CROSS-BORDER SHOPPING

CONTENTS

Thursday 2 May 1991

Cross-border shopping

Adjournment

STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS

Chair: Wiseman, Jim (Durham West NDP)

Vice-Chair: Hansen, Ron (Lincoln NDP)

Christopherson, David (Hamilton Centre NDP)

Jamison, Norm (Norfolk NDP)

Kwinter, Monte (Wilson Heights L)

Phillips, Gerry (Scarborough-Agincourt L)

Sterling, Norman W. (Carleton PC)

Stockwell, Chris (Etobicoke West PC)

Sullivan, Barbara (Halton Centre L)

Sutherland, Kimble (Oxford NDP)

Ward, Brad (Brantford NDP)

Ward, Margery (Don Mills NDP)

Substitution:

Harrington, Margaret H. (Niagara Falls NDP) for Mr Christopherson

Clerk: Decker, Todd

Staff:

Anderson, Anne, Research Officer, Legislative Research Service

Rampersad, David, Research Officer, Legislative Research Service

The committee met at 1030 in committee room 1.

CROSS-BORDER SHOPPING

The Chair: We have a quorum and I would like to begin the morning's discussions by recapping the crossborder shopping hearings that we have had to date. Perhaps Anne could take us through some of the information.

Ms Anderson: Thank you. I would just like to point out at the beginning a memo that I included with today's package, giving some information about the autopass that was announced yesterday by the United States. It is a program that is going to help people go from the Niagara region into the US much more quickly. They preregister, effectively, and then they have a decal on their car and can get waved through. So there is additional information on that.

I also had sent around last week, I think, the report on the retail council meeting, which hopefully you have got. It includes a copy of a study that was done for Industry, Trade and Technology on the pricing system within distribution systems for three particular products. It got some press, which you may have read as well. I just wanted to point out that those were there.

I have briefly put together a summary of the recommendations and the concerns that people have had. I think maybe the easiest thing to do would be just to go over that as a way of reviewing what you have heard to date.

A number of people have made estimates of how big the problem was and how many people were involved and what sort of size. I think they are all estimates at this point. I am on page 2 if you want to look at the summary. The estimate that comes up most frequently is $1 billion in retail sales over 1991, and that one has been referred to by John Winter and the Retail Council of Canada. But I believe they are all still very much estimates based on surveys that then get extrapolated out to larger regions in various ways. I am not sure there is a lot of hard information about how much is involved, whether it is the number of people or the number of sales or the amount of revenue that has been lost by the province.

Everybody had ideas of what causes cross-border shopping. Some specific things that were listed were the lower prices in the US, the free trade agreement, value of the dollar, the recession and the economic uncertainty, reduced enforcement, non-collection of the provincial sales tax, high Canadian taxes and the regulatory burden, gasoline prices, marketing practices of the US retailers, word of mouth and media attention, GST, Sunday shopping, the US discount malls and new attractions in the US border. Those are sort of specific causes that were looked at.

A lot of people, too, talked about the competitive situation in general and how cross-border shopping was really just a symptom of bigger structural difficulties: that it was just the tip of the iceberg, both in terms of the impact on the border communities, its spread throughout Ontario and the impact on the retail sector, and in terms of how it was spreading backwards down the chain to manufacturing and to food processing and agriculture as well. So the problem is sort of diffusing through to a much wider extent.

A number of the issues that were talked about were federal as well as provincial. The biggest thing people talked about were the price differentials, and various reasons were offered for that. One was the smaller Canadian market, which precluded economies of scale, and the other geographic factors like the wide dispersal of a small population, the northern climate, which restricts the growing season compared with southern parts of the US and the role of government in food retailing -- this was particularly from the Canadian Council of Grocery Distributors. A number of people talked about gas as being one of the drawing cards for people who live near the border. There was some evidence presented that one of the biggest discrepancies in gas prices between Canada and the US was the level of taxation, both federal and provincial.

The price of groceries was also another factor, particularly for dairy products, which again is attributed to marketing boards and the different price support systems between Canada and the US. Other reasons were the larger purchasing power of American retailers and wholesalers, so that they can buy at a lower unit cost, and Niagara as one of the dumping zones of the US for seconds and end-of-lines. Residential occupancy costs were a factor, in terms of the rent or leasing costs that applied to Canada and the US. One of the issues there was the availability of commercial space. There is far more commercial space available in the US, so the rent is lower than it is here.

Municipal taxes are higher in Ontario, according to John Winter and also the Canadian Federation of Independent Business. Labour rates are sometimes higher. One item, too, that John Winter stressed was that the cost of a product to retailers in Canada was often higher than the final retail price of retailers in the US. I think a number of people were quite concerned about the distribution structure and the differences between the two countries and how the costs got built in all the way along the manufacturing-distribution chain.

Some solutions suggested by Mr Winter for retailing were to develop price clubs in Ontario to help compete with the cheaper prices and also, in northern Ontario, to source out of neighbouring states rather than from Toronto.

