CONTENTS
Thursday 14 February 1991
Appointments review
Satya Poddar
Jayne Berman
Robert Couzin
Afternoon sitting
Adjournment
STANDING COMMITTEE ON GOVERNMENT AGENCIES
Chair: Runciman, Robert W. (Leeds-Grenville PC)
Vice-Chair: McLean, Allan K. (Simcoe East PC)
Bradley, James J. (St. Catharines L)
Frankford, Robert (Scarborough East NDP)
Grandmaître, Bernard (Ottawa East L)
Haslam, Karen (Perth NDP)
Hayes, Pat (Essex-Kent NDP)
McGuinty, Dalton (Ottawa South L)
Silipo, Tony (Dovercourt NDP)
Stockwell, Chris (Etobicoke West PC)
Waters, Daniel (Muskoka-Georgian Bay NDP)
Wiseman, Jim (Durham West NDP)
Substitutions:
Conway, Sean G. (Renfrew North L) for Mr Bradley
Johnson, Paul R. (Prince Edward-Lennox-South Hastings NDP) for Mr Frankford
MacKinnon, Ellen (Lambton NDP) for Mr Silipo
Owens, Stephen (Scarborough Centre NDP) for Mr Waters
Sola, John (Mississauga East L) for Mr McGuinty
Sutherland, Kimble (Oxford NDP) for Ms Haslam
Sterling, Norman W. (Carleton PC) for Mr McLean
Villeneuve, Noble (Stormont, Dundas and Glengarry PC) for Mr Stockwell
Clerk: Arnott, Douglas
Staff: Pond, David, Research Officer, Legislative Research Service
The committee met at 1006 in room 151.
APPOINTMENTS REVIEW
Resuming consideration of intended appointments.
The Chair: Could we come to order, please? I am going to see a quorum. I could be criticized for that, but we are on a very tight time schedule this morning, so we are going to proceed.
SATYA PODDAR
The Chair: Our first witness is Satya Poddar. Welcome to the committee, Mr Poddar. This is a 45-minute review, to remind each caucus of the time constraints, that you will be limited to 15 minutes. Mr Poddar, would you like to make a few comments before we begin?
Mr Poddar: I do not really have any prepared comments. I am here at your service.
The Chair: So you are quite prepared to field questions. You were selected to appear before us by the government party, so I am looking towards the government caucus for a questioner.
Mr Sutherland: I will start with one or two of the questions we have asked some of the other panelists. I was wondering if you could give us how you would define fairness in general, and maybe fairness in the taxation system.
Mr Poddar: That is one question which I find very difficult to answer. Having been with the Department of Finance for 15 to 20 years of my career, I have learned that fairness is like beauty: It is in the eyes of the beholder.
I look at myself essentially as a tax engineer. My role has been to advise the decision-makers -- in this case, the elected politicians -- of all the consequences of what they want to achieve or, given their objective, how best to achieve those objectives. If they want to implement a particular tax change, my job has been to analyse, in as much depth as possible, its consequences for the economy, for those affected, for the simplicity of the tax system. Beyond that, I do not really know how one can answer that question about fairness.
Mr Sutherland: There has been concern expressed by some members on this committee about the open-mindedness of the people on the committee and whether the committee is going to be independent enough to carry out its work at arm's length, away from the government. I was wondering if you could comment on whether you have any concerns about your role on the committee and the independence of the committee in its decision-making.
Mr Poddar: That was one of the very first questions that came to my mind when I was initially approached to be on the commission, how independent the committee or the commission will be. I was assured many times by all the people I talked to that this is indeed an independent commission. The government is forming this commission genuinely to seek public input on the policies it has already stated to be the objectives of the party.
In many ways, leaving aside the broad parameters which have been defined, they have left entirely the details to the commission to be worked out, so I am of the view that, at least as of now, I have seen nothing that gives me the impression that the commission is not going to be independent.
Mr Owens: Looking at your rather extensive and excellent curriculum vitae, we notice you are a tax consultant for Ernst and Young. In the past, you have also had fairly extensive international experience. I am wondering how you will bring that diverse experience to your role as a member of the Fair Tax Commission.
Mr Poddar: There are two or three aspects. One, I presume I have a reasonable understanding of the tax laws -- I say "reasonable," because it is almost impossible to be certain you really understand them -- and of tax principles and tax practices. Those three are really essential for any formulation of policy. When I was in Ottawa working for the Department of Finance I learned that the minister may have a very simple idea -- "Do I want to achieve this?" -- but when you start looking at the implications, it can be really mind-boggling. And the Tax Act is so complex, that even if you could make the change in switching from the current system to the new system, transition can be very difficult. So that knowledge, I hope, will be helpful to the commission in developing any new proposals it wants to recommend to the government.
The second thing I have learned by working for or advising various governments around the world is that the tax laws are like a disease that afflicts all nations in more or less a similar fashion. When I go to these different countries they say, "Mr Poddar, this country has very unique circumstances and you have to take those into account in developing any recommendations." They presume it will take me about 15 or 20 months to understand their systems and then even longer to develop any recommendations. But it is like a doctor. When you go there, there are some common diseases, the social diseases which are afflicting every patient. And that is very helpful in designing policies, because in very little time you can point out exactly where the problems will be and, if you do certain things in a certain manner, what the consequences will be. So that experience I am hopeful will be helpful to the commission.
Mr Owens: What type of social diseases do you see infecting the tax legislation within this province? And if you have had an opportunity to reflect on some of the changes you would like to see, could you comment on that?
Mr Poddar: The most significant thing I have seen is loading too much on to the tax system. The governments are trying to get too much out of the tax system, not only in absolute revenues but also in delivering a variety of programs through the tax system; every possible economic, social or other evil has to be addressed through the tax system. As a result, the tax system has become extremely complex.
The second thing, of course, is the play of vested interests. Many compromises are made in the design of a tax system to cater to the vested interests, and that creates a degree of unfairness in the tax system.
Third, delivering too much through the tax system and, because of the vested systems, the base gets eroded and the rates get very high. When you get to the situation where the tax rates are very high and the base is very narrow, you pay a price. You pay a price in terms of taxpayer compliance. You pay a price in terms of simplicity. You pay a price in terms of general respect by the citizens of your tax laws.
Mr Owens: With respect to the unfairness and the way the system is currently set up, do you see the current system as a disincentive to investment within the province? With respect to ideas with a view to reform, how would you see us going about maintaining the current excellent level of social programs we have within this province but reforming that system to add a level of fairness to it?
Mr Poddar: There are two aspects to your question, as I understand it. One is a question of fairness; second is a question of adequate revenues coming from the tax system to finance social programs. Those two are quite distinct questions. A tax system can yield very substantial revenues but in a fair manner. Alternatively, the tax system can be very unfair but still yield very large revenues.
As I understand, the main task of the commission is really the fairness, not the level of the tax revenues. Given the level which is given today, how best to achieve that target in a fair manner? I presume the question of fairness does not really have direct linkages to the adequacy of the tax system to fund the social programs.
How best to achieve fairness in the tax system? That is serious work today, in my words. I have spent my entire career working with the tax system, so I have my own views, but I presume this commission is really designed to build a consensus on how best to achieve those goals.
Mr Hayes: I see that you have done some research with Professor J. Whalley in the development of a general equilibrium model to determine the welfare costs of current tax distortions. Can you give us a bit of a brief on what your findings were and give us an example of what really took place? I mean the results.
Mr Poddar: For the benefit of this committee, in general, in a complex economy like that of Canada, when you make any changes in any particular area, it has implications for the rest of the economy. Virtually all sectors are affected because they are all interlinked. The only meaningful way you can analyse the implications of any change is to look at the economy as a whole, and this general equilibrium model is a construct to somehow capture the relationships among various sectors in the economy. They assume what those relationships are and then try to analyse it; if you make a change in this particular sector, how the rest of the economy will be affected.
You can make a number of assumptions in defining these relationships between the various sectors, and the results are very sensitive as to how exactly you would define the relationships between, say, banking sector to manufacturing sector, the consumer sector and housing sector and this sort of thing. But once you have defined the relationship, now you are going to, say, start imposing tax on clothing under the GST. How will it feed into the economy? The first starting point is that the tax on clothing is going to have an impact on the consumer demand for clothing. They will buy less. But then you ask: "If they buy less, what happens to the money they have saved in their pocket? Are they putting it into the savings? Are they putting it into food, which is not taxable, housing? Where else will the money go? How will it affect interest rates if aggregate level of savings is affected in the economy?"
This is how the model operates. The basic conclusion that emerges is that if you apply tax at a uniform rate across all sectors of the economy, then you are not interfering in the marketplace. You are letting the market dictate what is the most efficient allocation of consumers' resources across different types of expenditure categories. That, in turn, leads to more productivity in the economy and a high level of GNP for the economy. That particular model led to the conclusion that if the federal sales tax is replaced by a general, broad-based goods and services tax, Canada's economy will be richer, the GNP will grow by approximately one percentage point.
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Mr Wiseman: I just want to pursue that. You raised a rather interesting question. If you are assuming that a uniform tax across the economy is going to have an impact on the economy in the same way, are you not also assuming that all elasticities of demand are the same?
Mr Poddar: No, I am not saying that the impact will be the same across the economy. Obviously, the impact will be different in different sectors of the economy. In fact, some sectors are going to lose, others are going to gain, but overall the GNP will be higher than otherwise. As you mentioned, the response in particular sectors will depend upon the elasticities.
Mr Wiseman: Is it possible to build that kind of variable into a general model of the economy?
Mr Poddar: Yes. The general equilibrium model has in fact numerous elasticity estimates in defining those relationships across different sectors of the economy.
Mr Wiseman: My questions took me down a road I was not really going to go down. You wrote a paper, Tax Issues in Agriculture, A Discussion Paper, Department of Finance 1985. A lot of deputations we have heard in some of the other committees have shown great concern about agriculture in Ontario and the survival of agriculture. Could you perhaps give us some idea of what you found with reference to the tax system as it pertained to agriculture?
Mr Poddar: The primary focus of that paper was on hobby farms. As you know, the hobby farmers are not allowed to deduct their losses from farming activities against income from other sources. There is a category between hobby farming and business farming where the losses are deductible only up to a limit, which used to be $5,000; it is higher now. We did a very in-depth analysis of the activities of these hobby farmers: who they are. Are these individuals who eventually develop a full viable farming business, or are these people who are basically land speculators who buy land and hold on to it and are able to deduct the costs incurred in holding that land as a farming loss? Or is it something else? Is it purely recreation pursued by rich individuals who want something for their children to play with horses and things of that type?
I guess the conclusion was that those who are full-time into farming do not report losses year in, year out, because they really have cycles. They may have flat years with no income when the crops are bad or the world prices are low, or they can have booming years. It is not very common for them to report losses consistently over long periods of time, but there was a category of individuals who consistently reported very substantial losses with no profit ever shown on their tax returns from farming activities.
So we concluded that when you have 10 to 15 years of very large losses coming from farming activities there must be something more than purely business motive in operating those farms. On that basis I think the internal advice to the minister was that it is meaningful to have a restriction on the deductibility of farm losses, and if you want to change the limit these will be the consequences. That was the main focus of the paper. Then it also talked about taxation of capital gains on the farm land, farm values and things of that type. But the main focus was the hobby farm loss.
The Chair: We are going to have to move now to the official opposition.
Mr Sola: I am interested in your international experience. You said that you have studied quite a few models, and that people seem to think it will take you a long time to grasp them but that like a doctor you can get to the problem quickly. When you compare the various international models and the simplicity or complexity of the systems, where do we rank? Do we rank near the top as far as complicated and convoluted tax systems are concerned? Or are we at the top as far as simplicity is concerned?
Mr Poddar: I think the meaningful comparison is really among industrialized countries as opposed to international in general, because the tax systems of industrialized countries are quite different than in developing countries simply because you rely much more on sophisticated accounting systems for levying your taxes: a self-assessment system as opposed to negotiated tax arrangements which prevail in many developing countries.
My own view is that the Canadian tax system is definitely better than the average among industrialized countries, both in terms of its fairness and also in terms of the degree of basic principles and how closely they are adhered to in the design of the tax system.
You have certain models such as those in Italy, if I can name a country, where compliance is not very high in part because the tax systems are very complex there. They have a value added tax with eight or nine tax rates, and in Canada we are having difficulties in implementing GST with just two tax rates, zero for basic groceries and a positive rate for other goods, and there are lots of borderline cases where people cannot really decide what is what. Are chocolate-coated biscuits candy or are they food? Now when you have eight tax rates you can imagine the complexity that arises.
