Tuesday 14 February 1995

Pre-budget consultations

Ontario Trucking Association

David Bradley, president

Ontario Public Health Association

Rick Edwards, president

Winston Miller, president-elect

Brian Hyndman, chair, public policy and resolutions committee

Peter Elson, executive director

Retail Council of Canada

Peter Woolford, vice-president, policy

Telecommunications Research Institute of Ontario

Peter Leach, president

Ontario college system

Colleges of Applied Arts and Technology of Ontario:

Richard Johnston, chair, Council of Regents

John Saso, chair, Council of Presidents

Cathy Zuraw, vice-chair, administrative staff consultative committee

Jay Jackson, chair, support staff division

Dean Barner, chair, academic staff division

Cynthia Hilliard, president, Ontario Community College Student Parliamentary Association

Bruce Hodgson, chair, Association of Colleges of Applied Arts and Technology of Ontario

Ontario Hospital Association

Peter Harris, board chairman

Dennis Timbrell, president

Association of Municipalities of Ontario

Bill Mickle, president

Bill Croome, co-chair, fiscal and labour policy committee

Ontario English Catholic Teachers' Association

Claire Ross, president

Marilies Rettig, first vice-president

James Carey, general secretary

Greg Pollock, executive assistant, government relations

Bank of Montreal

Tim O'Neill, executive vice-president and chief economist

David Hall, economist

CP Rail System

John Taylor, director general, government and industry affairs


*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)

*Abel, Donald (Wentworth North/-Nord 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)

*Phillips, Gerry (Scarborough-Agincourt L)

*Sutherland, Kimble (Oxford ND)

*In attendance / présents

Substitutions present/ Membres remplaçants présents:

Frankford, Robert (Scarborough East/-Est ND) for Mr Wiseman

Clerk / Greffière: Mellor, Lynn

Staff / Personnel:

Campbell, Elaine, research officer, Legislative Research Service

McLellan, Ray, research officer, Legislative Research Service

The committee met at 1002 in room 151.



The Chair (Mr Paul R. Johnson): We continue with our deliberations with respect to pre-budget consultations. The first presentation this morning is by the Ontario Trucking Association. If the representatives would please come forward, make yourselves comfortable. Please identify yourselves for the purposes of Hansard and the committee members. You have 30 minutes within which to make your presentation and field questions from the committee members. Please proceed.

Mr David Bradley: Good morning, Chairman and committee members. My name is David Bradley and I'm president of the Ontario Trucking Association. Paul Leader is senior vice-president, Atlas Van Lines, and chairman of the Ontario Trucking Association. Michael Burke is the association's assistant manager of government relations.

It's a pleasure to be here this morning to speak to you. I think the 1995 budget -- I say this every year -- is one of the most important in our history, but every year they seem to get more important.

We have distributed a brief to you that provides the details of our submission. I obviously won't go through all of the points, but we'll leave that with you.

The government at least set out, and I think all the parties share this, that a top priority for this budget should be job creation. Of course, job creation requires economic growth, and so our submission focuses on measures that we hope will stimulate growth, both budget measures and non-budget measures. We think we need to have complementary policies in the area of transportation and labour to complement what we hope to see in the budget.

As you know, the situation in the Ontario economy and Ontario industry over the last several years has become very fluid, and of the competitive advantages that we once enjoyed, some have changed, shifted, and some we've lost altogether, and that restructuring of the Ontario economy, while perhaps the pace has slowed down somewhat in the last year or so, is still going on. I think that's really given fiscal policy here in Ontario and monetary policy in Ottawa and in the United States much more of an impact, because they can combine with these changes in our competitive advantage and certainly throw things either into a better light or into a worse light.

The objectives that we think should be set for this budget are as follows.

First, we think the budget should maximize the role of the private sector. If you're interested in job creation, that's where it's going to happen. So some of the measures that we're going to be proposing will contribute to that.

In addition, the fiscal policy measures that this budget will introduce should stimulate economic activity. That does not necessarily mean spending. We would propose, and I think all of the parties have certainly recognized now, that the measures have to be conducted in a fiscally responsible manner, and that the policies work with and encourage the private sector restructuring that's under way to continue and to encourage private sector investment.

To get economic growth leading to job creation, or GDP growth as the economists would look at, you look at three things historically in Canada. One is population growth, another is labour force growth, and the third is maximization of productivity.

Population growth really started to decelerate in the 1950s, and therefore we cannot rely on population growth as we did in the postwar period for economic growth. Similarly, labour force growth over the longer term is slowing in Canada and we can't look to labour force growth. So that leaves productivity as the final area that this economy can look to in order to stimulate growth and therefore stimulate jobs.

Canada has lagged behind the other G-7 countries in terms of our productivity and we have a real job here to do, both in the private sector and in the public sector. We think the social contract is at best a start and the real chips are going to fall, I guess, in about 18 months' time. We're not talking solely of cuts here, but that the public sector, and I'm thinking more of the government as opposed to the broader public sector here, needs to be instilled with the same message of productivity and incentive that exists in the private sector.

In terms of the economy and how we see it, trucking is a leading economic indicator. We are on the front lines. We serve virtually every industry that produces anything in the province, so we can tell you what's happening out there.

Over the course of the last year, we saw a continued firming in economic prospects. We saw the growth becoming more broadly based. However, one has to be very careful. That, for our industry, is not translated, as some people in the media have suggested, into mega-profits. The operating ratio, which is expenses over revenues, for the industry in the first half of 1994 still was at 0.98, and that doesn't include interest and taxes, so barely break-even. I think in the second half things improved further, and I would suspect we're perhaps in the 0.96, 0.97 operating ratio, still not making a lot of money and most of the money's being plowed back into repairing our balance sheets, which really got ravaged during the recession.

The other thing that I think you have to keep in mind is that most of the growth that we're seeing out there, moving the manufactured goods and the raw materials, is export-driven. The domestic economy still has been lagging behind -- the consumer has yet to really fully participate -- and we're becoming increasingly concerned about the recent spike-ups in interest rates. I can tell you we haven't seen an impact yet, but the talk of a soft landing in the US leaves us very, very concerned and I think leaves the Ontario economy very exposed, because if we see a slowdown in US economic activity, that's going to drain off growth here. We don't have domestic growth at a level at this point yet to rely upon, so we really have to watch that.

In terms of productivity and efficiency, a concern that we've had over the last decade or so is that the efficiency gains and the productivity gains, in our industry at least, in large part end up being taxed away. So we're very concerned about that.

The tax burden on the trucking industry as a percentage of revenue, if you look at our brief, is 7.9%. When you compare that to industries like manufacturing, it's at about 4.9%, and the insurance industry at 1.3%. So that's quite a disparity. You might say: "Well, that's okay. That's trucking and you've got highways and that kind of thing." But one has to be aware of the burden that that translates on to our export trade. Again, there are charts in there that show that the tax burden on trucking simply makes our products that much less competitive in other markets.

So to start in terms of our specific recommendations for this budget, number one would be no new taxes and no increased taxes. We seem to think that this thinking is permeating all levels of government at this point. However, we will have to see. But there's simply no scope at this point for further tax increases, both from the consumer point of view and from business. Again, we're trying to repair our balance sheets.

Sales tax is another area. Last year we had the report of the Fair Tax Commission, which talked about the taxation of business inputs. The jobs right now in Ontario are being created in the service sector, not so much in the manufacturing sector, yet we still have the situation where there are tax disparities between how business inputs in manufacturing are treated versus business inputs in the service sector.

For instance, manufacturers do not pay the Ontario retail sales tax on their business inputs. We pay on our tractors, our trailers, our tires, and of course, thanks to the 1993 budget, on our auto insurance, our truck insurance and also our warranty repairs, which is taxing us twice. What we think is the best solution to that would be to harmonize the provincial sales tax with the federal sales tax. We know there were some intentions in that regard from the Minister of Finance last year. Things have become rather quiet. We know you can't control that completely, but that's something we would like to see Ontario continue to pursue.


In the meantime, if you can't bring that to fruition in the short term, which doesn't appear possible, we really think the government's got to take a good, hard look at things like the 5% sales tax on insurance premiums. We're starting to see our premiums escalate now, and this has to do as much with trade as anything else. More and more of our carriers are operating into the States as the trade flows move that way, we have a bigger exposure, and in the litigious society they have in the US, that means our premiums are going up. We're starting to see increases in the order of 10% to 20%, but we're told they could start to reach as high as 40% this year. So that leads to a windfall tax grab for government that we'd like to see addressed.

The tax on warranty and repairs is double taxation. That's factored into the price of a truck when we buy it the first time around. Now we're paying a tax on it too and we don't think that's fair. So we'd like to see those kinds of things addressed.

The next area, and of course it's always of concern to us because it's been an easy area to grab, is fuel tax. There's a chart in there that shows over the last 12 years or so the escalation in fuel tax in Ontario. We're presently sitting third highest in Canada. There's also a comparative chart that shows how we compare to our competitive jurisdictions and we're anywhere from two to three times, in some of those jurisdictions, higher here in Ontario. That's a tax that has no bearing on profitability whatsoever. It really hurts and we'd urge you to not be tempted, once again, to move to that area for revenue. In fact, there's very little scope for revenue gains, I think, in this next budget.

Payroll tax is another area that's left over from the Fair Tax Commission. It was indicated in there that it was a killer of jobs, that labour ends up paying 80% of the payroll tax. Payroll taxes in trucking -- we are a labour-intensive industry -- can run as high as 70% of the total tax burden. There's information showing that in there. So we'd like to see Ontario seeking less reliance on payroll taxes than what we've seen over the last 10 years or so.

Of course, the mother of all payroll taxes is workers' compensation, perhaps not something that you control directly. However, the government is the lender of last resort and unfortunately Bill 165, in our view, doesn't cut it in terms of trying to wrestle that problem under control. We're particularly concerned there about the decimation that we fear of the NEER program, new experimental experience rating, which has been the one WCB program that has worked.

Finally, on the tax side, there's been discussion recently of environmental taxes. We think we've already got them on the fuel taxes. I won't belabour the point other than to say that we don't think they'll work and, with an economy that's so tied into the midcontinent industrial marketplace, they would have negative impacts on Ontario if we decided to go alone on that one.

One fiscal policy tool that does work -- it does lead to increased productivity and efficiency, it does lead to embracing of new technologies, which we're seeing on Highway 407 -- is the investment in road infrastructure. No economy's going to be competitive unless it has a competitive infrastructure. We think that the government's done a very good job over the last five years in maintaining capital expenditures on the highway program and finding ways to work with industries like ours to get projects like Highway 407 moving at an accelerated pace. We'd like to see that continue.

By the way, if anybody asks, yes, we do believe we pay our fair share of the infrastructure and that some of the numbers you hear in terms of highway damage and what truckers pay are very arbitrary. Highway cost allocation is at best an art and not a science. We'd urge any of you to continue the support of the highway infrastructure.

In our discussions with the Treasurer, and this leads into some of the off-budget measures that we raise in here, a lot of discussion was given to the federal proposals for limiting the standard workweek and the amount of overtime that industries, if these were implemented, would be able to employ. We would urge the government to stay away from those kinds of measures; allow industry the flexibility to manage its workforce. In industries like ours, where we have a driver shortage now and people are on the road, it would be next to impossible and completely impractical for us to be able to manage a situation like that.

Those are my comments. We welcome any questions you might have.

Mr Monte Kwinter (Wilson Heights): Thank you for your presentation. I think certainly everybody in the Legislature realizes the importance of the trucking industry to everybody. I always remember the slogan, "If you got it, you got it by truck," and I think that's still true.

One of the things I find a little difficult to deal with in these hearings is that we keep hearing conflicting proposals. To give an example, on page 2 of your presentation you talk about maximized productivity in the private and public sectors and you say "...that leaves productivity growth as the remaining underpinning of Ontario economic growth in the 21st century."

We have had several deputations appear before this committee that have said, given the fact that this year the most optimistic number for Ontario and for Canada is 4% growth, and then they're projecting for the next three years growth in the 3% to 3.5% range, that we cannot grow our way out of this problem, that the interest on the debt is growing faster than the productivity and that the only possible way we can get our finances under control is to reduce that debt, and that the only way we can do that is to reduce expenditures because we can't grow ourselves out of the problem. Your premise is that we can grow ourselves out of the problem. Could you comment on that?

Mr Bradley: Obviously one has to have some balance. I don't think it's an either/or. We're in a competitive world now where productivity, growth in the emerging economies, is outpacing ourselves. Productivity is a full-time job in the private sector. Part of that is that we need to have the capital to invest in new technologies and for innovation, and because of the persistent debt load that all governments are carrying at this point, quite frankly they're squeezing out private sector investment and forcing up interest rates.

That's a concern I have with this latest Ontario savings bond, that there we go again: the government getting in there and offering attractive interest rates and crowding out private industry. So I think, Mr Kwinter, we've got to get the debt under control. But at the same time, if we as an economy don't become more productive, if we as an industry don't become more productive compared to our competition in the US, we're out of business.

Mr Kwinter: In another area -- you didn't talk about it -- what effect is the intermodal transportation system having on your particular industry? Is that seen as a benefit to you or is it creating some problems for you?

Mr Bradley: Intermodalism is cooperation between the two modes. If it's a good business decision for truck and rail to work together, they will. We are seeing growth in intermodalism in the order of 8% to 9% a year, and we anticipate that this will continue as the technology becomes better in that regard. But intermodalism will only work if it makes good business sense, not by the invisible hand of government moving in and changing the marketplace.

Intermodalism will continue to grow, but all forecasts show that trucking is still going to grow exponentially greater, so it's not going to replace trucking. You'll see intermodalism flourish if the service can be provided on the very longest hauls. That's where its marketplace really is, but Toronto to Montreal, I don't think so. There's some limited scope for it, but for most shipments in Ontario it'll still be trucking.

Mr Kwinter: As a result of NAFTA, have you seen any changes in your patterns? Are you able to carry loads from here to Mexico and is that creating any problems for you?

Mr Bradley: We are, in limited senses, now. However, the big change came with the first trade agreement, which caused a shift of freight from east-west to north-south. Our big market is still the United States. There are some carriers from Ontario that are serving Mexico, but it's really not a big part of our business.


Mr David Johnson (Don Mills): Thank you very much for the deputation. I must say I agree with most of what you've said, particularly that we have to be more productive in our society.

Our view is that to be more productive, we would agree that taxes cannot be increased. As a matter of fact, we would say that the taxation burden is too heavy in the province of Ontario. Personal income taxes, for example, in Canada are the highest in all the G-7 countries. Property taxes, which would be a component of your business, something you haven't mentioned, in Canada are the highest in all OECD countries. It demonstrates that our tax burden is very high, and for the private sector to be competitive -- and that's where the jobs should be; that's where the productivity's coming from -- it's our view that we need to reduce the personal income tax, reduce the payroll taxes, reduce regulations -- you've talked about some regulations here -- and certainly address the WCB.

On the WCB, I've noticed from the chart that your experience has been significantly improved -- the accident rate is way down in your industry -- but the costs continue to escalate. What, in your view, has to be done to tackle the problems of the WCB?

Mr Bradley: I think it's simple: We can't continue to look at the revenue side; we have to look at the expenditure side. When you look at the percentage of our premiums, the contribution from the unfunded liability, it's been growing at double-digit over the last several years. I think Ontario has to look at what some other provinces are doing, and that's looking at benefit levels that are still generous, still fair, but are competitive. The unfunded liability's at $12 billion now. There are forecasts that by the end of the decade it could reach as high as $52 billion. There's a lot of work that has to be done there and I think we have to recognize that that situation is spiralling out of control right now.

Mr David Johnson: Shifting back to taxes, simply maintaining the status quo is not going to work. We have deficits. The Provincial Auditor estimates the deficit this year in the province of Ontario in excess of $10 billion. That deficit will inevitably become a future tax. It's our view that with the growth we're going to experience, as you've indicated, most of it is export-related, and with the US economy going down, that could suffer. My guess is that if we achieve a 3% growth over the next four or five years, we'll be doing really well. We need to reduce the size of government, in my opinion. We need to reduce expenditures by the provincial government. I wonder if you share that view.

Mr Bradley: Obviously, yes, we do.

Mr David Johnson: Okay. Shifting to another item, you've talked about limitations on overtime and the workweek. I have the suspicion that any such artificial measurements would be harmful for the economy as a whole, but your industry is one that I suspect would be most hurt by any artificial limitations.

Mr Bradley: We have a shortage of qualified drivers now; our industry is running at very near full capacity at the present time. To artificially say we have to bring in other drivers now, if you can tell us where they are, we'd certainly like to find them. The other problem, of course, is that our labour spends a lot of time on the road and can be thousands of miles away from the terminal, and therefore to helicopter somebody in or something like that is impossible.

But the key thing overall, looking at it from a total industrial perspective, is that those kinds of proposals don't create new jobs, they simply redistribute present jobs. There's no real job growth there at all. I think the authors of the study would agree with that too.

Mr David Johnson: We share your concern about infrastructure, but our point of view is that it should be the private sector, that we really need to get the private sector involved in infrastructure. The 407 sort of approach was well intentioned in the first instance, but it became a hybrid whereby government is essentially responsible for the funding. Our view is that projects like that should be focused on the private sector. I wonder if you have a few comments on that.

Mr Bradley: Certainly we wouldn't be opposed to that, but I think the Highway 407 approach -- well, you say it was well intentioned. I think it very much was well intentioned and a step in the right direction. We certainly have commended the government for moving us in that line or we wouldn't have seen Highway 407 in our lifetime. If we can improve upon it, if there are other significant capital projects like 407 that happen to arise, I'm sure that within the confines of the current transportation capital corporation, if there is a better way, we're certainly not limited from finding that way.

Mr Kimble Sutherland (Oxford): You said that if you reduce overtime you don't create new jobs, but we've also heard a lot of groups tell us about reducing expenditures here, and a better distribution of the workweek would, I believe, greatly reduce government expenditures in terms of more people working, fewer people collecting social assistance, more people paying taxes and having money in their pocket to purchase more items.

My question is twofold. First, obviously you don't like the idea of going to a maximum 40-hour workweek. What solutions do you suggest? I know you're here solely on the trucking industry and it's very unique that way, but what's your general approach for government to deal with the overall excessive overtime that is occurring in certain industries? Second, your industry seems to go in these cycles, because it seemed like only two to three years ago there were too many truckers around and now there's this great shortage. Any sense of how we can get a better balance?

Mr Bradley: You asked a lot of questions there, and I'll try to deal with all of them. Number one, I think you do have to look at it industry by industry. The automotive sector is distinct from trucking is distinct from financial institutions, so whether we have a general situation of excessive overtime I think is open to some debate.

You're right, we had an overcapacity, as most of the economy had an overcapacity, in the midst of the recession. We'd just come through the advent of deregulation, which threw all kinds of supply into the marketplace, and then the bottom fell out of the economy and took the demand away, so we had an overcapacity. We don't want to find ourselves in that situation again, so we're trying to manage the return to capacity at this point.

But the way to create jobs is economic growth, not through redistribution of jobs. The problem for us is a significant one and it's a complex one in terms of how we're going to resolve it. We are attempting to manage our overtime and the time our employees spend away from home much better than we have in the past. That, we recognize, is part of our problem. It's tough to find people who want to maintain a family and spend two weeks at a time away from home consistently. So what we're trying to do, through use of satellite technology -- where we know exactly, we can match loads better, provide better balance -- is to get those people home. We recognize you must have a balance of family and work.

In addition to that, as an industry I think we have to, and the Ontario economy requires that we become more productive, and there are only two ways of doing that in our industry. That's through the number of hours people drive, which are limited and which, as I say, we're trying to control, and the other is through the carrying capacity of our equipment. There are some technologies and vehicles being used in North America that we're not using here and that Ontario should take a look at.

Mr Robert Frankford (Scarborough East): In relation to other jurisdictions, particularly the fact that you can get American trucks here and Canadian there and I guess Mexico as well, is there a level playing field as regards deductions? I'm thinking of things like WCB and health insurance. Are Ontario companies too well covered and Americans undercovered, and if so, should we be insisting on some even standards?

Mr Bradley: It's a mixed bag. You really have to look at it state by state. Overall, is there a competitive level playing field? Right now I would say, yes, there is, and there are two or three reasons for that. The biggest factor is the correction in the value of the Canadian dollar; at 71 cents it is a big assistance to us. The other factor is that our companies over the last five years have done a really good job of becoming as efficient and productive as they can be under current limitations. With the combination of those, we can compete with the Americans now on price and certainly on service.

But we're an industry that competes on the margin; it's a very, very tight line we walk. US social security and payroll costs can be quite high, and that is a competitive advantage we have in Canada. But things like the sales tax on auto insurance premiums: When that was introduced in 1993, we were told it would be applied to US carriers. Well, it's not, because the Ministry of Finance can't find a way to do it and to enforce it. Those kinds of things put us, if you look at specifics, at a competitive disadvantage which, when you're competing on pennies, can make the difference on a contract.

Mr Frankford: As I recall, when you went to Mexico you had to buy insurance at the border. Couldn't we do the same thing here for truck insurance and for health insurance?

Mr Bradley: I don't think you want to disrupt the flow of goods across the border. That's what our economy is hinged on right now.

The Chair: I'd like to thank the Ontario Trucking Association for making its presentation.



The Chair: The next presentation is by the Ontario Public Health Association. Please identify yourselves for the committee members and Hansard.

Mr Rick Edwards: My name is Rick Edwards, and I'm president of the Ontario Public Health Association.

Mr Winston Miller: My name is Winston Miller, and I'm president-elect of the Ontario Public Health Association.

Mr Brian Hyndman: My name is Brian Hyndman, and I'm chair of the public policy and resolutions committee of the Ontario Public Health Association.

Mr Peter Elson: My name's Peter Elson, and I'm executive director of OPHA.

Mr Edwards: This morning we have a brief to present to you and then we'll be happy to field questions following the presentation.

At OPHA we care about health. I'd like to say first, thank you for providing OPHA with the opportunity to address the committee this morning.

The Ontario Public Health Association represents the voluntary interests of more than 3,000 people who are active in public and community health throughout Ontario. OPHA members are drawn from every community health discipline and location within the province of Ontario, from Windsor to Thunder Bay. They include people from community health centres, public health units, universities and community agencies.

What determines health anyway? You might well ask. Certainly not the per capita number of physicians or hospital beds. There is now substantial evidence that health is significantly determined by income and social factors such as personal support networks, level of education, employment and working conditions. The impact of social and economic policies on the health of Ontarians is a key area of concern to OPHA. OPHA holds the position that a more equitable distribution of the provincial financial resources is needed to ensure that fundamental determinants of health, such as food, shelter, healthy growth and development, employment, education and income, are within reach of everyone.

Of the health services which are designed to maintain and promote health and prevent disease, it is the public and community health sector which is the leader in bringing this policy into reality in communities throughout Ontario.

Considerable attention has already been given to determinants of health by the Premier's Council on Health, Well-Being and Social Justice, and last fall the ministers of Health adopted a population health strategy which explicitly acknowledged the importance of the determinants of health. An example from that reads:

"Nowhere is the impact of the determinants of health more evident than in the health of a child. A study published last year described a preschool enrichment program which was provided in the 1960s to low-income children who were at considerable risk of failing in school. These children are now 27 years of age. Compared to a control group who received no program [these programmed children] had significantly higher earnings, were more likely to own homes, [more likely to have] completed more education, were less likely to have used social services, and had significantly fewer encounters with the law and out-of-wedlock births. The researchers concluded that over the lifetime of the participants, the preschool program returned to the public $7.16 for each dollar invested."

This is a story which could be told by every health promoter and public health nurse in Ontario. It's a story about making a long-term difference in communities beyond the blaring noise of ambulance sirens and the bright lights of the operating room. It's also a story about methodically monitoring the health and environmental status of communities; it's engaging in participating with communities in family planning, in water safety, injury prevention, and in heart health.

This is accomplished through multidisciplinary teams of health practitioners, including community developers, inspectors, nurses, dentists, epidemiologists, health promoters, nutritionists, physicians and administrators, who are all committed to maintaining and enhancing the health of the community in which they work.

The public health unit model has proven in practice, structure and governance to be the most effective and efficient way to engage whole communities in improving their health and therefore achieving the health goals for Ontario as adopted by the government, in fact.

These health goals are:

-- To shift the emphasis to health promotion and disease prevention.

-- To foster strong and supportive families and communities.

-- To ensure a safe, high-quality physical environment and to increase the number of years of good health for the citizens of Ontario by reducing illness, disability and premature death.

From these, OPHA recommends:

-- Strengthen the public understanding about the broad determinants of health. The public still believes that health is what you get inside a hospital.

-- Build an understanding about the determinants of health and support for the population health approach among government's partners in sectors which are outside of health. This has been called building healthy public policy.

