Thursday 19 May 1994

Financial Services Statute Law Reform Amendment Act, 1993, Bill 134, Mr Laughren / Loi de 1993

portant réforme de diverses lois relatives aux services financiers, projet de loi 134, M. Laughren

Canadian Life and Health Insurance Association Inc

Mark Daniels, president

Ron Meredith-Jones, chair, task force on the regulation of market intermediaries

Caisse populaire Ste-Anne-Laurier d'Ottawa

Georges Bédard, chairman

Insurance Brokers Association of Ontario

Robert Stuart, president

Robert Carter, executive director

Arthur Langley, president-elect

Insurance Bureau of Canada

Stan Griffin, vice-president, Ontario

Ani Abdalyan, associate counsel

Life Underwriters Association of Canada

Paul Bourbonniere, chairman and chief executive officer

John Wahl, past chairman

Bill Babcock, vice-president

1994 Ontario Budget

Ministry of Finance

Hon Floyd Laughren, Minister

Tom Sweeting, director, taxation policy branch

Jay Kaufman, deputy minister

Steve Dorey, assistant deputy minister and chief economist, office of economic policy

David Trick, assistant deputy minister, intergovernmental finance policy

Dr Robert Christie, assistant deputy minister and associate secretary of treasury board


*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)

Haslam, Karen (Perth ND)

*Jamison, Norm (Norfolk ND)

*Johnson, David (Don Mills PC)

*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:

Elston, Murray J. (Bruce L) for Mrs Caplan

Owens, Stephen (Scarborough Centre ND) for Mrs Haslam

Also taking part / Autres participants et participantes:

Ministry of Finance:

Campbell, Terry, manager, policy coordination, financial services policy branch

Glower, Harvey, manager, financial and business standards, credit unions and cooperatives branch

Owens, Stephen, parliamentary assistant to the minister

Savage, Lawrie, superintendent of insurance

Clerk / Greffière: Mellor, Lynn

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

The committee met at 0935 in room 151.


Consideration of Bill 134, An Act to revise the Credit Unions and Caisses Populaires Act and to amend certain other Acts relating to financial services / Projet de loi 134, Loi révisant la Loi sur les caisses populaires et les credit unions et modifiant d'autres lois relatives aux services financiers.


The Chair (Mr Paul R. Johnson): The standing committee on finance and economic affairs will come to order. We are continuing with our deliberations on Bill 134 and we will immediately proceed with our first presenters this morning, Canadian Life and Health Insurance Association Inc. Mark Daniels is president. If you would come forward, make yourselves comfortable and please identify yourselves for the purposes of the committee members and Hansard.

Mr Mark Daniels: Good morning. My name is Mark Daniels, I am president of the Canadian Life and Health Insurance Association.

Joining me today is Mr Ron Meredith-Jones. Mr Meredith-Jones is president and chief executive officer of the Prudential of America Life Insurance Co (Canada). He chairs the CLHIA's task force on the regulation of market intermediaries. This is a group that the association brought together to respond to the government's life agent reform proposals. His comments will focus on the life agent aspects of Bill 134.

I'll begin by making a few comments on the credit union reform provisions concerning insurance retailing and on the proposed amendments that concern farm mutual insurance companies. We'll be brief, relatively speaking.

The Chair: You have half an hour, during which time you may make your presentation and we'll expect some questions.

Mr Daniels: Life and health insurers are very aware of the important role credit unions play in the financial and economic life of the province. Indeed, their contribution by way of innovation in product design and delivery far outweighs their impact in straight dollars-and-cents terms. Perhaps their greatest value lies in providing an alternative to the mainstream deposit-takers.

Therefore, we are pleased to see that their corporate powers are being modernized to allow them to compete on a level playing field with other deposit-takers. One aspect of this modernization process is of particular interest to insurers, namely, the insurance business activities of credit unions.

In this vital area we strongly endorse the government's announced intention, which is reflected in the legislation and in the draft regulations which have been made available to us, to put in place a regulatory regime that is equivalent to the federal model. That is, Ontario credit unions will be able to do as much as, but no more than, their federal counterparts in the area of insurance retailing.

This will offer credit unions a much greater role in the sale of insurance products than they are currently permitted. At the same time, by not attempting to give Ontario credit unions greater powers than their federal counterparts, the proposal avoids setting a dangerous precedent which would definitely, and swiftly, lead to similarly expanded powers being granted to the major chartered banks. Ontario credit unions would quickly see any advantage nullified. This development would also threaten the continued existence of an independent insurance industry acting as an alternative source of financial products in competition with the big banks.

We would also like to commend the minister and his staff, and in particular Beth Atcheson, for their professionalism in conducting a fair and open consultation process that responded to the concerns of the insurance industry. It was a good process. We had free and open access, and we appreciated that. The resulting compromise in all of that process, from our point of view, seems to be one that everybody can live with.

With respect to the farm mutual amendments, just a word. On the whole, we commend the proposed amendments to the Insurance Act that would allow farm mutual insurance companies broader powers to hold subsidiaries. Given the competitive pressures they face, a modern legislative framework is absolutely essential.

For that same reason, we are rather disappointed to note that equal treatment was not given to all Ontario-chartered insurance companies. This concern takes on an added dimension in view of the recent budget announcement that loan and trust corporations are also to be given new lending and investment powers.

We're worried that it's unfair that those Ontario-chartered insurance companies that are not farm mutuals are really the only financial institutions in the province that will be left under legislation that has not been significantly reformed since early in this century. After all, the federally regulated insurance companies with which they are direct competitors already operate under modern legislation.

Given the apparent lack of recent progress on the ministry's insurance legislation reform project, Bill 134 represents perhaps the sole immediate opportunity this century to give these insurance companies the tools they need to survive in an increasingly competitive world. We would urge the government to amend the act to extend the treatment proposed to farm mutuals to all provincial insurance companies.

Also, while the Insurance Act is opened up for the farm mutual amendments, we want to suggest the government consider one further amendment.

We would like to ask that the Ontario act allow companies to elect either an October 31 or December 31 year-end for filing purposes. This would bring the regulations governing provincial companies in line with federal legislation and would avoid the extra and unnecessary costs of preparing two statements.

To put this in context, all but six life and health insurance companies currently doing business in Ontario are federally chartered, so we've got this little rounding error on the outside that it might be helpful to reach out and deal with.

With your permission, sir, I'd like to ask Mr Meredith-Jones to make some comments on the life agent reform proposals themselves.

Mr Ron Meredith-Jones: Good morning. Mark mentioned that I chair a task force which is the industry's focal point for dealing with life agent reform. As many of you know, dialogue on this important issue has been going on for several years.

Given the many difficult issues that reform encompassed, the proposal as it stands is a testament to the hard work of many people, not the least of whom is Superintendent Savage.

In discussing the life agent reform proposed under Bill 134, our remarks must of necessity focus on the proposed regulations that will be enacted under the act rather than on statutory amendments themselves. This is because the bill itself only sets out the framework for reform. With three notable exceptions, the life and health insurance industry endorses the life agent reform model and would urge the government to proceed to implement it.

The first exception deals with replacement disclosure, that is, how best to protect the public in cases when a salesperson has recommended that a consumer purchase a new life policy to replace an existing policy. I want to take some time to explain why this is such an important issue for consumers and why life and health insurers think that the government's proposal in this area will not provide consumers with the protection they deserve.

Currently, when a replacement has been recommended, the salesperson is required to complete a disclosure form. The form provides a side-by-side comparison of key attributes of the new and old policies: the amount of coverage, premiums and certain values. It also provides advice about the process: Don't cancel your old policy before the new one is in force. It discloses information about statutory clauses that would limit coverage in certain circumstances.

We've been working closely with other organizations, the LUAC in particular, to improve this form and, as reflected in the favourable comments made recently by Superintendent Savage, believe we have made significant progress in improving the disclosure this form provides. This is not our area of concern.

Under current regulation, signed copies of this form are sent to both insurers. More specifically, both the new and the old companies are given an opportunity to review both sides of the transaction. This is where our concerns lie. Under the proposals put forward by the government, only the new insurer would receive the completed form. The old insurer would receive only information about the old policy.

Why is this a concern? I'll start by dispelling a myth that was, I hope, inadvertently presented to this committee at an earlier hearing. The myth is that our interest in replacement regulation is motivated by a desire to place bureaucratic obstacles in the way of replacing old policies. The implication was that replacement regulations serve the interests of the replaced company, not the client. We disagree strongly with this view.

First, replacement involves two companies: the replaced company and the replacing company. Our members find themselves from time to time in one or other of these positions. Our concerns reflect a viewpoint expressed regardless of whether they're the replaced company or the replacing company.

Second, our members do not oppose replacement. In many cases the only way to serve the client's changing needs is to change the policy. A review of our members' practices would indicate that arrangements are widely offered which allow such transactions to take place on a very favourable financial basis to the client within the same company. Indeed, the principles of life agent operations of our association require agents to review the possibilities of such opportunities if they recommend a replacement.

What we oppose is systematic replacement of policies in circumstances which serve the agent's needs at the very considerable expense of the client. The side-by-side disclosure sent to both companies provides an invaluable opportunity, and currently our primary opportunity, to detect and deal with such situations.

Such replacements are a concern in our industry. However, we believe that side-by-side disclosure has contributed significantly to minimizing the frequency of these occurrences. It keeps the transactions transparent. We agree that there may be other ways to deal with this problem and will lend our full support to developing them. Until then, we strongly urge retention of full disclosure to both insurers.

Next, the life insurance council: One of the most important aspects of the life agent reform proposals is the creation of an insurance council. The life and health insurance industry strongly endorses this initiative and looks forward to working with the government to make the council a success.

One very important issue concerning the council has not been resolved. This concerns the fundamental question of the council's composition, that is, who will act as council representatives.

A council is sometimes referred to as a government by peers, that is, insurance salespeople governing themselves. In fact, in the course of one of the earlier presentations on exactly this point, the spokesperson saw the issue as one of finding the right balance between different types of agents and other salespeople.

Such a view, however, is much too narrow. Given that the council will be responsible for setting and enforcing the rules that govern the marketplace behaviour of insurance salespeople, the council itself must be representative of the three key stakeholder groups: consumers, companies and the salespeople themselves.

For their part, companies have an important and ongoing role in training and in influencing the conduct of their salespeople in the marketplace. This fact is recognized in several aspects of the government's life agent reform proposals, which explicitly make companies responsible for the conduct of their representatives. Their interest in ensuring that consumers are well served in the marketplace is as great as that of the salespeople themselves. Quite simply, the companies' very existence depends on this being so.

For this reason, companies are well represented on various councils already in place in several Canadian provinces. Indeed, they share an equal voice with the sales force on these councils. We urge the government to keep in mind the contributions that the companies can make and also of their responsibility to their customers when considering what the composition of the council should be. Companies must have a significant voice at the council table.

As a related issue, we would strongly urge that the council be kept to a manageable size. In conversations with officials, references have been made to a council with as many as 15 members. Based on our experience in other provinces, a council of this size would be so unwieldy as to be totally impractical. It would also be very expensive.

The government might wish to consider Alberta as a model. The Alberta council has two agent representatives, two company representatives and two consumer representatives. By all reports, the Alberta council seems to work well.

Finally, holding out: I would like to speak to a very important issue that Superintendent Savage also raised in his remarks to this committee, that of holding out. There are many titles or designations that life insurance salespeople might use to hold themselves out to the public.

Either in regulations or in the proposed code of ethics, there should be a requirement that intermediaries accurately disclose both their contractual relationship with the firm or firms they represent and the nature of this representation. Also, there must be some reliable method of ensuring compliance so that consumers are not misled.

The concerns of insurers and the interests of the consumers coincide perfectly on this vital point. Insurers, therefore, look forward to working with the government in developing appropriate standards and procedures.

Mr Chair, committee members, this concludes our formal remarks. We'd be pleased to answer any questions.

The Chair: Thank you very much. We have five minutes per caucus. We'll start with Mr Phillips.

Mr Gerry Phillips (Scarborough-Agincourt): I'll start, and then I think my colleague -- this is to Mr Daniels. You said there are six provincially regulated insurance companies that you would like to see accommodated in the legislation. Maybe the question really should be more to the staff or to Mr Owens, whether that's a possibility as we move forward on this legislation.

Mr Stephen Owens (Scarborough Centre): I'm sorry. I missed the first part of your question.


Mr Phillips: Mr Daniels's comments earlier were that there are six provincially regulated insurance companies whose concerns he felt we should be trying to accommodate in the legislation. I just wondered if there's a reason why we wouldn't try and do that.

Mr Owens: Just let me very quickly respond. I was going to ask Mr Savage to respond in more fulsome detail on some of the issues like the council and representation and things like that, but what I will do then is ask Mr Savage to respond.

Mr Lawrie Savage: The question of the required filing date for the annual statements is something that could be dealt with. As you might imagine, there's a long, long list of things relating to the Insurance Act that could be dealt with and could be done to tidy things up. It's a piece of legislation that really hasn't been brought up to date and modernized in any extensive way. There was a major study done of the Insurance Act, the Insurance Legislation Review Project, which came up with some 220 recommendations for change. At some point many of those things such as the filing date were going to be considered.

This package deals with life agent reform, and for that reason we didn't address the question of the filing date for the annual statements. It's not something that we would have any major policy problem with. It's just one of the things that wasn't addressed because it wasn't part of life agent reform.

Mr Murray J. Elston (Bruce): Perhaps I could ask a couple of questions. I'm interested, and this has always been an interesting problem, I think, for us, with respect to the companies and sales of product. You do so through agents. The question always is, who is responsible for the agents? I guess either of you, Mark or our friend from Prudential, could tell us whether you feel responsible for the activities of your agents, or are you prepared to have the government assume all responsibility for dealing with the public?

Mr Meredith-Jones: Under the present regulations, we're responsible for sponsoring the agent and we take responsibility for their actions in the marketplace. Under the proposed regulations, we would continue to sponsor agents for a two-year period. After that, we would take responsibility for the agents with respect to the transactions they have with our company. I think this is absolutely vital to the industry, and we're prepared to do it. There is no dispute on that issue.

Mr Elston: I have an interesting problem which has come to my attention, that is, the sale of a company's product some time ago which was a policy where the holding out by the salesperson was that, if you paid for a certain number of years, at a certain stage the payment of all future premiums would disappear. In fact, what you end up doing is front-end-loading the payments, and the interest that is accumulating, presumably, on those premiums paid would be sufficient to pay out for the rest of the life of the policy.

This person has just now recently received a bill for some $800. Because the interest rates have declined, the undertaking has not really fulfilled the needs of the premium that is required to keep the policy current. The agent now has severed relationships with the company, the person who held out that no more premiums would be payable after a certain time. The company is refusing to deal with the client on the basis that, "Well, that was the agent." What would you do in a circumstance like that?

Mr Meredith-Jones: In that circumstance we would sit down with the client, find out what happened, and if what you suggest is in fact the case, we would stand behind the contract and make good.

Mr Elston: That really does come to the heart of the issue, because people do move from one client base to another and it really has to be seen, I think, that the person who is making the sale for the company is going to be stood behind. But that isn't always, I think, the case.

In this particular case, the company has refused to speak to the customer, saying: "This was our product. We don't care what was basically said to you. Besides that, the agent is no longer with us." It's not how I understand most companies work, but I wanted to make it very clear that there is a real connection between the companies and their sales force, to make sure that there is integrity in the chain of command. Because the client of the agent is also the client of the company, it seems to me, and I don't know how anybody could sort of wash their hands of an obligation to the customer base.

Mr Meredith-Jones: I can't speak for that company, but in our support for the legislation that's proposed, first, we are willing to take responsibility for our agents. We've had a number of conversations with Superintendent Savage, in fact, about how to strengthen this. Second, what you've suggested is right in line with our concern about adequate representation on the insurance council. That's the area where we can set industry standards to deal with the kinds of concerns that you suggest.

Mr Daniels: May I just add parenthetically, Mr Elston, perhaps you could be in touch bilaterally with my office, because we have a procedure inside the CLHIA to deal with issues that end up spilling over. At the end of the day we don't have a perfect fix for these things, but we do have procedures that will at least vet the process and on occasion, indeed frequently, can bring about a resolution of a problem; not always. But let me just make that offer, because it's important that we reach out in instances like this and deal with our clients.

Mr Elston: I very much appreciate that.

Mr Owens: As well, Mr Elston -- I'm presuming it's a constituent -- if your contact is willing to contact either my office or Mr Savage's office, we'll go forward on that on that person's behalf.

Mr Elston: I was just hoping I might have one more question since the parliamentary assistant used some of our time.

The Chair: Actually he didn't. I've been keeping close tabs on the time and you've actually used more than you're allowed.

Mr Elston: I was just going to ask the question about how the continuing education requirement --

The Chair: I know you'd like to, but we're going to go to Mr Johnson.

Mr David Johnson (Don Mills): Just going back to the filing situation, and there was some exploration of that, it appears as if the government is saying it might be handled, although this wasn't the purpose of the bill, so they're probably not going to handle it. Could you give me some idea as to the cost associated with having the two different filing dates, having to make two different statements? Can you give me a pricetag on this?

Mr Daniels: I don't have a precise pricetag, Mr Johnson. I do know that where companies run into having to keep two sets of books, it turns out to be more than a modest nuisance in some cases. We were simply reaching out in that case because it was -- the superintendent's quite right; there's quite a list of stuff out there. This one showed up because it's of particular concern to a subset of the companies, but I can't give you a precise cost number on this. I simply don't have it and I wasn't provided with it.

Mr David Johnson: Maybe this is something the staff could answer more accurately, but you've undoubtedly discussed this with the staff. I wonder if you have any sense of the complexity of making this change. Is this a simple change or is this a difficult one?

Mr Daniels: As far as I know, sir, it's a relatively simple change. You would not be surprised, Mr Chairman and your committee, to hear that this whole issue of harmonization, to try where possible to get homogeneous regulations for the companies, is a theme that finds its way into all the forums like this, and not infrequently you hear us come up selectively.

Given half a chance, we'll bring out our little litany, but it's a non-trivial matter because effectively what happens to the life insurance companies is we have to operate in Canada under 11 different sets of regs. They differ measurably and markedly by jurisdiction. It's not surprising that where we can seek parallelism without compromising the public policy goals of the jurisdiction in question -- and this is not a public policy issue as far as we can see -- that we're reaching out to it.

Mr David Johnson: I have a great deal of sympathy for you and I would only say that -- perhaps this isn't the forum right here today -- I would welcome your litany, and perhaps you could direct it to me.

Mr Daniels: You may have opened up a door, Mr Johnson.

Mr David Johnson: I'd just like to see it.

Secondly, going on to the issue that was raised later about replacement disclosure, I seem to recall reading somewhere about the possibility of disclosure at time of sale. I don't think that's exactly what you are proposing here today, is it?

Mr Meredith-Jones: We're dealing with a specific type of sale, a sale which involves replacement of an existing policy.


Mr David Johnson: Right. I'm still somewhat new at this whole issue. Dredging back, I seem to recall having read somewhere that it was a view of some party that the easiest way to deal with this was simply to have full disclosure when the policy was sold in the first instance.

Then the individual involved, the consumer, would have that, and if a new policy was proposed to replace it, the consumer would have disclosure of the new policy and would be able to compare the two, having the one in hand and the other, the replacement, given to him or her. Is that a concept that has any merit?

Mr Meredith-Jones: Certainly our industry is taking action to improve disclosure to the client. In fact, we have a task force working on this very point. Since many of the policies that would come into question in the case of replacement were sold many years ago, before any such regime could come into place, it would be many years before we would have a block of old policies with that type of form in place.

One would also have to say that with a form that was put together 20 years ago, you couldn't cover all the situations that would come up over 20 years or the disclosure form would become longer than the policy. I would favour continuing to require a disclosure form. I believe that the kind of disclosure at the point of sale that was suggested would be a step forward, but I don't think it would make replacement regulation unnecessary.

Mr David Johnson: Your proposal is to continue with the side-by-side, I think is what you call it, comparison.

Mr Meredith-Jones: Yes.

Mr David Johnson: You express some fairly earnest concerns if that is diluted, but I'm just not exactly sure, perhaps you could explain to me again what they are. Is it that there would be a quite a raft of replacements and the consumer wouldn't be in a good place to compare?

