CONTENTS
Thursday 16 May 1991
Election of Vice-Chair
Cross-border shopping
Consideration of draft report
Adjournment
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair: Wiseman, Jim (Durham West NDP)
Vice-Chair: Sutherland, Kimble (Oxford NDP)
Christopherson, David (Hamilton Centre NDP)
Hansen, Ron (Lincoln 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)
Ward, Brad (Brantford NDP)
Ward, Margery (Don Mills NDP)
Substitutions:
Harrington, Margaret H. (Niagara Falls NDP) for Mr Christopherson
Curling, Alvin (Scarborough North L) for Mr Phillips
Wilson, Jim (Simcoe West PC) for Mr Stockwell
Fletcher, Derek (Guelph NDP) for Mr Ward
Clerk: Decker, Todd
Staff:
Anderson, Anne, Research Officer, Legislative Research Service
Rampersad, David, Research Officer, Legislative Research Service
The committee met at 1008 in committee room 1.
ELECTION OF VICE-CHAIR
The Chair: Good morning. We have a quorum. We can begin. The first order of business is the resignation of Ron Hansen as Vice-Chair, which precipitates an election for Vice-Chair. Are there any nominations?
Mr Hansen: I nominate Kimble Sutherland for Vice Chair.
The Chair: Are there any other nominations? Seeing no other nominations, then congratulations, Mr Sutherland. No, you do not get 10 minutes for a speech.
Mr Sutherland: I only said thank you.
CROSS-BORDER SHOPPING
The Chair: That is good. This morning we are here to consider the recommendations and the draft report on cross-border shopping, with specific interest in having recommendations brought forward in the text of the report. I thought that first we might want to discuss the language of the report, if there is anything the committee members feel has been left out, or put in that is not relevant. We could perhaps deal with the text of the report and then move to the specific recommendations. Is that how we want to proceed?
Mr Sutherland: Just initially looking over the report I did not see a great deal, but maybe we could still leave it as a draft -- the language -- and maybe spend a little more time there and maybe have some discussion about some actual recommendations.
Before we do that, can I ask one other question? In terms of normal committee procedure, in terms of writing the report, are we going to do that in camera or are we going to do that in an open format on the record?
The Chair: That is up to the committee to decide. We did the entire pre-budget consultation open to the public. I think this is something that maybe the Chair should have some guidance on from the committee. How would you like to proceed, in camera or open to the public?
Mr Hansen: Monte, did you lose your voice completely?
Mr Kwinter: I would see no reason why it should not be open.
The Chair: Are there any objections to its being open? Seeing none, then this will be open to the public. Mr Sutherland, do you want to proceed?
Mr Sutherland: I guess we should look at some recommendations. I was wondering whether maybe the two other parties had any recommendations they wanted to make specifically at this time so we can give them some consideration.
Mr Kwinter: Mr Chairman, if I could just comment, it would seem to me that most of the causes of the problem are really systemic, and unless we are going to totally restructure the province or the country, which is not practical, what we can do most of all is just comment on why it is happening.
We are not going to change the fact that there are 270 million people living south of us and we are 27 million people. We are not going to change the fact that, for a variety of reasons and because of that fact, we have this huge land mass that has to be financed and provided for by a relatively small number of people. We cannot change that.
So it would seem to me that what we should be doing is spelling out those systemic problems and pointing out why there is a discrepancy. Where we should be making recommendations is where we really can relieve the problem or help the problem, even though we will not solve the problem.
It would seem to me that one of them, the one we could do something about, is to have the provincial sales tax collected at the border. It would also seem that one of the other things we could do is to make sure that there is greater enforcement at the border as a deterrent, not to people shopping -- I do not think you are going to do that -- but to people smuggling, this sort of underground economy that takes place because of that. Also, we can address the problems of taxes, where we do have some control. This recent 1.7 cents per litre tax, which again is not going to solve the problem but just exacerbates the problem, just gives one more incentive for people to go over and buy gasoline.
So it seems to me that we should be addressing our recommendations to those things we can actually do something about. Again, I say it is not going to solve the problem, but it is certainly going to help maybe diminish the problem. Things like Sunday shopping -- I do not think Sunday shopping is the cause of cross-border shopping, but there is no question in my mind that the availability of shopping on Sunday is just one more factor that gives people the impetus to go across the border.
So it would be my feeling that those are the things we should be addressing in our recommendations.
Mr Jamison: I believe we should be approaching the subject on a report based on the contributing factors, whether they be in our control or whether they not be in our control. Quite simply, it is a very large and complicated problem. I think most of us would agree there is not a simple solution to it. But we should be identifying where the problems are and identifying them clearly and at least making the decisions on what can be done. That certainly rests with this government and other governments, because the role is played municipally, provincially and federally and there are contributing factors in all cases. To thoroughly recognize and sort out the problem so that it is understandable, I think, is what this committee should be doing; making it understandable to someone who would read this committee's report. We should be looking at all the areas that have been brought forward.
Mr Sutherland: If I can pick up on that, we do have some recommendations, and I have copies of our recommendations here. Maybe we could have them distributed and then go over them. We will give some explanations to some of the recommendations we have given and then some comment. Then maybe we can have some more discussion and hopefully get more ideas out of that.
The Chair: For discussion, pursuant to what Mr Jamison and Mr Kwinter have just said and having read through the first draft of the report, is there any systemic analysis the committee would like to add to the report, or any sections they would like to be expanded?
Mr J. Wilson: I would just like to make a point. Perhaps it is because I am a substitution for the committee, but I would be most comfortable if we heard the NDP's recommendations and then adjourned and picked it up again this afternoon after I have had an opportunity to discuss it with my colleagues who are not here at the moment. I have agreement from Mr Kwinter on that.
So if Mr Sutherland would like to add anything briefly in terms of explanation to the recommendations that have been put forward, that would be most helpful if we could adjourn and have some time to fully read the report.
Mr Sutherland: Okay. I think Mr Kwinter's opening comments and some of his recommendations have been incorporated in the recommendations here. Certainly I want to say that we certainly feel there are no magic solutions here. There is no one thing that is going to stop the problem, but there is a combination of things we can do to help ameliorate the situation and regain some of the vibrancy in our border communities that has been lost because of the ever-growing tide.
We heard from many presenters, particularly the mayors of the municipalities, who asked for a trilevel task force on the issue of cross-border shopping. That is our first recommendation: that the province participate in that in terms of working together with the other levels of government and with those interested parties in communities to try to get a better handle on the situation and what all the causes are.
Beyond that, we had several different ministries here to make comment on how their ministry is monitoring the situation, what the impact is and some of the organizations that are under their jurisdiction. We believe we do not have all the data we need on this issue, and I think that was the consensus from many different groups that presented. We believe the individual ministries should be continuing to gather more data and work with some of the local organizations. MlTT has been working with Shop Ontario and other organizations like that, to have them come forward.
They are just a couple of the initial, general recommendations.
One or two are under federal policies. We are certainly of the belief that the federal government has a great deal of responsibility in this issue. Their high interest rate policy, the perception created by the free trade agreement and the implementation of the GST have all accelerated the cross-border shopping problem.
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It is very evident by the statistics of where the increases started: first in 1987, after the agreement was first negotiated and the perception that prices were going to be cheaper, and then after the agreement was actually implemented and gone into place. We have seen a significant increase there. We have seen a significant increase again since 1 January with the implementation of the Goods and Services Tax, and even the statistics that were passed around this morning, the March statistics, indicate that while there is a little decline in the increase from February, it is still a substantial increase over March of last year.
At the same time, if we listen to the comments from the federal government and particularly the federal Minister of Revenue, he has been kind of tossing his hands up in the air and saying, "It is not our problem and there is not a great deal we can do."
The two key recommendations -- and we have certainly heard these before, but they do play a large role -- is that the interest rate differential with the United States be reduced to more traditional levels. We have seen some decline in the federal interest rates, but we have not seen the corresponding decline in the dollar. I think that is attributable to the fact that the United States recently had a cut in its interest rates, so the differential is still high.
That is making it difficult for the second recommendation to come through, for the dollar to be allowed to decline to a more realistic level. As to what that level actually should be, we have heard many different recommendations when the different groups were here for the pre-budget consultations. I believe the Royal Bank used a figure of 81-82 cents, and a few other organizations used that as a more realistic level for the Canadian dollar right now. There is no doubt that a decline in the dollar will have an impact in terms of what the differences are in the prices once the exchange is taken into account.
In the other area, and this is again picking up on what Mr Kwinter was saying earlier about border controls, many presenters have said that they wanted stricter border controls and that the collection of the provincial sales tax would certainly have an impact. So our number one recommendation is that the federal government collect the provincial sales tax at all border crossings and that the necessary negotiations between the provincial Ministry of Revenue and the federal Department of National Revenue occur to allow that to happen.