Some witnesses talked about the free trade agreement as being one factor that increased the extent of cross-border shopping. I think generally it was felt that it was a perception of lower prices that the free trade agreement would bring rather than a reality, and that, when they found they did not immediately get lower prices, people were going across the border to find them there. The retail council's brief has nothing much to do with the cross-border shopping issue.

The exchange rate was another area that was mentioned several times. The exchange rate had gone up since 1987, roughly in the same way that the increase in cross-border shopping has gone up. However, the value of the dollar was as high as it is today in the 1980s and did not appear to make much difference at that point in the level of shopping. I think other witnesses felt it would require a very large change in the value of the dollar to make much effect on the enormous price differentials. If you have got a 50% price differential, then changing the value of the dollar will be only a small part of that.

On supply management, various studies have been carried out by Agriculture Canada which looked at the price of milk and cheese in New Brunswick and British Columbia. They were doing a similar study for Ontario. They found that the prices were considerably cheaper in neighbouring US states. In New Brunswick they found it was between 40% and 70% cheaper in the US and in British Columbia, between 36% and 60% cheaper in the US.

One of the documents that was at the meeting that the retail council put on last week and which I have enclosed today was a study that Agriculture Canada had done on comparative grocery prices. They took seven pairs of cities across Canada and compared 113 items in each of those pairs of cities and in comparable stores and found that, on average, grocery prices were 10% lower in the US, although certain items in Canada were the same or cheaper. Those were things like beef, pasta, sugar, pork and some items like that. The ones that were cheaper in the States were dairy products, very largely. I forget the others offhand.

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The United Food and Commercial Workers, UFCW, also pointed out the way the American support system works for farmers. The way they get subsidies does not affect the shelf price in the same way that marketing boards affect it here. A big issue with many witnesses, too, was border controls. Many people felt controls at the border were not enforced efficiently because of the number of people and the long lineups. Even the rules that there were were not being enforced, so people were getting waved through without paying duties or GST or PST at the border.

There were some recommendations to try to counter that. One was to charge a levy on shoppers crossing the border. Another was for Revenue Canada to hire additional people to help deal with that in the way one might do it in a supermarket: You need more checkout counters. At the meeting last week, Revenue Canada indicated that they were unlikely to hire any additional people, given the current hiring climate in Ottawa.

The view of enforcement was countered somewhat by people who wanted to ensure that whatever regulations were put in place at the border did not deter US tourists from coming into Canada as well. There was a note of caution that that might not help. There was also mixed reaction from the retailers about the federal experimental fast lane, the PACE lane, which has happened in British Columbia and which is going to allow Canadians who have pre-registered to come back across the border more quickly by filling in a computer form by which any duty applied would be charged to their credit card. Retailers on the whole seemed to feel that would encourage smuggling and encourage cross-border shopping rather than helping enforce it.

One of the differences in the prices is a result of the non-collection of the provincial sales tax. Again, it is a small amount but there were a lot of witnesses who very strongly urged that provincial sales tax be collected. At the moment it is voluntary, but there should be some way of collecting it.

A number of suggestions were made. One was that the provincial sales tax be harmonized with the GST. The federal government will not, I understand, consider collecting the PST for the provinces at least until there is harmonization because of the different tax bases. However, I was talking with them and I understand that of the two provinces that have harmonized at the moment, Saskatchewan has asked for a collection but no decision has been made at the moment as to whether or not the federal government will collect, and Quebec is still considering whether to ask for collection. Another suggestion was that perhaps the federal government could be asked to add a line on the duty form and the federal government would then forward the forms to the province, which would then bill the residents for that amount.

Mr Stockwell: Did the federal government not say to us to comply before they would collect? All provinces would have to comply before they collected? Or they would look at singular applications?

Ms Anderson: I have heard that informally. When I spoke to the person in the federal government, in the memorandum of understanding that goes with the harmonization of the GST there is a phrase that says they will then agree to discuss collection. But it does not speak to it specifically. So Saskatchewan has discussed and requested. Quebec has not.

Gasoline pricing. As I mentioned, gas is one item that many people feel is the drawing card for those who live near the border in particular. There is a certain amount of evidence given on the different pricing structures of gasoline on either side of the border, where it appears that gas in the US is around half the price of gas in Canada, and a lot of that is due to the different federal and provincial sales taxes that are added on.

The Ontario Border Communities Task Force had requested, as it did during the pre-budget consultations, that a zoning formula be implemented so that the taxes were lower nearer the border and increasing as you get further away from the border, similar to the Quebec system. The Ministry of Revenue here has indicated that the Quebec system was moderately successful in the short term but not so successful in the longer run because of marketing practices, which adjusted to that, and because there was a lot of evasion involved in monitoring and administering the different tax zones. It was expensive and complex.

John Winter also suggested that perhaps there could be a test market for a gas station on the Canadian side of the border that could sell gas at a similar rate as it was being sold in the US.

An issue that was brought up a number of times was Sunday shopping. There were a variety of opinions on that. Some people felt it had nothing to do with cross-border shopping; other people felt it was a factor but a small factor. Sault Ste Marie, for instance, has had Sunday shopping for a while and felt it would exacerbate the present situation if it no longer had Sunday shopping. But on the whole, it was not one of the issues that people raised.