Mr Meredith-Jones: The kind of replacement we're concerned about -- I described this -- is where the replacement is to the advantage of the agent rather than the client. Many of our products are sold with substantial loads in the early years. Replacing the policy is a cost to the client. There's also a value to the agent. The kind of replacement we're concerned about is the type where an agent who perhaps may have been with company A and gone on to company B, without looking after the client's needs, will go out and systematically replace the policies that he had previously sold with the other client.

Mr David Johnson: Does the word "churning" apply?

Mr Meredith-Jones: "Churning" is exactly the word that applies, sir.

Mr David Johnson: Now, putting --

The Chair: Mr Johnson, I'm sorry, but we're running very short of time.

Mr Owens: Just very quickly, Mr Meredith-Jones and Mr Daniels, thank you for your presentation. I want to tell you that I quite appreciate the thrust of your presentation with respect to consumer protection.

I think that you were quite diplomatic, Mr Meredith-Jones, when you indicated that this dialogue has been ongoing for several years. I think the number 40 comes to mind. I'm quite pleased that I myself and my government are able to bring these changes to fruition for you.

I want to ask a question on the issue of replacement business. As Mr Elston related his story, I thought that sounded surprisingly familiar on a personal basis. But I haven't received the letter from my insurance company about interest rates yet, so I'll be watching.

Mr Kimble Sutherland (Oxford): I'm waiting too.

Mr Owens: You may be receiving a few calls.

The Chair: I might remind the members that there's only about a minute left.

Mr Owens: In terms of the format in which we've set out the requirement for disclosure and in terms of the code of ethics, and, again, the responsibilities that you've outlined that you feel you have as a result of a duty of care, is this not going to provide a high level of protection for the consumer?

In terms of the issue with respect to confidential information, there may be a reason, in my view, that I may not want to have information going to the agent who sold me my policy. Would that not cause even further problems with respect to the replacement business?

Mr Meredith-Jones: Your first question I think related to, do I think that some of the standards, some of the proposals made in the LARP recommendations provide additional protection to these situations? The answer is clearly yes. As we develop codes of ethics and as we put practices into place, I think this is going to strengthen the regulation. Indeed, many of our members have communicated with Mr Savage and others to propose that these very steps take place. Will they remove the need for the side-by-side disclosure? I'd rather reserve judgement until we've had some experience with it.

Mr Owens: The other point that I would like to make is that these regulations, particularly with respect to your sector, are still in development and your suggestions around filing dates and the counsel's suggestions are noted by Mr Savage and ministry staff. We look forward to working with you, particularly as we move into clause-by-clause, if there are suggestions that need amendments. Mr Savage, would you like to comment?

The Chair: Mr Owens, I'm afraid our time's past expired.

Mr Elston: I think any time that Mr Savage particularly, or any one of the regulators, has something to add, it will probably help us.

The Chair: It probably would, Mr Elston. However, at the end of the day, when we have to go vote in the Legislature, someone's going to be cut very short, and if you can accept that --

Mr Elston: I'm happy about that. Floyd, I know, can't be here all afternoon. In any event, we'll see him.

The Chair: But I mean prior to lunch, when we vote, Mr Elston, and you know that as well as all the members do, so I'd like to try to manage the time as best I can.

Mr Elston: Perhaps Mr Savage can file something in writing then as to what he would have replied.

The Chair: Mr Elston, I'm sorry. We're going to bring this to order. I want to thank the Canadian Life and Health Insurance Association Inc for making its presentation before the committee this morning. I appreciate it very much.


The Chair: Our next presenter this morning is Mr Georges Bédard, chairman of the Caisse populaire Ste-Anne-Laurier d'Ottawa inc. Please make yourself comfortable. While we're waiting, just very quickly, I would like to let the committee members know that the Finance minister, Floyd Laughren, will be here at 3:45 pm today. He has a short statement to make, so we will have about an hour's time to spend with him and ask him some questions. Mr Bédard, whenever you're comfortable you may proceed.

M. Georges Bédard : Bonjour. Mon nom est Georges Bédard. Je suis le président de la Caisse populaire Ste-Anne-Laurier à Ottawa, et je suis aussi un administrateur de la Fédération des caisses populaires de l'Ontario.

Même si les opinions que nous allons présenter aujourd'hui sont partagées dans une très large mesure par l'ensemble de notre mouvement, elles sont uniquement attribuables à la Caisse populaire Ste-Anne-Laurier.

La Caisse tient à remercier le Comité permanent des finances et des affaires économiques de cette occasion qui lui est donnée de faire connaître son opinion sur le projet de loi 134, Loi sur les caisses populaires et les credit unions. La Caisse populaire Ste-Anne-Laurier, avec un actif de $125 millions, est la caisse avec le plus gros actif en Ontario.

Projet de loi: la caisse populaire est très heureuse que le gouvernement ontarien ait placé parmi ses priorités de 1994, la révision de la Loi des caisses populaires et des credit unions. Nous appuyons fortement cette initiative, mais nous croyons qu'il doit se produire des changements importants avant que ce projet de loi devienne loi. Nous appuyons les positions prises par notre Fédération ainsi que par la coalition. Nous réalisons tout de même que chacun des participants à la coalition a dû faire certains compromis afin d'en arriver à une position commune.

Voilà pourquoi notre caisse a jugé nécessaire de présenter un mémoire afin d'appuyer notre Fédération et, au besoin, d'aller plus loin dans nos demandes de modifications à ce projet de loi. Nous sommes d'avis que les opinions que nous présentons au comité sont partagées dans une très large mesure par l'ensemble de notre mouvement.


Nous sommes raisonnablement satisfaits des pouvoirs commerciaux ainsi que de la structure du capital tels qu'ils sont proposés. Naturellement, il demeure inquiétant que beaucoup de choses soient décidées par règlement. Pour cette raison, nous demandons que le Ministère établisse un mécanisme permanent de consultation avec l'ensemble de l'industrie, et en particulier avec les deux fédérations francophones, afin de nous assurer que nous puissions bénéficier d'une réglementation souple et apte à favoriser le développement de notre réseau de caisses populaires qui déjà fait preuve d'une cohésion unique qui renforce la solidité de nos institutions.

Le point qui nous inquiète est notre manque de contrôle, par et pour les francophones, au niveau provincial. Nous référons particulièrement aux pouvoirs accrus de l'assureur-depôts, spécialement dans le domaine de la stabilisation, et au niveau du Ministère dans le pouvoir d'émettre les permis de prêt. Nous ne demandons rien qui s'appliquerait uniquement aux caisses populaires. Nous demandons que la Loi reconnaisse spécifiquement qu'un regroupement de caisses populaires ou de credit unions qui est structuré en conséquence et qui désire le faire, puisse, à l'intérieur de règlements de la Loi, s'autogérer et s'autodiscipliner.

Permettez-moi de donner plus de détails sur certains amendements que nous proposons à ce projet de loi en appui ou en plus de ceux déjà mentionnés par la coalition ou par notre Fédération.

L'Ontario est la province la plus industrialisée et la plus économiquement forte au Canada. Pourtant, en 1993, alors que l'économie canadienne était sortie de la récession, l'actif du Mouvement des caisses populaires et des credit unions de l'Ontario n'a connu qu'une croissance modeste de 2,9% et son bénéfice net a chuté de 9,9%. L'insuffisance du fonds de l'assureur-dépôts s'est détériorée en 1993, passant de $ 68,7 millions à $ 70,4 millions, et ceci malgré des revenus des primes de plus de $ 23 millions.

À notre avis, la pauvre performance de l'industrie s'explique par l'absence de l'affiliation obligatoire qui fait en sorte que le leadership qui peut être exercé par nos institutions, de même que l'imputabilité financière qui en découle, sont déficients.

Selon la Caisse populaire Ste-Anne-Laurier, la plus grande faiblesse de ce projet de loi est de ne pas exiger l'affiliation obligatoire. Par «affiliation obligatoire», on entend l'affiliation obligatoire d'une caisse populaire ou d'une credit union à une fédération ou une «league». Selon nos renseignements, dans toutes les provinces canadiennes sauf l'Ontario, l'affiliation des caisses ou des credit unions à une fédération ou une «league» est obligatoire. Tous ces gouvernements qui ont sous leurs juridictions des coopératives financières, ont cru à la nécessité de l'affiliation pour assurer un sain développement du réseau coopératif.

Nous savons que la coalition est partagée sur ce sujet. Certains souhaitent l'affiliation ; d'autres la craignent. En devant cette absence de consensus, le gouvernement a plutôt choisi le statu quo.

Nous déplorons que le gouvernement ne voit pas cette nécessité de l'affiliation et n'accepte pas de jouer son rôle de catalyseur économique, afin que le Mouvement coopératif ontarien assure sa survie et demeure pour encore longtemps une alternative viable au secteur capitaliste bancaire.

Si le gouvernement n'est pas prêt à exiger l'affiliation obligatoire, nous demandons au gouvernement qu'il accorde, à l'intérieur d'un encadrement par règlements, beaucoup plus de pouvoirs et de responsabilités aux regroupements des caisses populaires et credit unions qui croient à l'affiliation.

À titre d'exemples : avoir un niveau de capital et de liquidité pour un regroupement de caisses populaires ou de credit unions plutôt que pour chaque unité individuellement ; avoir le droit, et non simplement le privilège, d'être désigné office de stabilisation ; pouvoir émettre et réglementer, pour ses membres, les permis de prêt.

En ce qui concerne les permis de prêt, la loi devrait, par voie de règlements, donner à une fédération, une «league» ou un office de stabilisation le pouvoir d'émettre et de réglementer les permis de prêt. Il sera très difficile pour le Ministère de pouvoir contrôler et réglementer les permis de prêt pour plus de 500 caisses populaires et credit unions. Les fédérations, les «leagues» ou les offices de stabilisation, étant plus près de leurs membres, sont plus aptes à connaître leurs besoins, ainsi que la compétence des ressources humaines qui oeuvrent dans le domaine des prêts.

Une chose est certaine : le ministère ne devrait pas avoir le pouvoir de révoquer ni de modifier un permis de prêt, à moins que la caisse populaire ou la credit union n'ait pas respecté les modalités ou conditions de son permis de prêt.

Le projet de loi donne à l'assureur-dépôts le pouvoir de désigner une fédération, une «league» ou une association de caisses populaires ou de credit unions comme office de stabilisation. Le pouvoir de donner la désignation et de régir un office de stabilisation devrait se situer par règlements au niveau de la loi et non résider dans les pouvoirs de l'assureur-dépôts. En plus, une fédération ou une «league» ne devrait pas être désignée à titre d'office de stabilisation. Une fédération ou une «league» devrait pouvoir demander, au nom de ses membres, la création d'un office de stabilisation, mais celui-ci devrait être distinct des fonctions d'une fédération ou d'une «league».

Nous proposons donc que si une fédération, une «league» ou une association de caisses populaires ou de credit unions en fait la demande pour ses membres, le directeur doit y donner la désignation d'Office de stabilisation, selon les conditions prescrites par règlements.

En conclusion, nous, de la Caisse populaire Ste-Anne-Laurier, tout en reconnaissant que les caisses populaires sont distinctes des credit unions, reconnaissons également que nous devons opérer sous la même loi et avec le même assureur-dépôts. Ce que nous demandons au gouvernement ontarien est de permettre, à l'intérieur de la loi, que tout regroupement de caisses populaires ou de credit unions qui est structuré en conséquence et qui désire le faire, puisse, à l'intérieur de règlements de la loi, s'autodiscipliner et s'autogérer.

Nous, ainsi que les autres membres de la Fédération des caisses populaires de l'Ontario, avons démontré clairement notre engagement à nous doter d'une structure d'autodiscipline, forts d'une solide confiance en notre capacité collective d'assurer avec succès le développement de notre réseau de caisses populaires. Nous comptons sur la compréhension des membres de ce comité et espérons que vous donnerez concrètement suite aux demandes minimales de ce mémoire qui, à notre avis, reflète fidèlement l'engagement de notre mouvement. Nous avons simplement besoin d'une loi permissive.

Je vous remercie. If there are any questions, I would be pleased to try to address them.

Mr David Johnson: Thank you very much for making a presentation on behalf of the Caisse populaire Ste-Anne-Laurier d'Ottawa. It seems to me that the primary concern you raised revolves around mandatory affiliation.

Mr Bédard: That's correct.

Mr David Johnson: That's something I'd like you to expand upon a little bit. I'm not so sure whether there were problems resulting from the lack of mandatory affiliation authority within the act or whether it was a missed opportunity.

Mr Bédard: I believe it's a missed opportunity. The difficulty is that in all provinces where there are laws dealing with the question of caisses populaires and credit unions, except Ontario, there is a mandatory affiliation. The hope is that we in Ontario would have a similar kind of law set up so that all caisses populaires and all credit unions would belong to some group or another.

The reason is very simply that when you have an umbrella group, that umbrella group is capable of dealing more closely with its member organizations and controlling them. Where you have a situation where some of them are independent and have none of this family kind of control, you may end up in a severe situation.

Ontario hasn't done as well with its caisses populaires and credit unions as I believe it could, and one of the reasons is that, for a cooperative movement, it really hasn't been cooperating as much as it should in ensuring that it moves ahead fully. For a cooperative movement, it seems rather ludicrous that it does not have mandatory affiliation.


Mr David Johnson: You've said that perhaps it hasn't been as successful as it should have been. Does that mean that we have encountered more defaults or other financial problems as a result of the fact that, as you say, a federation or a local coalition would have a greater understanding of the needs of its members and would be able to monitor better? Or are you referring to the fact that with a federation, the financial power would be greater and the caisse populaire would expand and be more successful?

Mr Bédard: Both. I don't think there is any doubt about it. You would have more regulations, because the family would try to keep the family together and work together and try to encourage its member groups. But also, on the other aspect, if, for instance, you have a caisse like mine, $125 million in actif, that is a considerable amount of money. However, there are some caisses that have only a few million dollars. If you put it all together into an affiliation and are able to spread that around from the point of view of ensuring that the reserves are all there, instead of my caisse simply having its own reserve, all caisses together could probably meet the necessary regulations or laws that specify the amounts of reserves they should have.

It's the same thing with liquidity. If one caisse needs funds and another caisse has a lot of liquidity, as it is now we can't transfer those funds to that particular caisse. It may be a small caisse that needs that liquidity while the large caisse doesn't necessarily need it because it doesn't have those people available to borrow that money. So we could transfer it within the family. Those are very important things that would ensure economic development for sure.

Mr David Johnson: This creating of a federation is possible today, obviously.

Mr Bédard: We have our own federation, and what we're simply saying is that it should be mandatory, because I can leave my federation at any time I want, and I'm the largest caisse in Ontario. I think it would be a bit ridiculous if I did that. In fact, historically, Laurier, a caisse we amalgamated with, had done that and got into trouble, as you will recall.

Mr David Johnson: My time's probably coming to an end, but given these benefits, why wouldn't --

The Chair: Mr Johnson, we're going to have to move on.

Mr David Johnson: I guess my time has come to an end.

Mr Elston: Is it possible to have everybody join a federation? I know what the argument is. There are several benefits. But is it achievable?

Mr Bédard: It is certainly possible if you oblige them to. You are the lawmakers.

Mr Elston: But is it practically possible?

Mr Bédard: I think it's very practical. I don't think there's any doubt about it. It's just that some people like their independence, and what we have to say to them is that for the betterment of the movement, you have to bind together.

Mr Elston: I agree with your suggestion that it would be healthier for the overall movement, both credit union and caisse populaire, if there were mandatory memberships, but I also like to have things that are practically achievable.

This is actually a question to the parliamentary assistant. I don't have problems with some of your suggested amendments about necessary changes in the wording that would express more an appreciation for the distinct nature of caisses populaires. Are there possible wording changes suggested in the presentation? Are there some changes that don't appear to destabilize, at least from my view, what appears to have been a fairly good piece of work in consultation among the players involved?

Mr Owens: Believing always in the art of the possible, as we move towards clause-by-clause, if Mr Bédard, along with Mr Glower and others from the ministry -- I don't see why it wouldn't be possible to continue the good work we've started on this. I'm not going to put the paycheque on the table here today and say it would happen, but it's always a possibility.

Mr Elston: With respect to the position on the use of the name "caisse populaire," are there problems now with some who are not using the name appropriately?

Mr Bédard: The danger is that as the movement progresses and as assimilation unfortunately progresses in some of the francophone areas, the caisse populaire eventually through affiliation will become more of a credit union than a caisse populaire; in other words, will be more anglophone than francophone in its nature and maintain the name "caisse populaire." That was a major concern of the organizations.

The other concern is that the present law or the way it's being structured now permits caisses populaires to maintain their name. If it goes that route, it may cause our movement to have a caisse populaire which is really not a caisse populaire but more of a credit union. I think everybody recognizes the distinct natures of a caisse populaire and a credit union: One is francophone and the other one is anglophone.

Mr Elston: Can a non-francophone participate in a caisse populaire?

Mr Bédard: Oh, a lot of them do.

Mr Elston: So it isn't a problem of participation. It is more in the sense that the business transactions and activity around the caisse populaire is to be dealt with in French, and that the retention of the nature of la Féd and your credit union is part of a broader movement. Is that fair to say?

Mr Bédard: That's correct. We want to make sure that la gestion, management is francophone in its flavour and nature.

Mr Elston: Can you tell us a little bit about la Féd? Basically, it's a much more integrated system, isn't it?

Mr Bédard: We try to work together. I can't speak for the credit unions, but the reason we work together is because we have a common goal. Our common goal is not only economic development, but it's also economic development for the francophone community. Obviously, when you're working in an environment which often imposes a lot of things on you, being a minority, you fight harder and act more like a family. Family union is extremely important and maybe that's why most of the caisses populaires are either with la Fédération or with l'Alliance. The other independents are usually found, I believe, in credit unions.

Mr Owens: Thank you very much, Mr Bédard, for your presentation. I think we're at variance on some of your points. I'd like to address, first of all, the issue with respect to the cultural nature and the government's commitment to maintain the unique cultural aspects of the caisse populaire system. You may or may not be aware that we're in the process of amending the legislation to include the reservation of the term "caisse populaire" for use by caisses populaires; and that we're further providing for language that will entitle people to receive services in French; and last, that none of the exceptions with respect to the use of the term "credit unions" will be applicable for "caisses populaires." It's the commitment of the government to maintain the good work and the commitment of the francophone community to its financial institutions.

Mr Bédard: We appreciate that and encourage it.

Mr Owens: Thank you. I would like to ask Mr Glower to respond to the issue of mandatory affiliation.

M. Harvey Glower : Si vous permettez, je vais m'adresser à ce sujet en français.

C'est bien reconnu que dans les autres provinces, l'affiliation obligatoire est assujettie à la loi. Comme M. Bédard nous l'a dit, il y une histoire, dans cette province, de support pour et de crainte de l'affiliation obligatoire. Mais je pense que le gouvernement a pris la position que les éléments de risque les plus foncés doivent être adressés quelque part, et donc, dans ce cas, nous avons choisi une position forte et efficace. Cela veut dire mettre dans la loi l'obligation «mandatory» d'affiliation au niveau de la stabilisation. C'est là où nous pensions que les mesures nécessaires pour assurer la stabilité financière de tous les caisses populaires et credit unions pourraient nous garantir le succès du mouvement.


To summarize, basically the government has taken the position that it's difficult to mandate something that should otherwise come voluntarily. But where the level of risk exists in terms of maintaining the financial stability of the member institutions, we have chosen, with the recommendations coming primarily from the caisses populaires and the success of the caisses populaires, to mandate mandatory affiliation in a stabilization authority. We think this is probably the first step.

I believe that the caisses populaires have stated time and time again that once everybody sees the benefits of stabilization, they should voluntarily move on their own to mandatory affiliation with a league for all the other services that a league would and could provide.

Mr Bédard: That is certainly the hope. However, it has been how many years since the law has been revised, and still they don't necessarily want all those benefits or are not encouraged to go towards mandatory affiliation. So how many more years are you going to have to wait? This is a perfect opportunity to move ahead now and we encourage the committee to do that now.

Mr Glower: To address a couple of the points you've mentioned as an alternative: One was with respect to the level of capital and liquidity, pour un regroupement des caisses populaires et des credit unions, as opposed to looking at them on an individual basis that we look at them as a whole.

There are a couple of issues. Certainly section 75 of the statute will permit a league to sell the shares on behalf of all of its member credit unions or caisses populaires to the members of those financial institutions; that's one step. The other step: You may be aware that the regulations dealing with liquidity are looking at the ability to look at everybody in a réseau.

