MINISTRY OF FINANCE
ONTARIO CHAMBER OF COMMERCE
GREATER TORONTO HOME BUILDERS' ASSOCIATION
CANADIAN MENTAL HEALTH ASSOCIATION, ONTARIO DIVISION; SCHIZOPHRENIA SOCIETY OF ONTARIO
CHILD POVERTY ACTION GROUP
COUNCIL OF ONTARIO CONSTRUCTION ASSOCIATIONS
TORONTO ASSOCIATION FOR COMMUNITY LIVING
WINE COUNCIL OF ONTARIO
CENTRE FOR EQUALITY RIGHTS IN ACCOMMODATION
Tuesday 13 February 2001
Ministry of Finance
Hon Jim Flaherty, minister
Dr Bob Christie, deputy minister
Mr Phil Howell, first assistant deputy minister, office of economic policy
Mr Gabriel Sékaly, second assistant deputy minister, fiscal and financial policy division
Mr Gadi Mayman, CEO and vice-chair, Ontario Financing Authority
Ontario Chamber of Commerce
Mr Douglas Robson
Ms Mary Webb
Mr Atul Sharma
Greater Toronto Home Builders' Association
Mr Patrick O'Hanlon
Mr Jim Murphy
Canadian Mental Health Association, Ontario division; Schizophrenia Society of Ontario
Dr Barbara Everett
Ms Janice Wiggins
Ms Brigette Hough
Mr John Trainor
Child Poverty Action Group
Mr Colin Hughes
Dr Brigitte Kitchen
Council of Ontario Construction Associations
Dr David Surplis
Mr Gary Robertson
Toronto Association for Community Living
Ms June Chiu
Ms Agnes Samler
Mr Keith Powell
Wine Council of Ontario
Ms Linda Franklin
Mr Bruce Walker
Centre for Equality Rights in Accommodation
Mr John Fraser
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président
Mr Marcel Beaubien (Lambton-Kent-Middlesex PC)
Vice-Chair / Vice-Président
Mr Doug Galt (Northumberland PC)
Mr Ted Arnott (Waterloo-Wellington PC)
Mr Marcel Beaubien (Lambton-Kent-Middlesex PC)
Mr David Christopherson (Hamilton West / -Ouest ND)
Mr Doug Galt (Northumberland PC)
Mr Monte Kwinter (York Centre / -Centre L)
Mrs Tina R. Molinari (Thornhill PC)
Mr Gerry Phillips (Scarborough-Agincourt L)
Mr David Young (Willowdale PC)
Substitutions / Membres remplaçants
Mr John O'Toole (Durham PC)
Also taking part / Autres participants et participantes
Mrs Sandra Pupatello (Windsor West / -Ouest L)
Clerk / Greffière
Ms Susan Sourial
Staff / Personnel
Mr David Rampersad, research officer,
Research and Information Services
The committee met at 1000 in room 151.
The Chair (Mr Marcel Beaubien): If I could get your attention for a moment, please. I've just been informed that the minister is stuck on the Don Valley Parkway. There will be about a 10-minute delay, so I think we'll reconvene at around 10:15 this morning.
The committee recessed from 1000 to 1010.
MINISTRY OF FINANCE
The Chair: If I could get your attention, I'd like to bring this committee to order. First of all, I would like to welcome the new Minister of Finance. Welcome, Minister. It's a pleasure to have you here this morning.
Hon Jim Flaherty (Deputy Premier, Minister of Finance): Thank you.
The Chair: There are a couple of announcements I would like to make for the record. The standing committee on finance and economic affairs will be meeting in Toronto today-February 13-February 14, 15, 21 and 22. Furthermore, the committee will be meeting in Thunder Bay on February 16, in Ottawa on February 19 and in London on February 20.
The last item I would like to mention is that for those members or groups that have not been successful in being able to make a personal presentation to the committee, written submissions will be accepted until February 22.
With that, Minister, you have one hour for your presentation.
Mr Gerry Phillips (Scarborough-Agincourt): Mr Chair, just before he begins, two things. One is, congratulations to the new minister, and welcome. We look forward to your visit with us in the pre-budget hearings.
I also submitted a list of questions to the ministry staff. If those answers are ready now, it would be useful, to us at least, perhaps to have them distributed as the minister is answering, because they may lead to some questions from our side.
Hon Mr Flaherty: I think we have them.
Mr Phillips: Thank you.
The Chair: So the answers will be distributed? Thank you. Anything else, Mr Phillips?
Mr Phillips: That's fine. Thank you very much.
The Chair: If there are no other comments from the members, Minister, you have the floor.
Hon Mr Flaherty: I am pleased to have this opportunity to address the standing committee on finance and economic affairs.
Today, I will be providing the committee with updates on Ontario's third-quarter economic accounts and third-quarter finances as well as information on how the province is positioned to weather economic turbulence that may result from the slowdown in the United States economy. This information will clearly demonstrate that our economic and fiscal plan is working and that our plan to continue to lower taxes and cut red tape will help ensure that Ontario is better positioned than ever before to withstand economic challenges.
The province is situated to weather economic turbulence that may result from the slowdown in the US economy. Ontario has experienced remarkably strong real GDP growth over the past four years. In the past two years alone, Ontario has had the best two years of growth since 1984-85, with real GDP advancing about 12%. This is well ahead of growth of about 9.5% in the US and 8.2% in the rest of Canada over the same period.
In Ontario, this consists of 6.1% growth in 1999-the fastest of any province in Canada-and 5.5% growth estimated for 2000. This exceeds our cautious 2000 budget projection of 4.6% growth for 2000. Despite Ontario's record growth, we must continue to lower taxes and cut red tape to meet the needs of a changing economy.
Strong domestic consumer and business spending, stimulated by tax cuts, has powered Ontario's economic growth. Since our government came to office, about 80% of our economic growth has been due to domestic spending by businesses and consumers. The third-quarter economic accounts confirm this trend. Net exports are actually lower than they were at the end of 1998. In spite of this, Ontario had very strong economic growth in 2000, driven entirely by domestic demand.
Business investment has been a major component of domestic spending growth. In the third quarter, machinery and equipment investment was more than 25% higher than a year earlier, as high-capacity utilization rates and growing business demand for high-technology equipment, processes and services continued in many sectors. Consumer spending has also been healthy, reflecting the steady rise in the real disposable income of the people of Ontario.
By putting more money in the hands of consumers and businesses and making it more attractive for businesses to invest in Ontario, our economic and fiscal plan is helping to create jobs in Ontario at a record pace. In July 2000, our government met our first mandate target of creating 725,000 net new jobs over five years. Since then, Ontario has added a further 119,900 jobs, putting us well on our way to meeting the Blueprint target of 825,000 jobs over the following five years.
For the year 2000 alone, Ontario created 184,000 net new jobs. The years from 1998 through 2000 were the strongest three years of job creation in our history. During that time, we gained over 558,700 new jobs, with employment growth rates well above those of the United States or the rest of Canada. Ontario's unemployment rate in 2000 was the lowest in a decade, at 5.7%. This was down sharply from 9.2% at the time we began cutting taxes.
Our job creation policies are also succeeding in giving people a hand up rather than a handout. Since 1995, nearly 570,000 people have broken free from welfare dependence.
In the first half of the 1990s, Ontarians suffered the worst drop in their standard of living since the Great Depression of the 1930s. The real income of the average Ontarian in 1995, as measured by GDP per person, was lower than at the end of the 1980s. Our government's policies have turned things around. From 1996 to 1999, real GDP per person in Ontario jumped almost 12%, considerably more than in the rest of Canada or the average in the industrialized countries.
The growth of Ontario's economy over the past two years has been exceptional, but demand in our key market, the United States, has slowed. This is leading to slower economic growth in Ontario. This slowing of economic growth was not unanticipated. In our budget last May, we predicted strong growth in 2000, followed by a slowing of real GDP growth in 2001 to a more sustainable 3.1%. As we enter 2001, this projection is still close to what we expect. This is consistent with expectations of private sector forecasters, whose projections for 2001 average 2.8%.
I want to take this opportunity to emphasize that this slower rate of growth is not tantamount to recession. Even the most pessimistic private sector forecast is for 2.2% growth for Ontario in 2001. The most important element contributing to the slowdown is a pause in the US economy. The overheated US economy was due for a slowdown, and the US Federal Reserve raised interest rates in 2000 specifically for that purpose.
Now that US growth has slowed, the Fed is aggressively easing rates and a significant recession in the US remains unlikely. Only 5% of leading US private sector forecasters think the US economy has slipped into a recession. Furthermore, the slowdown in the US is expected to be short-lived. Interest rate cuts should boost US activity in the second half of year, leading to a rebound in Ontario's exports to the US.
The growth momentum in Ontario and Canada from domestic demand is very strong due to the substantial tax cuts. This suggests that Ontario could outperform the US in 2001. However, we recognize that there is still more to do. We will continue with the agenda of the Common Sense Revolution to make sure that Ontario is ready for whatever the future brings.
The fact that our economy has become increasingly diversified helps to buffer us from economic shocks. When people think of Ontario's industry they usually think of cars. In fact, the fastest area of growth in the past two years has been in high-technology industries, such as telecommunications, electronic manufacturing and computer services.
Over the past two years high-technology production has grown by a phenomenal 55%. The third-quarter 2000 economic accounts show that growth in high-tech output accounted for fully 34% of Ontario's real GDP growth. High technology is particularly important to our economic well-being because it leads to higher productivity growth and to good jobs that fully utilize our highly educated workforce.
Even if the US goes into recession, we are in a far better position than we were just a decade ago to withstand the impact. When we followed the US into recession in the early 1990s and ultimately suffered a longer, deeper recession, this was as a result of our own doing. In the early 1990s Ontario was raising taxes, not cutting them. We were running deficits, not surpluses. Our debt was rising, not falling. Government inefficiency and overspending were driving businesses away from Ontario, not attracting new investment, as we are today. Welfare rolls were climbing, not falling. Personal debt levels were high, mainly as a result of the overheated housing market. In the private sector, our companies were lagging the US in undertaking the restructuring necessary to adjust to technological change and global competitive pressures.
A decade ago all governments in Canada were raising taxes and running deficits. This drove net public debt as a ratio of national GDP to almost 104% in 1995-96. Inflation was high and inflationary pressures were greater than in the US. The Bank of Canada had raised interest rates to levels far above those in the US. The Canadian dollar was overvalued, pricing our exports out of the market.
The fact that we suffered a more severe recession than the US in the early 1990s underscores how inappropriate economic and fiscal policies can undermine our competitiveness and economic performance. On the other hand, the right mix of economic and fiscal policies provides the foundation for a strong, competitive economy.
Our government came to power with a clear plan to put Ontario back on track through our long-term strategy for jobs and prosperity. We have implemented this strategy in a decisive and consistent fashion through five successive budgets. We first outlined this strategy in the Common Sense Revolution. In the CSR we said we would cut taxes, reduce red tape and balance the budget while investing in innovation and infrastructure to improve our competitiveness for the future.
In 1999, following extensive consultations with Ontarians, the Ontario Jobs and Investment Board provided us with more specific recommendations on implementing our strategy for jobs and prosperity through its report, A Road Map to Prosperity. In seeking our second mandate we reiterated this strategy through the Blueprint document, where we reaffirmed our commitment to creating jobs by cutting taxes and eliminating barriers to growth.
In paper E of the 2000 budget, we once again confirmed and outlined our economic strategy: lowering personal income taxes to encourage high levels of domestic demand and to boost incentives for creativity and hard work; lowering corporate income taxes to attract and retain globally mobile investment; encouraging innovation and small business entrepreneurship and attracting and retaining highly skilled individuals; rebuilding and expanding strategic provincial infrastructure such as highways, schools, colleges and universities, and hospitals; restoring fiscal balance and reducing provincial debt levels.
We knew from the outset that our economic and fiscal plan would create good jobs and raise the standard of living of all Ontarians. We never wavered in that thinking. The results have proved us right. It is now clear to all levels of government that cutting taxes is the best way to foster growth, create good jobs and raise the standard of living.
In our last provincial budget, we challenged the federal government to follow Ontario's lead and provide the Canadian economy with the fiscal and economic stimulus to make Ontario the most competitive jurisdiction in North America. Last year the federal finance minister, Mr Martin, finally began to respond to our challenges with tax reductions for Canadians. However, he could and should have done more.
Now, Mr Martin is pointing to tax cuts as providing just the buffer we need against economic slowdown in the United States. As Mr Martin told an international audience in New York recently, "A healthy mix of strong fundamentals-fiscal surpluses, low inflation, tax cuts and forward-looking policies-means that Canada is better positioned than it has been in decades to manage economic turbulence."
Similar sentiments were voiced recently by Gordon Thiessen, the recently retired governor of the Bank of Canada, who said, "Because of these improvements, our economy is now in a better shape than it has been for some time to deal with all kinds of external shocks-including fluctuations in US demand for our products."
Through our plan, we have laid a foundation of sound economic and fiscal policies that positions us to ride out any slowdown in the US and indeed to outpace the US in terms of growth. As we enter a period of more sustainable rates of economic growth, our plan will protect the gains we have made and keep Ontario growing.
Looking beyond 2001, our plan positions Ontario to continue to prosper in a growing North American economy. Ontario's strong fundamentals underpin our continued economic growth:
Tax cuts are fuelling domestic demand and making our corporate tax rates competitive with the United States;
Construction activity is expected to remain strong;
Our budget is in surplus, and net debt is declining;
Low core inflation lets the Bank of Canada cut rates without fuelling inflation;
Companies are undertaking the necessary restructuring to improve efficiencies;
The Canadian dollar is at a level that makes Ontario's exports very competitive;
The Ontario economy is more diversified than in the past;
We are poised to succeed in the knowledge-based economy, with the most educated workforce in the OECD, an excellent research and training system and a sophisticated high-technology infrastructure.
Our economic and fiscal record demonstrates how well our plan for prosperity has worked.
Cutting taxes, including personal income taxes, is the single most important act that governments can take to create a more dynamic economy with stronger growth today and in the long term. Since we came to office, we have cut provincial personal income taxes significantly-by more than 40% for lower and middle income earners and by at least 20% for higher income earners.
With the introduction of the made-for-Ontario income tax system, we have been able to offer other forms of tax cuts in addition to rate cuts. For example, we have announced enrichments to the value of certain tax credits, including increases to the disability and education amounts. The Ontario income tax system is now fully indexed to ensure that inflation will not erode the value of these tax cuts in the future.
Through our made-for-Ontario initiative, Ontarians' capital gains are now taxed at half the rate applied to other income. We have moved to help high-tech firms attract and retain research employees by eliminating Ontario income tax on the first $100,000 of taxable stock option benefits each year.
We will continue challenging and working with the federal government to provide a tax system that encourages job creation and growth and that is administered at a reasonable cost to taxpayers. We are pleased to see that the federal government is recognizing that tax cuts create growth and jobs, and is following our lead by cutting income taxes. I encourage the federal government to cut its income tax rates by the same proportion as we have.
In 2001, a family with two children and income of $60,000 from two earners will save $1,865 in Ontario personal income tax, or more than 40%, as a result of our government's tax cuts. In contrast, federal personal income tax savings for this family will be $1,210, or about 15%, as a result of federal tax cuts that began in 1998. When the federal government's tax reduction plan is fully implemented in 2004, this family's federal personal income tax savings will rise to $1,650, or about 20%.
Canada's personal income taxes are still too high by international standards. Tax cut plans in the US could further widen the gap between Canadian and US rates. In the global marketplace, Canada cannot afford to be known as the jurisdiction with the highest tax rates.
We have also lowered corporate income taxes to attract and retain globally mobile investment. Our cuts in the corporate tax rate are scheduled to bring our combined federal-provincial rate well below current rates in the US Great Lakes states, our key competitors for jobs and investment. When our corporate tax cuts are fully in place in 2005, Ontario's combined federal-provincial corporate income tax rate will be more than 10 percentage points lower than the average rate of the US Great Lakes states. By 2005, Ontario will be tied with Alberta for the lowest general corporate income tax rates in Canada, and we will have cut our small business rate by more than half. At 4%, Ontario will have the second-lowest small business rate in Canada.
However, Canada's corporate income tax rate needs to be more internationally competitive. Canada has the highest corporate income tax rate among industrialized countries. Ontario is acting to reduce the general corporate income tax rate by almost half by 2005 to improve our international competitiveness. If the federal government were to accept our challenge and match our corporate tax cuts, Ontario's combined federal-provincial rate, at 23%, would be among the lowest in the world.
Paul Martin said recently that the recipe for success in the global knowledge-based economy includes "a globally competitive tax system that fosters entrepreneurship." We urge Mr Martin to act on these words and make our tax system the most competitive anywhere.
Our plan is positioning Ontario to succeed in the high-tech knowledge-based economy. Advanced skills support growth across all sectors of the economy, particularly in fast-growing new economy industries such as information technology, telecommunications and broadcasting media. In 2000, employment in these industries in Ontario grew to 359,000, with a growth rate of over 10% from 1999.
We already have the most highly skilled and educated workforce in the OECD. We are building on that strength by expanding our post-secondary system with the largest capital investment in 30 years. Through SuperBuild, the province and its partners are investing $1.8 billion to create 73,000 new student spaces in universities and colleges. We are also generating strategic partnerships between business and institutions to create the skills needed for competitiveness and to increase the speed with which institutions can respond to industry's training needs.
New ideas based on innovation, research and entrepreneurship are a major source of economic growth and jobs. We are building world-class research and development capacity at our universities, colleges and hospitals through the Ontario R&D challenge fund and the Ontario Innovation Trust.
Ontario's positive business climate also supports entrepreneurship, R&D and the retention and growth of high-tech workers. For example, we are eliminating Ontario personal income tax for eligible research employees of R&D-intensive firms on up to $100,000 of taxable stock option benefits and associated taxable capital gains per year.
Last October, we announced the research-oriented investment fund program, which supports access to venture capital from labour-sponsored investment funds for emerging firms conducting R&D.
Our plan has put our fiscal house in order. By refocusing government on core services and through sound management, we are on track to achieving a second consecutive budget surplus and have begun to pay down net provincial debt.
The recent upgrading of Ontario's debt rating by Standard and Poor's is a concrete expression of confidence in our fiscal and economic management. Standard and Poor's now gives Ontario the second-highest rating among the provinces, after Alberta.
In announcing the upgrade-the first they have conferred on Ontario since 1988-Standard and Poor's said this reflects "the expectation of continued favourable fiscal policy, geared toward modest but steady debt reduction, even should the pace of economic growth fall from the high levels of recent years."
As well, just last Friday, Moody's revised its outlook for the province from stable to positive, citing Ontario's improving fiscal performance and "the promise of debt reduction over the medium term."
I am pleased to report that, as at third quarter, we are on track for a $1.4-billion surplus in 2000-01.
In the 2000 budget we increased our commitment to reduce net provincial debt by at least $5 billion during this mandate. By the end of this fiscal year we will be more than halfway to meeting this increased commitment, based on the third-quarter surplus outlook. The balanced-budget taxpayer-protection legislation will ensure we remain on track and not repeat the errors of the past.
Our drive for more efficient government is ongoing. We will continue finding efficiencies and new ways of delivering services that provide taxpayers with better value for their money.
Our government is working with public and private sector partners to build the strategic infrastructure that will keep Ontario competitive and enhance our quality of life. This year, SuperBuild's capital investment will total more than $2 billion. This includes a $1-billion investment in Ontario's highways, the largest amount in the province's history.
In addition, we have established three new partnership initiatives: SuperBuild millennium partnerships, the Ontario small town and rural development program and the sports, culture and tourism partnerships initiative. Through these partnerships, SuperBuild will invest more than $1.7 billion in regional and local infrastructure over the next five years.
Our economic and fiscal plan has generated the economic growth and resources that have enabled us to invest in Ontario's priorities at the same time as we were balancing the budget. This investment in turn provides the underpinning for our future quality of life and competitiveness.
Health care remains one of the government's top priorities. We have increased health care operating spending by $4.9 billion since taking office, despite federal cuts. In addition, we have fast-tracked an investment of $1 billion through SuperBuild to accelerate hospital restructuring.
Our economic and fiscal plan has worked. It has laid the foundation for a stronger Ontario that can withstand the impacts of any slowdown in the US economy and that will continue moving us forward, building on the gains we have made.
While we take pride in these achievements, we are conscious that continued sound management of the province's economic and fiscal affairs is essential for us to reach our full economic potential. Jobs and the economy are our number one priorities. We recognize that there is more to do, and by focusing on these key areas, we can create and keep more jobs in Ontario.
The 2001 budget provides us with an opportunity to continue implementing the kinds of economic and fiscal policies that will create more jobs and further increase the standard of living for the people of Ontario. Ontario must not become complacent.
I look forward to hearing from your committee and from the taxpayers of Ontario on measures we can take to continue to build a stronger Ontario with brighter futures for all of us.
The Chair: On behalf of the committee, Mr Minister, thank you very much. We have approximately 10 minutes per caucus, and I'll start with the Liberal caucus.
Mr Phillips: This will be the first time, I think, that the government will be projecting economic growth above the private sector forecasters, at least the first time I can recall. Is there a reason that you would project economic growth above private sector forecasts, and if you are wrong, what are the implications?
I note, by the way, it was just two months ago that the private sector was saying, I think, 3.7% growth. I gather they are now down, in the space of two months, to 2.8%.
Hon Mr Flaherty: As you know, we built in some surplus budgeting in the year 2000 budget. The economic predictions by various forecasters have varied over time. We've included the most recent forecasts to avoid giving an overly optimistic view of the present predictions with respect to growth in the province, but the prediction is for continued economic growth in Ontario this year, getting better as the year goes forward.
Mr Phillips: My question really was, why would you, or why would the government, for the first time predict economic growth above the private sector forecasters?
Hon Mr Flaherty: I think at the time of the budget it was not above their predictions at all.
Mr Phillips: But I gather from your presentation today you are assuming 3.1% growth.
Hon Mr Flaherty: No, the year 2000 budget assumed 3.1% growth.
Mr Phillips: What is your advice for us in terms of-I assume today you are predicting 3.1% economic growth for Ontario in the year 2001. Is that what you're saying?
Hon Mr Flaherty: What I would say is that the current consensus calls for real GDP growth to slow from 5.5% in 2000 to 2.8% in 2001.
Mr Phillips: So you're not predicting 3.1% growth.
Hon Mr Flaherty: The current prediction is 2.8%.
Mr Phillips: So that's what you're predicting?
Hon Mr Flaherty: I'm not in the prediction business. That's what the experts are predicting now. We are of course mindful and vigilant with respect to what is happening in the United States, and we're well positioned in Ontario, through prudent fiscal management over the past five years by Minister Eves, to deal with whatever slowdown there is from the very high levels of economic growth in the United States and Canada over the past five years or so.
Mr Phillips: It's strange to me that normally you come to our committee and say, "Here's our prediction for economic growth," and I gather you don't have one right now.
Hon Mr Flaherty: I've given you the current prediction.
Mr Phillips: The 2.8%? That's what you're building the budget on?
Hon Mr Flaherty: Currently.
Mr Phillips: The Premier said recently on health spending that he believes the costs on health spending will rise 5% a year for the foreseeable future. In fact, he says the cost increase-the estimate-is modest at 5% and almost certainly an underestimate.
Have you, in your planning, assumed at least a 5% increase in provincial health care funding over the foreseeable future, and if there is an economic slowdown beyond what you predict, can you assure Ontarians that health care will be protected at what I gather the Premier said was at least a 5% increase in spending needed?
Hon Mr Flaherty: Our government's record with respect to health care spending, as I'm sure the member knows, is of meeting the needs of Ontarians and increased health care spending year after year as we've moved forward, at the same time moving toward balancing the budget and in fact balancing the budget.
In the 1999 Blueprint, the Premier committed to increase health care funding by 20% over five years, and that would be from $18.9 billion in 1998-99 to $22.7 billion in 2003-04. This funding was guaranteed regardless of federal action.
There are a couple of issues there. One is the reality of the need for increased federal support for health care in the provinces, and the other reality is the need for the continuation of health care reforms by the provinces, including Ontario. We have the report of the provincial and territorial ministers of health in August 2000 dealing with the underfunding by the federal government of Canada's health care system. The report concluded that there is a growing need for health services to be subject to some reform, including primary care reform, which is important in Ontario, as well as health promotion and prevention strategies. So there's much to be done in health care, but our commitment, of course, is to meet the needs of the people of Ontario.
Mr Phillips: You see, I thought when the Premier was making his case that he said he believes spending in Ontario is going to go up 5% a year for the foreseeable future. That was his public argument. Are you telling us today that that may not have been what he meant, that in fact when he was saying that he believed costs would go up at least 5% a year and that the province would have to fund at least 5%, that wasn't what he meant, or what is your commitment on the health spending?
Hon Mr Flaherty: You know and I know, looking at the health care figures, that in fact the spending is going up much more dramatically than that. The pressures in the health care system are very large. The 5% pressure facing the system relates to an aging population, inflation and other factors. It's not a forecast of future spending but it's an estimate of future health pressures over time, and if we don't proceed expeditiously with the needed reforms, then those pressures will in fact be exceeded. So it's important that in addition to the 20% over five years commitment, we proceed with the reforms in health care and that we also receive an appropriate contribution from the federal level, not only Ontario but the other provinces as well.
Mr Phillips: That's very interesting.
On tax policy, you've indicated that Ontario's corporate taxes will be substantially lower than the neighbouring US states, and as I look at the income tax structures that you're proposing, that would be at the US states. Capital gains I think are now at the US states. But in your documents for attracting business to Ontario, Here's Where You Should Be Doing Business, you say, "US manufacturers pay, on average, more than $3,100 per employee for the kind of health care coverage provided by Canada's publicly supported system, whereas Ontario employers pay about $540"; in other words, about a $2,500 difference.
My question is on the tax policy. That difference in funding for health care comes because we've chosen collectively to fund the health care system very differently than the US. We do it mainly through our taxes. If we're going to have corporate taxes substantially lower than neighbouring states, and personal income tax around the neighbouring US states, capital gains taxes at the neighbouring US states, where do we find the money to fund that unique health care system that, as you point out in your own documents, means that employers in Ontario are paying at least $2,500 per employee less? Where do we fund that? Where do we find those resources for a very different health care system in Ontario than in Michigan or in Illinois or in New York?
Hon Mr Flaherty: That's a good question. We have to obviously keep on track with making sure our tax rates are competitive and low, with continuing to reduce taxes in Ontario. We've proven, contrary to what many said at the time, in the mid-1990s, that by reducing taxes we can create more revenue, more stimuli in the economy, and that increases government revenues. That has worked. The clear evidence of that is the fact that Minister Eves was able to bring in balanced budgets despite the tax cuts, and at the same time substantially increase health care spending in Ontario despite the fact that the federal government was reducing health care spending. Not only can it be done; it has been done in Ontario.
Mr Phillips: I would like you to maybe prepare a little document for this committee, then, because there is no magic in this. We've chosen to fund health care in a very different way than Michigan and Illinois and whatnot. In this same document you point out that the auto sector saves $400 million a year on health costs, because of the uniqueness. There is no magic, but I would like you to demonstrate to us-lower tax rates, a higher unemployment level, lower per capita income-where is that money going to come from? This is not voodoo economics. You should be able to show us, "Here is where I'm going to fund health care," and prove to us that you can have corporate income tax rates which I gather from your documents are going to be substantially lower, personal income tax at the US, capital gains at the US. Where does this revenue come from?
Hon Mr Flaherty: As Mr Martin, your federal finance minister, a member of your political party, says, this is the stimulus for our economy. This is what creates jobs and investment. It has taken him and the Prime Minister a long time to climb on board, but the reality is that it does work. Ontario has shown the way and the federal government is now following along. We wish they would accelerate their program because then we would have more revenue for health care in Ontario.
Mr Phillips: Can I just request that the staff give us documentation on the revenue that will flow from these tax policies and how we fund our health care, because that's pretty fundamental, I think, to the minister's presentation. If we could get that from the minister's staff, I would appreciate it.
Hon Mr Flaherty: What you're asking for is what I have just provided you with. It is the reality that our tax policies have resulted in increased revenues for the province, and you know that more than 40% of the operating program is going to health care.
Mr Phillips: Actually, you haven't provided me with that. I wouldn't mind it.
The Chair: Thank you. Mr Christopherson.
Mr David Christopherson (Hamilton West): Let me also congratulate you, Minister, on your appointment.
I was just thinking, because some of the faces here of course I am familiar with, having spent two years in the Ministry of Finance as the parliamentary assistant prior to appointment myself, and it occurred to me that there's a good chance that about a year or so from now I could see you and former Minister Laughren having dinner one night and both of you agreeing, "Timing really is everything in politics"-
Hon Mr Flaherty: Or height.
Mr Christopherson: -because I think there is a similarity between the situation you've inherited and the one that he inherited back in 1990.
Hon Mr Flaherty: I'm taller than Floyd.
Mr Christopherson: Let me point out to you, Minister, that while what you've outlined here today may play well at the corporate board table, it doesn't play so well at the kitchen table. The fact of the matter is that we told you all along that the reason you were able to cut taxes and still see growth was the fact that the American economy was leading the way, and you denied it, and you deny it again today. In your report, you take all the credit for everything that's happened, and yet the first downturn in the US economy in the last few years, and to date we've been able to count over 15,000 layoffs, either temporary or full-time, and rising.
My first question to you would be, how can you on the one hand say that everything that has happened in Ontario is because of what you've done, not in the US, when we said the opposite, and yet the first time there is a downturn in the US economy, we're seeing tens of thousands of jobs being lost through layoffs? How do you square that circle?
Hon Mr Flaherty: A couple of things. First of all, we have continuing economic growth in Ontario, and that's important. We also have continuing job growth in Ontario. The figures for January were, I think, net 16,000 new jobs in Ontario.
But dealing with your point about the role of the domestic economy, as I said in my remarks earlier, since our government came to office in 1995, about 80% of our economic growth has been due to domestic spending by businesses and consumers. We also hear the comment fairly often about the auto sector and dependency on the auto sector. I mentioned also in my remarks, and it's really something I hope people in Ontario would recognize, the growth of the high-tech sector. Certainly our colleagues from the Ottawa area-I guess there aren't any on this panel-know this very well. For example, in the year 2000, auto production grew only 2.9% in Ontario. High-tech output in Ontario in 2000 grew 24%. We have remarkable growth in that sector within our own province.
Mr Christopherson: Let me just say to you, Minister, that I suspect that if things continue the way they are, much like your ministry had to do an overnight re-evaluation of what it was projecting, you're going to be continually re-evaluating where you are going and trying to explain why we're losing so many jobs. Your argument that there's enough domestic demand to offset the downturn in the US is just not going to hold, in our opinion.
But I also want to draw attention to what you said on page 8. You said, "In the global marketplace, Canada cannot afford to be known as the jurisdiction with the highest" taxes. Yet what we're becoming known for is Walkerton. What we're becoming known for is a massive and serious deterioration in our education system, in our health care system. No longer do we have any kind of social housing policy whatsoever. Some of our municipalities are on the brink of facing bankruptcy; at the very least, looking at massive increases in property taxes to offset the cuts you've made in transfer payments in order to be able to sit here today and talk about all the great tax cuts that you've made.
