening with the deregulation or the introduction of competition into the energy field as a result of the white paper on Hydro's future and how that impacts on your industry.
One of the things you comment on is that you feel there should be concordance between the Ontario Energy Board's handling of the natural gas industry and the electricity industry. I'm sure you know that was a recommendation made by the select committee, that at the present time the OEB regulates the gas industry very stringently, but it's really just a sounding board for Hydro and then Hydro goes and does whatever it wants. One of our recommendations is that that should change. I assume you agree with that.
Mr Pinnington: We do.
Mr Kwinter: The concern that I detect in your presentation is, what happens with the stranded debt? I heard someone on television this morning from Energy Probe commenting on what was happening with the new appointment, the new president of Ontario Hydro, the fact that he had come from another regulated industry and that this might have sent a signal that Ontario Hydro was trying to get into some other lines of business. My concern is that this may lead to an offloading of the stranded debt on to anybody who is using their transmission system and will put us at a competitive disadvantage.
Obviously, you've looked at the whole issue of stranded debt and you want to make sure it doesn't impact on the competitive issue. Do you have any comment on that?
Mr Pinnington: Maybe I'll start out and my colleague Mr Jones can fill in. We're participating very actively with the government and with other interested parties through an organization known as SAC, which is an alliance for competition and choice in the electricity market. There's a great deal of detail and a great deal of effort going into this whole process of market design for Ontario Hydro. Certainly one of the key elements is the question of the stranded costs, whatever they may be. There are a number of opinions, that it could be anywhere from zero to $30 billion in big, round numbers.
Certainly the transition that we go through with the breaking out of the various elements of what we now know as Ontario Hydro into generation and transmission -- and there are questions about the retail presence of Ontario Hydro. What other things they may do -- I know there is a Ontario Hydro International, for example, and I'm not sure whether your question related to some extent to them becoming active in other businesses. I guess our major concentration to date has been on what happens to the entity that we know as Hydro in its new format.
I would suggest to you there's a huge amount of effort going into designing the new market, designing the new legislation, ensuring that the new legislation is consistent with the legislation that's presently in place for the natural gas industry. We feel a level of comfort in the openness that the Minister of Energy is introducing into this process to date by way of the white paper. It was a good initiative. It gave plenty of scope to start the process.
We do have some concerns about the transparency of Ontario Hydro in the transition period, which is now until the year 2000, about the interim market. We're not at all convinced that on January 1, 2000, you could flip a switch and we'll have a whole new electricity system. It didn't work that way for gas. We're 15 years into the deregulation process and we're still learning. We've come a long way and the customers have benefited a great deal. It's a process that over time I'm sure will benefit the province of Ontario and the consumers and will create a better economy and more jobs here in the province.
That's a broad, general response to your question.
Mr Kwinter: I know the natural gas industry is very interested in getting into the energy market and gas-fired generation. Do you have any concern about the fact that the proposed structure is going to keep Ontario Hydro's generation capability intact and it will be such a mammoth competitor that any opportunities will just be marginal for those people who want to provide gas-fired energy?
Mr Pinnington: Part of the response I suggested to you is the transparency of the process. We must know what their costs are. We must be able to compete with their generation in a fair and open process. This is the independent marketing body that's supposed to be the central focus for power in and power out. We have a serious concern that in recent history the natural gas industry and cogeneration, which I think we've discussed in your presence before, is highly efficient, highly environmentally desirable, and we have not had the opportunity, indeed the opportunities have been thwarted by special pricing regimes on the part of Ontario Hydro. We read recently that their average cost is 6.13 cents a kilowatt hour, and we can certainly produce electric power on to the grid at numbers better than that and still make a profit. So again, we are pressing for openness and competitiveness in this process.
Ms Churley: Thank you very much for your presentation. There's a lot of ground to cover and I'm having a hard time choosing where to go. First of all, I must say as the former Minister of Consumer and Commercial Relations, I've been watching with interest what has been happening in that ministry. The consumer protection part of the ministry is all but gone. There's very little activity there.
Your suggestion that the ministry take on some of the consumer education and protection in the transition I think is a good one, but I suppose it indicates to me that tax cuts and user fees often go hand in hand, and what we have in that ministry is now higher user fees for birth certificates, marriage certificates, death certificates, and very little left in the consumer protection field. I suppose I just wanted to point that out in terms of discussing benefits, the pros and cons of tax cuts, and looking at the other side to that, for which there is the negative. So I don't think that's going to happen right now in that ministry. Feel free to comment on that, of course, in the five minutes, if you want.
I wanted to come back again to the Ontario Energy Board Act, on page 5, where you talk about that. I'd like you to give me some examples of specific areas in this now competitive, changing field where you see the OEB being a detriment to the industry right now. What big priorities do you have? What changes do you want to see?
Mr Pinnington: Let me respond to the first question, about consumer protection.
Ms Churley: I knew you'd want to.
Mr Pinnington: The particular area and the particular reference in our report is to the transition that's taking place with respect to the entry of brokers and marketers.
Ms Churley: Absolutely. The cheque's in the mail.
Mr Pinnington: I might suggest to you that a number of these people are very competent, very credible individuals. There are, however, some who are performing at less than an acceptable standard. We have set up a code of conduct, and what we need to do is put some teeth into the process. The teeth we'd like would be a licensing regime.
We think we can do this commercially as a self-policing industry activity, as is done by other industries -- the undertaking industry, the car industry; they all have self-policing activities. We would like to set up something like this.
Ms Churley: That's great. It's really needed.
Mr Pinnington: But what you have to do, of course, is append this to the legislation. You have to have the force of legislation.
I don't think there would be substantial additional cost to the ministry, but we do need that liaison. I must say, we have had assistance from the ministry already in terms of consumer alerts and those kinds of things. We can handle a good part of it ourselves, from the cost, but we do need that public policy support, if you will.
With respect to the Ontario Energy Board -- and I'm treading on some very broad and difficult ground here, I suppose, starting to answer that question -- in broad, general terms our objective is to have the Ontario Energy Board regulate monopolies. Regulation is a proxy for competition. If we have a regulator that becomes involved in the transition, which is the broad, general term that's being used in this area, that is determining the degree of competition and finding itself arbitrating between competitors in the competitive environment, we think that's not useful, we think that's counterproductive.
What we're trying to do is maintain a course where the regulator would regulate monopoly activity. That would be the pipe in the ground, the electrical transmission in the case of Ontario Hydro and the electrical distribution facilities in the case of the municipal electric utilities. There should be rate structures in the public interest in that regard.