Le Président : Monsieur Bédard, je vous remercie de votre présentation d'aujourd'hui.


The Chair: Our next presentation is by the Insurance Brokers Association of Ontario. Please come forward. I see in your presentation that you will be identifying yourselves, and that's very much appreciated.

Mr Robert Stuart: My name is Bob Stuart. I'm president of the Insurance Brokers Association of Ontario and own a small brokerage in Markham, Ontario.

Mr Robert Carter: My name is Bob Carter, and I'm the executive director of the Insurance Brokers Association of Ontario.

Mr Arthur Langley: I am Art Langley, president-elect of the Insurance Brokers Association of Ontario, and I operate a small brokerage in North Bay, Ontario.

Mr Stuart: Mr Chairman and members of the committee, on behalf of the Insurance Brokers Association of Ontario, we are pleased to have the opportunity to appear before this committee to discuss the views of our industry regarding proposals by the government of Ontario to reform the financial institutions legislation as it relates to the regulation of credit unions.

Our thanks go to the ministry staff who have worked very closely with all the interest groups to ensure that everyone has been heard and that this legislation will be as fair as possible.

The Insurance Brokers Association of Ontario draws upon the services of a permanent staff, headed by an executive director and a volunteer board of directors representing all areas of the province.

I'd like to take a few moments to comment on the role of the broker. The role of the insurance broker is often misunderstood. The contribution of IBAO members to the wellbeing of society is clear. Insurance brokers are community leaders, active in all facets of life in their communities. Most members are involved in charitable institutions, minor league sports, religious institutions and most other community programs. More important, most insurance brokers are small business people and, together with their employees, contribute significantly to the province's economy and prosperity.

Property and casualty insurance brokers serve the insurance requirements of individuals in virtually every community of Ontario. Our members, independent insurance brokers, buy insurance on behalf of the consumer. Their objective is to provide the best possible product at the most competitive price to properly protect the insuring public. In the event of claims, the independent insurance broker is often called upon to represent the consumer to the insurance company.

Insurance matters are complex. As society becomes more complex, so does insurance. For example, note the recent change in Bill 164 governing automobile insurance: The accident benefits section has been expanded from eight pages to 77. This requires a professional independent adviser.

Insurance products vary from company to company, and coverage must be tailored carefully to suit each individual's needs. Brokers are independent of any insurance company or financial institution and must remain so to provide independent advice to the insurance consumer. To ensure this independence, legislation must prohibit control of independent insurance brokers by any financial institution, be it an insurance company, bank, credit union, trust company or stockbroker.

A broker's advice is objective and not predisposed to any option before the client's requirements are assessed. There is a risk that this could change dramatically if the insurance distribution system is altered to allow the retailing of insurance by an untrained, biased sales force.

I'll now ask our executive director to comment on our association and its position.

Mr Robert Carter: The Insurance Brokers Association of Ontario is a provincial professional association of property and casualty insurance intermediaries in Ontario. IBAO represents over 7,600 licensed brokers and their support staff. In 1995 we'll celebrate our 75th anniversary.

IBAO plays an important role in maintaining dialogue with its members to ensure that they are kept informed on matters of interest and on changes that have an impact on our industry. As the provincial voice of the Insurance Brokers Association of Canada, we not only keep our members informed about provincial issues, but we provide firsthand education and information on matters of a national interest so they may properly serve the insuring public.

Our association works extremely hard to improve the level of competence of insurance brokers by offering a comprehensive, professional development program and by establishing standards for qualification and ethical behaviour. The professional designations, CAIB, Canadian accredited insurance broker, and CIB, chartered insurance broker, are evidence of our professional standards. IBAO also promotes and encourages the development of self-regulation for our members.

IBAO has played a leading role in the ongoing consultation process between government and industry. Our efforts are aimed at improving the services and professionalism provided by insurance brokers, while safeguarding the interests of the consumer in Ontario.

Further, it is our view that consumers benefit most and are protected best when all insurance intermediaries are properly qualified and licensed and operate on a level playing field. A level playing field is one where the consumer receives independent advice so that no unnecessary pressures are brought to bear on them at the expense of proper coverage, competitive pricing and personal service.

Many financial institutions are pushing the limits of legislation to test the will of regulators. How will they react if regulations are expanded and how will this affect the insurance consumer? We've attached a couple of recent articles out of the Globe and Mail that show that.


Reform of provincial legislation governing financial institutions in Ontario is long overdue. These reforms represent an important step towards providing Canadian financial institutions in Ontario with a legislative framework that allows them to be more competitive in both domestic and international markets. The measures introduced recently are also a significant move towards creating a level playing field for all sectors of the financial services industry in Ontario.

IBAO made its views and concerns known to the government of Ontario in December 1993. We wish to emphasize once again that we support the policy direction government is taking. We believe these initiatives will stimulate competition and benefit the consumer.

In particular, we support legislation and regulatory change that will harmonize the powers granted to federally regulated institutions with those of provincially regulated institutions such as credit unions and trust companies. Regulations should be implemented immediately to ensure mirroring of the federal Bank Act with respect to the retailing of insurance, as confirmed in the minister's letter to our president, Mr Stuart.

It is imperative that legislation and regulations with respect to trust companies be implemented as quickly as possible in order to level the playing field for all financial institutions. From our perspective, however, these provincial reforms should not extend to credit unions new powers exceeding those currently available to federally regulated deposit-taking institutions. This sets a precedent which can lead to further changes that may not be in the public interest.

Our committee has been working with ministry staff on a detailed technical level. We support the intent expressed and believe it is important to conclude the debate and move quickly to the other sectors of financial institution reform. This must be done to prevent one pillar having an unfair advantage over any of the others.

Currently, the rules which apply to federally licensed financial institutions are different from those which apply to credit unions and provincially licensed trusts.

Our support for the regulations, however, must be qualified. We suggest that the regulations be modified to reflect three concerns, not only to level the playing field but also to prevent abuses.

We're particularly concerned that the regulations do not attempt to define the terms "promotion" or "business of insurance." These terms must be defined to avoid further misrepresentation. While we understand that the government wishes to remain flexible, we believe that the regulations intended to deal with this may not be sufficiently clear to enforce government policy intentions. We would be pleased to continue to work with the government to help fine-tune the definitions.

Second, we suggest that the words "on risks outside Canada" should be added to clarify the intent of clause 2.1 and ensure that it is consistent with the federal Bank Act. The federal Bank Act stipulates that a chartered bank in Canada may carry on any aspect of the business of insurance outside of Canada and in respect of risks outside Canada, other than the underwriting of insurance. Clause 2.1 lacks that precision.

Third, with respect to section 11, it is our view that a credit union should only be permitted to administer a policy which will no longer be permitted under part III for one year or until the next renewal date, not ad infinitum.

Mr Langley: On behalf of the members of the Insurance Brokers Association of Ontario, we wish to thank you for this opportunity to speak to you.

We believe that an independent intermediary is the best method of delivering an affordable product that best combines customer needs and personal service at affordable prices. We wish to reiterate that our average member has approximately six employees, and we are located in every small community in the province. As big businesses, including financial institutions, restructure and begin to close branch operations, we believe the need for the independent insurance broker will increase, and we look forward to serving the Ontario consumer for many years to come.

Thank you for your attention. We would be pleased to answer any questions you may have.

Mr Owens: Welcome back to the finance and economics committee. Memories of Bill 164 --

Mr Jim Wiseman (Durham West): Dancing in your head?

Mr Elston: I think they're dancing on the head.

Mr Owens: I'd like to thank you once again for your presentations. As always, you have been quite helpful to the ministry with respect to providing commentary. It's my understanding that a copy of the draft reg has been released to the industry. Before Mr Elston raises his hand, I have a copy of a draft business-of-insurance regulation for members of the committee.

Mr Elston: Nothing I like reading better than regulations.

Mr Owens: As an aside, it was our intention to distribute it before this morning, but unfortunately I've had illness in my staff so we've been unable to do that. But I do have it this morning. I would ask either Mr Campbell or Mr Savage to address some of the questions you've raised during your presentation.

Mr Terry Campbell: Just a few comments on the presentation. You say at page 13 that "risks outside Canada" should clarify the intent of clause 2.1 to make it clear that they can't undertake outside Canada things they cannot do internally, and you specifically refer to the underwriting of insurance.

In the regulations we've been working on in this regard, we've made it clear in the very next subsection of that section that credit unions shall not underwrite insurance. We think that gives the sufficient degree of clarity and precision you're asking for in clause 2.1.

On the next point you make, page 14, the business of "a credit union shall be permitted to administer a policy for one year," the approach we're suggesting for those few that are in place now in terms of a transition period is consistent with the approach taken at the federal level. In any case, if a policy is in place, it's probably not the best idea to have it arbitrarily yanked. It probably should simply run its course.

Those would be some comments I would make in response.

Mr Robert Carter: If I may, I think life insurance policies run ad infinitum. Property/casualty policies renew every year, and if you don't define how long they can go, they could keep providing renewals. I think we're all aware that some of the financial institutions push the regulations. They're offering these policies now, so they could be new this year, until the legislation and regulations are defined, and then they'll be permitted to renew them ad infinitum. That's what we're looking to tidy up from the property/casualty point of view.

Mr Campbell: I think what we'll have to do is that our staff will talk to you and we'll get some clarity and precision on the terms.

Mr Robert Carter: That's great. Thanks.

Mr Elston: I'm interested in the business you're involved in, particularly when there are concerns about others entering the market. Could you just go over briefly some of the items around education for the person who's going to be doing the business of brokering? If there's an anticipation that there are others going to be expanded into the marketplace, it seems to me that you would expect on the level-playing-field issue that others would be trained to comply with the requirements that your profession also has to comply with. Would that be a fair assessment?

Mr Stuart: Obviously, there is a lot of education required. Just to hark back for a moment, if we may, to Bill 164, there are currently sessions taking place around the province where over 3,000 members of the industry will be taking yet further education on this bill. As we've tried to point out, the business is becoming not simpler but much more complex as years go by and there is a continuing need for, I think, full-time commitment to it and a considerable amount of continuing education. Otherwise, the needs of the consumer will just not be met.

Mr Elston: In fact, the complex nature not only of auto insurance but also of life or health and accident insurance is such now that you've even established your own facility for education of your professionals.

Mr Robert Carter: Yes. We have a registered school for educating our members.

There's something that's slightly off the topic but that involves us, and I think it's the easiest way to describe education and the role of the independent broker. Travel accident insurance, everyone seems to feel, is a pretty easy thing that you can buy over the counter somewhere. We're aware of three entirely different processes for it.

Currently there are insurance companies that offer that if there's a pre-existing condition, it's totally excluded. There are other companies that offer, if it's a pre-existing condition, a 20% deductible, and as you know, out-of-Canada medical is pretty expensive. There are other companies that state that if the pre-existing condition is under control through drugs, it's covered 100%.

Clearly, if you just walk into a single supplier and buy one, you have no idea of the other options and you have no idea, in some cases, what you've bought. That's one of the clearest areas where we can show that insurance is getting more complex, and as the government is forced to reduce out-of-Canada benefits, this issue will become more and more complex.


Mr Elston: In regard to some of the changes you suggest should be made, most of them are in the regs, unfortunately, which we will get to deal with a little bit later on, but we have no real authority here. Is there some legislative version that might help? We could always try and include it in the legislation as opposed to regulation, but technically, I wouldn't want to do that. I don't want to take one section of a reg or an amendment to a reg and put it in the legislation if that can be avoided, but is there a more general blanket coverage in the legislation that might help you, as opposed to changes to the regulation? I think it should be discussed here in the legislative amendment format if that would be of assistance so that we understand all of the ramifications of not doing it.

Mr Robert Carter: When we first started the process with the staff, our major concern was the differences, ie, this is permissive legislation and the restrictions are in the regulations. I think they've done a commendable job matching the Bank Act through that process. And, yes, we are concerned that the regulations, when they are finished, may not complete that task. But so far, it looks like they will. You're right: I think we've commented more on what we'd like to see -- clarify the regs. But once the decision was made to offer permissive legislation, then the real activity will take place on ensuring that the regs do what they're intended to do.

Mr Elston: If in fact the regs were changed to allow broader sales, or sale of broader products in the insurance area, for instance, though, you would recommend that an extensive pre-education requirement be put in place before any of that was allowed to occur?

Mr Robert Carter: Absolutely.

Mr David Johnson: Thank you for your presentation. Earlier this morning there was discussion about replacement insurance. Is that an issue?

Mr Robert Carter: It's not an issue with property/casualty. You can replace it every year on renewal.

Mr David Johnson: When going through your brief in order, I guess the first issue that comes up is Bill 164. It's not pertaining here today, but perhaps it gives us some pause. Has there been any kind of assessment on impact of Bill 164 financially? I know you mention that professional independent advisers are required, and you're talking about education and that sort of thing. Is there any bottom-line assessment that you've done?

Mr Stuart: At this stage it's far too early to comment on financial ramifications of that piece of legislation. It will be far-reaching. There has been a fair amount of ramification on insurance brokers in that there's a very considerable amount of time being spent on education to get our minds around the new product so that we can explain it properly to our clients.

Mr David Johnson: I'm sure it translates into a certain amount of time for each broker.

Mr Stuart: Very much so.

Mr David Johnson: I suppose it varies from broker to broker, does it? Has any general assessment been made? Time translates into money, of course, too.

Mr Stuart: To give you an example, this current round of seminars is five hours per person, just on one portion of that automobile product. That's probably in a lot of ways the most complicated product that we deal with, but that's the level of commitment that is required to properly understand it.

Mr David Johnson: That's the kind of assessment that should have taken place initially, I suspect -- by the government, I mean.

Going on, you comment on trust companies and you say from your perspective that provincial reform should not extend to credit unions new powers exceeding those currently available to federally regulated deposit-taking institutions. Could you be a little more specific on what you're thinking of there?

Mr Stuart: At the moment, under the provincial loan and trust act, there is no restriction on the sale of insurance by those bodies. With the completion of this piece of legislation, they will be the only one in that position, which is certainly not levelling the playing field.

Mr David Johnson: That's where it gets back again to, if that's permitted, there certainly would have to be a level of education there.

Mr Robert Carter: We mentioned somewhere about how whenever you do something, it has another effect. Bill 164 removed certain restrictions on how automobile insurance is marketed, and ever since then there's been more aggressive marketing by the financial institutions. This credit union legislation puts us back to where we were, or in a similar position to where we were, with the banks etc. As Bob said, there is now a gap in there to allow the provincially licensed loan and trusts to do some things they couldn't do a year ago.

Mr David Johnson: The bottom line seems to be, though, that your concerns are with the regulations, and until we see those regulations --

Mr Robert Carter: On the regulations, they've done a very good job. We had concerns going in, but, as I say, I think the ministry staff has done a great job as far as getting to where we thought they couldn't get to when they were drafting them.

Mr Owens: Sorry, Dave.

Mr David Johnson: Well, we give you credit. I hope you can do this on all the other bills too.

Mr Owens: Don't sprain your shoulder patting yourselves on the back.

The Chair: Mr Wiseman, you have about two minutes.

Mr Wiseman: I'm intrigued by your choice of articles that you included here about the banks. I'm going to give you an opportunity to tell me exactly what your point is with these articles. I hope it's the same point I would be making.

Mr Robert Carter: What we've noticed is that the banks have become more aggressive in their dealings. Primarily the CIBC -- but we won't mention names -- has been aggressively trying to market insurance.

Mr Elston: They're just initials.

Mr Robert Carter: I think one of the things I heard on the credit union presentation is that they want to be in a position to make small loans to small businesses. The banks have vacated that over the years. When you read the article on how they're trying to influence the replacement of Mackenzie in Ottawa, they are so powerful that they are just going to keep pushing and pushing and pushing. We all have to be very careful of how we control them in this province. If you give some small advantages to a provincial loan and trust or a small advantage to a credit union, they'll just steamroller over the top in the next few years.

Mr Wiseman: I'm concerned that the banks have withdrawn from that small business loan. In fact, since 1989, they've withdrawn over $3.8 billion worth of loans under $200,000, which to me has contributed a great deal to the economic circumstances we find ourselves in. Is part of the point I'm to understand from this that maybe they shouldn't have this kind of concentration of delivery of services to the public and that it would be better to have a far more diverse market system?

Mr Robert Carter: We think it's imperative that we have a far more diverse market system. Over the years, through federal changes, they've been permitted to eliminate the pillars. I'm not sure, and I don't think any of our members are, that eliminating all the pillars of finance is the right way to go.

Mr Wiseman: Do you have any research we could use here to indicate that because of the decrease in competition and the broadening of the roles of the banks, our economy is going down a road that is not positive and not constructive to the economic development of either this province or the rest of Canada?

Mr Stuart: If you were to look around and compare the number of independent stock brokerage firms now as compared to five years ago, there's been a significant reduction there, where the banks have walked in and bought one after the other after the other, which again limits the consumer's choice in that particular area.

Mr Robert Carter: I think the simplest one -- because we don't know all the ramifications when it happens to us; we're just making some assumptions -- is, if you've checked your bank charges lately, once control gets into six boardrooms, isn't it amazing that every one of them has the same charges? They lose money in the Third World and increase the bank charges to Ontario depositors.

The Chair: I'd like to thank the Insurance Brokers Association of Ontario for making its presentation before the committee this morning.



The Chair: Our next presentation this morning is by the Insurance Bureau of Canada. Would the bureau's representatives come forward, please, make themselves comfortable, and identify themselves for the purposes of the committee members and Hansard.

Mr Stan Griffin: Good morning. My name is Stan Griffin. I'm vice-president, Ontario, at the Insurance Bureau of Canada. Joining me this morning are Ani Abdalyan, associate counsel with the Insurance Bureau of Canada, and Ron Switzer, senior vice-president and manager for Canada of the Liberty Mutual Insurance Group. Ron is also a member of the Insurance Bureau of Canada's Ontario advisory committee, advising our board of directors on issues relating to Ontario. We are pleased to have the opportunity to present our views to the members of the standing committee on finance and economic affairs on Bill 134, an act to amend the Credit Unions and Caisses Populaires Act.

IBC is the national trade association representing companies whose premium income represents more than 80% of private sector automobile, property and casualty insurance business in Canada. IBC member companies include more than 75 company groups, comprising approximately 149 member companies, writing premiums in excess of $12 billion Canada-wide in 1993.

Since its formation in 1964, IBC has become the official voice of property and casualty insurance companies in Canada, acting as a liaison between insurers and the federal, provincial and municipal governments, the business community, consumer groups and other mutual interest organizations.

I'd like to touch briefly on some recent financial sector changes. Since the federal financial institutions legislation reform package came into force in 1992, the distinguishing features of the four pillars of the financial services industry -- chartered banks, trust and loan companies, insurers and investment dealers -- have started to erode. New borderline products and services are being offered by each of the traditional pillars that are servicing and competing for basically the same customer.

With the implementation of the federal reform package, legislative and regulatory harmonization has become a key priority for both the federal and provincial governments.

The government of Ontario began a major review of the financial services legislation in December 1992, with a comprehensive consultation plan. This review covered legislation for credit unions, loan and trust companies and the Insurance Act with respect to two projects: one on life agents, which is reflected in this bill, and the other on the broad recommendations coming from the Insurance Legislation Review Project, often referred to as ILRP.

Bill 134 is the first result of the financial services review process, and IBC notes that the recent provincial budget signalled the introduction of changes to legislation governing loan and trust companies. IBC urges that changes to the Insurance Act be introduced quickly, as this stepped approach to the introduction of these three pieces of legislation will result in a temporary unevenness in the financial services playing field in Ontario.

IBC is pleased to have had the opportunity to play a key role in ongoing consultation, and specifically has been a participant in the review of Bill 134. IBC's particular interest in restrictions regarding the retailing of insurance by credit unions was recognized through consultation on draft regulations in this area. Confidentiality agreements were required in advance, allowing a detailed and meaningful review. The consultation has been thorough, and IBC appreciates the opportunity for early and specific input. We welcome the introduction of Bill 134, an act to amend the Credit Unions and Caisses Populaires Act. The proposed changes will modernize the legislative environment in which credit unions operate.

The financial services sector, of which property and casualty insurers are a vital component, is often a complex sector. Legislation and regulation governing any part of the sector can influence other parts of the industry very significantly. IBC appreciates that, where possible, Bill 134 seeks to harmonize with federal and provincial standards that apply to deposit-taking institutions.