-- Develop comprehensive intersectoral population health initiatives for a few key priorities that have the potential to significantly impact population health.

-- Allocate funding in direct relationship to the health goals of Ontario.

Now, what does this have to do with public health per se?

Mr Miller: I would like to talk to the members of the committee briefly about public health, more specifically, public health units. Just so you understand what my link is with public health units, I'm currently employed by a health unit in the Metropolitan Toronto area, but I've worked for 27 years in public health. I've worked in rural Ontario as well, Hastings and Prince Edward, Haldimand, Norfolk, as well as here in Metro Toronto.

Public health units have the express mandate in legislation, the Health Protection and Promotion Act, to not only provide health protection but to be the leaders in health promotion and in prevention strategies at the community level in Ontario. It is our job to ensure the existence of conditions in which everyone can live healthier lives. As I mentioned, we provide strong health promotion and disease prevention. We are probably the only people with the mandate for a long-range plan for the health of the entire community rather than specific clients.

The strategy we have embraced is one of population health. We focus on the factors that enhance the health and wellbeing of the whole population rather than simply focusing on the individual. This way, we're more efficient. We get a bigger bang for our buck, if you will, where we're actually providing an environment where people can live healthier lives rather than simply picking out individuals who seem to be at the highest risk.

Something we have noticed over the years: There has been very little evidence that there's any substantial shift in resources to public health, although we have the mandate to work at the very grass-roots community level.

The Deputy Minister of Health stated in November of last year: "It's also clear that, relatively speaking, we have been investing very little in community and public health. We want to redirect funds to areas that can help prevent disease and promote better health." Well, we've been waiting for four years and we're still waiting. We really haven't seen it.


We've noted a few examples. There's one example in injury prevention. Preventable injuries are the leading cause of death for everyone under age 44. Injuries account for more years of life lost before age 65 than cancer, heart disease and strokes combined and cost Ontario taxpayers in excess of $4 billion a year. Public and community health workers work to prevent falls by the elderly, promote bicycle helmet use and are active community partners in injury prevention campaigns.

Yet while injury treatment consumes four billion care dollars a year, injury prevention is not even mentioned as a priority by the Ministry of Health. Ontario currently invests less than one half of 1% of cost of injuries in community-based injury prevention initiatives. It's too little, too late. Ontario lacks a comprehensive injury prevention strategy and steps need to be taken to develop one.

In the area of healthy environments, the OPHA, the Ontario branch of the Canadian Institute of Public Health Inspectors and the Association of Supervisors of Public Health Inspectors of Ontario called on the Ministry of Health to fully implement the healthy environments mandatory core program in 1994-95. This program, and we quote from the Ministry of Health, is designed to create in communities across Ontario a "health-supporting environment in which people will be protected from the adverse health consequences of exposure to toxic, hazardous substances and conditions in homes, public places and the workplace."

The Ministry of Health was not prepared to reallocate any existing resources to fund this program, and this is just a symptom of a larger problem that we seem to be experiencing in the area of public health funding.

Mr Hyndman: I'd just like to pick up a bit on Winston's comment about the failure of the government to match its commitment to shifting the emphasis in health care resources to health promotion and disease prevention. Not only has it failed to do that, it's actually much worse.

In spite of the stated commitments to health promotion and disease prevention, the ministry in recent years has actually been reducing the core funding to public health and health promotion activities under the terms of the social contract cutbacks and transfer payments and other expenditure control measures.

Even though the Ministry of Health's own documents, specifically Managing Health Care Resources 1994-95, state that spending for community and public health will increase by 5.3%, that doesn't trickle down to public health units which are the only organizations in the province with the specific mandate to carry out health promotion and public health and disease prevention activities.

Public health units in the province are actually experiencing a 2.5% decrease in funding during the 1994-95 fiscal year, and that, by the way, is the largest decrease of any category within the population health and community services programs funded by the ministry. On top of that, we're coping with the impact of the social contract, which has resulted in an additional 5% decrease.

What is the actual impact of those cutbacks in public health and health promotion? What it means is that public health units throughout the province are laying off staff in response to the social contract restrictions and other cutbacks. It means that there are fewer resources to carry out needle exchange programs, health education around nutrition, physical activity, and fewer resources to help implement community kitchens for low-income mothers. It means fewer resources to carry out the public health and disease prevention and health promotion activities that, over the long run, can be expected to reduce spending in the tertiary care sector.

I'm going to turn you over to Rick, who will deal with some of OPHA's specific recommendations which will help to support and maintain public health and health promotion activities, which in turn can be expected to help enhance and maintain the health of all Ontarians.

Mr Edwards: You have those before you in your document, but in conclusion I would say that OPHA, the Ontario Public Health Association, recommends that:

-- We increase public understanding of the powerful link between prosperity, income distribution and health.

-- We increase public understanding of the important role of education and economic development in fostering health.

-- We conduct a standing health-impact analysis of policies by all government ministries.

-- We increase coordination of policies which address the broad determinants of health through intersectoral collaboration.

-- We use the Health Goals for Ontario as the basis for the allocation of funding within the Ministry of Health.

-- We recognize public health as leaders in community educators for determinants of health.

-- Recognize public health as leaders in promoting the health of the whole population and mobilizing public support for community action and healthy public policy, and a tangible way to recognize that leadership will be to redress the inequitable impact in the health sector of across-the-board cuts such as the social contract.

-- Continue the existing commitment to healthy communities, including the Ontario Healthy Communities Coalition and the healthy community grants program.

-- Increase tobacco taxes and prevent 40,000 young people from premature death before age 70.

-- Fully implement the healthy environment mandatory core program.

-- Invest 1% of the cost of injuries in injury prevention research and community initiatives.

Mr David Johnson: This reminds me of days gone by. I served on a public health unit for many years. I served with Dr Richard Schabas, the medical officer of health for the borough of East York at that time. He was fond of telling me that cigarette smoking was the number one preventable cause of death in East York, and I guess perhaps in the province of Ontario. Is that still true? My suspicion is, though, that smoking has diminished.

Mr Edwards: Yes.

Mr David Johnson: Another thing that he was not reluctant to tell me, and he may have a slightly different view on it today, is that there were various provincial requirements that were passed along to the municipalities, requirements perhaps pertaining to inspection of restaurants or disease prevention or dental programs or that sort of thing, but the money didn't come with it. Public health units were required to meet certain requirements and to fund them, to find the funding themselves. As a matter of fact, I know within Metropolitan Toronto that as recently as two years ago perhaps the city of Toronto would meet most of the requirements, but the other five municipalities would not meet the requirements. The word "downloading" is a word that comes to mind when one talks about this. I wonder if you could tell me what the state of affairs is today.

Mr Miller: I could respond to that. Thanks for your comments. I concur fully with your comments. The truth is that the public health units over the years had taken on a number of responsibilities which in years gone by were the responsibilities of the province. But as you rightly stated, the money didn't come with it. Historically, I'd say over the past at least 30 years or so public health has received funding of slightly less than 2% of the entire health dollars spent in Ontario. That has not changed. That is causing some problems.

You mentioned the fact that the city of Toronto may be close to fully implementing the mandatory core guidelines but the other health units aren't. That is also true. Probably the reason is the lack of resources. As you may or may not know, in the Metropolitan Toronto area the Ministry of Health funds health units to the tune of 40% and the municipality picks up the other 60% -- and municipalities are also experiencing some pain at the moment -- whereas in other regional health units throughout the province they are funded by the Ministry of Health 75%.

Mr David Johnson: I thank you for confirming what certainly was in place a couple of years ago and I gather is still in place today. I think if the ministry feels that a program is important and is prepared to mandate it, then it should be prepared to fund it. Otherwise it's just passing the buck. I have a suspicion that program requirements differ from municipality to municipality to some degree, so perhaps there needs to be flexibility. What needs to be in place in East York may not need to be in place in the city of Toronto or Sault Ste Marie or some other place.


A final question perhaps, if my time runs out, is that throughout here you've used words like "redirect," "reallocate" and "shift." I gather what you're saying, if one can interpret that -- I think you've all used that terminology -- is that the funds are there somewhere in the system but that they should be taken from somewhere else and redirected, reallocated, shifted to public health. Is that what you're saying? If it's so, where would those moneys come from and what quantities of moneys are we talking about reallocating or shifting?

Mr Edwards: In a general sense, there are any number of trees that have been sacrificed to reports which say, over and over again, that there is enough money in the system, that there has been considerable fat in some parts of the system and rather less in other parts. Certainly the institutional sector -- hospitals, for instance -- is an area that's been pretty generously resourced to this date; public health less so.

In line with the general recommendations, I think you're getting across the country, even these days, a shift from the institutional sector -- I mean, it's even stated in the province's health goals, for that matter -- to community health. And not just community-based; we'd like to draw a distinction between a community program and a program, for instance, that might be an ICU, an intensive care unit, in somebody's home. That's taking place in somebody's home, but it really is a high-tech treatment kind of approach that we wouldn't see as a community health approach that would address the population as a whole.

Mr Miller: If I could just add to that comment, without having any particular numbers, I should say that we have noted that in the recent past we've seen efforts being made by the Minister of Health to contain costs within the health sector, so we have actually seen where the costs are slowly coming down, but then whatever costs are recouped from these savings seem to be leaking out of the system rather than being reallocated within the health care system. That is what we're talking about: Where savings are recouped within the system, then we should be shifting and reallocating to those areas which are currently underfunded.

Mr Edwards: There are some models. There is the Windsor example of restructuring the hospital sector. The intent was to shift some of those resources to community health, community support services. My understanding is that it's certainly not a long way down the line. I don't know yet how effective that's been, although there are a variety of feelings on it.

Even with respect to the Metropolitan Toronto District Health Council report about hospital restructuring, it insists that no restructuring should take place until there are the community sector supports, because there's been a shameful legacy of institutional services cut and people basically shoved out the door. The savings take place within a certain boundary, but the costs really have just been externalized to the community sector. They don't show up on a balance sheet necessarily, but they're still suffered, if you will, in the community at large.

Mr Frankford: This committee and the government are looking at the bigger picture about the overall expenditures, and of course the comment has been made that the health expenditure nationally is quite high -- it's about 9.5% of GDP -- and that if we could go to the levels in some other countries, particularly the industrialized European countries, most noticeably Britain, which is six point something and in some ways is better than we have here, certainly in terms of a universal primary care system -- could we be doing that?

This has been supported by observations by people like a recent report of Judith Maxwell's. Also Marcel Massé, a federal minister, made that comment early on, though we're not hearing much about that now. It seems to me that the federal Liberals may well be forcing us to reconsider that in any case. Do you have some comments on ways in which we could actually reduce the overall cost, probably with the participation of, or perhaps even a central role to, public health?

Mr Edwards: I'd just say we certainly talk about longer-term investments and there being a payoff in the longer term. In terms of reducing costs immediately, I'd say that it's a false economy just to cut, for instance. Certainly -- you draw a comparison to Great Britain -- I'd say that given part of the environment these days of privatizing services to gain efficiencies, well, they say those dollars will disappear perhaps from the public book, but the United States and its private system is notorious for spending more total dollars on the care with less bang than any publicly administered service.

Mr Frankford: It's the best example of privatization increasing costs. One just has to look at the US. It's totally simplistic to suggest that privatization has an automatic social benefit.

Mr Wayne Lessard (Windsor-Walkerville): I was interested in the remarks that you made, because my wife is a public health inspector in the Windsor area and I know that one of the things she has told me is that some of the problems they experience are sometimes the result of deficiency of the administration and the autonomy of the local decision-making process and not strictly the funding from the provincial government.

I know one area that there were funds that were allocated to public health units was the anti-smoking strategy and I would hope that you would agree with that. In one of your recommendations, you mention increasing tobacco taxes to prevent young people from smoking. Earlier, we had representatives from the distillers' association who explained to us the problems with smuggling and the fact that cigarette smuggling decreased but alcohol smuggling increased, and that increasing taxes at the provincial level might actually decrease the revenues that we have available to spend on increasing people's level of health and really wouldn't reduce people from smoking. So I wondered if you had any comments about the approach of just increasing taxes to reduce smoking.

Mr Elson: There's absolutely no question that the consumption of cigarettes by young people is incredibly price-sensitive and, as we like to say, if we can keep a person from starting to smoke before the age of 20, then in a sense we have them for life, as it were. So I think within that particular population of young people and accessibility to cigarettes that in fact taxes as a price deterrent are extremely important, because it is an addictive behaviour that will affect their health over the long term.

Mr Lessard: It seems there were always lots of cigarettes that were cheap from Detroit that could be available in Windsor, so I didn't think that was the case.

Mrs Elinor Caplan (Oriole): Thank you very much for an excellent presentation. I think it's really important that we talk about what results we want from the expenditure of dollars, not only in the public system of medicare but also those dollars that are being spent on health services outside of the global government budgets.

I think Dr Frankford's comments were very significant in the discussion of this committee, because when you look at percentage of gross domestic product or per capita expenditure, it doesn't matter whose budget it comes out of -- a dollar is a dollar is a dollar. So pushing expenditure from the public medicare budget to the private sector is contrary to good health policy, since you just lose any ability to measure the outcomes of those expenditures and increase what I believe is an important goal of all health expenditure, and that is, improve the health status of your population by having the ability to monitor the effect of it.

I've been concerned, because one of the policies of this government has been to delist and to deinsure and to push money from the government expenditure to the private sector. I think that's contrary to good public policy. As you know, I very much support the goals that you've restated here at committee. I think they could be said in a way that's quite simple for people to understand. I think that everybody believes that the most important thing about medicare and our commitment to health care is that they should be able to have the care they need when they need it. We have to be able to give them that assurance and I think you'd agree that's what the public is concerned about.


The second goal I think is that people want to know that the dollars we're spending are going to improve the health status of our population, so health promotion and disease prevention become extremely important.

Yesterday we had the Ontario Medical Association here and there were comments that were reported in today's newspaper that I'd like your comments on, whether you agree with them, since you're calling for a further reallocation from the illness treatment. One comment was, "The medical profession is not confident that the province can maintain the level and quality of care required to meet patient needs." Is that your view? You're doctors as well. Do you agree with the Ontario Medical Association in that assessment?

Mr Hyndman: I don't know if we're all doctors as well; I know I'm not. I don't really see why having four teaching hospitals on University Avenue is necessary to maintain the current level and quality of care. I don't necessarily see why the last OMA agreement which gave doctors a fee-for-service billing increase that was twice the rate of inflation was necessary to maintain quality of care. Our main argument today: We fully support universal and accessible medicare, but we would like to see more of a reallocation of funds towards the preventive services, towards the health promotion and disease prevention services which will ultimately reduce demand for tertiary care. That benefits the OMA and the hospital sector as well, because that enables them to spend their resources to maintain a higher quality of care level for all the clients of Ontario's health care system.

What's especially discouraging for us, as we mentioned earlier, is that not only has the government failed to back its commitment to health promotion and disease prevention, but we've been getting cut. They could say that they're treating everyone equitably in the interest of fairness, that we are victims of the same across-the-board cutbacks as everyone else, but remember that before those cutbacks started we only had 2% of the total health care budget, which as David Johnson pointed out did not enable us to meet our mandatory core programs at that time. Since then it's only got worse. It's like putting an obese person on a diet and putting a malnourished person on a diet. The obese person gets leaner and meaner, but the malnourished person could wind up starving to death.

Mr Edwards: Let me just say that the quality of care issue is complicated conceptually as well, in terms of acute care practice, even knowing what a quality intervention is. It's something that I think has only really been tackled within the last five, maybe 10 years. We have, in a variety of places, standards of practice; whether in fact those are the best practices to deliver on an outcome is a real, shall we say, can of worms.

I appreciate the rhetorical device of saying quality of care will suffer, but there are, if you will, issues prior to that: What do we mean by quality of care? What is the best care for a particular item? I'll suggest that in the context of that we have the argument between primary care physicians and nurse practitioners, and some people will argue that nurse practitioners will give a poorer quality of care. Well, what's your evidence for that? And so on and so forth.

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


The Chair: The next presentation is by the Retail Council of Canada and I understand that Mr Peter Woolford, vice-president of policy, is here singularly today to make this presentation.

Mr Peter Woolford: First of all, obviously, my apologies on behalf of my two associates who were to be here this morning. You were just talking about health care. Two of my associates have been affected by winter diseases, so they are not with us this morning and they send their regrets. I'm sure they would much rather be here than on their beds of pain.

I am vice-president of policy with Retail Council of Canada. I'm here to represent the interests of store-type merchants. We appreciate this opportunity very much, of course, to come and meet with the Legislature's committee. This is becoming an annual event for both you and for us. We find it stimulating and useful and an opportunity to focus our thoughts, and we hope to focus yours as well.

I'd like to outline the experience we feel we have been through in the last year, 1994, a bit of a look at what we expect will happen in 1995, and then address a number of the issues of concern to the retail trade.

A brief word about Retail Council: Our direct members are representative of the full range of retailers. Every sector of retailing is represented within Retail Council, and together our members account for something over two thirds of the range, the store volume, of sales made by merchants in Ontario. Other sectoral and regional associations affiliated with Retail Council account for an additional volume. We also have a close working relationship, affiliation, with the Canadian Council of Grocery Distributors, and they represent all of the major wholesale and retail food distributors. The CCGD supports the views addressed in our submission today.

I'd like to take a couple of minutes to talk about the economic review and our outlook, and then I'll switch to public policy issues.

We saw in 1994 a continuation of the gradual improvement in market conditions that began in 1993. Consumer confidence has continued to rise and the pattern of increasing sales has gradually spread to most sectors of the trade. That's a change from the previous year. We saw some recovery of growth in 1993, but in 1994 pretty well all of the retail trades started to report an improvement in their pattern of sales. That's a sign of the gradual broadening of the recovery and the ensuing growth in activity above the previous high of 1989.

One worrisome signal is the greater Toronto area. The GTA has continued to show relative weakness compared to other parts of the province, something that we have seen since the recession. Our members indicate that while sales are growing in the Toronto area, they are growing at a slower rate than elsewhere in the province.

We expect this pattern of modest but steady improvement to continue into 1995. The principal constraints we see being on consumers' spending intentions are lingering apprehensions about job security and continued weak growth in personal incomes.

The economy has been growing now for over four years, and that is increasing the likelihood that this upturn in the economic cycle will end sooner rather than later. Obviously, the timing and depth of the next downturn will depend greatly on the success of the US Federal Reserve's board in moderating the rate of growth in that country without stopping it, but we anticipate that the Ontario economy will experience a slowdown around the start of the next provincial fiscal year at the latest. It may happen even sooner than that. I'd like to come back to that point a little later on, because it has enormous implications for Ontario's public finances.

Retailers continue to feel intense competitive pressures. The substantial decline in the Canadian dollar -- think about it. Just a couple of years ago it was 89 cents to the US dollar. It's now down at 71 and change. That has meant that the cost to the retailer of many consumer goods has risen, but prices have stayed the same or fallen in Canada. Retailers and their suppliers have accomplished this through vigorous efforts to reduce operating expenses and improve efficiencies.

Under the pressure of slow sales growth, we've also seen significant shifts in market share among store types and among individual companies within sectors, and we expect this to continue. The traditional formats of shopping malls, large department stores, some types of specialty retailer, are losing market share to new concepts and new competitors: the so-called big-box retailers, catalogue shopping, electronic shopping, outlet or specialty malls, manufacturers' outlets, specialty merchandisers. All of these are presenting new structural challenges to the trade.

One result of this is that the trade has moved to an era in which margins are lower than in the past. That's quite an important point for public policymakers to realize, because it has implications for future employment growth in the retail trade. With employee remuneration, benefits and related taxes being a major part of non-merchandise costs -- in other words, the major part of the costs that must be paid by those margins -- it is likely that the trade will generate fewer jobs than it has in past periods of economic growth. Typically, we've seen that when the economy started to recover, the jobs in the retail trade popped up quite quickly as well. We don't expect that is likely to happen this time around, nor into the future, and it's because the trade has simply had to get a lot meaner and leaner in its operations.


I'd like to turn now to some of the principal policy issues that we would provide advice on. First of all, the standard refrain from the business community on expenditure reductions: The Minister of Finance has promised not to raise taxes this year, but we fear that simply leaving Ontario at the status quo is not going to be sufficient to alleviate the financial problems of the province.

As you will recall, I talked earlier in my remarks about Ontario facing the likelihood of a downturn in the economic cycle before the next fiscal planning period starts. This means that according to the government's current fiscal forecast, Ontario would enter into a downturn next year with a provincial deficit sitting around $6 billion.

First of all, of course, this would mean that the government's efforts at expenditure control will have come to naught. Secondly, it means that the next government, one of the three parties in this room, is going to have to struggle with a very substantial revenue shortfall, precisely at the moment when the demands on revenues will be greater and revenues themselves will be going soft. In our view, it is essential that there be greater efforts to reduce spending this year, while the economy is still growing. Otherwise, Ontario and the government that runs it next year will find itself in very difficult circumstances indeed.

Increased taxation has played an important role in causing the slower growth of the domestic economy, primarily because it has undercut the growth of personal incomes. Again, this is an important signal for whichever party forms the next government, because we feel that the tax policy the current government has followed, primarily trying to raise revenues to meet its expenditure line, has caused some of the slow-growth problems we face today. The weakness of personal incomes has vitiated the economic recovery, has constrained job creation and has generally made Canadians more fearful of their economic prospects.

A second effect that we're starting to see is that Canadians have continued to search for ways to overcome this problem. Canadians are smart shoppers, they're rational economic beings, and so they have gone where they feel they can find bargains. Frequently, this has been to the underground economy of contraband tobacco and alcohol, barter arrangements, cash deals and, even still, some tactical cross-border shopping or cross-border smuggling. Naturally, these responses harm the revenues of legitimate merchants that we represent at Retail Council, and of course the revenues of governments.

Just on one specific item which came up in the discussion with the previous presenters, there have been some public suggestions recently that governments reduced tobacco taxes by too much last year and that there's room to raise the levy on tobacco again. Our members who sell tobacco remain concerned that the illegal pipeline for smuggled goods is still in place and that any significant increase in prices would quickly send customers back there.

I'd like to talk a little bit now about consumption tax harmonization. Retail Council was a leader of a very large industry coalition last year and continuing into this year, supporting the efforts of federal and provincial governments to integrate the GST with provincial taxes. We still believe this is a rational policy to follow and one that is urgently needed, and we certainly hope the two governments, Ontario and the federal government, will continue to work towards an agreement.

A major reason for our support of the integration of the two consumption tax systems is that it promises to lower the cost and administrative burden of administering the taxes, both for governments and for taxpayers. We feel this remains an important and valid objective. Indeed, we believe the cost to firms of administering tax collection systems for governments is a significant drag on their cost competitiveness, and it's one that is entirely within government's ability to improve.

We also feel that the government has a powerful incentive to integrate its consumption taxes with the GST. The retail sales tax has a couple of inherent flaws which make it basically an unattractive instrument for governments to use in these modern conditions.

First of all, it is levied on many business inputs. As I think most members here are aware, this causes a loss of business, investment and jobs. Secondly, as the retail sales tax is extended to sales of services, it becomes increasingly difficult to distinguish between sales to individuals and sales to businesses. Of course, this exacerbates the problem of the taxation of business inputs, but it also provides opportunities for tax avoidance and for a great deal of confusion.

My sense is that the retail sales tax is an instrument that made sense in past years when governments were dealing with relatively simple consumption economies based primarily on commodities and goods. As we move increasingly to a tertiary economy, this instrument is simply out of touch with the modern needs that we're facing today.

In October, the Minister of Finance for Ontario proposed an alternative under which provinces would vacate the consumption tax field in return for greater tax room on the personal income tax. It's a little difficult for us to comment on this because the government has not yet released any detailed papers in the area, but we see one principal weakness with this as a national association, that while this kind of arrangement would work well for Ontario where the revenues for each percentage point of personal income tax is relatively high, it would be extremely difficult for the slower-growth and smaller provinces of Canada.

In their cases, they would have to raise personal income tax levels up to truly confiscatory levels in order to replace the taxes they're currently getting under the sales tax. I know that from some consultations Retail Council of Canada undertook with provincial governments in the Atlantic provinces recently, they feel they simply could not move to that kind of model because of the damage it would do to their income tax systems and indeed to their provincial economies.

We do recognize that the best resolution of the inefficiencies on the consumption tax side might well be through a broader reallocation of federal and provincial taxing authorities and expenditure authorities. My understanding is that Mr Laughren is today probably talking about that even as we're here. We would oppose any reallocation which increases the overall tax burden or a reallocation which trades tax integration in the consumption tax area for less harmony in an another area, such as income tax. Finally, we would note as a key principle that the Canadian business community already has sunk a huge investment in the current tax system and the current way of administering it, and governments should be very cautious about changing that without good reason.

