Thursday 27 January 1994

Pre-budget consultations

Ontario Secondary School Teachers' Federation

Jim McQueen, executive officer

Larry French, legislative researcher

Ontario Arts Council

Gwenlyn Setterfield, executive director

Michael Woods, board member

Susan Cohen, director, arts discipline programs

Canadian Imperial Bank of Commerce

Tim Whitehead, general manager, economics division

Association of Canadian Distillers

Ronald Veilleux, president

Harold Ferguson, president, Canadian Mist Distilling Ltd

Ontario Public School Boards' Association

Al Jones, treasurer

Donna Cansfield, first vice-president

Fiona Nelson, board member

Mike Benson, executive director

Ontario Confederation of University Faculty Associations

Dr Saul Ross, president

Marion Perrin, executive director

Ontario Nurses' Association

Ina Caissey, president

Ontario Public Health Association

Jane Underwood, president

Peter Elson, executive director

Motor Vehicle Manufacturers' Association

David Adams, director, policy development

Norm Stewart, vice-president and general counsel, Ford Motor Co of Canada

Brian Swift, senior engineer, environmental policy, General Motors of Canada Ltd

Bob Murray, senior tax counsel, General Motors of Canada Ltd


*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:

Fletcher, Derek (Guelph ND) for Mr Lessard

Morrow, Mark (Wentworth East/-Est ND) for Mr Wiseman

Rizzo, Tony (Oakwood ND) for Mr Sutherland

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



The committee met at 1008 in the St Clair/Thames/Erie Rooms, Macdonald Block, Toronto.


The Chair (Mr Paul R. Johnson): The standing committee on finance and economic affairs will come to order.


The Chair: Our first presentation this morning is from the Ontario Secondary School Teachers' Federation, Jim McQueen, the executive officer, and Larry French, the legislative researcher. You may proceed.

Mr Jim McQueen: First off, let me thank you for the opportunity to address the committee. We have given you the material you have in front of you, three items: One is our response to the Fair Tax Commission; another is a document called Adequacy, Democracy and Equity, which deals with what we would think would be a fair funding model to fund the educational system; and finally, a small pamphlet on the confederated school boards. It did not make sense to us to repeat or redistribute the report we had made to the Fair Tax Commission, but let me assure committee members that we have it available and would be more than glad to provide it to any who might be interested.

I'm going to deal with the section on the residential tax and the recommendations; those can be found on pages 5, 6 and 7. Larry will deal with the balance of the report.

As you know, the significant recommendation by the Fair Tax Commission is to shift educational funding from the local tax parties to the personal income tax. We would oppose this recommendation for three reasons.

It is our feeling about income tax that it is probably one of the easiest taxes to avoid in that, depending on your wealth etc and the kinds of contributions you make and the deductions you have, a good deal of tax can be avoided. The residential tax to a large extent cannot be avoided. It is there, and there are no deductions: One pays what is required.

Also, it is our belief that if the educational tax were removed from the residential, we would see the municipalities very quickly expanding their activities, so there would be a good chance that the residential tax would continue to increase as the municipalities began to expand their activities.

Finally, we question whether the government itself in these times can afford to lose any form of tax. While the tax is collected on a municipal basis, it does offset the cost to the government. It would be our argument that by removing it the government would lose a good deal of tax money.

The other issue around residential taxing is the question of local control. Here too we would support maintaining the residential tax system, as one of the strengths of the educational system is the ability of localities to impact on the educational system. If no money were collected at the local but simply went to the provincial, our feeling is that it would result in a totally centralized and provincial educational system, with local people having great difficulty in having any impact on the system.

If you remember back to the Edmonton commitment made by Mr Davis, the commitment was that 60% of funding of education would be maintained by the provincial government and 40% would be raised by the local people. Since that time there's been a significant downloading of educational responsibilities to municipalities: Funding from the provincial government has fallen to 34%. We understand there is a significant tax revolt at the local level, but the impetus for this is that the government continues to require of the educational system more and more responsibilities but is providing less and less funding to meet them. We would argue that there should be a return to that 60% funding and that in conjunction with the federations, the school boards etc the government should begin a series of meetings to see how that funding could be restored.

The other concept, the pooling of industrial and commercial assessment, we would oppose. One of the effects of pooling would mean that the separate system, in addition to the public system, would have equal access to the industrial and commercial assessment. The effect of that right at the moment would simply be to increase the problems of the public boards of education. It would mean a loss of revenue by the public boards that would flow to the separate boards. If there is a problem in the separate system in terms of funding, that is a government responsibility. It was the government that decided to fund the separate system through to OAC, and to ask the public taxpayers to now pay this burden -- the original projection of costs was supposed to be $40 million and it's now well over $2 billion. There was something wrong with the accounting when the cost of the separate system was projected.

We have another recommendation on confederated school boards that Larry will refer to.

There is a suggestion in the Fair Tax Commission report that over-ceiling expenditures should be limited to residential, that you cannot increase the industrial and commercial assessment. We cannot see the rationale for this. Much of the over-ceiling expenditures are necessary, and we can't see the wisdom of arguing that only residents should pay that additional cost. It may be more politically viable, in that it tends to be the residential taxpayers who organize themselves in opposition and there may be some control mechanism. But if we're going to continue with the need for over-ceiling expenditures, we think the whole community, including the corporate and business sectors, should help to pay those.

In conjunction with that is a recommendation that there be a uniform mill rate for industrial and commercial assessment right across the province. We recognize, and I think the Fair Tax Commission discovered, that the assessment, especially business and industrial-commercial assessment, was all out of whack: that various communities were taxing at various levels and that there'd even been tax breaks given to businesses etc to move into the community.

If you come up with a uniform tax base, our argument is that the effect on those areas outside the Golden Horseshoe would be devastating. Obviously, it is easier to do business, say, in the Metropolitan Toronto area given the services that are provided, all the way from schooling to sewers to municipal services etc. If you have a uniform mill rate and it is the same cost of doing business in Metropolitan Toronto as it is in Kenora or Wawa, our argument is that a lot of that business the rural and northern areas depend on would start to flow into the Metro area and create incredible problems in those regions, which are already losing businesses. This would do nothing more than to give impetus to that movement.

Mr Larry French: On page 8, we address the questions of progressivity and fairness in the tax system. The Fair Tax Commission has provided a lot of data that have helped us understand wealth distribution and perhaps some of the problems associated with it. One of the key figures they have shown us is that the wealthiest 20% of our population owns 74% of the wealth. The tax system, in its redistributive function, is not working at this point: We have a very wealthy class, a disappearing middle class and a relatively impoverished underclass. We think the tax system should be working more efficiently to help address this problem.

Neil Brooks talks about the social difficulty this situation, if perpetuated, brings with it. You're almost into a situation like pre-revolutionary France, with a very privileged élite with all of the privileges and none of the responsibilities and obligations.

The second and perhaps equally important consideration in building in more fair and progressive taxes is the revenue crisis. Statscan has pointed out, as we reference on page 8, that 50% of the deficit-debt pressure comes from the shortfall in that taxation revenue over the decades has not kept pace with growth in gross domestic product. As the economy has grown, the tax base has not grown with it and therefore we're into colossal deficits. We see it as a revenue crisis, not a spending crisis, as it has been defined recently.

In order to bring in progressivity, we support the concept of the wealth transfer tax. Of the OECD countries, only Canada and Australia don't have one. We're greatly out of step on this one. It doesn't have to be an onerous tax, an onerous burden, but it can bring back a significant amount of revenue. It addresses the growing proportion of very wealthy holdings, estates, that are insulated from the tax base. We therefore recommend, number 7, that we implement a wealth transfer tax quickly.

The personal income tax also, under the recent federal amendments, has become less progressive. We've had the amazing situation in which the upper-income portion of the tax base has actually been reduced. This is very difficult to justify in a time of revenue crisis. We support the Fair Tax Commission's recommendation of a more progressive base with more progressive brackets, an increased number of brackets, with the highest marginal rate kicking in at an income of $250,000, not at the $59,000 threshold that is there now. This would be more sensitive to income.


On page 11, we get into the corporate tax contribution to provincial and federal revenue. It's very low at this point, at 7%. This has caused a fair amount of discussion. The commissions that have studied the system have found that the corporate taxation is riddled with inequity and is incapable of producing the revenue we need to avoid our deficit crisis. Paul Martin is looking at this aspect of the tax base and suggests there might be changes in store. We need them.

We've quoted a lot from Neil Brooks's critique of the Fair Tax Commission report and we support the general line of the critique Brooks has made of the recommendations. The Fair Tax Commission has been very careful in the whole area of corporate taxation: It doesn't want to drive business out of Ontario. Brooks talks about that and suggests that there are other reasons why corporations make decisions to locate, not just the taxation level. He considers it to be a relatively minor factor.

He also recommends a new way of collecting the tax in this era of the multinational corporation. It's in use in California now. It's very difficult with the multinationals to be sure they are allocating a proper portion of their taxes to the jurisdictions in which they operate. The formulary apportionment method seems to be an improvement over what we're using now. The corporate tax in Ontario, for multinationals at least, would be based on the share of the worldwide economic activity of these corporations that is generated in Ontario. This formula is harder to squeeze out from under. At the time of NAFTA, we needed tax agreement in this area among all the NAFTA nations. We therefore support, in recommendations 9 and 10, the measures to impose a corporate minimum income tax and recommend a formulary apportionment type of tax.

Finally, on page 13, we talk about the confederated school boards. It's part of the governance that goes slightly beyond the mandate of fair taxation or the finance and economic affairs committee, but it does have significant financial implications. We're bringing them to your attention. In a quick, what I'd call shorthand method, we've brought forward the cost of implementation at the secondary level only since 1984. It's relatively expensive: $2.5 billion can be attributed to the expansion of separate school funding. I don't think people anticipated that it would be quite that expensive. In the meantime, we have all the costs associated with running two parallel systems.

We spend about $14 billion on education. If a miracle occurred and we effected a 10% saving, we'd save $1.4 billion; a 5% saving would be $700 million; a 1% saving, which I think is feasible, would be $140 million. We're talking big money if we can find a better way to govern and spend our dollar on education.

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

Mr Gerry Phillips (Scarborough-Agincourt): I thank the OSSTF for, as usual, a thoughtful presentation. What you haven't talked much about, though, is just where we are right now in terms of the implementation of the budgets and what's actually happening. One of our roles here is to provide some recommendations on what's realistic in terms of expenditures for 1994-95, among others. Can you bring us up to date on what is actually happening across Ontario in terms of the implementation of the expenditure control program and the social contract, what you're expecting in the next year and whether you've any advice for the committee in terms of what we should be looking at for funding?

Mr French: Jim will have thoughts on this; he's on one of the sectoral task forces. The restraint program has already dug in very deeply, as I think you're aware. We pointed out to the government in the spring that under the previous restraint program, the famous January announcement and so on, the boards had already lost about 3,000 teachers and 2,000 support workers, that we'd already cut back. This cutback will be vastly accelerated as the dollars get tight this year and as the contracts allow boards to address this situation in the spring to a greater extent than they've been able to so far.

We've heard that the boards are targeting another $500 million in savings beyond the social contract target. That will be devastating. The Treasurer has been hinting that even his promise of 1%, 2%, 2% might not be in the cards; it's hard to tell just what he will come up with. Therefore, boards are in great duress economically, no doubt about it. They need all the help they can get.

Mr McQueen: Actually, the effect in the educational system I don't think has been seen and won't be seen until the spring of this year because of the way they staff schools etc. You've got locked in a 4.7%, 5% reduction in staff, which is going to mean an increase in class sizes. You've got massive loss of programs, social workers, speech pathologists etc. It's having a devastating effect on the educational system. Let's even assume there was fat in the educational system. Whatever fat there was is gone. They're going to be making very difficult cuts.

The Metro board is struggling so much -- I think the question of the Pepsi-Cola deal came up yesterday. The Board of Education for the City of Toronto entered into a deal with Pepsi-Cola for the direct reason that it gives it money it needs to run its system. That is the explanation given. If the current kind of funding continues, I fear that not only education but most of the social services are going to have to hold bake sales to meet the shortfall between the money required and the money being supplied by the provincial government.

Mr Phillips: In the final analysis, it's what's happening in the classroom that we are all interested in, and it's difficult here at Queen's Park to get a good sense of that, so if the OSSTF or anybody else is tracking that for us, that would be useful. Right now my interpretation is that there will be roughly 5% fewer staff per pupil, and that means to me that the class size will increase by 5%. But that assumes you can't move people out of non-classroom positions into classroom positions; that may ameliorate it. We all have the responsibility to track this and see what's really happening, with a corresponding responsibility to not be alarmist when we shouldn't be alarmist, so I ask you to do that for us.


Mr McQueen: I agree with you, and we are trying to do that. Our instruction to all of our bargaining units is that they have to comply with the law and the 4.75% reduction has to take place, but it is having a profound effect. As you know, it doesn't necessarily mean that each class will increase by 4.75%. In fact, there will be tremendous fluctuations, because there are certain programs, for the trainable retarded and those kinds of programs, where you can't increase class size, so that has to be taken up by other sections of the program.

Probably the greatest effect will be at the academic level. Those class sizes will shoot up because a lot of the other class sizes can't be changed, irrespective of how many teachers there are. We are trying to track that and we'll try to provide the information. The schools start their staffing process in February and it has to be done by May 31, so by May 31 we will have developed hard data on exactly what the impact has been.

Mr Gary Carr (Oakville South): I agree that as a result of the social contract there has been, in a lot of areas, deterioration in services. To be very clear, what our party advocated is that there would have been a salary cut, 2%, 1%, 3% or whatever, but there would have been no time off; similar to what we did as MPPs. We haven't asked you to do anything we haven't already done. We froze our pay in 1990 and then cut it. MPPs in 1996 will make less than they did in 1989. I think we're in the same ballpark as teachers in terms of salary. I don't even know what mine is, to tell you the truth, with the tax-free portion. I don't even see it; my wife looks after it. We have not asked you to do anything we didn't do. People don't realize that, and we get lumped in with the federal politicians: They got increases and so on and everybody thinks our pensions are similar to theirs.

That's the way I would have proceeded. It would have been no time off but salary cuts, whatever the amount was. Had that come in, we wouldn't have had the deterioration in services. It would have been even across the board. It would have been the nurses, the teachers and everybody. I just wanted to make that clear.

Mr McQueen: It would have saved a hell of a lot of meetings, too.

Mr Carr: And we might have saved what we spent on meetings. I think that's the way it should have been done. There wouldn't have been deteriorating service. Teachers wouldn't have liked it, nurses wouldn't have liked it, or doctors, but we would not have had the service cuts.

I want to talk about the salary issue. The other day I read an article that quoted Ralph Klein out in Alberta, something like, "With a twinkle in his eye, he said he's going to province-wide bargaining because school boards aren't tough enough to deal with teachers." I take it the OSSTF would in favour province-wide bargaining.

Mr McQueen: No, our policy is to be opposed to it. The answer's fairly long, but generally we are opposed to it. Bill 100 was specifically put together to allow for local control, and bargaining rights are owned by the locals, not owned by the provincial. The only time we get involved is if the local assigns it to us. We think that reflects local autonomy. There have been a lot of arguments about whether teachers are able to whipsaw or whatever because of various increases, but my assessment of the negotiation process is that it's a fair process. We come in with our demands, they come in with their demands, and then it works its way through.

Teachers are seen now as fat cats of the system, but a teacher at the top of the bracket is $65,000 in Metropolitan Toronto.

Mr Carr: They make more than us. I thought you were the same, but we're lower.

Mr McQueen: That's the gross amount, but it's very easy to reduce that to well below $40,000 simply with the pension contributions and tax contributions, and I'm not arguing we shouldn't pay that. That gross is what teachers require to live in this society. Frankly, the LICO figure is $30,000, but how anybody in Metropolitan Toronto can live on less than $30,000 -- they really have to scrimp and save to do it.

Mr Carr: On your point about the 60% financing, if the province is to take more responsibility for that, it should also have the corresponding responsibility for -- 80% of the total goes to salaries; I know that's administration too. But if they are going to take more responsibility, they should have more responsibility. My feeling is that we need to have clear lines of authority and responsibility. Whoever pays the buck is the one who negotiates about salaries. You can't have it the way it is now, where they blame school boards but the funding comes from the province.

I agree in some respects that the province should take more. My big problem with going to the 60% financing is that I honestly, truly think the municipal politicians would say about the property tax, "There will be a gap, and we can jump in." That isn't to say all municipal politicians would do that, but any time politicians of any stripe see tax shifted to another level of government, we don't see a reduction. They jump in, "Now we can up our property tax for worthwhile causes." Tonks would come in and say it's for these capital projects, and there are always worthwhile causes.

If the province goes to 60% financing, it should definitely have more responsibility in terms of the negotiations over 80% of its cost, which is with the teachers. I agree with you, but you can't on the one hand ask the province to pay more of it and at the same time say, "The responsibility is still going to be at the school board level." That's how I would handle it.

Mr McQueen: I don't think we're arguing that. They can control that very simply by putting controls on over-ceiling expenditures. If they put a cap on it, they can stop that very quickly.

Mr French: The share of instructional salaries for boards across the province is close to 50%, between 40% and 50% for teacher instructional salaries.

Mr Carr: The 80% is total salaries, including caretakers, administrators etc.

Mr French: That's right, and your central board office. But the teacher instructional portion, including principals, guidance and everybody in a school, is 50%.

Mr Mark Morrow (Wentworth East): Jim, Larry, good morning. I want to touch on something you brought up called a confederated school board. It's rather interesting. Your line, "It's an idea whose time has come," I'm probably inclined to agree with. In Hamilton-Wentworth, specifically Wentworth East, my riding, there are roughly five school boards. Can you give me a rough idea of the cost saving? And will it work?

Mr French: We think it will work. We've proposed a model which is a trimmed-down version of what we have now. You would amalgamate everybody in the Hamilton-Wentworth area and do a very spare trustee offering; in other words, there would be a maximum number of four trustees representing each of the blocks involved in the board, including French if you have a francophone population. The administrative services we'd want trimmed right down, and the delivery at the local school level we think can be much more efficient. In some areas you've got economies of scale, but in others you're going to be able to combine classes, curriculum production, all that sort of thing.

In the Metro area, where they've talked about combined services among the public boards alone, they're looking at $55 million in annual savings. We think that where there's a will to do this kind of cooperation -- and it's already starting. There is cooperation between public and separate boards; in northern Ontario it's starting. But we think the process can be accelerated and that there will be significant built-in efficiencies throughout Ontario. We've got a lawyer looking at it to make sure all the constitutional protections are there and respected.


Mrs Karen Haslam (Perth): It's an interesting brief. One of your comments was, "We can't afford to lose any more tax money," and you've come forward with suggestions about increased funding from the corporate income tax. You want Ontario to continue its measures to impose a minimum corporate income tax and close tax loopholes. You want us to relieve the pressure and capture more revenue from high-income contributors. In light of your suggestions about raising taxes when other people and other businesses and other associations have come saying, "We don't want you to raise any more taxes" -- in fact, a lot of people want us to lower taxes -- I find your presentation extremely interesting.

Given, as Mr Carr has indicated, that 80% of a budget in a school board is usually payroll, would you agree with what has been put forward here, that if we are not going to go for increased taxes, if we have to combat the deficit again and look at another reduction, would you agree with a 5% across-the-board cut, as was recommended here?

Mr French: We're into freezes and cuts; that's been the law for the last few years. The salary thing is very flat at this point, so we're effectively there already. We didn't agree with the wage cut approach to the social contract, for MPPs or anybody else. We felt it was economically damaging. We wanted tax reform. We wanted to go at this so that those who were still gaining a fair amount of income, including corporations and so on that were still profitable, would contribute, even if it's a special surtax during these tough times. Those who could would pay. But this one's a very blunt cleaver, and we've heard reports from all over the province of people, low-income people too, who are being very hard hit by this approach to the whole thing.

Mrs Haslam: You would still rather do it this way than with a straight percentage cut.

Mr French: No, we didn't agree with that public sector cut. We thought it took fiscal and tax reform so that everybody in society shared, not a wage cut or this kind of cut, which depresses economic activity. Informetrica calculated that over the three years of the social contract, the implication is 70,000 jobs because of the diminished economic activity. This is a heavy burden to pay in an already high-unemployment society. Therefore, fiscal and tax reform we felt would capture the revenues people needed to get out of this deficit difficulty.

Mrs Haslam: You're looking at revenues rather than --

Mr McQueen: I'm a politician too. Larry isn't. If you think I'm going to tell you how much I support a 5% decrease, it's not going to happen. We would be opposed to that. You could take everybody's salary and reduce it and reduce it and reduce it, but you're going to have to start to look at the effects of that.

What we are arguing, and we think the statistics are overwhelming, is that the income earner has been paying a greater and greater share of the cost of running the government while in other sectors of the economy their costs have been shrinking. Even within the individual, those at the top of the scale are paying less than what people are paying at the middle or the lower.

I know tax increases are not popular, but we would argue that somebody has had one hell of a good public relations firm over the last 15 years and they've sold a pretty good bill of goods. Somebody's going to have to take that.

Teachers don't take their money and put it in a sock and hide it under the bed. They're in the communities, they're spending, they're buying the houses, they're buying the refrigerators etc. Keep taking that money away from them and the local economies are going in the dumper. I'm going to Cornwall tonight; they've got 50% unemployment down there. The only people working are the public servants, and to suggest you're going to reduce their salaries doesn't make sense.

The Chair: I thank the Ontario Secondary School Teachers' Federation for its presentation.