A number of witnesses really focused more on the larger, competitive situation rather than on the smaller, more specific causes and the individual causes. It seems to be related very much to a larger problem of competitiveness and the whole structure of the Ontario and Canadian economies compared to the US. There were suggestions that the Premier's council mandate should be expanded to address this somewhat. Also, there were suggestions that there should be studies or task forces between the various levels of government, including labour and business as well, because it was an issue that covered a wide range of sectors and all levels of government and it needed to have everybody working together in order to address that issue rather than people doing it individually.

In particular, the pricing system seemed to be one area that people felt needed more study to understand the differences in the pricing systems between Ontario and Canada and the US.

Ms Harrington: Was there a definite suggestion of what you were saying, about who should establish this committee? Did you say the retail council?

Ms Anderson: No, there was not a definite suggestion about who should do it. I think one of the difficulties has been that a lot of people have been establishing their own committees or their own task forces and doing their own studies, and there has not been much in the way of a co-ordinated way. There were suggestions that there should be one. The retail council has taken some initiative by organizing the meetings that we did last fall and this follow-up one, which included government and industry and the others.

Ms Harrington: Can you tell me specifically what recommendation came out of that meeting on the 22nd with regard to committees?

Ms Anderson: That was one of the studies that came. They wanted to continue this, but there was no funding to continue this study on the pricing and distribution systems. There were a couple of motions that came up. Can I just get back to that in a moment?

Ms Harrington: Okay.

Ms Anderson: I think that particular organization felt it wanted to continue. They did not really have a name. They wanted to form themselves into a sort of coalition but there was no real resolution, I think, of how they would go about it. There are various subcommittees, and subcommittees were going to continue to meet, but there was not a sort of formalized structure.

Ms Harrington: Are they ongoing or are they not?

Ms Anderson: They did not set another date, as I recall.

Ms Harrington: But the subcommittees are continuing?

Ms Anderson: I think the subcommittees are continuing. At least one of them is. We should be getting some information from them, some minutes of that meeting as they get produced. I will circulate those as soon as they come.

Other recommendations concerning general competitiveness were that new legislation should be examined for its competitive effect, from the Canadian Council of Grocery Distributors. The CFIB, the Canadian Federation of Independent Business, presented some research on the taxes borne by different retailers in Toronto-Buffalo and Thunder Bay-Duluth, which found that the tax burden, particularly between Toronto and Buffalo, was greater on retailers in Toronto and that the largest different component was municipal taxes. They did mention that for small businesses, payroll taxes are also a considerable burden because they are independent of profit.

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Ms Harrington: Would you say that municipal taxes in Canada generally are very high compared with American municipal taxes? Is that the bottom line there?

The Chair: According to the report, it is about four to five times higher in municipal taxes.

Ms Harrington: You say that would be between Buffalo and Toronto?

Ms Anderson: I would think it would vary from municipality to municipality.

The Chair: In the International Falls and Fort Frances areas, according to the report, it is about the same. I will see if I can find it.

Mr Hansen: But you have the point that the services are different between the two towns that are compared. One has a volunteer fire department and the other one has a regular fire department. It is not apples with apples; it is apples with oranges. So it is not a true comparison.

Mr Stockwell: When you pay your tax bills, it is apples to apples.

Mr Hansen: But when somebody is knocking at your door and he is ready to rob you, it is a little bit different.

The Chair: But the bottom line is that when we are discussing cross-border shopping in terms of prices, all of what you say is true. We have a better police force. We have a better fire department. We have better health care. We have all of these things that are better. That is a reality, but also the reality is that the prices are lower across the border and somehow we have to deal with that and in a concrete way that will keep people here.

Mr Hansen: I just want to get that point across that you have to sit on your wallet.

Ms Anderson: When the mayors came before the committee, one of their recommendations was that the blue ribbon task force should be put together with ministers from federal, provincial and municipal governments as well as national presidents of business, industry and labour groups. That is sort of an example of one of the recommendations of these joint groups.

The CFIB was concerned that the cost of business not be increased any further, as certainly was the chamber of commerce. The Canadian shoe retailers also were a group that suggested a committee of provincial and federal ministers to look at the whole issue and co-ordinate planning that will help competitiveness.

A number of people felt that some more information was needed, really, that there was not sufficient. John Winter suggested looking at why suppliers are charging Ontario retailers more than US retailers, and also to include shoppers who go across interprovincial borders as well as the international border and to examine the issue of bilingual labelling outside Quebec. The Ontario Border Communities Task Force also felt that it would be useful to gather more information on the different product categories and the cost structures that are involved, and looking at why people go over to shop in the US; there is more background information needed on that. It was suggested that the province could help continue the funding of the Industry, Trade and Technology study that was looking at pricing and distribution.

A recommendation that came from a number of people was an education or awareness campaign of what the impact was on their communities in Ontario of shopping across the border, combined with a marketing campaign for the local retailers and the local communities. The CFIB points out that such a strategy is only useful when the prices are fairly comparable, but while the price differences are still very great, then marketing or an awareness campaign may have only a small effect. The UFCW, however, felt that it would be a very useful and positive thing to do.