I'd like to talk a little bit about the impact of government policies on business decisions. Again, it's an opportunity to step back from the annual cycle and think a little bit about where we're going in public finance terms. For many years, the business community has stressed to governments its concerns about the effect of policy on firms' investment decisions. At Retail Council of Canada, we're becoming increasingly concerned that growing regulatory encroachment and the search for new tax revenues is having a dysfunctional effect on the employment relationship. I know I've talked to researchers from all three parties who say, "But the employment relationship is one where we can get hold of money; we can get hold of transactions and we can tax it."

My sense is that both employees and employers are starting to develop new relationships which are focused on avoiding the impact of government. Initially, it was employers who resorted to different forms of employment in order to avoid costs associated with measures such as rising minimum wages, rising CPP and UI premiums, rising workers' comp rates, pay equity, new and rising payroll taxes, new and expensive health and safety training requirements and on and on. So the employers acted rationally in that case, but we're starting to see that the employees too are trying to protect their disposable real income. Many of our members report widespread resentment among their employees about the impact, on their paycheques, of government-mandated deductions at source.

The second example is what's happening with benefits. I'm aware that the debate around the taxation of benefits is at the federal level, but members should recall that the current government here in Ontario taxed employee benefits last year when it levied a sales tax on insurance. There are a number of reasons why benefits have been popular with employers and employees, but two important factors are the cost advantage of group buying and the non-taxable nature of those benefits. Some of our members are starting to see resistance to participation in benefit programs because employees are more interested in the level of their take-home pay. We're getting quite concerned that if governments see this as another area to gather revenue, we will experience widespread demands for employees to leave the benefit programs and retain the money as wages. This could well threaten the viability of employee benefits as we have them today.


A couple of relatively technical issues but ones which we feel should be drawn to the committee's attention:

First of all, the harmonization of payroll and capital taxes has been an ongoing spat between the feds and the provinces for some years. We're relieved that the federal government has decided to allow payroll and capital taxes to be deductible against a firm's liability for federal corporate taxes for another year, but Canadian business -- we can't go on this way, let's put it that way. We must resolve this squabbling and we need to resolve it soon. Obviously, on the basis of my remarks, our strong preference would be for us to remove these taxes in their entirety because we feel they're flawed instruments.

A second technical but important issue specifically for the retail trade is the tax treatment of coupons. It has been a source of considerable consumer irritation and needless administrative burden. Coupons offered by a retailer are construed to be a reduction in the price of the product and therefore the sales tax is levied on the lower price, but if the manufacturer offers a coupon, it's considered to be a cash contribution to the consumer and the tax is levied on the full price of the product.

Try having a 16-year-old sales clerk explain that to a customer. This is administratively burdensome, it leaves the store staff confused and frankly it leaves the customer very suspicious that they're being ripped off by somebody. They're not sure who, but they suspect it's the person they're looking in the eye.

We would strongly recommend that the government treat all coupons as a reduction in price. This comes, we feel, with a small cost to the government but one that would make consumer transactions much more consumer-friendly, if you will, and much more easy for them to understand.

Those are my opening remarks. I'd be glad to take any questions from the committee now.

The Chair: Thank you very much, Mr Woolford. We have about three minutes plus per caucus and we'll start with Ms Haslam.

Mrs Karen Haslam (Perth): In all fairness, they think that I'm going to take the full three minutes, but I'm going to just say a couple of quick things. So in all fairness, don't you take up the full three minutes. Then my partner here will have a chance and I won't get blamed for it.

First of all, I think that idea of the treatment of coupons is an excellent suggestion. I always like to see companies come forward with suggestions and not just say, "We're the hardest hit; please increase your money to us," which is often the way committees hear things.

I wanted to ask you about something. In your conclusion in your report, you talk about mismanagement of tax dollars, more citizens think that the public sector is excessive and you want us to deliver needed public services within financial means. What are the needed public services that you feel we can deliver within our financial means? In other words, if $6 billion is the deficit, what would you cut?

Mr Woolford: You want me to do that in one minute?

Mrs Haslam: Less than a minute, because Mr Jamison has a question too.

Mr Woolford: Let me identify a couple quickly. We feel that a great deal of provincial spending in the area of support to industry could be cut. First and foremost, any group that comes before you should be prepared to gore its own ox. We would in the strongest possible terms urge the government to reduce the spending that it is making in the area of industry support, regional development, that sort of thing. More than anything, that is an area where the normal forces of the marketplace can be left to operate and should be left to operate. Subsidizing firms, industries, is just not the way to go.

Secondly, very quickly, we feel that in the health care area, one of the ways the government could move would be to reduce demand by putting in user fees. We have been on the record supporting that now for five years.

The Chair: Mr Jamison, seven seconds.

Mr Norm Jamison (Norfolk): Seven seconds? Okay. I just want to ask you a question. As a government over the last three years, if we hadn't taken the measures that we have taken, our deficit figure this year would have been approximately $9 billion higher. So we're talking about your concern that we may be headed into another recessional period within a year to start. Again, it really concerns me, the depth of the cuts. What you've described here as far as cutting so far is minimal when you look at the figure. I'd really like you to say what you're really saying here, that is, what cuts would have to be made?

Mr Woolford: I'm not in a position to give you hard suggestions. That's part of the responsibility of governing. We've given you a couple of suggestions. I would think that another area the government could look at could well be in the area of post-secondary education, where all of the economic evidence indicates that principally the returns flow to the individual. They should look at that as an investment in their futures. So there is a variety of instruments that could be used there to reduce expenditures. Frankly, those are the two major areas for the government: education and health. I've given you some thoughts in there and then the investment of moneys in the private sector. Those are our thoughts off the top of our heads that I can offer you at this time.

All I can point out is that if we do not do that -- in fact, if we had not been as generous, to use a word I think you'd be comfortable with, in previous years, we would be in much better shape going into this recession and governments would be in a much better position to help people when they need it. But this government's legacy will be that the next government is going to face a downturn with its hands tied behind its back because its deficit will already be at a level that is crushing and a substantial portion of money will be going out in debt service instead of going to serving people.

Mrs Caplan: I just want to make a statement, and I would hope that your members would look at the research. You mentioned your support for user fees in health care because you think it would lower expenditures. Every study on user fees shows that it does not lower overall expenditure in health care. It does not stop inappropriate use. All it does is destroy the medicare system as we know it and lead us to the Americanization of health care, which actually increases the cost and it ends up that it's business that pays those increased costs. So I'd ask your council to actually look at the research that has been done and to stop advocating for something that's not in business's interest.

Mr Gerry Phillips (Scarborough-Agincourt): I think that was just a comment.

Mrs Caplan: Yes. There was no --


Mrs Caplan: Will you have a committee to look at that?

Mr Phillips: Oh, you promised that I would have the first question.

Mrs Caplan: Go ahead. I just get passionate about the discussion on user fees.

Mr Phillips: I appreciate that.

The Chair: Mr Phillips, expeditiously carry on.

Mr Phillips: Thank you. Let me start by saying the parts that we very much agree with. I don't think there's any doubt at all that we're at the end of the rope on taxes federally, provincially, municipally. We agree 100% with that. In fact we do think there's an opportunity to look at a program to begin, on a rational basis, modest tax reductions.

I think the second is there is no doubt all of us are facing extreme expenditure controls over the life of our political careers and I don't think that has anything to do with political stripe, that's just reality. We are very supportive of your recommendations there. I very much appreciate that you've recommended taking a good, hard look first at your own industry, at the business side, and looking at reductions in grants and what not to business, and we agree with that as well. I wanted to get that clearly on the record. I don't think anybody should underestimate the fiscal problems we're into, and I think you also make a good point that it is unrealistic to expect significant growth to continue forever.

My question, though, is on the tax expenditure side. That's what the jargon is, but it is various tax advantage programs that have been put into place over the years -- normally for good reason -- to assist business. I think there's about $4 billion worth of tax expenditure -- the jargon is "tax breaks," but it's more tax expenditures -- in the province of Ontario to business. Is there anything in that area that we should be looking at that may have outlived its usefulness?

Mr Woolford: That's an area that we didn't look at, frankly, because the retail trade gets very little in the way of tax expenditure benefits. They have tended to go towards forms of investment that the government wants to see attracted to the province, so we've seen a variety of fast write-offs for processing and manufacturing machinery, for research and development, for that kind of activity. The retail trade traditionally has not qualified for that, so in a sense it's invisible to us.

It would be easy and perhaps popular for me just to say, well, obviously you can cut it all. I think, frankly, my members would like to see all sectors of industry treated fairly and equally and, if expenditures are such that governments must reduce them, then perhaps it's necessary for the support provided to other sectors to be brought down to the level of treatment that the retail trade has today.

I recognize that things like research and development are an investment in the future, but in fact research and development is an investment that should pay off for the firm and it should be doing it on a rational basis. Things like training are items that the company should be doing on a rational basis for its own future benefit, and that as well is an area perhaps where government should be re-examining its priorities and making some very hard choices. We cannot continue to pay people to do the right thing, and perhaps we might be surprised by finding that by withdrawing from some of these areas, people actually do the right thing.


Mr Gary Carr (Oakville South): Thank you very much, Peter, for a fine presentation as usual. On page 13 you say employers and employees believe the government mismanaged. As you know, we've listed $6 billion in cuts in our program. You can go through there, get out your calculator; we've itemized some $6 billion.

We also believe, as you say on page 13, the amount of money that the public citizens provide is excessive. We're one of the highest-taxed provinces in Canada, one of the highest-taxed jurisdictions in North America. We've called for a major cut in taxes, a $4-billion tax break. For somebody making $50,000, they get about $4,000 back. The spending cuts are 33% higher, but the $4 billion is going to be, in our estimation, the biggest job-creating tax cut in the history of this province, and we believe that will obviously improve consumer confidence and spending.

What will $4 billion going back in the hands of consumers in this province, if we form the government, mean to your Retail Council members and employees?

Mr Woolford: I think the first thing I would have to say is that that $4-billion tax cut should come after the $4 billion in expenditure cuts.

Mr Carr: It's $6 billion in expenditure.

Mr Woolford: It's $6 billion in expenditure cuts?

Mr Carr: Yes, 33% higher.

Mr Woolford: We have seen now a number of other provinces which traditionally have been weak sisters in Canada or viewed as such, Newfoundland, New Brunswick, Saskatchewan, in fact bring their public finances under control. One of them is governed by a social democratic party, two by Liberal parties, and they have actually got to the point where they're looking at bringing their budgets into balance and they're actually starting to pay down some of their accumulated liabilities.

So the first step obviously is that the government must get its budget down, its budget relationships down, at least to a net zero balance, if not a surplus, so that debt does not continue growing. If at that point then the accumulated debt is being retired, that's the time to start putting in tax cuts. My members would love to see a tax cut, yes, but they are very concerned that we see the government get its finances under control first.

Mr Carr: In terms of the program we've outlined, we agree 100%, and that's why the spending cuts are listed item by item, and as I told you, they're 33% higher.

One of the problems on the tax side that we've got, as you know, is that versus Alberta our tax rate is 30% higher. They don't have a provincial sales tax as well.

Mr Woolford: I didn't mention Alberta. I mentioned Saskatchewan, New Brunswick and Newfoundland.

Mr Carr: Yes. I'm talking on the tax side of it.

Mr Woolford: Their tax levels are much, much higher than Ontario's.

Mr Carr: Yes, and one of the reasons we have is that in the competitive jurisdictions, as you know, it can be done. It has been done in other jurisdictions. New Jersey has done it. They've instituted the tax cuts, but the spending cuts have to be there. We agree with it.

One quick question, though, on some of the other things that we've talked about: We put together a small business task force report on creating jobs where we worked with you in things like WCB and regulations and so on. If you were to say there was one thing that the provincial government can do, other than getting its fiscal house in order, talking about regulations, workers' comp, Bill 40, all the different things out there, if there's one thing this government can do in the budget coming up to help your sector, what would it be?

Mr Woolford: Clearly it has to be to get the government's finances in order. That is job one, and it's such an enormous job that it's hard to see what else would come next to it.

I would think the second most important item would be to clearly come out in favour of harmonization of federal and provincial consumption taxes. That's to a certain degree special pleading, if you will, because it is probably of greatest importance to the retail trade, but our sense is that it is also a key element in getting the mix and the structure of taxes set properly. So if we had to suggest a second piece, it would be that the government move on harmonization of those taxes.

The Chair: I thank the Retail Council of Canada for its presentation before the committee this morning.


The Chair: Next is the Telecommunications Research Institute of Ontario, Mr Peter Leach, president.

Mr Peter Leach: I thank you all very much for having this opportunity to come and present to you. I assume that most of you are aware of the Ontario centres, but I will just give you my credentials because I tend to come from a community which is small in its own right but tries to link together large groups of people.

Firstly, I'm the leader of one of Ontario's seven centres of excellence. The seven centres are your centres. They're funded by the Ontario government, not exclusively but in the majority. They are instruments of change for the province. We are trying to do some things that are very novel in terms of finding ways of developing and bringing together our entire intellectual resources in this province to generate wealth and jobs for the people of Ontario. It is clearly a partnership between industry and academe.

Its focus originally was the quality and excellence of research and the relevance of research, but more recently that's been turned into a requirement on us to demonstrate our ability to generate wealth within the province. It is also clearly part of the government's strategy and government policy implementation, and I will come back to some of those issues as we go through. So we're sort of lobbying you in the context of people trying to work for you in terms of the implementation of your own policies and strategies.

I'm going and try to make two substantial points during my presentation. The first of those points is the stability of research and development investment. Research and development, as the previous speaker indicated, is a long-term investment strategy. It's a strategy which leads to economic growth and it's a strategy which leads to international competitiveness. Without that long-term strategy, then our ability to compete in the high value added industries that are knowledge-based would, I think, severely decline. However, we can no longer afford to go ahead with just interest-driven research out of the academic community. That is something which would be very nice to have but unfortunately, in the current circumstances, is no longer reasonable.

Therefore, we have to have industrially directed research, and most of the research which goes on in the academic community, in our view, should be directed by the people who are the recipients of the benefits of that research and development, so it should be focused accordingly. Our premise is that it should be directed at high value added businesses, and the focus of those high value added businesses is to create the ideas, the technology and the knowledge through that relevant research which will result in significant improvement in our economic wellbeing. I'm going to use a couple of examples here to demonstrate the capacity and power of this particular strategy.

When, going back many years, Northern Electric and Bell were part of the AT&T group there was a need to separate them. The impact of that separation has been, together with the ability of the federal laboratories, to generate an international mammoth, one of the five big telecommunications companies in the world. That in itself is a significant achievement on behalf of Canada, and that achievement is based on research and development. If you look at Northern Telecom, the entire product portfolio is Canadian innovation and it has been brought about by us importing research and development skills from foreign countries. A certain amount of it's been generated from inside, but I am one of the people who was brought over from the UK to join that group and I think we've demonstrated significant success.

But out of that have also come Mitel, Newbridge, Corel, SR Telecom and a number of other organizations. If we look at the research and development strategy, we can also look at the implications in Bombardier and some of the other very significant growth companies in this country that have been able to benefit from the adoption of that strategy. That comes from long-term activity.


The second point I would like to make is very clear in my mind. It is that we must have balanced support right through the innovation cycle. If you find that it's inappropriate to fund activities in any step of that process, you're going to destroy the integrity of the process. So if you want to penetrate one piece, you must take the whole segment down in step, not just tug at one particular element; otherwise you're going to lead to very serious inefficiencies.

Those inefficiencies have been seen in a number of circumstances where ideas that have been generated in Canada have been moved out of the country because we didn't have the wherewithal, the skill or the expertise to commercialize them. Examples in biotechnology I think are relevant. Examples in laser technology have also been demonstrated where our companies have found themselves as world-class companies and have then been acquired and taken over by foreign multinationals, and as we've gone through that process, we've lost the direction and the ability to generate significant growth in this country.

However, we do have some very clear indications of balanced support, the fact that we have people like Alias software and SoftImage. Granted they have recently been taken over by foreign multinationals, but they are very clearly in the leadership position in their particular fields, and providing we sustain that, we'll be in a good position. Corel is another example of that type of capability, as well as Magna International and some other companies.

The third part in terms of the stability of research and development investment is our access to international research. It's very clear that we can't do it all alone in Canada. We're too small. The growth of research, the growth of world knowledge, is quite remarkable. There are statements that the amount of knowledge that's been generated in the last 10 years is equivalent to the amount that's been generated in the previous 100. Therefore, we need to trade internationally in research and development to remain competitive. That means we need to trade with the US, Europe and Japan.

In addition to that, we also have the opportunity of preparing ground for commercialization in places like China, Russia, Southeast Asia and South America. I think it is the coupling of the research community which allows us to get in the door, because in a lot of countries that are highly influenced by a centralized government, our ability to influence their government can be directly affected by our ability to influence their research and development.

The third point I would like to make in terms of research and development I think is a clear one and that is that we must have strategically directed research. There are certainly government sponsorship limitations in terms of the broad-brush approach we've had in the past, and that is no longer tenable. We already have developed a sectoral strategy. This government I think has done a very significant job in understanding the sectoral requirements and we already have infrastructure in place to be able to support those activities.

I see a significant opportunity to integrate those far more rationally than they've been integrated before. We have the centres of excellence, we have government funding of the universities for research and we have sponsored research programs coming out of the Ministry of Education and Training, all of which need to be targeted together as opposed to targeted separately. They all have different agendas and they shouldn't have. Interestingly, we have a number of research activities under the centres of excellence funding which are clearly directed at the biggest wealth generators in the country.

As part of strategically directed research and development, I think the government itself, as stated in its telecommunications strategy, among the other strategies that have been developed, should become a model user. I think it's very important that you should become a model user, because I believe it is one of the areas in which you can improve the quality of service while decreasing the cost of operation.

Efficiency in education right from the university sector: There is no justification in my mind any longer to have every university with every set of skills. Therefore, we should develop islands of specialization in those universities across the province and then we should provide the infrastructure to allow students wherever they are to gain access to those courses without actually having to attend at the specific location. Telecommunications technology can do that today.

Efficiency in health care: We spend a lot of money in our health care fields. We have a lot of technology which can help us reduce the cost of those operations. An example that I will use is that we have done experiments with doctors in trying to provide them with better information in a more timely way by providing them with diagnostic information. One of the interesting things is that if we delay the time which it requires to put that information in front of them by two seconds, they get very upset if they're waiting. The fact that to have a consultation across the hospital with a radiologist takes them over half an hour, to walk across the hospital to find the radiologist, to have the consultation and walk back to the client, they're busy, but they're very inefficient in being busy because they're doing something which we can find other ways of doing.

It's very important that this government has to take on that role. I know it's difficult in this time of reduction of budgets, but I think we have to take on that role, otherwise I can't see how we're going to get out of the mess that we're in. We have to become proactive and we have to use the tools which are available to help reduce those costs.

I think if we do that, we have the possibility of launching international opportunities in the exploitation of those services. Other countries will look to this country in terms of our skill in providing education. I look to the United States at the present moment, at the NTU, the National Technological University in the States. It's a combination of 34 universities. It now graduates more graduate students than the entire group of universities that it draws its teaching from; very interesting if you look at the cost of undertaking your education, your educational processes. So I think there are some leverages there, and I think we could take some of this technology and we could commercialize it in the world.

As a negative to this, these industries require people, they require investment, they require home-market opportunities and they require a competitive tax regime. They are knowledge-intensive. That means they are people-intensive, and people are very mobile. It is one cause of concern that unless we get the entire package right to support that, we will see companies start to make these investments not in Canada but outside Canada.

Northern Telecom is already in that position. Its growth of its research and development activities outside Canada is approximately twice what's inside Canada at the present moment. It's recognizable and understandable in terms of their world-market position that they have to do that; they need to be close to their clients. But if we start giving people a very good reason not to be here, then I think we'll find that they will leave. That means that they can leave to go to other provinces where the tax environments and the people environments and the investment environments are more supportive.

I talked to one of my companies, a small company; it's an entrepreneurial startup. It's a startup which this government has invested in. It's almost denied access to the market opportunity in Ontario. It's sold everywhere else in the country. It's sold in a lot of other countries in the world. He finds it very difficult to sell in this province, and we have to find a way of correcting that.

Those are all the comments that I would like to make. I would like to thank you for your attention.

Mrs Caplan: I have several questions. First, I'm wondering if you could suggest any guideline or standard as a percentage of GDP for investment in research and development. How much of our gross domestic product or gross national product do you think we should be investing in research and development?

Mr Leach: Well, if I take a look at world standards, you would come up with a figure of possibly 2.5%. If you look at the mix of our industry, being still extensively resource-based, you would probably come up with a lower figure in terms of gross national product, but if you look at the industries specifically that are in that wealth-creation, high value added sector, it should probably be significantly more than that. You should probably be talking in these sectors of 4.5% or 5%.

Northern Telecom is currently running at 11%. SR Telecom -- I hope you're aware of the announcement -- is now coming to this province. We've secured them, thank goodness, at last, after some considerable effort. They're coming because of the people we have and the skill base that we have; they're not coming here because of the tax concessions or anything else but because it makes business sense to come to an environment where the skills exist. They are currently spending about 18% of revenues. So as you get further up that chain, it starts to become very significant, but 4.5% is probably reasonable.


Mrs Caplan: I think it's important that we have those benchmarks so we can then measure our progress; also, if you're talking about that kind of stability and security of the research and development investment, that we have something to measure our progress.

On page 7 you say that significant cost reduction and quality enhancement for our academic institutions can be achieved through the methods of using technology and research and development. I agree. I think a commitment to enhancing quality, elimination of those things that don't work, is the way of reducing our costs and our expenditure. I wish you could expand a little bit on some of the evidence you have of that taking place.

The third question, and I will just add it in because I know we're going to be short of time, is that you mentioned on page 8 that the government can support competitiveness through the development of systems which specifically enhance the delivery of quality services, all services that governments fund. I'd like you to be specific about the types of systems and models that you see are likely to achieve that. By "system," I think you mean people working together, networking in a formalized way?

Mr Leach: Let me come to those two questions. The first one you asked is on the subject of efficiency in the educational system. The place to start is probably at the top end of the educational system. I think the universities are prime targets. They've been comparatively static in terms of the methodologies they have used for teaching for close on the last 2,000 years. We now have concepts that are being espoused -- some institutions are already being built which are virtual universities. They don't have walls; they don't have physical infrastructure.

Mrs Caplan: Explain for the people watching what you mean by "virtual."

Mr Leach: The one example which probably doesn't fit in Canada but is a very clear demonstration of it is the NTU, the National Technological University, in the States. This is a university that is provided from, as I said, 34 universities. It's satellite-delivered. It's delivered only to people who have earth station capability for geostationary satellites, and that means large industry. Industry pays a quarter of million dollars a year for its access to those courses, and it's perceived to be a method not only of teaching at the academic level, but in terms of improvement in skill and of knowledge beyond the academic requirement. This is part of the infrastructure which educates industry on an ongoing basis, on an on-the-job basis.

I don't think that in Canada we have a resource base to be able to do that, but we do have telecommunications systems now, and we have one of the finest in the world, whereby we can start to deliver education remotely into people's homes, into other institutions, so that you can achieve maximum benefit. We already have examples between Guelph and Waterloo where this is taking place very effectively. Carleton University publishes a number of its courses over cable television. We already have some models which demonstrate the effectiveness of this.

We have to take the bull by the horns, be far more aggressive in terms of that. It requires a different teaching style, and it requires us to know how to deal with the pedagogical issues, which we really don't understand enough yet, but I think we have enough understanding to be able to say, "We know this is the way we have to go, to go about improving it."

In terms of our own systems, I can go right back to issues like the Ontario radio systems. The police, ambulance services, emergency services are all currently in the 1.8-gigahertz to 2-gigahertz region. These are regions which are now being given to PCS, which means that this province now has the opportunity, because it's going to be forced to do it, to restructure its entire communications system. We have to take the opportunity to set ourselves up as world-class in this, because if we don't, we're going to lose a major opportunity. It's going to be something that's forced on us. We can't not do it, because it's federal and North American in terms of its context.

But in terms of our own delivery of health care, how we get diagnostics out of the hospitals and out of the labs to the doctors, how we deal with remote communities, how we teach in remote communities, all of these things can be tackled by this type of activity. There are a lot of lessons here that we can take.

Mr Carr: Thank you very much for a very fine presentation. I have two questions and I'll put them both together and give you a chance to answer them. On page 4 you talk about the two solitudes, the "ivory towers of academic learning and the commercial world." My first question is, what does the Ontario government do to bring those two solitudes together? Along the same lines, on the same page you say, "It is imperative that we continue to have access to the international research community so that we can bring skills and ideas into Canada." Again my question is, what can the Ontario government do to help in that area? Specifically, I'd like to know, in those two areas, what can the Ontario government do and what would you like to see them do to assist in this process?

