Tuesday 9 March 1993

Pre-budget consultations

Board of Trade of Metropolitan Toronto

Michael Lauber, vice-president and chair, economic development committee

Donald McIver, chair, economic policy committee

Robert Spindler, vice-chair, taxation committee

Taxpayers Coalition Ontario

Paul Pagnuelo, vice-president and director, eastern region

Ontario Federation of Agriculture

Tony Morris, member, executive committee Cecil Bradley, manager, research and policy

CP Rail System

Gil Mackie, executive vice-president

John Taylor, director general, government and industry affairs

Canadian Mental Health Association, Ontario division

Glenn R. Thompson, executive director

Carol Roup, senior director, policy, research and branch services

Association of Ontario Physicians and Dentists in Public Service

Janush Dukszta, president

Dr John Deadman, member Dr Rita Rabheru, member

Dr Sharon Casson, member

Dr Jane Baldock, member

Ontario Federation of Community Health and Addiction Programs

Chris Higgins, executive director

Ontario Mining Association

Patrick Reid, president


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

*Acting Chair / Président suppléant: Johnson, Paul R. (Prince Edward-Lennox-South Hastings/Prince Edward-Lennox-Hastings-Sud 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:

Brown, Michael A. (Algoma-Manitoulin L) for Mr Phillips

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

Johnson, Paul R. (Prince Edward-Lennox-South Hastings/Prince Edward-Lennox-Hastings-Sud D) for Ms Ward

Klopp, Paul (Huron ND) for Mr Ward

Perruzza, Anthony (Downsview ND) for Mr Ward

Ruprecht, Tony (Parkdale L) for Mrs Caplan

Wilson, Fred, (Frontenac-Addington ND) for Mr Sutherland

Also taking part / Autres participants et participantes: Bradley, James J. (St Catharines L)

Clerk / Greffière: Grannum, Tonia

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

The committee met at 1005 in room 228.


The Chair (Mr Ron Hansen): Good morning. Being Tuesday, March 9, this is the last day of hearings on the pre-budget consultations of the standing committee on finance and economic affairs.


The Chair: The first group to come up this morning is the Toronto board of trade. I'd like to welcome you to the standing committee. We have a half an hour. In that half-hour, could you leave some time at the end of your presentation for questions from the committee members? You may begin, and please introduce yourselves for the purposes of Hansard.

Mr Michael Lauber: My name is Mike Lauber. I'm vice-president of the Board of Trade of Metropolitan Toronto and chair of the board's economic development committee. I'm a partner of Peat Marwick Thorne. With me are Don McIver, the chairman of our board's economic policy committee and chief economist of Sun Life Assurance Co; and Rob Spindler, the vice-chair of our board's taxation committee and a tax partner with Coopers and Lybrand.

We'd like to thank you for the opportunity to appear before your committee today and speak to our submission, which we made in writing to the Treasurer, dated March 4, 1993. We will highlight the paper and leave time for questions, as you requested.

The board has been encouraging restraint and reduction at all levels of government. We encourage greater communication and cooperation between governments and business. Ultimately, it's only a strong, healthy private sector that can lead us back to prosperity.

Beyond the provincial deficit, an indicator of the severity of the problems we face here, particularly in Metropolitan Toronto, is that there is more vacant commercial and industrial space in the greater Toronto area than there is occupied space in the rest of the country. We could move the country into Metro at this time. It's a very serious situation.

We are also concerned with the report of the Fair Tax Commission dealing with the wealth tax last week. This tax would encourage individuals to leave Ontario and perhaps take the businesses they own with them, and the jobs. It would be a major disincentive to business wanting to locate in Ontario. They consider the taxation structure of their executives when looking at relocation decisions, and it would severely hurt the attractiveness of this province.

We appreciate that the Premier and the Treasurer have cautioned to move slowly on this tax. We recommend that they kill the idea quickly before it creates an atmosphere of uncertainty in the province.

I would ask Don McIver to overview the economic section of our paper, and he'll be followed by Rob Spindler, who will review the tax section of our paper.

Mr Donald McIver: Thank you very much. I suspect at this juncture that virtually all members of the Legislature recognize the importance of the fiscal condition we are in, so the purpose of this brief is not merely to reiterate the significance of these developments but also to add some dimension to our fiscal condition.

For instance, the calculations of the treasury department suggest that 1% growth in the provincial GDP would result in a revenue increase of some $350 million. To use a very simplistic piece of arithmetic, if one were to count on revenue growth arising from an improvement in real gross domestic product which was large enough to grow out of a $10-billion deficit, which is a conservative figure, it would take some 30% increase in real gross domestic product, a rather optimistic forecast, I think, by anybody's standard. So I think the first lesson is that we cannot grow out of our fiscal malaise.

Then perhaps the question arises, can we tax our way out of it? Again, I would suggest that we take a look at the figures the treasury department itself provides. They indicate that a one percentage point increase in the retail sales tax would result in a revenue inflow of some $851 million. So if you were to try to eliminate a $10-billion deficit -- why am I saying this? Just to give a sense of magnitude to these numbers. If you were to try to eliminate a $10-billion deficit through an increase in the retail sales tax, it would take an 11 or 12 percentage point increase in the retail sales tax. Added to the 8% you've already got and the 7% GST, every time you go to the store you're looking at a 25 to 30 percentage point retail sales tax. I don't think that augurs very well for taxing our way out of it.

Some perhaps might conclude that the correct way to generate tax revenues would be by taking the corporate sector on. Think about this. Last year in 1992, all of Canada's corporations made an after-tax profit in the order of about $12 billion. Let's be generous and say that 50% of that was generated in Ontario, $6 billion. Again, in order to take on a deficit the size of $10 billion, you have to confiscate every dollar of profit earned by corporations in this province and then do it again, if you can find the magic to accomplish that. You have to do it twice in order to meet those deficit numbers.

Lesson 2: We cannot, I submit, tax our way out of the situation.

That leaves the question, of course, of expenditure. In our submission, what we've done is take a couple of items of expenditure and highlight them against the tax revenues that would be necessary or that one could obtain from things like the retail sales tax. I'm only going to mention a couple of them.

The first is with respect to subsidized housing. In 1987, the cost to the province of subsidized housing was some $33 million annually. According to the Provincial Auditor, by 1995 that cost is going to rise to $1.2 billion. That's a 36-fold increase. But again, let's get some dimension into that. When we talk about $1.2 billion, these days perhaps it doesn't sound like a terribly large number, but to cover that would take 3.4% growth -- if we talk about the revenue-generating power of an increase in GDP -- above what would happen otherwise; hardly reasonable. That $1.2 billion would take a 1.4 point increase in the sales tax just to cover that one expenditure item.

Another item, if I can just touch on it, is the cost of relocating government employees from Toronto to the outer regions of Ontario, some $800 million. It doesn't sound like a large amount, $800 million, but that one expenditure, if you tried to pay for it in one year, would cost an additional point on the retail sales tax. It would cost each taxpayer in Ontario $226.

There has to be some dimension placed against these numbers. We have to recognize what these numbers mean in terms of our ability to raise revenues.

The argument I would make very simply is that we can't grow our way out of it and we can't tax our way out of it; we are going to have to get out of this through expenditures and through expenditure constraint, and those are going to have to be real expenditure constraints, not selling off Queen's Park to some foreign individual and leasing it back on a long-term basis. We're going to have to do some real expenditure cutting.

Mr Robert Spindler: The tax section of our submission really builds on the economic section. The submission itself contains a discussion on a variety of issues and a number of areas, but the basic thrust is that we would like the government to adopt a policy that encourages our ability to beat our competitors.

The tax system in Ontario has come to a point where there are some very significant disincentives to locating businesses in Ontario. We are losing businesses to our competitors in Quebec and the United States. The government has an opportunity now, with the Clinton administration talking about tax increases, to hold back and to not jump on the bandwagon and think: "Fine. We can match the United States. We can raise our taxes and help the deficit problem." In fact, there's a real opportunity here to show some restraint, hold back, not increase taxes and allow us to beat our competition, allow us to attract investors and make Ontario a more attractive place to locate than anywhere else in North America. That way, we can grow out of the deficit problem. We can attract jobs, we can attract business and we can attract tax revenues, which allow us to explore policies and programs that this government wants to pursue.

The submission we've made looks at a number of initiatives that the government is presently considering, both corporate and personal. We've asked them to consider them carefully and consider them in the context of our competitors. In particular, we would ask the government not to implement tax increases, not to implement a corporate minimum tax, to do away with the commercial concentration tax to make downtown Toronto an attractive place to locate business, and to harmonize the sales tax -- not always a popular topic.

There are other issues that we address on a personal front. I don't want to take the time here to explore them, because the main thrust of our submission is to allow business to compete, to allow Ontario and Toronto to beat the competition and to provide us with some incentives. Basically, give us the playing field and we'll win the game.

Mr Lauber: I just want to mention that the board represents more than 12,000 individual and corporate members. I guess our only motive is to create a healthy business climate in Ontario and in Toronto to create growth in jobs and prosperity for us all. We are pleased to help the government and this committee in any way we can.

That concludes our submission. We would be pleased to answer any questions the committee may have.

The Chair: Okay. It's quite a brief you've got here. Mr Kwinter.

Mr Monte Kwinter (Wilson Heights): I was really interested in your analysis about the fact that we can't grow our way out of the deficit and we can't tax our way out of the deficit, and the only place we can do it is through cutting expenditures. You brought forward some rather dramatic examples of how much the sales tax would have to be increased in order to take care of the $10 billion, at least, and it's probably going to be more than that. You said how much it was going to take to do some of the other things, but you don't seem to have a handle on what is going to happen to the expenditures in order to get that. You talked about a few things, but they don't even come close to the $10 billion or $12 billion. Do you have any suggestions as to what expenditures should be cut? Not just subsidized housing or the one-time move, because although they would cut it, they still wouldn't total $10 billion. How do you deal with that?

Mr McIver: Of course, it's always difficult to come up with a line-by-line item. I think you need to look, first of all, at some of the items we have suggested or that we have pointed out, and there are a couple more in there that we've indicated: for example, the increase in the rate of social welfare payments; not the case load. One has to recognize, of course, that under the economic circumstances recently, that creates a tremendous burden on the province.

I think there is a whole range of programs that need to be addressed in the social spending envelope, on the transfer side. I think the main thing with both levels of government in this province is that we have got ourselves into a situation where transfer payments to interest groups much more than account for the actual operating costs of government. So those are going to have to be addressed.

How do you do it? Obviously, I think it's essential, if you are going to come to grips with those programs, to do it in a manner which involves both levels of government or maybe all three or multitudinous levels of government. Certainly, there needs to be greater cooperation between the province and the federal government and between the province, the school boards and the municipalities.

Mr Kwinter: Could I ask another question? The mood seems to be that business, from what you say, is either going to Quebec or going to the United States. What do you see as the key thing that a government could do to stop that? Is it taxation that you feel is the main issue? Is it some of the social programs? What have you identified, if you had one thing you wanted to change, that would reverse that trend?


Mr McIver: I have a very simplistic suggestion. I'm sure there will be some more concrete suggestions, but I cannot help but feel, on the province's economic development invitations to business outside of this province, that one should have a rubber stamp that said "Open for business." In other words, there is a sense, I suspect, among potential investors in this province that the message that emanates from this building is one that says: "Hey, we're going to control things. The status quo is not acceptable. The previous arrangements may be subject to change, perhaps on a whim." I think just "Open for business."

Mr Spindler: I think there are some specific things that can occur on the income tax front. We've outlined some in our submission. Tax rates are a very important factor in a business deciding whether to locate in Quebec or Ontario or the United States. The combined federal and local tax burden is very important to the analysis. We in Ontario have a substantially higher tax rate than in Quebec. There is therefore an incentive for business to locate in Quebec, just on the pure economics. Our tax burden is also much higher than that of some competitors in the United States. I don't think we're in a position to have drastic tax cuts, but I think we can slow the rate of growth, avoid the temptation to increase taxes and eliminate some of the sidebar taxes -- the corporate minimum tax and what not -- that create an impression of a very heavy tax burden.

There are also some housekeeping measures that could be undertaken. For example, Ontario could harmonize with the federal government in its interpretation of tax treaties with our trading competitors. For example, there are some problems with the way Ontario treats businesses coming to Canada -- it differs from the way the federal government treats them under its tax treaty with the United States -- that provide an actual disincentive to locating in Ontario and encourages people to locate businesses in Quebec and the United States or just across the border. There are some housekeeping measures there too.

But the fundamental problem is that a businessman looking at Ontario and Toronto sees a very high tax burden in contrast to Quebec or the United States. A US business looking at locating in Canada must consider the basic tax plus the cost of repatriating profits across the border. We just aren't competitive.

Mr Gary Carr (Oakville South): Thank you very much for your presentation. I enjoyed it very much. I agree with you and I disagree with the Premier and the Treasurer, who have said that they've got a revenue problem. They do not; they have a spending problem. I look at what we were spending in the early 1980s. If you adjusted that for inflation and increased population, we should be spending about $33 billion, if you took the budget in the early 1980s. We're now at $53 billion, or about $20 billion more. Even up until last week, when he appeared here, he said we have a revenue problem. He does not; he has a spending problem.

I appreciate what you said about non-profit housing. Anybody who reads pages 125 to 136 and then says we should still be in non-profit housing is a fool. It was an overwhelming condemnation of non-profit housing.

But I want to get specific about social assistance. Your graph on page 6 shows the increase in social assistance. If people will look at that, they will see that during the recession in the early 1980s obviously the case load went up, but during the boom years, when we had the highest economic growth of any of the industrialized countries with the exception of Japan, the case loads and the amounts still went up, and they're going up now even more dramatically. That, to me, says we have a problem. Most people would say, "Yes, during a recession social assistance should go up." This graph shows very clearly that it's going up.

I'll give you an indication of one of the problems we have. I got a call on Friday from a lady who works in Halton region giving out social assistance cheques, a single mother with two kids who used to be on social assistance. She said that she made more on social assistance than she does now giving it out. I said, "Would you be prepared to go public and talk about that?" She said, "I can't, because I work for the region and I don't want to lose my job." I appreciate that.

My question to you is this: You've got President Clinton in the United States, who has now said that if you're on welfare after two years you will be taken off and have to work for the government, cleaning up communities or whatever. You're got a Premier who is now going to link social assistance to jobs and retraining. It goes across political lines. It doesn't matter if you're a socialist, Democrat, Conservative, Liberal. Something has got to be done. One in nine, one in eight people are on social assistance.

Let me ask you this: If you were in the government's position, what would you do in terms of social assistance? Would it be to try to give some subsidies to businesses so that they would hire people, like the Jobs Ontario Training, maybe 10,000, so that they will hire people on social assistance? Would it be doing what Clinton is going to do, take those people and say, "No, you're going to go into the public sector and clean up roads," or whatever? What would the business community like to see done with social assistance in the province of Ontario?

Mr McIver: A complex question, a complex answer, I suppose. Speaking personally, I have never found it reasonable for government to create jobs or to attempt to create jobs. I think it is extremely unreasonable to expect that is going to be a productive avenue at this particular point in time, because given the fragility of our economy, I suspect that for every job that's created by the public sector there will be a job lost in the private sector, and of course all of the spinoffs associated with that.

Quite clearly, I think one needs to revamp the whole procedure of making social welfare available. The example you use -- one hears these types of stories all the time -- to the extent that is prevalent, it suggests to me that you have a system which is clearly ineffective, inefficient and discriminatory. The solution clearly is, fix it. And I don't think you'll fix it by grandiose programs of providing public sector jobs. I don't think you provide it by simplistic retraining programs.

The example I use, in order to ensure that I always maintain humility in this, is, "Tell me what is the retraining capability of a 45-year-old economist to do anything other than what I've been doing at the type of income that I've grown accustomed to"? Sure, I could drive a cab. You have to think very closely, I think, before you start recommending retraining programs which are costly and which attempt to train people at a stage in life for a job which they're probably not going to get.

The Chair: I'm sorry, I've got to go to Mr Perruzza.

Mr Carr: That was short.

The Chair: Yours was a long preamble.

Mr Anthony Perruzza (Downsview): Mr Chairman, I can't tell you how ardently I disagree with my colleague when he suggests that we don't have a revenue problem, that what we have is a spending problem.

Mr Carr: There's the problem right there.

Mr Perruzza: I recognize that our debt burden and our commitments to social spending, whether it be for health care, for education or for social assistance, limit our abilities to be able to funnel government resources or more government resources into job training, capital works, infrastructural improvements. Here's where I disagree to some degree with the individuals we have here from the board of trade: I think that we should be doing more in those areas, but recognizing some of our limitations, in my view, we can't do enough. I believe that the private sector can create jobs and when times become very difficult and tough for our citizenry the public sector, quite frankly, has an obligation to move in and soften the blow of hard economic times, because if that blow is severe, then I think that our corporate sector suffers as well. 1030

We weren't responsible for some of the health care and spending problems that this province has faced. But I can tell you that on that front some of the things we've done have been quite positive in limiting the increases in health care spending quite substantively. I suspect that later today, and you may have read this in the paper as well, there's going to be a major announcement, it may have been done already, on Hydro and what Hydro has meant. See, we're not responsible for some of those decisions, and here's where I disagree substantively with --

The Chair: Mr Perruzza, you're going to run out of time. You've got another colleague who wants to ask a question also.