In that sense the Canadian tax system is a lot better than in many other industrialized countries. In some ways that ranking changes from year to year. For example, the Canadian tax system was far better and far more comprehensive than the US system until 1986, but in 1986 the United States made a dramatic change in its tax system as part of its 1986 tax reform and I must say that in some ways now the US tax system may be a little ahead of the Canadian in overall fairness.
Mr Sola: Did they simplify it or did they make it more complicated?
Mr Poddar: They made it more complicated for the evaders and game players, but if you do not want to play games and you want to pay your taxes and forget about any game playing, then it is very simple.
Mr Sola: What is your opinion of a flat tax? Yesterday we heard one of the appointees or nominees compare, I think, the flat tax in Hong Kong to a progressive tax elsewhere in showing that it did not have much of an effect on cheating or on an underground economy. In your experience, how many areas do have flat taxes, and are they preferable or less preferable than progressive taxes?
Mr Poddar: There are two aspects of the flat tax that I would like to point out.
1. I have done a number of simulations comparing a progressive tax with the various designs of the flat taxes that various commentators have proposed. I am absolutely convinced in my mind that a flat income tax will definitely mean a redistribution of tax burden away from the well-to-do and more burdensome on the low-income and middle-income families. You just cannot avoid that consequence in the Canadian context.
2. A flat income tax does not lead to a dramatic simplification of the tax system. There are some designs of flat taxes which are really a sales tax disguised as an income tax. For example, in the United States with the Hall-Rabushka proposal of a flat tax, that flat tax is a value added tax. You can design a very simple value added tax if it is truly comprehensive and flat, as in New Zealand. Even the GST is a lot simpler than our income tax system. But if you are trying to design an income tax as a flat tax, that will have just as many complications as our progressive income tax.
Mr Sola: One more question. When you mention progressive income tax, in your opinion and in your experience, where do you draw the line between equity and disincentive? At what rate do you stop redistributing incomes so that it is from the fairness point of view, and at what point do you arrive at a killing initiative from those at the high end of the scale?
Mr Poddar: That is the role of the politician. You draw that distinction. I do not think you can point to an exact dividing line. It is a grey zone sometimes and the grey zone can be very wide. It also depends upon, when you raise extra revenues from the well-to-do in the name of equity, what do you do with those dollars? You may give them back to those same people as investment incentives. You can give them to the lower-income people as welfare payments. It will depend upon both the degree of progressivity and also the utilization of the tax revenues for given purposes. So I am afraid that question I cannot really answer with any degree of precision.
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Mr Sola: I see you have dabbled a little bit in politics too. That was a pretty good answer. Speaking of politics, now that we have arrived at that subject, we have posed this question of every person that has appeared before the committee, do you have a party affiliation?
Mr Poddar: None at all.
Mr Sola: Okay. I guess that does it as far as my questioning is concerned.
Mr Grandmaître: Mr Poddar, I was going through your very impressive CV last night and under "Recent Research" it says, "Led a major review of the value added tax as an alternative to the federal manufacturers' sales tax in Canada." Can you tell us about this paper.
Mr Poddar: It was in the paper. I was involved very extensively in the Department of Finance in Ottawa in designing the GST.
Mr Grandmaître: So you are one of them.
Mr Poddar: I must say that I am not embarrassed about my involvement at all. I think the tax could have been designed better than it was implemented, but in the process of that review a number of studies were done as background studies, things like, how variable or uneven are the rates of the federal sales tax that existed prior to 1 January? What is the incidence of the tax by income bracket, by family size? How should housing be taxed if it is going to be taxed? How do you apply the tax to banking transactions, insurance transactions, things of that type? So there were a number of studies done which became the background for the government's white paper on sales tax reform.
Mr Grandmaître: In your view what is the best tax, the GST or the old manufacturers' sales tax?
Mr Poddar: I have no respect at all, whatsoever, for a manufacturers' sales tax. In today's industrialized economies, the only meaningful point to impose a tax is on a final sale to the consumer, because when you stop the tax at an intermediate level then it is very difficult to define at that intermediate level who the manufacturer is. That was the biggest problem with the federal manufacturers' sales tax. In some cases the manufacturer, wholesaler and retailer were all combined into one entity. In other cases they were separate, so the tax became very uneven.
Mr Grandmaître: So you favour the existing system, the GST.
Mr Poddar: I do not particularly like the design the federal government has adopted, again because there are many compromises in it, but it is a lot better than what we had before, yes.
Mr Grandmaître: Also, you have examples of other major assignments, comparison of the tax systems of Canada and the United States. Can you briefly give me the advantages or the disadvantages of both systems? You could go on for half an hour, but in a very few words, what are the advantages and disadvantages of our two systems?
Mr Poddar: Let me start with the personal income tax. There are three or four main differences as of today between the US and the Canadian tax systems. One is the treatment of dividends and capital gains. The United States does not have a dividend tax credit, nor does it have any preference for capital gains. In Canada we have a $500-million lifetime exemption for small business and farm gains and $100,000 for other types of gains, and we give a dividend tax credit. That is the major difference in the tax systems of the two countries.
Second, the treatment of families: The United States has a family-based income tax system while ours is an individual-based income tax system.
The third thing is that the Canadian tax system is a lot more progressive at the lower end than the US system, mainly through the provision of these refundable child tax credits, the sales tax credits and even the basic rate structure is more progressive in Canada at the lower end than the US system.
The fourth is that the United States has gone very hard after the 1986 tax reform in dealing with tax shelters. Canada has also made significant moves in plugging the tax shelters, but it has not been as ruthless as the United States has been.
Those would be the main differences on the personal income tax side.
On the corporate income tax side, I guess the main difference will be the corporate minimum tax in the United States, which Canada does not have. On the other hand, in Canada both provinces and the federal government are making increasing use of capital taxes as an alternative to corporate income tax. In the United States they still do not have anything like a capital tax.
Mr Grandmaître: Do you think Canadians as a whole have reached their saturation point as far as municipal, provincial and federal taxes are concerned?
Mr Poddar: I thought they reached that point 10 years ago or 20 years ago.
Mr Grandmaître: In California, as you know, people demonstrated against their municipal governments and the federal government. But let's talk about Ontario. Do you think our sponge is full?
Mr Poddar: I can speak for myself. I pay a lot more than I like to pay. About other taxpayers, I guess it depends.
I think the answer to that question is always yes. Taxes are always too high. They are never too low. Even philosophically, that is a good way to handle things, that unless they are an absolute necessity they should not be there, or if they are there they should not be increased by a penny unless they are absolutely essential or you are absolutely convinced the benefits far exceed the costs.
I think you can only answer that question in this context: If you want an extra dollar from the taxpayers' pocket, what will you do with it? Are the benefits to society from that extra dollar of tax revenues more than the loss to him or her in his pocket? That question will vary from situation to situation and you have to look at both sides as well.
Mr Grandmaître: I appreciate your answer, but at the same time, do you think Ontarians are willing to step back and say, "Hey, enough is enough," and allow governments like this one to cut back on services? Do you think Ontarians are willing to cut back or are willing to receive less services because they are overtaxed or think they are overtaxed?
The Chair: I would appreciate a brief response.
Mr Poddar: The only reason I am not a politician is because I cannot answer those questions. You are better equipped and more talented than I am in answering and handling those questions.
Mr Grandmaître: Mr Chairman, I find these people very interesting because they say, "Oh, I'm not a politician." These people are in a position to influence ministers, even the Premier of this province or the Prime Minister of Canada, and yet they say, "I'm not a politician." The only thing that is missing, sir, is that you have never been elected, but you are a good politician.
Mr Villeneuve: In your opinion you have said that the manufacturers' sales tax was not very palatable to you. Would you suggest that taxes as they are, the sales tax in the province of Ontario and the GST now, should be added on to the price so that the consumer readily identifies the tax or should it be like petroleum, which is 60 cents a litre in eastern Ontario, 50 cents a litre here in Toronto, and three quarters of it is probably tax? There seems to be some apprehension at the consumer level to recognize and pay the tax on top. What is your opinion on that? Would you like to identify those taxes or do you want to build them into the price?
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Mr Poddar: My own impression is based on a few studies I have seen. Consumers prefer not to see taxes added on separately. It is a nuisance for them. When taxes are 3%, 4%, 5%, 7%, you can live with the nuisance, but when taxes become 15%, 20% or higher the shelf prices become meaningless. If the taxes are that heavy, they prefer to know when they pick up an item off the shelf, how much is the total cost. In that sense it is preferable from the consumers' point of view to have taxes included in the price on the shelf.
Purely from the question of a political decision-making process, in a democratic society taxpayers should know what the cost of the taxes is, buried in the price of the product; so one compromise may be that both the tax and the price are identified on the shelf tag. In fact, some retailers are planning to adopt that strategy; they will show price, $10, PST and GST so much, total price $11.50, so the consumer knows what the total cost is before he picks up an item. At the same time he knows what the tax components are, so if you want to lay the blame he knows who to blame.
As to the option of simply having $10 on the shelf price and saying as the cash counter, "Oh, I'm short in my pocket; I didn't figure the 15% I have to pay," that can be very annoying to consumers.
I was at a restaurant ordering a meal. When my bill came, it was twice the price I had mentally done the arithmetic for because 15% or 16% in taxes plus an automatic 15% or 16% in tip was 30% or 35% extra. By the time you have coffee, which you never figure on your menu prices, it was double the price I had planned in my mind. It can be very embarrassing in those situations and that is why most consumers in Europe prefer to have taxes included in the price.
Mr Villeneuve: I gather that is then your philosophy and your preference.
Mr Poddar: My preference is an all-inclusive price with an indication of tax, if possible, that is included in the price.
Mr Villeneuve: For example, at the service station, on the components of fuel, you would like to see your friendly provincial government take this slice and your friendly federal government take this slice, and you get down to the actual price of the fuel which is considerably less than the added-on taxes.
Mr Poddar: Yes, that would be my preference.
Mr Villeneuve: It is the same with your neighbourhood liquor store when you look at the value of the stuff that is in the bottle, compared to the taxes that are on the product.
I have one more question, and it has to do with agriculture. You quite obviously looked at some of the breaks that farmers get because of the fact that they are in that particular profession as opposed to others. Are you satisfied that some of the breakdowns you have seen, the analyses you have done on money-losing entities in agriculture, were really using the system or were they attempting to make a profit and it did not happen?
Mr Poddar: You can distinguish two types of people. There is a category of individual taxpayers who have been reporting losses, not for one or two or three years, because if you were just trying to get into business seriously and you lost money for two years, presumably you would be out of it after two years, but have 10 to 15 years of consistent losses. Without really talking to them individually and looking at their files on a one-to-one basis, I cannot really conclude what the intentions were, but it makes you wonder if any business can survive 15 to 20 or so years of continuous losses.
Mr Villeneuve: Are you happy with the tax structure for small corporations where it is a flat line to $200,000 and then there is a fairly steep step at that figure, or do you see ways and means of beating the system when you have a flat line and then a large step up?
Mr Poddar: No, I do not. To my knowledge the ways of beating it are not that simple. The law is very clear. On the first $200,000 of income, you would pay the low tax rate and then you pay a high rate beyond that. There may be misreporting of income, but regardless of how you have calculated your income, once the income is calculated, there are two rates, one up to $200,000 and one beyond that, so I do not really see how you are going to beat that system.
The Chair: One quick question, Mr Poddar, before we wrap it up. We had a witness before us yesterday who is going to be serving on the commission with you, and he was talking about, in his view, how significant tax cheating is. I just wondered if you had a view on that. I know he suggested that in the national sense, the government could recover something in the neighbourhood of $3 billion. I am wondering if you have any views on that and how it might impact in Ontario.
Mr Poddar: It is something nobody can get a handle on. If you know exactly how cheating takes place and how extensive it is, presumably you can tap on to it, and the reason governments have not been very successful is that it is very difficult to know how it goes on.
Based on a few stories and a social conversations I have had, I am alarmed about the degree of compliance gap in Canada today. This may be in part because of a very significant drop in audit enforcements by Revenue Canada. I am not aware of the level of audit penetration by the provincial officers, but definitely Revenue Canada has been strapped for resources and audit penetration has gone down very significantly. There is room for recovering additional moneys through increased audit enforcement. How large it is, I do not think I am really able to say. I tried to estimate that at one time when I was in Department of Finance, but I do not think it is really possible to get a meaningful handle on the degree of tax gaps.