The natural gas industry is, as we speak, going before the Ontario Energy Board with substantial new proposals to spin off things like appliance sales and service and get them out of the regulated side of the business. They've grown there over the years, but the time has come for this to change and we're in the process of making that change. Huge change is coming as a result of Hydro now entering, because you have to find some synergy between this restructuring of the gas industry and the restructuring of the electricity industry, and you have to be careful that you don't have imbalances between the two. So it's a substantial challenge.
The Chair: Thank you very much, lady and gentlemen. We appreciate your submission.
ONTARIO PHARMACISTS' ASSOCIATION
The Chair: The next presenter is the Ontario Pharmacists' Association, Mr Struthers. Welcome, gentlemen.
Mr Peter Struthers: Good afternoon, Mr Chairman and members of the committee. My name is Peter Struthers. I'm the chair of the Ontario Pharmacists' Association. I'm also a community pharmacist. I practise in lovely Owen Sound. With me today are two pharmacist colleagues, two past chairmen, Mr Wayne Marigold and Mr David Malian.
I'd like to keep things fairly brief. It's Friday afternoon. I understand it's a good spot to be in if you're a figure skater, but you've probably been sitting here a long time. You have a copy of my speech as well as a copy of our presentation. I have some overhead slides that are condensed, just to speed things along, if you want to follow along.
In 1996, 1997 and here again today in 1998, we presented a document that's in your package: Strategies to Reduce Health Care Costs Through Pharmaceutical Care and Medication Management. These are strategies that the Ontario Pharmacists' Association has developed to reduce ODB expenditures by between $200 million and $400 million annually. These strategies can reduce drug wastage, inappropriate use of medication, unnecessary emergency visits, hospitalization, and sickness caused by inappropriate drug use and non-compliance.
The next page has a graph that breaks out by example the different strategies and approximately what the savings could be in each category.
It has been shown that inappropriate use of drugs and non-compliance is causing sickness in Ontarians and is estimated to cost $8 billion in Canada. Ontario being the largest province, the cost in Ontario would be approximately $4 billion.
OPA has some strategies to reduce those costs. Our strategies are real. Our results are achievable. But nothing has happened. If this government does not work with us to reduce inappropriate drug costs, we fear a number of things may happen: drug benefits to seniors and other ODB recipients may be reduced; the copayment to seniors and other ODB recipients may be increased; patients who need drug therapy may have to go without; hospitalization will increase; and the crisis in emergency rooms across Ontario will escalate.
We know this government wants to save health care dollars and protect the health and quality of life for the people of Ontario. The ODB budget forecast does have some appropriate growth numbers in it. Everybody knows that hospitals are closing and health care is restructuring, and as care shifts from hospitals to primary care, to community care, it's natural that more drugs will be used. Also, the number of recipients on ODB is increasing. Like it or not, we're all getting older, and more and more people are entering the ODB program. ODB expenditures will also increase as hospitals close, but they do save dollars in other health care arenas.
But there is inappropriate growth in the ODB. There is growing utilization of high-cost drugs where more cost-effective therapies are available, and millions of dollars of medication is wasted, flushed down the toilet every year. Nothing has been done to curb the use of high-cost drugs, decrease wastage and improve compliance.
The good news is that pharmacists make a difference. Every day in the private sector we control costs and improve health. Approximately a year ago, we launched a managed medication use program. MMUP, as we like to call it, has been sent to all MPPs, as well as to private sector payers, local municipalities and others. In this program we define how we can help control costs and improve health.
In the former municipality of Metro Toronto, we implemented one portion of the MMUP program, a trial prescription program. Essentially, a trial prescription program is when a patient gets a seven-day therapy of medication, they try it for that period and at day six the pharmacist calls the patient to see if they're tolerating it well. If things are going fine and the patient isn't having side-effects from the drug, the balance of the prescription is dispensed. If the patient is having some side-effects or the drug is not working as intended, the drug is then stopped and another course of action is taken. The pharmacist may call the physician to suggest another therapy or the patient may go back to see the physician for another therapy. This helps save dollars because the balance of the prescription, which normally would have been thrown out, is not wasted. In Metro Toronto there were 13,000 employees and 1,200 pharmacies involved in this trial prescription program. Tens of thousands of dollars were saved, and there was an improvement in health of many of the employees involved.
It has been shown from early data that there is a 500% return on investment in pharmacy services. Every dollar spent in pharmacy services returns a $5 saving in drug costs. If this trial prescription program were started for the ODB program, it is estimated that they could save up to $50 million.
Another example that happened in Metro was a medication review. Employees were being treated with an expensive drug called Losec, which I believe is the number one drug in the ODB program. Through consultation with the pharmacist, it was determined whether that drug was appropriate, and in cases where it was not appropriate the patient was given a new therapy that included an antibiotic and an anti-ulcer drug that eradicated a bacterium that causes ulcers. These patients were able to get off that drug completely. Obviously, this improved the health of those patients. As well, it was estimated it would save $1,000 per employee per year. A similar "wellness" program, which is a term we like to use, in the ODB program could improve the health and quality of life of thousands of seniors and other ODB recipients, and save tens of millions of dollars annually.
Pharmacists add value. Clinical evidence documents the value of pharmacist counselling and interventions. They reduce health care utilization and costs, they prevent emergency room visits and hospitalization, and they improve the quality of life. Just a short example that happened in my own community pharmacy of a couple of days ago: A patient was prescribed a drug that interacted with her Coumadin or Warfarin, which is a blood thinner. The physician failed to recognize that interaction, and if that patient had taken that, the Coumadin levels could have gone up and she could have ended up bleeding and in a hospital. So we called the physician, had some lab tests ordered and had the drug changed so that interaction would not occur. That could potentially have saved thousands of dollars and a hospital visit.
A 1993 study by the Canadian Pharmaceutical Association showed that the annual savings from pharmacists' interventions was $338 million, or $64,000 per pharmacy. A similar study in Essex county showed savings of $47 per intervention. An investment in pharmacy services is a good investment. The next slide is a breakdown of the savings that were noted in the Canadian Pharmaceutical Association study.
The government has recognized that pharmacists are key primary care providers. We are in every community. We are patients' first contact. We provide triage. We talk to the patients about their poison ivy, about their cold medication, about their high blood pressure medication. We are helping patients help themselves. In essence, the government has 2,500 primary care centres throughout Ontario. They're called your local drugstores.
