PRE-BUDGET
CONSULTATIONS
ROYAL BANK OF CANADA
CANADIAN FEDERATION OF INDEPENDENT BUSINESS
ONTARIO PUBLIC SERVICE EMPLOYEES UNION
ONTARIO HOTEL AND MOTEL ASSOCIATION
ONTARIO SECONDARY SCHOOL TEACHERS' FEDERATION
BOARD OF TRADE OF METROPOLITAN TORONTO
CONTENTS
Wednesday 11 February 1998
Pre-budget consultations
Royal Bank of Canada
Mr John McCallum
Canadian Federation of Independent Business
Ms Catherine Swift
Ms Judith Andrew
Rubbery Warehouse Store
Ms Janine DeFreitas
Ms Barbara Herbertz
Ontario Public Service Employees Union
Ms Leah Casselman
Ontario Hotel and Motel Association
Mr Rod Seiling
Mr Dale Dugan
Ontario Federation of Labour
Mr Wayne Samuelson
Ontario Secondary School Teachers' Federation
Mr Earl Manners
Board of Trade of Metropolitan Toronto
Ms Louise Verity
Mr John Bech-Hansen
PLM Group Ltd
Mr Barry Pike
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président
Mr Garry J. Guzzo (Ottawa-Rideau PC)
Vice-Chair / Vice-Président
Mr Wayne Wettlaufer (Kitchener PC)
Mr Ted Arnott (Wellington PC)
Mr John R. Baird (Nepean PC)
Mr Jim Brown (Scarborough West / -Ouest PC)
Mr Garry J. Guzzo (Ottawa-Rideau PC)
Mr Monte Kwinter (Wilson Heights L)
Mr Gerry Phillips (Scarborough-Agincourt L)
Mr Gilles Pouliot (Lake Nipigon / Lac-Nipigon ND)
Mr E.J. Douglas Rollins (Quinte PC)
Mr Wayne Wettlaufer (Kitchener PC)
Substitutions / Membres remplaçants
Mr John Hastings (Etobicoke-Rexdale PC)
Mr Tony Silipo (Dovercourt ND)
Mr Terence H. Young (Halton Centre / -Centre PC)
Also taking part / Autres participants et participantes
Mr David Christopherson (Hamilton Centre / -Centre ND)
Mr Tony Martin (Sault Ste Marie ND)
Mr John O'Toole (Durham East / -Est PC)
Clerk / Greffière
Ms Tonia Grannum
Staff / Personnel
Mr Ray McLellan and Ms Lorraine Luski, research officers,
Legislative Research Service
The committee met at 0932 in room 151.
PRE-BUDGET CONSULTATIONS
ROYAL BANK OF CANADA
The Chair (Mr Garry J. Guzzo): Could we come to order, please. We have a quorum.
Our first presenter this morning is Mr John McCallum from the Royal Bank of Canada. Welcome, sir. Thank you for coming. Please proceed. You have 30 minutes to use as you wish. If you don't use the entire time, we'll attempt to take advantage of the opportunity to ask some questions.
Mr John McCallum: Thank you very much, Mr Chair, for inviting me here. I certainly won't take 30 minutes. I'd like to take maybe 10 minutes and then answer any questions you may have.
Do people have the handout?
The Chair: I believe so, yes.
Mr McCallum: There are three areas I'd like to cover. One is how the economy is doing now, the second is our forecast and the third is what this means for the Ontario budget.
If you just look at this first page, you'll see that things right now are booming. There's a great momentum in the Ontario, and the Canadian, economy. Employment from a year ago is up 3.9%; the unemployment rate is down from 9% to 7.8%; inflation is less than 1%. So we really are in a high-growth situation and there's a lot of momentum in the economy.
If one looks forward, I think a lot of this momentum will carry the Canadian and Ontario economies through to good, solid growth in the coming year. That having been said, there are a lot of risks out there. I think the world has become more volatile, more uncertain, so we in fact have reduced our forecasts somewhat. The forecasts you see on page 2 are slightly old, because we haven't revised our Ontario forecasts yet and we've put in the forecasts that we made for Ontario at the same time as for Canada. So our actual forecasts are going to be a little bit lower than what you see there.
Notwithstanding the dynamism in the economy, we are concerned with some of the risks out there, not least the Asia crisis. Ontario is likely to be least hit by the Asia crisis. Only 3% of Ontario exports go to Asia, versus 8% for Canada and 35% for BC. So we're relatively insulated.
On the other hand, some of our industries might be hit through increased foreign competition from Asia in areas such as machinery, steel and autos. I think also the lower commodity prices to some degree hit Ontario, and that too can be traced to the Asia crisis.
There's a lot of uncertainty. We don't know whether it's going to get worse or spread, get deeper or broader, so there is worry about that.
Second, the stock market, especially the US stock market, is overvalued by conventional measures. I never predict the stock market but I think there is a risk of a correction going forward, and that's another concern.
A third concern is the year 2000 computer problem. If we look ahead one or two years, that could pose problems. We have limited experience with changing millennia, so it's hard to know exactly what this will bring to us, but it is a concern.
We have a Quebec election coming up. We have the Iraq issue. We have the other Bill Clinton issue, the sex issue.
If you put all that together, we also have the risk of a boom-and-bust US economy. The US economy might not slow nicely. It might continue to go at full speed and we might therefore get rising inflation in the US, which would lead to higher rates.
I don't want to sound gloom and doom, because I started out saying we have terrific momentum, but I just think we should sound a cautionary note, especially from the point of view of budget-making, in that there are things that could go wrong and it's not a guarantee that this momentum will carry us forward at great speed. On balance, what we are saying is that we should, in Ontario and in Canada, have good, solid growth in the next couple of years but we're not expecting booming conditions.
Finally, I come to the budget, and on the third page of our handout you can see we've just taken the 1997-98 update and the official forecast. In our view the deficit for 1998-99 is likely to come in somewhat lower than the $4.8-billion forecast, something like in the $3-billion range, because when you take the 1997-98 update for revenues, a lot higher than expected, I think the higher starting point for revenues will mean higher revenues than predicted in 1998-99. On the other hand, there is also higher spending than predicted in 1997-98, and so I think the cut in spending will be somewhat less than implied by this table. But on balance we think the deficit will probably come in around $3 billion rather than $4.8 billion.
I think that's enough for opening remarks. I'd be happy to answer questions any member might have.
The Chair: Thank you very much, sir. We have approximately seven and a half or eight minutes per caucus. I think I started with the official opposition yesterday; I'll start with you this morning, if you don't mind, Mr Silipo.
Mr Tony Silipo (Dovercourt): Sure, thank you, Chair, although I think we may actually have a little bit more time than that. Do you want to do a couple of rounds?
The Chair: A couple of rounds. That's correct, we have an hour. I told Mr McCallum 30 minutes at the start and we do have an hour. I apologize.
Mr Silipo: Thank you, Mr McCallum, for being here. I want to perhaps just underline some of the points you've made and ask if you could expand on a couple of them.
I'll start with the last one. I'm certainly not surprised to hear that, because when you look at the numbers, if nothing else happens -- would that be a fair way to put it? -- from the third quarter finances statement, if the government continues on its course, they could easily look at a budget deficit next year of $3 billion and perhaps even lower if that kind of trend continues. In other words, we've seen in the last couple years that beginning in the fiscal plan there is what I guess the government calls a conservative or cautious estimate of the revenue, what I would call an underestimation of the revenue. Then we see the revenue through the year more realistically being what I think one could project. Given that if we're saying the economy is growing, then it would seem logical to me that you could also project that revenue to the government coffers is growing. But that's not what has been in the government books over the last few years, as you know better than I. In fact, the government might very well be in a position to put the deficit even lower than the $3 billion, I would say. Is that a fair conclusion?
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Mr McCallum: Yes, I think governments around the country, this government and the Liberals in Ottawa, make very prudent assumptions on growth, and appropriately so, because finance ministers have to hope for the best but plan for much less than the best. So in normal times or strong times we will see errors that are pleasant errors. The deficit will be lower than predicted or the surplus will be higher. I think certainly if Ontario continues at present growth rates, in almost a boom situation, the deficit will come down a lot faster than is predicted here, other things being equal. But I would also go back to my cautionary note that we can't just assume that good times will go on forever and ever, and certainly a finance minister can't make that assumption, because there's a long list of things that could cause turbulence and problems out there.
Mr Silipo: But the mere fact that as we look at the books now, the worst-case scenario would be that the $3-billion target is realistic on current projections, or maybe, to be even more conservative than that, at least the projections that are currently in the fiscal plan -- of the $4.8 billion, I believe it is -- and should be easily achievable.
Mr McCallum: I would agree with that.
Mr Silipo: Okay. The question I want to put to you from that is, in the evaluation that you and people from your perspective looking at what governments are doing, and in this case what the Ontario government is doing, where or how do you factor in, or do you, on the one hand the need, which is clear from what you're saying and what you've said to us and others have said in the past, that you want the government to continue to reduce the deficit, against the need for the basic services such as health care and education to also be maintained at a level that somehow in the political or the public consensus is deemed to be adequate? How does that factor in or to what extent does that factor into this equation?
Mr McCallum: In my earlier remarks I was speaking kind of as a technocrat; what did I think the deficit would be is a purely objective question. Then you might say to me: "Let's say it's $3 billion instead of $4.8 billion. Should you take the difference of $1.8 billion and put it into health care or education? Or should you just leave it there and bring the deficit down faster than expected?" That's a different kind of question.
What Ottawa did was it just brought the deficit down faster than it had planned earlier. That's popular with markets, but one could argue, if there are pressing needs, that one should be content with the $4.8 billion, and if it comes in lower, you have extra money that can be devoted to social programs. I think that's mainly a political question, depending on how great those needs are, compared with the desire to bring the deficit to zero quickly.
Mr Silipo: I think we all understand that it's very much, as you say, a political question. What I was interested in probing a little bit more, though, was to what extent, if any -- let me be clear. The impression I have is that that issue doesn't play a major role in the approach -- and again I'm not trying to be personal here -- but the approach that somebody like a John McCallum might take in saying to the government, "This is what I think you should do." Is that a correct assumption on my part?
Mr McCallum: I do my best not to tell governments what to do, because governments are elected with certain promises, and the basic thrust of the government is decided, in a democracy, in an election. The current government was elected on a promise of tax cuts, spending reductions and so on, so I don't say to that government, "Do something else." Who am I to do that when they've been elected to do otherwise?
Mr Silipo: Fair enough.
Mr McCallum: I would say, however, when the deficit was very big and the debt seemed to be rising without limit, that for economic reasons it was very important to get that under control. That's the kind of statement I would make.
Mr Silipo: Right, but the reality is that that is continuing to rise during this period, in part at least, I think we would agree, because of the cost of the tax cut.
Mr McCallum: That depends on what would otherwise have occurred had there not been a tax cut. If the tax cut was financed by equal spending cuts, then you could say absent the tax cut you would have had less spending cuts and the same deficit. Or you could say absent the tax cut you would have a smaller deficit. It all depends on what you would have done on the spending side in the absence of the tax cut.
Mr Silipo: Okay. Coming back to this broader question -- and I appreciate what you're saying, that it's not your job to tell government what to do -- I continue to be troubled by this whole question of the balance that governments have to reach between being able to show that they can pay for things, that we can pay for the services, and when we're in a situation like this, for example, where I would argue that the government is now in perhaps a bit of a unique position to not only continue to show that it's bringing the deficit down, but to do it in a way that doesn't have to jeopardize services further, such that you wouldn't have to proceed with further cuts to health care and education, and it could still be following through on its commitment to reduce the deficit.
Why isn't that -- and I ask it that way because obviously I'm showing my own particular bias, but also my sense of what I see the market forces saying to the government, this government and other governments, for that matter. Why isn't that factored in to the degree that I would argue it needs to be in terms of saying that also is part of the balance that we have to find?
Mr McCallum: Let me answer that with two points. On the one hand, I think it was absolutely necessary to get our deficits and debt down from where they were, both federally and provincially. Why do you think the economy is booming now? Largely because of low interest rates. Do you think for one moment that we would have these low interest rates had we not done anything about our deficits and debt? No. So the cuts, while very painful, ultimately and right now are leading to the creation of many, many jobs because of these relatively low interest rates. That means it's not being harsh and uncaring to say it's important to get the debt under control, because ultimately, and we're seeing it around us today, having done that, we are creating jobs. Can you imagine where we would be had we not attacked our deficits, now that we are in the midst of an Asian crisis? We would be in the soup. I think a high priority has to be get the deficit and debt under control.
The second comment in response to you is that when you're talking about around the margins -- the target for the deficit is $4.8 billion. Let's say you come in at $3 billion. Do you use part of that saving to improve social programs? The fiscal world is not going to fall apart if you do. If you attach a higher priority to the deficit and debt, you wouldn't do that, but if you don't, Bay Street is not going to be up in arms. Probably most Bay Street types would prefer you to put that money towards getting to a zero deficit sooner, but I don't think it's the end of the world, from a financial prudence point of view, one way or the other.
The Chair: That would be a good spot to break, and I'll move to the government.
Mr John R. Baird (Nepean): Thank you very much for your presentation. We appreciate the time you took in putting it together and your coming this morning.
There are two issues I wanted to raise. The first one relates to the point that my colleague Mr Silipo made. One of the things in the business plan at the Ministry of Finance for their economic models is to be in the cautious end of the range of private sector economists. What do you think has been the result when governments of all three parties, federally and provincially, have not made their deficit reduction targets? What has it meant, in your judgement, in the investment community and in the business community when those targets have not been met, and have not been met consistently?
Mr McCallum: I think that has had negative effects. If you go back to the early 1990s and you look at Ottawa's deficit forecasts, especially when they went forward two, three or four years, we always had the deficit coming nicely down two or three or four years into the future, and often it just ballooned up. That would apply to some provinces too. That's why there was no credibility and people thought that public finances were out of control, and at the time of the Mexico crisis they even thought we would be the next Mexico. In Quebec it even led soft nationalists to say, "Let's get off this drowning ship before we drown in all this debt."
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We've had a radical sea change, and I think it's basically two things: One, we don't try to predict five years ahead, because we're no good at that. We just go one or two years ahead. And we use extremely conservative assumptions and we have contingency reserves. Then again we're usually wrong, but we're usually wrong in the right direction. Paul Martin in Ottawa has huge errors, but they're errors on the right side.
I think it's this new environment where we do hit our targets, come hell or high water. The markets have come to count on that and the targets have become credible, so we are seen to be on the right path to getting the debt-to-GDP ratio down. I think that is not the only thing but is a central reason why we have these low interests rates, even lower than the US. Those low interest rates are central to job creation. So I think hitting the targets and not missing them, and if you miss them, you exceed them, you don't do worse, is of great importance and it's a major advance that we in Canada and Ontario have been making.
Mr Baird: So in your view there's no negative aspect to missing your targets in the positive side.
Mr McCallum: Well, you kind of have a reverse credibility problem if you miss them too much for too long, and we might be approaching that stage in Ottawa. It's certainly better than the opposite. I think one might be able to say: "Look, we don't mind if we miss them. We expect to miss them if it turns out to be a good year, because we deliberately make prudent assumptions." So it's not irresponsible to miss them in the right direction. It's just because you plan for not the best, and if the best happens, you do better than you've planned for. There's nothing wrong with that. If the gap gets too huge for too many years, that might present a problem, but certainly nothing like the problem if you consistently miss them in the other direction.
Mr Baird: The second issue I wanted to raise was the issue of consumer confidence. That's obviously a fundamental part of economic growth, low interest rates. Governments getting control of their deficits play a part at both the federal and provincial levels.
I was interested in the second page of your document under "Forecasts for 1998-99": "The fiscal drag has finally started to be offset by the income tax cuts implemented in fiscal 1996-97, contributing to robust consumer spending." Could you elaborate on that? Do you think the tax reductions have had a direct relation to consumer spending?
Mr McCallum: As I said in answer to the earlier question, you really have to say, "What would have happened without the tax cuts on the spending side?" But just taking the tax cut in isolation without considering that, clearly it put more money into people's wallets, and that contributed to the increased consumer spending. I wouldn't put it at the top of the list. I would put the low interest rates, the job creation, income growth and the strong growth in the US economy -- those things over which we have less control are the principal drivers. But certainly if you can put more money into people's pockets, that will help.
Mr John Hastings (Etobicoke-Rexdale): Dr McCallum, thank you for appearing before us. I would like to ask you about the impact that we often hear of the banks in terms of the role of trying to help small business create jobs. I would like to know to what extent, in your own estimation, the Royal Bank has made a real effort to try to improve small business job creation in Ontario.
Secondly, if the proposed merger between the two largest banks in this country -- first and third, I guess -- proceeds with federal approval, how do you think that will limit or expand access to capital for small businesses? When I talk about small businesses, we're talking about the really small business folks, the micro-businesses that might grow into small and medium-sized business. I define small business in this context as under 10 employees, probably.
The common perception out there is that the banking community, even despite your appointment of an ombudsman to deal with issues of access to credit and all that, still has a long way to go. I'm wondering if you could put some positive numbers to where your institution is and, if the proposed merger proceeds, what will happen in that instance with respect to these small business folks.
Mr McCallum: This is a somewhat different topic and not directly my area of expertise, but I will try to answer that.
It is true that in the early 1990s, in the time of the recession, in some cases the banks' treatment of small business was less than wonderful, but I think there has been huge progress since that date and many efforts made to improve it. You mentioned the ombudsman and strong growth in lending to small business. It's not just because the banks want to be nice; it's also because the banks make a lot of money in lending to small business, so it's in our interest to keep the customer happy not just out of altruistic motives but because it's an extremely important part of our total business.
On the question of the merger, let me make a general comment. I think it will ultimately go through, but what the banks will have to do is convince the Canadian public that this is good for what you might call four interests: the customer interest, which would include the small business customer; the national interest; the employee interest; and the shareholder interest. I think what we have to do is make a case to the Canadian public that in all of those four categories we do improve the situation. I think we will be able to demonstrate that because I think that is true, but we are only just beginning and there will be quite a long debate.
In terms of the impact of the merger on small business, I think this will improve. I think access will not be diminished and certain fees are likely to be reduced, so in that sense small business will benefit. So certainly in terms of no reduction in access and probably better access through various technological means, that would be easier to do as a merged entity than as a single bank, plus, if anything, lower service fees. It seems to me that the small business person would benefit in those ways from a merger.
Mr Hastings: My second question relates to tax cuts. As an economist, you're not very enamoured of any kind of tax reduction, responding to my colleague.
Mr McCallum: I didn't say that.
Mr Hastings: Well, looking over some of your previous readings -- in the writings in the Financial Post, for example, over the years, and when you were at McGill -- I get an impression that the priority of a tax reduction doesn't play very much in your thinking. So let me ask you about tax increases.
What is your thinking in respect of any government that increases taxes, in whatever areas, provincially on a consecutive basis? Whether it's corporate, personal, retail sales tax or what have you, how does that play, in your thinking, in terms of how those tax increases adversely or positively affect the provincial role in the economy, primarily (a) when it's in a recession and (b) when it's coming out of one? Do you believe tax increases are generally a good thing by a provincial government of whatever political stripe, since you obviously aren't very enamoured of tax reductions on the other side of the coin?
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Mr McCallum: I'm flattered you've looked with such care into my history.
Mr Gerry Phillips (Scarborough-Agincourt): We have a complete dossier.
Mr Hastings: Total.
Mr McCallum: There's another John McCallum, you know, who writes in the financial -- you haven't got the two of us mixed up?
Mr Hastings: No, we're not confusing you two.
Mr Phillips: His gumshoe got you.
Mr McCallum: Anyway, I would deny the charge that I favour high taxes and don't like low taxes. That's not true. I think if you raise taxes, you slow the economy; if you reduce taxes, you speed up the economy, other things equal. Anybody would say that.
Interjections.
Mr McCallum: I said, "Other things equal."
Mr Silipo: You've got to listen to the whole sentence here.
Mr McCallum: If you cut taxes and cut spending at the same time, then the two may cancel out, but if you cut taxes and leave other things unchanged, then obviously you stimulate the economy. Since you asked me about my philosophy, let me try to explain. I as a citizen may be a right-winger or a left-winger; it's none of anyone else's business, really. But I as an economist, especially one who works for a bank, try to be relatively neutral on certain issues. I am quick to say I think it's extremely important we get our deficit and debt under control, because otherwise we'll have very high interest rates and we'll lose jobs.
In terms of the debate between whether you favour big cuts in spending and big cuts in taxes and a really small government, or higher taxes and a bigger government, economists have something to say about that, but I think that the larger the question, the less economists have to say and the more it is something into the political arena. Basically it's the people who decide, in an election.
The people decided in favour of your party's platform in the last election. In the last federal election they were offered lower taxes and lower spending by Reform, higher taxes and higher spending by NDP, and something in between by the Liberals, and the Liberals won. I think it's primarily in the political arena, rather than in statements by economists, that these really large issues are resolved. Economists are more useful on, not unimportant, but rather smaller issues.
Mr Monte Kwinter (Wilson Heights): Mr McCallum, I was really interested in your presentation on the public finances, and I'd just like to go through it a bit with you to get your reaction as an economist. I notice that in the forecast for 1998-99 it shows revenues are going to be $48.8 billion.
Mr McCallum: Yes.
Mr Kwinter: We already know from what was given to us yesterday by the Minister of Finance that the updated revenues for 1997-98 will approximate $51 billion. His figure is $50.825 billion. We still are in the last quarter. I would think if we rounded it off, we're looking at probably $51 billion.
Mr McCallum: Right.
Mr Kwinter: You are predicting as an economist for the bank that you see the economy maybe not quite as robust as you might have anticipated a little earlier, but certainly matching this year. Is that correct?
Mr McCallum: We're now thinking that 1998 might be a little slower than 1997, but more or less the same.
Mr Kwinter: More or less the same. So the expectation is that we should be able to get to about $51 billion as well in revenues?
Mr McCallum: You have to factor in the tax cut as well, but certainly revenues, own-source revenues, should be showing robust growth.
Mr Kwinter: Then if we take a look at the expenditures, we have a situation where, again from the updated figures we got yesterday, the expenditures are in about the $56-billion range, $55.987 billion. The forecast -- I assume this is the government's forecast and not your forecast.
Mr McCallum: Correct.
Mr Kwinter: They're the ones who control the expenditures and not you as an economist.
Mr McCallum: Correct.
Mr Kwinter: They are predicting they will be reducing this by at least $3 billion in their expenditures, and you indicate you don't think that's practical or realistic.
Mr McCallum: I would just guess. When this was initially done they expected expenditures in 1997-98 to be $54.3 billion and in 1998-99 to be $53 billion, so they were anticipating a $1.3-billion spending cut at the time the 1997-98 forecast was made. If they were to achieve the original spending target, instead of a $1.3-billion cut, they would need to have a $3-billion cut, more than double. My guess would be they won't achieve that, but because the revenues are so strong, they will still easily hit their deficit target and arguably, we think, do better than that target.
Mr Kwinter: That was the point of this whole exercise. I just want to be able to take a look at that deficit target and it would seem to me that, given these figures, there is a good chance they would be well below the $3-billion deficit for 1998-99.
Mr McCallum: It depends. They could be. What we say here is: If our forecasts for real "and nominal GDP are on track, own-source revenues should be up by approximately 4%.... If spending was not increased, and given flat federal transfers and the contingency reserve, this would translate into a deficit figure under the $2-billion mark."
But we think when we say, "If spending was not increased," we mean relative to the plan, so that means if there were indeed a $3-billion cut. We have no inside information, but our guess is given the hugeness -- if that's the word -- of that cut, we don't think they'll cut that much and so we're suggesting maybe a deficit of around $3 billion. But much depends on what the government decides to do on the spending side.
Mr Kwinter: What are your projections on long-term interest rates vis-à-vis the American rates?
Mr McCallum: We are in one of these positions where we don't know the direction of the next move for sure. You've got Asia pulling rates down because the US is a safe haven and money is going to the US, so the worse Asia gets, the lower the interest rates will be. On the other side you've got really low unemployment, really tight labour markets, the risk of rising wage inflation tending to pull rates up. In recent months Asia has won and longer-term rates in the US and Canada have come down to near-record lows.
Going forward, our best guess is that the domestic side will narrowly win and that the next move in interest rates south of the border will be modestly up, but only modestly, like a quarter point. We could be wrong. Particularly if the Asian thing deteriorates, we could have a reduction in rates. I guess a simple way to say it is that we don't think US rates will change all that much, but we would have a slight bias to higher.
Mr Phillips: I appreciate your being here and I'd love to have that dossier Mr Hastings has just pulled together on you. I hope it wasn't at taxpayers' expense.
Mr McCallum: It makes me nervous.
Mr Phillips: Yes. Just on employment growth, I'm trying to get some idea from you of how economists predict the growth of employment. The finance officials have told us that they predict, normally, employment growth at the rate of real GDP minus one percentage point; in other words, for real GDP growth, subtract one percentage point and you get employment growth at 3%. I am looking at your chart on forecasts for 1998-99 and for real GDP in 1997 the government yesterday indicated it was more like 4.4%, I think, than your 3.8%.
Mr McCallum: Right.