The Chair: You have a suspicion that it is quite significant?
Mr Poddar: In certain sectors of the economy, yes.
The Chair: Thank you very much, Mr. Poddar. We appreciate your appearing before the committee this morning and we wish you well.
Mr Poddar: Thank you.
The Chair: While we are waiting for our next witness to appear, I remind the members that we are going to reconvene at 1 o'clock rather than 2 o'clock as was shown in the original schedule, so we can accommodate one of our colleagues and finish up a little earlier than originally intended.
JAYNE BERMAN
The Chair: Mrs Berman, welcome to the committee. It is good to see you here today. As the members know, Mrs Berman is an intended appointee to the tax commission and she was selected for an appearance here today by the government party. Mrs Berman, would you like to make a few opening comments? Do you have anything to say before we get on with questions?
Mrs Berman: Nothing specific, except that I am looking forward to the opportunity I have been selected for and I look forward to the challenge and the education that is going to be present within it. I trust I will do a good job of the task set before us.
Mr Sutherland: I was wondering if you can just comment on why you were willing to serve on this committee. I am looking at your résumé. You provide a different perspective as a business person. It looks like it is a small business you are operating. Maybe you can just comment on why you are willing to accept this and give some of your general impressions of the tax system and how it impacts on small business.
Mrs Berman: It was an opportunity that I did not expect. I did not know that my name was going to be suggested for it, but I certainly welcomed it when I received the phone call. It came at a good juncture for me personally, in that I am taking a short semi-leave-of-absence from my business, having run it actively for 11 years.
It seemed a unique challenge in a different direction and a chance to give some real input into some of the things that affect us as Canadians, as Ontarians? and a chance to perceive what the coming 10 years or decade or 20 years were going to provide for my business as well as Ontarians as a whole.
Mr Sutherland: Could you just comment on some general impressions of the tax system?
Mrs Berman: I do not consider myself an expert. I do not think I was chosen for my tax. I am sure you have had people before you -- I know I have read the CVs -- who have a great deal more to say in terms of the tax system as it exists now. My objective is to read the materials that will be provided to us to inform myself about each of the issues we are going to be presented with and to then make a judgement about the questions we are going to be asked.
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Mr Johnson: Mrs Berman, you bring to the commission a business perspective, albeit a small business perspective. Your business is a rental business?
Mrs Berman: Yes, it is.
Mr Johnson: The tax system has changed over the last 10 or 11 years with regard to the rental business, as I understand it. I have had some interesting discussions with a rental business in the community where I live, and it may have been as many as 9 or 10 years ago that some changes were introduced that they thought were going to be detrimental to their business. Nevertheless, they lived with them and they are still flourishing, obviously, because they are still in business. Have there been any changes in the 11 years that you have been in business that you have found detrimental to your business?
Mrs Berman: No. The only significant change was for a period, I believe, from 1982 to 1984 or 1985. There was something known as the inventory tax credit. Rental businesses that classed their goods as inventory as opposed to fixed assets could avail themselves of a 3% inventory tax credit. That was, of course, very helpful during those years, but has been since removed. That is the most significant change that I am aware of.
Mr Johnson: I think that might be in fact what they were concerned about. Just how is business during the recession?
Mrs Berman: It is not ebullient, but it is probably more stable than some other small businesses in that we have a bank of clients whom we have served, approximately 4,000 or 5,000 clients that we continue to serve. Whereas growth may not be what we would like it to be during the period, we still have a base.
Mr Owens: Mrs Berman, Golden Plug is not exactly a mom-and-pop organization; it is a fairly large organization. What is your volume of business these days?
Mrs Berman: Well, it kind of is a mom-and-pop in a very literal sense now, because my husband joined me a few years ago. He is a lawyer by profession, but he is now in the business. We have, as I said, approximately 4,000 or 5,000 clients and we have 15 to 18 employees, depending on the season.
Mr Johnson: I noticed in your CV that you list membership in the Association of Progressive Rental Organizations. Could you tell the committee a little bit about that organization, and what is the difference between progressive rental organizations and the Rental Association of Canada?
Mrs Berman: The rental association represents pure rental operators that may rent tools and construction equipment and party equipment and are pure rental operators. There is no ownership associated. The Association of Progressive Rental Organizations is more involved with rent-to-own, which we do as well. We do both, so we belong to both organizations in order to avail ourselves of their annual meetings, should they be informative, or publications, etc.
Mr Johnson: What kind of ideas would you bring to the commission with respect to tax reform? Our last potential appointee mentioned that fairness is only in the eyes of the beholder; but what type of reforms would you like to see brought to bear on the tax system that would make the system a little bit more equitable? That is maybe a better word to use.
Mrs Berman: I do not have a lot of preconceived notions. I do not consider myself a tax expert. I think the expectations that the commission is going to have to handle are quite copious. They are going to be looking at almost every aspect of the tax system. Naturally, I will be looking at it from my point of view as a middle-class Ontarian and as a business owner. I will be concerned about the changes that might affect small business adversely and I will also be concerned about fairness for all levels of society. I am not going to look at it from a purely personal point of view. I hope I will be able to take a broader perspective.
Mrs MacKinnon: Mrs Berman, I am going to repeat what I have said the last couple of days. Apart from yourself and one in the back, I am the only woman here on the committee, so naturally my questions are going to be slanted that way. But inasmuch as the tax system as we have it in the province of Ontario today seems to be very detrimental to children and single moms and, yes, even moms who are not single, I am just wondering what your expertise is or what you could contribute to this committee in that regard.
Mrs Berman: I do not think I can contribute from my past experience to that issue until I have availed myself of the readings and I have looked at the working papers that will be provided by the various groups. I presume when they are looking at that particular issue you have mentioned, working papers will be created under the guise of the commission. Only when I have all the facts in front of me could I really comment knowledgeably.
Mrs MacKinnon: But I am sure you are keenly aware, at least I hope you are aware, of the plight of children in the province and, as I said before, of some single and maybe not-single parents in regard to what taxation is doing to them at the moment.
Mrs Berman: I am certainly aware that there is a single-mom issue in the province and that it involves not only taxes but also the ability to work and the level of living that is given to these women that sometimes may prevent them from working. Certainly I have a concern about that and I will want to look at all the facts.
Mrs MacKinnon: Another question has been asked of all the candidates and I will be the one to ask it today. Are you affiliated with a political party?
Mrs Berman: No.
Mrs MacKinnon: Did you contribute to any political party in the last election?
Mrs Berman: No.
Mrs MacKinnon: That answers that question. Thank you very much.
Mr Wiseman: I have two questions I would like to pursue. In your rental business, do you rent furniture to apartments and to buildings?
Mrs Berman: Yes, among other things. We have a very broad product line.
Mr Wiseman: How do you feel about the discrepancy between taxes, the fact that you have to charge sales tax on your rentals to apartments, yet if consumers go in and rent a furnished apartment, they do not?
Mrs Berman: I had not really looked at that issue in detail. That is an interesting one. There is no GST, because the rent is not subject to GST. Is that right?
Mr Wiseman: And PST as well.
Mrs Berman: Yes. Well, it is a relatively discrete group of consumers who face that circumstance. They do not, for the most part, represent my client base, so on a personal level I am not concerned. I do not see it as affecting my business. On a fairness basis, I would suppose there is an argument that it would be fair because for those people that may be the only housing that they may have. It is not a concern for our business.
Mr Wiseman: I have a really strong indication that that question will be coming before the Fair Tax Commission, because it came before the standing committee on finance and economic affairs.
Mrs Berman: It is an interesting one.
Mr Wiseman: The next question that I have has to do with inventory and the switch from the manufacturing sales tax to the GST. Can you give us an indication of how that switch affected you?
Mrs Berman: As in any small business, it cost us a certain amount of money in computer programming to adjust our systems and to advise our clients of the change. We cannot estimate yet what it will cost us in terms of growth with our clients. I have to assume that there will be a cost. When people are looking at a $20-a-month amount as being what they can afford, an extra few dollars does make a significant difference. So I am assuming that we will bear some of the costs over the coming years.
Mr Wiseman: Assuming you had an inventory at year-end, how much of a rebate did you get from the federal government from the manufacturing sales tax when it introduced the GST?
Mrs Berman: We, of course, have not received anything yet. I think we are in the process of filing, but we will be looking at somewhere around $40,000.
Mr Wiseman: I did not mean in terms of dollars; I meant in terms of percentage.
Mrs Berman: The principle is, I believe, 8.25% or 8.5% on brand-new inventory that you held in your stock as at the year-end, and half of that for used inventory; naturally most of our products are used.
Mr Wiseman: So would you have had a loss on the switch?
Mrs Berman: I believe so. If one looked at all the factors, of course, the computer programming, the loss of customers, the total thing is a loss, yes.
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The Chair: Thanks very much. We will move on to the official opposition.
Mr Grandmaître: Mrs Berman, how did you find out about this commission?
Mrs Berman: Unbeknownst to me, my name was suggested by an individual who worked in the Treasury as a person who perhaps might have something to contribute. Some weeks after my name was put forward, I received a phone call telling me that the person had done that and asking if that was all right. A couple of days later I received the call.
Mr Grandmaître: If it was all right for what?
Mrs Berman: For having submitted it and whether I would be willing to do that.
Mr Grandmaître: I see.
As a follow-up to the GST question, do you favour the GST?
Mrs Berman: No.
Mr Grandmaître: It is a good answer -- a good question, I should say. Non-political.
Can I ask you a very personal question? Where did you get the Golden Plug Ltd company? How did you dream this up?
Mrs Berman: My family was in the electronics industry, but on the distribution side, so I had a bit of knowledge about the possibilities in that area. When I was looking for a business -- we were not in retail, but this suggested itself to me, and I began it in 1979.
Mr Grandmaître: Very interesting.
Mrs Berman: The name comes from an ad agency. I have sometimes doubted its efficacy, but anyway we have it.
Mr Grandmaître: Do you think small businesses are overtaxed at the present time?
Mrs Berman: I think they have some excessive areas of burden if one considers the various insurance programs that one subsidizes and the taxes. I think that it can be a heavy burden, yes.
Mr Grandmaître: So that is the message you will be bringing to the commission: Enough is enough.
Mrs Berman: I am certainly not prejudging any of the issues. As I have said before, I am no expert, and there is a huge body of literature that I am sure is going to be available, and I will look at each issue from every angle. I am not sort of going there to beat a drum. I will have a concern, of course, based on the sector from which I come, and I will bring that perspective because I think that is why I was asked to join. But I will try to be objective.
Mr Grandmaître: Good. You are also a member of the Crestwood School Parent Association?
Mrs Berman: Yes.
Mr Grandmaître: What do you think of school taxes?
Mrs Berman: I think they are a heavy burden when your kid goes to private school, but they are a necessary burden. We have to support the school system. It is very important that we have quality education available for all. So I think they are an important issue.
Mr Grandmaître: Do you think people in this province are willing to pay more education taxes in order to provide their young children with a better education, that they would prefer an increase in education tax to an increase in municipal tax?
Mrs Berman: I would suspect so.
Mr Grandmaître: Yes. Why is it that people are dead against municipal tax increases and much more open to an education tax? That has been my experience.
Mrs Berman: I think no tax is easy to sell. However, if there is a perceived real good associated with it that people can really understand and they feel is going to benefit them directly, then I think that is an easier concept for people to absorb.
Mr Grandmaître: For years and years I thought the same way as you did, that education tax is for a good thing, but it seems that you find very few people in the province of Ontario that are satisfied with the system and yet are willing to pay more taxes.
Mrs Berman: I cannot comment for all the people. I know there are some very good schools and I know there are some schools that need help. That is a large issue as well, I am sure, that has to be looked at from an expenditure point of view.
Mr Grandmaître: Good. Talking about school taxes, do you favour pooling? Are you familiar with that?
Mrs Berman: No.
Mr Grandmaître: You are not? That is good, because every one of us is, but we do not know what we are talking about yet, though.
Mrs Berman: Maybe I will learn.
Mr Wiseman: Speak for yourself.
Mr Grandmaître: I will pass.
Mr Sola: This question has been posed to every witness so far, and I guess I may as well be the one to pose it to you. Do you have a party affiliation?
Mrs Berman: No.