To comment on some specific insurance-related issues on Bill 134, our chief area of concern, one that IBC feels is essential for consumer protection, is that of insurance retailing from the premises of deposit-taking institutions. Legislation and regulations need to ensure there is no opportunity to exercise undue influence and that customers are in no way pressured into buying products they do not require or want in the hope of obtaining some other financial service or product as a result.

Bill 134 follows the federal lead and does not allow credit unions to retail insurance or lease space in their branches to licensed agents. It is not by accident but rather the result of conscious public policy that legislative barriers, both federal and provincial, have been imposed on entry into this field. Accordingly, IBC fully supports the government's stated decision to restrict insurance activities of credit unions.

Unlike the federal legislation, however, which prohibits retailing insurance unless permitted by regulations, Ontario's credit union legislation will rely on regulations only to restrict insurance activities. This was discussed during consultation on the bill, and IBC is satisfied that the regulations will achieve an adequate level of protection for consumers.

With regard to the proposed amendments brought forward regarding farm mutual insurance companies, we note that they would allow them broader powers to own subsidiaries. This will bring the powers accorded these provincially incorporated companies in line with federally incorporated insurance companies operating in the province. We would note, however, that according to the latest report of the superintendent of insurance for Ontario, 1992, in addition to the Ontario farm mutuals there are 21 insurers incorporated in Ontario that are regulated exclusively by the Ontario Insurance Act. In 1992, these companies wrote approximately 11%, or $826 million, of the total property and casualty insurance business in the province.

IBC urges the committee to amend Bill 134 so that the proposed amendments expanding powers of the farm mutuals are extended to all Ontario-incorporated insurance companies. Such amendments would ensure a level playing field in this area between Ontario property and casualty insurers and farm mutuals. This is of particular concern if the comprehensive review of the Insurance Act is not going to result in amended legislation in the near future.

In conclusion, IBC respectfully submits that harmonization with the regulations governing the insurance activities of federally incorporated deposit-taking institutions within Bill 134 represents adequate restrictions on the insurance activities of credit unions and satisfies the public interest in protecting consumers. The government is urged, however, to move quickly to bring the Insurance Act into conformity with the amendments made for the other players in the financial institutions field and, in this legislation, to put Ontario-incorporated insurance companies on the same basis as farm mutual insurance companies.

IBC thanks the members of the committee for the opportunity to provide input. We would be pleased to respond to any questions members may have.

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

Mr Phillips: I listened carefully, and it sounded to me like you were in pretty broad agreement with the legislation, with the one exception being at the top of page 5 of your presentation of urging amendments to hook up the provincially incorporated insurance companies which I gather you're suggesting represent perhaps 11% of the business in Ontario.

Mr Griffin: That's correct.

Mr Phillips: I think we heard the same presentation earlier this morning from another group recommending the same thing.

If I recall, the staff's view on that was that it was your plan to incorporate any changes when you bring forward the more comprehensive legislation. So it's possible that we're kind of trapped in that in a sense one could argue that we will force a faster review of the Insurance Act, a comprehensive review, and trying to deal with it piecemeal may be not the right way to go.


Maybe you can just comment on that. Is it possible to deal in this bill with your concerns around the provincially regulated companies, or would it be better for us to try and deal with it as part of the comprehensive review of the Insurance Act?

Mr Griffin: I guess if we could be assured of the timing of the comprehensive Insurance Act, then we could say let's wait until then. If, however, that's going to be some time in the future, we don't see any reason why this group of companies should be left outside the powers that are being accorded to everybody else in the province. It could be very easily amended, through this bill, to give those same powers, specifically to own subsidiaries, to all Ontario-registered insurance companies, because it will leave about 10% of the market behind with that specific power.

Mr Elston: Before I run off to my House leaders' meeting, the real issue right now is the chain of products. The Ontario corporations, I take it by your presentation, are even at a disadvantage with respect to some of their federally regulated counterparts. Can you describe the nature of products that might be excluded from dealing by Ontario-regulated companies inside your own business, I guess? Then maybe you could go on to talk about some of the problems you have in competing with sale of products against banks or others. That really is the issue, isn't it, access to the market?

Mr Griffin: I think so. We have prepared a very specific and complete response to the Insurance Legislation Review Project, but the specific issue that we brought forward in our brief is really the request by the farm mutuals to have the right to own downstream subsidiaries which, yes, all Ontario-incorporated companies are currently restricted from doing. It's that specific provision that we're saying should be opened up. It's not really so much a product-related issue as an ownership issue of these companies.

Mr Elston: The downstream subsidiary ownership, though, does deal with issues of product eventually, doesn't it?

Mr Griffin: It certainly could ultimately end up dealing with issues of product, like data processing companies that may support the company or may generate income for the company, or other types of consulting services.

Mr Elston: What sort of disadvantage are the Ontario companies at in terms of the product field at the moment? You don't seem to have a problem at the moment with respect to credit unions broadening their fields there or deposit-taking organizations initially, with some legislative provisions that are permissive, regulations that are restrictive. Can you describe what's happening or what the desire is in relation to the insurance industry in that regard, in terms of occupying market?

Ms Ani Abdalyan: If I can respond to that question, our submission on the ILRP spans close to 20 pages, and basically I think it would be correct to say it's the governance regime altogether. The legislation is well antiquated, to the extent that the legislation no longer really meets the needs of the companies by any stretch of the imagination, and not only of the companies, but also of the marketplace.

Mr Elston: Have you generally, in your discussions, received favourable reviews of your presentation? I understand there's a confidentiality issue perhaps. I don't want you to violate any confidentiality-of-discussion type of thing, but have you been relatively happy that discussions are going well in that regard?

Mr Griffin: Yes, I would say the consultation has been productive. Certainly all parties have been listened to and it's been a very productive process.

Mr Elston: And generally speaking, you have an understanding of the wording that is to be applied to the changes that the industry would like to see occur, I take it?

Mr Griffin: With regard to the regulations coming forward with Bill 134, yes.

Mr Elston: And in relation to the broader discussion around the insurance review? Have you gone that far?

Mr Griffin: Yes, we have had quite extensive discussions around the Insurance Legislation Review Project. However, that seems to have been put as the final stage of all of this legislation, so it's a bit further off and it's a bit more difficult to tell. Our immediate consultative discussions have been positive and, yes, we certainly have been listened to and have had input.

Mr Elston: But in terms of the business position right now, the market moves quite quickly. The disadvantages which months of delay could exhibit might mean, for some companies, the difference between success and having to find new partners; let's put it in that way. Is that correct? So there's a real necessity of pushing on with this, and an undertaking certainly should come quickly with respect to the balance of the changes. Is that my anticipation?

Mr Griffin: It certainly has that potential. We describe it quite often as being that we're going to end up with a two-legged stool, which you can sit on for a while, but it's better to have a third leg there to keep yourself stable.

Mr Gary Carr (Oakville South): A quick question, before David goes on, on the whole issue of the regulations. As you know, there's a big concern, and not only on this piece of legislation, that when things are put in regulations -- and I don't say this to this government necessarily -- you think you're heading down a path with great consultation and so on, and then the regulations come out and change.

Is there any concern, following along on Mr Elston's question, with regard to the regulations? I think you answered it quite a bit, but I just wanted to carry it further. Do you have any concerns with regard to the regulations and the ease with which they can be changed? You're pleased now with this, but as you know, down the road they could be changed very quickly without consultation. Are there any concerns having it in the regulations and, if so, what are some of those concerns?

Mr Griffin: Our objective was to meet harmonization goals with federal deposit-taking institutions legislation. That's the end goal and we're satisfied that's achieved through the combination of legislation and regulation being used here. In many cases our first preference would be to have it in legislation, but I think we're satisfied at this point that the same goal is achieved by the route that's been taken here, by doing it through regulations.

Mr David Johnson: To get back to the legislative review that is, I gather, under way -- I'm not totally familiar with all this -- what is your understanding of the time frame in terms of the changes to the Insurance Act that you're hoping for?

Mr Griffin: That's probably a question better directed to the government than to me.

Mr David Johnson: I assume that, yes, the government would have a little more control, but you've indicated that it's important to have speedy changes. You're hoping for -- I see the words "introduced quickly" here. When you say "introduced quickly," what sort of time frame are you seeing in your mind?

Mr Griffin: Ideally, we would have liked to see all of these come forward at the same time. That was the approach taken federally. All of the acts governing the various financial institutions were amended and brought forward and implemented at the same time. That would be the preferable approach. This is not the approach being taken here, so we're urging the government to at least bring the final piece forward as quickly as possible so that you don't have a long gap in between pieces of legislation being brought up to date.

As to the timing, I really couldn't answer that. That's up to the government's legislative agenda as to when it decides to bring that forward, but we'd like to see it as quickly as possible.

Mr David Johnson: I appreciate that, and you're quite a diplomat. I'm just looking ahead over the next year and the fact that we're coming towards the end of the mandate of this government. Who knows for sure, but there's some thought that the legislative process is recognizing that fact and slowing down. If this change doesn't occur until after the next election, which, by the time a new government gets up and gets going, could be 1996, is that unlevel or uneven, as you term it, playing field cause for concern during that sort of time frame?

Mr Griffin: It puts at disadvantage about 10% of the market in some particular areas. The one area we think could be dealt with very easily is the powers extended to farm mutuals for ownership of subsidiaries. That could be dealt with very easily at this point in Bill 134, and that would lessen the disadvantage that these companies would be put at over that interim period. We would like to see at least that portion brought forward.


Mr David Johnson: That's one of the key features, and that has to do with the downstream subsidiaries. You've discussed that with the staff, I presume, up to this point, have you?

Mr Griffin: I believe the proposed amendments to the farm mutuals were introduced very recently. We have been advised of them but we have not had a chance to discuss them at any great length or detail.

Mr David Johnson: But you have had a chance to look at them yourself and it's your view that they could be implemented fairly simply.

Mr Griffin: Yes.

Mr David Johnson: On the bottom of page 3 and on page 4 of your presentation, you talk about the concern with regard to undue influence being exerted upon customers. I'm just following through on a train of thought here. You do then indicate, I believe, that the regulations, as you understand them, have imposed restrictions on insurance activities that would hopefully prevent this sort of situation developing. But I'm not sure of the bottom line here, as you seem to express strong concern for this and perhaps an uneasy acceptance that the regulations have addressed the situation. Is that a fair analysis?

Mr Griffin: Yes. I think we've discussed this previously. That is our main concern in this piece of legislation, and I should say up front that we are a bit of a bystander -- not a bystander, but this is not legislation that is front and foremost of concern to us, other than primarily from this networking area. That is an area in which we do have concern; however, we are satisfied that what's being done through the regulations will deal with that concern.

Mr David Johnson: I think those are all the questions I have.

Mr Owens: Thank you, Mr Griffin, Ms Abdalyan and Mr Switzer, for your presentation this morning. On behalf of the Insurance Bureau of Canada, I will also say to Mr Switzer that I look forward to reading the enclosure in my premium notice with regard to the support of this particular bill and its effect on the insurance business.

I'd like to ask Mr Savage to comment on your concern with respect to the farm mutuals and the networking issue.

Mr Savage: With regard to your concern about the other provincial companies, I might just say that I think there are really two aspects that differentiate the farm mutuals from those other companies.

First of all, you talked about forming strategic alliances with other partners and so on. Stock companies, of course, can do that upstream through their parent company and through their ownership, and most of those other Ontario companies that you referred to are stock companies. So this is an option that's not available to the mutual companies because the farm mutual companies are owned by their policyholders.

But the other thing that differentiates the farm mutuals is that they all belong to what's called the farm mutual guarantee fund, which means they all stand behind each other's liabilities, and on an aggregate basis they are in a very, very strong financial position, much stronger than would be typical for a normal insurance company. It was having that in mind that was certainly a major consideration in seeing the farm mutuals dealt with in this way, because they do have the financial strength on an aggregate basis that most individual companies would not have.

I'd just like to make those two comments and say that for the other companies, certainly I don't believe it's the government's intention to block them from having those kinds of powers at some point in the future.

Mr Owens: Just in conclusion, it's the view of the minister and the government ultimately that with respect to this part of the financial services review that we're undertaking, it's again being done with a view to provide the kind of level playing field. There's an acute understanding with respect to how quickly the nature of your business changes, as well as others within the industry, and it's our commitment that we're going to continue to work with groups like yourselves to ensure that we can address those concerns on an acute basis and not have to wait 40 years, as you've waited to this point to address some of the issues.

The globalization of the financial marketplace and technology changing approximately every 15 minutes means that we have to have that kind of level of responsiveness to ensure the integrity of your business is maintained.

The Chair: Thank you. If there are no further questions from committee members -- Mr Wiseman?

Mr Wiseman: Yes. I wanted to give you an opportunity to expand on and help me out a little bit here. You say that "the four pillars of the financial services industry -- chartered banks, trust and loan companies, insurers and investment dealers -- have started to erode." Can you give me some idea of where the competitive advantage is starting to develop and who's the loser in that area and why and what the impact will be?

Mr Griffin: Well, I think the immediate impact is obviously on the consumer. We heard the brokers discuss this briefly in their presentation, and the question is, who's being served and to what advantage, when you look at these things.

Why would we want to concentrate even more power and allow a very small group of financial institutions to provide even more services and products? Why is that? Why would we want to allow five or six banks to provide the full range of financial services? Is it for competitive reasons? Are we trying to increase competition? There are 120 property and casualty insurance companies offering business. It can't be for that reason. There's a great deal of competition here already. Is it for consumer choice? It doesn't match that criterion.

There are a number of policy objectives, I think, that governments have to keep in mind as they move into this whole area as to why it's being done, who's to benefit, and it should be the consumer ultimately. If there's no consumer benefit, why are we doing this?

Mr Wiseman: The second question I have with respect to companies is, do you know if anybody other than the farm mutuals have approached the government? If they haven't, maybe they just don't see it as a problem. In terms of the regulated companies that you mentioned with respect to --

Mr Griffin: The companies that fall outside of this?

Mr Wiseman: Yes.

Mr Griffin: Well, we are approaching the government by the process of this committee to make that statement. Many of those companies are very small in the province and do not belong to groups like the farm mutuals' association, do not belong to our association. There are one or two that are very large and do belong to our association and I think have kind of missed this in the last couple of weeks, so we're bringing it forward on their behalf.

Mr Wiseman: Are you saying that the small ones perhaps really don't know what's going on in terms of this legislation because they don't have the resources to follow it?

Mr Griffin: It's possible, yes. It's very likely.

The Chair: I'd like to thank the Insurance Bureau of Canada for making its presentation before the committee this morning.



The Chair: The next presentation, and the final presentation this morning, is by the Life Underwriters Association of Canada, if the representatives of the association would please come forward. Please make yourselves comfortable, and if you would identify yourselves for the purposes of the committee members and Hansard, when all that is finished, please proceed.

Mr Paul Bourbonniere: My name is Paul Bourbonniere. I'm chairman and chief executive officer of the Life Underwriters Association of Canada and a chartered life underwriter and chartered financial consultant in private practice in Markham. With me is John Wahl, CLU, CHFC, who is a past chairman of LUAC. Our comments, by the way, can be found behind tab 2 of our formal submission that has been presented before you.

LUAC is the national professional association of life insurance agents in Canada. LUAC is a non-profit association established in 1906. We provide an extensive professional development program and we administer a code of ethics. We have 18,000 voluntary members and we are primarily engaged in the sale and service of life and health insurance, annuity contracts, pension plans, RRIFs and registered retirement savings plans. Over 8,800 of our members are resident in the province of Ontario.

LUAC appreciates the opportunity to appear before you and your committee to present its comments on Bill 134. The association's comments will focus on the credit union proposals and the proposed rules to govern life insurance agents, known as the life agent reform proposals or LARP.

I will address the credit union proposals in my opening remarks and I'll ask the Chair's permission for John Wahl to speak on LARP itself.

In respect to the credit union proposals, LUAC appreciates that the public hearings of this committee are being held on the bill, but the proposed insurance business regulations, or IBRs, to be issued under the legislation are, in LUAC's view, an essential element in the statutory scheme that will determine the extent to which credit unions will be restricted in their insurance activities. My comments therefore will relate to both the bill and the proposed IBRs.

LUAC supports the need to modernize credit union legislation. Fundamentally, it is LUAC's view that credit unions should enjoy similar powers but be subject to similar restrictions as other deposit-taking institutions regardless of their federal or provincial registration. Credit unions should not be granted the ability to engage in insurance activities which exceed those of other deposit-taking institutions. In other words, there needs to be a level playing field.

The association is satisfied that the bill and proposed IBRs together achieve a high degree of equivalence with federal financial services reform legislation. LUAC, however, continues to have overriding concern that the restrictions on insurance activities by credit unions are contained mainly in the IBRs rather than the statute. The IBRs can be relatively easily and quickly changed by order in council.

If, for example, changes in the IBRs were made to give credit unions some marketing advantage with respect to insurance activities over other deposit-taking institutions, such as banks or trust companies, it assuredly would not be long before those institutions sought expansion of their powers in this area, first to gain the same business powers and then ultimately to tilt the playing field to their advantage.

On the matter of credit unions being permitted to promote merchandise and services to the holders of payment, credit or charge cards under item number 6 of section 174 of the bill, our concern there is that such promotion can be to the cardholders of any financial institution, not just the credit union. Banks, on the other hand, are limited under their legislation to promotions to the holders of such cards only when they are issued by that particular bank.

LUAC therefore recommends to this committee that the provision in paragraph 6 of section 174 be amended to delete the reference "any other financial institution."

The matter of the extent to which credit union leagues may engage in insurance activities is a concern. LUAC understands that leagues differ from individual credit unions in that they are separate corporate entities whose objects are to provide their members, that is to say, credit unions, with financial services such as cheque-clearing and trade association services such as marketing and product development.

Section 243(3)(d) of the bill, which allows leagues to provide other services as may be prescribed by regulation is made subject to the permitted business activities in section 174, which applies to credit unions, not leagues. LUAC wonders how a provision directed at individual credit unions is intended to apply to leagues in the absence of express authority. Ministry officials have indicated to LUAC that, by virtue of section 245(1) of the bill, the leagues are subject to the same insurance regulations that apply to credit unions.

LUAC believes it would be entirely consistent with the ministry's explanation to amend section 243 by adding a provision that stipulates that a league may only undertake that business of insurance to the extent permitted by the regulations. LUAC recommends such a provision to this committee.

In respect of information safeguards and item number 28 in section 316 of the bill that allows for regulations to govern the use of "confidential" information by the credit unions, LUAC initially was concerned that the qualification "confidential" begged the question of what is or what is not confidential information in contrast to a similar provision in the Bank Act that applies to "any" information. LUAC is now satisfied, based on communication with your officials, that the proposed IBRs will apply to "any" information and therefore will be substantially equivalent to federal IBRs under the Bank Act and Trust and Loan Companies Act.

LUAC was initially concerned with the use of the word "customer" as opposed to "member" throughout the proposed IBRs, but we understand that this has been changed, that the reference will be to "member" rather than "customer."

The transitional rule in section 11 of the proposed IBRs that grandfathers certain types of policies administered by a credit union causes some concern as well. Since the rule applies at the time the bill and IBRs come into force, LUAC believes credit unions might seek to expand the types of insurance policies they administer prior to the coming into force of the IBRs in order to have them also grandfathered and thereby take unfair advantage of the delay between first reading and proclamation.

LUAC therefore recommends to this committee that such grandfathering apply at the time the bill was introduced, that is to say, December 9, 1993, rather than at the time the bill and the IBRs come into force.

To sum up, underscoring my previous comments, LUAC believes it is essential for competitive equity that the insurance activities in which credit unions are permitted to engage be subject to the same restrictions as federally regulated deposit-taking institutions.

With your permission, Mr Chair, my associate John Wahl will now make some opening remarks on the LARP initiative in Bill 134.

Mr John Wahl: As Mr Owens pointed out earlier, this has been a very long process and we've been pleased to be a significant part of that process. Personally, I'm very happy to see it drawing to a satisfactory conclusion, because I'm in real danger of it having spanned three of my personal decades. I've met with many of you personally over the past years and certainly Superintendent Savage's office has been open on every occasion we've asked, and we thank you for that. We look forward to being a part of the ongoing consultation process.

