Wednesday 26 January 1994

Pre-budget consultations

Ontario Trucking Association

David Bradley, president

Ontario Association of Children's Aid Societies

Mary McConville, executive director

Robert Penny, executive director, Kawartha-Haliburton Children's Aid Society

TJ Whitley, staff assistant, youth in care network, Hamilton-Wentworth Children's Aid Society

Ontario Coalition Against Poverty

John Clarke, provincial organizer

Federation of Women Teachers' Associations of Ontario

Barbara Sargent, president

Sheryl Hoshizaki, second vice-president

Joan Westcott, executive director

Retail Council of Canada

Alasdair McKichan, president

Peter Woolford, vice-president

Ontario Forest Industries Association

Marie Rauter, president

Martin Kaiser, policy manager

DRI Canada

Robert Fairholm, manager, Canadian Forecasting Service

Ontario Hospital Association

Peter Harris, chair

Dennis Timbrell, president

Council of Ontario Universities

Dr Peter George, president

Dr Ron Ianni, vice-chair

Canadian Manufacturers' Association

Eric Owen, director, taxation and financial issues

David Brown, chairman, Ontario tax committee

Dr Jayson Myers, chief economist

Continued overleaf

Continued from overleaf


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

Prince Edward-Lennox-Hastings-Sud ND)

Vice-Chair / Vice-Président: Wiseman, Jim (Durham West/-Ouest ND)

*Caplan, Elinor (Oriole L)

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

Cousens, W. Donald (Markham PC)

*Haslam, Karen (Perth ND)

*Jamison, Norm (Norfolk ND)

Kwinter, Monte (Wilson Heights L)

*Lessard, Wayne (Windsor-Walkerville ND)

*Mathyssen, Irene (Middlesex ND)

*Phillips, Gerry (Scarborough-Agincourt L)

*Sutherland, Kimble (Oxford ND)

*In attendance / présents

Substitutions present/ Membres remplaçants présents:

Crozier, Bruce (Essex South/-Sud L) for Mr Kwinter

Rizzo, Tony (Oakwood ND) for Mrs Mathyssen

Turnbull, David (York Mills PC) for Mr Cousens

Clerk pro tem / Greffière par intérim: Bryce, Donna

Staff / Personnel:

Campbell, Elaine, research officer, Legislative Research Service

Israel, Edward, research officer, Legislative Research Service



The committee met at 1005 in the St Clair/Thames/Erie Rooms, Macdonald Block, Toronto.


The Chair (Mr Paul R. Johnson): Our first presentation this morning is from the Ontario Trucking Association. Welcome. You are obviously prepared and ready to go, if you would be so kind as to introduce yourselves to the committee members and Hansard.

Mr David Bradley: Thank you, Chairman and members of the committee. My name is David Bradley, and I'm president of the Ontario Trucking Association. I'm joined today by Michael Burke, who is OTA's policy and research coordinator, and Lily Simon, tax manager of Motorways. Lily doesn't want this really broadcast around, but Motorways, as some of you may know, was formerly one of the top three Canadian national trucking companies. It decided in December to close its doors, I think a good reflection of the ills that have beset our industry over the last five years or so. She also happens to be a tax expert and has worked with me on this submission, and that's why she's here today.

I'd like, before I get into the specifics of our budget proposals, to try to put the industry in some context for you, because when I've gone through recent budgets to try to understand why it is that government does some of the things it does -- I know full well the fiscal constraints and what not that it faces, but I still come to the conclusion that our industry is not well understood in terms of its role within the economy and its impact on the economy.

I think it would be helpful if you would try to view the trucking industry as part of the manufacturing and retail process in the province. The trucking industry does not take up space on the highway and run around carrying air in our trailers. We're there to serve manufacturers, retailers and the producers of this province. When you see more trucks on the highway, that is usually a good sign that things are getting better in the economy. Goods simply don't arrive at the customer's doorstep or at the manufacturing assembly line without being transported.

The trucking industry is the dominant mode of freight transportation, and in the package we handed out there's a colourful document on the role the industry plays. You can read that at your leisure, but I think some of the data that arise out of that might be of interest to you. This was compiled by Braxton Associates, which is the strategic consulting arm of Deloitte and Touche. We went to one of the Big Six accounting firms to try and give us an unbiased picture of our industry at this point in time.

Some of the things they found were that the trucking industry hauls 70% of the land freight in this province, so it's far and away the dominant mode. The reason is really quite simple: It's because of the service and price package our industry provides compared to the other modes. Trucking is more flexible and more efficient, and that's what our manufacturers are looking for in order to compete in a global marketplace.

Trucking is really ideally suited to servicing the manufacturing and retail sectors, compared to some of the other modes. The trucking industry's emphasis is on small shipment, short distance. That is where we're best, and that's also where most of the emphasis of our manufacturing base is. We're ideally suited for hauling high-value-added manufactured goods, which is of course a key underpinning for Ontario's economic prosperity. As a result, we serve not only the major manufacturing sectors in the province to date, but because of our high-value-added emphasis will also be there serving the emerging industries in technology and electronics.

I'll turn to some economic numbers -- not to bore you, but I think they're important. The Ontario trucking industry generates $3.3 billion a year in GDP in this province, and every dollar of GDP generated by trucking creates about 71 cents in GDP in other sectors. That's not insignificant.

What's also important is that this money is disbursed regionally across the province. Trucking companies serve every community accessible by road, and there's nary a community in this province that doesn't have a trucking company that's made its head office there. So we're not isolated to simply one or two major centres: Our GDP and our companies are spread across the province.

The industry is one of the major employers in the province. When you look at total commercial trucking activity, we employ approximately 200,000 people, almost 5% of the provincial labour force. If you simply segregate out what most people think of when they think of trucking, that being the for-hire sector, those people who haul freight for compensation, or the private sector, those people who haul their own goods, like the breweries and some of the retail conglomerates, there are about 90,000 direct jobs allocated to those sectors.


To put that into some context, to compare that to some of the other major industries in the province, motor vehicle manufacturing employs just over 46,000, auto parts 65,400, agriculture and food about 65,000, and electrical and electronics almost 69,000. In terms of sheer numbers, the trucking industry actually employs more people. That's not to say we're better or anything else, but I think that's an important context that not many people realize. And the spinoff effect from trucking is quite significant: In the for-hire sector alone, every job in trucking creates almost another job, actually 0.67 jobs, elsewhere in the economy in all those different people who serve our industry.

Trade is the engine of economic growth in the province. Ontario exports about a quarter of its GDP, and three quarters of that goes to the United States. Here again the dominant role of trucking is really quite apparent. Some 75% of Ontario's exports to the United States by value are hauled by truck and 83% of US imports by value are shipped by truck, so it's extremely important to the economic wellbeing of this province that we have an efficient and viable domestic trucking industry.

The current government a few years ago developed an industrial strategy for the province and listed a number of competitive fundamentals. Three of them are really quite important: establishing home base activities, developing linkages and networks, and building international capabilities. The trucking industry is an essential ingredient for our manufacturers to be able to meet this industrial strategy, and in and of itself the trucking industry is a reflection of those three items.

In terms of taxes paid by the industry, again to provide you some context, the trucking industry is an extremely highly taxed industry. This past fall, the consulting firm of KPMG released a report of a study conducted for the Transportation Association of Canada, an association of provincial and federal government transportation officials, including the council of ministers of transportation. When they looked at taxes as a percentage of revenue and compared the share of trucking to other industries, here's what they found: The insurance industry pays about 1.2% of revenue in tax, the manufacturing sector pays 4.9% of revenue in tax, and the trucking industry pays 7.9% of revenue in tax, significantly higher than some of the other key sectors of the economy. This is important in an industry like trucking, where a 1% margin is significant. We're a very low-margin industry. Profit levels are thin or non-existent, and I don't see much changing that for the foreseeable future.

Why is that important to you and to the economy? Transportation as a percentage of the delivered price of manufactured export products is significant. To go through some of the major export products and the share of transportation costs to the delivered price: coal 39%, non-metal minerals 28%, fertilizers 20%, lumber 17%, chemicals 18%, newsprint 16%, grain 19%, manufactured goods 5%. It doesn't take a genius to figure out that taxes on transportation are simply translated into higher costs of those export products, which in turn make those export products that much less competitive. Those are numbers from KPMG.

We've been struggling and trying to get this message out to people. We conducted our own study over the course of the last year, again using the Deloitte and Touche strategic people. We asked them to come up with an estimate of what the typical tractor-trailer in Ontario would pay in taxes, what you would call an 18-wheeler.

In the submission you'll see the detailed charts. What they showed is that the typical tractor-trailer unit could pay as much as $39,000 a year in federal and provincial taxes. That's a heck of a lot of money when you consider that there are about 160,000 registered commercial vehicles with a gross weight in excess of 4,500 kilograms in this province and about 18,500 registered for-hire carriers in this province; not an insignificant contribution to provincial revenues.

Where is the industry at today? A lot like our economy: Things are getting better slowly. It's not widespread to all sectors yet, but I think the signs are there. Trucking usually is a good indicator of economic activity. We're usually first into a recession and first out. We're starting to come out slowly. But it's extremely fragile and we haven't seen the pickup translate itself into any sustained financial fitness or employment growth. The most recent numbers we're able to get from Statscan -- and we try to use publicly available numbers where possible -- indicate that the operating ratio of the industry, which is expenses over revenues, is still hovering in the high 90s, and that's before taxes and interest. People really just barely break even. They're starting to see some black ink after a long time. We're just getting back on our feet, and we'd like the chance to do that before we're knocked back on our heels. I'll speak to that in terms of the context of some of the events of the last budget, when my message was really quite similar.

We have a number of specific budget measures we'd like to discuss with you this morning, and we'll also try and put them in the context of responding to the report of the Fair Tax Commission, which we have read and tried to understand and were participants in developing.

The first issue is the taxation of business inputs. Here the Fair Tax Commission recommended that business inputs should be exempt from tax for fairness and for competitive reasons. They cited the fact that most of the manufacturing industry's business inputs are exempt from the provincial sales tax, whereas for other industries like trucking business inputs are taxable. We pay sales tax on our trucks. We pay sales tax on our trailers. We pay fuel tax. We pay sales tax now on our auto insurance premiums. We pay sales tax on our labour for repairs. We pay sales tax on our warranties. That's simply not fair, and it's also not competitive when one considers the role of trucking in terms of moving our manufactured goods to export markets.

We were really thrown for a loop, I have to say, in the last budget. While the government talked about ability to pay as being an underpinning of last year's budget, it came along and extended the retail sales tax at 5% to auto insurance premiums. We have to have auto insurance in order to operate our business. There's a government-legislated requirement for a million dollars in liability. It really hurt to have to pay tax on that, and I'll tell you what it's done. Not only has it made us non-competitive with carriers from other jurisdictions, but I think it has also impeded the pursuit of safety because it will encourage some people to take the lowest level required of liability insurance. Many people in the industry believe a million dollars is too little.

We were told at the time that, yes, this tax could be prorated and, yes, out-of-province carriers, including US carriers, should pay that tax. That's all well and good, but we were also told, "However, we can't make any guarantees on enforcing that." I can tell you, the reality is that our competitors are not paying that sales tax, yet they're operating up and down the highways just the same as we are and we're trying to compete with them.

Similarly, with the extension of the 8% retail sales tax to warranty work, we're paying twice. The price of a vehicle includes the cost of warranty. When people price out their products they take into account all these various risks, so we pay that when we purchase a vehicle. Now when you take in a truck for repair under warranty, you pay sales tax on the parts and the labour again. That simply is transmitted from the dealer right back to the trucking company, so we're paying one more time.


What do we do about all of that? We've got the Fair Tax Commission saying business should be exempt from input sales taxes, and at the same time we've got discussion of GST harmonization. In fact, the Fair Tax Commission recommended that Ontario harmonize the provincial sales tax with the GST.

We believe that's the best way to go. The business community has already invested heavily in systems designed to meet the GST. It's expensive and inefficient for us to have to live with two sales tax systems, and I believe it is for the province as well. Were we to introduce a new harmonized national sales tax, BTT, business transfer tax, whatever it turns out to be in the end, I think it would address that issue of the business inputs. However, that's at least two years away. I encourage this committee in the meantime to move towards that direction, to revisit some of the decisions of the last few budgets in terms of taxing auto insurance premiums and group benefits, which hits labour-intensive industries like ours, and measures like that. We believe those types of taxes should be repealed.

Another input tax that gets a lot of discussion is fuel taxes. We're still reeling from the 32% increase in the tax that was imposed upon us two budgets ago. It was justified at the time on environmental grounds, and then it's been justified on who knows what. What it really comes down to is that it was a convenient way to raise revenue. It bears no relationship to profit whatsoever. It's simply attempted to pass those costs along, and it hits small shippers and small communities furthest from outlying markets the most. It's really a regressive way of taxation.

We recognize the financial bind government is in and consequently ask you not to impose further increases in this budget on the fuel tax. We're not asking for a repeal. We'd love to see it, but we're realists as well. We have a better way. If government wants to more efficiently collect fuel tax and make sure that everyone's paying the tax, and I come back to the question of the out-of-province carriers, there is a system available to Ontario now that jurisdictions across North America are looking at that won't require increases in taxes but will provide a more level playing field. That's something called the IFTA, the international fuel tax agreement. This is what we call a base jurisdiction agreement, where in essence carriers would simply pay tax to their home jurisdiction, that being Ontario, and Ontario would administer the tax and prorate it across the miles for other jurisdictions and send the other jurisdictions the cheque. It's much more efficient than for Ontario to have to try and track down carriers from Arkansas, from Tennessee, from British Columbia, everywhere else, and see if they're paying the correct amount in terms of the miles they allocate to Ontario. If you talk to people in the Ministry of Finance, I think they'll tell you that despite their best efforts, there's a big hole in the net and there are a lot of tax dollars leaking out in that regard.

The US federal government has set a deadline for all states to join IFTA by 1996. The province of Alberta has already joined. Saskatchewan has announced its intention to join. New York has approached Ontario in terms of sharing the computer systems and what not that are required. As 1996 isn't very far off, we encourage Ontario to get with it and commit to joining IFTA by 1996. There are benefits not only to carriers but also to government in terms of administrative efficiency and efficient allocation of resources. That's all detailed in the study.

Another fuel tax that's getting a lot of talk, particularly in light of the Fair Tax Commission report, are carbon taxes to address the emissions problem. We do not favour a unilateral imposition of a carbon tax by Ontario, and I think the Fair Tax Commission recognized the competitive consequences that would have. I would also argue that if Ontario goes it alone, it won't do a darned thing in terms of reducing emissions. We'll simply have the winds blowing up from the States and everywhere else and it won't have a material impact. I think the commission recognized some of these points in so far as it has said there would be merit in introducing a moderate rate so we don't impair significantly the competitiveness of the Ontario industry. I would counter that if you have a moderate rate it isn't going to do anything, so why do it?

They've also suggested that there should be reductions in other business taxes so you can isolate out the environmental impact and simply not add further tax to business. I would go further and say there should be tax credits allocated back to the industry that pays them so if they undertake environmental enhancement activity they get some of that money back, and also that the money that's raised is put into research and technological development in those industries so we can actually resolve the problem and not simply create a revenue stream.

In trucking, people usually say, "We'd like to have this tactical shift, for all kinds of freight, from truck to rail." The fact is that won't happen. Trucking and rail are two different industries. We service the short-haul, small shipment; they service the long-haul, bulk commodity. We only compete on about 10% of the freight, so all you'd end up doing is increasing the cost of freight transportation for manufacturers and you wouldn't see any freight shifting from one mode to the other.

I know I'm running out of time, so I'll go quickly on some of the other items. Workers' compensation is not a budgetary item per se, but I want to tell you, as the committee on economic affairs and finance, that as the lender of last resort, some government has to wake up and realize the problems occurring with the spiralling cost in the Workers' Compensation Board. It's out of control. Our industry is going to face a 10.6% increase in our premiums this year despite an improving accident record. From 1988 to 1992 in trucking we saw accident frequencies reduced by 15% and accident claims reduced by 30%, while benefits have gone up 50%. It simply can't continue.

We believe we need a royal commission or a value added audit, something to take a look at what's going on there and to look at what's happening in most other jurisdictions in Canada where they are coming to grips with that. Right now, the Premier has some recommendations from a labour-management committee, at least from the management side, and we would urge him to take a look at those.

Employer health tax: The Fair Tax Commission has said that payroll taxes should be avoided, that they are a curse on jobs and that in fact labour ends up paying 80% of payroll taxes anyway. We're a labour-intensive industry, so the employer health tax hits our industry more than others. We look to other jurisdictions like Manitoba, where they have a similar tax but have allowed a driver's mileage, percentage of payroll, out of the province to be exempt from tax so the carriers from Manitoba can compete on a North American basis. We don't have that same ability in Ontario. We think that should occur and that Ontario should at the same time encourage the federal government to continue to allow the deduction for payroll taxes.

Corporate taxes: The point we want to make is that the Fair Tax Commission has raised the issue of the bias in favour of manufacturing as opposed to the service sector. There's a differential in the corporate income tax rate. There's probably a very legitimate policy reason for that. However, the emergence of the service sector can't be ignored. As I've indicated, it's also a very important value added sector for our economy and also a very technologically proficient sector now, and we believe the corporate income tax rate should be equalized. Obviously, I don't want to do anything to imperil our customers, and I would suggest that rather than raise the manufacturing rate to equalize the general rate, the general rate should come down.

We don't like the corporate minimum tax. We think it's going to have a negative impact on investment. However, it is going ahead, no doubt about that. We were pleased to see that the government dropped the rather onerous requirement for audits that was in the initial proposal, but we're still concerned about a couple of the measures, mainly the fact that loss carry-forwards are going to be limited to three years as opposed to seven years. That is not only inconsistent with the Income Tax Act but also, in a sector like ours, which has really been in the ditch since about 1988, it's going to mean potentially that some of the larger companies will face a CMT liability when they have really been hit hard over the last five to seven years. We'd like to see that change.


There's a recommendation of the Fair Tax Commission that I really don't know where it came from. I never heard it during any of the discussions I was involved in, but it's there none the less. It shows up in the environmental area, and again I don't know why: the suggestion that Ontario should consider imposing a weight-distance tax on trucks. I suppose I could see where some people might see a logic in that. I would simply tell you that where this tax has existed, it's been an administrative and enforcement nightmare for government and also for industry. It prejudices the opportunities for certain types of carriers, particularly those from northern Ontario that would be hauling lumber or minerals and have to travel empty; you pay the tax as if you were empty, anyway.

Wyoming studied its weight-distance tax back in the 1980s and found it was costing $1.80 to collect $1 in tax. Over the last decade or so, about 17 of the individual US states that had a weight-distance tax have dropped the tax, to the point where only five US states still maintain some sort of weight-distance tax.

What we think should happen instead is that the Ontario government should look very closely at something called the international registration plan. This is similar to IFTA, a base jurisdiction revenue-sharing arrangement based on a proration of miles, and most US states are joining that compact. We have something similar in Canada called the Canadian agreement on vehicle registrations, and we believe there's an opportunity to bridge the two. That makes much more sense than adding more tax.

The final point: Highway expenditures and infrastructure investment are extremely important for the economic prosperity of the province. We're really quite pleased with the capital program of the current government and quite pleased with the progress we're going to be seeing on Highway 407, despite the highway tolls. We're quite satisfied right now with the conditions on that. All we would say is let's not forget the potholes. Maintenance isn't quite as sexy and doesn't quite get the headlines, but it's just as important in terms of creating jobs and just as important in terms of making sure we don't have to spend a heck of a lot more money down the road when we let our highways head into deterioration, as we've allowed them to do over the last 25 years or so.

Those are my rather brief comments, and I would entertain any questions you have.

The Chair: We have about a minute per caucus. I advise the committee members that should you ask a question requiring a lot of detail, I believe that would be viewed as unfair. But a minute probably allows you to make a comment or pose a question that would imply a short response.

Mr Gerry Phillips (Scarborough-Agincourt): I appreciate the very thorough presentation. To touch on your last point, the toll roads, I was interested to hear your comment, because I think the government is doing what it says it's doing: selling a stream of revenue to the private sector in return for a $3-billion investment. But your industry has looked at the tolls and concluded this is a good investment for the trucking industry: Get the road built and the tolls will pay for themselves.

Mr David Bradley: So long as the tolls come off once the debt is retired. We set certain conditions, and the bill that passed in the last session is consistent with that. So at present, yes, we need that investment, and we think the cost of the tolls will be far outweighed by the economic spinoff and the reduction in congestion costs.

Mr David Turnbull (York Mills): Thank you for a very good presentation, with concrete suggestions about how the government can improve the situation. Because of the time constraint, I'll ask the questions all together. In terms of the WCB impact and the employer health tax and the insurance tax and warranty taxes, clearly the government has a shortage of revenue, but you have pointed out correctly that there is an imbalance of taxes being paid by your industry. Can you comment on the impact in terms of perhaps the demise of some of the companies in your industry?

Mr David Bradley: Put it this way: Wages represent about 32.5% of our operating costs, the single largest cost we have, and if you tax that, we have to go out and find our bottom line. The customers don't have any more money to pay so we can't pass it along, so to find that bottom line means you're either not going to hire that job next year or you're going to have to find ways to cut back in employment. That's been the impact.

There are lots of examples in the industry. Motorways may or may not be the most recent. There are a lot of factors that cause a company to decide to get out of business.

Mr Turnbull: Bottom line, are the tax measures the government has taken costing jobs in this province?

Mr David Bradley: Absolutely.

Mrs Karen Haslam (Perth): I'm interested in IFTA. Could you elaborate on the technology that would be needed for that?

Mr David Bradley: It's really quite simple. The Ontario government would require some new computer hardware and software to streamline the system over what it's got now. That can be shared with other jurisdictions, because the other jurisdictions in the northeast are also looking at joining that compact. It would save Ontario having to go buy its own system.

The Chair: I thank the Ontario Trucking Association for its presentation this morning.


Ms Mary McConville: Good morning. Thanks once again for the opportunity to appear before this committee. We've appeared before you annually for the last three or four years.

Before I move into some relatively brief remarks, because we would really like you to have the opportunity to ask us some questions today, I will introduce those with me and draw your attention to what's in this package of material you have.

I'm Mary McConville, the executive director of the Ontario Association of Children's Aid Societies. With me is TJ Whitley, a former crown ward of the Hamilton-Wentworth Children's Aid Society. She's presently on extended care and maintenance with that society and is attending school part-time at Mohawk College. TJ also works part-time in the association offices supporting our youth in care network. Also here is Mr Robert Penny, executive director of the Kawartha-Haliburton Children's Aid Society.

In the package I've left with you, and I do hope you'll try to find time in your busy schedules to read through it, in addition to the remarks I'll be making to you there are some things you might want to spend some time with.

We wanted to speak to the Fair Tax Commission report but, given the limited time for these presentations, instead I've simply included in our package a report we sent to the property tax working group of the Fair Tax Commission. I've also included a copy of the proposal from our association to the cabinet on extended care and maintenance for youth in care. My remarks and also some fact sheets about child welfare matters are attached.

When I appeared before this committee last year I described for the committee a child welfare system in the province that was in crisis. Ironically, at that time we still had no knowledge of two major events of 1993, the social contract and the government's expenditure control plan. Immediately prior to those two strategies of government to address the deficit, children's aid societies in the province were already trying to struggle with constraint and making significant efforts to reduce their budgets. We pointed out at this time last year that the staff complement for your child welfare authorities had been reduced by 175 staff and that we had cut approximately $13.5 million worth of programming for our clientele to try to contain our budgets. The social contract negotiations, at which we were present for many weeks and months, did end up with a 0.75% reduction for all transfer payment agencies in the community services sector, including children's aid societies.