Mr Leach: The issue in terms of what the government can do, and I think it does it by policy and approach, is that where the government allocates funds to the university infrastructure, those have to come with very specific requirements that they meet and are clearly defined to meet industrial need, and there should be a reporting mechanism to prove that they do meet the industrial need. In other words --

Mr Carr: Are they doing that now? Sorry to interrupt.

Mr Leach: Not really, because there isn't a mandate, there isn't a requirement. With the money that flows through the Ministry of Economic Development and Trade, which funds our operation, we have very definitive reporting requirements that say it must meet these standards, must meet this requirement of value to industry, and if industry isn't there, the Ministry of Economic Development and Trade will take our money away -- very clear.

We don't have that discipline as far as the education system is concerned because it's perceived to be part of the educational infrastructure which takes people up to 22 and then dumps them out into the world. The real issue is, we're now dealing with lifelong learning, and we have to find methods of dealing with that.

It's clear that there should be some very specific pieces put in place. I'm not an expert in how to do that. My expertise is in research and development and interpreting for industry. We can probably help in helping to focus that, but I think it's a requirement on the government, really, to decide how to put those mechanisms in place.

Mr Carr: What about internationally, what we can do?

Mr Leach: The international thing I think is one where we have to find ways of supporting international research and development. Technology Ontario is funding initiatives with Europe and Singapore at the present moment. We seem to have forgotten that the biggest research and development operation in the world lies just south of the border here. We have to find ways of tying into NAFTA for research and development. It probably means that we may have to put some money on the table, but it may be money we can borrow from somewhere else.

To make it very explicit, the research and development that is funded through the province should be linked with the international research community, not just interest-driven. So it has two requirements: It has to serve industry, and it has to be linked to the international community. If we get those two premises in place, a lot of things will change very quickly.

Mr Sutherland: In response to Mr Carr's question, I would certainly hope that if the government did that, we wouldn't hear the calls that we're intruding upon institutional autonomy, because that's the accusation you'll always hear doing that type of approach.

My question to you -- and maybe you're not the right person to ask, because telecommunications seems to be well financed in terms of new research, in comparison to other research and development ideas. There does seem to be a lot of concern about lack of appropriate financial mechanisms to finance ideas in this country in terms of new research and development. I heard on the radio this morning that University Hospital in London, through Dr Cal Stiller, is establishing some type of Canadian medical venture fund because we lose a lot of our medical researchers.

Do you have any thoughts or ideas on what the government can do, besides the direct research funding we put out, to support new mechanisms for financing new research?

Mr Leach: I think there are already some mechanisms in place which, if properly targeted, would in fact achieve that. We have a number of labour-sponsored venture capital operations running in this country now. There's the Capital Alliance, which is the one in Ottawa which is just coming to fruition. We have the Working Ventures Canadian fund. There are a number of them, I think about five or six now that exist.

Working Ventures has over $300 million in its portfolio. It's been very cautious in terms of its placement of that funding, and when you think of the people who are responsible for that, you can understand the care they're taking in the placement of that. But you can't have a venture capital fund where most of its investment is in treasury bills. That doesn't make sense.

Mrs Caplan: Right on.

Mr Leach: If they're going to attract this money -- and this government and the federal government are equally responsible for attracting that money into that pot by the tax considerations and the tax concessions they've given on it. They should be insisting that that money is deployed, not in treasury bills to help fund government, but is implemented in industry in a way in which it will help industry grow and become competitive so we can take people off the street. We can then reduce UI and welfare, we can then get them paying taxes so they help to fill the tax coffers of the province, and then the thing comes right: You've got a positive spiral there.

But it's that sort of money that needs to be deployed. I don't think it's the role of government. In fact, I would be terrified if government were to take an active role in trying to sponsor the venture capital operations of companies.

Mr Sutherland: I was just wondering whether there were different tax measures or whatever that you thought the government could take that would stimulate more in that area.

Mr Leach: I think there are some interesting things you could probably do with the banking or financial industries to encourage their participation in the success of the country rather than putting a lot of money into the pockets of the shareholders.

Mr Frankford: Can I make a friendly criticism of your comment about health and the use of technology? What you said seems to be very much centre out, that the hospitals would provide diagnoses. I would say that it should also be going the other way, in which the periphery is reporting. This brings in what I would call applied epidemiology, and I believe that's fundamental if we are going to be redirecting our health expenditures and hopefully moving from, say, 9.5% of GDP to 8.5%, which I believe is entirely attainable if we look at other models; of course it gives us a huge advantage over the US, which is 14% and growing.

Mr Leach: I think all these things are two-way. We have to find better methods of providing health care to people in the situation in which they exist rather than bringing them into the institutions. That doesn't mean to say that in acute situations you don't bring them in, but let's see if we can cut down on the $300 million a year that we spend on air ambulance flying people around because we think there may be a problem. Let's find out whether there's a problem, and then worry about moving them around when we have to, not just do it on speculation because we can't get those services out to those remote communities.

We can't get official schooling systems out to the remote communities either. When you've got a small community, you've got one, two, three teachers trying to cover the entire subject spectrum. These people are deprived and yet we have the mechanism now to solve that problem.

The Chair: I'd like to thank the Telecommunications Research Institute of Ontario for its presentation.

This committee stands recessed until 2 pm this afternoon.

The committee recessed from 1203 to 1403.


The Chair: We continue this afternoon with our first presentation by the Ontario college system, and I see there is a lengthy list of people making presentations on behalf of the Ontario college system.

Mr Richard Johnston: I'm Richard Johnston, chair of the Ontario Council of Regents for Colleges of Applied Arts and Technology, the advisory body for the colleges in the province. I'll let everybody else introduce themselves as we go through. Jay, do you want to start?

Mr Jay Jackson: Good afternoon. Jay Jackson, chair of our support staff workers, OPSEU, across the province.

Mr Dean Barner: Good afternoon as well. Dean Barner, chair of the OPSEU faculty in the province.

Mr John Saso: I'm John Saso, president of Niagara College and chair of the Council of Presidents.

Ms Cynthia Hilliard: I'm Cynthia Hilliard, president of the Ontario Community College Student Parliamentary Association.

Mr Bruce Hodgson: My name is Bruce Hodgson. I'm chair of the Association of Colleges of Applied Arts and Technology of Ontario.

Ms Cathy Zuraw: I'm Cathy Zuraw. I'm the vice-chair of the administrative staff consultative committee, representing admin staff.

Mr Richard Johnston: Although we are many, our intention is for only two of us to speak. We'll try to use about 15 minutes and then leave the rest in time for questions to any of us you'd like to direct them to.

Those of you who were on the committee last year will remember that was the first year we brought all the players, major stakeholders, from the colleges here to speak as one. We did it because of a lot of the cooperation that we have accomplished, over this last three to four years especially, but also because we felt we were coming to an impending crisis in funding in the system. We were not asking for anything in particular last year, as you may recall, but just to notice what we were accomplishing and to hopefully respect that. I think this year we'd say it's a similar theme, except maybe we're saying it in spades this time. We've upped the seriousness of our situation significantly.

We have continued to grow dramatically. That's because there's a huge demand for this kind of applied education, as any of us can understand. In the last few years we've gone up as much as 35% at the same time as the dollars that have been coming to us have been declining. You'll see in the back table a description of what's happened to our funding over the last number of years and how the amount of money per full-time student has dropped fairly dramatically. Thereby our efficiency is increasing, one can say on the one hand, but the strain on the colleges is becoming enormous.

Teachers will tell you that it has meant, in some cases, a doubling of their class sizes, that the only way to accommodate it in some situations was to knock down a wall and double the size of the classroom. In other circumstances, as you will hear from the students, there has been some real fear of the imminent impact it's going to have on quality.

Our perspective is to say that we didn't just increase the numbers. At the same time as our sister system, the universities, has basically not grown in this last year we've grown another 4%, but we've also taken some major initiatives towards improving the quality of the product of our education in our system. We've undertaken reforms that were initiated under the last Liberal government with the Vision 2000 report and then initiated by the Treasurer in the 1991 budget here, and we've been doing those under very, very difficult constraints, as any of the players at this table will tell you. We will all sing from the same songbook on that.

But we're here today to tell you that essentially we don't believe it can go on and that the government is going to have to determine whether it wishes us actually to reduce access or whether it wishes us to continue to provide access and therefore to try to adjust in some way or other the way we are funded, and I'll come back to that after Cynthia has made some remarks. But we wanted you to hear from our students in terms of how they are seeing this impacting them in their day-to-day life as students in the system.

Ms Hilliard: OCCSPA/APECCO is the Ontario Community College Student Parliamentary Association. We are a bilingual lobbying and networking group that represents the students of Ontario's colleges of applied arts and technology.

OCCSPA is unique in the way that we've been able to maintain a focus on educational issues. Student leaders examined the trend of student politics and discovered that despite protests serious educational decisions were being made without student input. Our student leaders began to explore other options besides placard-and protest-style lobbying and have tried to move on to what we term "new age lobbying." This meant a change in style and attitude. We know that we have to present viable solutions to the critical issues facing education and student leaders. We have gained a seat at various decision tables in the college system; for example, on the college restructuring committee and on the anti-harassment and discrimination committee. However, we remain absent from some important areas of discussion.

Last week I was honoured to attend the third annual Premier's Awards. These awards highlighted some of the outstanding graduates of our colleges. From the four areas of applied arts, business, health sciences and technology, the award winners demonstrated success related to their college experience and social contributions. We are celebrating these wonderful people and they are shining examples of the college system and the calibre of the college graduate.

Future graduates must match and even surpass the achievements of the past college graduates. Your wellbeing and our wellbeing depend on it. We are a student body that has grown significantly. Enrolment has more than doubled since the beginning of the 1980s. Access to college programs needs to continue to increase. The pressures of global competition, technological change and an aging labour force mean that a greater percentage of the population will need a post-secondary education and that lifelong learning must become common practice.


As remarkable as our growth is, the increasing diversity of our student body is also remarkable. Our student body encompasses in significant numbers people of all ages, from their late teens to well into their 40s and 50s, people of all ethnic and racial backgrounds, people from all income backgrounds, many of whom have dependants, people whose first language is neither English nor French, people with a wide range of education backgrounds, from university graduates to mature students who may not have completed high school. Some of the data related to our diversity is provided in the written brief submitted to you today.

The changing profile of Ontario's population and our student profile call for accommodation by our educational institutions. We are fortunate to have this diversity. We can learn much from each other while attending college.

And there is much to learn. If we are to participate fully in the economic, social and political life of Ontario and Canada, we need a balanced education, one which assists us in acquiring not only job-specific skills but also generic skills, that is, skills such as communications, problem-solving and interpersonal skills, as well as elements of a general education which can serve us in good stead in both the workplace and in our lives outside of the workplace.

An important reform is under way in the college system: the College Standards and Accreditation Council. This council, composed of stakeholders from across the system and external groups such as business, labour and professional associations, is developing program-specific standards and generic skills standards and assisting with the implementation of a generic education framework. We are very committed to this reform and encourage your continued support of it. Budget cutbacks are affecting this reform and others, such as prior learning assessment and efforts to improve student retention, which are under way in the college system.

Students are very concerned about the impacts of financial restraints. Our fees are increasing dramatically. In the 1990s, tuition has increased by almost 50% to date, and fees are scheduled to increase another 10% in the next year, even if the proposed reforms of Axworthy do not come to pass. While we have succeeded in gaining some say in the types of activities that should be supported by additional fee revenues being received by the colleges, the fact remains that, on a per-student basis, college operating revenues, that is, the fees plus the government grants, per student continue to decline despite the fee increases.

These fee increases affect accessibility. They also affect the lives of those attending college. More of us must work year-round to be able to afford to attend college. For some students, this is manageable. However, for others this takes time away from their studies and it can seriously affect their success in a program.

The declining operating revenue per student which the colleges receive -- a fall of more than 32% since the early 1980s -- is affecting the quality of our education. Faculty have less time to spend with us, and the technology which we are using in our courses is often outdated or there is not significant access to it. Students currently attending our high schools are using more advanced equipment and, as a result, increasingly some are questioning enrolling in college programs.

Lifelong learning, supported by an open, accessible college system of good quality, is vitally important to today's and future students. Investments in better articulation between secondary schools and colleges are required; similarly, better articulation between colleges and universities is required. All stakeholders need to embrace the idea of what has been termed a "seamless education system."

In the near future, decisions will be made that will affect the students in Ontario's colleges. We ask that the provincial government, as well as the federal government, renew the commitment to lifelong learning and a quality education that is accessible and affordable.

I will now turn it back to Richard Johnston to conclude our presentation.

Mr Richard Johnston: I just wanted, if I might, to refer to the recommendations that we put before you. This is the fourth year I have made a presentation and the first time we have actually made any call for action from you. Mostly it has just been keeping you updated.

This squeeze that you've been hearing about from Cynthia and myself is one that we think now really has to be examined. We can't just keep reducing the amount of money per student without, at some point, saying what moneys we should really be spending per student in order to provide a good education. We can't look at that in a static fashion. It has to be with new technologies etc and investment in those and not just in the old style of teaching.

I want to read these two recommendations into the record, if I might, because they do reflect the consensus of all the stakeholders in our system.

-- That the Ministry of Education and Training should determine what it costs per student to deliver college programs that meet learning outcome standards which have been widely agreed upon.

-- That the cost per student should take into account inherent differences between programs and the cost of delivery and differences between colleges in terms of factors affecting costs, such as the size of the catchment area and the community characteristics including language.

Colleges should be funded on the basis of these per-student costs. We really do feel that it's time to establish those as a base.

The second point we want to make is the following: that the provincial government should assign priority to increasing accessibility to a college education that emphasizes applied learning and the acquisition of generic portable skills. This should include, in the provincial operating grant for the college system, funding to support adequate and responsible enrolment growth.

For those of you who know how the funding works, it's a very competitive funding which pits one college against another. It does not make logical growth, it makes competitive growth, if I can put it that way. It can be problematic and is becoming problematic and is running counter to many of the collaborative things we're doing, whether it's between the union and management or whether it's between the colleges and among the colleges with things like Con-nect, where we're trying to be a one-stop shopping for sectoral training, for instance. All these things that we're trying to do collaboratively are not aided by the funding formula, in fact they're hurt by the funding formula, and we really do think it's time to revisit that.

The pitch we're making is not for a dramatic increase in dollars from the budget but rather at least a more rational basis for the decisions upon which we are funding a system which is so clearly needed at this time in the province.

We'd be happy to take any questions that you might want to put our way.

Mr Carr: I was just thinking I wish we had more time. We'd need a whole hour to go through just my questions alone, so I'll try to be fairly quick. You've got great talent here with you to help out today as well.

You talk about the funding issue, and I think the recommendations are very good, your number one recommendation. You said you came here with that. The problem is that I think that's difficult to do with the different programs and so on. Could you expand on how you see that working? How would we fund it on a per-student basis and what would be the difference between programs? Do you think there's a funding mechanism that you could see put in place that we could do that?

Mr Richard Johnston: Three of us at this table are on what's called the college funding review committee right now and we do have a very elaborate system of weighting of programs so that more expensive programs do get more recognition than others. What we have not as yet decided upon is what the appropriate base units of funding should be and how that might be affected by weighting, especially as we now look through the standards and accreditation process at generic skills acquisition that we're going to be expecting of all our grads.

I should tell you that by this spring some time we expect to have a consensus throughout our system about what the general level of education should be around mathematics, communications, interpersonal skills, problem solving -- I've missed one, and that might be one of them, memory skills. But it does require us to look differently at how we operate. I don't know if John, as a president, or other members of the college funding review committee would like to speak to that.

Mr Carr: I guess I will have to jump in because I have another one too. You're just confident that we can come to this system.

Mr Richard Johnston: Yes.

Mr Carr: Okay, good. That's what I really wanted.

Mr Richard Johnston: It can be done.

Mr Carr: On the issue of access, you may have known, and I've asked this question to other people, the Minister of Finance came in the first day, sat I think in the chair you're in, Richard, and said that the money at the end of the social contract is not coming back in the system. What will that mean in terms of access?

I've sat down with the president of Sheridan talking about the numbers of increase and how they've done more with less and gone through it with Sheridan in my area. What's going to happen to access if in fact at the end of the social contract the money doesn't come in? Lord knows what's going to happen with the salaries and so on. What's going to happen to access at the end of the social contract in our college system?

Mr Saso: From my perspective, Gary, one of the biggest problems we've got is that it will have a detrimental effect on access. We really are at the bursting point now, some colleges more than others.

Mr Carr: So will we be turning people away?

Mr Saso: Absolutely. We are turning people away now. We've kept that a pretty well-guarded secret, but if you look at the OCAS, Ontario College Applications System, figures, we have about 160,000 applicants trying to get into community colleges every year, first year, and we take about 75,000 to 80,000. There's more pressure from different sectors now that want to go to community colleges, everywhere from university graduates to university students to a much older population that are trying to get their footing. The problem is that we cannot take them all, and we are a significant way for people to change their lot and to improve where they're going. Access is being denied and it'll be even more denied to a much greater extent in the years ahead, not just social contract but there and beyond if there aren't some radical changes.


Mr Carr: The ironic thing is, as you know, we're saying to people, "You've got to get the skills necessary," and so on, and everybody in this room agrees on that, and at the same time we're basically limiting access to some people to get the skills they'll need to get jobs and so on. Would you like to comment on the craziness aspect of that?

Mr Saso: I'll be very brief and then I would like my friends to make a comment too. The skills that are required at a college level in the industries that will be the way of life for people to earn their living in the future will be more complex. You can see the shift now to people who traditionally did not need a college education to be employed. The demand for people to have that education now is greater and it will be even greater in the future. But if we're going to deny access -- we haven't got the equipment, which is another great problem -- then you can see that we're not going to be competitive on a global basis. We're competing with global markets. That's where our students are going to be employed. If we don't do something to improve their ability to compete globally, we're going to have a lot more problems than we're having right now.

Mr Carr: Just a quick one on fees too. I was interested in the dramatic increase that we've had over the last little while in fees. You only have government funding and then fees, which is restricted too. Are we also at the end of the line in terms of the fees for students? Because the access isn't only government funding, it's fees. You may want to talk about the federal level and some of the loan programs and if that can help. What's happening feewise? Are we at the limit now with people who are saying, "I can't go to college; I know it's the way of the future but I can't afford it"? Are kids being turned away? I say "kids" because I'm older now. Are they being turned away because of the fees as well? What's happening in that area?

Ms Hilliard: I found it interesting that you said "kids," especially with the increasing older --

Mr Carr: I went back to Sheridan later too.

Ms Hilliard: Yes, with 24% of our students being mature students over the age of 25.

Mr Carr: I'm thinking mostly of the kids coming out of high school, though, in terms of the fees.

Ms Hilliard: I'm sure there's only so much more that the students are going to be able to afford. I don't think we've yet hit that point, but I don't think it's that far off. You can say, yes, there are systems set up where students can get loans, but then we're also talking student debt loads. It's almost at the point where they're unmanageable now.

Mr Sutherland: I just wanted to make a brief comment. We certainly heard throughout these hearings that we need increased productivity in the public sector, that the public sector isn't productive. I think the college system is maybe not an ideal example but a very good example of how public services have become more productive. I think the hospital association is up next. We'll also hear about how that sector has done that. Since we've heard a lot about how the public sector is not, I thought it was important to note that the college system has done a very good job in becoming more productive in terms of the number of students it's been able to put through with fewer dollars.

Mr Richard Johnston: If I could just make a response to that, I think it is absolutely true, and it should be said in congratulating the players around me -- not me but the players around me -- who are actually working the system to make that happen. You compare the dollar figure in 1982 per student to what we're doing now, it's half. We're spending half the amount of money we spent in 1982 per student in our system at the moment. I would argue at the moment the product is still very good, but at some point we have to decide what the base amount is before we erode it for all the reasons that have been said.

Mr Jamison: These are pre-budget hearings and of course the views are varying depending on whom we talk to, but I believe it's very important for all of us to recognize that the college system really does provide a real service as far as building the ability of our society to compete in an ever-shrinking global world.

We've had a number of presentations today and most of them deal around the debt-deficit situation. The issue I think we're looking at as a provincial government is the whole issue around transfer payments, because again there are three levels of government and to some degree everyone plays a role along the way. Our level right now in the three major areas -- the health, the education and the social services, which is 70% of the provincial budget -- has dropped to somewhere around 29%. We're looking at a federal budget. The Finance minister has made it clear to us, when he gave his presentation earlier on to this committee, to really be thinking about and asking the question: "What if? What if the federal government were to arbitrarily do the same thing other previous governments have done, and that is, the big lateral of the weighted football in the amount of $1 billion or $2 billion? What will that do?" And of course the whole question around what that means to students, when we're talking about education, because it's well known that the ability to obtain funding may be changed in a very detrimental way to the average student.

Mr Richard Johnston: I think we don't have a particular consensus of how we would all want to respond to the federal budget, not having seen it as yet, but to say we're all worried about it, very worried about it, and the things that have been mooted about it in the last number of months make the social contract question just pale in comparison. We can survive that adjustment, but what we are not sure about is the enormity of the transfer cut that may come and where that leaves a government in terms of this level of government.

The argument I made to the Finance minister the other day at a session with business and other people at it was in fact that it's time, besides the general tightening that has to take place around deficit reduction -- I think that's probably accepted by most -- there has to be a strategic investment decision. I can't see from my perspective, and I know it's coloured after four years around the colleges, but I can't see how we wouldn't as a society want to invest in this level of education, given the application of the learning and how vital that learning is to the economy at this point. If you look at the grads who are in that Premier's awards list, they are incredibly essential members of our society. We have almost a million people per year go into the colleges, on a part-time and full-time basis. To lose the investment in that would be a mistake, in my view.

So I think it's time, if it's a big hit on the transfer, that the government really does need to look at it as strategic investment and to pick losers and winners. As an old politician, I know that's one of the hardest things to do. It's easier to do across the board than it is to pick and choose, but my belief is, if we want to stay competitive economically, we'd better invest where we can get fast return on that investment in terms of the economic benefit, and I can't think of a better place than the one I've been lucky enough to serve for the last four years.

Mrs Caplan: I'll just try to keep it to one or two short questions, and I know Mr Phillips has one as well.

I'm a strong supporter of the community college system, and I agree that the product is good, and I also agree with you that you don't need more money in order to improve the quality of the outcome and that you've done an excellent job. I support the learning outcome standards.

One of the concerns I have about per-student funding in the community college system is that different programs have different costs. How would you ensure in a per-student-funding formula that the more expensive programs would in fact be offered -- the needed programs?

Mr Saso: Very quickly, the additional weighting for programs is supposed to address the issue of the costs of technology, but the cost of technology no longer is really in that program weighting because we need it just basically to cover the very essential costs. So I think the quick answer is, get us a strong pool of dollars to address the technologies. As Cynthia said, we're far behind the high schools in a lot of areas. Our equipment, when the students come to us, is much less sophisticated than what they're used to. We're way behind the eight ball already. So a pool of funds directed at technology would be of great assistance.


Mr Phillips: I've appreciated the colleges' presentations over the years because I think you've been realistic about the finances and what's available, and I commend you for it. My instincts are that we're not through with the restraint and my strong belief is that the public understands there is only one taxpayer and that no level of government has a pot of gold that it can give out. So whether we like it or not, if the federal government's going to get its fiscal house in order, it has to practise some significant restraint. I would say to college students, it's probably in your best interests, because in the final analysis, the younger people are going to pay more for this debt than the older people.

Having said that, the province has tried to get its finances in order, dealing with its transfer payments. You have gotten substantially less money from the province over the last five years and that makes sense. The federal government, a huge part of its payments go to its transfer partners. I see from the ministry document here that federal money to the province for what's called established program financing, that you know is post-secondary school education and health, has been going up an average of 5% a year for the last 10 years. Is it possible that the province or the federal government can continue to increase those payments at 5% a year?

Mr Richard Johnston: Well, I doubt it, but we haven't been getting that 5% increase. I don't know where it's gone, but it sure hasn't come to us, I would say. We have in fact, on just a straight productivity basis, done things which I don't even think a lot of the private sector has been able to manage, in terms of the percentage of drop per student in income, plus the number of people served. I mean, it's just incredible. If you think that one out of 10 Ontarians is in some way or other involved in a community college every year, that's pretty phenomenal that we've been able to do that. So I don't think we're expecting a sudden great dollop of funds.

We're basically saying that we need a different rationale for the money. If everybody agrees that what we're producing is what we need, then let's make sure we're giving the right amount of money to do that and we don't just play it off in a budget game, rather than looking at what the effective outcomes are.

