Wednesday 24 February 1993

Pre-budget consultations

Fair Share for Peel Task Force

Hal Brooks, chairperson

John Huether, member

Ontario Road Builders' Association

Arthur Ryan, executive director

Energy Probe

Elizabeth Brubaker, director, water research

Larry Solomon, research coordinator

Edward Kolodzie

Coalition Against Poverty

John Clark, provincial organizer

Josephine Grey

Merle Terlesky

Canadian Italian Business and Professional Association

Forese Bertoia, member

Regional Municipality of Peel

Rhoda Begley, councillor

Paul Vezina, commissioner, social services

Canadians for Constitutional Money

Andre R. Marentette, chairman

John H. Hotson, chairman, economic advisory group

William Henry Pope, representative

William Krehm, representative


*Chair / Président: Hansen, Ron (Lincoln ND)

*Acting Chair / Président suppléant: Waters, Daniel (Muskoka-Georgian Bay ND)

Vice-Chair / Vice-Président: Sutherland, Kimble (Oxford ND)

Caplan, Elinor (Oriole L)

*Carr, Gary (Oakville South/-Sud PC)

Christopherson, David (Hamilton Centre ND)

Jamison, Norm (Norfolk ND)

*Kwinter, Monte (Wilson Heights L)

*Phillips, Gerry (Scarborough-Agincourt L)

Sterling, Norman W. (Carleton PC)

Ward, Brad (Brantford ND)

*Wiseman, Jim (Durham West/-Ouest ND)

*In attendance / présents

Substitutions present / Membres remplaçants présents:

Akande, Zanana L. (St Andrew-St Patrick ND) for Mr Christopherson

Arnott, Ted (Wellington PC) for Mr Sterling

Conway, Sean G. (Renfrew North/-Nord L) for Mrs Caplan

Dadamo, George (Windsor-Sandwich ND) for Mr Christopherson

Harrington, Margaret H. (Niagara Falls ND) for Mr Jamison

Johnson, Paul R. (Prince Edward-Lennox-South Hastings/Prince Edward-Lennox-Hastings-Sud ND) for Mr Sutherland

MacKinnon, Ellen (Lambton ND) for Mr Ward

Waters, Daniel (Muskoka-Georgian Bay ND) for Ms Ward

Also taking part / Autres participants et participantes:

Callahan, Robert V. (Brampton South/-Sud L)

Mahoney, Steven W. (Mississauga West/-Ouest L)

Marland, Margaret (Mississauga South/-Sud PC)

McGuinty, Dalton (Ottawa South/-Sud L)

Sola, John (Mississauga East/-Est L)

Clerk / Greffière: Grannum, Tonia

Staff / Personnel: Campbell, Elaine, research officer, Legislative Research Service

The committee met at 1002 in room 228.


The Chair (Mr Ron Hansen): Good morning. The standing committee on finance and economics will carry on with the pre-budget consultations. I'd like to welcome the first group before the committee, the Fair Share for Peel Task Force. We have until 10:30. In that period of time, if you'll leave some time before 10:30 for questions from the committee. You may begin, and please introduce yourselves for the purposes of Hansard also.

Mr Hal Brooks: Good morning. My name is Hal Brooks and I'm past president of the board of directors of the United Way of Peel Region and currently chairperson of the Fair Share for Peel Task Force. This is a group of major child and family service agencies in our community. With me this morning is Mr John Huether, who is the executive director of the Peel Children's Aid Society. There are a number of task force members also in the audience this morning. I would like to start by making some preliminary comments and then highlight for you the report which you've already received.

We're very concerned in Peel about our community. The infrastructure required to meet child and family service demands in Peel is, in our estimation, totally inadequate. Furthermore, the gap between demonstrated needs and service capabilities, in fact, is widening and has widened since our last report. The implications of this gap are indeed serious and they challenge the very social stability of our region.

The issues raised in our report are not new ones. Peel, like other outlying regions in the greater Toronto area, has experienced dramatic population growth. Rapid transformation has occurred from a rural to an urban profile. One third of our population is immigrant, one third under the age of 19, and both fractions are considerably higher than the provincial averages. Along with the rapid development of Peel has come all of the opportunities, challenges and, yes, concerns of urban life.

The agencies that provide service for children and families in Peel are frustrated because the tremendous growth in need in our region has far outstripped our capacity to meet it; frustrated also because the primary resource allocations from the province do not presently recognize this growth nor provide for it.

We were heartened by the adoption in the Legislature in June of 1991 of resolution 15, and I'll read it to you: "That, in the opinion of this House, recognizing that there currently exists a chronic underfunding of social services for children, youth and families in the region of Peel, which has caused a report to be prepared by the Fair Share for Peel Task Force consisting of volunteer presidents and senior staff from the..." various agencies "...which report has clearly shown the need for a consistent method for allocating provincial grants for social services," this Legislature then directs the Minister of Community and Social Services to "take concrete steps to increase the service base to a satisfactory level over a five-year period and develop an equitable funding formula that recognizes population growth dynamics and social indicators."

The Legislature recognized at that time both the seriousness of the issues at hand and the need for decisive action on this front on behalf of not just the children and families of Peel, but of Ontario in general. We were very pleased that the present Minister of Community and Social Services, Tony Silipo, supported that motion.

In January 1992 we met with the Honourable Marion Boyd and were impressed with her understanding of the issues we faced and her commitment to action. Both the Minister and staff of the Ministry of Community and Social Services have acknowledged the inequities that exist in the present funding arrangements.

The report you have before you today reflects updated census data and Ministry of Community and Social Services funding details. Behind each statistic is a human face, real people with real needs.

If you'd like to turn with me for a few moments through the report -- I'll let you read it at your leisure, but if you turn to page 6 where the first chart appears, just to explain how the booklet is set up.

You'll notice that in Peel there's approximately 220,000 children, each of which presently receives from the ministry some $93 on a per capita basis, up slightly since the 1989 data. You will notice, for comparative purposes, that if the child lived on the other side of the Etobicoke Creek there would be almost four times as much per capita allocation, over $330. Indeed, the provincial average, you'll notice at the bottom of the chart, is $238 and change.

Sadly, the gap between demand and service capability is growing wider; not surprising then that clients are waiting in excess of 14 months for service, which is really tragic. If you read on through the case studies, you'll get a sense of the human face of the issue. Similar situations occur in virtually every other area of child and family services highlighted in the report.

You will notice, if you turn to page 12, that Peel's per capita allocation for adult services increased some 1.9% since our last report, while the provincial average over that same period increased 21%. Again, case studies are provided of people waiting 8, ten months for service, people that are victims of child abuse and so forth. There are also profiles that speak to the issue of developmentally challenged young people in our community and the dearth of service that's available.

If you'd now turn to the summary page on 16 -- this summary chart highlights the enormous annual shortfall in provincial funding that flows into Peel. I'd just like to provide some context to the numbers. You'll notice that the gaps between the present arrangements and the provincial averages represents some $79 million. My background involvement, as I mentioned at the outset, is with United Way. That's 12 times the total United Way campaign achievement for this current year, and that's just the shortfall in terms of Peel's allocation compared to a provincial average. This is obviously an enormous sum. It's not surprising, then, that the number of needy children and families in Peel is growing.

At the same time, we certainly recognize that the government faces extremely difficult budget decisions. We would argue all the more reason, in such stressful times and short resources, to ensure that what is available is spent effectively, efficiently and equitably across the province. We also recognize that an improved funding formula must reflect social indicators as well as population growth.

What do we want from the province? First and foremost, from the government, a recognition that children and families are our greatest and most important precious resource that we have in Ontario. We need funding formulas and priorities in the government that reflect this.


Secondly, the recognition that areas with high population growth, like Peel region, have not been adequately served by the current funding algorithms. That point is admitted by virtually all sides to the argument. Redress is chronically needed through an equitable formula that recognizes population growth and social indicators. In conclusion, to date we've been very encouraged by the broad base of community support in our region and elsewhere for this initiative. It's imperative that this government now give serious consideration to the issues outlined today and to take action as it plans for its 1993-94 provincial budget.

Mr Chairman, thank you very much. We would be pleased to answer questions.

The Chair: We'll have approximately six minutes per caucus. I'm going to go to Mr Mahoney and then Mr Callahan.

Mr Steven W. Mahoney (Mississauga West): I'll be brief, because I think Mr Sola wants to ask a question too. I wonder, gentlemen, if you could address what you see as either the root cause or the fact that things apparently have changed, turning Peel region into a much more urban community than a rural community, which may explain why historically there has not been a catch-up or parity maintained between regions like Metro and Peel. We hear Metro saying they are being ignored, in their big day last week at Metro hall, by senior levels of government, but these statistics, particularly in the area of human services, clearly prove that Peel region has been ignored in the distribution of these funds. What do you think has caused this? Maybe elaborate on that.

Mr Brooks: Maybe three or four very quick comments and perhaps John Huether, who has a longer view of these issues, could comment as well.

It's my understanding that when Peel began to experience the phenomenal explosive growth, there was in fact a very thin service infrastructure or network in place in Peel, so there were really two issues. One was attempting to build the network while at the same time there was this phenomenal growth in population.

That would not have been the case of communities of comparable size to Brampton, like perhaps London, Ontario, or elsewhere that would have had a network in place. As they've grown over time, the network has expanded. We came in with a very paltry beginning level and then with the tremendous growth in population we just have not been able to keep up. Witness the fact, as I mentioned in terms of statistics, that in the area of children's services, the dividing line of the Etobicoke Creek represents a fourfold difference in per capita funding.

Mr Robert V. Callahan (Brampton South): As I understand -- and you can correct me if I'm wrong -- you're recognizing that the government is in dire financial straits. You're not looking for more money, is that correct? You're looking for a better distribution of it.

Mr Brooks: Yes. We're not asking the government to go and print another $79 million. We recognize the deficit difficulties the government faces. But, as I mentioned before, all the more reason to make sure that the funds allocated in fact maximize the efficiency, the effectiveness and the equity of access. All we want in Peel is a fair share of those resources, not new money, as you mentioned.

Mr Callahan: What kind of success have you had thus far in terms of achieving that degree of equity?

Mr Brooks: In terms of the response, we've been very encouraged by the rhetoric, both within the ministry and in forums. In fact, we delegated this very committee a year and a half ago. The questions, we thought, were very insightful and helpful. The difficulty is that translating the rhetoric into action becomes more problematic. There are some strategic committees that the ministry has committed itself to. Our concern is that we haven't seen, to date, any substantive action in response to these issues. Indeed, since the last report was printed, the situation has worsened.

Mr Callahan: This will be a rhetorical question, but I gather the citizens of Peel pay into the pot for these services. Is that not correct?

Mr Brooks: In terms of the tax base, we certainly pay our fair share of the tax burden and would like our fair share of the resources. One of the old myths about communities such as Peel and other suburban areas is the mythology of the bedroom community that everybody leaves in the morning, I guess leaving the dog and perhaps the 2.2 children behind. That's an old myth. Our community has grown up and now experiences all of the urban problems as well as kind of the dynamic enthusiasm that goes with an urban community. But there are some deep fundamental problems we have to address. Along with these brand-new communities come issues of transiency, unemployment, poverty and so on, and issues in terms of child abuse, dysfunctional families and so on that we desperately need to see addressed.

Mr John Sola (Mississauga East): I realize you're asking for a new funding formula that would recognize the special needs of growth regions like Peel. Do you have a sample formula for the government to study, to provide a solution as well as just raising the question? We've got a brand-new minister, so it would be helpful if you could provide something for him or her to study, so we could get to the solution more quickly.

Mr Brooks: Perhaps John could comment.

Mr Mahoney: The new minister is supporting this.

Mr Sola: Yes, and I'm thankful he supported the resolution of Steve Offer.

Mr John Huether: I think we would be supportive of a funding formula that took into account population on an ongoing basis so that it was reflective of the changing dynamic in our province, along with a percentage of somewhere between 20% and 25%, perhaps, that would take into account major social indicators closely related to social need. We don't have an exact, specific formula. We want to work with the government and other areas in the province to come up with something reasonable that will ensure people across the province who have similar difficulties have relatively the same ability to receive service, regardless of where they live. To establish that process requires a fairly extensive cooperative approach. Our sense would be that if you could explore a formula which moves with the changes in population along with introducing a factor that took into account differences in social indicators such as number of single parents, subsidized housing and levels of poverty, that would be an appropriate kind of way to put us in a position where we have the same ability to respond to the social needs of our community that other agencies across the province do.

The Chair: I'm sorry, I've got to go on to Ms Marland.

Mrs Margaret Marland (Mississauga South): If there's one thing this particular deputation would like the government members of the committee to hear, it's the fact that everything lies behind the name of this deputation. They're not asking for more than anyone else; they're not asking for something they don't need; they're simply asking for equal access to the pot, essentially. The fact that they call themselves the Fair Share for Peel Task Force, I think, is the one aspect that personally, as a member for a riding in the region of Peel, I would plead for your consideration.

I think that when the deputation talks about the fact that Peel now has all the same inner-city problems Toronto and Metro has, that's where the inequity of the funding really comes to light. When we look at setting priorities in terms of human need, we're looking at our Community Living Mississauga, which has now capped its waiting lists. Their waiting lists for some services are four and five years and they just didn't think there was any point in having any longer lists. They just felt they might as well be capped as add on another few years of waiting.


I think it's important, too, what the Fair Share for Peel Task Force is saying to you, that these are our children we are talking about and I think each and every one of you in your ridings has that same concern and that same challenge. If you take the time to review anything, just review the graphs that show the figures in terms of the funding differences. I don't think there's a member -- well, Jim, I guess you're the only sort of member this morning.

Mr Jim Wiseman (Durham West): I'm not a Metro member.

Mrs Marland: Well, you're in the GTA.

Mr Wiseman: Unfortunately.

Mrs Marland: With the seriousness of being aware of the needs of children, and you look at these graphs and see how inequitable the funding is, I think the plea of this particular deputation, the Fair Share for Peel Task Force, must be taken very seriously and, on your part, very conscientiously.

It is ironic -- and I'm interested to hear Mr Brooks's expression about the difference a creek can make; it is the difference of the Etobicoke creek, yet the children on one side of that creek or the other are the same human flesh and bones and have the same needs as each other. Unfortunately, I think, in this day and age, when we all realize that there isn't a money tree at Queen's Park, we're simply pleading with you to say please consider, as Mr Brooks said, I think the words were "effective, efficient and equal distribution" of whatever funds there are.

I think, too, that when we talk about children and we look at the figures from the last year and a half and see how the situation has worsened, we're simply saying you can stand on any public platform anywhere in this province and defend spending money in terms of priority of human need first. If you can't afford to build the road, the bridge or even the recreation centre, whatever the major capital investment is that you can't make, because on a daily basis you're helping these children in emergency situations, we will back you up. I will pledge to you that if you make a decision that you will spend the money first for these children in terms of human need, I will defend the fact that you didn't widen a road or do other infrastructure expenditures. It isn't that there isn't any money; the fact is, it's just about how it has to be spent and we know you're short of money.

The reason I don't have any questions for the deputation is that obviously I've been involved with this Fair Share for Peel Task Force for a very long time now and I'm very much aware of what their issues and concerns are. I was encouraged by the meeting with Marion Boyd 13 months ago, but we're now 13 months later and nothing has changed.

So we simply say to you, please try to convey that message to your ministers and support the letters that have gone to all of the ministers involved from all of the Peel MPPs. David Tilson isn't able to be here this morning, but there are seven MPPs in Peel and all of us feel exactly the same way about the plea of the Fair Share for Peel Task Force.

Mr Paul R. Johnson (Prince Edward-Lennox-South Hastings): Thank you for your presentation. It certainly is very clear that there's an inequitable distribution or dispensation of funds by the province all across Ontario and I would like to suggest that Peel isn't unique. There are certainly other areas of the province that bring forward exactly these same arguments, and therefore it would seem that there are many areas of the province looking for more funding to make sure they get their fair share. Certainly, this is an opportunity for you to bring your concerns before the government and I value that. However, I'd like to ask you what you might offer the government with regard to what you think we should do with our upcoming budget with regard to the taxes we might need to raise in order to cover the additional cost of making sure everyone gets an equitable share, or with regard to the deficit, or where we should make expenditure cuts.

Mr Callahan: They're not asking for any more.

Mr Brooks: If I could respond, Mr Chairman, perhaps to a number of the points raised. We've been at this issue for the last two and a half years, and something I have found quite interesting is that the basic thesis we present has never been challenged in any forum; it's accepted, and people acknowledge the inequities without contesting that issue.

Secondly, the funding statistics in that report indicate that Peel's share is presently less than half of the provincial average. It's way down at the bottom of the list. So while we recognize that the issue of equitable allocation is not unique to Peel, certainly we would make a compelling case that Peel deserves some very early attention because the needs out there in fact are chronic.

The third point, and it goes back in a sense to what Mrs Marland said, is that behind these numbers are real people. I've met a number of them in the last few weeks; people who have told me -- they didn't mention the Etobicoke Creek, they mentioned Winston Churchill Boulevard. If they'd moved a little further west it would have cost them more money to call into Toronto on the telephone, but they would have had access to service in Oakville that is not available in Peel. It seems the services are much more readily accessible in either direction, east or west, that one might travel.

We don't pretend to be able to solve the government's deficit problems. We recognize the economy's in difficulty and the associated problems of tax levies and so forth. I guess I'd go back to a comment Mr Callahan made, that the residents of Peel -- we're now over 700,000 people strong, we're more than a third of the entire population of Metro Toronto and we're a huge player in this process -- and the corporations in Peel pay a lot of taxes. All we're asking for is an equitable slice, just the analysis of the ministry that says we all acknowledge the fact that it's not working presently, it's not fair and it's not equitable. We want to sit at the table and rejig the formulas to take into account the dynamics we talked about, social indicators as well as population. The reality is that almost any basket of social indicators could be chosen and we would come out far better off than we are presently.

It's an abysmal situation and, again, we've been at it for two and a half years. We were really heartened by the fact that the private members' resolution, while it was introduced by a Peel MPP, was in fact supported by all three parties -- it passed with NDP support as well as Liberal and Conservative -- and we believe it's an issue that we can all rally around and an issue that affects the children and families of our community. Thank you.

Ms Margaret H. Harrington (Niagara Falls): I'm with the Ministry of Housing and I'd like to let you know that from my understanding, the Peel non-profit housing has an admirable record over the last while of producing good, affordable housing and working with the province. I think you would agree with me that housing is a basic human need --

Mr Brooks: Yes.

Ms Harrington: -- and in fact very much on the quality of life and the social service aspect as well. Hopefully, with our announcement last December of 20,000 units across the province in the next three years, you will be applying for those as well and get your share.

I do know that social services across this province are not equitable. Whatever service it is, there are gaping holes in various places. It will take some time to remedy this and we, of course, will be criticized for trying to equalize it as well.

You did say Marion Boyd made a commitment to action. We don't have time to get all the details, but have you seen action?

Mr Brooks: I wonder if Mr Huether could comment, because he's had the opportunity close up to experience that.


Mr Huether: There have been no concrete changes in the funding formula since the meeting with the minister. A year ago there was a commitment that a committee would be established to begin to work on this issue and the committee only began its work at the beginning of February. It's going to take some time --

Mr Callahan: What year?

Mr Huether: February of this year. It's going to take some time for the committee to work through the issues and we are concerned that we're going to go through another budget cycle which will see the problem exacerbated and worsened before any steps are taken to begin to redress or stop the impact of the disparities that are here. Until we see some effort to act in a direction consistent with the principle of equity, then we have to be concerned that there has been no change.

The Chair: Time has run out. I'd like to thank you for appearing before this committee this morning.

Mr Brooks: Thank you, Mr Chairman. I could file my introductory notes with --

The Chair: We've all got copies up here and we've got Hansard of everything you've said, too.