Many of the causes seem to relate to the federal government, and I just will list those briefly. Actions that people wanted the federal government to take would be to reduce interest rates, reduce the value of the dollar, eliminate the GST, develop policies that promote fair taxation for Canadian workers and policies that promote full employment and the development of the economic potential of all Canada's regions, as well as the reduction of tariffs for third-country imports to a level that was similar to the American level. One of the factors in the different pricing appeared to be that for many products the Canadian tariff for goods from third countries was often almost double the level of the American tariff from third countries.

That sort of rounds up the suggestions that were made by the witnesses who came in front of the committee. I do not know whether you feel there are other witnesses you would like to hear from at this point or whether you want to go into sort of a discussion of what else you might need or what the next step is.

Ms M. Ward: Have there been any studies done by consumers' groups or any input from them at all, like the consumers' association, or whatever their proper name is?

Clerk of the Committee: I contacted the Consumers' Association of Canada, Ontario division. They were unwilling to come before the committee because they had not at this point formulated a policy or any sort of response to the issue of cross-border shopping. A representative of the consumers' association was at the Niagara Falls conference that Anne and I attended and basically reiterated that position at the conference, that they had not come to any sort of policy or response position on the issue.

Ms Anderson: We had Mark Adler here, who was one advocate for the consumers.

Ms Harrington: You were talking about the gas tax zones as not being workable. Did you mean strictly in an administrative sense, or were there other reasons that you said it was not workable?

Ms Anderson: They are difficult administratively to work. The Ministry of Revenue in Ontario had indicated that they seemed to have some impact in the first couple of years they were in place, but after that the marketing practices of the private sector made some adjustments to the different pricings so there was less of a difference. That is my understanding.

Ms Harrington: I do not quite understand. People were saying it did not have any effect, so that means people would still go across the border, for example?

Ms Anderson: I had a look at the legislation for the Quebec border zones, and in fact there are reduced rates for three different kinds of areas in Quebec. One is for areas that are within about 20 kilometres of the Ontario border and the New Brunswick border, one is the area that is along the border with the US and one is all northern Quebec. So effectively you get left really with the axis that is between Montreal and Quebec City that is at the high rate and almost everyone else is at the low rate.

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Ms Harrington: So there are two rates. Is that all?

Ms Anderson: No, there are about five rates.

Ms Harrington: What kind of price differentials are there? Is it a cent a litre?

Ms Anderson: Something like that, yes, it is a couple of cents.

Ms Harrington: But my real question was why, after a couple of years, would people ignore that price differential and go across the border?

Ms Anderson: The price differential in Ontario is anywhere between, say, around 20 cents a litre, which is the government tax -- around that; I think it varies somewhat. If you reduce that by five cents a litre, it is still not enough to give you a very big saving.

Ms Harrington: You are saying in the first year or so people thought, "Okay, we'll try this," staying at home, and after that they thought, "Well, this is really not -- "

Ms Anderson: It slowed down the reduction in the --

Ms Harrington: In the cross-border trade. But it went back up to previous levels is what you are saying?

Ms Anderson: I do not think they measured cross-border trade so much as the level of sales in the gas stations in those various zones. I have not got any very great details on it. I can get them for you from the Ministry of Revenue here. They are the people who have done that kind of analysis and looked at it.

Ms Harrington: It would be helpful to say that it did not work or does not work.

Ms Anderson: I will see if I can get some more information on that.

Ms Harrington: To see why.

Mr B. Ward: Just to follow up on what Margaret was asking, part of the information inferred that the marketing practices of the private sector in the oil industry led to a modifying of prices in the province of Quebec. If the oil companies lower their retail price across the province, or since it is whatever the market will bear, did the prices slowly come up even though the tax was reduced? Could we know that?

Ms Anderson: I do not have enough specific information on that, but the implication I got from them was that there was a levelling. Whether it was coming down or going up I do not know. But one of the oil companies that had stations on both sides of whatever these zones are may choose to --

Mr B. Ward: Yes, what do you know? Did they raise the prices or lower them, on which side of the road?

Ms Anderson: I will see if I can find that out.

Mr B. Ward: If you can find out as part of Margaret's inquiry, I think that information would be appreciated.

Mr Sutherland: Mr Chair, I am not sure how we were planning to proceed at this point, whether we were planning on doing the report at this time. If so, I was just wondering whether you wanted some suggestions as to maybe how we could develop the report. Would we follow a similar format in terms of how we did the pre-budget one where we would ask the research staff to kind of maybe elaborate on what is here under the different headings and then come back and then we would sit as the committee in terms of developing the recommendations, maybe based around those headings or based around the recommendations we wanted to pursue and thought would have some input? I would think we may want to do that. I think we all realize there are many people out there in the different communities, particularly the border communities, waiting to see what we are going to recommend and whether we have been able to put our collective wisdom together to find the solutions or just even start making a little dent in the problem.