I would point out to the members that it was largely through the government's strong belief that the community services sector was already underfunded -- first, it had the poorest-paid employees in the public service and, second, was under enormous stress in terms of high demands for service in a recession -- that the government concluded that a modest target would be in order for the community services sector. That target translated into a transfer payment reduction of about $10 million. That $10-million cut, by the way, was absorbed by thousands of transfer payment agencies in the community services sector.

In the month of August 1993, the children's aid societies were asked to a government table to discuss the expenditure control plan and, in particular, the reductions that were targeted only for the organizations that operate under the Child and Family Services Act and that serve the specialized needs of children in the province. I won't go into all the complicated ins and outs of user fees and some of the things you've read about in the newspaper with respect to the expenditure control plan strategies. The net result of those decisions is that the children's agencies are being asked to take a further 2% cut to their base budgets.

What this means specifically for the child welfare system is this: The approved base budget provincially of the children's aid societies in the province in 1992 was $378.8 million. The combination of the social contract and expenditure control plan reductions reduces that base budget to $368.5 million.

The projected expenditure for children's aid societies in total by the end of 1993 is in the range of $396 million. The government is presently trying to reconcile those numbers, so I don't have the final figures for you. But I just draw to your attention that the approved base for 1994 is now going to be approximately $368 million and actual expenditures are in the range of $396 million. We have an $18-million gap between approved base and what societies are having to spend to meet clients' needs.

I would also like to point out that treasury plans to transfer for 1994 only $5 million to the Ministry of Community and Social Services for what is known as exceptional circumstances in children's aid societies and presumably to address this gap of $18 million between actual spending and approved base budgets.

As you well know, thousands and thousands of families turn to child welfare for help. The demands on our services are, not surprisingly, extremely high during a protracted recession. Children's aids in each and every instance work with a wide range of referral networks and other services to put supports in place for families in crisis, but in the last analysis, the need for protection from abuse, the alleviation of neglect and the provision of alternative care services for children are not services we can defer to other service providers. They must be provided by children's aid societies.

The other source of financial stress for children's aids, in addition to their mandatory responsibilities, is the uncontrollable cost of things like -- and I was listening to the previous presentation -- workers' compensation, unemployment insurance, and health care costs such as third-party billings which are now impacting on children's aid societies. The stress on municipalities is translating into an attempt to download other municipal constraints on children's aid societies as well, and that's one of the reasons I'd really like you to pay attention to our letter to the property tax commission.

All of this stress is impacting very directly on service and staff. Children's aid societies have already imposed days off without pay. Despite the low target of the social contract, our financial condition forced us to do that. We're terminating and reducing programs; we're restricting services; we're postponing the specialized treatment of children because of extended waiting lists in other agencies; we've terminated staff; we've actually faced the continued extraordinary problem of children's aids actually shutting their doors and going on emergency services only for up to two weeks at a time to contain costs.

We do believe there are long-term solutions that will help, and we've made a concerted effort to work with the government on the development of a children's policy framework. I would just like to make a few remarks about that to the committee. I have a fervent hope that cabinet especially will pay attention to these issues.

There's no question that the restructuring of social services will have to be a key strategy to address future constraint. We also believe the government must recognize that restructuring will have some front-end costs, as it will in health care and education, and that incentive funds must be made available to communities and service agencies to create integrated service structures.

We also believe strongly that if you truly wish to move from a residual method, a safety net method, of servicing children and families in this province to a more preventive approach to services, if you truly want to create that kind of transition, you simply will not be able to do it without an integrated approach to policy and legislation development at the ministerial level. It's especially important that Health, Education and Comsoc collaborate effectively with respect to policy development. You also can't effect real change without a pooling of the public resources that exist among those ministries.

Moving on to the particular obligations of the government to fund its child welfare authorities, we have asked over and over again for the last four years for several things: a new funding mechanism for child welfare; that the government take 100% funding responsibility for child welfare; and that the government use unallocated fiscal ECR dollars to help relieve the constraint on CAS budgets.

We have managed to once again join MCSS in a joint funding task force to examine our funding problems. This has been a stop-start exercise for the last three years with government. But I'd like to emphasize today that the government has virtually dismantled the funding mechanism for child welfare through a series of policy decisions that have been taken over the last three to four years, as follows:

-- First of all, the government has capped the exceptional circumstance moneys that are made available to the child welfare authority, regardless of whether the expenditures qualify for that funding.

-- The cabinet has decided to cut off access to treasury as of 1995 for ECR funds at all.

-- The ministry has informed us that ECR funds committed to child welfare by treasury will soon be made available to serve Young Offenders Act pressures as well.

-- Exceptional circumstance review dollars for mandatory services are now being made available to agencies only on a fiscal basis.

-- Last, the ministry has virtually abandoned its legislated responsibility to respond to the base budget requirements of child welfare agencies through the child welfare review.

It's the dismantling of the funding mechanism and the simultaneous reduction of base budgets that's creating a very explosive situation in your children's aids. When I finished my remarks, I'm going to ask Bob Penny to try to translate that into what it's doing to agencies.


I would like to end with a quote from the report of the child advocate on the child welfare system in the province of Alberta, completed in July 1993. I suggest that unless the funding mechanism for child welfare is addressed immediately, we're moving very fast down a slippery slope. The quote is this:

"There is overwhelming concern on the part of respondents both internal and external to the child protection system that management's" -- in this case it's the government -- "singleminded preoccupation with financial matters is translating the concept of `least intrusion' into a systematic strategy to justify restricted access to a reduced array of [child welfare] services."

Mr Robert Penny: I'll be speaking to you from the perspective of a medium-sized children's aid society. We have an annual expenditure of approximately $8 million. We serve the counties of Peterborough, Victoria and Haliburton out of offices in Peterborough, Lindsay and the village of Haliburton. I'd like to spend a few minutes reviewing what the impact of recession and economic constraint has been in terms of service demand, and then what the impact on our ability to deliver service has been in relation to economic constraint.

To provide a bit of background, what's happening in our community are things like this: The public health unit has recently terminated its early newborn intervention program, a wonderful front-line program which identified protection concerns with newborns very early on; the local school board has cut its social work budget by 40%, with resultant layoffs and cutbacks in service; the local hospital has lost its capacity to provide outpatient psychiatric service to families in the Peterborough community.

Where do families turn when these types of things are happening around them? They turn to the mandated service, which is the children's aid society. The specific impact of that is that over the past two years, from 1991 to year-end 1993, our service has mushroomed by almost 23%. If you'll juxtapose that increased demand for service with the following, it'll give you some idea of what we're dealing with here.

Remember that roughly 45% of an operating budget of a children's aid society is absorbed in salaries and benefits -- we're very labour-intensive -- and another roughly 45% is consumed in the provision of services to children in care. Those two elements constitute roughly 90% of our operating budgets. It follows, therefore, that if there are any major cost reductions imposed upon us, those reductions will occur either in our staffing levels within the agency and/or the services we're able to provide to the children actually in our care.

Our particular agency, faced with the constraints that have come down over the past several years, has attempted to deflect service cuts away from our children in care, but we've taken the following actions over this period:

-- In 1992 we reduced our staff complement by roughly 10%, permanently laid off 10% of our staff.

-- In addition, in 1992 we closed the agency down for a week. We just ceased to provide services and our staff went off on unpaid leave for a period of time.

-- In 1993 we again closed the agency, this time for a four-day period where staff were off on unpaid leave.

But In 1994 the rubber really hits the road. The reality of a further 2% budget reduction, which we know is coming, in our case translates into another $144,000 cut from our budget. In our situation, one day's closure produces about $10,000 in salary savings that can be applied against our deficit, so the imposition of a further 2% cut raises the spectre of 14 days' closure when there will not be child welfare services available to our community. That is in addition to whatever actions we are forced to take with respect to another roughly $58,000 in social contract cutbacks. That also assumes the continuation of the ECR process, which Mary spoke about, which in our case requires the input of $1.2 million in deficit funding for us to provide services. In other words, our base budget last year was about $7.4 million, and we spent $8.6 million in responding to the level of service the community demanded and that the ministry identified as being legitimate in terms of our expenditures.

I suggest to you it is patently naïve to assume that staff reductions and the closure of the agency over periods of time can be accomplished without an impact on service. The government would have you believe there has been no impact on service. I suggest again that that is patently naïve.

What is the service impact of these kinds of cutbacks? Mary and I can speak to you about the narrowing of the CAS mandate, about cutbacks in service to children in care. You may perceive us to be somewhat biased because we're a part of the system, but if you want to test the fading pulse of the child welfare system in this province, I suggest there are objective sources you can turn to, and I would highly recommend that you do so.

First, I would suggest you consult with the child advocacy office in this province. Mary has alluded to what the Alberta child advocate office is saying with respect to what's happening to their services. If you talk to the child advocacy office here, I suggest they will confirm the visible deterioration of child welfare services in this province and will also identify the potential for tragedy which is building in this system even as we sit here.

Second, I would suggest you review the crown ward review reports which are produced annually within children's aids societies around the province. It is an objective review done by the government itself. In our case, it will reveal that in 1993 we obtained the worst report card, if you will, that we have ever had. We have failed to meet mandatory requirements in a number of areas, and I suggest the reason for that is because of what is happening in relation to our funding. I again suggest the potential for tragedy exists and is identifiable within the context of that report.

Third, for heaven's sake listen to children in the system who are able to speak to you about what is happening to them in relation to cutbacks that children's aid societies are having to undertake in this province. Turn to your output reports and have a look at what is going on, and you will find it very frightening indeed.

Ms TJ Whitley: Budget cutbacks are affecting all youth and children's aid societies. I speak today on behalf of not only myself but of all youth in care. As a result of budget cutbacks, CASs are being forced to cut programs or revise them, with less staff and resources such as life skills and social skills programs. These programs are essential if youth are going to move on to independence successfully, but more important, agencies are not able to care for the youth past the age of 18 and are forcing youth out into independence prematurely at age 18.

When I was approaching my 16th birthday, I was faced with the hard reality that I might have to go on welfare. At this point, I was not a crown ward and I had no other place to turn. As a result of my mother moving out of the province, crown wardship became an option for me, and a month before my 16th birthday I became a crown ward.

The instability of this situation made it very difficult for me to make this transition. When I was approaching my 18th birthday, I wasn't sure if my agency was in a position to offer me extended care and maintenance because of budget restrictions; this service had been terminated. Once again I was left with the instability and uncertainty that my parents, the children's aid society, would be able to provide for me financially and emotionally because of lack of dollars.

This uncertainty and instability is really stressful and affects the decisions I make. It's very hard for me to make decisions about my future, where I'm going and what I want to do, when I don't know if my rent's going to be paid next month or if I have money to buy food. I live with the fear every day of when I'm going to get cut off, when my agency is going to be able to provide for me and when they're not going to be able to.

It's essential that we have the life skills and social skills programs to move on to independence, because we don't always learn those skills in foster homes and group homes. It's from the children's aid that we learn them.


Mr Turnbull: I wish we had an hour to question you. I'm troubled by what you say. I know it's a terrible problem and we must address the problems of our youth, because the problems of our youth are the problems we're going to face in years to come.

In terms of the approach that was taken by the government in reducing the dollars you get, the Conservative suggestion was that there should have been a 5% reduction across the board to salaries. I know nobody would have liked it, but you wouldn't have been faced with having days off. The fact is, people are saying, "We'll pay you for fewer days, but you get them as days off." You've had a reduction in staff. Would that not have been a better route to go?

Mr Penny: What is the least detrimental alternative? Ultimately, neither cutbacks in salary or agency closures and so on resolve the problem of the failure to fund what is considered a mandatory service. That is the difficulty. We have difficulty accepting a general application of a cutback in a system which is presumed to be a mandatory service system.

Mr Turnbull: There's no doubt about it, this government has a problem. I think they're going about it the wrong way, but I'm sympathetic to the fact that they have a serious fiscal problem. Given the number of people who are unemployed, would it not be possible to try to get volunteers, people receiving unemployment insurance, to work in the broader system to backstop some of the services?

Ms McConville: One of the things it's important for this government to recognize is that Ontario has the one system in the country where thousands of volunteers are working in child welfare. There are lots of data I don't have here for you, but we have literally 4,000 to 5,000 volunteers working daily in children's aid societies, doing everything from social work assistant jobs, to working with adoption disclosure services, to driving kids to appointments. It's a service very rich in volunteers. If we didn't have it -- and the other provinces, in most cases, don't -- it would be costing you that much more money.

Mr Turnbull: Is there some way we could expand that?

Ms McConville: No. The societies make every effort they can to draw in volunteers where they can appropriately use them and we think do a very good job of that, but given the nature of the services we provide, we require professional personnel to do the case work, the court work, the adoption services and those sorts of things.

Mrs Haslam: I want to commend you on your presentation. It certainly brings to the fore the difficulties we face. I must tell you that Mr Turnbull is correct, and he often rises in the House to tell us that we should be cutting more, we need to cut more, we have to cut more, and he would be cutting more.

Because we are in a very fiscally tight situation, whose budget should we be cutting to put more funding into social services? When we cut, we try to do it to everybody. Everybody took a cut, everybody took a hit.

You've just followed the trucking industry, which says: "You're hitting us too hard. We don't want you to raise our taxes. We want you to spend more money on roads so we have a better transportation system." Would we cut from road maintenance, from the Transportation ministry, cut from the municipal ministry, cut from the Tourism ministry to give more to Comsoc, Education and Health? That's where you said you wanted to pool money for looking at the child aspect of those ministries.

Ms McConville: There are two answers to the question, and the last remark you made is part of my answer. We believe strongly that there are long-term strategies that could reduce the demand on the safety net group of services like child welfare, but they simply won't happen without a cabinet-level commitment to interministerial cooperation.

Second, with respect to the immediate problems and ongoing problems of how you fund the child welfare authority, I'm not going to tell the government from whom to take money. My job is to tell the government that you have choices to make and choices must be made -- tough choices. You have a particular set of responsibilities for child welfare that you have an obligation to support with adequate resources and appropriate legislation. An across-the-board approach to cutting services, including your mandatory services, is not an acceptable approach to constraint, because it completely ignores your mandatory responsibilities.

Mr Bruce Crozier (Essex South): I have to tell you something so you won't think I'm insensitive to the problem. I was adopted and my mother lived with me as a single parent, albeit a number of years ago.

I need your help to see the following in context. The end of your presentation says a child has the right to receive parenting from the substitute parent, the government. What's happened to the family? Why isn't there an obligation on the family? We don't live in isolation: There are parents, grandparents, brothers and sisters. Why don't they have an obligation rather than the government? It'll help me better understand why the government is turned to immediately. And not just in isolation: There are specific ones, but in general why do they do this?

Ms Whitley: Excuse me if I'm not exactly polite when I say this, but when you're a crown ward you don't have a lot of connection with your family at all. You are totally away from your family. The only dependence you have is on the children's aid society. When you're taken away from your family there's a lot of turmoil, a lot of emotional stuff going on, and you're not always in connection with your family at all. It was quite a few years before I was even connected with my mother and sister. You have no connection with your family. I'm an individual in that, because I have a lot of friends in children's aid societies who don't even know where their parents are.

Mr Crozier: I'm not insensitive. That may be your case, but is that the case in every one of them? Are there no other family-supportive people who can be held responsible?

Ms McConville: When the state intervenes and uses its authority to remove a child permanently from his or her family, the state has in fact assumed the parenting responsibility. However, obviously someone has to actually care for that child on a daily basis and we largely use foster families to provide a family for children and youth like TJ. Foster families are providing a service for the state on behalf of those children, but they have no long-term obligation as family to the children and for the most part are not there. The reality is that most children are expected to move on at 18, and they are often not ready, just as your children are not ready at 18.

Mr Penny: The bias of legislation, certainly the bias of any children's aid society in the province, is that children, to whatever extent possible, will be looked after within the context of their own families. The children who are in care are in care because there was no other alternative. All other avenues would have been explored to try and maintain them within their own family system. I would venture to say there are no children in care for whom other alternatives have not been considered.



The Chair: The next presentation is from the Ontario Coalition Against Poverty, Mr John Clarke.

Mr John Clarke: Another member of our coalition, Mr Ritch Whyman, was due to come. Unfortunately, a job interview got in the way. I think you can understand that that takes priority in his case.

There is a number of things we'd like to use this opportunity to put on record. We were, in the letter inviting us here, asked to address some issues around the Fair Tax Commission. That cannot really be, for us, our priority here today. The more important question, as far as we are concerned, is that of the erosion of income support services in Ontario. Ways the tax system may be changed or jigged to benefit low-income people are somewhat limited. The real issue is whether people are going to continue to have an income before we even address the question of taxation.

It seems to us that the absolutely pressing question at the moment is, as the Treasurer himself freely concedes, that mass unemployment and, by extension, enormous numbers of people on welfare remains the situation Ontario is going to have to deal with for a very considerable period, regardless of what initiatives may be taken around training or job creation.

What it is necessary to understand is that the thing that has essentially made the difference between the Depression of the 1930s and that of the 1990s is the existence of these wretchedly unpopular and badly maligned, but none the less, income support programs in the form of unemployment insurance and social assistance. There is an acute need to recognize the dire consequences that are attached to eroding further the adequacy of this system.

If we are talking about what should or shouldn't be in the upcoming budget, for our coalition the central issue is the establishment of a fiscal framework under which a number of things can be achieved.

First, we think it absolutely critical that there be an end to the ongoing process of tightening up, of excluding as many people as possible from the social assistance rolls. Over the last period we've seen a system of enhanced verification brought in for people on family benefits that now talks of people having to submit bank statements going back three years when they make an application. It talks about making, for the first time, cars a liquid asset when it comes to regarding whether people are eligible for assistance.

We're also seeing, at the provincial and local level, an incredible intensification of the policing components of the welfare system. We're seeing a great deal of emphasis placed on the hiring of eligibility review officers as opposed to case workers. At every point, when we examine the situation, we are driven to make comparisons to the United States where, it seems to us, the pace is being set with regard to so-called welfare reform. In California and Florida, we now have a situation where welfare recipients are being fingerprinted. In light of the present fixation developing in Ontario, that seems to be the writing on the wall, so to speak.

I hear a gasp, but we none the less deal with a situation in Sarnia at the moment where the local Crime Stoppers program is offering $1,000 for anybody prepared to turn in somebody who's collecting welfare and working to collect money under the table. When you have that climate of hysteria whipped up, the kinds of initiatives you're seeing south of the border don't seem to us as implausible as they may to some here.

We're also seeing of course the erosion of the adequacy of people's income. That remains a very, very serious situation. We have 1.3 million people on welfare. Those rates are unlikely to decline very rapidly, yet there has been, of course, no increase in social assistance rates this year, not even a cost-of-living increase. The minister is on record as saying that an actual cut in the rates is an option that will be considered in 1994, should federal transfer payments be frozen.

The final direction that we think is enormously dangerous is what we would describe as workfare. We're seeing now in Metropolitan Toronto a system that they're preparing to introduce where people will be working with agencies for their welfare cheques and a small allowance on top. The Canadian Union of Public Employees has warned that there is a real danger that people are going to be performing tasks that were previously performed by its members for decent rates of pay. This is a very, very serious situation.

Again, not in the spirit of melodramatic doomsaying but because the whole direction is so critical, I point to the situation going on in the United States, where in New York at the moment you have people who are sweeping the streets for their welfare cheques, doing work that used to be done by unionized municipal employees. Anybody here who doesn't think that is a danger is I think grossly underestimating the situation.

It generally seems to us that what's going on in the United States and in some other provinces gives us very, very major cause for concern. Throughout all of the northeastern United States, the general assistance programs have been eliminated and single employable people are being totally denied assistance. In the state of Illinois at the moment the only form of income available to single people is if they are allowed on to a program called Earn Fare, where they receive an allowance of $157 a month paid for out of the tax revenues, and for that they provide free labour to employers.

I'm not suggesting that the Turning Point document includes an intention at the moment to introduce Earn Fare, but I do want to highlight the fact that this obsession with forcing people to perform some kind of work for their welfare cheques is a slippery slope and it's a very, very dangerous direction indeed that's being pursued here.

I would finally like to make the point that this erosion of an income support system is something that is doing enormous damage. People suggest that the problem that we have in our society is this thing called the cycle of dependency, that the problem is that the welfare systems have somehow created this incredible pattern of dependency, that they therefore need to be eroded, that they need to be replaced with job readiness or make-work schemes where people have to perform labour for their welfare cheques.

In the last year we've made several visits to the city of Detroit to meet with our counterpart organization down there. The process of cutting off everybody who was on the general assistance program was described by the people who did it as tough love. It was suggested that this was something that would promote self-sufficiency. A recent study by Wayne State University shows that the unemployment rate among those who were cut off welfare in 1991 remains 83%, testifying to the fact that if forcing large numbers of people on to welfare creates social problems, forcing them into destitution creates infinitely worse social problems.

That seems to us to be the fundamental issue that needs to be addressed in this budget, that we have enormous numbers of people who are not going back to work. While there is an attempt, I think, to deny the seriousness of the cuts that have been made, the adequacy and availability of an income support system in Ontario is being fundamentally compromised, and that is in line with what is happening in all political jurisdictions throughout North America. It's not an issue that we intend to remain silent on, and while I suspect it is not going to be the most popular issue to raise here today, for us it remains the central question.

Thank you very much.

The Chair: Thank you very much for your presentation. We have about seven minutes per caucus.

Mr Kimble Sutherland (Oxford): Thank you very much for coming forward with your presentation. I did gasp when you talked about fingerprinting going on in Florida because the sense I was being left with was that you were implying that somehow this government may be moving towards that type of direction. I want to assure that we're not.

My sense of what's going on in terms of reform is that it is trying to carry on some of the reforms that have been outlined for many years, that were certainly outlined in the Social Assistance Review Committee report in terms of helping people gain the skills that they can have so they can be self-sufficient. My sense is that the majority of young people who are on social assistance don't want to be on social assistance, but we are in a very difficult economic time. We have had a lot of people lose their jobs and people aren't on there because they want to be. They're on there, in many cases, out of necessity; there's no doubt about that.


I just want to get some sense of what your organization's position is in terms of the type of things to ensure we go from a passive to a more active, supportive type of welfare system that supports people getting into training programs and supports people if they want to be active in the community in terms of volunteering and learning new skills while receiving social assistance.

The system is designed in a way that if people, because of the economic conditions, can only find a part-time job, the welfare system doesn't penalize them for working part-time. That's really what I want to get clearly from you, what your sense of the reform is in terms of how it should support people and their personal development.

Mr Clarke: Let me make clear that we're certainly not opposed to legitimate training opportunities being provided for people. Indeed, I think there is a real need to develop a much clearer critique of how exactly training services can be offered. But what I was endeavouring to outline in my presentation is that I think there is this unrealistic expectation that is being placed on the welfare system to solve the problems that are being created by mass unemployment. It is not primarily a question of reforming the welfare system. Mass welfare dependency is a symptom of a very different problem.

Our concern is not that people can be made more competitive for what jobs do exist through various forms of training and what have you. That is of course completely acceptable and needs to be encouraged, but my point is that many of the so-called make-work programs that are being created throughout North America are not primarily concerned with putting people back to work. They are concerned with, on the one hand, providing a smokescreen for the erosion of the benefits for those people who are going to remain on welfare, and also they tend to directly foster cheap labour.

They tend to create a situation where people, sometimes under the guise of training, sometimes not, are handed over to employers, where they must perform some kind of task labour for their welfare cheques. That's exactly the road that's been gone down in many of the US states, but it's also precisely what we're seeing in Quebec under the law 37 arrangement. It's precisely what we're seeing in Alberta.