The federal government has said it is not willing to do that on certain occasions. Our provincial minister is in Ottawa again today, meeting with the federal minister to request that they collect the PST. We certainly hope they are going to be more willing to listen. We heard a couple of comments from the federal minister last week that indicated there might be a little softening on the position, but still no definite statements.
Our second recommendation ties in to that: that if, for whatever reasons, they feel they are not willing to collect the provincial sales tax at the border, then the Ontario revenue officials be permitted to review custom forms, similar to the article that we received from John Winter talking about what goes on in New York, Pennsylvania and California.
I found it rather ironic, Mr Chair. At this time I just want to note that the congressman from Buffalo was concerned that the federal government might collect the PST at the border; he thought that would be a violation of the free trade agreement. I would be interested in understanding how the state of New York is able, then, to review the federal customs forms and collect PST that way and that not be a violation of the free trade agreement in the same way. So I think there are some options there for collection of the provincial sales tax.
Recommendation 3: We had some information presented to us about the PACE pilot project out in BC, which is more or less the fast-track lane for Canadian shoppers returning. I think we got a general consensus from the organizations before us that they did not think that was acceptable, but that the other problem is, because of the long, long lineups at the borders due to so many Canadian shoppers going across, that it is really discouraging American tourists from coming in.
We feel that if fast-track lanes are going to be established, it should be solely for American tourists coming in. When you look at it, the Americans are just implementing the auto pass system at one of the borders, I believe it is the Niagara Falls one. I see no reason why we, in the federal government, could not implement a similar thing in return, an auto pass for Americans coming through, to speed them through, because the double impact of this cross-border shopping was brought forward to us by the presenters in terms of the fact that it is not only Canadians going over there, but Americans are not coming here. That is having a double impact on retailers in the communities in the border area, particularly on the area of tourism, which I know many people are concerned about. I know Mr Wilson is extremely concerned as the Tory critic for that area.
Recommendation 4: More customs staff should now be hired for greater enforcement. We heard presentations on the fact that part of the problem is because customs officials let people go through. They do not have enough staff to check on a more consistent basis, to be a little more stringent in terms of enforcement. We heard a couple of recommendations for more customs staff, and we would certainly concur with that recommendation.
We also had some discussion about the government working with the border states to collect provincial sales tax on those items that are state-exempt products coming into Ontario. We heard the Minister of Revenue indicate that we did have a deal with one of the states -- I believe that was Ohio -- but that they are still working and negotiating with some of the other states. We would certainly encourage that process to continue.
Moving into an area in terms of what we can do: retailing and marketing. I think there is some disagreement. We heard some presenters who said our retailers can match any other retailers anywhere in North America. We also heard some other comments that our retailers needed to be a little more aggressive in what they are doing, responding in kind to some of the tactics that those stores, malls and merchandisers across the border are doing to attract Canadian shoppers. We want to recommend that Ontario retailers be more aggressive in their marketing, through use of such techniques as the discount card, which we saw we had for Canadians. I think they should maybe try something like that for Americans to come back over.
More selective advertising in terms of advertising those things that are competitive: We have had evidence here that there are many areas in foodstuffs and all kinds of other products and merchandise that we are competitive in, and that we need to have more selective advertising promoting those things.
Then the last one, putting American prices in ads: We do not really have any hard data on what the impact is, but we heard information -- I do not want to get this wrong, but I believe it was Goodyear or Goodrich, one of those two, down in St Catharines. When they put their ads in the paper for selling their product, they put in their price and they put in the American price, so people clearly know how competitive they are. We think those things should continue.
Recommendation 2 is to try to deal with the issue of what we heard from many of the surveys. The ones conducted by John Winter and the other ones in the communities indicated that two of the main products that are attracting people across the border are gasoline and milk. What we are hoping for here is that the parties would come together, the milk marketing board, the grocery distributors, grocery stores, local retailers, gas companies and their dealers, and engage in a joint marketing strategy, possibly involving coupons in exchange for milk and gasoline. For example -- this is following up on a marketing technique that other companies use right now -- if you went into a gas station and you bought $20 worth of gas, you would get a coupon off for milk in the local store. When you go into the local grocery store and buy so much, a purchase of milk plus a certain dollar value, you would get a coupon off on your gasoline purchase in the area. I also think there is a great deal of room for other retailers to get involved with that, if people were willing to set a level -- you buy this much product in my store, you get the coupons on the milk and gasoline.
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There is potential for the other areas where marketing boards are involved to participate with this. There is some indication that the Ministry of Agriculture and Food would be willing to facilitate this type of discussion to get that type of program off the ground, so there is one idea.
Recommendation 3: Again, there were differences of opinion on how good service is, staff training, those types of things. The John Winters survey indicated that is also a factor, and while not the most important, it is a factor: People feel they are getting friendlier service and the staff are better trained and have better product knowledge in the United States. We heard from the shoe retailers, who have a very comprehensive program on this, but certainly the evidence before us indicates that not everyone is doing a significant job in staff training and product knowledge, and in the service.
Moving on to sourcing and distribution: We had the presentation from Ernst and Young, and they certainly identified what the patterns are in three areas, but even when they were here, they agreed that this could not be seen as a comprehensive analysis of how all wholesaling and distribution works. It seems to be the consensus that we need some more analysis on that issue. We know there are certain inherent factors, like some of the ones Mr Kwinter mentioned, economies of scale and that. But there still seems to be more information needed, and maybe there are some new areas that could be explored in terms of reducing some of the extra clauses that seem to be apparent there.
At the same time, we want to recommend that this committee not support increased foreign sourcing for products that are manufactured in Canada. We do not feel that, in the long run, is going to help us. We had some recommendations that we should go that way. I believe even Mr Winter was suggesting that to retailers. But the simple reality -- and I think this ties in nicely in bringing the issue of cross-border shopping home to everyone, everywhere in the province -- is that if that occurs, then we are going to see plant closures in other areas. The retailers may be a bit better off, but the plant closures in other areas are not going to help any other community, so we want to emphasize that, while alternative forms of sourcing should be examined, we are very concerned if it is going to be foreign sources.
The issue of taxation certainly came up. We heard lots of recommendations and we heard some very simplistic analysis that simply lowering taxes is going to solve the problem. We heard other issues related to taxation, and I think we would agree that there are some valid concerns. I think the party and the government agree with that, and that is one of the reasons we have the Fair Tax Commission to examine some of those issues, particularly in terms of examining the question of property taxes.
Our first recommendation is that the Fair Tax Commission be encouraged to speed up its examination of the property tax base to fund municipal services. Obviously, if we look at some of the comparisons, we note that municipal taxes are significantly higher in Canadian communities versus American. We had one study that indicated, I believe, Fort Frances/International Falls. We certainly believe we have a responsibility to look at that issue and to see whether there are ways that can be dealt with.
That kind of ties into recommendation 2, that the provincial government continue discussions with the municipalities over issues of responsibility and funding of services. Then coming out of that are some of the recommendations that were put in the Hopcroft report, the report from the Association of Municipalities of Ontario, dealing with certain issues about who should fund what programs. Some of the discussions out of that and the resulting decisions certainly may have an impact in terms of municipal taxes and in terms of having an impact on the base retail price, because it certainly seems that in the marketing that the American retailers are working off of the retail base price, and strictly the price, not necessarily the quality or standard of product. So the outcome of some of those discussions may have some impact on the municipalities.
Our third recommendation, and this recommendation has come forward before and is a very difficult one, is that a trilevel task force be established to examine the issue of duplication of services, division of responsibilities with the purpose of making all levels of government more efficient. There certainly is a perception out there that there is a lot of duplication of services, both between the feds and the provinces, and also between the provinces and the municipalities.
If some clear task force could be established to examine this issue, to find out where the areas of duplication of services are and then have some decisions made on who is going to look after those areas, then maybe the overall cost of government could be somewhat reduced. The viability of that last recommendation depends, because you have to have a willingness on the part of the parties and that may tie with the first one just in terms of the task force in cross-border shopping.
The final issue, and I think one of the most important issues, is the question of education. Clearly, while people are going over for cheaper prices, it seems evident they do not realize what the impact of cross-border shopping is on their local communities, on the province as a whole. To cite a personal example here, I was speaking to a group of high school students in my riding last Friday. We got into the issue of cross-border shopping and I asked them how many had participated and played a minor athletic sport, whether baseball, hockey, soccer, whatever, and 75% of them put up their hands. Then I asked them how many of them had a local retailer pay for their uniforms and just about all of that 75% put up their hands again. That type of message needs to be brought home to people.
In my community, as well, we have several fund-raising campaigns. We just got over a successful fund-raising campaign for the local hospital that many retailers gave a lot for. They have a community complex development going on that the local businesses and people are supporting a great deal. The issue has to get home that in some ways the costs are definitely higher here, but we have a much better quality of life. We have to get that message out to people that you cannot necessarily have it both ways. If you want to have the benefits and enjoy them, then there is a certain price that has to be paid for that.