To remind you what pharmacists are doing, we're managing medication, identifying and resolving medication use problems, educating patients, consulting with other health care providers, providing self-care consultation, providing non-prescription drug counselling, performing disease management reviews, doing home visits, making specialty and sterile compounds, aiding in smoking cessation and providing other lifestyle counselling.
Ontarians have told us that they want two things. One is to maintain the quality of our health care system and the second is to end the current funding-driven crisis.
Hundreds of millions of dollars can be saved with program improvements, cost-saving measures and an expanded role for pharmacists. As we see it, the government has three choices; They can do nothing; they can set an artificially low ODB budget and watch it go over the top; they can take a Band-Aid approach and cut here and slash there.
As a health care professional, one of the first things we learn is to determine what is the root cause of the problem and to cure that cause, not to just mask symptoms. What we would like you to do is to attack the problem. Help us help you determine the root causes of the problems in ODB so we can solve this and move it forward.
The Chair: Thank you very much, Mr Struthers. We have approximately six and a half minutes per caucus.
Mr Kwinter: Thank you very much for your presentation. I'm just curious. I listened with interest to your whole proposal and I really found that it was all feel-good kind of stuff, sensible kinds of things. I don't think anyone can quarrel with it. The question I have for is that on one of your pages -- they're not numbered so I can't tell you which one is it -- it says that you have a strategy and that your strategy is real and that your results are achievable but nothing has happened. Why is that? I accept the strategies. I think you're absolutely right, that you are the first-line provider and that you do all these things. My question is, why have they not been accepted?
Mr Struthers: We feel that it has not been a priority for the Ministry of Health. We have some good relationships with the ministry and we been discussing some of these programs but, for example, the trial prescription program we have been discussing hasn't risen to the top of the ministry's priorities. Jim Wilson, the former Minister of Health, said that he was interested in the trial prescription program but other priorities have come up. We feel this should be a priority. There needs to be a political will from the politicians to make these types of programs work.
Mr David Malian: If I can just add to that, this strategy to reduce health care cost through pharmaceutical care and management has been proposed to this committee three times. It's one of the reasons why myself and Wayne Marigold, who are past chairs, presented this to this committee last year and the year before. It is a good question that you're asking and that's why we're here also. We're proposing it a third time. We think it's very, very important. If the government takes a look at these strategies, they can help save the Ontario drug benefit program.
Mr Kwinter: What are the cost implications to the government for doing this?
Mr Struthers: There would be costs involved in setting that up -- I'll use the example of a trial prescription program -- through the Ontario drug benefit network. But it's an investment. The initial cost is more than absorbed within the first year by the time you consider the savings that would occur from drugs that aren't flushed, aren't thrown away because someone's tried it for a week and it hasn't agree with them.
Mr Wayne Marigold: If I could just add a comment to that, it has been shown in other provinces and in a number of studies that between 40% and 45% of patients do not come back after the seventh day. We don't know exactly why, but we do know that between 40% and 45% of those patients never get more than a seven-day supply. As part of the program, it's not only dispensing the first seven days and then the balance of the prescription; it's the pharmacist calling the patient perhaps every 30 days or so to ensure they're actually complying with the medication. As you know, compliance is a major problem; 50% of patients don't take their medications properly. The pharmacists calls, ensures that medication is being taken properly, can detect if there are any problems and then get involved with the discussion with the physician.
We are involved in a study in Peterborough. It's called the ORTAP study, the Ontario Round Table on Appropriate Prescribing. The ministry is in fact one of the participants. We are studying a trial prescription program as well as some other aspects and we hope to have some results probably this summer. The ministry is involved in that process. We want to determine why people don't come back for the balance of the prescription. I don't believe the actual investment is significant when you look at what the rate of return would be for the ministry.
Mr Kwinter: My pharmacist has a computer program where he knows exactly what medication has been dispensed, everything about it. Is that universal among your 2,500 members?
Mr Malian: That is universal among the 2,500 pharmacies, but it's universal for the Ontario drug benefit program. Each different patient, if they're not part of the Ontario drug benefit program, may have third-party insurance where that may not be cross-interlinked. Hopefully, that will come about. But yes, pharmacists can look at whether patients have double-doctored or there are interactions between two medications for a patient.
Mr Kwinter: I assume that must be a pretty effective control, compared to what it used to be, and that has probably addressed many of the problems you've identified.
Mr Struthers: Medications are becoming more and more powerful, if you will, and it's important to have those linkages and be able to provide patients with the best care by knowing exactly what they're taking and when they're taking it, following their compliance. Technology has helped pharmacists, as it has probably helped all professions, in that.
Mr Kwinter: In the past, your organization has appeared before this committee and raised the issue of dispensing fees. Is that an issue any more or is that resolved?
Mr Marigold: I'll comment on that. It is an issue. We believe that for the type of service we provide, pharmacists should be adequately compensated and we are in discussions with the ministry about that. There are different ways to compensate. You're referring specifically to dispensing fees. There are alternative ways to compensate pharmacists, depending on the type of service they provide, and I think that's part of what our discussions are with the Ministry of Health at this point currently. I'm not sure what the committee's called, but it's a committee that meets on a fairly regular basis with the ministry officials.
Mr Malian: If I can add to that, just so that you notice, the hesitation is that prior to Bill 126 we had the legislative authority to negotiate dispensing fees. We do not have that now. We are going to try to work with the Ministry of Health in looking at fees in general and not just the dispensing fee per se. We're looking at cognitive fees. Filling a prescription is not only what a pharmacist does.
Ms Churley: You in fact have mentioned what I was going to mention, Bill 126 and the impact it's had. Before I ask my question I want to just add to your list of what pharmacists are doing and take this opportunity to tell people about pharmacists in my riding of Riverdale. My constituency office has a very good relationship with pharmacies throughout the riding, and I have to tell you that they've been fabulous. They have been really good. We call some of the pharmacists from time to time: "We've got a very poor person who doesn't have a plan and is in desperate need of drugs." They will go out of their way to help. We even had Mr Lee, a pharmacist in one of the stores in my riding, offer to buy a plane ticket this year to get a man back to BC, which was home, who didn't have a way back. I just want to say that I think many pharmacies are very community-oriented and very involved in the problems that exist in communities.
Having said that, as to the program Mr Kwinter mentioned, I remember it was our government that worked with the pharmacies, that brought that in. It obviously needs expansion, but it started with a lot of the problems we're talking about today and the beginning of a process to address some of those.