The fact of the matter is that the United Nations has chosen Canada as the best place in the world to live not because we give the richest people in our country the biggest tax breaks. It's infuriating to have you come in here and say to us that everything is wonderful because the rich are getting richer.
I'm one who doesn't like to play to sort of the extremes, but that's the reality. We were known as the greatest place in the world to live because of our progressive education system and all those who had access to it, and certainly for our health care system, and certainly for our environmental protection, which you've watered down and chopped. In fact, in the last budget you're so proud of, you chopped more money from the Ministry of Natural Resources and from the Ministry of the Environment on the heels of what happened in Walkerton.
So for you to suggest that we need to worry about what our reputation is about tax rates doesn't fly very well with those 15,000 people who are out of work. Those 15,000 people, and there are going to be thousands more-you would know that only one third of Canadians are now covered by employment insurance. You've ratcheted down eligibility to welfare to the point where a lot of people right now, when they receive a pink slip, are not qualifying for EI, not qualifying for welfare, because both the federal government and you have changed the rules because you didn't want to put out so much money, because you needed the fiscal room in order to give the tax cut. They've got to wonder where they're going to be and where their family's going to be in a few years.
Let me ask you, Minister: if you were in that situation and you're one of the majority that doesn't qualify for employment insurance, and you don't qualify for social assistance, how do you put food on the table? What good is a tax cut to you at that point?
Hon Mr Flaherty: The tax cuts have resulted in more than half a million people leaving welfare and obtaining jobs in the province of Ontario. I'm very proud of that. Our government is very proud of that. What better route from poverty is there than having a job and having a future and being able to support one's family?
I can tell you, my constituents-and I hear this around the province-want tax cuts. They realize that they are very heavily taxed. At the same time, they want the government to meet the education and health care needs that they have. Indeed, if you look at the spending figures for the province of Ontario, Minister Eves and the Premier were able to accomplish that over the course of the past five years; that is, tax cuts increased government revenues to the point where the government not only was able to increase spending on health, not only was able to increase spending on education but also was able to balance the budget. That's good, sound fiscal and economic management. We're going to continue that kind of management in Ontario.
Mr Christopherson: You didn't answer the question. You didn't answer the question of what happens to that family facing a Mike Harris future when they've been given a pink slip. You don't want to talk about the fact that even with the tighter qualifications for welfare, StatsCan is showing us that in January, 4,500 more people were on welfare than there were before. StatsCan is also showing us that for the first time, part-time job growth is overtaking full-time job growth. All these things are happening at exactly the same time the US economy is slowing down. Minister, it's not a coincidence. You cannot sit there and say that tax cuts create jobs and then have massive tax cuts, and then, when the US economy goes into the tank, we suddenly have thousands and thousands of layoffs and our welfare rates are going up, and then talk about how tax cuts are going to continue to pull us out of this. It doesn't wash.
You were so fortunate. That's why I opened up with the quip that timing is everything in politics. When you assume office with a roaring US economy, you're bound to see a bounce here in Ontario. We warned you about that and you refused to acknowledge that that had anything to do with it, and you did it here again today. Now, on the brink of what might or might not be a US recession-we don't know, no one knows where it's going to end up, but certainly the projections coming from most economists are getting close to, if not lower than, half of what they were less than two months ago.
In my opinion, you should have been rolling in here and raising the alarm. You should have been announcing to us that you're going to stop all the planned tax cuts and that you're going to make the reinvestments in the things that make a difference in Ontario. Never mind this nonsense about whether or not we've got the reputation as being the highest-taxed. Do you know what it's going to feel like for somebody sitting at home who got a pink slip from General Motors a few weeks ago to hear you brag about the fact that people receiving capital gains only have to pay half the tax they used to pay, and that person sitting at their kitchen table doesn't even know how they're going to pay the rent next month? Do you know how that makes them feel? When I ask you the pointed questions, you go off in some other direction. You don't want to deal with the real issues here.
What are our municipalities supposed to do? You haven't talked about that at all. We've got Toronto in crisis. Certainly in my hometown of Hamilton we're in crisis in terms of trying to deal with the cuts. What are those municipalities supposed to do? Are they supposed to cut services further? Are they supposed to raise property taxes to cover off the services you're not providing? What are our municipalities supposed to do?
Hon Mr Flaherty: Certainly many of them have applied for the SuperBuild OSTAR program-those applications have been flooding in-to deal with infrastructure needs in the municipalities. It's a very important program in Ontario, and I'm sure you're familiar with it. We're not going to do what your government did. We're not going to raise taxes. We're not going to have record unemployment numbers, as your government did, driving our province into that horrible recession in the early 1990s. If that's what you're suggesting we ought to do, we're not going there. It's bad fiscal management. Your government proved it's bad fiscal management. We're raising the standard of living, the quality of life, of all people in Ontario and we intend to continue to do that by the sound fiscal management we've had in the past.
At the same time, I note the increase in welfare rates. We must be vigilant about that, particularly during the winter months. There's some fluctuation there. We must watch that, and watch it in comparison with the employment numbers, the 16,000 new jobs last month in Ontario.
I agree with the member if what you're conveying to me is that we must be vigilant with respect to developments in the economy. Indeed we are. We're watching very closely.
The Chair: Thank you very much, Mr Christopherson. The government side.
Mrs Tina R. Molinari (Thornhill): I will begin and then I will leave some time for my colleagues because I know they would like to have some questions and comments.
First of all, Minister, I want to congratulate you on your appointment. It's certainly entering interesting and exciting times ahead, as the finance committee is going to be working with you closely to see that we implement some of the needs for the Ontario people and what's best for Ontario.
I also want to commend you on your presentation on this first day of pre-budget hearings. It certainly sets the stage for the hearings we'll be engaging in in the next two weeks. It's clearly evident that past policies of tax cuts and job creation have put us in a position now where we can withstand the slowdown of the US economy. You've certainly made that clear in several of the comments in your presentation.
Just before I ask the question, I want to make a comment on Mr Christopherson's comments that this plays well at the corporate table and not at kitchen tables. I've sat around many kitchen tables and during the time when the $200 rebate came back, many people told me of different things they were able to do with that rebate. Some bought new shoes for their kids, some bought their groceries and others donated the money to their favourite charities. So I think that also around kitchen tables the tax cuts are doing well for all of the people in the province of Ontario and it's not just for those whom the opposition would think it benefits.
Minister, I want to talk a bit about the made-in-Ontario income tax system. There are a lot of benefits to that for all Ontarians because it will cater to the specific need of those in the province of Ontario. My constituents have often asked how this system will work and how it will benefit the taxpayers. Some are concerned about whether it would be more burdensome or expensive to the taxpayer. Can you share with us what the greatest benefits of this system would be?
Hon Mr Flaherty: I think some of the members will recall this: the difficulty we had reducing taxes in Ontario was our being hooked in with the federal system. We are able now with the made-in-Ontario policy to clearly define the Ontario tax cuts, and the federal government can similarly, as they reduce taxes-and we hope they'll continue to do that-clearly identify their tax cuts. It will mean a few extra lines, a few extra entries for people completing their income tax forms, but it won't mean a separate income tax form. It won't be more complicated for people to prepare and file their income taxes in the province of Ontario. It also permits us to deal with provincial tax credits from Ontario separately and directly and clearly so that there will be transparency for people. They'll be able to see which level of government is reducing taxes or not.
Mr John O'Toole (Durham): Again, Minister, I would like to convey my congratulations, not just from the people of Durham but all of Ontario really, universally actually. I do reiterate Mrs Molinari's comments, but not just the comments made specific to the kitchen table or the board table.
On page 8 you mentioned, I think, the most important message of the domestic economy and the tax cut, whether it's the direct cheque to the taxpayer or it's the relief. I wonder if you could just speak to the question. I have five children, and you know that I really speak quite genuinely from that perspective. You use it in your example here: a family of two, an income of $60,000 from two earners, will save $1,865-almost $2,000 a year in personal income tax. That's a 40% change. I just want you to address that, that the federal government could match. That's the challenge you've put out. The federal government could match that kind of tax change.
Clearly, that's what you're counting on, I think, the domestic economy being responsive to the tax cuts that we've generated over the past five years and going forward. Is that a fair assessment on my part?
Hon Mr Flaherty: Yes, I think that's a fair assessment. You hear from time to time the comment that the tax cuts are not a lot of money. Where you live and I live-in Durham region I imagine it's the same in your riding as it is in mine-I hear repeatedly from people, "Boy, an extra $1,000, an extra $1,800 after taxes in my pocket that I can use for my family, for hockey equipment and all the other demands that are on parents these days raising children, is really appreciated." In most families today both mom and dad are working outside of the home. That's probably one of the largest social changes we've seen in the last generation in Canada. Taxes are high still, despite the fact that we've been reducing them in Ontario and the federal government's finally climbing on board. I think we have to do more to let the hard-working people of Ontario, the mothers and fathers, keep more of their money so they can use it for themselves and their families, and that's what we're trying to do.
Mr O'Toole: Mr Galt has a question.
The Chair: A quick one, Mr Galt.
Mr Doug Galt (Northumberland): Thank you very much, and again, congratulations to you in your appointment. It's also really great to hear in your speech that you're on the same and the right track, coming from the Common Sense Revolution and from the Blueprint that the Premier has laid out for us.
We've often heard the opposition complain that we haven't improved in our provincial debt rating. Now we have from Standard and Poor's and also from Moody's an improvement in our rating. Could you maybe explain to us, give us more detail on what this means? Is that going to mean a better interest rate? Is it going to mean more availability? We have heard the opposition complain in the past, "Oh, with all your moves you haven't improved in the ratings." Well, lo and behold, we now have improved our rating. What does that mean to the future?
Dr Bob Christie: Perhaps I could address that. In this case, since both of the major US rating houses have given indications of a more favourable rating position for the province, the ratings are generally regarded as indications that affect both the cost at which someone borrows and also the access to markets. Some of the major lenders will have limits on how much they can invest at each rating level. Generally a rating improvement like this should have benefits in both the cost and availability of funds. Both of these were done by the major US houses. Lately most of our borrowing has been done in Canada, so the extent to which we would see that in the short term is something that we couldn't really quantify, but we would expect them to be positively received by lenders.
The Chair: With that, we're out of time. On behalf of the committee, Mr Minister, thank you very much for your presentation. I think the members weren't too harsh on you this morning.
Hon Mr Flaherty: Thanks.
The Chair: Our next presenters will be representatives from the Ministry of Finance, so if you could please come forward. Since we're running a bit late, is the Ministry of Finance ready to go?
For the record, could you state your name, please.
Dr Christie: My name is Bob Christie. I'm the deputy minister. To my immediate right is Gabriel Sékaly. Gabe is the assistant deputy minister for our fiscal and financial policy division. To Gabe's right is Gadi Mayman from the Ontario Financing Authority. To my left is Phil Howell, who is the assistant deputy minister of the office of economic policy.
The Chair: On behalf of the committee, welcome. You have 60 minutes for your presentation this morning.
Dr Christie: Thank you, Mr Chair. I am very pleased to have the opportunity to address the committee this morning. I will give you a brief overview of the province's economic and financial position and that will be followed by presentations from several of the assistant deputy ministers on their areas of expertise. Phil will talk about the economic outlook, Gabe will talk about the fiscal situation, including the third-quarter Ontario finances, and Gadi will give you an update on the province's financing plan.
The outlook for the Ontario economy, as was noted, is for a slowing of growth in 2001. No forecasters are expecting a secession of growth. I believe, as the minister noted this morning, the lowest forecast certainly that we have to date is for 2.2% growth. The third-quarter economic accounts that we've released today indicate that our real GDP grew by 1.4% in the third quarter, and for 2000 as a whole, we estimate that the economy grew by 5.5%.
As you know, the US economy's actual growth pace slowed sharply in the second half of last year. From an annualized growth rate of over 5% in the first half of 2000, US real growth slowed to 2.2% in the third quarter and 1.4% in the fourth quarter. As was noted, Ontario's economic growth in recent years has been generated mainly by domestic forces, that is, household spending, business investment etc. This is one of the reasons that forecasters are expecting our economy to remain relatively healthy.
Of course, our Ontario economy is an open economy; it's a trade-oriented economy. The US is our dominant market and exports to the US are critical to our economy. As a result, the slowing in the US, particularly in autos and capital goods, will have an impact here. The outlook down there is for the slowdown to be relatively mild and relatively short. The central banks, particularly the US federal reserve, have moved rapidly to lower interest rates. Tax cuts are helping to sustain consumer spending here, and there are strong prospects that tax cuts will be implemented soon in the US.
As I noted, the private sector forecasts are expecting somewhere between 2.2% and 3.2% real growth for Ontario in 2001. Last year inflation rose to 2.9%, due in large part to rising oil and natural gas prices. For 2001, 2.8% is the upper end of the range, and forecasters generally expect inflation to ease back to about 2.6%. With slower growth, the unemployment rate is expected to edge up from 5.7% to 5.9% in 2001. This, again, is based on what the private sector people are seeing. Job creation they expect to remain positive, but on average these forecasters expect labour force growth to be slightly faster.
The chart shows how the outlook for the Ontario economy has evolved since the May budget. Last year the economy grew substantially faster than the predictions in the budget. The result was stronger revenue growth, and Gabe will talk about that.
Last year's budget planning number and the consensus for 2001 was 3.1%. At the time, that was relative to the average of private sector forecasters of 3.2%. As we've seen today, the outlook for growth has moderated somewhat, and the average private sector forecast is now 2.8% for 2001 versus 3.1% from last May.
There are significant grounds for optimism that the Ontario economy will emerge from a brief slowdown last year in strong shape. Obviously we intend to maintain a prudent approach to economic and fiscal planning, and we'll monitor the economy closely in preparation for this year's budget.
On the budget plan itself, the balanced budget was achieved one year ahead of schedule. In each of the past five years, deficit reduction targets have been overachieved, and this year we continue to project a $1.4-billion surplus based on the third-quarter accounts, which means that Ontario is on track to record its second consecutive surplus-the first back-to-back surplus in more than half a century.
At this point, I'll turn it over to Phil to provide a presentation on the economy.
Mr Phil Howell: I'm pleased to have the opportunity to address the standing committee. Today the Ministry of Finance is releasing the third-quarter Ontario economic accounts. The accounts show that Ontario's strong economic growth continued through the summer and into the fall. However, more recently the US economy has slowed, raising concerns about Ontario's growth prospects this year.
Today I would like to provide you with some perspective on this development and provide you with an economic backdrop to assist you in your forthcoming hearings at Queen's Park and around the province.
Ontario entered 2001 on the back of four years of outstanding real gross domestic product growth performance. Over that period, growth has averaged in excess of 5% annually. While the fourth-quarter economic accounts will not be available for some time yet, available data points to continued growth. For example, Ontario employment was up by 64,000 jobs in the quarter, the best performance in two years. Manufacturing shipments were up in both October and November. Ontario department store sales were up 5.3% in the final quarter from a year earlier. The data confirmed that the 2000 economic and fiscal review estimate of 5.5% real gross domestic product growth for 2000 is on track.
Not surprisingly, the strong economic growth has been accompanied by substantial job creation. The past three years have been the best three years of job creation in Ontario's history. The unemployment rate for last year was 5.7%, the lowest annual rate in well over a decade. Adding to the significance of the total employment gains has been the composition of new jobs compared to earlier in the decade. Almost all the jobs created in recent years have been full-time positions, a development that underpins increased consumer confidence and ability to spend.
Sustained high economic growth rates require strong growth in domestic demand, that is, spending by consumers on goods and housing and by business on machinery, equipment and factories. Of course, trade is also critically important to our economic success. However, as this slide shows, growth in the first three quarters of 2000 has been driven by domestic demand. In fact, net trade, that is, exports minus imports, has subtracted from growth over this period. Slower US demand for our exports was offset by continued strong spending in Ontario on imported consumer and investment goods. In fact, this trend has been evident in recent years. Over the 1997-2000 period of exceptionally strong growth, domestic demand has accounted for almost 93% of growth. This contrasts sharply with the previous four years, when the major source of growth was net trade. Clearly, Ontario's vulnerability to developments in the US economy was much greater in the earlier period.
The next slide helps explain the remarkable turnaround. In the 1993-96 period, real consumer spending, which accounts for about 55% of total spending activity in the Ontario economy, was constrained by falling per capita real disposable income. This was the legacy of increasing personal income taxes alongside very sluggish employment growth. In the more recent period, tax cuts have stimulated growth in consumers' real disposable income, which has translated into a significantly higher consumption growth rate.
Looking forward, the rising trend for real disposable income will continue. The forecast includes the impact of federal tax cuts in 2001 as well as the cumulative impact of Ontario's tax moves. Increasing real disposable income is an important buffer against the impact of the slowing US economy in Ontario.
The third-quarter economic accounts also underscore the diversification of the Ontario economy. Over the first three quarters, growth was spread across several major sectors. Note that the auto sector has not been growing that quickly, reflecting the fact that the industry was operating at record capacity and production levels. Production in the auto sector will decline in the first half of this year as companies move to rebalance inventories in the face of lower North American demand for new cars. One of the reasons our budget and fall statement growth forecasts were significantly lower than for 2000 was our belief that auto production and sales would temporarily decline from the record levels of recent years. Of note, however, is the strength in other sectors, particularly the high-tech sector.
Growth in the high-tech sector, which includes computer manufacturing, telecommunication and electronic manufacturing, computer services and telecommunications carriers, has picked up noticeably in recent years. Although the sector still accounts for a relatively small share of Ontario's GDP-7.2% over the first three quarters of 2000-it has grown from a 4.4% share as recently as 1996. Over the past four years, growth in the high-tech sector has averaged 19.2% annually, against an economy-wide average annual growth of 5.3%. This sector will play an increasingly important role in Ontario's economy in coming years.
As the deputy noted in his earlier remarks, growth in the US slowed sharply in the second half of 2000 and, as also already noted, there will be an impact on Canada and Ontario. The extent of that impact will be influenced by the depth and duration of the US slowdown. As the slide indicates, most private sector forecasters expect the US economy to pick up steam as 2001 unfolds. A similar bounce-back is expected in Canada. Prompt action to reduce interest rates by the US Federal Reserve underpins forecaster expectations that the recent very slow growth will be temporary.
Declining North American auto production in the face of the much slower US demand has been a major contributor to slower US growth. Canadian production, depicted on the slide, is expected to slow from the very high record levels of production in 1999-2000. As noted earlier, reduced production volumes in Ontario in 2001 are a significant factor in the slower growth forecast. However, while moving Ontario GDP growth to a lower rate than the experience of recent years, the slowdown in auto production and related manufacturing industries does not appear sufficient to derail Ontario's economy.
In the next few slides, I will look at a number of factors which will contain the negative impact of the US slowdown on Canada and Ontario. In particular, I will draw attention to the differences with the situation that prevailed during the early 1990s.
Ontario's manufacturers continue to be much more competitive, relative to their American counterparts, than was the case in the early 1990s. With the Canadian dollar trading in the 65- to 67-cent range against the American currency, Ontario producers are well positioned to take advantage of the pickup in US growth expected later this year. Ontario's cost advantage also keeps Ontario an attractive location for investment by companies interested in the North American market.
Another important consideration in assessing the current North American economic situation is the fiscal position of governments. Unlike the first half of the 1990s, governments on both sides of the border are in strikingly improved fiscal positions. This has enabled governments to lower taxes and provide stimulus to both consumer and business spending.
The capacity of consumers in both Canada and Ontario to take advantage of the fiscal stimulus is also greater today than was the case earlier in the 1990s. Rising personal disposable incomes triggered by personal tax cuts, combined with lower interest rates, have increased the ability of Canadian consumers to service their debt. The slide shows the downward trend in household debt servicing costs over the past decade.
Businesses too have improved their balance sheets over the 1990s. Corporate debt-to-equity ratios have declined significantly as illustrated in the slide. Reduced reliance on debt increases companies' flexibility to manage cyclical fluctuations in demand for their products.
Perhaps the most significant difference in today's economic environment compared to 10 years ago is the inflationary situation. In Ontario, Canada and the United States, inflation rates are not only less than half what they were in 1990, but the levels are also very low. While energy price increases pushed up inflation rates last year in all three jurisdictions, forecasters predict inflationary pressures from that quarter have peaked. As well, the slowdown in the US economy has reduced the inflationary risk facing the US when it was operating at full capacity in 1999 and early 2000.
The benign inflation outlook makes it much easier for monetary authorities in both Canada and the US to respond to cyclically slower growth. The decisive 100-basis-point reduction in the funds rate by the US Federal Reserve in January and a smaller move by the Bank of Canada to cut the bank rate are reflected in the decline in interest rates shown in the slide.
Consumer confidence remains near peak levels. The January increase in Ontario employment and the increase in January housing starts suggest consumer confidence remains reasonably strong. The more volatile business confidence indicator has declined recently, although sharper moves in that indicator are typical, as the chart illustrates. However, the business confidence index is still at a level consistent with expansion.
Ontario real GDP growth will be slower in 2001 than last year. Almost all private sector forecasters of the Ontario economy have recently completed forecasts. The average real growth outlook is 2.8%. This is slightly lower than we anticipated in last year's budget, primarily because of a sharper than expected slowing in the US economy. However, no one is expecting a recession in Ontario and most expect the US slowdown to be short-lived. As I have indicated in my remarks, the economic fundamentals in Ontario are sound. The economy is competitive, inflation is low, real disposable incomes are rising and balance sheets are in good shape. Against this backdrop, Ontario should be able to weather the temporary slowdown in the United States and post another year of real GDP growth in 2001.
Mr Gabriel Sékaly: Good morning. It's a pleasure to be here in front of the committee. It's my first appearance. I'm pleased to provide the committee with an update on the province's fiscal situation. As well, we have released today the third-quarter Ontario finances.
The first slide, as mentioned by the minister and the deputy minister, illustrates the government's achievements in terms of a balanced budget one year ahead of schedule. When the government took office in June 1995, the province was spending approximately $1 million more per hour than it was collecting in revenue. In November 1995, the government introduced a balanced budget plan with declining annual deficits culminating in a balanced budget in 2000-01. In each of the past five years the deficit reduction targets, as shown in this graph, have been overachieved. With a $668-million surplus in 1999-2000, the province's budget was balanced one year ahead of schedule. With a 2000-01 surplus projected at $1.4 billion, based on third-quarter results, Ontario is on track to its second consecutive budget surplus, the first back-to-back surpluses since World War II.
The next slide illustrates our performance in terms of the third quarter. We have improvements in revenue outlook and strong economic performance in 2000-01. The surplus is currently projected at $1.4 billion. This is up slightly, by about $45 million, from the second-quarter results. The $1.4-billion improvement in the 2000-01 surplus is mainly due to increased revenue of $2.2 billion and the elimination of the $1-billion reserve and partially offset by a $1.5-billion increase in expenditure and an additional $300-million charge for the net impact of electricity restructuring to be recovered from ratepayers, not taxpayers. Revenue increased by $2.2 billion, mainly due to a $1.6-billion increase in tax revenue from personal income tax, employer health tax and retail sales tax collections. Total expenditure is up $1.5 billion, mainly due to two things: (1) accounting changes introduced in the 1999-2000 public accounts, which accounted for more than 50% of the in-year change from budget and increased total expenditures by $746 million in 2000-01; and (2) about a $700-million net increase for priority investments, including almost half a billion dollars for a comprehensive hospital strategy and emergency health services and $165 million for provincial financial support for municipal transition costs.
The next slide shows a summary of revenue changes. Total revenue is projected at $64.218 billion, up $2.158 billion from the 2000 Ontario budget plan and $165 million above the second-quarter Ontario finances. Major changes this quarter and since budget include personal income tax revenue up $150 million this quarter and $1.35 billion since budget, due to the pace of employment and income growth in the province. Retail sales tax is unchanged this quarter but up $200 million since the budget, as a result of growth in consumer and business spending. Employer health tax is unchanged this quarter but is up about $60 million since the budget, due to the pace of income and employment growth. Income from government enterprises is unchanged this quarter but up $175 million since the budget plan, primarily due to the performance of slot machines at racetracks, as reported in the second-quarter Ontario finances. Government of Canada revenue is up $9 million this quarter and since budget, due to reimbursements under the federal Firearms Act. Other revenue is up $6 million this quarter, due to policing contracts and increased sales and rentals to reflect the transfer of industrial parks from the Ontario Development Corp to Management Board Secretariat. Since budget, other revenue is up $364 million, primarily reflecting the consolidation of the Independent Electricity Market Operator as a government organization.
The next slide shows a summary of the expenditure changes. Net operating expenditures, at $60.325 billion, are up $1.34 billion from the budget plan and up $117 million from the second-quarter Ontario finances. Major changes this quarter include: $165 million in the Ministry of Municipal Affairs and Housing for transitional funding to Hamilton, Ottawa, Haldimand-Norfolk and greater Sudbury, partially offset from the contingency fund; $123 million in the Ministry of Community and Social Services to address higher volume and transitional costs in the child welfare services program, fully offset from the contingency fund; a reduction of $50 million in the Ministry of Energy, Science and Technology due to reprofiling into future years of the funding to establish the Ontario Cancer Research Network; and an increase of $7 million in the Ministry of the Solicitor General for the chief firearms office for the licensing component of the federal Firearms Act, fully offset by federal transfers; and also an additional $1 million for OPP municipal policing services contracts for the towns of Arnprior, Renfrew and Kingsville, also offset by revenue.
Other major changes reported since the budget include $398 million for the Ministry of Health and Long-Term Care for the hospitals comprehensive strategy to support extensive modernization of hospital services, and $100 million to improve access to emergency health services and to implement the flu vaccination program; $138 million for the public service pension plan for various benefit improvements and a contribution holiday similar to changes in the OPSEU pension plan; and $98 million in the Ministry of Education to implement a reduction in average class size in secondary schools to 21 students.
In terms of the accounting changes which were reported in the second quarter, there's an increase of $238 million for the Ministry of Energy, Science and Technology for the Independent Electricity Market Operator. This increase reflects the operating component for the consolidation of the IMO as a government organization consistent with the treatment in the 1999-2000 public accounts, a $275-million increase in the Ministry of Finance for a provision for the electricity sector. This additional expenditure is consistent with the principles of electricity restructuring. The amount is equal to the net income of Ontario Power Generation Inc and Hydro One Inc in excess of the province's interest expenditure on its investment in the electricity sector, consistent with the treatment in the 1999-2000 public accounts. There is $48 million for the Ministry of Tourism for the Metro Toronto Convention Centre as a result of the consolidation of the Metro Toronto Convention Centre as a government organization. This is a change in classification consistent, again, with the treatment in the 1999-2000 public accounts.
The next slide shows a summary of capital expenditure changes. Capital expenditure, at $2.212 billion, is up $137 million from the budget plan and up $3 million from the second-quarter Ontario finances. Major changes this quarter include an expenditure increase of $18 million for the Ministry of Northern Development and Mines as a result of the transfer of funds from the Ministry of Transportation for the highway rehabilitation projects in northern Ontario, and a corresponding decrease in the Ministry of Transportation.
Accounting changes from the second quarter include $140 million under the Ministry of Energy, Science and Technology for the Independent Electricity Market Operator. This is the capital component of the consolidation of IMO as a government organization, again consistent with the treatment in the 1999-2000 public accounts.
SuperBuild capital investment, as I just mentioned, will total more than $2.2 billion this fiscal year. There are three SuperBuild partnership initiatives that were announced in the 2000 budget. The first is the SuperBuild millennium partnerships, which will invest $1 billion over five years to support strategic infrastructure projects for Ontario's large urban centres; the sports, culture and tourism partnerships, which will invest $300 million over five years to rebuild and enhance sports, cultural and tourism facilities across Ontario and expand major cultural and tourist attractions; and the small-town and rural development initiative, which will invest $460 million over five years to improve the quality of infrastructure in Ontario's agricultural and rural areas and small towns and cities. This includes the $240 million committed for public health and safety projects in round 1 of OSTAR. The province, as well, will invest $1 billion in Ontario's highways, the largest amount invested in one fiscal year. In 2000-01, there will be an investment of $291 million to modernize and support Ontario's hospitals and health care facilities, as well as $220 million to modernize and expand our jails and court facilities.
The next couple of slides deal with the fiscal impact of Ontario Hydro restructuring. As you all know, on April 1, 1999, the electricity industry in Ontario was restructured. Ontario Hydro was continued as the Ontario Electricity Financial Corp, OEFC, which is responsible for managing and retiring liabilities not transferred to the other successor corporations. The other successor corporations include Ontario Power Generation, Hydro One, the Independent Electricity Market Operator and the Electrical Safety Authority.
The respective business units of Ontario Hydro were transferred to OPG, Hydro One and the IMO in exchange for debt payable to the OEFC of $17.2 billion. The province then exchanged equity of $8.885 billion in OPG and Hydro One for debt owing to the OEFC. The province's cost of this investment is approximately $520 million of interest annually and is reflected as an expenditure in the public accounts.
OPG and Hydro One are consolidated in the public accounts as business enterprises. Income earned from these two entities is included in the provincial surplus and income from investment in government enterprises. However, pursuant to the government's commitment to keep electricity income in the electricity sector, directing it toward the reduction of electricity sector debt, income earned in Hydro One and OPG in excess of the province's cost of its investment, that is, the $520 million, is allocated to the OEFC. This is referred to in the accounts as the "provision for electricity sector" and represents expenditure in the public accounts and revenue in the OEFC. As a result, there is no impact on the provincial surplus resulting from these transactions.
The net impact of electricity restructuring to the provincial surplus is reflected through the operating results of OEFC. OEFC is defined as a service organization. As the government has developed a long-term plan to retire the OEFC's obligations wholly through the ratepayer and not the taxpayer, the impact of the OEFC operations is separated from other government activities in the public accounts. A separate one-line disclosure is provided of OEFC's net income, which is included in the provincial surplus. There is also a separate disclosure provided to the opening and closing balances of the OEFC's unfunded liability which is not included in net provincial debt. Once again, these balances are referred to as being recovered from the ratepayer, to recognize the fact that ratepayers and not taxpayers are responsible for the stranded debt of the former Ontario Hydro.
The OEFC's obligations will be repaid from the following sources: notes receivable from the province, OPG, Hydro One and the IMO resulting from the restructuring transaction; payments in lieu of corporate income, property and capital taxes made by OPG, Hydro One, municipal electrical utilities and local distribution companies-these revenue streams are dedicated to the OEFC and cannot be available to the taxpayer; a debt retirement charge to be paid by ratepayers based on the consumption of electricity; and the provision for the electricity sector.
The government, in consultation with the Provincial Auditor, hired an independent accounting firm to review the assumptions and the consistency of the OEFC debt recovery plan. Based on the conservative estimates used in the preparation of the plan and the work performed by the accounting firm, the province anticipates that OEFC's obligations will be defeased in the years ranging from 2010 to 2017.
In assessing the impact of restructuring on the province's fiscal outlook in 1999, the credit rating agencies provided further independent support of the OEFC debt recovery plan. The Dominion Bond Rating Service stated, "DBRS believes that the stranded debt of the former Ontario Hydro can be fully retired without access to the Ontario taxpayer and therefore is not including the Ontario Hydro stranded debt in its calculation of tax-supported debt."