So our recommendation is that the government of Ontario engage in a comprehensive education campaign to demonstrate the impact of cross-border shopping and the benefits of shopping in Ontario. This campaign should be conducted in conjunction with business and labour education campaigns of their own members similar to what the Ontario Teachers' Federation has done.
Just to add to that, our feeling is that you could tell the individual labour groups, the individual business groups and the other groups, "Okay, go ahead and do your campaign," such as the OTF did. I certainly want to congratulate them for taking such an initiative, but the fact is they have to be tied in, they have to be co-ordi-nated and if they are not going on at the same time, then they are going to have less of an impact overall.
For example, if someone is a member of the Ontario Teachers' Federation and their husband works in a Canadian Auto Workers plant and they both get it at the same time at their place of work and then they also get it in terms of the advertising they see in their local papers and on TV, the message is going to start to come home about what the impact is and what the benefits are of being in Ontario.
I know there were some comments made to the effect that you might have a negative backlash in terms of making people more aware of the problem, but I think we feel that if the campaign is done effectively and tries to retain a positive focus, there will certainly be benefits from the education.
Those are basically the recommendations we are putting forward. As I said at the beginning, I do not think anyone should see any of these ideas as being the magic solution to the problem. I think we all agree that it is a very complex problem in that we are not going to be able to solve this thing overnight or with one easy approach, but I think a combination of these things will be effective. We have tried to deal with the issue in terms of some short-term ideas, some longer-term ideas, looking in terms of who is responsible. I think it is important to say that everyone is responsible. Certainly the federal government has a great deal of responsibility, the province has a responsibility, municipalities and, ultimately, everyone in the province of Ontario. I will leave it at that for now.
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Mr Kwinter: I would like to make a couple of comments. One of the problems is that it is all well and good to state some of these things, but they are not terribly practical. We talked about the federal policies. The favourite thing -- and we all do it, myself included -- is to try to blame the federal government because of their high interest rates and the high value of the Canadian dollar, as if the government has decided that no matter what happens, that is what is going to happen. They have decided, on the one hand; and the other leads from that: they are keeping the interest rates high and the reason -- I do not agree with them -- is they feel that the number one problem facing our economy is inflation.
The interest rates are kept high to dampen inflation, and then they wipe out any advantages of that by bringing in the GST and doing some of these other things. But what is happening is that, unless you have an interest rate that is sufficiently high to attract capital -- we have a problem in this country because we have a shortage of capital -- you have another problem. So they have made a decision, and as I say, I do not agree with it. I think we could tolerate a little bit more inflation and get the economy going, but the point I am trying to make is that they have made a decision that the interest rate should be at a level that will attract capital and keep inflation under control.
The dollar is not in the hands of the government; that is in the hands of the market. The only way the government can, in any way, affect the value of the dollar is to buy dollars on the market to keep it up or sell them to lower it, and that has problems. But what we have is a five-point differential between the Canadian dollar and the American dollar. Even if the interest rates are coming down, they are coming down in the States as well, and that differential is still there. Why would people who have overnight money anywhere in the world put it in the United States, where they are getting 7% or 8%, when they can bring it here and get 11% or 12%? So they bring it here because they earn that additional interest, and by bringing it here, they have to buy Canadian dollars, which keeps the value of the Canadian dollar up.
There is no question that if the value went down, there would be some benefits. There would be benefits to our exporters, but there would be negative impacts on our importers. For everything that you sell cheaper, it means, if you buy it outside the country, it is going to cost you more money. Because we are so heavily dependent and our trade balance is just about balanced -- we have a slight surplus, but we buy an incredible amount of goods, which means we are going to pay more for it, which again is going to drive up the cost of inflation.
So, it is a very nice thing to do. I admit, I do it because it is a nice target to do it, to condemn the government for their high interest rates and the high dollar. Notwithstanding what you may think, not everybody is stupid. If it were a simple solution, believe me, a government that is as low as they are in the polls would do it, but there are problems. As I say, politically it makes good sense to attack it, but economically, there are many, many problems. My concern is that it makes good political sense to bash them, but it is not a practical solution because if you do what you say you want to do, you create as many problems as you solve. You just transfer them from one side of the ledger sheet over to the other, and that is a problem I have.
When you talk about sourcing and distribution, that the committee does not support increased foreign sourcing for products that, I assume it says, could be manufactured, that gets to the heart of what has become the great buzzword and that is competitiveness. If you are going to have an artificially controlled economy, you are doomed to failure. If you cannot get competitive, you are not going to last. I have told this story so many times that it is getting --
The Chair: You are getting hoarse.
Mr Kwinter: No, it is getting kind of boring. But the whole de Havilland issue is centred right on that statement. Boeing is the largest aircraft company in the world, it is the most profitable, and if it could make money building airplanes in Toronto, believe me, it would be making money. Why would they sell it? The problem is that they build five airplanes a month and lose $1 million on every airplane they build. If they went to build six, they found they would be losing even more money. If they were building this airplane in the United States, they could build three a month and make money, and as a result, they are not going to build them here. They are getting rid of the company.
The new consortium, Alenia of Italy and Aérospatiale of France, is saying: "We're going to buy it, but we're sure not going to buy it on the same basis that it's operating now, because why should we lose money when Boeing has been losing money? We will buy it on the condition that we can make it competitive." In order to make it competitive, it means they have to put in some dramatic changes -- cut the workforce almost in half and outsource a lot of the materials.
That is just another example of the problem we have. You cannot artificially protect an industry in a global economy. You cannot do it with marketing boards and you cannot do it with companies, because if you do, you save some jobs, but in the long run it is doomed to failure. It cannot possibly survive, because of your intraglobal economy. You have GATT, you have the free trade agreement and again, politically you can bash it all you want, but you are not going to change it because that is what is happening. We have turned into a global economy.
You cannot suddenly put out a recommendation that we do not support foreign sourcing. If you are in business, you buy the cheapest place you can get it. If you are a consumer, you buy the cheapest product at the quality you want. You can do all the ads you want, but the people in any society feel they are paying their taxes, they are paying their share. The answer is if this Fair Tax Commission can ever do anything about it, but right now we are paying more taxes per capita in Ontario than our counterparts in the United States, so how do you expect to sell to an Ontario consumer the idea that he is paying more tax, but on top of that we have another hidden tax and he must pay more for the product because, if he does not, we are going to be in trouble? They are saying: "I'm paying more tax than my neighbour. At least give me the chance to try to relieve some of that financial hardship by letting me buy something as cheaply as I can. If you can supply it to me cheaply in Ontario, of course I'll buy it here. But if you can't, how dare you tell me I can't go and buy where I can buy it the cheapest."
As I say, it sounds great in an advertisement, but you do a true test and ask somebody, "If you can save 50% on your gas, are you going to pay that extra premium just to say that you bought it in Ontario?" You may get the odd person who feels strongly enough about it, but most of them will not do it, and the reason is they say, "I am paying more than my share." They are really upset by the taxes, which is the problem we have.
That is the problem. I do not want to feel that there is no solution, but I think that if we issue a report that has a lot of platitudes in it and says we should do this and that, it is not going to be very practical and we would do this committee a disservice. I think we have to take a realistic look at it. There is no question that we have a campaign -- it may help -- but to suggest that it is a solution is, I think, a little naïve.
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Mr Sutherland: If I may respond, as I said both at the beginning and the end of my comments, no one recommendation here is going to be the magical solution, and education is certainly only part of it.
In terms of your comments about our recommendations on federal policies and about interest rates and the dollar and the buying of the dollar, we certainly heard your comments that you made during the presentations. If not here, we certainly heard them in the pre-budget consultations in terms of some of the explanations on interest rates. I think the feeling of many presenters, both in the pre-budget consultations and some of them here, is that, sure, the federal government wants to keep inflation under control. The question is, to what extent do you do that and what degree of flexibility do you have there?
For example -- these are only hypothetical numbers -- does a 13% interest rate mean that you have a 90% impact, whatever the 90% is, versus a 15% interest rate is 100% impact? I am sorry. I cannot put this in proper economic terms, but I think you get a sense in terms of where the flexibility is and at what point do you go too far. I think there is a general feeling that the federal government's policy has gone a bit too far, in terms of its impact on the economy and slowing it down, and that there is some flexibility there in terms of easing off a little bit on interest rates, still having a control factor on inflation but without totally stagnating the economy.
I think it is important to reinforce that type of recommendation, that there is some flexibility. It does not have to be totally letting the bottom fall out of the Canadian dollar. As I said in my remarks, if I remember correctly, even an organization as well respected as the Royal Bank suggested that the dollar should be four to five cents lower than it is now. At least, they did that in the pre-budget consultations.
While the points you have made on that issue, on how circumstances work, are quite accurate, there is still some consensus out there that there is room for the federal government to move and that this will have an impact. I think that needs to be reiterated. That is why we have made that recommendation.