Mr Kwinter: On behalf of my colleagues, what we would like to recommend is that we wait to listen to the Treasurer this afternoon to hear what he has to say. We can question him about whether he is going to be doing anything about some of the concerns that have been raised or some of the things that we want to do, and then we would like to be able to have some time among ourselves to work on some recommendations and come back next time so that we know what recommendations we want to make. But I think that until we hear from the Treasurer it would be premature to start making recommendations, because we do not know what kind of leeway we have.

The Chair: I think we have a problem with this afternoon. We may not be able to hear the Treasurer this afternoon. It is entirely up to the Conservative caucus.

Mr Kwinter: If we do not hear from the Treasurer this afternoon, will we hear from him ever?

The Chair: I am open to input, but I have a feeling from what I am hearing that we would like to hear from the Treasurer and perhaps, if he cannot come this afternoon, extend an invitation for Thursday morning next.

Mr Stockwell: If our party is introducing motions, I will give the Treasurer the undertaking that those motions will be continuing and it would allow him the opportunity to come down here and address the committee.

The Chair: He cannot.

Mr Stockwell: He cannot? Okay. Then I go along with the request to invite him for Thursday morning.

I would like to ask staff in the meantime if they could look at one item that I find very interesting. With the cross-border shopping issue, some retailers and manufacturers were talking about the interest rates and the dollar. I have concern with the province heading out looking for 10 billion new dollars in the marketplace right now. It would appear to be some portion of that $10 billion will have to come from offshore somewhere, probably Tokyo, Frankfurt, New York maybe.

My concern is, if we are going to raise that money, along with the federal government out raising equally large sums of money, we know full well that if they are looking to borrow those it is going to drive up the interest rates to attract people to buy the dollar, which obviously will drive up the dollar. Is there any way you can measure how much of an effect this $10 billion will have on at least the Canadian interest rate or the Canadian dollar itself? I have heard a lot of talk in the past from the party in power about that being one of the two main reasons for concern in the business sector. It appears that they are in fact exacerbating the problems by looking for $10 billion in the bond markets and I would like to see if we could quantify that at all.

The Chair: Perhaps the way to do that would be to look at the international borrowing rates that are set in the international market as opposed to the cost of borrowing set by the central bank, and also the central bank Treasury bills that are being sold right now would give an indication of what kind of --

Mr Stockwell: Yes, that is probably true, except now you are going to go out with this $10 billion more. You are going to have to be even more attractive, I would think.

The Chair: That would depend on how it is brokered.

Mr Stockwell: Why do we not let the staff look it up?

Mr Sutherland: Mr Stockwell, I do not necessarily agree that the budget is going to exacerbate the situation. There is a difference of opinion out there.

Mr Stockwell: I am just asking the staff to look it up, that is all. Whether you agree or not is academic.

Mr Sutherland: Okay, but there are different commentators there.

I am just wondering, in terms of what Mr Kwinter was saying, and maybe I was wrong, I thought the Treasurer was not coming in specifically to talk about the issue of cross-border shopping, I thought he was talking about the budget in whole. Certainly there are issues related to that, but I would still think we would be able to have the research staff do a more extensive summary of the information, the options, that type of thing, in terms of a report, as we did with the pre-budget report. Possibly that could be ready for next week.

I think the review here of some of the information, particularly some of the statistical information, how the problems increased, the extent of that problem, what the impact is in different areas, provincial revenues, municipalities, that sort of thing -- then maybe under the summary there could be four or five other issues, for example, an issue under the border crossing in terms of duties, provincial sales tax, collection of taxes, maybe another heading in terms of retailing/marketing issues, another one under wholesaling/distribution, sourcing issues, possibly one under the whole question of taxation, municipal-provincial-federal, and related to that services in terms of comparison between us and there, then maybe some aspect of the issue of education in terms of education of the public in what they are getting. Then maybe if that could come back that may help us focus our recommendations afterwards on what we want to do. I do not think there is a problem in waiting to do the recommendations until we have an opportunity for the Treasurer to be here, but I think that type of summary or written report would help focus us a great deal.

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Mr Kwinter: I have no problem with that at all. The concern I have about the Treasurer -- it was my impression that he was here for a twofold reason. As the standing committee on finance and economic affairs of the Legislature, we want to talk to him about his budget. On the other hand, I think there is a practical political problem. The practical political problem is -- and we certainly spent enough time talking about it -- let us say that a recommendation comes out of this committee that we institute some sort of zone gasoline tax rate. If, in our meeting with the Treasurer, he says, "I've already ruled that out; we are not going to do that," you may want to think about whether or not a committee dominated by the government party is going to be making a recommendation that is absolutely contrary to what the Treasurer has already said he is going to do.

I am just saying that there is a simple, practical problem that has to be addressed. That is why I thought it would be useful if we had the Treasurer in here so we could take a look at whether he is going to push to have the provincial sales tax imposed at the border. If he says, "No, I'm not going to do that," then you have a problem if you are going to make that kind of recommendation. I just feel it is something we should talk about so that at least we do not get into a position where we are working at cross purposes.

Mr Sutherland: I do not think that is a problem in terms of waiting until the Treasurer is there to do the recommendations.

Mr Kwinter: No problem.