The next slide shows program spending as a share of the economy. The government's commitment to controlling spending is demonstrated by significant reductions in program spending, which excludes capital and public debt interest, as a percentage of GDP. A weak economy and rapidly increasing spending pushed program spending as a percentage of GDP up to 15.9% in 1992-93. Program spending is projected to decline to 11.9% of GDP in 2000-01 as a result of the focus on funding priority areas such as health care and education, on finding improvements in efficiency of government services and on prudently managing the government's resources.
After rising for many years, net provincial debt as a percentage of provincial GDP has been on a downward trend since 1996-97. Net provincial debt has declined from 32.4% in 1996-97 to an estimated 26.3% in 2000-01. Based on the third-quarter surplus outlook, net provincial debt has been reduced by $2.7 billion since 1998-99, from $114.7 billion to $112 billion in 2000-01. This is more than halfway toward meeting the government's net provincial debt reduction commitment of at least $5 billion in this mandate.
Now I would like to turn it over to Gadi Mayman.
Mr Gadi Mayman: Good morning. As with Gabe, this is my first opportunity to address the committee, so please forgive me if I seem a little nervous. Many of you know my predecessor, Tony Salerno, who retired last summer after 27 years of service with the public service of Ontario. I will try to take his place and hopefully be as informative to the committee as he has been in past years.
I am pleased to provide the committee with an update on the province's borrowing and debt management program. With a surplus of $1.4 billion forecast for this fiscal year, refinancing maturing debt of just over $8 billion has been the focus of Ontario's 2000-01 borrowing program. As of the third quarter, total public long-term borrowing is forecast at $8.6 billion. As of December 31, 2000, the province had completed nearly $7.5 billion of this $8.6 billion. Since the end of that quarter, in the first month and a half of 2001, we've issued an additional $659 million in long-term public financing, which leaves us with about $400 million to borrow for this fiscal year.
The province's issues continue to be well received by investors despite uncertain sentiment in both domestic and international capital markets. I'd like to describe to the committee how we've approached the financial markets so far this fiscal year.
The OFA takes a flexible and pragmatic approach to borrowing. Flexibility allows the OFA to take advantage of cost-effective financing opportunities, which is particularly important during periods of financial market volatility. A number of factors are taken into consideration. We monitor international and domestic capital markets closely to ensure the optimal timing of the launching of our bond issues. While the Canadian dollar market continues to be the primary source of financing for the province's long-term borrowing, we will borrow in any major capital market where it is cost-effective for the province to do so. We aim for a smooth debt maturity profile to diversify the interest rate risk for the refinancing of maturing debt and floating rate debt. We also structure our debt products to meet the needs of investors and to meet our borrowing requirements in a very cost-effective manner.
The Canadian market continues to be the most favourable source of funding for the province. As of today, almost 90% of our public borrowing this year was raised in the Canadian dollar market.
This slide will show you the breakdown of where we borrowed the money. As you can see, $7.1 billion has been borrowed in the Canadian domestic market-$3.4 billion from Ontario savings bonds and $3.8 billion from a variety of different Canadian dollar issues. We've also borrowed $611 million from the Canada pension plan. This is refinancing of debt that had matured. And we've had two foreign issues: $621 million, Canadian equivalent in US dollars, and $352 million in Japanese yen. Both of those opportunities were cost-effective relative to Canadian dollar cost.
In addition to the borrowing and redemptions shown in the table, the province has bought back $844 million of previously issued debt this year, financing the purchases with debt of similar term at more favourable rates.
The OFA's mandate is to manage the province's debt and liquid reserves prudently and cost-effectively. We prepare annual financing and debt-management plans. Key factors that are taken into consideration include economic assumptions, interest rate forecasts, foreign exchange forecasts, target ranges for floating interest rate and foreign exchange exposures and contingency plans for forecast errors. We strive to be at the forefront of debt portfolio performance measurement. The cost-effectiveness of borrowing, debt management and investment activities are measured daily against benchmarks approved by the OFA's board of directors. This ensures management is aware of financial market volatility and obtains the necessary background intelligence to take immediate action. As you can see from the slide, we are well within our exposure limits for both foreign exchange and interest rate exposure.
As you know, the government's goal is to more than double its promised $2-billion reduction in net provincial debt to at least $5 billion during its current mandate. With the commitment to balanced budgets and debt reduction, the OFA will be funding primarily for refinancing maturing debt.
Rating agencies have recently recognized Ontario's fiscal and economic developments and achievements. Just last week, on February 9, Moody's changed the outlook of Ontario's AA3 rating to positive. This is the first positive rating development for the province by Moody's since 1974. On January 29, S&P upgraded the province's long-term debt rating to AA from AA-. This is the first upgrade for the province by S&P in 13 years and marks the first time since 1993 that Ontario has been rated AA. S&P now ranks Ontario as the second-highest-rated province in Canada after Alberta.
These upgrades come on the heels of a number of recent positive rating developments for the province. Following their analysis of the 2000 spring budget, both S&P and the Dominion Bond Rating Service put their respective ratings for the province on positive outlook. This was also the second consecutive rating improvement by DBRS following their 1999 upgrade of Ontario to AA(low).
Ontario's current ratings are as follows: with S&P we are AA, with Moody's we are AA3 with a positive outlook and with the Dominion Bond Rating Service we are AA(low) with a positive outlook.
Thank you very much.
The Chair: That completes your presentation? Thank you. That gives us 20 minutes per caucus.
Mr Christopherson: Bob, congratulations on your promotion too. I wish you well.
Just a few questions, actually. It was originally our understanding that the edict came down from the previous minister that there were going to be more cuts to line ministries, with the exception of health and education. Is that alert still out there, and at this point what is the figure that has been given to the ministries?
Dr Christie: I'm not sure of the specific reference, Mr Christopherson, but I'm sure many of you are aware that the ministries are now in the process of going through the business planning exercise in terms of looking at requirements and having them reviewed in terms of what is feasible this year. I think the government has always been very clear that they would look at everything that's being done in order to try and find better ways of spending and to try and find efficiencies. That process is continuing and it has continued through the business planning side.
Mr Christopherson: I just want to press that a little further, Bob. I was looking for three things: one was, has there been a direction to ministries to cut their planned budgets; second, how much; and third, are health and education still excluded from that?
Dr Christie: I'm not aware of any such message. All ministries have been asked to be careful, to be prudent, to be vigilant in what they're doing in terms of business planning, but there have not been, to my knowledge at least, specific numbers attached to any of that.
Mr Christopherson: Do I take it from that, then, that we won't see any in-year cuts to line ministries?
Dr Christie: I can't give you an undertaking with respect to the future, but at the moment, as I say, we're going through the process of planning for the next fiscal year.
Mr Christopherson: Just another question, unrelated to that. The $200 tax rebate, the public bribe that was offered up, do you have a total cost on that yet, on what that was in total for the number of the cheques, the mailing, everything, all of it, the entire cost of that process?
Dr Christie: I believe that was projected in the budget at $1 billion.
Mr Christopherson: That was the projection. I was just wondering if the actuals are in.
Dr Christie: No, we don't have that. We should have an interim on that by the time of the budget.
Mr Christopherson: But you don't have anything yet.
The savings rate-I raised this at the last go-round and we were at historically low levels of savings rates in Ontario. Is that continuing? I had to leave the room for a few moments so I apologize if that was presented earlier.
Dr Christie: I'll give that to our chief economist.
Mr Howell: In the accounts that were released today, the third-quarter personal savings rate is at 5.1%-still positive, certainly far higher than personal savings rates in the US. That has been tracking in the 5% to 7% range for the last couple of years.
Mr Christopherson: Sorry, what page is that on?
Mr Howell: The economic accounts were released today. I'm not sure if they've been distributed yet to the committee. They should be on page 24.
Mr Christopherson: That's a dramatic decline.
Mr Howell: It's a lower savings rate, yes. Consumption has been quite strong in Ontario in the past year.
Mr Christopherson: The reason I raise it, and I raised it again last time around: if we just take a look, in the first quarter we were at 6% and now we're down to 5.1%. What this tells us is that at a time when we're seeing thousands of pink slips being handed out, there are a lot of families that are in no position to be able to withstand a loss of income, in part because of the personal debt load they're carrying. Is this not a concern for folks at the ministry? Are you raising this as a concern internally and externally, saying, "Hey, folks, we could see a whole lot of folks hitting the financial concrete if the bottom falls out"?
Mr Howell: First of all, the savings rate is an aggregate number for the economy as a whole, so it's not obviously applicable to every individual's circumstance and I don't think it can really be used in that fashion. Of course we're always monitoring what's happening to consumers' abilities to finance their debt. We'd be very worried if we were in a situation now where debt servicing costs were rising toward previous peak levels, but they're not. They're significantly below that. Furthermore, with tax cuts that have kicked in as of January 1 at the federal level, disposable incomes will be going up, giving a further cushion to individuals as we move forward.
Mr Christopherson: I appreciate that it's an aggregate, but those aggregates are made up of individual numbers, those numbers happen to be families, and it's just a growing concern that that number continues to get smaller and smaller, putting people closer and closer to the edge. Everything is fine as long as you're still working, if you're one of those lucky enough to make decent wages and don't have to rely on a Tory minimum wage. If you're making a decent wage you can keep things going, but the second that falls out from under you, there's a real concern. I see the Tories laughing; I don't know why they think it's funny when I'm talking about thousands of people who have been laid off in your government in Ontario and face this reality.
I want to ask you about the tax cuts. Can you give me the figure for this year in terms of the full cost of the tax cuts announced in the last budget? And what are the ones that are projected and how much are they going to cost us? Because this is revenue money we've lost.
Dr Christie: I'm looking at the 2000 budget in terms of addressing this, page 115 of the budget papers, which indicates $1.8 billion in the fiscal year 2000-01 and a full-year benefit to taxpayers of $5.2 billion, although I would note that that full-year benefit is a mixture of some one-time moves, like the rebate, which obviously don't recur every year.
Mr Christopherson: So the $5.2 billion would be fiscal 2001-02. What is it with-
Dr Christie: Excuse me, a number of the tax changes in the 2000 budget were to be fully implemented over a number of years.
Mr Christopherson: Oh, I see.
Dr Christie: So the full-year number is what it would be if each and every move were fully implemented.
Mr Christopherson: What year are you using as your final year, then?
Dr Christie: It depends, because there's no uniform year for ending, so it will vary. It's different years.
Mr Christopherson: I see. But you are using a figure of $5.2 billion even though there are some one-offs in there.
Dr Christie: That's what the budget papers showed last year as the full-year benefit of those.
Mr Christopherson: Bearing in mind that the government's decided that it's OK to give away $5.2 billion, if we continue down this road of layoffs, where is that first going to show itself in the finances of the province?
Dr Christie: We're not seeing signs of such things yet, and we monitor all of our tax sources on a regular basis. I'll have Phil correct me if I'm wrong here, but to date what we're seeing through the monthly revenue flows has been pretty much as expected. If there were to be some deviation from expectation, how it would manifest itself would be essentially dependent on what the composition of the change was.
Mr Christopherson: I guess that's exactly where I was going. I appreciate your saying that so far things are as expected, but then "as expected" as short a time ago as last December, I think December 4, was a 5.5% increase in growth, and already now, less than three months later, we're into 3.3%, with Scotiabank at about 2.8%. So we've already seen some reduction in the projected growth numbers. Just in that alone, where is that going to show itself in terms of loss of revenue? Is it going to be through the sales tax primarily? Will it be through income tax primarily?
Dr Christie: I think those numbers actually are for different years. I believe the 5.5% is for 2000 and the 2.8% to 3% is for 2001. So they are for different years; the forecast has not changed from 5.5%. The forecasts are for continued growth, so what our expectation would be in that case is that-again, depending on the composition of the slower growth, which sectors are growing more slowly than others etc, that would depend on-that would affect which revenue sources we would see not growing as rapidly as they had perhaps in previous years. But, as was indicated, all the forecasts that we're looking at, all the forecasts that the private sector people are sharing with us, are calling for continued growth. I think we would anticipate that continued growth in the economy will translate into continued growth.
Mr Christopherson: Is that assurance of continued growth predicated on the American economy staying about where it is, or are you factoring in a worst-case scenario or a rosy scenario, that things are suddenly going to turn around? That seems to be the trigger here. The US economy is in large part going to decide this for us, so what are you basing that on in terms of your projections for the US economy?
Dr Christie: Again, one of the reasons the private sector forecasts I was referring to have been reduced, that this consensus, this average of the forecasts has been reduced by several tenths of a per cent over the last couple of months has been that forecasters in the US have been looking for a slower first quarter, first half in the States, and that has been reflected up here in reductions to the forecasted growth.
Mr Christopherson: But my sense is that they are continuing to re-evaluate their numbers as things go along. We certainly hear a lot of published accounts of economists who are saying, "I expected it to slow down. I didn't expect it to immediately halt or to go in the ditch." I'm just trying to get a sense of how much of what you've projected is no longer really what's happening, and by "you" I mean the private sector too; I'm not saying your department specifically. But how much of what you're telling us today is predicated on the original idea of a bit of a slowdown in the US versus the dramatic grinding that we are seeing and that is causing the American economists to continually re-evaluate their numbers? I'm trying to get a sense of that shifting sand underneath us.
Dr Christie: I'll ask Phil to comment in more detail on this, but as I think was noted a little earlier in some of Phil's comments, we do see a different situation here in Canada. I think Mr Martin was talking to some people in New York several weeks ago, and he spent some time talking about how different the situation in Canada is today than it was several years ago in terms of our ability to respond to a slowdown in the US in terms of the level of the dollar, the level of interest rates, the level of inflation, the level of government debt and deficits, all of which are fundamentally different today than they were 10 years ago. For that reason, I think in looking at the US slowdown, it doesn't translate dollar for dollar into Canada for these forecasters.
I'll ask Phil to answer your question.
Mr Howell: With respect to the forecasts, the 2.8% is very up-to-date. In fact, that average does include forecasts that may not even be publicly released; they may be coming out this week from the TD Bank and Scotiabank. As you indicate, both their chief economists have indicated in published remarks last week that they are lowering their forecasts. That's already included in this 2.8%.
In terms of where the economy is headed, the general expectation is that the speed with which central banks have reacted to the slowdown, particularly in the States, will provide the stimulus for a significant bounce back in the second half. We showed that slide earlier, and obviously we'll benefit. For the reasons Bob was mentioning and that were mentioned in earlier remarks, Canada and Ontario are in a pretty good position to bridge that period without too much damage from the slowdown in the States. I would never base any outlook on one day's or one month's data, but the US retail sales numbers for January were released this morning and they were stronger than had been anticipated. Perhaps most significant is excluding auto sales-everyone has been focused on autos and expecting that autos would hold down the total number, but excluding auto sales, US retail sales in January were twice as strong as the consensus forecast.
Mr Christopherson: But auto sales is the key one for us in large part.
Mr Howell: Yes, and for the month auto sales were up as well.
The Chair: Mr Christopherson, we're out of time. It's government time.
Mr O'Toole: I know there are other members of the committee who will be making comments. First, I just want to reiterate that our finances and the reports have been generally optimistic. I know the minister plays an important role, but more importantly, the staff plays an important role, so publicly on the record, thank you for that and for your patience with we who don't work with the numbers every single day as you do.
I want to make a couple of comments and you can, in your general summation or response, react accordingly. None of this, of course, is scripted, as some might suspect-
Mr Christopherson: As he looks at his notes.
Mr O'Toole: They're my own notes, Mr Christopherson. I would say the one thing that does concern me is the whole OEFC, the refinancing of that and how the debt is carried. I'd be interested in your response with respect to what our auditor, Mr Peters, would think of how that's displayed and carried in the public accounts.
I have a lot of courage, though, in hearing the minister and watching what I see before me. Despite what Mr Christopherson says, the net result has been an improvement in the number of jobs and it's the changing in the sectors. So I want to focus my questions specifically on the remarks the minister made and you can respond accordingly, however that works.
The focus has been to stabilize and minimize the impact as being dependent on exports so the growth in domestic consumer confidence, and you can respond to that in a general sense or a specific sense, but I think I read the same information as you read-and I'm very interested in the financial issues-that the economic forecasts are basically for mild and slower growth in a short term. I think everything I see in the longer term is forecasted to bump up in the last quarter of 2001. I think it's prudent and I'm confident that domestic sustainability is part of the equation. With that, I would just ask you to respond.
I think the only thing that I see in the general account information that's provided is the decline in personal debt as a percentage of the whole GDP picture. That's an interesting part, too. It shows that there is increased revenue. It shows that personal disposable income is up. So I think I want you to comment on the strength of the domestic economy, Bob.
Dr Christie: Thank you for your remarks. With respect to the Ontario Electricity Financial Corp and the way it's shown in the accounts, we have had, through the late summer and early fall, extensive discussions with the Office of the Provincial Auditor on how to deal with this in our books. It is somewhat of an unusual situation. I don't think we've seen quite this kind of restructuring happen in the United States or in other parts of Canada, so the process of working through how to display this in our books versus in the books of the OEFC was one that was not straightforward. We had to work very closely with the Office of the Provincial Auditor.
The display that you see and the way it's set up is as a result of the discussions with Mr Peters. I think it may be that there's a better way to present it and, if so, I'm sure that both we and the auditor would be very interested in finding a better and clearer way of presenting these matters. It's inherently complicated. We have certainly tried-and I know the auditor's office has been tremendously helpful in those attempts-to put it forward as clearly as we could so that people could see how this was working, because it is inherently complicated. We understand that it can sometimes be difficult to see what's happening with all these numbers and where the money is going, but the assistance we got from Mr Peters and his office was terrific and we very much appreciated it. We're working very closely with him on this matter.
With respect to consumer confidence in the domestic economy, Phil, maybe I could ask you to make a few comments on that.
Mr Howell: The issue around consumer debt and ability to service debt I think is very important and reflects that the consumer sector is on the right track to move forward and grow. The reasons why there is increased capacity to service debt by the consumers I think are pretty straightforward. Certainly tax cuts have played a big part in that by increasing disposable income, but there is more to it. We're in an environment now where inflation is low, and expectations are it's going to stay low. That gives people confidence when they're planning, especially big-ticket decisions and financing them.
We're in a situation where employment levels are far higher now. There are far more people working than was the case a few years ago, and prospects are for continued employment growth. In Ontario, while the headlines focused on the flat growth in January in Canada, employment in Ontario was up 16,000 jobs, and all of those full time; in fact, more than 16,000 full time. There was a decline in some part-time jobs, to get the 16,000 number. Those sorts of conditions all help to build consumer confidence. In fact, one of the charts that I showed did show that consumer confidence is at very high levels and remains there.
Mr O'Toole: I'm going to share my remaining time.
Mr Ted Arnott (Waterloo-Wellington): Thank you, gentlemen, for helping us with these numbers. I look forward to working with you in the year ahead.
It's long been my view that the provincial government needs to place a greater emphasis on the need to retire its outstanding net provincial debt, and you've indicated that currently our debt stands at $112 billion, that we have reduced it by, I think you said, $2.7 billion this year, and certainly the Treasurer's statement backs that up.
When I look at your fiscal summary, the third-quarter slide that you presented here, I see the actual surplus in the last fiscal year, 1999-2000, at $668 million. This year's projected surplus is $1.4 billion. I add those two numbers together and that gives me just over $2 billion, yet you say that the debt has been reduced by $2.7 billion. Can you help me reconcile these two numbers?
Mr Sékaly: Yes. The line which is called the net impact from electricity restructuring doesn't impact on net provincial debt, so you have to take that out of the equation. For example, in 1999-2000, the amount that the net provincial debt went down by was $1.22 billion, which is the $668 million, and you have to add back in the-I think it's $354 million. Similarly, in 2000-01, the projected surplus right now is $1.411 billion. That includes a $270-million expense as a result of the electricity impact. You have to back that out of it, so $1.681 billion is the impact on the net provincial debt, for a total over two years of $2.703 billion.
Mr Arnott: You smiled. Was it a dumb question?
Mr Sékaly: No, it was not, not at all. It is a confusing concept as we moved into this as a result of our discussions with the Provincial Auditor, where we've tried, as much as possible, to provide the information and yet make sure the numbers go into the right place. If you look at the financial statements in terms of our presentation, there as well we have broken out net provincial debt from the unfunded liability as a result of the electricity restructuring. So part of the income statement number goes to the net provincial debt and the other part goes to the OEFB unfunded liability.
Mr Arnott: When you look at the debt-to-GDP ratio going down to the extent that it has, that's a very positive thing. I think reducing the net debt by $2.7 billion is a very positive thing as well, but we are committed over the course of this term to reducing our debt by $5 billion. If you assume that this coming year is going to be a difficult year economically-and I think we would all accept that we're not going to experience 6% growth like we had last year-it is going to be a considerable challenge to meet that commitment of a $5-billion reduction in debt over the next two years. We're at $2.7 billion; we're seeking to meet $5 billion. Would you agree it's going to be a considerable challenge over the next two years?
Mr Sékaly: As we've done over the last number of years, we've always planned prudently and used prudent assumptions in terms of growth, as well as prudently on the expenditure side. We have a $1-billion reserve built in that we had this year to deal with an unforeseen economic situation. The reserve will be there in the coming years. If the reserve is not needed to deal with an unforeseen economic situation, it is applied directly to reduce the net provincial debt. So we do build in contingencies and reserves to deal with exactly these kinds of situations.
Mr Arnott: One last question: the Treasurer's statement indicated that the promise of debt reduction over the medium term was something that Moody's found a very favourable thing in terms of our credit rating. Would you agree that a long-term debt retirement plan or commitment on the part of the government would be something that would impress the rating agencies such that it would have a positive impact on our credit rating and lower interest rates for the provincial government?
Dr Christie: Perhaps Gadi, who deals with the rating agencies most frequently, would comment.
Mr Mayman: Yes, Mr Arnott. That was actually one of the reasons it's taken as long as it has for both Moody's and S&P to move to upgrade our ratings. While they were pleased with the progress we were making in achieving the targets that were laid out in both the Common Sense Revolution and the Blueprint, they were concerned that the level of debt and the level of debt as a percentage of GDP was still too high. Certainly in the discussions we had with Moody's and S&P in December, before they made their decisions in the past few weeks, that was an item that they did mention, and they are looking for further progress as we move forward.
The Chair: Mr Galt, you have approximately five minutes.
Mr Galt: Thank you for the presentation. We did hear from the member of the third party, Mr Christopherson, and his gloom and doom about where we're at with pink slips, when in fact, Mr Chair, as has mentioned, we have some 16,000 net new jobs just in the month of January alone, moving our unemployment rate in Ontario from 6% down to 5.7%; compared to drawing in all of Canada, only 700 net new jobs, and the national jobless rate rising from 6.8% to 6.9%. It's important to realize that Ontario is still moving ahead very significantly.
The question I have is to Mr Sékaly. On the chart you provided for us, you're showing down here where, once upon a time, going back to 1995, we thought we would end up. We've had a fair amount of criticism from the opposition about adding to the debt, and, yes, that was planned, but it was much better than we had predicted. Can you tell me how much better off we are with the debt now than what was predicted in 1995, the total better picture for the people of Ontario?
Mr Sékaly: In terms of the impact on net provincial debt-actually it's a very interesting question. I hadn't added it up.
Mr Galt: I can add up the figures, but I never know in financial terms whether that comes out to what the net savings are.
Mr Sékaly: Yes, the differences in each of those years between the targets and the actuals would be the betterment in terms of our net provincial debt position, because our net provincial debt is basically the accumulated surpluses, deficits over the years so the difference between-
Mr Galt: Simplistically, just add up those differences and that's really the right answer.
Mr Sékaly: That's correct, yes.
Mr Galt: The other quick one that I have is I'm hearing a lot about the short duration of the downturn. We heard this in the fall of 1989 and the spring of 1990, "Don't worry about it. Leave your money invested in the stocks," and all the rest of those good things and then all of a sudden we just plummeted into a disastrous situation. We're hearing the same comments again. Why are we or you people so confident things are going to turn around very quickly in the US and that our downturn will be very minimal? Can you give me a good feeling of confidence about why we're feeling good about the future direction when in 1990 I was hearing the same sort of story; however, it didn't turn out to be the way we wanted it or hoped it would be?
Mr Sékaly: I think Phil-
Dr Christie: Phil would be good to answer.
Mr Howell: I guess the real difference is the big picture, the circumstances that prevail. Back in both the 1981-82 recession and in 1990, inflation was much higher than it is, interest rates were higher and taxes were rising. You had an environment-and this applies as well to the US; it's not only the case compared to here-in which central banks were not really able, because of the inflation outlook, to respond aggressively by lowering interest rates when signs of the slowdown came. I think what's really being missed in all of the headlines and so on-and the stories, you're right, the papers are full of these kinds of stories-has been a cool appraisal of the different circumstances between the two periods.
Similarly, issues like energy price increases: why haven't they had as big an impact this time as they did earlier? Basically because we've had rising personal disposable incomes. The previous energy shocks in the 1970s, 1980s and 1990s, that everybody looked back to in terms of trying to explain what was going to happen when oil prices went up in the past year and a half, were completely different circumstances. In all of those cases disposable incomes were declining for people and obviously, with the added burden of the big energy price hike, that is going to have a significant impact.
The reason that we're-I wouldn't say we're comfortable, because we're never comfortable and we're watching what's going on very carefully and you can always do better-heartened is by the fact that the external circumstances and conditions are quite different now than was the case in previous downturns.
Mr Galt: So a lot-
The Chair: I'll let you wrap up. You've got about 30 seconds.
Mr Galt: So a lot of the things that you're commenting on are the fiscal policies of the current provincial government versus the provincial government of the day and what they were doing at that time is sort of why the predictors are holding fast to the fact that the outlook looks pretty good for the province of Ontario?
Mr Howell: The tax cuts have certainly raised consumers' real disposable incomes and the prospects of further tax cuts kicking in this year from the federal level obviously are helping raise personal disposable incomes and are an important buffer.
Mr Galt: Great. Thanks very much.
The Chair: Mr Kwinter.
Mr Monte Kwinter (York Centre): I'd like to just raise a question about the Ontario Electricity Financial Corp. You claim that the $520 million in interest that is shown as the province's investment is not being paid by the taxpayer but is going to be paid by the ratepayer. How do you differentiate between the taxpayer and the ratepayer?
Dr Christie: The distinction there, Mr Kwinter, is the one actually that has been used for many, many years-even under the old Ontario Hydro-in terms of distinguishing between provincial debt and guaranteed debt, noting that costs associated with electricity are reflected in electricity rates and paid for in proportion to the use of electricity as opposed to through some other form of revenue that has no bearing on one's use of the electricity system. It's that distinction that has been carried over into dealing with the distinction between the so-called stranded Hydro debt, which was being supported by ratepayers, not taxpayers, and the approach has been for that to continue to be the case and that the distinction is carried over from the previous structure.
Mr Kwinter: Yes, but in effect when you restructured the electricity sector, if you were to pass on the stranded debt to the entities that took over, it wouldn't have made any sense for them. Someone had to pick up that stranded debt and the province has done it and they're saying we are now going to pass that on to the ratepayers. The point I'm making is it effectively means that consumers, ratepayers, are paying more to look after that stranded debt than they would have to pay if that stranded debt wasn't there and under normal circumstances that would have been looked after by the revenues that Ontario Hydro would have received over the years. But now it's a matter of downloading. You're really taking that stranded debt that no one will pick up, including the province, and saying "You as a ratepayer are going to pay this." As a result, it just exacerbates the problems that we have with the electricity rates.
Dr Christie: The debt we're talking about is debt that was in the old Ontario Hydro, and I think a significant part of the reason for the financial restructuring of Ontario Hydro was that that organization was no longer in a position to be able to service that debt. They didn't have the assets to cover that debt, so that was in part why the restructuring occurred.
Under the old structure, the monies required to service that debt would have had to come from the revenues that Ontario Hydro charged to customers and therefore would have had to be reflected in hydro rates. So, because the stranded debt will be recovered directly or indirectly from ratepayers, there's no change from the situation before restructuring and the situation after restructuring.
Mr Kwinter: I just have one other question I'd like to ask. In your Ontario economic accounts, you show various charts, and usually when you take a look at economics you look at the trend lines. I find it rather disturbing to see-for example, change in inventories: inventory levels in the current period that you show, 2000, are the highest they've been since 1992. You've got residential construction equal to what it was in 1992. You've got business plants and equipment expenditures equal to 1992. All of them flatlined since 1992. You've got trade going down and getting very close to where it was it was in 1992.
Are you expecting in this resurgence of the economy in the last half of 2001 that there's suddenly going to be a spike that changes those trend lines and starts taking it back up again when in fact you know there's a bit of a lag between the time that these numbers are compiled and the actual calculation of what's been happening to the economy? If I could just get your comments on that.
Dr Christie: Sure, Phil's comments.
Mr Howell: First, Mr Kwinter, which charts are you referring to?
Mr Kwinter: Unfortunately, these pages are not numbered, but it's right after the list of tables.
Mr Howell: OK. You were asking, are we expecting to see those numbers spike back up? This is a table of growth rates. It's not charting levels; it's charting growth rates. So over the five-year period here, at different points the growth rate is higher or lower than at a given point of time.
Mr Kwinter: Yes, but your zero base is 1992. Is that correct?
Mr Howell: No. What we're doing here is deflating the current dollar numbers into a constant base, in this case 1992 dollars, so that we can compare movements in real growth. We're using a 1992 dollar deflator to compare real movements as opposed to nominal movements in the economy. So what these charts show are annual real growth rates-actually they're quarterly real growth rates-in these different indicators.
For example, if you're looking at the consumer spending chart, you can see that as of the third quarter, in 2000 the real growth in consumer spending at an annualized rate was, I think, 4.4%. That means a real increase in consumer spending of that amount in that period.
As to whether we would expect-some of these will move again, as the rebound picks up, and hopefully if it's strong, you'll see stronger consumer spending and stronger investment growth.
Mr Phillips: My congratulations too, Mr Christie. I thank your staff and yourself for being helpful to us over the last year; the answers you gave us were very useful.
The first thing is, what tax cuts have been announced and are still to be implemented? The way I understand it, the government announced that they would cut personal income tax from 40.5% to 32.5% and they implemented the first one quarter of that almost two years ago. Then last year the province moved to a made-in-Ontario tax. When I do all the calculations it looks to me like another 25% of that rate cut was made. You've got to do the calculations because it's a tax on income, not a tax on federal tax. So my calculations say that there's still about half of the personal income tax cut to go, the equivalent of from 45.5% to 32.5%; I think the province is halfway there.
The second big one is on the corporate tax, where I gather from the numbers last year, for each point of corporate tax cut, there's about a $500-million cost to it. It looks like $775 million or $770 million for a point and a half, and the province still has roughly to go from 14 to 8; on most manufacturing, 12 to 8. Can you confirm that those are the two major tax cuts announced but not implemented as yet?
Dr Christie: To comment on those two specific tax cuts, on the personal tax cut, you're right, there has been action taken over the last couple of years. The budget last year talked about the province being well on its way to the commitment of cutting by a further 20% and stating the expectation that that 20% would be fully delivered in the 2001 budget.
Mr Phillips: Can you tell us where we are now on that?
Dr Christie: There have been a number of changes. You noted some of them in terms of the made-in-Ontario tax system, the federal government's response to the challenge in the 2000 Ontario budget and capital gains tax of moving the reduction to 50% up. The government, in the 2000 budget, challenged the federal government to match the 50% tax rate. The federal government did that, effective October 18th.