In terms of your comments on the foreign sourcing, there is no doubt that the issue of competitiveness, restructuring, that is all going on. Those issues have to be dealt with in terms of us producing products in the province of Ontario in terms of being competitive in the outside world. They have got to be addressed, and that is far broader than what we are here to deal with in terms of cross-border shopping. It is a very, very crucial issue.
At the same time, though, you mentioned questions of quality products. We have certainly seen some evidence that we do make quality products in this province and that part of the attraction of going across the border again is that a lot of second-rate products are being discounted there in the border communities and that type of thing. That is an education campaign in and of itself to ensure that people are actually getting the exact same quality of product across the border at what they think is a far cheaper price. I think Mr Hansen on several occasions noted specific examples on that issue.
As I say, in terms of dealing with the issue of competitiveness, that has to be dealt with, but I do not think people should see that somehow we are going to keep this province vibrant and have some sustainable prosperity by solely going outside the province and the country to solve their cross-border shopping difficulties.
Mrs Sullivan: I am quite interested in the report that the government members of the committee have put before us. I think it does not go far enough to address many of the issues that have been put before us. I see its major limitation in that it does not take into account the players in this issue. I want to go back to discuss this a little further.
I think Mr Kwinter is more than correct when he indicates that in fact the cross-border shopping issue is a symptom of competitiveness problems in Ontario. It is symptomatic of problems that are occurring in virtually every sector. It is highly visible, and one of the reasons it is visible is that it reaches into so many homes and so many neighbourhoods. Whether we like it or not, the issues relating to the cross-border shopping are price -- perceived or real differences in price -- product choice and service opportunities. There are triggers that we know about, that we have heard about and that everybody has mentioned, including cigarettes, liquor and beer, gasoline and dairy products.
The players in this are not limited to one area. At the government level, it is federal, provincial and municipal who have to contribute in some way to reaching solutions, or at least putting forward ideas for solutions. Then, of course, in business, it is manufacturers, distributors and retailers who are involved. If we want to talk about business issues, there are all sorts of aspects of that that we can talk about. We can talk about labour productivity, tax levels, input costs, market size and so on, but I do not believe that is what this committee should be addressing. This committee should be looking at recommendations specific to the provincial sector and where the province can fit into a definition of coming to terms with the reality of an issue that is facing many communities across the province.
In fact, what this report does is really only address one place where the province itself, through its own actions, can contribute in any way to a solution, and that proposal is that we go to a meeting with the feds. You go through all of your recommendations and you will discover that is the only proposal for provincial action.
I am saying it is not adequate, and there are all sorts of areas where this committee could indeed make recommendations that would affect some of the issues that are the rationale for the cross-border shopping problem. The price issue -- why not make a recommendation saying that all of the new provincial taxes brought in on the last budget be rescinded? Why not talk about creative tax rebate programs for border communities? Why not talk about graduated gas tax? Why not talk about Sunday shopping? Why not talk about the issues that matter, in terms of provincial participation and involvement in coming to terms with decision-making? You have not addressed these issues in this report and I cannot see where you are doing anything other than asking other people to deal with these issues.
On the agricultural questions; on the milk prices and dairy product prices, which we know are a clear component of the problem, very strong recommendations have been put before the committee. They have also been said elsewhere, that Ontario, through the Minister of Agriculture and Food, and through the Premier, who is also Minister of Intergovernmental Affairs, must be standing very firm at the table and demanding more quotas for Ontario producers. There is nothing here about that. We really have to be talking in a more direct and rational way about what the place of Ontario is in all of this, and not just say, "Well, yes, we should participate in a trilevel meeting."
Mr J. Wilson: I, too, want to comment on the NDP's recommendations, in particular your second section which deals with federal policies, and to pick up what Mr Kwinter said and Mr Sutherland's response at that time. Mr Sutherland, the problem still remains that you are speaking as if the federal government can peg interest rates in some magic way at will. I think what you fail to address in this report is also what Mrs Sullivan said, that you fail to mention the provincial government's role in interest rates.
The biggest borrowers and the biggest criminals in Canada, when it comes to us having to sustain high interest rates, are the provincial governments and the federal government. Your party's plan to borrow another $35 billion-plus over the next three to four years will continue to put enormous pressure in capital markets. In order to fill the void that you will leave in the capital markets, which is that you are sucking out another $35 billion to go into this operation of the government, that money has to be attracted back to Canada. Interest rates, therefore, are high to attract the money back into our country to fill the void, back into the international capital markets.
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The problem the federal government really fails to admit is that any degree of control it might have is taken away every time a provincial government sucks more money out of the markets, because interest rates have to go up to attract the capital back so that other people can have money to borrow. Much of that new capital then is foreign. The Japanese and the Germans -- in particular, a lot of it was West Germany's money. When unification came along they took a lot of their money back to put it into eastern Germany, hence world interest rates went up. Canada was severely affected by that. But the foreign lenders want 11%, 12%, 13% or they will put their money elsewhere and there will not be money in Canada for business or for government to borrow.
As simply as I can possibly put it, your government fails either to see that or to understand even the simplest of economic arguments. To be really intellectually honest in your recommendations, echoing what Mrs Sullivan said, you really should talk about that. You should talk about the disservice you are doing to all of Canada through your massive borrowing and you should come to grips in your party with the reality of economics. We just fail to see that in this report or any comments that are made in the House.
Second -- and I am sure your minister will get an earful meeting with the federal revenue minister today in the sense of the federal government's position -- I notice there is a line in the report that talks about harmonization of the GST and the provincial sales tax, but your recommendations fail to address the fact that they want harmonization and that the best way to collect both taxes efficiently, without having two sets of auditors, two sets of collectors and two sets of forms is to have the Ontario government roll into the GST. It is here. You are not going to change it, as Mr Kwinter says, by playing politics with it. The most efficient thing you can do for small business people and individuals in Ontario, and to help fight the cross-border shopping problem, is to harmonize systems and you should be talking about that in your border patrol section.
As I say, you need a whole section on provincial policies. This thing is great political pap, but it does not even begin to touch the problem. I think Mrs Sullivan hit it exactly right. The comment first came to mind when I read your recommendations, that you are setting up another task force and you are agreeing to meet with other levels of government. That is great, but the problem is extremely serious right now. You are the government. You have obligations you have failed to address to date. We will be presenting a minority report with this because we just have too many problems with it. I could not begin to address them all right now. Perhaps my colleague Mr Sterling would say a few words.
Mr Sutherland: If I could respond to several of the comments made, particularly Mrs Sullivan's comment that there is only one recommendation in here that involves the province and that is solely to get us to a meeting. I want to remind the members of both opposition parties that the Premier has said he is willing to participate in a task force. The federal government will not even commit to that, or it took a long time to commit to wanting to be a member of a task force to really deal with these problems.
The comments coming from the federal Minister of National Revenue have basically been, "It's not our problem." There is no question that it is everyone's problem. It is the problem of the provincial, the federal and the municipal governments, as Mrs Sullivan has said, and that needs to be looked at and it needs everyone at the table to work on that.
We have also put recommendations in here in terms of negotiations with the municipalities. If we want to get into the issue of why there are a lot of added costs and the question of taxation and tie this into the question of deficit, let's look at two areas, the issue that occurred under the previous administration, a great deal of downloading on to municipalities, and a greater burden on the municipal tax base. That was done and it was not done without a lot of discussion or negotiation with those municipalities.
At the same time, you have the federal government here practically trying to rewrite Confederation through its arbitrary and unilateral action in terms of capping transfer payments, in terms of capping some of its transfers in the other areas, particularly the Canada assistance plan. The federal government has done that from a rather arbitrary and unilateral -- it did not sit down and negotiate a new arrangement with the provinces to do that.
Basically, what the federal government has done in two senses is the following: it is attempting to rewrite how our framework operates and it is also putting the burden on to the provinces. Quite simply, they are passing the burden on to the provinces. There is still a need to provide levels of service out there. So Mr Wilson can say how the provincial budget is going to add to high interest rates because we are going to have to borrow more, but the end result is the fact that that was through arbitrary action of the federal government.
We are not saying we are going to be arbitrary; we want to be there at the table participating, working towards co-operative solutions. We have not seemed to see the federal government wanting to do that. In terms of some of the comments the member for Halton Centre made about negotiating more quota, we are certainly willing to give that serious consideration as a recommendation. We have not seen any formal written recommendations come to the table from the other two parties. We do not believe that we have all the answers and that we covered everything there. I think those issues need to be addressed.
In terms of Mr Wilson's comments about harmonizing the GST, again, here is a rather arbitrary area, where the federal government has moved into an area that has traditionally been an area of provincial jurisdiction in terms of many areas of sales tax it has moved in there and brought in the GST. He talks about impact on small businesses, not only in terms of the GST -- just the fact that it is there -- but in terms of how the GST was established in such a complex fashion that in one case six doughnuts are taxable and the others are not. It could have been implemented far, far more simply in terms of just, you know, in a variety store 85% of what you sell is GST and you remit your GST on that basis; far, far easier for small businesses, rather than all this money they have had to spend redoing cash registers, retraining staff, trying to figure it out, repricing, all the associated costs that are there.