Mr Sutherland: I think this type of summary would be good. It would help focus us a bit on the budget issue; it would definitely help focus us on this issue.

Mr B. Ward: Following up on what Kimble suggested about the broad issues to get some more information, I think that is a very practical idea and should be supported by this committee.

I would just like to focus on the tax issue. Kimble mentioned the Canadian tax system, the municipal, provincial and federal tax levels and who pays what and what systems we have. I am still not comfortable with the amount of information we have on the American system. I was just wondering if it is possible for research to examine the American side, the municipal, state and federal systems as they relate to the cross-border shopping issue; what type of tax systems they have. I know they have a municipal bond, but I do not know how that differs from our municipal debenture.

If that is possible, and I do not know how much workload that will involve, I would appreciate more information before any recommendations are flowed through this committee, as well as -- and it has been touched on by a couple of organizations -- the American subsidy to the agricultural sector; if we could get a handle, if that is possible, on how much we will be talking financially and how they subsidize the agricultural sector, I think that would be appreciated.

The Chair: Do you want also a comparison of how that compares to the Canadian marketing board finances?

Mr B. Ward: Exactly. Primarily this gets more information on what is happening in the border states, the border municipalities, New York state, Michigan, possibly Connecticut and Massachusetts, although they are not in relation to the border. It would still be worth while to see how economically viable they are as entities. I have referred to the transit shutdown in Buffalo and the layoff of police officers in Detroit, which suggest perhaps there is some financial difficulty with those border communities.

The Chair: But you also want the committee to see a breakdown of the grants, tax holidays and incentives that the local cities like Buffalo give to --

Mr B. Ward: That would all be part of the tax system. If they are allowed to defer property taxes, how do they raise revenue, and if they do not, what do they do? That would all be part of the information that I think should be looked at and collected by this committee.

Mr Hansen: There was one other item. I think Mr Kwinter brought it up earlier in some of the questions that came out. He wanted to know about coffee filters that sold in Scarborough, I believe it was $1.29 in a grocery store, and yet four packages for $1 in Buffalo. I think we should take a look at the marketing on a product that is made here in Ontario to find out why there is such a difference, because it is sold in the States at four for $1 like that.

The Chair: Why would you pay $150 for Michelin tires?

Mr Hansen: You are talking close to five times the amount on a product that is manufactured and distributed here in Canada and across the border. I agree with my friend Mr Ward on some of the incentives that could also be given to business in border communities. The other thing is that the closest state right now, taking a look at the Niagara area, is New York state, possibly Michigan, under upcoming state budgets that could possibly see an increase in some of the taxes on business, gasoline and so on, to know exactly the dates of their upcoming budgets which could have an influence. Maybe we are just one step ahead of them, maybe they will take the same type of approach that we have here in Ontario to take a look at the environment. I take it it is looked on as an environmental tax on gasoline. We are not going to wind up just burning fuel and wasting it, but conserving it. Maybe we should take a look at the approach of some of the bordering states and when they have their budgets coming up also.

Ms M. Ward: A question for the clerk, because my memory is poor. I recall reading recently an article about New York state and the collection of sales tax on things imported into the country and from other states. Was that something in material submitted to us or was it something else? Do you know?

The Chair: It is this. John Winter sent it to us.

Ms M. Ward: Okay, thanks. I think I read something else somewhere too, but I did not know if we had that information or not.

The Chair: I can clarify. I asked the Ministry of Revenue about doing this and getting the bills of lading and so on from the federal government. So far the federal government has refused.

Ms M. Ward: Is this referenced at all in our summary here? Perhaps the idea should not be lost.

Mr Stockwell: Mr Chairman, I just feel like I am in an exercise in futility here. There are four or five things that we can do that I think would make a real impact on the issue. There is some concern with the federal government not pulling its weight. We could petition them to pull their weight or make some changes, but they come down to very fundamental issues. We either marry the GST and the PST, so we can collect at the border -- that is an obvious recommendation from this committee. The government says no, it is not going to do that.

Mr Hansen: Put your point forward.

Mr Stockwell: So we are going to close that one off.

Mr Hansen: No, wait a minute.

Mr Stockwell: Can I finish? You may have changed your minds, and if you have changed your minds, that is fine, but you have said no. So I can only assume when you say no, you mean no. We can have zones, gas zones, shopping zones. In the budget the Treasurer said no. So when he says no, I guess he means no. So I say, "Cross that one off."

We can have a reduction in the provincial sales tax. The government is very clear on that. They said they are not looking at reductions in the sales tax. I asked the question in the House, I mentioned his speech and the Treasurer responded and said, "No." I can only assume when he says no, he means no.

We then go to the reduction in taxes on gasoline, cigarettes and alcohol. He did more than say no on that one, he raised them. I can only assume he is not going to reduce those. So when he says, "No, I'm going to raise them," he is not going to lower them. So I can cross that one off.

We are left now with collection of the PST at the border by the provincial government as a separate entity, which is not viable because the federal government has said no. So I can cross that one off.