Mr Perruzza: You're right. My question to them -- I found something they said rather awkward, that government shouldn't be in the business of trying to create jobs and in the business of providing very elaborate training programs. I just want to know what their opinion is with respect to the Ontario Training and Adjustment Board, Jobs Ontario Capital, Jobs Ontario Training and our commitments, quite frankly, to the construction industry and the construction sector in creating the kind of housing that we've committed ourselves to.

Mr McIver: Just commenting on the last part of that question, yes, the commitment to the construction industry, but that's the same thing we're talking about when we're talking about $1.2 billion in operating costs for subsidized housing. Surely to goodness a 36-fold increase in that sector alone is hardly justifiable at a time when every business in Ontario is suffering. I find it difficult to justify the concentration on one sector.

Naturally one has to accept the premise that training is an essential element to the improvement of the Ontario economy. My observation was meant to suggest that, look, we need the proof of the pudding. It's all very well to talk about training programs, but we need to see quality in training. I want to speak specifically about Ontario, but I'm not convinced that in this country, job training programs we've had in the past that have taught a lot of welders to do jobs that we don't have positions for have been terribly effective and I don't think throwing a few thousand dollars at a defunct economist is going to help very much in terms of retraining him to do something else.

You've asked a lot of questions, and I'm not sure that I've got time to answer all of them.

The Chair: Okay. Do you want to make another comment?

Mr Lauber: Just on the reference to OTAB, by the way, the board has been very supportive and very involved in the OTAB process, in developing that. We have a few major reservations on the policy level with OTAB, but in principle we are very supportive and have worked hard on that. We do believe in retraining. It's a question of value for your retraining dollar.

The Chair: Okay. Gentlemen, I'd like to thank you for your presentation before the committee this morning.

Mr Lauber: Thank you.


The Chair: The next group to come before the committee is the Taxpayers Coalition Ontario. I'd like to welcome you to the standing committee of finance and economics. We have until 11 o'clock, and if you can, at the end of your presentation -- I guess it wouldn't take too long -- there'll be at least 15 minutes for members of the committee to ask questions. If you don't mind identifying yourself and your position, you may begin.

Mr Paul Pagnuelo: Okay. I'm Paul Pagnuelo, vice-president and director, eastern region of the Taxpayers Coalition Ontario.

The Ontario coalition is a province-wide network of 72 chapters which acts as an independent watchdog on government spending at the municipal and provincial level. I want to say we have absolutely no connection, either formally or informally, with any political party or with any elected official. Our 80,000 members are a composite of the rank-and-file citizens who pay the bills which our politicians rack up.

Over the last 20 years, the politics of special interest have divided the citizens of Ontario and Canada according to labels and moved our governments farther and farther away from the wishes of the majority. As a silent majority, we sat back and watched as a multitude of special-interest groups have paraded before our governments pleading their cases for more publicly funded services. Their whims became their wants, which soon enough became their demands and eventually their rights. Their whining representatives all felt they were entitled by some divine right to have their personal wish lists paid for by everybody else. This developed over the years into the Canadian attitude of entitlement -- "I want, you pay" -- and in the stampede, which has seen politicians tripping over each other with extravagant campaign promises to win their votes, the rights of that common interest group, the taxpayers, have been abused.

If anybody has been listening to what's been going on in this country over the last three years, I think the message is loud and clear: Politicians and citizens are out of sync with each other. Unlike previous recessions, this time people are really hurting. Hard-working employees and business owners are worried, "Is it going to be my job" or "Is it going to be my business which Statscan and the media report on next month?" Crushing in on us at the same time is the legacy of so-called responsible tax-and-spend governments. When you add up the unpaid debts of our federal, provincial and municipal governments across Canada and include the debts of crown corporations, government guarantees and loans, and unfunded or underfunded liabilities like the Canada pension plan and workers' compensation, just how responsible is a total public sector debt of $1.1 trillion to $1.2 trillion, a debt which has been racked up to pay for all the services which we've used up but expect our children and their children to pay for?

Mr Perruzza: On a point of order, Mr Chair: I'd like to know where that figure comes from before it's used.

The Chair: You'll have an opportunity to question later, Mr Perruzza. It's not a point of order.

Mr Perruzza: It's getting into Hansard, and I don't know where that figure comes from.

The Chair: Mr Perruzza, you're out of order. Carry on, sir.

Mr Pagnuelo: Let's not delude ourselves: We've been spending money we don't have on things we don't need, and instead of dipping into our own piggy banks to pay as we go, we've taken it for granted that it's okay to dip into those of our children. Our public sector debt is a tax we've deferred to our youth. It's not borrowing; it's theft. What else would you call a financial noose around the necks of those who were given no vote and no choice in how their future incomes are going to be gutted? Our governments haven't been responsible to anyone, and as a society, we're not responsible to future generations.

The situation here in Ontario is horrifying. By the end of this month, our provincial debt is estimated to hit $67 billion. If we add in Ontario Hydro's crippling debt of $34 billion, $11 billion from the Workers' Compensation Board and the Finance minister's projection of a $12-billion to perhaps even $14-billion deficit this coming year, I think it's time for a reality check. When your revenues are 25% short of your operating and capital expenses, you're broke.

The options confronting this government are very limited. You either cut spending, borrow more, hike taxes and fees, sell some of your assets or come up with a combination of all four. When it comes to borrowing more, I say forget it. You don't plug a hole in a bursting dam with flour and expect to survive. If you do, you're just delaying an unavoidable disaster.

You can also forget about hiking taxes and fees, because our wallets are thin and our mood is angry. Taxpayers have reached their threshold of tolerance when it comes to ending up with less just so you can have more. If you want to bodyslam consumer spending into the boards and send even more businesses hightailing it out of the province, digging deeper into our pockets with higher taxes is a sure way of doing it.

Selling off assets like passenger trains, computers and crown land to make ends meet is really a desperate move, and it's a short-term gain for long-term pain.

There's only one real choice, and that's to cut deep into spending. Let's not do it through smoke and mirrors and creative accounting. Creating three new crown corporations to remove new, massive debt off the provincial balance sheet doesn't count as a spending cut, nor does downloading costs to municipalities under the guise of disentanglement. This is not the time to be mandating expensive new social programs like child care reform for three- to five-year-olds, with a $3-billion price tag to be picked up through the property tax base. Funding cuts to municipalities and school boards must not be at the expense of increased property taxes.

The challenge of bringing in a balanced budget by cutting spending will be difficult and it's going to be painful, but it's not impossible. As taxpayers, the time has now come for all of us to impose the integrity, discipline and political will our governments have lacked. If Sweden and New Zealand could do it, so could Ontario.


The Chair: Thank you. Mr Carr, six minutes.

Mr Carr: Thank you very much for your presentation. I agree and I think your coalition right across this province has put pressure on everybody from all levels of government, of all political stripes, for what you're doing. You're the silent majority, and I felt the same way, only I went even farther: I got so mad I decided to run. Sometimes I wonder why I did it, but I got elected. I think you've definitely performed a good function. It's been grass roots, and I thank you for all your work and effort.

There's a fundamental difference between this government and what you and I believe. I firmly believe we don't have a revenue problem, we have a spending problem. You heard the Treasurer say we've got a revenue problem; he does not. Even Anthony today said that isn't the problem.

I want to reiterate: If we were spending at the early 1980s levels, adjusted for inflation and increased population, we should be spending about $33 billion. Instead, we're going to be at $53 billion, about $20 billion more, so we reduce the debt and so on. That's a fundamental difference.

But I want to get fairly specific. As you know, over the last little while there have been many changes happening, and this government is moving. Hydro announced just moments ago that it's going to lay off 6,000 people. The Treasurer has taken great credit in saying we're going to get rid of 2,500 in a 90,000-odd operation here in the province of Ontario. Hydro will lay off 6,000 out of 28,000.

You heard the chamber of commerce -- you may have read in the paper -- say yesterday that there should be a freeze in salaries of the public servants in this province. The Premier has not done that. Would you like to comment, as specifically as you can, about the number of employees you see that we would need? We have 90,000-odd in the province. How many do you believe we could cut? It's a difficult question, because you have to know in detail about what we're doing, but I just wondered if you have any comments, because we have to look at a lot of areas; I talked earlier about social assistance. Would you like to comment on the number of employees you see in the province and what we should be doing?

Mr Pagnuelo: It would be difficult to put an exact figure on it. But I think we have to look at what's going on in the rest of society, particularly the corporate world, which produces the wealth of this nation. You see massive downsizings everywhere as companies realize that in the global economy of the 1990s, where competition is the name of the game, they had better reduce cost. One of the easiest ways of reducing cost is to re-examine the jobs of all your employees and to really determine what is essential and what is not; what has been nice to have all these years, but what is really added in terms of bottom-line utility.

I know many companies that have been in the habit of doing certain things in certain ways for years and years and never questioned why. But when they really sat down through necessity and went through each job function and asked what its bottom-line utility to the corporation was, they were in for some real shocks. It's not surprising that you see today downsizings of 10%, 15%, 20%, and then they come back a year later with even further cuts.

I think we have to examine as a society all the things we do, and that includes government. Government has become too large at all levels: federal, provincial and municipal. Let's take a look just at the municipal level. The example which strikes us most clearly all the time is the school boards: the number of school boards, the size of administration, the number of elected representatives. It astounds me that in my county we have 15 trustees on the school board but we have one elected MPP to cover not just my county but the one next door. There's something wrong in that whole system. I think we have to really seriously examine the entire cost and purpose of all the functions done by government and we have to downsize, and downsize considerably.

Mr Carr: One quick question on property tax, because I think time's running out. This government, when it was elected, said it was going to raise funding of education off property tax on to the province, back to 60%. It used to be about 27% in Halton, and it's gone to down to about 22%, which is a worse percentage increase than even the Liberals or the Conservatives, all governments of all political stripes. What would you like to see happen with the education funding? As you know, this is where the taxpayers coalition started, over property tax and education. What would you like to see done in that area?

Mr Pagnuelo: In terms of property taxes and education, we'd really like to see the entire operating cost for the essential core programs funded 100% by the province. What we would like to see is that at the municipal level, where they want to add on additional programs in the schools, that would be funded on a 50%-50% basis by parents and by all taxpayers through their property tax bills.

In terms of capital costs relative to building new schools, again, let me use my county as an example. We have 200 portables in our county, a tremendous amount, and terrible. How do we get around that problem? We're seeing double-digit tax increases each year at the property level in education, but it's not going to the students and it's certainly not going to the buildings that house them. What we'd like to see in terms of capital costs is that those would be funded through the property tax system, but have the province responsible for the core, essential programs in terms of operating costs, and any programs it mandates.

Part of the problem we've got is so many programs being mandated and downloaded to the boards. And once they're entrenched, we find what happens is that that ratio decreases from 60% to 55% to 50%, and it keeps getting smaller. That's because of the consequence that obviously the provincial government -- and I don't blame just this government, but the provincial government generically -- finds itself squeezed, so the easiest way is to pass it down. They keep spending at the same rate or greater, but they're able to mask it through downloading.

The Chair: Mr Perruzza. You also have two colleagues who want to ask questions.

Mr Perruzza: Thank you, Mr Chairman. I'll keep my comments very, very brief.

I agree with Paul that we didn't create the mess you see, we didn't set up the boards we have in Ontario. But I don't believe for one minute that the Conservative solution to just simply crank up our share of funding to boards to 60% is in any way --

Mr Carr: You caused it, not us.

Mr Perruzza: You're really naïve if you think that if you increase the share to 60% you're going to --

The Chair: Mr Perruzza, through the Chair.

Mr Carr: Don't make promises, then.

Mr Perruzza: Mr Chairman, he's very naïve if he thinks that by cranking up the provincial share to 60%, that somehow magically is going to lower property taxes --

The Chair: I'm sorry, Mr Perruzza --

Mr Perruzza: -- or not going to be consistent with property tax increases.


The Chair: Come to order.

Mr Perruzza: I'm going to pass to my colleagues.

Mr Carr: This committee got along great until you came on.

The Chair: If you want to talk, go out in the hallway. Mr Jamison. Mr Norm Jamison (Norfolk): Thank you for coming here today, Paul, and for giving us your presentation. In the initial question by Mr Carr, he indicated that the budget should be at $33 billion for the province. That's a $20-billion reduction, phenomenal if you were to understand what that would mean to the social fabric of our province.

Downloading, I might say, is taking place at every level, and I would say that's true. We have to be more efficient at what we do with the money we have to spend. But we have to realize that we're in the worst recession since the 1930s, and a prolonged one. The difference between business and government is that business cuts back its production levels. The problem with government is that you have many more people on the rolls at that point.

Coming back to the $20-billion reduction -- when Mr Carr mentioned it, you nodded your head -- I would ask you what cuts you would make.

Mr Pagnuelo: Let's not blame the rising costs all on welfare, because it's not.

Mr Jamison: The question is, when you nodded at $20 billion, what cuts would achieve that, in your mind?

Mr Pagnuelo: I'll show you some of the things that we're familiar with. Our focus has largely been dealing with municipal governments, but the first place you can start, I will suggest, is with transfers to municipalities for certain things such as roads, libraries etc.


The one thing we keep hearing in local councils all the time when a proposal comes before them to build a new library or buy a new road grader, what have you, the rationale that's always given is -- I hear this often in the school board in terms of some of the programs -- "It's okay, we can go ahead and do it, because it's only going to cost us at the local level a very small amount." It's fundable by the provincial government. It's like free money.

What happens is, you end up with municipalities spending money that is not essential, not needed, but they're doing it because they can get it from the province. Their theory is, if they don't ask for it, if they don't take advantage of it, they're going to lose that right. That's been said to me many times by municipal governments, "If we don't take advantage of these situations, they're gone." I'm saying, my God, that's just adding to the problem, and it's that mentality of,"It's okay; it's fundable," that's getting us into this problem in this province and in this country in terms of our financial debt.

Mr Jamison: I have to say that doesn't really answer my question. My question was, as an organization that has done some deep study and has been around for a long time --

Mr Pagnuelo: No, we haven't been around for a long time. We started three years ago.

Mr Jamison: Well, it's been around long enough to assess the picture. My question to you is, after nodding to Mr Carr's remark of a $20-billion reduction in expenditures at the provincial level, how would you achieve that?

Mr Pagnuelo: I would cut out the make-work projects, eliminate them. You're going to have to freeze spending; no new spending whatsoever. Go back five years.

Mr Jamison: I'm talking about a reduction of $20 billion.

Mr Pagnuelo: I'm not saying $20 billion. I'll be satisfied with a balanced budget, where we can eliminate the situation where there's a deficit. Our concern immediately is with the growing deficit. Every year there's more being added to our provincial debt; every year there's more being added to our national debt. Our concern is what that does to the social fabric of future generations.

Look at capital projects. Many of them don't need to be spent now. Put them off. We haven't got the money. Wait until we've got the money. Look at what's going on in terms of some of the capital projects that are being touted now, in terms of creating jobs such as the Let's Move program in terms of transportation in Toronto. I think it's ill-placed in terms of timing.

Mr Jamison: What you're saying is there's no need to build on the infrastructure of this province.

Mr Pagnuelo: Not at this point in time when we cannot afford it. I think when we look at what's happening in terms of the city of Toronto, the ridership that has been lost in terms of existing subways, we really have to question if that money should be spent now. If you want to promote public transportation, I would much rather you facilitate the private sector in doing it by easing legislative restrictions.

Non-profit housing has been mentioned. I think all we need to do is read what's happened there in terms of cost. Nobody's saying that non-profit housing is not a necessity, but are we getting taken to the cleaners on this one? That's the question.

There's a host of non-essential services as you go through and question what it is you're spending your money on today. Go through line by line, service by service, and distinguish between what is discretionary and what is absolutely essential. What we've got to be focusing on right now is the absolutely essential.

The question that worries all of us is, where do we go if this continues year after year after year? Three years down the road, four years down the road, are we going to be satisfied with continued $10-billion, $12-billion deficits adding to the debt year after year? Are we going to be satisfied with taxes continuing to increase year after year? What does that do to consumer spending when your discretionary spending shrinks until it disappears? What does that do to business investment and the creation of new jobs or the maintenance of existing jobs? I think we've got to seriously look at what the cost of government is.

It's interesting in that studies done in the States recently -- these are details I'm bringing back from a conference I had out in Calgary at the end of January -- show that those states that had the highest taxation also had the lowest growth in productivity in terms of wealth.

Mr Jamison: Do you agree --

The Chair: I'm sorry, Mr Jamison. Mr Kwinter.

Mr Jamison: Do you agree that deficit financing is normal in recessionary times?

The Chair: I'm sorry, Mr Jamison.

Mr Pagnuelo: I would suggest that deficit financing is a very dangerous avenue to pursue.

Mr Jamison: It's normal during recession times?

The Chair: Mr Jamison, you're out of order.

Mr Pagnuelo: Nothing is normal during a recession.

The Chair: Mr Kwinter, you have the floor.

Mr Kwinter: Mr Pagnuelo, you raise some very interesting points. I would be more interested in hearing some more defined solutions. To give you an example, by the end of this government's mandate, the debt of Ontario will be approaching somewhere around $100 billion. The servicing of the debt will take up about 20% of the revenues of the province. Mr Jim Wiseman (Durham West): That's not accurate, Monte.

Mr Kwinter: You may say that. That's a matter of opinion and you'll have your chance to give your opinion. But I can tell you right now it's at $67 billion, the deficit coming in this year will be about $12 billion and it will stay that way for the next three years. We can't spend our way out, because the economy is not going to grow to the point that it's going to reduce the deficit, and we can't tax our way out. So what you have is a situation, regardless of what you think about it -- and I'm not making a political statement; I'm making an economic statement -- I think what we have reached our level of tax tolerance.