I think that the Turning Point document, whatever the intentions of the government that introduced it, contains some very, very dangerous elements in terms of that direction. When you start establishing a two-tier benefit system, I think you start moving in the direction of penalizing people for non-participation in these schemes, without safeguards, without protections, and that becomes very, very dangerous.

By all means let's have adequate training, but let's also recognize that for the foreseeable future, as I've endeavoured to stress, there are going to be huge numbers of people who remain out of work. Is there going to be an income support system for those people? In our opinion, there must be.

If it's presented as a cost-saving measure, my suggestion would be that if you are going to have mass unemployment, enormous numbers of people out of work, you can choose either to provide them with income support or you can put your money into prisons and psychiatric institutions and whatever else. But one way or another, you're going to pay.

Mr Phillips: I appreciate your being here. You're an articulate spokesperson. I think it is fair to say, though, we have to find ways to improve the system. For whatever reason, a number that jumps out at every one of us is that every year we've seen the social assistance case load increase, even all through the 1980s. The "recession" ended in 1983, and yet the social assistance case load has gone up every year since. Somehow or other we have to find ways to improve it. It probably won't be enough to just say one would resist any change.

Can you give the committee any assistance on how we might improve the efficiency of it, on the assumption that dollars are, frankly, limited and if we can find ways to spend those dollars better it's of benefit to everyone?

Mr Clarke: The way the question is posed, I fear I perhaps am not going to be that helpful to your request, because I think so much of what needs to be done lies outside the welfare system itself. Again, I make the point that yes, by all means, let's improve training opportunities, let's have more spaces in community colleges for people to develop the skills they need, let's ensure that some of the rules that tend to trap people in the welfare system be removed.

In the very early part of this decade, you had the removal of the 120-hour rule, under which anybody who was on family benefits who worked more than 120 hours a month for three months found himself or herself excluded from family benefits and had to go back on general welfare assistance again. So you had direct things, and still have direct things, that tend to discourage people and trap them into the welfare system. Those things I agree need to be weeded out.

But I also think we need to recognize that the increase in welfare case loads has not taken place because of some intrinsic failure within an income support system. We had the recession in the early part of the 1980s. This was followed by a limited recovery, in which many of the people who went back to work went back at greatly reduced rates of pay. The erosion of the minimum wage continued throughout the 1980s. Therefore, it was fundamentally a lack of decently paying jobs that created large-scale welfare dependency, and of course the recession of this 1990s period has at least doubled the number of people on welfare.

I believe that the fixation with curing the alleged problems of an income support system is fundamentally a red herring. The real issue is to deal with the questions of creating jobs and ensuring decently paying jobs, raising the minimum wage, reducing hours of work without reducing people's pay. These are some of the questions that I think need to be taken up.

Mr Crozier: In the recent past I've had the opportunity to talk with a large number of my constituents, and I have to tell you that if it were not for governments in the past, in the present and perhaps in the future that have some compassion towards this problem, if you were to ask the average working person on the street what their feeling was about social assistance, the answer might very much be more difficult than what the government's giving you under the present circumstances.

That having been said, I think one thing that you mentioned that bothers me a bit is the fact that you have to prove that you need this assistance. Many of us here, and you too perhaps have gone through your life proving yourself. But when you're in an unfortunate position, so I can better understand this, I wonder why it is you're concerned about having to prove the need. I think if the public could be more sure that those who need social assistance are receiving it and those who don't aren't, it would go a long way towards a better understanding generally of the situation. So why is that a concern to you, having to prove this?

Mr Clarke: Just on your initial comment, I don't think the question of whether there's an income support system comes down to a question of government compassion. I think the programs that have been put in place were established following the 1930s, and they were established because there was a very huge social mobilization among unemployed people at that time. People were simply not prepared to accept the conditions that existed in that period, and some social programs generally, including the income support programs, came into existence. I don't think it's fundamentally a question of popularity; I think those programs arise out of some very definite conditions.

To deal with your main question, I think it's not to suggest that there aren't already checks and balances within the system; to say the least, there are. The problem we have is not with people establishing that they are in need and then receiving assistance; the problem is with the climate of witchhunt and the intensification of policing methods that are very often arbitrary and very often unfair and that in many cases deny people assistance that they are palpably and definitely in need of.


Whenever the question of welfare abuse comes up, the figure of 3% abuse rate is usually bandied around. Actually, that was arrived at somewhat unscientifically. But there is no evidence to suggest that there is this massive problem of welfare fraud. As a matter of fact, anybody who has ever functioned as an advocate for people on assistance, and there are literally dozens of agencies, legal clinics and others, in this very city providing those kinds of services, will be aware of the fact that each and every day you confront the problem of people who, for one reason or another, usually because of bureaucratic whim, have been denied assistance that they were entitled to. The problem of underpayment to persons in need, in our experience and in our opinion, is much greater than the problem of people getting money that they're not entitled to.

The system, the way it functions, is so fundamentally arbitrary that if you create the sort of political climate where the wink and the nod comes down from the politicians to the welfare functionaries, it's quite possible to deny enormous numbers of people assistance that they very, very definitely need, and in that way of course handle some of the fiscal concerns that governments have.

We think that the campaign of intensified policing has nothing to do with establishing legitimate claims; it has a lot more to do with railroading people and denying them money that they need and are entitled to.

Mr Gary Carr (Oakville South): I spent some time with small and medium businesses. These aren't big corporations; it's somebody who has owned a small men's wear shop or whatever over the last little while. What I was hearing from them is that they are saying they are competing with the state in terms of jobs -- a lot of those jobs are minimum wage-type jobs -- and a lot of them are saying, and you've heard this a lot in the public, you're better off on welfare than taking a minimum wage job.

What do you say to members of the public and some of these small business people who are saying today, in the province of Ontario, you're better to go on welfare than you are to take a minimum wage job in terms of economic benefits to the person? What do you say to them?

Mr Clarke: First of all, it is true that the minimum wage has declined in terms of its real spending power to the point where yes, some people on social assistance who have dependants, at least, would be receiving more money on social assistance than they are on minimum wage. When I look at the incomes that people with families on welfare receive, it's only a reflection of the fact that you couldn't possibly support a family on the minimum wage.

This question of how can we convince people to work for very low wages if there are welfare cheques available repeatedly comes up. I think, not to beat around the bush, that really gets down to what for us is the essence of the question. I completely accept that there is a correlation between the adequacy of an income support system and the ability of employers to pay low wages. In the final analysis, I think this is what this debate is all about.

Just recently a document came out from the Bank of Canada talking about, again, this question of the natural right of unemployment, suggesting that it was healthy for the business climate to have a million people out of work. If those people have access to unemployment insurance cheques, they have some choices. If all they have are welfare cheques, the choices are even more limited. If they don't even get a welfare cheque, as we've seen in the United States, then they're quite literally ready to work for anything, under any conditions, any job that's available.

I accept that's the case, but our intention is to be partisan in this matter and to say that an adequate income support system is fundamentally important for the unemployed and for the poor, but it's also fundamentally important for people who work for wages because if that income support system is removed, the pressure on wages in terms of a downward spiral would be enormous.

Mr Carr: The young lady prior to you coming on talked about having some life skill training and she thought it was very helpful. Are you in favour of mandatory life skill training for people on welfare?

Mr Clarke: No, we're not in favour of mandatory training. It's generally counterproductive, generally unhelpful. We are in favour, yes, of training being available, although again I would make the fundamental point that I don't think it's a question of the inadequacy or fecklessness of people on social assistance. It's a question of a lack of decently paying and available jobs.

Mr Carr: Just with regard to the fraud, the auditor has talked about a figure of higher than 10%. He's talking fraud and mismanagement, because you know the mismanagement includes not having computers where you check for unemployment and welfare. There is some out there. He used a figure, and it isn't my figure. The auditor in the previous auditor's report used the figure of 10%. That would translate approximately to $620 million.

In my own Halton region, they did have an investigator come in, paid him $40,000. He saved them, apparently, $800,000. You're saying that the people who truly need it don't have enough money. How can you say that we shouldn't have these measures in place when we don't have enough money and people who legitimately are on social assistance don't have enough because there isn't enough money? How can you then say that we shouldn't be looking at the fraud that the auditor says could be as high as 10% and $620 million?

We could then take that, give some more to those truly in need or pay down the deficit or tax reduction or all the numbers of things. How can you not talk about the whole issue of fraud regardless of what the figures were, whether it's 3%, 10% or 1%? When we're talking numbers we're talking substantial. Why are you so opposed to having the people who may be abusing the system thrown off?

Quite frankly, what happens, the one case that is reported -- and you see them in the paper -- taints everybody, because that's why we've got this perception that everybody is like that. I know it isn't right, but that's the way politics and everything works. How can you not talk about the fraud issue when I really believe that unless you deal with that there isn't going to be enough money for the people who truly need it?

Mr Clarke: Because, as I was endeavouring to point out, we're really I think dealing with a situation where a campaign of intensified policing of the welfare system is not primarily a question of establishing entitlements but a question of denying assistance to people that they are in need of and entitled to.

Again I make the point, I think if we look at the legal clinic system that we have in this province, and it's only one arm of this whole industry that's involved in trying to get people money that they're entitled to, every day you get people sitting behind desks, lawyers, community legal workers, who take phone calls from people who have been denied something that they are definitely and clearly entitled to.

I would again make the point that this 3% figure that was brought out actually comes from a study that was done by Peat Marwick as a background paper to the SARC report. The Marwick paper said that it understood that the problem of underpayment to clients was actually a much greater problem than the problem of overpayment and fraud, but unfortunately no data existed on those questions so it wasn't going to go into them.

I think that if we ever were able to arrive at a situation where this question of the denial of assistance to people was seriously examined, we would find that indeed it is a much greater problem. I'm concerned, not that people establish entitlement -- that already is a requirement -- but that we get this rampant denial of assistance to people who deserve and need it.

Mr Carr: In my region, the person I asked was the director of social services and she said it's as high as 10%. Again because I have no way of knowing -- we all in our constituency offices hear -- although I will tell you this, and I'll use this as an example, in my daughter's school -- as you know, my wife can't collect social assistance because I'm working -- there are single mothers there who are living with people and so they should not be able to collect. But they are collecting because they are not reporting the other person living there.

If we make a conscious decision to have an income minimum level, that's fine, but the government has not. So those people -- when you're a single mom living with somebody, getting social assistance, you should not be on. If the government came out and said, "They should, because we need to help people at the lower end," that's one thing, but technically they are not entitled to be on social assistance but they are. I can tell you in my daughter's school, that is rampant.

What do you say to people right now -- and I shouldn't say rampant, a bad choice of words, but I can tell you, ladies in my daughter's class are on social assistance, living with people they should not -- what do you say to people of whom the average public says, "Those people should not be on social assistance and collecting"?

Mr Clarke: Actually, the old so-called man-in-the house rule that used to exist has been replaced by a somewhat liberalized system and there's now a three-year grace period that's involved. This is a change that took place.

I think, however, that if we're dealing with the question of single mothers living on assistance, I don't think there's perhaps any group of people who have been more maligned, more subject to intrusive investigations, more frequently pressured and railroaded off of benefits that they were entitled to than single parents.


Back in the 1980s when I was involved with an organization called the London Union of Unemployed Workers, we uncovered a document that the Ministry of Community and Social Services was using with regard to investigations of single parents. It called for investigators to go to their homes to look for notes on the fridge, to look for tire tracks in the snow in the early morning, and instructed investigators that if men were present in the house, identification should be demanded from them.

I think it's fundamentally a misconception that there aren't lavish checks and balances within the system. I think the point that's frequently made is that abuses of other systems that allocate government funds have a much greater abuse rate than social assistance. I think the zeroing in on and the fixation with the question of welfare abuse is part of a political agenda that doesn't have that much to do with defending the integrity of that system, but more has to do with justifying cutbacks and erosions within the system.

The Chair: Thank you, Mr Clarke, for your presentation on behalf of the Ontario Coalition Against Poverty.


The Chair: The final presentation this morning is by the Federation of Women Teachers' Associations of Ontario. Please identify yourselves for the committee members and for Hansard.

Ms Barbara Sargent: Thank you very much. My name is Barbara Sargent and I'm president of the Federation of Women Teachers' Associations of Ontario. I'm pleased to have with me this morning Sheryl Hoshizaki, the second vice-president; Pat McAdie, our research assistant; and Joan Westcott, executive director.

We are very pleased to be here today to speak to you on behalf of the 41,000 members of our association who teach in the public elementary schools. We would like to not just speak about adequate funding for education in Ontario, but also address some of the wider social issues.

First of all, I'd like to acknowledge that we do recognize the serious problem in our economy and we know that it is difficult at this time for a government to maintain funding for any existing programs. We do recognize that it's not our job to tell you where to cut funds in order to provide the needed money for education and other vital social programs.

But we would like to speak you today about the importance of education, particularly early education, and of the other support systems designed to make our society a little fairer. The responsibility facing any government at this time, regardless of the economic situation, is to set priorities for public spending. We do recognize that there may be fewer dollars than are anticipated, but where they should go should reflect the principles and ideals of this government.

We recently made a presentation to the Royal Commission on Learning. In that presentation, our conclusion I think summarizes our vision for the future. I would like to highlight that for you.

"We visualize schools where all students' needs are met, where all parents support their children whatever their skills and abilities might be, where a stimulating, resource-rich environment is available, where school and community support systems are abundant and well coordinated and where educational leaders in politics and administration focus as much attention on what is exciting, innovative and successful in our schools as they do on what may need improving."

We do feel that dreams are possible to attain. Most importantly, we dream of seeing this province get back on the economic footing that will allow all of its citizens to participate to the fullest of their abilities.

What we would like to deal with today is our view of what the government's priorities should be. We would like to discuss financing of education, child care, poverty and the integration of services to children.

But first of all, before I go any further, I must make a few comments about the social contract and the expenditure control plan that has been put into place. FWTAO disagrees with the Social Contract Act as well as with the process that was used to put it into place.

It has been stated that education is the key to this province's ability to compete in the global economy. To reduce funding and reduce the number of teachers reduces the ability of this system to provide quality education, and thereby reduces our ability to compete in this new reality. We cannot tell children that they are vital to our future and then cut the very programs that will allow them to participate in our future. We believe we must give them the very best education possible.

To impose both a social contract and an expenditure control plan is putting a double burden on the school system at the expense of the children in Ontario.

In the area of education finance, and we've said this for a number of years and we will continue to say this, education is not being adequately financed by the province now nor has it been for some time. We believe that education does not deserve the continual paring it has received in the last while. Expectations of the school, of the curriculum, have escalated as new initiative after new initiative has been added and the range of social problems to be addressed has been expanded.

We agree with the Fair Tax Commission, as we interpret its position at this time, that too much reliance is placed on the property tax for education costs. The present grant structure is only fair if the government's share is much higher. I believe this is illustrated by the Toronto school board's recent decision to give Pepsi Cola Canada exclusive access to the schools. We believe this was not made on good pedagogical grounds nor was it done with the collaboration of parents or teachers. We disagree with this decision but we do understand the desperation of the Toronto school board and other boards in feeling that such decisions are necessary.

We do believe, and you have seen in the fall, in the past few months, that some school boards are trying to force teachers to bear the brunt of this inadequate funding. I think this has been illustrated by the recent unrest in teacher-school board collective negotiations.

We also agree with the report of the Fair Tax Commission that there needs to be some local discretion in funding of education, because local needs do vary across the province and this needs to be recognized. All children have the right to a quality education regardless of where they live in this province, regardless of the local school board's ability or willingness to raise additional funds.

We applaud at this time the attention that the Ontario government has given to early childhood and primary education since the mid-1980s. We believe this must continue. We commend the current government's decision to mandate junior kindergarten in every school board by September 1994, but we are concerned that school boards may be able to opt out.

We continue to urge the Ministry of Education and Training to ensure that all school boards are required to offer some junior kindergarten programs in September 1994 and that any exemptions for full implementation be for very sound reasons, because we do believe that there should be equal access to junior kindergarten programs across this province.

Children also need access to their teacher's time. Lower class sizes ensure a much greater opportunity for the classroom teacher to provide child-centred programming and to more adequately observe the development of each student. FWTAO urges the provincial government to ensure that school boards maintain low class sizes in primary grades so that each child's skills will have a firm foundation.


In the area of integration of exceptional students into the elementary classrooms, we believe there has been some success in this, but this integration must be and must continue to be supported by additional resources for the classroom teachers, including appropriate learning materials and equipment and teacher assistants who are trained to assist the student with the student's specific learning and physical disabilities.

It has always been difficult for this federation to understand why the Ministry of Education has invested more money per pupil in the education of secondary school students than of elementary students. We urge this government to eliminate this differential in per-pupil grants between the elementary and secondary levels.

We have made some comments around some of the recommendations of the Fair Tax Commission. I'm not going to go through them, but I just want to say that we haven't had the chance to fully study these recommendations in depth. We recognize that, along with these recommendations and the recommendations of the Royal Commission on Learning and also the study of the Ministry of Education on education finance, we would like to have some further dialogue with you around all three of these issues, because we think they will go hand in hand.

In the area of child care, we strongly believe in the concept of publicly funded, universal child care. We are concerned about the recent federal throne speech that included every campaign promise except a national child care program. We strongly urge this government to take direct action. We believe we cannot continually put child care on the back burner. Over 90% of all child care is provided outside of licensed day care centres, and our children deserve quality child care.

Ms Sheryl Hoshizaki: First of all, I'd like to thank the people here for the opportunity to speak to you. As you know, I was introduced as the second vice-president and that means it's an unusual circumstance in which I get to speak and not just summarize.

I was listening to the presentation by the gentleman before us on poverty, and since the two concepts that I would really like to talk about today would be poverty and integration of services, I thought about what we could do actually to bring that issue home to the people here and how it impacts on education. Then I was listening to the questions Mr Carr was asking and I was thinking, how can we tell you what it really feels like or looks like in education and in our schools?

I remembered back to 1985 when I was teaching grade 5 in a northern Ontario school. About 9:25 or 9:26 on the clock, the door would open and a young girl about 11 or 12 would come into the classroom. I would be in the middle of teaching something that I thought was very important and essential to life and I would look at her with that look teachers have that basically says without saying it, "You're late." She was very shy, very quiet, and she would just slip in, get her things ready and get to her desk.

About the third or fourth time, I went into the lecture on work values and promptness, all the things we do and insist on doing. Then I talked to other teachers and asked them if they were experiencing the same difficulties with this person who would be late every day. I found out that her life was far more complex than I ever realized.

She was living with her family, which was her mom and two little brothers, who were 5 and 6 years of age. They were quite the characters. We spent a lot of time with them in the school, since they had a tendency to go outside the boundaries in every aspect of the school. You can imagine the handful they were. They were living in a hotel room downtown in our community.

Her mother worked nights, and her responsibility was to get up, get those boys ready, make them peanut butter sandwiches for breakfast and get them off to school. Then she would take a half-hour to get herself ready, because as an adolescent you can imagine how important it was for her to look just right to come to school that day.

I realized how my issue in her scheme of life was quite minimal. I've actually never lost sight of that picture of that young girl in the classroom. I guess what is the most devastating thing for teachers in Ontario is that we know that chances are she's going to grow up to become one of our disfranchised parents and probably live in similar circumstances. One of the only ways in which we can bring poverty into our lives is to understand it and not look at it in some bureaucratic fashion.

The second concept we would like to bring forward is the concept of integration of services, because maybe herein lies the hope that if, as a system, and education being part of that system, we can start serving children and all their needs, that might assist in the increased costs of serving children. We have to recognize that there are prototypes in Ontario that have attempted to do that.

In this brief, ISNC, which is the integrated services for northern children, is part of that process. I have participated in using that service. It's the combination of several ministries and they cooperate by sharing services both in human resources and in sophisticated diagnostic processes.

Part of the problem that we're trying to work out in that process, though, is that generally speaking bureaucracies are set up in a hierarchical fashion and children's needs are in a linear fashion, which means that there has to be a lot of dialogue, a lot of integration of processes for this to happen. Many of us in education, people in community and social services, are not used to and have not traditionally or culturally participated in serving children in that manner, so we need some assistance in doing that.

The recommendations have been outlined in the brief. I don't want to expand on them nor read them to you, but I would like to say that teachers in Ontario are working very hard, setting up cooperative hot lunch programs, doing all the tinkering with systems that we can do. But we now know that we're in a crisis situation when it comes to poverty and serving children, and we need some assistance in the actual bureaucratic process. Financing is certainly an issue, but it's not the only issue. It's far more complex than that. We hope that you would consider that.

Ms Sargent: Thank you very much at this time for giving us the opportunity to address you. We hope that this government will give priority to the needs of poor children, women and poor families, because we believe that when the poverty cycle is broken, we all will gain.

Mr Phillips: I'll start off. We appreciate very much your presentation. We're trying to get a handle on what's actually happening in the schools in terms of the implementation of the social contract and expenditure reductions, because this is an opportunity to kind of humanize all of this sort of thing.

My impression right now is that a lot of the savings are coming about as a result of larger class sizes, whether I'm right or wrong. Can the group help us along in terms of how this is actually being implemented in the schools? What are some of the implications of that?

Ms Sargent: Certainly the area of larger class size is a concern and that definitely is happening. Teachers have been faced with more and more students in their classrooms. It's just not the issue of larger class size, because students bring into those classrooms problems and so on that teachers have to deal with on a day-to-day basis.

Along with the larger class size, we are also seeing a reduction of resources. That reduction is not only in material and so on, but it's in the reduction of human resources, in teacher aides, in resource assistance teachers, in speech teachers, in behavioural assistance and so on. It's happening in many areas and it has created a lot of stress for teachers.


Ms Hoshizaki: I've just come back from visiting a lot of the schools in the last two weeks and talking to teachers and looking in classrooms and seeing different ways in which school boards are dealing with the social contract, and it's interesting to really realize that in spite of the situation there are really good things that are happening in the schools. There's no doubt about it.

But we can't ignore the fact that I think the impact of the social contract is moving more into the classroom between teacher and student than anybody else in the system. I don't know if that was the intention of this government, but that certainly is the realization, that the actual onsite delivery of education is being affected dramatically in Ontario.

Mr Phillips: Many of your recommendations do I think involve more spending, which is a challenge for us, I must say, because we've been through a period where all of us, including yourselves, are involved in trying to manage with the same or a little bit less.

Can the group be helpful to us at all in terms of any research you've done on, how is this all working out in the schools, the social contract, expenditure control? We can only respond to it if we see the real picture, and sometimes these things occur on a trend so you don't see the change occurring very quickly.

Ms Hoshizaki: I'm not certain if each recommendation is specific enough to say we're looking at more funding or more expenditures. I think really it's an evaluation of where funding is going right now and an adjustment to that to prioritize what we would see as essential to deliver education in Ontario to Ontario's children.

I don't want to keep going to back to integration of services, but I think that's a key component, mostly in the fact that the delivery of integration of services is so dependent on dialogue among the ministries. That's the beginning. Then recommendations can emerge from that once the dialogue begins, but it's really frustrating to not get that really on the table. Then that will address issues such as child care and poverty and services to children that are outside the realm of education.

Ms Joan Westcott: If I could just speak to the social contract and how it's translating into the local level, I think the biggest difficulty is the fact that there are still so many unknowns about the social contract.

While we can all merrily say that as of August 1 we could say we had a sectoral agreement provincially and that things then were just supposed to go to the local level and everything would fall in place, the fact is that, in order to assist our locals, we still do not have what we refer to as the template, which was to be the model that would help the school boards and teachers at the local level implement the social contract. That hasn't been agreed upon yet. It has now gone to arbitration and the dates for the arbitration extend into June 1994. This does not assist at all in helping those at the local level cope with the impact of the social contract.