Ms Gwenlyn Setterfield: My name is Gwenlyn Setterfield, the executive director of the Ontario Arts Council. With me are Mr Michael Woods, a member of the board of the Ontario Arts Council, and Susan Cohen, the director of arts discipline programs at the council.

We would like to thank you very much for the opportunity to speak with the committee this morning. I'm particularly pleased to see that at least three members on the committee I personally have met before. We certainly all know Ms Haslam, who was the former Minister of Culture and Communications and a great supporter of the arts in Ontario. Mr Phillips we met last year at this committee. Mr Carr I met at a dinner for business and the arts in Oakville a couple of years ago. Good morning.

We would like to make a brief presentation. Each one of us will speak to some of the issues involved, and we hope to leave plenty of time for questions from each caucus.

For the benefit of the members who perhaps do not know the Ontario Arts Council, we are an agency of the Ministry of Culture, Tourism and Recreation, and our budget this year is $44 million, about one tenth of 1% of the provincial budget.

The council is often perceived either as dealing with a lot of individual artists who are going to go off and write poetry in the south of France or, at the other extreme, supporting those élitist arts for the richest people in the province. In fact, the scope of what the Ontario Arts Council deals with is much wider than that.

We make an investment every year in approximately 900 organizations in 362 communities around this province. We also support approximately 1,800 individual artists each year. The average grant to an individual is $2,400, so you can see that our artists are not living in the lap of luxury on the grants they get from the Ontario Arts Council. Most of that money goes as small grants to allow artists to do projects in the community, for the most part.

The Ontario Arts Council deals primarily with the not-for-profit sector, but we also deal with the cultural industries, with the commercial sector in one way or another, and with the volunteer sector. We would like to make the point very strongly that this is really all one sector, one viable microeconomic sector, if you like, in the panoply of economic activity in this province.

The artists move back and forth between the commercial sector and the not-for-profit sector, and organizations -- publishers being a perfect example, but there are design groups and so on -- that work both in the commercial cultural industry sector and in the not-for-profit sector. They move back and forth.

You may have noticed recently a number of articles about the fact that the presence of a healthy and viable commercial theatre sector in Toronto, for example, and a very thriving commercial film sector in Ontario are being fed by the pool of highly creative talent that is developed in the not-for-profit sector. It is in fact the commercial producers who are making those acknowledgements themselves, Mr David Mirvish being one who has been quite vocal on that subject.


I would like to add a comment about the discussion we just heard with the teachers about levels of wages and the effect of the social contract on the lowering of wages. In the arts sector, the artists are looking still for a living wage. They have not yet got to the level of a living wage where you can start to talk seriously about what kinds of contribution they can make back to the community. The average dancer in Ontario makes about $16,000 a year. On average, most artists earn less than the average for the whole province of Ontario. It's somewhere in the low 20s. When we talked to the artists around the province in terms of our strategic planning, they weren't whinging and whining about wanting more grants and more support and all of this sort of thing. They just said, "Give us a living wage for the work we do."

That is the message the Ontario Arts Council has been trying to make to the government. In fact, we're bold enough to say that we would like to have added to our budget this year $3.9 million to do the kinds of activities that will help the artists meet the marketplace: to initiate more touring around the province, more interchange between regions, to allow the artist more access to information and service in terms of accessing foreign markets -- the craftspeople, for example -- to assist the designers. I think Ms Cohen will speak about that further.

The second point I'd like to make is that the artists are really on the leading edge. Of course everybody has said for decades that the arts are on the leading edge, but in a very practical, economic sense the arts sector here is a model for the new economy people are talking about. This is small, local, labour-intensive economic activity all around the province. We have heard this morning about the relationship of public sector funding to private sector involvement. The arts have been doing that for years; the arts are a model for the involvement of private and public sector activity. The arts in fact are providing many of the best fund-raisers to the education sector, to the health sector. We're training them. We're paying them $15,000 a year and then they're going off to work for the hospital or the local college or whatever it is. And if the teachers' federation wants to know how to run a bake sale, boy, can the arts ever tell them how to do it.

The third area we are particularly concerned about is the arts for young people. Again it makes some connection with what we've heard this morning. Last year, for $2.5 million that the Ontario Arts Council put into arts and education programs in this province, 750,000 students had some connection, meeting, experience with artists in the schools. This is not entertainment; this was not money we put in to entertain the students for half an hour or an hour so the teachers could go off and do something else. For the most part, this is involving the students in creative activities in the schools which help those students to develop some very hard skills that are among the basics they are going to need in the next decade and the next century. Through the arts experience they learn in the schools, they develop focus, problem-solving skills, a commitment to excellence, self-discipline, an understanding of the world and world cultures around them.

We did make this presentation to the Royal Commission on Learning about these issues of arts and education and through that presentation made a very interesting connection with the chambers of commerce in Ontario. We found that the sets of skills which hard research shows are developed through the arts are the same kind of skills that business is identifying as being essential for students in the next century.

To sum up my opening remarks, the artists are looking for a living wage; we are part of and a model for the new economy, the labour-intensive, highly educated, highly creative and partnership kind of economy; and the arts are essential for our young people in terms of developing their skills for the coming decades.

I know this committee is interested in the Fair Tax Commission and those recommendations. We have not had the resources to look at that report in detail and comment on how it affects the sector we're concerned about, except for the discussion around the melding of the two taxes, the GST and the PST. This would result in the provincial tax being applied to books, and we support the publishing and booksellers and reading coalitions to protest against the tax on reading. Canada is one of the few countries in the world, since the advent of the GST, which taxes its own books.

I would now like to turn to Mr Woods, who will make some statements from the point of view of the volunteer in the arts community.

Mr Michael Woods: I'm Michael Woods, a board member at the Ontario Arts Council. In real life, I'm an accountant.

Over the last two or three months I've had a number of comments from certain of my friends and colleagues that the arts organizations in Ontario are not particularly well managed. The first point I'd like to make today is that they are. I have a number of clients both in the non-profit arts sector and also in the other cultural industries. Arts organizations are creatively managed. They are perhaps not traditionally managed in a business sense, but of our 900 organizations funded by the Ontario Arts Council, I believe three have closed their doors during the last recession, which is a remarkable record given the difficult fund-raising environment they've had to work within and given the cutbacks from every government source except for the Ontario government. The Canada Council has cut back quite dramatically in its funding to the arts, and many municipalities have felt the pinch and have cut back as well. I'd like to go on record now as saying that in my experience and from our statistics the arts community is in fact well managed, in a very different sort of sense.

We do create jobs. The 129 performing arts organizations we fund have total revenues of $161 million, approximately one third of which is provided by the government sector. The government contribution is leveraged through private sector revenues, box office receipts and a very large volunteer contribution. There were 107,000 volunteers in Ontario in the arts community last year.

All of this -- the government contribution leveraged through these other sources -- creates jobs, economic and social benefit in large and small communities throughout Ontario. I'm from Sault Ste Marie originally and spend much of my vacation time back in the Sault. The Ontario Arts Council funds many touring theatre presentations in the north. Sault Ste Marie has a very dynamic art gallery, some of which the local steelworkers don't particularly like all that much. The only reason for the art gallery in the Sault is because of the Ontario government.

Ms Susan Cohen: My name is Susan Cohen, and I am the director of arts discipline programs at the council. I want to give you some very specific examples of how artists contribute to creating wealth in this province, and not only creating wealth but creating a presence for this province throughout the province, outside this province in the rest of Canada and outside the country.

You may have read the January 10, 1994, article in Maclean's, which was titled "How the Canadian Design Industry is Losing Out." This is a very important article and it made a very important point, that many Canadian companies ignore the importance of design, and it shows in their inability to capture a fair share of the international marketplace.


We at the Ontario Arts Council have recognized the importance of design for a very long time, and two years ago instituted a new program with some major funding from the Ontario government which is expressly looking at the creation of innovative design projects and their connections with industry and the marketplace.

I wanted to draw your attention to one particular example where artists are working with industry, but also working with industry to address social and economic problems, particularly working with unskilled workers. That is a small grant that we made just last year to Michael Fortune, who is the most recent winner of the $20,000 Bronfman Award, the most important award in crafts. Michael Fortune has developed a project called the community economic design project in which he is actually developing furniture design and small products which can be made by unskilled labour forces in economically distressed communities. In fact, the first chairs have actually been designed; the prototypes are available. This kind of model will now be taken not just throughout Canada, but I know it's being looked at in the Third World as well.

Another example of the importance of the role of our funding and the way it can generate wealth and more revenues is an example of new administrative models that the arts community, perhaps because it has existed on marginal funding for so long, is incredibly adept at. You heard Gwen and Michael talk about the importance of touring, and many companies have their own what they call "booker." This is an employee whose function is to go out and get engagements for a company. Generally, one company has one booker. This is quite costly. In the case of dance companies particularly, which have a very large international marketplace, there are enormous costs associated with it.

About three years ago, four dance companies in Toronto got together and decided that rather than have one booker each, they would have one booker for the four of them. They developed, through the assistance of the Ontario Arts Council and with the assistance of Ms Haslam's ministry at the time, a model called Four Dance; that is, one booker employed by the four companies.

The grant from the Ontario Arts Council in 1992 was just $20,000. I'm delighted to tell you that in 1993 and 1994 and in the years coming up, 1995 and 1996, this small grant of $20,000 is going to generate over half a million dollars in artistic revenues and tours.

It has led to the Toronto Dance Theatre recently having a one-week, completely sold out engagement in New York to rave reviews from the critics at probably the most prestigious dance house in North America. They are about to engage on a three-week tour of Germany and Poland. The company hasn't even arrived, but the bookers in Germany and Poland are actually talking about bringing them back after this year as well.

Next year the companies -- Desrosiers Dance Theatre, Toronto Dance Theatre and others -- are going to be touring Japan and China. It is the companies that are our presence, the presence of this province, abroad.

Ms Setterfield: I would just like to sum up the major points and add a couple of figures.

We sponsor every year a large trade fair which brings together the volunteer and professional presenters of touring activity around the province to see showcases and meet the artists and meet the bookers and meet the promoters. This year that activity generated about $2 million in artists' fees in the province.

Finally, another anecdote. Just within the last couple of years, one of the cabinet ministers of this province was in the Middle East -- he tells this story himself publicly -- trying to promote Ontario's industry. An official of one of those countries said to him, "If you really want to have some credibility here, send us Maureen Forrester." He was somewhat taken aback and said, "Why Maureen Forrester?" He said, "Because Maureen Forrester is your most prestigious and accomplished singer, and when we see your accomplished artists, we know that your other products will be of the highest possible quality."

Our artists are good ambassadors. They're a good investment, but I do want to say that I can sit here for a long time and spin out numbers for you -- we have very good hard data which we're quite willing to share with you about the economic value of the arts to this province and to this country -- but at the end of the day, the arts are really about the soul of this province.

Despite all of the misery and unhappiness, the economic recession and all of the problems we face, when I go around the province I hear people telling me they really do want the arts in their community. They want it for themselves, they want it for their children and they want it for the old people. They want that experience of the arts, because it is just something that is important inside. It's something you can't measure in numbers. It's something you can't really describe but you feel it, and they try to tell us that. They feel it, they want it, they're asking for it, and that's really what it's about at the end of the day.

Mr Carr: Thank you for a fine and thorough presentation. As usual, you give us a very good insight.

I have a question about what you hear may be happening in terms of the funding. Do you hear that it's going to be frozen or do you have any sense from the government about what's going to be happening? Have you got any feedback whatsoever in your dealings with the government and the ministry?

Ms Setterfield: The ministry is always very supportive and it has said that it will try to protect the budget of the Ontario Arts Council. We're hoping for $3.9 million extra, less than the cost of a postage stamp per capita. The government has been supportive and has said it will try to protect the budget.

Mr Carr: What they're saying is that Finance is the ministry that will ultimately do it and so on, but, "We're around the table pushing for you." Is the ministry doing that with all the programs or is it making allocations and saying, "Yes, you're priority number one or two or three?" Do you have any sense of that at all?

Ms Setterfield: No, I don't. The ministry has said it is concerned about the agencies, and we are one of a group of agencies in the ministry, and it is trying to protect the budgets of the agencies.

Mrs Haslam: Backing up what has been said, I disagree with you on one thing. I think you do need to give us the hard data on the spinoffs and on the revenue generated, because I can remember seeing -- I looked for it -- a one-pager that said, and it was something I tried to stress the last time I went with the budget to the ministry, "This is what you spend on the arts, but this is the spinoff. This is what you give us and this is the millions and millions of dollars that come in in revenue," and that's not counting the additional job revenues and all of that. I know those facts are out there and I know there's a one-page sheet.

Ms Setterfield: I thought it was in your package. If it's not, we'll certainly get it to you.

Mrs Haslam: There's another one I've seen that shows us, in a business manner, the income versus the output, what government puts in and what comes back to government in taxes, what comes back to government in increased revenue within the community. There's another one that came out of the Ontario Film Development Corp -- I know it's not the arts council -- that said, "For the amount of money we spend and put into film, we make billions of dollars in Toronto alone out of that money."

I think that's important for this finance and economics committee to look at; that's what we're looking at. I can sing the praises of "We wouldn't be Canada without our artists; we wouldn't be Canada without our culture; we wouldn't be Canada without our libraries; we wouldn't have the communities we have without these people too." But look around you. I'm the woman here, and Irene Mathyssen, but you're talking to a finance committee and I think it's important that you bring those types of facts and figures to the finance committee.


What was your budget three years ago? You said it's $43 million now, and to me that is quite a drop.

Ms Setterfield: It's $44 million.

Mrs Haslam: It's $44 million now, and $63 million sticks in my mind from a few years ago. What was it a year ago and what was it two years ago?

Ms Setterfield: Last year it was the same as this year, and this of course is the net -- we haven't included the social contract. The budget was frozen last year; the year before that it went down by 1%; the year before that was when we had a $7.5-million increase. We've never been over $45 million.

Mrs Haslam: I beg your pardon. I was thinking of TVO.

Ms Setterfield: We'd love to have the TVO budget.

Mrs Haslam: TVO has the $63 million; the arts council has the $43 million.

Ms Setterfield: It would be equitable. We serve the whole province too.

Mr Phillips: I appreciate the presentation and I agree with your concern. There's always a danger in tough times that we can squeeze these things and I very much appreciate that this isn't what we should be doing. Your definition of life is important, and if we just go through life trying to accumulate things and trinkets, then we're not really enjoying life. You add a lot to the real fabric of the province and I want to congratulate and thank all the volunteers who I know just devote their hearts and souls to it. I appreciate it very much.

The challenge is that we are all into tough economic times. Almost regardless of merit, it's tough to respond to each thing as individually as you'd like, and what you're asking for here is something like an 8% or 10% increase in the budget. It's often easy in opposition to say, "We'll certainly support that," but realistically there's not going to be an across-the-board 10% increase in budgets, as worthy as yours might be.

My only thought is that what we're seeing in other areas is some of the most creative financing imaginable. The construction sector realized it's going to have to figure out some new way of spending money, so it's going to things like toll roads and private sector sewage treatment plants that get funded by water rates that they get somebody else to raise. We're seeing a plethora of creative uses of finances. In my opinion, some of it needs to be fully experienced and exposed. The teachers were just in here, and one of the ways they've been able of help to phase things through is by an enormous holiday in payments to the teachers' pension; that will be picked up in two or three years.

What I'm saying is that you have an awful lot of people in your organization who know finances really well and I think you'd be well advised to be looking at some highly creative solutions. I don't know what they are, but you are "competing" for resources against other sectors that are looking at highly creative uses of finance. We will be as helpful as we can in making sure you get your fair share of the expenditures, but have you exhausted those creative financing areas?

Ms Setterfield: I don't think we've exhausted them; I think we have a lot of good examples. The council itself, for example, this year entered into an agreement with TVO because we fund video artists and there is a huge problem of distribution. For a very small amount of money strategically put in the pot with TVO's small amount of money, we were able to get a series of programs which are being distributed, showing around the province the work of those artists we're funding. We're looking at a lot of those kinds of things.

Mrs Haslam: We've already been doing it for years.

Ms Setterfield: We've had a lot of partnerships.

The Chair: I thank the Ontario Arts Council for making its presentation.


The Chair: The next presentation is by Mr Tim Whitehead, representing the Canadian Imperial Bank of Commerce.

Mr Tim Whitehead: Thank you, Mr Chairman and members. As an economist, I can say that it's always a great thrill to be invited back anywhere, and it's also a very unusual thing. I do appreciate the honour of being invited back once again this year. I understand I've been given 15 minutes.

The Chair: No, you've got a half-hour.

Mr Whitehead: Fifteen minutes for my preamble, I guess.

The Chair: However you want to divvy up your time.

Mr Whitehead: I'm going to try to be fairly brief. I've been asked to talk about the economic outlook and my impressions of the report of the Fair Tax Commission. I'm going to be extremely brief on the economic side. In the handout, the first page shows a comparison of the Ministry of Finance's economic forecast released in November and our own economic forecast, that is, the CIBC economic forecast for Ontario, released just yesterday. You'll see that there are considerable similarities; not much difference.

We're a little bit more optimistic about consumer spending, and considerably more optimistic about the housing market picking up in 1994. We'd highlight that as one area where we're a little bit more hesitant about our forecast. We're certainly more optimistic than the province, but the difference is not great.

I want to talk very briefly about the fiscal projections for the province, because this has been an area of discussion in the past. I have been asked several times about it. My own sense is that the economic forecasts of Treasury and Economics, and latterly the Ministry of Finance, have not been too bad when forecasting for the year ahead. When they released their forecasts in the budget, the forecasts for the year have generally been fairly accurate on the economic side.

Page 2 of the handout I've given you shows a couple of comparison charts; the line is what actually happened and the dots are what the forecast in the budget indicated would happen. You see that they miss a little bit, but if economists could really foresee the future perfectly, we'd all make so much money we'd be concerned about the wealth tax. In fact, their forecasts have not been bad on the economic side.

On the revenue side, however, I would point out that they've been a little bit less accurate. I've listed some of the complicating factors as far as forecasting revenues go, but my general sense is that they've tended to be too optimistic in the past. Whether this is a systematic problem related to the growth in the underground economy or just changing economic structure, I don't know and I'm not in a position to give you a really solid opinion on that, but my gut feel and my opinion every time the budgets have been tabled has been that they've been a little bit overoptimistic on the revenue side.

The suggestion I would make, and I call it a recommendation, is that in terms of fiscal projections when you're looking out over several years, the government should not assume real growth of anything greater than 3%. I note that in the economic projection the province has going out beyond this current fiscal year, it is considerably more optimistic than 3%, and I think that's a bit like hoping you'll win the lottery so it will solve your debt problems. You can't assume growth much stronger than 3% on a continued basis, and I think budgeting would do well to take that more cautious fiscal, economic forecast into account.

I want to devote most of my time to talking about the Fair Tax Commission. I have three major, fundamental problems with the Fair Tax Commission.

The first is that its focus was almost entirely on fairness. Now, that came from its terms of reference, and to be fair to the commission, it took into account a lot more than fairness. They considered the underground economy, they considered the economic impacts of tax changes and they went beyond what the terms of reference specifically indicated.

Even so, I think it would have been a very different report had they been looking at what was good for the economy and what was fair in a broader sense than the one they chose. I have a particular problem with their choice of definition of fairness. They indicate basically two principles: horizontal equity, that people in like situations should be taxed equally, and progressiveness.


Some of the commissioners, in particular the co-chair of the commission, indicated there really wasn't much good analytical substance to the choice of progressivity. They really did not address the problems of progressivity as a guiding principle in fairness in taxation. Aside from everything else, this leaves the commission's report open to some criticism and weakens their case.

The second thing is that I'd suggest the analysis was weak in a number of places. I think this partly arose because of the way the commission tried to go about its work. They were trying to -- and I think one of the commissioners mentions this -- balance competing views and see if they could find a middle ground. That, in many cases, quickly degenerated into brokering, trying to get agreements on principles.

In trying to do that, I think they stepped away from doing rigorous analysis. In particular, as I mentioned, I think they were weak on the analysis of progressiveness in the tax system. The employee health tax was given short shrift, given the problems that I'm going to talk about in a few minutes. One area that I thought was particularly poorly dealt with was the taxation of alimony and support payments.

The third comment I have, and this is more a substantial comment about the commission, is that a lot of the report's -- I didn't bother counting them up -- recommendations suggest or are directed at taxing savings, either directly or have the impact of taxing savings and discouraging savings. I can go through and list them, but the big problem with that, totally aside from whatever definition of fairness you want, is that if there is a sure thing in economics, discouraging savings discourages your long-term growth.

However fair you might view it, if you hit RSP contributions, if you try and reduce the returns from capital, if you try and make the tax system more progressive, you're going to discourage savings and you're going to discourage your long-term growth, which is the source of your long-term hope for jobs. I view that as probably the biggest shortcoming of the commission's report.

I sound very critical. I do think the commission accomplished a couple of things. I think it created a worthwhile debate about the tax system in Ontario. As some of the commissioners indicated, they changed their position as a result of the analysis and the studies and the review they conducted, so I think something positive came out of it.

I'm just going to deal with a few of the areas of recommendations in my comments. You'll be happy to know I'm not going to deal with all 135 of them.

The first area is the recommendation about opening up the budget process. I'd like to endorse, in broad terms, what the commission said in terms of opening it up, creating more discussion, getting more feedback and removing some of the secrecy that surrounds the budget-making process presently. I think the secrecy is unnecessary. I think there are few opportunities to benefit from inside knowledge or advance knowledge of what might happen in the budget. There are a few, to be sure, but they can be handled. In the broad sense, there's not an awful lot that cannot be dealt with publicly as opposed to secretly.