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Mr Phillips: Yet employment growth in 1997, and we now have the actual number, was 1.9%. I think the minus 1% tends to work over time. My question is, is there anything going on in the economy that would suggest that no longer is an accurate predictor of employment growth? The reason I say that is we did see, in 1997, real growth in excess of 4%, but employment growth slightly under 2%. Should we as a Legislature begin thinking that maybe employment growth will not be at historical rates with GDP or not?
Mr McCallum: That is a very good question. The difference between the growth rate of GDP and the growth rate of employment is the growth of productivity. It's the growth of GDP per person employed, which is productivity, how much output does every person who is employed produce. In the long run productivity growth is key to rising living standards, and if the gap is always 1%, it means productivity output per person is going up at a rate of 1% per year.
In recent years, in fact since about 1980, Canada's productivity growth has been pretty low, and in the 1990s it's been very low, partly because we have had such a weak economy, recession and so on. There is a cyclical element to productivity growth. When the economy slows down, firms don't immediately lay workers off, so output per person employed tends to go down. When we have an upswing, firms don't immediately take employees on because they may rely more on overtime initially, so in an upswing output per person employed tends to go up fast. We're in an upswing phase in Ontario and that means that productivity growth in 1997, as you just pointed out, since it was such a strong upswing year, was very high, so the number may average 1% over the cycle -- we don't even know for sure what it will be going forward -- but it won't be a constant from year to year. It will tend to be higher in boom years and lower in downturn years.
Mr Phillips: On revenue growth projections, again historically, with no changes in taxes or anything like that, I think the financial officials have indicated own-source, or at least tax revenue -- I shouldn't say own-source revenue because gambling now is a big part of revenue, and if we have time, I wouldn't mind getting any comment you might have on that. Do you have a factor you use for tax revenue growth, assuming no changes in tax structures, of what we should expect? I think it's always been around nominal GDP.
Mr McCallum: I think that as a rule of thumb, growth rate in total tax revenue assuming an equal-to-growth rate of nominal GDP isn't bad. If you don't have an indexed personal income tax system, you can have bracket creep, so it may grow faster than incomes, but other taxes may grow slower than incomes. I must confess I'm not an expert on all the details, but I think assuming that own-source revenues grow with nominal GDP is a pretty good rule of thumb.
Mr Phillips: Your Asian comment is interesting. We have talked to some of the commodity people who say, "We don't ship much of our stuff to Asia from Ontario, but our prices are going to be fairly substantially affected because our competitors towards the west coast do, and they're now going to be moving into our market," so coupled with so much of the Ontario economy being driven by the US economy, you estimate the Asian impact on Ontario as fairly modest; others indicate that maybe it would hurt their profitability and prices more than that.
Mr McCallum: I would say it's modest but not trivial, and it could become more severe if the Asian situation were to worsen. The pure export side, as you say, is very small, but there are other mechanisms. Ontario is less dependent on natural resources than the west, but it's still important in parts of this province and they're hit by lower prices.
We will to a degree have a flood of cheaper Asian goods coming into our markets and this will make it harder for our own industries to compete in certain areas. The US will grow somewhat less fast as a consequence of Asia, so that will hit us.
There's another element which I think is important, which people don't talk about as much, but it's hard to measure, and that is that the US Congress is already in a pretty ugly protectionist mood. They didn't let Clinton go through with the fast track on NAFTA expansion. How do you think they're going to react to ballooning trade deficits with Japan and other parts of Asia? I would say not well. So you may see a certain amount of increased protectionism in Washington and while it will be aimed at Asia, we may suffer what the Americans sometimes call collateral damage. I think that's another issue that could be important for Ontario.
The Chair: This would be a good spot to break. Mr Silipo, you have about five and a half minutes.
Mr Silipo: Mr McCallum, I wanted to pick up on one of the final comments you made in our last exchange around jobs. I listened intently, particularly to your response to Mr Hastings, on where you would put in terms of your rating the issue of tax cuts as they relate to bolstering consumer confidence. I want to take that further into the area of job creation because it seemed to me that you were suggesting earlier that the tax cuts are crucial or important in terms of creating jobs. I don't know if that's what you were saying.
Mr McCallum: I didn't say that.
Mr Silipo: Okay. Then I guess I'd like to ask you to expand a little bit more on that. Again, what we're seeing is that the impact of the tax cut for the larger majority of Ontarians is, first of all, minimal in terms of when you look at how much money actually goes into the majority of Ontarians' pockets at the end of the day. If you look at how the tax cut is spread, there is very little money in the hands of 50%, 60%, 70% of the population who pay taxes here. When you add to that the fact that most of those benefits are wiped out for most of those people before they even get a chance to spend it by the increases in taxes by the federal Liberal government for employment insurance and CPP, then it seems to me that there's a bit of a problem with the theory that the government and others are espousing, which is that it's the consumer spending that then generates the creation of jobs.
Then again, when I compare that to not just the projections for job growth that we had prior to this government coming into office but to the reality of the job growth that was beginning in 1994, into 1995, I obviously come to the conclusion which says the tax cuts are not needed to help create the jobs. So I'd be interested in your reaction to that.
Mr McCallum: Obviously this is a contentious issue and I didn't mean to give one answer to one side and one answer to the other side. The questions were kind of in a different context. So let me give you one single answer now, which hopefully will apply to both sides. Let's say government spending stays the same and you cut income taxes by a dollar. That will stimulate the economy because it puts a dollar into the hands of the consumer who didn't otherwise have that dollar and part of that will be spent on goods and services. You may also have some favourable supply-side effects coming from lower taxes on things like incentive to work. That's case A.
Case B: You cut taxes by a dollar and you cut government social program spending by a dollar. In terms of the effect on spending, they might more or less cancel out because you're taking a dollar away from the spending and you're giving that dollar to the taxpayer. So in terms of the demand effect, those two things might cancel out. But you might have some favourable supply-side incentive effect arising from this move, so the effect is not necessarily zero and in the longer term those supply-side effects could be lasting and important.
That's why when you ask, "What does the tax cut do?" you always have to ask at the same time, although this is a difficult point to get across, "Is it a tax cut holding the spending constant or is it a tax cut accompanied by an equal spending cut?" because the answer to the question is so terribly different depending on which of those circumstances is the case.
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Mr Silipo: I suppose it would also have to be factored in what the overall approach is to reducing the deficit, because it seemed to me from what you were saying earlier that that was even more a key direction from your perspective.
Mr McCallum: Yes.
Mr Silipo: In other words, if the debate is not around whether you should reduce the deficit but if you take that as a given, that reducing the deficit is in the long term and even in the shorter medium term a good or useful direction, then where the difference lies is not so much in how fast you get there, although that may be part of it, but more in terms of balancing that against what I would see as the broader package of what that means in terms of services like health care and education and how that all comes together in a way that says to people what we have here is a society that works because you've got both an adequate level of spending that government can sustain coupled with and balanced against a level of services that all of us as Ontarians decide is what we want and want to continue to have.
Mr McCallum: I'm not sure if that's a question or a statement.
The Chair: Unfortunately, you don't have time to answer it if it is a question. We're out of time for the NDP. For the government, we have about four minutes left.
Mr Ted Arnott (Wellington): Thank you, John, for your presentation this morning. I want to follow up on something Mr Hastings said, and I think you'll probably take this message back to your colleagues. The government wants to work with you, recognizing the interests of shareholders and depositors as well, to ensure that there is an adequate supply of capital for small business. We want to work with you in that regard, obviously.
The debate that's been discussed this morning is probably the fundamental economic difference of opinion in the Legislature right now, the benefits of the tax cut. Obviously, the government feels that by cutting personal income tax rates, there is an immediate stimulative effect which directly encourages job creation. Do you agree with that statement, first of all, in the context of how we're doing this?
Mr McCallum: I think I kind of answered that before. If you hold other things equal, everything else being unchanged, then yes, the tax cut will put money into people's pockets and they will spend it and that will help to create jobs. Of course there are other factors creating jobs, like lower interest rates and US demand and all of these things, but yes, they will help. But if I were on the opposition side, I would also then ask the question, is this tax cut at the expense of social spending? Maybe it isn't, in which case the job creation from the tax cut is a pure gain, but to the extent it is, you have to measure the job creation from the lower taxes versus the job loss from the reduced spending and then it might wash out, but you would still be left with a possible supply-side incentive effect, that people would want to work harder, for example, if they keep more of their paycheque.
Mr Arnott: I have a lot of other questions, but I'll defer to Mr Brown.
Mr Jim Brown (Scarborough West): I'm delighted when a banker comes to see me.
Mr McCallum: It's a pleasure to be here.
Mr Jim Brown: As a former small businessman who relied upon the bank for capital, I'm a little concerned about the threat of the proposed merger and what that will herald in terms of other mergers. I'm concerned, and maybe you can alleviate the concern. Almost every transaction in Canada goes through the Big Five banks, and it would be the Big Four, I guess. One of the arguments for the merger is to be stronger internationally and that's what worries me, because if the intent is to be stronger internationally, to me, that means to be stronger exporting capital. If you're going to export capital, where is the capital going to come from for the small and medium-sized enterprises that provide 85% of all the new jobs, that are probably the backbone of the current growth, though your numbers don't break it out? I'm concerned, and maybe you can alleviate the concern, that we're going to start to export a lot of the capital that's here at the expense of our SMEs, our small and medium-sized enterprises.
Mr McCallum: I can assure you that won't happen, because it wouldn't be in the interests of the bank not to lend money to customers from whom the bank makes a profit. Why would we not want to lend to Canadian small business when we make a good return from that? I'm trying to get away from any altruism at all, to make the argument more convincing.
Mr Jim Brown: Don't get into altruism.
Mr McCallum: I'm not. I think we've been going to great efforts to grow that business. It's a very core business, and I don't see that the merger would make us want to do that any less; indeed, more. When we talk about being bigger in foreign countries, it doesn't mean we export capital. The Bank of Montreal, for example, has Harris Bank in the US, and Harris Bank has the American depositors. So the Bank of Montreal takes the money that the American depositors deposit and lends that out. It's not a question of exporting money from Canada to lend to Americans. They take those American deposits.
From a Canadian point of view, if the banks get bigger overseas or in the US but in fact are based in Toronto, then you're going to create more jobs in Toronto. That's a positive. You're going to bring more money into Canada from the earnings that the banks will make overseas, so you will improve your balance of payments and you will create more jobs in this country, and especially in this city.
The Chair: The Liberal Party has about two and a half minutes.
Mr Phillips: I just want to talk a little bit about the need for financing by our business community and the impact of the banks. Historically, business paid the banks interest, and that was the big charge. I suspect that's how the banks historically made their money. My sense is that a growing percentage of the banks' revenue comes from bank charges. That's my suspicion, that it's a growing percentage, and that small business is seeing that as a growth area in their expenditures. Interest rates have dropped, but they've been hit with a variety of new charges.
I guess my question really is, is that the approach the bank is taking, to increasingly look at charges for services, as opposed to just interest costs, and what assurance can you give us in terms of the competitiveness of our financial community versus -- because we're often hearing from business that we have to have competitive governments, but are our financial institutions competitive internationally in terms of the cost our businesses have to face to provide their financing and financial services?
Mr McCallum: The banks' income is often stated in two parts. One is net interest income. That's the difference between the interest rate we charge to people and the interest rate we pay to depositors or others for that money. That net interest income has actually been coming down, relative to the size of assets. So the spread has been coming down.
The other part is called "other income," and other income, it is true, has been going up relative to assets. But that other income is not just fees. In fact, most of it is not fees charged to depositors; it's everything, like what we make in insurance, income from merger fees, income from capital market things and mutual funds and wealth management, everything. The service charges to business and to households are a very small component of that total other income. So you have to look at them separately.
What I do know, and you asked about competitiveness, is that relative to US banks, Canadian banks are highly competitive in the sense that we charge less for service fees and the spread between what we pay for the money and what we lend it out at is much bigger for the US than for Canada, especially for small businesses. The spread that small business in the US pays is way up here, compared with Canada. As the businesses get bigger, that gap is reduced, and I think the reason is that often in the United States you only have one or two banks in a single town and there's less choice than there is in Canada. So even though the US has thousands of banks, they have what you might call local monopolies in certain parts of the country and that's made us offer lower prices and be more competitive in Canada.
The Chair: Thank you, sir. I'm going to have to interrupt you there. Our time is up. I thank you for your attendance and your time; most interesting.
Mr McCallum: Thank you all.
Mr Phillips: It would be useful to get that information. Lots of information offered here on the thinner spreads in Canada and the service charges.
The Chair: I think it depends on where you go in the United States. It's certainly true in the border towns to Ontario.
If the committee agrees, we'll take a five-minute recess at this point to set up the projector and come back with our next presenter.
The committee recessed from 1031 to 1036.
CANADIAN FEDERATION OF INDEPENDENT BUSINESS
The Chair: The next presenter is the Canadian Federation of Independent Business, represented by Catherine Swift, the president and CEO. Ms Swift, welcome and thank you for coming. If you would you like to introduce your cohort.
Ms Catherine Swift: Thank you very much. It's a pleasure to be invited here today. We're usually here in a more formal organizational capacity. My colleague Judith Andrew is scheduled to appear in a week, I believe it is, to address more organization-specific priorities.
My background is as an economist, which I admit from time to time. That's certainly the perspective I plan to speak from today. I think a number of the other people you have invited, John McCallum being one good example, are better equipped to address some of the more international factors. I am going to focus very much on domestic economic factors now, naturally with a focus on Ontario from the perspective of the small- and medium-size business community.
I have a few charts. I distributed some black and white copies. Unfortunately, because they are colour charts, some of them are not that easily decipherable, but hopefully when we go through them on the overheads you'll be able to see a little better what they indicate.
It was interesting preparing for today because, although I've appeared before this committee a number of times, I wasn't too sure about this sort of special category. I looked through all the presentations made last year. Of course, we economists hate it when people check our predictions from a year ago, but since I wasn't involved then, I felt I could get away with it. I found it intriguing in terms of the presentations of the different parties and in terms of what they were predicting with our now 20-20 hindsight.
It was interesting to see that the economists who appeared last year who were the most optimistic were also the most accurate, so that's obviously good news. Those who felt that some of the policies being pursued in Ontario were going to be very bad were the ones who were most wrong. I don't know whether or not that's prescriptive for this year, but that's an observation on what happened in the last year anyway.
Certainly our membership in Ontario does continue to be very optimistic on the coming year for Ontario, and for that matter in other provinces as well, to varying degrees. As you know, at the CFIB we do extensive research and surveying of our members. We do an annual survey on their outlook for employment and investment. We conducted our most recent one in November of last year and we found that our members indicated they were more positive about economic prospects for the next year than they had been since 1989.
I've worked in different capacities as an economist over the years and I've found that small firms -- the data we get from our members are amazingly accurate leading indicators of the economy. We all look at the StatsCan data and the official crunchings and so on and so forth, but I found that good things that are happening in the economy tend to be noticed by small firms more quickly; and negative downturns in the economy also, because they're just not as well insulated, they're just not like the large corporate sector or the public sector, for that matter. So I have found the data that we get as an organization, over the 10 years I've worked with it, to be very predictive.
Referring to the first chart, when we look at the expectations for the economy and for their firms' prospects, and we compared here 1997 and 1998, you can see that we found about 10% of the respondents expected a much stronger 1998 than 1997 and then just under 50% -- 49.6% actually -- expected stronger. In other words, we've got roughly 60% who are expecting a stronger performance to some degree, and then about another third the same. That seems to bode pretty well, I would say, for the coming year.
When we look down the different sectors and what we see in terms of which sectors are the most optimistic, those include manufacturing, wholesale and business services. Again, these are sectors that are quite prominent in Ontario. They represent a bigger chunk of the economy in Ontario than they do in other provinces, so the fact that they are some of the more optimistic sectors obviously is also very important.
However, there was across all sectors a pretty upbeat approach taken. When we looked overall at Ontario small firms' expectations versus those in all the other provinces across the country, we found that in Ontario the small firms were second in their positive expectations only to those in Alberta. It was basically number two in the country in terms of their outlook for the economy.
We broke out some regions of Ontario just to get a bit of a regional perspective. As you can see, Toronto and central Ontario are virtually identical in terms of being among the most optimistic. Again, all regions -- even the north, which is the worst, I guess, but on the other hand it's still in the high 80s in percentages -- are expecting a stronger or similar type of economic situation. So the optimism regionally is also reasonably consistent.
One thing we did I'll just touch on really briefly. Postal strikes hit our members hard as a rule, and we did this survey just before the postal strike, so we wanted to do a little reality check on whether or not the outlook had changed much. There was a little bit of change coming out of the postal strike, but not significant, and I might note that subsequently, because we did this back in December, we have noticed again in the early part of 1998 quite a positive outlook from our members, so we don't think things like the postal strike did much to put a dent in this forecast.
Of course, the important thing to all of us is what impact all these good optimistic feelings will have on employment creation. Here you can see a disaggregation by the size of business, and we're seeing that the darkest blue are the proportion that are planning to increase employment, and for Ontario overall it's just under 40% of the businesses, so that's quite an optimistic outlook. Of course, a much larger chunk, no change, and a very small proportion, just over 10%, are planning a decrease. This employment growth appears to be concentrated in the, I won't say medium-sized, but certainly the five-and-up category, but even the smallest of firms are looking at a reasonable degree of job creation. We extrapolated and translated this into overall growth in employment in Ontario and it turned out to be just under a 4% growth predicted for 1998. This was roughly equal to the national average we found in our survey.
Another interesting component of this was that about 70% of the jobs that were predicted to be created were expected to be full-time jobs. We have had a concern over the past few years, notably as we've pulled out of the last recession, that an inordinately high proportion of the jobs that we saw created were part-time jobs. There was too much overtime and so on, and of course as a result we heard some calls from some quarters we heard some calls from some quarters to introduce legislation to limit hours of work, for example. There are still constituencies that feel we really need to do that, the Jeremy Rifkin approach to the universe, I guess, force limits on overtime, and as a result, this would be believed to convert part-time jobs into full-time jobs. Again, when I reviewed last year's testimony before this committee, I saw some of these sentiments expressed at that time.
First of all, we've looked into this pretty extensively, and when we have looked at experience in other countries, we have found that it has never worked. One of the reasons it has never worked is that the employees themselves do not want these types of measures that put limits on their own work and what not, and of course it's also an added rigidity for the business that reduces their efficiency and effectiveness.
What we also see when we look through business cycles is that historical data show that growth in part-time employment and expanded use of overtime are very natural precursors, in the early part of a period of economic expansion, to the creation of full-time employment. We have seen this in every single business cycle. What ultimately happens, of course, is that these part-time positions and the use of overtime, once business owners are convinced that this is indeed a trend that is robust enough and is going to be sustained, move into full-time jobs. We're finding this indeed again in our survey data, and even when we look at the StatsCan data on labour force numbers and employment data, we're seeing a conversion into that full-time job area, which again is very positive and everyone is very pleased to be seeing that. We certainly believe we're now at the stage in this particular economic expansion where we can see more employment stability perhaps than we've seen through the early years of the 1990s in particular.
The next slide deals with the factors that would influence firms to increase their hiring. We do this kind of survey regularly to see how the different factors shape up. Greater customer demand, which is really just a proxy for growth in the economy, not surprisingly is by far the strongest factor. We have found in Ontario, for instance, the personal income tax reductions have consistently been positively received by our members. We have tracked how they feel about them as they have occurred over the last couple of years, and they have played a positive role in terms of improving consumer confidence and giving a boost to consumer spending, as well as, naturally, the fact that we are in a positive phase in the business cycle. Interest rates are low, as John McCallum mentioned, and there are a number of other factors that feed into it. But there's no question that the PIT reductions have been a significant factor in these trends.
The second most important factor, listed pretty consistently on all our surveys, is payroll taxes. We believe certainly from our own research and international research on this issue that payroll taxes are increasingly viewed to be a barrier to job creation, particularly having negative short-term impacts on employment.
It's interesting to view this issue in light of the youth unemployment issue. We have heard an awful lot of discussion about this issue. The upcoming federal budget in a couple of weeks is expected to have a centrepiece dealing with or ideally trying to deal with this issue, although on the one hand, when we look at data over the last few decades, youth unemployment typically is in the mid-teens, unfortunately, for all kinds of different factors. This isn't to say it's not serious, but it is to say that we shouldn't get things out of perspective in this particular economic period, while at the same time of course dealing with it as best we can.
From a small firm perspective, a disproportionately high percentage of youth get their first job in a small business. We found in our own research that where the employment of youth overall in the economy is about 15% of the total number employed, in small firms it's 30%. In other words, there's a real link between small firms and the youth unemployment issue, or youth employment issue. We're actually doing some pretty comprehensive research right now on this question. We won't have any final results until probably about the spring, but there's no question that one very clear signal from employers is that the more costs you load on the taking on of a new employee will fall disproportionately hard on youth. That youth needs more training, naturally, there's more of an investment required to bring that person into a productive member of the workforce for a firm, so the costs you impose through payroll taxes, heavy legislative burden or whatever it may happen to be will hit youth the hardest. As a result, some of the initiatives we've seen on the employers' health tax, significant reductions for small firms, are extremely positive for employment generally and youth unemployment as well.
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Also at the federal level certainly to a lesser extent we have pushed very hard for employment insurance premium reductions. We talked a lot about Paul Martin's fiscal dividend. The fiscal dividend is entirely the surplus in the EI fund, so we don't really think there's a fiscal dividend per se. We think there's misappropriated funds happening from the EI account, but nevertheless we have managed to achieve some reductions in that, and again that has been a positive. Of course, most recently some of the EI reductions have been more than offset by increases in the Canada pension plan.
I might just add that the fact that Ernie Eves has very proactively sought to link EI premium reductions with CPP premium increases, as is slated to take place for the next few years, has had an impact, we believe, and we certainly would encourage that moral suasion to continue as much as possible. The finances look as if we indeed can afford it.
Moving on to some of the other factors, there are reductions in other taxes also, almost up to the payroll tax level.
Again, the issue of property taxes is huge with our members and small firms generally and there is quite a level of concern right now about the devolution of a lot of the decision-making on property taxes to the municipal level. In the past, and of course you can't tar everyone with the same brush, many municipalities, indeed most, have milked the small business sector for unfairly high property taxes as well as licences, fees and all kinds of other levies. We're very concerned that the new draft municipal act, for example, which accords extensive fee and licensing powers to the municipalities, will be abused, because that has been our past experience, unfortunately. As a result, this is something that we'll be keeping a very close eye on and is a growing concern in the tax area for small firms.
Some other factors down the list there that are believed to encourage additional job creation are things like reductions in the businesses' debt load. Through the early 1990s, a lot of businesses took on a fair bit of debt to get themselves through that recession. That's still an irritant, a serious irritant in a lot of areas. There are things like less variability in sales -- again, hopefully in this stage of the economic expansion that will take place as well -- and the bank credit issue, which I'm going to touch on more fully a bit later.
We also in this survey include capital spending intentions, and we found that overall capital spending plans were expected to remain at about the same level as 1997. As you may know, 1997 was a banner year for investment, much investment in machinery and equipment, for example, as well as a lot of other areas. As a result, duplicating that result is very positive. The sectors we found whose spending plans were especially strong were again manufacturing and wholesale, again very positive because these tend to have big multiplier effects on the rest of the economy. Again, we also found firms with more than 20 employees tended to be the ones with the strongest capital spending plans.
One overall finding of our survey when we looked across the country was that the outlook of the small to medium-sized business community in the provinces which had practised such things as fiscal discipline, had made efforts to lower taxation and had not gotten into new regulatory regimes and initiatives, also had the most upbeat job creation prospects. Again, when we look at history with the StatsCan data and so on, so far they have also had the most robust history in terms of job creation.
I've been with CFIB for over 10 years, and the organization has been around for 27. I can remember preaching some of these things years ago and you were thought to be a lunatic fringe type of element. From a small firm perspective, seeing that that constituency has advocated things like fiscal prudence, low levels of government intervention and so on and so forth, it's quite gratifying in a way to see these things finally practised and indeed yielding a lot of the results that I guess we always expected they would.
I want to make just a few brief comments on the Asian crisis. I agree with John McCallum. We don't see, at least so far, terrible impacts on the Ontario economy, but nevertheless there will be an impact. Again, I guess right now the problem is it's pretty unpredictable as to whether it's going to worsen. From a policy standpoint, it's kind of interesting because as we see, those economies very much practised very centrally controlled power in a few hands. They were not market-directed economies. They controlled what happened to their central banks very much. They enforced a low interest rate policy, things like that, no matter what was happening in the rest of the world and with their trading partners. They placed arbitrary limits on imports from foreign countries. They bailed out businesses endlessly that ran into problems, lent money to a lot of their friends. There was a fair bit of corruption and so on as well, naturally.
It's interesting that some of these policies are very much advocated by people in Canada, such as that the Bank of Canada should be forced to lower interest rates or those types of things. The policies do work for a while. There's no question that from a short-term perspective they do tend to work, but of course, as we saw when they came crashing down late last year, the damage done is very significant and it's going to take an awful long time to rebuild these economies. I guess, if nothing else, the policy lesson from what happened in some of these Asian countries is a pretty interesting one.