It's very stressful for those who are trying to lead on behalf of the federations, as well as on behalf of the school boards, at the local level to get things in place. The teachers aren't sure really what some of the implications are. They know they have fewer resources. They know they're going to make less money. They know they're going to have some unpaid days. They know a lot of things that are going to come some time. They've felt some of them and they don't know when the other shoe's going to drop, and they keep hearing about what's next.

There's no question that the stress level of the social contract is throughout the province. We're working with our members about predicting what the implications are going to be. We know part of the agreement is fewer staff. We know that means larger class sizes. So there are some things we're fairly certain are going to be in place by the end of the social contract, or will be the implications by the end of the social contract, but the sense of the unknown really has brought a very high stress level.

Mr Carr: You probably weren't here when the children aid's societies came in too and they were talking about children. The term they used is that this has been the worst dismantling of services and funding of the child welfare system ever. I'll repeat that: It was the worst dismantling of services and funding of the child welfare system that they'd ever seen, and they went into great detail.

It's a little ironic that it happened under a socialist government. But I think when you think about it, all of the things we care about, whether it's education, health care, they really don't depend upon the compassion of government; they depend on having a healthy and prosperous economy to support them. It's ironic that this government's legacy -- and I know Karen's a teacher and very compassionate -- at the end of the day we will be worse off under this government than any other government in our history.

As I was thinking, you probably have more of a responsibility because the standard of living of our children is going to be in direct proportion to the skills and training that we give them. So to throw the ball back in your court, you have a tremendous challenge ahead of you. How we can help is to change the system. We can debate funding all we want. I don't think it's going to happen; it wouldn't happen under a Conservative government, a Liberal government or an NDP government. The federal government's broke and the provincial government's broke.

One of the things we can do is change the way we operate and one of the things that I've advocated is getting rid of a lot of the administration and the trustees and the bureaucrats in the Ministry of Education and really giving the teachers, the principals and the parents at the school level the real power to make decisions, whether it's violence in school -- as you know, if there's a problem with a kid and violence in school, by the time it goes up to the superintendent and all the levels of appeal nothing ever happens.

As an association, are you in favour of doing that decentralizing and giving more authority and responsibility to the groups -- the primary groups being yourselves, as teachers, principals who I think have a big role and parents -- and really giving them the authority in the schools to make the changes that are necessary? Quite frankly, I trust you people in the front lines better than I do the bureaucrats in the Ministry of Education or trustees. Your thoughts?

Ms Westcott: I'm sure all of us are prepared to make some comments on this. Let me just start by saying that one of the positives, I guess, in all of the negatives that we face in education is that we know, in spite of so much, our teachers go into the classroom and they work with the 30 or so students they have in their classroom each day and they make it work in spite of everything else. But I think we all have to work to make sure that we don't take away from the teachers the kinds of support systems that are needed.

The teacher in the classroom today probably needs more support services than we've imagined in the past and that's why our proposal for better integration of services isn't always saying we need more money and more money. It may be just redeployment of some of these services that are there; it may be better coordination of those services. While your question focuses specifically on the school board structure, part of that school board structure is support for the teacher, for the classroom teacher, for the principal of the school, for the school community.

Yes, we've always been very supportive of the involvement of parents in the school. We recognize the importance for the child and for the classroom teacher and we've been fortunate at the elementary level because parents tend to be much more involved in the schools at the elementary level. Unfortunately, for a number of reasons, parents don't continue that involvement as the student grows.

But we want to raise the issue of support services. We aren't an association that has gone out supporting the huge, elaborate bureaucracy in any structure but we do want to acknowledge that there are support systems that are needed.

Mrs Haslam: I don't think anybody is surprised to hear that I firmly believe in your second sentence and the right that workers have to free collective bargaining. If anybody doesn't realize that this is my position, they haven't been paying attention, and I will say something about Mr Carr's comment. You know, no one is better off after a recession or a depression like we've gone through, but I think that history will show that you're better off because we were the government rather than the other two parties after this recession.

I'd like to talk about some redeployment. You talk about the redeployment of existing resources and setting priorities in where that funding goes, and to also go on a little more about that pool for children. I'm interested because the children's aid society talked about the same idea about pooling the resources and taking a look at how we can help children.

My concern is, when you look at redeployment of existing resources, I don't know how that can be done in the education system, given the cutbacks that we are all experiencing in all the ministries, and whether looking at pooling the resources for children is the answer.


Ms Hoshizaki: All I could really refer to, I think, would be ISNC, which is the integrated services for northern children. That is a process that in some ways pools the resources.

Mrs Haslam: Can it be done on a larger scale?

Ms Hoshizaki: I can't see why not. I don't know. I've worked within the framework of a small scale, but maybe there's more vigilance and more commitment to the process that has to occur. But I cannot see why not.

For example, small school boards cannot afford the large resource base. They couldn't traditionally afford a lot of diagnosticians, for example. Full-time employment is really difficult. Speech and language would be another area. Yet the need for that type of assessment at that level is fairly critical in the north; in fact probably more critical in the north than any other place in Ontario, interestingly enough. So of course we need the services.

As a principal in a school in northern Ontario, I used those services often, but I didn't need them all the time. In that way, I shared that service with other school boards such as Red Lake, Atikokan and so on. It is a way of pooling resources, using them at a time, and then collectively being able to meet the needs of children.

Mrs Haslam: One question about priorities. I know my colleague would like to go a little further on the pooling and liaison and maybe mention some of his concerns. But on the idea of priorities, we've had the MTO, the trucking industry, come and say, "The priorities are roadways and maintenance and lowering taxes so we can operate our business more efficiently." You come and the children's aid society comes and you say the priorities are education, the priorities are children's aid societies, the priorities are the children, and I agree with you.

How do we balance that? I am concerned that we don't look at saying there is no more money in the Transportation ministry because it all goes into education. How would you balance that?

Ms Westcott: I'll start that. I think you have to start looking at what has happened to provincial government funds over the years. Education has been receiving a smaller piece of that.

Mrs Haslam: True. I used to be a trustee, so I know.

Ms Westcott: Continually a smaller piece. I think we have to re-evaluate how we look at everything that has to be funded provincially. We happen to believe that the youth of this province have to be given higher priority than some of the other matters. We cannot support the dwindling resources that continue to go to education because some of the other issues seem to politically get higher priority. We think our children need to have a higher priority and we think the young children and the schooling in the early years have to get the highest priority so that we can eliminate some of the difficulties later on.

Mr Sutherland: I've been working with groups for the last two years, trying to resolve speech services in my riding with the liaison committee. Unfortunately, we're two years later and every time we think we're close, some other obstacle comes up. So when you talk about integration of services, I agree.

You mentioned the Pepsi deal. Other people mentioned the Pepsi deal. What's the big deal about this Pepsi deal? When I went to high school, there were Coke machines in my high school. When I went to elementary school, there was only one brand of milk that was available for you to purchase. I'm just trying to find out, and I really don't know the details, what makes this deal so much more significant than any of the other contracting that goes on for one specific type of product, whether that be food services, milk, whatever.

Ms Sargent: We recognize that there has been in the past corporate involvement in the schools, but what we are concerned about is the fact that this is an exclusive right for a corporation to come into the school. There are excellent partnerships that are set up in schools across this province today, partnerships where, for example, Canadian Tire has gone into a school and outfitted an auto-working lab for students where students can use those resources and learn from them and develop their skills. There are other examples of computer companies that have gone in and provided equipment for schools, and students use those.

In the area of Pepsi, they're coming in and they are providing their product for students to buy. Now, we also recognize that there are already machines and so on in the schools, but the profits and the money from those machines now go directly into the school, go directly to the support of field trips and whatever and programming. This now is going to be taken out of the hands of those individual schools and it's going to go into a central fund. We don't know whether that money will indeed sift down. So there's going to be a loss of individual schools' ability to use some of those funds.

The other aspect is the aspect of, what are we saying to our students when we're saying it's all right to have all of these machines and so on in the school, when we're trying to teach good nutrition to our students?

Mr Sutherland: Maybe we could ask research to get us a copy of the deal or what the terms are, whatever they could come up with, because, you see, I'm still not sure what the difference is. Does it mean that every school has to have a Pepsi machine if they don't now?

Ms Sargent: That's right.

Mr Sutherland: You see, I don't understand. Does there have to be the big Pepsi banner?

Ms Sargent: Yes.

Mr Sutherland: What is the difference between this deal and the other deals?

Ms Sargent: Our understanding is that every school will have a Pepsi machine, that the Pepsi-Cola company will be able to distribute T-shirts, hats --

Mrs Haslam: Distribute or sell?

Ms Sargent: I think they'll be offered as prizes for certain things.

Mr Sutherland: So you're saying it's kind of like the golf tournament sponsorship now where it's some company, a certain Open type of thing.

Ms Sargent: It's more than that.

The Chair: I thank the Federation of Women Teachers' Associations of Ontario for making a presentation before the committee this morning.

The committee recessed from 1217 to 1408.


The Chair: Our first presenters this afternoon are Alasdair McKichan and Peter Woolford, representing the Retail Council of Canada.

Mr Alasdair McKichan: I'm Alasdair McKichan. I'm president of the Retail Council of Canada. Peter Woolford, vice-president of the retail council, is with me. We appreciate the opportunity to appear before you today. I would propose, if it pleases the committee, that I would simply digest verbally the terms of our submission to leave some time for questioning.

Let me begin by saying the council represents something over 60% of Canada's retail store trade directly and through our affiliate associations a substantially additional percentage of business.

I'd like to touch on the events of the last year in terms of what happened to the trade in terms of its sales. Nineteen ninety-three was a somewhat better year than any of the three preceding, thankfully, of course, because of the severe casualties our sector has suffered over the preceding few years.

I think some of the improvement in sales was no doubt due just to the improved economic activity in general, but I think we should not underestimate the factor of reduced cross-border shopping, which I think accounted for a significant percentage of the improvement. Of course, when you look at what happened to consumer disposable incomes, it's not unrealistic that a substantial part of the improvement should be attributable to that source.

By sector, the areas which seemed to do best were women's clothing, sporting goods, electronics, household linens, toys, and health and beauty aids. We were not seeing much improvement in major appliances, furniture or menswear until towards the end of the year, when these sectors did show some improvement. That was borne out by the release of the November figures a couple of days ago and we believe from our members that December sales continued that pattern.

In fact, the Christmas season was one of the better periods in the year which, of course, is important to all those merchants who depend so heavily on the Christmas season. One of the more benign aspects was the fact that retailers were not obliged to start discounting so early in the season as they have had to in the recent past to attract any kind of business at all. So margins should be modestly better for the year.

The consensus in relation to the current year is that, absent any extraordinary factors, trade will likely continue to improve, albeit slowly and unevenly. I think we have to introduce a caveat there: If in fact there should be a shock felt by the consumer in terms of significantly increased taxes, I think that could really impact negatively, and very negatively, the very modest level of recovery that we are seeing.

We believe margins will again come under pressure, both because of the substantially increased productivity which has occurred over the last few years and also because of the new entrants into the market with different cost structures, which are obviously going to have an effect.

The improvement in productivity in terms of sales per employee has been really quite remarkable over the last three years. It's something of the order of 30%. Some of that, a substantial part of it, can be attributed to increases in capital investment in the industry. There is the very strongest incentive to retailers to attempt to limit their labour costs, and one of the means of doing that, of course, is by substituting capital for labour. It has negative effects, of course, in terms of the general employment situation and it points up that whatever extra costs are loaded on to the labour component of our employees' cost structure are very likely simply to exacerbate that trend.

Disappointing last year was the fact that, first of all, Ontario tended to lag behind the national average in terms of sales. Within Ontario, Toronto was below the provincial average in experience. I think it's realistic to recognize that other provinces are not standing still. They're taking note of the comparative unattractiveness of Ontario for investment and they're mounting campaigns to try and attract more business which might otherwise settle here.

Let me move on to policy issues. First, in terms of fiscal policy, those of you who heard us last year heard us reflect on the problems we foresaw with the perpetuation of the high-deficit situation. We note, just by way of contrast, that within our trade many of our members have been obliged by the circumstances in which they found themselves to very sharply cut their expenditure and particularly their employment levels. They didn't have the option of looking at a gradualist approach. I mean, most of their situations were so severe they had to act very sharply.

We contrast that with the situation that government has been taking towards a more gradualist approach to deficit reduction. I think their early evidence is that this approach is not in fact working and I guess Mr Laughren's indication that the revenues were going to be $1.6 billion lower than expected seems to signal that we can't hope to get out of our problems simply by tax increases, that we have to look in a much more substantial way to the cost side of the ledger, recognizing that the social contract was a move in that direction but that, in our view, it wasn't a move of nearly the significance that is needed to get us back on a reasonable keel.

Another feature of the increased taxation, apart from its impact on sales, is its effect of driving people into the informal underground economy. We made a presentation on that subject just recently. It is a serious problem in our industry, particularly of course in relation to tobacco, but it has its parallels in other sectors of the economy.

We would like to say a word or two in relation to the commodity tax situation. From the earliest signs of the federal government's indicating it was going to get into the commodity tax business, we urged most strongly that we look at the feasibility of achieving harmonization between the federal and the provincial systems. Unfortunately, that has not happened and we bore the brunt, I guess, of that failure during the early period of the introduction of the GST. That damage still lingers.

We were pleased that the Fair Tax Commission came out so strongly in favour of the harmonization option. We are urging that option on the federal governments. Similarly, we're urging it on all the provincial governments, including this one. When we say "harmonization," we mean not the kind of quasi-harmonization that Quebec has attempted but a real harmonization of the essentials of the tax. We don't have to have the same rate across the country, but we would very much hope that there could be an central collection system and as uniform a base as possible.

On the issue of job creation, as I said, we think the recovery will be characterized by slower growth than we've experienced before. The payroll-related taxes and expenditures with which employers have to contend are undoubtedly having an impact on the extent to which they're able to re-employ people.

The increases in unemployment insurance, the Canada pension plan costs and workers' compensation rates are all of strong concern to our industry, which is so heavily labour-intensive, in fact accounting for something like one in eight of the labour force.


We do argue strongly against any increase in these employment-related payments and taxes. Particularly, we'd like to comment on the situation in relation to workers' compensation. I think everyone recognizes Workers' Compensation Board finances are in state of crisis. We understand that it's unlikely that the recommendations made by the management members of the advisory council are going to be implemented. To us, if that is in fact the case, that is a very sharp disappointment. We think employers need the reassurance that these costs are going to be under control. At the same time, we don't think this is the time to be extending benefits. It has a very strong negative impact on the employment climate in the province.

Members of the committee will be well aware of the problems associated with the reapportionment of property taxes in the Toronto area. As you can understand, we as an organization haven't taken a position on the interplay between the various types of retailer involved in that reapportionment because all of them are our members. But the issue does point to the level of property taxes in general.

We were made sharply aware of the discrepancies between the level of property taxes borne either by owners or tenants in the Ontario region compared with those in the competing states in the US in the study that we did during the height of the cross-border shopping problem. In fact, there are huge anomalies in that with the Ontario levels of tax two and three times what are experienced in the US, and occupancy is such a big element in retail costs that of course these have a severe impact on the competitiveness of Canadian and Ontario merchants. We've got a temporary reprieve with the value of the dollar. We can't expect that's going to remain for ever and I think we have to take into account the punishing effect that these tax levels have.

We also make a point in relation to the harmonization of payroll taxes. In order of magnitude, it's not nearly such an important issue as the ones that we've just been commenting on, but it is a substantial anomaly and an irritant and we suggest it be addressed.

I'll stop at that point, Mr Chairman, and we'll be happy to respond to the committee's questions.

Mr Phillips: Thank you, for a thoughtful presentation. In terms of the number of people working in the industry, the numbers that I have for employment in what's called trade -- I gather that's the wholesale-retail trade -- in 1990 were about 850,000, in 1993 810,000, which looks like about 40,000 fewer people, about a 5% drop in the level of employment.

Mr McKichan: Behind these figures is the drop in the number of hours worked. I'd suggest that the actual number of hours worked is very much larger than that, with both considerable substitution of part-time for full-time employment and substantial reduction in the number of hours for part-time employees.

Mr Phillips: That's a very good point because I think there has been a big shift in Ontario from full-time to part-time. Again, on the job side, as I look at your industry and as your document points out, you're moving very heavily to kind of productivity improvements, for lack of a better term. I see some of the big retailers that have opened up -- Aikenheads and others. Should we anticipate a continued kind of trend, as we've seen here, of a total reduction in the number of hours worked in the industry?

Mr McKichan: I think we may have for a while bottomed out just because of the low level of sales in the last few years, but the longer term trend is in that direction, with more business flowing into larger specialists, and as a result more efficient types of operation which, generally speaking, have a much different employment profile in terms of staff.

Mr Phillips: To change subjects, my sense right now is that the focus, both federally and perhaps provincially, on the tax side is on the tax expenditure side because that doesn't sound like tax increases. Is there anything on the tax expenditure side that we should be looking at, because if there are some inefficient things on the tax expenditure side, that can be just as effective in some respects as cutting spending.

Mr McKichan: In terms of the corporate taxes, of course retailers are not significant beneficiaries of any tax expenditures. They tend not to be in the favoured category, being a service industry. I really can't speak with authority in relation to the corporate side.

In terms of the personal side, I guess there are things that could be done that might encourage spending over saving, but I don't know that in the longer context these are necessarily good strategic moves to make when you look at the potential obligations for retired members of the population and so on.

Mr Phillips: The harmonization of the GST and PST -- and Gary will appreciate we've had conflicting kind of advice from business groups. I think your strong advice is to find some way to harmonize.

Mr McKichan: Absolutely.

Mr Phillips: What about whether it should be visible or invisible?

Mr McKichan: We know that within our trade there are two schools of thought on that. Generally speaking, people who are selling big-ticket items, particularly if they're in competition with outlets in the United States, would prefer to expose the tax. People selling smaller valued articles, repetitive purchases, feel they'd rather include it. That's a generalization, but that's the general approach.

We are actually planning to do a survey of our members with some definitive questions on that, which we'd be happy to make available to you in the course of the next few months.

Mr Phillips: What sort of cost savings for your members might be involved if it was truly harmonized in the most efficient way?

Mr McKichan: They're very different by size of member. The greatest burden tends to be experienced by the smaller retailers, because they don't have the facility to systemize things and they're less sophisticated as a whole. I would guess it would be under 1% of sales, of course, but these are significant. Even under 1% can amount to many millions of dollars in an industry the size of ours with the sales volumes that it has. The savings would be very significant.

Mr Peter Woolford: The other thing that our merchants notice is that the existence of two competing taxes at the point of sale really annoys the customer. They find that's a continuing irritant in their sales processes in the store, and they are concerned that what it is doing is discouraging consumers from doing some shopping. They find that just the presence of two conflicting systems is still very much a discouraging factor for people in terms of making purchases.

Mr McKichan: And sales are still being lost as a result of that. People get to the cash register, forget about the existence of the GST, and then discard the merchandise when they're confronted with that.

Mr Carr: My question was regarding the WCB. As you know, the problem with the increases with the workers' comp are not unlike what's happened in other areas as well in that they say there had been a problem with revenue, but there isn't; there's a problem on the expenditure side. Ironically, it's the injured workers who are going to be on the hook for it. Nobody ever thought that this government would come in with a social contract, and when the WCB runs out of money, make no mistake about it -- and the government should know that the people who are the hook for it are the injured workers, that there's no money to pay them -- they're going to be the ones. So it's in the interest of not only business but also injured workers, because we are in one heck of a mess. They see the problem as trying to increase the amount on the employers of the province. What will it mean if there are any more increases in things like that?

Mr McKichan: I'm going to ask my colleague to respond to that.


Mr Woolford: I don't think we can quantify it till we've got some sense of what increases would be in order, but it's quite clear from the response of the retail trade to tough times and to changing technology that they have been steadily reducing hours and amounts of employment. As their other employment-related costs go up, it simply adds pressure on the expense side for them to cut those hours further and gives them an added incentive to save even more money by investing ever more heavily.

As Gerry said when he was asking Alasdair about the employment in the trade, moves in this area will simply further ensure that retailers are that much more reluctant to hire additional people as sales come back. In a sense, what we're doing is building a job-shedding machine every time the government increases payroll taxes.

Mr Turnbull: I'm sorry I wasn't here for your presentation. A question which is very current is this question of property tax appeals by the large anchor tenants in the major malls of Toronto and the impact it will have on the other retailers in those malls.

It seems to me -- and I'm not trying to lead you, but I'm just sort of giving you the benefit of my own view at this moment -- that the fact that the landlord advances an inducement to get an anchor tenant into a building is the landlord's affair, quite properly, and government shouldn't intervene in that, but the idea that in some way that benefit should be further magnified by property tax policy is fundamentally flawed.

I believe that you represent both large and small retailers. Could you comment on this situation.

Mr McKichan: As your question assumes, we find it difficult to take a position on the principle of how taxes should be allocated among various categories of tenant. We also recognize that the increased taxes which small retailers are facing, for many of them, will be the last straw that breaks the camel's back. I think there's no doubt about that.

The point we made in our submission is that while we can't speak to that division question, we can speak to the question of the level of property taxes in general, which as I indicated are something like two or three times those that are experienced by our US equivalents just across the lake in Buffalo. That's where we, as an organization, have to concentrate our fire and try to achieve some redress of that situation.

Mr Turnbull: As a landlord myself, and also my wife having a retail business, I completely agree with you. I think one of the problems is that most people don't realize the level of taxation that retail establishments are attacked by. One of the concerns I have is making sure that the government understands how serious this is in terms of the ability of a lot of retailers to survive.

Mr McKichan: Absolutely. Every day, these days, in our office I'm getting calls from independent and small-chain retailers that have survived by hook or by crook the last few years, and now it looks like they may get the coup de grâce as a result of this taxation situation. It's very, very serious.

Mr Turnbull: Have you had a lot of correspondence from these -- I don't want to call them small retailers -- the non-anchor tenants with respect to the likely implications of this?

Mr McKichan: It hasn't been correspondence, but it's been frequent telephone calls. They are very, very concerned about it.

Mr Sutherland: I have a couple of questions and a comment first. It's unfortunate that Mr Carr doesn't remember that his government didn't address the question of how to have appropriate financing of the WCB; we probably wouldn't have this unfunded liability at this stage if his government had.

Mr Turnbull: The ball's in your court now, Kimble.

Mr Carr: I couldn't even vote when the Conservatives were in last time.

Mr Sutherland: Some people have some very short memories. At any rate, two questions. First of all, I keep hearing the cross-border shopping numbers, the number of trips going across, are down, but I'm still hearing numbers, four million and 4.5 million. Do you have any indication as to how that compares to, say, before this problem started, if we compared it to, say, 1987-88?

My second question is, we've had a discussion here about property tax. The Fair Tax Commission recommended that over a five-year period we take the education portion of property taxes off the property tax base and put it on to the income tax base. Can you give me some sense, from your organization's standpoint, what you think the economic impact is, whether there's a net benefit to your members by having that occur?

Mr McKichan: Let me answer your first question first, if I may, in terms of the cross-border situation. We have not done any recent surveys of what average expenditures have been, but at the height of the cross-border shopping situation, we were talking about something like $5 billion or $6 billion of lost revenue. We believe that in the last year or so that has been cut probably by 40% or so. So while it's still higher than it was before the late 1980s, it's very sharply down from the recent past. The number of border crossings is not down by the same extent, but a lot of these are simply for a fill-up of the gas tank. Some of them, of course, are not for shopping purposes; they were visiting friends, relatives and so on.