Mr Phillips: I think that's a useful comment. I think all of us kid ourselves if we think that another level of government has suddenly found a pot of money. We're in for a long period of restraint. That's just reality. I appreciate the recommendation.

Mr Richard Johnston: In our statement we do make a plea for the technological aid and we could do that in partnerships because of how strong our partnerships are with the business side, a very attractive way for government, I think.

Mr Saso: My suggestion is yes, there's only one taxpayer but create more of them by creating well-educated people who can go out and earn a good living and become a taxpayer.

Mr Phillips: Hear, hear.

The Chair: On that note, I thank the Ontario College System and all its representatives. I would ask those who would like to have private conversations if they could move outside the committee room.


The Chair: I would like to invite the Ontario Hospital Association to come forward at this time.

Mr Peter Harris: Thank you, Mr Chairman. OHA is pleased to have this opportunity to make a presentation to the standing committee on finance and economic affairs. My name's Peter Harris and I'm the chairman of the board of OHA.

We are here in the dual capacity of guardians of the quality of our health care system and as advocates of the existing excellence and continuing improvement for which OHA and the hospitals are striving. There are many pressures for change in Ontario, not only in the health care system, but throughout the private and the public sectors. As Peter Drucker recently observed, we are in an unprecedented period of transformation. We are not just reinventing or redesigning hospitals; collectively we are in the process of reinventing government and its relationship to its citizens.

We fully appreciate the decisions about hospital funding must be made within a broader context. OHA is not here to advocate narrowly on behalf of hospitals, but we are here to advocate broadly for the needs of the people of Ontario. We are not asking for increased funding. OHA and the hospitals recognize that those days are long gone. But we are asking that the government stop moving the goalposts and, instead, give us a stable funding and operating environment in which we can manage and plan effectively.

This era of change has heightened awareness that although we all use the term, we do not have a provincial hospital "system" as such. We have and have had a provincial hospital funding system within which hospitals operate relatively anonymously. To use management jargon, hospitals today are tearing down organizational and functional silos. The language of health care reform in Ontario is focused on linkages, partnership and collaboration, and hospitals have taken that to heart.

A variety of forces have come together in the past few years to change traditional ways of thinking. Perhaps the most important was the recession, which instilled in government and its transfer partners a sense of urgency about the need to re-examine funding. We are besieged by an unending stream of advances in medical knowledge, pharmacology, technology and biotechnology, and the lives of extremely premature babies and people with once fatal diseases are being saved and organ transplants are virtually routine. The so-called medical or curative model can do more things than ever before and they are more and more expensive. Our crisis is one of affordability and to some extent it is also one of values and of ethics.

Management expert Rosabeth Moss Kanter, who spoke at our national annual convention in November, has said that change and innovation begin with need. Hospitals have faced up to need in the 1990s and they have changed, and dramatically.

Last year's supplementary government budget paper, Managing Health Care Resources 1994-95: Meeting Priorities, acknowledged the changes that have already taken place. It commended Ontario's hospitals for their impressive productivity gains since the 1989-90 fiscal year. Among those changes are average length of stays that have dropped 20% to 6.5 days; overall acute care productivity increased by 18.5%; overall acute care cases increased by 8.8%, or 1.3 million; inpatient acute cases dropped by more than 5%; outpatient services increased by 10.4%; and almost 7,900 hospital beds have been closed.

We have been simultaneously restructuring and redesigning health care delivery, management and governance in Ontario. Hospitals have been working with district health councils to explore and implement various approaches at the local level through rationalization and regionalization. On a community-by-community basis, specific solutions include mergers, amalgamations, alliances, shared services and joint ventures. OHA is aware of 53 hospital restructuring initiatives that are currently under way across Ontario, and some hospitals are involved in more than one project.

The environment in which hospitals exist has changed dramatically over the past five years and it continues to change. Since 1991-92, hospital funding levels have not increased. In fact, they have actually declined. In January 1992 the Finance minister, Floyd Laughren, made a commitment to multi-year funding for hospitals, schools, colleges and universities to compensate for reduced transfer payments. He said at the time, "To help plan the reform and restructuring that must take place in each of these sectors, I am today announcing their funding levels for the next three years."

The commitment was that hospitals would receive a 1% increase for 1992-93 and 2% per year for 1993-94 and 1994-95. With the annual rate of inflation at approximately 2%, budgets were relatively flat-lined.


Almost immediately that arrangement was superseded by the three-year regime imposed by the 1993 social contract and expenditure control plan. The social contract and the 1993 budget together created a climate of severe restraint by eliminating funding increases to base budgets and imposing cutbacks in the public sector.

We are now two thirds of the way through the social contract. The short-term impact in the hospital sector, as elsewhere, has been unpaid days and dislocation of jobs. The ultimate outcome is that $200 million has been permanently removed from the hospital budget base, while general inflation and cost pressures specific to hospitals have continued in spite of the social contract.

It is in that context that the previously mentioned accomplishments of hospitals must be viewed. Hospitals have managed to do significantly more with reduced levels of government funding, which accounts for 80% of their revenue.

A great deal of what has occurred since 1993 has been made possible because hospitals had, or felt they had, enough information to plan beyond the immediate fiscal year. As Rosabeth Moss Kanter has said, "In an effective organization the mean time between surprises must be less than or equal to the mean time between decisions." We're simply asking for some lead time before the next surprise so that effective decisions can be made. Hospitals are keenly aware of the need for change, but changes that affect hospitals, patients and health care workers must be planned, and the plans can only be as effective as the window of opportunity provided by the planning cycle.

For several years now there has been recognition that one of the stumbling blocks in the way of a genuine provincial hospital system has been the funding mechanism for hospitals, which does not take into account workloads or demographic changes. In 1988, the Health minister of the day recognized this when she promised to evaluate and modify the hospital funding system, working in collaboration with the sector. The ensuing transitional funding initiative involved ministry and hospital representatives, who worked together to develop a fair methodology. As a result, an equity formula and a growth formula were developed to distribute funds on a more equitable basis than had previously been the case.

In 1991, OHA proposed a formal body for collaborative planning with the ministry. As a direct result, the OHA and Ministry of Health joint policy and planning committee, or JPPC, was formed in 1992, with a mandate to recommend and facilitate the implementation of hospital reform within the broader context of Ontario's health reform agenda. This joint partnership involves more than 150 representatives from Ontario hospitals, participating as volunteers working with ministry and OHA staff on a variety of committees. One of the JPPC's objectives is the creation of a system of hospital funding that promotes equity, effectiveness and efficiency among hospitals.

In February 1993, the JPPC hospital funding committee was asked to consider the feasibility of a funding reallocation in 1994-95, given the reality of a clawback in funding due to the social contract. In October 1993, the ministry indicated the urgency of proceeding with reallocation, which was seen as one of the few sources of funding to alleviate financial pressures on hospitals, and at a meeting of JPPC, the statement was made by the deputy minister that if reallocation did not occur, other ways to alleviate these pressures would have to be found; for example, further across-the-board reductions in the Ministry of Health allocations to all hospitals.

The JPPC hospital funding committee recognized the disproportionate effect of funding pressures among hospitals. A methodology for funding reallocation was developed to shift resources within the hospital system. This methodology takes need into account as well as recognizing hospitals that have consistently demonstrated lower-than-average costs for specific categories of cases over the past five years. Obviously, this meant that some OHA members would be adversely affected by funding reallocation. None the less, the OHA's board decided that reallocation would be in the long-term interest of the public and hospitals and that it should proceed.

In October 1994 the government informed the hospitals that funding reallocation would be suspended, before a penny in actual funding had actually been shifted. After more than 20 months of discussions and negotiations, the government effectively backed away from the guiding principle that equity and fairness in hospital funding is a crucial element of preserving high-quality patient care.

OHA has concerns about the ongoing ability of the health care system to manage its human resources effectively in the face of uncertainty about funding levels. It is virtually certain that there will be further downsizing in the hospital sector, with fewer overall jobs. While we are conscious of budgetary consideration and supportive of new approaches to health care delivery to meet patient needs, OHA is adamant that patient care requirements must continue to be the foremost consideration in the context of change.

Mr Dennis Timbrell: In previous appearances before this committee and in other public appearances, the OHA has indicated its unwavering commitment to maintaining and improving the quality of service delivery in the health care sector during this period of transformation and on into the 21st century. The goal is to provide the right service to the right person at the right time in the right setting. It's clear that to do this we will have to balance needs against available resources, taking affordability into account. The key to success in this is to focus on properly identifying the needs of patients and the public and then meeting those needs appropriately.

Managing change in the health care system requires informed decision-making, and this in turn requires better data about the system than have usually been available in the past. This deficiency is being addressed through the work of several organizations. The OHA-Ministry of Health JPPC is refining information about case costing to aid hospitals in measuring and comparing their performance. The Institute for Clinical Evaluative Sciences, or ICES, as it's called, was established by the joint management committee, the JMC, to look at the quality, effectiveness, efficiency and accessibility of medical care in the province, and it has produced several important reports related to medical practice patterns and hospital utilization. In May 1994 it released the first edition of the Practice Atlas, entitled Patterns of Health Care in Ontario, which highlighted the troublesome issue of regional variation in rates of surgical procedures.

Noting the seductiveness of "quick fixes" to the challenge of the affordability crisis in health care, the atlas called for the creation of an Ontario health services council to broker the interests of the full range of stakeholders in the health care system as we look at alternative ways of organizing, funding and delivering care. The OHA strongly supports the creation by the end of 1995 of an independent Ontario health services council to look at issues relating to utilization, accessibility, implementation of health care research and physician referral patterns. As a first step to this type of collaboration, the OHA, the OMA, the ministry and the Association of District Health Councils of Ontario have agreed to create a joint implementation committee between the JMC and the JPPC to ensure that ICES research results are communicated and implemented in the delivery system. Improvements in health care delivery require the joint action of many people and groups, and this collaboration will speed up the process for improvements in the system.

As in other jurisdictions, health care in Ontario is in the midst of transformation. As we have indicated, there have been many recent changes in the care that is provided and how and where it is provided. There are other issues that need to be integrated into the reforms that have already occurred. For example, the new multiservice agencies being created under the auspices of the Long-Term Care Act will have significant implications for the other elements of the integrated continuum of home, community and hospital care that is one of the key goals of health system reform.

There are many outstanding implementation issues with regard to MSAs, not the least of which is the pension plans and the certification of employees. One long-standing issue that must be addressed in the near future is that of alternatives to fee-for-service compensation of physicians, particularly for emergency department on-call coverage.

OHA has also been working with the Ministry of Health on a proposal that hopefully will ultimately lead to the creation of hospital crown foundations so that a level playing field with respect to hospital gift-giving will be re-established.


The health care system in Ontario, as in other jurisdictions, is in the midst of transformation. A period of funding stability is clearly required so that reallocation and restructuring can be accomplished and so that it can be done effectively and with sensitivity.

We therefore urge this committee to recommend to the provincial government that transfer payments to hospitals remain at the announced 1995-96 level. We recommend to the provincial government that it proceed as soon as possible with the implementation of hospital funding reallocation specifically, as well as with funding formula reform in general, and recommend that the government establish immediately an Ontario health services council.

Mr Jim Wiseman (Durham West): On page 3 you talk about an equity formula and a growth formula which were developed to fund hospitals on a more equitable basis, and that this would form the basis of the JPPC evaluation of hospitals in Ontario that came up with the list of 22 hospitals that would have funding reallocated. Is that correct?

Mr Timbrell: No, the equity and growth formulae came out of the 1988 initiative on transitional funding. That, in turn, developed into the hospital funding committee of JPPC, because when there were extra dollars available each year the question was, how do you distribute X dollars more equitably and fairly? Of course, since 1992 we've been into an era of deflation in funding and flat-lining in funding, so now the question is, given that there are all these pressure points in the system, how do you allocate, or, if you will, reallocate within the defined limits of the funds available to ensure that those with the greatest need are getting funding? That means identifying hospitals that are at the high end of the scale in terms of their cost per weighted case, which includes a hospital in your consistency, which is the point of your question, of course.

Mr Wiseman: It was actually more directed to Durham region as a whole, which is underfunded on our cost-per-constituent basis compared to others. Hospitals in Toronto have surpluses and moneys in the bank; I know of at least two that have at least $5 million in the bank. And yet, as you brought up my hospital, here you've got a hospital and a population that has tripled since it had its last expansion in 1967 or 1968, has the same number of beds as it did then but has now 135,000 people. Down the road in Oshawa you've got the Oshawa General Hospital, which is 135,000 to 140,000 people but has a budget of over $100 million compared to a $28-million budget in Ajax-Pickering. Ajax-Pickering is the hospital that gets nicked for $850,000. Part of that money was going to go to Oshawa. I really have a little trouble with the JPPC formula that would do that to a hospital in a growth area.

Mr Timbrell: With respect, I don't think you've walked through the JPPC formula. We'd be glad to arrange for you to do that.

You can appreciate where it becomes very difficult for a hospital association dealing with these questions, because by making the commitment to be part of solving the problem, it means that sometimes we have to support policies and proposals which will fall unevenly across the membership. That was a very conscious decision, after a lengthy period of debate, that the board of the OHA made.

You cannot, with respect, make that kind of simplistic comparison, because no two hospitals are the same, either in terms of the programs which they offer or in terms of the demographics or the complexity of the programs in those hospitals. In this instance, the formula was developed to look at the variations, if you will, in cost per weighted case at the upper end of the scale over a five-year period, and there were 22 hospitals that came out, at the end of the evaluation, as having costs at that upper end of the scale consistently over the five-year period. If any hospital was below a certain level in one year of the five, it was taken out of it. But those 22, including the one in your constituency, were at the upper end of the scale.

That doesn't mean to say that there aren't other issues that have to be resolved with respect to certain life support programs and in respect of additions. In the last few years I don't know of any hospital that's had an addition, including the one in your constituency, including the Montfort in Ottawa and many others, that have had any additional operating dollars assigned to them. They're all being told, "You can have the addition, you can do this, you can do that, but you have to do it with the same operating funds." That is causing some problems and it's another factor that the hospital funding committee is going to have to address.

Mr Phillips: Let me start by congratulating the OHA and Mr Timbrell and particularly the volunteer board members for doing a great job of managing the system with limited resources; I take my hat off to you.

Your three recommendations on the surface make a lot of sense. I wanted to ask you a question, though, about one of the key concerns you raise within your document, that is, the multiple-service agencies that I believe are coming into effect April 1 of this year and will have quite a profound impact on the community. As you know, we've had some significant concerns about the multiple-service agencies. You indicate here that there's a particular problem with pension plans. I'd like to know a little bit more about that and just how significant a problem that is for us.

Mr Timbrell: The OHA is a member of a group called the Ontario health providers' alliance, for which we thank the provincial government in that it arose from the social contract. The government did what no one else had been able to do for years, and that is to bring together the full array of health provider groups and make them work together. We found that we could work together through the social contract, and liked it so much we decided to keep doing it, so we meet at least monthly in developing responses to policies of mutual concern.

This whole issue of Bill 173 is a major concern to the entire health providers' alliance in that, as you know, a number of organizations, St Elizabeth Nurses, VON, Red Cross and others, believe that the 80-20 rule embodied in the legislation will put them out of business, will cause a transfer to these new MSA corporate entities of most if not all of their staff, will leave them with major residual obligations with respect to pension issues for those staff, with no funding. They'll be out of business. They'll have no funding to honour their commitments. There will be interruption in service of many staff who will be transferred between the agencies.

Frankly, none of this had been considered by the government until it was drawn to its attention by the health providers' alliance about a month before the bill finally passed through the Legislature. Now, when the issue comes up, as it does regularly in various parts of the province, as health councils are looking at the issue of the creation of MSAs, the answer from government officials is: "Don't worry about that. That will be solved." Well, that hasn't been solved, and our view is that not one single MSA should proceed until those issues are resolved, in the interest of both the employees and the employers.

Mr Phillips: I'll ask this question very quickly. We think it's a major problem, and it's coming on us very quickly. How big a problem is this, in your mind? Is it significant enough that we should be delaying the establishment of these MSAs until it's resolved?

Mr Timbrell: I don't think there's any question that it's significant enough. The consultant the government keeps promising hasn't even been hired yet. Diogenes has been searching the province for two months for somebody wise enough to solve this one and so far as come up blank. There's no question in my mind that this legislation should not be proclaimed until a way is found to resolve this pension problem.

Mr David Johnson: In actual fact, it's somewhat unlikely that the MSAs are going to be prepared to go ahead in the time frame that the government has announced, as far as I can see -- well thought out.

Thank you, Mr Timbrell, Mr Harris, for an excellent presentation. I can sympathize, having been at the municipal level for a number of years, as you're probably aware, with the need to have funding so that one can plan. I think that's essentially what the hospitals are saying: They need to be able to plan. In our consultations with the people of Ontario, health care has been identified as the one area that should be sealed in an envelope in terms of the funding, and those in the health care field should be aware of what is available so that they can plan ahead. That's our approach to the hospitals and to the health care field.

I wanted to ask you again about the formula. As you know, I've been associated with the Toronto East General Hospital and there's been concern in the formula with regard to those hospitals with catchment areas with high proportions of elderly. I think St Joseph's and the Toronto East General, for example, are two hospitals that feel they're in that sort of predicament. Are you satisfied with the formula?

Mr Timbrell: Yes, in terms of the factors that were examined, accepting first of all that there's a finite amount of money; there are pressure points in the system that have to be addressed. Then inevitably you have to conclude, well, that means we have to take from some to give to others within the system.


That means then you've got to go through an exhaustive process to identify, with the data that are available and the systems that are available -- and admittedly they're not perfect; they're getting better with every passing year but they're not perfect -- those who are well beyond the mean. Unfortunately, that identified a hospital in your constituency, one in Mr Wiseman's constituency and one in Mr Ruprecht's. There were 22 --

Mrs Caplan: North York General?

Mr Timbrell: Was the lowest.

Mr David Johnson: Wait a second, this is my time. Ignore her.

Mr Timbrell: What we did, though, was insist as an association that there had to be an open appeal process so that hospitals could come in and put forward their arguments for the factors that they think the formulae didn't address and that made them that much more unique. That was done, and I think of the 22 hospitals, the appeals were granted for about four or five hospitals. The balance were not granted.

Mr David Johnson: We're going to run out of time here quickly. Just to get on to the differential between hospitals in terms of how they approach service utilization, accessibility, referral, that sort of thing, I think you're saying that there should be a study. I guess that's essentially your third recommendation, is it? This is probably my last question: Can you give us some kind of idea in terms of the magnitude and the timing, what might come out of a study that would try to apply -- it's obviously a very delicate area, but uniformity?

Mr Timbrell: I would commend to you the work that has already been produced by the Institute for Clinical Evaluative Sciences. The OHA is very supportive of this organization. It has been immensely helpful to medical staff, administration, boards and others in identifying where individual hospitals and departments are, again, off the mark in terms of provincial norms.

That isn't to say that because they're over or under that they're necessarily bad. You have to identify where there are these differences so you can investigate them and at least satisfy yourself that there is nothing out of line. In most cases, what we're hearing is that this is a very useful tool, as is case costing.

One of the hospitals that was hardest hit, in fact, in the reallocation commented after they objected to the reallocation that thanks to case costing they were better able to identify where they could save the requisite amounts than they had ever been able to do in the past. Right now, we only have 13 hospitals on case costing. We want to eventually expand that to all 216 hospitals in the province, to better arm every hospital with that ability.

The Chair: I thank the Ontario Hospital Association for its presentation.


The Chair: The next presentation this afternoon is by the Association of Municipalities of Ontario.

Mr Bill Mickle: With me is Bill Croome, who is reeve of the town of Paris and co-chair of our fiscal and labour policy committee, and Evelyn Ruppert, who is manager of policy for AMO. My name is Bill Mickle, reeve of the town of Exeter, and president of the Association of Municipalities of Ontario.

It is a pleasure to present the Association of Municipalities of Ontario 1995 pre-budget presentation, titled Honouring the Commitment: Putting Tools in Place to Reduce the Cost of Government.

Introduction: Municipal efforts to cope with the constraints of the social contract and expenditure control plan continued through 1994. Finding ways to do more with less while avoiding mill rate increases wherever possible made for a year of continued challenge to municipal councils across the province.

The social contract and the expenditure control plan represented a tremendous financial burden to municipalities, reducing transfer payments by a total of $390 million. In this environment of severe fiscal constraint, what had become apparent to some became obvious to all. The old solutions of more money and more programs were no longer possible. If municipalities were to meet the demands of delivering quality services and value to the taxpayers, changes had to be made.

On the heels of the social contract came what many believed were the tools to bring about that change. Commitments under the municipal framework agreement brought the promise of progress as the province agreed to make the legislative amendments needed to give municipalities control over police budgets and review interest arbitration and collective bargaining. The government had also made a commitment to work with AMO in performing an analysis of the direct and indirect impacts of provincial decisions on municipal finances.

In addition, the Pilkey task force was examining ways of eliminating duplication and finding efficiencies, and the Fair Tax Commission had completed its landmark review of taxation in Ontario and made recommendations for change, many of them highlighting the need for local government finance reform.

Despite the difficult financial circumstances, many municipalities were encouraged by these signals of change to come. Securing these long-sought reforms would grant municipalities an added measure of control over their ability to cope with the opposing pressures of increasing costs and decreasing revenues.

One year later, the government record on social contract commitments is abysmal and advancement of this agenda for change has been non-existent. Recommendations of the Pilkey task force? The government has taken no action. Recommendations of the Fair Tax Commission? No action. Influence on police budgets? No action. Guidance for arbitrators? No action. Cumulative analysis of provincial measures? No action. No further reductions? The government added $19 million in costs to municipalities through supplementary assessment charges.

How does the municipal record compare? Social contract and expenditure control plan: $390 million in costs to municipalities, paid in full. The imbalance is obvious and the inequity is clear. In this pre-budget submission, municipalities are not asking for anything new. Municipalities are simply asking the province to deliver what it promised.

AMO's pre-budget recommendations:

Holding the line on unconditional transfer payments: As promised under the social contract, the province has held the line on unconditional grants transferred for 1995. The timing of the announcement, which coincided with the finalization of municipal budgets, was also welcome. However, this news was tempered by the suggestion that the actions of the federal government could hamper the provincial government's ability to maintain this funding level.

We are aware of the pressures that federal government decisions place on provincial coffers and are more than familiar with the difficulties of relying on senior transfer partners. The graph on page 3 of our brief, which represents the trend in municipal unconditional transfer payments, bears stark witness to this reality and brings into question whether further reductions are supportable without massive reductions in municipal service levels.

As discussed in the introduction, the provincial government's failure to honour any of the commitments it made in order to secure a municipal agreement is central to our current frustrations. Municipalities bargained in good faith and have lived up to their side of the bargain; the government has permanently removed $390 million from the municipal sector. Meanwhile, the government has refused to honour commitments made in a legally binding contract, commitments that were to have provided the tools municipalities need to find the efficiencies and permanent cost savings necessary to meet their targets. This is beyond being unfair.


Adding to our frustration is the fact that in 1996 the province will remove an additional $50 million from the unconditional transfers to municipalities to satisfy the deferred portion of social contract reductions.

It is unacceptable for the provincial government to expect municipalities to endure additional transfer payment reductions in 1996 when the province has failed to honour its obligations under the sector framework agreement which, when implemented, were to provide municipalities with the tools to accommodate the funding reductions associated with the social contract and expenditure control plan.

Mr Bill Croome: Transportation issues:

Delays in grant funding announcements: At the time of this writing, the province had yet to announce the road grant funding for 1995. The timing of this allocation announcement has caused concern in municipalities over the past number of years, with delayed announcements conflicting with municipal construction schedules. An added complication for the 1995 announcement lies in the uncertainty surrounding the funding levels and whether they will be at least equal to last year's. Municipalities experienced some difficulties in 1994 when the grants were announced late in the year at a lower-than-expected rate and with new restrictions on how the grants could be used.

AMO urges the province to announce the 1995 road grant allocations without further delay, to remove restrictions from moving funds between capital and maintenance allocations, and, at a minimum, to maintain this funding at current levels.

MTO directive regarding the application of development charges to road projects: In late November 1994 municipalities received a directive from the Ministry of Transportation regarding the inclusion of municipal road improvements in lot levies. Essentially, the ministry informed municipalities that it would no longer subsidize municipal road improvements that are identified in the municipal development charges study. Implementation of this directive was scheduled for January 1, 1995.

As the Ministry of Transportation must have anticipated the negative implications to municipalities, it is completely unacceptable to implement the directive on such short notice, particularly since the ministry was fully aware of the directive as early as May of last year. The Association of Municipalities of Ontario requests that the province reconsider this decision, delay the implementation and immediately undertake consultations with affected municipalities.