Mr Pagnuelo: Oh, definitely.

Mr Kwinter: Okay. So we're not going to tax it. The revenues are not going to be there because the economic best-case scenario: If we get a 4% increase this year, which is close to what the Treasurer is predicting, even though every economist who appeared before us was lower than that -- and the chances are it'll be closer to 3% than 4% -- that means we're going to continue to be in a deficit position and there are going to be deficits for at least the next five, six, seven, eight years. There's no way that you can change that.

My question is, given that Hydro is cutting 6,000 jobs, that CN is slashing, that IBM, which has never had a layoff in its history, is slashing, there's only one route to go and that is to curtail your spending. But no one has come up with the definitive solutions to what should be cut that's going to balance the budget. We're looking at a cut in one year of about $10 billion.

Mr Pagnuelo: I don't profess to support the need for consultants, but I would suggest that this Legislature consult with Sir Roger Douglas, who's the former Finance minister of New Zealand. He can tell you what they had to do in New Zealand and what he did in order to survive in that country and to restructure their economy. It was an overnight miracle. They had to do it. They were forced to do it.

There's lots on record and there's lots I can supply this Legislature in terms of materials on New Zealand I've got back at the office. But I think what you've got to start looking at is, what did Sweden do and what did New Zealand do when they were faced with the same situation that we're in? They had to cut and they had to restructure and they did it.

Some of the things we look at here are the high-cost items: education, transportation, the environment, health, justice. We've got to focus on all of these things. Education: there's a tremendous expenditure annually and I think that per capita we're probably paying the highest in North America and certainly not getting the output that's desired. I think we've got to look at restructuring the entire education system -- not what we've got and not Band-Aid solutions, but major restructuring. The one thing that is appearing to be very successful in terms of reducing cost, increasing competitiveness, increasing productivity and increasing output in the education sector is the voucher system. That's something which I think this government should seriously look at and study and not discount it out of hand.

The Chair: The time's expired. It's 11 o'clock and I'd like to thank you, Mr Pagnuelo, for coming before this committee this morning.



The Chair: The next group to come forward is the Ontario Federation of Agriculture. I'd like to welcome you to the standing committee on finance and economic affairs. We have until 11:30. I hope you're not reading the whole brief -- members will have an opportunity to read it later on -- because I think you'd take all your time up reading it. As I look in here and see some of these charts, I think I've seen them before throughout the year. You may begin by identifying yourself for the purposes of Hansard.

Mr Tony Morris: Thank you very much, Mr Chairman and members of the committee. Please excuse my voice. I'm getting over a cold I had on the weekend, so it might be a little rough.

My name is Tony Morris. I'm an elected member of the executive committee of the Ontario Federation of Agriculture. With me are Cecil Bradley, who is manager of research and policy, and Ed Ketchabaw, one of the people we have within research and policy.

You're quite right, Mr Chairman. I have no intention of going through the brief word by word. Perhaps I would ask that we could have this submitted on record. If I may, I'll draw you to some of the highlights on the very first page, a summary of recommendations. I think the very first recommendation is perhaps a very important one from agriculture's perspective, that the government work with farm organizations to develop creative and effective ways to increase support to the agricultural sector. I will expand upon that in just a few minutes.

You mentioned some of the graphs. I might add that these have been updated to show that last year when we showed you those graphs they were not just a shot in the dark, that we actually have a trend that is now on a continuing basis and one that we must be very aware of.

If we go down to number vi, we have one that is of course very important to the farm community, and that is to continue the farm property tax rebate program until property tax reform has taken place in the province of Ontario that eliminates the need of things such as the education tax on farm land.

I might just highlight some of them. Number viii is to implement a county- and region-wide section 58 combined factor assessment for the entire province unless county- and region-wide market value assessment is already in place.

Number ix is to establish the capped variable mill rate option as a system for municipal taxation that would more fairly tax farm property according to the benefit principle. I think we are on record before as having said that farm land as such does not receive many of the benefits for which it is paying, such as education. It is the people who receive that benefit. Therefore, the benefit principle is one that we are very actively promoting.

Number x is to not act upon the advice of the Fair Tax Commission's working group on the environment and taxation. In agriculture, as I'm sure many of you may well be aware, there was a suggestion that perhaps agricultural inputs should have been taxed, specifically those involving chemicals and pesticides for use in farm production. The agricultural community has shown over the last number of years that we can do a very good job of educating our people in reducing the use of these chemicals and pesticides and using them with modern technology that is being developed every year to reduce the amount being used. Use education in the farm community rather than taxation, which, in our view, would be a regressive way to go about things.

Number xii is that we are recommending that the Minister of Agriculture and Food take the lead on an interministerial committee charged with formulating a rural development strategy that has as its primary goal retaining and creating jobs in rural Ontario. The Ontario Federation of Agriculture has for some time been promoting that it is not just agriculture that is in a lot of trouble, that it is indeed rural Ontario. To that end, to provide a lot of opportunity for the people who not only work on the farms but live in our small communities across the province, it becomes absolutely of paramount importance that we look beyond the concrete of Toronto to the far reaches of this province, from Thunder Bay to Sault Ste Marie to the areas down in the southwest and, indeed, the area I'm from, the Grey and Bruce regions, which have been dramatically affected by cuts in things such as hospitalization and policing and education and whole areas of infrastructure within society that people within the major urban centres have come to expect. We believe that to really get rural Ontario back on track, we need to be working together to make that happen.

Number xiv I'm going to highlight because, as you said, Mr Chairman, I certainly don't want to use up all my time going through the brief. But I think it's very important. We're suggesting that the rural residents, those involved in agriculture and in the small communities of our province, have the opportunity to invest back into their communities through rural development certificates or something along those lines.

When a farm or a small business is sold today in Ontario, too often that money moves out of the system within that rural community. It moves into a larger urban area or into a town within our rural communities, and it is not effectively used. I can look at the sum of $62 billion that has been estimated to be in liquid assets in rural Ontario that really is not productively used, not being used to create and generate jobs in the rural sector. What we're suggesting is that some form of mechanism be found that can attract these dollars back into the rural communities through investment, either investment in the small businesses or the farms in the area, and offer an alternative system of financing to perhaps take on some of the ventures that many of the farm families in this province want to do but are stymied by some of the conventional banking systems we have, that perhaps don't have a full understanding of some of the new products -- I specifically mention new products -- and some of the new ways that we want to get involved with either further processing or value-adding on the farms.

I might just mention at this time that I was involved at one time within the banking community, so I'm well aware of -- how should I put it politely -- some of the very barriers that exist in the way they look at some of the small businesses progressing in the value-adding and the new products.

I've had many opportunities over the last year to discuss with some local bankers about different products, and it's a knowledge they do not have. Conventional agriculture is one thing, but when we start talking about some of the products with which we can satisfy some of the ethnic communities in the city of Toronto and other areas, it's a whole new ball game to them. We look at this rural investment as being very important in that regard.

If I may, without going through the brief, I'd like to preface by saying that agriculture is well aware of what we now term as the new economy in the pharmaceuticals and the semi-conductors and computers etc. We're well aware of what is driving, in a lot of circles, that particular part of the economy.

Having said that, we're well aware that in 1904 a major part of the economy was to make buggy whips. We're well aware of what was driving the economy in parts of Europe back in the 1600s. But at the very root, the very core of any society through history, agriculture has been the mainstay. Whatever happens to the economy, regardless of historical evolution of the industrial trading base, agriculture has always been at the core.

Having prefaced that, I would turn to page 9, if I may. I may skip around a little, and I would ask my colleague Cecil Bradley to help with some of these graphs. On page 9, figure 3.3 is Capital Investment and Depreciation in Ontario Agriculture. Prefaced by saying that we recognize the new economies and that agriculture is at the core of any economy of any society's ability to progress in this world, to me, this graph indicates just how serious a position we are in within the state of agriculture. I cannot find, and I'm sure many of the researchers cannot find a point in time for which we have kept records where we have a period of disinvestment within the agricultural business and the agricultural sector.

As you can see, in 1990, we hit the crossover point. You're quite correct, we have used this graph before, but at that time we stopped in 1991. As you can see, this has now been extended to 1992, and there has been no change in the trend that was established. That to us is a very, very serious trend, because it clearly indicates agriculture's ability to respond to a competitive global marketplace, if that is what we truly believe the future to hold. You have to have the tools.


I would use an analogy. When you take your car into a garage, if your mechanic does not have the tools to do the job, you cannot get your car fixed. So it is with agriculture. We are losing our ability to compete, because we don't have the tools: We don't have the technology with respect to machinery, we don't have the technology with respect to barns and to systems involved in agricultural production.

Those systems are out there. I have in the last year had the opportunity to travel to Europe and I saw machines that, I'll be quite frank, I didn't know what they were until I asked, because these things are so technologically advanced over what we have in Canada at the present time. Their farmers are using them and getting to the point that their production is so much higher than ours and they're able to compete. I'm quite well aware of some of the investment their governments have taken.

Flipping back to page 8, figure 3.2, I think it very clearly highlights, further in that vein, the investment in Ontario agriculture versus the investment in the rest of the Ontario economy. If you look at the one with the triangles, that follows the same line as figure 3.3, the capital investment depreciation. That is what agriculture has done since 1979. I'm quite sure we're well aware of the recession we went through back in the early 1980s and the impact that had, and then the economy started to rebound. The rebounding of the economy of the province as a whole can be clearly seen by the solid line, where it crossed in about 1985. That is the upsurge of capital investment by the rest of society, yet agriculture continues to drive to the bottom, because we just don't get the return for the products we produce, and there has been a marked lack of government involvement and government expenditure within agriculture.

That can be clearly seen when we go back to page 3. I apologize for skipping around, but I'm trying to do it without going through the whole brief. Page 3 is the expenditure of Ontario Ministry of Agriculture and Food as a percentage of the Ontario government's total expenditure. As you can see, 1992 was certainly the lowest point since 1979; I would have to hazard a guess that if we extended that back to 1969 or 1959, we would see that trend on an even keel until we hit the mid-1980s or 1987, from which time we have continually been reducing. That has a marked effect on our ability to compete, not only in a world market but with our neighbours both east and west, from Manitoba and Quebec, and down to the south, because very clearly their governments have taken a much more active role in supporting their agricultural communities.

I'm going to pass to Mr Bradley in a second. He can probably explain the figures on pages 4 and 5.

We're well aware in agriculture of the problems facing this province with respect to fiscal restraint. Having said that, agriculture is not the place to be looking with respect to raising increased dollars, be it through taxation on our capital assets or taxation involving some of the products we produce, such as tobacco, because quite clearly the producers who produce these products do not have the ability to take any more for society. Society has no right to expect the producers of this province to continue to fund the projects they have, either in their cities or within their infrastructure, that do not relate to agriculture. Many of our products have received unfair taxation over the last number of years. I'm certainly not going to take too much time in getting into them, but the families of the people who produce those products cannot continue to be the ones to carry the burden for society. As I mentioned earlier, we have enough problems trying to get our finance community to understand some of the new products. Certainly that relates to government as well as we look at some of the new products, with respect to some of the new species we want to farm that we are adapting to farming and that can provide an economic base for many producers across this province.

Agriculture cannot continue to carry the ball. We must have support. These graphs clearly indicate that. Cecil, perhaps you could take a short time to explain the graphs on pages 4 and 5, because I think they indicate, from a government perspective, how we in Ontario have been treated.

Mr Cecil Bradley: Figure 2.2 gives a comparative look at how Ontario does in terms of industry support relative to the other provinces, expenditures on agricultural support versus total expenditures. I think you can see that Ontario, as a percentage of total provincial outlays, ranks fairly low. In other words, it's below Quebec, it's below the all-province average and it's below Alberta and Saskatchewan. We single out Alberta, Saskatchewan and Quebec for comparison purposes because those three provinces and Ontario between them produce about 85% of the agricultural produce in Canada. You basically have Canadian agriculture in those four provinces.

There is a problem in that comparison, though, because simply looking at total provincial outlays doesn't account for the fact that the agricultural industry is of considerably more importance in some provinces than in others. In other words, in Saskatchewan, agriculture accounts for perhaps one quarter of the total economy. If you put your comparison on a gross domestic product basis, then that tends to correct for the relative concentration of agriculture in the overall economy.

That's the calculation you see in figure 2.3, where we show the cents in provincial government spending in support of the agrifood sector versus the value added that the sector puts into the economy as a whole. Again, Ontario comes in at the bottom, or almost the bottom, of the ranking. Ontario spends about seven cents in sector support for every dollar that the sector contributes to the overall economy. That's about half the national average. The national figure is 13 cents. Again looking at what I call the other agriculturally significant provinces -- Quebec, Alberta and Saskatchewan -- Ontario is well below the level of support.

The argument is essentially one that the province has considerable room to move if it wanted to improve its support levels for the industry, considerable room to move even before it came up to the Canadian average, let alone before it came into line with some of the other agriculturally significant provinces. If anybody has any questions about exactly what is agrifood sector GDP and so on, I'll be happy to deal with that in questions and answers.

The Chair: Are we all set to go for questions?

Mr Cecil Bradley: Absolutely.

The Chair: I thought maybe someone else was going to make some comments. Just one thing: In Ontario, are you adding in the federal money kicking in or just provincial?

Mr Cecil Bradley: No, just provincial.

Mr Wiseman: Unfortunately, Gary Carr isn't here.

The Chair: Mr Wiseman.

Mr Wiseman: Why don't you let me finish before you start shutting me down? In the first presentation this morning it was indicated by Mr Carr that the Tory position is that we shouldn't be spending any more than $33 billion in terms of the Ontario budget. That was reiterated a couple of times, I think, with the subsequent presentations. My question is, given that the Ontario government transferred somewhere in the neighbourhood of $558 million in funds to agriculture through OMAF this current fiscal year and $564 million in 1990-91, and given that to reach the $33 billion that the Tory party has obviously taken as its benchmark would require somewhere in the neighbourhood of a 42% or a 43% reduction across the board of all funding of the budget of Ontario, including OMAF, what would be the impact of, say, going from a $560-million budget to a $280-million budget on the agricultural sector?


Mr Morris: Mr Wiseman, perhaps I could reverse the question and say, what would be the impact on Ontario society if it did not have the ability to produce its own food?

Very clearly, what has happened with the agricultural budget is that we have $166 million worth of property tax rebate that quite clearly is not part of the agricultural budget. It should very clearly be within Municipal Affairs. It is a return of education funds, or education taxes -- an unfair taxation system that for 20 years governments have recognized as being unfair taxation and have done nothing about. That $560 million that you talk about is now down to $400 million. Of that $400 million, $20 million in 1992 was earmarked for the government's investment strategy for agriculture and has not been spent. I believe it was $180 million to $210 million that was actually spent on agriculture in 1992 -- I don't have the figures right with me -- because a lot of the funds that were earmarked were simply not spent. They've been budgeted but are being carried over.

That would certainly bring me to my point on the agricultural investment strategy, where in May 1992, Minister Buchanan announced a $120-million strategy for Ontario agriculture over a five-year period that we have not used in 1992. The OFA would be very upset to have any of that funding cut when we have received the assurance that this money would be spent, and it has not been.

We are suggesting that it has to now be spent before 1997, because the only way that we can see society benefit, if you look at the spinoff effect of agriculture, is to grow from the base. You can't start growing from the top down. I'm sure today's Ontario Hydro announcement will quite clearly demonstrate that. The problems with GM, the problems with Air Canada, the problems with Canadian Airlines International, the numbers of people we're talking about being laid off -- agriculture doesn't lay people off. We create jobs. We create them. Any money that can go into the creation of a job has surely got to be good for society, and any discussion on cutting it, would surely be like cutting your right arm off, because the moment you cut it off, someone else is going to come in and supply your market for you.

Believe me, if we have to rely on somebody else to supply this market, I'm quite sure of the kind of price we'll end up having to pay, so it would be a false economy, in my mind.

First off, I would suggest that if you wish to, I'm quite sure agriculture would be quite happy to see the $160 million taken out and put into Municipal Affairs where it should be, and leave our agricultural budget, and that will give us the additional funds to assist us.

Mr Michael A. Brown: (Algoma-Manitoulin): Tony, we know that rural Ontario is probably as bleak a place to be as there's been in this province for a long time. I know in my constituency in northern Ontario, it's not happy times in the farm community or the rural community in general. I know, because of what we produce in my area, that it's worse in other parts of the province than we're seeing it. Commodity prices have dropped. There are concerns over GATT, concerns over NAFTA, concerns over a wide range of things that people, at least in my riding and, I suspect, across Ontario, feel they just have no control over. So that's making it very difficult out there.

As we look at your numbers, it's not very hard to convince me at least that this sector needs a little bit more support than it's getting, that if we hope to continue a rural base, we're going to have to be doing something. The thing I always have problems with, and this is very complex, is deciding how to do that. I appreciate your 12 recommendations, but what I wondered was, if it were you and you were Floyd Laughren today, could you give me an indication of what kinds of dollars you thought were really necessary and which programs you would prioritize as the ones your organization thinks are necessary, not just for the farming community but for rural Ontario.

Mr Morris: I think actually asking me to handle the province's Treasury would be like putting the fox in the hen house.

Mr Brown: Everybody has his wish list, Tony.