Secrecy causes a lot of problems. In the runup to the last few Ontario budgets, there have been fluctuations in the financial markets related to uncertainty. What will the deficit be? What will the numbers be? What will they do with taxes? Those fluctuations have had a cost and it's an unnecessary cost, as I indicated.

In addition, I think the black-box nature of the budget-making process leads to some scepticism about the functions of government, how well it's done or how fair it is. I think that has contributed in some small measure to the underground economy, that people say: "I don't understand this thing. I think they're doing stuff behind my back. I don't feel so bad about holding back on my taxes."

Opening up the budget process is a very good recommendation of the commission. I would add to it, as my perennial recommendation, that you've got the Fair Tax Commission now and I think it would probably be worthwhile to have a Fair Expenditure Commission that would open up the expenditure side, perhaps on a piece-by-piece basis, to public scrutiny. I notice they've done that in Nova Scotia. There they've used accounting firms to do audits. I think you could do well to have a more public process to deal with the expenditure side.

One of my hobby-horses is the employee health tax. I found it kind of ironic reading the Fair Tax Commission report. They do a very good job of documenting the problems with the employee health tax, but then they go on to recommend changes to make it a bit broader. The fact is that while most taxes have some problem -- there's never a perfect tax -- the employee health tax is a bad tax on almost every single count. The only thing that can be said for it is it raises a lot of money. It's a hidden tax. It's tax on employment. It's got to be the most bizarre thing, that here we are with extremely high unemployment and what we do is put a tax on employing people. I can't imagine a more bizarre situation.

Also, the Fair Tax Commission documents fairly clearly that the burden of the employee health tax falls mainly on labour. I would argue, for a number of reasons, it falls disproportionately hard on the lower end of labour income. If you're making minimum wage you bear more of the burden, the incidence of that tax, than somebody making $400,000 a year, because the person making $400,000 a year has more clout, has more mobility and, as the tax commission pointed out, the least mobile factor is the one that bears most of the incidence, in most cases, of tax.

My own calculation -- I've included a chart -- is pretty rough, but it suggests that the incidence of the tax is moderately progressive over the lower income range but extremely regressive when you get to higher income levels. It's a bad tax for a whole host of reasons, but I recognize that it's a huge chunk of money in the budget and you can't just do away with it because an economist tells you that it's a bad tax. Rather, I would argue that you should de-emphasize it and work to reduce it. Certainly a number of provinces which have wage taxes have done that.

I note that the commission totally overlooked the fact, when it mentions that Quebec has a payroll tax, that in the last budget Quebec also introduced a tax on non-earned income because they argued that it was totally unfair to put the burden of health care, at least partially, on wages and leave unearned income alone. The point is that they were recognizing implicitly the regressive nature of the tax, and the fact that the commission overlooked it is a little bizarre. I think it should be de-emphasized. I would argue that we were better off with a premium system than we are with employee health tax.

Just one final point here; I know I've gone overlong on this point. After the employee health tax was introduced in Ontario and people pointed to Quebec and said, "Well, they've got one, it won't be a big problem there," the differential in the unemployment rates between Ontario and Quebec narrowed from about 4.2% to a little over 2%. There are a whole bunch of other factors there, but I would argue that a tax on employment contributed to that problem.

I'm going to be fairly brief on my other comments.

On the retail sales tax: One of the impressive results from the commission was that it did recommend harmonizing with the GST. It's all the more impressive because I know that a number of the commissioners were adamantly opposed beforehand and even the working group was quite divided on it. I think this is a good idea. It's obviously going to be held in abeyance until some resolution at the federal level as to what's going to happen with the tax, but if it's possible to harmonize the two sales taxes, I think it should be done.

I also believe it would be best to broaden the sales tax base, to include as many goods and services as possible, but at the same time to try and address the obvious regressive nature of expanding the tax base through the income tax system.

Environmental taxation: The working group did a lot of work on what should happen to the tax for fuel conservation and talked about the taxation of gasoline and motor fuels. I don't have really too much of a complaint with some of their recommendations. One I would suggest is that a far easier way to reduce automobile emissions would be simply to require that at the time of renewal of the licence for a car you show proof that you've had an annual tune-up. A number of states in the US do this. It would add a little bit of cost to the car owners but it would certainly reduce pollution in a far more efficient way than almost any tax we could think of putting on it. It's said that about 50% of the car pollution comes from about 10% of the cars, so if you had tune-ups you would do far more than any tax system to reduce car pollution.

On property tax reform, a couple of caveats to the recommendations from the commission. Obviously most people seem to agree that funding public education through the property tax system has a lot of flaws and doesn't have much logic, except it seems to work within the system. I would argue that the commission's recommendation to restrain local property tax funding of education to 10% of the provincial grant is probably not a good idea. You should leave the local communities more leeway to decide if they want to fund more for education.


As I've said elsewhere, if the county of Perth wants to put more money into its education and believes that's the best thing for its youth, it should be allowed to do so, totally aside from what the province decides to do. I also believe that a tax base at the local level should be smaller than it is now, but having tax funding for education at the local level probably keeps local taxpayers on the alert and school administrators on the defensive.

On the property tax itself, the commission said it received almost two thirds of its submissions on the basis of the property tax. I think the reason is that when you get a property tax, it's very personal; it's your house, it's your property. There's some arbitrariness there, and I think that causes people more problems than almost anything else.

My recommendation, and it's fairly simple and doesn't get into a lot of detail, is just to keep the system as simple as possible. If you can have province-wide rules, I was intrigued by the idea of taxing on the basis of house square footage and land square footage as a means of applying the property tax. That's simple, it's straightforward, and allows the message to be put through to the home owners.

Finally, on university tuition, the Fair Tax Commission really didn't talk about it, but it struck me that a useful idea would be to encourage the Council of Ontario Universities proposal of GOALS, guaranteed Ontario assistance loans to students. The idea behind it is that universities be able to charge tuitions, have more freedom to charge their tuitions, and more of the funding would come through loans to students. In fact loans could go beyond just covering tuitions; they could cover more of the education costs to students.

The effect would be to reduce the requirement for the province to fund post-secondary education in the province. To the extent that more of that cost is put upon the student -- be it university, college or what have you -- in a sense you're capturing some of the future benefits that accrue to that student as having participated in post-secondary education.

In a roundabout sort of way, to the extent that you reduce how much the province has to contribute to post-secondary education, you're also putting a bit more of the burden of public education on the students, who in effect, having graduated from high school, are one of the key beneficiaries of public education. To the extent that you can shift some of the funding from applying it to universities by means of using GOALS to putting that funding into the public education system, I argue that you're coming closer to taxing the benefits arising from public education.

Let me stop there. I think I've left you a few minutes for questions.

Mrs Irene Mathyssen (Middlesex): I want to go to your third page. You talk about a concern about taxing savings. That flies in the face of what I'd heard in terms of the effect of people socking away too much money. Specifically, when people in the car industry were talking about the health of the economy and the problems with selling cars, they said that their worst competitors were RRSPs and that there were no purchases of new cars in the months of January and February because everyone was topping up their RRSP contribution. That was a problem for them and it affected the economy generally in a negative way. Could you bridge the gap between what I have come to believe and what you're saying here?

Mr Whitehead: That's a good question. In the short term, increased savings really just take money out of the economy, at least in the initial sense, because it's less money spent on consumer goods, and that's what we typically see as driving the economy. But in the longer term, if you have a country that does not save very much, it almost invariably is a country that does not grow very quickly.

Aside from the short-term impact of encouraging savings, there's a bigger question of long-term growth, and that really relates to how much savings you have in the economy. There's a tradeoff there, but all the economic studies I've ever seen indicate that it's a bad tradeoff to say, "Let's discourage saving now and let's get some more spending out there," because you usually pay for it in fewer jobs and less growth over the longer term.

Mrs Mathyssen: It's because those savings are used by institutions to invest, so we have to encourage our institutions to invest in Ontario, to invest in Canada rather than offshore, and create growth and opportunity here.

Mr Whitehead: I would agree with that, but I would also point out that most of what we're talking about here in terms of the tax incentives is not institutions. They're individuals, and we're really trying to encourage them to save. There's also the byproduct that if you don't get people to contribute to their RRSPs and save for themselves, there's a much higher pension bill down the road for the country as a whole.

Mrs Mathyssen: Speaking of the pension bill, some of the projections are that we are simply not going to be able to provide for the needs of people who are currently paying into pension plans like Canada pension, much less future generations. Is that your sense?

Mr Whitehead: The problem with the CPP is it's always been a pay-as-you-go system and it was never fully funded. We were always living on borrowed time. So as we go on into the next century, the problem with the pay-as-you-go system is you've got to have virtually the same amount of money coming in as going out. As the population ages, that means there's more money going out; you've got to have more money coming in. Just by demographics, that means the contribution rates are going to have to rise; but rise they probably will.

The other assistance for seniors comes from the tax system, the general revenue system, and I would argue that's more at risk than anything else.

Mrs Mathyssen: I understand that the CPP's been traditionally underfunded. What on earth was the rationale of past federal governments for doing that? Obviously they knew there was a problem that was going to hit them between the eyes.

Mr Whitehead: I could be very cynical about this and say it's nice to hand out money and promise that you'll collect enough money down the road, but I think that's a large portion of what happened here. It was nice to be able to say right up front: "Look at this. We've got a new program that's going to be able to contribute to seniors and, by the way, the tax rate is pretty low too."

Mrs Mathyssen: Sort of desperately hoping you're not in power when you hit the wall, or when the wall comes up and hits you.

Mr Whitehead: Again to be cynical, I don't know that I've ever met a politician who desperately hoped they weren't in power. They hoped it was somewhere down the road.

Mr Phillips: We've listened to various economic forecasters and they've kind of bracketed the government's numbers for 1994. I take it that you would be saying they're not far off and that what they are projecting is defensible.

I appreciate your comments on fiscally prudent approaches in terms of looking at revenue. Something has changed in the economy and it's more difficult to predict revenues than it was in the past, for whatever reasons, and I accept that.

In terms of your recommendations on openness, I think everybody supports openness. It's ironic to all of us, though, that we've got virtually no information that we're working with right now. We don't have a clue of the government estimate of expenditures, and normally we've got something. I don't think this committee has ever operated in more of a vacuum than we're operating in right now, for timing reasons, I guess, but we don't even know the transfer payments. We are going to be somewhat impotent, in terms of our recommendations next week because of that. Having said all that, we're all saluting openness. In reality, I'm not sure of what hasn't been available in the past and what will be available, but we'll see at the end of this process.

The harmonization we've heard a lot about. Virtually everyone who's presenting to us seems to be trending in that direction.


The university tuition one is interesting in that your recommendation is fairly consistent with where the government would like to go: How do you find new sources of revenue? One way you find new sources of revenue is you get it off your books and on to, in this case, tuition. How do you get people willing to pay more tuition? You give them this GOALS thing. Essentially it's a way to keep spending money without having to tap the taxpayers. I would speculate that those sorts of things will see some government support.

Your recommendations on property tax reform: You're actually supportive of a square footage. I think that will be an interesting debate. If people 125 years ago had said, "My property tax will depend on how big a home I buy," I think we would have seen a lot smaller homes and a lot smaller lots bought. I think we will have an equal debate around that as the people who may have moved to north Ajax to buy a big home will suddenly find, "Whoops, I've been tricked into this." But you support a square footage.

Mr Whitehead: It's simple, it's identifiable, it's intelligible. I've argued elsewhere, and had economists pooh-pooh the idea, that it's actually an incentive for smaller homes and so in some small way it's energy-efficient.

Mr Phillips: Sure. I think it's a public policy issue if you say, "We want intensification." That's one way tax policy drives public policy. I'm just saying that the rules are going to change in the middle of the game and it will provoke a --

Mr Whitehead: You'd probably want a phase-in, and I think the commission talks about that to some degree, that you can't just change it or else you suddenly hand out a whole bunch of capital benefits to people who bought houses on this system and suddenly benefit, and other people get hurt. They may have bought the day before under a certain tax system and suddenly it changes on them. You'd have to phase it in, I think.

Mr Phillips: As to the annual tune-up for vehicle licences, again, my old cynical nature tells me I think we're heading to two- and three-year licence plates, so you may have to do it every two to three years.

Just in terms of debt-deficits -- you haven't really touched on it here -- we see two things. One is, many economists give us the kind of "the sky is falling" scenario, that we're virtually bankrupt. Then we see, as I said to a presenter earlier this week, the province floats its issue and it's gobbled up around the world in record time and people seem to love it. So the financial community gives us one piece of advice here and then when they're actually laying their money down seem to act in a different way. Just how concerned should we be about the deficit-debt situation?

Mr Whitehead: I'd put it this way. You're never bankrupt until people stop lending you money. When people come and say, "Well, there's no problem here, because the province floated some debt the other day and it was gobbled up and the market seemed to like the stuff," I say that's fine and that's great, and I'm glad they did, but your problem is the day when they don't like the stuff, and then you really hit a wall. How concerned should you be? Usually the phrase is put, how high a deficit would be acceptable to the markets? At what point are they going to get panicked?

My sense there is that the market has been pretty understanding so far, because most other governments right around the world have been facing much the same sort of problem in terms of the size of their deficits. But as we come out of the recession and we come out of it in a worldwide way, I think you're going to see more improvement elsewhere in the world than I would suspect you're going to see in Ontario.

I've run some numbers that I don't think are complete, but my own sense is that given the sort of economic growth the ministry has projected, given the sort of expenditure pressures the province has, it's really hard to get the deficit to close very quickly when you get out beyond a couple of years.

Some numbers I've seen keep the deficit -- all figures added in, taking out some of the off-budget items and putting them back in again -- stay in the $8-billion range right through the next four or five years. I don't think the markets will tolerate that sort of thing. What they want to see is a dedicated plan to get the deficit down. If they don't see any resolve to getting that deficit down, then they will start asking more in interest rates for the selling of your bonds. They won't stop buying the stuff, but they'll keep wanting a higher and higher premium until they see some resolve that the deficit situation's going to get under control.

Mr Carr: I agree very much with the payroll tax killing jobs. We've heard that in many instances, even with the workers' compensation assessment and so on, so I'm glad you stressed that point. I hope we can get through to the government on that as well.

One of the other points that I thought was very good is that most economists who come in are saying we need more and more savings, because if we discourage savings, we're going to discourage job creation. I don't think the government understands that portion of it. Even the OSSTF said: "Don't cut us. Tax the rich more." The problem, as you know, is that when you do that in this day and age, capital flowing the way it does, you don't even need to physically be there. You call your broker and your term deposit of $100,000 can be moved to Switzerland tomorrow, or even to other provinces.

The government was elected on a platform of saying, "We can have all this spending, but we're going to tax somebody else, and it's going to be the rich." The last budget of course had a massive surtax on the middle class. I always use a reference to the average Ford worker in Oakville. He's now hit with a surtax, and when he voted last time, he didn't think he was going to be the one who was rich. The reason is that the bulk of personal income tax comes from the middle class. If you increase it on the rich, there aren't as many there, but these people didn't get rich by being stupid: They just move it to other jurisdictions.

Is that a fairly good assessment of why the theory of "Let's tax the rich to get out of our problems" isn't working? Can you maybe expand on why? I shouldn't ask you this, but if that is the case and that's a platform, why wouldn't Bob Rae as a socialist have done that to get more revenue? Politically, it's not his constituency. You'd think he would have done that before the social contract and everything else. I think that's the reason, because there isn't enough revenue to get from the so-called rich, but maybe there's another reason. I don't know if you can comment on why Bob Rae didn't do it, but give us some idea of why the theory of taxing the rich just doesn't work any more.

Mr Whitehead: I don't know if this would fall under the category of leading the witness, but I've often commented that the big problem with the rich is that there are not enough of them and they move too quickly to be really taxed. This is the problem, that you really cannot tax them in any way that will not lead them to do the sort of things you're talking about, moving the money offshore or putting it in some other avenues to avoid that tax.

In particular, in the Fair Tax Commission's suggestions on the wealth tax, they have pointed out a couple of things. One is that there's a wealth tax in almost every other country in the world, so you could put a tax on that. There seems to be an operating assumption in the Fair Tax Commission that if we're lower on any tax than the rest of the world, we can catch up.

They also recognized that there was considerable mobility in that sort of capital. You could not just have it in, say, Ontario; you had to have it at the very least nationwide, or else you'd have money moving out of Toronto and moving into Winnipeg or Montreal or whatever just to avoid that inheritance tax.

The study the commission did indicated that at a 30% tax rate on any estate over $1 million, it thought you would get about $640 million a year. But if you take a look at the numbers, about $460 million of that comes from estates worth more than $5 million. I would argue that you must have a strange opinion of human behaviour to think that those people are going to sit still and be taxed like that.

On the other hand, you might say, "Okay, if it's done on a national level, there's no problem here, because the key alternative is to go to the States and the States has a tax rate that's somewhat similar." The problem is that the States also has much lower income taxes in most cases.

You've got to look at a wealth tax not by itself but in conjunction with all the things that went right up to it. If you're going to tax income at 50% or 55% marginal rates, and tax any money that's spent after that at 15% when you add the GST and the PST together, and tax any income from your capital that's invested and then tax whatever's left over, I suggest you're creating a very powerful incentive for a lot of that very mobile money to move offshore.

Mr Carr: I agree 100%. I hope that gets through to the government. I won't be affected personally, not at my income, but the economic theories aren't there.

I will tell you this. I think the reason it did sell in the last election is that the public really believes there are a lot of people out there not paying their taxes, for whatever reason. I guess we all like to think we aren't rich. Even some of the people making $90,000 or $100,000 don't think they're rich. There is a real perception out there in the public that somebody else isn't paying their fair share. "It's only me and that's why I've got to do all these things with the underground economy," and so on. It will be interesting to see how that works out.

The Chair: I want to thank Mr Whitehead for making his presentation today on behalf of the Canadian Imperial Bank of Commerce.

This committee stands recessed.

The committee recessed from 1150 to 1408.


The Chair: The committee will come to order. Our first presentation this afternoon is by the Association of Canadian Distillers, and we have Mr Ronald Veilleux and Harold Ferguson before us. If you would identify yourselves for the purposes of the committee members who may not know you and for Hansard, I would appreciate that, and whenever you're ready you can proceed. I know you're ready because you've been waiting for a bit.

Mr Ronald Veilleux: I'm the president of the Association of Canadian Distillers, Ron Veilleux, and I have with me today Mr Harold Ferguson, who is the president and general manager of Canadian Mist in Collingwood, and also helping us with our presentation is Mr Sam Goodwin, near the projector.

Thank you for inviting us. I'm very pleased to be here to comment on the report of the Fair Tax Commission and to make recommendations regarding the 1994-95 budget. "Fairness" is an important word in the vocabulary of all Canadians and particularly of Ontarians. The Fair Tax Commission talks at great length about fairness but does little to address the inequitable treatment afforded to one important sector of the Ontario economy, the spirits industry.

The spirits industry has been on the receiving end of a lot of unfairness in the last decade. The reason this unfairness came about and continues unabated can be attributed to several factors, and I would like to name a few.

Governments, federal and provincial, saw the spirits industry as a necessary evil but nevertheless an evil, not to say the devil itself. As long as government could collect taxes from spirits and as long as the citizens did not abuse spirits too much, it was okay, it was acceptable. No one complained. Therefore, governments gradually over the years imposed unfair taxes, and the consumers continued to purchase. Today the result is that 83% of the price of spirits is tax, the highest-taxed commodity in this country and in this province. Some say this is equivalent to highway robbery.

The industry remained profitable during that period, and passively accepted, year after year, this unfairness. We never complained, even if we strongly believed that the treatment given was unfair. Today the situation has changed drastically. It has now become a sin to tax. Taxpayers are openly revolting and defying the system put in place by governments.

Taxpayers deeply believe it is fair to beat the system, a system they consider unfair. Taxpayers, who consume in moderation in 95% of cases in this province, are no longer willing to pay the exorbitant price imposed by the state on their favourite drink.

The spirits industry cannot take it any more and has become vocal because our livelihood is threatened. If the taxation unfairness continues over the years, our industry no doubt will die. Thousands of jobs will be lost in Ontario and billions of dollars in tax revenue will be forgone. Fairness does not exist in this province as far as our industry is concerned.

Looking at the second page of my presentation, you can see that fairness does not exist at both the federal and provincial levels. Fairness means that all beverage alcohol products must be treated equally, and certainly, looking at these charts, they are not treated equally.

Looking at the next page, pricing structure: Fairness means that all sectors of the beverage alcohol industry must operate under the same rules. If you look at that chart, our industry collects 17% of the consumer price. The beer industry and the wine industry collect 50%. This is unfair.

Looking at the decline of legal spirit sales in Ontario, one sees that unfairness leads to problems. This is the case of the spirits industry where unfairness has forced and continues to force the citizens of this province to opt out of the legal distribution channels and seek the more affordable illegal system. This has led to a large and growing illegal spirits market worth about $800 million per year, according to the LCBO.

It can be seen that unfairness has led to a decline in legal sales, legal consumption, by about 46% over the last decade. It is estimated that the decline in legal consumption or the estimated decline in spirits consumption over the same period has been 20%. The gap between the legal sales and the estimated consumption is 26%. This 26% is the black market that we are facing today. This black market is growing.

Today, I seek fairness for our industry. Without it, this province will lose economic activity of $800 million per year, 9,000 highly paid unionized jobs, $311 million in yearly exports. In addition to these numbers, the province will lose yearly $663 million in LCBO revenue. This is net revenue from spirits for the LCBO. You add all of these numbers and you can deduce that this province, if nothing is done about this unfair tax, will lose about $2 billion per year: very significant.