What I want to ask you about is generic drugs. You bring that up in one of your documents, British Columbia's plan to fund the low-cost alternatives. I would assume you're recommending to the government here that this province do the same, that it would make a big difference in the cost.
Mr Malian: Are you referring to generic substitution?
Ms Churley: Yes, I am.
Mr Malian: In Ontario we do have generic substitution. We don't have reference-based pricing, as you were referring to in British Columbia. What we're looking at with generic substitution is the expansion of it, making sure that at all opportunities where a generic can be substituted, the pharmacist is legally obligated to do that. We encourage that because it can help reduce costs in the system.
Ms Churley: British Columbia is the only province with that plan, right?
Mr Marigold: The reference-based pricing?
Ms Churley: Yes. Is your opinion that the reason other provinces are not doing that is pressure from the brand names or what?
Mr Malian: I think we're looking at just one issue of a drug cost, and that's maybe where we need to change our focus. I think BC has looked at it and said, "We're just going to look at the cost of a drug and we're going to decide what cost we're going to pay as a government." What we're suggesting is that we cannot just look at the cost of a tablet per se. You need to look at the whole health care costs involved in that, and that's where pharmacists become involved. It's not just the dispensing of a lower-cost alternative. At some point we're going to continue to dispense those low-costs but the claims are still going to get higher and higher because more seniors are joining the Ontario drug benefit program.
What we're asking is to look at issues of generic substitution, but with that look at issues of wastage, like trial prescriptions, look at issues of wellness programs, smoking cessation programs, that pharmacists, who are that primary care provider, can participate in and actually initiate for patients. We're trying to look at it all. If you look at it just focusing on one drug cost, it's very similar to the slash and --
Mr Struthers: As I said earlier, it's a little bit of a Band-Aid approach. If drugs were prescribed appropriately to begin with, there'd really be no reason for reference-based pricing.
Ms Churley: So it's a holistic approach. You can't just take one piece out and fix the problem; you have to tackle all of these.
Mr Struthers: Yes. The reference-based pricing is a bit like a Band-Aid. It maybe has some short-term gains but long-term pains.
Ms Churley: So it would help right now. Given the other pieces you're suggesting, if you can't get any government to move forward on all the pieces, that would help.
Mr Struthers: Again, it's what I would consider a Band-Aid approach. The whole package is what we're looking at. Reference-based pricing doesn't help if the medication ends up being thrown out because the patient doesn't use it. You have to look at everything; everything's tied to everything.
Mr Malian: There are patients who require a higher-cost drug clinically, and what reference-based pricing is going to do is force that patient to pay for it. I'm not so sure that's a good idea, if that patient has to make that decision, or that senior has to make that decision: "That higher-cost drug is what I need and I have to pay for it."
Mr Baird: I want to thank you for your presentation. I find it very interesting and I want to tell you why. We've heard a lot of presenters bring forward various ideas and suggestions. Inevitably, they always suggest to the committee that if we would just give them an extra half-billion dollars they could explain how much money we could save. Yours is different. You come forward with, "Here is how you can save half a billion dollars, but you don't have to give us any more money," so right from the start I was very intrigued by it.
There are two areas I wanted to discuss with you. The issue of trial prescription is one that I have heard some of late. I wonder if you would explain to me how this would work with respect to your dispensing fees if you had to do it twice after seven days. I was interested in the 45% who didn't come and pick it up after seven days. It's curious, and I just wondered, if we were to implement such a plan, how would that work? How would you be compensated for that, or are the savings on the drug costs themselves, be they generic or non-generic, commensurate with a double compensation on your part?
Mr Marigold: There are a number of different ways in which pharmacists can be compensated, and that's one of the reasons we want to work with the ministry and look at the various options. There is a tremendous saving in the cost of the medication. You can share the saving. You can pay a second fee. There is a variety of different ways of doing it.
In all other jurisdictions, all other provinces, there is a second fee, but we're not suggesting that's the only way it can happen here. Let's take a look at it, see where the savings are, and if we can each share in the savings -- because it takes a lot more time for a pharmacist to get involved in the second fill and phoning for the compliance, monitoring etc. It's a win-win for everybody. The patient wins, the pharmacist wins and the government wins, so we want to talk to the ministry in detail about some of the options available to us.
Mr Baird: In your pie chart you mentioned savings of $27 million to $45 million. Have you done a model in terms of that? Obviously, side by side there are savings and new costs. The difference is that you don't make the investment and get the savings down the road. Have you done a model? Is there something you might be able to provide to us?
Mr Marigold: Those numbers are sort of the net saving, including compensation for pharmacists. I'm sure that, if necessary, we can provide you with some detail; I think the ministry already has some information from us on that. It is a net savings. To model it is very difficult, because you have to make a number of assumptions. Are you going to include all drugs or just certain drugs? Not all classes of drugs are really conducive for a trial prescription. You're not going to do it on an antibiotic, which is normally a 10-day supply, or Tylenol possibly is another one. Quite often it's cardiovascular drugs, something for high blood pressure, what are called beta blockers. There is a variety of therapeutic categories where it's more useful to do that, so we've made a number of assumptions using those categories, did some modelling and came up with potential savings of between $27 million and $45 million, and that includes compensating pharmacists appropriately.
Mr Baird: The difference again, to our benefit, is that the investment and the saving happen at the same time. It's not invest now and get the savings in 10 years. That's why it interests me. That's why I think it has value.
Mr Marigold: We don't need half a billion; we'll take $1 billion. That will be fine.
Mr Wettlaufer: Gentlemen, I'd like to talk a little about this MMUP. We've heard earlier today, and we've heard again from you, about the amount of waste involved in pharmaceutical products, particularly where there have been side-effects. I would like to know what cooperation you had from the physicians in this program.
Mr Struthers: We have a very good relationship with the Ontario Medical Association and we have been working with them on the trial prescription programs. At the community level, it's really done on a one-to-one basis. It's the pharmacist talking to the patients, seeing if they're interested in it, the pharmacist talking to the local community doctors, explaining the program to them. On a broader spectrum, we have a good relationship with OMA and have been discussing with them about trial prescriptions, and they are certainly as interested in seeing reduced usage and utlization of drugs as we are.
Mr Wettlaufer: So there was no reticence on the part of the local doctors that you were interfering with their patients or anything like that?
Mr Malian: Not in the MMUP and not in the ORTAP program, where the OMA and the ministry have both been involved. The cooperation of physicians is very important, but the relationships that pharmacists have developed at the community level have been very good.