The Chair: The next group is the Ontario Road Builders' Association. Come forward, please. Good morning. I'd like to welcome you to the standing committee on finance and economics. We have until 11 o'clock. You're Mr --

Mr Arthur Ryan: My name is Arthur Ryan. I'm the executive director of the Ontario Road Builders' Association.

The Chair: I'd seen Leo last night. I had dinner with him and I was looking for him.

Mr Ryan: He couldn't make it today.

The Chair: Okay, fine. It was a good meal.

Mr Ryan: He's always good. Did he pick up the tab?

The Chair: I got off topic a little bit there but I don't want to take up any more of your time. We have until 11 o'clock. After your brief, please leave some time for the committee to ask questions on your association. It'll be starting off with the third party with Mr Carr as soon as we get finished.

Mr Ryan: If I may, I'd like to read the brief to you and then I can answer any questions you may have, if that's okay, Mr Chairman.

Introduction: The Ontario Road Builders' Association represents virtually all of the major firms involved in constructing and maintaining Ontario's provincial highways and municipal roads. The association was formed in 1927 and now comprises more than 170 companies in over 50 communities across Ontario.

Our members represent a large labour-intensive industry, both union and non-union, working in an area which has a substantial impact on the quality of life of Ontarians and the economic viability of the province. We welcome this opportunity to present our views to the Ministry of Treasury and Economics and trust they will be given due consideration in the preparation of the 1993 budget.

Economic development: The roadbuilding industry is an important segment of the Ontario construction industry, which latter is the province's biggest industry. It's the largest employer, Canadian-owned, largely by small entrepreneurs, pays the highest wages and is the province's largest taxpayer. These facts cause our industry to have a substantial impact on all segments of our society. We fully concur with the Treasurer's statement that Ontario must generate economic renewal that will create and maintain jobs, attract dynamic new investment and promote business confidence.

Economic renewal: The government has consistently stated that economic renewal can only be achieved from jobs, training and investment. In these times of severe economic restrictions, it is virtually impossible to attain these aims through normal economic and fiscal policies.

Deficit reduction: The obsession with deficit reduction is laudatory. However, deficit reduction is not achieved only by reduction of expenditures or tax increases. Increases in revenue far outweigh the current commitment to cost reduction. Increased revenue for the most part can only be created through increased employment. We feel very strongly that this administration must emphasize the job creation aspect of the equation to achieve any substantial reduction in the deficit. When revenues are increased through job creation, the effects are extraordinary. These increases have immediate impact on economic activity. The general confidence generated causes reduction in interest rates and, as we have seen in past years, sparks economic recovery.

Capital investment: Our industry is obviously extremely pleased that the government of Ontario has taken the initiative and made substantial commitments to infrastructure and building renewal in this province. There's no doubt in our mind that money spent on capital investment for new highways, new roads and new infrastructure in general has an immediate and extremely important impact on economic development in the province. We support the government's position and stance in announcing these programs.

As we know at this time, there's been a $6-billion, 10-year program announced which includes transit, construction infrastructure and sewer and watermain construction. If followed through, these announcements will be the impetus to turn this economy around. Money spent on infrastructure has an immediate effect on the economy. For every dollar spent on infrastructure something close to $2 is expended in ancillary industries.

We are fully supportive of the government's differentiation between capital and operating expenses.

We support the formation of crown corporations to ensure that the differentiation is specific. Our concern is that the government should ensure that the formation of these corporations does not become a bureaucratic quagmire.

As private sector representatives we would recommend, as we have with our meetings with the Premier a couple of weeks ago, that our industry should be participants on the board of the Transportation Capital Corp and also on the board of the Ontario Clean Water Agency. The Premier did express some reservations on our recommendations for participation on these boards. However, we feel that in the current climate of participation between government, labour and industry, these appointments could prove to be extremely effective.

It is extremely important that the formation of the Ontario Transportation Capital Corp has industry participation, and our only caveat would be that the government ensure that Ontario contractors, who over the past many years have built and maintained the first-rate infrastructure highway and road system in this province, be guaranteed that they will be in the forefront of this development.

Some of our industry members are concerned with the possibility that some outside agencies or major corporations, simply because of the magnitude of the highway programs announced, will come into this province and take work away from the Ontario contracting industry. We have no doubt that your government is aware of these concerns and will ensure that any economic benefit from these programs will stay within the confines of Ontario.

Because we represent a diverse group of contractors, probably 95% of the contracting industry which built and put in place over the years the whole highway and road system of the province, we do have various views relative to the future directions this type of investment will take. Our mandate as association representatives is to ensure that the Ontario contracting industry benefits from these expenditures.

We are well aware that we must be proactive as an industry and be willing to participate in the private sector commitment to these new projects. As an industry, we are committed to this program and are internally assessing the best way we can participate.

In summary, we are extremely pleased that the current administration has taken the initiative for job creation and not waited for the federal government to implement a program of infrastructure renewal. Thank you.

Mr Ted Arnott (Wellington): Thank you for coming in this morning in the midst of your convention to give us the information with respect to your organization.

The engineering construction sector is in a very difficult situation at the present time, as we're aware. The government has indicated that it has plans, it has intent. They commit money, they say they want to create jobs in the short term. They say they'll give us aggregate numbers of jobs that will be created -- person-years. What is the main problem delaying the immediate construction of many of these projects?

Mr Ryan: I guess, frankly, money. I think this administration in the past two years has obviously had a severe economic downturn so any moneys being expended -- they haven't really been able to meet the commitments that were announced initially.


But I must admit, we've worked through many administrations over the past number of years and this administration has, for the most part, met its capital expenditures, commitments, certainly over the past two years. We applaud them for that because we feel very sincerely that even in these bad times they have managed to keep the industry moving -- our industry, the roadbuilding section, not the general construction; that's another matter. But certainly the public portion of the roadbuilding industry has been reasonably sound.

The big announcement that we're extremely happy about, of course, is this new commitment to a much larger infrastructure spending program, which we're very supportive of. That may take some time to get rolling and we'll be pressing the government to ensure that moves as quickly as possible.

Mr Arnott: Yet I continue to hear the complaint from people that our roads are in an appalling state, relative to what they were 10 years ago.

Mr Ryan: No question. There's never been enough money spent on maintenance for the past five or six years throughout the province. It's always approximately -- for provincial highways -- probably $250 million to $300 million short of what is actually needed. At a municipal level that varies, depending on the municipality. But, yes, they are in very poor condition as to what they used to be a number of years ago. We're losing the reputation we had of having the best highway system in North America; we certainly are.

Mr Arnott: I think we are too. Your industry representatives would also be very concerned about the labour laws of this government.

Mr Ryan: Yes, we made representations on that. We were concerned with that, but now it's been implemented we'll see how it works for us. We were more concerned with the initial announcement. The initial proposed labour legislation was more restrictive than what actually came to pass so we take some comfort from that. We still are concerned about the fact that it certainly doesn't promote industry in this province. It does nothing for bringing new investment into the province and that's a major concern.

Mr Johnson: Certainly, the roads in the province of Ontario didn't overnight become in poor shape. This has been a long, gradual deterioration, I would assume, because of the lack of maintenance. Would you not agree with that?

Mr Ryan: Yes, definitely, very much so. As I say, I guess the last five or six years, probably even longer, there's been a shortfall in the necessary funding to maintain the system at the optimum level and that's cost everybody more money. You know, it costs more and more every year; you prolong the agony.

Mr Johnson: Right. The previous group we had before us -- I'm not sure if you were in the room at the time, the Fair Share --

Mr Ryan: No, I arrived late. I missed that group.

Mr Johnson: I'm sorry you did. The Fair Share for Peel Task Force had a very convincing presentation that it made before this committee with regard to the shortfall of government funds for its particular municipality, its particular part of the province, I guess, with regard to funding from the province.

But it was interesting that Mrs Marland said this -- you weren't here to hear it -- but she said she was willing to support the government and say, "Well, we'll hold some money back on roads if you'll give a little more money to the social services department in Peel." I would just ask you, don't you think that, especially now, the government has a very difficult task? In fact, this is a pre-budget consultation that we're having right now. We're trying to walk a very, very narrow tightrope, if I can put it that way, and we have to balance our expenditures versus our revenues and watch our deficit as well. Don't you think every aspect of the government needs to continually be funded? In spite of this difficult time, we need to make sure they at least get the basic funding they need to do things.

Of course, the program we have committed to, the $6 billion over 10 years to improve infrastructure, I think is very positive, as you've indicated, but don't you think we've got to be careful as a government that we don't take moneys away from areas that indeed need funding, where although it may not be apparent on the surface, in the long term it certainly will be beneficial?

Mr Ryan: The only thing is, you see, this current announcement differs from previous announcements in the sense that there's a creative means of funding these systems that's been recommended to go into place. That's an extraordinary step and we fully support that. We take a very strong position, as we mentioned in our comments about the deficit reduction. It's an obsession today to talk about deficit reduction. Frankly, oftentimes, I think some people don't even know what they're talking about. You don't even know whether they're talking annual deficits or accumulated deficits and what the real problem is.

But you have to differentiate when you're talking money spent. If you're making a capital investment, it's a different dollar than spent on social services or operating costs -- not social services but any so-called soft costs. When you put money in an infrastructure, you're building an asset. In annual accounting applications you would capitalize that asset and it would be on your books shown as X number of dollars spent on a capital asset.

The way the governments operate throughout the general revenue is that every expenditure made, regardless of type, is a major expense. Nobody in this room could live under that kind of parameter personally. If the money we spent for our houses was deemed to be an operating expense and gone out the window, we'd all be bankrupt. At least we have a home; we have assets.

We took a strong stand on that position years ago, even when Bob Nixon -- not too long ago, but the previous Treasurer. We were finally getting him convinced to make this differentiation between capital and operating.

This government has done that and this commitment that's been made now -- the formation of these corporations or agencies are vehicles through which the programs can be funded. They can be funded, they can be borrowed, whether through a private sector or through the government, through special funds allocated for that purpose, written off by toll roads or perhaps some other form of user-pay concept on the highway system.

These new expenditures now for Highway 407, the massive, mammoth programs, the transit and the subway and everything else -- if they are funded correctly, that should not really affect the operating deficit of this province.

There's a private-sector consortium, from my knowledge -- and because I represent an association, nobody's really saying too much, but I do know there is a consortium that has already made a substantial proposal to the government to privately fund it and to manage it themselves. That's as far as I know. It's all sort of hearsay at this point, but there's a definite recommendation being made. That's a totally different approach and that's the only way, frankly, this province will ever be able to make the expenditures necessary to build up the infrastructure in this province

The Chair: Mr Wiseman, you have one minute left.

Mr Wiseman: I just wanted to talk and sort of have you continue on your train of thought but to reflect for a moment that the more roads we build, obviously, the more maintenance they're going to need; the more maintenance they need, the more cost they're going to have and it becomes a closed loop, a vicious circle in terms of increases. Of course, we don't want to get to the position where the United States is now where one third of its bridges are deemed to be unsafe or collapsing. How do we avoid this closed-loop, spiralling trap of costs.

Mr Ryan: There have been very few new roads built in this province since the 1950s and all we're really talking about now is the new Highway 407, for the most part. Highway 407 will effectively replace the 401. When the 401 was built in the 1950s it was built as a bypass for Metro Toronto. Now it's a commuter alley; it's not used as a bypass. There's no means of getting through faster on it rather than using the 401. That's why the 407 is effectively almost an exact duplicate, only farther north, to again attempt to bypass the core of the city.

You have to understand the economic viability of it in terms of trucking. A lot of the industries that moved into this province a couple of years ago -- Hyundai and people of that nature moved here because the infrastructure had fast-moving, good, free-moving highway systems. The 401 is a disaster right now in terms of congestion and tie-ups. The 407 is needed and I don't think it's -- you know, it would never become a non-entity. The question about the States -- I don't think the States's problem is the proliferation of their old system, it's just that they've never been able to maintain the system, which is a --

Mr Wiseman: That's why it happens to be --

Mr Ryan: Yes, it's an international problem and I'm not saying -- but Canada is by far the lowest participant per capita for highway expenditures in any country in the western world and a large part of the reason is that there's very little federal participation. The provinces are responsible for the highway systems within their own sort of jurisdictions.


Mr Gerry Phillips (Scarborough-Agincourt): I appreciate the presentation. I'm pleased to see you're supportive of the capital corporations.

Mr Ryan: Yes.

Mr Phillips: I gather the province spends around $1 billion a year on roads, is my memory. Is that roughly the number?

Mr Ryan: That's about it, yes.

Mr Phillips: Do you see the province continuing to spend $1 billion a year on roads? Is that what --

Mr Ryan: I hope so, yes.

Mr Phillips: So how will the capital corporations help you out, then?

Mr Ryan: Oh, no. I'm saying we hope the province will maintain the normal expenditures that they make today, which is the $1 billion. The capital corporations, on additional moneys, which will be used to fund the 407 for the most part, initially, and some portion of that money will be -- depending on how the government determines the revenue streams within those corporations. As I say, they're looking for private-sector involvement, they're looking for municipal involvement and their own commitment themselves. So what the breakdown will be, it's hard to say. We will try to ensure through meetings with the government that the money's already put in place and not affected by these new announcements.

Mr Phillips: One question that comes to mind is that there's a -- you say these capital expenditures are quite different than operating. I imagine many of your members write off their capital with depreciation each year; they say, "Listen, we've got to spend X." There's another view that says the province has said it needs to spend about $3.5 billion a year on capital infrastructure. That's just to keep the thing refurbished, the equivalent of what your members would probably have to charge in annual depreciation, just the refurbishing cost.

Mr Ryan: Yes.

Mr Phillips: There's a concern expressed by some that the capital corporations will take on some substantial new debt that ultimately has to be paid for and that capital corporations, if not properly accounted for, will end up with, as I say, substantial new debt that future taxpayers have to pay for. Is there any risk of that, in your mind?

Mr Ryan: Oh, yes, definitely. I think that will happen, frankly. That has to happen. There will have to be long-term debt developed, I think, within the formations of those agencies or corporations. But, the way we see it, that will be written off -- that will be amortized or depreciated over 10 years, six years, or whatever the length of that particular project the money is expended on. That's wrong. That's one approach we see. The other would be obviously the -- if tolls are put in place, the toll revenues would start to pay down some of those costs, but there will be a cost. Even when we talk about toll roads, realistically, if we look at what's happened throughout Europe -- the States is a little different -- but certainly throughout Europe, which is very heavily into toll road systems in every country, for the most part the tolls don't really pay for the cost of their highway system. There has to be some form of government subsidy, because the volumes oftentimes don't warrant the actual capital cost of that. It's a partial financing, I think, frankly.

The thing we would like to see, which is -- we say to every government, but we feel very strongly about it. The way to generate revenue, and it may be anathema to some of you people around the table, is to have a dedicated tax on gasoline -- the easiest way to generate money, the simplest way and it has an immediate impact.

I challenge everybody here to tell me what they paid for gas today. Every time you go to a gas station, one day it's 56 cents a litre, the next day it's 49 cents. The variance in gasoline price on a day-to-day basis is absolute nonsense and yet nobody seems to object. But if the government were to impose two cents a litre on gasoline in this province, that would generate $250 million a year, and that would solve certainly any deficit in the maintenance of the present system.

Mr Phillips: One of my concerns about the capital corporations is just making sure we don't, in the interests of trying to feel better short term, create longer-term problems. If we are to spend the $1 billion a year on roads, but only show as an expense one tenth of that or one twentieth of that -- I'm not sure how they plan to amortize roads -- my feeling is that the capital corporation is going to build up an enormous debt because it will be spending at the rate of $1 billion a year, presumably, but show an expense in only one tenth or one twentieth of that. How do we avoid getting into what I would worry about as being a debt trap?

Mr Ryan: That's hard to say. When we talk about these corporations at the present time, I don't think anybody knows at this point what form they will take. We met with the Premier last week and talked about that and you got a sense that there's a lot of vagueness there; they're not really sure. If you go to the private sector, for example, it's conceivable that a good portion of the system could be funded totally by private money. Now, whether that consortium funding arrangement will be structured through the capital corporation, I don't know.

Mr Phillips: But when you say "funded," my understanding is they may build it and then lease it back, so it's not really funded, it's just a different loan that's taken.

Mr Ryan: That's right. They build it and lease it back. It could be a long-term lease and then it will revert back to them --

Mr Phillips: But isn't that just another form of debt? You happen to pay it off in a different way.

Mr Ryan: Yes, but it's a private debt, though. If the consortium builds it, it's their money.

Mr Phillips: Yes, but the public has to repay and --

Mr Ryan: Oh, sure, yes. That's why they talk about toll roads. There has to be a revenue stream to pay that, definitely.

The Chair: Thank you, Mr Phillips. Your time has expired. I'd like to thank you for appearing before this committee this morning.

Mr Ryan: Thank you.

The Chair: We're going to take a five-minute recess, a stretch.

The committee recessed at 1057 and resumed at 1104.

The Chair: We'll resume our pre-budget consultations of the standing committee on finance and economic affairs. I'd like to welcome you here this morning and, boy, it's cold out there.


The Chair: The next group we've got is Energy Probe. I guess this is a good group to be talking to today. We have until 11:30 and in that period of time, after your brief, leave some time for the members of the committee to ask questions on your brief. You may begin. Please identify yourselves for the purposes of Hansard, also.

Ms Elizabeth Brubaker: My name is Elizabeth Brubaker and I'm the director of water research at Energy Probe. With me is Larry Solomon. You may remember him from previous years' presentation. Larry is Energy Probe's research coordinator and he'll be able to answer any questions about privatization that arise from my presentation.

The Chair: Larry, you have a fax machine, don't you?

Mr Larry Solomon: That's right. It's not as busy as it used to be.

The Chair: I usually get a fax at least once a week from you. Carry on.

Ms Brubaker: Back in December, when I first spoke to this committee's office about making a presentation, I mentioned that I'd be talking about water rents. The response was all too familiar: Water what?

Judging from that response, I guess that water rental reform hasn't thus far been prominent on your agenda. I hope to change that by showing you just how low Ontario's water rents are. I'll then describe the social, economic, and environmental problems with low rents and the attractions of reform, including an extra billion dollars a year in provincial revenues.

Water rents are charges to hydro-electricity producers. Ontario charges fees for the use of crown-owned hydro sites. Other jurisdictions might charge for the volume of water used or they might tax the power produced at a hydro site. Whatever the form, most jurisdictions with abundant hydro-electric resources levy some sort of a charge through which they can recover the value of those resources.

You have in front of you a graph that illustrates the magnitude of charges in other countries. I've calculated the bills utilities in other countries would pay if they generated the same amount of hydro power as does Ontario Hydro. Reading from the left, as you can see, the jurisdiction with the highest charges is the one in Arizona. There, Ontario Hydro would have paid almost $548 million in water charges in 1991. Next are several European countries, Switzerland, France, Germany, then British Columbia, then Sweden, Norway, China, Italy and finally Ontario.

In 1991, Ontario Hydro paid $115 million in water rents and grants in lieu of taxes combined. That hardly makes it a world leader in terms of contributing to the public purse. Actually, our position, compared to the rest of the world, is even worse than it appears on this graph. Peru's substantial charges, which are based on the volume of water used at a station, can't be translated into a certain number of megawatts for comparison on this graph.

Also excluded from this graph are countries like Finland, Spain and formerly Czechoslovakia, those countries that charge case by case, through competitive bidding or other market mechanisms. And then there are the countries that plan to raise water rents dramatically. Recent proposals in Norway and Sweden, both you'll note already ahead of Ontario, would implement tax reforms to capture the full market value of hydro power.