Looking at it another way, the province has lost about $800 million yearly to smuggling for the last three years. If you project that for the next three years, you can add it up that we will lose in this province about $4 billion over that period of time. Add to this the possibility that the industry will disappear because of the growth of the illegal market, the 9,000 jobs, the $311 million, and growing, in exports and the $663 million net revenue from spirits by the LCBO, and you have a tremendous impact on an industry which will disappear and on consumers who will continue to consume in moderation.

Fairness is the key word. For the distilled spirits industry it means survival. For many Ontarians, it means the ability to continue to work and to produce these spirits which 95% of the population of this province consume in moderation. For the government of Ontario it means collecting billions of dollars which otherwise will be lost to the underground economy.

My recommendation today is therefore a major reduction of taxes. If we go back to the pricing structure of distilled spirits, what I'm recommending is a major reduction of the markup line. As you can see on that line, today the LCBO on every 750 millilitre bottle takes a $9 markup. This is a straight tax. We are suggesting that this should be lowered by $4. By doing this, we believe, as I mentioned to this committee some weeks ago, we will bring back into the system the millions of illegal consumers and therefore the bottom line, hopefully, but I can't guarantee it, will be pretty well neutral. Thank you very much.


Mr Phillips: This is an issue we're facing on the underground economy, that you also talked with us about, and it's similar on the tobacco side. Is there any other solution besides reducing taxes? Normally, one hates to give in to the smugglers by saying, "All right, you win, we'll deal with this by reducing price." Is there any other solution we could be looking at to deal with your concerns in the illicit alcohol area?

Mr Veilleux: Yes, Mr Phillips, there are other solutions, but I sincerely believe they will help but will be just patchwork. Additional policing no doubt will help, but I think what would help a great deal more is a very clear signal from the Minister of Health and the officials of the Department of Health and the officials of the LCBO clearly indicating to all those consumers who are consuming illegal products that they are playing a very dangerous game with their health.

I'm not suggesting here that all of these products are not fit for consumption. I'm only suggesting that several of these cases -- there are millions of cases out there, two million in this province alone -- do not meet Canadian standards and, as I've indicated to you before, a lot of these bottles have been tested and some pretty nasty, toxic materials have been found in these bottles. Therefore, we could warn Ontarians that buying illegally they are not only doing a disservice to themselves but they're also doing a disservice to the province, because the billions of dollars that are being lost cannot be used for other programs that everyone so dearly deserves and wants.

Mr Phillips: Your industry has been one of the first and biggest exporters, I think. Of those 9,000 jobs in Ontario, what percentage do you think would be accounted for by your export business?

Mr Harold Ferguson: Canadian Mist exists in Collingwood to export, and perhaps I could address that matter. The industry exports more of its production than it sells domestically, so I'd say the majority of the jobs would be involved in the export business as well.

Mr Phillips: It's useful. The percentage of your costs associated with taxes versus your competitors, which are the others, wine and -- would that be similar in other jurisdictions? I'm not sure of the historical reasons of how it got to be there; on the surface it looks strange, with beer being taxed at the rate of about 50% of manufacturer's costs and you're being taxed at the rate of probably about four times manufacturer's cost. Would the tax structure be similar in competing jurisdictions?

Mr Veilleux: It's very similar across Canada. The federal tax, obviously, is tendered across the board for all provinces, but the provincial taxes do vary significantly. Ontario and the main provinces in central Canada are pretty well equal, but as you go further west it seems that the provincial tax goes up slightly. In the Northwest Territories they are very heavily taxed. In the Maritimes, it's pretty well equivalent to the western provinces. So there are slight variations from province to province, but overall the prices between liquor boards across the land are pretty similar and the taxes are very similar.

Mr Phillips: Can you refresh our memory on your recommendation of the Ontario tax reduction you would be advocating and what that would do to increase legitimate sales? Is there any reasonable case that it's a sawoff?

Mr Veilleux: We are suggesting that we lower the taxes, as indicated, by $4. That chart we last put on with the price structure demonstrates that the manufacturer's price is -- you add the tax on it, then it's a tax on a tax on a tax on a tax, so it's a cascading effect of taxes.

If you lower the markup significantly, by $4, then the bottom line becomes about $12 to $13 before federal GST and provincial RST. At that price level, $12 to $13, you are competing with the black market. This is the price you will pay on the street for an illegal bottle equivalent to what we're talking about here. Therefore, we believe the great majority of Ontarians, being law-abiding citizens, would prefer to consume legal material meeting Canadian standards and contributing to their social programs and being sure that they will not have negative effects from that consumption rather than purchasing in the black market.

How much, do we believe, of that activity will come back into the mainstream? It's very difficult to answer. It's an excellent question. My guess is that if we lower by about $4, at the minimum we would get back into the system about 25%. It could be 50%, but at 25% you would break even.

Mr David Turnbull (York Mills): What do you base it on when you're saying on the black market? Is there a danger that the black market would reduce its prices? What is the ability of the black market to reduce its prices in response to this?

Mr Veilleux: It's an excellent question. Again, it's part of the difficulty of putting a number on the amount of illegal sales coming back into the system. Obviously, if this province and other provinces -- because there is an impact on other provinces also -- decide tomorrow to lower their tax, the black market will respond. How much of a response can they make? They probably can lower their prices also by a few dollars, no doubt about that.

But if the government of the day decided to lower taxes and at the same time have a significant campaign to warn Ontarians about the negative effects of smuggling on their health and also on the economy of this province, I suggest that people would come back into the mainstream. The 25% guess I'm making is a guess, a calculated estimate.

Mr Turnbull: What is the approximate composition of the illegal liquor that is sold in Canada in terms of origin of manufacture? I know that with cigarettes a very large amount of the cigarettes are manufactured in Canada, exported to the US and then brought back in illegally. Give me a sense of how much is Canadian product which is brought back in and how much is conventional, say, US product bought in the normal way and then smuggled, and how much is really poor-quality liquor by some sort of fringe-type organization manufacturing it.

Mr Veilleux: Let me answer this question by saying that the cigarette market and the spirits market are very different. Canadians who smoke Canadian cigarettes like the taste, and therefore this is why you see this massive export to the US coming back into Canada.

When we talk about spirits, if I may use an example -- let's say vodka -- vodka is vodka is vodka. It doesn't matter where it's produced. It's very difficult to differentiate whether it comes from the US or Canada. Therefore Canadians are not looking for Canadian vodka or Canadian gin; they're looking for the best price. So it's not Canadian vodka going south coming back north that we're talking about. We're talking about material that has been produced much more cheaply in the United States, exported illegally in bulk into Canada and bottled locally and sold on the market. In some instances it is material with the same labels you will find in liquor stores. Very few of that. In 90% of cases, it is material labelled with labels that we've never seen before.


On the other part of the question, how much of our material exported to the US comes back into Canada, the number we've been using based on some studies we have done through the recycling blue box program -- because that's where all the bottles end up, and you'd be amazed what you find in these blue boxes -- is less than 5%. Here I'm not talking about Canadians going to the United States on holidays, on business, and bringing back into Canada one or two or three bottles. That's not what we're talking about when we're talking about this black market. We're talking about people who bring this material into this country in large quantities and do whatever they have to do with it to get it to the market and to find customers. That's what we're talking about.

That material is produced very cheaply, and generally it meets some standards, but in the process of distribution or bottling, of handling, people who are doing this bottling and handling are not concerned about your health or my health, and therefore this is where the material becomes suspicious.

Mr Turnbull: In terms of the product being distributed here, we know well with tobacco that's it's sold on native reserves and in corner stores illegally. Where is the principal distribution occurring of the illegal liquor?

Mr Veilleux: The principal distributions are very parallel to the tobacco distribution system. The police forces, at all levels I talk to, confirm to me that the tobacco distribution system is also being used to distribute our products.

Mr Turnbull: You mean corner stores and things like that?

Mr Veilleux: Not corner stores. People do distribution door to door with their station wagon or truck, and this is taking place in this province. People sell it after the shift has been completed in some plants where the old truck selling sandwiches and coffee distributes. Cabs distribute it.

I would like, to quote one MP from Ottawa whom I briefed last week. He told me he had received a phone call the day before from one of his constituents to the effect that the local distributor -- everyone knows him -- had just delivered across the street, and he said across the street is the church. I was very surprised at that and I asked the MP if I could quote him on that and he said yes. That's why I don't mind saying this publicly.

It's very pervasive. It's all over the place, to the point that one in four bottles sold in this country is sold illegally, and one in four in this province. This is growing because there's a strong revolt out there, and also because of the fact that Ontarians and Canadians possibly don't realize they are playing games with their health, and that's serious.

Mr Turnbull: Does the justice system have enough teeth to be able to deal with this at the moment? For example, if somebody's caught fishing illegally or hunting illegally, they can seize their vehicle. Is there any such parallel with people distributing alcohol?

Mr Harold Ferguson: Customs penalties have been increased dramatically, but again it's a matter of apprehending and of using the judicial system, and we all know how long that takes.

Mrs Haslam: To quote what you have just brought forward to us, you are asking for a major reduction in taxes. You're asking for $4 to be taken off per bottle and saying that, bottom line, that would be revenue-neutral. Do you have a dollar figure in taxes the government would lose should that come into effect?

Mr Veilleux: I have a figure. I'll base my response on the volume of legal sales done in Ontario on a yearly basis. In Ontario on a yearly basis, the LCBO sells about 4.7 million cases of spirits, so if you have 12 bottles per case times $4, if my calculation is right, you would lose about $240 million. But then you would gain the illegal material coming back in. This is where you --

Mrs Haslam: Yes, but you said it would be bottom-line-neutral. You said only 25% would come back into this system and we would be lucky to break even. The reason I'm concerned is that just recently we had the children's aid society come in. We all know it's a very tough time out there. Families are suffering. They are in a crisis situation where any further reductions to transfer payments put them in jeopardy, put children in jeopardy.

For those who come in and say, "Please, we need more money; education needs more money; health care needs more money; social assistance and the children's aid society need more money," we need to know where to cut in other areas so that I can write to the Treasurer and say: "I want more money to the children aid's society. I want more money to health. I want more money to education." We're asking where we would cut, because you've now come in and said, "We want you to cut taxes."

I have a concern here because we are getting people coming in and saying, "We want you to reduce taxes," and on the other side we're getting people saying, "If you reduce those taxes, then you have to make cuts to us, which affect our children." I'm asking you what I asked the children's aid society: Where would you make the cuts to make up for your revenue-neutral or for other additional expenses we're going to have to come forward with?

Mr Veilleux: I'm not qualified to recommend where I would make the cut and I therefore would not make that recommendation, but what I want to underline here is that my proposal goes exactly in the same direction as your proposal of helping people who need it the most.

If nothing is done with this industry, as I have indicated, billions of dollars are going to disappear. People in Ontario will continue to consume in moderation in 95% of cases and the abusers will still be there, but the billions of dollars that you get every year from this activity will be gone to the underground economy. Therefore the needy will have less money if we don't take any action. That's the proposal I'm making to the government. I know it's a leap of faith but if nothing is done we'll lose it all, and that's the problem.

Mrs Haslam: It's more than a leap of faith. I'm going to be very blunt here. In this economic climate, a distillery's proposal suggesting the lowering of taxes and having less revenue coming into the government really puts the government in a very hard spot even if you said, "In three years you could make it back." In three years what if we don't have a children aid's society left in Ontario?

I have a problem with companies and people who come in and say, "We want you to lower taxes," when we as MPPs have people come into our office in dire straits, in social assistance, in children's services, in education. As MPPs and on this committee, we are saying, do you have some suggestions to make? Where would you make the cuts if you sat in our chairs?

Mr Veilleux: I'm sorry I cannot answer that question, but what I can say again is the only way that this province will have the dollars necessary to cover, to continue and to grow the good programs existing in the province is by having a healthy private sector. The taxes have to come from somewhere. We contribute significantly to the tax base of this province. The 9,000 employees we have in this province contribute large sums and our industry contributes. Not only that: the province recoups yearly almost $1 billion from this industry, and if this goes I fail to see how it would help the needy. It will not help; they'll have even less cash.

At the same time, I agree with you. It's very tough for any government, not only the government of the day but any government, to make a very decisive decision here. I don't deny that. It's tough, but what I'm fighting for is the 9,000 highly paid, unionized people out there who see what's occurring in the marketplace, who see their jobs disappear not because people in this province have stopped consuming all of a sudden; people still have one drink once in a while or once a day or once a month or none at all and that's perfectly acceptable. But these people who do consume, and 95% of the time in moderation, are not purchasing it from the legal system. So everyone loses and the only winner in this equation is the underground economy, the smugglers. The needy are not winners, we are not winners, the government of the day is not a winner; it's a lose-lose-lose type of situation, and that's what I'm trying to put across.


Mrs Haslam: I understand. I'm just concerned that the lose-lose-lose is going to be the children, that's all.

Mr Harold Ferguson: May I make a comment? As a businessman who is responsible for 50 employees, I'm concerned about unemployment as well, and I think we all are; there's nobody in the province who isn't. But when you reflect on the reality of what we're dealing with, when you lose a job, you're creating more people who are going to have to fall into the safety net, and thankfully in the province, and most of the provinces in the country, we do have these safety nets.

But when we look at losing the job, we're not only looking at losing the job but we're also looking at losing revenue streams, and this is something you, in your roles, can realize more than the business people can realize, all the revenue streams that come off a lost job. Many of them today are payroll-driven; your employer health care tax is a perfect example. Unemployment insurance: Employers pay a premium of 1.4% of what the employee contributes. I mean, you go down the list. That revenue is also at risk. This isn't the revenue Mr Veilleux is talking about; this is other revenue, that's payroll-generated revenue lost from lost jobs.

We saw in the papers earlier in the week where the federal government of Canada is putting in place $2.1 billion to create 10,000 jobs for this infrastructure initiative. That represents a capital investment -- as a businessman, this is how I look at it -- of $210,000 a job. That's a lot of money. When you put a company like the company I represent or other distillers represent or other manufacturers represent -- I'll share with you our numbers. We're talking about a $20-million investment for 50 employees. That's $400,000 of capital per job, and as a business person, I'm saying to myself, "How can we create jobs with that kind of capital input?"

So we have to ensure that we don't put these jobs at risk. That's another spin on what you're saying, and I think we all appreciate the dilemma that we all find ourselves in. It's not "we and you," it's "us," I think; the whole thing.

The Chair: I thank the Association of Canadian Distillers for making this presentation.


Mr Al Jones: I'm Al Jones and I'm the treasurer of the Ontario Public School Boards' Association. I'm a trustee with the Nipigon and Red Rock Board of Education in northern Ontario. My presentation will be assisted by Donna Cansfield, our first vice-president of the association and a trustee with the Etobicoke Board of Education, and Fiona Nelson, a member of the OPSBA board of directors, a former commissioner on the fair tax group, and a trustee with the Toronto board.

I have a few staff members in case you have questions that I or Donna or Fiona can't answer: Mike Benson, the executive director of OPSBA; Ron Sudds, a superintendent of business with the Northumberland and Clarington Board of Education; Bev Allen, the director of legislation and finance of our association; and Cynthia Andrew, the policy assistant.

I begin by saying we are pleased to appear before the standing committee on finance and economic affairs for the provincial government's pre-budget consultation.

Our association represents over 90 public school boards serving over 1.5 million students in the province of Ontario. OPSBA's mission is to promote and enhance public education by developing effective partnerships with other groups interested in public education and by providing a strong and effective voice speaking on behalf of the public school in Ontario.

You have a blue document in front of you. We will make comments and different points from that document as the presentation goes on.

Education is an essential service necessary to the future social and economic wellbeing of our citizens. A quality, publicly funded education system contributes to a well-trained labour force and our competitiveness in the emerging post-industrial economy.

The economy and employment are key public concerns. Most recognize that our universally accessible education system is fundamental to our economic health. Our youth must be prepared for participation in the workforce, a much different workforce than in the past.

In 1992, 41% of the labour force had completed post-secondary education, a diploma or a university degree. An additional 33% had graduated from high school. The Statistics Canada study reinforces the conclusions of many that education, not experience, increasingly determines one's ability to compete in today's labour market.

We believe that the first level of economic restructuring is an investment in the current and future workforce. Our education system must have adequate provincial support to do its job.

It is obvious that we must not just maintain the current quality of the education system but improve it. As our ability to compete and maintain the quality of life in Ontario depends on a well-education labour force, our schools must be adequately resourced. This year, we recommend the same provincial school board strategy as the most effective way to manage the restructuring of the education system.

Although the provincial government and the Ministry of Education and Training have not accepted our offer for a working partnership to find solutions, we will continue to promote adequate provincial support for our public education system and the restructuring of how we deliver education in our communities for the purpose of becoming more accountable, more responsive to students' needs and more cost-effective.

Ms Donna Cansfield: In 1992, school boards received a 2% increase in transfer payments. However, by the spring of 1993, grants to education had been reduced by 10%. This midyear reduction in provincial support has been difficult to manage and many school boards may possibly end their 1993 fiscal year with a deficit as a direct result of mid-year funding policy changes, changes in the province-to-school-board cash flow and reduced funding of the transition assistance fund and the restructuring fund. For public boards of education, this deficit must be accommodated in their 1994 budget processes, as public boards cannot legally deficit-finance.

Although public school boards have attempted to cushion the impact of the general legislative grant underfunding, the property tax has had to absorb the impact. Unlike municipalities, that can opt not to pave a road, school boards cannot close schools. They cannot refuse to educate children. Education is an essential service which must continue regardless of provincial expenditure controls.

If you note table 1 on page 3, indicated from a survey of OPSBA's 67 public school boards, you'll see that the average property tax in dollars has risen. The cost of education delivery in 1992 and 1993 increased, and pressures on the education system have increased costs by approximately 5.8%, well above the inflation level.

I'd like to give you a few of those kinds of examples, some of which are not directly student-related. I would cite for you employment equity, health tax for employees, GST. We now have retail sales tax on our insurance. Workers' compensation rates have risen. Utilities rose 14% last year for hydro and 14% this year for gas. And of course UIC and CPP have also risen. Add that to the other flip of the coin, to the issues around the demanded mandated programs of The Common Curriculum, destreaming, English-as-a-second-language requirements, heritage language, mandatory junior kindergarten, and of course an issue that is going to create difficulties for all of us: inclusion or special education.

Many boards of education have realized cost savings by innovation and cooperation in many ways. Downsizing of school board administration and restructuring has been the key mechanism in managing provincial expenditure cuts for a public service that is actually in a growth program, but if there are further reductions in operating support to education, the impact at this point will be on the education program and the student.


I would like to emphasize that it's rarely that I hear people speak about the children or the students when they talk about budget, yet if education is the cornerstone of our system and the key to economic recovery, I don't know how you can speak without speaking of the student, be that a student of 5 or a student of 35.

Both the provincial government and the school boards have stated that they are committed to the principle of student equity, the right of every student to equal educational opportunity. Grant reductions beyond the 1993 level of support will further erode student equity and school board equity. Due to the inadequacies of our current funding formula, resource-poor areas in particular and boards with declining enrolment would be penalized the most.

Our recommendation is that the province ensure adequate operating support to education in the upcoming fiscal year.

The report Canadian School House in the Red: The First National Study of School Facilities, prepared by the Ontario Association of School Business Officials, states that the greatest capital issue facing school boards is: "building deterioration (35%) and deferred maintenance (26%). Another 15% find that the greatest problem is indoor air quality, which is typically allied with building deterioration and maintenance problems."

The deferred maintenance pricetag in Ontario has reached $396 million.

The Ontario Public School Boards' Association recommends that the 1994-95 provincial budget include school capital funding for building renovation and energy conservation to augment the existing capital grant plan and the school allocation under the federal-provincial job creation infrastructure program.

In 1992 and in 1993, we appeared before this committee and noted inefficiencies caused by the overregulated school capital grant program. Excessive reporting, duplication in administration between school boards and the province and inappropriate time frames for the various stages of projects all add to the cost of construction.

Therefore, the Ontario Public School Boards' Association recommends that the school capital grant program be reformed this year as the first stage of education finance reform, based on these principles: streamlined administration and cost-effectiveness; a clear and acceptable provincial process of allocating funding to school boards; school board decision-making for school projects based on five- and 10-year board capital planning; and local flexibility and innovation for financing schools at the local level.

Ms Fiona Nelson: Having spent three years immersed in Ontario's tax system, I am very happy to unload some of it. The thing we discovered on the Fair Tax Commission -- we discovered several things -- was, one, that people have no understanding of what level of government levies taxes and who is responsible for them. Secondly, the tax most people are most aware of all over the province, in all the hearings we had, is the property tax, and there is a perceived unfairness to the way education is funded.

Education, as I'm sure you know, is everybody's hope for the future, for society and for the economy. So of course, as soon as we go into a depression or difficult times, education is the goat. This is understandable but it does make conversation rather difficult.

At the commission we spent a lot of time trying to define what fairness was, and it's very clear that one of the prime requisites of tax fairness is that the tax be understood. Of course, when it comes to the funding of education, it is an absolutely marvellous maze through which people have to go. Property tax pays for a fair amount of education, but the grant plan of the province is absolutely impenetrable to everyone except about two people deep in the insides of the Ministry of Education and has been so for 20-odd years. This makes it very difficult for people to understand just what the situation is.

OPSBA has spent a lot of time at various meetings discussing the tax system, fair taxes and that sort of thing, and it has agreed with two directions of the Fair Tax Commission; one, that we need a new, fair and consistent system of assessment. The assessment system, as I'm sure all of you know, is an absolute mare's nest. It is very well supported within the ministry of revenue and has been for 20-odd years. It does provide full-time employment for 1,300 assessors. That does not make the system either fair or easy to understand, and it's become very clear to us in the discussions at OPSBA, as well as in the hearings of the commission, that the assessment system is totally broken and must be fixed before you can have any kind of tax fairness around the funding of education.