Responding to the second part of your question, we have not yet had an opportunity to completely consider the Fair Tax Commission's recommendations. I know there are pros and cons in relation to that question. Obviously, it would be helpful to get relief in terms of the burden on property tax. Conversely, there's an impact on disposable income of consumers, which also affects retailers. We haven't had an opportunity to make an assessment of that rather intricate calculation.

Mr Woolford: It's my recollection, and correct me if I'm wrong, that the relief on property tax would only apply to householders; it would not apply on the commercial base. I think that's where they came out.

Mr Sutherland: It would say you would go to a different tax form for it.

Mr Woolford: But there would be no tax relief for retailers on their property tax or their property-related business tax.

Mr Sutherland: But it also said to get rid of the municipal business tax as well.

Mr Woolford: Was it on the municipal business tax as well? I didn't think it was.

Mr Phillips: I think it said on residential property we would remove education from property tax and put it on income tax. On the commercial business property tax, the change would be that it would be province-wide. The same money would be raised, but it would be pooled provincially.

Mr Woolford: So in fact there would be absolutely no relief for the retail trade at all.

Mr Sutherland: I'll have to go back and look at the other recommendation. I think it said, though, including getting rid of municipal business tax, which was some concern too.

Mr Wayne Lessard (Windsor-Walkerville): You were very critical of the government's efforts to reduce spending. I can tell you that as the government caucus we agonized over a lot of the cuts that we made. I'll admit that even though we felt that in some cases we were being cruel, it really seemed as though we were still picking around the edges. Really to make some substantial cuts would, I think, change life as we know it in Ontario.


You're in a business that would really see first hand something other than a gradualist approach in two ways. First of all, significant cuts would reduce the amount of money available to spend at retailers. Secondly, it would really impact on consumer confidence and people would be more willing to save than to spend. So I was a bit surprised by your suggestion that we should really cut deeply, knowing that. I'd like to know what your list looks like to reduce spending significantly, in your words.

Mr McKichan: In our view, the choice is not between a gradualist approach and a sharper approach; it's whether the decisions to cut and what to cut will be made by our governments or will be made at the direction of some external international agency. Those, in our minds, are the choices we're looking at. It seems to us that it's better that we make the decisions ourselves rather than have them dictated by somebody else.

Certainly, the retail trade, because it's so dependent on the flow of consumer disposable income, would be affected, and significantly. However, we don't see any way around facing that and accepting that because the alternatives are so much worse.

In terms of the areas where the cuts should be, I think it has to involve a whole rethink of what government is capable of doing and what it should be doing. It seems to me it may mean the disappearance of whole departments or the disappearance of whole functions and a complete, radical look at all the services that governments provide. I think we're now in a near-desperation state and I think these are the kinds of decisions that we have to face.

The Chair: I thank the Retail Council of Canada for its presentation.


Ms Marie Rauter: I'm Marie Rauter and I'm president of the Ontario Forest Industries Association. I have with me today Martin Kaiser, who is our policy manager.

I thank you very much today for having the opportunity to speak with you and to discuss some of our concerns and some of our recommendations and how we think you might be able to move forward so that we can better the economy and the wellbeing of all Ontarians.

We represent 21 member companies in Ontario, forest industry companies, everything from the large pulp and paper companies to some very small family-owned operations that have been in operation for four and five generations.

We'd like to address issues that surround the provincial budget and also address some of the recommendations in the Fair Tax Commission as they relate specifically to our industry sector. We would probably have comments on many others, but with the restricted time we'll deal primarily with our sector.

The areas that we'd like to cover: We'd start with the economic state of the industry, also the opportunities that face this industry if we can get some of the foundations together properly, also a new business relationship that we're trying to develop between the forest industry sector and the government, and then we'd like to comment on a few of the recommendations that are in the Fair Tax Commission.

In the presentation we gave last year we discussed three main themes. One of them was the opportunity that this industry has for growth and the ability that it has to contribute to a healthy provincial economy provided that we can eliminate many of the uncertainties that are out there and provided that we can have a favourable investment climate, also the need for the government to contribute to a competitive economic system. As the last speaker was addressing a question by Mr Lessard, we feel that government needs to redefine its role so that its programs meet provincial needs, not wants.

We need to start asking the question, what do we absolutely need from government, not what can we get from government? I think if we look at those two questions, we can really turn it around and do look at the ministries we have, the services we provide and the way government is structured to provide those services.

There is also a need for government and industry to work together. That is the only way we're going to be able to achieve those goals. There can be a synergy when the two work together. You do not have that synergy when the two work in isolation.

This year we'd like to revisit some of those themes, and I'd like to start by where the industry is today in terms of economic status. You have some handouts and I'd like to have you refer to some of those handouts and some of the figures that are there. They relate to the primary forest industry. They do not relate to the secondary manufacturing and the spinoff effects from the forest industry.

In figure 1 you can see that, after three years of decline, our sales have levelled out in 1992 at $4.1 billion. That levelling is due largely to increased wood product prices and the continuing drop in the Canadian dollar versus the United States dollar.

If you go to figure 2, you can see that losses continued to increase, to a new record of $382 million, and that is mainly resulting from the costs of restructuring and poor prices in newsprint and paper products. We are still continuing very low prices in those two sectors. They are about half of what they were five and six years ago.

If you go to figure 3, you can see that the return on capital employed fell to minus 4.1% from a positive of over 7% just three years earlier. That's a real turnaround.

If you take a look at figure 4, you can see in terms of capital expenditures that they fell to $222 million. That reflects the decreased cash flows that were experienced due to the North American recession. Between 1989 and 1992, the forest industry spent $1.7 billion on capital programs while cash flows amounted to something over $500 million.

Figure 5 I think is a telling figure. The impact can be seen in the industry's debt-equity ratio, which deteriorated from 0.45 to 1 in 1989 to 1 to 1 in 1992.

Figure 6: The effects of continued restructuring can be seen in the industry's direct employment figures. They dropped 16%, to 27,900, in the primary industry and 28%, to 60,400, for the forest industry as a whole. That's just since 1989.

The last table is an area where I think the industry's performance is very telling. The area where we did not drop was in payments to government. Payments to government increased to $756 million in 1992, of which $424 million went to provincial and municipal governments and their agencies.

We don't have the information for 1993. We just compiled this at the end of 1992 for the previous year. But in terms of the economic state of the industry today, aside from the solid wood industries, which have benefited from improved markets, the pulp and paper industry continues to face weak markets for most of our products and continuing financial losses.

Notwithstanding, we still think there are some industry opportunities. We believe that the industry that is out there today has survived the worst of the recession and that we will have a recovery, but that recovery will be slow. It will be different from any of the previous recoveries. We are a cyclical industry, but our recovery today will be much slower and it will be much harder. We have made many of the decisions that were required to cope with these changes and we think we are now ready to start taking advantage. We have progressed in many areas.

I'd like to focus on a couple of the concerns that were raised when we gave a presentation last year. One of them was on recycling and the other was on the new business arrangement with industry. Mr Wiseman was on the committee last year, and he raised one of the fundamental challenges facing the industry, the concern with respect to, how is recycling going to affect this industry?

It does present significant issues for our industry, but many of our companies in Ontario have made the decision to put into place the facilities where they will be able to use recycled fibre.


In 1993, our member companies increased their use of recycled fibre by 25%, 75% over the previous year. That is a significant change. About 13% of the total fibre consumed by our member companies is recycled. You must remember that 13% may not sound very much, but considering that we export about 80% of our product, that is a major component of what we actually utilize in Ontario.

The second issue, and it was one raised by Mr Conway, was that it was time for industry and government to re-examine the principles under which they do business, and that is currently under way. Some of you may be familiar with what we call the Carman exercise -- Bob Carman, who was previously secretary of cabinet. He is under contract with the Ministry of Natural Resources to try and develop a new industry-government partnership. One of the driving factors behind this exercise is the government's financial situation and the resulting desire to try and shed some of the government costs. That's why we're here today, and would like to address it and talk to it a little bit today, is that we have been working very actively with Mr Carman, with his staff and with the MNR to identify what are the key issues, what are the potential solutions and can we generate some consensus for the negotiations.

One of the industry's principles in the development of a new business relationship is the need for an improved revenue mechanism, one that is more responsive to the industry's ability to pay. That is, when we're doing well, the people of Ontario should be doing well, because we're using the resources of the people of Ontario, but when we're losing money, to have a system in place that government will share in some of the difficulties that industry is having and so that you will take less from the industry so that we can continue and work through our low periods and be able to be part of the turnaround and the recovery. Another principle is that the new system must result in decreased wood costs. Industry cannot afford to pay more, so we must find ways together to try and reduce those costs. As the forest industry takes on more responsibility for the delivery and for the funding of various forest management programs, the MNR must then do its share. It must redefine its role, it must reduce its staffing levels and it must contribute to a more efficient and a more effective forest management system.

The Carman exercise does present an opportunity to achieve this goal, but in order to do so government must ensure that the transfer of forest management responsibilities to industry is phased in to allow the forest industry to regain its competitive position in the marketplace. The MNR must take significant steps to reduce its costs.

We'd like to now talk about a few of the recommendations in the Fair Tax Commission and I'd like to turn it over to Mr Kaiser.

Mr Martin Kaiser: Over the next few weeks, the Treasurer will hold forums on tax reform and will probably address many of the issues raised in the Fair Tax Commission's report. The report contains far too many recommendations on which to comment here, so we'll focus on a few that impact the industry.

To open, I'll note that the commission spent little time on taxation on the forest industry and was therefore unable to contribute much to the debate on revenue from crown timber, which is currently being undertaken under the auspices of the Carman exercise and other MNR policy initiatives.

There are a few key concerns, though, and we'd like to start with one of the recommendations, number 54. The commission recommended that the government "increase its reliance on auctions of forest harvesting rights to recover the public value of forest products."

This recommendation should be rejected. The commission noted that forest management agreements are a serious institutional obstacle to the use of auctions and thereby reveal the serious flaw in their approach. In its efforts to enhance Ontario's ability to raise revenue, the commission has forgotten that tax policy is simply an instrument in resource management; it's not an objective to which other policies should defer.

The goal is sustainable forestry. Viewed in this light, we strongly disagree with the commission's assessment of the FMA program as an obstacle. The program has been responsible for much of the progress we've made towards achieving the objective of sustainable forestry in Ontario. The benefits of granting long-term tenure have included significant improvements in forest management and regeneration practices and performance. Through the Carman exercise, we've identified some of the strengths and weaknesses of FMAs, both for government and industry, and are working to develop some solutions.

The commission also recommended that regeneration costs should be deductible from the tax base. While the OFIA agrees with this recommendation, we are concerned with the commission's assessment that, "Investment in regeneration is...more attractive to the government than it is to private operators because the government takes into account returns such as community stability and regional employment, which are not relevant to the private operator."

The forest industry, more than anyone, recognizes the importance of investment in regeneration. It's the basis for our future in this province. Members of the OFIA take their forest management responsibilities very seriously. Its commitment is illustrated in the OFIA's code of forest practices, which we've distributed to you today, and which we introduced last year and is now being implemented by our member companies.

As far as community stability and regional employment are concerned, one need only consider the experience of the Ministry of Natural Resources' Old Growth Policy Advisory Committee in its meetings in Dryden, Timmins, Sault Ste Marie and Huntsville, where private operators came out in force to voice their concerns for the committee's strategies and their support for community stability and regional employment.

Recommendation 56 stated, "Ontario should revise the system of area charges for forestry to reflect the cost of holding forest land out of alternative uses such as recreation and to reflect costs of administration and forest maintenance."

This recommendation should be rejected as it stands and revised for the following considerations. The OFIA, as it noted in its submission to the commission, supports the concept of user-pay, but this concept must be extended to all users, not just the forest industry. The activities of the industry create benefits throughout the province, both directly and indirectly, and these activities are often compatible with and benefit other users, including hunters, fishermen and other recreationists. Charging the forest industry and not other land users is inequitable. A fair system must be established which will assist the provincial government in accurately assessing the benefits of costs, including opportunity costs, in all alternative uses, not just forest management.

The final recommendation I'd like to address is one that impacts not only the forest industry but manufacturing in general. The commission recommended that, "Ontario should eliminate the bias in the corporate income tax against income generated in service industries by removing the preferential rate for profits from manufacturing and processing."

The Treasurer should reject this recommendation. Under the current tax system, both the service and manufacturing sectors pay income and capital taxes. However, the capital-intensive nature of manufacturing industries, particularly the pulp and paper industry, makes this tax a greater burden than on service industries, which generally are not capital-intensive.

The lower income tax afforded manufacturing industries is not a bias against service industry income, but a reflection of the capital structure of each sector and the greater tax revenues generated from the capital tax on manufacturers.

Government must not forget the role of the primary manufacturing industry, including forestry, as the underpinning of the provincial economy. This is true not only in northern Ontario, where the forest industry is critical, but also in southern Ontario, where many of the secondary manufacturing and service industries that rely on our resource industries exist.

Ms Rauter: In conclusion, I'd just like to reiterate some of the key points.

The forest industry has a tremendous opportunity to grow, to contribute and to continue contributing to a healthy provincial economy, but it needs government to do its share by becoming more efficient, taking a hard look at its costs, at its mandate, at its role and by working together in partnership with industry.

The Carman exercise presents an opportunity to create a more efficient and effective forest management arrangement in Ontario that will benefit not only the forest industry but also the provincial Treasury and the people of Ontario. But in order to do so the government must ensure that the transfer of forest management responsibility to industry is phased in so that the industry does not lose any more competitiveness and that the MNR must make equal efforts to reduce its costs.

The report of the Fair Tax Commission presents a number of recommendations which would negatively impact the forest industry and the manufacturing industries in general. The government must recognize the need to support the recovery of the industry in Ontario. Additional taxes are not the answer. Reduced taxes will free the capital, will provide the incentives which will ultimately lead to increased government revenues.

We urge all of you to carefully consider the concerns that we've raised today as they relate to the budget, as they relate to the Fair Tax Commission, but more importantly, how they relate to the future viability and economic recovery of this province.


Mr Carr: Thank you very much for a fine presentation. I was interested in your assessment. You talked a great deal about taxation and what needs to be done in that area. As our critic for Economic Development and Trade, I spent some time going around and speaking to large and small businesses, hearing what they see as the major problems, and you hear everything. You hear taxation, you hear the overall government spending, you hear WCB, you hear employment equity, you hear the legislation, you hear Ontario Hydro, and the list goes on.

If you were to give us a short list of the things you would like to see, and not with recommendations, but what are some of the major ones of some of the ones I mentioned, or there could be others? What are some of the things you would like to see the Ontario government tackle? You may as well forget about the taxation because you've mentioned it a great deal. But on some of these other ones, is there anything else you would like to see?

Ms Rauter: The WCB is a real concern because it's just a growing liability. We're concerned for the workers because we would like to see as much of the money as possible spent in helping the workers. You've got administration costs, you've got unfunded liabilities and you've got a growing concern and we don't know how you're going to come out of it.

We really think that industry, labour and government need to put their heads together. I know you've got the Premier's Labour-Management Advisory Committee and we understand there are some concerns there in terms of both sides coming together, but they must come together and we must address that issue.

We take a look at some of the costs that we see coming out of the Workplace Health and Safety Agency. We really think that you need to start prioritizing some of these things and addressing them.

The one that we're pleased to see is being looked at, and is not there yet but is starting to come under control, is Ontario Hydro and energy. I think we have now surpassed mining and are now the largest energy user, and so the cost of energy is a very major cost component.

Those are some of the large ones. But the list you talked about is the problem. It's the cumulative effect. Some people will say: "Well, that really isn't the killer. That's only costing you a few dollars. Gee, that program over there is only costing you a few dollars." It's when you start piling one on top of the other and you take a look at the total amount of taxation and then you take a look at the kinds of tax structures we have in other jurisdictions.

Many of our companies may be Canadian-based, may be Ontario-based, but they do operate in several other jurisdictions. Because we are a large capital expenditure industry, when those boardrooms sit down, they take a look at where it's going to be most effective and most efficient and where they're going to get their returns for their investments.

What we're starting to find in some instances is that those investments are not being placed in Ontario, and we need to keep them in Ontario in order to keep our productivity up. In order for us to compete in that global marketplace, we need to have those continuing capital investments in Ontario. You can see by that one graph where they've been declining over the last three or four years. If our capital investments decline, our competitive nature declines. So we've got to get those back up again.

Mr Carr: With regard to the WCB, because that has been mentioned, there are many things that need to be done. All political parties did it. They appointed chairmen based on politics and I think that was wrong. The Conservatives did it; the Liberals did it; the NDP did it. We should get somebody in there with an insurance-type background.

Some of the things that I think need also to be done are reducing the benefits. That isn't politically popular with the public and injured workers lobbyists, but I think the injured workers have to realize that if they run out of money, there's going to be no money for them. The cheques aren't going to come if we hit the road. I don't think a lot of injured workers realize that.

Other jurisdictions have done it. It's not political. New Brunswick, with a Liberal government, has done it. The Conservative government in Manitoba has done that. I think they've scaled it back to 80%. It's difficult to talk about cutting back things like that, but as you know, the only alternative is to increase the rates, which is going to kill more jobs.

A couple of things I suggested were bringing in an insurance person to run it and scaling back the benefits. Would your industry support that?

Ms Rauter: We submitted a brief a couple of years ago and one of the suggestions was that the benefits be cut back to 80%. I think that is not that far different from the social contract the NDP has tried to put in with its own employees. Is it better to lay some people off and have no income, or is it better for them to have a few days off without pay and keep everybody employed? I think you might use that same rationale for the Workers' Compensation Board because it's a little pain for a lot of people, but it's not a whole lot of pain for any person.

Mr Sutherland: I must tell you that the number of people who come into my office regarding WCB may not agree with that last assessment. I'm glad to see Mr Carr proposing an insurance executive. It implies that he's now finally understanding that the Workers' Compensation Board is set up on a premium basis as an insurance system, not as a tax system as he constantly puts forward.

Mr Carr: As a monopoly too.

Mr Sutherland: I was very pleased to see that you did not put it forward as a tax, that you put it forward as a cost to employment, which it is. But if we understand the history, of course, and remember what occurred, the reason we have a Workers' Compensation Board is that workers gave up their right to sue in the early 1900s. They gave up the right to sue for negligence on the part of employers in exchange for having some type of compensation system, and it worked out to be an insurance system on premiums. I think we all understand that there are problems with that. I do appreciate the fact that your organization has not identified it as a tax, as many other organizations and as members of the opposition, particularly the third party, continue to do.

You mentioned taxation. You would like lower taxes. I think most of the organizations that have been in here have asked for lower taxes, understanding the financial situation that likely there are not going to be significant tax decreases to the point that many would like.

I was wondering about your point about, as the forest industry makes profits, so should the province; likewise, though, when things are difficult, it can't all be on the forest industry. My sense and what we're hearing more and more is that people are concerned more about the mandatory taxes they have to pay outside of their profitability. I guess I am wondering if your industry, then, realizing all the difficulties and that it may not get significant lower taxes, would like to see the taxation changed from mandatory taxes that you have to pay, no matter what, towards taxes that are more defined towards profitability.

Ms Rauter: Where we're looking is a very specific area, and it's called stumpage. As a resource industry, we are very dependent upon the people of Ontario and the government of Ontario for our raw resources. We are dependent upon Ontario Hydro for energy and we are dependent upon the crown for the timber. It's very different from the situation in the United States, where 90% of the land is privately owned and a company can go to different people and bargain for getting wood. We can't do that in Ontario. We can only go to the government.

How do we determine fair value for the timber that we harvest? It's done on something called residual value. Currently, there's a formula in place that as market prices go up, so does the cost of stumpage. We're suggesting a little revision to that formula, because what we're finding is that the base is fairly high and that as market prices go up, it goes up in a relatively level curve. We're saying drop the base considerably, but steepen that curve so that as market prices increase, instead of just going up a little bit, they would go up considerably, but similarly, when market prices dropped, stumpage would drop considerably. What we're finding is that although the current formula reflects market prices, it does not go up and down enough in terms of the change in the pricing system.


Mrs Elinor Caplan (Oriole): I was very interested in the graphs that you presented and also some of the very positive and good advice that you gave the government about your willingness to work in partnership with government. I thought it was an excellent presentation.

The fact that the total payments to government haven't declined: You make a very good argument for the kinds of sensitivities that the government and in fact all legislators have to have to the impact of the kinds of levies and fees, and not just taxes. We sort of assume that our taxes are progressive and that the more you earn, the more you pay. I must admit that your table really did take that message home.

Ms Rauter: It's even more telling when you take into consideration that we've had reduced employment along with that.

Mrs Caplan: I don't really have a question. Most of the questions I had were asked by the other presenters, except I would ask about your optimism. You've talked about the need for confidence and stability. Your industry, you say, is one that you think can make it. You've gone through some pretty rough times. I was encouraged by your sense of optimism because I have a feeling that you're fairly realistic.

I very much support the efforts of Bob Carman. Really, what he's attempted to do is to change some of this which is on your table that shows how your payments to government have not changed despite loss of employment, loss of markets and loss of profit.

Ms Rauter: Some of our optimism stems from the fact that we have a tremendous natural resource in this province, and I don't think a lot of people recognize that resource. If managed appropriately, it is here for ever. You will hear a lot of people saying that if you cut a tree, you're going to have a desert and you're not going to have renewal and a whole bunch of other things. That's why we put out our code of forest practices. If you take a look, you will see we had a native representative on there. We had environmental representatives on there. That has been very well received by the general environmental community.

We can be here for ever and we can contribute. We have a good labour supply. We have very committed companies. Many of them started in this province and have helped develop this province. So we have that optimism because we think we have the foundations if we can get all the pieces put together properly. Often-times, if you take a look at prognosticators when they talk about economic recovery, it's on housing starts and it's on the lumber industry. How we go often is how the economy of the country goes. If you can make us profitable, you will be profitable, the province will be profitable, and you'll be able to provide the social services that the people of Ontario need. If we're going and we're making money, the government is getting money.

The Chair: Our time has expired. I thank the Ontario Forest Industries Association for its presentation.


The Chair: The next presentation is by DRI Canada. Mr Robert Fairholm, you may proceed.

Mr Robert Fairholm: I'd like to start by thanking you for inviting me here today. I'll make some general economic comments about government spending and taxation in general and also put it into the current economic context.

Before you change or alter the tax system or look at what areas of spending to adjust, it's important to get beyond the near-term fixation of the budgetary shortfall. To really help the province, we have to focus on the medium term, and medium- to long-term growth is helped by strong machine equipment investment, strong government investment, a high level of education and a functioning incentive system; also, low levels of taxation help.

On the first chart on my handout -- I presume you all have the handout in front of you -- you can see that over the last 20 years those countries which have a high level of taxation relative to GDP tend to have slower growth. If you look at all countries in total, there's no obvious discernable relationship, but if we break it out into two different groups, which is done on this chart, the relationship becomes more obvious. It's important to make this distinction because it's not just simply the level of taxation in the economy that's important, but also what you do with the money that government collects.

It's notable that the countries on the lower tax line have not necessarily had strong growth, because those countries have had a lot of expenditures in areas where it doesn't produce productive resources. For example, in the United States, they have very little spending on investment by the government sector and also they tend to have very high levels of defence spending. This is common among what I call the low-taxed nations which have also had relatively low growth.

This emphasises the point that it's not simply a level of taxation in the economy, but also what government spends the money on. I've done it for other articles. If you look at government spending in the Canadian economy or across OECD countries relative to growth in the long haul, you find that in eras in Canada where we've had strong government investment expenditure, we've tended to have relatively fast economic growth, and across OECD countries, those countries that tend to invest more tend to have stronger long-term growth.