Mr Phillips: The government in the campaign said, "We're going to cut it by 20%." It's a very simple question: Where are we now and how much is still to go of that 20%?
Dr Christie: As I was going through, there have been a number of changes. We have a new tax structure in place. We're looking at that tax structure in terms of doing those calculations, because there have been changes, as I say, as recently as November. So we're looking at that and doing those calculations, and I expect that, as was noted, the budget will wrap that up and describe the delivery of the 20%.
Mr Phillips: I have to be honest with you, I find it incredible that nobody can tell us, with a promise of a 20% cut, where we are now. I just find that incredible.
Dr Christie: As I say, I expect that that would be something-
Mr Phillips: Am I right on the $500 million per point on the corporate tax cuts?
Dr Christie: How much per point?
Mr Phillips: Five hundred million. Maybe you can get that for us, because I don't need to take the time right now.
Dr Christie: We have that here. I believe the $500 million you're referring to referred to the cost of the entire-we'll have to get that for you. I have it here but I cannot flip to it immediately.
Mr Phillips: That's a $3-billion difference, so I think we have to know that.
Dr Christie: You're asking about per point spending?
Mr Phillips: Per point, and in your document last year you said that the cost for the first two stages was $770 million, a point and a half; I assume that one point is $500 million. But that would be useful to get.
The next thing I'd like to say is that you've talked about heading into a downturn being better prepared. Am I right that in 1990 the debt of the province was about $39 billion and it's about $112 billion now, and that the debt-to-GDP was about 14% and it's about 26% now, and the debt servicing costs were about 9% and they're about 15% now? Are those roughly the right numbers, just in terms of the things where we're not quite as well prepared?
Dr Christie: Was the comparison with respect to 1989?
Mr Phillips: To 1990.
Dr Christie: I don't have those in front of me. Gabe, do you have those?
Mr Sékaly: The net provincial debt in 1990 was $38.4 billion, and your next was the per cent to GDP?
Mr Phillips: Yes, and comparative. So it was $38 billion and it's now $112 billion?
Mr Sékaly: It's now down to approximately $112 billion.
Mr Phillips: And the debt-to-GDP was around 14%? Again, maybe you can just provide them. I'm just saying that in terms of how prepared we are, there are some other factors of the debt-
Mr Sékaly: Yes, it was 14% in 1990.
Mr Phillips: And today?
Mr Sékaly: Today, as I said, by the end of this year, based on the $1.4 billion anticipated surplus, it will be at 26%.
Mr Phillips: OK. The pension costs: you showed in the response you gave to us that while we actually are spending about $1 billion in cash, we're showing a revenue of $845 million. In other words, the pensions are generating for Ontario a profit, if you will, of $845 million on our books. How solid is that, looking forward? Is that something we should bank on, that we should expect a profit out of the pension funds of $845 million in the foreseeable future?
Dr Christie: Perhaps I could begin to comment and then I'll let the experts chip in. But as the answer that we provided indicates, the figures there are reflective of the way pensions have been treated under our accounting rules that were adopted in 1993-94 and continue to reflect, among other things, gains in these pension plans and the pension plans continue to make gains. However, the future behaviour of that expense level will depend, among other things, on the size of future gains and the continuation of bringing into income some of the gains that have been made in the past, as well as things like wage levels etc. So there are a number of variables that can affect the size of future gains.
Mr Sékaly: As much as I can get into this-as you can tell it's quite a complicated methodology to follow the Public Sector Accounting and Auditing Board recommendations on pensions-based on the actuarial analyses that are done on pension plans and based on existing benefit levels that are paid through the pension plans, we expect that this situation will continue into the future. There are a number of different variables that one would look at. It would depend also obviously on newer actuarial valuations that are done on a periodic basis on pension plans. But we are expecting that this would continue.
Mr Phillips: There's never enough time for questions, unfortunately. It's just life.
The government has said that the local services realignment, what's known as downloading by some of us or many of us, has actually benefited every single municipality in Ontario. I've been trying to get the basis on which that statement was made for several weeks now, and I'm going to have to rely on your good offices to provide us with the evidence of that. The government is saying that every municipality has benefited from the downloading. I wonder if you might-because I assume the government did the study in order to make the statement-provide the committee with the study that proved that.
The second part is, as we look at capital expenditures, five years ago, before the downloading, it looked like the province was providing over $1 billion of capital expenditures-not operating but capital expenditures-to service the things that were downloaded on to municipalities. Now they're providing no capital money. I wonder if your staff might give us an indication how much annual capital expenditures were being expended by the province on the things that were downloaded to municipalities before the downloading and after the downloading.
So those two things: it's the study the government has of how every single municipality benefited from the downloading. All the discussion has been on the operating side, but based on some analysis we've done, it looks like there's about $1-billion shortfall on the capital side. You might just provide us with that information.
Dr Christie: I think we'll have to for that one.
Mr Phillips: I appreciate that, and it's kind of you.
Last year, in the budget you said that for every increase of 1% in the gross domestic product, revenues grew by $565 million. I see now that if there's a 1% drop, the revenue doesn't drop by quite that much, but social assistance costs increase. It now looks like we may be into something a little bit more aggressive, unfortunately, than that in terms of the decline. Have you looked at what costs do increase? You've already done a part of it-a 1% drop means a $35-million increase in social assistance costs for the province-but have you done some modelling on what would happen with greater or lesser drops in gross domestic product?
Dr Christie: The rule of thumb you're referring to is one that, if I understand your question, if it's bigger than 1%, then these proportionalities still hold.
Mr Phillips: Yes.
Dr Christie: We have certainly treated them over the years as if they do hold, that it remains that linear. I'll ask Phil to comment on that as well.
Mr Howell: First, I think it's important with this rule of thumb to realize how it's calculated, which is just basically at any given point dividing the revenues by GDP. Obviously, if GDP and revenues aren't growing at the same rate, you're going to get a change in the value of that rule of thumb over time. It isn't something you should lock in your mind as a number that's going to hold today and three, four or five years down the road, because that's not the nature of it.
If what you're asking is, are revenues going to be impacted by the slowdown, I think it's important to-
Mr Phillips: Expenditures, I meant.
Mr Howell: And expenditures?
Mr Phillips: Yes.
Mr Howell: One answer to that is to realize that even since the budget, our estimates of revenues have increased. So compared to the budget forecast, you're not going to be in a situation where revenues are lower, even with a slower growth rate than we were forecasting.
In terms of looking at the expenditures, of course we monitor that constantly, and there are a variety of places where you would expect spending to be affected as economic circumstances change. The most obvious one, and I guess the one we follow most closely, is the social assistance spending, but there are a variety of other areas.
Gabe, I don't know if you want to-
Mr Sékaly: No. I think the major one is the social assistance caseloads that were followed on a monthly basis. As Phil mentioned, we monitor that very closely. That's the major impact from economic changes.
The Chair: Unfortunately, Mr Phillips, we're out of time. On behalf of the committee, I would like to thank all the ministry staff for their presentation. This committee will recess until 2 o'clock in this room.
The committee recessed from 1256 to 1400.
ONTARIO CHAMBER OF COMMERCE
The Chair: It's slightly after 2 o'clock and, in order to remain on time, I'll bring the committee back to order. Our first presenters this afternoon are representatives from the Ontario Chamber of Commerce, if you could please come forward and state your names for the record.
Mr Douglas Robson: Thank you, Chairman. My name is Douglas Robson. I am the president and COO of the Ontario chamber. On my right is Atul Sharma, who is our chief economist, and on my left is Mary Webb, who is our chief volunteer in this area and head of our economics committee.
The Chair: On behalf of the committee, welcome. You have 30 minutes for your presentation this afternoon.
Mr Robson: I have a number of things I'd like to read into the record and then I'm sure there will be some questions from the group.
We are pleased once again to have this opportunity to present our recommendations for the 2001-02 provincial budget. As many of you know, the Ontario Chamber of Commerce is a federation of 156 local chambers of commerce and boards of trade, and we have over 500 direct corporate members as well. The OCC represents all sizes of business in all sectors of the economy and throughout the entire province. Through our federation, we currently represent over 57,000 businesses in Ontario. We have been the voice of business in Ontario since 1911.
This pre-budget submission provides an overview of a number of areas of interest for the Ontario Chamber of Commerce and for Ontario business, much more than can be adequately addressed in our allotted presentation slot. Should you have any questions or comments arising from this submission, please feel free to contact us at any time.
The submission begins with a brief overview of the economy followed by our specific recommendations for the 2001-02 provincial budget. As we stated in last year's pre-budget submission, we believe that the provincial government's fiscal and economic goal should be to make Ontario the most competitive jurisdiction in North America. To achieve the government's goal of job preservation, there must be a focus on a number of the recommendations made here. We have grouped our recommendations into two key areas: maintaining a competitive fiscal and economic climate in the face of changes in the economy and smarter spending for the future.
With regard to the economic outlook, we all know that the winds of change have begun blowing through the Ontario economy. A year ago the Ontario Chamber of Commerce, in its pre-budget presentation, predicted that real GDP growth would be in the 3.5% to 4% range. In fact, it is now estimated that economic growth will be close to 6%, much better than we had forecast. This year, 2001, will be a year of considerable risk, though. We've seen a sharp slowdown in the US economy, and of course we're very closely tied to the market south of the border. Of particular concern is the current slide in US motor vehicle sales. While the US Federal Reserve has taken steps to moderate this downturn, sales of automobiles and other products will fall short of last year's records.
The Ontario economy is probably heading for a slowdown from the previous heady years, but a recession, in our view, is currently not foreseen at the present time. Fifty-two per cent of our members believe that the economy will perform slightly worse than last year. When asked about their medium-term view, only 11% said that they expected a recession in the next three to five years. However, 63% do feel that the economy will advance at a slightly slower pace than in 2000.
A particularly encouraging indicator is that 68% of our members in 2001 intend on making the same or greater investments in computers, software and telecommunications equipment as they did last year; 66% plan on making the same or greater investments in other capital. When asked about their intentions to increase or reduce their workforce, only 7% said that they would be reducing their workforce, while 57% said that they would be maintaining their workforce at the same level.
The Ontario chamber forecasts that real GDP growth for 2001 will be in the 2.5% to 3% range. We believe that this is a prudent forecast given the recent upheaval in the North American economy. With the likelihood of an economic slowdown, there is a considerable risk that Ontario's unemployment rate will rise above the 5.7% average in 2000.
Even though the Ontario economy at the beginning of 2001 faces a weaker outlook than a year ago, it is well positioned to weather the economic slowdown. The government should be recognized for its commitment to reducing taxes and creating a positive business climate in Ontario. Both of these achievements will prove to be an important barrier in ensuring that Ontario can withstand an economic slowdown.
In terms of maintaining a competitive climate, even with the likelihood that revenue growth will slow, the OCC looks to the Ontario government to continue trimming the provincial tax burden whenever possible. We support your multi-year personal and corporate tax reduction plans, and urge you to accelerate these cuts. We also make the following recommendations with the belief that they will help keep Ontario competitive, accelerate its prosperity and help create jobs.
In terms of maintaining a multi-year debt reduction commitment, we are pleased to see the government more than double its commitment to debt reduction, from $2 billion to at least $5 billion, during their mandate.
From the chart lower down, you can see it's clear that little progress has been made in reducing our debt-to-GDP rate since it peaked in the mid-1990s. The current debt-to-GDP ratio is approximately 28%.
The faster the debt can be reduced, the faster Ontario can stop spending over $9 billion to service the debt every year and the faster money can be allocated to additional spending or tax cuts. Public debt interest payments are the third-highest government expenditure after health and education.
Another reason to focus on reducing the debt is to mitigate the impact of a slowdown on the government's financial position and fiscal objectives.
Alongside the province's commitment to reduce debt by at least $5 billion by fiscal 2003-04, the OCC urges the government to set a concurrent goal of reducing its debt-to-GDP ratio from its current level of 28% to 20% within five years, and subsequently the goal should be a debt-to-GDP ratio of 15% within a decade, returning the province to the level at which it entered the 1990s.
The provincial government is now allowing school boards to accumulate debt that is not recorded on the province's book and without proper assurance that the province will not be responsible for the debt. The OCC recommends that the provincial government should not allow school boards to accumulate their own debt. Further, the provincial government should also ensure that it is not liable for any accumulated school board debt.
In terms of raising the personal income tax threshold, the OCC supported the province's move to create a made-for-Ontario personal income tax. Now that Ontario is able to set its own brackets and rates, it should consider the following recommendation to continue Ontario's competitiveness. A relatively low threshold for the highest tax bracket is punitive for many middle-income families, given the cumulative impact of inflation on earned income over the past decade. The OCC applauds the government's move back to full indexation, but more substantial bracket adjustments are required, in our opinion.
The provincial surtax was originally imposed to help eliminate the deficit. With Ontario's books now balanced, and the opportunity to create a simpler, more transparent personal tax system, we think the provincial surtax should be reconsidered. So the OCC recommends that the provincial government raise the threshold for the highest income tax bracket, possibly to $150,000, and strongly consider eliminating the provincial surtax.
In terms of small business, we presented a resolution for discussion at our annual meeting calling for the government to raise the small business limit from $200,000 to $500,000 to eliminate the clawback. Two days prior to our annual meeting, the 2000 budget was tabled and it contained a provision to raise the small business limit from $200,000 to $400,000. We were pleased to see the government move so quickly on an OCC recommendation. We remain concerned, though, that the clawback is an obstacle for small business expansion. So we recommend that the government accelerate this change and eliminate the current clawback.
In terms of eliminating the capital tax on financial institutions, in this environment of slower growth, the negative impact of profit-insensitive taxes can be significant. In prior submissions to the government, the OCC has suggested the capital tax on financial institutions be removed, as it is a discriminatory tax against the financial services industry, which is a major industry and a major component of the Ontario economy and one of the biggest businesses in this city. We recommend that the provincial government eliminate the capital tax on financial institutions and then reassess the general corporate capital tax.
With regard to seeing if taxes are fulfilling their original purpose, the Red Tape Commission has reviewed a number of outdated regulations. It's now time to re-evaluate a number of taxes that may now be disconnected from their original purpose. Their negative impact on Ontario's competitiveness may far outweigh their revenue generation. Examples include the tax for fuel conservation, TFFC, the corporate minimum tax, CMT, and tax exemptions for labour-sponsored venture capital corporations, LSVCC. We recommend that the provincial government should initiate a reassessment of current taxes to see if they are fulfilling their original goal.
In terms of GST-PST harmonization, the issue of harmonization has not been widely discussed in the political arena in recent years. Understanding the political hesitation to move forward on the issue, the OCC nevertheless maintains that business efficiency arguments call for an examination of the potential to combine these two taxes, thus decreasing the administrative burden on business.
The OCC believes the broader base of a harmonized sales tax would allow this change to be revenue-neutral, with a one to two percentage point reduction in the rate. So we recommend that the provincial government should examine the benefits of GST-PST harmonization, coupled with a one- to two-point rate reduction.
With the recognized longer-term advantages of stimulating savings and productivity-enhancing investment, the OCC favours cuts to personal income and corporate taxes over a reduction in retail sales tax. However, we continue to advocate the advantages for business efficiency of the harmonized sales tax. In a recent survey of our members, nearly four fifths of our members said that they would favour a combined GST-PST if it leads to lower reporting costs for their businesses.
In terms of municipal share corporations, the OCC would like to take this opportunity to applaud the government's initiative to bring together representatives of the business and municipal sectors to see if consensus could be reached on some of the outstanding issues regarding a new municipal act. We participated, along with other associations, in the municipal share corporation consultations. Based on those discussions, the OCC believes that there is a fundamental agreement around the principles that should guide the creation of municipal share corporations. Our members feel that if approval is given for the establishment of municipal for-profit corporations, then they should be incorporated under the Ontario Business Corporations Act. There was some discussion around establishing a completely separate type of corporation specific for municipal purposes. We cannot support the idea of allowing municipalities to establish for-profit corporations outside the OBCA since it is possible that municipal for-profit corporations may be competing strongly against private sector corporations.
The OCC recommends that if municipalities are allowed to establish for-profit corporations, then they must operate on a level playing field with the private sector for-profit corporations.
In terms of smarter spending for the future, the OCC recognizes the difficult tradeoffs facing the province in balancing its multiple investment priorities. We believe that there are primarily three areas that will require smarter spending for the future: health, education and transportation.
With respect to health care, we have recently formed a task force to look at how Ontario spends its health care dollars, with the objective of achieving service improvements more efficiently. We see our health care system as part of our economic infrastructure in Ontario. All of the demographic indicators point to an increased usage of the health care system over the next decade because of an aging and a growing population. Our hope is that in our 2002 pre-budget submission we will be able to make some specific recommendations related to health care.
Investments in education will continue to be an important part of the investments needed for the future growth and prosperity of Ontario. The OCC, through its board of directors, decided to tackle education as a business issue. We have worked with the government on developing its new curriculum to ensure that business studies were part of the mix. We also supported the government's move to open up the university sector to allow for more choice for students when deciding on their post-secondary path. We look forward to continue working with government to make Ontario's education system the best in the world from early childhood education to post-secondary.
The third area of smarter spending for the future is transportation. As some of you know, we have launched an initiative calling on the province to study and establish an Ontario transportation authority. This authority would coordinate transportation infrastructure development and public transportation in Ontario. A world-class transportation system is key to continuing Ontario's prosperity, in our opinion.
We would recommend to the province that they establish a task force to report to the Premier within 90 days outlining the business case and plan for establishing an Ontario transportation authority. This task force would be led by the OCC and include representatives from all levels of the government, business, non-profit and institutional sectors. I think you've all got a copy of the separate submission, plus there are points in the paper you have.
Ladies and gentlemen, we know there's no one solution to keeping Ontario competitive. However, there are many areas which require attention, and we've attempted to bring those issues forward. We hope that our efforts assist you in your deliberations. We thank you for the opportunity, Mr Chairman, to make this presentation and we are prepared to answer any questions in the time allowed. So if there are any further questions, we are happy to meet with members now or at a later date, but I think we have a bit of time.
The Chair: Thank you very much. We have about three minutes per caucus and I'll start with the government side.
Mr O'Toole: Thank you very much for making your presentation. I certainly look forward to the comments on an annual and more frequent basis. I may share my time with Mr Galt.
I just want to focus on page 13 of your presentation. You talked about-and I may just jiggle this around a bit for you-smart spending for the future. I took that to mean something more than you've just said here. You looked at transportation and other infrastructure. I want to specifically ask for your response to what I consider a challenge, whether it's B to B, a business-to-business basis, or business to government or government to business, and some of the initiatives. When you look at the minister's overview this morning, it was clear that not just the domestic economy and the changing profile of the domestic economy, moving from more manufacturing to a knowledge-based economy-are those the right decisions? What I'd call smart investment as opposed to smart spending were some of the initiatives that we took to support the high-tech sector. I could mention a couple of them here. From the minister there was the research-oriented investment fund. There was also the research and development stock option benefit. Looking forward in positioning ourselves, not just in the Canadian context but certainly the North American, if not indeed the global, do you think these are the right kinds of decisions or should we look in the mirror and look back at the manufacturing, some might argue, lower-value-added sectors of the economy?
Mr Robson: One thing we know is that the Ontario economy has restructured itself. It's in a lot better position to withstand any downturn. The government has done a lot to restructure things in its own right. I'll let the economists go on with it, but in terms of our transportation initiatives, we've heard senior members of the government say, "We're not the government, we're here to fix the government." They have fixed a number of areas, but in this particular area of transportation we believe that there has to be a multilevel government approach on it. We're talking about interurban transportation; we're not talking about the TCC.
Mr O'Toole: I understand.
Mr Robson: We believe there'd be a lot to be gained from that because people are all caught in their own silos.
Mary, I think you may have a response to that one.
Ms Mary Webb: While the technology now is under a bit of a cloud with corrections on the equity market etc, we certainly do not see its growth ending for Ontario, and I think Ontario is a classic example of how much the new economy can benefit a province. I think we have to give full credit for the government's support of those initiatives and looking for further co-operation between academic, the government and private business. It seems to be what generates the new ideas and new technology.
But I also would argue that one of the things going into the slowing that we see for the Ontario economy is its better diversification this time. That means that continuing support has to be given to the old economy, particularly because it's so important for old economy industries to adopt the new technology. Auto parts is an example of that, where over $10 billion in business investment over the past decade has really put it in a stronger position in terms of serving US assemblers and tier-one parts companies.
I think a sole focus on the new economy is short-sighted because we have a lot of growth and job creation still remaining in the old economy.
Mrs Sandra Pupatello (Windsor West): Thank you so much for that presentation. I wanted to ask you specifically about the SuperBuild fund. You've spent a great deal of time lately developing this plan and your view for transportation improvement. It's very good to see the references to southwestern Ontario and the corridors that require significant upgrades for future growth and even current levels of transportation requirements.
Mr Robson: I should apologize. We left out the tunnels, which equal 2,000 trucks a year.
Mrs Pupatello: Thank you. Yes, about one fifth of what goes through our bridge every day in Windsor.
I wanted to mention, though, that given what you feel is the chamber that should happen in terms of a new authority for transportation and the almost opposite view that the government holds that each municipality would go forward with having to submit an application to SuperBuild in order to get infrastructure dollars for roads, then there really is no working together among the corridor to get the kind of infrastructure that's required, especially along southwestern Ontario, where the majority of auto plants are, where the majority of manufacturing exists for Ontario. So really, SuperBuild would work in an opposite fashion to what you feel is required to develop proper transportation infrastructure.
Mr Robson: One of the keys is that it will work between all levels: federal, provincial, regional and municipal. Second, it uses a business model. So when someone is appointed, no matter what the appointment process is, which would be part of the study, as far as we're concerned, their fiduciary duty, if you will, would be to the Ontario transportation authority, not to Etobicoke or Sarnia or Thunder Bay or Ottawa. That creates quite a difference in the way the organization thinks, that they have to do the best thing for the entire province.
Mrs Pupatello: So the concept of SuperBuild, where individual municipalities have to go forward with an application, then wouldn't result in the kind of infrastructure development that's going to be required in the paper you've laid out for the development of a transportation authority.
Mr Robson: One of the keys to the transportation authority is forward-looking. One of the things we found when we were in Hamilton last year and we had a conference on transportation was that in 1960 you could look 10, 20, 30, 40 years out in transportation and see what should happen. They've said that the 407 was talked about 20 years before it was done. Unless somebody is hiding something, we don't see that sort of look now. So what we're saying is that you need an organization that can do that sort of planning, coordinate it all, consult on it, is an open organization and has different ways of financing, whether it's going to bond markets or exempt bonds or toll highways or whatever. It's a whole different look at the thing, and that's why you do a study to see how things like SuperBuild would fit into it or how the GTSB would fit into it, what have you.
Mrs Pupatello: And if you did continue with that type of financing you've just mentioned, wouldn't they then be in the same boat the school boards are in now in accumulating debts because they're having to get debt for the capital projects to build schools?
Mr Atul Sharma: The way the authority is intended is that it would be a not-for-profit authority, as well as being a not-for-loss authority. So it would ensure that there should not be any sort of accumulation of off-book debt, but certainly that's an issue that should be brought into the study.
The Chair: Thank you very much. Mr Christopherson.
Mr Christopherson: Doug, good to see you again.
Mr Robson: Likewise.
Mr Christopherson: I wanted to ask you about the acceleration of the debt, if I can get my hands on the exact recommendation.
Mr Robson: You mean in terms of moving down in the GDP ratio?
Mr Christopherson: Yes. This was your first recommendation, actually. I guess my question would be the timing of it, given the fact that the US slowdown is affecting us. We've got over 15,000, 16,000 layoffs, either temporary or full-time, already announced. You mentioned in other recommendations about the need to do things about health and education and the continuing demand on there. I'm wondering how you view the potential for lower revenue in the foreseeable future, as a result of the slowdown in the US economy, with increasing expenditures, which would be reducing the debt, at a time when we don't have enough money right now being invested in the fundamentals: health and education. How do you square all that, Doug?
Mr Robson: I'm going to ask my colleagues to join me after I answer, but I would like to use the auto sector, if I might. Last year they sold 18 billion units in America. They recommend this year it'll be 16.5 million units. I think I said billion.
Mr Christopherson: Yes, you did. I was wondering. Wow.
Mr Robson: But that 18 million vehicles was the greatest year they'd ever had. The point is that they're moving down not that much. If you look at what happened in the early 1990s, they were at 12 million. So they are forecasting less but they are not forecasting a crash. That's what we're saying. There's less growth but you can't take your eyes off that debt-to-GDP ratio because it's twice what it normally would be. It's one thing to say you've paid off your Chargex, but if you've still got a mortgage on your house of $300,000, it can be a burden, and we've still got the mortgage on the house. Either Atul or Mary may want to add to that but that's how I see it.
Ms Webb: Yes. There's no question the slower the revenue growth, the more trade-offs are going to have to be done and more balancing, which is why we ended up our presentation with the smarter spending, because we see that it's going to have to be a continuing priority of the government to spend as effectively as possible.
But to accomplish the 20% debt-to-GDP ratio in five years, it requires a debt repayment of just over $1 billion each year. Of course, that can be averaged over the period. Some years might be slightly less than that; some years could be more than that. But it's probably not an unreasonable amount to set aside. It simply goes to prove the fundamental truth of debt repayment. In one year the saving in debt service is not that great from paying down just over $1 billion, but if you do it for five years, the cumulative saving is in fact substantial.
Mr Christopherson: I don't think anybody is arguing with the fact that paying off debt is good. That's not really the point, if you will. It's more a matter of these trade-offs. I'm trying to understand. At a time when there's not enough money to go around for the things that are needed by the majority of people, the ordinary working middle-class families that are out there-there's not enough money to meet their community needs. To suggest that if there's going to be greater spending-it's not often the chamber recommends greater spending, but that's what this is. It's spending money. It's just spending money to reduce a debt, and yet there are all these other pressures. To use Doug's analogy, if you paid off a Visa card and you've still got a huge mortgage and you need to take care of it, if you have a bigger priority and a bigger problem putting food on the table, that's going to be your immediate need, as opposed to saying, "We've got to go beyond our regular mortgage payments and we've got to pay down extra." That's where I think a lot of people are, certainly in my community of Hamilton. I have some real difficulty with that.
The other thing is, I was curious that in recommendation 6 you are making the case, and I quote from your document: "With the recognized longer-term advantages of stimulating productivity-enhancing investment, the Ontario Chamber of Commerce favours cuts to personal income and corporate taxes over a reduction in the retail sales tax." We've already seen enormous amounts of cuts that have gone to the corporate side of things, and on the personal income tax benefiting, again largely on an individual basis, those with a higher income. At least with the PST, everybody who makes a purchase would benefit in some way. Why, after all these cuts in the corporate sector that have benefited the very wealthy in Ontario, do you now want to deny any opportunity, if you're going to go on cutting taxes, to do it in an area where it would affect the most people and do the most good, quite frankly, on a day-to-day basis because it would free up that spending money? Why would you do that?
Ms Webb: Three reasons: first of all, I think there's a greater long-term advantage to reducing corporate taxes. In fact, the government just embarked on that program last spring. It was a multi-year program. It's to Ontario's advantage to accelerate it because in this period of fuller growth there's going to be more and more competition with new investment. If Ontario can't succeed in attracting that new investment, then we see the loss in terms of job creation. For low-income families, the most important thing we can provide is the job creation that gives them a source of income. The corporate taxes have been proven to be very effective, in a range of industrialized countries, to attract new investment and job creation.
On personal income tax, I think the records show that the cuts were certainly benefiting higher income but also benefiting lower income. Once again, that's setting up a productive capacity, developing skilled labour, that type of initiative that is not a one-time spending initiative; it's a longer-term productive capacity.
The Chair: With that, I must bring the discussion to an end. Thank you very much, on behalf of the committee.
Mr Robson: Thank you very much on behalf of us. Thank you to all the members too.
GREATER TORONTO HOME BUILDERS' ASSOCIATION
The Chair: Our next presenter is a representative from the Greater Toronto Home Builders' Association. Please come forward and state your name for the record. On behalf of the committee, welcome. You have 30 minutes for your presentation this afternoon.
Mr Patrick O'Hanlon: My name is Patrick O'Hanlon. I am currently president of the 1,100-member Greater Toronto Home Builders' Association, or GTHBA. As well, I am president of Angus Glen Developments and Kylemore Homes. With me is our director of government relations, Jim Murphy.
I want to talk to you today about two things: first, the state of the housing markets in the GTA and Ontario; second, the recommendations contained in the GTHBA pre-budget submission, a copy of which you have just received.
We have had a couple of good years in the housing market in the greater Toronto area and Ontario. However, I am here to tell you that things are slowing down. Last year was a record year in new home sales in the GTA, with over 40,000 new units sold. The GTA accounts for nearly 60% of new home sales in the province. In addition, the GTA accounts for nearly one quarter of all new home sales in the country. By comparison, the state of California accounts for roughly 10% of all the new home sales in the United States.
The product that purchasers are buying is diverse. Today in the GTA, nearly one third of all new home purchasers are buying condominiums, many of them multi-residential. Nearly 30% of all new home sales in the GTA last year were in the city of Toronto, over 80% of which were condominiums. There are very few other North American cities where the central area accounts for such a large portion of new sales activities.
Perhaps more important, the housing and renovation industry is a major economic contributor. In 1999, the new residential construction and renovation sectors contributed $8.4 billion in GDP to the province. By comparison, the automotive manufacturing industry contributed $7.2 billion. According to the CMHC, each newly constructed home generates 2.8 jobs, meaning that our builder members contributed in excess of 100,000 person-years of employment last year in the GTA alone.
Housing is a major economic contributor to our economy. Government tax policies should support, not penalize, the industry. As I mentioned, sales are slowing. While we had a record year in 2000, the sales for both November and December 2000 were down when compared to November and December 1999. We will be releasing our sales numbers for January 2001. Based on the feedback from our members, we expect the same trend. We will then have a full quarter where sales are down.
As well, compared to the boom of the 1980s, builders were performing in an economy with very little inflation or speculation. There is double the number of sites versus the 1980s and almost double the amount of competition. It is a very fierce marketplace.
Prices of new homes are higher in the GTA than elsewhere in Ontario, or the country for that matter. The average price of a new single-family home in the GTA is now over $280,000. This is a result of higher land costs, higher labour costs and higher material costs.
Our five budget recommendations speak to this reality as most of them have as a basis a concept of putting more money in the pockets of consumers and new homebuyers. They also speak to fairness, enhancing affordability and creating jobs.
GTHBA contracted with noted housing economist Greg Lampert to provide the financial impacts of our recommendations. We believe strongly that by targeting potential new home purchasers and existing homeowners, monies are directed right back into the economy to make ancillary purchases.
This has certainly been the case with the land transfer tax refund. Our first recommendation will deal with the land transfer tax refund for first-time buyers of newly constructed homes. We believe this has been one of the most successful programs the province has introduced. In 1999, the refund was increased to $2,000 as per a previous GTHBA recommendation and was made permanent last year. Our housing economist, Greg Lampert, estimates the refund will put $35 million back into the pockets of new home purchasers this current budget year. Why was this tax introduced? We believe that back in the 1980s, when speculation was rampant, and inflation and escalation of prices, it was necessary to tax that activity. This is not the case in 2001 and we do not foresee it for the rest of the decade.