Mr Sola: Okay; another independent. Second, you are from the Toronto area, right?
Mrs Berman: Yes, not born and bred, but --
Mr Sola: No, but I mean your business, and you live here?
Mrs Berman: Yes.
Mr Sola: How were you affected by the commercial concentration tax that the previous government brought in?
Mrs Berman: I am not familiar with that.
Mr Sola: Okay. I was thinking because that seemed to centre on the Metropolitan Toronto businesses, since the majority of witnesses or appointees will be from the Toronto area, that may colour their objectivity; you know, something that has affected them and their business, if it would alleviate their problems, if it would shuffle off some of the costs on to the rest of the province. I am just wondering, with the heavy concentration on Toronto-area residence or business involvement, that may colour the viewpoint and the objectivity of the members who are from this area, as opposed to only two being from outside the GTA.
Mrs Berman: Speaking in a general sense, I would assume that all of the people who have been appointed would do their best to speak from a larger perspective. I do not think any of the members, and certainly not myself, are going to be speaking only from our own, next-year's-tax-return point of view. Unlike myself, there is a lot of experience on the commission in the tax area. I would expect people to be looking more broadly at the issues than that. I do not see that it is a concern.
Mr Sola: Yesterday we had a witness who said she had a constituency that she had to represent. Do you have a constituency that you have to represent?
Mrs Berman: Not really -- I think in only the loosest of terms in that I could possibly bring a true small business perspective to the commission. But I do not represent a group per se.
Mr Sola: Thank you very much.
Mr Sterling: As a small business person, do you like taxes at all?
Mrs Berman: I see them as necessary to run our society. Naturally I do not like to see them swallow the lion's share of what I make in a year, and I like to see them used well, like any Canadian, but I recognize they are necessary, of course.
Mr Sterling: I was not surprised with your answer about the GST. Do you think our present system of taxation is unfair, and in what ways is it unfair?
Mrs Berman: I think the GST is an example of a somewhat regressive tax in that it is a heavy burden on the average consumer household. I think it is unfairly distributed, frankly. It is a lot easier for a wealthy person to buy new goods for his household and face that additional tax than it is for the average fellow in the street, and I think that is somewhat unfair.
Mr Sterling: What would be the alternative to doing that?
Mrs Berman: I do not know. There might be certain categories of goods that are not subject, such as children's wear. The goods that have traditionally been not subject to PST are now subject to GST; that is a concern and that may burden the young family or the single parent with children.
Mr Sterling: So it is not so much that the GST is there but what it encompasses.
Mrs Berman: And I do not think it should be on profit, which it is as well.
Mr Sterling: It should be what?
Mrs Berman: The former tax was on the cost of the goods, and the present tax of course is on cost plus any kind of markup that the retailer has put on it. I think that is somewhat unfair.
Mr Sterling: Why?
Mrs Berman: The consumer is already bearing the profit margin; I am not sure he should have to pay a tax on that profit as well.
Mr Sterling: I guess then you disagree with the provincial sales tax as well.
Mrs Berman: I am looking at this as an added tax. The total tax burden is now 15% for the person who wants to go out and buy a pair of shoes for his kids. That is just my personal concern.
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Mr Sterling: I would have thought the response from a small business point of view would have been a little different in terms of confining the range of goods that it would be on. I guess in New Zealand when they brought in the value added tax, they put it on everything; they just said food and everything is taxable that it is practical to tax, the idea being that the small business person is not in the conundrum of deciding what is not taxable and what is.
Mrs Berman: I am well aware that this is a burden for some businesses. It is not for ours, and not every category of service we offer is taxable. That is reasonably easy for us to administer, but certainly the small grocery owner faces that complexity.
Mr Sterling: How long have you been in business?
Mrs Berman: Eleven years.
Mr Sterling: Has it ever lost money in any one fiscal year?
Mrs Berman: Yes.
Mr Sterling: I presume you were able to write that loss off against profits in a subsequent years.
Mrs Berman: Yes.
Mr Sterling: Do you think that is right?
Mrs Berman: Yes.
Mr Sterling: So you would be against a minimum corporation tax.
Mrs Berman: I have not prejudged that. I do not know what would be involved. I do not know how it would be applied. I do not know what the exceptions would be. That is a difficult question to answer without that information. Sure, I would have a concern, but I would look at it.
Mr Sterling: That was the greatest concern when the Agenda for People, of course the party that was in power, promised to have a minimum corporation tax in its agenda. Many of the small businesses in my area said, that in a year like we are in now, in a recessionary period, if they want to hold on to their employees, they are willing to take a loss this year in the hope that they will make a profit next year and then be able to write that off against whatever profits they would do there.
I think it is very important for business to understand early on in your mandate what you are going to do on that one, because I think business people are reluctant to ride this recession the same way they did in 1981-82. They are going to lay off people faster in this one.
Mrs Berman: I think it has been a tougher one.
Mr Sterling: It is a tougher one to predict what is going to happen to them tax-wise down the road. What do you think about succession duties/death taxes being brought in by the province?
Mrs Berman: I am not in favour in general. Again, it would be something I would want to look at: how it would be applied, when it would be applied, etc. I also believe it might be fairly difficult in that it simply might force a lot of people to plan earlier and to place their funds elsewhere and it might be kind of a vanishing spectre. It might cost a lot of money to try to administer and the end result might be that funds would be invested outside the province, and I am not sure that is really a good thing.
Mr Sterling: In your case, where you have a small business, you have a five-year-old son who might be interested in taking over the family business somewhere down the road. I think it is already difficult because we already have a form of death taxes in this province and in this country in that you have to pay a capital gains tax of 75% of the value of the business.
Mrs Berman: It would be a concern. I think any wise business person looks for ways to place himself in a situation where that could be minimized.
Mr Sterling: Have you any idea -- I have no idea -- of what kind of time commitment is going to be required on this kind of commission?
Mrs Berman: Initially it was suggested that it would be somewhere between three and four days a month. Based on the mandate as I have read it, I suspect it is going to be significantly more, certainly if one wants to do the reading that would be necessary to make informed judgements.
Mr Sterling: In terms of the tribunal, how is it going to conduct its business?
Mrs Berman: We do not know. That has been left fairly loose in the terms of exactly when we would meet, if that is what you mean, and for how many hours at a time and whether it would be during the day or at night. I think that has been left to the commissioners, once they are approved by this body, to arrive at sort of comfortable working conditions.
Mr Sterling: Other than the GST, which you have no mandate over, do you believe there is other unfair taxation taking place in the province at this time?
Mrs Berman: I am not personally experienced enough to say whether there is or is not. I would suspect there might be. It is hard to come up with a system that is completely equitable.
Mr Sterling: I agree. I guess I am trying to think about what your mandate is. Are you going to start from the Agenda for People, which talked about a minimum corporation tax and a death tax?
Mrs Berman: I am going to review the agenda with the other commissioners and I am going to try to bring a small business perspective to it. I am sure they are all going to bring their own perspectives to it and we will try to arrive at a consensus that achieves some equity.
Mr Sterling: I am very impressed with your experience and I think it is great that you give so much of your most valuable time to this endeavour. I know you have been asked by a New Democrat and a Liberal both whether or not you have any political affiliation. I am a Conservative and I would ask you if you want to have a political affiliation.
The Chair: Anything further from the third party?
Mr Sutherland: If I can just come back to the issue that I think Mr Grandmaître and Mr Sterling raised, talking about taxes -- the GST and the provincial sales tax -- from your perspective as a small business person, is the problem with the rate of taxes or is the problem with the accounting procedures and the amount of time it takes to figure out and for remittance and those processes? Is that a real problem?
Mrs Berman: No, that is not a real problem.
Mr Sutherland: Not in your business?
Mrs Berman: I am sorry. If you are speaking of the normal annual corporate tax, it is not a problem. As far as GST is concerned, given that we are fortunate enough to be computerized, for us, once we did the initial computer changes, it is not a tremendous burden. For the average small business that is not large enough to be computerized, I would imagine it is a significant burden.
Mr Sutherland: But speaking in general about taxes on small business in terms of the process, from your sense, and I am sure with your business dealings you interact with a lot of other small business people, is there a sense of frustration over paperwork and processes in that or is it just generally the rates?
Mrs Berman: I think where GST is concerned it is paperwork and process, because the small businesses do not bear the burden of that, in that they are able to deduct it. Where the other taxes are concerned, I think it is the global amount. The small businessman looks at workers' compensation and OHIP and all the various sorts of government-mandated programs, and the total is high.
Mr Sutherland: Thank you.
Mr Owens: One quick question. The previous government levied the commercial concentration tax on businesses in Toronto. Did it have a significant impact on your business and the business of your neighbours?
Mrs Berman: As I said before, I am not familiar with it and no, I do not believe it did. There have not been any significant changes in our tax situation, except for the inventory tax credit, in the last 11 years.
Mr Owens: Thank you.
The Chair: Another tax you have not been asked about which has been applied, and I know that small businesses in my area had a lot of concern about it and still do, is the employer health levy, or the health tax, however you wish to describe it. What has the impact been on your business in respect to that?
Mrs Berman: Quite significant. I would say that most small businesses prior to this new law paid a small percentage of the OHIP as a courtesy to staff or as an attempt to attract good-quality staff. They really could not face the burden of the whole thing. We always paid the whole thing, so it was somewhat disconcerting to find ourselves with yet a larger burden even though we had taken care of that cost for our staff since day one. We pay fairly significant premiums.
The Chair: Obviously that is something that as a small business representative you are prepared to take a look at as a member of this commission.
Mrs Berman: Yes.
The Chair: This perhaps does not apply to you -- I think it does not apply to too many small businesses in the Metro area -- but do you have any views in respect to the minimum wage and its impact on small business?
Mrs Berman: Naturally, any change in the minimum wage does have an impact. It does not impact us directly in that I do not think we have ever been in the position of actually paying it. I think it is an important thing to have. I think there is a certain standard of living that people are entitled to receive.
The Chair: In your business do you provide pensions for your employees?
Mrs Berman: Not pensions. That is really beyond our abilities. We are neither big enough, nor have enough funds. The only thing we can offer is a small insurance program through one of the outside insurance companies which gives them life insurance and a few benefits.
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The Chair: One other brief question. I am sort of fascinated by the selection process. Yesterday we had a lady who was representing organized labour and she indicated she was going to be a voice of organized labour on the commission. When we talked about the selection process, she said that apparently, as she understood it, the government had contacted the Ontario Federation of Labour and her name had been submitted. I understand, or I am assuming perhaps, that when you were contacted there was some reference to having a small business person represented on the commission. I am curious about the process, one for labour, where they go to an organized group, if you will, and say, "Can you come up with a representative?" In your case, have you any idea how they arrived at your name? Was there some approach to small business organizations?
Mrs Berman: Not as far as I know. I believe that a person who worked in Treasury, unbeknownst to me, had been approached as to whether she knew anybody suitable and may have given several names or just my name. I really do not know. I did not question her. That is how I believe they got my name.
The Chair: Perhaps you do not want to be specific about the individual, but was this a senior person in Treasury who knew you personally and felt you might be appropriate in this role?
Mrs Berman: Reasonably senior, yes.
The Chair: Thank you very much for appearing before the committee this morning and answering our questions.
Mrs Berman: You are welcome.
The Chair: We appreciate it.
Mrs Berman: A pleasure.
The Chair: Our clerk is going out on another search mission. We are a few minutes ahead of schedule. This is a pretty effective and efficient committee.
While we have a couple of minutes, I will remind members that there are no further meetings of the committee until the House resumes its sittings in March, but we are hoping to have a subcommittee meeting within the next two weeks. We have to decide on a number of things. Hopefully, representatives of all three caucuses will be able to attend that subcommittee meeting.
ROBERT COUZIN
The Chair: Welcome, Robert Couzin, an intended appointee as vice-chair of the tax commission. Mr Couzin was selected for review by the government party. Mr Couzin, would you like to make a few brief comments before we open the floor for questions?
Mr Couzin: No, not really, thank you.
The Chair: Okay. That is fine. We will start right away.
Mr Sutherland: Yes. A question that has been asked every person who has appeared before this commission is whether he has any political affiliation; so I guess in fairness the question should be addressed to you as well. Would you care to comment?
Mr Couzin: No. I do not know what a political affiliation means exactly, but I am not a member of any party.