In 1991, Ontario Hydro generated almost 32,000 gigawatt-hours of electricity at the hydro stations covered by its provincial water rental agreement. The power was worth about $1.4 billion to Hydro. That's what it would have cost Hydro to purchase that amount of power from non-utility generators. In contrast, it only cost Hydro about $231 million to generate that power. The $1.2 billion difference represents the value of those hydro-electric sites to Ontario Hydro in 1991.

It also represents the ceiling on the water rents that Hydro or a successor to Hydro could afford to pay the province on those sites. As long as the power companies' water rents were below that ceiling, it would still be cheaper for it to produce the power at the hydro-electric sites than it would be to produce it elsewhere or to purchase it.

The $1.2-billion figure is a very rough estimate. Some other estimates have been higher, some lower. One study prepared for the Economic Council of Canada concluded that the market value of Ontario Hydro's hydro-electric sites would be, in today's dollars, about $1.6 billion. And remember, that's an annual figure.

The authors arrived at that figure by comparing the costs of producing electricity at hydro-electric sites in the existing system to the cost of producing electricity in a theoretical system that relied on thermal power.

Whatever the exact figure, Ontario Hydro's actual payments don't even begin to reflect the market value of the resources it uses. In 1991, Hydro paid the province only $105 million in water rents. That's a tiny fraction of the value of the sites.

Low water rents are socially inequitable. Remember, hydro resources are valuable whether or not the province charges for them. Right now, Ontario Hydro captures most of that value. It then rebates it in the form of lower prices to electricity consumers with large corporations benefiting disproportionately. But that's not how it should be. The resources' owners, the citizens of this province, should benefit from their use. Hydro resources do not belong preferentially to big business and the rents from them should not be used, first and foremost, to reduce multinationals' power bills.


Water rental subsidies aren't a free way of keeping electricity prices down, because the forgone revenues have to be made up somewhere. Ordinary people are bearing larger tax burdens because their hydro-electric resources are earning a diminished rate of return. What we're talking about, in short, is a transfer of costs from Ontario Hydro and the major power consumers to the body of provincial taxpayers. That's just not fair.

Low rents also have serious environmental consequences. Obviously, they reduce the cost of hydro-electric developments, encouraging producers to build otherwise uneconomic projects. Let me give you an extreme example, a situation where the province exempted a producer from paying any water rents at all.

Ontario Hydro was recently thinking about building another dam on the Mississagi River, east of Sault Ste Marie, but the project, called Patten Post, just didn't look economic. Hydro would have had to put in $1.23 for every dollar it got out of the project.

That was bad news for the provincial government, which was desperate to generate jobs in the region. When Hydro announced it would be terminating its Elliot Lake uranium purchases, the province made Hydro an offer. If Hydro would proceed with Patten Post, the province would forgo water rents on the project for its entire life. Hydro figured that subsidy was worth about $25 million.

The government was offering Hydro a multimillion-dollar subsidy for a project that had all the makings of an environmental disaster. Patten Post would have flooded 4,000 hectares of land, contaminating fish with mercury and threatening the health, lifestyle and economy of nearby native communities. The local people opposed the project, and the North Shore Tribal Council passed a resolution condemning it. It would have been wholly inappropriate for the province to even allow such a project, let alone subsidize it. Fortunately, Hydro has since put its plans for Patten Post on hold.

Patten Post isn't the only project to be given a break on water rents. The province subsidizes all new hydro plants with 10-year water rental holidays, making it all that much more likely that economic and environmental losers will proceed.

What I've tried to establish thus far is that Ontario's water rental charges are lower than those in the rest of the world, that producers here are paying only a fraction of the value of the resources they use, and that this is inequitable, economically inefficient and bad for the environment. Now, I want to tell you what you can do to change this.

I'd suggest you begin with new stations. Several projects are undergoing environmental assessments now and changes in water rent projections could influence the outcomes. For starters, you should recommend that the government rescind the policy granting 10-year holidays to new stations. Any holidays that have already been promised to Ontario Hydro should be revoked and full water rents should apply to all stations. Right now, stations under 10 megawatts are partially exempted.

Perhaps most important, water rents should reflect the market value of the site. Since no one rent or formula can accurately apply to different sites, the rents have to be set case by case. The best way to do that would be to introduce a competitive market for hydro sites. Sites could simply be auctioned with the highest bid reflecting the value of the site. The auctions would give all users a crack at sites, so if a site were valuable to fishermen, boaters or tourist operators they, alone or together, could outbid hydro producers for it.

In terms of water rents on existing stations, I'd urge you to renegotiate or, better yet, cancel the master agreement between Ontario Hydro and the province. The agreement, which covers most of the utility's hydro-electric stations through 1994, has two loopholes that should be closed. As I mentioned a moment ago, 15 of Hydro's smaller stations are now partially exempted from water rents although, to be fair, the province has already proposed discontinuing the exemption as of 1995. Closing this loophole, without changing water rental rates, would bring in an extra $900,000 a year.

The province could further increase its water rents by updating the capacity ratings at hydro stations. Part of the water rental charge is a capacity charge. Hydro-electric producers pay the province about $13,000 for each megawatt of capacity. Hydro's water rents are based on its 1985 capacity, which has since increased by over 400 megawatts. Charging Hydro for that increase in capacity would add another $5.2 million to provincial coffers each year.

Such increases are minuscule compared to those resulting from setting water rents at the value of the resources. Again, that value could be arrived at through competition. Many of you know that Energy Probe advocates privatizing the electricity generating system.

Privatization is looking more and more feasible all the time. Just last week Maurice Strong released Hydro 21, a discussion of restructuring options for Ontario Hydro. If done right, privatization will enable the province to capture the full value of existing hydro sites. As I noted earlier, payments reflecting market value could provide annual revenues of over $1 billion more than water rents now bring in.

Clearly, water rents are potentially a huge source of provincial income. The revenue could obviously be used to meet general revenue needs, or water rental increases could be revenue neutral. The government could simply reduce other taxes by an equivalent amount. Another option would be for the government to pass the revenue along to those who have been adversely affected by past hydro-electric developments. Of course, these approaches could be combined.

How feasible are water rental increases? Well, a historical precedent for large increases does exist. When the master agreement was negotiated in 1985, water rents tripled.

It's also important to note that rents reflecting the resources' values would be in keeping with provincial policy. For example, MNR's Direction 90's recommends valuing resources based on the benefits provided and last September the Ontario Round Table on Environment and Economy recommended introducing full-cost pricing for water used in power generation.

Is the public prepared for water rental increases? That probably depends on how they're implemented. If Ontario Hydro remains intact, water rental increases will mean higher electricity prices. Although rate hikes could be made more palatable by tax reductions, they wouldn't be popular. Privatization will avoid this problem. Opening up the grid to competition will bring rates down and also create the companies willing to pay the full value of the hydro resource. Thank you.

Mr Johnson: First of all, I want to say that I see the members of the Progressive Conservative Party have big grins on their faces. It must be because of the just-announced resignation of the Prime Minister.

Mr Gary Carr (Oakville South): We heard Bob Rae was retiring too.

Mr Johnson: Oh, is that why you're grinning?

Interjection: He'll probably qualify for UIC, though.

Mr Johnson: Thank you very much for your presentation.

Ms Brubaker: So did Mulroney just resign?

Mr Johnson: Yes, he did.

Mr Carr: Before you speculate, I'm not running.

Mr Johnson: Okay, Gary. It's good to hear that. Thank you very much for your presentation. I must admit I wasn't sure exactly what you meant about these charges until you explained them, and I think you did a pretty fair job.

I guess the message I hear more clearly than not is that you're suggesting the privatization of Hydro eventually, I guess, is the way Hydro should go. Is that not what I'm hearing?

Ms Brubaker: That's correct.

Mr Johnson: I was glad you made the statement, too, near the very end of your presentation that in fact if these water charges are increased as you suggest, the people who pay for their hydro rates presently in Ontario would have that burden of the increases.

Ms Brubaker: That's right, although, as I mentioned, they could be revenue neutral, so the taxpayers could be enjoying tax reductions of a commensurate amount. But that's right. Without privatization, you'd see higher electricity rates, which is one of the reasons we advocate privatization.

Mr Johnson: Right. So without privatization, this wouldn't really be advantageous to Ontario Hydro.

Ms Brubaker: It wouldn't be advantageous to Ontario Hydro, no, although it would be advantageous to the citizens of the province.

Mr Johnson: That's where again I'd like a little clarification, because if Hydro is paying the charges, then it is going to pass those costs on to their electricity users --

Ms Brubaker: That's right.

Mr Johnson: -- whether it be industry or private individuals.


Ms Brubaker: That's right, although right now, because industry uses so much more electricity than private individuals, that burden would be greater on industry. People, of course, with higher rates always have more of an incentive to reduce their electricity, which is not a bad thing.

Another thing worth pointing out, as part of an aside, is that right now a lot of the people who suffer from hydro-electric development don't benefit from hydro-electricity at all. You have northern communities that have borne the burden of flooding of their lands, for example, but aren't even electrified. So we see keeping Hydro rates down doesn't mean anything to them.

Mr Johnson: While we're on the topic of water -- and I was just wondering if I could get your opinion on this -- I think water use charges should be increased in the province of Ontario, for the actual use of the water.

Ms Brubaker: We agree.

Mr Johnson: Not to do with what you've presented here, but just the actual use of water in the province, for whatever purpose.

Ms Brubaker: Yes. We think people should generally pay for all of the resources they use, including water.

The Chair: Ms Harrington, one minute.

Ms Harrington: I represent the city of Niagara Falls, so we are intimately aware of some of your ideas. In fact, the agreement with the US for the use of the water rights has a limit on the time, so that's why we're facing the question about the Beck 3 Project immediately. My question is, if you're advocating privatization, what happens to the burden of debt of Hydro?

Ms Brubaker: Larry's much better qualified to answer this than I am. He's our privatization expert.

Ms Harrington: In 30 seconds.

Mr Solomon: One of the benefits of privatizing Hydro is that the proceeds of the privatization could be used to address Hydro's debt, and much of Hydro's assets are very valuable; hydraulic assets are certainly valuable; their transmission grid, which Maurice Strong is talking about privatizing, is very valuable and there's also a net worth in the fossil fuel stations.

The Chair: Okay. I'm going to go on to Mr McGuinty.

Mr Dalton McGuinty (Ottawa South): Thank you, Mr Chair. I want to pursue that a little bit. I'm not sure what the nuclear generating facilities have been valued at, but it's my opinion that those simply aren't marketable and, as a result, we're going to be left with a substantial debt. Certainly the British experience has borne that out. What do we do with that debt? Let's say we're talking $15 billion there. What are we going to do with that if we privatize? Is the province going to have to assume that?

Mr Solomon: The current situation is that the province does have that debt obligation, and that wouldn't change in a privatization scenario. What we would like to see is the nuclear assets and the nuclear debts hived off and put into a crown corporation, similar to what happened in the UK. The experience in the UK is that once that happens, the new nuclear operation, under competition itself, becomes far more efficient. So they begin, to some extent, to address their debts.

Mr McGuinty: But right now, in a technical sense, Hydro's debt is properly that of Hydro's ratepayers. The province has guaranteed this, but we have not been called upon to deliver on that guarantee. What you're really telling me is that the province, taxpayers, will have to assume that debt.

Mr Solomon: That's right, and taxpayers may well have to assume that debt with or without a privatization scenario. It's quite possible that Hydro at some point will be defaulting on its debt if the status quo is allowed to continue, because it may be losing so many customers it won't be able to make its debt payments and the province will then have to step in. By privatizing sooner rather than later, while there still is a large surplus in the Hydro system, we'll address that problem much sooner and have less of a problem later on.

Mr McGuinty: All right. Those were my questions.

Mr Sean G. Conway (Renfrew North): It's always good to hear you folks. I appreciate the very stimulating presentation. It gives rise to a whole series of questions but, time being what it is, I'm just going to ask a couple. One, your first name again is?

Ms Brubaker: Elizabeth.

Mr Conway: Elizabeth. I was listening to what you were saying very carefully, and I'm not so sure, though, that you didn't create an environment where we would effectively end all future hydro-electric development, because in the real world -- you described, for example, a situation whereby maybe a water site put up for competitive bid -- and that really kind of appeals to me -- might not in fact go to the electricity people, it might go to the tourist operators or the fishing folks.

Ms Brubaker: But if the water or the site is worth more to those people, shouldn't it go to them?

Mr Conway: Oh, absolutely. But in the real world -- because I represent an area where this is not uncommon -- I can't imagine any of those other people getting involved in those bids and if Duke Power should show up then, of course, the auction becomes a transparent comedy.

Ms Brubaker: You're suggesting that, say, the tourist operators wouldn't be able to outbid Duke Power.

Mr Conway: Well, they're so strapped for cash now that even the good ones -- I mean, theoretically it's an interesting concept. I'm just trying to translate the theoretical construct into the real world. I represent an area that's been carved six ways to Sunday for big and small hydro-electric projects and I'm trying to imagine your theoretical construct at work. I know it's a new world, and happily so, but I just think, "Boy."

Ms Brubaker: I have a couple of responses to that. One is that, according to Hydro, some of its proposed stations or sites are virtually worthless. It's said to the province, "We can only go ahead with this if we don't have to pay anything for the water at those sites." That means the local native communities, say, who rely on the river for their fish or their transportation would have to offer a very small amount of money to make it theirs.

The other thing is that you see a lot of examples of private-sector conservation right now. You see Ducks Unlimited or the conservation societies purchasing wetlands or forest areas, and there's no reason they wouldn't also be interested in purchasing water sites.

Mr Conway: No, I agree.

Ms Brubaker: That happens in the United States all the time.

Mr Conway: But you see, I'm sitting here trying to visualize that and I think what you've done here, and it may not be a bad thing, is -- I can't conceive anyone, either in a public utility like Hydro or very many people in the private sector, being able to develop any kind of a hydro-electric site under current conditions.

Ms Brubaker: They would be able to develop only those sites that made a lot of economic sense.

Mr Conway: Oh, I agree.

Ms Brubaker: That's fantastic.

Mr Conway: But in my world, I think that means no further ones are going to be developed. The only ones that might be developed are ones that were abandoned, where there has been some experience. I hear people talking about community-based power, but it's still damming up the local creek or damming up the local river and my sense, as a practical matter, is it just isn't on. The farmers, the native community, the local this or the local that -- my cottage group; we're going to fight you every step of the way.

Ms Brubaker: But isn't that a good thing?

Mr Conway: It probably is.

The Chair: Okay. I've got to go on.

Mr Conway: I say it facetiously.

The Chair: I've got to go on to Mr Carr and his world.

Mr Carr: Thank you for your presentation. I guess this is more for Lawrence. Last year when you were in, we talked about what we would get for Ontario Hydro if we privatized the entire shebang over there and I think you said about $53 billion. Was that the figure you talked about? Was I correct with that?

Mr Solomon: I think the value of the non-nuclear generating assets would have been in the area of $10 billion to $15 billion.

Mr Carr: About $10 billion to $15 billion? And our debt now at Ontario Hydro?

Mr Solomon: It's $36 billion.

Mr Carr: It's $36 billion. So basically, we're in a very difficult situation with regard to Ontario Hydro. What would your recommendation be with Ontario Hydro? There are various theories: it all should be privatized; some of it. If it were up to you and we moved you into the driver's seat tomorrow, what would your recommendation be? How far would we go with privatization? Maybe you could outline it. How much would we get for it and how would we do it? What time frames would we be looking at before it could be done and so on? Maybe you could just give us a bit more detail, because I'm interested in that.


Mr Solomon: I would do it much the way it was done in the UK, only we would be benefiting from some of the experiences in the UK. It would be done in several steps. The nuclear assets would be put into a crown corporation, continue to be run by Ontario Hydro's existing nuclear personnel, still regulated by the Atomic Energy Control Board of Canada. The non-nuclear generating assets would be sold to companies in the private sector. Probably there would end up being four or five different competing companies that would assume those assets. Those revenues could be used to address a debt. Maurice Strong is talking about privatizing the grid as well. That's a very practical notion. It's not necessary for competition, but it's very practical because it would, on the short term, address Ontario Hydro's debt. It would create additional revenue because the grid is a natural monopoly and there is much value in that monopoly. On the long term, it's also beneficial because there would be an additional large private-sector operator who'll be making profits in the future and paying taxes in the future, so that would help address future deficits. For several reasons, Mr Strong's approach is extremely practical and I think should be considered and perhaps given preference.

The Chair: Mr Arnott, one minute.

Mr Arnott: Thank you, Mr Chairman. Following on your logic, have you done a project of what you think the price of electricity would drop to in the event that privatization were pursued?

Mr Solomon: It would gravitate to about half the current rate.

Mr Arnott: Half the current rate; over what period of time would you estimate?

Mr Solomon: It depends on how the overexpenditures on assets are worked out, but assuming it's done over a 10- or 15-year period, at the end of that time our rates would be about half of what they are. They would start to drop almost immediately, as occurred in the UK.

Mr Arnott: If the government were to privatize Ontario Hydro, would you allow American utility companies to bid for components of Hydro?

Mr Solomon: Yes. The reason is that the more bidders, the better the price the citizens of Ontario would get. Regardless of who the owner was, it should be regulated and regulated strongly by the Ontario Energy Board.

The Chair: Mr Arnott, time's expired. I'd like to thank you for appearing before this committee this morning. Maybe some of that information you can send on to the members to their offices. Okay, thank you.

Ms Brubaker: Thank you.


The Chair: The next person to present is a Professor Edward Kolodzie. Welcome again this year to the standing committee on finance and economic affairs. You're a familiar face.

Mr Edward Kolodzie: This is my fourth straight --

The Chair: Is this your second or third time?

Mr Kolodzie: Third time for this committee. I've appeared actually in the Progressive Conservative days when they had a meeting in the city of Oshawa -- the cabinet. I'm basically delivering the same message, but with a different twist today.

The Chair: That will be something interesting to listen to. Okay, go ahead.

Mr Kolodzie: I talked with Tonia, she's got a handout for you, but today I want the members of the committee just to hopefully absorb four main points.

The one point is span of control; another point is work measurement; another point is the level of bureaucracy; and the fourth point is called edufare. I don't think we'll get to that fourth point.

Mr Phillips: What was it again?

Mr Kolodzie: Edufare, it's a short form for educational welfare. I'm a professor of operations management at Centennial College, but I'm here as an individual. What I'm proposing is the acronym GOOM, which would stand for the Government of Ontario Operations Management. In those four points, the first one deals with span of control. The government is doing some good things now, but it can take certain principles a little bit further, and one of them is the span of control. The span of control basically deals with how many people you have reporting to you. The government is now reorganizing a lot of its ministries, so it's got an excellent opportunity in its restructuring to widen the spans of control of supervision. This in turn will have an impact on the levels of bureaucracy. If you don't like the word "bureaucracy," you can replace the word "organization." Actually, I prefer the word "organization" versus "bureaucracy." "Bureaucracy" tends to suggest government only has bureaucracy, but all organizations have bureaucracy. In the book you have there, on page 38 there are a couple of little illustrations that, if you have three people reporting to you, and there are 40 people in the organization, you will eventually have four levels. If you widen the span of control to six people per person, or seven people per person, or even eight people per person, then you don't need as many levels of bureaucracy or levels in the organization. You flatten out the organization. There's a tendency in some organizations, especially in government, that if you take some ministries there may be as many as 20 levels of organization. By using this formula on page 38, you could reduce the number of levels significantly, which will improve communications channels and it'll end up downsizing the organization in this systematic way.

What you want to do is widen a person's span of control in the organization and you people are in a position to exercise this authority. You are doing it, because you are reducing the size of government bureaucracy. That's proof, because years ago there would be 100 ads in the Globe and Mail or the Toronto Star every week, advertising new positions. Now it's rare that I even see one ad advertising a new position in government in the big news media. So you're doing something right.