GTHBA is recommending that to assist purchasers with their downpayment, and in light of higher housing costs in the GTA, the maximum refund limit of $2,000 be eliminated entirely. In other words, first-time purchasers of new homes would pay no land transfer tax. We believe that purchasers use this refund for ancillary purchases such as appliances, usually in the community where they have purchased their new home. Our proposal is estimated to put a further $6 million to $8 million into the pockets of new home purchasers annually.
Alternatively, and again in light of higher housing costs in the GTA, we would recommend increasing the refund limit to $2,500. This, according to Lampert, would equate to a $270,000 home, still below the GTA single-family average. I wish to note that this program is only for newly constructed homes, not resales, and we would strongly recommend that it stay this way. Resale homes do not generate jobs and there is no federal tax, such as the GST, on resale homes.
Second, GTHBA recommends eliminating all current size criteria in the province's PST grant program for newly constructed rental units. This program should be used to promote newly constructed rental projects, period, regardless of unit sizes. Removing the restrictions would expand the program to include medium- and high-end rental projects that are likely to be attractive to investors and free up other units for renters.
Additionally, GTHBA is recommending that the grant program also apply to condominium registered units. Condominiums are an important part of the secondary rental market. Approximately one quarter of all condominium units in Toronto are rented. Builders are planning to construct new rental units but register them as condominium for property tax reasons. Condo-registered rental units should be treated the same, as they serve the same purpose of creating rental housing options for individuals, many of them right here in the city of Toronto. We have been informed that the majority of these funds were allocated to long-term facilities and not new rental projects. The government has recently, we understand, rectified this situation.
Our third recommendation is related to the first two. While the last recommendation deals with encouraging builders to build rental units, we also believe that like the land transfer tax refund program, there should be an incentive to individual renters to buy new homes. We are proposing that purchasers of newly constructed homes who are currently renting be provided a $2,000 grant. This would be over and above the land transfer tax refund and would help individuals to meet a downpayment. It would also have the added benefit of freeing up rental units for other consumers. We believe it is a win-win situation. Our economist, Greg Lampert, estimates that such a program would cost roughly $47 million.
Our fourth recommendation deals with the renovation market. This market is a growing component of the overall residential market. The GTHBA is proposing a provincial sales tax rebate program for renovations of $5,000 or more. Greg Lampert estimates that every 1% reduction in the PST on materials used for renovations above $5,000 equates to roughly $20 million. A rebate of half the PST would equate to $80 million. However, again, this rebate would go to homeowners and taxpayers that are paying the PST. It would also encourage the upgrading of the existing housing stock in our cities. Today much of the renovation market is, unfortunately, conducted underground. Such a program, we believe, would encourage more renovation work to be conducted above-ground.
Finally, the GTHBA is recommending, as we did last year, that the capital tax exemption limit be increased from the current $2 million to $5 million. Real estate, like forestry or mining, is a capital-intensive industry and we are penalized as a result. We are taxed regardless of any economic activity and, rather, taxed on assets. We believe that the capital tax exemption should be raised.
Those are our five recommendations. They have as their basis promoting home ownership by putting more money back into the pockets of individuals. As I stated earlier, every new home generates 2.8 jobs and there are numerous spinoffs in other industries. As we begin to slow down, now is the time to assist home purchasers, particularly first-time buyers.
Thank you, Mr Chairman. I would be pleased, along with Jim, to answer any questions the committee may have.
The Chair: Thank you very much. We have approximately five minutes per caucus. I'll start with the Liberals.
Mr Phillips: Thank you for the presentation. One of our concerns is the lack of rental accommodation. You haven't got the numbers in here, but you refer to it in several different places. The numbers I've seen say that Ontario needs a minimum of 15,000 rental units built per year-I think it's either 15,000 or 20,000; I've seen two different numbers-and that there were perhaps well less than 1,000 per year built over the last four years. Most of them, I gather, are not for people of modest income but maybe at the upper-income level. We have in Ontario, then, a need of 15,000, but fewer than 1,000 a year, so the backlog appears to be building up-a 60,000-unit backlog in the last four years or so.
In the area I represent in Toronto, I get a lot of people into my constituency office who simply can't find accommodation. The reason I'm asking the question is that you refer in this document to some suggestions you have to perhaps improve that. The challenge, I recall, is that previous presentations by homebuilders-maybe the Ontario homebuilders, not yourself; I can't remember-have said, "Listen, nobody is going to build substantial numbers of medium-income rental accommodations in Ontario." Have you any advice for us on how we can begin to tackle that? I gather, with the rental program here, you're suggesting most of it has gone to retirement homes, so that even the modest proposal over the last two years hasn't gone to rental accommodations; it has gone to retirement homes. Do you have any advice for us on how we can in any substantive way see rental accommodation being built?
Mr O'Hanlon: I'm going to deal with part of your issue on what we're doing now and then I'm going to turn it over to Jim on what some other jurisdictions are doing. Right now, the way we've been tackling the rental shortage is through the building of condominiums. About a quarter of the 13,000 condominiums that were built last year have gone into the rental pool, so roughly 3,000 units a year have been coming from the condominium sector, which have been very affordable, especially in the city, going anywhere from $90,000 to $300,000. So we have been able to find affordable accommodation. We have been able to find it right in the core and in the surrounding areas.
What we're suggesting here in our pre-budget submission is, how can we make it even more affordable, especially for that first-time buyer to enter into the market and free up existing rental units? We're tackling that as a win-win situation. As far as other jurisdictions, Jim?
Mr Jim Murphy: We're members, along with a number of other trade associations, on something the province has set up called the housing supply working group. Former Housing Minister Clement had established this at Municipal Affairs and Housing to look primarily at what we can do to get private rental construction in Ontario. We're going to be coming out with a report on that fairly shortly, probably in February or March.
A lot of the impediments to new rental construction in the province are federal tax policies. The federal government changed their federal tax policies for new private rental construction back in the early 1980s, things like appreciation, capital cost allowances, provisions to roll over-if you sell one apartment building and use the profit from that to buy another one. The federal government brought in a number of measures in the early 1980s that have acted as a disincentive to new private rental construction in the province. So we will encourage the federal government to deal with some of those issues.
It's important to note that in the city of Toronto, at least, many developers and builders are very close to building rental. The numbers are working out, with low interest rates and other numbers that are out there in terms of their pro formas. It's very close to new private rental construction. What we're seeing, as Patrick indicated-and it was one of our recommendations-is that builders and developers are going to register these as condominiums anyway. They're not going to register them as apartments, primarily in the city of Toronto, for property tax reasons.
You may have seen in the newspaper, for example, that Minto Development wants to build a fairly large project at Yonge and Eglinton. One of those 50-storey buildings will be a condo-registered rental building that will provide new rental spaces in the city. We're seeing that also, I believe, down at John and Wellington. A US developer is building rental units. So we're seeing new production. I think we're going to have 2,000 new rental units built in the province, which obviously is not enough but is more than was done previously.
As Patrick indicated, there is a whole secondary market out there that's meeting that need, primarily the condominium market in this city, and secondary access apartments and other things. So we're seeing some construction.
We have been working with the province on some measures to promote it. The province does have a program, admittedly fairly small. If you look at some of the numbers-we've done some research-if you exclude the down payment on an affordable condominium, the carrying costs for a $100,000 or $120,000 one-bedroom or bachelor condominium, as Patrick referred to, equate to what the average rent is now in the city of Toronto. So some of our recommendations deal with trying to make it more affordable to own in terms of the down payment issue, because your monthly costs are very similar in terms of what your rent is, which has been increasing, versus your carrying costs of the mortgage, which have been either staying the same or decreasing. In fact, in the next several months we'll see further reductions in interest rates.
That's a long-winded answer to your question, but a lot of the issues have to do with federal tax policies that act as a disincentive.
In the United States, the federal government has a very large what they call low-income tax credit program. It's a $3-billion program that's applied across the United States. It was brought in in the mid-1990s and had bipartisan support among Republicans and Democrats. It has resulted in about 90,000 units being built in the US annually. It's targeted toward developers and builders. They have to have a certain percentage in their projects that meets an income test. We have a number of Canadian and Toronto builders who are doing this in the US-in Texas, in Florida, and all over the States. It's a very successful program; something we would like to see emulated either provincially or federally.
Mr Phillips: What I heard was that there aren't going to be a substantial number of rental units built.
Mr Murphy: That's correct.
Mr Christopherson: To follow up on the same issue but maybe just a little different tack, you mentioned in your response to Mr Phillips that the condo market was providing people who are in apartments somewhere to go, and that frees up the apartment units and therefore puts more supply on the market. Correct? I think that's fair.
One of the difficulties some of us see with that for the apartments that are being freed up as a result of someone being able to muster a down payment and purchase a first-time condo, for instance, is that without rent controls, and the fact that there are so few apartments on the market, it means that once it goes on the market, the price jumps. Yes, you have a unit on the market but it's not affordable, at least for a lot of folks. And, of course, the lower your income, the greater the urgency of who we're trying to address here when we talk about affordable housing. Could you comment on that for me?
Mr O'Hanlon: In a number of municipalities there are studies going on right now on exactly what you're talking about, and that's affordable housing. When you talk about affordable housing and rental housing, there is a distinction. They are actually two different matters. What we're talking about right now is market housing and bringing market rental units back on to the marketplace.
Back in the early 1990s, the NDP, and the Liberals before that, actually brought out certain thresholds that each community or each building had to meet in terms of affordable housing. Our industry is doing that by itself now. The economy is dictating it, our costs are dictating it and the market is dictating it. We feel, as an industry, we are bringing out more affordable housing now than ever in the 1990s and we are addressing that market.
As far as assisted housing, we feel that is something the government should be tackling. All the municipality mayors actually have been gathering a task force to do such a thing.
Mr Christopherson: I think we are using different definitions, and I agree with that.
I have to say, though, that just about every study I've seen says that we aren't, as a province, meeting the need for affordable housing, especially for modest- and low-income families. It's not being met. I'm not suggesting that you aren't trying in some fashion, but to suggest that somehow it's therefore being dealt with is not really where we are. We're seeing more and more and longer and longer waiting lists for people who are waiting for affordable housing.
You referred to our government in the 1990s. We were the last government in North America that was still directly providing affordable housing. The interesting thing is, the government uses that as an attack; I say it with pride. I think it's a shame that we don't have a national housing strategy. The Liberals bailed out, and the Tories bailed out in Ontario. There is nobody left in North America as a government that is saying, "We've got a responsibility to our most vulnerable."
I appreciate that what you're talking about is within the market, but you've put a dollar figure of $47 million on there. In terms of absolute need, when you talk about homelessness-and it's finally starting to creep up in the poll numbers for people's awareness-and link it to the fact that a lot of people who consider themselves middle class are on the brink of sliding off middle class, this is a huge problem for all of us. I still don't see where that gets addressed here. At the end of the day, it's you folks who will physically build it. I realize it will be financed elsewhere, but there is that partnership. So we're still missing a huge need in our society vis-à-vis housing.
Mr Murphy: Maybe I might comment on that just quickly, Mr Christopherson. As Patrick says, there are two issues here. One is the bricks and mortar, and that's some of the stuff we've been working on with the province and with the federal government, to say there are two ways you can do that: either the government has a program or you do it through the tax system to encourage it, which is what they're doing in the United States. Either way, they are meeting a need in the market. I think our position would be that you do it through the tax system.
The second point of the whole issue is an income problem, which is more of a social issue. It's getting away from the bricks and mortar to say there's an income problem with tenants or income groups. The best way to deal with that-and we certainly supported this as part of our response to the Golden commission-is through a shelter allowance program. So there are two issues. One is the bricks and mortar in terms of meeting the need and the other is an income shortfall.
Mr Christopherson: It's interesting that minimum wage, which is a key issue-
The Chair: We're out of time. I'll have to go to the government side.
Mr Arnott: Thank you, gentlemen, for your presentation. I think you've laid out very well the expectations of your membership for consideration by this committee, and I hope the Treasurer will listen to what you have to say too. The fact that you've attempted to give us the financial implications of each of your recommendations is very helpful. We get a lot of groups that come in here and ask for certain things, but when you tally up what their expectations or requests are, it's fairly excessive. It's helpful to know what it's going to cost in terms of our recommendations that we will take forward.
In terms of your sector, your industry today, we often hear about housing start numbers. I think in the last three or four years, housing start numbers have been very strong across the province. I assume that's been the case in Toronto and the greater Toronto area. Can you give me some up-to-date statistics on housing starts in Toronto right now and where you see the trend going in the next year?
Mr O'Hanlon: Actually, CMHC just released the housing starts for January and they're substantially up. However, as you all know, housing starts reflect the sales of six to 18 months, when you go to a condominium, behind. So as an industry we really look at sales as the barometer, and over the last two months and January we see sales decreasing across the GTA, where the bulk of our sales come from.
Last year we reached an unprecedented number of 41,000 sales across the GTA which even beat our record in 1986. This was done with a very stagnant inflation and very little or no speculation, but it also came from a marketplace where in 1986 we had just over 200 builders; now we have 400 builders. We had 300 sites back then; now we have 600 sites. So we see the average number per builder per site going down each and every year, and we're looking at possibly a 10% to 15% decrease from sales in the year 2000, which is still a very robust year.
We don't want to paint a dark picture here; in fact, in two weeks we write an article for the Toronto Star where we're trying to dampen this recession word, because we see that Ontario is poised for a very good marketplace, very low in unemployment and good economic conditions. But we're bracing ourselves for lower, more stable growth and we're trying as an industry, this year especially, to talk to our trades, to talk to the governments and talk to our business partners and say, "Look, let's not look at this as something that is just going to keep going, let's not get caught back in the early 1990s when we went through five years of very, very poor growth, and how do we maintain and sustain this with our partners?"
We don't mind returning to normalcy or stable figures, but we do not expect this 41,000 figure to continue this year. Then beyond that we're not sure. Sorry for being long-winded here, but this year we're going into a strike situation, and the government has given us the ammunition with Bill 69, where all the trades come up all at the same time on April 30. So for the very first time we're not going to go through what we went through in 1998 when it was almost nine months of strikes, first the sheetmetal workers, then they found out, and it just went on. Here we're going through and the trade unions and the builders are looking at this and saying, "How do we maintain this?" and we're looking at government to do the same thing.
The Chair: On behalf of the committee, gentlemen, thank you very much for your presentation this afternoon.
CANADIAN MENTAL HEALTH ASSOCIATION, ONTARIO DIVISION; SCHIZOPHRENIA SOCIETY OF ONTARIO
The Chair: The next presenter this afternoon will be representatives from the Canadian Mental Health Association, Ontario division. Please come forward and state your names for the record.
Dr Barbara Everett: My name is Barbara Everett. I'm the chief executive officer of the Canadian Mental Health Association.
Ms Janice Wiggins: Good afternoon. My name is Janice Wiggins, and I'm the executive director of the Schizophrenia Society of Ontario, just to distinguish our two organizations, and we truly appreciate the invitation of the CMHA to co-present with the committee today.
Ms Brigette Hough: I'm Brigette Hough. I'm president of the Toronto chapter of the Schizophrenia Society.
Mr John Trainor: My name is John Trainor. I'm chairman of the Ontario Working Group on Early Intervention in Psychosis, and we are partners with the Canadian Mental Health Association in that effort.
The Chair: On behalf of the committee, welcome, and you have 30 minutes for your presentation.
Dr Everett: Thank you very much for the opportunity to present to the committee. We thought we would keep it relatively short, perhaps 15 minutes of our presentation, and then take questions and have conversation, because that's the way we like to do things.
My name again is Barbara Everett, and it's a pleasure to be here today.
The CMHA, Ontario division, represents 35 branches, and that's 35 agencies all across the province, serving the seriously mentally ill. We also represent approximately $50 million in spending in community health endeavours, and we serve about 65,000 clients a year.
While it would be typical for me, invited to this committee, to speak about the needs of community mental health in general, specifically when a sector is under pressure due to the divestment and the downsizing of the psychiatric hospitals, I wanted to do something a little different today, and hence my partners are here with me today. What we would like to do is highlight a good-news story in mental health. They're not that common, and we thought we'd bring that to you today.
The good-news story is early intervention treatment in psychosis. Psychotic illness is typically understood as schizophrenia, but it's not necessarily so narrowly focused. However, in this case, we're going to talk specifically about psychosis as it relates to a diagnosis of schizophrenia. The onset of schizophrenia is often in mid or late teenage years, and children at that age can go years without recognition and diagnosis of this particularly difficult illness.
One of the CMHA's roles is to create or to participate in partnerships in mental health care in Ontario, and today I've brought my partners with me. We have joined together in order to look at early intervention for youth experiencing psychotic illness. The partnership represents mental health professionals, physicians, families and consumers. The other partners, who couldn't be with us today, are the Hamilton Health Sciences Centre, the London Health Sciences Centre, and the Ottawa Hospital. So this is a project that has a true provincial scope to it.
As you probably are aware, partnerships are always complex and partnerships in mental health are doubly so. Families and consumers often cannot agree on what is the best course of action to take. Mental health professionals and policy-makers can be at odds with one another. However, every so often an idea comes along where we can all agree on the right course of action to take, and in this case it's the early intervention strategy.
Psychotic disorders, most notably schizophrenia, strike young people. When that happens, it's not generally easily recognizable, and you can imagine the confusion of the families when they are struggling with these kinds of manifestations of symptoms in the home. The teens themselves can hide these symptoms as a part of the disorder but simply from shame and not understanding what is going on. Professionals can misdiagnose, also not understanding what is occurring at this point in time. The result is tragic. The teens can grow up to be extremely troubled adults. They can drop out of school. They become alienated from their families due to the disorder and they end up alone and, in worst-case circumstances, can end up on the streets.
The other side of the story is that this can cost millions of dollars to the system in health care. You've not only created a chronic mental health patient, but you've lost the opportunity for a productive adult in the world. The capacity to get an education, to get a job and to pay taxes is all lost to us.
So there are two sides to the coin. There is the suffering that is engendered by psychotic illnesses, but it's also the cost to the system when they are not identified and treated early.
Today we have a model that works. The early intervention model is dynamic, is creative and is effective. It starts off with substantial public education to the teens themselves, their families, teachers, guidance counsellors, coaches, clergy-wherever the kids hang out-talking about the early signs of psychosis. It's an interesting innovation in health care when you talk about public education, because often health care is focused on illness care. In this case, these types of projects go out into the schools. The Schizophrenia Society and other family groups are particularly helpful because they go and speak directly to the kids themselves and to the people that the kids are likely to interface with and trust. They tell them all about what psychosis can look like, not to be ashamed to get some help and to get it early.
What then happens is that youth can actually be treated at home. There are innovative clinical teams that go out into the community, meet with the families and treat the kids at home. We recognize that it can be stigmatizing for kids and their families to show up at a psychiatric hospital, and therefore these kinds of innovative treatments are particularly valuable because they defend against stigma. The kids can stay in school if they're well enough, there's minimal interruption to their lives, and something else that's important is that they're treated with low doses of medication. So this is a little problem treated in the least intrusive manner possible and of course at a low cost to the health care system. The thing is that it works. It doesn't work for everybody, and we don't want to overstate our case here because there are certain numbers of people who have a really difficult onset and they're going to have a long, difficult struggle with the disorder, but for other people it works. Brigette will speak eventually about the good-news stories and what they look like.
Before you I've circulated a proposal that suggests a foresight pilot project, hence our partnerships with the academic health science centres. It extends existing clinics in early intervention and it's province-wide. The cost is $4.8 million per year. In the staggering cost of health care, that is not a lot of money. That includes only the provision to provide the service and a public awareness campaign. There's no statement in there of the savings to the system of youth who are saved.
Early intervention clinics save lives and they save money by ensuring that people with schizophrenia and other psychotic disorders do not become chronic, long-term mental health patients and instead grow up to lead productive and meaningful lives. The CMHA, Ontario division, is suggesting, in concert with our partners, that early intervention in psychosis not only works but it's cost-effective. It's a good-news story for Ontario's youth.
I'd like to turn it over to Janice. I believe you're going to speak a little bit about the Schizophrenia Society, and then Brigette.
Ms Wiggins: Yes. Thank you very much, Barbara. As I stated from the onset, we appreciate the opportunity to present in partnership this particular proposal with the CMHA and other partners. This really represents a first for our organization.
As many of you are aware, we're a family-based organization and we provide public education and awareness. We seek better laws and policies for the mentally ill and we represent people with the illness as well as people whose family has been affected. You can be a family member or a friend of a person with schizophrenia. As you know, it's the most serious of all psychotic illnesses.
While I'm here today to support the early intervention program which Barbara has introduced for you and Brigette will provide more detail upon, I also would like to respectfully remind all the members that there are many other services and fundamental and basic resources that are needed in the mental health system for the seriously mentally ill. However, because we have very limited time today, I'd like to turn the presentation over. Brigette Hough, by way of introduction, is one of our fabulous volunteer family members who donates probably the equivalent of a workweek and then some to the organization and to the cause of helping those people who are seriously mentally ill and their families. Brigette, please take over.
Ms Hough: Thank you, Janice. I'm one of two representatives of the Schizophrenia Society of Ontario on the Ontario Working Group on Early Intervention in Psychosis. The other, who is not able to be with us, is Ian Chovil, who is a man in his forties who has schizophrenia. Ian is also on the Schizophrenia Society's board of directors and does educational work in the Guelph community around mental illness.
I'd like to quote from Ian's presentation last June to the schizophrenia conference in Kingston. He told us his story:
"I had an insidious onset, which is a gradual increase in symptoms over the course of several years. By the time it was obvious I needed help there was no one who could help me because I had lost all my human relationships. I had been kicked out of university, I had alienated my parents, I had lost all my friends.
"I was psychotic for 10 years. I was homeless, I attempted suicide and I spent a couple of nights in jail before I was court-ordered to see a psychiatrist as a condition of my probation." Ian says: "I often wonder why I had to lose 10 years of my life to an untreated psychosis. In fact I wonder, why didn't I receive help in the first five years, as I became psychotic?"
Now this is me speaking. Studies show that the average young person who is experiencing psychosis has had one to two years of symptoms before treatment is initiated. If this were cancer or heart disease, our society would not tolerate such an appalling delay in treatment. As in cancer and heart disease, the benefits of the earliest possible treatment are proving to be a shorter and more complete recovery.
So today we know that there are still unacceptable delays in treatment, but the family usually knows that something is wrong. But, largely through ignorance, they don't recognize what it is. So the public, particularly those who are in daily contact with young people in the vulnerable age range-and we're talking adolescents and young adults-need intensive education about the early signs and symptoms of psychosis. Then they can make sure that these young people get prompt, specialized and supportive assessments, treatment, rehabilitation and follow-up.
Early intervention in psychosis is not an experimental treatment. Similar strategies have been in place for some time in other jurisdictions, notably in several provinces, Australia, the United Kingdom and some of the Scandinavian countries. In our own province, there are already two pilot early intervention programs, with two more in the process of coming on-line. The time has come to strengthen these pilot programs and plan to provide the whole population of Ontario with access to the leading-edge treatment for psychosis.
I'm going to end with another quote. This is from a mother whose daughter, now 20 years old, received treatment and support from the early intervention program in London, Ontario, one of our partners. She says, "I am pleased that after almost four years, Tara remains healthy as a result of a new approach to the treatment of schizophrenia. My daughter has avoided any relapse of her illness and she looks forward to a promising future. Early identification and treatment has greatly influenced the outcome of my daughter's health, and I'm grateful for the new thinking which has helped us avoid the full burden of a serious mental illness."
Ladies and gentlemen, the promise of early intervention in psychosis is that some young people, instead of being discharged to a lifetime care of caseworkers, ACT teams and social services, are returning to school, are completing their education, are entering the workforce and becoming contributing members of society. Surely that's what this government wants.
Dr Everett: That concludes the more formal portion of our presentation. I anticipated questions. We brought John along, not as window dressing, but because he has been the chair of the work group right from the outset. Should you have specific questions about early intervention, he can help you with that, while Brigette and Janice can talk about the family perspective and I can pitch in on community mental health in general.
The Chair: We have approximately three minutes per caucus. I'll start with the official opposition.
Mrs Pupatello: It was interesting that the government decided on a tack of early identification in terms of needs for children in general and in particular with the children's mental health agencies that are spread out across Ontario and in total have a budget that equals less than Toronto Sick Kids Hospital, considering the many needs across the province for those services. I'm assuming that your organization works with these same individuals who would be identified as needing intervention. I often thought how cruel it was to have young kids identified as needing intervention, and then the agencies are powerless to actually intervene, because they don't have the funding available. Over time, their budgets have not grown or kept pace with the needs of these children to have an intervention service.
In my community and in many across Ontario, we're seeing the waiting lists growing longer and longer for service. In some cases, the statistics are fooling us, because the first intervention will be considered a phone call. So that essentially gets them off the waiting list, because there's been an intervention of a telephone call, and that puts them off to some other list. Do you have any comments about this?
Dr Everett: I think I could pitch in there. This particular project is the adult mental health system reaching down to younger people. You know, there's a substantial lack of interface between the adult system and the child mental health area. Because we can work with teens here, we get into what's called transitional-age youth and we have a responsibility toward transitional-age youth. But everything that you've said we witness and understand because we are responsible for those children when they become adults.
Mrs Pupatello: In fact, your numbers are growing and the severity of the conditions that you're seeing is growing, and that's because we've failed so miserably at a very young age for these kids. In light of having had the first children's ministry, which the government vaunted and which has now disappeared-I think under the carpet of another ministry since that time-really we've seen nothing change on the front line other than a shifting of statistics into different places. Kids are still very much in need, and frankly it's a cruelty to identify more kids at risk and then not be able to provide the intervention that's required for these children.
Ms Hough: The clinical interventions that we are talking about here are very clinical interventions; we're not talking just making clinicals.
Dr Everett: No, they're specific and very active outreach.
Mrs Pupatello: In fact, for some of the very serious cases there's initial significant expensive intervention but, as you're pointing out in your submission, over the long term the government would be saving millions and millions of dollars by intervening at this pace at an early age.
Dr Everett: Yes.
Mrs Pupatello: Thanks for coming today.
The Vice-Chair (Mr Doug Galt): We'll move on to the third party.
Mr Christopherson: Thank you for your presentation. I believe you said there was a dollar figure of $47 million.
Dr Everett: It's $4.8 million.
Mr Christopherson: Pardon me, $4.8 million.
Dr Everett: We'll take $47 million.
Mr Christopherson: I'm sure you would. I know what it was; $47 million was what the builders wanted. They did, just a few minutes ago. That was their figure. You only want a percentage of that.
Given the dollars involved here and the number of people who are affected, are you able to put a figure to the actual dollars that can be saved as a comparator?
Dr Everett: I looked at those. As you know, we have a knowledge centre at CMHA, and we have general figures for children's unidentified mental health problems and they are in the billions of dollars, and they're not broken down specifically into psychotic disorders. But you certainly can imagine the burden on the system of an unidentified psychotic disorder of a teen in trouble with the law who perhaps is apprehended and put into the youth correctional system and ends up in the psychiatric system, who has caseworkers and ACT teams attached to them, who has to be in subsidized housing for the rest of their life and on social assistance.
Mr Christopherson: Also, as a former Minister of Correctional Services, we all know the percentage of people in our jails who have a history of mental illness.
This is one of the key things. I've got to tell you, my experience is that we get a whole lot of the financial folks roll in here and they make the arguments about what's going to happen five, 10, 15, 20 years out and this government listens. We get a lot of social or health groups, community groups, environmental groups for that matter too, that will come in and make the same argument and it just lies flat. It doesn't register.
I want to suggest that somehow collectively we've got to find a way to show-and maybe it means a different way of showing financial accounting, where we actually build in-and it was suggested in the past and governments have been afraid to do it, but we've got to look at things differently. If you make the investment now, then you actually build in X dollars of reduction, conservatively-small-c conservatively. But build that right in so that people can see that it does actually equate to less cost in the future, because unfortunately, to make the case on the heartstrings alone doesn't always do it, certainly not with this government. It's got to be boiled down to its lowest common denominator, which is dollars.
I want to tell you that when groups come in-the Ontario Chamber of Commerce came in a little while ago and the Greater Toronto Home Builders' Association-they talk about certain tax cuts or certain reductions in the debt that they'd like to see; the chamber wanted an acceleration. Those are expenditures. Some folks have a problem hearing that or accepting that, but the reality is that is spending money. You've just decided to spend it in a way that's different than actually going out and buying something, if you will. But the government is still spending money. In this case you're talking about $4.8 million. For instance, $4.8 million would help roughly how many young people over a given period of time?
Mr Trainor: I think each of the clinical sites that we're working with that would be involved in the four pilots across the province would be dealing with between 200 and 300 people a year. There are four of them, so that's the number of people who would be helped each year.
Mr Christopherson: Sorry, what was the figure per?
Mr Trainor: Two hundred to 300 per site per year.
Mrs Molinari: Thank you very much for your presentation. It's certainly a very sensitive topic. I represent the riding of Thornhill. I had a family actually come and see me when the introduction of Brian's Law was in the picture, and we were certainly encouraged to pursue that and continue that. I heard some very troubling stories of what families have gone through over the years because of such a sensitive area when we're dealing with adults and they're at an age where it's difficult for families and parents to help those who don't realize that they need the help at that point in time. Certainly having heard their stories gave me a greater sensitivity to the need for this type of service.
I note that in your presentation-and I thank you for breaking it down in various areas and actually coming up with dollar figures and what it would cost to provide the type of early intervention services that you're recommending here today. In the last page you also indicated that there have been some funds that have been awarded since the presentation of this. Could you expand a little bit on that and what the funds are for and what the presentation for your request was and how it was granted?
Mr Trainor: I can give you a little bit of information, a little bit of background. When we began the working group, which includes the organizations represented here, plus the clinical sites that have been mentioned from the health sciences centres, we did from the beginning involve staff from the Ministry of Health and Long-Term Care, from their mental health policy group, and made sure that they were aware of this. We have worked closely with them for the past year.
Two kinds of support are in the works. One is a study between the four sites-Ottawa, Toronto, Hamilton and London-that would look in more detail at how these programs work, what kinds of outcomes they're generating and what are the best ways to go about providing them. The second thing that has been announced, and that was just a couple of weeks ago, was from the Ministry of Health and Long-Term Care's Toronto region, and that was funding for an early intervention mobile treatment team for the Centre for Addiction and Mental Health. The funding amount is $855,000. That team is already in fact being developed, now that the news has been received from the ministry. Those are certainly steps in the right direction. Our overall strategy, which includes budgets from the four clinical sites, as well as the family groups and the CMHA and the working group itself, has also been developed and submitted to the Ministry of Health and Long-Term Care.
Mrs Molinari: This present funding that you've already received, is that going to serve-you've given us a number of people who would be served per year with the amount that you're asking here. You said between 200 and 300. That initial funding, what specifically will that do for the end client?