Part of our problem in Canada has been a rapid increase in expenditures, but not of the right type. We've gone far more into current consumption. That's illustrated on the next chart on your handout, where we can see that up to 1975 all government deficits were accounted for by investment expenditures, both in gross terms and in net terms. Since then government deficits have sky-rocketed, but the level of investment by government has not. In net terms, it's been relatively flat. In terms of its share of the economy, it's dropped quite considerably. This essentially is limiting our prospects for growth in the future by mistakes we've made in the past.

Part of the message is that not only do you have to ensure that the tax system is fair and equitable, but also that the money you collect is spent in the areas which encourage long-term economic growth.

Of course, the level of saving or dissaving that the government sector in general has does, in my view, influence real interest rates. Certainly, you can find some economists who do not believe that, but if we look at the next chart in your handout, there is a high degree of correlation between the level of deficit relative to GDP and our real interest rates. So as we tend to spend more, especially when it's for non-productive or long-term, capacity-increasing terms, it tends to push up the long bond rate. This diminishes growth in the economy and also retards investment by the private sector and has led us into the fiscal mess we're in currently.

In other areas, I think it's critically important that we move to correct the misfunctioning incentive system we have in the province and in the economy as a whole. One of the most obvious manifestations of this is the whole income support system. Currently, in Canada, we're spending $94 billion to support individuals through a variety of programs, and in my view it would make more sense to have one system delivered by the tax system with a negative income tax system or a guaranteed annual income system to eliminate the welfare trap that has been well documented of late. That's one area of improving the incentive system in the labour market.

I would also suggest that you don't increase taxes or premiums in areas which increase the cost of labour. There's been a huge and increasing gap between the cost of labour and what labour takes home in the pay packet. In real terms, real take-home pay per worker has been flat since about 1978. The cost to business has been rising rather dramatically, so there's a huge, yawning gap between the two, and this is one of the causes of the lack of job growth in the economy currently. I would also suggest that you try to avoid increasing taxes in areas where there's a direct disincentive to hire employees.


In terms of some of the other areas of expenditure, certainly I am all in favour of a strong level of expenditure for education. However, Canada leads the OECD in terms of educational expenditure and we don't seem to be getting much bang for the buck. It's not so much a matter of how much we're spending in that area since it encourages long-term growth, but there must be areas to improve how the education system is functioning.

Certainly in terms of health care -- the other big envelope -- there has to be reform. I wouldn't characterize it in terms of user fees, because that's not really reform of the system. There has to be a change in the incentive system. Currently, we have a publicly paid, privately provided health care system which is not functioning, to my view, very well, and can function more efficiently if we follow, say, the Great Britain model, where many doctors are put on salary, and also in terms of what they call capitation, where essentially you have a certain number of patients and you're provided money for them, regardless of whether or not they get sick. There's more of an emphasis on health rather than sickness care.

This is not to say that everything in the economy is negative. Certainly, I think the economy is about to rebound. It might be a little slower in Ontario than elsewhere, in part because countries or regions that have had prolonged declines in per capita output tend to have slow rebounds at first, but over time pick up speed. This is shown in the last chart in my handout, where I have looked across OECD countries and have found that countries that have had two successive declines in output per capita, there's only a handful of them, tend to underperform their long-term growth potential for the first four or five years, but then in the subsequent time period, over the next five-year period, they rebound quite smartly.

Unfortunately for the present government of Ontario, this means that the strong rebound will occur after you're out of power, but that's what the evidence across OECD countries suggests might happen, regardless of what you're doing or not doing.

In the near term, I would suggest that we're going to continue to have relatively modest growth performance, particularly here in Ontario, because we've had such a large decline and it has altered the normal relationship. Typically, when you have a sharp drop and you rebound quickly, the economy jumps back. But because we went down and it's been such a prolonged experience, we will not have the same rebound. Profits were massacred and corporations are not hiring people, and you cannot have a sustained rebound without employment. It looks like we're still many months away before we will have a strong enough employment growth to really bring down the unemployment rate, which is where we get the surge in growth later on.

In general, I think we will be seeing an improvement in our fiscal position over the next five to 10 years, but I don't see a dramatic improvement in the near term from the economy alone. There's going to be little you can do to correct it beyond addressing expenditures. Taxation, personal income tax for example, has risen to such a degree that you are hitting the point where avoidance and evasion are starting to increase rather dramatically.

This can be brought to bear on the tax commission's report about the transfer from property tax to income tax. If you proceed with that, my belief is that you will not get the revenues from increased income tax that you're going to be losing from property taxes because you're going to be pushing the marginal tax rate up too high. We've already seen a deterioration in the government's ability to bring in tax revenue at the levels of marginal taxation that we have currently. I would think that was a wonderful proposal if our marginal tax rates were 10% and 20% lower, but unfortunately they are at a very dangerous area already and we're playing with fire by pushing them up from these already very high levels.

That is my presentation.

Mr Sutherland: We've had mixed advice from the economic forecasters who have been in here in terms of what should be done. I think everyone agrees we need to get a handle on deficits and that they need to be reduced. The question we're still grappling with in the mixed advice is how quickly that should be done and what impact that has on the economy.

We've had a couple who have suggested, "Yes, you should reduce," but one of the forecasters indicated that he wasn't expecting much more than a couple of billion dollars at the federal level and then a couple of billion dollars, combined, at the provincial level this year, because that was the only manageable amount without starting to have a negative impact. Another one suggested figures similar to that. A couple of others have suggested, "No, we need dramatic decreases in the deficit to really get the problem under control."

What is your sense about what type of approach the government should take as to whether it should be a gradual approach or whether it should be more significant and what the ramifications are for the economy of doing either?

Mr Fairholm: Let me preface my response by saying that I believe in the Keynesian prescription of running budget deficits during the hard times and running surpluses during the good times. Unfortunately, we've just had the former. We've just had the deficits during bad times and smaller deficits during good times, so we've strained our ability to follow the economic advice that I would normally put forward.

On the question in terms of how much it's going to damage the economy if you reduce spending, yes, in the near term it's going to diminish economic growth. You can't avoid it. The only way you can offset that diminished growth prospect is from lower interest rates. As one chart from my handout suggests, if you lower deficits, it should help to bring down interest rates.

We currently are running at a relatively low differential versus the United States and we're running up against a number of different perceptions. One is inflationary expectations. Generally speaking, if an economy has lower inflation, then it should have lower interest rates. But in the Canada-US situation, there is a powerful belief in part of the market that Canadian inflation will edge back towards US inflation over the long term, and that is part of the reason why it's kept our interest rates aloft.

The real question is, how much can you additionally lower the differential versus the United States by enacting a much more severe fiscal stance or deficit reduction? I would think that if you try to cut back too quickly, you'll do too much injury to the economy. A credible medium-term approach is the best option.

I suppose the most difficult aspect of that statement is the "credible." Governments have said it before. The federal government has been claiming that it's about to reduce the deficit for many years. The credibility of governments has been diminished, so there has to be some way to improve your credibility. Then a medium-term solution will be believed and interest rates will come down.


Mr Sutherland: Just a couple of questions about forecasting. People have traditionally said, "Look to housing starts, look to business and equipment investment as signs of how quick a recovery is going to be." Given that we've lost some of the manufacturing of business equipment here in this province and also that some, I think, in the furniture area, some of the appliance manufacturers -- are those good indicators, or as good indicators as they would have been even six or seven years ago in terms of what's going to happen?

Mr Fairholm: The normal indicators are not as useful today as they normally are because the experience we had from 1990-92 was much worse in terms of how long it lasted and how low corporate profits went relative to the economy. In 1992, corporate profits were at the lowest level relative to GDP since 1932.

Normally, when corporate profits rebound, employment follows. This time employment is not following. You can have a rebound in exports, which we have witnessed, and you can have a rebound in production, but if you don't have a rebound in employment the economic multipliers just won't follow, and therefore it will be a stunted recovery. That is exactly what we've witnessed so far.

We have not had employment growth. With 60% of expending on consumption, if you don't have employment growth and there're no wage increases, you cannot have a strong rebound. That is one of the reasons we think 1994 will be another year of modest growth.

Mr Phillips: I don't think you have Ontario's specific numbers in your handout in terms of gross domestic product.

Mr Fairholm: No, I do not.

Mr Phillips: Your national number, I think, is 2.9% for 1994. Is that the right number to look at?

Mr Fairholm: Currently, we're looking at Ontario being that or slightly less. I was actually doing some analysis over the last few days looking at Ontario's situation. The economy has gone flat over the latter part of 1993 and even with a strong rebound it's going to be difficult to break 3%.

Mr Phillips: Of the people who have presented, I think you tend to be among the ones at the lower end of the scale. The sort of consensus seems to be that we're going to see around 3.5% growth, in real growth, in 1994 and then a pattern of 4% growth thereafter. Your view is slightly or somewhat more pessimistic.

Mr Fairholm: I would say that to get to 3.5% growth you'd have to have very strong growth starting from the first of this year, because as I was saying, looking at the monthly profile of output in the province, it was going at a very slow rate at the end of last year. Just arithmetically, you would have to have 4.5% just to get into the mid-3s for the year as a whole.

I must say that I used to be in the more optimistic camp, but some research I did led me to believe that the prolonged recession we've witnessed will prevent us from rebounding as quickly as we normally do after recession.

Recessions can be characterized in two areas: a short, sharp rebound is often followed by a very fast rebound afterwards. We've had the drop and then it just stayed there for a very extended period of time and this has altered the way people are behaving, and it has altered the way businesses are behaving and therefore my view is that we're going to have a slower rebound than is normally the case.

I also believe 1994 will be the transition year. If you look at some of the monetary aggregates, it suggests that this is the year things should switch over. Because of the length of the decline, in Ontario particularly, how corporate profits went here, it suggests we're going to have a long, slow rebound even with the quickening pace coming out through the monetary stimulus.

Mr Phillips: I think even the more optimistic forecasters on the employment side have all said to us that the number of jobs created will essentially just match the number of people who enter the labour force. I think the most optimistic one says there may be 10,000 more jobs created than people entering the labour force, which is essentially no change

Mr Fairholm: Okay, but if you add that up, and given what wages are doing, that means real take-home pay is going to be flat in per capita terms if you are down in per capita terms. There's just not a lot of room for consumption to move up.

Mr Phillips: I'm kind of agreeing with you.

Mr Fairholm: Oh, okay.

Mr Phillips: I think most of us here are pessimistic on the employment side. Even after hearing the more optimistic economic forecasts, the employment thing still doesn't really change in any significant way.

I was interested in your comment on income tax and a belief that somehow or other we're at the edge of it, because the cornerstone of the Fair Tax Commission's recommendation is to take provincial income tax rates up by around 25% to recover the $3.5 billion off residential property tax. How do you reach your conclusion that we are at the edge on the income tax?

Mr Fairholm: My understanding is that the international evidence shows that when you push significantly above 50% marginal tax rate, the disincentive to work and the incentive to avoid and to evade starts increasing. As you push up above that 50% to 55% zone, the incentive to avoid and evade increases exponentially. The farther you push it up, the worse it is.

Mr Phillips: There's some evidence that something funny's happening, as you know, in Ontario where taxes have gone up roughly $3 billion in the last three years and tax revenue, instead of going up by $3 billion, has dropped by $2 billion. There's something going on out there that cannot be explained just by a weak economy and low inflation, and it may be part of what you say.

Mr Fairholm: Right. It's important to understand that when the estimates are made to determine how much revenue's going to come in, they tend to look at the average return rather than the marginal return, and there's a big difference. When you're pushing the danger zone that we're already in, the marginal increase in taxation from an extra increase of 1% in the marginal tax rate is much less than the average would suggest.

Mr Turnbull: Continuing on exactly the same subject, this question of our having crossed the point at which we're going to have diminishing returns on increasing marginal tax rates, have you looked at some comparisons of other countries and modelled what we would need to do? Should we reduce marginal tax? Would that be the kind of incentive we need?

Mr Fairholm: The ideal from an economic perspective is to tax consumption as opposed to income and savings.

Mr Turnbull: I think it's fairly widely accepted that there should be some reasonable balance between consumption and income taxes, though.

Mr Fairholm: Reasonable balance: That sounds like constitutional talk for anything you want to say it is. In my view, this topic should also be placed beside the whole restructuring of the income support system because you can't just shift from, say, income tax to consumption tax without thinking of what it will do to those people who have lower income levels, because those people tend to consume a greater proportion of their income than people who have higher incomes.

It has to be the whole ball of wax. You have to consider what is most effective for the economy as a whole, but also to ensure that those people who are less well off are helped, that if it's a negative income tax system or guaranteed annual income type of system, the guaranteed income portion of it is improved to offset the negative. It's important to look at the whole thing but, yes, definitely we need lower marginal tax rates. Broadening of the tax base is fine, as long as it's also combined with lower marginal tax rates. It's actually better.

The whole thrust of government policy throughout the world in the 1980s was to lower the marginal tax rate and broaden the base.

Mr Turnbull: In the ideal world you would see, you would get rid of things like UIC and pensions and welfare and all of those things and put it into a negative income tax system?

Mr Fairholm: They all essentially do the same thing: deliver income to people who need it.

Mr Turnbull: Do you think we could probably get a better bang from our buck in terms of more efficient delivery and therefore we'd have more money --

Mr Fairholm: You couldn't avoid it. You have to realize that each one of those programs and all the agencies that are created to deliver money to people are bureaucracies that have to be paid. If you can deliver the same dollar to the recipient with fewer people involved, it has to cost less and therefore, by definition, be more bang for the buck. The whole idea is to deliver a dollar to somebody who needs it as opposed to deliver it to a bureaucrat to oversee a program. Presumably that bureaucrat can do something else.

Mr Turnbull: I have to say I completely agree with you. I will just point out a slight conflict between Milton Friedman's concept of negative income tax that he put forward 25 years ago or so -- you said you were Keynesian; I support Milton Friedman. Keynes is so maligned because as you've correctly pointed out, he said pay back in the good years, which it doesn't seem any government has done, and I think that's the source of all of our problems today.

How do we manage to get political parties right across the spectrum to have the guts to make these sorts of wrenching changes that need to be made?

Mrs Caplan: Oh, that's a good question.

Mr Fairholm: All I can do is hold up the mirror. I heartily suggest or hope that you do this before it's forced upon us by some true financial crisis. I think we avoid the bullet this time, but if we don't correct the problem, the next time it's going to be even worse than we've experienced to now.

Mr Turnbull: Does it all have to be done at once?

Mr Fairholm: Preferably.

The Chair: Thank you, Mr Fairholm, for making your presentation before the committee this afternoon.



The Chair: The next presentation this afternoon is from the Ontario Hospital Association, Mr Peter Harris, the chair, and Mr Dennis Timbrell, the president.

Mr Peter Harris: We appreciate the opportunity to make this presentation to the standing committee on finance and economic affairs.

When we appeared before this committee a year ago, we had just been informed by the government that it was abandoning its multi-year funding increase approach to transfer payment levels. The multi-year commitment would have provided for a 2% increase for hospitals in base funding levels for each of 1993-94 and 1994-95 in order to match inflationary costs. As you will see in the attached table 1, that would have meant a government transfer level for hospitals in 1994-95 of $7.64 billion.

As you're aware, this multi-year commitment has now been replaced with the three-year social contract regime. This provides no increase in base funding. Instead, it establishes actual decreases in funding levels. For the hospital sector, this means a reduction of $261 million per year in base funding. As table 2 shows, this will result in a base funding level of $7.08 billion for hospitals in 1994-95. The hospital experience to date under the fail-safe provisions of the Social Contract Act has indicated that hospitals have been able to successfully implement the reductions in compensation levels available to them.

We have included a note on the social contract as appendix A and would also draw your attention to several other appendices and tables which accompany this submission and which cover several areas and statistics that we cannot cover in this specific text.

It is very important for the committee to appreciate the true funding picture which hospitals face today and for the foreseeable future and the environment to which they are attempting to adapt.

It's essential that the public and the Legislature understand that hospitals in 1994-95 will experience a shortfall of approximately $557 million in previously promised government funding levels. This shortfall is exacerbated by the fact that, as indicated in appendix B, hospitals will have ongoing additional cost pressures relating to inflation, pay equity and pension plan increases totalling $215 million in 1994-95.

Further compounding the problem is the fact that the Minister of Finance has been unable to give any assurances that the already diminished 1994-95 funding base will not be eroded further.

There are also a number of other possible legislated cost pressures, involving workmen's compensation, employment equity, health and safety, advocacy and consent to treatment matters, and on-call coverage by physicians in emergency departments, which could further strain hospital operating budgets.

We have also included in appendix C a note on capital funding, a situation where once again hospitals are faced with considerable future uncertainties relating to levels of funding to be made available, as well as such matters as the loan instruments to be used and the process for loan application and cost recovery.

Last year when we appeared before this committee, we told you that we clearly recognized the need for managed change within the health care sector, so that the five principles of medicare are preserved. We also spoke of a sixth principle: maintaining and enhancing the quality of patient care. Quality improvement is the major instrument by which hospitals identify opportunities to eliminate inefficiencies and duplication while at the same time ensuring that essential treatment remains available to all citizens.

Hospitals are doing this in many different ways, both locally and provincially. For example, the OHA is working with the Ministry of Health on many projects under the auspices of the joint policy and planning committee, known affectionately as JPPC.

The JPPC, which was developed from a 1991 proposal by the OHA, has made considerable progress in the two years of its existence in addressing issues of quality, utilization rates, information collection and analysis, and planning. There is a common understanding among all JPPC participants that quality information systems are the key to the successful management of hospitals.

In the past year, the JPPC has developed the Ontario Hospital Reporting System User Guide, which is an important step towards the consistent reporting of hospital financial and statistical indicators in accordance with the Management Information Systems Guidelines.

The JPPC has also produced a reference manual for hospitals, Data Elements and Definitions. This manual forms the basis for the work now under way that will allow for audits of hospital statistical data which complements existing financial auditing practices.

The JPPC is now undertaking a number of other quality-related initiatives such as a review of the hospital-patient complaint process, and recently a report has been published entitled Moving to Outpatient Surgery: How Do You Compare?

These are substantial milestones, but we all realize that much more has to be done.

For instance, Hospitals of Tomorrow is an important OHA hospital-visioning project which will be completed this summer following a round of pubic consultations throughout the province this spring. Documentation on this project was distributed to all MPPs last year. It is expected that the final project report will serve as a very useful contribution to the restructuring of the provincial system and provide guidelines and principles to hospitals for planning, long-range cooperation and decision-making.

As well there are, as you are aware, dozens of hospital restructuring exercises under way throughout the province under the auspices of the local district health councils. These are at various stages of development. Some, such as Metro Toronto, have very clearly articulated goals, time lines and expected outcomes. Others are in earlier stages of development, such as in Brant county. Still others are close to the completion of final reports. Some have completed a public consultation phase, as in Thunder Bay; others have not.

In some cases, such as the recent initiatives by the hospitals in Windsor and Sault Ste Marie, for example, institutions are themselves independently pursuing and effecting many plans for merger, rationalization and sharing of services and management and operational structures.


From our perspective, all these activities, DHC-sponsored or otherwise, need to be guided by a set of sound principles for restructuring the system regionally and on a provincial basis.

OHA is actively working to formulate such principles through the JPPC and through a two-day OHA board of directors retreat at the end of next month, followed by regional consultations in March.

The central principle should be that any restructuring of services must result in a clear and tangible enhancement of the quality of patient care. Restructuring exercises need to meet certain standards in terms of the collection and the use of need-based planning data; full stakeholder and public consultations; definitive time lines; understandable goals, objectives and desired outcomes; credible methodologies for establishing cost savings; and tools for continuing evaluation of the effectiveness of restructuring initiatives.

We must stress, as we have indicated earlier, the funding pressure on hospitals for the upcoming year will be severe. We are confident that hospital boards, managers, front-line staff, physicians and volunteers will all do their best to maintain the high levels of quality and accessibility to the system which Ontarians have come to expect. However, the reality is that hospitals will have to manage increased volumes of patient utilization while being funded by government at the level of approximately three years ago.

In January 1992 the ministry proposed an interim target of 850 patient days per 1,000 population as an optimal use of existing services. As indicated in table 3 and the tables following, hospitals have already reduced the number of patient days per 1,000 from 1,100 in 1987-88 to just over 800 in 1992-93. This represents a 27% decrease at a time when the actual number of acute cases treated in the system rose by a full 8%. In fact there are some hospitals which have reduced their acute care patient days to below 650. The ministry indicated that it expected the acute care bed utilization to decline. Our concern is that it is now two years later and the ministry has still not defined a new target. Day surgery cases, as a percentage of all surgery, have in the same period risen from 53% to 66% and the average length of patient stay in hospital has decreased by one and a half days, from 8.7 to 7.2.

I would like to draw the committee's attention to a growing problem hospitals, especially smaller rural hospitals, are facing in providing on-call emergency department coverage. Emergency departments are a vital community service and must stay open on an extended-hours basis, but small rural hospitals have a flow-through volume of patients which is low in comparison to urban hospitals. Yet the departments' needs for primary physician coverage are the same as in urban hospitals. The current fee-for-service compensation system produces an inequity between rural, low-visit-volume settings and urban, high-visit-volume settings. The Ontario Medical Association and the government have been unable to agree that the OHIP pool be adjusted to compensate for this problem.

Alternative physician reimbursement is a necessary addition to the funding of low-volume emergency departments. Hospitals are currently being forced to top up physician income to ensure the provision of emergency services, such as on-call services, due to the inadequacy of the fee schedule. A working group composed of representatives of the Ministry of Health, the Ontario Medical Association and the Ontario Hospital Association has been established to pursue acceptable options for a resolution of this issue. Additionally, the president of the OHA, the general secretary of the OMA and the Deputy Minister of Health have met on several occasions to discuss the issue.

Overall, the hospital share of the Ministry of Health's total budget has declined from 50% 10 years ago to less than 44% today. We realize that the province's fiscal situation will not likely allow for the restoration of the government's earlier promised funding levels. But we do know that without a rational, coordinated, cooperative approach to restructuring, downsizing and reallocation by all stakeholders, including government, it will be impossible for hospitals to manage the major funding and planning challenges which they face.

As the government decreases its funding levels drastically, hospitals are also being asked to participate and enact changes in the delivery of long-term care, chronic care, rehabilitation services and the provision of laboratory services and mental health and emergency services. In all, there are 16 announced ministry strategic reform initiatives under way, all of which in one or another impact directly on hospitals. As well, hospitals must comply with the ministry's hospital operating plan guidelines and process requirements, which require extensive community, provider and worker involvement in the development of the annual hospital operating plans. These plans must then be reviewed by multistakeholder committees within the hospital and approved by the hospital board before they are forwarded to the local DHC and the Ministry of Health for approval.

Optimal use of existing services we have reached in two years. Therefore, what is the new target? We do not know.

All of the changes and proposed changes in our sector have to be managed in a way which successfully meets the needs of patients, individual communities, regions and the province as a whole. This is the great challenge that faces all of us today.

Hospitals have demonstrated impressive achievements in changing the way patient services are delivered and have made very significant strides towards restructuring the hospital system. However, given the government's funding cutbacks, the increasing utilization demands of the public and the ever-pressing imperatives for structural and technological change, the hospital system is finding it increasingly difficult to preserve adequate levels of quality and access to care and treatment.

This will continue to put increasing pressure on hospitals to meet the demands for emergency care and elective surgery. Staff layoffs will continue, and mergers and even closures of hospitals can be expected.

We urge the committee to give very serious consideration to the impact of decreased government funding levels on patient services and jobs. As well, we ask you to support the need to establish a set of underlying principles to guide hospital restructuring processes.