The commission suggested a new assessment system called "unit value," which anyone who can master a tape measure or a yardstick could understand. It would need to be done only once in the life of the property and would not be necessary to appeal, because as long as the dimensions of the building and the property remained constant, the assessment base would be the same. There would be an immense saving in reassessments, in assessment appeals and in everyone's understanding of the system. People are willing to pay taxes that even seem regressive if they understand it. When they don't understand it, that's where you get into deep problems.

The same is true of the grant system. The grant system is based on assessment growth. It has no relationship whatsoever to the needs of children. It is very clear that if the education grant system of the Ministry of Education were changed to one that used criteria of pupil need -- and they are very simple criteria that can be obtained from the federal census, from Statistics Canada, things such as the literacy and education level of the family, especially the mother, and the economic status of the family -- they are much better predictors of the needs of children in education than the assessment growth of the particular municipality. It's very clear that if there were deep reforms in the assessment system and the grant system right away, the whole financing of education, even if it stayed on the same basis, would be understandable and therefore perceived as fairer.

But it's also clear to OPSBA that we need to get back to what was originally, many years ago, in fact several decades ago, called the Edmonton commitment, which is the provincial government picking up 60% overall of the funding of education and 40% remaining at the local level. It's also been very clear in the last 20 years that with the support of education to the local level having gone down and the number of mandated programs having gone up, property taxes had to rise to meet that difference since school boards are not allowed to run a deficit, as Donna Cansfield said.

OPSBA cannot support some of the recommendations of the Fair Tax Commission in this area, for example, the shift of $3.5 billion from the residential property tax to the income tax. There are several reasons for that. We are in the middle of a depression. Whereas income tax used to be the major source of revenue for this province, it's now sunk below property tax. That's easy to understand. Property tax can't be avoided. It has a wonderful simplicity to its collection. If you move the support of education to income tax, you have a quite significant collection problem in difficult economic times and the whole thing is not made more understandable to people, so we have real concerns about that.

OPSBA is very much opposed to the idea of the province taking over the commercial and industrial tax base. That will not mean any reduction in property taxes to that level, but it will remove from the purview of the school boards the only dedicated tax that exists in the system. In other words, 100% of the dollars that are raised for education on the property tax go to education. There is no guarantee that money coming from the local base and going into the provincial revenues will be dedicated 100% to education. That is a matter of deep concern to us. There are real problems with dedicated taxes, but in the case of the education property tax base, it does mean that you elect a group of people to raise that tax and spend it and they are totally accountable for that money. That does have some value in people's eyes.


The third recommendation of the Fair Tax Commission that OPSBA is opposed to is the expenditure controls for school boards, which are remarkably stringent and would virtually remove from school boards any real autonomy or ability to respond to local needs in any kind of timely way. It does seem to us to be an important thing to keep in mind that local government is the level of government people tend to turn to first. It is the one, even if it is not funding the programs, that tends to administer them or be visible to local people, and to take away their taxing authority in the area of education, or to restrict it so severely, does seem to be a serious problem. We think, for example, that those particular recommendations, which are 75, 122, 123, 76 and 77, need significant rethinking.

We also think that the OPSBA model for a new education finance system should include: 60% funding from the province -- from provincial revenues, not from expropriated local revenues; clearly defined objectives for the education system; and clearly defined roles for the province and for the local school boards. It has been suggested in discussions that what we actually need, because it doesn't exist, is a constitution between the province and the municipalities.

In the federal-provincial Constitution, the powers are very clearly laid out. No such constitution or quasi-constitution exists between the province and the municipalities. A great many of the concerns that we have would be solved if those powers were more clearly laid out.

As I said, we need a new education grant based on the accurate costing of education and an accurate and stable level of provincial support; a new distribution formula based on equity and tailored to the school board demographics and the needs of children; a province-wide consistent assessment system for tax fairness and for an accurate equalization mechanism; an improved property tax credit system to address potential property tax base regressivity.

One of the things that came up in the fairness discussions at the Fair Tax Commission is that people tend to evaluate a tax in isolation. It is much more appropriate to evaluate tax fairness on the basis of the tax mixture, because what might be regressive to one family in one tax can be made up in the kinds of progressivity that exist in other taxes. Tax mix is a very important thing for people to think about when they're thinking about fairness of taxes.

If the provincial government were willing to work in partnership to achieve the above, we feel we would have an equitable finance model with less reliance on property tax dollars, we would achieve the stated goals of the commission around fairness, and it would be more progressive. It would also be very much more possible for the average citizen to penetrate.

Communities seem to be looking for ways to become directly involved in determining the best education for their own community. The province can clearly set standards, which communities can develop processes to meet -- that would not be the same from one community to the other but would meet the goals. It would seem that in that way you would beat the problem of some of the overlapping jurisdictions, some of the duplication, and you would also be able to put local resources to better use. It would seem to us that this is really a more valuable way to go.

Centralizing education finance and decision-making at the provincial level very significantly removes citizen access to local government institutions and decision-making. There doesn't seem to be any way that people think that's an improvement; it is a control measure. What is required here is a much greater element of trust in other politicians and in local communities to make decisions and develop processes of accountability. It would seem to me that the key question of what would make a better education system needs to be dealt with. We are holding a great deal of hope in the learning commission assisting in that process.

Finally, I would like to make the recommendation of OPSBA that prior to implementation of any of the recommendations of the commission regarding local finance reform there be a provincial-local impact analysis committee comprised of representatives from municipalities, school boards and key provincial ministries. I think this is a long overdue conversation and would go a long way towards figuring out which of the recommendations would suit the provincial-local mix.

We're concluding our presentation with a long list of questions. It seems to me that both municipal finance and school board finance would be fundamentally affected by the Fair Tax Commission's directions. Will these finance reforms provide municipalities and school boards with adequate resources? It would seem that our recommendation for a provincial-local impact analysis would help with that.

There are several things in our list of questions that may hit your eye as being useful, and I'd like to depend on you to ask those questions. But we are all aware of the fact that people don't want to pay more taxes. They don't mind paying taxes, clearly, when they see the taxes being properly applied. It seems to us that a cooperative venture between the provincial and local government authorities to develop a new taxation system for supporting local government would help to develop the sense of trust and awareness in most citizens that this is the right way to go and that they can understand the system that is developed for them.

I'm going to stop there. I think questions are going to be useful to us as well as you.

Mr Turnbull: I'm going to address Fiona because she was on the Fair Tax Commission. Frankly, I need two hours to ask you questions, but in a nutshell, do you believe that the present assessment system and the regime under the ministry of revenue is a sort of self-perpetuating, self-serving thing that needs to be changed?

Ms Nelson: I certainly think it's a system that is broken beyond fixing. I think the proposal of a new assessment system based on unit value is one that would work and that people would understand.

Mr Turnbull: Would you apply unit value to commercial properties?

Ms Nelson: The commission, in dealing with that, felt that rental value probably was a more appropriate and stable way of doing it and in fact is close to the way commercial real estate people do their assessments now, and have done since 1905.

Mr Turnbull: If we were to go to rental values today, and let's just say the province were to go with province-wide pooling of commercial assessment, a lot of the municipalities and school boards outside of the greater Metro area that might be eyeing Metro with a great deal of desire at this moment, with all due respect to you, might be terribly surprised, because in many of the buildings today with maybe a 20% or 25% vacancy rate the actual occupied space may be only getting one tenth of the rent it was getting four years ago. That would imply an assessment value of one tenth of what it was at that time. If we went to unit assessment, if you're going with rental value for those buildings, you'd have to update that from time to time.

Ms Nelson: The rental value would be based on the potential revenue as well as the existing revenue, surely. This was the thing that obviously the business occupancy tax attempted to moderate and mediate to some extent. Clearly there has to be some more sensitive system. The business occupancy tax turned out to be a pretty blunt instrument and then, when the place wasn't occupied, was an enormous drain on potential revenues because it couldn't be collected. There clearly has to be some work done on the way in which the assessment of commercial and industrial properties is figured out, and it varies very much across the province.


Mrs Haslam: You said that taxpayers like to see their taxes properly applied. Do you think that today the taxpayers feel they are getting value for their money in the education system?

Ms Nelson: When I started I said that education is the hope people have for the future and for the economy, and so it's always the goat when things are not going well, which is a very oversimplified view people have. There are very varying views on that, depending on where your child is in the school system or whether you have one in the school system. There are remarkably strong endorsements from some people of the school system and remarkably strong condemnations from others. I don't know what the answer to your question is overall.

Mrs Haslam: Under your third summary of recommendations, you recommended that the school capital grant program be reformed this year "as the first stage of education finance reform, based on these principles." I didn't see shared facilities in there. The reason I'm interested is that in Perth the two school boards have a wonderfully flexible, local, innovative financial arrangement. I was wondering if you thought that would be something worthwhile mentioning in this reform as part of the solution.

Ms Cansfield: It's always been the position of the school board association for that flexibility at the local level. It's one of the things we're asking for, that school boards can look at issues of amalgamation not only of actual facilities, but possibly infrastructure as well, where they determine under their needs. Definitely this is a direction we wholeheartedly support, but what we're suggesting is that it has to come from the community. You can't make change by memo. You have to have the community want this to be in, and that's why we're asking for that kind of flexibility.

Mr Phillips: I'm trying to focus a little bit on the upcoming budget and what we should be thinking about here. I gather from your recommendation that you're strongly of the opinion that this should be the year we begin to shift back to an increasing percentage of funding from the province and a decreasing percentage from the property tax. How would that actually work? What specific kind of recommendation are you proposing to us?

Ms Cansfield: I think there are two. Maybe Mike will answer one part. I would like to re-emphasize that we've indicated that if there are further reductions -- first of all, our primary focus is to maintain. We're very concerned about additional reductions, to begin with. Then we want an opportunity to have flexibility so that school boards can put in programs that meet their community needs as opposed to a top-down mandate, where they don't need them but have to pay for them and they have to raise the taxes themselves to do it because there are no dollars forthcoming from the province. That's critical at the beginning. Then we look to the restructuring initiatives. I'll let Michael answer that.

Mr Phillips: I'm trying to get an idea of it specifically when you say "adequate operating support."

Mr Mike Benson: It's important to realize initially that much of the increased pressure on property tax for education is actually due to mandates that are not at the school board level, but when there aren't concomitant transfer payments going on with them the effect is felt at the local level. That's happened over a number of years and the result has been that there's a shift to property tax rather than grants in funding of education. We think that needs to be reversed. If your question is, what's the source of revenues that can allow us provincially to increase the provincial share, it's our view --

Mr Phillips: My question is, what is an adequate level of grant support to accomplish what you -- I'm not saying we would recommend it, but just what are you suggesting?

Mr Benson: We think approaching the 60% level would allow adequate equalization so that you can get some balance, so that the have-not boards can deliver an appropriate program. Attempting to achieve that will require some reallocation of expenditures that are made at the provincial level. How does education stack up with other provincially funded programs? To the extent that there is less pressure subsequently on the property tax, perhaps the property tax or that local revenue can fund other things that are presently provincially funded, for example.

The Chair: I thank the Ontario Public School Boards' Association for its presentation.


Dr Saul Ross: Marion Perrin is the executive director of OCUFA, Rob Centa is the community and government relations officer at OCUFA, and I'm Dr Saul Ross, the president of OCUFA.

OCUFA, the organization representing 12,000 academic staff in Ontario's universities, is pleased to appear before you again as you prepare your advice to the Legislature on the funding of universities in Ontario. We come before you today with mixed feelings.

This committee has in the past been supportive of universities and their funding. Shortly after last year's hearings, however, universities were dealt two serious financial blows: first by the expenditure control plan and then by the social contract. Both were done in the name of cutting government costs in order to reduce the deficit. Both failed to take into account the importance of public sector spending. Both failed to take into account the role of universities in generating economic benefits. Both failed to take into account the role of universities in contributing to the economic recovery needed to turn around the current dismal economic picture.

The Treasurer appeared before you last week to bring yet another round of bad news about a shortfall in revenues. It was curious to see reports of his pessimistic outlook in leading Toronto newspapers juxtaposed with optimistic articles about how the economy is turning around. It is regrettable that neither he nor his government have yet understood that slashing public sector spending is counterproductive to the very goal he wishes to bring about: an increase in government revenues.

In previous presentations to this committee, OCUFA has told how underfunding has damaged quality, access and equity at Ontario universities. Today, we have but three points to make.

First, we address the extensive economic benefits that are generated by universities. Second, we argue that post-secondary education must be publicly accountable and must therefore remain publicly funded. Third, as you requested, we comment briefly on the recently released report of the Fair Tax Commission, which we regret had so little to say about the universities of Ontario.

Post-secondary education generates extensive public economic benefits. It does so in several ways. Universities are major contributors to the local and regional economies of which they are a part. Members of the university community at the University of Lethbridge were given bright neon stickers to affix to their cheques and credit card slips indicating that the expenditure had been made by university members.

This was designed to demonstrate the university's importance in the economy of Lethbridge, Alberta. It provided an immediate and rather startling reminder to local merchants and governments of just one kind of economic contribution made by the university to their community. Committee members, especially those representing ridings in which universities are located, may wish to close their eyes and think about all those neon stickers and the consequences for their own communities if they were to disappear.


There have been numerous studies that have documented such contributions by universities to their local and regional economies. I refer you to the brief itself for some of the examples from around the world where the same results are shown. Closer to home, the Alliance of Ontario Universities showed in a 1991 study that "Each year, universities pump $6.2 billion into the economy and more than 138,000 jobs are associated with university operations."

Universities contribute to the economy in two unique ways. First, they produce an educated citizenry that contributes to the economy as well as the polity and society of which they are a part. Second, they generate new knowledge that becomes both a social and economic asset to the nation and the world.

We do not need to belabour the point with this committee that the recession, together with the free trade agreement, has cost this province hundreds of thousands of jobs. A study by the Bank of Nova Scotia quoted in a recent Toronto Star editorial states, "While 640,000 jobs performed by Canadians with high school education or less have been lost since 1990, 450,000 jobs for Canadians with more than a high school education were gained." This is a testimony to the economic utility of post-secondary education. The editorial goes on to say, "Advanced skills are a worker's best protection as technology and global competition purge low-skill jobs in Canada."

For similar observations from others, I refer you to our brief.

The Organization for Economic Cooperation and Development data for 1991 show what they have shown consistently in the past, that increasingly higher levels of education are directly related to decreasing rates of unemployment. In Canada, the unemployment rates for those with no high school diploma are 14.1%; with a high school diploma 9.5%; with the equivalent of a college diploma 7.8%; and with a university degree, 5.1%.

Much has been said and written about the information superhighway. Just yesterday, in a news release entitled "The Information Highway is a Fundamental Vision for Ontario," Premier Bob Rae wrote:

"This government recognizes information infrastructure as the wave of the future, and this province has already accepted this vision as critical to Ontario's success. As a cornerstone of our provincial economy, this information highway will play a critical role to establish Ontario's competitive position in the global marketplace. Our future success will depend on this industry's knowledge and information."

It is important to realize that the driver's licence necessary to drive on the information superhighway is graduated indeed. It is advanced education. It is a degree of one sort or another. Those without higher education are going to be left behind by the information society.

It is universities that educate those who will be able to utilize such technology to contribute to economic development and advancement and to further human knowledge. It is universities that produce the knowledge that creates information superhighways and will produce the knowledge to create even more complex, as yet unimagined, highways and skyways that will take us to places we cannot even conceive of as yet.

This is a third way in which universities contribute to the economy, by generating new knowledge that becomes both a social and economic asset to Ontario and Canada. Both basic and applied research are vital to the mission of universities and vital to the scholarly endeavours of university academic staff and students. The interplay between research and teaching informs, assists and energizes both.

In an article in the Toronto Star entitled "Spending on Research is Money Well Spent," Howard Dickson points out that when we do invest in research we produce world-class results, as can be seen by the investment in life sciences that has "become the best in the world over every discipline and all countries...Michael Smith's Nobel prize for chemistry is another tribute to Canadian excellence in basic research."

Recognizing the economic contribution of the university and those it educates is vital to competing in the new global economy. David Crane, the Star's economics editor, in a column entitled "Can Canada Survive New Global Economy?" says:

"Productivity and growth increasingly depend on investment in ideas, knowledge and innovation as well as the institutions that support such activities. This means that future prosperity...depends on past and continuing efforts in research and development, education and product differentiation."

To participate fully in the global economy, Canada and Ontario need universities that are, at a minimum, adequately funded. We also need universities that are publicly funded and accountable institutions. They must be accountable to the government that funds them and to the communities they serve. Such accountability is jeopardized by privatization. The neo-conservative agenda followed by the previous federal government that has so decimated many of our Canadian public institutions is also threatening Ontario universities. Privatization in a variety of forms is threatening to jeopardize the contribution that can be made by Ontario universities, as well as their accountability.

Approximately three quarters of the operating funds of Ontario universities come from Ontario government grants. In his December 20, 1993, response to the final report of the Task Force on University Accountability, the Minister of Education and Training agreed "that the Provincial Auditor should have authority to conduct audits of all funds provided by the government of Ontario for operating purposes." What is not stated here but is implicit is that the Provincial Auditor does not have the authority to audit any other funds that come into the university, either in the operating fund or into other expendable and restricted funds, including tuition fees.

A little more than two years ago, your colleagues on the public accounts committee were incensed that the administration of the University of Toronto took this position. In response, they precipitated the appointment of the Task Force on University Accountability, with a mandate to look into the matter. Two years later, university administrations are still not being asked to account for the remainder of the operating or other funds that come in to the institutions, which are in fact public institutions. On October 6, 1993, OCUFA wrote to the minister in response to the task force's final report stating our position that: "The Provincial Auditor should be able to audit all revenue, including that from fees and other private funds. To be fully accountable is to be accountable in full."

University presidents, through the Council of Ontario Universities, have been arguing for a massive increase in tuition fees. OCUFA opposes tuition fee increases because we are concerned that user fees damage access and equity in the universities of Ontario. We oppose them because the money generated by tuition fees is from private sources and is money for which university administrators are not accountable. This contributes further to the privatization of the university.

As we pointed out in our October 6, 1993, letter to the minister:

"Non-accountability for tuition fee revenue and other private funds increases the incentive to administrators to favour private over public funds. Limiting the scope of the Provincial Auditor's inquiry does a disservice to the maintenance of strong publicly funded institutions. The recent proposal by COU favouring a 50% increase in tuition fees and calling for a decrease in operating grants illustrates what can happen if the pendulum of accountability is allowed to swing only to the side of operating revenue from government of Ontario funds."

The minister does not appear to share our concerns in this regard. Perhaps this committee will.

OCUFA has further concerns about the privatization of universities, as well as other levels of the educational system. Cooperation between universities and individual, group and corporate members of the communities they serve is important. Universities should maintain productive and open ties with governments, labour, business and community groups.

Our concern is when these ties, or "partnerships" as they are frequently called, involve large donations, most commonly from the business community. There is always the danger that such donations are accompanied by explicit or implicit assumptions about reciprocity. To put it more colloquially, he who pays the piper calls the tune.

We look with some concern at recent events in the school system in Toronto, such as the exclusive arrangement between the Toronto Board of Education and the Pepsi-Cola company, or the planned linkage between an environmentally oriented Toronto secondary school and Dow Chemical and DuPont. There are similar linkages between universities and corporate giants. Our concern is that scholarship not be dictated by corporate or commercial interests.


We do not share the free market vision of the future of the university as espoused by the Economist or the Globe and Mail. Corporations, especially large corporations, are great beneficiaries of the university system, and it would seem only right that they should contribute to the universities. This could be accomplished through a corporate education tax that could be used to help support universities. Such a tax was not, unfortunately, among the recommendations of the Fair Tax Commission. We are quite disappointed that the Fair Tax Commission had little, if anything, to say about post-secondary education.

We regret too that the commission worked for so many years, during which time so few conclusions were released to the public, and then chose to offer all of its results in a form that is difficult to digest. It is even more difficult since it has only been available for a very few weeks. We attempt, however, to extrapolate here from a few of the commission's points.

Arguments about the relative fairness of flat taxation add to what we consider to be a compelling case against income-contingent repayment plans. ICRP meets neither the test of horizontal equity nor vertical equity. Proponents of ICRP argue that it better captures the private benefits that accrue to graduates after completion of their studies. This, however, is far from the case. In fact, those who accrue the highest levels of private benefits will pay off their loans much more rapidly and incur far lower total costs, debt plus interest, over time. If anything, an ICRP regime would reinforce any movement away from progressive taxation and reinforce the trend towards flat taxes and user fees.

One aspect that disappoints us is the way the commission seems to view post-secondary education. Elementary and secondary education are viewed as universal rights and therefore are to be financed out of general operating revenues. Post-secondary education is lumped in with highways, golf courses and swimming pools. Given all that we know about the importance of post-secondary education to the current and future economy and society of Canada, it is imperative that we move towards a conceptualization of it as a universal right, with attendant funding.

The use of high school completion as an arbitrary cutoff point at which education ceases to be a universal right dates back to a time when the high school diploma was the standard for determining whether one would get a job. At that time, comparisons in earnings were made between those who were high school graduates and those who were high school dropouts. As has been shown here and elsewhere, this is no longer the case. A university degree has replaced the high school diploma as the standard. The universal right, then, should extend to include post-secondary education.

The commission makes a powerful case for shifting the cost of primary and secondary education from property taxes to income taxes. It cites, among other things, educational equity for the students involved. Educational equity does not stop after secondary school. Whether it be a change in the way that primary and secondary education is funded or any other initiatives that schools devise in order to achieve educational equity, none will accord equal opportunity to disadvantaged groups if the doors to post-secondary education are closed to them.