Mr Trainor: The funding that has been awarded to the Centre for Addiction and Mental Health is for a mobile early intervention treatment team. This is a psychiatric treatment team that involves a group of disciplines: nursing, social work, occupational therapy and a psychiatrist. The team will be able to go on a rapid-response basis-it could be to a high school, a family practitioner's office, it could be an emergency room where somebody has turned up who is showing the early symptoms of psychosis-and provide whatever treatment is needed to get them the help that they need. It's estimated that team will deal with about 250 patients per year and will treat them for a period of time. It will not keep them in the long term, but perhaps three to six months until the early intervention is completed and they can be turned over to other components of the mental health system, or if they can't be, they will continue to be supported by that team.
The Vice-Chair: Thank you for your presentation. It's much appreciated.
CHILD POVERTY ACTION GROUP
The Vice-Chair: Our next delegation is the Child Poverty Action Group. Good afternoon. Make yourself comfortable. Welcome. We look forward to your presentation. You have a half-hour for presentation and for questions and answers, questions and answers being divided equally by the three parties.
Mr Colin Hughes: Thank you very much. My name is Colin Hughes. I am with the Child Poverty Action Group. With me is Dr Brigitte Kitchen, who is a founding member of the Child Poverty Action Group.
What we would like to do is walk through the brief we've given you. I should note that the Child Poverty Action Group has been in existence for about 16 years now. In 1985 it was very difficult to get people to register that children were actually in poverty. Sixteen years later, it seems that we've got people registering, they do understand, that children are in poverty, but what we're not getting is action. I think what we'd really like to do is try to promote what kind of action we can start to see from Ontario once again. So we would like to quickly walk through this brief and then we really look forward to some discussion.
We'll start with the fact that Ontario does in fact have a huge child poverty problem. What we have seen over the last two years, and one would say it's about time, is a decline in the number of children who are poor. What is really quite astonishing, though, is that given the kind of economic growth we have, given the kind of prosperity we've had, given the decline we've seen in things like the unemployment rate, the number of people on welfare, is that the decline in the number of poor children has been really quite marginal in comparison to that. We have about a half-million poor children in Ontario, about 470,000, I believe, so that makes about one child in five in Ontario poor.
We have a few legacies that I don't think we should be very proud of. Ontario since 1996 has been one of only two provinces, the other province being Newfoundland, that has actually seen the depth of poverty grow among families. The average poor family is somewhere in the area of $9,800 below the actual poverty line. We have a big debate about the poverty line; it's an artificial debate. Poor people live thousands and thousands of dollars, on average, below the poverty line.
Ontario has also seen significant growth over the past decade, since 1989, in the number of children who are poor. We've seen a 91% growth in the number of poor kids in this province, compared to a 28% growth in the number of poor kids in the rest of Canada.
The message we've been hearing from the government of Ontario has consistently been one of placing a fair amount of stock on economic growth and on tax cuts as a way of getting family income security. What these numbers, we think, show is that that is a fairly limited strategy, that that strategy isn't really going to work. Clearly from the numbers, the amount of economic growth is showing that we're not going to grow our way out of the problem.
Tax cuts, as we see in our brief, are problematic. Mostly across-the-board tax cuts really do result in an unequal distribution of the benefits. Low-income families get very little, if anything; upper-income groups and families get the lion's share. They are also quite expensive, which means they use up any kind of public revenues that we might have for alternative policy directions in terms of giving away those revenues in the form of tax cuts.
What we're suggesting is a more balanced approach, that we put the brakes on the across-the-board tax cuts and that we look at investing in other areas to promote the well-being of families. We would like to highlight quickly some of the areas that we think some action should occur on.
The first one is around the national child benefit supplement. Federal child benefits come in a base benefit and a supplement for lower-income families. That supplement is clawed back from social assistance, and the idea of the clawback is to promote labour market attachment. In other words, if you're working, you get to keep the full supplement; if you end up on social assistance, the value of that supplement is taken away from you.
We think this is really problematic for two reasons. The argument that it promotes attachment to the labour market is weak because it is taken away from recipients who aren't expected to work at all. These recipients include parents who have very young preschool children. Under Ontario Works they are not expected to work, and yet their money is clawed back. It includes disabled parents, who are not expected to work, yet the money is again clawed back. It also includes community foster children. These are children who are taken into the homes of relatives or neighbours because their parents are unable to look after them for a period of time. We certainly don't expect them to work; it's clawed back from them. So we have a huge inequity just in this whole idea of whom we consider employable and why the benefit is taken away from them.
The second problem is that it doesn't really address the big reasons that families have trouble leaving welfare, and these are outlined in our brief. They include growing in-work poverty and the whole problem of welfare poverty, which in itself is a huge barrier. You can't find work if you can't have a secure home, you can't find work if you don't have a telephone, if you have shabby clothes, if you have ill health, because you're so deeply poor that you can't afford those things. It's self-defeating.
Our recommendation is to really do what was intended with the federal benefit. The federal benefit was intended to fight child poverty. It does represent some progress in that area. A lot more could be done federally. We think the province should allow recipients to keep the full value of the benefit and not claw it back from their welfare assistance.
There is a reinvestment. This is the money that is taken from welfare and gives provincial savings, and that does get plowed into a child care supplement. There are some good things and some bad things about the supplement, things we like and things we don't like. The obvious one is that you really need to use revenue other than the clawback for this supplement. This supplement really shouldn't be funded by taking money from one group of poor children, welfare poor children, and giving it to another group of poor children.
The other difficulty we have with it is that it's not really child care. It is called a child care supplement. That's great. At least it acknowledges that child care is an issue for families, but it really doesn't address that issue. The supplement is not tied to any kind of child care expense at all. You can receive that supplement and not have any child care expenses. The amount of the supplement is not enough to pay for very much child care, so it's not going to go very far. Perhaps the biggest problem is that you're not going to build a system of quality child care through supplements. It's just not going to happen. That's where you have to start teasing out these policies.
If you look at what's good about this particular program-and we were pleased to see that it has been bumped up a couple of hundred dollars for single parents in last year's budget-is that basically it's a work income supplement. We think, and we are recommending, that you should really relabel it as a work income supplement and that you should pursue child care through other means, as a separate policy option, so that you can be sure to build in the quality dimensions that are very important, and you can't do that through supplements; finally, that you of course fund it from other provincial sources of revenue. Again, taking it from one poor group and giving it to another poor group is just unfair and unreasonable.
We would also like you to do something about minimum wages in this budget. It is very unfair, in our view, to expect people to have a work ethic and then to pay them increasingly less every year for their work effort. This is just utterly indefensible. That minimum wage has been frozen since 1995. We calculate, if you take a look at what's happened in terms of inflation, that a working parent putting in 40 hours a week, 52 weeks a year, has lost about $1,350 in purchasing power. These are the poorest working people, and it is just unconscionable that that wage remains frozen. So we're really very much urging that you bump that minimum wage up to $7.50 an hour to compensate for five years of inflation. It is really only fair and it won't cost the province a single nickel to do that.
We're also very concerned about the proposed changes to the labour code that may lead to families having to work 60 hours a week or having to take broken holidays. We would really encourage you to throw that out. We believe that is anti-family and that, instead, you should be looking at ways that the labour code can actually support families in the labour market.
In the area of childcare, we believe you have to look at both the supply and quality of care, that these both go hand in hand, and that you should be pursuing two goals: one goal should be to help parents work and the other should be to give children a good start in life. Ontario really has gone from being a leader to a laggard in childcare. The official policy of the province of Ontario for, gosh, I don't know how long, has been to develop childcare as a public service. That no longer seems to be the case. There has been a $70-million cut to regulated childcare since 1995, and we really need to be turning this around. Ontario is heading in one direction, where it used to lead. The rest of Canada, British Columbia, Quebec and, more recently, Manitoba are clearly moving in the direction of developing decent childcare systems. Ontario should do that.
There is a real incentive to do that as well. The federal government is going to be investing $844 million into prenatal childcare and parent supports. We really want to see the province come up with the $70 million that has been cut and to develop a comprehensive package to put some particular emphasis on moving on childcare.
Briefly, with the early years challenge fund, we're very concerned about what would appear to be the development of a new level of bureaucracy that is very partisan, that is connected to the Premier's office, and we would very much urge you to look at the existing and non-partisan mechanisms for providing funding to develop early years programs outside of what currently is happening.
Unemployment insurance isn't an area of provincial jurisdiction, but it should be an area of provincial concern. It would appear that we may be heading toward a recession. Ontario would be very, very wise to take a look at what's happening to the employment insurance fund. Coverage in this province for unemployed workers has dropped down to about one unemployed worker in four. It's been estimated that Ontario is losing $2.25 billion per year because of changes to employment insurance coverage.
Employment insurance really should be the first line of defence for families if they lose work. If that's not going to happen, you can bet what will happen is that they will land on welfare, which is a poorer program and is, of course, going to cost the province considerably. So we would really urge that the province press for fuller coverage and that working families get, in fact, what they're paying for.
In terms of welfare, there are basically two approaches to welfare reform. One is the workfare approach, which is the approach which has been adopted by this province. It tends to emphasize cutting benefits; it emphasizes making life hard for recipients on welfare and getting the quickest route as possible into any job. The second approach tends to emphasize more of a reasonable minimum income, one that is enough to reasonably pay for housing and for other basic needs, and makes investments in people and in the labour market. The Child Poverty Action Group is basically just opposed to workfare. We believe it's degrading, we believe that it's ineffective and that basically what it results in is a revolving door into deeper and deeper poverty between welfare and work.
The more specific point we would make in our brief is that the cuts really are hurting. They are hurting bad. The 22% cut to welfare-personally, I do not understand how anyone can live with this on their conscience, but that has been terribly, terribly hard on families. That cut is now a 28% cut when you factor in inflation. The cost of everything everywhere goes up. The fact that there has been no increase to the benefits also affects the disabled, even though their benefits were not slashed by 22%. Their rents go up, their food goes up, their clothing goes up, everything they need goes up, but those rates have been frozen.
We're very much opposed to workfare. We do feel it's degrading. I think the Minister of Community and Social Services's announcement on the whole drug testing-reaching into a box of syringes, saying that recipients were shooting their cheques up their arms-is just a characteristic of the approach to welfare that is beating up some of the poorest people. And those people have kids; 40% of those families, those people on welfare, are kids. What message is this government sending to those children about their parents? We really have to take a look at what's going on. You're not going to get far beating people up. It's just not working. I don't care if the caseloads are going down. The caseloads are largely going down because of economic growth and because it's been made hard to get. That is not good enough. We really need to get away from this whole workfare business and begin to get away, for goodness sakes, from this welfare-bashing. It's shameless. We would really like to see the province in this budget restore the benefit levels at least to what they were in 1995.
We would like to see some discussion and some action taken on assured child support. We understand that arrears are being reported to the tune of about $1.2 billion. What we're really urging is, yes, step up enforcement. People do have an obligation to pay child support and there has to be that enforcement, but you have to also start looking at making the system child-centred. That means that you make sure the child receives payments in a regular way at a pre-set minimum, and if the parent defaults or delays for one reason or another, the child still gets that support that they're entitled to. In other words, the state goes up to bat for the kid.
The whole area of housing: we have concerns about the impact of rent controls. There's a chart that shows what the impact has been in Toronto. When the controls were announced in 1998, you can see that when you take inflation out of the rental increases, the rents popped up considerably. This is a very disturbing thing, especially if this is a trend. So we're asking, where is the protection in the Tenant Protection Act? We really need to see some guts in that act and that act has to be revisited.
We also really need to see some action on affordable housing. We just simply can't go on as it is right now. We now have 6,200 children living in shelters in the capital of Ontario, in Toronto. This is just unconscionable. This is a 130% increase since 1988, and all the forecasts show that we're going to end up with even more kids growing up in shelters. Some of these families are living in shelters for up to a year. Can you imagine growing up in a shelter? This is absolutely shameful. The market is not going to do it. We really have to get into the whole area of building affordable housing, on the one hand, making sure there are protections for tenants, on the other hand, and then, of course, making sure people have the income to start with.
Our final point is around post-secondary education. The link between higher education and employment is absolutely irrefutable. We won't discuss that. I'm sure we all agree on that. We're very much concerned about the growth in tuition. There has been about a 150% increase in tuition in Ontario over the past decade, and the average student debt is now around $25,000. We really think that tuition has to start coming down overall because that is an access issue, and if you have people coming out of education with huge debts, it's really quite self-defeating. Either they won't pursue it or they're just going to be financially crippled by the time they get their college or university studies finished.
The other area that needs to be revisited is the whole grade 12 maximum in terms of access to any kind of education for social assistance recipients. The research is fairly clear that if social assistance recipients who qualify can pursue post-secondary education, they often end up earning enough not only to leave welfare altogether but to actually leave poverty. Even in Alberta, in their welfare reforms, they made provision for recipients, particularly for single parents, to have access to post-secondary education. So we would urge that you head in that direction.
I hope I haven't taken too much time. We've given you the shotgun effect in terms of a lot of different policy areas but we really think that a comprehensive approach is necessary. There are all kinds of opportunities here for Ontario. Some of these things don't cost Ontario a nickel; some things require adjustment but it's money well invested.
We welcome your questions.
The Chair: We have approximately three minutes per caucus. I'll start with the government side.
Mrs Molinari: Thank you very much for your presentation. It was certainly a very passionate presentation when we're talking about the welfare of our children and their future. It brings out a lot of passion within all of us. I think we all agree they are important to all of us and to our future. I think there are varying views on how we achieve the long-term benefits and effects that we want for our children, but you've made an excellent presentation with a number of recommendations. They are very succinct and comprehensive and to be included with all of the other presentations that are here. So I want to thank you, on behalf of this side of the table, for the very passionate presentation you've made today.
The Chair: Do you have any questions? If not, I'll go to the official opposition.
Mr Phillips: I appreciate your thoughtful presentation and particularly the work that you do. I'd like to comment on your comment, referring to the Minister of Community and Social Services and the syringes. I've said this publicly in the House twice now: I find what the minister does reprehensible. He puts up posters saying, "If you suspect anyone of welfare fraud, phone this number." The syringes play to fears that people have and misconceptions about people on social assistance. He will wave around a credit card that he found on one person on social assistance to leave the impression about many on it. I've said it twice now; it's been one of the more distasteful things that I've found here in the Legislature.
That is the minister who in my opinion should be defending our most vulnerable, not attacking them. The public I think want to spend their taxpayer dollars wisely, and doing that does more damage to the collective will all of us have had in this province to make sure that we look after each other in tough times. All of us will go through a difficult patch in our lives-all of us-when we need a little bit of a helping hand. I found attacking the most vulnerable by the minister who should be defending them very distasteful and it undermines the public's will to support those programs. I don't mind saying that without him here because I said it to his face twice in the Legislature.
I appreciate your recommendations. My comment is on your opening statement. One of the ways the government, in my opinion, dismisses poverty among young people is to say, "That's overstated." They are using one measurement and others use another measurement. When you dismiss it as not a problem, then the public say, "It must not be a problem that we need to tackle." Can you help humanize the issue of poverty among young people and help us to understand better the level of poverty among young people and what it means in real terms? As I say, that's the starting point, I think, in your brief.
Dr Brigitte Kitchen: It's interesting that you tackle poverty from this perspective, because in Europe they have given up talking about poverty. What they are talking about is social exclusion. They are looking at those factors that make it difficult or impossible for people to have and share in what the rest of society takes as normal and acceptable standards of living. The European Community now bases its whole development of social policy on achieving social inclusion. For instance, if on average children in the European Community achieve an education of 17 years, it is considered as socially exclusionary if you leave school at 14 or 15. You are supposed to come up to at least the average.
You can argue over and over again, as we have done in this country, how much a family needs, how much an individual needs. I don't think you have to be an Einstein if you think about $520 for an individual on social assistance in the city of Toronto. I just taught a class on social administration and I asked my students, "Go out and do a budgetary analysis." They came to the conclusion that with that kind of money, either you are supposed to learn how to cheat or you have to go and steal. In either case, it's not very social behaviour that is being encouraged by those kinds of support levels.
What we have to do is talk in realistic terms about what people need. People do not compare themselves with people in poverty in some Third World country; they compare themselves with what people have here. Colin talked so movingly about the housing problem. Wouldn't we all agree that every Canadian citizen and resident has a right to housing? We have 6,200 children living in shelters in Ontario.
Mr Hughes: In Toronto.
Dr Kitchen: In Toronto. As Colin said, some of them stay longer than a year when all the child development literature says that what children need is consistency and stability. Some of these children move in and out of shelters-another way of upsetting them in their developmental opportunities. That is just one kind of policy. It's short-sighted, because instead of preventing problems we are creating problems.
Mr Christopherson: Thank you for your presentation. I won't name names, but I've got to say that the response from the government side was pretty pathetic, to the extent that all we got was a nice little pat on the head for you for coming in. They didn't even use up all their time, no engagement of the discussions at all, just a hope that you'll go away because you're the problem. All the things you present here today, and a loudmouth like me, are a problem, because we get in the way of what they want to do. It's just so infuriating. I look at all the issues you've listed here, and every one of them we've taken to task on the floor of the Legislature time and time again and none of it seems to get through. All we hear about is that more tax cuts are going to solve all the problems of the world. It's so sad.
My question to you would be this, and I'm sure it's a difficult one, but if the recession continues-we always said this is where you will see things. You can paper things over when you've got money because, as you pointed out, there's growth. It does create some jobs. It hides things. When that disappears, as it does in the cyclical nature of things, this is when it gets exposed. If we continue like this for any length of time, out of all the key areas you identified this morning, what are the ones you think we should watch for in terms of there being the most notable deterioration? What should we who care a lot about these sorts of things be watching if the economy continues to slow down in terms of the first signs of further deterioration, almost an accelerated deterioration, because of what's happening and what's being exposed?
Dr Kitchen: I think Colin addressed that, because the first thing that's going to happen is that the welfare caseload will start increasing.
Mr Christopherson: Which has started already.
Dr Kitchen: Yes.
Mr Christopherson: We saw January go up by 4,500.
Dr Kitchen: The second thing that's going to happen is we will see more and more homelessness. As far as from where I sit as a professor of social work at York University, that's what my students bring back, the increasing risk of homelessness of families. You talk about the cracks only appearing in recession. I think the cracks become deeper in the recession, but we have had now a number of good years of economic growth and the poverty rate of children in the province has not come down substantially. It has come down slightly, but what we are seeing appearing is a deeply ingrained problem of a low-wage sector where people who have children, ie, parents, find it impossible to get out and give their children the kind of life chances that are needed for the social inclusion I talked about that has become the key policy issue in Europe.
The Chair: On behalf of the committee, thank you very much for your presentation this afternoon.
COUNCIL OF ONTARIO CONSTRUCTION ASSOCIATIONS
The Chair: Our next presenters will be representatives from the Council of Ontario Construction Associations. Could you please come forward and state your name for the record.
Dr David Surplis: It's good to see all of you again. I'm David Surplis, president of the Council of Ontario Construction Associations, and with me is Gary Robertson, a new face to you. He has joined COCA from industry. He worked for many large construction firms in the last few years, around the Hamilton area in particular. As I refer to him, he's the real person. He can tell you about the industry first, as of course can Mrs Pupatello.
At any rate, COCA is delighted to be here for I don't know how many years it is now. It seems we could just carry on from one year with the same players really, come to think of it. We represent about 40 associations from pole to pole in Ontario, the big ones, the small ones, everything in between. We do not do residential construction. We just remind you of that again. Fortunately, you've had the home builders, or at least Metro home builders, here today, so you'll know that. We do everything else, and that's important to know.
We're the second-largest industry in the province and we're hopeful of impressing that fact on the Honourable Bob Runciman as he settles into the chair of the Ministry of Economic Development and Trade, because we think frankly that construction per se, as the second-largest industry, has been ignored by all governments really at Queen's Park and deserves to play a bigger role here.
In terms of the economy and the budget, which of course we're here for and you're here for, as you know, after 1990, the recession and so on, we dropped down to about $6.6 billion from around $12 billion by the way, and we've recovered back to about $9.2 billion in 1999, a little more than that in 2000. But it has been static. As you can see-I think it's about page 8; it would be somewhere in there anyway, the last page perhaps-the value of new construction is flatlined for industrial/commercial/institutional. That's actually astounding when you notice the growth, the strength of Ontario's economy and so on. When you see that non-residential construction is flatlined, you say, "What's going on here?" That's what we ask all the time. What is going on here?
One of the things that's going on here, and we do want to impress it on you: severe shortages of skilled labour in Ontario-we were just at an outlook conference on January 31-30,000 to 40,000 workers short of the needs over the next four years here in Ontario. The irony is, as I point out in our brief here, most of our members, the 7,000 to 10,000 companies, are busy, margins are improving, but they're not adding new business because they can't find the workers to do it.
So you find anomalies. There was a cancer centre outside of Toronto that had to be tendered out. Five general contractors responded to it. One withdrew immediately, two said they were courtesy bids only, and so there were only two real bids on the work for the regional cancer centre. That's astounding to us, but a great deal of it has to do with the shortage of labour. You just can't get it. As we point out on page 2, the construction labour force has shrunk drastically in Ontario. We're only about 5% of the whole labour force in Ontario now. We used to be up around 6.6%, which is pretty high. We were up around almost half a million at the end of the 1980s, early 1990s, and we're just over 300,000 today.
We have always made a plea, and we will make it again, for champions at the cabinet table. There is no minister responsible for all aspects of construction; there's a minister who has a bit of this and a bit of that. We have to deal with about 14 ministries in terms of getting the construction industry's interests looked after here at Queen's Park. That's not to mention, of course, all the agencies, boards and commissions. But there's no focus, and we would desperately like to have that. As I say, we're going to try and get the Honourable Bob Runciman to play that role.
We've got to say again that we're delighted with the progress made in reducing the deficit and balancing the budget. We're delighted with the announcements of hospital expansion, renovation, long-term-care beds, expansion renovations at the colleges and universities, but the shortages of skilled labour are impinging on those very things. I've mentioned this to the ministers, the Minister of Health and Long-Term Care and so on. If you can't get the workers, you're not going to get all these projects done or you're not going to get them done on time or you're not going to get them done on budget. There are just no two ways about it. There aren't enough workers to put, for instance, 2,000 long-term-care beds in place by 2004 without extra cost. It's just that simple.
Our second message-and I know you've heard it before; we always say it-is about maintenance and expansion of the infrastructure system in Ontario, specifically sewers and water mains, waste water and roads. Again we say-and Mr Christopherson of course agreed with this; I think all of you did last year-because in the municipalities the infrastructure is underground it tends to be forgotten: out of sight, out of mind. It is very foolish not to pay attention to those infrastructure systems, because they do break down. It's so much cheaper to maintain them than to replace them, and we'd just like to see some activity along those lines.
As we say on page 4 here, we don't see any reason at all why the principle of full cost recovery should not be implemented with regard to water systems in Ontario. The Ontario Sewer and Watermain Construction Association, one of the members of COCA, has pointed out for years that the clean water delivery to most homes in most municipalities is subsidized to the tune of about $500 a home. We just don't understand that. We pay full freight for everything else: hydro, heating oil, telephone cables and so on. I know, it looks like a tax increase and so on, but we think it's an investment to keep the infrastructure in good shape, to improve it and, with any luck at all, to expand it.
The same goes for the roads, of course. As I point out, we don't want to get into a Mayor Lastman-Minister Stockwell sort of debate on this, but the fact is that roads and bridges under municipal care appear to be deteriorating or are not in as good shape as they could be. That's just what our members tell us over and over again. As Ms Pupatello would certainly know, we need some help with the roads for international trade at the gateways, the Windsors, the Eries, the Niagaras and so on. We need help with that and we need to be partnering with the federal government.
We're really pleased to see the work of the Red Tape Commission over the last five or six years. They have reduced a number of the burdens that we bore as contractors. Reducing the deficit and the tax burden all help, but one of the things we can't quite understand is the inattention to the problem of revenue leakage at the Ministry of Finance. As we've pointed out to this committee for over five years, the growing practice of replacing employees with independent contractors or independent operators, whatever you want to call them, not only reduces costs for employers, which of course everyone wants to do, but it creates huge shortfalls in provincial revenues, in our estimation, in our research.
Take a construction site with 20 workers, for instance. The average wage for them over the period of a year would be about $50,000 each, or $1 million. The trigger for employers' health tax is a payroll of $400,000. If those 20 workers on the construction site are all independent operators and billing, there is no payroll, there are no employees, hence there is no trigger and not a cent is paid to the employer health tax, not a cent. So we can't figure that out.
Here's another astounding figure that we've got for you on page 5. Out of the Statistics Canada data they show a construction workforce in Ontario of about 300,000, with 110,000 of those as self-employed. That doesn't make any sense. It doesn't tell you that there are 110,000 independent operators out there. What it tells you is there are 110,000 people who are paid that way. That phenomenon has enormous ramifications for, as we say, the employers' health tax and other taxes-we'll get to that in a minute-but certainly for the Workplace Safety and Insurance Board. If they're not workers they're not covered; there's nobody paying premiums on their behalf. They're not covered. It doesn't make any sense.
Our research shows-and we're repeating ourselves but it's been confirmed now by WSIB themselves-that less than 50% of the construction workforce in Ontario is registered at the board. We don't think that's good for the workers, it's certainly not good for the WSIB and it really isn't good for our members who are paying WSIB because as the shortfalls increase in revenue to the board, what do they do? They up the rates. And what do our people do? For the unionized ones, of course, there's no way they can escape or dodge. For the rest of them, many go underground, more and more every year. It's driving us nuts, and we've got a whole plan with the WSIB to address it, but it looks like it's going to take a number of years to get it going.
Our bottom-line projection for the Ministry of Finance is that with the revenue not being declared, with the payrolls not being declared-we don't think that the independent operators are declaring all of their income for tax purposes-when you total it up, we think that the Ministry of Finance here is losing between half a billion and $1.5 billion a year. That's potential. It bears serious examination. That is what we would like to see, some more attention paid to the revenue leakage.
Interestingly, one of the things we're working on at WSIB, the federal legislation was changed to allow the Canada Customs and Revenue Agency to talk directly with workers' compensation boards and they're doing that now. You need a memorandum of understanding, but once they've got it in place they'll be able to check CCRA records and see which companies are making deductions for employee costs and then run it against who is or is not registered at the board and go after them.
I know I'm repeating what I said last year, but we think it bears repeating. There isn't a single agency in Ontario, not any part of government, the Workplace Safety and Insurance Board, the labour relations board, anything, that can tell us how many construction companies there are in Ontario. There is no place that can tell you with any degree of authority how many construction workers there are in Ontario. They are all guesses. They're reasonably good guesses, but there isn't a single agency that registers companies or workers, and we would like to see that.
A couple of things-and I want to wrap up because we do enjoy the give and take of the questions and answers better. Perhaps you do too.
But we do want to say some of the initiatives and brag. The building regulatory reform advisory group report, of which we are a part of course, has a number of things that will be very helpful to the industry, some that may be detrimental. We don't see, for the life of us, why superintendents and ICI construction have anything to do with the code because they follow the drawings and specifications that have already been stamped by engineers and architects at two levels, the ones who've initialled them and the municipalities that have approved them. It doesn't make any sense. We don't want the red tape and costs of running 9,000 of our superintendents through some kind of training course. But the Red Tape Commission is well aware of that.
We also want to mention that we were part of the brownfields redevelopment advisory group. I think there's quite a lot that's going to come out of that to help. If you look around any of your communities, the brownfields are everywhere. The impediments to smartening up those sites, providing work, providing a tax base, providing all kinds of things is a real challenge and we commend it to everybody. We hope that out of the brownfields we can get there.
Finally, of course, we'll leave you with our usual offer and that is, we have tens and hundreds of highly qualified, industrious people with expertise in the construction industry and all kinds of other things at your beck and call. If you ever want any advice on anything, please just give us a call, whether you want us individually or as groups. We want to help, because frankly, as I said, the conclusion is that when Ontario's booming, the construction industry is booming and vice versa. When we're booming, so is Ontario.
That's about it. If you have any questions, Gary and I would certainly be happy to get going here.
The Chair: Thank you very much. We have approximately four minutes per caucus and I'll start with the official opposition. Mr Kwinter.
Mr Kwinter: As always, I enjoy your presentations and the important role you play in our economy. I've been here long enough to have heard you go through a whole cycle where you were having problems getting work and you wanted the government to expand and accelerate its capital works projects or infrastructure support because you were losing employees because they didn't have any work. Now you tell us that it's just the opposite, that you've got a shortage of labour and that your apprenticeship program is in decline.
I think one of the problems is that in today's economy, and the so-called new economy, there seems to be a premium on young people getting into the new electronic industries and it's very difficult to attract them to the kind of jobs you offer, even though they're excellent jobs.
Dr Surplis: High-paying, yes.
Mr Kwinter: So I think there's got to be an educational program to let people know that the old economy, and we've heard it earlier today, is as important as the new economy. But I think you have that challenge, because when you talk to an average student who's in school and you ask them, "What do you want to be?" I would say that very, very few of them will say, "I want to be a construction worker when I graduate."
Dr Surplis: That's right.
Mr Kwinter: I think the reason for that is because-and I don't know the answer as to why that has happened-someone who is in construction is seen to be not reaching their potential as if they were in the professions or, as I say, into this new economy.
Are you, as an industry, doing anything to address that problem?
Dr Surplis: We surely are. I'll let Gary answer in a minute, but briefly, we have initiated a major initiative in the last month with the Ministry of Training, Colleges and Universities. The deputy and I are co-chairing a task force to address this very thing. We've brought together a coalition of the entire industry-architects, engineers, home builders, apartment builders, the UDI, labour-everybody's there. We recognize the problem and we're going to have a go at addressing it.
But you're absolutely correct. We emphasize careers in construction, as opposed to jobs. I had a friend who sold his electrical company last year. There were two reasons: one, he had a fortunately mild heart attack; secondly, because he writes the cheques, he was writing cheques for more money for his workers than he was able to get out of the company himself. He was writing cheques for $110,000, $120,000, $130,000 a year. That's pretty darned fine income, but the young people don't know it. There's the dot-com thing. But Gary, you've had practical experience of that.
Mr Gary Robertson: I've sat in classrooms, I've sat in schools and made presentations. Sometimes you're viewed as coming from another planet. When you start talking about construction as a career, you lose them right away.
I think part of it, and we recognize it, is the visibility of the actual profession itself. Everybody has sort of a picture of what construction is, based on what they see. They don't really get to see behind the scenes and get involved in some of the things that take place and the reality out there. It's the same problem we face at Queen's Park. We're still not very visible within Queen's Park and yet, as David was saying, we're the second-largest industry in the province.
We suffer at the end to get people in, but we suffer from a bigger perspective too. There's not as great an appreciation of the role this industry plays in the continued economic growth of the province.
The Chair: You've got time for a quick question.
Mr Phillips: There are so many questions. The government just published its projections of population growth and it said the population will grow in the next 10 years by about 1.4 million in Ontario. Well over 80% of that growth will come through immigration. That's the huge part of our population growth.
Historically, that's been a source of some of the employees in your industry. If in fact that is going to be one of the major sources of labour force growth in the future-and by the way, Ontario's tended to cut back substantially on its settlement services, on the things where you can attract the people who want to come to Canada-have you been involved in discussions at all with the provincial government around where this is at least a part of the solution to your future problems?
Dr Surplis: We're starting down that road and perhaps you got into this with the home builders. They made an initiative with the federal government to try to relax some of the requirements and so on to allow skilled workers to come here.