My remarks are in the text. If you have a chance to look at them, you'll find they are primarily housekeeping matters dealing with what I believe to be a locking in of the intent of the bill. With your permission, Mr Chairman, and in deference to your time, I'd rather not read them and allow our staff and your staff to work them out and solve them and leave this time open to questions. Would you mind?

The Chair: It's entirely up to you, sir, if that's what you choose.

Mr Wahl: I believe they are very much are housekeeping matters and I see no difficulty in the intent of the bill. We're very, very pleased with it.

The Chair: I'm sure the committee members are appreciative of the extra time you've allowed them, Mr Wahl. We have more than seven minutes per caucus and we'll start in the Progressive Conservative caucus with Mr Johnson.

Mr David Johnson: Thank you very much, Mr Bourbonniere and Mr Wahl, for your comments or your lack of comments, I guess, in the latter case. It makes it a little tough to ask questions, though, and I have to be a fast reader and go through it here.

However, going to the first deputation, I think you've outlined very specifically what you'd like to see done, so maybe there isn't as much sense in questioning you as in putting your points to the staff and seeing what their reaction is to them.

Not anticipating being up quite as quickly as I am but, let's see now, your first concern has to do with the marketing advantage, for example, that might be achieved if the regulations are changed. That's one of the concerns I think you've expressed. Maybe I'll pose that to you first while I look a little further here.

Mr Bourbonniere: Mr Chairman, through you, essentially our concern is, the regime that we now have in Ottawa is restrictive legislation with permissive regs; in other words, they can't do anything except as provided. Quite frankly, that's the approach we hoped was taken in Ontario and, as been mentioned before, the regulations appear to be headed down that path.

The concern is that any very temporary opportunity or advantage provided to the credit unions will immediately within minutes be matched by phone calls to Ottawa by the banks to get the same powers, and indeed perhaps more so. It becomes a bit of a Pandora's box, because the whole corporate concentration issue and lack of consumer choice becomes paramount. That is obviously our overriding concern, that this eventually leads to dominance by the banks.

Mr David Johnson: Looking specifically on page 4, you've made a recommendation at the bottom of page 4 and the top of page 5 that in line with your concern, I gather, in terms of section 174, the credit union members would be able to do promotion to cardholders of any financial institution, and your recommendation is that that be restricted to simply their own members.


Mr Bourbonniere: That's correct. The reference to section 174, in fact, is behind tab 11, and it proposes to allow the credit cardholders of " institution," which is far broader than the provisions in the federal Bank Act, and as a result would invite retaliation or expansion of the bank powers federally.

Mr David Johnson: Mr Chair, I wonder if I could have a staff reaction too. That's a very specific request. Could we have a reaction to that?

Mr Campbell: Yes. As you say, it is very specific, and the words that you have concerns about are highlighted here. I believe that our staff have been considering changes along this line. We certainly heard you and we certainly understand the concerns you're raising. I think we'll be able to chat about that and more, but the issues you have raised are quite clear.

Mr David Johnson: There's some hope that you may look at that, at least hope from the point of view of the deputants. Carrying on, there's concern expressed with regard to confidential information, that the credit unions allow for regulations to govern "the use of confidential information by the credit unions."

There was concern about the word "confidential," how it would be defined, and the Bank Act applies to "any" information. LUAC is now convinced that the staff will make an amendment in this case and the bill will reflect "any" information as opposed to confidential information. Is that your --

Mr Bourbonniere: It's our understanding that, staff to staff, there have been discussions in that area that would resolve that, but through you to your staff --

Mr David Johnson: Why don't we redirect that to the staff and see what their interpretation is?

Mr Campbell: My sense is that the way that LUAC has characterized things here is fair.

Mr David Johnson: All right. So we're batting two for two so far, from the sound of it.

Going on to page 7, your concern is that the IBRs that grandfather certain types of policies -- these would be insurance policies, I guess, are they?

Mr Bourbonniere: Yes.

Mr David Johnson: -- that some of the credit unions might seek to expand the types of insurance policies that they administer at the present time before this comes into effect, and therefore the grandfathering would apply to a broader range of insurance policies.

Mr Bourbonniere: Exactly.

Mr David Johnson: Again, a very specific recommendation that you have is that the bill would be retroactively applied to December 9, 1993. First of all, do you wish to expand on that any more before we redirect that to get the staff's comments?

Mr Bourbonniere: I think the committee members expressed exactly what the circumstance is. Any activities between December 9, 1993, and the ultimate enactment or enforcement of the regulations would allow for potentially some grey areas or even some activity that was unintended by the legislation itself.

We feel that though this largely appears to be housekeeping, it may prevent a lot of grief, depending on just how long or how big a time period that is. It's just a matter of, if the intent is there, then make it so that there's no uncertainty or unfair advantage during the interim period.

Mr David Johnson: Maybe to redirect that to staff then: (a) does the staff view this as being a problem; (b) would the credit unions have a different view on this whole issue and, if so, what would that view be; and (c) would you propose to acquiesce to the request of backdating this to December 9, 1993?

Mr Campbell: On (b) and (c) I don't presume to speak for the credit union movement. I think they should probably speak for themselves. On (a), I think our view is that the government direction and the intention as to what the insurance retailing regime will be and should be under the regulations is fairly clear. I think we work very closely with both LUAC and the credit union movement.

Both sides understand what that regime would be, and I think from our point of view this transitional provision is that if it came into force and the legislation came into force, I don't think you would see any upsetting of the marketplace or any upsetting of the apple cart. I think, from the staff's point of view, as it's structured now is satisfactory.

Mr David Johnson: Let me be more specific in terms of the types of insurance policies that you have concern may be slipped in there and grandfathered during this interval or period of time.

Mr Bourbonniere: Mr Chairman, with your permission, if I could ask staff, do we have any specific examples on that?

The Chair: If you have someone else who would like to offer an explanation, if they choose to do that, I only ask that they come forward so they can be recognized by Hansard. If they choose not to, then that's okay too.

Mr Bill Babcock: My name is Bill Babcock. I'm vice-president of the Life Underwriters Association of Canada. I apologize for my voice. I'm in danger of losing it with a severe throat infection.

Mr Owens: Why don't you go back to work.

The Chair: Please proceed, sir.

Mr Babcock: There is a set of prescribed insurance policies under the draft regulations. While it's difficult to suggest in addition, in recognizing that there not be a precise, transitional, phase-in implementation fully of the bill and the regulation, it would seem in our view to permit the possibility that in practice and in the market the credit unions could introduce particular new kinds of insurance policies or products or services. Generally, that is our concern.

The experience with the introduction of the federal insurance business regulations under the Bank Act was such that we knew with absolute certainty that the regulations which were considered as essential to enable the bill to be fully proclaimed and in effect were fully in place before such time as the Bank Act itself was actually proclaimed. So they were coincidental in real time, as opposed to running the prospect of them being separate.

Mr David Johnson: Okay. Is that my time?

The Chair: Thank you. We'll move on to Mr Owens.

Mr Owens: Just for the purposes of the committee, Mr Campbell and Mr Savage and their respective teams are working feverishly to put together a schedule of regulations and explanations that we will deliver to the committee. I believe next week is the time that's scheduled.

I want to thank Mr Bourbonniere and Mr Wahl for their presentation, and again, Mr Wahl, for your lack thereof. Brevity in language is always something that I appreciate, notwithstanding that I'm a politician.

Mr David Johnson: You don't practise it.

Mr Owens: You want a recount, right?

Just in terms of some of the other concerns that you've articulated, I know that we are going to continue to work with yourselves and others particularly around the issues that will be detailed in regulations, and I do want to say on a personal level that we appreciate the level of support that your group and others have given us on this very important project with respect to financial services.

If Mr Campbell or Mr Savage have anything else that they'd like to clarify -- Mr Savage?


Mr Savage: Just one comment. There has been a fair amount of discussion about exactly what powers the credit unions will have to sell insurance and whether something may fall between the cracks. I might just mention that there is another dimension to that, and that is that if any individual is providing advice about insurance or soliciting insurance etc, that requires licensing under the Insurance Act as an agent. Under the Insurance Act, no person can be licensed as an agent if they're an employee of a deposit-taking institution or an officer or a director of a deposit-taking institution. That's another thing that is at work here to deal with some of the concerns that might be raised.

Mr Wiseman: Mr Wahl, did I hear you correctly to say that you've been working on this for three decades to get some changes to the act?

Mr Wahl: Three of my personal decades, yes; I'm afraid that's correct. Through the law process.

Mr Wiseman: That's quite a considerable amount of time. The reason I raise that issue is because, if it has taken you three decades to open up and get this changed, maybe it would be easier to have some of the things in regulations so it wouldn't take quite so long to come back to the Legislature if it needs to be changed. As I see it, we are in a constant state of debate in this place about whether it should be written in the legislation, what should be written in the legislation and what part should be written in regulations. That was my first part of the comment.

The second part is that I detect a level of satisfaction on your part with the degree of contact you've had with the government. Is that correct?

Mr Wahl: Very much so, Mr Wiseman.

Mr Bourbonniere: Yes, very much so.

Mr Wiseman: If this degree of contact continues, that would ameliorate any fears you have that regulations might be done spontaneously or without having a sufficient amount of contact with you?

Mr Wahl: If I may, and my staff may clout me for this, I believe it's our view that regulations can be changed so quickly that we'd be in danger of maybe overriding what we really wanted to see happen in the first place.

Mr Wiseman: But do you think that would really happen, given the level of consultation that you've had up to this time in this process?

Mr Wahl: Perhaps not, but I tend to be a very cautious person.

Mr Wiseman: I just thought I'd raise those two points to ponder. We are in a constant state of dilemma over what should be in regulations because it could be that at some point in time changes might need to take place more rapidly than could happen if you had to open the legislation to do it.

Mr Wahl: We can appreciate that point of view, but for the very important elements we really believe we'd rather see them in legislation as opposed to regulation, yes.

I might add, Mr Wiseman, that the process started a long time ago and that it's come a long way. I would think all sides have made significant concessions to our original positions. In reading this piece, we're very pleased with it, very pleased.

Mr Phillips: I take it from all the comments that you're relatively pleased. I think there are two changes you would prefer in the act itself rather than in a regulation. In the exchange between yourself and the staff, I wasn't sure whether the staff were saying that, because it was clearly the intent of the act, it is possible that we could include the recommendations in the act rather than by regulation. The two were on page 4 and page 6, I think. In answer to Mr Johnson's comments, were you saying that you didn't think it would be a problem in changing the act itself?

Mr Campbell: The structure of the act itself, in terms of the insurance retailing, is a structure where the legislation and the regulations work together and work in tandem. We think that by working together that way they in fact achieve equivalency with the federal rules, which are the benchmark rules for the marketplace. Our view is that it is a good structure. Generally, LUAC has suggested that it thinks the package achieves that level of equivalency. I didn't make any comments there and I think the structure is appropriate.

Mr Owens: If I could just respond briefly, Gerry, I think two of the main philosophical underpinnings in the legislation are, first of all, to level the playing field and modernize legislation that hasn't been modernized, in the case of the insurance folks, for 40 years and, secondly, that there's an understanding that it has taken 40 years to do this thing legislatively.

It's not the view of the government that we want to be able, whether it's us or another government, to unilaterally and without consultation change our regulations. However, in saying that, I think that, as I remarked earlier -- and you know better than I do the changing nature of the financial services marketplace -- you need to respond with a fairly high level of acuity and speed to the issue. It's our view that this kind of process allows for that, and of course with the continuing level of consultation that has taken place to this point.

Mr Phillips: Yes, and I agree and probably LUAC would agree, that if you take the proposed regulations and the proposed statutes together, it's fine. I think they're saying that if somewhere down the road the regulations were to change, it can have a profound impact, because then the other financial institutions, namely, the banks, would demand the same change and that would occur very quickly, and then you would have a huge problem on your hands.

You're saying, if the intent of the statute is the level playing field, put it in the statute rather than regulations to provide the level of comfort for everybody of how we got to this position. I'm hearing the staff say that you don't agree with that. For some other reason, you don't think it should be in the statute and it should be in the regulation.

What about the recommendation on page 6 to amend section 243?

Mr Campbell: We have different page numbers in our presentations here. Under tab 2?

Mr Phillips: I'm going from that document here. Yes, you probably do. From this book here.

Mr Campbell: Under tab 2?

Mr Phillips: The presentation book. It says, "LUAC believes it would entirely consistent with the ministry's explanation to amend section 243 by adding a provision that stipulates that a league may only undertake the business" etc.

Mr Campbell: Just taking LUAC's words and really stating it in a different way, I think the staff's view is that the statute as written is probably sufficiently clear in that regard and that extra words would simply be extra words that wouldn't necessarily clarify things. So I think our view on that one is that the statute is clear as it stands.

However, on these matters where you're looking at wording to make sure the wording is absolutely correct, our legislative drafters are always interested in getting the right wording and we will certainly look at this in some detail to make sure the government's intentions are accurately reflected in the words. We will certainly take your comments back and look-see. I think our view, at least off the top of my head, is that we think the statute is probably sufficiently clear, but we'll take note.

Mr Phillips: My own takeaway from all this is that, correct me if I'm putting words in your mouth, but from LUAC's view, you're very supportive of that. From what I hear from here, the only possible significant point would be the one on your page 4, which would be including in the statutes the areas that are currently planned for a regulation. I think your view is that if the regulations stand as proposed, then that's fine, but if they're changed down the road, you've got problems.

Mr Bourbonniere: Mr Chairman, if I might comment on that, certainly the overall theme, and as John has alluded, it's been a long process and a successful one. However, we specifically did outline the areas that we feel are not to be glossed over; they are key issues. "Any" is a lot different than "confidential," and "any credit card" is a lot of difference and specific.

So, yes, the overall intent and thrust we're happy with, because the concept of equivalence appears to be what we're all striving for, but both through staff consultation and through our presentation today there are still some issues and we shouldn't lose sight of those, in our opinion.

Mr Wahl: The same is true of the remarks I chose not to read. Those are not unimportant items, but I really believe they are simply housekeeping and the intent of the bill was very clear. I really hope our staff and your staff can work to get those matters resolved.

Mr Phillips: Have your people talk to our people.

Mr Owens: We'll do lunch.

The Chair: I'd like to thank the Life Underwriters Association of Canada for making its presentation before the committee this morning.

Mr Bourbonniere: Thank you for the opportunity.

The Chair: I would like to inform the committee members again that the Finance minister will be here at 3:45 pm this afternoon. I would ask that you all be here promptly. This committee is recessed until 3:45 pm this afternoon.

The committee recessed from 1200 to 1548.


The Chair: The standing committee on finance and economic affairs will come to order. I would like to welcome the Minister of Finance to our committee meeting this afternoon. We are all waiting anxiously to hear from the Finance minister with regard to post-budget delivery explanation. Welcome, Floyd, to the committee.

I'll tell the committee members that the Finance minister has about a 15- or 20-minute presentation to make and then there will be ample time, I'm sure, for questions afterwards. Floyd has indicated that he is expecting to leave at 5 o'clock, just for everyone's information. I also want to note that the rotation will be continuing from this morning. We will go to the government caucus first, and Mr Lessard is first up. From this point on, we'll turn it over to Mr Laughren.

Hon Floyd Laughren (Minister of Finance): Thank you very much, Mr Chairman. I do have a plane to catch and that's why I have to leave right at 5 rather than at 5:30, for example, but staff will stay longer if that's of assistance to the committee.

What I thought we'd do is a presentation that lays out the 1994 budget and some of the reasoning behind it and where we're going, and then allow as much time as possible for an exchange with members, because I think that's the most fruitful and interesting part of these meetings.

I will go through it fairly quickly. If you want me to slow down, say so, but I'm just going to assume that people are familiar with the language and the information so that I can move fairly quickly through it. I'll rely on you to stop me if you want further clarification.

Perhaps I should have introduced the two gentlemen at the table here with me, Jay Kaufman, who's the Deputy Minister of Finance, and Simon Rosenblum, who's the chief of staff of the Ministry of Finance.

The budget laid out a number of priorities:

-- One was to do what we could as a commitment to jobs as a provincial government. Everyone knows we can't do it all, but to make a commitment to job creation and to keep the jobs that we already are responsible for through our capital programs.

-- To do some tax cuts to encourage hiring, and we've done that.

-- That there be no new taxes or no increases of existing taxes.

-- That program spending would decline for the second year in a row while still maintaining the essential services of the province.

-- Continue to reduce the deficit, and it is now down about 30% from two years ago.

-- To lay out a plan, which is a reasonable plan -- and if you look at the numbers, I know some will say it should be faster and others would say, "Not so fast, because you must continue to put money into programs" and so forth -- that will give us a balanced operating budget by 1998. I'm always cautious about getting into some kind of bidding game or upping the ante as to who can do it faster, which I don't think is a particularly useful exercise. If you look at the numbers heading into 1998, I think you would see that they are reasonable assumptions built into both the revenue side and the expenditure side that will get us to the operating budget. It's "operating" and there's still capital on top of that, of course.

We continue to assert and believe that jobs are our number one priority, and we are showing that through our commitment to spending on infrastructure. Those are investments in the future of this province. We've kept the capital spending up very high during this recession. I would remind you that during this recession the private sector laid off 300,000 people and we picked up some of the slack.

The capital spending is almost all on infrastructure, which not only provides jobs but makes us competitive as we head into the latter part of this decade. We will spend over $1 billion in training and adjustment this year, and we continue to work with the business community in partnerships that are creative and different from what has been done before.

This shows the initiatives we've created or continued to support from 1991-92 to 1993-94, those three years, and then the projected for 1994-95. If you go through all of those -- for example, at the very beginning we had a $700-million anti-recession program that created about 17,000 jobs. Then you go into the base capital, which is the regular capital expenditures in all of the various ministries. Those are the number of jobs that those sustain. This year, projected: 62,000; and then all the way down -- I won't go through the whole list; you can read them. The total would be 435,000 jobs since 1991-92 and then projecting another 166,500 this next year.

I don't want to leave anybody with the impression that we're going out there as a province, as a government, and creating 166,000 new jobs this year. That consists of our ongoing commitment on the base capital of all the various ministries, and that's 62,000.

Just picking some of the bigger numbers, in the Jobs Ontario Training: 24,000; in the Jobs Ontario Summer Employment: 23,000. Those are the ones that are not full-time, year-round jobs, of course, the summer employment, but all the rest are, and that's where we get our 166,000, which is up about 20,000 over last year.

We cut the employer health tax so that for increased payroll this year there will be no tax on that whatsoever. The business community and workers and labour unions, during the pre-budget consultations, told us that if we could do anything on the job side linked to taxes, "take the payroll tax." That's the one they would most like to see cut and so we've done that. That will support about 12,000 new jobs. It'll cost the treasury $200 million -- assuming it's taken advantage of, of course. We think it will, and this is the one that both labour and business liked as we headed into the budget. There were some announcements on budget day as well that said they thought this was a good initiative. The chamber of commerce, for example, thought it was good initiative.

We've introduced an innovation tax credit for small and medium-sized firms. It's going to be different than some programs in the past where you had to be making a profit, and for small businesses just starting up, it was very hard for them to take advantage of such a credit when they weren't making any profit in the early years, so this is a refundable one that they'll be able to take advantage of as they start out and spend money on research and development.

We always keep an eye on the competitiveness of our tax system and on payroll taxes for new employees. This compares us to Quebec, as a neighbouring jurisdiction, obviously, and the US average. Payroll taxes are what both labour and management have probably the most difficulty with when it comes to taxes because it's a tax depending on how many people you hire and of course how much you pay them, so that's one reason why we say that when it comes to a tax that really does affect competitiveness on hiring of new people and new investments, a payroll tax is an important one, and we are below the average of our major competitors.

This shows the corporate income tax rate for manufacturing in the year we're in now, and it shows that Ontario has a corporate income tax rate of about 35.3%. Look at those states. They are states that are often used as comparisons for us when we're talking about competing investments: Michigan, Tennessee, Illinois, Ohio and New York, the US average in the middle being 40%.

Our Jobs Ontario infrastructure projects: We'll spend $3.8 billion in capital. Highway 407 will be completed 16 years earlier than was originally anticipated and will be longer than was originally anticipated. It's not using public money; it's using private sector, who will build it, will operate it -- the tolls -- and will maintain it. If we hadn't done it that way, quite frankly, we couldn't have done it, because we just don't have that kind of money.