Transfer of provincial highways: Over the past number of months it has come to our attention that upper-tier municipalities have been approached individually by the Ministry of Transportation with offers to negotiate the transfer of provincial highways. AMO has deep concerns about the manner in which these negotiations are taking place, as no formal protocol or process exists. In fact, the ministry denies any knowledge that transfers are being contemplated or discussed.

This divide-and-conquer approach to downloading more provincial responsibility does little to foster trust and cooperation between our two levels of government. Accepting responsibility for additional roads will have long-term implications, and it is only equitable that municipalities should be in a position to negotiate from an informed perspective.

AMO strongly urges the province to bring this process into the public domain and immediately establish fair and equitable guidelines as the basis for any negotiations that may take place with respect to agreements to transfer responsibility for provincial highways to upper-tier municipalities.

An end to downloading: Of late, the provincial government has repeatedly expressed its concerns about the potential for decreased federal government funding in the upcoming federal budget. Those concerns are very real, and we support the province's commitment to protecting its revenues. AMO would like to reiterate the need to offer the same respect to the municipal government by asking the province to make a commitment that it will not download any further costs or responsibilities to municipal government.

In 1993 the province decided to broaden the retail sales tax base, involving extensions to insurance premiums, parking, both metered and commercial lots, and soil, clay, gravel, sand and unfinished stone. These changes were made without prior consultation and resulted in an estimated impact of over $70 million.

In 1994 the province boasted, "No new taxes." Several months later municipalities found themselves the arbitrary recipients of a new $19-million charge for supplementary assessments.

In addition to these relatively direct impacts, municipalities are increasingly required to fund provincially mandated programs from existing revenues. The province's 3R regulations mandating curbside recycling programs are one recent example.

AMO requests that the province refrain from implementing or mandating any further decisions which have direct or indirect impacts on the property tax base.

Cumulative impact assessment: Section 4.6 of the municipal sector framework agreement under the social contract commits the province to provide a cumulative impact analysis of provincial policy and program changes on municipalities. The purpose of this analysis was to add up both the direct and indirect costs to municipalities of provincial decisions. Substantial work has been undertaken by both the Ministry of Municipal Affairs and the association, and a framework for the analysis, including a list of categories of impacts, has been developed. The province has had ample opportunity to participate in developing an impact analysis that incorporates its perspective, yet no analysis has been performed to date.

AMO urges the provincial government to cooperate in the performance of the cumulative impact analysis in assessing the impact of government initiatives on municipalities from 1993 through 1995. We further advise that should the government fail to perform this analysis, AMO will proceed independently, with the intent of publicly revealing the cumulative impacts of provincial decisions on local taxpayers.

Repeal supplementary assessment charges: AMO is deeply concerned that the decision to charge for supplementary assessments has implications beyond the immediate financial impact of $19 million per year. As detailed to the government on several occasions, AMO believes that changes to the existing funding responsibilities for the assessment function should not have taken place outside of the context of a broad review. Further, the timing of the charge places serious demands on municipalities already pressed to the limit by the recession, the social contract and the expenditure control plan.

AMO recommends that the province immediately repeal the decision to charge for supplementary assessments.

Move forward with implementation of the Pilkey task force recommendations: The provincial-municipal, or Pilkey, task force was established under the municipal sector framework agreement to the social contract and charged with identifying areas where duplication and overlap exist in provincial legislation affecting municipalities. The final report of the task force was released in September 1994 and contained 123 recommendations. As yet, no plan for implementing those recommendations has been unveiled. The recommendations have the potential to create greater efficiencies in the delivery of municipal service, both from the provincial and municipal perspective.


Months of work and input from a broad cross-section of local government service providers have resulted in recommendations that could save both the province and municipalities an estimated $68 million and create administrative efficiencies, yet the government has completely avoided committing to any next steps. The time for study is over. The Association of Municipalities of Ontario insists that the province unveil a plan for consideration and implementation of the recommendations of the Pilkey task force.

Mr Mickle: I'll summarize the last three points because I think you want to have a bit of time for questions and answers. We would like to indicate that control of police budgets is very important to municipalities. The Association of Municipalities of Ontario requests that the provincial government honour its legally binding commitments under the social contract and implement the necessary amendments to the Police Services Act to provide municipalities with a greater degree of control over budgeting for police services while providing for adequate police services.

Review of collective bargaining and interest arbitration: The Association of Municipalities of Ontario requests that the government immediately honour its legally binding commitment under the municipal sector framework agreement under the social contract and conduct a review of collective bargaining and interest arbitration in the municipal sector.

We would urge that the government unveil the recommendations of the Fair Tax Commission, and we strongly urge the government to examine carefully those recommendations of the Fair Tax Commission and unveil its plans for this report, specifically as it relates to the reform of education funding, property tax reform and assessment.

In conclusion, the next few years will be a time of reckoning for the public sector. The era when more money and new programs represented the answer to every problem is long gone. The time for change has come. In 1995 we are looking to the government to honour the commitments it has made and to advance a much-needed agenda for change.

Again, municipalities are not asking for anything new; municipalities are simply asking the province to deliver what it promised. It is apparent that now, more than ever, governments at all levels need to work together in a renewed attitude of partnership to effectively and efficiently meet the needs of our common taxpayer.

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

Mr Phillips: Actually, your last two paragraphs are platform material. I totally agree with that, that all levels of government are going to have to work together, with the common taxpayer in mind. Just so we get kind of an idea, I realize there's a lot of change involved in here in terms of things that have to happen, but in terms of what you would find acceptable from the provincial government in terms of funding to the municipalities, the message I get here is that what you're looking for is a longer-term commitment, some stability over more than just a one-year period. Am I interpreting you right to say that you're not looking for more money from the provincial government but that the municipalities could live with their current level of funding from the province? Just as a matter of detail, is that with or without inflation?

Mr Mickle: I think one of the things we're really saying here and to answer your question about more money, no, we're not asking for more money at the present time. We believe that there has been set up under the sectoral agreement certain agreements with the government. Signatures have been put to documents which have indicated certain things need to happen to create the efficiencies, to prevent the duplication, to allow us to develop programs within our own municipalities that can save us money.

The Pilkey task force had 123 recommendations. I happened to sit on that particular task force, and there are applications of that particular document that if put in place would save municipalities money; about $68 million that can be saved, both at the provincial and municipal level. Why aren't they in place? Those are the things that are going to help us to go forward in dealing with the less money that is available to municipalities from the provincial government.

Mr Phillips: Just in terms of our recommendation to the Minister of Finance, "holding the line" are words you use on unconditional transfers. That's your recommendation to us and essentially, if the municipalities were to see the same level of funding next year as they got this year -- I realize it may not be allocated yet exactly properly -- that would be something the municipalities would say they find acceptable. Is that a fair statement?

Mr Croome: I think if I could just state that if the funding remained the same and the downloading stopped we could probably live with the funding.

Mr Phillips: That's helpful, and I agree with that. I don't think any one government has been immune from doing that in the past. I think it's just a matter of have we learned our lessons or not.

Mr Mickle: If I could respond for just one second, I think it's very critical that what we've asked for in changes come about, because without those changes we're in a bad situation. Those changes have been agreed to and I think they should be honoured.

I'm sorry, sir.

Mr David Johnson: That's fine. It's your opportunity to have your say, thank heavens, and I congratulate AMO for its work over the years.

Tell me if I'm wrong, but I think what AMO is saying is that whereas this -- I guess the description is that municipalities are the creatures of the province. In reality what you're asking for is to be treated more like a partner in the sense of decision-making. One sure formula for higher taxes is to have one level of government decree what has to be done and then transfer the cost on to another level of government, whether it's health services, as we heard this morning, mandated health services; whether it's a provincial arbitrator who is setting a standard beyond what the municipalities can afford, for example, in police or fire services; whether it's Bill 120 which mandates basement apartments which municipalities have to inspect; perhaps Bill 163 which is mandating an update to official plans across the province of Ontario every five years, and guess who's going to pick up the tab for that downloading on to the municipality. It goes on and on.

My sense is the municipalities are simply asking to be involved in the process, in the decision-making, and have some input. Would you react to that?

Mr Mickle: You're absolutely correct in what your assessment is. AMO at the present time, as you're probably well aware, has embarked upon a new document which we call a charter -- whether that's the right word or not -- but really we're looking for a partnership or a role and function of municipalities within the province, a clear definition of what our responsibilities are. I think if we could get that it would be a long way in putting municipalities not as creatures of the province, but giving municipalities some way of dealing with the problems which they're most familiar with, the councils, within their own municipalities.

Mr David Johnson: Municipalities have a great deal of experience. As a matter of fact, municipalities remind the province of this. Any poll that's ever been taken shows that the people respect the municipal level of government far beyond respect for any other level of government, including provincial or federal; there's no question about that.


In Metro Toronto the police funding is about 95%, if not more, out of the municipal taxpayers' pocket, and yet the province has the majority on the police commission. Roads: You're not allowed to differentiate, so much for maintenance, so much for capital, and you haven't got the flexibility to deal with that. There's just a basic mistrust there that somehow you might not allocate the money properly.

Mr Sutherland: Let me say that the Ministry of Transportation has indicated that it wants to have its announcement out by the end of February on road subsidies.

The supplementary assessments: Municipalities are usually the beneficiaries of them in that supplementary assessments usually end up with increased assessment for the municipality. So there is some benefit there as well.

I represent the riding of Oxford. January 1 marked the 20th anniversary of the restructuring of the county of Oxford -- as far as I'm aware the only significant restructuring of any county in the province in that period. We hear a lot of talk about the number of school boards. There are under 200 school boards. I hear municipal politicians complain that there's too many school boards, yet there are over 800 municipalities in the province of Ontario. There are some municipalities which rely on the province for more than 50% of their operating costs. My question really to you is, if there are more municipalities than school boards and we think there are too many school boards, are there too many municipalities and what should people be doing about it?

Mr Mickle: I think you're going to find some rationalization over a period of time. One of the first things you could do as a government is to give us the tools that we need to sort out our own problems. We don't have those, and I must say that without that sort of opportunity to adjust ourselves without some pressure coming down on top that "You can't do it this way; you've got to do it this way," I don't know how you're going to get that done in an amicable sort of fashion. I know in my own municipality we're trying to work with our communities around us because we are forced to do so. But we come to certain boundary adjustments, we've got to go through MMA to even deal with that. Sometimes that could be done in a very happy sort of way if we weren't put in a position of having to come hat in hand, if I might put it that way, to the province to get our way sorted out in our own area.

Mr Sutherland: The county of Oxford restructuring was really a local initiative. It was in response to some of the imposition of regional planning, but they did a local process. They came up with that and they went from over 20 municipalities down to eight. Today the smallest municipality in Oxford is over 5,000 people and I know we have a lot of other small municipalities, some that, as I say, are relying on more than 50% provincial funding for their operational budget. I guess my question is, if a municipality is at that stage, is it still viable as an independent municipality?

Mr Mickle: In some cases I would say yes. I think you need to ask the people in that municipality if that government is doing the job for them. I would suspect that because they are so accessible to their constituents they are doing a job for them and I think they would be supported.

But, having said that, I still come back: Unless we have the tools which we've suggested as part in here and in part in our desire that we'll be coming forward with the bill of rights, or whatever you want to call it, for municipalities to have them sort out their future role and function, I think it's going to be very difficult to do things that you want to do, because at the present time we are only looked upon as creatures of the province. I say that in due respect --

Mr Sutherland: No, I know what you mean.

Mr Mickle: -- because it's been that way for a long period of time. As creatures of the province I must say that you, as parents to us, normally should be looking after us under that particular scenario. I think we've grown up enough to look after ourselves. Just give us the opportunity to do so in some type of legislation that will allow us to become more responsive to our needs in our community.

The Chair: On that note, I thank the Association of Municipalities of Ontario for making its presentation before the committee this afternoon.


The Chair: The next presentation this afternoon is by the Ontario English Catholic Teachers' Association.

Mr Claire Ross: My name is Claire Ross. I'm president of OECTA.

Ms Marilies Rettig: My name is Marilies Rettig, first vice-president, OECTA.

Mr James Carey: I'm James Carey, the general secretary.

Mr Greg Pollock: Greg Pollock, executive assistant, government relations.

Mr Ross: Thank you, members of the committee. We wish to speak to you about a number of issues with respect to education in general and with respect to Catholic schools in particular. We do wish to look at with you some of the recommendations of the Royal Commission on Learning. We want to look at the state and situation of funding with respect to separate schools in Ontario, which is a matter that I think many of you have already heard us speak about before, and we will deal with the issue of confederated school boards as it has been raised before this group by a previous presentation.

I think most of you are aware of the comment that has been made across the province relative to the Royal Commission on Learning. By and large, this report has received widespread support and endorsement by all within the public community of this province as pointing to the future and offering certain significant reforms with respect to change.

One of the components of change defined as essential within that report are those sections which deal with the inclusion of new technologies in the schools. One of the things I believe this committee has to be aware of is the fact that when we speak of the future of education, we really speak of the future of our children and the future and economic wellbeing of Ontario. It's not going to happen simply because we suggest that certain things should happen; it's only going to happen if we put in place the means to realize certain specific goals and objectives.

I think all of you are aware that we're into a new kind of world, a world of sophisticated, accelerating uses of new technologies, requirements of flexibility and adaptability on the part of our students, and that most of the jobs as we move into the 21st century are going to be significantly linked to skills related to new technologies and the creative and adaptive use of these technologies. In making the recommendations, we would offer that the royal commission has not only in a very insightful way defined certain significant adjustments that have to be made in the schools, but has pointed the course, if you like, for the essential wellbeing of the economic future of this province.

On behalf of the separate school teachers with respect to our schools and our system, we're here to suggest to you that as you determine allocations relative to educational budgets and so on, you're going to have to be very cognizant of the need to move an educational system which is significantly rooted in the mindset and practices of previous times and centuries, and position the system so that it will be able to educate our students not for grandpa's day and grandma's day but for their world and their future, which is radically different from ours.

I'm here to suggest very strongly to you that to achieve those kinds of goals and objectives is going to require on the part of all of us a remaking of our school system that the Minister of Education has already spoken about at length in the last number of days, and certainly the members of my federation are committed to the kind of reform and change that will give to our students the hope and promise of their tomorrow.

There is no question that as we move to include the platform of the new technologies, we're going to be looking at some expensive propositions. As expensive as it may be, it's going to be far more expensive if we abandon and simply put on the shelf the recommendations that are before us.

We recognize also that the inclusion of these technologies will require new kinds of partnerships, creative kinds of partnerships with business and industry, that will require us to reach out into our communities, a re-education of our teachers. As we look at what is occurring in these areas, we are making a very strong plea to each of you this afternoon to recognize that saying something should happen will not make it happen. We are going to have to rethink and remake and allocate and provide in ways that will make meaningful the goals and aspirations of those kinds of changes which will invite change, allow the world, if you like, to come into our classrooms, allow us to simulate and to bridge and to give our students the mindset for the 21st century.


I want to also deal with the issue of funding for separate schools. I'm not going to give you a long dissertation on the realities of what is happening to us under the social contract and the expenditure control program. I think most of you are aware that those who have less have been hit and hurt the most. That's always the way it is, and we recognize it. Also, I'm here on behalf of our students to make a simple statement to you: that the only resource we have in this province is our children, and these children belong to a common public system of education. Without question, the Fair Tax Commission and the royal commission have repeatedly echoed the theme of equity. All of us understand what equity is. We know its meanings and we know its privations and we know its wants. Certainly, within the separate school system we have lived on the edge for long numbers of years. I don't have to give you a description of what happened last spring in the York separate board and the problems we were faced with there. Many of our separate boards now are literally queuing up to go bankrupt, and that's their sad situation because of the nature of the tax situation within the province of Ontario. Most of the assessment-poor boards, as noted in the royal commission, are separate school boards. We make no apology for that, that's our reality, but at some point in time this must change given the nature of our system, given its acceptance, given its historical and constitutional rights.

I'm speaking to you with respect to the kind of budget allocations that are being considered this year, knowing that in the last number of years our systems have been literally stripped to the bone in terms of all resource personnel and that we operate with very high pupil-teacher ratios, we have no resource people to support programming and we operate quite literally with the very minimum. Despite that, I believe we offer a quality of education which is second to none.

I'm going to speak briefly on an issue that has been raised before this committee, which is the issue of confederated school boards. First of all, let me make the comment that this whole idea of a confederated school board is absolutely offensive to Roman Catholics in the province of Ontario. It is not being advanced to enhance or to support our rights at all. On the contrary, it is seen by all of us who represent the separate school system as an attack to put in place mechanisms that literally would erode and see to, if you like, the removal or the elimination of those rights that were given to this significant portion of the population more than 100 years ago.

We would note that in a previous brief the statement was made that Ontario has chosen to support two publicly funded systems of education. Nothing is further from the truth; we have two publicly funded systems of education as a matter of constitutional right, one having no greater preference or privilege than the other. I believe the courts have spoken eloquently with respect to these issues.

I would note, and I think this is the first time OECTA has ever made these comments, that when one begins to compare the two systems, one can look at the poverty of ours or one can argue about the excesses in the other, quite frankly, and we note some where certain assessment-rich school boards have hundreds of teachers above a contract PTR which is dramatically enriched in comparison to ours.

I put before you the argument, are such excesses justified when in point of fact we're able to show that in the quality of education we're delivering, at least as determined by certain provincial tests that have been applied, we are second to none? What we're saying is, what could we do if we had some additional support and assistance?

In concluding these very brief comments, we simply note this in response to the kinds of comments and criticisms that have been made with respect to our system. But on behalf of the separate school teachers and on behalf of our students we simply ask you to begin to recognize that for those boards that are assessment-poor, and some of them are public as well as Catholic, the time to begin to make the adjustments, to make real the dream and goal of equity, is now, because now is the time when these kids are in our schools. It is their future that is being given to them, and it's our very, very strong belief that they should be given no less than any other students within the common system of education.

Having made these brief remarks, we're prepared to accept your questions.

The Chair: We have somewhat more than five minutes per caucus. We'll start with -- Mr Carr.

Mr Carr: I think it's us. I didn't know whether you didn't know my name or you were thinking. I've served many years with him now; I guess he does know my name.

Thank you very much for a fine presentation, as usual. There are a lot of things I want to get into. You touched on the royal commission and the funding issue, and I don't know which to tackle first. Maybe some of the commission's recommendations we could touch on fairly quickly, because there isn't much time. Which ones do you agree with and which ones do you disagree with? Really quickly, if you could. The report's only this thick, I know. Obviously, we're talking about the major ones, those that are most important to you that you agree with and those you don't; otherwise, we'll be here for five hours.

Mr Ross: It's a very personal question. The commission's 167 recommendations present an integrated vision of a future world in terms of education for our students.

We would agree very strongly, certainly, with those that advocate the implementation of the new technologies. That is the real sleeper in the report. Most people don't understand that the paradigm shift in education will be the inclusion and the use of this new platform on which we will fashion whole new modes of program delivery and communicate to kids the skills of the 21st century.

But we also are very supportive of most of the recommendations of this royal commission. I would say this to you, that the teachers of our association are certainly very open to moving into dialogue, because we don't believe that the kind of school system we have fashioned, which is the finest that has ever been created, literally on the face of the earth, is any longer adequate, in the sense that, not that there are deficiencies within the system, but the plain fact is that the world has changed and we must change.

Mr Carr: Let me help a little to narrow it down. I probably should have done that at the beginning. Teachers' college, accreditation of teachers, standardized tests, and three-year-olds in the school: That's four. How do you feel on those four issues?

Mr Ross: Let me deal with a couple now and I'll have Marilies deal with the others.

Teachers' college: We are in favour in principle. We are open to dialogue. We wish to reclaim our professionalism. We wish to show evidently to the public the meaning and nature of professionalism as it would be defined by the teachers of this province.

With respect to recertification, we're very unhappy that the minister has chosen to articulate, if you like, some sort of permanent probation for the teachers of this province. Certainly it is not called for in other profession. We believe it is a very negative impediment to the realization of the minister's goal of a college of teachers.

Marilies will comment on the early school and standardized testing.


Ms Rettig: As to the school readiness program, the early childhood education program, one cannot deny the research findings that attribute positive effects of the school readiness program, and certainly that's been seen in France in the various programs they have. We want to have some input and further dialogue in expressing our concerns in this area: facilities and the lack thereof for accommodating these children, funding and the lack of funding for programs that we currently have within our system and the extension of funding that would have to be realized with the implementation of such programs, and finally, looking very carefully at the staffing of these programs and ensuring that we continue to have qualified teachers at work within the entire realm of the education system we provide.

With respect to standardized testing, there are three components to testing that are absolutely critical: testing to ensure the wellbeing of the student and to ensure that we are well versed in how the student is progressing throughout his or her educational career; secondly, testing to ensure that we continue to communicate with parents on the progress of their particular child throughout the school system; and finally, for the greater community at large. Currently, when looking at testing and the current dialogue with respect to assessment, be it standardized tests or testing at certain grades, the discussion tends to focus almost exclusively at the general public and accountability within the system. The greatest weakness inherent in that is that we lose the central focus, which should always remain with the student.

Mr Carr: One last question on the social contract; I've mentioned this before. The minister sat in that chair and said the money isn't coming back in the system. Many of your members have been rolled back and frozen and so on. What is your membership expecting at the end of the social contract, and where do you see the money coming to pay for any increases to their wages?

Mr Ross: One would like to have the answers to those questions. Certainly the membership in OECTA will not have had a salary increase for five years. I suppose that would be fine if everything else in the world remained permanent, but unfortunately it doesn't.

The major problem we're facing and the threat facing the province of Ontario which could potentially destabilize the educational system is the increment issue -- I think you people are aware of that -- and it's been variously handled between assessment-rich and assessment-poor. It is a statement of injustice of such a profound nature. When one recognizes that many of our younger teachers are going to lose up to $90,000 per person, you can understand the kind of actions that are going to flow, the anger and the bitterness between teacher groups and boards across this province, and also directed against the government.

If I could make a plea on behalf of anyone, somehow we must solve that problem. If we don't, we're going to reap the whirlwind of something which has been so profoundly ill conceived that if one set out to destroy the system, one could not have come up with a better device.

Mrs Haslam: Increment seems to be a big issue with teachers. I often say I wonder if it's time to re-evaluate that whole grid system and whether it was time, in this context of the changes, to re-evaluate how a teacher is hired, how much she is paid versus someone at the top of your grid. I just pass that on because I have an opinion on the grid system, period.

I wanted to ask you a question about confederated school boards. You seem quite adamant against confederated school boards. When the group came forward with confederated school boards as a suggestion, I asked them questions on it because I wanted to understand it a lot more.

I end up talking in a balanced way with teachers and with groups that come in. On one side, I agree that you have the constitutional right to a Catholic education and I have argued for that when I have someone come and say: "We only want one school system. Why do we have two? We only need one school system, and we should do away with that duality." I always say, "It's a constitutional right and it has to be protected, and I don't think you'll ever see that."

On the other hand, I can see that there are economies in amalgamation. In my area, a confederated board would go a little farther into the amalgamation than I may want to look at, but in my board, the Roman Catholic separate school board director has said there's no such thing as a Catholic pencil, so therefore the economies we can find in joint purchasing, in sharing of facilities -- in my area, we have the schools joined by a row of shared classrooms. We share the facilities of the library with the city; the city can come in and share those facilities. We look at shared recreational facilities and shared transportation costs and shared purchasing of Circular 14 and things like that. There are ways that you can find some economies. Is that where you would rather be travelling than the confederated school board, and what are the differences between those two entities?

Mr Ross: We're travelling that road now. There's no question about that.

Mrs Haslam: But not far enough, from what I hear from the ministry. When there are 54 areas of things that you can work together on and maybe only 10 are being worked on, obviously there are other areas that have to be looked at.

Mr Ross: Let me answer your question, possibly improperly, with a question, but there is an assumption that somehow there can be these enormous economies and that somehow they're going to flow from this kind of relationship.

Mrs Haslam: Are you talking about confederated boards now?

Mr Ross: Confederated school boards. Let's just talk about economies of scale. When one looks at the situation, for instance, here in Metro, if the Metro public board were operating under the same economies as the Metro separate school board, they would be saving the taxpayers per year, at the secondary level only, $253.4 million. Now, we're not doing too bad in terms of economies when you --

Mrs Haslam: But there's still a duality in the system where you look at administration, where you look at transportation costs, where you look at purchasing. I'm not talking Metro Toronto, to be perfectly honest with you.

Mr Ross: No, I know you're not.

Mrs Haslam: I'm talking a small, rural area where there have to be economies or the taxpayers are going to be upset at the amount of expenditure in the duality they see out there, and so we have found economies. Cannot that be found in the systems, or is the confederated board the answer?