The reality is apparently they don't want to come. They're doing so well in Europe now that they're not all that keen to come here, so we might not necessarily be getting the masons and the trowel people we used to get. But we are starting down that road.
Mr Christopherson: Thank you for your presentation again, David. It's good to see you. I think as the years go by we find that we have more and more in common than just our first names, which probably gives both of us sleepless nights.
I particularly wanted to just touch on a couple of those actually, the whole issue of what you just spoke about with my colleagues from the Liberal Party, about the whole idea that there's a career there in construction and it is an honourable one, and if we have time, maybe come back to the idea of why the apprenticeship programs aren't as appealing as they once were.
Besides what you've already addressed, there's got to be more to that because there's got to some awareness by some young people that either technology's just not their interest per se or they just don't have the aptitude for it. Some are good at it, some aren't. Here's an opportunity to do something else that'll give you the ability to build a good life.
Infrastructure: yes, you and I have gone on and on about that and it still remains a problem. One of these days it's going to dawn on folks. There's some initiative going on now. The province, the feds and the municipalities are coming together, but again, it's not all going into infrastructure and it's not dealing with it fully.
I'm very impressed, and always was from the first time you enunciated the notion, that, look, there's the rules and you're here to represent those employers who are playing by the rules, and those that aren't are as much a concern for you as they are for anyone else, for whatever reason. If everybody took that approach, we'd probably have a lot more going in our favour in this province.
You also raised the issue of brownfields, a particular issue in Hamilton, of course, that's coming up. Councillor Andrea Horvath, for instance, takes the lead on that in our community and that's where I wanted to ask my question, on the issue of brownfields, because eventually we're going to have to deal with it. We're just scratching the surface. The Americans are ahead of us a bit on it. But as the government finally starts to talk about the issue of urban sprawl and that it can't go on, then brownfields start to go up the priority list.
Do you have any particular approaches to it or thoughts that aren't being looked at, that should be, or that you feel strongly about one way or another?
Again, at the end of the day, we're talking so much money. It's the whole business of musical chairs: the music stops and who's left holding the bag in terms of who has the property and has responsibility under law now to clean it up, which in many cases makes it useless as a development property because of the prohibitive costs of cleaning it up. It's a problem for all of us, regardless of where on the equation you think you sit. Your thoughts on that.
Mr Robertson: You've brought up some of the projects that have taken place under the EPA program within the US, for instance. What has happened down there is that in some of the specific areas identified, such as Pittsburgh and Cleveland and some high-industry areas that have gone through a change in industry that have left some of those properties undeveloped and just basically sitting not doing anything because nobody wants to pick up the tab for cleaning up, they've developed a tax relief program in the US whereby owners of that property are able to use the cost associated with that cleanup as an actual expense in the year that it is incurred, rather than capitalizing it for the future. So they actually can write it off their income in that particular year or, if it's a significant amount, they can count it as a loss for a period of time. They can apply it retroactively two years or for the next 20 years.
What that has done is inject development. You just have to go to downtown Hamilton and take a look at some of the prime property and prime residential property that is sitting there and is not being developed because nobody wants to clean it up.
Mr Christopherson: Exactly.
Mr O'Toole: Thank you very much for your presentation. I just want to thank I guess it was Mr Kwinter who remarked on the need to educate our young people to look at the high-value trades and skills. In that respect I think the government, with the Ontario youth apprenticeship program, is moving in the right direction and in fact increasing the number of spots and the funding. I think the expansion of the post-secondary model under the new cohort, double-cohort funding-hopefully the colleges will continue to provide that sort of-not particularly not academic because I don't mean to imply that, but more skill-based learning situations. So I compliment you on that.
I have a couple of questions but I just want to make a couple of statements. You said there is no one at the cabinet table, and I take some exception to that. The government has spent a fair amount of time examining the best methodology and perhaps the best delivery model. In the previous term, the 36th Parliament, the Ontario Jobs and Investment Board, as you know, produced a specific report dealing with much of that hard and soft infrastructure. The Road Map to Prosperity document I think is a fundamentally important document looking ahead. As you probably know, growing out of that came the SuperBuild fund, which was consolidating and managing capital investment for the province of Ontario. That $10 billion intended to match some other private sector or other sector involvement to $20 billion is a pretty ambitious and efficient plan. I think the overall is to include to joint use and multipurpose in the best kind of arrangement.
I did meet yesterday with my federal counterpart and we spoke to one of the lower-tier municipalities. I was quite surprised to learn that I think on October 2, 2000, the federal government signed on to COIP, the Canada-Ontario infrastructure program. I think the five-year commit was something just over half a billion. Cast that against the $10 billion that I've mentioned and it's infinitesimal. I'm not just playing the "blame the fed" game here. What I'm trying to say is that we recognize clearly-Minister Eves and certainly the Premier, who were at the table-that the SuperBuild fund is a growth-oriented commitment.
Also OSTAR, which is part of the SuperBuild fund, is an extremely important initiative, given the fact that water and sewage issues as we know them are challenges for all of us, given the recent events at Walkerton.
The Olympic initiative that is underway-I see your pin and commend you for that, I think. I live in the GTA so will have to be mild on that one.
You've said there has been spectacular growth. I want to get back to the capacity issue is really what I'm getting to here. In the capacity of your sector, the commercial-industrial sector, it went from 6.6% to 9.2% or something like that. That's pretty specific growth, given the constraints; that is, the shortage of skilled trades, the attraction and redevelopment. We've tried, as you know, to implement some differentiation within the skill sets. One of the bills we introduced was to try and introduce some way of reskilling existing trades so they don't have to go through the whole four years of training. I'd like you to comment on that.
What is the capacity of your sector? It's at 9.2%. Given all things, SuperBuild and all the pressures, do you know what's really happening? That hospital that you said had five quotes, two were just courtesy quotes and one really didn't mean it. The price is going through the roof for most of this capital, which is another debate. But talk to the capacity, skills shortage and what we could do specifically perhaps in some of the labour issues that we've dealt with in legislation to deal with that and help you to move that number up.
Dr Surplis: The number was at $12 billion plus in 1989-90. That's sort of the benchmark for us.
Mr Phillips: Those were the days.
Dr Surplis: Those were the days, and we were growing and growing.
Mr O'Toole: That was when you doubled your debt, wasn't it?
Mr Phillips: No, no.
Dr Surplis: We just grew and grew, but that was pretty much the capacity. We were up around a 500,000 workforce and all that amount. It was really very good. Then it all dropped down.
Ms Pupatello has asked me for a chart which we have on apprenticeship. Of course it dropped like a stone, for all kinds of reasons, one of which was not necessarily that they weren't interested, but once they got interested, there was no work for them. You have to have a working spot to be an apprentice and to finish your apprenticeship. Too many gave up on that; they just couldn't find work. There are all kinds of reasons for that. But we're getting to it.
We do commend SuperBuild, all day, every day. We commend the initiatives that way. What we were saying, by the way, in terms of a champion minister is a minister who can look at the entire industry, at all our problems. For instance, we've got to go to the Attorney General for the lien act and the limitations. We've got to go to the Ministry of Labour for labour relations. We've got to go here and we've got to go there. There isn't one person who can say, "Here's what the construction industry needs." That's what we're looking for. But no, we do acknowledge SuperBuild in every way.
The Chair: On behalf of the committee, thank you very much for your presentation this afternoon.
TORONTO ASSOCIATION FOR COMMUNITY LIVING
The Chair: This next presenter this afternoon are representatives from the Toronto Association for Community Living. If you could, please, come forward and state your name for the record. You have 30 minutes for your presentation this afternoon. On behalf of the committee, welcome.
Ms June Chiu: Good afternoon, ladies and gentlemen. My name is June Chiu. I'm the president of the Toronto Association for Community Living. With me today are Agnes Samler, who's the executive director of our association, and to my left is Keith Powell, who's the executive director from our provincial organization, the Ontario Association for Community Living. To his left is Mr Frank Drasnin, who is a member of the board of directors from the Ontario Association for Community Living. I'd like to thank you for the opportunity for seeing us today.
First of all, I'd like just to say that our association supports people with an intellectual disability from birth through their senior years. Our association was established over 50 years ago when a group of parents formed the "parents' council for retarded children." This group of parents was determined not to place their children in institutions but rather to find community alternatives for them. We started by developing special schools for children who were at that time excluded from the school system for many years.
Today, we are a large association, serving approximately 5,000 individuals with an intellectual disability and their families. We offer a wide range of services, including early childhood education, employment training and placement, residential placements for adults, parent relief for children and adults, as well as case management.
As president of TACL, as it is known, I represent a membership of about 1,000 people, many of whom have family members with an intellectual disability. I myself am the mother of a daughter with significant special needs. Our daughter Nadine, known as Dee, had an intellectual as well as a physical disability. As an association, we have the support of over 800 volunteers.
Today, I would like to tell you about four major issues which face our association and indeed which face the entire sector of people with intellectual disabilities.
Our first concern: senior parents who are still supporting their adult children with an intellectual disability at home; second, school-aged children and youth whose parents are finding that their children are not included in their local schools, although that is the option supported by legislation; third, the need for government to support lifelong planning and resources for people with an intellectual disability; fourth, dangerously inadequate salaries for the workers in this field.
To start, I want you to know about a pressing problem facing an increasing number of families in the Toronto area. It is the critical issue of senior parents who are still caring for adult children at home.
In the 1930s and 1940s, if you had a child identified as being "mentally retarded," you were advised to place that child in an institution. Although this was difficult for many parents, they followed the advice of professionals and put their children into institutional care. Some parents were determined to keep their children at home. Often, they did so at great financial and personal cost to themselves and other family members. These parents were of a generation that took care of their own. They seldom asked for help from government.
Now, these same parents are aging. They are in their seventies, eighties and a few are even in their nineties. Sometimes there's only one parent still alive. Often, their adult children still need physical help with toileting and eating. These parents are tired. Other family members try to help, but they usually have families who depend on them as well, or they may not live in Toronto. In reality, very few are ready to take on the additional challenge of a sibling or family member with an intellectually disability. These parents are desperately worried. They ask what will happen to their son or daughter when they themselves become ill or die.
What makes their situation particularly unfair is the difference between how the children who are supported at home are treated and how the children who were placed in institutions are treated. We have estimated that if a child was placed in an institution in 1955, the government would have paid over $4 million to support that individual if translated into today's dollars. As institutions are closed, now each of the residents leaving an institution is guaranteed annualized funding to provide a safe place to live in the community, as well as a stimulating day program. People with an intellectual disability, living at home with senior parents right now, do not have any of those guarantees.
Yes, our sector has received $50 million in new money recently. We are very grateful for that infusion of funds, but let me tell you how woefully inadequate that really is. Some money was allocated for senior parents in Toronto. Approximately 100 Toronto senior families in great need, and who were ready to accept placement immediately, were identified. There were funds to find residential supports for the sons and daughters of only 33 of these parents, almost all of whom were over 80 years old. Still there remain at least 65 Toronto families with very senior parents who have been left in frightening uncertainty.
What we are asking for as a first step is that your government provide the opportunity for residential and day supports to every family where the primary caregiver is over the age of 65 or has a life-threatening illness. We know that some parents will choose to continue to keep their son or daughter at home, but the knowledge that the help will be there when needed will remove the tremendous burden of anxiety about their future. For other senior parents, these resources will allow them to live their final years knowing that their adult child is provided with adequate care.
Senior parents are not the only people who feel that they are up against impossible barriers. Many parents of school-age children feel the same way. As one of them said recently, "Why do we have to fight for everything, forever?"
Government regulation 181 stipulates that for children with an intellectual disability, placement in a regular classroom, with the appropriate educational support, should be considered first. We applaud this. Unfortunately, there are many barriers which stand in the way of schools and parents in making this a reality. In order to get funding for critical supports, schools and parents have to go through a long and costly procedure of testing and meetings of professionals, most of which is unnecessary. This process forces parents to present their children in the most negative possible light. Some parents even say they are made to feel guilty because they have a child with special needs.
As Dee's mother and advocate, I can remember that whenever I sought the appropriate supports for my daughter, I was often reminded that if Dee were provided with such assistance, then it would be at the expense of other students and even the school's needs. But this has not been our experience. In fact, we find that in schools where children with special needs are included, all children are more likely to be regarded as individuals.
One problem is that the school staff have not received the training and support they need to realize and to sustain an inclusive classroom environment. Regular classroom placement is often not mentioned as a possibility to parents. While we do not believe that every student with special needs requires an educational assistant, we do know that it is unreasonable to ask a teacher to support the student with special needs without extra resources.
We do believe that the school system is beginning to recognize the value of inclusion. We ask the government to play its part by supporting children in regular classrooms so that they will be fully included in our communities where, later, they will be able to make their contributions through employment, volunteering or providing examples to others through their spirit and courage.
Parents of children with an intellectual disability should not feel that they have to fight for everything forever, whether in the school system or in other social service programs. Families need the larger community of ministry agencies, service providers and the public to welcome and include their children, giving them the same opportunities to thrive as other children have.
Our third major need is for government to work with us to create lifelong planning for people with an intellectual disability. An intellectual disability is a lifelong condition, so it makes no sense to provide support for certain times in a person's life without recognizing that this same person will need different kinds of support at critical transition points throughout their lifetime. I remember how frightened and confused I was as a parent of an infant recently diagnosed as having an intellectual disability. It would have saved my husband and me years of frenzied worry if we had received supports to determine how best to help our daughter, Dee, find those opportunities to achieve her potential at the beginning of our journey and as she started school.
To have information and assistance as soon as a child is diagnosed, help to get the most appropriate schooling, extra support for transition from school to work or other productive activities are all needed. Also, as I mentioned at the outset, at the point when family can no longer provide necessary care, other ways to meet the individual's needs must be readily available.
The kind of planning for a person's entire life requires a change in approach. The government now spends a great deal of money dealing with crises. A comprehensive and supported life plan will ensure that money is spent wisely, that existing community resources are used as fully as possible and that the anguish of uncertainty is avoided.
To summarize our first three needs: the plight of senior parents requires immediate attention in the upcoming budget; facilitating the inclusion of children with an intellectual disability in the school system will require some resources, but more than that, it will require changes in current procedures and attitudes; and finally, instituting a planning approach for people with an intellectual disability which recognizes the disability as a lifelong condition will be very helpful to government, as well as to people who have an intellectual disability and their families.
As an association, we do not believe that we should sit back and let the government do everything. We feel that if we are bringing forward problems, we should also be looking for solutions. For instance, during the past year we have built on our history of partnership with the private sector to create a pilot program directed at youth 14 to 21, to assist in their transition from school to the world of work or other productive activities. By working closely with schools and private groups such as Junior Achievement, we now have a group of 50 young people who are trying different volunteer and work experiences. These young people are gaining the skills which will help them succeed in jobs and other post-school activities. Some of them have already achieved competitive employment.
Some of the initial funding for this project has come from a major bank, the Canadian Imperial Bank of Commerce, and companies, like Trimark, which believe this to be an important contribution for them to make. At this point, the government is considering this program for ongoing funding.
Now to our fourth issue of concern. We are reaching a crisis in terms of funding for staff who work with people with an intellectual disability. A recent study shows that workers in our sector receive 20% to 25% less than people doing the same work in provincial institutions or similar work in other settings. For 10 years, our staff received no increase in wages. Recently the government provided a 1% and 1.5% increase in subsidy over two years. We immediately passed this on to our staff, but it does little to stop staff from leaving the field. Often when they do leave, they talk about wanting to stay but being unable to support themselves and their families on existing salaries. Their jobs in other workplaces often pay $10,000 more per year.
Numerous vacant positions decrease the amount and the quality of support and care we can provide. At TACL, we have positions which have not been filled with permanent staff since April and August of last year. It is verified by the community colleges that people are not enrolling in the programs which train them to work in this sector. This seriously jeopardizes our ability to provide essential support in the years to come. We are facing a very dangerous situation for people with an intellectual disability and their families. This issue deserves to have top priority as you plan the next budget.
In addition to the assistance required for families and staff, we need your help on the issue of increasing costs for which there is no extra funding. Prior to January 1, 2000, we received letters from our ministry indicating that we must address the Y2K issue. We were obliged to replace most of our systems in order to be Y2K-compatible. This was very costly. We know that in the health sector, hospitals and other agencies receive funding to address these needs. We ask that you also provide similar resources to social service agencies as part of the new budget.
Pay equity and WSIB are government initiatives which have added significant costs. How can we cover these costs without further affecting the quality and the quantity of support to the people with an intellectual disability and their families?
On a positive note, the last time we spoke with you we also had a number of concerns about the implementation of a government restructuring approach called Making Services Work for People. I am delighted to report that in Toronto, by working together, government, families and agencies have taken a fresh look and developed a system which answers our previous concerns. We are now working co-operatively within the service sector and with our ministry to implement an approach which is more responsive to the needs of individuals and their families.
Let me end by thanking you for your attention and reminding you of our four greatest concerns. Senior parents and caregivers over 65 or who have a life-threatening illness and are still supporting an adult child with an intellectual disability at home need a plan which provides residential and day support resources to their family member when they require it.
There is the need of parents of school-age children to not have to fight for everything forever. This means a move in attitude to include our children in neighborhood schools. It means training for teachers and appropriate classroom resources.
Next is the importance of government supporting lifelong plans for people with an intellectual disability through recognizing and providing resources at key transitions in their lives.
Finally, the importance of a living wage for the workers who provide essential support to individuals and their families. Without this component it will be impossible to provide the necessary care for people with an intellectual disability.
I leave you with one thought. Our sons, daughters, brothers, sisters and cousins, uncles and aunts, friends and neighbours with an intellectual disability will continue to live among us, loved and valued as friends and family members. Their numbers will increase since it has become the norm for individuals with a disability to grow up and live in their communities. Our larger community and groups like our association must work hard to prevent them from experiencing a life of ever-diminishing quality where limited resources cannot meet the needs.
We look to our government for leadership. We trust that as you develop a new budget, you will bear in mind that essential supports are needed by our most vulnerable citizens so they may live and contribute in a safe and secure environment. Thank you.
The Chair: I thank you too. However, I'll take a quick question from each caucus, about 90 seconds each. Can we do it?
Mr Christopherson: I'll try. Thank you for the opportunity, Chair.
Thank you for your presentation. I wish the media were here now in the numbers they were at this morning to listen, to watch the dog-and-pony show of the minister roll in, because what we see after that is the real Ontario and the reality of what's there.
I want to ask you, because I don't imagine the government will-so far the only solution they've offered to anything is tax cuts. I'd like you to rack your brain for me and see if there's any way you can possibly conceive of further tax cuts being the solution to all the issues you've raised here. One thing about this issue is that it cuts right across income, education, geography. Many of us, myself included, have experienced individuals in our families who face the kinds of challenges you've mentioned here today. Are tax cuts going to do anything about this?
Ms Chiu: I'll answer that but I would like my colleagues here to jump in as needed. We know there are individuals in our community who require that ongoing support throughout their lives. We know the numbers will increase. Different groups around the province who provide the services are trying desperately to meet those needs and to address the upcoming needs in the future. We have to do that. We, as a humane society, must look at how we can do that in the best possible way.
Mr Arnott: I'll be very quick because Mr Galt has a question too. I just want to thank you very much for your presentation. I think you've made a very compelling case for the need for greater resources, particularly for aging parents who have a child with an intellectual disability, as you said. I would like to indicate to you that I will certainly follow up and do what I can to support you in this objective. As I said, you've made a very compelling case. I'm pleased that the government has responded with $50 million to date. If that's not enough, we need to find the resources to do what needs to be done. Thank you.
Ms Chiu: Thank you for your support.
Mr Galt: Thank you for your presentation. I've had similar presentations made to me by Chris Grayson of the Campbellford Association for Community Living, and also I've had some parents present to me. I'm coming to the question of the adult children with intellectual disabilities. Do you have any feeling as to numbers in Ontario or Toronto or a given area and the dollars that we're talking about? When we approach the Minister of Finance, we need to know what the cost would be that we're recommending to him. I certainly have empathy for your concern but I need a few more figures, if you have them.
Ms Agnes Samler: I could speak to that. We have recently done a survey just in the Toronto area, because that would give us some idea. Of the families where we had parents over the age of 65, we had 144 families that we could identify immediately. We also provided to the Ministry of Community and Social Services some indication of whether those parents would accept service immediately if it were offered or whether they might continue to have their children at home. We were hoping through this process to allow the government to make an estimate of the cost and I'm sure we could provide that across the province within a short time.
Mr Galt: And the 144 is Toronto, not greater Toronto.
Ms Samler: No, simply Toronto.
Mr Keith Powell: I'm Keith Powell. I'm the executive director of the Ontario association. Collecting data like you're suggesting is not an easy task, for a number of reasons. One is that often families who need services don't wish to come forward and put their name on a waiting list until such time as they feel it's a necessity. Additionally, some families who have been on lists, so to speak, for quite a long time have given up because the information they had back is that they'll wait for eons. So the data are questionable.
However, among the affiliated local associations in our provincial federation-and there are over 100 across the province with whom we are affiliated-we did a recent waiting list study. About 43% of our associations participated in that study and, based on the information we received back from them, we're aware that across our federation there are likely 8,700 people specifically waiting for services and identifying that they need them now. This is not a figure for the entire developmental services sector; this is for those transfer payment, service-providing organizations affiliated with OACL.
Mr Galt: Of the individuals who are challenged, 8,700 need assistance now.
Mr Powell: That's right.
Mr Phillips: Thank you for your presentation. Just a comment and then a question. One of the challenges as we move to more and more community-based care is, how do we make sure that we are actually providing for the needs? When there was an institution, whether it be a long-term-care facility or a facility for the developmentally handicapped, you could measure that. But when they're out in the community, we do not have, in my opinion, any kind of measurement at all. I'm afraid as we move to more community-based care, whether it be seniors, whether it be people with a developmental handicap, whatever, we're not going to keep in touch with those.
I'll give you my question and then maybe you can answer both of them. I've been aware for some time from the Toronto-based Association for Community Living of the major problem with salaries and almost a crisis of being able to retain staff. "Crisis" may not be too strong a word. Where do you stand on that? What has the government been saying? Are they saying, "The 1% and 1.5% should handle the problem," or "We are about ready to make a decision on whether we're going to provide more funding for that"?
Mr Powell: The minister has indicated that he knows the funding available in the sector is not adequate and has indicated that they are committed to examining and doing what they can to address the issues. I think that's probably the best answer I can give.
Mr Phillips: Is there a timetable on that?
Mr Powell: We were not given a specific timetable.
The Chair: On behalf of the committee, thank you very much for your presentation this afternoon.
WINE COUNCIL OF ONTARIO
The Chair: Our next presenters will be representatives from the Wine Council of Ontario. Please come forward and state your names for the record.
Ms Linda Franklin: I'm Linda Franklin. I'm the executive director of the Wine Council of Ontario.
Mr Bruce Walker: I'm Bruce Walker, vice-chair, Wine Council of Ontario.
The Chair: On behalf of the committee, you have 30 minutes for your presentation.
Ms Franklin: Terrific. I'm sure you've had a long day, so we won't read ad nauseam from our presentation. We have copies of it for you.
Thank you very much for seeing us today. We are here to talk about the wine industry, obviously, to share with you where we are as an industry, some exciting news about where we think the future is and how we would like the Ontario government to partner with us in reaching that future.
Many of you around the room, I know, have been involved with the wine industry in the past. Mr Kwinter and certainly Mr O'Toole know our industry. For those of you who may not be as familiar with it, we had a period of crisis about a decade ago when free trade was established. Markups, taxes, on wine for our industry used to be at 1%; foreign wines were marked up 66%. The free trade agreement equalized those markups, so now all wines in Ontario, whether they are foreign or domestic, are marked up at 58.6%. The corollary to the free trade agreement was meant to be that foreign markets would open to us and that we would have equal access to those markets.
The good news is that our industry survived that crisis. Instead of eliminating the Ontario wine industry in a couple of years, as many predicted, our industry grew stronger as a result of the free trade agreement and our need to base our industry on quality and premium wines. The VQA was established, coming out of free trade. A generic marketing campaign was put forward that really moved our industry ahead, and over the course of a short space of time our industry went from being, in consumer perception, "Well, gee, they're OK value, not great quality, wouldn't take them to a friend's house," to now being in a position where consumers overwhelmingly believe we make wonderful wines. They come down to wine country; they visit all the wonderful properties that are in Niagara and southwestern Ontario. There has been an enormous transformation in our industry.
On the down side, though, the free trade agreement has not opened foreign markets to our products. We still find ourselves competing in our shelves in Ontario with highly subsidized foreign wines that get enormous subsidies from their home governments to market in our province. In Europe alone it's $6 billion a year. In the United States there's a $10-million fund that goes directly into exports, primarily directed at Ontario. So there are clearly issues for our industry.
We're growing as an industry, we've made a lot of strides, but we are very concerned about the future of the industry going forward. After several years of impressive growth with the establishment of the VQA, in the last two or three years our market share has started to slide. At one point, just about three or four years ago, we had a 47% share of the wine market in Ontario. It's now down to about 41%. Most of that is attributable, again, to foreign subsidies in marketing programs, trade commissions that run programs of advertising for their members, run promotions in the liquor control board. So we're fighting tremendous competition.
At the same time, we are facing, in the not-too-distant future, a global glut of wine. The Australians are planting enormous acreages right now. They're still planting in Europe. Tremendous plantings are coming on stream in California. The number one export destination for all those products is Ontario. It's the most open market available to foreign producers of wine. Again, their markets are not open to us.
So we have an enormous challenge in the industry: translating the image successes we've managed to achieve with consumers into retail sales success and into a program where we can beat foreign wine producers at their own game and really move ahead and advance the industry in Ontario.
As a result of those challenges, we have spent the past year working with government to develop a long-term strategic plan. It's just being finalized now. The documents that we're circulating to you have a big glossy colour document that is the first piece of that strategic plan that deals with retailing and marketing of Ontario wine. We believe that plan, if properly executed, is going to transform our industry. It envisions taking us from an industry that sells about $350 million of wine today to an industry that sells $1.5 billion of wine in 20 years. It has a tremendous impact on jobs. It will create about 10,000 new jobs in the Niagara region. It envisions planting every single acre of available land in the Niagara and southwestern Ontario areas that are suitable to grapes. It means sustainable economic development in areas of the province that are particularly hard hit by downsizing in industry. It means retaining agricultural land as agricultural. It means supporting grape growers who right now are one of the few success stories in agriculture in terms of what they're able to make from their land and the sustainability of their land.
It has enormous impacts for the Ontario economy, not only in jobs but also in economic impact generally. Every $10 million of Ontario wine sales produces about $14 million in economic activity in the province. Of course, as we increase wine sales, we also increase provincial revenues in terms of taxes. Again, from the years before free trade, when our industry paid about $2 million in taxes on markups to the provincial government, today we pay $150 million a year in taxes just through markups. About $200 million in taxes from an industry that makes $325 million worth of wine is a tremendous amount of tax, as you can imagine. So we are major contributors to the provincial economy and its revenues from taxes. We believe this plan achieves the ends of boosting the economy, boosting the industry, encouraging agriculture to continue in Niagara and increasing the revenues to the provincial government.
For all of those reasons we think the strategic plan is important. It creates very high goals for the industry in terms of growth over the next few years, but we believe those growth challenges are attainable. The Australian wine industry about five years ago developed a 25-year strategic plan for exports. At the time they were thought of as crazy, frankly, because the targets were so high. But as of this year they have now shelved that strategic plan, because they're within a year of reaching their 25-year target, six years into the plan. The California wine industry, again, working off a strategic plan, has grown in its own market 12% a year for the past decade, even though they already own about 90% of their home market. We have tremendous room for growth, only owning about 41% of the market. I can't imagine, frankly, why in Ontario you would want to sell a foreign wine if you could sell an Ontario one with all of its ancillary benefits. We believe we can get there.
The plan obviously is going to take financial resources to achieve. We believe it's going to require about $1.2 billion in capital expenses over the next 20 years: cooperage facilities, planting of vineyards, buying of land. Our industry is prepared to take on that investment. It also envisions about $12 million a year against marketing the industry and fighting foreign competitors' marketing dollars in our home market. Again, our industry is prepared to take on that challenge. We believe we can create a pot of money that comes close to meeting our needs, but we're not quite there. That's where we would ask for help within the budget this year from the government.
As you know, we are a fairly heavily taxed industry. There is very little that can be done about that in terms of markups on wine because those are regulated by trade restrictions. But there is one tax in the province that is specific only to Ontario wineries and that is the retail store tax that's placed on wine that is sold by wineries, either in their own stores or when they sell directly to restaurants. That tax is 2% on the value of the wine. It brings in about $2.2 million a year to the coffers of the government of Ontario. What we would like to see is two things from the budget.
First is the elimination of that tax. Our industry has agreed that should the tax be eliminated they would be prepared to invest the entire tax through the Wine Council of Ontario in generic marketing of the industry to boost our smaller, newer players, to give a heightened profile to VQA and to provide a pot of money that would help us master our own market against our foreign competitors. We think that's a critical element of making this plan work. We don't think it can work without that investment, and we think it's one way that the Ontario government can help level the playing field a little against our foreign competitors, by reducing the tax burden on our industry. Most wine industries worldwide are taxed at a much, much lower level than we are. In the United States it's a question of pennies a litre. In our case, a $7 bottle of wine generates about $2.50 for the producer and the rest is tax. We'd like to see some of that money made available to the industry in order to boost sales. We think it's an investment, frankly, by the government. We believe we can return far more than the $2 million a year we're asking for with the advancement of this strategic plan.
The other thing we're proposing is that the government consider a superallowance for the planting of vineyards. Vineyards are already tax deductible in the federal government. We would like to see an additional 10% or 15% allowance over and above that to encourage growers to buy up agricultural land, to plant it with vineyards, to preserve that land in Niagara against housing development on rural lands. Frankly, this plan will not work if we keep losing agricultural land in Niagara and southwestern Ontario to building and development. We believe that with that sort of incentive we can incent the growers to plant the rest of the available lands over the next 20 years and to really grow our industry.
That, in short, is our plan. We're very excited by it. We're at a critical junction in the history of this industry, and we believe that we can produce a very exciting future for the industry with a strategic plan in place. We think that our request is within an appropriate range. As I say, it's an investment. We think we'll return more money to you over a short period of time, and over the long term we think it has huge potential for the province.
I don't know whether Bruce has anything to add.
Mr Walker: Not a lot, Linda.
I would just add to what Linda has presented in terms of this as an investment in Ontario. When we came at this as a strategic workshop a year ago, when we came to the bottom line of it all, we saw clearly what we as an industry had to invest in our future, in our own future, in a sustainable agricultural-based future. As Linda has indicated, we, as an industry, have put our money forward in this plan to the tune of about $12 million of the amount that we need for a generic annual campaign to get us kick-started again and to grow again in absolute terms and in market share growth.
Also, I want to add in the tourism factor. Wine country, wherever it is in the world-Napa Valley, Bordeaux, Loire, Tuscany, Australia now, the Barossa Valley and so on-is a tourism destination. Half a million people go through our wineries every year, and that's just over the course of basically the late spring and late fall. We are clearly drawing people, not only from outside the country but Ontarians travelling in Ontario and stimulating the economy in Ontario, because we have clearly established a grape and wine region with world-class wines.