We've made a commitment to four Metro subway lines, contingent upon Metro picking up the offer, and there are 190 municipal sewer and water projects that we're funding through the Ontario Clean Water Agency. Perhaps for people in Toronto it doesn't seem that important, but I can tell you and many members around this table, I suspect, could tell you that there are all sorts of small towns and villages all across Ontario that have no sewer and water whatsoever. I have some in my own constituency. This is a good initiative, I believe, to crank up this. It improves infrastructure. It's a health issue, and also it creates a lot of jobs across the province.

We're investing in people. I mentioned we're spending over $1 billion, about $1.1 billion, in training and adjustment this year, and more than 370,000 Ontarians will benefit from this. That includes Jobs Ontario Training, which I think we all know about, and Summer Experience, the part-time jobs for the summer.

With small business, we did something in this budget that I think has been overlooked by a lot of the press and by a lot of people, and that's improving access to capital for largely the small business community. In the pre-budget hearings, one message we got loudly and clearly, particularly from the small business community, was that the banks were not serving its needs well enough when it comes to accessing capital. We're improving that by expanding the opportunities for loan and trust companies, co-ops, credit unions, caisses populaires and labour-sponsored venture capital corporations to have access to capital. This major initiative was introduced into the House yesterday with the introduction of that budget bill.

I mentioned the R&D tax incentive, and we're clearing the path. The Minister of Economic Development and Trade is going make it easier for new businesses to register, then to pay their taxes and so forth, and clear the path for them.

The green homes and green industries initiative provides a real incentive for the development of new industries that will serve the province well. We're doing the initial part by sending people into factories and homes and offering advice -- not orders, but advice -- that will save the business community money, save consumers money if they take that advice and invest in green products and services. We think it's the right way to go because we couldn't go out and spend billions of dollars on it ourselves.


Ontario Hydro and WCB reform are important parts of changing the way we do business in this province. I think we all understand that. For three years in a row, Hydro had rate increases of 10% a year. That was completely unsustainable, so they froze it for one year and then are keeping it to no more than the rate of inflation for the rest of the decade.

Of course, we've announced some Workers' Compensation Board reforms. The important thing to note here is that when we announced the royal commission, besides the other changes, we gave them a fairly tight time frame to report back -- the end of 1995 -- because we didn't want the commission to go on into the next decade as it examines the problems of the WCB.

There's some good news out there. Most of us are feeling very good about it, not just those of us in the Ministry of Finance but the private sector, the banks, the independent forecasters. They're saying there are going to be about 350,000 new jobs created in this province over the next three years. Our expansion is going to lead the industrialized world, not just this country, right through to 1997, and for 1994, business investment is up about 10%. That's a big chunk of money, about $20 billion in new investment in the province. The real GDP is going to accelerate right through to 1997 as well.

So there is real reason for optimism that we can take seriously that the recovery has clicked in and that we're on our way. We could have a discussion about that too because unemployment is going to remain higher than we'd like it for the next three years, but that's true in a lot of economies that are now recovering.

This shows the growth in the G-7 countries that I referred to. On the left-hand side you have the Ministry of Finance forecast of the growth rate in the economy through 1997. You see ours is 4%, and for Canada 3.7%. That's the Ministry of Finance forecast. The others are what we call a consensus forecast. If you look at everybody else who does forecasting, then you can see that the reason we put this in here is that we're on the cautious side of forecasts for Ontario.

Our economic strengths are -- well, there's a number of them, including where we happen to be located in North America. But also, investors tell us that the education and skill levels of the workforce and the flexibility of the workforce and the fact that we are one of the leaders in the proportion of the workforce that has some post-secondary education, which makes them more flexible, are a big bonus for us.

The labour costs are less than in the US. That's if you include the benefits of our health care system, which are enormous -- truly enormous. The example I always use because it came to me from the auto industry, which is critical to this province, is that if employers pay their employees' health care premiums here in the province, it costs them between $600 and $700 an employee, roughly, and in the States it could cost up to $4,000 an employee. So you can see that this is a huge advantage for us in this province.

Our quality of life is second in the world according to the United Nations, and I often say this too. I don't say it often in a room full of opposition MPPs. I mean, we do come at each other -- that's your job and my job -- but at the end of the day most of us respect the fact that we've got a quality of life here, not just in Ontario but in this country, that's very strong.

Manufacturing productivity is up 12% over the last two years, and as I said earlier, our public services, not just health care but all of that infrastructure out there, are a major competitive advantage as well.

These are examples of large multinationals that have chosen Ontario for investments. They had alternatives and we've put the alternatives on there to show you. When Chrysler invested in Windsor, $564 million, we were competing with Missouri for that investment. With Dupont investing in Kingston, Maitland and Sarnia, a $200-million investment, there were a number of US sites. They tell you this, that this is who we're competing with.

Allied Signal, we competed with New Jersey; Inglis, with Ohio; Dimona Aircraft in London, with a number of US sites. With Toyota, specifically with a $30-million investment in Cambridge, we were competing with Kentucky and California for that location and so forth. You can see that investors, despite what you hear from time to time, have chosen this province because we do have major advantages for investment.

One area that we still are unhappy about, and it was raised today in the Legislature as a matter of fact by one of the MPPs, is sharing of highway costs. These are just some very specific examples. Social assistance is the one we use most often because it's the one that hits us the hardest -- the Canada assistance plan. That started out being a 50-50 sharing between the federal government and the provinces. It was felt that there should be a national standard on social assistance because you can imagine how corky the system would become if you had very high rates of social assistance in one province and very low rates in another. For obvious reasons, everybody wanted it 50-50.

Now we get 29 cents on the dollar from Ottawa, whereas most other provinces, including Quebec, get 50 cents on every dollar. That cost us $1.7 billion this year alone. We have 38% of the workforce in this country and we get 27% of the federal training. That cost us $360 million this year. The tobacco tax cut, which was truly, in my view, outrageous, cost us $500 million in revenues this year, and that's taking into consideration the fact that there'll be no more smuggled cigarettes and that there'll be more smokers who would take advantage of the lower prices. That's a netted-out number.

We are working hard on providing services that are affordable, because people are concerned about the level of taxes, they're concerned about the growth in government. If it's growing, they don't want that but they want the services. We all, as elected members of the Legislature, get that message back in our own constituencies. I think certainly two out of the three parties get that message.

The social contract last year effected savings of about $2 billion; not quite, but very close. Our target was $2 billion. We're very close to that and prevented up to 40,000 layoffs. We could have saved the $2 billion another way. We could have said, "Lay off 40,000 people." Instead of that, we imposed the social contract on 90,000 people. A very large number of people had some pain, rather than 40,000 people having an enormous amount of pain; namely, unemployment.

This is an important signal that was sent in this budget, that at the end of three years collective bargaining will return to the public sector but the $2 billion will not. There's a lot of work to be done over the next two years to make sure that the public sector and the services they deliver are changed, because we don't want a mess on April 1, 1996. There's a lot of work to be done with this government helping and with the broader public sector -- employers and employees -- sorting out what happens in 1996.

We've kept health care costs constant over the last three years. They went up 11% a year during the 1980s. That's unsustainable. We've levelled them off, not without some pain, but we've levelled them off.

We've honoured our spending to hospitals, schools, municipalities and so forth this year.

We are changing some of the priorities. For example, in health care, we've shifted some money into cancer treatment and prevention and we've reduced the waiting time for cardiac care by about two thirds.

All governments, I believe, are trying to shift from institutional care to community-based care for two reasons. In the long run, we think it's more cost-effective, but also people will be better off being treated in their community and in their homes than in a large institutions. We've increased funding for that by 50% since 1990, which allows people to live at home when they're ill.

The new health card will help reduce abuse in the health care system, probably mostly in border communities, but certainly not only in border communities.


This is an interesting chart, I find, and people sometimes raise their eyebrows when I show it to them. This is what the base of spending was in 1990-91, in all those areas in the left-hand column of numbers. The middle column, 1994-95 budget plan, shows you what we're spending this year on all of those initiatives: for example, on child care, from $350 million to $566 million, a 61% increase; long-term care, a 38% increase; college operating grants and so forth.

You can see the big ones: non-profit housing, from $255 million to $820 million, so a 200% increase; social assistance, from $3.3 billion to $6.3 billion, that's almost totally -- not totally, but largely -- driven by the increase in the case loads rather than a very substantial increase in social assistance rates. It's largely the case load increase. Pay equity: There was not much being spent on pay equity in this province when we formed the government. It's gone from $68 million to $574 million, a huge increase. All other initiatives have gone from $19 billion down to $17.5 billion, an 8% reduction.

I'm not suggesting that all MPPs have to agree with this shift of priorities, but it does show that there was a determined and conscious shifting to certain priority areas, and those are the priority areas. I know some will disagree with that. Total program spending has gone from $38 billion to $43 billion, or 12%.

The other number that has to give everyone pause for concern is the PDI, the public debt interest, going from $3.7 billion to $7.9 billion. That's over a 100% increase in interest on the public debt, and why we've simply got to continue to work at getting that deficit down and getting a surplus that'll start eating into the cumulative debt of the province, and we are determined to do that.

This is the growth in program spending since 1985, about a 10-year spread, and you can see this is program spending only, not everything. You can see how it's gone up as high as 14.7% our first year in office, 12%, then we got it down to 4%, then it was a negative number last year, largely due to the expenditure control plan and the social contract, and this year it'll be minus 0.8%. That does not include capital.

In this one I would ask members to consider the colour of the blocks and the years. From 1980 to 1985, the blue box, the program spending averaged an 11.5% increase. If you take out inflation, because to be fair, inflation was higher some of those years --

Mr Wiseman: But that's the Tories; that's not the Mike Harris team.

Hon Mr Laughren: No, that's the old Tories, the "Progressive" Conservatives.

In real terms, 1980 to 1985, it was 2.9%, to be fair about the numbers. The middle one, the red bar -- it's supposed to be red on there; it's a little too pinkish for my liking -- is meant to represent the government between 1985 and 1990, in real terms 4.5%; and then the last one, between 1990 and 1995, for which this government has some responsibility, has averaged 0.9%. Just to put it in perspective for those who say that social democratic parties spend too much money, we have reined in the program spending in the province while still trying to maintain essential services.

I didn't think I'd get through that presentation without heckling, but I congratulate the opposition.

On the deficit, because I mentioned earlier that interest on the public debt is a concern because it starts crowding out our ability to fund programs and that's not what we want to do, this coming year it will be $8.5 billion. That's down by about 30% over the last two years. We said we'd come in, in 1993-94, the year that just ended, with $9.2 billion. We slipped a bit and it was at $9.4 billion but that, I would suggest to you, is a lot closer than other jurisdictions came in at in 1993-94. So we were not far off our deficit for the year that just ended.

Mr Monte Kwinter (Wilson Heights): You were a lot farther off than what you predicted in 1990.

Hon Mr Laughren: Oh yes, absolutely.

Mr Wiseman: You guys were a lot farther off than you predicted in 1990 too.

Hon Mr Laughren: We have maintained the essential services. We've done some changes and so forth, and I appreciate that, but the essential services have been maintained and we are on target to balance our operating budget by 1998.

This shows how we get there. The yellow bar is the operating deficit or surplus, and the red is the total amount of budgetary requirements when you roll in capital. So, by 1998, you can see that our revenues exceed our program spending and then some of that is spent on capital.

The credit rating reviews: The staff in the Ministry of Finance and I myself have met with all four credit rating agencies: Moody's, Standard and Poor's, Canadian Bond Rating and Dominion Bond Rating. S&P is the only one who's said what they're going to do. They said they have reaffirmed our AA- credit rating with a stable outlook and they've acknowledged the province's accomplishments in controlling expenditures. We expect the three other rating agencies to come down with their decision within the next couple of weeks; maybe next week, maybe the week after -- we don't have a date -- and we'll see what happens.

We've certainly provided them with every conceivable number and they spent a lot of time poring over the numbers with people in the Ministry of Finance.

In summary -- and I'll stop talking -- job growth is growing, $350,000 over the next three years. We are leading the country and other countries in the recovery and there is over $21 billion in business investment planned for this year. We continue to make a commitment to jobs and to support about 166,000 of them this year we're in, and continue to invest in training and infrastructure and working with the business community.

On the fiscal side, we have our deficit going down. Our program spending has been reined in to less than the inflation rate and we will have a balanced operating budget by 1998. We really believe that number is achievable and we will continue to work as hard as we can to keep the services maintained at the present level and in some cases improved, but at the same time all within that fiscal plan through to 1998.

That's where we're headed. We're all feeling a lot better than we were a year ago. I would not have wanted to go through a budget-making exercise this year like I did last year and, quite frankly, what we did last year allowed us to have a budget like the one this year where we actually cut a tax and didn't increase any new taxes and kept the essential services.

We couldn't have done it if we hadn't taken the very tough decisions we made a year ago on the social contract, government expenditures reductions and the tax increases as well. We now have the revenue base that will allow us to maintain the services and we must trim our sails continually on the expenditure side in order to live with that revenue base.

I thank you for your attention and I'm in your hands, Mr Chair.

The Chair: Thank you, Mr Laughren. We have about 14 minutes per caucus and we're going to start with the government caucus. I just want the members to bear in mind some of their colleagues would like to ask questions as well, and in this case there are three. We'll start with Mr Lessard.

Mr Wayne Lessard (Windsor-Walkerville): I always enjoy this opportunity to grill the Treasurer. I want to congratulate you on this budget. I think most people in the province certainly appreciate the fact that there are no new taxes.

I want to ask you about something that wasn't in the budget, however, because a few weeks before the budget there was an announcement about a reduction of taxation on beer and wine made at brew-your-own premises. People in my riding, which includes Hiram Walker, kind of looked at that with optimism and thought there might be a similar announcement made with respect to distilled spirits.

As you know, Hiram Walker is the fifth-largest taxpayer in the city of Windsor and in the last decade it has seen a big decrease in the employment at distilleries and they've also seen a number of distilleries closed in the province. They're calling upon not only the provincial government but the federal government to tax distilled spirits more fairly.

They claim that because of taxation the retail price in Canada is much higher than it is in the United States. As a result, legal sales of spirits have declined substantially in Ontario. Although consumption has decreased, to some extent due to lifestyle changes, it doesn't explain the whole decrease, and they claim that that's due largely to smuggling.


My question to you is whether you agree that smuggling is a major problem, and if so, could you tell me what steps we may be taking as a government to protect jobs in Walkerville and decrease smuggling?

Hon Mr Laughren: Thank you, Mr Lessard. Your comments about Windsor are interesting. I spent a wonderful weekend in Windsor last weekend. I came away a little poorer, but nevertheless I had a wonderful time.

I do believe that smuggling of alcohol is a problem. I would differ with the quantity of the problem, if you will, that some have said, but it's hard to be precise on smuggling numbers. If it was easy to be precise, it would be easier to do something about it, I suspect.

I don't know who all here was in the Legislature yesterday afternoon on the introduction of bills when I introduced a bill that will increase enforcement and fines on smuggling of alcohol. That will proceed through the Legislature this session.

I do not believe the answer is cutting taxes. If we cut taxes on alcohol -- that's why I resented cutting them on cigarettes so much, because where does that $500 million come from on the cigarettes, for example? Do we cut programs by that $500 million? Do we allow the deficit to go up $500 million? Do we increase taxes $500 million?

There's nothing magical about it, and most people out there, I believe, support relatively high taxes on alcohol and cigarettes. I really believe they do. Nobody likes paying them, but they support them, knowing there has to be revenue from somewhere. So I would not want to hold out any promises on reducing taxes on alcohol.

We did reduce taxes on you-brews, as you mentioned. The reason for that was that we were dealing with what the economists call an infant industry that was struggling and we put in a very substantial increase that was planned from last year's budget.

I think it was too big a hit all at once, so we cut that in half and eliminated the planned increase that was there for this summer, but that was because of the nature of that industry more than anything else, and we had all the numbers to back up the bankruptcies that were occurring and so forth. I think it was an acknowledgement that we'd put in a fairly substantial beginning tax hit on them.

I don't believe any sales of alcohol should be tax-exempt. I just think it's a principle that we must maintain. So I would not hold out hope for reduction in alcohol taxes; rather I would hold out hope that we can do enough on the enforcement and fines side that will allow us to keep that smuggling in check as much as possible.

Mr Lessard: In previous hearings before this committee, we were looking at the underground economy and we were told that cigarette smuggling had become a major business. I don't think there's any doubt about that, in that it was so big that networks had been established that had become very sophisticated and could change their product lines. In the example of cigarettes, if taxes were reduced and smuggling of that product became less profitable, they could just shift to guns or drugs or alcohol or any number of other products.

You've mentioned the impact of the actions of the federal Liberal government in regard to revenue loss. However, I'm concerned that it may increase smuggling of those other types of products and I wonder if we're having any discussions with the federal government to avoid suffering the impact of unilateral actions we suffered from with respect to their actions to reduce cigarette smuggling.

Hon Mr Laughren: We've had no indication from them that they intend to do anything like that. Secondly, the Solicitor General, who's responsible for enforcement of course, has a task force with the federal government -- I think with Quebec as well -- to try and get a handle on it. Part of the problem is that no province -- I'm not talking about Ontario here -- has jurisdiction at the border. That's a federal government problem.

We have jurisdiction once that has occurred and that's why we've beefed up enforcement and fines when it happens here, when it's already here and there are infractions of the law. Every now and again I hear rumbles that Quebec might reduce alcohol taxes, but they didn't do it in the budget, so my suspicion is that they've given up enough revenue on the tobacco and they'd be hard-pressed to give up more on alcohol.

The Chair: There are five minutes left per caucus.

Mr Wiseman: I'll be quick. On the tax-competitive comparison between Ontario and the US, I'm just wondering how extensive the comparative list is in terms of what taxes you look at. I know there are states and cities in the United States that levy 6.5% or 7% business taxes as well as personal income taxes at the city level and a municipal tax at the same time, property tax. We do that here. How extensive is this comparative list of taxes?

Hon Mr Laughren: I may ask for some help on this one, but just before I do, I always say that a comparison of taxes, unless you specifically say what we did there, that this is corporate income tax and this is payroll tax, where you can compare, is a bit of a mug's game, because as you say, it is hard to know.

I checked out of a hotel in New York City a couple of years ago when I was down there on a bond sale, and when the bill came to me and I signed the bill when I checked out, there was a tax of some 20% local and city tax that I had to pay which wouldn't show up on any comparison here.

Now, we have an accommodation tax too, of 5%, I appreciate that. But I'm not disagreeing that it's hard to make percentage comparisons unless you isolate the taxes you want to compare. I don't know whether anybody wanted to add anything to that.

Tom Sweeting is the director of our tax branch.

The Chair: If Mr Sweeting would like to come before a mike, Hansard would appreciate that.

Mr Tom Sweeting: I don't really have too much to add to what the minister just said. Basically, the comparisons that he showed took taxes and separated them, looked at corporate tax on its own and looked at payroll taxes. The approach to payroll tax is a fairly comprehensive one that tries to bring in not only formal payroll taxes as designed, but also payments that would be similar to payroll taxes in the US. It includes a number of different kinds of health and benefit payments that are paid in the US that may be paid by a tax in Canada to try and equalize, to recognize the fact that it runs the risk of being an apples-and-oranges comparison. The corporate tax comparison is quite straightforward; it simply looks at federal and state taxes.

When you get into more comprehensive comparisons where you try and put all the taxes together, it does become a question of selection. You need to look at what basis you want to approach and make some decisions about what you include if you're in a particular state. Do you go down and include a city's tax, for example?

We tend to use averages. The comparison at this particular point in time was more averages, where you sort of blend all of that in and it really tends to remove the influence of a lot of the outriders. It tends to be basically a federal and state comparison, although you will pick up aspects of the local governments.

Hon Mr Laughren: I think the payroll taxes on there included UIC and WCB assessments as well.

The Chair: Mr Sutherland, two and a half minutes.

Mr Sutherland: Minister, you may be aware that there's a document suggesting that somehow 725,000 jobs could be created over the next three years. If I look at the numbers you presented here, you said 350,000 new jobs over the next three years. Then I look at what you're saying, the amount of growth to occur. It seems to me that you'd have to be projecting somewhere over 8% or 9% growth a year to achieve that target. Does that number seem appropriate to you, and do you know of any forecasters who are projecting that type of growth level to occur?

Hon Mr Laughren: We did a comparison of what was in the horse sense revolution --

Mr Carr: No, that was the budget.