There are no easy answers to the problems confronting the hospital and the health care sector. We do not pretend to have all the answers, but we are convinced that public policy must continue to be guided by the preservation of the principles of medicare and the quality of patient care. Simply continuing to decrease public funding support for hospitals will not necessarily bring about desirable reforms and restructuring. Cooperative planning and agreed-upon standards of care are needed now. A period of funding stability is also required if reallocation and restructuring are to be accomplished effectively and sensitively.

That concludes our prepared presentation. We'd be pleased to respond to questions the committee may have.

Mr Phillips: I appreciate the OHA's presentation and all the work the staff and the board's put into it. Just a comment on appendix C: I'm a real cynic around the capital funding. I personally think it's a scam designed to move provincial debt off the government's books and on to your books, and I think you've outlined that well. So I personally share your concern on the capital funding.

Mr Dennis Timbrell: The issue there is that whatever the answer is to that argument, we're concerned that in doing it in this way it has to be clear that the repayment by the hospital is conditional on the continued flow of the funds identified up front by the government for that purpose.


Mr Phillips: It's a transparent move of $600 million of provincial debt on to the hospital and school boards' books. That, in my opinion, is clear. As you point out, they have 100% of the obligation theoretically to repay it, but that's an observation.

One of the things I'm interested in is looking at the amount of money we spend on health care in the province, how much of it is funded by the province and how much is funded elsewhere, because increasingly my own judgement is we may be managing the amount of money the province funds but I'm not sure we are looking at the amount of money we spend. One of the questions we've asked the ministry is to give us some information on that.

I saw some federal numbers that indicate a substantial part of health spending is not publicly funded. I see here that the hospitals get about 80% of their funding by the province, and I therefore assume there's a billion and a half or so of money --

Mr Timbrell: That's right.

Mr Phillips: -- that the hospitals spend that we would not think of in our traditional $17.5-billion health spending. I think we're going to have to begin to come to grips with that because the OMA was in yesterday indicating that it is looking at ways of funding its fees outside of OHIP. The $1.5 billion, I gather, is the right number. Has that, as a percentage, changed at all, the percentage of the funding from the hospitals? I see in here some examples of how it's raised, although, frankly, I go to visit friends in hospitals and I find my parking fees seem to be going up a little bit, too.

Mr Peter Harris: Yes, that's one of the ways.

Mr Phillips: Are we looking at it going up as a percentage of the health care spending? And should we, as a legislative committee, begin to look at health spending separate from provincial funding?

Mr Timbrell: Personally, I would hope that you would look at health priorities and that you would look at the parameters within which we are supposed to be restructuring and reforming the system. It begs the question, when will we know that we've arrived at the point of a properly reformed system? Nobody can tell you because nobody has defined exactly what the standards are and the desired destinations.

But you're right, the share of non-government funding is rising. We have hospitals that are as low as 65% government funding, the balance coming from external sources, whether it's the parking operations or services that they sell to other providers of care -- and I'm thinking of dietary and laundry and so forth -- or joint ventures with the private sector on everything from research, and royalties on products developed from the applied research of projects in which hospitals have joint ventures, and the list goes on and on and on.

Mr Carr: On page 70 you talk about staff layoffs will continue, mergers and closures, the hospitals. In terms of actual numbers, do you have actual numbers of employees, or even percentages of staff -- 2%, 1%, 5%, whatever numbers?

Mr Timbrell: If you look at table 5, these are Ministry of Health projections that indicate that in 1992-93 there was a 4% reduction in paid hours. Most of that was through reductions in overtime, reducing the use of part-time staff, restructuring to reduce night callbacks, weekend callbacks, that sort of thing. In 1992-93, the total number of layoffs was somewhere between 2,000 and 3,000. A reduction of 10.4 million hours, though, of employment is the equivalent, if you want to look at it that way, of well over 5,000 jobs eliminated in 1992-93. In 1993-94, we don't have any numbers yet. We haven't put the midyear September 30 reports through the same grid, but I would think that in 1993-94 we're looking at as great or a greater reduction in pay hours in the system.

Mr Carr: As MPPs, we get lobbied any time there are problems at hospitals now. I had some calls over the Christmas period to help get people into hospitals. It seems to be coming more and more. The question on the public's mind is, what do you see happening in terms of services over the next couple of years? Will they see a deterioration in services, will it be pronounced, and in what areas do you think we'll be seeing them? I'm talking now in terms of the public. What can the public expect over the next few years as a result of the cuts?

Mr Peter Harris: To use the old saw, probably there's nothing as constant as change, and that will be a continuing scenario. The proportion of day patient services and procedures, which they are developing techniques to be able to do very successfully on a day patient basis, will mean a continuing reduction in the number of hospital bed patients. In fact, one of the questions which is fairly widely being discussed is, does a hospital need to have beds to be a hospital, when you look at the definition? If you have a definition on a 100% outpatient basis, then you technically may not meet the definition of having any beds.

So there will be continuing change, but we're committed to ensuring that the quality of care and the availability of care will be there for patients.

Mr Timbrell: If I could take you back to the discussion in the paper, Mr Chairman, about the patient-days per 1,000 population, admittedly this is a target the ministry put out two years ago. They said they wanted to reach that target by March 31, 1995; we met it March 31, 1993. We have communities in this province that are well below the 830 patient-days per 1,000 average. In fact, your hospital is one of them. I've brought with me a list of the 37 hospitals that are basically below 650 patient-days per 1,000, and Oakville-Trafalgar Memorial Hospital in your riding is at 640.

This speaks to a concern we have. Unless we are operating according to the principles of the limbo school of health economics, this is not a game of how low can you go. There have to be some standards. There has to be some recognition that in communities like Oakville, like Stratford -- I was in Stratford the other night at a meeting with the medical staff and members of the hospital board, and they're basically saying that if this policy of across-the-board downsizing continues, they're going to go past the point where they can look their fellow citizens in Stratford in the face and say, "Yes, you will have access to quality care."

I've found that the one question I'm probably asked most frequently by the media and by the public is, "At what point does medicare crack?" and I've always said, "I don't know." I don't think there is a point at which you can say the whole system is cracking. It starts to crack, though, like the ice in the spring, at different places, and clearly what we're hearing from hospitals, from medical staff, from union representatives, from board members in various communities is that this universal downsizing is going too far, too fast.

That's why we ask you to support some stability in the funding. We're not saying add another 1% or 2% back in. We understand the province is broke. What we're asking you to do is make sure we at least stay where we are, as promised, for the next two years, so that we can keep reasonable order in the midst of all this chaos.

Mr Sutherland: I think as soon as the province can get stability in its funding, then maybe we can assure the hospitals of stability in their funding.

Of the savings you've made in the last three to four years, what percentage of that has been due to reduction in administration versus a reduction in front-line staff? Could we save significant moneys in administration costs if we went to district hospital boards rather than all the individual hospital and separate administrations that we have now?

Mr Timbrell: I suspect you could wipe out all the administration in the hospital system and we'd still be short. The issue here is one of, how do you keep the local hospital local? How do you keep it responsive to the individual communities? It sounds to me, frankly, as if what you're suggesting is, "Let's bring in regional government for hospital care." I don't think that would go down well in Oxford county. I know that regional government didn't go down well at the municipal level in Oxford county.


Mr Sutherland: They came up with their own.

Mr Timbrell: They came up with a unique structure, as they have in Windsor. In Windsor the four hospitals have got together and decided to create two new hospital corporations. There will be savings effected by that. That means that people who presently are in administrative positions -- junior, middle, senior management -- will be gone. Those are also lost jobs. They're going to be looking for other opportunities, preferably in the health care sector, but they'll be gone.

If you go back over the last two or three years, though, the two groups that have been hit the hardest in the layoffs have been management and nurses. Those have been the two hardest-hit groups in reductions. So there have been significant reductions in management, but the system has to be managed effectively. You can't let it get to the point where you lose control over what is the largest industry in the province.

But we understand the need. As an association, we do not support striving for the lowest common denominator in health care. We recognize that in some communities the role of our association is to go in and almost play a palliative role to help some of our members gracefully exit the scene, whether it's mergers or closures or helping them to sort out rationalization of services.

The Chair: Mr Harris, Mr Timbrell, on behalf of the committee I want to thank you for your presentation.


The Chair: The next presentation is by the Council of Ontario Universities. Please identify yourselves for the purposes of the committee members and for Hansard so that we can correctly credit you with any comments you might make.

Dr Peter George: I'm used to getting blamed for a lot of things, Mr Chairman, whether I said them or not.

Let me introduce my colleagues. To my left is Dr Ron Ianni. He is president of the University of Windsor and he is the vice-chair of our council of universities. To my right is Dr Jim McAllister, who is senior policy adviser at the council, a senior member of our staff. Sitting behind me is Mrs Patricia Adams, the executive director of our division of external relations. My name is Peter George and I am president of the council.

This is like an annual pilgrimage, and it's nice to see some familiar faces, although I appreciate that there is turnover from year to year. This is one of the most important half hours of our calendar year, because we have an important message to bring to this committee and we hope that message will be taken on as part of your recommendations to government. We believe that this committee has an important role to hear our case and to try to assess the priority of Ontario's universities vis-à-vis other transfer payment recipients.

Our presentation will be divided into two parts. I will begin, followed by Dr Ianni, and then I will offer some remarks in conclusion. Then we'll all try to answer any questions that the members of the committee have.

We have prepared two supporting documents which we present for your consideration. I believe they have been distributed. The larger one, the bound one, is called The Financial Position of Universities in Ontario: 1994. This is a volume that we produce annually, and within the next couple of weeks, when it is available in multiple copies, it will be sent to all MPPs in Ontario.

The second is called Synopsis of the Economic Impact of University Expenditures in 1992. This is a study that is an update by Professor Atif Kubursi of a study he originally did using 1990 data, which was sponsored for the Alliance for Ontario Universities, an independent advocacy group which advocates on behalf of higher education in this province.

Let me make some brief summary comments on the economic impact of university expenditures. To begin, we have used this information in previous presentations to this and other committees. The fact is that I think it is important that the committee be aware of how important the universities and their aggregate expenditures are to the economy of this province and to the regional economies where the universities are located. Our universities spend roughly $4 billion each year, of which about $2 billion is provided by the provincial government. These expenditures, through a combination of direct, indirect and induced effects, generate well over $8 billion of total economic activity within the province, so that every dollar of provincial funding for universities is associated with $4 of aggregate economic activity.

We employ the equivalent of 96,000 full-time staff. We have more employees full-time than the textile industry or the pulp and paper industry or the utilities industries or the chemical and chemical product industries in this province, and if you add in the employment that is generated through the indirect and induced effects of our expenditures, we employ the equivalent of more than 180,000 full-time employees in this province.

These expenditures generate significant tax revenues for all three levels of government. In 1992, the federal government received approximately $1.9 billion in tax revenue from university-related activities in Ontario, the provincial government over $700 million and local governments about $160 million. In effect, the three levels of government received more income in tax revenues from the economic impact of universities than they spent in grants to those universities.

We also illustrate in this study the impact of a 1% reduction in provincial grants to universities. There was a time when a 1% reduction looked to be catastrophic. I wish it were so. I wish we were thinking in terms of single-digit transfer payment reductions. We have calculated the equivalent of the social contract expenditure control plan and budgeted cost increase to the university sector as being equivalent to more than a 10% reduction in our transfer payment once they're all in full impact by 1995-96. You can see what the impacts of those cuts would be on employment in this economy and on tax revenues.

But I don't want to be entirely focused on these so-called secondary impacts of the universities, of the aggregate impacts of our activities as an economic focus or economic growth poll. I want to talk also about the primary contributions, which are mainly twofold: the provision of advanced education, and the provision of research and the dissemination of those research results to our society. Our university graduates and our university researchers make many significant contributions to economic life and these contributions can only become more important in an era of increasing global competitiveness.

The data on the labour market are well known. We have talked about these data on many occasions. It's quite clear from the nature of the workforce and the labour force participation that the importance of high skill levels and high educational achievement as really a marketable commodity. The unemployment rate as of last month among university graduates was barely 5%, less than half of the national average and less than a third of the average for people with only a primary school education. Everybody knows the apocryphal story of a PhD driving a taxicab or a recent honours graduate who can only get a job in a McDonald's store, but let's think about the aggregate. In the midst of this current recession, it is true that the number of jobs held by university graduates has continued to increase while the number of jobs of those with lower levels of education has declined substantially.


I cite a recent article appearing in the Globe and Mail. Between 1990 and 1993, the number of university graduates with jobs in Canada increased by 308,000, during this terrible recession. The total number of jobs declined by 189,000, and for those who dropped out of school before completing high school, their jobs declined by 651,000. All of the job losses in the Canadian economy have been sustained by those with low levels of education. All of the job growth during the recession has been enjoyed by those with high levels of education, particularly post-secondary credentials.

We can look at those data for Ontario alone, and I present those in the last paragraph on page 6. I'll summarize briefly. In the three years between 1990 and 1993, the number of people in Ontario with jobs declined by 41,000; the number of university graduates with jobs increased by 123,000.

Those university graduates find preferred status within the labour market. They receive far higher incomes than those persons with less academic training -- about double the income, in fact, of someone with only a high school education -- and they enjoy also lower rates of unemployment. As I mentioned, the unemployment rate for university graduates is less than half of the national average. So a combination: lower rates of unemployment, better job prospects, higher incomes. These are all measures of the private economic benefits received by persons attaining a university degree and an aggregate conduced towards the social benefits associated with higher education.

Our point is quite simple. The more people in Ontario who have the opportunity to participate in university education, the more Ontarians will receive those economic benefits and the better will be this province's economic prospects in the harsh, competitive environment of the global economy. The corollary of that is clear: Ontario's universities should be resourced to provide a high-quality education to all qualified applicants.

I'd like to turn now to Dr Ianni to talk a little bit about the universities' roles in provincial renewal and some recent initiatives by council.

Dr Ron Ianni: When people think of universities, they don't necessarily believe that universities are an engine of economic growth or renewal, but I think on reflection, and certainly flowing from what Peter has already mentioned, they really are a very good investment. They generate economic activity and increased government revenues. As well, they contribute to research and development activity, which is vital to keeping Ontario competitive in a global economy. They provide a steady stream of graduates to the labour force who are successful at gaining employment and who receive above-average incomes. These same people make a substantial contribution to our tax base.

They do all of this despite almost two decades of declining financial support by the provincial government. At the current time, universities are receiving less for each student enrolled than they did in the 1970s; in constant dollars, about 12% less than they did in the 1977-78 academic year. This took place at a time when funding for schools and hospitals, OHIP payments to doctors, support for community and social services, indeed the cost of programs delivered by the provincial government, all increased substantially. I think chart 1 sets that out in dramatic form for you.

Transfer payments to universities have increased less than total spending by the provincial government in virtually every fiscal year. There has been a continual decline in the share of total spending going to universities. Rarely have transfer payments to universities kept up with the growth of the provincial economy as measured by the gross domestic product. In the current fiscal year, for example, operating grants would have had to be increased by 26% just to bring them up to the level of the 1977-78 year. That's referenced in chart 2.

Universities in Ontario receive lower levels of financial support from the provincial government than do universities in most other provinces in Canada. In fact, Ontario universities are among the most poorly funded in the country. Chart 3 sets that out.

Compared to universities south of the border -- in Windsor, I have a rather unique perspective on this with our working agreement with Wayne State University and University of Detroit -- our institutions are dramatically underfunded. If you just compare the last 10 years, you will have seen the face of Wayne State University virtually transformed by an increase of state funding. The public universities in the United States generally, going outside of Michigan, receive from state governments less in the way of tuition fees and less from contracts than their respective federal governments. This situation appears to be worsening from one year to the next as American universities continue to receive increased grants while Ontario universities are being cut back. This has profound implications for Ontario's competitiveness within North America.

Of great concern, for example, has been the loss of jobs by Ontario to the southern United States. It is not clear, as generally believed, that the reason for this job and capital flight lies solely in the predominantly non-unionized labour markets and less restrictive regulatory environments of the southern United States. In recent years many of those states, including Tennessee, have been giving their universities the greatest increases in funding in any jurisdiction in North America.

Underfunding has dramatically affected the ability of Ontario universities to perform adequately. Both quality and accessibility have been harmed. Qualified students are being turned away, academic programs have been cut and staff have been laid off, class sizes have been increased, library acquisitions have not kept pace with enrolment growth, and buildings and equipment have deteriorated.

On the research side, for example, the federal government has denied crucial research funding to the Ontario universities by shifting much of its funding to the universities in other provinces. Because other provinces, particularly Quebec, have been providing complementary support to federal funds, over the course of the past decade, the proportion of federal research councils' funding going to Ontario universities has fallen from 40% to 33% of the national total. Each 1% loss in this revenue represents about $10 million in lost income each year for Ontario universities. These are funds which would have supported important research activities aimed at expanding the realm of human knowledge and improving the lot of all humankind.

Ontario universities have already demonstrated in a host of ways the benefit to be gained from a sophisticated research enterprise. For example, through its research efforts, the University of Waterloo has generated the establishment of over 100 companies. Through the university research incentive fund and the Ontario centres of excellence, the universities, the provincial government and private industry have worked in partnership to keep Ontario at the leading edge of technology, train highly skilled researchers, develop new products, keep Ontario-based firms viable, and generate economic growth for society as a whole.

As Mr Lessard is here, let me just tell you that the Ford research and development casting plant in Windsor has been expanded two and a half times, not only as a result of the qualified workforce there but as a result of a working relationship with our department of engineering materials, which has been granted an NSERC research chair, for example, and now that has been designated as the centre for North American Ford Motor Co aluminum casting. I think the expansion to that over the last year has been a direct result of the relationship with the university and the availability of co-op students in material engineering.

The universities have not been sitting on their hands crying poor and saying, "We're not going to try to outline ways in which there can be additional income coming to the universities." In fact, we issued a discussion paper on tuition fees which has received, I think, a good deal of play in the press and some comment from our own colleagues on campus.


The prolonged underfunding on the part of the provincial government's support has led the universities to propose a series of reforms to tuition fee policies. These reforms recognize that students themselves receive a significant economic benefit from attending university and that tuition fees are quite low compared to other jurisdictions and compared to rates charged by Ontario universities in the past years. Tuition fees charged in Ontario universities have increased less over the past decade than in any other part of the country and in fact have increased less than half as much as in some other provinces. Once inflation is taken into account, they are still lower than they were in the 1960s, for example. I think chart 4 sets that out for you. Compared to tuition fees charged by American universities, those charged in Ontario are truly a bargain.

The reforms proposed also recognize the need for an innovative revamping of the student assistance program, a revamping which will enable more students to attend university. In particular, these proposals address the need to increase educational equity, to enrol more students from groups in society who have been previously underrepresented in our universities.

In the longer term, the universities of this province are recommending the implementation of an income-contingent repayment plan which would make student aid more available to anyone in need so that no one with the desire and ability would be denied the opportunity to enjoy the benefits from a university education.

I'll leave it to my colleague Dr George to give you some concluding comments.

Dr George: Two years ago, this committee made recommendations to the government that we thought were extremely positive and extremely supportive. I have in this brief repeated those recommendations. Let me just emphasize the fact that you concluded two years ago that "It is essential that Ontario fund its universities adequately; it cannot afford the economic and social costs associated with an inadequately educated population."

Increased funding from the provincial government and a reform of Ontario's tuition fee policies would go a long way towards redressing the problems brought on by underfunding. Adequate funding of our universities is an investment that pays significant returns in both human and economic terms. If governments fail to provide adequate financial support to our publicly assisted universities, then I think they will be putting at risk a critical component of the renewal and recovery of this province as the engine of the Canadian economy. This was the message, the essential theme, of our COU-sponsored conference on provincial renewal that was held last November 7 to 9, which focused on environmental, social and economic renewal and the universities' contribution to those areas.

A higher level of financial support from the provincial government and a significant increase in tuition fees coupled with an improved program of student assistance will help to create in Ontario a system of universities which are accessible to all qualified students and which offer academic programs of the highest quality. They will be universities which are on the leading edge of basic and applied research, and that research will further the economic growth and renewal of this province. Ontarians have the right to expect no less of their universities and of their political leaders.

We would be delighted to answer questions. In Ron you have someone who has the particular experience of being the CEO of a major university in this province, and I can lend some system-wide exposure to the answers. So we have the complement, if you like, of the system and the institutional perspective here. Thank you.

Mr Turnbull: I was aware of the fact that in constant dollars, in fact tuition fees were less now. Your graph demonstrates that very well. I wasn't aware that it was quite that significant. How do we get this message out to students that they're getting such an incredible bargain? Every time there's any suggestion of any increase of fees, you have to peel the students off the wall. I've got a child who's just entered first-year university. I'm keen on low fees from a self-interest point of view, but it seems to be one of the fundamental problems that you've got.

If I could just ask a further question, would it not be appropriate, in conjunction with this, for us to completely separate the linkage between students and research programs so that we fund research programs in one way and address the actual student education in a somewhat different way?

Dr George: Perhaps I'll take a stab, Mr Turnbull, and then Ron may want to add something.

I've talked to a lot of students since the discussion paper was issued, both through the media through call-in programs and directly by going to student gatherings and talking to them. I think the crassest answer is that the students realize they have an underpriced commodity and they have a great self-interest in keeping it underpriced.

I think the evidence of that is the continuing high private returns or private benefits generated by the completion of university degrees in terms of the income and employment experience that I've described.

It's interesting because in the last two years there is a student group which has emerged, the Ontario Undergraduate Student Alliance, which has openly espoused increased tuition fees matched by increased absolute amounts of additional government funding. But they espouse increased tuition fees. They see it as a good investment of their own funds. In both their argument and in the materials that we have argued with over the past two years, we have always combined that with improved student assistance programs because there are two legitimate concerns.

One is the burden of debt that's accumulated. I submit the burden of debt is already getting larger, and we have data on that over the last two or three years of the recession, and income contingent repayment is simply a more equitable and efficient way of repaying student loans and of handling the student debt burden, regardless of whether the source of that debt is borrowing for tuition payments or borrowing for living expenses.

The question of the separation of research funding from general operating grants, I think, is a difficult one for us academically and practically in the sense that we believe that research and teaching are joint products, that a good teacher is an individual whose teaching is informed by scholarship and research. As a result, there is a large area of intermixture of the research and teaching function and it comes through small groups, senior students, seminars, through graduate instruction, through research laboratory experience.

One could, I'm sure, devise mechanisms for segregating research costing from instructional costing, but I think that would not be a palatable outcome in the sense that the jointness of the two activities is something that is very important to academics and is something that, I confess, is hard for us to explain to non-academics.


Dr George: Yes, and there have been some institutional arrangements in those cases which have allowed individuals to recontract their obligations, to increase their teaching loads relative to a publication activity. They're still required to do scholarship, but it is more the scholarship of synthesis and keeping abreast of the literature, if you will, so that it continues to inform teaching. But that is not a general rule. It is something that is done at the margin of institutional relationships and I submit could not be a general rule. Ron, do you want to add something?

Dr Ianni: No, I think that covers it. I guess just one comment. If one were to look at the cost of sending a preschooler to day care for 15 weeks as opposed to sending a student to university, it's just about double to send a child, a preschooler to day care for 15 weeks.

Mr Sutherland: You heard my comment to the hospital association about funding and when our funding stabilized, we could stabilize their funding. I guess the question is, and it's to your sector and to all the sectors, realizing that the funding levels or the government revenues are not going to be increasing dramatically over the next few years, how does the public sector, university sector more particularly now, respond to still providing more with less resources? How do you restructure, reorganize to do that?

Dr George: I would submit that as a system we have been restructuring and reorganizing for 20 years. We are the one sector, along with the colleges and the higher education sector, that has suffered continual decreases in per-client funding from provincial sources over that period compared with the other sectors. It's a new game for many other transfer payment recipients. It's an old game for universities.