Mr Ross: No, the confederated board is not the answer, because a confederated board is designed to impose itself upon the constitutional rights and stability of the smaller of the two systems. There's no question about that.

The other thing you're suggesting, relative to the kind of sharing, we totally support and we endorse. Much of that is going on, more of it can happen, and I don't think you will have a problem with either this federation or the separate school boards with respect to that.

But I certainly want to leave all of you with the impression that if you want to find the paradigm of economies, one need look no further than the separate boards. That has been the essence of our existence for so long that it has almost become a part of our essential being. If you look at the cost relationships between public and separate boards, they're borne out in every instance, and if you take a look at Metro, the numbers are staggering.

Mr Phillips: Just a comment on the confederated board, and I hear the depth of your feeling on it. Of all the areas where we're going to want to put our collective time and energy in the future, I think this would not be one of them. Having said that, I do think it's in all of our best interests to really accelerate the level of cooperation and coordination. There is no doubt that if all of us who are involved in education don't demonstrate to the public that we are relentless about savings, the total system struggles and suffers. But I hear you very clearly on the confederated board, because I think it's rather fundamental to what you earned or won 125 years ago.


I wanted to follow up on the social contract issue, just so we have an idea of what the implications are coming out of it. I know your major concern is the teachers who have not progressed on the grid. Is the expectation, apart from that, consistent with the Minister of Finance's expectation, that is, "Listen, we're into a period of restraint forever now and the tap is not going to turn on April 1, 1996," that we're all going to have to find a way to operate within a very limited resource allocation? Is that the expectation, apart from the grid situation?

Mr Ross: Well, obviously the downsizings as defined by the social contract are permanent. We recognize staffing and so on with respect to that. However, the thought that these teachers are frozen on the grid, with that experience lost -- and it was this affiliate that returned first and effected the sector framework agreement. One of the reasons we did so was the fact that it would expire in March 1996, and there is no question that on its expiration, with respect to the increment, that issue will be attacked vigorously by all of us, not only in terms of arbitration but, if necessary, in terms of the use of sanctions, and that's something I don't think the people of this province want to see happen, given the profound injustice.

I would also advise the committee here that in terms of the dollars that were taken with respect to those kinds of phrases, none of them were ever costed as revenue by this government. It was simply taken gratis and we paid to the targets as defined, but not using that as any part of the claim.

Mr Phillips: I wouldn't mind getting your thoughts on the pension issue, because one of my concerns has been that the province has taken a three-year holiday from making any payments against the unfunded liability in the teachers' pension and also in the public sector pension. So we will go three years with zero payment and then suddenly it will kick in at $600 million a year.

The teachers' groups approved that, agreed to that, as part of the social contract discussions. Were the teachers' groups indicating any concern about that, however, and should we be concerned about that?

Mr Ross: As a government, you have to be concerned about any liability which is accruing, just as I would be when I was treasurer of OECTA. We watch very carefully. Certain arrangements unquestionably have been made and obviously, from the teachers' point of view, we're simply concerned that the dollars are going to be paid relative to the agreements which are in place, you see. But from your perspective, this probably is perceived on your part as a mechanism of limiting the deficit status at the end of the year.

Mr Phillips: Yes. Thank you very much.

The Chair: I thank the Ontario English Catholic Teachers' Association for its presentation.


The Chair: The next presentation this afternoon is by the Bank of Montreal. The Bank of Montreal is a forecaster coming before this committee and it will have 45 minutes for its presentation.

Mr Tim O'Neill: My name is Tim O'Neill. I am the executive vice-president and chief economist at the Bank of Montreal. This is David Hall, one of our economists in the economics department.

Thank you for the invitation to provide our thoughts on the budget process. I am not sure that the comments we are going to make are going to be a huge surprise to anybody. But none the less, surprises sometimes happen.

What I'd like to do is start by putting this in a broader context: Do a quick run through our outlook for the economy, first of Canada, then of Ontario, a quick look at the fiscal situation in Ontario and then recommendations regarding the budget-setting process for this year.

We're looking at growth in Canada which will remain reasonably strong into 1995, slowing from the 4.9% we saw in 1994. We've had, as you know, some modest increase in interest rates, if I can understate it, and that certainly is having an impact on dampening economic activity here. But we have also seen, or will expect to see, with the slowing of growth in the United States this year, some decline in the rate at which our exports have been growing. For example, we saw them in 1994 grow by 17%, which was quite a bit more than most people had anticipated, and that almost surely will flow in 1995.

When looking at 1995, some basic assumptions:

(1) As I've said, US growth will slow. I think that will become increasingly evident over the next several months. We're anticipating though that the Federal Reserve will still increase at least one more time the federal funds rate which will raise short-term interest rates in the United States and probably have a spillover effect into Canada.

(2) We're expecting most Canadian governments to address the fiscal imbalances that exist.

(3) It's our working assumption at least that in the province of Quebec there will be a rejection of separation in the referendum, whenever that's held, assuming it's some time in 1995.

We're looking at growth slowing then in Canada from a near 5% to something in the order of 3.5% for this year. You've got the weakening US economy, still very high real interest rates by any historical measures in Canada, some strengthening as we get into the second half of the year in the Canadian dollar, fairly modest wage growth, which means that it limits income growth and consumption spending, and probably across the board more restrictive fiscal policies.

Last year we saw the public sector influence growth in the Canadian economy in a negative way, about minus 2%, and we're expecting to see not quite that sizeable a negative impact but it will be there this year.

The unemployment rate will decline, probably more gradually than we saw in the past year where it came down almost two full percentage points; more likely to be fairly modest. First of all, we'll see some people coming into the labour market. We've already seen some impact in the most recent month of people coming back looking for work who had been unable to find it before. That, combined with the more modest growth, will mean that the unemployment rate will come down more slowly.

Inflation will still not be a problem in Canada. It will remain under 2% for this year and probably next year as well. If you take out the tobacco tax cuts anomaly, we were well under 2% in 1994. So that will be three years in a row at least at those rates. Compared to our neighbour, we're looking at four years running and six of the last eight in which we've had lower inflation rates in Canada. That has relevance to a couple of comments later on.

We saw considerable increased pressure on interest rates in Canada. A substantial portion of that pressure, despite the immediate impact or approximate impact of what was happening in the US, the fundamental influence we feel was and will continue to be the fiscal problems in Canada. Interest rates probably will fall in Canada, but the declines will be somewhat more modest if we get some more tightening by the Federal Reserve in the US. There will be obviously some turbulence in financial markets associated with the referendum vote.

We'd expect to see rates start to come down in the second half of the year. The projections specifically are that we'll see short-term rates, for example three-month treasury bills, declining to about 6.5% by the end of this year and to under 6% by the end of 1996; long-term rates coming down close to 8% by the end of this year and close to 7% by the end of 1996. The Canadian dollar strengthens somewhat in our forecast through this year.

If I can turn to Ontario, growth will be very strong in Ontario this year as it was last. We're looking at a rate of about 4.5% in 1995. The economy here has benefited from the strong growth in the US, the weakening in the Canadian dollar and the benefits of the restructuring that went on particularly in the manufacturing sector in Ontario during the recession and even before that. You're looking then at an economy which will still have fairly strong export growth. We expect that in particular the auto sector will move towards full capacity and, having done that, will create a significant boost in that sector. So even though you've got some appreciation in the Canadian dollar and some weakening in the US economy, that will still be the strong sector in the Ontario economy for this year. You'll still be, as you have been -- as we have been -- for a long time, a strongly export-oriented economy, and I think we'll see in this year some broadening of that recovery into the domestic side of the Ontario economy.


Put this in context now of the fiscal situation. Ontario's had one of the strongest growth rates in the country and will probably have the strongest growth rate in 1995. That means increased revenues, it means a lower rate of increase in social assistance payments, yet this province has one of the worst fiscal situations in the country.

If you look at the graph on the following page -- this is following page 3, if you're following the document -- you can see that all the provinces made efforts to reduce deficits. Ontario's progress has been, by comparison to many other provinces, quite slow. We've got two provinces that are likely to balance their budgets in this next fiscal year. Four others are going to be close. Two key provinces are not going to be close, in our expectation, Ontario and Quebec, and the two largest provinces.

One of the critical problems here is that you're looking at an issue, among other things, of investor confidence. Deficits in a given year aren't a key problem. It's deficits accumulated year after year after year, even in a strong recovery, that are a critical problem, because what you're looking at is a debt-to-GDP, your debt relative to ability to repay it, that continues to increase. It's more than doubled since the late 1980s. We're looking at a debt-to-GDP in the current fiscal year around 30%, just above that. That is not going to be sustainable over the long term.

If the current plan for deficit reduction set out in last year's budget is carried out, we're still looking at a debt-to-GDP that will rise by the end of next year. That's occurring in the context of very strong economic growth in the province, in fact strong growth for a total of two and a half years, and despite the fact you've got six other provinces that have all lowered or will have lowered their debt-to-GDP ratios by the end of the fiscal year 1995-96. When that happens in a strong growth environment, you've got a problem, and a serious one. And it's a structural problem, not a cyclical problem alone.

Ontario, like other provinces, has faced the difficulties of reduced transfers from the federal government, and that pressure is going to be there in the future, whether it's this year or this year and next year and years beyond that. Rising costs for social assistance, the restructuring that everybody's gone through: Those are not insignificant factors but they are a reality that everybody in the country, every province, every business, every household has had to in one way or another deal with and will continue to have to deal with. You can't hope that it'll go away. It won't.

Before I get to recommendations, one final point on this: This is an important economy and an important budget in the scheme of things in Canada. This is the largest provincial economy. It means that investors, market analysts, take a much closer look at Ontario's budget than they would at, for example, Saskatchewan's budget or PEI's budget or Nova Scotia's budget. It has a large impact on the total debt in the country and it has an impact on the evaluation of where that debt is going and what kind of impact it will have.

Four keys to a credible fiscal policy: First and foremost, did you at least do what you said you were going to do? Did you meet your own targets? Second, are you displaying both your expectations and your results in a transparent and consistent way so that everybody understands exactly what it is you're trying to achieve and whether or not you've been able to do that? Third, if you've got, as I've suggested Ontario has, a fundamental structural problem, is there a structural solution? Finally, if there are unexpected events, as there almost inevitably will be, particularly if those are negative ones, is there a plan, is there a commitment, in particular, to adjust to get back on track if you've been pushed off track?

Six recommendations:

First of all, at an absolute minimum, at least set credible targets for deficit reduction and clearly demonstrate a resolve to meet those. That, unfortunately, has not been a commitment in this as in other provinces. That environment is changing now. The Bank of Canada, whatever one may think of the specifics of the policy pursued and its impact, has now established not just domestic but worldwide credibility for its anti-inflation policy. That was hard won, at a very high cost in some cases, but the credibility is there because they committed to meeting targets and did what was necessary to achieve them.

The federal government at least appears to be on the verge of taking the steps necessary to achieve credibility on the fiscal policy side at the national level. Other provincial governments have put in place deficit reduction plans that they've met or exceeded. They're establishing credibility. It's an absolutely essential part of this whole process.

We're suggesting that, at a minimum, the upcoming budget should project a deficit of no more than $6.5 billion. That's the figure established in last year's budget. At least meet that target. That's the starting point for building credibility; it's not the end point.

The second problem is the issue of transparency. I'm not an accountant. I don't want to get into the minutiae of debate over whose practices for accounting are the appropriate ones. Let me point out that when there is a public debate over whether it's the Provincial Auditor or the Finance minister who has the right approach to establishing how budgets and revenues and expenditures are going to be measured, that's a problem, that's a real problem, because what it does is create the impression that what the government is attempting to do is use creative accounting to reduce its deficit for public consumption purposes when in fact nothing real has happened. At least one simple way out of that is to adopt the accounting practices of an individual or an office, an institution, that would be seen as having an independent view, in this case the Provincial Auditor.

It would be, I think, valuable to see a more ambitious plan than meeting simply the target already set. The government has to set a goal of, at a minimum, stabilizing the debt-to-GDP ratio. I don't think that's an unduly ambitious project for a government to undertake. As I've suggested, six provinces will not only stabilize but actually lower their debt-to-GDP ratios in 1995-96. You'd need a deficit of about just under $5.5 billion to do that in Ontario.

Even more ambitious, but still valuable, I think -- by the way, these recommendations are very much of a type that we have made as well to the federal government -- aim to balance the budget and do it a year earlier than planned. At least there is a specific year in mind, something that we have urged but haven't yet heard from the federal government about, a choice of a date for balancing a budget. The problem here is not just one of credibility. The problem here is that if you're looking at a national, and North American, economy that is going to be slowing, if it slows, for example, much more quickly than most of us anticipate or more significantly than most of us anticipate, you've got a real problem if you haven't got the fiscal situation in hand, because suddenly you're faced with growth in revenue slowing dramatically, expenditures starting to ramp up and instead of any room to manoeuvre to at least stabilize debt-to-GDP, it starts to get out of hand and you're now starting at a higher platform than you did in the last recession.


I think there's a need to cooperate with the federal government and the other provinces on social program reform. I don't buy the argument that the reforms suggested, even by the federal government or certainly some of those that have been proposed by other analysts, are going to destroy the social safety net in Canada. The problem is that the system is already damaged. Some of our social programs are causing more problems than they're solving. I think what we're really looking at is how to best rebuild the system, not tear it down.

The more serious concern that ties specifically to the debt-deficit is the buildup of debt and the attendant uncertainty that goes with that. The perception that this is not sustainable is the more serious threat to the existence of that social security system. I would argue that getting the fiscal house in order is the first step to making sure that you've got a viable system that's going to be sustained through all business cycles, that can sustain the support for those who most need it and do it in the most cost-effective way.

The issue of who is responsible for what, apart from the dollars issue, let me put it in very simplistic terms. As a taxpayer -- and I suspect I would reflect most views -- the issue is far less important who does it but rather how well it's done, how effectively it's done, with my dollars.

Finally, I would urge the Ontario government to concentrate less on itself trying to create jobs and more on ensuring that the environment exists for job creation by the private sector. I think it's fair to say that for most analysts the observation that all levels of government have had a pretty dismal record in creating lasting jobs is a fair assessment. A much more effective way to do it is to concentrate on efforts creating a healthy environment for business and job growth.

Let me close by suggesting that Ontario has a lot of economic strengths. I have been a resident of Ontario for 15 months. I spent most of my life working and living in Atlantic Canada. I can recognize a strong economy as well or better than anybody. This one has a lot of advantages, huge advantages: the geographic position, especially with respect to North American trade; a very strong, well-educated, productive workforce; firms at the leading edge of technology; a very strong manufacturing sector; lots of natural resources. The point is that the potential, I think, for the Ontario economy is likely to be blunted, restrained, hampered by a continuing debt-deficit problem.

Deficit reduction in many ways is like other investments: You make the sacrifices today; you enjoy the benefits of that in the future. I think it's clear from the comments that we've made from the presentation that you have in front of you that we feel you've got to give deficit reduction the highest priority in the upcoming budget.

Mr Sutherland: Thank you, Mr O'Neill. I hope you're enjoying your time in Ontario. I'm sure the pace is a little more hectic and people aren't quite as friendly as they tend to be in the eastern provinces. I'm sure the cars aren't stopping to let you cross the street as they do out there, and it's always a pleasure to go and visit the east coast for that reason and their great friendliness.

I appreciate your thoughts and your comment on where the economic forecast is going to be. I wanted to talk about the issue of how Ontario has been impacted versus the other provinces. I guess it's a little difficult to discuss that with someone from the east coast in terms of what they're going through. But when I look at comparison to other areas, there are a couple of things.

The recession clearly, in terms of its job impact, was far greater in Ontario than in many of the other provinces, particularly the western provinces. As a result of that, the cap on transfer payments has impacted Ontario far more than it did a province such as Alberta. So I think with this specific recession there was a far greater impact than maybe some other parts. The east coast situation is obviously much different in comparison to some provinces that are seen as the new nirvanas on how things should be done.

It was interesting to hear that you thought 4.5% this year in economic growth. Did you have any comments on the out-years to 1998 as to what you thought the average might be for Ontario?

Mr O'Neill: We haven't done a formal projection, but let me give you -- economists don't guess, so best estimates, best projections. We're looking at national growth that'll probably be 3% to 3.5% for the couple of years beyond 1995. There are certain challenges and risks associated with that. It wouldn't be a huge surprise to see Ontario do at least as well as the national average in those couple of years or do about the national average. So 3% to 3.5% I don't think would be an outlandish kind of estimate for those two years.

Mr Sutherland: Some of the other economists have talked about what the impact of a significant tax cut would be. As you may know, one of the parties here in Ontario has proposed a significant tax cut as a way of stimulating economic activity. We've heard evidence that the savings rate is low and the personal debt of individuals is rather high and there's some question as to whether a tax cut would automatically stimulate spending activity or people would use that to increase their savings or to pay down some of their personal debt.

I guess the other side of that is in terms of your issues regarding the deficit, as to whether a large, significant tax cut at this time is an appropriate measure with the deficit that we have.

Mr O'Neill: Could I deal with your question about the recession and then get to the other two? I don't think there's any question, if you look at the impact of the recession, it is factually true that it was most significant in proportional terms in Ontario.

Two sort of bracketing comments about that: The recovery period in the late 1980s was most pronounced in Ontario. The growth was very, very strong in Ontario. I think as we are now fully into the recovery, it's clear that while, yes, the recession was most substantial in its impact proportionately in Ontario, it's also in the recovery enjoying the strongest growth, I think, on a sustained basis. So that has to be put in context. I think you have to take the whole cycle and look at what it means for fiscal policy, rather than just a part of it.

As to a tax cut impact, as you know, in the US they're going through a very technical debate about the long-run impact of tax cuts on -- I think the term used is "dynamic scoring." Tax cuts have two kinds of potential impacts that analysts typically like to talk about. One is if you want a demand-side impact where you get some stimulus on the spending from personal income tax cuts and, if it's corporate or business tax cuts, perhaps on investment. Conceptually, there's no problem with making that argument. The size of it is what I think people will debate.

The fact of the matter is that for given levels of savings and personal debt, if you lower the tax rate at the margin, people are going to increase their spending to some extent. The question is, how much? So the size of the stimulus, I think, can legitimately be debated among analysts, and you can find all kinds of interesting models as to how that ought to be forecast. If you wanted, I could drag in about eight different numbers from six economists, so you could have fun looking at those.

The other kind of impact is even more difficult, and this is where the debate is going in on the US. In some sense, fortunately, we haven't gotten into it in Canada, and that is, do you get a behavioural response? For example, does the underground economy begin to dissipate because there's less of an incentive? I think the argument is that there would be some impact there. How big and how long to have an influence is another matter. Would work effort change? Again, yes, I think conceptually the argument is fairly clear.


The issue always in these things is, how big in actual dollar terms is it going to be? There has been some work done in an international context which suggests that at marginal income tax rates above 50% you're starting to get some significant disincentive impact on work effort and some incentive impact for, if you will, pushing activity into the underground, which suggests that if you can lower it to below 50%, you can get some positive impact from that. That's a multicountry study. The size of the impact, though, varies depending on what jurisdiction you're talking about and also in what kind of economic environment you're talking about that sort of adjustment occurring.

Mr Phillips: Just to comment on that and then ask a question, because it will be an interesting debate, I think, if you say deficit reduction is the number one priority. Whether a $4.5-billion reduction in tax revenue is the best way to achieve that, I think, will be an interesting debate as we head into it. An almost immediate $4.5-billion reduction in personal income tax revenue, whether that's a signal -- maybe I'll ask you the question: How would that be interpreted in your markets, where I think you're saying international investors are quite important and credit rating quite important?

Mr O'Neill: I think the issue would be how, as a package, does it look over a period of time. I think that will be true, frankly, for anybody's budget proposals. We were looking at this in the context of how you analyse what the market's going to do in response to a federal budget -- that's the one most immediately at hand. If, for example, in Ontario or at the federal level there were a three- or four-year credible plan, transparently clear as to how you would achieve a result, clear as to what assumptions were being made so that at least people could debate the reality of those assumptions -- if the reality is evident enough, it's acceptable. If the approach is credible that you can actually do what you say you can do, then I think the issue would be, is that achievable in the time frame that is set, given the fact that the environment may change very dramatically, unexpectedly and negatively in that time frame?

By and large, the preference would not be necessarily to see a significant revenue decline at the front end, but if there were a large and credibly established payoff farther down the road, I think it's that -- it goes back to the issue that we talked about, the structural issue. If there is perceived to be a structural problem, part of which is associated with, among other things, the tax environment, but also part of which is associated with expectations about what the public sector can do in the way of social services and so on -- if there's perceived to be a structural problem that isn't addressed, then no amount of nibbling at corners and making modest adjustments is really going to solve that.

There are different structural ways of achieving an ultimate result that is considered desirable. The key is that it has to be credible and it has to do the job as quickly as possible, so it can't just be, "Well, in the first couple of years it'll be bad but the next two years will be wonderful." We've been through the exercise now at the federal level, as I'm sure everybody is aware, for a number of years of hearing: "Next year will be better. Next year will be better. Next year will be better." I think there has to be both an immediate and a long-term payoff. I think on balance that's what the markets would prefer to see, but at a minimum, a long-term payoff.

Mr Kwinter: I'd like to refer to your comments about the credibility of the government in meeting its targets and that you call for at least a $6.5-billion deficit in 1995. In questions that I have presented to ministry officials, they have already admitted that notwithstanding what they say in their budget, when they go to public accounts, where they then have the documents that the auditor will reflect on, they expect that 1994-95 will be at least $2 billion higher than what they are anticipating; the $8.3 billion will be somewhere between $10.5 billion and $11 billion.

That indicates to me that the $6.5 billion already, given the type of accounting that the auditor has called for, regardless of what they say in their budget, when they go to public accounts in 1995-96, will be at least $8.5 billion. How does that sort of square and what is the impact of that going to be on the fiscal situation in Ontario?

Mr O'Neill: I don't want to get into a debate over the right accounting practices here. The key point, I think, both for the fiscal health and for the market reaction to an attempt to deal with that fiscal health, because we've had questions and comments about both of those, will be, irrespective of what the starting number is -- and the debates can go on forever about whose accounting procedures ought to be used -- that it clearly is moving down, that it's going to continue to move down, and that whatever measure you use, the direction and the size of the movement in that direction are unequivocal and are going to be consistent and sustained.

In some senses, the starting point, the platform from which you jump to dive into the water, if you will, is less important relatively than whether you make the jump and whether you're going to get to the bottom. Presumably, gravity will pull you down in the case of a dive, so that may not be the right analogy.

Let me use a different one. If you've got a snowball rolling down a hill, it's getting larger and it's picking up speed. The key issue is, however we measure the speed and however we measure the size, the job is to stop it from getting larger. The job is to stop it from picking up speed and actually to reverse both of those processes. So whatever point on the hill you think the snowball is and whatever micrometers you use to measure the size, you've got to stop it and start rolling it back up the hill. That's the key point, I think, both for the fiscal health and for the reversal of view in the investor community.

By the way, let me just make a comment. People focus on international investors. The problem isn't international investors. It's every investor, and most of those investors are average Canadians who, through their pension plans and other mechanisms for investment, are making bets about what the future fiscal health of Canada is going to be. If they think that's threatened, they're going to back out faster than anybody in the United States or Japan. So the confidence we're talking about is not on Bay Street, it's not on Wall Street; it's across the board.

Mr Phillips: Main Street.

Mr O'Neill: In large measure it is on Main Street: Main Street Canada, Main Street other countries.

Mr David Johnson: Thank you very much for your presentation today and your comments. Obviously, it's our plan that's being debated here, and although your comments are simply professional and looking at it from the point of view of the professional aspect, I certainly interpret them as being supportive.

We agree with your comments that the plan has to do the job. It has to be credible. It has to do it as quickly as possible. Our approach is, as you've indicated, that it should not focus on the government creating jobs, but it should focus on ensuring that the environment exists so that the private sector can create the jobs. It should involve working with the federal government. There's only one taxpayer, and the important thing to the people of Ontario is that the governments work together to provide the services most effectively.

In terms of looking at both the tax side and the expenditure side, we feel that the expenditures in the province of Ontario, because they've doubled in the last 10 years, well beyond the rate of inflation, well beyond the growth in population, have gotten out of hand. I'm not so sure what you mean by structural changes, but I would view that our expenditures fit into that category and that some structural change needs to take place -- not nibbling at the corners, as you've said. We feel we've gone by that sort of situation and we need to do something of a more structural nature on expenditures over a three-year period, a $6-billion reduction. We feel that the taxation, which has gone beyond that 50% level -- the marginal tax rate is now over 53% and Canada suffers from the highest personal income tax rate of all the G-7 countries when measured as a per cent of GDP. There's another indicator. So we're saying that the personal income tax should be reduced by $4 billion over three years. I recognize fully that deficit reduction is the key and that the income tax reductions can only take place if the expenditure reductions have taken place.