Generally, the fact that countries and provinces are less free to practise policies that run counter to what's happening in the rest of the world is viewed as a good trend from a small-firm perspective. Naturally, market forces are what small firms prefer to deal with because they tend to be less preferential, more neutral, and everybody has roughly the same chance instead of the subsidy- interventionist type of process which accords privilege on one business or one individual over another.
I think within Canada there's a similar analogy, because here our provincial governments have quite a lot of power over some very significant economic levers. Some of the worst policy messes we've got into in this country have arisen when our different levels of government have been pursuing opposite or very different kinds of directions. Some good examples include the GST. We saw notably through the early 1990s different fiscal policies being pursued by different provincial governments, which caused terrible distortions. We've seen a mess with interprovincial trade barriers over the years as well.
A recent one that has come up to concern us has been the talk that some provinces want to reform the personal income tax system to permit provinces to apply provincial income tax on the tax base and not as a percentage of the federal portion of the tax. We believe we already have enough problems with different jurisdictions applying different rules and creating distortions among the regions of this country and that we don't need a further balkanization of our tax system on PIT.
I want to move on to the financing environment, and again the recent merger proposal cannot be ignored. From a small business standpoint, we've actually seen some worrisome trends in the banking industry for a number of years now, not just very recently. We've seen a return to a more centralized decision-making approach within the major banks. Through the 1980s we actually saw some decentralization. We saw more autonomy being given to regions and what not, which is something that small firms find positive, when their local person or regional person actually has the autonomy to deal with them without having to consult someone who doesn't even know the business miles away, usually at King and Bay.
We also have found a trend towards a more formula lending approach, and there were always formulas that have been used in bank lending. The small business market is an expensive market to serve; we know that. It's tougher to lend money out in $100,000 chunks than it is in $10-million chunks. You often have to do the due diligence and all that anyway. The trend towards a formula lending approach exclusively is worrisome. Again, formulas will always be used and that's not a problem, but if it's exclusively a formula, you will be cutting off an awful lot of businesses whose numbers maybe don't precisely conform to that particular formula, but if an experienced bank manager goes in and says, "Yes, I know this person has a good track record in business," and evaluates some of those more judgemental factors, that person usually ends up getting the credit if the criteria are right.
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These are a couple of trends, generally, that have been happening over the last few years in Canadian banking. Naturally technology has spurred them along, because one can serve without the human element now in financing, as well as other industries, much more easily. Of course the banks have very much rationalized, they've downsized their employees, they've closed many branches, and naturally it's much more tempting to go to these more automated, formula approaches when there isn't a physical branch present and when they don't have as much staff as they used to have. All of these trends have certainly gone together.
The bank mergers question is a big concern for small business. The obvious issues are simply reduction of already minimal competition in the small business market. There's certainly a lot of bank competition in some markets; we don't find there's a whole heck of a lot for the small business credit market. Banks as well have been pushing for some time about getting into other areas of financial services, retailing of insurance and leasing being one example. They have also virtually taken over the securities business in this country and the trust business. Small firms have not believed that any of these developments have ended up being to their benefit, in fact quite the contrary. The notion of major banks getting even more powerful and even more concentrated and the prospect of even less competition among the different players is not one that small firms view very positively.
In terms of the financing climate for small businesses in Ontario as compared to other provinces, in some of the surveys we've done on this issue, Ontario firms, in a lot of the criteria, fell into roughly the middle of the pack, although there were some really interesting differences. One thing we asked our members was if a firm had applied for a loan or a line of credit over the past three years. The proportion of Ontario businesses that had not done that was the highest in the country, 42.2%. This could be seen as good news, because maybe firms didn't need the financing and that was why they didn't ask for it.
But we followed up with a question as to why they didn't seek financing, and in Ontario 14.1% said they believed the bank was not likely to accept their application. Again, this was the highest proportion in all of the country, which I found rather bizarre in a province that has a huge banking presence, the head offices of virtually all the major institutions and, even when you get away from the schedule A banks, an awful lot of other financial players and so on. These were really rather disturbing results one wouldn't have expected to find in the economic heartland of the country.
It was interesting that John McCallum actually alluded to this a little bit in his comments. We heard from bankers in Ontario in the early 1990s, when the economy was really in the tank, that because Ontario had not seen a recession that serious since the 1930s, basically, a lot of bankers who hadn't experienced this before tended to overreact and really tighten up credit when it wasn't justified by circumstances. The early 1980s recession was much worse out west than it was in Ontario, for example, and a lot of the bankers out west had seen it before. They thought, "Okay, we got through that one." They had that kind of experience. Bankers themselves have actually told us in meetings that they feel there was a squeeze put on in Ontario because the banking industry, always risk-averse, had never seen these conditions before and therefore overreacted to them. I guess our data from the survey could be viewed as a hangover from that kind of phenomenon.
In terms of the firms that did apply for financing, in our survey the acceptance rate in Ontario was 73.4%. This is not bad, it's three quarters, I guess, but this was actually lower than the national average; again, not a finding one would expect to have in Ontario. It was higher than only two other provinces, Nova Scotia and Newfoundland, whose economies are naturally very different than this province's. These were interesting findings and not very encouraging ones.
One other problematic thing we found -- and I think it gets to some of the questions you were asking John McCallum earlier -- was that we disaggregated the findings on the basis of the size of the business, and we found the treatment of the businesses with less than 20 employees -- and these tend to be the younger firms, the firms we expect to see some growth from and what not -- had actually worsened relative to their larger counterparts. We've done these surveys now for almost 20 years, so we compare the trends over time. We found the gap in the treatment by financial institutions of the less-than-20s versus the over-20s has widened. This is a concern. One would always expect a newer firm or a smaller firm to have more hurdles to go through to get financing. That's expected and normal. But to see that gap widening, I don't see any reason for that. That's something I find quite problematic, because these smaller ones, first of all, are the most numerous in the economy, and second, we expect them to contribute significantly to our job creation and economic growth in the future.
On the service charge issue, a perennial favourite among small firms, Ontario is the second most dissatisfied province, after Newfoundland. There was a reasonably high degree of dissatisfaction pretty much everywhere. We found the banks laid off service charges in the early 1990s, because in the worst of the recession, when they were posting pretty decent profit numbers despite the economic difficulties and everybody else was losing money hand over fist, I guess they figured they had better cool it on the service charge front, and they did for a few years. Lately, however, we've found this whole issue has been very much revived by the banks and service charge increases and new charges are once again a growth industry. The data in our survey certainly reflected that. There's no question too that the banks are getting a larger proportion of their income from service charges than they used to, so it's very much a cash cow.
I might note that on the competition issue, again touching on the merger question, we have always found in regions that have some competition, service charge levels are lower, not surprisingly. One can shop around. The notion of two major institutions merging -- and this has been the experience of the US as well with major bank mergers -- tends to significantly increase the service charge levels, because the market will bear more when you have a virtual monopoly, or certainly less competition.
Just before I close, I'd like to make a few general comments on government economic policy and government behaviour. As I mentioned earlier, our organization has been around for about 27 years and we've made some historical observations over time. One of them is that the longer a government stays in power, no matter how it originally approached issues, the more difficult it seems to be to resist getting into more interventionist policies. We see these often targeted at sectors like the high-tech sector or the export-oriented sector and so on. We've never, however, really found these policies to be particularly productive. They just seem to be very tempting. The desire to be activist and hands-on is something I guess we all can see as appealing, but we have never found these policies work to the benefit of the small business community, and we don't believe they work to the benefit of the economy generally.
Here in Ontario we're looking at the prospect of a balanced budget in the not-too-distant future. At the federal level we're going to see one imminently, I would suspect. I think at this point it's important to note that a lot of willpower is going to be required of politicians and people who work in governments to not declare victory too early over the deficits and the debt that we face. Our members are very concerned that we'll repeat the mistakes that we made in the late 1980s, when governments spent very big and justified their behaviour because the economy was growing quite significantly at that time. Of course, when it crashed to earth in the early 1990s, taxes in many areas actually had to be increased, which naturally made things worse, and spending cuts also imposed even worse hardship on people than was necessary.
Right now we're very much moving in the right direction in Ontario, and elsewhere in the country by and large, and as a result governments have a lot of ability to ensure that we continue on this path to establish debt reduction schedules -- not simply deficit elimination, but debt reduction schedules -- and ultimately elimination of the debt. When we look at public opinion polls, most Canadians seem to agree that this would be a good course to follow, so even from a political standpoint it would probably not be negative.
I'll just make a couple of brief comments on the Quebec issue. Recently, we've seen talk about a snap provincial election. A lot of people have to factor these kinds of issues into their forecasts. Certainly in Ontario our economy is very linked with that of Quebec and we have to consider these possibilities. I think one thing that's worth noting is the fact that we as governments are getting out of debt -- not out of debt per se, but getting deficits under control -- reducing foreign-held debt -- to varying degrees, of course, in different jurisdictions -- but this is a positive factor as well for the impact of political factors, because it gives us more stability, it gives us more fiscal sovereignty, and the less we owe to foreign bondholders and what not, who frequently have a very poor understanding of what's going on in Canada and behave in a very knee-jerk kind of fashion, the better it is for our own stability about any kind of political upsets that we might encounter.
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Just to conclude, our constituency is quite upbeat right now. We see a year of quite solid and hopefully increasing broadly based economic growth for 1998. Small firms in Ontario have received positively the general direction of economic policy under the current government, although there is considerable concern over the fallout from such things as property tax reform. We think overall, though, that a policy environment that's based upon reduction of taxes, reduction of government regulation and red tape on business and individuals generally, and continued prudence on the public spending front will permit Ontario entrepreneurs to plan and invest with confidence, grow their businesses and create more jobs. As a result, Ontario's economy will also have a better base for more medium-term stability as well.
Thank you very much. I'd be happy to try to answer any questions you have.
The Chair: Thank you very much. We have approximately six or seven minutes per caucus. We'll start with the government caucus.
Mr Hastings: Ms Swift, I'm wondering whether you're planning on serving your members further in terms of the potential adverse impacts from the Asian fallout. What I'm particularly concerned about, having talked to some business folks in my riding, is the retail sector, particularly consumer packaged goods, the electronics field; that we may have, because of deflation, laptop computers and your boom-box-type music presentations coming in here at maybe $200 or $300. How will that ring itself out in the retail sector?
Ms Swift: Not too badly in the retail sector, because they're not making them, they're just selling them. If we have a rush on to purchase these things, I think we'll probably see a lot of positives come out of that. What we've seen, so far anyway -- and although we don't have immediate plans to do another survey we're keeping an eye on it, and if something does pop up, we certainly will -- is that BC's economy, for all the obvious reasons, has been the one that has really been hit. The other types of impacts deal more with the commodity prices, because of course as the Asian economies have gotten into trouble their demand for resources has fallen, and as a result that hits us very hard, but it notably hits certain regions of the country: Alberta, Saskatchewan and of course British Columbia. Naturally, some of the other effects, which I think John McCallum alluded to, are what may or may not happen with interest rates, which will affect everybody, and the American economy. If the American economy gets more protectionist, we know that does tend to rub off somewhat on us as well.
From a strict retail/wholesale perspective, for one thing we don't manufacture that stuff in this country, we're not manufacturers of all that, so if anything, there might actually be positives. If consumers go out and can save some money on one item, then presumably they'll spend some more money that they might have spent there on something else. That might not be a terrible thing, and retailers are going to get their margins or whatever. Because we don't manufacture that kind of stuff here -- it's a very blunt perspective, but I can't see it being terrible.
Mr Hastings: How about with respect to the automobile sector, where you could have a more adverse effect?
Ms Swift: Yes, that's obviously more of an issue, but undercutting in the auto sector, which one can't rule out necessarily, is harder to do now, because all the major foreign players are producing stuff in North America. As a result, they're cutting their own throats, since they have their plants in Canada and the US and what not. Although there may be attempts at it, I can't see them being significant and I can't see them being sustained, because these guys, most of the stuff they supply to this market right now is made here. There were all kinds of reasons they did that in the first place, with trade barriers and so on. I guess I see more of an impact on the US, where they actually manufacture more of those types of products that are also made in some of the Asian countries.
But again, right now, because we're in the midst of it, it is tough to predict whether there is going to be more fallout from it, but for the moment, I guess the consensus that most of the people observing it have come to is that we're not expecting huge negative impacts in Canada or in Ontario.
Mr Hastings: Thank you very much.
Mr Baird: One of the big issues on your chart was payroll taxes. What do you think the effect on your members has been of the elimination of the employer health tax for small businesses?
Ms Swift: It's been hugely positive. We did some surveying specifically on that issue, actually about a year ago. I remember it wasn't quite a year ago now. I think it was last spring or something like that.
We found that it had quite an impetus to hiring, because that was a pretty significant payroll tax and the paperwork also is an issue. It's not always just the money; it's the added aggravation and what not. I think about a quarter of firms, if I recall correctly, planned to increase hiring or not reduce hiring as a result of the EHT change. We find payroll taxes from the jobs standpoint certainly seem to be viewed as the most negative. Other taxes have their impacts as well, but from just the employers' standpoint, we feel the more we can reduce payroll taxes the better.
There has been a lot of talk too. I might just note that payroll taxes are lower in Canada than they are in Europe. Mind you, Europe hasn't created a net new job in so long that I don't quite know why we would want to reduce ourselves to that level, and even in some US jurisdictions. But what's interesting is there has been some research to show that the employer-paid portion of payroll taxes, because of the mix and the say it works out in Canada, is actually higher, so you have to dig a little beyond just sort of superficial numbers.
The Chair: I'll have to interrupt you and move to the Liberal Party. That is Mr Kwinter.
Mr Kwinter: I have two questions for you. I was at a breakfast meeting this morning and I heard a rather startling fact. A businessman said he pays more in realty taxes than he pays in rent.
Ms Swift: That's scary.
Mr Kwinter: It is very scary. I was curious to know whether you've heard that through your membership, whether that is an isolated case or is really happening right across the province.
Ms Swift: Was this a recent development? I'm curious because recently there have been an awful lot of prospective changes in rents and what not, anticipating changes in the property tax regime. Was this a recent or a long-standing kind of --
Mr Kwinter: No, I think this was recent.
Ms Swift: Fairly recent. I don't know that I've heard that particular example. Judith, I don't know if you've heard that kind of thing specifically.
Ms Judith Andrew: No.
Ms Swift: There is no question that it's a huge problem and a growing problem as governments right across the country have been passing things down.
Ms Andrew: We did a massive study of our members right across the country, and the Ontario portion showed that businesses are on average paying double the taxes that residents are paying for properties of the same value. Here in Metro that burden is triple. Of course Ontario is the property tax capital of the world. It is higher than in other provinces in Canada and in all of the OECD countries in terms of the proportion of property and wealth taxes we extract here in this province. It could very well work out to be the example you just mentioned.
Ms Swift: I sure wouldn't rule it out. It is a really major concern and in fact probably one of the key ones for our members right now in Ontario, given all the policy changes in that area.
The study Judith talks about we put out late last year and there was the outcry from some of these municipal governments that really hadn't been questioned on an awful lot of these issues before and really felt that any changes meant automatic increases in taxes -- there was never any question, in some people's minds. It's not fair to tar everybody because some of them have been pretty sensible, but it really is the last bastion of spending restraint that has yet to happen, in many instances.
Mr Kwinter: The other question I have for you is that the government is contemplating introducing VLTs. The projections are that will take anywhere from $700 million to $1 billion out of the economy. What do your members feel about that? Do they see that as a positive on some sides or is it something they've looked at?
Ms Swift: We haven't actually looked at that issue. I think a number of years ago we asked some related question because there was some issue as to who was going to administer these: Would they be a strictly government thing or would the private sector be able to participate in them and so forth?
For our members perhaps this is an area we should do some more extensive work in because it seems to be growing all over the place in this country, and elsewhere for that matter. Perhaps we should do some more research there. But we haven't done that particular survey yet, no.
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Mr Phillips: The majority of property tax for business is now set by the province, as you know. It's no longer a municipal responsibility. Those taxes will be set by the province, and in fact they were announced last week. There was no debate on it; they were just announced; no vote on it, no discussion. For your members, for whom you indicate property taxes are a huge issue, they were all set last week. They will vary widely, as you know, from a business that's assessed at $500,000, which will not be a large business -- in Hamilton they'll pay somewhere around $19,000 in taxes, and in somewhere like Parry Sound they'll pay around $5,000 in taxes, so there's going to be some wide variation across the province. The CFIB commented on that. Do you have any suggestions for this committee on it?
Ms Swift: On the property tax issue, naturally, an organization like ours which has an extremely broadly based constituency has the same conundrum in many ways as do decision-makers on this issue. We know the system was in dire straits and needed some serious fixing in a number of different areas, but whatever you do you're going to annoy probably about half the constituents in any group, certainly like ours, just like the residents of Ontario or whatever. So we have done a lot of research on property tax and it's always looking for lesser evils. There just don't seem to be good answers because the problems have built up over decades. Judith has actually done way more in-depth stuff on this in the recent past than I have, so I might ask her to make a couple of comments.
Ms Andrew: If we had seen an announcement last week calling for a uniform rate -- I know there were several local business groups and local politicians who felt that would have been the appropriate thing to do -- from our perspective, a uniform rate couldn't have come without having a threshold for small business because the uniform rate, of course, implies tax increases for something in excess of 500 municipalities in the province.
Our perspective on this is that taxes are very punitive here in Metro. Our members are really suffering. They're paying triple the taxes that residents are paying, but it's very hard to justify a share-the-misery policy between businesses when the real culprit is the fact there is this big business-residential gap. Until we get that gap closed we're never going to have accountability for local spending because we're not going to have the taxpayers who are the resident voters paying for the services they're enjoying. It's always been the case that businesses are shouldering more of the load than they should. Until we can narrow that business-residential gap, we're never going to get the accountability for local spending.
At this period of time it's very difficult because there are these arguments between businesses, depending on where they're located, and the ones most ill-treated naturally want to share their misery, but is a share-the-misery policy the right way to go or should we work at the real problem? That's what we want to do, to get narrow ranges of fairness and eventually eliminate that business-residential gap.
Mr Silipo: One of the issues I wanted to ask you to comment more about was this property tax issue. It follows very well from the last comment you made. Would a solution -- I hear what you're saying in terms of not setting a uniform rate across the province, but for example, here in the GTA, would moving towards a uniform rate across the GTA, even phasing that in over a period of time, be a solution from the perspective of your members, or when you say you've got to get at the more fundamental issue, does that mean shifting more of the costs of the property tax system from the business side to the residential side, or just to make it even more complicated, an even more fundamental shift, suggesting that what we should be doing is looking at whether many of those costs are appropriate to be on the property tax base at all, rather than, whatever differences we may have about the appropriate level of expenditure on those services, whatever that may be, whether in many cases because it's dealing with education, social services etc maybe the more appropriate place for those is not on the property tax base at all, but on the array of provincial taxes that are available.
Ms Andrew: On that last issue we have some direction from our members, admittedly very old, but they tend to believe that services to people should be paid for by people, services to property be paid for by property, and we have an old vote that would have had the provincial government handle the cost of education, not on municipal property taxes, so in the final analysis we need to be doing more work and be thinking in those terms.
In answer to your first question, about whether a uniform rate for the GTA would be appropriate, I guess the argument there is that Metro businesses are disadvantaged relative to the 905 belt, but then if we share that misery with the 905 belt, will we have businesses fleeing to Orangeville and Sutton? Our preference is to work at that business-residential gap and try to get accountability for local spending. Then we might find, for instance, that the total quantum of property taxes isn't as high as it was before because the voters are now paying the shot for the services they're enjoying and are not willing to pay for things that perhaps are currently being provided.
There are some of those issues, but this is going to be a long-term process, to get this system back into balance, and very much part of the question is really rethinking what we pay for on the property tax base. The property tax is a profit-insensitive tax, just like payroll taxes, and it hits before a business makes the first penny of profit. It is very damaging to local communities. If local governments in a shortsighted fashion try to load more of the taxes on to business, they're damaging their local economic development and the potential job creation that might have flown from that. There are a lot of complicated issues there.
Mr Silipo: The other question I wanted to ask had to do with going back to one of the slides you had on the conditions that most largely affect hiring, increasing jobs. Number one, as you pointed out, is greater consumer demand. As you said, it's an obvious one, but one I'd like to get your observations on beyond what you said earlier. When you weave that together with the impact or benefits, depending which word you want to use, of the tax cut, you look at the fact that for half the taxpayers of the province the amount they are receiving is, I would argue, fairly insignificant at the end of the day in terms of the whole benefit of the tax cut, woven in against some of the other increases people are having to pay. Doesn't that then turn around and have a negative impact of not creating that kind of customer demand that we may want?
Ms Swift: Because people's expectations might be different than what happens, you mean?
Mr Silipo: Simply because people realize they actually don't have a lot more money in their pockets to be able to go out and spend.
Ms Swift: The money is collectively huge, when you look at currently roughly over $3 billion, ultimately $4.5 billion, or thereabouts, injected back into the economy, or somewhere. I think over time it has an impact as well, because in any one year, you're right, some of those numbers, $1,000 a year or whatever it may happen to be, is not enormous. Part of the problem too has been that other costs have also gone up, whether it's CPP premiums or whatever, so overall one might not notice a whole big impact when you get your net income.
What we've seen, and again it's our members, and our members are business people, but they also tend to be reasonably -- unlike if you survey a bunch of corporate CEOs, if you survey a bunch of our guys, our guys naturally tend to reflect more the views of a community than the corporate universe or whatever. I think part of it is confidence-related as opposed to even as much tangible, because one area of taxes, at least, is starting to move in the right direction. Of course, at a time, too -- in economics, goodness knows, there are so many things happening at the same time, one can never attribute anything to one cause legitimately, although people may try. Here we've got a tax cut happening when the economy is already expanding because of other factors such as growth in the US and low interest rates etc, so I would argue it has a more beneficial effect now because people are feeling better because of a bunch of other things as well.
I don't know if I see any negatives. I guess the only negative could be if people didn't understand or didn't read what the actual numbers were and thought it was going to be more of a bonanza or something than it really was. But with the number of things all happening at the same time -- employment is growing, people are feeling better about their prospects and so on; the retail spending numbers for December just came out and they're up 12% or something from the previous year -- I think we're seeing the evidence. The important thing now is hopefully to keep that rolling for a while so that it will, again, spread out among a greater base of people and hopefully end up with more job creation and so on.
I note on the job creation point -- this is an unconnected point, but I don't think I have touched on it -- so many of our members right now are looking for people and can't find them. It is appalling with the high rate of employment we've got. We have a huge structural unemployment problem, not just in Ontario but everywhere in the country, and I think that might be one of the biggest policy challenges that we have to deal with over the next little while. It's not a lack of jobs, they'll tell you.
The Chair: I'm going to have to interrupt you there, but thank you very much for your comments and for your time this morning. We appreciate it.
Ms Swift: Thank you.
The Chair: The next presenter is the Rubbery Warehouse Store. Is someone here from the presenter for 11:30?
We don't appear to have anybody here, and of course, because the break follows, we don't have anybody in reserve. I suggest we take five minutes and see if they appear. If not, we'll adjourn at that time for the recess.
The committee recessed from 1133 to 1140.
RUBBERY WAREHOUSE STORE
The Chair: The next presenter is the Rubbery Warehouse Store. Please come forward. Good morning and thank you very much for coming. Please identify yourselves and proceed.
Ms Janine DeFreitas: I'm Janine DeFreitas, the owner of the Rubbery Warehouse Store.
Ms Barbara Herbertz: My name's Barb Herbertz and I'm the business manager for the Rubbery Warehouse Store.
Ms DeFreitas: I started the Rubbery Warehouse Store. I worked for Rubbermaid for six years and then decided that there was no one place where consumers could get everything that Rubbermaid made. So back in September 1996 I opened up the first and only full-line Rubbermaid store. It was in 10,000 square feet in Mississauga. After about six months, business was so great it was booming. We expanded to 20,000 square feet at the same power centre. We doubled our projections. We projected about $1.5 million and within our first year we did just under $3 million. From there, sales are still great. We had a soft Christmas, but January has been phenomenal for us.
That's kind of our business in a nutshell. We carry all seven of Rubbermaid's divisions, everything from Little Tikes products, Graco to health care, housewares, seasonal garden sheds and coolers.
What really helped me get started was the government assistance programs. I did apply for a small business loan. I guess the whole reason why I got funding was the fact that the government did have the small business loan and the banks backed me up. I got that in 1996.
The Halton Region Business Development Centre helped me out as well, because they had consultants who helped me, talked to me, gave me some financial background on different companies, helped me put my business plan together. I also found little literature books there on what the government could do for me. Then this year we find out that we'll probably qualify for that new hires program, so we'll be able to get some rebate there. So that's good.
If I had a wish list, though, on how -- right now, with a growing business, it's cash flow that's a problem. If the government could somehow help us with our cash flow in the areas where we have our largest expenses, which is rent, taxes and labour, if somehow we could have some kind of tax reduction like a rebate program for the first two years of business, somehow a rebate in one of those three areas, that could really help us out on cash flow. Also, since entrepreneurs invest so much time, energy, sweat -- I mean, we invest everything, even our own money -- I thought maybe the government could somehow give us a tax reduction on the first $50,000 or something that we earn just to help us through paying the bills.