Mr Sutherland: That was basically what we were looking for. Do you have any concerns about the makeup of the commission or the backgrounds of the other individuals in the sense of that it may not be a fair-minded group of people or that it is slanted, with too many people representing one area?
Mr Couzin: I suppose I cannot say that I know how it will end up, but I do not have concerns, in the sense that if I were really concerned I would not be agreeing to do it. I was not involved in choosing the people, of course, but I certainly did ask in the process to see what the list of people looked like, and my judgement, not knowing the people really, is that it should be possible to make it work. Otherwise, I would not be prepared to do it.
Mr Sutherland: I am looking at the CV that was presented to us. You have extensive knowledge of the Canadian tax system and have been involved in writing papers in magazines and journals that discuss this issue. I was wondering if you could comment on the issue of how you define fairness or equity in the tax system.
Mr Couzin: That is a big question. I think the reality is that there are different aspects to fairness. Traditionally, fairness is defined as similar tax burdens on people with similar economic circumstances -- horizontal fairness. Fairness means trying, to the extent the tax system ever can, to be neutral and not treating different transactions which accomplish the same result differently. I do not think tax systems ever quite get to that, but I think that is a theoretical basis.
The trouble with defining fairness is that we are only looking at the tax system, which is the revenue-raising part of things, and society defines fairness a little differently and looks at how it spends money too. The tax system is inherently part of the spending process, so I guess society as a whole makes certain decisions about fairness, like redistribution, and all the tax system can do really is follow along on those decisions.
I guess what I would see the commission trying to do is accepting whatever society has decided to do, like support medical care or whatever, certain things our society has decided it is going to do, and try to share the load of paying for those services as fairly as possible -- "fairly" meaning that people in similar circumstances pay the same burden, and different businesses pay burdens which are equivalent, having regard to what they do. That is, of course, difficult to define.
Mr Sutherland: One other question, just on those who are in similar circumstances paying the same amount. Do you think there is any room within the taxation system to look at productivity in terms of what those people are doing? For example, if two people have the same amount but one is just sitting on the money versus the other person investing it in the economy, should there be some consideration in the tax system or should that be a separate type of policy decision from the tax system?
Mr Couzin: I am not sure that is a fairness question. It certainly is a fair question. It is a question which is often asked and our system does make certain distinctions although I am not sure for the reason you are suggesting. Our system distinguishes between capital gains and other kinds of income, but I do not think it does it because of what you are saying. I guess, in theory it should tax capital gains more, if that were the case. But there are other reasons, ad hoc reasons, why capital gains are taxed differently. There are tax systems which do just that: tax investment income differently than active income. I do not really know enough, frankly, about those to know whether it works. If it increased productivity, I guess it would be a great idea, and I am not convinced it does not. I do not think there is anything inherently one way or the other to answer that. I do not think it is more or less fair to do it, I think it is just a question of whether the tax policy accomplishes what you are trying to accomplish.
Mr Wiseman: I see in your CV "business and property income 1981, corporate management tax conference." There have been a couple of well-publicized cases where large landholders in Metropolitan Toronto have pursued in the courts property tax exemptions. If I understand correctly, the city of Toronto is having to go back to court to appeal this. Have you any comments on the property tax with respect to these large landholders in downtown Toronto?
Mr Couzin: Not really. I must confess that we are all going to learn something on this commission. One thing I am going to learn is something about property tax, that I know very little about, other than that I pay it. I have never really completely understood why there is a property tax. I guess it is a funny kind of wealth tax, because it only taxes one particular kind of wealth. In fact, from what I gather, it is a tax which is peculiar to English-speaking countries. Most countries in the world do not tax real property the way we do.
I guess the fairness point would be that if you are going to have a property tax it should apply to the property. I do not really know anything about the case you are mentioning, so I do not know why people are getting exemptions. Generally speaking, I think tax systems are better with fewer exemptions. That is probably a true statement. We are seeing that with the GST now. It is very difficult to construct tax systems, and you are constantly trying to give away little pieces in the system. But I cannot really comment on anything particular about large landholders, and I cannot see a reason why large landholders pay less than small landholders. I cannot imagine anyone arguing that proposition.
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Mr Wiseman: I am also going to pursue another track with you about research and development and tax exemptions and investments. I have raised this with a couple of other people who are far more knowledgeable about taxation than I am. One of the things that always bothered me was that as a taxpayer, I would see large corporations getting R and D money, and then I would read later on that the patents and the royalties accrued to it -- the home office is supposed to be in Canada. How would you view the notion that somebody would get a tax break to encourage research and development and then turn around and see all of the wealth that would be acquired from the research and development go outside of the province or the country?
Mr Couzin: Of course, there is a difference between the province and the country. But addressing the country, the answer to that probably is that it should not be possible. You may be raising an administrative concern rather than a legislative one, because the way the system works is that if someone creates an intangible knowhow or whatever from doing research in Canada, you are not supposed to be able to simply ship it off to your parent company without paying tax on that. If it is done, it suggests that perhaps the people who administer the system had missed it or some arrangement has been worked out which arguably is an avoidance transaction or whatever.
But I think our system already does at least purport to protect the country against that. Whether it is effective, I do not know. The Americans have had the same problem, oddly enough, as we always see our technology going there. It is funny to think that they worry about it too, but they worry about it too and they have come up with a very unwieldy system designed to prevent that kind of effect. I would like to think that, roughly speaking, the system we have now would prevent it if we could enforce it properly.
But I think your point is well taken. Obviously, it is like any business expenditure. If you expend money in a jurisdiction and you deduct it or get credits for it or whatever, what results from it is supposed to ultimately produce income in that jurisdiction. I think that is the principle of our tax system.
As I say, the province is a little bit different, because one of the other issues our commission is going to struggle with, I am sure, is the nature of a federal tax system, which is a little more complicated. I am not sure how you would come up with a system, if you wanted one, that tried to recapture credits that Ontario gives to a company operating nationwide and earning income in various provinces.
Mr Wiseman: For me sitting here as a member of the government, that is a question that I am hoping you, as a tax commission, will be able to give me some guidance on. As I go through all of the CVs, and we have spoken to just about everybody now, there is certainly a larger amount of information and knowledge about the tax system with you than there is with me. While I have these concerns, I am hoping that the tax commission will genuinely come up with information that I can use in my own thought and policymaking processes, and I think I speak for everybody when I say that, that we are really looking for answers as opposed to having any pre-designed notion of where you should go.
To pursue that a little, when I see the previous couple of tax people, I would love to hear the debate between Mr Brooks and Mr Poddar. I think there are going to be some really exciting differences of philosophy, about cheating and the impact of cheating and threshold taxation. Could you perhaps go down that road for a little, about how you see the threshold taxation? Is there some amount that is too much or is there some ideal amount of tax or how do you view that?
Mr Couzin: I do not really know the answer. I am not an economist. I have read papers which purport to be able to show with some kind of curve that when you pass a certain point, the more you tax the less you collect. I guess it must be true when you get to 99 or something, and obviously at 0 you collect 0. I have never really been sure about the middle.
Mr Wiseman: It is the Laffer curve, I think.
Mr Couzin: Yes, the Laffer curve. The more serious point, which maybe we could actually think about, which I think the commission should think about, is cheating or the underground economy or whatever. It seems it is a very serious problem, and I do not really know that I have ever seen any very good ideas about how to tackle it. But from a practitioner's point of view, I would have to say that in so far as anything could be done to tackle it, the problem has been a lack of will on the government's side in that what measures have ever been brought up that might make slight inroads into this have been very difficult to enact. It took years to enact social insurance number reporting because it was regarded as an invasion of privacy or whatever, and it is hard to see what privacy one is invading, really, by getting the social insurance number on a slip. Things like that have been difficult in all countries, not just in Canada. But yes, I think the commission should certainly have a look at that.
There is also a theory that you would get better compliance if the tax system were perceived to be fairer. I suppose again that has to be true. I do not know how the relationship works, but I presume that is one of the reasons the government wants the commission set up the way it is set up -- the broad-based commission and constituency groups and everything. I presume it is in part to give society as a whole a feeling that it has had a say in the tax system. Maybe that will help compliance. It would be nice if it would. I do not know if it will.
Mr Johnson: In Ontario there have been many industrial and manufacturing jobs lost recently. There are many reasons, I suspect. I would be inclined to blame free trade by and large; certainly global trade has had an impact. We can also attribute some of the blame to the recession, interest rates and the relationship of the Canadian dollar to the American dollar. The federal government certainly has a need for revenue; it has its bills to pay, and certainly we would like to see it reduce the debt, ultimately.
This is just my opinion, and I wanted your comment on it. I think there is a connivance on the part of the federal government, that it knew we would lose these industrial jobs as a result of the free trade agreement although it certainly did not espouse that. I think that as a result of that they have introduced this very regressive goods and services tax, regressive in so far as the poor element in our society pays proportionately more of their income than do wealthier people. The other argument, I guess, would be that wealthier people buy more so they pay more. I do not buy that, quite frankly.
They call it restructuring the tax system. Do you think the GST was a response to the fact that they would lose revenues as a result of many factors?
Mr Couzin: As I understand it, the main impetus behind the GST -- kind of an indirect impetus, if you like -- was to get rid of the manufacturers' sales tax, which I would have thought Ontario, of all places, should agree with, because the deficiencies in the manufacturers' sales tax hurt industrialized economies; this is the main one, I suppose. Once one was going to get rid of the manufacturers' sales tax, the federal government -- as you say, it clearly needs money -- certainly was not about to give up the revenues from the manufacturers' sales tax; it had to get the money from somewhere else. The somewhere else that was chosen, the GST or the value added tax, I do not know whether that was the best place to have gotten the money. It is interesting. There have been a few articles written recently by a number of economists who suggest that there were different, very simple places to have gotten the money which did not require this whole structure.
I suspect that part of the answer is that there was a feeling in government circles that the mix of consumption tax, income tax and other taxes had gotten off. Over the years, consumption taxes had gone down and income taxes had gone up -- I do not know why the mix matters, but I guess it matters to somebody -- so we should have more consumption tax. I have always been a little sceptical, thinking maybe it is just that the more taxes you have, you spread it around and people do not get quite as excited about it. You have to get it from somewhere and higher income tax rates are more visible. If that is the case, they obviously miscalculated, because the GST turned out to be very visible. Whether it is a good tax, I do not know. I do not think it is a very well designed tax. I do not know whether it is regressive. I think it is dangerous to look around at your friends and what goes on in the street and try to decide whether a tax is regressive. It is a very complicated question, whether it is regressive.
I think the notion of value added taxes is probably not a bad idea. Whether this is a good one, I do not know, when you say the motivation for the GST was that the government needed money if it was going to get rid of the MST and this seemed to be a good way to get the money.
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Mr Grandmaître: Mr Couzin, not being affiliated with any political party, how were you invited to grace the table of the tax commission?
Mr Couzin: You have the wrong witness for that question, I suppose, because I do not really know the answer to that. I gather that the people putting together the commission were looking for some kind of balance. It is for them to say what they were balancing between but, I think one can tell looking at the list, sort of what they were up to. Presumably, they wanted a couple of tax practitioners. Perhaps they even wanted a tax lawyer. I do not really know that.
How they got to me, I do not really know, quite frankly. The community of people who practise tax actually is surprisingly small. You would think there would be oodles and oodles of people. I guess there are lots of people filling out tax returns, but there are not actually that many tax practitioners who go to conferences and know each other; so the list would not have been that enormously long. How it ended up at me, I do not know. I suppose over the years I have expressed some interest in policy issues and a lot of tax practitioners do not express such an interest. That may have been relevant, but I do not really know how they ended up with me. I do not know the people who called me or anything.
Mr Grandmaître: You do not know the people who called you?
Mr Couzin: No. I know who they are now. I did not know them when they called me, so it was no connection with the government. I have worked with governments in the past. I have acted for the Alberta government and I have done some minor consulting for the federal government, but I have never done anything with the Ontario government other than argue with them occasionally.
Mr Grandmaître: So you were totally surprised when you received this phone call?
Mr Couzin: Yes.
Mr Grandmaître: You must have been on somebody's short list.
Mr Couzin: Maybe I was on somebody's long list. I do not know where I was on that list either, of course.
Mr Grandmaître: You just told me there was a short list of tax experts.
Mr Couzin: As I say, I assume there was some kind of list and they presumably talked to other people and asked for recommendations. Of the commissioners who are now on this list, I know two of them. I did not know any of the others before. I know Neil Brooks, just because I have known him for years.