Hon Mr Laughren: -- anyway, the Common Sense Revolution, and compared it to what's in our projections over that period of time. If I stray here, I'm sure people from the ministry will rein me back in.


Because of the drag on the economy of your reduction in expenditures, there would be, over that same period of time, about 20,000 fewer jobs under that plan, your plan -- no, there would be 20,000 fewer jobs because it will be a 0.04% reduction in growth rate because of the restraint. I'm not making up numbers here; that's in your plan. There would be actually 20,000 fewer jobs created over that period of time than from the direction in which we're going, the base we've established out there, which has higher spending and which does not reduce the deficit as fast as you do.

Mr David Johnson: That's one aspect.

Hon Mr Laughren: Yes, that's one of them.

Mr Carr: And then the tax cuts at $4 billion would create how many jobs?

Hon Mr Laughren: I think your plan includes the off-book financing as well, just like ours does; I don't think it's different in that regard. I think it's very similar.

The reason I would not buy into the Common Sense Revolution is because I really do think it's a drag on the economy, not a stimulant for the economy. Coming out of the recession -- the recovery is somewhat fragile and tentative -- I think we all would agree that we don't want to be at 0.04%, which may sound like a low number, but it's still a drag on the economy rather than a stimulant. We would not want to do that to the Ontario economy at this time, when our priority is creating jobs, not reducing them.

The Chair: Mr Kwinter, you have 14 minutes.

Mr Kwinter: Treasurer, as always, I'm delighted to have the opportunity to discuss your annual document. I think you will acknowledge, as I have always maintained, that the budget of the government of Ontario is a political document as opposed to a fiscal document.

Hon Mr Laughren: Would you tell Gerry that, please?

Mr Kwinter: I'm just saying you have made the case that the auditor has nothing really to say about the budget; he has to say about your financial statements. So I'd like to deal with your budget in a political sense, in the sense that my colleague the member for Scarborough-Agincourt sent you some questions. I don't want to deal with those unless I have time, but we would hope that you would respond to them.

Hon Mr Laughren: Yes, we will.

Mr Kwinter: I do have some questions I would like to just get some clarification on. One of the things you talked about earlier this afternoon was Highway 407 and this innovative way that you're financing it. Yet it is my understanding that the province of Ontario is going to be guaranteeing the debt of the consortium that is going to be building that highway. Is that correct?

Hon Mr Laughren: We arrange the financing that will be required to do that, yes, because when we originally sent out the request for proposals -- and if I get into trouble, Jay will help me out here, I hope -- the intention was that the private sector would do the financing totally, arrange the financing, everything.

When the proposals came back in, it was apparent that the cost of them borrowing for the project as opposed to us doing the borrowing through the financing authority we have would be more and would mean that the project would cost more and totals would be higher and so forth. So we went back to the drawing board on that part of it and said it makes more sense for the Ontario Financing Authority to do the arranging of the financing rather than the consortium.

Mr Kwinter: When you say "arranging of the financing," to put it in the crass vernacular, are you going to be on the hook for that debt?

Hon Mr Laughren: Yes, we do the borrowing, that's it, but I hasten to add that there are all sorts of cautions, guarantees, provisos, whatever, built into the agreements.

Mr Kwinter: At the end of the day, the province of Ontario is going to have to carry the obligation for that debt if the worst-case scenario happens. The reason I ask that question is that in your comments about this innovative financing, you said, "We couldn't do it so we had to go to the private sector." You went to the private sector and you wound up doing it.

If it's really just a matter of financing, there's no reason why you couldn't do everything that the private sector is doing. Go out and put it out to contract, get this innovative kind of structure to build it. But at the end of the day, you are the one who is going to have to deal with, just like the SkyDome, where you gave away the thing for a quarter of what it was worth.

Hon Mr Laughren: You're got a lot of nerve raising the SkyDome, Monte.

Mr Kwinter: No, listen: You made the decision. What I'm saying to you is that I'm just trying to understand. The only reason, it would seem to me, that you would go this route of getting the private sector in, having it collect the tolls, was because it would take you away from the responsibility of any financial obligation. You would get this highway that was built quicker, was built by the private sector because it could do it better, faster, cheaper, and it would be of no cost to the taxpayers; it would be on a user-pay basis.

What you've got is the taxpayer being on the hook for the debt. You've still got taxes in the form of tolls. It's a tax.

Hon Mr Laughren: No, it was there anyway.

Mr Kwinter: I don't understand the rationale.

Hon Mr Laughren: I'm going to ask Jay to respond to it, but before I do, remember that regardless of whether we did it through the Ministry of Transportation or this way, there would still be tolls. We said that it was going to be a toll highway; that was the only way we could afford to do it. At the end of the day, it's still a provincial highway. Of course, even if it was the private sector out there, totally on its own hook doing it, the province is still there, ultimately responsible for that highway. But let me ask the deputy --

Mr Kwinter: Just before he does, I want to make one more comment. The private sector are not Boy Scouts and are not Mother Teresa and they're not out there for the good of their health. If they're in this thing, they're in it because they see themselves making a profit, and that's fair. I have no problem with them doing that. But you'd think that they would at least be at some financial risk. With the province of Ontario guaranteeing it, then what you have is the private sector having a fail-safe funding mechanism guaranteed by the province. They are going out and using the creditworthiness of the province to enhance their profit. As I say, I have no problem with it going private sector. I think that would be great, but let them take some risk.

I had exactly the same complaint about the casino. There is no downside. Right now the casino is flying, but as I said during the hearings, give it a bit of time and get some more casinos going and get Detroit with a casino and it may be problematic. The operators have no financial risk. It's all on the head of the taxpayer. This is exactly what's happening with this, and that's my concern.

Hon Mr Laughren: Okay. But the reason that it's a good idea to let Mr Kaufman answer is that he's been involved in both of those issues.

Mr Jay Kaufman: Let's deal with the 407 first of all. When the RFP was issued, there was some expectation that the private sector would come forward with financial schemes that didn't require recourse to the province's credit. The proposals that came in did. Both proposals wanted provincial guarantees and support for the venture. Faced with those proposals, the option of looking at the cost of that debt then obviously became of paramount importance.

If we were going to be exposed as the province, then clearly the responsibility that we would have is to make sure that we got financing for the road at the cheapest possible price. That was ultimately the decision that was taken, that it was cheaper for the province to finance the 407 than to have the private sector do it with our backstop. It was not a situation in which the private sector was fully on the hook for the full financing, absorbing all the risks. The province was substantially at risk and therefore clearly we wanted to minimize those risks.

In fact, the private sector builder-operator is at risk. They have provided us with a guaranteed maximum price, and if they don't deliver on that guaranteed maximum price, clearly they are at financial risk in that situation.


From day one, as the Finance minister has said, this has been a toll road, and the tolls are designed to fully fund the costs of doing the 407. So I think that's the framework, and it's a sound, businesslike framework that's resulted from the process, in which decisions that were taken were to minimize the both of the construction, get a guaranteed maximum price and ensure that financing would be in place at the lowest possible cost to do the job.

In the case of the Windsor casino, in fact the operators clearly have risks. They are required as part of their agreement to provide 25% equity investment against the project. So if the project gets in trouble, their money is as much at risk as the operation. So it's not accurate to say that the operators are not at substantial risk.

Beyond that, you're talking about operators who are major international casino operators. Clearly, you're going to be concerned about the success of these operations, and part of the rationale for choosing this consortium was that they had very substantial strength in the marketplace and could withstand the kind of competition that is likely to come from across the river.

Mr Kwinter: Can I ask you a question? How much was the budget for the conversion of the art gallery for the casino: the budgetary cost for the conversion?

Mr Kaufman: I don't have that at hand.

Mr Kwinter: Well, I'll tell you what it is.

Mr Kaufman: We can get you that information.

Mr Kwinter: It was $8.6 million.

Hon Mr Laughren: Yes, it was something around $8 million, and it ending up costing over $20 million, I believe.

Mr Kwinter: How much?

Hon Mr Laughren: I don't have the number in front of me, Monte. But let me tell you something: All of that will come right out of the operations of the casino. It's not going to come back on the taxpayers of the province, because if there's one lesson we learned, and I don't want to be particularly mean here in these friendly environments, but I want to tell you, we learned a lesson from the SkyDome, and that's why we built in the protections both on Highway 407 and on the casino. The taxpayers of this province must never, ever again be subjected to that kind of deal, where there was no protection whatsoever on cost overruns. It was a disgrace, Monte, and you know it.

Mr Kwinter: Mr Treasurer, if we can leave this with one last comment, at the hearings I was told by the assistant deputy minister that if we insisted on protection from the operators, we couldn't get anybody to do it, and when the bill came forward and we tried to get an amendment that ensured that the province would not be liable for any of the downside of the operations, we couldn't get that passed. It was defeated. I don't want to deal with this revisionist history, and I'm telling you that the province is on the hook, and if you check it, you'll see that you are.

But I'd like to get to a couple of other issues before we leave. Could you tell me, when was the most current Standard and Poor's assessment of the risk of Ontario financing?

Hon Mr Laughren: Just about a week ago.

Mr Kwinter: Oh, no, no. I'm saying prior to that.

Hon Mr Laughren: Prior to that? November.

Mr Kwinter: And at that time there was a downgrade.

Hon Mr Laughren: I don't think so.

Mr Kwinter: It went to AA- at that time.

Hon Mr Laughren: I thought that was done earlier.


Hon Mr Laughren: Oh, you're right. It was downgraded by one notch in November.

Mr Kwinter: The point I'm making is, because this is a political document, you put the best spin on it, and I understand that. But you have to understand that in November, when Standard and Poor's had a good opportunity to see what was happening in the year, they made their decision, and when your budget came down, the decision was only, "Is it worse than the negative thing we thought about it that caused the downgrading, or have they in fact staunched the haemorrhaging and is it staying on an even keel?"

To portray the fact that this downgrade that happened in November is staying that way, as opposed to saying, "Now that Standard and Poor's has looked at our budget, they've given us an A+" with positive connotations and everything else -- they've maintained the AA-, and I just feel that is something that really has to be acknowledged. It isn't as if this is a great thing: "Look at what's happened. Standard and Poor's has said that we're doing a fabulous job." In fact, they have just downgraded you in November and all they are saying is, "We think that you should still be at that level."

Hon Mr Laughren: Well, what they've said was, "We are reaffirming our existing rating of Ontario, with a stable outlook." To imply that they looked at the numbers in depth, which I think is what you're implying, if not saying, but because this is a political document, the budget, they didn't look at it in depth this time is factually incorrect.

Mr Kwinter: I didn't say that.

Hon Mr Laughren: Well, you implied that.

Mr Kwinter: I'm saying that your child comes home from school and he says: "Guess what? I had a D last year and I still have a D. I'm doing great. I could have had an E."

Hon Mr Laughren: Monte, everybody knows what the credit rating is: AA- by S&P, and all S&P said was, "We are reaffirming that rating with a stable outlook." They didn't say, "You're an AAA." We didn't say that. Everybody knows that we'd all be better off and happier if the province was at an AAA credit rating. We're at AA-, and they've reaffirmed that and said that's a reasonable rating for the province, given their projections and given their revenue base, and they made compliments to us on our expenditure controls.

I think you're trying to portray it in a very negative way, and in fact I would say that what S&P has done is say to us: "You're on the right track. You've got your expenditures under control, you've got the deficit going down, you're coming out of the recession, Ontario's going to lead the way." Nobody's arguing with that. I would say that it's a very positive thing what's happened. It's at AA-, yes.


Hon Mr Laughren: They did.

The Chair: Mr Kwinter, your time is up.


The Chair: Mr Kwinter, your time has more than expired. I'll move to the Progressive Conservative caucus and Mr Johnson.

Mr David Johnson: Minister, let's go back to job creation for a little bit. We discussed that earlier, and we have to thank you for the endorsement of the Common Sense Revolution in the sense that your own document points out that with regard to the employer health tax -- $200 million it's going to cost you this year, 12,000 jobs created -- that works out to about $16,667 per job. Now, if you look at your capital budget, you're spending about $4.1 billion, and according to your own numbers you will sustain 166,500 jobs. If we do that calculation, that works out to pretty close to $25,000 per job.

So what you're showing -- and this is not too surprising, because this is what, as you said, the business community is telling you, and what I think you said the labour movement is telling you even, to get both sides of the coin there, that we need to cut the taxes and by cutting taxes we create jobs. Your numbers show that the most efficient way is to put money back into the hands of business, back into the hands of people, consumers in particular, and create jobs. That's what the Common Sense Revolution is saying, so thank you for your endorsement.

Hon Mr Laughren: I would put to you that there are some limitations on that. Also, when you cut taxes, there is more slippage on the job creation than there is in direct government spending. We know that, because it doesn't always result in direct job creation. So we have to be a little careful of that. Also, we do lose $200 million on the revenue side. That's netted out. We don't get that back.

If you're worried about the deficit, which I know that you are, and quite legitimately, you can't just go on slashing taxes and think that you're going to remove the deficit because of the increased economic activity. It doesn't work that way, and you know -- I think you know -- it doesn't work that way. You saw what your fiscal hero did, Ronnie Reagan in the United States --

Mr Carr: He didn't control spending in Congress. Congress continued to spend.

Hon Mr Laughren: Well, when he did it, his deficit went from $40 billion to almost $300 billion on an annual basis.


Mr Carr: Also, he built up defence during the Cold War.

Hon Mr Laughren: So be very careful on extending the argument too far on the cutting taxes to gauge up.

Mr Carr: You're not being fair and you know it, Floyd.

Hon Mr Laughren: Tell your colleague there that he's cutting into your time.

Mr David Johnson: He's just raising some good points.

Mr Carr: I know you know the facts. I know you know, Floyd.

Hon Mr Laughren: I do.

Mr David Johnson: Any way you cut it, yes, there's a cost, $200 million, to reducing the tax.

Hon Mr Laughren: Yes. That's all I'm saying.

Mr David Johnson: There's a cost of $4 billion to the taxpayers in terms of the capital programs that you're putting forward.

Hon Mr Laughren: Yes.

Mr David Johnson: There's a cost either way. But in terms of job creation the most efficient way, according to your own budget, is to cut the taxes. I guess it's just too bad, from our point of view, that it was a very modest holiday as opposed to a tax decrease.

Hon Mr Laughren: Yes, it is a modest one. I don't disagree with that.

Mr David Johnson: Why don't you go a little bit further and do it right, as we're proposing? At any rate, you can contemplate that.

I want to shift to welfare just for a minute. Your figures show that employment will be up in 1993-94, this fiscal year, by about 62,000 more people employed. In your budget you've indicated that you're cracking down on the fraud in welfare and you indicate that you're saving $350 million by managing welfare better and cracking down on the fraud.

Yet, if I look in the estimates, I see some $6.8 billion allocated to social assistance in the 1994-95 estimates, as opposed to $6.3 billion in the 1993-94 estimates. So there's an increase there of almost half a billion dollars over the previous year, which is almost 8%. Other than the interest rate, I guess it must be one of the fastest-growing major components of your budget.

This really shows that you don't have a handle on the welfare. My question to you is, with your employment growth and supposedly, as you say, your gains in the social assistance, which aren't apparent from the budget, how come we're not having lower welfare costs? Why are welfare costs continuing to go up?

Hon Mr Laughren: I think that's a fair question. Let me deal with the $6.3 billion versus the $6.8 billion first of all, because I think that needs clarification. We're still anticipating welfare costs of $6.3 billion. The difference is almost entirely -- there are a couple of components in it -- a drug benefit component that comes through that program of drug benefit assistance to social assistance.

Mr David Johnson: Half a billion dollars?

Hon Mr Laughren: It's not all that, but there are some other components too.

Mr David Johnson: Case load growth?

Hon Mr Laughren: No, I'm talking only about the difference between $6.3 billion and $6.8 billion.

Mr David Johnson: I'm talking about the case load growth now.

Hon Mr Laughren: Oh, the case load growth? Yes, if you look at the numbers on there, it's gone through the roof; that's correct.

Mr David Johnson: You're projecting it's going to go up over the next year. You say you're managing welfare better, you're cracking down on the fraud, employment is up and yet your case load is still growing. How can this be?

Hon Mr Laughren: First of all, there have been some changes to the federal UIC. We think that put a hit on us of, if I recall correctly, about $100 million just because of the changes in the federal UIC. We didn't create that. That was done to us.

Secondly, there is a lag, as we're coming out of the economy, on the social assistance costs; there's no question about that. We're not happy about the growth in the case load. There was a signal a couple of weeks ago that case loads were starting to drop, at least in Metropolitan Toronto; I haven't seen any province-wide numbers, to be frank with you, but starting to drop.

Yes, we're worried about that, and I know you will probably disagree with me on this, but that's why I believe that Jobs Ontario Training was the right program. It took people who were unemployed and whose UIC benefits had run out or who were on social assistance, and put them into a job with training attached, not simply a make-work project where they would be laid off and back on social assistance again. So I think that's the right track to be on.

The federal government is working with the provinces to see what can be done together in the reform of social assistance programs. It got derailed a bit for a while, and now I gather they've set up another meeting for I think the end of this month some time.

Mr David Johnson: It's still a mess.

Hon Mr Laughren: It's still a lot higher than it should be, yes.

Mr David Johnson: It just amazes me, with all the touting of the Jobs Ontario and the big infrastructure program, all the jobs you're creating and how you're cracking down on fraud, yet the welfare costs keep spiralling up and up and the welfare case load keeps growing.

Hon Mr Laughren: Think what it would be without those initiatives. On the social assistance, a lot of what we're trying to do is at the beginning of the process too, not just sending out people to crack down on welfare recipients. We know that, by any estimates I've seen, it's about a 3% rate of fraud.

We also have strengthened our enforcement on other kinds of fraud too: on white-collar fraud, on sales tax fraud, on smuggling. It's not just social assistance, and I know you will want to talk about the kinds of fraud that happen in the business community as well. We're cracking down on that too.

I wouldn't want to leave the impression that we're preoccupied with people on social assistance engaging in fraud, but we do think we want to remove that as much as possible up front and avoid overpayments that are difficult to collect because they're on low income and so forth. We're trying to do it in a balanced way that doesn't make victims out of people on social assistance, because, by and large, people on social assistance do not want to be there.

Mr David Johnson: Minister, I wonder, just to shift to the non-budgetary loan-based portion of the capital budget, if you could tell us how much money will be flowing through the operating account to service the loans in the non-budgetary system. What I'd like is for five years. I don't want you to take up a whole lot of time here now, but just tell us roughly how much money's going to flow through the operating accounts. At the end of a five-year period, how much will be the outstanding principal in the non-budgetary loan-based account?

Hon Mr Laughren: I think your question's a good one. As we do the off-budget financing, there's repayment that's funnelled from each ministry's, which includes paying down the capital and the interest on those loans. That will be added to the operating budgets.

Mr David Johnson: Roughly how much are we talking about?

Hon Mr Laughren: This year, it's $105 million. We can get you the five-year costs, if you like. We don't have them here.

Mr David Johnson: Afterwards, if you'd provide all that information. At the end of five years, how much principal will we be talking about?

Hon Mr Laughren: Yes, we can get that for you too.

Mr David Johnson: You don't know or you don't have it here?

Hon Mr Laughren: I don't have it here, no.

Mr David Johnson: Is all of this money going to flow through the operating account, or are you expecting the finance corporation, through tolls and fees -- now, I notice Highway 407 isn't --

Hon Mr Laughren: That's different.

Mr David Johnson: It's in some project specifically, whatever that is.

Hon Mr Laughren: That's what we call non-recourse, standalone.

Mr David Johnson: For the Ontario Transportation Capital Corp, will there be any forms of tolls or fees other than payments through the operating accounts?

Hon Mr Laughren: You're talking about other than the 407?

Mr David Johnson: Yes, other than the 407. You don't know that?

Hon Mr Laughren: I'm not sure I understand --

Mr David Johnson: If you look earlier in your budget, there are a host of other roads here that are subject to investments: Highway 69, Highway 17, the Queen Elizabeth Way, Highway 401. Are any of those going to be toll roads?

Hon Mr Laughren: No, that's not the intention. When I was in Ottawa last week, I guess it was the board of trade that asked me if we would proceed faster with 416, which runs from Ottawa down to the 401. This was after they'd insisted that we get the deficit down faster. I said not under the present plans, but if they had any creative ideas on financing, they should bring them forward. They said they were interested in doing that. But the answer to your question is no.