You've reduced the spending levels on an increased basis to certain ministries, or some that you can't seem to put your hands on because of the social services -- the problem we have with the economy. In other areas you're doing, I think, an excellent job of controlling growth in spending in certain ministries, and in some you're actually decreasing growth. When you give people a 1% increase, you're not giving them much of a challenge to cut back on their spending. If you want to give them a challenge on their spending, cut back on their spending 5%. Give them 5% less than last year and 5% is not difficult to achieve. One way you can give it is by taking into account the levels of bureaucracy and the span of control. So how can you widen a person's span of control? You can eliminate a level lower and have those lower people report to the upper people. You widen the person's span of control and therefore also eliminate a level of bureaucracy. If you can take that principle to your ministries or wherever you're connected with, it is a very wise thing to do.

Now, what is a good span of control? Most people in organizations have a tendency to go to narrow spans of control. But ideally, eight people is a good number to work with span of control. It means a person could spend, in theory, an hour with every subordinate. But some government bureaucracies or government organizations have two or three people they supervise, maybe up to five. In highly repetitive work situations, you can go to 16 or 20; one supervisor can actually supervise 16 to 20 people. If it were 16, that means in theory he or she can devote a half-hour a day to each person, but they're doing highly repetitive work; they don't need that tight supervision.


What do you do with these people? How do you tidy up the organization? Through the things that are now happening in some ministries -- let attrition take its course. You don't necessarily need layoffs, but I think what you people should seriously consider is pushing early retirement among the ministry employees. We're doing that now at Centennial College and it's freeing up certain people at the high level.

You take the community college system: There are about 16,000 members on faculty and our pension fund is about $1.6 billion. That's just the college faculty in the community college system. So there's about $100,000 in the kitty for every employee. You can just extend this to what you have in other ministries in total. For instance, even in municipalities, the OMERS -- they are buying up shopping centres. They should be encouraging early retirements.

In a sense you can create jobs for younger people to replace these people who are retiring and in some respects you can create two jobs for everyone who retires, because you're paying half the wages in many cases. Your objective should be: Not only do you widen the span of control, you reduce the levels of bureaucracy. You do this through early retirement or attrition and then you free up openings for younger people if you so desire.

How do you go about taking this a little bit further? If you take work measurement -- this is one of my favourite topics and it's a topic I lecture in at the college -- there's very little of that done, especially in government organizations. If you measure work -- and I mean through formal techniques -- you will have less work to measure. Just think about that: If you measure work you'll have less work to measure, because when you're measuring work you find out that there are unnecessary things being done, and then you eliminate these unnecessary things and you have less work to measure the next time. This is elaborated on in the booklet you have, Don.

The other thing is, work efficiency increases when available work decreases, so if you have less work to do you can become more efficient doing it because you're going to eliminate these unnecessary tasks. One very simple technique that can be taught in 15 minutes is activity estimating, and that's also shown in the booklet. What you do is, you write down the things you do. What did you accomplish last week, for example? You worked a 40-hour work week: what did you do in that? Not your responsibilities, but what you did -- how much time did you spend on the phone? How much time did you spend in meetings? How much time did you spend dealing with clients? How much actual physical work you did, etc.

Every person, even in here, does 10 or 12 significant activities over a normal work week. You have these activities and I challenge some people -- if a subordinate was doing it, then the supervisor did what the person thought the subordinate did, you'd end up seeing two sheets of paper that -- you wouldn't know they were talking to the same person. So what happens is, people don't know what their subordinates are doing and the subordinates don't know what the supervisor's expecting. This activity estimating is a simple thing to learn and it's also illustrated in the book.

The final point I want to make is some comments on edufare -- that is, giving people on social assistance opportunities to gain knowledge. Every person who goes on social assistance -- and I'm thinking more of the younger people -- is going to cost government $1 million to $2 million. That's right, it'll cost the government $1 million to $2 million. When you take our current rate of inflation, if they're on welfare or social assistance for 20 years -- and many of them will be on it for 20, 30, 40 years -- then the number becomes enormous. We've got a lot of people going on social assistance now. But can we not change our concept and instead of going on social assistance, they're going into education? This has been tried and it's working in some places. I'm trying to make an impact on it. If you put a person in school versus putting him or her on welfare, then you're going to create, hopefully, a potential wage earner at a higher level sooner. Where do you put them? Well, all schools have extra space and day care should not be a problem because in some schools they have day care facilities. Therefore, you're creating extra jobs there. Or have these people go to school for six months and maybe work in a day care centre for six months. The point I'm making is that you can do this. I call it edufare and I leave that as a new thought to you.

You can also do things such as expand the school year to take into account, maybe, the extra people you want to educate. You can expand the school day. You can get great utilization from the same facilities. We're doing that at Centennial College. In fact, I teach a course in operations management on Sunday morning from 10 o'clock to 1 o'clock and there are 20, 25 students who show up every Sunday. It shows that people will come in the so-called weekend college. Our college goes 48 weeks a year -- three 16-week semesters. It's no problem in the summer; it can be accommodated. We've got some good thinking happening and I'm just trying to present some other thoughts for you.

If you'll let me summarize: The government of Ontario needs more operations management, so that's our acronym -- GOOM. There are three main points I want to leave with you. One is span of control. You people are in a position to push wider spans of control. That will in turn reduce the levels of bureaucracy. To help even further, introduce some simple work measurement, starting off with the activity estimating in a pilot department. I'd be glad to work with anybody on a no-fee basis and provide what expertise I have for the benefit, hopefully, to the province. Again, the government is doing some positive things. It's not all black out there. I see some good signs out there in the types of things you are doing.

I'll be pleased to entertain any questions.

The Chair: Maybe we can get some copies of your book for members of the committee, if you could see that we all get a copy. I think it's a very interesting fact -- you talked about your college, having it year-round. When I think the summer holidays were actually for kids to work on the farm -- I don't think too many are working on the farm any more. I'm going to go along to Mr Phillips.

Mr Phillips: I think it's Mr Kwinter, actually.

The Chair: Mr Kwinter? Okay.

Mr Monte Kwinter (Wilson Heights): Professor Kolodzie, I listened to you with great interest. I just couldn't quite gather what the objective of your recommendations is. Is it to make the government more efficient, to make it more cost-effective or to reduce the size of the bureaucracy?

Mr Kolodzie: Well, actually, I call it all economic efficiency. All those things I mentioned will lead to an economically efficient government and you are doing things now in that direction. There's a problem with the recession and the recovery that's causing a big deficit, but if you hadn't taken the steps you have taken the deficit would be substantially higher.

Mr Kwinter: In your remarks you stated that if you sort of get rid of the levels of bureaucracy and if you take them, say, from four up to eight, you would free up some spaces to bring two more people in at the bottom.


Mr Kolodzie: You could do that.

Mr Kwinter: And that's what sort of causes me some concerns. What in fact you're saying is that for every one you eliminate, you bring in two more.

Mr Kolodzie: You could, if you wanted to go in that direction to create more employment. I'm a firm believer of reducing the size of bureaucracy up here and get the workers closer to the management to reduce the level of bureaucracy. So in theory, if you wanted to stand still in the total spending, you could eliminate a $100,000 job at the top, spend the same amount of money and have two $50,000 employees at the bottom doing things like operations management. I've got 25 students in the field of operations management. They'd love to practise what we do in a classroom, for instance, in government on a co-op project and they would in turn generate further savings.

The Chair: Two minutes left.

Mr Phillips: My question is somewhat comparable to my colleague's. Have you done any analysis on the cost of someone retiring early? We've historically used that as a model. I wish I'd done more work on it, but my intuition is that a huge amount of our unfunded liabilities in some of the pensions is as a result of trying to deal with our human side using pension funds. I'm just thinking, if someone retires early and they get a $50,000 pension, to support that $50,000 pension you've got to have backup of probably $600,000 or $700,000 in the pension fund to fund that amount of money each year. Have you calculated the incremental cost to the pension fund of someone retiring early?

Mr Kolodzie: No, I haven't done it personally, so I can't truly answer that picture. But the point is, if a person stays on the job, he or she is staying for very little extra money in a true sense. If they retire early, they can maybe get 60%, so they're working for maybe --

Mr Phillips: I guess my point, if I might, is that somehow or other we have this feeling that the money that comes out of pensions is sort of a Never Never Land. But in effect you're suggesting that if someone retires 10 years early and gets a $55,000 pension and you replace that person with somebody making $45,000, in some respects that position's costing you now $90,000 a year: the $55,000 pension and the $45,000 -- in some respects, if you look at it that way.

Mr Kolodzie: The true saving is in not replacing the person who retires early. That's what they're doing in GM.

The Chair: Okay, I'm going to have to move on.

Mr Kolodzie: That's the true savings of not replacing a person. We could do some other things.

The Chair: I believe before this committee last year, you were talking about one civil servant costing the government $1.2 million.

Mr Kolodzie: Yes.

The Chair: Okay. I picked up a few things last year.

Mr Phillips: What other things?

Mr Carr: Thank you very much. I appreciate your presentation. I was interested in some of your comments about the management training we do. I agree. Having looked at a lot of companies, there is a real lack of understanding about management even in a lot of well-run companies. We've got a lot of poor managers out there, but we also have a lot of employees who don't understand, as well.

You teach a subject. I believe the way to do that for both somebody who's going to be the manager or some of the employees -- they need to know a lot of these techniques, where to expand the control and all the various techniques out there. Should we be teaching a lot of this in high school? Would they be able to comprehend it? If so, what grade should we be teaching some of the things you're now teaching at Centennial? Can we do it in 10, 11 and 12?

Mr Kolodzie: In a small way, it is introduced in high school through the business courses that some people take as an elective. I believe it should be --

Mr Carr: A core course?

Mr Kolodzie: It should be compulsory, but I'm biased. We teach a lot of social issue courses, but we don't teach any courses in --

Mr Carr: What's going to happen when you get a job.

Mr Kolodzie: -- yes, a person getting a job. I believe it should be taught, but it's got to be through efforts of people like myself who have to get out into the high school system and talk to students.

When they come into the college they take a general in the business program; they don't come in and take an operations management program right off the bat. A couple of them maybe do, but we recruit them from the business general studies program into operations management in our second year, and then we end up with about 25 graduates in operations management.

Operations management is a field that is necessary in the service industry, in government and hospitals; some of our case studies deal with hospitals, with government organizations plus manufacturing.

Mr Carr: I believe long term you're right, the way we've judged managers is you have a big stick, and if somebody doesn't do what you want -- the repetition -- then you hit him over the head. It's got to change on both sides. I think there will be better cooperation that way. Employees will enjoy it more. It's got to happen with nurses, it's got to happen right across the board, and the way to do it is through the education system so people understand some of these techniques, many of which are fairly new in theory. I think that's the way to do it and I think we should be doing that.

Looking at the Ontario government, where we've got about 90,000-odd employees, if we were to take your advice and go through the ministries getting the same efficiencies we would need, what level do you think, staffingwise, could we run the Ontario government on -- and it may be a difficult question -- if we were to introduce these techniques right across the board? What would we be at?

Mr Kolodzie: I can make a statement and I can prove it in a small way and extrapolate it across the board. If any people in my field use the position that if there has been no efficiency studies or no operations management studies in any organization, you can figure that there is as much as 50% too many people.

The Chair: I think you've shocked everybody here.

Mr Kolodzie: I could prove it. I don't know whether I taught the Christmas card example last year, but I can give you people a five-minute problem: How long does it take you to prepare 100 Christmas cards for mailing? I'll give you 100 stamps, 100 envelopes, 100 names and addresses and --

The Chair: That's a hard one. It could be on the computer already and the labels --

Mr Kolodzie: I'm not giving you a computer, I'm going to give you a pen. The answers can be horrendous, then I can teach you how to analyse work to break the job down and come up with -- everybody would have the same answer because we'd be doing it the same way, following the same method and technique. The worst answers I get are from general managers and presidents. The best answers I get are from first-year college students. Why is that? I've done a lot of thinking about that -- because first-year college students haven't learned any bad habits.

Mr Carr: I think you're right, I wouldn't go --

The Chair: Mr Carr, I've got to carry on. You've asked some real interesting questions there. Mr Wiseman? You didn't have your hand up? Mr Johnson, sorry.

Mr Johnson: Thank you for your interesting presentation, Mr Kolodzie. In my life prior to politics, or at least most of my life prior to politics, I worked for the Ministry of Community and Social Services. At that time, my perception of the government was that there was indeed an element of too many bureaucrats, I guess you could say. There were too many supervisors and not enough people doing the work and that was always a perception I had. But to achieve a greater efficiency, you indicated that at the bottom level, if you were to reduce the supervisors and double up, make it a wider scope of -- what's the word you used?

Mr Kolodzie: Span of control.

Mr Johnson: Yes, span of control -- then there would be some cost efficiencies, and I agree. But wouldn't it be better to apply that same idea and to achieve greater efficiencies higher up the ladder, because bureaucrats higher up the ladder make more money, and if you were to pull them out and increase the span of control at that point, wouldn't it be greater efficiency to --

Mr Kolodzie: Oh, it's all the way through the whole organization. My concept is reduce the levels of organization. You can take one of your ministries, the Ministry of Transportation, and have your deputy make an organization chart of everybody on one big wall and how many levels there are.

Mr Johnson: Why the deputy? Why not someone at the bottom, because the deputy has some pre-conceptions that might skew the good results you'd want.

Mr Kolodzie: Well, you can direct your deputy, but if you want something done, I've got college students who are looking for co-op positions and they can do it. Some of them are willing to work for the minimum wage; some of them will work for the opportunity of learning.

Mr Johnson: You mentioned another thing I found very interesting, and that's the fact that most supervisors truly don't know what their subordinates do. That's something I became very aware of as well when I worked for the Ministry of Community and Social Services. Most supervisors do not fully understand the extent or all the facets of the job their subordinates do.

Mr Kolodzie: That can be easily done with this activity estimate. There are so many simple techniques out there and people need knowledge. In our classes I call them nuggets of knowledge, and every class I try to have the students leave with four or five nuggets of knowledge. That's the key thing. I've tried to leave you with three or four nuggets of knowledge. You have to keep repeating and repeating and then it sticks in your mind. Ron has remembered a couple of those. But also keep in mind edufare, how much it's going to cost the taxpayers for a person who goes on social services. If that person could go into an education program to be a wage earner, you're just reversing the whole thing. There is no problem. We can compete with anybody in the world, no problem at all.

Mr Johnson: I think some of those programs exist, actually, and are starting to be implemented to take people off welfare and put them into the workforce so they can be more productive. Thank you.

The Chair: Okay, I'd like to thank you, professor, for coming before this committee again this year --

Mr Kolodzie: See you next year.

The Chair: -- with your extra few nuggets of education.

Mr Kolodzie: Next year I'll come in and give you a test --

The Chair: A test?

Mr Kolodzie: -- to see what you remember.

The Chair: The Chair doesn't write the test, only the committee members. I mark the test. I think some of the members of the committee should take a look at Hansard last year on your theory of reducing one person in the civil service. The cost, I think, was $1.2 million.

Mr Kolodzie: That was at last year's current inflation. This year the savings are not as great because inflation is under control.

The Chair: Okay, thanks, professor. We'll recess until 2 o'clock.

The committee recessed at 1202


The committee resumed at 1400.


The Chair: This is the standing committee on finance and economic affairs. The next presenter this afternoon is the Coalition Against Poverty. I'd like to welcome you to the committee. We have until 2:30 and if you can, leave some time at the end for questions from the committee members. Please identify yourselves for the purposes of Hansard. You may begin.

Mr John Clark: My name is John Clark. With me are Merle Terlesky and Josephine Grey. We'll be happy to help answer any questions that you might have. I apologize for my voice. I have a terrible cold, so I'm going to struggle through.

First of all, I would like to explain that we came before this committee because we had chosen not to participate in the round tables that were established by the Treasurer because we had found the basic notion of sitting around the table with the chamber of commerce and our opponents while the Treasurer looked on like Solomon to be not a particularly useful experience and not a particularly useful method of conveying the point that we're trying to get across.

Excuse me, I'm very sorry. I don't think I can --

The Chair: All of us have been battling a cold this winter. I think everybody's got one. When you get in here and it's so dry that it makes it even worse.

Mr Clark: The truth is I have such a high temperature I can't see what I've written. I'm going to ask Josephine Grey, who is with low-income families, to go ahead and make some remarks. I'm afraid I'm just unable to continue. All I have in front of me is a blur at the moment. I understand Josephine has some remarks for her organization she wants to make.

Ms Josephine Grey: I'm just going to look at his notes so I can add them to mine, if there are any that make sense to me. There's quite a few.

The Chair: How about we recess for three or four minutes. Then you can put your thoughts together.

The committee recessed at 1406 and resumed at 1407.

Mr Clark: I apologize for this lapse.

In any event, I'd like to make the point that your committee is holding these hearings at quite a pivotal period, approximately halfway through the term of office of the provincial government. What I wanted to suggest, on behalf of my coalition, is that it's time to take stock of some fundamental issues.

Primarily, we would like to address the question of the fixation with the notion of controlling costs, the fixation with the notion of deficit-bashing as a feature of government policy that has been so dominant.

I'd like to say, first of all, that in our opinion, in the experience of our coalition, representing as we do anti-poverty organizations across the province, it is simply not accurate to suggest that at the moment, as the Premier was suggesting in Boston, the needs of social justice and of financial economic competitiveness have been melded.

In our experience, the notion that the demands of Bay Street and the needs of the poor are getting an equal hearing before the government is simply not accurate. This government to date has engaged in cutbacks that health care workers will be prepared to tell you have hurt, that students know only too well have hurt; certainly the 160,000 people a month who are queueing up at food banks in Metropolitan Toronto alone are only too well aware of the fact that they have been hurt.

As a representative of an organization that marched with the governing party when it was in opposition and understood its commitment to the eradication of poverty, to the elimination of hunger, homelessness and poverty, to the ending of the need for food banks, over two years into the mandate of the government, we have to say that the situation facing the poor has deteriorated inordinately and that we don't feel it is accurate to suggest that measures of protection have been provided.

We are preparing now, we are bracing ourselves for another provincial budget, one that from all indications, from all that is being said by the Premier and the Treasurer, is at this stage of the game likely to be one that intensifies the neo-conservative route of cutbacks.

I suppose we would like more than anything to deliver the message to this committee that there are no more hits to be delivered that can be sustained by the basic social services of this province. There is no more fat to be trimmed. We are dealing with a situation where people are hurting and people are hurting very badly.

Quite the reverse, we call on at least the government side of this committee to reintensify its commitment to dramatic action to deal with poverty, the kind of dramatic action that was suggested when the governing party was in opposition. I'm aware of the fact that whenever one makes such a suggestion immediately the response you get is: "But where is the money for this to come from? We are strapped. We face severe financial constraints." That may very well be true.

We could talk about the measures of tax reform that this government suggested when it was in opposition, but I don't think that really addressed the fundamental point. I always well recall that on one occasion I heard a single mother make a presentation before London city council. She said to them: "You always tell us that there's no resources to meet the needs of the poor, but if a situation arose where the snowplowing budget for this city were all used up in the first month of the winter, it's absolutely inconceivable that your position would be that the money is all gone and we're just going to have to put up with clogged roads for the rest of the winter. There would be a recognition of the fact that maintaining open roads was a priority."

I would like to suggest that when governments of any political stripe tell the poor that there's no money to deal with their needs, that's not really what they're saying. What they're really saying is: "You are not for us a political priority. It is unfortunate that you live in poverty, but at the end of the day you're just simply not that important." I must say that in our experience, this government, as others before them, have taken that fundamental position.