Mr Grandmaître: Everybody knows Neil Brooks.
Mr Couzin: That is true. And I know Satya Poddar. I know them just because, as I say, tax practitioners or people in the tax business tend to know each other. I do not know whether they were asked. I really do not know where my name came from.
Mr Grandmaître: That is very interesting.
De quelle façon est-ce que vous êtes devenu le président de l'école Toronto French School ?
M. Couzin: Le conseil d'administration.
M. Grandmaître: Qu'est-ce qui vous a intéressé, qu'est-ce qui a suscité --
M. Couzin: J'ai une fille qui est étudiante à l'école. J'en avais deux, mais l'autre n'est plus là. C'est un accident, effectivement, parce que l'ancien président --
M. Grandmaître: Le deuxième accident.
M. Couzin: Le deuxième, mais ca c'est le premier. L'ancien président du conseil était en train de démissionner et on ne pouvait pas trouver quelqu'un qui voulait prendre la présidence du conseil. Ce n'est pas facile parce qu'on n'est pas payé, évidemment; on prend beaucoup de temps. Ma femme était présidente de l'association des parents de l'école à ce moment-là, alors on m'a choisi.
Mr Grandmaître: Do you think the provincial government should use public dollars to subsidize private schools?
Mr Couzin: That would be a wonderful idea. Actually, it is an interesting question, because before I got involved with the school I knew very little about independent schools or how they worked. I went to a conference of chairs of schools recently and I learned, somewhat to my surprise, that many provinces do in fact provide some funds and that the independent schools over the years have not wanted funds from the Ontario government, I guess because they are independent schools. It was always the fear that if you took money you would lose your independence. But then there is the view among some that of course they have already lost some independence anyway; just because you are a school, you have to comply with rules. I would not have thought it very realistic at the moment to expect funding for independent schools. I would not be against it.
Mr Grandmaître: You would not be against it? That is interesting.
Mr Sola: You mentioned that for tax evasion and for the underground economy, quite often it has been a lack of will on the government side that has allowed this to flourish, so to speak. Do you have any recommendations or any methods in mind that would help the government get the will to start going after these evaders?
Mr Couzin: I think it requires a bit of public relations work, of attitude work in society. It is a problem of the fairness of the system, unquestionably. There is difficulty in trying to collect money: tips from waitresses or something because after all they are not very well paid to begin with and it does seem a little bit cruel to people. Of all people to go get additional revenue from, why are you getting it from people who do not earn a lot of money? On the other hand, once you have a tax system that you think is about as good as you are going to get, it really is a duty for people to comply with it.
I do not have any magic answers. The problem is that when one goes after -- "goes after" is perhaps the wrong expression, but when one tries to get at the underground economy, the tendency is that it is always some group or other that is being targeted, and as you can imagine, targeting farmers, for example, does not tend to be very popular politically. In fact, it sounds bad because it suggests that farmers are tax evaders or something, which obviously is not the point. The point is that there is some particular measure that government is trying to enforce, which happens to affect farmers or taxi drivers or whatever more than other people. I do not know how governments get the people on their side, but I guess somehow the government has to get the people on their side.
Mr Sola: I see from your curriculum vitae that you have extensive Canadian experience. Do you have any other than Canadian experience so that you could sort of make comparisons between other systems and our system and other provinces and our province?
Mr Couzin: Exposure perhaps, better than experience. I do a lot of international work so I have certainly seen a lot of the US tax system, although I would hardly pretend to be an expert in it. I find it frankly more complicated than ours. Maybe that is just because I am looking at it from the outside. But yes, I have certainly seen other tax systems. I am not an expert in all other tax systems.
There is no question that is something the commission is going to have to do, some comparative work, but that is just without question. I understand some US states in the past have done a bit of work on state tax systems. Now it is different, of course. The allocation of powers is different and the structure of the system is different, but there are some similarities in any federal state.
I do not know whether Australia has ever done anything. Federal states would be the place of particular interest. I am looking at the UK for example. There are global things that one can learn from any taxes and they do not have the two levels of government.
Mr Sola: I see one of the articles that you wrote or helped write has the heading, "More Questions Than Answers." On this commission we are hoping you would come up with more answers than questions. I am wondering if after that conference you have arrived at any answers that might be helpful to the commission you are going to be on.
Mr Couzin: That is interesting. That particular paper, "More Questions Than Answers," was on the anti-avoidance rule which was enacted recently. I guess we will be lucky if we get the same number of answers as questions. I do not have any answers. I think the system obviously needs some work; there is no question about it.
I suppose I have overall prejudices. I think the system tries, like many systems, to do too much. I do not know that I would go quite as far as Neil Brooks probably goes in suggesting that there should be no incentives delivered through the tax system. It might be nice, but I do not know that it is realistic. Provincial governments are probably offenders even more than the federal government, at least now, in trying to use the tax system to get all different things done which probably should not be done through the tax system, and it creates perceptions which are very bad.
The loopholes perceived by the public are often just government attempts to give away money through the tax system. Maybe if they just spent their money and tried not to give it away through the tax system that would not happen. I guess that is one overall objective. But I do not know. I suppose we will just have to see what we learn.
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Mr Sola: I wish you well on your deliberations, and that is the extent of my questions.
Mr Sterling: I am very impressed with your amount of experience and the amount of writing you have undertaken. I have sat for the past three weeks on another committee of this Legislature dealing with pre-budgetary consultations, and economist after economist, group after group came in and said our primary concern in Ontario was competitiveness. I guess part of that equation is our taxation system, and I was glad to hear that you are going to pay some attention to that. You are going to be the vice-chairman of this commission. Do you at this point in time have any instructions as to the range you can go to? If you are dealing with "fairness and taxation," you almost could develop another Agenda for People.
Mr Couzin: I suppose that is true. The only restriction that I know is on this commission is that it is supposed to deal with taxation. But you are right that taxation is in the midst of everything else. We have had essentially no discussions with anybody about the commission. The only discussions I have had were that in going through the process of deciding whether to accept, I did ask some questions as to what the commission is supposed to do and what its terms of reference were. I do not mean the written-down terms of reference, but what anybody really expected from it. One of the things that I did say, which I suppose echoes what you are saying, is that fairness is one way of looking at the tax system, but of course there are a lot of other things about the tax system, and the way tax policy is formulated is by a series of tradeoffs.
One of the troubles is sometimes in making the tax system fairer in a very small way; in other words, just a little aspect of unfairness to some small group of people which might be handled in some other way. We try to make it perfect. That is a very bad idea, because it gets terribly complicated, hard to administer, more expensive, less efficient and ultimately less fair since complexity tends to breed all different kinds of avoidance and other problems. Fairness has to be weighed against complexity, competitiveness, efficiency and, of course, raising revenue. It might be very fair just not to charge any taxes, but of course we need the money.
I do think it is part of the mandate of the commission, as it looks at the tax system, to say we are trying to improve fairness, and that may be the focus, but what we are really trying to do is make the tax system work better. It does not work well, obviously, if it is very unfair, but it also does not work well if it does not raise revenue and it does not work well if it makes us uncompetitive. We are going to have to balance those things as we go.
Mr Sterling: One of my other questions was, were you going to weigh the complexity issue against fairness? I am glad to hear that you are willing to give away some fairness in order to keep the system somewhat simple. I hate to put it this way to you, but we will have more unproductive people like you in our society. I often feel that we are unproductive as well; I am not denying that part of it. But the accountants and the lawyers and all the rest of the people are not producing primary wealth. It can be argued that way anyway.
One of the issues which was raised in the other committee I was sitting on, again dealing with looking at our economic future, was the whole problem we are having with shopping in the United States. The immediate reaction of a government on this kind of thing is to dump it on the federal government in terms of saying: "Okay, people are coming back. They are not paying GST. They are not paying provincial sales tax. We want the feds to collect all the tax." One of the statements you made is that some of the loopholes or the evasion of taxation could be avoided if a government took strong action. It is very easy for a government to say to another government, "You take the strong action for us." What are you going to do in terms of the interrelationship between provincial taxation, municipal taxation and federal taxation?
Mr Couzin: I have already mentioned a couple of times that this is one of the tricky aspects of this commission and indeed one of the tricky aspects of having a federal provincial tax system. Provincial-municipal is not as bad, because at least the province is in charge, but nobody is in charge of the federal-provincial side of it. It is negotiated. I think that is part of the challenge: to design something that fits in the reality of those systems.
Ontario collects its own corporate income tax partly in response to that kind of concern. Someone decided once upon a time that to get mastery over that aspect of the economy or the fiscal policy or whatever, Ontario needed its own corporate income tax. There are people who think Ontario needs its own personal income tax. I suppose it is possible, but you have to weigh the pros and cons.
As a citizen as opposed to a practitioner or prospective member of the commission, I am always very disappointed to see governments squabbling over things when they are supposed to be getting something done, but I guess I recognize the political realities. There are lots of things that the federal government and the provinces -- not just this province -- should be agreeing on, and over the years there have been major tax incentives which have fallen by the wayside simply because the governments could not agree on them. There is no question that any commission that looks at a provincial tax system has to look at the federal-provincial co-operation aspects of the system. It is critical.
Mr Sterling: Another part of your comments which I found interesting was the whole idea of the portrayal, particularly by the government party, that corporations were jumping through loopholes in our taxation system which were not loopholes at all; they were provisions provided to business to take advantage of certain rules to delay taxation, in most cases in order to invest and there were other ways to deal with it.
As you say, there is this fixation in the public's mind and in government's mind that if you give a deduction off your tax, that is not writing a cheque but it is equivalent to writing a cheque as far as I am concerned.
One of the considerations we talked about last week in dealing with the Treasurer was, in your fair taxation tribunal, will you be suggesting any methods of reporting taxation? I think the public would have a better idea, and if the government wanted to give a deduction, there are a lot of advantages to giving a deduction off your taxes rather than collecting a cheque and issuing it again, because there is an administrative problem in doing that. I would really like the Fair Tax Commission to advise the Treasurer whether or not he should change the method of keeping his books. Have you considered that at all?
Mr Couzin: I had not considered it. I do not know about the method of keeping books, but reporting is certainly an interesting question because there have been a few attempts, but very few, to report on so-called tax expenditures. The federal government did it some years ago and there was a big conference at Queen's, I think last year or the year before last, on the whole question of reporting tax expenditures. Naturally, the more you look at it the more complicated it gets as to what are tax expenditures. But a lot of that is covering over the issue, because some of them we know; some of them are very obvious. If Ontario enacts some special grant for research and puts it into the tax system, it is pretty obvious that it is a tax expenditure.
While I had not thought of it, I do not see why it would not be within the commission's mandate, not certainly in any report but in the role of the commission, for it to be advising the Treasurer that it would be a very good idea to come up with a system for reporting on or publicizing or measuring -- even for that matter before we get to reporting -- these expenditures made through the tax system. The only thing I would say is it is curious to think that in the course of getting a handle on tax expenditures we would lose track of the other expenditures. I do not know if it is in the commission's mandate, but I have always been mystified in the budget process why we separate or purport to separate the raising of money from the spending of money. The tax expenditure thing just proves the point, certainly in the fairness context. Obviously, what you spend your money on is rather important too.
We can see this thing being blurred all over when you move health insurance from one kind of levy to another, or if you just charge for it at the hospitals or whatever; you are just moving things around. You obviously cannot look at one piece without looking at the whole puzzle.
Yes, I think reporting and measurement are certainly things we will be looking at.
Mr Sterling: I believe, for instance, that you could say to business, "We're going to give you some kind of capital cost allowance" -- in other words, to get people to invest in machinery. "We're going to give you a quick write-down on your machinery. We will let you write it off over two years." I do not know what the rules are now, but whatever. If that was stated in the budget, I think the public would have a greater confidence in the system as long as it was up front. Then business could not be charged with the fact that it was evading the system, or that is what the public thinks, instead of clearly being allowed to postpone that tax.
Mr Couzin: I agree with the proposition that we should measure and report it. I am not sure I am quite as confident that this in itself would change the public perception, but I think it is certainly in the right direction.
Mr Sterling: The last thing is just a bit of advice from a former Treasurer who I think was one of the most brilliant treasurers this province has ever had, during the 1970s, Darcy McKeough. His measure was that an existing tax was a good tax because -- I think that has been exhibited by the federal government's attempts to reform our taxation system -- it is difficult to change the system of taxation.