I'll just add a little snippet. I also, in my day job, work for one of the wine companies, Vincor, and just by way of establishing the credentials of the bench in the Niagara region, we this past year announced a joint venture with the Boisset family out of Burgundy, France, who have judged that the soil, climate and total growing conditions on the bench in the Jordan area actually suits Chardonnay and Pinot Noir so well, they want to put their stamp on them and sell those wines worldwide. The vineyards are planted as we speak, and I think Frank Ghery is the architect who's going to build the winery. He's already designed it, so I'm pretty excited about that.
By way of the establishment of credentials, of a reputation that speaks for itself-tasting is believing, I guess-we believe we have a future and we're darn well going to make it happen.
The Chair: Thank you very much. We have approximately four minutes per caucus, and I'll start with the government side.
Mr Galt: Thank you very much for your presentation. It was extremely well done. Thank you for the revenue you create for the province of Ontario. Congratulations on the product. I believe it was black arm bands that your industry was wearing back in 1988 or 1989-quite a turnaround when the challenge is there.
I think you must have missed, and you don't owe us an apology-you talked about the growth of grapes in the Niagara Peninsula and southwestern Ontario. Don't forget Prince Edward county. We even have some into Northumberland, and there are wine courses now being given at Loyalist college in Belleville. So it is moving into eastern Ontario and I think there is a great future for it there as well.
I also have an interest in it because my in-laws grew grapes in the Niagara Peninsula throughout their lifetime. Consequently, whenever we're on a flight and wine is being offered, my wife always asks for Canadian wines. I'm left wondering why on Air Canada, the federal crown corporation, unless in recent years, you could not get a Canadian wine. They didn't even carry it. They didn't even have it there as backup. You'd think at least they'd have a little bit as backup for somebody who asked for it. Hopefully that has turned around in the last year or so, and it may have and I may be outdated in my question.
Ms Franklin: It hasn't, actually. But the good news is that British Airways now carries Henry of Pelham.
Mr Galt: British Airways now carries Canadian wines, but Air Canada doesn't.
Ms Franklin: Exactly.
Mr Walker: I just flew Air Canada the other day and it's a tad frustrating. I joined this industry back in the early 1980s with Andrés Wines and have worked in the wine industry on both sides of this fair country, and every time you sit down with a marketing plan it's, "How can we address the issue, the opportunity, of airline distribution and particularly Air Canada and Canadian?" Canadian actually was more amenable and had taken some of the wines on, but at the end of the day you'll only get Canadian wines limited in business class, poured from the bottle. In order to quote on airline business, you go to their head offices and they tend to be staffed by what I'll refer to as wine snobs, Europeans, very often, by birth who really don't consider any wine a pedigree wine unless it comes from France, Germany or Italy.
That's always the tough part, to get by-the purchasing agents for Canadian Airlines and Air Canada historically have been Europeans. So it's been tough, plus you have to quote so low that you can't make anything at it, so it's a marketing cost. You basically quote at cost. But I don't want to drag it out. It's been a struggle and we're not giving up.
Mr Galt: When asked, the steward or stewardess's standard response is, "There's no interest in it. That's not what people want. You must be from the Niagara Peninsula." We say, "No, we're not. We're just interested in Canadian wines." You write to the president of the company and, "Oh, nobody ever asks for it," is the type of response we get back.
But I think it's interesting that you're saying other airlines now carry Canadian wines but a Canadian crown corporation won't support a Canadian industry, yet they expect Canadian industry to support them.
Ms Franklin: Interestingly enough, the South African airline industry, for example, proudly displays and showcases South African wines. Part of their brochures and their materials to travellers is that they are a proud sponsor of the South African industry. It could be a plus for the airlines but we haven't been able to make them feel-
Mr Galt: Maybe we can understand why the demise may be coming for that particular airline.
The Chair: Mr O'Toole, you've got time for a quick one.
Mr O'Toole: Thank you very much, Linda and Bruce. I agree with you that it is a modern-day success story, and without dwelling on that, that reflects well on the government as well. From the points you've made here, I'm certain the new Minister Sterling is no stranger to that, as he was there at the beginning, so I'm sure he will be able to pick up that quite quickly.
I do hear the two specific challenges of the 2% retail as well as the tax credit, as you put it, for the revitalization of the industry. It looks like it's an investment, not a tax thing. Certainly, based on past performance, the future looks like it's a good investment.
The Chair: The official opposition.
Mr Kwinter: Thank you very much for your presentation. I was looking around the room and I'm the only person in this room who lived through what happened in 1985-86-87, when I was a minister.
Mr Phillips: I was alive then but I didn't-
Mr Kwinter: You were alive. I have to tell you that at that time, the reputation of Ontario wine was that it was plonk. People would be embarrassed to take a bottle of Ontario wine to a dinner party because it would be seen to be less than acceptable, notwithstanding that the Italian or French wines they took that were imported into Canada were worse than the Ontario wines. Even at their worst, it didn't make any difference. It had the French or the Italian label and that's all that mattered.
It was part of our government, and we just happened to be in the right place at the right time and we were receptive. We put in this program to convert all of the labrusca grapes to viniferas. What you're seeing now is the result of that change. We have the Chardonnays and the Rieslings and all of those things that are being grown. We took it to that step, and I think the time now is to take it to the next step, because Ontario wines have an excellent reputation as long as people get a chance to try them and as long as people get a chance to know them. Certainly our ice wines have got a world-class reputation and I know that Inniskillin's ice wine-I don't know what the year was, 1997 or-
Mr Walker: I think it was 1993. They won the grand gold medal.
Mr Kwinter: They won the grand wine at-
Mr Walker: Vinexpo.
Mr Kwinter: -at Vinexpo. Not only that, but I've seen the evolution of the tourism aspects of the wineries and I've seen the expansion into these other parts of Ontario. I think it's absolutely incumbent upon us to build on that particular base that has developed over the last 15 years. Not only that, but in your brief-I went through it very quickly-there is a halo effect to a very viable wine industry that has an impact on other areas of tourism and the impression that people have of your particular jurisdiction. So I am very supportive and very sympathetic. I just wish you well and hope that some of the things that are these irritants, these trade irritants in particular, where these European countries insist that they have access to our markets but balk at us having access to their markets-to me that is just unconscionable.
As I say, I am totally supportive and I hope that your presentation falls on receptive ears and that somewhere along the line we take it to the next step, which I think is absolutely critical. If you have any comments, I'd be happy to hear them.
Ms Franklin: I think we'd be remiss, as Mr O'Toole and Mr Kwinter both pointed out, in not crediting the Ontario government over lo, these many years-Liberals, Conservatives and NDPs alike-because we have had as an industry tremendous governmental support for that transition. As you say, Mr Kwinter, if it hadn't been for that intervention at the end of the 1980s and the early 1990s, the industry would not have survived. We often I think are held up, and rightly so, as a stunningly good example of what happens when a government-and-industry partnership works, and works well, and it certainly has.
Mr Christopherson: Thank you for your presentation. I think it's probably one of the few presentations we're likely to hear where there's close to unanimity on the issues, although I'm sure we'll work hard and find a way to disagree. It's our nature.
Mr Christopherson: Yes, I'll just keep talking my way into that, Gerry.
I appreciated the fact that you mentioned that both our government, the NDP government, and the Liberal government had also played a role. That's appreciated very much. I guess the only thing I really wanted to touch on was the issue of the farmland, just to get it on the record, the rate at which we're losing what has now been clearly identified as world-class growing land. Maybe you could just put a little bit of meat to the bone on that issue for me.
Ms Franklin: This is an issue of enormous concern to us. It has been for a long time, but as we developed the strategic plan it came into much clearer focus, because we are looking at planting twice as many acres as are currently under production, and that will barely get us to our goal, frankly. At the same time that's going on, we are seeing tremendous development pressures, particularly in the Niagara region. The microclimate in Niagara means that it's one of very few growing areas-Prince Edward county along with southwestern Ontario around Pelee Island being the others-where, unless global warming takes hold tremendously, we will ever grow vinifera grapes for fine wines. So it's critically important that that land be preserved, and as you say, day by day we're seeing encroachments, extensions of the urban boundaries, new housing developments going in, even a case of housing developments in the Niagara Escarpment plan area. So it's a really critical issue to us.
One of our members whom many of you will know, Donald Ziraldo from Inniskillin, has been pushing the idea in recent months of creating a land preserve in Niagara, similar to what was done in Napa and similar to what was done in British Columbia, to protect the grape-growing regions. At the end of the day eventually they'll protect themselves, because when the wine industry really takes off, agricultural land becomes the most valuable land on the planet. It's certainly true in Burgundy; it's true in a lot of the European countries that produce fine wine. In Niagara we haven't got to the point yet where as agricultural land it's more valuable to the grower who owns it than it is if you hand it to a developer. We really do need to work at preserving that land until we can get it to the point where it's so valuable in its own right that it will never be subject to development issues.
We have a land use committee right now in the Wine Council. We're struggling a bit with this issue. We know the growers won't be with us because frankly there are issues of land severance. If you own the property and you need to make money for your retirement, you want to sever the land. But if that's allowed to continue and development continues, we won't be looking at expanding the industry because there simply won't be any agricultural land left to do it.
Mr Christopherson: Yes, at the end of the day it's going to be another one of those philosophical questions that we look at in terms of individual rights versus collective rights. We're hearing that there's a collective rights issue here as a business, both for this generation and future generations, so it's not always cut and dried when we deal with those kinds of things.
Just sort of a housekeeping kind of thing, but given the aggressiveness of your plan-and it is very impressive, by the way, aggressive and impressive-I'm just curious about the makeup of the council itself. Is it mandatory for members to belong? You gave the assurance that there could be close to-was it $1.2 billion, I think you said?
Ms Franklin: It is $1.5 billion.
Mr Christopherson: Over 20 years. Obviously that means you've got commitments from your members. I'm just wondering how your organization lines up members and how many growers are members and what is their commitment to stay there, just that sort of structural thing I'm interested in.
Ms Franklin: The Wine Council is a voluntary organization, so it's not a requirement to join. Having said that, our membership represents 99% of the wine that's made in the province today. There are 42 members of our board right now. They're all directors so they all sit around our board table. We've had an awful lot of input from them as we developed this plan, and at the end of the day that meant commitment at the end of it. Andrés and Vincor, who represent between them about 75% or 80% of the wine production, are both signed on to this plan, are wholeheartedly in favour of it and are prepared to spend. So are our mid-sized wineries and our small wineries. There's something in it for everybody. Everybody recognizes the need to do this, so we can deliver on that commitment. We are not an association that includes growers at the moment. We're looking at advisory councils, actually, because they exist in other countries and jurisdictions. They don't exist in Ontario, but we work fairly closely with the Ontario Grape Growers' Marketing Board. As of yet we don't have a commitment of funding from them, but we're hoping to get that commitment on the table as well.
The Chair: on behalf of the committee, thank you very much for your presentation.
Mr O'Toole: Mr Chair, I would like to correct the record. In Durham region there's Ocala winery and Archibald Orchards. Since the member for Northumberland went to some extent, I would be remiss, since this is televised, not to speak up.
The Chair: They did mention southwestern Ontario.
Mr O'Toole: Ocala is a very inventive micro-winery.
Ms Franklin: The Ocala folks actually are members of the VQA. They make great wine now-wonderful people, lovely people to deal with. On page 3, Mr Galt, we do reference Prince Edward county as an emerging wine region.
Mr Walker: And we welcome new regions, because I think it's not so long ago that-
The Chair: Mr O'Toole, thank you very much for bringing a different dimension to the discussion.
Again, thank you very much for your presentation.
Ms Franklin: You're entirely welcome. Thank you for the time.
CENTRE FOR EQUALITY RIGHTS IN ACCOMMODATION
The Chair: Our next presenter, and the last presenter for this afternoon, is the representative from the Centre for Equality Rights in Accommodation. Could you please come forward and state your name for the record.
Mr John Fraser: My name is John Fraser. I'm program coordinator with the Centre for Equality Rights in Accommodation.
The Chair: On behalf of the committee, welcome. You have 30 minutes for your presentation this afternoon.
Mr Fraser: I know it's the end of the day so don't worry, I won't go that long.
I work with the Centre for Equality Rights in Accommodation. We're a provincial non-profit human rights and housing organization. We've been around for about 15 years in Ontario and we primarily work with low-income households, individuals-primarily families-who are trying to get access to rental housing but are having a difficult time. I'm going to talk a little bit about what we feel is a need for a provincial housing allowance program in Ontario.
When the Ontario Progressive Conservative Party came to power in 1995, they came with a very explicit platform, the Common Sense Revolution. Part of this platform was a promise to introduce a shelter subsidy program for all Ontarians who need help affording a decent level of shelter. It is now 2001 and the need for such a program is staggering. It's greater than could have been imagined in 1995. But unfortunately, while the government has made much of keeping the promises made in the Common Sense Revolution, this is one commitment that we feel has been conspicuously neglected.
Over the past five years, low- and moderate-income tenants have seen their housing options virtually disappear. A combination of factors, including a booming urban economy, rent decontrol of vacant units and an almost complete lack of new supply of rental units, has led to rapidly increasing rent levels across the province. Combined with stagnating or even declining tenant incomes, this increase in rent has made housing affordability a major problem for a large proportion of tenants in Ontario. Thousands of individuals and families are being forced to double up with friends or family, to live in low-quality or inappropriate housing, or to lose their apartments altogether because their incomes have failed to keep pace with housing costs across the province.
One thing that tenant and housing advocates have appealed for repeatedly is to address the lack of new rental housing in the province. The virtual absence of new units coming on to the market is a fundamental problem. We emphatically support these efforts, and it's something that certainly you've heard of in the news over the past few years. However, in our view, to adequately address the needs of thousands of households with desperate affordability problems, we must also consider the depth of poverty among renters in Ontario. Whether they live in communities where available rental housing is scarce, such as Toronto, which has a 0.6% vacancy rate, or where supply is not such a problem, such as Sudbury, where the vacancy rate is close to 8%, increasing numbers of tenants are finding that their incomes are not sufficient to cover housing costs.
These individuals and families can't wait for affordable housing to be built. They need assistance immediately. If they could wait, it would almost certainly be in vain, because for the foreseeable future, even if social housing programs were reinstated at their early 1990 levels, the vast majority of low-income renters would still rely on the private rental market for their housing needs; that's just the reality. So to address this problem, CERA proposes that the provincial government implement a housing allowance program for low-income households in Ontario.
Though a provincial rent supplement program was introduced in January 2000, it is intended to reach just over 5,000 households, and as of December 2000 has assisted just over one third of this number. It's clearly not a program for all Ontarians who need help in affording a decent level of shelter. As this paper will document, the current rent supplement program does not scratch the surface, unfortunately, of the problems faced by Ontario's low- and moderate-income tenants.
Across the province, average rents have increased significantly over the past five years. For example, the average rent for a two-bedroom apartment has increased by 22% in Toronto, 18% in Hamilton, 10% in Windsor and 19% in Ottawa. Rent increases over the past year were particularly dramatic. The average rent for a two-bedroom apartment in Ontario increased by 5.6%, which is double the inflation rate over the same period. In the Ottawa CMA, Canada's tightest rental market, the rent for a two-bedroom apartment increased by a staggering 12%.
These statistics, however, do not reflect the magnitude of the problems of housing costs in Ontario. The CMHC average rents that we are using here are calculated using rents for vacant and occupied units. Since occupied apartments tend to have significantly lower rents than vacant apartments of the same size, these average rents that I'm talking about significantly underestimate the actual rent that a prospective tenant searching for housing will experience in the rental market.
Similarly, utilities are not always included when calculating the average rents. For example, though the average rent for a two-bedroom apartment in Hamilton is relatively low at $719 per month, only 35% of the apartments that went into that survey to generate that average included hydro costs in their rent. So these average costs actually are significantly lower than what someone would be actually experiencing if they were looking for housing.
In terms of affordability and income, in 1995, 45% of renter households in Ontario were paying greater than 30% of their income toward rent; 22% were paying more than 50%. This means that over 300,000 households in Ontario were paying more than half of their income toward rent. While it is tempting to treat this as a "big city" issue, limited to places like Toronto and Ottawa that have extremely tight rental markets, research actually suggests that affordability problems are widespread across the province, regardless of vacancy rates. Many municipalities with relatively high vacancy rates in 1995, such as Sudbury, North Bay, Muskoka, Cornwall and Timmins, actually had a higher proportion of renter households paying more than 50% of their income on rent than the provincial average.
These affordability problems have almost certainly increased in the intervening years, as tenant incomes have just not kept pace with increasing rents. This is particularly true of the most disadvantaged renters in Ontario, people who are working at a minimum wage or people on social assistance. The minimum wage has not increased in the intervening five years and social assistance incomes have actually declined. We have every reason to believe that these figures that I've stated earlier, in terms of affordability problems, have actually gotten much worse in the past five years.
To really get at the problem, we have to go beyond looking at the statistics and look at actual case examples. This is not a theoretical case example. This is quite in line with the experiences of people we deal with every day. If we look at, for example, Mary, a single parent with one child receiving Ontario Works, most landlords in Ontario would insist that Mary rent a two-bedroom apartment so that she and her child could each have their own room. However, as figure 3 illustrates, in Toronto Mary would have to pay close to 90% of her income to rent such an apartment. This would leave her with about $116 a month to cover an entire month's worth of food, clothing and entertainment. Even in Hamilton, where the rents are significantly cheaper, Mary would likely be paying close to 70% of her income on rent. It is important to stress that this average rent that we're using here is probably not what Mary would experience. She would experience rent far higher than this if she was actually looking for an apartment. Should Mary actually find a landlord who would rent her and her child a one-bedroom apartment, in Toronto she would still have to pay close to 80% of her income on rent, and in Hamilton it would be over 50%.
Families relying on social assistance in Ontario must pay an inordinate amount of their income on rent; that is just the present reality. These households make up close to 25% of all tenants in Ontario, a significant number of people.
If we look at the affordability squeeze for someone who is actually in paid employment in a minimum wage job, we would find that a single parent with one child working full time at minimum wage would likely have to give up three quarters of her paycheque for rent if she lives in Toronto. In Hamilton, she would likely have to pay approximately 55% of her income toward rent, in Ottawa 67%, and in Windsor 56%. So there is a clear mismatch between rent levels and incomes for thousands of low- and moderate-income families in Ontario. They just do not have enough money after paying the rent to adequately cover the costs for food, clothing and other necessities.
It should not be surprising, given this information, that in March 2000 over 280,000 people in Ontario utilized food banks. When a household is paying up to 90% of its income on rent, hard decisions have to be made. The provincial government needs to address the fact that its most disadvantaged citizens are being forced to live in substandard accommodation or forgo basic necessities in order to keep a roof over their heads.
While we agree the provincial government needs to definitely take action to promote the production of new rental units, this alone, in our opinion, will not solve the housing problems faced by low- and moderate-income Ontarians. It is equally essential that the province address the growing gap between housing costs and tenant incomes. To this end, CERA proposes a provincial housing allowance program to help bridge this gap. Two principles should be key to the program to make it effective and equitable:
Universality is the first principle. This program should be available to every household in need. It's hard to justify not making it available to everyone in need and to limit it to only certain households who are in need.
Flexibility is the second key to the program. This means it should actually be a shelter allowance program as opposed to what's called a "rent supplement" program; that is, the funds should not be tied to specific units, but should go directly to eligible households, much like a tax benefit. This would maximize the housing options of these households and ensure that the effectiveness of the program was not dependent on individual landlords "signing on" to the program, which appears to have been a problem with the current rent supplement program, because a lot of landlords just aren't signing on to the program and, as a result, they haven't been able to use all the supplements they've had available.
The program could be set up much like the federal national child benefit. For example, eligibility would be based on an income cut-off and the housing allowance provided would be based on household size and composition. To be effective and in compliance with provincial human rights legislation, the housing allowance program must be available to both people receiving social assistance and low-income households in paid employment. It should not be clawed back from people on social assistance.
CERA recommends that all households that would be paying more than 50% of their income to rent an appropriate-sized apartment in their community be eligible for this housing allowance. The allowance provided will be based on the number of dependants in the household, and there will be a maximum.
There's no magic number for what the maximum would be, but we believe that setting a maximum at $300 per month would provide significant assistance to individuals and families living in poverty. At the same time, we also feel it would also be sustainable, either by the province alone or through a federal-provincial cost-sharing agreement. If we estimate that approximately 400,000 households would currently be eligible for the program, and the average monthly allowance was about $200, the housing allowance program would cost approximately $960 million.
While this seems like a lot of money, it's actually an appropriate correction, in our opinion, to the recent deterioration of income transfers to low-income households specifically for shelter costs. The reality in Ontario, unfortunately, is that the gap between rent levels and tenant incomes has grown hugely and has been left unchecked over the past number of years. As a result, hundreds of thousands of tenants are in desperate need. However, as the provincial government has stated, welfare reforms alone have had cumulative savings of $8.2 billion over the past five years. In the year 2000, annual expenditures on welfare were almost $3 billion less than they were in 1995. This means the government is spending at least $1.5 billion less, approximately, in income transfers to low-income families for the shelter allowance component of social assistance each year. It is time to put some of this money back into the pockets of the neediest households in Ontario to ensure that they have access to secure, affordable housing.
In conclusion, I just want to say that each year the provincial government spends millions of dollars to manage or contain Ontario's rental housing crisis. The current response to the crisis, which leans heavily toward emergency services, in our view is just not cost-effective and ultimately does little to reduce the suffering of the thousands of Ontarians who cannot afford their housing costs.
A universal, flexible shelter allowance program would allow the province to follow through on an election promise that has been overlooked for almost six years. More significantly, it would be the province's first new initiative that addresses a fundamental cause of homelessness and housing insecurity in Ontario: the mismatch between tenant incomes and housing costs. A province as wealthy as Ontario, in a country as wealthy as Canada, cannot permit close to half a million of its citizens to live on incomes that place access to a basic necessity and a fundamental human right in jeopardy or out of reach. Thank you very much.
The Chair: Thank you. We have approximately five minutes per caucus. I'll start with the official opposition, Mr Kwinter.
Mr Kwinter: Thank you for your presentation. You really touched on a very basic problem that we have. I see it every day in my riding. The reason I say "every day" is because I happen to be a Toronto member and my constituents have access to me every day. It's really heart-wrenching. I have people coming in to see me and they say they're seniors who are on fixed income. Their income is some 900-odd dollars a month and their rent is some 800-odd dollars a month. They tell me they've got less than $100 to last them for the whole month for everything else they need.
The problem-and we heard it from the Toronto home builders-is that there is absolutely no incentive for a builder-developer to build rental accommodation. The land costs him the same, whether he builds a condo or whether he builds rental accommodation. The bricks and mortar cost the same. The services cost the same. Everything costs the same, other than he may put in more luxurious finishes because it's a condo and he wants to sell it. But the basic costs are there. If you divide the costs with the number of units, in order for him to get the kind of rent that makes it economically feasible, it's out of reach of these people, who can't afford it. So there's no way the private sector can come to the table. Notwithstanding what they said, that they're building condos that are being rented, they are for a sector of the community that can afford the down payment and then to carry it, but it can't address the problem you've identified.
The only way-and this is what the government kept sort of heralding when they went along, saying, "We're not prepared to put money into bricks and mortar. We're going to give it to the people as a shelter allowance." They've never delivered on that. I think that is a critical problem and it's going to get worse, because as we go along, more and more people are finding that they can't afford to live anywhere. They just don't have the income, so they take to the streets and we have the homeless. It's just accelerating at a very quick rate.
I'm almost disillusioned, because even the recommendation that you make, what you call this $200 shelter allowance, might have some impact but is not going to go anywhere near to addressing the problem. Do you have any thoughts on that?
Mr Fraser: That's true. This would just be something we said would make it easier for people, but affordability problems would still exist. Unfortunately, it's gotten to such a level, that gap between incomes and housing costs, that it would be very difficult to completely close that gap, at least in the short term. That's why we suggest at this point sort of an interim measure of providing up to potentially $300 a month to someone.
With the people we work with, that would make a difference. If someone is earning $997 a month from Ontario Works and needs to rent a $700 or an $800 apartment, having potentially $200 or $300 a month will make a difference to that family. It won't remove their affordability problems, but we think it will make a difference, especially if this is done in conjunction with efforts to increase the supply of affordable housing, which is also desperately needed. I think we have to think of this as one component of a larger strategy to address homelessness and the housing crisis in Ontario. This has to go along with a bricks-and-mortar approach at the same time.
Mr Christopherson: I'm pleased to hear you add the last bit, because everything was focusing here on a subsidy program, when there is a good economic argument to make, given that the dollars you're spending and the dollars required ultimately to close the gap would be better spent building bricks and mortar. It's there for a rotation of people in need, and once it's paid for, like any other facility, the people of Ontario have paid for it, they own it and it becomes their asset. But you're right; we're not going to see that from this government probably at all, let alone in the short term. So I can understand why you've gone this way, but I was glad to hear you emphasize that at the end of the day that really is the prudent thing to do.
Mr Fraser: Yes, exactly. But I want to stress also that even if you look at the proposals that are made to increase the supply of housing in terms of the number of units to be made, it's not going to address the affordability problems of people in need. We're not going to build enough affordable housing. Even if we do the ideal number, for example, that the 1% solution is suggesting for the federal government, it's not going to build enough housing to deal with the affordability problems people have. That's why we feel it has to be done in conjunction with income supports at the same time, to be equitable.
Mr Christopherson: Two quick things: I would imagine, given the growing number of people who are paying a greater percentage of their income for shelter-and it's amazing the numbers you've got: 85%, 90%-that's got to mean there are a whole lot of folks who perceive themselves to be in the middle class or were previously in the middle class who are sliding down. These growing numbers have to come from somewhere. I don't imagine that the super-rich in Ontario are suddenly becoming super-poor overnight. It suggests to me that what we're seeing is a draining of middle-class income into what we would call modest or lower income, ultimately into poverty. Is that your sense of things?
Mr Fraser: Definitely that could be one of the explanations. I also think we have to recognize that there were massive cuts to social assistance benefits in 1995 and that's had a huge impact on the affordability problems of low-income people in Ontario. Also, the reality is that a lot of jobs are being created in Ontario but a high proportion of those jobs are low-paying service sector jobs. More and more people are having to rely on a minimum wage income and support a family on a minimum wage income.
Mr Christopherson: Yes, and you've raised it. This is the first time ever that I can recall-I've been sitting in these kinds of hearings for an awful long time and three or four times now we've heard minimum wage raised as a key issue. It's just mind-boggling that the government refuses to accept the fact that they've got an obligation to raise that minimum wage at least to the level of where the American minimum wage is, as a bare minimum.
I also want to ask you about the role that eliminating-the government still says they have rent control, but you and I both know the reality is that it's not there. I would assume-and correct me if I'm wrong-that the reintroduction of real rent control would play a positive role in keeping prices at an affordable level?
Mr Fraser: We definitely believe that. We would support that. We feel that vacancy decontrol or the removal of rent control on vacant units has contributed significantly to the rise in rents that we've seen in the past years.
Mr Christopherson: Thank you. I can assure you we'll continue to do what we can, but it's good that you were here today making the case. A good presentation.
Mr O'Toole: Thank you, Mr Fraser, for your presentation and for your statistics. No one would disagree about the basic necessity of shelter and the importance of providing some platform of stability in one's life-a family or an individual-so you won't find any disagreement with that. The solutions and policies certainly will differ, but I suspect the rent control argument could be cast over the history and would say that we probably ended up with a decline of landlords or developers in rental property because of the controls.
There were issues. Infrastructure, balconies were in some need of repair, and they couldn't pass those real costs on. Some of the revisions to rent control were intended to address that. I think you've mentioned that some of the numbers reflect the fact that if you stay in your accommodation, there is still a cap on rent increases. That's part of it.
I have a couple of policy questions that you may want to respond to. I'm just going to go through them. Even when I wasn't in the room, I was in an office and I was watching and listening. The fact that municipalities on multi-residential have a tax rate that's higher than residential and it is consumed in the rent, and that factor is 1.4 or 1.6 times residential, perhaps you could look at that in some way that could provide relief at another level on the assessment base and spread it over other property classes. That's a choice that Mel and other municipal politicians have to directly affect the actual cost of rent.
Then there's the issue of paying rent and subsidies directly to the landlord, so you have these disputes of who gets the rent and evictions and the legal implications of costs. There seems to be some resistance to paying the legal subsidies or rents directly to the landlord on behalf of the social assistance recipient. Certainly if there was this translation of more dollars into rent subsidies, that would be one way of making sure it was spent on accommodation and shelter. That's not to question that people don't have other commitments, but certainly we've established that having proper and adequate and safe shelter is a platform or starting point.
The other thing is the whole issue of apartments in houses and being legal or non-conforming. I know personally in my area there are a lot of apartments in homes that don't fall into this market kind of dimension, and they do fill an important need, so you may want to comment on that.
My last remark, all looking for some response, is that I'd be alarmed if the $200 or $300, if that was the number that came out sometime-with the proper conditions I suppose something could and should happen. Would it not just pass on into the market rent equation? If landlords saw there was more money there-it gets consumed by the market pressures themselves. How do you suggest we somehow get into controlling so that we don't have a massive move? Say we wanted to subsidize a particular market. You mentioned that Ottawa was the worst for vacancies. What if we did put a special subsidy in there? There potentially would be an exodus of people to where they got the shelter subsidies.
So there are some policy questions all lumped together there-other than just a direct infusion of money.
Mr Fraser: With respect to your last comment, that's why I think this does need to be done in conjunction with supply side measures. Particularly in regions like Toronto and Ottawa, that have very low vacancy rates, a lot of effort will also have to be put in on the supply side to make sure there is an infusion of new rental housing so you don't get that problem that you're discussing.
What was your first question about?
Mr O'Toole: Multi-res tax rates.
Mr Fraser: Right, exactly. We support that completely and, again, we think that would be part of an overall strategy, that renters should not be paying at a higher municipal tax rate than homeowners. That makes total sense. We definitely support that and think municipalities should be charging multi-unit residential buildings at the same tax rate they are charging homeowners, and not at an inflated rate.
In terms of the idea of the rent supplement targeted to housing costs and being paid to the landlord, as opposed to being paid to an individual, our view is that housing is a fundamental necessity; it's not something people would really scrimp on. So we don't see it as being this big problem that people are going to get a $200 or maybe $300 housing allowance per month and this is not going to go toward making their life more livable, given the housing circumstances. It's not going to suddenly make people rich. I don't think that would really be a problem in terms of concern that this money is not being directed actually to housing costs. Again, given the fact that low-income people's monthly income is just so out of whack with what rent levels are, I don't think you have to worry about it not going to the right place. I do think there is a concern about it being given directly to landlords, because of the issues you raised earlier. I think that is a concern and I also think it severely restricts the choice of the people who are looking for housing. It restricts their ability to find the most appropriate housing for them and locks them into the particular private units that would accept rent supplements or would have rent supplements.
The Chair: With that, Mr O'Toole, we have run out of time.
On behalf of the committee, thank you very much for your presentation. I would also like to thank all the committee members for being here on time and for the way we've handled the questions and conducted the meeting on time today.
This committee will reconvene tomorrow morning at 10 o'clock. We are now adjourned.
The committee adjourned at 1756.