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So we have our five or six things that we can recommend and everybody has said no. Unless someone has a brainwave that absolutely no one else in this province has thought of over the last three years, this is your definition of government: sitting around navel-gazing, because there is little if anything after the four, five or six major recommendations that can be done. I do not want to investigate all of these items, because the Treasurer has said: "Don't waste your time. I don't agree." So rather than investigating these five or six that he said no to, let's put some new ideas on the table. If there are not any new ideas, we make a report to the Treasurer saying, "If you've excluded the five or six areas where you can actually effect change, then you've basically excluded any options for cross-border towns to compete."

I do not want to waste more time talking about marrying the GST and PST, or about zones, I do not want to talk about reduction of the provincial sales tax, I do not want to talk about the hooks to get them back there, over and back, because all these things are not on the table. If someone has some other ideas, I would love to hear them, but if we are going to continue talking about these things they said no to, why are we wasting our time?

Mr Hansen: Regarding the point of the legislation or the bills that are presented in the House by the third party, are they correcting the cross-border shopping issue at this time'? It looks like it is stalling the House, not doing anything for the benefit in Ontario.

Mr Stockwell: That may be a point. So what? What has that got to do with the price of eggs?

The Chair: I would like to respond, because I see the problem before us in two ways. We can make recommendations that may help in the immediate time frame and there may be recommendations that we can make over a long term. There are some serious questions on the table about retailing, about pricing, about why goods made in Canada, shipped to Toronto and shipped to Buffalo, wind up being half the price in Buffalo that they are in Toronto. I think some of these questions can be looked at with respect to the request by a couple of the groups that were asked for some long-term solutions.

As for what is on the table and what is off the table, obviously whatever the Treasurer, the government and the cabinet decide to do is on the table. My position here is to play the role of the impartial Chair and I would say we should discuss all of these issues and that these discussions should be made available to the Treasurer. If the Treasurer decides he is going to maintain or to make these actions, at least he will have before him the discussion of all of the members of this committee. However, if this committee, in its power, deems that we do not want to do that, then I am at the will of this committee.

Mr Kwinter: Can I make a radical suggestion? Who knows, you may go for it. Why do we not ignore the Treasurer and make our recommendations based on what we have heard and not on what we think the government is going to do?

Mr Stockwell: That is radical.

Ms Harrington: I think that is what this committee is supposed to do. We are all three parties and having listened to the so-called experts we have to use our own judgement and put forward whatever recommendations we think are legitimate for the government to consider. If you think the Treasurer is not going to listen or whatever, then we as part of this committee may be able to talk to him. It is the mandate of this committee to be objective.

Mr B. Ward: In a non-partisan manner.

Mr Kwinter: It would be rather pleasant to see it.

Mr Sutherland: The only thing I was going to say, I was not as confident as Mr Stockwell that the Treasurer had ruled out all those options. Maybe a couple of them he put forward he has ruled out. The Treasurer may have indicated his personal opinion that he is not keen on some of the other ones as well. But the sense I have in terms of being there in question period is that he does not have a lot of answers. He is looking for some good, solid advice from this committee to be considered and taken into account. That is what we should be doing and we should be doing that with an open mind and looking at what we feel are the most viable options.

Ms Harrington: He does not have all the information we do.

Mr Hansen: My friend on the other side mentioned the reduction in fuel tax at border communities. We had Mr Brandt here talking on that issue, and I believe the Treasurer most likely read those Hansards. He was of a different opinion, that this does not work as well as it sounds it might work, and it has not worked as well in Quebec. So all these recommendations that have come in -- I think it is unfair to say the Treasurer refused this or refused that in the budget. Possibly, asking him on a one-to-one basis on the concerns of the members of this committee, maybe we do not get an exact yes, no or anything else, maybe "I'll take a look at it." But I think it is unfair to pin him down on those five points, as it is now, as my friend from the third party said.

Mr Stockwell: I did not say he said it. I did not refute him. He refuted him. I did not say no. He said no. I am not making this up. He said it in Hansard. If you have some special information, share it.

Mr Hansen: We have all heard the same reports come through here and those were some of the recommendations. So I think he should have a chance to explain some of the recommendations that come through this committee today.

The Chair: This question raises two questions, one about the degree of independence of committees, and Mr Pond has submitted an analysis of some of the other finance committees in operation in other jurisdictions such as Ottawa, Great Britain, New Zealand and Australia; it is their opinion that the committees do have a degree of latitude to follow and to make recommendations that may or may not agree with what the government has done. We have examples in the past. The pre-budget consultation recommendations of the 1990-91 committee contained an awful lot of recommendations that were subsequently not followed through on by the previous government. So there are precedents set for committees to make recommendations in light of the best information that is available to them.

I guess the second question, then, is the degree to which we interpret the recommendation in the budget from the Treasurer of opening up the process of the finance and economic affairs committee and the degree to which that is taken. Sitting as the impartial Chair, that is a decision the government party is going to have to make.

Mr Sutherland: I think we have a consensus on how we proceed here, do we not, in terms of the research staff doing the summaries maybe on some of the topics, maybe on some of the information other members have added, and then we will wait until we can have the Treasurer before us before we sit down to do recommendations.