Last but not least, I had a suggestion about the property tax. I'm just not quite sure why we pay as much property and realty tax and then another business tax on top of that. Personally, I'm paying $50,000 a year in realty tax and another $25,000 in business tax. That's a lot of money, $75,000 that I have to pay out, and I don't really understand where it's going. Also, I don't understand why the landlord is the one to collect it off me. How do I really know that that's what the government requires? I have to wait another six months before I can get answers back from them on what they had to pay the government. So I just thought maybe it would be nicer if I could just pay directly for my own taxes instead of going through a middle person, who could take advantage of us.
Do you have anything to add, Barb?
Ms Herbertz: No, I think you did a great job. You did it all in a nutshell.
The Chair: Thank you very much. We'll start with the Liberal caucus. Any questions?
Mr Phillips: I appreciate your success -- I hope success -- in your enterprise. On the business tax for a moment, that's all changing, as you probably are aware. The $25,000 of business tax that you talk about no longer is applicable, so you won't be paying that this year. It's gone. It's all realty tax now. What has happened is that most municipalities have taken what you called a business tax and put it on the realty tax. I'm surprised you haven't gotten your new bill from your landlord.
Ms DeFreitas: All they said was that the business tax was going to be included in the realty tax and that it would be 50% of the realty tax. That's it, and then they started taking the money away from me.
Mr Phillips: Right. Just for the committee's information, is the total amount that it now looks like you're going to pay in realty taxes, when you take whatever your landlord is charging you times 12, less than you used to pay for your realty tax and your business occupancy tax?
Ms DeFreitas: That's hard for us to say, because we moved in in September of 1996 and we went through all of 1997 and the government office never contacted us about business tax. So I don't know. I just really started paying this year, rolled into the realty tax.
Mr Phillips: You realize you're on TV now.
Ms DeFreitas: Yes, I know. The government catches up with you eventually. I know I owe for business tax, but they have to somehow --
Mr E.J. Douglas Rollins (Quinte): Send you a bill.
Ms DeFreitas: They have to send me a bill or I don't know how much to pay.
Mr Baird: We'll be adjusting the deficit.
Mr Phillips: For 1997. Anyway, you shouldn't hold your breath is what I'm saying, really, in terms of being able to pay it directly to the government, because the approach has been to put it all on the property, to get rid of the business occupancy tax. That gives the government an asset, if you will, to ensure that the realty taxes are paid. You should expect your realty tax, as I say, to include the amount you would have paid on business occupancy tax or business tax plus realty tax.
I believe the tax rate on the first $200,000 of profit is at 25% and then after that it's at 50%. In other words, there is a lower tax on small business, if you will. You were suggesting a lower tax on the first $50,000, I think, of income.
Ms DeFreitas: Yes, but personal income to the entrepreneur.
Mr Phillips: Personal income?
Ms DeFreitas: Yes.
Mr Phillips: Not business income?
Ms DeFreitas: No, not business.
Mr Phillips: So you'd pay the lower tax rate on business income and then you're recommending that -- but just for entrepreneurs, the lower tax?
Ms DeFreitas: Yes, the principal in the business who has put in some of their own money and all the time it takes to get it off the ground.
Mr Phillips: Right. But I think you appreciate there is a lower tax on your business income.
Ms DeFreitas: Yes.
Mr Phillips: So you're just proposing a lower tax on what you --
Ms DeFreitas: I was just trying to think of ways that somehow we can help with the cash flow.
Mr Phillips: Sure. I understand.
The Chair: Thank you. Mr Silipo.
Mr Silipo: One area that I'd be interested in hearing a little bit more from you on is the first point that you made about the benefit you actually derive from the small business loans structure and that it was important or maybe even more than important in helping you get the business started. As I see it, what seems to be more the current approach, certainly of this government at the provincial level, is that the more they get out of that type of assistance and that type of approach to helping business businesses get started, the better it is. What you're saying to us is that your business was able in part, maybe more than in part, to get started because there was a loans program that allowed you to get --
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Ms DeFreitas: Yes, definitely, because I guess it doesn't put as much -- what's the word?
Ms Herbertz: Financial strain?
Ms DeFreitas: Well, it's financially the banks, because you're taking away some of the responsibility. If the business fails, then the government is taking some of that pressure away from the banks. I think that's why they were more open to giving me the money.
Mr Baird: Thank you very much for your presentation. I wanted to briefly comment on -- and you mentioned it -- the business education tax. That issue has got a lot of attention around the committee and in the media in recent weeks. There has been some discussion about going to a uniform rate, so it would be the same rate across the province for business, if you have the same type of business, no matter where you are. That would involve a significant change from the way it operates now. Right now the local councils and school boards have set those rates and there is some inequity around the province. In some areas it's gone up more than in others.
Some people have suggested that because Toronto's rates are so much higher than the rest of the province, in order to reduce taxes for Toronto, we should raise them everywhere else as a way of finding the $500 million. That would be significant if you look across the province. If we were to go to a uniform rate, it would go up in London, Ottawa, Orillia, Kitchener, North Bay, Oshawa, Sault Ste Marie, Mississauga, St Catharines, Barrie, Vaughan, Burlington, Richmond Hill, Sudbury, Kincardine, Huntsville, Parry Sound, and I could go on and on. It would be quite a big tax increase. In fact -- this is the chart -- it would mean a tax rise in all of those communities to compensate for the city of Toronto. Would going to a uniform rate, if your taxes were to go up considerably in Mississauga, hurt your business?
Ms DeFreitas: Yes. I think that would infuriate a lot of businesses. Paying what we're paying now is squeezing us enough, really, and we are a profitable business and our sales are increasing. I feel sorry for businesses that aren't doing as well as we are. I don't know how they survive. We don't have much overhead. We have excellent margins for retail. I don't know how other businesses do it. We are still going to finish the year with a profit, but not by as much as we'd like. It would hurt us.
Mr Baird: So we'd be better off to freeze it everywhere in Ontario, a 0.0% tax increase everywhere, and not force the rest of the province to pay for the high level that's in the city of Toronto now.
Ms DeFreitas: Oh, yes.
Ms Herbertz: Can I just ask a question, as we're on that topic? I missed it when we were over there with it. Say a company like ours paid, between realty and the business, $75,000 in 1997. For us, we'd want to make sure we paid close to that same amount for 1998. Are we supposed to? I guess that's really the question. That's what we're supposed to, right? When it all settles out and we get the answers from the landlord, the landlord won't give us an answer for another three or four months on what happened in 1997 because his statement isn't audited, supposedly, so he can't even give us an answer on what happened in 1997 for the property and realty.
Mr Baird: We could look at that for you.
Ms Herbertz: Further to what Janine was saying is the fact that we don't want to be had. We want to make sure that what we're supposed to pay, we're going to pay. If it gets hidden with the landlord, we just want to make sure that it's fair and equal.
Ms DeFreitas: We don't want to be taken advantage of.
Ms Herbertz: The other question we were discussing yesterday on taxes was, what are you doing with our taxes? We pay all this money --
Mr Baird: We're paying interest on the debt, with successive $11-billion deficits and --
Ms Herbertz: I know. Is that the place to take it, though, from businesses that are trying to grow?
Mr Baird: That's why we're cutting taxes for small business.
Mr Rollins: But the last 10 governments said, "Yes, that's where we want it from," and they continued it. Now we've said we're going to stop it.
Ms Herbertz: How about the banks? Take it from the banks for making all that money. That's where you take it from.
Mr Baird: We just passed Bill 164 in December, which requires banks to put more money into small business capital, otherwise they face a tax increase.
Mr Silipo: Although under the new property tax scheme it'll be groups like the banks that will end up paying less in the way of property taxes and businesses like yours that will, overall, end up paying more.
Mr Phillips: So in effect they prefer to keep it the way it was. They're getting a 20% decrease in property taxes, the banks.
The Chair: Ms DeFreitas, might I ask you this? Are you incorporated?
Ms DeFreitas: Yes.
The Chair: And you're aware that your lease covers a couple of the questions you've raised this morning? But that's not to say that simply because it covers it, it can't be audited. You have a good point. You have a very good point with regard to whether or not you're getting exactly what you bargained for and what is covered in your lease.
Ms DeFreitas: It is in the lease. We have the right to have an audited statement, but it's just taking so long. I just would have felt better if I --
The Chair: I'm not talking about the audited statement so much. You're paying a certain amount for your rent. Have you ever measured your space? Do you have a square footage that your lease --
Ms DeFreitas: Yes.
The Chair: Have you ever looked at your proportion of the common elements? Do you pay a common element fee?
Ms Herbertz: Right, common area fee, and that's what they're telling me. They're saying, "It's going to all be broken down but we can't give it to you for another three months."
The Chair: I know, but have you ever sat down and audited your space and the percentage you're paying? What percentage of the overall common areas are you paying, and is that percentage truly representative of the space in the overall building?
Ms DeFreitas: It's not broken down by percentage, though, in our rent. They just say, "You have to pay this amount of money per square foot."
The Chair: I'd read the lease. I would suspect it probably suggests a percentage in your lease. Maybe it doesn't on yours. In any event, we're out of time. I thank you for coming. You made a couple of very valid points and we appreciate it.
We stand adjourned until 1:30.
The committee recessed from 1157 to 1330.
ONTARIO PUBLIC SERVICE EMPLOYEES UNION
The Chair: Our first presenter this afternoon is Ms Casselman, president of OPSEU. Ms Casselman, welcome. Please introduce the people with you and proceed.
Ms Leah Casselman: Thank you very much. To my left is Tim Little, our legislative liaison, and to my right is Jordan Berger, our supervisor of research for OPSEU.
Good afternoon. I'm Leah Casselman, president of the Ontario Public Service Employees Union. We represent more than 100,000 workers employed directly and indirectly by the Ontario government.
It goes without saying that OPSEU members have a keen interest in what is or is not in the next Ontario budget. As part of the Ontario Alternative Budget Working Group, OPSEU is actively involved in building the alternative to the Common Sense Revolution and preparing for life after Mike Harris.
The alternative budget reveals Premier Harris's broken promises to create 725,000 good jobs and to protect and improve health care and education. The alternative budget also clearly demonstrates that the principal benefit of the tax cut goes to the wealthiest citizens of Ontario. Without the tax cut, the deficit would have been eliminated much sooner than the official goal of 2001, and the drastic cutbacks that we have seen over the past almost three years now would not have been necessary at all. I would urge the committee to pay careful attention to the alternative provincial budget presentation this Friday.
It is high time that members of this government pay attention to the actual impact of government cutbacks. To keep your interest, I will structure my presentation around the key principles that this government thinks will lead it to a second mandate. These are individual responsibility, accountability, safety and security, growth and prosperity, compassion, excellence, choice, public service, respect for human dignity, and self-reliance. In almost every case, the Common Sense Revolution has undermined these principles. The truth is, this government knows the cost of everything but the value of nothing.
First I'll move to individual responsibility. The parliamentary equivalent is, of course, ministerial responsibility. Ministerial responsibility for actions taken in the minister's name is one of the cornerstones of our democratic system, yet when this government decided to close hospitals across the province, they passed on the dirty work to others. By passing Bill 26, the government transferred the huge responsibility for closing institutions from the Minister of Health to a handpicked commission chaired by a veterinarian.
While the government thought it had also transferred responsibility for psychiatric hospitals to the commission, our lawyers pointed out that this was not the case. In their haste to pass Bill 26, the civil service forgot that the province's own mental health care institutions have a different status than other hospitals under the law. Given the recent public outrage about the treatment of former psychiatric patients and the lack of community services available to them, a concern we have raised over the last two decades, I doubt the Minister of Health is looking forward to exercising her own individual responsibility.
The second important principle is accountability. The question I would pose to this committee is, how accountable has this government been to the taxpayer with regard to privatization? They did not campaign on this issue during the last election, and they are not being frank about their plans for a radically downsized government as we approach the next election.
Let me give you an example. This was the decision to privatize the collection of bad debts. It's a good idea, right? We should be collecting bad debts. Your government determined they wanted to privatize that collection. This was in spite of the fact that a joint report by Management Board Secretariat and our union demonstrated years ago that it is cheaper to use public servants to collect bad debts than the private sector. Unlike private companies, which pocket about a fourth of all moneys collected, every penny collected by public servants is returned to the people of Ontario. Even the Provincial Auditor, in his most recent report, attacked this privatization decision, pointing out that the government has already wasted $3 million of taxpayers' money. Where is the accountability here?
Next, the government seems intent on redefining our notion of safety and security. Without any public debate, the government announced that it would pay a private sector company to build and run a megajail. It's ironic that this contract, if it is tendered, will no doubt go to one of the huge American prison companies. Why is this ironic? Because the American experience clearly shows that prison privatization leads to higher costs over time. This was recently confirmed by a report from the General Accounting Office of the US Congress. I guess the private sector consultants didn't point that out.
Our correctional officer members know full well that the only way a big US firm like Wackenhut or the Corrections Corp of America can make a profit from prisons is to hire inexperienced, minimum-wage staff and to restrict as much as possible the freedom of inmates. Neither of these innovations will do much to protect our communities when these inmates are finally released from prison. We are putting the government on notice that we will fight for jails that are safe and manageable inside so that communities can be safe outside.
Most recently, the government announced plans to offload its young offender facilities, including the Syl Apps Centre in Oakville, where I have worked since 1978. This is the first time, to my knowledge, that any government has directly targeted the job of the president of the Ontario Public Service Employees Union, and there was no warning whatsoever.
Whatever the government's intended message might have been, it is sadly mistaken if it believes that we will back off our struggle to protect our public services and the workers who provide them. We know where this government is headed in the future and, after three years of fighting back, we know how to make them blink. There is only one way to defeat a bully, and that's to stand up to him.
Given the government's embarrassing experience with private boot camps, I am frankly surprised that the government would attempt to fob off its responsibility for these very troubled, high-risk kids. When kids escaped from the private boot camp in Orillia, residents were told to lock their doors and stay inside. What did the government do? They turned to the professional correctional officers, whom we represent, to restore order.
Finally, you might be interested to hear that Britain has just announced that it is closing its first and only private boot camp. Not surprisingly, the government found out that the private institution was less effective and more expensive than public facilities.
The next principles to consider are growth and prosperity. Who would deny that Ontario's economy is currently expanding? After years of decline, real wages are finally increasing in the private sector, by 2.6% last year alone. In the public sector, however, our wages continue to decline relative to the general population. After inflation is taken into account, workers in the Ontario public service receive 6% less on their paycheques today than they did five years ago. Yet the government decided to give deputy ministers pay raises as high as $60,000 a year -- but only if they cut as deeply and as cruelly as possible. The expectations made of those remaining public servants are just as high, but they get absolutely no recognition, monetary or otherwise, of their daily contribution.
We do not think it is too much to ask this government, which has taken so much from us, to give a little back to front-line workers, and we will be bringing a strong message to the bargaining table this year that we deserve and will fight for a raise. I would suggest that the committee members pass on this warning to Ernie Eves. If he has not already budgeted for an increase in the OPS wages, he had better find room now, to avoid embarrassment further down the road.
Another principle that this government apparently holds dear is that of compassion. However, the most vulnerable members of our society, children living in poverty, have not experienced any compassion from this government. Despite repeated warnings about the outrageous caseloads facing children's aid society workers, the government consistently refuses to address this serious lack of resources.
A report last year revealed that 100 children supervised by children's aid societies had died over the past two years. Twelve were murdered; six took their own lives. Finally we had a response from the minister responsible. What was that response? More support and training for welfare workers. What happened after the public outrage over these deaths had passed? Nothing -- merely putting back a few dollars to try to pretend that made up for the millions they had already stripped out of the system. The future is not bright if this is the kind of compassion we are teaching our children.
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Turning to excellence, the sixth core principle of the Tory party, let us consider the government's progress in the area of education. As we saw with Bill 160, the main priority of this government is removing funding from the education system. I must admit you are doing an excellent job there.
At OPSEU, we have seen a similar approach taken to the community college system in Ontario. Our college programs provided by our members produce the educated workforce that will power our economy in the years to come, and yet despite a growing population and economy, fully 20% of college faculty positions have been cut over the last three years. Fewer and fewer professors serve more and more students, again without any adjustment in their pay. Excellent education used to be enjoyed by all citizens of Ontario. Now it is increasingly limited to the privileged few.
Now the principle of choice. The recent municipal elections offer an interesting insight into this government's notion of choice. Not only did the Harris government completely ignore the strongly expressed rejection of amalgamation by the majority of voters; they further undermined the whole election by privatizing the enumeration process. It was no coincidence that the first voters' list prepared by a private company -- in this case, American Express -- was a complete and utter disaster. How can people exercise the fundamental choice that they should have in a democracy -- to vote -- when they are excluded, quite frankly, from the voters' list? Of course, those who were most likely to be left off the list were the poor and recent immigrants to Canada. Heads should have rolled over that disaster, but of course they won't.
The next principle is most interesting. It's the principle of public service. I must admit to facing some considerable confusion about this one coming from this government. There was a time when the Progressive Conservatives understood the notion of public service, but you'd be hard pressed to find any evidence of this today.
The Common Sense Revolution called for 13,000 jobs to be cut from the Ontario public service. Feeding public cynicism about government, the Common Sense Revolution claimed that waste and redundancy could be removed from the government with little impact on services. As we've seen, the impact on services has in fact been huge. Yet, after cutting over 14,000 positions, the government seems determined to press ahead with many more privatizations, much more downloading and widespread cuts to services.
For some reason, the government feels it has done a good job with the principle of respect for human dignity. It has been said that a society should be judged by the way it treats its weakest members. Here it is instructive to return again to mental health care reform. Who is more vulnerable to social pressures, more deserving of public support and professional care than the thousands of Ontarians who suffer from serious mental illness?
The Provincial Auditor has recently condemned the government for the lack of control it exercises over money being transferred to community mental health care. According to the auditor, "The Ministry [of Health] did not obtain sufficient data to assess whether agreed-upon services had been provided." Yet despite the fact that the ministry cannot even show that community services are being provided, and despite the mounting evidence that deinstitutionalization really means a life in poverty on the streets, the government is determined to press ahead with even more closures.
It is abundantly clear that many of those former patients who are not ready to return to their communities are a danger to themselves and to others. This is only aggravated by the fact that these patients must cope with the staggering cutbacks in social services and welfare payments imposed by this government, and an increasing number of them are ending up in a different kind of institution -- the prison system -- where the punishment they receive is in no way to be seen as fitting their crime.
Finally we arrive at the last principle, that of self-reliance. Here at last the Harris government may be on stronger ground. They have been quite consistent here, arguing that all Ontarians should be equally self-reliant, whether you are a bank president or a low-income single parent, whether you are a government consultant trying to gut the welfare system or a former psychiatric patient struggling with welfare cuts.
So, in conclusion, I would like to thank the committee for offering us the opportunity to discuss with you the most important consequences of fiscal decisions. In particular I would urge the government members of this committee to look beyond the bottom line. You see, OPSEU members face the human consequences of your policies each and every day, and we are getting very angry. But have no doubt, we will not be silenced, regardless of what actions you take.
The Chair: Thank you very much. We have about four minutes per caucus, starting with the NDP.
Mr Silipo: Ms Casselman, thank you very much for your presentation. It is a very clear and very strong position you have taken. I wanted to just pick up on one of the principles you outlined, that of choice, and to bring another element to this and ask for your comments. It has become clearer and clearer that the government has some interesting choices and some important choices ahead of them beyond the political choices they have made, some of which you have outlined.
It's clear to us when we look at the information the Minister of Finance gave to us just yesterday that with the growth in revenues -- we can argue about whether they had purposely underestimated those to be able to show that now they were reducing the deficit by an even greater amount. Whatever the case may be, the truth is that now one choice they could make would be to say, "We're going to still keep the push down to reduce the deficit, but not proceed with some of the cuts," for example, in children's services, in education, which can only make the whole of our society, as you've clearly pointed out, a worse place to be in. In fact, it's going to mean it's going to cost us all more at the end of the day.
I just want to add that as one element or perhaps one clear example of a place where even with all the bad choices the government has made so far, they have an opportunity at this point in the process at least to sort of turn it around in one piece. I'd be interested in your reaction to that, or any other pieces around that you may want to comment on.
Ms Casselman: We've seen quite a few budgets from this government during their term, so they have a lot of experience in developing them. Clearly, coming towards the end of their mandate they have some very serious choices to make and I think most of the choices the government will make will be with regard to when the next provincial election will be.
I don't have any confidence that the government will be reviewing any of their cuts in light of compassion or choice or the quality of public services. As I heard the Premier yesterday in one of his round tables, it will be more about how they can spend a little bit now to get the public to think that what they're doing is working. They've ripped up the patchwork quilt we've had of social services and they want to make it into a pillowcase. I don't think there is going to be much in the budget other than election platforming, quite frankly.
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Mr Terence H. Young (Halton Centre): Thank you very much. In your presentation you said the government is determined to press ahead with even more closures in mental health institutions. In reality, this has been happening since the 1960s and it's been successive governments. What we did in the past was we isolated mental health patients. We put them out of sight and out of mind. To move them back into the community, closer to the community and family and friends, is in many cases the absolute, right thing to do. In fact, the former Minister of Health, Jim Wilson, put a moratorium on these closures last year. He invested $25 million in new mental health programs.
But what I want to ask you is this: The St Thomas institution is at 21% capacity, and in Hamilton I think they have about 200 patients right now in an institution that 20 years ago used to house maybe 1,700 patients, so it seems to be at around 10% to 15% of its capacity. Does it make sense to keep these institutions open when the beds could be provided in hospitals and in the community, which is what the Health Services Restructuring Commission is recommending?
Ms Casselman: You can play with numbers all you want. I guess it depends on how many beds you have open. If you want to talk about the waiting list to get into St Thomas, you should look at that because there are waiting lists in most of those facilities.
There are incredible amounts of community services. Both London and St Thomas actually service about 60,000 people in southwestern Ontario. In Hamilton I know they have a huge outpatient group that they look after. The problem has been putting adequate resources in communities. Yes, you can move them back to be with their friends, but if that means they are living on the street in Parkdale with their other friends who got moved there when Lakeshore Psychiatric was closed, that's not an option.
I know there are a whole bunch of people in eastern Ontario who are very grateful for the fact that there was extra space available at Brockville Psychiatric Hospital and Kingston Psychiatric Hospital, because those were used as crisis centres during the ice storm to house a whole bunch of folks, and actually a lot of community programs for mental health patients came in and used those facilities during that crisis.
We're talking about trying to ensure the public can make sure that the government remains accountable for delivering quality mental health care services and that you have a responsibility, if you are going to be closing institutions and moving services to the community, to actually do that, that you don't just strip the money back and give it to your friends for a tax gift.
Mr Young: There are supports in the community.
Ms Casselman: Yes, but we haven't seen them yet. There are no real supports in the community.
Mr Young: I agree with you the key is to have the supports in the community.
Ms Casselman: Exactly.
Mr Baird: In response to your comment that the government doesn't value the work of public servants, I can tell you that in my own family, my father and my stepmother are retired public servants and my sister is a public servant, and certainly in my constituency there are a large number of public servants, and so we certainly do.
We have to look at the broader issue. Just in response to your comments, there are two ways: One way had a $10-billion deficit, had unemployment above 10%, in a five-year period had only 10,000 jobs created in the province despite a huge increase in population; and the other way is by a smaller, more efficient government, which has seen -- you mention on your first page Mike Harris's broken promise to create 725,000 jobs.
Ms Casselman: It says "good jobs."
Mr Baird: I think our commitment was 725,000 jobs, and we're at 314,000 net new jobs. For the individual who had no job and got a part-time job, that's a good job.
Ms Casselman: Starbucks is booming in Ontario.
Mr Baird: For the individual who was on welfare and got a job at Starbucks, that's a good job. That's the first step they have into the working world. That works up to the 5,000 $50,000-a-year or $60,000-a-year jobs being created in Northern Telecom in my community.
I guess there are two roads and we have chosen the road that's leading to more jobs, more hope and more opportunity. We tried the old way. It didn't work. It left more people unemployed. It left more children hungry than had ever been hungry in this province. It left a terrible debt and legacy to the young people of this province which we'll be paying off for many years. There's no social justice in an $11-billion deficit. I think the people of Ontario feel very strongly about that.
Ms Casselman: I guess the most recent affront was the response from the Premier with the announcement of the merger of the banks and how upset he was about the 9,000 folks who would be losing their jobs, and yet we have seen from this government continued cutbacks, layoffs, attempts to privatize, close institutions, stop delivering service. There is the debacle you had over the family support plan. You laid off 300 people across the province and you have ended up hiring more people back to do the same work as the people you laid off across the province. The way you're going about this is absolutely asinine.
The Chair: Thank you. I'm going to have to interrupt you there and move to Mr Kwinter.
Mr Kwinter: Ms Casselman, if you could just clarify for me, in your written presentation you point out that when the public servants were collecting outstanding debts it was transferred to the private sector. The auditor had pointed out that they had wasted -- in your text it said $300 million and when you spoke you said $3 million.
Ms Casselman: Sorry, it is $300 million.
Mr Kwinter: I just wanted to know what the figure was.
Ms Casselman: Yes.
Mr Kwinter: I noticed in the projections that the government is planning to reduce program spending in the 1998-99 forecast by 7.4%. I would assume most of that program spending is people. You say that the Common Sense Revolution said they were going to cut 13,000 jobs. Your figure is that it's already at 14,000. What does that represent? Do you have any idea? Have you done those kinds of projections?