The deficit that the Rae government seems so concerned about and so determined to wrestle to the ground is, I think, when all is said and done, not primarily a product of Queen's Park. It arises from the federal policies that have been pursued. It arises from economic conditions largely outside the purview of this government. But we have to say that through this government's route of cutbacks, it is making its contribution to precisely the neo-conservative agenda that is coming out of Ottawa.

When we see the spending power of social assistance cheques cut, when we see transfers to municipalities, universities, schools and hospitals reduced, it is simply, I think, inaccurate to suggest that this is some temporary measure necessary to get us through a difficult period. It is the beginning of the creation of precisely the kind of level playing field that the government in Ottawa has shown itself so committed to, and we find it staggering that this governing party has chosen to go the same route.

I apologize for my halting comments here, but more than anything our coalition would like to suggest and suggest very strongly to this committee that if it is going to do anything useful, it should be calling for a fundamentally new direction. It should recognize that the directions that have been taken so far by this provincial government, Tory-like in many ways, have hurt people very badly, have hurt the very people who trusted this party when it was in opposition. We'd like to see a commitment to defend and strengthen basic social services.

I suggest that it would be appropriate for the members of the governing party to leave neo-conservative politics to the professionals and give the people of this province what they voted for and what they expected. Thank you very much.

The Chair: I'll start off with Mr Arnott.

Mr Arnott: Thank you very much for your presentation. You did a fine job, in spite of your cold, of articulating your concerns. The C.D. Howe Institute issued a report about a week ago, and I, as the member for Wellington and looking at that situation across the province, had been increasingly concerned, prior to the issuance of that report, that at some point we may have grave difficulty in borrowing to maintain the programs we have. The C.D. Howe Institute is a think tank that has great respectability, which confirms that there is a strong possibility we may have difficulty in the future. Does that concern you?

Mr Clark: I think that unquestionably we can agree that the deficit is not a flippant issue. We can agree that it is a real problem facing governments. But at the same time, on the basis of seeking to control the deficit, we are seeing, I think, not just temporary cutbacks; we're seeing a fundamental erosion of basic and important and vital services.

I think it needs to be recognized that a million or more people out of work is a very strange way to run a country. I'll be the first to agree with that, but given that situation, if you have that number of people unemployed, you are going to have a large deficit. It flows from that situation.

If you choose to cut income maintenance maintenance programs to the bone and put your money instead into police services, psychiatric institutions and prisons, one way or another you still pay for that state of affairs. I believe that controlling the deficit is something that is going to have to come from economic recovery and not from putting the boots to basic and important services.

I think that in the final analysis the point we seek to get across to this committee is that as unfortunate as this situation may be, in the words of the ideologues of deficit control, and as regrettable as it maybe to leave a large deficit to our children, leaving a shattered infrastructure, leaving people who go hungry, leaving people who are literally sleeping on the streets, is an infinitely worse legacy to be leaving our children. We have to respond, I think, to this emergency situation with emergency measures.

Mr Arnott: Do you feel that society has a responsibility to ensure that all people have adequate clothing, shelter and food? Does it go beyond that?

Ms Grey: I think you have to recognize that a lot of what our laws relating to poverty and our programs relating to poverty are based on are some very old notions that even arise from times when a pioneer kind of activity was available. This is no longer possible for anybody. You can't just go out on a piece of land, build yourself a house, build yourself a farm and go from there. From now on, and from quite a while ago, you have to have money in order to survive. Having changed the way people live from their being able to subsist on their own to having to depend on an economic cash flow kind of economy, you have to be able to provide those things.

I don't think it's enough either to say, "You've got a roof over your head and a few pieces of clothing on your back." If people don't have access to the mainstream -- as they call it -- of economic life, to education and things like that, then you have people who are endlessly dependent from generation to generation. If you're going to have people who are actually able to make choices, to move in and out of poverty -- keep in mind that people who are poor are not people who are poor from the day they're born to the day they die. They tend to be people who are in that situation at that time and while they're in that situation, you have to make sure they don't fall right out the bottom.

This is what's happening now. A lot of these people who've become unemployed in the last couple of years due to the recession are not only going to lose some of the luxuries in their lives; they're going to lose everything they've had and they're not going to be able to recover. When somebody is 45 and is out of work now, and the family is forced to move out of its home and give up everything it has, it's very difficult for that family to be able to regroup and get itself back together.

The danger of this deficit reduction kind of idea is saying that the poor aren't important and you're going to let them drop out the bottom. You'll have people who therefore are not able to participate in the community and in the economy like they were able to. But I think also that I see this government and other governments making the mistake of saying, "Oh, we're just going to sit here and wait for the boom, for the recovery."

We're not going to have a normal recovery. This is obviously a restructuring, not just a recovery kind of situation. We have to change the way things are done and change the kinds of things people are going to do in order to support themselves. We can't expect big business to come flying in and give people a lot of jobs any more. If it's self-employment, if it's looking at local sustainable economies, if it's looking at other kinds of community involvement, we have to look at alternatives.

We can't just want for Abitibi or somebody to come in and give a whole bunch of people some jobs. It's not happening any more. I get really tired of watching governments wait for that kind of activity to fill in these holes. These holes are real and they have to be filled in by a lot of things, but in the meantime letting people starve is the worst possible thing, because down the road, as John pointed out, it gets even worse. Every time a family runs out of money and gets to the point where it is falling apart and it has to have its children taken by children's aid and everything else, you're spending two and three times as much on the same children as if you'd just given the mother adequate money in the first place.


Every time somebody tells somebody like me, "You should be out there in the workforce because you'd be contributing more," they're not looking at the reality of the situation. If I have four children, or if people have three or more children and are expected to go out and work, the amounts of money that are required to support that activity are as much as what I'd be earning.

Let's get a little more realistic and stop accusing people of sitting at home doing nothing and recognize that most people are there because of structural problems, not their own fault, and start curing those things.

Mr Arnott: Yes. I wasn't saying that. Just getting back to my question again, I was asking to what the extent --

The Chair: Just a minute. There was a comment the other gentleman would like to make, because, Mr Arnott, your time is actually up. I'll let him comment.

Mr Merle Terlesky: She hit on a lot of points, but I think today this government has to really make a fundamental choice. The history books are already beginning to be written on Brian Mulroney. We've seen a government there that concentrated primarily on deficit reduction on what I would say was the backs of the poor all across this country, and it isn't going to change any with another leader. I'm convinced of that, as a person on welfare.

This government in Ontario has to decide who is going to write its agenda and who's going to set its direction. You have an option. Your options are Bay Street and the triple A credit rating agencies and the International Monetary Fund and suchlike to write your agenda, and be the primary lobbying source for which direction you go in, or the very people who elected you and the very programs you have.

Ultimately, you can continue on the path you're going. There is an extreme disfranchisement with the electorate out there. They're quickly beginning to see right across North America that all three of these parties aren't really any different. Bill Clinton is already using the language that George Bush did, only weeks into his government: "The deficit's big. There's less money than we thought. We're going to have to cut people off welfare in two years." The language is beginning to be the same.

Really, I think, fundamentally this government has to make a decision as to whether it's going to be something different than all the other parties that we've had previously in power that concentrated on deficits, and whether it's going to start putting poor people ahead of that.

As to the idea that the cupboards are bare, I think myself and many others just simply can't buy it. The cupboards weren't bare for the Gulf war. Millions of dollars were put into that to go off and conduct that war. There was no problem finding money for that. That was Ottawa, but still, governments after governments that say the cupboards are bare are able to find money for different things. That's all I wanted to add.

Mr Johnson: You've said a lot and there's a lot I'd like to refer to, but I don't have enough time. I just want to talk about the future of the province from a government's perspective and how it deals with its finances.

It may not seem an important thing to someone who's impoverished that the province keep a good credit rating by those bond rating agencies, but incredible as it may sound, that's very important, because when the province wants to borrow money to fund all the programs and services that are demanded by the people of the province, because it can't fund them through the revenue because of the lack of revenue sources at this point in time, then a good credit rating is very necessary. How we manage today is going to determine how the province fares in the future.

I'm sure members of the opposition could argue some of the finer points of this, and so could you, I'm sure, but it almost doesn't matter. I'm going to say this: It almost doesn't matter who's in power; there are certain things that have to be done, and one of those things is making sure that the province is viable in the future.

How we get there, of course, is something on which nuances and some different viewpoints could be raised, but to have a good credit rating so that we can borrow money when it's necessary, so that we get the best rates, so that we have the money to fund the programs during this restructuring which absolutely is happening and we have to deal with, I think we have to take that into consideration. I just wanted to make that point.

I don't know that the analogy of a snowstorm and having money and going and borrowing money for a municipality to clear the walks is a good analogy to draw when you're talking about people who are homeless, poor, starving, as you say. I think that if people absolutely were starving, absolutely had no shelter, those things would be addressed immediately.

Certainly, when you talk about snow on the streets, everyone's concerned. Commerce has to operate and people have to operate. Otherwise, the revenues the province needs are in some way diminished because of that particular snowstorm you speak of. I just wanted to make those comments.

The Chair: Did you want to respond to Mr Johnson?

Mr Clark: Yes, I would like to briefly respond and really say this, and I think a couple of people have already alluded to this: When we're talking about the eroding of services in an effort to control the deficit, this is a slippery slope. We are not here dealing with a situation where cuts are being made and next year or the year after, these things are going to be reinstated. Throughout North America, the whole agenda that is being pursued is one -- as they say -- of the level playing field, the undermining of the social infrastructure.

We look at something like a decision to give people on social assistance an increase in their earnings that is below the rate of inflation. Let me say that this isn't something that can be taken flippantly. That's something that does a great deal of damage to people.

When it comes to the eroding of services, just recently we had the opportunity to go down and meet with our counterpart organization in Detroit and we saw the sort of, if you like, logical direction that is being pursued with this dismantling of services. It's of course true that this government hasn't gone as far as the state Legislature of Michigan, and we may hope that doesn't take place during the life of this government, but I want to make the point that this game of beginning to erode the services is under way in Ontario and I think you have to honestly face up to what you have done.

The Chair: I'm going to have to go on to Mr Kwinter.

Mr Kwinter: Mr Clark, I think it's interesting, because you are really reflecting the feeling of a lot of people about this particular government. I don't want to be partisan, but shortly after Premier Rae became the Premier, I had a conversation with him and he said, "You know, Monte, the best thing that ever happened to politics in Ontario is that we form the government," not because they were so great, but he said: "I suddenly realize what it means to be in government. When I was in opposition I never had any idea of some of the problems that we would have to address."

What has happened, and Ron and I were discussing this at lunch today, is that for the first time in close to 50 years, all three parties have had a chance to be in government, whereas for 42 years just the Conservatives were there.

What happens is that you suddenly realize that some of your aspirations, some of your desires, some of your policies sound great when you're in opposition because they're rather simplistic. All you have to do is take a look at the government's Agenda for People. They haven't been able to carry out hardly anything of that, and I'm not being critical of them. It's just because they were formulated in an opposition framework without knowing the reality.

The first budget that came out in 1990 stated that we were not going to fight the recession on the backs of the people of Ontario. They came out with this grandiose plan. Now they have done a complete flip because they have to come to terms with certain realities.

One of the things, and I'd like to get your comment on it, is that the deficit per se is not the problem. The problem is servicing that debt. No matter what you say and what you do, you can run that deficit as high as you want to and it's not going to make too much of a difference other than you've got to pay the interest.

What is happening when more and more of the tax revenues go to pay the interest, is that then you have less and less money to provide the services. It's a self-defeating proposition, because industries say, "Why would I go into a jurisdiction where most of my taxes are going to pay for a deficit instead of paying for infrastructure, instead of looking after the people, doing all of these things?"

I understand where you're coming from and I'm terribly sympathetic, but it would be very helpful if, without just giving a sort of emotional response, "How can you do this to the people who really need it?" you could give us some suggestions as to how to make this happen and still be able to function as a society.

Ms Grey: I think one thing that's important is to recognize that when services are not harmonized, when they don't mesh properly with each other, there's a lot of waste, a lot of duplication. Because ministries that deliver human services have a tendency to ignore the voice of the client in their delivery, they're often missing the boat and wasting a lot of money. A lot of things can be cleaned up simply by having better communication and by reducing the amount of administration that's involved.


For instance, the amount of money that's sunk into policing social assistance to catch that 3% to 4% of fraud is an enormous amount of money, it recovers very little, yet nothing is spent on getting back the money which is lost to tax evasion, which is much, much greater than any kind of welfare fraud.

All the various kinds of forgone revenues that the governments allow -- your government, the Tory government in Ottawa, you allow all kinds of forgone revenue basically which amount to subsidies to corporations and companies. These can be closed, and they don't all have to be closed. You don't have to terrify everybody and turn everybody into capitalists. You can just close little loopholes here and there and gain a lot of money back.

Things like, for heaven's sake, I think at this point when we have children who are starving and children's aid taking families apart, I think at least now you could get away with closing, for instance, whatever you call the business lunch exemptions, things like that. All of those kinds of things you could start to close off. People don't need these kinds of luxuries. They never did; they don't need them now.

You could also put some ceilings on some of the salaries of people, especially in crown corporations. You could put some ceilings on these really high salaries that are completely unnecessary and you could make sure that those who do have them are indeed actually paying the tax by closing some loopholes. There are some ways in which you can get some money back. I sat on the Fair Tax Commission; I looked at the numbers. There's money floating all over the damned place that nobody's getting a grip on what you could get back without harming anybody who's poor.

One of the reasons it's so easy to come down on the poor and cut programs to the poor is that the poor are essentially voiceless. But what the NDP should recognize is that it's largely the poor who got them in and that just because they don't have access to the media the way Bay Street does doesn't mean we're not paying attention. We're very pissed off.

But the other thing you could be doing is taking out some of the leverage. When it comes to things like development of social housing, there are consultants, lawyers, this and that and the other million things. People are getting hundreds of thousands of dollars a year in the process of developing one building or two buildings of social housing. You could cut a lot of that out and make sure your ministry provides those same services and save thousands and thousands of dollars.

You could also do some control around how the banks handle those things. You guys put money out to do things for social programs and you allow all kinds of private sector interests to feed off it like a bunch of vultures, including the banks. You can control that. You can also go back to Ottawa and say: "Look, you put a cap on CAP at a time before the recession. Take it off. Put the money back in." Because you know half the reason your social assistance rate money has gone so high is because they've reduced their contribution. Go after the federal government. Get them to put some money back. Say, "Look, you're still getting tax points from us, but you've been cutting what you give us." Also look at some of these alternative things that have been coming out, like the children's benefit. Start trying to find ways of delivering income maintenance without the level of policing that has been layered on top and without the level of administration. If you hook things into the income tax system, for example, you can get fairly accurate, fairly swift reporting without having to have thousands and thousands of bureaucrats involved.

I think you've got to start looking at where the waste is and the fat is within government and within the private sector that relates to social programs. But make sure that you protect the levels and increase the levels which, particularly poor children, are trying to live on. I tell you, it's just totally inadequate.

The Chair: I'm going to have to cut you off. The time's up. I'd like to thank your coalition for coming before this committee.

Mr Terlesky: Thank you.


The Chair: The next group is the Canadian Italian Business and Professional Association. Would they come forward, please. I'd like to welcome you to the standing committee on finance and economics. We have half an hour, until 3 o'clock. With your brief, if you can leave some time at the end for questions from the committee; and if you wouldn't mind identifying yourselves for the purposes of Hansard and the committee here, you may begin.

Mr Forese Bertoia: Thank you very much. We've prepared a brief and I think it's been circulated to you all. My name is Forese Bertoia. I'm a member of the CIBPA in Toronto and I've been chosen to present our brief to you. Do I have to push a button?

The Chair: No, that's all right. We just happened to turn off that mike. I can hear you better.

Mr Bertoia: I won't go through the preamble of what we have to say. You can read it for yourselves. Basically, we're concerned both on a provincial level and a federal level with the level of government spending and the taxes and what we consider to be tax fatigue.

Our association represents small and large businesses in the Toronto area and we have affiliated associations across the province. These are made up of individuals and families that have come to this country with very little and through hard work and daring have built up considerable fortunes and business interests, employ hundreds of people and generate millions of dollars and pay large sums of money in taxes.

We are concerned about the direction this province is going, the direction the federal government is going and the direction the municipalities are going towards relying increasingly on deficit spending, because in our view it threatens the opportunities that our community has benefited so greatly from. With that being said, I'd just like to proceed to what we think should be done and perhaps how it should be done. Perhaps you want to follow along. It's really on item X, page 4.

Basically, there's a general incentive or tendency to spend money on large projects -- I'll use the subway for an example, though it's a bad example perhaps -- that generate a lot of interest and create a lot of jobs, but those jobs have no lasting effect. For example, construction jobs will last six months or seven months, but then there's no lasting impact, they're gone, as opposed to a manufacturing plant that may last years and years.

We think the billions or millions of dollars would be better spent providing everybody with a general tax reduction. That may contradict what we have to say about the deficit, but if we're going to spend the money, which we don't agree with, we feel that everybody should benefit, not just a few select industries or individuals, which seems to be the tendency with the plans as they are envisioned.

For example, as we say here, a 1% reduction based on the taxable income in the province of Ontario generated by the taxpaying members would roughly be about $2 billion. We're going to spend a few billion dollars on subways, and there may be other projects in the pipeline, but we think it would be better off and create a better environment among the consumers and the people who will sustain the general economic recovery if they benefit rather than being taxed.

We also believe that new government agencies, like those that are proposed for highway and water, should not be established, because they represent an opportunity for governments to incur future debts to really pursue off-balance-sheet financing by sticking debt and expenditures in corporations that do not fall under the provincial accounting.

I think we can only look at Ontario Hydro, the Workers' Compensation Board and the last example, SkyDome, as examples of where the government has created government agencies and they've racked up billions of dollars of debt. If we allow the creation of a highway crown corporation or a water crown corporation, we're going to incur further debts in addition to the ones that are already there.

We believe that if such crown agencies are going to be established, they should operate basically on a balanced budget basis; that they should justify the money they're going to spend and be able to match the money they're going to spend through the revenues they wish to create.

We also believe that the money that's going into general revenues right now should be taken from general revenues and put into those crown corporations so that in effect there's not the ability for the government to double-tax individuals, once through a tax going into -- for example, there's the highway and road taxes, the gasoline taxes and the tire tax, and now there's a proposition that we pay tolls. We believe you can't have it one way and have it the other.

If we're going to tax people, if we're going to take an overview and say everybody benefits so everybody should pay, that's fine, but then we shouldn't levy on top of that additional user fees for the users of the service. If we want to tax drivers, then we should eliminate tire tax and gasoline tax, if that's the idea of the taxes.

We believe -- and we set out in the exhibits the expenditures by the government agencies -- that to control government spending without curtailing services, the agencies should pursue a zero-based budgeting initiative, because the tendency is, in our opinion, to just take last year's budget, spend it and say, "The rate of inflation is 1% or 2% and we need a larger budget next year." The problem with that is that 1% or 2% over four or five years contributes millions and sometimes billions of dollars to the required tax revenue.


In our item E and in our exhibit schedule 3, we've separated what we consider to be major program expenditures. They largely include Health, Community and Social Services, Education, Colleges and Universities and so forth. Of total government spending they account for roughly $43 billion of approximately $50 billion in government expenditures and since 1990 actual expenditures they have increased 37%. Now those are the largest absolute values, but there have been significant increases in the other smaller programs but 37% increase over four years.

Our concern is, are those programs serving the purpose for which they were originally intended? I listened briefly to the last group and they were talking about providing the services. For example, the Ministry of Housing has increased spending of $500 million over the last four years and that largely has gone to the operation and the construction of non-profit housing.

We don't want to criticize the provision of non-profit housing, but our concern would be, is it being effectively created through the construction of units and then the operation of those units by the government? Would it not be more effective to provide rental or accommodation credits to the people who require the housing?