We close with another quotation from Premier Rae's press release: "Ontario fully endorses the vital importance of information infrastructure to our future competitiveness and social wellbeing. We are taking steps to assure our future in this area."

To the committee and to Premier Rae we say, ensure that these steps include recognition of the importance of universities to the present and future economy. Ensure the supply of strong, fully accountable, well-funded public institutions, and ensure that equity considerations inform all decisions affecting universities. We wish you well in making your recommendations.

Mrs Haslam: I'm going to be very brief; I know this will surprise everybody. We've had a presentation by the Council of Ontario Universities. I'm sure you know they are recommending that "increased funding from the provincial government and a reform of Ontario's tuition fee policies, 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 a system of universities which are accessible to all qualified students," and so on and so forth.

I mention this because now we have your group coming in and saying you don't believe in the increase of tuition fees. I've had a discussion with one of your members about tuition fees. I've asked students in my own community about this. I said, "Given the option of an increase in tuition fees, or if we didn't raise tuition fees and because of financial constraints we couldn't offer more money to the post-secondary education system, would you accept less facilities or larger classes, or would you prefer to have your tuition fees raised?"

I must tell you that the students I talked to said, "I'd rather have the tuition fees raised, because it then gives us better facilities and better instructional opportunities." One of the students said, "When I pay to be in the university, I am more inclined to work harder at those studies, because I have put in more money towards the system."

Having said all that, I must tell you that as a base NDPer I am more interested in equal access to the education system and wouldn't like to see tuition raised, but I ask for your comments considering that this has come from the Council of Ontario Universities recommending this.

Dr Ross: You have, in effect, asked me a multiple-choice question.

Mrs Haslam: I have to get them all in because our time is limited.

Dr Ross: My answer is that with the exception of one option, all of them are unacceptable to us. From our perspective, the only option is increased government financial support. We reject the view that there isn't money available. There is always money available from a government. It always invests in that which it finds most important.

If we go the other route, there is adequate research to show that increases in tuition fees reduce applications. They turn students away. What is often not quoted in this is a very interesting study which shows that reductions in tuition fees increase the number of students coming. If equity and accessibility are meaningful goals that your government is committed to, there is only one answer to the questions you asked me.

Mrs Haslam: Does that increase in applications also translate into an increase in graduations?

Dr Ross: I haven't seen any research on that, but one would assume that with the normal population that applies and comes in, if you increase the numbers who come in, the same graduation rate will apply to them. That may be erroneous; it may require research, I don't know.

Mrs Haslam: You don't know if you have that information available?

Dr Ross: No, I don't think that's available. The other thing I can tell you is that unless there is a horrendous increase in tuition fees, the amount of money that would be raised is a pittance and will not solve the serious problems we have at present in the universities.

Mr Phillips: You have your finger on a trend which I think is true in the universities, true in the hospital sector, true in a whole bunch of areas, and that is that governments, and this government's no exception, are looking to all sorts of new sources of revenue. You've put your finger on that, that one of your concerns is accountability for the spending of that source of revenue. What is the problem with accountability right now with the source of revenue? What is your concern? Is it that in your mind the people who administer those funds aren't necessarily allocating them properly?

Dr Ross: Our concern is that universities, as public institutions, should be fully accountable publicly. The universities, under the leadership of the University of Toronto, that balked at allowing the Provincial Auditor to examine all of the fees insisted that only the moneys transferred from the government to the university should be open to the Provincial Auditor.

In effect, what they are saying is: "We are not a fully public institution. We are partly public, partly private." As tuition fees increase, then the private segment becomes greater than the public segment and the answer then becomes, "Sure, you can come in and audit the transfer fees that come from government, but it's such a small sector of our operation, it's meaningless."

I have looked at the supposedly audited statements of universities, and if you attempt to match what the final statement is to what the budget is, it's impossible. There is no way that an average person, or even a more sophisticated individual, can determine how effectively, how efficiently or where the university has spent its money; in effect, no accountability and a move towards privatization within a public institution, which we find unacceptable.


Ms Marion Perrin: I'd like to add to the president's remarks. This is a very important time historically in this province on this issue of tuition fees. Do we want public institutions or do we want private institutions post-secondarily? We want public institutions so that access is not to be any more difficult than it already is. This is an extremely important time in this province with respect to that particular issue: private versus public.

Dr Ross: If I could add one other point, as we stated in the brief, there was a time when a high school diploma was your passport to a reasonably good future. That time no longer exists. A university degree is your passport to a better future, not only as an individual but to making a better contribution economically and socially to the province. We are locked in a time warp that allows us to have an arbitrary cutoff point in high schools that says, "We put universities in a completely different category." To me it doesn't make sense.

Mr Turnbull: Focusing on this question of tuition fees, and of course an increase in tuition fees has been suggested for some years now by the university presidents, you're saying that you believe this is wrong because in some way you believe there will be a reduction in the enrolment as you increase fees. How do you respond to the fact that yesterday we had the presidents of the universities making a presentation to this committee and they presented a diagram which indicated -- I may not have the exact number of years -- that the tuition fees are, in real terms, lower than they were 25 years ago.

Dr Ross: My reply to you is that they're still not nearly low enough, that if we are serious about having an educated population in this province, if we are serious about a commitment to public education, I don't see why we cut that notion off at the end of high school.

Mr Turnbull: Let me understand. You're saying they're not low enough. How low would they have to go, in your view?

Dr Ross: How low would they have to go? To the point where the only determining factor in admission to universities is a student's ability to enter, where the economic factor does not impede a student from acquiring an education that enables that student to develop fully and become a much greater contributor to our province.

Mr Turnbull: You have to understand that I'm from the opposition.

Dr Ross: Oh, I understand that.

Mr Turnbull: But I understand the government has a very serious problem today. They are spending 25% more than they're taking in. You suggested before as one of your solutions, and I paid close attention to what you were saying -- correct me if I'm wrong, but I think the only solution you offered was a corporate education tax.

Dr Ross: That's one suggestion. The other suggestion is to find the resources where they are available. I must tell you that we attended a meeting this morning put on by the Ontario Coalition for Social Justice, marking the end of corporate tax year. Today, fortuitously, marks the end of corporate tax year. From this point on, corporations pay no tax. We also have documentation that shows billions of dollars in unpaid taxes by highly profitable corporations. It seems to me the problem is not one of trying to raise tuition fees. To me, very clearly, the problem is obtaining resources from where they are available abundantly so that we can educate all our children, youth and young people properly.

The Chair: Regretfully, our time has expired. I thank the Ontario Confederation of University Faculty Associations for making its presentation.


Ms Ina Caissey: I am Ina Caissey. With me is Lesley Bell, who is the chief executive officer, Noelle Andrews, director of government relations, and Seppo Nousiainen, who is one of our research officers.

As president of the Ontario Nurses' Association, I speak on behalf of over 50,000 unionized staff nurses working in the province's hospitals, nursing homes, homes for the aged, community health units, developmental centres and industry.

We welcome this opportunity to appear before the standing committee on finance and economic affairs to discuss our submission for the 1994 pre-budget consultations.

Our members urge the government to begin the process of rebuilding our ailing economy. It is our sincere hope that the 1994 budget will spearhead this process, and our comments are directed to that end.

Our union has had many serious concerns about the repercussions of unilateral cutbacks on health care spending and the profound and widespread effect they have had on nursing jobs. Prior to the social contract legislation, we had already seen the loss of over 2,500 of our members' jobs due to layoff. Since June 1993, the effective date of the social contract, a further 265 nursing jobs have been lost. If I can translate the dramatic reduction in our membership into the effect on the health care industry, it means very simply that there are many fewer nurses to provide the necessary levels of patient care. Therefore, the patient is at risk of insult.

The reduction in working nurses does not even begin to gauge the level of hardship experienced by our members due to the recession and recession-induced measures like the social contract, nor does it address the residual effect on the delivery of health care.


Many employers have been using attrition and early retirement to reduce staffing. These numbers do not show up as layoffs. Many of our part-timers listed on casual rosters are simply not being called in or are being called in less frequently. These too are not measured as layoffs.

One of the key ways in which the true nature of unemployment or underemployment has been hidden is through cutbacks in hours of work. Our full-timers are being transferred to part-time employment and the hours of work for part-timers are being reduced significantly. Already, more than half of our members are part-time. While many of these nurses worked the equivalent of full-time hours in the past years, these hours have more often than not been reduced by half. Indeed, some of our nurses may not work more than one shift per week.

Although we are opposed to the means by which reductions have been achieved, we believe the government has succeeded in significantly reining in public sector expenditures, in both the short and medium term. If the government's projections are right, the corner will have been turned in the current fiscal year.

Even if the government's figures prove to be slightly inaccurate, various expenditure restraint programs like the numerous initiatives to rationalize public services, combined with a growing economy, indicate there will be significantly less pressure on government finances over the next few years. This would happen in any cyclical recovery, but the difference this time is the built-in restraints that will continue to hold down expenditures for many years to come.

Some of these restraints, the social contract being one, are regrettable and unnecessary. Others, in our view, are more sensible; for instance, rationalization of government services for more cost-effective delivery.

While we feel these developments are generally to be lauded, they have not come without great human cost in terms of layoffs, wage restraint, cutbacks in work hours and increased workload for those who remain in government service. Even worse, there is no sign that this is going to stop over the next few years unless a conscious decision is made now that enough damage has been done and that it is time to repair the damage.

To do that, the government must stop fixating on the deficit and a reduction in government spending, and make its priority rebuilding the tattered public sector and the economy as a whole. This means a recognition that the government must finally begin to manage the health care system instead of indiscriminately slashing away at any and all programs. It must set priorities, restrain growth in some areas, encourage growth in other areas and preserve the status quo in yet other areas.

As we indicated in our 1993 report Rethinking Health Care, which looks at the state of health care in Ontario, we firmly believe that the emphasis must be on reallocating resources, not on trying to persuade people, particularly the sick and vulnerable, that underfunding is the problem.

From our front-line perspective, we are convinced that only new ideas, new strategies and an entirely new understanding of the concept of health will guarantee us a sound, workable health care system.

Based on our experience and insights as front-line deliverers of health care, we made in our report the following 10 recommendations:

(1) Make better use of existing resources and institute better quality controls, so that only the most effective and least expensive treatments are used.

(2) Shift resources from institutions to community-based care.

(3) Insist that the federal government remain a major funder of Ontario's health care system and that the provincial government recognizes the impact of its programs and policies on the health of consumers.

(4) Develop resources for better self-care, educating the public for greater health awareness and a capacity for personal responsibility for health.

(5) Encourage a dialogue between providers and consumers on realistic limits to health care, while urging the government to promote and implement the goals defined by the Premier's Council on Health Strategy.

(6) Recognize that registered nurses have always perceived and dealt with people in the context of their lives, not just as patients, and are ideally suited for the generalist's role. Make better use of our skills and experience.

(7) Expand the role of RNs in medical practice, using them to educate and counsel consumers and help families make sound health-related decisions.

(8) Ensure the government supports community health centres and involves them in more community development and activism in a system that serves a complex, multicultural society.

(9) Embrace new and innovative ideas and diffuse them more broadly and rapidly throughout the health care system.

(10) Make hospitals more accountable by replacing their boards with a mix of representatives and providers from the communities they serve.

Change is inevitable and needed urgently. We really have reached our limits and can no longer assume that money will answer all our health care problems. This gives us the opportunity to reshape the system, to make it more flexible, more humane and more effective.

The need for reform is evident in any examination of the role nurses are permitted to play in the health care system. Many services now being provided by doctors on a fee-for-service basis, well-baby checkups, Pap smears, routine physical exams and immunizations, could be more efficiently and cost-effectively provided by nurses.

As educators, nurses can promote the message of healthy lifestyle choices and prevention. We already know that when nurses' skills are fully acknowledged and used, costly hospitalization in many cases can be avoided.

Whatever the innovation, institutions can no longer afford to respond to today's problems based on yesterday's thinking, and before crucial decisions are made, especially those that may have unintended consequences for the most vulnerable members of our society, they should be made only after we all, health care providers and health care consumers, have had our say.

From our point of view we urgently recommend the following: First, put a hold on further cuts to the health institutional sector at least until more community services become available. Further cuts to acute care beds can no longer be sustained, particularly since there are no community alternatives. We should stop and assess how access to services and the quality of patient care have been affected by the massive reduction in institutional beds that has already taken place.

Our members tell us that the level of stress has steadily increased in hospitals as they try to do more with less. This cannot be good for patient care. The incidence of formal complaints about workload has been steadily rising under our professional responsibility complaint process, a mechanism in which staff nurses can raise their concerns about the level of patient care being provided. Just in the last five working days, we have learned of another six hospitals where the workload situation has become so bad that nurses are thinking of launching formal complaints.

Just to give you a couple of ideas of the concerns that we have about the quality of care from our professional responsibility complaint process, at a home in Windsor staffing was cut and it was creating problems with the residents. They were suffering more injuries and bed sores and it was becoming noisier. The director of nursing did not like the noise level, so she had some of the residents heavily sedated to the point that two patients ended up in emergency in respiratory arrest.

In another home, there is one health care aide to feed 30 people in a half-hour time period and she must use an elevator to get these residents to and from the dining room and then ensure that they eat.

At a hospital in North Bay, they have cut the staffing in the coronary care unit and now they are having unqualified RNs; that is, RNs without the additional expertise to give streptokinase. This is a drug you give to people who have just had a heart attack and it is a medication with potentially lethal side-effects.

This is happening across the province. There are many more examples I could give you.

The way in which government presents the issues on health care to the public suggests there are no problems. For instance, the Ministry of Health recently released a report entitled Managing Health Care Resources. This report cites approvingly that "the number of hospital days per 1,000 [Ontario residents] has decreased by 25% and the average length of stay has declined by 17%" from 1987-88 to 1992-93. This report does not even hint at the negative consequences of such a massive reduction.


This same report says there has been "a reduction of...5,000 acute hospital beds in Ontario over the same period" while "the number of persons treated grew by over 8% or about 1.2 million cases." Not a word is said about the possible negative effects of this increase in volume.

But if you ask our members, they will tell you that they are working harder than ever and that they are extremely concerned about the quality of patient care they are able to deliver. All we ask for is a pause so that we may objectively assess both the positive and negative aspects of this transformation in the hospital sector.

We should also examine the huge negative repercussions in the nursing homes and homes for the aged sector. Budgets in all the homes have been squeezed over the years and we are now seeing layoffs in some of them. This is ironic since it has long been believed that while this system should perhaps not expand, it certainly should not be allowed to contract, at least not until community services are in place. Again we strongly urge a moratorium on further cuts of personnel and services in this sector until a proper funding formula is established.

Our second recommendation is that government proceed with the expansion of community-based services. Currently, just 4% of the provincial budget is spent on community and public health services. We have done virtually nothing to provide alternative services in the community even while we busily deinstitutionalize the rest of the system. District health councils are only now beginning to address these problems, and the promised multiservice agencies which are supposed to coordinate the work of community-based agencies are only in the planning stage.

The Ontario Nurses' Association has recognized for years that community-based services must be in place before institutional services are cut, yet we are moving in the reverse order, deinstitutionalizing before we have a community system. We don't understand why there hasn't been a greater public hue and cry about this issue. We can only assume that the public does not really understand how vital these services are for themselves, their children and their aging parents. We hope that once they do understand through their own personal misfortune, it will not be too late to do anything.

Workers are affected as well by the lack of progress in community health. Governments have repeatedly promised there would be plenty of jobs in the community once deinstitutionalization took place. This has not materialized, and the downsizing of hospitals has been far more painful than it needed to be.

Furthermore, the work of organizations like the health sector training and adjustment board has been seriously compromised by its inability to find jobs in the community setting for displaced workers. As we speak today, there are layoffs of RNs occurring in community agencies, which causes us to wonder, has there been any planning in this sector at all?

Our third recommendation is to invest in determinants of health. While an advisory committee has recently been established to deal with the issues of health promotion and disease prevention, concrete results will take years to achieve. In fact, there have been reversals taking place in these areas, with a reduction in activation programs in the home sector and core programs and services in the community. This has been largely due to funding difficulties in municipalities, caused in part by the government's expenditure control program. This area is obviously in need of a major infusion of resources. It is the government's responsibility to ensure that health promotion and disease prevention programs are in place and at levels which meet the community's needs.

Our fourth recommendation is that we take a microscopic look at the fee-for-service system, which consumes 27% of the health budget. Much more can be done to bring more salaried physicians into the system, while at the same time we must look at the underutilization of other professionals such as nurses.

It is our view that too much emphasis has been placed on delisting OHIP services. What should be addressed is the fact that other health practitioners can provide the same service at a much lower cost.

We are pleased to see the government finally acting to reduce the number of physicians entering the system. There is little question that there is an oversupply of physicians in Ontario, and this has led us to spend more money on health care over the years than we should have. Certainly reforms are being made in this area, but much more needs to be done.

As with OHIP, we have concerns that a principal means of controlling costs is delisting drug products rather than examining whether the pattern of prescribing drugs is appropriate. We do not believe that it is appropriate to ask consumers to share the cost of prescriptions. In our view, it will only encourage the introduction of user fees in this area. It is our firm belief that while user fees do not prevent the abuse of health care services, they do erect a barrier to needed services for low-income individuals.

Our key message today is that we should now take a pause to evaluate both the positive and negative effects of many years of expenditure restraint in government programs. The economic recovery will allow us to do this more easily than in the past. In other words, we should stop being obsessed with the deficit and the size of government.

In health care, let us preserve what is now left of the institutional sector until we can objectively determine whether and where further cuts should be made, whether the system should remain in its present state, or indeed whether new expenditures are appropriate.

We also again emphasize that we must finally do something about expanding the community-based system and programs dealing with health promotion and disease prevention, a philosophy we have subscribed to for many years. These programs have been promised to the people of Ontario for years and indeed make good economic sense, as well as serving as an alternative to the institutional sector.

As I said earlier, ONA recommended 10 very sensible approaches which if adopted can reduce expenditures while protecting the level of health care. They are, in summary: use existing resources with improved quality control; shift resources to the community; hold the federal government accountable for Canada's health care; public education; encourage dialogue between providers, consumers and government; recognize registered nurses' generalist role, along with their skills and experience; support the community's health programs; embrace new and innovative ideas; and make hospitals accountable to and representative of the communities they serve.

I can't urge this government strongly enough to pause and examine the measures imposed to restrain public sector expenditures before imposing further restraints. The Premier has said he is open to suggestions on further reforms. We certainly hope this budget session is the start of a dialogue which will ultimately lead us into the future, without further compromising a safe level of health care services.


Mr Phillips: It's a very thoughtful presentation, and there's never enough time to discuss it all. The community-based care is one that I personally worry a lot about. I think we run the risk of fooling ourselves and the public as we close the institutions and say, "You can get that care at home," and we don't provide the resources.

I'm really afraid that we are going to do what we did in the psychiatric area. It's a cliché, but true. Everybody knows that and everybody says that. The reason I think you don't see the hue and cry is because it is a lot of individuals. If you can't get a bed in a hospital, you see the person in the hall. If you don't get community-based services, you never really see that person, other than maybe a phone call. We're going to have to watch that one in the future, because it will only really hit us when it becomes larger. I'm leading up to a question. Have you any advice for us on how we monitor this and identify, as legislators, whether there is a problem out there and whether we're responding to it, so that if indeed the alarm bells are going off, we can actually hear them and see them?

Ms Caissey: I think one very good way is by involving the front-line workers in discussion, particularly the people who work in both institutions and the community, because both groups see what happens to clients when they are discharged early from the hospital and have no community-based service to fall back on.

Certainly, for a long time we have been asking for more of a voice. For example, during the social contract we got an agreement with the government that we would be involved in some of the subcommittees of JPPC. That has not happened; it does not appear to be happening. If you don't involve the front-line workers and people who are actually doing the care and who can give you examples like the ones I quoted of what is happening to people in their communities, then you aren't going to know what is going on until it is such a massive problem that the public rises up in distress.

Mr Turnbull: Your words are very wise in terms of involving front-line workers, because it seems to me that's the lesson that private industry has learned, that going to the factory floor and getting some advice as to how to be more productive has worked quite well. The Japanese have shown us this well.

The health care professionals I speak to in my riding keep on pointing out to me that there's so much wastage in the health care system that they can identify that they would like to see that cut out before we do anything further. Maybe you are asking for more money, but it's not in the cards for you to get any more money, given the seriousness of the debt of this province. But you're saying, "Let's hold the line here and at least understand what we have done so far." That's my understanding of what you're saying.

It has been suggested that if we could cut fraud out of the health care system and also such things as -- prescription drugs, for example, that are prescribed for the aged might be sealed into containers and if the actual prescription proves to be the wrong strength or inappropriate, they can't be recycled. Even though they're perfectly good drugs, they have to be destroyed. I've had pharmacists suggest that there may be hundreds of millions of dollars involved in that.

I wonder if you could respond to that. Is that the way we should be looking at controlling health care costs?

Ms Caissey: Those are two of the areas you could look at in the area of waste, but they aren't the only two areas. I think you have to look at how we currently deliver medical care, differentiate between what is medical care and what is nursing care, and allow other health professionals, for example registered nurses, to fill the role they've always been capable of filling but have been limited, either by the employers or by other health care professionals, from filling.

It goes back to the voice of the front-line workers. When hospital boards make decisions, there are no representatives from the nursing staff at the board level. In fact, many board meetings still remain closed to the public, so there is no way for nursing, the front-line workers, to speak to the board and say: "If you do that, it will create the following problems. It will not save money. In fact, the costs will be more."