Mr Wettlaufer: In spite of that, you say you haven't had the cooperation from the ministry that you would have liked?
Mr Malian: We have proposed trial prescriptions -- I believe this is the third year I've sat in front of this committee about trial prescriptions. As I think Wayne or Peter mentioned, the former Minister of Health, Mr Wilson, has said, "We have to do it," and we're waiting to do it. Our people are ready. We're ready to sit down with the ministry. I guess that's why we're here today, to say we're ready. I don't know what it takes to get the government involved in proposing a trial prescription program here in Ontario, but we're here, we've been waiting for about three years and we're ready to go. We're willing to look at all types of compensation. We're not here to tell you that we want to be compensated in such and such a way. We want to work with the ministry on this.
Mr Wettlaufer: If the minister is willing to do this, where do you think the roadblock is?
Mr Malian: I don't know.
The Chair: Thank you very much, gentlemen, for your time and for your presentation.
The Chair: The final presentation is from Delta Engineering, Mr Jeff White, president, Mr Jim Durrell, vice-president. Gentlemen, thank you very much for being here.
Mr Jeff White: In consideration of the fact that it's Friday, that it's after 4 o'clock and it's also the 13th of the month, I sat outside and rewrote many, many pages of remarks.
The Chair: Let me explain to the committee that Mr White is from Ottawa and in Ottawa no one works on Friday afternoon. Is that the point you're trying to make? Except at city hall in Ottawa, where Mr Durrell was the very competent mayor for a number of years, at which time they went to about 3 o'clock.
Mr White: Actually, when you get into the habit of working seven days a week, you don't know if it's the 13th, you don't know if it's Friday and you sure as hell don't know that it's 4:30 in the afternoon. But taking that all into account, ladies and gentlemen, let me just give you some background and why I'm here.
I am an engineer, I am an entrepreneur, I'm a business owner and I've been in business for 35 years. In speaking to the forthcoming budget, what I really want to say in the most generic sense but the most emphatic sense possible is that we don't want anything from the government that you aren't doing now.
In order of priorities, it's no different from what we face in business when we're in trouble. You cut the bleeding, you go get some work and you get the bloody stuff done. That's the only way to solve the problem in a business that's in trouble. You may lose some hearts and minds on the way, but that's basically the circumstance. Cut the costs of government, eliminate the deficit in the short term and reduce the debt in the long term in such a fashion that shows at least some element of sophistication, and then we can cut the taxes.
Most of my business, by the way, is outside this province. I'll deal with that in a minute, but I want you to think about this comment: This is the toughest province to do business in. It is not easy to do business in Ontario. It's much easier -- this is going to floor you -- in the provinces of Saskatchewan, Alberta, and certainly, as it was yesterday, with the province of New Brunswick, and certainly in the United States.
My American colleagues run business overheads at about 50% to 60% of ours in comparative dollars. Where we pay $600, $700 for the lease of the same vehicle in real terms, they are paying $300 for a lease. Interest rates are even lower, in spite of the fact that the general ARM rates in the United States have been recently a little higher, but when you come down to buy a General Motors truck or something on a lease basis here we're still paying 10%. In the United States you'd get lynched for a figure like that.
We are taxed to the limit. Everybody knows this. You're hearing what you've heard before, but I thought I'd come as a small to medium-sized business man and confirm it while I had nothing to do on my Friday.
We spoke before to the business occupancy tax, which is an unfair, inequitable tax. We speak of the inequitable aspect of property taxes on business, which are much higher than any other business, and yet as a business we do have rights. The term "corporation" means "body" and we're supposed to be treated with the same rights as the individual, yet it's assumed that we pay taxes. We pay capital taxes, we pay capital gains. We're prepared to go along with this as long as you stay the course with respect to where we are vis-à-vis the deficit and the debt.
What you can do, with some sophistication and with some help -- and I can't help you solve all your problems in 15 minutes on a Friday afternoon at 4:30 -- is create the right business climate. Have you ever seen a set of books of an American corporation? They're so darned simple compared to what we have to go through, and we don't see any change in the legal profession, the government or anything else in just simplifying being a corporation.
Compare the taxation levels. I won't even get into that. You see it on television all the time. The Americans are going down and we're going the other way. We have the right honourable -- or the right honourable to be, so he hopes -- minister of smoke and mirrors in Ottawa who raids the UI fund, who shorts the provinces unilaterally, and all at our expense in his run for the prime ministership.
One thing I'd like you to look at. In the United States, if you invest in a corporation, take the risk, the longer that money is in place, the lower the rate of taxation. It's an aged investment. In this country, if you invest for five minutes or five years, you get the same treatment. That could be an incentive, just as an example. Aged investment is here to stay and certainly it is attractive across the border.
I was born in Quebec and brought up in British Columbia, so I know what nice scenery is, and I can tell you, I choose to live in Ontario, yet most of my business is in the United States. There was a period of time here not that long ago that every week I looked at saying, "Should we move our damned business to the United States?" We're still here, we're prepared to stay the course with you.
I think the government can avoid vested interest payout of cash, but I think with some sophistication you can develop incentives for research and development and for all sorts of programs, like I said, in aged investment and so on.
The waste in federal government infrastructures is enormous. The waste on the provincial side -- I have specific knowledge of this; if you want to find out, I'm prepared to spend the time and give you details -- runs in the range of hundreds of millions of dollars. I'm talking about over the past 10, 12 years in what we've seen in the building of water treatment plants, sewage treatment plants, sewer lines, highways and so on. I have specific knowledge of this because this is my business and I can tell you it's in the range of hundreds of millions of dollars. I can also tell you on personal experience and being involved on a day-to-day basis currently that even in the regional municipality of Ottawa-Carleton the wastage is in the range of tens of millions of dollars, and it's the same system. We have an army of bureaucrats out there saving us from ourselves. They are running in spite of who is the government, who is elected.
When Mr Rae was the Premier of this province, look at the conniptions he went through. Again, specifically involved with Mr Rae and the Minster of the Environment, I can honestly tell you that in spite of the instructions they gave they were totally ignored, because the bureaucracy just said, "We're going to outlast these guys," and they're going to outlast everybody in this room. That's the attitude. That's not only the attitude on the federal side -- if you live in Ottawa you have to have a strong heart -- it's on the provincial side and it sure as hell is on the bloody municipal side.