I would agree with the previous group that when it comes to non-profit housing, you have architects, then you have development consultants and then you have general contractors, which are going to be required, and they all get a piece of the action and it may be more efficient to let the private market that is out there that is already controlled with rents supply the housing units. You provide the greater integration of those who require housing in the housing market without the additional burden of operating and building the units.

We also believe that perhaps now that the units are built, they should be converted to cooperative or some of those tenants be allowed the opportunity to buy their housing. With the reforms that are coming in welfare, we don't think that this would be a threat to their welfare allowances and would provide an opportunity for them to acquire their units.

Our other point is with regard to health care. It's clearly the largest expenditure in the government. It has increased 23% over the four years and represents $17 billion, $9 billion of which is directly related to the operation of hospitals, but through the employer health tax only $2 billion or $3 billion is directly raised to offset the cost of the health care budget. That leaves $15 billion approximately that has to come out of general revenues.

We believe that the health tax is unfair because it puts an obligation on a corporation, an entity which cannot benefit directly from the health tax. We believe that we should return to the system of health premiums where everybody, while not paying perhaps a direct proportion for the cost of the health care service, would be required to pay something towards the service rather than receiving it for free.

We believe also that the operation of hospitals -- it's only $8 billion. Having some experience with hospitals myself, perhaps it might be preferable to allow the hospitals, rather than forcing them to operate the budget every year, to retain money if they operate their hospital efficiently.

We also believe that the drug plans should not pay for drugs that are not necessary to the maintenance of health. We believe that only prescription drugs should be paid for by the health plan or the medical plan.

We also believe that the health care system should not cover out-of-country expenses. There are certainly enough programs available so that if somebody wants to leave the country and has the money to leave the country, he certainly has the intelligence to find a health care program that will insure him when he's out of the country.

We also believe that new social programs should not be implemented. We once again would turn to letting the private market provide the services. In the case of day care, we don't think the province or even the federal government should get involved in providing day care service, that social policy is much better achieved by allowing the deduction of health care costs from income. If somebody spends $10,000 a year paying for day care, that should be deducted from their taxable income because we think the private sector can provide the services much more efficiently than the government can.

We also believe that greater coordination is required among the different levels of government so that waste is eliminated among programs. In fact, the statements for the government of Ontario reveal that most of the expenditures are through transfers to other levels of government, and we would be concerned that those distributions are not duplicating services that are in existence in other departments.

We'd also give the example of the Ministry of Education. The ministry has policies and directives with regard to the curriculum and how boards are operated, and therefore some direction should be given to local school boards as to the rates of pay those individual members get and the terms of reference under which they operate. Are these boards of education recreating the wheel that's already been well documented in the Ministry of Education?

We also would prefer that if not externally, at least internally, the tax rates be itemized to the programs they're intended to fund. We believe, while this seems perhaps a nitpicking point, that it would bring a greater amount of accountability to government spending, would force the different departments to justify increases in their spending and then the tax rate that would be necessary to raise the revenue.

That briefly is our position on it. I would just reiterate that it's far easier for our concerns or the concerns regarding the deficit and the ability to finance the deficit to be achieved through government spending reductions, because given the level of taxation, the economy would have to add $60 billion to the economy to operate on a balanced budget, or a lesser amount to service the debt and result in a balanced budget.

I don't think that given the growth of the economy now and given the history of the way the economy has gone, that sort of growth can be attained in a short period of time. It is more effective to look at programs carefully and achieve sounder financial management through government reductions.


Mr Conway: I thank the presenter very much for the brief. As a practical matter, can you help me with the politics of restraint? I've been around here too many years and I actually engaged in a number of program reductions. The problem is that there's nobody in my parade. I've lost just about every one I've fought for. In fact, some of the loudest proponents for same, when the fight started, just took to the hills so fast that I couldn't even trace their footsteps.

I agree with a lot of your assessment. I'm not expecting significant growth. I think all of us have developed an appetite for a menu that we apparently can no longer afford. I suppose you could look back at the old Liberal government and say we played out the tax advancement to probably its current extent. It's probably likely that this government, for a lot of good reasons in tough, tough times, will have played out the deficit option to a very substantial extent. I'm just from Missouri, and I don't see too many easy choices left, so we've really got to do what you advise.

Having accepted your wisdom, wanting to do what you've advised, how do you help with the creation of a better political and public culture that this kind of short-term pain is really good for everything; it's like cod liver oil, it's really good for you, though it tastes like hell?

Mr Bertoia: We're asking everybody to go cold turkey.

Mr Conway: You caught my attention with SkyDome. I think you're really right about SkyDome, but I was here and I remember who led the charge for SkyDome, some civic boosters and some of the best business leadership in Metropolitan Toronto.

Mr Wiseman: Not to mention the media.

Mr Conway: I remember some people who tried to sort of stand in front of that train and I remember what happened to them. I just need some help, because I agree with you. What do we need to do to change the public context, to change the public culture, so people will understand that their hospital, their business subsidy, their highway -- you weren't here this morning to hear the gentleman from the Ontario Road Builders' Association. I hope he doesn't take some of that speech to the chamber of commerce because, oh boy, I got a very mixed signal from him: Cut everywhere else but the highway budget needs an infusion of some real dollars, which is usually the hymn we hear around here. Help me with administering your medicine.

Mr Bertoia: Well, I can't --

Mr Conway: But you've got to.

Mr Bertoia: No, I can't --

Mr Conway: But you're right, there are no other choices left.

Mr Bertoia: I can't explain other people's contradictions and the fact they switch from one side of the road to the other. I'll tell you right up front that I'm involved in the construction business as one of my ventures, and I should be sitting here advocating the building and construction of non-profit housing.

To be quite frank, I think the way it's operated is a joke, because it's true that you get everybody getting a piece of the action. You have development consultants. You have architects. The other thing too is that you have contractors that just appear out of nowhere, and you've never heard of them before, because it's quick and easy money. As I referred to at the beginning, construction jobs are short-lived, they come and they go; these companies, they come and they go. But the dollars are spent and it adds a burden to the operation of the government.

I'm not going to sit here and say we should advocate construction of non-profit housing. How do we get there? I think people are poorly educated as to the operation of their governments.

Mr Arnott: Thank you for your presentation. I can't say that I have any questions. I agree with much of what you've said. I unfortunately don't believe the government of the day is going to heed your advice, but hopefully the next one will.

Mr Wiseman: I have a couple of things. To start with your comments, you're suggesting that anybody who goes outside of Canada should receive zero in terms of funding for his health care. We changed that from paying all of their health care medical expenses while outside of Canada to what they would have received had they stayed in Ontario. I think that's an interesting comment.

Also, last year the hospital association came in here and said that it needed 8.61% increase in its budget in order to continue. We gave them 2%. Right now the current spending in this government is running about $500 million below the target. Where the problem comes in is that the revenues aren't coming in. I think there are some changes being made there. Treasury board, for the first time -- it just didn't exist before -- is there to review all the programs and I can say that's a massive job given the proliferation of programs, so I agree with you on that.

With the deficit running the way it is, I am just wondering, how would you be able to convince all of the major recipients? For example, to cut the budget the way you want to do is a 20% decrease or a 25% decrease right across the board for everybody: health, education, welfare, policing, firefighting, civic workers, children's aid societies. We had Peel in here this morning and it doesn't get enough now, and my community has a dearth of these as well. You have to address that kind of reality if you're saying to cut the deficit to zero.

Mr Bertoia: Ideally, you'd like to cut it to zero immediately, but in the brief we say that over a five-year period perhaps we should get to a balanced budget. With respect to where do we cut, how did we add 37%? Where did the money go?

Mr Wiseman: Welfare?

Mr Bertoia: Thirty-seven per cent?

Mr Wiseman: Unemployment? A deliberate policy on the part of the federal government to have 8% unemployment?

Mr Bertoia: Health care: We can get lost in the numbers, but I know the way the hospitals operate. The hospitals submit a budget, get a budget and work to spend everything under their budget. In my life as an auditor, I did an audit of a hospital and they had sessions trying to create accruals so they could utilize their budget, so they could justify next year's budget. With some of the creative minds that go to work, this particular hospital was accruing for the salaries it would have to pay on a leap year day. It seems to me to be a lot of waste of talent and time trying to set up an accrual for a leap year if the hospitals knew they could get the money they require.

Mr Wiseman: Is it 25%?

Mr Bertoia: Was it 25%?

Mr Wiseman: That's what you're looking at. You've got the numbers here. You cannot cut the -- we agree with you that --

Mr Bertoia: Where are you going to get the money to pay for it? You're not going to get $60 billion in the economy.

Mr Wiseman: What we're asking now is to help us in terms of saying what it is and where it should come from. I do have some disagreements with what you're saying in terms of how to do it. Your health care system would produce a system like they have in the United States.

The Chair: Can you sum up there?

Mr Wiseman: I agree with you in terms of getting the budget under control and balanced. I agree with that. I fundamentally believe in balanced budgets, but I think that to do it we're going to have to be sure we don't throw the economy into an even deeper downward spiral by putting a huge number of people out of work and not doing anything.

The Chair: Do you want to just comment on his statement and we'll wrap up then?

Mr Bertoia: I think we've got to the point and now we're afraid to go back. We can add, in the case of a major group, $9 billion in total. We've added $13 billion over four years. We can't go back and there's no attempt to go back. I think you could, and I don't say this facetiously, say we're going to just take 10% off everybody's budget and the system would manage with few adverse consequences.

The Chair: Thanks for appearing before this committee today. We're going to recess for five minutes.

The committee recessed at 1459 and resumed at 1508.


The Chair: We'll resume the pre-budget consultations. The next group to come forward is the regional municipality of Peel. I'd like to welcome you before the standing committee on finance and economic affairs. We have until 3:30. In that period of time, if you can -- well, my watch is a little bit different; it's a little bit slower, so you'll have a little more time than the clock says up there.

Mr Mahoney: We're on Queen's Park time, are we?

The Chair: No, I'm on Lincoln time; it's farther south.

On your presentation, Perhaps you can leave some time at the end for members of the committee to ask questions. We'll be starting off with the Liberal caucus for the first question when you're finished. Would you introduce yourselves for the purposes of Hansard.


Mrs Rhoda Begley: First of all, my name is Rhoda Begley. I'm the chairman of social services for the region of Peel. I'm here of behalf of Emil Kolb, the chairman of Peel, who was supposed to appear. Unfortunately, the chairman has a problem at home, so I'm here as his replacement; not second best, just a replacement.

With me is Mr Paul Vezina, our commissioner of social services, and Mr David Szwarc, director of social services, all from Peel. We're here today to bring you good news and show you ways in which we can help you save money in the province of Ontario.

The Chair: Great.

Ms Begley: Thank you.

Mrs Ellen MacKinnon (Lambton): You're not the first, though.

Ms Begley: This one is definitely going to work. I am pleased to have the opportunity to address the standing committee on finance and economic affairs during this pre-budget consultation. Although there are many areas of the provincial budget that I would like to comment on, I am going to limit my comments today to an area of provincial legislative jurisdiction that is of concern to many residents of Ontario at this time.

In intend to provide the committee with recommendations for some fundamental changes to the current social assistance system. I recognize that the previous Minister of Community and Social Services announced that a white paper on social assistance reform will be forthcoming from that ministry some time this year; however, I believe that the changes that I am to recommend to you today can be made to the existing system and rolled over into a new system and therefore should not wait until there are any future reforms to the social assistance.

I wish to emphasize that the changes to the system that I am recommending will not and are not intended to inflict further hardship on the individuals and families who have suffered as a result of the current economic climate or who have gone through the difficulties of family breakup or who are disabled or infirm.

Rather they are intended to eliminate some of the dependency traps in the current system and encourage mutual responsibility for the wellbeing of all Ontarians. They will also help restore confidence in the social assistance system. I believe that these changes can be made quickly if there is a commitment from the government to do so, and the result will be a better system and immediate cost savings to the provincial taxpayer.

Mr Chairman, I will now present you with specific recommendations.

Sole-support parents: In January 1993, there were approximately 185,500 sole-support parents who received $200 million in assistance under the General Welfare Assistance Act and Family Benefits Acts in Ontario. Although the intent of this social assistance legislation is to be supportive of sole-support parents, it actually traps them by providing them with a long-term pension. The government steps in when the spouse steps out.

Although there have been some improvements in the last decade through employment support programs and the introduction of a phasing out of benefits, the system continues to perpetuate the myth that women should be kept either by their spouse or by the government. We have seen that this system can be of support to sole-support parents while they upgrade their education or work skills and obtain employment that eventually leads to self-sufficiency; however, the majority of women in receipt of mother's allowance remain in receipt for a period of seven years.

They stay in receipt of assistance while their children are in school only to find that when their last child leaves school, they are no longer eligible for this pension and ill prepared for entry into today's changing workforce. The prospects for these individuals finding meaningful employment and becoming self-sufficient at that time are very, very bleak.

The program needs to be changed to ensure that sole-support parents are involved in education and retraining as early as possible. The social assistance system should be closely linked with the education system so that these sole-support parents can attend school with their children and, while not in the same classroom, at least be in the same facility so that their re-education can be coordinated with their child's education.

The specialized education and training resources must be brought to them in their local schools, either elementary, secondary or college, so that the impact on their families and the cost of support to the families can be kept to a minimum. Co-operative work placement programs will allow these parents to obtain on-the-job skills training and ultimately become self-sufficient.

The social assistance system could then be a truly supportive system for these parents. The end result, I would argue, would be that sole-support parents would remain in receipt of assistance for a much shorter period of time than is currently the situation.

It is my understanding that approximately $2.5 billion will be spent on pensions to single parents by this province by the end of this year. Over 40% of them have children of school age. This expenditure can be greatly reduced if the sole-support parents are required to acquire the skills that would allow them to participate in a meaningful way in the workforce, once their children are of school age.

Cohabitation: The social assistance legislation in Ontario recognizes two adults who are living together as spouses if they are legally married, or if they had a child together, or if they have lived together continuously for three years. If they do not meet any of the three definitions, then one of the two adults can receive social assistance without any consideration of the other adult's contribution to the family.

Approximately 10% of sole-support parents who are social assistance recipients in Ontario have such co-residents. Therefore, for three years such families can receive social assistance without the full financial situation of the family being taken into consideration. Ten per cent of the annual social assistance paid to sole-support parents is approximately $250 million.

I am recommending, Mr Chairman, that the legislation that defines a family unit for the purposes of social assistance be changed to eliminate this inequity. I would recommend that the three-year cohabitation rule be changed to a one-year rule. One year of co-residency is adequate time to establish a relationship without jeopardizing the sole-support parent's eligibility for social assistance. After that year, if the couple remains together, they should be treated as a family unit, and social assistance issued only if the family is eligible.

Support for refugee claimants and sponsored immigrants: As you are aware, Ontario is the home to many new Canadians who enter the province either through the federal refugee program or under the Immigration Act as landed immigrants. Although the refugee and immigrant determination process are clearly a federal jurisdiction, weaknesses in the administration of those programs result in the province of Ontario having to pay millions of dollars annually in social assistance payments to refugee claimants and sponsored immigrants. This is clearly an area of federal downloading to the province.

For refugee claimants, the federal government pays the full cost of social assistance payments, but only 50% of the cost of the administration of those payments for the first 12 months of residency. However, the determination process for refugees continues to take more than 12 months. After those first 12 months, the province and municipalities must pay 50% of the costs.

I recommend that the province undertake an agreement with the federal government that would ensure that the federal government takes up the full benefits and administration costs related to supporting refugee claimants from their date of entry into the country until they are granted landed immigrant status. This is not a cost that should be borne by the province or local tax bases.

In addition, the federal government immigration policy allows resident Canadians to sponsor relatives to this country. In the sponsorship agreement that the resident undertakes with the federal government prior to the immigration arrangement being approved, the resident promises to support the sponsored immigrant for a period of up to 10 years. However, the federal government does nothing to enforce these agreements once the sponsored immigrant is in the country. We are encountering an increasing number of situations where sponsors are refusing to support the families they have sponsored, and those families have no recourse but to turn to the Ontario social assistance system to have their basic needs met.

The agreement that I have recommended that the province undertakes with the federal government in regard to the refugee claimant situation should also contain the authority for the province to enforce the obligation between the sponsor and the sponsored immigrant so that wherever possible, the sponsored immigrant need not be supported by the general tax base in Ontario.


Statistics on the refugee and sponsored immigrant situation for the entire province are difficult to obtain. However, I can tell you that in the region of Peel approximately 2,000 cases each month, which represents 13% of our monthly case load, are such cases. I would expect that the provincial figure is higher than the figure we are experiencing in Peel, because many of the sponsored immigrants whose sponsorship breaks down are seniors who have been sponsored by their children, and these seniors end up in the long-term provincial family benefits pension.

The total cost in 1992 to Ontario taxpayers in the region of Peel for welfare for refugee claimants and sponsored immigrants is estimated at $18 million. Across the province, this must be a significant expenditure, but one that can be controlled if the political will exists.

Electronic funds transfer: The use of direct bank deposits as a method of making social assistance payments is slowly being phased in across the province of Ontario. The region of Peel has used this method for the last 15 years, and currently has the highest rate of direct bank deposits in both the general welfare assistance and family benefits programs across the province. Direct bank deposits allow for the transfer of funds with dignity and minimize the stigma that is often associated with cashing government welfare cheques. It also greatly reduces the potential of lost or stolen cheques and the need to replace cheques, which is time-consuming, expensive and easily abused.

Recent estimates are that the provincial government replaces 2,500 cheques each month for recipients of family benefits because their original payments go astray. The value of these replacements is $2.5 million a month, or $31 million a year. The administration costs of replacing these family benefit cheques is estimated at $1.5 million a year. I'm recommending that bank deposits become the primary and mandatory means of paying social assistance in Ontario to eliminate this unnecessary duplication.

Income tax system: The most important recommendation that I can make to you today is that the social assistance system be harmonized with the income tax system. Approximately 15% of the social assistance recipients in Ontario are employed, and receive social assistance as a wage supplementation to their earnings. While I recognize that this wage supplementation provides an important bridge between total dependency on social assistance and independence, I am concerned that these individuals are not taxed at the same rate as their fellow Ontarians, who are receiving the same annual level of family income.

In addition, we often hear allegations that the system can easily be abused because there is no year-end reconciliation between the income received and reported from earnings and the income received through the social assistance system. By ensuring that the social assistance system is linked to the income tax system and treated as taxable income, equitable treatment of family income will be achieved, and abuse of the system through unreported income will be eliminated.

These are bold moves that I am encouraging the committee to endorse. However, the history of cost containment exercises in the social assistance program in Ontario has been a history of tinkering with the system. Intended benefit cost reductions are usually eclipsed by the increased administration costs that accompany the changes. The changes that I have recommended are changes that will reduce costs by simplifying the administration and providing more equity in the program. In conclusion, they are:

(1) to significantly reduce the $2.5 billion spent on pensions to sole-support parents by requiring participation in education and retraining and eventual employment and by eliminating the inequities that exist in the rules regarding cohabitation;

(2) to reduce the hundreds of millions of dollars spent by the province and municipalities supporting refugee claimants and sponsored immigrants by negotiating changes to the federal government's administration of these programs;

(3) to streamline administration of the program by using electronic funds transfer/distribution system;

(4) to equalize the treatment of family income for tax purposes to reduce the abuse of the system through unreported income by integrating the social assistance system with the income tax system.

Mr Chairman, thank you for allowing me the opportunity to come before you and address the committee.

The Chair: Okay. We're going to start out with Mr Mahoney. He sings from the same hymn book.

Mr Mahoney: In some cases I do. Thank you very much, Mr Chairman. Rhoda, thanks for that and thanks for being here.