To give you an example of the types of things that currently cost money -- there are many areas where treatment is not appropriate, not effective, but just to give you a quick example from the social contract -- we are seeing our full-time members being given their unpaid leave and being replaced by part-time workers, which means that at the end of the fiscal year the hospitals will not have saved any money. We will be into more bed closures to balance the budget and the health care the people in this province receive will be even less. It all goes back to the front-line workers having access to the people who make the decisions within the health care agencies.

Mrs Haslam: I agree with point 1, point 2, point 3, point 4 and point 5 in your presentation, because I think you've hit on everything that is needed within the health care system. I share with Mr Phillips his question and his concern. He's asked one of the questions that I was interested in, around flat-lining, and Mr Turnbull asked about flat-lining, whether that was what you were saying you were asking for. Those two questions having already been asked, my question is about the time lines.

You say that in health care whatever is now left of the institutional sector should be preserved until we objectively determine whether and where further cuts should be made. Time lines: How long are you looking at? If we were to say to the treasury board or to the Treasurer, "Don't cut health any more; hold the line at health," which is very difficult if we're going to have to find additional moneys if the revenues are down, "Don't cut health. Make health one place we don't cut. Make social services some place we don't cut. Let's look at the human side of where those cuts are," you're talking about something specific, and I wondered if you had time lines.

Ms Caissey: I don't think I can give you time lines, six months or a year, because part of it depends upon how quickly some of the other reforms going to more community-based care go ahead. What is happening now is that this strategy has not gone ahead but the downsizing has.

Mrs Haslam: I agree.

Ms Caissey: Certainly you're right. We do not think you need to put more money into the system, but you need to look at how it is currently being spent and whether it is most effective.

Mrs Haslam: Actually, I didn't say we didn't have to put more money into the system; I said we can't put more money into the system.

Ms Caissey: I know. But we have said for many years, I think going back to about 1974, that there is enough money in the system but it is not correctly allocated --

Mrs Haslam: It's not being managed well.

Ms Caissey: -- and people are not accountable for the money they receive.

If you were going to put a freeze on any further downsizing, then there would have to be an extremely aggressive evaluation of what the people in the province need in the way of health care, the best way to deliver it and ways of doing it more cost-effectively. Right now we are basing all of the reforms in health care on the bottom line. We are not looking at the future and the best ways of making sure that the costs stay contained in the future and of giving good care.

The Chair: I thank the Ontario Nurses' Association for making its presentation.


Ms Jane Underwood: My name is Jane Underwood and I'm president of the Ontario Public Health Association. This is Mr Peter Elson, who's the executive director of the Ontario Public Health Association. Thank you very much for having us this afternoon and thank you for specifically asking us to speak to the Ontario Fair Tax Commission.

First of all, I'd just like to remind you that the Ontario Public Health Association is a 3,000-member charitable organization that works to strengthen the impact of people who are active in community and public health throughout Ontario. Our members are drawn from every community health discipline and location throughout the province. They include people from community health centres, public health units, universities and community agencies.

The impact of social and economic policies on the health of Ontarians is a key area of concern for the Ontario Public Health Association. Our association holds the position that a more equitable distribution of the province's financial resources is needed to ensure the fundamental determinants of health -- food, shelter, healthy growth and development, employment, education and income -- all of which are within the reach of everyone within our province.

Infant mortality rates are a recognized indicator of population health. Babies born to the parents in the poorest neighbourhoods are twice as likely to die before their first birthday as babies born to parents in the richest neighbourhoods. This is not restricted to children. The death rates for men between the ages of 65 and 70 decline steadily as the level of earnings in the years prior to retirement increases. The death rates at the lower end of the income scale were about twice as high as the rates at the higher end of the income scale. Low-income people also have more years of ill health than people with higher incomes.


These results are based on a Canadian study which covered half a million people, and for each individual data for almost a quarter century of their lives have been drawn upon. The evidence that health is determined by income distribution is clear: Taxation policy is health policy.

A progressive system of taxation has been identified as one of the most important instruments by which governments can ensure that everyone has an adequate level of income to meet their basic needs. Unfortunately, the present tax system in Ontario is a regressive one which serves to increase income disparities. Over the past two decades, a series of tax reforms initiated at federal and provincial levels has resulted in a significant shift of the tax burden from corporations and high-income earners to low- and middle-income groups.

Therefore, the Ontario Public Health Association welcomed the creation of a Fair Tax Commission to address the inequities inherent in the province's taxation system, because income and its distribution are fundamental determinants of health. Studies have demonstrated that countries which cannot be considered prosperous have healthier citizens where the income is more equitably distributed. There is a total lack of political will to reform our taxation system in the context of securing basic needs for our whole population, as distinct from a never-ending cycle of tradeoffs. The intent of the Fair Tax Commission to reform education funding is one example of how systemic inequities can be addressed.

We have provided the commission with the submission of our fair tax remarks.

Mr Peter Elson: The expanded retail sales tax that's proposed will make it even more difficult for low-income families to afford the food and clothing needed to maintain good health. Increased numbers of economically disadvantaged families would be forced to rely on food banks and charitable organizations to meet their basic health needs.

OPHA recommends that the Treasurer does not proceed with the implementation of the commission's proposal for an expanded retail sales tax. OPHA also calls upon the Treasurer to consider progressive alternatives to the existing retail sales tax which increase the capacity of the personal income tax system to address income disparities.

Particular forms of consumption taxes that pose a barrier to health to many Ontario residents are the taxes imposed on personal hygiene and health care products, including toothpaste, dental floss, soap, sunscreen, feminine hygiene products and condoms. The failure to use many health care products will inevitably result in the increased incidence of preventable diseases and a consequent increase in costs to Ontario's health care system. OPHA calls for the abolition of the retail sales tax on all essential health care products and also calls upon the Ontario government to lobby for the removal of the GST on these items.

OPHA reaffirms its support for alcohol and tobacco taxes as a public health measure. We call on future modifications to these taxes to be guided by health outcomes, not an assumption that tax reduction will deter smuggling, which we do not believe would be the case. Now that the smuggling system is entering its retrenchment phase, that decrease in the taxes will not act as a deterrent.

At the same time, however, OPHA recognizes that taxation alone is not a sufficient means of reducing tobacco consumption among Ontarians. Measures to reduce the incidence of poverty and its attendant stress and health risks, such as social assistance reform, full employment, education strategy and progressive changes to other aspects of the taxation system, are required to address this serious health problem.

There are a number of reforms that need to be implemented in order for this shift to occur, including changes in the way in which the present taxation system treats disabled Ontarians. People with special needs resulting from disabilities can claim various forms of institutional and attendant care as disability-related expenses through the federal medical expenses credit. However, the existing credit discriminates against care arrangements that would allow many disabled Ontarians to lead normal lives in their communities. Under the current medical expenses credit system, the total cost of full residential care in an institution can be claimed as a deduction by a person with a disability, while non-residential care, a much cheaper alternative that allows people to remain in the community, is not claimable at all.

Attendant care, which also permits special-needs people to remain at home, is only claimable up to a ceiling of $5,000. Anyone who claims this allowance also forfeits his or her right to claim the disability credit.

The primary result of this existing policy is to increase the incentive for disabled people to move into or remain in chronic care hospitals, at tremendous expense to taxpayers, rather than living in the community where they are subject to unfavourable tax treatment.

OPHA calls upon the government to lobby for changes in the medical expenses and disability credit and specifically calls for the full cost of community-based care to be deductible under the medical expenses credit and for consumers of attendant care to retain their disability credit. These changes will result in considerable savings to Ontario's health care system while enabling many special-needs people to lead fuller, more productive lives in Ontario communities.

Ms Underwood: The current taxation system places a tremendous burden on economically disadvantaged Ontarians. Even people whose incomes fall well below the Statistics Canada poverty level are required to pay income taxes. A single mother with two children, for example, was poor if her 1991 income fell below $25,421. However, she was required to pay federal income tax when her income reached $11,601 and Ontario income tax when her income reached $21,710.

Since 1982 the share of income that the poorest 20% of the population pay in income tax has risen faster than for any other income level. The share of taxes paid by the lowest 20% of income earners doubled from 2.8% to 5.8% of income from 1982 to 1990.

Therefore the Ontario Public Health Association recommends that in this, the International Year of the Family: First, families and individuals with inadequate incomes, as defined by Statistics Canada after-tax low income cutoff, should not pay personal income taxes to either the federal or provincial government. Second, the federal and Ontario governments should cooperate to reduce marginal tax rates for people with low to moderate incomes, the working poor.

The Ontario Public Health Association commends the Fair Tax Commission for its recommendation that taxation be used as a method of addressing environmental concerns. OPHA supports the introduction of taxes on environmentally hazardous forms of energy and toxic pollution which fail to reduce the emission of carbon dioxide and other pollutants into air, land and water. While OPHA supports deposit-return taxes on food and beverage containers, steps should also be taken to provide incentives for minimal or return of packaging by manufacturers.

Mr Elson: Health reform: Community health centres provide a comprehensive response to specific populations. Public health units are the only structure in place in Ontario with a mandate by the provincial government to promote health and prevent disease. This activity covers the whole province and every community within the province.

Public and community health workers collectively collaborate with community literacy groups, schools, social service agencies, community residential facilities, commercial food and recreational facilities to prevent disease, educate, foster healthy and supportive environments, and inform and refer people to other human service organizations in their community.

Public health has been called the first line of defence in a community and it's the first line of opportunity to create a health community.

Unfortunately, the 8.2% increase to community health in last year's budget did not reach Ontario's 42 health units which serve the entire population of the province. Those budgets were held to a 0% increase. The income disparity referred to earlier is nothing compared to the disparity between the government's talk of support for community-based services and the reality. Our members are feeling alienated from their government and devalued by it.

Both the way, not the purpose, they have been affected by the social contract and the failure to address disentanglement in this sector only serve to remind us that fiscal restraint and health reform are viewed by this government as being worlds apart. Most attempts at health reform have been negated by fiscal restraint.


Ms Underwood: Healthy communities: Healthy communities includes supporting people who are confronted by illness to remain economically and physically independent within their communities as much as possible. A key element of this support is access to drugs to cure or manage illness and enhance quality of life.

OPHA wishes to acknowledge the government's commitment to reform the provincial drug programs to better manage the system and to ensure access to people who need access but are now not covered. OPHA commends the government for its important stand against copayments or user fees for prescriptions. The move away from this regressive action is most welcome.

However, we urge action to accommodate people who require drug coverage; for example, people whose income places them above social assistance programs but whose drug costs place them in poverty, including people with catastrophic and chronic illnesses whose needs are not now adequately addressed.

In addition, new drugs must be added at a much quicker rate, especially to provide more options for people with life-threatening illnesses. Approved drugs for HIV take six months or more to be included. Adding drugs will raise drug costs, but not adding beneficial drugs as they become approved harms the health of people dependent upon new drugs to be available, thus increasing health care costs.

Further, we caution the government not to rely too heavily on the process to delist medications from the Ontario drug formulary in order to save moneys. As a cost-cutting measure, it has limited effect and focuses on the individual user rather than seeking broader systemic change to reduce costs. Cost-reducing measures need to focus on physician prescribing behaviour and the role of the pharmaceutical industry. The role of government in negotiating drug prices with pharmaceutical manufacturers was not discussed as part of Drug Programs: Framework for Reform. Emphasis was given only to strengthening the pharmaceutical industry in Ontario. The Ontario government's importance as a customer should be addressed.

We also wish to acknowledge the recent support by the Ministry of Health for the Ontario Healthy Communities Coalition and the corresponding realignment of the health promotion grants program. The support this project has received will foster healthy public policy at a local level, intersectoral collaboration, and increase community participation in decision-making. It also values the capacity of communities to define their own health issues.

In summary, the Ontario Public Health Association recommends reforming the Ontario tax system in a way that addresses determinants of health, namely, equitable access to education, decrease income disparities, support healthy environments and universally provide adequate shelter and income.

OPHA recommends reforming the health system in Ontario by reallocating resources to community and public health, providing equitable access to community care, and reforming drug purchase and prescribing practices, not consumers.

Finally, the Ontario Public Health Association recommends supporting healthy communities by maintaining tax rates on alcohol and tobacco products, continuing to support healthy community initiatives and supporting community-based injury prevention initiatives.

Mr Turnbull: I wonder what you think about the move by Premier Wells away from all of this multiplicity of support programs to looking at a guaranteed minimum annual wage as a way of addressing these problems of the poor.

Ms Underwood: We would support that position if it equitably distributes. But the point we're trying to make here is that it depends on where you really set that level of income for those people.

Mr Turnbull: I haven't been at every meeting of this committee, but while I've been sitting here, I haven't had anybody come here and say, "We'd like to pay more taxes," or "We think it's fair." Everybody has come with varying degrees of credible arguments saying, "Leave us alone" or "Give us more."

The fact is that this province has doubled its historical debt since Confederation in the last three years. Clearly, whether we want to or not, there's no capacity to continue piling up debt at that rate, because Ontario became the fourth-largest borrower in international markets in the world. Ahead of it only last year were the World Bank, the kingdom of Sweden and the European redevelopment bank. We're in the Olympics in that respect.

That's the magnitude of the problem the government faces, and while I often don't agree with the way it goes around trying to fix the problem, I notice the difference in the questioning that the government is making to presenters now as compared with when it first became the government. The bottom line is, there's no more money. I'm just trying to seek ways you think we can address this in a way that works and, quite frankly, doesn't bankrupt the province.

Mr Elson: What we're saying in our brief is that the only system we have which is not regressive is the personal income tax system. If we have something like the proliferation of the retail sales tax, it is regressive. Poor people pay exactly the same rate of retail sales tax. It isn't the mechanism to redistribute.

Mr Turnbull: I understand. One of the problems is that our marginal tax rate in Canada in the middle-income levels is very, very high compared with most countries in the world. It's proving to be a disincentive to stay here for the entrepreneurial people who create the jobs upon which all of our wealth is based. It's a question of finding that fine balance. That's why I'm asking you.

I think Premier Wells is on the right track with a guaranteed annual wage, and get rid of all of the other programs. We've got so many programs being administered by so many bureaucrats today, and you need a road map to understand -- you know this in your profession -- all the different support systems.

There are some people who are completely falling through the seams. They're not getting the support they need. Then there are other people who are, quite frankly, abusing the system. I'm really trying to bring out your feelings on this.

Ms Underwood: Actually, we don't have a lot of evidence that there are huge numbers of people trying to abuse the system, particularly at the lower levels. Also, although you're correct in stating that Ontario does tax heavily in the middle-income range, I don't think our track record is so horrendous against some other nations. There are some statistics about that. For example, the Scandinavian countries, Germany and the Netherlands all tax the middle-income higher than Canadians do.

Mr Turnbull: This is one of the problems, trying to compare apples with apples. I'm not talking about the historic numbers. Sweden was historically just about the highest-taxed place in the world. They've drastically pulled back, because they've recognized that they hit the wall and it was declining; the people had no incentive to work harder. I assure you, when you take all the levels of taxation, be it provincial, municipal, federal, and then all the fees, we are just about at the top of the league.


Mrs Elinor Caplan (Oriole): That's not true. It's important when we're talking to delegations that we be factual, and we were just presented with the OECD numbers that showed that Canada was in the mid-range around the world and, in comparison with other G-7 nations, again right in the middle. To make the statement, sir, that it's right at the top --

Mr Turnbull: I did not say it was right at the top.

The Chair: Order. Perhaps the members would like to carry on afterwards. We have some presenters here.

Mrs Haslam: I love it. Let them fight.

Mrs Caplan: Check Hansard. We've got to be accurate.

Mrs Haslam: I know the chart you're looking for. It's right there, and you're absolutely right.

Mr Turnbull: But if you want to talk about accuracy, just talk about the facts that you presented --

Mrs Caplan: Come on.

The Chair: Order, Mr Turnbull, Mrs Caplan. I have no doubt that from time to time members make accurate statements and they make inaccurate statements, and that's regrettable, to say the least. However, we must allow the presenters here an opportunity.

Mrs Haslam: I agree with you. I'm concerned about the support and money going into communities. With the downsizing of hospitals, the deinstitutionalization, I agree that there is some concern regarding the support services out there. I'm interested that you are commending the Ministry of Health for the Healthy Communities Coalition funding. I see that as part of what this government is about. I agree it's not going very fast and we're all in a situation where the money isn't there, but I was pleased that you've mentioned the Healthy Communities Coalition, because I see that as one part of what we're doing in communities to try and bring those changes around.

On page 10 you talk about, "As a cost-cutting measure, it has limited effect" -- we're talking about the Ontario drug formulary -- "and focuses on the individual user rather than seeking broader systemic change to reduce costs." I wonder if you would explain how. You're saying, "Cost-reducing measures need to focus on physician prescribing behaviour and the role of the pharmaceutical industry." Have you had any ideas about how that could be brought about?

Ms Underwood: I think some of the statistics that the government has collected in the past that show prescribing patterns of physicians could be addressed.

Mrs Haslam: I know; I've seen them. I'm just wondering if you could elaborate in saying how we could focus on the physician prescribing.

Ms Underwood: I think one of the ways to do it is monitor and publish the kind of prescriptions they do write.

Mr Elson: I'm not aware if a study of this nature exists, but it might be worthwhile to look at the prescribing practices of physicians who operate under salary within community health centres as distinct from physicians who operate independently. You may find distinctly different prescribing patterns.

Mrs Haslam: So this could all fall under a better-educated public also, along the idea of not asking for the prescriptions, not accepting the additional tests and better education of the public about the costs of health care too.

Ms Underwood: What we're saying is that you're really focusing on the victim end of this system, that you really need to focus on the physician behaviour itself. There could be some education of people, but I think people are pretty aware of trying not to take medications. I don't think it's their fault.

Another issue is that there are a lot of pharmaceutical-sponsored physician activities that really put into question where the best interests of physicians are.

Mrs Caplan: I found myself in agreement with much of what you were saying. There is an argument that's made on the sales tax, that it's not as regressive as we have always believed because the more money people have, the more they buy, so wealthier people pay more because they purchase more and therefore they bear a greater burden. Similarly, the wealthier people are, the more expensive the items are that they buy; therefore, the more tax they pay on the luxury items. So on the notion that sales tax is a purely regressive tax because everyone pays the same rate, there are those who would argue that in fact it is not as regressive because of the progression I've just outlined to you. I wonder if you've thought about that or heard that argument.

Ms Underwood: We've heard that argument, and there's certainly some merit to the argument. The question is people being taxed on necessities they really have a hard time not using, although you might say that a condom was not a necessity --

Mrs Haslam: No, we all agree with that.

Mrs Caplan: Remember who you're talking to.

Ms Underwood: I apologize. I do remember who I'm talking to.

Mrs Caplan: That's okay. I was just kidding.

Ms Underwood: You're right that people who have lower incomes don't pay a lot of tax on luxury dining room suites. You could get those taxes in other ways.

Mrs Caplan: Let me talk about efficiency in government services, something I don't think you'll find anybody arguing with. They'd really like to see more of it and so would I.

One of the arguments on the sales tax is that if you have a broad-based sales tax that will effectively tax everything, you don't need the administration, the bureaucrats, to deal with the exemptions, because it's quite a large bureaucracy required from that standpoint. Then what you do, and we've seen it done in a limited way, is have a cheque going out to the needy to refund, if you will, what they have paid in sales tax.

How do you feel about that as a concept, the one that says everybody pays and then those who are at the lower end of the income scale would actually get a refund? Apparently that's administratively easier to do than to exempt those kinds of items you have mentioned. I was looking for this. Have you thought about that?

Mr Elson: Just a couple of things. One is that in our deputation to the Fair Tax Commission we indicated that if this was the case, it doesn't take away the fact that many people live so close to the poverty line that waiting for that cheque -- in a sense there's a benefit, but they only get the benefit after a fairly substantial delay.

Within that too, the regressive nature of it is the actual proportion of income that people have to pay on those necessities. Even though people may have more disposable income at higher levels, there's still proportionately less that they have to pay for necessities. At the lower income levels there's a much greater proportion of their income they're having to pay for those.

Mrs Caplan: But if the refund or the rebate was high enough to cover that, would it be worth the administrative saving? One of the concerns I had about the federal GST when it was implemented was that it was costing a half a billion dollars to administer the tax.

Mr Elson: And it has been at least that.

Mrs Caplan: At least that and probably more. That's a tremendous burden on the taxpayer, and so the thought was, if you could eliminate that by having a broader-based tax, giving back to those who were in need the refund, that might be administratively more attractive and less expensive.

I haven't personally come to a conclusion in my own mind, but I'm wondering if you've looked at those options, because you've identified the impact of particularly sales tax, consumer taxes, on those who can least afford to pay them.

Ms Underwood: To be honest, I can't speak to which would be less expensive right now. That sounds like a little bit of an administrative nightmare. Having to refund sounds like administration too, doesn't it?

The Chair: I want to thank the Ontario Public Health Association for making its presentation.

Mrs Caplan: For your information, as a point of order, on my previous emotional outburst, I point out to the committee that in the DRI-McGraw Hill presentation there's a graph that shows government revenue as a share of GDP, which is effectively how much you're taxed. There's a comparison of the low-tax nations and the United States, which is in the low-tax nations, and the other OECD nations, including the G-7 countries and our competitors, and it shows Canada effectively in the middle. I just put that on the record.

The Chair: Thank you, Ms Caplan. I must inform you that's not a point of order, although we do find that very informative.

Mr Turnbull: That's misreading the numbers because that's total revenue, Elinor. That is not income tax.

Mrs Caplan: That's all taxes.

The Chair: We will not continue this debate at this time. Order.