Mr Morris: Exactly. There's no question, and as I said in my preface, we are fully cognizant of the fiscal restraint within the province of Ontario and some of the monetary problems we face. But very clearly, if we look at where these problems started, we really believe that agriculture is at the root of some of the problems in Ontario in that as agriculture's decline has been shown, so has the province's. The graphs would seem to indicate that you can tie the monetary problems of the province with the decline of agriculture. As our agricultural base has started to decline and the profit margins of many farmers have seen a drop, so has our ability as a province to meet many of the needs of society in Ontario. If you're asking which egg does one pick out of the basket, I'm not sure if there is any one, because many of them are tied together.

For example, we have suggested an investment tax credit complementary to that of the federal government, that the federal government brought in December 1992. But what we're suggesting is that perhaps we should look at a tax credit on buildings, on structure rather than on something like machinery. I believe that only 15% of the machinery we use in Canada is actually produced in Canada, whereas the majority of buildings we would put up in Ontario would use Ontario labour and many of the materials we would use within those buildings would be Ontario materials. So there comes a question: It's very difficult to pull off part of a wheel without the thing getting out of kilter. They all work complementary to each other, and to get into any specific discussion I think would take far longer than we have today.

Mr Carr: Thank you very much for your presentation. As you know, we had a chance to meet with our caucus as a group and go into a lot more detail. I even think we were in this room, if I remember correctly, or maybe next door, where we spent a great deal of time going over many of the concerns with some of the people, including our critic and so on.

One of the things that came out of those discussions that I thought was a really good idea was to put together an agricultural and rural strategy. You've talked about some of the recommendations here, but when we talked we found that it isn't just money. What you're talking about isn't just coming in with more money, We really have to take a long, hard look at all the areas. In that discussion you went into great detail, "Boom, boom, boom, here are some of the concerns we've got." I just want to see if you have some idea how we could do that, and I want to see how you feel we could do it, whether you feel it would be like a cabinet committee, an all-party committee that puts together a strategy. How would you see that working?

You made some great recommendations. I don't know when we met, probably Christmas, and yet nothing seems to have moved ahead. How would you see that put together, how would you like to be a part of it and what do you see coming out at the end if we put together a real strategy?

Mr Morris: Certainly, we see agriculture as a non-partisan issue, and the strength of agriculture and its ability to provide for the people of Ontario. Our recommendation 12 was suggesting that the Minister of Agriculture and Food take the lead on an interministerial committee charged with formulating a rural development strategy.

We believe the Minister of Agriculture and Food certainly has that responsibility to ensure that all of us are included. He did take that, and a lot of work was done by people such as Roger George of the federation of agriculture, and our Vision 20/20 conference that was held back in November, I think, was a start, but it's a small start. There is a lot more work.

You made a very good point, and I would certainly draw the committee's attention to our summary of recommendations, that much of what we're talking about is strategic planning for the province of Ontario for agriculture. We're not talking about just throwing money at the producers to be used in a way that cannot be productive. What we're talking about is putting money in, having thought about how it could be used within the infrastructure, whether it be processing or transportation, within the investment tax credit side or being able to build and put into place the technology we need, because very clearly we're using a lot of buildings, a lot of machinery that, quite honestly, should not be used. By industry standards, it's a long way behind the eight ball.

What we're saying is that if we can put the tools in place -- and when I say "we," I mean agriculture and governments together -- then we'll let the producers do the work. I think that's the key. Perhaps in the past we shovelled the money, if I may use that terminology, in the wrong direction. It's been very, very useful and most welcome by many producers to keep them farming, but quite frankly, and I think the executive of the federation is on record having said it in numerous meetings around the province, that's not going to be the way it has to work in the future. That does not mean to say that the government's commitment to agriculture is lessened -- it's actually heightened -- but perhaps the direction we take is a little more thoughtful in that we put into place the foundations on which the producers can build.

The Chair: Gentlemen, I'd like to thank you for your presentation today.

Mr Morris: Thank you very much, Mr Chairman.

The Chair: Mr Wiseman, could you withdraw that statement, "Mr Carr isn't here"?

Mr Wiseman: No, I won't.

The Chair: No, you won't?

Mr Wiseman: Why would I? He wasn't here.

The Chair: The thing is that he had already come to the Chair to say, "Save my time till the end; if not, give it among the other two parties."

Mr Wiseman: But that's not relevant.

Mr Carr: On a point of order, Mr Chair: Just so you know, I was out complimenting the government on what it did with Ontario Hydro today. I wish Floyd Laughren would do the same thing. That was a cheap shot.

Mr Wiseman: Kind of like the rest of yours.

Mr Carr: I'll just remember that.

The Chair: Mr Wiseman, other members aren't to refer to other members being missing at any time. I didn't wind up saying that you walked in 15 minutes late this morning, either.

Mr Wiseman: I wasn't late; I was the first one here.

Mr Carr: I've asked more questions in this committee than you have. During this entire period of time I've been to more of them. We've only got two people. I stepped out for a minute, you little --

The Chair: Do we want to just recess for two minutes?

The committee recessed at 1132 and resumed at 1137.

The Chair: I'd like to welcome you before the standing committee on finance and economic affairs. I'm sorry that we took that few minutes of recess, but it cooled everybody down a little bit and --

Mr Carr: You know what I could do right now, Mr Chairman.

The Chair: I know, but I'm going to ask you not to do it.

Mr Carr: And I won't.

The Chair: Okay.

Mr Carr: Just look at this.

The Chair: Okay. Gentlemen, we have half an hour.

Mr Carr: I will be good. I promise.


The Chair: You didn't lose any time here. It's your time. For the purposes of Hansard, would you mind identifying yourselves, and you may begin.

Mr Gil Mackie: Thank you very much, Mr Chairman. I appreciate the opportunity to be here. My name is Gil Mackie. I'm executive vice-president of CP Rail System, and I guess among my responsibilities are the operations for CP Rail for all the property east of Thunder Bay, including the US east coast.

John and I were just looking at the Globe and Mail and reading our brief this morning, so it's very, very timely.

Mr Carr: At least you got out.

Mr Mackie: Yes. How did they know we were going to be here? John?

Mr John Taylor: Good morning. My name is John Taylor and I'm director general of government and industry affairs for basically that same area of territory that Gil just mentioned.

We certainly appreciate this opportunity to take part in Ontario's pre-budget consultation process. We are not here as designated spokesmen for the rail industry, although much of what we say applies generically to the rail industry in Ontario and, in the larger context, to North America. The remarks I'll be making today are a précis of a more detailed brief that we've left with you, and we certainly hope that you will find the time to read it. What everybody needs, I'm sure, is more to read, but we do believe the message is critical to Ontario's future.

We also imagine that in these hard economic times, almost everybody who has appeared before your committee has asked for some form of tax relief or more money, as the case may be. We'll also be asking for tax relief this morning, but only in the context of how it would be in the province's best overall interest, we believe.


The railways' financial situation is bad, particularly in eastern Canada. There is a real and imminent possibility that parts of the eastern rail infrastructure will be lost. We urgently need change from government to help avert this. Putting it as succinctly as possible, at this precise point in time the railroads are at a crossroads. That's sort of mixing a metaphor there a little bit. We have too much plant chasing not enough freight. This overcapacity translates to a huge cost burden and we're losing money.

At the same time Ontario, which is also strapped for money, is seriously contemplating major expenditures on new highways and its policies favour the railways' competition, setting the stage for more freight to move off the rails. As railways lose more business, there's more pressure on us to reduce investment in plant and more pressure on the province to build yet more highways to replace the lost infrastructure and so on. The circle continues and gets narrower and tighter.

Government and the railways have choices to make now. Railways can provide safe, economical, environmentally responsible, modern, innovative and competitive transportation services running on in-place, paid-for infrastructure, but they must achieve fair cost reductions from many sources, including the province of Ontario. Ontario can choose to provide relief now at a fraction of the cost to taxpayers and to the environment compared to what the cost will be if the circle is not broken.

In working on our brief, we read the document Renewing Ontario, A Plan for the Economy, with much interest. We certainly found a lot in it with which we agreed and in the main brief we have we tried to relate our words as much as possible to this document.

The Ontario government said in that paper that it "believes that its leadership is an important ingredient in helping the economy reach its full potential." We agree with that and we certainly empathize with the statement: "We (the government) need to manage our finances so that limited resources (ie, revenues) can be directed to Ontario's priorities and needs."

CP Rail System believes that the railways can help Ontario meet its transportation priorities, needs and objectives as part of the government's plan for economic renewal.

CP Rail System has a significant presence in Ontario which we can summarize as follows: In 1992, in Ontario, we operated approximately 8,000 route kilometres of track, much of which parallels the highway structures. We employed almost 6,000 people. We originated or received over 17 million tonnes of freight and terminated or delivered 24 million tonnes of freight. Then there was another big chunk, which we haven't identified here, of traffic that actually moves across the province and neither terminates nor originates here. We transported approximately three million Go Transit commuters. We spent more than $260 million in salaries and approximately $500 million in general purchases, expenditures and capital investments. We paid $12.2 million in provincial fuel taxes to Ontario and $11.9 million in property taxes to municipalities in the province.

But as I said before, we're losing money and our financial problems are most acute in this part of Canada, in the east generally.

The railways are major providers of the province's transportation infrastructure. We are key players in the quality of life in Ontario, in the competitiveness of Ontario's industries and in the province's plans for economic renewal.

As Renewing Ontario says: "Our infrastructure...forms the very backbone of our economy. A modern and well-maintained infrastructure is a vital ingredient in any economy's success." The railways have underutilized infrastructure.

As the government contemplates massive outlays which it can ill afford on highway infrastructure, we urge the government to bear in mind the alternatives that are already in place. The railways can help the province save money in the short term and further financial liability in the future. If the railways don't survive, huge additional expenditures on highways will be necessary to replace the lost railway capacity.

The underused rail infrastructure is provided by the railways themselves at no public expense. We finance, build and maintain our rights of way out of our own pockets. No other transportation mode does that.

Excess rail capacity varies by location, but even the CP Rail System line between Detroit and Toronto, a heavily used line and a vital part of our core network, has unused capacity. It's been estimated that we could easily run an extra six trains a day. Those six trains could handle the loads of over 135,000 trucks per year, which at present would be using Highway 401, which runs parallel to our tracks. Upgrades to that line could give us much more capacity if the investment could be justified.

The taxpayers of Ontario do not have to pay to build that right of way as they did have to pay for Highway 401. The taxpayers of Ontario do not have to pay to renew and maintain that line. CP Rail does.

The use of existing rail infrastructure is a good example of the economies available to the government in its struggle with limited funds to renew Ontario's competitiveness and it fits in well with strategies outlined in the Ministry of Finance paper, Public Investment for Economic Renewal, issued on February 9 of this year. That papers says that strategic investments are needed " ensure that scarce capital dollars are used as effectively as possible for the long-term good of the province."

The potential for making greater use of the existing rail infrastructure is well understood by Ontario's sectoral task force report on transportation. In its report, issued March 30 of last year by the Ontario Round Table of Environment and Economy and the Ministry of the Environment, the task force said:

"The high-energy, petroleum-based, automobile-centred transportation system of Ontario is not sustainable. It exploits non-renewable fossil fuels, creates pollution and wastes and is increasingly failing to fulfil its role of moving people and goods efficiently."

Later on it said, "Building more roads to solve congestion problems may only lead to greater auto dependence, congestion and higher levels of gasoline consumption"; and then, "The cleanest and most effective ways to move freight over long distances are by ship and by rail."

The research statistics suggested to the task force that if one tonne of freight were switched from truck to rail, there would be an 86% reduction in the amount of energy consumed.

Another very important finding of the task force was:

"The choice of freight modes is governed largely by economics. If shippers had to pay the full costs -- including the environmental costs -- of transport, and if subsidies to roads were removed, rail would become more economically viable."

This is something that the railways have been saying for a long time, and it is a key point of our brief.

In addition to ownership and maintenance costs, railway rights of way are also subject to property tax, but highways are not. Truckers, against whom we compete, do not have to cover such costs when they set the rates they charge customers, and quite often those customers are the same ones that we're after.

Public transit systems like the TTC pay no property taxes on their rights of way, while Go Transit has to bear its share of the railway's property tax cost. All of this means highway users have an economic advantage over the railways, an advantage that is working to cripple our competitiveness and threaten our viability and an advantage that is provided at taxpayers' expense.

When governments spend money building new highways, they provide the railways' principal competitors with an infrastructure at much lower cost than the infrastructure the railways have to finance, build and maintain, yet the railways have to compete with truckers on service and price. The result is that railways are undermined as a continuing, alternative, competitive choice of transport for Ontario's industries and for people-moving.

Another threat to the railways is Canada's current national transportation policy. The role that railways can play in Ontario's economic renewal presupposes that railways will still be around in future years, and that is not at all certain under the present regime of Canada's National Transportation Act.


CP Rail System made a presentation to the House of Commons standing committee on transportation in Ottawa on February 11. The most important messages we conveyed to them were that:

-- The situation of the rail industry in Canada today has striking similarities to what happened in the US northeast 20 years ago. There, under stultifying regulation, the system almost collapsed before the US railroads' poor earnings, mounting debt, deferral of capital improvements and loss of shippers to other modes were recognized by the government and something was done about it. By the mid-1970s, virtually every carrier in the region had filed for protection from its creditors.

-- Canada needs to make fundamental changes in the regulation of its rail industry. Three fundamental needs require recognition: first, revenue adequacy; second, a business-oriented tax regime; and third, encouragement of investment. Harmonization of federal and provincial treatment of the railways is urgently needed.

In 1992, CP Rail System had an operating loss of $343 million and CN North America a loss of more than $1 billion.

What are the railways doing to help themselves? That's an important aspect of this. We're not strictly here with our hands out; we are doing a lot to help ourselves, and the brief certainly says a lot more on that than I will today. Modesty prevents it.

CP Rail System has certainly reduced the size of its workforce by about one third during the past eight years, and productivity per employee has increased by about two thirds. We noticed in Renewing Ontario there was a lot of concern expressed for the productivity of labour, and we can certainly say that the Canadian railway unions have come an awfully long way. CP Rail System plans to cease operating east of Sherbrooke. This is a way of reducing the size of our overbuilt infrastructure, and CP Rail System and CN recently announced plans to share a common route through Ontario's Ottawa Valley. In addition, the two railways will jointly review all of their eastern infrastructure to see where they can make similar savings.

But plant rationalization and co-production, like the Ottawa route, with shared facilities are not sufficient to make the railways profitable. Fundamental changes in the Canadian regulatory system are also needed, changes that would allow railways to operate like businesses and to compete on an equal footing with Canadian truckers and US railroads.

The brief also contains quite a bit on innovation such as intermodal and just-in-time movements etc that are very important to our new approach to our markets, and it covers our adoption of total quality principles and improved service.

From what has already been said about the potential railways have for saving Ontario money on infrastructure, about the environmental benefits of the rail mode and the investments made to maintain the rail mode as a viable entity in transportation, we are sure that Ontario does not want to lose the benefit of the rail mode, but the railways need a signal. They need a signal from the province that will demonstrate that Ontario is a good place to invest capital, a good place to continue to do business.

The signal we seek would be in the form of tax relief in two areas: property taxes and fuel taxes. CP Rail System currently pays annual property taxes of $6 million on our rights of way in Ontario. That's about half of the total $12-million bill that we pay in property taxes. It is inequitable to subject the rail mode to a tax that the highway mode does not pay, particularly when railways finance, build and maintain their rights of way.

Rail rights of way are sometimes likened to utilities' rights of way. While it's true that utilities such as hydro and pipelines do pay property taxes on their rights of way, these costs are passed on to end users by law. But railways are not utilities. We are businesses operating in a highly competitive commercial environment and, unlike utility companies, competitive realities prevent us from recovering property tax costs.

We propose that property taxes on our rights of way be phased out over a five-year period commencing in 1993. That's on the right-of-way portion only. The $6 million that CP rail system pays in rights-of-way property taxes would provide only slightly more than a mile of new two-lane highway, if it were to be built, yet if the railways are unable to compete equitably with trucks and US carriers, major highway investments would be needed to handle traffic that's on the railways today. We urge Ontario to show leadership on this issue in the national interest.

Regarding fuel taxes, CP Rail System paid $11.8 million in locomotive fuel taxes to Ontario in 1992. Highway users pay fuel taxes and claim that fuel taxes help cover the costs of the highways they use. If that is so, the railways pay millions of dollars a year to help support the roadway used by their principal competitors. On the other hand, if fuel taxes are deemed to be general government revenues and aren't dedicated to highway spending needs, then how do commercial trucks contribute towards their share of highway costs?

From the environmental viewpoint, it just does not make sense to penalize the more energy-efficient, self-sustaining mode of transport -- rail. The federal Royal Commission on National Passenger Transportation said in its recent report, "Rail freight transport is at least three times as energy-efficient as highway freight transport." We ask that provincial fuel taxes on locomotive fuel be phased out at the rate of one cent per litre per year beginning with the 1993 budget.

To conclude, CP Rail System is encouraged by the insights shown in Ontario's pre-budget planning documents and other recent position papers mentioned earlier, but there has been in Canada a plethora of commissions, committees, studies, policies and position papers all supporting the rail mode or envisioning a world in which railways at least are treated equitably with other transport modes. But so far, it's been all talk and no action. In fact, our situation is now worse, in a public policy environment that includes the current National Transportation Act, the Ontario Ministry of Revenue decision on rail rights of way property taxes in 1990, threatened new municipal property taxes on the horizon, extended vehicle weights and dimensions being allowed on highways, and the list goes on.