In terms of how we are going to finance services, and some of the comments that have been made here in terms of saying we are running up this large deficit, the federal government has decided to do that unilaterally and arbitrarily. What the Premier has been saying, and what we are saying here again and in one of the recommendations, is that that issue needs to be set down, it needs to be discussed between all levels of government, and it needs to be negotiated.
So I do not think we are absconding our responsibility. In these recommendations, we point out what other people have said and reflected what they said. The federal government has a great deal of responsibility. We as a province have the responsibility in the provincial government, and we want to be there participating, but we are not going to do this in an arbitrary fashion. There are already occasions in the House where you accused us of not consulting with people, and you cannot have it both ways. You say at one time we are not consulting; when we suggest we do consult then you are criticizing us on that basis as well.
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Ms M. Ward: I just want to make a couple of comments in response to Mr Wilson's comments. The clerk gave us last week a paper on possible effects of the Ontario deficit on interest rates and the value of the dollar, and you mentioned you were a substitute. I am sure the clerk could provide you with that. I just might review some of the comments in there since that seemed to be the main point of your comments.
The consensus seems to be that the impact of the deficit on interest rates and the value of the dollar will be minimal. George Vasic of DRI Canada suggests that the Ontario deficit is a relatively small addition to the national deficit. The impact on interest rates should be negligible; this is a quote from Mr McCracken, or the clerk's -- what he has given us as his response, as he points out that the Bank of Canada reduced the interest rates shortly after the budget.
Peter Spiro, head of economic forecasting at Ontario Hydro, agreed that the size of the deficit should have little effect on interest rates.
Mr J. Wilson: I just have a comment on that. You have not actually borrowed the money yet. That is why there is no effect on the market yet.
Ms M. Ward: Oh, no. This is predictions.
Mr J. Wilson: You have announced it. Check your credit rating warnings and I think you will see the jitters of the market.
Ms M. Ward: I think you should wait until your turn to respond. Anyway, I was suggesting that this is available to you from the clerk. Impact on interest rates should be negligible; I told you that. The perception of foreign bond holders could be important. While they do not normally pay attention to Canada, they are likely to do so. At any rate, the clerk could find no one who was saying that the deficit was going to have an effect on interest rates.
The other thing I wanted to comment on was Mr Kwinter's comments earlier about the federal policies. I think I would agree with pretty well everything you said, Mr Kwinter. We do not think we can do much about that, either, but I think we have to continue to point out the problem. I got the impression that you would agree inflation is not the big bogeyman. I think a lot of organizations that appeared before us when we were doing the pre-budget consultations had the same impression, and it is what I have read in a lot of articles; also that the federal government has gone too far in supposedly fighting inflation, and that has pushed us into the recession that we are in now. I do not disagree with you, but I think you would agree, and you might comment on this, that they have simply gone too far. You did make the comment, I think, that you did not agree with the policy. I think that is why it is important for us to point this out, the effect that the high interest rates are having. We are not denying those relationships that you were pointing out there.
The other thing I want to say is that I do not think this is Ontario's problem alone. It is a problem all across Canada. That does not mean that Ontario should not try to do what it can about it, but the cross-border shopping problem is a problem in New Brunswick, it is a problem in British Columbia, it is a problem all across Canada. The federal government has a responsibility to do something about it also.
The other thing about the foreign sourcing that was discussed -- again, I think the cross-border shopping is just part of a much larger problem of foreign ownership of Canada, of not being able to buy Canadian products. It is a specific part of it. When I go out to shop, that is something that bothers me a great deal, and I know other people who feel the same way. Not enough people feel the same way, that we should be buying Canadian products. So the cross-border shopping thing is part of a much larger problem of lack of Canadian-owned industry.
Mrs Sullivan: Could you expand on that? I do not understand your reasoning here.
Ms M. Ward: On the Canadian ownership?
Mrs Sullivan: Yes.
Ms M. Ward: Basically I am, I guess, an economic nationalist. This is really a federal issue, I suppose. We used to have the FIRA, Foreign Investment Review Agency. We now have Investment Canada. FIRA was always rather toothless during its whole life. Just before it was killed, one of the last things it reviewed was the takeover by a California company of an Ontario or Canadian nursing home chain and that was allowed to proceed. But FIRA did do some investigation, some review, and it did disallow a few things. Since Investment Canada came into being, apparently it has never denied a takeover.
Takeovers do not contribute any economic benefit. If someone has money to invest, we could gain from them setting up a new business, a new service, but takeovers do not accomplish anything. You probably recall back in the early 1980s when the name of the game was "who is buying who." That drove up interest rates in the early 1980s and we had a recession then.
It is the ability to go out and purchase Canadian-made products, Canadian services and buy those from a Canadian firm -- and you asked me to link those two with the foreign sourcing. There you could be talking not simply about Canadian-made products but, rather than importing something into Canada, getting it from a distributor in the United States. I think that is what you are talking about there.
But the link between cross-border shopping and Canadian nationalism, to me, all belongs in the same state of mind, you might say. Someone who is not going across the border shopping or has a preference for buying in Canada in terms of buying from a Canadian retailer is also going to want, wherever possible, to be able to buy Canadian products and use Canadian services.
Did you want to respond, Mrs Sullivan?
The Chair: She has her name down in order. Mr Sterling is next.
Mr Sterling: I am sorry that I have not been able to be here more frequently on this issue, but I have heard some of the evidence and read some of the material.
First of all, I want to congratulate the NDP caucus in their recommendations. It is the first document I have seen that has not blamed the free trade agreement for all the ills of the province of Ontario and I think it is an acknowledgement by the NDP caucus that the free trade agreement has nothing to do with the present malaise that we have in our economy. I want to thank them for that.
The part I find disheartening about all of the recommendations is that they do not recognize the problem that is just so glaring throughout these hearings and, quite frankly, the hearings that we are having next door, the Progressive Conservative caucus task force on the budget. We do not compete in this province with anybody else in the world, let alone New York state and Michigan. Competition, competitiveness, is the problem we are facing with the cross-border shopping issue and with every other problem we have with our economy.
If you listen to the pleas of the people who are involved in the business community, they are genuinely frightened about the flight of capital, the flight of business from this province. These are people who have never before been involved in the political movement. These are not Tories; these are not Liberals; these are not NDP people. Some of them voted for all three parties in the last election. They are people who are absolutely frightened of what is occurring in this province, and they are saying to that committee that the problem is the spending of governments; not only the NDP government but the former Liberal government and our federal Tory government. They are saying that all governments are spending too much money, they are asking for too much in taxes and we in this province can no longer compete any more with other people.
Having said that and listening to that, I think this committee was one of the most frightening committees I have sat on in terms of the information that was brought it by other people, because it made me realize how far out of whack our system has got in comparison with our neighbouring communities. The other part that is coming forward so succinctly in terms of our business community and the people who are talking about our recession problem, the people who are talking about our monetary policies, our fiscal policies, etc, is that we have no choice. We have very few, limited options to deal with this problem at all, and the biggest negative that the people are talking to us about is the fact that we are foisting this off on our kids in the future. That is their general concern.
In looking then at all of what this report does, and forming a task force: well, big deal. Every politician, every cabinet minister -- you know, when you have not got anything else to do, form a task force to look at the problem. That is fine and dandy and I think it is a positive step to form task forces and to talk about problems and that kind of thing, but perhaps the most important thing that the NDP members of this committee might do is step out on the limb just a little bit and say to their government, "Look, you should really consider doing something. Take one little step to make us more competitive in this province. Why don't you combine the GST and the PST? Why don't you do that?"
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By saying that to the Treasurer or saying that to the Premier, they do not have to follow the recommendations of this committee. They can say no. But that would help some of our businesses, not only in terms of what would happen at the border in terms of collection of these taxes, but it would help our businesses in this province run their businesses in a more efficient way and deal with a little less red tape.
Now, I know that when you are in government you get marching orders from your ministers as to what you can include and what you cannot include or whatever. But I have also found that in other parliamentary jurisdictions, in our federal Parliament for instance, the economic affairs committee does come up with reports that are not necessarily always favourable and totally in line with what the government of the day's policies might or might not be. And quite frankly, that committee has gained a lot of credibility in the community as to what it says, because it does not always agree with what the present day finance minister might or might not say.