Ms Casselman: No, we haven't because unlike other governments -- other Tory governments included -- there's been consultation. Contrary even to what's printed in the Common Sense Revolution, where they say our organization has good ideas and they'd like to sit down and talk to us, they don't. We end up having to react to ill-thought-out decisions, and now we see the fallout for it with the government being taken to task in the forestry issues up north. Well, all those folks are gone.
The Plastimet fire in Hamilton: The environmental folks are gone.
What we're trying to get the public to understand is that you can cut a whole bunch of programming dollars or make people across the province in small communities where government jobs help that community stay alive -- you can do that so much but it's going to come back and bite you, because they are going to lose the service and those smaller communities are going to lose the tax dollars generated from those folks, and you're going to end up with a lot of substandard quality of life for a whole bunch of people, simply because this government doesn't understand the value of quality public services and having public sector workers living in communities and providing service and having government accountable for that.
Mr Kwinter: I don't think anyone objects to the government getting its fiscal house in order, but I know that a lot of my constituents call and say: "I'm paying taxes and I expect some service for those taxes. What is happening is the taxes are being paid and I find I can't access anybody because there's nobody there any more."
Ms Casselman: That's right.
Mr Kwinter: "I'm getting voice mail. I don't talk to people. I don't get anyone getting back to me."
I'm sure you've found the same thing through your membership. I don't know whether you want to share that with us or not.
Ms Casselman: The latest rumour we've heard from the Coopers and Lybrand study the government has going is that they want to get rid of all front-line workers so there won't be anyone even behind the voice mail. All of that will be contracted out or privatized, or the government will simply not do it any more. Most likely the public will end up having to pay a fee. Even though their tax dollars are there, I guess to support all the deputy ministers who are getting the $60,000 raises, they're going to have to pay another fee to get any other kinds of services out of the government because there won't be people there to supply them.
I guess one of the startling examples I learned about the other day was the boondoggle they had in southeastern Ontario with the transfer of Ministry of Transportation work to this IMOS corporation. Former deputy ministers established the company and then got the contract that they'd written the RFP for. They're bidding on doing service for roads. This IMOS company bid is $6,000 and the local municipal folks can do it for $2,000 a kilometre. They're going to have this huge monopoly and they're going to take over all the roads and we're going to end up, as taxpayers, paying through the nose again, or our communities and municipalities are going to pay through the nose, because they're the only game in town. Then you've got to ask, where is the accountability? How do you get to these folks over here who set that model up?
The Chair: Excuse me. I apologize. I have to interrupt. Our time is up. Thank you very much for your presentation, Ms Casselman.
ONTARIO HOTEL AND MOTEL ASSOCIATION
The Chair: Our next presenter is the Ontario Hotel and Motel Association. Mr Seiling, welcome. Thank you for coming.
Mr Rod Seiling: Thank you, Mr Chairman, for an invitation to appear before you today. My name is Rod Seiling. I'm president of both the Ontario Hotel and Motel Association and the Hotel Association of Metropolitan Toronto. Our membership encompasses some of the largest and some of the smallest operators across the province, and I should say all across the province. I want to reiterate that.
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Times have improved for the accommodation sector but I would like to put it in proper perspective. Occupancy rates are moving up, but average daily room rates are still lagging.
Mr Chairman, before I continue, I'd like to have you take note that Mr Dale Dugan, chair of the Toronto hotel association and general manager of the Hotel Inter-Continental, has joined me.
The Chair: Welcome, Mr Dugan.
Mr Seiling: Occupancy rates are moving up, but average daily room rates are still lagging. For instance, in Toronto the average daily room rates just recently moved past the rates being charged in 1998. A more accurate barometer, I would suggest, to gauge the state of the industry is to look at the return on investment, and that is not at an acceptable level, I can assure you.
The hospitality side of the equation is not as good. Profit levels for the majority of the industry still have not recovered from the recession except for some niche sectors. I will touch on one of the major causes for this later.
One of the key areas I want to discuss with you today is tourism. It is one of Ontario's most important and strategic industries, yet public policy has taken it for granted for too many years and that neglect is reflected in diminishing revenue opportunities for the industry, lost jobs for Ontarians and lost tax revenues for government.
Tourism is the world's largest and fastest-growing industry. Why is it that successive governments have paid lip-service to the industry while watching our business diverted to other provinces and countries? The time has come for public policy to finally recognize the many opportunities in terms of increased economic activity, jobs and incremental tax revenues that are available. Our competitors have adjusted their respective sights to the new economics; so must Ontario. We have expert economists who are prepared to meet with the department of finance representatives to demonstrate the returns on positive public policy for this industry. Hopefully, this committee can facilitate this meeting in the very near future. There is a business case to be made and we are confident such a meeting will clearly demonstrate that case.
Tourism represents the following to Ontario's economy: $10.6 billion annually in economic activity; $5.2 billion in exports, which makes it our fourth largest; $4.3 billion spent by Ontarians, and we know that could be improved; and $1.1 billion annually spent by other Canadians.
Tourism, you should note, is broad-based and is an important business to all regions of Ontario. Many areas in Ontario have or are developing tourism as a major sector of their economy. The industry is a strong creator of jobs all across the province. For instance, it employs 400,000 people directly and indirectly, making it 7% of total employment; it's a major employer of young people, especially people aged 18 to 34; it's a point of entry for those returning to the workforce; and it represents all skill levels.
The tourism industry produces more that its fair share of revenue for government. Approximately one third of every tourism dollar flows to the government. Ontario receives $1.6 billion annually in tourism-generated tax dollars.
Ontario has tremendous upside. It has enormous market potential. Unfortunately, we are not taking advantage of this as we continue to lose market share in a growth market to other Canadian provinces, the United States and other countries worldwide. During the 1990-95 period, business from our key markets dropped by the following: the United States, 3%; the United Kingdom, 13%; Germany, 28%; France, 7%; and Japan, 19%. This represents lost jobs, revenues and taxes as, if you look on attachment I, it will indicate. You'll see four charts there if I can draw your attention to them.
You can see in the chart in the upper left-hand corner what has happened to Ontario's market share of international tourism from 1988 to 1995, going from 1.489 to 0.96. That represents 60,000 lost jobs to Ontario's economy. The chart on the top right-hand side indicates $2.7 billion annual economic activity, and I think for the government, most important, it represents $382 million annually of lost tax revenue.
The reason this has happened and continues to happen is that Ontario is being substantially outmarketed by our competition. For example, both British Columbia and Quebec spend more than twice what Ontario commits to destination marketing, and those figures jump to three to six times if calculated on a per capita basis. At the same time, the province's major tourism destination, which is approximately 40% Tourism Toronto, is being strangled as Tourism Toronto's funding continues to be slashed by the former Metro Toronto. If you'll refer to attachment number II, I'll show you what's happening.
You see Toronto there at funding of $6.9 million annually for destination marketing -- that's over 40% of Ontario's tourism, period; Montreal spending $15.1 million, Vancouver $12.3 million and Calgary almost as much as we are. If you look at it province-wide, at the bottom of that chart you'll see Alberta at $7 million, BC at $16 million, Ontario at $13 million and Quebec at $20 million. You can see that we're being outmarketed all across the board, whether it be province-wide or city-wide, and that continues to funnel its way and rebound through the whole market.
This cash crisis is exacerbated by the fact that Ontario has been prevented from fully participating in the successful Canadian Tourism Commission's matching fund destination marketing program, which is $65 million. Other provinces are accessing these funds that should be earmarked for Ontario. What is particularly galling is that Ontario generates about 43% of the funds, yet is unable to play to the extent it should and could. Therefore, other provinces are able to utilize these funds to their benefit and Ontario's detriment.
As indicated earlier, Ontario has market potential. Recent studies indicate that only 9% of travellers in US border states have visited Ontario, but 63% have expressed an interest according to recent surveys. Best of all, we have the types of products they want. Worldwide, tourism is predicted to triple between 1995 and 2015. These numbers clearly demonstrate that opportunities do exist.
However, to capitalize we need to put in place the means to ensure that Ontario becomes a must-see destination. Improved revenue, jobs, particularly for youth, and taxes do follow.
Industry must and can do its part to regain that lost market share. However, government cutbacks in the name of fiscal restraint have hit the industry hard. Since 1990-91, the province's tourism marketing budget has been reduced by 60%.
Last summer the government of the day decided to add about $2.5 million to its domestic tourism marketing budget. Calls to 1-800-Ontario, the tourism information and fulfilment organization, jumped by over 40% immediately. The return on investment to all the stakeholders, including government, was immediate. There was no two- or three-year lag time. I should tell you that the industry norm is about 40% of all calls.
Government must begin to recognize the full benefits tourism can and will bring to all Ontarians if public policy formation begins to recognize it for what it really is, a major industry.
There are other important ingredients required in the area of positive public policy for tourism to reach its potential. Two important areas are taxation and infrastructure.
We congratulate the government for its ongoing effort to reduce the level of taxation in the province, be it property or income. As the accompanying chart indicates, these efforts are needed and cannot be relaxed given the dubious standing we have. If you look at attachment III, you'll see Ontario standing at the top of the list in percentage of taxation on GDP, a dubious standing by any stretch of the imagination.
It is too early to talk about property taxes, as we do not have enough information at hand as yet to report. However, reductions such as the employer health tax, workers' compensation rates and the recent commitment for the LCBO to provide credit to licensees are moves in the right direction. We would also like to comment favourably on the contents of the recent white paper on Ontario Hydro. The move to competition in electricity will have the same positive results for taxpayers and business as did similar moves in the natural gas market. Revenues saved in this area can be used to reinvest to improve a property and to hire new workers. How much of a benefit will ultimately be decided by the costs associated with the nuclear recovery program?
We must comment on the continuing unfair level of taxation on the hospitality industry. We are not going to go through this double taxation step by step, as we raise it yearly, but it is, suffice to say, costing the government revenues and the economy jobs and threatening industry viability. The net result is a final cost of product to the public which has clearly shown it cannot and will not pay. It encourages individuals to look at illegal activities such as smuggling to circumvent the high product costs. The experience in this area with cigarettes is ample proof of this fact. High alcohol taxes have a very negative impact on tourism in general. The relative high cost of beverage alcohol also conveys a perception that Ontario is a high-cost destination.
The relative poor performance of the hospitality industry, we would suggest, is a direct result of this system of double taxation. Changing lifestyles are not to blame, although they certainly will have had some input. One only has to look at the experience in the United States versus Ontario.
We have members with properties in both countries catering to relatively the same clientele. Beverage sales here generate about 8% profit versus 17% in the United States. Cost of product is relative to their profits. The US businesses are able to purchase products on a wholesale basis as well. In Ontario, the licensee costs are about the same as the general public at best. Double taxation and a pricing system where the retailer has to purchase its product at retail price make it very difficult to compete in today's marketplace.
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Another example of discrimination is the application of the provincial sales tax. Small, traditional accommodation providers must charge PST while bed and breakfast operators don't. These small motel owners justifiably feel discriminated against by the tax system. This is not a cast of big versus small, I want to point out, but one of equity and equality. These investors feel cheated by the current situation and are only asking for tax fairness.
Owners also ask why they must pay PST on promotional items such as T-shirts, mugs etc, when they don't have to remit GST on these same items. Dropping the requirements for PST would assist owners, especially small businesses, in promoting their business.
Infrastructure is an important issue for the tourism industry as well. Good infrastructure complements in many cases a vital part of the tourism product. A large percentage of Ontario's tourism business is either domestic or from adjoining US border states. It is important to note a good functional highway system is a prerequisite to the movement of tourists as well as goods and services for the economic wellbeing of the province. As such, it is critical the government ensures our highway system is in a good state of repair. To that end, sufficient funds collected via the gas tax must be targeted to ensure this happens.
The province also owns important tourism assets such as Science North, Ontario Place, the Metro Toronto Convention Centre and numerous provincial parks. All are important to the future wellbeing of the tourism industry and it is incumbent that the industry be involved in any discussion relating to their future. There may or may not be better ways and means of operating them, but the industry needs to be involved in any discussion related to them.
We want to congratulate the Minister of Finance for his efforts to free up capital for small businesses. However, access to capital for our industry, be it large or small, continues to be a major problem. Quite frankly, traditional lending sources are not prepared to extend financing to the industry. If you are looking to build or upgrade your property today, financing is next to impossible to obtain. In today's market, if you're not upgrading your business, you're on the way to being out of business as the consumer demands are such.
If Ontario wants to recapture its lost opportunities in tourism, it must become proactive and lead the way. It is forgoing revenues and jobs, particularly jobs for youth. Tourism is a port of entry for young people and for those who are entering the workforce. In addition to this latter premium, there is a direct return on investment for government in new incremental tax revenues.
There are other indirect benefits for the province as well through an active provincial destination marketing program. Creating a positive public image through tourism also lays the groundwork for other economic development activities, which is an ongoing provincial responsibility. It also has the benefit of making Ontarians feel good about their province.
Tourism, I would suggest, is prepared to do its part. The experience and success of the Canadian Tourism Commission destination marketing initiative has provided a roadmap on how to grow the market. For those of you who may not be aware, the government of Canada created the CTC about three years ago and in doing so funded it at $50 million, up from the previous $15 million that the replaced Tourism Canada had. The matching funding program has been so successful in generating new tourism activity and in the process leveraging new private sector money, the federal government has added another $15 million.
Isn't it time Ontario recognizes the opportunities and becomes a serious investor in this business given the proven return? It is now time for Ontario to put itself back on the tourism roadmap for Ontarians, Canadians and the world.
The Chair: Thank you very much, sir. We have about five minutes per caucus and we will start with the government caucus.
Mr Young: Thanks very much for your interesting and excellent presentation. Do you, through your members, have any creative ideas on how to encourage banks to loan money to small businesses?
Mr Seiling: Outside of having a club?
Mr Young: Outside of mandated lending, I guess. No, any ideas you have, anything.
Mr Seiling: It's a tough one. Banks obviously lend and our industry, as do others, falls in and out of vogue with the banks. The banks' level of the industry during the recession and its aggressive lending policies came back to haunt them and of course now they don't want to touch them with a 10-foot pole. Yet here is an industry that is showing increased returns, especially in the accommodation sector. In talking to corporate people as late as last week saying if you're buying new there's money, but if you're trying to refinance your existing property or reinvest and upgrade your property, there isn't any, outside of giving your firstborn and a few other things as collateral.
Mr Jim Brown: Last year you mentioned the capital and how the banks didn't want to lend to small businesses, and that small businesses were starved for capital in their expansion. So it's still bad, but is it any better at all, or is it just as bad or worse?
Mr Seiling: We're hearing some anecdotal stories of some banks. I understand, for example, the Bank of Nova Scotia seems to be a little better. But it's still a very tough market. The one thing that has changed in the hotel sector would be that there have been a lot of Canadians back in the market, but if you go back and check, that's kind of misleading because there are two major Canadian REITs in the market, but for the traditional business it's still nigh on impossible.
The Chair: Anyone else?
Mr Jim Brown: We've talked before. I have this theory that $10,000 of capital for a small business would probably create two or three new jobs, where it would probably take $200,000 for a big business to create one new job. I think your business is pretty labour-intensive. Would you agree with that kind of --
Mr Seiling: Very much so, and maybe Mr Dugan would like to comment. He employs a sizeable workforce and he can tell you the composition of it. We like to say we're the port of entry for students and for those people who are entering the workforce, and new Canadians.
Mr Jim Brown: So with little amounts of money you could probably do great things for jobs.
Mr Dale Dugan: Yes, without question. People think the jobs that hotels offer are really low-wage-paying jobs, and they're not. The average room clerk makes $11.50 an hour. Most employees at the line level make $24,000 or $25,000 a year. There's no question that during the recessionary years we probably had a head count drop of 20 people in our hotel alone, from 170 down to 150 employees, but hotels are very labour-intensive. It represents 45 cents of every revenue dollar that comes in. That's why banks traditionally do not like to deal with hotels except in the good times, because when a recession comes, hotels have such a fixed expense that the only thing they can change is to reduce head count, and you can only reduce it to a certain level and then you can't operate as a business.
The Chair: We'll move to Mr Kwinter.
Mr Kwinter: Mr Seiling, it's nice to see you again.
Mr Seiling: Likewise.
Mr Kwinter: I think there's a typo on the second page. I just wanted to find out what the base rate was when you talked about rents. It says that in Toronto, the average daily room rate just recently moved past the rates being charged in 1998.
Mr Seiling: Oh, sorry, 1988. I apologize.
Mr Kwinter: No problem; I just wanted to know what that date was, because that's going to lead to my next question. There's something that I don't quite understand. We have room rates that are just getting to rates that were charged 10 years ago. I travel in different areas and I know that the room rates here are very, very low compared to what you see in Europe and other parts of the world; they're ridiculously low. The dollar is very low. You would think that would be an incredible incentive for people to come to Ontario, to Canada, yet you show figures that we're down 3% from the United States, 13% from the UK, 28% from Germany, 7% from France, 19% from Japan. Why is that happening?
Mr Seiling: Very simply, it's called awareness. We don't have the marketing dollars to tell the people in the rest of the world what a great place Ontario is. What's particularly galling is that this is a growth market. Every jurisdiction in the rest of Canada and the rest of the world has clambered on the tourism bandwagon. It is the fastest-growing industry in the world, yet we continue to try and limp along, and we're losing market share in a growth market. We have this wonderful product, we have this great story with a 69-cent dollar, but we can't get people here.
Mr Kwinter: This has to be one of the great destination spots in the world from an economic point of view.
Mr Seiling: People who come here on average return 17 times, but we're losing out on our market share.
Mr Dugan: It's just a matter that Ontario and Toronto have in the past thought of the border states of New York and Michigan as where the market is for tourism, when in actuality it doesn't cost any more to fly from Los Angeles than it does from Pittsburgh if you stay over a Saturday night. But because of insufficient funds, we haven't been able to reach the major markets of the United States, much less think beyond to such things as Pacific Asia, Europe, where we could actually have 1-800 numbers today where you could call toll-free directly into the different cities. We just haven't had the money to go after that business.
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Mr Kwinter: Can you comment on something else that I've noticed? Three or four years ago, virtually every hotel in Toronto was hanging on by its fingernails. Now the hotel-buying business is very, very buoyant. There are people beating the bushes trying to buy hotels in Toronto. How do you explain that?
Mr Seiling: You don't see any new cranes.
Mr Kwinter: Well, let me tell you, look up the street at the Park Plaza. Someone's putting a pile of dough into that hotel.
Mr Dugan: Primarily, these are foreign investors. They have come to realize that it's much less expensive to buy an existing hotel for $80,000, than to build a hotel for $160,000, per room. They've also realized, as you have just pointed out, that this is a terrific city. Potentially, the average room rate could go up five and six times inflation every year if there's no new supply to the market, and there hasn't been a new hotel built since my hotel eight years ago. In theory, demand should outstrip supply. We're there now, so you should see real growth in average rate, theoretically. But we'll wait and see. The jury is still out on whether we can raise rates by triple and quadruple inflation.
Mr Kwinter: I agree. I think we have a story and we've got to tell it. Without trying to point a finger, when we had our trade offices around the world, we always had tourism offices in there. They were on the ground promoting tourism and we were getting our share. We're not getting it any more. As I say, the value is there; there's no question about it. The destination sites, whatever they are, are there. As you say, there isn't the concentration on promoting this as a world-class destination site.
Mr Dugan: And not only in the summer, when we do well. For instance, in New York, as you know, in December you cannot find a hotel room from December 1 until December 20. Those are all international visitors coming to buy retail product in New York, go to the theatre and go to restaurants. We have all three of those at prices that are so much lower, and if we were to market ourselves as a destination for foreigners to come to shop, it would really be quite successful.
The Chair: I have to interrupt you there and move on to the NDP.
Mr Silipo: Thank you for the presentation. I want to maybe focus just on this question of marketing because, like you, I agree that it continues to be the one big problem -- perhaps in your view it's one of a number of problems -- that we ought to be addressing. I say this recognizing that the problem is not one that has just been created now; it goes back some time. I appreciate that.
I was very interested in the point you were making that when the current government did invest the $2.5 million in additional money that they put in, you could show very clearly the payoff there in additional tourism dollars that came into the province.
Mr Seiling: As I said earlier, we have respected economists who are prepared to sit down with members of the government, their economists, and there's a business case to be made. We can demonstrate clearly the return on investment for positive public policy in this area. Every other jurisdiction in Canada, in the United States, the world, is focusing on tourism. It's the growth industry; it's the hot industry.
What becomes particularly galling is that with the cutbacks, the tax dollars generated by tourism in Ontario are being used to the benefit of other provinces, so it becomes a double negative. Money from the federal government's CTC program that we can't access here because it's a matching-dollar program is being used, dollars generated here that should be spent here for the benefit of Ontario are being used, to promote other provinces, to our detriment. So while we're losing market share, our partners in Confederation are growing their markets.
Mr Silipo: Growing. That was the other point I wanted to pursue, the Canadian Tourism Commission's matching fund program. Just so I have understood it, there is an overall pot of $65 million that the federal government has put in that folks in the industry could access only if Ontario puts in matching dollars, up to a certain level?
Mr Seiling: That's right. It's a dollar-for-dollar matching program. For instance, I just finished lunch with the president of Tourism Toronto and he said he had just had to turn down three different programs. He has no money. I've talked to representatives from the tourism industry here in Ontario: the same thing. They can't participate. We can't market ourselves to the extent that we need to and they'd like to.
Mr Silipo: What would be required in terms of an actual dollar amount that you would see the government would have to be prepared to invest in this for it to achieve the kinds of things you're saying in terms of being able to have not only the industry reap some of the benefits but obviously the public coffers also being able to show that it's of benefit to everybody?
Mr Dugan: I think you'd want to be certainly on the level of British Columbia. We see that as our biggest competitor, really.
Mr Silipo: Where are they at?
Mr Dugan: Do you have the total, Rod? It's on that report.
Mr Seiling: British Columbia is spending $16 million. Actually, with all respect, I don't think that's enough. Quebec is spending $20 million. What you really need to do is, instead of picking out a number, go to a zero-based project and build a project and say, "For X amount of dollars, we'll generate this amount of business," and at some point you have to say where diminishing returns come in. I'd be reluctant to say that it's X dollars or Y dollars. It's how far and how often can we --
Mr Silipo: What you're saying is that clearly the provincial government has to be prepared to invest more dollars than they're spending now because, as you showed us, relative to other provinces we're spending a lot less in terms of marketing, and the benefits will be reaped --
Mr Dugan: It's such a quick turnaround market. It's such a short window. People respond to an ad within three weeks. That's really what's so terrific, because it's such a tax revenue generator and you can steal market share just through good, effective merchandising and marketing.
Mr Seiling: For example, if Mr Dugan rents 14 more rooms tomorrow, he hires one more person.
Mr Dugan: Right. That's one housekeeper for the day.
Mr Seiling: It just snowballs.
Interjection.
Mr Dugan: Last year was the best year since 1988 as far as occupancy. The hotel community ran 71% occupancy, so 71% of the time. But that primarily happens between June and September, when they're really the busiest. I'd say 100 out of 365 nights, hotels are sold out.
The Chair: Thank you very much, Mr Seiling and Mr Dugan.
ONTARIO FEDERATION OF LABOUR
The Chair: Our next presenter is the Ontario Federation of Labour. Mr Samuelson, the president, will make the presentation, and if you would please introduce your colleague. Welcome, gentlemen.
Mr Wayne Samuelson: Thank you. With me is Ross McClellan, the legislative director at the Ontario Federation of Labour.
I want to begin by saying that I'm pleased to be here today at these hearings. This is in fact my first appearance at a committee as president of the OFL, and I'm especially pleased to have the honour to represent the federation's view on this most important issue of budgetary policy of this provincial government.
In this presentation, I plan on making three points. I want to say at the outset that it is the carefully considered view of the OFL that the budgetary policy of the Harris government is wrong, harmful and destructive to communities, and I'm going to try to explain to you why.
For my first point, let me start with an area where I think we and the finance minister agree, and that is on the importance of a low interest rate policy from the Bank of Canada. Canada and Ontario were plunged into the worst recession in 60 years because of the simultaneous introduction of free trade, the GST and the high interest/zero inflation policies of the Bank of Canada in 1989. Canada and Ontario have had a brief period since 1995 with moderate -- not low but moderate -- interest rates, and as the OFL predicted in our last two budget submissions, this has resulted in increased economic growth.
This growth could well vanish overnight if the Bank of Canada continues its present trend of higher rates. We call on this committee to urge the Minister of Finance to speak out against a return to the insanity of high interest rates.
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My second point is that the committee and the government need to focus on Ontario's real deficit: the jobs deficit. The 30% cut in the provincial income tax rate is touted as a great creator of jobs. But when we look at the jobs record, it's really hard to be optimistic. While the Bank of Canada has obviously not abandoned its job-killing high interest rate policies, it temporarily moderated them, starting in late 1995.