We're also looking at the workers' compensation premiums and the employer health tax, particularly for small businesses. I doubt the Bank of Montreal would qualify in that regard, but that again is to set the environment for the private sector. So I believe, as you said, that this will be up to the people of Ontario to determine if this is a credible program, if this is doable. We think it is. We'll see during the election.

Have you done any work with regard to translating GDP growth into revenue for the province of Ontario? Have you ever looked at that aspect?

Mr O'Neill: I think that the simple, straightforward answer is we haven't done any direct analysis of that. There are a lot of ways of attempting to do that kind of projection. Obviously, a lot of assumptions in response to an earlier question; I suggested that tax cuts have a multiplicity of impacts that occur over a period of time, and apart from their direct impact on a budget or revenue stream, they have impacts on people's behaviours, spending and labour market behaviour.

The simple answer is, I couldn't give you an analysis of the direct relationship that we would have done between GDP growth and tax revenue growth, but David, do you have --

Mr David Hall: I've seen numbers that have ranged generally from about 90% to 110%, being the ratio between nominal GDP growth and government revenues, particularly on the personal income tax side, and there are arguments that we've heard supporting either end of that range. Of course, the high end of the range has to do with the fact that there was some inflation bias built in the tax system as people move into higher tax brackets, that type of thing.

Mr David Johnson: To clarify, does that mean if there's a 3% growth in GDP, there'd be a 3% growth in provincial revenues? Is that what you're saying?

Mr Hall: No, not necessarily. I'm suggesting that with a range of 0.9 or 1.1, or 90% to 110% --

Mr David Johnson: That's almost 1 to 1.

Mr Hall: Almost 1 to 1. We've seen, in recovery stages, the ratio being higher and we've seen, of course, in downturns, the ratio being considerably lower.

Mr David Johnson: The reason I ask is because we feel -- again, nibbling is not going to cut it -- that to balance the budget, and our target is to balance both operating and capital, expenditure reductions are going to be required. Our forecast for growth is conservative, I would say, at 3% over the four-year period. You've said 4.5% this year. I'm not sure what you said for 1996.

Mr O'Neill: Probably lower than that in -- if I had to make a specific estimate for Ontario, probably -- let's pick a number -- about 3.5% perhaps and then 3% to 3.5% I think was the number I gave for the years beyond 1995. So depending on how many of those you take and where you start, something in that range.

Mr David Johnson: The number we're using is more conservative because we feel again we have to achieve that target. As you said, it's very essential that you achieve your target. It's no good to take a higher number and not recognize that growth and then not achieve it.

Our plan is to achieve deficit elimination through 3% growth and significant expenditure reductions. The other parties are essentially relying on economic growth, and I just don't think that'll work. I don't know if you have any comment. That's where the starting point -- you say the starting point may not be important. It's the fact that you dive in, but if you're starting from a deficit of over $10 billion and relying on economic growth over the next four years to balance the budget, I can't anticipate how that's going to happen.

Mr O'Neill: I want to make clear that I'm not being recruited for an election campaign. In any deficit-cutting exercise -- I mean, we've seen experience in two provinces in the west already of very different ways of coming at an issue of how you deal with a deficit-reduction plan. The key is that I think one has to make a start. The way in which it's done will vary from one political philosophy and economic philosophy to another. The way it's done will vary from one set of circumstances from one province to another.

I think our argument has been all along, for federal and provincial governments, that doing it through tax increases is not appropriate, in fact it's counterproductive; that there has to be a substantial rethink of the levels of and types of expenditures that are engaged in in the public sector. In one sense, a simplistic characterization of the structural problem is that we have created in Canada for ourselves, through our governments, expectations that can no longer be fiscally met. That's the structural problem that has to be dealt with. It's not going to be dealt with through simple economic growth in any environment.

There are provinces that have had as good or stronger growth in short periods of time that have depended upon revenue growth as the mechanism for dealing with the deficit, but at some point that isn't going to be the fundamental solution to the problem. Therefore, it has to really be, to a significant degree, in whatever time frame one chooses to do that and do it credibly, focused on containing and reducing expenditures, in our view.

There are various plans and mechanisms for doing that. It doesn't seem to make much of a difference what the partisan stripe of the party in power is. Governments that have been successful in reducing their budget deficits have covered the spectrum from Progressive Conservative to Liberal to NDP. I think the fact of the matter is that fiscal reality is imposing itself, irrespective of ideology or philosophy. But the focus, at least in this part -- I would agree with your comments, and since you're agreeing with me, I'm certainly pleased. There has to be a focus on the expenditure side. That has to be the realistic component of any plan.

If I could make a comment about it, maybe an elaborative comment and a last one, I would have thought that for anybody who is really concerned about the long-term viability of a system of security and support for people who may be or will be at some time in the future economically or in other ways disadvantaged, the surest way to ensure that you've got room to manoeuvre, especially in times like recessions when you're going to be most challenged to deal with those problems, is to deal with the deficit during the strong part of an economy's cycle. During the recovery period is when you have to begin to do that.

In fact, I would argue that if there's any desire to think about innovation in social policy, there's only one way that can be achieved and that's by buying room to deal with it, not this year but in the future, reducing the fiscal problem to a level which allows you to actually consider seriously new -- cost-effective, but new -- social programs. There isn't any other way to buy that kind of room.

The Chair: I'd like to thank the Bank of Montreal for sharing its forecast with us this afternoon.



The Chair: The next presentation this afternoon is by CP Rail System, if representatives would please come forward.

Mr John Taylor: Thank you very much, Mr Chairman. My name is John Taylor. I'm in government and industry affairs with CP Rail. Next to me is Gil Mackie. He's executive vice-president for CP Rail. We're both located here in Toronto.

We're here because we believe that railways are vitally important to Ontario and we hope that our brief will be of value to you in your important consultations and to this budget. The brief that's been handed out is a little longer than can be delivered in the time allowed, so I'll be making some remarks from a shortened version. But appended to the brief are what I think are some very interesting graphs and quotes from third parties and I will refer to them as I go through.

Ontario is a major consumer of transportation services. Ontario's policies as a province have important influence on the transportation marketplace.

Our messages here today are straightforward. The first is, the health of the rail transportation industry is as important to the Ontario economy as is the health of the producing industries we are here to serve. Another is that we in the railway industry are doing our part to improve our economic health in Ontario, which has not been very good over the last several years. Third, our goals of improving our health will only be achieved with supportive government policies.

When we got the pre-budget booklet from the province, Ontario on the Job and Looking Ahead, we noted in it there were some positive themes, notably the importance of partnerships and the importance of competitive investment to the economy.

Transportation is an integral part of the marketing chain. The shipper-carrier relationship is a partnership in the truest sense. Timely, cost-effective delivery to the ultimate consumer is basic to Ontario's economic wellbeing.

The competitiveness of the railway industry has been in the spotlight in the last 12 months or so. CP Rail System, with a $600-million loss in eastern Canada over five years, has found that the sustainability of our operations east of Winnipeg are at risk. The problems we face include, among other things, more rail lines and facilities than shippers or taxpayers can reasonably support.

These are structural issues, not cyclical ones. Fundamental change is required.

Changes must come on each of four fronts, in our view. For our part, the railways, we know what we must do. First, we have to improve the flow of competitive railway investment; second, we must shed the high costs of underused infrastructure; and third, we must achieve greater flexibility in the workplace. But our initiatives will not by themselves ensure the railway's future in Canada. We need action on a fourth front. Significant change in government policies is also needed.

We are seeing some encouraging signals on that front. At the federal level, the Minister of Transport is committed to "a comprehensive and workable rail policy framework" this year. That framework is intended to bring stability to the rail sector and to maintain healthy competition, and we think that's a very positive sign.

We also take some encouragement from the government of Ontario's definition of railway viability. The Minister of Transportation recently made a submission to the task force on CN commercialization, and in it said:

"A viable North American concerned with generating solid financial results, and providing superior customer service in a safe and environmentally favourable operating framework. Not only must Canadian railways like CN" -- and like us -- "be competitive with North American railways, but they must also be competitive with other modes of transportation."

We agree. We're also pleased to see that the province of Ontario supports improved federal capital cost allowances to foster railway investment. That's needed. But we do not agree with the province's contention in the same brief that Ontario's fuel and property taxes do not materially affect rail cost competitiveness. Fiscal reform is needed, and it's needed at all levels of government.

We've attempted in previous submissions to point out the inequity of tax treatment in Ontario because it restricts us in providing competitive rail infrastructure and services that would benefit all Ontarians. We are disappointed by the lack of action or even acknowledgement that these issues should be addressed, in spite of the objective point of view that many third-party studies have brought to the issues. As mentioned, we've attached a small cross-section of those comments to our brief. They show a Canadian railway tax burden that is widely recognized as inequitable. It biases shipper choice against rail in favour of trucks, it works against Canadian transportation in favour of US freight carriers, and it distorts choice against a user-pay infrastructure, rail, in favour of facilities funded by public expenditures, the highways. One reality is that Canadian railways pay out a 75% greater portion of their revenues in taxes than do their competitors: US railroads, or trucks on either side of the border. That's covered by chart 2 in the brief. Another reality is that CP Rail System and CN pay more taxes to Ontario than to any other province. That's covered on chart 1.

Changing trade patterns have made those spreads critically important. Our shippers compete in markets no longer defined by national borders and transportation has become North American in scope. Price and service alone are what count, not carrier nationality. The market for freight transportation service is no longer simply a Canadian one; it is a single transportation market defined in continental terms. It is intermodal and multimodal in the broadest sense. Ontario's trade-dependent industries are under pressure for better price, better delivery and better service. They need and demand the same from transportation. Only healthy transportation carriers can make the investments to meet these challenges.

Railway investment is important in keeping Ontario industry competitive, and the need for it is increasing but the means to invest have been decreasing. Railway financial returns have fallen. Even after the recession, earnings are well below the level required to support the kind of investment we need to make.

A major cost and investment issue is excess infrastructure. The National Transportation Act Review Commission viewed it as "staggering" and a major policy challenge. It said, "We see two challenges for governments, both formidable: to rationalize a very large inventory of superfluous infrastructure, and at the same time to stimulate further investment of private capital in priority infrastructure having specific public benefit and competitive advantage for the country."

For CP this dilemma shows up in several ways. For example, CP and CN carry more than 90% of their traffic on only 40% of their lines. The railways' traffic density on average is just slightly better than half that of the major American railroads against which we and our Ontario shipping partners must compete. That's covered on chart 3. The resulting high costs and low utilization mean the current net incomes will not support the level of capital investments needed to ensure a fully competitive railway in the future.

With our capital spending restricted, our focus has been first on basic levels of replacement, and second on new investment geared only to the very highest of priorities. A significant share has been spent in Ontario, though. We've had major expenditures on our Vaughan intermodal terminal, the fleet of double-stacked container cars required to serve it, and our Detroit-Windsor tunnel expansion. These have all been strategically necessary investments we could not afford not to make because we have to maintain our position in intermodal and cross-border trade for our customers.

The same goes for the 900 covered hopper cars from National Steel Car in Hamilton purchased last year. We had to make that investment to hold our ground in bulk transportation.

We've had to address an aging locomotive fleet problem. We've just ordered 80 high-technology locomotives, the first new order of power we have made in six years, but much more capital spending is needed to sustain competitive, reliable railway services in the long term.


What are the implications of constrained investment for Ontario? One effect is to reduce industry's transportation options, and another is to reduce the government's policy options because a diminished rail presence inevitably leads to more pressure for public spending on highways. There are implications too, obvious ones, for Ontario's railway supplier industries. There's a big difference between holding spending to what must be done and expanding the horizon to what could be done by an industry with the tremendous innovative potential that modern railways can bring.

"Iron highway" is one example. Iron highway is a radically different form of train technology and an entirely new approach to intermodal transportation. It's aimed specifically at high-speed medium-distance movement of standard highway trailers by rail. It can be a real alternative to the highway and busy corridors such as those that we have in southern Ontario. We plan to test iron highway in service between Toronto and Montreal this summer. If it proves out, it will require a huge railway investment to implement on a viable scale, with widespread benefits not just to rail as a business but to the trucking industry that will be the user of the service. For governments also, it would reduce highway investment and maintenance costs and all would benefit from reduced highway congestion and fuel conservation. But it will only happen if we can afford the investment, and there governments do play a part.

The stiff competition we face from US railroads is not just because they have an edge in scale and traffic density but also because of more favourable regulation and taxation. The same goes for our truck competition.

Chart 2 shows clearly that Canada's railway tax structure is not competitive. The Transportation Association of Canada's task force on competitiveness found that Canadian railways pay some 14% of their revenues in taxes; for US railways and Canadian and American trucking it's only 8%. In Ontario, property taxes on our rail roadway are of major concern. The inequity begins with the concept of taxing railway rights of way at all. Highways are exempt from property tax. Neither highway authorities nor road users such as commercial truckers and buses have to cover it. Railways finance and build their own infrastructure and pay property taxes on it entirely from their own resources. Railways maintain their rights of way at their own cost, where other modes of transport don't.

We pay high taxes despite past provincial reviews that have highlighted the inequity of taxing railway rights of way based on assessed values of abutting land. The latest review, the Fair Tax Commission, observed that railway rights of way are one of the "examples of properties for which conventional assessments do not work."

Today, rail property tax environment is a highly volatile one. Rail right of way was eliminated as a separate property tax class in the province's equalized reassessment program beginning in 1990. That opened the door to a major shift of tax burden on to railway corridors. I'm sure you may recall that Metro Toronto tried in 1992 to impose market value assessment, MVA, on rail rights of way, which would have more than tripled CP Rail's property taxes in Metro. The province disallowed that Metro scheme, but our exposure to massive tax increases has by no means disappeared.

Other municipalities across Ontario continue to reassess without the separate railway class factor. If it's allowed to continue, we estimate that such reassessment province-wide will add $13.8 million per year to CP Rail's property tax bill, probably equal to or a larger amount than CN's. It would more than triple our right-of-way property tax bill. The result: We'd have to generate about $180 million in additional revenue per year just to stay even.

That's the big picture, but I'd like to talk about a smaller example, a smaller scale, and talk about the fact that there are sections of CP Rail's network in Ontario today where the tax situation can be the difference between viability and being forced to exit the market in that territory.

A real-life example is our Owen Sound subdivision, which runs from Mississauga north to Owen Sound. The whole line is losing money. Losses north of Orangeville, which is about midpoint, are more than $1 million a year. We can see no way of correcting this and we have served notice of intent to abandon the northern section. The south end is also losing money, but we believe it could be made viable with a combination of revenue growth, commitments from shippers and lower operating costs.

However, what we achieve in a business sense could be wiped out by property tax increases. The line to Orangeville from Mississauga runs through three municipalities in Peel region: Mississauga, Brampton and Caledon. If they reassess our roadway without the railway class factor, we figure our property taxes would more than quadruple, from $80,700 paid in 1994 to some $360,000 per year. The result would be that the line would remain uneconomic and we would have no alternative but to seek its abandonment. This illustrates vividly that taxation in Ontario does affect railway viability and that a point is eventually reached where it becomes the sole factor. Although many local stakeholders have become aware of the tax impacts and have indicated a desire to work with us on this particular local problem, it's clear that real change will only come with the cooperation and the will of the provincial government.

That's one Ontario tax issue. Locomotive fuel taxes are another, and the logic of those taxes is flawed too. It's clear how railway tracks are paid for; it is a lot less clear how highways are paid for. Yes, they're financed by governments, but who really pays for the roads in the end? A lot of people, truckers included, believe fuel taxes are payment for the highway system, but these taxes are not dedicated for road use and there's no clear system for allocating costs or collecting revenues for full commercial use.

Two questions arise: If fuel taxes are for highways, then why do railways pay any tax on locomotive fuel? Alternatively, if fuel taxes do not pay for highways, how is the truckers' use of the road system paid for?

Locomotive fuel and property taxes impose costs inequitably on rail transportation. Both have the effect of making railways subsidize the public highways used by their competitors. Highway use continues to grow. For commercial users, it is being made more attractive by steadily increasing allowable vehicle weights and dimensions, the latest in 1993 allowing 53-foot trailers. This is how government policy can unbalance competition in favour of one mode. We don't think trucking should be denied the benefits of advances in technology and vehicle design, but we do not think these changes should be made without a clear view of how much of the highway system costs come from heavy commercial use and how those costs are recovered.

Spiralling road use means less utilization of the railway infrastructure, and the continuing shift of freight from rail to the highway is a prime reason restructuring the rail network in the east has become so urgent.

To sum up what's been said, provincial tax treatment is a major contributor to the structural problem faced by Canadian railways. In a direct way, these policies add substantially to our costs and affect our overall position as a viable transportation choice for Ontario's industries. Equally important, tax treatment and highway funding policies restrict our ability to make needed investments.

The Ontario government says its tax policies do not materially affect rail competitiveness. We disagree. Some provinces have acknowledged the problem and taken steps, for their part, to begin restoring balance. Quebec has gone some distance in reforming its treatment of roadway property, Manitoba has shown strong leadership in reducing fuel taxes, and let's not forget that Nova Scotia doesn't tax locomotive fuels at all.


Ontario is not alone in creating the railway tax issue, nor will reform of tax policies alone address a larger Canadian railway structure. The issues require vigorous action on the part of government and the railways. We're resolved and committed to doing our part to invest to the maximum we can, to better manage the costs of excess capacity and to forge a new relationship with labour.

Governments need to do their part too. In Ontario we urgently recommend two things: Taxation of locomotive fuel in Ontario should be reduced annually by one cent a litre starting this year; and property taxes on rail right-of-way property, the railway equivalent of the highway system, should be phased out over time beginning this year.

In the interim, there is an urgent need to reinstate the railway property tax factor. Harmonization of Canada's fragmented transportation and taxation policies cannot be achieved overnight, but it's time for Ontario to take its first firm steps towards that goal. Clear-cut issues of taxation and equity are the right place to start. Thank you very much for your attention.

Mr Kwinter: Thank you very much, Mr Taylor. I listened with interest and I'm very sympathetic to your problems, both with the fuel tax and with the right-of-way tax. It seems to me, with my experience as the minister, that one of the problems you have is a public relations problem.

To give you an example, virtually every community that I went to as the Minister of Industry, Trade and Technology that didn't have a four-lane highway immediately lobbied me to four-lane the highway into its community. No one, in my memory, ever asked me to bring a railway to their community.

I think that is one of the problems you have. I think it's a matter of raising the awareness of people to the importance of the railway system to our competitiveness and to all of the ancillary benefits that accrue. I almost hesitate to ask, but where are those locomotives that you're buying coming from?

Mr Phillips: London.

Mr Taylor: No, in fact, these particular ones are coming from the United States, but out of the total bill of $200 million for those units, about $40 million is coming directly from producers of equipment in Ontario. They're being assembled basically in the States, but there are a lot of Ontario parts in there as a large component.

Mr Kwinter: I know that the GM diesel plant in London is a major supplier worldwide of locomotives and it's a very important component of our economy, certainly in the London area.

As I say, I think there has to be almost a joint effort on the part of the railways and the government to really let people know the importance that the railway plays in our day-to-day life. I think that would go a long way in at least raising public awareness and getting a more receptive ear from government. I don't know whether or not you agree with me, but I'd like to hear your comments.

Mr Taylor: I do and I think it's unfortunate. Quite often, when we do get interest expressed, it surrounds a point where we are forced, for economic reasons, to be withdrawing service as opposed to putting service in. I think it's partially, though, the nature of the beast. We're not a very visible industry as compared, for instance, with trucks. We all pass the trucking industry on the 401 and we know it out there, and by the fact that we run on our own rights of way we're not extremely visible to communities other than obviously the shippers and the passengers who use us.

I think your point is well taken, though, that somehow the true benefit of rail is not in the front of people's minds. We have to do better in that regard.

Mr Carr: How many employees would you employ in the province of Ontario? Do you have any idea?

Mr Taylor: Approximately 5,600, and as I recall, our annual payroll runs at about $270 million a year with that group.

Mr Carr: For the Ontario employees, 5,600.

Mr Taylor: That's right.

Mr Carr: You outline very clearly on pages 11 and 12 what you would like to see happen in terms of the taxation issues. Do you have any estimate of what it would cost the Ontario treasury if those recommendations on pages 11 and 12 were implemented, any figures?

Mr Taylor: Yes, the right-of-way tax that we pay currently is approximately $6.5 million and the fuel tax that we pay is around $11 million to $12 million a year.

Mr Carr: So we're talking combined, on the high side, about $18 million. You say, on the property tax on the railway, your recommendation is to phase it out over time, beginning in 1995. How long would that take? What would you like to see in terms of a phase-out before we would lose that $6.5 million?

Mr Taylor: A couple of million dollars a year would seem to be reasonable. We're quite aware of the constraints that the province has and that it's probably not realistic to do it immediately, but a couple of million dollars a year would be a nice reduction.

Mr Carr: You say on page 11, the recommendations, about $11 million to $12 million -- that's one cent a litre -- starting this year. How would you see that phased out? Again, how many years before it got phased out totally?

Mr Taylor: The current tax on fuel in Ontario is four and a half cents a litre, so it would take just over four years to achieve that.

Mr Carr: And the total revenue is $11 million to $12 million. Thank you very much, a great presentation.

Mr Sutherland: Can I just clarify then? The right-of-way tax, though, goes to municipalities because that's property tax assessment. That doesn't come to the province.

Mr Taylor: That's right.

Mr Sutherland: Your chart 2: I should tell you, we saw this chart earlier today in a presentation, except it didn't have railway on it; it had all the other forms but railway was left off. I think I understand now why it was left off. If the right-of-way tax was off, how would that change the 14.2% figure? How much do you think that would come down if you weren't paying any of that right-of-way?

Mr Taylor: Oh boy.

Mr Sutherland: These are Canadian figures overall. Would it come down a couple of points, do you figure?

Mr Taylor: I don't quite know. Let me think that through.

Mr Sutherland: If you don't know today, if you could table that with the committee, that would be great. I'd be interested in knowing.

Mr Taylor: Certainly. I could calculate that very quickly and get to you on this, no problem at all.

Mr Sutherland: That would be great, if you'd table it with the committee. That would be terrific.

On the fuel tax, if I can just clarify again, you pay, then, the same rate of fuel tax that the truckers would pay or anyone else who uses --

Mr Taylor: No.

Mr Sutherland: It's the diesel tax?

Mr Taylor: No, there's a different fuel tax paid by truckers, and we're not trying to allude to the fact that we pay the same as truckers do. They in fact pay quite a bit more in Ontario per litre, but our point is that if that ultimately is there to build and maintain the roads, why should we pay anything at all?

Mr Sutherland: When did the tax begin to apply to locomotives?

Mr Taylor: The history of that? I think it was in the late 1980s. That, again, I could supply to you, but I don't have the time line on it.

Mr Sutherland: I appreciate your taking the time to come forward because it has been very informative in terms of understanding some of your issues related to issues under provincial jurisdiction.

If we've got time, just one more question: You mentioned that in 1990 was when the different right-of-way rate for the railways was put in. Could you give us some sense as to what that rate was and how that compares to what you pay now?

Mr Taylor: Basically it was a railway property tax factor which really separated railway properties into a separate class for taxation purposes. What happened was that was removed, and the impact of that has been to expose us to being taxed according to the properties that are contiguous to our lines. For instance, when we run past the SkyDome we are taxed as if we are the SkyDome, which is, in my mind, ridiculous but also adds a tremendous volatility. We are therefore subject to our taxes going up just by the mere fact that somebody builds a high-rise next to our property. It has no real logic or bearing.

Mr Sutherland: You said you're paying $6 million now. What were you paying before that change, roughly, in overall property tax, with the different factor? Again, if you don't have it, if you could table that, we would appreciate that.

Mr Taylor: That gentleman is our tax manager, Mr Mason. Prior to it, it was about $5.8 million. Our concern though, again, is that we're heading towards $13.8 million --

Mr Sutherland: Ongoing increases, right.

Mr Taylor: -- an additional $13.8 million, above and beyond. We're heading towards $20 million, in rough numbers. It was $5.8 million.

The Chair: I thank CP Rail System for making its presentation before the committee this afternoon.

I would like to let the committee members know that we've had a cancellation at 11 am tomorrow and we've moved up our 11:30 appointment so we should be done tomorrow at about 11:30, but we do have a few housekeeping items we should deal with, so it might take five or 10 minutes after that.


The Chair: It was the Insurance Bureau of Canada that cancelled. This committee stands adjourned until 10 am tomorrow morning.

The committee adjourned at 1721.