By cancelling infrastructure funding recently, this government did the people of this province a great favour. You fired a hell of a blast at my profession, the engineering profession, but you can't, not at my age, talk out of both sides of our mouth. The closer you get to your Maker, you start to get a little straighter in your language and your thought. The simple fact of the matter is that the funding of these projects from Ottawa -- I was talking about the 85% funding of water treatment plants, sewage treatment plants -- unbelievable. Outdated technologies, overcharged, overbuilt. Where you could have one treatment plant here that could supply several communities around by running a pipeline, the next thing you know the government gives money to put one here and one here and one here and they're all 80% oversized. That's not an exaggeration.
Look at the water treatment plant in the town of Plantagenet, for example. It has five times the capacity it needs, paid for by this government. Unbelievable, and I have to say with some shame, my own profession involved in the whole charade, filling their pockets at taxpayers' expense.
That has ended. You've done us all a favour. I can't speak out of both sides of my mouth. That was one of the most important things you did. There are all kinds of municipalities out there waiting for you to start funding these projects again. They're going to delay their infrastructure in hopes that you'll do it. For God's sake, don't. Let them fund it themselves. Let them find their way around.
There are two assumptions of the government and charities, in my view from 35 years in business, and that is that corporations are all awash with cash. If you speak to very high-level banking officials, they'll tell you that less than 3% of all corporations that are functioning and meeting a payroll every two weeks or every week or whatever it is run 12 months a year with a cash balance. The rest of us borrow, so when we get hit broadside with a tax, even the $50 corporate fee, ma'am, that we were given a few years ago, which was one of the things I spent most of the money -- it was the greatest waste of money in my whole life, fighting that one. I can honestly tell you, the assumption that we're awash with cash and can just continue to absorb this is wrong, if we're going to employ.
Let me put a formula in front of you. In the last two years, we've doubled our employees because of innovative technology that we've finally brought to the market after 20 years of sacrifice, work and investment, without government help of any kind. Second, we're about to increase 400% in the next 13 months, which means we will double our employees again, and it's all because of work outside this province. I was on my way to Florida next Tuesday -- North Carolina, to a pig farm, to be exact -- and I got a call from New Brunswick. I have to go there because finally, after four years of hard work, it looks like we've liberated some money out of a major corporation in New Brunswick. You can guess who they are on at least one hand; there's not that many in New Brunswick. But they're moving.
This cash surplus circumstance in which we find ourselves when we get assessed is coming out of borrowing. We have to go to the bank when we get hit with something else. The payroll taxes: I can't afford to go out to hire somebody at the lowest level of skill and talent, at the lowest level, for the minimum wage or more. We pay nobody in our company minimum wage; I think the minimum salary in our company is $31,000 a year. Because we are professionals, I guess that's not so bad. But the circumstance is that we cannot afford to hire people on the lowest echelon, because when you add the payroll taxes, it's a $12 to $15-an-hour effort, and it's just unreasonable, this sort of circumstance.
The other thing that's interesting here -- I'd like to give you a specific example. Recently the police officers' pension fund invested several millions of dollars in our company because of our technology. They did a due diligence, and part of that due diligence was to call a bureaucrat in the state of Maine from the department of environmental protection. He unabashedly said that, to everybody who comes in the door, they're recommending our wastewater treatment technology, to which the response from the investor was, "That's a little brash for a bureaucrat, isn't it?" He said: "Look, this technology is so advanced that it's good for the environment, it's good for the local economy and it sure as hell is good for the people in the state of Maine. Unless somebody comes up with something better, that's what we're going to tell anybody who comes in the door."
In this province, people I have worked with personally for 20 years spend half their energy avoiding standing behind something that's good, standing behind it to make it go, standing behind it because it just might be good for somebody. They spend their time avoiding: "Oh, we could not be seen to be supporting something over something else," not because it's better or worse or anything else. That's an entirely different attitude, an entirely different circumstance, and that is a source of great frustration for us.
The people of Ontario want health. Certainly as we get older we want our health. That's the most important thing, more than money. We want good education for our children. We can't find the employees we need. I said we're going to double; I don't know where the hell we're going to get them. We're going to end up being like the beer barons. We're going to start fighting for market share. Do you know what I'm considering now? To hire an employee and get them to stay with me, I'm considering, over a period of five years, 10 years, 15 years, 20 years, putting up the tuition for their children at university. How many companies have done that? We're desperate. I'm not asking you for money to do that; I just want you to know what the heck we're doing with this sort of circumstance.
The third thing we want is the bureaucracies and the governments to match with us our social consciences.
The last thing, of course, is the environment as it relates to our personal health. The incidence of cancer is that it's doubling every 15 years. Louis Pasteur a hundred years ago said we drink 90% of our diseases. Our drinking water and our sewage treatment are out of date. Our standards are out of date and we don't see any leadership or movement. Everybody's trying to avoid being put on the spot. We're so busy doing that, we're not seeing the progress that we should see.
This is Ontario. I was born in Quebec, I was brought up in BC, I was in the military. I've lived all over the country; I work all over the country. But I choose to be here. This is Ontario, the engine of this country's economy. Restructure these major areas, these four areas I've just referred to. Restructure them and get people with leadership into them and people who are willing to stand up and be counted, and reward them accordingly. Take the leadership and eliminate the duplication. You've heard this before, but it's not happening.
What's the expression from the Bible? Render unto Caesar what is Caesar's; render unto the Lord -- well, let's divide the thing. I see in Ottawa the federal government is dumping on the provincial government. My God almighty, we are Canadians. We have two French-Canadians right now fighting over how to divide up the country, M. Chrétien and M. Bouchard. How the hell did we get into a situation like this? Ask Mr Chrétien where he's going to live if Quebec separates. That's a good question. He's sure as hell not going to stay in Ottawa. Restructure these major areas, as I said, eliminate the duplication, provide the leadership that we need to eliminate provincial barriers.
Workers' compensation: We pay it here; we pay it there. When I go to New Hampshire, I've got to buy it again. I pay three, four, five times what somebody who runs a nice corner store does, with the same risks. The Workers' Compensation Board in Ontario -- maybe the waters of the north will rise and just flood them out downtown. It's something else. It's just frustrating. Ontario is the only province with any clout, and money must be put in the budget and time and people must be brought together in carrying the message to Quebec. Ontario's the only one to do it.
My experience in this country, even with my friend Ralph Klein, who I knew as the mayor of Calgary when we worked on the Calgary winter Olympics -- I can tell you right now, the farther you get away from the Quebec-Ontario border, the less understanding there is about what this country is all about. The farther away you get, the less the understanding. It is absolutely essential that the government take the leadership circumstance in that regard.