The Chair: Mr Couzin, I would like to ask you a quick question. Many of us are intrigued by the process with respect to selection and you indicated earlier, I think in response to Mr Grandmaître or one of the other members, about providing balance on the commission. That was your perception, in any event. I wonder who you think you are balancing off against. Do you have any views on that?
Mr Couzin: Hopefully, it is not one on one. I like to think that what the Treasurer, or someone in the Treasurer's department, was trying to get was an overall balance. Of course, you would never get it right. You would need 200 commissioners to get a little bit of everything. No, I do not have any particular view of who I am balancing off against.
The Chair: You mentioned a disagreement on one issue with Professor Brooks, who appeared before us yesterday. Are you familiar with his writings, his works, his views with respect to taxation generally?
Mr Couzin: Some. Frankly, more just from talking to him. I disagree with Neil about lots of things.
The Chair: All right. That is what I wanted to have put on the record. Obviously you are not getting involved in this for financial reasons because the per diem is not something that is going to attract individuals like yourself.
I have posed this question to a number of other people as well with respect to the possibility of tax increases that have been suggested in the upcoming budget. I am wondering how you as a commissioner, especially as vice-chair, might react to some significant changes in taxation being brought in in the budget, new taxes perhaps brought in during the mandate of your commission, which in some ways could be perceived as perhaps undermining your efforts. I am wondering how you would view that sort of initiative.
Mr Couzin: I have talked to the Treasurer's people about the larger problem, not just tax increases but changes. It is obviously unrealistic to expect the government to sit on its hands while this commission goes off and does what it does. I do not think they should sit on their hands. That is not what they are supposed to do. They have assured us they will take into account whatever the commission may come up with, not just in the final report but as time goes on, and that even if they have taken some measure in the interim because they felt they had to, or felt they wanted to, they would be prepared to review those measures in light of whatever the commission may say.
I will not say I am sceptical -- that is going a little too far -- but I think I would have some sympathy for the Treasurer being a little reluctant to repeal something he enacted last year just because someone else said something new this year. But within reason I think I take it at face value. The world has to move on and new measures may have to be taken. I think the Treasurer will be a little bit -- I was almost going to say "conservative;" I guess I cannot say that -- restrained in new tax measures while he is trying to get advice but, as I say, he cannot sit still.
The Chair: Thank you very much for your presentation.
Mr Couzin: Thank you.
The committee recessed at 1205.
AFTERNOON SITTING
The committee resumed at 1307.
FAIR TAX COMMISSION
The Chair Come to order, please. As your agenda indicates, we have the afternoon split up into blocks to deal with the three parties' recommendations or selections, if you will, for interviewing. We have up to one hour to discuss the various intended appointees. We do not have to utilize that full hour if we can come to a conclusion before that.
As indicated, the first hour is dedicated to the determination of whether or not the committee concurs in the intended appointees as selected by the official opposition, that is, Monica Townson, William Blundell and Susan Giampietri. We will open up the discussion with a representative of the official opposition. Mr Grandmâitre.
Mr Grandmaître: I will be voting for Ms Townson. I will not support Susan Giampietri. Who is the third one?
The Chair: Blundell from General Electric.
Mr Grandmâitre: Yes. I will be supporting Mr Blundell, and I think Ms Townson has shown that she does have an open mind about this commission.
I must point out that they are all very qualified people except for Susan Giampietri, who is a resident of Hull trying to tell me that she lives in the Ottawa-Hull district. That is not an address. I have checked with the post office. It does not exist. If I were to write her a letter, pointing out that she lives in the Ottawa-Hull capital district, it would not reach her. There is no such address as the Ottawa-Hull district. It is a district, but it has federal connotation.
Of those three, Ms Giampietri is the only candidate that I would not support. I do not know about my colleague Mr Sola, though.
Mr Sola: At the outset I would like to say that I am extremely impressed with the qualifications of every individual who has come up here. Their résumés do support their having been approached to sit on the commission, so I have no problems with their backgrounds.
Ms Townson and Mr Blundell certainly qualify and will get my support. My only problem is again with Susan Giampietri, and for several reasons, first of all, the nonresidency. It may be a small thing; it is still one country. Quebec still has not separated, so it is one country. But it is important to note that she is also a non-taxpayer. I found that out subsequent to having spoken here yesterday. She does not pay municipal or property taxes in Ontario. She does not even pay provincial tax. Because she is a resident of Quebec, the provincial portion of the federal income tax goes to Quebec. In other words, she would be making decisions which would not affect her in the least unless she was talking about sales tax.
The other thing that bothered me about her was her response that she represented a constituency. She did say she came in with an open mind, but at the same time, I think she put a question to how open-minded she would be. I think you would have to refer back to the labour movement, to the unions, in order to make sure that she was representing their views.
No other witnesses who came before us had any problems stating that despite their political leanings, they would approach this with an open mind. The people's agenda, the promises of the government, would not tie them into questioning the agenda that was put before them. I have to question whether Ms Giampietri would be able to do so if she has to have an ongoing consultation with the labour movement and if she is in effect more a representative of the labour movement than of herself.
Those are my reasons for not being able to support Ms Giampietri. Otherwise, her credentials are just as valid as any of the others.
The Chair: Mr Villeneuve, I know you are in a difficult position as a substitute. You may not wish to make any comments.
Mr Villeneuve: I really should not comment. I was only a party to this this morning, and I will be consulting with my colleagues prior to voting. You will appreciate my position.
The Chair: I want to advise you that we are going to be having the votes shortly, as we deal with each group, so we will be having a vote in the next 10 or 15 minutes as we go through the flow. You may wish to remove yourself from the voting exercise, if you will. That is one option, or if you wish to contact one of your colleagues now, I suggest this is the appropriate time to do it.
Mr Villeneuve: Actually, I will do, Mr Chairman. Thank you.
The Chair: From the government side, Mr Wiseman.
Mr Wiseman: I would like to make three points about the opposition's opposition to Ms Giampietri.
The first point is that, at a time when the tensions between the provinces and in particular the frustration levels of Quebec are at a high level, I think that it is unfortunate that the members opposite would seek to exclude somebody from Quebec solely because she is from Quebec. I think we need to be very careful with this kind of approach to a problem.
Second, I think we need to examine precedents in this case to find out just exactly what has happened in the past with regard to agencies and committees that have been seeking to have high-quality people work for them. The third part is really the notion that -- how should I put it? Let me deal with the second one first, then I will get back to the third.
Let's deal with precedents. The first thing we have to understand is that this is the first time any committee anywhere has had any opportunity to question any recommended person for appointment by the Premier's office. It has never happened before, so this is ground-breaking for this committee. To pursue that, I think that we need to make sure that this committee works in a positive way.
I would like to point out that in the past no one has had the opportunity to question where anybody was from, what they did or where they worked. That was an appointment made by the Premier and it was imposed on them. To prove that point, I would like to ask Mr Sola and Mr Grandmaître if they know a Brian McClay or a David MacGregor.
Mr Grandmaître: Are they commissioners?
Mr Wiseman: Do you know Cecil Flenniken?
Mr Grandmaître: Is he a commissioner?
Mr Wiseman: These people are all members of agencies who have been appointed by order in council to serve on committees prior to the establishment of the NDP government.
Brian McClay was appointed on 9 July at $150 per diem to the recycling advisory committee, and he lives in Beaconsfield, Quebec. David MacGregor was appointed by the previous Premier to Industry, Trade and Technology's Ortech Corp board of governors, expenses only, and he lives in Hialeah, Florida. Then we have on the Ontario Round Table on Environment and Economy, appointed by the previous Premier, 6 October 1988, expenses only, Cecil Flenniken from Montreal.
If these people are worthy enough to be on these committees, then I would say that Ms Giampietri is worthy to be on the committee to look at fair taxation.
Mr Hayes: I would just like to comment in regard to Ms Giampietri. It seems that people are of the opinion that she is going to be continually going back to labour and strictly getting its input and reporting.
Mr Sorbara: Those are her words, not mine.
Mr Hayes: I think one of the things that people do have to understand in the labour movement -- several times I have had other people outside of my union, when I was in the union, ask the president of my local, for example, to ask Pat Hayes if he was interested in sitting on a certain committee. The president would say, "I'm sure he is," and then he would come and say, "Are you willing to do it? I already told them you probably would," type of thing. So I think that is not out of the ordinary.
But I think it is very important that we do have a person like her on that committee who can relate the concerns of labour and especially women in the labour movement. I think that is very, very important, and we should certainly look at that. It is another sector in our society which I believe should have a spokesperson on this committee to relate issues and concerns, especially in taxes, that affect that particular class. I certainly am going to support her, along with the other two people.
Mr Johnson: Certainly this commission is a commission that has a membership of 10 people, and I think we are looking for impartiality as it approaches the issue of fair taxation. I think we would all agree that we want a diverse cross-section of our society as members on this particular committee.
Depending on a person's perspective -- and I guess politics is a broad spectrum of perspectives -- yes, it is true that Susan Giampietri is a member of a trade labour organization, but she also agreed that she would have an open mind when she goes into this. Now, I think if people were bankers or tax experts, they might have opinions on which one might want to prejudge them. If we are prejudging her because she happens to be from the labour movement, I think we would have to prejudge too those people who have preconceived notions about what is good or bad about taxation, and certainly tax experts, I think, would have those.
With regard to where she lives, I know many public servants who live in Ottawa and reside in Hull. Apparently it is a little less expensive to live in Hull, and it is human nature to try to reduce your expenditures, I think we would all agree. We try to do things as best we can; we try to manage our money as best we can. So it is not unusual for people to live in Hull and work in Ottawa. She is a longtime resident of Ontario, she was educated in Ontario, and to exclude her from this commission because she lives in Hull right now is, in my opinion, petty. I think she has a lot to offer the commission, especially in so far as we are keen to see a broad or diverse cross-section of our society sitting on this commission.
What is the commission going to do? It is not going to sit down itself and decide what is fair taxation. At least, I am of the impression that it is going to go across communities across the province and get some input and hear what people have to say. If that is the case, then one person on a commission of 10 who has maybe her own opinion, but has an open mind and has the value of wealth that she is going to bring to this commission -- I think that the reasons for her exclusion that I have heard today do not warrant that.
Mr Sutherland: I just want to further comment on that issue. I think if you are going to exclude her solely because she is residing in Hull, Quebec, that is a pretty weak rationale for excluding her. I thought the object of bringing people before this committee was to look at their qualifications, their ability, at whether they are going to be able to provide some input. If you want to make comments about whether you think she is qualified that way, we can discuss them, and I think that is a much better rationale to be working on, but the fact that she is living in Hull is not a problem.
It would be a problem if she had never worked in this province and had no understanding of some of the issues affecting this province, but judging by what she put forward and on her CV, she has vast experience with this province and has lived here most of her life and is still very active in this province. So I think the question has to get away from the fact that she is a labour representative. That is not the relevant point here. You want a broad cross-section.
If she is a labour representative, fine. Is she qualified to be a labour representative? If you think you have arguments against that, maybe the discussion should focus on that. But let's not get into some of the more minor and, as far as I am concerned, irrelevant points as to her ability to do a good job on this commission. If it is a concern at all, it is of very little concern compared to the other issues that I think this commission has to face and what we should be looking for in the people on that commission.
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Mr Sola: I would like to respond to some of the questions raised. I think the government members are taking my statements out of context. They are saying "solely." I did not say "solely" because she represents labour. That does not bother me. What bothers me is that she said she had a constituency she had to go back to to get its opinion on what she was hearing. We did not hear that from any of the others. If we had a banker here who said he had to go back to the banking association to get the rubber stamp whether he can sign a document or not -- when I specifically asked her if she could sign the report without referring back to the labour movement she said no, or she qualified it. So I am judging her on her words, not on her background. We need somebody from the labour movement, because they have vast expertise in various problems that should be looked at by this commission.
My problem is that as to discrimination against her because she is from Quebec, that again is misrepresenting the facts. It is because she is a non-resident of Ontario, not that she lives in Quebec. If she lived in the States, if she lived in Manitoba, I would have the same problem, especially when I find out that any decision she reaches will not affect her personally because she will be more affected by a similar commission doing the same sort of study in Quebec. This comes to a contradiction. If she were representing herself personally, her personal opinion, then it would influence her decision, but she is saying she is going to be a spokesperson or a representative of the labour movement. In other words, we will not have a commission of 10 people; we are going to have a commission of 70,000 people, because she said she represents 70,000 people who live and work in Ontario. I do not think we wanted to extend this commission to such a broad base.