So after the worst recession in 60 years the Canadian economy finally began to recover as interest rates left the insanity zone. But when we are told that we are in a full-blown recovery, we have to say that does not mean we're getting our jobs back. Let's look at the real job creation record in Ontario. You will all recall that Ontario's economy peaked, in February 1990, at 5.3 million jobs. During the Mulroney recession, between February 1990 and April 1992, Ontario lost 343,000 jobs. In June 1995, when Premier Harris was elected, Ontario had about 5.2 million jobs, the unemployment rate was 8.8% and there were 499,000 people unemployed.
As of January 1998, almost three years later, there are still 478,000 people unemployed. The unemployment rate is 8%. The number of people employed is about 5.5 million.
Between February 1990, eight years ago, and January 1998, the Ontario economy has only generated 223,000 additional jobs. That's about 28,000 added jobs per year. Economists tell us we need to create at least 100,000 jobs a year just to stand still -- to absorb new entrants into the labour market.
Ontario has a crisis of mass unemployment: 1.1 million people are on social assistance. That's 10% of the total population. Levels of unemployment for Ontario's young people are obscene at the official rate of 15%, double the general rate.
Even worse than these official rates of unemployment is the extent of hidden unemployment. If we use what economists call the "employment rate," we can measure the true extent of the crisis. The employment rate is the percentage of working-age Ontarians who are actually employed at any given time. Before the recession Ontario's employment rate was 67%. It plunged to 60% and has stayed there. As of January 1998, it is still at 61.1%.
All this hidden unemployment adds up to 600,000 missing jobs. That's what it would take to return to the employment rate of the late 1980s in Ontario. Add to this the lost jobs between February 1990 and today -- about 400,000 in all -- and we have a deficit of 1 million jobs in this province. That's Ontario's real deficit, and everything this government is doing is making it worse.
Instead of a major commitment to job creation, especially for young people, we have more of the same neo-liberal policies of cutback, downsizing and total reliance on market forces which have created the mess we're in today.
For my third point, let me turn now to this government's budgetary policy.
What's wrong with the government's budget policy can be summed up in two words: tax cut. The tax cut is the out-of-control engine that is driving every aspect of public policy. Because of the tax cut more than $5 billion is being cut from the base budgets of essential public services. We estimate the cost of the tax cut for the year 1997-98 at $3.2 billion. The budget cuts, which amount to about $3.2 billion in actually implemented cuts as of the end of the current fiscal year, match the cost of the Harris tax cut virtually dollar for dollar.
By next year, because of higher than forecast rates of growth, the tax cut will cost about $4.7 billion in forgone revenue, and by the year 2000 it will cost the treasury of Ontario over $6 billion. To pay for this tax cut, assuming the Harris budget is balanced according to plan in the year 2000-01, Ontario will borrow at least an additional $15 billion, plus interest on this new debt. Every dime paid out as tax cut until 2001 is a borrowed dime. So this tax cut exercise has very little to do with prudent financial management, or with eliminating the deficit.
The truth is the deficit could have been eliminated this coming year if the tax cut didn't exist, and the truth is that the deficit could have been eliminated without cuffing a penny of program spending from the 1995 base. If the government had chosen to flatline spending at the 1995 level and to combine this with a policy to maintain Ontario's tax revenue base, the deficit could be gone next fiscal year.
Let me be precise. In 1998-99, revenues will be $51.1 billion. The tax cut will cost $4.7 billion. Rescinding the tax cut, given current levels of growth, will generate total revenues of $55.8 billion. With a program spending budget of $47.5 billion, the pre-Harris cut level, the budget would have a $133-million surplus this coming year. That is without any cuts. Instead, Ontario will borrow $15 billion plus to pay for a tax cut to the wealthy that has devastated public programs and services and has still maintained a policy of deficit financing.
Let's look back for a minute at the so-called deficit crisis that was supposed to justify the spending cutbacks. It is now crystal clear that the Ministry of Finance was following the same script as Minister Snobelen when he advised his bureaucrats that to create major change, you have to first create a crisis.
The Minister of Finance raised the alarm about a deficit crisis in 1995, predicting a deficit of over $11 billion and using that excuse to justify $2 billion worth of cuts in July 1995. But we learn a year and a half later that the ministry has underestimated revenue for 1995 by a full $1.6 billion. So the deficit in 1995 was obviously exaggerated. The next year, 1996-97, the budget plan predicted revenues of $46.6 billion. Actual revenue was $49.5 billion. In other words, the ministry understated revenue by a staggering $2.9 billion.
Again this fiscal year, the budget of May 1997 predicted $48.4 billion. But at the end of the third quarter, Ontario Finances reports that the ministry was low yet again, this time by $2.4 billion. We calculate that based on real growth in GDP, real revenue for 1997-98 will be about $51.1 billion; in other words, $2.7 billion higher than predicted in the budget. This is how you go about creating a deficit crisis.
You may argue that spending is higher, but in fact program spending on real programs, services and capital works has been severely cut. The overall level of spending is inflated by the one-time costs of restructuring, the Who Does What exercise, and by the tricks of accrual accounting. We repeat again: If the exercise really has been to balance the books and eliminate the deficit, this could have been done by flatlining expenditures, maintaining the existing tax revenue base and allowing growth over time to end the deficit, in 1998-99.
Let's look at the real cost of this tax cut exercise, the destruction of Ontario's hard-won inheritance of public services and programs.
Our health care system has been completely hammered by a combination of $800 million a year in annual hospital budget cuts, with more to come, and systemic underfunding of long-term care, community care services and mental health services. Thousands of trained, experienced, dedicated health care workers, the backbone of our medicare system, are being fired.
Our hospitals, especially in communities which have been visited by the plague of the Health Services Restructuring Commission, are struggling to keep afloat. Emergency care is in a state of crisis, as anyone who has gone to a hospital recently knows full well. Some doctors have publicly stated that standards of care in some of their hospitals are now below Third World standards.
Half of the new community care agencies, set up only last year to provide essential home-based care services, as well as long-term care, are already running deficits. Our mental health system sends mentally ill people out on to the streets where they end up in jail or worse, freeze to death in the streets.
The cancellation of social housing programs has created a waiting list of 72,000 people for public housing across Ontario and it has condemned thousands to life on the streets.
The education cuts have already deprived thousands of children of junior kindergarten and will create larger and larger class sizes, as Bill 160 and the deputy minister's performance contract do their work in tandem. The idea of equipping our children with a classroom education for the 21st century? Forget it.
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An area where the labour movement is deeply involved, vocational training, is in a state of complete chaos. There isn't a single person in Ontario who can tell you today who is responsible for what.
Environmental protection: The Ministry of the Environment budget was slashed in half. In an emergency like the Hamilton fire, citizens had to turn to Greenpeace to get basic information about the level of airborne toxins threatening them and their families. The Ministry of the Environment was out of business.
Worker protection: In Ontario, enforcement is a thing of the past. Cuts to the Ministry of Labour have left Ontario's labour laws a batch of dead letters. No workers need apply.
Who Does What: Our local government has been turned inside out and upside down. Municipal leaders still don't have a clue what the final numbers will be. Thousands of municipal workers are being frogmarched into new amalgamated workplaces or laid off, with huge additional costs to the taxpayers for restructuring and no sign in sight of any promised savings. What we know for sure is that property taxes are going to increase across the board as the result of the Who Does What downloading, stacked on top of a new market value assessment regime. Any income tax cut that working people will get will be eaten up by user fees and property tax increases.
The welfare cuts have increased the number of people living in abject poverty. In the first year of the welfare cut, between 1995 and 1996, we have learned that the number of families in Ontario whose income is more than 50% below the StatsCan low-income cutoff line increased from 2.1% to 2.8%. That represents an increase of 20,529 Ontario families living in abject poverty in just one year. For single-parent families, the figures are worse. The proportion of Ontario single parent families who are 50% below the poverty line has increased from 10.2% to 12.2%. In one single year that's an increase of 8,434 single parent families living in abject poverty in this province, and it's a disgraceful statistic.
There's more. From a Statistics Canada study commissioned this month by the OFL, we have learned that between 1995 and 1996 the average income of Ontario families in the bottom 20% of the income scale fell by $691. During the same period the average income of the wealthiest Ontario families, in the top 20%, rose by $1,795. Just so you've got that, the bottom 20% lost almost $700; the top 20% increased by almost $1,800. This tells you the whole story about the government's financial policy. It can be summed up in one word -- inequality -- which brings me to ask a question. Who benefits from this tax cut? In whose name is Ontario's whole social fabric is being destroyed?
The top 20% of the taxpayers are getting 58% of the tax cut. This is according to the Ministry of Finance. In dollar terms, it's simply ridiculous. Taxpayers at or below the average income of $32,500 per year will get an average cut of $350; taxpayers earning over $250,000 will get an average tax break of $15,075.
Just to remind you, out of a total cost of $6 billion in the year 2000, $3.5 billion goes to the wealthiest 20%. This is money that won't be there to ensure a hospital bed is available when we need it. There won't be home care when we need it. There won't be enough teachers in our classrooms, and there will be too many hungry children in our classrooms. Our roads aren't getting plowed when it snows. The air we breathe and the water we drink are once again the playthings of polluters whose bottom line doesn't include the environment.
My single message to the standing committee on finance is this: Tell the Minister of Finance to rescind the entire tax cut. Scrap it. We don't need it. We don't want it. It's dirty money that is causing untold harm to millions of our fellow citizens. It is driving families and children into abject poverty. Put that money back into health care, child care, education, social services, environmental protection, and job creation. It's not too late. It can be done. We urge you to do it.
The Chair: Thank you, Mr Samuelson. We have about four minutes per caucus and we'll start with the official opposition.
Mr Kwinter: Thank you very much, Mr Samuelson, and congratulations on your ascension to the presidency. I want to give you my best wishes and condolences.
Mr Samuelson: I'll take whatever you'll give me.
Mr Kwinter: I'm sure you'll find it a very interesting experience for you.
I was very interested in your presentation. I don't agree with everything you said, but I certainly agree with your underlying premise about the tax cut.
It seems to me that a very interesting point was made by the chief economist at the Royal Bank, John McCallum, this morning. He felt that if you just reduced the tax and nothing else changes, there's no question that will be a stimulus, but if you reduce the tax and then you cut back on services and on welfare and do all of these things, then one may offset the other and you may in fact not get any benefit.
I think what has happened unfortunately -- not unfortunately, it's great for us as Ontarians -- is that the economy is expanding. Always, inflation was a great healer of a lot of problems, because as inflation went along it covered up a lot of bad decisions that were made that let that happen. I think we have the same situation here in Ontario. The economy is quite robust. We've heard that from several sources. All you have to do is take a look at the numbers and the revenues the government shows in its financial statements. But I am not convinced, and I've talked to some other economists who are not convinced, that those revenue increases are a direct result of the tax cut. They are coincidental to the tax cut, particularly when you know that every dollar of tax cut is borrowed money. Have you done any projections by the economists that you have available to you as to how much of a stimulus was that tax cut?
Mr Samuelson: I don't know if we've done any specific studies in terms of the degree to which the tax cut has stimulated the economy. We have looked at the impact it's had on the economy. I think there's another way to look at this. Certainly there are those who want to sit down with economists and look at what exactly this has done in the economy. My friends, go out and talk to people. Talk to my sister who works in the health care system and who phones me and tells me about what's happening there, and then you tell me that it makes sense to reduce taxes, or go talk to people who are working in the education sector who see what's going on, or God knows, who work in protecting our environment in northern Ontario.
We need to be real careful. While it's important that we have this comparison and talk about what economists say and what the model shows us, I think looking at Ontario now, after having had these tax cut policies for a number of years, it's time to start talking to people and finding out what's going on. You don't have to go very far to find out. To tell you the truth, you'll probably find out more here, except nobody can get in this damn building any more to tell you. I think, Mr Kwinter, that while I can't tell you what our economists say, I can certainly tell you what the people who phone my office or the people I talk to almost every day are telling me about funding of services and finances in Ontario.
Mr David Christopherson (Hamilton Centre): Thanks for your presentation, Wayne. I'd like to join with Monte in my own words to question why anybody would think even for a moment about running for that job you now have. It's difficult for me to do that, but I will offer again my public congratulations on your win. Let me say for the record that the Ontario Federation of Labour and the labour movement in this province are in excellent hands. I think we all have the utmost confidence in the job you'll do for the people of this province.
To follow on your main theme again, in terms of the tax cut, I attended a meeting last night at Hamilton city hall where all the local MPPs were briefed on the effect of the non-revenue-neutral downloading. In Hamilton, in the documents given out by staff, we're looking at close to $28 million being cut from the Hamilton budget. Of course, anything in that realm would just decimate public services, eliminate by the hundreds decent paying jobs in our community, and that's just one aspect.
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Working people have also seen their WCB protection attacked and unemployment standards protection watered down. You mentioned the Plastimet fire in Hamilton. Not only does it impact the residents, but go talk to the firefighters about their desire to have this thing looked at properly. I would mention that the Minister of the Environment is still refusing to call a public inquiry into that one, I think in large part because he's worried about will come out of the inquiry in terms of his ministry and the cuts and the impacts.
All these things -- the attacks on the education system and health care system; user fees going up; property taxes -- are happening to pay for the tax cut, and yet the government will consistently say that people support the tax cut and its impacts because they'd rather have this money in their pocket.
Given the hundreds of thousands of people you represent in this province, what are average working people and their families telling you about the tradeoff between what they're getting as a benefit in income tax and what's happening to their communities and services that they and their families need?
Mr Samuelson: I'll look. I don't think I've got many letters in my office that talk about the tax cut. The letters that come to my office are calling on me to stand up for people against an insensitive government that just continually takes away needed services. I can be honest with you in saying that I haven't had one single letter saying: "Get down to Queen's Park and tell Mike Harris he's doing a good job. Thanks for the tax cut."
Mr Young: We got lots.
Mr Baird: You didn't get it yet?
Mr Samuelson: I haven't got any of those. But I'll tell you, the letters I am getting you wouldn't laugh at. They're pretty personal about the impact.
I had a call yesterday from a person who obviously must have talked to Gord from time to time, because he had Gord's private line, who called to talk to me at length about how he wants to do something. He's an injured worker who has been shafted by the government and their changes to workers' compensation. He just feels so helpless because he can't do anything to make the government change its direction. He feels he's not being heard. I think that's what I hear most.
I don't know if the average person out there measures the extra couple of dollars they may have on their paycheque with the fact that when they went to the emergency hospital the night before it was closed, but I think they're going to start doing that. Frankly, I think all of us have a responsibility to point out to people that when you take money out of government and government doesn't have the money to spend, somewhere somebody loses. Collectively, we should start making it clear to people that the reason we can't have money to fund hospitals is because we're giving it to people who already have lots.
Mr Christopherson: I appreciate that. You heard the government members interjecting that they got letters and they'll share them with you. Once you look at the stats you've provided here that if you're earning $33,000 on average a year, you're getting about $350 as a tax cut, but if you're earning over 250 grand, which I suspect are the kinds of letters and support the government gets, you're taking home $15,000 a year. That buys an awful lot of private education, private health care, private services right now that ordinary working people need.
When we hear the government saying there's all kinds of support, you take a look at who's benefiting from this tax cut and who's paying the price. The very people who need the public services are the ones who are getting pennies in terms of benefits from the tax cut and those who can already afford to sort of check out of the public system are getting, in this case, over $15,000 extra to help them do that. I agree with you; more and more people are going to start to link the fact that the much touted tax cut is not benefiting them, but their communities are being decimated and the services they need are being cut.
Mr Young: The evidence that the tax cuts are creating jobs is in your presentation on page 2. You state that Ontario had 5.241 million jobs in June 1995 and now there are 5.533 million jobs, which is an increase of 292,000. In the last paragraph for some reason you've taken a period from 1990 to talk about the new jobs in Ontario over eight years, and yet when we came in it was an entirely new tax regime. From 1990 to 1995 we had 32 tax increases in Ontario and only net 10,000 jobs. Since then, in two and a half years, we have as of this month over 300,000 net new jobs, created to a large degree --
Mr Samuelson: Because of the tax cut?
Mr Young: -- because of the optimism and more money in people's pockets. It's right in your presentation.
What I wanted to ask you about is that you talked about creating a deficit crisis and the tricks of accrual accounting. Do you believe the NDP created a deficit crisis from 1990 to 1995? They borrowed $50 billion that's added to our debt; our debt is around $100 billion. Do you think that was a trick of accounting as well?
Mr Samuelson: I really could care less what the NDP did. I'm worried about what's going on in Ontario today. If you want to go and argue with these guys who were NDP cabinet ministers or whatever, do it on your own time. I'm worried about what's going on today. The reality is that with interest rates there's been a shift over the last couple of years, although it's moderate and we certainly have to worry about what's going to happen in the future, and that to some degree has led to growth in the economy. We don't for a minute suggest that's not true.
However, I can't believe anybody can look at the fiscal policy of this government, say it's good we've had a tax cut and at the same time go back to your ridings and see what's happening in your hospitals and in your communities. What I'm suggesting to you, and you should be talking to your minister about this, is that we need to start looking at the tax cut and that loss of revenue and what it means to us back in our communities, to our hospitals and places like that.
Mr Baird: Thank you very much for your presentation. It certainly gives us a lot to think about. I agree with you that jobs are the number one issue. The deficit is important and it's very important to deal with towards the job front, but jobs is the number one issue for the people of Ontario; it's the number one issue for this government.
There are two routes. We tried the one route for five years; in five years we saw only 10,000 new jobs created. In two and a half years we've seen 314,000 net new jobs created, which is good news. The numbers are right on page 2 and speak for themselves. If increasing taxes 32 times, if bringing in an $11-billion deficit -- I remember Mr Laughren talking about a $17-billion deficit as a justification for the social contract. If that route meant more hope and more prosperity, it would be the way to go, but the reality is it left more people unemployed and child poverty reached levels we had never seen before in this province, with those policies.
The tax cut, coupled with the other measures, whether it's the employer health tax or other measures, is all about helping create a climate for job creation. I go back to my community and I see the small business owner who's hired two more people; I look and see four or five cranes at the Nortel expansion; I look at the retail sector, which is expanding. My community suffered more from government restructuring than any community in the country, with 20,000 jobs scaled back when the federal Liberals downsized in 1994-95. I just think if that strategy worked, we would have more jobs today, but the reality is that we didn't, and that's why I think the people of Ontario wanted to change course. But you've given us a lot to think about here and it is appreciated, and I certainly will reflect on it.
The Chair: Thank you very much. We're out of time. I appreciate your presentation, sir.
ONTARIO SECONDARY SCHOOL TEACHERS' FEDERATION
The Chair: The next presentation is from the Ontario Secondary School Teachers' Federation, Mr Manners, president. Welcome, sir.
Mr Earl Manners: Thank you for the opportunity to be here. I'd like to also introduce Mark Ciavaglia, our legislative liaison. He'll be keeping track of the questions or comments, and if you have need of further information he'd be glad to provide it for you.
You have in the yellow folder copies of our brief and related research that we will refer to today, specifically in the areas of adult education and the whole issue of privatization and contracting out. You'll be pleased to know that I don't intend to read my entire brief. In fact I'll just try to make some comments around the brief and refer to some of the recommendations at the appropriate times. I'll leave it with you to read in detail.
We have, I must say at the outset, some difficulty in making specific recommendations with respect to the budget and the education sector when we don't have a funding model to deal with and to refer to as part of these pre-budget consultations. I do not envy our school boards, which are trying to plan now for September, trying to do that and trying to amalgamate and having this one important piece of the puzzle missing. There are lots of questions that we would have liked to be able to deal with, and there are certainly questions that we have. For example, will residential and farm assessment and commercial and industrial assessment that's targeted for education stay in our communities, where it's raised? Michael Gourley, the Deputy Minister of Finance, seemed to say yes yesterday, so it raises the question, will Toronto then, since it has to pay more in business and industrial tax, be able to keep it and apply it to education in the future?
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Question two -- I think you'll understand why that first question is important -- will be because Minister Johnson has intimated that there will be a uniform per pupil grant for every student in every community across this province. We don't know if that is indeed true. If it is, how will that then affect the fact that there is going to be tax raised at the local level and that it might not be the same in every community? Will some communities then have more or less money to deal with? For that matter, if every student is going to get a uniform per pupil grant, does that include junior kindergarten and adult education students? Finally, if provincial grants will vary depending on local wealth, how is this different from the current model except that the government is going to take total control and therefore cap education expenditures?
Without knowing the model, we have a very difficult time trying to understand the checks and balances that go into education funding to ensure that the needs of students are met. The best thing we can do is talk about total education expenditure and perhaps make some recommendations there about the amount of money that should be allocated towards elementary and secondary education in this province.
Just as some background facts, you will know that approximately $1 billion has been cut from the general legislative grants since March 31, 1995. You'll know from Standard and Poor's evaluation that Ontario spends less per capita on public education than any other province in Canada, and that only 16% of overall government expenditure is directed towards education in this province. That's 5% below the national average, something this government speaks of all the time in comparisons. It's 14% below the national leader, and believe it or not, it's not one of those socialist provinces like British Columbia or Saskatchewan; it's Alberta. Alberta is the leader. They spend 29% of their overall government expenditure on education, and there the parents are walking the streets and demanding that more money be spent on education because of the cutbacks they've faced over the last couple of years of the Klein government.
It's also the province that this government likes to talk about when it refers to standardized tests. While you may misuse some of those standardized test results, you still try to say Alberta is doing a great job. Maybe it has something to do with the fact that they're putting more money into education. We rank 49th of 63 jurisdictions in per pupil expenditure across North America, and it's going down.
Our enrolments are increasing, expenditures have been decreasing, and therefore, as our brief points out, per pupil expenditure in this province is declining. That expenditure is especially directed towards the classroom, so I think it makes a mockery of the promise of the Common Sense Revolution.
The finance minister suggested yesterday that the economy is booming. I guess we have to ask the question, for whom? It's certainly not for the students of this province. There's also some irony in some of the statements. The government criticizes school boards supposedly for raising taxes to make up for the cuts and then tries to argue, as they did yesterday, that they are spending more on education than ever before in the past, while including those school board contributions or local contributions to education to say that they're spending more on education. You can't have it both ways.
The fact is that spending is significantly less. It's significantly less as a percentage of our gross domestic product than it has been in previous years, and if you take a look at page 4 of our brief, you can see that it has gone down dramatically in 1995 and 1996. I would refer you to the last paragraph on that page, where it says: "Government cuts will result in reduced educational opportunities for its students. It appears that the government of Ontario has reduced educational funding to about 3.8% of the GDP. The leading developed countries spend greater than 4% of the GDP. If the NCES is correct, our economy will pay a high price in lost productivity due to the government's underfunding of education." I think that is a significant point, and that is why we're suggesting that as a target for this budget, you set between 4% and 5% of the gross domestic product towards elementary and secondary education.
I'd like to refer specifically to one group, the adult education program in our schools. With junior kindergarten, they were the first casualties of the cutbacks to public education.
In a recent study of the impact of those cuts across this province, we found that a 70% cut to adult education funding has meant a 70% reduction in student enrolment in adult education programs. That means we're slamming the door on a second chance for many citizens of this province. Our adult education program was one of the programs that have been referred to as contributing to Ontario having the highest graduation rate in the country.
The Ontario Council of Adult Educators did a survey of what happens to adult students after they graduate: 83% went on to a job or further education and therefore did not remain on the welfare rolls. What it shows is that when day school programs are replaced by a more limited program under continuing education or eliminated altogether or subjected to user fees, such a privatized approach to our public education system acts as a barrier to success and to opportunity. In fact, what we are inflicting as a result of the changes to adult education is a debt load on some of our poorest students.
The government has said repeatedly that it doesn't want to pass on a debt to a younger generation. I'd say to you that through user fees and through increases in tuition fees for programs like adult education and at our post-secondary level, what we are really doing is directly passing on the debt to the most vulnerable in our society, our young people, and in particular lower- and middle-income families. It's not that it's a concern about the debt; there is a tax shift from the rich to the middle-income and lower-income families.
I think what we see with this example is that privatization is a false choice with respect to education, and I dare say any public service, that the privatization of programs like adult education does not lead to any sort of improved educational opportunity, that privatization through the grant structure and vouchers leads to a two-tiered system of education, and it just doesn't work. Charter schools and other forms of private delivery of education have been a dismal failure in both New Zealand and Great Britain, where there has been some experimentation with them.
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As an aside, there was an announcement by the Minister of Community and Social Services the other day about the privatization of seven more correctional institutes. In a number of those centres, there are education programs. In one of them, the Syl Apps Centre, there are 24 teachers who are working there. Is it the intention of this government to privatize the education of inmates in those correctional institutions? That is something we do not have an answer to, nor did the representatives of the government when they met with the employees of those institutions the other day.
You will see in recommendations 3 and 4 that as a result of that type of research, we are suggesting that adult students should be funded at the same level as all other secondary students in the province and that the funding model should include funding for junior kindergarten and for any additional costs associated with the provision of secondary education.
I want to talk a little bit more about privatization and contracting out, because the Education Improvement Commission has been asked to review what areas of our education system might be privatized or contracted out. We are hearing rumours of wholesale cuts to the transportation of students, custodial maintenance and clerical services, as if student transportation and clean, safe and welcoming schools are not part of the classroom.