You're on the right track. From the government's point of view -- and I'm not as partisan as I may sound. I'm just trying to follow what I do. If I ran my business like the government has been run for the last several years, we'd be out of business. It's as simple as that. So carrying that message back to you, maybe you think I'm partisan, but I'm really not. You are on the right track. I have to suggest to you, your PR is lousy. You're not getting the message out to the people of this province. Get out there. Don't wait for us to come to you here. Spend some money on that; put it in the budget.
And would you do me a favour? Speed up the restructuring of the regional municipality of Ottawa-Carleton. God help us.
The Chair: We have about four and a half minutes per caucus, starting with Ms Churley.
Ms Churley: Did this government do anything about that $50 annual filing fee?
Mr White: Yes, ma'am.
Ms Churley: What did they do? Did they reduce it?
Mr White: First of all they cancelled it.
Ms Churley: Then what happened? I remember that very well. I'll never forget it.
Mr White: I guess I spent more time fighting that thing because of the principle of it.
Ms Churley: Yes, I know.
Mr White: The information is already in the government anyway, in your corporate filing.
Ms Churley: So what did they do about it?
Mr White: You know what happened to me? This is really going to kill you. I put in a proposal to the Koreans at Samsung in Seoul for $3 million. I woke up one day when the Koreans said, "We checked you out" -- they're very thorough at doing this, your financial issues and so on -- and found out I was no longer incorporated. I didn't even know about it. I lost the job, although I was US$2.5 million lower than my French competitor.
Ms Churley: I must actually be a masochist to ask you a question about that.
Mr White: Oh, don't.
Ms Churley: As the minister, I remember it well. There were lots of problems associated with that. Let's just stop here.
Mr White: It's not worth any more than the $50 that was charged.
Mr Baird: We'll give you some of our time if you'd actually like to continue.
Ms Churley: Actually, no, I want to get back to these guys. You've given them some advice today. I don't agree, not surprisingly, with some of the advice you've given. I don't believe they are on the right track. We would disagree about that.
But I did want to ask you a serious question about health care, because you mentioned it's important. You're right, as we get older it becomes more important, as we see our parents getting older and sicker, and we're getting there. You talked about lower taxes in the United States. As you know, it varies from state to state; some are more comparable with ours than others. I have a brother-in-law who is a doctor in the United States, and I spend some time there. We well know that there are millions of people in the United States who don't have health coverage. Of course, as you know, one of the reasons why our taxes are higher here is that we believe in coverage for everybody, no matter what their income level is, which is a very important principle.
That's the kind of thing we have to balance. I think we all agree on getting rid of waste. We would disagree on what's waste, maybe, and who should be funded and all of that stuff, but there are certain principles we adhere to. I'd just like your comments on that, because you have so much good to say about the climate for business in the States, but on the other hand there are some elements to our society that we pay for that they don't have, which is also very important.
Mr White: I have to say this to you. When my mother died of Hodgkin's disease and they brought in the British Columbia health insurance plan back in the 1950s, it saved my father's savings. I am a medicare supporter. I think the Americans are totally on the wrong track, but their problem is that it wasn't invented there, so they're damned if they're going to copy anybody. That's a very sad circumstance, that a country with the resources they have doesn't take care of that fundamental right. Sometimes I look at the medical care system and think we have a tendency, as engineers do, of treating symptoms rather than problems.
I have two very serious diseases. It doesn't look like it -- I'm 60 years old this year -- but I'm dealing with them well. One of them is definitely life-threatening, but the circumstance is that I'm taking steps to do something about it. I've lost 50 pounds since May; I'm pedalling my bicycle in spite of the weather and so on. But I think maybe we have to take a little different approach than we've taken traditionally.
Having spent a lot of time over the last few years in the hospitals at first hand, I noticed that the people standing around drinking coffee and smoking were the same damned people every time. All of a sudden, they were all gone. You know something? The service hasn't changed a damned bit, not a bit. The same hardworking medical staff are still there doing their thing, even after hours.
We have a wonderful system, but it needs to be reorganized. I have two doctors immediately in my family. My brother is a doctor, my sister-in-law is a doctor, and I have to say to you that under the circumstances I don't think the medical profession is totally on the right track.
To confront the government is not the answer. They have to realize that you cannot milk a cow that is lying down. The cow that is the economy of Ontario has to be stood up, and then we'll deal with it. I would call upon the medical profession to work with the government, because once we solve these fundamental problems of deficit and debt, what do the people want? They want health care. The money is going to swing back towards that; it's going to necessarily, because we really do call the shots ultimately, over top of the bureaucracy and the fleeting presence of our politicians.
The discrepancy in the medical care circumstance is the nature of the beast in the United States. The Americans have to be viewed by people in this country and elsewhere in the world -- and I don't like standing up having to defend somebody. The Americans, at the expense of their economy for a very long period of time, have managed to out-ante something that I thought was going to happen and that I was professionally trained to see, that ultimately we would have gone to war. I am a military officer in the navy, the Royal Military College and so on, and I was trained that ultimately we would go to way against the Russians. Well, we aren't going to war against the Russians. We've out-anted them. It isn't "we;" it's the Americans, and I think we should be appreciative of that. That's probably one of the reasons that discrepancy in the health care plans exist. Give them time, they'll come around to find out that the free enterprise system doesn't necessarily have the passion and the compassion that's necessary to make that system go.
I cannot agree with you if you are suggesting that is making the difference in the circumstances. The business climate there is tremendous right now.
The Chair: Sir, I have to interrupt you there and move on to the next caucus.
Mr Wettlaufer: Mr White, I really enjoyed your presentation today. You sounded like I did two and a half years ago, before I got into government.
I would like you at some point in your answer to describe your technology, the technology you use in your business. But before that, I am also interested in something you said about Plantagenet. Who made the design of the specs required in that water treatment plant? Was that provincial or was that municipal?
Mr White: Let me explain. When the plant was originally built, the concept was that it would supply several communities. If you speak to Monsieur Lalonde -- I think he works for the Minister of Agriculture now as chief of staff. Monsieur Lalonde was the mayor. He will tell you the plant was built with every idea that it would be expanded to supply Wendover and the north Plantagenet township and so on.
The next thing you know, consultants are in there with funding behind them to build a separate plant in Wendover when this plant's sitting over here. It would have been $3 million, $4 million, $5 million cheaper to run a pipeline between the two. We looked at it specifically. It was unbelievable. Everybody wanted their own water treatment plant, irrespective of the economy.