I think the comment was that you're not the first to suggest ways the province can save money, but while I haven't been in on all of these hearings, you're one of the first who hasn't done so and at the same time determined what amount of money could be saved and then asked for it. That in itself is perhaps somewhat unique and appreciated.

Councillor Begley, in my days on regional council, prior to your arrival there -- Paul, the commissioner, will recall -- we had a thing called Project 1000, which was touted as a highly successful program that is not far off some of the recommendations you make in dealing with sole-support parents. For members of the committee, Project 1000 identified 1,000 women who were on support. It put them in training programs and was very successful in getting them off of mother's allowance and government support and into the workforce.

Maybe Commissioner Vezina has to give us this, but through you, Rhoda, I wonder if you could tell me and the committee what's going on in that regard. Is Project 1000 still going? If so, do you have anything to report on it?

Mr Paul Vezina: Project 1000 is going on. We're still committed to the idea that sole-support parents should have a right to education and to employment as well as to child care, whatever supports they need to get back into the mainstream of society. That may require a period of time on a pension, but in our view seven-plus years is probably too long, and in effect probably traps them into a form of dependency where they come to rely on government as the surrogate spouse.

What we're really saying is that as sole-support parents come on the system, they should get their pension, but they should also be streamed into training and retraining programs fairly early on, so that as soon as possible they can get back into the system. We question the concept of a long-term pension for single parents as the ideal solution to self-sufficiency.

The Chair: I've got to go on to Mr Carr.

Mr Mahoney: Oh, really? That's all there is left?

The Chair: Yes.

Mr Carr: Thank you very much for your presentation. I think we finally are going to see changes. As you know, this government has talked about it, so you've got a socialist government saying it's going to make some changes. In the United States, you've got a Democratic president whose plan, if you've read it, as I have, has basically said after two years you will work or you'll work for the government. The issue, I think, is going to be addressed somewhere and it's being driven by financial -- to go from $2 to $6.2 billion and now have one in nine people, I guess, approximately, on some form of social assistance, has driven that.

On page 2, I was interested in the talk about cohabitation. The situation as I understand it is that if you are a single mother and are living with somebody, you can get it, but if you were married, of course, you would not get social assistance. What happens is that they just don't declare that they're living with somebody. Even if you bring this in, people can very easily lie with that.

In Quebec, I guess Bill 37 essentially sends people to go around and knock on neighbours' doors and say, "Does Mary live with Joe?" or whatever. They've taken that action, and some of you may have seen it on The Journal; it got criticized, but that's what the Quebec provincial government is doing. Would you advocate going as far as Quebec has done to be able to enforce it, or how would you see it being enforced?

Mrs Begley: Our recommendation is one year. Once a couple live together for one year, we figure that at that point they know they want to live together. That's what our recommendation is; not to go around as Quebec is doing. Right now it's three years before we can make up our minds that they want to live together. One of our suggestions is that we look at it after one year. This should be time enough to realize whether you want to live with this person or not. That's when we then implement the three-year situation, at that point.


Mr Carr: You may know that the auditor was very critical of the process of verification. I won't get into all the details but it was fairly critical. For example, for somebody coming in and saying, "No, I don't live with anybody," for a period of time and then still collecting, I'm still unclear how the enforcement will work, if somebody lies and there is nothing that can be done. How would you see it being enforced?

Mr Vezina: At the present time, the process is that at the time of application, the applicant must declare the cohabiting person. We note the date and from that point on, a three-year tick system is set in motion. What we are recommending here is that this be compressed to a one-year time frame, because if you think one year is going to be difficult, three years becomes very, very cumbersome.

Mr Carr: Sorry to interrupt, but if somebody does not say they are living with somebody, there really are no controls in place to check to make sure if they are.

Mr Vezina: There are some checks. There is no foolproof mechanism, but if people are defined as man and wife in the community, if they share the same roof, if they take the same holidays together, if they drive the kids to school together or separately, there are indicators that indicate persons are living as a man and wife. We're looking for a commonsense, reasonable approach. The intent here is not to snoop. We have no intent to go in after hours. We're really saying that one year is sufficient time to determine whether a spousal relationship exists, instead of three, and with the three-year process, you're into a long-time, very costly process that really cannot be managed very well.

Mr Wiseman: I agree with a lot of the substance of what you're saying here, but there are the costs associated with doing this in terms of tuition fees for the single mom or single parent -- it could be either way -- the day care costs and expenses for travel, for clothes and so on, and also -- how did you handle that problem with Project 1000? How did you do that, because we're finding that these costs and these factors are really inhibitors in moving ahead.

Mr Vezina: In fairness, the government does allow for these costs as part of retraining. It's really a question of accessing the costs and providing them to the recipient. Ultimately, it's a cost-benefit analysis. If it costs us $2,500 for day care and another $1,000 for books and tuition and clothing, but we can cut two years of family benefits on the pension, we have more than made the money, and in effect more than helped the person.

It's really a question of whether you're prepared to put money up front to allow the person to step up, rather than to stay on the pension. Those employment-related costs are available at the moment. They simply need to be accessed by administrations.

Mr Wiseman: I'd like to move to a topic that you didn't address, and that is what I call a "dead-beat parent," and in the United States they call it "dead-beat dads," who take off and don't support their kids at all. We've brought in some changes to that, but there's still a significant part of that population that finds ways of hiding their income. I'm wondering if you have any recommendations on that. I have a couple of ideas of my own, but you might be -- they're so draconian.

Mr Mahoney: Are they legal?

Mr Wiseman: They're legal.

Mr Vezina: One of the recommendations here is that welfare is the only benefit of all the benefits, provincial and federal, that is not income-tax reportable. It's the only one. We're saying make it reportable, but the same logic applies to support payments. This government and previous governments have set in motion very expensive schemes to chase defaulting spouses, and I can assure you, American Express doesn't chase me; it meets me at the end of the month and the way to deal with defaulting spouses is through the income tax system. Don't even bother chasing them. Meet them at the end of the year. It's not hard.

The Chair: I'm sorry, Mr Wiseman. Time has run out. I'd like to thank you for appearing before this committee.

Have you circulated this to other municipalities, or only to this committee?

Mrs Begley: We saw the minister and we presented him with it, so he's aware of it.

Mr Mahoney: I should point out that a couple taking holidays together doesn't necessarily mean they're happily married. Sometimes the opposite is true.

Mr Vezina: I'll make a note of that.


The Chair: The next group to come forward is the Canadians for Constitutional Money. Would you mind taking a seat up here at the presenters' table? There are four of you? Okay, fine. Settle in there and if you want a glass of water -- how many glasses are there? One glass? You're going to have to share one glass?

We're going to have half an hour here. I don't look at that clock, up there; I've got my clock in front of me here winking time. Perhaps you wouldn't mind identifying yourselves for the purposes of Hansard.

Mr Andre R. Marentette: My name is Andre Marentette. I'm the chairman of Canadians for Constitutional Money. We are a non-partisan group promoting non-interest-bearing loans of government-created money.

Our presentation will be made today by the chairman of our economic advisers, Professor John H. Hotson from the University of Waterloo, Mr William Krehm, Toronto businessman and publisher of Economic Reform, which is a newsletter for COMER, the Committee on Monetary and Economic Reform, and Professor Harry Pope, who is the author of the textbook Economic Principles, and it's in its sixth edition. I'm going to let those gentlemen talk on this subject.

Mr John H. Hotson: I'm here today to talk about the deficit problems that the Ontario government shares with so many other governments, and what the sovereignty proposal that Canadians for Constitutional Money are putting forward in Canada is all about.

Deficit reduction is all the rage today, but what few of our would-be deficit cutters seem to consider is that cutting expenditures or raising taxes will make the current depression worse. The world did not end the Great Depression by balancing government budgets. The near-zero interest rates of the late 1930s, though helpful, could not induce sufficient private borrowing and spending to restore prosperity. This idea people have that a contractionary fiscal policy of cutting government spending and raising taxes will be more than offset by an expansionary monetary policy as we get interest rates down can work in a mild recession, but we've given ourselves a deep depression.

If we look back to what we learned and then forgot from the Great Depression, the Depression was ended only when central governments all over the world drafted their central banks and forced them to create a flood of new money to finance massive government deficits at near-zero interest rates. These massive deficits, upwards of 25% of GNP for several years, resulted in a great rise in private incomes and a great reduction in private indebtedness. It was this creative use of the powers of the central bank and the central government which made Canada, in a few years, an industrial power, and ushered in some 35 years of the greatest growth and the greatest employment levels in the history of capitalism; indeed, in the history of the world.

Tragically, the flood of new money that ended the Great Depression was created to finance the Second World War, not the peaceful public works which could at any time from 1929 on have ended the Depression without a war. We're in the same boat today. We're in this depression because the private sector has become massively overindebted, and because the high interest rate policies of central banks only made matters worse. Canada will not get out of this depression until we force the Bank of Canada to adopt some version of the policies which financed the Second World War. Furthermore, basic reforms of banking and money creation must be enacted if we are to avoid yet another boom-bust cycle. That is the message I hope to get across today.

As I see it, the governments of Canada have broken three fundamental financial rules. These rules are:

(1) No sovereign government should ever, under any circumstances, borrow any money from any private bank.

(2) No Canadian federal, provincial or local government should borrow foreign money when there's excessive unemployment here.

(3) Governments, like businesses, should distinguish between capital and current expenditures, and when it is prudent to do so, finance capital improvements with money the government has created for itself.


In the rest of the time I have, I'll speak mainly about this first point. Professor William Henry Pope will focus upon the second rule. Mr William Krehm will do the same for the third rule.

Now, COMER is a think tank. You have the handout, I believe. Have they got the handouts?

The Chair: Yes, we do.

Mr Hotson: Okay, fine. I'll skip over that statement of purpose, statement about why our financial system is unsustainable, why it needs basic reforms. Turn to the middle of page 3.

Bad monetary policy and bad monetary institutions have caused the depression crisis which now grips the world. But every crisis is also an opportunity. A most promising solution and action plan to end the depression has developed out of COMER's deliberations. This is the Sovereignty loan petition created by Mr Ken Bohnsack of Freeport, Illinois. The petition reads as follows:

"To promote the general welfare: we, the people, petition Congress to make interest-free loans of United States Treasury money to tax-supported bodies for voter-approved capital projects."

The Sovereignty loan petition has gathered an extremely impressive level of support in the US. Some 1,731 tax-supported bodies, plus the US Conference of Mayors, with 1,050 members representing cities and towns where 80 million Americans live, have passed resolutions supporting the Sovereignty loan petition. So we can be confident that the enabling legislation will be introduced into this session of the US Congress.

The Sovereignty loan plan has spread far beyond the United States. I had the pleasure, along with Mr Bob Blain, another professor, of travelling through New Zealand for five weeks, spreading the word about the Sovereignty loan petition. If I had more time I'd love to talk more about that. New Zealand was the only democratic country on earth to get out of the Great Depression before the war forced the monetary expansion which brought about the end of the Depression everywhere else. They did it in exactly the same way as the Sovereignty loan petition. So I was just telling them, "Go back to what you did and forget this `new right' stuff that got you in such trouble."

The Canadian organization to promote this plan could not be called Sovereignty for obvious reasons having to do with Quebec separatism. That's a pity because Ontario's own Mackenzie King said it all. "Without government creation of money, talk of sovereignty and democracy is futile." Andre chose the name Canadians for Constitutional Money.

This name makes the fundamental point: A sovereign government like Canada reserves to itself the constitutional power to create legal money. Indeed, only government of Canada money is legal money or legal tender, just as it says on any Bank of Canada note. You pick it up and it says, "This note is legal tender." That's the only legal tender money we have.

The bank money that is so much more prevalent today is merely a promise to pay legal tender. That can work fine, but we've got a very top-heavy situation now where there's very little legal tender in the country, very little actually spendable -- M1, they call it -- and we're getting along with very high interest rates, very inefficient money substitutes, "funny moneys" including M2 and M3.

The Bank of Canada has all the powers already in the Bank of Canada Act necessary to carry out some Canadian version of the Sovereignty plan. I'll skip over the well-known passages of section 18 of the act.

By wise use of its powers from the day it opened its doors in 1935 through the end of the war in 1945, the Bank of Canada created almost 80% of the new money needed to end the Depression and win the war, if we define money as M1, and 75% of the money if we define it as M3, because M3, these "funny moneys," were not very important back then. I give the figures.

What a contrast to the most recent period. In 1945 the Bank of Canada's base money, or its legal tender, was 68% of M1 and 27% of M3. By 1992 it was still 64% of M1 but only 8% of M3, as M1, the transactions balances, had fallen from 40% of M3 to a mere 12%. It's because of the liquidity shortage which the bank has caused that interest rates have risen from their near zero level in 1945 to the 1980s peak of over 20% before falling to their present 6% or 8%, which is still too high for recovery.

I urge Ontario, the most powerful province in Confederation, to demand that the federal government exercise its constitutional powers and compel the Bank of Canada to create meaningful sums of money and lend these sums interest-free or at its wartime four tenths of 1% to 1% to provinces and local governments to pay for the new infrastructure programs, such as Toronto's new subway etc, that we need to deal with our unemployment and with our infrastructure, educational and environmental deficits.

Jack Biddell, FCA, in a soon-to-be-published book, proposes that Canada adopt an interesting variant of the Sovereignty loan plan. By his plan the federal government would have the Bank of Canada assume and eventually retire the present debts of the provinces, and in the future finance their deficits at nominal interest rates. Not only would this free the provinces of their financial straitjacket; it would give our presently alienated western provinces, as well as Quebec, a powerful incentive to remain in Confederation.

Now, would the return to full employment be inflationary? Not if it were properly handled. I totally agree with Jack Biddell, who is Ontario's representative on the federal Anti-Inflation Board, and later chairman of Ontario's Inflation Restraint Board that inflation should be handled by intelligent income policies, not by counterproductive interest rate hikes.

In this regard I've given to each of the party representatives a new and important paper by Ballard, Brox and myself entitled, "Monetary Policy Doesn't Work the Way It Used To: In Fact It Never Did." This paper demonstrates econometrically that interest hikes increase inflation and unemployment in the short run and have no long-run impact on anything. They're short-run pain for no gain.

I'll be presenting this paper at the University of Ottawa on Friday. I've written to Mr Crow at the Bank of Canada and his underlings, requesting a situation like this to present it to his economists, and the same thing at the Department of Finance. I haven't opened my mail with the university yet to see what's happened.

One final point, then I'll quit and turn it over to Harry Pope. While Ontario is waiting for Ottawa see the financial light, you need not sit on your hands. That the government of Ontario has had its own bank since 1921 is a well-kept secret. Why? I refer to the Province of Ontario Savings Office, which now has $2.1 billion in deposits in 23 branches scattered throughout the province. It has 105,000 depositors owning $1.4 billion in its Trillium chequing-savings accounts and some $700 million in 40,000 GIC accounts.

All the money deposited in savings office is lent to the Ontario government and is its cheapest source of loan money, yet only 4% of the provincial debt is presently financed by the savings office. Why can't the Ontario government and its agencies move all its money to the savings office instead of banking with the private banks? Why doesn't the government of Ontario publicize the savings office instead of the lotteries, which are so destructive to people who get hooked on the hope of something for nothing? With that question I'll stop and turn the mike over to Harry Pope.

Mr William Henry Pope: The three-page paper we handed to you is called "Debt Crisis -- or Opportunity?" Very fortunately, the C.D. Howe Institute gathered 19 so-called or self-styled experts together to look at our double debt situation: the federal and provincial government debts and deficits and, of course, our net international indebtedness. The headline was "Debt Crisis Looms, Study Warns." I go on in this paper to explain that the crisis will only occur if the Bank of Canada acts in the stupid way it's been acting all along and raises its rates of interest when the dollar drops.

I'll get down to the middle of the first page now. One of the workshop participants said, "Canada must borrow nearly $30 billion annually [from foreigners] -- in good times and bad -- to finance a chronic current account shortfall." The same idiocy is repeated in the Financial Post and every other paper I've ever seen dealing with the subject.

The notion that Canada must borrow abroad to finance the current account deficit is to get it precisely backwards. Here I go on to quote Richard Lipsey. Professor Lipsey, who is in competition with -- at least I'm in competition with him, to be a little less presumptuous. I quote him because he is our most pre-eminent academic economist and he did come to Ryerson just at the time my first edition was in print, or in page stage.


He made a speech on the Canadian dollar and then he said halfway through it, "Now I'm going to tell you something that people always get backwards and make compete nonsense of themselves." I said, "My God, I made a schoolboy howler and the stuff that's already in print, I'll have to yank it." But then he went on to say this:

"We do not borrow abroad because we're importing more than we are exporting; on the contrary, we have a current account deficit (more imports than exports) because we are borrowing abroad."

That's when I felt very relieved, of course, and in the second and third, fourth and fifth editions of my book I quoted him directly without saying that he was a pre-eminent academic economist and textbook writer. I'm happy to quote him from a Ryerson speech:

"Without a current account deficit (more Canadian dollars supplied than demanded because of current account transactions) the importers of capital would be quite unable to effect their capital imports by turning their foreign currency into Canadian dollars."

The way it works, I'll explain. The inflow of foreign money on capital account or our foreign borrowing -- the $3 billion, for example, the government of Ontario borrowed abroad earlier this year -- increases the demand for the Canadian dollar. Anything that increases the demand for something pushes up its price and in proportion lowers the price of foreign currencies to Canadians. This is why Canadians wish to increase their imports, and to do so exchange their Canadian dollars for the now cheaper foreign currencies that came in on the capital account. At the same time, the increased price of the Canadian dollar discourages foreigners from buying our exports. Thus, the capital account surplus causes the current account deficit.

As I wrote a couple of years ago in Policy Options, nothing could be better for Canada than that foreigners should take out every bloody cent they ever lent us and then the dollar would drop, and that's the best thing that could happen to Canada. Of course, it would make it more costly to go abroad and imports would increase in price, but that's something that's just in the system. We can't overcome that. We've been so unproductive for so many years because of the high rate of interest, the sooner the dollar drops the better.

When I wrote the first edition 12, 15 years ago, I talked about the advantages of having an 85-cents dollar. In the second edition I'd talk about an 80-cents dollar, then 75. Every three years I would drop it by five cents, because the longer we have the high dollar and encourage these imports of foreign capital, supposedly for investment -- not a bloody cent is invested in Canada. They buy our bonds. They are foreign savers who buy our bonds because they're worth more and they pay a higher rate of interest than their bonds.

Investors are the Canadians who don't borrow Canadian money because it's too expensive. At 6% rate of interest even now, or 7% or 6.5% prime rate, it's a real rate of interest of about 5%, which is about double the long-term average, so we have very low investment, and very low investment means we're very unproductive, and being very unproductive, we've become less and less able to export and more and more desirous of importing and therefore the current account deficit gets worse and worse. But it's caused entirely by the foreign borrowing, which has a double whammy of high rates of interest where foreigners want to buy our bonds and the high rates of interest leads to our discouraging real investment.

Finally, I do mention here wage and price freeze, and I do know that this is not favourable to the NDP because the last time we had a wage and price freeze, as we well know, it hit labour much harder than anybody else. It should have been brought in three or four years earlier when profits were soaring, not brought in when labour was trying to catch up -- in fact likely more than caught up -- and therefore we had the freeze.

I also -- I don't like putting this "also" because my wife reads what I write and she is a direct descendant of Genghis Khan. As such, she has no use for any government interference in the economy and therefore she's opposed to wage and price freezes also; just to let you know that it's not only the NDP that's opposed to wage and price freezes and labour generally for perfectly good reasons.

Anyway, if we no longer borrow abroad, you might say, "Then what about the $50 billion annually that the governments of Canada are borrowing? With $30 billion of that no longer got from foreigners, who will lend it?" The point is, when our governments borrow abroad, they do so because rates of interest are lower there. This is precisely why Ontario borrowed $3 billion abroad earlier this year, because of our central bank's high interest rate policy precisely designed to encourage our borrowing abroad. The Bank of Canada wants to keep the dollar as high as possible just because it looks good -- for no other reasons.