Therefore, I say that while Bob Rae said in the last election that there was going to be a revolution over the GST, we have not seen that revolution or that rebellion take place on the part of this Premier. I do not think anybody believed there was going to be a revolution anyway, and I do not think Bob Rae could have had a revolution even if he had wanted a revolution. Therefore I just say that of all the things that come out of this committee, maybe the Treasurer of this province would be inclined to hang his hat on this committee's report and say: "Well, you know, a committee of the Legislature, which included our members, said we should combine the GST and the PST or we should seriously look at it, and therefore I'm going to blame our decision to do that -- in spite of what we said during the election -- on the committee that was made up of Conservatives and Liberals and NDP members." Therefore, he can spread the blame around a little bit on us as opposition parties. Quite frankly, I do not care whether he spreads that blame on us in terms of saying that they are in favour of the GST and all that kind of stuff that evolves out of it politically. But if we go ahead with this report, quite frankly, we will not give the Treasurer or the Premier the opportunity to hang their hats on anything to make any real changes. It means a whole bunch of different moves that we have to take over the next four, five, 10 years or whatever time it is going to take for people to realize that we have to become more competitive.
It is so evident with anybody who has a payroll. It is evident by the trucks that are around Queen's Park today. It is so evident to everybody that government has to start making some moves to get out of business in any way it can in terms of regulation to make our people more competitive. It is so obvious that we have to make it easier for business to deal with government, and that is what the combination of PST and GST might be. I think that is one positive move that this committee could make in terms of dealing with it.
There are some of the other suggestions I would agree with. In terms of collecting the PST at the border, I personally feel they should do that right away, forget about the federal task force and say, "We are going to go in and do that right now."
The Chair: Can you clarify "we"?
Mr Sterling: We, the government of Ontario.
The Chair: That cannot be done. It cannot be a unilateral decision, because the land around the bridges where the taxes are collected is controlled, operated and run by the federal government. That is the sole jurisdictional responsibility of the federal government.
Mr Sterling: And they have refused to allow the provincial government to do that, have they?
The Chair: Exactly.
Mr Sterling: When did they refuse them?
The Chair: They have been refusing all along. Hopefully the meetings that are taking place today between Shelley Wark-Martyn, the Minister of Revenue --
Mr J. Wilson: They are not refusing, as I understand it; it is simply that they are trying to negotiate with the provincial government to harmonize the system. It is part of the negotiation. I do not recall having read anything in the media where the minister, Otto Jelinek, has absolutely refused that, so that is an unfair statement at this point.
Mr Sterling: I think the Minister of Revenue should stand up and say, "We are going to collect it," or "We would like to collect it. We will pay for collecting it. We will do it. We will have our people there," etc. That is my view. I think that is a positive step that this government could take. When Ms Wark-Martyn was in front of this committee, she did not even know what the implications of doing that might be. I found that extremely disturbing, that she had no idea even of what was going over.
Notwithstanding that, I believe those two would be the most practical things that could come out of this committee. All the rest of the recommendations are nice, but they are not really significant in terms of dealing with the problem. Competitiveness is what you have to get at, and if we can make a recommendation that would encourage our government -- and I am talking about the Bob Rae government when I say "our government" -- to do something in terms of combining the GST and the PST, this committee would have achieved more than any other committee in this Legislature has ever done in terms of really effecting a change which would help cross-border shopping or help people stay in Ontario, because then businesses would be able to reduce their prices because they would have a cost reduction in running their businesses.
I would say, though, that I do not expect the NDP members of the committee would follow that kind of advice, and if that was not part of the report, we would of course be putting in some other recommendations.
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Mr Jamison: Many of the opposition speakers here in committee have talked about competitiveness, and I know through my own experience in talking with many of the manufacturers of this province -- and many of these manufacturers were fully in support of the free trade agreement and promoted it that way -- those same manufacturers today are disheartened, to say the least, over one particular issue. I do not think their mindset has changed, but they are disappointed beyond belief that the level of the Canadian dollar will not allow them to be competitive at this point. They have made it very clear to me in a number of sectors that this has basically hog-tied them in making advances that they thought might be there under the agreement. When you take that into consideration and you talk about competitiveness -- because these are people who supported your party federally, Mr Sterling, and thought that potential deal might well affect them in a very robust way -- they are of different opinions. I have met with the steel industry. I have talked with them and that is their major, number one concern. Manufacturers beyond that, that is their number one concern.
Of course, that affects the price of their product here also to some extent. If you were to ask me, personally, about our potential of recovery, our potential of economic soundness, I think many of the presenters we listened to, both recently and in the finance and pre-budget hearings, were indicating very clearly that if there is a singular issue that is affecting business in a very dramatic way at this point, and manufacturing specifically, it is that.
I would like someone to explain really why it is so important to hold up the dollar. With the exception of a very small portion of people I have talked to, everyone is saying, "We don't understand why, given the economics, given the situation that we are in, given the predicament that all of us are experiencing, the dollar is remaining at that type of level and possibly creeping up a little higher."
It is extremely important to understand that there are players in trying to handle this particular problem of cross-border shopping. There are levels of government that all play some type of role in the overall picture. If you are asking us to make up for the deficiency of the federal government, I do not think that is fair at all. The deficiency in this area is, number one, the federal government should do its job, and that is do its job at the border. Quite simply, they are not doing it. Even their own job -- not our PST, their job. That is a major part of this problem, that there seems to be no willingness to have that happen, which talks about probably another agenda that maybe this side of the committee really sees more clearly than other sides.
Mr Kwinter: I just wanted to respond to the economic nationalist and her statement. There is a certain naïveté expressed. There is a feeling, and I have to say this, that if we followed that logic we would really be a Third World country. Who do you think owns Toyota? Who do you think owns the CAMI operation in Ingersoll? Who do you think owns the Ford plant in Oakville? Who do you think owns the plant in Oshawa? Who do you think owns the Spruce Falls pulp and paper mill up in Kapuskasing that is in great trouble? It is owned by Kimberly-Clark and the New York Times, and because they have decided they want out, we have a major problem that the government is trying to address.
To say that we cannot have these foreign takeovers is to say we want to go back to an agrarian society; we do not want to be able to compete in the international field. It makes absolutely no sense. Without that foreign ownership and foreign investment we cannot prosper. Canada does not have the economic base or the capital pool. As a matter of fact, the Ministry of Industry, Trade and Technology has offices all over the world trying to encourage exactly that kind of thing -- companies to come into Canada, invest money, create economic activity.
So the answer is not ownership. Many of the companies we have in this country, whether Du Pont, CIL, many of the huge companies that provide us with our economic vitality, are not owned. So ownership is not the problem. It is exactly the same situation that we have right now with de Havilland. It is ludicrous that we are fighting over the fact that a French and an Italian company are trying to buy an American company in Toronto. De Havilland is not owned by a Canadian company; it is owned by Boeing, which is a US company.
What we have to do -- and this is the crux of the issue -- is to establish an environment that encourages foreign investment, that kind of activity. That is where the jobs are. When Caterpillar pulls out of Brampton and says, "We are going back to the United States," everybody yells and screams and says, "My God, what are you doing, you can't do that." You can't have it both ways; you can't say, "You can't leave." On the other hand you are saying, "You can't come in."
What you have to do -- and this is the crux of the competitiveness issue -- capital is fluid whether it is the board of directors of Boeing in Seattle, Washington, saying: "We have put hundreds of millions of dollars into that plant in Downsview. We cannot make any money, we are leaving because there is restrictive legislation, restrictive tax measures that do not make any sense for us to be there. We are going to leave."
This issue was missed on this gas guzzler tax. To stand up in the House and say only 1% of the cars being built in Ontario are affected does not address the problem that 80% of the product built in Ontario is shipped somewhere else. If they feel it is not a friendly environment, they say, "We are going to move out." That is what we have to do. We have to make sure that we provide an environment that allows economic activity to take place.
That is exactly the same thing that happens with cross-border shopping. If people could buy products in Ontario that were economical, that would allow them to enjoy a quality of life that they want, of course they would buy it here. Why would they possibly go to a place like Buffalo? There is no great attraction in Buffalo other than the cost. This is exactly what happens to manufacturers. If they cannot make money in Ontario they say: "Why do we have to be here? We can go somewhere else where we can make money, where people will want us." This is what happens when you go to Buffalo. You have companies that are saying: "They give us tax holidays, they give us land for nothing, they give us all of these incentives. Why should we not go there?"
That is what we have to address. We have to address why we are not competitive. You cannot just say that we are not competitive, because we are nationalistic and we expect that this will happen. You have to be able to say, "Are we going to be a player or are we not going to be a player?" If we are not going to be a player, then move over and let someone else who is. That is what the problem is and what we, as a committee, have to do is take a look and see why it is that we are not competitive, what are we doing that is impacting on our competitiveness.
Some of these things we are not going to be able to solve, because we have a quality of life that we want to have. That costs; it costs you some of your competitiveness. The trick is that we have to restructure what we are doing in this country, to say, "Yes, we want to have these things but by doing that we are going to give up something else.