I take for example your comment to the hospital association about administrative costs. We have data, and we have used this data in previous submissions, that show that administrative costs at universities in Ontario are lower as a proportion of operating expenses than in any other university system in Canada. They compare very favourably. We have lean administrations.

Dr Ianni: How do we do it? I'll tell you how we do it. We have a first-year biology class of 480 students. That's the largest we've ever had. In other institutions you have psychology courses of 1,800. We have less books in the library. We have rooms that are really not fit for teaching but we're using. We have equipment which is less good in the university than it is in a number of places that our students are doing co-op internments in.

All of those things are, I guess, indicia of the position we're in. We're trying to do more with less. We don't want to close the door to qualified students, but at the end of the day we're at the stage now where those things are continuing and I guess we're saying to our students, "We either get some more revenue through tuition or the decline is going to increase, and at the end of the day you are going to be less competitive with what you get than people in other jurisdictions in Canada."

Just one last thing: When you've got 480 students, it's not very easy to have continuous evaluation and a lot of written assignments. So what do we do on top of that? We have an academic writing centre which now has 3,000 clients per term. These are students who voluntarily come to the academic writing centre to do particular assignments and have them corrected. We have three full-time staff. They are not professors. We couldn't afford to have three professors doing grammar and improved writing techniques etc.

Those are the kinds of things that are being done but, let me tell you, at some point your innovation runs out and deterioration sets in. What we're saying is that the investment in a university is a sound investment, and I think, if you go much further, what you're going to say to the students at the end of the day is that this economy is going to have a harder time competing and they're going to have a harder time making the economy compete.

Mrs Caplan: You make a very good case and I'm sympathetic of the need of those students who want to have access to the university. I was told that there are between 2,000 and 3,000 qualified students desiring access who were turned away from universities in Ontario in the past year.

Dr George: No, that's actually an understatement. In the fall of 1992 that number was slightly in excess of 4,000. These are students who have completed six OACs with a 60% average and who are technically qualified for admission but did not receive offers of admission. We don't yet know what the number is for the fall of 1993 admission cycle. We suspect it will be in excess of 5,000. In the 1980s, those numbers averaged about 1,000 to 1,500 a year, so there has been a significant increase.

What's happened is that, just as an aside, we have as a system still taken more students directly from what used to be grade 13, with six OACs, even though it's a tough decision because the compromise is quality of the educational experience, but we have maintained our commitment to accessibility.

The fact is that participation rates are continuing to rise and the desire to participate at university then both for these students directly out of high school but also for the group of mature students, the ones who have gone out and worked for a few years and then are mature student applicants. Those numbers of disappointed have also increased.

Mrs Caplan: I'm very concerned, particularly at a time when there are no jobs for youth to go to, that we're turning away qualified youth who want the opportunity of a university education.

The one thing that I didn't notice, and I am concerned about this also, maybe as we look at innovation and opportunity, rather than just looking at the funding, we also could be examining things such as workload. What's the average number of teaching hours of your tenured professors? I was given a number that was so absurdly low I didn't believe it. I was told it was about nine hours.

Dr Ianni: Depending on the discipline, you would have anywhere from six to 12 hours teaching per week.

Mrs Caplan: For tenured professors?

Dr Ianni: That's right.

Dr George: Let's be careful --

Mrs Caplan: Wouldn't it be possible to ask them to teach one more class to accommodate those kids who need an education?

Dr George: I have answered this question before. The fact is that it takes on average three to four hours' preparation time for each hour in the classroom, and you add counselling time, marking time and so forth. Nine hours a week sounds like, gee, you only work one day a week, but the fact is you add the preparation time and a research load and a professional and community service load on top of that. The data on average workload for faculty members is 60 hours a week, not nine.

Mrs Caplan: How many of the tenured professors actually have outside contracts with industry where they're spending more time than teaching hours in the classroom? Do you know?

Dr George: That's certainly a valid question. We don't know for the system. We do know that all universities have policies on contractual research and prescribe quite close limits on the availability of that time to professors. I think the point is well taken, though, and we are addressing this, when I mentioned the possibility of recontracting for faculty members to do a little more teaching. Those kinds of activities are being explored more and more in our institutions as the pressure of student numbers on available faculty and staff has increased.

Mrs Caplan: It just seems to me that at this time the priority really should be to accommodate qualified youth, young people, who want that opportunity for a university education because of the numbers that you have provided. If we have to look at some innovative ways of doing that, we shouldn't just be looking at the funding side. I think there are some accountability issues here to the community and to the province, particularly at a time when you're telling me you're turning away 4,000 to 5,000 young people.

Dr George: We have some major initiatives on the accountability side I can't discuss today, but I would say one thing. I think there is a significant danger of a misallocation of training and retraining resources, both federally and provincially, because they are directed at the low end of the skills market in short-course training for jobs which have uncertain futures.

My view is that some of those funds at least that are currently earmarked for OTAB and Jobs Ontario Training and CEIC programs should be directed at high-end skills training and retraining, because it is those individuals who will form the cutting edge of the labour force in the globally competitive economy.

Mrs Caplan: Certainly a well-trained workforce is essential for our competitiveness into the future, but I don't think any of the solutions --

The Chair: Ms Caplan, your time has expired. I want to thank the Council of Ontario Universities for making its presentation before the committee this afternoon.

Dr George: Thank you. If any members wish to have additional detail or discuss these issues further, I'd be delighted to come and call.


The Chair: Our final presentation this afternoon is from the Canadian Manufacturers' Association.

Mr Eric Owen: Thank you, Mr Johnson. My name is Eric Owen. I'm director of taxation and financial issues for the Canadian Manufacturers' Association. With me today is Mr David Brown. He is the chairman of the Ontario tax committee. He's also vice-president, administration, and corporate secretary for Glaxo Canada. The other gentleman with us is Dr Jayson Myers, who is CMA's chief economist.

We're here today representing the CMA, which was formed 123 years ago. The CMA represents all sectors of manufacturing from all regions of Canada. However, the bulk of our membership, 66%, is located in Ontario. The CMA's total membership represents over 75% of the manufacturing output in Canada.

I'd like to ask Mr Brown to make some comments on our initial submission, please.


Mr David Brown: It's certainly my pleasure to be here today to address this group. Sorry it's so late in the afternoon. I'll try and keep my remarks brief.

My purpose in being here is to present to you a very brief summary of the Canadian Manufacturers' Association pre-budget submission, copies of which have been given to you and a copy of which has also been delivered to the Minister of Finance earlier today. What I wanted to do was to basically bring the same message to this group that we are delivering directly to the minister on this very important issue.

Manufacturers outperformed the rest of the Ontario economy in 1993 and are likely to do so again in 1994, thanks to significant gains in productivity and continuing strong export performance. Manufacturing shipments rose by 8.5% in 1993, attaining record levels by year-end. Production jumped by around 5%. Shipments and production levels will continue to rise into 1994 and are likely to increase by 7% and 4.3% respectively over the coming year.

Ontario's economic performance will not match this manufacturing recovery. In real terms, the Ontario economy grew by about 1.9% in 1993. It is likely to expand by only about 2% in 1994. Inflation will remain low, but unemployment will continue to hover above 10% through most of the year ahead.

Productivity improvements are helping Ontario companies gain market share in other countries, and particularly in the United States. Strong export performance is driving the recovery of both manufacturing production and the Ontario and Canadian economy as a whole. Manufacturers will again enjoy strong export growth in 1994.

Exports are buoying manufacturers' production levels in the face of extremely weak performance in Canada's own domestic markets. The domestic market share of Canadian manufacturers has fallen sharply as companies integrate production and sales activities on a North American or worldwide basis, but domestic demand for manufactured goods also remains depressed.

Three key issues need to be noted:

One, consumer income is being eaten up by interest payments, tax and price increases, with little left over to buy more goods.

Second, Canada's level of indebtedness is rapidly increasing. The economy will slow further as consumers and businesses pay down their debt and as governments struggle to keep their budget deficits under control.

Third, the after-tax profitability of Canadian business remains depressed. Employment and investment activity are suffering as a result.

The cash squeeze has been particularly severe for manufacturers. It takes the average company seven hours and 50 minutes in an eight-hour production shift just to cover its operating costs. Taxes must be paid on top of that. There is no margin left to absorb cost increases, and manufacturers cannot afford to pass cost increases along in the form of higher prices if they want to remain competitive in today's international economy.

Manufacturers are responding to these cash pressures by increasing operational efficiency and improving productivity. They are investing in advanced manufacturing technologies. They must do more. But with their backs to the wall, there is often little option open in the short term but to reduce costs by focusing on payroll and cutting jobs. Manufacturing employment held steady in 1993. There will be few job gains in manufacturing in 1994. Cash flow is unlikely to show any significant improvement.

The majority of manufacturers expect production and sales to increase throughout the coming year, but few expect to see any substantial gains in after-tax profit margins. Higher taxes, regulatory compliance costs and other costs mandated by government are of particular concern to companies across Canada. Unless the cost burden that governments impose on business is significantly reduced, prospects for either investment or employment do not appear very bright.

Ontario is feebly recovering from recession, but the problem of long-term competitiveness remains more pressing than ever for manufacturers on the front lines of the international economy. Companies are taking steps to meet the economic challenges of the 1990s, not against them, to encourage innovation, entrepreneurship, productive investment and industrial growth.

Manufacturing is at the forefront of economic change and wealth creation in North America. In Ontario, a strong manufacturing base is crucial to ensure future economic growth and stability. It is only by enhancing our manufacturing capabilities that this province will be able to generate the wealth required to sustain our standard of living and guarantee an enhanced quality of life for future generations of Ontarians.

Dr Jayson Myers: I draw your attention to the graph I passed around. As Mr Brown quite rightly said, production and sales value are both increasing very rapidly in this in terms of manufacturing. The recovery is gaining momentum, but we're not seeing that passed along in terms of job gains. There are few jobs being created, even in the service industries, to which manufacturers are contracting out these days. Why? One very basic reason is that many companies simply cannot afford to hire people back into the company, preferring to go to extra overtime, preferring part-time employment -- significant changes that are weakening labour force activity.

One of the very important reasons for that, again as Mr Brown has pointed out, is tax increases, increases in regulatory costs. Across Canada as a whole, the latest estimates from the Department of Finance in Ottawa, the Treasury Board of Canada, show that Canadian businesses pay $75 billion a year in regulatory compliance costs and taxes, all sorts of taxes, like income taxes, property taxes, payroll taxes, consumption taxes and capital taxes. That's a pretty significant cost burden if you were just simply to translate that into the Ontario segment of the economy. It looks like manufacturers in this province would pay somewhere in the area of $11 billion to $12 billion in regulatory compliance costs and extra taxes.

I'd like to point out to you that over the past five years, since the beginning of 1989, selling prices of goods manufactured in this country have increased by only about 2%. If it wasn't for the depreciation of the dollar, those price levels would be down by about 8% over that period of time. In many industries that are very important to this province in particular, such as the steel industry, the primary metals industry, we've seen deflation in the area of 35% in terms of pricing.

What we've seen on the other hand, though, are tax increases that are pushing up consumer prices and wage rates, payroll tax increases, capital tax increases and property tax increases and increasing regulatory compliance costs. One of the very important reasons why we've seen jobs being lost in this country and in this province is because of this cost squeeze that is going on. Manufacturers or businesses in general simply cannot afford to employ people if these costs continue to increase.

I guess our most important message here today is that we will not see the jobs come back in manufacturing or in other sectors in this province's economy if we continue to see increases of this sort. It's not only business, it's Ontarians in general who are at the limit in terms of tax tolerance here. Further increases will simply drive economic activity further underground and, frankly, in business that's where much of the economic activity already resides.

Mr Owen: The committee was kind enough to offer us an opportunity to also touch on the Fair Tax Commission report. When I spoke with the clerk of committee, I offered my thanks at only being asked to speak for 15 minutes on an 1,100-page document. She hadn't seen it at that time.

However, I'd like to touch on two issues which do concern us. One is the corporate minimum tax and the other is sales tax. First, looking at the Fair Tax Commission report, especially at "Constraints on Tax Reform in Ontario," the book I'm referring to is the "Highlights" as much as anything else. I think it's a very, very good synopsis of the actual book itself. It's well written and easy to understand -- for him; he's Dr Myers, so it's not me.

Mr Sutherland: The 1,100-page one is easy for him to read?

Mr Owen: It's easy for him, yes. He read it coming up here.

I want to look at constraints on tax reform and, in particular, mobility of real economic activity. The report is quite succinct when it states:

"To the extent that the tax system either influences, or is perceived by governments to influence, location decisions, governments will have a tendency to respond to the increased mobility of key elements of the economy. At a minimum, they may attempt to eliminate their tax systems as a negative factor in location decisions, or they may go further to use concessionary tax regimes to make their tax systems a positive factor in location decisions."


It's rather interesting, when we hear from the current government about how people are leaving Ontario and going elsewhere.

The report goes further and says:

"For very mobile tax bases, the practical reality is that Ontario's tax rates cannot be significantly different from those of jurisdictions into which the tax base can migrate easily. This constrains the ability of Ontario to raise substantially," and I do recognize that the word "substantially" is there, "more revenue from such tax bases as corporate income."

It says that "special attention must be paid in the design of income tax to the potential for interjurisdictional movement of capital." That's very, very critical. When I looked at this paper, having read that, I did go on to some of the other things that the commission did report on and the obvious title of it was "Fair Taxation." We looked at the actual fair share and we wanted to know what really was a fair share. We believe that the fair share argument should consider the question of who ultimately bears the corporate tax burden.

By suggesting that corporations are not paying their fair share of taxes, is it implied that corporations could be made to pay more in taxes without this having an impact on individuals in terms of product or service prices and employee wages? This ignores the accumulated body, in my opinion, of economic evidence concerning the incidence of taxes.

I have gone back as far as the 1966 Carter commission report on taxation which states:

"All taxes are ultimately borne by people. Taxes can of course be collected not only from people, but also from corporations, trusts and cooperatives. But organizations, as such, cannot bear taxes. It is the people who work for, sell to and buy from or are members, beneficiaries or owners of these legal entities who are made better off or worse off by taxes. While the exact incidence of the corporate income tax is debatable, it is reasonable to conclude that a significant part of it is shifted forward to consumers or backwards to employees, shareholders and suppliers. It is misleading to suggest that increasing corporate taxes is an easy or effective way of increasing the welfare of workers and consumers."

That was rather important, when I did look at what did constitute a fair tax and when I looked further on, it obviously got down and they did make a good report on looking at the issue on the tax itself. They said, "Is Ontario competitive with other jurisdictions?" They came to the conclusion that they are competitive with provinces, with the exception of Quebec and internationally with the United States, although I would draw your attention to page 11 of our submission, where we debate the fact that the statutory rates are similar. Exports, for example, get preferential treatment and they compete with imports in Canada's domestic market. So that's something you have to look very, very closely at.

We believe, and the Fair Tax Commission states it, that it is unlikely that revenue could be raised by increasing corporate income tax rates at this time. They concluded that it would be counterproductive for the province to adopt corporate tax policies that depart significantly from those of other jurisdictions with which Ontario has a close economic relationship. "Ontario," they said, "should maintain effective rates of tax on business at approximately their current levels relative to other jurisdictions."

We have obviously made the observation in our submission that the corporate minimum tax should be in fact repealed.

Looking further at another important area is sales taxes. The report stated that "Ontario's retail sales tax is regressive in that a low-income earner pays a greater proportion of income in this tax than a high-income person." They stated that it represented, in 1991-92, 18% of total revenue in the province of Ontario.

The report did research business extensively and recommended that the GST and retail sales tax be harmonized. According to the report, removing the retail sales tax would result in a 2% to 4% increase in investment in machinery and equipment and also a 1% to 3% increase in investment in non-residential construction.

It also would benefit administration, which small business screams loudly on all the time. As a single administration, it would help reduce the actual burden of Ontario. The revenue department of Ontario says they spent $40 million last year in the administration of the tax. That would not all be a saving to Ontario.

We also recommend that the harmonization be entered into. One thing that we are very concerned about and we're hearing time and time again, especially with the new Liberal government, is that it's looking for a replacement tax for the GST. They're talking very readily about imposition of a payroll tax. If you think that through, a payroll tax in itself, if we look at it from the magnitude of wanting to raise an additional $15 billion on payroll, this would mean personal income taxes would go up approximately 20%. With the state of the economy right now, I don't really think that the consumers would like another 20% of personal income taxes, because it would really hurt the economy in this very fragile state that we're in right now.

If the committee has any questions, I'm sure that we'd like to answer them.

Mr Sutherland: Thank you for your presentation. On your chart here, when you're talking about regulated prices, what are you specifically referring to?

I had a chance to look through your presentation, and I want to go back over in detail the principles you outlined in the back of the budget in terms of questions for government in planning and expenditures, which I think on the surface look very good, very helpful advice. I appreciate your forwarding them.

Dr Myers: Thank you. Maybe I could respond to that question. The regulated prices refer to prices that are regulated by government agencies, such as hydro costs, costs for telecommunications, costs for other utilities.

I have done some separate work on energy costs, again looking across Canada. There, the overall energy price index borne by industry has increased over that period of time by about 32%, just to give you some idea of how that works into the scheme of cost increases.

I think this type of a presentation is important because it certainly points out the differences in pricing in terms of consumer price versus selling price or the price that companies are receiving. That's really what is so important in terms of jobs and investment.


Finally, responding to the point about expenditure reduction, we're certainly aware that governments are having to face a very critical deficit situation and that it can't be done alone simply through cuts in expenditure. In fact, it's worrying when we hear so much about cutting expenditure, because industry, having gone through this experience for the last four or five years, knows that you can cut and cut and finally you cut into the bone of your operation and you fail.

That's what we want to make sure -- and another message to deliver is, it's so important today to set the priorities, to know what the customer needs there. The principles that are outlined in the back are some of the principles that I think industry has found very useful in its cost-cutting exercises.

Mr Owen: There is one thing which is in the paper. The Canadian Manufacturers' Association, together with the Treasury Board of Canada and the Department of Industry of the federal government, has been working in what is a business impact test. It's to be unveiled next Friday, February 4, in Ottawa.

Dr Myers has had a great involvement in this. It's designed basically to reduce regulatory burdens and make sure that the burdens themselves are the same; in other words, Ontario is not looking at it a different way from the federal government or even the municipalities are not looking at it a different way from the federal government and the provincial governments. It's designed basically to help both government and the users or the compliers with the regulatory reform.

I have been speaking to Mr Jamison about this, and I feel sure, if the committee would like, that the Canadian Manufacturers' Association would like to demonstrate this to the committee for your understanding of this at the same time.

Mrs Haslam: Mr Chair, before you leave that, may I say that this was the point that I was going to ask you about, where now the business impact test was. If that offer could be taken up, since it's being done next week, if we could have some information forwarded to the clerk for distribution to the committee members, I think we would really appreciate that.

Mr Phillips: I appreciate the thoughtful presentation. I believe you are the engine that drives the economy. I'm very much supportive of that. I also agree with your observation. I don't think your sector is going to see a lot of job creation.

I watched the manufacturing jobs, even in kind of the boom times, and the jobs never went up, even though the output did, just because of investment. I think the output will continue to grow, but I hope we can just maintain the jobs in manufacturing.

On the corporate minimum tax: I thought the Fair Tax Commission did a pretty good job in pointing out why corporations don't pay taxes. It is exclusively for two reasons: One is the loss carry-forward; the second is corporations taking advantage of government-initiated tax expenditure programs.

What the corporate minimum tax is, in my opinion, is about a 2% clawback on government programs. So we're going to put 13,000 corporations through all the hassle of filing it to clawback government incentive programs. I sympathize with you. I think that the challenge will be psychological. I think for the government, the corporate minimum tax is politically essential for them and I wouldn't count on any backing off on it.

My question, though, to the group is almost a warning for us as well. We've had at least two business groups come in and say: "Get rid of all of these handouts to business. We don't want any more handouts to business. We don't need a helping hand." I'm not sure they've really thought through what they mean by that because much of the "handouts to business" are the things you've talked about in here as essential to the manufacturing sector: capital cost allowances, R&D incentives and what not.

I would just ask the question but also alert the manufacturing group that I can see the tax expenditure area being an area that governments at every level will attack, because it's a way to "raise more revenue" without "raising taxes." Is there any advice you can give to us on the impact of that, and you've given us a couple of examples today, anything you could do right now to give us more evidence that this is a worthwhile expenditure of "tax expenditures"?

Mr David Brown: I can talk as a manufacturer. If the government were to reduce or withdraw tax incentives to industry, obviously that funding has to come from somewhere else. It's either that or the business, either the investment or the research or whatever is being done, is not going to take place.

We have to recognize, as an Ontario company, and we are probably one of the largest companies in our industry and certainly the largest in Ontario, I can tell you that we have to compete internationally within our own corporation for funding and for programs which ultimately will be to the benefit of Ontario and Canada. Canadian companies and Ontario companies have to compete in a global marketplace. No longer are we confined by these restrictions where we say, "Well, we're Canadian and all we're going to do is satisfy the Canadian market."

Multinational companies, for one group, certainly don't take that attitude. They're looking at it on a global basis right now. The environment in which those investments are made and in which the activity is going to take place is that where corporations feel they're going to gain the best return on their investment. After all, we still have a return on investment to our shareholders.

There's a cycle here that has to be completed. What you've got to do is to stimulate the spending here so that in turn there's a demand for the goods which we produce, which then in turn will produce more income and as a result of that more tax revenues to the government, because you have higher employment and higher profitability in terms of throughput of manufacture.

As we said in the report, one of the key reasons or the key aspects of the success of the manufacturing sector has been through improvements in productivity, not through increases in output in terms of the number of units of product sold. We have to remain competitive.

Mr Turnbull: Can you tell me what would be best, for the government to simply get rid of any incentives that corporations have by way of giving special allowances for them to do certain things? For example, they're called tax loopholes when the government takes them away and they're called incentives when they're put in place. That's real political doublespeak.

What would be better, to get rid of all of those and reduce the overall rate of tax so that we wouldn't distort the market and businesses would make their own decisions as to whether they're going to invest, or is the present regime, albeit you may have difficulties with it, is the concept better now?

Mr David Brown: I think that would have to be dependent on where the government felt it really needed the stimulus in the economy. For example, if you're to talk about R&D incentives and tax credits and so on associated with that, you have to realize that for those incentives you're going to gain back spending in a high-tech area, which as far as manufacturing and the economy are concerned, is going to be one of the real key drivers of the future. What we really want are those industries, and to develop the spending in those areas which is going to produce the greatest return.

Mr Turnbull: That would require that governments choose the sectors where they believe the growth is going to be.

Mr David Brown: That's right.

Mr Turnbull: And stimulate those through R&D grants and tax concessions.

Mr David Brown: Right. It has to be done on a selective basis.

Dr Myers: I think as well, again perhaps going to what we were speaking about before in selecting priorities, know what the effect of cuts will be, if you're going to make cuts, and know how to construct an incentive that is actually effective, if that's what you're doing as well.

There are many incentives in place today that simply don't work because you have to be profitable to take advantage of them, and many companies are simply not profitable today. In a way, it's looking at what works and what doesn't work. I think when we do talk about cuts, let's realize -- perhaps from an economist this may sound like heresy, but we're not talking about abstract equilibria models here where everything goes back to a level playing field, because there is no level playing field there today. Everybody talks about it. Our competitors are doing everything they can to tilt the playing field in their favour and we have to play that game.

The Chair: I thank the Canadian Manufacturers' Association for its presentation before the committee.

The committee adjourned at 1720.