Through some formula of expansion -- we went through this, for example, in the town of Westport. Westport had 900 people at the turn of the century. When the current reeve was elected 27 years ago, there were 700 people; today there are 700 people. The town isn't growing, but the system had proposed, before we got involved in it, that this thing should be set up for a 100%, 200% or 300% expansion. Consequently, the approach and the budgets were set up for something they clearly didn't need. This went on all over the province.
Was it something I said, ma'am?
Mr Wettlaufer: Was that during the NDP administration, by chance?
Mr White: No, it was before that, actually. It was just the system that was in place.
Mr Baird: Be careful. The Liberals are still here.
Mr Wettlaufer: Mr Kwinter is still here.
Mr White: Pulling the funding rectified the problem. Now every municipality has to look to itself for the infrastructure it uses and enjoys.
I was talking to Mr Durrell today about transportation. We have somewhat of a fundamental difference. But there is a philosophy of economics that says when you have a lot of unit use of a system, like in the ski business or in the mass transportation business, what is the philosophy of support for mass transportation?
Personally, I think you should get the hell out of it. The fees should be raised -- because this is one philosophy of economics -- until the revenue levels off, irrespective of the ridership. But if you have to implant a certain way of life on people by saying. "You are going to darned well use mass transportation," then you start to worry about ridership.
My God, that's like steering the cow from the wrong end, as far as I'm concerned. I don't believe the provincial government, which should put a good highway system in place, which encourages the construction of automobiles not only for use locally but for export, at the same time pushing mass transportation and trying to affect the way we live.
I've lived in Houston, Texas. I can tell you, there's no mass transportation system in the world like that, or in Los Angeles, that would ever do the kind of job it does in European cities or even in the city of Toronto, just because of the way the city grew and was planned. It was a dissociated sort of metropolitan area.
Nevertheless, why should the taxpayers of Ontario support the regional municipality of Ottawa-Carleton in their mass transportation system? Why not raise the fares? It's still a hell of a good buy at three dollars compared to $1.85. I know that's not politically attractive, but I don't think the people who are going to ride the bus are the people who are going to vote for you anyway.
The Chair: I have to interrupt you, sir. First of all, we're supposed to ask the questions, but we are out of time for this caucus. I'll turn to the official opposition.
Mr Kwinter: Thank you, Mr White. I quite enjoyed your presentation.
One of the things you commented on is that one of the restrictions you see is the availability of trained personnel. Given the fact that I am a member from Toronto and we have a huge multicultural community, one of the most common things I get are people who have emigrated to this country, who have been engineers in their own home countries, and they come here and they can't find any jobs. They are absolutely underemployed. I'm just wondering whether you've given any thought not just to that issue, but what would be your solution to resolving that problem you've identified, that you don't know where you are going to get your trained people from?
Mr White: If I can find somebody at this moment who is fluent in English and in Chinese or Japanese, I'd hire them in a minute if they were an engineer. I've already done that. I hired a Chinese engineer recently, a marine engineer with a tremendous amount of practical experience, and he was with me for four or five months. We broke him in, we were training him and everything else. Ultimately, my view was to go back into China with the Koreans and we'd do business, because our technology, which is in the wastewater treatment business, will work. It's economic and it's superb from a standard point of view. We are award winners. We just won the Governor General Schreyer award with it etc. I saw a place for this person, and then the bloody National Research Council hires him away with all kinds of promises. I predicted to this young man: "Don't do it. They'll dump you in a flash." That's exactly what they did. Eleven months later, he's on the street looking for a job and his pride will not let him come back.
One of the criteria we need for our engineers is not just education and qualification. We need experience; that helps. If not, we'll train them. But if they have a second language, it is so absolutely important.
At the language lab at the Royal Military College, there is an expression in both English and French that says, literally translated, "You are worth as many men as languages you know." I have a Polish PhD. He's a research specialist and a mathematician. It's just a pleasure to work with him. He was cleaning bedpans at the Ottawa Civic Hospital. I couldn't afford him, but I hired him anyway. I said: "I can't pay you $50,000 a year. I can pay you $20,000, but that's better than cleaning bedpans." Now he's making his $50,000 a year.
The simple fact of the matter and my comment on it is that if they have the language and they have the experience -- we are in a global economy; you've heard all these hackneyed expressions. I don't think there's any prejudice, certainly in my profession, in hiring people.
I just met with the Ministry of the Environment people, and the head man is not a native-born Canadian. The head approvals officers at the Ministry of Environment, Wilfred Ng, is Vietnamese. I have to say to you, we are the same. Canadian firms have a much easier time probably than anywhere in the world in hiring people who come from different cultures and speak different languages, but those languages are an asset. They are an asset in our business. I certainly hope, though, that I don't have to go into the circumstance of trying to recruit outside of Canada. I would rather have them have some of the experience within the country.
We have Polish; we have Spanish. For four years I looked for an engineer who wasn't totally mesmerized by computers and electronics. I needed a power transmission engineer. I went to the University of Saskatchewan, McGill. I couldn't find anybody. I grabbed a Peruvian engineer trained by Americans. He didn't have his left foot on the ground before I had him, because his brother worked for CARE Canada and I knew he was coming and we went after him. But we were without one for four years, because there is nobody who specializes -- trained by the Americans in the big mines in Peru.
The Chair: Sir, I have to interrupt. We are out of time, but I would give you one more minute, if you'd be good enough to explain to the committee the nature of your technology.
Mr White: We're in the sewage treatment business. Many years ago, the ski industry in which I worked had serious environmental problems: winter climate, in which most sewage treatment plants don't work, the Sierra Club, and highly fluctuating loads, which means that any sewage treatment plant that was biological in nature didn't work. So we stepped back and said, "We've got cold weather; let's freeze it." It has turned out to be the best-performing sewage treatment facility, operating facilities now that we're building. We've built four plants now, two in Canada and two in the United States.
We won the Governor General Schreyer award for this technology, which is the award of excellence for engineering. We knocked off all the big firms, something I've wanted to do all my life. We won the Canadian advanced technology award for this technology. Now I've got to go to the Waldorf-Astoria on April 2 because we are one of the top 25 newsmakers in engineering and science in the United States.
The Chair: So what you're doing, in effect, is freeze-drying sewage.
Mr White: We're treating sewage just like ice beer, and it works.
The Chair: Thank you very much, Mr White, for coming in and for your presentation.
Members of the committee, we're adjourned until 9:30 on Monday next.
The committee adjourned at 1656.