We have choices to make about our future investment and we look to the Ontario government, in its next budget, to give us that signal that we do have positive prospects in Ontario as we plan our business strategy in North America. We not only want Ontario to help the railways help Ontario; we also hope Ontario will show national leadership in working with the federal government on changes to and harmonization of regulations governing and impacting on railways, changes that the rail industry urgently needs.

We are sure that no one wants eastern Canada to repeat the experience of the US northeast 20 years ago. We urge Ontario to take action, to take the lead among all provinces of Canada to help sustain the choice of economically self-supporting and environmentally responsible transportation alternatives, and to help remove distortions in the province's transportation infrastructure. If the provinces of Canada and the federal government can work together to make a few straightforward changes in the regulation of the rail industry, then we are sure the railways will survive. We'll be able to assist in Ontario's economic renewal and we'll be around for a long time to help people and industries of Ontario realize their economic and social goals.

Thank you for your attention. Once more, we do urge you to review our detailed brief if you have time, and we welcome your questions.

The Chair: Mr Kwinter, two minutes. That will take us to five after 12.

Mr Kwinter: While you were speaking, I read ahead, and I read through the whole brief and found it really interesting.

Could you comment on some discussions that are taking place that maybe we should rationalize the two major railways in Canada and get the economies of scale, and that might resolve some of your problems?


Mr Mackie: Perhaps I could address that. There is a task force set up right now comprising CN and CP senior people who are looking at all of eastern Canada to see whether there are some ways that we can extract ourselves from our negative financial position in the east.

Basically, they're looking at everything from more of the same, in terms of an Ottawa Valley type of coproduction, right through to a potential total merger of the two rail systems.

We're not sure whether the answers are going to be found in that approach, but I guess we feel our position is so desperate that we need to be looking at something like that.

Full merger would end up with obviously one rail system in the east. You would likely end up with about half the railway capacity that you have today. That's sort of prejudging a little bit what the study is to look at. Work is going on and we're hoping to have some preliminary results around midyear this year.

Mr Norman W. Sterling (Carleton): I'd like to ask two questions. Number one, reading the Globe and Mail this morning in the Report on Transportation relating to the president of CN, Mr Tellier, he talks about his problem with unionized employees -- 14 unions, average wage $44,000. The wage structure is far too high, he said. I assume the same is true of CP Rail. What are the unions giving in terms of trying to keep you afloat?

Number two, I'd like to ask the opposite question to Mr Kwinter and that is, is there any move on the part of both CN and CP to allow competition on your roadbeds?

Mr Mackie: The first question pertaining to the labour: I guess our agreements, although not identical, are pretty much the same as Canadian National's. What are the unions doing? We have very significant downsizings taking place. For example, we reached agreement with our running trades union to go to a two-man crewing arrangement, which alone will result in reductions of about 1,500 or 1,600 people in CP Rail. We're looking at major changes in terms of how we maintain our track, those sorts of things, so we are seeing a very significant reduction in the number of employees. This, I might add, does go through management ranks as well as unionized ranks.

In terms of the rate of pay, although the rate is high -- I guess it's a relative thing -- if we have the productivity, we can afford to pay the rate. I guess the problem we have is that we just don't have the density on a rail system, so the productivity per man-hour is not nearly as great as it is in the US, and that is what we have to work up. If we can get the productivity up per man-hour, then I think we're going to be fine, but we've got a long way to go vis-à-vis the US, which is what we benchmark ourselves against.

The Chair: Mr Wiseman.

Mr Sterling: I think he was going to answer the second part of the question.

The Chair: Okay, I'm sorry.

Mr Mackie: The second question was other people using the railways, the lines, basically.

Mr Sterling: Yes.

Mr Mackie: We do have agreements with other railways. We obviously have passenger trains, commuter trains, and we look to expand that sort of business. If you are going as far as letting other people run over the tracks, then you're into a whole different area in terms of how you manage that and how you pay for the tracks. One of our biggest single problems is in fact the ownership and maintenance of the roadbed. That's where we have difficulty in terms of justifying the capital and the high maintenance costs. It's a very large part of our expense and a large part of our inability to compete with highways, for example, which are provided by the government.

I'm not sure that would help us very much. Quite honestly, we're open to any ideas to try and make this thing work.

Mr Wiseman: A couple of really quick questions.

The Chair: One quick question.

Mr Wiseman: It's all one question. How successful has the TNT been, and if we were to move on the property tax, which is $6 million, and the fuel tax, which is $11.8 million, how would this translate into costs for tickets on the GO train?

Mr Mackie: That's one question, right?

Mr Wiseman: You can answer it all in one.

Mr Mackie: With respect to TNT, I guess Mr Wiseman is aware of some things that perhaps the rest aren't. TNT is a line of business we operate. TNT is a trucker that moves auto parts over the bridge into Windsor and then on into Oshawa. We handle that business from Windsor into Oshawa by rail. We've been doing so since May of 1991, and it's been moving very well. I guess the fact of the matter is it's been moving so well that we're doubling the business. We're going to start handling twice the amount of business with TNT starting next month and begin handling Ford business as well.

I guess what we tried to prove through this is that we are a viable option to trucks. We can run on time all the time, and we certainly can be competitive with the trucking industry. That's along that same 401 corridor that we referred to earlier.

On the price of the GO tickets, I guess it's the reverse you'll probably have: If taxes go up, GO tickets will go up. With the financial situation we have right now, we're not going to be able to pass too much of this on because we really have a situation where we don't have the financial capability even to manage the investment that we need in the future to keep the track up and to expand in areas like the TNTs and intermodal. We're trying to bring ourselves back from a negative position, so anything that we're asking for now is trying to get us back to a level of profitability at the moment. However, once we can do that and put more investment in and expand the business, and the more business that goes on the line, the lower the per-unit cost. That will get reflected back through GO because the GO agreement is on the basis of train miles, and the more trains that are on the line, the lower the percentage cost the GO system would end up paying.

The Chair: Okay, gentlemen. I'd like to thank you for your presentation before the committee.

This committee is recessed until 2 pm sharp.

The committee recessed at 1206.


The committee resumed at 1401.


The Chair: We'll resume pre-budget consultations in the standing committee on finance and economic affairs. The next group we're going to hear from is the Canadian Mental Health Association. Will you come forward, please? I'd like to welcome you to the standing committee. We have half an hour, from 2 to 2:30. Could you, after presenting your brief, leave some time for the members of the committee to ask questions? For the purposes of Hansard, please identify yourselves, and then begin.

Mr Glenn R. Thompson: My name's Glenn Thompson. I'm the executive director of the Canadian Mental Health Association's Ontario division office. With me is Carol Roup; perhaps she can introduce herself.

Ms Carol Roup: I'm Carol Roup, the senior director of policy, research and branch services for the Canadian Mental Health Association, Ontario division.

Mr Thompson: We're very grateful for the opportunity to appear before the standing committee on finance and economic affairs. It's vitally important that mental health matters both come to the attention of your committee and be taken into account in the Treasurer's work towards the budget.

Just a word or two about the association -- Carol Roup and I are going to divide this presentation in two -- and about the submission we made to the Treasurer in one of his pre-budget consultation meetings recently.

Our association, the Ontario division, is an incorporated, registered, non-profit, charitable organization chartered in 1952. We have over 4,000 volunteers who are active in direct board and committee service in a network of 36 branches located in communities across Ontario. Ontario division and branch services and programs are funded through the provincial government, grants from the local United Way and supplementary fund-raising activities that we conduct on our own.

On January 19, I had the opportunity, along with others, to meet with the Treasurer and to make a pre-budget consultation submission. A copy of that submission is attached to the document that you've received as appendix A. In the event that you may not have had time to see that submission in any other way, I'd like to draw your attention to the assumptions we made in taking that submission and its recommendations forward to the Treasurer.

We assume that the economy will continue to experience a very gradual improvement and that the long-term impact on our economy over time will be substantial. Ontario will experience a continuing high unemployment rate, probably of 10% or 11%, for quite some time, and that will cause persistently high demands being placed on public assistance and human services provided by both government and the non-profit sector.

We assume as well that stability in housing, employment, training programs and income are fundamental platforms from which to build programs and services from which people in need can benefit.

While dramatically increasing corporate taxes -- this is another of our assumptions -- might be used to reduce the provincial deficit, that strategy is very likely to increase the number of individuals placed in a government-dependent kind of situation.

The difficult adjustments resulting from the free trade agreement with the United States are likely to continue in Ontario in the short term, in much the same way that Europe and other jurisdictions are feeling the impact of similar trading agreements that are becoming common across the western world.

The federal government is likely to further constrain transfer payments to Ontario in the period prior to the next federal election, and the flow of funds may not necessarily reflect provincial priorities as this government would see them.

Further significant economies could be achieved through increased efficiency and effectiveness of the public service in areas of operation, regulation and coordination of efforts with the private and the non-profit sector.

The recommendations in our presentation to the Treasurer on February 19 are broad in scope and focus on a number of very important issues. I'd like to use this opportunity briefly to highlight our recommendations for you.

First, we suggested the essential importance of maintaining planned programs in social housing and social assistance, as well as training and retraining which are designed to facilitate entry or re-entry into the workforce.

We recommended that the cost-saving potential of strengthening the non-profit community sector and reducing dependency upon high-cost institutional care be undertaken.

We proposed the need to develop appropriate accountability systems, both in institutional settings and certainly in the community settings.

We recommended the value in utilizing what I believe to be an immense and ready volunteer capacity as an investment in our communities.

We recommended the need for collaboration between industry, labour and non-profit organizations along with government.

We recommended the tremendous need for preventive work with children at the earliest possible stage in their development and with their families, and later preventive work to reduce the stresses in the workplace, both of which could result in a significant decrease in the use of our health care system.

The final recommendation: The need, particularly in the mental health area, to centralize management at the provincial, at the regional and at the local levels in order to empower individual communities to plan locally sensitive programs and services.

Carol Roup is going to continue from that point in our presentation.

Ms Roup: I'd like to take the opportunity now to focus more directly on the mental health system and highlight areas that we believe would be essential for the Treasurer to consider when developing the forthcoming provincial budget.

Since January 1992, when the Minister of Health announced the government's policy directions in health care, we've taken the opportunity on several occasions to applaud these directions, especially in the area of mental health reform. We strongly believe that if these directions are pursued with sufficient vigour, this province can ensure that the mental health dollar is expended in a much more cost-efficient and effective manner for persons in need. It is more than a year since the minister's announcement, and along with others involved in the mental health field, we are eagerly awaiting an announcement of a multi-year implementation plan for mental health reform.

We are very anxious about the 75,000 Ontarians who have a serious mental illness and the 1.5 million Ontarians who seek mental health care each year. We are also very concerned about their families. We are particularly concerned about the continuing high rate of hospitalization in this province while we have significant gaps in service and lengthy waiting lists for community mental health services. These are issues that need to be seriously considered within the context of a provincial budget if this government intends to implement its policy directions and embark upon a planned but aggressive mental health reform strategy.


Furthermore, the following financial statistics need to be digested. They're not absolutely current because the data are not readily available, but they do indicate a trend that continues.

As a percentage of overall government spending, direct spending on mental health declined from 1.54% in 1985-86 to 1.52% in 1989-90. As a percentage of health spending, direct spending on mental health declined from 7.71% in 1979-80 to 4.59% in 1989-90 despite major increases in community mental health funding.

We acknowledge that there has been an increase of 162% in community mental health spending since 1985, but spending on community health programs accounts for less than one cent in the health care dollar. Community mental health spending remains a very small percentage of overall mental health spending, approximately 10%.

These figures need to be viewed in relation to the data from a recent snapshot survey formally submitted to the Ministry of Health on February 19. This snapshot survey indicates that 34,000 active registered clients are being served by community mental health programs on the survey date; that over 50% of housing, social rehabilitation, vocational and case management programs have waiting lists of three months or more; and that 49% of programs have a majority of their clients comparable with populations of provincial psychiatric hospitals.

We are all very aware of the extent to which the provincial deficit and the overall fiscal situation in Ontario have restrained the mental health reform process. We believe that a serious beginning to this process must nevertheless be taken. We are particularly concerned that, while budget constraints and cutbacks within the hospital sector have taken place over the last year and more serious retrenchments are currently being considered, the government's commitment to reallocating these resources to building up community alternatives is not yet being fulfilled. In this regard, we noted in the Ontario Fiscal Outlook distributed by the Treasurer in November 1992 that the average increase of 11% in health spending is expected to drop to 1.6% this coming year. It would appear from that that despite the policy commitment to community services, cost avoidance within the institutional sector may be lost from the mental health system altogether.

We are extremely concerned that as further cutbacks occur within the hospital sector, far greater numbers of people will be seeking assistance from community services. We know that members of the standing committee will be aware of the deinstitutionalization predicament that has been ongoing in this province for two decades. There's a very real possibility, we believe, that the situation will reach crisis proportions unless a concerted reallocation strategy is embarked upon immediately and those community services are in place to receive people as cutbacks occur in hospitals.

Many of these points have been made to the Ministry of Health over the past several months. We've attached to this submission a letter submitted to the Minister of Health from our president, Janet Paddison, on December 18, 1992. We would urge the Treasurer to seek the advice of the Ministry of Health with respect to work being done in other jurisdictions. Although Ontario will certainly need to develop a community-based system according to the unique needs of the people of this province, there's much to be gained by the experience and insights of others.

At the pre-budget consultation of 1992-93, we drew the Treasurer's attention to the work of the funding strategy work group of the Graham implementation strategy subcommittee, which drew heavily on the experience of other jurisdictions in estimating an approximate average cost of $20,000 per annum to support a seriously mentally ill individual in the community. This figure needs to be contrasted with the cost of approximately $100,000 to care for the same individual in a psychiatric hospital.

A long-term fiscal plan along the lines suggested by the funding strategy work group would estimate how current spending patterns would play out in a decade or more, set new targets based on the cost and benefit of programs and services to individuals most in need, calculate the amount of resources which will need to be shifted and the pace with which they can feasibly be shifted, estimate bridge funding which will be required during the period of transition and then assertively move towards an established and supported goal.

In no way do we wish to oversimplify an extremely complex undertaking. However, variations of this simple fiscal formula have been applied in various jurisdictions both in Canada -- for example, New Brunswick and British Columbia -- and in the United States; there are many examples there but some of them are Ohio, Vermont, Wisconsin and Tennessee.

I think the one thing about which there is general agreement is the need to make changes in our mental health care delivery system. There's also a fair degree of consensus that despite jurisdictional differences, there are a number of critical success factors in mental health reform.

A recent study undertaken by the Clarke Institute consulting group focuses on the experience of other jurisdictions, in particular Ohio, and discusses these success factors in relation to developments in Ontario. This document divides the success factors into three major categories: initiating change, implementing change and the process of mental health reform itself. We would urge you to review this document, as it clearly confirms and strengthens what the Canadian Mental Health Association and other groups have suggested for future planning of the mental health system in Ontario.

In contrast to those jurisdictions that are most commonly cited as having successfully shifted the bulk of their resources from institutional to community care, Ontario currently spends 10% of its mental health dollar on community-based services. Psychiatric hospital spending alone accounts for 50% of direct spending on mental health, and OHIP spending on mental health services has more than doubled its share of mental health spending in the past 10 years.

We very much hope that the provincial budget will facilitate a serious effort to provide Ontarians with the appropriate spectrum of mental health services.

Mr Sterling: I'd like to thank you for coming down. Particularly, it's nice to see Glenn Thompson here again. Glenn, just as a bit of background for some of the members who wouldn't know you, you've been deputy minister of a whole host of ministries. Do you want to just tell us? Comsoc was one.

Mr Thompson: No, I wasn't actually in Comsoc, Mr Sterling, but it seems like a lot of others. I progressively went through the ministries of Correctional Services, Energy, Government Services, Municipal Affairs, Labour and then Housing. I left the Housing ministry about a year and a half ago. But my longest period of time in those 31 years was in Correctional Services, where I spent about 20 years, having started out there as a social worker. It seems like a long time ago.

Mr Sterling: I'm glad to see you here again with the Canadian Mental Health Association.

As you know, I've had a fair bit of involvement with the advocacy and the change of our laws dealing with consent to treatment. I guess I was most shocked during those hearings dealing with schizophrenic patients, in that although they represent probably less than 1% of our population, they take up about 8% or 9% of our health care budget and they are occupying half of the psychiatric beds in the hospitals. It just seems to me that in this whole area of care, we've got our priorities so mixed up that it doesn't make any sense at all.

As I understand it, and maybe you can clarify this for me, we're going to spend $25 million to $30 million setting up an advocacy commission; it's going to cost $25 million or $30 million to run it; and we spend about $1.5 million a year on research in schizophrenia in Canada. It just doesn't seem to me that there's any logic or sense behind how we've divided up the pie. Are those figures about right?

Mr Thompson: So far as I'm aware, but Carol Roup may have better figures on the research side across Canada. I'll ask her to speak on that in a moment.

If I can just speak to your contrast of the cost of an advocacy commission set against the cost of research, for example, I guess we would say that the disposition of funds in this field is certainly inappropriate indeed and much, much more, as in those US jurisdictions that Carol mentioned -- the US, where 80% of the mental health dollar is spent in the community, would get a more cost-effective result and probably thereby leave money for good advocacy, good research and a variety of other necessary kinds of programming.

In the correctional services system in Canada, and in the US to an even greater extent, we're dramatically different than many states in Europe, where people are not nearly so inclined to incarcerate people or institutionalize them, as you know well from your work in the justice field, Mr Sterling. That's been our habit in the health field as well, to think "institution" first when we say the person is ill. I think in my growing-up days, that meant definitely they needed to be in an institution. I think we've learned that doesn't need to be the case. Indeed, there's a great benefit for the person to remain in his community when he can, and obviously many people can.