We've included with our brief a study done of the Edmonton public school experiment with privatization and contracting out of support services. Their conclusions, if I may summarize, point out that they were not successful at providing quality services in a school setting; that profit came first; that low wages and minimum benefits, which were the result of privatization and contracting out, led to high turnover rates and therefore no reliable, safe and secure or stable services in the school setting where students would be found; that there was a lack of commitment and identification to the school, which would affect the quality of the school environment; and that the in-house performance exceeded the contracted-out services by some 18%.
The truth is that the whole school is a classroom and that providing public education is very different from the bottom line and the business function of providing goods and services at a profit. In our series of recommendations, numbers 5 and 7 suggest that not only should you forget about looking at privatized models like charter schools and vouchers, which the Premier and the Minister of Education continue to muse about, but that district school boards should directly employ all workers who provide a range of services in schools, and funding should be provided to support the concept of a full-service school, which has been a model we have promoted for a number of years.
What does Ontario get for its money? It is very difficult to answer that question in the amount of time we have today. I would ask you just to look at pages 9 and 10 of our brief, which deal with that question in one way, and that has to do with literacy. Literacy is the building block of all future knowledge.
If I could read pages 9 and 10:
"Young adults in Ontario possess a high level of literacy, as evidenced by The International Adult Literacy Study.... This is an important study of the literacy skills of adults in Canada, the United States and five other developed countries. It identifies three kinds of literacy" -- prose, document and numerical literacy. "The study makes a quantitative evaluation of the levels of each of the three types of literacy among various cohorts within each of the subject countries. In the study, literacy skill levels are rated on a scale from one, the lowest, to five, the highest.
"In evaluating the effectiveness of Ontario's schools, two findings...are noteworthy. First, as is the case in most of the jurisdictions studied, a greater proportion of young Ontario adults demonstrate higher levels of all three kinds of literacy than is the case with their older compatriots. The study attributes this in large part to the higher levels of educational attainment in younger adults -- a condition that exists in Ontario," for now. "Second, a greater proportion of Ontario adults score at the higher levels of literacy than those in most of the jurisdictions studied.
"One can conclude that Ontario's education system does an outstanding job of providing the necessary literacy tools for its citizens and that more recent graduates are better prepared than older adults.
"A new funding model must assure adequate resources so that Ontario's schools can continue to do the job well.
"It is also useful to point out that Sweden, the one country that had a significantly higher proportion of citizens operating at a higher level of literacy than the other countries in the study, is a nation with a set of policies which encourages lifelong learning," and contributes a far greater amount of money as a percentage of gross domestic product than Ontario does towards its education system.
I want to thank you for the opportunity to present, and I would be pleased to try to answer your questions.
The Chair: Thank you, sir. We start with the NDP. We have about 12 minutes, so four minutes per side.
Mr Tony Martin (Sault Ste Marie): It's interesting to note that this government is trying to convince us all that we have a system that's in crisis and they're going to take $1 billion out of it to fix it.
I know from having spoken to some of your colleagues around the province, particularly in my own community, that with all that has gone on over the last couple of years re the very real attack on education and on people who work in education, there's a tremendous amount of anxiety and stress in the system. I was wondering if you've done any analysis of what impact that stress and anxiety are having on the system itself, the kids in the system, and its ability to continue to produce the kind of product we've come to expect it to produce as we all try to meet the challenges that face us in the working world and in our lives as educated individuals.
Mr Manners: I can tell you just anecdotally about the kinds of statements we're hearing from our membership across the province. There is a great deal of anxiety about their jobs and about their ability to provide the kind of education that they want to to meet individual student needs. They feel they've been, for the last two years, singled out by this government as a scapegoat for funding cuts and that they've been constantly criticized. As we know from any study of learning, if you attack someone, they don't usually learn or do as good a job as they might.
Certainly what we're seeing at the school level is that it's becoming more and more difficult to provide the full range of services that we did -- the classes have been cancelled, the textbooks are not available -- and that opportunities for extracurricular and cocurricular activities to supplement students' education have been restricted or subject to more and more user fees. That certainly puts pressure on families and children, especially from lower- and middle-income families, and we are in the midst of creating a two-tier education system as a result. Fund-raising has become the order of the day for parent advisory councils when they have a much more important role, from our point of view.
These are just examples of the stresses and strains that are having an impact on the system. We are doing an analysis of the impact of Bill 160 on our school system, and we will do that over the course of the next two years. I know that many parent advisory councils are doing audits of their own schools. The bottom line is that we're also seeing a lot of students from families already under stress from cuts to other parts of our social safety net, and they're coming to school hungry. When you're hungry, you don't learn. Teachers are seeing that as well and an increase in the problems that are as a result of that.
Mr John O'Toole (Durham East): Thank you, Mr Manners, for your presentation. I'm in receipt of a very large report, which I don't have with me, but it's larger than this, extremely well bound, which was sort of titled why Ontario is 49th out of 63. I also did some research on that. That report was done by OSSTF.
Mr Manners: Informetrica, to be exact.
Mr O'Toole: Yes, Informetrica did it under your direction. You paid for it. I have every reason to dispute it. We're entitled to our own views.
Mr Manners: Regardless of the facts.
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Mr O'Toole: Regardless of the facts. You must recognize that there have been findings that the report did not translate the American equivalency dollars, it didn't account for the money in the pension funding, it didn't account for -- a number of dollars were missing in that. If you'd like that report, write me a letter and I will send it to you.
Mr Manners: I don't need to write a letter. I'll ask for it directly right now. I am prepared to put your paper and ours to an independent --
Mr O'Toole: I have another point, Mr Chair, if I might.
The Chair: He is going to ask a question, I promise you.
Mr Manners: I thought he had.
Mr O'Toole: The total spending on education that you -- we're actually spending more on education than was spent by the previous government, in fact the previous year. You know that. I'm going to ask you the question, where is the money being spent? If you can dispute that we are not spending in total, in elementary and secondary, more money dollar for dollar, year over year -- we are spending more. The reason we're spending more is because of the payments to the teachers' pension fund.
My last question to you -- you probably have time to answer this. I hope the Chair will allow time. There are 126,000 teachers in Ontario. I might say I admire them almost to the letter. I think teachers are doing a marvellous, yeoman's job in this province. Their average union dues that they pay annually are around $1,000; 126,000 teachers are paid by public people, public dollars, tax dollars; 126,000 of them put in $1,000 in union dues. What are you doing with taxpayers' money? How much are you spending on your airplane? A hundred and twenty-six million dollars of taxpayers' money being spent on your lavish office and your private jet. Where's the $126 million? Where else do you get your money? That money's paid for by taxpayers. I think that $126 million should be spent on students in the classroom.
The Chair: Just a minute. Are you asking him a question?
Mr O'Toole: There are several. He can pick one of them. I appreciate the fact you're here today. I just can't understand how you can present the information as if it's factual. If I go back to the original assumption I made, most of the material the OSSTF presents is absolutely spurious, in my view, and in fact it's paid for by taxpayers' money. Ultimately, all the money you have, all of it, is tax money, all of it, period, every nickel of it. It should be more accountable.
The Chair: Excuse me.
Mr O'Toole: I'll leave the questions. There's enough there to answer, I'm sure.
The Chair: You have asked at least one question. I hope Mr Manners can understand. I commend him if he can.
Mr Manners: If the honourable member is suggesting that all people in the public sector should be volunteers, then I have to question the individual's sincerity.
With respect to suggesting that our research is spurious, I will challenge here today Mr O'Toole to put forward his research and we will send it to any independent researcher to evaluate our research and his, because I have absolutely no concern whatsoever that our research will be validated. That's why we sent it to Informetrica. I'm sure Informetrica would be pleased to know that you are suggesting that they would compromise their integrity just to pay for it.
With respect to taxes, sir, I have just received information today that the Tory government is conducting focus groups and polling of teachers in this province regarding our pension plan. I'm wondering if that's taxpayers' money or Tory money. Perhaps the opposition would like to know and get copies of the kind of negative polling that you tend to conduct each time you're trying to look for a grab of money from some other sector to pay for your ill-conceived tax cut.
The Chair: We'll move to the Liberal Party.
Mr Kwinter: I've gotten a real education here in the last few minutes. I hope, Mr O'Toole, you know that every time you buy anything in your household you're spending taxpayers' money.
I don't want to get involved in that particular argument, but I do want to pick up on the pension, so there's some clarification. Mr Manners, you're saying that the Premier and the Minister of Education have been musing about charter schools and a voucher system. There are also musings coming out of the government that maybe they shouldn't be paying their contribution to the teachers' pension fund. Could you tell me what the implications of that are and what your position is on that?
Mr Manners: We have a business relationship with the government of Ontario, whatever political party is in power, regarding a pension plan. It is a business relationship. This government talks about running government like a business. That business relationship is clearly defined in legislation. We tend to honour our side of that business relationship. If the government does not wish to honour that business relationship, I would suggest that they are compromising a number of other partnerships that exist in this province. They seem to be interested in paying some creditors, I guess, like the banks, but not interested in dealing with others.
Mr Bud Wildman (Algoma): Did you say creditors or predators?
Mr Manners: Take your pick.
Mr Kwinter: I have to declare a conflict of interest. I should have done that at the beginning, but I was so taken up with Mr O'Toole's presentation that I got side-tracked. My wife is a teacher and a member of the OSSTF. I just want to make sure that you know where I'm coming from.
One of the things I've been reading lately is that there are musings and speculation that in order to remove some of the people at the senior end of the salary scale there's a package being negotiated. Is anything happening with that?
Mr Manners: Nothing has happened. As you know, we've heard musings in the press that the government is interested in negotiating what they are calling an 85 factor window. We agree. We're prepared to negotiate an 85 factor with the government, but we want to make sure that if it's a good thing now it's a good thing always and that it should be a permanent benefit for all employees.
The way we are suggesting that be accomplished would be at no cost to the taxpayer. We have, as I said before, a business relationship with the government, and we are suggesting that if they want to talk about these kinds of pension benefit improvements, there is a procedure to follow to make sure that they are put in place. We are prepared to sit down with the government, as soon as they sign a document to move up the triennial negotiations from 1999 to 1998, under those terms and conditions of that business relationship. That could start tomorrow, because we've already signed the amendments that are necessary to move up those triennial negotiations from 1999 to 1998, and we're waiting for the government to respond. The fact that they have not, or have delayed in responding, is an indication that they do not want to operate by that business partnership and that they may have ulterior motives.
The Chair: Thank you very much, Mr Manners. We're out of time. I appreciate your presentation. Mr Ciavaglia, thank you.
BOARD OF TRADE OF METROPOLITAN TORONTO
The Chair: Our next presenter is the Metro Board of Trade, Louise Verity. Welcome back. Please introduce your partner.
Ms Louise Verity: Thank you, Chair. Good afternoon. I am Louise Verity, director of policy with the Toronto board of trade. With me is John Bech-Hansen, economist with the board. We appreciate the opportunity to participate in pre-budget hearings.
At the outset, the board of trade wishes to acknowledge that the provincial government has accomplished many positive things at the halfway point in its mandate. First of all, it has more than halved the provincial deficit, from $11.2 billion to $5.2 billion for 1997-98, on track to a balanced budget in the year 2001. Second, it has reduced the burden of personal income taxes by 22.4%, on schedule to a total reduction of 30%. It has presided over strong economic growth, job creation, housing starts and improved business and consumer confidence. It has moved to reduce unnecessary red tape for business. It is bringing in a modernized property assessment system. It is reducing the number of levels of government in Toronto from two to one by creating one new, strong city of Toronto. It has amalgamated school boards and taken steps to ensure that a greater share of resources is directed to classroom education.
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While it made a misstep last year in its original provincial-municipal disentanglement plan, it responded to the concerns of this organization and others by changing the Who Does What package in several stages to reduce its impact on Toronto and other communities. A particularly progressive measure was a decision to share social housing and welfare costs across the Toronto region. As the government noted when it made this announcement, this will help the GTA "continue to avoid the problems which have plagued large urban areas in the United States -- polarization into 'have' and 'have-not' areas, and the hollowing out of the downtown core." These initiatives show the government does listen and is prepared to make changes to proposals when they clearly could be improved.
This is why Toronto's business community was so disappointed by last week's decision to avoid addressing the commercial and industrial education tax inequity. The government has repeatedly stated on any number of matters that the status quo is unacceptable. This has been the case in deficit reduction, education, health care and welfare, to name but a few. Naturally, we are disappointed that the one area where the government has settled for the status quo is one which could seriously limit their ability to deliver on their jobs agenda.
I will now turn it over to John, who will take us through the commercial and industrial education tax issues in further detail.
Mr John Bech-Hansen: Thank you very much. I think it's worth starting by going back to one of the last times we were in this room, which was in October 1997. That was the time we were here to talk about Bill 160, the Education Quality Improvement Act. As everyone knows, one of the important changes that bill made was stripping the powers of school boards to levy local property taxes. So of course, what you have now is a provincial property tax for education. This is going to be raising over $6 billion from business and residential taxpayers. That really is de facto a province-wide general revenue tax, which is why we feel it's very much a part of the 1998 budget discussions.
I just wanted to revisit some of the things we said, back when the hearings were on, on Bill 160. One of the things we did support very strongly was the taking away of the taxing powers of school boards and transferring them to the province.
First of all, there was a good cause for that, because school boards have always been insulated somewhat from the competition for funding that other equally vital provincial services had been facing for many years, such as health care and colleges and universities.
As the province clearly demonstrated, school boards have always taken very aggressive advantage of their privileged access to taxing powers. They raised taxes between 1985 and 1995 something to the effect of 120%. No other provincial tax has increased by that much over the same period.
Finally, we did support the assumption of education taxing powers by the province because the province has broader concerns about competitiveness and the ability to attract business investment. School boards face no real competing priorities when they're levying taxes, and that's why they have tended to raise these taxes so much.
However, all of our support for what the provincial government did in terms of taking over the taxing powers of school boards was conditional upon one thing happening. That was that the provincial government impose a single, uniform, province-wide property tax on both residential and non-residential property for the support of public education.
With the announcement that came on February 5, we were greatly disappointed, as Louise had said, because they decided to have non-uniform rates on business taxpayers. Our view of it is that under Bill 160, education is becoming very much a provincial function -- just as much a provincial responsibility as health care, post-secondary education or social services -- yet you do not have any provincial tax levy on income, sales, payroll or any other basis which varies on a geographic basis. So why should a property tax? You are now going to be bringing in a new property tax on business which at the outset will be up to eight times higher in some jurisdictions than others. That's what the numbers show.
Under Bill 160, the province brought in a uniform residential tax in the name of fairness and equity. Why is this argument not being invoked for the business taxpayer?
All businesses derive equal benefit from the education system. You can't say that a business in Sudbury, Mississauga or Peterborough benefits any more or less from the public education system than a Toronto business does.
Another consideration is the province's own Business Education Tax Review Panel. That was kept confidential until just last week, and now we know that it did strongly recommend uniform tax rates for business.
The experience of other provinces is also worth noting. Seven other provinces have a provincial property tax for education. All seven of them levy these taxes at uniform rates.
Finally, there is a question here about accountability to taxpayers. This government is very big on accountability, and yet there is none of this when all they're doing really is hiding behind the school board tax rates that were left when these school boards lost their taxing powers. The government is in a sense evading the fiscal discipline and accountability that would come if they were going to set one, visible, uniform rate on business across the province.
We appreciate the Minister of Finance recognized that Toronto has a business tax problem. We are also pleased that he recognizes that a uniform business tax is a goal the province should work towards. In the end, though, a uniform tax rate was rejected because of the tax increases this would cause outside Toronto.
One thing I think we have to bear in mind about that, though: The only reason the taxes go up so much outside of Toronto is that the province decided some time ago that it did not want to let the yield of these taxes province-wide fall below the current level of $3.6 billion. That $3.6 billion is very much determined by how much the Toronto business taxpayer pays, which is about $1.3 billion of the provincial total. So, in a way, it's a little unfair for the Minister of Finance to have criticized the high level of spending by the Toronto school boards while at the same time implicitly accepting that high level of spending in determining what the yield of that province-wide tax should be, because that $3.6 billion reflects the high spending of Toronto's boards.
Really we're left with no other conclusion than that what the province has sought to do is to appropriate the massive overtaxation of Toronto's businesses for its own fiscal purposes. By doing so, it could leave Toronto to finance its own education system, with little or no provincial grant support. That will free up hundreds of millions of dollars of grant moneys for distribution elsewhere in the province, where businesses will be paying property tax rates up to 90% lower -- the paper says 80%, but I've checked the numbers -- than in Toronto.
I'll just turn to Louise for closing remarks.
Ms Verity: As John has so articulately outlined, this highly discriminatory treatment is unacceptable to the Toronto business community. The government must go back to the table and examine what reform options are available to begin providing at least a small measure of tax relief.
In the very near future the province will also be releasing their education funding model. The Toronto board of trade has asked that the funding model address the actual needs of Toronto students. Toronto's students have unique needs arising from social and economic circumstances. The inequity of unequal taxation must not be compounded -- and we can't emphasize this enough -- with an education funding model which fails to recognize the unique needs of Toronto's students. Thank you very much.
The Chair: We have about 18 minutes, six minutes per caucus. We'll start with the government caucus.
Mr Baird: Thank you very much for your presentation. There are maybe two issues I could discuss. You spoke at the outset of your brief with respect to the climate for job creation. Do you think that as a result of the provincial government's policies and initiatives over the last two and a half years Metropolitan Toronto is better off economically, that there are more people working and that the policies have helped contribute to economic growth?
Ms Verity: I would have to say of course -- I'll take a stab and then turn it over to John -- that a lot of things the government has done have certainly been helpful to the business climate generally. The government has also had the help of a very strong economy, which has been very helpful.
One issue the board is extremely concerned with, and has been for a number of years, probably since the early 1990s, is the fact that we are losing businesses within the boundaries of what is now Toronto to what is commonly referred to as the 905 area because the tax climate is very different. Our concern is that with advances in technology and any other number of advances that are being made in society there could be less and less incentive for people to locate in Toronto.
What we want to make sure of is that Toronto can continue to be strong, can continue to be a draw for business and can continue to be really the engine for not only Ontario's but also Canada's economy. That is actually a point that the minister himself has recognized on numerous occasions, and we want to make sure we're doing everything we can as an organization to see that we continue this trend.
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Mr Bech-Hansen: I just want to add that while the economy in Toronto is doing quite well now and you do have a higher level of occupancy in downtown office buildings, for example, there is a whole new structure that is put into place under which municipalities and school boards are going to operate. The municipality of Toronto is very vulnerable, under this new structure, to the impact of any future recession. The moment we go into an economic downturn again in this province, the fact that Toronto now has to sustain 100% of the local costs of social housing and a larger share of income support programs is going to have an incredibly dramatic impact on property tax rates if and when that recession comes about.
Another consideration as well is the fact that, quite apart from all the Who Does What reforms, all capital grants are being phased out for the new city of Toronto and other municipalities. Capital spending is of course an essential component of building a city's infrastructure for the future, and traditionally in any jurisdiction in North America, senior levels of government have always played an important role in capital financing, and that's disappearing.
Mr Baird: With respect to the business education tax, you would agree that a solution that has been discussed and that has got a lot of public attention this week would not raise taxes by a dollar from where they are now for the business community in the city of Toronto. Is that a correct characterization?
Mr Bech-Hansen: The presumption of a uniform tax rate always presumes that it's just revenue-neutral, raising the same amount of money as the current rates do.
Mr Baird: But the proposal that's being discussed would not see an extra dollar added. Taxation levels would stay at the exact same rate for businesses within the city of Toronto today.
Mr Bech-Hansen: That's my understanding as to what the announcement has to say.
Mr Baird: There's no tax increase in Toronto.
Mr Bech-Hansen: On the education side, no. On the municipal side, yes, because there is still a net offloading of about $164 million on to the new city.
Mr Baird: But the mayor is saying he can live up to his campaign promise and do that.
Mr Bech-Hansen: He may or may not --
Mr Baird: But on the business education side, there is a 0% tax increase. I think it's important to remember that they have gone up by 87% over 10 years between 1985 and 1995 and this is 0%, so at least it's stopping the going up. I think we'd all like a uniform rate, but -- I mean, the solution is either to cut taxes by $500 million, and other parties have said not until the budget is balanced; most of the Liberal members support not cutting taxes until we eliminate poverty as well, which is a position they've taken in the Legislature.
This would be a $500-million tax cut if they were to go to a uniform rate, either a tax cut or we would ask other businesses in other parts of the province to pick up the slack. If you look at charts, that would mean a significant tax increase for communities from Ottawa, to London, to Richmond Hill, to Parry Sound, to Sudbury, Oakville, Burlington.
Ms Verity: What was particularly problematic for the board is that we recognize that it's very difficult to make a decision to move along these lines in one fell swoop. Certainly a 268% tax increase, as could be the case in a particular municipality, would be very difficult. One of the things the Ministry of Finance has not shown us at this point is what that actually means in dollar terms. That is the missing piece of the puzzle.
Mr Baird: It means a big tax increase for outside of Toronto.
Ms Verity: I would have to say our real concern is the inequity. What we want to make sure of as an organization is that business in Toronto is treated in precisely the same way it is in every other area of the province. That's the number one concern.
Mr Baird: Even if that means a big tax increase in other areas of the province?
Ms Verity: What we're talking about, if I could just bring it back, is that we'd like to see some movement and we haven't seen any movement. That's really the root problem.
Mr Bech-Hansen: The way I think you have to look at it is that if I were a Toronto employer sitting here rather than just a representative of the board of trade, I'd be asking you for an explanation of why my taxes should be as much as eight times higher than some of my competitors' elsewhere in the province. Am I getting more benefit from the provincial education system than my competitors are elsewhere in the province?
Mr Baird: But that's the status quo. That's not something new that's been dreamt up. I just think it's important not to leave the impression --
Mr Bech-Hansen: Well, there's the provincial assumption of responsibility for education.
Mr Baird: But the province has always contributed a significant amount to education. I think it's important not to confuse the issue. This is a 0% tax increase. There's not one business in Toronto that's going to get one dollar more in taxation as a result of that decision, and I think that's important.
Ms Verity: The other side of it is, we've talked in reference to other provinces. Seven of the provinces have adopted a uniform rate. In Ontario we're not just competing with the 905 region, we're competing with what was formerly Frank McKenna's province and other jurisdictions outside of Ontario. So we really look at it from not only within the province but also from an international and interjurisdictional perspective.
The Chair: I'm going to have to stop you there and move to Mr Kwinter.
Mr Kwinter: This morning when the CFIB was here I related a comment that I got this morning. I attended a breakfast meeting of the printing industry and one of the executives got up and was telling his story. He was making a pitch to the Liberal caucus about some of their concerns about what was happening. He said his company pays more in realty taxes than they do in rent and suggested that that was a significant amount of money.
Last night I was at another dinner and I heard -- and we discussed this, because as anybody would know, it is a hot topic in the business community in Toronto. Everybody is talking about what is happening, particularly because of the mayor and his particular stand. He's gotten a lot of attention on it.
But I spoke to a fellow who was the chief financial officer of a major company that's in the furniture and bedding business and he said: "My lease is coming up next year. I could move literally across the border into Richmond Hill. We have done a study that shows that a business valued at $500,000 in Toronto would pay $21,600 in realty tax. The same business -- the same type of business, the same size, everything -- in Richmond Hill would be paying $11,100." He took out a piece of paper and calculated and he said, "I can make $250,000 a year by doing nothing but moving two miles north of where I am now."
I'll tell you, this is something that we are going to have to think about. Figure it out: $250,000 a year; in 10 years, $2.5 million for doing nothing. I'm not going to be disadvantaged in any way. I may have some dislocation of staff because they may not want to travel that extra couple of miles, but that is the issue. You've already stated that businesses are leaving Toronto for that very reason, and this is only going to exacerbate that situation. Have you got any experience in that or comments about that?
Mr Bech-Hansen: Well, one thing. There's a table I have here which I've always referred to which is just showing the annual rate of change in commercial and industrial assessment from 1988 to 1994 -- I don't have anything more recent -- and that does show that the city of Toronto, formerly Metropolitan Toronto, has been losing about 1% of its commercial assessment base per year over that period, accelerating a little bit in the early 1990s, whereas you have increases of 50% or more in the commercial assessment base of some of the 905 area, as much as 80% in the town of Newmarket, for example; an 80% increase over that same period while Toronto has been losing at about 1% a year. I think that's all the evidence you really need.
Mr Kwinter: I understand the government's concern about what happens if you go to a flat rate across the province. The one thing I would comment is, Mr Baird keeps holding up this chart, and he equates communities but he doesn't equate numbers. If you take a look at all these communities, you say, "Look, there are 50 communities that are going to have their taxes increased." But you say, "How many people are in those 50 communities and how does that compare to the number of people who are in Toronto?"
Mr Young: Mr Kwinter, this is your chart.
Mr Kwinter: No, I'm not condemning the chart. All I'm saying is that you can't just use numbers of communities, you have to take a look at the people in those communities. I can give you towns, every little hamlet and every little village, and say: "My God, do you know what's going to happen? To look after Toronto, we're going to have increases in 5,000 communities." But what you have to understand is, what is the number of people who are going to be impacted by that?