Mr Grandmaître: I agree with my colleague 100%. Mr Wiseman mentioned the tension between Quebec and Ontario. I want to remind you that I have been working in this province for the last 30 years to ease the pressure not only between Ontario and Quebec but all provinces. You are not going to tell me that by not appointing Ms Giampietri we will increase these tensions. I think that is a whole lot of baloney. That is not my intention, and I hope you did not mean it that way, because that is a low blow as far as I am concerned.
As I said from the outset, I am not questioning the ability of Ms Giampietri. I did say that all 10 intended candidates who appeared before us were qualified people, some of them overqualified, I think, for what this commission is really looking for.
Mr Sola: You can never be overqualified.
Mr Grandmaître: In this case, yes. I do not want to repeat what Mr Sola has just said, but there is the fact that she would sign the recommendations but not before she consulted labour. I have never been a puppet to anybody. I have always been invited to participate on a committee, a commission, participating in my community, because I had something I believed in. I was never invited to become a commissioner or a member of a committee to be somebody else's puppet. I was always invited because I was myself. A person who agrees before this committee that she was sent in -- as John pointed out, Mr Sola said, "by my constituents" -- I do not think this person would have an open mind.
Of the 10 recommended people, labour will be represented fairly, I hope so, but I do not think we need a puppet from the labour force to try and peddle its influence on the commission. That is the reason I will not be supporting Ms Giampietri, not because she is living in Quebec.
Mr Sola: One other reason I forgot to mention in my response to the government points: It was pointed out that this was the first time a parliamentary committee could question witnesses named to a commission. That is particularly the reason it is necessary for us to set a proper precedent. The people you mention being named to those other boards would not have had the financial impact on the province that this commission may have, on the one hand. On the other hand, we had no opportunity to put our input into their selection. It was an appointment by a Premier.
You are trying to set a precedent, and if you are trying to set a precedent you should be able to set a proper precedent. We are pointing out what we see as weaknesses in the appointees or in the method of appointment, which, if you agree, can be straightened out, but whatever we do here will be taken as a signal for future appointments. If we see something wrong in either the method of appointment or in the approach of an individual appointee to the appointment, I think it is our duty to bring that up before this committee so we can straighten that out if possible. I have no problem if the Premier of the time saw fit to appoint out-of-province people to commissions. Had I known about it, had I had the input I have here, I may have had the same questions posed to that person.
Mr Hayes: There really has been a precedent set here, because what always happened in the past was that people were appointed to positions and the Legislature found out well after the fact. I think it is very good that all parties are able to review and at least know the faces of these people, they have the opportunity to question them. Of course, you have Hansard and you had the monitors showing it is all open, up front, even if you may not agree with certain appointees.
The other thing I wanted to mention when we talk about Ms Giampietri is that, sure, she is going to consult with the labour movement. I am sure the economists, the small-business people and others will be consulting with their colleagues also. I think it would be foolish not to consult with your own colleagues and try to do the job and do it in a right manner. I think that is very important, and I think it would probably bring a good light on to the work of the Fair Tax Commission. I think one of the things that took place here is that she was very open and did not hesitate or did not apologize for belonging to the labour movement. I think that is very important, and I would suggest that you look at it in that sense.
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Mr Wiseman: I would like to make a quick comment about a precedent that is set. Suppose we decide, then, and all of you have agreed that Ms Giampietri is well qualified to do this job in the sense that she has the qualifications. Then let's suppose we say, "She's from Quebec and from the labour movement so we're going to turn her down." Here we have two precedents we have set. One of the precedents is that we will not spread the net as far as we possibly can to obtain the best talent we possibly can to make comments on questions of importance in the province, and I would think that would be a dangerous precedent.
When I listed the places of residence for these other people, I did not do it saying that they should not have been appointed. I did it to point out that the net has been spread far and wide in order to obtain the best talent. I did not agree with the process, and that is why I said that this process is different. I think there is that precedent that we need to take a look at as well. To say we are going to exclude somebody who is talented, capable and able and willing -- there is some question about the willingness of a large number of people who were actually asked to come and have refused. We are not really paying the big bucks: $200 a day is really quite marginal compared to what some of these experts get on an hourly basis.
To have people volunteer, like Mr Blundell, who said he would be willing to serve on this commission even if it paid nothing because he felt he should give something back -- I think we should avail ourselves of those kinds of people who are doing it for what I would consider to be more altruistic reasons than selfish. Two hundred dollars a day is not a lot of money, and in some cases it is as little as $150. It is not a lot of money for people of the calibre we are talking about here to come forward and give their time and their services.
I say cast the net as wide as you can to get the best talent you can to give you the best advice they can. That is one of the reasons I would support Ms Giampietri, because she is one of those people, with Mr Blundell, who feels an obligation to give back.
Mr Sola: Again I would like to point out that it is not the fact that she is from Quebec or from the labour movement. She cast doubts upon her open-mindedness with her own words before this committee, at least to my way of thinking, and that is what I am questioning. I am grateful to all of them. I agree that they are approaching this commission out of altruistic purposes, because, from their qualifications, they can certainly earn more than $200 a day or $150 a day. And they would not need the aggravation of coming before a committee like this and having their party affiliations and all those other probing questions thrown at them. But the way she answered those questions, that she could not or would not sign a document without agreement from those who are above her in the labour movement, is an approach that none of the others took. The others, even though they had party affiliation, even though they worked for candidates or supported candidates, said they were willing to rise above the party affiliation and approach it with an open mind. She said she had an open mind, but at the same time she had to refer constantly on a consistent basis back to the labour movement.
That is what I am questioning, whether she can do that and retain an open mind. I am unconvinced that she will not get her marching orders, and that is my big problem. The fact that she lives in Quebec, I would like to make a footnote of that. The fact that she is in the labour movement, that may be a footnote. Otherwise, if I were convinced she had an open mind -- but I am not convinced, and that is why I am opposing her selection.
As you say, you are the government members, you have the majority. You have to weigh whether our concerns are important enough for you to reconsider. If they are not, you will be setting the precedent. All we can do later on is either justify -- one of us will be justified. If the report comes out and shows the objectivity of the group, well, then if she is on it and you outvote us, you will be justified. If the report comes out in a slanted fashion, well, then we will have reason to say, "I told you so."
Mr Johnson: A brief comment. I think it would not hurt to check the Hansard. Some of what you said, to the best of my recollection, is partly correct and some of what you said is not in my recollection. I know that she was asked, could she sign it? If someone is asked a question and if you want the answer to be no, for example, and you say yes seven times and then they finally say no, you say, "There, you said no." What I heard in the final analysis when you were questioning her was that she could sign it without any problem.
Also I would like to add that there were many questions of concern with regard to her representation of the labour movement. Whether she consults with them or not, I do not see anything wrong with that, personally. If she consults with the labour movement with regard to what is happening, I think that is good, it gives that perspective. I did not hear you or anyone else ask the business people, "Would you go back and consult with business people?" because maybe then if they said, "Yes, we will consult," you might say, "Then obviously they're not representative," or "You're not thinking for yourself and you don't have an open mind and there are influences." And we did not ask the tax experts if they were going to go and consult with other tax experts; so I am a little confused as to what the purpose is for bringing that up as a reason.
Mr Wiseman: I would like to make a quick comment about that, because Mr Blundell was asked if he would write a minority report if he disagreed with the others, and if my recollection is correct, we did not get an answer about that. I think that when you get 10 people together, there is an opportunity to have anywhere from 10 to X ideas about any given issue, and I felt, with the addenda that Ms Giampietri was making, that she did bring an open mind and yes, she would consult as widely as possible.
When I look at the chemistry of all 10 of them together, they do come from divergent backgrounds. I do not think anybody questioned just exactly how deep the discussion is going to go between Mr Brooks and Mr Couzin, and I believe there was an indication that there is a difference there. Mr Poddar also indicated that he has talked to these other tax experts. I think there is going to be a real dynamic interchange of ideas on that committee and I think you have to look at it holistically to find out where everybody is coming from and who is going to be saying what and from what directions, then wait and see what the consensus is.
I can remember reading about the Carter commission when it was appointed in the 1960s. Everybody in the accountancy business and the firms having had Mr Carter, a very eminent chartered accountant, appointed to look at the tax system, thought that they were going to get a system that was going to be just what they wanted to hear, and after five years or so he came back with recommendations that just blew them out of the water; totally unpredictable. I think that whenever you start a process like this, history tells us that you cannot prejudge where it is going to go and what those people are going to say. We need the best talent and the best thoughts and the best skills to make sure that some dynamic happens, and I think she will add to the dynamics and I think that is why she was chosen.
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The Chair: Are there any further discussions while this group of intended -- I am sorry that your government's time is exhausted. We have some time left for the official opposition and for the third party but no time for the government. In fact, it went over a minute. Any additional comment?
I want to point out, since there is obviously a difference of opinion on one of the intended appointees, I am going to call for motions on each individual appointee. If you wish to record it, we will record a request for recorded votes.
Interjection: Recorded vote.
The Chair: Okay. We will deal with Ms Townson first. We have a motion to concur with the appointment of Ms Townson. We are simply going to do this by voice vote on Ms Townson.
Motion agreed to.
The Chair: We have a motion to concur with the appointment of Mr Blundell.
Motion agreed to.
The Chair: And the final one, which we should perhaps have a formal motion on: Does the committee concur with the appointment of Ms Giampietri?
Mr Owens moved that the committee concur with the appointment of Ms Giampietri.
Mr Owens: Can we get a recorded vote on that?
The Chair: Yes.
The committee divided on Mr Owens's motion, which was agreed to on the following vote:
Ayes -- 6
Hayes, Johnson, MacKinnon, Owens, Sutherland, Wiseman.
Nays -- 3
Grandmaître, Sola, Villeneuve.
The Chair: We will move on to the next group of intended appointees -- these were selected by the third party-Ms Nelson, Ms Kitchen and Professor Brooks. Mr Villeneuve, do you wish to say anything with respect to these intended appointees?
Mr Villeneuve: Again, I am speaking with some degree of disadvantage because I was not here when they made their presentations and was not available. However, I know by reputation the three people here and in my opinion they are very capable people, certainly in other fields than taxation. Certainly Professor Brooks I believe will bring the balance that other people were speaking of on the other side. He will certainly be an interesting member of this committee, so I would move the acceptance of the three names as suggested by the third party.
The Chair: Thank you. Does the government caucus have any comments with respect to these three intended appointees? The official opposition?
Mr Grandmaître: I will be supporting the three nominees.
The Chair: All right. Well, I think we will do them as a group then.
Mr Hayes: If we could have a recorded vote on this.
The Chair: On all three?
Mr Hayes: Yes.
The Chair: Individually?
Mr Hayes: It does not have to be individually.
The Chair: Well, let's do it as a block then.
Mr Hayes moved that the committee concur with the appointments of Ms Nelson, Ms Kitchen and Professor Brooks.
Motion agreed to.
The Chair: Okay, we will move on to the third block, government selected group, Mr Lafrenière, Mr Poddar, Ms Berman and Mr Couzin. Does a government member wish to comment on those intended appointees? The official opposition?
Mr Grandmaître: Mr Speaker -- or Mr Chairman. I guess I am anxious to go back in the House or something, after a short holiday.
The Chair: Either that, or you will see me get a car and driver.
Mr Grandmaître: I think the next four candidates all demonstrated great ability, great intelligence, except that Ms Nelson --
The Chair: We have already dealt with that. We are talking about the government intended appointees Lafrenière, Poddar, Berman and Couzin.
Mr Grandmaître: Oh, no comments.
The Chair: Any comments by the third party?
Mr Villeneuve: I certainly have no problem with the people we heard today, Messrs Poddar, Berman and Couzin. I think they are very knowledgeable people about the taxation system and I would have no objection to their being part of this committee and would support their nomination.
The Chair: Fine. It looks like we have unanimous support. We will have a formal motion.
Concurring with the appointments of Mr Lafrenière, Mr Poddar, Ms Berman and Mr Couzin, all in favour? Opposed? Carried unanimously.
Motion agreed to.
The Chair: That concludes our business for the day, certainly our agenda business. Is there anything else that any member wishes to raise at this point before we adjourn until some time in March? I guess that is it then. To any of you going on vacation, have a good time and we will see you when the House reconvenes.
The committee adjourned at 1351.