Mr Wiseman: I'd like to pursue that thought for a moment. My understanding is that we're trying to put into place some mechanism which would keep people living in the community. My question has to do with the expansion of the Whitby psychiatric facility in Whitby and the amount of money that's going to be spent there. Can you shed some light on how much is needed and what alternatives might be more cost-effective, other than the ones you're already done?

Mr Thompson: Let me answer by saying that in the state of Tennessee -- I don't think of Tennessee first when I think of modernistic kinds of programs; they have a much smaller population than Canada's, of course -- they had five psychiatric hospital institutions and they did an analysis of the long-term cost benefits of doing the job differently. In a fairly short period of time, they eliminated three of the institutions, rebuilt the two they decided to keep and began to dispose of the very major proportion of their mental health dollar in the community.

I guess that's a roundabout way of saying that, in our opinion, all of the institutional space that is existing in Ontario in the psychiatric hospitals probably wouldn't be needed, for sure, if we had 80% of our dollar being spent in the community.

Mr Wiseman: I read on a very frequent basis that there are a lot of mentally ill people who are living in the streets, who have been deinstitutionalized without the support systems. Just lately, President Clinton has indicated that just outside the White House you can find people who have been deinstitutionalized with no support systems. If they're doing that in the United States, if Tennessee has done it, how did they avoid this kind of backup on to the streets of people who need help?

Mr Thompson: In the best places -- they have the best and the worst there, I would suggest, in terms of examples, good and bad -- they have excellent community support programs that are designed to use institutions as a last resort -- I don't mean this negatively -- so that people have to be dealt with in the community before eventually some of them, obviously, will need institutional care. In the best places, they've got good support systems out in the community.

It doesn't mean that some people aren't going to fall through the cracks of virtually any system. I think it's almost impossible to find a system, especially for people who are mentally disordered, where they're going to find the system attractive to them. By the nature of some mental disorders, people are very suspicious, very untrusting, very difficult to relate to. So the nature of the illness makes the care system hard to apply.

Mr Tony Ruprecht (Parkdale): You're making a pretty good case that when increases are being dropped to 1.6%, as you say, it's obvious that's a great concern to us. What perturbs me is what you say on page 5. You indicate there's a real possibility that the situation will reach crisis proportions. We all know what happens with deinstitutionalized care when the service is simply not provided once people leave institutions. In Parkdale we all know what happens. If anyone wants to know the gory details of what precisely takes place when services break down, all they have to do is go down Queen Street and see. Come down to my riding and we'll show you.

I can remember when I was minister responsible for disabled persons, in the last five months it was thrust on me that I was suddenly responsible for the group home policy. I didn't know my department was responsible for it, but I suddenly found out there were some people in the ministry who were working on that. I remember that this interministerial committee made a recommendation that more funds must be allocated in the service sector, meaning services after deinstitutionalization.

So I'm wondering, do you recall what happened in terms of moneys being provided for the services, deinstitutionalized care, and second, when you say "crisis," what do you foresee here?

Mr Thompson: Let me comment on the crisis part, and then Carol probably is the better historian in terms of group homes and might relate those both to the services of the Community and Social Services ministry as well as the Health ministry.

Certainly, it isn't difficult to see matters reaching crisis proportions in this city area as a whole variety of our services try to cope with tremendous numbers of people who've arrived in this country and who, in my opinion anyway, don't receive the kind of support and assistance they should receive upon arrival. Then they get into difficulties, and some of those will be mental health difficulties. Then they become a burden on a system in a much more expensive way than if one were helpful to them in the first place. I think you can see a sort of spinning cycle.

My own personal view is that we need more people coming to Canada from other parts of the world, not the opposite, but I think we have to provide adequate kinds of assistance for them, depending on the capabilities they bring along with them. If we do that, then we're far less likely to be picking up the pieces down the line. If we don't, then I think the crisis cycle begins.

Ms Roup: With respect to the group homes, those community supports, in particular in housing, were never, ever adequate. As hospitals were cut back and people were deinstitutionalized into the community, group homes were being set up and they were being promoted, but it was nowhere near adequate.

I think there was also a misunderstanding that once you placed someone in a group home, you had done your job, whereas what was really needed was a whole range of community supports. Simply placing a house over someone's head was inadequate. It wasn't sufficient in quantity or in quality.

I guess at the time too, because it wasn't accompanied by an adequate public education process, those group homes received enormous opposition. Many neighbourhoods fought tooth and nail not to have them. Municipalities had bylaws that permitted them to refuse to have group homes. It was really quite a huge undertaking to get group homes established. I think a lot of energy was expended in trying to educate local communities towards their responsibility in terms of different kinds of settings for people with psychiatric difficulty, and I don't think as many group homes as people envisaged actually went up.

Of course, there's a move now away from group homes and towards supportive housing settings, where you would have someone in regular housing but supported by a range of services. I guess the emphasis on the service system is changing. That appears to be one of the key success factors in other jurisdictions, that the thinking has to move away from a service sector and more directly into client satisfaction and quality-of-life indicators for people in need, so that we stop pouring money back into a system and we start focusing very directly on those things that enhance people's quality of life and permit them to integrate into a real community.

The Chair: I'd like to thank you for coming before the committee today.



The Chair: The next group to come before the pre-budget consultations is the Association of Ontario Physicians and Dentists in Public Service. Would you come forward, please. Are there enough chairs there for everyone? Do you have overheads? Okay.

I'd like to welcome you to the standing committee of finance and economic affairs. We have until 3 o'clock. After your presentation, if you could leave some time for questions from the committee. For the purposes of Hansard, if you don't mind identifying yourselves, and after that you may begin.

Dr Janush Dukszta: Good afternoon. Thank you for the opportunity to be here. My name is Janush Dukszta and I am the president of the Association of Ontario Physicians and Dentists in Public Service. With me are doctors Deadman, Casson, Baldock and Rabheru. Also present are Deborah Eklove and Neil Byrne, our consultant.

The Chair: I always get confused about who's --

Dr Dukszta: Do you want me to go over again who is whom?

The Chair: No, that's not it. But if I want to get my toe operated on or a tooth repaired, how can I tell the difference?

Dr Dukszta: I am a psychiatrist. Almost everyone here is a psychiatrist, except for Dr Byrne and Deborah.

We are here to make a presentation against the budget cuts and we want to tell the committee how unfair to the poorest mentally ill population of Ontario is the proposed $45-million cut of the budget of 10 provincial psychiatric hospitals. The psychiatrists in this deputation work in the Queen Street Mental Health Centre and the Hamilton, St Thomas, Kingston and London psychiatric hospitals. John Deadman and myself and Dr Rabheru will lead off the presentations and others will answer the questions.

The association represents 440 physicians and dentists employed by the ministries of Health, Comsoc and Labour. The majority of our members are employed by 10 provincial psychiatric hospitals. We are medically responsible for 11,000 patients.

There are enormous differences between our patients and the patients seen in psychiatric units in general hospitals or in ambulatory private practice psychiatry. Our patients are poor, more often than not single, unemployed or unemployable, suffering from grievous acute and chronic mental illness and often repeatedly dangerous to themselves or to others. When the patient populations of general hospital units are compared with our units it is clear also that we have more involuntary and forensic patients, patients on court orders and admissions involving police.

As an example of how poor our patients are, I want to tell you that in the Queen Street Mental Health Centre over 80% of discharged patients live in poverty and rely on government pensions and charity to support themselves outside of the hospital. A similar picture is evident among our outpatients: 72% were dependent on some form of government assistance. Only 8.2% were actually employed.

When cuts are made in the provincial facilities, budget cuts will be made in the services to those who need them and can least afford them on their own. The cuts are not directed at the psychiatrists; they're directed at the patients.

The proposed $45-million budget cut is based on the proposition that the displaced patients can be taken care of in the community. It is hypocritical to dress the budget cuts as a move to the community, which is neither ready nor able to help the most severely ill segment of our population. As it is dismantling the integrated provincial psychiatric system the government is also putting into jeopardy its much-vaunted community psychiatry policy as articulated in the Graham report.

The concept of treating the mentally ill individual in the community where she or he lives is a concept that the association and its members support. The rush to dismantle the psychiatric hospitals' needed and essential asylum without creating alternative, well-sought-out and integrated community-based services is to commit the same mistake that was committed in Italy, England and the USA. We are not freeing the patient from the mental hospital but condemning him or her to poverty, degradation and homelessness.

Three of us will be doing the presentation, so in summary, let me just tell you that point that I want to make.

The doctors see a proposed cut of $45 million from the psychiatric hospitals as a panic response to budgetary pressures. If implemented, it represents (1)a failure to make tough decisions by the government selecting one of its most vulnerable parts for major cutting; (2)a contradiction to the Ministry of Health's espoused policy of mental health care reform, which is to move psychiatric care from institutions to communities; (3)a poorly timed decision with respect to its consequences on patients and their families, especially in view of the province's high unemployment rate and depressed economy; (4)a selectively punitive act towards the base of care providers to mentally ill people, and particularly unfair by targeting St Thomas, London and Brockville-Kingston for a 17% cut each; (5)an indication of management chaos at the Ministry of Health in which no unitary funding strategy or implementable long-range plan has emerged; and (6)a decision resulting in an increase of homeless people, poorer psychiatric services and more unnecessary human deprivation.

Dr Deadman will speak next. Dr Deadman is a past president of the association and also the president of the Ontario Psychiatric Association.

Dr John Deadman: Thank you, Janush. Just by way of correction, I'm actually past president of the Ontario Psychiatric Association, but that was not too long ago.

By coincidence, both Janush and I graduated in the same class from the University of Toronto. We qualified in psychiatry in 1963. That's almost 30 years ago. During most of those 30 years, we've witnessed continuous restraints and, more recently, cutbacks in the system and the many changes that they have produced.

The differences are demonstrated for me in a recent newspaper clipping which I took from the Hamilton Spectator. I'm in Hamilton now. It's entitled, "Resident's Death Was Avoidable, Court Told." This clipping describes a resident in a boarding home who was both suicidal and aggressive, and in a scuffle another resident was pushed off a fire escape and subsequently died of head injuries in hospital some months later. By another coincidence, I was the psychiatrist called in some two weeks before this unfortunate incident to do a consultation on this particular resident, who was at that time considered suicidal.

Twenty years ago, if someone was aggressive and suicidal, we just admitted them to hospital and sorted this out after the fact. Many of these people were very serious safety risks who met the criteria under the Mental Health Act and required certification into hospital. But in the last 15 years, I'd say, we have encountered increasing shortages of facilities of all types, all types of resources, not just beds. So we are now in the position, as consulting psychiatrists, where we have to decide whether a patient is really suicidal or just slightly suicidal. We have to make those decisions because whether or not they get a bed will often be determined by that outcome.


I have to tell you from long experience, this is strictly a judgement call. There are no objective or accurate criteria for this decision and it's based on not only experience but just a kind of impression, if you like, a gut feeling, as to whether or not this patient is seriously suicidal. This is not good science, good psychiatry or, from my point of view, good care, yet this is the situation we face in our work every day.

I'm not suggesting that the answer is more beds. There are many alternatives to hospitalization and some of these I'm sure have been presented to you in other discussions on this agenda. But these people do need something. They need more attention than they're getting now. We don't know if we've struck the right balance between beds and other kinds of services, including community services, but we do know that cutting beds without providing anything else has already provided examples of serious problems in the system and has a heavy social and financial cost, if not today, certainly down the road.

We recognize that society doesn't want to pay that cost right now. Janush has mentioned the state of the economy and we well recognize that. But the size of the cuts which have been proposed for the provincial psychiatric hospitals are quite disproportionate to the size of cuts proposed elsewhere in health care. Out of a total budget of approximately $460 million, $45 million works out by my books to about 10% of the total budget. This is really quite a real cut. Now, these numbers, we're really having a hard time finding out exactly what the ministry has in mind. I may come to that in a minute, but that's the number we have been hearing. We're having a really hard time fixing on whether that's the actual number or not.

If that money were being transferred to community services and therefore we're still providing services to these people who we're concerned about, I think we could understand this. We certainly might not have gone to the trouble of coming here today to make this presentation. But as we understand it, and again we have rather anecdotal information to go on, the money would be lifted right out of the mental health budget. As far as we're concerned, this is totally disproportionate. It would pose intolerable strains on the system, so that we could only anticipate more incidents of the type I referred to and was referred to in this newspaper clipping.

I'd like to briefly refer you to the Globe and Mail last Saturday, and again, I found this very interesting reading. I hope people did see this. It was in the Focus section on Saturday. According to Jock Ferguson, there are large numbers of homeless people who seem to have been abandoned by the system, and the system is more than just the mental health system. I have to emphasize that. We certainly have firsthand experience with this, however, in the mental health system, because a large majority of these people do suffer from various forms of mental illness.

We've been trying for almost six months to have some talks and to get a meeting with ministry officials within our own ministry -- that is, within the Ministry of Health -- to discuss our concerns. We have not been able to arrange a meeting to date. So we really very much want to thank you for the opportunity to present this material to this committee.

I'd now like to introduce Dr Rita Rabheru, who is from London Psychiatric Hospital. Rita?

Dr Rita Rabheru: Thanks, Dr Deadman. I'm going to use the overheads now.

The Acting Chair (Mr Paul R. Johnson): Excuse me, are you going to be speaking, Doctor, as you do this?

Dr Rabheru: Very little.

The Acting Chair: Just to explain to you, apparently the noise is coming through that mike from the overhead projector, so that makes it somewhat difficult for Hansard to pick you up accurately.

Dr Rabheru: Okay, I'll use this --

Mr Carr: Maybe they could switch seats.

The Acting Chair: Sure. If Ms Eklove could maybe do the slides and you could speak into that other mike, it'd make things a lot easier for us.

Dr Rabheru: Sure. I'll have very little to say because I want you basically to read that and this is just to summarize our position. I want to demonstrate these important points to you with respect to budget cuts. Details of this are in our booklet that we've given you.

With regard to consultation and morale regarding the budget cut, you see that appropriate consultation with the principal stakeholders regarding the budget cut had not occurred, and of course this affected the morale of the professionals in the health care system.

Finally, we think there's a vacuum in leadership. The psychiatric hospitals should assume a leadership role in mental health care reform by developing and implementing community-based strategies in coordination with each other and the Ministry of Health. We'd like the association to be able to play an integral role in budgets, strategic planning and implementation on decisions regarding the mental health care reform. Again, as I've said, you've got the details in our booklets.

That's all I have for now, and I'd like you to address any questions to the panel.

The Chair: Thank you. Mr Johnson.

Mr Paul R. Johnson (Prince Edward-Lennox-South Hastings): I didn't catch the very beginning of your presentation. However, we're always concerned as taxpayers and certainly as people residing in the province of Ontario about exactly what value we can put on our health care. We know there's a certain cost to attribute to good health care, and what we're trying to find is a balance. We know that the costs for health care have escalated to double digits for many years, and we've reached the point where we don't think we can afford to allow that to continue.

Given that you're concerned somewhat with regard to the direction the ministry has taken in order to reduce the growth and expenditures in that ministry, I was wondering if you could give me some specifics, whether it happens to be your particular area of medicine or other areas of health where the ministry might be more efficient.

Dr Deadman: This is something we've certainly been very concerned about, because it's really a question of whose ox is gored. I really don't think I can answer your question, for that reason. What I want to say, though, is that we think a 10% cut is quite disproportionate to the 1% cut that's been occurring in most other areas of health care. If that's the decision, that there will be a 1% or 2% or even 3% cut across the board, we could live with that. We wouldn't like it, we would be most upset about it, but we would have to live with it because nobody could argue that wasn't fair.

But I think what's happened, and this is something that really does concern us, is that because the facilities in which we work are operated by the government, this tends to be the easy way out for bureaucrats having to come up with big cuts: Cut our own services first without regard to what impact that will have on the overall system before we go after somebody who's got perhaps more political clout or perhaps can make a bigger fuss in the newspapers. I'm giving you that strictly as my impression, but I have to say that I am not alone. Many of us who work in the system have that same impression.

Dr Dukszta: One thing I would like to add is that the ministry controls a number of aspects of the health budget, but one it has probably the greatest difficulty in controlling or doing anything about is OHIP. So we are moving towards cutting something the government and the ministry control completely. That may be one of our major objections to it, to think that they can do it when it happens to be the most needy population.

The Chair: Mr Ruprecht.

Mr Ruprecht: I'd like to ask you two questions and make two points. First, I really find it incredible that this Association of Ontario Physicians and Dentists in Public Service had tried to get a meeting with the minister or with the minister's office for over six months and was unable to do so. I thought there would be more sensitivity shown, especially in light of the fact that there was a move to cut fairly drastically, as we just heard.


My second point is the comment that was made by Dr Dukszta. He said that deinstitutionalizing psychiatric hospitals would have unacceptable consequences. Mr Johnson made the point that the recommendations your association would be making -- as you said, somebody's ox is being gored. Whose ox is it going to be?

I think you've made a good point, that what you really seek here is to participate in the budgetary process of how mental health care is being administered and where the cuts are to be made. I think it's admirable that you came up with that recommendation.

Mr Johnson's question, which I liked as well, was, what recommendations would you then make? I think that is a good question, inasmuch as it directs it to you and becomes more specific; in other words, when you're being asked where you could cut, it would be good to know that you have specific recommendations in mind. But I know that is going to be a very difficult task on your part.