The Chair: Then we will take the instruction from the committee for the researchers to flesh out some of the areas of information that have been requested and that if the Treasurer cannot come this afternoon, if this committee is not sitting, we will request that he come for l0 o'clock next Thursday morning?

Mr Kwinter: Mr Chairman, can I get a clarification? Are you saying that if the Treasurer does not appear, the committee will not sit?

The Chair: No. If the committee is sitting, the Treasurer will appear. But we have already had indications from the third party that --

Mr Stockwell: So we are not sitting?

The Chair: That is up to you. As far as this committee is concerned, we are sitting this afternoon. But if the activities of the House and the votes and the bells and everything continue, then it makes it very difficult to sit.

Mrs Sullivan: It is impossible under the rules.

Ms M. Ward: It means if routine proceedings end, the committee sits, and if they do not end, then we do not sit.

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The Chair: Before we adjourn, I had a little discussion with the Treasurer about the comments in the budget and he has indicated to me that he is very serious about changing the pre-budgetary process in terms of opening the system up, as he said in the budget, and making the process much more open than it has been in the past.

I do not ask for any recommendations at this point, but as Chair I would ask that the members of this committee seriously consider how the whole budgetary process has been done, how it can be opened up and how we can ask the Treasurer what direction we should be going in terms of the budgetary process in the future. I think this dovetails with the discussions we had just after we finished the prebudgetary consultation, and I think it is worth while revisiting this in the near future. If you can think of some recommendations and issues this Chair can recommend to the Treasurer for approval, disapproval or whatever, I am looking for that as well.

Mr Kwinter: The solution is so simple and so obvious -- it is just a matter of whether the will is there -- that is, that nobody makes a representation to the Treasurer; they make all their representations to this committee and we then forward them to the Treasurer. Right now, what happens is that this is a pro forma exercise; the people who come here come here only because the opportunity is there, but they know the guy they have to talk to is the Treasurer. They come here, they do their thing, but they figure: "These guys aren't going to have any influence. It is the Treasurer who is going to have it."

If this committee was really the committee that was doing the pre-budget consultations and then it would send its findings to the Treasurer and meet with the Treasurer and say, "Here's what we've done," that would solve the problem.

Mr Sutherland: Coming back to the cross-border shopping issue in terms of the process, I have a suspicion that we will not be able to get the Treasurer next week in the morning but in the afternoon, because I believe another time he appeared he indicated he has a regular cabinet committee meeting on Thursday morning. If we are not getting him till the afternoon, will we be prepared next Thursday morning to deal with the report from the research people? I do not want to put you through the budget process again, of the report and the deadlines, but would it be possible for us to get the report ahead of time, possibly on Wednesday, if we have to look at it on Thursday morning?

The Chair: We have asked the researcher to do two things: one, to research all this other information; two, to put together this overview. That is an awful lot of work.

Mr Sutherland: Maybe you could just give us a sense of what the time line here is, given what we are asking to be done.

Ms Anderson: We can aim for that. Maybe there is a question of your priority, whether you would rather have the draft of the report -- we will collect the information and if we have the other information on the tax structures of the United States and everything else like that, fine; or whether you would be happy to have that information the following week if we cannot get it in time for next week; or whether you would rather have the information first. We will aim to do both for next week, but if it is not feasible, how would you prioritize?

The Chair: The information first?

Mr Sutherland: I guess we will need the information to do the recommendations even if they are going to be the following week, so maybe you should try for the information. If we could, without putting an undue burden, we would appreciate it.

Mrs Sullivan: I just wanted to suggest that when the Treasurer comes before the committee he be prepared to expand on precisely what his view his, with precision, of the role of this committee in budget-setting. I think it is very clear that the budget is the number one important document. It is a highly political and partisan document because it outlines the program of the government in power for spending and puts within that program the philosophical constraints and reaches of the budget. This is not a non-partisan document by a long shot, and I think he should be far more clear than he has been in the fudgy words that have appeared in the budget about how he sees the role of this committee.

Additionally, I think it is important for him to come before the committee with a statement of his philosophy relating to budget secrecy and whether he is going to throw out the concept of budget secrecy, and where he sees the possibilities for gain as a result of budget decisions in any tax moves that are made or recommendations this committee may put forward or that come from anywhere. Indeed, there is an opportunity for gain and for conflict, and that should be something he has considered and is willing to speak quite forthrightly about before this committee.

Mr B. Ward: Just to follow up on the meeting with the Treasurer, are we going to discuss that as well as the cross-border shopping impact? We only have so much time.

The Chair: My impression was that the Treasurer was not coming to discuss cross-border shopping, but was coming to do a debriefing on the budget and the budgetary process.

Mrs Sullivan: Maybe he will tell us how it was accepted across the province.

The Chair: With reference to Mrs Sullivan, if the Treasurer comes this afternoon -- I cannot speak for him -- I will certainly give him your questions, but I am not sure he would be prepared to answer them this afternoon quite that way. But you could possibly put them to him this afternoon.

Are there any other questions or observations? Okay, the committee is adjourned, hopefully until this afternoon at 4 o'clock.

The committee adjourned at 1137.