Mr David Johnson: So of all these projects listed on page 63 of the budget, you're assuring us here today that none of those major highway updates will involve tolls or any special fees for the users.

Hon Mr Laughren: Page 63, you're saying?

Mr David Johnson: Yes, 63.

Hon Mr Laughren: I don't want to mislead you here, so we're trying to find 63.


The Chair: While the minister is looking for those figures, I just want to inquire of the committee members if they would like the staff to stay after 5 o'clock.

Mr David Johnson: Yes.

The Chair: I heard a yes.

Hon Mr Laughren: The only one that's planned, I understand, is 407. We don't have anything now. I don't want to preclude consideration in the future, but --

Mr David Johnson: So some of these may indeed be toll roads in the future?

Hon Mr Laughren: Well --

Mr David Johnson: That's what you're saying. That's fine; some of them may be.

Hon Mr Laughren: There are no present plans to do that though, Dave; that's what I'm saying. If that changes, it changes, but I don't want to --

Mr David Johnson: Maybe I can just --

The Chair: Mr Johnson, I have to say at this point in time that we've used all our allotted time. Mr Laughren has indicated that he has to leave at 5 o'clock. It's just a couple of minutes after 5 at this point in time. Mr Johnson did indicate that he had some questions for the Finance ministry staff.

Mr David Johnson: Mr Carr does as well.

The Chair: At this point, Mr Laughren, I'd like to thank you very much for taking time out of your busy schedule to be available for the committee members to make your presentation and for allowing time for questions.

Hon Mr Laughren: May I express my appreciation for the questions that came. They were interesting and, I think, pertinent, the questions that you asked. Mr Kaufman also has a prior commitment, but we have lots of people here who are specialists and will be glad to help you out as much as possible. Just don't keep them until midnight. Thank you all very much.

Mr Kaufman: The individuals who will be here are Bob Christie, who is the associate secretary of the treasury board; David Trick, who is the assistant deputy minister for taxation and federal-provincial relations; and Steve Dorey, who is our assistant deputy minister for economic policy. I'll leave you in their hands.

The Chair: Thank you very much, Mr Kaufman.

Mr Sutherland: Can I just ask a quick question? Is there another rotation for the time remaining or do have only a couple of questions?

Mr Carr: Yes, we have a few.

The Chair: I'm in the hands of the committee members. I know that Mr Kwinter did indicate he had to go and I know some of our caucus members have to go.

Mr Sutherland: If they've just got a few questions, that would be fine. Just let them go and take it from there.

The Chair: Mr Trick, Mr Dorey and Mr Christie, I'd like to welcome you to the microphones. Mr Carr, you have some questions.

Mr Carr: If you keep the answers short, you should be in good shape. It's a taxation question. On page 3 one of the subtitles says, "Cutting Taxes to Create Jobs." If you were to cut the provincial income tax rate to put $4 billion back in the hands of taxpayers, how many jobs would that create?

Mr Steve Dorey: In general, the job creation impact, at least in the early years of tax cuts, is substantially smaller than the impact of direct spending. If you have a very carefully targeted tax that hits, for example, only incremental activity like new jobs, then you can have a greater impact. I guess our estimate would be that $1 billion, in terms of personal income tax, would create somewhere between 6,000 and 10,000 jobs.

Mr Carr: Yet, on the other side of it, you're saying that the payroll tax created more. Based on the income tax rate and assuming that it's based on a percentage of the federal income tax rate so it is progressive -- the higher your income, you get it back -- and assuming now that the higher-income people will then spend that money rather than people at the $30,000 level who may not spend it and put it in investment, although I would submit to you that would help create jobs too if they were to invest it here in the province of Ontario, what you're saying, from an economic standpoint as the Ministry of Finance, is that at $1 billion a tax cut will only give you 6,000 jobs. Is that what you're saying?

Mr Dorey: It would depend to some extent on how you structured it. I said 6,000 to 10,000 is a reasonable range. Most econometric models will give you those kinds of results.

Mr Carr: As you know, most economists would say it would be much higher than that, so I just wanted to get it clear. You're on the record now for the number of jobs that would be created, and you're the taxation expert. You think a $1-billion tax cut would only create 6,000 to 10,000 jobs.

Mr Dorey: Certainly in the earlier years, yes.

Mr Carr: And how much over three years?

Mr Dorey: It wouldn't be much different from that over three years.

Mr Carr: Say 15,000, 13,000? It would go up progressively?

Mr Dorey: It would go up somewhat, yes.

Mr Carr: Bottom line, and I know this is difficult to do because you're doing your math in your head, by reducing the personal income tax rate from 58% down to the lowest in Canada, how many jobs would be created over five years? You can use the billion, because I can multiply it by four. How many jobs would a $4-billion tax cut create over five years?

Mr Dorey: If you did that kind of arithmetic -- I'm not sure that could go out five years -- it would get you 50,000 to 60,000 jobs, I think. That would be the arithmetic. That assumes no offsetting effects, for example. It assumes that the deficit is allowed to rise by the resulting tax loss and so on.

Mr Carr: You know what I'm getting at. Ours doesn't, and I'll get to the other side of it as well. I just want to put the numbers together.

Now let's talk about the spending cuts. Let's say you cut spending by $6 billion. You've done the tax cut of $4 billion. Then you find cuts: $1 billion from welfare by scaling it back to 10% of the national average over 30% -- all the numbers work out. The Minister of Finance indicated that would cost jobs. The Treasurer seemed to be giving out large numbers. How many jobs do you, as somebody in this field -- and it may not be you, if we're looking at expenditures. If we were to cut $6 billion out of spending in the province of Ontario, how many jobs?

You know what I'm getting at. It's the numbers we did with social assistance, Jobs Ontario Training, non-profit housing. You know where the numbers are. Even the government members have read our document and most of them don't even read the government documents, so we're very pleased we got them to look at it.


Mr Carr: I know Mr Wiseman's going to have his grade 10 class look at it after the next election.

I said I'd be short, but I'm not. With $6 billion cut out of expenditures, how many jobs would you say would be lost? Let's be perfectly honest. You've looked at our plan. You got how many jobs would be created, which the Minister of Finance didn't. How many jobs would be lost if we were to cut $6 billion out, knowing where we cut it out of?

Mr Dorey: Again, I'm not sure we've gone through your plan in detail and said, "These kinds of cuts cost precisely this number of jobs."

Mr Carr: I can give you the numbers. Roughly $1 billion in welfare, in terms of cutting back the benefit levels; about $340 million by scrapping Jobs Ontario Training, because, unlike the Liberals, when we cut it, we know $700,000 has already been spent; and about $400 million out of education. You know the numbers, and some of the other numbers in there.

As a general rule, and I hate to pin you down, you've got the Minister of Finance saying the plan doesn't work, and he's gone to you. With $6 billion in cuts, how many jobs will that lose for us?

Mr Dorey: I don't think I can do that arithmetic on the spot.

Mr Carr: Could you do it and sent it to us? Just so you know, I would compare it to other economists, because obviously you're not judged in isolation. You can say a number, and another economist would say something else. How the public will judge you is whether you're in the ballpark. What are your projections? I assume you can do that and send it to us.

Mr Dorey: Yes. I don't see why we couldn't.

Mr Carr: We want to be fair. I know you people aren't the political staff. We're going to throw it out there for the economists and we're going to use your figures with other economists'. It isn't going to be Gary Carr judging you or Floyd Laughren; it's going to be other people in your field, respected people, who will say, "Boy, this guy's way off." How we'll judge it is based on the average of the economists, and probably the most independent ones are those the public would believe. But we want to have some constructive debate. We would like to have the government's numbers, rather than just the politicians like us saying it'll create 725,000 jobs and the Minister of Finance saying it'll lose jobs.

I'd like to have some real debate among economists. If you could give us that information, we could share it with other economists, who could say, "Yes, the Ministry of Finance people are right on," or "The Ministry of Finance people are way out." That's what I'm getting at. If you could send that to us, it would be much appreciated.


The Chair: I'd like to make the point that if any answers to questions posed by committee members could be sent to the clerk for distribution to all the committee members, that would be very much appreciated.

Mr Carr: That was it, my short and sweet questions. I have more, but I don't want to take too much time.

The Chair: We'll rotate. How many minutes were you? You were just over five.

Mr Wiseman: In terms of spending cuts, if you're going to cut the income tax, my thought would be that if you really want to stimulate and have the most effective multiplier with the cut of income tax, it should be reverse progressivity. In other words, you should cut the most from the bottom end, because it's more likely that people who are paying at the bottom end will use that money to go out and buy things in the market that they couldn't normally afford and that people at the upper end would probably buy treasury bills, invest offshore or would otherwise create a leakage in terms of that kind of money.

If that's the kind of thing you wanted to do, such as what the Conservatives are suggesting, have you any thoughts on whether my suggestions on what would happen in that regard are more accurate, or what kind of stimulus do you think would happen?

Mr Dorey: The impact of a tax cut -- you're right -- depends a lot on what people do with the money. In general, the savings rate is substantially higher for high-income people, as you would expect, so more of the money is likely to go into savings. For low-income people, more of it's likely to be spent. So the net economic impact would likely be larger, if you cut taxes on low-income individuals rather than high-income individuals.

Mr Wiseman: If you had to cut $500 million from the budget, as we had to do with the tax cut on tobacco, where in terms of stimulating the economy would that $500 million have been better spent?

Mr Dorey: If you're trying to get desirable activity, if you target a tax cut on an activity and reward those people who carry out the activity, you'd tend to get more leverage than if it's a general cut that rewards people regardless of what they do. That's why the EHT cut, for example, only goes to people who hire additional net new workers, and therefore you'd get more impact than you would on a general cut.

Mr Wiseman: This chart is the one that is rather intriguing to me, the one where we're talking about "Large Multinationals Choose Ontario for Investment," and you say, "Alternatives Considered."

I know for a fact that the Clean Air Act in the United States has had a detrimental impact on the creation of big engines in cars in the United States because of the fleet averaging of the miles per gallon. They had to look somewhere, so they look here, or they look into Mexico now with North American free trade. For example, Mercedes built a plant in Mississippi, I think, or South Carolina.

Mr Sutherland: Alabama.

Mr Wiseman: Alabama. For them to get that, the local town had to buy x number of cars, so you've got the mayor wandering around in an $86,000 car and you've got the police forces wandering around in $86,000 cars.

Mrs Irene Mathyssen (Middlesex): You could have some wonderful high-speed chases.

Mr Wiseman: Really roadworthy. It's not realistic, as some political philosophies would suggest -- and you don't have to comment on that, given that you're not political staff -- to assume that we are going to be able to go: "Hey, we're laissez-faire. We're going to be capitalists. We're not going to give any kind of incentives. We're going to cut Jobs Ontario. We're going to cut grants. We're going to cut loan guarantees. We're going to cut all these things, and we're just going to let the market decide where it's going to go."

If that was the case, it would seem to me that Mercedes would've gone just about anywhere if the entire market was open like that. When we talk about "Alternatives Considered," what was it that tipped the balance to come here as opposed to going there? We know a place like Kentucky has slightly lower wages, and there are right-to-work states; Missouri is a right-to-work state, I guess. What are the various parameters? Why did they come here? What were the deciding factors in some of these cases?

Mr Dorey: It's difficult to generalize. There are a variety of factors. In some cases it would be that costs are lower. Publicly provided health care is an important consideration for some of these firms. The quality of the workforce, certainly if you take the example of a firm that considers Mexico and Ontario, is a very big consideration. Quality of infrastructure is a consideration. In some of these cases the government has provided some assistance. There's a variety of reasons they would choose Ontario.

Mr Wiseman: In Fortune magazine, in October or November, they run the top cities for investment in the United States. They don't dare do Canada, because we'd probably blow them away in most of our cities. They talk about quality of life being one of the top parameters for investment in an area. In fact, taxation is one of the very lowest factors for investing in a community. Taxation and cost of labour in terms of wage packages are very low on the scale, because relatively speaking, there are other factors like energy and quality of life and desirability and infrastructure. For example, the 407 would be a major attraction.

A lot of people just look at this competitive thing and don't look at the other factors, but Fortune magazine does. I don't know if you've ever seen one of those, but it is interesting to read. When you start to compare that, Ontario looks very good, and that's why I asked about the taxes earlier on. Personal income tax and business taxes in the various cities and also the structure of government within some of the cities in the United States makes them very uncompetitive as well, because of the way they do their municipal taxes. It's an important factor, and I don't know how much you look at those kinds of things when we talk competitives or whether there's any kind of chart you can use.

Mr David Trick: I think you're exactly right to point out that there is a large number of factors that companies consider when they choose an investment location. I think you're also right to point out that for every individual company, the relative weight it assigns to different factors varies. It depends on what line of business you're in, what your business strategy is and so on. Clearly, taxes are a factor that almost all companies look at in one way or another, but for many companies they wouldn't rank in the top three or top five factors, and I think that's the import of your comment there.

Mr David Johnson: I do have more questions. Who do I submit those to?

The Chair: You can submit them to the clerk and she'll make sure they get to the right people.

Mr David Johnson: Thank you. I'm new at this yet.

The issue of the relationship between job growth and economic growth was raised earlier this afternoon, and I wondered what your view on that is. Is there a constant relationship between economic growth and job growth over any period of time -- I see you're being written a note there right now -- or if you look back over the last few years, would we see different relationships between the two, depending on circumstances?

Mr Dorey: Obviously, the relationship changes pretty substantially over the business cycle and depending upon the relative costs of capital and labour and whatever other inputs you're looking at. Generally, productivity tends to rise and therefore the difference between the growth rate in output and the growth rate in employment tends to be larger earlier in the business cycle. Later in the business cycle, when you're operating at full capacity and so on, you tend to see them come together. I don't think there's a fixed relationship. The productivity performance in the province wasn't particularly strong through a good part of the 1980s and it has improved somewhat recently.


Mr David Johnson: If I were to suggest that at this time the relationship might be pretty close to one to one, give or take -- 1% growth in the economy, 1% growth in employment -- would that be far off, in your estimation?

Mr Dorey: Last year, we had growth in employment of 1.3%, a growth in the economy in real terms of 2.4%, so there's 1% difference or so. For this year, we're looking for job growth about the same, 1.2%, and output growth of 3.3%, so there's a difference of 2 percentage points for 1994.

Mr David Johnson: That's quite a difference. Anyway, I'll be interested to see your analysis.

As I understand the budget, the budget is saying that over the period 1995-97, at any rate, they expect job growth of about 117,000 per year, somewhere around 120,000 per year. I don't know if it extends beyond that for a couple of years. If the government's view is that employment growth will be about 120,000 per year, and if the Liberal plan reflects about 660,000 in employment growth over a five-year period -- I could be wrong; I don't have in front of me -- which is about 132,000 a year, and our plan, as has been noted, looks at 725,000 in terms of growth over a five-year period, about 145,000 a year, we're looking at a difference per year of somewhere in the vicinity of 25,000 jobs per year.

When you do the assessment Mr Carr has asked for, you might make it clear: With the kind of stimulus we're proposing in the form of tax cuts, would those tax cuts not account for the difference in the 25,000 jobs per year? It seems to me to be within the realm of possibility.

Mr Dorey: Certainly you have to look at the entire fiscal package, I would think.

Mr David Johnson: You'll give us your thoughts, but at this point you still feel that the 725,000 jobs, given that sort of stimulus, is high. Is that correct?

Mr Dorey: If the stimulus was taking place without the spending cuts, the initial direct impact would obviously be positive. The impact of a rising deficit can have a major impact on confidence, so it's hard to judge that. But you're also talking about large spending cuts, so I think you have to weigh the two together if you're going to do that analysis.

Mr David Johnson: And that's the analysis you said you would take a stab at.

Mr Dorey: Yes.

Mr David Johnson: Okay, I'll just leave it at that.

Mr Sutherland: Just two comments, picking up on Mr Johnson's. It seems to me too, though, that the model that was used in the 1980s to look at the relationship between jobs and economic growth is not the exact same formula you can use in the 1990s, for the reasons you said: that much of the gains in growth here have been achieved through productivity gains rather than through the employment gains we saw in the 1980s. You did mention that some of the growth in the 1980s was a result of a significant productivity gain.

I get the sense that some people are still using the same 1980s model and that we're going to see the same degree of employment bounce back, not taking into account any of the restructuring that's gone on in the economy; that in some cases those productivity gains have been found at the expense of jobs, through technology etc or through different ways of doing business rather than through the gaining of jobs.

My other comment picks up on Mr Wiseman's. There was an article in the Toronto Star a little while ago that indicated about our savings rate being lower. The assumption that a significant tax decrease would all go into investment or into job creation is not necessarily valid, because with the savings rate being lower, people may take advantage of that to bump their savings up. Whether some of that goes into savings investments that stimulate the economy -- maybe. But can you really predict all the slippages that may occur from a tax cut that won't go directly into some form of job creation?

Mr Dorey: A lot of factors go on in the real world that don't go on in econometric models, so sure, you're going to miss some of those things.

Mr Wiseman: That explains everything.

Mr Dorey: With respect to your comments on productivity, it's our view that productivity does create jobs. It doesn't cost jobs except in the short term. It creates jobs in the sense that it makes the economy more competitive and it also tends to raise incomes, which gives you more income to spend and also in turn generates jobs.

Mr David Johnson: I want to ask a question I forgot to ask earlier. I don't think they want to answer this, anyway. How many jobs will the repeal of Bill 40 create?

Mr Wiseman: That might be one of those things that the econometric model does not predict very well.

The Chair: I know Ms Mathyssen would like to ask a very legitimate and very sincere question.

Mrs Mathyssen: I'm not sure whether you can answer this. I noted in the document the reference to how important our health care system is in terms of giving us that edge, and that's something we've known for a very long time. There is a document floating around out there, and you may have heard of it, that talks about invoking a health care levy for people who earn over a certain level. I believe it was $50,000 that was indicated in this document that's floating around.

I'm thinking in terms of the number of people who would be in that income category, number one, and wondering if that would be an adequate revenue base in order to support something as large as our health care system, which spends $17 billion a year. If it's not, what happens?

Second, if there's a limited number of people who are actually paying those levies and they see no direct benefit for themselves, if they begin to feel they're carrying the entire burden of the health care system without gaining direct benefits, will there be pressure by them to opt out and look to a private insurer?

If you change the way we're funding health care now to this levy model, will we see it being underfunded? Second, is this the thin edge of the wedge to ending universality, creating such pressure that we start to see the whole system erode?

Mr Wiseman: You might want to leave the last part to somebody else.

Dr Robert Christie: I'm not as familiar as I ought to be with the proposal you were discussing.

Mrs Mathyssen: It's revolutionary.

Mr Wiseman: It comes in a purple document.

Dr Christie: I'll defer to my expert tax colleague in the answer to this, but to the extent that one is seeking to raise money through a tax levy, whatever, solely on those earning over $50,000 per year, that is roughly the range in which the provincial income surtax begins to raise funds, and $17 billion is, if I am correct, more than the total we raise from all personal income tax.

The notion that one could fund all of health care -- as I say, I'm not aware of the specifics of the proposal you're referring to. But the arithmetic of trying to raise from that surtax-paying population more than is currently being raised from the entire personal-income-taxpaying population -- I cannot figure out what the rates would need to be, but obviously there would need to be very, very, very substantial changes in rates to make that happen.

Mrs Mathyssen: So we would see people simply saying: "No, I've had enough. There's no way I can put this kind of financial contribution into the health care system."

Dr Christie: Without having done the calculation as to what kind of marginal tax rate would be required, although knowing it would be very substantial, it's difficult to know what people's reaction would be to a tax rate like that, or, for that matter, if there exists a marginal tax rate that would raise that amount of money. I mean, within our tax system it may simply not be an achievable amount of money from that income group.

Mrs Mathyssen: So we could challenge this concept on quite solid ground.

Dr Christie: Not having done the math, it's difficult for me to say.

Mr Wiseman: It's okay. They didn't do the math either.

Mrs Mathyssen: I appreciate that. That helps me in terms of my understanding of their mathematical abilities.

The Chair: If there are no further questions, I would like to thank all the staff from the Ministry of Finance who took time out of their very busy schedules to be here to assist the Finance minister and indeed to assist the committee members in trying to find answers to some of their questions.

This committee stands adjourned until 10 am, June 2 next.

The committee adjourned at 1731.