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That gets me to the one last thing I want to talk about, and that is: You keep arguing about -- and you will hear more about this -- Mexico with its cheap labour, as if Mexico were a competitor. Mexico is not a competitor for Canada. I mean, there is no restriction right now for anybody who wants to move their operation to Mexico. A few companies have done it, but very, very few.
Our chief competitors are Japan and Germany, both of whom are high-wage countries. Wages in Germany and Japan, on a pro rata basis, are higher than they are in Canada. How come they are so competitive? The reason they are competitive is their productivity. They are paying the money, but they are getting a lot more work out of the money they are paying, and that is where we are falling down. The reason for that is not that our workers are loafing, but it is that they do not have the technical skills and they have not got the technical facility to make them competitive. That is what we have to address, and until we address it, everything else is commentary.
As I said before, you are just rearranging the deck chairs on the Titanic. You are not doing anything that is going to affect our ability to compete, and unless we can compete we are not going to survive at a standard of living that we have got now. I have said this before; Canada has been called a Third World country with delusions of grandeur. You just cannot rest on your laurels. You have got to get out there. We are into a new ball game and you have got to be able to play it, which means you have got to really become competitive.
It is exactly the same thing in cross-border shopping. Talk all you want, but until you can produce products that can be sold on a competitive basis, people will go and buy where they can buy it at the best price. No amount of legislation, no amount of advertising, no amount of artificial barriers are going to stop people from doing that. They will turn into smugglers, they will turn to anything that they want, but they will use their economic interests to do what they are going to do. That is the end of my sermon.
The Chair: I am not sure how that is going to relate directly to cross-border shopping for this report. Mrs Sullivan.
Mrs Sullivan: I wanted to respond to a couple of statements and positions taken by Ms Ward and Mr Jamison.
I will not repeat the view expressed by Mr Kwinter relating to the ownership of the industrial and manufacturing base, which has been stated. I think it is very important for members of the committee to understand that in today's business world and in today's manufacturing world, there is no border in terms of production of product, in terms of sourcing of product. Indeed, if there is a border, what occurs is that in fact we become less and less competitive and, as we are already seeing on the cross-border shopping issue, people will make other decisions about where to put their money.
Mr Kwinter has talked about capital investment being fluid. There are no borders in capital investment, and countries around the world are all seeking the same few dollars for capital investment that we are seeking in this province.
I think that as we are looking at economic growth, what I hear Ms Ward saying is in fact less of an economic nationalism argument than an argument that cross-border shopping is a patriotic issue. I think what we are seeing, first of all from the practice and second from the opinion polls, is that people are saying that the patriotic issue no longer matters. There may have been a time when it did matter, but it certainly no longer matters.
I also was interested when she said that you cannot buy Canadian products and it is annoying that there are not products that are made in Canada by Canadian companies as part of her search for whatever products she is looking for. In fact, what we are probably seeing and have been seeing, and it is important to see, is increasing specialization in the products which are produced here. That is where, in fact, on an international basis we will be more and more competitive. The specialization, whether it is in terms of manufactured products or of high-tech services, is absolutely vital to our economic future.
We will not, for instance, see a continuing textile industry, probably, that will ever be competitive with some of the lower-priced products that are produced in America, where the raw materials are cheaper and the market size and opportunity are far higher. I think what you are going to have to expect more and more to see is less of a nationalistic border on certain products unless you are willing to pay for it, and then you get into the specialty goods that are produced at the higher end of the line.
I was also interested in your suggestion that takeovers in fact do not contribute to the economy. I suggest to you that in fact there is a benefit to some of the takeovers which have occurred, and that is the consolidation of operations that do make us more competitive. I suggest that when you are saying that takeovers do not add to the economy, what you may be talking about are the kinds of leveraged buyouts and so on that have occurred not only in Canada but more especially in the United States recently. But takeovers by themselves are not a deterrent to economic prosperity. I think we have to be cautious about how we use these arguments.
I also wanted to talk about the Canadian dollar question that Mr Jamison raised, because in the cross-border shopping issue we have to remember, in making the argumentation about the value of the Canadian dollar, that the arguments that are put forward by industry about the value of the dollar relate to opportunities for export and the price of goods in an export market. We are not talking about the effect of the Canadian dollar on goods that are brought in. So I think you may want to rethink some of those questions.
Mr Sterling mentioned collecting the RST at the border. I still think the New Democratic caucus here should consider how to approach the collection of the retail sales tax at the border, but collecting the tax is only one part of the issue. The other part of the issue is the application of that tax on the same product lines that the GST and the customs duties are collected on, and that is something we have not heard as part of your discussions or your recommendations here. I think that must be dealt with, otherwise there will in fact be no opportunity for federal-provincial co-operation in those areas.
Mr Sutherland: If I may come to the defence of Ms Ward here in terms of some of the comments, I myself, being a naïve young individual, do not understand all of Canadian economic history. But if I may -- and Mr Wiseman, I know you have studied a lot of history -- it would seem to me that the point that was being made is the following.
If you look at our Canadian economic history since the Second World War, we established a branch plant economy after the war and I think that was a very wise choice. We did not have the capital and we did not have all the expertise and the knowledge. The problem is, though, that it seems like we kept the branch plant economy right into the 1980s and to some degree into the 1990s. Somewhere along the line, through the government taking a proactive approach, more Canadian-owned industries and businesses should have been developing and there should have been more larger Canadian-based companies. Mrs Sullivan said that borders are not important. They are not, but where their base comes from helps to build those companies and provide the solid footing for a lot of them. I do not think we have enough of them. We have a few at the very top. The large ones that we can think of, Olympia and York and a few others, can simply compete with anybody in the world because of their size and their operations.
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But even though our population base is low, I think if you look around, somehow that did not occur. I think that is the concern that Mrs Ward is expressing, that we could be competitive if that type of process had been occurring in the 1950s and 1960s. That comes back to the question of some of the comments Mr Kwinter said, and in relation to what Mr Sterling and Mr Wilson have been saying.
"Competitiveness" is the key word; the buzzword, but the definition of competitiveness is one that really interests me, because it seems to mean different things to different people. I get a sense, certainly when Mr Stockwell is here, that competitiveness is simply lowering taxes and you are automatically going to be competitive. I think that is a very naïve approach.
If you look at the examples that Mr Kwinter gave of who we have to compete with -- Japan, West Germany, Sweden -- their governments have all been proactive in terms of helping to develop their internal structures, helping to develop their internal resources, with maybe not government ownership of those resources but some nationalistic owning of those resources as the companies develop and evolve and go into international corporations.
I do not think that has happened here as much. It is a rather sad commentary that we are just getting now to a skills development policy for this province. I am not sure if we have a national skills development policy yet, but here we are in 1990 and these other countries have had these skills development policies and training policies for many years. We have been missing the boat on that.
So when we look at the issue of competitiveness, I think it is very important that we define what we mean by competitiveness. Prices are obviously some of the concerns.
You know, it is interesting. Mr Sterling is not here now, but he talked about harmonizing the GST as the great saviour of small business. Mr Sterling's idea is: "Yes, we will increase it by 7% first, with the implementation of the GST, then we harmonize it with the PST. They save 2% and businesses are coming out ahead." That logic does not make a lot of sense to me either.
He talked about deficits. He talked about provincial deficit, federal deficit, the government, and then he said we are not doing anything about it.
One of the recommendations in here is to look at the issue of the governments, the task force -- now, I realize it is a very large, complex undertaking -- but to look at the issue of duplication of services among all levels of government. I think there is a clear understanding that there is a lot of overlap, that there is not a lot of sense of who is responsible. I think we would all agree from our constituency work that there is absolutely nothing more frustrating than trying to solve a problem for a constituent that involves two different levels of government, because neither level seems to want to take the ownership of the problem. We need a greater definition of what services are going to be provided by what level of government and who is going to pay for them. I think in the long run that will make government more efficient and reduce some of the costs.
Recommendations are in here to deal with some of the issues that have been coming forward. Mr Sterling has run off to these private hearings that the Tories are holding. We want to get on and deal with the issue of competitiveness. We cannot even debate the budget in the House and move forward. I mean, let's debate the budget. If the opposition feels the budget is that bad, then let's debate the issue in the House and let's get on to dealing with these others issues in terms of the questions of true competitiveness. I quite agree they need to be addressed, but competitiveness is not a simplistic attitude of simply reducing taxes. That is not going to make Canadian manufacturers competitive and make Canada competitive in this world. You need a proactive approach from the levels of government in terms of giving people the necessary skills and making sure businesses can have skilled people who can produce the products to compete.
The Chair: I have been sitting on this piece of information for some time, and it comes out of the Stoney Creek Furniture presentation. It has to do with the GST. The manufacturing sales tax was 13.5%. When they received their rebate from the federal government, they received 8% and nobody has talked at all about the fact that the retail inventory in Ontario has paid a 5% tax to the federal government that did not get rebated when the manufacturing sales tax came in. On top of that was the 7%. So, in effect, no one has talked about the fact that the goods that are still on the shelves -- or a lot of the goods that are still on the shelves in the retail stores -- are still taxed at 12%.