In closing, I simply want to congratulate you on trying to get a meeting and, second, on spending your time in cooperation with the ministry to work out a way so that the mental health field is not only represented but that some cooperation and coordination with you would be appreciated. I recommend to the ministry and to the Treasurer that this association be taken into account when these measures are on the final chopping block.

Dr Dukszta: Can someone respond to that?

The Chair: I thought he was making statements. I didn't hear a question, but if you want to comment, please do.

Dr Sharon Casson: I will comment on the question about what measures we would advocate in terms of budget. I'm from St Thomas Psychiatric, and I participated in the budget-cutting scenario we ran. In fact, we had a number of suggestions that if the $45 million has to go, why does it have to go out of the ministry altogether? Why couldn't that $45 million be used for transitional funding? There are patients we all have who, given certain conditions -- adequate housing, adequate follow-up and social supports -- could live in the community. But if you're going to cut without putting these supports in place, then this cannot happen.

Our recommendation would be that all the psychiatric hospitals have expertise and could evolve plans to deinstitutionalize themselves, in coordination with existing services in the community and in coordination with services that would need to be created to handle the patients who would be leaving.

We want to be stakeholders or players, and we would like very much for the government to allow us to suggest how these cuts should be made and how they could be done appropriately, because as front-line staff, we're the ones who know what these patients can tolerate and what conditions they are unable to tolerate.

Mr Sterling: I find it strange that they wouldn't give Dr Dukszta an audience, as he sat as a member of the NDP from 1977 to 1981.

Dr Dukszta: How nice to be remembered.

Mr Sterling: I'm the only one here who's survived that long, doctor.

Mr Ruprecht: I remember it too, from when I took his job.

Mr Sterling: At any rate, I was relating to you earlier that last year I was involved with the whole Advocacy Commission and the revisiting of the whole mental competency treatment question. I spent a good deal of my year listening to evidence, listening to NDP people talk about it etc. Quite frankly, I came to the conclusion at the end of it that the NDP government doesn't really trust you, doesn't really trust the psychiatric hospitals and what they're doing; it doesn't believe in the treatment you're giving patients. That's the conclusion I came to. They would argue that that's not true or whatever, but if you listen to the evidence and the resources they're giving the Advocacy Commission basically to fight the system, I don't think it's an unreasonable conclusion.

Notwithstanding that, I'd like to talk about allocation of resources. What I'd like to see is some kind of tracking system of these individuals who are discharged from a psychiatric institution, a regional centre or whatever.

I asked the former Minister of Community and Social Services under the Liberal regime, what happens to these patients when they're put on the street? The fact of the matter is that three months or 90 days after they're put on the street, the institution washes its hands of them and that person can either be picked up by the system or can fall between the cracks. In fact, that's what's happening today and that's why we see people on Yonge Street and everywhere else in Ontario who are not being properly cared for.

Is there any kind of system that you are aware of which measures the results of the treatment, in other words, that goes out to former patients and says, "Are you happy?" and whoever's interviewing them gauges whether they're clean or they're housed or they're healthy or whatever?

I'm quite willing to give you all of the money if you can demonstrate to me that you can do it best. If it can be done best in the community, that's where it should be done. But quite frankly, what I see happening within our system is that you have different people pulling at the dollars, and the professionals have control of those dollars and the poor patient doesn't really seem to be involved in this whole thing. I want to spend the money where we can ensure that the most people are happy and well cared for. Is there any kind of system you're aware of that can measure that kind of thing?

Dr Dukszta: Dr Baldock will try to answer.

Dr Jane Baldock: I'm not going to present you with a system, because as you are well aware from your question, there isn't a truly 100% gold standard evaluation system of the quality of life or conditions that psychiatric patients are under, particularly the most severely ill psychiatric patients, whether they're in the community or in the hospitals.

I'm originally from Britain. The government there had a funded project in Worcestershire, in the southwest of England, over 10 years which ended in 1989, in which it was proposed that two psychiatric hospitals would be closed and 10-year, slow- development top-grade community support systems were going to be put in place. It's been evaluated now by Dr Turner and Dr Robertson and recently written up in the Royal College of Psychiatry manual, stating that there was no cost saving to the system. In fact, the beds that were finally allocated in the community were exactly 20 less than had been closed by the two hospitals 10 years previously.

The quality of care was not addressed. In fact, the quality of care assessment in the community is even more difficult to undergo than in the hospitals. Each of our psychiatric hospitals has a quality assurance program, and we're always auditing different programs. But I'm afraid the outcome studies in psychiatric illness, particularly chronic psychiatric illness, are very difficult to come by.

Finally, what we do know is that with the rapid transfer into the community, the biggest risk factor is increased suicide. There's another study from Morgan, I'm afraid again in Britain, which was undertaken because the coroner insisted on an investigation of why psychiatric patients were taking over the suicide numbers.

The Chair: Mr Jamison.

Mr Jamison: There are a couple of statements that need clarification. There's an indication that there was a 1% cut in health funding. Actually, there was a 1% increase in health funding, in general terms, although I recognize that your situation is significantly different at this point and needs addressing.

The other point I'd like to make is on Mr Ruprechts concern that there is no consultation for budgetary purposes. In fact, that is what I understood this pre-budget submission situation is all about, so I'd like to make that clarification.

Beyond that, the whole gist of putting people on the street was started in the 1960s under, I believe, a Conservative government at that time, and it's still in place. I just wanted to clarify the record.

The Chair: Okay. I'd like to thank you for appearing before this committee today.

Dr Dukszta: Thank you for having me.

The Chair: I didn't understand the title at the very beginning, doctors and dentists, and it was mental health, so I was clued in by the researcher here on where you fit in.

Dr Dukszta: We're a nice closed shop.



The Chair: The next group we've got coming forward is the Ontario Federation of Community Mental Health and Addiction Programs. Your group is smaller; you're by yourself.

Mr Chris Higgins: It reflects the relative proportions of spending in mental health.

The Chair: I'd like to welcome you to the standing committee on finance and economic affairs. We have half an hour, until 3:30, and as you've been watching the other group, they left some time at the end for questions. After three groups -- the Canadian Mental Health Association, the Association of Ontario Physicians and Dentists in Public Service and now the Ontario Federation of Community Mental Health and Addiction Programs -- I think maybe you're going to be running out of some questions. Please identify yourself for the purposes of Hansard and you may begin.

Mr Higgins: My name is Chris Higgins. I'm the executive director of the Ontario Federation of Community Mental Health and Addiction Programs. As it happens, I'm also a board member of the Psychosocial Rehabilitation Association which is an international association of mental health centres.

The Ontario federation is a non-profit organization representing 235 community-based mental health and addiction programs across Ontario.

I'd like to talk to you about the financial ramifications of some of the current developments and make some recommendations and hope you'll support them.

Currently, Ontario spends about $1.4 billion annually on the provision of mental health services; 80% of that spending is on medical-institutional services; about 10% or 11% is on community-based services. We spend more on medical-institutional services than any other comparable jurisdiction I know of in the world, certainly in the research I've been able to find.

To give you an example of that, in the United States, the average expenditure on medical-institutional services in 1985 was 68%. At our current rate of growth of investment in community-based services, we will reach the US 1985 level in the year 2014. In other words, in 2014 we will be at the place the United States was at in 1985, and the United States is not renowned for being especially progressive as an entirety.

The result of this disproportionate spending on medical-institutional services and the result of the poverty of the community-based services is that we have an unbalanced and ineffective mental health system. This is very bad news, but there's potential for a better mental health system within the existing funding base and perhaps even with a decrease.

It's important to think of the mental health system as a system. It's not helpful to think of it as a bunch of separate parts that function in isolation. What we have here is roughly a vehicle that holds a lot of people and has a lawnmower engine to propel it. In other words, we can put a lot of people in institutions, but we do not have the motor that will take them back to the community they came from.

The current government announced an initiative around mental health reform a year ago and everyone agrees that this initiative is very important. Particularly, consumers and families are looking for changes that will make their experience better.

We need sound financial planning to accompany the service- oriented planning. Current efforts have not forecast the long-run costs of our current system nor the potential costs of the various alternatives that are being discussed. Such expenses as the capital reinvestment necessary to keep the psychiatric hospital plant operational have not been figured into costing. Without the cost calculations, we cannot evaluate cost-benefit or cost-effectiveness, so we're basically groping in the dark.

An excellent example of good financial planning is the State of Tennessee Master Plan for Mental Health Services which was referred to earlier by the Canadian Mental Health Association. In this plan, they go through all the necessary steps and give us a wonderful example of what we should be doing here. Ultimately, they forecast a better mental health system with less spending. What I need and what our province needs is support from your group and from the government in formulating such a plan for Ontario.

An example of the consequences of fiscal changes without reference to some kind of a plan has already been spoken about at some length today, but I'll very briefly return to it.

The government has been quoted in the press as planning to cut provincial psychiatric hospital budgets by $45 million over three years. Ministry officials in that same interview with the press said we should be assured there will be community-based services in place. We are the community-based services that are in place. My member organizations include some of CMHA and 234 others, and I can tell you that we have heard of no increase in our resource base in relation to this cut of the provincial psychiatric hospital services.

If you think what that would mean, it would mean that we would be picking up a $45-million service cut with no additional resources, and that's about 33% of all our assets put together, so we would have to pick up 30% more clients with no new money. In a system that's already underfunded, it's not practical. The potential effect on people with mental health and addiction problems is very serious and possibly tragic.

Another aspect of the unbalanced mental health system is the unfair compensation of community-based staff. These staff are expected to carry the load of the most serious clients in the province, in a very complex environment, with no protections and in an environment that's uncontrolled, unlike the hospitals. Unfortunately, these staff, for the same-sized jobs of the same value, are underpaid by 16% and underbenefited by 18%.

The situation must be redressed not only because of the unfairness of wages and the impact of not being able to afford good quality staff, but also because if we don't redress this situation, the development of an effective and affordable mental health system is blocked. In short, we freeze the resource allocations of staff roughly as they are now.

One of the issues which faces the community sector is in relation to management of our existing budgets. Current ministry budget procedures for transfer payment agencies are costing the province money and its citizens service. We're required to budget on a line-by-line basis in the area of salaries and benefits, and are restricted from allocating and reallocating within the lines when circumstances dictate.

The outcome of this situation is that programs must budget 100% of their salary arrangements to ensure that they do not go in the red every year. This results in annual recovery and ties up funds that could be better used.

There's another outcome that's happening this year particularly; that is, programs are actually closing down services, even though they have adequate funds to run, because they're not allowed to reallocate money accordingly. So we're going to be seeing services closing down, laying staff off and finishing the year with a surplus. This kind of a paradox does not reflect good management. With 380 transfer payment agencies altogether in this area, this reflects a very large problem.

The final area I'd like to talk about a bit is an area that's been raised a couple of times by folks today. We need a means of ensuring that the funds allocated to mental health and addiction programs are spent on services that make a real difference for the people who use them, their families and the community in general. Currently, we have no system for evaluating health outcomes of the mental health system. Thus, we invest in an array of services on the basis of the opinions of providers of those services -- doctors, hospitals, community mental health agencies and so on. In other words, we're investing on the basis of what providers believe in; we're not investing on the basis of what is proven to work.

We must have a system, a means for measuring health outcomes of mental health and addiction services. These outcomes can be expressed in terms of satisfaction ratings by consumers, quality-of-life scales, the number of people who return to the labour force and the number of people who do not return to hospital. By the way, all these devices, measures, scales and so on are available. This is not new technology. This is not, "Thirty years from now maybe we can have something like this." This stuff's already working now in many other jurisdictions.

Just to digress a little bit from this material, in the United States, the National Alliance for the Mentally Ill, which is an alliance of consumers and family members, rates the states on the basis of how well they serve the consumers of mental health services. When they rate the states, they have discovered that the states that rate the highest are always the states which have the highest proportion of community-based services. The states that rate the highest right now are Vermont and Wisconsin and they spend about 70% on the community sector and 30% on hospitals. We spend 80% on hospitals and 10% on the community.

NAMI does not rate in Canada, but if it did, I expect we'd be at the bottom of the heap along with the other American states which spend all their money on hospital-institutional services.


I might also add that recent research in Massachusetts published just this month that does quality-of-life measures shows that community mental health services and the people in them experience a higher quality of life than they experienced while in the institutional systems. The measurement of successful outcomes must be applied to all the service sectors: psychiatric hospitals, general hospitals, community mental health programs and also OHIP billing, which is the fastest-growing area of mental health expenditure. All these services must be measured by the same yardstick, and the services that work are the services we must invest in.

If we had a long-range mental health financial plan and if we had a set of outcome measures that established which programs are effective and the clients experience a real benefit from, we would be in a position to move forward with mental health reform in a very effective manner. What I would ask from you is that you ask the Ministry of Health to support the creation of a long-range mental health financial plan and a plan to measure outcomes across all the different sectors and invest accordingly.

Thank you for the opportunity to speak, and I'd be happy to take some questions.

Mr Ruprecht: Mr Higgins, I'm just wondering if you would know the waiting period or the waiting time for a person who would like to get treatment and who is addicted to drugs. I'm think about cocaine right now. The reason I want to know is to see whether the waiting period now is extended or whether it's cut shorter or what the future will hold. I'm asking you because I had a very disappointing call from one of the parents whose son was on cocaine. They wanted to get him off because the family was being ruined. It was just a tremendous cost, not only to us, because the man had gotten into breaking and entering and in trouble with the law. He even ruined his own family, because he stole money from his parents and bankrupted them. When the father called me, he said, "Do you know what, Mr Ruprecht? The waiting period for a person who tries to get on this addiction treatment program would be at least six months," I said: "I don't believe that. That can't be in Ontario." So I called around to a number of homes and institutions, including the Addiction Research Foundation, and to my amazement, I found out that in some instances treatment facilities had said, "We all have a waiting list and it's going to take up to six months." I think that is really unacceptable because what we should be doing is to spend our moneys treating people, not only in terms of law enforcement.

My question to you then, Mr Higgins, is if you know about the treatment programs and whether you would agree that a waiting period of six months is outrageous, and is it still that way or has it been improving over the last few months?

Mr Higgins: To my knowledge, it is still that way. There has been no substantial increase in the treatment assets for addiction problems in Ontario in some time. Recent reinvestment by the government has been focused on better assessment and referral systems, so we now have a quicker intake process that will assess a problem and then direct someone to treatment.

Mr Ruprecht: That's because of the registry, right?

Mr Higgins: Partly because of the new provincial registry and partly because of some actual new programs on the ground in about nine areas in Ontario; that is, nine district health councils out of 35. Now that we can assess and refer people, we have no new assets to refer people to. There's just a slightly quicker pickup on referrals and then ultimately the same waiting lists for treatment.

Mr Carr: Thank you very much for your presentation. I want to talk a little bit about the advocacy bill. When that bill came out, I had a chance to meet with some of the doctors at the psych department in my hospital. They said that if we were going to spend $25 million to $30 million to set it up and then an additional $25 million to $30 million a year, there's more of a chance that people won't have the services there because of a lack of funding than there is some people will be -- I'll use the word -- abused by the system, and that if we are going to spend that money, more people will slip through the cracks than there are people who are going to have slipped through the cracks by being abused.

If you had $25 million to $30 million to spend, would you put it into your programs or into the new advocacy legislation?

Mr Higgins: That's a very difficult question to answer, and I'm not privy to all the information the government had in making the decisions to assess the priorities the way it has. The tradeoff between direct services and the supervision and quality assurance, whether it be advocacy or other means, is always a difficult tradeoff to establish what are the correct proportions. I really couldn't tell you that I have the answer and that my organization knows that clearly.

What we need is a system to measure whether things work. If advocacy can play a role in helping us make sure that our services work and we get our money's worth out of our investment, then it is in fact a major contribution to the betterment of the system and ultimately to the services that we all expect to be there for the people of Ontario. In effect, if it shapes the services so that we get better services, it is indeed a prudent investment.

I would like to take just one second to talk about a point that was raised earlier in relation to advocacy. Our investment in mental health research is indeed minuscule -- it is about $1.5 million -- and we desperately need to assess what works and invest in that.

Mr Carr: I think you're selling yourself short. I think you know better what's needed, quite frankly, than the government. This was driven by a political agenda. I think somebody got to the government and said that this is what would be the best idea and your voice was lost. I appreciate it's difficult to come in and criticize the government and then, on the other hand, ask for more money, particularly in light of what's happened to some people who have criticized the government. I appreciate your political answer. I didn't mean to really put you in a difficult situation.

I want to talk about the rationalization of care. In my area they're looking at closing down the department at the Joseph Brant and moving into Oakville. We've got the reverse with paediatrics and so on. One of the concerns of the people in that community is that, as you said, there are no community-based programs in place. I found it astounding to say that you were going to be saving money, but there is nothing in place. (1)Either they're just saying that and have no intention of spending the money or (2)it really is incompetence in putting this in place. I just wondered if you can comment. Are you in favour of what's happening with what I'll call the rationalization of some of the care among hospitals and communities?

Mr Higgins: I don't want to be unduly negative, but it is very difficult to consider mental health planning in Ontario to be a rational process. Currently the psychiatric hospitals plan in one planning stream reporting directly to the Ministry of Health. The community mental health programs report in a different planning stream, through the district health councils. The general hospitals generally plan unto themselves. In either case, among all these three, is there a single point where they're coordinated? Changes quite often happen on the basis of the best wisdom of one part of the stream. From the perspective of the hospital, this may be a great idea, but since that planning stream tends to be divorced from the community stream and the psychiatric hospital services stream, it's quite often the case that their best ideas are not complemented by appropriate approaches in the community.