Mr David Adams: I'd like to introduce the representatives from our member companies who we have at the hearing today. With me are Mr Norm Stewart, who is vice-president and general counsel from the Ford Motor Co of Canada; Ms Agnes Di Leonardi, who has just come on as counsel at the Ford Motor Co of Canada; Mr Brian Swift, who is senior engineer, environmental policy, with General Motors of Canada Ltd; and Mr Bob Murray, who is senior tax counsel at General Motors of Canada Ltd. My name is David Adams and I'm the director of policy development with the Motor Vehicle Manufacturers' Association.

I'd like to start by indicating that we do appreciate the opportunity to come before the committee today. Our industry has been and will be the economic engine of the province, and we believe it's important for members of all political stripes to be aware of the issues that are facing our industry at this particular point in time.

I'd like to include the members from my association in the discussion today. I turn the presentation over to Mr Norm Stewart from Ford Motor Co of Canada.

Mr Norm Stewart: Our brief and our remarks today are broken into four components. First, we'll try to give you a brief overview of what we see as the current economic state of our industry, both in Canada and in North America. Then we'll provide you with comments on the tax for fuel conservation and what we believe are more effective and environmentally beneficial alternatives. We will then move into a review of our concerns regarding the 1993 budget's extension of the retail sales tax to warranty and extended warranty repairs and to insurance premiums and employee benefits. Then if we have time remaining, we have some other tax initiatives we'd like to put forward.

In terms of the current state of the industry, as you'll note in our brief, car and truck sales in the United States and Canada are summarized. While sales in North America generally have reached an overall figure of 15.4 million units in 1993 -- that's up 8.2% and that's good news for North America -- Canada, on the other hand, with its component of North America, declined for the fifth straight year in a row and declined by 3.3% from the year before.

That's troublesome for us because we have a disproportionate share of the automotive investment here in Canada compared to the United States. In order to sustain that level of investment we really need to promote high sales here, so we want to get those sales back up again. We are optimistic that we will see some improvement in sales this year, and the general prediction is somewhere in the neighbourhood of an 8% growth. Again that's good news but still it's significantly below the sales levels in our record year of 1989, whereas the US market is going to start to attain this coming year, if things work well, levels of that 1989 rate. You can see America has done far better than us, really, and that's our challenge here.

What we're going to try to talk to you about today are some of the policies that we think are necessary to attract investment to this province. If we attract investment, we hope then that we can create jobs, that we can sustain wealth and that we can support the social programs that we want here. The last thing we want is tax policies and government policies that can act as barriers to investment, because that's only going to prolong our economic recession.

With that point I'll pass it over to Brian Swift, and we'll move directly into our talk on the tax for fuel conservation.

Mr Brian Swift: We'd like to address one of the concern areas in terms of tax policy, that being the tax for fuel conservation as it exists in the province today. We don't believe it is an effective environmental tax. Its aim is notionally at fuel economy, not fuel consumption, of new vehicles. It has on that basis no impact on smog in that all vehicles are equivalent. I'll explain that further if indeed it's necessary.

This fuel economy aim in our opinion misses influencing actual fuel consumption or CO2 emissions both of new vehicles but basically of all vehicles in the entire fleet. The proponents of the TFFC argue that you can only do so much, ie, it has an effect in terms of new vehicles. That's the first piece of the puzzle.

We submit that purchase intenders have specific needs when they come to look at buying a new car, ie, family of six needs a larger vehicle, or a small business owner may well have a specific requirement for a four-wheel-drive vehicle. A $75 tax on that basis just doesn't influence those buyers. Indeed, if anything, that additional tax at point of sale has the tendency to delay the purchase decision of a new vehicle.

People holding on to their vehicles longer thereby delays the natural retirement of older vehicles. This in itself has an adverse consequence: older vehicles in the fleet, on the road longer. These older vehicles are recognized as inordinately contributing both NOx and VOCs, the precursors to smog that we should be concerned about, that we typically find concern about in terms of the urban Toronto area and southern Ontario region.

On this basis, as well as the failures witnessed in the practical application of the TFFC in its effect in the last two years, we respectfully submit that the policy and its implications are poorly thought out. We believe, as the industry, there are some better policies that are available to address both smog and global warming.

In regard to smog, as you can see contained in our proposal, we've laid out some ideas in terms of support for an inspection and maintenance program for vehicles on the road in the province today that would mandate basically repairs of those vehicles that have high emissions. That is probably one of the most cost-efficient ways to look at the motor vehicle sector emissions problem or question and make improvements.

The second notion in terms of improvement towards smog is a concept called a tailpipe emissions premium. We've laid out some policy ideas there that we certainly think are deserving of merit in terms of government policy. Indeed, the tailpipe emissions premium has the opportunity to provide a revenue stream to the government.

As a final initiative in terms of smog, we believe there are measures in terms of enhancing the value of older vehicles, ie, a scrappage program, to naturally encourage owners to move away from their older, high-emitting vehicles and allow them to be scrapped, thereby providing substantial improvement.

In terms of a CO2 focus, I'd like to talk very specifically about gasoline taxes. We've contained in our exhibits a chart that illustrates gasoline price comparisons with the US and Canada. This is very appropriate because the fleets are quite similar. Basically, in the decade 1980 to 1990, we saw prices in this country increase more than 30 cents a litre. In the US, they actually fell 2.6 cents a litre. Contrast this against the fuel consumed by the average vehicle in each of the respective country's fleets -- by the way, the fuel a vehicle consumes is directly proportional to the amount of CO2 it emits. We submit on the basis that gasoline prices went up so high, Canada saw gasoline consumption on a per-vehicle basis fall 28%, some 20% more than occurred in the US.


Finally, we'd like to leave this area of the presentation and talk about the benefits that carbon taxation offers. Again, we believe it could be conceived as an effective tool to also reduce CO2 emissions because of its broad application in all sectors. In Ontario, we need to encourage development of further awareness, to evaluate opportunities to ensure the least disruption to the Ontario economy, as we see development of carbon taxation as a concept on an international basis, ie, implementation in tandem with those jurisdictions.

I now turn it over to Bob Murray, who's going to talk a little bit about some of the more detailed aspects of taxation in Ontario.

Mr Bob Murray: It's my task to talk about a few of the measures that were introduced in the May 19, 1993, Ontario budget, and then a few other issues that are of special interest to the Motor Vehicle Manufacturers' Association.

The first issue I'd like to raise with you is the extension of retail sales tax in Ontario to warranty parts and labour. It's of great concern to manufacturers in Ontario in the automobile industry that this happened. One thing we look for from the Ontario government is leadership with respect to how tax policies will affect automobile manufacturers. It's the type of measure that could have many other provinces rapidly expand their tax base by also taxing warranty parts and labour.

The great concern we have with this tax is that in effect we see it as double taxation. At the time a purchaser purchases a vehicle, there would be included in the price an amount which would represent the anticipated future cost of warranty repairs on that vehicle. If you end up taxing those warranty repairs a second time, in effect you have double taxation.

We also note that there is a retroactive aspect to the way this tax has been imposed, because there are cars on the road right now that are subject to tax on warranty repairs which weren't priced with that included in the original pricing.

The May 19 budget spoke about jobs and investment in Ontario. One of the great concerns to the automobile industry, and of course the manufacturing sector in Canada is focused in Ontario, is the extent to which health care costs and employee benefit costs have increased because of the extension of the retail sales tax. We consider ourselves to be leaders in providing employee benefits. Many have been negotiated at lengthy bargaining sessions, but we still feel we are the leaders in the industry in providing employee benefits. It is an additional cost and at some point in the future obviously there will be some reckoning.

I'll give you a quick example. There's an incentive in the retail sales tax to acquire manufacturing and processing equipment, because there's an exemption. There's no tax on it. Now there's a tax on acquiring labour. If you have an employee benefit plan or some other measure, that's now subject to the retail sales tax. Those types of measures are inconsistent with a budget which promotes job growth. Not to recognize an exemption, for example, for manufacturing and processing labour while recognizing it for capital is in our view unfortunate.

We also have comments in our brief with respect to sales tax harmonization. Briefly, the Motor Vehicle Manufacturers' Association is in favour of a harmonized sales tax system in Canada. We have incurred substantial costs with respect to implementation of the GST system. We don't want to debate whether it's a good system or a bad system, but we would like to say that it is a system we are now committed to. To the extent that provinces are able to agree with the federal government on a harmonized system, we would be totally supportive of that.

A small point we'd like to make is with respect to the application of retail sales tax to coupons. We'd like to see a change in the legislation to allow a drawback of tax on coupons. We just find that to be a funny situation in the way it applies, and in our brief there's something about that.

We'd also encourage the government to implement whatever measures the government could to increase investment in Ontario. The industrial base has been eroded in the last number of years. Formerly there was an Ontario capital cost or current cost adjustment program which provided incentives to manufacturers to invest in Ontario. That is important in today's economy, particularly with the trade agreements that have been implemented.

One measure we want to comment on with respect to the Fair Tax Commission is the recommendation to eliminate the manufacturing and processing credit. We consider that to be a very unfortunate recommendation. We disagree with it. We think there have to be incentives to continue to manufacture in Canada, but most particularly in Ontario, and we would encourage the government to disregard that recommendation.

The last comment I would make is with respect to the deductibility of capital and payroll taxes. You may be aware that the federal government has proposed that something may happen in 1995 with respect to limited deductibility or establishing a threshold deduction limit for those types of taxes. We strongly encourage all provincial governments to work with the federal government to manage that system so that whatever the capital and employment taxes are, they are deductible. In effect, there are business costs. There is something that is incurred to earn income, and under general tax principles we believe they should be deductible.

Those, very quickly, in rapid-fire succession, are the points we've raised. We have not provided a detailed review of the Fair Tax Commission report because we have not yet had the time to consider it fully and provide a thorough response to it, but we certainly would be willing to at a future date. Those are our comments, if anybody has any questions.

Mr Norm Jamison (Norfolk): I find that as each and every presenter -- it's natural, I suppose -- makes his or her case, there's always a certain slant to the case itself, but that's quite understandable.

When you talk about disproportionate sales, it could mean one thing or another. I have difficulty in understanding that, since most of the major auto makers have made some significant investment in Mexico, and I don't think we sell a tremendous number of cars in Mexico.

Mr Stewart: It maybe suggests what we're talking about: disproportionate investment. If you look at all of North America, the United States in terms of sales is roughly 90% of the whole market and we're 10%. We have roughly 17% of the automotive investment here. That's all the plants and equipment.

Mr Jamison: What would Mexico be with the investment that's going in down there?

Mr Stewart: I don't have a figure, but it's substantial. What we're saying is us relative to the US. I don't have an answer for you on Mexico.

The issue is, in order for us to sustain that level of investment or even create more investment, you have to sustain sales in this marketplace, otherwise what you get are congressmen and senators and UAW in the States saying, "Don't put investment up in Canada, put it down here in the States."

Mr Jamison: I was always under the impression that things like OHIP significantly increased our competitiveness in our having that system, whereas in the United States, at least up until this far, those medical coverages were very expensive in the plants. I don't know what we hold down the road, but I thought that was a real factor also.

Mr Stewart: You're right. Two major things: exchange rates and government-subsidized health care give us, in a sense, an advantage over the United States, but the United States workers, unions and the companies have worked very well at improving productivity to the point that -- we still have advantage here, there's no doubt about it, but they've narrowed the gap.

Mr Jamison: I know it's a very competitive situation. I realize that, and the government's ability, to work in what we like to call a partnership arrangement. I think it's been evident through the Big Three anyway here in Ontario. I believe they spent in total over $500 million invested in the auto industry in Ontario as we normally know it to be.

Mr Stewart: You're right, it's a lot of investment by the three companies, but we tend to invest for cycles, for new products coming on board. As those investments are announced, people are already thinking about how to win the next round of investment, and that's what we're always worried about. If we lose that competitive advantage, then the next round may not be here and you may see the thing ratchet down.

Mr Jamison: Much of that was simply to maintain jobs. There weren't new jobs. This is the kind of competitive environment we're talking about.

In the area of fuel taxes, how far have we actually come on alternative fuels? GM, for example, is doing a great deal of study into electric cars for civic use. Where are we on that? This has been the talk of the town for many years.


Mr Swift: It depends very much on where the environmental concern exists. Indeed in southern California, where there exist unique geophysical conditions and they have a significant smog problem, significantly different than anything that exists in Canada, we have developed, based on the Californian air resources board mandate, electric vehicles for sale in that state by 1998. Indeed you're seeing some debate in terms of the technology, is it ready and so forth, and that's very specific to the argument of those vehicles for use in southern California.

Mr Stewart: But they're technically limited, though.

Mr Swift: Very much so. The idea of possibly bringing that technology and implementing in Canada is quite a different sphere of thinking. The electrical discharge efficiency of batteries in cold climates is not something -- there's a significant loss of range. The low-rolling resistance tires on snowy roads present problems. There are no defrosters in those cars. It's not something that would be appropriate for Canadian climate use on the basis of what you and I expect of a vehicle and how it performs today.

Mr Jamison: Once that implementation were to take place in the proper climates, would that not bring the pressure on the use of -- even the price of -- oil down, potentially?

Mr Swift: The price of gasoline? No, our feeling is that there are so many other uses for gasoline in general, we don't think demand, at least motor vehicle demand, necessarily drives it to that great an extent.

Mr Jamison: Then there's always the cartel to deal with too.

Mr Swift: Exactly. With the pricing of oil, there are a number of variables there. Natural gas offers an opportunity indeed.

Mrs Caplan: Could you just expand a little bit on your comments about the tax on benefits, what effect it has had on your industry? I believe the tax is 8%. It was brought in in the last budget.

Mr Murray: I'm going to respond personally to that. Effectively, it is an 8% tax, although it is more than 8% in the sense that there is also a premium tax in Ontario with respect to insurance benefits which is payable by insurance companies. To the extent that you have what is called an unfunded arrangement, you will also be deemed to be an insurance company for purposes of that premium tax.

Mrs Caplan: Unfunded. That's where a company self-insures?

Mr Murray: To give you an example, many companies will pay the benefits for glasses, vision care. The company may pay that directly as the employee submits a claim for that vision care. That's an unfunded arrangement. There's no pool segregated to pay that.

Mrs Caplan: And you haven't contracted with a company to do it?

Mr Murray: You may contract to provide the service to administer paying the cheque but, apart from that, there's no pool set aside or there's no insurance company willing to pay the benefit if the company were to be bankrupt at any time.

It's a substantial cost because as an industry, and Norm has mentioned, we manufacture a lot of cars, a disproportionate share for North America. It is an additional cost every time we have an employee who now has a new benefit. Of course that is something that has to be priced into our total cost in our competitive structure.

Mrs Caplan: What's happening? Are you going to be reducing the benefits? How are you going to cope with that?

Mr Stewart: It varies, because the largest proportion of our workers is unionized. We've negotiated those benefits with them so it isn't a matter that we could unilaterally change the program. We'll have to talk these things through in future rounds of negotiations.

Mrs Caplan: Are you putting those on the negotiating table as a result?

Mr Stewart: Certainly at the last round of labour negotiations -- not on this particular aspect of it -- the CAW was as cognizant as we are that we have to administer these programs as efficiently as we can. They want the level of benefits to be there, but they suggested, as much as we did, ways to try to streamline things, which I was encouraged by. I thought that was very positive.

Mr Murray: I'd like to add a couple of comments about it. One is, it's trite to say it, but sooner or later, the cost of providing those benefits has to be priced into the product, so that becomes part of our competitive situation, not simply Canada versus US but in terms of the Motor Vehicle Manufacturers' Association. We manufacture in Canada; a lot of our competitors don't. If they don't have those costs, that is one of the factors that becomes quite important. We employ people here in Ontario and across the country.

The second thing is, we would stress the point that there is a mix of issues. It's easy to pick one issue or two issues and look at them in isolation and say this is good or this is bad for raising taxes or for industry, whatever point of view you want to take. But it truly is the mix, and this was Norm's first point: All things looked at as a total package, the package has to be conducive to manufacturing cars in Ontario for us to continue to be able to manufacture cars in Canada. Second, the total package, we hope, will promote further sales of cars in Canada. We are coming out of a recession, but unfortunately it has been a difficult time for our industry in Canada.

Mrs Caplan: Were you consulted at all or asked about what the tax on benefits would be before it was brought in?

Mr Murray: I'll give you a frank response to that. We were not consulted at all, and many administrators in the retail sales tax branch were even more surprised than we were. We were quite surprised by the response we received back when we asked the questions about how things would apply, and people would tell us, "Those are the same questions we're asking."

Mr Stewart: The Treasurer, to his credit, in discussions that we had after the fact agreed. We raised that very point. This issue and the warranty tax caught everybody by surprise. He was very frank about it and said, "Okay, we're going to have to work to make it a more open budget system and process." We were encouraged by that too.

Mrs Caplan: I've heard from numerous people about the devastating impact of the 8% tax on benefits. It's having an effect on the cost of doing business, on job creation. Also, workers are very worried about what's going to happen to their benefit plans. I appreciate your comments.

Mr Stewart: You mentioned, Norm, that you hear people who come in, and people have a definite view and a different slant on things. What we've tried to do is give a balanced assessment. We know there's a need for revenue to help pay that debt and deficit. What we want to get is a range of tax policies that aren't necessarily identical to any other jurisdictions, but when you look at the whole thing in the total context, they're competitive and they do the things they're meant to do.

If we want to have an environmental tax as an economic instrument, we want it to really benefit the environment and not simply be there as a thing that generates revenue. It doesn't really help the environment and in fact is a disincentive to buy our vehicles, because the best way to improve the environment is to get all the old vehicles off the road and replace them with all the new technology.

That's what we're trying to do, trying to think like a politician: How can we balance these things out? We know we just can't come in with a self-serving thing for you; we've got to come in with balance.

Mr Jamison: You've done that a lot at the dealership level, bringing older cars in. There's a certain period of time, if you bring them in, you get a -- whatever -- and it seems to work that way. You're able to invite certain people who may not be there normally at that time. It's an interesting point.

Mr Turnbull: On the subject of tax harmonization, if the federal government were to truly move away from taxing goods, as was the implied suggestion in the federal election, that we would move away from goods and services and have a broadly based sales tax, that could have potentially the effect of increasing the rate of tax. Thinking back to the old manufacturers' sales tax at 13.5%, what would be the impact on your industry if that were to be done?

Mr Murray: Maybe I'll get you to rephrase your question, because I don't think I fully understand it. Is your question looking at the federal government replacing the existing GST with a manufacturers' sales tax?

Mr Turnbull: I'm talking about if the province were to harmonize but, at the same time, what are you harmonizing with? Given the fact that the federal government is talking about getting rid of GST, and you know they have to raise as much tax, you're suggesting to the provincial government that it should harmonize.

Mr Murray: Our perspective is that the sales tax should be as broadly based as possible so as not to favour one type of consumption over another type of consumption. The existing retail sales tax has been broadened in the last number of years to include a number of services, obviously, but it is still not a broad-based goods and services tax. We believe that consumption should be taxed at a uniform rate as much as is possible.

Mr Turnbull: So without getting hung up on the name of the tax, essentially you're saying that the provincial government should start to broaden out the tax base, should be taxing all services at the same rate as items which are sold.

Mr Stewart: If you harmonize with the current federal system even, that should allow them to broaden their base. They can derive even more revenue than they're making right now and it may allow them to lower the provincial sales tax rate and get as much or more revenue. So we say harmonization's good and administratively it makes sense too because it cuts through a whole need of a bureaucracy we're missing.

Mr Turnbull: You will recall of course that this was the intent of the federal government, that it wanted harmonization from day one and the provincial governments resisted because the essence of that was to use the existing provincial sales tax gathering system to gather that. So that basically would be your recommendation.

Mr Stewart: Certainly not go back to the old manufacturers' sales tax.

Mrs Haslam: Even if the GST is being touted as maybe coming off, would that still be your suggestion?

Mr Murray: I'll refocus what we would see to be the ideal sales tax, and obviously I'm speaking in the ideal world now. It would be a single sales tax that applies to a uniform base at a uniform rate across the country. Obviously there's a sharing mechanism that has to occur in some way, because in the province of Alberta I assume people would be quite upset with that; in the province of New Brunswick, where I grew up, which has an 11% sales tax, people might be quite happy with that. From our perspective that is the ideal.

Whether politically that can happen, we hope that it would happen. It becomes extremely difficult for a large manufacturing company which has operations in all provinces to deal with different rates in different provinces. The adoption of a sales tax that was called a harmonized sales tax in the province of Quebec has not been an easy transition; it is not a harmonized sales tax.

Mr Jamison: There was a better possibility of that.

Mr Murray: It was a missed opportunity, a lot of people feel.

Mr Turnbull: What are you doing about this potential of the federal government not allowing all payroll taxes to be fully deductible?

Mr Murray: Again it's a mixed question. From our perspective we don't like to see taxes on capital, we don't like to see taxes on payroll, we like to see taxes on profits, but we live in an environment where it is obvious that there will be some of these taxes.

Our perspective is that the two governments must get together so that they speak as a unified government at the end of the day so that one government doesn't go right and the other set of governments goes left. Whatever the system is, we'd like the governments to put that system together and agree with it. We may disagree with what the result is, but we are seeking a unified approach to taxation in this country.

Mr Turnbull: I completely agree with you. One of the problems is, as you correctly pointed out, that the different political regimes across the country are such that I don't think it can happen.

The Chair: I thank the Motor Vehicles Manufacturers' Association for making its presentation. I want to ask you something about vehicle title. If someone could just hang around afterwards, I'd love to talk to you about it. It won't get on Hansard, unfortunately, but we do thank you very much for your presentation this afternoon.

We stand adjourned until 2 pm Monday.

The committee adjourned at 1723.