What does that mean? What kind of an impact does that have in terms of redistributing funds? I believe the number that the Stoney Creek Furniture presentation gave was $250,000 less in rebates than what they effectively paid in taxes. If you compound that over an entire retail sector, how much money and what impact does that have on prices in terms of their ability to compete?
Mr J. Wilson: I will just touch on that; I will try to be brief. I think you will find that overall, the formula of eight-point -- I forget the exact thing -- was a negotiated formula with business and government. It is extremely fair. You will find, more often than not, firms came ahead in that formula rather than behind. It is not even a simple average. It is a very complicated formula. The MST was applied at a range from 7% to 13.5%, and you will find if you phone your federal members, I will bet they have almost zero complaints. For the most part the federal government lost hundreds of millions of dollars on exchange and were willing to take that hit and make it up with the collection of the GST. It is part of the cost factor of implementing the GST.
If they have a complaint with that, there is an appeal process, and they should have -- maybe they did; I think Leon's, you will see too, did take a bit of a hit on it also. I think the president of Leon's at one time was saying he was willing to do that for the national interest.
There are more good examples of the rebate program -- the inventory program -- than bad ones, and that is to say the net result is negative for the federal government in that area.
I want to talk about nationalism in Japan, which Mr. Sutherland raised. In the manufacturing sector, we have a lot to learn from them. I do not think we have a lot to learn from them when it comes to nationalizing our industries, though. That does one thing for individual Japanese: You will find in that economy, in that country, that for the most part, because of government intervention in manufacturing, the end result is the workers are all the same. You get one class. You have difficulty with individual initiative, individual freedoms, and if you go there you have several families living in small houses, and their quality of life is nothing like ours. I think whenever you talk about that sort of intervention in the economy, you want to also talk about what type of lifestyle you are willing to have. They have an élite in Japan, clearly, but for the most part it is taking every individual, every free human being, and making them all the same when it comes to standard of living.
Secondly, I just want to go back to Mr Ward's comments on interest rates. I hope your party is not running around hanging its hat on the report from the legislative researcher, because what you are doing, what the legislative research document suggests, as you have quoted, when it deals with the effect of large government borrowing on interest rates, you are really talking about degrees of sinfulness. Of course, the deficit this year of some $10 billion by the NDP government, and the cumulative deficit of $35 billion over the next short years, is statistically almost negligible when you add it to the monster debt and deficits of the federal government. But, it is the cumulative sins of all the provinces and the federal government that add up, and you guys are the greatest sinners of the provinces. So you do a role there when it comes to deficit financing, and it is a role that you cannot ignore. You cannot say, "We are such a small part of the problem that it does not matter," because you are indeed a significant part of the problem when you add it all up. It is just absolutely the wrong way to be handling your finances.
Finally, I want to make one quick comment. Mr. Sutherland and a number of members of the socialist government have consistently made the comment that the federal government is to blame for all their woes.
Mr Sutherland: Not all of them.
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Mr J. Wilson: If you look at it, your less-than-anticipated transfer payments this year in education, welfare and health care total $1.6 billion. That is not a cut; it is less than anticipated. They were being transferred at roughly 8%. They are now down, in some terms capped and being held to around 3% and 5%. It is less-than-anticipated transfers. The $1.6 billion is about 3% of your $52-billion budget, and yet the 3% that the federal government has affected gets 100% of the blame in almost all of your speeches in the House and in committee. The public is not going to put up with that much any more. They are more and more aware every day of the rhetoric coming out of this government. You better think up some new lines is my suggestion.
Ms Harrington: It has been very interesting the last two hours. I appreciate the comments from the opposition. I think they have had some quite thoughtful things to say. I would like to add a few comments.
First of all, if you look at the whole issue of cross-border shopping in its reality -- which is the border, the trade, the interest rates, the dollar -- this very obviously is a federal problem. I think we have to acknowledge that as a committee. Having said that, looking at for what and why the people are going across, I would like to say -- and I think we could agree on this possibly -- starting two years ago the message was given out there very clearly about free trade. That means to the average person that, "Yes, of course, the government is saying we can go across the border and look at various purchases and not have the duties imposed that have been there in the past." That message has been getting clearer and clearer to people.
Second, what has happened in the last less than a year is the recession, which is touching people's incomes.
Third, and very important, the strong message out there in January was the GST. It said to people: "Yes, it's okay to go across. Yes, the federal government is driving us across. Yes, there is a quiet revolution. I will go across. The politicians do not care about myself or my family."
It would be very easy for us as a provincial government to say, as probably previous provincial governments such as the Liberals or Conservatives would have said at this particular juncture in time, "It's not our problem," but I would like to tell you that we, as a part of Canada, as the government of Ontario for the next four years, are saying that yes, we recognize it is a problem. It is an escalating problem and we will do our share. We represent communities in this province which are being affected and therefore we will not say, "Deal it off to somebody else."
I would just like to make one further comment. It is a global economy -- we realize that -- so let's look at what borders mean in a global economy. In our country, since free trade probably, there has been an escalation in the wage gap. There are people who do have good incomes which are probably getting better. There are people who have very poor incomes. Jobs are being lost and not replaced in the industrial sector by wages that you can support a family on. They probably are being replaced by service-type industry, which has been encouraged in this country since free trade. I believe that some proportion of the people who probably voted for the PCs in the last federal election do not even care whether we have a border or not, whether it is just an economic border or whether it is in fact a political border. "What's the difference to me?" There are people out there who are saying that. "It doesn't matter to me where I shop. It doesn't matter to me in the long term about Canada."
I think we have to address that as a provincial government. What is the future of Canada? To some extent, that may be involved in this cross-border shopping issue.
The Chair: Mr Hansen, and then we should wrap up quickly because we are running past.
Mr Hansen: I think one thing we have to take a look at is the enforcement. That is one of the important things at the border. I can remember when the Canadian dollar was at $1.10. We did not have a cross-border shopping problem at that particular time because what was happening at the bridges was the enforcement of the regulations on importing into Canada and the tariffs or duties or whatever else were paid. Not only that, at that time, if people knew they were smuggling something into the country, the women used to wear the dresses in so they were not in the car. You never smuggled anything into the country in the car because they confiscated the car, but it is not like that today on the bridges. There are just so many cars waiting to come back, they just say, "Next. Next."
We have talked about all the other issues, we have talked about the lower Canadian dollar, we talked about collecting the GST, but I think one of the most important things that we as the government have to get across is to say to the federal government, "Increase the enforcement at the borders." My understanding was that free trade was for industry, not for the average person on the street. I think people have bought it the wrong way.
At one time you were allowed to bring $2 across the bridge. I was going to school for a period of time and went daily across and never brought anything across because I knew of the enforcement at the bridges. I think we should get back to the enforcement. What should be paid? If you want to shop there, then you pay your duties, you do this.
Mr Kwinter: I just wanted to reply to Mr Sutherland when he said, "What is competitiveness?" Competitiveness is the ability to provide a good or service at a price and quality equal to or less than someone else's in the market. Everything contributes to that situation, whether it is taxation, government policy. Where we have a problem -- and I have told you this before and maybe some of you had not heard it -- but we are a very trade-dependent jurisdiction. For every dollar that an Ontarian has in his pocket, 33 cents is there because of trade. In the United States, for every dollar that they have in their pockets, only 10 cents is there because of trade.
The reason for that is very simple. They have an internal market of 270 million people. They can generate all kinds of economic activity just among themselves. They do not have to worry about whether they do it outside. We have an internal market of 27 million people. We cannot sustain just among ourselves the same standard of living here as they do there. We have to go out and trade. That is exactly the rationale behind the European Community. In 1992 they are going to have an internal market of 360 million people. So you have Europe at 360 million, you have the United States at 270 million plus the 80 million they are going to get from Mexico; it is going to be 350 million. Just within their internal market they are going to get the economies of scale that will make us irrelevant.
So we have to do something about that. We have to get into that market, which was the whole rationale behind the free trade agreement, but we have to be competitive. If we are not, then it does not matter what we say and what we stand up and talk about; they are going to pass us by. It is as simple as that. We cannot be all things to all people; we do not have the economy to do it. I should tell you that we do have some major players in this country. Northern Telecom is a world leader in telecommunications; it can compete with anybody. It has nothing to do with anything other than they have the technology and the ability to do it. Our resource-based industries are the same thing, whether it be International Nickel Co or some of our other resource-based, in that they have something that gives them a comparative advantage. Where we do not have the comparative advantage we have to do it smarter and we have to be able to do it, which means we have to invest in our people and in our technology. Unless we do that, we are not going to compete.
The Chair: Thank you. Hopefully this committee will reconvene at 3:30 this afternoon.
The committee adjourned at 1209.