But our governments do not wish to spend the foreign money they have borrowed. Accordingly, they exchange it for Canadian dollars with Canadians who wish to import, and they wish to import because the dollar is too high and there are foreign currencies that are too low and therefore it pays to import. Thus, cutting off the inflow of foreign loans will not change the amount of Canadian dollars available in Canada.

But instead of being directed to imports, after being exchanged for the foreign money borrowed by our governments, these $30 billion of Canadian dollars will now go to buying Canadian production, and $30 billion more goods and services at $100,000 a job -- taking in the profit and everything else, $100,000 is about what a job costs -- comes to 300,000 jobs. Add in the spinoffs and unemployment is down well below a million for the first time since 1981. That's how you get full employment, by letting the dollar drop.

These sharp reductions in unemployment will sharply reduce unemployment insurance and welfare payments, and sharply increase the incomes of half a million and more Canadians who will now be paying far more in income and sales taxes. This all leads then to the government deficits of all our governments maybe being cut in half.

But it would be naïve to suggest that we can get to this far better world instantaneously. There will be a lag before Canadian savings increase enough to fund fully -- naturally with higher incomes, there are more savings available for buying government bonds by Canadians in Canada. There would be a lag before Canadian savings increase enough to fully fund the government deficits remaining, even as the economy improves, because of the complete cutting off of the annual $30 billion of foreign loans.

You must get this idea that these foreign loans are a disaster for Canada. All this foreign money can only be used to buy foreign goods and services and pay interest and dividends on our past borrowings.

The workshop participants were correct in saying that this would then lead to some people saying: "Let's monetize the deficit. Let's have the Bank of Canada buy these bonds." Well, that is fine and I agree with that, but at the same time as the Bank of Canada buys the bonds, it must raise the reserve ratio. The reserve ratio now is being done away with entirely. It's under 4%, which means that if $100 of new money is created by the Bank of Canada by buying a government bond directly, that goes into a bank account. The bank then lends out $96. That goes into another bank which lends out 96% over $96, so that finally the money supply increases by $2,500 because of an initial increase of $100 by the Bank of Canada.

Raise the reserve ratio as high as you like, to 50%. I'd go all the way to 100%, actually, but 30% to 50% so that the monetary multiplier instead of being 25, becomes 2.

As John Hotson was saying, every time the government of Canada wants to borrow money, it should borrow from the central bank, but it can only do that without it being inflationary if the private banks are prevented from increasing the money supply, as they've done in the past, by lending money on a very low reserve ratio.

Now I do agree that the advocacy of a considerably lower-priced Canadian dollar cannot sit well with provinces, such as Ontario, that have borrowed abroad in foreign currency denominated bonds, but there's no way around it. The fact that the Bank of Canada deliberately induced the provinces to borrow abroad to support the Canadian dollar, as the stupid expression is, is beside the point. The longer we encourage an inflow of foreign savings, the greater will be the eventual fall in the dollar's external price, and the greater will be the foreign exchange losses of the provinces.

What the government of Canada must do is order the Bank of Canada to increase the money supply to bring down short-term rates of interest to about 3%. That, of course, will then lead to Governor John Crow's immediate resignation, which is a very important subsidiary benefit, and then a new governor is appointed who has a few brains and we'll get back to the best of all possible worlds.

It's going to happen eventually. We have a monetary crisis which will come about when the foreigners say, "You've overdrawn and we're not going to lend you any more," and then the dollar will drop, and then with Governor Crow or anyone else in the Bank of Canada at present, will raise rates of interest by 20%, 30%, 500% maybe, like Sweden did, and then we'll have a crisis. It would completely wipe out all real productive investment in Canada. We'd be in a complete bloody mess. The way to overcome it is to tell the bank to increase the money supply now to bring it down. Then, of course, foreigners start taking their money out and the dollar will drop maybe to 50 cents. The longer we put it off, of course, the farther it's going to drop.

My recommendation to the provinces -- and as you are a province, of course, that's what interests you; you are not the one that's going to tell the Bank of Canada what to do -- is simply to try to convert your foreign-pay bonds to Canadian-pay bonds while there's still time. You borrowed abroad because the rates of interest were lower, which is what the Bank of Canada wanted you to do. What you must do, though, as fast as you can, is try to convert your bonds to longer terms, to increase the maturity for 10 or 20 years, because if within the next couple of years the foreigners quit lending us their money and the dollar crashes, that will over time then greatly increase our productivity.

You'll then have rates of interest down to 3%, still having this foreign money coming in to boost our dollar at competitive levels, and then after the smoke is cleared, you can then start increasing our productivity, increasing real investment in Canada and then the dollar will start to rise as we start increasing our exports and cutting our imports. We'll get back to the sensible world, but I would say it'll take about five or 10 years.

The solution for the province is that during this time you still have, maybe a year, maybe two, maybe three, before the dollar crashes, is to try and convert your foreign-pay bonds to as long a maturity as possible or convert them to Canadian-pay bonds, which means you pay a higher rate of interest but you take a much smaller foreign exchange loss. It's better to be paying 6% or 7% in Canada now and have the dollar drop 20%, which means you've got to pay 20% more to the foreigners when you pay them back in their own money.


Mr William Krehm: For the last almost five years, we have been distributing among you and among other legislatures across the country our monthly newsletter, which is Economic Reform. I trust that some of you read it. Those who do will remember that we have been advocating a program of infrastructural renewal as a way of getting the country out of the depression. Your government, our government, has now adopted one and on that we congratulate it. However, the framework for such a program to succeed has not been defined.

For example, the distinction between capital spending and current spending is completely ignored in the accountancy of the Ontario government and of the federal government and of most of the provinces. When any of these governments puts up a building, buys land, it is treated in exactly the same way as when it buys floor wax for the Legislative Building. It is entered on its assets at the token $1.

The Auditor General of Canada recommended that a capital budget be introduced years ago. The United Nations has made the same recommendation internationally, but nothing has been done about it. Why would there be so much resistance to introducing the elements of accountancy into government affairs? If you tried running a private corporation on that basis, it would be bankrupt from day one; it couldn't raise one dollar of capital. The answer is that too many people have been engaged in playing political games with the issue. That's not the only issue, that ideological games have been played with; the other is the deficit. The deficit is not due to the lack of savings. The deficit is basically due to the high interest rates imposed by the Bank of Canada in order to suppress upward price movement that it did not even take the trouble to try to understand.

The Depression of the 1930s and its financing was ended, and the financing of the Second World War was successfully undertaken, by the central bank making available its money-creating powers to the government. Professor Hotson has dealt with that, but there is no reference to that in the public press at all. It is a suppressed chapter of our history. Now, our history is an asset. It's for nobody to tinker with, neither those on the right nor those on the left. You will find the provisions that make possible the creation of money for the government at a token rate of interest still in the Bank of Canada, rather like a dinosaur's tooth, remarkable not only for the fact that it's big, but that it hasn't been put to any use to chewing for eons.

That article allows the Bank of Canada to discount paper, to borrow against debt guaranteed by the provinces or the federal government. Would that not be inflationary? That depends entirely on what is happening in the real economy. If there are unemployed workers, if there is unemployed industrial capacity, it is not inflationary. If on the other hand, there were no excess productive capacity, it might be inflationary. I believe that there is a bit of excess capacity, both in manpower and industrial plant at the moment.

There was enough patriotism among the political leaders of this country in 1939, when the war broke out, for them to rise above their inherited prejudices. I don't wish to believe that there isn't that amount of patriotism around among our political leaders today.

The logical way of financing the Ontario government's project would have been for the Bank of Canada to use this article 18 to create money to discount, to lend money to the Ontario government directly. That would have been non-inflationary. It would have been anti-inflationary because interest rates, and certainly the tremendous interest rates we have witnessed at times in the last decade, would have been left out of the reckoning, eliminated from the reckoning.

You will say, "What's this got to do with the Ontario government?" The answer is that the political process should be an ongoing educational experience. It's not enough to have things done to you; you must ask why, and the simplest question you can ask, in these days when there is so much heat about Dieppe, is how did this government manage to fight a victorious war? How did it finance it? You'll find no reference to that in the press.

The Globe and Mail, which hit it right on this occasion, I'm afraid, referred to the Rae government's project as "donning blue Tory clothes." Our Premier would have made a far better impression, even though he could not do anything about it, to state the facts of the case that this sort of financing of the very excellent program that has been proposed would be better done with the full support of the Bank of Canada, and if he had been turned down, and of course he would be turned down, the responsibility would be on other heads. I say this not in any vindictive sense, but that would be part of the educational process we will either undergo or come to ruin.

It's long been the practice of all Ontario governments, be they Tory, Liberal or NDP, after your budget comes down, to send a civil servant to Boston to explain to the bond-rating people that this is really not deficit because this is really a capital investment, and the bond-rating people wag their heads the right way much of the time. But why in the name of the Lord should the people of this province not be given the information that goes to the bond-rating people in Boston? These are questions that would adorn your presentation of your infrastructural program.


But the government seems to have adopted another course. It has announced that it is setting up three crown corporations to take care of the collaboration with the private sector in financing and carrying out the infrastructures in question.

Now crown corporations, like all corporations, non-profit ones, private ones, public ones, are very prone to empire building. Could it be that --

The Chair: Mr Krehm, I hate to interrupt, but we're 35 minutes now. Some of the members have had to leave for appointments at 4 o'clock. Mr Kwinter's got an appointment very shortly.

Mr Krehm: Good.

The Chair: If you could just sum it up, and if you see some members leaving, that's the reason why, because we're scheduled for 4 o'clock.

Mr Krehm: Yes. You have it all in this.

The Chair: Okay.

Mr Krehm: I will just read --

The Chair: But what I would like though is, some of the members would like to ask some questions, so taking a look at my committee here, whether you want to go an extra five minutes for each caucus. Agreed? Okay. Can you just sum it up in a minute or two and I'll put Mr Kwinter on?

Mr Krehm: Oh, yes, I think so.

I want to quote from Colin Vaughan's Globe and Mail column:

"Top priority (of five new transit lines for Metro announced) was given to a northward extension of the Scarborough light rapid transit line. I've always heard that a new line on Sheppard Avenue was the top priority with a line on Eglinton Avenue a close second. Could it be that a partnership between land developer" -- the name's irrelevant -- "and Bombardier had offered $25 million to help finance the line to service a land holding north of Highway 401? And there's the danger. Those with cash up front will be able to buy the transit and toll roads or sewers to service -- and add value -- to whatever development happens to be on the books at the time. To hell with planning priorities."

Now that is a real danger, going to private market, allowing the private market to drive these infrastructural things. Collaboration with the private sector is fine. The fact is that with a capital budget, the government would have prior knowledge of infrastructures that go through. It could option strategic sites -- not all -- and then deal with private investors on a lease basis, but they would have control.

Now there's another aspect to that. One of the things that fuel speculation is the jump in land values which, to a large extent, are the spillover from government investments. It's not recognized in the accountancy, but on the other hand that spillover creates the overheated land markets. It undermines financial institutions because they like nothing better than to finance takeovers in land etc.

If the government played its hand not anti-private sector, but seeking out a new basis for collaboration with the private sector, it could take this inflammatory, speculative factor out of our price structure, at the same time that capital gains or some of the capital gains that are earned from this spillover could be used to detax the economy, not completely but to have a supplementary source of revenue.

In short, you stand at a time when you should consider all alternatives. Don't be taken in by the fact that the public sector can do no good and the private sector can do no bad. They're both capable of good and bad. The question is to try to squeeze out ideology and examine new productive ways of collaboration between the two sectors. Thank you, Mr Chairman.

The Chair: Mr Kwinter.

Mr Kwinter: Thank you. As a reader of your monthly newsletter, and I admit that I read it -- I get it and I'm interested in reading it -- I have a question. The material that you've presented to us today is so far-reaching, we could spend the whole afternoon talking about it, but something sort of nags at me all the time when I hear presentations like this. When I take a look at the members of your Canadians for Constitutional Money, you all have impressive credentials. You're not wide-eyed radicals; you're in the mainstream of what is happening. Maybe you could explain to me why governments and banks are not adopting these principles.

Mr Krehm: Because governments and banks don't do any rethinking unless they're in a desperate crisis. Moreover, there is a lot of money that rides in high interest rates. Don't you kid yourself. There are people who did well even during the 1930s because those who had money, some money, lived the life of Riley. Why is this not even reported? Some of this may be a new wrinkle on our part, but basically this is the sort of suggestion that went on during the 1930s and part of it was adopted by Roosevelt, but most of it waited until the Second World War.

Mr Hotson: I could just add a little to that, that it's sort of a standard rule of economists that regulatory agencies tend to become captives of the interests that they're supposed to regulate. All too often you set up a public utility board -- at least Americans are always doing that to regulate -- a public utility has natural monopoly power and then we figure out how that's handled and, after a while, the regulator will become a person who will see everything from the point of view the regulated industry.

The banking system's no exception to that. The first governor of the Bank of Canada, Graham Towers, did a brilliant job, this 80% of all the money created in Canada year after year being created efficiently, responsibly, at very low cost because the central bank was run by a man who saw his duty to the country, to the survival of western civilization and did all that. But over the decades, in a very subtle way -- I'm not talking about bribery of $20 bills in a bag or anything like that -- the banking industry has seen to it that the governor of the Bank of Canada would be a man who feels that what's good for the banks is what's good for Canada. That's really all there is to it, I think, but that's a lot.

Mr Pope: A year ago in Policy Options I wrote a so-called review called "The Renationalization of Money." It's not a review really; it's a synopsis of a book by Bill Hixson, one of our colleagues, a fellow from Kentucky, which in fact does explain -- the synopsis does it shortly, of course; his book does it in somewhat greater length -- how we've moved away from the creation of money by the sovereign, by the government to 96% or almost 100% of the money being created by the private banks. It all came about really because of the setting up of the Bank of England almost 300 years ago. That was set up because Nell Gwyn and Charles II together had bankrupted the regional bankers, the goldsmiths.

Now what we are in fact recommending is a return to what existed before Nell Gwyn got Charles II to spend too much money. Of course, to reverse 300 years of financial history is quite an undertaking and very much contrary to the interests of the financial interests who make money on money. We're suggesting that the money that's to be made on money, the seigniorage, should be taken by the sovereign, by the government.

If we're going to create $100 billion a year, as we are doing in Canada, of M3, why should that not be created directly by the central bank? That would allow the federal government then and the provinces to have deficits of that order absolutely cost-free without inflation, provided that the commercial banks don't create any more money. But that of course is absolutely contrary to what Bay Street wants and Wall Street and every other street with financiers on it.

The Acting Chair (Mr Waters): Mr Carr. And can I ask you gentlemen, when you're speaking, to sit forward because Hansard has a problem picking up when you lean back in your chair?

Mr Pope: Sorry.

The Acting Chair: As I just did.


Mr Carr: Thank you very much. I, like Mr Kwinter, would love to spend a lot of time getting into a lot of areas, but I just want to ask one very simple question as it relates to what we're doing here. As you know, we will do a report to the now Minister of Finance -- they changed it from Treasurer -- for the province of Ontario. If you could sort of sum it up very quickly, if you were the Treasurer -- and I see you're all looking, who wants to jump in here? -- but if you were the Treasurer, what should this committee be recommending that he do?

Mr Krehm: I would invite, if I were Treasurer or a member of Parliament, dialogue on alternative ways, which are so obviously necessary, of financing the social problems. That has nothing to do with waste; waste is another problem. Then I would ask the question that Mr Kwinter asked: Why are these things not discussed? What happened? How did we finance the war? That is certainly not an unpatriotic question. Start there.

The need for a capital budget is certainly clear. It's being spoken about in Washington. It's a quarter of a century since I began talking about that. Nobody listened. Now it's getting in the air. It's got to get into the air. So we might as well initiate dialogue. That's all you have to do. There are alternatives, there were alternatives.

Mr Carr: Thank you very much.

The Acting Chair: Mr Wiseman.

Mr Wiseman: Thank you. I'm wondering, we changed the budget reporting a little while ago, and I think it's about almost a year ago, where we were showing capital as a separate item, but it was in the budget itself. Is that not sufficient?

Mr Krehm: Well, there is no capital budget. As far as I know, I may be wrong and please correct me. We've discussed this with civil servants of the Ontario treasury from time to time, the last time about a year ago. They all know that there is no capital budget; they all know it should be.

Mr Wiseman: You're saying that there should be one --

Mr Krehm: I mean, it could be that some of the leaders of the government said, "Look, this, this and this are really capital items," but that's not enough. Because if you have a capital budget, you would show only the interest payments on the debt, plus the depreciation as a current expense. The rest would be on capital account and it does make a difference, because this business of the deficit is being used as a pile-driver to hit on the head any social program that those in charge don't like. I don't mean in charge of the Ontario government; I mean of the Bank of Canada more specifically.

Mr Wiseman: Can I explore something with you that I find interesting, and that is your Province of Ontario Savings Office recommendation. I would like to see something a little bit fleshed out. If I understand what you've written and what you've said correctly, what you're suggesting we do is to beef up the Province of Ontario Savings Office, have the general public deposit their money there, but the province of Ontario use that as its main vehicle of transactions so that the multiplier effect, or the reserve ratio increases, can then be used by the province of Ontario to continue increasing the wealth and the circulation of dollars within the province or the circulation of money-making in the province.

Mr Krehm: It was actually Professor Hotson who raised the matter. I don't know whether the province's bank would have the money-creating power, but you would certainly get the use of the savings of private citizens more economically.

Mr Hotson: I'm no expert on what the savings office is doing right now. I suspect that it doesn't leverage the money it gets the way a bank would, but just lends back to the government.

Mr Wiseman: In some communities it acts as a casher of cheques.

Mr Hotson: Any near-bank or bank that allows people to write cheques against their deposits is in the money-creating business, because the people who made the deposit still have the money; they're still writing cheques against it, circulating it. They're never told, "Hey, you can't write any more cheques because we've lent your money to somebody else," and the money they've lent to others is created money. That's the essence of a fraction reserve banking. Once we change the credit union and savings and loan laws to allow them to have chequing accounts, they become banks.

I am just saying that the province of Ontario has a bank that it's tremendously underutilizing. I'm not saying it will solve all your problems, I don't think it would. But I think that since that is the lowest-cost source of funds and since the province of Ontario is giving the people who deposit in that an absolutely safe money supply -- you see, the government has made the private banks' money safe to deposit insurance and now it's all over the world regretting it's done that to the massive failures of the financial systems.

I was very interested to learn that Franklin Roosevelt was utterly opposed to deposit insurance, but the US Congress forced it on him. He said, "You subsidize bad banks, you'll just get more bad banks," and that's exactly what happened. The moral hazard problem became very severe. Well, we need a safe money supply. This particular institution that Ontario set up in 1921 provides one. This should be an expanding business, supplying what's needed. Instead of the very morally questionable lotteries that everybody's pushing now and Lottario and so, where some people become -- they destroy their lives, they mortgage their houses and so on -- this is a much cleaner source of finance that should be expanded.

The Chair: Gentlemen, I've got to say, we've run out of time, about five times. Maybe some members of the committee, if you don't mind staying for a few minutes, have got a few questions just to ask of you. I wouldn't mind taking a look at your book, sir, that you've published -- the sixth edition?

Mr Pope: Well, actually, they unfortunately have the fourth edition there. He didn't buy the fifth edition.

Mr Marentette: Can't keep track.

The Chair: Okay, fine. I'm going to adjourn the committee meeting now and we'll meet at 10 o'clock tomorrow morning in this room 228. Thank you.

The committee adjourned at 1627.