I agree that it can't just be, you know, today it's this and tomorrow it's that, but I think there's got to be some sort of an accommodation so that you have a fixed plan that's going to give some assurance to the business community that there in fact is a solution in sight so that that will deter them from looking at this and saying, "We've got to get out of here because we can't afford to stay here" -- not because they can't do the business. Another thing I heard was someone saying they're not going to pay any more money. It's opportunity costs. They're saying, "Here's what we're paying. We're not happy with it but -- "
Interjection.
Mr Kwinter: No, but I'm saying: "You know what? We didn't realize it but if we could go another mile ahead" -- as this fellow said to me last night, "I can make $250,000 a year for doing nothing, just by being in another spot." That's the issue.
The Chair: Do you have a question, Mr Kwinter?
Mr Kwinter: No, I just wanted to get their reaction to it.
The Chair: Let's have the reaction to Mr Kwinter's point because we're running out of time for the Liberal caucus.
Mr Bech-Hansen: You make a valid point. I'd like to know what number of business establishments you might have in some of these affected communities. You have 77,000 business establishments in the city of Toronto affected by this discriminatory policy and I wonder how that equates with some of the other small communities that might not have very many business establishments.
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The other consideration is the range of taxes is effectively from about 0.5% of market value to 4.5% for education tax. Any business that is paying 0.5% is probably paying a matter of a dollar a square foot, if that. Doubling that is nothing compared to the value of decreasing 30% on a downtown business that's paying $8 a square foot. The point I'm making is, if you're starting from a very low base of tax any way, what looks like a large percentage increase is not a large dollar increase.
The Chair: Thank you. I'm going to have to interrupt you there and move to Mr Silipo.
Mr Silipo: I just want to come back to one basic principle that I saw in your presentation, just to be really clear, and then deal in more detail with what you think should be happening in terms of the government's announcement of last week.
What you're saying essentially is you as an organization supported what the government was doing in terms of the government gaining control over the decisions about spending in education and taxing because you understood that what would come out of that was a uniform rate for both residential assessment and for commercial. It's happening on residential but it's not happening on the commercial-industrial base. Fair enough?
Mr Bech-Hansen: Yes.
Mr Silipo: That's the question I wish Mr Baird would answer every time he throws up that chart, because it seems that if there's a certain amount of logic that one applies to one, then the other can't be extrapolated from it and put to the side.
Given the mess that we're in and that the government is in, I hear from what you're saying that you're not saying necessarily, although you'd like a provincial uniform rate, yesterday -- that quite frankly if the government was able to begin in some way recognizing that that's the direction it needed to move in, if it brought in some kind of system of phasing that in, that at least would be going in the right direction, as you see it.
Mr Bech-Hansen: That's right. Business planning is always made on a very long-term horizon. I think as long as businesses have a certain confidence level that there's a certain direction in which we're heading and that we'll get there some day, that's really all it takes to enable businesses to plan where they might choose to locate, based on where they know things are going to go.
Mr Silipo: Do you have any further thoughts on that with respect to within the GTA? Would that seem like a logical first step, to say at least let's begin a process of balancing out and again, over a period of time, whatever that time period is, I'm not sure what would be appropriate, to say at least between Toronto and the rest of the GTA there's some logic that says you've got to have, more and more now, eventually uniform rates and that eventually could take it a period of time?
Mr Bech-Hansen: There is some logic for doing this on a GTA-wide basis. First, the largest impacts of all, like where you're getting 100% or more increases, are all places outside the GTA altogether, so it's best to leave them out of the situation. It makes sense to do it on a GTA basis partly because that is the designated pooling area for social services we're going into. Hopefully there will be a Greater Toronto Services Board over that same jurisdiction eventually. There's another consideration too: the nine zones that were set up for taxing rights of way. One of them is the GTA as well, so there's already a designated zone where this would make some sense to apply it. Those are considerations.
Mr Silipo: This may be an unfair question and I really don't mean it this way, and you can choose to answer or not. But from my partisan perspective, what the government has done in this area is that it was comfortable enough in doing the uniform rate when it came to the residential, because the impact of that is largely within Toronto, as I see it.
Mr Young: And Ottawa.
Mr Silipo: And Ottawa, that's correct. But when they looked at the impact of this, if they were going to do it across the province -- and again, subject to all the things we've said; I don't think anybody realistically expected them to do it overnight across the province -- what the real impact would be and what they were afraid of is the backlash that might come from businesses in the 905 area, particularly where there would be increases. Is that part of your sense about why they're hesitating to do this?
Ms Verity: I guess our concern isn't really to talk about the politics of it but rather to talk about what we think is a decision that would be in the nature of good public policy. The bottom line is that even a phased-in approach, a small step in the direction towards an equitable tax base, is really what the Toronto business community is looking for. If that's the message that we leave today, I'd say that would pretty much sum it up.
Mr Bech-Hansen: I just want to emphasize too that there are options that should be examined and moving in a phased way to a uniform rate is just one thing which affects everybody at once. Another way is to look at what's the lowest rate anybody's paying in Ontario and what's the highest, which is Toronto, and why don't we establish a band of fairness which is sort of getting a little bit closer and closer together all the time. So basically the ones inside the bands of fairness can stay frozen where they are, but the ones who are most out of whack at the top end could come down a bit and the ones who are getting away for practically nothing in education taxes would come up a bit and they would be cross-subsidizing the highest-taxed ones. That is another way of phasing where you're just not hitting as many people. There are all kinds of options that could be examined, and that's what we hope the government will do.
Mr Silipo: Have you had any sense in the aftermath of the announcement that the government is willing to take a look at some of those options?
Ms Verity: At this point we are continuing certainly to talk to the government, to press our case. The city of Toronto is doing so and also in a very vocal way. We are of course communicating with our --
Mr Baird: That's one way of putting it.
Mr Silipo: They'll be doing a little bit more of that tomorrow, Mr Baird, yes.
Ms Verity: We are communicating with our membership. We're hearing from our membership and I think anyone who represents a riding in the city of Toronto, whether it's provincial or municipal, is hearing from Toronto's business community on this issue and will continue to hear from Toronto's business community on this issue.
The Chair: We are out of time. We appreciate it. Thank you very much for your attendance and your submission.
Our next presenter is the Risk Winning Foundation, Mike Heenan.
Interjection.
The Chair: I'm sorry, Mr Heenan is scratched.
PLM GROUP LTD
The Chair: Our next presenter is PLM Web, Barry Pike, president. Mr Pike, come forward, if you would. Welcome, sir. Thank you for coming.
Mr Barry Pike: I've passed around a brief about our company. There's PLM Creative, PLM Imaging, PLM Graphics, PLM Web, PLM Finishers, PLM On Demand, PLM Interactive, North 44 Marketing, Intercolour Graphics, PLM Distribution, PLM America in Cincinnati and PLM America in New Haven, Connecticut.
Our company incorporated in 1987 with six employees and today we have 275 employees in Ontario, plus what we have in America. We came from zero sales to $100 million -- that's our estimated sales this year. We are now a publicly listed company on the TSE. We specialize in printing, from concept right through to final product. To date, we have invested over $50 million in Ontario.
One of the things that I've found, working and growing my company, starting with nothing and taking every penny I had to get into this business, is the Canadian and the Ontario governments being very cyclical. I remember back in 1981-82 when we had that last recession. Then we went through an expansionary period to 1989 and we went back into the recession of 1990 up to 1995. Those were the toughest times of my life. One third of my competitors went bankrupt.
In our view, the economy is ready to go forward in 1998. This expansionary cycle will likely continue for the next several years, in our opinion. That expansionary cycle, I feel, is in very strong part because of the Conservative government. This recovery is because of the fiscal restraints and responsibility in our current government and I believe it should continue on the same route in the future. But unfortunately there's a very poor perception of this government's fiscal performance by some people. Some of the examples, and I don't think they're fair, the things that happen out there: 126,000 teachers can go on strike, can hold two million students hostage and then along comes our government and we turn around and give every child a $40 tax rebate. No receipt had to take place.
In my company I told all my employees, "Bring your kids in." We had lots of kids in our place. It was good for them to see what was happening there. It was time to pull together. The teachers got out there and they lived a great life, and now they're telling the kids how bad our government is. Those are our future voters. Those are the people who are being poisoned in the schools by this whole situation. I don't think it's right, but I don't think it was right for the government to arbitrarily give out $40 a person per child without any backup whatsoever. It was a great gesture.
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The balanced budget is an absolute necessity in our future. Our businesses need incentives. We have to continue. We don't need penalties as we go. I believe the Conservative government is going in the right direction. We would like to somehow put in some hiring and training incentives. It would be beneficial for Ontario. It would be a win-win situation for the employer, the employees, our government and all the people in Ontario.
One of the things we have worked with very hard is trying to put together a day care centre. I get fed up hearing everybody saying the government should take care of our day care centres, take care of the whole thing. One of my views is that the government could become involved somehow with employers in a day care centre, somehow split the burden of some of that cost back and forth, go on a day-to-day basis and get the employers to pay a portion, the government to pay a portion and a portion by the employees who are utilizing the facility.
Right now I have some people who pay $60 a day for two children to go to day care. The tax write-off on that is so low. What's happening right now is half of the housewives on the street are taking them to some girl down the road. One of my employees drops his son off with a girl who holds 11 kids every day, and she is not a certified day care centre. Along the road something is going to happen. If we can put them into a proper day care centre that's run by our management -- I don't want government to come in and run it for us; we'll run it ourselves -- I'd like to see some tax incentives to go in that direction. Nobody is looking for a free holiday in our business. I'm just looking for a better place to send our employees' kids.
You know what? Once women -- and it mostly is women -- get to two and three children, they stop working. If we can give them some tax relief, not $2,000 a year for day care, if we can get them out there, we'll get a lot more people out on the street working. When they go out and work, they pay taxes. It's a contribution. It's a win-win for everybody.
Reporting: With some of the things I'm talking about today I don't know if I'm overstepping my guidelines, but I find the requirements are onerous, I find them expensive, such as the Ontario Securities Commission, all the things that we have to go through. If we could cut out a bit of the red tape, we could save ourselves an awful lot of work, an awful lot of legal expenses. I don't know how we can fine-tune, but one of my recommendations is to get rid of a little bit of the red tape or a lot of the red tape that's out there. The duplicate reporting to the federal and Ontario governments: If we can cut that down and not do as much reporting to so many different places, it would be another savings.
One of the things I would like to ask of this government is, why haven't we considered or have we considered participating in a harmonized sales tax? It has worked quite well, I believe, on the east coast. You turn around with the harmonized sales tax, and it makes it easier and it cuts down the accounting costs. We're turning our companies into bookkeepers taking care of all these taxes.
One of the other things is pricing. I travel a lot in Europe in my business. Everywhere I go the taxes are all included. Everything is one price. It's just an idea, but you know what? Let's help eliminate that underground economy. That's a $2-billion economy in this province. There's not one person in this room who hasn't had a guy come to the house and say, "I'll do it for cash, or do you want a receipt?" I think everybody should pay taxes. We pay our fair share of taxes. To harmonize taxes is one way around that.
One of the things we have a great deal of problems with in our company is workers' compensation. It's much improved under the Conservative government. It's light-years away from where it was before. I used to think that was a holiday pay section for a lot of workers out there because as soon as it got cold they got hurt. I'd pay over $100,000 a year to workers' compensation. The claims are hard to process but the experience ratings are harsh.
We turn around. When somebody gets sick we do not go to workers' compensation because our rates -- it's worse than car insurance. They go up through the roof. I really don't have an avenue to go to even complain about it -- over $100,000 a year. I'm paying them. We don't make the claims. I think some sort of mechanism could be put in place for people who aren't making claims so they can at least write down the cost of those employees who are off and take them off your yearly workers' compensation fees.
Tax incentives: These are just ideas I have but I believe in good ideas, and one of the ideas I have is tax incentives for companies that show a 15% growth over and above what they did before. That's growth in sales, growth in profits. We've grown our company substantially as much as 30% and 40% a year. This year we will grow our company by approximately 35% again. We're working very hard to do it. If we could get some incentives, we can put that back into our company. I'm in a very capital cost incentive company business. One press for me is $17.5 million and I need as much help as I can get to keep buying that equipment.
This year alone, PLM will employ an additional 50 people. In the trade we're in, we're a totally non-union business. We treat people the right way. But those 50 people will earn over $2.5 million additional this year. That will put $1 million to $1.2 million into the Ontario government. I'm not asking for too much when I'm asking for some tax incentives to come back to us. Not only will that $1.2 million come back to the province of Ontario, the money they make over and above that will be spent in this province.
One of the other things I get a little quirk on is the Ontario Development Corp. Why aren't more loans being made? My company is a public company because I had to go public to grow the way I wanted to grow. You can't go to a bank. You can't go to the ODC. You can go to them, but probably eight out of 10 loans are turned down.
This isn't a bitch session for me. It's a way to help the little guy that wants to grow.
Why can't the commercial banks and the ODC -- and I'm not bank-bashing here -- combine to do some financing for companies instead of forcing them to go public? It cost me $500,000 to go public. It went well, but it's a big gamble and a lot of small businesses can't afford to go that route. It took us a lot of years to get there.
It's kind of funny, I find, that governments can find money to send overseas to Asia to prop up everybody else's dollar and economy and we've got a lot of people in our province right now who need help. Our economy is robust. It's going great. If we want to grow it and I want to grow -- my company will be a $250-million company by the year 2001. We've never missed a projection. We need help from this government to do it.
Business taxes: I just came in after people were talking about business taxes. The city taxes: The overall assessment process is being changed. Things are happening. I'm going to repeat myself. I'm going to repeat what was said ahead of me. I'd like to see some period of years to phase it in. There's so much business. In the Toronto Star last night they were talking about the brain drain that's happening. People come here, they get educated, and then they move down to America and they move out of here. I left Quebec for that reason. I moved here 20 years ago. I'm an Ontario resident. I want to keep my company in Ontario.
If you see in my list, we have companies in Cincinnati, Ohio, and New Haven, Connecticut, and are about to make another acquisition. What we are doing down there is solidifying work that is done right here in Toronto, Ontario, and we're shipping it back there. The free trade has helped us, granted, but as many tax incentives as I can get doing it that way and growing. I have to spend another $50 million in the next three years to realize my $250 million in sales.
We pay our taxes. I'm not looking for a free ride and nobody I work with looks for a free ride. We want to go out there and we want to be corporate citizens. As tax rates go up, the business goes south.
I just want to say thank you. I'm a Conservative. I back the Conservative Party 300%. We got the message. We went through eight years of hell with the Liberals and the NDP. If the Conservative Party doesn't start doing some public relations, I think you stand a chance -- I think you'll make it in again, but let's not give it the opportunity, not even this big, not to be re-elected, because if you miss at the re-election -- the economy is getting back together -- I'm not sure how long it will take them to mess it up again.
It's the truth. I remember sitting in my office having an argument with a client, whom I no longer do business with, who thought the NDP was a great idea. Under that government and under the past, my business died; one third of my competitors left. I'm not complaining here today; these are just some of the items I have.
I just want to say thank you for letting me come here and talk to you.
The Chair: Thank you very much, Mr Pike. I take it you have time for some questions, if you don't mind. We'll start with the official opposition.
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Mr Kwinter: Thank you, Mr Pike. I'm glad you identified your political leanings; I would never have guessed. I appreciate that.
I want to congratulate you. It really is a success story to take your business from six employees in 1987 to a $100-million company that's going to be a $250-million company in the year 2001. I think it's great and I commend you for it. It's a real success story.
I just want to comment on some of the things you said. I know you had to go the IPO route to get your financing and you felt there was a lot of red tape and that the Ontario Securities Commission should cut out a lot of this stuff because you think it costs a lot of money -- I think you said $500,000 -- for you to go public.
Mr Pike: That's what the general cost is.
Mr Kwinter: The securities commission is really a consumer protection organization. On the one hand we'll have the Mr Pikes of the world saying, "This is ridiculous, it's too expensive, too much red tape, too much paperwork" --
Mr Pike: Can I interrupt just for a second?
The Chair: No, please. You'll get a chance to answer. He is going to ask the question, sir.
Mr Kwinter: Let me just continue. So on the one hand they're saying, "It costs too much, too much red tape, it just makes no sense," and the very next day you'll have a Bre-X and everybody's yelling and screaming: "Why didn't the Ontario Securities Commission do their job? Why didn't they make sure this thing was a legitimate company and the assets were there and they had done their due diligence and done all of these things?" You have to understand that there's got to be a balance and the reason a lot of this stuff is there is because -- none of this stuff is for the good guys; it's to make sure the bad guys don't get in there. Unfortunately, the good guys have got to suffer a little bit because of it. I just wanted to make that comment.
The Chair: Do you want to give him a minute to respond to it? I think he wanted to.
Mr Kwinter: Sure.
Mr Pike: I agree with you. My statement was, where can we cut down a lot of the red tape? There is a lot. I spend so much money on lawyers cutting through the red tape. If we can cut it down, let's try and cut it down and make it easier for business. That's what I'm saying. I agree with a lot of the stuff the OSC does. It's there, it's a body, I report to it every single day. I think if some people got together and tried to figure out ways to fine-tune it -- but not to disintegrate the quality of it because you know yourself there's that much paperwork to do this much work. There are people out there who specialize in fraud. We don't, a lot of people don't, but if we could cut down some of that cost and that expense, it would be nothing but a win-win.
Mr Kwinter: I agree and I can tell you that I think everybody -- we campaigned on it in 1995. We want to cut out the red tape. This government has set up a whole Red Tape Commission to do it. I think everybody feels that so much regulation is necessary but no more. I think that's a good issue and I agree with you.
It's really interesting, because you've touched on topics that this committee has addressed over the last few years, one on the underground economy. It seems to me that notwithstanding that there are people, single entrepreneurs who go around and offer you a cash deal, basically the main reason that we had it was the discrepancy in the duties, the values and the value of the dollar, and we had people going into the United States on a daily basis. It was a big issue.
As a matter of fact, this committee addressed the underground economy. It's still there, but it certainly has I think bottomed out. You'll always have people out there who will do business on a cash basis and there is no way you can regulate it. What you have to do is make sure that your tax regime is not so onerous that it encourages people to do it.
Mr Baird: Wow.
Mr Kwinter: What are you saying "wow" for?
Mr Baird: I agree with you.
Mr Kwinter: Do you know that Bill Davis said I'm more conservative than anybody he ever had in his cabinet?
The Chair: Mr Davis was wrong about a lot of things. You've only got a minute left.
Mr Baird: But the government will give up some of our time if he wants to continue.
Mr Kwinter: I also want to talk to you just briefly about the Ontario Development Corp. The minister, who is no longer the minister, Mr Saunderson, made a public statement that government never created a single job and that they shouldn't be in the business of funding anybody for anything, and that if the private sector can't make it on their own, they shouldn't be there.
I questioned him on this. As a matter of fact, I wrote a letter to the deputy and I said: "If this is true, you guys have got the biggest boondoggle going. Shut off the lights and send everybody home, because what are you there for?"
I agree that there is a role for government to play and I am happy to hear you, as an avowed Conservative, suggesting that. Can you respond to that?
Mr Pike: You know, it's kind of funny. When I started my business I went to every government agency that was out there. I did it for three years straight and I was told point-blank, "There are too many printers in this country and we're not going to invest any money in printers."
It was just a couple of years later that one of the largest printers in the country got $4.5 million from the government. I don't know what it was; they must have been better at it than I was.
The government that's out there has to be able to work with the little guys. They said, "There are too many printers." There are only two major printers in this country, in case anybody hasn't noticed. There are two guys out there who'd buy all the rest of us. I'm not for sale and I'm not going to be swallowed up by a large conglomerate. We've grown to the fourth- or fifth-largest printer in the country, in spite of all the roadblocks that were put in front of us along the way.
I have never, ever in the history of our government gotten a grant from anybody. If we're making widgets, let's help those guys out too. Let's try to reinvest in our own country and in our own province here, in the guys who are the entrepreneurs.
The Chair: Thank you, sir. I am going to have to stop you there for one moment and turn it over to Mr Silipo.
Mr Silipo: Mr Pike, thank you again also for being very clear about your political leanings and affiliations. I don't purport in our exchange to suggest that I could even remotely change your views on that. But I do want to deal with a couple of facts which are still important to put on the table, and I very much invite your comments. Again, although I disagree strongly with some things you said, I find on a number of points you made that I actually do agree, the point you made, for example, about the need to reduce red tape. It was actually under the NDP government that the first major changes in reducing red tape were made when we streamlined the registration procedures for new businesses. Instead of multiple registrations, it became possible to have one registration system apply to different facets.
Mr Young: It wasn't working. There were no new businesses.
Mr Silipo: The point is that that was seen as the first step, and the second step -- and I've said this publicly already in the House on a number of occasions -- was dealing with what the current government is doing, which is to look at the reporting requirements and make some changes there. That's just a point to say that it's not as if any one of us has a monopoly on what needs to be done.
I want to ask you one particular question with respect to the comment you made about businesses fleeing. Again I ask you this knowing you're a staunch Conservative supporter. In your assessment, what role did the free trade agreement play in the number of businesses that left Ontario particularly, and therefore the number of jobs we lost? Do you not see that that was at least a major factor, if not a key factor, in what happened in Ontario during the last recession?
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Mr Pike: During the last recession a lot of companies left here just because the business climate was difficult, very difficult in this country.
Mr Silipo: But what happened to change that business climate? There were no --
Mr Pike: What has happened?
Mr Silipo: There were no major changes in terms of the taxing system, other than that major change that businesses that were operating both here and in the United States could, through the free trade agreement, in effect end up getting the same services set up in the United States and then be able to ship their products here.
Mr Pike: The free trade agreement going back and forth. One of the things that has made it easier for business -- I feel that I've got a government right now that is very business-oriented. They're turning it around. I hear everybody saying that this government is for the rich only. It hasn't done me any good, for the rich only. What it has done is given me some of the money back, some of the taxes, some of the over-taxation. It has straightened out a lot of the problems with the Worker's Compensation Board. It has made it a lot better than it was in the past.
On the business side of it, every time we turn around we're getting a lot better responses from the people we're dealing with under the Conservative government.
Mr Silipo: One of the other areas you dealt with earlier in your presentation was the need for various incentives. I think you were talking about tax incentives and maybe other kinds of incentives around training, around child care. When I was Minister of Community of Social Services there was more than one child care centre that we opened located in businesses. I was curious to see whether what you were suggesting was different than that. In other words, are you saying there should be funding, whether it's through tax incentives or however it should be done, from government to encourage and allow businesses like yours and others that want it to help establish, on a joint basis, child care centres, that that should be done; similarly, with respect to training, that there should be some incentives provided?
Mr Pike: Yes, I do. I get so many people saying the government should just subsidize totally a day care centre and the whole works. If businesses were given the opportunity to establish a day care centre, with participation from the government and support in the form of a tax incentive, I think it's our duty to our employees to take care of their children. Let them get a good education, get a good start in life, take them out of the housewives' homes and get the wives back to work.
What I would say, and this is just a suggestion, is that if there could be some sort of scenario where the tax relief could be there, not only for the person who makes $25,000 a year -- why should the person who works 12 hours a day be penalized and not get a tax incentive? Why can't his wife come to work? If we can get those wives, or spouses, which is probably a better way of putting it, back to work, they're going to pay taxes, they're going to contribute to society a lot more. A lot of wives sit back and lose 10 to 12 years of their life because they can't afford to send their kids to day care. If they got out and got the opportunity, I think their whole life would -- unless they choose to spend their time with their kids.
Mr Silipo: Mr Pike, you don't have to convince me of the merits of that happening. The reason I asked you is because I wanted to be clear that that's what you were advocating. We may disagree about the best method, whether it should be done exclusively through tax incentives or through a combination of other ways, but the point is that I agree with you that that's a role that government should play, both with respect to training and with respect to services like child care. The reality is that the government you're supporting is the body that's saying that they don't believe that's what should be done.
Mr Pike: The government --
The Chair: Excuse me, Mr Pike, I have to interrupt here and move to the government caucus.
Mr Baird: I have more of a comment than anything for you, sir, just to thank you for coming out today. You've certainly given us a lot to think about. Mr Kwinter said earlier in his discussion with the previous witness that government doesn't create jobs, people create jobs. I certainly agree with that, but I think government can help create a climate that's conducive to job creation. That certainly is an important role.
But the people who create jobs are people like yourself, people who are prepared to work 18 or 20 hours a day when they're starting their business, see the thing through in the tough times, to create the jobs for people to earn a good salary and to raise their families. They're the risk-takers. I salute you; you're one of the real heroes in our economy who make that happen. I just want to thank you for your time today. We'll certainly reflect on what you've had to say.
Mr Pike: John, thank you, but you know what? It's not a bunch of you-know-what. I didn't come here with picket signs or to insult anybody. I just came here to give my views. I now work 12 hours a day. I'm not going to die; I'm not going to burn myself out. Do you know why? Because I love doing what I do. I've made 17 or 18 millionaires in the last 10 years. They're all in this province. That's what we've got to keep going.
The Chair: Any other questions from the government members? Thank you very much for your attendance. Best of luck, sir.
Mr Pike: Thank you very much.
The Chair: Committee, the first item tomorrow morning, at 9:30, is cancelled. We will not commence until 10 am with the Ontario Public School Teachers' Federation. We are adjourned until 10 am tomorrow.
The committee adjourned at 1626.