There have been many cases in Ontario -- in fact, I know of one where a hospital in west Toronto closed the whole unit and the nearby community services learned about it in the newspaper the day it closed. They were not able to respond, change, modify, expand or do anything in relation to the change that the general hospital made. It simply came to them in the paper, and it's "Live with it." I'm not familiar with the particular economic infrastructure of your hospital. I certainly read about that decision. By and large, it's somewhat contrary to the whole Graham report, which is trying to make sure people stay in their communities. I would tell you that in northern Ontario the kind of displacement that is going to happen in your area happens all the time and is getting worse. People go from Sault Ste Marie to North Bay for care. The very act of dislocating people 400 or 500 miles away from all their friends and their families, everything they know, is an unhealthy mental event. It's very stressful for anybody. Then that happens as a routine.

To have people leave their community from the east part of Toronto to go to Whitby hospital for care does not make a lot of sense either, when they could take a streetcar to Queen Street. When people have to leave Oakville to go somewhere else to get care, it seldom makes a lot of sense if you think about the effect of travel and the expense of travel on this population, which tends to be impoverished and vulnerable.

On the whole, these kinds of changes need to be brought together in a synthesized plan, and they are not. That's part of what we're talking about in terms of mental health planning. We didn't make any comments about mental health planning in terms of this particular committee, but we definitely need a single point of planning for mental health services, and that needs to be accompanied by a single, long-term mental health fiscal plan that makes sense, because currently our event horizon is about next year, and that's not very successful long-range planning.

The Chair: I'd like to thank you for your presentation before the committee. We'll recess for 10 minutes till the next group is ready.

The committee recessed at 1521 and resumed at 1532.


The Chair: We'll resume our pre-budget consultation. The next group is the Ontario Mining Association. I'd like to welcome you to the committee. We have until 4 o'clock, so you've got a full half-hour. In that half-hour -- I guess you know how it works -- could you leave some time at the end for questions from the committee members after your presentation? Please identify yourselves for the purposes of Hansard, and you may begin.

Mr Patrick Reid: Thank you, Mr Chairman. I am Patrick Reid. I'm the president of the Ontario Mining Association. With me today is Peter McBride, also of the Ontario Mining Association. He is the manager of communications and has responsibility for energy matters as well at the association. We are going to make a very brief presentation. We thought we would leave the bulk of the time available for your questions.

I should start by saying that we understand the fiscal problems faced by the government. We do not have any fiscal magic wand to wave to solve those problems, except to say that higher levels of taxation are not going to get us out of the predicament we all find ourselves in.

I would refer you to the brief we have tabled. On the first page, you'll see a number of quotations from the Ministry of Mines discussion paper on mineral incentives for Ontario, incentives that might spur more exploration and development of mining in Ontario. These quotes are from that government document, and we have repeated them here because we think it provides a pretty good framework for some of the problems that we in the mining industry and others face, particularly in regard to uncontrollable government-mandated or -controlled costs. We're happy, I must say, to see that Hydro's taking some action. The press release is a hot seller; we can't seem to find one in the building today.

We just want to impress upon you that what is going to help us all is the creation of wealth, the creation of jobs, and that's going to require more investment than we're seeing in the province of Ontario, both in our industry and others. Governments at all levels have become fairly adept at taking the money and distributing it one way or the other, although I'm sure you've heard lots of people in the past few weeks complaining that they're not getting their "fair share," whatever that is, but we have to create economic activity so that there are jobs and tax revenues to provide some of these services.

We made a presentation in response to the Ministry of Mines' request on its discussion paper on mineral incentives. We've basically repeated in very brief form our recommendations to the Minister of Mines and also recommendations that we have made to the Treasurer and the new Minister of Environment and Energy and native affairs at the Ontario Round Table on Environment and Economy. These recommendations are simply that to spur investment in the mining industry, we have to improve the rate of return that companies have been getting or can expect to get if they do mine development in the province of Ontario. There's something called the hurdle rate; the hurdle rate is the return on investment these companies have to get before they will go forward with a project. In our original paper, we suggested that the hurdle rate was between 10% and 20%. We use 10% for illustrative purposes to indicate that if the projected rate of return was under 10%, the project would not go ahead; if it was over 10%, it might go ahead in Ontario.

Our recommendations, therefore, are that the ways the government could best assist this are:

-- Provide assistance for upfront infrastructure costs, such as hydro lines, roads or landing strips for mine development. This is not a grant or a loan -- I guess in a sense it's a loan -- but these are moneys that would be paid back over the life of the mine. So it's not a cheque written by the government with no return. -- Allow mining companies without Ontario income to sell their exploration and development write-offs.

-- Minimize upfront environmental costs. An RRSP type of reclamation and rehabilitation fund is recommended. Under the Mining Act, companies have to provide financial assurance and make provision for putting up funds of some kind to pay for reclamation costs. Again, if these costs are upfront dollars, it's going to make a project going ahead in Ontario less likely. So there must be both some consideration of that and some tax considerations, and we are recommending as one of the vehicles for financial assurance an RRSP type of fund. We have put this to both the Minister of Mines and the Treasurer.

-- The government could actively aid new mine development by streamlining the environmental approvals and permitting process.

-- Improve the opportunity to explore and improve access to land in Ontario. There has to be a lot of exploration done before one mine is found, and access to land for exploration purposes is absolutely vital. Over the past few years, there has been a lot of land taken out of exploration due to various single uses.

-- Last, we suggest that the government announce a five-year tax holiday for new or expanded mines. This would have a negligible effect on the Ontario treasury because most mines are not profitable in the first five years, but it would have, we believe, a significant psychological boost to mining investment in Ontario.


We have included in our presentation a description of the mining industry in Ontario that is appended to your brief. You've also received a copy of the Ernst and Young study of the economic and fiscal contribution mining makes to Ontario. We did this last year with the financial assistance of the Ontario Ministry of Northern Development and Mines, with which we have an excellent working relationship.

As well, you have a copy of our Mining in Ontario, 1993. We feature every year a different mining community. You have just received it, but when you get a chance to look at it, you'll see that the mining community we're featuring this year is Toronto, because Toronto is seen as the centre of mining finance in the world. There are a great many mining-related facilities in terms of head offices of mining companies, exploration companies, junior development companies, consultants, suppliers and so on in Toronto or in the Golden Horseshoe. There are a lot more jobs dependent on the mining industry in Ontario than are just found in the some 36 communities which have actual mines located in them.

That is our very brief presentation. We know you've had a long day, but we would be glad to entertain any questions.

The Chair: Mr Carr.

Mr Carr: Thank you very much for your presentation. As we all know, as a result of the worldwide recession, we've lost a lot of markets because of the decline in economic activity. On the last page you talk about Ontario having 30% of the nation's total of export trade, about $18 billion. I wonder how much we've lost to other jurisdictions. I'm thinking of the provinces or maybe other countries. Have we lost market share? I know the numbers are down, but in terms of market share, how has Ontario fared versus other jurisdictions?

Mr Reid: That's a difficult question to answer. The first thing I learned when I joined the Ontario Mining Association is that the industry is not homogeneous, so it does differ from metal to metal and mineral to mineral.

I would say the biggest difficulty we've had in many respects has been in the nickel markets. Nickel is the largest mineral revenue generator in Ontario, and with the breakdown in the Soviet Union and the new CIS, there is chaos in the markets, and Noril'sk in Russia or CIS -- whatever they're calling themselves these days -- has been exporting a lot of nickel at below-production cost, so that has affected the nickel markets drastically.

The only way we're going to survive is to be able to continue to increase our productivity, to be on the leading edge of technology and to keep our costs down. That's one of the reasons we're so concerned about government costs that are put on us, because those are not profit-based and they tend to wipe out some of the other cost containment that the industry has been able to achieve.

Mr Carr: I realize there are different commodities, and some may be doing better than others. This is another difficult question, because I know you've got membership made up of different groups. But looking into the future, which of the various metals or commodities would you say Ontario should be going into? You mentioned the situation with nickel, competing with the Soviet Union, which may be dumping it below cost. Again, I appreciate it's difficult, being an association with many members, but if you could, which one would you say has the most future for us here in Ontario?

Mr Reid: We are fortunate in that we have a broad base of metals and minerals. We have a mineral endowment that is still to be proven. We've got a whole bunch, and every mineral has its day, so to speak. A few years ago, everybody was out exploring for gold. Gold was it. Now gold has sort of lost its lustre. The thing to remember is that people are always going to need metals and minerals of all kinds.

Obviously, we have a large stake in the base metal minerals, the base metals being nickel, zinc, copper and lead, because we have large smelters with huge capital investments in them, in Sudbury and Timmins particularly. So we have to find base metal reserves in the next few years to keep those smelters going and to increase the reserves, because the reserves have been declining over the past number of years.

Today, I can tell you base metals are very important. A year from now, maybe everybody will be running after gold again or platinum or some other precious metal or industrial mineral. The commodity business is very much a supply-and-demand business and reacts very quickly to both the overall economic circumstances and to price changes.

Mr Carr: One last question, if there's a little bit of time. Again, I know with the membership being so based, maybe it's difficult to answer this question, but relatively speaking, in terms of making improvements in technology and in getting our costs down, how would you say we've fared versus some of the other parts of the world and some of our competitors? Have we done a good job; a fair job? How would you assess it overall?

Mr Reid: You'll see from the Ernst and Young report and just from our brief discussion of it in the paper that we've increased our productivity greatly in Ontario. Frankly, that's what has managed to keep us going, because metals and minerals are found around the globe and a lot of other countries, particularly Third World countries, do not have the costs of either labour or infrastructure or government costs that we have. So we've been able to compete, but we've got to keep doing that. We've got to keep driving those costs down and we've got to keep improving our technology. You don't hold on to technology very long, but whoever has it first and gets it implemented has got a leg up for a while till something else comes along.

The problem we're facing, as at least one person if not others in this room knows, is that countries like Mexico, Chile -- South America -- and other countries around the world are becoming very competitive. They have changed their approach to investment. They're throwing open their borders. They are saying: "Come and invest. You can take your money out. We'll relax the rules." I'm not talking environmental rules. They used to have barriers to investment in many of their resource industries particularly, but not just those, and now they're realizing that they need those investment dollars to create jobs and they're competing very strongly with Ontario and Canada to attract those investment dollars, whether they come from Ontario or they go to Mexico instead of Canada. Mr Paul Klopp (Huron): It's a pleasure to hear you today. I've got a mine up in Goderich and know a little bit about how it creates some well-needed employment in the area. This year, Toronto must be glad we've got salt in the province. I go back home and I think they don't have snowplows down here; they just throw salt at everything. I've got mixed emotions about that. I need a new pair of shoes, but the trucks are rolling.


Your recommendations to the minister seem, on the whole, reasonable. I think you put a lot of thought into them. I hear a lot of groups. I could replace the word "mining" with the farm sector, and I think some of these I'm going to give back to my farmers to help lobby on what we should be doing for that investment side. In fact, I think we do buy a lot of steel and products in that industry which go around here in Toronto. I don't find that a bit surprising at all.

I lucked out, I guess. I was watching and listening to I believe it was the CBC, but it could have been any kind of news show. They had a what sounded like a young, dynamic staff person from one of the mining industries --

Mr Reid: Was it me?

Mr Klopp: No, unfortunately.

Mr Reid: You said "young."

Mr Klopp: I'll leave it at that. I don't want to go any further.

One of the things they talked about was the fact that this is the hub here; it's based here in Toronto. One of the things the newscaster got talking about with them was that they felt they were doing not too badly in the mining industry, albeit they seemed to be again like in farming -- if you started in 1982 or rather in 1986, maybe, when land went down, versus if you started in 1979, the same scenario as in any business.

One of the thoughts that seemed to come across was that there seemed to be a difference between the bigger companies in your organization versus the smaller companies. I think I had that in that little half-hour that I was in the car listening. Maybe about a week ago I heard another commentator who was one to make interesting comments, but he seemed to bring that point up again in his remarks and he's from the north. Is there a difference between the bigger, maybe multi-faceted companies versus the smaller companies within your industry? Do they need different things?

Mr Reid: Yes, Mr Klopp, there definitely is. It's one of those things where the larger companies are hit very hard, as are the small companies. I guess the biggest difference is that larger companies, most of the time -- not always -- are able to weather the storm because they either have reserves or they have the critical mass to attract investment or make loans. The small companies are having an extremely difficult time raising investment dollars by way of shares or whatever to do exploration and development in Ontario.

A small exploration and development company headed, interestingly enough, by a young lady was telling me not too long ago that she can get all the money she wants, relatively speaking, to explore in Venezuela but she can't get a nickel -- maybe I should make that a dime -- for exploration dollars in Ontario. The investment climate is not great here.

Mr Klopp: A really quick question: You mentioned other countries opening their doors. I can see that; I'm not arguing that point. But you mentioned specifically they're not touching their environmental rules. I guess I beg the question, do they have environmental rules to touch?

Mr Reid: Yes. Two things: First of all, our Canadian and Ontario mining companies have all agreed to a set of environmental principles, one of which is that they're going to operate with the same kind of environmental responsibility whether they're in Ontario, Canada, or somewhere else, regardless of what the laws are in those countries.

I guess the difference is that they are so eager for investment and are competing so hard for investment -- it may only be a perception, but the anecdotal evidence is that the rules are understood; there are time limits. You go to Chile, you go to Mexico, you go to some of these countries and there is somebody there from the government who meets you at the airport and says, "We're glad to see you; how can we help you get this thing going?" -- not that the rules are easier or that they aren't enforced. I don't know about the enforcement, but there's just a different sort of approach. They are desperate for investment as we are in Ontario and they're at a different level of economic development. We're going to have to start meeting that kind of competition.

Mr Brown: Of course it goes without saying that mines and mining communities and people who work in mines are close to any northerner's heart, but Pat, as we go through this, I wonder at the second point you make, "Allow mining companies without Ontario income to sell their exploration and development write-offs." Do you have any idea how much money that is a year? Could it be sold and then reinvested in Ontario?

Mr Reid: That's the idea.

Mr Brown: That's the point, but what kind of dollars and what kind of costs to the treasury?

Mr Reid: I can get back to you and give you specifics, but basically the idea is that a small junior company that has spent, let's say, $1 million, if it found a mine, would be able to write off a portion of that as exploration expenses. If they don't find a mine, there's nothing to write it off against. They could trade that to another company and, as you say, get some funds. That would be matched against the profitability, presumably, of the company that's buying them. I can tell you there aren't a lot of profitable mining companies around to write that off, but the idea is to get that money flowing and get it working again.

The Chair: Mr Bradley, do you have a question?

Mr James J. Bradley (St Catharines): I'm just a visitor to the committee. I wanted to hear the pearls of wisdom from the executive director of the Ontario Mining Association.

The Chair: Okay, fine. Mr Brown again.

Mr Wiseman: These are nuggets; they're not pearls.

Interjection: No pearls in Ontario.

Mr Reid: Gold nuggets.

Mr Brown: Perhaps you could help me flesh out the environmental costs issue, the RRSP approach. What exactly are you talking about?

Mr Reid: The Mining Act requires financial assurance -- when you open a mine now in Ontario, or if you have an existing mine, you have to provide the Ministry of Mines with a closure and rehabilitation plan. At the same time, you have to provide a financial assurance plan which explains how you're going to fund that ultimate closure and rehabilitation. That can take a lot of scarce dollars that aren't available at the moment, so we're recommending that a fund be set up like a person's individual RRSP. Companies can put money into the fund, the money would earn interest in the fund tax-free and, at the end, or as you need it, you take it out of the fund and spend it on the rehabilitation and closure. It's a funding mechanism that would assist in the cash flow of the company and not just have that money sitting there.

Mr Brown: Would it be individual to each company? That's really what I was trying to understand. Each company would have its own "RRSP"?

Mr Reid: Probably a trustee would hold the funds for the company. The government's going to want assurance -

Mr Brown: It wouldn't be industry-wide, is what I'm saying.

Mr Reid: No, it would probably be company-specific and site-specific. A mine would do a closure plan. If it were going to cost $5 million, then they'd have a financial assurance plan of how they're going to fund that. That would be put in box A, and there would have to be all the guarantees to the government that the fund was there and was going to be used for that purpose.

Mr Brown: It would be somewhat, but not exactly, similar to how we deal with aggregates.

Mr Reid: No.

Mr Brown: I agree that it goes in total, but this would be specific to the --

Mr Reid: No, there's a substantial difference, because there's a royalty on aggregates. We can't afford a royalty.

Mr Brown: I'm not talking about a royalty.

Mr Reid: Yes.

Mr Brown: But it's so much per ton or per pound, depending on what you're extracting. That's really what you're talking about, though, only it stays in a trust account.

Mr Reid: Yes, but it wouldn't necessarily be so much a ton; it would be done on an engineered estimate of what the cost of rehabilitation and closure would be.

Mr Brown: The cost per pound or per ton, though, would be predicated on the --

Mr Reid: Not necessarily. You can do it that way, but if you've got a mine to close down, you've got everything from tearing the buildings down to capping shafts to doing a whole bunch of things -- looking after the tailings. There's a whole series of things involved and it would be site-specific, depending on what you've got there.

The Chair: Gentlemen, as time has run out, I'd like to thank you for appearing before the committee today. Wasn't that quick?

Mr Reid: Thank you very much.

The Chair: This committee will be adjourned until 10 o'clock tomorrow morning.

The committee adjourned at 1600.